Resolution No. 2020-005RESOLUTION NO. 2020-05
A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF
VERNON AUTHORIZING AND APPROVING THE ISSUANCE OF
WATER SYSTEM REVENUE BONDS; APPROVING THE INDENTURE
OF TRUST PURSUANT TO WHICH SUCH BONDS ARE TO BE
ISSUED; APPROVING A DISCLOSURE DOCUMENT, A CONTRACT
OF PURCHASE, A CONTINUING DISCLOSURE AGREEMENT AND
OTHER DOCUMENTS IN CONNECTION WITH 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 Article II of the
City's Charter and the City of Vernon Municipal Facilities Revenue Bond
Law, constituting Article XI of the City Code of the City, to issue
bonds, notes and other obligations payable from the Net Revenues of the
Water 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 that are used in
the Water System; and
WHEREAS, the City desires to provide for the issuance of its
Water System Revenue Bonds, 2020 Series A (with such changes to such
name as an Authorized Officer (as defined herein) may approve, the
"Bonds") payable from the Net Revenues of the Water System for the
purposes of financing certain capital improvements (the "2020 Project")
to its Water System, paying costs of issuance of the Bonds and, if
necessary, funding a deposit to (or procuring a letter of credit,
insurance policy or other facility (each, a "reserve surety") to
provide for the funding of) a reserve fund for the Bonds; and
WHEREAS, the Bonds are to be issued under and pursuant to an
Indenture of Trust, by and between the City and The Bank of New York
Mellon Trust Company, N.A., as trustee (such Indenture of Trust in the
form attached hereto as Exhibit B with such changes, insertions and
deletions as are made pursuant to this Resolution, the "Indenture");
and
WHEREAS, the Bonds are to be secured by revenues of the Water
System to the extent set forth in the Indenture; and
WHEREAS, J.P. Morgan Securities LLC, as underwriter (the
"Underwriter"), has submitted a proposal to purchase the Bonds in the
form of a Contract of Purchase (such Contract of Purchase, in the form
attached hereto as Exhibit C with such changes, insertions 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
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 D with such changes, insertions and
deletions as are made pursuant to this Resolution, being referred to
herein as the "Preliminary Official Statement"); and
WHEREAS, Rule 15c2-12 requires that, in order to be able to
purchase or sell the 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 Bonds to
provide disclosure of certain financial information and operating data
and certain enumerated events on an ongoing basis; and
WHEREAS, in order to cause such requirement of Rule 15c2-12
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to be satisfied, the City desires to enter into a Continuing Disclosure
Agreement with the Trustee (such Continuing Disclosure Agreement, in
the form attached to the form of the Preliminary Official Statement
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, in compliance with Senate Bill 450 (Chapter 625 of
the 2017-2018 Session of the California Legislature), which added
Section 5852.1 to the California Government Code, the City has obtained
from the Underwriter or the City's financial advisor required good
faith estimates relating to the Bonds, and such estimates are disclosed
and set forth in Exhibit A hereto; and
WHEREAS, there have been submitted to this meeting drafts of
the following:
(1) the Indenture;
(2) the Purchase Contract; and
(3) the Preliminary Official Statement, including the
Continuing Disclosure Agreement; and
WHEREAS, after having reviewed and considered the proposal of
the Underwriter to purchase the Bonds on the terms and conditions
contained in the Purchase Contract, this City Council now desires to
authorize the issuance and sale of the 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
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finds and determines that the above recitals are true and correct.
SECTION 2: The City Council of the City of Vernon finds
that this action is exempt under the California Environmental Quality
Act (CEQA) in accordance with Sections 15060(c)(3), 15378(b)(4), and
15378(b)(5) because the activity approved by this Resolution relating
to the refinancing or funding of previously -approved projects will not
result in direct or indirect physical changes in the environment and,
therefore, is not a "project," as defined in Section 15378 of the CEQA
Guidelines.
SECTION 3: The City Council of the City of Vernon hereby
approves the Indenture, in substantially the form attached hereto as
Exhibit B, and made a part hereof as though set forth in full herein.
SECTION 4: The City Council of the City of Vernon hereby
authorizes the Mayor, the Mayor Pro Tem, the City Administrator and the
Finance Director/City Treasurer (each an "Authorized Officer"), acting
singly, to execute and deliver the 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 Indenture, said execution being conclusive
evidence of such approval, and the City Clerk is hereby authorized to
attest thereto.
SECTION 5: The City Council of the City of Vernon hereby
authorizes and approves, subject to the limitations specified in this
Resolution, the issuance of the Bonds on the terms and conditions set
forth in the Indenture. The aggregate principal amount of the Bonds
shall not exceed $15 million dollars ($15,000,000). The 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
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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 Indenture as the same is completed as
provided in this Resolution, provided that no Bond shall bear a stated
rate of interest in excess of 5.50% per annum.
SECTION 6: The City Council of the City of Vernon hereby
authorizes the Authorized Officer executing the Indenture, subject to
the limitations set forth in Section 5 hereof and in this Section 6, to
determine the following: (i) the maturity date or dates of the Bonds
(but no Bond shall mature later than August 1, 2050); (ii) the
principal amount of the Bonds maturing on each maturity date; (iii) the
interest rate or rates for the Bonds maturing on each maturity date;
(iv) the maturity or maturities, if any, of the Bonds to be redeemed or
paid at maturity from sinking fund installments (the "Term Bonds");
(v) the sinking fund installments for the Term Bonds; and (vi) the
redemption provisions for the Bonds.
SECTION 7: The net proceeds received on the sale of the
Bonds shall be applied to such purposes as are set forth in the
recitals to this Resolution in the manner provided in the Indenture.
SECTION 8: The City Council of the City of Vernon hereby
approves the Purchase Contract, in substantially the form attached
hereto as Exhibit C, and made a part hereof as though set forth in full
herein. Each Authorized Officer, acting singly, is hereby authorized
to execute and deliver the Purchase Contract, 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 Purchase Contract, said execution being
conclusive evidence of such approval, and the City Clerk is hereby
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authorized to attest thereto.
SECTION 9: The City Council of the City of Vernon hereby
authorizes the Authorized Officer executing the Purchase Contract to
determine the purchase price to be paid for the Bonds under the
Purchase Contract; provided, however, that the aggregate Underwriter's
discount (not including original issue discount which shall not exceed
15% of the aggregate principal amount of the Bonds) for the Bonds shall
be not more than 0.5% of the aggregate principal amount of the Bonds.
SECTION 10: The City Council of the City of Vernon hereby
approves and authorizes the sale of the Bonds 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.
SECTION 11: The City Council of the City of Vernon hereby
approves the Preliminary Official Statement, in substantially the form
attached hereto as Exhibit D, and made a part hereof as though set
forth in full herein. 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 D 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
terms of the Bonds), said delivery being conclusive evidence of such
approval.
SECTION 12: The City Council of the City of Vernon hereby
authorizes and approves the use of the Preliminary Official Statement
in connection with the offering and sale of the Bonds by the
Underwriter, including delivery of the Preliminary Official Statement
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in electronic form. 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.
SECTION 13: The City Council of the City of Vernon hereby
approves the preparation and delivery to the Underwriter of a final
Official Statement (the "Official Statement") relating to the Bonds,
and its use by the Underwriter in connection with the offering and sale
of the Bonds, including delivery of the Official Statement in
electronic form. 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 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 14: The City Council of the City of Vernon hereby
approves the Continuing Disclosure Agreement, in substantially the form
attached to the Preliminary Official Statement attached hereto as
Exhibit D, and made a part hereof as though set forth in full herein.
Each Authorized Officer, acting singly, is hereby authorized to execute
and deliver the Continuing Disclosure Agreement, in the name of and on
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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 Continuing Disclosure Agreement, said execution
being conclusive evidence of such approval, and the City Clerk is
hereby authorized to attest thereto.
SECTION 15: The City Council of the City of Vernon hereby
approves the appointment of The Bank of New York Mellon Trust Company,
N.A., as Trustee under and pursuant to the Indenture, with the powers
and duties of said office as set forth therein.
SECTION 16: The City Council of the City of Vernon hereby
authorizes the Authorized Officers: (i) to solicit bids on a municipal
bond insurance policy and/or reserve surety for the benefit of the
Bonds; (ii) to negotiate the terms of such policy or policies; (iii) to
finalize, if appropriate, the form of such policy or policies with a
municipal bond insurer; and (iv) if it is determined that the policy or
policies will result in net savings for the City, to pay the insurance
premium of such policy or policies from the proceeds of the issuance
and sale of the Bonds.
SECTION 17: The City Council of the City of Vernon hereby
authorizes the Mayor, the Mayor Pro Tem, the City Administrator, the
Finance Director/City Treasurer, the City Clerk, the City Attorney, the
Director of Public Utilities and any other proper official, officer or
employee of the City, acting singly, be and each of them 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, the
giving of any notices and directions or the seeking of any consents or
acknowledgements in connection with the issuance and sale of the Bonds,
the execution of any agreement related to municipal bond insurance or
a reserve surety for the Bonds and the authorization, execution,
delivery of, and the performance by the City of its obligations under,
the documents and instruments approved or authorized by this
Resolution.
SECTION 18: The City Council of the City of Vernon hereby
ratifies, approves and confirms 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 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.
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SECTION 19: The City Clerk of the City of Vernon shall
certify to the passage, approval and adoption of this resolution, and
the City Clerk of the City of Vernon shall cause this resolution and
the City Clerk's certification to be entered in the File of Resolutions
of the Council of this City.
APPROVED AND ADOPTED this 18th day of February, 2020.
ATTEST:
P rL Rgr&
Lisa Pope, Ci Clerk
APPROVAP AS TO FORM:
Brian yun,
Senior Deputy City Utorney
Name Melissa• W Sba=a
Title: Mayor
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STATE OF CALIFORNIA )
ss
COUNTY OF LOS ANGELES )
I, Lisa Pope, City Clerk of the City of Vernon, do hereby certify
that the foregoing Resolution, being Resolution No. 2020-05, was duly
passed, approved and adopted by the City Council of the City of Vernon
at a regular meeting of the City Council duly held on Tuesday, February
18, 2020, and thereafter was duly signed by the Mayor or Mayor Pro-Tem
of the City of Vernon.
Executed this Ar day of February, 2020 at Vernon, California.
Lisa Pope, Ci y Clerk
(SEAL)
EXHIBIT A
GOVERNMENT CODE SECTION 5852.1 DISCLOSURE
The following information consists of estimates that have been provided by the
Underwriter and has been represented by such party to have been provided in good faith:
(A) True Interest Cost of the Bonds: 3.30%
(B) Finance Charge of the Bonds (Sum of all fees/charges paid to third parties):
$470,000
(C) Net Proceeds of the Bonds to be Received (net of finance charges, reserves
and capitalized interest, if any): $15,000,000
(D) Total Payment Amount through Maturity of the Bonds: $25,908,878
The foregoing constitute good faith estimates only. The principal amount of the Bonds,
the true interest cost of the Bonds, the finance charges thereof, the amount of proceeds
received therefrom and total payment amount with respect thereto may differ from such good
faith estimates due to: (a) the actual date of the sale of the Bonds being different than the
date assumed for purposes of such estimates; (b) the actual principal amount of Bonds sold
being different from the estimated amount used for purposes of such estimates; (c) the actual
amortization of the Bonds being different than the amortization assumed for purposes of such
estimates; (d) the actual market interest rates at the time of sale of the Bands being different
than those estimated for purposes of such estimates; (e) other market conditions; or (f)
alterations in the City's financing plan, or a combination of such factors.
The actual date of sale of the Bonds and the actual principal amount of Bonds sold
will be determined by the City based on a variety of factors. The actual interest rates borne
by the Bonds will depend on market interest rates at the time of sale thereof. The actual
amortization of the Bonds will also depend, in part, on market interest rates at the time of sale
thereof. Market interest rates are affected by economic and other factors beyond the control
of the City.
EXHIBIT A
EXHIBIT A
GOVERNMENT CODE SECTION 5852.1 DISCLOSURE
The following information consists of estimates that have been provided by the
Underwriter and has been represented by such party to have been provided in good faith:
(A) True Interest Cost of the Bonds: 3.30%
(B) Finance Charge of the Bonds (Sum of all fees/charges paid to third parties):
$470,000
(C) Net Proceeds of the Bonds to be Received (net of finance charges, reserves
and capitalized interest, if any): $15,000,000
(D) Total Payment Amount through Maturity of the Bonds: $25,908,878
The foregoing constitute good faith estimates only. The principal amount of the Bonds,
the true interest cost of the Bonds, the finance charges thereof, the amount of proceeds
received therefrom and total payment amount with respect thereto may differ from such good
faith estimates due to: (a) the actual date of the sale of the Bonds being different than the
date assumed for purposes of such estimates; (b) the actual principal amount of Bonds sold
being different from the estimated amount used for purposes of such estimates; (c) the actual
amortization of the Bonds being different than the amortization assumed for purposes of such
estimates; (d) the actual market interest rates at the time of sale of the Bonds being different
than those estimated for purposes of such estimates; (e) other market conditions; or (f)
alterations in the City's financing plan, or a combination of such factors.
The actual date of sale of the Bonds and the actual principal amount of Bonds sold
will be determined by the City based on a variety of factors. The actual interest rates borne
by the Bonds will depend on market interest rates at the time of sale thereof. The actual
amortization of the Bonds will also depend, in part, on market interest rates at the time of sale
thereof. Market interest rates are affected by economic and other factors beyond the control
of the City.
EXHIBIT B
Stradling Ymm Carlson & Pa th
Draft of 1130120
INDENTURE OF TRUST
Dated as of March 1, 2020
By and between
THE BANK OF NEW YORK MELLON TRUST COMPANY, N.A.,
as Trustee
and the
CITY OF VERNON
Relating to
S
CITY OF VERNON
WATER SYSTEM REVENUE BONDS, 2020 SERIES A
TABLE OF CONTENTS
Section 1.01.
Section 1.02.
Section 1.03.
Section 2.01.
Section 2.02.
Section 2.03.
Section 2.04.
Section 2.05.
Section 2.06.
Section 2.07.
Section 2.08.
Pare
ARTICLE I
DEFINITIONS; CONTENT OF CERTIFICATES AND OPINIONS
Definitions..............................................................................................................2
Content of Certificates and Opinions.................................................................... 11
Interpretation. ........................................................................................................ 12
ARTICLE B
THE 2020 BONDS
Authorization of 2020 Bonds................................................................................
13
Terms of the 2020 Bonds......................................................................................
13
Transfer of 2020 Bonds........................................................................................
14
Exchangeof 2020 Bonds......................................................................................
14
RegistrationBooks................................................................................................
14
Form and Execution of 2020 Bonds.....................................................................
15
2020 Bonds Mutilated, Lost, Destroyed or Stolen. ...............................................
15
BookEntry System...............................................................................................
16
ARTICLE III
ISSUANCE OF 2020 BONDS; APPLICATION OF PROCEEDS
Section 3.01.
Issuance of the 2020 Bonds..................................................................................
18
Section 3.02.
Application of Proceeds of the 2020 Bonds.........................................................
18
Section 3.03.
Establishment and Application of Costs of Issuance Fund ...................................
19
Section 3.04.
Validity of 2020 Bonds.........................................................................................
19
Section 3.05.
Acquisition Fund..................................................................................................
19
Section 3.06.
Changes to the 2020 Project.................................................................................
19
ARTICLE IV
REDEMPTION OF 2020 BONDS
Section 4.01.
Terms of Redemption...........................................................................................
20
Section 4.02.
Selection of 2020 Bonds for Redemption.............................................................
20
Section 4.03.
Notice of Redemption...........................................................................................
21
Section 4.04.
Partial Redemption of 2020 Bonds.......................................................................
21
Section 4.05.
Effect of Redemption............................................................................................
21
ARTICLE V
REVENUES,
FUNDS AND ACCOUNTS; PAYMENT OF PRINCIPAL AND INTEREST
Section 5.01.
Pledge and Assignment; Revenue Fund...............................................................
22
Section 5.02.
Allocation of Revenues.........................................................................................
23
TABLE OF CONTENTS
(continued)
Pare
Section 5.03.
Application of Interest Account............................................................................
24
Section 5.04.
Application of Principal Account.........................................................................
24
Section 5.05.
Application of Redemption Fund.........................................................................
24
Section5.06.
Investments ...........................................................................................................
24
Section5.07.
Rebate Fond..........................................................................................................
25
Section 5.08.
Establishment and Application of Rate Stabilization Fund ..................................
26
Section5.09.
Reserve Fund........................................................................................................
27
Section 5.10.
Application of Funds and Accounts When No 2020 Bonds are Outstanding.......
27
ARTICLE VI
PARTICULAR COVENANTS
Section 6.01.
Punctual Payment.................................................................................................
28
Section 6.02.
Extension of Payment of 2020 Bonds..................................................................
28
Section 6.03.
Against Encumbrances.........................................................................................
28
Section 6.04.
Power to Issue 2020 Bonds and Make Pledge and Assignment ...........................
28
Section 6.05.
Accounting Records and Financial Statements....................................................
28
Section 6.06.
Tax Covenants......................................................................................................
29
Section 6.07.
Waiver of Laws.....................................................................................................
30
Section 6.08.
Further Assurances...............................................................................................
30
Section6.09.
Budgets.................................................................................................................
30
Section 6.10.
Observance of Laws and Regulations...................................................................
30
Section 6.11.
Compliance with Contracts...................................................................................
30
Section 6.12.
Prosecution and Defense of Suits.........................................................................
30
Section 6.13.
Continuing Disclosure ..........................................................................................
31
Section 6.14.
Additional Contracts and Bonds...........................................................................
31
Section 6.15.
Against Sale or Other Disposition of Property .....................................................
32
Section 6.16.
Against Competitive Facilities.............................................................................
32
Section 6.17.
Maintenance and Operation of the Water System ................................................
32
Section 6.18.
Payment of Claims................................................................................................
32
Section6.19.
Insurance...............................................................................................................
33
Section 6.20.
Payment of Taxes and Compliance with Governmental Regulations ..................
33
Section 6.21.
Amount of Rates and Charges..............................................................................
34
Section 6.22.
Collection of Rates and Charges...........................................................................
34
Section 6.23.
Eminent Domain Proceeds...................................................................................
34
Section 6.24.
Enforcement of Contracts.....................................................................................
35
ARTICLE VB
EVENTS OF DEFAULT AND REMEDIES OF 2020 BOND OWNERS
Section 7.01.
Events of Default..................................................................................................
35
Section 7.02.
Remedies Upon Event of Default.........................................................................
36
Section 7.03.
Application of Revenues and Other Fonds After Default .....................................
36
Section 7.04.
Trustee to Represent 2020 Bond Owners.............................................................
37
Section 7.05.
2020 Bond Owners' Direction of Proceedings.....................................................
38
Section 7.06.
Suit by Owners .....................................................................................................
38
TABLE OFCONTE TY
(continued)
Page
Section 7.07. Absolute Obligation of the City ............................................................................ 39
Section 7.08. Remedies Not Exclusive....................................................................................... 39
Section 7.09. No Waiver of Default........................................................................................... 39
ARTICLE VIII
THE TRUSTEE
Section 8.01.
Duties, Immunities and Liabilities of Tmstee......................................................
39
Section 8.02.
Merger in Consolidation.......................................................................................
40
Section 8.03.
Liability of Trustee...............................................................................................
41
Section 8.04.
Right to Rely on Documents.................................................................................
43
Section 8.05.
Preservation and Inspection of Documents..........................................................
44
Section 8.06.
Compensation andIndemnification......................................................................
44
ARTICLE IX
MODIFICATION OR AMENDMENT OF THE INDENTURE
Section 9.01.
Amendments Permitted........................................................................................
44
Section 9.02.
Effect of Supplemental Indenture.........................................................................
46
Section 9.03.
Endorsement of 2020 Bonds; Preparation of New 2020 Bonds ...........................
46
Section 9.04.
Amendment of Particular 2020 Bonds.................................................................
46
ARTICLE X
DEFEASANCE
Section 10.01. Discharge of Indenture......................................................................................... 46
Section 10.02. Discharge of Liability on 2020 Bonds.................................................................. 47
Section 10.03. Deposit of Money or Securities with Trustee....................................................... 47
Section 10.04. Payment of 2020 Bonds After Discharge of Indenture ......................................... 48
ARTICLE XI
MISCELLANEOUS
Section 11.01.
Liability of City Limited to Revenues..................................................................
48
Section 11.02.
Successor Is Deemed Included in All References to Predecessor ........................
48
Section 11.03.
Limitation of Rights to Parties and 2020 Bond Owners .......................................
48
Section 11.04.
Waiver of Notice; Requirement of Mailed Notice ................................................
49
Section 11.05.
Destruction of 2020 Bonds...................................................................................49
Section 11.06.
Severability of Invalid Provisions........................................................................49
Section11.07.
Notices..................................................................................................................49
Section 11.08.
Evidence of Rights of 2020 Bond Owners...........................................................49
Section 11.09.
Disqualified 2020 Bonds......................................................................................
50
Section It. 10.
Money Held for Particular 2020 Bonds................................................................
50
Section 11.11.
Funds and Accounts..............................................................................................
50
iii
TABLE OF CONTENTS
(continued)
Pare
Section 11.12.
Waiver of Personal Liability.................................................................................
50
Section 11.13.
Execution in Several Counterparts.......................................................................
51
Section 11.14.
CUSIP Numbers ...................................................................................................51
Section 11.15.
Choice of Law.......................................................................................................
51
Section 11.16.
Paired Obligation Provider Guidelines.................................................................
51
Signatures
S-1
Exhibit A Form of 2020 Bond............................................................................................. A-1
Exhibit B Description of2020 Project................................................................................ B-1
iv
INDENTURE OF TRUST
TIES INDENTURE OF TRUST is made and entered into and dated as of March 1, 2020 (the
`Indenture'), by and between the CITY OF VERNON, a municipal corporation that is duly
organized and existing under its charter and the Constitution of the State of California (the "City"),
and THE BANK OF NEW YORK MELLON TRUST COMPANY, N.A., a national banking
association that is duly organized and existing under the laws of the United States of America, as
trustee hereunder (the "Trustee').
RECITALS
A. The City desires to finance certain capital improvements to its municipal water
system.
B. The City is authorized pursuant to Article H of the City's charter and Article XI of the
City's Code of Ordinances to issue revenue bonds for the purpose of financing capital improvements
to its municipal water system; and.
C. In order to provide for the authentication and delivery of water revenue bonds (the
"2020 Bonds"), to establish and declare the terms and conditions upon which such 2020 Bonds are to
be issued and secured and to secure the payment of the principal thereof and interest and premium, if
any, thereon, the City has authorized the execution and delivery of this Indenture.
D. The City has determined that all acts and proceedings which are required by law and
necessary to make the 2020 Bonds, when executed by the City, authenticated and delivered by the
Trustee, and duly issued, the valid, binding and legal special obligations of the City, and to constitute
the Indenture a valid and binding agreement for the uses and purposes herein set forth in accordance
with its terms, have been done and taken, and the execution and delivery of the Indenture have been
in all respects duly authorized;
GRANTING CLAUSES
The City, in consideration of the premises and the acceptance by the Trustee of the trusts
hereby created and of the mutual covenants herein contained and of the purchase and acceptance of
the 2020 Bonds by the owners thereof, and for other valuable considerations, the receipt whereof is
hereby acknowledged, in order to secure the payment of the principal of and the interest and
premium (if any) on all 2020 Bonds at any time issued and Outstanding under the Indenture,
according to their tenor, and to secure the performance and observance of all the covenants and
conditions therein and herein set forth, does hereby assign and pledge unto, and grant a security
interest in, the following (the "Trust Estate") to the Trustee, and its successors in tout and assigns
forever, for the securing of the performance of the obligations of the City to the 2020 Bond Owners
hereinafter set forth:
FIRST
All right, title and interest of the City in and to the Revenues (as such term is defined herein),
including, but without limiting the generality of the foregoing, the present and continuing right to
make claim for, collect, receive and receipt for any Revenues payable to or receivable by the City
under the Constitution of the State, the Government Code of the State, the Indenture, the charter of
the City and any other applicable laws of the State or otherwise, to bring actions and proceedings
thereunder for the enforcement thereof, and to do any and all things which the City is or may become
entitled to do thereunder, subject to the terms hereof.
SECOND
All moneys and securities held in funds and accounts of this Indenture, except amounts
which are held in the Rebate Fund, and all other rights of every name and nature from time to time
herein or hereafter by delivery or by writing of any kind pledged, assigned or transferred as and for
additional security hereunder to the Trustee by the City or by anyone on its behalf, or with its written
consent, and to hold and apply the same, subject to the terms hereof.
TO HAVE AND TO HOLD all and singular the Trust Estate, whether now owned or
hereafter acquired, unto the Trustee and its respective successors in trust and assigns forever for the
benefit of the Owners, and such pledge shall constitute a lien on and security interest in such Trust
Estate;
IN TRUST, upon the terms and trusts herein set forth for the equal and proportionate benefit,
security and protection of all present and future owner: of the 2020 Bonds issued under and secured
by the Indenture without privilege, priority or distinction as to the lien or otherwise of any of the
2020 Bonds over any of the other 2020 Bonds;
PROVIDED, HOWEVER, that if the City, its successors or assigns shall well and truly pay,
or cause to be paid, the principal of and interest and any redemption premium on the 2020 Bonds due
or to become due thereon, at the times and in the manner provided in the 2020 Bonds according to
the true intent and meaning thereof, and shall well and truly keep, perform and observe all of the
covenants and conditions pursuant to the terns of the Indenture to be kept, performed and observed
by it, and shall pay or cause to be paid to the Trustee all sums of money due or to become due in
accordance with the terms and provisions hereof, then upon such final payments or deposits as herein
provided, the Indenture and the rights hereby granted shall cease, terminate and be void; otherwise
the Indenture shall remain in full force and effect.
It is expressly declared that all 2020 Bonds which me issued and secured hereunder me to be
issued, authenticated and delivered, and all sold property, rights and interests, including, without
limitation, the Revenues, which are hereby assigned and pledged, are to be dealt with and disposed
of, under, upon and subject to the terns, conditions, stipulations, covenants, agreements, trusts, uses
and purposes hereinafter expressed, and the City has agreed and covenanted and does hereby
covenant and agree with the Trustee, for the benefit of the respective Owners from time to time of the
2020 Bonds, as follows:
ARTICLE I
DEFINITIONS; CONTENT OF CERTIFICATES AND OPINIONS
Section 1.01. Definitions. Unless the context otherwise requires, the terns defined in this
Section 1.01 shall, for all purposes of the Indenture and of any indenture supplemental hereto and of
any certificate, opinion or other document herein mentioned, have the meanings herein specified, to
be equally applicable to both the singular and plural forms of any of the terms herein defined.
Accountant's Report. The tern "Accountant's Report" means a report signed by an
Independent Certified Public Accountant.
Acquisition Fund. The term "Acquisition Fund" means the fund by that name created
pursuant to Section 3.05 of the Indenture.
Authorized Representative. The term "Authorized Representative" means, with respect to
the City, its Mayor, Mayor Pro Tempore, City Clerk, City Administrator, Finance Director or any
other person designated as an Authorized Representative of the City by a Certificate of the City
signed by its Mayor, Mayor Pro Tempore, City Clerk, City Administrator or Finance Director and
filed with the Trustee.
Bond Counsel. The tern "Bond Counsel" means Stradling Yocca Carlson & Rauth, a
Professional Corporation, or another firm of nationally recognized attorneys experienced in the
issuance of obligations the interest on which is excludable from gross income under Section 103 of
the Code.
Bonds. The tern "Bonds" means all revenue bonds or notes of the City authorized, executed,
issued and delivered by the City, the payments of which are payable from Net Revenues on a parity
with the 2020 Bonds and which are secured by a pledge of and lien on Revenues as described in
Section 5.01 hereof.
Bond Year. The tern "Bond Year' has the meaning that is set forth in the Tax Certificate.
Business Day. The term "Business Day" means: (1) a day which is not a Saturday, Sunday
or legal holiday on which banking institutions in the State, or in any other state in which the Office of
the Trustee is located, we closed; or (2) a day on which the New York Stock Exchange is not closed.
Certificate; Direction Request; Requisition. The terms "Certificate," "Direction," "Request"
and "Requisition" of the City mean a written certificate, direction, request or requisition signed in the
name of the City by its Authorized Representative. Any such instrument and supporting opinions or
representations, if any, may, but need not, be combined in a single instrument with any other
instrument, opinion or representation, and the two or more so combined shall be read and construed
as a single instrument. If and to the extent required by Section 1.02, each such instrument shall
include the statements provided for in Section 1.02.
CC. The term "City" means the City of Vernon, a municipal corporation that is duly
organized and existing under its charter and the Constitution of the State of California.
Closing Date. The term "Closing Date" means the date on which the 2020 Bonds are
delivered to the original purchaser thereof.
Code. The term "Code" means the Internal Revenue Code of 1986, as amended.
Continuing Disclosure Agreement. The term "Continuing Disclosure Agreement" means the
Continuing Disclosure Agreement dated as of March 1, 2020, by and between the City and the
Trustee, as dissemination agent, relating to the 2020 Bonds, as originally executed or as it may be
from time to time amended or supplemented in accordance with its terms.
Contracts. The term "Contracts" means all contracts of the City previously or hereafter
authorized and executed by the City, the payments under which are payable from Net Revenues on a
parity with the 2020 Bonds and which are secured by a pledge and lien on Revenues as described in
Section 5.01 hereof, but excluding contracts entered into for operation and maintenance of the Water
System.
Costs of Issuance. The term "Costs of Issuance" means all items of expense directly or
indirectly payable by or reimbursable to the City and related to the authorization, issuance, sale and
delivery of the 2020 Bonds, including but not limited to costs of preparation and reproduction of
documents, printing expenses, filing and recording fees, initial fees and charges of the Trustee and
counsel to the Trustee, legal fees and charges, fees and disbursements of consultants and
professionals, rating agency fees, title insurance premiums, letter of credit fees and bond insurance
premiums (if any), fees and charges for preparation, execution and safekeeping of the 2020 Bonds
and any other cost, charge or fee in connection with the original issuance of the 2020 Bonds.
Costs of Issuance Fund. The term "Costs of Issuance Fund" means the fund by that name
established pursuant to Section 3.03.
Debt Service. The tern "Debt Service" means, for any period of calculation, the sum of.
(1) the interest payable during such period on all outstanding Bonds, assuming
that all outstanding serial Bonds are retired as scheduled and that all outstanding term Bonds are
redeemed or paid from sinking fund payments as scheduled (except to the extent that such interest is
capitalized or is reasonably anticipated to be reimbursed to the City by the United States of America
pursuant to Section 54AA of the Code (Section 1531 of Title 1 of Division B of the American
Recovery and Reinvestment Act of 2009 (Pub. L. No. 111-5, 23 Stat. 115 (2009), enacted February
17, 2009)), or any future similar program);
(2) those portions of the principal amount of all outstanding serial Bonds
maturing in such period;
(3) those portions of the principal amount of all outstanding term Bonds required
to be redeemed or paid in such period; and
(4) those portions of the Contracts required to be paid during such period, (except
to the extent that the interest evidenced and represented thereby is capitalized or is reasonably
anticipated to be reimbursed to the City by the United States of America pursuant to Section 54AA of
the Code (Section 1531 of Title f of Division B of the American Recovery and Reinvestment Act of
2009 (Pub. L. No. 111-5, 23 Star. 115 (2009), enacted February 17, 2009)), or any future similar
program);
but less the earnings to be derived from the investment of moneys on deposit in debt service reserve
funds established for Bonds or Contracts;
provided that, as to any such Bonds or Contracts bearing or comprising interest at other than a fixed
rate, the rate of interest used to calculate Debt Service shall, for all purposes, be assumed to bear
interest at a fixed rate equal to the higher of:
(1) the then current variable interest rate borne by such Bonds or Contracts
plus 1%; and
(ii) the highest variable rate home over the preceding 24 months by
outstanding variable rate debt issued by the City or, if no such variable rate debt is at the time
outstanding, by variable rate debt of which the interest rate is computed by reference to an index
comparable to that to be utilized in determining the interest rate for the debt then proposed to be
issued;
provided further that if any series or issue of such Bonds or Contracts have twenty-five percent
(25%) or more of the aggregate principal amount of such series or issue due in any one year, Debt
Service shall be determined for the period of determination as if the principal of and interest on such
series or issue of such Bonds or Contracts were being paid from the date of incurrence thereof in
substantially equal annual amounts over a period of twenty-five (25) years from the date of
calculation; and
provided further that, as to any such Bonds or Contracts or portions thereof bearing no interest but
which are sold at a discount and which discount accretes with respect to such Bonds or Contracts or
portions thereof, such accreted discount shall be treated as interest in the calculation of Debt Service;
and
provided further that if the Bonds or Contracts constitute Paired Obligations, the interest rate on such
Bonds or Contracts shall be the resulting linked rate or the effective fixed interest rate to be paid by
the City with respect to such Paired Obligations, but only if the applicable Paired Obligations
satisfies the requirement set forth in Section 11.16 hereof; and
provided further that the amount on deposit in a debt service reserve fund (including the Reserve
Fund) on any date of calculation of Debt Service shall be deducted from the amount of principal due
at the final maturity of the Bonds and Contracts for which such debt service reserve fund was
established and to the extent that the amount in such debt service reserve fund is in excess of such
amount of principal, such excess shall be applied to the full amount of principal due, in each
preceding year, in descending order, until such amount is exhausted.
Deoositorv; DTC. The term "Depository" or "DTC" means The Depository Trust Company,
New York, New York, a limited purpose trust company organized under the laws of the State of New
York, in its capacity as securities depository for the 2020 Bonds.
Event of Default. The term "Event of Default" means any of the events specified in Section
7.01
Federal Securities. The term "Federal Securities" means any direct, noncallable general
obligations of the United States of America (including obligations issued or held in book entry form
on the books of the Department of the Treasury of the United States of America), or noncallable
obligations the timely payment of principal of and interest on which are fully and unconditionally
guaranteed by the United States of America.
Fiscal Year. The term "Fiscal Year' means the twelve month period beginning on July I of
each year and ending on the next succeeding June 30, both dates inclusive, or any other twelve month
period hereafter selected and designated as the official fiscal year period of the City.
Fitch. The term "Fitch" means Fitch Ratings, Inc., or any successor thereto.
Generally Accepted Accounting Principles. The term "Generally Accepted Accounting
Principles" means the uniform accounting and reporting procedures set forth in publications of the
American Institute of Certified Public Accountants or its successor, or by any other generally
accepted authority on such procedures, and includes, as applicable, the standards set forth by the
Governmental Accounting Standards Board or its successor.
Indenture. The term "Indenture" means the Indenture of Trust, dated as of Match 1, 2020, by
and between the City and the Trustee, as originally executed or as it may from time to time be
supplemented, modified or amended by any Supplemental Indenture.
Independent Certified Public Accountant. The tens "Independent Certified Public
Accountant" means any firm of certified public accountants appointed by the City, each of whom is
independent of the City pursuant to the Statement on Auditing Standards No. 1 of the American
Institute of Certified Public Accountants.
Independent Financial Consultant. The term "Independent Financial Consultant" means a
financial consultant or firm of such consultants appointed by the City, who, or each of whom: (1) is
in fact independent and not under domination of the City; (2) does not have any substantial interest,
direct or indirect, with the City; and (3) is not connected with the City as an officer or employee
thereof, but who may be regularly retained to make reports thereto.
Information Services. The term "Information Services" means the Municipal Securities
Rulemaking Board; or, in accordance with thencurrent guidelines of the Securities and Exchange
Commission, such other services providing information with respect to called bonds as the City may
specify in a certificate to the Trustee.
htitial Rating Requirement. The term `Initial Rating Requirement" means the rating
requirement described in Section 1 t.16(a).
Insurer. The term "Insurel' means
Interest Account. The term "Interest Account" means the account by that name in the
Payment Food established pursuant to Section 5.02.
Interest Payment Date. The term "Interest Payment Date" means [August 1, 2020] and each
February I and August 1 thereafter.
Investment Agreement. The term `Investment Agreement" means any investment agreement
(including guaranteed investment contracts, forward delivery agreements, repurchase agreements or
similar obligations) with, or guaranteed by, an entity the long-term unsecured obligations or the
claims paying ability of which are rated "A" or better by a nationally recognized rating agency
(without regard to gradations or modifiers within such category) at the time of initial investment.
Letter of Representations. The term "Letter of Representations" means the letter of the City
delivered to and accepted by the Depository on or prior to delivery of the 2020 Bonds as book entry
bonds setting forth the basis on which the Depository serves as depository for such book entry bonds,
as originally executed or as it may be supplemented or revised or replaced by a letter from the City
delivered to and accepted by the Depository.
Minimum Ratite Requirement. The tern "Minimum Rating Requirement" means the rating
requirement described in Section 11.16(b).
Moody's. The term "Moody's" means Moody's Investors Service, Inc. or any successor
thereto
Net Proceeds. The term "Net Proceeds" means, when used with respect to any casualty
insurance or condemnation award, the proceeds from such insurance or condemnation award
remaining after payment of all expenses (including attorneys' fees) incurred in the collection of such
proceeds.
Net Revenues. The term "Net Revenues" means, for any period, the Revenues for such
period less the Operation and Maintenance Costs for such period. When held by the Trustee in any
funds or accounts established hereunder, Net Revenues shall include all interest or realized gain
derived from the investment of amounts in any of such funds or accounts.
Nominee. The term "Nominee" means the nominee of the Depository, which may be the
Depository, as determined from time to time pursuant to Section 2.08 hereof.
Office. The term "Office" means with respect to the Trustee, the corporate trust office of the
Trustee at 400 South Hope Street, Suite 500, Los Angeles, California 90071, Attention: Corporate
Trust, Reference: City of Vemon 2020 Water Bonds, or such other or additional offices as may be
specified in writing by the Trustee to the City, except that with respect to presentation of 2020 Bonds
for payment or for registration of transfer and exchange, such term means the office or agency of the
Trustee at which, at any particular time, its corporate trust agency business shall be conducted
Operation and Maintenance Costs. The term "Operation and Maintenance Costs" means: (1)
costs spent or incurred for maintenance and operation of the Water System calculated in accordance
with Generally Accepted Accounting Principles applicable to governmental agencies, including, but
not limited to, the reasonable expenses of management and repair and other expenses necessary to
maintain and preserve the Water System in good repair and working order, and including
administrative costs of the City that are charged directly or apportioned to the Water System,
including but not limited to salaries and wages of employees, payments to the Public Employees
Retirement System, overhead insurance, taxes (if any), fees of auditors, accountants, attorneys or
engineers and insurance premiums, and including all other reasonable and necessary costs of the City
or charges (other than debt service payments) required to be paid by it to comply with the terns of
the 2020 Bonds or of this Indenture or any Contract or of any resolution or indenture authorizing the
issuance of any Bonds or of such Bonds; and (2) all payments under any contract for the purchase of
water; but excluding in all cases depreciation, replacement and obsolescence charges or reserves
therefor and amortization of intangibles or other bookkeeping entries of a similar nature.
Opinion of Counsel. The term "Opinion of Counsel" means a written opinion of counsel
(including but not limited to counsel to the City) selected by the City. If and to the extent required by
the provisions of Section 1.02, each Opinion of Counsel shall include the statements provided for in
Section 1.02.
Outstandine. The term "Outstanding," when used as of any particular time with reference to
2020 Bonds, means (subject to the provisions of Section 11.09) all 2020 Bonds theretofore or
thereupon being authenticated and delivered by the Trustee under the Indenture except: (i) 2020
Bonds theretofore canceled by the Trustee or surrendered to the Trustee for cancellation; (ii) 2020
Bonds with respect to which all liability of the City shall have been discharged in accordance with
Section 10.02, including 2020 Bonds (or portions thereof) described in Section 11.09; and (iii) 2020
Bonds for the transfer or exchange of or in lieu of or in substitution for which other 2020 Bonds shall
have been authenticated and delivered by the Trustee pursuant to the Indenture.
Owner; 2020 Bond Owner. The term "Owner' or "2020 Bond Owner," whenever used
herein with respect to a 2020 Bond, means the person in whose name the ownership of such 2020
Bond is registered on the Registration Books.
Paired Obligation Provider. The term "Paired Obligation Provider" means a party to a Paired
Obligation other than the City.
Paired Obligations. The term "Paired Obligations" means any Bond or Contract (or portion
thereof) designated as Paired Obligations in the resolution, indenture or other document authorizing
the issuance or execution and delivery thereof, which are simultaneously issued or executed and
delivered: (i) the principal of which is of equal amount maturing and to be redeemed or prepaid (or
cancelled after acquisition thereof) on the same dates and in the same amounts; and (ii) the interest
rates which, taken together, are reasonably expected to result in a fixed interest rate obligation of the
City for the term of such Bond or Contract, as certified by an Independent Financial Consultant in
writing, and which comply with the provisions of Section 11.16 hereof.
Participants. The term "Participants" means those broker -dealers, banks and other financial
institutions from time to time for which the Depository holds book entry certificates as securities
depository.
Payment Fund. The term "Payment Fund" means the fund by that name established pursuant
to Section 5.02.
Permitted Investments. The term "Permitted Investments" means any of the following which
at the time of investment are legal investments under the laws of the State for the moneys proposed
to be invested therein. The Trustee is entitled to rely upon the written investment direction of the
City as a representation that such investment constitutes a legal investment under the laws of the
State.
(a) for all purposes, including but not limited to defeasance investments in
refunding escrow accounts: (1) cash (insured at all times by the Federal Deposit Insurance
Corporation or otherwise collateralized with obligations described in paragraph (2) below); and
(2) direct obligations of the United States of America (including obligations issued or held in book
entry form on the books of the Department of the Treasury, including REFCORP Interest STRIPS) or
obligations the principal of and interest on which are unconditionally guaranteed by the United States
of America; and
(b) for all purposes other than defeasance investments in refunding escrow
accounts: (1) obligations of any of the following federal agencies which obligations represent full
faith and credit of the United States of America, including the Export - Import Bank; Farmers Home
Administration; General Services Administration; U.S. Maritime Administration; Government
National Mortgage Association (GNMA); U.S. Department of Housing & Urban Development
(PHA's); and Federal Housing Administration; (2) bonds, notes or other evidences of indebtedness
rated at least "AA-" or "Aa3" by the applicable Rating Agency issued by Fannie Mae or the Federal
Home Loan Mortgage Corporation with remaining maturities not exceeding three years; (3) U.S.
dollar denominated deposit accounts, certificates of deposit (including those placed by a third party
pursuant to a separate agreement between the City and the Trustee), other deposit products, time
deposits, trust funds, trust accounts, interest -bearing deposits, overnight bank deposits, interest -
bearing money market accounts, federal funds and banker's acceptances with domestic commercial
banks (including the Trustee and its affiliates) which are either insured by the Federal Deposit
Insurance Corporation or have a rating on their short term certificates of deposit on the date of
purchase of "A -I" or "A -I+" by S&P and "P-I" by Moody's and maturing no more than 360 days
after the date of purchase (ratings on holding companies are not considered as the rating of the bank);
(4) commercial paper which is rated at the time of purchase in the single highest classification,
"A-1+" by S&P and "P-I" by Moody's and which matures not more than 270 days after the date of
purchase; (5) investments in a money market fund rated "AAm", "AAm-G", "AAAm" or "AAAm-
G" or better by S&P, including such funds for which the Trustee or an affiliate receives and retains a
fee for services provided to the fund, whether as a custodian, transfer agent, investment advisor or
otherwise; (6) pre -refunded municipal obligations defined as follows: any bonds or other obligations
of any state of the United States of America or of any agency, instrumentality or local governmental
unit of any such state which are not callable at the option of the obligor prior to maturity or as to
which irrevocable instructions have been given by the obligor to call on the date specified in the
notice and which are rated, based on the escrow, in the highest rating category of S&P and Moody's;
(7) any Investment Agreement; and (8) the Local Agency Investment Fund.
Principal Account. The term "Principal Account" means the account by that name in the
Payment Fund established pursuant to Section 5.02.
Rate Stabilization Fund. The term "Rate Stabilization Fund" means the fund by that name
established pursuant to Section 5.08.
Rating. The term "Rating" means any currently effective rating on the 2020 Bonds issued by
a Raring Agency.
Rating Agencies. The term "Rating Agencies" means S&P, Moody's or Fitch, as the context
dictates.
Rebate Fund. The term "Rebate Fund" means the fund by that name established pursuant to
Section 5.07.
Record Date. The term "Record Date" means, with respect to any Interest Payment Date, the
fifteenth (15th) day of the calendar month preceding such Interest Payment Date, whether or not such
day is a Business Day.
Redemption Date. The term "Redemption Date" means the date fixed for an optional
redemption prior to maturity of the 2020 Bonds.
Redemption Fund. The term `Redemption Fund" means the fund by that name established
pursuant to Section 5.05.
Redemption Price. The tern `Redemption Price" means, with respect to any 2020 Bond (or
portion thereof), the principal amount of such 2020 Bond (or portion) plus the interest accrued to the
applicable Redemption Date and the applicable premium, if any, payable upon redemption thereof
pursuant to the provisions of such 2020 Bond and the Indenture.
Registration Books. The term "Registration Books" means the records maintained by the
Trustee for the registration of ownership and registration of transfer of the 2020 Bonds pursuant to
Section 2.05.
Reserve Fund. The term "Reserve Fund" means the fund by that name established in
Section 5.09 hereof.
Reserve Policv. The term `Reserve Policy" means Municipal Bond Debt Service Reserve
Insurance Policy No. issued by the Insurer on the date of issuance of the 2020 Bonds.
Reserve Requitement. The term "Reserve Requirement" means initially, $, and
thereafter the lesser of. (i) $; or (ii) the least of. (a) the maximum principal of and interest on the
2020 Bonds due in the then current or any future Fiscal Year; (b) 125% of average annual Debt
Service on the Outstanding 2020 Bonds; or (c) 10% of the then -Outstanding principal amount of the
2020 Bonds.
Responsible Officer of the Trustee. The term "Responsible Officer of the Trustee" means
any officer within the corporate trust services division (or any successor group or department of the
Trustee) including any vice president, assistant vice president, assistant secretary or any other officer
or assistant officer of the Trustee within the Office (or any successor corporate trust office)
customarily performing functions similar to those performed by the persons who at the time shall be
such officers, respectively, or to whom any corporate trust matter is referred at the Office because of
such persot's knowledge of any familiarity with the particular subject and having direct
responsibility for the administration of this Indenture.
Revenue Fund. The term "Revenue Fund" means the Water Enterprise Fund of the City
and/or such other fund or account of the City in which Revenues are deposited
Revenues. The tern "Revenues" means all income, rents, rates, fees, charges and other
moneys derived from the ownership of or operation of the Water System, including, without limiting
the generality of the foregoing: (1) all in lieu charges and groundwater augmentation charges
(including investment eammgs thereon) collected by or on behalf of the City; (2) all income, rents,
rates, fees, charges, business interruption insurance proceeds or other moneys derived by the City
from the sale, furnishing and supplying of the water, drainage or other services, facilities, and
commodities sold, furnished or supplied through the facilities of or in the conduct or operation of the
business of the Water System; and (3) the earnings on and income derived from the investment of
such income, rents, rates, fees, charges, proceeds or other moneys, including City reserves, but
excluding in all cases: (y) customers' deposits or any other deposits or advances subject to refund
until such deposits or advances have become the property of the City; and (z) proceeds of taxes or
benefit assessments restricted by law to be used by the City to pay amounts due on bonds or other
obligations hereafter incurred.
"Revenues" also include all amounts transferred from the Rate Stabilization Fund to the
Revenue Fund during any Fiscal Year in accordance with Section 5.08. "Revenues" do not include
any amounts transferred from the Revenue Fund to the Rate Stabilization Fund during any Fiscal
Year in accordance with Section 5.01(b)(iii).
10
S&P. The term "S&P" means S&P Global Ratings, a Standard & Poor's Financial Services
LLC business, or any successor thereto.
Securities Depositories. The tens "Securities Depositories" means The Depository Trust
Company; and, in accordance with then current guidelines of the Securities and Exchange
Commission, such other addresses and/or such other securities depositories as the City may designate
in a Written Request of the City delivered to the Trustee.
State. The term "State" means the State of California.
Supplemental Indenture. The term "Supplemental Indenture" means any indenture hereafter
duly authorized and entered into between the City and the Trustee, supplementing, modifying or
amending the Indenture; but only if and to the extent that such Supplemental Indenture is specifically
authorized hereunder.
Tax Certificate. The term `Tax Certificate" means the Tax Certificate dated the Closing
Date, concerning certain matters pertaining to the use and investment of proceeds of the 2020 Bonds
issued by the City on the date of issuance of the 2020 Bonds, including any and all exhibits attached
thereto.
Term Bond. The term "Term Bond" means the 2020 Bonds maturing on August 1, 20_.
Trustee. The term `Trustee" means The Bank of New York Mellon Trust Company, N.A., a
national banking association duly organized and existing under the laws of the United States of
America, or its successor as Trustee hereunder as provided in Section 8.01.
2020 Bonds. The tens "2020 Bonds" means the City of Vernon Water System Revenue
Bonds, 2020 Series A issued by the City and at any time Outstanding pursuant to the Indenture.
2020 Project. The tens "2020 Project" means those Water System capital improvements that
are described in Exhibit B.
Water Service. The term "Water Service" means the potable and recycled water distribution
service that is made available or provided by the Water System.
Water System. The term "Water System" means the whole and each and every part of the
waterworks system serving the City, whether owned or operated by the City or another party,
including the portion thereof existing on the date hereof, and including all additions, betterments,
extensions and improvements to such water system or any part thereof hereafter acquired or
constructed. The recycled water system of the City is part of the Water System.
Written Consent of the City; Written Order of the Citv; Written Request of the City; Written
Requisition of the Citv. The terms "Written Consent of the City," "Written Order of the City,"
"Written Request of the City" and "Written Requisition of the City" mean, respectively, a written
consent, order, request or requisition signed by or on behalf of the City by an Authorized
Representative of the City or by any two persons who are specifically authorized by resolution of the
City to sign or execute such a document on its behalf.
Section 1.02. Content of Certificates and Minions. Every certificate or opinion provided
for in the Indenture except the certificate of destruction provided for in Section 11.05 hereof, with
11
respect to compliance with any provision hereof shall include: (a) a statement that the person making
or giving such certificate or opinion has read such provision and the definitions herein relating
thereto; (b) a brief statement as to the nature and scope of the examination or investigation upon
which the certificate or opinion is based; (c) a statement that, in the opinion of such person he or she
has made or caused to be made such examination or investigation as is necessary to enable him or her
to express an informed opinion with respect to the subject matter referred to in the instrument to
which his or her signature is affixed; (d) a statement of the assumptions upon which such certificate
or opinion is based and that such assumptions are reasonable; and (e) a statement as to whether, in
the opinion of such person, such provision has been complied with.
Any such certificate or opinion made or given by an officer of the City may be based, insofar
as it relates to legal or accounting matters, upon a certificate or opinion of or representation by
counsel or an Independent Certified Public Accountant or Independent Financial Consultant, unless
such officer knows, or in the exercise of reasonable care should have known, that the certificate,
opinion or representation with respect to the matters upon which such certificate or statement may be
based, as aforesaid, is erroneous. Any such certificate or opinion made or given by counsel or an
Independent Certified Public Accountant or Independent Financial Consultant may be based, insofar
as it relates to factual matters (with respect to which information is in the possession of the City)
upon a certificate or opinion of or representation by an officer of the City, unless such counsel or
Independent Certified Public Accountant or Independent Financial Consultant knows, or in the
exercise of reasonable care should have known, that the certificate or opinion or representation with
respect to the matters upon which such person's certificate or opinion or representation may be
based, as aforesaid, is erroneous. The same officer of the City, or the same counsel or Independent
Certified Public Accountant or Independent Financial Consultant, as the case may be, need not
certify to all of the matters required to be certified under any provision of the Indenture, but different
officers, counsel or Independent Certified Public Accountants or Independent Financial Consultants
may certify to different matters, respectively.
Section 1.03. Interpretation.
(a) Unless the context otherwise indicates, 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 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) All references herein to "Articles," "Sections" and other subdivisions are to
the corresponding Articles, Sections or subdivisions of the Indenture; the words "herein," "hereof,"
"hereby," "hereunder" and other words of similar import refer to the Indenture as a whole and not to
any particular Article, Section or subdivision hereof.
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ARTICLE II
THE 2020 BONDS
Section 2.01. Authorization of 2020 Bonds. The City hereby authorizes the issuance
hereunder from time to time of the 2020 Bonds, which shall constitute special obligations of the City,
for the purposes of financing the 2020 Project. The 2020 Bonds are hereby designated the "City of
Vernon Water System Revenue Bonds, 2020 Series A" in the aggregate principal amount of $_
The Indenture constitutes a continuing agreement with the Owners from time to time of the 2020
Bonds to secure the full payment of the principal of and interest and premium (if any) on all the 2020
Bonds, subject to the covenants, provisions and conditions herein contained.
Section 2.02. Terms of the 2020 Bonds. The 2020 Bonds shall be issued in fully registered
form without coupons in denominations of $5,000 or any integral multiple thereof.
The 2020 Bonds shall mature on August 1 in each of the years and in the amounts set forth
below and shall bear interest on each Interest Payment Date at the rates set forth below:
Maturity Date
(August 1) Principal Amount Interest Rate
20 $ %
Interest on the 2020 Bonds shall be payable on each Interest Payment Date to the person
whose name appears on the Registration Books as the Owner thereof as of the Record Date
immediately preceding each such Interest Payment Date, such interest to be paid by check of the
Trustee sent by first class mail on the applicable Interest Payment Date to the Owner at the address of
such Owner as it appears on the Registration Books (except that in the case of an Owner of one
million dollars ($1,000,000) or more in principal amount, such payment may, at such Owner's
option, be made by wire transfer of immediately available funds to an account in the United States in
accordance with written instructions provided to the Trustee by such Owner prior to the Record Date.
Principal of and premium (if any) on any 2020 Bond shall be paid by check of the Trustee upon
presentation and surrender thereof at maturity or upon the prior redemption thereof, at the Office of
the Trustee. Both the principal of and interest and premium (if any) on the 2020 Bonds shall be
payable in lawful money of the United States of America.
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Each 2020 Bond shall be dated the date of initial delivery, and shall bear interest from the
Interest Payment Date next preceding the date of authentication thereof unless: (a) it is authenticated
after a Record Date and on or before the following Interest Payment Date, in which event it shall bear
interest from such Interest Payment Date; or (b) unless it is authenticated on or before [July 15,
20201, in which event it shall bear interest from the date of initial delivery; provided, however, that
if, as of the date of authentication of any 2020 Bond, interest thereon is in default, such 2020 Bond
shall hear interest from the Interest Payment Date to which interest has previously been paid or made
available for payment thereon. Interest on the 2020 Bonds shall be calculated on the basis of a 360
day year composed of twelve 30 day months.
Section 2.03. Transfer of 2020 Bonds. Any 2020 Bond may, in accordance with its terms,
be transferred on the Registration Books by the person in whose name it is registered, in person or by
his or her duly authorized attorney, upon surrender of such 2020 Bond at the Office of the Trustee for
cancellation, accompanied by delivery of a written instrument of transfer, duly executed in a form
acceptable to the Trustee. The Trustee shall not be required to register the transfer of any 2020 Bond
during the period in which the Trustee is selecting 2020 Bonds for redemption and any 2020 Bond
that has been selected for redemption.
Whenever any 2020 Bond or 2020 Bonds shall be surrendered for transfer, the City shall
execute and the Trustee shall authenticate and shall deliver a new 2020 Bond or 2020 Bonds of
authorized denomination or denominations for a like series and aggregate principal amount of the
same maturity. The Trustee shall require the 2020 Bond Owner requesting such transfer to pay any
tax or other governmental charge required to be paid with respect to such transfer. Following any
transfer of 2020 Bonds, the Trustee will cancel and destroy the 2020 Bonds that it has received.
Prior to any transfer of the 2020 Bonds outside the book -entry system (including, but not
limited to, the initial transfer outside the book -entry system) the transferor shall provide or cause to
be provided to the Trustee all information necessary to allow the Trustee to comply with any
applicable tax reporting obligations, including without limitation any cost basis reporting obligations
under Code Section 6045, as amended. The Trustee shall conclusively rely on the information
provided to it and shall have no responsibility to verify or ensure the accuracy of such information.
Section 2.04. Exchange of 2020 Bonds. 2020 Bonds may be exchanged at the Office of the
Trustee for a like aggregate principal amount of other authorized denominations of the same series
and maturity. The Trustee shall not be required to exchange any 2020 Bond during the period in
which the Trustee is selecting 2020 Bonds for redemption and any 2020 Bond that has been selected
for redemption. The Trustee shall require the 2020 Bond Owner requesting such exchange to pay
any tax or other governmental charge required to be paid with respect to such exchange. Following
any exchange of 2020 Bonds, the Trustee will cancel and destroy the 2020 Bonds that it has received.
Section 2.05. Registration Books. The Trustee will keep or cause to be kept, at the Office
of the Trustee, sufficient records for the registration and transfer of ownership of the 2020 Bonds,
which shall upon reasonable notice and at reasonable times be open to inspection during regular
business hours by the City and the Owners; and, upon presentation for such purpose, the Trustee
shall, under such reasonable regulations as it may prescribe, register or transfer or cause to be
registered or transferred, on such records, the ownership of the 2020 Bonds as hereinbefore provided.
The person in whose name any 2020 Bond shall be registered shall be deemed the owner
thereof for all purposes hereof, and payment of or on account of the interest on and principal and
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Redemption Price of by such 2020 Bonds shall be made only to or upon the order in writing of such
registered Owner, which payments shall be valid and effectual to satisfy and discharge liability upon
such 2020 Bond to the extent of the sum or sums so paid.
Section 2.06. Form and Execution of 2020 Bonds. The 2020 Bonds shall be in
substantially the form set forth in Exhibit A hereto. The 2020 Bonds shall be executed in the name
and on behalf of the City with the manual or facsimile signature of its Mayor. The 2020 Bonds may
carry a seal, and such seal may be in the form of a facsimile of the City's seat and may be
reproduced, imprinted or impressed on the 2020 Bonds. The 2020 Bonds shall then be delivered to
the Trustee for authentication by it. In case any of the officers who shall have signed or attested any
of the 2020 Bonds shall cease to be such officer or officers of the City before the 2020 Bonds so
signed or attested shall have been authenticated or delivered by the Trustee, or issued by the City,
such 2020 Bonds may nevertheless be authenticated, delivered and issued and, upon such
authentication, delivery and issue, shall be as binding upon the City as though those who signed and
attested the same had continued to be such officers of the City, and also any 2020 Bonds may be
signed and attested on behalf of the City by such persons as at the actual date of execution of such
2020 Bonds shall be the proper officers of the City although at the nominal date of such 2020 Bonds
any such person shall not have been such officer of the City.
Only such of the 2020 Bonds as shall bear thereon a certificate of authentication substantially
in the form set forth in Exhibit A hereto, manually executed by the Trustee, shall be valid or
obligatory for any purpose or entitled to the benefits of the Indenture, and such certificate of or on
behalf of the Trustee shall be conclusive evidence that the 2020 Bonds so authenticated have been
duly executed, authenticated and delivered hereunder and are entitled to the benefits of the Indenture.
Section 2.07. 2020 Bonds Mutilated, Lost. Destroyed or Stolen. If any 2020 Bond shall
become mutilated, the City, at the expense of the Owner of said 2020 Bond, shalt execute, and the
Trustee shall thereupon authenticate and deliver, a new 2020 Bond of like tenor, series and
authorized denomination in exchange and substitution for the 2020 Bonds so mutilated, but only
upon surrender to the Trustee of the 2020 Bond so mutilated. Every mutilated 2020 Bond so
surrendered to the Trustee shall be canceled by it and upon the Written Request of the City delivered
to, or upon the order of, the City. If any 2020 Bond shall be lost, destroyed or stolen, evidence of
such loss, destruction or theft may be submitted to the Trustee and, if such evidence be satisfactory to
the Trustee and indemnity satisfactory to the Trustee shall be given, the City, at the expense of the
Owner, shall execute, and the Trustee shall thereupon authenticate and deliver, a new 2020 Bond of
like tenor, series and authorized denomination in lieu of and in substitution for the 2020 Bond so lost,
destroyed or stolen (or if any such 2020 Bond shall have matured or shall be about to mature, instead
of issuing a substitute 2020 Bond, the Trustee may pay the same without surrender thereof). The
City may require payment by the Owner of a sum not exceeding the actual cost of preparing each
new 2020 Bond issued under this Section and of the expenses which may be incurred by the City and
the Trustee in the premises. Any 2020 Bond issued under the provisions of this Section in lieu of any
2020 Bond alleged to be lost, destroyed or stolen shall constitute an original additional contractual
obligation on the part of the City whether or not the 2020 Bond so alleged to be lost, destroyed, or
stolen be at any time enforceable by anyone, and shall be entitled to the benefits of the Indenture with
all other 2020 Bonds secured by the Indenture. Notwithstanding any other provision of this Section,
in lieu of delivering a new 2020 Bond for a 2020 Bond which bas been mutilated, lost, destroyed or
stolen and which has matured or has been selected for redemption, the Trustee may make payment of
such 2020 Bond upon receipt of indemnity satisfactory to the Trustee.
is
Section 2.08. Book Entry System.
(a) Election of Book Entry System. Prior to the issuance of the 2020 Bonds, the
City may provide that such 2020 Bonds shall be initially issued as book entry 2020 Bonds. If the
City shall elect to deliver any 2020 Bonds in book entry form, then the City shall cause the delivery
of a separate single fully registered bond (which may be typewritten) for each maturity date of such
2020 Bonds in an authorized denomination corresponding to that total principal amount of the 2020
Bonds designated to mature on such date. Upon initial issuance, the ownership of each such 2020
Bond shall be registered in the 2020 Bond Registration Books in the name of the Nominee, as
nominee of the Depository, and ownership of the 2020 Bonds, or any portion thereof may not
thereafter be transferred except as provided in Section 2.08(e).
With respect to book entry 2020 Bonds, the City and the Trustee shall have no responsibility
or obligation to any Participant or to any person on behalf of which such a Participant holds an
interest in such book entry 2020 Bonds. Without limiting the immediately preceding sentence, the
City and the Trustee shall have no responsibility or obligation with respect to: (i) the accuracy of the
records of the Depository, the Nominee, or any Participant with respect to any ownership interest in
book entry 2020 Bonds; (ii) the delivery to any Participant many other person, other than an Owner
as shown in the 2020 Bond Registration Books, of any notice with respect to book entry 2020 Bonds,
including any notice of redemption; (iii) the selection by the Depository and its Participants of the
beneficial interests in book entry 2020 Bonds to be redeemed in the event that the City redeems the
2020 Bonds in part; or (iv) the payment by the Depository many Participant or any other person, of
any amount of principal of, premium, if any, or interest on book entry 2020 Bonds. The City and the
Trustee may treat and consider the person in whose name each book entry 2020 Bond is registered in
the 2020 Bond Registration Books as the absolute Owner of such book entry 2020 Bond for the
purpose of payment of principal of, premium and interest on such 2020 Bond, for the purpose of
giving notices of redemption and other matters with respect to such 2020 Bond, for the purpose of
registering transfers with respect to such 2020 Bond, and for all other purposes whatsoever. The
Trustee shall pay all principal of, premium, if any, and interest on the 2020 Bonds only to or upon the
order of the respective Owner, as shown in the 2020 Bond Registration Books, or his respective
attorney duly authorized in writing, and all such payments shall be valid and effective to f dly satisfy
and discharge the City's obligations with respect to payment of principal of, premium, if any, and
interest on the 2020 Bonds to the extent of the sum or sums so paid. No person other than an Owner,
as shown in the 2020 Bond Registration Books, shall receive a 2020 Bond evidencing the obligation
to make payments of principal of, premium, if any, and interest on the 2020 Bonds. Upon delivery
by the Depository to the City and the Trustee, of written notice to the effect that the Depository has
determined to substitute a new nominee in place of the Nominee, and subject to the provisions herein
with respect to Record Dates, the word Nominee in the Indenture shall refer to such nominee of the
Depository.
(b) Delivery of Letter of Representations. In order to qualify the book entry 2020
Bonds for the Depository's book entry system, the City and the Trustee (if required by the
Depository) shall execute and deliver to the Depository a Letter of Representations. The execution
and delivery of a Letter of Representations shall not in any way impose upon the City or the Trustee
any obligation whatsoever with respect to persons having interests in such book entry 2020 Bonds
other than the Owners, as shown on the 2020 Bond Registration Books. By executing a Letter of
Representations, the Trustee shall agree to take all action necessary at all times so that the Trustee
will be in compliance with all representations of the Trustee in such Letter of Representations. In
addition to the execution and delivery of a Letter of Representations, the City and the Trustee shall
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take such other actions, not inconsistent with the Indenture, as are reasonably necessary to qualify
book entry 2020 Bonds for the Depository's book entry program.
(c) Selection of Depository. In the event that: (i) the Depository determines not
to continue to act as securities depository for book entry 2020 Bonds; or (ii) the City determines that
continuation of the book entry system is not in the best interest of the beneficial owners of the 2020
Bonds or the City, then the City will discontinue the book entry system with the Depository. If the
City determines to replace the Depository with another qualified securities depository, the City shall
prepare or direct the preparation of a new single, separate, fully registered 2020 Bond for each of the
maturity dates of such book entry 2020 Bonds, registered in the name of such successor or substitute
qualified securities depository or its Nominee as provided in subsection (e) hereof. If the City fails to
identify another qualified securities depository to replace the Depository, then the 2020 Bonds shall
no longer be restricted to being registered in such 2020 Bond Registration Books in the name of the
Nominee, but shall be registered in whatever name or names the Owners transferring or exchanging
such 2020 Bonds shall designate, in accordance with the provisions of Sections 2.03 and 2.04 hereof.
(d) Payments To Depository. Notwithstanding any other provision of the
Indenture to the contrary, so long as all Outstanding 2020 Bonds are held in book entry form and
registered in the name of the Nominee, all payments of principal of, redemption premium, if any, and
interest on such 2020 Bond and all notices with respect to such 2020 Bond shall be made and given,
respectively to the Nominee, as provided in the Letter of Representations or as otherwise instructed
by the Depository and agreed to by the Tmstee notwithstanding any inconsistent provisions herein.
(e) Transfer of 2020 Bonds to Substitute Depository.
(i) The 2020 Bonds shall be initially issued as provided in Section 2.01
hereof. Registered ownership of such 2020 Bonds, or any portions thereof, may not thereafter be
transferred except:
(A) to any successor of DTC or its nominee, or of any substitute
depository designated pursuant to clause (B) of subsection (i) of this Section 2.08(e) (a "Substitute
Depository"); provided that any successor of DTC or Substitute Depository shall be qualified under
any applicable laws to provide the service proposed to be provided by it;
(B) to any Substitute Depository, upon: (1) the resignation of
DTC or its successor (or any Substitute Depository or its successor) from its functions as depository;
or (2) a determination by the City that DTC (or its successor) is no longer able to carry out its
functions as depository; provided that any such Substitute Depository shall be qualified under any
applicable laws to provide the services proposed to be provided by it; or
(C) to any person as provided below, upon: (1) the resignation of
DTC or its successor (or any Substitute Depository or its successor) from its functions as depository;
or (2) a determination by the City that DTC or its successor (or Substitute Depository or its
successor) is no longer able to carry out its functions as depository.
(ii) In the case of any transfer pursuant to clauses (A) or (B) of subsection
(i) of this Section 2.08(e), upon receipt of all Outstanding 2020 Bonds by the Trustee, together with a
Written Request of the City to the Trustee designating the Substitute Depository, a single new 2020
Bond, which the City shall prepare or cause to be prepared, shall be issued for each maturity of 2020
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Bonds then Outstanding, registered in the name of such successor or such Substitute Depository or
their Nominees, as the case may be, all as specified in such Written Request of the City. In the case
of any transfer pursuant to clause (C) of subsection (i) of this Section 2.08(e), upon receipt of all
Outstanding 2020 Bonds by the Trustee, together with a Written Request of the City to the Trustee,
new 2020 Bonds, which the City shall prepare or cause to be prepared, shall be issued in such
denominations and registered in the names of such persons as we requested in such Written Request
of the City, subject to the limitations of Section 2.01 hereof, provided that the Trustee shall not be
required to deliver such new 2020 Bonds within a period of less than sixty (60) days from the date of
receipt of such Written Request from the City.
(iii) In the case of a partial redemption or an advance refunding of any
2020 Bonds evidencing a portion of the principal maturing in a particular year, DTC or its successor
(or any Substitute Depository or its successor) shall make an appropriate notation on such 2020
Bonds indicating the date and amounts of such reduction in principal, in form acceptable to the
Trustee, all in accordance with the Letter of Representations. The Trustee shall not be liable for such
Depository's failure to make such notations or errors in making such notations and the records of the
Trustee as to the Outstanding principal amount of such 2020 Bonds shall be controlling.
(iv) The City and the Trustee shall be entitled to treat the person in whose
name any 2020 Bond is registered as the Owner thereof for all purposes of the Indenture and any
applicable laws, notwithstanding any notice to the contrary received by the Trustee or the City; and
the City and the Trustee shall not have responsibility for transmitting payments to, communicating
with, notifying, or otherwise dealing with any beneficial owners of the 2020 Bonds. Neither the City
nor the Trustee shall have any responsibility or obligation, legal or otherwise, to any such beneficial
owners or to any other party, including DTC or its successor (or Substitute Depository or its
successor), except to the Owner of any 2020 Bonds, and the Trustee may rely conclusively on its
records as to the identity of the Owners of the 2020 Bonds.
ARTICLE III
ISSUANCE OF 2020 BONDS; APPLICATION OF PROCEEDS
Section 3.01. Issuance of the 2020 Bonds. At any time after the execution of the Indenture,
the City may execute and the Trustee shall authenticate and, upon Written Request of the City,
deliver the 2020 Bonds in the aggregate principal amount of $_
Section 3.02. Application of Proceeds of the 2020 Bonds. The proceeds of the sale of the
2020 Bonds in the amount of $ shall be delivered to the Trustee, who shall:
(a) transfer S to the Acquisition Fund;
(b) deposit $_ to the Reserve Fund; and
(c) deposit $_ into the Costs of Issuance Fund
The Trustee may establish temporary fiords or accounts in its records to record and facilitate
such deposits.
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Section 3.03. Establishment and Application of Costs of Issuance Fund. The Trustee shall
establish, maintain and hold in trust a separate fund designated as the "Costs of Issuance Fund." The
moneys in the Costs of Issuance Fund shall be used and withdrawn by the Trustee to pay the Costs of
Issuance upon submission of Written Requisitions of the City stating the person to whom payment is
to be made, the amount to be paid, the purpose for which the obligation was incurred, that such
payment is proper charge against said fund and that payment for such charge has not previously been
made. Each such Written Requisition of the City 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. On the six month
anniversary of the issuance of the 2020 Bonds, or upon the earlier Written Request of the City, all
amounts remaining in the Costs of Issuance Fund shall be transferred by the Trustee to the Interest
Account and the Costs of Issuance Fund shall be closed. Investment earnings on amounts on deposit
in the Costs of Issuance Fund shall be applied in accordance with Section 5.06 hereof.
Section 3.04. Validity of 2020 Bonds. The validity of the authorization and issuance of the
2020 Bonds is not dependent on and shall not be affected in any way by any proceedings taken by the
City or the Trustee with respect to any other agreement. The recital contained in the 2020 Bonds that
the same are issued pursuant to the Constitution and laws of the State shall be conclusive evidence of
the validity and of compliance with the provisions of law in their issuance.
Section 3.05. Acquisition Fund. The Trustee shall establish, maintain and hold in trust a
separate fund designated as the "Acquisition Fund." The moneys in the Acquisition Fund shall be
held by the Trustee in trust and applied to the payment of the costs of acquisition and construction of
the 2020 Project and of expenses incidental thereto.
Before any payment is made from the Acquisition Fund by the Trustee, the General Manager
of Public Utilities or the Finance Director of the City shall cause to be filed with the Trustee a
certificate of the City in the form set forth in Exhibit C.
Upon receipt of each such certificate, the Trustee will pay the amount that is set forth in such
certificate as directed by the terms thereof or disburse funds to the City for such payment as directed
by the City in such certificate. The Trustee need not make any such payment if it has received notice
of any lien, right to lien, attachment upon or claim affecting the right to receive payment of any of
the moneys to be so paid which has not been released or will not be released simultaneously with
such payment.
When the 2020 Project has been constructed and acquired in accordance with the Indenture, a
statement of the City stating the fact and date of such acquisition, construction and acceptance and
stating that all of such costs of acquisition and incidental expenses have been determined and paid (or
that all of such costs and expenses have been paid less specified claims which are subject to dispute
and for which a retention in the Acquisition Fund is to be maintained in the full amount of such
claims until such dispute is resolved), shall be delivered to the Trustee by the General Manager of
Public Utilities or the Finance Director of the City. Upon the receipt of such statement, the Trustee
shall deposit any remaining balance in the Acquisition Fund which is not needed for Acquisition
Fund purposes (but less the amount of any such retention, which amount shall be certified to the
Trustee by the General Manager of Public Utilities or the Finance Director of the City) to the Trustee
in the Payment Fund for payment of 2020 Bonds in accordance herewith.
Section 3.06. Changes to the 2020 Project. The City may substitute other improvements for
those listed as components of the 2020 Project in Exhibit B, but only if the City first files with the
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Trustee a statement of the City in the form attached as Exhibit D: (a) identifying the improvements to
be substituted and the improvements to City facilities they replace in the 2020 Project; and (b) stating
that the estimated costs of construction, acquisition and installation of the substituted improvements
are not less than such costs for the improvements previously planned.
ARTICLE IV
REDEMPTION OF 2020 BONDS
Section 4.01. Terms of Redemption.
(a) The 2020 Bonds with stated maturities on or after August 1, 20 , shall be
subject to redemption prior to their respective stated maturities, as a whole or in part on 1,
20 , or any date thereafter, as directed by the City in a Written Request provided to the Trustee at
least 35 days (or such lesser number of days acceptable to the Trustee in the sole discretion of the
Trustee, such notice for the convenience of the Trustee) and by lot within each maturity in integral
multiples of $5,000, at a Redemption Price equal to the principal amount thereof plus accrued interest
thereon to the Redemption Date, without premium.
(b) The Term Bonds with stated maturities on August 1, 20_ are subject to
mandatory sinking fund redemption in part (by lot) on August 1, 20_ and each August I thereafter,
in integral multiples of $5,000 at a Redemption Price of the principal amount thereof plus accrued
interest to the date fixed for redemption, without premium, in accordance with the following
schedule:
Redemption Date Principal
(August l) Amount
20 1
• Maturity.
If some but not all of the Term Bonds are redeemed pursuant to subsections (a) or (b) above,
the principal amount of the applicable Term Bonds to be redeemed pursuant to this subsection (c) on
any subsequent August 1 will be reduced, by $5,000 or an integral multiple thereof, as designated by
the City in a Written Order of the City filed with the Trustee; provided, however, that the aggregate
amount of such reductions shall not exceed the aggregate amount of the applicable Term Bonds
redeemed pursuant to subsections (a) or (b) above.
Section 4.02. Selection of 2020 Bonds for Redemption. Whenever provision is made in the
Indenture for the redemption of less than all of the 2020 Bonds, the Trustee shall select the 2020
Bonds for redemption as a whole or in part on any date as directed by the City and by lot within each
maturity in integral multiples of $5,000 in accordance with Section 4.01 hereof. The Trustee will
promptly notify the City in writing of the numbers of the 2020 Bonds or portions thereof so selected
for redemption.
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Section 4.03. Notice of Redemption. Notice of redemption shall be mailed by first class
mail at least twenty (20) days but not more than sixty (60) days before any Redemption Date, to the
respective Owners of any 2020 Bonds designated for redemption at their addresses appearing on the
Registration Books, to the Securities Depositories and to the Information Services. Each notice of
redemption shall state the date of the notice, the Redemption Date, the place or places of redemption,
the Redemption Price, the maturities, CUSIP numbers, if any, and, in the case of 2020 Bonds to be
redeemed in part only, the respective portions of the principal amount thereof to be redeemed. Each
such notice shall also state that on the Redemption Date there will become due and payable on each
of said 2020 Bonds or parts thereof designated for redemption the Redemption Price thereof or of
said specified portion of the principal thereof in the case of a 2020 Bond to be redeemed in part only,
together with interest accrued thereon to the Redemption Date, and that (provided that moneys for
redemption have been deposited with the Trustee) from and after such Redemption Date interest
thereon shall cease to accrue, and shall require that such 2020 Bonds be then surrendered to the
Trustee. Neither the failure to receive such notice nor any defect in the notice or the mailing thereof
will affect the validity of the redemption of any 2020 Bond. Notice of redemption of 2020 Bonds
shall be given by the Trustee, at the expense of the City, for and on behalf of the City.
With respect to any notice of optional redemption of 2020 Bonds, such notice may state that
such redemption shall be conditional upon the receipt by the Trustee on or prior to the date fixed for
such redemption of moneys sufficient to pay the principal of, premium, if any, and interest on such
2020 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 Trustee shall not be required to redeem such 2020 Bonds. In
the event that such notice of redemption contains such a condition and such moneys are not so
received, the redemption shall not be made, and the Trustee shall within a reasonable time thereafter
give notice, in the manner in which the notice of redemption was given, that such moneys were not
so received.
Section 4.04. Partial Redemption of 2020 Bonds. Upon surrender of any 2020 Bond
redeemed in part only, the City shall execute and the Trustee shall authenticate and deliver to the
Owner thereof, at the expense of the City, a new 2020 Bond or 2020 Bonds of authorized
denominations equal in aggregate principal amount to the unredeemed portion of the 2020 Bonds
surrendered and of the same series, interest rate and maturity.
Section 4.05. Effect of Redemption. Notice of redemption having been duly given as
aforesaid, and moneys for payment of the Redemption Price of, together with interest accrued to the
date fixed for redemption on, the 2020 Bonds (or portions thereof) so called for redemption being
held by the Trustee, on the Redemption Date designated in such notice, the 2020 Bonds (or portions
thereof) so called for redemption shall become due and payable, interest on the 2020 Bonds so called
for redemption shall cease to accrue, said 2020 Bonds (or portions thereof) shall cease to be entitled
to any benefit or security under the Indenture, and the Owners of said 2020 Bonds shall have no
rights in respect thereof except to receive payment of the Redemption Price thereof. The Trustee
shall, upon surrender for payment of any of the 2020 Bonds to be redeemed on their Redemption
Dates, pay such 2020 Bonds at the Redemption Price.
All 2020 Bonds redeemed pursuant to the provisions of this Article shall be canceled and
destroyed upon surrender thereof to the Trustee.
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ARTICLE V
REVENUES, FUNDS AND ACCOUNTS; PAYMENT OF PRINCIPAL AND INTEREST
Section 5.01. Pledge and Assignment; Revenue Fund.
(a) All of the Revenues, all amounts held in the Revenue Fond described in
subsection (b) below, all amounts that are transferred from the Rate Stabilization Fund to the
Revenue Fond as described in Section 5.08, and any other amounts (including proceeds of the sale of
the 2020 Bonds) held in any fund or account established pursuant to the Indenture (except the Rebate
Fond and the Rate Stabilization Fond (other than those amounts which are transferred by the City
from the Rate Stabilization Fund to the Revenue Fund)) are hereby irrevocably pledged to secure the
payment of the principal of and interest, and the premium, if any, on the 2020 Bonds in accordance
with their terms and the provisions of the Indenture, and the Revenues shall not be used for any other
purpose while the 2020 Bonds remain Outstanding; provided that out of the Revenues there may be
apportioned such sums for such purposes as are expressly permitted herein. Said pledge, together
with the pledge created by all other Contracts and Bonds, shall constitute a first lien on and security
interest on Revenues and, subject to application of Revenues and all amounts on deposit therein as
permitted herein, the Revenue Fund and other funds and accounts created hereunder for the payment
of the principal of and interest, and the premium, if any, on the 2020 Bonds and all Contracts and
Debt Service on Bonds in accordance with the terms hereof, and shall attach, be perfected and be
valid and binding from and after the Closing Date, without any physical delivery thereof or further
act and shall be valid and binding against all parties having claims of any kind in tort, contract or
otherwise against the City, irrespective of whether such parties have notice hereof.
(b) In order to carry out and effectuate the pledge and lien contained herein, the
City agrees and covenants that all Revenues shall be received by the City in trust hereunder and shall
be deposited when and as received in the Revenue Fund, which fund the City agrees and covenants to
maintain and to hold separate and apart from other funds so long as the 2020 Bonds and any
Contracts or Debt Service on Bonds remain unpaid. Moneys in the Revenue Fond shall be used and
applied by the City as provided herein. All moneys in the Revenue Fond shall be held in tout and
shall be applied, used and withdrawn for the purposes set forth in this Section.
The City shall, from the moneys in the Revenue Fond, pay all Operation and Maintenance
Costs (including amounts reasonably required to be set aside in contingency reserves for Operation
and Maintenance Costs, the payment of which is not then immediately required) as such Operation
and Maintenance Costs become due and payable. All remaining moneys in the Revenue Fund shall
he set aside by the City at the following times for the transfer to the following respective special
funds in the following order of priority:
(i) Interest and Principal Payments. Not later than the Business Day
prior to each Interest Payment Date, the City shall, from the moneys in the Revenue Fond, transfer to
the Trustee for deposit in the Payment Fond or the Redemption Fund the payments of interest and
principal or mandatory sinking fund payments, as applicable, on the 2020 Bonds due and payable on
such Interest Payment Date. The City shall also, from the moneys in the Revenue Fund, transfer to
the applicable trustee for deposit in the respective payment fund, without preference or priority, and
in the event of any insufficiency of such moneys ratably without any discrimination or preference,
any other Debt Service in accordance with the provisions of any Bond or Contract.
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(ii) Reserve Fonds. After making the payments, allocations or transfers
provided for in subsection (i) above, the City shall, from the remaining moneys in the Revenue Fund,
thereafter, without preference or priority and in the event of any insufficiency of such moneys ratably
without any discrimination or preference, transfer to the Reserve Fond and to the applicable trustee
for such other reserve funds and/or accounts, if any, as may have been established in connection with
Bonds or Contracts, that sum, if any, necessary to restore such funds or accounts to an amount equal
to the Reserve Requirement and the reserve requirement applicable to such Bonds or Contracts, as
applicable; provided, however, that the City may provide for the Reserve Fond by means other than
cash and Permitted Investments pursuant to Section 5.09.
(iii) Surplus. Moneys on deposit in the Revenue Fund on any date when
the City reasonably expects such moneys will not be needed for the payment of Operation and
Maintenance Costs or any of the purposes described in clauses (b)(i) or (b)(ii) may be deposited in
the Rate Stabilintion Fund or expended by the City at any time for any purpose permitted by law.
(iv) Investments. All moneys held by the City in the Revenue Fund shall
be invested in Permitted Investments and the investment earnings thereon shall remain on deposit in
such fund, except as otherwise provided herein.
Section 5.02. Allocation of Revenues. There is hereby established with the Trustee the
Payment Fund, which the Trustee covenants to maintain and hold in trust separate and apart from
other funds held by it so long as any principal of and interest on the 2020 Bonds remain unpaid.
Except as directed herein, all payments of interest and principal on the 2020 Bonds received by the
Trustee pursuant to Section 5.01(b) shall be promptly deposited by the Trustee upon receipt thereof
into the Payment Fund; except that all moneys received by the Trustee and required hereunder to be
deposited in the Redemption Fund shall be promptly deposited therein. All payments of interest and
principal on the 2020 Bonds deposited with the Trustee shall be held, disbursed, allocated and
applied by the Trustee only as provided in the Indenture. The Trustee shall also establish and hold an
Interest Account and a Principal Account within the Payment Fond.
The Trustee shall transfer from the Payment Fond and deposit into the following respective
accounts, the following amounts in the following order of priority and at the following times, the
requirements of each such account (including the making up of any deficiencies in any such account
resulting from lack of Revenues sufficient to make any earlier required deposit) at the time of deposit
to be satisfied before any transfer is made to any account subsequent in priority:
(a) Not later than the Business Day preceding each Interest Payment Date, the
Trustee shall deposit in the Interest Account that sum, if any, required to cause the aggregate amount
on deposit in the Interest Account to be at least equal to the amount of interest becoming due and
payable on such date on all 2020 Bonds then Outstanding. No deposit need be made into the Interest
Account so long as there shall be in such fund moneys sufficient to pay the interest becoming due
and payable on such date on all 2020 Bonds then Outstanding.
(b) Not later than the Business Day preceding each date on which the principal of
the 2020 Bonds shall become due and payable hereunder, the Trustee shall deposit in the Principal
Account that sum, if any, required to cause the aggregate amount on deposit in the Principal Account
to equal the principal amount of the 2020 Bonds coming due and payable on such date. No deposit
need be made into the Principal Account so long as there shall be in such fund moneys sufficient to
pay the principal becoming due and payable on such date on all 2020 Bonds then Outstanding.
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Section 5.03. Application of Interest Account. All amounts in the Interest Account shall be
used and withdrawn by the Trustee solely for the purpose of paying interest on the 2020 Bonds as it
shall become due and payable (including accrued interest on any 2020 Bonds purchased or
accelerated prior to maturity pursuant to the Indenture).
Section 5.04. Application of Principal Account. All amounts in the Principal Account shall
be used and withdrawn by the Trustee solely to pay the principal amount of the 2020 Bonds at
maturity, purchase or acceleration; provided, however, that at any time prior to selection for
redemption of any such 2020 Bonds, upon written direction of the City, the Trustee shall apply such
amounts to the purchase of 2020 Bonds at public or private sale, as and when and at such prices
(including brokerage and other charges, but excluding accrued interest, which is payable from the
Interest Account) as stall be directed pursuant to a Written Request of the City, except that the
purchase price (exclusive of accrued interest) may not exceed the Redemption Price then applicable
to the 2020 Bonds.
Section 5.05. Application of Redemption Fund. There is hereby established with the
Trustee a special fund designated as the "Redemption Fund." All amounts in the Redemption Fund
shall be used and withdrawn by the Trustee solely for the purpose of paying the Redemption Price of
the 2020 Bonds to be redeemed on any Redemption Date pursuant to Section 4.01; provided
however, that at any time prior to selection for redemption of any such 2020 Bonds, upon written
direction of the City, the Trustee shall apply such amounts to the purchase of 2020 Bonds at public or
private sale, as and when and at such prices (including brokerage and other charges, but excluding
accrued interest, which is payable from the Interest Account) as shall be directed pursuant to a
Written Request of the City, except that the purchase price (exclusive of accrued interest) may not
exceed the Redemption Price then applicable to the 2020 Bonds.
Section 5.06. Investments. All moneys in any of the funds or accounts established with the
Trustee pursuant to the Indenture shall be invested by the Trustee solely in Permitted Investments.
Such investments shall be directed by the City pursuant to a Written Request of the City filed with
the Trustee at least two (2) Business Days in advance of the making of such investments. In the
absence of any such directions from the City, the Trustee shall invest any such moneys in Permitted
Investments described in clause (b)(5) of the definition thereof; provided, however, that any such
investment shall be made by the Trustee only if, prior to the date on which such investment is to be
made, the Trustee shall have received a written direction from the City specifying a specific money
market fund and, if no such written direction from the City is so received the Trustee shall hold such
moneys uninvested. Obligations purchased as an investment of moneys in any fund shall be deemed
to be part of such fund or account.
All interest or gain derived from the investment of amounts in any of the funds or accounts
established hereunder shall be deposited in the Interest Account unless otherwise provided in the
Indenture. For purposes of acquiring any investments hereunder, the Trustee may commingle funds
(other than the Rebate Fund) held by it hereunder upon the Written Request of the City. The Trustee
may act as principal or agent in the acquisition or disposition of any investment and may impose its
customary charges therefor. The Trustee shall incur no liability for losses arising from any
investments made pursuant to this Section 5.06.
The City acknowledges that to the extent that 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
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extent permitted by law. The City further understands that trade confirmations for securities
transactions effected by the Trustee will be available upon request at no additional cost and other
trade confirmations may be obtained from the applicable broker. The Trustee will famish the City
with periodic cash transaction statements which shall include detail for all investment transactions
effected by the Trustee hereunder. Upon the City's election, such statements will be delivered via
the Trustee's online service and upon electing such service, paper statements will be provided only
upon request.
The Trustee or any of its affiliates may act as sponsor, advisor or manager in connection with
any investments made by the Trustee under the Indenture.
The City shall invest, or cause to be invested, all moneys in any fund or accounts established
with the Trustee as provided in the Tax Certificate.
For investment purposes, the Trustee may commingle the funds and accounts established
hereunder, but shall account for each separately. In making any valuations of investments hereunder,
the Trustee may utilize and rely on generally recognized pricing information services (including
brokers and dealers in securities) that may be available to the Trustee, including those available
through the Trustee accounting system.
Section 5.07. Rebate Fond.
(a) Establishment. The Trustee shall establish a fund for the 2020 Bonds
designated the "Rebate Fund" when required in accordance herewith. Absent an opinion of Bond
Counsel that the exclusion from gross income for federal income tax purposes of interest on the 2020
Bonds will not be adversely affected, the City shall cause to be deposited in the Rebate Fond such
amounts as are required to be deposited therein pursuant to this Section and the Tax Certificate. All
money at any time deposited in the Rebate Fond shall be held by the Trustee in trust for payment to
the United States Treasury. All amounts on deposit in the Rebate Fond for the 2020 Bonds shall be
governed by this Section and the Tax Certificate, unless and to the extent that the City delivers to the
Trustee an opinion of Bond Counsel that the exclusion from gross income for federal income tax
purposes of interest on the 2020 Bonds will not be adversely affected if such requirements are not
satisfied. Notwithstanding anything to the contrary contained herein or in the Tax Certificate, the
Trustee: (i) shall be deemed conclusively to have complied with the provisions thereof if it follows
all Requests of the City; (ii) shall have no liability or responsibility to enforce compliance by the City
with the terms of the Tax Certificate; (iii) may rely conclusively on the City's calculations and
determinations and certifications relating to rebate matters; and (iv) shall have no responsibility to
independently make any calculations or determinations or to review the City's calculations or
determinations thereunder.
(i) Annual Computation. Within 55 days of the end of each Bond Year
(as such term is defined in the Tax Certificate), the City shall calculate or cause to be calculated the
amount of rebatable arbitrage, in accordance with Section 148(f)(2) of the Code and Section 1.148-3
of the Treasury Regulations (taking into account any applicable exceptions with respect to the
computation of the rebatable arbitrage, described, if applicable, in the Tax Certificate (e.g., the
temporary investments exceptions of Section 148(f)(4)(B) and the construction expenditures
exception of Section 148(f)(4)(C) of the Code), and taking into account whether the election pursuant
to Section 148(f)(4XCxvii) of the Code (the "1%% Penalty") has been made), for this purpose
treating the last day of the applicable Bond Year as a computation date, within the meaning of
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Section 1.148-1(b) of the Treasury Regulations (the "Rebatable Arbitrage'). The City shall obtain
expert advice as to the amount of the Rebatable Arbitrage to comply with this Section.
(ii) Annual Transfer. Within 55 days of the end of each Bond Yew, upon
the Written Request of the City, an amount shall be deposited to the Rebate Fund by the Trustee from
any Net Revenues legally available for such purpose (as specified by the City in the aforesaid
Written Request), if and to the extent required so that the balance in the Rebate Fund shall equal the
amount of Rebatable Arbitrage so calculated in accordance with clause (i) of this subsection (a). In
the event that immediately following the transfer required by the previous sentence, the amount then
on deposit to the credit of the Rebate Fund exceeds the amount required to be on deposit therein,
upon Written Request of the City, the Trustee shall withdraw the excess from the Rebate Fund and
then credit the excess to the Payment Fund.
(iii) Payment to the Treasury. The Trustee shall pay, as directed by
Written Request of the City, to the United States Treasury, out of amounts in the Rebate Fund:
(A) Not later than 60 days after the end of: (X) the fifth Bond
Year; and (Y) each applicable fifth Bond Year thereafter, an amount equal to at least 90% of the
Rebatable Arbitrage calculated as of the end of such Bond Year; and
(B) Not later than 60 days after the payment of all of the 2020
Bonds, an amount equal to 100% of the Rebatable Arbitrage calculated as of the end of such
applicable Bond Year, and any income attributable to the Rebatable Arbitrage, computed in
accordance with Section 148(f) of the Code and Section 1.148-3 of the Treasury Regulations.
In the event that, prior to the time of any payment required to be made from the Rebate Food,
the amount in the Rebate Fund is not sufficient to make such payment when such payment is due, the
City shall calculate or cause to be calculated the amount of such deficiency and deposit an amount
received from any legally available source equal to such deficiency prior to the time such payment is
due. Each payment required to be made pursuant to this subsection (a) shall be made to the Internal
Revenue Service Center, Ogden, Utah 84201 on or before the date on which such payment is due,
and shall be accompanied by Internal Revenue Service Form 8038-T (prepared by the City), or shall
be made in such other manner as provided under the Code.
(b) Disposition of Unexpended Funds. Any funds remaining in the Rebate Fund
after redemption and payment of the 2020 Bonds and the payments described in subsection (a) above
being made may be withdrawn by the City and utilized in any manner by the City.
(c) Survival of Defemance. Notwithstanding anything in this Section to the
contrary, the obligation to comply with the requirements of this Section shall survive the defeasance
or payment in full of the 2020 Bonds.
Section 5.08. Establishment and Application of Rate Stabilization Fund The City shall
establish, maintain and hold in trust a special fund designated as the "Rate Stabilization Fund." The
City agrees and covenants to maintain and to hold such fund separate and apart from other funds so
long as the 2020 Bonds or any other Contracts or Bonds remain unpaid. Money transferred by the
City from the Revenue Fund to the Rate Stabilization Fund in accordance with Section 5.01(b)(ui)
will be held in the Rate Stabilization Fond and applied in accordance herewith.
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The City may withdraw all or any portion of the amounts on deposit in the Rate Stabilization
Fund and transfer such amounts to the Revenue Fund for application in accordance with Section 5.01
or, in the event that all or a portion of the 2020 Bonds are discharged in accordance with Article X,
transfer all or any portion of such amounts for application in accordance with Article X. Any such
amounts transferred from the Rate Stabilization Fund to the Revenue Fund in accordance with the
Indenture constitute pledged Revenues.
Section 5.09. Reserve Fund. The Trustee shall establish a fund known as the "Reserve
Fund" to be held and applied as set forth herein. The Trustee shall deposit in the Reserve Food the
amounts required to be deposited therein pursuant to this Indenture and apply moneys in the Reserve
Fund in accordance with this Section. The initial deposit to the Reserve Fund shall be in the amount
of the Reserve Requirement.
If one Business Day prior to any Interest Payment Date the moneys in the Payment Fund are
insufficient to pay amounts due on the 2020 Bonds on such Interest Payment Date, the Trustee shall
transfer from the Reserve Fund to the Payment Fund the amount of such insufficiency. In the event
that the Trustee has transferred moneys from the Reserve Fund to the Payment Fund in accordance
with this Section, upon receipt of the moneys from the City to increase the balance in the Reserve
Fund to the Reserve Requirement, the Trustee shall deposit such moneys in the Reserve Fund.
If the amount available and contained in the Reserve Fund exceeds an amount equal to the
Reserve Requirement and if the City is not then in default under this Indenture, the Trustee shall
semiannually on or before each Interest Payment Date withdraw the amount of such excess from the
Reserve Fund and shall deposit such amount in the Payment Fund and for this determination the
Trustee shall make a valuation of the Reserve Fund as often as it may deem appropriate, and in any
event on or before each Interest Payment Date in each year. In addition, the Trustee shall, on the date
all or any portion of the 2020 Bonds are discharged in accordance with Section 10.02 hereof, value
the Reserve Fund in accordance with this Section and withdraw the excess, if any, on deposit in the
Reserve Fund and transfer such amount to or in accordance with the written direction of the District.
Except for such withdrawals, all moneys in the Reserve Fund shall be used and withdrawn by the
Trustee solely for the purpose of paying principal, Redemption Price and interest on the 2020 Bonds
in the event that no other moneys of the District are available therefor.
For the purpose of determining the amount in the Reserve Fund, all Permitted Investments
credited to the Reserve Fund shall be valued at the lower of cost (inclusive of all interest accrued but
not paid), or book value.
The District may satisfy the Reserve Requirement to deposit a specified amount in the
Reserve Fund by the deposit of. (a) a surety bond; (b) a municipal bond insurance policy; (c) an
unconditional irrevocable letter of credit; or (d) any other security device, in each case issued by
providers whose long term debt, or, in the case of a monoline financial guaranty insurance company,
claims paying ability, is rated, at the time such security device is issued, "AA" or better by S&P, if
S&P is then rating the 2020 Bonds, "AA" or better by Moody's, if Moody's is then rating the 2020
Bonds, and "AA" or better by Fitch, if Fitch is then rating the 2020 Bonds.
Section 5.10. Application of Funds and Accounts When No 2020 Bonds are Outstanding.
On the date on which all 2020 Bonds shall be retired hereunder or provision made therefor pursuant
to Article X and after payment of all amounts due the Trustee hereunder, all moneys then on deposit
in any of the funds or accounts (other than the Rebate Fund) established with the Trustee pursuant to
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the Indenture shall be withdrawn by the Trustee and paid to the City for use by the City at any time
for any purpose permitted by law.
ARTICLE VI
PARTICULAR COVENANTS
Section 6.01. Punctual Payment. The City shall punctually pay or cause to be paid the
principal and interest to become due in respect of all of the 2020 Bonds, in strict conformity with the
terns of the 2020 Bonds and of the Indenture, according to the true intent and meaning thereof, but
only out of Net Revenues and other assets pledged for such payment as provided in the Indenture.
Section 6.02. Extension of Payment of 2020 Bonds. The City shall not directly or
indirectly extend or assent to the extension of the maturity of any of the 2020 Bonds or the time of
payment of any claims for interest by the purchase of such 2020 Bonds or by any other arrangement,
and in case the maturity of any of the 2020 Bonds or the time of payment of any such claims for
interest shall be extended, such 2020 Bonds or claims for interest shall not be entitled, in case of any
default hereunder, to the benefits of the Indenture, except subject to the prior payment in full of the
principal of all of the 2020 Bonds then Outstanding and of all claims for interest thereon which shall
not have been so extended Nothing in this Section shall be deemed to limit the right of the City to
issue Bonds for the purpose of refunding any Outstanding 2020 Bonds, and such issuance shall not
be deemed to constitute an extension of maturity of 2020 Bonds.
Section 6.03. Against Encumbrunces. The City will not make any pledge of or place any
lien on Revenues or the moneys in the Revenue Fund except as provided herein. The City may at
any time, or from time to time, execute Contracts or issue Bonds as permitted herein. The City may
also at any time, or from time to time, incur evidences of indebtedness or incur other obligations for
any lawful purpose which are payable from and secured by a pledge of lien on Revenues on any
moneys in the Revenue Food as may from time to time be deposited therein, provided that such
pledge and lien shall be subordinate in all respects to the pledge of and lien thereon provided herein.
Section 6.04. Power to Issue 2020 Bonds and Make Pledge and Assignment. The City is
duly authorized pursuant to law to issue the 2020 Bonds, to enter into the Indenture and to pledge and
assign the Revenues and other assets purported to be pledged and assigned under the Indenture in the
manner and to the extent provided in the Indenture. The 2020 Bonds and the provisions of the
Indenture are and will be the legal, valid and binding special obligations of the City in accordance
with their terms, and the City shall and the Trustee may, at all times, subject to the provisions of
Article VQI and to the extent permitted by law, defend, preserve and protect said pledge and
assignment of Revenues and other assets and all the rights of the 2020 Bond Owners under the
Indenture against all claims and demands of all persons whomsoever.
Section 6.05. Accounting Records and Financial Statements.
(a) The Trustee shall at all times keep, or cause to be kept, proper books of
record and account, prepared in accordance with corporate trust industry standards, in which
complete and accurate entries shall be made of all transactions made by it relating to the proceeds of
2020 Bonds and all funds and accounts established by it pursuant to the Indenture. Such books of
record and account shall be available for inspection by the City upon reasonable prior notice during
business hours and under reasonable circumstances.
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(b) The City will keep appropriate accounting records in which complete and
correct entries shall be made of all transactions relating to the Water System, which records shall be
available for inspection by the Trustee (which shall have no duty to inspect such records) at
reasonable hours and under reasonable conditions.
(c) The City will prepare and file with the Trustee annually within two hundred
seventy (270) days of each Fiscal Year (commencing with the Fiscal Year ended June 30, 2019)
financial statements of the City for the preceding Fiscal Year prepared in accordance with Generally
Accepted Accounting Principles, together with an Accountant's Report thereon. The Trustee shall
have no duty to review, verify or analyze such financial statements, and shall hold such financial
statements solely as a repository for the benefit of the 2020 Bond Owners. The Trustee shall not be
deemed to have notice of any information contained therein, or default or Event of Default which
may be disclosed therein in any manner.
Section 6.06. Tax Covenants. Notwithstanding any other provision of the Indenture, absent
an opinion of Bond Counsel that the exclusion from gross income of the portion of interest on the
2020 Bonds will not be adversely affected for federal income tax purposes, the City covenants to
comply with all applicable requirements of the Code necessary to preserve such exclusion from gross
income with respect to the 2020 Bonds and specifically covenants, without limiting the generality of
the foregoing, as follows:
(a) Private Activity. The City will take no action, refrain from taking any action
and make no use of the proceeds of the 2020 Bonds or of any other moneys or property which would
cause the 2020 Bonds to be "private activity bonds" within the meaning of Section 141 of the Code;
(b) Arbitnuxe The City will make no use of the proceeds of the 2020 Bonds or of
any other amounts or property, regardless of the source, and will take no action and refrain from
taking any action which will cause the 2020 Bonds to be "arbitrage bonds" within the meaning of
Section 148 of the Code;
(c) Federal Guarantee. The City will make no use of the proceeds of the 2020
Bonds and will not take or omit to take any action that would cause the 2020 Bonds to be `federally
guaranteed" within the meaning of Section 149(b) of the Code;
(d) Information Reoortine. The City will take or cause to be taken all necessary
action to comply with the informational reporting requirement of Section 149(e) of the Code
necessary to preserve the exclusion of interest on the 2020 Bonds pursuant to Section 103(a) of the
Code;
(e) Hedge Bonds. The City will make no use of the proceeds of the 2020 Bonds
or any other amounts or property, regardless of the source, and will not take any action or refrain
from taking any action that would cause the 2020 Bonds to be considered "hedge bonds" within the
meaning of Section 149(g) of the Code unless the City takes all necessary action to assure
compliance with the requirements of Section 149(g) of the Code to maintain the exclusion from gross
income of interest on the 2020 Bonds for federal income tax purposes; and
(t) Miscellaneous. The City will take no action and refrain from taking any
action inconsistent with its expectations stated in the Tax Certificate executed by the City in
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connection with the issuance of the 2020 Bonds and will comply with the covenants and
requirements stated therein and incorporated by reference herein.
This Section and the covenants set forth herein shall not be applicable to, and nothing
contained herein shall be deemed to prevent the City issuing revenue bonds or causing the Trustee to
to execute and deliver contracts payable on a parity with the 2020 Bonds, the interest with respect to
which has been determined by Bond Counsel to be subject to federal income taxation.
Section 6.07. Waiver of Laws. The City shall not at any time insist upon or plead in any
manner whatsoever, or claim or take the benefit or advantage of, any stay or extension law now or at
any time hereafter in force that may affect the covenants and agreements contained in the Indenture
or in the 2020 Bonds, and all benefit or advantage of any such law or laws is hereby expressly
waived by the City to the extent permitted by law.
Section 6.08. Further Assurances. The City will make, execute and deliver any and all such
fiuther indentures, instruments and assurances as may be reasonably necessary or proper to carry out
the intention or to facilitate the performance of the Indenture and for the better assuring and
confirming unto the Owners of the 2020 Bonds of the rights and benefits provided in the Indenture.
Section 6.09. Budgets. On or prior to the fifteenth day of each Fiscal Year, the City shall
certify to the Trustee that the amounts budgeted for payment of the principal of and interest on the
2020 Bonds are fully adequate for the payment of all such payments for such Fiscal Year. If the
amounts so budgeted are not adequate for the payment of the principal of and interest on the 2020
Bonds due under the Indenture, the City will take such action as may be necessary to cause such
annual budget to be amended, corrected or augmented so as to include therein the amounts required
to be raised by the City in the then ensuing Fiscal Year for the payment of the principal of and
interest on the 2020 Bonds due under the Indenture and will notify the Trustee of the proceedings
then taken or proposed to be taken by the City.
Section 6.10. Observance of Laws and Regulations. To the extent necessary to assure its
performance hereunder, the City will well and truly keep, observe and perform all valid and lawful
obligations or regulations now or hereafter imposed on the City by contract, or prescribed by any law
of the United States of America, or of the State, or by any officer, board or commission having
jurisdiction or control, as a condition of the continued enjoyment of any and every right, privilege or
franchise now owned or hereafter acquired by the City, respectively, including its right to exist and
carry on its business, to the end that such contracts, rights and franchises shall be maintained and
preserved, and shall not become abandoned, forfeited or in any manner impaired.
Section 6.11. Compliance with Contracts. The City will neither take nor omit to take any
action under any contract if the effect of such act or failure to act would in any manner impair or
adversely affect the ability of the City to pay principal of or interest on the 2020 Bonds; and the City
will comply with, keep, observe and perform all agreements, conditions, covenants and terms,
express or implied, required to be performed by it contained in all other contracts affecting or
involving the Water System, to the extent that the City is a party thereto.
Section 6.12. Prosecution and Defense of Suits. The City shall promptly, upon request of
the Trustee or any 2020 Bond Owner, from time to time take such action as may be necessary or
proper to remedy or care any defect in or cloud upon the title to the Water System or any part
thereof, whether now existing or hereafter developing, shall prosecute a0 such suits, actions and
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other proceedings as may be appropriate for such purpose and shall indemnify and save the Trustee
(including all of its employees, officers and directors), the Trustee and every 2020 Bond Owner
harmless from all loss, cost, damage and expense, including attorneys' fees, which they or any of
them may incur by reason of any such defect, cloud, suit, action or proceeding.
The City shall defend against every suit, action or proceeding at any time brought against the
Tmstee (including all of its employees, officers and directors) or any 2020 Bond Owner upon any
claim arising out of the receipt, application or disbursement of any of the payments of principal of or
interest on the 2020 Bonds or involving the rights of the Trustee or any 2020 Bond Owner under the
Indenture; provided that the Trustee or any 2020 Bond Owner at such party's election may appear in
and defend any such suit, action or proceeding. The City shall indemnify and hold harmless the
Trustee and the 2020 Bond Owners against any and all liability claimed or asserted by any person,
arising out of such receipt, application or disbursement, and shall indemnify and hold harmless the
2020 Bond Owners against any attorneys' fees or other expenses which any of them may incur in
connection with any litigation (including pre -litigation activities) to which any of them may become
a party by reason of ownership of 2020 Bonds. The City shall promptly reimburse any 2020 Bond
Owner in the full amount of any attorneys' fees or other expenses which such Owner may incur in
litigation or otherwise in order to enforce such party's rights under the Indenture or the 2020 Bonds,
provided that such litigation shall be concluded favorably to such parry's contentions therein.
Section 6.13. Continuing Disclosure. The City hereby covenants and agrees that it will
comply with and carry out all of its obligations under the Continuing Disclosure Agreement to be
executed and delivered by the City in connection with the issuance of the 2020 Bonds.
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; however, any Owner
or Beneficial Owner 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
under this Section. For purposes of this Section, 'Beneficial Owner" means any person which has
or shares the power, directly or indirectly, to make investment decisions concerning ownership of
any 2020 Bonds (including persons holding 2020 Bonds through nominees, depositories or other
intermediaries).
Section 6.14. Additional Contracts and Bonds. The City may at any time execute any
Contract or issue any Bonds, as the case may be, in accordance herewith; provided that:
(a) The Net Revenues for the last audited Fiscal Year of the City, or for any
consecutive twelve calendar month period during the eighteen calendar month period, preceding the
date of adoption by the City Council of the City of the resolution authorizing the issuance of such
Bonds or the date of the execution of such Contract, as the case may be, as evidenced by a special
report prepared by an Independent Certified Public Accountant or Independent Financial Consultant
on file with the City, shall have produced a sum equal to at least one hundred fifteen percent (1150%)
of the Debt Service for such Fiscal Year or other twelve month period. [When calculated for
purposes of this subsection, Net Revenues will not include amounts that have been transferred from
the Rate Stabilization Fund to the Revenue Fund pursuant to Section 5.08 that are in excess of fifteen
percent (15%) of Debt Service for such Fiscal Year]; and
(b) The Net Revenues for the last audited Fiscal Year of the City, or for any
consecutive twelve calendar month period during the eighteen calendar month period, preceding the
date of adoption by the City Council of the City of the resolution authorizing the issuance of such
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Bonds or the date of the execution of such Contract, as the case may be, including adjustments to
give effect as of the first day of such twelve month period to increases or decreases in rates and
charges for the Water Service approved and in effect as of the date of calculation, as evidenced by a
special report prepared by an Independent Certified Public Accountant or Independent Financial
Consultant on file with the City, shall have produced a sum equal to at least one hundred fifteen
percent (115%) of the Debt Service for such Fiscal Year or other twelve month period, plus the Debt
Service which would have accrued on any Contracts executed or Bonds issued since the end of such
Fiscal Year or other twelve month period, assuming that such Contracts had been executed or Bonds
had been issued at the beginning of such Fiscal Year or other twelve month period, plus the Debt
Service which would have accrued had such proposed additional Contract been executed or proposed
additional Bonds been issued at the beginning of such Fiscal Year or other twelve month period.
[When calculated for purposes of this subsection, Net Revenues will not include amounts which have
been transferred from the Rate Stabilization Fund to the Revenue Fond pursuant to Section 5.08 that
are in excess of fifteen percent (150/6) of Debt Service for such Fiscal Year).
Notwithstanding the foregoing, Bonds issued or Contracts executed to refund Bonds or
prepay Contracts may be delivered without satisfying the conditions set forth above if total Debt
Service after the issuance of such refunding Bonds or execution of such refunding Contracts
executed is not greater than total Debt Service would have been prior to the issuance of such Bonds
or execution of such Contracts.
Section 6.15. Against Sale or Other Disposition of Procertv. The City will not enter into
any agreement or lease which impairs the operation of the Water System or any part thereof
necessary to secure adequate Revenues for the payment of the principal of and interest on the 2020
Bonds, or which would otherwise impair the operation of the Water System. Any real or personal
property which has become nonoperative or which is not needed for the efficient and proper
operation of the Water System, or any material or equipment which has become worn out, may be
sold if such sale will not impair the ability of the City to pay the principal of and interest on the 2020
Bonds and if the proceeds of such sale are deposited in the Revenue Fund.
Nothing herein shall restrict the ability of the City to sell any portion of the Water System if
such portion is immediately repurchased by the City and if such arrangement cannot by its terms
result in the purchaser of such portion of the Water System exercising any remedy which would
deprive the City of or otherwise interfere with its right to own and operate such portion of the Water
System.
Section 6.16. Against Comuctitive Facilities. To the extent that it can so legally obligate
itself, the City covenants that it will not acquire, construct, maintain or operate and will not, to the
extent permitted by law and within the scope of its powers, permit any other public or private agency,
corporation, district or political subdivision or any person whomsoever to acquire, construct,
maintain or operate within the City any municipal water system competitive with the Water System.
Section 6.17. Maintenance and Operation of the Water System. The City will maintain and
preserve the Water System in good repair and working order at all times and will operate the Water
System in an efficient and economical manner and will pay all Operation and Maintenance Costs as
they become due and payable.
Section 6.18. Payment of Claims. The City will pay and discharge any and all lawful
claims for labor, materials or supplies which, if unpaid, might become a lien on the Revenues or the
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funds or accounts created hereunder or on any funds in the hands of the City pledged to pay the
principal of or interest on the 2020 Bonds or to the Owners prior or superior to the lien under the
Indenture.
Section 6.19. Insurance.
(a) The City will procure and maintain or cause to be procured and maintained
insurance on the Water System with responsible insurers in such amounts and against such risks
(including damage to or destruction of the Water System) as are usually covered in connection with
facilities similar to the Water System so long as such insurance is available from reputable insurance
companies.
In the event of any damage to or destruction of the Water System caused by the perils
covered by such insurance, the Net Proceeds thereof shall be applied to the reconstruction, repair or
replacement of the damaged or destroyed portion of the Water System. The City shall begin such
reconstruction, repair or replacement promptly after such damage or destruction shall occur, and shall
continue and properly complete such reconstruction, repair or replacement as expeditiously as
possible, and shall pay out of such Net Proceeds all costs and expenses in connection with such
reconstruction, repair or replacement so that the same shall be completed and the Water System shall
be free and clear of all claims and liens.
If such Net Proceeds exceed the costs of such reconstruction, repair or replacement portion of
the Water System, and/or the cost of the construction of additions, betterments, extensions or
improvements to the Water System, then the excess Net Proceeds may be applied in part to
defeasance of 2020 Bonds and in part to such other fund or account as may be appropriate and used
for the retirement of Bonds and Contracts in the same proportion which the aggregate unpaid
principal balance of 2020 Bonds then hears to the aggregate unpaid principal amount of such Bonds
and Contracts. If such Net Proceeds are sufficient to enable the City to retire the entire obligation
evidenced hereby prior to the final due date of the 2020 Bonds as well as the entire obligations
evidenced by Bonds and Contracts then remaining unpaid prior to their final respective due dates, the
City may elect not to reconstruct, repair or replace the damaged or destroyed portion of the Water
System, and/or not to construct other additions, betterments, extensions or improvements to the
Water System; and thereupon such Net Proceeds shall be applied to the retirement of 2020 Bonds
and to the retirement of such Bonds and Contracts-
(b) The City will procure and maintain such other insurance as it shall deem
advisable or necessary to protect its interests and the interests of the 2020 Bond Owners, which
insurance shall afford protection in such amounts and against such risks as are usually covered in
connection with municipal water systems similar to the Water System.
(c) Any insurance required to be maintained by paragraph (a) above and, if the
City determines to procure and maintain insurance pursuant to paragraph (b) above, such insurance,
may be maintained under a self-insurance program so long as such self-insurance is maintained in the
amounts and manner usually maintained in connection with municipal water systems similar to the
Water System and is, in the opinion of an accredited actuary, actuarially sound.
Section 6.20. Payment of Taxes and Compliance with Governmental Regulations. The City
will pay and discharge all taxes, assessments and other governmental charges which may hereafter be
lawfully imposed upon the Water System, many part thereof or upon the Revenues when the same
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shall become due. The City will duly observe and conform with all valid regulations and
requirements of any governmental authority relative to the operation of the Water 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.
Section 6.21. Amount of Rates and Charees.
(a) In any Fiscal Year in which the amount on deposit in the Rate Stabilization
Fund on the first day of such Fiscal Year is less than the payments of principal of and interest on the
2020 Bonds payable in such Fiscal Year, to the fullest extent permitted by law, the City will fix and
prescribe, at or before the commencement of each such Fiscal Year, rates and charges for the Water
Service which are reasonably expected, at the commencement of such Fiscal Year, to be at least
sufficient to yield during such Fiscal Year Net Revenues equal to one hundred fifteen percent (115%)
of Debt Service for such Fiscal Year. [When calculated for purposes of this subsection, Net
Revenues will not include amounts which have been transferred from the Rate Stabilization Fund
pursuant to Section 5.08 that are in excess of fifteen percent (15°/u) of Debt Service for such Fiscal
Year].
(b) In any Fiscal Year in which the amount on deposit in the Rate Stabilization
Fund on the first day of such Fiscal Year is at least equal to the payments of principal of and interest
on the 2020 Bonds payable in such Fiscal Year, to the fullest extent permitted by law, the City will
fix and prescribe, at or before the commencement of each such Fiscal Year, rates and charges for the
Water Service which are reasonably expected, at the commencement of such Fiscal Year, to be at
least sufficient to yield during such Fiscal Year Revenues equal to one hundred fifteen percent
(115%) of the Operation and Maintenance Costs for such Fiscal Year. [When calculated for
purposes of this subsection, Revenues will not include any amounts which have been transferred
from the Rate Stabilization Fund pursuant to Section 5.08].
(c) The City may make or permit to be made adjustments from time to time in
such rates, fees and charges and may make or permit to be made such classification thereof as it
deems necessary, but shall not reduce or permit to be reduced such rates, fees and charges below
those then in effect unless the Revenues from such reduced rates, fees and charges will at all times be
sufficient to meet the requirements of this Section.
Section 6.22. Collection of Rates and Changes. The City will have in effect at all times
by-laws, rules and regulations requiring each customer to pay the rates and charges applicable to the
Service and providing for the billing thereof and for a due date and a delinquency date for each bill.
Section 6.23. Eminent Domain proceeds. If all or any part of the Water System shall be
taken by eminent domain proceedings, the Net Proceeds thereof shall be applied as follows:
(a) If. (1) the City files with the Trustee a certificate showing: (i) the estimated
loss of annual Net Revenues, if any, suffered or to be suffered by the City by reason of such eminent
domain proceedings; (ii) a general description of the additions, betterments, extensions or
improvements to the Water System proposed to be acquired and constructed by the City fiom such
Net Proceeds; and (iii) an estimate of the additional annual Net Revenues to be derived from such
additions, betterments, extensions or improvements; and (2) the City, on the basis of such certificate
filed with the Trustee, determines that the estimated additional annual Net Revenues will sufficiently
offset the estimated loss of annual Net Revenues resulting from such eminent domain proceedings so
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that the ability of the City to meet its obligations hereunder will not be substantially impaired (which
determination shall be final and conclusive), then the City shall promptly proceed with the
acquisition and construction of such additions, betterments, extensions or improvements substantially
in accordance with such certificate and such Net Proceeds shall be applied for the payment of the
costs of such acquisition and construction, and any balance of such Net Proceeds not required by the
City for such purpose shall be deposited in the Revenue Fund.
(b) If the foregoing conditions are not met, then such Net Proceeds shall be
applied by the City in part to the defeasance or redemption of 2020 Bonds as provided herein, and in
part to such other fund or account as may be appropriate and used for the retirement of Bonds and
Contracts in the same proportion which the aggregate unpaid principal balance of 2020 Bonds then
bears to the aggregate unpaid principal amount of such Bonds and Contracts.
Section 6.24. Enforcement of Contracts. The City will not voluntarily consent to or permit
any rescission of, not will it consent to any amendment to or otherwise take any action under or in
connection with any contracts previously or hereafter entered into if such rescission or amendment
would in any manner impair or adversely affect the ability of the City to pay principal of and interest
on the 2020 Bonds.
ARTICLE VII
EVENTS OF DEFAULT AND REMEDIES OF 2020 BOND OWNERS
Section 7.01. Events of Default. The following events shall be Events of Default
hereunder:
(a) Default by the City in the due and punctual payment of the principal of any
2020 Bonds, the principal of any Bonds or the principal with respect to any Contract, when and as
the same shall become due and payable, whether at maturity as therein expressed, by proceedings for
redemption, by acceleration, or otherwise.
(b) Default by the City in the due and punctual payment of any installment of
interest on any 2020 Bonds, any installment of interest on any Bond or any installment of interest
with respect to any Contract, when and as the same shall become due and payable.
(c) Default by the City in the observance of any of the other covenants,
agreements or conditions on its part in the Indenture or in the 2020 Bonds, or required by any Bond
or indenture relating thereto or by any Contract, if such default shall have continued for a period of
sixty (60) days after written notice thereof, specifying such default and requiring the same to be
remedied, shall have been given to the City by the Trustee or by the Owners of not less than a
majority in aggregate principal amount of 2020 Bonds Outstanding, a majority in principal amount of
such Bond outstanding, or a majority in principal amount outstanding with respect to such Contract,
as applicable; provided, however, that if in the reasonable opinion of the City the default stated in the
notice can he corrected, but not within such sixty (60) day period, and corrective action is instituted
by the City within such sixty (60) day period and diligently pursued in good faith until the default is
corrected, such default shall not be an Event of Default hereunder; provided however, that such
extended care period shall not be longer than 180 days from the delivery date of such default notice.
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(d) The City shall file a petition or answer seeking arrangement or reorganization
under the federal bankruptcy laws or any other applicable law of the United States of America or any
state therein, or a court of competent jurisdiction shall approve a petition filed with or without the
consent of the City seeking arrangement or reorganization under the federal bankruptcy laws or any
other applicable law of the United States of America or any state therein, or if under the provisions of
any other law for the relief or aid of debtors any court of competent jurisdiction shall assume custody
or control of the City or of the whole or any substantial part of its property.
(e) Payment of the principal of any Bond or with respect to any Contract is
accelerated in accordance with its terms.
Section 7.02. Remedies Upon Event of Default. If any Event of Default specified in
Section 7.01(d) or (e) shall occur and be continuing, the Trustee shall, and for any other Event of
Default, the Trustee may, and, at the written direction of the Owners of not less than a majority in
aggregate principal amount of the 2020 Bonds at the time Outstanding, shall, in each case, upon
notice in writing to the City, declare the principal of all of the 2020 Bonds then Outstanding, and the
interest accrued thereon, to be due and payable immediately, and upon any such declaration, the
same shall become and shall be immediately due and payable, anything in the Indenture or in the
2020 Bonds contained to the contrary notwithstanding.
Nothing contained herein shall permit or require the Trustee to accelerate payments due
under the Indenture if the City is not in default of its obligation hereunder.
Any such declaration is subject to the condition that if, at any time after such declaration and
before any judgment or decree for the payment of the moneys due shall have been obtained or
entered, the City shall deposit with the Trustee a sum sufficient to pay all the principal of and
installments of interest on the 2020 Bonds payment of which is overdue, with interest on such
overdue principal at the rate home by the respective 2020 Bonds to the extent permitted by law, and
the reasonable fees, disbursements and expenses of the Trustee, or shall deposit with the applicable
trustee with respect to any Contract a sum sufficient to pay all the principal and installments of
interest with respect to such Contract payment of which is overdue, with interest on such overdue
principal at the rate home by such Contract to the extent permitted by law, and the reasonable
charges and expenses of the applicable trustee with respect to such Contract, or shall deposit with the
applicable trustee with respect to any Bond a sum sufficient to pay all the principal of and installment
of interest on such Bond payment of which is overdue, with interest on such overdue principal at the
rate borne by such Bonds to the extent permitted by law, and the reasonable charges and expenses of
the applicable trustee with respect to such Bonds, and any and all other Events of Default actually
known to a Responsible Officer of the Trustee or the applicable trustee with respect to such Contract
or Bonds (other than in the payment of principal of and interest on the 2020 Bonds, payment of
principal and interest with respect to such Contract or payment of principal and interest on such
Bond, as applicable, due and payable solely by reason of such declaration) shall have been made
good or cured to the satisfaction of the Trustee or provision deemed by the Trustee to be adequate
shall have been made therefor, then and in every such case the Trustee shall on behalf of the Owners
of all of the 2020 Bonds, rescind and annul such declaration and its consequences and waive such
Event of Default; but no such rescission and annulment shall extend to or shall affect any subsequent
Event of Default, or shall impair or exhaust any right or power consequent thereon.
Section 7.03. Annlication of Revenues and Other Funds After Default. If an Event of
Default shall occur and be continuing, all Revenues held or thereafter received by the Trustee and
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any other funds then held or thereafter received by the Trustee under any of the provisions of the
Indenture (other than amounts held in the Rebate Fond) shall be applied in the following order:
(a) To the payment of any expenses necessary in the opinion of the Trustee to
protect the interests of the Owners of the 2020 Bonds, Contract or Bonds and payment of reasonable
fees and expenses of the Trustee (including reasonable fees and disbursements of its counsel)
incurred in and about the performance of its powers and duties under the Indenture;
(b) To the payment of Operation and Maintenance Costs; and
(c) To the payment of the principal of and interest then due on the 2020 Bonds
(upon presentation of the 2020 Bonds to be paid, and stamping or otherwise noting thereon of the
payment if only partially paid, or surrender thereof if fully paid), in accordance with the provisions
of the Indenture, and to the payment of the principal and interest then due with respect to such
Contract in accordance with the provisions thereof and the payment of the principal of and interest
then due on such Bonds in accordance with the provisions thereof and of any indenture related
thereto, in the following order of priority:
First: To the payment to the persons entitled thereto of all installments of
interest then due on the 2020 Bonds, with respect to such Contract or on such Bonds, as applicable,
in the order of the maturity of such installments, and, if the amount available shall not be sufficient to
pay in full any installment or installments maturing on the same date, then to the payment thereof
ratably, according to the amounts due thereon, to the persons entitled thereto, without any
discrimination or preference; and
Second: To the payment to the persons entitled thereto of the unpaid principal
of any 2020 Bonds, principal with respect to such Contract or principal of any Bonds, as applicable,
which shall have become due, whether at maturity or by acceleration or redemption, with interest on
the overdue principal at the rate of eight percent (8%) per annum, and, if the amount available shall
not be sufficient to pay in full all the 2020 Bonds, all amounts due under such Contract or all the
Bonds, as applicable, together with such interest, then to the payment thereof ratably, according to
the amounts of principal due on such date to the persons entitled thereto, without any discrimination
or preference; and
Third: If there shall exist any remainder after the foregoing payments, such
remainder shall be paid to the City.
Section 7.04. Trustee to Represent 2020 Bond Owners. The Trustee is hereby irrevocably
appointed (and the successive respective Owners of the 2020 Bonds, by taking and holding the same,
shall be conclusively deemed to have so appointed the Trustee) as trustee and true and lawful
attorney in fact of the Owners of the 2020 Bonds for the purpose of exercising and prosecuting on
their behalf such rights and remedies as may be available to such Owners under the provisions of the
2020 Bonds or the Indenture and applicable provisions of law. Upon the occurrence and continuance
of an Event of Default or other occasion giving rise to a right in the Trustee to represent the 2020
Bond Owners, the Trustee in its discretion may, and upon the written request of the Owners of a
majority in aggregate principal amount of the 2020 Bonds then Outstanding, and upon being
indemnified to its satisfaction therefor, shall proceed to protect or enforce its rights or the rights of
such Owners by such appropriate action, suit, mandamus or other proceedings as it shall deem most
effectual to protect and enforce any such right, at law or in equity, either for the specific performance
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of any covenant or agreement contained herein, or in aid of the execution of any power herein
granted, or for the enforcement of any other appropriate legal or equitable right or remedy vested in
the Trustee or in such Owners under the 2020 Bonds or the Indenture or any law; and upon
instituting such proceeding, the Trustee shall be entitled, as a matter of right, to the appointment of a
receiver of the Revenues and other assets pledged under the Indenture, pending such proceedings.
All rights of action under the Indenture or the 2020 Bonds or otherwise may be prosecuted and
enforced by the Trustee without the possession of any of the 2020 Bonds or the production thereof in
any proceeding relating thereto, and any such suit, action or proceeding instituted by the Trustee shall
be brought in the name of the Trustee for the benefit and protection of all the Owners of such 2020
Bonds, subject to the provisions of the Indenture.
Nothing herein shall be deemed to authorize the Trustee to authorize or consent to or accept
or adopt on behalf of any 2020 Bond Owner any plan of reorganization, arrangement, adjustment, or
composition affecting the Bonds or the rights of any 2020 Bond Owner thereof, or to authorize the
Trustee to vote in respect of the claim of any 2020 Bond Owner in any such proceeding without the
approval of the 2020 Bond Owners so affected.
Section 7.05. 2020 Bond Owners' Direction of Proceedings. Anything in the Indenture to
the contrary notwithstanding, the Owners of a majority in aggregate principal amount of the 2020
Bonds then Outstanding shall have the right, by an instrument or concur ent instruments in writing
executed and delivered to the Trustee, and upon indemnification of the Trustee to its reasonable
satisfaction to direct the method of conduct in all remedial proceedings taken by the Trustee
hereunder, provided that such direction shall not be otherwise than in accordance with law and the
provisions of the Indenture, and that the Trustee shall have the right to decline to follow any such
direction which in the opinion of the Trustee (which determination the Trustee has no duty to make)
would be unjustly prejudicial to 2020 Bond Owners not parties to such direction.
Section 7.06. Suit by Owners. No Owner of any 2020 Bonds shall have the right to
institute any suit, action or proceeding at law or in equity, for the protection or enforcement of any
right or remedy under the Indenture with respect to such 2020 Bonds, unless: (a) such Owners shall
have given to the Trustee written notice of the occurrence of an Event of Default; (b) the Owners of
not less than fifty percent (50%) in aggregate principal amount of the 2020 Bonds then Outstanding
shall have made written request upon the Trustee to exercise the powers hereinbefore granted or to
institute such suit, action or proceeding in its own time; (c) such Owner or Owners shall have
tendered to the Trustee reasonable indemnity against the costs, expenses and liabilities to be incurred
in compliance with such request; (d) the Trustee shall have failed to comply with such request for a
period of sixty (60) days after such written request shall have been received by, and said tender of
indemnity, shall have been made to, the Trustee; and (e) no direction inconsistent with such written
request shall have been given to the Trustee during such sixty (60) day period by the Owners of a
majority in aggregate principal amount of the 2020 Bonds then Outstanding.
Such notification, request, tender of indemnity and refusal or omission are hereby declared,
in every case, to be conditions precedent to the exercise by any Owner of 2020 Bonds of any remedy
hereunder or under law; it being understood and intended that no one or more Owners of 2020 Bonds
shall have any right in any manner whatever by their action to affect, disturb or prejudice the security
of the Indenture or the rights of any other Owners of 2020 Bonds, or to enforce any right under the
2020 Bonds, the Indenture, or applicable law with respect to the 2020 Bonds, except in the manner
herein provided, and that all proceedings at law or in equity to enforce any such right shall be
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instituted, had and maintained in the manner herein provided and for the benefit and protection of all
Owners of the Outstanding 2020 Bonds, subject to the provisions of the Indenture.
Section 7.07. Absolute Obligation of the City. Nothing in this Section 7.07 or in any other
provision of the Indenture or in the 2020 Bonds shall affect or impair the obligation of the City,
which is absolute and =conditional, to pay the principal of and interest on the 2020 Bonds to the
respective Owners of the 2020 Bonds at their respective dates of maturity, or upon call for
redemption, as herein provided, but only out of the Revenues and other assets herein pledged
therefor, or affect or impair the right of such Owners, which is also absolute and unconditional, to
enforce such payment by virtue of the contract embodied in the 2020 Bonds.
Section 7.08. Remedies Not Exclusive. No remedy herein conferred upon or reserved to
the Trustee or to the Owners of the 2020 Bonds is intended to be exclusive of any other remedy or
remedies, and each and every such remedy, to the extent permitted by law, shall be cumulative and in
addition to any other remedy given hereunder or now or hereafter existing at law or in equity or
otherwise.
Section 7.09. No Waiver of Default. No delay or omission of the Trustee or of any Owner
of the 2020 Bonds to exercise any right or power arising upon the occurrence of any Event of Default
shall impair any such right or power or shall be construed to be a waiver of any such Event of
Default or an acquiescence therein.
ARTICLE VIB
THE TRUSTEE
Section 8.01. Duties. Immunities and Liabilities of Trustee.
(a) The Trustee shall, prior to an Event of Default, and after the curing or
waiving of all Events of Default which may have occurred perform such duties and only such duties
as are expressly and specifically set forth in the Indenture, and no implied covenants or duties shall
be read into the Indenture against the Trustee. The Trustee shall, during the existence of any Event
of Default (which has not been cured or waived), exercise such of the rights and powers vested in it
by the Indenture, and use the same degree of care and skill in their exercise, as a prudent person
would exercise or use under the circumstances in the conduct of such person's own affairs.
(b) The City may remove the Trustee at any time upon thirty (30) days' prior
notice, unless an Event of Default shall have occurred and then be continuing, and shall remove the
Trustee if at any time requested to do so by an instrument or concurrent instruments in writing signed
by the Owners of not less than a majority in aggregate principal amount of the 2020 Bonds then
Outstanding (or their attorneys duly authorized in writing) or if at any time the Trustee shall cease to
be eligible in accordance with subsection (e) of this Section, or shall become incapable of acting, or
shall be adjudged a bankrupt or insolvent, or a receiver of the Trustee or its property shall be
appointed, or any public officer shall take control or charge of the Trustee or of its property or affairs
for the purpose of rehabilitation, conservation or liquidation, in each case by giving written notice of
such removal to the Trustee and thereupon shall promptly appoint a successor Trustee by an
instrument in writing.
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(c) The Trustee may at any time resign by giving written notice of such
resignation to the City and by giving the 2020 Bond Owners notice of such resignation by mail at the
addresses shown on the Registration Books. Upon receiving such notice of resignation, the City shall
promptly appoint a successor Trustee by an instrument in writing.
(d) Any removal or resignation of the Trustee and appointment of a successor
Trustee shall become effective upon acceptance of appointment by the successor Trustee. If no
successor Trustee shall have been appointed and have accepted appointment within forty-five (45)
days of giving notice of removal or notice of resignation as aforesaid, the retiring Trustee or any
2020 Bond Owner (on behalf of such 2020 Bond Owner and all other 2020 Bond Owners) may
petition any court of competent jurisdiction for the appointment of a successor Trustee, and such
court may thereupon, after such notice (if any) as it may deem proper, appoint such successor
Trustee. Any successor Trustee appointed under the Indenture shall signify its acceptance of such
appointment by executing and delivering to the City and to its predecessor Trustee a written
acceptance thereof, and thereupon such successor Trustee, without any further act, deed or
conveyance, shall become vested with all of the moneys, estates, properties, rights, powers, trusts,
duties and obligations of such predecessor Trustee, with like effect as if originally named Trustee
herein; but, nevertheless at the Written Request of the City or the request of the successor Trustee,
such predecessor Trustee shall execute and deliver any and all instruments of conveyance or further
assurance and do such other things as may reasonably be required for more fully and certainly
vesting in and confirming to such successor Trustee all of the right, title and interest of such
predecessor Trustee in and to any property held by it under the Indenture and shall pay over, transfer,
assign and deliver to the successor Trustee any money or other property subject to the trusts and
conditions herein set forth. Upon request of the successor Trustee, the City shall execute and deliver
any and all instruments as may be reasonably required for more fully and certainly vesting in and
confirming to such successor Trustee all such moneys, estates, properties, rights, powers, trusts,
duties and obligations. Upon acceptance of appointment by a successor Trustee as provided in this
subsection, the City shall mail or cause the successor trustee to mail a notice of the succession of
such Trustee to the trusts hereunder to each rating agency which is then rating the 2020 Bonds and to
the 2020 Bond Owners at the addresses shown on the Registration Books. If the City fails to mail
such notice within fifteen (15) days after acceptance of appointment by the successor Trustee, the
successor Trustee shall cause such notice to be mailed at the expense of the City.
(e) Any Tout" appointed under the provisions of this Section in succession to
the Trustee shall be a trout company, banking association or bank having the powers of a trust
company, having a combined capital and surplus of at least Seventy Five Million Dollars
($75,000,000), and subject to supervision or examination for federal or state authority. If such bank,
banking association or trust company publishes a report of condition at least annually, pursuant to
law or to the requirements of any supervising or examining authority above referred to, then for the
purpose of this subsection the combined capital and surplus of such trust company, banking
association or bank shall be deemed to be its combined capital and surplus as set forth in its most
recent report of condition so published. In case at any time the Trustee shall cease to be eligible in
accordance with the provisions of this subsection (a), the Trustee shall resign immediately in the
manner and with the effect specified in this Section.
Section 8.02. Merger or Consolidation. Any tout company, banking association or bank
into which the Trustee may be merged or converted or with which it may be consolidated or any trust
company, banking association or bank resulting from any merger, conversion or consolidation to
which it shall be a party or any trust company, banking association or bank to which the Trustee may
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sell or transfer all or substantially all of its corporate trust business, provided that such trust
company, banking association or bank shall be eligible under subsection (e) of Section 8.01, shall be
the successor to such Trustee, without the execution or filing of any paper or any further act,
anything herein to the contrary notwithstanding.
Section 8.03. Liability of Trustee.
(a) The recitals of facts herein and in the 2020 Bonds shall be taken as statements
of the City, and the Trustee shall not assume responsibility for the correctness of the same, or make
any representations as to the validity or sufficiency of the Indenture or the 2020 Bonds, nor shall the
Trustee incur any responsibility in respect thereof, other than as expressly stated herein in connection
with the respective duties or obligations herein or in the 2020 Bonds assigned to or imposed upon it.
The Trustee shall, however, be responsible for its representations contained in its certificate of
authentication on the 2020 Bonds. The Trustee shall not be liable in connection with the
performance of its duties hereunder, except for its own negligence or willful misconduct. The
Trustee may become the Owner of 2020 Bonds with the same rights it would have if it were not
Trustee, and, to the extent permitted by law, may act as depository for and permit any of its officers
or directors to act as a member of, or in any other capacity with respect to, any committee formed to
protect the rights of 2020 Bond Owners, whether or not such committee shall represent the Owners
of a majority in principal amount of the 2020 Bonds then Outstanding.
(b) The Trustee shall not be liable for any error of judgment made in good faith
by a responsible officer, unless it shall be proved that the Trustee was negligent in ascertaining the
pertinent facts.
(c) The Trustee shall not be liable with respect to any action taken or omitted to
be taken by it in good faith in accordance with the direction of the Owners of not less than a majority
(or such other percentage provided for herein) in aggregate principal amount of the 2020 Bonds at
the time Outstanding relating to the time, method and place of conducting any proceeding for any
remedy available to the Trustee, or exercising any trust or power conferred upon the Trustee under
the Indenture.
(d) The Trustee shall not be liable for any action taken by it in good faith and
believed by it to be authorized or within the discretion or rights or powers conferred upon it by the
Indenture.
(e) The Trustee shall not be deemed to have knowledge of any default or Event
of Default hereunder or any other event which, with the passage of time, the giving of notice, or both,
would constitute an Event of Default hereunder unless and until a Responsible Officer of the Trustee
shall have actual knowledge of such event or the Trustee shall have been notified in writing, in
accordance with Section 11.07, of such event by the City or the Owners of not less than fifty percent
(50%) of the 2020 Bonds then Outstanding. Except as otherwise expressly provided herein, the
Trustee shall not be bound to ascertain or inquire as to the performance or observance by the City of
any of the terms, conditions, covenants or agreements herein of any of the documents executed in
connection with the 2020 Bonds, or as to the existence of an Event of Default thereunder or an event
which would, with the giving of notice, the passage of time, or both, constitute an Event of Default
thereunder. The Trustee shall not be responsible for the validity, effectiveness or priority of any
collateral given to or held by it.
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(f) No provision of the Indenture shall require the Trustee to expend or risk its
own funds or otherwise incur any financial liability in the performance of its duties hereunder, or in
the exercise of any of its rights or powers.
(g) The Trustee shall be under no obligation to exercise any of the rights or
powers vested in it by the Indenture, including at the request, order or direction of any of the Owners
pursuant to the Indenture, unless such Owners shall have offered to the Trustee security or indemnity
satisfactory to the Trustee against the costs, expenses and liabilities which might be incurred by it in
compliance with such request or direction. No permissive power, right or remedy conferred upon the
Trustee hereunder shall be construed to impose a duty to exercise such power, right or remedy.
(h) Whether or not herein expressly so provided every provision of the Indenture
relating to the conduct or affecting the liability of or affording protection to the Trustee shall be
subject to the provisions of this Article VIII.
(i) The Trustee shall have no responsibility or liability with respect to any
information, statement, or recital in any official statement, offering memorandum or any other
disclosure material prepared or distributed with respect to the 2020 Bonds.
0) The immunities extended to the Trustee also extend to its directors, officers,
employees and agents.
(k) The Trustee may execute any of the trusts or powers of the Indenture and
perform any of its duties through attorneys, agents and receivers and shall not be answerable for the
conduct of the same if appointed by it with reasonable care.
(1) The Trustee shall not be considered in breach of or in default in its
obligations hereunder or progress in respect thereto in the event of delay in the performance of such
obligations due to unforeseeable causes beyond its control and without its fault or negligence,
including, but not limited to, acts of God or of the public enemy or terrorists, acts of a government,
acts of the other party, fires, floods, epidemics, quarantine restrictions, strikes, freight embargoes,
earthquakes, explosion, mob violence, riot, inability to procure or general sabotage or rationing of
labor, equipment, facilities, sources of energy, material or supplies in the open market, litigation or
arbitration involving a party or others relating to zoning or other governmental action or inaction
pertaining to the Water System, malicious mischief, condemnation, and unusually severe weather or
delays of suppliers or subcontractors due to such causes or any similar event and/or occurrences
beyond the control of the Trustee.
(m) The Trustee shall have the right to accept and act upon instructions, including
fords transfer instructions ("Instructions") given pursuant to this Indenture and delivered using
Electronic Means ("Electronic Means" shall mean the following communications methods: e-
mail, facsimile transmission, secure electronic transmission containing applicable authorization
codes, passwords and/or authentication keys issued by the Trustee, or another method or system
specified by the Trustee as available for use in connection with its services hereunder); provided,
however, that the City shall provide to the Trustee an incumbency certificate listing officers with
the authority to provide such Instructions ("Authorized Officers") and containing specimen
signatures of such Authorized Officers, which incumbency certificate shall be amended by the City
whenever a person is to be added or deleted from the listing. If the City elects to give the Trustee
Instructions using Electronic Means and the Trustee in its discretion elects to act upon such
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Instructions, the Trustee's understanding of such Instructions shall be deemed controlling. The
City understands and agrees that the Trustee cannot determine the identity of the actual sender of
such Instructions and that the Trustee shall conclusively presume that directions that purport to
have been seat by an Authorized Officer listed on the incumbency certificate provided to the
Trustee have been sent by such Authorized Officer. The City shall be responsible for ensuring that
only Authorized Officers transmit such Instructions to the Trustee and that the City and all
Authorized Officers are solely responsible to safeguard the use and confidentiality of applicable
user and authorization codes, passwords and/or authentication keys upon receipt by the City. The
Trustee shall not be liable for any losses, costs or expenses arising directly or indirectly from the
Trustee's reliance upon and compliance with such Instructions notwithstanding the fact that such
directions conflict or are inconsistent with a subsequent written instruction. The City agrees: (i) to
assume all risks arising out of the use of Electronic Means to submit Instructions to the Trustee,
including without limitation the risk of the Trustee acting on unauthorized Instructions, and the risk
of interception and misuse by third parties; (ii) that it is fully informed of the protections and risks
associated with the various methods of transmitting Instructions to the Trustee and that there may
be more secure methods of transmitting Instructions than the method(s) selected by the City; (iii)
that the security procedures (if any) to be followed in connection with its transmission of
Instructions provide to it a commercially reasonable degree of protection in light of its particular
needs and circumstances; and (iv) to notify the Trustee immediately upon learning of any
compromise or unauthorized use of the security procedures.
(n) The Trustee shall not be concerned with or accountable to anyone for the
subsequent use or application of any moneys which shall be released or withdrawn in accordance
with the provisions hereof.
(a) The permissive right of the Trustee to do things enumerated herein shall not
be construed as a duty and it shall not be answerable for other than its negligence or willful
misconduct.
Section 8.04. Rielit to Rely on Documents. The Trustee shall be protected in acting upon
any notice, resolution, requisition, request, consent, order, certificate, report, opinion, notes,
direction, facsimile transmission, electronic mail in other paper or document believed by it to be
genuine and to have been signed or presented by the proper party or parties. The Trustee may
consult with counsel, who may be counsel of or to the City, with regard to legal questions, and the
opinion of such counsel shall be full and complete authorization and protection in respect of any
action taken or suffered by it hereunder in good faith and in accordance therewith.
The Trustee may treat the Owners of the 2020 Bonds appearing in the Trustee's Registration
Books as the absolute owners of the 2020 Bonds for all purposes and the Trustee shall not be affected
by any notice to the contrary.
Whenever in the administration of the trusts imposed upon it by the Indenture the Trustee
shall deem it necessary or desirable that a matter be proved or established prior to taking or suffering
any action hereunder, such matter (unless other evidence in respect thereof be herein specifically
prescribed) may be deemed to be conclusively proved and established by a Certificate, Request or
Requisition of the City, and such Certificate, Request or Requisition shall be full warrant to the
Trustee for any action taken or suffered in good faith under the provisions of the Indenture in reliance
upon such Certificate, Request or Requisition, but in its discretion the Trustee may, in lieu thereof,
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accept other evidence of such matter or may require such additional evidence as it may deem
reasonable.
Section 8.05. Preservation and Inspection of Documents. All documents that are received
by the Trustee under the provisions of the Indenture shall be retained in its possession during the
term hereof in accordance with applicable document retention policies and shall be subject at all
reasonable times to the inspection of the City and any 2020 Bond Owner, and their agents and
representatives duly authorized in writing, at reasonable hours and under reasonable conditions.
Section 8.06. Compensation and Indemnification. The City shall pay to the Trustee from
time to time all reasonable compensation for all services tendered under the Indenture, and also all
reasonable expenses, charges, legal and consulting fees and other disbursements and those of their
attorneys, agents and employees, incurred in and about the performance of their powers and duties
under the Indenture.
The City shall indemnify, defend and hold harmless the Trustee, its officers, employees,
directors and agents from and against any loss, costs, claim, liability or expense (including fees and
expenses of its attorneys and advisors) incurred without negligence or willful misconduct on its part,
arising out of or in connection with the execution of the Indenture, acceptance or administration of
this trust or any other document or transaction executed in connection herewith, including costs and
expenses of defending itself against any claim or liability in connection with the exercise or
performance of any of its powers hereunder. The rights of the Trustee and the obligations of the City
under this Section 8.06 shall survive removal or resignation of the Trustee hereunder or the discharge
of the 2020 Bonds and the Indenture.
When the Trustee incurs expenses or renders services after the occurrence of an Event of
Default, such expenses and the compensation for such services are intended to constitute expenses of
administration under any federal or state bankruptcy, insolvency, arrangement, moratorium,
reorganization or other debtor relief law. Upon an Event of Default, and only upon an Event of
Default, the Trustee shall have a first lien with right of payment prior to payment on account of
principal of and premium, if any, and interest on any 2020 Bond, upon the trust estate for the
foregoing fees, charges and expenses incurred by it.
ARTICLE IX
MODIFICATION OR AMENDMENT OF THE INDENTURE
Section 9.01. Amendments Permitted.
(a) The Indenture and the rights and obligations of the City and of the Owners of
the 2020 Bonds and of the Trustee may be modified or amended from time to time and at any time by
an indenture or indentures supplemental thereto, which the City and the Trustee may enter into when
the written consent of the Owners of a majority in aggregate principal amount of all 2020 Bonds then
Outstanding, exclusive of 2020 Bonds disqualified as provided in Section 11.09 hereof, shall have
been filed with the Trustee. No such modification or amendment shall: (1) extend the fixed maturity
of any 2020 Bonds, or reduce the amount of principal thereof or premium (if any) thereon, or extend
the time of payment, or change the rate of interest or the method of computing the rate of interest
thereon, or extend the time of payment of interest thereon, without the consent of the Owner of each
2020 Bond so affected; or (2) reduce the aforesaid percentage of 2020 Bonds the consent of the
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Owners of which is required to affect any such modification or amendment, or permit the creation of
any lien on the Revenues and other assets pledged under the Indenture prior to or on a parity with the
lien created by the Indenture except as permitted herein, or deprive the Owners of the 2020 Bonds of
the lien created by the Indenture on such Revenues and other assets except as permitted herein,
without the consent of the Owners of all of the 2020 Bonds then Outstanding. It shall not be
necessary for the consent of the 2020 Bond Owners to approve the particular form of any
Supplemental Indenture, but it shall be sufficient if such consent shall approve the substance thereof.
Promptly after the execution by the City and the Trustee of any Supplemental Indenture pursuant to
this subsection (a), the Trustee shall mail a notice, setting forth in general temps the substance of such
Supplemental Indenture, to each Rating Agency and the Owners of the 2020 Bonds at the respective
addresses shown on the Registration Books. Any failure to give such notice, or any defect therein,
shall not, however, in any way impair or affect the validity of any such Supplemental Indenture.
(b) The Indenture and the rights and obligations of the City, the Trustee and the
Owners of the 2020 Bonds may also be modified or amended from time to time and at any time by a
Supplemental Indenture, which the City and the Trustee may enter into without the consent of any
2020 Bond Owners, if the Trustee shall receive an opinion of Bond Counsel to the effect that the
provisions of such Supplemental Indenture shall not materially adversely affect the interests of the
Owners of the Outstanding 2020 Bonds, including, without limitation, for any one or more of the
following purposes:
(1) to add to the covenants and agreements of the City contained in the
Indenture other covenants and agreements thereafter to be observed to pledge or assign additional
security for the 2020 Bonds (or any portion thereof), or to surrender any right or power herein
reserved to or conferred upon the City;
(2) 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 in regard to matters or questions arising under the Indenture, as the City may deem
necessary or desirable;
(3) to modify, amend or supplement the Indenture in such manner as to
permit the qualification hereof under the Trust Indenture Act of 1939, as amended, or any similar
federal statute hereunder in effect, and to add such other terms conditions and provisions as may be
permitted by said act or similar federal statute; and
(4) to modify, amend or supplement the Indenture in such manner as to
cause interest on the 2020 Bonds to remain excludable from gross income =der the Code-
(c) The Trustee may in its discretion, but shall not be obligated to, enter into any
such Supplemental Indenture authorized by subsections (a) or (b) of this Section which materially
adversely affects the Trustee's own rights, duties or immunities =der the Indenture or otherwise.
(d) Prior to the Trustee entering into any Supplemental Indenture hereunder,
there shall be delivered to the Trustee an opinion of Bond Counsel stating, in substance, that such
Supplemental Indenture has been adopted in compliance with the requirements of the Indenture and
that the adoption of such Supplemental Indenture will not, in and of itself, adversely affect the
exclusion of interest on the 2020 Bonds from federal income taxation and from state income taxation.
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Section 9.02. Effect of Supplemental Indenture. Upon the execution of any Supplemental
Indenture pursuant to this Article, the Indenture shall be deemed to be modified and amended in
accordance therewith, and the respective rights, duties and obligations under the Indenture of the
City, the Trustee and all Owners of 2020 Bonds Outstanding shall thereafter be determined,
exercised and enforced thereunder subject in all respects to such modification and amendment, 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.
Section 9.03. Endorsement of 2020 Bonds; Preparation of New 2020 Bonds. 2020 Bonds
delivered after the execution of any Supplemental Indenture pursuant to this Article may, and if the
Trustee so determines shall, bear a notation by endorsement or otherwise in form approved by the
City and the Trustee as to any modification or amendment provided for in such Supplemental
Indenture, and, in that case, upon demand on the Owner of any 2020 Bonds Outstanding at the time
of such execution and presentation of his or her 2020 Bonds for the purpose at the Office of the
Trustee or at such additional offices as the Trustee may select and designate for that purpose, a
suitable notation shall be made on such 2020 Bonds. If the Supplemental Indenture shall so provide,
new 2020 Bonds so modified as to conform, in the opinion of the City and the Trustee, to any
modification or amendment contained in such Supplemental Indenture, shall be prepared and
executed by the City and authenticated by the Trustee, and upon demand on the Owners of any 2020
Bonds then Outstanding shall be exchanged at the Office of the Trustee, without cost to any 2020
Bond Owner, for 2020 Bonds then Outstanding, upon surrender fm cancellation of such 2020 Bonds,
in equal aggregate principal amount of the same maturity.
Section 9.04. Amendment of particular 2020 Bonds. The provisions of this Article shall
not prevent any 2020 Bond Owner from accepting any amendment as to the particular 2020 Bonds
held by such Owner.
ARTICLE X
DEFEASANCE
Section 10.01. Discharge of Indenture. The 2020 Bonds may be paid by the City in any of
the following ways, provided that the City also pays or causes to be paid any other sums payable
hereunder by the City:
(a) by paying or causing to be paid the principal of and interest and redemption
premiums (if any) on the 2020 Bonds, as and when the same become due and payable;
(b) by depositing with the Trustee, in tout, at or before maturity, money or
securities in the necessary amount (as provided in Section 10.03) to pay or redeem all 2020 Bonds
then Outstanding; or
(c) by delivering to the Trustee, for cancellation by it, all of the 2020 Bonds then
Outstanding.
If the City shall also pay or cause to be paid all other sums payable hereunder by the City,
then and in that case, at the election of the City (as evidenced by a Certificate of the City, filed with
the Trustee, signifying the intention of the City to discharge all such indebtedness and the Indenture),
and notwithstanding the fact that any 2020 Bonds shall not have been surrendered for payment, the
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Indenture and the pledge of Revenues and other assets made under the Indenture and all covenants,
agreements and other obligations of the City under the Indenture shall cease, terminate, become void
and be completely discharged and satisfied, except for the City's obligations under Section 8.06. In
such event, upon the Written Request of the City, the Trustee shall execute and deliver to the City all
such instruments as may be necessary or desirable to evidence such discharge and satisfaction, and
the Trustee shall pay over, transfer, assign or deliver all moneys or securities or other property held
by it pursuant to the Indenture which are not required for the payment or redemption of 2020 Bonds
not theretofore surrendered for such payment or redemption to the City.
Section 10.02. Discharge of Liability on 2020 Bonds. Upon the deposit with the Trustee, in
tout, at or before maturity, of money or securities in the necessary amount (as provided in Section
10.03) to pay or redeem any Outstanding 2020 Bonds (whether upon or prior to the maturity or the
Redemption Date of such 2020 Bonds), provided that, if such Outstanding 2020 Bonds are to be
redeemed prior to maturity, notice of such redemption shall have been given as provided in Article
IV or provisions satisfactory to the Trustee shall have been made for the giving of such notice, then
all liability of the City in respect of such 2020 Bonds shall cease, terminate and be completely
discharged, and the Owners thereof shall thereafter be entitled only to payment out of such money or
securities deposited with the Trustee as aforesaid for their payment, subject however, to the
provisions of Section 10.04.
The City may at any time surrender to the Trustee for cancellation by it any 2020 Bonds
previously issued and delivered, which the City may have acquired in any mamaer whatsoever, and
such 2020 Bonds, upon such surrender and cancellation, shall be deemed to be paid and retired.
Section 10.03. Deoosit of Money or Securities with Trustee. Whenever in the Indenture it is
provided or permitted that there be deposited with or held in trust by the Trustee money or securities
in the necessary amount to pay or redeem any 2020 Bonds, the money or securities so to be deposited
or held may include money or securities held by the Trustee in the Ponds and accounts established
pursuant to the Indenture and shall be:
(a) lawful money of the United States of America in an amount equal to the
principal amount of such 2020 Bonds and all unpaid interest thereon to maturity, except that, in the
case of 2020 Bonds which are to be redeemed prior to maturity and in respect of which notice of such
redemption shall have been given as provided in Article IV or provisions satisfactory to the Trustee
shall have been made for the giving of such notice, the amount to be deposited or held shall be the
principal amount of such 2020 Bonds and all unpaid interest and premium, if any, thereon to the
Redemption Date; or
(b) Federal Securities the principal of and interest on which when due will, in the
written opinion of an Independent Certified Public Accountant or Independent Financial Consultant
filed with the City and the Trustee, provide money sufficient to pay the principal of and all unpaid
interest to maturity, or to the Redemption Date (with premium, if any), as the case may be, on the
2020 Bonds to be paid or redeemed, as such principal, interest and premium, if any, become due,
provided that in the case of 2020 Bonds which are to be redeemed prior to the maturity thereof,
notice of such redemption shall have been given as provided in Article IV or provision satisfactory to
the Trustee shall have been made for the giving of such notice;
provided, in each case, that: (i) the Trustee shall have been irrevocably instructed (by the terms of the
Indenture or by Written Request of the City) to apply such money to the payment of such principal,
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interest and premium, if any, with respect to such 2020 Bonds; and (ii) the City shall have delivered
to the Trustee an opinion of Bond Counsel addressed to the City and the Trustee to the effect that
such 2020 Bonds have been discharged in accordance with the Indenture (which opinion may rely
upon and assume the accuracy of the Independent Certified Public Accountant's or Independent
Financial Consultant's opinion referred to above).
Section 10.04. Payment of 2020 Bonds After Discharge of Indenture. Notwithstanding any
provisions of the Indenture, any moneys held by the Trustee in trust for the payment of the principal
of, or interest on, any 2020 Bonds and remaining unclaimed for two (2) years after the principal of all
of the 2020 Bonds has become due and payable (whether at maturity or upon call for redemption or
by acceleration as provided in the Indenture), if such moneys were so held at such date, or two (2)
years after the date of deposit of such moneys if deposited after said date when all of the 2020 Bonds
became due and payable, shall be repaid to the City (without liability for interest) free from the trusts
created by the Indenture upon receipt of an indemnification agreement acceptable to the City and the
Trustee indemnifying the Trustee with respect to claims of Owners of 2020 Bonds which have not
yet been paid, and all liability of the Trustee with respect to such moneys shall thereupon cease;
provided, however, that before the repayment of such moneys to the City as aforesaid, the Trustee
shall at the written direction of the City (at the cost of the City) first mail to the Owners of 2020
Bonds which have not yet been paid, at the addresses shown on the Registration Books, a notice, in
such form as may be deemed appropriate by the Trustee with respect to the 2020 Bonds so payable
and not presented and with respect to the provisions relating to the repayment to the City of the
moneys held for the payment thereof.
ARTICLE XI
MISCELLANEOUS
Section 11.01. Liability of City Limited to Revenues. Notwithstanding anything in the
Indenture or the 2020 Bonds, but subject to the priority of payment with respect to Operation and
Maintenance Costs, the City shall not be required to advance any moneys derived from any source
other than the Revenues, the Revenue Fund and other moneys pledged under the Indenture for any of
the purposes mentioned in the Indenture, whether for the payment of the principal of or interest on
the 2020 Bonds or for any other purpose of the Indenture. Nevertheless, the City may, but shall not
be required to, advance for any of the purposes hereof any funds of the City which may be made
available to it for such purposes.
The obligation of the City to pay interest and principal on the 2020 Bonds is a special
obligation of the City payable solely from the Net Revenues, and does not constitute a debt of the
City or of the State of California or of any political subdivision thereof (other than the City) in
contravention of any constitutional or statutory debt limitation or restriction.
Section 11.02. Successor Is Deemed Included in All References to Predecessor. Whenever
in the Indenture either the City or the Trustee is named or referred to, such reference shall be deemed
to include the successors or assigns thereof, and all the covenants and agreements in the Indenture
contained by or on behalf of the City or the Trustee shall bind and inure to the benefit of the
respective successors and assigns thereof whether so expressed or not.
Section 11.03. Limitation of Rights to Parties and 2020 Bond Owners. Nothing in the
Indenture or in the 2020 Bonds expressed or implied is intended or shall be constmed to give to any
48
person other than the City, the Trustee and the Owners of the 2020 Bonds, any legal or equitable
right, remedy or claim under or in respect of the Indenture or any covenant, condition or provision
therein or herein contained; and all such covenants, conditions and provisions are and shall be held to
be for the sole and exclusive benefit of the City, the Trustee and the Owners of the 2020 Bonds.
Section 11.04. Waiver of Notice; RRte uirement of Mailed Notice. Whenever in the Indenture
the giving of notice by mail or otherwise is required, the giving of such notice may be waived in
writing by the person entitled to receive such notice and in any such case the giving or receipt of such
notice shall not be a condition precedent to the validity of any action taken in reliance upon such
waiver. Whenever in the Indenture any notice shall be required to be given by mail, such
requirement shall be satisfied by the deposit of such notice in the United States mail, postage prepaid
by first class mail.
Section 11.05. Destruction of 2020 Bonds. Whenever in the Indenture provision is made for
the cancellation by the Trustee and the delivery to the City of any 2020 Bonds, the Trustee shall
destroy such 2020 Bonds as may be allowed by law, and, upon the City's request, deliver a certificate
of such destruction to the City.
Section 11.06. Severability of Invalid Provisions. If any one or more of the provisions
contained in the Indenture or in the 2020 Bonds shall for any reason be held to be invalid, illegal or
unenforceable in any respect, then such provision or provisions shall be deemed severable from the
remaining provisions contained in the Indenture and such invalidity, illegality or munforceability
shall not affect any other provision of the Indenture, and the Indenture shall be construed as if such
invalid or illegal or unenforceable provision had never been contained herein. The City hereby
declares that it would have entered into the Indenture and each and every other Section, paragraph,
sentence, clause or phrase hereof and authorized the issuance of the 2020 Bonds pursuant thereto
irrespective of the fact that any one or more Sections, paragraphs, sentences, clauses or phrases of the
Indenture may be held illegal, invalid or unenforceable.
Section 11.07. Notices. Any notice to or demand upon the City or the Trustee shall be
deemed to have been sufficiently given or served for all purposes by being sent by facsimile,
electronic mail, overnight mail or courier, or by being deposited, first class mail, postage prepaid, in
a post office letter box, addressed, as the case may be, to the City at City of Vemon, 4305 South
Santa Fe Avenue, Vernon, California 90058, Attention: City Administrator (or such other address as
may have been filed in writing by the City with the Trustee), or to the Trustee at its Office.
Notwithstanding the foregoing provisions of this Section 11.07, the Trustee shall not be deemed to
have received, and shall not be liable for failing to act upon the contents of, any notice unless and
until the Trustee actually receives such notice.
Section 11.08. Evidence of Rights of 2020 Bond Owners. Any request, consent or other
instrument required or permitted by the Indenture to be signed and executed by 2020 Bond Owners
may be in any number of concurrent instruments of substantially similar tenor and shall be signed or
executed by such 2020 Bond Owners in person or by an agent or agents duly appointed in writing.
Proof of the execution of any such request, consent or other instrument or of a writing appointing any
such agent, or of the holding by any person of 2020 Bonds transferable by delivery, shall be
sufficient for any purpose of the Indenture and shall be conclusive in favor of the Trustee and the
Cityif made in the manner provided in this Section.
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The fact and date of the execution by any person of any such request, consent or other
instrument or writing may be proved by the certificate of any notary public or other officer of any
jurisdiction, authorized by the laws thereof to take acknowledgments of deeds, certifying that the
person signing such request, consent or other instrument acknowledged to him the execution thereof,
or by an affidavit of a witness of such execution duly swom to before such notary public or other
officer.
The Ownership of 2020 Bonds shall be proved by the Registration Books.
Any request, consent, or other instrument or writing of the Owner of any 2020 Bond shall
bind every future Owner of the same 2020 Bond and the Owner of every 2020 Bond issued in
exchange therefor or in lieu thereof, in respect of anything done or suffered to be done by the Trustee
or the City in accordance therewith or reliance thereon.
Section 11.09. Disqualified 2020 Bonds. In determining whether the Owners of the requisite
aggregate principal amount of 2020 Bonds have concurred in any demand, request, direction, consent
or waiver under the Indenture, 2020 Bonds which are actually known by a Responsible Officer of the
Trustee to be owned or held by or for the account of the City, or by any other obligor on the 2020
Bonds, or by any person directly or indirectly controlling or controlled by, or under direct or indirect
common control with, the City or any other obligor on the 2020 Bonds, shall be disregarded and
deemed not to be Outstanding for the purpose of any such determination, unless all 2020 Bonds are
so owned or held, in which case such 2020 Bonds shall not be disregarded and shall be deemed to be
Outstanding. 2020 Bonds so owned which have been pledged in good faith may be regarded as
Outstanding for the purposes of this Section if the pledgee shall establish to the satisfaction of the
Trustee the pledgm's right to vote such 2020 Bonds and that the pledgee is not a person directly or
indirectly controlling or controlled by, or under direct or indirect common control with, the City or
any other obligor on the 2020 Bonds. In case of a dispute as to such right, any decision by the
Trustee taken upon the advice of counsel shall be fall protection to the Tntstee. Upon request, the
City shall certify to the Trrstee those 2020 Bonds that are disqualified pursuant to this Section 11.09
and the Trustee may conclusively rely on such certificate.
Section 11.10. Money Held for Particular 2020 Bonds. The money held by the Trustee for
the payment of the interest, principal or premium due on any date with respect to particular 2020
Bonds (or portions of 2020 Bonds in the case of registered 2020 Bonds redeemed in par only) shall,
on and after such date and pending such payment, be set aside on its books and held in trust by it for
the Owners of the 2020 Bonds entitled thereto, subject, however, to the provisions of Section 10.04
hereof but without any liability for interest thereon.
Section It. 11. Funds and Accounts. Any fund or account required by the Indenture to be
established and maintained by the Trustee may be established and maintained in the accounting
records of the Trustee, either as a fund or an account, and may, for the purposes of such records, any
audits thereof and any reports or statements with respect thereto, be treated either as a fund or as an
account; but all such records with respect to all such funds and accounts shall at all times be
maintained in accordance with corporate trust industry standards to the extent practicable, and with
due regard for the requirements of Section 6.05(a) and for the protection of the security of the 2020
Bonds and the rights of every Owner thereof.
Section 11.12. Waiver of Personal Liabiliri. No member, officer, agent, employee,
consultant or attorney of the City shall be individually or personally liable for the payment of the
50
principal of or premium or interest on the 2020 Bonds or be subject to any personal liability or
accountability by reason of the issuance thereof; but nothing herein contained shall relieve any such
member, officer, agent, employee, consultant or attorney from the performance of any official duty
provided by law or by the Indenture.
Section 11.13. Execution in Several Counterparts. The Indenture may be executed in any
number of counterparts and each of such counterparts shall for all purposes be deemed to be an
original; and all such counterparts, or as many of them as the City and the Trustee shall preserve
undestroyed, shall together constitute but one and the same instrument.
Section 11.14. CUSIP Numbers. Neither the Trustee nor the City shall be liable for any
defect or inaccuracy in the CUSIP number that appears on any 2020 Bond or in any redemption
notice. The Trustee may, in its discretion, include in any redemption notice a statement to the effect
that the CUSIP numbers on the 2020 Bonds have been assigned by an independent service and are
included in such notice solely for the convenience of the 2020 Bondholders and that neither the City
nor the Trustee shall be liable for my inaccuracies in such numbers.
Section 11.15. Choice of Law. THE INDENTURE SHALL BE GOVERNED BY THE
LAWS OF THE STATE OF CALIFORNIA.
Section 11.16. Paired Obligation Provider Guidelines. For purposes of Sections 6.14 and
6.21, Paired Obligations shall comply with the following conditions:
(a) A Paired Obligation Provider shall initially have a long-term rating of A- or
better by S&P and A3 or better by Moody's.
(b) So long as the long-term rating of the Paired Obligation Provider is not
reduced below Baa2 by S&P or BBB by Moody's, the interest rate of such Paired Obligation shall be
deemed to be equal to the irrevocable fixed interest rate attributable thereto for purposes of Sections
6.14 and 6.21.
In the event that a Paired Obligation Provider does not maintain the Minimum Rating
Requirement and the City does not replace such Paired Obligation Provider with another Paired
Obligation Provider which maintains the Initial Rating Requirement within ten (10) Business Days of
notice that the Paired Obligation Provider has not maintained the Minimum Rating Requirement,
interest with respect to such Paired Obligations shall be computed for purposes of Sections 6.14 and
6.21 without regard to payments to be received from the Paired Obligation Provider. The Trustee has
no obligation to monitor the ratings of any Paired Obligation Providers.
51
IN WITNESS WHEREOF, the City has caused the Indenture to be signed in its name by its
Authorized Representative, and the Trustee, in token of its acceptance of the duties and obligations of
the Trustee created hereunder, has caused the Indenture to be signed in its corporate name by its
officer thereunto duly authorized, all as of the day and year first above written.
CITY OF VERNON
By:
Its:
THE BANK OF NEW YORK MELLON TRUST
COMPANY, N.A., as Trustee
By:
Its:
Authorized Officer
S-1
EXHIBIT A
FORM OF 2020 BOND
UNLESS THIS BOND IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF
THE DEPOSITORY (AS DEFINED IN THE INDENTURE) TO THE TRUSTEE FOR
REGISTRATIONOF TRANSFER, EXCHANGE, OR PAYMENT, AND ANYBOND ISSUED
IS REGISTERED RV THE NAME OF CEDE A CO. OR RV SUCH OTHER NAME AS IS
REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY (AND
ANY PAYMENT IS MADE TO CEDE A CO. OR TO SUCH OTHER ENTITY AS IS
REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITOR}), ANY
TRANSFER, PLEDGE, OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR
TO ANYPERSONIS WRONGFUL RVASMUCH AS THE REGISTERED OWNER HEREOF,
CEDE A CO., HAS AN INTEREST HEREIN.
No. $
UNITED STATES OF AMERICA
STATE OF CALIFORNIA
CITY OF VERNON
WATER SYSTEM REVENUE BONDS, 2020 SERIES A
INTEREST RATE MATURITY DATE ORIGINAL ISSUE DATE CUSB'
% August 1, 20_ March _, 2020 _
REGISTERED OWNER CEDE & CO.
PRINCIPAL AMOUNT:
DOLLARS
The CITY OF VERNON, a municipal corporation that is duly organized and existing under
its charter and the Constitution of the State of California (the "City"'), for value received, hereby
promises to pay to the Registered Owner specified above or registered assigns (the "Registered
Owner"), on the Maturity Date specified above (subject to any right of prior redemption hereinafter
provided for), the Principal Amount specified above, in lawful money of the United States of
America, and to pay interest thereon in like lawful money from the interest payment date next
preceding the date of authentication of this Bond (unless: (i) this Bond is authenticated after the
fifteenth day of the calendar month preceding an interest payment date, whether or not such day is a
business day, and on or before the following interest payment date, in which event it shall bear
interest from such interest payment date; or (ii) this Bond is authenticated on or before [July 15,
2020], in which event it shall bear interest from the Original Issue Date identified above; provided,
however, that if as of the date of authentication of this Bond, interest is in default on this Bond, this
Bond shall bear interest from the interest payment date to which interest has previously been paid or
made available for payment on this Bond), at the Interest Rate per annum specified above, payable
on August 1, 2020 and each February 1 and August 1 thereafter, calculated on the basis of a 360 day
year composed of twelve 30 day months. Principal hereof and premium, if any, upon early
redemption hereof are payable by check of the Trustee upon presentation and surrender hereof at the
Office (as defined in the hereinafter described Indenture) of The Bank of New York Mellon Trust
Company, N.A., as trustee (the "Trustee"). Interest hereon is payable by check of the Trustee sent by
A-1
first class mail on the applicable interest payment date to the Registered Owner hereof at the
Registered Owner's address as it appears on the registration books of the Trustee as of the close of
business on the fifteenth day of the month preceding each interest payment date (except that in the
case of a Registered Owner of one million dollars ($1,000,000) or more in principal amount, such
payment may, at such Registered Owner's option, be made by wire transfer of immediately available
funds to an account in the United States in accordance with written instructions provided to the
Trustee by such Registered Owner prior to the fifteenth (15th) day of the month preceding such
interest payment date).
This Bond is not a debt of the State of California, or any of its political subdivisions (other
than the City), and neither the State, nor any of its political subdivisions (other than the City), is
liable hereon, nor in any event shall this Bond be payable out of any funds or properties of the City
other than the Net Revenues (as such term is defined in the Indenture of Trust, dated as of March 1,
2020 (the "Indenture"), by and between the City and the Trustee) and other moneys pledged therefor
under the Indenture. The obligation of the City to make payments in accordance with the Indenture
is a limited obligation of the City as set forth in the Indenture and the City shall have no liability or
obligation in connection herewith except with respect to such payments to be made pursuant to the
Indenture. This Bond does not constitute an indebtedness of the City in contravention of any
constitutional or statutory debt limitation or restriction.
This Bond is one of a duly authorized issue of bonds of the City designated as the "City of
Vernon Water System Revenue Bonds, 2020 Series A" (the "2020 Bonds"), of an aggregate principal
amount of Million _ Thousand Dollars ($�, all of like tenor and date (except for such
variation, if any, as may be required to designate varying series, numbers or interest rates) and all
issued pursuant to the provisions of Section 4.3 of the City's charter and Articles 10 and 11 of
Chapter 3 of Part 1 of Division 2 of Title 5 (commencing with Section 53570) of the Government
Code of the State of California, and pursuant to the Indenture and the resolution authorizing the
issuance of the 2020 Bonds. Reference is hereby made to the Indenture (copies of which are on file
at the office of the City) and all supplements thereto for a description of the terms on which the 2020
Bonds are issued, the provisions with regard to the nature and extent of the Net Revenues, and the
rights thereunder of the Owners of the 2020 Bonds and the rights, duties and immunities of the
Trustee and the rights and obligations of the City hereunder, to all of the provisions of which the
Registered Owner of this Bond, by acceptance hereof, assents and agrees. The 2020 Bonds have
been issued in fully registered form without coupons in denominations of $5,000 or any integral
multiple thereof.
The 2020 Bonds have been issued by the City for the purpose of financing certain capital
improvements to the Water System of the City.
This Bond and the interest, premium, if any, hereon and all other 2020 Bonds and the interest
and premium, if any, thereon (to the extent set forth in the Indenture) are special obligations of the
City, secured by a pledge and lien on the Revenues and any other amounts on deposit in certain funds
and accounts created under the Indenture, and payable from the Net Revenues. As and to the extent
set forth in the Indenture, all of the Revenues are exclusively and irrevocably pledged in accordance
with the terms hereof and the provisions of the Indenture, to the payment of the principal of and
interest and premium (if any) on this Bond.
The Indenture and the rights and obligations of the City and the Owners of the 2020 Bonds
and the Trustee may be modified or amended from time to time and at any time with the written
A-2
consent of the Owners of a majority in aggregate principal amount of all 2020 Bonds then
Outstanding, exclusive of Bonds disqualified as set forth in the Indenture, in the manner, to the extent
and upon the terms provided in the Indenture, but no such modification or amendment shall: (i)
extend the fixed maturity of any 2020 Bonds, or reduce the amount of principal thereof or premium
(if any) thereon, or extend the time of payment, or change the method of computing the rate of
interest thereon, or extend the time of payment of interest thereon, without the consent of the owner
of each 2020 Bond so affected; or (ii) reduce the aforesaid percentage of 2020 Bonds the consent of
the Owners of which is required to affect any such modification or amendment, or permit the creation
of any lien on the Revenues and other assets pledged under the Indenture prior to or on a parity with
the lien created by the Indenture except as permitted in the Indenture, or deprive the Owners of the
2020 Bonds of the lien created by the Indenture on such Revenues and other assets, except as
expressly provided in the Indenture, without the consent of the Owners of all of the 2020 Bonds then
Outstanding.
The Indenture and the rights and obligations of the City, of the Trustee and the Owners of the
2020 Bonds may also be modified or amended for certain purposes described more fully in the
Indenture at any time in the manner, to the extent and upon the terms provided in the Indenture by a
supplemental indenture, which the City and the Trustee may enter into without the consent of any
2020 Bond Owners, if the Trustee shall receive an opinion of Bond Counsel to the effect that the
provisions of such supplemental indenture will not materially adversely affect the interests of the
Owners of the Outstanding 2020 Bonds.
The 2020 Bonds with stated maturities on or after August 1, 20_, are subject to redemption
prior to their respective stated maturities, as a whole or in part on _ 1, 20_, or any date
thereafter, as directed by the City in a Written Request provided to the Trustee at least 35 days (or
such lesser number of days acceptable to the Trustee in the sole discretion of the Trustee, such notice
for the convenience of the Trustee) and by lot within each maturity in integral multiples of $5,000, at
a Redemption Price equal to the principal amount thereof plus accrued interest thereon to the
Redemption Date, without premium.
The Term Bonds with stated maturities on August 1, 20_ are subject to mandatory sinking
fund redemption in part (by lot) on August 1, 20_ and each v 1 thereafter, in integral multiples of
$5,000 at a Redemption Price of the principal amount thereof plus accrued interest to the date fixed
for redemption, without premium, in accordance with the following schedule:
Redemption Date Principal
(August 1) Amount
zo 1
• Maturity.
If some but not all of the Term Bonds are redeemed pursuant to the optional or extraordinary
redemption provisions of the Indenture, as described above, the principal amount of the applicable
Term Bonds to be redeemed on any subsequent August 1 will be reduced, by $5,000 or an integral
multiple thereof, as designated by the City in a Written Order of the City filed with the Trustee;
A-3
provided, however, that the aggregate amount of such reductions shall not exceed the aggregate
amount of the applicable Term Bonds redeemed pursuant to the optional or extraordinary redemption
provisions of the Indenture.
As provided in the Indenture, notice of redemption shall be mailed by the Trustee by first
class mail at least 20 days but not more than 60 days prior to the date fixed for redemption to the
respective Owners of any 2020 Bonds designated for redemption at their addresses appearing on the
registration books of the Trustee, but neither the failure to receive such notice nor any defect in the
notice or the mailing thereof shall affect the validity of the redemption.
If this Bond is called for redemption and payment is duly provided therefor as specified in the
Indenture, interest shall cease to accrue hereon from and after the date fixed for redemption.
If an Event of Default, as defined in the Indenture, shall occur, the principal of all of the 2020
Bonds and the interest accrued thereon may be declared due and payable upon the conditions, in the
manner and with the effect provided in the Indenture, but such declaration and its consequences may
be rescinded and annulled as fartber provided in the Indenture.
This Bond is transferable by the Registered Owner hereof, in person or by his or her duly
authorized attorney in writing, at the office of the Trustee but only in the manner, subject to the
limitations and upon payment of the taxes and charges provided in the Indenture and upon surrender
and cancellation of this Bond. Upon registration of such transfer, a new 2020 Bond or 2020 Bonds
of the same series, of authorized denomination or denominations, for the same aggregate principal
amount of the same maturity will be issued to the transferee in exchange therefor.
This Bond may be exchanged at said office of the Trustee for a like aggregate principal
amount of Bonds of other authorized denominations of the same series and same maturity, but only
in the manner, subject to the limitations and upon payment of the taxes and charges provided in the
Indenture.
The Trustee shall not be required to register the transfer or exchange of this Bond during the
period in which the Trustee is selecting 2020 Bonds for redemption or if this Bond has been selected
for redemption.
The City and the Trustee may treat the Registered Owner hereof as the absolute owner hereof
for all purposes, and the City and the Trustee shall not be affected by any notice to the contrary.
It is hereby certified that all of the things, conditions and acts required to exist, to have
happened or to have been performed precedent to and in the issuance of this Bond do exist, have
happened or have been performed to due and regular time, form and manner as required by the
Indenture and the laws of the State of California and that the amount of this Bond together with all
other indebtedness of the City, does not exceed any limit under any laws of the State of California,
and is not in excess of the amount of 2020 Bonds permitted to be issued under the Indenture.
This Bond shall not be entitled to any benefit under the Indenture or become valid or
obligatory for any purpose until the certificate of authentication hereon endorsed shall have been
manually signed by the Trustee.
A-4
IN WITNESS WHEREOF, the City has caused this Bond to be executed in its name and on
its behalf with the manual or facsimile signature of its Mayor as of this _ day of March, 2020.
CITY OF VERNON
By:
Its:
A-5
[FORM OF TRUSTEE'S CERTIFICATE OF AUTHENTICATION
TO APPEAR ON BONDS]
This is one of the Bonds described in the within -mentioned indenture.
Dated: March , 2020
THE BANK OF NEW YORK MELLON TRUST
COMPANY, N.A., as Trustee
By:
Its:
Authorized Signatory
M
[FORM OF ASSIGNMENT]
For value received the undersigned hereby sells, assigns and transfers onto
(Name, Address and Tax Identification or
Social Security Number of Assignee)
the within registered Bond and hereby irrevocably constitute(s) and appoint(s)
attorney, to transfer the same on the registration books of the Trustee
with full power of substitution in the premises.
Dated:
Note: The signature(s) on this Assignment must
correspond with the name(s) as written on the
face of the within Bond in every particular
without alteration or enlargement or any
change whatsoever.
Signature Guaranteed:
Note: 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.
A-7
EXHIBIT B
DESCRIPTION OF 2020 PROJECT
Yevl
Y.2
Ym3
Y.4
Capital Outln
FY 19-20
FY M21
FY 21-22
FY 22-23
WeR5 Bea w
S
125,OOO
WeR 11 Nw and Ma
S
ISO"
Gmunmm We1111
$
3W,000
W6120 Rnub
$
550,W0
Gmeralmm WA
S
3W,W0
WeR I] Rehabiliuvm
S
6m,W0
WCR22Bnllin and CuMg
S
2050m0
WeR 22 Wel& mem
S
1 ,800,000
New WCWW.I &CM
S
215AM
S 215AW
NewWeMMdhn&C3uftCmmsntim
f
155.M
S 155 m0
- ad Ma4r Phn
S
ON
eto rcatliRmawnempW bl
f
t
El
lereud Turku mtavenm
$
2m m0
11 r eubmenm
f
250000
cy GmM
c GrnuummuteWeR 33
S
3m,W0
WeR IS Hebb
S
5mm
F�cy Grnmmrm Well is
f
30%= lm,m0
Raavelr Demo at Wcll zo
s
1 m0
BPI, BP2.BP3E - - Benp
3mm0
BPI Pumpand Mohr Rev wcle&ng RighHwm
SW Om
Bmer enc GmaarmB
S
R m ll
t-s
Pu BP3 m and Mal includino Riinn
S
,=mo
500O
SW
BP2RcservoirS I
f
1 m0
-nRdMBP3Dui &Cmumcnhl
S
1 m0
P2 =andM B
i&C Ri Rine
S
Raga R &Cauhu tim
f
ImO mO
OEBP2Bev
f
256 m0
WeR 3e UiAg mdCw
WeR 23 and Cum
f 2 Om
Wel
WeR 33WelWead m
S 19669m
Geomtmm Well
S
Imm0E35HAN
S
1mm0
S 1
EM ca
Ekclvml 11
S
5 m0
f
2Mmo
$
2 m0
PiW M
Pill Main
wm
Peke eM Rd Soe Exlmaim
H.,2
Have 2 fte[mbishmml
Fmce hcemml PP2&Well 19
AusW TOhI
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7APMO
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7AVJ M 1
S
ll ISl,W
S 14,261,M 1
$ 1 3l
mm
EXHIBIT C
FORM OF REQUISITION FROM ACQUISFFION FUND
CITY OF VERNON
WATER SYSTEM REVENUE BONDS, 2020 SERIES A
REQUISITION NO. FOR
DISBURSEMENT FROM ACQUISITION FUND
The undersigned hereby states and certifies:
(i) that the undersigned is the duly appointed, qualified and acting Finance Director of
the City of Vernon, a municipal corporation that is organized and existing under its charter and the
Constitution of the State of California (the "City"), and as such, is familiar with the facts herein
certified and is authorized to certify the same;
(ii) that, pursuant to Section 3.05 of that certain Indenture of Trust, dated as of March 1,
2020 (the "Installment Purchase Agreement'), by and between the City and The Bank of New York
Mellon Trust Company, N.A., as trustee (the "Trustee"), the undersigned hereby requests the Trustee
to disburse this date the following amounts from the Acquisition Fund established under the
Indenture relating to the above -captioned obligations, to the payees designated on the attached
Exhibit A;
(iii) that each obligation mentioned herein has been incurred by the City and is a proper
charge against the Acquisition Fund;
(iv) that any approval required under the California Environmental Quality Act, as
amended (Division 13 of the California Public Resources Code), prior to the expenditure of such
amount for the purpose set forth on the attached Exhibit A has been received and is final; and
(v) that there has not been filed with or served upon the City notice of any lien, right to
lien or attachment upon, or claim affecting the right to receive payment of, any of the moneys
payable to any of the payees named on the attached Exhibit A. which has not been released or will
not be released simultaneously with the payment of such obligation, other than materiahnen's or
mechanics' liens accruing by mere operation of law.
Dated: . 20
CITY OF VERNON
L-M
Finance Director
C-1
EXHIBIT A
ACQUISMON FUND
Item
Number Payee Name and Address Purpose of Obligation Amount
C-2
EXHIBIT C
FORM OF SUBSTITUTION STATEMENT
The Bank of New York Mellon Trust Company, N.A.
400 South Hope Street, Suite 500
Los Angeles, California 90071
Attention: Corporate Trust
Reference: City of Vernon 2020
The undersigned Finance Director of the City of Vernon (the "City") hereby states pursuant
to Section 3.06 of the Indenture of Trust, dated as of March 1, 2020 (the "Indenture"), by and
between the City and The Bank of New York Mellon Trust Company, N.A., as trustee that each
component of the 2020 Project (as such term is defined in the Installment Purchase Agreement)
described in the fast column of Exhibit A attached hereto, with an estimated cost set forth in the
second column of Exhibit A, will be replaced by the corresponding improvement described in the
third column of Exhibit A with an estimated cost set forth in the fourth column of Exhibit A.
Dated: , 20_
D-1
Finance Director
Components of
2020 Project to
be Replaced
EXHIBIT A
Cost of Each
Component of
1020 Project
to be Replaced
D-2
Improvements
to be
Substituted
Cost of Each
Improvement
to be
Substituted
EXHIBIT C
Norton Rase Fulbright USLLP—Draft of 01130120
S
CITY OF VERNON
Water System Revenue Bonds,
2020 Series A
CONTRACT OF PURCHASE
City of Vernon
4305 South Santa Fe Avenue
Vernon, California 90058
Ladies and Gentlemen:
2020
The undersigned, J.P. Morgan Securities LLC, as underwriter (the "Underwriter'l, 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 11:59 P.M., California
time, on the date hereof, and if not so accepted, this offer will be subject to withdrawal by the
Underwriter upon notice delivered to the City at any time prior to acceptance by the City. Upon
acceptance by the execution hereof, 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. All capitalized
terms used herein and not otherwise defined herein shall have the respective meanings ascribed
thereto in the Official Statement (as defined herein).
Purchase. Sale and Delivery of the Bonds.
(a) Subject to the terms and conditions, and in reliance upon the representations,
warranties and agreements set forth herein, the Underwriter agrees to purchase, and the City agrees to
sell and deliver to the Underwriter, all (but not less than all) of the $ City of Vernon
Water System Revenue Bonds, 2020 Series A (the `Bonds"). The Bonds shall be dated the date of
delivery thereof, shall mature on such dates and shall bear interest at such rates, and shall be subject
to redemption, all set forth in Schedule 1 attached hereto. Interest on the Bonds shall be payable
semiannually on February 1 and August I of each year, commencing [August 1, 2020]. The purchase
price for the Bonds shall be $ (consisting of the $ aggregate principal amount of
the Bonds [plus/less] $ of original issue [premium/discount], less $ of
Underwriter's discount).
(b) The Bonds are to be issued pursuant to the City of Vernon Municipal
Facilities Revenue Bond Law, constituting Article XI of Chapter 2 of the Vernon City Code, and an
Indenture of Trust, dated as of March 1, 2020 (the `Indenture"), 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 by the City and the Underwriter.
Proceeds of the Bonds will be used to (i) finance the costs of certain capital
improvements to the City's Water System (including by reimbursing the Water System for the prior
Error! Uumo m dmvm t prepetty n
payment of such costs from the Water Fund), [(ii) fund a deposit to a Debt Service Reserve Fund,]
and (iii) pay costs of issuance of the Bonds.
The City will undertake, pursuant to a Continuing Disclosure Agreement, dated
March , 2020 (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. A
form of the Continuing Disclosure Agreement is set forth in the Preliminary Official Statement
(defined below) and will also be set forth in the Official Statement (defined below).
The Indenture, the Continuing Disclosure Agreement and this Purchase Contract are
hereinafter referred to collectively as the "Legal Documents."
(c) At 8:00 o'clock A.M., California time, on [March 1, 2020, or at such other
time or on such other date as mutually agreed upon by the City and the Underwriter (the "Closing
Date"), the City will, subject to the temms and conditions hereof, sell and deliver, or cause to be
delivered, the Bonds to the Underwriter, in definitive form, duly executed and authenticated, together
with the other documents mentioned herein, and subject to the terns and conditions hereof, the
Underwriter will accept such delivery and pay the purchase price of the Bonds as set forth in
subparagraph (a) above in immediately available funds (such delivery and payment being herein
referred to as the "Closing") to the order of the Trustee. Sale, delivery and payment as aforesaid shall
be made at the offices of Stradling Yocca Carlson & Rauth, a Professional Corporation, Newport
Beach, California ("Bond Counsel"), or such other place as shall have been mutually agreed upon by
the City and the Underwriter, except that the Bonds shall be delivered through the Trustee via the
F.A.S.T. delivery book -entry system of The Depository Trost Company ("DTC") in New York, New
York, or at such other place as shall have been mutually agreed upon by the City and the
Underwriter, in fully registered book -entry eligible form (which may be typewritten) and registered
in the name of Cede & Co. as nominee of OTC.
2. Establishment of Issue Price.
(a) The Underwriter agrees to make a bona fide public offering of all of the
Bonds at prices not in excess of the initial, respective public offering prices or at yields not lower
than the initial, respective yields shown or derived from information shown on the inside cover of the
Official Statement. [Except as set forth in subsection (d) below,] the Underwriter reserves the right to
change such initial offering prices after such offering as it shall deem necessary in connection with
the marketing of the Bonds.
(b) The Underwriter agrees to assist the City in establishing the issue price of the
Bonds and shall execute and deliver to the City at Closing an "issue price" or similar certificate,
together with the supporting pricing wires or equivalent communications, substantially in the form
attached hereto as Exhibit A, with such modifications as may be appropriate or necessary, in the
reasonable judgment of the Underwriter, the City and Bond Counsel, to accurately reflect, as
applicable, the sales price or prices or the initial offering price or prices to the public of the Bonds.
(c) [Except for the Hold -the -Price Maturities described in subsection (d) below
and Schedule 1 attached hereto,] the City will treat the first price at which l0°/p of each maturity of
the Bonds (the "10% test') is sold to the public as the issue price of that maturity. Schedule 1
attached hereto sets forth, as of the date of this Purchase Contract, the maturities of the Bonds for
which the 10% test has been satisfied (the "10% Test Maturities") and the price m prices at which the
Underwriter has sold such 10% Test Maturities to the public. For purposes of this section, if Bonds
Error! Unknown document properly vine.
mature on the same date but have different interest rates, each separate CUSIP number within that
maturity will be treated as a separate maturity of the Bonds.
(d) (With respect to the maturities of the Bonds that are not 10% Test Maturities,
as described in Schedule 1 attached hereto (the "Hold -the -Price Maturities"), the Underwriter
confirms that it has offered such maturities of the Bonds to the public on or before the date of this
Purchase Contract at the offering price or prices (the "initial offering price"), or at the corresponding
yield or yields, set forth in Schedule I attached hereto. The City and the Underwriter agree that the
restrictions set forth in the next sentence shall apply to the Hold -the -Price Maturities, which will
allow the City to treat the initial offering price to the public of each such maturity as of the sale date
as the issue price of that maturity (the "hold -the -offering -price rule'). So long as the hold -the -
offering -price rule remains applicable to any maturity of the Bonds, the Underwriter will neither
offer nor sell any portion of such maturity of the Hold -the -Price Maturities to any person at a price
that is higher than the initial offering price to the public during the period starting on the sale date
and ending on the earlier of the following:
(1) the close of the fifth (5th) business day after the sale date; or
(2) the date on which the Underwriter has sold at least 10% of that
maturity of the Hold -the -Price Maturities to the public at a price that is no higher than the
initial offering price to the public.
The Underwriter will advise the City promptly after the close of the fifth (5'h) business day after the
sale date whether it has sold 10% of that maturity of the Hold -the -Price Maturities to the public at a
price that is no higher than the initial offering price to the public.]
(e) The Underwriter confirms that:
(i) any selling group agreement and each third -party distribution agreement
relating to the initial sale of the Bonds to the public, together with the related pricing wires,
contains or will contain language obligating each dealer who is a member of the selling
group, and each broker -dealer that is a party to such third -party distribution agreement, as
applicable, to (A)(i) report the prices at which it sells to the public the unsold Bonds of each
maturity allocated to it until it is notified by the Underwriter that either the 101/u test has been
satisfied as to the Bonds of that maturity or all Bonds of that maturity have been sold to the
public and (ii) comply with the hold-theoffering-price rule, if applicable, in each case if and
for so long as directed by the Underwriter and w set forth in the related pricing wires;
(B) promptly notify the Underwriter of any sales of the Bonds that, to its knowledge, are
made to a purchaser who is a related party to an underwriter participating in the initial sale of
the Bonds to the public (each such term being used as defined below); and (C) acknowledge
that, unless otherwise advised by the dealer or broker -dealer, the Underwriter shall assume
that each order submitted by the dealer or broker -dealer is a sale to the public; and
(ii) any selling group agreement relating to the initial sale of the Bonds to the
public, together with the related pricing wires, contains or will contain language obligating
each dealer that is a party to a third -party distribution agreement to be employed in
connection with the initial sale of the Bonds to the public to require each broker -dealer that is
a party to such third -party distribution agreement to (A) report the prices at which it sells to
the public the unsold Bonds of each maturity allotted to it until it is notified by the
Underwriter or the dealer that either the 10% test has been satisfied as to the Bonds of that
E.! U.b . a.r.tee.t pnprrq ooe.
maturity or all Bonds of that maturity have been sold to the public and (B) comply with the
hold -the -offering -price mle, if applicable, in each case if and for so long as directed by the
Underwriter or the dealer and as set forth in the related pricing wires.
(f) The City acknowledges that, in making the representations set forth in this
section, the Underwriter will rely on (i) in the event a selling group has been created in connection
with the initial sale of the Bonds to the public, the agreement of each dealer who is a member of the
selling group to comply with the requirements for establishing the issue price of the Bonds,
including, but not limited to, its agreement to comply with the hold -the -offering -price rule, if
applicable to the Bonds, as set forth in the selling group agreement and the related pricing wires, and
(ii) in the event that a third -party distribution agreement was employed in connection with the initial
sale of the Bonds to the public, the agreement of each broker -dealer that is a party to such agreement
to comply with the requirements for establishing the issue price of the Bonds, including, but not
limited to, its agreement to comply with hold -the -offering -price rile, if applicable to the Bonds, as
set forth in the third -party distribution agreement and the related pricing wires. The City further
acknowledges that the Underwriter shall not be liable for the failure of any dealer who is a member
of a selling group, or of any broker -dealer that is a party to a third -party distribution agreement, to
comply with its corresponding agreement to comply with the requirements for establishing the issue
price of the Bonds, including, but not limited to, its agreement to comply with the hold -the -offering -
price rile, if applicable to the Bonds.
(g) The Underwriter acknowledges that sales of any Bonds to any person that is a
related party to an underwriter participating in the initial sale of the Bonds to the public (each such
term being used as defined below) shall not constitute sales to the public for purposes of this section.
Further, for purposes of this section:
(i) "public" means any person other than an underwriter or a related party;
(ii) "underwriter" (when used with a lower case "u") means (A) any person that
agrees pursuant to a written contract with the City (or with the lead underwriter to form an
underwriting syndicate) to participate in the initial sale of the Bonds to the public and (B) any
person that agrees pursuant to a written contract directly or indirectly with a person described
in clause (A) to participate in the initial sale of the Bonds to the public (including a member
of a selling group or a party to a third -party distribution agreement participating in the initial
sale of the Bonds to the public);
(iii) a purchaser of any of the Bonds is a 'related party" to an underwriter if the
underwriter and the purchaser are subject, directly or indirectly, to (A) more than 50%
common ownership of the voting power or the total value of their stock, if both entities are
corporations (including direct ownership by one corporation of another), (B) more than 50%
common ownership of their capital interests or profits interests, if both entities are
partnerships (including direct ownership by one partnership of another), or (C) more than
50% common ownership of the value of the outstanding stock of the corporation or the
capital interests or profit interests of the partnership, as applicable, if one entity is a
corporation and the other entity is a partnership (including direct ownership of the applicable
stock or interests by one entity of the other); and
(iv) "sale date" means the date of execution of this Purchase Contract by all
parties.
Urrar! Unknown document property name.
3. Use and Preparation of Official Statement. 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 , 2020, relating to the Bonds (including all appendices thereto, the
"Preliminary Official Statement") and the making available of the Preliminary Official Statement to
investors prim to the date hereof. The City has deemed the Preliminary Official Statement final 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 acknowledges that the Preliminary Official
Statement has been made available to investors in electronic form. The City hereby agrees to deliver
or cause to be delivered to the Underwriters, within seven (7) business days of the date hereof and at
least in sufficient time to accompany any orders or confirmations that request payment from any
customer, copies of the final official statement, dated the date hereof (which, together with all
information previously permitted to have been omitted by Rule 15c2-12 and any amendments or
supplements to such official statement as have been approved by the City and the Underwriter is
referred to herein as the "Official Statement") in sufficient quantity to enable the Underwriter to
comply with the riles of the Securities and Exchange Commission and the Municipal Securities
Rulemaking Board 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. At the time of or prior to the
Closing Date, the Underwriter shall file a copy of the Official Statement in printed or electronic form
with, and as permitted by, the Municipal Securities Rulemaking Board through its Electronic
Municipal Market Access System. The Underwriter shall advise the City of the date of such filing.
4. Representations Warranties and Ammements of the City. The City represents,
warrants and agrees with the Underwriter as follows:
(a) The City is, and will be on the Closing Date, duly existing as a chartered city
organized under the laws of the State of California (the `State"), and has full legal right, power and
authority to cause the Bonds to be authenticated and delivered to execute and deliver the Official
Statement and to enter into the Legal Documents and to perform its obligations contained herein and
therein, and, when executed and delivered by the other parties thereto, the Legal Documents will
constitute the legal, valid and binding obligations of the City enforceable in accordance with their
respective terns;
(b) By all necessary official action of the City prior to or concurrently with the
acceptance hereof, the City has duly approved the distribution of the Preliminary Official Statement
and the execution, delivery and distribution of the Official Statement, and has duly authorized and
approved the execution and delivery of, and the performance by the City of the obligations on its part
contained in, the Legal Documents and the consummation by it of all other transactions contemplated
by the Preliminary Official Statement and the Legal Documents;
(c) The City is not in breach of or default under any applicable constitutional
provision, law or administrative regulation to which it is subject or any applicable judgment or
decree or any loan agreement, indenture, bond, note, resolution, agreement or other instrument to
which the City is a party or to which the City or any of its property or assets is otherwise subject, and
no event has occurred and is continuing which with the passage of time or the giving of notice, or
both, would constitute such a default or event of default in any material respect =der any such
instrument; and the issuance of the Bonds and the execution and delivery of the Official Statement
and the Legal Documents and compliance with the provisions on the City's part contained in the
Legal Documents, will not in any material respect conflict with or constitute a breach of or default
Error! Uurmowa doeunmat property mme.
under any law, administrative regulation, judgment, decree, loan agreement, indenture, bond, note,
resolution, agreement or other instrument to which the City is a party or is otherwise subject, nor will
any such execution, delivery, adoption or compliance result in the creation or imposition of any lien,
charge or other security interest or encumbrance of any nature whatsoever upon any of the properties
or assets of the City under the temts of any such law, administrative regulation, judgment, decree,
loan agreement, indenture, bond, note, resolution, agreement or other instrument, except as provided
in the Indenture;
(it) There is no action, suit, proceeding, inquiry or investigation, at law or in
equity, before or by any court, governmental agency, public board or body, pending or, to the best
knowledge of the City after reasonable investigation, threatened, against the City in any material
respect affecting the existence of the City or the titles of its officers to their respective offices or
affecting or seeking to prohibit, restrain or enjoin the issuance, sale or delivery of the Bonds or
contesting or affecting, as to the City, the validity or enforceability of the Bonds or the Legal
Documents or the collection of Net Revenues of the Water System or other amounts pledged or to be
pledged to pay the principal of, premium, if any, and interest on the Bonds or contesting the powers
of the City or its authority to enter into, adopt or perform its obligations under any of the foregoing,
or contesting in any way the completeness or accuracy of the Preliminary Official Statement or the
Official Statement, or any amendment or supplement thereto, wherein an unfavorable decision, oiling
or finding would likely to result in a material adverse change in the business, properties, assets or
financial condition of the Water System or materially adversely affect the validity or enforceability
of the Legal Documents;
(e) All authorizations, approvals, licenses, permits, consents and orders of any
governmental authority, legislative body, board, agency or commission having jurisdiction of the
matter which are required for the due authorization by, or which would constitute a condition
precedent to or the absence of which would materially adversely affect the due performance by, the
City of its obligations in connection with the issuance of the Bonds under the Indenture have been
duly obtained, except for such approvals, consents and orders as may be required under the Blue Sky
or securities laws of any state in connection with the offering and sale of the Bonds; and, except as
described in or contemplated by the Preliminary Official Statement and the Official Statement, all
authorizations, approvals, licenses, permits, consents and orders of any governmental authority,
board, agency or commission having jurisdiction of the matter which are required for the due
authorization by, or which would constitute a condition precedent to or the absence of which would
materially adversely affect the due performance by, the City of its obligations under the Legal
Documents have been duly obtained;
(f) The Bonds, the Legal Documents and the other documents described in the
Preliminary Official Statement and the Official Statement conform in all material respects to the
descriptions thereof contained in the Preliminary Official Statement and 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;
(g) The City will famish such information, execute such instruments and take
such other action 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 so
Error! Uelmoxn document propern onme.
long as required for distribution of the Bonds; provided, however, that in no event shall the City be
required to take any action which would subject it to service of process in any jurisdiction in which it
is not now so subject;
(h) As of its date and the date hereof, the Preliminary Official Statement
(excluding information concerning DTC and the book -entry system as to which no representation is
made) did not, except as to the information permitted to be omitted by Rule 15c2-12, contain any
untrue statement of a material fact or omit to state a material fact necessary to make the statements
therein, in the light of the circumstances under which they were made, not misleading;
(i) As of the date thereof and at all times subsequent thereto to and including the
date which is 25 days following the End of the Underwriting Period (as such tern is hereinafter
defined) for the Bonds, the Official Statement (excluding information concerning DTC and the book -
entry system as to which no representation is made) did not and will not contain any untrue statement
of a material fact or omit to state a material fact necessary to make the statements therein, in the light
of the circumstances under which they were made, not misleading;
6) If between the date hereof and the date which is 25 days after the End of the
Underwriting Period 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 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, 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 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 existing at the time the Official
Statement is delivered to prospective purchasers, not misleading. For the purposes of this subsection,
between the date hereof and the date which is 25 days after the End of the Underwriting Period for
the Bonds, the City will furnish such information with respect to itself as the Underwriter may from
time to time reasonably request;
(k) If the information contained in the Official Statement is amended or
supplemented pursuant to paragraph 0) of this Section 4, at the time of each supplement or
amendment thereto and (unless subsequently again supplemented or amended pursuant to such
paragraph) at all times subsequent thereto up to and including the date which is 25 days after the End
of the Underwriting Period for the Bonds, the Official Statement so supplemented or amended
(excluding information concerning DTC and the book -entry system as to which no representation is
made) will not contain any untrue statement of a material fact or omit to state a material fact
necessary to make the statements therein, in the light of the circumstances under which they were
made, not misleading;
(1) As used herein and for the purposes of the foregoing, the term "End of the
Underwriting Period' for the Bonds shall mean the later of (i) the Closing Date, 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;
Err . u.dm.. a..+ t proper .se.
(m) After the Closing Date, the City will not participate in the issuance of any
amendment of or supplement to the Official Statement to which, after being famished with a copy,
the Underwriter shall reasonably object in writing;
(n) The City will apply, or cause the application of, the proceeds of the Bonds in
accordance with the Indenture;
(o) As of the time of acceptance hereof and as of the Closing Date, the City does
not and will not have outstanding any indebtedness which is secured by a lien on Water System
Revenues superior to or on a parity with the lien of the Bonds thereon;
(p) Between the date hereof and the Closing Date, except as contemplated by the
Preliminary Official Statement and the Official Statement, the City will not have incurred any
material liabilities, direct or contingent, payable from Water System Revenues or entered into any
material transaction in connection with the Water 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 operations of the Water System;
(q) The financial statements of the [Water Fund][and the City] contained as
Appendix A to the Preliminary Official Statement and the Official Statement do and will fairly
present the financial position and results of operations of the Water System as of the dates and for the
periods therein set forth in accordance with the accounting principles described in Appendix A to the
Preliminary Official Statement and 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
Water System from that set forth in or contemplated by the Preliminary Official Statement and the
Official Statement;
(r) 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 Water System the lack of
which would materially adversely affect the operations or financial condition of the Water 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 Water System that would materially adversely affect its operations or
financial condition;
(s) 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; and
(t) Except as disclosed in the Preliminary Official Statement and the Official
Statement, the City has not failed to comply in all material respects with the terms of any continuing
disclosure obligation under Rule 15c2-12 within the past five years.
5. Conditions to the Obli¢ations of the Underwriter. The Underwriter hereby enters into
this Purchase Contract in reliance upon the representations and warranties of the City contained
herein and the representations and warranties of the City to be contained in the documents and
instruments to be delivered on or prior to the Closing Date and upon the performance by the City of
its obligations both on and as of the date hereof and as of the Closing Date. Accordingly, the
Underwriter's obligations under this Purchase Contract to purchase, to accept delivery of and to pay
for the Bonds shall be subject, at the option of the Underwriter, to the accuracy in all material
Ermr! Uurmoxn document property name. 8
respects of the representations and warranties of the City contained herein as of the date hereof and
as of the Closing Date, to the accuracy in all material respects of the statements of the officers and
other officials of the City made in any certificate or other document furnished pursuant to the
provisions hereof, to the performance by the City of its obligations to be performed hereunder and
under such documents and instruments at or prior to the Closing Date, and also shall be subject to the
following additional conditions:
(a) The City shall have delivered to the Underwriter a letter from [Vasquez &
Company LLP ](the "Independent Auditors"), dated the date of the Preliminary Official Statement, in
form acceptable to the Underwriter, consenting to the references to such firm and the inclusion of the
financial statements of the [Water Fund][and the City] as of and for the year ended June 30, 2019 in
the Preliminary Official Statement and the Official Statement, or confirmation from the City in a
form satisfactory to the Underwriter that no such consent shall be required under the terms of the
City's contract for services of the Independent Auditors;
(b) The Underwriter shall receive, within seven (7) business days of the date
hereof and at least in sufficient time to accompany any orders or confirmations that request payment
from any customer, copies of the Official Statement (including all information previously permitted
to have been omitted by Rule 15c2-12 and any amendments or supplements as have been approved
by the Underwriter), in such quantity as the Underwriter shall have requested pursuant to Section 3
hereof;
(c) The representations and warranties of the City contained herein shall be true
and correct on the date hereof and on the Closing Date, as if made on and at the Closing Date;
(d) As of the Closing Date, the Legal Documents shall have been duly
authorized, executed and delivered by the respective parties thereto, and the Official Statement shall
have been duly authorized, executed and delivered by the City, all in substantially the forms
heretofore submitted to the Underwriter, with only such changes as shall have been agreed to in
writing by the Underwriter, and such Legal Documents shall be in full force and effect and shall not
have been amended, modified or supplemented and the Official Statement shall not have been
supplemented or amended, except in any such case as may have been agreed to by the Underwriter;
and there shall be in full force and effect such resolution or resolutions of the City Council of the
City as, in the opinion of Bond Counsel, shall be necessary or appropriate in connection with the
transactions contemplated hereby;
(e) Between the date hereof and the Closing Date, the Underwriter may terminate
this Purchase Contract (evidenced by a written notice to the City terminating the obligation of the
Underwriter to accept delivery of and make any payment for the Bonds) if, in the reasonable
judgment of the Underwriter, any of the following shall occur.
(1) an amendment to the Constitution of the United States or the State of
California shall have been passed or legislation shall have been introduced in or enacted by
the Congress of the United States or the legislature of any state having jurisdiction of the
subject matter or legislation pending in the Congress of the United States shall have been
amended or legislation shall have been recommended to the Congress of the United States or
to any state having jurisdiction of the subject matter or otherwise endorsed for passage (by
press release, other form of notice or otherwise) by the President of the United States, the
Treasury Department of the United States, the Internal Revenue Service or the Chairman or
ranking minority member of the Committee on Finance of the United States Senate or the
Ermr!Unknew aoenmmt properly rime.
Committee on Ways and Means of the United States House of Representatives, or legislation
shall have been proposed for consideration by either such Committee by any member thereof
or presented as an option for consideration by either such Committee by the staff of such
Committee or by the staff of the Joint Committee on Taxation of the Congress of the United
States, or legislation shall have been favorably reported for passage to either House of the
Congress of the United States by a Committee of such House to which such legislation has
been referred for consideration, or a decision shall have been rendered by a court of the
United States or of the State of California or the Tax Court of the United States, or a ruling
shall have been made or a regulation or temporary regulation shall have been proposed or
made or any other release or announcement shall have been made by the Treasury
Department of the United States, the Internal Revenue Service or other federal or State of
California authority, with respect to federal or State of California taxation upon revenues or
other income of the general character to be derived by the City or upon interest received on
obligations of the general character of the Bonds which may have the purpose or effect,
directly or indirectly, of affecting the tax status of the City, its property or income, its
securities (including the Bonds) or the interest thereon, or (with respect to the Bonds) any tax
exemption granted or authorized by State of California legislation which materially adversely
affects the market price or marketability of the Bonds or the ability of the Underwriter to
enforce contracts for the sale, at the contemplated offering prices (or yields) of the Bonds;
(2) legislation enacted, introduced in the Congress or recommended for
passage by the President of the United States, or a decision rendered by a court of the United
States, or an order, ruling, regulation (final, temporary or proposed) or official statement
issued or made by or on behalf of the Securities and Exchange Commission, or any other
governmental agency having jurisdiction of the subject matter shall have been made or issued
to the effect that obligations of the general character of the Bonds, or the Bonds, including
any or all underlying arrangements, are not exempt from registration under the Securities Act
of 1933, as amended, or that the Indenture is not exempt from qualification under the Trust
Indenture Act of 1939, as amended;
(3) any of the following shall have occurred (i) the outbreak or escalation
in military hostilities or declaration by the United States of a national or international
emergency or war, (ii) the sovereign debt rating of the United States is downgraded by any
major credit rating agency or a payment default occurs on United States Treasury Obligation,
(iii) a default with respect to the debt obligations of, or the institution of proceedings under
any federal bankruptcy laws by or against, any state of the United States or any city, county
or political subdivision located in the United States having a population of over 500,000, or
(iv) a major financial crisis or any other calamity or crisis the effect of any of which on the
financial markets is such as to make it impracticable or inadvisable to proceed with the
offering or delivery of the Bonds as contemplated hereby or by the Official Statement;
(4) the general suspension of trading on the New York Stock Exchange
or other major securities exchange shall be in force, 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 any such exchange, whether by virtue of
determination by that exchange or by order of the Securities Exchange Commission or any
other governmental authority having jurisdiction, which materially adversely affects the
market price or marketability of the Bonds or the ability of the Underwriter to enforce
contracts for the sale, at the contemplated offering prices (or yields) of the Bonds;
Error! Unhvown dacumem prnpern name. 10
(5) the declaration of a general banking moratorium by federal, New
York or California authorities, or the imposition by the New York Stock Exchange or other
national securities exchange, or any governmental authority having jurisdiction of the subject
matter, of any material restrictions not now in force with respect to the Bonds or obligations
of the general character of the Bonds or securities generally, or the material increase of any
such restrictions now in force, including those relating to the extension of credit by, or the
charge to the net capital requirements of, the Underwriter, or a material disruption in
commercial banking or securities settlement or clearances services shall have occurred;
(6) an order, decree or injunction of any court of competent jurisdiction,
or order, ruling, regulation or official statement by the Securities and Exchange Commission,
or any other governmental agency having jurisdiction of the subject matter, issued or made to
the effect that the issuance, offering or sale of obligations of the general character of the
Bonds, or the issuance, offering or sale of the Bonds, including any or all underlying
obligations, as contemplated hereby or by the Official Statement, is or would be in violation
of the federal securities laws as amended and then in effect;
(7) except as disclosed in or contemplated by the Official Statement, any
material adverse change in the business, properties, assets or financial condition of the Water
System of the City;
(8) the suspension, withdrawal or downgrading of any rating of the
Bonds or any other outstanding debt of the City's Water System by any rating agency then
rating such Bonds or other outstanding debt of the City's Water System, or any official action
by any rating agency then rating the Bonds to place the Bonds on "Credit Watch" for possible
downgrade or on "Negative Outlook" after the date hereof (and provided that the Bonds were
not on "Credit Watch" or "Negative Outlook" prior to the date hereof); or
(9) an event shall occur or circumstance shall exist or any information
shall become known which makes untrue or incorrect in any material respect at the time of
such event or circumstance or information becoming known any statement or information
contained in the Official Statement, or has the effect that the Official Statement contains any
untrue statement of material fact or omits to state a material fact required to be stated therein
or necessary to make the statements therein, in the light of the circumstances under which
they were made, not misleading and, in any such case, (a) the City refuses to permit the
Official Statement to be supplemented to supply such statement or information or (b) the
effect of the Official Statement as so supplemented is, in the reasonable judgment of the
Underwriter, to materially adversely affect the market price or marketability of the Bonds or
the ability of the Underwriter to enforce contracts for the sale, at the contemplated offering
prices (or yields) of the Bonds;
(f) At or prior to the Closing, the Underwriter shall receive the following
documents, in each case satisfactory in form and substance to the Underwriter and Underwriter's
Counsel:
(1) the unqualified approving opinion of Bond Counsel, dated the Closing
Date and addressed to the City, substantially in the form attached as Appendix C to the
Official Statement;
Error! Uoimoein document property name. I l
(2) a supplemental opinion of Bond Counsel, dated the Closing Date and
addressed to the Underwriter, substantially in the form attached hereto as Exhibit B;
(3) a letter, dated the Closing Date and addressed to the Underwriter, of
Stradling Yocca Carlson & Rauth, a Professional Corporation, Disclosure Counsel to the
City, in substantially the form attached hereto as Exhibit C;
(4) an opinion of the City Attorney or other counsel to the City
acceptable to the Underwriter, dated the Closing Date and addressed to the Underwriter,
substantially in the form attached hereto as Exhibit D:
(5) 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
and as Dissemination Agent under the Continuing Disclosure Agreement; (ui) 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;
(iv) the Trustee has duly authenticated the Bonds; and (v) the Trustee has duly executed and
delivered the Indenture and the Continuing Disclosure Agreement and assuming that such
documents constitute the legal, valid and binding agreements of the other respective 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) bankmptcy, 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;
(6) an opinion of Norton Rose Fulbright US LLP, Underwriter's Counsel,
dated the Closing Date and addressed to the Underwriter, to the effect that (i) the Bonds are
not subject to the registration requirements of the Securities Act of 1933, as amended, and the
Indenture is exempt from qualification under the Trust Indenture Act of 1939, as amended;
(ii) assuming the due authorization, execution and delivery of the Continuing Disclosure
Agreement by the City and the Trustee and the enforceability thereof, the Continuing
Disclosure Agreement is in a form which satisfies the requirements of section (b)(5)(i) of
Rule 15c2-12 of the Securities Exchange Act of 1934, as amended; and (iii) on the basis of
the information made available to such firm in the course of acting as counsel to the
Underwriter (but without having undertaken to determine or verify independently, or
assuming any responsibility for, the accuracy, completeness or fairness of any of the
statements contained in the Preliminary Official Statement or the Official Statement), no
facts have come to the attention of the personnel in such firm directly involved in rendering
legal advice and assistance to the Underwriter in connection with the preparation of the
Preliminary Official Statement and the Official Statement that cause them to believe that
(a) the Preliminary Official Statement as of its date or as of the date of this Purchase Contract
(excluding therefrom financial, demographic and statistical data; forecasts, projections,
estimates, assumptions and expressions of opinions; statements relating to DTC, Cede & Co.
and the operation of the book -entry system; statements relating to the treatment of the Bonds
or the interest, discount or premium, if any, thereon or therefrom for tax purposes under the
law of any jurisdiction; and the statements contained in the Preliminary Official Statement
Error! Un" an document proper, name. 12
under the captions "TAX MATTERS,' and in the Appendices to the Preliminary Official
Statement; as to all of which they express no view) contained any untrue statement of a
material fact or omitted 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 for such information as is permitted to be excluded from the Preliminary Official
Statement pursuant to Rule 15c2-12 of the Securities Exchange Act of 1934, as amended,
including but not limited to information as to pricing, yields, interest rates, maturities,
amortization, redemption provisions, debt service requirements, Underwriter's discount and
CUSIP numbers or (b) the Official Statement as of its date or as of the Closing Date
(excluding therefrom financial, demographic and statistical data; forecasts, projections,
estimates, assumptions and expressions of opinions; statements relating to DTC, Cede & Co.
and the operation of the book -entry system; statements relating to the treatment of the Bonds
or the interest, discount or premium, if any, thereon or therefrom for tax purposes under the
law of any jurisdiction; and the statements contained in the Official Statement under the
captions "TAX MATTERS," and in the Appendices to the Official Statement; as to all of
which they express no view) contained any untrue statement of a material fact or omitted 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;
(7) a certificate or certificates, dated the Closing Date, of the City
executed by its City Administrator or other appropriate official, to the effect that (i) 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; (ii) since June 30,
2019, except as referred to in or as contemplated by the Preliminary Official Statement and
the Official Statement, with respect to its Water System, the City has not incurred any
financial liabilities, direct or contingent, or entered into any transactions and there has not
been any adverse change in the condition, financial or physical, of the Water System, in any
case that would materially and adversely affect the ability of the City to meet its obligations
under the Indenture; (iii) other than as described in the Preliminary Official Statement and the
Official Statement, there is no action, suit, proceeding, inquiry or investigation pending or, to
the best knowledge of such official, threatened (a) in any way questioning the corporate
existence of the City or the titles of the officers of the City to their respective offices;
(b) seeking to restrain or enjoin the delivery of the Bonds, or the collection of Net Revenues
of the Water System or other amounts pledged to pay the principal of, premium, if any, and
interest on such Bonds or the pledge thereof; (c) in any way contesting or affecting the
validity of the Bonds or the Legal Documents; (d) in any way 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, nor to the best knowledge of such official
after reasonable investigation, is there any basis for any such action, suit, proceeding, inquiry
or investigation, wherein an unfavorable decision, ruling or finding would make invalid or
materially adversely affect the authorization, execution, delivery or performance by the City
of the foregoing; (e) which would be likely to result in a material adverse change in the
business, properties, assets or the financial condition of the Water 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 (f) asserting that the Preliminary Official Statement or the Official
Statement contained any untrue statement of a material fact or omitted to state any material
error!Uuw a«. tprpenr..mr. 13
fact necessary to make the statements made therein, in the light of the circumstances under
which they were made, not misleading, which certificate shall be in form and substance
acceptable to the Underwriter (but in lieu of such certificate, the Underwriter may in its sole
discretion accept an opinion of Bond Counsel or other 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);
(8) a certificate, dated the Closing Date, signed by a duly authorized
official of the Trustee, satisfactory in form and substance to the Underwriter, to the effect
that: (i) the Trustee is a national banking association organized and existing under and by
virtue of the laws of the United States of America, having the full power and being qualified
to enter into and perform its duties under the Indenture and the Continuing Disclosure
Agreement; (ii) the Trustee is duly authorized to enter into the Indenture and the Continuing
Disclosure Agreement and to authenticate and deliver the Bonds to the Underwriter pursuant
to the terms of the Indenture; (iii) the execution and delivery of the Indenture and the
Continuing Disclosure Agreement and compliance with the provisions on the Trustee's part
contained therein, and the authentication and delivery of the Bonds will not conflict with or
constitute a breach of or default under any law, administrative regulation, judgment, decree,
loan agreement, indenture, bond, note, resolution, agreement or other instrument to which the
Trustee is a party or is otherwise subject (except that no representation, warranty or
agreement is made with respect to any federal or state securities or Blue Sky laws or
regulations), nor will any such execution, delivery, adoption or compliance result in the
creation or imposition of any lien, charge or other security interest or encumbrance of any
nature whatsoever upon any of the properties or assets held by the Trustee pursuant to the
lien created by the Indenture under the terms of any such law, administrative regulation,
judgment, decree, loan agreement, indenture, bond, note, resolution, agreement or other
instrument, except as provided by the Indenture; and (iv) there is no action, suit, proceeding,
inquiry or investigation, at law or in equity, before or by any court, governmental agency,
public board or body, served on, or, to the best knowledge of such officer, threatened against,
the Trustee, affecting the existence of the Trustee or the titles of its officers to their respective
offices, or in any way contesting or affecting the validity or enforceability of the Indenture
against the Trustee, or contesting the power of the Trustee or its authority to enter into, adopt
or perform its obligations under the Indenture, wherein an unfavorable decision, ruling or
finding would materially adversely affect the validity or enforceability of the Indenture
against the Trustee or the authentication and delivery of the Bonds;
(9) a certified copy of the general resolution of the Trustee authorizing
the execution and delivery of the Indenture and the Continuing Disclosure Agreement;
(10) the Official Statement and each supplement or amendment, if any,
thereto, executed by the City;
(11) copies of each of the Legal Documents, each duly executed and
delivered by the respective parties thereto;
(12) certified copies of all proceedings relating to the authorization and
issuance of the Bonds certified by the City Clerk or other appropriate official of the City;
Error! l nimman document property nvme. 14
(13) tax certifications by the City in form and substance acceptable to
Bond Counsel;
(14) evidence that a federal tax information form 8038-G has been
prepared for filing with respect to the Bonds.
(15) evidence that the rating on the Bonds of "_" from [S&P Global
Ratings) is in full force and effect as of the Closing Date;
(16) the DTC Blanket Issuer Letter of Representations of the City;
(17) a copy of any Blue Sky Memorandum with respect to the Bonds,
prepared by Counsel to the Underwriter;
(I8) a copy of the Notice of Final Sale required to be delivered to the
California Debt and Investment Advisory Commission pursuant to Section 8855 of the
California Government Code;
(19) evidence of the City's compliance with the requirements of Section
8855(i) of the California Government Code; and
(20) such additional certificates, instruments and other documents as the
Underwriter, Underwriter's Counsel or Bond Counsel 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.
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 subject
to termination by the Underwriter for any reason permitted by this Purchase Contract, this Purchase
Contract and all obligations of the Underwriter hereunder may, at the option of the Underwriter, be
terminated by the Underwriter at, or at any time prior to, the Closing Date by written notice to the
City, and upon any such termination, neither the Underwriter nor the City shall have any further
obligations hereunder.
Expenses.
(a) 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
Preliminary Official Statement, the Official Statement and any supplements or amendments thereto,
including a reasonable number of certified or conformed copies thereof, (ii) the cost of preparation
and printing of the Bonds; (iii) the fees and disbursements of Bond Counsel and Disclosure Counsel;
(iv) the fees and disbursements of the City's financial advisor and any engineers, accountants and
other experts, consultants or other advisors retained by the City; (v) fees for bond ratings (which
include fees of rating agencies and travel expenses of the City); and (vi) all expenses incurred on
behalf of City personnel with respect to the financing, including (a) air travel and hotel costs in
connection with the pricing of the Bonds, any investor meetings, any rating agency trips and the
Error! UaRoowa doeameat property came. 15
Closing, (b) meals and transportation for City personnel during such trips, (c) expenses of City
personnel related to attending working group meetings, such as parking, meals and transportation,
and (d) any other miscellaneous costs related to the Closing.
(b) The Underwriter shall pay: (i) the cost of preparation and printing of this
Purchase Contract and the Preliminary Blue Sky Memorandum; (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, the Municipal Securities Rulemaking Board
and DTC; and (iv) all other expenses (including travel and other out-of-pocket expenses) incurred by
them in connection with the public offering of the Bonds and the transactions contemplated by this
Purchase Contract not outlined in (a) above, including the fees and disbursements of Underwriter's
Counsel. The City acknowledges and agrees that some or all of the expenses (including all normally
occurring out-of-pocket expenses) to be paid by the Underwriter may be included as part of the
expense component of the Underwriter's discount or may be reimbursed to the Underwriter as out-
of-pocket expenses.
7. Notices. 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 South
Santa Fe Avenue, Vernon, California 90058, Attention: City Administrator; 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 the Underwriter: J.P. Morgan Securities LLC, 560 Mission Street,
Floor Three, San Francisco, CA 94105, Attention: Will Frymann.
8. Survival of Representations and Warranties The City's representations, warranties
and agreements contained in this Purchase Contract or made in any certificate delivered hereunder
shall remain operative and in full force and effect, regardless of. (i) any investigations or statements
made by or on behalf of the Underwriter; and (ii) delivery of and payment for the Bonds pursuant to
this Purchase Contract.
9. No Fiduciary. The City acknowledges and agrees that (i) the purchase and sale of the
Bonds pursuant to this Purchase Contract is an arm's-length commercial transaction between the City
and the Underwriter in which the Underwriter is acting solely as a principal and is not acting as the
agent, fiduciary, financial advisor or municipal advisor of the City, (ii) the Underwriter has not
assumed an advisory or fiduciary responsibility in favor of the City with respect to the offering
contemplated hereby or the discussions, undertakings and procedures leading thereto (irrespective of
whether the Underwriter has provided other services or is currently providing other services to the
City on other matters); (iii) the Underwriter has no obligation to the City with respect to the offering
contemplated hereby except the obligations expressly set forth in this Purchase Contract; (iv) the
Underwriter has financial and other interests that differ from those of the City; and (iv) the City has
consulted with its own legal, accounting, tax, financial and other advisors to the extent it deemed
appropriate.
10. Governing Law. 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. Counterpart Signatures. 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.
Errror! V.kmwv d.a..w vr.pul, n.m 16
12. Parties in Interest. 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.
Very truly yours,
J.P. MORGAN SECURITIES LLC
By:
Authorized Representative
Accepted on , 2020
CITY OF VERNON
By:
City Administrator
ATTEST:
1Iy:
City Clerk
SCHEDULE I
CITY OF VERNON
Water System Revenue Bonds,
2020 Series A
MATURITY SCHEDULE
Maturity
Date Principal Interest 10%Test
(August 1) Amount Rate Yield Price Used
REDEMPTION PROVISIONS
Hold -the -
Offering Price
Rule Used
[Optional Redemption. The Bonds with stated maturities on or after August 1, 20_, are subject to
redemption prior to their respective stated maturities, as a whole or in part on _ 1, 20 , or any date
thereafter, as directed by the City in a Written Request provided to the Trustee at least 35 days (m such lesser
number of days acceptable to the Trustee in the sole discretion of the Trustee, such notice for the convenience
of the Trustee) and by lot within each maturity in integral multiples of $5,000, at a Redemption Price equal to
the principal amount thereof plus accrued interest thereon to the Redemption Date, without premium
Mandatory Sinking Fund Redemption. The Bonds maturing on August 1, 20 (the "Term Bond)
with stated maturities on August I, 20_ are subject to mandatory sinking find redemption in part (by lot) on
August 1, 20_ and each August I thereafter, in integral multiples of $5,000 at a Redemption Price of the
principal amount thereof plus accrued interest to the date fixed for redemption, without premium, in
accordance with the following schedule:
rrrod rnino.n document proper. name. Sch. 1, Page I
Redemption Date Principal
(August I) Amount
Mamnly]
error! uomowa aosawm prap.rry oaaK. Sch. I, Page 2
EXHIBIT A
FORM OF ISSUE PRICE CERTIFICATE
S
CITY OF VERNON
Water System Revenue Bonds,
2020 Series A
The undersigned, J.P. Morgan Securities LLC, as underwriter ("J.P. Morgan"), hereby
certifies as set forth below with respect to the sale and issuance of the above -captioned obligations
(the "Bonds") of the City of Vernon, California (the "Issuer").
1. Sale of the General Rule Maturities. As of the date of this certificate, for each
Maturity of the General Rule Maturities, the first price at which at least 10% of such Maturity was
sold to the Public is the respective price listed in Schedule 1.
2. Initial Offering Price of the Hold -the -Offering -Price Maturities.
(a) J.P. Morgan has offered the Hold -the -Offering -Price Maturities to the Public for
purchase at the respective initial offering prices listed in Schedule I (the "Initial Offering Prices") on
or before the Sale Date. A copy of the pricing wire or equivalent communication for the Bonds is
attached to this certificate as Schedule 2.
(b) As set forth in the Contract of Purchase dated , 2020 (the "Purchase
Contract"), between J.P. Morgan and the Issuer, J.P. Morgan agreed in writing on or prior to the Sale
Date that, (i) for each Maturity of the Hold -the -Offering -Price Maturities, it would neither offer nor
sell any of the Bonds of such Maturity to any person at a price that is higher than the britial Offering
Price for such Maturity during the Holding Period for such Maturity (the "hold-theoffering-price
rule"), and (ii) any selling group agreement shall contain the agreement of each dealer who is a
member of the selling group, and any third -party distribution agreement shall contain the agreement
of each broker -dealer who is a party to the third -party distribution agreement, to comply with the
hold -the -offering -price rule. Pursuant to such agreement, J.P. Morgan has not offered or sold any of
its Allotted Portion of unsold Bonds of any Maturity of the Hold -the -Offering -Price Maturities at a
price that is higher than the respective Initial Offering Price for that Maturity of the Bonds during the
Holding Period.
3. Defined Terms.
(a) Allotted Portion means that portion of a Maturity of the Hold -the -Offering Price
Maturities that was retained by or allotted to J.P. Morgan, as identified in Schedule 1.
(b) General Rule Maturities means those Maturities of the Bonds listed in Schedule I
hereto as the "General Rule Maturities."
(c) Hold -the -Offering -Price Maturities means those Maturities of the Bonds listed in
Schedule 1 hereto as the "Hold -the -Offering -Price Maturities"
Fx... 7 t k..— d--.1 p ,-t, n me. A-1
(d) Holding Period means, with respect to a Hold -the -Offering -Price Maturity, the period
starting on the Sale Date and ending on the earlier of (i) the close of the fifth business day after the
Sale Date, or (ii) the date on which the Underwriter sold at least 10% of such Hold -the -Offering -
Price Maturity to the Public at prices that are no higher than the Initial Offering Price for such Hold -
the -Offering -Price Maturity.
(e) Maturity means Bonds with the same credit and payment terms. Bonds with different
maturity dates, or Bonds with the same maturity date but different stated interest rates, are treated as
separate maturities.
(t) Public means any person (including an individual, trust, estate, partnership,
association, company, or corporation) other than an Underwriter or a related party to an Underwriter.
The term `related party" for purposes of this certificate generally means any two or more persons
who have greater than 50 percent common ownership, directly or indirectly.
(g) Sale Date means the first day on which there is a binding contract in writing for the
sale of a Maturity of the Bonds. The Sale Date of the Bonds is _, 2020.
(h) Underwriter means (i) any person that agrees pursuant to a written contract with the
Issuer (or with the lead underwriter to form an underwriting syndicate) to participate in the initial
sale of the Bonds to the Public, and (ii) any person that agrees pursuant to a written contract directly
or indirectly with a person described in clause (i) of this paragraph to participate in the initial sale of
the Bonds to the Public (including a member of a selling group or a party to a third -party distribution
agreement participating in the initial sale of the Bonds to the Public).
The representations set forth in this certificate are limited to factual matters only. Nothing in
this certificate represents the undersigned's interpretation of any laws, including specifically Sections
I03 and 148 of the Internal Revenue Code of 1986, as amended and the Treasury Regulations
thereunder. The undersigned understands that the foregoing information will be relied upon by the
Issuer with respect to certain of the representations set forth in the Tax Certificate with respect to the
Bonds and with respect to compliance with the federal income tax rules affecting the Bonds, and by
Stradling Yocca Carlson & Rauth, a Professional Corporation, in connection with rendering its
opinion that the interest on the Bonds is excluded from gross income for federal income tax purposes,
the preparation of the Internal Revenue Service Form 8038-G, and other federal income tax advice
that it may give to the Issuer from time to time relating to the Bonds.
IN WITNESS WHEREOF, the undersigned has executed this certificate on this _'t day of
, 2020.
J.P. MORGAN SECURITIES LLC
By: _
Name:
Title:
[Note: if any selling group members, add separate certification form for members of selling group]
Error! Untie decant pnperty se A-2
SCHEDULEI
SALE PRICES OF THE GENERAL RULE MATURITIES AND
INITIAL OFFERING PRICES OF THE HOLD -THE OFFERING -PRICE MATURITIES
(Attached)
Frrnr! Cnknown document prupern name. A-1
SCHEDULE2
PRICING WIRE OR EQUIVALENT
(Auwhed)
EmN U.0 �pmperq. A4
FORM OF SUPPLEMENTAL OPINION OF BOND COUNSEL
[Closing Date]
J.P. MORGAN SECURITIES LLC,
as Underwriter
San Francisco, California
Re: $ City of Vernon Water System Revenue Bonds, 2020 Series A
Ladies and Gentlemen
We have acted as bond counsel in connection with the issuance of the above -referenced
bonds (the "Bonds"). The Bonds have been 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 _ 1, 2020 (the "Indenture"), by and between the City and The Bank of New York
Mellon Trust Company, N.A. (the "Trustee'). Capitalized terms used herein and not defined shall
have the meanings given to such terns in the Contract of Purchase, dated _ _, 2020 (the
"Purchase Contmct" ), by and between the City and J.P. Morgan Securities LLC, as underwriter (the
"Underwriter").
On the date hereof, we delivered to the City our opinion relating to, among other things, the
validity of the Bonds (the "Approving Opinion"). You are authorized to rely upon the Approving
Opinion as if addressed to you.
Based upon the foregoing and our review of such other information, documents and matters
of law as we considered necessary and in reliance on the foregoing, as appropriate, we are of the
opinion that:
(i) The Purchase Contract and the Continuing Disclosure Agreement have each been
duly executed and delivered by the City and each of the Purchase Contract and the Continuing
Disclosure Agreement is a valid and binding agreement of the City. No opinion regarding the
adequacy of the Continuing Disclosure Agreement for purposes of S.E.C. Rule 15c2-12 may be
inferred from this opinion.
(ii) The statements contained in the Official Statement under the captions
"INTRODUCTION," `THE 2020 BONDS," "SECURITY FOR THE 2020 BONDS" and "TAX
MATTERS," and in Appendices B and C, insofar as such statements purport to summarize certain
provisions of the Bonds and the Indenture and our opinion with respect to certain federal and state
income tax matters related to the Bonds, are accurate in all material respects; and
(iii) The Bonds are exempt from registration pursuant to the Securities Act of 1933, as
amended, and the Indenture is exempt from qualification pursuant to the Tmst Indenture Act of 1939,
as amended.
arm! U."mn . earum.m B-1
The opinions that are expressed herein are based upon our analysis and interpretation of
existing laws, regulations, rulings and judicial decisions and cover certain matters not directly
addressed by such authorities. This opinion is limited to matters governed by the laws of California
and federal securities laws, and we assume no responsibility with respect to the applicability or the
effect of the laws of any other jurisdiction. We call attention to the fact that the rights and
obligations under the Purchase Contract, the Indenture, the Continuing Disclosure Agreement and the
Bonds are subject to banlwptcy, insolvency, reorganization, moratorium, fraudulent conveyance or
transfer and other similar laws affecting creditors' rights, to the application of equitable principles if
equitable remedies are sought, to the exercise of judicial discretion in appropriate cases and to
limitations on legal remedies against public agencies in the State of California.
This letter is limited to matters governed by the laws of the State of California and federal
securities laws, and we assume no responsibility with respect to the applicability or the effect of the
laws of any otherjurisdiction. Except as expressly set forth in the Approving Opinion, we express no
opinion regarding any tax consequences with respect to the Bonds. No opinion is expressed herein
with respect to the compliance with, or applicability of, any "blue sky" laws of any state as they
relate to the offer or sale of the Bonds.
The Underwriter has been represented in connection with the purchase of the Bonds by its
counsel. No attomeyclient relationship has existed or exists between the Underwriter and our firm
in connection therewith or by virtue of this letter. This letter is delivered to you as the Underwriter
of the Bonds, is solely for your benefit as such, and is not to be used, circulated, quoted or otherwise
referred to or relied to or relied upon for any other purpose or by any other person without our prior
written consent.
Respectfully submitted,
Error' ea"o.a document propem name. B-2
Ail�r 1'�Yl�al
FORM OF LETTER OF DISCLOSURE COUNSEL
[Closing Date]
J.P. MORGAN SECURITIES LLC,
as Underwriter
San Francisco, California
Re: $_ City of Vernon Water System Revenue Bonds, 2020 Series A
Ladies and Gentlemen
We have acted as disclosure counsel for the City of Vernon (the "City") in connection with
the issuance of the above -referenced bonds (the "Bonds"). The Bonds are being purchased by you,
as underwriter of the Bonds pursuant to the terms of a Contract of Purchase (the "Purchase
Contract"), dated _ _, 2020, by and between the City and you. All capitalized terms that are used
herein and not defined have the meanings that are ascribed thereto in the Purchase Contract.
In rendering the advice contained herein, we have examined originals or copies certified or
otherwise identified to our satisfaction of (i) the Preliminary Official Statement, dated _, 2020
(the "POS") and the Official Statement, dated _ _, 2020 (the "Official Statement'), each relating
to the Bonds; and (ii) the letters, certificates, and opinions that were delivered to you in connection
with the sale of the Bonds. We have not reviewed, and we do not assume any responsibility for any
electronic version of the Official Statement and for all purposes of this letter, we have assumed that
any electronic version of the Official Statement conforms in all respects to the printed version of the
Official Statement.
The conclusions that are 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 conclusions may he affected by actions taken or omitted or events occurring after
the date hereof. We have not undertaken to determine, or to inform you or any other person, whether
any such actions are taken or omitted or whether such events do occur or any other matters come to
our attention after the date hereof. We have assumed, but not independently verified, that the
signatures on all documents, letters, opinions and certificates which we have examined are genuine,
that all documents submitted to us are authentic and were duly and properly executed by the parries
thereto and that all representations that have been made in the documents that we have reviewed are
true and accurate. We have assumed, without independent verification, the accuracy of the factual
matters that are represented, warranted or certified in the documents, and of the legal conclusions
contained in any opinions referenced in the Official Statement.
By delivering this letter, we are not expressing any opinion with respect to any
indemnification, contribution, liquidated damages, penalty (including any remedy deemed to
constitute a penalty), right of set-off, arbitration, judicial reference, choice of law, choice of forum,
choice of venue, non -exclusivity of remedies, waiver or severability provisions contained in any
Error!Uvk eo ducumem'-partyn me. C-1
document referenced in the Official Statement, nor are we expressing any opinion 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 assets thereunder. Our services as disclosure counsel to the City did not involve
the rendering of financial or other non -legal advice to you, the City or any other party to the
transaction.
Although we have not undertaken to determine independently or verify and are not passing
upon and do not assume responsibility for, the accuracy, completeness or fairness of the statements
contained in the POS or the Official Statement, and are therefore unable to make any representation
to you in that regard, we have participated in conferences prior to the respective dates of the POS and
the Official Statement with representatives of the City, including the City Attorney, the City's
municipal advisor, BLX Group, JP Morgan Securities LLC and its counsel Norton Rose Fulbright
US LLP, and others, during which conferences the contents of the POS and the Official Statement
and related matters were discussed. Based upon the information made available to us in the course of
our participation in such conferences as disclosure counsel to the City, our review of the documents
referred to above, our reliance on the oral and written statements of the representatives of the City
and others, the documents, certificates, instructions and records and the opinions of counsel
described above and our understanding of applicable law, and subject to the limitations on our role as
disclosure counsel to the City, we advise you as a matter of fact but not opinion that no information
has come to the attention of the attorneys in the firm performing services for the City as disclosure
counsel on this matter which caused us to believe that the POS or the Official Statement as of their
respective dates contained, or as of the date hereof contain, any untrue statement of a material fact, or
as of their respective dates omitted, or as of the date hereof omit, to state a material fact required to
be stated therein or necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading in any material respect (except that we express no view with
respect to: (i) the expressions of opinion, the assumptions, the projections, estimates and forecasts,
the charts, the financial statements or other financial, numerical, economic, demographic or statistical
data, or assessed valuations contained in the POS and the Official Statement; (ii) any CUSIP
numbers or information relating thereto; (iii) any information with respect to The Depository Trust
Company and its book -entry system; (iv) any information contained in the appendices to the Official
Statement; (v) any information incorporated by reference into the POS and the Official Statement;
(vi) the City's compliance with its obligations to provide notice of the events described in part
(b)(5)(i)(C) of Rule 15c2-12 promulgated under the Securities Act of 1934 ("Rule 15c2-12") or to
file annual reports described in part (b)(5)(i)(A) of Rule 15c2-12, review of which matters we
understand has been undertaken you; (vii) any information with respect to the underwriter or
underwriting matters with respect to the Bonds, including but not limited to information under the
caption "UNDERWRITING"; and (viii) any information with respect to the ratings on the Bonds and
the rating agency referenced therein, including but not limited to information under the caption
"RATING"). Finally, we advise you that, other than reviewing the various certificates and opinions
which are referenced above, we have not taken any steps since the date of the Official Statement to
verify the accuracy of the statements that are contained in the POS or the Official Statement as of the
date hereof. No responsibility is undertaken or opinion rendered with respect to any other disclosure
document, materials or activity, or as to any information from another document or source that is
referred to by, or incorporated by reference in, the POS or the Official Statement.
By acceptance of this letter you recognize and acknowledge that: (i) the negative assurance
above is not an opinion and is based on certain limited activities performed by specific attorneys in
our firm in our role as disclosure counsel to the City; (ii) the scope of the activities performed by
Emr. Umlea an document prop" name. C-2
such attorneys in our role as disclosure counsel to the City and for purposes of delivering such
negative assurances were inherently limited and do not purport to encompass all activities necessary
for compliance by you or others in accordance with applicable state and federal securities laws; and
(iii) the activities performed by such attorneys in our role as disclosure counsel to the City rely in
part by representations, warranties, certifications and opinions of other parties to the transaction,
including representations, warranties and certifications made by the City.
This letter is being famished to you solely for you benefit in connection with your purchase
of the Bonds and is not to be used, circulated, quoted or otherwise referred to for any other purpose
without our prior written consent. We note that you were represented by separate counsel that was
retained by you in connection with the transaction described in the Official Statement. No attorney -
client relationship has existed or exists between our firm and you in connection with the execution
and delivery of the Bonds or by virtue of this letter. This letter is not intended to, and may not, be
relied upon by owners of the Bonds, the owners of any beneficial ownership interest in the Bonds or
by any other party to whom it is not addressed.
This letter is limited to matters governed by federal securities laws, and we assume no
responsibility with respect to the applicability or the effect of the laws of any other jurisdiction.
Our engagement as disclosure contact to the City with respect to this transaction terminates
as of the date hereof, and we have not undertaken any duty, and expressly disclaim any
responsibility, to advise you as to events occurring after the date hereof with respect to the Bonds or
other matters discussed in the Official Statement.
r..oe L.�.— d—.,M p.... m -.1. C-3
EXHIBIT D
FORM OF OPINION OF CITY ATTORNEY
[Closing Date]
J.P. MORGAN SECURITIES LLC,
m Underwriter
San Francisco, California
Re: $ City ofVemon
Water System Revenue Bonds, 2020 Series A
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 $ Water System
Revenue Bonds, 2020 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 March 1, 2020 (the "Indenture"), by and between the City and [The
Bank of New York Mellon Trust Company, N.A.], as trustee (the "Trustee"), providing for the
issuance of the Bonds, (b) the Continuing Disclosure Agreement, dated [as off March _, 2020 (the
"Continuing Disclosure Agreement"), between the City and the Trustee, as dissemination agent; and
(c) the Contract of Purchase, dated , 2020 with respect to the Bonds (the "Purchase
Contract"), between the City and J.P. Morgan Securities LLC, as Underwriter (the "Underwriter');
and (iii) a Preliminary Official Statement of the City, dated , 2020 (the "Preliminary
Official Statement") and an Official Statement of the City, dated , 2020 (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 fiunish water service within
said City.
2. The resolution of the City (the `Resolution") approving and authorizing the execution
and delivery of Legal Documents and approving and authorizing the distribution of the Preliminary
Official Statement and the Official Statement and the execution of the Official Statement by the City
was duly adopted at a meeting of the City Council of the City, which was called and held pursuant to
law and with all public notice required by law and at which a quorum was present and acting
throughout.
Error! Uninoan document property name. D-1
3. The City has the authority and right to execute, deliver and perform its obligations
under the Legal Documents, and the City has complied in all material respects with the provisions of
applicable law in all matters relating to the transaction contemplated by the Legal Documents.
4. The distribution of the Preliminary Official Statement and the Official Statement has
been duly authorized by the City, the Official Statement and the Legal Documents have been duly
authorized, executed and delivered by the City and, assuming the due authorization, execution and
delivery by the other respective parties thereto, the Legal Documents constitute the legal, valid and
binding agreements of the City enforceable in accordance with their terms, subject to laws relating to
bankmptcy, insolvency or other laws affecting the enforcement of creditors' rights generally and to
the application of equitable principles if equitable remedies me sought and to limitations on legal
remedies against municipal corporations in the State.
5. 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 water service and is not presently subject to
the regulatoryjurisdiction of any state, regional or local governmental regulatory authority other than
to the extent described in the Preliminary Official Statement and the Official Statement.
6. 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 me subject or any provision of the laws of the State of California
relating to the City and its affairs.
7. 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 3 above or in connection with the transactions
contemplated by the Legal Documents, 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 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.
8. Based upon my participation in the preparation of the Preliminary Official Statement
and the Official Statement and without having undertaken to determine independently the accuracy,
completeness or fairness of the statements contained in the Preliminary Official Statement or the
Official Statement, nothing has come to my attention which would lead me to believe that (i) the
Preliminary Official Statement (excluding therefrom the financial statements and the statistical data
and the information concerning DTC and the book -entry system included therein, the information
under the caption "UNDERWRMNG" and the Appendices thereto, as to which no view is
expressed) m of its date and as of , 2020, contained or contains an unfree statement of a
Error! Unmo%n document property name. D-2
material fact or omitted or omits to state a material fact necessary to make the statements therein, in
the light of the circumstances under which they were made, not misleading. or (ii) the Official
Statement (excluding therefrom the financial statements and the statistical data and the information
conceming DTC and the book -entry system included therein, the information under the caption
"UNDERWRITING" and the Appendices thereto, as to which no view is expressed) as of its the date
and as of the date hereof, contained or contains an untrue statement of a material fact or omitted or
omits to state a material fact necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading.
Capitalized terns used herein not otherwise defined shall have the meanings ascribed thereto
in the Purchase Contract.
Respectfully submitted,
Error! unknown aor t property uam D-3
EXHIBIT D
Strolling force Carbon & Roush
Or,t ofl/30/20
PRELIMINARY OFFICIAL STATEMENT DATED MARCH , 2020
NEW ISSUE — BOOK -ENTRY ONLY RATING: See the caption "RATING^
In the opinion ofSandling yocen Carlson & Routh, a Profersiodm( Corporation, Bond Counsel, under existing statutes, regulations,
rulings andjudicial decisions, and assuming the accuracy ofcertain representations and compliance with certain covenants and requirements
described in this O,Qiclal Statement interest (and original issue discoun) on the 2020 Bonds is excluded from gross inrome jor jederol income
tax purposes and is not an item of tax preference for purposes of calculating the federal alternative minimum tax imposed on individuals. In
the further opinion of Bond Counsel, interest (and original issue discount) on the 2020 Bonds u exempt from State of California personal
income lax. See the caption "TAXMATTERS"
a•
CITY OF VERNON
WATER SYSTEM REVENUE BONDS, 2020 SERIES A
Dated: Date of Issuance Due: August 1, as set forth on the inside front cover page
The 2020 Bonds are being issued in fully registered form and, when issued, will be registered in the name of Cede & Co., as nominee
of The Depository Trust Company, New York, New York. Parehaseri of the 2020 Bonds will not receive securities representing Weir
beneficial ownership in the 2020 Bonds purchased. Interest on the 2020 Bonds is payable on [August 1, 20201 and each February 1 and
August 1 thereafter, until Weir maturity or earlier redemption. The principal of and interest on the 2020 Bonds are payable by the Trustee to
Cede & Co. and such interest and principal paym®ts are to be diammacd to the Beneficial Owners of the 2020 Bonds through their nominees.
The 2020 Bonds are subject to optional and mandatory sinking fund redemption as more fully described in this Official
Statement.
The 2020 Bonds are being issued to provide moneys: (i) to finance the acquisition and construction of certain capital improvements
to the Water System of the City; (ii) to fond a deposit in the Reserve Food in satisfaction of the Reserve Requirement; and (iii) to pay casts of
issuance of the 2020 Bonds, all as more fully described in this Official Statement.
The 2020 Bonds are being issued Focused to the Indenture of Trust, dated as of March 1, 2020, by and between the City and The
Bank of New York Mellon Tnsst Company, N.A, as trustee. The 2020 Bonds son limited obligations of the City payable solely from Net
Renames, which consist of Revenues of the City's Water System remaining after the payment of Operation and Maintenance Costs, and from
amounts on deposit in certain funds and accounts created under the Indenture.
The City may incur additional obligations payable from Net Revenues on a parity with the obligation to pay principal of and interest
on the 2020 Bonds, subject to the terms and conditions of the Indenture, as more fully described in this Official Statement.
THE OBLIGATION OF THE CITY TO PAY PRINCIPAL OF AND INTEREST ON THE 2020 BONDS PURSUANT TO THE
INDENTURE DOES NOT CONSTITUTE AN OBLIGATION FOR WHICH THE GENERAL CREDIT OR TAXING POWER OF THE
CITY IS PLEDGED. THE OBLIGATION OF THE CITY TO PAY PRINCIPAL OF AND INTEREST ON THE 2020 BONDS IS A
SPECIAL OBLIGATION OF THE CITY PAYABLE SOLELY FROM NET REVENUES, AND DOES NOT CONSTITUTE A DEBT OF
THE CITY OR OF THE STATE OF CALIFORNIA OR OF ANY POLITICAL SUBDIVISION THEREOF IN CONTRAVENTION OF
ANY CONSTITUTIONAL OR STATUTORY DEBT LIMITATION OR RESTRICTION.
THIS COVER PAGE CONTAINS CERTAIN INFORMAITON FOR REFERENCE ONLY. IT IS NOT A SUMMARY OF TIES
ISSUE. INVESTORS ARE ADVISED TO READ THE ENTIRE OFFICIAL STATEMENT TO OBTAIN INFORMATION ESSENTIAL TO
THE MAKING OF AN INFORMED INVESTMENT DECISION.
MATURITY SCHEDULE— See Inside Forest Cover Page
The 2020 Bonds are offered when, as and ifissued and received by the Underwriter, subject to the approval of the valid, legal and
binding velure of the 2020 Bonds by Stradling focro Carlson & Routh, a Professional Corporation, Bond Counsel, and certain other
conditions. Certain legal matters will be passed upon for the City by Stradling facto Carlson & Routh, a Professiow( Corporation, ar
Disclosure Counsel, add by the City Attorney, for the Underwriter by its coumel, Norton Rose Fulbright US LLP, and for the Trader by its
counsel. It is anticipated that the 2020 Bonds will be available for delivery through the facilities of The Depository Trust Company on or
about March . 2020.
J.P. Morgan
Dated: March J 2020
' Preliminary; subject to change.
Prehowu ry, subject to change.
S '
CITY OF VERNON
WATER SYSTEM REVENUE BONDS, 2020 SERIES A
MATURITY SCHEDULE
BASE CUSWt
Sfaturirr Date CUSIpmt
(August t) PrintipalAmount InterestRahe YirM Price Srjfm
S %Term 2020 Bonds Due August I, 20_ Yield: / Price: CUSIPst Suffix
Peelimawry; eubjeona change.
' CUSIP' v a regvrered rmdemark of the Anemm� 9ankers A.rrociuian. CUSIP Global Sm es (CGS) a mawged on behalfof+he A.M.
HaMere Auiauem; by 5" Cap+al IQ CopynghP 2020 CUSIP Global S uee All nthu mserved CURPe data harem is Pmvaded by
CUSIP G&W &mry .. ]hu data u nm iwe to create a databue and dam mm. M m w u a ovb dwre for Me CGS dmabaee.
CUSleew n arepmvhaedfor ronvenimce ofmferea'e only. Neither the Cary nar the UMerwriter take any rempouibililyfor Me aaurvty
ofeaeh numbers.
CITY OF VERNON
COUNTY OF LOS ANGELES
STATE OF CALIFORNIA
CITY COUNCIL
Melissa Ybarra, Mayor
Leticia Lopez, Mayor Pro Tern
William'Bill" Davis, Council Member
Carol Menke, Council Member
Diana Gonzales, Council Member
STAFF
Carlos R. Fandino, Jr., City Administrator
Scott Williams, Finance Directodfressrrer
Abraham Alemu, General Manager of Public Utilities
Tema Patel, Esq., City Attorney
Bond Counsel and Disclosure Counsel
Stradling Yocc , Carlson & Rauth, a Professional Corporation
Newport Beach, California
Municipal Advisor
BLX Group LLC
Los Angeles, California
Trustee
The Bank of New York Mellon Trust Company, N.A.
Los Angeles, California
No dealer, broker, salesperson or other person has been authorized by the City or the Underwriter to give
any information or to make my representations other than those contained in this Official Statement in connection
with the offering made hereby and, if given or made, such other information or representations must not be relied
upon as having been authorized by the City or the Underwriter. This Official Statement does not constitute an offer
to sell or the solicitation of an offer to buy, nor shall there be my sale of the 2020 Bonds by a person in my
jurisdiction in which it is unlawful for such person to make such an offer, solicitation or sale.
This Official Statement is not to be construed as a contract with the purchasers of the 2020 Bonds.
Statements contained in this Official Statement which involve estimates, forecasts or matters of opinion, whether or
not expressly so described herein, are intended solely as such and are not to be construed as a representation of facts.
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 a pan 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.
The information set forth herein has been obtained from official sources which are believed to be reliable,
but it is not guaranteed as to accuracy or completeness and is not to be construed as a representation by the
Underwriter. The information and expression of opinions herein are subject to change without notice and neither
delivery of this Official Statement nor any sale made hereunder shall, under my circumstances, create any
implication that there has been no change in the affairs of the City since the date hereof.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITER MAY OVERALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE 2020 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 UNDERWRITER MAY
OFFER AND SELL THE 2020 BONDS TO CERTAIN DEALERS AND DEALER BANKS AND BANKS
ACTING AS AGENT AND OTHERS AT PRICES LOWER THAN THE PUBLIC OFFERING PRICES STATED
ON THE COVER PAGE HEREOF AND SAID PUBLIC OFFERING PRICES MAY BE CHANGED FROM
TIME TO TIME BY THE UNDERWRITER
CERTAIN STATEMENTS CONTAINED IN THIS OFFICIAL STATEMENT REFLECT NOT
HISTORICAL FACTS BUT FORECASTS AND "FORWARD -LOOKING STATEMENTS." NO ASSURANCE
CAN BE GIVEN THAT THE FUTURE RESULTS DISCUSSED HEREIN WILL BE ACHIEVED, AND
ACTUAL RESULTS MAY DIFFER MATERIALLY FROM THE FORECASTS DESCRIBED HEREIN. IN
THIS RESPECT, THE WORDS "ESTIMATE," "PROJECT," "ANTICIPATE," "EXPECT" "INTEND"
"BELIEVE" AND SIMILAR EXPRESSIONS ARE INTENDED TO IDENTIFY FORWARD -LOOKING
STATEMENTS WITHIN THE MEANING OF TILE PRIVATE SECURITIES LITIGATION REFORM ACT OF
1995, SECTION 21E OF THE UNITED STATES SECURITIES EXCHANGE ACT OF 1934, AS AMENDED,
AND SECTION 27A OF THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED. ALL
PROJECTIONS, FORECASTS, ASSUMPTIONS, EXPRESSIONS OF OPINIONS, ESTIMATES AND OTHER
FORWARD -LOOKING STATEMENTS ARE EXPRESSLY QUALIFIED IN THEIR ENTIRETY BY THE
CAUTIONARY STATEMENTS SET FORTH IN THIS OFFICIAL STATEMENT.
The 2020 Bonds have not been registered under the Securities Act of 1933, as amended, in reliance upon
an exemption contained in such act. The 2020 Bonds have not been registered or qualified under the securities laws
of any state. The Indenture has not been qualified under the Trust Indenture Act of 1939. as amended, in reliance
upon an exemption contained in such act.
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 2020 Bonds.
TABLE OF CONTENTS
SUMMARY STATEMENT...................................i
INTRODUCTION.................................................I
PLAN OF FINANCE.............................................2
The 2020 Project................................................2
Estimated Sources And Uses Of Funds..............2
THE 2020 BONDS................................................2
General Provisions.............................................2
Transfers and Exchanges Upon Termination
of Book -Entry Only System ............................3
Redemption of the 2020 Bonds ..........................4
Notice of Redemption........................................4
Book -Entry Only System...................................5
DEBT SERVICE PAYMENT SCHEDULE ......... 6
SECURITY FOR THE 2020 BONDS...................6
Limited Obligations Payable From Net
Revenues.........................................................6
Rate Stabilisation Fund......................................9
Rate Covenant....................................................9
Additional Indebtedness ...................................
10
ReserveFond ....................................................
10
THECITY...........................................................
I I
... General..........................................................
11
Land Use and Service Area .....................4........
12
Governanceand Management ..........................
12
Prior Attempt to Disinimporate City; City
Reform..........................................................
14
Employees................................6.6.....................
15
Employee Benefits........................4...6.6.6........4.15
Budget Process.................................................20
City Insurance.............................4.....................21
No Outstanding Senior or Parity Obligations...21
THE WATER SYSTEM.... ..................................
21
General.............................................................21
Water Quality ...................................................22
WaterSupply...........................6.6.......6.6.4..........22
Seismic Considerations....................................25
Drought Response ....................... 4....................25
Historical Water System Connections and
Production.....................................................28
Historical Water Supply Sources and Usage ....
29
Largest Water System Customers ....................30
Water System Rates and Clines.....................30
Future Water System Capital Improvements ....
33
Projected Water System Connections and
Production.....................................................35
Projected Water Supply Sources and Usage .....
36
FINANCIAL INFORMATION ... 4... 4...................36
Financial Statements.........................................36
Available Cub.................................................37
Page
Historical Water System Operating Results
and Debt Service Coverage ..........................
37
Projected Water System Operating Results
and Debt Service Coverage ..........................
38
CONSTITUTIONAL LIMITATIONS ON
APPROPRIATIONS AND CHARGES ..............
39
Article XB®....................................................
39
Proposition 218................................................
39
Proposition 26..................................................
41
Form Initiatives ..............................................
41
CERTAIN RISKS TO BONDHOLDERS .......... 41
Limited Obligations .........................................
42
Accuracy of Assumptions ................................
42
System Demand...............................................42
System Expenses..............................................42
Limited Recourse on Default ...........................42
Rate -Setting Process under Proposition 218....43
Statutory and Regulatory Compliance .............
43
Natural Disasters ..............................................
43
Cybersecurity ...................................................
43
Limitations on Remedies .................................
44
Loss of Tax Exemption ....................................
44
Secondary Market ............................................
45
Parity Obligations ............................................
45
Climate Change ......................... ...45
Rare Covenant Not a Guarantee .......................
45
APPROVAL OF LEGAL PROCEEDINGS....... 45
LITIGATION...................................................... 45
TAX MATTERS .................................................
46
RATING..............................................................
47
MUNICIPAL ADVISOR ....................................
48
UNDERWRITING ..............................................
48
CONTINUING DISCLOSURE ..........................
49
FINANCIAL INTERESTS .................................
49
MISCELLANEOUS ............................................ 49
APPENDIX A - FINANCIAL STATEMENTSA-1
APPENDIX B - SUMMARY OF CERTAIN
PROVISIONS OF THE INDENTURE...... B-1
APPENDIX C - FORM OF OPINION OF
BOND COUNSEL ..................................... C-1
APPENDIX D - INFORMATION
CONCERNING DTC.................................D-1
APPENDIX E - FORM OF CONTINUING
DISCLOSURE AGREEMENT .................. E-I
SUMMARY STATEMENT
This Summary Statement is subject in all respects to the more complete information contained in this
Official Statement, and the offering of the 2020 Bonds to potential investors is made only by means of the
entire Official Statement. Capitalized terms that are used and not otherwise defined in this Summary
Statement have the meanings ascribed to them in this Official Statement.
Purpose. The 2020 Bonds are being issued to provide moneys: (i) to finance the acquisition and
construction of certain capital improvements to the Water System of the City; (ii) to fund a deposit in the
Reserve Fund in satisfaction of the Reserve Requirement; and (iii) to pay costs of issuance of the 2020 Bonds,
all as more fully described herein. See the caption "PLAN OF FINANCE."
Security for the 2020 Bonds. The 2020 Bonds are limited obligations of the City payable solely from
Net Revenues, which consist of Revenues of the City's Water System remaining after the payment of
Operation and Maintenance Costs, and from amounts on deposit in certain funds and accounts created under
the Indenture.
THE OBLIGATION OF THE CITY TO PAY PRINCIPAL OF AND INTEREST ON THE 2020
BONDS PURSUANT TO THE INDENTURE DOES NOT CONSTITUTE AN OBLIGATION FOR WHICH
THE GENERAL CREDIT OR TAXING POWER OF THE CITY IS PLEDGED. THE OBLIGATION OF
THE CITY TO PAY PRINCIPAL OF AND INTEREST ON THE 2020 BONDS IS A SPECIAL
OBLIGATION OF THE CITY PAYABLE SOLELY FROM NET REVENUES, AND DOES NOT
CONSTITUTE A DEBT OF THE CITY OR OF THE STATE OF CALIFORNIA OR ANY POLITICAL
SUBDIVISION THEREOF IN CONTRAVENTION OF ANY CONSTITUTIONAL OR STATUTORY
DEBT LIMITATION OR RESTRICTION.
See the caption "SECURITY FOR THE 2020 BONDS."
Rate Stabilization Fund. The City will establish, maintain and hold in trust under the Indenture a
special fund designated as the "Rate Stabilization Fund." The City will maintain and hold such fund separate
and apart from other funds so long as the 2020 Bonds in any other Contracts or Bonds remain unpaid. Money
transferred by the City from the Revenue Fund to the Rate Stabilization Fund in accordance with the hidenture
will be held in the Rate Stabilization Fund and applied in accordance with the Indenture.
The City may withdraw all or any portion of the amounts on deposit in the Rate Stabilization Fund
and transfer such amounts to the Revenue Fund for application in accordance with the Indenture or, in the
event that all or a portion of the 2020 Bonds are discharged in accordance with the Indenture, transfer all or
any portion of such amounts for application in accordance with the Indenture. Any such amounts transferred
from the Rate Stabilization Fund to the Revenue Fond in accordance with the Indenture constitute pledged
Revenues.
Rote Covenant In any Fiscal Year in which the amount on deposit in the Rate Stabilization Fund on
the fast day of such Fiscal Year is less than the payments of principal of and interest on the 2020 Bonds
payable in such Fiscal Year, to the fullest extent permitted by law, the City will fix and prescribe, at or before
the commencement of each such Fiscal Year, rates and charges for the Water Service which are reasonably
expected, at the commencement of such Fiscal Year, to be at least sufficient to yield during such Fiscal Year
Net Revenues equal to 115% of Debt Service for such Fiscal Year. When calculated for the foregoing
purposes, Net Revenues will not include amounts which have been transferred from the Rate Stabilization
Fund pursuant to the Indenture that are in excess of 15% of Debt Service for such Fiscal Year.
In any Fiscal Year in which the amount on deposit in the Rate Stabilization Fund on the first day of
such Fiscal Year is at least equal to the payments of principal of and interest on the 2020 Bonds payable in
such Fiscal Year, to the fullest extent permitted by law, the City will fix and prescribe, at or before the
commencement of each such Fiscal Year, rates and charges for the Water Service which are reasonably
expected, at the commencement of such Fiscal Year, to be at least sufficient to yield during such Fiscal Year
Revenues equal to 115% of the Operation and Maintenance Costs for such Fiscal Year. When calculated for
purposes of this subsection, Revenues will not include any amounts which have been transferred from the Rate
Stabilization Fond pursuant to the Indenture.
The City may make or permit to be made adjustments from time to time in such rates, fees and
charges and may make or permit to be made such classification thereof as it deems necessary, but shall not
reduce or permit to be reduced such rates, fees and charges below those then in effect unless the Revenues
from such reduced rates, fees and charges will at all times be sufficient to meet the foregoing requirements.
See the caption "SECURITY FOR THE 2020 BONDS —Rate Covenant."
Additional Contracts and Bonds. The Indenture permits the City to execute additional Contracts or to
issue additional Bonds on a parity with the obligation to pay principal of and interest on the 2020 Bonds,
provided that certain conditions are satisfied as described herein. See the caption "SECURITY FOR THE
2020 BONDS —Additional Indebtedness." The Indenture also permits the City to execute or issue obligations
payable on a subordinate basis to the 2020 Bonds.
Reserve Fund. A Reserve Fund for the 2020 Bonds is established pursuant to the Indenture in an
amount equal to the Reserve Requirement. If one Business Day prior to any Interest Payment Date the moneys
in the Payment Fund are insufficient to pay amounts due on the 2020 Bonds on such Interest Payment Date,
the Trustee will transfer from the Reserve Fond to the Payment Fund the amount of such insufficiency. See
the caption "SECURITY FOR THE 2020 BONDS —Reserve Fund."
Redemption. The 2020 Bonds are subject to optional and mandatory sinking fund redemption prior to
maturity as described herein. See the caption "THE 2020 BONDS —Redemption of the 2020 Bonds."
The City and the Water System. The City was incorporated in 1905 under the general laws of the
State of California. City voters approved a charter in 1988 and the City thereafter became a charter city. The
City has a land area of approximately 5.2 square miles and an estimated population of 240 people as of
December I, 2019. Land use in the City primarily consists of industrial development, with small areas devoted
to commercial and residential uses. The City is located in the County of Los Angeles, approximately 5 miles
south of downtown Los Angeles. See the caption `TIM CITY."
The City provides water service to approximately 238 industrial, 829 commercial and 38 residential
and other customers as of June 30, 2019. The City's Water System includes approximately 244,000 linear fat
of water mains, 3 booster stations and 8 reservoirs (one of which is elevated and one of which is below
ground) which provide total operational storage of approximately 16.375 million gallons. The City pumps
groundwater from 8 wells which are located within the Central Groundwater Basin, an adjudicated
groundwater basin. The City also purchases imported water at wholesale and recycled water from Central
Basin Municipal Water District, a member agency of The Metropolitan Water District of Southern California,
See the caption "TILE WATER SYSTEM."
S'
CITY OF VERNON
WATER SYSTEM REVENUE BONDS, 2020 SERIES A
INTRODUCTION
This Official Statement, including the front cover page, the inside front cover page and all appendices,
provides certain information concerning the sale and delivery of the City of Vernon Water System Revenue
Bonds, 2020 Series A (the "2020 Bonds'). The 2020 Bonds are being issued pursuant to Article 11 of the
Charter of the City of Vernon (the "City"), the City of Vernon Municipal Facilities Revenue Bond Law,
constituting Article XI of the Vernon City Code, an Indenture of Tout, dated as of March 1, 2020 (the
'Indenture"), by and between the City and The Bank of New York Mellon Trust Company, N.A., Los
Angeles, California, as trustee (the "Trustee").
The 2020 Bonds are being issued to provide moneys: (i) to finance the acquisition and construction of
certain capital improvements to the Water System of the City (the "2020 Prejecfl; (ii) to fund a deposit in the
Reserve Fond in satisfaction of the Reserve Requirement; and (ui) to pay costs of issuance of the 2020 Bonds.
See the caption "PLAN OF FINANCE."
The 2020 Bonds are limited obligations of the City payable solely from Net Revenues, which consist
of Revenues of the City's Water System (the "Water System') remaining after the payment of Operation and
Maintenance Costs of the Water System, as such terms are defined in Appendix B, and from amounts on
deposit in certain funds and accounts created under the Indenture.
A Reserve Fond for the 2020 Bonds is established pursuant to the Indenture in an amount equal to the
Reserve Requirement. If one Business Day prior to any Interest Payment Date the moneys in the Payment
Fond are insufficient to pay amounts due on the 2020 Bonds on such Interest Payment Date, the Trustee will
transfer from the Reserve Fond to the Payment Fond the amount of such insufficiency. See the caption
"SECURITY FOR THE 2020 BONDS —Reserve Fund."
The City may incur additional obligations payable on a parity with the obligation to pay principal of
and interest on the 2020 Bonds in the future as described under the caption "SECURITY FOR THE 2020
BONDS —Additional Indebtedness."
The 2020 Bonds are subject to optional and mandatory sinking fund redemption prior to maturity as
described herein. See the caption "THE 2020 BONDS —Redemption of the 2020 Bonds."
The summaries and references to the Indenture and all documents, statutes, reports and other
instruments that are referred to herein do not purport to be complete, comprehensive or definitive, and each
such summary or reference is qualified in its entirety by reference to the full Indenture or the respective
document, statute, report or instrument, copies of which are available for inspection at the offices of the City in
Vernon, California or from the Trustee upon request and payment of duplication cost. The capitalization of
any word that is not conventionally capitalized or otherwise defined herein indicates that such word is defined
in the Indenture and, as used herein, has the meaning that is given to it in the Indenture. See Appendix B for a
summary of the Indenture. Unless otherwise indicated, all financial and statistical information herein has been
provided by the City.
The City regularly prepares a variety of reports, including audits, budgets and related documents. Any
registered owner of the 2020 Bonds may obtain a copy of such reports, as available, from the Trustee or the
City. Additional information regarding the Official Statement may be obtained by contacting the Trustee or
the City of Vernon, 4305 South Santa Fe Avenue, Vemon, California 90058, Attention: Finance Department.
PWI.b m6jmrochange.
The City has also undertaken to provide annual reports and notice of certain enumerated events to the
Municipal Securities Rulemaking Board's Electronic Municipal Market Access System ("EMMA') pursuant
to a continuing disclosure agreement. See the caption "CONTINUING DISCLOSURE" and Appendix E.
PLAN OF FINANCE
The 2020 Project
The 2020 Project consists of the following capital improvements: (i) construction of two new
groundwater wells, as discussed under the caption "THE WATER SYSTEM —Water Supply —Groundwater,"
and (ii) upgrades and rehabilitations of existing water wells, reservoirs, tanks, pumps, generators, pipelines,
fencing and other equipment. See the caption "THE WATER SYSTEM —Future Water System Capital
Improvements" for a full listing of anticipated capital projects, including the 2020 Project, in the current and
next four fiscal years of the City ending June 30 (each, a "Fiscal Year").
The City expects to comply with all governmental approval, environmental review, public bidding and
other pemutting requirements for each component of the 2020 Project as required by law and to complete the
2020 Project by early 2023.
Pursuant to the Indenture, the City may substitute or add additional projects to the 2020 Project. See
Appendix B under the caption "ISSUANCE OF 2020 BONDS; APPLICATION OF PROCEEDS --Changes to
the 2020 Project."
Estimated Sources And Uses Of Funds
The following table sets forth the estimated sources and uses of funds:
Sources('):
Principal Amount $
Plus/Less Net Original Issue Premiura/Discount
Total Sources $
Uses(1)
Deposit to Acquisition Fund(2) $
Deposit to Reserve Fund
Costs of Issuance([)
Total Uses
0) All amounts rounded to the aeanal dollar. Totals may not add due to rounding.
on Includes amounts being applied to reimburse the City for previous expenditures on the 2020 Project.
01 Includes Underwriter's discount and certain legal, municipal advisory, rating agency, printing, and other financing -related
costs.
THE 2020 BONDS
General Provisions
The 2020 Bonds will be issued in the aggregate principal amount of $ The 2020 Bonds
will be dated as of their date of initial issuance, will bear interest from such date at the rates per annum set
forth on the inside front cover page hereof, payable on (August 1, 20201 and each February 1 and August 1
thereafier (each, an "Interest Payment Date"), and will mature on the dates set forth on the inside front cover
Preliminary; .rubjecr ro change.
MI
page hereof. Interest on the 2020 Bonds will be computed on the basis of a 360 day year composed of twelve
30 day months.
The 2020 Bonds will be issued only in fully registered form and, when issued, will be registered in the
name of Cede & Co., as nominee of The Depository Trust Company, New York, New York ("DTC"). DTC
will act as securities depository for the 2020 Bonds. Ownership interests in the 2020 Bonds may be purchased
in book -entry form, in any integral multiple of $5,000. See the caption "—Book-Entry Only System' below
and Appendix D.
In the event that the book -entry only system that is described below is discontinued, the principal of
and redemption premium (if any) on the 2020 Bonds are payable by check of the Trustee upon presentation
and surrender thereof at maturity or upon prior redemption at the office of the Trustee in Los Angeles,
California (the "Office of the Trustee'). Interest on the 2020 Bonds is payable on each Interest Payment Date
to the person whose name appears on the registration books maintained by the Trustee (the `Registration
Books") as the Owner thereof as of the close of business on the fifteenth day of the calendar month preceding
the Interest Payment Date (the "Record Date"), such interest to be paid by check of the Trustee sent by first
class mail on the applicable Interest Payment Date to the Owner at such Owner's address as it appears on the
Registration Books. An Owner of $1.000,000 or more in principal amount of 2020 Bonds may, at such
Owner's option, be paid by wire transfer of immediately available funds to an account in the United States in
accordance with written instructions provided to the Trustee by such Owner prior to the applicable Record
Date. The principal of and interest and premium, if any, on the 2020 Bonds will be payable in lawful money
of the United States.
Each 2020 Bond will bear interest from the Interest Payment Date next preceding the date of
authentication thereof unless: (a) it is authenticated after a Record Date and on or before the following Interest
Payment Date, in which event it will bear interest from such Interest Payment Date; or (b) unless it is
authenticated on or before [July 15], 2020, in which event it will bear interest from its date of issuance;
provided, however, that if, as of the date of authentication of any 2020 Bond, interest thereon is in default,
such 2020 Bond will bear interest from the Interest Payment Date to which interest has previously been paid or
made available for payment thereon.
Transfers and Exchanges Upon Termination of Book -Entry Only System
In the event that the book -entry system that is described herein is discontinued, the 2020 Bonds will
be printed and delivered as provided in the Indenture. Thereafter, any 2020 Bond may, in accordance with its
terms, be transferred on the Registration Books by the person in whose name it is registered, in person or by
his or her duly authorized attorney, upon surrender of such 2020 Bond at the Office of the Trustee for
cancellation, accompanied by delivery of a written instrument of transfer, duly executed in a form acceptable
to the Trustee. The Trustee is not required to register the transfer of any 2020 Bond during the period in which
the Trustee is selecting 2020 Bonds for redemption and any 2020 Bond that has been selected for redemption.
Whenever any 2020 Bond or 2020 Bonds are surrendered for transfer, the City will execute and the
Trustee will authenticate and deliver a new 2020 Bond or 2020 Bonds of authorized denomination or
denominations for a like aggregate principal amount of the same maturity. The Trustee will require the 2020
Bond Owner requesting such transfer to pay any tax or other governmental charge required to be paid with
respect to such transfer. Following any transfer of 2020 Bonds, the Trustee will cancel and destroy the 2020
Bonds that it has received.
The 2020 Bonds may be exchanged at the Office of the Trustee for a like aggregate principal amount
of other authorized denominations of the same maturity. The Trustee is not required to exchange my 2020
Bond during the period in which the Trustee is selecting 2020 Bonds for redemption and any 2020 Bond that
has been selected for redemption. The Trustee will require the 2020 Bond Owner requesting such exchange to
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pay any tax or other governmental charge required to be paid with respect to such exchange. Following any
exchange of 2020 Bonds, the Trustee will cancel and destroy the 2020 Bonds that it has received.
Prior to any transfer of the 2020 Bonds outside the book -entry system (including, but not limited to,
the initial transfer outside the book -entry system) the transferor will provide or cause to be provided to the
Trustee all information necessary to allow the Trustee to comply with any applicable tax reporting obligations,
including without limitation any cost basis reporting obligations under Internal Revenue Code Section 6045, as
amended. The Trustee will conclusively rely on the information provided to it and has no responsibility to
verify or ensure the accuracy of such information.
Redemption of the 2020 Bonds
Optional Redemption.' The 2020 Bonds with stated maturities on or after August 1, 20, are subject
to redemption prior to their respective stated maturities, as a whole or in part on _ 1, 20_, or any date
thereafter, as directed by the City in a Written Request provided to the Trustee at least 35 days (or such lesser
number of days acceptable to the Trustee in the sole discretion of the Trustee, such notice for the convenience
of the Trustee) and by lot within each maturity in integral multiples of $5,000, at a Redemption Price equal to
the principal amount thereof plus accrued interest thereon to the Redemption Date, without premium.
Mandatory Sinking Fund Redemption.' The 2020 Bonds maturing on August 1, 20_ (the "Term
Bonds') with stated maturities on August 1, 20_ are subject to mandatory sinking fund redemption in par (by
lot) on August 1, 20_ and each August I thereafter, in integral multiples of $5,000 at a Redemption Price of
the principal amount thereof plus accrued interest to the date fixed for redemption, without premium, in
accordance with the following schedule:
Redemption Date Principal
(4ugust 1) Amount
20 1
r Maturity
If some but not all of the Term Bonds are redeemed pursuant to the optional redemption provisions of
the Indenture (as described under the subcaption "--Optional Redemption"), the principal amount of the
applicable Tern Bonds to be redeemed pursuant to the Indenture on any subsequent August 1 will be reduced,
by $5,000 or an integral multiple thereof, as designated by the City in a Written Order of the City filed with the
Trustee; provided, however, that the aggregate amount of such reductions may not exceed the aggregate
amount of the applicable Term Bonds redeemed pursuant to optional redemption provisions of the Indenture.
Notice of Redemption
Notice of redemption will be mailed by first class mail at least 20 days but not more than 60 days
before any Redemption Date, to the respective Owners of my 2020 Bonds designated for redemption at their
addresses appearing on the Registration Books, to the Securities Depositories and to the Information Services.
Each notice of redemption will state the date of notice, the Redemption Date, the place or places of
redemption, the Redemption Price, will designate the maturities, CUSIP numbers, if any, and, in the case of
2020 Bonds to be redeemed in par only, the respective portions of the principal amount thereof to be
redeemed. Each such notice will also state that on the Redemption Date there will become due and payable on
P.ddnl oov ..yen ro change.
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each of said 2020 Bonds or parts thereof designated for redemption the Redemption Price thereof or of said
specified portion of the principal thereof in the case of a 2020 Bond to be redeemed in part only, together with
interest accrued thereon to the Redemption Date, and that (provided that moneys for redemption have been
deposited with the Trustee) from and after such Redemption Date interest thereon will cease to accrue, and will
require that such 2020 Bonds be then surrendered to the Trustee. Neither the failure to receive such notice nor
any defect in the notice or the mailing thereof will affect the validity of the redemption of any 2020 Bond.
Notice of redemption of 2020 Bonds will be given by the Trustee, at the expense of the City, for and on behalf
of the City.
With respect to any notice of optional redemption of 2020 Bonds, such notice may state that such
redemption will be conditional upon the receipt by the Trustee on or prior to the date fixed for such redemption
of moneys sufficient to pay the principal of, premium, if any, and interest on such 2020 Bonds to be redeemed
and that, if such moneys have not been so received, said notice will be of no force and effect and the Trustee
will not be required to redeem such 2020 Bonds. In the event that such notice of redemption contains such a
condition and such moneys are not so received, the redemption will not be made, and the Trustee will within a
reasonable time thereafter give notice, in the manner in which the notice of redemption was given, that such
moneys were not so received.
Book -Entry Only System
One fully -registered 2020 Bond of each maturity will be issued in the principal amount of the 2020
Bonds of such maturity. Such 2020 Bond will be registered in the name of Cede & Co. and will be deposited
with DTC. As long as the ownership of the 2020 Bonds is registered in the name of Cede & Co., the term
"Owner" as used in this Official Statement will refer to Cede & Co. and not to the actual purchasers of the
2020 Bonds (the "Beneficial Owners").
The City may decide to discontinue use of the system of book -entry transfers through DTC (or a
successor securities depositary). In that event, the 2020 Bonds will be printed and delivered and will be
governed by the provisions of the Indenture with respect to payment of principal and interest and rights of
exchange and transfer. See the caption "—Transfers and Exchanges Upon Termination of Book -Entry Only
System."
The City cannot and does not give any assurances that DTC Participants or others will distribute
payments of principal of and interest on the 2020 Bonds received by DTC or its Nominee as the registered
Owner, or any redemption or other notices, to the Beneficial Owners (as such term is defined in Appendix D),
or that they will do so on a timely basis, or that DTC will service and act in the manner described in this
Official Statement. See Appendix D for additional information concerning DTC.
5E
DEBT SERVICE PAYMENT SCHEDULE
Set forth below is an annualized schedule of principal of and interest on the 2020 Bonds for the period
ending June 30 in each of the years indicated, assuming no optional redemptions of the 2020 Bonds.
Period Ending 2020 Bonds 2020 Bonds 2020 Bonds
June 30 Principal Interest Totat Debt Service
2020
2021
2022
2023
2024
2025
2026
2027
2028
2029
2030
2031
2032
2033
2034
2035
2036
2037
2038
2039
2040
2041
2042
2043
2044
2045
2046
2047
2048
2049
TOTAL
Source: Underwriter.
SECURITY FOR TILE 2020 BONDS
Limited Obligations Payable From Net Revenues
General. The City is obligated to make payments of principal of and interest on the 2020 Bonds
solely from Net Revenues. The term "Net Revenues' means, for any period, the Revenues of the Water
System for such period less the Operation and Maintenance Costs of the Water System for such period. See
Appendix B for detailed definitions of `Revenues" and "Operation and Maintenance Costs." When held by the
Trustee in any funds or accounts established under the Indenture, Net Revenues will include all interest or
realized gain derived from the investment of amounts in any of such funds or accounts.
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THE OBLIGATION OF THE CITY TO PAY PRINCIPAL OF AND INTEREST ON THE 2020
BONDS PURSUANT TO THE INDENTURE DOES NOT CONSTITUTE AN OBLIGATION FOR WHICH
THE GENERAL CREDIT OR TAXING POWER OF THE CITY IS PLEDGED. THE OBLIGATION OF
THE CITY TO PAY PRINCIPAL OF AND INTEREST ON THE 2020 BONDS IS A SPECIAL
OBLIGATION OF THE CITY PAYABLE SOLELY FROM NET REVENUES, AND DOES NOT
CONSTITUTE A DEBT OF THE CITY OR OF THE STATE OF CALIFORNIA OR OF ANY POLITICAL
SUBDIVISION THEREOF IN CONTRAVENTION OF ANY CONSTITUTIONAL OR STATUTORY
DEBT LIMITATION OR RESTRICTION.
Pledge and Assignment, Revenue Fund. All of the Revenues, all amounts held in the Revenue Fund,
all amounts that are transferred from the Rate Stabilization Fund to the Revenue Fund as described in the
Indenture, and any other amounts (including proceeds of the sale of the 2020 Bonds) held in any fund or
account established pursuant to the Indenture (except the Rebate Fund and the Rate Stabilization Fund (other
than those amounts which are transferred by the City from the Rate Stabilization Fund to the Revenue Fund))
have been irrevocably pledged to secure the payment of the principal of and interest, and the premium, if my,
on the 2020 Bonds in accordance with their terms and the provisions of the Indenture, and the Revenues may
not be used for my other purpose while the 2020 Bonds remain Outstanding; provided that out of the
Revenues there may be apportioned such sums for such purposes as are expressly permitted in the Indenture.
Said pledge, together with the pledge created by all other Contracts and Bonds, constitutes a first lien on and
security interest on Revenues and, subject to application of Revenues and all amounts on deposit therein as
permitted herein, the Revenue Fund and other fords and accounts created under the Indenture for the payment
of the principal of and interest, and the premium, if my, on the 2020 Bonds and all Contracts and Debt Service
on Bonds in accordance with the terms of the Indenture, and will attach, be perfected and be valid and binding
from and after the Closing Date, without my physical delivery thereof or further act and will be valid and
binding against all parties having claims of my kind in tort, contract or otherwise against the City, irrespective
of whether such parties have notice of the Indenture.
In order to carry out and effectuate the pledge and lien contained in the Indenture, the City has agreed
and covenanted that all Revenues will be received by the City in trust under the Indenture and will be
deposited when and as received in the Revenue Fund, which fund the City has agreed and covenanted to
maintain and to hold separate and apart from other funds so long as the 2020 Bonds and my Contracts or Debt
Service on Bonds remain unpaid. Moneys in the Revenue Fund will be used and applied by the City as
provided in the Indenture. All moneys in the Revenue Fond will be held in trust and will be applied, used and
withdrawn for the purposes set forth below.
The City will, from the moneys in the Revenue Food, pay all Operation and Maintenance Costs
(including amounts reasonably required to be set aside in contingency reserves for Operation and Maintenance
Costs, the payment of which is not then immediately required) as such Operation and Maintenance Costs
become due and payable. All remaining moneys in the Revenue Fund will be set aside by the City at the
following times for the transfer to the following respective special funds in the following order of priority:
(i) interest and Principal Payments. Not later than the third Business Day prior to each Interest
Payment Date, the City will, from the moneys in the Revenue Food, transfer to the Trustee for deposit in the
Payment Food or the Redemption Food the payments of interest and principal or mandatory sinking fund
payments, as applicable, on the 2020 Bonds due and payable on such Interest Payment Date. The City will
also, from the moneys in the Revenue Food, transfer to the applicable trustee for deposit in the respective
payment fund, without preference or priority, and in the event of my insufficiency of such moneys ratably
without any discrimination or preference, any other Debt Service in accordance with the provisions of my
Bond or Contract.
(ii) Reserve Funds. After making the payments, allocations or transfers provided for in clause (i)
above, the City will, from the remaining moneys in the Revenue Fund, thereafter, without preference or
priority and in the event of my insufficiency of such moneys ratably without my discrimination or preference,
IFA
transfer to the Reserve Fund and to the applicable trustee for such other reserve funds and/or accounts, if any,
as may have been established in connection with Bonds or Contracts, that sum, if any, necessary to restore
such funds or accounts to an amount equal to the Reserve Requirement and the reserve requirement applicable
to such Bonds or Contracts, as applicable; provided, however, that the City may provide for the Reserve Fund
by means other than cash and Permitted Investments pursuant to the Indenture. See the caption "—Reserve
Fund."
(iii) Sumlus. Moneys on deposit in the Revenue Fund on any date when the City reasonably
expects such moneys will not be needed for the payment of Operation and Maintenance Costs or any of the
purposes described in clauses (i) or (ii) above may be deposited in the Rate Stabilization Fond or expended by
the City at any time for any purpose permitted bylaw. See the caption' —Rate Stabilization Fond."
(iv) Investments. All moneys held by the City in the Revenue Fond will be invested in Pemtitted
Investments and the investment earnings thereon will remain on deposit in such fund, except as otherwise
provided herein.
Allocation ofRevenues. There has been established with the Trustee the Payment Food, which the
Trustee has covenanted to maintain and hold in trust separate and apart from other funds held by it so long as
any principal of and interest on the 2020 Bonds remain unpaid. Except as directed in the Indenture, all
payments of interest and principal on the 2020 Bonds received by the Trustee as described above under the
subcaption "—Pledge and Assignment; Revenue Fund" will be promptly deposited by the Trustee upon receipt
thereof into the Payment Fond; except that all moneys received by the Trustee and required under the
Indenture to be deposited in the Redemption Fond will be promptly deposited therein. All payments of interest
and principal on the 2020 Bonds deposited with the Trustee will be held, disbursed, allocated and applied by
the Trustee only as provided in the Indenture. The Trustee will also establish and hold an Interest Account and
a Principal Account within the Payment Fond.
The Trustee will transfer from the Payment Fund and deposit into the following respective accounts,
the following amounts in the following order of priority and at the following tines, the requirements of each
such account (including the making up of any deficiencies in any such account resulting from lack of Revenues
sufficient to make any earlier required deposit) at the time of deposit to be satisfied before any transfer is made
to any account subsequent in priority:
(a) Not later than the Business Day preceding each Interest Payment Date, the Trustee will
deposit in the Interest Account that sum, if any, required to cause the aggregate amount on deposit in the
Interest Account to be at least equal to the amount of interest becoming due and payable on such date on all
2020 Bonds then Outstanding. No deposit need be made into the Interest Account so long as there is in such
fund moneys sufficient to pay the interest becoming due and payable on such date on all 2020 Bonds then
Outstanding.
All amounts in the Interest Account will be used and withdrawn by the Tmstee solely for the purpose
of paying interest on the 2020 Bonds as it becomes due and payable (including seemed interest on any 2020
Bonds purchased or accelerated prior to maturity pursuant to the Indenture).
(b) Not later than the Business Day preceding each date on which the principal of the 2020 Bonds
becomes due and payable under the Indenture, the Trustee will deposit in the Principal Account that sum, if
any, required to cause the aggregate amount on deposit in the Principal Account to equal the principal amount
of the 2020 Bonds coming due and payable on such date. No deposit need be made into the Principal Account
so long as there is in in such fond moneys sufficient to pay the principal becoming due and payable on such
date on all 2020 Bonds then Outstanding.
All amounts in the Principal Account will be used and withdrawn by the Trustee solely to pay the
principal amount of the 2020 Bonds at maturity, purchase or acceleration; provided, however, that at any time
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prior to selection for redemption of any such 2020 Bonds, upon written direction of the City, the Trustee will
apply such amounts to the purchase of 2020 Bonds at public or private sale, as and when and at such prices
(including brokerage and other charges, but excluding accrued interest, which is payable from the Interest
Account) as directed pursuant to a Written Request of the City, except that the purchase price (exclusive of
accrued interest) may not exceed the Redemption Price then applicable to the 2020 Bonds.
Rate Stabilization Fund
The City will establish, maintain and hold in trust under the Indenture a special fund designated as the
"Rate Stabilization Fund." The City will maintain and hold such fund separate and apart from other funds so
long as the 2020 Bonds or any other Contracts or Bonds remain unpaid. Money transferred by the City from
the Revenue Fund to the Rate Stabilization Fond as described in clause (iii) under the caption "—Limited
Obligations Payable From Net Revenues —Pledge and Assignment; Revenue Fm8' will be held in the Rate
Stabilization Ford and applied in accordance with the Indenture.
The City may withdraw all or any portion of the amounts on deposit in the Rate Stabilization Ford
and transfer such amounts to the Revenue Ford for application in accordance with the Indenture or, in the
event that all or a portion of the 2020 Bonds are discharged in accordance with the Indenture, transfer all or
any portion of such amounts for application in accordance with the defeasance provisions of the Indenture.
Any such amounts transferred from the Rate Stabilization Fund to the Revenue Fund in accordance with the
Indenture constitute pledged Revenues.
The City does not intend to deposit any moneys in the Rate Stabilization Ford at the time the 2020
Bonds are issued; however, as noted above, the City retains the right to deposit and withdraw moneys from the
Rate Stabilization Fund from time to time and apply such moneys in accordance with the Indenture. No
assurance can be made that moneys will, in fact, be deposited into the Rate Stabilization Ford or that moneys
will be on deposit in the Rate Stabilization Ford to pay debt service on the 2020 Bonds in the event that Net
Revenues are insufficient for this purpose.
Rate Covenant
In any Fiscal Year in which the amount on deposit in the Rate Stabilization Ford on the first day of
such Fiscal Year is less than the payments of principal of and interest on the 2020 Bonds payable in such
Fiscal Year, to the fullest extent permitted by law, the City will fix and prescribe, at or before the
commencement of each such Fiscal Year, rates and charges for the Water Service which are reasonably
expected, at the commencement of such Fiscal Year, to be at least sufficient to yield during such Fiscal Year
Net Revenues equal to 115% of Debt Service for such Fiscal Year. When calculated for the foregoing
purposes, Net Revenues will not include amounts which have been transferred from the Rate Stabilization
Fond pursuant to the Indenture that are in excess of 15% of Debt Service for such Fiscal Year.
In any Fiscal Year in which the amount on deposit in the Rate Stabilization Fund on the frost day of
such Fiscal Year is at least emral to the payments of principal of and interest on the 2020 Bonds payable in
such Fiscal Year, to the fullest extent permitted by law, the City will fix and prescribe, at or before the
commencement of each such Fiscal Year, rates and charges for the Water Service which are reasonably
expected, at the commencement of such Fiscal Yew, to be at least sufficient to yield during such Fiscal Year
Revenues equal to 115% of the Operation and Maintenance Costs for such Fiscal Year. When calculated for
purposes of this subsection, Revenues will not include any amounts which have been transferred from the Rate
Stabilization Fond pursuant to the Indenture.
The City may make or permit to be made adjustments from time to time in such rates, fees and
charges and may make or permit to be made such classification thereof as it deems necessary, but may not
reduce or permit to be reduced such rates, fees and charges below those then in effect unless the Revenues
from such reduced rates, fees and charges will at all times be sufficient to meet the foregoing requirements.
S2
Additional Indebtedness
Pursuant to the Indenture, the City may at any time execute any Contracts or issue any Bonds payable
from Net Revenues on a parity with the obligation to pay principal of and interest on the 2020 Bonds provided
that the following conditions are satisfied:
(a) The Net Revenues for the last audited Fiscal Year of the City, or for any consecutive twelve
calendar month period during the eighteen calendar month period, preceding the date of adoption by the City
Council of the City of the resolution authorizing the issuance of such Bonds or the date of the execution of
such Contract, as the case may be, as evidenced by a special report prepared by an Independent Certified
Public Accountant or Independent Financial Consultant on file with the City, produce a sum equal to at least
115% of the Debt Service for such Fiscal Year or other twelve month period. When calculated for purposes of
the foregoing test, Net Revenues will not include amounts that have been transferred from the Rate
Stabilization Fund to the Revenue Fund pursuant to the Indenture that are in excess of 15% of Debt Service for
such Fiscal Year; and
(b) The Net Revenues for the last audited Fiscal Year of the City, or for any consecutive twelve
calendar month period during the eighteen calendar month period, preceding the date of adoption by the City
Council of the City of the resolution authorizing the issuance of such Bonds or the date of the execution of
such Contract, as the case may be, including adjustments to give effect as of the fast day of such twelve month
period to increases or decreases in rates and charges for the Water Service approved and in effect as of the date
of calculation, as evidenced by a special report prepared by an Independent Certified Public Accountant or
Independent Financial Consultant on file with the City, produce a sum equal to at least 115% of the Debt
Service for such Fiscal Year or other twelve month period, plus the Debt Service which would have accrued on
any Contracts executed or Bonds issued since the end of such Fiscal Year or other twelve month period,
assuming that such Contracts had been executed or Bonds had been issued at the beginning of such Fiscal Year
or other twelve month period, plus the Debt Service which would have accrued had such proposed additional
Contract been executed or proposed additional Bonds been issued at the beginning of such Fiscal Year or other
twelve month period. When calculated for purposes of the foregoing test, Net Revenues will not include
amounts that have been transferred from the Rate Stabilization Fund to the Revenue Fund pursuant to the
Indenture that are in excess of 15%of Debt Service for such Fiscal Year.
Notwithstanding the foregoing, Bonds issued or Contracts executed to refund Bonds or prepay
Contracts may be delivered without satisfying the conditions set forth above if total Debt Service after the
issuance of such refunding Bonds or execution of such refunding Contracts executed is not greater than total
Debt Service would have been prior to the issuance of such Bonds or execution of such Contracts.
Reserve Fund
There has been established with the Trustee a separate account known as the "Reserve Fund" solely
as security for payments by the City on the 2020 Bonds.
The initial deposit to the Reserve Fund shall be in the amount of S_, which is equal to the initial
Reserve Requirement. The term "Reserve Requirement" means initially, S. and thereafter the lesser of.
(i) S_; m (ii) the least of (a) the maximum principal of and interest on the 2020 Bonds due in the then
current or any future Fiscal Yew; (b) 125% of average annual Debt Service on the Outstanding 2020 Bonds; or
(c) 10% of the then -Outstanding principal amount of the 2020 Bonds.
If one Business Day prior to any Interest Payment Date the moneys in the Payment Fond are
insufficient to pay amounts due on the 2020 Bonds on such Interest Payment Date, the Trustee will transfer
from the Reserve Ford to the Payment Fund the amount of such insufficiency. In the event that the Trustee
has transferred moneys from the Reserve Fund to the Payment Ford in accordance with the Indenture, upon
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receipt of the moneys from the City to increase the balance in the Reserve Fund to the Reserve Requirement,
the Trustee will deposit such moneys in the Reserve Fund.
If the amount available and contained in the Reserve Fond exceeds an amount equal to the Reserve
Requirement and if the City is not then in default under the Indenture, the Trustee will semiannually on or
before each Interest Payment Date withdraw the amount of such excess from the Reserve Fund and deposit
such amount in the Payment Fund, and for such determination the Trustee will make a valuation of the Reserve
Fund as often as it may deem appropriate, and in any event on or before each Interest Payment Date in each
year. In addition, the Tntstee will, on the date all or any portion of the 2020 Bonds are discharged in
accordance with the Indenture, value the Reserve Fund in accordance with the Indenture and withdraw the
excess, if any, on deposit in the Reserve Fund and transfer such amount to or in accordance with the written
direction of the District. Except for such withdrawals, all moneys in the Reserve Fund will be used and
withdmwn by the Trustee solely for the purpose of paying principal, Redemption Price and interest on the
2020 Bonds in the event that no other moneys of the District are available therefor.
For the purpose of determining the amount in the Reserve Fund, all Permitted Investments credited to
the Reserve Fund will be valued at the lower of cost (inclusive of all interest accrued but not paid), or book
value.
The District may satisfy the Reserve Requirement to deposit a specified amount in the Reserve Fund
by the deposit of (a) a surety bond; (b) a municipal bond insurance policy; (c) an unconditional irrevocable
letter of credit; or (d) any other security device, in each case issued by providers whose long term debt, or, in
the case of a monoline financial guaranty insurance company, claims paying ability, is rated, at the time such
security device is issued, "AA" or better by S&P, if S&P is then rating the 2020 Bonds, "AA" or better by
Moody's, if Moody's is then rating the 2020 Bonds, and "AA" or better by Fitch, if Fitch is then rating the
2020 Bonds.
THE CITY
General
The City was incorporated in 1905 under the general laws of the State of California (the `State").
City voters approved a charter in 1988 and the City thereafter became a charter city. The City has a land area
of approximately 5.2 square miles and an estimated population of 240 people as of December 1, 2019. Land
use in the City primarily consists of industrial development, with small areas devoted to commercial and
residential uses. See the caption' —Land Use and Service Area." The City provides a wide range of services,
such as public utilities (including water, gas, fiber and electric services), police protection and public works.
The City is currently in the process of transitioning fire services from the City's Fire Department to the County
of Los Angeles Fire Department. The transition is expected to be finalized by late 2020.
The City is located in the County of Los Angeles (the "County"), approximately 5 miles south of
downtown Los Angeles. The City has extensive rail lines rumring through it, as well as two large intermodal
freight yards at the City northem boundaries, to serve its industrial customer base. It is also located along
Interstate 710 and is in close proximity to Intendates 5, 10, 105 and 110. With its location along or near these
freeways, its close proximity to the Ports of Los Angeles and Long Beach and Los Angeles International
Airport, together with the rail lines within the City, the City has access to a significant transportation network.
The City has diversified from its origins as a hub for livestock businesses and there are currently over 1,700
industrial firms employing approximately 37,000 people within the City.
The City provides water service to approximately 238 industrial, 829 commercial and 38 residential
and other customers as of June 30, 2019. The City's Water System includes approximately 244,000 linear feet
of water mains, 3 booster stations and 8 reservoirs (one of which is elevated and one of which is below
ground) which provide total operational storage of approximately 16.375 million gallons.
The City pumps groundwater from 8 wells which are located within the Central Groundwater Basin,
an adjudicated groundwater basin. The City also purchases imported water at wholesale and recycled water
from Central Basin Municipal Water District ("CBMWD"), a member agency of The Metropolitan Water
District of Southern California ("MWD").
Land Use and Service Area
The Water System provides water to a service area of approximately 3.7 square miles (the majority of
the geographic area of the City), with small areas within the northeast and southeast boundaries of the City
served by private water companies. The service area is largely built out and primarily encompasses industrial
and commercial businesses, with small areas of residential use. In Fiscal Year 2019, industrial and commercial
customers consumed approximately 99.7% of the water served by the City. Because the Water System's
customer base is primarily industrial and commercial, water demand is not dependent on population growth or
precipitation but is closely tied to regional, national and international economic trends. Many of the City's
industrial and commercial customers have operated in the City for decades. In addition, the City has a low
vacancy rate of less than 2.5% (as of the fourth quarter of 2018, the latest period for which such information is
available), and the City believes that other businesses would quickly fill any vacant spaces upon the departure
of a large customer of the Water System.
Governance and Management
General. The City is governed by a five -member City Council, the members of which are elected at
large for staggered four year terms. Council members select a Mayor and Mayor Pro 'rem from among the
City Council. The current Mayor and City Council members and the expiration dates of their terms are set
forth below.
CITY OF VERNON
Mayor and City Council Members
Name and Title
Erpiratlon ojTerm
Melissa Ybarra, Mayor
April 2022
Leticia Lopez, Mayor Pro Tem
April 2021
William "Bill" Davis, Council Member
April 2023
Carol Menke, Council Member
April 2024
Diana Gonzales, Council Member
April 2020
The City Administrator, who is appointed by the City Council, serves as the City's chief executive
officer and is responsible for overseeing the daily operations of City departments. The City Administrator
serves as an advisor to the City Council on policy matters, supports the informational and policymaking needs
of the City Council, implements City Council decisions and prepares, manages and implements the City's
annual budgets and Capital Improvement Program.
Carlos R. Fandino, Jr. has served as the City Administrator since 2016. Mr. Fandino previously
worked for the City's Gas and Electric Department (now known as Vernon Public Utilities), serving in a
variety of capacities, including as General Manager. Mr. Fandino previously served in the United States
Marine Corps and is a Desert Storm/Desert Shield combat veteran. He obtained a Bachelor's degree in
Business & Management from the University of Woodbury in Burbank, graduating Magna Cum Laude.
Other key personnel responsible for management of the Water System include the Director of
Financefrreaswer and the General Manager of Public Utilities.
Scott Williams is the Director of Finance/Treasurer of the City. Mr. Williams has been with the City
since 2019 and has over 20 years of financial management experience. Prior to coming to the City, Mr.
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Williams served as the Finance Director and Administrative Services Officer for the City of Signal Hill,
California, and in various financial management positions in both the public and private sector. Mr. Williams
obtained a Bachelor's degree in Business Administration from The Master's University, an MBA from
California State University, Monterey Bay, and a Doctorate in Public Administration from California Baptist
University in Riverside, California. Mr. Williams is a member of the California Society of Municipal Finance
Officers, the California Municipal Treasurers Association, the Association of Certified Fraud Examiners and
the Institute of Management Accountants.
Abraham Alemu is the General Manager of Public Utilities of the City. Mr. Alemu has been with the
City since 1992. Mr. Alemu obtained a Bachelor's degree in Electrical Engineering from California State
University, Los Angeles, and a Masters in Business Administration from Woodbury University. Mr. Alamo is
a Registered Professional Engineer in California and a member of the Institute of Electrical and Electronics
Engineers.
Management Policies. The City has adopted several policies which are designed to ensure the
prudent and effective management of City operations, including an investment policy and a debt management
policy. Further information about each such policy is set forth below.
Investment Policy. The City invests its funds in accordance with the City's investment policy
(the `Investment Policy'), which was most recently amended on July 2, 2019. The Investment Policy sets
forth the policies and procedures that are applicable to the investment of City funds and designates eligible
investments. The Investment Policy also sets forth stated objectives, including the assurance of the safety of
invested fonds by limiting credit and market risks, the maintenance of sufficient liquidity, compliance with law
and the attainment of the best yield or returns on investments. Fonds are invested in the following order of
priority:
• Safety of Principal;
• Liquidity; and
• Yield.
The City Council has delegated the authority to invest funds of the City to the City Treasurer, who
most invest City funds in accordance with the prudent person standard under California Civil Code § 2261 et
seq.
The Investment Policy provides a number of permitted investment categories, including: (i) United
States Treasury securities and other federal government securities with a maximum maturity of 5 years; (u)
asset -backed securities with a maximum maturity of 5 years; (iii) certificates of deposit with a maximum
maturity of 5 years (limited to 30"/• of the portfolio); (iv) bankers' acceptances with a maximum maturity of
180 days (limited 40% of the portfolio); (v) repurchase agreement with a maximum maturity of one year; (vi)
money market mutual funds (limited to 20•/ of the portfolio); and (vii) the Local Agency Investment Fond of
the State (limited to $50 million).
As of June 30, 2019, the City had total moneys invested in the amount of $99,924,928 in permitted
investments under the Investment Policy ([excluding] cash and capital reserves of the Water System). The
City has not specifically allocated my portion of such amounts to the Water Enterprise Fond. See the caption
"FINANCIAL INFORMATION —Available Cash" for information about available cash and capital reserves
of the Water Enterprise Fund.
The City Treasurer is required to provide a quarterly report to the City Administrator and the City
Council detailing the City's investments, dates of raturity, amounts invested, current market value, rate of
interest and other such information as may be required by the City Council. For additional information
relating to the Investment Policy, see Note 12] to the City's audited financial statements set forth in Appendix
A.
aIT
Debt Management Policy. The City's debt management policy addresses the matters that are
required by California Government Code § 8855(i), including: (i) the purposes for which debt proceeds may be
used; (ii) the types of debt that may be issued; (ui) the relationship of the debt to, and integration with, the
City's capital improvement program or budget; (iv) policy goals related to the City's planning goals and
objectives; and (v) the internal control procedures which ensure that the proceeds of each debt issuance are
directed to their intended use.
Business and Industry Commission. In July 2014, the City established the Vernon Business and
Industry Commission to advise, assist and make recommendations to the City regarding ways to make the City
more attractive to employees, businesses and investors while appropriately considering the needs and concerns
of the residential communities within and in close proximity to the City. The Business and Industry
Commission represents the consolidation of two previously existing Ad Hoc Advisory Committees created and
appointed by the City Council, one on Electric Rates and the other on Business Development. The
Commission is comprised of seven members from the following categories who am, appointed by the City
Council: three City business representatives, two City real estate representatives, one employee of a business
located in the City or who is a member of a labor union that represents workers at a business located in the
City and one current City Council Member. The Business and Industry Commission meets quarterly to
provide input and make recommendations to the City on a number of matters relating to or impacting business
and industrial development with the City, including water rate adjustments. The input and recommendations
provided by the Business and Industry Commission are not binding on the City.
Prior Attempt to Disincorporate City; City Reform
In December 2010, Assembly Bill 46 ("AB 46" ), an act to disincorporate the City and make it part of
the unincorporated territory of the County, was introduced into the State Assembly. AB 46 stated that it was
motivated by, among other things, a desire to eliminate alleged corrupt practices by City officials, including
misuse of public funds and excessive salaries and concern with the close relationship between the City
management and its relatively small number of residents. A companion bill, Assembly Bill 781 ("AB 781"),
was also introduced which, among other things, would have transferred the Water System to a special district
governed by the Board of Supervisors of the County. The enactment of AB 781 was dependent upon the
enactment of AB 46. The City took the position that AB 46 violated the provisions of the State Constitution
providing that a vote of the City electorate was necessary to repeal a city charter.
Both bills were opposed by assay of the residents and businesses within the City as well as labor
unions representing workers within the City. Although both bills were passed by the State Assembly, the bills
were not approved by the State Senate and neither bill became law. In connection with the State Senate's
consideration of AB 46 and AB 781, the City Council agreed to a reform program proposed by the State
Senator for the senatorial district in which the City is located (the "De Leon Plan"). A key recommendation
of the De Leon Plan was implemented in December 2011 when forma State Attorney General and County
District Attorney John Van de Kamp was retained by the City to serve as the City's Independent Reform
Monitor for a four-year term, commencing February 15, 2012. As part of this engagement, the Independent
Reform Monitor evaluated and assessed the City's reform progress on a periodic basis and issued
recommendations in semi-annual reports to the City.
Since 2011, the City has implemented a variety of good governance reform measures. In November
2011, the City Council placed before the electorate a series of amendments to the City's charter to implement
significant elements of the reform program. The amendments were overwhelmingly passed by the voters and
are now in effect. in October 2013, the City Council adopted a personnel merit system to replace the City's
former at -will employment system. The City's personnel policy and procedures manual provides for City staff
salaries to be set based on comparable labor market data as pan of a periodic Citywide classification and
compensation study, and the City believes that City salaries have been adjusted to a level that more closely
reflects salaries for comparable positions in other cities in the State. Additionally, the selection process for
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hiring the City's senior administration officials was revised and now utilizes professional search firms and
interview panels.
In September 2011, a week after the State Senate vote on AB 46, the Joint Legislative Audit
Committee of the State Legislature requested that the Bureau of State Audits undertake an audit of the City and
its Gas and Electric Department. The City fully cooperated with the Bureau of State Audits and, in September
2014, the Bureau of State Audits concluded that although a few of the recommendations were still in progress,
no further follow-up responses from the City were requited at that time.
In early 2016, the four-year term of the Independent Reform Monitor ended and was not renewed.
Although the City is not aware of any further attempt to disincorporate the City or any audits or
investigations, the City can provide no assurances that there will not be a future attempt to disincorporate the
City or calls for additional reform of City governance. Should any future disincorporation attempts be
successful, or should any future audits or investigations result in the identification or allegation of any
impropriety, or should the City be required to implement additional reforms of its practices and procedures, the
City cannot predict what effects, if any, such events would have on the City, its Water System or the 2020
Bonds.
Employees
As of June 30, 2019, the City had approximately 256 full-time equivalent employees, of whom
approximately 14 worked solely on behalf of the Water System. Certain employees of the Public Utilities
Department are represented by the International Brotherhood of Electrical Workers Local 47 (the "IBEWI
and the Teamsters Local 911 (the "Teamsters"). Relations between the City and the IBEW are govemed by a
memorandum of understanding which expires on June 30, 2022 and relations between the City and the
Teamsters are governed by a memomndum of understanding which expires on June 30, 2022. Certain
management, supervisory and professional employees are unrepresented. The City has never experienced a
strike, slowdown or work stoppage.
Employee Benefits
Pension Obligations. Accounting and financial reporting by state and local government employers
for defined benefit pension plans is governed by Governmental Accounting Standards Board ("GASB")
Statement No. 68 ("GASB 69'). GASB 68 governs the accounting treatment of defined benefit pension plans,
including how expenses and liabilities are calculated and reported by state and local government employers in
their financial statements. GASB 68 includes the following components: (i) unfunded pension liabilities are
included on the employer's balance sheet; (it) pension expense incorporates rapid recognition of actuarial
experience and investment returns and is not based on the employer's actual contribution amounts; (iii) lower
actuarial discount rates are required to be used for underfunded plans in certain cases for purposes of the
financial statements; (iv) closed amortization periods for unfunded liabilities are required to be used for certain
purposes of the financial statements; and (v) the difference between expected and actual investment returns
will be recognized over a closed five-year smoothing period. GASB 68 affects the City's accounting and
reporting requirements, but it does not change the City's pension plan funding obligations.
The City participates in a Miscellaneous plan to fund pension benefits for employees who operate the
Water System. The City's Miscellaneous plan is administered by the California Public Employees Retirement
System ("CaIPERS'). CatPERS administers an agent multiple -employer public employee defined benefit
pension plan for all of the City's full-time and certain part-time employees. Ca1PERS provides retirement,
disability and death benefits to plan members and beneficiaries and acts w a common investment and
administrative agent for participating public entities within the State, including the City. CalPERS plan benefit
provisions and all other requirements am established by State statute and the City Council.
City employees are subject to different benefit levels based on their hire date. Current benefit
provisions for City employees are set forth below.
CM OF VERNON
CaIPERS Miscellaneous
Pension Plan — Summary of Benefit Provisions
Employees Hired On or
Employees Hired Before
After January 1, 2013 (Not
January 1, 2013
Prior CalPEBS Members)
Benefit Formula
2.7% @ age 55
2.0% @ age 62
Benefit Vesting
5 years of service
5 years of service
Benefit Payments
Monthly for life
Monthly for life
Minimum Retirement Age
50
52
Monthly Benefits as % of
2.0%- 2.7 %
1.0%, 2.5%
Eligible Compensation
Employee Normal Cost
8.0%I1I
5.75°/al2t
Employer Normal Cost Rate
9.433%
9.433%
M [Employees who were hired before January 1, 2013 are required to rake the full employee contribution.) [The City makes
%ofthe required employee contribution fm employees who were hired before January I, 2013].
n� Employees who were hived on or after January I, 2013 who were not previomly CatPERS members are required to make
the full employee contribution.
Source: City.
City employees who were hired on and after January 1, 2013 and who were not previously CalPERS
members receive benefits based on a 2.0% at age 62 formula; such employees are required to make the full
amount of required employee contributions themselves under the California Public Employees' Pension
Reform Act of 2013 ("AB 340"), which was signed by the State Governor on September 12, 2012. AB 340
established a new pension fier: the 2.0% at age 62 formula, with a maximum benefit formula of 2.5% at age
67. Benefits for such participants are calculated on the highest average annual compensation over a
consecutive 36-month period. Employees are required to pay at least 50% of the total normal cost rate. AB
340 also capped pensionable income for 2019 as noted below. Amounts are set annually, subject to Consumer
Price Index increases, and retroactive benefits increases are prohibited, as are contribution holidays and
purchases of additional non -qualified service credit.
CITY OF VERNON
Pensionable Income Caps for Calendar Year 2019 (AB 340 and Noo-AB 340 Employees)
Employees Hired Before
Employees Hired After
January 1, 2013
January 1, 2013
fNon-AB 340 Employees)
(AB 340 Employees)
Maximum Pensionable Income $280,000
$149,016
Maximum Pensionable Income if
also Participating in Social Security N/A
$124,180
Source: City.
Additional employee contributions, limits on pensionable compensation and higher retirement ages for
new members as a result of the passage of AB 340 are expected to reduce the City's unfunded pension lability
and potentially reduce City contribution levels in the long tens.
The City is also required to contribute the actuarially determined remaining amounts necessary to fund
benefits for its members. Employer contribution rates for all public employers are determined on an annual
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basis by the CalPERS actuary and are effective on the July I following notice of a change in the rate. Total
plan contributions are determined through the CalPERS annual actuarial valuation process. The total
minimum required employer contribution is the sum of the plu's employer normal cost rate (expressed as a
percentage of payroll) plus the employer unfunded accrued liability contribution amount (billed monthly). The
normal cost rate is the annual cost of service accrual for the upcoming Fiscal Year of active employees.
Required employer normal cost rates for Fiscal Year 2019 were 9.433 % for all benefit levels, and the
required employer payment of the unfunded accrued liability was $2,397,908. Required employer normal cost
rates for Fiscal Year 2020 are 10.862% for all benefit levels, and the required employer payment of the
unfunded accrued liability is $2,852,713.
The Miscellaneous plan contributions for Fiscal Years 2018 and 2019 were $8,713,902 and
$8,8%,669, respectively. The City currently expects its annual required contribution for the Miscellaneous
plan in Fiscal Year 2020 to be approximately 57,566,993. The share of such contributions which is
attnbutable to the Water System is determined based an the proportion of Water Enterprise Fund payroll
expenditures to payroll expenditures for all City employees who participate in the Miscellaneous plan. Such
share was 8.0% in Fiscal Year 2019, and is expected to be approximately 8.4% in Fiscal Year 2020.
The City's required contributions to CalPERS fluctuate each year and, as noted, include a normal cost
component and a component equal to an amortized amount of the unfunded liability. Many assumptions are
used to estimate the ultimate liability of pensions and the contributions that will be required to meet those
obligations. The CalPERS Board of Administration has adjusted and may in the future further adjust certain
assumptions used in the CalPERS actuarial valuations, which adjustments may increase the City's required
contributions to CalPERS in future years. Accordingly, the City cannot provide any assurances that the City's
required contributions to CaIPERS in furore years will not significantly increase (or otherwise vary) from any
past or current projected levels of contributions. CalPERS earnings reports for Fiscal Years 2010 through
2019 report investment gains of approximately 13.3%, 21.7%, 0.1%, 13.2%, 18.41%, 2.40%, 0.60%, 11.2%, 8.6%
and 6.7%, respectively. Future earnings performance may increase or decrease future contribution rates for
plan participants, including the City.
On December 21, 2016, the CalPERS Board of Administration voted to lower its discount rate from
the current rate of 7.50% to 7.00%. Effmfive with its June 2017 Comprehensive Annual Financial Report,
CalPERS reduced its discount rate to 7.15% and its investment rate of return to 7.15%. The discount rate for
Fiscal Year 2020 is 7.00%.
For public agencies such as the City, the new discount rate took effect July 1, 2017. Lowering the
discount rate means that employers that contract with CalPERS to administer their pension plans will see
increases in their normal costs and unfunded actuarial liabilities. Active members hired after January 1, 2013
will also see then contribution rates rise under AB 340. The reduction of the discount rate will result in
average employer rate increases of approximately 1 % to 3% of normal cost as a percentage of payroll for most
Miscellaneous retirement plans such as the City's plan. Additionally, many employers will see a 30 % to 40%
increase in their current unfunded accrued liability payments (relative to the unfunded accrued liability
payments projected in the June 30, 2015 valuation report) for miscellaneous pension plans. These payments
are made to amortize unfunded liabilities over 20 years to bring pension funds to a fully funded status over the
long-term.
Portions of the above information are primarily derived from information that has been produced by
CaIPERS, its independent accountants and its actuaries. The City has not independently verified such
information and neither makes any representations nor expresses any opinion as to the accuracy of the
information that has been provided by CaIPERS.
The comprehensive annual financial reports of CaIPERS are available on CaIPERS' Internet website
at www.calpers.ca.gov. The CaIPERS website also contains CaIPERS' most recent actuarial valuation reports
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and other information that concerns benefits and other matters. The tertual reference to such Internet website
is provided for convenience only. None of the information on such Internet "briar is incorporated by
reference herein. The City cannot guarantee the accuracy of such information. Actuarial assessments are
'forward -looking - statements that reflect the judgment of the fiduciaries of the pension plans, and are based
upon a variety of assumptions, one or more of which may not materialize or be changed in the future.
The City's Miscellaneous plan had a total net pension liability of approximately 534,060,942 for the
Fiscal Year ended June 30, 2018 and approximately $36,594,112 for the Fiscal Year ended June 30, 2019. The
net pension liability is the difference between the total pension liability and the fair market value of pension
assets. The City's total pension assets include funds that are held by Ce1PERS, and its net pension asset or
liability is based on such amounts.
[CONFIRM] [For Fiscal Years 2018 and 2019, the City incurred Miscellaneous plan pension expenses
of $3,173,495 and $8,476,844, respectively.]
A summary, of principal assumptions and methods used to determine the total pension liability for
Fiscal Year 2019 is shown below.
CITY OF VERNON
Actuarial Assumptions for CAPERS Miscellaneous Pension Plan
Actuarial Cost Method
Entry Age Normal in accordance with the requirements of GASB 68
Asset Valuation Method
Market Value of Assets
Actuarial Assumptions:
Discount Rate
7.15%
inflation
2.75%
Salary Increases
Varies by entry age and service
investment Rate of Return
7.50% net of pension plan investment and administrative expenses; includes
projected inflation rate of 2.75%
Mortality Rate Table(')
Derived using Ce1PERS' membership data for all funds
0' The mortality table used was developed baud on CaIPERS-specific data. The table includes 20 years of mortality
impmvemeats using Society of Actuaries Scale BB.
Source: City.
Changes in the net pension liability for the City's Miscellaneous plan in the most recent Fiscal Year
for which information is available were as follows:
CITY OF VERNON
Changes in C21PERS Miscellaneous Pension Plan Net Pension Liability
Increase/(Decrease)
Told Phrn Fiduciary Net Pension
Pension Lfabf6ty Net Position Liability/(Asset)
Balance at June 30, 2017 $ 153,756,378 $ 119,695,436 $ 34,060,942
Balance at June 30, 2018 163,980,758 127,386.646 36,594,112
Net Changes for period from July 1, 2017 S 10,224,380 $ 7,691,210 $ 2,533,170
through June 30, 2018
Source: City.
The table below presents the net pension liability of the City's Miscellaneous plan, calculated using
the discount rate applicable to Fiscal Year 2019 (7.159/6), as well as what the net pension liability would be if it
1s-
were calculated using a discount rate that is 1 percentage point lower (6.15%) or 1 percentage point higher
(8.15%) than the Fiscal Yew 2019 rate:
CITY OF VERNON
Sensitivity of the CalPERS Miscellaneous Pension Plan Net Pension Liability to
Changes in the Discount Rate
Discount Rate - I % Applicable Discount Discount Rate +I %
(6.15%) Rate (7.15%) (8.15%)
Plan's Net Pension Liability/(Asset) $60,377,852 $36,594,112 $17,177,143
Source: City.
The City's projections of Operation and Maintenance Costs under the caption "FINANCIAL
INFORMATIONProjectedWater System Operating Results and Debt Service Coverage" do not assume
unusual increases in CaIPERS contributions or other labor costs in the future. However, no assurance can be
provided that such expenses will not increase significantly in the future. The City does not expect that any
increased funding of pension benefits will have a material adverse effect on the ability of the City to pay the
2020 Bonds.
For additional information relating to the City's CalPERS Miscellaneous pension plan, see Note [81 to
the City's audited financial statements set forth in Appendix A.
Post -Employment BeneJUs. In addition to the pension benefits that are described under the caption
'—Pension Obligations," the City provides certain health cue benefits for retired employees and eligible
dependents. Substantially all of the City's full-time employees who are eligible for pension benefits may
become eligible for such other post -employment benefits. As of June 30, 2019, 256 employees meet these
eligibility requirements and 116 retirees or their beneficiaries participate in the plan, with another 3 eligible to
participate but not yet doing so. [Annual required contributions] of approximately $2,951,698 and $1,073,477,
respectively, were recognized for post -employment health cue benefits in Fiscal Years 2018 and 2019.
GASH Statement No. 75 ("GASH 75") requires governmental agencies to account for and report
outstanding obligations and commitments related to post -employment benefits in essentially the same manner
as for pensions. For the City, the reporting obligation began in Fiscal Year 2018.
The City retained Van Iwaarden Associates (the "Actuarial Consultant") to calculate the City's post -
employment benefits funding status. In a report dated November 15, 2019 (the "Report'), the Actuarial
Consultant concluded that, as of Jane 30, 2019, the City's net liability for post -employment benefits was
$23,100,129. The Actuarial Consultant also concluded that the City's actuarially determined contribution for
Fiscal Year 2020 (the actuarial value of benefits earned during Fiscal Year 2020 plus costs to amortize the
unfunded actuarial accrued liability, or "ADC") is $1,931,700. The share of such contribution which is
attributable to the Water System is expected to be approximately 8.4% in Fiscal Yew 2020.
Changes in the net liability for the City's post -employment benefit plan were as follows.
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CITY OF VERNON
Changes in Post -Employment Benefit Plan Liability
Increase / (Decrease)
Total
Post -Employment
Benefit Plan Liability
Balance at June 30, 2018
$37,355,851
Balance at June 30, 2019
25,279,784
Net Changes for period
(f12,076,067)
from July 1, 2018 through
Jose 30, 2019
source: City.
Net Post -Employment
Plan Fiducimy
Benefit Plan
Net Position
Liability/(Asset)
$1,057,267
$36,298,594
2,179,655
23,100,129
$1,122,388
($13,198,455)
The following table presents the net liability of the City's post -employment benefits plan, calculated
using the discount rate applicable to Fiscal Year 2019 (6.50%), as well as what the net post -employment
benefit liability would be if it were calculated using a discount rate that is I percentage point lower (5.50%) or
1 percentage point higher (7.5(r) than the Fiscal Year 2019 rate:
CM OF VERNON
Sensitivity of the Post -Employment Benefit Plan Net Liability to Changes in the Miscount Rate
Discount Rate - l % Applicable Discount Discount Rate + J%
(5.50%) Rate (6.50-1.) (7.50%)
Plan's Net Liability/(Asset) $26,234,945 $23,100,129 $20,472,569
source: City.
The City's projections of Operation and Maintenance Costs under the caption "FINANCIAL
INFORMATION —Projected Water System Operating Results and Debt Service Coverage" do not assume
unusual increases in post -employment benefit funding expenses in the future. However, future changes in
funding policies and assumptions, including those related to assumed rates of investment retain and healthcare
cost inflation, could trigger increases in the City's annual required contributions, and such increases could be
material to the finances of the City. No assurance can be provided that such expenses will not increase
significantly in the future. The City does not expect that any increased funding of post -employment benefits
will have a material adverse effect on the ability of the City to pay the 2020 Bonds.
For additional information relating to the post-eWloyment benefit plan, see Note (9] to the City's
audited financial statements set forth in Appendix A.
Budget Process
The City prepares and adopts a budget on a modified accrual basis for each Fiscal Year which
includes proposed expenditures and the means of financing such expenditures. Under the City's budget
procedure, the City Administrator submits a proposed budget to the City Council for the Fiscal Year
commencing the following July 1. Prim to June 30 of each year, a public hearing is held and public notice is
disseminated to obtain public comments and the budget is legally enacted by the City Council through the
passage of a resolution.
As discussed under the caption "— General;' the City reached an agreement in mid-2019 to transition
fire services, which are currently provided by the City's Fire Department, to the County of Los Angeles Fire
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Department. As a result of the negotiations with the County of Los Angeles Fire Department and the
significant adjustments to the City's budget arising from the outsourcing of fire services and the planned
phaseout of the City's Fire Department, the City Council adopted the Fiscal Year 2020 budget on August 20,
2019, after the commencement of Fiscal Year 2020.
City Insurance
The City maintains liability insurance coverage for amounts up to $20,000,000, with a $2,000,000
self -insured retention.
The City is self -insured for workers' compensation liabilities for amounts up to $1,000,000 per
occurrence and maintains excess coverage of $50,000,000.
The City maintains property insurance coverage for amounts up to $100,000,000, with a deductible of
$25,000. Certain Water System components, including pipelines are not covered by property insurance. The
City does not tarty earthquake coverage. See the captions "TIE WATER SYSTEM —Seismic
Considerations" and "CERTAIN RISKS TO BONDHOLDERS —Natural Disasters."
The City maintains directors and officers and employee dishonesty insurance coverage for amounts up
to $2,000,000, with a $150,000 deductible.
The City maintains pollution insurance coverage for amounts up to $5,000,000, with a $5,000,000
aggregate and a $50,000 self -insured retention.
The City has not settled any claims that exceeded its insurance coverages in the past three years.
The City can provide no assurance that it will maintain the above insurance coverage amounts while
the 2020 Bonds are outstanding. See Appendix B under the caption "PARTICULAR COVENANTS —
Insurance" for a description of insurance coverages that are required to be maintained while the 2020 Bonds
are Outstanding.
No Outstanding Senior or Parity Obligations
Other than obligations which constitute Operation and Maintenance Costs, there are no debt or
contractual obligations which are payable from Water System Revenues on a senior basis to, or on a parity
with, the 2020 Bonds.
The City bas entered into a Loan Agreement, dated as of May 16, 2019 (the "WRD Loan"), with The
Water Replenishment District of Southern California ("WRD') to finance the cost of a new groundwater well.
See the caption "THE WATER SYSTEM —Water Supply —Groundwater." Under the WILD Loan, which
bears no interest, the City borrowed $1,500,000, to be repaid in quarterly installments through April 1, 2031.
Although it is the City's practice to make payments on the WILD Loan from surplus Revenues of the Water
System, the WRD Loan is payable from any City revenues and no Water System revenues are pledged to
repayment.
THE WATER SYSTEM
General
The City provides water service to approximately 238 industrial, 829 commercial and 38 residential
and other customers as of June 30, 2019. The City's Water System includes approximately 244,000 linear feet
of water mains, 3 booster stations and 8 reservoirs (one of which is elevated and one of which is below
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ground) which provide total operational storage of approximately 16.375 million gallons (or approximately 50
acre feet).
The City pumps groundwater from 8 wells which are located within the Central Groundwater Basin,
an adjudicated groundwater basin. See the caption "—Water Supply —Groundwater." The City also
purchases water imported from the State Water Project (the'SWP") at wholesale, and recycled water, from
CBMWD, a member agency of MWD. See the captions "—Water Supply —Imported Water Supply" and "—
Water Supply —Recycled Water," respectively.
As discussed under the caption "—Water Supply--Croundwater," the City is currently constructing
two new groundwater wells.
Water Quality
General. Groundwater that is pumped from City wells is generally of high quality and does not
require extensive treatment prior to delivery to customers. The Public Utilities Department routinely submits
groundwater samples to a third party laboratory for analysis in compliance with State law.
The City also purchases treated potable water and recycled water from CBMWD. Such water does
not require treatment prim to delivery to customers.
PFAS. The State Water Resources Control Board (the "SWRCB") Division of Drinking Water (the
"Division") has lowered the Notification Levels for Perfluorooctanoic acid ("PFOA') and
Pertluorooctanesulfanic acid ("PFOS'J to 5.1 and 6.5 parts per trillion ("PPT'), respectively. Notification
Levels are non -regulatory, precautionary health -based measures for concentrations of chemicals in drinking
water that warrant notification and further monitoring and assessment. The City understands that the Division
may also lower the Response Level for PFOA and PFOS from 70 PPT, combined, to about 10 to 12 PPT, each
in early 2020. Response Levels are non -regulatory, precautionary health -based measures that are set at higher
levels than Notification Levels and represent thresholds at which the Division recommends that water systems
remove a water source from use or treat it.
PFOA and PFOS are fluorinated organic chemicals which are part of a family of synthetic compounds
referred to as per- and polyfluoroalkyl substances ("PFAS"). PFAS are water and lipid resistant and are useful
for a variety of manufacturing processes and industrial applications. The City understands that recent
technological advances have enabled water agencies to detect PFAS compounds at very low concentrations.
No discernible traces of PFAS have been found in the City's groundwater sources to date. The City
tested its wells for HAS under the UCMR3 (Unregulated Contaminant Monitoring Rule), resulting in a
"non -detect" determination. The City does not anticipate that implementation of the proposed lower Response
Level for PFAS would have a material adverse effect on the operation of the Water System or the costs
thereof. The projected operating results which are set forth under the caption "FINANCIAL
INFORMATION —Projected Water System Operating Results and Debt Service Coverage" reflect the City's
current expectation that there will not be significant increases in water treatment or purchase costs to meet
State regulations relating to PFAS.
Water Supply
The City's primary source of water is groundwater from City -owned wells. The City also purchases
SWP water from CBMWD, a member agency of MWD. The Water System's goal is to minimize purchases of
imported water from CBMWD, which is more expensive than groundwater produced from the City's wells. In
addition, the City purchases recycled water from CBMWD. Each of these sources is described below. See
Table 4 under the caption "—Historical Water Supply Sources and Usage" for historical information with
respect to the amount of the City's water supply derived from each of such sources.
9ME
Groundwater. The City's 8 groundwater wells have a combined production capacity of
approximately 10.2 million gallons per day ("mgd"), which is sufficient to supply all of the current average
daily demand within the Water System service area. The City's wells have depths between approximately
1,020 and 2,500 feet. The City's wells are located in the Central Groundwater Basin, which encompasses an
area of approximately 250 square miles. The amount of groundwater that is held in the Central Groundwater
Basin fluctuates depending upon precipitation, pumping demand and the availability of replenishment water.
The City is currently in the process of constructing a new well (Well 22), which is expected to
produce 2,000-3,000 gallons of water per minute (equivalent to 2.88-4.32 mgd). The City also plans to
construct an additional well (Well 23) in Fiscal Year 2023, which is expected to produce 2,000-3,000 gallons
of water per minute. The total cost to drill the two wells, which are expected to come online in 2021 and 2023,
respectively, is estimated at $3,800,000. The City has entered into the WRD Loan in the amount of
$1,500,000 to fund a portion of such costs. See the caption "TFIE CITY —No Outstanding Senior or Parity
Obligations." 2020 Bond proceeds will also fund a portion of such costs. See the caption "PLAN OF
FINANCEThe2020 Project." The construction of the new wells is expected to reduce the City's reliance on
imported water to supply Water System customers, resulting in reduced Operation and Maintenance Costs
given the fact that imported water is significantly more expensive than groundwater produced from City wells.
See the subcaption "—Imported Water Supply."
The Central Groundwater Basin is an adjudicated groundwater basin, the adjudication of which is
overseen and administered pursuant to the terms of a judgment (the "Judgment") entered in the Superior
Court of California, County of Los Angeles. The Judgment, which became effective in 1966 and which was
amended in 2013, adjudicated groundwater rights for entities which represent over 75% of the groundwater
pumping rights in the Central Groundwater Basin. The Judgment contains a physical solution to meet the
requirements of water users having rights in or dependent upon the Central Groundwater Basin.
Under the Judgment, as amended in 2013, the Central Groundwater Basin is administered by a
Watermaster, which is composed of three bodies: (i) the Water Rights Panel; (ii) the Administrative Body; and
(iii) the Storage Panel.
The Water Rights Panel is made up of seven Central Groundwater Basin water rights holders. Six are
elected by their representative group (with parties grouped based upon the amount of their pumping rights,
votes being weighted by such rights) and one member is elected at large by all water rights holders (with one
vote each).
WRD, a special water replenishment district that was established in 1959 under the Water Code,
serves as the Administrative Body. Its role as a component of the Waterrrrsster is to accept pumping reports
and summarize records for review by the Water Rights Panel. WRD also collects Replenishment Assessments
from groundwater pumpers and undertakes certain activities with the proceeds thereof, as detailed below.
The Storage Panel consists of the Water Rights Panel and the WRD Board of Directors.
The Judgment limits the amount of groundwater that each party to the Judgment can extract annually
from the Central Groundwater Basin to such parry's "Allowed Pumping Allocation." The total pumping rights
of all parties to the Judgment in the Central Groundwater Basin is 217,367 acre feet per year. In order to
provide flexibility with respect to groundwater pumping, the Judgment allows a party to tarty over a portion
(limited to the greater of (i) 60% of the parry's Allowed Pumping Allocation less amounts in storage in the
Central Groundwater Basin; or (ii) 200/ of the party's Allowed Pumping Allocation) of such parry's unused
pumping rights into succeeding years. The Judgment also allows a party to extract amounts in excess of its
Allowed Pumping Allocation with approval from the Water Rights Panel, provided that over -extraction is
made up over a period not to exceed five years. In addition, the Judgment permits parties to transfer pumping
rights from year to year.
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Pursuant to the Judgment, the City bas been allocated an Allowed Pumping Allocation of 7,539 acre
feet per year. Over the last three Fiscal Years, the City has underproduced its available pumping rights,
resulting in carryover for production in subsequent years. As of Jane 30, 2019, the City had a total of 4,136.86
of carryover.
The District pays WRD a Replenishment Assessment in order to extract groundwater from the Central
Groundwater Basin. The Replenishment Assessment, which is equal to $365 per acre foot of groundwater
extracted for Fiscal Year 2020, is applied by WRD to the following purposes: (i) purchasing water for
replenishment into the Central Groundwater Basin; (ii) financing capital projects and supporting debt service
on WRD obligations; and (iii) removing contaminants from groundwater.
As an adjudicated groundwater basin, the Central Groundwater Basin is not subject to the provisions
of State Assembly Bill No. 1739 and Senate Bill Nos. 1168 and 1319 (collectively, the Sustainable
Groundwater Management Act), a Statewide effort regulate groundwater which was enacted on September 16,
2014.
Imported Water Supply. The imported water source for the City is CBMWD. CBMWD is a member
agency of MWD and receives water through MWD. The imported water delivered to the City from CBMWD
consists of SWP water from northern California and the Colorado River which is treated prior to delivery to
the City.
The City is entitled but not obligated to purchase water from CBMWD when available at rates that are
determined by CBMWD's governing board CBMWD's rates are designed primarily to recover CBMWD's
costs to purchase water from MWD. CBMWD also levies a surcharge above the rates that it pays MWD. The
City's practice is to recover the costs of water purchased from CBMWD through the rates that the City charges
Water System customers. See the caption "—Water System Rates and Chargu—General."
The City currently pays CBMWD the following rates for imported water purchases: (i) a Tier I MWD
rate of $1,078 per acre foot or a Tier 2 MWD rate of $1,165 per acre foot; (ii) a surcharge of $190 per acre
foot; (iii) a charge of $11,582 per year, representing the City's share of a readiness -to -serve charge levied by
MWD on CBMWD, together with a surcharge thereon imposed by CMBWD; (iv) a capacity charge of 54,150
per cubic feet per second per year; (v) a water meter service charge of $117 per cubic feet per second per
month; and (vi) an annual fired meter charge of $2 per retail connection.
The City, along with several other public agency customers of CBMWD, is currently engaged in
litigation with CBMWD with respect to the above -described "retail meter charge" which the City and the other
agencies allege has been improperly billed by CBMWD. The case, which is entitled City ojSignal Hill et at. v.
Central Basin Municipal Water District et al, Case No. 19STCP03882 (Superior Court of California, County
of Los Angeles), is a petition for Writ of Mandate and Complaint for Determination of Invalidity and
Declaratory Relief and was filed on September 6, 2019. The City has paid certain amounts billed by CMBWD
under protest and does not expect that an unfavorable outcome with respect to the dispute will result in the
City becoming obligated to make additional payments to CBMWD, while a favorable outcome with respect to
the dispute could make additional credits available to the City.
CBMWD and MWD face various challenges in the continued supply of imported water to the City. A
description of these challenges as well as a variety of other operating information with respect to CBMWD and
MWD is included in certain disclosure documents prepared by CBMWD and MWD, respectively. CBMWD
and MWD each have certain publicly available documents and have entered into certain continuing disclosure
agreements pursuant to which they are contractually obligated for the benefit of owners of certain of thew
respective outstanding obligations to file annual reports, notices of enumerated events as defined under Rule
15c2-12 adopted by the Securities and Exchange Commission under the Securities Exchange Act of 1934, as
the same may be amended from time to time ("Rule 15c2-12'), and annual audited financial statements with
the Municipal Securities Rulemaking Board. None of such information is incorporated into this Official
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Statement by reference thereto, and the City makes no representation as to the accuracy or completeness of
such information. NEITHER CBMWD NOR MWD HAVE ENTERED INTO ANY CONTRACTUAL
COMMITMENT WITH THE CITY, THE TRUSTEE OR THE OWNERS OF THE 2020 BONDS TO
PROVIDE ANY INFORMATION ABOUT CBMWD OR MWD TO THE CITY OR THE OWNERS OF
THE 2020 BONDS.
NEITHER CBMWD NOR MWD HAVE REVIEWED THIS OFFICIAL STATEMENT AND
NEITHER CBMWD NOR MWD HAVE MADE REPRESENTATIONS OR WARRANTIES WITH
RESPECT TO THE ACCURACY OR COMPLETENESS OF THE INFORMATION CONTAINED OR
INCORPORATED HEREIN, INCLUDING INFORMATION WITH REGARD TO CBMWD AND MWD,
RESPECTIVELY. NEITHER CBMWD NOR MWD IS CONTRACTUALLY OBLIGATED, AND
NEITHER CBMWD NOR MWD HAVE UNDERTAKEN, TO UPDATE SUCH INFORMATION FOR THE
BENEFIT OF THE CITY OR THE OWNERS OF THE 2020 BONDS TINDER RULE 15c2-12.
Recycled Water. CBMWD purchases recycled water meeting the requirements of Title 22 of the
California Code of Regulations which is produced by the County Sanitation Districts of Los Angeles County
(the "Sanitation Districts') for resale to retail agencies such as the City. The source of the recycled water is
tertiary treated wastewater from the Sanitation Districts' San lose Creek and Los Coyotes Water Reclamation
Plants, which are located in Whittier and Cerritos, California, respectively. The City pays CBMWD a Cued
rate in the current amount of 5759 per acre foot of recycled water. However, pursuant to an agreement with
CBMWD, the City receives up to a $353 credit for each acre foot of recycled water purchased by the City.
Currently, the City's sole recycled water customer is the Malburg Generating Station, a combined
cycle natural gas -fired electrical generating plant located in the City.
Seismic Considerations
The City is located in a seismically active region. Significant faults are located near the City,
including the Newport -Inglewood Fault. There is potential for destructive ground shaking during the
occurrence of a major seismic event. In addition, land along fault lines may be subject to liquefaction during
the occurrence of such an event. In the event of a severe earthquake, there may be significant damage to both
property and infrastructure within the City, including the Water System, which may affect the City's ability to
supply water to its customers. The City has an emergency response plan that would be implemented under
such circumstances.
Newer Water System facilities are designed to withstand earthquakes with minimal damage, as
earthquake loads are taken into consideration in the design of project structures. The impact of lesser
magnitude events is expected by the City to be temporary, localized and reparable. The Water System has
never sustained major damage to its facilities or experienced extended incidences of service interruptions as a
result of seismic disturbances. All facilities have been designed and constructed in compliance with the City's
construction standards.
The City does not maintain earthquake insurance on Water System facilities. See the captions `THE
CITY —City Insurance" and "CERTAIN RISKS TO BONDHOLDERS —Natural Disasters."
Drought Response
State Orders. On January 17, 2014, after several years of below -average precipitation in the State, the
State Governor declared a drought state of emergency (the "Declaration') with immediate effect. The
Declaration encouraged local urban water suppliers, including the City, to implement their local water shortage
contingency plans, and the City implemented Phase One of its plan in the wake of the Declaration. See the
subcaption "—Water Shortage Contingency Plan" for a description of the City's plan. The Declaration also
-25-
required DWR and the SWRCB to craft and enforce numerous emergency regulations that were designed to
reduce water usage and increase water supplies.
For instance, a May 2015 SWRCB regulation required the City to effect a 12% reduction from its
2013 potable water usage. On May 18, 2016, the SWRCB adopted a revised regulation that gave water
agencies the ability to establish their own conservation standards based on a "stress test" of supply reliability.
By June 22, 2016, water agencies were required to submit self -certifications to the SWRCB demonstrating that
they had sufficient supplies to withstand three additional years of severe drought. Any identified percentage
gap between supplies and demands became the water agency's updated mandatory conservation target.
The City's self -certification demonstrated that it had sufficient supplies to meet its projected demands,
even if the State were to have endured three more years of drought Consequently, the City's mandatory
conservation target was eliminated retroactive to June 1, 2016.
On April 7, 2017, after significant improvement in water supply conditions across California, the
Govemor issued Executive Order B-40-17, which rescinded mandatory conservation measures for most
counties in the State (including the County).
The City is currently operating under normal supply conditions, as described below under the caption
—Water Shortage Contingency Plan."
In 2018, the California Governor signed Senate Bill 606 and Assembly Bill 1668 into law. These bills
relate to water conservation and drought planning and empower DWR and the SWRCB to adopt long-term
standards on water use. The City is unable to predict the substance, timing or effect on the Water System of
regulations implementing Senate Bill 606 and Assembly Bill 1668 or any future legislation with respect to
water conservation.
Wafer Shortage Contingency Plan. The City's water shortage contingency plan is set forth in Article
VI of Chapter 25 of the City's Municipal Code. Under the City's plan, the City responds to a water shortage in
stages (referred to as "Phase One; "'Phase Two" and "Phase Three") as follows, in each case subject to
publication by the City of its determination of the applicable stage in a local newspaper and the mailing of
notice thereof to Water System customers:
• Under normal supply conditions, wasteful use of water (including washing down paved areas,
allowing sprinkler irrigation to run off, operating decorative water features that do not recirculate water and
irrigating landscapes between 10:00 a.m. and 5:00 p.m.) is prohibited, and water leaks most be repaired as
soon as reasonably practicable. The City is currently operating under normal supply conditions.
• Phase One is intended to be implemented when water supplies are expected to be curtailed by
more than 20%. The restrictions applicable to normal supply conditions are in effect and irrigation with
potable water is limited to three days per week between the hours of 6:00 p.m. and 6:00 a.m. only. In addition,
water leaks most be repaired within 72 hours of notification by the City.
• Phase Two is intended to be implemented when water supplies are expected to be curtailed by
more than 30%. Irrigation with potable water is limited to two days per week (except between the months of
November and March, when it is limited to one day per week) on a schedule established and posted by the
City. In addition, water leaks most be repaired within 48 hours of notification by the City and customers are
required to limit water use to 85% of the amount used during the corresponding billing period two years prior
to the declaration of the Phase One stage.
• Phase Three is intended to he implemented when water supplies are expected to be curtailed
by more than 50%. Irrigation with potable water is prohibited, water leaks must be repaired within 24 hours of
notification by the City and customers are required to limit water use to 75% of the amount used during the
-26-
corresponding billing period two years prior to the declaration of the Phase One stage. In addition, the City
may require commercial and industrial businesses which use more than 100 acre feet of potable water per year
to prepare a water conservation plan and submit quarterly progress reports with respect to compliance with
such plan.
The City's water shortage contingency plan authorizes the City to levy increasing fines for successive
violations of the water restrictions and water rate penalties for excess water usage when restrictions are in
place.
The projected Water System operating results that are set forth under the caption "FINANCIAL
INFORMATION—Pmjected Water System Operating Results and Debt Service Coverage" reflect the
assumed continuation of normal supply conditions. The City does not currently expect that the implementation
of its water shortage contingency plan in the future will have a material adverse effect on its ability to pay the
2020 Bonds from Net Revenues. As discussed under the caption "—Water System Rates and Charges," the
City's rate structure consists of variable and fixed rate components. Decreased water consumption is partially
onset by a decrease in related variable costs, while fixed water charges largely cover the Water System's fixed
Operation and Maintenance Costs. In addition, the City has covenanted to set Water System rates and charges
in amounts that it expects to be sufficient to pay the 2020 Bonds from Net Revenues. See the caption
"SECURITY FOR THE 2020 BONDS —Rate Covenant."
If a water shortage should arise again in the future, legal issues exist as to whether different California
Water Code provisions or State regulations will be invoked to manage the allocation of water. Any
curtailment pursuant to State orders could necessitate an increase in the City's Water System rates and charges.
See the caption "CONSTITUTIONAL LIMITATIONS ON APPROPRIATIONS AND CHARGES —
Proposition 218" for a discussion of certain restrictions on the City's ability to raise water rates.
-27-
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The table below shows water sales Revenues by class of user for the last Fiscal Year.
TABLES
CITY OF VERNON WATER SYSTEM
Water Sales Revenues]') by Class of User
Fiscal Year 2019t�1
Water sales
User Class Revenues
Industrial $1,929,001
Commercial 6,378,969
Residential/Other 43,336
Recycled 446.812
Total $8,798,118
2'1 Excludes other Revenues such as meter installation charges, penalties, connection fees and miscellaneous income. See the
caption "FINANCIAL INFORMATION —Historical Water System Operating Results and Debt Service Coverage."
ar Reflects [unaudited] actual cash. Totals may not add due to mondmg.
Source: City.
Historical Water Supply Sources and Usage
The table below summarizes the sources of water supply and deliveries to users in the City for the five
most recent Fiscal Years.
TABLE 4
CITY OF VERNON WATER SYSTEM
Historical Water Supply Sources and Usage in Acre Feet(l)
Local Imported Recycled Total Water Percentage
Fiscal Year Water Waterlt' Waterlrl Liawpl Change
2015 5,640 879 825 7,344 N/A%
2016 5,647 862 787 7,296 (0.65)
2017 6,008 570 750 7,328 0.44
2018 5,839 454 616 6,909 (5.72)
2019 5,499 582 626 6,707 (2.92)
01 The numbers shown above diner from the historical water production numbers shown under the caption "—Historical Water
System Connections and Production" because the numbers shown above reflect water losses.
'2' Reflects purchases from CBMWD. See the caption" —Water Supply."
'�1 Decreases in water usage reflect conservation and increased water use efficiency measures undertaken by the City's
primarily industrial and commercial customer base.
Source: City.
Historic water sales Reveaues for the last five Fiscal Years based on the historic water usage set forth
in the table above are set forth under the caption "FINANCIAL INFORMATION —Historic Water System
Operating Results and Debt Service Coverage."
IP2
Largest Water System Customers
The table below shows the largest customers of the Water System for Fiscal Year 2019, as determined
by Revenues generated.
TABLE 5
CITY OF VERNON WATER SYSTEM
Ten Largest Water System Customers
Fiscal Year 2019
Percentage
ojAnnual
User
Type of Business
Revenues(l)
Revenues
Clougherty Packing
Food Processing
$1,046,035
11.89%
Wimatex
Fabric Dyeing
442,751
5.03
7-Up Bottling Co.
Food Processing
381,373
4.33
Overbill Farm Inc.
Food Processing
225,495
2.56
Pabco Paper Products Co.
Building Materials
224,012
2.55
Fantasy Dyeing and Finishing Inc.
Fabric Dyeing
186,359
2.12
A's Match Dyeing Co. Inc.
Fabric Dyeing
185,596
2.11
Owens Illinois Inc.
Container Packaging
I68,508
1.92
The Union Ice Company
Ice Manufacturing
168,146
1.91
Golden West Trading
Food Processing
156,639
1.78
Total
$3,184,914
36.20%
Iu Rounded to the nearest dollar. ReOects unaudited actual results.
Source: City.
These customers accounted for approximately 36.20% of total water sales revenues of $8,798,118
(reflecting unaudited actual results) in Fiscal Year 2019.
Water System Rates and Charges
General. The Water System's rates and charges are set by the City Council and are not subject to the
jurisdiction of, or regulation by, the California Public Utilities Commission or any other regulatory body. The
City, however, is required to comply with the notice, hearing and majority protest provisions of Article MILD
of the State Constitution, which is popularly known as Proposition 218. See the caption
"CONSTITUTIONAL LIMITATIONS ON APPROPRIATIONS AND CHARGES —Proposition 218" for
further information with respect to Proposition 218.
The City's Public Utilities Department determines the adequacy of the charge structure for water
service in the service area after full consideration of expected operations, maintenance, capital costs and capital
repayment obligations of the Water System. The City Council currently sets water rates and charges at a level
that it determines is sufficient to pay all Operation and Maintenance Costs of water production and water
purchases (including the cost of imported water purchased from CBMWD as discussed under the caption "—
Water Supply —Imported Water Soppy'), to recover operating expenses for the Water System, to pay debt
service and to maintain appropriate reserves for the Water System. Current charges include a fixed service
charge based on meter size and a commodity charge based on usage.
The City is subject to certain covenants with respect to the 2020 Bonds which require the City to set
Water System rates and charges in amounts that it expects to be sufficient to pay the 2020 Bonds from Net
Revenues. See the caption `SECURITY FOR THE 2020 BONDS —Rate Covenant"
-30-
In 2019, the City retained a consultant to evaluate the Water System's rates and charges, resulting in
the preparation of a detailed rate study in September 2019. On November 19, 2019, after a public hearing as
required under Proposition 218, the City Council adopted a comprehensive rate plan for the Water System (the
"Rate Plan") based upon the findings in the rate study, including Water System rate increases for calendar
years 2020 through 2024. Among the goals of the Rate Plan was to increase the percentage of Operation and
Maintenance Costs that are paid for from fixed monthly service charges (which are not dependent on water
consumption) from approximately 30% to approximately 38 % in order to provide greater revenue stability to
the Water System and more fully the Water System's fixed costs. In order to accomplish this goal, fixed water
fates were doubled, as shown in Table 7 below under the subcaption "—User Charges" below.
The Rate Plan remains in place as of the date hereof There is no assurance that the City Council will
not repeal or modify such rate increases in the future or that the City's ratepayers will not approve an initiative
to repeal or modify any increase in water rates and charges approved by the City Council.
User Charges. The City adopts water rates and water service charges for the Water System by City
Council action. The current water rate structure consists of a fixed monthly service charge that varies by meter
size, a commodity rate, as well as certain other charges as described below.
The table below summarizes the commodity rate and certain other water fates charged by the Water
System for all customer types.
TABLE 6
CITY OF VERNON WATER SYSTEM
Water Rates
2019 Current Rare as of Rate as of Rate as of Rate as of
Rare Type Rate Rate 722021 1/72022 1112023 11112024
Potable Water Consumption Ratef) $2.20600 $2.20600 $2.27000 $2.34000 $2.41000 $2.48000
Monthly Square Footage Chargdt) 0.00319 0.00364 0.00375 0.00386 0.00398 0.00410
Recycled Water Consumption Ratc(r) 1.74200 1.74200 N/A N/A N/A N/A
r'r Per 100 cubic feet. The rate will be increased by approximately 3 % per aanum beginning in 2021 in accordance with the
Rate Plan.
trr Charged monthly per square foot ofbuildings or outside storage space. The charge was increased by approximately 14% in
the current calendar year and will be increased by approximately 3% per aonum thereafter, all in accordance with the Rate
Plan.
o� Per 100 cubic feet. Recycled water notes ptimarily consist of a pass -through of the ones charged to the City by CBMWD.
See the caption "—Water Supply —Recycled Water." See Footnote I to Table 13 ander the caption "FINANCIAL
INFORMATION —Projected Water System Operating Results and Debt Service Coverage" for a description of the
District's assumptions with respect to recycled water rates in Fiscal Years 2021 through 2024.
Source: City.
5110
The table below summarizes the City's current monthly water availability charges by meter size.
TABLE 7
CITY OF VERNON WATER SYSTEM
Monthly Water Availability Chargeslt>
Current Rate as of Rate as of Rate ar of Rate as of
Meter Size 2019 Rate Rate 11112021 12/1022 11712023 1172024
5/8" S 8.23 S 16.46 S 16.95 $ 17.46 $ 17.98 S 18.52
3/4" 12.34 24.68 25.42 26.18 26.97 27.78
1" 20.57 41.14 42.37 43.64 44.95 46.30
1h" 41.15 82.30 84.77 87.31 89.93 92.63
2" 65.94 131.68 135.63 139.70 143.89 148.21
3" 123.45 246.90 254.31 261.94 269.80 277.89
4" 205.75 411.50 423.85 436.57 449.67 463.16
6" 411.50 823.00 847.69 873.12 899.31 926.29
8" 658.41 1,316.82 1,356.32 1,397.01 1,439.92 1,482.09
t'u Rates were doubled in the current calmdar year and will be increased by appmxim wly 3%per am an beginning in 2021 in
sccordance with the Rate Plan.
Source: City.
Connection Charges. A water connection right most be purchased from the City by anyone who
wishes to connect to the Water System. The connection fee is equal to the cost of water service installation.
The fee varies per location based on various factors including size of service and complexity.
Comparison to Nearby Service Providers The table below sets forth a comparison of the City's
typical monthly water bill for an industrial and commercial user (reflecting usage of approximately 5,500
hundred cubic feet) to those of certain nearby water purveyors as of June 30, 2019. As shown in Table 2 under
the caption '-Historical Water System Connections and Production," industrial and commercial users
comprise over 96% of the Water System's customer base.
TABLE 9
CITY OF VERNON WATER SYSTEM
Comparative Rates
Source: City.
Average Monthly
Water Service Provider Water Charge
City of Vernon
$12,623
City of Whittier
12,691
City of Downey
13,291
City of Cerritos
13,867
City of long Beach
17,269
City of Pico Rivera
18,288
City of Paramount
18,968
City of Lakewood
19,588
City of Glendale
21,343
City of Santa Fe Springs
24,191
City of South Gate
34,813
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Water System Billing and Collection Procedures
Charges for water service are billed monthly on a consolidated bill together with electric services. If
payment is not received 20 days after billing, a second notice will be delivered and a $10 fee will be assessed.
Second notice billing statements are due IS days after delivery. After such time, a door hanger will be hand
delivered to the service address and a $10 final notice fee will be assessed If payment is not received within
45 days, the City will deliver a disconnection notice and shut off water service; a $25 disconnection fee will
also be assessed. Service will not be restored until all charges have been paid in full. The City is currently
developing slight modifications to the foregoing procedure to reflect Senate Bill 998, recently adopted State
legislation which applies to shutoffs of delinquent residential customers. As shown in Table 2 under the
caption "—Historical Water System Connections and Production," the Water System has fewer than 40
residential connections.
The City's rate of delinquency has historically been very low given the City's primarily industrial and
commercial customer base. As of June 30, 2019, none of the City's customer accounts were delinquent.
Future Water System Capital Improvements
The City projects total capital improvements to the Water System of approximately $20.5 million over
the current and next four Fiscal Years, including the 2020 Project. See the caption "PLAN OF FINANCE —
The 2020 Project"
The capital improvements which are scheduled to be undertaken in Fiscal Years 2020 through 2023
and described to the following table are expected to be financed by a combination of proceeds of the 2020
Bonds deposited in the Acquisition Fond (as specified under the caption "PLAN OF FINANCE —Estimated
Sources and Uses") and Revenues remaining after payment of Water System obligations.
The remaining capital improvements which are scheduled to be undertaken in Fiscal Year 2023 and
the capital improvements which are scheduled to be undertaken in Fiscal Year 2024 and described in the
following table are expected to be financed by Revenues remaining after payment of Water System
obligations. The City does not expect to issue additional Bonds or enter into additional Contracts to finance
such capital improvements.
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CITY OF VERNON WATER SYSTEM
Capital Improvement Plan
C-Pad Pro%M
Well 5 Dumm0on
Well I I Ping, a Motm
Eme 'Gmmlarm Well 11
WeR2011h ilitalim
Emergn,Genemloron Well 20
Well 17 Rehabihtetim
Well 22 Dulling a Cuing
Wen 22 WelNod equipment
New Welh Wellhud Enginmivg&CM
New Wells Dulling & Cuing Carmumim Mevsgement
Op... Melyais and Maen Plm
Rev eo bm useemenla(&I MG)
Elevated Tam Upgrdes (autmna6m)
Upgrades for IOMG Rues (wtmmatim)
Emergency Genemm m Well 22
Well 15 Rehab
Emergency Genentmm Well IS
Reservoir Derno eI Well 20
BPI, BP2, BP3 Enginecdng Duigo"'
BPI Pump Motor Revel mcludiog lbht-wang"'
Finagenry Genemm m BPI"'
BP3 Pump and Motm Revamp including Rigbl-sizing^'
BP2 Resmoir supply Redmdancy
Rrydn Reemoin BP3 Design & Consmsdim"'
BP2 Pump and Motm Revamp mchming Right-sian¢n
Repairs Reservoir BP2 Duigo & Conshuelim'''
Dock Dcmo n OE Clark
Well 23 Dtllling end Cuing
Well 23 Wellhud equipment
Emmgeney Genenlmm Well 23
M Po
Elemieal Upgrades
SCADA
Pilot Man Replaeemml Pmgnm
Packe.l .hmge and Downey Rd Pipeline Extmeim
Pump Have 2 Re"iit t
Fence Replacement PP2 & Well 19
Aaaad Tohl
Cum Wes Talal
"' BP sands for Booner Plane
sesame: City.
F6esl Y.
Fised Fn
Fiscd Year
Fk at Year
£iecd Year
2029
2021
2022
2023
2021
S 125,000
150,000
300,000
550,000
300,000
600,000
2,050,000
I,W,M
215,000
S 115,000
155,000
155,000
3m,1100
lz000
250,000
S 250,000
300,000
500,000
300,000
lanco0
300,000
500,000
300,000
5m,m0
Im,000
O
SOo'looO,W0
000,000
251,000
s 2zlo,ogo
966,909
S lo0,000
100'"
100,000
100,000
Im,000
om
SOO."
250,OW
250,000
2m,w
2 0,000
OO
00,1100
,w
0,000
30'M
S ],65],000
S 3,500,000
1,101,000
$ 4,676,M
$ 1570,m0
S 7,657,O00
$ II,I57,010
S 10.2611000
$
$ 19,911,999
S 20,501,999
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k
Projected Water Supply Sources and Usage
Projected water supply sources and deliveries for the current and next four Fiscal Years we set forth in
the table below.
TABLE II
CITY OF VERNON WATER SYSTEM
Projected Water Supply Sources and Usage in Acre Feet
Local Imported Recycled Percentage
Finn( Year Water Wahr01 WWcrr" Total Water Usages" Change
2020 5,846 715 586 7,147 6.56%
2021 6,058 360 548 6,966 (2.53)
2022 6,279 0 512 6,791 (2.51)
2023 6,142 0 479 6,621 (2.50)
2024 6,009 0 448 6,457 (2.48)
Reflects purchases from CBh1WD. See the caption "—Water Supply."
Decreases in pmjWcd water usage reflect the City's expectation of continued conservation and increased water use
efficiency measures underWcrn by the City's primarily industrial and commercial customer base.
Source: City.
Projected water sales Revenues for the current and next four Fiscal Years based on the projected water
usage set forth in the table above are set forth under the caption "FINANCIAL INFORMATION —Projected
Water System Operating Results and Debt Service Coverage."
FINANCIAL INFORMATION
Financial Statements
A copy of the most recent audited financial statements (the "Financial Statements') of the City and
Vernon Public Utilities prepared by the City's accountant, [Vasquez & Company LLP, Glendale, California]
(the "Audkor") are set forth in Appendix A. The Auditor's letters dated [_ 2020] are set forth therein.
The Financial Statements should be read in their entirety. The Auditor has not reviewed or audited this
Official Statement.
The audited financial statements of the City are included for reference only. No moneys of the City
(including but not limited to General Fund moneys) except Water System Revenues are pledged to the
repayment of the 2020 Bonds.
The summary operating results that are contained under the caption "—Historical Water System
Operating Results and Debt Service Coverage" are derived from the Financial Statements and audited financial
statements for prior Fiscal Years (excluding certain non -cash items and after certain other adjustments), and
are qualified in then entirety by reference to such statements, including the notes thereto.
The City accounts for moneys received and expenses paid in accordance with generally accepted
accounting principles applicable to public entities ("GAAP'). In certain cases, GAAP requires or permits
moneys that are collected in one Fiscal Year to be recognized as revenue in a subsequent Fiscal Yea and
requires or permits expenses that are paid or incurred in one Fiscal Yew to be recognized as expenses in a
subsequent Fiscal Year. See Note I to the Financial Statements that are set forth in Appendix A. Except as
otherwise expressly noted herein, all financial information that has been derived from the City's audited
financial statements reflects the application of GAAP.
-36-
The Water System of the City is accounted for as within the Vernon Public Utilities Fund, a
proprietary fund type (enterprise fund). In governmental accounting, enterprise funds are used to account for
operations that are financed and operated in a manner similar to private business enterprises, where the intent
is that the costs (expenses, including depreciation) of providing goods or services to the general public on a
continuing basis are to be financed or recovered primarily through user charges, or where periodic
determination of revenues earned, expenses incurred and/or net income is deemed appropriate for capital
maintenance, public policy, management control, accountability or other purposes.
Proprietary funds are accounted for using the "economic resources" measurement focus and the
accrual basis of accounting. Under the accrual basis of accounting, revenues are recognized in the period in
which they are earned while expenses are recognized in the period in which the liability is incurred.
Proprietary funds distinguish operating revenues and expenses from nonopemting items. Operating
revenues, such as charges for services, result from exchange transactions associated with the principal activity
of the fund. Exchange transactions are those in which each party receives and gives up essentially equal
values. Nonopemting revenues, such as subsidies and investment earnings, result from noncxchunge
transactions or ancillary activities. Operating expenses include the cost of sales and services and
administra ive expenses. All expenses which do not meet this definition (other than depreciation, a nonoash
item which is not reflected in this Official Statement) are reported m non -operating expenses.
Available Cash
As of December 31, 2019, the Water System had approximately $6,023,430 in available cash reserves.
This amount is equivalent to approximately 270 days of Operation and Maintenance Costs. The Water System
also had approximately $7,992,695 in reserves that are currently allocated to future capital projects but can be
reallocated to other purposes in the City's discretion.
Historical Water System Operating Results and Debt Service Coverage
The table below is a summary of operating results of the Water System for the last five Fiscal Years.
The results have been derived from unaudited actual results for Fiscal Year 2019, the Financial Statements and
prior audited financial statements of the City but exclude certain non -cash items which are not included as
Revenues or Operation and Maintenance Costs and include certain other adjustments. The table has not been
reviewed or audited by the City's Auditor.
TABLE 12
CITY OF VERNON WATER SYSTEM
Historical Operating Results (Fiscal Year Ended June 30)
2015 2016M 2017 2018 2019A31
Rcyenues
Charges for Services $9,079,272 $8,042,095 $9,905,108 $9,392.914 S9,345,044
Investment Income - - - 1,796 -
Other Revenues") 13.468
Total Revenues $9,078,272 $8,042.095 $8,805,109 $9.394,610 $9,358,512
Operation and Maintenance Cos&n
Cost of Sales $6.550.220 S6.501.438 $6,723,125 S7.861.I03 S8.125.108
Total Operation and
Maintenance Costs $ 6,550,220 $ 6,501,439 $ 6,723,125 $ 7,861.103 $ 8,125,108
Net Revenues $1,528,052 $1,540,657 $2,081,983 S 1,533,507 $1,233,404
m Includes legal settlement proceeds and oNer miscellaneous revenu .
m Operation and Maintenance Costs [do not include] GASB 68 accounting entries, which are non -cash ite ns. There is not a linear
correlative relatiooahip between GASB 68 accounting entries and the City's amoral pension contribution,; because GASB 68
-37-
accounting entries are based on assumptions by CalPERS which vary annually. See the caption "]HE CITY —Employee
Benefits —Pension Obligations" for a description of GASH 68.
Reflects unaudited actual Fiscal Year 2019 results.
Somme: City.
Projected Water System Operating Results and Debt Service Coverage
The projected operating results for the Water System for the current and next four Fiscal Years are set
forth in the table below, reflecting certain significant assumptions concerning future events and circumstances.
The financial forecast represents the City's estimate of projected financial results based upon its judgment of
the probable occurrence of future events, including that the City's water shortage contingency plan (as
described under the caption "THE WATER SYSTEM —Drought Response Water Shortage Contingency
Plan') will not be in effect and assumptions set forth in the footnotes to the table set forth below. All of such
assumptions are material to the development of the City's financial projections, and variations in the
assumptions may produce substantially different financial results. Actual operating results achieved during the
projection period may vary from those presented in the forecast and such variations may be material. See the
caption "CERTAIN RISKS TO BONDHOLDERS —Accuracy of Assumptions."
TABLE 13
CITY OF VERNON WATER SYSTEM
Projected Operating Results (Fiscal Year Ending June 30)
Revenues
Charges for Servicesol
Investment Income(2)
Other Revenues
Total Revenues
Operation and Mature nance Costs
Cast of Sales")
Total Operation and
Maintenance Costs
Net Revenues
Debt Service
2020 Bonds'
Total Debt Service'
Debt Service Coverage'
Revenues Remaining After
1020
2021
2022
2023
2024
$9,476,500
$9,906,000
$10,202,000
$10,507,000
$10,921,000
53,100
54,000
55,000
56,000
57,000
$9,529,600
S9,960,000
$10,257,600
$10,563,000
$101878,IX10
118,350,975
$8,010.626
$8,327.000
$8,659,000
$9,003.000
$8,350,975
$9,010,626
$8,327,000
$8,658,000
$9,003,000
S 1,178,625
$ 1,949,374
$ 1,930,000
$ 1,905,000
S 1,975,000
SL
$
S
S
S
$
S
$
It
$
Payment of Debt Service' S $ $ $ $
(') Reflects adopted rate increases sat forth in she Rate Plan, See the caption "THE WATER SYSTEM —Water System Rates and
Charges —User Charges." Also reflects the following projected recycled water rates: $1.81359, $1.88706, S1.96281 and $2.04316
per hundred cubic fear in Fiscal Mean 2021 through Fiscal Year 2024, respectively.
0) Reflects pr jetted investment earnings of 2% per arm on Water System res.
Ol Reflects projected Operation Operation and Maintenance Costs as erves
ec tomb in the water rate study that supported the Rate Plan.
Somme: City.
Preltedsary, aubjeer 1. change.
ptjg
CONSTITUTIONAL LEWTATIONS ON APPROPRIATIONS AND CHARGES
Article MIR
Article XIIIB of the State Constitution limits the annual appropriations of the State and of any city,
county, school district, authority, special district or other political subdivision of the State to the level of
appropriations of the particular governmental entity for the prior fiscal year, as adjusted for changes in the cost
of living and population. The "base year' for establishing such appropriation limit is the 1978-79 State fiscal
year and the limit is to be adjusted annually to reflect cbanges in population and consumer prices.
Adjustments in the appropriations limit of an entity may also be made if: (a) the financial responsibility for a
service is transferred to another public entity or to a private entity; (b) the financial source for the provision of
services is transferred from taxes to other revenues; or (c) the voters of the entity approve a change in the limit
for a period of time not to exceed four years.
Appropriations that are subject to Article XI1[B; generally include the proceeds of taxes levied by or
for the State or other entity of local govemment, exclusive of certain State subventions, refunds of taxes and
benefit payments from retirement, unemployment, insurance and disability insurance funds. "Proceeds of
taxes" include, but are not limited to, all tax revenues and the proceeds to an entity of government from:
(i) regulatory licenses, user charges, and user fees (but only to the extent that such proceeds exceed the cost
reasonably borne by the entity in providing the service or regulation); and (ii) the investment of tax revenues.
Article XQIB includes a requirement that if an entity's revenues in any year exceed the amounts that are
permitted to be spent, the excess would have to be returned by revising tax rates or fee schedules over the
subsequent two years.
Certain expenditures are excluded from the appropriations limit, including payments of indebtedness
that were existing or legally authorized as of January 1, 1979, or of bonded indebtedness thereafter approved
by the voters, and payments that are required to comply with court or federal mandates which without
discretion require an expenditure for additional services or which unavoidably make the provision of existing
services more costly.
The City is of the opinion that its charges for Water Service do not exceed the costs that it reasonably
bears in providing such service and therefore are not subject to the limits of Article XIIB. See the caption
"SECURITY FOR THE 2020 BONDS —Rate Covenant" for a description of the City's covenant to set rates
and charges for the Water Service.
Proposition 218
General. An initiative measure entitled the "Right to Vote on Taxes Act" (the 'Initiative") was
approved by the voters of the State at the November 5, 1996 general election. The Initiative added Articles
XUIC and XUID to the State Constitution. According to the'"ritle and Summary' of the Initiative prepared by
the State Attorney General, the Initiative limits "the authority of local governments to impose taxes and
property -related assessments, fees and charges."
Ardek MUD. Article XfI1D defines the terms "fee" and "charge" to mean "any levy other than an ad
valorem tax, a special tax or an assessment, imposed by an agency upon a parcel or upon a person as an
incident of property ownership, including user fees or charges for a property -related service." A
"property -related service" is defined as "a public service having a direct relationship to property ownership."
Article XUm further provides that reliance by an agency on any parcel map (including an assessor's parcel
map) may be considered a significant factor in determining whether a fee or charge is imposed as an incident
of property ownership.
Article XflID requires that any agency which imposes or increases any property -related fee or charge
must provide written notice thereof to the record owner of each identified parcel upon which such fee or
-39-
charge is to be imposed and most conduct a public hearing with respect thereto. The proposed fee or charge
may not be imposed or increased if a majority of owners of the identified parcels file written protests against it.
As a result, because fees for water service are a "fee" or "charge" as defined in Article XIIID, the local
govemmem's ability to increase such fees or charges may be limited by a majority protest.
In addition, Article XIIID includes a number of limitations that are applicable to existing fees and
charges, including provisions to the effect that: (a) revenues that are derived from the fee or charge may not
exceed the funds which are required to provide the property -related service; (b) such revenues may not be used
for any purpose other than that for which the fee or charge was imposed; (c) the amount of a fee or charge that
is imposed upon any parcel or person as an incident of property ownership may not exceed the proportional
cost of the service attributable to the parcel; and (d) no such fee or charge may be imposed for a service unless
that service is actually used by, or immediately available to, the owner of the property in question.
Properly -related fees or charges based on potential or future use of a service are not permitted.
Based upon the California Court of Appeal decision in Howard Jarvis Taxpayers Association v. City
of Los Angeles, 85 Cal. App. 4th 79 (2000), which was denied review by the State Supreme Court, it was
generally believed that Article XIIID did not apply to charges for water and wastewater services that are
"primarily based on the amount consumed" (i.e., metered water or wastewater rates), which had been held to
be commodity charges related to consumption of the service, not property ownership. The State Supreme
Court ruled in Bighorn -Desert I iew Water Agency v. Verjil, 39 Cal. 4th 205 (2006) (the 'Bighorn Case'),
however, that fees for ongoing water service through an existing connection were properly -related fees and
charges. The Court specifically disapproved the holding in Howard Jarvis Taxpayers Association v. City of
Los Angeles that metered water rates are not subject to Proposition 218. The City complied with the notice,
hearing and protest procedures in Article XIED, as further explained by the State Supreme Court in the
Bighorn Case, with respect to the water rate increases that were approved on December 10, 2019. See the
caption "THE WATER SYSTEMWaterSystem Rates and Charges."
On April 20, 2015, the California Court of Appeal, Fourth District, issued an opinion in Capistrano
Taxpayers Association, Inc. v. City of San Juan Capistrano, 235 Cal. App. 4th 1493 (2015) (the "SAC Case")
upholding tiered water rates under Proposition 218 provided that the tiers correspond to the actual cast of
famishing service at a given level of usage. The opinion included a finding that the City of San Juan
Capistrano did not attempt to calculate the actual costs of providing water at various tier levels. The City does
not expect the decision in the SIC Case to affect its rate structure. The City's current rate structure does not
include fiers. The City believes that its current water rates comply with the requirements of Proposition 218
because they arc cost -based and expects that any future water rate increases will comply with Proposition
218's procedural and substantive requirements to the extent applicable thereto.
Article XHIC. Article XIIIC provides that the initiative power may not be prohibited or otherwise
limited m matters of reducing or repealing any local tax, assessment, fee or charge and that the power of
initiative to affect local taxes, assessments, fees and charges is applicable to all local governments. Article
X TIC does not define the terms "local tax," "assessment," "fee" or "charge," so it was unclear whether the
definitions set forth in Article XMD referred to above are applicable to Article XIIIC. Moreover, the
provisions of Article XIBC are not expressly limited to local taxes, assessments, fees and charges imposed
after November 6, 1996. On July 24, 2006, the State Supreme Court held in the Bighorn Case that the
provisions of Article XIBC applied to rates and fees charged for domestic water use. In the decision, the Court
noted that the decision did not address whether an initiative to reduce fees and charges could override statutory
rate setting obligations.
On November 15, 2018, the California Court of Appeal, Third District (the "Third District"), issued
an opinion in Wilde v. City ofDunsmuir (2018) 29 Cal.App.Sth 158 (the "Wilde Case') holding that taxpayers
have the right under the Initiative to place a referendum on the ballot and vote on whether to repeal a city's
water rates. The Wilde Case concerned increases in water rates to fond new water storage and delivery
projects of the city (rather than to fond general operations of a water system) which the court concluded were
AO-
legislative in nature and therefore subject to referendum. The City has reviewed the Wilde Case decision and
determined that the decision does not directly impact the City and its water rate structure. The City notes that
the Third District also in 2019 issued an opinion in Howard Jarvis Taxpayer Association v. Amador Water
Agency (2019) 36 Cal.App.Sth 279 holding that ratepayers cannot place a referendum on the ballot to vote on
repeal of the agency's water rams. This split in opinion has been appealed to the State Supreme Court, where
it is awaiting review.
In any event, the City does not believe that Article XMC! grants to the voters within the City the
power (whether by initiative under Article XHIC or otherwise, or by referendum, which is not authorized
under Article XIHC) to repeal or reduce rates and charges for the Water Service in a manner that would
interfere with the contractual obligations of the City or the obligation of the City to maintain and operate the
Water System. However, there can be no assurance as to the availability of particular remedies adequate to
protect the Beneficial Owners of the 2020 Bonds. Remedies that are available to Beneficial Owners of the
2020 Bonds in the event of a default by the City are dependent upon judicial actions which are often subject to
discretion and delay and could prove both expensive and time-consuming to obtain. So long as the 2020
Bonds are held in book -entry form, DTC (or its nominee) will be the sole registered owner of the 2020 Bonds
and the rights and remedies of the 2020 Bond Owners will be exercised through the procedures of DTC.
Proposition 26
On November 2, 2010, voters in the State approved Proposition 26. Proposition 26 amends
Article XHIC of the State Constitution to expand the definition of "lax" to include "any levy, charge, or
exaction of any kind imposed by a local government" except the following: (a) a charge imposed for a specific
benefit confered or privilege granted directly to the payor that is not provided to those not charged, and which
does not exceed the reasonable costs to the local government of conferring the benefit or granting the privilege;
(b) a charge imposed for a specific government service or product provided directly to the payor that is not
provided to those not charged, and which does not exceed the reasonable costs to the local government of
providing the service or product; (c) a charge imposed for the reasonable regulatory costs to a local
government for issuing licenses and permits, performing investigations, inspections, and audits, enforcing
agricultural marketing orders, and the administrative enforcement and adjudication thereof; (d) a charge
imposed for entrance to or use of local government property, or the purchase, rental or lease of local
government property; (e) a fine, penalty or other monetary charge imposed by the judicial branch of
government or a local government as a result of a violation of law; (t) a charge imposed as a condition of
property development; and (g) assessments and property -related fees imposed in accordance with the
provisions of Article XIm. Proposition 26 applies to charges imposed or increased after November 2, 2010
and provides that the local government bears the burden of proving by a preponderance of the evidence that a
levy, charge, or other exaction is not a tax, that the amount is no more than necessary to cover the reasonable
costs of the governmental activity, and that the manner in which those costs are allocated to a payor bear a fair
or reasonable relationship to the payor's burdens on, or benefits received from, the governmental activity. The
City believes that its water rates and charges meet the exception that is described in clause (g) above and are
not taxes under Proposition 26.
Future Initiatives
Articles XM, XHIC and XIm and Proposition 26 were adopted as measures that qualified for the
ballot pursuant to the State's initiative process. From time to time other initiatives could be proposed and
adopted affecting the City's revenues or ability to increase revenues.
CERTAIN RISKS TO BONDHOLDERS
The following information, in addition to the other matters that are described in this Official
Statement, should be considered by prospective investors in evaluating the 2020 Bonds. However, the
following does not purport to be comprehensive, definitive or an exhaustive listing of risks and other
41-
considerations that may be relevant to making an investment decision with respect to the 1020 Bonds. In
addition, the order in which the following information is presented is not intended to reflect the relative
importance of any such risks. ff any risk factor materializes to a sufficient degree, it alone could delay or
preclude payment of principal of or interest on the 2020 Bonds.
Limited Obligations
The obligation of the City to pay the 2020 Bonds is a limited obligation of the City and is not secured
by a legal or equitable pledge or charge or lien upon any property of the City or any of its income or receipts,
except the Revenues. The obligation of the City to pay the 2020 Bonds does not constitute an obligation for
which the general credit or taxing power of the City is pledged.
Accuracy of Assumptions
To estimate the revenues that will be available to pay debt service on the 2020 Bonds, the City has
made certain assumptions with regard to the rates and charges to be imposed in future years, the expenses
associated with operating the Water System and the interest rate at which funds will be invested. The City
believes these assumptions to be reasonable, but to the extent that any of these assumptions fail to materialize,
the Net Revenues available to pay debt service on the 2020 Bonds will, in all likelihood, be less than those
projected herein. See the caption "FINANCIAL INFORMATION —Projected Water System Operating
Results and Debt Service Coverage." The City may choose, however, to maintain compliance with the rate
covenant that is set forth in the Indenture in part by means of contributions from the Rate Stabilization Fund or
other available reserves or resources. In such event, Net Revenues may generate amounts which are less than
115% of Debt Service in any given Fiscal Year. See the captions "SECURITY FOR THE 2020 BONDS —
Rate Stabilization Fund" and "SECURITY FOR THE 2020 BONDS —Rate Covenant"
System Demand
There can be no assurance that the demand for water service will occur as described in this Official
Statement. Reductions in demand could require an increase in rates or charges in order to comply with the rate
covenant. Demand for water services could be reduced as a result of hydrological conditions, conservation
efforts (including in response to drought), an economic downturn or other facmrs. See the caption "THE
WATER SYSTEM —Water System Rates and Charges" and "—Accuracy of Assumptions."
System Expenses
There can be no assurance that the City's expenses will be consistent with the descriptions in this
Official Statement. Operation and Maintenance Costs may vary with labor costs (including costs related to
pension liabilities), treatment costs, regulatory compliance costs, increased costs to access groundwater due to
land subsidence or falling water tables, increased imported water purchase costs and other factors. Increases in
expenses could require an increase in rates or charges in order to comply with the rate covenant. See the
caption "SECURITY FOR THE 2020 BONDS —Rate Covenant"
Limited Recourse on Default
If the City defaults on its obligation to pay the principal of and interest on the 2020 Bonds, the Trustee
has the right to declare the total unpaid principal of the 2020 Bonds, together with the accrued interest thereon
to be immediately due and payable. However, in the event of a default and such acceleration, there can be no
assurance that the City will have sufficient funds to pay the accelerated amounts due on the 2020 Bonds from
Net Revenues.
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Rate -Setting Process under Proposition 218
Proposition 218, which added Articles XBIC and XIIB7 to the State Constitution, affects the City's
ability to maintain existing rates and impose rate increases, and no assurance can be given that future rate
increases will not encounter majority protest opposition or be challenged by initiative action authorized under
Proposition 218. In the event that future proposed rate increases cannot be imposed as a result of majority
protest or initiative, the City might thereafter be unable to generate Net Revenues in the amounts required by
the Indenture to pay the 2020 Bonds. The City believes that its current water rates approved by the City
Council were effected in compliance with the public hearing and majority protest provisions of Proposition
218. See the caption "CONSTITUTIONAL LIMITATIONS ON APPROPRIATIONS AND CHARGES —
Proposition 218."
Statutory and Regulatory Compliance
Laws and regulations governing the treatment and delivery of water are enacted and promulgated by
federal, State and local government agencies. Compliance with these laws and regulations is and will continue
to be costly, and, as more stringent standards are developed, such costs will likely increase.
Claims against the Water System for failure to comply with applicable laws and regulations could be
significant. Such claims may be payable from assets of the Water System or from other legally available
sources. In addition to claims by private parties, changes in the standards for public agency water systems
such as that operated by the City may also lead to administrative orders issued by federal or State regulators.
Form compliance with such orders could also impose substantial additional costs on the City. No assurance
can be given that the cost of compliance with such laws, regulations and orders would not adversely affect the
ability of the City to generate Net Revenues sufficient to pay the 2020 Bonds.
Natural Disasters
The occurrence of any natural disaster in the City, including, without limitation, fire, earthquake,
landslide, land subsidence, high winds, drought or flood, could have an adverse material impact on the
economy within the City, the Water System and the revenues available for the payment of the 2020 Bonds.
Portions of the Water System may be at risk of damage or destruction from unpredictable seismic activity. The
City is not required to maintain earthquake insurance under the Indenture, and does not currently maintain such
insurance. See the caption "THE CITY —City Insurance."
The occurrence of natural disasters in the City's service area could result in substantial damage to the
Water System which, in turn, could substantially reduce revenue generated by the Water System and affect the
ability of the City to pay the 2020 Bonds. The City maintains liability insurance for the Water System and
property casualty insurance for certain portions of the Water System However, there can be no assurance that
specific losses will be covered by insurance or, if covered, that claims will be paid in full by the applicable
insurers.
Furthermore, as described under the caption' f1IE CITY —City Insurance," significant portions of the
Water System, including subsurface pipelines, are not covered by property casualty insurance. Damage to
such portions of the Water System as a result of natural disasters would result in uninsured losses to the City.
Cybersecurity
The City relies on computers and technology to conduct its operations. The City and its departments
face cyber threats from time to time including, but not limited to, hacking, viruses, malwme and other forms of
technology attacks. Recently, there have been significant cyber security incidents affecting municipal
agencies, including a freeze affecting computer systems of the City of Atlanta, an attack on the City of
Baltimore's 911 system, an attack on the Colorado Department of Transportation's computers and an attack
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that resulted in the temporary closure of the Port of Los Angeles' largest terminal. To date, there have been no
significant cybemtfacks on the City's computer systems.
The City employs a multi -level cyber protection scheme that includes firewalls, anti -virus software,
anti-spam/malware software, intrusion protection and domain name system filtering software. The City also
contracts with third party vendors to monitor and augment internal monitoring of the City's computer systems.
To date, the City has not experienced an attack on its computer operating systems. However, there can be no
assurance can be given that the City's security and operational control measures will be successful in guarding
against all cyber threats and attacks. The results of any attack on the City's computer and technology could
negatively impact the City's operations, and the costs related to such attacks could be substantial.
Limitations on Remedies
The ability of the City to comply with its covenants under the Indenture and to generate Net Revenues
in amounts that are sufficient to pay principal of and interest on the 2020 Bonds may be adversely affected by
actions and events outside of the control of the City or actions taken (or not taken) by voters, property owners,
taxpayers or persons obligated to pay assessments, fees and charges. See the caption "CONSTITUTIONAL
LIMITATIONS ON APPROPRIATIONS AND CHARGES —Proposition 218." Furthermore, the remedies
available to the owners of the 2020 Bonds upon the occurrence of an event of default under the Indenture are
in many respects dependent upon judicial actions which are often subject to discretion and delay and could
prove both expensive and time consuming to obtain.
In addition to the limitations on remedies contained in the Indenture, the rights and obligations under
the Indenture 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 limitations on legal remedies against cities in the
State. The opinion to be delivered by Bond Counsel concurrently with the issuance of the 2020 Bonds will be
subject to such limitations, and the various other legal opinions to be delivered concurrently with the issuance
of the 2020 Bonds will be similarly qualified. See Appendix C. In the event that the City fails to comply with
its covenants under the Indenture or fails to pay principal of and interest on the 2020 Bonds, there can be no
assurance as to the availability of remedies adequate to protect the interest of the holders of the 2020 Bonds.
In addition, usual equity principles my limit the specific enforcement under State law of certain
remedies, as my the exercise by the United States of America of the powers delegated to it by the federal
Constitution, and the reasonable and necessary exercise, in certain exceptional situations, of the police power
inherent in the sovereignty of the State 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 2020 Bonds to judicial discretion and interpretation of
their rights in bankruptcy or otherwise, and consequently my entail risks of delay, limitations or modification
of then rights. Remedies may be limited because the Water System serves an essential public purpose.
Loss of Tax Exemption
In order to maintain the exclusion from gross income for federal income tax purposes of interest on
the 2020 Bonds, the City has covenanted in the Indenture to comply with the applicable requirements of the
Internal Revenue Code of 1986, as amended (the "Code'), and not to take any action or fail to take any action
if such action or failure to take such action would adversely affect the exclusion from gross income of interest
on the 2020 Bonds under Section 103 of the Code. Interest on the 2020 Bonds could become includable in
gross income for purposes of federal income taxation retroactive to the date of issuance of such 2020 Bonds as
a result of acts or omissions of the City in violation of this or other covenants in the Indenture applicable to the
2020 Bonds. The 2020 Bonds are not subject to redemption or any increase in interest rates should an event of
taxability occur and will remain outstanding until maturity or prior redemption in accordance with the
provisions of the Indenture. See the caption "TAX MATTERS."
C_!
Secondary Market
There can be no guarantee that there will be a secondary market for the 2020 Bonds or, if a secondary
market exists, that the 2020 Bonds can be sold for any particular price. Occasionally, because of general
market conditions or because of adverse history or economic prospects connected with a particular issue,
secondary marketing practices are suspended or terminated. Additionally, prices of issues for which a market
is being made will depend upon then prevailing circumstances. Such prices could be substantially different
from the original purchase price.
Parity Obligations
The Indenture permits the City to enter into additional Contracts and issue additional Bonds which are
payable from Net Revenues on a parity with the 2020 Bonds, subject to the terms and conditions set forth
therein. The entry into of additional Contracts or the issuance of Bonds could result in reduced Net Revenues
available to pay the 2020 Bonds. The City has covenanted to maintain Debt Service coverage of 115%, as
further described under the caption "SECURITY FOR THE 2020 BONDS —Additional Indebtedness."
Climate Change
The State has historically been susceptible to wildfires and hydrologic variability. As greenhouse gas
emissions continue to accumulate in the atmosphere as a result of ecommuc activity, climate change is
expected to intensify, increasing the frequency, severity and timing of extreme weather events such as coastal
storm surges, drought, wildfires, floods and heat waves, and raising sea levels. The form fiscal impact of
climate change on the City is difficult to predict, but it could be significant and it could have a material adverse
effect on the Water System's finances by requiring greater expenditures to counteract the effects of climate
change or by changing the business and activities of Water System customers.
Rate Covenant Not a Guarantee
The 2020 Bonds are payable from Net Revenues of the Water System See the caption "SECURITY
FOR TBE 2020 BONDS." The City's ability to pay debt service on the 2020 Bonds depends on its ability to
generate Net Revenues at the levels required by the Indenture. Although the City has covenanted in the
Indenture to impose rates and charges as more particularly described under the caption "SECURrFY FOR
THE 2020 BONDS —Rate Covenant," and although the City expects that sufficient Revenues will be
generated through the imposition and collection of such rates and charges, there is no assurance that the
imposition and collection of such rates and charges will result in the generation of Net Revenues in amounts
that are sufficient to pay the 2020 Bonds. Among other matters, the availability of and demand for water and
changes in law and government regulations could adversely affect the amount of Revenues realized by the
City.
APPROVAL OF LEGAL PROCEEDINGS
The valid, legal and binding nature of the 2020 Bonds is subject to the approval of Stradling Yocca
Carlson & Rauth, a Professional Corporation, acting as Bond Counsel. The form of such legal opinion is
attached hereto as Appendix C, and such legal opinion will be attached to each 2020 Bond. Certain legal
matters will be passed upon for the City by Shadling Yocea Carlson & Routh, a Professional Corporation, as
Disclosure Counsel, and by the City Attorney, for the Underwriter by its counsel, Norton Rose Fulbright US
LLP, and for the Trustee by its counsel.
YI11 YIHVYDTI
At the time of delivery of and payment for the 2020 Bonds, the City will certify substantially to the
effect that there is no action, suit, proceeding, inquiry or investigation, at law or in equity, before or by any
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court, regulatory agency, public board or body, pending or, to the knowledge of the City, threatened against the
City affecting the existence of the City or the titles of its directors or officers to their respective offices or
seeking to restrain or to enjoin the sale or delivery of the 2020 Bonds, the application of the proceeds thereof in
accordance with the Indeatme, or in any way contesting or affecting the validity or enforceability of the 2020
Bonds, the Indenture, or any action of the City contemplated by any of said documents, or in any way
contesting the completeness or accuracy of this Official Statement or any amendment or supplement thereto, or
contesting the powers of the City or its authority with respect to the 2020 Bonds or any action of the City
contemplated by any of said documents, nor to the knowledge of the City, is there any basis therefor.
Y 1n:46 ry■Isl tRl
In the opinion of Stiadling Yocca Carlson & Rauth, a Professional Corporation, Newport Beach,
California, Bond Counsel, under existing statutes, regulations, rulings and judicial decisions, and assuming the
accuracy of certain representations and compliance with certain covenants and requirements described herein,
interest (and original issue discount) on the 2020 Bonds is excluded from gross income for federal income tax
purposes and is not an item of tax preference for purposes of calculating the federal alternative minimum tax
imposed on individuals. In the further opinion of Bond Counsel, interest (and original issue discount) on the
2020 Bonds is exempt from State of California personal income tax.
Bond Counsel's opinion as to the exclusion from gross income for federal income tax purposes of
interest (and original issue discount) on the 2020 Bonds is based upon certain representations of fact and
certifications made by the City and others and is subject to the condition that the City comply with all
requirements of the Code that most be satisfied subsequent to the issuance of the 2020 Bonds to assure that
interest (and original issue discount) on the 2020 Bonds will not become includable in gross income for federal
income tax purposes. Failure to comply with such requirements of the Code might cause interest (and original
issue discount) on the 2020 Bonds to be included in gross income for federal income tax purposes retroactive
to the date of issuance of the 2020 Bonds. The City has covenanted to comply with all such requirements.
In the opinion of Bond Counsel, the difference between the issue price of a 2020 Bond (the first price
at which a substantial amount of the 2020 Bonds of a maturity is to be sold to the public) and the stated
redemption price at maturity of such 2020 Bond constitutes original issue discount. Original issue discount
accrues under a constant yield method, and original issue discount will accrue to a Beneficial Owner before
receipt of cash attributable to such excludable income. The amount of original issue discount deemed received
by a Beneficial Owner will increase the Beneficial Owner's basis in the applicable 2020 Bond. The amount of
original issue discount that ammes to the Beneficial Owner of a 2020 Bond is excluded from the gross income
of such Beneficial Owner for federal income tax purposes, is not an item of tax preference for purposes of the
federal alternative minimum tax imposed on individuals, and is exempt from State of California personal
income tax.
The amount by which a 2020 Bond Owner's original basis for determining loss un sale or exchange in
the applicable 2020 Bond (generally, the purchase price) exceeds the amount payable on maturity (or on an
earlier call date) constitutes amortizable bond premium, which most be amortized under Section 171 of the
Code; such amortizable bond premium reduces the 2020 Bond Owner's basis in the applicable 2020 Bond (and
the amount of tax-exempt interest received with respect to the 2020 Bonds), and is not deductible for federal
income tax purposes. The basis reduction as a result of the amortization of bond premium may result in a 2020
Bond Owner realizing a taxable gain when a 2020 Bond is sold by the Owner for an amount equal to or less
(under certain circumstances) than the original cost of the 2020 Bond to the (honer. Purchasers of the 2020
Bonds should consult their own tax advisors m to the treatment, computation and collateral consequences of
amortizable bond premium.
The IRS has initiated an expanded program for the auditing of tax-exempt bond issues, including both
random and targeted audits. It is possible that the 2020 Bonds will be selected for audit by the IRS. It is also
possible that the market value of the 2020 Bonds might be affected as a result of such an audit of the 2020
A6-
Bonds (or by an audit of similar municipal obligations). No assurance can be given that in the course of an
audit, as a result of an audit, or otherwise, Congress or the IRS might not change the Code (or interpretation
thereof) subsequent to the issuance of the 2020 Bonds to the extent that it adversely affects the exclusion from
gross income of interest (and original issue discount) on the 2020 Bonds or then market value.
SUBSEQUENT TO THE ISSUANCE OF THE 2020 BONDS THERE MIGHT BE FEDERAL,
STATE OR LOCAL STATUTORY CHANGES (OR JUDICIAL OR REGULATORY CHANGES TO OR
INTERPRETATIONS OF FEDERAL, STATE OR LOCAL LAW) THAT AFFECT THE FEDERAL, STATE
OR LOCAL TAX TREATMENT OF THE 2020 BONDS INCLUDING THE IMPOSITION OF
ADDITIONAL FEDERAL INCOME OR STATE TAXES BEING IMPOSED ON OWNERS OF TAX-
EXEMPT STATE OR LOCAL OBLIGATIONS, SUCH AS THE 2020 BONDS. THESE CHANGES
COULD ADVERSELY AFFECT THE MARKET VALUE OR LIQUIDITY OF THE 2020 BONDS. NO
ASSURANCE CAN BE GIVEN THAT SUBSEQUENT TO THE ISSUANCE OF THE 2020 BONDS
STATUTORY CHANGES WILL NOT BE INTRODUCED OR ENACTED OR JUDICIAL OR
REGULATORY INTERPRETATIONS WILL NOT OCCUR HAVING THE EFFECTS DESCRIBED
ABOVE. BEFORE PURCHASING ANY OF THE 2020 BONDS, ALL POTENTIAL PURCHASERS
SHOULD CONSULT THEIR TAX ADVISORS REGARDING POSSIBLE STATUTORY CHANGES OR
JUDICIAL OR REGULATORY CHANGES OR INTERPRETATIONS, AND THEIR COLLATERAL TAX
CONSEQUENCES RELATING TO THE 2020 BONDS.
Bond Counsel's opinions may be affected by actions taken (or not taken) or events occurring (or not
occurring) after the date hereof. Bond Counsel has not undertaken to determine, or to inform any person,
whether any such actions or events are taken or do occur. The Indenture and the Tax Certificate relating to the
2020 Bonds permit certain actions to be taken or to be omitted if a favorable opinion of Bond Counsel is
provided with respect thereto. Bond Counsel expresses no opinion as to the effect on the exclusion from gross
income of interest (and original issue discount) for federal income tax purposes with respect to any 2020 Bond
if any such action is taken or omitted based upon the advice of counsel other than Stradling Yocca Carlson &
Rauth, a Professional Corporation,
Although Bond Counsel has rendered an opinion that interest (and original issue discount) on the 2020
Bonds is excluded from gross income for federal income tax purposes provided that the City continue to
comply with certain requirements of the Code, the ownership of the 2020 Bonds and the accrual or receipt of
interest (and original issue discount) on the 2020 Bonds may otherwise affect the tax liability of certain
persons. Bond Counsel expresses no opinion regarding any such tax consequences. Accordingly, before
purchasing any of the 2020 Bonds, all potential purchasers should consult their tax advisors with respect to
collateral tax consequences relating to the 2020 Bonds.
Should interest (and original issue discount) on the 2020 Bonds become includable in gross income
for federal income tax purposes, the 2020 Bonds are not subject to early redemption and will remain
outstanding until maturity or until redeemed in accordance with the Indenture.
A copy of the proposed form of opinion of Bond Counsel is attached hereto as Appendix C.
RATING
The City expects that S&P Global Ratings, a Standard & Poor's Financial Services LLC business
("S&P"), will assign the 2020 Bonds the rating of "U". There is no assurance that any credit rating that is
given to the 2020 Bonds will be maintained for any period of time or that a rating may not be lowered or
withdrawn entirely by S&P if, in the judgment of S&P, circumstances so warrant. Any downward revision or
withdrawal of a rating may have an adverse effect on the market price of the 2020 Bonds. The rating reflects
only the views of S&P, and an explanation of the significance of such rating may be obtained from S&P.
Generally, a rating agency bases its ratings on the information and materials famished to it (which may include
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information and material from the City that is not included in this Official Statement) and on investigations,
studies and assumptions of its own.
The City has covenanted in a Continuing Disclosure Agreement to file notices of any rating changes
on the 2020 Bonds with EMMA. See the caption "CONTINUING DISCLOSURE" and Appendix E.
Notwithstanding such covenant, information relating to rating changes on the 2020 Bonds may be publicly
available from the rating agencies prior to such information being provided to the City and prior to the date by
which the City is obligated to file a notice ofrating change. Purchasers of the 2020 Bonds are directed to the
rating agencies and their respective websites and official media outlets for the most current ratings with respect
to the 2020 Bonds after the initial issuance of the 2020 Bonds.
In providing a rating on the 2020 Bonds, S&P may have performed independent calculations of
coverage ratios using its own internal formulas and methodology, which may not reflect the provisions of the
Indenture. The City makes no representations as to any such calculations, and such calculations should not be
construed as a representation by the City as to past or future compliance with any financial covenants, the
availability of particular revenues for the payment of debt service or for any other purpose.
MUNICIPAL ADVISOR
The City has retained BLX Group LLC as municipal advisor (the "Municipal Advisor") in
connection with the issuance of the 2020 Bonds. The Municipal Advisor bas not undertaken to make an
independent verification or to assume responsibility for the accuracy, completeness, or fairness of the
information contained in this Official Statement. The Municipal Advisor is an independent advisory fom and
is not engaged in the business of underwriting, trading or distributing municipal or other public securities.
I1101LdNPIliYIV0el
The 2020 Bonds will be purchased by J.P. Morgan Securities LLC (the "Underwriter"), pursuant to a
purchase contract, dated the date hereof (the "Purchase Contract"), by and between the City and the
Underwriter. Under the Purchase Contract, the Underwriter has agreed to purchase all, but not less than all, of
the 2020 Bonds for an aggregate purchase price of $ (representing the principal amount of the 2020
Bonds, less an Underwriter's discount of $ , plusAess a net original issue premium/discount of $__—).
The Purchase Contract provides that the Underwriter will purchase all of the 2020 Bonds if any are purchased,
the obligation to make such a purchase being subject to certain terms and conditions set forth in the Purchase
Contract, the approval of certain legal matters by counsel and certain other conditions.
The initial public offering prices stated on the inside cover page of this Official Statement may be
changed from time to time by the Underwriter. The Underwriter may offer and sell the 2020 Bonds to certain
dealers (including dealers depositing 2020 Bonds into investment trusts), dealer banks, banks acting as agents
and others at prices lower than said public offering prices.
The Underwriter has entered into negotiated dealer agreements (each, a "Dealer Agreement') with
each of Charles Schwab & Co., Inc. ("CS&Co:) and LPL Financial LLC ("LPL") for the retail distribution of
certain securities offerings at the original issue prices. Pursuant to each Dealer Agreement, each of CS&Co.
and LPL may purchase 2020 Bonds from the Underwriter at the original issue price less a negotiated portion of
the selling concession applicable to any 2020 Bonds that such firm sells.
The Underwriter and its affiliates me full service financial institutions engaged in various activities,
which may include securities trading, commercial and investment banking, financial advisory, investment
management, principal investment, hedging, financing and brokerage activities. The Underwriter and certain
of its affiliates have, from time to time, performed, and may in the future perform, various investment banking
services for the City, for which they received or will receive customary fees and expenses.
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In the ordinary course of their various business activities, the Underwriter and its affiliates may make
or hold a broad array of investments and actively trade debt and equity securities (or related derivative
securities) and financial instruments (which may include bank loans and/or credit default swaps) for their own
account and for the accounts of their customers and may at any time hold long and short positions in such
securities and instruments. Such investment and securities activities may involve securities and instruments of
the City.
CONTINUING DISCLOSURE
The City has covenanted in a Continuing Disclosure Agreement, dated as of March 1, 2020, by and
between the City and The Bank of New York Mellon Trust Company, N.A., as dissemination agent (the
"Dissemination Agent") for the benefit of the holders and Beneficial Owners of the 2020 Bonds to provide
certain financial information and operating data relating to the City by not later than April 1 following the end
of the City's Fiscal Year (currently its Fiscal Year ends on June 30) (the "Annual Report"), commencing on
April 1, 2020 with the report for the Fiscal Year ended June 30, 2019 (provided that the first Annual Report
will consist solely of this Official Statement), and to provide notices of the occurrence of certain enumerated
events. The Annual Report and the notices of enumerated events will be filed by the City with EMMA, which
is maintained on the Internet at http://emma.msrb.org/. The specific nature of the information to be contained
in the Annual Report and the notices of enumerated events is set forth in Appendix E. These covenants have
been made in order to assist the Underwriter in complying with subsection (b)(5) of Rule 15c2-12 adopted by
the Securities and Exchange Commission (the "Rule").
[DISCLOSURE RE PRIOR COMPLIANCE TO COME].
In order ensure compliance with its continuing disclosure undertakings under the Rule in the future,
the City has appointed the Dissemination Agent to coordinate, on behalf of the City, the preparation and filing
of Annual Reports by the City.
FINANCIAL INTERESTS
The fees being paid to the Underwriter, Bond Counsel, Disclosure Counsel and counsel to the
Underwriter are contingent upon the issuance and delivery of the 2020 Bonds.
MISCELLANEOUS
Insofar as any statements made in this Official Statement involve matters of opinion or of estimates,
whether or not expressly stated, they are set forth as such and not as representations of fact. No representation
is made that any of such statements made will be realized. Neither this Official Statement nor any statement
which may have been made verbally or in writing is to be construed as a contract with the Owners of the 2020
Bonds.
The execution and delivery of this Official Statement have been duly authorized by the City.
CITY OF VERNON
By
City Administrator
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APPENDIX A
FINANCIAL. STATEMENTS
The following pages include audited financial statements of the City and Vernon Public Utilities for
the most recent Fiscal Year. The audited financial statements of the City are included for reference only. No
moneys of the City (including but not limited to General Fund moneys) except Water System Revenues are
pledged to the repayment of the 2020 Bonds.
A-1
"T7 821 11 ka 7
SUMMARY OF CERTAIN PROVISIONS OF THE INDENTURE
The following is a summary of certain provisions of the Indenture which are not described elsewhere.
This summary does not purport to be comprehensive and reference should be made to the Indenture for a full
and complete statement of the provisions thereof.
[TO COME FROM BOND COUNSEL]
B-1
APPENDIX C
FORM OF OPINION OF BOND COUNSEL
Upon issuance of the 2020 Bonds, Stradling Yocca Carlson & Routh, a Professional Corporation,
Bond Counsel, proposes to render its final approving opinion in substantially the followingfir m:
March_, 2020
City of Vemon
Vemon, California
Re: City of Vernon Water System Revenue Bonds, 2020Series A
Members of the City Council
We have examined a certified copy of the record of the proceedings of the City of Vernon (the 'City)
relative to the issuance of the $ City of Vemon Water System Revenue Bonds, 2020 Series A (the "2020
Bonds"), dated the date hereof, and such other information and documents as we consider necessary to render this
opinion. In rendering this opinion, we have relied upon certain representations of fact and certifications made by the
City, the initial purcbaser of the 2020 Bonds and others. We have not undertaken to verify through independent
investigation the accuracy of the representations and certifications relied upon by us.
The 2020 Bonds use being issued pursuant to an Indenture of Trust, dated as of March 1, 2020 (the
"Indenture'), by and between the City and The Bank of New York Mellon Trust Company, N.A., as trustee (the
—rnastec"). The 2020 Bonds mature on the dates and in the amounts referenced in the Indenture. The 2020 Bonds
are dated thew date of delivery and bear interest at the rates per antrum referenced in the Indenture. The 2020 Bonds
are registered in the form set forth in the Indenture.
Based on our examination as Bond Counsel of existing law, certified copies of such legal proceedings and
such other proofs as we deem necessary to render this opinion, we are of the opinion, as of the date hereof and under
existing law, that:
1. The proceedings of the City show lawful authority for the issuance and sale of the 2020 Bonds
under the laws of the State of California now in force, and the Indenture has been duly authorized, executed and
delivered by the City. Assuming due authorization, execution and delivery by the Trustee, as appropriate, the 2020
Bonds and the Indenture are valid and binding obligations of the City enforceable against the City in accordance
with their terms.
2. The Indenture creates a valid pledge of and lien and charge upon the Revenues and certain
amounts held under the Indenture to secure the payment of the principal of and interest on the 2020 Bands. The
obligation of the City to make the payments of principal of and interest on the 2020 Bonds from Net Revenues (as
such term is defined in the Indenture) is an enforceable obligation of the City and does not constitute an
indebtedness of the City in contravention of any constitutional or statutory debt limit or restriction.
3. Under existing statutes, regulations, mlings and judicial decisions, and assuming the accuracy of
certain representations and compliance with certain covenants and requirements described herein, interest (and
original issue discount) on the 2020 Bonds is excluded from gross income for federal income tax purposes and is not
an item of tax preference for purposes of calculating the federal alternative minimum tax imposed on individuals.
4. Interest (and original issue discount) on the 2020 Bonds is exempt from State of California
personal income tax.
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5. The difference between the issue price of a 2020 Bond (the first price at which a substantial
amount of the 2020 Bonds of a maturity is to be sold to the public) and the stated redemption price at maturity with
respect to such 2020 Bond constitutes original issue discount. Original issue discount accrues under a constant yield
method, and original issue discount will accrue to a 2020 Bond Owner before receipt of cash attributable to such
excludable income. The amount of original issue discount deemed received by a 2020 Bond owner will increase the
2020 Bond Owner's basis in the applicable 2020 Bond. The amount of original issue discount that accrues to the
2020 Bond Owner is excluded from the gross income of such Owner for federal income in purposes, is not an item
of tax preference for purposes of calculating the federal alternative minimum tax imposed on individuals or
corporations and is exempt from State personal income tax.
6. The amount by which a 2020 Bond Owner's original basis for determining loss on sale or
exchange in the applicable 2020 Bond (generally, the purchase price) exceeds the amount payable on maturity (or on
an earlier call date) constitutes amortizable bond premium, which must be amortized under Section 171 of the
Internal Revenue Code of 1986, as amended (the "Code"); such amortizable bond premium reduces the 2020 Bond
Owner's basis in the applicable 2020 Bond (and the amount of tax-exempt interest received), and is not deductible
for federal income tax purposes. The basis reduction as a result of the amortization of 2020 Bond premium may
result in a 2020 Bond Owner realizing a taxable gain when a 2020 Bond is sold by the Owner for an amount equal to
or less (under certain circumstances) than the original cost of the 2020 Bond to the Owner. Purchasers of the 2020
Bonds should consult their own tax advisors as to the treatment, computation and collateral consequences of
amortizable bond premium.
The opinions expressed herein as to the exclusion from gross income of interest (and original issue
discount) on the 2020 Bonds are based upon certain representations of fact and certifications made by the City and
are subject to the condition that the City comply with all requirements of the Code that must be satisfied subsequent
to the issuance of the 2020 Bonds to assure that such interest (and original issue discount) on the 2020 Bonds will
not become includable in gross income for federal income tax purposes. Failure to comply with such requirements
of the Code might cause interest (and original issue discount) on the 2020 Bonds to be included in gross income for
federal income tax purposes retroactive to the date of issuance of the 2020 Bonds. The City has covenanted to
comply with all such requirements.
The opinions expressed herein may be affected by actions taken (or not taken) or events occurring (or not
occurring) after the date hereof We have not undertaken to determine, or to inform any person, whether any such
actions or events are taken or do occur. Our engagement ends as of the date of issuance of the 2020 Bonds. The
Indenture and the Tax Certificate relating to the 2020 Bonds permit certain actions to be taken or to be omitted if a
favorable opinion of Bond Counsel is provided with respect thereto. No opinion is expressed herein as to the effect
on the exclusion from gross income of interest (and original issue discount) on the 2020 Bonds for federal income
tax purposes with respect to any 2020 Bond if any such action is taken or omitted based upon the opinion or advice
of counsel other than ourselves. Other than expressly stated herein, we express no other opinion regarding tax
consequences with respect to the 2020 Bonds.
The opinions expressed herein are based upon our analysis and interpretation of existing laws, regulations,
rulings and judicial decisions and cover certain matters not directly addressed by such authorities. We call attention
to the fact that the rights and obligations under the Indenture and the 2020 Bonds are subject to bankruptcy,
insolvency, reorganization, moratorium, fraudulent conveyance and other similar laws affecting creditors' rights, to
the application of equitable principles if equitable remedies are sought, to the exercise of judicial discretion in
appropriate cases and to limitations on legal remedies against public agencies in the State of California.
Our opinion is limited to matters governed by the laws of the State of California and federal law. We
assume no responsibility with respect to the applicability or the effect of the laws of any other jurisdiction.
We express no opinion herein as to the accuracy, completeness or sufficiency of the Official Statement
relating in the 2020 Bonds or other offering material relating to the 2020 Bonds and expressly disclaim any duty to
advise the owners of the 2020 Bonds with respect to matters contained in the Official Statement.
Respectfully submitted,
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V 0 9 31,111 0Ar
INFORMATION CONCERNING OTC
The information in this section concerning OTC and DTC's book -entry only system has been obtained
from sources that the City believes to be reliable, but the City takes no responsibilityfor the completeness or
accuracy thereof The following description of the procedures and record keeping with respect to beneficial
ownership interests in the 2010 Bonds, payment of principal, premium, if any, accreted value, if any, and
interest on the 2020 Bonds to DTC Participants or Beneficial Owners, confirmation and transfers of beneficial
ownership interests in the 2020 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 2020
Bonds. The 2020 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 2020 Bond will be issued for each amual maturity of the 2020 Bonds, each in the aggregate
principal amount of such annual 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 in 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 Patticipants") 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 is rated AA+ by Standard & Poor's. The DTC Rules applicable to its
Participants are on file with the Securities and Exchange Commission. More information about DTC can be found
at wwwAtec.com.
Purchases of 2020 Bonds under the DTC system must be made by or through Direct Participants, which
will receive a credit for the 2020 Bonds on DTC's records. The ownership interest of each actual purchaser of each
2020 Bonds (`Beneficial Owner") is in tam 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 2020 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
bonds representing their ownership interests in 2020 Bonds, except in the event that use of the book -entry system for
the 2020 Bonds is discontinued.
To facilitate subsequent transfers, all 2020 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 2020 Bonds with DTC and thew 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 2020 Bonds; DTC's records reflect only the identity of the Direct Participants to whose
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accounts such 2020 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 many statutory or regulatory requirements as may be in effect from time in time.
Beneficial Owners of 2020 Bonds may wish to take certain steps to augment the transmission to them of notices of
significant events with respect to the 2020 Bonds, such w redemptions, tenders, defaults, and proposed amendments
to the 2020 Bonds documents. For example, Beneficial Owners of 2020 Bonds may wish to ascertain that the
nommm holding the 2020 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 in them.
Redemption notices shall be sent to DTC. If less than all of the 2020 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 my other DTC nominee) will consent or vote with respect in 2020
Bonds unless authorized by a Direct Participant in accordance with DTC's MMI 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 2020 Bonds are
credited on the record date (identified in a listing attached to the Omnibus Proxy).
Redemption proceeds, distributions, and dividend payments on the 2020 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
Tmstee, 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 my statutory or regulatory
requirements as may be in effect from time to time. Payment of redemption proceeds, distributions, and dividend
payments in 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.
A 2020 Bond Owner shall give notice in elect to have its 2020 Bonds purchased or tendered, through its
Participant, to the Trustee, and shall effect delivery of such 2020 Bond by causing the Direct Participant to transfer
the Participant's interest in the 2020 Bonds, on DTC's records, to the Trustee. The requirement for physical
delivery of 2020 Bond in connection with an options] tender or a mandatory purchase will be deemed satisfied when
the ownership rights in the 2020 Bond are transferred by Direct Participants on DTC's records and followed by a
book -entry credit of tendered 2020 Bond to the Trustee's DTC account.
DTC may discontinue providing its services as depositary with respect to the 2020 Bonds at my time by
giving reasonable notice in the City or the Trustee. Under such circumstances, in the event that a successor
depository is not obtained, physical certificates are required to be printed and delivered.
The City my decide to discontinue use of the system of book -entry only transfers through DTC for a
successor securities depository). In that event, 2020 Bonds will be printed and delivered to DTC.
THE TRUSTEE, AS LONG AS A BOOK -ENTRY ONLY SYSTEM IS USED FOR THE 2020 BONDS,
WILL SEND ANY NOTICE OF REDEMPTION OR OTHER NOTICES TO OWNERS ONLY TO DTC. ANY
FAILURE OF DTC TO ADVISE ANY DTC PARTICIPANT, OR OF ANY DTC PARTICIPANT TO NOTIFY
ANY BENEFICIAL OWNER, OF ANY NOTICE AND ITS CONTENT OR EFFECT WILL NOT AFFECT THE
VALIDITY OF SUFFICIENCY OF THE PROCEEDINGS RELATING TO THE REDEMPTION OF THE 2020
BONDS CALLED FOR REDEMPTION OR OF ANY OTHER ACTION PREMISED ON SUCH NOTICE.
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F.V 7TxJ 01.7V
FORM OF CONTINUING DISCLOSURE AGREEMENT
Upon issuance of the 2020 Bonds, the City proposes to enter into a Continuing Disclosure Agreement
in substantially the following form:
This Continuing Disclosure Agreement (the "Disclosure Agreement') is executed and delivered by and
between the City of Vemon (the "City") and The Bank of New York Mellon Trust Company, N.A., in its capacity
as dissemination agent (the "Dissemination Agent"), in connection with the issuance of the City of Vernon Water
System Revenue Bonds, 2020 Series A in an aggregate principal amount of $_ (the "Bonds"). The Bonds are
being issued by the City pursuant to the provisions of that certain Indenture of Trust, dated as of March 1, 2020 (the
"Indenture"), by and between the City and The Bank of New York Mellon Trust Company, N.A., as trustee (the
"Trustee"). The City and the Dissemination Agent hereby certify, covenant and agree as follows:
Section 1. Pumose of the Disclosure Agreement. This Disclosure Agreement is being executed and
delivered by the parties hereto for the benefit of the holders and Beneficial Owners of the Bonds and in order in
assist the Participating Underwriter in complying with the Rule.
Section 2. Definitions. In addition to the definitions set forth in the Indenture, which apply to any
capitalized terms used in this Disclosure Agreement, unless otherwise defined in this Section, the following
capitalized terms shall have the following meanings:
"Annual Report" shall mean any Annual Report provided by the City pursuant to, and as described in,
Sections 3 and 4 of this Disclosure Agreement.
"Annual Report Date" shall mean each April 1 after the end of the City's fiscal year, the end of which, as
of the date of this Disclosure Agreement, is June 30.
"Beneficial Owwrl' shall mean any person which: (a) has the power, directly or indirectly, to vote or
consent with respect ro, or to dispose of ownership of, any Bands (including persons holding Bonds through
nominees, depositories or other intermediaries); or (b) is treated as the owner of any Bonds for federal income tax
plus
"Dissemination Agent" shall mean, initially, The Bank of New York Mellon Trust Company, N.A., acting
in its capacity as Dissemination Agent hereunder, or any successor Dissemination Agent that is so designated in
writing by the City and has filed with the then-cument Dissemination Agent a written acceptance of such
designation.
"Financial Obligation" shall mean a: (A) debt obligation; (B) derivative instrument entered into in
comeetion with, or pledged as security or a source of payment for, an existing or planned debt obligation; or (C)
guarantee of (A) or (B). The term "Financial Obligation" shall not include municipal securities as to which a final
official statement has been provided to the Municipal Securities Rulemaking Board consistent with the Rule.
"Listed Events" shall mean any of the events listed in Sections 5(a) and (b) of this Disclosure Agreement.
"MSRB" shall mean the Municipal Securities Rulemaking Board.
"Ofctal Statement "shall mean the Official Statement dated March _, 2020, relating to the Bonds.
"Participating Underwriter" shall mean J.P. Morgan Securities LLC, the original underwriter of the Bonds
required in comply with the Rule in connection with offering of the Bonds.
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"Rule" shall mean Rule 15c2-12 adopted by the SEC under the Securities Exchange Act of 1934, as the
same may be amended from time to time.
"SEC" shall mean the Securities and Exchange Commission.
Section 3. Provision of Annual Retorts.
(a) The City shall, or shall cause the Dissemination Agent in, not later than the Annual Report Date,
commencing April 1, 2020 with the Annual Report for fiscal year 2015-19, provide m the MSRB an Annual Report
that is consistent with the requirements of Section 4 of this Disclosure Agreement; provided that the filing of the
Official Statement with the MSRB shall constitute compliance with this obligation for the first Annual Report Date.
Not later than 15 calendar days prior to such date, the City shall provide its Annual Report to the Dissemination
Agent, if such Dissemination Agent is a different entity than the City. The Annual Report most be submitted in an
electronic format as prescribed by the MSRB, accompanied by such identifying information as is prescribed by the
MSRB, and may include by reference other information as provided in Section 4 of this Disclosure Agreement;
provided that any audited financial statements of the City may be submitted separately from the balance of the
Annual Report, and not later than the date required above for the filings of the Annual Report. If the City's fiscal
year changes, it shall give notice of such change in the same manner as for a Listed Event under Section 5(a). The
City shall provide a written certification with each Annual Report furnished to the Dissemination Agent to the effect
that such Annual Report constitutes the Annual Report required to be furnished hereunder. The Dissemination
Agent may conclusively rely upon such certification of the City and shall have no duty or obligation to review such
Annual Report.
(b) If the City is unable to provide to the MSRB an Annual Report by the date required in subsection
(a), the City in a timely manner shall send in the MSRB a notice in an electronic format as prescribed by the MSRB,
accompanied by stub identifying information as prescribed by the MSRB.
(c) The Dissemination Agent shall:
provide any Amu] Report received by it in the MSRB by the date required in subsection
(a);
file a report with the City and the Trustee (if the Dissemination Agent is other than the
Trustee) certifying that the Annual Report has been provided to the MSRB pursuant to
this Disclosure Agreement and stating the date it was provided; and
take my other actions as are mutually agreed upon between the Dissemination Agent and
the City.
Section 4. Content of Annual Returns. The Annual Report shall contain or incorporate by reference
the following:
(a) Audited financial statements of the Public Utilities Department of the City (Vernon Public
Utilities) for the prior fiscal year, which include information regarding the funds and accounts of the Water System,
if my, prepared in accordance with generally accepted accounting principles as promulgated m apply to
govemmental entities from time to time by the Governmental Accounting Standards Board. If such audited
financial statements are not available at the time that the Annual Report is required to be filed pursuant to
Section 3(a), the Annual Report shall contain unaudited financial statements, and the audited financial statements
shall be filed in the same manner as the Annual Report when they become available.
(b) Principal amount of the Bonds outstanding.
(c) An update of the information for the prior fiscal year in substantially the form set forth in the
following tables in the Official Statement under the caption ` rHE WATER SYSTEM OF THE CITY":
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I. Historical Water System Connections and Production;
2. Historical Water Supply Sources and Usage in Acre Feet; and
3. Ten largest Water System Customers;
(d) An update of the information for the prior fiscal year in substantially the form set forth in the
following table in the Official Statement order the caption "FINANCIAL INFORMATION":
Historical Water System Operating Results and Debt Service Coverage.
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, that are available to the public on the MSRB's
Internet website or filed with the SEC. If the document included by reference is a final official statement, it must be
available from the MSRB. The City shall clearly identify each such other document so included by reference.
Section 5. Remitting of Significant Events.
(a) Pursuant to the provisions of this Section $, the City shall give, or shall cause the Dissemination
Agent to give, notice of the occurrence of any of the following events with respect to the Bonds in a timely counter
not more than ten (10) Business Days after the event:
1. Principal and interest payment delinquencies.
2. Unscheduled draws on debt service reserves reflecting financial diffcultim.
3. Unscheduled draws on credit enhancements reflecting financial difficulties.
4. Substitution of credit or liquidity providers, or their failure to perform
5. Adverse tax opinions, the issuance by the Internal Revenue Service of proposed or final
determinations of taxability or Notices of Proposed Issue (IRS Form 5701 TEB).
6. Tender offers.
7. Defeasances.
8. Rating changes.
9. Bankruptcy, insolvency, receivership or similar proceedings.
Note: For the purposes of the event identified in subparagraph (9), the event is considered to occur when
any of the following occur: the appointment of a receiver, fiscal agent or similar officer for an obligated person in a
proceeding under the U.S. Bankruptcy Code or in any other proceeding under state or federal law in which a court or
governmental authority bas assumed jurisdiction over substantially all of the assets or business of the obligated
person, or if such jurisdiction has been assumed by leaving the existing governmental body and officials or officers
in possession but subject to the supervision and orders of a court or governmental authority, or the entry of an order
confirming a plan of reorganization, arrangement or liquidation by a court or governmental authority having
supervision orjurisdiction over substantially all of the assets or business of the obligated person.
10. Default, event of acceleration, termination event, modification of terns or other similar
events under the terms of a Financial Obligation of the City, any of which reflect financial difficulties.
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(b) Pursuant to the provisions of this Section 5, the City shall give, or shall cause the Dissemination
Agent to give, notice of the occurrence of any of the following events with respect to the Bonds, if material, in a
timely maneer not more than ten (10) Business Days after occurrence:
1. Unless described in Section 5(a)(5), other notices or determinations by the Internal
Revenue Service with respect to the not status of the Bonds or other events affecting the
out status of the Bonds.
2. Modifications to the rights of Bondholders.
3. Bond calls.
4. Release, substitution or sale of property securing repayment of the Bonds.
5. Non-payment related defaults.
6. The consummation of a merger, consolidation or acquisition involving the City or the
sale of all or substantially all of the assets of the City, other than in the ordinary course of
business, the entry into a definitive agreement to undertake such an action or the
[emanation of a definitive agreement relating to any such actions, other than pursuant to
its terms.
7. Appointment of a successor or additional trustee or the change of the name of trustee.
S. Incurrence of a Financial Obligation of the City, or agreement to covenants, events of
default, remedies, priority rights, or other similar terms of a Financial Obligation of the
City, any of which affect security holders.
(c) If the City determines that knowledge of the occurrence of a Listed Event under subsection (b)
would be material under applicable federal securities laws, and if the Dissemination Agent is other than the City, the
City shall promptly notify the Dissemination Agent in writing. Such notice shall instruct the Dissemination Agent
to file a notice of such occurrence with the MSRB in an electronic format as prescribed by the MSRB in a timely
manner not more than ten (10) Business Days after the event.
(d) If the City determines that a Listed Event under subsection (b) would not be material under
applicable federal securities laws and if the Dissemination Agent is other than the City, the City shall so notify the
Dissemination Agent in writing and instruct the Dissemination Agent not to report the occurrence.
(e) The City hereby agrees that the undertaking set forth in this Disclosure Agreement is the
responsibility of the City and, if the Dissemination Agent is other than the City, the Dissemination Agent shall not
be responsible for determining whether the City's instructions to the Dissemination Agent under this Section
comply with the requirements of the Rule.
Section 6. Termination of Reoortina Obligation. The obligations of the City and the Dissemination
Agent specified in this Disclosure Agreement shall terminate upon the legal defeasance, prior redemption or
payment in full of all of the Bonds. If such termination occurs prior to the final maturity of the Bonds, the City shall
give notice of such termination in the same manner as for a Listed Event under Section 5(a).
Section 7. 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. If at any time there is
not any other designated Dissemination Agent, the City shall act as Dissemination Agent. The initial Dissemination
Agent shall be The Bank of New York Mellon Trust Company, N.A.
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Section 8. Amendment; Waiver. Notwithstanding any other provision of this Disclosure
Agreement, the City may amend this Disclosure Agreement, 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 annual or event information to be provided hereunder, 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 the City or type of business conducted;
(b) the undertakings berein, as proposed to be amended or waived, would, in the opinion of nationally
recognized bond counsel have complied with the requirements of the Rule at the time of the primary offering of the
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 holders of the Bonds in the manner
provided in the Indenture for amendments to the Indenture with the consent of holders; or (ii) does not, in the
opinion of nationally recognized bond counsel, materially impair the interest of Bond owners.
The City shall describe any amendment in this Disclosure Agreement in the next Annual Report filed after
such amendment takes effect.
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
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 MSRB.
Section 9. Additional Infomation. 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 10. Default In the event of a failure of the City to comply with any provisions of this
Disclosure Agreement, any Participating Underwriter or any holder or Beneficial Owner of the Bonds, or the
Trustee on behalf of the holders of the Bonds, may take such actions as may be necessary and appropriate, including
seeking mandate or specific performance by comet order, to cause the City to comply with its obligations under this
Disclosure Agreement. A default under this Disclosure Agreement shall not be deemed to be a default under the
Indenture, and the sole remedy under this Disclosure Agreement in the event of any failure of the City to comply
with this Disclosure Agreement shall be an action to compel performance.
Section 11. Duties. Immunities and Liabilities of Dissemination Agent. The Dissemination Agent
shall have only such duties as are specifically set forth in this Disclosure Agreement, and the City agrees to
indemnify and save the Dissemination Agent, its officers, directors, employees and agents, harmless against any
loss, expense and liabilities that it may incur arising out of or in the exercise or performance of its duties as
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described hereunder, if any, including the costs and expenses (including attorneys' fees) of defending against any
claim of liability, but excluding liabilities due to the Dissemination Agent's 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 Bonds. The Dissemination Agent shall not be responsible in any manner for the format or content of
any notice or Annual Report prepared by the City pursuant to this Disclosure Agreement. The City shall pay the
reasonable fees and expenses of the Dissemination Agent for its duties as described hereunder.
Section 12. Notices. Any notices or communications to or among any of the parties to this
Disclosure Agreement may be given to the Dissemination Agent (if other than the City) and to the City as follows:
City: City of Vernon
4305 South Santa Fe Avenue
Vernon, California 90058
Attention: City Administrator
Dissemination Agent: The Bank of New York Mellon Trust Company, N.A.
400 South Hope Street, Suite 500
Los Angeles, California 90071
Attention: Corporate Trust
Reference: City of Vernon 2020 Water Bonds
Section 13. Beneficiaries. This Disclosure Agreement shall inure solely to the benefit of the City, the
Dissemination Agent, the Trustee, the Participating Underwriter and holders and Beneficial Owners from time to
time of the Bonds, and shall create no rights in any other person or entity.
Section 14. Counterparts. This Disclosure Agreement may be executed in multiple counterparts, all
of which shall constitute one and the same instrument, and each of which shall be deemed to be an original.
Date: March � 2020
CITY OF VERNON
By
City Administrator
THE BANK OF NEW YORK MELLON TRUST
COMPANY, N.A.
as Dissemination Agent
By:
Authorized Signatory
Efi
STAFF REPORT
City Council Agenda Item Report
Agenda Rem No. COV-54-2020
Submitted by Scott Williams
Submitting Department: Finance/Treasury
Meeting Date: February 18, 2020
SUBJECT
2020 Water System Revenue Bonds
Recommendation:
A. Find that approval of the resolution to issue 2020 Water System Revenue Bonds is exempt under the
California Environmental Quality Act (CEQA) in accordance with Sections 15060(c)(3), 15378(b)(4), and
15378(b)(5) because the activity approved by the Resolution relating to the refinancing or funding of
previously -approved projects will not result indirect or indirect physical changes in the environment and,
therefore, is rat a "project," as defined in Section 15378 of the CEQA Guidelines; and
B. Adopt a resolution for the issuance of 2020 Water System Revenue Tax Exempt Series A Bonds in
the par amount of $15 million to provide funds to (a) finance costs of certain capital improvements for the
water system (b) fund a deposit to the Debt Service Reserve Fund, and (c) pay cost of issuance of the
2020 Series Bonds. The resolution provides for flexibility to accommodate interest rate fluctuations that
would impact market conditions.
Background:
In November of 2019, the City Council held a public hearing regarding proposed changes in water rates
and adopted a resolution approving a revised water rate schedule. The updated water rate schedule and
corresponding rate increases are essential elements designed to provide, in part, the debt service
capacity needed for securing tax-exempt bond financing as the increased revenue will enable the water
utility to secure a proper credit rating, meet the required debt service coverages, and ensure repayment
of time bond. The proceeds bond will provide available resources to address the current state of the Water
Division facilities, urgent Capital Improvement Projects and critical activities that are already under way.
Based on the Citys water system debt profile, a new issuance of revenue bond will be in the amount of
$15 million. The result of this financing effort will provide immediate available resources for scheduled
capital expenditures, as well as funding reserves in the water utility. This bond restructuring was
performed following best business practices including the competitive selection process, and an Attorney
Services Agreement (Transactional) was entered into with Stradling Yocca Carlson & Rauth for bond and
disclosure counsel service, and J.P. Morgan was selected for Investment Banking and Underwriting
Services.
Upon finalizing the Series 2020 bond financial requirements and disclosure documents, City Council will
be briefed on the specifics of the bonding transaction before proceeding with the final sale. At that time,
staff will request that Council approve a resolution to move forward with the bond transaction, including
approval of the Bond Purchase and Sale Agreement with Goldman Sachs, and authorization for the
Director of Finance to accept or reject bids and set the interest rates on the bonds sold. A calculation will
be done by the Citys Financial Advisor to determine the lowest cost investor bids to be accepted. This
information will be brought forward to City Council and will be incorporated into the authorizing resolution.
Council Policy Consideration
This requested action supports the City Counci I's strategic goal of maintaining fiscal responsibility and
stability while listening carefully to the needs of the Citys business community.
Fiscal Impact:
The result of this bond refunding and new issuance is projected to be $15 million in new 2020 Series A
bonds with debt service to be funded by the adjusted rates adopted in November 2019.
Attachments:
1. Resolution - 2020 Water System Revenue Bonds