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Franchises and Rights of W ay: The Las Vegas Valley W ater D istrict is not required to have any franchise, as such, to operate its w ater facilities in any municipal corporation within the D istrict. Section 19 of the D istrict Act grants the D istrict the right to own and operate its w ater distribution system within the boundaries of any municipal corporation lying wholly or partly within the boundaries of the District. A substantial portion of the w ater transmission line to be constructed by the D istrict outside of the City of Las Vegas and substantially all of the existing BM I w ater transm ission line are located on public lands of the United States. A t the present time, neither the D istrict nor BM I has the rights of way for the construction, operation and maintenance of said w ater transm ission lines. However, both the Board of Directors of the D istrict and the Board of Directors of BM I have requested the Nevada congressional delegation to seek the enactment of proposed Acts of Congress which will be adequate to perm it the Secretary of the Interior to grant to BM I and the D istrict title to the lands necessary for pipeline rights of way and other related activities in connection with the construction, operation and maintenance of the w ater transm ission lines. The proposed bills; are substantially similar to Acts of Congress which have been enacted on behalf of the City of Los Angeles and M etropolitan W ater D istrict of Southern California. If said proposed Acts are enacted into law, they will grant both the D istrict and BM I perm anent rights of way for any of their respective w ater facilities which may be located on public lands of the United States;. In addition to the proposed Acts of Congress, there are other general laws of the U nited States providing for the acquisition by any applicant of permits to construct and m aintain w ater lines over public lands. U nder the proposed Acts (if enacted) or the general laws, the D istrict will acquire or apply for permits or rights of way over all public lands of the U nited States required for use of its w ater facilities. By contract, BMI, the State of Nevada and General Services Adm inistration are obligated to the D istrict to take any measures which may be necessary to obtain for BM I a good and sufficient title to or easements in any lands required for the operation of BM I w ater facilities. Funds and Covenants: An Appendix to this Official Statem ent contains the Resolution of Issuance, dated January 8, 1954. The following is a brief summary of revenue funds set up in the Resolution and covenants relating to the payment of the bonds. (See Appendix for complete text.) 1. Construction Fund: The proceeds of the sale of the bonds will be placed in the Construction Fund. Mooney in the Construction Fund may be expended for the purposes stated in the notice of election, for payment of expenses incidental thereto, for payment of expenses incurred in issuing the bonds, the paym ent of interest on the bonds during the construction period and for six months thereafter, and the repaym ent of advances by Clark County to the D istrict (such advances amounted to $105,000 as of March 1, 1954) (Sec. 14). 2. Revenue Fund: All revenues from the enterprise will be paid into the Revenue Fund (Sec. 15). Calls upon Revenue Fund are to be made in the following order: maintenance and operation expenses; general expenses, paym ent of bond principal and in terest; Reserve F u n d ; Redemption Fund. 3. Maintenance and Operation Fund: Moneys for the necessary and reasonable costs of the operation and m aintenance of the works and properties of the D istrict and the general expenses of the D istrict will be set aside from the Revenue Fund and paid into the M aintenance and Operation Fund (Sec. 16). 4. Bond Service Fund: Purpose, to insure the paym ent when due of the principal and interest on the bonds. On the first day of each m onth at least 1/12 of the next m aturity of principal and at least 1/6 of the next semiannual interest paym ent m ust be transferred from the Revenue Fund to the Bond Service Fund. (Transfers from the Revenue Fund for principal payments commence not later than March 1, 1956; transfers for interest payment’s commence not later than the first day of the fourth m onth following the m onth in which the properties of the Las Vegas Land and W ater Company are acquired.) The Bond Service Fund m ust be maintained so th at at least one m onth before a principal or interest payment is due the full am ount necessary therefor will be available in cash (Sec. 18). 5. Reserve Fund: Purpose, to pay principal and interest on the bonds in the event th at the moneys in the Bond Service Fund are insufficient. On the first day of each month, 11 commencing not later than the fourth m onth following the month in which the properties of the Las Vegas Land and W ater Company are acquired, at least 1/36 of the maximum principal and interest requirem ents of any future year (up to and including 1989, but not including 1990) m ust be transferred from the Revenue Fund to the Reserve F und; said transfers shall continue until the Reserve Fund is equal to the maximum annual debt service, and thereafter as needed to m aintain the required balance in the Reserve Fund. 6. Redemption and Open Market Purchases: M aturities redeemable as follows: 1957 to 1964— not redeemable; 1990—redeemable from revenues on or after March 1, 1959; 1965 to 1990—redeemable from any source on or after March 1, 1964. Redemption price: 100j^%, plus Y2 % for each 12 months, or fraction, from date of redemption to m aturity, w ith a maximum of 105%. Redemption F und: A fter payment of prior charges, moneys in Revenue Fund in excess of $500,000 m ust be transferred to Redemption Fund. Compulsory R edem ption: W hen­ever Redemption Fund is sufficient to call $50,000 or more par value bonds. Open m arket purchases: May be made from Redemption Fund after bonds become subject to call, at prices not exceeding redemption prices. Notice of redemption shall be published at least 30 days but not more than 60 days prior to the redemption date in a newspaper of general circulation published in the D istrict, in a newspaper of general circulation published in Los Angeles, and in a financial newspaper or journal of national circulation published in New York City. 7. Warranty: The D istrict will preserve and protect the security of the bonds and defend the rights of the bondholders against all claims (Sec. 21). 8. Covenants (Sec. 22): So long as any of the bonds are outstanding and unpaid, or moneys for full paym ent not set aside, the D istrict covenants w ith the bondholders as follow s: (1) To commence, as soon as funds are available, the acquisition and construction of revenue producing works and properties, and to continue w ith all practical dispatch and in an economical manner. (2) To operate the enterprise in an economical and efficient manner and to operate, m aintain and preserve the waterw orks system in good repair and w orking order. (3) The works and properties of the D istrict will not be sold, leased or otherwise disposed of unless full provision is made for payment of principal and interest of the bonds. (4) To m aintain adequate insurance coverage and to repair or replace any damage to useful works or properties. (5) The D istrict will keep proper books of record and account. Its books and accounts will be audited annually by an independent certified public accountant and a copy of the audit will be furnished on request to any bondholder. (6) Service provided other public corporations or political subdivisions will not be rendered at lower rates than those charged other persons for similar service, except that w ater furnished for fire protection purposes may be supplied at not less than cost, including reasonable overhead. (7) Subject to the lim itation th at the rates and charges shall be reasonable, to prescribe and collect rates and charges for the services, facilities and w ater of the enterprise at least sufficient to pay m aintenance and operation costs, general expenses and debt service, and to fix the rates and charges so that, after annually paying maintenance, operation and general expenses from revenues, the remaining revenue will be at least 1.40 times maximum annual debt service. (8) On March 1 of each year, commencing M arch 1, 1955, any moneys remaining in the Revenue Fund in excess of $500,000, after payment of the items set forth in Covenant 7, will be transferred to the Redemption Fund. (9) No additional bonds may be issued having any priority over the bonds of this issue. (10) No additional bonded indebtedness payable from revenues shall be created or incurred unless net income (before depreciation, am ortization and interest chargeable to income account) for the latest fiscal year amounts to twice the maximum annual interest to accrue after the incurring of the additional indebtedness or unless said net income is at least 1.35 times maximum annual debt service after the incurring of said additional debt (excepting therefrom the 1990 principal paym ent of the current 1954 issue). Subject to specified limitations, net income may be increased by allowances for earnings which would have accrued from additions to works or from rate increases made during said latest fiscal year. 12