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Franchises and Rights of W ay: The Las Vegas Valley W ater District is not required to have any franchise, as such, to operate its water facilities in any municipal corporation within the District. Section 19 of the District Act grants the District the right to own and operate its water distribution system within the boundaries of any municipal corporation lying wholly or partly within the boundaries of the District. A substantial portion of the water transmission line to be constructed by the District outside of the City of Las Vegas and substantially all of the existing BMI water transmission line are located on public lands of the United States. At the present time, neither the District nor BMI has the rights of way for the construction, operation and maintenance of said water transmission lines. However, both the Board of Directors of the District and the Board of Directors of BMI have requested the Nevada congressional delegation to seek the enactment of proposed Acts of Congress which will be adequate to permit the Secretary of the Interior to grant to BMI and the District title to the lands necessary for pipeline rights of way and other related activities in connection with the construction, operation and maintenance of the water transmission lines. The proposed bills are substantially similar to Acts of Congress which have been enacted on behalf of the City of Los Angeles and Metropolitan W ater District of Southern California. If said proposed Acts are enacted into law, they will grant both the District and BMI permanent rights of way for any of their respective water 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 United States providing for the acquisition by any applicant of permits to construct and maintain water lines over public lands. Under the proposed Acts (if enacted) or the general laws, the District will acquire or apply for permits or rights of way over all public lands of the United States required for use of its water facilities. By contract, BMI, the State of Nevada and General Services Administration are obligated to the District to take any measures which may be necessary to obtain for BMI a good and sufficient title to or easements in any lands required for the operation of BMI water facilities. Funds and Covenants: An Appendix to this Official Statement 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. Money 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 payment of interest on the bonds during the construction period and for six months thereafter, and the repayment of advances by Clark County to the District (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, payment of bond principal and interest; Reserve Fund ; Redemption Fund. 3. Maintenance and Operation Fund: Moneys for the necessary and reasonable costs of the operation and maintenance of the works and properties of the District and the general expenses of the District will be set aside from the Revenue Fund and paid into the Maintenance and Operation Fund (Sec. 16). 4. Bond Service Fund: Purpose, to insure the payment when due of the principal and interest on the bonds. On the first day of each month at least 1/12 of the next maturity of principal and at least 1 /6 of the next semiannual interest payment must 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 payments commence not later than the first day of the fourth month following the month in which the properties of the Las Vegas Land and W ater Company are acquired.) The Bond Service Fund must be maintained so that at least one month before a principal or interest payment is due the full amount necessary therefor will be available in cash (Sec. 18). 5. Reserve Fund: Purpose, to pay principal and interest on the bonds in the event that the moneys in the Bond Service Fund are insufficient. On the first day of each month, 11 commencing not later than the fourth month 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 requirements of any future year (up to and including 1989, but not including 1990) must be transferred from the Revenue Fund to the Reserve Fund; said transfers shall continue until the Reserve Fund is equal to the maximum annual debt service, and thereafter as needed to maintain the required balance in the Reserve Fund. 6 . Redemption and Open Market Purchases: Maturities 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 for each 12 months, or fraction, from date of redemption to maturity, with a maximum of 105%. Redemption Fund: After payment of prior charges, moneys in Revenue Fund in excess of $500,000 must be transferred to Redemption Fund. Compulsory Redemption: When­ever Redemption Fund is sufficient to call $50,000 or more par value bonds. Open market 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 District, 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. W arranty: The District will preserve and protect the security of the bonds and defend the rights of the bondholders against all claims (Sec. 21). 8 . Covenants (Sec. 2 2 ): So long as any of the bonds are outstanding and unpaid, or moneys for full payment not set aside, the District covenants with the bondholders as follows: (1) To commence, as soon as funds are available, the acquisition and construction of revenue producing works and properties, and to continue with all practical dispatch and in an economical manner. (2) To operate the enterprise in an economical and efficient manner and to operate, maintain and preserve the waterworks system in good repair and working order. (3) The works and properties of the District 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 maintain adequate insurance coverage and to repair or replace any damage to useful works or properties. (5) The District 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 water furnished for fire protection purposes may be supplied at not less than cost, including reasonable overhead. (7) Subject to the limitation that the rates and charges shall be reasonable, to prescribe and collect rates and charges for the services, facilities and water of the enterprise at least sufficient to pay maintenance 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 March 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, amortization 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 payment 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