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HomeMy WebLinkAbout1996-040 Water & Sewer Revenue Bonds Refunds ORDINANCE NO 96 -4 0 AN ORDINANCE of the City of Yakima, Washington, providing for the refunding of certain outstanding water and sewer revenue bonds of the City; authonzing the issuance and sale of water and sewer revenue refunding bonds of the City in the principal amount of not to exceed S4,000,000, to pay the cost of such refunding, fixing the date, form, terms, maturities and covenants of such bonds, and providing the covenants and terms under which the City may issue future water and sewer revenue bonds on a panty with such bonds WHEREAS, the City of Yakima, Washington (the "City ") now owns, operates and maintains a water supply and distribution system and a sewerage collection and disposal system, which water and sewerage systems have been combined in the manner provided bylaw; and WHEREAS the City has issued its Water and Sewer Revenue Bonds, Series 1968B, pursuant to Ordinance No 1071 (the "1968B Bonds ") and its Water and Sewer Revenue Bonds, Series 1 978, pursuant to Ordinance No 2231 (the "1978 Bonds ") (collectively, the "First Lien Panty Bonds ") and its Water and Sewer Revenue Bonds, 1991 (the "1991 Bonds "), and WHEREAS, the proceedings of the City authorizing the issuance of the 1978 Bonds provide that the City may call the 1978 Bonds on the first day of any month, at a redemption price of par plus accrued interest to the date of redemption, and WHEREAS, after due consideration it appears that all of the 1978 Bonds (the "Refunded Bonds ") ma\ be refunded by the issuance and sale of the revenue bonds of the City authorized herein so that a savings to the City and its rate payers will be effected, and W}iEREAS, it was provided in each of the ordinances authorizing the issuance of the First Lien Pant\ Bonds that additional water and sewer revenue bonds may be issued with a lien and charge on the Gross Revenues of the System junior to the payments required to be made on the First Lien Panty Bonds and by the ordinance authonzing the 1991 Bonds that bonds may be issued on a panty with the hen on the Gross Revenues of the System as the 1991 Bonds, and • WHEREAS, in order t =p the funds necessary to refund t Refunded Bonds, it is deemed necessary and advisable that the City issue its Second Lien Water and Sewer Revenue • Refunding Bonds, 1996, in the aggregate principal amount of not to exceed $4,000,000, , NOW, THEREFORE, BE IT ORDAINED BY the City of Yakima, Washington, as follows ARTICLE I DEFINITIONS Section 1.1 Definitions As used in this ordinance "Accreted Value" means with respect to any Capital Appreciation Bonds (A) as of any Valuation Date, the amount set forth for such date in any ordinance authorizing such Capital Appreciation Bonds and (B) as of any date other than a Valuation Date, the sum of (1) the Accreted Value on the preceding Valuation Date and (2) the product of (a) a fraction, the numerator of which is the number of days having elapsed from the preceding Valuation Date and lb the denominator of which is the number of days from such preceding Valuation Date to the next succeeding Valuation Date, calculated based on the assumption that Accreted Value accrues during anN semiannual penod in equal daily amounts on the basis of a year of 12 30 -day months, times (b) the difference between the Accreted Values for such Valuation Dates "Acquired Obligations" -means the investments now or hereafter acquired by the City to effect the refunding of the Refunded Bonds " Additional Bonds" means any revenue bonds, revenue warrants or other revenue obligations which may be issued in the future on a parity of hen with the 1991 Bonds, the 1996 Bonds and any other Second Lien Panty Bonds "Annual Debt Service" means for any specified Fiscal Year (1) with respect to any Outstanding Second Lien Panty Bonds, the amounts required to be deposited dunng that penod in the Bond Fund (excluding the Reserve Account therein), • -2- NMNOOU. DOC 96/05/06 (2) with respect to any Outstanding Capital Appreciation Bonds, the principal amount thereof shall be a equal to the Accreted Value thereof maturing or scheduled for payment in such q maturing PY period, and no other interest shall be included, (3) with respect to any Outstanding Fixed Rate Bonds, an amount equal to (A) the principal amount of such Fixed Rate Bonds due or subject to mandatory redemption during such period and for which no sinking fund installments have been established, (B) the amount of any payments required to be made during such period into any sinking fund established for the payment of any such Fixed Rate Bonds, plus (C) all interest payable during such penod on any such Fixed Rate Bonds Outstanding and with respect to Fixed Rate Bonds with mandatory sinking fund requirements, calculated on the assumption that mandatory sinking fund installments will be applied to the redemption or retirement of such Fixed Rate Bonds on the date specified in the ordinance authorizing such Fixed Rate Bonds, and (4) with respect to Outstanding Variable Rate Bonds, the principal for any penod and interest on such Variable Rate Bonds during such period computed on the assumption that the amount of Variable Rate Bonds Outstanding as of the date of such computation would be amortized (i) in accordance with the mandatory redemption provisions, if any, set forth in the ordinance authorizing, the issuance of such Variable Rate Bonds, or if mandatory redemption provisions are not provided, during a penod commencing on the date of computation and ending on the date 30 years after the date of issuance (ii) at an interest rate equal to the yield to maturity set forth in the Revenue Bond Index (40 -year Bond) published in the edition of The Bond Buyer (or comparable publication or such other similar index selected by the City in good faith) selected b\ the City and published within ten days pnor to the date of calculation or (iii) to provide for .essentially level annual debt service of pnncipal and interest over such period, and, for the purpose of calculating the pnncipal and interest on Variable Rate Bonds in any Fiscal Year, such Vanable Rate Bonds shall be assumed to mature on the stated matunty date or mandatory redemption date thereof -3- NMNOOU DOC 96/05/06 "Assessment Income" means the pnncipal of and interest on special assessments levied in 0 any local improvement district or utility local improvement distnct which are pledged to be paid into the Bond Fund In the case of assessments payable in installments, Assessment Income shall be allocated to the years in which it would be received if the unpaid balance of each assessment roll were paid in the remaining number of installments with interest on the declining balance at the times and at the rate provided in the ordinance confirming the assessment roll "Assessments" means any special assessments which may be levied in any local improvement district or utility local improvement distnct of the City created for the acquisition, construction or installation of additions and improvements to or extensions of the System, including an installment of assessments and any interest or penalties which may be due thereon, if such assessments are pledged to be paid into the Bond Fund The word "Assessments" shall include any installments of assessments and any interest or penalties which may be due thereon. "Average Annual Debt Service" means the amount determined by dividing (a) the sum of all interest and principal to be paid on outstanding Bonds from the date of determination to the last maturity date of such Bonds, by (b) the number of Fiscal Years or calendar years from and including the Fiscal Year or calendar year in which the determination is made to the last Fiscal Year or calendar year in which the sum of (i) the principal amount of Serial Bonds maturing in such Fiscal Year plus (ii) the Sinking Fund Requirement for such Fiscal Year, exceeds 4% of the principal amount of Bonds outstanding as of the date of determination "Bond Fund" means the Second Lien Water and Sewer Revenue Bond Fund created by Ordinance No 3380 "Bond Registrar" means the fiscal agency of the State of Washington in either Seattle, Washington, or New York, New York, for the purposes of reglstenng and authenticating the Bonds, maintaining the Bond Register, effecting transfer of ownership of the Bonds and paying interest on and pnncipal of the Bonds "Bonds" means the 1991 Bonds, the 1996 Bonds all other Second Lien Parity Bonds and all First Lien Panty Bonds -4- NMNOOU DOC 96/05/06 • "Capital Appreciation Bonds" means any Second Lien Panty Bonds hereafter issued as to which interest is payable only at the maturity or prior redemption of such Bonds. For the purposes of (i) receiving payment of the redemption pnce, if any, of a Capital Appreciation Bond that is redeemed prior to matunty, or (n) computing the principal amount of Second Lien Panty Bonds held by the owner of a Capital Appreciation Bond in giving to the City or the Paying Agent any notice, consent, request, or demand for any purpose whatsoever, the principal amount of a Capital Appreciation Bond shall be deemed to be its Accreted Value "City" means the City of Yakima, Washington, a municipal corporation duly organized and existing under and by virtue of the laws of the State of Washington "Code" means the Internal Revenue Code of 1986, as amended, as the same may be amended from time to time, and the regulations promulgated thereunder "Commission" means the Securities and Exchange Commission "Costs of Maintenance and Operation" means all normal operating expenses, current maintenance expenses, expenses of reasonable upkeep and repairs, insurance and administrative expenses and reasonable pro -rata budget charges for services provided to the System by City departments, but excluding depreciation, payments for debt service or into reserve accounts, costs of capital additions to or replacements of the System, municipal taxes, or payments to the City in lieu of taxes "Council" means the legislative body of the City as the same shall be duly and regularly constituted from time to time "Coverage Requirement" means (a) for any period dunng which Assessments may be paid without becoming delinquent, the sum of (i) the product of Average Annual Debt Service on all Second Lien Panty Bonds then outstanding times a fraction, the numerator of which is the aggregate principal amount of nondelinquent Assessments which remain to be paid into the Bond Fund plus the principal amount of Assessments previously aid into and then on hand in the Bond paid NMNOOU DOC 96105!06 Fund, and the denominator of which is the aggregate principal amount of Second Lien Parity no in • Bonds then Outstandin plus (ii) 1 40 times (1 25 times whe n o 1991 Bonds are Outstanding) ■ the product of Average Annual Debt Service on all Second Lien Panty Bonds then Outstanding times the difference of one minus the fraction calculated pursuant to (i) above, or (b) for any other period, the product of 1 40 times (1 25 times when no 1991 Bonds are Outstanding) Average Annual Debt Service on all Second Lien Panty Bonds then Outstanding. "Escrow Agreement" means the Escrow Agreement to be entered into between the City and the Refunding Agent "First Lien Parity Bonds" means the following Outstanding Bonds Authorizing Series or Issues Date of Issue Amount Outstanding Ordinance Water and Sewer December 1, 1968 $1,845,000 1071 ReN,enue Bonds, 1968 Series B Water and Sewer December 1, 1978 $3,340,000 2231 ,— Re\ enue Bonds 1978 "First Lien Revenue Bond Fund" means, collectively, the "Water and Sewer Revenue Bond Fund. 1968," created by Ordinance No 986 of the City and the "Water and Sewer Revenue Bond Fund ,1978," created by Ordinance No 2231 and shall include the "Reserve Account" in the 1 Re\ -enue Bond Fund and the "Reserve Account" in the 1 978 Revenue Bond Fund "Fiscal Year" means the Fiscal Year used by the City at any time At the time of the adoption of this ordinance, the Fiscal Year is the twelve -month period beginning January 1 of each year "Fixed Rate Bonds" means those Second Lien Panty Bonds other than Capital Appreciation Bonds issued under an ordinance in which the rate of interest on such Fixed Rate Bonds is fixed and determinable through their final maturity or for a specified penod of time If so provided in the ordinance authorizing their issuance, Fixed Rate Bonds may bear a fixed and determinable interest rate for only a portion of their term -6- NMNDOU DOC 96/05/06 • "Government Obligations" means direct obligations .of, or obligations the pnncipal of and interest on which are unconditionally guaranteed by, the United States Government "Gross Revenues" means all earnings, revenue and moneys received by the City from or on account of the operations of the System from any source whatsoever "Interest Commencement Date" means, with respect to any Capital Appreciation Bonds, the date specified in any ordinance authonzing such Capital Appreciation Bonds (which date must be prior to the maturity date for such Capital Appreciation Bonds) after which interest accruing on such Capital Appreciation Bonds shall be payable semiannually, with the first such payment date being the applicable interest payment date immediately succeeding such Interest Commencement Date "Maximum Interest Rate" means, with respect to any particular Variable Rate Bond, a numerical rate of interest, which shall be set forth in any ordinance authonzing such Bond, that shall be the maximum rate of interest such Bond may at any time bear "Net Revenues" means the Gross Revenues of the System less the Costs of Maintenance and Operation "NRMSIR" means a nationally recognized municipal securities information repository "1 978 Bonds" means the Water and Sewer Revenue Bonds, Series 1978 issued pursuant to Ordinance No 1071 and Outstanding in the principal amount of $3,340,000 "1 991 Bonds" means the Second Lien Water and Sewer Revenue Bonds, 1 991 issued pursuant to Ordinance No 3380 and Outstanding in the principal amount of $6,605,000 "1 996 Bonds" means the City of Yakima Second Lien Water and Sewer Revenue Refunding Bonds, 1996, in the aggregate principal amount of not to exceed $4,000,000 authorized by this ordinance "Outstanding" means, in connection with any of the Bonds, as of the time in question, all Bonds issued except Bonds theretofore paid and cancelled or having matured or been called for 110 redemption, payment has been provided therefor, or Bonds which have been defeased in accordance with their authorizing ordinance and state law -7- NMNOOU DOC 96/05/06 "Paying Agent" means the designated fiscal agencies of the State of Washington or any 0 bank or banks designated a paying agent by the City "Professional Utility Consultant" means the independent person(s) or firm(s) selected by the City having a favorable reputation for skill and experience with facilities of comparable size and character to the System in such of the following as are relevant to the purposes for which they are retained (a) engineering and operations, and (b) the design of rates "Qualified Insurance" means any noncancellable municipal bond insurance policy or surety bond issued by any insurance company licensed to conduct an insurance business in any state of the United States (or by a service corporation acting on behalf of one or more such insurance companies) ■hich insurance company or companies, as of the time of issuance of such policy or suret\ bond. are currently rated in the highest rating category by Moody's Investors Service, Inc or Standard 8_ Poor's Ratings Service or their comparably recognized business successors "Rating Agency" means, as of any date, Moody's Investors Service, Inc , Standard & Poor's Ratings Service or any other nationally recognized securities rating agency • "Refunded Bonds" means all of the 1978 Bonds "Refunding Agent" means the agent designated by the City pursuant to the Escrow Agreement "Reserve Account" means the Reserve Account created in the Bond Fund "Reserve Account Requirement" means (1) so long as any 1991 Bonds are Outstanding, the Average Annual Debt Service on all Second Lien Party Bonds Outstanding and (2) once no 1991 Bonds are Outstanding, the lesser of (i) the maximum Annual Debt Service dunng any Fiscal Year on a series of Second Lien Parity Bonds, (ii) 125% of the Average Annual Debt Service on all Outstanding Second Lien Panty Bonds of such senes, or (iii) 10% of the stated principal amount of such series of Bonds In the case of Vanable Rate Bonds, the interest rate thereon shall be calculated on the assumption that such Vanable Rate Bonds will bear interest at a rate equal to the higher of (a) the rate most recently reported by The Bond Buyer as The Bond Buyer's g- equal to x+ where x re Index for long-term revenue bonds or (b) a rate q y represents the average rate p -8- NMNOOU DOC 96/05106 of interest borne by such Variable Rate Bonds in the twelve months preceding the date of calculation or in the case of newly issued Vanable Rate Bonds the initial rate of interest borne by such Bonds and y represents one -half the difference between the Maximum Interest Rate applicable to such Variable Rate Bonds and x, provided that in no event shall such assumed Vanable Rate exceed the Maximum Interest Rate and provided further that if on such date of calculation the interest rate on such Bonds shall then be fixed to matunty, the interest rate used for such specified period for the purpose of the foregoing calculation shall be such actual interest rate "Revenue Fund" means the Water and Sewer Operating Funds of the City heretofore established "Rule" means the Commission's Rule 15c2 -12 under the Secunties and Exchange Act of 1934, as the same may be amended from time to time "Second Lien Parity Bonds" means any Outstanding revenue bonds, revenue warrants or other rep enue obligations issued by the City which have a lien upon the Gross Revenues of the System to pa} and secure the payment of the pnncipal thereof and interest thereon equal to the lien created upon the Gross Revenues of the System to pay and secure payment of the principal of and interest on the 1996. Bonds "Second Lien Panty Bonds" includes the 1991 Bonds, the 1996 Bonds and an Additional Bonds "SID" means a state information depository for the State of Washington (if one is created) "System" means the combined water and sewerage system of the City as it now exists, and as it may be later added to, extended and improved for as long as any First Lien Panty Bonds or any Second Lien Panty Bonds remain Outstanding. "Senal Bonds" means Second Lien Panty Borids other than Term Bonds "Sinking Fund Requirement" means, for any Fiscal Year, the pnncipal amount and • premium, if any, of Term Bonds required to be purchased, redeemed or paid at maturity for such s Fiscal Year as established by the ordinance authorizing the issuance of such Term Bonds -9- NMNOOU DOC 96/05/06 "Term Bonds" means Second Lien Panty Bonds of any pnncipal maturity that are subject 0 to mandatory redemption or for which mandatory sinking fund payments are required "Valuation Date" means with respect to any Capital Appreciation Bonds the date or dates set forth in any ordinance authonzing such Capital Appreciation Bonds on which specific Accreted Values are assigned to the Capital Appreciation Bonds "Variable Interest Rate" means a vanable interest rate or rates to be borne by Second Lien Parity Bonds or any one or more maturities within an issue of Second Lien Panty Bonds The method of computing such vanable interest rate shall be specified in the ordinance authorizing such Second Lien Parity Bonds Such variable interest rate shall be subject to a Maximum Interest Rate and there may be an initial rate specified, in each case as provided in such ordinance, or a stated interest rate that may be changed from time to time as provided in such ordinance Such ordinance shall also specify either (i) the particular period or periods of time or manner of determining such period or periods of time for which each value of such Variable Interest Rate al shall remain in effect or (n) the time or times upon which any change in such Variable Interest Rate shall become effective "Variable Rate Bonds" for any period of time means Second Lien Parity Bonds which during such period bear a Variable Interest Rate, provided that Second Lien Parity Bonds the interest rate on which shall have been fixed for the remainder of the term. thereof shall no longer be Variable Rate Bonds ARTICLE II FINDINGS Section 2.1 Panty Conditions The Council hereby finds as required by Section 7 1 of Ordinance No 3380 as follows (a) The 1996 Bonds will be issued for the purpose of refunding Outstanding Bonds 1 (b) At the times of the issuance of the 1996 Bonds there will be no deficiency in the Bond Fund or any accounts therein • -10- NMNOOU.DOC 96 /05/06 (c) The City will have on deposit in the Reserve Account an, amount equal to the Reserve Account Requirement (d) The issuance of the 1996 Bonds will result in a debt service savings and will not require an increase of more than $5,000 in any year for pnncipal and interest on the 1996 Bonds ARTICLE III ISSUANCE OF 1996 BONDS Section 3.1 Issuance of the 1996 Bonds The City shall issue the 1996 Bonds in the aggregate principal amount of not to exceed $4,000,000 for the purpose of providing the funds necessary to refund all or a portion of the Refunded Bonds and to pay the expenses incidental to the issuance of the 1996 Bonds The 1996 Bonds shall be designated the "City of Yakima Water and Sewer Revenue Refunding Bonds, 1996," shall be in fully registered form, shall be in the denomination of $5,000 each, shall be dated such date, bear interest at the rates per annum, and be payable in the amounts and dates as shall be determined by resolution of the Council Both the principal of and interest of the 1996 Bonds shall be payable in lawful money of the United States of America at the office of either of the fiscal agencies of the State of Washington in the cities of Seattle, Washington, or New York, New York. The 1996 Bonds shall be obligations on1} of the Bond Fund and shall be payable and secured as provided herein The 1996 Bonds shall not be general obligations of the City The Director of Finance and Budget of the City is hereby authonzed to obtain insurance for the payment of pnncipal of and interest on the Bonds, if he should determine that it is in the best interests of the City to do so Section 3.2 Execution of Bonds, Validity of Signatures Thereon. The 1996 Bonds shall be executed in the name of the City by the Mayor of the City by manual ordacsimile signature and a facsimile of the seal of the City shall be imprinted or reproduced thereon, and shall be attested by the Clerk of the City by manual or facsimile signature The 1996 Bonds shall bear thereon a certificate of authentication executed .manually by the Bond Registrar, and only such -11- NMNOOU.DOC 96/05/06 1996 Bonds as shall bear thereon such certificate shall be entitled to any right or benefit under this • ordinance In case any of the officers who shall have signed any of the 1996 Bonds shall die or cease to be such officer before the 1996 Bonds so signed shall have been actually issued and delivered, such 1996 Bonds shall be valid nevertheless, and may be issued with the same effect as though the person who had so signed such 1996 Bonds had not died or ceased to be such officer Section 3.3 Appointment of Bond Registrar The initial Bond Registrar for the 1996 Bonds shall be the fiscal agencies for the State of Washington in Seattle, Washington, and New York, New York The Bond Registrar may resign upon 60 days' notice or may be removed by the City and a new Bond Registrar appointed by the City; provided, however, that no such resignation or removal shall be effective until a successor Bond Registrar shall have been appointed by the City and shall have delivered a wntten instrument of acceptance of the Bond Registrar's duties and responsibilities under this ordinance In the event of the resignation or removal of the Bond 0 Registrar notice of the name and address of the new Bond Registrar shall be mailed along with the next payment of interest on the 1996 Bonds, or, in the event such resignation or removal becomes effective after an interest payment date next preceding a matunty date of the pnncipal of any 1996 Bond, such notice shall be furnished to the registered owners of such 1996 Bonds, to the extent practicable, not less than 15 days pnor to such matunty date Section 3 4 Duties of Bond Registrar The Bond Registrar shall keep, or cause to be kept, at its principal corporate trust office, sufficient books for the registration and transfer of the 1996 Bonds which shall at all times be open to inspection by the City The Bond Registrar is authorized, on behalf of the City, to authenticate and deliver the 1996 Bonds transferred or exchanged in accordance with the provisions of such 1996 Bonds and this ordinance and to carry out all of the Bond Registrar's powers and duties under this ordinance The Bond Registrar shall be responsible for its representations contained in the Certificate of Authentication on the 1996 ID Bonds The Bond Registrar may become the owner of 1996 Bonds with the same nghts it would o the extent permitted by law, may act as depositary have if it were not the Bond Registrar, and t p y y p ry -12- NMNOOU.DOC 96!05106 • for and permit any of its officers or directors to act as a member of, or in any other capacity with a owners respect to, any committee formed to protect the ri of registered o ne s o f the 1996 Bonds Only such 1996 Bonds as shall bear thereon a Certificate of Authentication in the form herein recited, manually executed by the Bond Registrar, shall be valid or obligatory for any purpose or entitled to the benefits of this ordinance Such Certificate of Authentication shall be conclusive evidence that the 1996 Bonds so authenticated have been duly executed, authenticated and delivered hereunder and are entitled to the benefits of this ordinance Section 3.5 Transfer and Exchange of 1996.Bonds (a) Any 1996 Bond may be transferred upon the registration books by the person in whose name it is registered, in person or by his or her duly authorized agent, upon surrender of such 1996 Bond to the Bond Registrar for cancellation, accompanied by delivery of a written instrument of transfer duly executed by the registered owner in person or his or her duly authorized agent, and in form satisfactory to the Bond Registrar (b) Whenever any 1996 Bond shall be surrendered for transfer, the City shall execute and the Bond Registrar shall authenticate and deliver, at the principal corporate trustoffice of the Bond Registrar (or send by registered mail to the new owner thereof at his request and at his or her risk and expense), in the name of the transferee or transferees, a new duly executed 1996 Bond or 1996 Bonds of the same interest rate and maturity and for a like aggregate principal amount, dated so that there shall result no gain or loss of interest as a result of such transfer To the extent of denominations authorized in respect of any such 1996 Bond, one such 1996 Bond may be transferred for one or several such 1996 Bonds of the same senes, interest rate, maturity and aggregate principal amount All transfers pursuant to this Section 3 5 shall be made without expense to the owner of such 1996 Bonds, except as otherwise herein provided, and except that the Bond Registrar shall require the payment by the owner of the 1996 Bond requesting such transfer of any tax or other governmental charges required to be paid with respect to such transfer -13- NMNOOU.DOC 96/05/06 (i) 1996 Bonds may be exchanged at the pnncipal corporate trust office of the gr Allh Bond Registrar for a like aggregate principal amount of 1996 Bonds in other authonzed principal amounts of the same interest rate and matunty, and the City shall execute and the Bond Registrar shall authenticate the 1996 Bonds to be delivered upon such exchange and shall deliver the same at the principal corporate trust office of the Bond Registrar or send the same by registered mail to the owner thereof at his or her request and at his or her nsk and expense Section 3.6 Mutilated, Lost, Stolen or Destroyed 1996 Bonds In case any 1996 Bonds shall be lost, stolen or destroyed, the Bond Registrar may authenticate and deliver a new 1996 Bond or Bonds of like amount, date and tenor to the registered owner thereof upon the owner paving the expenses and charges of the Bond Registrar and the City in connection therewith and upon his or her filing with the Bond Registrar and the City evidence satisfactory to both that such 1996 Bond or Bonds were actually lost, stolen or destroyed and of his or her ownership thereof, and upon furnishing the City and the Bond Registrar with indemnity satisfactory to both • Section 3.6 Form of 1996 Bonds The 1996 Bonds shall be substantially in the form of Appendix A hereto ARTICLE IV REDEMPTION OF 1996 BONDS Section 4.1 Redemption Prior to Maturity The 1996 Bonds may be subject to redemption in advance of their scheduled matunties as provided in a resolution to be adopted by the Council Section 4.2 Purchase of 1996 Bonds The City reserves the nght to use at any time any surplus Gross Revenues of the System available after providing for the payments required by paragraphs First through Sixth inclusive of Section 5 1 of this ordinance, or other available funds, to purchase any of the 1996 Bonds in the open market for retirement. • -14- NMNOOU DOC 96/05/06 . ARTICLE V • FUNDS AND ACCOUNTS, DEFEASANCE Section 5.1 Revenue Fund, Priority of Payments The City hereby obligates and binds itself to set aside and pay into the Water and Sewer Operating Funds (the "Revenue Fund ") as collected the Gross Revenues of the System. The Gross Revenues of the System shall be held in the Revenue Fund separate and apart from all other funds and accounts of the City and used only for the following purposes and in the following order of pnonty First, to pay the Costs of Maintenance and Operation of the System, Second, to make all required payments into the First Lien Revenue Bond Fund, Third, to pay the interest on the Second Lien Panty Bonds, Fourth, to pay the principal of the Second Lien Panty Bonds, Fifth, to make all payments required to be made into any Reserve Account created to secure the payment of the Second Lien Panty Bonds, Sixth, to make all payments required to be made into any other revenue bond redemption fund or debt service account or reserve account created to a and secure the payment of the PY a PY principal of and interest on any revenue bonds of the City having a hen upon the Gross Revenues of the System junior and inferior to the lien thereon for the payment of the principal of and interest on the Second Lien Party Bonds, Seventh. to retire by redemption or purchase in the open market any outstanding revenue bonds of the City, to make necessary additions, improvements and repairs to or extensions and replacements of the System, or for any other lawful City purposes Nothing contained in this Section 5 1 shall be construed to require the deposit into the Revenue Fund of any of the revenues, income, receipts or other moneys of the City derived through the ownership or operation of any separate utility system hereafter created or established from funds other than the proceeds of Bonds -15- NMNOOU.DOC 96/05/06 Section 5.2 Bond Fund , 0 (a) There has been created a special fund of the City designated the Second Lien Water and Sewer Revenue Bond Fund (the "Bond Fund ") which shall be used solely for the purpose of paying the principal, premium, if any, and interest on the 1991 Bonds, the 1996 Bonds and any other Second Lien Party Bonds, of retiring the Second Lien Panty Bonds pnor to maturity in the manner herein provided and of paying any reimbursement obligation with respect to a letter of credit or other credit enhancement device providing additional secunty for any Variable Rate Bonds Each month (or in the case of Variable Rate Bonds, at the times provided in subsection (i) of this Section 5 2(a)), after applying amounts as required in Section 5 1, the City shall withdraw from the Revenue Fund and (to the extent not otherwise provided) transfer to the Bond Fund, amounts as follows and in the following order of priority first, into the Interest Account, second, into the Serial Bond Principal Account and Term Bond Principal Account, and third, into the Reserve Account 0 (0) Interest Account The City has created a separate account in the Bond Fund, to be known as the "Interest Account" in order to provide for the payment of interest on the 1991 and 1996 Bonds and any other Second Lien Parity Bonds as the same becomes due and payable At closing, all accrued interest on the 1996 Bonds shall be paid into the Interest Account In the case of all Second Lien Party Bonds other than Variable Rate Bonds, the City shall transfer to the Interest Account amounts sufficient to pay when due the installment of interest next falling due on all Second Lien Panty Bonds In the case of Vanable Rate Bonds, not later than on the last day of the month immediately succeeding the month of closing of such bonds and on or before the last day of each succeeding month, the City shall transfer to the Interest Account an amount equal to the interest on such Variable Rate Bonds estimated to become due and payable on the due date If on any date on which an installment of interest on Variable Rate Bonds falls due there are insufficient amounts in the Interest Account to make such interest 0 r payment, the City shall withdraw from the Revenue Fund and transfer to the Interest Account an -16- NMNOOU.DOC 96/05/06 amount that when added to other money therein will equal the amount of interest falling due and • making credits required (a) (i), on such interest payment date In m k� g the c e dits q b y this subsection () (), any amounts credited to the Interest Account representing accrued interest received on the sale of 1996 Bonds or other Second Lien Panty Bonds, interest capitalized from the proceeds of any Second Lien Parity Bonds and any other transfers and credits otherwise made or required to be made to the Interest Account shall be taken into consideration and allowance made with respect to the full amount of such transfers and credits (ii) Serial Bond Pnncipal Account The City has created a separate account in the Bond Fund known as the "Serial Bond Principal Account" in order to provide for the payment of the principal of Serial Bonds as the same shall mature and become due and payable The City shall transfer to the Serial Bond Principal Account amounts sufficient to pay when due the installment of principal next falling due on the Senal Bonds (m) Term Bond Pnncipal Account (A) The City shall create and establish a separate account in the Bond Fund to be known as the "Term Bond Principal Account" in order to meet the specified,wSinking Fund Requirements of Term Bonds and to otherwise retire 1996 Bonds, if any, and other Second Lien Party Bonds prior to maturity The City shall transfer to the Term Bond Principal Account amounts sufficient to pay when due the Sinking Fund Requirement next falling due on all Term Bonds (B) The Paying Agent shall apply the moneys paid into the Bond Fund for credit to the Term Bond Principal Account to the redemption of Term Bonds on the next ensuing Sinking Fund Requirement due date (or may so apply such moneys pnor to such Sinking Fund Requirement due date), pursuant to the terms of the ordinance authorizing the issuance thereof The City may also apply the money paid into the Bond Fund for credit to the Term Bond Pnncipal Account for the purpose of retiring Term Bonds by the purchase of such Term Bonds at a purchase price (including any brokerage charge) not in excess of the principal amount thereof -17- - NMNOOU DOC 96/05106 The City shall apply such money to the redemption or purchase of Term Bonds in an amount such that the aggregate principal amount of Term Bonds so purchased or redeemed is at 0 least equal to such next ensuing Sinking Fund Requirement Any such purchase of Term Bonds by the City may be made with or without tenders of Term Bonds in such manner as the City shall, in its discretion, deem to be in its best interest (iv) Reserve Account (A) The City has created a separate account in the Bond Fund to be known as the "Reserve Account" in order to provide a reserve for the payment of the pnncipal, premium. if any, and interest on the Second Lien Parity Bonds The City hereby covenants and agrees that on the date of issuance of the 1996 Bonds the City will have on deposit in the Reserve Account an amount equal to the Reserve Account Requirement Each ordinance providing for the issuance of Additional Bonds shall provide for payments into the Bond Fund for credit to the Reserve Account from any other money lawfully available therefor (in which event, in providing for deposits and credits required by the foregoing provisions of this paragraph (A), allowance shall be made for any such amounts so paid into such Account) in amounts which within not less 0 than fire years of equal monthly payments will provide for deposit of the Reserve Account Requirement or may provide for the City to obtain Qualified Insurance or a Qualified Letter of Credit for specific amounts required pursuant to this Section to be paid into the Reserve Account, such amounts so covered by Qualified Insurance or a Qualified Letter of Credit shall be credited against the amounts required to be maintained in the Reserve Account by this Section to the extent that such payments and credits to be made are insured by an insurance company, or guaranteed by a letter of credit from a bank. Such Qualified Letter of Credit or Qualified Insurance shall not be cancelable on less than five years notice In the event of any cancellation, the Reserve Account shall be funded in accordance with this paragraph, as if the Second Lien Parity Bonds which remain Outstanding had been issued on the date of such notice of cancellation. 40 _18- NMNOOU DOC 96 /05/06 • (B) Money in the Bond Fund may, at the option of the City, be invested and reinvested as permitted by law in Permitted Investments matunng, or which are retirable at the option of the owner, prior to the date needed or pnor to the matunty date of the final installment of principal of the Bonds payable out of the Bond Fund Earnings on investments in the Bond Fund shall be transferred to the Revenue Fund, except that earnings on investments in the Reserve Account shall first be applied to remedy any deficiency in such account (C) For the purpose of determining the amount credited to the Reserve Account, obligations in which money in the Reserve Account shall have been invested shall be valued at the market value thereof The term "market value" shall mean, in the case of secunties that are not then currently redeemable at the option of the owner, the current bid quotation for such securities, as reported in any nationally circulated financial journal, and the current redemption value in the case of securities that are then redeemable at the option of the owner For obligations that mature within six months, the market value shall be the par value thereof The valuation shall include accrued interest thereon The valuation of the amount in the Reserve Account shall be made by the City as of the close of business on each December 31 (or'on the next preceding business day if December 31 does not fall on a business day) and after any withdrawal and may be made on each June 30 (or on the next preceding business day if June 30 does not fall on a business day) (D) If the amount in the Reserve Account shall be less than the Reserve Account Requirement, the City shall transfer from the Revenue Fund, for credit to the Reserve Account no later than the 25th day of the sixth succeeding calendar month the amount necessary to restore the Reserve Account to the Reserve Account Requirement Prior to such time, such transfer shall come from money in the Revenue Fund first available after making the current specified payments into the Interest Account and Principal Accounts If the amount in the Reserve Account shall be greater than the Reserve Account Requirement, then and only then may • the City withdraw at any time prior to the next date of valuation from the Reserve Account the -19- NMNOOU DOC 96/05/06 difference between the amount in the Reserve Account and the Reserve Account Requirement and • deposit such difference in the Revenue Fund (b) Money in the Interest Account, the Senal Bond Principal Account and the Term Bond Principal Account shall be transmitted to the Paying Agent in amounts sufficient to meet the next maturing installments of principal, interest and premium, if any, at or pnor to the time upon which any interest, principal or premium, if any, is to become due In the event there shall be a deficiency in the Interest Account, the Serial Bond Principal Account or the Term Bond Principal Account for such purpose, the City shall make up any such deficiency from the Reserve Account by the withdrawal of cash therefrom for that purpose, and, if necessary, by sale or redemption of any authorized investments in such amount as will provide cash in said Reserve Account sufficient ■ to make up any such deficiency If a deficiency still exists immediately prior to an interest payment date and after the withdrawal of cash, the City shall then draw from any Qualified Letter of Credit or Qualified Insurance Such draw shall be made at such times and under such conditions as the agreement for such Reserve Account credit facility shall provide 0, (c) Whenever and so long as amounts on deposit in the Bond Fund, including the Resen e Account, are sufficient to provide money to pay the Second Lien Panty Bonds then Outstanding, including such interest as may thereafter become due thereon and any premiums upon redemption, no payments need be made into the Bond Fund pursuant to this ordinance (d) Money transferred from the Bond Fund to the Paying Agent for the Second Lien Parit) Bonds and the interest thereon shall be held in trust for the owners of such Second Lien Parity Bonds Until so set aside for the retirement of principal, payment of sinking fund installments, payment of interest and premium, if any, as aforesaid, moneys in the Bond Fund shall be held in trust for the benefit of the owners of the Second Lien Panty Bonds then Outstanding and payable equally and ratably and without preference or distinction as between different installments or maturities (e) The amounts so pledged to be paid into the Bond Fund and the Reserve Account therein are hereby declared to be a pnor lien and charge upon the Gross Revenues of the System -20- NMNOOU DOC 96/05/06 • superior to all other charges of any kind or nature whatsoever (including any transfer of money to other funds of the City and taxes or payments in lieu of taxes) except the Costs of Maintenance and Operation and required payments on First Lien Panty Bonds, and is equal in priority to the hen and charge which may hereafter be made to pay and secure the payment of the pnncipal of and interest on any Additional Bonds (f) The Council hereby finds and declares that in fixing the amounts to be paid into the Bond Fund and the Reserve Account therein out of the Gross Revenues of the System, it has exercised due regard for the Costs of Maintenance and Operation and for the amounts required to pa' and secure the payment of the principal of and interest on the First Lien Panty Bonds and the 1991 Bonds, and has not obligated the City to set aside and pay into such Fund and Account a _greater amount of such Gross Revenues than in its judgment will be available over and above the Costs of Maintenance and Operation and the principal of and interest on the First Lien Panty Bonds and 1991 Bonds • Section 5.3 Defeasance The City may set aside with a trustee or escrow agent in a special account, created by separate ordinance and irrevocably pledged to the payment of all or a portion of an 1996 Bonds, cash or Government Obligations, sufficient in amount, together with the earnings thereon, to provide funds to pay when due the interest on such 1996 Bonds and to redeem or retire such 1996 Bonds at or prior to matunty in accordance with their terms In such e\-ent no further payment need be made into the Bond Fund for the payment of the principal of and interest on the 1996 Bonds so provided for and such 1996 Bonds shall cease to be entitled to any lien, benefit or security of this ordinance except the right to receive payment from such special account, and such 1996 Bonds shall not be deemed to be outstanding for any purpose of this ordinance Within 30 days after any defeasance of 1996 Bonds, the City shall provide notice of such defeasance to all registered owners of such 1996 Bonds at their last addresses, if any, appeanng upon the registration books maintained by the Bond Registrar and to NRMSIR and • SID, if any, in accordance with Section 11 1 -21 - NMNOOU.DOC 96/05/06 Section 5.4 Refunding of Refunded Bonds The Council shall adopt a resolution that sets forth the exact Refunded Bonds to be refunded 'b s 'by the 1996 Bonds, appoints a Refunding Agent, establishes the terms for the refunding and the redemption of the Refunded Bonds, approves the terms of the Escrow Agreement and sets forth other provisions for such refunding. ARTICLE" VI PARTICULAR COVENANTS OF THE CITY So long as any Second Lien Panty Bonds remain Outstanding, the City covenants and agrees with the owners of all Second Lien Parity Bonds as follows Section 6.1 Rate Covenant The City shall establish, maintain and collect rates and charges for the use of the services and facilities of and all commodities sold, furnished or supplied by the System, which shall be fair and nondiscriminatory and shall adjust such rates and charges from time to time so that (a) The Gross Revenues collected (together with Assessments collected) will at all times be sufficient (a) to pay, the Costs of Maintenance and Operation of the System, (b) to pay the principal of, premium, if any, and interest on the First Lien Parity Bonds and the Second Lien Parity Bonds, as and when the same shall become due and payable, (c) to make adequate provision for the payment of any Term Bonds, (d) to make when due all payments which the City is obligated to make into the Reserve Account and all other payments which the City is obligated to make pursuant to this ordinance, and (e) to pay all taxes, assessments or other governmental charzes la\vfull\ imposed on the System or the revenue therefrom or payments in lieu thereof and any and all other amounts which the City may now or hereafter become obligated to pay from the Gross Revenues by law or contract, and (b) The Net Revenues in each Fiscal Year, after payment of debt service on all Outstanding First Lien Panty Bonds, will be at least equal to the Coverage Requirement calculated as of December 31 of the preceding calendar year Section 6.2 Maintenance and Operation The City shall at all times maintain, preserve 0 and keep the properties of the System in good repair, working order and condition and will from ' -22- NMNOOU.DOC 96 /05/06 time to time make all necessary and proper repairs, renewals, replacements, extensions and betterments thereto, so that at all times the business camed on in connection therewith will be properly and advantageously conducted, and the City will at all times operate or cause to be operated the properties of the System and the business in connection therewith in an efficient manner and at a reasonable cost Section 6.3 Sale or Disposition of the System The City will not sell or otherwise dispose of the System in its entirety unless simultaneously with such sale or other disposition, provision is made for the payment into the Bond Fund of cash or "Government Obligations," as now or hereafter defined in RCW Chapter 39 53, as amended, or its successor statute, if any, sufficient together with interest to be earned thereon to pay the principal of and interest on the then Outstanding Second Lien Party Bonds, nor will it sell or otherwise dispose of any part of the useful operating properties of the System unless such facilities are replaced or provision is made for payment into the Bond Fund of the greater of (a) An amount which will be in the same proportion to the net amount of Second Lien Panty Bonds then Outstanding (defined as the total amount of the Second Lien Panty Bonds less the amount of cash and investments in the Bond Fund and accounts therein) that the Net Revenues from the portion of the System sold or disposed of for the preceding year bears to the total Net Revenues for such penod, or (b) An amount which will be in the same proportion to the net principal amount of Second Lien Parity Bonds then Outstanding that the book value of the part of the System sold or disposed of bears to the book value of the entire System immediately pnor to such sale or disposition The proceeds of any such sale or disposition of a portion of the properties of the System (to the extent required above) shall be paid into the Bond Fund Notwithstanding any other provision of this subsection, the City may sell or otherwise • dispose of any of the works, plant, properties and facilities of the System or any real or personal property compnsing a part of the same which shall have become unserviceable, inadequate, -23- NMNOOU. DOC 96 /05/06 obsolete or unfit to be used in the operation of the System, or no longer necessary, matenal to or . useful in such operation, without making any deposit into the Bond Fund Section 6.4 Liens or Encumbrances Except for the lien and charge of the First Lien Party Bonds, the City will not at any time create or permit to accrue or to exist any lien or other encumbrance or indebtedness upon the System or the Gross Revenues or any part thereof, pnor or superior to the hen thereon for the payment of the Second Lien Panty Bonds, and will pay and discharge, or cause to be paid and discharged, any and all lawful claims for labor, materials or supplies which, if unpaid, might become a hen or charge upon the Revenues of the System, or any part thereof, or upon any funds in the hands of the City, prior to or supenor to the lien of the Second Lien Parity Bonds, or which might impair the security of the Party Bonds Section 6.5 Insurance The City shall, to the extent insurance coverage is available at reasonable cost with responsible insurers, keep, or cause to be kept, the System and the operation thereof insured, with policies payable to the City, against the nsks of direct physical loss, damage el to or destruction of the System, or any part thereof, and against accidents, casualties or negligence including habilrty insurance and employer's liability, at least to the extent that similar insurance is usually carried by utilities operating like properties as determined by the City Manager A program of self insurance against certain risks or as to part of the potential liability for certain risks may be included as part of the City's insurance coverage plan In the event of any loss or damage to the properties of the System covered by insurance, the City will (a) with respect to each such loss, promptly repair and reconstruct to the extent necessary to the proper conduct of the operations of the System the lost or damage portion thereof and shall apply the proceeds of any insurance policy or policies covenng such loss or damage for that purpose to the extent required therefor, unless in the case of loss or damage involving an amount less than or equal to 2% of the value of net utility plant of the System or more, such repair and reconstruction shall not be recommended by the City Manager, and (b) if the City shall not use the entire proceeds of such insurance to repair or • reconstruct such lost or damaged property, such insurance c p roceeds thereof not so used shall be -24- NMN0OU DOC 96 /05106 • paid into the Revenue Fund, and if greater than 2% of the value of the net utility plant of the System for any one loss or damage, shall be used to purchase or redeem bonds or to acquire or construct extensions, betterments and improvements to the System. Section 6.6 Books and Accounts The City shall keep proper books of account in accordance with any applicable rules and regulations prescribed by the State of Washington The City shall prepare, and any owner or holder of Second Lien Panty Bonds may, upon wntten request, obtain copies of, balance sheets and profit and loss statements showing in reasonable detail the financial condition of the System as of the close of each year, and the income and expenses of such year, including the amounts paid into the Revenue Fund, the Bond Fund, and into any special funds or accounts created pursuant to the provisions of this ordinance, and the amounts expended for maintenance, renewals, replacements, and capital additions to the System Section 6.7 Additions and Improvements The City will not expend any of the revenues derived by it from the operation of the System or the proceeds of any indebtedness • payable from the Revenues of the System for any extensions, betterments or improvements to the System which are not legally required or economically sound, and which will not prop.erly and advantageously contribute to the conduct of the business of the System in an efficient, manner; provided, that to the extent permitted by law, the City may provide commodities, services or facilities free of charge or at a reduced charge in order to carry out a plan adopted by the Council for conservation of water or to benefit elderly, handicapped or poor persons Section 6.8 Tax Covenants. The City hereby covenants that it will not make any use of the proceeds of sale of the 1996 Bonds or any other funds of the City that may be deemed to be proceeds of such 1996 Bonds pursuant to Section 148 of the Code that will cause the 1996 Bonds to be "arbitrage bonds" within the meaning of said section. The City will comply with the applicable arbitrage requirements of Section 148 of the Code (or any successor provision thereof applicable to the 1996 Bonds) throughout the term of the 1996 Bonds The City further covenants that it will not take any action or permit any action to be taken that would cause the 1996 Bonds to constitute "pnvate activity bonds", under Section 141 of the Code -25- NMNOOU DOC 96 /05/06 The City hereby designates the 1996 Bonds as "Qualified Tax - Exempt Obligations" under • Section 265(b) of the Code for investment by financial institutions ARTICLE VII ADDITIONAL BONDS Section 7.1 Additional Bonds Second Lien Parity Bonds may be issued payable from the Bond Fund on a parity with the 1996 Bonds and 1991 Bonds and secured by an equal charge and hen on the Gross Revenues pledged to the Bond Fund First, for the purpose of acquinng, constructing and installing additions and improvements to and extensions of, acquiring necessary equipment for or making necessary repairs, replacements or other capital improvements to the System, or ,Second, for the purpose of refunding, or purchasing and retiring prior to their maturity, any outstanding Bonds or other revenue obligations of the System (a) The City may issue Second Lien Parity Bonds upon compliance with the following conditions 0 1 At the time of the issuance of such Parity Bonds, there shall be no deficienc\ in the Bond Fund or in the bond fund securing the First Lien Panty Bonds 2 In each ordinance authorizing such Second Lien Panty Bonds. provision shall be made for payments into the Reserve Account in accordance with Section 5 2(a) (iv) of this ordinance 3 At the time of the issuance of such Second Lien Panty Bonds, the City shall have on file a certificate from the Professional Utility Consultant, not then employed by the City except for the purpose of giving such certificate, showing that the Net Revenue received during any consecutive 12 -month penod for which financial statements are available within the 24 months preceding the date of delivery of such Second Lien Panty Bonds equals the Coverage Requirement in each calendar year or Fiscal Year thereafter on the then - Outstanding Second Lien Parity Bonds and the Additional Bonds to be issued, after payment of debt service on all Outstanding First Lien Parity Bonds, and that the Adjusted Net Revenues to be received each -26- NMNDOU.DOC 96/05/06 • calendar year or Fiscal Year thereafter, will equal at least 1 40 times (1 25 times when no 1991 Bonds are Outstanding) the Average Annual Debt Service each such calendar year or Fiscal Year, on the Outstanding Second Lien Parity Bonds and the Additional Bonds to be issued, after payment of debt service on all Outstanding First Lien Panty Bonds The Adjusted Net Revenues shall be the Net Revenues for a period of any 12 consecutive months out of the 24 months immediately preceding the date of delivery of such proposed Additional Bonds, as adjusted to take into consideration changes in Net Revenues estimated to occur under one or more of the following, conditions for each year after such delivery for so long as any Bonds, including the Additional Bonds proposed to be issued, shall be outstanding (A) Any increase or decrease in Net Revenues which would result if any change in rates and charges adopted by the Council prior to the date of such certificate and subsequent to the beginning of such 12 -month penod, had been in force during the full 12 -month penod, (B) The additional Net Revenues from any rate increases which have been • appro\ed by ordinance of the Council but which are not then in effect, - (C) Any increase or decrease in Net Revenues estimated by such Professional Utility Consultant to result from any additions, betterments and improvements to and extensions of any facilities of the System which (i) became fully operational during such 12 -month period, (ii) were under construction at the time of such certificate, or (iii) will be constructed from the proceeds of the Additional Bonds to be issued, (D) The additional Net Revenues which would have been received if any customers added to the System during such 12 -month penod were customers for the entire period (E) The additional Net Revenues that may be derived by the City from any users of the System with whom the City has entered into a contract for utility services to be furnished, which revenues have not otherwise been included in Net Revenues Such Professional Utility Consultant shall base his certification upon, and his certificate shall have attached thereto, financial statements of the System audited by the State Examiner -27- NMNOOU.DOC 96/05/06 (unless such an audit is not available for a 12 -month period within the preceding 24 months) and • certified by the chief financial officer of the City, showing income and expenses for the period upon which the same is based The certificate of such Professional Utility Consultant shall be conclusive and the only evidence required to show compliance with the provisions and requirements of this subsection. Notwithstanding the foregoing, if Additional Bonds are to be issued for the purpose of refunding at or prior to their matunty any part or all of the then Outstanding Bonds and the issuance of such refunding Additional Bonds results in a debt service savings and does not require an increase of more than $5,000 in any year for principal and interest on such refunding Additional Bonds, the certificate required by subsection (a) (3) of this section need not be obtained (b) Nothing herein contained shall prevent the City from issuing revenue bonds or other obligations which are a charge upon the Gross Revenues of the System junior or inferior to the payments required by this ordinance to be made out of such Gross Revenues into the Bond • Fund and accounts therein to pay and secure the payment of any Outstanding Bonds (c) Nothing herein contained shall prevent the City from issuing revenue bonds to refund maturing Bonds for the payment of which money is not otherwise available (d) Notwithstanding any other provision of this ordinance, for so long as the 1996 Bonds are Outstanding, no bonds may be issued subsequent to the issuance of the 1996 Bonds with a lien and charge on the Gross Revenues superior to the lien and charge of the 1996 Bonds Section 7.2 Pledge Effected by Ordinance (a) The 1996 Bonds are special limited obligations of the City payable from and secured solely by Gross Revenues, subject to the prior payment of Costs of Maintenance and Operation of the System and, for so long as any First Lien Panty Bonds are Outstanding, the prior payment of all amounts due on such First Lien Panty Bonds, and other money and assets 0 specifically pledged hereunder for the payment thereof There are hereby pledged as security for t the payment of the pnncipal, premium, if any, and interest on t he 1996 Bonds in accordance with -28- NMNOOU.DOC 96/05/06 their terms of this ordinance, subject only to the provisions of this ordinance restricting or permitting the application thereof for the pu rp oses and on the terms and conditions set forth in this ordinance, (i) the proceeds of the sale of the 1996 Bonds to the extent held in the funds established by this ordinance, (ii) the Gross Revenues, and (iii) the money and assets, if any, credited to the Revenue Fund and the Bond Fund, and the income therefrom. The Gross Revenues and other money and assets hereby pledged shall immediately be subject to the lien of this pledge without any physical delivery thereof or further act, and the hen of this pledge shall be valid and binding as against all parties having claims of any kind in tort, contract or otherwise against the Citti regardless of whether such parties have notice thereof (b) The 1991 Bonds, the 1996 Bonds and any Additional Bonds shall be equally and ratably patiable and secured hereunder without priority by reason of date of adoption of the ordinance providing for their issuance or by reason of their series, number or date of sale, issuance, execution or delivery, and by the bens, pledges, charges, trusts, assignments and covenants made herein, except as otherwise expressly provided or permitted in this ordinance and except as to insurance that may be obtained by the City to insure the repayment of one_ or more series or maturities within a series (c) The 1991 Bonds, the 1996 Bonds and any Additional Bonds shall not in any manner or to any extent constitute general obligations of the City or of the State of Washington, or of any political subdivision of the State of Washington, or a charge upon any general fund or upon any money or other property of the City or of the State of Washington, or of any political subdivision of the State of Washington, not specifically pledged thereto by this ordinance, nor shall the full faith and credit of the city or of the State of Washington, or of any political subdivision of the State of Washington, be pledged to the payment of pnncipal, premium, if any, or interest thereon. -29- NMNDOU DOC 96/05106 ARTICLE VIII DEFAULTS AND REMEDIES • Section 8.1 Events of Default This Ordinance and each ordinance adopted pursuant to Article X are hereinafter in this Article and in Article IX referred to collectively as "the Ordinance " The City hereby covenants and agrees with the purchasers and owners from time to time of any Second Lien Parity Bonds, in order to protect and safeguard the covenants and obligations undertaken by the City securing any Second Lien Parity Bonds, that the following shall constitute "Events of Default" (a) If the City shall default in the performance of any obligation with respect to payments into the Bond Fund and such default is not remedied within a period of 30 days, (b) If default shall be made in the due and punctual payments of the principal of and premium, if any, on any of the Second Lien Parity Bonds when the same shall become due and payable, either at maturity or by proceedings for redemption or otherwise, (c) If default shall be made in the due and punctual payment of any installment of interest on any Second Lien Parity Bonds, (d) If the City shall default in the observance and performance of any other of the covenants, conditions and agreements on the part of the City contained in the Ordinance and such default or defaults shall have continued for a period of 90 days after the City shall have recen. ed from the Bondowners Committee or from the owners of not less than 20% in pnncipal amount of the Second Lien Panty Bonds outstanding, a wntten notice specifying, and demanding the cure of, such default, (e) If the City shall (except as herein permitted) sell, transfer, assign or convey an properties constituting the System or interests therein, or any part or parts thereof, or shall make any agreement for such sale or transfer (except as expressly authonzed by Section 6 3 hereof) -30- NMNOOU DOC 96/05/06 (0 If .an order, judgment or decree shall be entered by a court of competent jurisdiction (a) appointing a receiver, trustee or liquidator for the whole or any substantial part of the System, (b) approving a petition filed against the City seeking the bankruptcy, arrangement or reorganlzatlon of the City under any applicable law of the United States or the State of Washington, or (c) assuming custody or control of the whole or any substantial part of the System under the provisions of any other law for the relief or aid of debtors and such order, judgment or decree shall not be vacated or set aside or stayed (or, in case custody or control is assumed by such order, such custody or control shall not be otherwise terminated), within 60 days from the date of entry of such order, judgment or decree, (g) If the City shall (a) admit in wnting its inability to pay the debts of the System generally as they become due, (b) file a petition in bankruptcy or seeking a composition of indebtedness under any state or federal bankruptcy or insolvency law, (c) make an assignment for the benefit of its creditors, (d) consent to the appointment of a receiver of the whole or any substantial part of the System, or (e) consent to the assumption by any court of competent jurisdiction under the provisions of any other law for the relief or aid, of debtors of custody or control of the whole or any substantial part of the System. Section 8.2 Formation of Bondowners Committee During the continuance of an Event of Default, the owners of Second Lien Panty Bonds representing 20% in principal amount of the Second Lien Parity Bonds then Outstanding may call a bondholders meeting for the purpose of electing a committee to act on behalf of all Bondowners (the "Bondowners Committee ") Such meeting shall be called and the proceedings thereof shall be conducted in the manner provided in Article IX hereof At such meeting the Bondowners present in person or by proxy may, by a majonty of the votes cast, elect one or more persons, who may or may not be Bondowners, to the Bondowners Committee which shall act as trustee for all registered owners of Second Lien Panty Bonds outstanding (the "Bondowners "), and the Bondowners Committee as such trustee may have and exercise all the rights and powers provided for in this ordinance to be exercised by the -3 1 - NMNOOU.DOC 96/05/06 Bondowners Committee The Bondowners present in person or by proxy at said meeting, or at • any adjourned meeting thereof, shall prescribe the manner in which the successors of the persons elected to the Bondowners Committee at such Bondowners meeting shall be elected or appointed, and may prescribe rules and regulations governing the exercise by the Bondowners Committee of the powers conferred upon it herein, and may provide for the termination of the existence of the Bondowners Committee The members of the Bondowners Committee elected by the Bondowners in the manner herein provided, and their successors, as a committee are hereby declared to be trustees for the owners of all the Second Lien Party Bonds then Outstanding, and are empowered to exercise in the name of the Bondowners Committee as trustee, all the rights and powers hereinafter conferred on the Bondowners Committee Section 8.3 Books of City Open to Inspection The City covenants that if an Event of Default shall have happened and shall not have been remedied, the books of record and account of the City and all other records relating to the System shall at all times dunng regular business hours ill be subject to the inspection and use of the Bondowners Committee and any person holding at least 20% of the principal amount of Bonds outstanding and of their respective agents and attorneys The City covenants that if an Event of Default shall happen and shall not have been remedied, the City will continue to account, as a trustee of an express trust, for all Gross Re\ enues and other money secunties and funds pledged under this Ordinance Section 8.4 Suits'at Law or in Equity If an Event of Default shall happen and shall not have been remedied, then and in every such case, the Bondowners Committee by its agents and attorneys, shall be entitled and empowered to proceed forthwith to take such needful steps and institute such suits, actions and proceedings at law or in equity for the collection of all sums in connection with the Second Lien Panty Bonds and to protect and enforce the nghts of Bondowners under this ordinance for the specific performance of any covenant herein contained or in aid of the execution of any power herein granted, or for an accounting against the City as equitable of an express trust, or in of any enforcement y other legal g or q uitable n g ht as the -32- NMNOOU.DOC 96 /05/06 Bondowners Committee being advised by counsel, shall deem most effectual to enforce any of the rights of the owners of the Bonds Any action, suit or other proceedings instituted by the Bondowners Committee hereunder shall be brought in its name as trustee for the Bondowners and all such rights of action upon or under any of the Second Lien Party Bonds or the provisions of this ordinance may be enforced by the Bondowners Committee without the possession of any of the Second Lien Panty Bonds, and without the production of the same at any trial or proceedings relative thereto except where otherwise required by law, and the respective owners of said Second Lien Parity Bonds, by taking and holding the same, shall be conclusively deemed irrevocably to appoint the Bondowners Committee the true and lawful trustee for the respective owners of said Bonds, with authority to institute an such action, suit or proceeding, to receive as trustee and deposit in trust any sums becoming distributable for the receipt of such money, and to do all acts with respect thereto that the Bondowner might have done in person, provided, however, that nothing herein contained shall be deemed to authorize or empower the Bondowners Committee to consent to, acceptor adopt, on behalf of any Bondowner, any plan of reorganization or adjustment affecting the Second Parity Bonds or the City or any right of any owner thereof, or to authorize or empower the Bondowners Committee to vote the claims of the owners thereof in any receivership, insolvency, liquidation, bankruptcy reorganization or other proceeding to which the City shall be a party, and provided further, however, that any Bondowner or Bondowners may by mutual agreement transfer title to the Second Lien Party Bonds held by him or them to the Bondowners Committee, or may by agreement with other Bondowners create or organize a separate trustee or bondowners committee and may confer or organize a separate trustee or bondowners committee= and may confer upon the Bondowners Committee or such separate trustee or bondholders committee and may confer or organize a separate trustee or bondowners committee and may confer upon the Bondowners Committee or such separate trustee or bondholders committee, such powers and • duties and such agreement or agreements shall provide, and the provisions of this ordinance shall not be construed as a limitation on the powers and duties which consenting Bondowners may by J -33- NMNOOU DOG 96 /05/06 agreement confer on the Bondowners Committee or such separate trustee or bondholders Committee shall have full • committee The Bondowners powers of substitution and delegation in C p respect to any of the powers hereby granted Section 8.5 Direction of Actions of Bondowners Committee by Owners of Majonty of Bonds The owners of not less than a majority in principal amount of the Second Lien Party Bonds at the time outstanding, may direct the time, method and place of conducting any proceeding for any remedy available to the Bondowners Committee, or exercising any trust or power conferred upon the Bondowners Committee, provided that the Bondowners Committee shall be provided with reasonable scrutiny and indemnity and shall have the right to decline to follow any such direction only (i) if the Bondowners Committee shall be advised by counsel that the action or proceeding so directed may not lawfully be taken, or (ii) if the Bondowners Committee in good faith shall determine that the action or proceeding so directed would involve the Bondowners Committee in personal liability or that the action or proceeding so directed would be unjustly prejudicial to the owners of Second Lien Panty Bonds not parties to such direction 0 Section 8.6 Suits by Individual Bondowners No owner of any one or more of the Second Lien Party Bonds shall have any nght to institute any action, suit or proceeding at law or in equity for the enforcement of any provision of the Ordinance or the execution of any trust under the Ordinance or for any remedy under the Ordinance, unless an Event of Default shall have happened and be continuing, and unless no Bondowners Committee has been created as herein provided, but any remedy herein authonzed to be exercised by the Bondowners Committee, may be exercised individually by any Bondowner, in his own name and on his own behalf or for the benefit of all Bondowners, in the event no Bondowners Committee has been created, or with the consent of the Bondowners Committee, if such Bondowners Committee has been created, provided, however, that nothing in the Ordinance or in the Second Lien Panty Bonds shall affect 110 or impair the obligation of the City, which is absolute and unconditional, to pay at the respective dates of matunt Y and places therein expressed the principal of and premium, if any, and interest on -34- NMNOOU DOC 96/05/06 • the Second Lien Panty Bonds to the respective owners thereof, or affect or impair the nghts of action, which are also absolute and unconditional, of any owner to enforce the payment of his Second Lien Parity Bonds, or to reduce to judgment his claim against the City for the payment of the principal and interest on his Second Lien Parity Bonds, without reference to, or consent of, the Bondowners Committee or any other owner of the Second Lien Panty Bonds Section 8.7 Waivers of Default No delay or omission of the Bondowners Committee or of any Bondowner to exercise any nght or power arising upon the happening of an Event of Default shall impair any nght or power or shall be construed to be a waiver of any such Event of Default or to be an acquiescence therein, and every power and remedy given by this Article to the Bondowners Committee or to the Bondowners may be exercised from time to time and as often as may be deemed expedient by the Bondowners Committee or by such owners The Bondowners Committee or the owners of not less than 50% in pnncipal amount of the Second Lien Parity Bonds at the time Outstanding, or their attorneys -in -fact duly authonzed, • may on behalf of the owners of all of the Second Lien Parity Bonds waive any past default under the Ordinance and its consequences, except a default in the payment of the principal of and premium. if any, and interest on any of the Second Lien Panty Bonds No such waiver shall extend to an subsequent or other default or impair any nght consequent thereon. Section 8.8 Remedies Granted in Ordinance Not Exclusive No remedy by the terms of the Ordinance conferred upon or reserved to the Bondowners Committee or the Bondowners is intended to be exclusive of any other remedy, but each and every such remedy shall be cumulative and shall be in addition to every other remedy given under the Ordinance or existing at law or in equity or by statute on or after the date of adoption of the Ordinance ARTICLE IX BONDOWNERS MEETINGS Section 9.1 Call of Bondowners Meetings The City, the Bondowners Committee or the owners of not less than 20% in principal amount of the Second Lien Panty Bonds then • outstanding may at any time call a meetin g of the owners of the Second Lien Parity Bonds Every -35- NMNOOU.DOC 96/05/06 such meeting shall be held at such place in the City of Yakima, State of Washington, or in the City of Seattle, State ate of Washington, be specified in the notice calling such meeting. Written as ma y p notice of such meeting, stating the place and time of the meeting and in general terms the business to be transacted, shall be mailed to the Bondowners by the City, the Bondowners Committee or the Bondowners calling such meeting not less than 30 nor more than 60 days before such meeting, and shall be published at least once week for four successive calendar weeks on any day of the week, the date of first publication to be not less than 30 or more than 60 days preceding the meeting, provided, however, that the mailing of such notice shall in no case be a condition precedent to the validity of any action taken at any such meeting. The expenses of publication of such notice shall be paid or reimbursed by the City Any meeting of Bondowners shall, however, be valid without notice if the owners of all Second Lien Parity Bonds then Outstanding are present in person or by proxy or if notice is waived before or within 30 days after the meeting by those not so present Section 9.2 Notice to Bondowners Except as otherwise provided in the Ordinance, any provision in this ordinance for the mailing of a notice or other paper to Bondowners shall be 0 fully complied with if it is mailed postage prepaid to each registered owner of any of the Second Lien Parity Bonds then outstanding at his /her address if any, appearing upon the Bond Register, and any provision in this ordinance contained for publication of a notice• or other matter shall require the publication thereof in The Bond Buyer in the City of New York, State of New York (or in lieu of publication in The Bond Buyer, in a daily newspaper printed in the English language and customarily published on each business day and of general circulation in the Borough of Manhattan, the City of New York, State of New York), and also in a daily newspaper pnnted in the English language and customarily published on each business day and of general circulation in the City of Seattle, State of Washington. Section 9.3 Proxies, Proof of Ownership of Second Lien Panty Bonds Attendance and voting by Bondowners at such meetings may be in person or by proxy Owners of Second 4110 -36- NMNOOU.DOC _ 96 /05/06 • Lien Parity Bonds, by an instrument in writing under their hands, may appoint any person or persons, with full power of substitution, as their proxy to vote at any meeting for them. Any registered owner of Second Lien Panty Bonds shall be entitled in person or by proxy to attend and vote at such meeting as owner of the Second Lien Panty Bonds registered or certified in his /her name without producing such Second Lien Panty Bonds, and such persons and their proxies shall, if required, produce such proof of personal identity as shall be satisfactory to the secretary of the meeting. All proxies presented at such meeting shall be delivered to the inspectors of votes and filed with the secretary of the meeting. All other persons seeking to attend or rote in such meeting must produce the Second Lien Parity Bonds claimed to be owned or represented at such meeting. The vote at any such meeting of the owner of any Second Lien Parity Bond entitled to vote thereat shall be binding upon such owner and upon every such subsequent owner of such Second Lien Parity Bond (whether or not such subsequent owner has notice thereof) Section 9.4 Execution of Instruments by Bondowners Any request, direction, consent or other instrument in writing required or permitted by this ordinance to be signed or executed by Bondowners may be in any number of concurrent instruments of similar tenor, and may be signed or executed by such Bondowners in person or by agent appointed by an instrument in wnting Proof of the execution of any such instrument shall be sufficient for any purpose of this ordinance if the fact and date of the execution by any person of any such instrument may be proved by either (a) an acknowledgment executed by a notary public or other officer empowered to take acknowledgments of deeds to be recorded in the particular jurisdiction, or (b) an affidavit of a witness to such execution sworn to before such a notary public or other officer Where such execution is by an officer of a corporation or association or a member of a partnership on behalf of such corporation, association or partnership, such acknowledgment or affidavit shall also constitute sufficient proof of his/her authonty The foregoing shall not be construed as limiting the City to such proof, it being intended that the City may accept any other evidence of the matters herein stated which it may deem -3 7- NMNOOU DOC 96/0S/06 sufficient Any request or consent of any Bondowner shall bind every future owner of the same • Second Lien Parity Bond in respect of anything done by t he City in pursuance of such request, direction or consent The right of a proxy for a Bondowner to act may be proved (subject to the City's right to require additional proof) by a written proxy executed by such Bondowner as aforesaid Section 9.5 Appointment of Officers at Bondowners Meetings Persons named by the City or elected by the owners of a majority in principal amount of the Second Lien Panty Bonds represented at the meeting in person or by proxy in the event the City is not represented at such meting, shall act as temporary chairperson and temporary secretary of any meeting of Bondowners A permanent chairperson and a permanent secretary of such meeting shall be elected b■ the owners of a majority in principal amount of the Bonds represented at such meeting in person or by proxy The permanent Chairperson of the meeting shall appoint two inspectors of votes who shall count all votes cast at such meeting, except votes on the election of chairperson 0 and secretary as aforesaid, and who shall make and file with the secretary of the meeting and with the Cit\ their verified report of all such votes cast at the meeting Section 9.6 Quorum at Bondowners Meetings The owners of not less than the principal amount of the Second Lien Panty Bonds required for any action to be taken at such meeting must be present at such meeting in person or by proxy in order to constitute a quorum for the transaction of business, less than a quorum, however, having power to adjourn from time to time without any other notice than the announcement thereof at the meeting, provided, however, that, if such meeting is adjourned by less than a quorum for more than ten days, notice thereof shall be published by the City at least five days prior to the adjourned date of the meeting. III -3 8- NMNOOU DOC 96/05/06 ARTICLE X AMENDMENTS TO ORDINANCE. Section 10.1 Amendments (a) The Council from time to time and at any time may pass an ordinance or ordinances amending this ordinance, which ordinance or ordinances thereafter shall become a part of this ordinance, for any one or more or all of the following purposes (1) To add to the covenants and agreements of the City in this ordinance, other covenants and agreements thereafter to be observed, which shall not adversely affect the interests of the owners of any Second Lien Party Bonds, or to surrender any right or power herein resen ed (2) To make such provisions for the purpose of curing any ambiguities or of curing, correcting or supplementing any defective provision contained in this ordinance or any ordinance authorizing Additional Bonds in regard to matters or questions arising under such • ordinances as the Council may deem necessary or desirable and not inconsistent with such ordinances and which shall not adversely affect, in any material respect, the interest of the owners of Second Lien Parity Bonds Any such amending ordinance may be adopted without the consent of the owners of any Second Lien Party Bonds outstanding, notwithstanding subsection (b) of this section. (b) With the consent of the owners of not less than 65% in aggregate principal amount of the Second Lien Parity Bond at the time Outstanding, the Council may pass an ordinance or ordinances supplemental hereto for the purpose of adding any provisions to or changing in any manner or eliminating any of the provisions of this ordinance or of any amending ordinance, provided, however, that no such amending ordinance shall (1) Extend the fixed maturity of any Second Lien Panty Bonds, or reduce the rate of interest thereon, or extend the time of payment of interest from their due date, or reduce • the amount of the principal thereof, or reduce any premium payable on the redemption thereof, without the consent of the owner of each bond so affected, or -39- NMNOOU.DOC 96/05/06 (2) Reduce the aforesaid percentage of Bondowners required to approve any • such amendin ordinance, without the consent of the o wners of all of the Second Lien Panty Bonds then Outstanding It shall not be necessary for the consent of Bondowners under this subsection (b) to approve the particular form of any proposed supplemental ordinance, but it shall be sufficient if such consent shall approve the substance thereof (c) Upon the adoption of any ordinance pursuant to the provisions of this Section, this ordinance shall be deemed to be modified and amended in accordance therewith, and the respective rights, duties and obligations of the City under this ordinance and all owners of Second Lien Party Bonds outstanding hereunder shall thereafter be determined, exercised and enforced thereunder, subject in all respects to such modification and amendments, and all terms and conditions of any such supplemental ordinance shall be deemed to be part of the terms and conditions of this ordinance for any and all purposes (d) Second Lien Party Bonds executed and delivered after the execution of any amending ordinance passed pursuant to the provisions of this section may have a notation as to any matter provided for in such amending ordinance, and if such supplemental ordinance shall so provide, new bonds so modified as to conform, in the opinion of the Council, to any modification of this ordinance contained in any such supplemental ordinance, may be prepared and delivered without cost to the owners of any affected Second Lien Panty Bonds then outstanding, upon surrender for cancellation of such bonds with all unmatured coupons and all matured coupons not fully paid, in equal aggregate pnncipal amounts Section 10.2 Obtaining Approval of Amendments at Bondowners Meeting The City may at any time adopt an ordinance amending the provisions of this ordinance to the extent that such amendment is permitted by the provisions of this Article X, to take effect when and as provided in this Section. At any time thereafter such ordinance may be submitted by the City for approval to a meeting of the bondowner duly convened and held in accordance with the P record in P provisions of this ordinance A d duplicate of the proceedings of each meeting of the -40- NMNOOU -DOC 96/05/06 Bondowners shall be prepared by the permanent secretary of the meeting and shall have attached U f votes and affidavits by a person or persons haven thereto the original reports of the inspectors o o d y p p g knowledge of the facts, showing a copy of the notice of the meeting and setting forth the facts with respect to the mailing and publication thereof under the provisions of this ordinance Such a record shall be signed and venfied by the affidavits of the permanent chairperson and the permanent secretary of the meeting, and one duplicate thereof shall be delivered to the City Any record so signed and verified shall be proof of the matter therein stated If the ordinance of the City making such amendment shall be approved by a resolution duly adopted at such meeting of bondowners by the affirmative vote of the owners of the required percentages of Second Lien Parity Bonds, a notice stating that a resolution approving such amendment has been so. adopted shall be mailed by the City to each bondholder who has requested such notice (but failure so to mail copies of such notice shall not affect the validity of such resolution) and shall be published at lest once in the manner provided in Section 9 2 hereof Proof of such mailing and publication by the affidavit or affidavits of a person or persons having knowledge of the facts shall be filed with the City Such ordinance of the City making such amendment shall be deemed conclusively to be binding upon the City, the paying agents, and the owners of all Second Lien Party Bonds at the expiration of 30 days after the publication of the notice provided for in this Section, except in the event of a final decree of a court of competent jurisdiction setting aside such ordinance or annulling the action taken thereby in a legal action or equitable proceeding for such purpose commenced within such period, provided that the City and any paying agents dunng such 30 day period and any such further period dunng which such action or proceeding may be pending shall be entitled in their absolute discretion to take such action, or to refrain from taking such action, with respect to such ordinance as they may deem expedient Nothing in this ordinance contained shall be deemed or construed to authonze or permit, by reason of any call of a meeting of Bondowners or of any nght conferred hereunder to make such a call, any hindrance or delay in the exercise of any rights conferred upon or reserved to the paying agents or the Bondowners ® and any of the provisions of this ordinance y p -41 - NMN000.DOC 96 /05/06 Section 10.3 Alternate Method of Obtaining Approval of Amendments The City may at • any time adopt an ordinance amending the provisions of this ordinance, or of any Second Lien Parity Bonds, to the extent that such amendment is permitted by the provisions of this Article, to take effect when and as provided in this Section Upon adoption of such ordinance, a request that Bondowners consent thereto shall be mailed by the City to the Bondowners and notice that the City is requesting Bondowners to consent to such amendment shall be published at least once in the manner provided in Section 9 2 hereof Such ordinance shall not be effective unless and until there shall have been filed with the City the written consents of the percentages of owners of outstanding Bonds specified herein and a notice shall have been published as hereinafter in this Section provided Each such consent shall be effective only if accompanied by proof of ownership of the Second Lien Panty Bond for which such consent is given A certificate or certificates of the Clerk of the City that he /she has examined such proof and that such proof is sufficient shall be conclusive that the consents have been given by the owners of the Second Lien ill Parity Bonds described in such certificate or certificates Any such consent shall be binding upon the owner of the Second Lien Parity Bonds giving such consent and on every subsequent owner of such Second Lien Parity Bonds (whether or not such subsequent owner has notice thereof) A notice stating that the ordinance has been consented to by the owners of the required percentages of Bonds and will be effective as provided in this Section, may be given to the Bondowners by mailing such notice to the bondholders, and shall be given by publishing the same at least once in the manner provided in Section 9 2 hereof A record, consisting of the papers required by this Section to be filed with the City shall be proof of the matters therein stated, and this ordinance shall be deemed conclusively to be binding upon the City and the owners of all Second Lien Panty Bonds at the expiration of 30 days after the notice last provided for in this Section, except in the event of a final decree of a court of competent junsdiction setting aide such consent or annulling the action taken thereby in a legal action or equitable proceeding for such purpose commenced within such period 411 -42- NMNOOU DOC 96/05/06 Section 10.4 Amendment of Ordinance in Any Respect by Approval of All Bondowners Notwithstanding anything contained in the foregoing provisions of this Article, the nghts and obligations of the City and of the owners of the Second Lien Panty Bonds, and the terms and provisions of the Second Lien Panty Bonds and of this ordinance, may be amended in any respect with the consent of the City, by the affirmative vote of the owners of all said Bonds then Outstanding at a meeting of Bondowners called and held as heremabove provided, or upon the adoption of an ordinance by the City and the consent of the owners of all the Second Lien Panty Bonds then Outstanding, such consent to be given as provided in Section 10 3 except that no notice to bondowners either by mailing or publication shall be required, and the amendment shall be effective immediately upon such unanimous vote or written consent of all of the Bondowners Section 10.5 Exclusion of Bonds Owned by City Second Lien Panty Bonds owned or held by or for the account of the City shall not be deemed Outstanding for the purpose of any vote or consent or other action or any calculation of Outstanding Bonds in this ordinance provided for, and shall not be entitled to vote or consent or take any other action in this ordinance provided for Section 10.6 Endorsement of Amendment on Bonds Second Lien Parity Bonds delivered after the effective date of any action amending this ordinance may - bear a notation by endorsement or otherwise as to such action, and in that case upon demand of the owner of any Second Lien Party Bond Outstanding at such effective date and presentation of his /her Second Lien Parity Bond for that purpose at the principal office of the paying agents, suitable notation shall be made on such Second Lien Panty Bond by the paying agent as to any such action. If the City shall so determine, new Second Lien Panty Bonds so modified as in the opinion of the City and its counsel to conform to such action shall be prepared, delivered and upon demand of the owner of any Second Lien Panty Bond then outstanding shall be exchanged without cost to such Bondowner for Second Lien Panty Bonds then outstanding hereunder, upon surrender of such Bonds with any unmatured coupons pertaining thereto 110 -43- NMNOOU DOC 96/05/06 ARTICLE XI • MISCELLANEOUS Section 1 1.1 Undertaking to Provide Ongoing Disclosure (a) Contract/Undertaking This section constitutes the City's written undertaking for the benefit of the owners of the Bonds as required by Section (b)(5) of the Rule (b) Financial Statements /Operating Data. The City agrees to provide or cause to be provided to each NRMSIR and to the SID, if any, in each case as designated by the Commission in accordance with the Rule, the following annual financial information and operating data for the prior fiscal year (commencing in 1997 for the fiscal year ended December 31, 1996) (I) Annual financial statements showing ending fund balances for the System prepared in accordance with the Budget Accounting and Reporting System prescribed by the Washington State Auditor pursuant to RCW 43 09 200 (or any successor statute) and generally of the type included in the official statement for the Bonds under the heading "Water and Sewer Operating Statement ", (2) Principal amount of Bonds of the System, (3) Debt service coverage for Outstanding Bonds, (4) Rates for the System, and (5) Number of customers of the System Such annual information and operating, data described above shall be provided on or before nine months after the end of the City's fiscal year The City's current fiscal year ends December 31 The City may adjust such fiscal year by providing wntten notice of the change of fiscal year to each then existing NRMSIR and the SID, if any In lieu of providing such annual financial information and operating data, the City may cross - reference to other documents provided to the NRMSIR, the SID or to the Commission and, if such document is a final official statement within the meaning of the Rule, available from the MSRB If not provided as part of the annual financial information discussed above, the City shall provide the City's audited annual financial statement for the System prepared in accordance with fb -44- NMNOOU DOC 96/05/06 the Budget Accounting and Reporting System prescribed by the Washington State Auditor pursuant to RCW 43 09 200 (or any successor statute) when and if available to each then existing NRMSIR and the SID, if any (c) Material Events The City agrees to provide or cause to be provided, in a timely manner, to the SID, if any, and to each NRMSIR or to the MSRB notice of the occurrence of any of the following events with respect to the 1996 Bonds, if material (1) Principal and interest payment delinquencies, (2) Non - payment related defaults, (3) Unscheduled draws on debt service reserves, if any, for the 1996 Bonds reflecting financial difficulties, (4) Unscheduled draws on credit enhancements, if any, for the 1996 Bonds reflecting financial difficulties, (5) Substitution of credit or Iiquidity providers, if any, or their failure to 0 perform (6) Adverse tax opinions or events affecting the tax - exempt status of the 1996 Bonds, (7) Modifications to the rights of 1996 Bond owners, (8) Optional redemption of 1996.Bonds prior to their matunty; (9) Defeasance of the 1996 Bonds, (10) Release, substitution or sale of property, if any, secunng repayment of the 1996 Bonds, and (11) Rating change for the 1996 Bonds With reference to item 10 above, no property secures repayment of the 1996 Bonds (d) Notification Upon Failure to Provide Financial Data. The City agrees to provide or cause to be provided, in a timely manner, to each NRMSIR or to the MSRB and to the SID, if any, notice of its failure to provide the annual financial information described in Subsection B ® above on or prior to the date set forth in Subsection B above -45- NMNDOU. DOC 96/05/06 r (e) Termination/Modification The City's obligations to provide annual financial ill information and notices of material events shall terminate upon the legal defeasance, pnor redemption or payment in full of all of the 1996 Bonds This section, or any provision hereof, shall be null and void if the City (1) obtains an opinion of nationally recognized bond counsel to the effect that those portions of the Rule which require this section, or any such provision, are invalid, have been repealed retroactively or otherwise do not apply to the 1996 Bonds, and (2) notifies each then existing NRMSIR and the SID, if any, of such opinion and the cancellation of this section Notwithstanding any other provision of this motion, the City may amend this Section 11 1, and any provision of this Section 11 1 may be waived, provided that the following conditions are satisfied (1) If the amendment or waiver relates to the provisions of Sections 11 1(b)(1) -(5) or (c), 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 10 status of the City with respect to the 1996 Bonds, or the type of business conducted, (2) The undertaking, as amended or taking into account such waiver, would, in the opinion of nationally recognized bond counsel, have complied with the requirements of the Rule at the time of the original issuance of the 1996 Bonds, after taking into account any amendments or interpretations of the Rule, as well as any change in circumstances, and (3) The amendment or waiver either (i) is approved by the owners of the 1996 Bonds or (ii) does not, in the opinion of nationally recognized bond counsel, materially impair the interests of the owners or beneficial owners of the 1996 Bonds In the event of any amendment or waiver of a provision of this Section 11 1, the City shall describe such amendment in the next annual report, and shall include, as applicable, a narrative explanation of the reason for the amendment or waiver and its impact on the type (or in the case of a change of accounting pnnciples, on the presentation) of financial information or operating 0 data being presented by the City In addition, if the amendment relates to the accounting -46- NMNOOU DOC 96/05/06 principles to be followed in preparing financial statements, (i) notice of such change shall be given in the same manner as for a material event under subsection (c), and (ii) the annual report for the year in which the change is made should present a comparison (in narrative form and also, if feasible, in quantitative form) between the financial statements as prepared on the basis of the new accounting principles and those prepared on the basis of the former accounting principles (f) Bond Owner's Remedies Under This Section The nght of any Bond Owner or Beneficial Owner of 1996 Bonds to enforce the provisions of this section shall be limited to a right to obtain specific enforcement of the City's obligations hereunder, and any failure by the City to comply with the provisions of this undertaking shall not be an event of default with respect to the 1996 Bonds hereunder For purposes of this section, "Beneficial Owner" means any person who has the power, directly or indirectly, to vote or consent with respect to, or to dispose of ownership of, any 1996 Bonds, including persons holding 1996 Bonds through nominees or depositories 0 Section 11.2 Severability If any one or more of the covenants or agreements provided in this ordinance to be performed on the part of the City shall be declared by ,any court of competent jurisdiction to be contrary to law, then such covenant or covenants, - agreement or agreements, shall be null and void and shall be deemed separable from the remaining covenants and agreements in this ordinance and shall in no way affect the validity of the other provisions of this ordinance or of any Second Lien Party Bonds Section 11.3 General Authonzation The Mayor and Director of Finance and Budget, and each of the other appropriate officers, agents and representatives of the City are each hereby authorized and directed to take such steps, to do such other acts and things, and to. execute such letters, certificates, agreements, papers, financing statements, assignments or instruments as in their judgment may be necessary, appropriate or desirable in order to carry out the terms and provisions of, and complete the transactions contemplated by this ordinance 110 Section 11.4 Prior Acts All acts taken pursuant to the authonty of this ordinance but prior to its effective date are hereby ratified and confirmed -47- NMNOOU.DOC 96/05/06 Section 11.5 Effective Date This ordinance shall be effective 30 days after its passage, approval and publication as provided by law PASSED by the Council of the City of Yakima at a regular meeting thereof, held this 21st day of May, 1996 CITY OF YAKIMA, WASHINGTON Lynn Buchanan, Mayor ATTEST c vwc- City Clerk APPROVED AS TO FORM " • CityfAttorney Publication Date p?V 74, Effective Date — `► � - 96 • -48- 1110 APPENDIX A UNITED STATES OF AMERICA NO $ STATE OF WASHINGTON CITY OF YAKIMA WATER AND SEWER REVENUE REFUNDING BOND, 1996 INTEREST RATE CUSIP NO MATURITY D ATE REGISTERED OWNER PRINCIPAL AMOUNT Dollars The City of Yakima, Washington (the "City "), a municipal corporation of the State of Washington, for value received hereby promises to pay to the Registered Owner identified above on the Maturity Date identified above the Principal Amount identified above and to pay interest thereon from the date hereof, or the most recent date to which interest has been paid or duly provided for at the Interest Rate set forth above, such interest to be payable semiannually on the first days of and of each year (commencing 1, 199J until the maturit> of this bond (or if default should be made in the payment of the principal hereof when the same shall become due and payable, at the same rate of interest until the payment in full of such principal sum) The principal of and interest on this bond are payable solely out of the special fund of the City known as the "Second Lien Water and Sewer Revenue Bond Fund" ( "Bond Fund ") Both principal of and interest on this bond are payable in lawful money of the United States of America. Interest shall be paid by mailing a check or draft to the Registered Owner at the address shown on the Bond Register as of the 15th day of the month prior to the interest payment date Pnncipal shall be paid to the Registered Owner upon presentation and surrender of this bond at the principal office of the fiscal agency of the State of Washington in either Seattle, Washington, or New York, New York (hereinafter referred to collectively as the "Bond Registrar ") Reference is hereby made to additional provisions of this bond set forth on the reverse side hereof, and such additional provisions shall for all purposes have the same effect as if set forth on this space A- 1 NMNOOU DOC 96/0506 This bond shall not be valid or become obligatory for any purpose or be entitled to any security or benefit under the Bond Ordinance (as hereinafter defined) until the Certificate of Authentication hereon shall have been manually signed by the Bond Registrar It is hereby certified, recited and declared that all acts, conditions and things required by the Constitution and statutes of the State of Washington to exist, to have happened and to have been performed precedent to and in the issuance of this bond do exist, have happened and have been performed in due time, form and manner as prescribed by law, and that the amount of this bond, together with all other obligations or indebtedness of the City, does not exceed any constitutional or statutory limitations of indebtedness IN WITNESS WHEREOF, the City of Yakima, Washington, has caused this bond to be signed by the manual or facsimile signature of its Mayor, and attested by the manual or facsimile signature of its Clerk, and the manual or facsimile seal of the City to be impressed or impnnted hereon, all as of the 1st day of , 1996 CITY OF YAKIMA, WASHINGTON By /s/ Mayor (SEAL) 4 110 Attest /s/ Clerk CERTIFICATE OF AUTHENTICATION Date of Authentication This bond is one of the bonds described in the within mentioned Bond Ordinance and is one of the Water and Sewer Revenue Refunding Bonds, 1996 of the City of Yakima, Washington, dated 1, 1996 WASHINGTON STATE FISCAL AGENCY, Bond Registrar By Authonzed Officer A-2 NMNOOU DOC 96/05/06 ADDITIONAL BOND PROVISIONS This bond is one of a series of bonds in the aggregate principal amount of $ issued under authority of Ordinance No , passed by the City Council on 1996 (the "Bond Ordinance "), for the purpose of providing funds to refund certain water and sewer revenue bonds of the City The bonds of this issue have been designated as "qualified tax- exempt obligations" for purposes of Section 265(b) of the Internal Revenue Code of 1986, as amended The City hereby covenants and agrees with the owner of this bond that it will keep and perform all the covenants of this bond and of the Bond Ordinance Reference is hereby made to the Bond Ordinance for the definitions of capitalized terms used herein. The City does hereby pledge and bind itself to set aside from Gross Revenue and to pay into the Bond Fund and the accounts created therein the vanous amounts required by the Bond Ordinance to be paid into and maintained in such fund and accounts, all within the times provided by the Bond Ordinance To the extent more particularly provided by the Bond Ordinance, the amounts so pledged to be paid from Gross Revenue into the Bond Fund and accounts therein shall be a lien and charge thereon equal in rank to the lien and charge upon said Revenue of the amounts required to pay and secure the payment of the Water and Sewer Revenue Bonds, 1991 and any revenue bonds of the City hereafter issued on a panty with the bonds of this issue and superior to all other liens and charges of any kind or nature. except the Costs of Maintenance and Operation of the System and the First Lien Parity Bonds The City has further bound itself to maintain the System in good repair, working order and condition, to operate the same in an efficient manner and at a reasonable cost, and to establish, maintain and collect rates and charges in each calendar year that will make available, for the payment of the principal of and interest on Bonds outstanding as the same shall become due, Net Revenue in an amount that will be equal to the Coverage Requirement (as defined in the Bond Ordinance) The pledge of Gross Revenue and other obligations of the City under the Bond Ordinance may be discharged at or prior to the maturity or redemption of the bonds of this issue upon the making of provision for the payment thereof on the terms and conditions set forth in_the Bond Ordinance Reference is made to the Bond Ordinance for a description of the Bond Fund and the covenants and declarations of the City and other terms and conditions upon which the bonds authorized thereby have been issued and other bonds ranking on a panty therewith may hereafter be issued and outstanding A -3 NMNOOU DOC 96!05 /06 This bond is a special limited obligation of the City and is not an obligation of the State of Washington or any political subdivision thereof other than the City, and neither the full faith and credit nor the taxing power of the City or the State. of Washington is pledged to the payment of this bond The bonds maturing on or after 1, 200_ are subject to redemption prior to maturity, at the option of the City, on or after 1, 200, in whole or in part on any date, maturities to be selected by the City (and by lot within a maturity in increments of $5,000 if less than all of a maturity is to be redeemed), at par, together with the interest accrued thereon to the date fixed for redemption. Written notice of redemption shall be given by first class mail, postage prepaid, not less than 30 days nor more than 60 days before the redemption date to the Registered Owners of the bonds to be redeemed in whole or in part at their last addresses, if any, appearing on the Bond Register, but failure to receive any such notice shall not affect the validity of the proceedings for redemption of bonds Notice of redemption having been given by mailing, as aforesaid, the bonds so called for redemption shall on the date specified in such notice become due and payable at the applicable redemption price herein provided, and from and after the date so fixed for redemption (unless the City shall default in the payment of the bonds so called for redemption) interest on said bonds so called for redemption shall cease to accrue Portions of the principal sum of this bond in increments of $5,000 or any integral multiple thereof may be redeemed, and if less than all of the pnncipal sum hereof is to be redeemed, in such case upon the surrender of this bond at the pnncipal office of the Bond Registrar, there shall be issued to the Registered Owner, without charge therefor, for the then unredeemed balance of the principal sum hereof, fully registered bonds of like senes, maturity and interest rate in any of the denominations authorized by the Bond Ordinance Bonds are interchangeable for bonds of any authorized denomination of equal aggregate principal amount and of the same interest rate and maturity upon presentation and surrender to the Bond Registrar The Bond Registrar shall not be required to issue, register, transfer or exchange any of the bonds during a period beginning at the opening of business on the 15th day of the month next preceding any interest payment date and ending at the close of business on such interest payment date A-4 NM NOOU. DOC 96/05/06 ASSIGNMENT FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers unto PLEASE INSERT SOCIAL SECURITY OR TAXPAYER IDENTIFICATION NUMBER OF TRANSFEREE (Please print or typewrite name and address, including zip code, of Transferee) the within bond and does hereby irrevocably constitute and appoint as attorney -in -fact to transfer said bond on the books kept for registration thereof with full power of substitution in the premises DATED , SIGNATURE GUARANTEED 0 NOTE The signature on this Assignment must correspond with the name of the Registered Owner as it appears upon the face of the within bond in every particular, without alteration or enlargement' or any change whatever A-5 NMNOOU.DOC 96/05/06 BUSINESS OF THE CITY COUNCIL 0 YAKIMA, WASHINGTON AGENDA STATEMENT 3 Item No For Meeting Of 5/21/96 ITEM TITLE: Ordinance authorizing the iss snce o -1996 Water /Sewer Refunding Bonds SUBMITTED BY Department of Finance & B dget I 1/.../ CONTACT PERSON/TELEPHONE John Hatison Director of Finance & Budget Tim Jensen, • countant SUMMARY EXPLANATION As part of the Fiscal Management of the City's debt portfolio, City staff, on occasion, will review the potential for interest cost savings caused by market fluctuations By issuing what is called "refunding" or advance refunding bonds, the City can take advantage of market conditions and provide interest cost savings The practice is similar to refinancing a home to benefit from lower interest rates On March 1st of this year, the opportunity to refund the 1978 bond issue, as a current refunding at lower interest rates and save the Water /Sewer divisions significant interest costs occurred In March, the present value savings was approximately $250,000 or 7 5% of the original issue amount. Typically, 5% is a minimum savings to commence refunding Before staff could act to accomplish the refunding interest rates moved up suddenly and diminished our savings significantly Since that time, rates have receded a bit and the savings associated with the refunding are again close to where the Department may recommend selling refunding bonds The Finance Department believes interest rates 410 are still moving down and would like approval to issue either current or advance refunding bonds in an amount not to exceed $4 million. This is adequate to defease the '78 issue If interest rates do not decrease staff will not proceed with the refunding until such time as it is advantageous to the City At the time when the actual opportunity to sell refunding bonds occurs, staff will return to Council with a definite purchase offer from our underwriters, Seattle Northwest Securities, which spell out exact interest cost savings to be obtained. Staff will evaluate the conditions affecting both the bond market and the City's borrowing needs to determine if proceeding with this refunding is in the City's best interest at that time Attached is a faxed copy of the Preliminary Official Statement (bound copies are available in the Finance Department Office) This statement will be revised with more final data prior to the bond sale At that time Council will be able to review the final document as it will be part of the Resolution required to consummate the final bond sale Also attached is the Bond Ordinance prepared by the City's Bond Counsel, Preston, Gates & Ellis. Resolution _ Ordinance X Contract _ Other (Specify) Preliminary Official Statement Funding Source , r APPROVED FOR SUBMITTAL - �=->�\ City Manager j STAFF RECOMMENDATION Pass Ordinance BOARD /COMMISSION RECOMMENDATION COUNCIL ACTION Legal BD Agenda Stmt /78 Refunding MAI 17 '96 01 47PM SEATTLE NORTHWEST P 2/26 Draft dated: May 1, 1996 PRELIMINARY OFFICIAL STATEMENT DATED i 199 0 New Issue Moody's Rating: Applied F g Book Entry Only (See the caption "Rating herein) "i In the opinion of Bond Counsel, interest on the 1996 Bonds is excluded from an come sj fe tax ation pursuant to the Internal Revenue Cods of 1986, as amended, aubfect gro to certa cond i ub tio ect to ns and asa deral urnincome ptio described herein under ' The 1996 Bonds are not private activity bonds. Interest an the 1996 Bonds ns , is included in the computation of certain federal taxes on corporations. tl $3,42o,000* ft City of Yakima, Washington 11 Second Lien Water and Sewer Revenue Refunding Bonds, 1996 l a Dated: September 1,1996 Due: March 1, as shown below j e The 1996 Bonds will be issued as registered bonds in denominations of 55,000, or integral multiples S 1 thereof and will be registered in the name of Cede & Co. as bond owner and nominee for The Depository I% Trust thereof, ("DT), New New York, New York. DTC will act ae securities depository for the 1996 Bonds. Purchasers will not receive certificates representing their interest in the 1996 Bonds purchased. Interest 4� on the 1996 Bonds will be paid on December 1, 1996 and semiannually thereafter on June 1 and ii December 1 of each year Principal of and interest on the Bonds will be payable by either fiscal agency of the State of Washington in New York New York or Seattle, Washington, currently The Bank of New _ York and First Interstate Bank of Washington, N.A., and as further described herein. For so long as the Bonds remain in a "book-entry only" transfer system, the fiscal agent will make such payments only to kl DTC, which will in turn remit such principal and interest to the DTC participants of r subsequent disbursement to Beneficial Owners of the 1998 Bonds as further described herein under the caption "Book. Entry Only System." u � 1 * Int erest Yie i � Duui a Interest Yield or 1996 8 245,000 I 2003 8 265,000 c 1997 205,000 ! 2004 280,000 1998 210,000 2006 290,400 i S 1999 220,000 2006 305,000 8 T 2000 280,000 2007 880,000 2 i 20 240,000 2008 345,000 2002 255,000 it (Plus accrued interest from September 1, 1996) '' The 1996 Bonds maturing on or after December 1, 2007, will be subject to redemption at the o tion of th 1 E City on and after December 1, 2006, as further described herein. p e J ! The 1996 Bonds are issued junior to the City's 81,845,000 Outstanding First Lien Water and Sewer 31 Revenue Refunding Bonds and are payable solely from and secured b the Revenue of the System after all required payments for the Costs of Maintenance and Operation and the First Lien Parity Bonds have been made or du provided for The 1896 Bonds are issued on a parity with the City's $6,290,000 Outstanding i Second Lien Water and Sewer Revenue Bonds. For so long as the 1996 Bonds are outstanding, no bonds may be issued subsequent to the issuance of the 1996 Bonds with a lien and charge on the Gross Revenues superior to the lien and charge of the 1996 Bonds. s The 1986 Bonds are .offered when, as and if issued and received by the Underwriter, subject to the • approval of legality by Preston Gates & Ellis Seattle Washington, Bond Counsel. The 1996 Bonds will be ready for delivery at the facilities of DTC in New York, New York on or about Preliar��QUbisot to chance D ate : Seattle - Northwest Securities Corporation P1A'r 17 96 01 47PN SEATTLE NORTHWEST P 3/26 City of Yakima, Washington 129 North Second Street Yakima,6 a is n 98901 • Elected Officials City Cnugnil Term Lmiree Clarence Barnett December 81, 1999 Lynn Buchanan December 31, 1999 Henry Beauchamp December 81, 1997 Ernie Berger December 31, 1997 John Mingele December 81, 1999 John Puccinelli December 31, 1999 Bernard Sims December 81, 1997 Certain Appointed Officials Richard A. Zais, Jr. City Manager Glenn Rice Assistant City Manager John Hanson Director of Finance & Budget Karen Roberts City Clerk Ray Paolella City Attorney Bond Counsel Preston Gates & Ellie • Seattle, Washington Consulting Engineer HDR Engineering, Inc. Bellevue, Washington No dealer, broker, salesman or other person has been authorized by the City or the Underwriter to give any information or to make any representations other than those contained in this Official Statement and, if given or made, such other information or representations must not be relied upon as having b een au by any of the foregoing This Official Statement does not constitute an offer to sell or the solicitation of an offer to buy, nor shall there be any sale of the Bonds by any person in any jurisdiction in which it is unlawful for such person to make such offer, solicitation or sale. The information set forth herein is not as to accuracy or completeness and is not to be construed as a representation by the Underwriter The information herein is subject to change without notice and neither the delivery of this Official Statement nor any sale made hereunder shall, under any circumstances create any implication that there has been no change in the affairs of the City since the date hereon OVE CONNECTION OR EFFECT TRANSACTIONS WHICH 1996 AABBILIZE BONDS, THE MAINTAIN THE MARKET PRICE OF SUCH 1996 BONDS AT LEVELS ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. i MAY 17 '96 01 48PM SEATTLE NORTHWEST P 4/26 Table of Contents • Pigt Certain Definitions. .iii Description of the 1996 Bonds .. ............. 1 Principal Amount, Date, Interest Rates and Maturities. .... 1 Form, Denomination and Registration 1 Paying Agent .. ... ... 1 Optional Redemption 2 Notice of Redemption .. ... .,. ..2 Open Market Purchase... ... 2 ... .... ... Pr in Only the Even of Revisions of Book-Entry Transfer System ... ... 3 Use of Proceeds ... 4 Refunding Plan ••• ... ••• ••• ••• 4 Procedure.. .. ...... .. 4 Verification of Mathematical Calculations.— 4 Sources and Uses of Funds ., 4 Security for the 1996 Bonds ... - 5 Pledge of Revenues 6 Bond Fund ........ .,. 5 Flow of Funds Under the Bond Ordinance 5 RateCovenant. .......... $ Certain Other Bond Covenants ... 6 Additional Bonds. 6 Debt Service Requirements and Projected Coverage 8 The City 9 Accounting Policies ,,. 9 Budgetary Process 9 Cash and Investments ....... ... ....... ... 10 Auditing of City Finances .,. 10 IP Risk.Managemeni ... 10 Labor Relations .... 11 Pension System 11 The Water System... ... 11 Residential ... 11 Commercial.... ..... 12 Industrial 12 G overnmental ... ••• ,. •••• ... ••• 12 City (All Departments) ... ..... ,,. ... ... 12 Water Service Charges .. 12 The Sewerage System ..,, 13 Sewer Service Charges .... ... 14 Combined Operatin Statement 18 Combined Balance Sheet 17 Demographic Information .. 18 Litigation 22 Approval of Counsel 28 Tax Exemption ... ... 28 Ratin 24 'Underwriting ... .... .. ... .. 4 Miscellaneous .. 24 Continuing Disclosure Undertaking. ,,,, 24 Official Statement ,, 28 Consulting Engineer's Report .. ..... endix A .............. APP R 1 ii MAI 17 '96 01 49PM SEATTLE NORTHWEST P 5/26 Certain Definitions Certain words and phrases used in Ordinance No 3380 (the "Bond Ordinance) and in this Official • Statement have the meanings set forth below, unless the context shall clearly indicate that another meaning is intended. "Additional Bonds" means any revenue bonds, revenue warrants or other revenue obligations which may be issued in the future on a parity of lien with the 1991 Bonds, the 1996 Bonds, and any other Second Lien Parity Bonds. "Assessment Income" means the principal of and interest on special assessments levied in any utility local improvement district pledged to be paid into the Bond Fund. Assessment Income shall be allocated to the years in which it would be received if the unpaid balance of each assessment roll were paid in the remaining number of installments with interest on the declining balance at the times and at the rate provided in the ordinance confirming the assessment roll. "Assessments" means any special assessments which may be levied in any utility local improvement district of the City created for the acquisition, construction or installation of additions and improvements or extensions of the System, if such assessments are pledged to be paid into a revenue bond fund to pay and secure the payment of any Second Lien Parity Bonds. "Average Annual Debt Service" means the amount determined by dividing (a) the sum of all interest and principal to be paid on outstanding 1998 Bonds from the date of determination to the last maturity date of such 1996 Bonds, by (b) the number of Fiscal Years or calendar years from and including the Fiscal Year or calendar year in which the determination is made to the last Fiscal Year or calendar year in which the sum of (i) the principal amount of Serial Bonds maturing in such Fiscal Year plus (ii) the Sinking Fund Requirement for such Fiscal Year, exceeds four percent of the principal amount of Bonds outstanding as of the date of determination. "City" means the City of Yakima Washington, a municipal corporation duly organized and existing under and by virtue of the laws of the State of Washington and the Charter of the City "Costs of Maintenance and Operation" means all normal operating expenses, current mainte- nance expenses, expenses of reasonable upkeep and repairs, and insurance and administrative expense, and reasonable pro -rata budget charges for services provided to the System by City departments, but excludes depreciation, payments for debt service or into reserve accounts, costs of capital additions to or replacements of the System, municipal taxes, or payments to the City in lieu of taxes. "First Lien Parity Bonds" means, the City of Yakima Water and Sewer Revenue Bonds, 1968, in the aggregate principal amount of 81,846,000. "Gross Revenues" means all earnings, revenue and moneys received by the City from or on account of the operations of the System, from any source whatsoever "Maximum Annual Debt Service" means the maximum amount of Annual Debt Service that will become due in any fiscal year on the 1996 Bonds then outstanding. "Net Revenues" means the Gross Revenues of the System lees the Costs of Maintenance and Operation. "1991 Bonds" means the City of Yakima Second Lien Water and Sewer Revenue Bonds, 1991, in the aggregate principal amount of $6,290,000. "1998 Bonds" means the City of Yakima, Second Lien Water and Sewer Revenue Refunding Bonds, 1996, in the aggregate principal amount of $3,420,000* • Preliminary, subject to change iii _ m .. MAY 17 '96 01 49PM SEATTLE NORTHWEST ,0 P 6/26 "Outstanding" means, in connection with First Lien or Second Lien Bonds as of the time in Question, all bonds issued except (a) bonds theretofore paid and cancelled or h av i ng matured or been called for redemption, payment has been provided therefor, or bonds which have been defeased in accordance with their authorizing ordinance and state law. "Professional Utility Consultant" means the independent person(s) or firm(s) selected by the City having a favorable reputation for skill and experience with facilities of comparable size and character to the System in such of the following as are relevant to the purposes for which they are retained (a) engineering and operations and (b) the design of rates. "Refunded Bonds" means 83,840,000 principal amount of the City's First Lien Water and Sewer Revenue Bonds, 1978, "Reserve Account" means the Bond Reserve Account created in the Bond Fund by Ordinance No 8880. "Reserve Account Requirement" means the Average Annual Debt Service of all Second Lien Parity Bonds Outstanding. In the case of Variable Rate Bonds, the interest rate thereon shall be calcu on the assumption that such Variable Rate Bonds will bear interest at a rate equal to the higher of (a) the rate most recently reported by the "Bond Buyer" as the Bond Buyer s Index for long -term revenue bonds or (b) a rate equal to x +y where x represents the average rate of interest borne by such Variable Rate Bonds in the twelve months preceding the date of calculation gr in the case of newly issued Variable Rate Bonds the initial rate of interest borne by such Bonds and y represents one-half the difference between the Maximum Interest Rate applicable to such Variable Rate Bonds and xi provided that in no event shall such assumed Variable Rate exceed the Maximum Interest Rate and provided further that if on such date of calculation the interest rate on such Bonds shall then be fixed to maturity, the interest rate used for such specified period for the purpose of the foregoing calculation shall be such actual interest rate. "Second Lien Parity Bonds" means any Outstanding revenue bonds, revenue warrants or other revenue obligations issued by the City which have a lien upon the Gross Revenues of the System to • pay and secure the payment of' the principal thereof and interest thereon equal to the lien created upon the Gross Revenues of the System to pay and secure payment of the principal of and interest on the 1996 Bonds. Second Lien Parity Bonds includes the 1991 Bonds, the 1996 Bonds, and any Additional Bonds. - - "System" means the combined water and sewerage system of the City as it now exists as it shall be added to and improved and extended with the proceeds of sale of the 1996 Bonds, and as it 'may be later added to, extended and improved for as long as any First Lien Parity Bonds or any Second Lien Parity - Bonds remain outstanding. 411 iv MAY 17 '96 01 5 0PM SEATTLE NORTHWEST P 7/26 OFFICIAL STATEMENT City of Yakima, Washington • $3,420,000* Second Lien Water and Sewer Revenue Refunding Bonds, 1996 The City of Yakima, Washington (the "City"), a first-class charter city dulq organized and existing under and by virtue of the laws of the State of Washington, furnishes this Official Statement in connection with the offering of 88,420,000* aggregate principal amount of Second Lien Water and Sewer Revenue Refunding Bonds, 1996 (the "1996 Bonds "). Issuance of the 1996 Bonds is pursuant to the Revised Code of Washington ("RCW") chapter 85.92 and to Ordinance No. passed by the City Council on (the "Bond Ordinance ") authorizing the issuance of the 1996 Bonds. This Official Statement, which includes the cover page and appendices, provides infbrnaation concerning the City, the 1996 Bonds, and the City's combined water and sewerage system (the "System ") The 1996 Bonds are issued junior to 81,846,000 principal amount of the City's Water and Sewer Revenue Ronde, 1968 (the "First Lien Parity Bonds ") Certain of the capitalized words and phrases used in this Official Statement have the meanings as defined in the Bond Ordinance or other contractual documents, unless the content shall clearly indicate that another /cleaning is intended. Certain of these capitalized items are defined in the section, "Certain Definitions" herein. The 1996 Bonds are issued on a parity with the City's 86,290,000 Second Lien Water and Sewer Revenue Bonds, 1991 (the "1991 Bonds ). The City has reserved the right to issue additional bonds on a parity of lien on the Reserve of the System with the 1991 Bonds and the 1996 Bonds. Description of the 1686 Bonds Principal Amount, Date, Interest Rates and Maturities The 1996 Bonds will be issued in the principal amount of 63,420,000* and will be dated September 1, 1996 and will mature on the dates and in the principal amounts shown on the cover page of this Official Statement. Interest on the 1996 Bonds will be paid commencing on December 1, 1998 and semiannually thereafter on December 1 and June 1 of each year to the date of maturity or prior redemption. Form, Denomination and Registration The 1996 Bonds will be issued in fully registered form in the denomination of $6,000, or any integral multiple thereof within a single maturity Individual purchases may be made in book-entzy form only Purchasers will not receive certificates representing their interest in the 1996 Bonds purchased. The 1996 Bonds, when issued, will be registered in the name of Cede & Co , as registered owner and nominee of The Depository Trust Company, New York, New York ("DTC "). So long as Cede & Co. is the registered owner of the 1996 Bonds, references herein to the registered owners or bond owners will mean Cede & Co. and will not mean the "Beneficial Owners" of the 1996 Bonds. In this Official Statement, the term "Beneficial Owner" will mean the person for whom a DTC participant acquires an interest in the 1996 Bonds. Paying Agent Principal of and interest on the 1996 Bonds will be payable by either fiscal agency of the State of Washington in New York New York, or Seattle, Washington, currently The Bank of New York and First Interstate Bank of W ashington, N.A. (or such other fiscal agency or agencies as the Yakima 10 County Treasurer may from time to time designate) So long as Ced Co. is the registered owner of the 1996 Bonds, principal of and interest on the 1996 Bonds are payable by wire transfer by the * Preliminary, subject to change 1 MA) 17 '96 01 51PM SEATTLE NORTHWEST ' .kt P 8/26 fiscal agencies of' the State of Washington to .DTC, which, in turn, is obligated to remit such principal and interest to the DTC ;participants for subsequent disbursement to the Beneficial Owners of the 1996 Bonds, as further described herein under the caption "Book -Entry Only System." Optional Redemption The 1996 Bonds maturing in years 1996 through 2006, inclusive, are not subject to redemption prior to maturity The 1996 Bonds maturing on and after December 1, 2007, are subject to redemption at the option of the City on and after December 1, 2006, in whole or in part at any time (maturities to be selected by the City and by lot within a maturity in such manner as the Bond Registrar or DTC will determine) at a price of par plus accrued intereat, if any, to the date of redemption. Notice of Redemption Notice of redemption will be given not less than 30 nor more than 60 daps prior to the redemption date by first -class mail, postage prepaid, to the registered owner of any Bond to be redeemed at the address appearing on the Bond Register Interest on the 1996 Bonds called for redemption shall cease to accrue on the date fixed for redemption unless the Bond or 1996 Bonds called are not redeemed when presented pursuant to the call. The City reserves the right and option to purchase any or all of the 1996 Bonds in the open market at any time at a price not in excess of par plus accrued interest to the date of purchase, Open Market Purchase The City has reserved the right and option to purchase any or all of the 1996 Bonds in the open market at any time at any price. Book•Entry Only System The following information has been provided by DTC The City makes no representation as to the accuracy or completeness thereof. Beneficial Owners should confirm the following with DTC or the Participants (as hereinafter defined). DTC will act as initial securities depository for the 1996 Bonds. The 1996 Bonds will be issued as fully registered bonds, registered in the name of Cede & Co (DTC's partnership nominee) One fully - registered bond certificate will be issued for each maturity of the 1996 Bonds, in the aggregate principal amount of such maturity, and will be deposited with DTC DTC is a Iimited- purpose trust company organized under the New York Banking Law, a "banking organization" within the meaning of the New York Banking Law, a member of the Federal Reserve System a "clearing corporation" within the meaning of the New York Uniform Commercial Code and a 'clearing agency' registered pursuant to the provisions of Section 17A of the Securities Exchange Act of 1984, as amended. DTC holds securities that its participants (the "Participants ") deposit with DTC. DTC also facilitates the settlement among Participants of securities transac- tions, such as transfers and pledges, in deposited securities through electronic computerized book - entry changes in accounts of the Participants, thereby eliminating the need of physical movement of securities certificates. "Direct Participants" include securities brokers and dealers, banks, trust companies, clearing corporations and certain other organizations. DTC is owned by a number of its Direct Participants and by the New York Stock Exchange, Inc., the American Stock Exchange Inc. and the National Association of Securities Dealers, Inc. Access to the DTC system is also available to others such as banks, broken, dealers and trust companies that clear through or maintain a custodial relationship with a Direct Participant either directly or indirectly ('Indirect Partici- pants ") The rules applicable to DTC and its Participants are on file with the Securities and Exchange Commission. .d Purchases of the 1996 Bonds under the DTC system, in denominations of $5,000 or any integral multiple thereof within a maturity, must be made by or through Direct Participants, which will receive a credit for the 1996 Bonds on DTC's records. The ownership interest of each , actual purchaser of each Bond ("Beneficial Owner ") is in turn to be recorded on the Direct and Indirect Participants' records. Beneficial Owners will not receive written confirmation from DTC of their purchase, but Beneficial Owners are expected to receive written confirmations providing details of the transaction, as well as periodic statements of their holdings from the Direct or Indirect Participants through which the Beneficial Owner entered into the transaction. Transfers of ownership interests in the 1996 Bonds are to be accomplished by entries made on the books of Participants acting on behalf of Beneficial Owners. Beneficial Owners will not receive certificates representing their ownership interests in the 1996 Bonds, except in the event that use of the book - entry system for the 1996 Bonds is discontinued. 2 MAY 17 '96 01 52PM SEATTLE NORTHWEST P 9/26 To facilitate subsequent transfers, all 1996 Bonds deposited by Participants with DTC are registered in the name of DTC's partnership nominee Cede & Co The deposit of 1996 Bonds with DTC and their registration in the name of Cede & Co. effect no change in beneficial ownership - DTC has no knowledge of the actual Beneficial Owners of the 1996 Bonds. DTCs records reflect only the identity of the Direct Participants to whose accounts such 1996 Bonds are credited, which may or may not be the Beneficial Owners, The Participants will remain responsible for keeping account of their holdings on behalf of their customers. When notices are given, they will be sent by the Bond Registrar to DTC only Conveyance of notices and other communications by DTC to Direct Participants, by Direct Participants to indirect Partici- pants, and by Direct Participants and Indirect Participants to Beneficial Owners will be governed by arrangements among them, subject to any statutory or regulatory requirements as may be in effect from time to time, Redemption notices will be sent to Cede & Co. If less than all of the 1996 Bonds are being redeemed, DTCs practice is to determine by lot the amount of the interest of each Direct Participant in 1996 Bonds to be redeemed. Principal and interest payments on the 1998 Bonds will be made to DTC. DTC's practice is to credit Direct Participant's accounts on payable date in accordance with their respective holdings shown on DTC's records unless DTC has reason to believe that it will not receive payment on payable date. Payments by Participants to Beneficial Owners will be overned by standing instructions and customary practices, as is the case with securities held for the accounts of customers in bearer for or registered in "street name," and will be the responsibility of such Participant and not of DTC, the Bond Registrar, or the City, subject to any statutory or regulatory requirements as may be in effect from time to time. Payment of principal and interest to DTC is the responsibility of the City and the Bond Registrar, disbursement of such payments to Direct Partidipants will be the responsibility of DTC, and disbursement of such payments to the Beneficial Owners will be the responsibility of Direct and Indirect Participants. DTC may discontinue providing its services as securities depository with respect to the 1998 Bonds at any time by giving reasonable notice to the City or the Bond Registrar Under such circum- stances and in the event that a successor securities depository is not obtained, Bond certificates are required to be printed and delivered. • The City may decide to discontinue use of book -entry transfers through DTC (or a successor securities depository) In that event, Bond certificates will be printed and delivered. With respect to 1998 Bonds registered on the Bond Register in the name of Cede & Co., as nominee of DTC, the City and the Bond Registrar will have no responsibility or obligation to any Participant or to any person on behalf of whom a Participant holds an interest in the 1996 Bonds with respect to (1) the accuracy of the records of DTC, Cede & Co. or any Participant with respect to any ownership interest in the 1996 Bonds, (ii) the delivery to any Participant or any other person, other than a bond owner as shown on the Bond Register, of any notice with respect to the 1996 Bonds, including any notice of redemption, (iii) the payment to any Participant or any other person, other than a bond owner as shown on the Bond Register, of any amount with respect to principal of, premium, if any, or interest on the 1996 Bonds, (v) the selection by DTC or any Participant of any person to receive payment in the event of a partial redemption of the 1996 Bonds, (v) any consent given or action taken by DTC as registered owner, or (vi) any other matter The City and the Bond Registrar may treat and consider Cede & Co., in whose name each Bond is registered on the Bond Register, as the holder and absolute owner of such Bond for the purpose of payment of' principal and interest with respect to such Bond, for the purpose of giving notices of redemption and other matters with respect to such Bond, for the purpose of registering transfers with respect to such Bond, and for all other purposes whatsoever The information in this section concerning DTC and DTC's book -entry system has been obtained from sources the City believes to be reliable, but the City takes no responsibility for the accuracy thereof. Procedure in the Event of Revisions of Book -Entry Transfer System If the City is unable to retain a qualified successor to DTC, or the City has determined that it is in the best interest of the City not to continue the book -entry system of transfer or that interests of the Beneficial Owners of' the 1996 Bonds might be adversely affected if the book -entry stem of transfer is continued, the City will execute, authenticate and deliver at no cost to the Beneficial Owners of the 1998 Bonds or their nominees, 1996 Bonds in fully registered form, in the 3 I I, MAY 17 '96 01 52PM SEATTLE NORTHWEST ` P 10/26 r t, denomination of $5,000 or any integral multiple thereof within a maturity Thereafter, the 0 principal of the 1988 Bonds will be payable upon due presentment and surrender thereof at the principal office of the Bond Registrar; interest on the 1996 Bonds will be payable by check or draft mailed or by wire transfer (wire transfer will be made only if so requested in writing and if the registered owner owns at least $1,000,000 par value of the 1896 Bonds), to the persons in whose names such 1998 Bonds are registered, at the address appearing upon the registration books on the 16th day of the month preceding an interest payment date, and the 1996 Bonds will be transferable as provided in the Bond Resolution. Use of Proceeds The proceeds from the sale of the 1996 Bonds will be used to refund $3,340,000 of the City a First Lien Water and Sewer Revenue Bonds, 1978, dated December 1 1978, maturing in years 1996 through 2008 (the "Refunded Bonds ") The Refunded Bonds will be escrowed to their call date of December 1, 1986, at which time they will be called at par The Bonds are being issued for the purpose of realizing a debt service savings. Refunding Plan Procedure From the proceeds of the Bonds, and with other money available, the City will purchase certain direct United States government obligations, including obligations of the State and Local Government Series ( "Government Obligations "). These Government Obligations will be deposited in the custody of or such other duly appointed successor(s) ( "Refunding Trustee ") The maturing principal of the Government Obligations, interest earned thereon, and necessary cash balance, if any, will provide payment of: (a) Interest on the Refunded Bonds to and including December 1, 1998 and (b) On December 1, 1998, the principal of the Refunded Bonds. • The Government Obligations, interest earned thereon, and necessary cash balance if. any, will irrevocably be pledged to and held in trust for the benefit of the owners of the Refunded Bonds by the Refunding Trustee, pursuant to an escrow deposit agreement to be executed by the City and the Refunding Trustee, Verification of Mathematical Calculations The mathematical accuracy of (a) the mathematical computations of the adequacy of the maturing principal amounts of and interest on the Government Obligations to be held by the Refunding Trustee to pay principal and interest on the Refunded Bonds as described above, and (b) the mathematical computations supporting the conclusion of Bond Counsel that the Bonds are not "arbitrage bonds under Section 148 of the Internal Revenue Code of 1986, as amended, will be verified by independent certified public accountants. Sources and Uses of Funds The proceeds from the Bonds (less accrued interest) are estimated to be applied as follows: Sn urces of F ode* #" , Par Amount of Bonds $ 8,420,000 Reserve Account Contribution 1.K1.433 . Total Sources of Funds 8 4.471.438 l s ee of Funds Coat of Escrow $ 3,415 ;976 Deposit to Reserve Account 83,402 , Issuance Expenses, Underwriter's Discount, and Contingency 972,066 Total Uses of Funds 8 4.47L48 1 ( * Preliminary, subject to change 4 MAY 17 '96 01 53PM SEATTLE NORTHWEST P 11%26 Security for the 1996 Bonds Pledge of Revenues The principal of and interest on the 1996 Bonds are secured by a pledge of Revenue of the System equal to the pledge of the Outstanding Second Lien Parity Bonds, subject only to the payment of the Costs of Maintenance and Operation of the System and the required payments into the Prior Lien Revenue Bond Fund. The City has covenanted that, so long as the 1996 Bonds are outstanding, no bonds may be issued subsequent to the issuance of the 1996 Bonds with a lien and charge on the Gross Revenues superior to the lien and charge of the 1996 Bonds. The 1996 Bonds are not general obligations of the City, and the full faith and credit of the City is not pledged for the payment thereof. Bond Fund The Bond Ordinance refers to a Rind known as the "Second Lien Water and Sewer Revenue Bond Fund" (the 'Bond Fund") created solely for the purpose of paying the principal of premium, if any, and interest on the 1991 Bonds, the 1998 Bonds and any other Second Lien Parity Bonds, of retiring the Second Lien Parity Bonds prior to maturity as specified in the Bond Ordinance and of paying any reimbursement obligation with respect to any credit enhancement device providing additional security for any variable rate bonds. Said Revenue Bond Fund consists of an Interest Account, Serial Bond Principal Account, Term Bond Principal Account, and a Reserve Account. Interest Account. An Interest Account has been created in the Bond Fund for the purpose of paying the interest on the 1991 Bonds, the 1996 Bonds and any other Second Lien Parity Bonds. As long as any of the 1996 Bonds remain outstanding, the City has irrevocably obligated, pledged and bound to set aside and pay from the Net Revenue of the System in the Debt Service Account, those amounts necessary, together with such other funds as are on hand and available in the Debt Service Account, to pay installments of interest next coming due on the 1991 Bonds, the 1996 Bonds and other Second Lien Parity Bonds. Serial Bond Principal Account A Serial Bond Principal Account has been created in the Bond Fund for the purpose of paying the principal of Serial Bonds as the same will mature and come due. As long as any of the 1996 Bonds remain outstanding, the City has covenanted to transfer to the Serial Bond Principal Account amounts sufficient to equal the installment of principal next falling due on the Serial Bonds, Reserve Account A Reserve Account has been created in the Bond Fund for the purpose of securing the payment of the principal of and interest on the 1996 Bonds and any other Second Lien Parity Bonds. The City will deposit an amount into the Reserve Account simultaneously with the issuance and delivery of the 1996 Bonds leaving a balance of 8179,585 to be funded over five years as required by the Bond Ordinance in order to meet the Reserve Account Requirement. The balance in the Second Lien Revenue Bond Fund Reserve Account as of December 31, 1995 was 8756,648 The balance in the First Lien Revenue Bond Fund Reserve Account as of December 31, 1995 was 8583,226. Flow of Funds Under the Bond Ordinance The City has obligated and bound itself to pay into the Revenue Fund the Gross Revenues of the System. The Gross Revenues of the System deposited therein will be used only for the following purposes and in the following order of priority. L Bra„ to pay the Costs of Maintenance and Operation of the System; e ond, to make all required payments into the First Lien Revenue Bond Fund, Third, to pay the interest on the Second Lien Parity Bonds; Fs,=Sh, to pay the principal of the Second Lien Parity Bonds; Fifth, to make all payments required to be made into any Reserve Account created to secure the payment of the Second Lien Parity Bonds; Sixth to make all payments required to be made into any other revenue bond redemption fund or de service account or reserve account created to pay and secure the payment of the 5 MAY 17 '96 01 54FM SEATTLE NORTHWEST P 12/26 ■ principal of and interest on any revenue bonds of the City having a lien upon the Gross Revenues of the System junior and inferior to the lien thereon for the payment of the principal IIII and interest on the Second Lien Parity Bonds; Seventh, to retire by redemption or purchase in the open market any outstanding revenue bonds, of the City, to make necessary additions, improvements and repairs to or extensions and replacements of the System, or for any lawful City purposes. Rate Covenant The City has covenanted in the Bond Ordinance to establish, maintain and collect rates and charges for the use of the services and facilities and all commodities sold, furnished or supplied by the System which will be fair and nondiscriminatory and will adjust such rates and charges from time to time so that the Gross Revenues of the System will at all times be sufficient to pay (a) Costs of Maintenance and Operation of the System, () to pay the principal of, premium, if any and interest on the First Lien Parity Bonds and the Second Lien Parity Bonds, as and when the same will become due and payable, (c) to make adequate provision for the payment of any Term Bonds, (d) to make when due all payments which the City is obligated to make into the Reserve Account and all other payments which the City is obligated to make pursuant to the Bond Ordinance and (e) to pay all taxes, assessments or other governmental charges lawiilly imposed on the System or the revenue therefrom or payments in lieu thereof and any and all other amounts which the City may now or hereafter become obligated to pay from the Gross Revenues by law or contract; and the Net Revenues after payment of debt service on all Outstanding First Lien Parity Bonds (together with Assessments collected) in each Fiscal Year will be at least equal to 1.40 times the Average Annual Debt Service calculated as of December 81 of the preceding calendar year Certain Other Bond Covenants Certain other covenants in the Bond Ordinance include: ' 1. The City will at all times maintain, preserve and keep the properties of the System in good repair, working order and condition and will from time to time make all necessary and proper repairs renewals, replacements, extensions and betterments thereto, so that 0 at all times the business carried on in connection therewith will be properly and advantageously conducted and the City will at all times operate or cause to be operated said properties of the System and the business in connection therewith in an efficient manner and at a reasonable cost. 2. The City will not sell or otherwise dispose of the System in its entirety unless simultane- ously with such sale or other disposition provision is made for payment into the Bond Fund of cash or Government Obligations sufficient to pay the principal of and interest on all then Outstanding Bonds nor will it sell or otherwise dispose of any part of the useful operating properties of the System unless such facilities are replaced or pprovision is made for payment into the Bond Fund of the amount set forth in the Bond Ordinance. 3 Except for the lien and charge of the First Lien Parity Bonds, the City will not at any time create or permit to accrue or to exist any lien or other encumbrance or indebtedness . upon the System or the Revenues or any part thereof, prior to superior to the lien thereon for the payment of the Second Lien Parity Bonds, and will pay and discharge, or cause to be paid and discharged, any and all lawful claims for labor, materials or supplies which, if unpaid might become a lien or charge upon the Revenues of the System, or any part thereof, or upon n an funds in the hands of the City, prior to or superior to the Lien of the ° Second Lien Parity Bonds, or which might impair the security of the Parity Bonds. - 4 The City will keep proper books of account which will be kept in accordance with any applicable rules, regulations and statutes prescribed by the State of Washington. 5. The City will not furnish or supply or permit the furnishing or su plying of any service or facility furnished by or in connection with the operation of the System, free of charge to any person, firm or corporation, public or private, so long as any Bonds are outstanding and unpaid. Ao8ou IIII ds The Ci nal may issue Second Lien Parity Bonds upon compliance with the following conditions: 6 MA) 17 '96 01 55PM SEATTLE NORTHWEST P 13/26 1. At the time of the issuance of such Parity Bonds, there will be no deficiency in the Bond Fund. 2. In each ordinance authorising such Second Lien Parity Bonds provision will be made for payments into the Reserve Account in accordance with the Bond Ordinance. 3 At the time of the issuance of such Second Lien Parity Bonds, the City will have on file a certificate from the Professional Utility Consultant, not then employed by the City except for the purpose of giving such certificate showing that the Net Revenue received during any consecutive 12 -month period for which financial statements are available within the 24 months preceding the date of delivery of such Second Lien Parity Bonds equals at least 1.40 times the Average Annual Debt Service in each calendar year or Fiscal Year thereafter on the then•Outstanding First Lien Parity Bonds, Second Lien Parity Bonds, and the Additional Bonds to be issued and that the Adjusted Net Revenues to be received each calendar year or Fiscal Year thereafter, will equal at least 1.40 times the Average Annual Debt Service each such calendar year or Fiscal Year, on the Outstanding Second Lien Parity Bonds and the Additional Bonds to be issued. The Adjusted Net Revenues will be the Net Revenues for a period of any twelve consecutive months out of the twenty -four months immediately preceding the date of delivery of such proposed additional bonds, as adjusted to take into consideration changes in Net Revenues estimated to occur under certain conditions designated in the Bond Ordinance for each year after such delivery for so long as any Bonds, including the additional bonds proposed to be issued, will be outstanding. 411 4110 7 MAC 17 '96 01 55PN SEATTLE NORTHWEST P 14/26 0 f fillIp§vqmfi 11 ki1,71.;m5! w155 e .• I o m li .„:0.,.1illi. 6" M W M 1 :i2RWS a 000 d iltingr2iiMil 1 1 1 ' M P g a g 8 a a 8 1 8 11. 000 g q g E a A E I I�� a� 1 1 l 5 /'` 6 M M LO .e Otto§ §41. 1g s � d �i N ' E X 11 g e 0 d 3 liftnE5FLU 1 1 gill4`umc0000000 t3 ti i l t R E EN N N D � 1 a 4 iI M *t w ki.a h h N1 ti � IllsS 0 F 1 . b to .2:1:::. 1 i r l Vlift 0 Oi ;!!!1 8 MAI 17 '96 01 56PM SEATTLE NORTHWEST P 15/26 The City The City of Yakima was incorporated in 1886. It is the seventh largest city in the State, and encompasses 18.8 square miles. The City provides a full range of municipal services, which include. police, fire, engineering, parks cemetery, street, Firemen's Relief and Pension, Police Pension, and administrative services. The City also operates the Yakima Air Terminal as a joint venture with Yakima County The City operates under a Council/Manager from of' government with a full time city manager The City Council consists of seven council members. Four members are elected from individual districts and three are elected at large. The mayor is chosen by the council from within its own membership every two years. Elected Officials Cir .X C`nnr��il T .reo it a Clarence Barnett December 81, 1999 Lynn Buchanan December 81, 1999 Henry Beauchamp December 81, 1997 Ernie Berger December 81, 1997 John Klinijele December 81, 1999 John Puccinelli December 31, 1999 Bernard Sims December 31, 1997 Accounting Policies Accounting records for the City are maintained in accordance with methods prescribed by the State Auditor under the authority of Washington State law The City financially reports on the calendar year basis and employs a double -entry modified accrual system for all fund categories with the exception of proprietary, nonexpendable and pension trust funds which require Rill accrual report- ing The modified accrual basis differs from the accrual basis in the following ways: (i) purchases of capital assets are considered expenditures, (ii) redemption of long -term debt is considered an expenditure when due; (iii) revenues are recognized only when they become both measurable and available to finance expenditures of the current period, revenues that are measurable but not avail- able are recorded as receivable and offset by deferred revenues, (iv) inventories and prepaid items are reported as expenditures when purchased (v) interest on long -germ debt is not accrued but is recorded as an expenditure when due; and (vi) accumulated unpaid vacation and sick pay are con- sidered expenditures when paid. Fund Accounting The accounts of the City are organized on the basis of funds and account groups, each of which is considered a separate accounting entity The City uses governmental, pro- prietary and fiduciary funds. Each governmental fund and expendable trust or agency fund is accounted for with a separate set of self-balancing accounts that comprise its assets, liabilities, fund balances. revenues and expenditures. Proprietary and similar trust funds use the revenue, expense and equity accounts of similar businesses in the private sector The City's resources are allocated to and accounted for in individual funds depending on what they are to be spent for and how they are controlled. Governmental Funds All governmental finds are accounted for on a spending or financial flow" measurement focus. This means that only current assets and current liabilities are generally included on their balance eheets. Their reported fund balance (net current assets) is considered a measure of "available expendable resources." Governmental fund operating statements focus on measuring changes in financial position, rather than net income; they present increases (revenues and other financing sources) and decreases (expenditures and other financing uses) in net current assets. Budgetary Process The City Council annually approves the City's operating budget. The operating budget is designed to allocate annually available resources among the City's services and programs and to provide for associated financing decisions. Annual appropriated budgets are adopted on the modified accrual basis of accounting. For govern- mental funds there are no differences between budgetary basis and generalI accepted accounting principles. Budgetary accounts are integrated in fund ledgers for all budgeted funds, but the financial statements include budgetary comparisons for the General Fund and Special Revenue 9 L MAY 17 '96 01 56PM SEATTLE NORTHWEST P 16/26 Funds only Budgets for debt service and capital projects are adopted at the level of the individual debt issue or project and for fiscal periods that correspond to the lines of debt issues or projects. 0 Annual appropriated budgets are adopted at the fund level. Subsidiary revenue and expenditure ledgers are used to compare the budgeted amounts with actual revenues and expenditures. As a management control device, the subsidiary ledgers monitor expenditures for individual functions and activities by object class. Appropriations for general and special revenue funds lapse at year- end. The City Manager is authorized to transfer budgeted appropriations between departments within any fund, however, any revisions that alter the total expenditures of a fund, or that affect the num- ber of permanently authorized employee positions, salary ranges, or other conditions of employment must be approved by the City Council. Cash and Investments Cash and investments are managed under the guidance of the City's Investment Policy adopted by a resolution of the City Council. The policy was based on the Model Investment Policy prepared by the Municipal Treasurers' Association of the United States and Canada and applies to all financial assets of the City. Investments are made using the "prudent person" standard with primary objectives being safety of principal, liquidity enabling the City to meet all operating requirements and a return on investment objective of attaining a market rate of return through budgetary and economic cycles. Investments of City funds except those of the Firemen's Relief and Pension Fund are limited to (i) investment deposits, including certificates of deposit with qualified public depositories as defined in chapter 39 58 Revised Code of Washington, (ii) certificates notes or bonds of the United States, or other obligations of the United States or its agencies, or of any corporation wholly owned by the government of the United States, (iii) obligations of government - sponsored corporations which are eligible as collateral for advances to member banks as determined by the Board of Governors of the Federal Reserve System. ---, Auditing of City Finances The State Auditor is required to examine the affairs of cities with a population of greater than 10,000 annually The examination must include, among other things, the financial condition and resources of the City, whether the laws and constitution of the State are being complied with, and the methods and accuracy of the accounts and reports of the City Reports of the auditor's examinations are required to be filed in the office of the State Auditor and in the auditing depart- ment of the City Risk Management The City maintains Reserve Funds to provide for self- insurance coverage in the areas of Unem- ployment Compensation, Medical/Dental coverage, and Workers' Compensation. In addition, the City maintains a Risk Management Fund to provide for property, liability, and other coverages. Unemployment Compensation. In 1978, the City established an Unemployment Compensation Reserve Fund to provide unemployment compensation coverage for its employees, and thereby elected to participate with the State of Washington in a cost - reimbursement instead of monthly premium program. In doing so, the City retained its right to appeal awards and determinations made by the State Department of Employment Security , Self-insured Medical /Dental Program The City, in August 1979, self- insured its medical and dental programs for all employees other than temporary employees, employees Hired to work less than half -time, and AFSCME employyees, whose dental insurance is provided through a Union -held dental trust. The City's Personnel Office administers the self - insured program and claims payment services are provided by Direct Administrators, a division of Beard, Bench and Mendenhall, Inc., a Yakima -based firm. Workers' Compeneatron Program The City self - insured its workers' compensation program for all employees except those covered by the LEOFF 1 Retirement System in July 1984. This workers' compensation program provides coverage identical to the administered workers' compensation program, however the City pays only the direct injuryrelated state costs d ce adm inis trative f 41) The program �s e� min istere d by the City's P Office with cla an admin ist ration and ees. safety services provided by Scott Wetzel Services, Inc. 10 MAY 17 '96 01 57PM SEATTLE NORTHWEST P 17/26 Risk Management Program. The Risk Management Reserve Fund was established in 1986 when the City elected to self - insure the liability exposure portion of its insurance program Resources accrue to the fund through interfund premiums to Operating Funds for appropriate insurance cov- erage and the replenishment and building of reserves for potential liability claims. City contribu- tions to the Risk Management Reserve Fund for 1994 were 8384,683 The Fund provides for administration, legal services, claims adjustment, and for the purchase of property and other insur- ance coverages. Based on the claims manager's estimate, the City has incurred but not reported claims of 8143,972 at December 31, 1994. Labor Relations The City employs 805 people including part-time employees. A majority of the City's employees are represented by bargaining units as follows: EaEgainiagligit N tuber of mnloyees Ctextraot Exniration Data AFSCME Municipal 819 December 81, 1996 AFSCME Transit 48 December 81, 1995 Fire 69 December 81, 1995 Fire 5 December 31, 1995 YPPA 108 December 81, 1997 Those contracts which will expire on December 81, 1995 are currently under negotiation. The City has a good relationship with its bargaining units and has no history of labor disputes or strikes. Pension System Substantially all full -time and qualifying part-time employees participate in one of the following statewide local government retirement systems administered by the Department of Retirement Systems, under cost- sharing, multiple- employer public employee retirement systems. Actuarial information is on a system -wide basis and is not considered pertinent to the City's financial statements. Contributions to the systems by both employee and employer are based upon gross wages covered by plan benefits. Both LEOFF and PERS include two plans. Participants who joined the system by September 30, 1977 are Plan I members. Those who joined thereafter are enrolled in Plan 11. Retirement benefits are financed from both employee and employer contributions and investment earnings. Retirement benefits under both plans are vested after completion of five years of eligible service. PERS The City's contribution, 7 41 percent of covered payroll, for the year ending December 31, 1993, of $991,562 represents its full liability under the system., except that future rate may be adjusted to meet the system need. The City's contribution, 7 41 percent of covered payroll, for the year ending December 31 1994 of $1,008,240 represents its full liability under the system, except that future rate may be adjusted to meet the system need. LEOFF The City's contribution, 6.00 percent ( LEOFF I) and 5.05 percent (LEOFF 11) of covered payroll, for the year ending December 31, 1998, $899,015 represents its full liability under the system, except that future rates may be adjusted to meet the system needs. The City's contribution, 6 00 percent ( LEOFF I) and 5.05 percent ( LEOFF 11) of covered payroll, for the year ending December 81, 1994, $422,624 represents its full liability under the system, except that future rates maybe adjusted to meet the system needs. The Water 8yateni The City's water supply is from the Neches River Water is treated prior to delivery at the water treatment plant. The City has four high production wells to back up its gravity surface supply system. The Nob Hill Water Association serves a portion of the western part of the urban area. A number of the commercial and industrial facilities in Yakima take thew source of cooling_ supply directly from shallow wells. Both the Town of Union Gap and the area within the Terrace Heights Sewer District utilize groundwater as their source of water supply Residential The residential customer class includes both single -family and multi- family This class uses 50 percent of the total water produced. Within the City, approximately 85 percent of all residential customers have irrigation water supplied from a separate irrigation system. Only one percent of' potable residential water use is for irrigation. 11 MAY 17 '96 01 58PM SEATTLE NORTHWEST P 18/26 " Commercial The commercial customer class uses approximately 80 percent of the water produced. Commercial users are shopping centers, banks, office complexes, motels, and other businesses. The commercial monthly demand is generally uniform throughout the year Industrial Industrial customers account for nine percent of total water produced. Industrial customers are primarily the fruit and vegetable processing industries with summer use generally being twice the monthly average. Governmental The governmental group of' users includes the state, federal and county facilities. Water use by this group accounted for three percent of the total water produced. City (All Departments) This group, which includes schools and all City departments, uses approximately seven percent of all water consumed. Nearly 90 percent of this group' total use is for irrigation during the summer Water Service Charges Effective July 1, 1994, the following charges became effective for water service. This schedule includes an overall eleven percent increase in charges over the prior schedule effective August 9, 1993. BPsidpntial. The charge for domestic water supplied consists of a ready -to -serve charge and a charge for water consumed as follows: One -month Two -month Ready -to -serve charges. ?Ada Es Meter Size INF ' and smaller $ 1.95 $ 1.95 r 1" 2.96 8.92 144" 5.86 9.76 2" 11.69 21.45 8" 29.20 56.45 4" 46.71 91.49 6" 105.08 208.22 ' 8" 186.79 869 71 10" 291.85 579.81 12" 420,28 886.65 Charges for water consumed per one hundred cubic feet. F rst 600 cu. ft. $ 0.88 Next 600 cu. ft. (700.1,200 cu. ft.) 1.09 Next 800 cu. ft. (1,300-2,000 cu. ft.) 0.85 Next 23,000 cu. ft. (2,105. 26,000 cu. ft.) 0.65 Next 25,000 cu. ft. (26,100- 60,000 cu. ft.) 0.52 Over 50,000 cu. ft. 0.81 The minimum charges for domestic. water supplied is as follows: One -month Two -month Meter Size End End 1 34" and smaller 8 4.89 8 7.83 1" 5.90 9.80 11" 8.80 15.64 3" 82.14 62.53 II 4" 48.65 97.87 6" 108.02 214.10 8' 189.78 875,59 10" 294.79 686.69 12" 423.20 842.63 12 MAY 17 '96 01 58PM SEATTLE NORTHWEST P 19/26 o . Charges for the City's water used for filling swimming pools in City parks, en for irrigation purposes is: . First 5,000 cu. ft. 27e per 100 cu. ft. • Over 5,000 cu. ft. 14e per 100 cu. ft. Irtieation Rate on Domestic Water Domestic water may be delivered to consumers during the irrigation season at a special irrigation rate, computed as follows. An amount equal to the maximum water meter reading taken during the previous non - irrigation season shall be charged under the regular domestic water rates. All water used on premises inside the City limits in excess of such maximum usage during the previous non - irrigation season shall be charged during the irrigation season at the below-given A rate and all water used on premises outside the City limits in excess of such maximum usage during the previous non - irrigation season shall be charged during the irrigation season at the below -given B rate, provided, the rate for domestic water consumed by the State or any agency thereof, or any municipal corporation of a classification other than that charging the bulk rate as provided by City code, and used exclusively for irrigation purposes on property owned or occupied by such consumers shall be at the below -given C rate, regardless of whether the property served is situated within or without the corporate limits of the City A rate. Commencing July 1, 1994, through August 8, 1998 80.27 per one hundred cubic feet; commencing August 9, 1998 and thereafter' $0.26 per one hundred cubic feet. B rate. Commencing July 1, 1994, and thereafter' $0.81 per one hundred cubic feet. C rate' Commencing July 1; 1994, through August 8, 1998 $0.27 per one hundred cubic feet; commencing August 9, 1998 and thereafter 80.26 per one hundred cubic feet. For the purpose of this section, the irrigation rate will commence at the regular water meter reading during the months of February or March, as the case may be for any particular consumer; and will terminate at the regular water meter reading during the • months of October or November as the case may be for any particular consumer In the event an application is made during the irrigation season for the irrigation rate, the irrigation rate will commence at the next regular meter reading after the time of such application. Fire Service. Fire service charges for each active fire service area are as follows. Inside Outside of Arrvirn 2' $ 4.47 $ 8.94 8" 5.96 11.92 4" including hydrant only 8.96 17.92 8' including hydrant only 11.94 23.88 8" 17.92 36.84 10" 28.67 47 74 The Sewerage System Yakima treats wastewater for the City and the surrounding urbanized area, currently serving a population of about 77,000. Yakima has two sewage collection and treatment systems, one for wastewater from food processing industries and one for other wastewater The wastewater from food processing industries is collected and sprayed on 96 acres of land. All other wastewater is treated at the Regional Wastewater Treatment Plant. The City operates a progressive sewer utility serving the health, welfare. and safety needs of the community and providing treatment to prevent stream pollution. In 1936, the City constructed a primary treatment plant. Improved control of water pollution was accomplished by separation of industrial and domestic sewage in 1955 Sewage treatment was further enhanced in 1965 by the addition of trickling filter biological treatment. 18 MAY 17 '96 01 59PM SEATTLE NORTHWEST P 20/26 , During the period of 1974 through 1982 the City accepted regional responsibility for protecting the • environment by agreeing to provide regional wastewater treatment. A program costing more than 833,000,000 with federal, state, and local funds, was completed that collects sewage from outlying areas and expanded the treatment plant. The investment made by Yakima in wastewater collection facilities and treatment exceeds 8100,000,000. Sewer Service Charges Effective January 28, 1996, the following charges became effective for sewer service. This schedule includes an overall eight percent increase over the prior schedule effective through January 22, 1996 The sewer service charge is calculated and charged on a ready -to -serve basis for all customers other than multiple -unit residential customers as follows: Water Mater Si^e 35th1y Charge Bimnnth y , ar 44" $ 7.98 $ 14.68 1" 9.31 18.82 11/2" 12.02 24.04 2 " 19.85 88.70 8" 73.80 146.60 4" 98.81 186.62 6" 140.00 280.01 8" 193.22 386.44 10" 386.44 772.88 M il .iple -»nit_ Res The monthly ready -to -serve charge is three dollars and eighty cents per account plus three dollars and fifty -three cents per dwelling unit. . For all customers, the volume charge is one dollar and thirty -one cents per un re cu is eet of water consumption. • Rate to Property Outside City For customers located outside the City, a sewer service charge composed of a ready -to -serve charge and a volume charge based on domestic water consumption, provided in no event will the total sewer service charged by less than twelve dollars and thirty cents per month. The sewer service charge shall be calculated and charged according to the following schedules: .. Ready -to -Serve Charge. For all customers other than multiple-family residential customers. Water Mitt Mittgaize Monthly Chsrcre Bianga.thly..auge $ 12.30 $ 24 60 1" 15.62 31.24 11/2 20.17 40.34 2" 32.47 64.94 8" 123.00 248.00 4" 166.58 813.16 6" 234.98 469.86 8" 324.28 648,46 10" 648.46 1,298.91 rr For multiple -unit residential customers, the monthly ready -to -serve charge will be six dollars and thirty -five cents per account plus five dollars and ninety-five cents per dwelling unit. Volume Charge. For all customers, the volume charge will be two dollars and twenty cents per one hundred cubic feet of water consumption. ,Strong Waste Surcharge. For commercial and industrial customers discharging wastewater which 0 contains more than three hundred parts per million of biochemical oxygen demand ('BOD ") and/or suspended solids ( "SS") there will be a surcharge, in addition to the ready -to -serve charge and the volume charge, which will be calculated utilizing the national average values of BOD and SS concentrations typical to each classification under the Standard Industrial Code or by actual concentrations verified by the City If the commercial industrial customer chooses at its expense to 14 MAI' 17 '96 02 OOPM SEATTLE NORTHWEST P 21/26 install a sampling station, the strong waste charge is calculated based upon actual concentrations. The following formula is utilized to calculate the strong waste charge: Monthly Surcharge = (Unit costs per pound of BOD or 8S) time (weight of one gallon III of water) times (customer's flow in one hundred cubic feet divided by one thousand three hundred thirty-seven per month) times (customers concentration of BOD or SS in parts per million minus three hundred per the national average values or verified concentrations) In the foregoing formula. Unit cost per pound for BOD = $ 0.258 and Unit cost per pound for = 0.183 pound Weight of one gallon of water = 8.84 pounds. $eptage Chang. A charge of $0.081 per gallon is paid for septic tank waste dumped at the wastewater treatment plant. Number of Water Customers Commercial/ All X= IVaidentiel atrial fisonarzumat laiSatinn Tatal 1985* 18,419 52 200 479 19,150 1994 17,888 62 195 480 18,815 1993 17,852 47 189 442 18,030 1992 17,121 45 185 ' 427 17,778 * As of December 8, 1995 Nwunber of Sewer Customers III Commercial/ Yaar Balibillaild Inds fisaanunisal Tatal 1995* 21,200 23 141 21,854 1994 20,801 28 128 20,759 1993 20,071 21 122 20,214 1992 19,893 21 118 20,032 * As of December 8, 1996 Major Water Customers 1993 1994 1993 Amount 100 Amount 100 Amount 100 Custorner Billed (1) Cu. Ft (2) Pilled (1) Cu. Ft. (21 Bi lead a) Dg Ft. (21 Boise Cascade $76,077 19 272,820 78,452.88 241,129 $83,688.39 252,295 Crystal Lin 89,841.11 85,148 52,832.69 36,688 64,199.85 47,615 Red Lion, Yakima 39,777 11 18,075 88,641.28 17,057 35,342.48 12,160 Cavanaugh 88,990.08 21,297 38,892.72 19,285 33,453.57 18,598 Treatment Plant 26,792.61 87,565 29,396.12 88,787 81,964.41 86,888 Del Monte Corp 23,293.87 85,838 20,129.36 38,662 17,207.38 35,005 Red Lion Inn 5,388.14 2,741 5,788.16 2,827 5,244.24 2,902 (1) Combined water and sewer bill. (2) Water usage only 0 15 0 0; ! Combined Income Statement (Years ended December 31) n Audited Preliminary 1991 1992 1993 1994 1995 kn o, Operating Revenues $ 8,375,551 $ 9,312,556 $ 9,312,526 $ 10,609,731 $ 10,637,582 0 nJ 0 Operating Expenses: Operating Expense $ 5,006,360 $ 6,419,994 $ 6,419,994 $ 6,942,711 $ 6,065,210 a- Depreciation Expense 1, 538,545 2,853,204 2,853,204 2,876,861 2,942,583 in Taxes 1,423,895 1,830,659 1,830,559 1,996,723 1,971,349 Total Operating Expenses $ 7,968,800 $ 11,103,757 8 11,103,757 $ 10,815,295 $ 10,979,142 ri Net Operating Income $ 406,751 $ (1,791,201) $ (1,791,231) $ (206,564) $ (441,560) o z Other Income z m Gain (Loss) on Sale of Assets $ (21,566) $ 16,465 $ 16,465 $ 0 $ 0 tn Intent Income 800 ,561 264,437 264,437 469,573 526,669 Non-utility Income 123,735 153,113 153,113 153,851 0 ca Miscellaneous 0 0 0 0 274,334 Total Other Income $ 902,730 $ 434,015 $ 434,015 $ 623,424 $ 801,003 Total Income $ 1,309,481 $ (1,357,186) $ (1,35716) $ 417,860 $ 359,443 Available for Debt Service on First Lien Bonds (1) $ 4,293,487 $ 3,310,112 $ 3,310,082 $ 5,290,444 $ 5,273,375 First Lien Debt Service $ 964,659 $ 768,914 $ 773,826 $ 600,026 $ 669,526 Coverage 4.50 4.30 4.28 8.82 8.00 Available for Debt Service on Second Lien Bonds (2) $ 3,338,928 $ 2,541,198 $ 2,536,256 $ 4,690,418 $ 4,613,849 Second Lien Debt Service $ 0 $ 697,025 $ 759,600 $ 793,410 $ 741,240 Coverage NA 3.65 3.34 5.91 6.22 ry (l) Net Revenues as defined in the Bond Ordinance. N (2) Net Revenues less First Lien debt service. N N MAY 17 '96 02 01PM SEATTLE NORTHWEST P 23/26 Combined Balance Sheet • o f Deoem (As bey 81) Audit.d Preliminary 1998 1984 1995 Assets Cash and investments $ 11,622,276 $ 18,802,359 $ 14,735,075 Receivables 2,858,709 2,411,436 2,370,858 Due.from other government units 674,099 604,370 20,480 Inventories 138,781 150,207 178,012 Restricted assets 1,868,688 1,856,004 1,866,821 Property, plant and equipment, net 83,344,418 66,$84,278 89,648,488 Intangibles 230,864 280 664 230,864 Total Assets $ 80,682,783 $ 84,919,618 $ 89,088,598 Liabilities Payable; 1 1,503,179 $ 2,299,876 $ 1,299,655 Long-term debt, current portion 91,695 413,188 0 Restricted payables 860,789 661,148 22,737 Bonds payable 12,440,000 • 11,799,999 11,799,999 Unamortized bond discount (96,717) (89,880) (83,044) Loans payable 4,122,181 6,376,830 10,984 916 Total Liabilities $ 18,921,107 $ 21,460,141 $ 24,004,268 0 Fund Equity Contributed capital $ 56,099,864 $ 59,024,260 $ 61,490,615 Retained earnings 5,612,022 _4,435,127 3.544.720 Total Fund Equity $ 61,711,878 $ 83,459,377 $ 66,085,335 Total Liabilities and Fund Equity $ 80,882,783 $ 84 $ 89,089,598 Source• Ccty of Yakima ill 17 MAY 17 '96 02 01PM SEATTLE NORTHWEST P 24 /26 Demographic Information 0 The City lies in central Washington State in Yakima County (the "County') about 142 miles south- west of Seattle and 188 miles northeast of Portland, Oregon, Yakima County ranks second in the State in terms of square miles and seventh in terms of population. The City is the County seat and the largest incorporated community in the County Population Year Yakima Coum City ki 1995 204,100 60,850 1994 202,100 59,740 1993 197,000 59,580 1992 198,900 58,706 1990 188,828 54,843 *Source U S. Census Source Washington State Office of Financial Management The City lies within the fertile Yakima River Valley, which is known as the "Fruit Bowl of the Nation" due to its large fruit harvest. Irrigation in the valley is made possible from water from the U.S Bureau of Reclamation's Yakima Project. Apples, cherries, peaches, pears, grapes and other fruits plus a wide variety of vegetables, seeds field crops and cereal grains make the Yakima Valley one of the top agricultural producing areas of nation. The most current figures for acreage and value of the major crops in the Yakima Valley are shown Yakima Project Major Crops, 1892 (1) Cos Tons of IP Pratliamiga Iw.*1 Valli, Apples 845,951 X260,866,502 Hobs 26,868 88,856,160 Grapes 170,674 59,690,357 Cherries 48,962 46,312,588 Pears 184,017 41,372,982 Mints 880,868(2) 28,283,800 Asparagus 318,029(3) 15,124,543 Hay, alfalfa 161,920 14,144,457 Hay, other 129,834 11,704,881 Peaches 17,544 7,299,966 Corn, sweet 85,431 6,958,709 Wheat 1,476,438 5,458,224 (1) Includes land in Yakima, Kittitas and Benton Counties. (2) Measured in pounds and includes both spearmint and peppermint. (8) Measured in cwt, hundred pound unite. Source: U.S. Bureau of Reclamation Tree Top, Inc. is a farmer cooperative engaged in the processing of apple juice apple cider, fruit juice blends, and dehydration of apples. Employing 850 people throughout Yakima County during the ten-month processing season, Tree Top is the nation's largest producer of apple juice. The company's primary facilities are in Selah, which is eight miles north of the City. Del Monte has facilities in the City of Yakima and a fruit processing plant in Toppenish in the lower Yakima Valley The company employs between 125 and 1,500 eo le company-wide ep the season. Del Monte has recently added 15,000 square feet topts p T o ppeniisl nd ha begun 411) processing corn, squash, asparagus and other vegetables at that facility John I. Haas Inc. primarily grows hops, as well as asparagus and concord grapes in the Yakima `Valley The company is the largest hops grower in the world, and Yakima County is the largest hops growing area in the world. The company s two hops extract plants (including a new, state-of- the-art CO extract facility) in the City together employ about 70 people. The company has facilities throughout" the world, and has been in business for over 30 years. The Haas harvest and process 18 MA) 17 '96 02 02PM SEATTLE NORTHWEST P 25/26 facility in nearby Toppenish employs between 15 and 280 people, depending on the season. Haas Fruit is a subsidiary of the company, and has several orchards located in the Yakima area. Snokist Growers processes and packs apples and other soft fruits within the City The company is currently investing $8 million to expand its cannery facilities and equipment to facilitate an increase in production to a projected 120,000 tons annually The project is expected to take about two years to complete. The company currently employs 811 full-time employees. Other large fruit processors and packers in the Yakima area include Zirkle Fruit, which employs 700 full -time employees, and Evans Fruit, which employs 620 full -time employees. Two of Yaknma's largest nonfood products manufacturing employers are Boise Cascade and Shields Bag and Printing. Boise Cascade operates two sawmills, a plywood mill, and a planing and finish- ing facility, providing employment to about 500 people. The company has been in Yakima since 1908 The company has a id verse timber resource base, including its own lands, other privately owned lands, the Wenatchee National Forest and the Yakima Indian Reservation. Shields Bag and Printing manufactures polyethylene bags and also does conventional printing, employing 482 full - and part-time employees. Another timber - related concern is the Longview Fibre Company, a manufacturer of paperboard. The company has been located in the Yakima area for over twenty years and employs 183 employ- ees. Longview Fibre is currently developing a $15 million expansion project. Included in the proj- ect is a 52,500 square -foot expansion of its warehouse to then be used for manufacturing, construction of a new shipping and receiving facility, and the addition of a corrugation and finishing machine. Western Recreational Vehicles is a manufacturer of trailer and recreational vehicles in Yakima which supplies dealers in 14 states. The company has 807 FTE employees. Several years ago the firm expanded its operation to include a new $2.5 million, 120,000 square -foot building, which has doubled the firm's space. Another large manufacturing company in Yakima is Dowty Aerospace, which produces aircraft h - draulic equipment and mechanical assemblies. The company was recently contracted to supply the hydraulic system for the military's new training aircraft. As the new program progresses, addi- tional machinists will be hired. Dowty is the primary manufacturer of hydraulic equipment for the aerospace industry and currently employs 190 people. The Yakima area's largest nonmanufacturi.ng employers are the Yakima School District with 1,600 FTE em 1oyees Providence Yakima Medical Center, formerly_ St. Elizabeth Hospital, with 784 employees, Yakima County with 968 employees, the City itself with 805 employees, and Yakima Valley Memorial Hospital with 1,136 employees. The Yakima Valley Memorial Hospital recently completed the expansion of its emergency room and energy plant, adding 7,000 square feet at a cost of $3 million, as well as a 49,000 square-foot 88.5 million addition to its psychiatry and surgery centers The hospital also recently added three stories to an existing wing, as well as renovated the third floor Providence recently completed a tower, which added three stories to an existing hospi- tal wing as well as a 20,000 square -foot, two -story medical office buildin , and is currently remodel - ing the fourth floor of the Centennial Tower for use by heart patients. The total cost of the projects at Providence is nearly $10 &zillion. Ace Hardware Corporation operates a wholesale distribution center serving the northwestern United State& including Alaska and western Canada. Built in 1983, the facility was recently expanded by 175,000 square feet bringing it up to 550,000 square feet. Over 200 workers are employed at the Yakima facility Transportation is an important aspect of Yakima's economy. Located on State Highway 82, Yakima is served by seven scheduled motor freight lines, Greyhound Bus and the Washington Central and Union Pacific railroads. Commercial airline service is provided by United Express and Horizon Airlines through the Yakima Airport. There are several higher education institutions serving the Yakima area. Heritage College is located just west of Toppenish and is an accredited four-year liberal arts college. Heritage College offers several degrees, with about g out 725 students enrolled. Yaldma Valley Community College in Yakima is a two -year institution which offers over 50 degrees. Over 5,000 students are enrolled at the college, and 444 full -time employees are employed there. The Perry Technical Institute is a pri- vate, non -profit technical school, which offers programs in a number of technical areas such as tele- communications, instrumentation, refrigeration, and graphic arts. The institute, which employs 19 MAY 17 '96 02 03PM SEATTLE NORTHWEST P 26/26 about 50 people and includes over 400 students, has a cooperative agreement with Yakima Valley Community College to help students achieve AA degree requirements. 16 Yakima is a popular location for conventions due to its dry climate and central location in the State. In 1994, a total of 269 conventions hosting approximately 118,400 delegates were held in Yakima, generating approximately 823 4 million for the area economy Construction of a multipurpose trade and convention center, the Sun Dome, was completed in 1990 The Sun Dome holds 8,000 people and has generated 500 direct and indirect jobs. The Sun Dome was constructed at a cost of 88.5 million and is the State's third domed center It hosts concerts, athletic events, rallies and will be used during the Central Washington State Fair each year Yakima now has a minor league baseball team as well as a Continental Basketball Association pro- fessionaI basketball team. The Yakima Training Center, a military reservation used for troop maneuvers, field training and artillery practice, lies northeast of the City One of the largest military installations in the United States encompassing 263,811 acres, the training center trains over 10,000 National Guard and Army Reserve personnel annually This facility has about 440 permanent military and civilian employees and generates local spending of about 510 million annually A $2.4 million armory which includes space for administration, a classroom, kitchen and dining area for the 931st Heavy Equip- ment Maintenance Company was completed in late 1993 Another 62,000 acres will be added to the training area in the near future. Recent and pending military base closures on the west coast are expected to result in more units coming to Yakima for training. The Yakima Mall, located in downtown Yakima, is the largest local retail area. The mall has of a total of 80 stores, including The Bon Marche, Mervyn's and JC Penney, with Nordstrom located across the street. A 30,000 square-foot expansion of the mall, which will add approximately 15 stores, is planned, although the timing of the expansion is not known. An estimated 850 to 400 people are currently employed at the mall. Over the past several years, several new retail stores have been completed in the Yakima area. A K $1.1 million Safeway Superstore opened, which employs about 200 full and part -time people. Top Foods opened a $8.2 million store which also employs approximately 200 people. A 150,000 square- ", foot PrieeCostco stare opened in the City of Union Gap, which employs about 100 people: A 160,000 square - foot Fred Meyer retail store recently opened in the City of Yakima. The City of Yakima received the National Civic League's All- American City Award for 1994. ,. ;R Yakima was selected from 140 applicants and was one of ten cities in the country to receive this ,. award. The award recognizes the strengths of a community which is ethnically diverse and which ,,, . involves community members to solve its problems. The designation will further enhance commu- r nity pride and is expected to be a stimulus to tourism and other business. Among the recent projects completed, under construction or proposed for development in the Yakima area are the following: • Residential development within the Yakima area has been dramatic over the last several years. One of the larger of the new subdivisions is Ridgeview West with a total of 80 lots. Sun Meadows is another residential development which was recently developed, which con- sists of 64 lots. Construction was recently completed on Tieton Orchard Estates, a 16-lot single-family development, and on TNR Estates, a 17 -lot development. , + • The Hull Ranch Project is a planned mixed-use development which is being planned for development in the unincorporated portion of the County, west of the City The 860 -acre project will include single- family and multi - family residential units, commercial use and a golf course. Phase 1 of the project, which includes an 18 -hole golf course (Apple Tree), a club house and restaurant was recently completed. Phase II is expected to include lots for about 80 single-family units and 140 condominiums and/or apartment units. Continued develop- , ment of the project is currently on hold pending the establishment of additional water and sewer service, and therefore, the timing of the remaining phase is still unknown. • Terrace Heights is a 39 -acre development which has been proposed within the City The project would include 40 single-family units, a retirement community of 117 homes, and an • assisted care retirement complex. • A $10 4 million facility for the Yakima Agriculture Research Laboratory for the U.S. Depart- ment of Agriculture is nearing completion in the City, The facility will include six different types of labs as well as 18 environmental rooms and 18 greenhouses. The facility will be used primarily for research on insects which impact fruit production in the area. 20 MA/ 17 96 02 04PM SEATTLE NORTHWEST P 27/E6 • A 129,000 square -foot Wal -Mart Superstore on 21 acres in the City was recently completed. The store is one of the largest Wal -Marta in the country and currently employs about 250 people. A 85,000 square-foot supermarket is planned for development at the site as well. • A 225,000 square -foot retail center on 19 acres called Yakima Gateway Center is currently under construction within the City- A 98,000 square -foot Target retail store as well as a supermarket and ten other stores to be located adjacent to the center have been proposed. An estimated 500 new jobs will be created by the new shopping center Additional economic indicators for the City and the County are as follows: Yakima County Personal and Per Capita Personal Income• Per Capita Personal Year kw= lnoame (000) 1993 $17,573 68,578,974 1992 17,171 8,410,660 1991 15,970 3,098,066 1990 15,496 2,934,533 1989 14,296 2,652,688 * Presented in 1993 dollars Source U.S. Bureau of Economic Analysis Building Permits No o, a 1' County Year Eannitia Ys aLion Esrmta Yahwism 1995 II 1994 922 45,868,626 1,784 110,724,459 1998 942 48,190,868 1,820 96,041,826 1992 784 49,298,019 1,760 79,241,198 1991 879 57,295,349 1,558 62,016,384 1990 792 82,090,152 1,882 62,618,609 Sources: City of Yakima and Yaktnca County building departments City of Yakima and Yakima County Taxable Retail Sales Year City County 1995* $ 751,842,625 $ 1,885,328,775 1994 988,718,062 1,874,989,559 1993 924,983,874 1,725,808,355 1992 886,134,399 1,596,921,138 1991 795,499,206 1,454,950,539 1990 719,087,212 1,836,248,814 * First three quarters crib' Souree: Waehiriton State Department of Revenue • 21 MAY 17 '96 02 04PM SEATTLE NORTHWEST P 28/26 • Yakima Area Largest Employers Number of -Bendunt or &video . ECLEMplazgaz Yakima School District No. 7 Education Del Monte Fruit processing 125 -1 Snokist Growers, Inc. Fruit growers, packers & proceaiors 450 -1,200 Yakima County Government 868 Yakima Valley Memorial Hospital Health care 884 Tree Top Inc. Apple juice 850 Providence Yakima Medical Center Health care 784 City of Yakima Government 805 Zirkle Fruit Fruit processing ?00 Evans Fruit Fruit processing 620 Boise Cascade Paper products b00 Shields Bag and Printing Polyethylene bags/printing 482 Yakima Valley Commu College Education 444 Yakima Training Center Government 441 West Valley School District No. 202 Education 425 Selah School District Education 412 Source. Greater Yakima Chamber of Commerce, 1995, and individual employers, July 1995 Yakima County Nonagricultural Wage & Salary Workers and Labor Force and Employment Data ',stud Aurae. 1 1989 1902 1991 ,, • 994 Civilian Labor Force 111,000 111,400 107,900 100,700 Employment 98,700 96,400 94,100 88,900 Unemployment 12,800 15,000 18,800 11,800 Percent Unemployed 11.1% 13.5% 12.8% 11.7% Total Nonagricultural Wage & Salary Earners 72,700 69,700 68,000 65,300 Manufacturing 10,800 10,200 10,000 10,000 Food & Kindred Products 4,600 4,400L 4,300 4,800 Lumber & Wood Products 2,000 1,700 1,700 1,600 Paper & Allied Products 700 700 700 700 Printing & Publishing 400 400 400 400 Machinery Excluding Electrical 700 800 500 600 Transportation Equipment 700 700 700 800 Other Manufacturing 1,800 1,600 1,600 1,700 Construction & Mining 8,300 9,100 2,800 2,800 Transportation & Public Utilities 8,000 2,900 8,000 8,000 Wholesale Trade 8,600 7,500 7,500 7,200 Retail Trade 18,500 18,200 18,000 12,500 Finance, Insurance & Real Estate 2,200 2,200 2,100 2,000 Services & Miscellaneous 18,200 17,800 17,000 16,100 Government 13,200 12,800 12,700 12,200 • Preliminary Source. Washington State Employment Security Department Litiffation 0 There is no litigation pending questioning the validity of the 1996 Bonds or the power and authority of the City to issue the 1896 Bonds. 22 r'1A T 17 96 02 04PM SEATTLE NOPTHNEST P c9/26 Approval of Counsel Legal matters incident to the authorization, issuance and sale of 1996 Bonds by the City are subject to the unqualified approving legal opinion of Preston Gates & Ellis, Seattle, Washington, Bond 410 Counsel. A copy of the opinion of Bond Counsel is attached hereto Bond Counsel has reviewed this document only to confirm that the portions of it describing the 1996 Bonds and the authority to issue them, conform to the 1996 Bonds and the applicable laws under which they are issued. Tax Exemption General. In the opinion of Preston Gates & EIlis, Seattle, Washington, Bond Counsel, interest on the 1996 Bonds is excluded from gross income subject to federal income taxation pursuant to Section 103 of the Internal Revenue Code of 1986, as amended and any Treasury Regulations promulgated thereunder (collectively the "Code'). The 1996 Bonds are not private activity bonds and interest on the 1996 Bonds is not an item of tax preference for purposes of determining alternative minimum taxable income for individuals or corporations under the Code. However, interest on the 1896 Bonds is taken into account in the computation of adjusted current earnings for purposes of the corporate alternative mlinimum tax under Section bb of the Code and in the computation of the environmental tax on corporations under Section 69A of the Code as more fully described in this section under the heading "Certain Federal Income Tax Consequences." Except as described herein, Bond Counsel expresses no opinion on any federal, state or local tax consequence arising with respect to ownership of the 1996 Bonds. .. <.' .. •� ._ - • The following is a discussion of certain federal tax matters under the Code. - • iscussion does not purport to deal with all aspects of federal taxation that may be relevant to particular bondowners. Prospective bondowners, particularly those who may be subject to special rules, are advised to consult their own tax advisors regarding the federal tax consequences of owning and disposing of the 1996 Bonds, as well as any tax consequences arising under the laws of any state or other taxing jurisdiction. Section 55 of the Code imposes an alternative • minimum tax on corporations equal to the excess of the tentative minimum tax for the taxable year over the regular tax for such year The tentative minimum tax is based upon alternative minimum taxable income which is regular taxable income with certain adjustments and increased by the amount of certain items of tax preference. One of the adjustments is a portion (75 percent for any taxable year beginning after 1989) of the amount by which a corporation's adjusted current earnings exceeds the corporation's alternative minimum taxable income (determined without regard to such adjustment and the alternative tax net operating loss deduction) Interest on tax obligations, such as the 1996 Bonds, is included in a corporation s adjusted current earns. E corporations r taxable er • Section 59A of the Code imposes an environmental tax years beginning before January 1, 1996 (subject to certain exceptions) equal to 12 percent of modified alternative minimum taxable income (determined in part, without regard to the alternative tax net operating loss deduction) that is in excess of $2,000,000 Interest on tax- exempt obligations, such as the 1996 Bonds, is included in a corporation s alternative minimum taxable income for purposes of this environmental tax. The environmental tax is payable whether or not an alternative minimum tax is payable. Financial Tnstitutingg The Code denies banks, thrift institutions and other Financial institutions a deduction for 100 percent of their interest expense allocable to tax- exempt obligations, such as the 1996 Bonds. Borrowed Funds. The Code provides that interest paid on finds borrowed to purchase or carry tax- exempt obligations during a tax year is not deductible. In addition, under rules used by the Internal Revenue Service for determining when borrowed funds are considered used for the purpose of purchasing or when carrying particular assets, the purchase of obligations may be considered to have been made with borrowed funds even though the borrowed funds are not directly traceable to the purchase of such obligations. 41 28 MAY 17 '96 02 05FM SEATTLE NORTHWEST P 30/26 property and Casualty insurance Comma ies. The deduction for loss reserves for property and casualty insurance companies is reduced by 15 percent of the sum of certain items, including the interest received on tax- exempt obligations, such as the 1996 Bonds. - ' ; ' .. - • : ; .. .. _ : - . The Code also requires recipients of certain ocial Security or Ra oad Retirement . =ne is to take into account, in determining gross income, receipts or accruals of interest that is exempt from federal income tax. Branch Prnfits Tag Certain foreign corporations doing business in the United States may be subject to a branch profits tax on their effectively connected earnings and profits, including tax - exempt interest on obligations such as the 1996 Bonds. Certain S corporations that have subchapter C earnings and profits at the close ole year and gross receipts more than 25 percent of which are passive investment income, which includes interest on tax - exempt obligations, such as the 1996 Bonds, may be subject to a tax on excess net passive income. Rating As noted on the cover page of this Official Statement, the City has applied for a rating for the 1998 Bonds from Moody s Investors Service. The rating reflects only the view of the rating agency and an explanation of the significance of the rating may be obtained from the rating agency There is no assurance that the rating will be retained for any given period of time or that the rating will not be revised downward or withdrawn entirely by the rating agency if, in its judgment, circumstances so warrant. Any such downward revision or withdrawal of the rating will be likely to have an adverse effect on the market pace of the 1996 Bonds. Underwriting The 1986 Bonds are being purchased by Seattle- Northwest Securities Corporation acting as the Underwriter The purchase contract provides that the Underwriter will purchase all of the 1998 Bonds, if any are purchased, at a price of percent of the par value of the Bonds, plus accrued interest. The 1996 Bonds will be r — `eyed at an average price of percent of the par value of the 1998 Bonds. After the initial public offering, the public o efriiiig prices may be varied from time to time. Miscellaneous All forecasts, estimates and other statements in this Official Statement involving matters of opinion, whether or not expressly so stated, are intended as such and not as representations of fact. This Official Statement is not intended to be construed as a contract or agreement between the City and the purchasers or holders of any of the 1998 Bonds. The information contained in this Official Statement is presented for the guidance of prospective purchasers of the 1996 Bonds described therein. The information has been compiled from official sources and, while not guaranteed by the City, is believed to be correct. Continuing Disclosure Undertaldng In accordance with Section (b)(5) of Securities and Exchange Commission Rule 15c2 -12 under the Securities Exchange Act of 1934, as the same may be amended from time to time (the - "Rule "), the City has agreed in the Bond Ordinance to provide or cause to be provided to each nationally rec- ognized municipal securities information repository ("NRMSIR ") and to the etate°winformation depository for the State of Washington (if one is created) ( "SID "), in each case as designated by the Securities and Exchange Commission (the "Commission ") in accordance with the Rule, the following annual .financial information and operating data for the prior fiscal year (commencing in 1997 for the fiscal ear ended December. 81, 1998) (i) annual financial statements prepared in accordance with the Budget Accounting and Reporting System ("BARS") prescribed by the State Auditor pursu- ant to RCW 43 09.200 (or any successor statute) and _generally of the t included in the official statement under the headings, "Combined Income Statement and "Combined Balance Sheet;" (ii) principal amount of Bonds of the System, (iii) debt service coverage for Outstanding Bonds; (iv) rates for the System, and (v) number of customers of the System. 24 MA`( 17 '96 ©c 06PM SEATTLE NORTHWEST P 31/26 Such annual information and operating data described above will be so provided on or before the end of nine months after the end of the City's fiscal year The City's current fiscal year ends on December 31. The City may adjust such date if the City changes each focal year r by pro i i I r and notice of the change of fiscal year and the new reporting an the SID In lieu of providing such annual financial information and operating data, the City may cross - reference to other documents provided to the NRMSIR, the SID or to the Commission, and, if such document is a final official statement within the meaning of the Rule, such document will be available from the Municipal Securities Rulemaking Board ( ") The City agrees to igovide or cause to be provided, in a timely manner, to each NRMSIR or to the MSRB and to the SID notice of its failure to provide the annual financial information and operating data described above on or prior to the date set forth above. If not provided as part of the annual financial information discussed above, the City will provide the City's audited annual financial statement prepared in accordance with BARS prescribed by the State Auditor pursuant to the statute cited above (or any successor statutes) when and if available to each then existing NRMSIR and the all) The City further agrees to provide or cause to be provided, in a timely manner, to the SID and to each N RMSIR or to the MSRB notice of the occurrence of any of the following events with respect to the 1996 Bonds, if such event is material. (i) failure to pay principal of or interest on the 1996 Bonds when due; (ii) substitution of credit or liquidity providers, if any, or their failure to perform, (iii) unscheduled draws on credit enhancements for the 1996 Bonds, if any, reflecting financial difficulties; (iv) adverse tax opinions or events affecting the tax-exempt status of the 1996 Bonds, (v) modifications to the rights of bond owners; (vi) optional redemption of 1996 Bonds prior to their maturity; (vii) defeasance of the 1996 Bonds; ?viii) rating changes for the 1996 Bonds; (ix) non - payment related defaults; (x) unscheduled draws on debt service reserves for the 1996 Bonds, if any, reflecting financial difficulties; and (xi) release, substitution or sale of property, if any, securing repayment of the 1996 Bonds. With reference to events (z) and (xi) above, there is no debt service reserve fund or account for the 1996 Bonds and no property secures the repayment thereof, as the City lacks legal authority for either measure. If further changes in the law permit such measures, and if the City subsequently chooses to establish such reserves or provide such property as security for the 1996 Bonds the City will provide notice of such establishment or provision and undertake to provide notices of material events relating thereto, ahould such events occur The only non - payment related default to which event (ix) applies is a failure to levy taxes as provided in the Bond Ordinance. • The City's obligations to provide annual financial information and notices of material events will terminate upon the legal defeasance, nor redemption or payment in full of all of the 1996 Bonds. This section, or any provision hereof, will be null and void if the City 6) obtains an opinion of nationally recognized bond counsel to the effect that those portions of the Rule which require this section, or any such provision are invalid, have been repealed retroactively or otherwise do not apply to the 1996 Bonds, and (ii) notifies each then existing NRMSIR and the SID of such opinion and the cancellation of this section. The obligations of the City described in this section may be amended and any provision of this sec- tion may be waived, provided that the following conditions are satisfied. (a) If the amendment or waiver relates to the obligation of the City to provide annual finan- cial information or notices of material events, the amendment or waiver may only be made in connection with a change in circumstances that arises from a change in legal requirements, change in law or change in the identity, nature or status of an obligated person with respect to the 196 Bonds, or the type of business conducted. (b) The undertaking, as amended or taking into account such waiver would, in the opinion of nationally recognized bond counsel, have complied with the reguirements of the Rule at the time of the original issue of the 1996 Bonds, after taking into account any amendments or interpretations of the Rule, as well as any change in circumstances; and (c) The amendment or waiver either (i) is approved by the owners of the 1996 Bonds in the same manner as provided in the Bond Ordinance for amendments to the Bond Ordinance with the conaent of the owners, or (ii) does not, in the opinion of nationally recognized bond counsel, materially impair the interests of the owners or beneficial owners of the 1996 Bonds. 25 MAY 17 '96 02 07PM SEATTLE NORTHWEST '` P 32/26 In the event of any amendment of or waiver of a provision of this section, the City will describe such amendment in the nett annual report, and will include, as applicable, a narrative explanation of the reason for the amendment or waiver and ita impact on the type (or in the case of a change of accounting principles, on the presentation) of financial information or operating data being re- sented by the City In addition, if the amendment relates to the accounting principles to be followed in preparing financial statements, (i) notice of such change will be given in the same manner as for a material event, and (ii) the annual report for the ear in which the change is made will present a comparison (in narrative for and also, if feasible, in quantitative form) between the financial statements as prepared on the basis of the new accounting principles and those prepared on the basis of the former accounting principles. A Bond Owner's or Beneficial Owner's right to enfbrce the provisions of the City's undertaking described in this section will be limited to a right to obtain specific enforcement of the City's obliga- tions, and any failure by the City to comply with the provisions of this undertaking will not be an event of default with respect to the 1996 B�o For purposes of this section, Beneficial Owner or to disp ownership the nersh p ofany1996 Bonds, including persons holding 1996 Bonds through nominees or depositories. und the Continuing with Undertakings it unlimited tax general obligation and refunding bonds dated October 1, 1995. Official Statement The City expects to take action, pursuant to the Bond Ordinance, to deem "final" this Preliminary Official Statement as of its date except for the omission of infbrmation dependent on the pricing of this issue and completion of the underwriting agreement, for the purpose of compliance with Securities and Exchange Commission Rule 15c2-12. • .... , _ b (el 26 ,