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HomeMy WebLinkAbout1998-031 1998 Water/Sewer Revenue 3ENT RY :PRESTON GATES&ELLIS ; 7 -29 -98 ; 11:48 ; PRESTON FLOOR 49-'252825739000401509574 2/ 2 • • p ,e_Di o C $ i -31 CITY OF YAKIMA, WASHINGTON WATER AND SEWER REVENUE AND REFUNDING BONDS, 1998 AN ORDINANCE of the City of Yakima, vcnue and � antis authorizing t l e the the and sale of water and sewer City in the aggregate Principal muuas of unt of t $3,470 UUO $8,300,000, o the including such bonds in the principal costs of financing capital improvements to the water and sewerage system and the costs of issuance, and such bonds in the principal amount of $4,830,000 to refund certain outstanding water and sewer revenue bonds; 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 parity with such bonds. PASSED ON AUGUST 4, 1998 Prepared by: PRESTON GATES & ELLIS LLP 5000 Columbia Center 701 Fifth Avenue Seattle, Washington 98104 -7078 • TABLE OF CONTENTS Page ARTICLE I DEFINITIONS Section 1.1. Definitions 2 ARTICLE II FINDINGS Section 2.1. Approval of Plan and System 13 Section 2.2. Parity Conditions 13 ARTICLE III ISSUANCE OF 1998 BONDS Section 3.1. Issuance of the 1998 Bonds 13 Section 3.2. Registration, Exchange and Payments 14 Section 3.3. Execution and Authentication of Bonds 19 Section 3.4. Lost or Destroyed Bonds 19 Section 3.5. Form of 1998 Bonds 20 4110 ARTICLE IV REDEMPTION OF 1998 BONDS Section 4.1. Redemption Prior to Maturity 20 Section 4.2. Notice of Redemption 20 Section 4.3. Effect of Redemption 21 Section 4.4. Amendment of Notice Provisions 21 Section 4.5. Open Market Purchases 21 ARTICLE V FUNDS AND ACCOUNTS, DEFEASANCE Section 5.1. Revenue Fund; Priority of Payments 22 Section 5.2. Bond Fund =' Section 5.3. Defeasance 30 Section 5.4. Refunding of Refunded Bonds 3 1 ARTICLE VI PARTICULAR COVENANTS OF THE CITY Section 6.1. Rate Covenant 31 Section 6.2. Maintenance and Operation 32 Section 6.3. Sale or Disposition of the System 33 _j_ JHRO61-4 .DOC 98/07/28 Section 6.4. Liens or Encumbrances 34 0 Section 6.5. Insurance 34 Section 6.6. Books and Accounts 35 Section 6.7. Additions and Improvements 35 Section 6.8. Tax Covenant; Arbitrage Rebate; Special Designation 36 ARTICLE VII ADDITIONAL BONDS Section 7.1. Additional Bonds 36 Section 7.2. Pledge Effected by Ordinance 40 ARTICLE VIII DEFAULTS AND REMEDIES Section 8.1. Events of Default 41 Section 8.2. Formation of Bondowners Committee 43 Section 8.3. Books of City Open to Inspection 44 Section 8.4. Suits at Law or in Equity 44 Section 8.5. Direction of Actions of Bondowners Committee by Owners of Majority of Bonds 46 Section 8.6. Suits by Individual Bondowners 46 Section 8.7. Waivers of Default 17 Section 8.8. Remedies Granted in Ordinance Not Exclusive 48 411 ARTICLE IX BONDOWNERS MEETINGS Section 9.1. Call of Bondowners Meetings 48 Section 9.2. Notice to Bondowners 49 Section 9.3. Proxies; Proof of Ownership of Second Lien Parity Bonds �9 Section 9.4. Execution of Instruments by Bondowners 50 Section 9.5. Appointment of Officers at Bondowners Meetings 51 Section 9.6. Quorum at Bondowners Meetings 51 ARTICLE X ADDITIONAL OR SUPPLEMENTAL ORDINANCES Section 10.1. Amendments 52 Section 10.2. Obtaining Approval of Amendments at Bondowners Meeting 54 Section 10.3. Alternate Method of Obtaining Approval of Amendments Section 10.4. Amendment of Ordinance in Any Respect by Approval of All Bondowners 56 Section 10.5. Exclusion of Bonds Owned by City 5 Section 10.6. Endorsement of Amendment on Bonds 57 -ll- JHR061.4 DOC 98/07/28 • -- ARTICLE XI -. MISCELLANEOUS Section 11.1. Undertaking to Provide Ongoing Disclosure 58 Section 11.2. Severability 61 Section 11.3. General Authorization 6 , Section 11.4. Prior Acts 63 Section 11.5. ,Effective Date Appendix A Form of 1998 Bonds Appendix B Description of Project r r -111- JHRO6H DOC 98/07/28 ORDINANCE NO. 98-3 AN ORDINANCE of the City of Yakima, Washington, authorizing the - issuance and sale of water and sewer revenue and refunding bonds of the City in the aggregate principal amount of not to exceed $8,300,000, including such bonds in the principal amount of $3,470,000 to pay the costs of financing capital improvements to the water and sewerage system and the costs of issuance, and such bonds in the principal amount of $4,830,000 to refund certain outstanding water and sewer revenue bonds; 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 parity 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 for purposes of financing in the manner provided by law; and • WHEREAS, it is in the best interest of the City to undertake improvements to the City's water and sewerage system; and WHEREAS, the City has issued its Water and Sewer Revenue Bonds, 1991 (the "1991 Bonds "), its State Revolving Fund Loan, 1992 (the "1992 Loan"), and its Water and Sewer Revenue and Refunding Bonds, 1996 (the "1996 Bonds ") (collectively, the "Second Lien Parity Bonds "); and WHEREAS, the proceedings of the City authorizing the issuance of the 1991 Bonds provide that the City may call the 1991 Bonds on March 1, 2001, at a redemption price of par plus accrued interest to the date of redemption; and WHEREAS, after due consideration it appears that the callable Outstanding 1991 Bonds • (the "Refunded Bonds ") may be refunded by the issuance and sale of the revenue bonds of the City authorized herein so that a saving to the City and its rate payers will be effected; and WHEREAS, it was provided in each of the ordinances authorizing the Second Lien Parity Bonds that bonds may be issued on a parity with the lien on the Gross Revenues of the System of the Second Lien Parity Bonds; and WHEREAS, in order to provide the funds necessary to finance the improvements to the wale' and sewerage system and to refund the Refunded Bonds, it is deemed necessary and a dvisable that the City issue its Second Lien Water and Sewer Revenue and Refunding Bonds, 1998, in the aggregate principal amount of not to exceed $8,300,000; 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: 411 "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 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 any semiannual period 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. -2- JHRO6H.DOC 98107/28 "Additional Bonds" mean s any revenue bonds; revenue warrants or other revenue obligations which may be issued in the future on a parity of lien with the Second Lien Parity Bonds. "Annual Debt Service" means for any specified Fiscal Year: (I) with respect to any Outstanding Second Lien Parity Bonds, the amounts required to be deposited during that period in the Bond Fund (excluding the Reserve Account therein); (2) with respect to any Outstanding Capital Appreciation Bonds, the principal amount thereof shall be equal to the Accreted Value thereof maturing or scheduled for payment in such period, and no other interest shall be included; (3) with respect to any Outstanding Fixed Rate Bonds, an amount equal to (A) • the P rinci al amount of such Fixed Rate Bonds due or subject to mandatory redemption during P 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 period 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 period 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 -3- JHRO6H.DOC 98/07/28 ordinance authorizing the issuance of such Variable Rate Bonds, or if mandatory redemption provisions are not provided, during a period 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 fcr*.h 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 by the City and published within ten days prior to the date of calculation or (iii) to provide for essentially level annual debt service of principal and interest over such period; and, for the purpose of calculating the principal and interest on Variable Rate Bonds in any Fiscal Year, such Variable Rate Bonds shall be assumed to mature on the stated maturity, date or mandatory redemption date thereof. "Assessment Income" means the principal of and interest on special assessments levied in 411) any local improvement district or utility local improvement district 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 district of the City created for the acquisition, construction or installation of additions and improvements to or extensions of the System, including any 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. III -4- JHRO6H DOC 9810728 ' / 1 "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 inciuding 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, once the 1991 Bonds and the 1996 Bonds are no longer Outstanding (ii) the payments for the amortization of Outstanding Second Lien Parity Bonds that are Term Bonds. "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 registering and authenticating the Bonds, maintaining the Bond Register, effecting transfer of ownership of the Bonds and paying interest on and principal of the Bonds. "Capital Appreciation Bonds" means any Second Lien Parity 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 price if any, of a Capital Appreciation Bond that is redeemed prior to maturity, or (ii) computing the principal amount of Second Lien Parity Bonds held by the owner of a Capital Appreciation Bond in giving to the City or the Paying Agent any notice, 0 consent, request, or demand for any purpose whatsoever, the principal amount of a Capital Appreciation Bond shall be deemed to be its Accreted Value. -5- JHR05H.DOC 95(07128 "City" means the City of Yakima, Washington, a municipal corporation duly organized and existing under and by virtue of the laws of the State o f Washington. 411 "Code" means the Internal Revenue Code of 1986, as amended, as the same may be s vended 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 during which Assessments may be paid without becoming delinquent, the sum of (i) the product of Average Annual Debt Service on all Second Lien Parity 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 paid into and then on hand in the Bond Fund, and the denominator of which is the aggregate principal amount of Second Lien Parity Bonds then Outstanding, plus (ii) 1.40 times (1.25 times when no 1991 Bonds are Outstanding) the product of Average Annual Debt Service on all Second Lien Parity Bonds then Outstanding times the difference of one minus the fraction calculated pursuant to (i) above; or II/ • -6- JHRO6H DOC 98/07/28 S (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 Parity Bonds then Outstanding. "DTC" means The Depository Trust Company, New York, New York. "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: Amount • Authorizing Series or Issues Date of Issue Outstanding Ordinance Water and Sewer Revenue December 1, 1968 $ 1,845,000 1071 Bonds, 1968 Series B • "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 Parity 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 period 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. "Government Obligations" means direct obligations of, or obligations the principal cf and interest on which are unconditionally guaranteed by, the United States Government. • -7- JMR06M.0OC 98!07/28 "Gross Revenues" means all earnings, revenue, moneys, and general facilities charges including but not limited to connection charges, 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 authorizing 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. • "Letter of Representation" means the agreement between the City and DTC. "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 authorizing. such Bond, that 411 shall be the maximum rate of interest such Bond may at any time bear. "MSRB" means the Municipal Securities Rulemaking Board or any successors to its functions. "Net Revenues" means the Gross Revenues of the System less the Costs of Maintenance and Operation. "NR1MSIR" means a nationally recognized municipal securities information repository. "1991 Bonds" means the City of Yakima Second Lien Water and Sewer Revenue Bonds, 1991, issued pursuant to Ordinance No. 3380 and Outstanding in the principal amount of $5,590,000. "1992 Loan" means the City of Yakima State Revolving Fund Loan, 1992, issued pursuant to Ordinance No. 3454 and Outstanding in the principal amount of $1,589,341.30. -8- JHROSH DOC 98/07/28 • "1996 Bonds" means the City of Yakima Second Lien Water and Sewer.. Revenue Refunding Bonds, 1996, issued pursuant to Ordinance No. 96 -40 and Outstanding in the principal amount of $3,045,000. "1998 Bonds" means the City of Yakima Second Lien Water and Sewer Revenue and Refunding Bonds, 1998, in the aggregate principal amount of not to exceed $8,300,000 authorized by this ordinance. "Outstanding" means, in connection with any of the Second Lien Parity Bonds, as of the time in question, all Second Lien Parity Bonds issued except Second Lien Parity Bonds theretofore paid and cancelled or having matured or been called for redemption, payment has been provided therefor, or Second Lien Parity Bonds which have been defeased in accordance with their authorizing ordinance and state law. - Paying Agent" g o " means the designated fiscal agencies of the State of Washington or any bank or banks designated a paying agent by the City. "Permitted Investments" means any legal investments for funds of 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. "Project" means the improvements to the System described in Exhibit A. attached hereto, together with all costs incurred in the issuance of the Bonds, and all other costs incurred in connection with the Project. "Qualified Insurance" means any noncancellable municipal bond insurance policy or 41) surety bond issued by any insurance company licensed to conduct an insurance business in any -9- JHROeH DOC 9807/28 state of the United States (or by a service corporation acting on behalf of one or more such insurance ) company companies) which insurance com any or companies, as of the time of issuance of such 411 P policy or surety bond, are currently rated in the highest rating category by Moody's Investors Service, Inc. or Standard & Poor's Ratings Service, a Division of The McGraw -Hill Companies, Inc., or their comparably recognized business successors, or both Rating Agencies if both Rating Agencies maintain ratings on the 1998 Bonds. "Rate Stabilization Account" means the account of that name created pursuant to Sections 5.1 and 6.1 hereof. "Rating Agency" means, as of any date, Standard & Poor's Ratings Service, a Division of The McGraw -Hill Companies, Inc. "Refunded Bonds" means the 1991 Bonds maturing on or after March 1, 2001. "Refunding Agent" means the agent designated by the City pursuant to the Escrow 411 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 Parity Bonds Outstanding and (2) once no 1991 Bonds are Outstanding, the lesser of (i) the maximum Annual Debt Service during any Fiscal Year on a series of Second Lien Parity Bonds; (ii) 125% of the Average Annual Debt Service on all Outstanding Second Lien Parity Bonds of such series; or (iii) 10 %. of the stated principal amount of such series of Bonds. In the case of Variable Rate Bonds, the interest rate thereon shall be calculated 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 + Buyers Index for long -term revenue bonds or (b) a rate equal to x+y where x represe nts the -10- JHR06HDOC 9810728 s average rate of interest borne by such Variable Rate Bonds in the twelve months preceding the date of calculation or 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 x; 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. "Revenue Fund" means the Water and Sewer Operating Funds of the City heretofore established. "Rule" means the Commission's Rule 15c2 -12 under the Securities 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 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 1998 Bonds. "Second Lien Parity Bonds" includes the 1991 Bonds. the 1992 Loan, the 1996 Bonds, the 1998 Bonds and any Additional Bonds. "Serial Bonds" means Second Lien Parity Bonds other than Term Bonds. "SID" means a state information depository for the State of Washington (if nne is created). III -11- JHRO6H.DOC 98/07/28 "Sinking Fund Requirement" means, for any Fiscal Year, the principal amount and premium, if any, of Term Bonds required to be purchased, redeemed or paid at maturity for such Fiscal Year as established by the ordinance authorizing the issuance of such Term Bonds. "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 Parity Bonds or any Second Lien Parity Bonds remain Outstanding. "Term Bonds" means Second Lien Parity Bonds of any principal maturity that are subject 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 authorizing such Capital Appreciation Bonds on which specific Accreted Values are assigned to the Capital Appreciation Bonds. -Variable by � ariable Interest Rate" means a variable interest rate or rates to be borne b, Seco nd Lien Parity Bonds or any one or more maturities within an issue of Second Lien Parity Bonds. The method of computing such variable 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 shall remain in effect or (ii) 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 4111 during such period bear a Variable Interest Rate; provided that Second Lien Parity Bonds the -12- JHR06H DOC 98/07/28 , , . . 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. Approval of Plan and System. The public interest and necessity require that the City finance certain improvements to its water and sewerage system described in Appendix B (the "Project "). The City hereby adopts such Project as a plan and system. The estimated cost of the Project is $3,200,000. . Section 2.2. Parity Conditions. The Council hereby finds as required by Section 7.1 of Ordinance No. 3380 and Section 7.1 of Ordinance No. 96 -40 as follows: a) The 1998 Bonds will be issued for the purpose of making Capital III Improvements to the System and refunding Outstanding Second Lien Parity Bonds. b) At the times of the issuance of the 1998 Bonds there will be no deficiency in the Bond Fund or any accounts therein. c) The City will have on deposit in the Reserve Account an amount equal to the Reserve Account Requirement. d) Prior to the issuance of the 1998 Bonds, the City will have on file a certificate from a Professional Utility Consultant as required by Section 7.1 of Ordinance No. 3380 and Section 7.1 of Ordinance No. 96 -40. ARTICLE III - ISSUANCE OF 1998 BONDS Section 3.1. Issuance of the 1998 Bonds. The City shall issue the 1998 Bonds in the III aggregate principal amount of not to exceed $8,300,000 for the purpose of providing the funds necessary to finance the Project, to refund the Refunded Bonds, to fund a Debt Service Reserve -13- JHRD6H.DOC 98)07/29 Fund, and to pay the expenses incidental to the issuance of the 1998 Bonds. The 1998 Bonds shall be designated the "City of Yakima Water and Sewer Revenue and Refunding Bonds, 1998, shall be in fully registered form, shall be in the denomination of $5,000 each, shall be dated such 2a,2, bear interest at the rates per annum, and be payable in the amounts and dates as shall be determined by resolution of the Council. The Director of Finance and Budget of the City is hereby authorized to obtain insurance for the payment of principal of and interest on the Second Lien Parity Bonds, if he should determine that it is in the best interests of the City to do so. Section 3.2. Registration. Exchange and Payments. (a) Registrar /Bond Register. The City hereby adopts the system of registration approved by the Washington State Finance Committee, which utilizes the fiscal agencies of the State of Washington in Seattle, Washington, and New York, New York. as III registrar, authenticating agent, paying agent and transfer agent (collectively, the "Bond Registrar "). The Bond Registrar shall keep, or cause to be kept, at its principal corporate trust office, sufficient records for the registration and transfer of the 1998 Bonds (the "Bond Register'), which shall be open to inspection by the City. The Bond Registrar is authorized, on behalf of the City, to authenticate and deliver 1998 Bonds transferred or exchanged in accordance with the provisions of such 1998 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 1998 Bonds. (b) Registered Ownership. The City and the Bond Registrar may deem and 0 treat the Registered Owner of each 1998 Bond as the absolute owner for all purposes, and neither -14- JHRO6H DOC 98/07/28 the City nor the Bond Registrar shall be affected by any notice to the contrary. Payment of any • such 1998 Bond shall be made only as described in Section 3(h) hereof, but such registration may be transferred as herein provided. All such payments made as described in Section 3(h) . :311,A1, 6c '.aid and shall satisfy the liability of the City upon such 1998 Bond to the extent of the amount or amounts so paid. (c) DTC Acceptance /Letter of Representations. The 1998 Bonds shall initially be held in fully immobilized form by DTC acting as depository. To induce DTC to ac,:ept the 1998 Bonds as eligible for deposit at DTC, the City has heretofore executed and delivered to DTC a Blanket Issuer Letter of Representations (the "Letter of Representations "). Neither the City nor the Bond Registrar will have any responsibility or obligation to DTC participants or the persons for whom they act as nominees with respect to the 1998 Bonds for the 0 or any DTC participant, the payment by DTC or any accuracy of any records maintained by DTC P DTC participant of any amount in respect of the principal of or interest on 1998 Bonds, any notice that is permitted or required to be given to Registered Owners under this Ordinance (except such notices as shall be required to be given by the City . to the Bond Registrar or to DTC), the selection by DTC or any DTC participant of any person to receive payment in the event of a partial redemption of the 1998 Bonds, or any consent given or other action taken by DTC as the Registered Owner. For so long as any 1998 Bonds are held in fully immobilized form hereunder, DTC or its successor depository shall be deemed to be the Registered Owner for all purposes, and all references in that Ordinance to the Registered Owners shall mean DTC or its nominee and shall not mean the owners of any beneficial interest in any 1998 Bonds. • -15- JHR08H DOC 98!07128 (d) Use of Depository. (i) The 1998 Bonds shall be registered initially in the name of CEDE & Co., as nominee of DTC, with a single 1998 Bond for each maturity in a denomination the total principal amount of such maturity. Registered ownership of such immobilized 1998 Bonds, or any portions thereof, may not thereafter be transferred except (A) to any successor of DTC or its nominee, provided that any such successor shall be qualified under any applicable laws to provide the service proposed to be provided by it; (B) to any substitute depository appointed by the City pursuant to subsection (ii) below or such substitute depository's successor; or (C) to any person as provided in subsection (iv) below. (ii) Upon the resignation of DTC or its successor (or any substitute depository or its successor) from its functions as depository or a determination by the City to discontinue the system of book entry transfers through DTC or its successor (or any substitute 411 depository or its successor), the City may appoint a substitute depository. Any such substitute depository shall be qualified under any applicable laws to provide the services proposed to be provided by it. (iii) In the case of any transfer pursuant to clause (A) or (B) of subsection (i) above, the Bond Registrar shall, upon receipt of all outstanding 1998 Bonds, together with a written request on behalf of the City, issue a single new 1998 Bond for each maturity then outstanding, registered in the name of such successor or substitute depository, or its nominee, all as specified in such written request of the City. (iv) In the event that (A) DTC or its successor (or substitute depository or its successor) resigns from its functions as depository, and no substitute depository can be obtained, or (B) the City determines that it is in the best interest of the beneficial owners of the -16- JHRO6H DOC 98/07128 . . 1998 Bonds that the 1998 Bonds be provided in certificated form, the ownership of such 1998 r Bonds may then be transferred to any person or entity as herein provided, and shall no longer be held in fully immobilized form. The City shall deliver a written request to the Bond Registrar, to with a supply of definitive 1998 Bonds in certificated form, to issue 1998 Bonds in any • authorized denomination. Upon receipt by the Bond Registrar of all then outstanding 1998 Bonds together with a written request on behalf of the City to the Bond Registrar, new 1998 Bonds shall be issued in the appropriate denominations and registered in the names of such . persons as are provided in such written request. (e) Transfer or Exchange of Registered Ownership; Change in Denominations. The registered ownership of any 1998 Bond may be transferred or exchanged, but no transfer of any 1998 Bond shall be valid unless it is surrendered to the Bond Registrar 1998 Bond duly with the assignment form appearing on such 19 Y executed by the Registered Owner or such Registered Owner's duly authorized agent in a manner satisfactory to the Bond Registrar. Upon such surrender, the Bond Registrar shall cancel the surrendered 1998 Bond and shall authenticate and deliver, without charge to the Registered Owner or transferee, a new 1998 Bond (or 1998 Bonds at the option of the new Registered Owner) of the same date, maturity and interest rate and for the same aggregate• principal amount in any authorized denomination, naming as Registered Owner the person or persons listed as the assignee on the assignment form appearing on the surrendered 1998 Bond. in exchange for such surrendered and canceled 1998 Bond. Any 1998 Bond may be surrendered to the Bond Registrar and exchanged. without charge, for an equal aggregate principal amount of 1998 Bonds of the same date, maturity and • interest rate, in any authorized denomination. The Bond Registrar shall not be obligated to transfer or exchange any 1998 Bond during a period beginning at the opening of business on the -17- JHR06H.DOC 98,0728 15th day of the month next preceding any interest payment date and ending at the close of business on such interest payment date, or, in the case of any proposed redemption of the 1998 Bonds, after the mailing of notice of the call of such 1998 Bonds for redemption. (f) Bond Registrar's Ownership of Bonds. The Bond Registrar may become the Registered Owner of any 1998 Bond with the same rights it would have if it were not the. Bond Registrar, and to the extent permitted by law, may act as depository for and permit any of its officers or directors to act as member of, or in any other capacity with respect to, any committee formed to protect the rights of the Registered Owners of the 1998 Bonds. (g) Registration Covenant. The City covenants that, until all 1998 Bonds have been surrendered and canceled, it will maintain a system for recording the ownership of each 1998 Bond that complies with the provisions of Section 149 of the Code. The ownership of each 1998 Bond shall initially be recorded with DTC pursuant to this Section 3.2. (h) Place and Medium of Payment. Both principal of and interest on the 1998 Bonds shall be payable in lawful money of the United States of America. For so long as all 1998 Bonds are in fully immobilized form, payments of principal and interest shall be made as provided in accordance with the operational arrangements of DTC referred to in the Letter of Representations. In the event that the 1998 Bonds are no longer in fully immobilized form, interest on the 1998 Bonds shall be paid by check or draft mailed to the Registered Owners at the addresses for such Registered Owners appearing on the Bond Register on the 15th day of the month preceding the interest payment date, and principal of the 1998 Bonds shall be payable upon presentation and surrender of such 1998 Bonds by the Registered Owners at the principal office of the Bond Registrar; provided, however, that if so requested in writing by the Registered _18- JHRO6H DOC 98/07/28 CD . Owner of at least $1,000,000 principal amount of 1998 Bonds, interest will be paid by wire transfer on the date due to an account with a bank located within the United States. Section 3.3. Execution and Authentication of Bonds. The 1998 Bonds shall be signed on 0k:haif of the City with the manual or facsimile signature of the Mayor, shall be attested by the rr►auual or facsimile signature of the City Clerk and shall have the corporate seal of the City impressed or a facsimile thereof imprinted thereon. • Only such 1998 Bonds as shall bear thereon a Certificate of Authentication in the form hercinbefore recited and 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 1998 Bonds so authenticated have been duly executed, authenticated and delivered hereunder and are entitled to the benefits of this ordinance. 0 In case either of the officers who shall have exe cuted the 1998 Bonds shall cease to be such officer or officers of the City before the 1998 Bonds so signed shall have been authenticated or delivered by the Bond Registrar, or issued by the City, such 1998 Bonds may nevertheless be authenticated, delivered and issued and upon such authentication, delivery and issuance, shall be as binding upon the City as though those who signed the same had continued to be such officers of the . City. Any 1998 Bond may also be signed and attested on behalf of the City by such persons as at the actual date of execution of such 1998 Bond shall be the proper officers of the City although at the original date of such Bond any such person shall not have been such officer of the City. Section 3.4. Lost or Destroyed Bonds. In case any of the 1998 Bonds shall be lost, -----\1 stolen or destroyed, the Bond Registrar may authenticate and deliver a new bond or bonds of like amount, date, tenor and effect to the registered owner or nominee thereof upon payment to the -19- JHR06H DOC 98/0728 -21- JHRO6H DOC 9810728 ARTICLE V - FUNDS AND ACCOUNTS; DEFEASANCE Section 5.1. Revenue Fund; Priority of Payments. The City hereby obligates and binds itself to sec 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 priority: 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 Parity Bonds; Fourth, to pay the principal of and any sinking fund payments for the Second Lien Parity Bonds; Fifth, to make all payments required to be made into the 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 debt service account or reserve account created to pay and secure the payment of the 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 of 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 other lawful City purposes. -22- JHRO6H DOC 98/07/28 . . . . . .. ,.. • Once the 1991 Bonds and the 1996 Bonds are no longer outstanding, the City may create a Rate Stabilization Account in the Revenue Fund. To the extent that surplus Gross Revenues remain after the payments so required to be made out of the Revenue Fund, the City may credit lip to, the full amount of such surplus to the Rate Stabilization Account. Any credits from the . Revenue Fund to the Rate Stabilization Account and any credits to the Revenue Fund from the Rate Stabilization Account made pursuant to Section 6.1 hereof, shall be made prior to closing the books and accounts of the City for each Fiscal year. Moneys in the Rate Stabilization Account may be used for any lawful purpose. Moneys in the Rate Stabilization Account may be used from time to time to make up any deficiencies in the Bond Fund, and such moneys in the Rate Stabilization, Account may be pledged as additional payments to, the Bond Fund to the 0 extent required for any such deficiencies. The City may, at any time, deposit Gross Revenues of v nues of the System from the Rate Stabilization Account. the System in and withdraw Gross Re t. e y 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 Second Lien Parity Bonds. Section 5.2. Bond Fund. (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 Second Lien Parity Bond :, of retiring the Second Lien Parity Bonds prior to maturity in the manner herein provided and of 0 paying any reimbursement obligation with respect to a letter of credit or other credit enhancement device providing additional security for any Variable Rate Bonds. Each month (or -23- - JHRO6H.DOC 98/07/28 in the case of Variable Rate Bonds, at the times provided in subsection (i) of this Section 5.2(a)), withdraw after applying amounts as required in Section 5.1, the City shall with draw 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. (i) 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 Second Lien Parity Bonds as the same becomes due and payable. At closing, all accrued interest on the 1998 Bonds shall be paid into the Interest Account. In the case of all Second Lien Parity Bonds other than Variable Rate Bonds, the City shall transfer to the interest Account amounts sufficient to pay when due the installment of interest 0 next falling due on all Second Lien Parity Bonds. In the case of Variable 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 payment, the City shall withdraw from the Revenue Fund and transfer to the Interest Account an amount that when added to other money therein will equal the amount of interest falling due and payable on such interest payment date. In making the credits required by this subsection (a) (i), any amounts credited to the Interest Account representing accrued interest received on the sale of 1998 Bonds or other Second Lien Parity Bonds, interest capitalized from the proceeds of any Second Lien Parity Bonds and any other transfers and credits otherwise made or required to be 410 -24- JHR06H DOC 98/07/28 0 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 Principal 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 Serial Bonds. (iii) Term Bond Principal Account. (A) The City has created and established a separate account in the Bond Fund to be known as the "Term Bond Principal Account" in order to meet the specified . t Sinking Fund Requirements of Term Bonds and to otherwise retire the Second Lien Parity Bonds prior to maturity. The City shall transfer to the Term Bond Principal Accoun t 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 prior 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 Principal 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. 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 -25- JHR06H DOC 99/07:29 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. • -26- JHRO6H.DOC 98/07/28 0 (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 principal, 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 1998 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 0 within not less than five 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. IIII (B) Money in the Bond Fund may, at the option of the City, be invested and reinvested as permitted by law in Permitted Investments maturing, or which are -27- JHRO6H DOC 98/07/28 retirable at the option of the owner, prior to the date needed or prior to the maturity date of the final installment of principal of the 1998 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 securities 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 410 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 II current specified payments into the Interest Account and Principal Accounts. If the amount in _28_ JHRO6H.DOC 98/07/28 r 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 difference between the amount in the Reserve Account and the Reserve Account Rc --:'-cment and deposit such difference in the Revenue Fund. (b) Money in the Interest Account, the Serial 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 prior 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 0 Reserve Account by the withdrawal of cash therefrom for that purpose, and, if necessary, by sale or redemption of any authorized investments in such a mount as will p rovide 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. (c) Whenever and so long as amounts on deposit in the Bond Fund, including the Reserve Account, are sufficient to provide money to pay the Second Lien Parity 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 410 Second Lien Parity 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 -29- JHR06H DOC 9B /07QB • 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 Parity 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 prior lien and charge upon the Gross Revenues of the System 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 Parity Bonds, and is equal in priority to the lien and charge which may hereafter be made to pay and secure the payment of the principal of and on any Additional Bonds. finds and declares that in fixing the amounts to be (f) The Council hereby fin g 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 pay and secure the payment of the principal of and interest on the First Lien Parity Bonds, the 1991 Bonds, the 1992 Loan, and the 1996 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 Parity Bonds, the 1991 Bonds, and the 1996 Bonds. Section 5.3. Defeasance. In the event that money and/or Government Obligations maturing or having guaranteed redemption prices at the option of the holder at such time or times and bearing interest to be earned thereon in amounts (together with such money, if any) sufficient -30- JHR06H.DOC 98/07128 to redeem and retire part or all of the 1998 Bo nds in accordance with their terms are irrevocably • set aside in a special account and pledged to effect such redemption and retirement, the n no further payments need be made into the Bond Fund for the payment of the principal of and interest on the 1998 Bonds so provided for, and such 1998 Bonds shall then cease to be entitled to any lien, benefit or security of this ordinance, except the right to receive the funds so set aside and pledged, and such 1998 Bonds shall no longer be deemed to be outstanding hereunder. Within 30 days of any defeasance of such 1998 Bonds, the City shall provide notice of defeasance of such 1998 Bonds to registered owners and to each NRMSIR and SID, if any, in accordance with Section 11. Section 5.4. Refunding of Refunded Bonds. The Council shall adopt a resolution that sets forth the exact Refunded Bonds to be refunded by the 1998 Bonds, appoints a Refunding Agent, establishes the terms for the refunding and the redemption of the Refunded Bonds, and 4110 sets forth other provisions for such refunding. The Council may choose to refund less than all of the Refunded Bonds. ARTICLE VI PARTICULAR COVENANTS OF THE CITY So long as any Second Lien Parity 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: • -3 1- JHRO6H DOC 98/07(28 (a) The Gross Revenues collected (together with Assessments collected) will 0 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 charges lawfully 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 Outstandin g Parity First Lien Parit Bonds, will be at least equal to the Coverage Requirement 411 calculated as of December 31 of the preceding calendar year. For the purpose of meeting this requirement if the City creates a Rate Stabilization Account pursuant to Section 5.1, (i) there may be added to Net Revenues for any Fiscal Year such amount, not greater than the Annual Debt Service for such. Fiscal year, withdrawn from the Rate Stabilization Account and deposited in the Revenue Fund, and (ii) there must be subtracted from Net Revenues for any Fiscal Year such amounts as are withdrawn from the Revenue Fund and deposited into the Rate Stabilization Account for such Fiscal Year. , Section 6.2. Maintenance and Operation. The City shall at all times maintain, preserve and keep the properties of the System in good repair, working order and condition and will from 0 time to time make all necessary and proper repairs, renewals, replacements, extensions and betterments thereto, so that at all times the business carried on in connection therewith will be -32- - JHRO6H.DOC 98/07/28 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. ., S,:cLion 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, nrovi sibn is made for the payment into the Bond Fund of cash or "Government Obligations," as now or hereafter defined in Chapter 39.53 RCW, 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 Parity Bonds, nor will it sell or otherwise dispose of any part of the useful operating properties of the System (in excess of 5% of the net utility plant of the System) unless. once the 1991 Bonds and the 1996 Bonds are no longer Outstanding, such 0 for a facilities are replaced or provision is made foment into the Bond Fund of the greater of: p y (a) An amount which will be in the same proportion to the net amount of Second Lien Parity Bonds then Outstanding (defined as the total amount of the Second Lien Parity 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 period; 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 prior to such sale or disposition. III 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. -33- JHRO6H DOC 98107/25 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 comprising a part of the same which shall have become unserviceable, inadequate, oosdicie ur unfit to be used in the operation of the System, or no longer necessary, material 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 • 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 Gross Revenues or any part thereof prior or 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 pa or upon an part thereof, funds in the hands of the City, prior to or superior to the lien of the 411 any Second Lien Parity Bonds, or which might impair the security of the Second Lien Parity 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 risks of direct physical loss, damage to or destruction of the System, or any part thereof, and against accidents, casualties or negligence, including liability 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, 0 the City will (a) with respect to each such loss, promptly repair and reconstruct to the extent -34- JHR08H.000 98/0728 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 covering 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 proceeds thereof not so used shall be 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 III accordance with any applicable rules and regulations accor pp prescribed by the State of Washington. The g P City shall prepare, and any owner or holder of Second Lien Parity Bonds may, upon written 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. Addition 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 III System which are not legally required or economically sound, and which will not properly and advanta contribute to the conduct of the business of the System in an efficient manner; -35- JHRO6H DOC 98/0779 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 Covenant: Arbitrage Rebate: Special Desienation. The City covenants to undertake all actions required to maintain the tax- exempt status of interest on the 1998 Bonds under Section 103, Sections 141 through 149 inclusive, and Section 265 of the Code as set forth in the Arbitrage and Tax Certification that will be executed at the closing of the 1998 Bonds. The City has designated the 1998 Bonds as "qualified tax- exempt obligations" under Section 265(b)(3) of the Code for banks, thrift institutions and other financial institutions. ARTICLE VII ADDITIONAL BONDS Section 7.1. Additional Bonds. Second Lien Parity Bonds may be issued payable from 4110 the Bond Fund on a parity with the 1991 Bonds, the 1996 Bonds, and the 1998 Bonds and secured by an equal charge and lien on the Gross Revenues pledged to the Bond Fund: First, for the purpose of acquiring, 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 Second Lien Parity Bonds or other revenue obligations of the System. (a) . The City may issue Second Lien Parity Bonds upon compliance with th following conditions: 1. At the time of the issuance of such Parity Bonds, there shall be no deficiency in the Bond Fund or in the bond fund securing the First Lien Parity Bonds. 4110 -36- JHROBH DOC 9B/0728 t . . . . . , ill , 2. In each ordinance authorizing such Second Lien Parity 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 Parity 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 period for which financial statements are available within the 24 months preceding the date of delivery of such Second Lien Parity 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 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 Parity 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 Second Lien Parity 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 - 37- JHROBH DOC 98,C7/28 subsequent to the beginning of such 12 -month period, had been in force during the full 12 -month 410 period; (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 period were customers for the entire period. S (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 (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. -3 8- JHRO6H.DOC 98/07/28 Notwithstanding the foregoing, if Additional Bonds are to be issued for the purpose of • refunding at or prior to their maturity 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. (F) 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. • (G) Nothing herein contained shall prevent the City from issuing revenue bonds to refund maturing Second Lien Parity Bonds for the payment of which money is not otherwise available. (H) Notwithstanding any other provision of this ordinance, for so long as the 1998 Bonds are Outstanding, no bonds may be issued subsequent to the issuance of the 1998 Bonds with a lien and charge on the Gross Revenues superior to the lien and charge of the 1998 Bonds. • • _39_ JHRO6H.DOC 98/07128 Section 7.2. Pledge Effected by Ordinance. 411 (a) The 1998 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 Op ration of the System and, for so long as any First Lien Parity Bonds are Outstanding, the prior payment of all amounts due on such First Lien Parity Bonds, and other money and assets specifically pledged hereunder for the payment thereof. There are hereby pledged as security for the payment of' the principal, premium, if any, and interest on the 1998 Bonds in accordance with their terms of this ordinance, subject only to the provisions of this ordinance restricting or permitting the application thereof for the purposes and on the terms and conditions set forth in this ordinance, (i) the proceeds of the sale of the 1998 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 411 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 lien of this pledge shall be valid and binding as against all parties having claims of any kind in tort, contract or otherwise against the City regardless of whether such parties have notice thereof. (b) The Second Lien Parity Bonds shall be equally and ratably payable 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 liens, 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 41) be obtained by the City to insure the repayment of one or more series or maturities within a series. -40- JHR06H.DOC 98/07!28 • • (c) The Second Lien Parity 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 oii1::r property of the City or of the State of Washington, or of any political subdivision of the Stag: 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 principal, premium, if any, or interest thereon. 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; -41 - JHR06H.DOC 98/07/28 (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 :fora the Bondowners Committee or from the owners of not less than 20% in principal amou�it of the Second Lien Parity Bonds outstanding, a written notice specifying, and demanding the cure of, such default; (e) If the City shall (except as herein permitted) sell, transfer, assign or convey any 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 authorized by Section 6.3 hereof); (f) If an order, judgment or decree shall be entered by a court of competent ( jurisdiction jur (a) appointing a receiver, trustee or liquidator for the whole or any substantial part of J PP g the System, (b) approving a petition filed against the City seeking the bankruptcy, arrangement or reorganization 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 writing 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 -42- JHRO6H.DOC 98/07/28 ® 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 Parity 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 majority of the 40 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 Parity 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 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 Committcc elected by the Bondowners in the manner herein provided, and their successors, as a committee are III hereby declared to be trustees for the owners of all the Second Lien Parity Bonds then -43- JHRO6H.DOC 98/07/28 Outstanding, and are empowered to exercise in the name of the .Bondowners Committee as trustee, all the rights and powers hereinafter conferred on the.Bondow 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 during regular business hours be subject to the inspection and use of the Bondowners Committee and any person holding at least 20% of the principal amount of Second Lien Parity 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 Revenues and other money, securities and funds pledged under this Ordinance. Section 8.4. Suits at Law Equity. or in E uity. If an Event of Default shall happen and shall 4110 _ 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 Parity Bonds and to protect and enforce the rights 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 trustee of an .express trust, or in the enforcement of any other legal, or equitable right as the Bondowners Committee being advised by counsel, shall deem most effectual to enforce any of the rights of the owners of the Second Lien Parity 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 -44- JHRO6H DOC 9810728 ® under any of the Second Lien Parity Bonds or the provisions of this ordinance may be enforced by the Bondowners Committee without the possession of any of the Second Lien Parity 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 B nrinwners.Committee the true and lawful trustee for the respective owners of said Second Lien . Parity Bonds, with authority to institute any 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 0 to consent to, accept or adopt, on behalf of any Bondowner, any plan of reorganization or right of any adjustment affecting the Second Parity Bonds or the City or any g ht y 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 Parity 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 110 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 _45_ JHRO6H DOC 98/C7/28 • powers and duties which consenting Bondowners may by agreement confer on the Bondowners 411 Committee or such separate trustee or bondholders committee. The Bondowners Committee shall have full powers of substitution and delegation in respect to any of the powers hereby Section 8.5. Direction of Actions of Bondowners Committee bv Owners of Majority of Bonds. The owners of not less than a majority in principal amount of the Second Lien Parity 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 Parity Bonds not parties to such direction. Section 8.6. Suits bv Individual Bondowners. No owner of any one or more of the Second Lien Parity Bonds shall have any right 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 authorized to be exercised by the Bondowners Committee, may be exercised individually by any Bondowner, in his own name and on his own -46- JHRO6H.DOC 98107/28 10 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 Parity Bonds shall affect or impair the obligation of the City, which is absolute and unconditional, to pay at the respective dates of maturity and places therein expressed the principal of and premium, if any, and interest -on the Second Lien Parity Bonds to the respective owners thereof, or affect or impair the rights 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 Parity Bonds. • Section 8.7. Waivers of Default. No delay or omission of the Bondowners Committee or of any Bondowner to exercise any right or power arising upon the happening of an Event of Default shall impair any right or power or shall be construed to be a waiver of any such Event of Default or 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 principal amount of the Second Lien Parity Bonds at the time Outstanding, or their attorneys -in -fact duly authorized, 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 0 premium, if any, and interest on any of the Second Lien Parity Bonds. No such waiver shall extend to any subsequent or other default or impair any right consequent thereon. -47- JHRO6H DO 98/07/28 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 Parity Bonds then outstanding may at any time call a meeting of the owners of the Second Lien Parity Bonds. Every such meeting shall be held at such place in the City of Yakima, State of Washington, or in 0 the City of Seattle, State of Washington, as may be specified in the notice calling such meeting. Written 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 Bondov.n :_rs 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. -48_ JHR06H.DOC 98/07/28 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 fully complied with if it is mailed postage prepaid to, each registered owner of any of the Second I ?en 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 printed 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 Parity Bonds. Attendance and voting by Bondowners at such meetings may be in person or by proxy. Owners of Second 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 Parity Bonds shall be entitled in person or by proxy to attend and vote at such meeting as owner of the Second Lien Parity Bonds registered or certified in his/her name without producing such Second Lien Parity 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 vote in such meeting must produce the Second Lien Parity Bonds claimed to be owned or represented at such meeting. -49- JHR08H DOC 98,0726 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 writing. 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 authority. 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 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 the 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. -50- JHR06H DOC 98/07/28 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 Parity Bonds represented at the meeting in person or by proxy in the event the City is not represented at such mcti g, 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 by the owners of a majority in principal amount of the Second Lien Parity 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 and secretary as aforesaid, and who shall make and file with the secretary of the meeting and with the City their verified report of all such votes cast at the meeting. Section 9.6. Quorum at Bondowners Meetinss. The owners of not less than the principal amount of the Second Lien Parity 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. • -51- JHRO6H DOC 96/07126 ARTICLE X ADDITIONAL OR SUPPLEMENTAL ORDINANCES Section 10.1. Amendments. (a) The Council from time to time and at any time may pass an ordinance or ordinances supplemental hereto, 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 contained 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 Parity Bonds, or to surrender any right or power reserved to or conferred upon the City. (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 the interest of the owners of Second Lien Parity Bonds. Any such supplemental ordinance of the City may be passed without the consent of the owners of any Second Lien Parity Bonds at any time outstanding, notwithstanding any of the provisions of 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 of the City 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 supplemental ordinance shall: -52- JHRO6H DOC 98/07/28 (1) Extend the fixed maturity of any Second Lien Parity 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 (2) Reduce the aforesaid percentage of Bondowners required to approve any such supplemental ordinance, without the consent of the owners of all of the Second Lien Parity 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 passage of any supplemental ordinance pursuant to the ii 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 Parity 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 Parity Bonds executed and delivered after the execution of any supplemental ordinance passed pursuant to the provisions of this section may have a notation as to any matter provided for in such supplemental ordinance, and if such supplemental ordinance shall so provide, new bonds so modified as to conform, in the opinion of the Council, 0 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 Parity Bonds then -53- JHRO6H.DOC 98/07/28 • outstanding, upon surrender for cancellation of such bonds with all unmatured coupons and all matured coupons not fully paid, in equal aggregate principal 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 provisions of this ordinance. A record in duplicate of the proceedings of each meeting of the Bondowners shall be prepared by the permanent secretary of the meeting and shall have attached thereto the original reports of the inspectors of votes and affidavits by a person or persons having 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 411 record shall be signed and verified 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 0 -54- JHR08H DOC 98/07/28 . . . , , . • to be binding upon the City, the paying agents,. and the owners of all Second Lien Parity 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 during such 30 day pe and any such further period during 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 authorize or permit, by reason of any call of a meeting_ of Bondowners or of any right 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 under any of the provisions of this ordinance. 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 Second Lien Parity 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 Parity Bond for which such consent is given. A -55- JHR05h 00C 98/07/28 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 10111 the Second Lien 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 Second Lien Parity 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 Parity 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 jurisdiction setting aide such consent or annulling the action taken thereby in a legal action or equitable proceeding for such purpose commenced within such period. Section. 10.4. Amendment of Ordinance in Anv Respect by Approval of All Bondowners. Notwithstanding anything contained in the foregoing provisions of this Article, the rights and obligations of the City and of the owners of the Second Lien Parity Bonds, and the terms and provisions of the Second Lien Parity 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 Second O Lien Parity Bonds then Outstanding at a meeting of Bondowners called and held as hereinabove provided, or upon the adoption of an ordinance by the City and the consent of the owners of all -56- JHRO6H DOC 98/07128 • • the Second Lien Parity 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 Parity Bonds owned or • h;,1;; 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 Second Lien Parity 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 0 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 Parity 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 Parity Bond by the paying agent as to any such action. If the City shall so determine, new Second Lien Parity 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 t owner of any Second Lien Parity Bond then outstanding shall be exchanged without cost to such Bondowner for Second Lien Parity Bonds then outstanding hereunder, upon surrender of such Second Lien Parity Bonds with any =matured coupons pertaining thereto. -57- JHRO6H.DOC 98/07/28 ARTICLE XI MISCELLANEOUS Section 11.1. Undertakins to Provide Ongoing Disclosure. (a) Contract /Undertaking. This section constitutes the City's written undertaking for the benefit of the owners of the 1998 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 1999 for the fiscal year ended December 31, 1998): (1) Annual financial statements showing ending fund balances for the 4 11) 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 1998 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 written notice of the change of -58- JHRO6H.DOC 98/07/28 • 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 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 O timely manner, to the SID, if any, and to each NRIv1SIR or to the MSRB, notice of the events with respect to t occurrence of any of the following e he 1998 Bonds, if material: P (1) Principal and interest payment delinquencies; (2) Non- payment related defaults; (3) Unscheduled draws on debt service reserves, if any, for the 1998 Bonds reflecting financial difficulties; (4) Unscheduled draws on credit enhancements, if any, for the 1998 Bonds reflecting financial difficulties; (5) Substitution of credit or liquidity providers, if any, or their failure to perform; (6) Adverse tax opinions or events affecting the tax - exempt status of • the 1998 Bonds; (7) Modifications to the rights of 1998 Bond owners; -59- JHRO6H DoC 98/07/28 (8) Optional redemption of 1998 Bonds prior to their maturity; 411 (9) Defeasances of 1998 Bonds; (10) Release, substitution or sale of property, if any, securing repayment of the 1998 Bonds; and (11) Rating change for the 1998 Bonds. Solely for purposes of disclosure, and not intending to modify this undertaking, the City advises that no property secures repayment of the 1998 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. (e) Termination/Modification. The City's obligations to provide annual financial information and notices of material events shall terminate upon the legal defeasance, prior redemption or payment in full of all of the 1998 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 1998 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, with an approving opinion of nationally recognized bond counsel in accordance with the Rule. In the event of any amendment or waiver of a provision of this Section 11.1, the City shall describe such amendment _60_ JHR06H.DOC 98/C7/28 0 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 principles, on the presentation) of financial information or operating data being presented by the C;n In addition. if the amendment relates to the accounting 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. A Bond Owner's or Beneficial Owner's right to enforce the provisions of this section shall be limited to a right to Ell obtain specific enforcement of the City's obligations hereunder, and any failure by the City to p - comply with the provisions of this undertaking shall not be an event of default with respect to the 1998 Bonds under this ordinance. 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 1998 Bonds, including persons holding 1998 Bonds through nominees or depositories. Section 11.2. Severabilitv. 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 iii 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 Parity Bonds. -61- - JHR06H.DOC 98;07/28 Section 11.3. General Authorization. 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. Section 11.4. Prior Acts. All acts taken pursuant to the authority of this ordinance but prior to its effective date are hereby ratified and confirmed. 0 0 -62- JHR06H DOC 98/07/28 1 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 4th day of August CITY OF YAKIMA, WASHINGTON Mayor ATTEST City Clerk APPROVED AS TO FORM: /44Jt /e4iJL City Attorney • Publication Date: 8 - - 98 Effective Date: 9 -6 -98 • -63- JHRO6H.DOC 98/07/28 APPENDIX A UNITED STATES OF AMERICA NO. $ STATE OF WASHINGTON CITY OF YAKIMA WATER AND SEWER REVENUE AND REFUNDING BOND, 1998 INTEREST RATE: % MATURITY DATE: CUSIP NO.: REGISTERED OWNER: PRINCIPAL AMOUNT: • The City of Yakima, Washington (the "City "), hereby acknowledges itself to owe and for value received promises to pay to the Registered Owner identified above, or registered assigns, on the Maturity Date identified above, the Principal Amount indicated above and to pay interest from August 1, 1998, or the most recent date to which interest has been paid or duly provided for, until payment of this bond at the Interest Rate set forth above, payable on 1, , and semiannually thereafter on the first days of each succeeding and . Both principal of and interest on this bond are payable in lawful money of the United States of America. For so long as the bonds of this issue are held in fully immobilized form, payments of principal and interest thereon shall be made as provided in accordance with the operational arrangements of DTC referred to in the Blanket Issuer Letter of Representations from the City to The Depository Trust Company. In the event that the bonds of this issue are no longer held in fully immobilized form, interest on this bond shall be paid by check or draft mailed to the Registered Owner at the address appearing on the Bond Register on the 15` day of the month preceding the interest payment date, and principal of this bond shall be payable upon presentation and surrender of this bond by the Registered Owner at the principal office at the principal office of the fiscal agency of the State of Washington in either Seattle, Washington, or New York, New York (collectively the "Bond Registrar "); provided, however, that if so requested in writing by the Registered Owner of at least $1,000,000 principal amount of bonds, interest will be paid by wire transfer on the date due to an account with a bank located within the United States. This bond is one of an authorized issue of bonds of like date and tenor, except as to number, amount, rate of interest and date of maturity, in the aggregate principal amount of $ (the "Bonds "), and is issued pursuant to Ordinance No. (the "Bond Ordinance ") passed by the City Council on June 23, 1998 to finance certain improvements to the water and sewerage system and to refund certain water and sewer revenue bonds of the City. 40 Capitalized terms used in this bond and not otherwise defined shall have the meanings given them in the Bond Ordinance. The City has reserved the right to redeem the Bonds maturing on and after 1, , in whole or in part (and if in part, with maturities to be selected by the City and by lot within a maturity) at the following times and prices expressed as a percentage of the principal ar_.. in each case together with accrued interest, if any, to the redemption date. • Redemption Periods Redemption Prices [The bonds of this issue maturing on 1, , are also subject to redemption prior to maturity through mandatory amortization payments on 1 of the following years and in the following amounts in each case at a redemption price of 100% of the principal amount of Bonds to be redeemed, plus accrued interest to the date of redemption. Years Amount II , . * Final Maturity] Portions of the principal amount of this Bond in installments of $5,000 or any integral multiple thereof also may be redeemed in accordance with the provisions set forth above, and if less than all of the principal amount is to be redeemed, upon the surrender of this Bond at the principal offices of the Bond Registrar there shall be issued to the Registered Owner, without charge, for the then unredeemed balance of the principal sum, at the option of the owner, a Bond or Bonds of like maturity and interest rate in any of the denominations authorized by the Bond Ordinance. Notice of redemption, unless waived, is given by the Bond Registrar by mailing an official redemption notice by regular mail, postage prepaid, not less than 30 days and no t " ' than 60 days prior to the date fixed for redemption, to the Registered Owner of any Bond to be • redeemed at the address appearing on the Bond Register. The requirements for such notice shall be deemed to be complied with when notice is mailed, regardless of whether it is actually II received by the owner of any Bond. A-2 JHRO6H.DOC 98/07/28 If such notice has been given and if the City has set aside, on the date fixed for redemption, sufficient money for the payment of all Bonds called for redemption, the Bonds so 410 called shall cease to accrue interest after such redemption date, and all such Bonds shall no longer be deemed to be outstanding for any purpose, except that the Registered Owners shall be entitled to receive payment of the redemption price and accrued interest to the redemption date from the money set aside for such purpose. The Bonds are payable solely from the special fund of the City known as the Second Lien Water and Sewer Revenue Bond Fund" (the "Bond Fund "). The City has irrevocably obligated and bound itself to pay into the Bond Fund out of Revenue of the System or from such other money as may be provided for such purpose certain amounts necessary to pay and secure the payment of the principal and interest on such bonds. The City has pledged to set aside from the Revenue Fund out of the Revenue of the System and to pay into the Bond Fund the various amounts required by the Bond Ordinance to be paid into and maintained in such Fund 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 the Revenue Fund out of the Revenue of the System into the Bond Fund shall be a lien and charge thereon equal in rank to the lien and charge upon such Revenue of the amounts required to pay and secure the payment of the City's Outstanding Second Lien Parity Bonds, and any revenue bonds hereafter issued on a parity with the Bonds and superior to all other liens and charges of any kind or nature, except the Costs of Maintenance and Operation of the System. 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 for as long as any of the Bonds are outstanding that will make available, for the payment of the principal thereof and interest thereon as the same shall become due, Net Revenue in an amount that, together with Assessment Income will be at least equal to the Coverage Requirement. The City hereby covenants that it will perform all the covenants of this Bond and of the Bond Ordinance, and reference is hereby made to the Bond Ordinance for a complete statement of such covenants. The pledge of Revenue of the System 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. 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. • A -3 JHRO6H.DOC 98/07/28 obligatory ato for any This Bond shall not be valid or become g ry urpose or be entitled to any P security or benefit under the Bond Ordinance until the Certificate of Authentication has been manually signed by the Bond Registrar. This Bond is transferable only on the records maintained by the Bond Registrar for that purpose upon the surrender of this Bond by the Registered Owner or his/her duly authorized agent and only if endorsed in the manner provided hereon, and a new fully registered Bond of like principal amount, maturity and interest rate shall be issued to the transferee in exchange. Such exchange or transfer shall be without cost to the Registered Owner or transferee. The City and Bond Registrar may deem the person in whose name this Bond is registered to be the absolute owner for the purpose of receiving payment of the principal of and interest on this Bond and for all other purposes. The Bond Registrar is not required to issue, register, transfer or exchange any Bonds during a period beginning at the opening of business on the 1 5th day of the month next preceding any interest- payment date and ending at the close of business on the interest payment date. or. in the case of any proposed redemption of the Bonds, after the mailing of notice of the call of such Bonds for redemption. • It is hereby certified that all acts, conditions and things required by the Constitution and statutes of the State of Washington and [the Charter and ordinances] of the City to exist, to have happened, been done and performed precedent to and in the issuance of this Bond have happened, been done and performed and that the issuance of this bond and the bonds of this series does not violate any constitutional, statutory or other limitation upon the amount of bonded indebtedness that the City may incur. The City has caused this Bond to be executed by the manual or facsimile signature of the Mayor and to be attested by the manual or facsimile signature of the Clerk, and has caused the seal of the City to be impressed or imprinted on this bond, as of this 1" day of August, 1998. CITY OF YAKIMA, WASHINGTON B /s/ Mayor ATTEST: • • /s/ Clerk A-4 JHRO6H DOC 98/07/28 The Bond Registrar's Certificate of Authentication on the Bonds shall be in substantially the following form: CERTIFICATE OF AUTHENTICATION This is one of the Water and Sewer Revenue and Refunding Bond of the City of Yakima, Washington, dated August 1, 1998, described in the Bond Ordinance. WASHINGTON STATE FISCAL AGENCY, as Bond Registrar By Authorized Signatory The following abbreviations, when used in the inscription on the face of this Bond, shall be construed as though they were written out in full according to applicable laws or regulations: TEN COM -- as tenants in common TEN ENT -- as tenants by the entireties JT TEN -- as joint tenants with right of survivorship and not as tenants in common UNIF GIFT ( TRANSFERS) MIN ACT - Custodian (Cust) (Minor) under Uniform Gifts (Transfers) to Minors Act (State) Additional abbreviations may also be used, though not in the above list. A -5 JHROSH DOC 9810728 ASSIGNMENT FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers unto PLEASE INSERT SOCIAL SECURITY OR TAXPAYER IDENTIFICATION NUMBER OF • TRANSFEREE I (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: i NOTICE: Signature(s).must be guaranteed pursuant to law. 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. • i A -6 JHRO6H.DOC 98/07!28 APPENDIX B DESCRIPTION OF PROJECT The Project includes the following improvements to the City's water and sewerage system as described in the City's Water Comprehensive Plan: (1) Second Level Pump Station Retrofit (2) Waste/Recycle Study (3) Main Replacement and Dead -End Elimination Program (4) Madison Avenue Main Construction (5) River Road North to Sixth Avenue • (6) Airport Well Electrical Update (7) Third Level Drain Design (8) Wright Avenue Well Relocation/Design (9) Northeast Yakima Main Construction (10) Airport Water Main Construction 4 B -1 J►iRO6H.DOC 981D728 BUSINESS OF THE CITY COU\ YAKIMA, WASHINGTON • AGENDA STATEMENT Item No. For Meeting Of Tune 23, 1998 1 T EM TITLE: 1 LE: Resolution to declare. the City's intent to use bond proceeds to reimburse, with certain restrictions, construction costs related to Water ' Improvements contained in the 1998 Budget. SUBMITTED BY: Department of Finance & Budget CONTACT PERSON /TELEPHONE: Cindy Eppersonag Director of Finance & Budget Tim Jens , ccountant SUMMARY EXPLANATION: At the July 7, 1998 meeting a bond ordinance will be presented for Council's review to issue revenue and refunding bonds for the water /sewer utility. The issuance of bonds to pay for water capital projects was recommended in the 1996 Cost of Services study, and was carried • forward from 1997 into the 1998 Water Capital budget. According to the Water Division Manager, some construction has commenced. Federal Tax r egulations contain requirements relating to timing of expenditures paid from tax exempt bond proceeds. Therefore, it is necessary to approve this resolution to reimburse construction costs that have occurred not more than 60 days prior to the adoption of this resolution with bond proceeds. (Engineering and Architecture, or, "soft costs ", are exempt from the 60 day rule as long as they don't exceed 20% of the bond issue.) This is an administrative requirement to ensure that bond proceeds can be used for reimbursing the City's funds already spent on project construction. Resolution X Ordinance Contract Other (Specify) Funding Source Not Applicable APPROVED FOR SUBMITTAL: S,:t._tt.,4! • _ _ ______ City anger STAFF RECOMMENDATION: Adopt Resolution BOARD / COMMISSION RECOMMENDATION: • BOARD UN ACTION: CIL A N: C O RESOLUTION NO. R•98- A RESOLUTION to declare the City's intent to use bond proceeds to reimburse, 411 with certain restrictions, construction costs related to Water Improvements contained in the 1998 budget.. WHEREAS, the City Council of the City of Yakima deems it to be in the 1::ezt interests of the City that it adopt this resolution to allow reimbursement from bond proceeds of construction costs related to the 1998 Water Capital Program in the 1998 budget; now, therefore, BE IT RESOLVED BY THE CITY COUNCIL OF THE CITY OF YAK MA: Section 1. The City of Yakima reasonably expects to reimburse the expenditures described herein with the proceeds of debt to be incurred by the City (the "Reimbursement Bonds "). Section 2. The expenditure with respect to which the City reasonably expects to be reimbursed from the proceeds of Reimbursement Bonds are for Water System Improvements as described in the 1998 Water Capital Program and the 1998 Budget. 411 Section 3. The maximum principal amount of debt obligation expected to be issued for the project described in Section 2 is $3.470 million. ADOPTED BY THE CITY COUNCIL this day of , 1998. • ATTEST: JOHN PUCCINELLI MAYOR CITY CLERK Legal/BD Reimb. Bonds BUSINESS OF THE CITY COUNCIL YAKIMA, WASHINGTON AGENDA STATEMENT Item No. For Meeting Of August 4, 1998 ITEM TITLE: Ordinance authorizing the issuance and s ale of 1998 Water / Sewer Revenue and Refunding Bonds SUBMITTED BY: Department of Finance & Budget CONTACT PERSON/TELEPHONE: Cindy Epperson, Accounting Manager Tim n, Accountant 576 -6639 SUMMARY EXPLANATION: This ordinance authorizes the issuance of Water /Sewer revenue bonds for Water improvements and to potentially refinance (refund) previously issued revenue bonds to obtain interest cost savings. The 1996 Cost of Service Study originally contemplated sale of bonds in 1997. Because of a shift in priorites and the need for additional engineering, these projects were carried forward from the 1997 into the 1998 budget. The listing of projects to be funded with bond proceeds follows: 2nd Level Pump Station Retrofit $20,000 Waste /Recycle Study 30,000 Main Replacement and Dead -End Elimination Program 100,000 Madison Avenue Main Construction 100,000 River Road North to 6th Avenue Main Construction 400.000 Airport Well Electrical Update 160,000 3rd Level Drain Design 5,000 Wright Avenue Well Relocation /Design 1,250,000 Northeast Yakima Main Construction 500,000 Airport Water Main Construction 602,000 Project Total S3,167,000 (Continued) Resolution Ordinance X Contract Other (Specify)_ Funding Source: Not Applicable APPROVED FOR SUBMITTAL: C\, ►- \�• ,� `� City Manager STAFF RECOMMENDATION: Pass Ordinance BOARD /COMMISSION RECOMMENDATION: COUNCIL ACTION: The ordinance authorizes up to $3.47 million in new money to accomplish these projects, establish an adequate debt service reserve, and pay for the cost of issuing bonds. The maximum authorized for refunding the 1991 bond issue is $4.83 million, for a total issue of $8.3 million. The Cost of Service Study recommended rate increases which would adequately provide for the new debt service payments. Currently the debt ratio for the Water Division is less than 10% of gross revenue. The additional debt service required through the sale of the bonds is approximately $300,000 annually, assuming a current interest rate of 4.9%. Adding this to the calculation results in a debt ratio still under 16%. The last time the City issued revenue bond dedicated strictly for water improvements was i n 1968 in the amount of $4.8 million. Water used only about $335,000 out of $4.05 million of the 1983 revenue bond. issue. Most of the recent projects have been funded either by Public Works Trust Fund Loans or Federal Grants. The decision to refund existing debt will be made closer to the time of actually selling the bonds, and will be based on market conditions at that time. The rule of thumb in the industry is to refund if you have a present value savings of 5% of the refunded issue. Based on market conditions a few weeks ago, the present value savings are $383,000 or 8.76 %. Applicable laws allow us to do an advanced refunding only once, therefore, we will carefully analyze savings at the point of sale to recommend refunding. Normally, combining a refunding with new money has inherent benefits, in that economies of scale are realized, the escrow yield is better with larger amounts, and the larger block size attracts more investors. The tentative schedule for the sale follows: • 9 /4-- Complete the Preliminary Official Statement for distribution as Council Information • 9 /14-- Preliminary Pricing • 9/15 -- Council Action on Bond Sale Resolution and Bond Purchase Agreement ' • 10 /1— Closing of the Sale and Cash Transactions We respectfully request Council to pass the attach ordinance prepared by the City's Bond Counsel, Preston, Gates & Ellis, to begin the process of issuing revenue bonds. Also attached is the Resolution approved at the June 23, 1998 meeting which declared our intent to use bond money to reimburse construction costs prior to receiving bond proceeds. This action allowed some construction to begin. 0 CITY OF YAKIMA 1998 CITY MANAGEMENT PRELIMINARY BUDGET REQUEST SUMMARY 411 pEPARTMENT: City Management ASSISTANT CITY MANAGER: Glenn K. Rice DIVISION: Domestic Water MANAGER: Dueane Calvin Improvement -- Fund 477 DEFINITION — Service Unit 348 - Capital Improvement -- Expenditures Capital Outlay — Consists of 2nd Level Pump Station Retrofit, Waste /Recycle Study, replacement of aging mains, 3rd level drain engineering, update of Airport Well electrical system, Wright Avenue well relocation /design, Airport main construction, Northeast Yakima main construction, River Road main construction, and Madison Avenue main construction. CAPITAL OUTLAY — CAPITAL IMPROVEMENTS 1998 477 Fund o 2nd Level Pump Station Retrofit $ 20,000 o Waste /Recycle Study 30,000 - o Main Replacement and Dead -End Elimination Program 100,000 o Madison Avenue Main Construction 100,000 o River Road North to 6th Avenue 400,000 ° •Airport Well Electrical Update 160,000 • o 3rd Level Drain Design 5,000 o Wright Avenue Well Relocation /Design 1,250,000 o Northeast Yakima Main Construction 41111 500,000 ' ° Airport Water Main Construction 602,000 53,167,000 Service Unit 348 - Capital Improvement -- Revenue -- In order that the above • identified critical projects can be accomplished in a timely manner, it is proposed that the sale of bonds would be an appropriate funding mechanism. Currently the • debt ratio for the Water Division is less than 10 %. The additional debt ,service required through the sale of these bonds would not exceed 15 %. Service Unit 699 General Revenues -- Interest from investments is projected to be the same for 1998 as in 1997. . The total 477 Fund Domestic Water Capital Improvement budget for 1998 is $3,167;000 which, when subtracted from projected resources of $3,350,708, will leave a balance of $183,708 at year -end. • 111 Budg Narrative: 1O- Domestic Wtr Imp 1—U/4/97 223