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HomeMy WebLinkAbout07/19/2011 17 Water and Wastewater Capital Improvements Revenue Bonds Issuance BUSINESS OF THE CITY COUNCIL YAKIMA, WASHINGTON AGENDA STATEMENT Item No. 1 For Meeting Of: July 19, 2011 ITEM TITLE: An Ordinance authorizing the issuance of water and wastewater revenue bonds of the City of Yakima in the principal sum not to exceed $6,000,000 to finance certain capital improvements to the City's water and wastewater systems; and fixing the terms and covenants of such bonds. SUBMITTED BY: Finance Department CONTACT PERSON /TELEPHONE: Rita DeBord, Finance & Technology Director (576 -6771) Tara Lewis, Financial Services Officer (575 -6070) • Scott Schafer, Wastewater Utility Manager (575 -6077) SUMMARY EXPLANATION: Overview: The enclosed Bond Ordinance, if approved by Council, will authorize staff to take all necessary steps to issue Water and Wastewater Utility revenue bonds in an amount not to exceed $6M, for a 20 -year term, at an estimated interest rate of approx. 4.4% (based on current market conditions and including legal and underwriting costs), with an annual debt service of approx. $410,000. This level of debt service has been priced into the current Wastewater rate structure, so' no rate increase is anticipated as a result of this debt issuance. The proceeds of this bond issue are to be used to help fund capital improvements to the City's wastewater facilities. The enclosed bond ordinance for Council consideration is the first legal step in implementing the City Council's 2011 approved policy issue that requested continuing improvements at the Wastewater treatment plant costing approx. $13.5 million to be funded by, a combination of borrowings including the issuance of revenue bonds. Prior to issuing bonded debt on the City's behalf it is necessary, per section 12 of the City Charter, that the Council approve the terms and form of the bonds by Ordinance. Wastewater Capital Improvement Projects: Major system improvements have been underway at the Wastewater treatment plant for the past several years. Bond proceeds will be used to continue the capital program outlined in the adopted, mandated 2004 Wastewater Facility Plan. These projects include Biogas analysis - $400,000; New boilers - $1,400,000; Grease receiving station - $306,000; Biosolids dryer - $2,400,000; an Industrial waste anaerobic system - $7,200,000; and North treatment • plant power distribution - $1,700,000, (Refer to Attachment A of this agenda statement for a listing of the primary capital improvements to be funded by this bond issue.) Continued.... Resolution Ordinance X Other (Specify) • Contract _Mail to (name and address): Phone: Funding Source Approved for Submittal. Manager STAFF RECOMMENDATION: Pass Ordinance BOARD /COMMISSION /COMMITTEE RECOMMENDATION: 2011 Council approved Policy Issue COUNCIL ACTION: \ \apollo \users \ranson \Council \Council Agenda Items \2011 \07 -19 -11 AS - 2011 WW Bond Ord.docx • • • 2011 Wastewater Revenue Bond Agenda Statement — Continued _ . • • The policy issue indicated that the need for revenue bonds • had a rather wide range (from $12 • million down to $6 million), subject to the approval of loan applications that were outstanding with the State's Public Works Trust Fund and Revolving Fund programs. Fortunately, all of the other funding sources were approved and funded in the State budget, which greatly reduced the level of funding needed from revenue, bonds, which carries the highest interest rate of all of the available borrowing options. The following is a table that summarizes the other funding sources; their corresponding interest rates; and estimated debt service: Est. Loan Interest Avg. Annual Funding Source Amount Rate Debt Service • State Revolving Fund $3,557,764 2.8% $250,000 State Revolving Fund (forgivable) 1,200,650 N/A -0- Public Works Trust Fund 5,000,000 0.5% • 277,000 Revenue Bonds (previous est. loan amt.) ** 5,000,000** 4.4% 410,000 Total $14,758,414 $937,000 * *Annual Debt Service constraint identified in the approved policy issue - $934,000; ** Because a majority of the project funding was obtained at lower than anticipated interest rates (and some funding does not require repayment as long as certain conditions are met), the Wastewater Utility may be able to obtain more funding for the project than originally contemplated in the policy issue, (less money needed for interest costs allows for greater bond proceeds while maintaining the same annual debt service payment). The primary consideration / constraint in sizing the bond sale will likely be the total annual debt service. Thus, we are requesting Council to • authorize project proceeds at an .amount not to exceed $6M, which is higher than that included in the policy issue, should market conditions be favorable and allow us to obtain a greater funding . level within the same general annual debt service limits. Any additional project funding received would be utilized to further advance the capital improvement program. • Terms, Form and Covenants of Bonds: The form and covenants of the proposed bonds are described in the bond ordinance, for Council review and consideration. Other specific details - such as the actual interest rates, the final structure of the bonds, etc., will not be known until the bonds are placed in the market. Council's approval of this bond ordinance authorizes staff to set the terms and conditions of the bond sale, within the parameters set in the ordinance, as we continue through the bond issuance process. • The Ordinance also authorizes the Finance & Technology Director to approve the specific terms and conditions of the Bond Issue on Council's behalf, within the parameters set out in the Bond Ordinance, once the bond pricing is concluded end a purchase offer is made. We anticipate selling bonds in mid to late August, with closing in early September. Staff will provide Council with the final results of the -bond sale at Council's first regular business meeting after the completion of the bond sale. Note: prior bond issues required Council approval to execute the sale of bonds. Under this process, underwriters were very reluctant to price bonds on any date other than a Council Meeting date as they rarely, if ever, hold their purchase offer open for more than 24 hours without formal seller acceptance. A new state law allows Council to delegate this approval authority to the Finance Director. This provision can positively affect the outcome of a bond issue because bond pricing can be timed for favorable market conditions instead of Council meeting schedules. • • • • • \ \apollo \users \ranson \Council \Council Agenda Items \2011 \07 -19 -I1 AS -2011 WW Bond Ord.docx 411 2011 Wastewater Revenue Bond Agenda Statement — Continued Next Step: once Council approves the Bond Ordinance there is much work to . be done to prepare a bond issue for the market. When publicly traded securities are offered for sale, SEC regulations require details of City finances and security for bond payments be issued to potential investors, along with many details regarding the bond terms and conditions. Additionally, investors want to know the intended use of the bond proceeds, fiscal ability of the seller to repay the bond holders; a national rating agency will make an assessment of risk and assign a credit rating to the bond issue, which will have a significant impact on the interest rates we'll need to offer in order to get buyers interested in purchasing our bonds and, of course, there are numerous legal requirements that must be met before we can place our bonds on the market. Staff is working with the City's Bond Counsel, Foster Pepper PLLC, and the bond underwriters, Seattle Northwest Securities, to prepare the required documents and ensure that all the appropriate steps are taken to help attain a successful bond sale. • The primary document which contains much of the necessary information is referred to as the • (Preliminary) Official Statement (also referred to as the POS or the OS, depending on the status of the document). We are targeting: (a) completion of the draft POS by the end of July for distribution to potential investors at that time, and (b) submitting this document to Council for your review and approval at the August 2 Council business meeting. This is an extremely tight schedule and, therefore, is still tentative. Summary: . 410 As the upgrades to the wastewater facility noted above, and in Attachment A, are the next phase of a comprehensive improvement plan to wastewater facilities, this bond sale is being timed to provide the resources to efficiently continue the capital improvement program. Using current market conditions, the interest cost on this issue is estimated to be around 4.4% including legal and underwriting costs, which would result in annual debt service of $410,000 over the 20 -year term of the bonds. This level of debt service has already been priced into the Wastewater rate structure, so it is anticipated that this bond issue would not drive any additional rate increase for the utility. It should be noted that the municipal bond market has recently experienced significant volatility; therefore, all of the numbers related to this bond sale are estimates only, and are subject to change until the bonds are actually issued and fully executed. Refer to Attachment A for a project description and cost breakdown of the proposed wastewater capital improvements. • ill . \ \apollo \users\ranson \Council \Council Agenda Items \2011 \07 -19 -11 AS - 2011 WW Bond Ord.docx Attachment A DESCRIPTION OF PROJECT The Project includes, but is not limited to, the following improvements: • Major system improvements as presented in the Wastewater Facility Plan, including the following projects: • Biogas analysis, • New boilers, • Grease receiving station, • Biosolids dryer, • Industrial waste anaerobic system • North treatment plant power distribution e To undertake certain other capital improvements to the System as approved by the • Council. • \ \apollo \users \ranson \Council \Council Agenda Items\2011 \07-19-11 AS - 2011 WW Bond Ord.docx CITY OF YAKIMA, WASHINGTON WATER AND SEWER REVENUE BONDS, 2011 AN ORDINANCE of the City of Yakima, Washington, authorizing the issuance and sale of water and sewer revenue bonds of the City in the principal amount of not to exceed $6,000,000 in one or more series to finance certain capital improvements to the City's water and sewer system, to fund the Reserve Fund Requirement and to pay costs of issuance of such bonds; and delegating authority to a finance officer of the City, the Director of Finance and Technology, to approve the final terms of the bonds. Passed On July 19, 2011 Prepared by: Foster Pepper PLLC Seattle, Washington 51151313.3 0 T ABLE OF CONTENTS Page ARTICLE I DEFINITIONS 2 Section 1.1 Definitions 2 ARTICLE II FINDINGS 11 Section 2.1 Approval of Plan and System 11 Section 2.2 Parity Conditions 12 ARTICLE III ISSUANCE OF 2011 BONDS 12 Section 3.1 Issuance of the 2011 Bonds 12 Section 3.2 Registration, Exchange and Payments 13 Section 3.3 . Payment of 2011 Bonds 15 Section 3.4 . Execution and Authentication of Bonds 16 Section 3.5 Lost or Destroyed Bonds 17 Section 3.6 Form of 2011 Bonds 17 ARTICLE IV REDEMPTION OF 2011 BONDS 17 Section 4.1 Redemption Prior to Maturity 17 • Section 4.2 Partial Redemptions 17 Section 4.3 Open Market Purchase 17 Section 4.4 Selection of 2011 Bonds for Redemption 17 Section 4.5 Cancellation of 2011 Bonds 18 Section 4.6 Notice of Redemption 18 Section 4.7 Effect of Redemption 19 Section 4.8 . Failure to Redeem 2011 Bonds 19 ARTICLE V SALE OF BONDS; OFFICIAL STATEMENT 19 Section 5.1 . Sale of Bonds 19 Section 5.2 . Official Statement 21 ARTICLE VI FUNDS AND ACCOUNTS; DEFEASANCE 21 Section 6.1. Revenue Fund; Priority of Payments 21 Section 6.2 Bond Fund 23 Section 6.3 Refunding or Defeasance 29 ARTICLE VII PARTICULAR COVENANTS OF THE CITY 30 Section 7.1 Rate Covenant 30 Section 7.2 Maintenance and Operation 31 Section 7.3 Sale or Disposition of the System 32 Section 7.4 Liens or Encumbrances 33 Section 7.5 Insurance 33 Section 7.6 Books and Accounts 34 Section 7.7 : _ Additions and Improvements 34 Section 7:8 Tax Covenants 35 _ 1 _ 51151313.3 ARTICLE VIII ADDITIONAL BONDS 35 �. Section 8.1 Additional Bonds 35 Section 8.2 Pledge Effected by Ordinance 39 ARTICLE IX DEFAULTS AND REMEDIES 40 Section 9.1 Events of Default 40 Section 9.2 Formation of Bondowners Committee 42 Section 9.3 Books of City Open to Inspection 43 Section 9.4 Suits at Law or in Equity 43 Section 9.5 Direction of Actions of Bondowners Committee by Majority Owners 45 Section 9.6 Suits by Individual Bondowners 45 Section 9.7 Waivers of Default 46 Section 9.8 Remedies Granted in Ordinance Not Exclusive 47 ARTICLE X BONDOWNERS MEETINGS 47 Section 10.1 Call of Bondowners Meetings 47 Section 10.2 Notice to Bondowners 47 Section 10.3 Proxies; Proof of Ownership of Parity Bonds 48 Section 10.4 Execution of Instruments by Bondowners 49 Section 10.5 Appointment of Officers at Bondowners Meetings 49 Section 10.6 Quorum at Bondowners Meetings 50 410 ARTICLE XI AMENDMENTS TO ORDINANCE 50 Section 11.1 Amendments 50 Section 11.2 Obtaining Approval of Amendments at Bondowners Meeting 52 Section 11.3 Alternate Method of Obtaining Approval of Amendments 54 Section 11.4 Amendment of Ordinance in Any Respect by Approval of All Bondowners 55 Section 11.5 Exclusion of Bonds Owned by City 55 Section 11.6 Endorsement of Amendment on Bonds 55 ARTICLE XII MISCELLANEOUS 56 Section 12.1 Undertaking to Provide Ongoing Disclosure 56 Section 12.2 Severability 60 Section 12.3 General Authorization 60 Section 12.4 Prior Acts 61 Section 12.5 Effective Date 61 Exhibit A Description of Project Exhibit B Form of 2011 Bonds -2- 51151313 3 ORDINANCE NO. AN ORDINANCE of the City of Yakima, Washington, authorizing the issuance and sale of water and sewer revenue bonds of the City in the principal . amount of not to exceed $6,000,000 in one or more series to finance certain capital improvements to the City's water and sewer system, to fund the Reserve Fund Requirement and to pay costs of issuance of such bonds; and delegating authority to a finance officer of the City, the Director of Finance and Technology, to approve the final terms of the 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 (the "System "); and WHEREAS, it is in the best interest of the City to finance major system improvements as presented in the Wastewater Facility Plan, including the following projects: Biogas analysis, new boilers, grease receiving station, biosolids dryer, industrial waste anaerobic system, and north treatment plant power distribution, and to undertake certain other capital improvements to the System as approved by the Council (as further described herein, the "Projects "); and WHEREAS, the City has issued its Water and Sewer Revenue Bonds, 2003 Series A (the "2003A Bonds "), its Water and Sewer Revenue Bonds, 2003 Series B (the "2003B Bonds," and, together with the 2003A Bonds, the "2003 Bonds ") and its Water and Sewer Revenue and Refunding Bonds, 2008 (the "2008 Bonds," and, collectively with the 2003 Bonds, the "Outstanding Parity Bonds "); and WHEREAS, each of the ordinances authorizing the Outstanding Parity Bonds provides that bonds may be issued on a parity with the lien on Gross Revenues of the System of such Outstanding Parity Bonds; and -1- 51151313.3 WHEREAS, the Council hereby finds that it is in the best interests of the City that the 2011 Bonds be offered in one or more series as further provided in the bond purchase contract for the 2011 Bonds; and WHEREAS, to finance the costs of the Projects, it is deemed necessary and advisable that • the City issue its Water and Sewer Revenue Bonds, 2011, in the aggregate principal amount of not to exceed $6,000,000; NOW, THEREFORE, BE IT ORDAINED BY the City of Yakima, Washington, as follows: ARTICLE I DEFINITIONS Section 1.1 Definitions. As used in this ordinance: "Accreted Value" means with respect to any Capital Appreciation Bonds (A) as of any A 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. "Additional Bonds" means any revenue bonds, revenue warrants or other revenue obligations that may, be issued in the future on a parity of lien with the 2003 Bonds, the 2008 Bonds, the 2011 Bonds and any other Parity Bonds. "Annual Debt Service" means for any specified Fiscal Year: -2- 51151313.3 0 (1) with respect to any Outstanding Parity Bonds, the amounts required to be deposited during that period in the Bond Fund (excluding the Reserve Fund 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 principal amount of such Fixed Rate Bonds due or subject to mandatory redemption during such period and for which no .sinking fund installments have been established, (B) the amount of any payments required to be made during such period into any sinking fund established for the payment of any such Fixed Rate Bonds, plus (C) all interest payable, during such 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 411 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 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 forth in the Revenue Bond Index (40 -year Bond) published in the edition of The Bond Buyer ash (or comparable publication or such other similar index selected by the City in good faith) -3 51151313.3 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. With the consent of the appropriate percentage of owners of the outstanding Parity Bonds, the City may pass a supplemental ordinance supplementing this ordinance for the purpose of providing that in calculating the Annual Debt Service, the City may exclude the direct payment the City is expected to receive in respect of any Future Parity Bonds for which the federal government will provide the City with a direct payment of a portion of the interest from the interest portion of Annual Debt Service. The owners of the 2011 Bonds by taking and holding the same shall be deemed to have consented to the adoption by the City of such • supplemental ordinance. "Assessment Income" means the principal of and interest on special assessments levied in 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, -4- 51151313.3 if such assessments are pledged to be paid into the Bond Fund. The word "Assessments" shall include any installments of assessments and any interest or penalties which may be due thereon. "Average Annual Debt Service" means the amount determined by dividing (a) the sum of all interest and principal to be paid on outstanding Bonds from the date of determination to the last maturity date of such Bonds, by (b) the number of Fiscal Years or calendar years from and including the , Fiscal-. Year or calendar year in which the determination is made to the last Fiscal Year or calendar year in which the sum of (i) the principal amount of Serial Bonds maturing in such Fiscal Year plus (ii) the Sinking Fund Requirement for such Fiscal Year, exceeds 4% of the principal amount of Bonds outstanding as of the date of determination. "Bond Fund" means the Water and Sewer Revenue Bond Fund created by Ordinance No. 3380. ® "Bond Registrar" means the fiscal agency of the State of Washington in New York, New York, for the purposes of registering and authenticating the 2011 Bonds, maintaining the Bond Register, effecting transfer of ownership of the 2011 Bonds and paying interest on and principal of the 2011 Bonds. "Capital Appreciation Bonds" means any 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 Parity Bonds held by the owner of a Capital Appreciation Bond in giving to the City or the Bond Registrar any notice, . consent, request, or demand for any purpose whatsoever, the principal amount of a Capital Appreciation 0 Bond shall be deemed to be its Accreted Value. -5- 51151313.3 "City" means the City of Yakima, Washington, a municipal corporation duly organized and existing under and by virtue of the laws of the State of Washington. "Code" means the Internal Revenue Code of 1986, as amended, as the same may be amended from time to time, and the regulations promulgated thereunder. "Commission" means the Securities and Exchange Commission. "Costs of Maintenance and Operation" means all normal operating expenses, current maintenance expenses, expenses of reasonable upkeep and repairs, insurance and administrative expenses and reasonable pro -rata budget charges for services provided to the System by City departments, but excluding depreciation, payments for debt service or into reserve accounts, costs of capital additions to or replacements of the System, municipal taxes, or payments to the City in lieu of taxes. "Council" means the legislative body of the City as the same shall be duly and regularly • constituted from time to tune. "Coverage Requirement" means (a) for any period during which Assessments may be paid without becoming delinquent, the product of 1.25 times Annual Debt Service on all Parity Bonds then Outstanding minus the aggregate principal amount of nondelinquent Assessments paid or to be paid into the Bond Fund in such year or (b) for any other period, the product of 1.25 times Annual Debt Service on all Parity Bonds then Outstanding. "DTC" means The Depository Company, New York, New York. "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 12 -month period beginning January 1 of each year. "Fixed Rate Bonds" means those 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 -6- 51151313.3 0 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" has the meaning given in RCW 39.53 as now or hereafter LL_... amended. "Gross Revenues" means all earnings, revenue and money received by the City from or on account of the operation 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 Representations" means the Blanket Issuer Letter of Representations from the City to 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 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. 410 -7- 51151313.3 "Outstanding" means, in connection with any Parity Bonds, as of the time in question, all such bonds issued except bonds theretofore paid and cancelled or having matured or been called for redemption, payment has been provided therefor, or bonds that have been defeased in accordance with their authorizing ordinance and state law. "Parity Bonds" means any Outstanding revenue bonds, revenue warrants or other revenue obligations issued by the City that 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 2011 Bonds. Parity Bonds includes the 2003 Bonds, the 2008 Bonds and the 2011 Bonds. "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. "Projects" means the capital improvements to the System described in Exhibit A, attached hereto, together with all costs incurred in the issuance of the 2011 Bonds, and all other costs incurred in connection with the Projects. "Qualified Insurance" means any noncancellable municipal bond insurance policy or surety bond issued by any insurance company licensed to conduct an insurance business in any state of the United States (or by a service corporation acting on behalf of one or more such insurance companies), which insurance company or companies, as of the time of issuance of • such policy or surety bond, are rated in one of the two highest rating categories by Moody's -8- 51151313.3 Investors Service, Inc. or Standard & Poor's Ratings Service or their comparably recognized business successors. "Rate Stabilization Account" means the account authorized to be created by Section 6.1. "Rating Agency" means, as of any date, Moody's Investors Service, Inc., Standard & Poor's Ratings Service or any other nationally recognized securities rating agency. "Reserve Fund" means the Reserve Fund created for the Parity Bonds. "Reserve Fund Requirement" means the lesser of (i) the maximum Annual Debt Service during any Fiscal Year on a series of Parity Bonds; (ii) 125% of the Average Annual Debt Service on all Outstanding Parity Bonds of such series; or (iii) 10% of the stated principal amount of such series of Parity 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 represents the average rate of interest borne by such Variable Rate Bonds in the 12 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. " Fund" means the Water and Sewer Operating. Funds of the City heretofore Aik established. -9- 51151313.3 "Rule" means the Commission's Rule 15c2 -12 under the Securities and Exchange Act of 1934, as the same may be amended from time to time. "Serial Bonds" means Parity Bonds other than Term Bonds. "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 or resolution 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 Parity Bonds remain Outstanding. "2003 Bonds" means the 2003A Bonds and the 2003B Bonds. "2003A Bonds" means the City's Water and Sewer Revenue Bonds, 2003 Series A, • issued pursuant to Ordinance No. 2003 -64 and currently Outstanding in the principal amount of $2,585,000. "2003B Bonds" means the City's Water and Sewer Revenue Bonds, 2003 Series B, issued pursuant to Ordinance No. 2003 -64 and currently Outstanding in the principal amount of $10,155,000. "2008 Bonds" means the City's Water and Sewer Revenue and Refunding Bonds, 2008, issued pursuant to Ordinance No. 2008 -19 and currently Outstanding in the principal amount of $7,055,000. "2011 Bonds" means the City's Water and Sewer Revenue and Refunding Bonds, 2011, in one or more series in the aggregate principal amount of not to exceed $6,000,000 authorized by this ordinance. • -10- 51151313.3 "Term Bonds" means Parity Bonds of any principal maturity that are subject to mandatory redemption or for which mandatory sinking fund payments are required. "Undertaking" means the continuing disclosure agreement set forth in Section 12.1 of this ordinance. "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 Interest Rate" means a variable interest rate or rates to be borne by Parity Bonds or any one or more maturities within an issue of Parity Bonds. The method of computing such variable interest rate shall be specified in the ordinance authorizing such 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 411 be changed from time to time as provided in such ordinance. Such p Su h 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 Parity Bonds which during such period bear a Variable Interest Rate; provided that Parity Bonds the interest rate on which shall have been fixed for the remainder of the term thereof shall no longer be Variable Rate Bonds. ARTICLE II FINDINGS Section 2.1 Approval of Plan and System. The public interest and necessity require that the City finance certain improvements to the System described in Exhibit A (the "Projects "). 41 -1 1- 51151313.3 Section 22 Parity Conditions. The Council hereby finds as required by Sections 7.1 of Ordinances No. 2003 -64 and 2008 -19 as follows: (a) The 2011 Bonds will be issued 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. (b) At the times of the issuance of the 2011 Bonds there will be no deficiency in the Bond Fund. (c) The City will have on deposit in the Reserve Fund an amount equal to the Reserve Fund Requirement. (d) At the time of the issuance of the 2011 Bonds, the City will have on file a certificate from a Professional Utility Consultant, or the City Director of Finance and Technology or other financial officer of the City, 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 the 2011 Bonds equals the Coverage Requirement in each calendar year or Fiscal Year thereafter on the then - Outstanding Parity Bonds and 2011 Bonds to be issued, and that the Adjusted Net Revenues to be received each calendar year or Fiscal Year thereafter, will equal at least 1.25 times the Average Annual Debt Service each such calendar year or Fiscal Year, on the Outstanding Parity Bonds and the 2011 Bonds. ARTICLE III ISSUANCE OF 2011 BONDS Section 3.1 Issuance of the 2011 Bonds. The City shall issue the 2011 Bonds in the aggregate principal amount of not to exceed $6,000,000 . in one or more series for the purpose of providing the funds necessary to finance the costs of the Projects, to fund the Reserve Fund Requirement and to pay the expenses incidental to the issuance of the 2011 Bonds. -12- 51151313.3 0 The 2011 Bonds shall be designated the "City of Yakima Water and Sewer Revenue Bonds, 2011," may be issued in one or more series, shall be in fully registered form, shall be in the denomination. of $5,000 each, or any integral multiple thereof, provided that no Bond shall represent more than one maturity, shall be dated such date, bear interest at the rates per annum, and be payable in the amounts and dates as shall be determined pursuant to Section 5.1 hereof. The, 2011 Bonds shall be obligations only of the Bond Fund and shall be payable and secured as provided herein. The 2011, Bonds shall not be general obligations of the City. Section 3.2 Registration, Exchange and Payments. (a) Registration of Bonds. The 2011 Bonds shall be issued only in registered form as to both principal and interest and shall be recorded on the Bond Register. (b) Bond Registrar. The Bond Registrar shall keep, or cause to be kept, sufficient books for the registration and transfer of the 2011 Bonds, which shall be open to inspection by the City at all times. The Bond Register shall contain the name and mailing p Y Y g g address of the Registered Owner of each 2011 Bond and the principal amount and number of each of the 2011 Bonds held by each Registered Owner. The Bond Registrar is authorized, on behalf of the City, to authenticate and deliver 2011 Bonds transferred or exchanged in accordance with the provisions of the 2011 Bonds and this ordinance, to serve as the City's paying agent for the 2011 Bonds 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 Bond Registrar's Certificate of Authentication on the 2011 Bonds. The Bond Registrar may become either a Registered or Beneficial Owner of 2011 Bonds 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 -13- 51151313.3 - permit any of its officers or directors to act as members of, or in any other capacity with respect to, any committee formed to protect the rights of Beneficial Owners. Any 2011 Bonds surrendered to the Bond Registrar may be exchanged for 2011 Bonds in any Authorized Denomination of an' equal aggregate principal amount and of the same interest rate and maturity. The 2011 Bonds may be transferred only if endorsed in the manner provided thereon and surrendered to the Bond Registrar. Any exchange or transfer shall be without cost to the owner or transferee. The Bond Registrar shall not be obligated to exchange or transfer any 2011 Bond during the 15 days preceding any principal payment or redemption date. (c). DTC and the Book Entry System. The 2011 Bonds initially shall be registered in the name of Cede & Co., as the nominee of DTC. The 2011 Bonds so registered shall be held in fully immobilized form by DTC as depository in accordance with the provisions of the Letter of Representations. Neither the City nor the Bond Registrar shall have any 41) responsibility or obligation to DTC participants or the persons for whom they act as nominees with respect to the 2011 Bonds regarding accuracy of any records maintained by DTC or DTC participants of any amount in respect of principal of or interest on the 2011 Bonds, or any notice which is permitted or required to be given to Registered Owners hereunder (except such notice as is required to be given by the Bond Registrar to DTC). For as long as any 2011 Bonds are held in fully immobilized form, DTC, its nominee or its successor depository shall be deemed to be the Registered Owner for all purposes hereunder and all references to registered owners, bondowners, bondholders or the like shall mean DTC or . its nominee and, except for the purpose of the City's undertaking herein to provide continuing disclosure, shall not mean the Beneficial Owners. Registered ownership of such 2011 Bonds, or any portions thereof, may not thereafter be transferred except: (i) to any successor of DTC or its 41) -14- 51151313 3 0 nominee, if that successor shall be qualified under any applicable laws to provide the services proposed to be provided by it; (ii) to any substitute depository appointed by the City or such substitute depository's successor; or (iii) to any person if the 2011 Bonds are no longer held in immobilized form. 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 that it no longer wishes to continue the system of book entry transfers through DTC or its successor (or any substitute 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. If (i) DTC or its successor (or substitute depository or its successor) resigns from its 411 functions as depository, and no substitute depository can be obtained or (ii) the City determines that the 2011 Bonds are to be in certificated form, the ownership of 2011 Bonds may be transferred to any person as provided herein and the. 2011 Bonds no longer shall be held in fully immobilized form. Section 3.3. Payment of 2011 Bonds. Both principal of and interest on the 2011 Bonds shall be payable in lawful money of the United States of America. For as long as the 2011 Bonds are registered in the name of DTC or its nominee, payment of principal of and interest on the 2011 Bonds shall be made in the manner set forth in the Letter of Representations. If the 2011 Bonds cease to be in book - entry -only form, interest on the 2011 Bonds shall be paid by checks or drafts of the Bond Registrar mailed on the interest payment date to the Registered Owners at the addresses appearing on the Bond Register on the 15 day of the month preceding the interest payment date or by electronic transfer on the interest payment date. The City shall 410 -15- 51151313 3 not be required to make electronic transfers except to a Registered Owner of 2011 Bonds • pursuant to a request in writing and at the sole expense of that Registered Owner at least 10 days before an interest payment date. Principal of the 2011 Bonds shall be payable upon presentation and- surrender of the 2011 Bonds by the Registered Owners to the Bond Registrar. Section 3.4. Execution and Authentication of Bonds. The 2011 Bonds shall be signed on behalf of the City with the manual or facsimile signature of the Mayor, shall be attested by the manual 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 2011 Bonds as shall bear thereon a Certificate of Authentication in the form hereinbefore 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 2011 Bonds so authenticated have been duly executed, authenticated and delivered hereunder and are entitled to the benefits of this ordinance. In case either of the officers who shall have executed the 2011 Bonds shall cease to be such officer or officers of the City before the 2011 Bonds so signed shall have been authenticated or delivered by the Bond Registrar, or issued by the City, such 2011 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 2011 Bond may also be signed and attested on behalf of the City by such persons as at the actual date of execution of such 2011 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. f ra - 16- 51151313 Section 3.5 Lost or Destroyed Bonds. In case any of the 2011 Bonds shall be lost, 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 City for the ,expenses and charges in connection therewith and upon his or her filing with the Bond Registrar evidence satisfactory to the Bond Registrar that such 2011 Bond or 2011 Bonds were actually lost, stolen or destroyed and of his ownership thereof, and upon furnishing the City with indemnity satisfactory to them both. Section 3.6 Form of 2011 Bonds. The 2011 Bonds shall be substantially in the form of Exhibit B hereto. ARTICLE IV REDEMPTION OF 2011 BONDS Section 4.1 Redemption Prior to Maturity. The 2011 Bonds may be subject to ® redemption in advance of their scheduled maturities as provided pursuant to Section 5.1 hereof. Section 4.2 Partial Redemptions. Portions of the principal amount of any 2011 Bond, in any Authorized Denomination, may be redeemed. If less than all of the principal amount of any 2011 Bond is redeemed, upon surrender of that 2011 Bond to the Bond Registrar, there shall be issued to the Registered Owner, without charge, a new 2011 Bond (or 2011 Bonds, at the option of the. Registered Owner) of the same maturity and interest rate in any authorized denomination in the aggregate principal amount remaining unredeemed. Section 4.3 Open Market Purchase. The City reserves the right and option to purchase any or all of the 2011 Bonds in the open market at any time at any price acceptable to the City plus accrued interest to the date of purchase. Section 4.4 Selection of 2011 Bonds for Redemption. If fewer than all of the 0 outstanding 2011 Bonds within a maturity are to be redeemed prior to maturity, selection of 2011 -17- 51151313.3 Bonds for redemption shall be randomly within a maturity in such manner as the Bond Registrar shall determine. Notwithstanding the foregoing, for as long as the 2011 Bonds are registered in the name of DTC or its nominee, selection of 2011 Bonds for redemption shall be in accordance with the Letter of Representations. Section 4.5 Cancellation of 2011 Bonds. All 2011 Bonds purchased or redeemed under this section shall be canceled. Section 4.6 Notice of Redemption. While the 2011 Bonds are held by DTC in book - entry only form, any notice of redemption shall be given at the time, to the entity and in the manner required by DTC in accordance with the Letter of Representations, and the Bond Registrar shall not be required to give any other notice of redemption. If the 2011 Bonds cease to be in book -entry only form, unless waived by any Registered Owner of the 2011 Bonds to be redeemed, the City shall cause notice of any intended redemption of 2011 Bonds to be given by the Bond Registrar not less than 20 nor more than 60 days prior to the date fixed for redemption by first -class mail, postage prepaid, to the Registered Owner of any 2011 Bond to be redeemed at the address appearing on the Bond Register at the time the Bond Registrar prepares the notice, and the requirements of this sentence shall be deemed to have been fulfilled when notice has been mailed as so provided, whether or not it is actually received by the Registered or Beneficial Owner of any 2011 Bond. In the case of an optional redemption, the notice may state that the City retains the right to rescind the redemption notice and the related optional redemption of 2011 Bonds by giving a notice of rescission to the affected Registered Owners at any time prior to the scheduled optional redemption date. Any notice of optional redemption that is so rescinded shall be of no effect, -18- 51151313.3 and the 2011 Bonds for which the notice of optional redemption has been rescinded shall remain outstanding. In addition, the redemption notice shall be mailed or sent electronically within the same period to the MSRB, consistent with the Undertaking, to any nationally recognized rating agency which at the time maintains a rating on the 2011 Bonds at the request of the City, and to such other persons and with such additional information as the Director of Finance and Technology shall determine, but these additional mailings shall not be a condition precedent to the redemption of 2011 Bonds. Section 4.7 . Effect of Redemption. Interest on 2011 Bonds called for redemption shall cease to accrue on the date fixed for redemption, except in the case of a rescinded optional redemption as described above, or unless the 2011 Bond or 2011 Bonds called are not redeemed when presented pursuant to the call. 411 Section 4.8 Failure to Redeem 2011 Bonds. o ds. If any 2011 Bond is not redeemed when properly presented at its maturity date or date set for redemption, the City shall be obligated to pay interest on that 2011 Bond at the same rate provided in the 2011 Bond from and after its maturity or date set for redemption until that 2011 Bond, both principal and interest, is paid in full or until sufficient money for its payment in full is on deposit in the Bond Fund and the 2011 Bond has been called for payment by giving notice of that call to the Registered Owner. ARTICLE V SALE OF BONDS; OFFICIAL STATEMENT Section 5.1. Sale of Bonds. The Council has determined that it is in the best interest of the City to delegate to the Director of Finance and Technology the authority to approve the number of series, the series designation, final principal amounts, date of the 2011 Bonds, 410 -19- 51151313.3 denominations, interest rates, payment dates, redemption provisions, and maturity dates for the • 2011 Bonds in the manner provided herein, provided that: (a) The aggregate principal amount of the 2011. Bonds does not exceed $6,000,000; x (b) The true interest cost to the City for the 2011 Bonds does not exceed 5.00 %; and (c) The 2011 Bonds shall be dated as of the date of their delivery, which date and time for the issuance and delivery of the 2011 Bonds is not later than January 1, 2012. In determining the number of series, the series designation, final principal amounts, date of the 2011 Bonds, denominations, interest rates, payment dates, redemption provisions, and maturity dates for the 2011 Bonds, the Director of Finance and Technology, in consultation with other City officials and staff and advisors, shall take into account those factors that, in her . judgment, will result in the lowest true interest cost on the 2011 Bonds to their maturity, including, but not limited to current financial market conditions and current interest rates for obligations comparable to the 2011 Bonds. The 2011 Bonds shall be sold by negotiated sale to Seattle- Northwest Securities Corporation (the "Underwriter "). Subject to the terms and conditions set forth in this Section 5.1, the Director of Finance and Technology is hereby authorized to execute a purchase contract to be presented by the Underwriter (the "Bond Purchase Contract ") on behalf of the City upon her approval of the number of series, the series designation, final principal amounts, date of the 2011 Bonds, denominations, interest rates, payment dates, redemption provisions, and maturity dates for the 2011 Bonds. -20- . 51151313.3 0 The 2011 Bonds will be printed at City expense and will be delivered to the Underwriter in accordance with the Bond Purchase Contract, with the approving legal opinion of Foster Pepper PLLC, municipal bond counsel of Seattle, Washington, regarding the 2011 Bonds. Section 5.2.. Official Statement. For the sole purpose of the Underwriter's compliance with paragraph (b)(1) of Rule 15c2 -12, the City authorizes the Director of Finance and Technology to "deem final" a preliminary official statement as of its date, except for the omission of information permitted to be omitted by Rule 15c2 -12 and ratifies the distribution by the Underwriter of that preliminary official statement to potential purchasers of the 2011 Bonds. In addition, the City authorizes and approves the preparation, execution by the Director of Finance and Technology and delivery to the Underwriter of a final official statement for the 2011 Bonds, in the form of the preliminary official statement, with such modifications and amendments thereto as shall be deemed necessary or desirable by the City. The City authorizes the Director of Finance and Technology to approve the distribution by the Underwriter of that final official statement to potential purchasers and purchasers of the 2011 Bonds. The authority to the Director of Finance and Technology granted by Sections 5.1 and 5.2 shall remain in effect until withdrawn by the Council. ARTICLE VI FUNDS AND ACCOUNTS; DEFEASANCE - Section 6.1 Revenue Fund: Priority of Payments. The City hereby obligates and binds itself to set aside and pay into the Water and Sewer Operating Funds (the "Revenue Fund ") as collected the Gross Revenues of the System. The Gross Revenues of the. System shall be held in the Revenue Fund separate and apart from all other funds and accounts of the City and used only for the following purposes and in the following order of priority: . 4 First, to pay the Costs of Maintenance and Operation of the System; -21 5]151313 3 - Second, to make all required payments into the Bond Fund; Third, to pay the interest on the Parity Bonds; Fourth, to pay the principal of and any sinking fund payments for the Parity Bonds; Fifth, to make all payments required to be made into the Reserve Fund; 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 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. 410 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 up 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. Money in the Rate Stabilization Account may be used for any lawful purpose. Money in the Rate Stabilization Account may be used from time to time to make up any deficiencies in the Bond Fund, and such money in the Rate Stabilization Account may be pledged as additional payments to the Bond Fund to the extent required for any such deficiencies. The City may, at any time, . ' -22- 51151313.3 deposit Gross Revenues of the System in and withdraw Gross Revenues of the System from the Rate Stabilization Account. Nothing_ contained in this Section 6.1 shall be construed to require the deposit into the -:.. Revenue Fund of any of the revenues, income, receipts . or other money of the City derived through the ownership or operation of any separate utility system hereafter created or established from funds other than the proceeds of Bonds. Section 6.2 Bond Fund. (a) There has been created a special fund of the City designated the 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 Parity Bonds, of retiring the Parity Bonds prior to maturity in the manner herein provided, and of paying any reimbursement obligation with respect to a letter of . credit or other credit enhancement device providing 0 security le Rate Bonds. Each month (or in the case of Variable Rate ty for an y Variable at the times provided in subsection (i) of this Section 6.2(a)), after applying amounts as required in Section 6.1, the City shall withdraw from the Revenue Fund and (to the extent not otherwise provided) transfer to the Bond Fund, amounts as follows and in the following order of priority: first, into the Interest Account; second, into the Serial Bond Principal Account and Term Bond Principal Account; and third, into the Reserve Fund. (i) Interest Account. The City has created a separate account in the Bond Fund, to be known as the "Interest Account" to provide for the payment of interest on the Parity Bonds as the same becomes due and payable. Upon the issuance of the 2011 Bonds, all accrued interest on the 2011 Bonds, if any, shall be paid into the Interest Account. -23- 5 1151313 . 3 In the case of all 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 next falling due on all 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 2011 Bonds 411 or other Parity Bonds, interest capitalized from the proceeds of any Parity Bonds and any other transfers and credits otherwise made or required to be made to the Interest Account shall be taken into consideration and allowance made with respect to the full amount of such transfers and credits. (ii) _. Serial Bond Principal Account. The City has created a separate account in the Bond Fund known as the "Serial Bond Principal Account" 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. -24- 51151313.3 ® (iii) Term Bond Principal Account. (A) The City shall create and establisb '. a separate account in the Bond Fund to be known as the "Term Bond Principal Account" in order to meet the specified Sinking Fund Requirements of Term Bonds and to otherwise retire 2011 Bonds, if any, and.other' Parity Bonds prior to maturity. The City shall transfer to the Term Bond Principal Account amounts sufficient to pay when due the Sinking Fund Requirement next falling due on all Term Bonds. (B) The City shall apply the money 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 money 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 least equal to such next ensuing Sinking Fund Requirement. Any such purchase of Tenn Bonds by the City may be made with or without tenders of Term Bonds in such manner as the City shall, in its discretion, deem to be in its best interest. (iv) Reserve Fund. (A) The City has created a separate fund to be known as the "Reserve Fund" to provide a, reserve for the payment of the principal, premium, if any, and interest on the Parity Bonds. The City hereby covenants and agrees that on the date of issuance -25- 51151313.3 of the 2011 Bonds the City will have on deposit in the Reserve Fund an amount equal to the Reserve Fund Requirement. Each ordinance providing for the issuance of Additional Bonds shall provide for payments into the Reserve Fund 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 fund) in amounts that within not less than five years of equal monthly payments will provide for deposit of the Reserve Fund 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 Fund, 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 Fund 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 Fund shall be funded in accordance with this paragraph, as if the Parity Bonds which remain Outstanding had been issued on the date of such notice of cancellation. (B) Money in the Bond Fund and Reserve Fund may, at the option of the City, be invested and reinvested as permitted by law in Permitted Investments maturing, or which are 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 Parity Bonds payable out of the Bond Fund and Reserve Fund. Earnings on investments in the Bond Fund and Reserve Fund shall be transferred to the Revenue Fund, except that earnings on investments in the Reserve Fund shall first be applied to remedy any deficiency in such account. • -26- 51151313.3 411 (C) For the purpose of determining the amount credited to the Reserve Fund, obligations in which money in the Reserve Fund 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 thereof. The valuation shall include accrued interest thereon. The valuation of the amount in the Reserve Fund 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 0 on a business day). (D). If the amount in the Reserve Fund shall be less than the Reserve. Fund Requirement, the City shall transfer from the Revenue Fund, for credit to the Reserve Fund no later than the 25th day of the sixth succeeding calendar month the amount necessary to restore the Reserve Fund to the Reserve Fund Requirement. Prior to such time, such transfer shall come from money in the Revenue Fund first available after making the current specified payments into the Interest Account and Principal Accounts. If the amount in the Reserve Fund shall be greater than the Reserve Fund Requirement, then and only then may the City withdraw at any time prior to the next date of valuation from the Reserve Fund the difference between the amount in the Reserve Fund and the Reserve Fund Requirement and deposit such difference in the Revenue Fund. 0 -27- 51151313.3 (b) Money in the Interest Account, the Serial Bond Principal Account and the • Term Bond Principal Account shall be transmitted to the Bond Registrar in amounts sufficient to meet the next maturing installments of principal, interest and premium, if any, at or prior to the time uporrwhich any interest; principal or premium, if any, is to become due. In the event there shall be a deficiency in the Interest Account, the Serial Bond Principal Account or the Term Bond Principal Account for such purpose, the City shall make up any such deficiency from the Reserve Fund by the withdrawal of cash therefrom for that purpose, and, if necessary, by sale or redemption of any authorized investments in such amount as will provide cash in said. Reserve Fund 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 Fund credit facility shall provide. • (c) Whenever and so long as amounts on deposit in the Bond Fund, including the Reserve Fund, are sufficient to provide money to pay the 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 Bond Registrar for the Parity Bonds and the interest thereon shall be held in trust for the owners of such Parity Bonds. Until so set aside for the retirement of principal, payment of sinking fund installments, payment of interest and premium, if any, as aforesaid, money in the Bond Fund shall be held in trust for the benefit of the owners of the Parity Bonds then Outstanding and payable equally and ratably and without preference or distinction as between different installments or maturities. • -28- 51151313 3 (e) The amounts so pledged to be paid into the Bond Fund and the Reserve Fund 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 s ,,, _ Maintenance and Operation, 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 interest on any Additional Bonds. (f) The Council hereby finds and declares that in fixing the amounts to be paid into the Bond Fund and the Reserve Fund 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 currently Outstanding Parity 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 currently Outstanding Parity Bonds. Section 6.3 Refunding or Defeasance. The City may issue refunding bonds pursuant to the laws of the State or use money available from any other lawful source to pay when due the principal of and interest on the 2011 Bonds, or any portion thereof included in a refunding or defeasance plan, and to redeem and retire, refund or defease all such then - outstanding 2011 Bonds (hereinafter collectively called the "defeased 2011 Bonds ") and to pay the costs of the refunding or defeasance. If money and/or "government obligations" (as defined in chapter 39.53 RCW, as now or hereafter amended) maturing at a time or times and bearing interest in amounts (together with money, if necessary) sufficient to redeem and retire, refund or defease 411 the defeased 2011 Bonds in accordance with their terms are set aside in a.special trust fund or -29- 51151313.3 escrow account irrevocably pledged to that redemption, retirement or defeasance of defeased 2011 Bonds (hereinafter called the "trust account "), then all right and interest of the Owners of the defeased 2011 Bonds in the covenants of this ordinance and in the funds and accounts obligated to the payment of the defeased 2011 Bonds shall cease and become void. The Owners of defeased 2011 Bonds shall have the right to receive payment of the principal of and interest on the defeased 2011 Bonds from the trust . account. The City shall include in the refunding or defeasance plan such provisions as the City deems necessary for the random selection of any defeased 2011 Bonds that constitute less than all of a particular maturity of the 2011 Bonds, for notice of the defeasance to be given to the owners of the defeased 2011 Bonds and to such other persons as the City shall determine, and for any required replacement of 2011 Bond certificates for defeased 2011 Bonds. The defeased 2011 Bonds shall be deemed no longer Outstanding, and the City may apply any money in any other fund or account established for the payment or redemption of the defeased 2011 Bonds to any lawful purposes as it shall determine. If the 2011 Bonds are registered in the name of DTC or its nominee, notice of any defeasance of 2011. Bonds shall be given to DTC in the manner prescribed in the Letter of Representations for notices of redemption of 2011 Bonds. ARTICLE VII PARTICULAR COVENANTS OF THE CITY So long as any Parity Bonds remain Outstanding, the City covenants and agrees with the owners of all Parity Bonds as follows: . Section 7.1 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: -30- 51151313.3 . (a) The Gross Revenues collected (together with Assessments collected) will at all times be sufficient (a) to the Costs of Maintenance and Operation of the System, b O pay p Y (b) to the principal of, premium, if any, and interest on the Parity Bonds, as and when the same shall become due and payable, (c) to make adequate provision for thiP payment of any -.Term Bonds, (d) to make when due all payments which the City is obligated to make into the Reserve Fund 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 will be at least equal to the Coverage Requirement calculated as of December 31 of the preceding calendar year. For the 110 purpose of meeting this requirement if the City creates a Rate Stabilization Account pursuant to Section 6.1, (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 7.2 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 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 properly and advantageously conducted, and the City will at all times operate or cause to be -31 51151313.3 • operated. the properties of the System and the business in connection therewith in an efficient manner and at a reasonable cost. Section 7.3 Sale or Disposition of the System. The City will not sell or otherwise dispose of the System in acs entirety unless simultaneously with such sale or other disposition, provision is made for the payment into the Bond Fund of cash or "Government Obligations," as now or hereafter defined in 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 Parity Bonds, nor will it sell or otherwise dispose of any part of the useful operating properties of the System unless such facilities are replaced or provision is made for payment into the Bond Fund of the greater of: (a) An amount which will be in the same proportion to the net amount of Parity Bonds then Outstanding (defined as the total amount of the Parity Bonds less the amount 110 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 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. The proceeds of any such sale or disposition of a portion of the properties of the System (to the extent required above) shall be paid into the Bond Fund. Notwithstanding any other provision of this subsection, the City may sell or otherwise dispose of any of the works, plant, properties and facilities of the System or any real or personal • -32- 51151313.3 property comprising a part of the same which shall have become unserviceable, inadequate, obsolete or 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 7.4 Liens or Encumbrances. 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 Parity Bonds, and will pay and discharge, or cause to be paid and discharged, any and all lawful claims for labor, materials or supplies which, if unpaid, might become a lien or charge upon the Revenues of the System, or any part thereof, or upon any funds in the hands of the City, prior to or superior to the lien of the Parity Bonds, or which might impair the security of the Parity Bonds. . Section 7.5 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 or City's risk manager. A program of self insurance against certain risks or as to part of the potential liability for certain risks may be included as part of the City's insurance coverage plan. In the event of any loss or damage to the properties of the System covered by insurance, the City will (a) with respect to each such loss, promptly repair and reconstruct to the extent necessary to the proper conduct of the operations of the System the lost or damage portion 0 -33 51151313.3 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 7.6 Books and Accounts. The City shall keep proper books of account in accordance with any applicable rules and regulations prescribed by the State of Washington. The City shall prepare, and any owner or holder of 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 7.7 Additions and Improvements. The City will not expend any of the revenues derived by it from the operation of the System or the proceeds of any indebtedness payable from the Revenues of the System for any extensions, betterments or improvements to the System which are not legally required or economically sound, and which will not properly and advantageously contribute to the conduct of the business of the System in an efficient manner; provided, that to the extent permitted by law, the City may provide commodities, services or -34- 51151313 3 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 Y, pp poor persons. p Section 7.8 Tax Covenants. The City shall comply with the provisions of this section unless, in the written opinion of Bond Counsel to the City, such compliance is not required in order to maintain the exemption of the interest on the 2011 Bonds from federal income taxation. The City hereby covenants that it will not make any use of the proceeds of sale of the 2011 Bonds or any other funds of the City which may be deemed to be proceeds of such 2011 Bonds pursuant to Section 148 of the Code and the applicable regulations thereunder that will cause the 2011 Bonds to be "arbitrage bonds" within the meaning of said section and said regulations. The City will comply with the requirements of Section 148 of the Code (or any successor provision thereof applicable to the 2011 Bonds) and the applicable regulations thereunder throughout the term of the 2011 Bonds. The City further covenants that it will not take any action or permit any action to be taken that would cause the 2011 Bonds to constitute "private activity bonds" under Section 141 of the Code. The City will pay any rebate amount to the United States of America at the times and in the amounts necessary to meet the requirements of the Code to maintain the federal income tax exemption of the interest payments on the 2011 Bonds, in . accordance with the Federal Tax Certificate. ARTICLE VIII ADDITIONAL BONDS Section 8.1 Additional Bonds. Parity Bonds may be issued payable from the Bond Fund on a parity with the 2003 Bonds, the 2008 Bonds and the 2011 Bonds and secured by an equal charge and lien on the Gross Revenues pledged to the Bond Fund: -35- 51151313.3 First, for the purpose of acquiring, constructing and installing additions and 411 improvements to and extensions of, acquiring necessary equipment for or making necessary repairs, replacements or other capital improvements to the System and other lawful purposes related to the System, or Second, for the purpose of refunding, or purchasing and retiring prior to their maturity, any outstanding Bonds or other revenue obligations of the System. (a) The City may issue such Additional Bonds upon compliance with the following conditions: (i) At the time of the . issuance of such Additional Bonds, there shall be no deficiency in the Bond Fund. (ii) In each ordinance authorizing such Additional Bonds, provision shall be made for payments into the Reserve Fund in accordance with Section 6.2(a)(iv) of this ordinance. (iii) At the time of the issuance of such Additional Bonds, the City shall have on file a certificate from a Professional Utility Consultant, or the City Director of Finance and Technology or other financial officer of the City, 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 Additional Bonds equals the Coverage Requirement in each calendar year or Fiscal Year thereafter on the then- Outstanding Parity Bonds and the Additional Bonds to be issued, and that the Adjusted Net Revenues to be received each calendar year or Fiscal Year thereafter, will equal at least 1.25 times the Average Annual Debt Service each such calendar year or Fiscal Year, on the Outstanding Parity Bonds and the Additional Bonds to be issued. • -36- 51151313.3 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 y p g e o delivery of such proposed Additional Bonds, as adjusted to take into consideration changes in Net Revenues estimated to occur under one or more of the following conditions for each year after such delivery for so long as any Bonds, including the Additional Bonds proposed to be issued, shall be outstanding: (A) Any increase or decrease in Net Revenues that would result if any change in rates and charges adopted by the Council prior to the date of such certificate and subsequent to the . beginning of such 12 -month period, had been in force during the full 12 -month period; (B) The additional Net Revenues from any rate increases that have been approved by ordinance of the Council but that are not then in effect; (C) Any increase or decrease in Net Revenues estimated by a Professional Utility Consultant, or the City Director of Finance and Technology or other financial officer of the City to result from any additions, betterments and improvements to and extensions of any facilities of the System that (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 that would have been received if any customers added to the System during such 12 -month period were customers for the entire period. (E) The additional Net Revenues that may be derived by the City from any users of the System with whom the City has entered into a contract for utility services to be furnished, which revenues have not otherwise been included in Net Revenues. A -37- 51151313 3 The Professional Utility Consultant or the Director of Finance and Technology or other 4110 financial officer of the City shall base his/her certification upon, and his/her 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 a Professional Utility Consultant or the City Director of Finance and Technology or other financial officer of the City . shall be conclusive and the only evidence required to show compliance with the provisions and requirements of this subsection. Notwithstanding the foregoing, if Additional Bonds are to be issued for the purpose of refunding at or prior to their 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 110 require an increase of more than $5 000 in any year for principal and interest on such refunding $5,000 Y Y g Additional Bonds, the certificate required by. subsection (a)(3) of this section need not be obtained. (b) Nothing herein contained shall prevent the City from issuing revenue bonds or other obligations which are a charge upon the Gross Revenues of the System junior or inferior to the payments required by this ordinance to be made out of such Gross Revenues into the Bond Fund and accounts therein to pay and secure the payment of any Outstanding Bonds. (c) Nothing herein contained shall prevent the City from issuing revenue bonds to refund maturing Bonds for the payment of which money is not otherwise available. (d) Notwithstanding any other provision of this ordinance, for so long as the 2011 Bonds are Outstanding, no bonds may be issued subsequent to the issuance of the 2011 -38- 51151313.3 Bonds with a lien and charge on the Gross Revenues superior to the lien and charge of the 2011 Bonds. Section 8.2 Pledge Effected by Ordinance. (a) The 2011 Bonds are special limited obligations of the City payable from and secured solely by Gross Revenues, subject to the prior payment of Costs of Maintenance and Operation of the System and 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 2011 Bonds in accordance with the 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 2011 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, the Bond 0 Fund and the Reserve Fund, and the income therefrom. The Gross Revenues and other money and assets hereby pledged shall immediately be subject to the lien of this pledge without any physical delivery thereof or further act, and the 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 2003 Bonds, the 2008 Bonds, the 2011 Bonds and any Additional 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 -39- 51151313.3 this ordinance and except as to insurance that may be obtained by the City to insure the • repayment of one or more series or maturities within a series. (c) The 2003 Bonds, the 2008 Bonds, the 2011 Bonds and any Additional Bonds shall not in any manner or to any extent constitute general obligations of the City or of the State of Washington, or of any political subdivision of the State of Washington, or a charge upon any general fund or upon any money or other property of the City or of the State of Washington, or of any political subdivision of the State of Washington, not specifically pledged thereto by this ordinance, nor shall the full faith and credit of the City or of the State of Washington, or of any political subdivision of the State of Washington, be pledged to the payment of principal, - premium, if any, or interest thereon. ARTICLE IX DEFAULTS AND REMEDIES Section 9.1 Events of Default. This ordinance and each ordinance adopted pursuant to • Article XI are hereinafter in this Article IX and in Article X referred to collectively as "the Ordinance." The City hereby covenants and agrees with the purchasers and owners from time to time of any Parity Bonds, in order to protect and safeguard the covenants and obligations undertaken by the City securing any 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 Parity Bonds when the same shall become due and payable, either at maturity or by proceedings for redemption or otherwise; 11/ -40- 51151313.3 (c) If default shall be .made in the due and punctual payment of any installment of interest on any Parity Bonds; Y Y (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 received from the Bondowners Committee or from the owners of not less than 20% in principal amount of the 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 7.3 hereof); 0 • (f) If an order, judgment or decree shall be entered by a court of competent jurisdiction (a) appointing a receiver, trustee or liquidator for the whole or any substantial part of the System, (b) approving a petition filed against the City seeking the bankruptcy, arrangement or 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 0 -41 51151313.3 ■ of indebtedness under any state or federal bankruptcy or insolvency law, (c) make an assignment • for the benefit of its creditors, (d) consent to the appointment of a receiver of the whole or any substantial part of the System, or (e) consent to the assumption by any court of competent jurisdiction under the provisions of any other law for the relief or aid of debtors of custody or control of the whole or any substantial part of the System. Section 9.2 Formation of Bondowners Committee. During the continuance of an Event of Default, the owners of Parity Bonds representing 20% in principal amount of the Parity Bonds then Outstanding may call a bondholders meeting for the purpose of electing a committee (the " Bondowners Committee ") to act on behalf of all Parity Bondowners (the "Bondowners "). Such meeting shall be called and the proceedings thereof shall be conducted in the manner provided in Article X hereof. At such meeting the Bondowners present in person or by proxy may, by a majority of the • votes cast, elect one or more persons, who may or may not be Bondowners, to the Bondowners Committee, which shall act as trustee for all registered owners of Parity Bonds outstanding, 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 Committee elected by the Bondowners in the manner herein provided and their successors, as a committee are hereby declared to be trustees -42- 51151313 .3 for the owners of all the Parity Bonds then Outstanding, and are empowered to exercise in the name of the Bondowners Committee as trustee, all the powers rights and owers hereinafter conferred on g the Bondowners Committee. Section 9.3 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 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. 411 Section 9.4 Suits at Law or in Equity. If an Event of Default shall happen and shall not have been remedied, then and in every such case, the Bondowners Committee by its agents and attorneys, shall be entitled and empowered to proceed forthwith to take such needful steps and institute such suits, actions and proceedings at law or in equity for the collection of all sums in connection with the 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 Parity Bonds. -43- 51151313.3 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 g tion upon or under any of the Parity Bonds or the provisions of this ordinance may be enforced by the Bondowners Committee without fie possession of any of the 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 Parity Bonds, by taking and holding the same, shall be conclusively deemed irrevocably to appoint the Bondowners Committee the true and lawful trustee for the respective owners of said bonds, with authority to institute 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 to consent to, accept or adopt, on behalf of any Bondowner, any plan of reorganization or adjustment affecting the Parity Bonds or the City or • any right of any owner thereof, or to authorize or empower the Bondowners Committee to vote the claims of the owners thereof in any receivership, insolvency, liquidation, bankruptcy, reorganization or other proceeding to which the City shall be a party, and provided further, however, that any Bondowner or Bondowners may by mutual agreement transfer title to the 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 trustee or bondholders committee, such powers and duties and such -44- 51151313.3 agreement or agreements shall provide, and the provisions of this ordinance shall not be 411 construed as a limitation on the P owers and duties which consenting Bondowners may by agreement confer on the Bondowners Committee or such separate trustee or bondholders committee. The Bondowners Committee shallthave full powers of substitution and delegation in respect to any of the powers hereby granted. Section 9.5 Direction of Actions of Bondowners Committee by Majority Owners. The owners of not less than a majority in principal amount of the 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 4 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 Parity Bonds not parties to such direction. Section 9.6 Suits by Individual Bondowners. No owner of any one or more of the 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 behalf or for the 0 -45- 51151313.3 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 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 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 Parity Bonds, or to reduce to judgment his claim against the City for the payment of the principal and interest on his Parity Bonds, without reference to, or consent of, the Bondowners Committee or any other owner of the Parity Bonds. Section 9.7 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 IIP Default shall impair an right or power or shall be construed to be a waiver of any such Event of P Y g P Y 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 Parity Bonds at the time Outstanding, or their attorneys -in -fact duly authorized, may on behalf of the owners of all of the Parity Bonds waive any past default under the Ordinance and its consequences; except a default in the payment of the principal of and premium, if any, and interest on any of the Parity Bonds. No such waiver shall extend to any subsequent or other default or impair any right consequent thereon. 4110 -46- 51151313.3 Section 9.8 Remedies Granted in Ordinance Not Exclusive. No remedy by the terms 411 of the Ordinance conferred upon or reserved to the Bondowners ondowners 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 X BONDOWNERS MEETINGS Section 10.1 Call of Bondowners Meetings. The City, the Bondowners Committee or the owners of not less than 20% in principal amount of the Parity Bonds then outstanding may at any time call a meeting of the owners of the Parity Bonds. Every such meeting shall be held at such place in the City of Yakima, or in the City of Seattle, 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 a week for four successive calendar weeks on any day of the week, the date of first publication to be not less than 30 or more than 60 days preceding the meeting; provided, however, that the mailing of such notice shall in no case be a condition precedent to the validity of any action taken at any such meeting. The expenses of publication of such notice shall be paid or reimbursed by the City. Any meeting of Bondowners shall, however, be valid without notice if the owners of all Parity Bonds then Outstanding are present in person or by proxy or if notice is waived before or within 30 days after the meeting by those not so present. Section 10.2 Notice to Bondowners. Except as otherwise provided in the Ordinance, 411 any provision in this ordinance for the mailing of a notice or other paper to Bondowners shall be -47- 51151313.3 fully complied with if it is mailed postage prepaid to each registered owner of any of the 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 10.3 Proxies; Proof of Ownership of Parity Bonds. Attendance and voting by Bondowners at such meetings may be in person or by proxy. Owners of 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 Parity Bonds shall be entitled in person or by proxy to attend and vote at such meeting as owner of the Parity Bonds registered or certified in his/her name without producing such 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 Parity Bonds claimed to be owned or represented at such meeting. The vote at any such meeting of the owner of any Parity Bond entitled to vote thereat shall be binding upon such owner and upon every such subsequent owner of such Parity Bond (whether or not such subsequent owner has notice thereof). • -48- 51151313.3 Section 10.4 Execution of Instruments by Bondowners. Any request, direction, consent or other instrument in writing required or permitted g q p 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 g Y p � g 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 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 approved (subject to the City's right to require additional proof) by a written proxy executed by such Bondowner as aforesaid. Section 10.5 Appointment of Officers at Bondowners Meetings. Persons named by the City or elected by the owners of a majority in principal amount of the Parity Bonds represented at the meeting in person or by proxy in the event the City is not represented at such meeting, shall act as temporary chairperson and temporary secretary of any meeting of Bondowners. A O -49- 51151313.3 permanent chairperson and a permanent secretary of such meeting shall be elected by the owners of a majority in principal amount of the 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 10.6 Quorum at Bondowners Meetings. The owners of not less than the principal amount of the 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 adjourned date of the meeting. days prior to the adj p Y Y Y p J ARTICLE XI AMENDMENTS TO ORDINANCE Section 11.1 Amendments. (a) The Council from time to time and at any time may pass an ordinance or ordinances amending this ordinance, which ordinance or ordinances thereafter shall become a part of this ordinance, for any one or more or all of the following purposes: (1) To add to the . covenants and agreements of the City in this ordinance, other covenants and agreements thereafter to be observed, which shall not adversely affect the interests of the owners of any Parity Bonds, or to surrender any right or power herein reserved. -50- 51151313.3 (2) To make such provisions for the purpose of curing any ambiguities or of curing, or supplementing any defective provision contained in this ordinance or g, correcting pp g Y P any ordinance authorizing Additional Bonds in regard to matters or questions arising under such ordinances as the Council <may deem necessary or desirable and not inconsistent with such ordinances and which shall not adversely affect, in any material respect, the interest of the owners of Parity Bonds. Any such amending ordinance may be adopted without the consent of the owners of any Parity Bonds outstanding, notwithstanding subsection (b) of this section. (b) With the consent of the owners of not less than 65% in aggregate principal amount of the Parity Bond at the time Outstanding, the Council may pass an ordinance or ordinances supplemental hereto for the purpose of adding any provisions to or changing in any manner or eliminating any of the provisions of this ordinance or of any amending ordinance; O provided, however, that no such amending ordinance shall: (1) Extend the fixed maturity of any 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 amending ordinance, without the consent of the owners of all of the 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. O -51= . 51151313.3 (c) Upon the adoption of any ordinance pursuant to the provisions of this section, this ordinance shall be deemed to be modified and amended in accordance therewith, and the respective rights, duties and obligations of the City under this ordinance and all owners of 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) Parity Bonds executed and delivered after the execution of any amending ordinance passed pursuant to the provisions of this section may have a notation as to any matter provided for in such amending ordinance, and if such supplemental ordinance shall so provide, new bonds so modified as to conform, in the opinion of the Council, to any modification of this ordinance contained in any such supplemental ordinance, may be prepared and delivered without cost to the owners of any affected Parity Bonds then outstanding, u on surrender for cancellation Y Y upon such bonds with all unmatured coupons and all matured coupons not fully paid, in equal aggregate principal amounts. Section 11.2 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 XI, 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 • -52- 51151313.3 knowledge of the facts, showing a copy of the notice of the meeting and setting forth the facts 0 with respect to the mailing and publication thereof under the provisions of this ordinance. Such p g p provisions 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 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 10.2 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 411 City. Such ordinance of the City making such amendment shall be deemed conclusively to be binding upon the City, the paying agents, and the owners of all 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 period 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 -53- 51]513]3.3 any rights conferred upon or reserved to the paying agents or the Bondowners under any of the provisions of this ordinance. Section 11.3 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 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 10.2 hereof. Such ordinance shall not be effective unless and until there shall have been filed with the City the written consents of the percentages of owners of outstanding Bonds specified herein and a notice shall have been published as hereinafter in this section provided. Each such consent shall be effective only if accompanied by proof of • ownership of the Parity Bond for which such consent is given. A certificate or certificates of the p Y g Clerk of the City that he /she has examined such proof and that such proof is sufficient shall be conclusive that the consents have been given by the owners of the Parity Bonds described in such certificate or certificates. Any such consent shall be binding upon the owner of the Parity Bonds giving such consent and on every subsequent owner of such Parity Bonds (whether or not such subsequent owner has notice thereof). A notice stating that the ordinance has been consented to by the owners of the required percentages of Bonds and will be effective as provided in this section, may be given to the Bondowners by mailing such notice to the bondholders, and shall be given by publishing the same at least once in the manner provided in Section 10.2 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 -54- 51151313.3 the City and the owners of all 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 com P � P p 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 11.4 Amendment of Ordinance in Any 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 Parity Bonds, and the terms and provisions of the 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 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 the Parity Bonds then Outstanding, such consent to be given as provided in Section 11.3 except that no notice to bondowners either 411 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 11.5 Exclusion of Bonds Owned by City. Parity Bonds owned or held by or for the account of the City shall not be deemed Outstanding for . the,purpose of any vote or consent or other action or any calculation of Outstanding Bonds in this ordinance provided for, and shall not be entitled to vote or consent or take any other action in this ordinance provided for. Section 11.6 Endorsement of Amendment on Bonds. Parity Bonds delivered after the effective date of any action amending this ordinance may bear a notation by endorsement or otherwise as to such action, and in that case upon demand of the owner of any Parity Bond Outstanding at such effective date and presentation of his/her Parity Bond for that purpose at the principal office of the paying agents, suitable notation shall be made on such Parity Bond by the 411 -55- 51151313.3 paying agent as to any such action. If the City shall so determine, new 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 the owner of any Parity Bond then outstanding shall be exchanged without cost to such Bondowner for Parity Bonds then outstanding hereunder, upon surrender of such Bonds with any unmatured coupons pertaining thereto. ARTICLE XII MISCELLANEOUS Section 12.1 Undertaking to Provide Ongoing Disclosure. To meet the requirements of paragraph (b)(5) of Rule 15c2 -12, as applicable to a participating underwriter for the 2011 Bonds, the City makes the following written Undertaking for the benefit of holders of the 2011 Bonds: (a) Undertaking to Provide Annual Financial Information and Notice of Listed Events. The City undertakes to provide or cause to be provided, either directly or through a designated agent, to the MSRB, in an electronic format as prescribed by the MSRB, accompanied by identifying information as prescribed by the MSRB: (1) Annual financial information and operating data of the type included in the final official statement for the 2011 Bonds and described in subsection (2) of this section ( "annual financial information "); (2) Timely notice (not in excess of 10 business days after the occurrence of the event) of the occurrence of any of the following events with respect to the 2011 Bonds: (A) principal and interest payment delinquencies; (B) non - payment related defaults, if material; (C) unscheduled draws . on debt service reserves reflecting financial difficulties; (D) unscheduled draws on credit enhancements reflecting financial difficulties; (E) substitution of credit or liquidity providers, or their failure to perform; (F) adverse tax -56 -. 51151373 3 • opinions, the issuance by the Internal Revenue Service of proposed or final determinations of taxability, otice of Proposed Issue IR y p (IRS Form 5701 — TEB) or other material notices or determinations with respect to the tax status of the 2011 Bonds; (G) modifications to rights of holders of the 2011 Bonds, if material; (H) bond .calls (other than . scheduled mandatory redemptions of Term Bonds), if material, and tender offers; (I) defeasances; (J) release, substitution, or sale of property securing repayment of the 2011 Bonds, if material; (K) rating changes; (L) bankruptcy, insolvency, receivership or similar event of the City, as such "Bankruptcy Events" are defined in Rule 15c2 -12; (M) the consummation of a merger, consolidation, or acquisition involving the City or the sale of all or substantially all of the assets of the City other than in the ordinary course of business, the entry into a definitive agreement to undertake such an action or the termination of a definitive agreement relating to any such actions, other than pursuant to its terms, if material; and (N) appointment of a successor or 411 additional trustee or the change of name of a trustee, if material. (3) Timely notice of a failure by the City to provide required annual financial information on or before the date specified in subsection (b) of this section. (b) Type of Annual Financial Information Undertaken to be Provided. The annual financial information that the City undertakes to provide in subsection (1) of this section: (1) Shall consist of (A) Annual financial statements showing ending retained earnings for the System prepared in accordance with the Budget Accounting and Reporting System prescribed by the Washington State Auditor pursuant to RCW 43.09.200 (or any successor statute) and generally of the type included in the official statement for the 2011 Bonds under the heading "Water and Sewer Operating Statement "; (B) Principal amount of 0 -57- 51151313.3 Bonds of the System; (C) Debt service coverage for Outstanding Bonds; (D) Rates for the System; and (E) Number of customers of the System. (2) Shall be provided not later than the last day of the ninth month after the end of each fiscal year of the City (currently, a fiscal year ending December 31), as such fiscal year may be changed as required or permitted by State law, commencing with the City's fiscal year ending December 31, 2011; and (3) May be provided in a single or multiple documents, and may be incorporated by specific reference to documents available to the public on the Internet website of the MSRB or filed with the SEC. (c) Amendment of Undertaking. The Undertaking is subject to amendment after the primary offering of the 2011 Bonds without the consent of any holder of any 2011 Bond, or of any broker, dealer, municipal securities dealer, participating underwriter, rating • agency or the MSRB, under the circumstances and in the manner permitted by Rule 15c2 -12. 5 Y � p Y The City will give notice to the MSRB of the substance (or provide a copy) of any amendment to the Undertaking and a brief statement of the reasons for the amendment. If the amendment changes the type of annual financial information to be provided, the annual financial information containing the amended financial information will include a narrative explanation of the effect of that change on the type of information to be provided. (d) Beneficiaries. The Undertaking evidenced by this section shall inure to the benefit of the City and any Beneficial Owner of 2011 Bonds, and shall not inure to the benefit of or create any rights in any other person. (e) Termination of Undertaking. The City's obligations under this Undertaking shall terminate upon the legal defeasance of all of the 2011 Bonds. In addition, the 411 -58- 51151313.3 0 City's obligations under this Undertaking shall terminate if those provisions of Rule 15c2 -12 which require the City to comply with this Undertaking become legally inapplicable in respect of the 2011 Bonds for any reason, as confirmed by an opinion of nationally recognized bond counsel or other counsel familiar with federal securities laws delivered to the City, and the City provides timely notice of such termination to the MSRB. (f) Remedy for Failure to Comply with Undertaking. As soon as practicable after the City learns of any failure to comply with the Undertaking, the City will proceed with due diligence to cause such noncompliance to be corrected. No failure by the City or other obligated person to comply with the Undertaking shall constitute a default in respect of the 2011 Bonds. The sole remedy of any Beneficial Owner of a 2011 Bond shall be to take such actions as that Beneficial Owner .deems necessary, including seeking an order of specific performance . from an appropriate court, to compel the City or other obligated person to comply with the 411 Undertaking. (g) Designation of Official Responsible to Administer Undertaking. The Finance Officer of the City (or such other officer of the City who may in the future perform the duties of that office) or his or her designee is authorized and directed in his or her discretion to take such further actions as may be necessary, appropriate or convenient to carry out the Undertaking of the City in respect of the 2011 Bonds set forth in this section and in accordance with Rule 15c2 -12, including, without limitation, the following actions: (1) Preparing and filing the annual financial information undertaken to be provided; 0 -59- 51151313.3 (2) Determining whether any event specified in subsection (a) has • occurred, assessing its materiality, where necessary, with respect to the 2011 Bonds, and preparing and disseminating any required notice of its occurrence; (3) Determining whether any person other than the City is an "obligated person" within the meaning of Rule 15c2 -12 with respect to the 2011 Bonds, and obtaining from such person an undertaking to provide any annual financial information and notice of listed events for that person in accordance with Rule 15c2 -12; (4) Selecting, engaging and compensating designated . agents and consultants, including but not limited to financial advisors and legal counsel, to assist and advise the City in carrying out the Undertaking; and (5) Effecting any necessary amendment of the Undertaking. Section 12.2 Severability. If any one or more of the covenants or agreements provided in this ordinance to be erformed on the part of the City shall be declared by any court of p p Y competent jurisdiction to be contrary to law, then such covenant or covenants, agreement or agreements, shall be null and void and shall be deemed separable from the remaining covenants and agreements in this ordinance and shall in no way affect the validity of the other provisions of this ordinance or of any Parity Bonds. Section 12.3 General Authorization. The Mayor and Director of Finance and Technology, 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. -60- 51151313.3 Section 12.4 Prior Acts. All acts taken pursuant to the authority of this ordinance but • prior to its effective date are hereby ratified and confirmed. p Y Section 12.5 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 2nd day of August, 2011. CITY OF YAKIMA, WASHINGTON Micah Cawley, Mayor ATTEST Deborah Kloster, City Clerk 0 APPROVED AS TO FORM: City Attorney First Reading: Publication Date: Effective Date: -61- 51151313.3 EXHIBIT A DESCRIPTION OF PROJECTS The Project includes, but is not limited to, the following improvements: • Major system improvements as presented in the Wastewater Facility Plan, including the following projects and an estimate of their cost: • Biogas analysis — $400,000, • New boilers— $1,400,000, • Grease receiving station — $306,000, • Biosolids dryer — $2,400,000, • Industrial waste anaerobic system — $7,200,000, • North treatment plant power distribution— $1,700,000, • To undertake certain other capital improvements to the System as approved by the Council. A -1 51151313.3 • 0 EXHIBIT B UNITED STATES OF AMERICA NO $ STATE OF WASHINGTON CITY OF YAKIMA WATER AND SEWER REVENUE BOND, 2011 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 , 2011, until payment of this bond at the Interest Rate set forth above, payable on 1, 201X, and semiannually thereafter on the first days of each succeeding 4111 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 15th 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 New York, New York (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. 2011- , passed by the City Council on , 2011 . (the "Bond Ordinance "), to finance certain improvements to the City's water and sewer system. Capitalized terms used in this bond and not otherwise defined shall have the meanings given them in the Bond Ordinance. The Bonds are subject to optional [and mandatory] redemption as set forth in the Bond Ordinance. 0 B -1 51151313 3 The City has designated the Bonds of this issue as "qualified tax - exempt obligations" for purchase by financial institutions. • The Bonds are payable solely from the special fund of the City known as the 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 Gross Revenues into the Bond Fund shall be a lien and charge thereon equal in rank to the lien and charge upon Gross Revenues of the amounts required to pay and secure the payment of the City's Outstanding Parity Bonds, and any Additional Bonds hereafter issued 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 in each calendar year that will make available, for the payment of the principal of and interest on Outstanding Bonds, Net Revenue in an amount that will be equal,to the Coverage Requirement. The pledge of Gross Revenues 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. This Bond shall not be valid or become obligatory for any purpose or be entitled to any 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. B -2 5]151313.3 O 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 15th 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 day of , 2011. 0 CITY OF YAKIMA, WASHINGTON By /s/ manual or facsimile signature Mayor ATTEST: /s/ manual or facsimile signature Clerk The Bond Registrar's Certificate of Authentication on the Bonds shall be in substantially the following form: B -3 • 51151313.3 CERTIFICATE OF AUTHENTICATION This is one of the Water and Sewer Revenue Bonds, 2011, of the City of Yakima, Washington, dated , 2011, described in the Bond Ordinance. WASHINGTON STATE FISCAL AGENCY, as Bond Registrar By Authorized Signatory ASSIGNMENT FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers unto PLEASE INSERT SOCIAL SECURITY OR TAXPAYER IDENTIFICATION NUMBER OF TRANSFEREE (Please print or typewrite name and address, including zip code, of transferee) 1111 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: 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 411 B -4 51151313 3