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Home My WebLink About5930 CITY OF AUBURN, WASHINGTON ORDINANCE NO. 5930 AN ORDINANCE OF THE CITY OF AUBURN, WASHINGTON, RELATING TO THE COMBINED WATER SUPPLY AND DISTRIBUTION SYSTEM, THE SANITARY SEWAGE SYSTEMS AND THE STORM DRAINAGE/SURFACE WATER SYSTEM; PROVIDING FOR THE ISSUANCE OF $2,765,000 PAR VALUE OF UTILITY SYSTEM REVENUE REFUNDING BONDS, 2005, OF THE CITY TO PAY THE COST OF ADVANCE REFUNDING THE CALLABLE PORTION OF THE CITY'S OUTSTANDING UTILITY SYSTEM REVENUE BONDS, 1997, AND PAYING THE ADMINISTRATIVE COSTS OF SUCH REFUNDING AND THE COSTS OF ISSUANCE AND SALE OF THE BONDS; FIXING THE DATE, FORM, MATURITIES, INTEREST RATES, TERMS AND COVENANTS OF THE BONDS; PROVIDING FOR AND AUTHORIZING THE PURCHASE OF CERTAIN OBLIGATIONS OUT OF THE PROCEEDS OF THE SALE OF THE BONDS HEREIN AUTHORIZED AND FOR THE USE AND APPLICATION OF THE MONEY DERIVED FROM THOSE INVESTMENTS; AUTHORIZING THE EXECUTION OF AN AGREEMENT WITH U.S. BANK NATIONAL ASSOCIATION OF SEATTLE, WASHINGTON, AS REFUNDING TRUSTEE; PROVIDING FOR THE CALL, PAYMENT AND REDEMPTION OF THE OUTSTANDING BONDS TO BE REFUNDED; PROVIDING FOR BOND INSURANCE; AND APPROVING THE SALE AND PROVIDING FOR THE DELIVERY OF THE BONDS TO SEATTLE-NORTHWEST SECURITIES CORPORATION OF SEATTLE, WASHINGTON. PASSED AUGUST 1,2005 Prepared by Foster Pepper & Shefelman PLLC llll Third Avenue, Suite 3400 Seattle, Washington 98104 (206) 447-4400 50551341.03 TABLE OF CONTENTS Page Section 1. Definitions....... ........... ........... ........... ...... ........ .......... ..................... ........... .............. .......3 Section 2. Satisfaction of Parity Conditions ................................................................................11 Section 3. Authority and Description of Bonds..................................................... .......................11 Section 4. Registration and Transfer of Bonds................................................... ..........................12 Section 5. Payment of Bonds.. .............. ........... ........... .., ........... .......... ........ ............. .......... .......... .14 Section 6. Redemption Provisions and Open Market Purchase ofBonds....................................14 Section 7. Failure to Redeem Bonds ............................................................................................15 Section S. Bond Fund; Payments into Bond Fund........................................................................15 Section 9. Rate Stabilization Fund ...............................................................................................17 Section 10. Finding as to Sufficiency of Revenue, Pledge of Revenue and Lien Position.......... IS Section 11. Deposit of Bond Proceeds .........................................................................................19 Section 12. Refunding of the Refunded Bonds ............................................................................19 Section 13. Call for Redemption of the Refunded Bonds ............................................................22 Section 14. City Findings with Respect to Refunding..................................................................22 Section 15. Covenants.. .......... ........... .............. ........... ... ........ ............. .......... ........ ............. ......... ..23 Section 16. Flow of Funds..... .............. ........... ........... ........... .......... ...................... ........... .............26 Section 17. Provisions for Future Parity Bonds ...........................................................................27 Section IS. Separate Utility Systems......... ............... ........... ..................... .......... ............ ..............30 Section 19. Contract Resource Obligations .......... ............ .......... ............. .......... ........... ............ ....30 Section 20. Form and Execution of Bonds ...................................................................................32 -1- 50551341.03 Section 21. Bond Registrar ........... ... .......... ............ ........ ...... .......... ........ .......... ............. ................33 Section 22. Preservation of Tax Exemption for Interest on Bonds ..............................................33 Section 23. Small Governmental Issuer Arbitrage Rebate Exception and Designation of Bonds as "Qualified Tax-Exempt Obligations." ..................................................34 Section 24. Refunding or Defeasance of the Bonds .....................................................................34 Section 25. Approval of Bond Purchase Contract........................................................................36 Section 26. Preliminary Official Statement Deemed Final..........................................................37 Section 27. Undertaking to Provide Continuing Disclosure.........................................................37 Section 28. Amendatory and Supplemental Ordinance................................................................40 Section 29. Defaults and Remedies. ........... ............ ............. .......... ........... .......... ........... ...............44 Section 30. Bond Insurance ......, .......................... .4........................................................................9 Section 31. Ratification .............. .................................................................................................. 54 Section 32. Effective Date of Ordinance ......................................................................................54 -lI- 50551341.03 CITY OF AUBURN, WASHINGTON ORDINANCE NO. 5930 AN ORDINANCE of the City of Auburn, Washington, relating to the combined water supply and distribution system, the sanitary sewage systems and the stonn drainage/surface water system; providing for the issuance of $2,765,000 par value of Utility System Revenue Refunding Bonds, 2005, of the City to pay the cost of advance refunding the callable portion of the City's outstanding Utility System Revenue Bonds, 1997, and paying the administrative costs of such refunding and the costs of issuance and sale of the bonds; fixing the date, fonn, maturities, interest rates, terms and covenants of the bonds; providing for and authorizing the purchase of certain obligations out of the proceeds of the sale of the bonds herein authorized and for the use and application of the money derived from those investments; authorizing the execution of an agreement with U.S. Bank National Association of Seattle, Washington, as refunding trustee; providing for the call, payment and redemption of the outstanding bonds to be refunded; providing for bond insurance; and approving the sale and providing for the delivery of the bonds to Seattle-Northwest Securities Corporation of Seattle, Washington. WHEREAS, the City of Auburn, Washington (the "City"), now owns, operates and maintains a water supply and distribution system and a sanitary sewage system, which systems were combined pursuant to RCW 35.67.320 by Ordinance No. 961, passed and approved March 7, 1950, said combined systems, including all additions thereto and betterments and extensions thereof at any time made, to be hereinafter referred to as the "Utility System of the City" or "the "System"; and WHEREAS, the City, by Ordinance No. 4193, passed December 5, 1986, established a stonn drainage utility as a part of the Sanitary Sewer Utility; and WHEREAS, the City, by Ordinance No. 4492, passed March 13, 1991, separated the storm drainage utility from the Sanitary Sewer Utility by repealing Auburn City Code Chapter 13.48 entitled "Storm Drainage Utility" contained in Auburn City Code Title 13 entitled "Water, 5055134103 Sewers and Public Utilities," and enacting a new Auburn City Code Chapter 13.48 entitled "Storm Drainage Utility"; and WHEREAS, by Ordinance No. 4945, passed February 18, 1997, the City recombined such storm drainage utility into the Utility System; and WHEREAS, pursuant to Ordinance No. 4945, the City issued its $5,000,000 par value Utility System Revenue Bonds, 1997 (the "1997 Bonds"), and the City reserved the right to issue additional utility system revenue bonds which would constitute a lien and charge upon the gross revenues of the Utility System of the City on a parity with those bonds if certain conditions were met and complied with; and WHEREAS, pursuant to Ordinance No. 5309, the City issued its $8,345,000 par value Utility System Revenue Bonds, 1999 (the "1999 Bonds"), which 1999 Bonds were issued on a parity of lien and charge upon the gross revenues of the Utility System of the City with the 1997 Bonds; and WHEREAS, by Ordinance No. 4945, the City reserved the right to redeem the 1997 Bonds prior to their maturity on November 1, 2007, at a price of par plus accrued interest to the date fixed for redemption, and there are presently outstanding $2,855,000 par value of 1997 Bonds maturing on November 1 in each ofthe years 2008 through 2013 and in 2016, and bearing interest at various rates from 4.90% to 5.45% per annum (the "Refunded Bonds"); and WHEREAS, after due consideration, it appears to the City Council that the Refunded Bonds may be refunded by the issuance and sale of utility system revenue refunding bonds authorized herein (the "Bonds") so that a substantial savings will be effected by the difference between the principal and interest cost over the life of the Bonds and the principal and interest 5055134].03 -2- cost over the life of the Refunded Bonds but for such refunding, which refunding will be effected by carrying out the Refunding Plan (hereinafter defined); and WHEREAS, to effect that refunding in the manner that will be most advantageous to the City it is found necessary and advisable that certain Acquired Obligations (hereinafter defined) bearing interest and maturing at such time or times as necessary to accomplish the refunding as aforesaid be purchased out of a portion of the proceeds of the Bonds; and WHEREAS, the City Council deems it to be in the best interests of the City to issue and sell the Bonds to pay the costs of carrying out the Refunding Plan; and WHEREAS, Financial Security Assurance Inc. ("Bond Insurer"), has made a commitment to issue an insurance policy (the "Municipal Bond Insurance Policy") insuring the payment when due of the principal of and interest on the Bonds as provided therein, and the City Council of the City deems that the purchase of the Municipal Bond Insurance Policy is in the best interest of the City; and WHEREAS, Seattle-Northwest Securities Corporation has offered to purchase the Bonds under the tenns and conditions as set forth herein; NOW, THEREFORE, THE CITY COUNCIL OF THE CITY OF AUBURN, WASHINGTON, DO ORDAIN as follows: Section 1. Definitions. As used in this ordinance, the following words shall have the following meanings: "Acquired Obligations" means those United States Treasury Certificates ofIndebtedness, Notes, and Bonds--State and Local Government Series and other direct, noncallable obligations of the United States of America purchased to accomplish the refunding of the Refunded Bonds as authorized by this ordinance. 50551341.03 -3- "Alternate Security" means any bond insurance, reserve insurance, collateral, security, letter of credit, guaranty, surety bond or similar credit enhancement device providing for or securing the payment of all or part of the principal of and interest on Parity Bonds, issued by an institution which has been assigned a credit rating at the time of issuance of the Parity Bonds, secured by such Alternate Security equal to or better than the highest two rating categories by both Moody's Investors Service, Inc., and Standard & Poor's. Alternate Security includes, in lieu of cash and investments, insurance obtained by the City equal to part or all of the Reserve Requirement for any Parity Bonds then outstanding for which such insurance is obtained. "Annual Debt Service" for the applicable series of the Parity Bonds for any calendar year means all the interest, plus all principal (except principal ofTenn Bonds due in any Tenn Bond Maturity Year), plus all mandatory redemption and sinking fund installments for that year, less all bond interest payable from the proceeds of any such bonds in that year. "Assessment Bonds" shall mean the original principal amount of any issue of bonds payable from the Bond Fund equal to the total principal amount (or, if refunding bonds, the remaining unpaid principal amount) of ULID Assessments on any final assessment roll or rolls of one or more ULIDs fonned in connection with the improvements being financed by such issue of bonds (or bonds being refunded). The original principal amount of such issue of bonds in excess of Assessment Bonds shall be referred to as "bonds (or Bonds) that are not Assessment Bonds." Assessment Bonds shall be allocated to each $5,000 of bonds in proportion to their percentage of the entire issue of bonds. When a bond of any issue of bonds containing Assessment Bonds is redeemed or purchased, and retired, the same percentage of that bond as the percentage of Assessment Bonds is to the total issue of those bonds shall be treated as Assessment Bonds being redeemed or purchased and retired. 50551341.03 -4- "Average Annual Debt Service" means, as of its date of calculation, the sum of the Annual Debt Service for the remaining calendar years to the last scheduled maturity of the applicable issue or issues of bonds divided by the number of those years. For purposes of computing the Reserve Requirement the estimated amount of bonds to be redeemed prior to maturity may be taken into account ifrequired under federal arbitrage regulations. "Bond Fund" means that special fund of the City known as the Utility System Revenue Bond Fund created by Section 10 of Ordinance No. 4945 for the payment of the principal of and interest on the Parity Bonds. "Bond Insurer" means Financial Security Assurance Inc., a New York stock insurance company, or any successor thereto or assignee thereof. "Bond Register" means the registration books of the Bond Registrar on which are recorded the names of the owners of the Bonds. "Bond Registrar" means the fiscal agent of the State of Washington (as the same may be designated by the State of Washington from time to time). "Bonds" means the $2,765,000 par value Utility System Revenue Refunding Bonds, 2005, authorized to be issued by this ordinance. "City" means the City of Auburn, Washington. "Code" means the Internal Revenue Code of 1986, as amended from time to time. "Construction Accounts" means such accounts created in such System Funds as the City Finance Director shall designate. "Contract Resource Obligation" means an obligation of the City, designated as a Contract Resource Obligation and entered into pursuant to Section 19 of this ordinance, to make payments for water supply, sewer service, water, sewage or storm water transmission or other commodity 50551341.03 -5- or service to another person or entity (including without limitation a separate utility system created pursuant to Section 18 of Ordinance No. 4945). "Coverage Requirement" in any calendar year means an amount of Net Revenue of the System at least equal to 1.25 times the Annual Debt Service in that year on all bonds payable from the Bond Fund that are not Assessment Bonds. "DTC" means The Depository Trust Company, New York, New York. "Finance Director" means the City Finance Director or the officer that is the successor to substantially the functions and duties of the Finance Director. "Future Parity Bonds" means any and all utility system revenue bonds of the City issued after the date of the issuance of the Bonds, the payment of the principal of and interest on which constitutes a charge or lien on the Gross Revenue of the System and ULID Assessments equal in rank with the charge and lien upon such revenue and assessments required to be paid into the Bond Fund to pay and secure the payment of the principal of and interest on the Outstanding Parity Bonds and the Bonds. "Government Obligations" means direct obligations of or obligations the principal of and interest on which are unconditionally guaranteed by the United States of America. "Gross Revenue of the System" or "Gross Revenue" means all of the eammgs and revenues received by the City from the maintenance and operation of the System and all earnings from the investment of money in the Bond Fund which earnings are deposited in the Principal and Interest Account, and connection and capital improvement charges collected for the purpose of defraying the costs of capital facilities of the System, except ULID Assessments, government grants, proceeds from the sale of System property, City taxes collected by or through the System, principal proceeds of bonds or other obligations and earnings or proceeds from any investments 5055134],03 -6- in a trust, defeasance or escrow fund created to defease or refund System obligations (until commingled with other earnings and revenues of the System) or held in a special account for the purpose of paying a rebate to the United States Government under the Code, on earnings of a separate utility system that may be created under Section 18 of this ordinance. "Independent Utility Consultant" means either (1) an independent licensed professional engineer experienced in the design, construction or operation of municipal utilities of comparable size and character to the System, or (2) an independent certified public accountant or other professional consultant experienced in the development of rates and charges for municipal utilities of comparable size and character to the System. "Letter of Representations" means the Blanket Issuer Letter of Representations dated February 18, 1997, between the City and DTC, as it may be amended from time to time. "MSRB" means the Municipal Securities Rulemaking Board. "Maintenance and Operation Expense" means all reasonable expenses incurred by the City in causing the System to be operated and maintained in good repair, working order and condition, including without limitation payments made to any other municipal corporation or private entity, payments under Contract Resource Obligations, and payments with respect to any other expenses of the System that are properly treated as maintenance and operation expenses under generally accepted accounting principles applicable to municipal corporations. The tenn Maintenance and Operation Expense does not include any depreciation or capital additions or capital replacements to the System. "Maximum Annual Debt Service" means at the time of calculation, the maximum amount of Annual Debt Service that will mature or come due in the current calendar year or any future year on the outstanding Parity Bonds. 5()55134),03 -7- "Maximum Interest Rate" means, with respect to any Variable Interest Rate Bond, a numerical rate of interest, set forth in the ordinance authorizing the Future Parity Bonds, that is the maximum rate of interest those Future Parity Bonds may bear at any time. "Municipal Bond Insurance Policy" means the financial guaranty insurance policy issued by the Bond Insurer guaranteeing the scheduled payment of principal of and interest on the Bonds when due. "NRMSIR" means a nationally recognized municipal securities infonnation repository designated by the SEC in accordance with SEC Rule 15c2-12(b)(5). "Net Revenue of the System" or "Net Revenue" means the Gross Revenue less (1) Maintenance and Operation Expense, (2) deposits into the Rate Stabilization Fund, and (3) proceeds from the sale of the property of the System, and plus withdrawals from the Rate Stabilization Fund. "1997 Bonds" means the $5,000,000 original par value Utility System Revenue Bonds, 1997, authorized to be issued by Ordinance No. 4945. "1999 Bonds" means the $8,345,000 original par value Utility System Revenue Bonds, 1999, authorized to be issued by Ordinance No. 5309. "Nonrefunded 1997 Bonds" means those outstanding 1997 Bonds maturing in the years 2004 through 2007. "Outstanding Parity Bonds" means the Nonrefunded 1997 Bonds and the 1999 Bonds. "Parity Bonds" means the Outstanding Parity Bonds, the Bonds and any Future Parity Bonds. "Principal and Interest Account" means the account of that name created in the Bond Fund for the payment of the principal of and interest on the Parity Bonds. 5055134103 -8- "Rate Stabilization Fund" means the Utility System Rate Stabilization Fund created in Section 11 of Ordinance No. 4945. "Refunded Bonds" means those outstanding 1997 Bonds maturing on November 1 in the years 2008 through 2013 and in 2016, in the aggregate principal amount of $2,855,000, the refunded of which has been provided for by this ordinance. "Refunding Plan" means: (a) the placement of sufficient proceeds of the Bonds which, with other money of the City, if necessary, will acquire the Acquired Obligations to be deposited, with cash, if necessary, with the Refunding Trustee; (b) the payment of the interest on the Refunded Bonds when due up to and including November 1, 2007, and the call, payment, and redemption on November 1,2007, of all of the outstanding Refunded Bonds at a price of par; and (c) the payment of the costs of issuing the Bonds and the costs of carrying out the foregoing elements of the Refunding Plan. "Refunding Trust Agreement" means a Refunding Trust Agreement between the City and the Refunding Trustee substantially in the fonn of that which is on file with the City Clerk and by this reference incorporated herein. "Refunding Trustee" means U.S. Bank National Association of Seattle, Washington, serving as trustee or escrow agent or any successor trustee or escrow agent. "Reserve Account" means the account of that name created in the Bond Fund for the purpose of securing the payment of the principal of and interest on the Parity Bonds. "Reserve Requirement" means: For all bonds payable from the Bond Fund, the lesser of (i) Maximum Annual Debt Service on those bonds and (ii) 125% of Average Annual Debt Service on those bonds, but at no time shall the Reserve Requirement exceed 10% of the proceeds ofthose bonds. For purposes of calculating the Reserve Requirement for Future Parity Bonds (including any Future Parity Bonds proposed to be issued), Variable 50551341,03 -9- Interest Rate Bonds shall be assumed to bear interest at a fixed rate equal to the higher of (I) the highest variable rate borne during the preceding 24 months by any outstanding variable rate revenue bonds of the System or, (2) if no such Variable Interest Rate Bonds are outstanding at the time of calculation, the rate borne by other variable rate debt the interest rate for which is detennined by reference to an index comparable to the index to be used to determine the interest rate on the Future Parity Bonds proposed to be issued. Notwithstanding the above, the deposit to be made in the Reserve Account shall be decreased for any issue of bonds payable from the Bond Fund when and to the extent that the City provides for an Alternate Security to secure the payment of the principal of and interest on that issue of bonds. The amount payable under any Alternate Security shall be credited against the amount otherwise required to be made into the Reserve Account to meet the Reserve Requirement for that issue of bonds. "SEC" means the Securities and Exchange Commission. "System" or "Utility System" means the City's existing combined water supply and distribution system, sanitary sewage system, storm and surface water utility, together with aU additions thereto and betterments and extensions thereof at any time made or constructed, and shall include any utility systems hereafter combined with the System. The System shall not include any water supply or service or other facilities that may be created, acquired or constructed by the City as a separate utility system as provided in Section II of Ordinance No. 4945. "System Funds" means, collectively, the Water Fund, Sewer Fund and Stonn Drainage Fund of the System and Construction Accounts. "Term Bond Maturity Year" means any calendar year in which Tenn Bonds are scheduled to mature. "Term Bonds" means the bonds of any single issue or series of Parity Bonds designated as such in the ordinance authorizing their issuance or sale. "ULID" means Utility Local Improvement District. 5055134103 -10- "ULID Assessments" means all assessments levied and coUected in any ULID ofthe City created for the acquisition or construction of additions to and extensions and betterments of the System if such assessments are pledged to be paid into the Bond Fund (less any prepaid assessments paid or to be paid into a construction fund or account). ULID Assessments shall include installments thereof and any interest or penalties that may be due thereon. "Variable Interest Rate" means a variable interest rate or rates to be borne by a series of Future Parity Bonds or anyone or more maturities within a series of Future Parity Bonds. The method of computing such a variable interest rate shaU be specified in the ordinance authorizing such Future Parity Bonds, which ordinance also shaU specify either (i) the particular period or periods of time or manner of detennining 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 Interest Rate Bonds" means, for any period of time, Future Parity Bonds which bear a Variable Interest Rate during that period, except that Future Parity Bonds the interest rate or rates on which shaU have been fixed for the remainder of the term thereof no longer shall be deemed to be Variable Interest Rate Bonds. Section 2. Satisfaction of Pari tv Conditions. The City Council finds and declares that the amounts required to have been paid into the Bond Fund for the Outstanding Parity Bonds have been paid and maintained as required therein, and that aU other conditions for the issuance of the Bonds as Future Parity Bonds under Section 17 of Ordinance No. 4945 wiU have been met and satisfied before the Bonds are delivered to the original purchaser thereof. Section 3. Authoritv and Description of Bonds. For the purpose of paying costs of carrying out the Refunding Plan, the City shall issue the Bonds in the principal amount of 50551341.03 -11- $2,765,000. The Bonds shall be designated Utility System Revenue Refunding Bonds, 2005; shaU be dated August 15,2005; shall be in the denomination of $5,000 or any integral multiple thereof within a single maturity; shall be numbered separately in the manner and with any additional designation as the Bond Registrar deems necessary for purposes of identification; shaU bear interest (computed on the basis of a 360-day year of twelve 30-day months) payable semiannuaUy on each May 1 and November 1, commencing November 1, 2005, tothe maturity of the Bonds; and shaU mature on November 1 in years and amounts and bear interest at the rates per annum as follows: Maturitv Years Amounts Interest Rates 2005 $45,000 3.00% ** ** ** 2008 255,000 4.00 2009 265,000 4.00 2010 275,000 4.00 2011 290,000 4.00 2012 305,000 4.00 2013 310,000 4.00 2014 325,000 4.75 2015 25,000 4.00 2015 315,000 4.75 2016 50,000 4.00 2016 305,000 4.75 Section 4. Registration and Transfer of Bonds. The Bonds shaU be issued only in registered form as to both principal and interest and shall be recorded on the Bond Register. The Bond Register shaU contain the name and mailing address of the owner of each Bond and the principal amount and number of each of the Bonds held by each owner. Bonds surrendered to the Bond Registrar may be exchanged for Bonds in any authorized denomination of an equal aggregate principal amount and of the same interest rate and maturity. 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, 50551341.03 -12- The Bond Registrar shall not be obligated to exchange or transfer any Bond during the 15 days preceding any principal payment or redemption date. The Bonds initially shaU be registered in the name of Cede & Co., as the nominee of DTC. The Bonds so registered shaU 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 shaU have any responsibility or obligation to DTC participants or the persons for whom they act as nominees with respect to the Bonds regarding accuracy of any records maintained by DTC or DTC participants of any amount in respect of principal of or interest on the 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 so long as any Bonds are held in fuUy 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 nominees and shaU not mean the owners of any beneficial interests in the Bonds. Registered ownership of such Bonds, or any portions thereof, may not thereafter be transferred except: (i) to any successor of DTC or its nominee, if that successor shaU 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 Bonds are no longer held in immobilized fonn. Upon the resignation of DTC or its successor (or any substitute depository or its successor) from its functions as depository, or a detennination 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 5055134103 -13- 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 functions as depository, and no substitute depository can be obtained, or (ii) the City determines that the Bonds are to be in certificated fonn, the ownership of Bonds may be transferred to any person as provided herein and the Bonds no longer shall be held in fully immobilized fonn. Section 5. Payment of Bonds. Both principal of and interest on the Bonds shall be payable in lawful money of the United States of America. Interest on the Bonds shall be paid by checks or drafts of the Bond Registrar mailed on the interest payment date to the registered ovmers at the addresses appearing on the Bond Register on the 15th day of the month preceding the interest payment date or, if requested in writing by a registered owner of $1,000,000 or more in principal amount of Bonds prior to the applicable record date, by wire transfer on the interest payment date. Principal of the Bonds shall be payable upon presentation and surrender of the Bonds by the registered owners to the Bond Registrar. Notwithstanding the foregoing, as long as the Bonds are registered in the name of DTC or its nominee, payment of principal of and interest on the Bonds shall be made in the manner set forth in the Letter of Representations. Section 6. Redemption Provisions and Open Market Purchase of Bonds. The Bonds shall be issued without the right or option of the City to redeem the Bonds prior to their stated maturity dates. The City reserves the right and option to purchase any or all of the Bonds in the open market at any time at any price acceptable to the City plus accrued interest to the date of purchase. All Bonds purchased under this section shall be canceled. 50551341.03 -14- Section 7. Failure to Redeem Bonds. If any Bond is not redeemed when properly presented at its maturity date, the City shall be obligated to pay interest on that Bond at the same rate provided in the Bond from and after its maturity date until that 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 Bond has been called for payment by giving notice of that call to the registered owner of each of those unpaid Bonds. Section 8. Bond Fund; Payments into Bond Fund. The Bond Fund has previously been created in the office of the Finance Director as a special fund known as the Utility System Revenue Bond Fund, which fund shall be divided into two accounts: the Principal and Interest Account and the Reserve Account. So long as any Bonds are outstanding, the City shall set aside and pay into the Bond Fund all ULID Assessments on their collection and, out of the Net Revenue of the System, certain fixed amounts without regard to any fixed proportion, namely: (a) Into the Principal and Interest Account on or before each interest and principal and interest payment date, an amount, together with other money on deposit therein, sufficient to pay the next ensuing interest or principal and interest requirements on the Bonds; and (b) Into the Reserve Account from Parity Bond proceeds and other money of the City at closing an amount necessary to provide for the Reserve Requirement. The Reserve Account may be divided into subaccounts for each issue of bonds remaining outstanding payable from the Bond Fund. Except for withdrawals therefrom as authorized herein, the Reserve Account and all subaccounts shall be maintained at the Reserve Requirement amount for all bonds payable from the Bond Fund at all times so long as any of the Parity Bonds are outstanding. When the total amount in the Bond Fund shall equal the total amount of principal and interest for all outstanding bonds payable out of the Bond Fund to the last maturity thereof, no further payment need be made into the Bond Fund. Notwithstanding the second 5055134103 -15- sentence of this paragraph, the amounts in any subaccount in the Reserve Account may be decreased for the Parity Bonds when and to the extent the City has provided for the Reserve Requirement by means of Alternate Security. If there shall be a deficiency in the Principal and Interest Account in the Bond Fund to meet maturing installments of either principal or interest, as the case may be, that deficiency shall be made up ratably from the Reserve Account and its subaccounts based on the amount of the total Reserve Requirement to be paid into each subaccount (except when Alternative Security requires all cash and investments in the Reserve Account be withdrawn before draws on the Alternate Security) by the withdrawal of cash therefrom for that purpose. Any deficiency created in the Reserve Account and its subaccounts by reason of any such withdrawal shall then be made up from ULID Assessment payments and the Net Revenue of the System first available after making necessary provisions for the required payments into the Principal and Interest Account. The money in the Reserve Account and its subaccounts otherwise shall be held intact and may be applied against the last outstanding bonds payable out of the Bond Fund, except that if the Reserve Account and any of its subaccounts are fully funded, money in excess of the Reserve Requirement shall be withdrawn and deposited, first, in any subaccount having a deficiency in its Reserve Requirement, and second, at the option of the Finance Director, either in the Principal and Interest Account and spent for the purpose of retiring bonds payable from the Bond Fund or in any of the System Funds and spent for other lawful System purposes. The City may provide for the purchase, redemption or defeasance of bonds payable from the Bond Fund by the use of money on deposit in any account in the Bond Fund as long as the money remaining in those accounts is sufficient to satisfy the required deposits in those accounts for the remaining bonds outstanding payable from the Bond Fund. 50551341.03 -16- AU money in the Bond Fund may be kept in cash or invested in legal investments maturing not later than the date when the funds are required for the payment of principal of or interest on the outstanding bonds payable from the Bond Fund (for investments in the Principal and Interest Account) or having a guaranteed redemption price prior to maturity and, in no event, maturing later than the last maturity of any remaining outstanding bonds payable from the Bond Fund (for investments in the Reserve Account). Earnings from investments in the Principal and Interest Account shall be deposited in that account. Income from investments in the Reserve Account shall be deposited in that account. The City may create sinking fund accounts or other accounts or subaccounts in the Bond Fund for the payment or securing the payment of bonds payable from the Bond Fund as long as the maintenance of such accounts does not conflict with the rights of the owners of bonds payable from the Bond Fund. If the City fails to set aside and pay into the Bond Fund the amounts set forth above, the owner of any of the outstanding bonds payable out of the Bond Fund may bring action against the City and compel such setting aside and payment. Section 9. Rate Stabilization Fund. There has previously been established by Ordinance No. 4945 a Utility System Rate Stabilization Fund. The City may at any time, as determined by the City and as consistent with Section 16 of this ordinance, deposit in the Rate Stabilization Fund Gross Revenue and any other money received by the System and available to be used therefor, excluding principal proceeds of any Future Parity Bonds or other borrowing. The City may, upon authorization by ordinance, at any time withdraw money from the Rate Stabilization Fund for inclusion in the Net Revenue for the current fiscal year of the System, except that the total amount withdrawn from the Rate Stabilization Fund in any fiscal year of the System may 50551341.03 -17- not exceed the total debt service of the System in that year. Such deposits or withdrawals may be made up to and including the date 90 days after the end of the fiscal year for which the deposit or withdrawal will be included as Net Revenue for that fiscal year. Earnings from investments in the Rate Stabilization Fund shall be deposited in that fund and shall not be included as Net Revenue of the System unless and until withdrawn from that fund as provided herein. The City may also deposit earnings from investments in the Rate Stabilization Fund into any System fund as authorized by ordinance, and such deposits shall be included as Net Revenue in the year of deposit. No deposit of Gross Revenue shall be made into the Rate Stabilization Fund to the extent that such deposit would prevent the City from meeting the Coverage Requirement in the relevant fiscal year. Section 10. Finding as to Sufficiency of Revenue. Pledge of Revenue and Lien Position. The City Council finds and determines that the Gross Revenue and benefits to be derived from the operation and maintenance of the System at the rates to be charged for services from the System will be more than sufficient to meet all Maintenance and Operation Expense and to permit the setting aside into the Bond Fund out of the Gross Revenue of amounts sufficient to pay the principal of and interest on the Outstanding Parity Bonds and the Bonds when due. The City Council declares that in fixing the amounts to be paid into the Bond Fund under this ordinance it has exercised due regard for Maintenance and Operation Expense and has not obligated the City to set aside and pay into the Bond Fund a greater amount of Gross Revenue of the System than in its judgment will be available over above such Maintenance and Operation Expense. 5055134),03 -18- The Net Revenue of the System and ULID Assessments are pledged to the payment of the Parity Bonds, and the Parity Bonds shall constitute a lien and charge upon such Net Revenue and ULID Assessments prior and superior to any other charges whatsoever. Section 11. Deposit of Bond Proceeds. The accrued interest, if any, received from the purchaser of the Bonds shall be deposited in the Principal and Interest Account of the Bond Fund and used to pay interest on the Bonds on their first interest payment date. Principal proceeds of the Bonds and premium, if any, received from the sale and delivery of the Bonds shall be deposited with the Refunding Trustee as set forth in Section 12 to carry out the Refunding Plan. Section 12. Refunding of the Refunded Bonds. (a) Appointment of Refunding Trustee. U.S. Bank National Association of Seattle, Washington, is appointed Refunding Trustee. (b) Use of Bond Proceeds; Acquisition of Acquired Obligations. All of the proceeds of the sale of the Bonds, exclusive of the accrued interest thereon which shall be paid into the Bond Fund, shall be deposited immediately upon the receipt thereof with the Refunding Trustee together with excess money on deposit in the Reserve Account in the amount of $168,808.28 and used to discharge the obligations of the City relating to the Refunded Bonds under Ordinance No. 4945 by providing for the payment of the amounts required to be paid by the Refunding Plan. To the extent practicable, such obligations shall be discharged fully by the Refunding Trustee's simultaneous purchase of the Acquired Obligations, bearing such interest and maturing as to principal and interest in such amounts and at such times so as to provide, together with a beginning cash balance, if necessary, for the payment of the amount required to be paid by the Refunding Plan. The Acquired Obligations are listed and more particularly described in Exhibit A attached to the Refunding Trust Agreement, but are subject to substitution 5055134]03 -19- as set forth below. Any Bond proceeds or other money deposited with the Refunding Trustee not needed to carry out the Refunding Plan shall be returned to the City at the time of delivery of the Bonds to the initial purchaser thereof and deposited in the Principal and Interest Account to pay interest on the Bonds on the first interest payment date. (c) Substitution of Acquired Obligations. Prior to the purchase of any Acquired Obligations by the Refunding Trustee, the City reserves the right to substitute other direct, noncallable obligations of the United States of America ("Substitute Obligations") for any of the Acquired Obligations and to use any savings created thereby for any lawful City purpose if, (a) in the opinion of Foster Pepper & Shefelman PLLC, the City's bond counsel, the interest on the Bonds and the Refunded Bonds will remain excluded from gross income for federal income tax purposes under Sections 103, 148, and 149( d) of the Code, and (b) such substitution shall not impair the timely payment of the amounts required to be paid by the Refunding Plan, as verified by a nationally recognized independent certified public accounting finn. After the purchase of the Acquired Obligations by the Refunding Trustee, the City reserves the right to substitute therefor cash or Substitute Obligations subject to the conditions that such money or securities held by the Refunding Trustee shall be sufficient to carry out the Refunding Plan, that such substitution will not cause the Bonds or the Refunded Bonds to be arbitrage bonds within the meaning of Section 148 of the Code and regulations thereunder in effect on the date of such substitution and applicable to obligations issued on the issue dates of the Bonds and the Refunded Bonds, as applicable, and that the City obtain, at its expense: (1) a verification by a nationally recognized independent certified public accounting firm acceptable to the Refunding Trustee confinning that the payments of principal of and interest on the substitute securities, if paid when due, and any other money held by the Refunding Trustee will 50551341.03 -20- be sufficient to carry out the Refunding Plan; and (2) an opinion from Foster Pepper & Shefelman PLLC, bond counsel to the City, its successor, or other nationally recognized bond counsel to the City, to the effect that the disposition and substitution or purchase of such securities, under the statutes, rules, and regulations then in force and applicable to the Bonds, will not cause the interest on the Bonds or the Refunded Bonds to be included in gross income for federal income tax purposes and that such disposition and substitution or purchase is in compliance with the statutes and regulations applicable to the Bonds. Any surplus money resulting from the sale, transfer, other disposition, or redemption ofthe Acquired .obligations and the substitutions therefor shall be released from the trust estate and transferred to the City to be used for any lawful City purpose. (d) Administration of Refunding Plan. The Refunding Trustee is authorized and directed to purchase the Acquired Obligations (or substitute obligations) and to make the payments required to be made by the Refunding Plan from the Acquired Obligations (or substitute obligations) and money deposited with the Refunding Trustee pursuant to this ordinance. All Acquired Obligations (or substitute obligations) and the money deposited with the Refunding Trustee and any income therefrom shall be held irrevocably, invested and applied in accordance with the provisions of Ordinance No. 4945, this ordinance, chapter 39.53 RCW and other applicable statutes of the State of Washington and the Refunding Trust Agreement. All necessary and proper fees, compensation, and expenses of the Refunding Trustee for the Bonds and all other costs incidental to the setting up of the escrow to accomplish the refunding of the Refunded Bonds and costs related to the issuance and delivery of the Bonds, including bond printing, verification fees, bond insurance premium, bond counsel's fees, and other related expenses, shall be paid out of the proceeds of the Bonds. 5055134].03 -21- (e) Authorization for Refunding Trust Ag.reement. To carry out the Refunding Plan provided for by this ordinance, the Mayor or the Finance Director of the City is authorized and directed to execute and deliver to the Refunding Trustee a Refunding Trust Agreement substantially in the form on file with the City Clerk and by this reference made a part hereof setting forth the duties, obligations and responsibilities of the Refunding Trustee in connection with the payment, redemption, and retirement of the Refunded Bonds as provided herein and stating that the provisions for payment of the fees, compensation, and expenses of such Refunding Trustee set forth therein are satisfactory to it. Prior to executing the Refunding Trust Agreement, the Mayor or Finance Director of the City is authorized to make such changes therein that do not change the substance and purpose thereof or that assure that the escrow provided therein and the Bonds are in compliance with the requirements of federal law governing the exclusion of interest on the Bonds from gross income for federal income tax purposes. Section 13. Call for Redemption of the Refunded Bonds. The City calls for redemption on November 1, 2007, all of the Refunded Bonds at par plus accrued interest. Such call for redemption shall be irrevocable after the delivery of the Bonds to the initial purchaser thereof. The date on which the Refunded Bonds are herein called for redemption is the first date on which those bonds may be called. The proper City officials are authorized and directed to give or cause to be given such notices as required, at the times and in the manner required, pursuant to Ordinance No. 4945 in order to effect the redemption prior to their maturity of the Refunded Bonds. Section 14. Citv Findings with Respect to Refunding. The City Council of the City finds and determines that the issuance and sale of the Bonds at this time will effect a savings to the City and is in the best interest of the City and its taxpayers and in the public interest. In making 50551341.03 -22- such finding and determination, the City Council has given consideration to the fixed maturities of the Bonds and the Refunded Bonds, the costs of issuance of the Bonds and the known earned income from the investment of the proceeds of the issuance and sale of the Bonds pending payment and redemption ofthe Refunded Bonds. The City Council further finds and detennines that the money to be deposited with the Refunding Trustee for the Refunded Bonds in accordance with Section 12 of this ordinance discharge and satisfy the obligations of the City under Ordinance No. 4945 with respect to the Refunded Bonds, and the pledges, charges, trusts, covenants, and agreements of the City therein made or provided for as to the Refunded Bonds, and that the Refunded Bonds shall no longer be deemed to be outstanding under such ordinance immediately upon the deposit of such money with the Refunding Trustee. Section 15. Covenants. The City covenants and agrees with the owner of each Bond at any time outstanding, as follows: (a) ULID Assessments. All ULID Assessments shall be paid into the Bond Fund and may be used to build up the required reserves in the Reserve Account and to pay the principal of and interest on the Parity Bonds, without those UUD Assessments' being particularly allocated to the payment of the principal of and interest on any particular issue of bonds. (b) Maintenance and Operation. It will at all times maintain, preserve and keep the properties of the System in good repair, working order and condition, will make all necessary and proper additions, bettennents, renewals and repairs thereto, and improvements, replacements and extensions thereof, and will at all times operate or cause to be operated the properties of the System and the business in connection therewith in an efficient manner and at a reasonable cost. (c) Establishment and Collection of Rates and Charges. It will establish, maintain and collect rates and charges for all services and facilities provided by the System which will be fair and nondiscriminatory, and will adjust those rates and charges from time to time so that: 50551341.03 -23- (1) The Gross Revenue of the System will at all times be sufficient to (i) pay all Maintenance and Operation Expense on a current basis, (ii) pay when due all amounts that the City is obligated to pay into the Bond Flmd and the accounts therein, (iii) 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 Revenue of the System by law or contract; (2) The Net Revenue of the System (together with any ULID Assessment collections) in each calendar year will be at least equal to the Coverage Requirement. To the extent allowable by law, those to which service of the System is available will be charged for that service at the prevailing rate within 30 days of the availability of that service. (d) Sale or Disposition of the Svstem. It will not sell or otherwise dispose of the System in its entirety unless, simultaneously with such sale or other disposition, all Parity Bonds are redeemed and retired, or defeased pursuant to the provisions of this ordinance. It will not sell, lease, mortgage or in any manner encumber or otherwise dispose of any part of the System, including all additions and improvements thereto and extensions thereof at any time made, that are used, useful or material in the operation of the System (each, as used in this subparagraph, a "transfer"), unless provision is made for the replacement thereof or for payment into the Bond Fund of the greatest of the following: (1) An amount which will be in the same proportion to the net amount of Parity Bonds then outstanding (defined as the total amount of those bonds less the amount of cash and investments in the Bond Fund and accounts therein) that the Gross Revenue of the System from the portion of the System sold or disposed of for the preceding year bears to the total Gross Revenue of the System for that period; or (2) An amount which will be in the same proportion to the net amount of Parity Bonds then outstanding (as defined above) that the Net Revenue from the portion of the System sold or disposed of for the preceding year bears to the total Net Revenue of the System for such period; or (3) An amount which will be in the same proportion to the net amount of Parity Bonds then outstanding (as defined above) that the cost of the assets sold or disposed of (less depreciation) bears to the cost of the 5055134103 -24- assets of the entire System (less depreciation) immediately prior to such sale or disposition. (4) An amount which will be in the same proportion to the net amount of Parity Bonds then outstanding (as defined above) that the number of customers served by the portion of the System sold or disposed bears to the number of customers served by the entire System prior to such sale or disposition. Before any such transfer under this subparagraph with respect to greater than 5% of the total assets of the System (measured by cost of the assets less depreciation), the City must obtain a certificate of an Independent Utility Consultant to the effect that in his or her professional opinion, upon such transfer of assets, the remaining System will retain its operational integrity and the Net Revenue of the System will be at least equal to the Coverage Requirement during the 5 fiscal years following the fiscal year in which the transfer is to occur, taking into account, (1) the reduction in revenue resulting from the transfer; (2) the use of any proceeds of the transfer for the redemption of Parity Bonds, (3) the Independent Utility Consultant's estimate of revenue from customers anticipated to be served by any additions to and betterments and extensions of the System financed in part by the proposed portion of the proceeds of the transfer. Notwithstanding any other provision of this subsection, (1) the City in its discretion may sell or otherwise dispose of any of the works, plant, properties or facilities of the System or any real or personal 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 to the operation of the System, without making any deposit into the Bond Fund, (2) the City may transfer the System to another municipal corporation so long as ULID Assessments and Net Revenue with respect to the portion of the System so transferred are used for payment of debt service on Parity Bonds prior to any other purpose, or (3) the City in its discretion may carry out such a transfer if the aggregate cost of the facilities, property or other assets (less depreciation) being transferred under this subparagraph comprises no more than 5% of the costs of all ofthe assets of the System (less depreciation). (e) Liens Upon the Svstem. It will not at any time create or pennit to accrue or to exist any lien or other encumbrance or indebtedness upon the Gross Revenue of the System, or any part thereof, prior or superior to the lien thereon for the payment of 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 Gross Revenue of the System, or any part thereof, prior to or superior to the lien of the Parity Bonds, or which might impair the security of the Parity Bonds. 50551341.03 -25- (f) Books and Accounts. It will keep proper books, records and accounts with respect to the operations, income and expenditures of the System in accordance with proper accounting procedures and any applicable rules and regulations prescribed by the State of Washington. It will prepare annual financial and operating statements within 270 days of the close of each fiscal year showing in reasonable detail the financial condition of the System as of the close of the previous year, and the income and expenses for such year, including the amounts paid into the Bond Fund and into any and all special funds or accounts created pursuant to the provisions of this ordinance, the status of all funds and accounts as of the end of such year, and the amounts expended for maintenance, renewals, replacements and capital additions to the System. Such statements shall be sent to the owner of any Parity Bonds upon written request therefor being made to the City. (g) No Free Service. Except to aid the poor or infirm, to provide for resource conservation or to provide for the proper handling of hazardous materials, it will not furnish or supply or permit the furnishing or supplying of any service or facility in connection with the operation of the System free of charge to any person, firm or corporation, public or private, other than the City, so long as any Parity Bonds are outstanding. (h) Collection of Delinquent Accounts. On at least an annual basis, it will detennine all accounts that are delinquent and will take all necessary action to enforce payment of such accounts against those property owners whose accounts are delinquent. (i) Fire and Extended Coverage Insurance. It will carry the types of insurance on its System properties in the amounts nonnally carried by private water, sewer and stonn drainage utility companies engaged in the operation of water, sewer and storm drainage systems, and the cost of such insurance shall be considered a part of Maintenance and operation Expense, or it will implement and maintain a self-insurance program or an insurance pool program with reserves adequate, in the reasonable judgment of the City, to protect the owners of the Parity Bonds against loss. OJ Condemnation Awards. Any condemnation awards received by the City in excess of 1% of cost of the assets of the System (less depreciation) shall be applied to one or more of the following: (1) to the damaged property, (2) to retiring bonds, and (3) to improvements of the System. Section 16. Flow of Funds. The Gross Revenue of the System shall be deposited in the System Funds and used for the following purposes only in the following order of priority: (a) To pay Maintenance and Operation Expense; 50551341.03 -26- (b) To pay, together with ULID Assessments, the principal of and interest on any Parity Bonds when due or as the principal is required to be paid and to make all payments required to be made into any mandatory redemption or sinking fund account created to provide for the payment of the principal of Tenn Bonds; (c) To make, together with ULID Assessments, all payments required to be made into the Reserve Account or its subaccounts and to make all payments required to be made pursuant to a reimbursement agreement in connection with an Alternate Security, except that if there is not sufficient money to make all payments under reimbursement agreements, the payments will be made on a pro rata basis; (d) To make all payments required to be made into any revenue bond, note, warrant or other revenue obligation redemption fund, debt service account or reserve account created to payor secure the payment of the principal of and interest on any revenue bonds, notes, warrants or other obligations of the City having a lien upon the revenue of the System subordinate to the lien thereon for the payment of the principal of and interest on any Parity Bonds; (e) To make necessary additions, bettennents and improvements and repairs to or extensions and replacements of the System, to retire by redemption or purchase in the open market any outstanding revenue obligations or other obligations of the System, to make deposits into the Rate Stabilization Fund, or to provide for any other lawful City purpose. The City may transfer any money from any funds or accounts of the System legally available therefor, except bond redemption funds, refunding escrow funds, defeasance or other trust funds, to meet the required payments to be made into the Bond Fund. Section 17. Provisions for Future Parity Bonds. The City reserves the right to issue Future Parity Bonds if the following conditions are met and complied with at the time of the issuance of those Future Parity Bonds: (a) There shall be no deficiency in the Bond Fund. (b) The ordinance providing for the issuance of the Future Parity Bonds shall provide that all assessments and interest thereon that may be levied in any ULID created for the purpose of paying, in whole or in part, the principal of and interest on those Future Parity Bonds, shall be paid directly into the Bond Fund, except for any prepaid assessments pennitted by law to be paid into a construction fund or account. 5055]341.03 -27- (c) The ordinance providing for the issuance of those Future Parity Bonds shall provide for the payment of the principal thereof and interest thereon out of the Bond Fund. (d) The ordinance providing for the issuance of such Future Parity Bonds shall provide for the deposit into the Reserve Account or a subaccount therein of (i) an amount equal to the Reserve Requirement for those Future Parity Bonds from the Future Parity Bond proceeds or other money legally available, or (ii) Alternate Security or an amount plus Alternate Security equal to the Reserve Requirement for those Future Parity Bonds, or (iii) to the extent that the Reserve Requirement is not funded from Future Parity Bond proceeds, other legally available money or Alternate Security at the time of issuance of those Future Parity Bonds, within five years from the date of issue of the Future Parity Bonds from UUD Assessments, if any, levied and first collected for the payment of the principal of and interest on those Future Parity Bonds and, to the extent that ULID Assessments are insufficient, then from the Net Revenue of the System in five approximately equal annual payments. No Alternate Security may be used to satisfy the Reserve Requirement for Future Parity Bonds unless (i) the Alternate Security is non-cancelable and (ii) the insurer or provider of the Alternate Security as of the time of issuance of such Alternate Security is rated in the highest two rating categories by both Moody's Investors Service, Inc., and Standard & Poor's. (e) The ordinance authorizing the issuance of such Future Parity Bonds shall provide for the payment of mandatory redemption or sinking fund requirements into the Bond Fund for any Term Bonds to be issued and for regular payments to be made for the payment of the principal of such Term Bonds on or before their maturity, or, as an alternative, the mandatory redemption of those Term Bonds prior and up to their maturity date from money in the Principal and Interest Account. (f) There shall be on file from an Independent Utility Consultant, a certificate showing that in his or her professional opinion, based on any 12 consecutive calendar months out of the immediately preceding 24 calendar months, the Net Revenue of the System (together with any ULID Assessment collections) shall be equal to the Coverage Requirement for each year thereafter. The certificate, in estimating the Net Revenue of the System available for debt service, may adjust Net Revenue of the System to reflect: (1) Any changes in rates in effect and being charged or expressly committed by ordinance to be made in the future; (2) Income derived from customers of the System who have become customers during the 12 consecutive month period or thereafter adjusted to reflect one year's net revenue from those customers; 5055134103 -28- (3) Income from any customers to be connected to the System who have paid the required connection charges; (4) The Independent Utility Consultant's estimate of the Net Revenue of the System to be derived from customers anticipated to connect for whom new building pennits have been issued; (5) The Independent Utility Consultant's estimate of the Net Revenue of the System to be derived from customers with existing homes or buildings which will be required to connect to any additions to and improvements and extensions of the System constructed and to be paid for out of the proceeds of the sale of the additional Future Parity Bonds or other additions to and improvements and extensions of the System then under construction and not fully connected to the facilities of the System when such additions, improvements and extensions are completed; and (6) Income received or to be received which is derived from any person, finn, corporation or municipal corporation under any executed contract for utility service, which revenue was not included in the historical Net Revenue ofthe System; (7) Any increases or decreases in Net Revenue as a result of any actual or reasonably anticipated changes in Maintenance and Operation Expense subsequent to the 12-month period. In lieu of the certificate of an Independent Utility Consultant as described in this paragraph (f), there may be on file from the City Finance Director, a certificate showing that in his or her professional opinion, based on any 12 consecutive calendar months out of the immediately preceding 24 calendar months, and without the adjustments described in subparagraphs (1) through (7), above, the Net Revenue of the System shall be equal to the Coverage Requirement for each year thereafter. No certificate provided for in this paragraph (f) shall be required in connection with the issuance of a bond issue if the amount of bonds proposed to be issued does not exceed the ULID Assessments levied in support of such bond issue by more than $5,000 plus any amount of the proceeds of such bonds deposited in the Reserve Account as capitalized reserve. Furthermore, if the Future Parity Bonds proposed to be so issued are for the sole purpose of refunding outstanding bonds payable from the Bond Fund, no such certification of coverage shall be required if the Annual Debt Service in each year for the refunding bonds is not increased by $5,000 over the amount required for the bonds to be refunded thereby and the maturities of those refunding bonds are not extended beyond the maturities of the bonds to be refunded thereby. 50551341.03 -29- Nothing contained herein shall prevent the City from issuing Future Parity Bonds to refund maturing Parity Bonds then outstanding, money for the payment of which is not otherwise available. Nothing contained herein shall prevent the City from issuing revenue bonds or other obligations that are a charge upon the Gross Revenue of the System subordinate to the payments required to be made therefrom into the Bond Fund for the payment of any Parity Bonds or from pledging the payment of utility local improvement district assessments into a bond redemption fund created for the payment of the principal of and interest on those subordinate bonds or obligations as long as such utility local improvement district assessments are levied for improvements constructed from the proceeds of those junior lien bonds. Section 18. Separate Utilitv Svstems. The City may create, acquire, construct, finance, own and operate one or more additional systems for water supply, sewer service, water, sewage or storm water transmission, treatment or other commodity or service. The revenue of that separate utility system shall not be included in the Gross Revenue of the System and may be pledged to the payment of revenue obligations issued to purchase, construct, condemn or otherwise acquire or expand the separate utility system. Neither the Gross Revenue nor the Net Revenue of the System shall be pledged by the City to the payment of any obligations of a separate utility system except (1) as a Contract Resource Obligation upon compliance with Section 19 hereof and/or (2), with respect to the Net Revenue, on a basis subordinate to the lien of the Parity Bonds on that Net Revenue. Section 19. Contract Resource Obligations. The City may at any time enter into one or more contracts or other obligations for the acquisition (from facilities yet to be constructed) of water supply, sewer service, water sewer or storm water transmission, treatment or other 5055134103 -30- commodity or service relating to the System. The City may determine that such contract or other obligation is a Contract Resource Obligation, and may provide that all payments under that Contract Resource Obligation (including payments prior to the time that water supply, transmission, treatment or other commodity or service is being provided, or during a suspension or after termination of supply or service) shall be Maintenance and Operation Expense if the following requirements are met at the time such Contract Resource Obligation is entered into: (a) No Event of Default as defined in Section 29 of this ordinance has occurred and is continuing. (b) There shall be on file a certificate of an Independent Utility Consultant stating that (i) the payments to be made by the City in connection with the Contract Resource Obligation are reasonable for the supply, transmission, treatment or other service rendered; (ii) the source of any new supply, and any facilities to be constructed to provide the supply, transmission, treatment or other service, are sound from a water, sewerage, or other commodity supply or transmission planning standpoint, are technically and economically feasible in accordance with prudent utility practice, and are likely to provide supply or transmission or other service no later than a date set forth in the Independent utility Consultant's certification; and (iii) the Net Revenue (further adjusted by the Independent utility Consultant's estimate of the payments to be made in accordance with the Contract Resource Obligation) for the five fiscal years following the year in which the Contract Resource Obligation is incurred, as such Net Revenue is estimated by the Independent Utility Consultant (with such estimate based on such factors as he or she considers reasonable) , will be at least equal to the Coverage Requirement. Payments required to be made under Contract Resource Obligations shall not be subject to acceleration. Nothing in this Section 19 shall be deemed to prevent the City from entering into other agreements for the acquisition of water supply, sewer service, water, sewage or storm water transmission, treatment or other commodity or service from existing facilities and from treating those payments as Maintenance and Operation Expense. Nothing in this Section 19 shall be deemed to prevent the City from entering into other agreements for the acquisition of water 50551341.03 -31- supply, transmission, treatment or other commodity or service from facilities to be constructed and from agreeing to make payments with respect thereto, such payments constituting a lien and charge on Net Revenue subordinate to that of the Outstanding Parity Bonds, the Bonds and any Future Parity Bonds. Section 20. Fonn and Execution of Bonds. The Bonds shall be prepared in a fonn consistent with the provisions of this ordinance and state law and shall be signed by the Mayor and City Clerk, either or both of whose signatures may be manual or in facsimile, and the sea] of the City or a facsimile reproduction thereof shall be impressed or printed thereon. Only Bonds bearing a Certificate of Authentication in the following form, manually signed by the Bond Registrar, shall be valid or obligatory for any purpose or entitled to the benefits of this ordinance: CERTIFICATE OF AUTHENTICATION This Bond is one of the fully registered City of Auburn, Washington, Utility System Revenue Refunding Bonds, 2005, described in the Bond Ordinance. WASHINGTON STATE FISCAL AGENT Bond Registrar By Authorized Signer The authorized signing of a Certificate of Authentication shall be conclusive evidence that the Bond so authenticated has been duly executed, authenticated and delivered and is entitled to the benefits of this ordinance. If any officer whose facsimile signature appears on the Bonds ceases to be an officer of the City authorized to sign bonds before the Bonds bearing his or her facsimile signature are authenticated or delivered by the Bond Registrar or issued by the City, those Bonds nevertheless 50551341.03 -32- may be authenticated, issued and delivered and, when authenticated, issued and delivered, shaU be as binding on the City as though that person had continued to be an officer of the City authorized to sign bonds. Any Bond also may be signed on behalf of the City by any person who, on the actual date of signing of the Bond, is an officer of the City authorized to sign bonds, although he or she did not hold the required office on the date of issuance of the Bonds. Section 21. Bond Registrar. The Bond Registrar shall keep, or cause to be kept, sufficient books for the registration and transfer of the Bonds, which shall be open to inspection by the City at all times. The Bond Registrar is authorized, on behalf of the City, to authenticate and deliver Bonds transferred or exchanged in accordance with the provisions of the Bonds and this ordinance, to serve as the City's paying agent for the Bonds and to carry out all of the Bond Registrar's powers and duties under this ordinance and City Ordinance No. 3905 establishing a system ofregistration for the City's bonds and obligations. The Bond Registrar shall be responsible for its representations contained in the Bond Registrar's Certificate of Authentication on the Bonds. The Bond Registrar may become the owner of Bonds with the same rights it would have if it were not the Bond Registrar and, to the extent pennitted by law, may act as depository for and pennit 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 Bond owners. Section 22. Preservation of Tax Exemption for Interest on Bonds. The City covenants that it will take all actions necessary to prevent interest on the Bonds from being included in gross income for federal income tax purposes, and it will neither take any action nor make or permit any use of proceeds of the Bonds or other funds of the City treated as proceeds of the Bonds at any time during the term of the Bonds which will cause interest on the Bonds to be 5055]34103 -33- included in gross income for federal income tax purposes. The City certifies that it has not been notified of any listing or proposed listing by the Internal Revenue Service to the effect that it is a bond issuer whose arbitrage certifications may not be relied upon. Section 23. Small Governmental Issuer Arbitrage Rebate Exception and Designation of Bonds as "Oualified Tax-Exempt Obligations." The City finds and declares that (a) it is a duly organized and existing governmental unit of the State of Washington and has general taxing power; (b) no Bond which is part of this issue of Bonds is a "private activity bond" within the meaning of Section 141 of the Code; (c) at least 95% of the net proceeds of the Bonds will be used for local governmental activities of the City (or of a governmental unit the jurisdiction of which is entirely within the jurisdiction of the City); (d) the aggregate face amount of all tax- exempt obligations (other than private activity bonds and other obligations not required to be included in such calculation) issued by the City and all entities subordinate to the City (including any entity that the City controls, that derives its authority to issue tax-exempt obligations from the City, or that issues tax-exempt obligations on behalf of the City) during the calendar year in which the Bonds are issued is not reasonably expected to exceed $5,000,000; and (e) the amount of tax-exempt obligations, including the Bonds, designated by the City as "qualified tax-exempt obligations" for the purposes of Section 265(b )(3) of the Code during the calendar year in which the Bonds are issued does not exceed $10,000,000. The City therefore certifies that the Bonds are eligible for the arbitrage rebate exception under Section 148(f)(4)(D) of the Code and designates the Bonds as "qualified tax-exempt obligations" for the purposes of Section 265(b)(3) of the Code. Section 24. Refunding or Defeasance of the Bonds. The City may issue refunding bonds pursuant to the laws of the State of Washington or use money available from any other lawful 50551341.03 -34- source to pay when due the principal of and interest on the Bonds, or any portion thereof included in a refunding or defeasance plan, and to redeem and retire, refund or defease aU such then-outstanding Bonds (hereinafter collectively called the "defeased Bonds") and to pay the costs of the refunding or defeasance. If money and/or Government Obligations maturing at a time or times and bearing interest in amounts (together with money, if necessary) sufficient to redeem and retire, refund or defease the defeased Bonds in accordance with their terms are set aside in a special trust fund or escrow account irrevocably pledged to that redemption, retirement or defeasance of defeased Bonds (hereinafter called the "trust account"), then all right and interest of the owners of the defeased Bonds in the covenants of this ordinance and in the funds and accounts obligated to the payment of the defeased Bonds shall cease and become void. The owners of defeased Bonds shall have the right to receive payment of the principal of and interest on the defeased 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 Bonds that constitute less than all of a particular maturity of the Bonds, for notice of the defeasance to be given to the owners of the defeased Bonds and to such other persons as the City shall determine, and for any required replacement of Bond certificates for defeased Bonds. The defeased 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 Bonds to any lawful purposes as it shall determine, subject only to the rights of the registered owners of any other Parity Bonds then outstanding. If the refunding plan provides that the defeased Bonds or the refunding bonds to be issued be secured by cash and/or Government Obligations pending the prior redemption of those Bonds being refunded and if such refunding plan also provides that certain cash and/or 5055134103 -35- Government Obligations are irrevocably pledged for the prior redemption of the defeased Bonds, then only the debt service on the Bonds which are not defeased Bonds and the refunding bonds, the payment of which is not so secured by the refunding plan, shall be included in the computation of the Coverage Requirement for the issuance of Future Parity Bonds and the annual computation of coverage for determining compliance with the rate covenants. If the Bonds are registered in the name of DTC or its nominee, notice of any defeasance of Bonds shall be given to DTC in the marmer prescribed in the Letter of Representations for notices of redemption of Bonds. Notwithstanding anything in this section to the contrary, if the principal of and/or interest due on the Bonds is paid by the Bond Insurer pursuant to the Municipal Bond Insurance Policy, the Bonds shall be treated as remaining outstanding for all purposes and shall not be considered paid by the City, and the covenants, agreements and other obligations of the City to the registered owners of the Bonds shall continue to exist and run to the benefit of the Bond Insurer, and the Bond Insurer shall be subrogated to the rights of the registered owners. Section 25. Approval of Bond Purchase Contract. Seattle-Northwest Securities Corporation of Seattle, Washington, has presented a purchase contract (the "Bond Purchase Contract") to the City offering to purchase the Bonds under the tenns and conditions provided in the Bond Purchase Contract, which written Bond Purchase Contract is on file with the City Clerk and is incorporated herein by this reference. The City Council finds that entering into the Bond Purchase Contract is in the City's best interest and therefore accepts the offer contained therein and authorizes its execution by City officials. 5055]341.0) -36- The Bonds will be printed at City expense and will be delivered to the purchaser in accordance with the Bond Purchase Contract, with the approving legal opinion of Foster Pepper & Shefelman PLLC, municipal bond counsel of Seattle, Washington, regarding the Bonds. The proper City officials are authorized and directed to do everything necessary for the prompt delivery of the Bonds to the purchaser and for the proper application and use of the proceeds of the sale thereof. Section 26. Preliminarv Official Statement Deemed Final. The City Council has been provided with copies of a preliminary official statement dated July 22, 2005 (the "Preliminary Official Statement"), prepared in connection with the sale of the Bonds. For the sole purpose of the Bond purchaser's compliance with SEC Rule 15c2-12(b)(1), the City "deems final" that Preliminary Official Statement as of its date, except for the omission of information as to offering prices, interest rates, selling compensation, aggregate principal amount, principal amount per maturity, maturity dates, options of redemption, delivery dates, ratings and other terms of the Bonds dependent on such matters. Section 27. Undertaking to Provide Continuing Disclosure. To meet the requirements of SEC Rule 15c2-12(b)(5) (the "Rule"), as applicable to a participating underwriter for the Bonds, the City makes the following written undertaking (the "Undertaking") for the benefit of holders of the Bonds. (a) Undertaking to Provide Annual Financial Infonnation and Notice of Material Events. The City undertakes to provide or cause to be provided, either directly or through a designated agent: (i) To each NRMSIR and to a state information depository, if any, established in the state of Washington (the "SID") annual financial infonnation and operating data of the type included in the final official statement for the Bonds and described in subsection (b) of this section ("annual financial information"); SOSSJ34103 -37- (ii) To each NRMSIR or the MSRB, and to the SID, timely notice of the occurrence of any of the following events with respect to the Bonds, if material: (1) principal and interest payment delinquencies; (2) non-payment related defaults; (3) unscheduled draws on debt service reserves reflecting financial difficulties; (4) unscheduled draws on credit enhancements reflecting financial difficulties; (5) substitution of credit or liquidity providers, or their failure to perform; (6) adverse tax opinions or events affecting the tax-exempt status of the Bonds; (7) modifications to rights of holders of the Bonds; (8) Bond calls (other than scheduled mandatory redemptions of Term Bonds); (9) defeasances; (10) release, substitution, or sale of property securing repayment of the Bonds; and (11) rating changes; and (iii) To each NRMSIR or to the MSRB, and to the SID, 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 infonnation that the City undertakes to provide in subsection (a) of this section: (i) Shall consist of (1) annual financial statements prepared (except as noted in the financial statements) in accordance with applicable generally accepted accounting principles promulgated by the Government Accounting Standards Board ("GASB"), as such principles may be changed from time to time, consistent with the requirements or guidelines of the Washington State Auditor, which statements shall not be audited, except, however, that if and when audited financial statements are otherwise prepared and available to the City, they will be provided (2) a statement of authorized, issued and outstanding bonded debt secured by Net Revenue of the System and ULID Assessments; (3) debt service coverage ratios; and (4) general customer statistics for the System; (ii) Shall be provided to each NRMSIR and the SID, 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 pennitted by State law, commencing with the City's fiscal year ending December 31, 2005; and (iii) May be provided in a single or multiple documents, and may be incorporated by reference to other documents that have been filed with each NRMSIR and the SID, or, if the document incorporated by reference is a "final official statement" with respect to other obligations of the City, that has been filed with the MSRB. 50551341.03 -38- (c) Amendment of Undertaking. The Undertaking is subject to amendment after the primary offering of the Bonds without the consent of any holder of any Bond, or of any broker, dealer, municipal securities dealer, participating underwriter, rating agency, NRMSIR, the SID or the MSRB, under the circumstances and in the manner permitted by the Rule. The City will give notice to each NRMSIR or the MSRB, and the SID, 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 infonnation to be provided, the annual financial infonnation containing the amended financial information will include a narrative explanation of the effect of that change on the type ofinfonnation to be provided. (d) Beneficiaries. The Undertaking evidenced by this section shall inure to the benefit of the City and any holder of 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 tenninate upon the legal defeasance of all of the Bonds. In addition, the City's obligations under this Undertaking shall tenninate if those provisions of the Rule which require the City to comply with this Undertaking become legally inapplicable in respect of the Bonds for any reason, as confinned by an opinion of nationally recognized bond counselor other counsel familiar with federal securities laws delivered to the City, and the City provides timely notice of such termination to each NRMSIR or the MSRB and the SID. (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 Bonds. The sole remedy of any holder of a Bond shall be to take such actions as that holder 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 Undertaking. (g) Designation of Official Responsible to Administer Undertaking. The Finance Director of the City (or such other officer of the City who may in the future perfonn the duties of the Finance Director) 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 Bonds set forth in this section and in accordance with the Rule, including, without limitation, the following actions: (i) Preparing and filing the armual financial infonnation undertaken to be provided; 50551341.03 -39- (ii) Detennining whether any event specified in subsection (a) has occurred, assessing its materiality with respect to the Bonds, and, if material, preparing and disseminating notice of its occurrence; (iii) Detennining whether any person other than the City is an "obligated person" within the meaning of the Rule with respect to the Bonds, and obtaining from such person an undertaking to provide any annual financial infonnation and notice of material events for that person in accordance with the Rule; (iv) 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 (v) Effecting any necessary amendment of the Undertaking. (h) Centralized Dissemination Agent. To the extent authorized by the SEC, the City may satisfy the Undertaking by transmitting the required filings using http://www.disclosureusa.org (or such other centralized dissemination agent as may be approved by the SEC). Section 28. Amendatorv and Supplemental Ordinance. (a) This ordinance shall not be modified or amended in any respect subsequent to the initial issuance of the Bonds, except as provided in and in accordance with and subject to the provisions of this section. (b) The City, from time to time, and at any time, without the consent of or notice to the registered owners of the Bonds, may pass supplemental or amendatory ordinances as follows: (1) To cure any formal defect, omission, inconsistency or ambiguity in this ordinance in a manner not adverse to the owner of any Parity Bond; (2) To impose upon the Bond Registrar (with its consent) for the benefit of the registered owners of the Bonds any additional rights, remedies, powers, authority, security, liabilities or duties which may lawfully be granted, conferred or imposed and which are not contrary to or inconsistent with this ordinance as theretofore in effect; 5055134103 -40- (3) To add to the covenants and agreements of, and limitations and restrictions upon, the City in this ordinance, other covenants, agreements, limitations and restrictions to be observed by the City which are not contrary or inconsistent with this ordinance as theretofore in effect; (4) To confirm, as further assurance, any pledge under, and the subj ection to any claim, lien or pledge created or to be created by this ordinance of any other money, securities or funds; (5) To authorize different denominations of the Bonds and to make correlative amendments and modifications to this ordinance regarding exchangeability of Bonds of different authorized denominations, redemptions of portions of Bonds of particular authorized denominations and similar amendments and modifications of a technical nature; (6) To modify, alter, amend or supplement this ordinance in any other respect which is not materially adverse to the registered owners of Parity Bonds and which does not involve a change described in paragraph (c) of this Section 28; (7) Because of change in federal law or rulings, to maintain the exclusion from gross income of the interest on the Bonds from federal income taxation; and (8) To add to the covenants and agreements of, and limitations and restrictions upon, the City in this ordinance, other covenants, agreements, limitations and restrictions to be observed by the City which are requested by a bond insurer or provider of Reserve Insurance and which are not materially adverse to the registered owners of Parity Bonds. Before the City shall pass any such supplemental ordinance pursuant to this subsection, there shall have been delivered to the City and the Bond Registrar an opinion of Bond Counsel, stating that such supplemental ordinance is authorized or pennitted by this ordinance and, upon 50551341.03 -41- the execution and delivery thereof, will be valid and binding upon the City in accordance with its terms and will not adversely affect the exclusion from gross income for federal income tax purposes of interest on the Bonds. (c) (1) Except for any supplemental ordinance entered into pursuant to paragraph (b) of this Section 28, subject to the tenns and provisions contained in this paragraph (c) and not otherwise, registered owners of not less than 60% in aggregate principal amount of the Parity Bonds shall have the right from time to time to consent to and approve the adoption by the City of any supplemental ordinance deemed necessary or desirable by the City for the purpose of modifying, altering, amending, supplementing or rescinding, in any particular, any of the terms or provisions contained in this ordinance; except that, unless approved in writing by the registered owners of all Parity Bonds, nothing contained in this section shall pennit, or be construed as pennitting: (i) A change in the times, amounts or currency of payment of the principal of or interest on any outstanding Parity Bond or a reduction in the principal amount or redemption price of any outstanding Parity Bond or a change in the redemption price of any outstanding Parity Bond or a change in the method of detennining the rate of interest thereon, or (ii) A preference of priority of any Parity Bonds or any other bond or bonds, or (iii) A reduction in the aggregate principal amount of any Parity Bond. (2) If at any time the City shall pass any supplemental ordinance for any of the purposes of this subsection (c), the Bond Registrar shall cause notice of the proposed supplemental ordinance to be given by first-class United States mail to all registered owners of any Parity Bonds, to any bond insurer, and to the Rating Agencies if the Parity Bonds are rated by those agencies. Such notice shall briefly set forth the nature of the proposed supplemental 505513410] -42- ordinance and shaU state that a copy thereof is on file at the office of the Bond Registrar for inspection by all registered owners of the Parity Bonds. (3) Within two years after the date of the mailing of such notice, the City may pass such supplemental ordinance in substantially the form described in such notice, but only if there shall have first been delivered to the Bond Registrar (i) the required consents, in writing, of the registered owners of the Parity Bonds, and (ii) an opinion of Bond Counsel stating that such supplemental ordinance is authorized or pennitted by this ordinance and, upon the execution and delivery thereof, will be valid and binding upon the City in accordance with its tenns and will not adversely affect the exclusion from gross income for federal income tax purposes of interest on the Parity Bonds. (4) If registered owners of not less than the percentage of Parity Bonds required by this paragraph (c) shall have consented to and approved the execution and delivery thereof as herein provided, no owner of the Parity Bonds shall have any right to object to the passage of such supplemental ordinance, or to object to any of the terms and provisions contained therein or the operation thereof, or in any manner to question the propriety of the passage thereof, or to enjoin or restrain the City or the Bond Registrar from passing the same or from taking any action pursuant to the provisions thereof. (d) Upon the execution and delivery of any supplemental ordinance pursuant to the provisions of this Section 28, this ordinance shall be, and be deemed to be, modified and amended in accordance therewith, and the respective rights, duties and obligations under this ordinance of the City, the Bond Registrar and all registered owners of Parity Bonds, shall thereafter be determined, exercised and enforced under this ordinance subject in all respects to such modifications and amendments. 5055]341.03 -43- Section 29. Defaults and Remedies. (a) Events of Default. The following shall constitute "Events of Default" with respect to the Bonds: (I) If a default is made in the payment of the principal of or interest on any of the Bonds when the same shall become due and payable; or (2) If the City defaults in the observance and perfonnance of any other of the covenants, conditions and agreements on the part of the City set forth in this ordinance or any covenants, conditions or agreements on the part of the City contained in any Parity Bond authorizing ordinance and such default or defaults have continued for a period of six months after they have received from the Bondowners' Trustee (as defined below) or from the registered owners of not less than 25% in principal amount of the Parity Bonds, a written notice specifying and demanding the cure of such default. However, if the default in the observance and performance of any other of the covenants, conditions and agreements is one which cannot be completely remedied within the six months after written notice has been given, it shall not be an Event of Default with respect to the Bonds as long as the City has taken active steps within 90 days after written notice has been given to remedy the default and is diligently pursuing such remedy. (3) If the City files a petition in bankruptcy or is placed in receivership under any state or federal bankruptcy or insolvency law. (b) Bondowners' Trustee. So long as such Event of Default has not been remedied, a bondovmers' trustee (the "Bondowners' Trustee") may be appointed by the registered owners of 25% in principal amount of the Parity Bonds or by the Bond Insurer, by an instrument or concurrent instruments in writing signed and acknowledged by such registered 5055134103 -44- owners of the Parity Bonds or Bond Insurer or by their attorneys-in-fact duly authorized and delivered to such Bondo\vners' Trustee, notification thereof being given to the City. That appointment shall become effective immediately upon acceptance thereof by the Bondowners' Trustee. Any Bondowners' Trustee appointed under the provisions ofthis Subsection 29(b) shall be a bank or trust company organized under the laws of the State of Washington or the State of New York or a national banking association. The bank or trust company acting as Bondowners' Trustee may be removed at any time, and a successor Bondowners' Trustee may be appointed, by the registered owners of a majority in principal amount of the Parity Bonds or by the Bond Insurer, by an instrument or concurrent instruments in writing signed and acknowledged by such registered owners of the Bonds or by their attorneys-in-fact duly authorized. The Bondowners' Trustee may require such security and indemnity as may be reasonable against the costs, expenses and liabilities that may be incurred in the perfonnance of its duties. In the event that any Event of Default in the sole judgment of the Bondowners' Trustee is cured and the Bondowners' Trustee furnishes to the City a certificate so stating, that Event of Default shall be conclusively deemed to be cured and the City, the Bondowners' Trustee and the registered owners of the Parity Bonds shall be restored to the same rights and position which they would have held if no Event of Default had occurred. The Bondowners' Trustee appointed in the manner herein provided, and each successor thereto, is declared to be a trustee for the registered owners of all the Parity Bonds and is empowered to exercise all the rights and powers herein conferred on the Bondowners' Trustee. (c) Suits at Law or in Equitv. Upon the happening of an Event of Default and during the continuance thereof, the Bondowners' Trustee may, and upon the written request of the registered owners of not less than 25% in principal amount of the Parity Bonds outstanding 5055134103 -45- or by the Bond Insurer shall, take such steps and institute such suits, actions or other proceedings, all as it may deem appropriate for the protection and enforcement of the rights of the registered owners of the Parity Bonds, to collect any amounts due and owing to or from the City, or to obtain other appropriate relief, and may enforce the specific perfonnance of any covenant, agreement or condition contained in this ordinance or in any of the Parity Bonds. Nothing contained in this Section 29 shall, in any event or under any circumstance, be deemed to authorize the acceleration of maturity of principal on the Parity Bonds, and the remedy of acceleration is expressly denied to the registered owners of the Parity Bonds or the Bond Insurer under any circumstances including, without limitation, upon the occurrence and continuance of an Event of Default. Any action, suit or other proceedings instituted by the Bondowners' Trustee hereunder shall be brought in its name as trustee for the Bondowners and all such rights of action upon or under any of the Parity Bonds or the provisions of this ordinance may be enforced by the Bondowners' Trustee without the possession of any of those Parity Bonds and without the production of the same at any trial or proceedings relative thereto except where otherwise required by law. Any such suit, action or proceeding instituted by the Bondowners' Trustee shall be brought for the ratable benefit of all of the registered owners of those Parity Bonds and/or for the benefit of the Bond Insurer, subject to the provisions of this ordinance. The respective registered owners of the Parity Bonds and the Bond Insurer, by taking and holding the same, shall be conclusively deemed irrevocably to appoint the Bondowners' Trustee the true and lawful trustee of the respective registered owners of those Parity Bonds, with authority to institute any such action, suit or proceeding; to receive as trustee and deposit in trust any sums becoming distributable on account of those Parity Bonds; to execute any paper or documents for the receipt 50551341.03 -46- of money; and to do all acts with respect thereto that the registered owner himself or herself might have done in person. Nothing herein shall be deemed to authorize or empower the Bondowners' Trustee to consent to accept or adopt, on behalf of any registered owner of the Parity Bonds, any plan ofreorganization or adjustment affecting the Parity Bonds or any right of any registered owner thereof, or to authorize or empower the Bondowners' Trustee to vote the claims of the registered owners thereof in any receivership, insolvency, liquidation, bankruptcy, reorganization or other proceeding to which the City is a party. (d) Application of Monev Collected bv Bondowners' Trustee. Any money collected by the Bondowners' Trustee at any time pursuant to this Section 29 shall be applied in the following order of priority: (i) first, to the payment of the charges, expenses, advances and compensation of the Bondowners' Trustee and the charges, expenses, counsel fees, disbursements and compensation of its agents and attorneys; (ii) second, to the payment to the persons entitled thereto of all installments of interest then due on the Parity Bonds in the order of maturity of such installments and, if the amount available shall not be sufficient to pay in full any installment or installments maturing on the same date, then to the payment thereof ratably, according to the amounts due thereon to the persons entitled thereto, without any discrimination or preference; and (iii) third, to the payment to the persons entitled thereto of the unpaid principal amounts of any Parity Bonds which shall have become due (other than Parity Bonds previously called for redemption for the payment of which money is held pursuant to the provisions hereto), whether at maturity or by proceedings for redemption or otherwise, in the order of their due dates and, if the amount available shall not be sufficient to pay in full the principal amounts due on the same date, then to the payment thereofratably, according to the principal amounts due thereon to the persons entitled thereto, without any discrimination or preference. 5055134].03 -47- For purposes of payments under this subsection 29(d) the Bond Insurer shaU be treated as a registered owner with respect to the Bonds upon which it has paid interest and/or principal, and shall receive payments ratably from the Trustee. (e) Duties and Obligations of Bondowners' Trustee. The Bondowners' Trustee shall not be liable except for the performance of such duties as are specifically set forth herein. During an Event of Default, the Bondowners' Trustee shall exercise such of the rights and powers vested in it hereby, and shall use the same degree of care and skill in its exercise, as a prudent person would exercise or use under the circumstances in the conduct of his or her own affairs. The Bondowners' Trustee shall have no liability for any act or omission to act hereunder except for the Bondowners' Trustee's own negligent action, its own negligent failure to act or its own willful misconduct. The duties and obligations of the Bondowners' Trustee shall be determined solely by the express provisions of this ordinance, and no implied powers, duties or obligations of the Bondowners' Trustee shall be read into this ordinance. The Bondowners' Trustee shall not be required to expend or risk its own funds or otherwise incur individua11iability in the performance of any of its duties or in the exercise of any of its rights or powers as the Bondowners' Trustee, except as may result from its own negligent action, its own negligent failure to act or its own willful misconduct. The Bondowners' Trustee shall not be bound to recognize any person as a registered O\vner of any Bond until his or her title thereto, if disputed, has been established to its reasonable satisfaction. The Bondowners' Trustee may consult with counsel and the opinion of such counsel shall be full and complete authorization and protection in respect of any action taken or suffered by it hereunder in good faith and in accordance with the opinion of such counsel. The Bondowners' 5055134103 -48- Trustee shaU not be answerable for any neglect or default of any person, finn or corporation employed and selected by it with reasonable care. (f) Suits bv Individual Bondowners Restricted. Neither the registered owner nor the beneficial owner of anyone or more of Parity Bonds, nor the Bond Insurer, shall have any right to institute any action, suit or proceeding at law or in equity for the enforcement of same unless: (i) an Event of Default has happened and is continuing; and (ii) a Bondowners' Trustee has been appointed; and (iii) such owner or Bond Insurer previously shall have given to the Bondowners' Trustee written notice of the Event of Default on account of which such suit, action or proceeding is to be instituted; and (iv) the registered owners of 25% in principal amount of the Outstanding Parity Bonds, the Bonds and Future Parity Bonds, after the occurrence of such Event of Default, or the Bond Insurer, has made written request of the Bondowners' Trustee and have afforded the Bondowners' Trustee a reasonable opportunity to institute such suit, action or proceeding; and (v) there have been offered to the Bondowners' Trustee security and indemnity satisfactory to it against the costs, expenses and liabilities to be incurred therein or thereby; and (vi) the Bondowners' Trustee has refused or neglected to comply with such request within a reasonable time. No registered owner or beneficial owner of any Parity Bond shall have any right in any manner whatever by his or her action to affect or impair the obligation of the City to pay from the Net Revenue the principal of and interest on such Parity Bonds to the respective owners thereof when due. Section 30. Bond Insurance. The City Council finds that it is in the City's best interest to purchase, and that a savings will result from purchasing, the Municipal Bond Insurance Policy for 5055134103 -49- the Bonds. The City is hereby authorized to purchase from the Bond Insurer the Financial Guaranty Insurance Policy insuring the prompt payment of the principal of and interest on the Bonds and agrees to the conditions for obtaining such policy, including the payment of the premium therefor. The Mayor or Finance Director is hereby authorized to execute the Bond Insurer's Municipal Bond Insurance Commitment. Any actions heretofore taken by the Mayor or Finance Director not inconsistent with this Section are hereby ratified and confirmed. The Bond Insurer requires that the following sections be included in this ordinance, the provisions of which shall govern, notwithstanding anything to the contrary set forth in this ordinance: (a) (b) (c) (d) (e) (t) 50551341.03 "Insurance Policy" shall be defined as follows: "the insurance policy issued by the Bond Insurer guaranteeing the scheduled payment of principal of and interest on the Bonds when due". "Insurer" shall be defined as follows: "Financial Security Assurance Inc" a New York stock insurance company, or any successor thereto or assignee thereof". The Insurer shall be deemed to be the sole holder of the Bonds Insured by it for the purpose of exercising any voting right or privilege or giving any consent or direction or taking any other action that the holders of the Bonds insured by it are entitled to take pursuant to the section of the Ordinance pertaining to defaults and remedies. The maturity of Bonds Insured by the Insurer shall not be accelerated without consent of the Insurer. The Insurer shall be included as third party beneficiary to the Ordinance. No modification, amendment or supplement to the Ordinance may become effective except upon obtaining the prior written consent of the Insurer. Copies of any modification or amendment to the Ordinance shall be sent to Standard & Poor's Ratings Services and Moody's Investors Service, Inc. at least 10 days prior to the effective date thereof. The rights granted to the Insurer under the Ordinance to request, consent to or direct any action are rights granted to the Insurer in consideration of its issuance of the Insurance Policy. Any exercise by the Insurer of such rights is merely an exercise of the Insurer's contractual rights and shall not be construed or deemed to be taken for the benefit or on behalf of the Bondholders nor does such action evidence any position of the Insurer, positive or negative, as to whether Bondholder consent is required in addition to consent of the Insurer. -50- (g) Amounts paid by the Insurer under the Insurance Policy shall not be deemed paid for purposes of the Ordinance and shall remain Outstanding and continue to be due and owing until paid by the Issuer in accordance with the Ordinance. (h) Claims Upon the Insurance Policy and Payments by and to the Insurer. If, on the third Business Day prior to the related scheduled interest payment date or principal payment date or the date to which Bond Maturity has been accelerated ("Payment Date") there is not on deposit with the Paying Agent, after making all transfers and deposits required under the Ordinance, moneys sufficient to pay the principal of and interest on the Bonds due on such Payment Date, the Paying Agent shall give notice to the Bond Insurer and to its designated agent (if any) (the "Insurer's Fiscal Agent") by telephone or te1ecopy of the amount of such deficiency by 12:00 noon, New York City time, on such Business Day. If, on the second Business Day prior to the related Payment Date, there continues to be a deficiency in the amount available to pay the principal of the Interest on the bonds due on such Payment Date, the Paying Agent shall make a claim under the Insurance Policy and give notice to the Insurer and the Insurer's Fiscal Agent (if any) by telephone of the amount of such deficiency, and the allocation of such deficiency between the amount required to pay interest on the Bonds and the amount required to pay principal of the Bonds confinned in writing to the Insurer and the Insurer's Fiscal Agent by 12:00 noon, New York City time, on such second Business Day by filling in the form of Notice of Claim and Certificate delivered with the Insurance Policy. In the event the claim to be made is for a mandatory sinking fund redemption installment, upon receipt of the moneys due, the Paying Agent shall authenticate and deliver to affected Bondholders who surrender their Bonds a new Bond or Bonds in an aggregate principal amount equal to the unredeemed portion of the Bond surrendered. The Paying Agent shall designate any portion of payment of principal on Bonds paid by the Insurer, whether by virtue of mandatory sinking fund redemption, maturity or other advancement of maturity, on its books as a reduction in the principal amount of Bonds registered to the then current Bondholder, whether DTC or its nominee or otherwise, and shall issue a replacement Bond to the Insurer, registered in the name of Financial Security Assurance Inc., in a principal amount equal to the amount of principal so paid (without regard to authorized denominations); provided that the Paying Agent's failure to so designate any payment or issue any replacement Bond shall have no effect on the amount of principal or interest payable by the Issuer on any Bond or the subrogation rights ofthe Insurer. The Paying Agent shall keep a complete and accurate record of all funds deposited by the Insurer into the Policy Payments Account and the allocation of such funds to payment of interest on and principal paid in respect of any Bond. The Insurer shall have the right to inspect such records at reasonable times upon reasonable notice to the Paying Agent. Upon payment of a claim under the Insurance Policy the Paying Agent shall establish a separate special purpose trust account for the benefit of Bondholders referred to herein as the "Policy Payments Account" and over which the Paying Agent shall have exclusive control and sole right of withdrawal. The Paying Agent shall receive any amount paid 5055134103 -51- (i) under the Insurance Policy in trust on behalf of Bondholders and shall deposit any such amount in the Policy Payments Account and distribute such amount only for purposes of making the payments for which a claim was made. Such amounts shall be disbursed by the Paying Agent to Bondholders in the same manner as principal and interest payments are to be made with respect to the Bonds under the sections hereof regarding payment of Bonds. It shall not be necessary for such payments to be made by checks or wire transfers separate from the check or wire transfer used to pay debt service with other funds available to make such payments. Notwithstanding anything to the contrary otherwise set forth in the Ordinance, and to the extent permitted by law, in the event amounts paid under the Insurance Policy are applied to claims for payment of principal of or interest on the Bonds, interest on such principal of and interest on such Bonds shall accrue and be payable from the date of such payment at the greater of (i) the per armum rate of interest, publicly announced from time to time by JPMorgan Chase Bank or its successor at its principal office in the City of New York, as its prime or base lending rate plus 3%, and (ii) the then applicable rate of interest on the Bonds provided that in no event shall such rate exceed the maximum rate permissible under applicable usury or similar laws limiting interest rates. Funds held in the Policy Payments Account shall not be invested by the Paying Agent and may not be applied to satisfy any costs, expenses or liabilities of the Paying Agent. Any funds remaining in the Policy Payments Account following a Bond payment date shall promptly be remitted to the Insurer. The Insurer shall, to the extent it makes any payment of principal of (or, in the case of Capital Appreciation Bonds, accreted value) or interest on the Bonds, become subrogated to the rights of the recipients of such payments in accordance with the terms of the Insurance Policy. OJ . The Issuer shall payor reimburse the Insurer any and all charges, fees, costs and expenses which the Insurer may reasonably payor incur in connection with (i) the administration, enforcement, defense or preservation of any rights or security in the Ordinance; (ii) the pursuit of any remedies under the Ordinance or otherwise afforded by law or equity, (iii) any amendment, waiver or other action with respect to, or related to, the Ordinance whether or not executed or completed, (iv) the violation by the Issuer of any law, rule or regulation, or any judgment, order or decree applicable to it or (v) any litigation or other dispute in connection with the Ordinance or the transactions contemplated thereby, other than amounts resulting from the failure of the Insurer to honor its obligations under the Insurance Policy. The Insurer reserves the right to charge a reasonable fee as a condition to executing any amendment, waiver or consent proposed in respect of the Ordinance. (k) The Insurer shall be entitled to pay principal (or, in the case of Capital Appreciation Bonds, accreted value) or interest on the Bonds that shall become Due for Payment but shall be unpaid by reason of Nonpayment by the Issuer (as such terms are defined in the Insurance Policy) and any amounts due on the Bonds as a result of acceleration of the maturity thereof in accordance with the Ordinance, whether or not the Insurer has 5055134103 -52- received a Notice of Nonpayment (as such terms are defined in the Insurance Policy) or a claim upon the Insurance Policy. (I) The notice address of the Insurer is: Financial Security Assurance Inc., 31 West 52nd Street, New York, New York 10019, Attention: Managing Director - Surveillance; Re: Policy No. (xxxxxx), Telephone: (212) 826-0100; Telecopier: (212) 339-3556. In each case in which notice or other communication refers to an Event of Default, then a copy of such notice or other communication shall also be sent to the attention of the General Counsel and shall be marked to indicate "URGENT MATERIAL ENCLOSED." (m) The Insurer shall be provided with the following information: (i) (ii) (iii) (iv) (v) 50551341.03 Annual audited financial statements within 150 days after the end of the Issuer's fiscal year (together with a certification of the Issuer that it is not aware of any default or Event of Default under the Ordinance), and the Issuer's annual budget within 30 days after the approval thereof together with such other information, data or reports as the Insurer shall reasonably request from time to time; Notice of any default known to the Issuer within five Business Days after knowledge thereof; Prior notice of the advance refund ing or redemption of any of the Bonds, including the principal amount, maturities and CUSIP numbers thereof; Notice of the resignation or removal of the Paying Agent and Bond Registrar and the appointment of, and acceptance of duties by, any successor thereto; Notice of the commencement of any proceeding by or against the Issuer or the Obligor commenced under the United States Bankruptcy Code or any other applicable bankruptcy, insolvency, receivership, rehabilitation or similar law (an "Insolvency Proceeding"); (vi) Notice of the making of any claim in connection with any Insolvency Proceeding seeking the avoidance as a preferential transfer of any payment of principal of, or interest on, the Bonds; (vii) A full original transcript of all proceedings relating to the execution of any amendment or supplement to the Ordinance; and (viii) All reports, notices and correspondence to be delivered to Bondholders under the terms of the Ordinance. -53- (n) Only cash and/or non-callable direct obligations of the United States of America shall be authorized to be used to effect defeasance of the Bonds unless the Insurer otherwise approves. To accomplish defeasance the Issuer shall cause to be delivered (i) a report of an independent firm of nationally recognized certified public accountants or such other accountant as shall be acceptable to the Insurer ("Accountant") verifying the sufficiency of the escrow established to pay the Bonds in full on the maturity or redemption date ("Verification"), (ii) an Escrow Deposit Agreement (which shall be acceptable in form and substance to the Insurer), (iii) an opinion of nationally recognized bond counsel to the effect that the Bonds are no longer "Outstanding" under the Ordinance and (iv) if there is a Paying Agent for the Bonds a certificate of discharge of the Paying Agent with respect to the Bonds; each Verification and defeasance opinion shall be acceptable in form and substance, and addressed, to the Issuer, the Paying Agent and the Insurer. The Insurer shall be provided with final drafts of the above-referenced documentation not less than five business days prior to the funding of the escrow. Section 31. Ratification. All actions previously taken in accordance with this ordinance are hereby ratified and confirmed. Section 32. Effective Date of Ordinance. This ordinance shall take effect and be in force from and after its passage and five days following its publication as required by law. PASSED by the City Council and APPROVED by the Mayor of the City of Auburn, W~h;'g""" "' . re"l""'" p,blio moo"" ili,=f, '~^~:'~ ~ ~ Mayor A TEST: (l¡!;;;;tt ßd!a,,~ Ie Daskam, City Clerk "ity Attorne~ PUBLISHED: CJ it/.," ¿(J¿'.:) 5055l341.03 -54·