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HomeMy WebLinkAbout3567 Ordinance ORDINANCE NO-3SC 7 AN ORDINANCE RELATING TO THE WATERWORKS UTILITY OF THE CITY, INCLUDING THE SANITARY SEWERAGE SYSTEM AND THE SYSTEM OF STORM OR SURFACE WATER SEWERS AS A PART THEREOF; ADOPTING A SYSTEM OR PLAN OF ADDITIONS TO AND BETTERMENTS AND EXTENSIONS OF THE WATERWORKS UTILITY OF THE CITY; PROVIDING FOR THE ISSUANCE AND SALE OF $5,945,000 PAR VALUE OF WATER AND SEWER REVENUE BONDS, 2002, FOR THE PURPOSE OF CARRYING OUT THE SYSTEM OR PLAN ADOPTED BY THIS ORDINANCE AND TO PAY THE COST OF ISSUING AND SELLING THOSE BONDS; FIXING THE DATE, FORM, DENOMINATION, MATURITIES, INTEREST RATES, TERMS AND COVENANTS OF THE BONDS AUTHORIZED HEREIN; PROVIDING FOR BOND INSURANCE; AND PROVIDING FOR THE SALE AND DELIVERY OF THE BONDS TO BANC OF AMERICA SECURITIES LLC OF SEATTLE, WASHINGTON. This document was prepared by: FOSTER PEPPER &SHEFELMAN PLLC 1111 Third Avenue, Suite 3400 Seattle, Washington 98101 (206) 447-4400 503311b&D3 TABLE OF CONTENTS Section1. Definitions................................................................................................................... 3 Section2. System or Plan ............................................................................................................ 8 Section3. Findings....................................................................................................................... 8 Section 4. Purpose and Description of the Bonds......................... 9 Section 5. Registration and Transfer of Bonds.......................................................................... 10 Section 6. Payment of Bonds..................................................................................................... 11 Section 7. Redemption Provisions and Open Market Purchase of Bonds................................. 11 Section 8. Notice of Redemption............................................................................................... 12 Section 9. Failure to Redeem Bonds.......................................................................................... 12 Section 10. Form and Execution of Bonds .................................................................................. 12 Section11. Bond Registrar.......................................................................................................... 13 Section 12. Bond Fund; Payments into Bond Fund..................................................................... 14 Section 13. Pledge, Lien and Charge for Payment of the Bonds................................................. 15 Section14. Flow of Funds........................................................................................................... 15 Section15. Covenants.................................................................................................................. 16 Section 16. Provisions for Future Parity Bonds........................................................................... 17 Section 17. Preservation of Tax Exemption for Interest on the Bonds........................................ 20 Section 18. Deposit of Bond Proceeds......................................................................................... 21 Section 19. Refunding or Defeasance of Bonds .......................................................................... 21 Section 20. Approval of Bond Purchase Contract.......................................................................22 Section 21. Undertaking to Provide Continuing Disclosure.............................................. Section22. Bond Insurance ......................................................................................................... 25 Section 23. Payment Procedures Under Bond Insurance............................................................. 26 Section 24. Parties Interested Herein........................................................................................... 28 Section25. Effective Date...........................................................................................................29 -1- 30331168.03 CITY OF PASCO, WASHINGTON ORDINANCE NO.3-C 7 AN ORDINANCE RELATING TO THE WATERWORKS UTILITY OF THE CITY, INCLUDING THE SANITARY SEWERAGE SYSTEM AND THE SYSTEM OF STORM OR SURFACE WATER SEWERS AS A PART THEREOF; ADOPTING A SYSTEM OR PLAN OF ADDITIONS TO AND BETTERMENTS AND EXTENSIONS OF THE WATERWORKS UTILITY OF THE CITY; PROVIDING FOR THE ISSUANCE AND SALE OF $51945,000 PAR VALUE OF WATER AND SEWER REVENUE BONDS, 2002, FOR THE PURPOSE OF CARRYING OUT THE SYSTEM OR PLAN ADOPTED BY THIS ORDINANCE AND TO PAY THE COST OF ISSUING AND SELLING THOSE BONDS; FIXING THE DATE, FORM, DENOMINATION, MATURITIES, INTEREST RATES, TERMS AND COVENANTS OF THE BONDS AUTHORIZED HEREIN; PROVIDING FOR BOND INSURANCE; AND PROVIDING FOR THE SALE AND DELIVERY OF THE BONDS TO BANC OF AMERICA SECURITIES LLC OF SEATTLE, WASHINGTON. WHEREAS, the City of Pasco, Washington (the "City"), by Ordinance No. 531, passed March 7, 1944, provided that the system of sewerage of the City, including all additions, extensions and betterments thereto, should be operated as a part of and as belonging to the waterworks utility of the City pursuant to the provisions of Chapter 193 of the Laws of 1941 of the State of Washington(RCW 35.67.320 et seq.) (the "Waterworks Utility"); and WHEREAS, pursuant to Ordinance No. 2839, the City heretofore issued $2,305,000 par value Water and Sewer Revenue and Refunding Bonds, 1991 (the "1991 Bonds"), and provided for the issuance of additional water and sewer revenue bonds of the City on a parity with the 1991 Bonds ("Future Parity Bonds") if the conditions set forth in Ordinance No. 2058 were met and complied with at the time of issuance of those additional bonds; and WHEREAS, the 1991 Bonds are no longer outstanding; and WHEREAS, pursuant to Resolution No. 2133, the City entered into a Washington State Water Pollution Control State Revolving Fund (SRF) Loan Agreement as of May 26, 1994 (the "State SRF Loan"), to borrow $3,802,779 for the purpose of paying a part of the cost of constructing certain Waterworks Utility facilities, the payment of which Loan Agreement once was to be a claim and charge on the Net Revenue of the Waterworks Utility and ULID Assessments on a parity of lien with the 1991 Bonds, and subsequent amendments to that Loan Agreement have increased the total amount of the loan to $23,700,000; and WHEREAS, pursuant to Ordinance No. 3054, the City heretofore issued $8,705,000 par value Water and Sewer Revenue Bonds, 1994 (the "1994 Bonds"), on a parity of lien with the 50331168.03 1991 Bonds and the State SRF Loan, for the purpose of paying the cost of carrying out a system or plan of additions to and betterments and extensions of the Waterworks Utility of the City adopted and ordered to be carried out by Ordinance No. 3040; and WHEREAS, pursuant to Ordinance No. 3314, the City heretofore issued $2,255,000 par value Water and Sewer Revenue Bonds, 1998, Series A (Taxable) (the "1998A Bonds"), on a parity of lien with the 1994 Bonds and the State SRF Loan, for the purpose of paying the cost of carrying out a system or plan of additions to and betterments and extensions of the Waterworks Utility of the City adopted and ordered to be carried out by Ordinance No. 3314 and to pay costs of issuance of those bonds; and WHEREAS, pursuant to Ordinance No. 3314, the City heretofore issued $6,725,000 par value Water and Sewer Revenue Refunding Bonds, 1998, Series B (Tax-Exempt) (the "1998B Bonds"), on a parity of lien with the 1994 Bonds, the State SRF Loan and the 1998A Bonds to advance refund the callable portion of the City's 1994 Bonds and to pay the administrative costs of such refunding and costs of issuance of those bonds; and WHEREAS, pursuant to Ordinance No. 3314, the City heretofore issued $1,515,000 par value Water and Sewer Revenue Bonds, 1998, Series C (Tax-Exempt) (the "1998C Bonds"), on a parity of lien with the 1994 Bonds, the State SRF Loan, the 1998A Bonds and 1998B Bonds to pay the costs of improvements in Utility Local Improvement Districts Nos. 130 and 131 and to pay costs of issuance of those bonds; and WHEREAS, pursuant to Ordinance No. 3378, the City heretofore issued $985,000 par value Water and Sewer Revenue Bonds, 1999 (the "1999 Bonds") on a parity of lien with the 1994 Bonds, the State SRF Loan, the 1998A Bonds and 1998B Bonds to pay the costs of improvements in Utility Local Improvement Districts Nos. 133 and 134 and to pay costs of issuance of those bonds; and WHEREAS, pursuant to Ordinance No. 3503, the City heretofore issued $995,000 par value Water and Sewer Revenue Bonds, 2001 (the "2001 Bonds") on a parity of lien with the 1999 Bonds, the 1994 Bonds, the State SRF Loan, the 1998A Bonds and 1998B Bonds to pay the costs of improvements in Utility Local Improvement Districts Nos. 136 and 137 and to pay costs of issuance of those bonds; and WHEREAS, the City also has four Washington State Public Works Trust Fund loans outstanding in the total principal amount of$4,487,904, which loans are subordinate to the 1994 Bonds, the State SRF Loan, the 1998A Bonds, 1998B Bonds, 1998C Bonds, 1999 Bonds and 2001 Bonds; and WHEREAS, pursuant to City Council action on September 17, 2001, the Agreement relating to the State SRF Loan was amended to provide that the State SRF Loan be junior and subordinate to the Parity Bonds (as defined in Section 1 below); and -2- 50331168.83 WHEREAS, by Ordinance No. 3104, passed on August 21, 1995, the City Council adopted the City of Pasco Comprehensive Plan 1995-2015, including as a part thereof the City of Pasco Comprehensive Sewer Plan, November 1992 (the "Comprehensive Sewer Plan"); and WHEREAS, the City Council has determined that it is necessary and in the best interests of the City that certain additional improvements be made and there be adopted a system or plan of additions to and betterments and extensions of the Waterworks Utility of the City(the "Plan of Additions"); and WHEREAS, the City Council has determined that it is necessary to issue and sell $5,945,000 par value of water and sewer revenue bonds (the "Bonds") to provide the funds necessary to carry out the Plan of Additions and to pay the costs of issuance and sale of the Bonds; and WHEREAS, Ambac Assurance Corporation, a Wisconsin-domiciled stock insurance company ("Ambac Assurance" or "Bond Insurer"), has made a commitment to issue an insurance policy(the "Financial Guaranty 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 Financial Guaranty Insurance Policy is in the best interest of the City, and WHEREAS, Banc of America Securities LLC of Seattle, Washington, has offered to purchase the Bonds on the terms and conditions hereinafter set forth; NOW, THEREFORE, THE CITY COUNCIL OF THE CITY OF PASCO, WASHINGTON, DO ORDAIN as follows: Section 1. Definitions. As used in this ordinance, the following words shall have the following meanings: "Alternate Security" means any bond 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 any specified Parity Bonds, issued by an institution which has been assigned a credit rating at the time of issuance of the applicable Parity Bonds, respectively, secured by such Alternate Security in the highest rating categories by both Moody's Investors Service, Inc., and Standard &Poor's Ratings Group. "Annual Debt Service" for any or all Parity Bonds for any year means all the interest, plus all principal which will mature or come due in such year, less all bond interest payable from the proceeds of any such bonds in that year. "Assessment Bonds" means, at the time of determination, Parity Bonds then outstanding equal to the sum of the nondelinquent unpaid principal amount of ULID Assessments then outstanding plus any ULID Assessment payments then on deposit in the Principal and Interest Account of the Bond Fund. Assessment Bonds shall be allocated to each remaining maturity of Parity Bonds in the same proportion as the total of the Assessment Bonds relates to the total of the Parity Bonds then outstanding. -3- 50331166.03 "Average Annual Debt Service" means, at the time of its calculation, the sum of the Annual Debt Service for the remaining years to the last scheduled maturity of the applicable Parity Bonds divided by the number of those years. "Bond Fund" means the Water and Sewer Revenue and Refunding Bond Redemption Fund, 1991, of the City created and established by Ordinance No. 2839 in the office of the Finance Director of the City. "Bond Insurer"or"Ambac Assurance"means Ambac Assurance Corporation, a Wisconsin- domiciled stock insurance company. "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 and co-fiscal agent of the State of Washington located in New York, New York, and Seattle, Washington, as the same may be designated from time to time. "Bonds" means the Water and Sewer Revenue Bonds, 2002, authorized to be issued by this ordinance. "City"means the City of Pasco, Washington, a duly organized code city. "Code" means the United States Internal Revenue Code of 1986, as amended, and applicable rules and regulations promulgated thereunder. "Coverage Requirement" in any year means an amount of Net Revenue of the Waterworks Utility, together with the ULID Assessments collected in that year, equal to at least the Maximum Annual Debt Service on all Assessment Bonds plus an amount of the Net Revenue of the Waterworks Utility not used to calculate the Coverage Requirement on Assessment Bonds equal to at least 1.25 times Maximum Annual Debt Service on all bonds payable from the Bond Fund that are not Assessment Bonds. "DTC"means The Depository Trust Company,New York, New York. "Financial Guaranty Insurance Policy" shall mean the financial guaranty insurance policy issued by the Bond Insurer insuring the payment when due of the principal of and interest on the Bonds as provided therein. "Future Parity Bonds" means any and all water and sewer revenue bonds or other obligations of the City issued or incurred after the date of the issuance of the Bonds pursuant to the provisions of Ordinance No. 2839, Ordinance No. 3054, Ordinance No. 3314, Ordinance No. 3378, and this ordinance, the payment of the principal of and interest on which constitutes a lien and charge upon the Net Revenue of the Waterworks Utility and ULID Assessments on a -4- 50371168.03 parity with the lien and charge upon such Net Revenue and ULID Assessments for the outstanding Parity Bonds,but shall not include variable rate obligations. "Government Obligations" means those government obligations defined by RCW 39.53.010(9) as it now reads or hereafter may be amended and which are otherwise lawful investments of the City at the time of such investment. "Gross Revenue of the Waterworks Utility" or "Gross Revenue" means all of the earnings and revenues received by the City from the maintenance and operation of the Waterworks Utility and all earnings from the investment of money on deposit in the Bond Fund, except ULID Assessments, government grants, proceeds from the sale of Waterworks Utility property, City taxes collected by or through the Waterworks Utility, principal proceeds of bonds and earnings or proceeds from any investments in a trust, defeasance or escrow fund created to defease or refund Waterworks Utility obligations (until commingled with other earnings and revenues of the Waterworks Utility) or held in a special account for the purpose of paying a rebate to the United States Government under the Code. "Letter of Representations" means the Blanket Issuer Letter of Representations between the City and DTC dated August 31, 1998. "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 year or any future year on the outstanding Parity Bonds. "Net Revenue of the Waterworks Utility" or "Net Revenue" means the Gross Revenue less Operating and Maintenance Expenses. "1991 Bonds" means the Water and Sewer Revenue and Refunding Bonds, 1991, dated October 1, 1991, authorized to be issued by Ordinance No. 2839, which bonds are no longer outstanding. "1994 Bonds" means the Water and Sewer Revenue Bonds, 1994, dated November 1, 1994, authorized to be issued by Ordinance No. 3054. "1998 Bonds" means, collectively, the Series 1998A Bonds, Series 1998B Bonds and Series 1998C Bonds. "1999 Bonds"means the Water and Sewer Revenue Bonds, 1999, dated October 1, 1999, authorized to be issued by Ordinance No. 3378. "2001 Bonds" means the Water and Sewer Revenue Bonds, 2001, dated November 15, 2001, authorized to be issued by Ordinance No. 3503. "Nonrefunded 1994 Bonds" means the outstanding 1994 Bonds maturing up to and including June 1, 2004. -5- 50331168.03 "Operating and Maintenance Expenses" means all reasonable expenses incurred by the City in causing the Waterworks Utility to be operated and maintained in good repair, working order and condition, including payments made to any other municipal corporation or private entity for water service and for sewage treatment and disposal service or other utility service in the event the City combines such service in the Waterworks Utility and enters into a contract for such service, but not including any depreciation or taxes levied or imposed by the City or payments to the City in lieu of taxes, or capital additions or capital replacements to the Waterworks Utility. "Outstanding Parity Bonds" means the outstanding Nonrefunded 1994 Bonds, the 1998 Bonds, 1999 Bonds and the 2001 Bonds. "Parity Bonds" means the Outstanding Parity Bonds, the Bonds and any Future Parity Bonds. "Permitted Investments" means any investment that is a legal investment for cities in the State of Washington, except that so long as the bond insurance policy for the 1994 Bonds is in effect, Permitted Investments shall be restricted to those investments defined in Exhibit A of Ordinance No. 3054. "Plan of Additions" means the system or plan of additions to and betterments and extensions of the Waterworks Utility specified, adopted and ordered to be carried out by this ordinance. "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 all Parity Bonds. "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 Insurance" means, in lieu of cash and investments, insurance obtained by the City to fund all or a portion of the Reserve Requirement for any Parity Bonds then outstanding for which such insurance is obtained; and for the Nonrefunded 1994 Bonds, the 1998 Bonds, the 1999 Bonds, the 2001 Bonds and the Bonds means the Debt Service Reserve Surety Bonds provided by the applicable Reserve Insurer. "Reserve Insurer" means, for the Nonrefunded 1994 Bonds and the Series 1998B Bonds, the Municipal Bond Investors Assurance Corporation of Armonk, New York, the Series 1998A Bonds, the Series 1998C Bonds, the 1999 Bonds, the 2001 Bonds and the Bonds, means Ambac Assurance. "Reserve Requirement"means: (1) For the Outstanding Parity Bonds and the Bonds, an amount equal to the least of (a) 10% of the issue price of the then outstanding Parity Bonds, (b) Maximum Annual Debt Service on the then outstanding Parity Bonds and (c) -6- 5633116&03 1.25 times Average Annual Debt Service on the outstanding Parity Bonds. For the purposes of determining Maximum Annual Debt Service and Average Annual Debt Service for calculating the Reserve Requirement, all bonds payable or proposed to be paid from the Bond Fund shall be treated as a single issue and the number of years to the last scheduled maturity for any of those issues shall be used as the denominator. (2) For any Future Parity Bonds, an amount equal to the difference between the Reserve Requirement for the then outstanding Parity Bonds and the least of(a) 10% of the issue price of the then outstanding Parity Bonds and the Future Parity Bonds proposed to be issued, (b) Maximum Annual Debt Service on the then outstanding Parity Bonds and the Future Parity Bonds proposed to be issued and (c) 1.25 times Average Annual Debt Service on the outstanding Parity Bonds and the Future Parity Bonds proposed to be issued, but in no event to exceed an amount equal to the least of 10% of the issue price of the proposed Future Parity Bonds, Maximum Annual Debt Service on those bonds and 1.25 times Average Annual Debt Service on the proposed bonds. For the purposes of determining Maximum Annual Debt Service and Average Annual Debt Service for calculating the Reserve Requirement, all bonds payable or proposed to be paid from the Bond Fund shall be treated as a single issue and the number of years to the last scheduled maturity for any of those issues shall be used as the denominator. "Series 1998A Bonds" means the Water and Sewer Revenue Bonds, 1998, Series A (Taxable), authorized to be issued pursuant to Ordinance No. 3314. "Series 1998B Bonds" means the Water and Sewer Revenue Refunding Bonds, 1998, Series B (Tax-Exempt), authorized to be issued pursuant to Ordinance No. 3314. "Series 1998C Bonds"means the Water and Sewer Revenue Bonds, 1998, Series C (Tax- Exempt), authorized to be issued pursuant to Ordinance No. 3314. "Surety Bonds" means the surety bond issued by the Ambac Assurance guaranteeing certain payments into the Reserve Account with respect to the Series 1998A Bonds, the Series 1998C Bonds, the 1999 Bonds and the Bonds and the surety bond issued by Municipal Bond Investors Assurance Corporation guaranteeing certain payments into the Reserve Account with respect to the Nonrefunded 1994 Bonds and the Series 1998B Bonds, as provided in and subject to the limitations set forth in the Surety Bonds. "State PWTF Loan" means the Public Works Trust Fund Loan, as amended, dated May 15, 1989. "State SRF Loan" means the Washington State Water Pollution Control State Revolving Fund (SRF) Loan Agreement L9400413, executed on May 26, 1994, as amended in 1995, 1996, 1997 and 2001. -7- 50331160.03 "Term Bonds" means those bonds of any single issue or series of other Parity Bonds designated as such in the ordinance providing for those bonds. "ULID"means utility local improvement district. "ULID Assessments" means all ULID assessments and installments thereof, plus interest and penalties thereon, in any ULID created to secure the payment of any Parity Bonds and pledged to be paid into the Bond Fund. "Water and Sewer Revenue Fund" means that special fund of the City into which all of the Gross Revenue of the Waterworks Utility of the City shall be deposited. "Waterworks Utility" means the combined sewerage system and water system of the City, together with the storm or surface water sewers and agricultural/industrial wastewater treatment facilities heretofore or hereafter authorized to be constructed and installed as a part of such combined systems, and together with all additions thereto and betterments and extensions thereof now or hereafter made. Section 2. System or Plan. The City specifies, adopts and orders the carrying out of a system or plan of additions to and betterments and extensions of the Waterworks Utility consisting of the improvements described in Exhibit A attached hereto and incorporated herein by this reference (collectively, the "Plan of Additions"). There shall be included in the foregoing system or plan the acquisition and installation of all necessary valves, pumps, fittings, couplings, connections, equipment and appurtenances, and replacements and improvements necessary or desirable to maintain or increase the effectiveness of the service provided by such facilities, other improvements to and extensions of the Waterworks Utility, the acquisition of any easements, rights-of-way and land that may be required and the performance of such work as may be incidental and necessary. All of the foregoing shall be in accordance with the plans and specifications therefor prepared by the staff and consulting engineers of the City. The City Council may modify the details of the Plan of Additions where, in its judgment, it appears advisable if such modifications do not substantially alter the purposes of that system or plan. The life of the improvements comprising the Plan of Additions is declared to be at least the term of the bonds. The estimated cost of the acquisition, construction, installation and financing of the above-described improvements is declared to be approximately $5,945,000. Such cost shall be paid from the proceeds of the Bonds and from other money of the City made available therefor. Section 3. Findings. The City Council finds that (1) all payments required by the Nonrefunded 1994 Bonds, the State PWTF Loan, the 1998 Bonds, the 1999 Bonds and the 2001 Bonds are provided for in this ordinance or have been provided for or made into the bond and loan redemption funds for those outstanding bonds and loans and that no deficiency exists in -8- 50331168.03 such funds; (2) provision is hereinafter made for the deposit in the Reserve Account of the Bond Fund of the Reserve Requirement for the Bonds; and (3) on or before the time of issuance of the Bonds there will be on file with the City a certificate from a licensed professional engineer experienced in the design, construction and operation of municipal utilities, or from an independent certified public accountant, a certificate showing that in his or her professional opinion the Net Revenue of the Waterworks Utility for any 12 consecutive calendar months out of the immediately preceding 24 calendar months shall be equal to the Coverage Requirement for each year thereafter. In the judgment of the City Council the Gross Revenue of the Waterworks Utility at the rates to be charged for water and sanitary sewage disposal service furnished on the entire Utility will be more than sufficient to (a) meet all Operating and Maintenance Expenses thereof(and the cost of maintenance and operation as contemplated by RCW 35.92.100), and the debt service requirements of the outstanding State PWTF Loan, Nonrefunded 1994 Bonds, 1998 Bonds, 1999 Bonds and 2001 Bonds, and (b)permit the setting aside into the Bond Fund out of the Net Revenue of the Waterworks Utility of the City of amounts sufficient to pay the principal of and interest on the Bonds when due. The City Council further declares that in creating the Bond Fund and in fixing the amounts to be paid into that fund, it has exercised due regard for Operating and Maintenance Expenses (and the cost of maintenance and operation contemplated by RCW 35.92.100) and the debt service requirements of the State PWTF Loan, the Nonrefunded 1994 Bonds, 1998 Bonds, 1999 Bonds and 2001 Bonds, and the City has not bound and obligated itself to set aside and pay into the Bond Fund a greater amount or proportion of the Gross Revenue of the Waterworks Utility of the City than in the judgment of the City Council will be available over and above such Operating and Maintenance Expenses and debt service requirements of such State PWTF Loan, the Nonrefunded 1994 Bonds, 1998 Bonds, 1999 Bonds and 2001 Bonds, and that no portion of the Gross Revenue of the Waterworks Utility of the City has been previously pledged for any indebtedness other than the State PWTF Loan, Nonrefunded 1994 Bonds, 1998 Bonds, 1999 Bonds and 2001 Bonds. Section 4. Purpose and Description of the Bonds. The Bonds are being issued for the purpose of providing the funds to pay the cost of carrying out the Plan of Additions and to pay the costs of issuance of the Bonds. The Bonds shall be called Water and Sewer Revenue Bonds, 2002, of the City; shall be in the aggregate principal amount of $5,945,000; shall be dated October 1, 2002; 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; shall bear interest (computed on the basis of a 360-day year of twelve 30-day months) payable semiannually on each June 1 and December 1, commencing June 1, 2003, to the maturity or earlier redemption of the Bonds; and shall mature on December 1 in years and amounts and bear interest at the rates per annum as follows: -9- 50331168.03 Maturity Principal Interest Years Amounts Rates 2003 $195,000 2.000% 2004 220,000 2.500 2005 230,000 2.500 2006 235,000 2.750 2007 255,000 3.000 2008 260,000 3.000 2009 255,000 3.500 2010 265,000 3.500 2011 265,000 3.500 2012 275,000 3.750 2013 285,000 3.750 2014 300,000 4.000 2015 310,000 4.000 2016 320,000 4.050 2017 340,000 4.125 2018 355,000 4.250 2019 370,000 4.375 2020 385,000 4.450 2021 405,000 4.600 2022 420,000 4.700 Section 5. Registration and Transfer of Bonds. The Bonds shall be issued only in registered form as to both principal and interest and recorded on books or records maintained by the Bond Registrar (the "Bond Register"). The Bond Register shall 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 series, 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. 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 shall be registered in the name of CEDE & CO., as the nominee of The Depository Trust Company, New York, New York ("DTC"). The Bonds so registered shall be held in fully immobilized form by DTC as depository in accordance with the provisions of the Blanket Issuer Letter of Representations with DTC between the City and DTC dated August 31, 1998 (the "Letter of Representations"). Neither the City nor the Bond Registrar shall 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 -10- 50331168.U3 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 fully immobilized form, DTC 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 shall 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 shall be qualified under any applicable laws to provide the services proposed to be provided by it; (ii)to any substitute depository appointed by the City or such substitute depository's successor; or (iii)to any person if the Bonds are no longer held in immobilized form. Upon the resignation of DTC or its successor (or any substitute depository or its successor) from its functions as depository, or a determination by the City that it no longer wishes to continue the system of book entry transfers through DTC or its successor(or any substitute depository or its successor), the City may appoint a substitute depository. Any such substitute depository shall be qualified under any applicable laws to provide the services proposed to be provided by it. If (i)DTC or its successor (or substitute depository or its successor) resigns from its functions as depository, and no substitute depository can be obtained, or(ii)the City determines that the Bonds are to be in certificated form, the ownership of Bonds may be transferred to any person as provided herein and the Bonds no longer shall be held in fully immobilized form. Section 6. 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 mailed on the interest payment date to the registered owners at the addresses appearing on the Bond Register on the 15'h day of the month preceding the interest payment date. Principal of the Bonds shall be payable upon presentation and surrender of the Bonds by the registered owners at either of the principal offices of the Bond Registrar at the option of the owners. 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. The Bonds are payable solely out of the Bond Fund and shall not be general obligations of the City. Section 7. Redemption Provisions and Open Market Purchase of Bonds. Bonds maturing in the years 2003 through 2012, inclusive, shall be issued without the right or option of the City to redeem those Bonds prior to their stated maturity dates. The City reserves the right and option to redeem Bonds maturing on or after December 1, 2013, prior to their stated maturity dates at any time on or after December 1, 2012, as a whole or in part (within one or more maturities selected by the City and randomly within a maturity in such manner as the Bond Registrar shall determine), at par plus accrued interest to the date fixed for redemption. Portions of the principal amount of any Bond, in installments of$5,000 or any integral multiple thereof, may be redeemed. If less than all of the principal amount of any Bond is redeemed, upon surrender of that Bond at either of the principal offices of the Bond Registrar, -11- 50331168.03 there shall be issued to the registered owner, without charge therefor, a new Bond (or Bonds, at the option of the registered owner) of the same series, interest rate and maturity in any of the denominations authorized by this ordinance in the aggregate principal amount remaining unredeemed. The City further reserves the right and option to purchase any or all of the Bonds in the open market at any time at any price plus accrued interest to the date of purchase. All Bonds purchased or redeemed under this section shall be cancelled. Notwithstanding the foregoing, for so long as the Bonds are registered in the name of Cede&Co., as nominee of DTC, selection of Bonds for redemption shall be in accordance with the Letter of Representations (as it may be changed). Section 8. Notice of Redemption. The City shall cause notice of any intended redemption of Bonds to be given not less than 30 nor more than 60 days prior to the date fixed for redemption by first-class mail, postage prepaid, to the registered owner of any Bond to be redeemed at the address appearing on the Bond Register at the time the Bond Registrar prepares the notice, and the requirements of this sentence shall be deemed to have been fulfilled when notice has been mailed as so provided, whether or not it is actually received by the owner of any Bond. Interest on Bonds called for redemption shall cease to accrue on the date fixed for redemption unless the Bond or Bonds called are not redeemed when presented pursuant to the call. In addition, the redemption notice shall be mailed within the same period, postage prepaid, to Moody's Investors Service, Inc., at its offices in New York, New York, or its successor, to the Bond Insurer at its principal office in New York, New York, or its successor, to Banc of America Securities LLC at its principal office in Seattle, Washington, and to such other persons and with such additional information as the City Finance Director shall determine, but these additional mailings shall not be a condition precedent to the redemption of Bonds. Notwithstanding the foregoing, for so long as the Bonds are registered in the name of Cede & Co., as nominee of DTC, notice of redemption shall be given in accordance with the Letter of Representations (as it may be changed). Section 9. Failure to Redeem Bonds. If any Bond is not redeemed when properly presented at its maturity or call 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 or call 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 10. Form and Execution of Bonds. The Bonds shall be printed or lithographed on good bond paper in a form consistent with the provisions of this ordinance and state law, shall be signed by the Mayor and City Clerk, either or both of whose signatures may be manual or in facsimile, and the seal of the City or a facsimile reproduction thereof shall be impressed or printed thereon. -12- 50331168.03 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 Pasco, Washington, Water and Sewer Revenue Bonds, 2002, described in the Bond Ordinance. WASHINGTON STATE FISCAL AGENCY Bond Registrar By Authorized Signer The authorized signing of a Certificate of Authentication shall be conclusive evidence that the Bonds so authenticated have been duly executed, authenticated and delivered and are 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 may be authenticated, delivered and issued and, when authenticated, issued and delivered, shall 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 11. Bond Registrar. The Bond Registrar shall keep, or cause to be kept, at its principal corporate trust office, sufficient books for the registration and transfer of the 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. 2838 establishing a system of registration 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 permitted by law, may act as depository for and permit any of its officers or directors to act as members of, or in any other capacity with respect to, any committee formed to protect the rights of Bond owners. -13- 50331168.03 Section 12. Bond Fund; Payments into Bond Fund. The Bond Fund has been created and established in the office of the Finance Director as a special fund known and designated as the Water and Sewer Revenue and Refunding Bond Redemption Fund, 1991, which fund has been divided into two accounts, namely, the Principal and Interest Account and the Reserve Account. So long as any Parity Bonds are outstanding against the Bond Fund, the Finance Director shall set aside and pay into the Bond Fund all ULID Assessments upon their collection and, out of the Net Revenue of the Waterworks Utility, certain fixed amounts without regard to any fixed proportion, namely, amounts, together with any ULID Assessments collected by the City and deposited into the applicable account in the Bond Fund and investment earnings in that account, as follows: (a) Into the Principal and Interest Account, on or before each interest or principal and interest payment date, an amount equal to the interest or the principal and interest to become due and payable on that interest or principal and interest payment date of all Parity Bonds; and (b) Into the Reserve Account, on the issue date of the Bonds, an amount sufficient, together with the Reserve Insurance, to fully fund the Reserve Requirement for all Parity Bonds. Money deposited in the Reserve Account for the Reserve Requirement for all Parity Bonds may be decreased for any issue of Parity Bonds when and to the extent the City has provided for an Alternate Security or Reserve Insurance for those bonds. The City may establish additional accounts in the Bond Fund for the deposit of ULID Assessments after the deposit of the required amount in the other funds. The Reserve Account for any Future Parity Bonds may be accumulated from any other funds which the City legally may have available for such purpose in addition to using ULID Assessments and Net Revenue of the Waterworks Utility. The City further agrees that when the required amounts have been paid into the Reserve Account in the Bond Fund, the City will maintain those amounts therein at all times, except for withdrawals therefrom as authorized herein, until there is sufficient money in the Bond Fund, including the Reserve Account therein, to pay the principal of and interest to maturity on all outstanding bonds payable from the Bond Fund, at which time no further payments need be made into the Bond Fund, and the money in the Bond Fund, including the Reserve Account, may be used to pay that principal and interest. If there shall be a deficiency in the Principal and Interest Account to meet maturing installments of either principal or interest, as the case may be, on the Bonds, the deficiency shall be made up from the Reserve Account by first the withdrawal of cash and investments therefrom and after all cash and investments have been depleted, then by the draws on the Reserve Insurance for that purpose on a pro rata basis. Any deficiency created in the Reserve Account by reason of any withdrawal shall then be made up from the Net Revenue of the Waterworks Utility first available after making necessary provisions for the required payments into the Principal and -14- 30331168.03 Interest Account. The Reserve Insurers shall be reimbursed first on a pro rata basis, within one year, to reinstate the Reserve Insurance, before the balance of the Reserve Requirement is restored. All money in the Reserve Account not needed to meet the payments of principal and interest when due may be kept on deposit in the official bank depository of the City or in any national bank or may be invested in any legal investment for City funds maturing not later than the interest or principal and interest payment date when the money will be needed. Interest on any of those investments or on that bank account shall be deposited in and become a part of the Reserve Account until the Reserve Requirement shall have been accumulated therein, after which time the interest shall be deposited in the Principal and Interest Account. Notwithstanding the provisions for the deposit or maintenance of earnings in accounts of the Bond Fund, any earnings which are subject to a federal tax or rebate requirement may be withdrawn from the Bond Fund for deposit into a separate fund or account for that purpose. If the City shall fail to set aside and pay into the Bond Fund the amounts which it has obligated itself by this section to set aside and pay therein, the owner of any Bond may bring suit against the City to compel it to do so. Section 13. Pled me, Lien and Charge for Payment of the Bonds. The Net Revenue of the Waterworks Utility and ULID Assessments are pledged to the payment of the principal of and interest on the Bonds when due and shall constitute a lien and charge upon that Net Revenue of the Waterworks Utility and ULID Assessments prior and superior to any other charges whatsoever, except that the lien and charge upon such Net Revenue and ULID Assessments for the Bonds shall be on a parity with the lien and charge thereon for any outstanding Parity Bonds. Section 14. Flow of Funds. Funds in the Water and Sewer Revenue Fund shall be used in the following order of priority: (1) To pay Operating and Maintenance Expenses; (2) To make all payments required to be made into the Bond Fund to pay and secure the payment of the Annual Debt Service on all outstanding Parity Bonds; (3) To make all payments required to be made into the Reserve Account and to make all payments (principal and interest) required to be made in connection with Reserve Insurance and any Alternate Security, except if there is not sufficient money to make all payments for Reserve Insurance and any Alternate Security, the payments shall be made on a pro rata basis with deposits in the Reserve Account. (4) To make all payments required to be made into the State PWTF Loan redemption fund or accounts, and other revenue bond redemption funds created to pay the debt service on any revenue obligation having a lien -15- 5033116&03 upon the Net Revenue of the Waterworks Utility subordinate to the lien of the Bonds; and (5) To make necessary additions, betterments, improvements or repairs to the Waterworks Utility, and to retire by redemption or purchase any outstanding Parity Bonds, or for any other lawful purpose. Section 15. Covenants. The City covenants and agrees with the owner of each of the Bonds as follows: (a) It will not sell, lease, mortgage, or in any manner encumber or dispose of all the properties of the Waterworks Utility unless provision is made for payment into the Bond Fund of an amount sufficient either to defease all outstanding Parity Bonds or to pay the principal of and interest on all the outstanding Parity Bonds in accordance with the terms thereof; and further binds itself irrevocably not to mortgage, sell, lease or in any manner dispose of any part of the Waterworks Utility that is used, useful and material to the operation of such utility unless provision is made for replacement thereof or for payment into the Bond Fund of an amount which shall bear the same ratio to the amount of outstanding Parity Bonds as the Net Revenue available for debt service for such bonds for the twelve months preceding such sale, lease, encumbrance or disposal from the portion of the Waterworks Utility so leased, encumbered or disposed of bears to the Net Revenue available for debt service for such bonds from the entire Waterworks Utility for the same period. Any such money so paid into the Bond Fund shall be used to retire outstanding Parity Bonds at the earliest possible date. (b) It will maintain and keep the Waterworks Utility in good repair, working order and condition and to operate such utility and the business in connection therewith in an efficient manner and at a reasonable cost. (c) It will maintain and collect such rates as will produce sufficient Net Revenue of the Waterworks Utility, together with ULID Assessment collections, as will make available for the payment of the principal of and interest on the Parity Bonds as they come due and for payments as required to be made into the Reserve Account therein an amount at least equal to the Coverage Requirement and, in addition thereto, that it will pay all Operating and Maintenance Expenses and meet the debt service requirements of the outstanding State PWTF Loan and otherwise meet the obligations of the City as herein set forth. (d) It will keep proper books of accounts and records separate and apart from other accounts and records, in which complete and correct entries will be made of all transactions relating to the Waterworks Utility of the City, and it will make available to any Bondowner on written request the annual operating and income statements of the Waterworks Utility. -16- 50331168.03 (e) 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 water or sewerage service to any customer whatsoever free of charge and it shall, not later than 60 days after the end of each calendar year, take such legal action as may be feasible to enforce collection of all collectible delinquent accounts and, in addition thereto, shall promptly avail itself of its utility lien rights, as set forth in applicable statutes. (f) It will carry the types of insurance on its Waterworks Utility properties in the amounts normally carried by private water and sewer companies engaged in the operation of water and sewerage systems, and the cost of such insurance shall be considered a part of Operating and Maintenance Expenses, or it will implement and maintain a self-insurance program or an insurance pool program with reserves adequate, in the judgment of the City Council, to protect the owners of the Parity Bonds against loss. (g) To the extent permitted by State law, it will maintain its corporate identity and existence so long as any Bonds remain outstanding. (h) It will not grant any competing utility service franchise and will use all legal means to prevent competition with the Waterworks Utility. (i) If on the first day of January in any year, two installments of any ULID Assessment are delinquent, or the final installment of any ULID Assessment has been delinquent for more than one year, the City shall proceed with the foreclosure of the delinquent assessment or delinquent installments thereof in the manner provided by law. Section 16. 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 ULID Assessments shall be paid directly into the Bond Fund, except for any prepaid assessments permitted by law to be paid into a construction fund or account. (c) The ordinance providing for the issuance of such Future Parity Bonds shall provide for the deposit into the Reserve Account of (i) an amount equal to the Reserve Requirement for those Future Parity Bonds from the Future Parity Bond proceeds, or, (ii) Reserve Insurance or Alternate Security or an amount plus Reserve Insurance or Alternate Security equal to the Reserve Requirement for those Future Parity Bonds, or (iii) to the extent that the Reserve -17- 56331168.03 Requirement is not funded from Future Parity Bond proceeds or Reserve Insurance or Alternate Security at the time of issuance of those Future Parity Bonds, and if the Bond Insurance for the Nonref aided 1994 Bonds is no longer in effect, by no later than the third anniversary date from the dated date of the respective issue of Future Parity Bonds from ULID 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 Waterworks Utility in six approximately equal semiannual payments, the Reserve Requirement for those Future Parity Bonds. No Reserve Insurance or Alternate Security may be used to satisfy the Reserve Requirement for Future Parity Bonds unless (i) the insurance policy or Alternate Security is non-cancelable and (ii) the insurer or provider of the Alternate Security as of the time of issuance of such insurance or Alternate Security is rated in the highest rating categories by both Moody's Investors Service, Inc., and Standard & Poor's Ratings Group. When all of the Nonrefunded 1994 Bonds have been redeemed, defeased or otherwise are no longer outstanding as Parity Bonds, this subsection (c) shall be amended to read as follows: (c) The ordinance providing for the issuance of such Future Parity Bonds shall provide for the deposit into the Reserve Account of(i) an amount equal to the Reserve Requirement for those Future Parity Bonds from the Future Parity Bond proceeds, or, (ii) Reserve Insurance or Alternate Security or an amount plus Reserve Insurance or 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 or Reserve Insurance or Alternate Security at the time of issuance of those Future Parity Bonds, by no later than the fifth anniversary date from the dated date of the respective issue of Future Parity Bonds from ULID 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 Waterworks Utility in approximately equal annual payments, the Reserve Requirement for those Future Parity Bonds. No Reserve Insurance or Alternate Security may be used to satisfy the Reserve Requirement for Future Parity Bonds unless (i) the insurance policy or Alternate Security is non-cancelable and (ii) the insurer or provider of the Alternate Security as of the time of issuance of such insurance or Alternate Security is rated in the highest rating categories by both Moody's Investors Service, Inc., and Standard&Poor's Ratings Group. (d) 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 -18- 50331168.03 Term Bonds prior to their maturity date from money in the Principal and Interest Account. (e) There shall be on file from a licensed professional engineer experienced in the design, and operation of municipal utilities or from an independent certified public accountant, a certificate showing that in his or her professional opinion the Net Revenue of the Waterworks Utility for any 12 consecutive calendar months out of the immediately preceding 24 calendar months shall be equal to the Coverage Requirement for each year thereafter. When all of the Nonrefunded 1994 Bonds have been redeemed, defeased or otherwise are no longer outstanding as Parity Bonds, this paragraph shall be amended to read as follows: There shall be on file from a licensed professional engineer experienced in the design, construction and operation of municipal utilities, or from an independent certified public accountant, a certificate showing that in his or her professional opinion the Net Revenue of the Waterworks Utility for any 12 consecutive calendar months out of the immediately preceding 24 calendar months shall be equal to the Coverage Requirement for each year thereafter, except that such certificate may be provided by a City representative if it is based solely upon actual historical Net Revenue of the Waterworks Utility without any adjustment. The certificate, in estimating the Net Revenue of the Waterworks Utility available for debt service, shall use the historical Net Revenue of the Waterworks Utility for any 12 consecutive months out of the 24 months immediately preceding the month of delivery of the Future Parity Bonds. Net Revenue of the Waterworks Utility may be adjusted to reflect: (1) Any changes in rates in effect and being charged or expressly adopted by ordinance to take effect within 180 days after the date of this Certificate; (2) Income derived from customers of the Waterworks Utility that have become customers during the 12 consecutive month period or thereafter adjusted to reflect one year's net revenue from those customers; (3) Revenue from any customers to be connected to the Waterworks Utility who have paid the required connection charges; (4) Revenue received or to be received which is derived from any person, firm, corporation or municipal corporation under any executed contract for water, sewage disposal or other utility service, which revenue was not included in the historical Net Revenue of the Waterworks Utility; (5) The engineer's or accountant's estimate of the Net Revenue of the Waterworks Utility to be derived from customers to connect within 180 days after the date of the completion of the additions to and -19- 50331168.83 improvements and extensions of the Waterworks Utility to be paid for out of the proceeds of the sale of the additional Future Parity Bonds or from other additions to and improvements and extensions of the Waterworks Utility then under construction and not fully connected to the facilities of the Waterworks Utility when such additions, improvements and extensions are completed; and (6) Any increases or decreases in Net Revenue as a result of any actual or reasonably anticipated changes in Operating and Maintenance Expense subsequent to the 12-month period. If Future Parity Bonds proposed to be so issued are for the sole purpose of refunding outstanding bonds payable from the Bond Fund, such certification of coverage shall not be required if the amount required for the payment of the principal and interest in each year for the refunding bonds is not increased over the amount for that year required for the bonds to be refunded thereby and if the maturities of such refunding bonds are not extended beyond the maturities of the bonds to be refunded thereby. Nothing herein contained shall prevent the City from issuing Future Parity Bonds to refund any maturing Parity Bonds then outstanding, money for the payment of which is not otherwise available. Nothing herein contained shall prevent the City from issuing revenue bonds or incurring other obligations that are a charge upon the Net Revenue of the Waterworks Utility of the City subordinate or inferior to the payments required to be made therefrom into the Bond Fund for the payment of Parity Bonds or from pledging the payment of utility local improvement district assessments into a redemption fund created for the payment of the principal of and interest on those subordinate lien bonds or obligations as long as such utility local improvement district assessments are levied for improvements constructed from the proceeds of those subordinate lien bonds or obligations. Section 17. Preservation of Tax Exemption for Interest on the 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 included in gross income for federal income tax purposes. The City also covenants that it will, to the extent the arbitrage rebate requirement of Section 148 of the Code is applicable to the Bonds, take all actions necessary to comply (or to be treated as having complied) with that requirement in connection with the Bonds, including the calculation and payment of any penalties that the City has elected to pay as an alternative to calculating rebatable arbitrage, and the payment of any other penalties if required under Section 148 of the Code to prevent interest on the Bonds from being 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. -20- 50331168.03 Section 18. Deposit of Bond Proceeds. The accrued interest, if any, received from the sale of the Bonds shall be deposited in the Principal and Interest Account and used to pay interest on the Bonds on their first interest payment date. All of the proceeds of the Bonds received by the City from the Purchaser (defined below) shall be deposited into the Water/Sewer Fund and used to reimburse the City for the purchase of an irrigation system from Irrigation Water, Inc., and to pay the other costs of carrying out the Plan of Additions and the costs of issuance and sale of the Bonds. Until needed to pay those costs, the City may invest principal proceeds deposited in a construction fund temporarily in any legal investment, and the investment earnings may be retained in such fund and be spent for the purposes of that fund, except that earnings subject to a federal tax or rebate requirement may be withdrawn therefrom and used for those tax or rebate purposes. Section 19. Refunding or Defeasance of Bonds. The City may issue refunding bonds pursuant to the laws of the State of Washington and use money available from other lawful sources to pay the principal of and interest on the Bonds, or such portion thereof included in a refunding or defeasance plan, as the same become due and payable and to redeem and retire, release, refund or defease any or all such then-outstanding Bonds (hereinafter collectively called the "defeased Bonds") and to pay the costs of such refunding or defeasance. If money and/or Government Obligations that are Permitted Investments sufficient in amount, together with known earned income from the investments thereof, to redeem and retire, release, refund or defease the defeased Bonds in accordance with their terms, are set aside irrevocably in a special fund for and pledged irrevocably to such redemption,retirement or defeasance (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 Gross Revenue of the Waterworks Utility, ULID Assessments, funds and accounts obligated to the payment of such defeased Bonds, other than the right to receive the funds so set aside and pledged, thereafter shall cease and become void. Such owners thereafter shall have the right to receive payment of the principal of and interest on the defeased Bonds from the trust account. After the establishing and full funding of such a trust account, the City then 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 owners of any other Bonds or bonds then outstanding. If the refunding plan provides that the defeased Bonds or the refunding bonds to be issued be secured by money and/or Government Obligations that are Permitted Investments pending the prior redemption of the defeased Bonds and if such refunding plan also provides that certain money and/or Government Obligations that are Permitted Investments are pledged irrevocably for the prior redemption of the defeased Bonds included in that refunding plan, 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. -21- 50331168.03 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 Financial Guaranty 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 24. Approval of Bond Purchase Contract. Banc of America Securities LLC of Seattle, Washington (the "Purchaser"), has presented a bond purchase contract (the "Bond Purchase Contract") to the City by which the Purchaser has offered to purchase the Bonds under the terms 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 the execution of the Bond Purchase Contract by City officials. The Bonds will be printed at City expense and will be delivered to the Purchaser in accordance with the terms of the Bond Purchase Contract with the approving legal opinion of Foster Pepper & Shefelman PLLC, municipal bond counsel of Seattle, Washington, relative to each series of the Bonds. Bond counsel has not been retained to and shall not be required to review or express any opinion concerning the completeness or accuracy of any official statement, offering circular or other sales or disclosure material issued or used in connection with the Bonds, and bond counsel's opinion shall so state. The proper City officials are authorized and directed to do everything necessary for the prompt authentication and delivery of the Bonds to the Purchaser, including the execution of the Official Statement on behalf of the City and execution of documents relative to acquisition of bond and reserve insurance, and for the proper application and use of the proceeds of the sale thereof. Section 21. Undertaking to Provide Continuing Disclosure. To meet the requirements of United States Securities and Exchange Commission("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 Information 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 nationally recognized municipal securities information repository designated by the SEC in accordance with the Rule ("NRMSIR") and to a state information depository, if any, established in the State of Washington (the "SID") annual financial information 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"); -22- 50331168.03 (ii) To each NRMSIR or the Municipal Securities Rulemaking Board ("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; (S)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 information 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 applicable to governmental units, as such principles may be changed from time to time and as permitted by State law,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 the Net Revenue of the Waterworks Utility; (3) debt service coverage ratios; and (4) general customer statistics for the Waterworks Utility; (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 permitted by State law, commencing with the City's fiscal year ending December 31,2002; 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. (c) Amendment of Undertaking. The Undertaking is subject to amendment after the primary offering of the Bonds without the consent of any -23- 50331168.0? 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 information to be provided, the annual financial information containing the amended financial information will include a narrative explanation of the effect of that change on the type of information to be provided. (d) Beneficiaries. The Undertaking evidenced by this section shall inure to the benefit of the City and any 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 terminate upon the legal defeasance of all of the Bonds. In addition, the City's obligations under this Undertaking shall terminate 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 confirmed by an opinion of nationally recognized bond counsel or other counsel familiar with federal securities laws delivered to the City, and the City provides timely notice of such termination to each NRMSIR or the MSRB and the SID. (f) Remedy for Failure to Comply with Undertaking. As soap 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 Manager of the City(or such other officer of the City who may in the fixture perform the duties of that office) or his or her designee is authorized and directed in his or her discretion to take such further actions as may be necessary, appropriate or convenient to carry out the Undertaking of the City in respect of the Bonds set forth in this section and in accordance with the Rule, including, without limitation, the following actions: (i) Preparing and filing the annual financial information undertaken to be provided; -24- 5633116&63 (ii) Determining 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) Determining 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 information 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. Section 22. Bond Insurance. The City is 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 that policy, including the payment of the premium therefor. Any notice required to be given to the Bond Insurer shall be sent by certified or registered mail to Ambac Assurance Corporation, One State Street Plaza, New York, New York 10004. While the Financial Guaranty Insurance Policy is in effect, the City or the Bond Registrar shall furnish to the Bond Insurer (to the attention of the Surveillance Department, unless otherwise indicated): (a) As soon as practicable after the filing thereof, copies of any financial statements, audits and annual reports of the City; (b) copies of any notices given to the registered owners of the Bonds, including, without limitation, notices of any redemption of or defeasance of Bonds, and any certificate rendered pursuant to this ordinance relating to the security for the Bonds; (c) to the extent that the City has entered into a continuing disclosure agreement with respect to the Bonds, the Bond Insurer shall be included as a party to be notified; and (d) such additional information the Bond Insurer may reasonably request. The Bond Registrar shall notify the Bond Insurer (to the attention of the General Counsel Office) of any failure of the City to provide relevant notices and certificates. -25- 5D331165.03 The City will permit the Bond Insurer to discuss the affairs, finances and accounts of the City or any information the Bond Insurer may reasonably request regarding the security for the Bonds with appropriate officers of the City. The Bond Registrar and the City will permit the Bond Insurer to have access to and make copies of all books and records relating to the Bonds at any reasonable time. The Bond Insurer shall have the right to direct an accounting at the City's expense, and the City's failure to comply with such direction within 30 days after receipt of written notice of the direction from the Bond Insurer shall be deemed a default hereunder unless compliance cannot occur within such period. In that event and only if an extension would not materially adversely affect the interest of any registered owner of the Bonds, that 30-day period will be extended so long as compliance is begun within that period and diligently pursued. Section 23. Payment Procedures Under Bond Insurance. The Bond Insurer requires that the following sections be included in this ordinance: "As long as the bond insurance shall be in full force and effect, the Obligor, the Trustee and any Paying Agent agree to comply with the following provisions" "(a) At least one (1) day prior to all Interest Payment Dates the Trustee or Paying Agent [the Bond Registrar], if any, will determine whether there will be sufficient funds in the Funds and Accounts to pay the principal of or interest on the Obligations on such Interest Payment Date. If the Trustee or Paying Agent, if any, determines that there will be insufficient funds in such Funds or Accounts, the Trustee or Paying Agent, if any, shall so notify Ambac Assurance. Such notice shall specify the amount of the anticipated deficiency, the Obligations to which such deficiency is applicable and whether such Obligations will be deficient as to principal or interest, or both. If the Trustee or Paying Agent, if any, has not so notified Ambac Assurance at least one (1) day prior to an Interest Payment Date, Ambac Assurance will make payments of principal or interest due on the Obligations on or before the first (1st) day next following the date on which Ambac Assurance shall have received notice of nonpayment from the Trustee or Paying Agent, if any. "(b) the Trustee or Paying Agent, if any, shall, after giving notice to Ambac Assurance as provided in (a) above, make available to Ambac Assurance and, at Ambac Assurance's direction, to The Bank of New York, as insurance trustee for Ambac Assurance or any successor insurance trustee (the "Insurance Trustee"), the registration books of the Obligor maintained by the Trustee or Paying Agent, if any, and all records relating to the Funds and Accounts maintained under this ordinance. "(c) the Trustee or Paying Agent, if any, shall provide Ambac Assurance and the Insurance Trustee with a list of registered owners of Obligations entitled to receive principal or interest payments from Ambac -26- 58331168.03 Assurance under the terms of the Financial Guaranty Insurance Policy, and shall make arrangements with the Insurance Trustee (i) to mail checks or drafts to the registered owners of Obligations entitled to receive full or partial interest payments from Ambac Assurance and (ii) to pay principal upon Obligations surrendered to the Insurance Trustee by the registered owners of Obligations entitled to receive full or partial principal payments from Ambac Assurance. "(d) the Trustee or Paying Agent, if any, shall, at the time it provides notice to Ambac Assurance pursuant to (a) above, notify registered owners of Obligations entitled to receive the payment of principal or interest thereon from Ambac Assurance (i) as to the fact of such entitlement, (ii) that Ambac Assurance will remit to them all or a part of the interest payments next coming due upon proof of Bondholder entitlement to interest payments and delivery to the Insurance Trustee, in form satisfactory to the Insurance Trustee, of an appropriate assignment of the registered owner's right to payment, (iii) that should they be entitled to receive full payment of principal from Ambac Assurance, they must surrender their Obligations(along with an appropriate instrument of assignment in form satisfactory to the Insurance Trustee to permit ownership of such Obligations to be registered in the name of Ambac Assurance) for payment to the Insurance Trustee, and not the Trustee or Paying Agent, if any, and (iv) that should they be entitled to receive partial payment of principal from Ambac Assurance, they must first surrender their Obligations for payment thereon first to the Trustee or Paying Agent, if any, who shall note on such Obligations the portion of the principal paid by the Trustee or Paying Agent, if any, and then, along with an appropriate instrument of assignment in form satisfactory to the Insurance Trustee, to the Insurance Trustee, which will then pay the unpaid portion of principal. "(e) in the event that the Trustee or Paying Agent, if any, has notice that any payment of principal of or interest on a Bond which has become Due for Payment and which is made to a Bondholder by or on behalf of the Obligor has been deemed a preferential transfer and theretofore recovered from its registered owner pursuant to the United States Bankruptcy Code by a trustee in bankruptcy in accordance with the final, nonappealable order of a court having competent jurisdiction, the Trustee or Paying Agent, if any, shall, at the time Ambac Assurance is notified pursuant to (a) above, notify all registered owners that in the event that any registered owner's payment is so recovered, such registered owner will be entitled to payment from Ambac Assurance to the extent of such recovery if sufficient funds are not otherwise available, and the Trustee or Paying Agent, if any, shall furnish to Ambac Assurance its records evidencing the payments of principal of and interest on the Obligations which have been made by the Trustee or Paying Agent, if any, and subsequently recovered from registered owners and the dates on which such payments were made. "(f) in addition to those rights granted Ambac Assurance under this ordinance, Ambac Assurance shall, to the extent it makes payment of principal of -27- 50331168.03 or interest on Obligations, become subrogated to the rights of the recipients of such payments in accordance with the terms of the Financial Guaranty Insurance Policy, and to evidence such subrogation (i) in the case of subrogation as to claims for past due interest, the Trustee or Paying Agent, if any, shall note Ambac Assurance's rights as subrogee on the registration books of the Obligor maintained by the Trustee or Paying Agent, if any, upon receipt from Ambac Assurance of proof of the payment of interest thereon to the registered owners of the Obligations, and (ii) in the case of subrogation as to claims for past due principal, the Trustee or Paying Agent, if any, shall note Ambac Assurance's rights as subrogee on the registration books of the Obligor maintained by the Trustee or Paying Agent, if any, upon surrender of the Obligations by the registered owners thereof together with the proof of the payment of principal thereof." Section 24. Parties Interested Herein. To the extent that this ordinance confers upon or gives or grants to the Bond Insurer any right, remedy or claim under or by reason of this ordinance, the Bond Insurer is explicitly recognized as being a third-party beneficiary hereunder and may enforce any such right, remedy or claim conferred, given or granted hereunder. Nothing expressed or implied in this ordinance is intended or shall be construed to confer upon, or to give or grant to, any person or entity, other than the City, the Bond Insurer and the registered owners of the Bonds, any right, remedy or claim under or by reason of this ordinance or any covenant, condition or stipulation hereof, and all covenants, stipulations, promises and agreements in this ordinance contained by and on behalf of the City shall be for the sole and exclusive benefit of the City, the Bond Insurer and the registered owners of the Bonds. Notwithstanding any other provision of this ordinance, the City shall notify the Bond Insurer immediately if at any time there are insufficient funds to make any payments of principal and/or interest as required and immediately upon the occurrence of any event of default hereunder. Anything in this ordinance to the contrary notwithstanding, upon the occurrence and continuance of an event of default, the Bond Insurer shall be entitled to control and direct the enforcement of all rights and remedies granted to the Bond owners for the benefit of the Bond owners pursuant to state law. Any provision of this ordinance expressly recognizing or granting rights in or to the Bond Insurer may not be amended in any manner which affects the rights of the Bond Insurer hereunder without the prior written consent of the Bond Insurer. Unless otherwise provided in this section, the Bond Insurer's consent shall be required, in addition to Bond owner consent, when required, for the following purposes: (i) execution and delivery of any supplemental ordinance, and (ii) initiation or approval of any other action which requires Bond owner consent. Any reorganization or liquidation plan with respect to the City must be acceptable to the Bond Insurer. In the event of any reorganization or liquidation, the Bond Insurer shall have the right to vote on behalf of all Bond owners who hold Ambac Assurance-insured bonds absent a default by the Bond Insurer under the applicable Financial Guaranty Insurance Policy insuring such bonds. -28- 50331168.`3 Section 25. Effective Date. This ordinance shall take effect and be in force from and after its passage and 5 days following its publication as provided by law. PASSED by the City Council of the City of Pasco, Washington, this 7th day of October, 2002, at a regular open public meeting, and signed in authentication of its passage this�4Lday of October, 2002. ayor ATTEST: City Clerk APPRO FORM: Foster Pepper& Shefelman PLLC Bond Counsel -29- 50331168.03 EXHIBIT A LIST OF IMPROVEMENTS COMPRISING PLAN OF ADDITIONS Sewer Cost Commercial Avenue Sewer Extension $ 450,000 Montgomery Sewer Extension 400,000 Plateau Sewer Extension 800,000 Wernett Sewer Extension 600,000 Total $2,250,000 Water Cost Filter Beds and Raw Water Pipelines $1,000,000 Irrigation Water Inc. Purchase 900,000 Irrigation System Improvements 250,000 Road 100 Waterline Extension 200,000 Reservoir Painting 300,000 Reservoir Site Improvements 150,000 Road 68 Waterline Loop 400,000 Backwash Facility 400,000 Total 3,600,000 Total of water and sewer improvements $5,850,000 50337768.03 CERTIFICATION I, the undersigned, City Clerk of the City of Pasco, Washington (the "City"), hereby certify as follows: 1. The attached copy of Ordinance No.,7Y67 (the "Ordinance') is a full, true and correct copy of an ordinance duly passed at a regular meeting of the City Council of the City held at the regular meeting place thereof on October 7, 2002, as that ordinance appears on the minute book of the City; and the Ordinance will be in full force and effect five days after the publication of its summary in the City's official newspaper; and 2. A quorum of the members of the City Council was present throughout the meeting and a majority of those members present voted in the proper manner for the passage of the Ordinance. IN WITNESS WHEREOF, I have hereunto set my hand this 7/� day of October, 2002. CITY OF PASCO, WASHINGTON b 114 d-& Webster U. Jackson, My Clerk 50331168.03