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HomeMy WebLinkAbout3962 Ordinance CITY OF PASCO, WASHINGTON ORDI]VA]vCE NO. 3962 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 $9,070,000 PAR VALUE OF WATER AND SEWER IMPROVEMENT AND REFUNDING REVENUE BONDS, 2010A, FOR THE PURPOSE OF OBTAINING THE FUNDS WITH WHICH TO PAY THE COST OF CARRYING OUT SUCH PLAN OF ADDITIONS, PAY THE COST OF A CURRENT REFUNDING OF THE CITY'S OUTSTANDING WATER AND SEWER REVENUE REFUNDING BONDS, 1998, SERIES B (TAX-EXEMPT), AND THE ADMINISTRATIVE COSTS OF SUCH REFUNDING, AND FUND A RESERVE FOR AND PAY THE COSTS OF ISSUANCE OF SUCH BONDS; PROVIDING FOR THE ISSUANCE AND SALE OF $1,240,000 PAR VALUE OF WATER AND SEWER REFUNDING REVENUE BONDS, 2010T (TAXABLE), FOR THE PURPOSE OF OBTAINING THE FUNDS WITH WHICH TO PAY THE COST OF A CURRENT REFUNDING OF THE CITY'S OUTSTANDING WATER AND SEWER REVENUE BONDS, 1998, SERIES A (TAXABLE), AND THE ADMINISTRATIVE COSTS OF SUCH REFUNDING, AND PAY THE COSTS OF ISSUANCE OF SUCH BONDS; FIXING THE DATE, FORM, DENOMINATION, MATURITIES, INTEREST RATES, TERMS AND COVENANTS OF THE BONDS AUTHORIZED HEREIN; PROVIDING FOR AND AUTHORIZING THE PURCHASE OF CERTAIN OBLIGATIONS OUT OF THE PROCEEDS OF THE SALE OF SUCH BONDS 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; AND PROVIDING FOR THE SALE AND DELIVERY OF THE BONDS TO PIPER JAFFRAY & CO. OF SEATTLE, WASHINGTON. PASSED: MAY 17, 2010 This document was prepared by: FOSTER PEPPER PLLC 1111 Third Avenue, Suite 3400 Seattle, Washington 98101 (206) 447-4400 51058538.3 TABLE OF CONTENTS Page Section1. Definitions................................................................................................................3 Section 2. Findings and Determinations...................................................................................8 Section 3. Plan of Additions.....................................................................................................9 Section 4. Purpose and Description of the 2010A Bonds.......................................................10 Section 5. Purpose and Description of the 2010T Bonds .......................................................10 Section 6. Registration and Transfer of Bonds.......................................................................10 Section 7. Payment of Bonds..................................................................................................11 Section 8. Redemption Provisions and Open Market Purchase of Bonds..............................12 Section 9. Notice of Redemption............................................................................................13 Section 10. Failure to Redeem Bonds.......................................................................................14 Section 11. Form and Execution of Bonds...............................................................................14 Section12. Bond Registrar.......................................................................................................15 Section 13. Bond Fund; Payments into Bond Fund..................................................................15 Section 14. Pledge, Lien and Charge for Payment of the Bonds..............................................16 Section 15. Creation of Project Account; Deposit of Bond Proceeds.......................................16 Section 16. Refunding of the Refunded Bonds.........................................................................17 Section 17. Call for Redemption of the Refunded Bonds.........................................................18 Section 18. City Findings with Respect to Refunding..............................................................18 Section19. Flow of Funds........................................................................................................18 Section20. Covenants...............................................................................................................19 Section 21. Provisions for Future Parity Bonds........................................................................20 Section 22. Preservation of Tax Exemption for Interest on the 2010A Bonds.........................20 Section 23. Designation of 2010A Bonds as "Qualified Tax-Exempt Obligations."...............21 Section 24. Refunding or Defeasance of Bonds .......................................................................21 Section 25. Approval of Bond Purchase Agreement................................................................22 Section 27. Undertaking to Provide Continuing Disclosure.....................................................22 Section28. Effective Date ........................................................................................................25 Exhibit A—Parity Conditions -1- 51058538.3 CITY OF PASCO, WASHINGTON ORDINANCE NO. 3962 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 $9,070,000 PAR VALUE OF WATER AND SEWER IMPROVEMENT AND REFUNDING REVENUE BONDS, 2010A, FOR THE PURPOSE OF OBTAINING THE FUNDS WITH WHICH TO PAY THE COST OF CARRYING OUT SUCH PLAN OF ADDITIONS, PAY THE COST OF A CURRENT REFUNDING OF THE CITY'S OUTSTANDING WATER AND SEWER REVENUE REFUNDING BONDS, 1998, SERIES B (TAX-EXEMPT), AND THE ADMINISTRATIVE COSTS OF SUCH REFUNDING, AND FUND A RESERVE FOR AND PAY THE COSTS OF ISSUANCE OF SUCH BONDS; PROVIDING FOR THE ISSUANCE AND SALE OF $1,240,000 PAR VALUE OF WATER AND SEWER REFUNDING REVENUE BONDS, 2010T (TAXABLE), FOR THE PURPOSE OF OBTAINING THE FUNDS WITH WHICH TO PAY THE COST OF A CURRENT REFUNDING OF THE CITY'S OUTSTANDING WATER AND SEWER REVENUE BONDS, 1998, SERIES A (TAXABLE), AND THE ADMINISTRATIVE COSTS OF SUCH REFUNDING, AND PAY THE COSTS OF ISSUANCE OF SUCH BONDS; FIXING THE DATE, FORM, DENOMINATION, MATURITIES, INTEREST RATES, TERMS AND COVENANTS OF THE BONDS AUTHORIZED HEREIN; PROVIDING FOR AND AUTHORIZING THE PURCHASE OF CERTAIN OBLIGATIONS OUT OF THE PROCEEDS OF THE SALE OF SUCH BONDS 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; AND PROVIDING FOR THE SALE AND DELIVERY OF THE BONDS TO PIPER JAFFRAY & CO. 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. 2846, the City heretofore issued $2,305,000 par value Water and Sewer Revenue and Refunding Bonds, 1991 (the "1991 Bonds") (all of which -1- 51058538.3 have been paid and retired), and provided for the issuance of additional water and sewer revenue bonds of the City having a lien and charge upon the Net Revenue of the Waterworks Utility and ULID Assessments on a parity with the 1991 Bonds ("Future Parity Bonds") if the Parity Conditions (hereinafter defined) are met and complied with; and WHEREAS, the City has currently outstanding the following water and sewer revenue bonds issued on a parity of lien and charge on the Net Revenue of the Waterworks Utility and ULID Assessments with the 1991 Bonds: Original Ordinance Principal Dated Authorizing Passage Name of Issue Amount Date Ordinance Date Water and Sewer Revenue Bonds, $2,255,000 9/15/1998 3314 8/31/1998 1998, Series A (Taxable) Water and Sewer Revenue $6,725,000 9/15/1998 3314 8/31/1998 Refunding Bonds, 1998, Series B Water and Sewer Revenue Bonds, $1,515,000 9/15/1998 3314 8/31/1998 1998, Series C (Tax-Exempt Water and Sewer Revenue Bonds, $985,000 10/01/1999 3378 9/20/1999 1999 Water and Sewer Revenue Bonds, $995,000 12/15/2001 3503 11/05/2001 2001 Water and Sewer Revenue Bonds, $5,945,000 10/01/2002 3567 10/07/2002 2002 Water and Sewer Revenue Bonds, $4,400,000 12/05/2005 3740 11/21/2005 2005 Water and Sewer Revenue Bonds, $845,000 7/02/2007 3835 6/18/2007 2007 Water and Sewer Revenue Bonds, $10,045,000 4/17/2009 3915 4/06/2009 2009 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, by Resolution No. 3314, the City reserved the right to redeem the Water and Sewer Bonds, Series A (Taxable) (the "1998A Bonds"), and the Water and Sewer Revenue Refunding Bonds, 1998 Series B (Tax-Exempt) (the "1998B Bonds"), prior to their maturity at any time on or after June 1, 2008, at a price of par plus accrued interest to the date fixed for redemption; and -2- 51058538.3 WHEREAS, there are presently outstanding $1,205,000 par value of 1998A Bonds maturing on June 1 of each of the years 2013 and 2018, and bearing various interest rates from 6.25%to 6.45% (the "Refunded 1998A Bonds"); and WHEREAS, there are presently outstanding $2,865,000 par value of 1998B Bonds maturing on June 1 of each of the years 2011 through 2014, inclusive, and bearing various interest rates from 4.35% to 4.60% (the "Refunded 1998B Bonds" and together with the "Refunded 1998A Bonds, 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 two series of water and sewer revenue 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 allocable to such refunding and the principal and interest cost over the life of the Refunded Bonds but for such refunding, which refunding will be effected by carrying out the Refunding Plan (as 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 other money of the City; and WHEREAS, the City Council has determined that it is necessary to issue and sell the Bonds to provide the funds necessary to carry out the Plan of Additions, to carry out the Refunding Plan and to pay the costs of issuance and sale of the Bonds; and WHEREAS, Piper Jaffray & Co. 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: "Acquired Obligations" means those United States Treasury Certificates of Indebtedness, 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. "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 Services. -3- 51058538.3 "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, Panty 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. "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. 2846 in the office of the Finance Director of the City. "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. "Bonds"means, collectively, the 2010A Bonds and the 2010T Bonds. "1998C Bonds" means the Water and Sewer Revenue Bonds, 1998, Series C (Tax- Exempt), issued pursuant to Ordinance No. 3314. "1999 Bonds" means the Water and Sewer Revenue Bonds, 1999, issued pursuant to Ordinance No. 3378. "2001 Bonds" means the Water and Sewer Revenue Bonds, 2001, issued pursuant to Ordinance No. 3503. "2002 Bonds" means the Water and Sewer Revenue Bonds, 2002, issued pursuant to Ordinance No. 3567. "2005 Bonds" means the Water and Sewer Revenue Bonds, 2005, issued pursuant to Ordinance No. 3740. "2007 Bonds" means the Water and Sewer Revenue Bonds, 2007, issued pursuant to Ordinance No. 3835. "2009 Bonds" means the Water and Sewer Revenue Bonds, 2009, issued pursuant to Ordinance No. 3915. -4- 51058538.3 "2010A Bonds" means the Water and Sewer Improvement and Refunding Revenue Bonds, 2010A, authorized to be issued by this ordinance. "2010T Bonds" means the Water and Sewer Refunding Revenue Bonds, 2010T (Taxable), 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. "Fiscal Agent" means the fiscal agent of the State of Washington as the same may be designated by the State of Washington from time to time. "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 the Parity Bond Ordinances, 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 parity with the lien and charge upon such Net Revenue and ULID Assessments for the Outstanding Parity Bonds and the 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. -5- 510585383 "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. "MSRB"means the Municipal Securities Rulemaking Board. "Net Revenue of the Waterworks Utility" or "Net Revenue" means the Gross Revenue less Operating and Maintenance Expenses. "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 1998B Bonds, 1999 Bonds, 2001 Bonds, 2002 Bonds, 2005 Bonds, 2007 Bonds and 2009 Bonds. "Parity Bonds" means the Outstanding Parity Bonds, the Bonds and any Future Parity Bonds. "Parity Bond Ordinances" means Ordinance No. 3314, Ordinance No. 3378, Ordinance No. 3503, Ordinance No. 3567, Ordinance No. 3740, Ordinance No. 3835, Ordinance No. 3915 and this ordinance. "Parity Conditions" means the conditions for issuing Future Parity Bonds set forth in Exhibit A to this ordinance, which is incorporated herein by this reference. "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. "Purchaser"means Piper Jaffray& Co. of Seattle, Washington. "Refunded 1998A Bonds" means the outstanding Water and Sewer Revenue Bonds, 1998, Series A (Taxable), issued pursuant to Ordinance No. 3314, maturing in the years 2013 and 2018, the refunding of which has been provided for by this ordinance. "Refunded 1998B Bonds" means the outstanding Water and Sewer Revenue Refunding Bonds, 1998, Series B (Tax-Exempt), issued pursuant to Ordinance No. 3314, maturing in the years 2010 through 2014, inclusive, the refunding of which has been provided for by this ordinance. -6- 51058538.3 "Refunded Bonds" means, collectively, the Refunded 1998A Bonds and the Refunded 1998B Bonds. "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 principal of and interest on the Refunded Bonds when due on June 1, 2010; (c) the call, payment, and redemption on July 6, 2010, of all of the then outstanding Refunded Bonds at a price of par plus accrued interest; and (c) the payment of 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 form 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 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 Outstanding Parity Bonds and the Bonds means the Surety Bond provided by the Reserve Insurer. "Reserve Insurer" means Ambac Assurance Corporation for the Outstanding Parity Bonds and the Bonds. "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) 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. -7- 510585383 (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. "SEC"means the United States Securities and Exchange Commission. "Surety Bond" means the surety bond issued by the Reserve Insurer guaranteeing certain payments into the Reserve Account with respect to the Outstanding Parity Bonds and the Bonds as provided in and subject to the limitations set forth in that surety bond. "Term Bonds"means those bonds of any single issue or series of 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. Findings and Determinations. (a) Sufficiency of Pledge. 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 Parity 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. -8- 51058538.3 (b) Due Regard. 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 Outstanding Parity 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 the Outstanding Parity 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 Outstanding Parity Bonds. (c) Satisfaction of Parity Conditions. The City Council finds that (1) all payments required by the Outstanding Parity Bonds are provided for in this ordinance or have been provided for or made into the Bond Fund for those outstanding bonds and that no deficiency exists in such fund; (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) that all other conditions set forth in the Parity Conditions will have been met and satisfied before the Bonds are delivered to the initial purchaser. Section 3. Plan of Additions. 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 following (the "Plan of Additions"): (a) Completion of the West Pasco Water Treatment Plant; (b) Addition of third primary clarifier at wastewater treatment plan; (c) Construction of sewer pump stations on Commercial Avenue and at Highway 12/Kahlotus Highway; and (d) Sewer line extension at Court Street/1-182 north. 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 plan. The life of the improvements comprising the Plan of Additions is declared to be at least the term of the 2010A Bonds. The estimated cost of the acquisition, construction, installation and financing of the above-described improvements is declared to be approximately $6,000,000. -9- 51058538 3 Such cost shall be paid from the proceeds of the 2010A Bonds and from other money of the City made available therefor. Section 4. Purpose and Description of the 2010A Bonds. The 2010A Bonds are being issued for the purpose of providing the funds to pay the cost of carrying out the Plan of Additions, to pay the cost of carrying out the Refunding Plan allocable to the Refunded 1998B Bonds, and to fund a reserve for and pay the costs of issuance of the 2010A Bonds. The 2010A Bonds shall be called Water and Sewer Improvement and Refunding Revenue Bonds, 2010A, of the City; shall be in the aggregate principal amount of$9,070,000; shall be dated their date of initial delivery; 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 December 1, 2010, to the maturity or earlier redemption of the Bonds; and shall mature on June 1 in years and amounts and bear interest at the rates per annum as follows: Maturity Principal Interest Maturity Principal Interest Years Amounts Rates Years Amounts Rates 2011 $895,000 3.000 2018 295,000 4.000 2012 935,000 2.000 2019 305,000 4.000 2013 955,000 3.000 2020 320,000 4.000 2014 985,000 4.000 ** 2015 260,000 4.000 2025 1,800,000 4.200 2016 275,000 4.000 2017 285,000 4.000 2029 1,760,000 5.000 Section 5. Purpose and Description of the 2010T Bonds. The 2010T Bonds are being issued for the purpose of providing the funds to pay part of the cost of carrying out the Refunding Plan allocable to the Refunded 1998A Bonds and to pay the costs of issuance of the 2010T Bonds. The 2010T Bonds shall be called Water and Sewer Refunding Revenue Bonds, 2010T (Taxable), of the City; shall be in the aggregate principal amount of$1,240,000; shall be dated their date of initial delivery; 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 December 1, 2010, to the maturity or earlier redemption of the Bonds; shall mature on June 1, 2018; and shall bear interest at the rate of 4.616%per annum. Section 6. 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. -10- 51058538.3 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 DTC. The Bonds so registered shall be held in fully immobilized form by DTC as depository in accordance with the provisions of the Letter of Representations. Neither the City nor the Bond Registrar shall have any 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 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 7. 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 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. The Bonds are payable solely out of the Bond Fund and shall not be general obligations of the City. -11- 51058538.3 Section 8. Redemption Provisions and Open Market Purchase of Bonds. (a) Optional Redemption. Bonds maturing on or prior to June 1, 2019, shall not be subject to optional redemption by the City prior to their stated maturity dates The City reserves the right and option to redeem Bonds maturing on or after June 1, 2020, prior to their stated maturity date at any time on or after December 1, 2019, as a whole or in part (randomly in such manner as the Bond Registrar shall determine), at par plus accrued interest to the date fixed for redemption. (b) Mandatory Redemption. 2010A Bonds maturing in 2025 and 2029 and the 2010T Bonds are Term Bonds and, if not redeemed under the optional redemption provisions set forth above or purchased in the open market under the provisions set forth below, shall be called for redemption randomly (in such manner as the Bond Registrar shall determine) at par plus accrued interest on June 1 in years and amounts as follows: 2010A Bonds maturing June 1, 2025 Mandatory Mandatory Redemption Redemption Years Amounts 2021 330,000 2022 345,000 2023 360,000 2024 375,000 2025 (maturity) 390,000 2010A Bonds maturing June 1, 2029 Mandatory Mandatory Redemption Redemption Years Amounts 2026 410,000 2027 430,000 2028 450,000 2029 (maturity) 470,000 2010T Bonds maturing June 1, 2018 Mandatory Mandatory Redemption Redemption Years Amounts 2011 130,000 2012 135,000 2013 145,000 2014 150,000 2015 160,000 -12- 51058538.3 2016 165,000 2017 175,000 2018 (maturity) 180,000 If the City redeems under the optional redemption provisions, purchases in the open market or defeases Term Bonds, the par amount of the Term Bonds so redeemed, purchased or defeased (irrespective of their actual redemption or purchase prices) shall be credited against one or more scheduled mandatory redemption amounts for those Term Bonds. The City shall determine the manner in which the credit is to be allocated and shall notify the Bond Registrar in writing of its allocation at least 60 days prior to the earliest mandatory redemption date for that maturity of Term Bonds for which notice of redemption has not already been given. (c) Open Market Purchase. 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. (d) General. All Bonds purchased or redeemed under this section shall be cancelled. 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 to the Bond Registrar, 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. 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 9. Notice of Redemption. While the Bonds are held by DTC in book-entry only form, any notice of redemption shall be given at the time, to the entity and in the manner required by DTC in accordance with the Letter of Representations, and the Bond Registrar shall not be required to give any other notice of redemption. If the Bonds cease to be in book-entry only form, 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. In the case of an optional redemption, the notice may state that the City retains the right to rescind the redemption notice and the related optional redemption of Bonds by giving a notice of rescission to the affected registered owners at any time prior to the scheduled optional redemption date. Any notice of optional redemption that is so rescinded shall be of no effect, and the Bonds for which the notice of optional redemption has been rescinded shall remain outstanding. -13- 51058538.3 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 their offices in New York, New York, or their successor, to the MRSB 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. Section 10. 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 11. Form and Execution of Bonds. The Bonds shall be prepared 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. 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 Improvement and Refunding Revenue Bonds, 2010A/Water and Sewer Refunding Revenue Bonds, 2010T (Taxable)], described in the Bond Ordinance. WASHINGTON STATE FISCAL AGENT Bond Registrar By [specimen] 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 -14- 51058538.3 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 12. 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. Section 13. Bond Fund; Payments into Bond Fund. The Bond Fund has been previously created and established in the office of the Finance Manager 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. -15- 51058538 3 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 Interest Account. The Reserve Insurer shall be reimbursed first, 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 14. Pledge, 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 15. Creation of Project Account; Deposit of Bond Proceeds. There is created and established in the office of the Finance Manager of the City a special account in the City's Water/Sewer Utility Fund designated 2010 Project Account (the "Project Account"). Proceeds of the 2010A Bonds allocable to the Plan of Additions shall be deposited into the Project Account and used to pay the costs of carrying out the Plan of Additions and allocable costs of issuance and sale of the 2010A Bonds. Until needed to pay those costs, the City may invest -16- 51058538.3 principal proceeds deposited in the Project Account 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. Proceeds of the 2010A Bonds in an amount sufficient to fully fund the Reserve Requirement shall be deposited in the Reserve Account. Principal proceeds of the Bonds allocable to the Refunding Plan shall be deposited in accordance with Section 16 of this ordinance. Section 16. 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 and Other Money of the City' Acquisition of Acquired Obligations. On the date of issuance of the Bonds, the City shall deposit with the Refunding Trustee cash in an amount sufficient to pay the principal of and interest on the Refunded Bonds due on June 1, 2010. A sufficient amount of the proceeds of the sale of the Bonds shall be deposited immediately upon the receipt thereof with the Refunding Trustee and used, together with cash to be deposited with the Refunding Trustee , to discharge the obligations of the City relating to the Refunded Bonds under Ordinance No. 3314 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, 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 between the City and the Refunding Trustee. Any Bond proceeds or other money deposited with the Refunding Trustee not needed to purchase the Acquired Obligations and provide the beginning cash balance and pay the administrative costs of the refunding shall be returned to the City at the time of delivery of the Bonds to the initial purchaser thereof and deposited in the Project Account to pay costs of the Plan of Additions. (c) Administration of Refunding. The Refunding Trustee is authorized and directed to purchase the Acquired Obligations and to make the payments required to be made by the Refunding Plan from the Acquired Obligations and money deposited with the Refunding Trustee pursuant to this ordinance. All Acquired 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. 3314, 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 counsel's fees, and other related expenses, shall be paid out of the proceeds of the Bonds. -17- 510585383 (d) Authorization for Refunding Trust Agreement. To carry out the Refunding Plan provided for by this ordinance, the City Manager 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 City Manager 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 17. Call for Redemption of the Refunded Bonds. The City calls for redemption on July 6, 2010, all of the then-outstanding 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 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. 3314 in order to effect the redemption prior to their maturity of the Refunded Bonds. Section 18. City 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 ratepayers and in the public interest. In making such finding and determination, the City Council has given consideration to the fixed maturities of the Bonds and the Refunded Bonds and the costs of issuance of the Bonds. The City Council further finds and determines that the money to be deposited with the Refunding Trustee for the Refunded Bonds in accordance with Section 16 of this ordinance will discharge and satisfy the obligations of the City under Ordinance No. 3314 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 19. 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, -18- 510585383 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 loan redemption funds or accounts, and other revenue bond redemption funds created to pay the debt service on any revenue obligation having a lien 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 20. 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 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. -19- 510585383 (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 21. Provisions for Future Parity Bonds. The City reserves the right to issue Future Parity Bonds if the Parity Conditions set forth in Exhibit A are met and complied with at the time of the issuance of those Future Parity Bonds. 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 22. Preservation of Tax Exemption for Interest on the 2010A Bonds. The City covenants that it will take all actions necessary to prevent interest on the 2010A 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 2010A Bonds or other funds of the City treated as proceeds of the 2010A Bonds at any time during the term of the 2010A Bonds which will cause interest on the 2010A Bonds to be included in gross income for federal income tax -20- 51058538.3 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 2010A Bonds, take all actions necessary to comply (or to be treated as having complied) with that requirement in connection with the 2010A 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 2010A Bonds from being included in gross income for federal income tax purposes. Section 23. Designation of 2010A Bonds as "Qualified Tax-Exempt Obligations." The City has determined and certifies that (a) the 2010A Bonds are not "private activity bonds" within the meaning of Section 141 of the Code; (b) the reasonably anticipated amount of tax- exempt obligations (other than private activity bonds and other obligations not required to be included in such calculation) which the City and any entity 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) will issue during the calendar year in which the 2010A Bonds are issued will not exceed $30,000,000; and (c) the amount of tax-exempt obligations, including the 2010A 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 2010A Bonds are issued does not exceed $30,000,000. The City designates the 2010A Bonds as "qualified tax-exempt obligations" for the purposes of Section 265(b)(3) of the Code. Section 24. 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 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 Parity 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 pending the prior redemption of the defeased Bonds and if such refunding plan also provides that certain money and/or Government -21- 51058538.3 Obligations 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. Section 25. Approval of Bond Purchase Agreement. Piper Jaffray & Co. of Seattle, Washington (the "Purchaser"), has presented a bond purchase agreement (the "Bond Purchase Agreement") to the City by which the Purchaser has offered to purchase the Bonds under the terms and conditions provided in the Bond Purchase Agreement, which written Bond Purchase Agreement is on file with the City Clerk and is incorporated herein by this reference. The City Council finds that entering into the Bond Purchase Agreement is in the City's best interest and, therefore, accepts the offer contained therein and authorizes the execution of the Bond Purchase Agreement by City officials, including the Finance Director. The Bonds will be printed at City expense and will be delivered to the Purchaser in accordance with the terms of the Bond Purchase Agreement with the approving legal opinion of Foster Pepper PLLC, municipal bond counsel of Seattle, Washington, relative to the Bonds. 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 for the proper application and use of the proceeds of the sale thereof. Section 26. Preliminary Official Statement Deemed Final. The City Council has been provided with copies of a preliminary official statement dated May 7, 2010 (the "Preliminary Official Statement"), prepared in connection with the sale of the Bonds. For the sole purpose of the Purchaser's compliance with Securities and Exchange Commission 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 Information and Notice of Material Events. The City undertakes to provide or cause to be provided, either directly or through a designated agent, to the MSRB, in an electronic format as prescribed by the MSRB, accompanied by identifying information as prescribed by the MSRB: (i) 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- 51058538.3 (ii) 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 2010A 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) 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, 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 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, 2010; and (iii) May be provided in a single or multiple documents, and may be incorporated by specific reference to documents available to the public on the Internet website of the MSRB or filed with the SEC. (c) Amendment of Undertaking. The Undertaking is subject to amendment after the primary offering of the Bonds without the consent of any holder of any Bond, or of any broker, dealer, municipal securities dealer, participating underwriter, rating agency, the MSRB,under the circumstances and in the manner permitted by the Rule. The City will give notice to the MSRB of the substance (or provide a copy) of any amendment to the Undertaking and a brief statement of the reasons for the amendment. If the amendment changes the type of annual financial information to be provided, the annual financial information containing the amended financial information -23- 51058538.3 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 the MSRB. (f) Remedy for Failure to Comply with Undertaking. As soon as practicable after the City learns of any failure to comply with the Undertaking, the City will proceed with due diligence to cause such noncompliance to be corrected. No failure by the City or other obligated person to comply with the Undertaking shall constitute a default in respect of the 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 future perform the duties of that office) or his or her designee is authorized and directed in his or her discretion to take such further actions as may be necessary, appropriate or convenient to carry out the Undertaking of the City in respect of the 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; (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 -24- 51058538.3 (v) Effecting any necessary amendment of the Undertaking. Section 28. 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 and APPROVED by the Mayor of Pasco, Washington, at a regular open public meeting, this 17''day of May, 2010. Matt Watkins, Mayor A T Debra T Clark, City Clerk APPROVED AS TO FORM: Foster Pepper PLLC Bond Counsel -25- 51058538.3 (v) Effecting any necessary amendment of the Undertaking. Section 28. 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 and APPROVED by the Mayor of Pasco, Washington, at a regular open public meeting, this 17th day of May, 2010. Matt Watkins, Mayor ATTEST: Debra L. Clark, City Clerk APPROVED AS TO FORM: Foster Pepper PLLC Bond Counsel -25- 51058538.3 EXHIBIT A PARITY CONDITIONS (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 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 Services. (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 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, 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: A-1 5]058538.3 (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 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 (b) 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. Prior: Ordinance No. 2846, Section 21 (1991 Bonds) Ordinance No. 3314, Section 19 (1998 Bonds) Ordinance No. 3378, Section 16 (1999 Bonds) Ordinance No. 3503, Section 19 (2001 Bonds) Ordinance No. 3567, Section 16 (2002 Bonds) Ordinance No. 3740, Section 16 (2005 Bonds) Ordinance No. 3835, Section 17 (2007 Bonds) Ordinance No. 3915, Section 18 (2009 Bonds) A-2 51058538.3 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. 3962 (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 May 17, 2010, 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. 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 17th day of May, 2010. CITY OF PASCO, WASHINGTON LLt I Le Debra L. Clark, City Clerk 51058538.3