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Home My WebLink About4451 CITY OF BREMERTON, WASHINGTON ORDTNANCE NO. [~/~ i AN ORDINANCE of the City of Bremerton, Washington, relating to the waterworks utility of the City, including the sewerage system as a part thereof; providing for the issuance of $11,000,000 principal amount of Water and Sewer Revenue Bonds, 1994, of the City to pay part of the costs to carry out the system or plan of additions and betterments to and extensions of the waterworks utility specified and adopted by Ordinance No. 3887, as amended by Ordinances Nos. 3948, 4015, 4053, 4147, 4241, 4363, and this ordinance; confirming the combining of the City's storm drainage system into the waterworks utility; fixing the dates, forms, terms, interest rates, maturities and covenants of such bonds; providing for bond and reserve insurance, issuance of the bonds and acquisition of the insurance policies; approving the sale and providing for the delivery of such bonds to Lehman Brothers Inc. of Seattle, Washington; and declaring an emergency. Passed March 16, 1994 Prepared By: Foster Pepper & Shefelman 1111 Third Avenue, Suite 3400 Seattle, Washington 98101 116741.3 TABLE OF CONTENTS Paqe No. Recitals ........................... 1 Section 1. Definitions .................... 4 Section 2. Plan of Additions and Payment of Settlement ................... 14 Section 3. Findings Regarding Parity Provisions and Determination Regarding Lien Position; Storm Drainage System .............. 14 Section 4. Description of Bonds .............. 15 Section 5. Registration and Transfer of Bonds ....... 16 Section 6. Payment of Bonds ................ 17 Section 7. Optional Redemption; Purchase of Bonds ..... 17 Section 8. Failure to Redeem Bonds ............. 17 Section 9. Bond Fund .................... 18 Section 10. Pledge of Revenue and Lien Position ....... 22 Section 11. Reserve Account Instrument ........... 22 Section 12. Deposit of Bond Proceeds and Reserve Account Transfers .................... 26 Section 13. Form and Execution of Bonds ........... 26 Section 14. Bond Registrar ................. 28 Section 15. Covenants .................... 28 Section 16. Preservation of Tax Exemption for Interest on Bonds .................... 30 Section 17. Bonds Negotiable ................ 31 Section 18. Parity Provisions ................ 31 Section 19. Flow of Funds .................. 33 116741.3 --i-- Section 20. Advance Refunding or Defeasance of Bonds .... 34 Section 21. Approval of Bond Purchase Contract ....... 36 Section 22. Bond Insurance ................. 37 Section 23. Additional Requirements of Bond Insurer ..... 39 Section 24. Notice Addresses ................ 41 Section 25. Additional Provisions for Bond Insurer and Reserve Insurer ................. 41 Section 26. Temporary Bond ................. 44 Section 27. Declaration of Emergency ........... 44 -ii- CITY OF BREMERTON, WASHINGTON ORDINANCE NO. ~/~.~/ AN ORDINANCE of the City of Bremerton, Washington, relating to the waterworks utility of the City, including the sewerage system as a part thereof; providing for the issuance of $11,000,000 principal amount of Water and Sewer Revenue Bonds, 1994, of the City to pay part of the costs to carry out the system or plan of additions and betterments to and extensions of the waterworks utility specified and adopted by Ordinance No. 3887, as amended by Ordinances Nos. 3948, 4015, 4053, 4147, 4241, 4363, and this ordinance; confirming the combining of the City's storm drainage system into the waterworks utility; fixing the dates, forms, terms, interest rates, maturities and covenants of such bonds; providing for bond and reserve insurance, issuance of the bonds and acquisition of the insurance policies; approving the sale and providing for the delivery of such bonds to Lehman Brothers Inc. of Seattle, Washington; and declaring an emergency. WHEREAS, the City of Bremerton, Washington (the "City"), now owns, maintains and operates a combined waterworks and sewerage system (the "System"), which System has from time to time required various additions, betterments and extensions; and WHEREAS, pursuant to Ordinance No. 3989, the city issued its $18,025,000 par value Water and Sewer Revenue Refunding Bonds, 1985, dated November 1, 1985 (the "1985 Bonds"), and, pursuant to Ordinance No. 4393, as amended by Ordinance No. 4395, the City issued its $9,990,000 principal amount of Water and Sewer Refunding Revenue Bonds, 1992, Series A, dated October 1, 1992, and $3,000,000 principal amount of Water and Sewer Refunding Revenue Bonds, 1992, Series B, dated October 1, 1992, (collectively, the "1992 Bonds") and, by Section 12 of Ordinance No. 3989 and Section 20 of Ordinance No. 4393, as amended by Ordinance No. 4395, reserved the right to issue additional water and sewer revenue 116741,3 --1-- bonds on a parity of lien with the 1985 Bonds and the 1992 Bonds if the following conditions were met and complied with at the time of issuance of those bonds: "(a) At the time of issuance of such Future Parity Bonds, there shall not be a deficiency in either the Principal and Interest Account or the Reserve Account in the Bond Fund; "(b) The ordinance authorizing the issuance of such Future Parity Bonds shall provide for the creation of a sinking fund account in the Bond Fund for any Term Bonds to be issued and for regular payments to be made into such account for the payment of the principal of such Term Bonds on or before their maturity, or, as an alternative, the mandatory redemption of such Term Bonds prior to their maturity date from money in the Principal and Interest Account. "(c) The ordinance authorizing any Future Parity Bonds shall provide for the payment of the principal of and interest thereon out of the Bond Fund and shall further provide for the payment from the Net Revenue of the System in substantially equal monthly payments an amount which within a period of five years from the date of issuance of such Future Parity Bonds will fund fully the Reserve Requirement of such Future Parity Bonds subject to the City's right to fund all or a portion of the Reserve Requirement with a Reserve Fund Instrument or in whole or in part out of the proceeds of such Future Parity Bonds; except that in the event such Future Parity Bonds are issued for the purpose of refunding outstanding Bonds and/or Future Parity Bonds, the amount of such reserve allocated to such bonds being so refunded shall be retained or used as a reserve for such refunding Future Parity Bonds or used to retire outstanding Bonds or outstanding Future Parity Bonds pursuant to the refunding plan, which reserve amount shall be replaced in the same manner and within the same time as required for additional Future Parity Bonds, or such reserve may remain in the Reserve Account to be used as the reserve for remaining bonds payable from the Bond Fund; and "(d) At the time of the issuance of such Future Parity Bonds, the City shall have on file a certificate from an independent, licensed professional engineer experienced in the design, construction and operation of municipal utilities, or a certified public accountant, showing that in his or her professional opinion the estimated Gross Revenue of the System in any future year, after deducting Operating and Maintenance Expenses, will 116741.3 -2- be equal to the Coverage Requirement. A copy of such certificate shall be provided, upon filing, with the Bond Insurer. The Coverage Requirement may be waived or modified solely with the written consent of the Bond Insurer. However, 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 Annual Debt Service in each year for the refunding bonds is not increased over the amount required for the bonds to be refunded thereby and the maturities of those refunding bonds are not extended beyond the maturities of the bonds to be refunded thereby. "The engineer's certificate, in estimating the Gross Revenue of the System available for debt service, shall use the historical Gross Revenue of the System for any twelve consecutive months out of the twenty-four months immediately preceding the month of delivery of the Future Parity Bonds. Such Gross Revenue may be adjusted to reflect any changes in rates in effect and being charged or expressly committed by ordinance of the City Council to be made in the future; may include income derived from customers of the System that have become customers during the twelve consecutive month period or thereafter adjusted to reflect one year's net revenue from such customers; may include revenues from any customers to be connected to the System who have paid the required connection charges; may include the revenue to be derived from any person, firm, corporation or municipal corporation under any executed contract for water and/or sewer service which revenue was not included in the historical Gross Revenue of the System; and may include the engineer's estimate of the Gross Revenue to be derived by the City from customers with improved property available to connect to any additions to and improvements and extensions of the System to be paid for out of the proceeds of the sale of the additional Future Parity Bonds or other additions to and improvements and extensions of the System then under construction and not fully connected to the facilities of the System when such additions, improvements and extensions are completed. "Actual or reasonably anticipated changes in the Operating and Maintenance Expenses subsequent to such twelve-month period shall be added or deducted, as is applicable. ." and WHEREAS, the City Council has determined that it is necessary and in the best interest of the City that a portion of the system 116741.3 or plan of additions and betterments to and extensions of the System specified and adopted by Ordinance No. 3887, as amended by Ordinances Nos. 3948, 4015, 4053, 4147, 4241 and 4363 and this ordinance, be carried out; and WHEREAS, the City Council has determined that it is necessary to issue and sell the water and sewer revenue bonds to provide part of the funds necessary to carry out a portion of that system or plan and to pay the costs of issuance of those bonds, and Lehman Brothers Inc. has offered to purchase such bonds on the terms and conditions hereinafter set forth; WHEREAS, it is in the best interest of the City and its ratepayers for the City to obtain bond insurance for all of the bonds authorized by this ordinance, and to fund the reserve for those bonds with a reserve insurance policy; NOW, THEREFORE, BE IT ORDAINED BY THE CITY COUNCIL OF THE CITY OF BREMERTON, WASHINGTON, AS FOLLOWS: Section 1. Definitions. As used in this ordinance the following words shall have the following meanings: "Annual Debt Service" means, in any year, that year's total of principal and interest requirements for the then outstanding bonds (except the principal maturity of Term Bonds) to which the term Annual Debt Service refers, plus the principal of any bonds subject to a mandatory prior redemption or mandatory sinking fund payment for that year, less all capitalized interest payable that year from such bonds. "Average Annual Debt Service" means the sum of the Annual Debt Service for the remaining years to the last scheduled maturity of 116741.3 --4-- the applicable issue or series of the 1985 Bonds, the 1992 Bonds, the Bonds and Future Parity Bonds divided by the number of those years. "Bond Fund" means the Water and Sewer Revenue Bond Fund, 1985, created by Ordinance No. 3989 for the purpose of paying and securing the principal of and interest on the 1985 Bonds, the 1992 Bonds, the Bonds and any Future Parity Bonds. "1994 Bond Insurance Policy" means the municipal bond new issue insurance policy issued by the Bond Insurer that guarantees the timely payment of principal of and interest on the Bonds. "Bond Insurer" means Financial Guaranty Insurance Company, a New York stock insurance company, or any successor thereto, as issuer of the 1994 Bond Insurance Policy. "1985 and 1992 Bond Insurer" means Financial Guaranty Insurance Company, a New York stock insurance company, or any successor thereto. "Bonds" means, the Water and Sewer Revenue Bonds, 1994, authorized to be issued by this ordinance. "1985 Bonds" means the outstanding Water and Sewer Revenue Refunding Bonds, 1985, issued pursuant to Ordinance No. 3989. "1992 Bonds" means collectively, the outstanding Water and Sewer Refunding Revenue Bonds, 1992, Series A and Water and Sewer Refunding Revenue Bonds, 1992 Series B, of the City. "Bond Registrar" means the fiscal agencies of the State of' Washington in Seattle, Washington, and New York, New York, as the same may be designated from time to time. 116741.3 --5-- "City" means the City of Bremerton, Washington, a first class city of the State of Washington. "Coverage Requirement" means Net Revenue of the System at least equal to 1.30 times the actual Annual Debt Service on all 1985 Bonds, 1992 Bonds, Bonds and any Future Parity Bonds. For purposes of determining the Coverage Requirement for the issuance of Future Parity Bonds with respect to variable rate indebtedness, such debt shall be assumed to bear interest at a fixed rate equal to the higher of 9.2% and the highest variable rate borne by outstanding variable rate debt issued during the preceding 24 months, or if no variable rate debt is outstanding at the time of calculation but is then proposed to be issued, the rate borne by other variable rate debt the interest rate for which is determined by reference to an index comparable to the index to be used to determine the interest on the variable rate debt to be issued. "Current Water Fund" means the fund (and subfunds and accounts therein) of the City of that name heretofore created into which fund shall be paid all Gross Revenue of the System. "Future Parity Bonds" means any and all revenue bonds of the City issued after the date of the Bonds pursuant to the provisions of Section 12 of Ordinance No. 3989, Section 20, of Ordinance No. 4393, and Section 18 of this ordinance, the payment of the principal of and interest on which constitutes a lien and charge upon the Gross Revenue of the System on a parity with the lien and charge upon such Gross Revenue for the 1985 Bonds, 1992 Bonds and the Bonds. 116741.3 -6- "Government Obligations" means noncallable direct obligations of the United States of America. "Gross Revenue of the System" means all the earnings and revenue received by the System from any source whatsoever, including from the sale of forest products from System-owned lands, except general ad valorem taxes, grants from the state, federal or local governments, earnings in any refunded bond escrow account or fund, gifts to the System for capital purposes, proceeds from the sale of City or System property, and proceeds of City or System obligations. "Maximum Annual Debt Service" means the maximum amount of Annual Debt Service which shall become due in any future year on any outstanding 1985 Bonds, 1992 Bonds, Bonds and Future Parity Bonds. "Net Revenue of the System" means the Gross Revenue of the System less Operating and Maintenance Expenses. "Operating and Maintenance Expenses" means all reasonable expenses incurred by the City in causing the System to be operated and maintained in good repair, working order and condition, including without limitation payments (other than payments out of proceeds of the Bonds or Future Parity Bonds) of premiums for insurance on the System, and any State-imposed taxes, and also including all payments made to another agency for treatment or disposal of sewerage or acquisition of water, but excluding depreciation and amortization, and any City-imposed utility taxes or payments in lieu of taxes payable from the Gross Revenue of the System. 116741.3 --7-- "Permitted Investments" means the following to the extent the same are legal for the investment of money of the City: (1) bonds, notes and other evidences of direct indebtedness of the United States of America and securities unconditionally guaranteed as to the timely payment of principal and interest by the United States of America ("Government Obligations"); (2) obligations of the Federal National Mortgage Association, the Federal Home Loan Mortgage Corporation, the Government National Mortgage Association, Federal Home Loan Banks, or the Export-Import Bank of the United States; (3) direct obligations of, or obligations unconditionally guaranteed by, any state of the United States, or any subdivision, agency, instrumentality or authority thereof rated Aa3 or better by Moody's Investors Service ("Moody's") and AA- or better by Standard and Poor's Corporation ("S&P"); (4) commercial paper rated Prime-1 by Moody's and A-i+ by S&P; (5) deposits with any federally-, or state-, chartered savings and loan association which has combined capital, surplus and undivided profits of not less than $3 million if the principal plus interest to accrue over the term of the deposit is fully insured by FSLIC or secured by instruments described in (1), (2) and (3) above; (6) deposits with any federally-, or state-, chartered commercial bank, the deposits of which are insured by the FDIC and which (i) has, or is the lead bank of a parent holding company which has, unsecured, uninsured and unguaranteed obligations which are rated Aa2 or better by Moody's and AA or better by S&P, or (ii) has combined capital, surplus and undivided profits of not less than $3 million if the principal plus interest to accrue over the term of the deposit is 116741.3 --8-- fully insured by the FDIC or secured by instruments described in (1), (2) and (3) above; (7) investments in a money market or other fund, the investments of which fund are exclusively in obligations or securities described in subsections (1), (2) and (3) above; (8) repurchase agreements with a registered broker/dealer subject to the Securities Investors' Protection Corporation Liquidation in the event of insolvency, or any commercial bank (A) whose unsecured indebtedness is rated A2 or better by Moody's or A or better by S&P, or (B) which is the lead bank of a parent bank holding company whose unsecured indebtedness is rated A2 or better by Moody's and A or better by S&P, or (C) having a combined capital, surplus and undivided profits of not less than $100 million and acceptable to the Trustee, which repurchase agreement shall provide that: (i) the repurchase obligation of the bank is collateralized by the securities described in (1) above, themselves which shall be held by the Trustee (unless the Trustee is obligated under the repurchase agreement) or third party which is a Federal Reserve Bank or a commercial bank with capital, surplus and undivided profits of not less than $50 million and the Trustee shall have received written confirmation from that third party that it holds those securities for the benefit of the City; (ii) a perfected security interest in favor of the Trustee in the securities has been created under the Uniform Commercial Code or pursuant to the book entry procedures described in 31 C.F.R. 306.1 et seq. or 31 C.F.R. 350.0 et seq.; (iii) the securities on the date of execution of the repurchase agreement have a fair market value of at least 100% of the amount of the repurchase obligation, including both principal and interest; and (iv) the repurchase obligation is to be performed within 30 days of the date described in (iii) above, or throughout the term of the repurchase agreement the securities have a fair market value equal to at least 100% of the amount of the repurchase obligation; 116741.3 --9-- (9) an investment agreement approved by the Bond Insurer with (a) an insurance company with unsecured, uninsured and unguaranteed obligation (or claims paying ability) rated Aa2 by Moody's and AA by S&P, or (B) a commercial bank (i) with unsecured, uninsured and unguaranteed obligations rated Aa2 or better by Moody's and AA or better by S&P, respectively, or (ii) which is the lead bank of a bank holding company whose unsecured, uninsured and unguaranteed obligations are rated Aa2 or better by Moody's and AA or better by S&P, but only if such agreement shall provide that it is not subordinated to any other obligations of such insurance company or banking institution; or the State of Washington Local Government Investment Pool. The above investments shall be valued as frequently as deemed necessary by the Bond Insurer and the City, in any event not less than quarterly, at the market value thereof. "Plan of Additions" means the system or plan of additions and betterments to and extensions of the System specified and adopted by Ordinance No. 3887, as amended by Ordinances Nos. 3948, 4015, 4053, 4147, 4241 and 4363 and this ordinance. "Principal and Interest Account" means the account of that name created in the Bond Fund by Ordinance No. 3989 for the payment of the principal of and interest on the 1985 Bonds, the 1992 Bonds, the Bonds and any Future Parity Bonds. "Reserve Account" means the account of that name created in the Bond Fund by of Ordinance No. 3989 for the purpose of securing the payment of the principal of and interest on the 1985 Bonds, the 1992 Bonds, the Bonds and any Future Parity Bonds. 11~41.3 "Reserve Account Instrument" means, for the 1985 Bonds, the 1992 Bonds and the Bonds, the Debt Service Reserve Fund Policy or Policies issued by Financial Guaranty Insurance Company, and for Future Parity Bonds means any of the following: A surety bond or insurance policy issued to the Bond Registrar as agent of the bondowners, by a company licensed to issue an insurance policy guaranteeing the timely payment of debt service on the Bonds (a "municipal bond insurer") if the claims paying ability of the insurer thereof shall be rated "AAA" or Aaa" by S&P or Moody's, respectively. A surety bond or insurance policy issued to the Bond Registrar, as agent of the bond owners, by an entity other than a municipal bond insurer if the form and substance of such instrument and the issuer thereof shall be approved by the Bond Insurer. An unconditional irrevocable letter of credit issued to the Bond Registrar, as agent of the bondowners, by a bank if the issuer thereof is rated at least "AA" by S&P. The letter of credit shall be payable in one or more draws upon presentation by the beneficiary of a sight draft accompanied by its certificate that it then holds insufficient funds to make a required payment of principal or interest on the bonds. The draws shall be payable within two days of presentation of the sight draft. The letter of credit shall be for a term of not less than three years. The issuer of the letter of 116741_3 -11- credit shall be required to notify the City and the Bond Registrar, not later than 30 months prior to the stated expiration date of the letter of credit, as to whether such expiration date shall be extended, and if so, shall indicate the new expiration date. If such notice indicates that the expiration date shall not be extended, the City shall deposit in the Reserve Fund an amount sufficient to cause the cash or Permitted Investments on deposit in the Reserve Fund together with any other qualifying credit instruments, to equal the Reserve Requirement on all outstanding Bonds, such deposit to be paid in equal installments on at least a semiannual basis over the remaining term of the letter of credit, unless the Reserve Account Instrument is replaced by a Reserve Account Instrument meeting the requirements in any of the above. The letter of credit shall permit a draw in full not less than two weeks prior to the expiration or termination of such letter of credit if the letter of credit has not been replaced or renewed. The Reserve Account Instrument obtained by the City must be equal to part or all of the Reserve Requirement for any Bond or Future Parity Bonds then outstanding for which such instrument is obtained. The use of a Reserve Account Instrument in the future is subject to the conditions set forth in Section 11 of this ordinance. 116741.3 -12- "Reserve Instrument and Bond Policy Costs" means draws against the Bond Insurance Policy or Reserve Account Instrument, expenses and accrued interest. "Reserve Insurer" means Financial Guaranty Insurance Company, a New York stock insurance company, or any successor thereto. "Reserve Requirement" means: (1) For the Bonds, the difference between the lesser of the Maximum Annual Debt Service or 125% of the Average Annual Debt Service on the 1985 Bonds, 1992 Bonds, and the lesser of the Maximum Annual Debt Service or 125% of the Average Annual Debt Service on the 1985 Bonds, 1992 Bonds and the Bonds. (2) For any issue of Future Parity Bonds, the lesser of the Maximum Annual Debt Service or 125% of the Average Annual Debt Service on the then outstanding 1985 Bonds, 1992 Bonds, Bonds, any Future Parity Bonds theretofore issued and outstanding, and such issue of Future Parity Bonds. Such amount shall be accumulated within five years of the date of issuance of the proposed Future Parity Bonds and, to the extent it is not capitalized as a part of such Future Parity Bonds, shall be deposited in approximately equal annual payments commencing one year after the date of issuance of such Future Parity Bonds. (3) For purposes of calculating the Reserve Requirement for the issuance of Future Parity Bonds bearing interest at a variable rate, the requirement shall be the lesser of 11% per annum and the highest rate permitted, in the opinion of bond 116741.3 -13- counsel, consistent with maintaining the tax-exempt status of the Bonds and the Future Parity Bonds. "System" means the existing combined water and sewerage systems of the City, together with any storm drainage system or refuse disposal system now or hereafter combined therewith, as the same may be added to, improved and extended for as long as any of the Bonds and any Future Parity Bonds are outstanding. "Term Bond Maturity Year" means any year in which Term Bonds are scheduled to mature. "Term Bonds" means any Bonds or Future Parity Bonds of any single issue or series designated as Term Bonds in the ordinance authorizing the issuance of Future Parity Bonds. Section 2. Plan of Additions and Payment of Settlement. The system or plan of additions and betterments to and extensions of the System specified and adopted by Ordinance No. 3887, as amended, is further amended by the additions set forth in Exhibit A, attached hereto and made a part hereof by this reference. The City orders the carrying out of the portion of the Plan of Additions more particularly described in Exhibit A (the "Improvements"). Section 3. Findings Regarding Parity Provisions and Determination Regarding Lien Position; Storm Drainage System. The City Council finds that: (a) There is no deficiency in either the Principal and Interest Account or the Reserve Account in the Bond Fund; (b) Provision is made in Section 6 of this ordinance for the payment of principal of and interest on the Bonds from the Principal and Interest Account and for funding the Reserve Requirement for the Bonds in the Reserve Account with a Reserve Account Instrument. 116741.3 (c) There will be on file on the date of the delivery of the Bonds to the initial purchaser thereof a certificate of an independent, licensed professional engineer or a certified public accountant that the estimated Gross Revenue of the System, after deducting Operating and Maintenance Expenses, will meet the Coverage Requirement. The City Council has determined that all of the conditions of Section 12 of Ordinance No. 3989 and Section 20 of Ordinance No. 4393 will have been met and complied with on the date of delivery of the Bonds to the initial purchaser thereof and that the Bonds shall be issued on a parity of lien with the 1985 Bonds and the 1992 Bonds. The Council further finds that the City's storm drainage system is combined into the System, and all actions heretofore taken relating thereto are ratified, approved and confirmed. The appropriate city officials are requested to prepare a detailed description of the existing storm drainage system for adoption by ordinance. The City Treasurer may establish accounts or subaccounts for the purpose of separately accounting for activities relating to the storm drainage system element of the System. Section 4. Description of Bonds. For the purpose of paying part of the cost of carrying out the Improvements and paying the costs of issuance and sale of the Bonds, the City shall issue the Bonds in the principal amount of $11,000,000. The Bonds shall be designated Water and Sewer Revenue Bonds, 1994; shall be dated March 1, 1994; shall be fully registered in the denominations of $5,000 or any integral multiple thereof within a single maturity; shall be numbered, in the manner and with any additional designation as the Bond Registrar deems necessary for the purpose 116741.3 -15- of identification; and shall bear interest at the rates set forth below (computed on the basis of a 360-day year of twelve 30-day months), payable semiannually on September 1 and March 1, and shall mature on September 1 in the years and amounts as follows: Maturity Interest Years Amounts Rates 2002 $ 570,000 5.10% 2003 600,000 5.20 2004 2,270,000 5.30 2005 2,390,000 5.40 2006 2,515,000 5.50 2007 2,655,000 5.50 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 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 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 fifteen days preceding any principal payment or redemption date. 116'741.3 -16- 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 by the Bond Registrar on the interest payment date to the registered owners at the addresses appearing on the Bond Register on the 15th 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. The Bonds shall be payable solely out of the Bond Fund and shall not be general obligations of the City. Section 7. Optional Redemption; Purchase of Bonds. The Bonds shall be issued without the right or option of the City to redeem them prior to their stated maturity dates. The city reserves the right and option to purchase any or all of the Bonds at any time at any price plus accrued interest to the date of purchase. All Bonds purchased under this section shall be cancelled. Section 8. Failure to Redeem Bonds. If any Bond is not redeemed when properly presented at its maturity, 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. 116741.3 -3.'I- Section 9. Bond Fund. There has been created in the office of the City Treasurer a special fund of the City known as the Water and Sewer Revenue Bond Fund, 1985 (herein defined as the "Bond Fund"), which fund has been divided into two accounts, a Principal and Interest Account and a Reserve Account. So long as any Bonds are outstanding against the Bond Fund, the City obligates and binds itself to set aside and pay into the Bond Fund, in addition to the amounts required to be paid therein for the 1985 Bonds, 1992 Bonds and any Future Parity Bonds, on or before the 20th day of each month, out of the Net Revenue of the System certain fixed amounts without regard to any fixed proportion, namely: (a) Into the Principal and Interest Account, beginning with the month of April, 1994, 1/5 of the next ensuing six months' requirements for interest on the Bonds, beginning with the month of September, 1994, and continuing thereafter until the Bonds, both principal and interest, are paid in full, 1/6 of the next ensuing six months' interest requirements on the Bonds, beginning with the month of September, 2001, and continuing thereafter until the Bonds, both principal and interest are paid in full, and 1/12 of the next ensuing twelve months' principal requirements on the Bonds. (b) Into the Reserve Account an amount necessary to fund the Reserve Requirement of the 1985 Bonds, the 1992 Bonds, the Bonds and Future Parity Bonds within the time permitted by this ordinance to fund the Reserve Requirement. The Reserve Requirement for the 1985 Bonds, the 1992 Bonds and the Bonds shall be fully funded by Reserve Account Instruments. 116741.3 -18- The City covenants and agrees that it will at all times maintain in the Reserve Account an amount equal to the Reserve Requirement, except for withdrawals therefrom as authorized herein, until there is a sufficient amount in the Principal and Interest Account and Reserve Account to pay the principal of and interest on all outstanding bonds payable from the Bond Fund, at which time the money in the Reserve Account may be used to pay any such principal and interest so long as the money remaining on deposit in the Reserve Account is no less than the Reserve Requirement of the remaining outstanding bonds payable from the Bond Fund. If there shall be a deficiency in the Bond Fund to meet maturing installments of either principal of or interest on any of the 1985 Bonds, the 1992 Bonds, the Bonds and/or Future Parity Bonds, such deficiency shall be made up from the Reserve Account by the withdrawal of cash therefrom and then by drawing from any Reserve Account Instrument. Any deficiency created in the Reserve Account, including the value of any Reserve Account Instrument, by reason of any such withdrawal or resulting from any revaluation of investments in the reserve account will then be made up from the Net Revenue of the System which shall be first available after making necessary provisions for the required payments into the Principal and Interest Account and after repayment of any Reserve Account Instrument. Any such deficiency shall be restored by the close of the next succeeding fiscal year. All money in the Bond Fund may be kept in cash or invested in Permitted Investments maturing not later than the date when needed (for investments in the Principal and Interest Account) or maturing 116~1.3 not later than five years from the date of the investment or the last maturity of any remaining outstanding bonds payable from the Bond Fund, whichever is the lesser (for investments in the Reserve Account). In no event shall any money in the Bond Fund or any other money reasonably expected to be used to pay principal and/or interest on the Bonds be invested at a yield which would cause the Bonds to be arbitrage bonds within the meaning of Section 103(c) of the United States Internal Revenue Code of 1954, as amended, and applicable regulations thereunder. Income from investments in the Principal and Interest Account shall be deposited in that account. Income from investments in the Reserve Account shall be deposited in that account until the amount therein is equal to the Reserve Requirements of all bonds payable from the Bond Fund, and thereafter shall be deposited in the Principal and Interest Account. In addition, the City reserves the right to substitute for all or for a portion of the Reserve Account a Reserve Account Instrument which when combined with any money or investments in the Reserve Account equals an amount not less than the Reserve Requirement for all then outstanding 1985 Bonds, the 1992 Bonds, the Bonds and Future Parity Bonds. The City covenants that any such substitution will be subject to the prior approval of the 1985 and 1992 Bond Insurer, the Bond Insurer and the Reserve Account Insurer (with respect to the Bonds) and of any provider of bond insurance for any Future Parity Bonds and a written certificate from Moody's Investors Service, Inc., and Standard & Poor's Corporation that such substitution will not result in any change in 116741.3 -20- the outstanding ratings of the 1985 Bonds, the 1992 Bonds, the Bonds and any Future Parity Bonds and will not impair the security thereof. If the City obtains an additional reserve account instrument in addition to the Reserve Account Instrument obtained for the Bonds, the City shall first obtain the consent of the Reserve Insurer. Any drawings thereunder shall be made on a pro rata basis with the Reserve Account Instrument (calculated on the maximum amount available under each instrument) after the application of all available cash in the Reserve Account, including the liquidation of any investments therein. All repayments, including repayment of Reserve Instrument or Bond Policy Costs, shall be made on the same pro rata basis before the replenishing of any cash in the Reserve Account. The City may create sinking fund accounts or other accounts in the Bond Fund for the payment or securing the payment of bonds payable from the Bond Fund as long as the maintenance of such accounts does not conflict with the rights of the owners of bonds payable from the Bond Fund. It is declared that in creating the Bond Fund and in fixing the amounts to be paid into it as aforesaid, the City Council has had due regard for Operating and Maintenance Expenses (and the cost of operation and maintenance as used in RCW 35.92.100) and the debt service requirements of the 1985 Bonds, the 1992 Bonds and the Bonds, and declares that the City Council is not setting aside into the Bond Fund a greater amount than in its judgment will be 116741.3 -21- available over and above such Operating and Maintenance Expenses and debt service requirements. If the City fails to set aside and pay into the Bond Fund the amounts set forth above, the owner of any of the outstanding bonds payable out of the Bond Fund or the Bond Insurer may bring action against the City and compel the setting aside and payment. If the City fails to repay any Reserve Instrument or Bond Policy Costs as provided herein, the Reserve Insurer or Bond Insurer, as the case may be, may exercise any and all remedies available to Bondowners at law or under this ordinance other than acceleration of the maturity of the bonds or remedies which'would adversely affect Bondowners. Section 10. Pledge of Revenue and Lien Position. The Gross Revenue of the System is pledged for the payment of the 1985 Bonds, the 1992 Bonds, the Bonds and any Future Parity Bonds which may be issued hereafter. This pledge shall constitute a lien and charge upon such Gross Revenue of the System prior and superior to any other liens and charges whatsoever, subject only to Operating and Maintenance Expenses. Section 11. Reserve Account Instrument. The City shall acquire and maintain Reserve Account Instruments from the Reserve Insurer to satisfy the Reserve Requirement for the 1985 Bonds, the 1992 Bonds and the Bonds. The Reserve Insurer requires that the following provisions be included herein: " [The City's] repayment of any draws under the Reserve Account Instrument and related reasonable expenses incurred by Financial Guaranty (together with interest thereon at a rate equal to the lower of (i) the prime rate 116741.3 -22- of Morgan Guaranty Trust Company of New York in effect from time to time plus 2% per annum and (ii) the highest rate permitted by law) shall enjoy the same priority as the obligation to maintain and refill the Reserve Account. Repayment of Reserve Instrument or Bond Policy Costs shall commence in the first month following each draw, and each such monthly payment shall be in an amount at least equal to 1/12 of the aggregate of Reserve Instrument or Bond Policy Costs related to such draw. If and to the extent that cash has also been deposited in the Reserve Account, all such cash shall be used (or investments purchased with such cash shall be liquidated and the proceeds applied as required) prior to any drawing under the Reserve Account Instrument, and repayment of any Reserve Instrument or Bond Policy Costs shall be made prior to replenishment of any such cash amounts. If, in addition to the Reserve Account Instrument, any other reserve fund substitute instrument ("Additional Reserve Policy") is provided, drawings under the Reserve Account Instrument and any such Additional Reserve Policy, and repayment of Reserve Instrument or Bond Policy Costs and reimbursement of amounts due under the Additional Reserve Policy, shall be made on a pro rata basis (calculated by reference to the maximum amounts available thereunder) after applying all available cash in the Reserve Account and prior to replenishment of any such cash draws, respectively. The following covenants and provisions are required by the Reserve Insurer: " . 4. The use, in the future, of any Reserve Account Instrument not furnished by the Bonds Insurer pursuant to this Section shall be subject to receipt of an opinion of counsel acceptable to the Bond Insurer and in form and substance satisfactory to the Bond Insurer as 116741.3 -23- to the due authorization, execution, delivery and enforceability of such instrument in accordance with its terms, subject to applicable laws affecting creditors' rights, and, in the event the issuer of such credit instrument is not a domestic entity, an opinion of foreign counsel in form and substance satisfactory to the Bond Insurer. In addition, the use of an irrevocable letter of credit shall be subject to receipt of an opinion of counsel acceptable to the Bond Insurer to the effect that payments under such letter of credit would not constitute avoidable preferences under Section 547 of the U.S. Bankruptcy Code or similar state laws with avoidable preference provisions in the event of the filing of a petition for relief under the U.S. Bankruptcy Code or similar state laws by or against the issuer of the Bonds (or any other account party under the letter of credit). "5. The obligation to reimburse the issuer of a Reserve Account Instrument for any fees, expenses, claims or draws upon such Reserve Account Instrument shall be subordinated to the payment of debt service on the Bonds. The right of the issuer of a Reserve Account Instrument to payment or reimbursement of its fees and expenses shall be subordinate to cash replenishment of the Reserve Account, and, subject to the second succeeding sentence, its right to reimbursement for claims or draws shall be on a parity with the cash replenishment of the Reserve Account. The Reserve Account Instrument shall provide for a revolving feature under which the amount available thereunder will be reinstated to the extent of any reimbursement of draws or claims paid. If the revolving feature is suspended or terminated for any reason, the right of the issuer of the Reserve Account Instrument to reimbursement will be further subordinated to cash replenishment of the Reserve Account to an amount equal to the difference between the full original amount available under the Reserve Account Instrument and the amount then available for further draws or claims. If (a) the issuer of a Reserve Account Instrument becomes insolvent or (b) the issuer of a Reserve Account Instrument defaults in its payment obligations thereunder or (c) the claims-paying ability of the issuer of the insurance policy or surety bond falls below S&P "AAA" or a Moody's "Aaa" or (d) the rating of the issuer of the letter of credit falls below a S&P "AA," the obligation to reimburse the issuer of the Reserve Account Instrument shall be subordinate to the cash replenishment of the Reserve Account. "6. If (a) the revolving reinstatement feature described in the preceding paragraph is suspended or terminated or (b) the rating of the claims paying ability of the issuer 116741.3 -24- of the surety bond or insurance policy falls below a S&P "AAA" or a Moody's "Aaa" or (c) the rating of the issuer of the letter of credit falls below a S&P "AA", the Issuer shall either (i) deposit into the Reserve Account an amount sufficient to cause the cash or permitted investments on deposit in the Reserve Account to equal the Reserve Requirement on all outstanding Bonds, such amount to be paid over the ensuing five years in equal installments deposited at least semiannually or (ii) replace such instrument with a surety bond, insurance policy or letter of credit meeting the requirements in any of 1-3 above within six months of such occurrence. In the event (a) the rating of the claims-paying ability of the issuer of the surety bond or insurance policy falls below "A" or (b) the rating of the issuer of the letter of credit falls below "A" or (c) the issuer of the Reserve Account Instrument defaults in its payment obligations or (d) the issuer of the Reserve ~ccount Instrument becomes insolvent, the City shall either (i) deposit into the Reserve Account an amount sufficient to cause the cash or permitted investments on deposit in the Reserve Account to equal the Reserve Requirement on all outstanding Bonds, such amount to be paid over the ensuing year in equal installments on at least a monthly basis or (ii) replace such instrument with a surety bond, insurance policy or letter of credit meeting the requirements as defined in Section 1 herein within six months of such occurrence. "7. Where applicable, the amount available for draws or claims under the Reserve Account Instrument may be reduced by the amount of cash or permitted investments deposited in the Reserve Account pursuant to clause (i) of the preceding paragraph. "8. If the City chooses the above described alternatives to a cash-funded Reserve Account, any amounts owed by the City to the issuer of such credit instrument as a result of a draw thereon or a claim thereunder, as appropriate, shall be included in any calculation of debt service requirements required to be made pursuant to this ordinance for any purpose, e.g., rate covenant or additional bonds test. "9. The Bond Registrar shall ascertain the necessity for a claim or draw upon the Reserve Account Instrument and to provide notice to the issuer of the Reserve Account Instrument in accordance with its terms not later than three days (or such longer period as may be necessary depending on the permitted time period for honoring a draw under the Reserve Account Instrument) prior to each interest payment date. 116741.3 -25- "10. Cash on deposit in the Reserve Account shall be used (or investments purchased with such cash shall be liquidated and the proceeds applied as required) prior to any drawing on any Reserve Account Instrument. If and to the extent that more than one Reserve Account Instrument is deposited in the Reserve Account, drawings thereunder and repayments of costs associated therewith shall be made on a pro rata basis, calculated by reference to the maximum amounts available thereunder." Section 12. Deposit of Bond Proceeds and Reserve Account Transfers. There has been created in the office of the Treasurer a special fund of the City known as the Construction Account of the Wastewater Construction Fund (the "Construction Fund"). The accrued interest received from the purchaser of the Bonds shall be deposited in the Principal and Interest Account of the Bond Fund. The proceeds of the Bonds shall be deposited in the Construction Fund and Wastewater Operating Fund in accordance with the direction of the City Treasurer and used to pay the costs of carrying out the Improvements. Proceeds on deposit in the Construction Fund and Wastewater Operating Fund may be invested and the investment earnings retained in those respective funds used for the purposes of carrying out the Improvements except that earnings subject to a federal tax or rebate requirement may be withdrawn from the Construction Fund and used for those tax or rebate purposes. Section 13. 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. 116741.3 -26- 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 Bremerton, Washington, Water and Sewer Revenue Bonds, 1994, 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. 116741.3 -27- Section 14. 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 at all times be open to inspection by the City. 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 Ordinance No. 3862 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 15. Covenants. The City covenants and agrees with the owner of each of the Bonds as follows: (a) It will establish, maintain, revise as necessary and collect such rates and charges for water and sewer service furnished which will produce Net Revenue of the System available for debt service each calendar year at least equal to the Coverage Requirement. (b) It will at all times maintain and keep the System in good repair, working order and condition, and also will at all times operate such utility and the business in connection therewith in an efficient manner and at a reasonable cost. 116~1.3 -28- (c) It will not sell, lease, mortgage, or in any manner encumber or dispose of all of the property of the System unless provision is made for the payment into the Bond Fund of an amount sufficient to pay the principal of and interest on the 1985 Bonds, the 1992 Bonds, the Bonds and any Future Parity Bonds then outstanding and that it will not sell, lease, mortgage, or in any manner encumber or dispose of any part of the property of the System that is used, useful and material to the operation thereof, unless provision is made for replacement thereof, or for payment into the Bond Fund of the total amount of Gross Revenue of the System received which shall not be less than an amount which shall bear the same ratio to the amount of the 1985 Bonds, 1992 Bonds, Bonds and any Future Parity Bonds then outstanding as the Gross Revenue of the System available for debt service for such outstanding bonds for the twelve months preceding such sale, lease, encumbrance or disposal from the portion of the utility sold, leased, encumbered or disposed of bears to the Gross Revenue of the System available for debt service for the outstanding 1985 Bonds, 1992 Bonds, Bonds and Future Parity Bonds from the entire System for the same period. Any such money so paid into the Bond Fund shall be used to retire such 1985 Bonds, 1992 Bond, Bonds and/or Future Parity Bonds at the earliest possible date. (d) It will while any of the Bonds remain outstanding keep proper and separate accounts and records in which complete and separate entries shall be made of all transactions relating to the System, and it will furnish the owner or owners of the Bonds or any subsequent owner or owners thereof, at the written request of such owner or owners, complete operating and income statements of the System in reasonable detail covering any calendar year not more than ninety days after the close of such calendar year and it will grant any owner or owners of at least 25% of the outstanding Bonds the right at all reasonable times to inspect the entire System and all records, accounts and data of the City relating thereto. Upon request of any owner of any of the Bonds, it also will furnish to such owner a copy of the most recently completed audit of the City's accounts by the State Auditor of Washington. Copies of such operating and income statements and of such audits shall be furnished to the Bond Insurer promptly upon completion each year. All such audits shall be delivered to the Bond Insurer within 120 days of the end of each fiscal year. The City also will furnish the Bond Insurer within 120 days of the end of each fiscal year its budget and information regarding the fiscal year and withdrawal of any Sewer Utility user responsible for 4% or more of System sales measured in terms of revenue dollars since the last annual report. 116741.3 -29- (e) It will not furnish any service of the System to any customer whatsoever free of charge. (f) It will at all times carry fire and such other forms of insurance on such of the buildings, equipment, facilities and properties of the City as under good practice are ordinarily carried on such buildings, equipment, facilities, and properties by utilities engaged in the operation of water and sewerage systems to the full insurable value thereof, and also will carry adequate public liability insurance (and war risk insurance if available at reasonable rates) at all times. The premiums on such insurance policies are declared to be a normal part of Operating and Maintenance Expenses. (g) It will pay all Operating and Maintenance Expenses and otherwise meet the obligations of the City as herein set forth. (h) It will not change any rate or charge for System services as now established by the existing rate ordinance or ordinances of the City that will substantially reduce the annual Gross Revenue of the System below that which would have been obtained before such change unless the City shall have on file a certificate from a licensed professional engineer experienced in the design, construction and operation of municipal utilities, stating the rates and charges as so changed will provide Gross Revenue of the System sufficient to comply with all the covenants and requirements of this ordinance, including the Coverage Requirement. A copy of such certificate shall be provided, upon filing with the City, to the Bond Insurer. Section 16. Preservation of Tax Exemption for Interest on Bonds. The City covenants that it will take all actions necessary to prevent interest on the Bonds from being included in gross income for federal income tax purposes, and it will neither take any action nor make or permit any use of proceeds of the Bonds or other funds of the City treated as proceeds of the Bonds at any time during the term of the Bonds which will cause interest on the Bonds to be included in gross income for federal income tax purposes. The City also covenants that, to the extent arbitrage rebate requirements of Section 148 of the Internal Revenue Code of 1167413 -30- 1986, as amended (the "Code"), are applicable to the Bonds, it will take all actions necessary to comply (or to be treated as having complied) with those requirements 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. Section 17. Bonds Neqotiable. The Bonds shall be negotiable instruments to the extent provided by RCW 62A.8-102 and 62A.8-105. Section 18. Parity Provisions. The City further covenants with the owner of each of the Bonds for as long as any of the same is outstanding that it will not create any special account or fund or accounts or funds for the payment of the principal of and interest on any other revenue obligations which will have any priority over or which will rank on a parity with the payments required by this ordinance to be made out of the Net Revenue of the System, nor will it issue Future Parity Bonds, except that it reserves the right for First, the purpose of acquiring, constructing and installing additions, betterments and improvements to and extensions of, acquiring necessary equipment for, or making necessary replacements of or repairs or capital improvements to the System pursuant to a plan or plans of additions and betterments thereto hereafter adopted, or 11~41.3 -31- Second, the purpose of refunding by exchange or purchasing and retiring or advance refunding by call and payment at or prior to their maturity any part or all of the outstanding 1985 Bonds, 1992 Bonds, Bonds or Future Parity Bonds, or Third, other purposes then permitted by law, to issue additional and/or refunding revenue bonds therefor, and to make payments into the Bond Fund from the Net Revenue of the System sufficient to pay the principal of and interest on such Future Parity Bonds and to maintain a reserve therefor as hereinafter required, which payments may rank equally with the payments out of the Net Revenue of the System required to be made into the Bond Fund by this ordinance, if the conditions and requirements set forth in Section 12 of Ordinance No. 3989, and Section 20 of Ordinance No. 4363 which sections are incorporated herein and made a part hereof by this reference, are met and complied with at the time of the issuance of such Future Parity Bonds and further that the Reserve Requirement for those Future Parity Bonds is fully funded at the time of issuance of those Future Parity Bonds. If any Reserve Instrument and Bond Policy Costs are unpaid at the time of issuance of any Future Parity Bonds, the written permission of the Bond Insurer must be obtained prior to the issuance of such bonds. If the City is in default on the payment of any amounts due under this ordinance, Ordinance No. 3989, Ordinance No. 4363, and the ordinances issuing any Future Parity Bonds then outstanding, no further Future Parity Bonds may be issued so long as such default continues. 116741.3 -32- Nothing contained in the provisions for Future Parity Bonds shall prevent the City from issuing revenue bonds having a subordinate lien on the Gross Revenue of the System. Section 19. Flow of Funds. The Gross Revenue of the System, except for earnings on investments in the Bond Fund or other bond redemption funds, refunded bonds, refunding escrow account or other trust account, and earnings subject to arbitrage rebate (in order to maintain the exemption of the interest on obligations of the System from federal income taxation), shall be deposited as received in the Current Water Fund and shall be used, paid out and distributed in the following order or priority: (a) To pay the Operating and Maintenance Expenses; (b) To make the required payments into the Principal and Interest Account for all bonds payable out of the Bond Fund; (c) To make the required payments into the Reserve Account for all bonds payable out of the Bond Fund and to make all payments required to be made pursuant to a reimbursement agreement in connection with a Reserve Account Instrument or for repayment of Reserve Instrument or Bond Policy Costs, except that if there is not sufficient money to make all payments under reimbursement agreements, the payments will be made on a pro rata basis; (d) To make all required payments into any revenue bond redemption fund created to pay and secure the payment of the principal of and interest on any revenue bonds or short-term obligations of the City having a lien and charge upon the Gross Revenue of the System subordinate and inferior to the lien thereon for the payment of the principal of and interest on the 1985 Bonds, the 1992 Bonds, the Bonds, and Future Parity Bonds; and (e) To redeem and retire any water and sewer revenue bonds of the City then outstanding or to purchase any or all of those bonds in the open market at a price not in excess of the price at which those bonds could be redeemed at the next call date; to make necessary 116741.3 -33- additions, betterments, repairs, extensions and replacements of the System or other purposes proper to its maintenance and operation, including the payment of any City-imposed utility taxes or payments in lieu of taxes payable from Gross Revenue of the System, or for any other lawful City purpose. The City may transfer from any funds or accounts of the City legally available therefor, except bond redemption funds, any money therein to meet the required payments to be made into the Bond Fund. Section 20. Advance Refunding or Defeasance of Bonds. The City may issue advance refunding bonds pursuant to the laws of the State of Washington or use money available from any other lawful source 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 all such then-outstanding Bonds (hereinafter collectively called the "defeased Bonds") and to pay the costs of such refunding or defeasance. If that 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 System, 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 116~1.3 -34- void. Such owners thereafter shall have the right to receive payment of the principal of and interest on the defeased Bonds only 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 or defeasance 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 or defeasance plan also provides that certain money and/or Government Obligations are pledged irrevocably for the prior redemption of the defeased Bonds included in that refunding or defeasance 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 or defeasance plan, shall be included in the computation of the coverage requirement for the issuance of Future Parity Bonds and the annual computation of coverage for determining compliance with the rate covenants. If the principal of or interest due on the Bonds shall be paid by the Bond Insurer pursuant to the Bond Insurance Policy, the' amounts thus paid shall not be deemed paid pursuant to this ordinance and shall continue to be due and owing hereunder until paid by the City in accordance with this ordinance, all the 116741.3 -35- covenants, agreements and other obligations of the City to the owners of Bonds shall continue to exist and the Bond Insurer shall be subrogated to the rights of those owners. The covenants of this ordinance shall not be deemed to have been discharged until all Reserve Instrument or Bond Policy Costs owing to the Bond Insurer have been paid. No Bonds shall be deemed defeased under this section without the delivery by the City to the Trustee and Bond Insurer of a verification report of an independent nationally recognized certified public accountant. Section 21. Approval of Bond Purchase Contract. Lehman Brothers Inc. of Seattle, Washington, has presented a Bond Purchase Contract (the "Bond Purchase Contract") to the City whereunder such company 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 in the Bond Purchase Contract and authorizes its execution by City officials. The Bonds will be printed at City expense and will be delivered to the purchaser in accordance with the Purchase Agreement with the approving legal opinion of Foster Pepper & Shefelman, municipal bond counsel of Seattle, Washington, relative to the issuance of the Bonds, printed on each Bond. Bond counsel shall not be required to review or express any opinion concerning the completeness or accuracy of any official statement, offering 116741.3 -36- circular or other sales material issued or used in connection with the Bonds and bond counsel's opinion shall so state. The City Council has been provided with copies of a preliminary Official Statement dated March 3, 1994 (the "Preliminary Official Statement"), prepared in connection with the purchase 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, series of the Bonds, dates of the Bonds, aggregate principal amount, principal amount per maturity, maturity dates, options of redemption, delivery date, ratings and other terms of the Bonds dependent on such matters. 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 Preliminary Official Statement on behalf of the City, and for the proper application and use of the proceeds of the sale thereof. Section 22. Bond Insurance. The Bond Insurer requires that the following provisions be included herein: "(i) If, on the third day preceding any interest payment date for the Bonds there is not on deposit with the Bond Registrar sufficient money available to pay all principal of and interest on the Bonds due on such date, the Bond Registrar shall immediately notify the Bond Insurer for the purpose of this Section and Section 23 only) of the amount of such deficiency. If, by such interest payment date, the city has not provided the amount of such deficiency, the Bond Registrar shall simultaneously make available to the Bond Insurer and to the Fiscal Agent the 116741.3 -37- registration books for the Bonds maintained by the Bond Registrar. In addition: "(A) The Bond Registrar shall provide the Bond Insurer with a list of the Bondowners entitled to receive principal or interest payments from the Bond Insurer under the terms of the Bond Insurance Policy and shall make arrangements for the Bond Insurer and its Fiscal Agent (1) to mail checks or drafts to Bondowners entitled to receive full or partial interest payment from the Bond Insurer and (2) to pay principal of the Bonds surrendered to the Fiscal Agent by the Bondowners entitled to receive full or partial principal payments from the Bonds Insurer; and "(B) The Bond Registrar shall, at the time it makes the registration books available to the Bond Insurer pursuant to (A) above, notify Bondowners entitled to receive the payment of principal of or interest on the Bonds from the Bond Insurer (1) as to the fact of such entitlement, (2) that the Bond Insurer will remit to them all or part of the interest payments coming due subject to the terms of the Bond Insurance Policy, (3) that, except as provided in paragraph (ii) below, in the event that any Bondowner is entitled to receive full payment of principal from the Bond Insurer, such Bondowner must tender his Bond with the instrument of transfer in the form provided on the Bond executed in the name of the Bond Insurer, and (4) that, except as provided in paragraph (ii) below, in the event that such Bondowner is entitled to receive partial payment of principal from the Bond Insurer, such Bondowner must tender his Bond for payment first to the Bond Registrar, which shall note on such Bond the portion of principal paid by the Fiscal Agent, and then, with an acceptable form of assignment executed in the name of the Bond Insurer, to the Fiscal Agent, which will then pay the unpaid portion of principal to the Bondowner subject to the terms of the Bond Insurance Policy. "(ii) In the event that the Bond Registrar has notice that any payment of principal of or interest on a Bond has been recovered from a Bondowner pursuant to the U.S. Bankruptcy Code by a paying agent in bankruptcy in accordance with the final, nonappealable order of a court having competent jurisdiction, the Bond Registrar shall, at the time it provides notice to the Bond Insurer, notify all Bondowners that in the event that any Bondowner's payment is so recovered, such Bondowner will be entitled to payment from the Bond Insurer to the extent of such recovery, and the Bond Registrar shall furnish to the Bond Insurer its records evidencing the 1167413 -38- payments of principal of and interest on the Bonds which have been made by the Bond Registrar and subsequently recovered from Bondowners, and the dates on which such payments were made. "(iii) The Bond Insurer shall, to the extent it makes payment of principal of or interest on the Bonds, become subrogated to the rights of the recipients of such payments in accordance with the terms of the Bond Insurance Policy and, to evidence such subrogation, (1) in the case of subrogation as to claims for past due interest, the Bond Registrar shall note the Bond Insurer's rights as subrogee on the registration books maintained by the Bond Registrar upon receipt from the Bond Insurer of proof of the payment of interest thereon to the Bondowners of such Bonds and (2) in the case of subrogation as to claims for past due principal, the Bond Registrar shall note the Bond Insurer's rights as subrogee on the registration books for the Bonds maintained by the Bond Registrar upon receipt of proof of the payment of principal thereof to the Bondowners of such Bonds. Notwithstanding anything in this ordinance or the Bonds to the contrary, the Bond Registrar shall make payment of such past due interest and past due principal directly to the Bond Insurer to the extent that the Bond Insurer is a subrogee with respect thereto." Section 23. Additional Requirements of Bond Insurer. In determining whether a payment default has occurred or whether a payment on the Bonds has been made under this ordinance, no effect shall be given to payments made under the Bond Insurance Policy. Bondowners' direction or institution of remedies upon default shall be subject to the prior written consent of the Bond Insurer, and the Bond Insurer, acting alone, shall have the right to direct all remedies upon default, if it has not failed to comply with its payment obligations under the Bond Insurance Policy. The Bond Insurer shall receive immediate notice of any payment default and notice of any other default know to the Bond Registrar within 30 days of the Bond Registrar's knowledge thereof. 116741.3 -39- Remedies shall be cumulative with respect to the Bondowners and the Bond Insurer. If any remedial action is discontinued or abandoned, the Bondowners and Bond Insurer shall be restored to their former positions. For all purposes of this ordinance relating to the exercise, control or direction of remedies or the approval of amendments and supplements, except the giving of any notices of default to Bondowners, the Bond Insurer shall be deemed to be the sole holder of the Bonds it has insured for so long as it has not failed to comply with its payment obligations under the Bond Insurance Policy. The Bond Registrar shall not take the Bond Insurance Policy into account in determining whether the rights of bondowners are adversely affected by actions taken pursuant to the terms and provisions of this ordinance. The Bond Insurer shall be included as a party in interest and as a party entitled to (i) notify the Bond Registrar of the occurrence of an event of default and (ii) request the Bond Registrar or any applicable receiver to intervene in judicial proceedings that affect the Bonds or the security therefor. The Bond Registrar shall be required to accept notice of default from the Bond Insurer. Any amendment or supplement to this ordinance shall be subject to the prior written consent of the Bond Insurer. Any rating agency rating the Bonds must receive notice of each amendment and a copy thereof at least 15 days in advance of its execution or adoption. 116741.3 -40- Section 24. Notice Addresses. The notices for the Bond Insurer and the Bond Insurer's Fiscal Agent are: Financial Guaranty Insurance Company 115 Broadway New York, New York 10006 Attention: Managing Counsel State Street Bank and Trust Company, N.A. 61 Broadway New York, New York 10006 Attention: Corporate Trust Department Section 25. Additional Provisions for Bond Insurer and Reserve Insurer. To satisfy additional conditions required by the Bond Insurer and Reserve Insurer, the City covenants and agrees as follows: As security for the City's repayment obligations with respect to the Reserve Account Instrument, the Reserve Insurer shall be granted a security interest (subordinate only to that of the Bondowners) in all revenues and collateral pledged as security for the Bonds. The Bond Registrar shall ascertain the necessity for a claim upon the Reserve Account Instrument and provide notice to the Reserve Insurer in accordance with the terms of the Reserve Account Instrument at least two business days prior to each interest payment date. The Reserve Insurer shall be provided with written notice at the address in Section 24 of this ordinance of each of the following: (a) the resignation or removal of the Bond Registrar and the appointment of a successor thereto; (b) the issuance of additional indebtedness of the City, whether or not ~t is on a parity with the Bonds, 116741.3 such notice, together with a copy of the official statement or other disclosure document prepared in connection therewith, to be given within 30 days after the sale of such bonds; and (c) Any draw upon or deficiency due to market fluctuation in the amount, if any, on deposit in the Reserve Account. If an irrevocable letter of credit to the Bond Registrar is obtained as a Reserve Account Instrument, the Bond Registrar shall draw upon that letter of credit prior to its expiration or termination unless an acceptable replacement is in place or the Reserve Account is fully funded in its required amount. The Net Revenue of the System available for debt service shall be at least one times the City's obligations with respect to repayment of Reserve Instrument and Bond Policy Costs then due and owing before satisfying the Coverage Requirement of Sections 15 and 18. No policy of municipal bond insurance other than a policy issued by the Bond Insurer shall be provided as security for the payment of principal of and interest on the Bonds. The Reserve Account Instrument shall expire on the final maturity date of the Bonds. The Bond Insurer shall be provided with the following information: (i) Within 120 days after the end of each of the City's fiscal years, budget for the new year, annual audited financial statements relating to the System, a statement of the amount on deposit in the Reserve Account as of the last valuation, and, if not presented in the audited financial statements, a statement of the Net Revenues of the System pledged to payment of Bonds in each such fiscal year; 116741.3 -42- (ii) Official statement or other disclosure, if any, prepared in connection with the issuance of additional debt secured by Net Revenues of the System, whether or not it is on parity with the Bonds within 30 days after the sale thereof; (iii) Notice of any draw upon or deficiency due to market fluctuation in the amount, if any, on deposit in the Reserve Account; and (iv) Notice of the redemption, other than mandatory sinking fund redemption, of any of the Bonds, including the principal amount, maturities and CUSIP numbers thereof. The following shall be delivered to the Bond Insurer simultaneously with the delivery of the annual audited financial statements: (i) The number of System users as of the end of the fiscal year; (ii) Any significant plant retirements or expansions planned or undertaken since the last reporting date; (iii) A statement of the amount on deposit in the Reserve Account as of the last valuation, and, if not presented in the audited financial statements, a statement of the Net Revenue pledged to the payment of the Bonds in that fiscal year; (iv) Notification of the withdrawal of any System user comprising 4% or more of System sales measured in terms of revenue dollars since the last reporting date; and (v) Such additional information as the Bond Insurer may reasonably request from time to time. If the Issuer shall fail to repay any Policy Costs in accordance with the requirements of Paragraph 6(a) hereof, Financial Guaranty shall be entitled to exercise any and all remedies available at law or under the Authorizing Document other than (i) acceleration of the maturity of the Bonds or (ii) remedies which would adversely affect Bondholders. 116741.3 -43- This ordinance shall not be discharged until all Reserve Instrument and Bond Policy Costs owing to the Reserve Insurer and Bond Insurer shall have been paid in full. The Bond Insurer shall be provided with written notice of the resignation or removal of the Bond Registrar or Fiscal Agent and the appointment of a successor thereto and of the issuance of additional indebtedness of the Issuer at 115 Broadway, New York, New York 10006 Attention: Managing Counsel. Sections 1, 9, 11, 20, 21, 24 and 25 of Ordinance No. 4393 and Section 1 of Ordinance No. 4395 and all other terms in those ordinances for the benefit of the Bond Insurer are retained, reincorporated and restated herein. Section 26. Temporary Bond. Pending the printing, execution and delivery to the purchaser of the definitive Bonds, the City may cause to be executed and delivered to the purchaser a single temporary Bond in the total principal amount of the Bonds. Such temporary Bond shall bear the same date of issuance, interest rates, principal payment dates and terms and covenants as the definitive Bonds, shall be issued as a fully registered Bond in the name of the purchaser, and shall be in such form as acceptable to the Purchaser. Such temporary Bond shall be exchanged for the definitive Bonds as soon as the same are printed, executed and available for delivery. Section 27. Declaration of Emerqency. For the reason that it is necessary that the City obtain the proceeds of sale of the Bonds as soon as possible in order to carry out the improvements an 116741.3, -44- emergency is declared to exist, and it is found necessary for the public health, welfare and safety that this ordinance become effective immediately upon its passage, approval and publication as required by law. PASSED UNANIMOUSLY by the city Council of the City of Bremerton, Washington, this 16th day of March, 1994. EILEEN FITZ, ~o~1 President ATTEST: APPROVED this~! day of ~, 1994 K~T~{LEEN McCLUSKEY, Cler~ LYNN HORTON, Mayor APPROVED AS TO FORM: GEORGE MACK, Counsel to the City EFFECTIVE DATE ._~'~ -4 5- ORDINANCE NUMBER EXHIBIT A 1994-1995 PROGRAM 28. Water Supply System Improvements Alexander Lake Dam Repair. Construct and install the Alexander Lake Dam Repair Project providing for repair of the existing earthen dam located on Heinz Creek. The project shall consist of repair of the existing dam structure, modifications to the intake drainage structure and the replacement of the overflow structure. 29. Water Supply System Improvements - Land Acquisition. Carry out a portion of the land acquisition program consisting of the acquisition of lands located in the hydrological boundary of the City of Bremerton's Union River and Gorst Creek drainage basins. The acquisition of these lands are consistent with the requirements of the Surface Water Treatment Rule of the Safe Drinking Water Act Amendments. 30. Water Transmission and Distribution System Improvements - SR ~3 Transmission Main. Replace an existing 24" diameter forty-year old cast iron transmission main connecting the water supply system to the City. The overall project consisting of the installation of approximately 12,600 feet of new water main commencing approximately two hundred feet (200') north of the intersection of the Old Belfair Valley Road and State Route 3 and continuing along State Route 3 to approximately four hundred feet (400') east of the intersection of State Route 3 and State Route 304. 32. Water Transmission and Distribution System Improvements - Sherman Heights Distribution Main. Construct and install water transmission and distribution system improvements providing for the separation between the utility surface water transmission facilities and the distribution, in order to provide for increased CT values in response to the requirements of the Surface Water Treatment Rule of the Safe Drinking Water Act Amendment. The project consists of the installation of approximately 11,150 ft. 8" and 12" D.I. Water Main along the Sherman Heights Road, Kent Street and 3rd Avenue, commencing approximately 2000 feet south of Roosevelt on 3rd Street and terminating at Sherman Heights Road and SR #3. These improvements, together with engineering and allied construction costs are estimated to be approximately $300,000. 33. Wastewater Collection and Transmission System Improvements - Callow Avenue Drainage Basin Combined Sewer 116741.3 Separation Project. Construct and install a portion of the wastewater collection and transmission system improvements - Callow Avenue drainage basis combined sewer separation project providing for the separation of the combined Wastewater - Stormwater System pursuant to WAC 173-245. The project will consist of the installation of various size sanitary and stormwater mains within the Callow Avenue drainage basin. The project will provide for separation of sanitary sewage and stormwater within the basin, the elimination of Pump Station WB-4, the relocation of Overflow #17 and the installation of instrumentation and monitoring equipment associated with Overflow #17. 34. Wastewater System Odor Control Proqram - Collection System. Design and construct a series of chemical injection facilities along the City's wastewater collection system. These facilities will reduce corrosion within the system and minimize odor levels of wastewater treatment plant influent. 35. Wastewater System Odor Control Program - Wastewater Treatment Plant. Design and construct a series of enclosures and ventilating devices to capture and eliminate residual odors at the wastewater treatment plant. 36. Buffer Land Acquisition - Wastewater Treatment Plant. Acquire additional real property in the area of the wastewater treatment plant in order to provide additional odor dilution area, improve aesthetics and increase the potential area for future plant expansion. 37. Dechlorination Facilities or Alternat~ Improvements - Wastewater Treatment Plant. Design and construct improvements and modifications to the wastewater treatment plant in order to reduce residual chlorine in the plant effluent prior to its discharge into Puget Sound. This project was mandated as a part of the renewal of the permit from the State of Washington under which the City operates its wastewater treatment plant. 38. Wastewater System Extension - West Kitsap Lak~. The City will pay a portion of the cost of design and construction of an extension of the wastewater collection system along the West side of Kitsap Lake, the balance of the project will be funded through the formation of a ULID. This project will add approximately 100 additional residential customers to the system and will eliminate an equal number of on-site systems many of which are failing and degrading the quality of the local surface waters. 39. Acquisition of Easements and Payments and Other' Actions Required by Settlement Aqreement. Acquire the easements and make the payments therefor and other payments and carry out all other actions (not otherwise referred to above) required by the Settlement Agreement approved in the Order Approving Settlement as Reasonable in Cause No. 89-2-01565-1 in the Superior Court of Washington for Kitsap County, entered September 24, 1993. 116741,3 ~. ~2. Wastewater Construction and Transmission System Im_~rov~mgnts - Warren Avenue Basin Combined Sewer Separation Project. Construct and install a portion of the wastewater collection and transmission system improvements providing for the separation of the Combined Wastewater/Stormwater System pursuant to the requirements of WAC 173-245, within the Warren Avenue drainage basin, and the replacement of several mains which are experiencing structural failure. The project will consist of the installation of the various size sanitary and stormwater mains for the separation of sanitary sewage and stormwater within the basin and for the replacement of several large diameter interceptor mains and outfalls located along Park Avenue, the modifications to Pump Station CE-3, and the installation of the instrumentation and monitoring equipment associated with Overflow #13.