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HomeMy WebLinkAbout3989 CITY OF BREMERTON, WASHINGTON ORDINANCE NO, ~g~ 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 $18,025,000 principal amount of Water and Sewer Revenue Refunding Bonds, 1985, of the City for the purpose of providing a part of the funds to refund, pay and retire the outstanding Water and Sewer Revenue Bonds, 1971, Water and Sewer Revenue Bonds, 1973, and Water and Sewer Revenue Bonds, 1983; fixing the date, form, terms, interest rates, maturities and covenants of such bonds; providing for and authorizing the pur- chase of certain obligations out of the proceeds of the sale of such bonds and for the use and applica- tion of the money to be derived from such invest- ments; authorizing the execution of an agreement with Peoples National Bank of Washington of Seattle, Washington, as Refunding Trustee; providing for the payment and redemption of the outstanding bonds to be refunded; creating a special bond redemption fund; and approving the sale and providing for the delivery of such bonds to Shearson Lehman Brothers Inc., Foster & Marshall Division, of Seattle, Washington. 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, improvements and extensions; and WHEREAS, the City presently has outstanding Water and Sewer Revenue Bonds, 1965, issued under date of December 1, 1965 (the "Prior Lien Bonds"); and WHEREAS, the City presently has outstanding the following water and sewer revenue bonds: (a) $1,400,000 total principal amount of Water and Sewer Revenue Bonds, 1971 (the "1971 Bonds"), maturing in various amounts on December 1 on each of the years 1991 through 1999, inclusive, and bearing interest at the rate of 5.50%; (b) $1,665,000 total principal amount of Water and Sewer Revenue Bonds, 1973 (the "1973 Bonds"), maturing in various amounts on December 1 of each of the years 1985 through 2001, inclusive, and bearing various interest rates from 5.125 to 6.25%; and (c) $14,140,000 total principal amount of Water and Sewer Revenue Bonds, 1983 (the "1983 Bonds"), maturing in various amounts on September 1 of each of the years 1986 through 1999, inclusive, and bearing various interest rates from 7.50% to 10.50%; (sometimes collectively referred to herein as the "Outstanding Bonds"), which Outstanding Bonds have an equal lien and charge on the gross revenue of the System and which are Junior and subordinate to the claim or lien on such gross revenue of the Prior Lien Bonds; and WHEREAS, the City has presently outstanding $7,305,000 par value Water and Sewer Revenue Bond Anticipation Notes, 1984 (U.S. Navy Issue), issued under date of June 6, 1984, and $800,000 par value Water and Sewer Revenue Bond Anticipation Notes, 1985, issued under date of February 13, 1985, which notes constitute a junior and subordinate lien and charge on the gross revenue of the System to the Prior Lien Bonds and the Outstanding Bonds; and WHEREAS, the City Council finds that it is in the City's best interest to advance refund the Outstanding Bonds by provid- ing for the payment of the principal of and interest on the 1971 Bonds and the 1973 Bonds as they become due until their respec- tive final maturity dates and by the payment of the principal of and interest on the 1983 Bonds up to and including September 1, 1994, and the redemption on September 1, 1994, of all of the outstanding 1983 Bonds at par, all for the purpose of modifying certaln covenants and other provisions with respect to the City's bonds and effectlng a significant savings by the differ- ence between the principal and interest costs over the life of the bonds authorized herein and the principal and interest costs over the life of the Outstanding Bonds but for such refunding, which refunding will be effected by: (a) The issuance of the bonds authorized herein; - 2 - (b) The payment of the principal of and interest on the 1971 Bonds as the same shall become due up to and including their final maturity on December 1, 1999; (c) The payment of the principal of and interest on the 1973 Bonds as the same shall become due up to and including their final maturity on December 1, 2001; and (d) The payment of the principal of and interest on the 1983 Bonds up to and including September 1, 1994, and on September 1, 1994, the call, payment and redemption of all of the outstanding 1983 Bonds at par plus accrued interest to the date of redemption; and WHEREAS, in order to effect such 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 portlon of the proceeds of the bonds authorized by this ordinance and, as may be necessary or desirable, other money that the City legally has available therefor; and WHEREAS, the C~ty Council has determined that it is necess- ary to ~ssue and sell the water and sewer revenue refunding bonds authorized by this ordinance to provide a part of the funds necessary to pay, redeem and refund the Outstanding Bonds, and Shearson Lehman Brothers Inc., Foster & Marshall Division, as Senior Managing Underwriter, has offered to purchase such bonds on the terms and conditions hereinafter set forth; NOW THEREFORE, BE IT ORDAINED BY THE CITY COUNCIL OF THE CITY OF BREMERTON, WASHINGTON, AS FOLLOWS: Section 1. As used in this ordinance the following words shall have the following meanings: (a) "Acquired Obligations" shall mean those Un,ted States Treasury Certificates of Indebtedness, Notes and Bonds, State and Local Government Series, and other obligations of the - 3 - United States of America purchased to accomplish the refunding authorlzed by this ordinance. (b) "Annual Debt Service" shall mean, 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 manda- tory sinking fund payment for that year, less all capitalized interest payable that year from such bonds. (c) "Average Annual Debt Service" shall mean the sum of the Annual Debt Service for the remaining years to the last scheduled maturity of the applicable issue or series of Bonds and Future Parity Bonds divided by the number of those years. (d) "Bond Fund" shall mean the Water and Sewer Revenue Bond Fund, 1985, created by Section 3 of this ordinance for the purpose of paying and securing the principal of and interest on the Bonds and any Future Parity Bonds. (e) "Bond Insurance Policy" shall mean the municipal bond new issue insurance policy issued by the Bond Insurer and guaranteeing the timely payment of principal of and interest on the Bonds. (f) "Bond Insurer" shall mean Financial Guaranty Insurance Company ("FGIC"), a New York stock insurance company, or any successor thereto. (g) "Bonds" shall mean the $18,025,000 par value of Water and Sewer Revenue Refunding Bonds, 1985, authorized to be issued by this ordinance. (h) "1971 Bonds" shall mean the outstanding Water and Sewer Revenue Bonds, 1971, of the City issued pursuant to Ordinance No. 2982. - 4 - (i) "1973 Bonds" shall mean the outstanding Water and Sewer Revenue Bonds, 1973, of the City issued pursuant to Ordinance No. 3092. (j) '1983 Bonds" shall mean the outstanding Water and Sewer Revenue Bonds, 1983, of the City issued pursuant to Ordinance No. 3861, as amended by Ordinance No. 3865. (k) "Bond Re§istrar" shall mean 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. (1) "City" shall mean the City of Bremerton, Washington, a first class city of the State of Washington. (m) "Coverage Requirement" shall mean Net Revenue of the System at least equal to 1.30 times the actual Annual Debt Service on all Prior Lien Bonds, the 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 f~.xed rate equal to the higher of 9.2% and the highest variable rate borne by outstanding variable rate debt issued during the preceding twenty-four (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. (n) "Current Water Fund" shall mean the fund of the City of that name heretofore created into which fund shall be paid all Gross Revenue of the System. (o) "Future Parity Bonds" shall mean any and all revenue bonds of the City issued after the date of the issuance of the Bonds pursuant to the provisions of Section 12 of this ordi- nance, the payment of the principal of and interest on which - 5 - 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 Bonds. (p) "Government Obligations" shall mean direct obligations of the United States of America. (q) "Gross Revenue of the System" shall mean 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. (r) "Maximum Annual Debt Service" shall mean the maximum amount of Annual Debt Service which shall become due in any future year on any outstanding Bonds and Future Parity Bonds. (s) "Net Revenue of the System" shall mean the Gross Revenue of the System less Operating and Maintenance Expenses. (t) "Operating and Maintenance Expenses" shall mean 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 tares, 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- ~mposed utility taxes or payments in lieu of taxes payable from the Gross Revenue of the System. (u) "Outstanding Bond Fund" shall mean the Bremerton Water and Sewer Revenue Bond Fund, 1971, created by Ordinance No. 2982. - 6 - (v) "Outstanding Bonds" shall mean the 1971 Bonds, 1973 Bonds and 1983 Bonds. (w) "Permitted Investments" shall mean the followin§ to the extent the same are legal for the investment of money of the City: (1) bonds, notes and other evidences of direct indebted- ness of the United States of America and securities uncondition- ally guaranteed as to the timely payment of principal and interest by the United States of America ("Government Obllga- tlons"); (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 Prlme-1 by Moody's and A-l+ 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 ls fully insured by the FDIC or secured - 7 - by instruments described in (1), (2) and (3) above; (7) invest- ments 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 indebted- ness 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: (l) the repurchase obligation of the bank is collateralized by the securities 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 Clty; (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. $50.0 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 obliga- tion, including both principal and interest; and (iv) the repurchase obligation is to be per- formed 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; or (9) an investment agreement approved by the Bond Insurer with (A) an insurance company with unsecured, uninsured and unguaran- teed obligation (or claims paying ability) rated Aa2 by Moody's - 8 - and AA by S&P, or (B) a commercial bank (1) with unsecured, uninsured and unguaranteed obligations rated Aa2 or better by Moody's and AA or better by S&P, respectively, or (11) which ls the lead bank of a bank holding company whose unsecured, unin- sured 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 obliga- tions of such insurance company or banking institution and the Trustee shall receive an opinion of nationally recognized bond counsel that such agreement is an enforceable obligation of such insurance company or banking institution. The above investments shall be valued as frequently as deemed necessary by the Bond Insurer, in any event not less than quarterly, at the market value thereof. (x) "Principal and Interest Account" shall mean the account of that name created in the Bond Fund by Sectlon $ of this ordinance for the payment of the principal of and lnterest on the Bonds and any Future Parity Bonds. (y) "Prior Lien Bonds" shall mean the outstanding Water and Sewer Revenue Bonds, 1965, of the Clty. (z) "Prior Lien Notes" shall mean the outstanding Water and Sewer Revenue Bond Anticipation Notes, 1984 (U.S. Navy Issue), and Water and Sewer Revenue Bond Anticipation Notes, ].985, of the City, which were originally issued with a Junior and subordinate llen and charge on the Gross Revenue of the System to the Prlor Lien Bonds and the Outstanding Bonds and whlch by thls Ordinance are made a prlor llen on such Gross Revenue of the System to that of the Bonds. (aa) "Refunding Trust Agreement" shall mean a Refunding Trust Agreement between the Clty and the Refunding Trustee - 9 - substantially in the form of that which ls attached as Exhlblt A to thls ordinance and by thls reference is made a part hereof. (bb) "Refunding Trustee" shall mean Peoples Natlonal Bank of Washington of Seattle, Washington, or any successor trustee. (cc) "Reserve Account" shall mean the account of that name created In the Bond Fund by Section 3 of thls ordinance for the purpose of securlng the payment of the principal of and lnterest on the Bonds and any Future Parlty Bonds. (dd) "Reserve Requirement" shall mean: (1) For the Bonds, $2,252,770; and (2) For any lssue of Future Parlty Bonds, the lesser of the Maxlmum Annual Debt Service or 125% of the Average Annual Debt Servlce on the then outstand- ing Bonds, any Future Parlty Bonds theretofore lssued and outstanding, and such issue of Future Parity Bonds. Such amount shall be accumulated wlthln flve 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 Parlty Bonds, shall be deposited In approximately equal annual payments commencing one year after the date of issuance of such Future Parlty Bonds. (3) For purposes of calculating the Reserve Requirement for the lssuance of Future Parlty Bonds bearing lnterest at a varlable rate, the requirement shall be the lesser of 11% per annum and the highest rate permitted, in the oplnlon of bond counsel, consistent with maintaining the tax-exempt status of the Bonds and the Future Parity Bonds. (ee) "System" shall mean the exlstlng comblned water and sewerage systems of the City, together with any storm drainage - 10 - system or refuse disposal system 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. (ff) "Term Bond Maturity Year" shall mean any year in which Term Bonds are scheduled to mature. (gg) "Term Bonds" shall mean 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. For the purpose of providing a part of the money required to: (a) Pay the principal of and interest on the 1971 Bonds as the same shall become due up to and including their final maturity on December 1, 1999; (b) Pay the principal of and interest on the 1973 Bonds as the same shall become due up to and including their final maturity on December 1, 2001; and (c) Pay the principal of and interest on the 1983 Bonds up to and including September 1, 1994, and on September 1, 1994, to call, pay and redeem all of the outstanding 1983 Bonds at a price of par plus accrued interest to the date of redemp- tion; (the "Refunding Plan") and to pay the costs of issuing the Bonds (including, without limitation, bond insurance) and carry out the Refunding Plan, the City shall issue the Bonds in the aggregate principal amount of $18,025,000. The Bonds shall be dated November 1, 1985; shall be in the denomination of $5,000 each or any integral multiple thereof within a single maturity; shall be numbered separately in the manner and with any addi- tional designation as the Bond Registrar deems necessary for purpose of identification; shall bear interest at the rates set forth below, payable on September 1, 1986, and semiannually thereafter on each succeeding March 1 and September 1; and shall bear interest and mature on September 1 in years and amounts as follows: - 11 - Maturity Interest Years Amounts Rates 1986 $ 505,000 5.50% 1987 410,000 6.00 1988 480,000 6.50 1989 635,000 7.00 1990 710,000 7.25 1991 805,000 7.50 1992 990,000 7.75 1995 1,070,000 8.00 1994 1,150,000 8.20 1995 1,245,000 8.40 1996 1,350,000 8.60 1997 1,465,000 8.80 1998 1,580,000 8.90 1999 1,720,000 9.00 2000 1,870,000 9.10 2001 2,040,000 9.20 any Bond is not redeemed upon proper presentment at its maturity or call date, the City shall be obligated to pay interest at the same rate for each such Bond from and after its maturity or call date until such Bond, both principal and interest, is paid In full or until sufficient money for such in full is on deposit in the Bond Fund and such Bond has called for payment. Upon surrender thereof to the Bond Registrar, the Bonds may exchanged for Bonds in any authorized denomination of an aggregate principal amount and of the same interest rate maturity. Bonds may be transferred only if endorsed in the provided thereon and surrendered to the Bond Registrar. exchange or transfer shall be without cost to the owner or transferee. The Bond Registrar shall not be required to exchange or transfer any Bond during the fifteen days prior to principal payment or redemption date. The Bonds shall be issued only in registered form as to principal and interest and recorded in the books and maintained by the Bond Registrar (the "Bond Register"). Bond Register shall contain the name and mailing address of - 12 - the owner of each Bond and the principal amount and number of Bonds held by each owner. 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 check or draft mailed to the registered owners at the addresses appearing on the Bond Register on the fifteenth day of the month preceding the inter- est payment date or, when requested in writing by a registered owner and approved by the City Treasurer, shall be paid on the interest payment date by wire transfer to the account identified by the requesting registered owner whose name, address and wire transfer account number appear on the Bond Register fifteen days 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 office of the Bond Registrar in Seattle, Washington, or New York, New York, at the option of such owners. The Bonds shall be payable solely out of the Bond Fund and shall not be general obligations of the City. Bonds maturing in the years 1986 through 1995, inclusive, shall be issued without the right or option of the City to redeem the same prior to their stated maturity. The City reserves the right to redeem Bonds maturing on or after September 1, 1996, at the option of the City, as a whole, or in part in inverse order of maturity and by lot within a maturlty (in such manner as the Bond Registrar shall determine), on any interest payment date on the following dates and at the following prices, stated as percentages of par, plus accrued interest to the date of redemption: Redemption Date Redemption Price September 1, 1995, or March 1, 1996 101% September 1, 1996, or thereafter 100% (par) - 13 - Portions of the prlnclpal amount of any Bond, in install- ments of $5,000 or any integral multiple of $5,000, may be redeemed. If less than all of the principal amount of any Bond is redeemed, upon surrender of such Bond at the principal offlce of 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 like maturity and lnterest rate in any of the denominations authorized by this ordinance. Notice of any such intended redemption shall be given not less than 30 nor more than 60 days prior to the date fixed for redemption by first-class mall, postage prepaid, to the regis- tered owner of any Bond to be redeemed at the address appearing on the Bond Register. The requirements of this section shall be deemed to be complied with when notlce ls malled as hereln provided, whether or not it ls actually recelved by the owner of any Bond. The interest on the Bonds so called for redemption shall cease on the date fixed for redemption unless such Bond or Bonds so called are not redeemed upon presentation made pursuant to such call. In addition, such redemption notlce shall be mailed within the same period, postage prepaid, to Shearson Lehman Brothers Inc., Foster & Marshall Division, at 1ts maln office in Seattle, Washington, and to Moody's Investors Servlce, Inc., and Standard & Poor's Corporation at thelr offices in New York, New York, or thelr successors, but such malllng shall not be a condition precedent to the redemption of such Bonds. The City further reserves the rlght to purchase any or all of the Bonds in the open market at any time at a prlce not in excess of the call prlce applicable on the date of purchase, Inclusive of brokerage fees, plus accrued interest to date of such purchase. - 14 - Section 3. There is created in the office of the City Treasurer a special fund of the City to be known as the Water and Sewer Revenue Bond Fund, 1985 (herein defined as the "Bond Fund"), which fund is divided into two accounts, a Principal and Interest Account and a Reserve Account. So long as any Bonds and/or Future Parity Bonds are outstanding against the Bond Fund, the City obligates and binds itself to set aside and pay into the Bond Fund 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, begin- ning with the month of November, 1985, 1/10th of the next ensuing ten months' requirements for principal of and interest on the Bonds and, beginning with the month of September, 1986, and continuing thereafter until the Bonds, both principal and interest, are paid in full, 1/6th of the next ensuing six months' interest requirements on the Bonds and 1/12th 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 Bonds and Future Parity Bonds within the time permitted by this ordinance to fund the Reserve Requirement. For the Bonds, the Reserve Requirement shall be fully funded by a transfer from the Outstanding Bond Fund as provided in Section 7 of this ordinance. 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 - 15 - 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. In the event there shall be a deficiency in the Bond Fund to meet maturing installments of either principal of or interest on any of the Bonds and/or Future Parity Bonds, such deficiency shall be made up from the Reserve Account by the withdrawal of cash therefrom. Any deficiency created in the Reserve Account by reason of any such withdrawal 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. 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 not later than ten 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 - 16 - 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 outstanding Bonds and Future Parity Bonds. A Reserve Account Instrument includes, by way of example and not of limitation, letters of credit, bond insurance policies, surety bonds, standby bond purchase agreements, lines of credit and other devices. The City covenants that any such substitu- tion will be subject to the prior approval of the Bond Insurer (with respect to the Bonds) and of any provider of bond insur- ance for any Future Parity Bonds and a written certificate from Moody's Investors Service, Inc., and Standard & Poor's Corpora- tion that such substitution will not result in any change in the outstanding ratings of the Bonds and any Future Parity Bonds and will not impair the security thereof. 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 declares that the City Council is not setting aside into the Bond Fund a greater amount than in its judgment will be avail- able over and above such Operating and Maintenance Expenses. 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 - 17 - bonds payable out of the Bond Fund or the Bond Insurer may brlng actlon against the City and compel the setting aside and payment. Section 4. The Gross Revenue of the System ls pledged for the payment of the Bonds and any Future Parlty Bonds whlch may be lssued hereafter. Thls pledge shall constitute allen and charge upon such Gross Revenue of the System prlor and superlor to any other llens and charges whatsoever, subject only to Operating and Maintenance Expenses and the llen and charge thereon of the amounts required to pay and secure the payment of the Prlor Llen Bonds and Prlor Lien Notes, and to the llen and charge of the Outstanding Bonds, full provision for the payment of which has been made by this ordinance. Sectlon 5. The accrued lnterest recelved from the pur- chaser of the Bonds shall be deposited in the Principal and Interest Account in the Bond Fund. The City shall use the proceeds of the Bonds lmmedlately upon their recelpt, together with the amount of $115,833.75 from the principal and interest account of the Outstanding Bond Fund, to discharge the obliga- tions of the Clty under Ordinance No. 2982 authorizing the lssuance of the 1971 Bonds, Ordinance No. 3092 authorizing the issuance of the 1973 Bonds, and Ordinance No. 3861, as amended, authorizing the issuance of the 1983 Bonds, by providing for the carrying out of the Refunding Plan. The Clty shall discharge fully such obligations by the purchase of the Acqulred Obliga- tions, bearlng such lnterest and maturlng as to principal and lnterest in such amounts and at such times so as to provlde, together with the beglnnlng cash balance, for such payments. The Acqulred Obligations are more particularly described and are set forth In Schedule A attached to the Refunding Trust Agreement, but are subject to substltutlon as set forth below. - 18 - The Acquired Obligations and a beginning cash balance of $900.00 (which amount may be increased or decreased as required when the exact purchase price of the Acquired Obligations is ascertained) shall be deposited irrevocably with the Refunding Trustee. The City reserves the right to substitute other Government Obligations for any of the Acquired Obligations and to use any savings created thereby for any lawful System purposes if, in the opinion of Roberts & Shefelman, the City's bond counsel, the Bonds will remain exempt from federal income taxation under Section 103(c) of the United States Internal Revenue Code of 1954, as amended, and applicable regulations thereunder, and if such substitution shall not impair the timely payment of the principal of or interest on the Outstanding Bonds or the call, payment and redemption of the 1983 Bonds to be called. Section 6. The City calls for redemption on September 1, ]994, all of the outstanding 1983 Bonds at a price of par plus accrued interest to the date of such redemption. Such call for redemption shall be irrevocable after the delivery of the Bonds to the initial purchaser thereof. The City Treasurer and the Refunding Trustee are authorized and directed to give notice of the redemption of the 1983 Bonds in accordance with the provisions of Ordinance No. 3861. The Refunding Trustee is authorized and directed to make the payments required by the Refunding Plan in accordance with the provisions of Ordinance No. 2982 and the 1971 Bonds, Ordi- nance No. 3092 and the 1973 Bonds, and Ordinance No. 3861, as amended, and the 1983 Bonds from the Acquired Obligations and money deposited with the Refunding Trustee pursuant to Section 5 of this ordinance. All Acquired Obligations and the money deposited with the Refunding Trustee and any income therefrom - 19 - shall be held, invested and applied in accordance with the provisions of Ordinances Nos. 2982, 3092, 3861, as amended, this ordinance, Chapter 39.53 RCW and other applicable statutes of the State of Washington. All necessary and proper fees, compensation and expenses of the Refunding Trustee for the Bonds and all other costs inciden- tal to the setting up of the escrow to accomplish the refunding of the Outstanding Bonds and costs related to the issuance and delivery of the Bonds including bond printing, rating service fees, bond insurance premium, bond counsel's fees and other related expenses shall be paid out of the proceeds of the Bonds. The Mayor and City Clerk are directed to obtain from the Refunding Trustee the Refunding Trust Agreement setting forth the duties, obligations and responsibilities of the Refunding Trustee in connection with carrying out the Refunding Plan as provided herein and stating that such provisions for the payment of the fees, compensation and expenses of such Refunding Trustee are satisfactory to it. In order to carry out the purposes of the preceding section of this ordinance the Mayor and City Clerk are authorized and directed to execute the Refunding Trust Agreement. Section 7. Immediately upon the delivery of the Bonds, the City Treasurer is directed to transfer the amount on deposit in the reserve account of the Outstanding Bond Fund to the Reserve Account for the Bonds and use any funds on deposit in the principal and interest account of the Outstanding Bond Fund for the Refunding Plan. Any remaining funds on deposit in the principal and interest account of the Outstanding Bond Fund shall be transferred to the Principal and Interest Account. Section 8. The Bonds shall be printed on llthographed or good bond paper in a form consistent with the provisions of this - 20 - ordinance and State law, shall be signed by the Mayor and City Clerk, both of whose signatures shall be in facsimile, and a facsimile reproduction of the seal of the City shall be printed thereon. Only such Bonds as shall bear thereon a Certificate of Authentication in the following form, manually executed 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 Refunding Bonds, 1985, described in the within mentioned Bond Ordinance. WASHINGTON STATE FISCAL AGENCY Bond Registrar By Authorized Signature Such Certificate of Authentication shall be conclusive evidence that the Bonds so authenticated have been duly executed, authen- ticated and delivered hereunder and are entitled to the benefits of this ordinance. In case either or both of the officers who shall have executed the Bonds shall cease to be such officer or officers of the City before the Bonds so signed shall have been authenti- cated or delivered by the Bond Registrar or issued by the City, such Bonds nevertheless may be authenticated, delivered and issued and upon such authentication, delivery and issue, shall be as binding upon the City as though those whose facsimile signatures appear on the Bonds had continued to be such officers of the City. Any Bond also may be signed on behalf of the City by such persons as at the actual date of execution of such Bond shall be proper officers of the City authorized to execute Bonds although on the original date of such Bond such persons were not such officers of the City. - 21 - Section 9. 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 and by the Bond Insurer. The Bond Registrar shall be responsible for its representa- tions contained in the Reglstrar'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 depositary for and permit any of its officers or directors to act as a member of, or in any other capacity with respect to, any committee formed to protect the rights of Bond owners. Section 10. The Bonds shall be negotiable instruments to the extent provided by RCW 62A.8-102 and 62A.8-105. Section 11. 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. (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 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 - 22 - of the Bonds and any Future Parity Bonds then out- standing 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 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 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 twenty-five percent 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. (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 insur- ance (and war risk insurance if available at reason- able 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 water service as now established by the existing rate ordinance or ordinances of the City that will sub- stantially 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 - 23 - 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. (1) It will not take or permit to be taken on its behalf any action which would adversely affect the exemption from federal income taxation of the interest on the Bonds and will take or require to be taken such acts as may reasonably be within its ability and as may from time to time be required under applicable law to continue the exemption from federal income taxation of the interest on the Bonds. Without limiting the generality of the foregoing, and except to the extent the investment of any Bond proceeds is limited to a yield required to comply with federal arbitrage regulations, the City will not invest or make other use of the proceeds of the Bonds or of its other money at any time during the term of the Bonds, which if such use had been reasonably expected at the date that the Bonds are issued, would have caused such Bonds to be arbitrage bonds within the meanlng of Section lOS(c) of the United States Internal Revenue Code of 1954, as amended, and applicable regulations thereunder. It has not been notified of any listing or proposed listing by the Internal Revenue Servlce to the effect that it is a bond issuer whose arbitrage certifications may not be relied upon. Section 12. 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 improve- ments 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 better- ments thereto hereafter adopted, or - 24 - 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 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 following conditions and requirements are met and complied with at the time of the issuance of such Future Parity Bonds: (a) At the time of issuance of such Future Parity Bonds, there shall not be a deficiency in either the Prlnclpal 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 Parlty 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 wlth 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 - 25 - replaced in the same manner and wlthln the same tlme 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 Parlty Bonds, the City shall have on file a certifi- cate from an independent, licensed professional englneer experienced in the design, construction and operation of municipal utilities, or a certified publlc accountant, showing that in bls or her profes- sional oplnlon the estimated Gross Revenue of the System In any future year, after deducting Operating and Maintenance Expenses, will 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 modifled solely with the wrltten consent of the Bond Insurer. However, if Future Parity Bonds proposed to be so lssued 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 refund- lng bonds is not increased over the amount required for the bonds to be refunded thereby and the maturi- ties of those refundlng 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 Parlty 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 Clty 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 there- after adjusted to reflect one year's net revenue from such customers; may include revenues from any custom- ers 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 whlch revenue was not included in the historical Gross Revenue of the System; and may lnclude 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. - 26 - Actual or reasonably anticipated changes in the Operating and Maintenance Expenses subsequent to such twelves-month period shall be added or deducted, as is applicable. 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 13. The Gross Revenue of the System, except for earnings on investments in the Bond Fund or other bond redemp- tion funds, refunded bonds, refunding escrow account or other trust account, 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 appropriate bond redemption fund for the Prior Lien Bonds. (c) To make the required payments in the appropriate note redemption fund for the Prior Lien Notes. (d) To make the required payments into the Principal and Interest Account for all bonds payable out of the Bond Fund. (e) To make the required payments into the Reserve Account for all bonds payable out of the Bond Fund. (f) 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 Prior Lien Bonds, Prior Lien Notes, Bonds and Future Parity Bonds. (g) 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 price not in excess of the price at which those bonds could be redeemed at the next call date; to make necessary 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 - 27 - 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 14. In the event the City shall issue advance refunding bonds pursuant to the laws of the State of Washington, or have money available from any other lawful source, to pay the principal of and lnterest on the Bonds or such portion thereof included in the refunding plan as the same become due and payable and to refund such then outstanding Bonds and to pay the costs of refunding, and shall have set aside irrevocably in a special fund for and pledged to such payment and refunding, money and/or Government Obligations sufficient in amount, together with known earned income from the investments thereof, to make such payments and to accomplish the refunding as sched- uled (hereinafter called the "trust account"), and shall make irrevocable provisions for redemption of such Bonds, then In that case all right and interest of the owners of the Bonds to be so retired or refunded (hereinafter collectively called the "defeased Bonds") in the covenants of this ordinance, in the Gross Revenue of the System, and funds and accounts obligated to the payment of such Bonds, other than the right to receive the funds so set aside and pledged, thereupon shall cease and become void, except such owners shall have the right to receive payment of the principal of and interest on the defeased Bonds from the trust account and, in the event the funds in the trust account are not available for such payment, shall have the residual right to receive payment of the principal of and interest on the defeased Bonds from the Gross Revenue of the System without any - 28 - priority of lien or charge against that revenue or assessments or covenants with respect thereto except to be paid therefrom. After the establishing and full funding of such 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 then outstanding. In the event that the refunding plan provides that the Bonds being refunded or the refunding bonds to be issued be secured by cash and/or Government Obligations pending the prior redemption of those Bonds being refunded and if such refunding plan also provides that certain cash and/or Government Obliga- tions are pledged irrevocably for the prior redemption of those Bonds Included in the 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 coverage for issuance of Future Parity Bonds and the annual computation of coverage for determining compliance with the rate covenants. Section 15. In the event that 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 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 notice address for the Bond Insurer is: Financlal Guaranty Insurance Company, 175 Water Street, New York, New York 10038, Attention: President. - 29 - Section 16. Shearson Lehman Brothers Inc., Foster & Marshall Division, of Seattle, Washington, has presented a Bond Purchase Agreement (the "Purchase Agreement") to the City whereunder such company has offered to purchase the Bonds under the terms and conditions provided in the Purchase Agreement and to purchase on behalf of the City the Acquired Obligations at the prices specified in Schedule A of Exhibit A (subject to substitution), which written Purchase Agreement is on file with the City Clerk and is incorporated herein by this reference. The City Council finds that entering into the Purchase Agreement is in the City's best interest and, therefore, accepts the offer contained in the Purchase Agreement and authorizes the execution of the Purchase Agreement 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 Roberts & Shefelmano 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 circular or other sales material issued or used in connection with the Bonds and bond counsel's opinlon shall so state. The proper City officials are authorized and directed to do everything necessary for the prompt delivery of the Bonds to the purchaser and for the proper application and use of the proceeds of the sale thereof. Section 17. Pending the printing, execution and delivery to the purchaser of the definitive Bonds, the City may cause to be executed and delivered to such purchaser a single temporary Bond in the principal amount of $18,025,000. Such temporary Bond shall bear the same date of issuance, interest rates, principal payment dates and terms and covenants as the defini- tive Bonds, and shall be issued as a fully registered bond in the name of such purchaser, and shall be in such form as accept- able to such purchaser. Such temporary Bond shall be exchanged for the definitive Bonds as soon as the same are printed, executed and available for delivery. If the Acquired Obliga- tions are not acquired by the Refunding Trustee and the defini- tive Bonds are not ready for exchange and delivery within 45 days from the date of delivery of the temporary Bond, such temporary Bond shall be immediately retired at the orl§inal purchase price therefor plus accrued interest from money depos- ired with the Refunding Trustee. Section 18. For the reason that it is necessary that the C~ty obtaln the proceeds of sale of the Bonds as soon as possible in order to carry out the Refunding Plan, an emergency ls declared to exist, and It is found necessary for the public health, welfare and safety that this ordinance become effective lmm~diately upon its passage, approval and publication as required by law. PASSED UNANIMOUSLY by the City Council of the City of Bremerton, Washington, at a regular open public meeting thereof and APPROVED by the Mayor on the 23rd day of October, 1985. ATTEST: APPROVED AS TO FORM: City Attorney 0981b