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Home My WebLink About3434 CITY OF PORT ANGELES, WASHINGTON ELECTRIC REVENUE REFUNDING BOND, SERIES 2011 ORDINANCE NO. 3434 AN ORDINANCE of the City of Port Angeles, Washington, authorizing the issuance of an electric revenue refunding bond of the City in the principal amount of $1,662,056.10 to finance the cost of refunding certain outstanding electric revenue bonds of the City; establishing the date, form, terms, maturities and covenants of the bond; and approving the sale of the bond. Passed September 6, 2011 Prepared by: PACWICA Law GRouF LLP Seattle, Washington � CITY OF PORT ANGELES,WASHINGTON ORDINANCE NO. 3434 . TABLE OF CONTENTS* Page ARTICLE I DEFINITIONS................................................................................................... 2 Section1.1. Defioitioou................................................................................................................2 Section1.2. Interpretation..........................................................................................................10 ARTICLE 11 FINDINGS AND DETERMINATIONS........................................................ Dl Section 2.1' Parity Conditions ...................................................................................................1| Section 2.2. Due Regard....—.--.........---.......-......-...--........—.---....11 ARTICLE III AUTHORIZATION AND ISSUANCE OFBOND...................................... ll Scctimo1l. Purpose and Authorization of2QllBond..............................................................ll Section 3.2. Registration, Exchange and Payments—.---.—.----.---.—.---.—.—.....l2 Section 3.3. Prepayment of the 20llBond................................................................................13 ARTICLE IJ ISSUANCE OF ADDITIONAL BONDS..................................................... l3 Section 4'l. Authorization ufSeries $fAdditional Bonds.........................................................l3 Section 4.2. Additional Bonds...................................................................................................!4 ARTICLE GENERAL TERMS AND PROVISIONS OFBONDS................................ l7 Section 5.l' Lost, Stolen, Destroyed OrMutilated Bonds..........................................................l7 ARTICLE VI CREATION OF SPECIAL FUNDS AND ACCOUNTS AND PAYMENTS THEREFROM.----.------.--.—.---.—..—.---.--.--.---. I7 Section 6.l' Electric Food designated omthe Light Fund) .........................................I7 Section 6.2. Bond Account(formerly referred toomthe Bond Fund)........................................2Q Section 6.3. Investment ofFunds...............................................................................................24 ARTICLE VU USE 00pBOND PROCEEDS; PLAN OF REFUNDING....—.--.--.25 Section 7.l. Refunding Account........................................................................ .......................25 Section 7.2. Call for Redemption ofRefunded Bonds...............................................................25 ARTICLE VD[ FORM OF 2011 BOND.--------.—.—...-------.------ 26 SeutiomQ.l' Forzomf2O1l13mud................................................................................................26 Section 8.2. Execution of20KlBond........................................................................................2g ARTICLE IX COVENANTS TO SECURE BONDS......................................................... 29 Section 9.l. Security for Bonds .................................................................................................29 Section 9.2. Rate Covenant- General........................................................................................3Q Section 9.3. Rate Covenant-Debt Service Coverage---.---.-------.—.-----..3O Section 9.4. Restrictions on Contracting OfObligations Secured h»Revenues ........................31 Section 9.5. Covenant 10Maintain System iuGood Condition.................................................32 Section 9.6. Covenants Concerning Disposal of Properties 0fSystem......................................32 Section9.7. Insurance................................................................................................................33 Section gL@. Books of Account ..................................................................................................33 Section 9.9. Covenant Not 10Render Service Free Of Charge-.—.—.--------.--.--..34 Section g.1[i Covenant toMake Only Economically Sound Improvements--.—.—.—.—.--..34 Section 9.11. Covenant tOPay Bond Principal and Interest Punctually ----....---.—.....34 Section 9.12. Covenant tmPay Taxes, Assessments and Other Claims.......................................34 Section 9'13. Covenant 1VRetain Competent Management------.—.--.--.—.—.—..—..35 Section 9.14. Further Assurances.................................................................................................35 Section 9.15. Tax Exemption,,......—.—...._.—.--.._....~._...._—......—._--..........35 ARTICLE SUPPLEMENTAL AND AMENDATORY ORDINANCES.---.----.. 36 Secbmol{il. Amendments Without Consent oƒBoodOvpoerm ....................................................36 Section 10.2. Amendments With Consent wfB0odovvoerm..........................................................37 ARTICLE XI DEFAULTS AND REMEDIES.................................................................... ]7 Section 11,l. Events OfDefault—..-........^..---.-...._.--.---...~...—.---....---.—....37 Section 11.2. Waivers n{Default.................................................................................................34 Section 11.3. BOndnvvoer«^ Trustee............................ ................................................................39 Section 11.4. Suits atLaw Or in Equity,...----.—...-----.._...—.--....-----...3g Section 11.5. Books ofCity Open tm Inspection.----.---.—.—.....---.--'.-.----...-.40 Section 11.6. Payment ofFunds 0oIBoDdOVvuers^ Trustee...........................................................40 Section 11.7. Application OfFunds b»B0Dd8n9Der8" Trustee.....................................................40 Becbmo 11.8. Relinquishment mfFunds Upon Remedy of Default.............................................. Section 11.9. Suits hyIndividual BmndOvvnera............................................................................4l Section Il'l[iRemedies Granted iuOrdinance not Exclusive.....................................................42 ARTIC%LEXD AMENDMENTS AND BONDOWNERS MEETINGS.............................42 Section l2.l' Call ufIBmo(owmers Meetings----..---.—.-....-----.—..---.--.—.-.42 Section 12.2. Notice toBoodonvoerm............................................................................................42 Section 12.3. }rmxiem' �xom�mf off�mod� �2 ^ ~^~-^~^~r ^'----^^^^—''—'-'~^^'^^—'--'^~^^'^ Section 12.4. Execution OfInstruments HnBoudOvvners.............................................................43 Section 12.5. Appointment 0[Officers a1Boudovpoers Meetings............................................... Section 12.6. Quorum o1BOndmvyoerm Meetings ----..--------.—.----------../44 Section 12.7. Vote Required toAmend Ordinance......................................................................44 Section 12.8. Obtaining Approval of Amendments a1Buodownzers Meeting.............................. Section 12.9. Alternate Method of Obtaining Approval of Amendments................................... Section l2.IO. Amendment OfOrdinance TnAny Respect by Approval ofAll BVnduvvuozm........45 Section l2.lLBonds Owned hwCity............................................................................................46 Section 12.12. Endorsement of Amendment ooBonds.................................................................46 ARTICLE XIII SALE OFBONDS .....................................................................................46 Section l3,l. Sale of 20[lBond..................................................................................................46 Section 13.2. General Authorization...._-..........._.—.—.......--.—....._-.—..._..-46 -b- - ARTICLE XIV DEFEASANCE..........................................................................................46 Section14.1. Defeasance.............................................................................................................46 ARTICLE XV NO ONGOING DISCLOSURE; MISCELLANEOUS...............................47 Section 15.1. No Ongoing Disclosure..........................................................................................47 Section 15.2. Ordinance and Laws a Contract With Bondowners...............................................47 Section15.3. Severability............................................................................................................47 Section15.4. Prior Acts...............................................................................................................47 Section 15.5. Effective Date of Ordinance ..................................................................................47 Exhibit A: Purchaser's Proposal * This Table of Contents is provided for convenience only and is not a part of this ordinance. -iii- ORDINANCE NO. 3434 AN ORDINANCE of the City of Port Angeles, Washington, authorizing the issuance of an electric revenue refunding bond of the City in the principal amount of $1,662,056.10 to finance the cost of refunding certain outstanding electric revenue bonds of the City; establishing the date, form, terms, maturities and covenants of the bond; and approving the sale of the bond. WHEREAS, the City of Port Angeles, Washington (the "City"), now owns, operates and maintains an electric utility system(the "Electric System"); and WHEREAS, the City has issued and has outstanding the following Electric System revenue bonds: Principal Amount Authorizing Outstanding as of Designation Ordinance Date of Bonds September 2, 2011 Electric Revenue Refunding Bonds, Ordinance November 1, 2001 $ 1,640,000 Series 2001 (the"2001 Bonds") No. 3100 Electric Revenue and Refunding Ordinance February 15, 2005 2,380,000 Bonds, Series 2005 (the"2005 No. 3186 Bonds") Electric Revenue Bonds, Series 2010 Ordinance August 17, 2010 4,925,000 (the "2010 Bonds") No. 3406 WHEREAS, the ordinances authorizing the issuance of the 2001 Bonds, the 2005 Bonds and the 2010 Bonds provide that additional Electric System revenue bonds may be issued with a lien on the operating revenue of the Electric System on a parity with the lien of such bonds if certain conditions are met; and WHEREAS, Ordinance No. 3100 provides that the City may call the 2001 Bonds maturing on or after September 1, 2016 (the "Refunded Bonds") for redemption on and after September 1, 2011, in whole or in part at any time, at the price of par plus accrued interest, if any, to the date of redemption; and WHEREAS, the City Council (the "Council") has determined that debt service savings will be achieved by the issuance of an Electric System Revenue Refunding Bond, Series 2011 (the "2011 Bond") in the aggregate principal amount of $1,662,056.10 to refund the Refunded Bonds and to pay the costs of issuance for the 2011 Bond; and WHEREAS, the Council has determined it to be in the best interest of the City to sell the 2011 Bond to First Federal, Port Angeles, Washington (the "Purchaser") pursuant to the terms and conditions of its proposal, set forth in Exhibit A attached hereto (the"Proposal"); NOW, THEREFORE, THE C17FY COUNCIL OF THE CITY OF PORT ANGELES, WASHINGTON, DO ORDAIN, as follows: ARTICLE I DEFINITIONS Section 1.1. Definitions. As used in this ordinance the following words and phrases have the following meanings: "Additional Bonds" means any Bonds issued on a parity with the Outstanding Parity Bonds and the 2011 Bond. "Adjusted Net Revenues" means Net Revenues as calculated pursuant to Section 4.2.11. "Annual Debt Service" for any Fiscal Year means the sum of. (a) the interest due in such Fiscal Year on all outstanding Bonds, excluding interest to be paid from the proceeds of Bonds, (b) the principal of all outstanding Serial Bonds due in such Fiscal Year, and (c) the Sinking Fund Requirement, if any, for such Fiscal Year (calculated as of the Sinking Fund Requirement Date for such Fiscal Year). If the interest rate on any such Bonds is other than a fixed rate, the rate applicable at the time of computation shall be calculated as provided in Section 4.2.K hereof. From and after the date when no 2005 Bonds remain outstanding, "Annual Debt Service" for any Fiscal Year shall be calculated net of the amount of any Debt Service Offsets received in such Fiscal Year. "Average Annual Debt Service" means the amount determined by dividing (a) the sum of all interest and principal to be paid on outstanding Bonds from the date of determination to the last maturity date of such Bonds, by(b) the number of Fiscal Years from and including the Fiscal Year in which the determination is made to the last Fiscal Year in which the sum of (i) the principal amount of Serial Bonds maturing in such Fiscal Year plus (ii)the Sinking Fund Requirement for such Fiscal Year, exceeds 4% of the principal amount of Bonds outstanding as of the date of determination. If the interest rate on any such Bonds is other than a fixed rate, the rate applicable at the time of computation shall be calculated as provided in Section 4.2.K hereof. From and after the date when no 2005 Bonds remain outstanding, "Average Annual Debt Service" for any Fiscal Year shall exclude any Debt Service Offsets. -2- "Bond Account" means the Electric System Revenue Bond Fund established pursuant to Section 7.2 of Ordinance No. 2709 to secure payment of all Bonds (formerly referred to as the "Bond Fund"). I "Bond Register" means the books or records maintained by the Bond Registrar for the purpose of registration of the 2011 Bond. "Bond Registrar" or "Registrar" means the Finance Director. "Bondowners' Trustee" means any bank or trust company organized under the laws of any state of the United States or any national banking association hereafter appointed as trustee for Bondowners pursuant to this ordinance. "Bonds" mean the Outstanding Parity Bonds, the 2011 Bond and any Additional Bonds. "Bonds" may include bonds, notes, warrants, certificates of indebtedness or any other evidence of indebtedness. "Call Date" means October 7, 2011. "City" means the City of Port Angeles, Washington, a municipal corporation duly organized and existing under the laws of the State of Washington. "Code" means the federal Internal Revenue Code of 1986, as amended, and applicable regulations. "Commission" means the United States Securities and Exchange Commission. "Contingency and Replacement Account" means the account of that name established in the Electric Fund. "Contract Resource Obligation" means an obligation of the Electric System to pay the following costs, whether or not Power and Services are available to the Electric System in return for such payment: (a) costs associated with generation, transmission or distribution facilities (including any common undivided interest therein) hereafter acquired, purchased or constructed by the City and declared by the Council to be a separate utility system, which such costs shall include but are not limited to costs of normal operation and maintenance, renewals and replacements, additions and betterments and debt service on the bonds or other obligations of such separate electric utility system, or (b) costs associated with the purchase of Power and Services under a contract. "Council" means the Port Angeles City Council, as the general legislative body of the City, as the same is duly and regularly constituted from time to time. -3- "Debt Service Offset" means receipts of the City that are not included in Revenues and that are legally available to pay debt service on Bonds, including without limitation federal interest subsidy payments, designated as such by the City. "Distribution and Transmission Facilities" means the electric utility properties and assets, real and personal, tangible and intangible, now owned and operated by the City and used or useful in the transmission, distribution or sale of electric current or electric service, and business incidental thereto, and any additions, improvements and betterments thereto and extensions thereof hereafter constructed or acquired. Distribution and Transmission Facilities shall not include Generating Facilities. "Electric Fund" means the special fund created in the office of the Finance Director pursuant to Ordinance No. 374 and previously designated as the "Light Fund" and renamed as the "Electric Fund" and continued pursuant to this ordinance. "Electric System" means the Distribution and Transmission Facilities and any Generating Facilities hereafter acquired, but such Electric System shall not include any property and facilities as may hereafter be acquired or constructed and established as a separate utility system not financed from the Revenues except on a basis junior and inferior to the lien on Revenues pledged to pay and secure the Bonds, the revenue of which separate utility system may be pledged to the payment of revenue obligations issued to purchase, construct, condemn or otherwise acquire such separate utility system (except as a Contract Resource Obligation (i) included in Operating Expenses of the Electric System upon compliance with Section 6.1(D) hereof from such,time as no 2005 Bonds remain outstanding, or (ii) on a basis junior and inferior to the lien on Revenues pledged to secure the Bonds). "Finance Director" means the duly appointed and acting Finance Director of the City or the successor to the duties of that office. "Fiscal Year" means the fiscal year used by the City at any time. At the time of the passage of this ordinance, the Fiscal Year is the twelve-month period beginning January I of each year and ending December 31 of each year. "Generating Facilities" means electric utility properties and assets, real and personal, tangible and intangible, and used or useful in the generation of electric energy, hereafter acquired or constructed by the City and declared to be part of the Electric System, including any common undivided interest therein, related transmission facilities, and additions, improvements and betterments to and extensions of such properties and assets; provided, however, Generating Facilities shall not include Contract Resource Obligations designed as separate systems pursuant to Section 6.1.1)hereof. "Government Obligations" means those obligations now or hereafter defined as such in chapter 39.53 RCW, as this chapter may be hereafter amended or restated. "Moody's" means Moody's Investors Service, a corporation duly organized and existing under and by virtue of the laws of the State of Delaware, or its successor. -4- "Net Revenues" means, for any period, the excess of Revenues over Operating Expenses for such period, excluding from the computation of Revenues (a) any profit or loss derived from the sale or other disposition, not in the ordinary course of business, of investments or fixed or capital assets, or resulting from the early extinguishment of debt, and(b) insurance proceeds. "Operating Expenses" means (i) the City's expenses for operation and maintenance of the Electric System, and ordinary repairs, renewals, replacements and reconstruction of the Electric System, including all costs of delivering electric power and energy and payments (other than payments out of Bond proceeds) into reasonable reserves in the Electric Fund for items of Operating Expenses the payment of which is not immediately required, and shall include, without limiting the generality of the foregoing, all costs of purchased power, costs of transmission and distribution operation and maintenance expenses, rents, administrative and general expenses, engineering expenses, legal and financial advisory expenses, required payments to pension, retirement, health and hospitalization funds, insurance premiums and any taxes, assessments, or payments in lieu of taxes, all to the extent properly allocable to the Electric System; (ii) any cur-rent expenses required to be paid by the City under the provisions of this ordinance or by law, all to the extent properly allocable to the Electric System; and (iii) the fees and expenses of any Paying Agent. From and after such time as no 2005 Bonds remain outstanding, "Operating Expenses" shall include Contract Resource Obligations to the extent designated as such pursuant to Section 6.1.1) hereof. Operating Expenses shall not include any costs or expenses for new construction or other capital outlays, interest, amortization of debt service on any evidence of indebtedness, any allowance for depreciation, or any payments for City taxes or payments in lieu of City taxes. "Paying Agent" or "Paying Agents" means the Bond Registrar, with respect to the 2011 Bond, and the paying agent for each other series of outstanding Bonds. "Outstanding Parity Bond Ordinances" mean the ordinances authorizing the issuance of the Outstanding Parity Bonds as identified in the recitals to this ordinance. "Outstanding Parity Bonds" mean the outstanding 2005 Bonds and the 2010 Bonds. "Permitted Investments" means the following, so long as any of 2005 Bonds remain outstanding, to the extent that the same are legal for investment of funds of the City: A. The following obligations may be used as Permitted Investments for all purposes, including defeasance investments in the refunding escrow accounts. (1) Cash(insured at all times by the Federal Deposit Insurance Corporation. (2) Obligations of, or obligations guaranteed as to principal and interest by, the U.S. or any agency or instrumentality thereof, when such obligations are backed by the full faith and credit of the U.S. including: • U.S. Treasury obligations • All direct or fully guaranteed obligations • Farmers Home Administration -5- • General Services Administration • Guaranteed Title X1 financing • Government National Mortgage Association (GNMA) • State and Local Government Series (SLGS) (3) Obligations of Government-Sponsored Agencies that are not backed by the full faith and credit of the U.S. Government: • Federal Home Loan Mortgage Corp. (FHLMQ Debt obligations • Farm Credit System (formerly: Federal Land Banks, Federal Intermediate Credit Banks, and Banks for Cooperatives) • Federal Home Loan Banks (FHL Banks) • Federal National Mortgage Association (FNMA) Debt obligations • Resolution Funding Corp. (REFCORP) Debt obligations Any security used for defeasance must provide for the timely payment of principal and interest and cannot be callable or prepayable prior to maturity or earlier redemption of the rated debt (excluding securities that do not have a fixed par value and/or whose terms do not promise a fixed dollar amount at maturity or call date). U.S.A.I.D. securities must mature at least four business days before the appropriate payment date. B. The following Obligations shall be Permitted Investments for all purposes other than defeasance investments in refunding escrow accounts. (1) Obligations of any of the following federal agencies which obligations represent the full faith and credit of the United States of America, including: • Export-Import Bank • U.S. Maritime Administration • U.S. Department of Housing & Urban Development(PHAs) • Federal Housing Administration • Federal Financing Bank; (2) Direct obligations of any of the following federal agencies which obligations are not fully guaranteed by the full faith and credit of the United States of America: • Senior debt obligations issued by the Federal National Mortgage Association (FNMA) or Federal Home Loan Mortgage Corporation (FHLMC). • Obligations of the Resolution Funding Corporation (REFCORP) • Senior debt obligations of the Federal Home Loan Bank System • Senior debt obligations of other Government Sponsored Agencies approved by the insurer for the 2005 Bonds. -6- (3) U.S. dollar denominated deposit accounts, federal funds and bankers' acceptances with domestic commercial banks which have a rating on their short term certificates of deposit on the date of purchase of "P-I" by Moody's and "A-I" or "A-I+" by S&P and maturing no more than 360 calendar days after the date of purchase. (Ratings on holding companies are not considered as the rating of the bank); (4) Commercial paper which is rated at the time of purchase in the single highest classification, "P-1" by Moody's and "A-I+" by S&P and which matures not more than 270 days after the date of purchase; (5) Investments in a money market fund rated "AAAa' or "AAArn-G" or better by S&P; (6) Pre-refunded Municipal Obligations defined as follows: any bonds or other obligations of any state of the United States of America or of any agency, instrumentality or local governmental unit of any such state which are not callable at the option of the obligor prior to maturity or as to which irrevocable instructions have been given by the obligor to call on the date specified in the notice; and (A) which are rated, based on an irrevocable escrow account or fund (the "escrow"), in the highest rating category of Moody's and S&P or any successors thereto; or (B) (i) which are fully secured as to principal and interest and redemption premium, if any, by an escrow consisting only of cash or obligations described in paragraph A(2) above, which escrow may be applied only to the payment of such principal of and interest and redemption premium, if any, on such bonds or other obligations on the maturity date or dates thereof or the specified redemption date or dates pursuant to such irrevocable instructions, as appropriate, and (ii) which escrow is sufficient, as verified by a nationally recognized independent certified public accountant, to pay principal of and interest and redemption premium, if any, on the bonds or other obligations described in this paragraph on the maturity date or dates specified in the irrevocable instructions referred to above, as appropriate; (7) Municipal obligations rated "Aaa/AAA" or general obligations of States with a rating of"Aa2/AA" or higher by both Moody's and S&P; (8) Investment agreements approved in writing by the insurer of the 2005 Bonds and supported by appropriate opinions of counsel; and (9) Other forms of investments (including repurchase agreements) approved in writing by the insurer of the 2005 Bonds. C. The value of the above investments shall be determined as follows: (a) For the purpose of determining the amount in any fund, all Permitted Investments credited to such fund shall be valued at fair market value. The City shall determine the fair market value based on accepted industry standards and from accepted industry providers. Accepted industry providers shall include but are not limited to pricing services provided by -7- Financial Times Interactive Data Corporation, Bank of America, Merrill Lynch, Citigroup, and Barclay Capital Markets; (b) As to certificates of deposit and bankers' acceptances: the face amount thereof,plus accrued interest thereon; (c) As to any investment not specified above: the value thereof established by prior agreement between the City and the insurer of the 2005 Bonds; (d) Any investment or investment agreement permitted for funds of the City under the laws of the State of Washington, as amended from time to time, which are approved by the insurer of the 2005 Bonds. From and after such time as no 2005 Bonds remain outstanding, "Permitted Investments" shall mean any legal investment for City funds. "Power and Services" means energy, capacity, reserves and services, excluding the purchase of ownership of generating capability. "Professional Utility Consultant" means the independent person(s) or firm(s) selected by the City having a favorable reputation for skill and experience with generation, transmission and distribution systems of comparable size and character to the Electric System in such areas as are relevant to the purposes for which they are retained. "Private Person" means any natural person engaged in a trade or business or any trust, estate, partnership, association, company or corporation. "Private Person Use" means the use of property in a trade or business by a Private Person if such use is other than as a member of the general public. Private Person Use includes ownership of the property by the Private Person as well as other arrangements that transfer to the Private Person the actual or beneficial use of the property (such as a lease, management or incentive payment contract or other special arrangement) in such a manner as to set the Private Person apart from the general public. Use of property as a member of the general public includes attendance by the Private Person at municipal meetings or business rental of property to the Private Person on a day-to-day basis if the rental paid by such Private Person is the same as the rental paid by any Private Person who desires to rent the property. Use of property by nonprofit community groups or community recreational groups is not treated as Private Person Use if such use is incidental to the governmental uses of property, the property is made available for such use by all such community groups on an equal basis and such community groups are charged only a de minimis fee to cover custodial expenses. "Proposal" means the proposal letter submitted by the Purchaser to purchase the 2011 Bond and included as Exhibit A attached hereto. "Purchaser" means First Federal, Port Angeles, Washington, and its successors and assigns. -8- "Qualified Insurance" means any non-cancellable municipal bond insurance policy or surety bond issued by any insurance company licensed to conduct an insurance business in any state of the United States (or by a service corporation acting on behalf of one or more such insurance companies), which insurance company or companies, as of the time of issuance of such policy or surety bond, are currently rated in one of the two highest rating categories by Moody's or S&P or both Moody's and S&P if such institution is rated by both or their comparably recognized business successors. "Qualified Letter of Credit" means any irrevocable letter of credit issued by a financial institution for the account of the City on behalf of the owners of one or more series of Bonds, which institution maintains an office, agency or branch in the United States and as of the time of issuance of such letter of credit is currently rated in one of the two highest rating categories by Moody's or S&P or their comparably recognized business successors or both Moody's and S& P if such institution is rated by both or their comparably recognized business successors. "Refunded Bonds" mean all of the outstanding 2001 Bonds maturing on and after September 1, 2016. "Registered Owner" means the person named as the registered owner of the 2011 Bond on the Bond Register. "Revenues" means all income (including investment income), receipts and revenues derived by the City through the ownership and operation of the Electric System but shall not include: (a) any income derived by the City through the ownership and operation of any facilities that may hereafter be purchased, constructed or otherwise acquired by the City as a separate utility system; or (b) investment income restricted to a particular purpose inconsistent with its use for the payment of debt service, including investment income derived pursuant to a plan of debt retirement or refunding. "Rule" means the Commission's Rule 15c2-12 under the Securities Exchange Act of 1934, as the same may be amended from time to time. "S&P" means Standard& Poor's Ratings Services, a Standard& Poor's Financial Services LLC business, a New York corporation, or its successor. "Serial Bonds" means Bonds other than Term Bonds. "Sinking Fund Requirement" for any Fiscal Year means the principal amount of Term Bonds required to be purchased, redeemed or paid in such Fiscal Year as established by the ordinance of the City authorizing the issuance of such Term Bonds. "Sinking Fund Requirement Date" means, for any Fiscal Year, the date by which the Sinking Fund Requirement for such Fiscal Year must be met. -9- "Supplemental Ordinance" means any ordinance amending, modifying or supplementing the provisions of this ordinance, including any ordinance providing for the issuance of Additional Bonds. ,,Term Bonds" means Bonds of any principal maturity that are subject to mandatory redemption and for which mandatory sinking fund payments are required. "2001 Bonds" means the City's Electric Revenue Refunding Bonds, Series 2001, issued in the original principal amount of $2,560,000 under date of November 1, 2001, pursuant to Ordinance No. 3100. "2005 Bonds" means the City's Electric Revenue and Refunding Bonds, Series 2005, issued in the original principal amount of$3,185,000 under date of February 15, 2005, pursuant to Ordinance No. 3186. "2010 Bonds" means the City's Electric Revenue Bonds, Series 2010, issued in the original principal amount of $4,925,000 under date of August 17, 2010, pursuant to Ordinance No. 3406. "2011 Bond" means the City's Electric Revenue Refunding Bond, Series 2011, authorized to be issued pursuant to this ordinance in the aggregate principal amount of $1,662,056.10. Section 1.2. Inte!pretation. In this ordinance, unless the context otherwise requires: A. The terms "hereby," "hereof," "hereto," "herein," "hereunder" and any similar terms, as used in this ordinance, refer to this ordinance as a whole and not to any particular article, section, subdivision or clause hereof, and the term "hereafter" shall mean after, and the term"heretofore" shall mean before,the date of this ordinance; B. Words of the masculine gender shall mean and include correlative words of the feminine and neuter genders and words importing the singular number shall mean and include the plural number and vice versa; C. Words importing persons shall include firms, associations, partnerships (including limited partnerships), trusts, corporations and other legal entities, including public bodies, as well as natural persons; D. Any headings preceding the text of the several articles and sections of this ordinance, and any table of contents or marginal notes appended to copies hereof, shall be solely for convenience of reference and shall not constitute a part of this ordinance, nor shall they affect its meaning,construction or effect; and E. All references herein to "articles," "sections" and other subdivisions or clauses are to the corresponding articles, sections, subdivisions or clauses hereof. -10- ARTICLE H FINDINGS AND DETERMINATIONS Section 2.1. Parity Conditions. The Outstanding Parity Bond Ordinances provide that the City may issue Additional Bonds payable from the Bond Account on a parity with the Outstanding Parity Bonds upon compliance with certain conditions. The Council hereby finds, as required by those provisions of the Outstanding Parity Bond Ordinances, as follows: A. There is no deficiency in the Bond Account and no Event of Default has occurred and is continuing. B. Prior to delivery of the 2011 Bond, there shall be filed with the City a certificate signed by the Finance Director showing that the Annual Debt Service for any Fiscal Year after the issuance of the 2011 Bond and the refunding of the Refunded Bonds will not be increased by more than $5,000 by reason of the issuance of such 2011 Bond. The Additional Bonds tests of the Outstanding Parity Bond Ordinances having been complied with or assured, the lien and charge on Revenues for the payment of the principal of and interest on the 2011 Bond will be equal to the lien and charge thereon for the payment of principal of and interest on the Outstanding Parity Bonds. Section 2.2. Due Regard. The Council hereby finds and determines that due regard has been given to the cost of the operation and maintenance of the Electric System and that it has not obligated the City to set aside into the Bond Account for the account of the 2011 Bond a greater amount of the revenues and proceeds of the Electric System than in its judgment will be available over and above such cost of maintenance and operation and the cost of paying and securing the payment of the Outstanding Parity Bonds. ARTICLE III AUTHORIZATION AND ISSUANCE OF BOND Section 3.1. Purpose and Authorization of 2011 Bond. The 2011 Bond is hereby authorized to be issued in the aggregate principal amount of $1,662,056.10 for the purpose of refunding, on a current basis, the Refunded Bonds and paying costs of issuance for the 2011 Bond. The 2011 Bond shall be designated as the "City of Port Angeles, Washington, Electric Revenue Refunding Bond, Series 2011," shall be dated as of its date of delivery to the Purchaser, shall be issued in fully registered form in the denomination of$1,662,056.10, shall bear interest on unpaid principal from its date at a per annum rate of 3.5% (calculated on the basis of a 360- day year with twelve 30-day months). Interest shall be payable semiannually on the first days of March and September, commencing March 1, 2012, and principal shall be payable annually on the first day of September, until prepayment or final maturity, in accordance with the following debt service schedule. The 2011 Bond shall mature on September 1, 2022. Payment Principal Interest Date Amount Amount 3/1/2012 $ 28,116.45 9/1/2012 124,584.17 29,085.98 3/1/2013 — 26,905.76 9/1/2013 131,056.21 26,905.76 3/1/2014 — 24,612.28 9/1/2014 135,643.18 24,612.28 3/1/2015 — 22,238.52 9/1/2015 140,390.69 22,238.52 3/1/2016 — 19,781.68 9/1/2016 145,304.36 19,781.68 3/1/2017 — 17,238.86 9/1/2017 150,390.02 17,238.86 3/1/2018 — 14,607.03 9/1/2018 155,653.67 14,607.03 3/1/2019 — 11,883.09 9/1/2019 161,101.54 11,883.09 3/1/2020 — 9,063.81 9/1/2020 166,740.10 9,063.81 3/1/2021 — 6,145.86 9/1/2021 172,576.00 6,145.86 3/l/2022 — 3,125.78 9/1/2022 178,616.16 3,125.78 $ 1,662,056.10 $ 368,407.77 Principal of and interest on the 2011 Bond are payable solely from the Bond Account. The 2011 Bond is not a general obligation of the City or of the State of Washington or any political subdivision thereof. Section 3.2. Registration, Exchange and PUMents. A. Bond Register/Bond Registe . The Finance Director shall act as transfer agent, Paying Agent and registrar for the 2011 Bond (the "Bond Registrar"). The Bond Registrar shall keep, or cause to be kept, at the office of the Finance Director, sufficient records for the registration and transfer of the 2011 Bond. The Bond Register shall be maintained by the Bond Registrar, and shall contain the name and mailing address of the registered owner of the 2011 Bond or nominee of such registered owner. The Bond Registrar is authorized, on behalf of the City, to authenticate and deliver the 2011 Bond in accordance with the provisions of the 2011 Bond and this ordinance to serve as the City's Paying Agent for the 2011 Bond and to carry out all of the Bond Registrar's powers and duties under this ordinance. B. Registered Ownership. The City and the Bond Registrar may deem and treat the registered owner of the 2011 Bond as the absolute owner for all purposes, and neither the City nor the Bond Registrar shall be affected by any notice to the contrary. Payment of the 2011 Bond -12- shall be made only as described in subsection E. below. All such payments made as described in subsection E. below shall be valid and shall satisfy the liability of the City upon the 2011 Bond to the extent of the amount so paid. C. Transfer or Exchange of Registered Ownership. The 2011 Bond shall be transferable upon (i) the express written consent of the City, by its then acting City Manager, which consent shall not be unreasonably withheld; (ii) receipt by the City of an investor letter, in a form satisfactory to bond counsel to the City, executed by the transferee, or (iii) receipt of an opinion of bond counsel to the City addressed to the City stating that such transfer is not in violation of any applicable law, including any applicable state or federal securities statute or regulation. Any such opinion shall be an expense of the Purchaser. Express written consent of the City shall not be necessary upon satisfaction of subsection (ii) or (iii). Such consent by the City, letter or opinion shall be limited to a specific transaction with a specifically identified transferee. D. Registration Covenant. The City covenants that, until the 2011 Bond has been surrendered and canceled, it will maintain a system for recording the ownership of the 2011 Bond that complies with the provisions of Section 149 of the Code. E. Place and Medium of Payment. Both principal of and interest on the 2011 Bond shall be payable in lawful money of the United States of America without surrender or presentation, by wire transfer or Automated Clearinghouse (ACH) transfer if requested by the registered owner of the 2011 Bond. Upon final payment of principal and interest of the 2011 Bond, the registered owner shall surrender the 2011 Bond for cancellation at the office of the Bond Registrar. Section 3.3. Prepayment of the 2011 Bond. The City may prepay the 2011 Bond in whole or in part at any time, at a price of par plus accrued interest to the date of prepayment, without penalty or prepayment fee. Upon prepayment, interest on the principal amount prepaid shall cease to accrue on the date such prepayment occurs. ARTICLE IV ISSUANCE OF ADDITIONAL BONDS Section 4.1. Authorization of Series of Additional Bonds. Before any series of Additional Bonds is issued under the provisions of this Article, the City must adopt an ordinance or ordinances authorizing the issuance of such bonds, fixing the amount and the details thereof, describing in brief and general terms the purpose or purposes for which such bonds are to be issued and specifying the amount, if any, of the proceeds of such bonds to be deposited to the credit of the construction or project fund created with respect to such bonds or to another fund for the payment of capitalized interest on such bonds and to the Reserve Account; provided, however, that deposits to the Reserve Account shall be made as required under Section 6.2.0 hereof. The bonds of each series issued under the provisions of this Section will be designated "Electric Revenue Bonds, Series shall be in such denominations, shall be dated, shall bear interest at a rate or rates (including variable rates) not -13- exceeding the maximum rate then permitted by law, shall be payable, both as to principal and interest, at such place or places, shall mature in such year or years, shall be made redeemable at such times and prices (subject to the provisions of this ordinance), shall be numbered, shall have such Paying Agents, and any Term Bonds of such series shall have such amortization requirements, all as may be provided by ordinance or ordinances adopted by the City prior to the issuance of such bonds. Section 4.2. Additional Bonds. A. Additional Bonds may be issued payable from the Bond Account on a parity with the outstanding Bonds and secured by an equal charge and lien on the Revenues pledged to the Bond Account for any lawful purpose of the City, including the refunding of outstanding Bonds; provided that, (i) except as to Bonds issued pursuant to Section 4.2.E hereof, at the time of the issuance of such Additional Bonds, there is no deficiency in the Bond Account, and no Event of Default has occurred and is continuing, and (ii) the requirements of the applicable provisions of this Section 4.2 are complied with. B. Additional Bonds may be issued for any lawful purpose of the City if the following requirements are met. A certificate signed by the Finance Director shall set forth: (i) the amount of the Net Revenues for any 12 consecutive months of the 24 months prior to the date of the issuance of such Bonds; (ii) the amount of the Average Annual Debt Service in any Fiscal Year thereafter on account of all Bonds then outstanding under this ordinance and the Additional Bonds then to be issued hereunder; and (iii) the percentage derived by dividing the amount shown in (i) above by the amount shown in(ii) above, and shall state that such percentage is not less than 125%; C. Additional Bonds may also be issued for any lawful purpose of the City if the following requirements are met. A certificate signed by a Professional Utility Consultant and filed with the City Clerk shall set forth: (i) the amount of the Adjusted Net Revenues computed as provided in Section 4.2.H; (ii) the amount of the Average Annual Debt Service thereafter on account of all Bonds then outstanding under this ordinance and the Additional Bonds then to be issued hereunder; and (iii) as to the applicable Fiscal Year under (ii) above, the percentage derived by dividing the amount shown in (i) above by the amount shown in (ii) above, and shall state that such percentage is not less than 125%. Additional Bonds may be issued pursuant to Subsections E and F of this Section 4.2 without complying with the provisions of this Subsection C. -14- D. Additional Bonds may also be issued for the purpose of paying part of the costs of Distribution and Transmission Facilities or Generating Facilities for which Bonds have theretofore been issued, if a certificate is signed by a Professional Utility Consultant and filed with the City Clerk, which (i) shall comply with the requirements of paragraph C above or (ii) shall state that the issuance of such Additional Bonds is necessary to complete such facilities and that the completion is necessary for the efficient and economic operation of the Electric System; provided, however, that the principal amount of such Additional Bonds may not exceed 15% of the principal amount of the Bonds theretofore issued for such facilities. E. Additional Bonds may also be issued from time to time for the purpose of providing funds, together with any other available funds, for retiring at or prior to their maturity or maturities any or all of the outstanding Bonds of any series, including the payment of any redemption premium thereon, and, if deemed necessary by the City, for paying the interest to accrue thereon to the date fixed for their retirement and any expenses incident to the issuance of such Additional Bonds. F. Additional Bonds issued under subsection E above may not be delivered unless the proceeds (excluding any accrued interest but including any premium) of such Additional Bonds, together with any other money that has been made available for such purposes, and the principal of and the interest on the investment of such proceeds or any such money, are sufficient to pay (i) the principal of and the redemption premium, if any, on the Bonds to be refunded and (ii)the interest that will become due and payable on or prior to the date of their payment or redemption, and(iii)the expenses incident to the issuance of such Additional Bonds. If such Additional Bonds are to be issued pursuant to subsection F above, (1) There shall be filed with the City a certificate signed by the Finance Director showing that the Annual Debt Service for any Fiscal Year thereafter will not be increased by more than $5,000 by reason of the issuance of the Additional Bonds; or (2) There shall be filed with the City a certificate signed by a Professional Utility Consultant setting forth: (a) the amount of the Adjusted Net Revenues computed as provided in Section 4.2.H; (b) the amount of the Average Annual Debt Service in any Fiscal Year thereafter on account of all Bonds to be outstanding in such Fiscal Year and the Additional Bonds then to be issued hereunder; and (c) stating that the amount shown in (a) above is not less than 125% of the amount shown in (b) above. G. In rendering any certificate under this Section, the Professional Utility Consultant may rely upon, and such certificate shall have attached thereto, (1) financial statements of the Electric System, certified by the chief financial officer thereof, showing income and expenses for the period upon which the same are based and a balance sheet as of the end of such period, or -15- (2) similar certified statements by the Division of Municipal Corporations of the Office of the State Auditor of the State of Washington (or any successor thereto), or (3) similar certified statement by an independent certified public accountant, if any, for as much of said period as any examination by them has been made and completed. If two or more of such statements are inconsistent with each other, the Professional Utility Consultant shall rely on the statement described under(1) above. In connection with the issuance of any Bonds pursuant to subsections 4.2.C, 4.2.D and 4.2.G of this Section, the certificate of the Professional Utility Consultant hereinabove referred to shall be conclusive and the only evidence required to show compliance with the provisions and requirements of said subsection. H. For the purposes of the certificates required by Sections 4.2.0 and 4.2.G of this ordinance, Adjusted Net Revenues shall be computed by the Professional Utility Consultant as follows: (a) The Net Revenues for any 12 consecutive months (selected by the City) out of the 24 months prior to the date of issuance of the Additional Bonds (such 12-month period being herein called the "Base Period") may be adjusted: (i) to reflect any changes in Net Revenues for the Base Period which would have occurred if the schedule of rates and charges in effect at the time of the computation (or approved by the Council as of the time of such computation and to become effective within 12 months thereof) had been in effect during the portion of the Base Period in which such schedule was not in effect; (ii) to reflect a full 12 months of Net Revenues from any customers of the Electric System added prior to the computation date; and (iii) to reflect any changes in Net Revenues estimated to be received from residences and businesses that are in existence as of the date of issuance of such Additional Bonds and that are expected to connect to the Electric System as a result of, and upon completion of, any facilities under construction or to be acquired, constructed or installed as a part of the Electric System from the proceeds of any Bonds. I. Nothing contained herein shall prevent the City from refunding at one time all of the Bonds then outstanding. Nothing contained herein shall prevent the City from issuing obligations payable from a lien on the Revenues that is junior and inferior to the Bonds. J. Additional Bonds may be issued from time to time without complying with the requirements set forth above if, in the opinion of the Professional Utility Consultant, as evidenced by a certificate filed with the City, it is necessary to repair any damage or loss to the Electric System or if the Electric System has been destroyed or damaged by disaster or unanticipated event to such an extent that it cannot be operated; provided, however, that the proceeds of any Additional Bonds issued for such purpose may only be used to return the Electric System to, or to maintain the Electric System at, substantially its former or then operating -16- capacity; and provided further, that in the case of repair, such Additional Bonds may be issued only to the extent that insurance proceeds from such damage or loss are insufficient for the accomplishment of such purpose. So long as the 2005 Bonds remain outstanding, the consent of the insurer for the 2005 Bonds must be obtained prior to the issuance of Additional Bonds pursuant to this Section 4.2.J. K. In calculating Annual Debt Service for purposes of this Section, so long as the 2005 Bonds remain outstanding, if the interest rate on any Bonds is other than a fixed rate, the rate applicable at the time of computation shall be used unless such rate is less than the most recently published Bond Buyer's Revenue Bond Index for municipal revenue bonds, in which case the rate stated by such index shall be used. If such index is no longer published, another nationally recognized index for municipal revenue bonds maturing in 20 to 30 years shall be used. From and after such time as no 2005 Bonds remain outstanding, if the interest rate on any Bonds is other than a fixed rate, the rate applicable at the time of computation shall be used unless such rate is less than an interest rate equal to the yield to maturity equal to the higher of(i) the average of the SIFMA Municipal Swap Index over the 60 month period immediately preceding the date of computation, or (ii) the average of the 81FMA Municipal Swap Index over the 12 month period immediately preceding the date of computation, as determined within ten days prior to the date of computation or, if such computation is being made in connection with the certificate required by this Section, then within ten days prior to the date of such certificate. ARTICLE V GENERAL TERMS AND PROVISIONS OF BONDS Section 5.1. Lost or Destroyed Bonds. If the 2011 Bond is lost, stolen or destroyed, the Bond Registrar may authenticate and deliver a new 2011 Bond of like amount, maturity and tenor to the Registered Owner upon such Registered Owner's paying the expenses and charges of the Bond Registrar and the City in connection with preparation and authentication of the replacement 2011 Bond and upon his or her filing with the Bond Registrar and the City evidence satisfactory to both that such 2011 Bond was actually lost, stolen or destroyed and of his or her ownership, and upon furnishing the City and the Bond Registrar with indemnity satisfactory to both. ARTICLE VI CREATION OF SPECIAL FUNDS AND ACCOUNTS AND PAYMENTS THEREFROM Section 6.1. Electric Fund(formerly designated as the Light Fund). A. Electric Fund. A special fund of the City has been created pursuant to Ordinance No. 374 and designated the "Light Fund," which fund has been renamed as the "Electric Fund" and continued by the City. The City covenants that it will pay or cause to be paid all Revenues into the Electric Fund as promptly as practicable after receipt thereof. The following accounts have been created in the Electric Fund: (i) the General Account, (ii) the Contingency and Replacement Account, (iii) the Construction Account, and (iv) the Rate Stabilization Account. Such accounts shall be held and used for the purposes described herein. -17- B. Flow of Funds. Revenues shall be deposited and credited to the following accounts in the Electric Fund and used only for the following purposes and in the following order of priority: (1) All Revenues paid into the Electric Fund shall first be credited to the General Account therein and applied as follows: (i) to pay Operating Expenses and to provide sufficient working capital for the operation of the Electric System; (ii) to make all payments required to be made into the Interest Account in the Bond Account for the payment of accrued interest on the next interest payment date; (iii) to make all payments required to be made into the Principal Account in the Bond Account for the payment of the principal amount of Serial Bonds next coming due, and into the Bond Retirement Account in the Bond Account for the mandatory redemption of Term Bonds; (iv) to make all payments required to be made into the Reserve Account in the Bond Account created to secure the payment of the Bonds; and (v) to make all payments required to be made into any special fund or account created to pay or secure the payment of the principal of and interest on any revenue bonds, warrants or other revenue obligations of the City having a lien upon Revenues and money in the Electric Fund and Bond Account and accounts therein junior and inferior to the lien thereon for the payment of the principal of and interest on the Bonds. (2) To the extent that surplus Revenues remain after the payments so required to be made out of the General Account, the City shall credit to the Contingency and Replacement Account in each Fiscal Year an amount equal to at least 25% of the Annual Debt Service in such Fiscal Year. (3) To the extent that surplus Revenues remain after the payments so required to be made out of the General Account and the credit to the Contingency and Replacement Account, the City may credit up to the full amount of such surplus to the Rate Stabilization Account. (4) After all of the above payments and credits have been made, amounts remaining in the General Account may be used for any other lawful purpose of the Electric Fund. Any credits from the General Account pursuant to subsections (2) and (3) above, and any credits to the General Account from the Rate Stabilization Account made pursuant to Section 9.3 hereof, may be made up to and including the date 90 days after the end of the Fiscal Year for which the deposit or withdrawal will be effective. -18- C. Contingency and Replacement Account and Rate Stabilization Account. Money in the Contingency and Replacement Account shall be used from time to time to make up any deficiencies in the Reserve Account, and such money in the Contingency and Replacement Account is hereby pledged as additional payment to the Bond Account to the extent required for any such deficiencies. Money in the Contingency and Replacement Account may be used to make additions, betterments, extensions, renewals, replacements and other capital improvements to the Electric System, to retire Bonds, or may be used by the City for any other lawful purpose of the City,but may not be paid directly into the Rate Stabilization Account. The Rate Stabilization Account is created in anticipation of future increases in revenue requirements. Funds in the Rate Stabilization Account may be transferred to the General Account to accommodate part or all of those future revenue requirement increases. Money in the Rate Stabilization Account may be used for any lawful purpose. Money in the Rate Stabilization Account shall be used from time to time to make up any deficiencies in the Bond Account, and such money in the Rate Stabilization Account is hereby pledged as additional payments to the Bond Account to the extent required for any such deficiencies. Nothing contained in this Section 6.1 shall be construed to require the deposit into the Electric Fund of any of the revenues, income, receipts or other money of the City derived by the City through the ownership or operation of any separate utility system hereafter created or established from funds other than the proceeds of Bonds. D. Contract Resource Obligations. (1) Authorization. The City is hereby authorized to create, acquire, construct, finance, own and operate one or more additional electric utility systems for the purpose of generating, transmitting or distributing electric power and energy. The Council may declare any such system to be a separate utility system not financed from the Revenues (except as a Contract Resource Obligation (i) included in Operating Expenses of the Electric System upon compliance with Section 6.2 hereof or (ii) on a basis junior and inferior to the lien on Revenues pledged to secure the Bonds), the revenue of which separate utility system may be pledged to the payment of revenue obligations issued to purchase, construct, condemn or otherwise acquire or expand such separate utility system. The costs associated with any such separate utility system may upon declaration of the City Council constitute a Contract Resource Obligation and, after no 2005 Bonds remain outstanding and upon compliance with subsection (2) below, included in Operating Expenses, provided, however, no Contract Resource Obligation constituting the costs of a separate utility system for the retail distribution of electric power and energy may be included in the Electric System's Operating Expenses. (2) Contract Resource Obligations as Operating Expenses. After such time as no 2005 Bonds remain outstanding, a Contract Resource Obligation may be included in Operating Expenses if the following requirements are met at the time the Contract Resource Obligation is incurred: W No Event of Default has occurred and is continuing. -19- (ii) There shall be on file with the City Clerk a certificate of a Professional Utility Consultant stating that the average annual Net Revenues for the Fiscal Years in the period specified in the next sentence, as such Net Revenues are estimated by the Professional Utility Consultant in accordance with Sections 4.2.G and 4.2.H hereof, shall be at least equal to 1.25 times Average Annual Debt Service in any future Fiscal Year, as estimated by the Professional Utility Consultant in accordance with Sections 4.2.G and 4.2.H hereof. The period for the determination of average annual Net Revenues shall be the period beginning with the first Fiscal Year following the earlier of(a) the date to which interest is capitalized or (b) the date of initial operation of the facilities to be financed and ending with the fifth full Fiscal Year after such date. (iii) There shall be on filed with the City Clerk an opinion of the Professional Utility Consultant to the effect stated in subparagraph (a) below if the Contract Resource Obligation is to be utilized to supply power and energy or to the effect stated in subparagraph (b) below if the Contract Resource Obligation is to be utilized to supply transmission capability: (a) (i) The additional source of power and energy from such Contract Resource Obligation is sound from a power supply planning standpoint and is technically and economically feasible in accordance with prudent utility practice; and (ii) the estimated cost of such Contract Resource Obligation is reasonable. (b) (i) The transmission capability to be acquired pursuant to the Contract Resource Obligation will be necessary within a reasonable time after the estimated date of commercial operation of the transmission facilities; and (ii) the estimated cost of such Contract Resource Obligation is reasonable. Section 6.2. Bond Account (formerly referred to as the Bond Fund). Pursuant to Ordinance No. 2709, a special fund of the City has been created and designated the "Electric System Revenue Bond Fund" (previously referred to as the "Bond Fund" and referred to herein as the "Bond Account"). The Bond Account shall be held in trust and administered by the City and used solely to pay the principal of, premium, if any, and interest on the Bonds, and retiring the Bonds prior to maturity in the manner herein provided. The City hereby obligates and binds itself irrevocably to set aside and to pay (to the extent not otherwise provided) from money in the Electric Fund into the Bond Account, after paying or making provision for Operating Expenses and prior to the payment of any other charge or obligation against such Revenues, amounts sufficient to pay the principal of, premium, if any, and interest on all the Bonds from time to time outstanding as the same respectively become due and payable, either at the maturity thereof or in accordance with the terms of any Sinking Fund Requirement established for the retirement of Term Bonds. The fixed amounts to be paid into the Bond Account, to the extent that such payments are not.made from Bond proceeds or from other money which may legally be available therefor, shall be as follows and in the following order of priority: A. Bond Interest Account. There has been created in the Bond Account, for the purpose of paying the interest on Bonds as the same becomes due and payable, a Bond Interest Account (the "Interest Account"). So long as any 2005 Bonds remain outstanding, no later than -20- the last day of the month in which any Bonds are delivered to the initial purchasers thereof and on or before the 25th day of each month thereafter, the City shall pay from the Electric Fund into the Bond Account to the credit of the Interest Account an amount such that, if the same amount were so paid and credited to the Interest Account on the 25th day of each of the months preceding the next date upon which an installment of interest falls due on the Bonds, the aggregate of the amounts so paid and credited to the Interest Account would on such date be equal to the installment of interest then falling due on all Bonds then outstanding. From and after such time as no 2005 Bonds remain outstanding, the City shall pay from the Electric Fund into the Bond Account to the credit of the Interest Account, on or before the date due, an amount sufficient, together with any funds then on deposit in the Interest Account, to pay the installment of interest falling due on all Bonds then outstanding on such date. B. Principal Accounts. There has been created in the Bond Account, for the purpose of paying outstanding Serial Bonds as they mature and for the purpose of redeeming Term Bonds pursuant to the Sinking Fund Requirement pertaining to such Term Bonds, the following accounts each of which are equal in priority: (i) Bond Principal Account. The Bond Principal Account, for the purpose of paying outstanding Serial Bonds as they mature (the "Principal Account'). So long as any 2005 Bonds remain outstanding, no later than the 25th day of the 12th month prior to each Serial Bond maturity, or if there are less than 12 months preceding such maturity then no later than the last day of the month immediately succeeding the month in which the Bonds are delivered to the initial purchaser(s) thereof, and on or before the 25th day of each month thereafter, the City shall pay from the Electric Fund into the Bond Account to the credit of the Principal Account an amount such that, if the same amount were so paid and credited to the Principal Account on the 25th day of each succeeding month thereafter and prior to such Serial Bond maturity date, the aggregate of the amounts so paid and credited to the Principal Account would on such date be equal to the principal amount of Serial Bonds then falling due. From and after such time as no 2005 Bonds remain outstanding, the City shall pay from the Electric Fund into the Bond Account to the credit of the Principal Account, on or before the date due, an amount sufficient, together with any funds then on deposit in the Principal Account, to pay the principal of Serial Bonds due on such date. (ii) Bond Retirement Account. The Bond Retirement Account, for the purpose of redeeming Term Bonds pursuant to the Sinking Fund Requirement pertaining to such Term Bonds and to otherwise retire Bonds prior to maturity (hereinafter referred to as the "Bond Retirement Account'). So long as any 2005 Bonds remain outstanding, no later than the 25th day of the 12th month prior to the date of each Sinking Fund Requirement, or if there are less than 12 months preceding such Sinking Fund Requirement Date, then on the last day of the month immediately succeeding the month in which the Bonds are delivered to the initial purchaser(s) thereof, and on or before the 25th day of each succeeding month thereafter, the City shall pay from the Electric Fund into the Bond Account to the credit of the Bond Retirement Account an amount such that, if the same amount were so set aside in the Bond Account and credited to the Bond Retirement Account on the 25th day of each succeeding month thereafter and prior to such Sinking Fund Requirement Date, the aggregate of the amounts so paid and credited to the Bond Retirement Account would be equal to the Sinking Fund Requirement for -21- such date. From and after such time as no 2005 Bonds remain outstanding, the City shall pay from the Electric Fund into the Bond Account to the credit of the Bond Retirement Account, on or before the date due, an amount sufficient, together with any funds then on deposit in the Bond Retirement Account, to pay the Sinking Fund Requirement for any Term Bonds due on such date. The City shall apply all the money paid into the Bond Account for credit to the Bond Retirement Account to the redemption of Term Bonds on each Sinking Fund Requirement Date (or may so apply such money prior to such Sinking Fund Requirement Date), pursuant to the terms of this ordinance or of the Supplemental Ordinance authorizing the issuance thereof. The City may also apply the money paid into the Bond Account for credit to the Bond Retirement Account for the purpose of retiring Term Bonds by the purchase of such Bonds at a purchase price (including accrued interest and any brokerage charge) not in excess of the principal amount thereof, in which event the principal amount of such Bonds so purchased shall be credited against the next ensuing Sinking Fund Requirement. Any such purchase of Bonds by the City may be made with or without tenders of Bonds in such manner as the City shall, in its discretion, deem to be in its best interest. C. Bond Reserve Account. There has been created a "Bond Reserve Account" in the Bond Account (the "Reserve Account"). Upon the issuance of the 2011 Bond the amount on deposit in the Reserve Account shall equal at least Average Annual Debt Service for the then outstanding Bonds. If the City issues any Additional Bonds, the Supplemental Ordinance authorizing the issuance of such Additional Bonds shall provide for approximately equal monthly payments into the Bond Account for credit to the Reserve Account from the money in the Electric Fund, in such amounts and at such times so that by no later than three years from the date of issuance of such Additional Bonds there will be credited to the Reserve Account an amount equal to the Average Annual Debt Service at the date of issuance of such Additional Bonds; provided, however, that the proceedings authorizing the issuance of Additional Bonds may provide for payments into the Bond Account for credit to the Reserve Account from the proceeds of such Additional Bonds or from any other money lawfully available therefor, in which event, in providing for deposits and credits required by the foregoing provisions of this paragraph, allowance shall be made for any such amounts so paid into such Account. Subject to the two preceding sentences, the money and value of Permitted Investments in the Reserve Account shall be determined as of the last business day of each Fiscal Year and maintained at an amount at least equal to the Average Annual Debt Service, except where it is necessary for the City to make a transfer therefrom to the Interest Account, Principal Account or Bond Retirement Account because of an insufficiency of money therein to make any required payment of principal of or interest on any Bonds when due. The City shall make up any deficiencies in such account arising because of such transfer, or because of an insufficient value of money and Permitted Investments in such account, in not more than 18 approximately equal consecutive monthly installments into the Reserve Account. If at any time the money and value of Permitted Investments in the Reserve Account shall exceed the amount of money and value of Permitted Investments then required to be maintained therein by 10%, such excess may be transferred to the General Account in the Electric Fund. -22- For the purposes of valuation of Permitted Investments pursuant to this Section 6.2.C, the value of Permitted Investments shall be computed as follows: (a) the value of obligations which mature within six months from the date of purchase thereof shall be the purchase price of such obligations; and (b) the value of obligations which mature more than six months after the date of purchase thereof shall be the lesser of (i) the principal or face amount of such obligations, or (ii)the bid quotation price thereof as of the fifth business day next preceding the date of such determination as reported in The Wall Street Journal, or if such newspaper is not published or such price is not reported in said newspaper, in a newspaper of general circulation or a financial journal published in the Borough of Manhattan, City and State of New York, or (iii) the price at which such obligations are then redeemable by the owner at his option. The computations made under this paragraph shall not include accrued interest. In making the payments and credits to the Principal Account, Interest Account, Bond Retirement Account and Reserve Account required by this Section 6.2, to the extent that such payments are made from Bond proceeds, from money in any capitalized interest account, or from other money that may legally be available, such payments are not required to be made from the Electric Fund. The City may elect to meet the requirements of this Section 6.2.0 with respect to the Reserve Account through the use of a Qualified Letter of Credit, Qualified Insurance or other equivalent credit enhancement device currently rated in one of the two highest rating categories by Moody's or S&P. The City may contract with the entity providing such Qualified Letter of Credit, 'Qualified Insurance or other equivalent credit enhancement device that the City's reimbursement obligation, if any, to such entity ranks on a parity of lien with the Bonds. If the City elects additionally to secure any issue of Additional Bonds through the use of a Qualified Letter of Credit, Qualified Insurance or other equivalent credit enhancement device, the City may contract with the entity providing such Qualified Letter of Credit, Qualified Insurance or other equivalent credit enhancement device that the City's reimbursement obligation, if any,to such entity ranks on a parity of lien with outstanding Bonds; provided that the payments due under such reimbursement agreement are such that if such reimbursement obligation were a series of Additional Bonds, such Bonds could be issued in compliance with the provisions of Article IV hereof. . In making the payments and credits to the Reserve Account required by this Section 6.2, to the extent that the City has obtained Qualified Insurance or a Qualified Letter of Credit for specific amounts required pursuant to this section to be paid out of the Reserve Account, such amounts so covered by Qualified Insurance or a Qualified Letter of Credit shall be credited against the amounts required to be maintained in the Bond Reserve Account by this Section 6.2.0 to the extent that such payments and credits to be made are insured by an insurance company, or guaranteed by a letter of credit from a financial institution. Upon the expiration of any Qualified Letter of Credit or the termination of any Qualified Insurance, the Reserve Account shall be funded in accordance with the third paragraph of this Section 6.2.0 as if the Bonds that remain outstanding had been issued on the date of such notice of expiration or termination. -23- D. If there is a deficiency in the Interest Account, Principal Account or Bond Retirement Account in the Bond Account, the City shall promptly make up such deficiency from the Reserve Account by the withdrawal of cash therefrom for that purpose and by the sale or redemption of obligations held in the Reserve Account, if necessary, in such amounts as will provide cash in the Reserve Account sufficient to make up any such deficiency. The City covenants and agrees that any deficiency created in the Reserve Account by reason of any withdrawal therefrom for payment into the Interest Account, Principal Account or Bond Retirement Account shall be made up from money in the Electric Fund available after making provision first for payment of Operating Expenses and then for the required payments into such Interest, Principal and Bond Retirement Accounts. Money in the Bond Account shall be transmitted to the Paying Agents in amounts sufficient to meet the maturing installments of principal of, premium, if any, and interest on the Bonds when due. Whenever the assets of the Bond Account shall be sufficient to provide money to retire all Bonds then outstanding, including such interest thereon as thereafter may become due and payable and any premiums upon redemption thereof, no further payments need be made into the Bond Account. All money remaining in the Bond Account after provision for the payment in full of the principal of, premium, if any, and interest on the Bonds shall be returned to the Electric Fund. The Bond Account shall be drawn upon solely for the purpose of paying the principal of, premium, if any, and interest on the Bonds. Money set aside from time to time with the Paying Agents for such payment shall be held in trust for the owners of the Bonds in respect of which the same shall have been so set aside. Until so set aside, all money in the Bond Account shall be held in trust for the benefit of the owners of all Bonds at the time outstanding equally and ratably. Section 6.3. Investment of Funds. Money held for the credit of the Interest Account, Principal Account and Bond Retirement Account in the Bond Account shall, to the fullest extent practicable and reasonable, be invested and reinvested at the direction of the City solely in, and obligations deposited in such accounts shall consist of, investments described in clauses A(l), A(2), A(3), B(l), B(2) and B(3) of the definition of Permitted Investments which shall mature prior to the respective dates when the money held for the credit of such Accounts will be required for the purposes intended. Money in the Reserve Account in the Bond Account not required for immediate disbursement for the purposes for which such Account is created shall, to the fullest extent practicable and reasonable, be invested and reinvested at the direction of the City solely in, and obligations deposited in the Reserve Account shall consist of investments described in clauses A(l), A(2), A(3), B(l), B(2) and B(3) of the definition of Permitted Investments, maturing or subject to redemption at the option of the owner thereof within 20 years from the date of such investment (but maturing prior to the final maturity date of the Bonds then outstanding). Money in the Electric Fund and any arbitrage rebate fund not required for immediate disbursement for the purposes for which such Funds were created shall, to the fullest extent practicable and reasonable, be invested and reinvested by the City in Permitted Investments. -24- Except to the extent that there are deficiencies in any account in the Bond Account, all income received from the investment of money in the Bond Account and the Electric Fund shall be from time to time deposited in the Electric Fund. All money held or set aside by the City in the Electric Fund and Bond Account shall, until otherwise invested or applied as provided in this ordinance, be deposited by the City in its name, for the account of the Electric Fund (and the appropriate account therein) or the Bond Account (and the appropriate account therein), as the case may be, in such depositary or depositaries as the City at any time or from time to time appoints for such purpose. All money so deposited shall be secured in the manner prescribed by the laws of the State of Washington for the securing of funds of the City. When no Bonds are insured, City funds may be invested in any manner permitted by Washington law. ARTICLE VII USE OF BOND PROCEEDS; PLAN OF REFUNDING Section 7.1. Refunding Account. There is hereby authorized to be created a fund or account known as the "Refunding Account" which account is to be drawn upon for the sole purpose of paying the principal of and interest on the Refunded Bonds on their date of redemption and of paying costs related to the refunding of the Refunded Bonds. The proceeds of sale of the 2011 Bond shall be credited to the Refunding Account, and shall be used immediately upon receipt thereof to defease and redeem the Refunded Bonds as authorized by Ordinance No. 3100 and to pay the costs of issuance of the 2011 Bond. The City shall defense the Refunded Bonds and discharge such obligations by the use of money in the Refunding Account to purchase certain Government Obligations (which obligations so purchased, are herein called "Acquired Obligations"), bearing such interest and maturing as to principal and interest in such amounts and at such times which, together with any necessary beginning cash balance, will provide for the payment of: A. interest on the Refunded Bonds due and payable on the Call Date; and B. the redemption price (100% of the principal amount thereof) on the Call Date of the Refunded Bonds. Section 7.2. Call for Redemption of Refunded Bonds. The City hereby irrevocably sets aside sufficient funds out of the purchase of Acquired Obligations from proceeds of the 2011 Bond to make the payments described in Section 7.1 of this ordinance. The City hereby irrevocably calls the Refunded Bonds for redemption on the Call Date in accordance with the provisions of the Ordinance No. 3100, authorizing the redemption and retirement of the Refunded Bonds prior to their fixed maturities. Said defeasance and call for redemption of the Refunded Bonds shall be irrevocable after the final establishment of the escrow account and delivery of the Acquired Obligations. -25- The Finance Director is hereby authorized and directed to enter into an escrow agreement with U.S. Bank National Association, as escrow agent, in order to acquire and hold the Acquired Obligations and to provide for the giving of notice of the redemption of the Refunded Bonds in accordance with the applicable provisions of Ordinance No. 3100. ARTICLE VIII FORM OF 2011 BOND Section 8.1. Form of 2011 Bond. The 2011 Bond shall be in substantially the following form: UNITED STATES OF AMERICA NO. R-1 $1,662,056.10 STATE OF WASHINGTON CITY OF PORT ANGELES ELECTRIC REVENUE REFUNDING BOND, SERIES 2011 INTEREST RATE: 3.5% MATURITY DATE: SEPTEMBER 1, 2022 REGISTERED OWNER: FIRST FEDERAL, PORT ANGELES,WASHINGTON TAX IDENTIFICATION#: PRINCIPAL AMOUNT: ONE MILLION SIX HUNDRED SIXTY-TWO THOUSAND FIFTY-SIX AND 10/100 DOLLARS The City of Port Angeles, Washington (the "City"), a municipal.corporation of the State of Washington, for value received promises to pay to the Registered Owner identified above, or registered assigns, on the Maturity Date set forth above the Principal Amount set forth above, and to pay interest thereon from the date hereof, or the most recent date to which interest has been paid or duly provided for, at the Interest Rate set forth above. Interest shall be payable semiannually on the first days of March and September, commencing March 1, 2012, and principal shall be payable annually on the first day of September, until prepayment or final maturity, in accordance with the following debt service schedule. -26- Payment Principal Interest Date Amount Amount 3/1/2012 $ — $ 28,116.45 9/1/2012 124,584.17 29,085.98 3/1/2013 — 26,905.76 9/1/2013 131,056.21 26,905.76 3/1/2014 — 24,612.28 9/1/2014 135,643.18 24,612.28 3/1/2015 — 22,238.52 9/1/2015 140,390.69 22,238.52 ,3/1/2016 — 19,781.68 9/1/2016 145,304.36 19,781.68 3/1/2017 — 17,238.86 9/1/2017 150,390.02 17,238.86 3/1/2018 — 14,607.03 9/1/2018 155,653.67 14,607.03 3/1/2019 — 11,883.09 9/1/2019 161,101.54 11,883.09 3/1/2020 — 9,063.81 9/1/2020 166,740.10 9,063.81 3/1/2021 6,145.86 9/1/2021 /1/2021 172,576.00 6,145.86 3/l/2022 — 3,125.78 9/1/2022 178,616.16 3,125.78 $ 1,662,056.10 $ 368,407.77 This bond is issued under and in accordance with the provisions of the Constitution and applicable statutes of the State of Washington and Ordinance No. 3434 passed by the City Council on September 6, 2011 (the "Bond Ordinance"), to refund certain outstanding Electric System revenue bonds of the City and to pay costs of issuance for this bond. Unless otherwise defined on this bond, capitalized terms used herein have the meanings given them in the Bond Ordinance. The principal of and interest on the this bond are payable solely out of the special fund of the City known as the "Electric System Revenue Bond Fund" (the "Bond Account") established by Ordinance No. 2709 of the City. This bond is a special limited obligation of the City and is not an obligation of the State of Washington or any political subdivision thereof other than the City, and neither the full faith and credit nor the taxing power of the City or the State of Washington is pledged to the payment of this bond. Under the Bond Ordinance, the City is obligated to set aside and pay into the Bond Account out of Revenues of the Electric System certain fixed amounts sufficient to pay when due the principal of and interest on this bond and all other Bonds, as fully provided in the Bond Ordinance. To the extent provided by the Bond Ordinance, the amounts pledged to be paid from -27- Revenues into the Bond Account and the accounts therein are a lien and charge thereon equal in rank to the lien and charge upon Revenues of the amounts required to pay and secure the payment of certain Outstanding Parity Bonds and any Additional Bonds that the City may issue hereafter, and superior to all other liens and charges of any kind or nature, except the Operating Expenses of the System. The Bond Ordinance sets forth covenants of the City to secure payment of Bonds, including but not limited to covenants relating to rates and charges of the Electric System, operations of the System, and the issuance of Additional Bonds. The City may prepay this bond in whole or in part at any time without fee or penalty as provided in the Bond Ordinance, subject to the terms and restrictions therein. This bond is not a "private activity bond" as such term is defined in the Internal Revenue Code of 1986, as amended (the "Code"). The City has designated this bond as a "qualified tax- exempt obligation"within the meaning of Section 265(b)(3)(B) of the Code. This bond is transferable upon compliance with the conditions set forth in the Bond Ordinance. This bond will not be valid or become obligatory for any purpose or be entitled to any security or benefit under the Bond Ordinance until the Certificate of Authentication hereon shall have been manually signed by the Bond Registrar. It is hereby certified, recited and declared that all acts, conditions and things required by the Constitution and statutes of the State of Washington to exist, to have happened and to have been performed precedent to and in the issuance of this bond do exist, have happened and have been performed in due time, form and manner as prescribed by law, and that the amount of this bond, together with all other obligations or indebtedness of the City, does not exceed any constitutional or statutory limitations of indebtedness. IN WITNESS WHEREOF, the City of Port Angeles,Washington, has caused this bond to be signed by the manual or facsimile signature of its Mayor, attested by the manual or facsimile signature of the City Clerk, and the seal of the City to be impressed or reproduced hereon, all as of September 7, 2011. CITY OF PORT ANGELES,WASHINGTON By [Manual or Facsimile Signature] Mayor Attest: [Manual or Facsimile Signature] City Clerk ( SEAL) -28- CERTIFICATE OF AUTHENTICATION AND REGISTRATION This bond is registered in the name of the Registered Owner on the books of the City of Port Angeles, Washington, in the office of its Finance Director (the "Bond Registrar"), as to both principal and interest, as noted in the registration blank below. All payments of principal of and interest on this bond shall be made by the City with full acquittance by the Bond Registrar's wire transfer, made payable to the last Registered Owner as shown hereon and on the registration books of the Bond Registrar at his/her address noted hereon and on the registration books of the Bond Registrar. Date of Name and Address of Signature of Registration Registered Owner Bond Registrar First Federal September 2011 105 W 8th St./PO Box 351 Port Angeles, WA 98362 Bond Registrar (360)457-0461 Section 8.2. Execution of 2011 Bond. The 2011 Bond shall be executed on behalf of the City with the manual or facsimile signatures of the Mayor and City Clerk of the City and the seal of the City shall be impressed, imprinted or otherwise reproduced thereon. Only such 2011 Bond as shall bear thereon a Certificate of Authentication in the form hereinbefore recited, manually executed by the Bond Registrar, shall be valid or obligatory for any purpose or entitled to the benefits of this ordinance. Such Certificate of Authentication shall be conclusive evidence that the 2011 Bond so authenticated has been duly executed, authenticated and delivered hereunder and are entitled to the benefits of this ordinance. In case either of the officers who shall have executed the 2011 Bond shall cease to be an officer or officers of the City before the 2011 Bond so signed shall have been authenticated or delivered by the Bond Registrar, or issued by the City, such 2011 Bond may nevertheless be authenticated, delivered and issued and upon such authentication, delivery and issuance, shall be as binding upon the City as though those who signed the same had continued to be such officers of the City. The 2011 Bond may be signed and attested on behalf of the City by such persons who at the date of the actual execution of such 2011 Bond, are the proper officers of the City, although at the original date of such 2011 Bond any such person shall not have been such officer of the City. ARTICLE IX COVENANTS TO SECURE BONDS The City covenants and agrees with the purchasers and owners of all Bonds, so long as any such Bonds are outstanding, as follows: Section 9.1. Security for Bonds. All Bonds are special limited obligations of the City payable from and secured solely by Revenues, and by other money and assets specifically pledged hereunder for the payment thereof. There are hereby pledged as security for the payment -29- of the principal of, premium, if any, and interest on all Bonds in accordance with the provisions of this ordinance, subject only to the provisions of this ordinance restricting or permitting the application thereof for the purposes and on the terms and conditions set forth in this ordinance: (i) the Revenues, and (ii)the money and investments, if any, credited to the Electric Fund and the Bond Account, and the income therefrom. The Revenues and other money and securities hereby pledged shall immediately be subject to the lien of this pledge without any physical delivery thereof or further act, and the lien of this pledge shall be valid and binding as against all parties having claims of any kind in tort, contract or otherwise against the City regardless of whether such parties have notice thereof. All Bonds now or hereafter outstanding shall be equally and ratably payable and secured hereunder without priority by reason of date of adoption of the ordinance providing for their issuance or by reason of their series, number or date of sale, issuance, execution or delivery, or by the liens, pledges, charges, trusts, assignments and covenants made herein, except as otherwise expressly provided or permitted in this ordinance and except as to insurance which may be obtained by the City to insure the repayment of one or more series or maturities within a series. The pledge of the Revenue and of the amounts to be paid into and maintained in the funds and accounts described above in this Section to pay and secure the payment of Bonds is hereby declared to be a prior lien and charge on the Revenues and the money and investments in such funds and accounts, subject to provision for operating capital and to the payment of Operating Expenses as provided in Section 6.LB hereof, and superior to all other liens and charges of any kind or nature. Bonds shall not in any manner or to any extent constitute general obligations of the City or of the State of Washington, or any political subdivision of the State of Washington, or a charge upon any general fund or upon any money or other property of the City or of the State of Washington, or of any political subdivision of the State of Washington, not specifically pledged thereto by this ordinance. Section 9.2. Rate Covenant - General. The City will establish, maintain and collect rates and charges for electric power and energy and other services, facilities and commodities sold, furnished or supplied through the facilities of the Electric System that are fair and nondiscriminatory and adequate to provide Revenues sufficient, together with other funds legally available therefor, for the punctual payment of the principal of, premium, if any, and interest on the Bonds for which the payment has not otherwise been provided, for all payments that the City is obligated to make into the Bond Account, and for the proper operation and maintenance of the Electric System, and all necessary repairs, replacements and renewals thereof, including the payment of all taxes, assessments or other governmental charges lawfully imposed on the Electric System or the Revenues therefrom, or payments in lieu thereof, and the payment of all other amounts that the City may now or hereafter become obligated to pay from the Revenues by law or contract. Section 9.3. Rate Covenant - Debt Service Coverage. The City will also establish, maintain and collect rates and charges that shall be adequate to provide in each Fiscal Year Net -30- Revenues in an amount equal to at least 1.25 times the Annual Debt Service on the then outstanding Bonds in such Fiscal Year. For the purpose of meeting the requirement of this paragraph, (i)there may be added to Net Revenues for any Fiscal Year such amount, withdrawn from the Rate Stabilization Account and deposited in the General Account, and (ii)there must be subtracted from Net Revenues for any Fiscal Year such amounts as are withdrawn -from the General Account and deposited into the Rate Stabilization Account for such Fiscal Year. The City also covenants and agrees to maintain Net Revenues for the then current Fiscal Year in an amount that will be equal to the Annual Debt Service on the then outstanding Bonds in such Fiscal Year. The failure to collect Revenues in any Fiscal Year sufficient to comply with the covenants contained in this Section 9.3 will not constitute an Event of Default if the City, before the 60th day of the following Fiscal Year: A. Employs a Professional Utility Consultant to recommend changes in the City's rates that are estimated to produce Revenues sufficient (once the City imposes the rates recommended by the Professional Utility Consultant) to meet the requirements of this Section; and B. Promptly imposes rates at least as high as those recommended by such Professional Utility Consultant. The calculation of the coverage requirements set forth above, and in Section 4.2 hereof, and the City's compliance therewith, may be made solely with reference to this ordinance without regard to future changes in generally accepted accounting principles. If the City has changed one or more of the accounting principles used in the preparation of its financial statements, because of a change in generally accepted accounting principles or otherwise, then an event of default relating to these coverage requirements will not be considered an Event of Default if the coverage requirement ratios would have been complied with had the City continued to use those accounting principles employed at the date of the most recent audited financial statements prior to the date of this ordinance. Section 9.4. Restrictions on Contracting of Obligations Secured by Revenues. A. The City will not hereafter create any other special fund or funds for the payment of revenue bonds, warrants or other revenue obligations, or issue any bonds, warrants or other obligations or create any additional indebtedness that will rank on a parity with or prior to the charge and lien on the Revenues or properties of the Electric System for the payments into the Bond Account,except as provided under Article IV hereof. B. Additional Bonds may be issued as provided in Article IV. C. The City may issue bonds, notes, warrants or other obligations payable from and secured by a lien on the Revenues of the Electric System that is subordinate or inferior to the lien on such Revenues securing the Bonds and may create a special fund or funds for payment of such subordinate obligations. -31- D. Unless such agreement specifically states that the obligation of the City thereunder is junior to the obligation of the City to make payments from the Electric Fund into the Bond Account, the City will not hereafter enter into any agreement obligating the City to pay, from Revenues, for (a) generating or transmission capacity or the use or lease of generating or transmission facilities, which agreement is not conditional on the availability of such capacity or facility, or (b) the installment purchase or lease of property which, whether or not subject to annual appropriations, otherwise transfers to the City the burdens and benefits of ownership of such property. Section 9.5 Covenant to Maintain System in Good Condition. The City will at all times maintain, preserve and keep, or cause to be maintained, preserved and kept, the properties of the Electric System and all additions and betterments thereto and extensions thereof and every part thereof, in good repair, working order and condition, and will from time to time make, or cause to be made, all necessary and proper repairs, renewals, replacements, extensions and betterments thereto so that at all times the business carried on in connection therewith shall be properly and advantageously conducted. The City will at all times operate such properties and the business in connection therewith or cause such properties and business to be operated in an efficient manner and at a reasonable cost. Section 9.6. Covenants Concerning Disposal of Properties of System. The City will not sell, mortgage, lease or otherwise dispose of the properties of the Electric System except as provided in this Section. A. The City will not sell or otherwise dispose of the Electric System in its entirety unless simultaneously with such sale or other disposition, provision is made for the payment, redemption or other retirement of all Bonds then outstanding. B. Except as provided in C below, the City will not sell or otherwise dispose of any part of the Electric System unless provision is made for the payment, redemption or other retirement of a principal amount of Bonds equal to the greater of the following amounts, provided, such amount is in excess of$100,000: (1) An amount that will be in the same proportion to the net principal amount of Bonds then outstanding (defined as the total principal amount of Bonds outstanding less the amount of cash and investments in the Bond Account) that the Revenues attributable to the part of the Electric System sold or disposed of for the twelve preceding months bears to the total Revenues for such period; or (2) An amount that will be in the same proportion to the net principal amount of Bonds then outstanding that the book value of the part of the Electric System sold or disposed of bears to the book value of the entire Electric System immediately prior to such sale or disposition. The City is only required to comply with the requirements of subsections (1) and (2) above if the proceeds of such sale, lease or other disposition exceed 2% of the value of the net utility plant of the Electric System. -32- C. The City may sell or otherwise dispose of any part of the Electric System that has become unserviceable, inadequate, obsolete or unfit to be used in the operation of the Electric System, or no longer necessary, material to or useful in such operation, and may also sell or otherwise dispose of street lighting systems now or hereafter owned by the City at a price permitted by law. The proceeds of any such sale or disposition pursuant to this subsection C shall be paid into the Bond Account for credit to the Reserve Account to the extent of any deficiency anin such Reserve Account, d the balance of such proceeds, if any, shall be deposited in the Electric Fund. D. Notwithstanding any other provision of this Section 9.6 to the contrary, the City may sell or otherwise dispose of any part of the Electric System if the City obtains a certificate satisfying the requirements of Section 4.2.B or Section 4.2.0 hereof. Section 9.7. Insurance. The City will either self-insure or, as needed, and to the extent insurance coverage is available at reasonable cost with responsible insurers, keep, or cause to be kept, the Electric System and the operation thereof insured, with policies payable to the City, against the risks of direct physical loss, damage to or destruction of the Electric System, or any part thereof, and against accidents, casualties or negligence, including liability insurance and employer's liability, at least to the extent that similar insurance is usually carried by electric utilities operating like properties. In the event of any loss or damage to the properties of the Electric System covered by insurance, the City will (i) with respect to each such loss, promptly repair and reconstruct to the extent necessary to the proper conduct of the operations of the Electric System the lost or damaged portion thereof and shall apply the proceeds of any insurance policy or policies covering such loss or damage for that purpose to the extent required therefor, unless in the case of loss or damage involving $300,000 or more, such repair and reconstruction is not recommended by the Professional Utility Consultant, and (ii) if the City does not use the entire proceeds of such insurance to repair or reconstruct such lost or damaged property, such insurance proceeds not so used must be paid into the Electric Fund, and if in excess of $300,000 for any one loss or damage, must be used to purchase or redeem Bonds or to acquire or construct extensions,betterments and improvements to the Electric System. Section 9.8. Books of Account. The City will keep proper books .of account as required by this ordinance in accordance with the rules and regulations prescribed by the Division of Municipal Corporations of the Office of the State Auditor of the State of Washington, or other State department or agency succeeding to such duties of the State Auditor's office, and if no such rules or regulations are prescribed, then in substantial accordance with the uniform system of accounts prescribed by the Federal Energy Regulatory Council or other federal agencies having jurisdiction over electric public utility companies owning and operating properties similar to the electric properties operated by the City, whether or not the City is at that time required by law to use such system of accounts. The City shall cause its books of account to be audited by the Office of the State Auditor or other state agency as may be authorized and directed by law to make such audit, or if the audit is not made within twelve months after the close of any Fiscal Year of the City, then the City shall cause such audit to be made by independent certified public accountants licensed, registered or entitled to practice, and -33- practicing as such, under the laws of the State of Washington who, or each of whom, is in fact independent and does not have any interest, direct or indirect, in any contract with the City other than his contract of employment pursuant to this Section and who is not connected with the City as an officer or employee of the City. In keeping the books of account, the City shall accrue depreciation monthly on depreciable properties operated by the City in accordance with the accounting practice prescribed by the uniform system of accounts of the Federal Energy Regulatory Council above mentioned. The City will furnish a copy of the most recent audit report to any owner of Bonds upon written request therefor. Any owner of Bonds may also obtain at the office of the City copies of the balance sheet and income and expense statements showing in reasonable detail the financial condition of the Electric System as of the close of each Fiscal Year, including the transactions relating to the Electric Fund, the Bond Account, and all other funds and accounts created or maintained pursuant to the provisions of this ordinance. Section 9.9. Covenant Not to Render Service Free of Charge. So long as any Bonds are outstanding, the City will not furnish or supply or permit the furnishing or supplying of electric energy or any other commodity, service or facility furnished by or in connection with the operation of the Electric System free of charge to any person, firm or corporation, public or private, and the City will promptly enforce the payment of any and all accounts owing to the City and delinquent, by discontinuing service or by filing suits, actions or proceedings, or by both discontinuance of service and filing suit; provided, that to the extent permitted by law, the City may loan money and may provide commodities, services or facilities free of charge or at a reduced charge in connection with a plan of conservation of electric energy or senior citizen or indigent ratepayer discounts adopted by the Council. Section 9.10. Covenant to Make Only Economically Sound Improvements. The City will not expend any money in the Electric Fund or the proceeds of Additional Bonds or other obligations for any renewals, replacements, extensions, betterments and improvements to the Electric System that are not economically sound and will not properly and advantageously contribute to the conduct of the business of the City in an efficient and economical manner; provided that the foregoing does not preclude the City from paying any legal or contractual obligations. Section 9.11. Covenant to Pay Bond Principal and Interest Punctually. The City will duly and punctually pay or cause to be paid, but only from the Bond Account, the principal of, premium, if any, and interest on each and every Bond on the dates and at the places and in the manner provided in the Bonds, according to the true intent and meaning thereof, and will faithfully do and perform and fully observe and keep any and all covenants, undertakings, stipulations and provisions contained in the Bonds and in this ordinance and each Supplemental Ordinance authorizing Additional Bonds. Section 9.12. Covenant to Pay Taxes, Assessments and Other Claims. The City will from time to time duly pay and discharge, or cause to be paid and discharged, when the same become due, all taxes, assessments and other governmental charges, or payments in lieu thereof, lawfully imposed upon the Electric System or the Revenues, and all claims for labor and materials and supplies that, if not paid, might become a lien or charge upon the Electric System, or any part thereof, or upon the Revenues, or that might in any way impair the security of the -34- Bonds, except taxes, assessments, charges or claims that the City contests in good faith by proper legal proceedings. Section 9.13. Covenant to Retain Competent Management. The City will at all times retain and employ a competent manager for the Electric System who shall be an experienced executive of administrative ability. All employees or agents of the City who collect or handle money of the City must be bonded by a responsible surety company or companies in amounts sufficient to protect the City adequately from loss. Section 9.14. Further Assurances. The City shall, at any and all times, insofar as it may be authorized so to do, pass, make, do, execute, acknowledge and deliver all and every such further ordinances, acts, deeds, conveyances, assignments, transfers and assurances as may be necessary or desirable for the better assuring, conveying, granting, assigning and confirming any and all of the rights, Revenues and other funds hereby pledged or assigned to the payment of the Bonds, or intended so to be, or which the City may hereafter become bound to pledge or assign. Section 9.15, Tax Exemption. The City covenants that it will not take or permit to be taken on its behalf any action that would adversely affect the exemption from federal income taxation of the interest on the 2011 Bond 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 2011 Bond. A. Arbitrage Covenant. Without limiting the generality of the foregoing, the City covenants that it will not take any action or fail to take any action with respect to the proceeds of sale of the 2011 Bond or any other funds of the City which may be deemed to be proceeds of the 2011 Bond pursuant to Section 148 of the Code and the regulations promulgated thereunder which, if such use had been reasonably expected on the date of delivery of the 2011 Bond to the initial purchaser thereof, would have caused the 2011 Bond to be treated as an "arbitrage bond" within the meaning of such term as used in Section 148 of the Code. The City represents that it has not been notified of any listing or proposed listing by the Internal Revenue Service to the effect that it is an issuer whose arbitrage certifications may not be relied upon. The City will comply with the requirements of Section 148 of the Code and the applicable regulations thereunder throughout the term of the 2011 Bond. B. , Private Person Use Limitation for Bond. The City covenants that for as long as the 2011 Bond is outstanding, it will not permit: (1) More than 10% of the Net Proceeds of the 2011 Bond to be allocated to any Private Person Use; and (2) More than 10% of the principal or interest payments on the 2011 Bond in a Bond Year to be directly or indirectly: (A) secured by any interest in property used or to be used for any Private Person Use or secured by payments in respect of property used or to be used for any Private Person Use, or (B) derived from payments (whether or not made to the City) in respect of property, or borrowed money, used or to be used for any Private Person Use. -35- The City further covenants that, if: (3) More than five percent of the Net Proceeds of the 2011 Bond are allocable to any Private Person Use; and (4) More than five percent of the principal or interest payments on the 2011 Bond in a Bond Year are (under the terms of this ordinance or any underlying arrangement) directly or indirectly: " (A) secured by any interest in property used or to be used for any Private Person Use or secured by payments in respect of property used or to be used for any Private Person Use, or (B) derived from payments (whether or not made to the City) in respect of property, or borrowed money, used or to be used for any Private Person Use, then, (i) any Private Person Use of the projects refinanced with proceeds of the 2011 Bond or Private Person Use payments described in subsection (4) hereof that is in excess of the five percent limitations described in such subsections (3) or(4) will be for a Private Person Use that is related to the state or local governmental use of the projects refinanced by the proceeds of the 2011 Bond, and (ii) any Private Person Use will not exceed the amount of Net Proceeds of the 2011 Bond allocable to the state or local governmental use portion of the projects to which the Private Person Use of such portion of the projects refinanced by the proceeds of the 2011 Bond relate. The City further covenants that it will comply with any limitations on the use of the projects refinanced by the proceeds of the 2011 Bond by other than state and local governmental users that are necessary, in the opinion of its Bond Counsel, to preserve the tax exemption of the interest on the 2011 Bond. The covenants of this section are specified solely to assure the continued exemption from regular income taxation of the interest on the 2011 Bond. C. Modification of Tax Covenants. The covenants of this section are specified solely to assure the continued exemption from regular income taxation of the interest on the 2011 Bond. To that end, the provisions of this section may be modified or eliminated without any requirement for formal amendment thereof upon receipt of an opinion of the City's bond counsel that such modification or elimination will not adversely affect the tax exemption of interest on the 2011 Bond. D. Designation under Section 265(b). The City hereby designates the 2011 Bond as a "qualified tax-exempt obligation" under Section 265(b)(3) of the Code for investment by financial institutions. The City reasonably does not expect to issue more than $10,000,000 in tax-exempt debt during calendar year 2011. ARTICLE X SUPPLEMENTAL AND AMENDATORY ORDINANCES Section 10.1. Amendments Without Consent of Bondowners. The City may adopt at any time and from time to time without the consent of the owners of any Bonds an ordinance or -36- ordinances supplemental to or amendatory of this ordinance and any Supplemental Ordinance theretofore adopted for any one or more of the following purposes: A. To provide for the issuance of Additional Bonds pursuant to Article IV hereof, and to prescribe the terms and conditions pursuant to which such Additional Bonds may be issued,paid or redeemed; B. To add additional covenants and agreements of the City for the purpose of further securing the payment of the Bonds, so long as such additional covenants and agreements are not contrary to or inconsistent with the covenants and agreements of the City contained in this ordinance or any Supplemental Ordinance; C. To prescribe further limitations and restrictions upon the issuance of Bonds and the incurring of indebtedness by the City payable from the Revenues that are not contrary to or inconsistent with the limitations and restrictions thereon theretofore in effect; D. To surrender any right, power or privilege reserved to or conferred upon the City by the terms of this ordinance; E. To confirm as further assurance any pledge under, and the subjection to any lien, claim or pledge created or to be created by, the provisions of this ordinance of the Revenues or of any other money, securities or funds; F. To cure any ambiguity or defect or inconsistent provision of this ordinance or any Supplemental Ordinance or to insert such provisions clarifying matters or questions arising under this ordinance or any Supplemental Ordinance as are necessary or desirable in the event any such modifications are not contrary to or inconsistent with this ordinance or any Supplemental Ordinance as theretofore in effect; or G. To modify any of the provisions of this ordinance or any Supplemental Ordinance in any other respect; provided that such modification will not be effective until after the Bonds outstanding as of the date of adoption of such ordinance cease to be outstanding, and any Bonds issued under such ordinance must contain a specific reference to the modifications contained in such subsequent ordinance. Section 10.2. Amendments With Consent of Bondowners. The provisions of this ordinance and of any Supplemental Ordinance may be modified at any time or from time to time by a Supplemental Ordinance, with the consent of Bondowners in accordance with and subject to the provisions of Article XII hereof. Written notice of any amendment to this ordinance or any Supplemental Ordinance shall be given to Moody's, 7 World Trade Center, 250 Greenwich Street,New York, NY 10007, Attention: Public Finance. ARTICLE XI DEFAULTS AND REMEDIES Section 11.1. Events of Default. The Council hereby finds and determines that the continuous operation of the Electric System and the collection, deposit and disbursement of the -37- Revenues in the manner provided in the Outstanding Parity Bond Ordinances, this ordinance, and any Supplemental Ordinances thereto are essential to the payment and security of the Bonds, and the failure or refusal of the City to perform the covenants and obligations contained in such ordinances will endanger the necessary continuous operation of the Electric System and the application of the Revenues to the purposes set forth in such ordinances. The Outstanding Parity Bond Ordinances, this ordinance and each Supplemental Ordinance adopted pursuant to Article X are hereinafter in this Article XI and in Article XIII referred to collectively as "the Ordinance." The City hereby covenants and agrees with the purchasers and owners from time to time of the Bonds, to protect and safeguard the covenants and obligations undertaken by the City securing the Bonds, that the following shall constitute"Events of Default": A. If the City defaults in the performance of any obligations with respect to payments into the Electric Fund; B. If default is made in the due and punctual payment of the principal of and premium, if any, on any of the Bonds when the same become due and payable, either at maturity or by proceedings for redemption or otherwise; C. If default is made in the due and punctual payment of any installment of interest on any Bond; D. If the City fails, by any Sinking Fund Requirement Date, to have purchased or redeemed Term Bonds in a cumulative principal amount at least equal to the cumulative Sinking Fund Requirements at such Sinking Fund Requirement Date; E. If the City defaults in the observance and performance of any other of the covenants, conditions and agreements on the part of the City contained in the Ordinance and such default or defaults continues for a period of 60 days after the City receives from a Bondowners' Trustee or from the owners of not less than 20% in principal amount of the Bonds outstanding, a written notice specifying and demanding the cure of such default; F. If the City (except as herein permitted) sells, transfers, assigns or conveys any properties constituting the Electric System or interests therein, or any part or parts thereof, or makes any agreement for such sale or transfer (except as expressly authorized by Section 9.6 hereof); G. If an order,judgment or decree is entered by any court of competent jurisdiction: (a) appointing a receiver, trustee or liquidator for the City or the whole or any substantial part of the Electric System; (b) approving a petition filed against the City seeking the bankruptcy, arrangement or reorganization of the City under any applicable law of the United States or the State of Washington; or (c) assuming custody or control of the City or of the whole or any substantial part of the Electric System under the provisions of any other law for the relief or aid of debtors and such order, judgment or decree is not vacated or set aside or stayed (or, in case -38- custody or control is assumed by said order, such custody or control is not otherwise terminated) within 60 days from the date of the entry of such order,judgment or decree; or H. If the City: (a) admits in writing its inability to pay its debts generally as they become due; (b) files a petition in bankruptcy or seeking a composition of indebtedness under any state or federal bankruptcy or insolvency law; (c) makes an assignment for the benefit of its creditors; (d) consents to the appointment of a receiver of the whole or any substantial part of the Electric System; or (e) consents to the assumption by any court of competent jurisdiction under the provisions of any other law for the relief or aid of debtors of custody or control of the City or of the whole or any substantial part of the Electric System. Section 11.2. Waivers of Default. No delay or omission of the Bondowners' Trustee or of any owner of Bonds to exercise any right or power arising upon the happening of an Event of Default shall impair any right or power or shall be construed to be a waiver of any such Event of Default or to be an acquiescence therein; and every power and remedy given by this Article to the Bondowners' Trustee or to the owners of Bonds may be exercised from time to time and as often as may be deemed expedient by the Bondowners' Trustee or by such owners. The Bondowners' Trustee or the owners of not less than 50% in principal amount of the Bonds at the time outstanding, or their attorneys-in-fact duly authorized, may on behalf of the owners of all of the Bonds waive any past default under the Ordinance and its consequences, except a default in the payment of the principal of, premium, if any, or interest on any of the Bonds. No,such waiver shall extend to any subsequent or other default or impair any right consequent thereon. Section 11.3. Bondowners' Trustee. So long as an Event of Default has not been remedied, a Bondowners' Trustee may be appointed by the owners of 20% in principal amount of the Bonds then outstanding, by an instrument or concurrent instruments in writing signed and acknowledged by such Bondowners or by their attorneys-in-fact duly authorized and delivered to such Trustee, notification thereof being given to the City. Any Bondowners' Trustee appointed under the provisions of this Section 11.3 must be a bank or trust company organized under the laws of the State of Washington or the State of New York or a national banking association. The fees and expenses of the Bondowners' Trustee must be borne by the Bondowners and not by the City. The bank or trust company acting as Bondowners' Trustee may be removed at any time, and a successor Bondowners' Trustee may be appointed, by the owners of a majority in principal amount of the Bonds, by an instrument or concurrent instruments in writing signed and acknowledged by such Bondowners or by their attorneys-in-fact duly authorized. The Bondowners' Trustee appointed in the manner herein provided, and each successor thereto, is hereby declared to be a trustee for the owners of all the Bonds and is empowered to exercise all the rights and powers herein conferred on the Bondowners' Trustee. Section 11.4. Suits at Law or in Eguit . The Bondowners' Trustee may upon the happening of an Event of Default, and during the continuance thereof, take such steps and institute such suits, actions or other proceedings in its own name, or as trustee, all as it may deem appropriate for the protection and enforcement of the rights of Bondowners to collect any -39- amounts due and owing the City, or to obtain other appropriate relief, and may enforce the specific performance of any covenant, agreement or condition contained in the Ordinance, or in any of the Bonds. Any action, suit or other proceedings instituted by the Bondowners' Trustee hereunder shall be brought in its name as trustee for the Bondowners, and all such rights of action upon or under any of the Bonds or the provisions of the Ordinance may be enforced by the Bondowners' Trustee without the possession of any of said Bonds and without the production of the same at any trial or proceedings relative thereto except where otherwise required by law, and the respective owners of said Bonds, by taking and holding the same, shall be conclusively deemed irrevocably to appoint the Bondowners' Trustee the true and lawful trustee of the respective owners of said Bonds, with authority to institute any such action, suit or proceeding; to receive as trustee and deposit in trust any sums becoming distributable on account of said Bonds; to execute any paper or documents for the receipt of such money, and to do all acts with respect thereto that the Bondowner himself might have done in person. Nothing herein contained shall be deemed to authorize or empower the Bondowners' Trustee to consent to accept or adopt, on behalf of any owner of any Bond, any plan or reorganization or adjustment affecting the said Bonds of the City or any right of any owner thereof, or to authorize or empower the Bondowners' Trustee to vote the claims of the owners thereof in any receivership, insolvency, liquidation, bankruptcy, reorganization or other proceeding to which the City shall be a party. Section 11.5. Books of City Open to Inspection. The City covenants that if an Event of Default occurs and is not remedied, the books of record and account of the City will at all times be subject to the inspection and use of the Bondowners' Trustee. The City covenants that if an Event of Default happens and is not remedied, the City will continue to account, as trustee of an express trust, for all Revenues and other money, securities and funds pledged under the Ordinance. Section 11.6. Payment of Funds to Bondowners' Trustee. The City covenants that if an Event of Default happens and is not remedied, the City, upon demand of the Bondowners' Trustee, shall pay over to the Bondowners' Trustee (i) forthwith, all money, securities and funds then held by the City and pledged under the Ordinance, and (ii) as promptly as practicable after receipt thereof, all Revenues. Section 11.7. Application of Funds by Bondowners' Trustee. During the continuance of an Event of Default, the Revenues received by the Bondowners' Trustee pursuant to the provisions of Section 11.6 shall be applied by the Bondowners' Trustee, first, to the payment of the reasonable and proper charges, expenses and liabilities paid or incurred by the Bondowners' Trustee (including the cost of securing the services of any engineer or firm of engineers selected for the purpose of rendering advice with respect to the sufficiency of the rates and charges for power and energy sold, furnished or supplied by the Electric System), and second, in accordance with the provisions of Section 7.1 of this ordinance. If at any time the funds held by the Bondowners' Trustee and the Paying Agents for the Bonds are insufficient for the payment of the principal of, premium, if any, and interest then due -40- on the Bonds, such funds (other than funds held for the payment or redemption of particular Bonds that have previously become due at maturity or by call for redemption) and all Revenues and other money received or collected for the benefit or for the account of owners of the Bonds by the Bondowners' Trustee shall be applied as follows: First, to the payment to the persons entitled thereto of all installments of interest then due in the order of the maturity of such installments, earliest maturities first, and, if the amount available is not sufficient to pay in full any installment or installments or interest maturing on the same date, then to the payment thereof ratably, according to the amounts due thereon, to the persons entitled thereto, without any discrimination or preference; and Second, to the payment to the persons entitled thereto of the unpaid principal and premium, if any, of any Bonds which shall have become due, whether at maturity or by call for redemption, in the order of their due dates, earliest maturities first, and, if the amount available is not sufficient to pay in full all the Bonds due on any date, then to the payment thereof ratably, according to the amounts of principal and premium, if any, due on such date,to the persons entitled thereto, without any discrimination or preference. Section 11.8. Relinquishment of Funds Upon Remedy of Default. If and whenever all overdue installments of interest on all Bonds, together with the reasonable and proper charges, expenses and liabilities of the Bondowners' Trustee and the owners of Bonds, their respective agents and attorneys, and all other sums payable by the City under the Ordinance, including the principal of, premium, if any, and accrued unpaid interest on all Bonds then payable (with interest upon such principal and premium, if any, and, to the extent that payment of such interest is enforceable under applicable law, on overdue installments of interest, at the same rate as the rate of interest specified in the Bonds, to the date of such payment or deposit), shall either be paid by or for the account of the City, or provision satisfactory to the Bondowners' Trustee shall be made for such payment, and all defaults under the Ordinance or the Bonds shall be made good or secured to the satisfaction of the Bondowners' Trustee or provision deemed by the Bondowners' Trustee to be adequate shall be made therefor, the Bondowners' Trustee shall pay over to the City all money, securities, funds and Revenues then remaining unexpended in the hands of the Bondowners' Trustee and thereupon all Revenues shall thereafter be applied as provided in the Ordinance. No such payment over to the City by the Bondowners' Trustee or resumption of the application of Revenues as provided in the Ordinance shall extend to or affect any subsequent default under the Ordinance or impair any right consequent thereon. Section 11.9. Suits by Individual Bondowners. No owner of any one or more of the Bonds shall have any right to institute any action, suit or proceeding at law or in equity, unless an Event of Default has happened and is continuing, and unless no Bondowners' Trustee has been appointed as herein provided, but any remedy herein authorized to be exercised by the Bondowners' Trustee may be exercised individually by any Bondowner, in his own name and on his own behalf or for the benefit of all Bondowners, if no Bondowners' Trustee has been appointed, or with the consent of the Bondowners' Trustee if a Bondowners' Trustee has been appointed; provided, however, that nothing in the Ordinance or in the Bonds shall affect or impair the obligation of the City, which is absolute and unconditional, to pay from Net Revenues -41- the principal of and interest on the Bonds to the respective owners thereof at the respective due dates therein specified, or affect or impair the right of action, which is absolute and unconditional, of such owners to enforce such payment. Section 11.10. Remedies Granted in Ordinance not Exclusive. No remedy by the terms of the Ordinance conferred upon or reserved to the Bondowners' Trustee or the owners of the Bonds is intended to be exclusive of any other remedy, but each and every such remedy shall be cumulative and shall be in addition to every other remedy given under the Ordinance or existing at law or in equity or by statute on or after the date of adoption of the Ordinance. ARTICLE XII AMENDMENTS AND BONDOWNERS MEETINGS Section 12.1. Call of Bondowners Meetings. The City, the Bondowners' Trustee or the owners of not less than 20% in principal amount of the Bonds then outstanding may at any time call a meeting of the owners of the Bonds. Every such meeting shall be held at a location in the City of New York, New York, or in the City of Seattle, Washington, to be specified in the notice calling such meeting. Written notice of the meeting, stating the location and time of the meeting and in general terms the business to be transacted, shall be mailed to the Bondowners by the City, the Bondowners' Trustee or the Bondowners calling such meeting not less than 30 nor more than 60 days before such meeting, and shall be published at least once a week for four successive calendar weeks on any day of the week, the date of first publication to be not less than 30 nor more than 60 days preceding the meeting; provided, however, that the mailing of such notice shall in no case be a condition precedent to the validity of any action taken at any such meeting. The expenses of publication of such notice shall be paid or reimbursed by the City. Any meeting of Bondowners shall, however, be valid without notice if the owners of all Bonds then outstanding are present in person or by proxy or if notice is waived before or within 30 days after the meeting by those not so present. Section 12.2. Notice to Bondowners. Except as otherwise provided in the Ordinance, any provision in the Ordinance for the mailing of a notice or other paper to Bondowners shall be fully complied with if it is mailed by first class mail, postage prepaid, to each Registered Owner of any of the Bonds then outstanding at his address, if any, appearing upon the Bond Register; and any provision in the Ordinance for publication of a notice or other matter shall require the publication thereof in The Daily Bond Buyer in the City of New York, New York (or in lieu of publication in The Daily Bond Boer, in a daily newspaper printed in the English language and customarily published on each business day of general circulation in the Borough of Manhattan, the City of New York, New York), and also in a daily newspaper printed in the English language and customarily published on each business day and of general circulation in the City of Seattle, Washington. Section 12.3. Proxies, Proof of Ownership of Bonds. Attendance and voting by Bondowners at such meetings may be in person or by proxy. Owners of Bonds may, by an instrument in writing under their hands, appoint any person or persons, with full power and substitution, as their proxy to vote at any meeting for them. Officers or nominees of the City -42- may be present or represented at such meeting and take part therein but will not be entitled to vote thereat, except as such officers or nominees are Bondowners or proxies for Bondowners. Any Registered Owner of Bonds is entitled in person or by proxy to attend and vote at such meeting as owner of the Bonds registered in his name without producing such Bonds, and such persons and their proxies shall, if required, produce such proof of personal identity as shall be satisfactory to the Secretary of the meeting. All proxies presented at such meeting shall be delivered to the Inspectors of Votes and filed with the Secretary of the meeting. The vote at any such meeting of the owner of any Bond entitled to vote thereat shall be binding upon such owner and upon every subsequent owner of such Bond (whether or not such subsequent owner has notice thereof). Section 12.4. Execution of Instruments by Bondowners. Any request, direction, consent or other instrument in writing required or permitted by the Ordinance to be signed or executed by Bondowners may be in any number of concurrent instruments of similar tenor, and may be signed or executed by such Bondowners in person or by agent appointed by an instrument in writing. Proof of the execution of any such instrument shall be sufficient for any purpose of the Ordinance if made by either (a) an acknowledgment executed by a notary public or other officer empowered to take acknowledgments of deeds to be recorded in the particular jurisdiction, or (b) an affidavit of a witness to such execution sworn to before such a notary public or other officer. Where such execution is by an officer of a corporation or association or a member of a partnership on behalf of such corporation, association or partnership, such acknowledgment or affidavit shall also constitute sufficient proof of his authority. The foregoing shall not be construed as limiting the City to such proof, it being intended that the City may accept any other evidence of the matters herein stated that it may deem sufficient. Any request or consent of the owner of any Bond shall bind every future owner of the same Bond in respect of anything done by the City in pursuance of such request, direction or consent. The right of a proxy for a Bondowner to act may be proved (subject to the City's right to require additional proof) by a written proxy executed by such Bondowner as aforesaid. Section.12.5. Appointment of Officers at Bondowners Meetings. Persons named by the City or elected by the owners of a majority in principal amount of the Bonds represented at the meeting in person or by proxy if the City is not represented at such meeting, shall act as temporary Chairman and temporary Secretary of any meeting of Bondowners. A permanent Chairman and a permanent Secretary of such meeting shall be elected by the owners of a majority in principal amount of the Bonds represented at such meeting in person or by proxy. The permanent Chairman of the meeting shall appoint two Inspectors of Votes who shall count all votes cast at such meeting, except votes on the election of Chairman and Secretary as aforesaid, and who shall make and file with the Secretary of the meeting and with the City their verified report of all such votes cast at the meeting. -43- Section 12.6. Ouorum at Bondowners Meetings. The owners of not less than the principal amount of the Bonds required for any action to be taken at such meeting must be present at such meeting in person or by proxy in order to constitute a quorum for the transaction of business, less than a quorum, however, having power to adjourn from time to time without any other notice than the announcement thereof at the meeting; provided, however, that, if such meeting is adjourned by less than a quorum for more than ten days, notice thereof shall be published by the City at least five days prior to the adjourned date of the meeting. Section 12.7. Vote Required to Amend Ordinance. Any amendment to the provisions of the Ordinance in any particular except the percentage of Bondowners required to approve such amendment, may be made by a Supplemental Ordinance of the City and a resolution,duly adopted by the affirmative vote at a meeting of Bondowners duly convened and held, or with written consent as hereinafter provided in Section 12.9, of the owners of not less than 66 2/3% in principal amount of the Bonds outstanding when such meeting is held or such consent is given; provided, however, that no such amendment may (a) extend the date of payment of the principal of any Bond or of any installment of interest thereon or reduce the principal or redemption price thereof or the rate of interest thereon or advance the date upon which any Bond may first be called for redemption prior to its fixed maturity date; (b) give to any Bond or Bonds any preference over any other Bond or Bonds secured equally and ratably therewith; (c)reduce the aforesaid percentage of Bonds the owners of which are required to consent to any such ordinance amending the provisions of the Ordinance; or (d) authorize the creation of any pledge prior to or, except as provided in Article TV hereof for the issuance of Additional Bonds, on a parity with the pledge afforded by the Ordinance, without the consent of the owner of each Bond affected thereby. Section 12.8. Obtaining Approval of Amendments at Bondowners Meeting. The City may at any time adopt an ordinance amending the provisions of the Ordinance to the extent that such amendment is permitted by the provisions of Section 12.7 hereof, to take effect when and as provided in this Section. At any time thereafter such ordinance may be submitted by the City for approval to a meeting of the Bondowners duly convened and held in accordance with the provisions of the Ordinance. A record in duplicate of the proceedings of each meeting of the Bondowners shall be prepared by the permanent Secretary of the meeting and shall have attached thereto the original reports of the Inspectors of Votes and affidavits by a person or persons having knowledge of the facts, showing a copy of the notice of the meeting and setting forth the facts with respect to the mailing and publication thereof under the provisions of the Ordinance. Such a record shall be signed and verified by the affidavits of the permanent Chairman and the permanent Secretary of the meeting, and one duplicate thereof shall be delivered to the City. Any record so signed and verified shall be proof of the matters therein stated. If the ordinance of the City making such amendment is approved by an ordinance duly adopted at such meeting of Bondowners by the affirmative vote of the owners of the required percentages of Bonds, a notice stating that an ordinance approving the amendment has been so adopted shall be mailed by the City to each Bondowner who has requested such notice (but failure so to mail copies of such notice shall not affect the validity of such ordinance) and shall be published at least once in the manner provided in Section 12.2 hereof. Proof of such mailing and publication by the affidavit or affidavits of a person or persons having knowledge of the facts shall be filed with the City. Such ordinance of the City making such amendment will be deemed conclusively to be binding -44- upon the City, the Paying Agents, and the owners of all Bonds at the expiration of 30 days after the publication of the notice provided for in this Section, except in the event of a final decree of a court of competent jurisdiction setting aside such ordinance or annulling the action taken thereby in a legal action or equitable proceeding for such purpose commenced within such period; provided that the City and any Paying Agents during such 30 day period and any such further period during which such action or proceeding may be pending are entitled in their absolute discretion to take such action, or to refrain from taking such action, with respect to such ordinance as they may deem expedient. Nothing in the Ordinance shall be deemed or construed to authorize or permit, by reason of any call of a meeting of Bondowners or of any right conferred hereunder to make such a call, any hindrance or delay in the exercise of any rights conferred upon or reserved to the Paying Agents or the Bondowners under any of the provisions of the Ordinance. Section 12.9. Alternate Method of Obtaining Approval of Amendments. The City may at any time adopt an ordinance amending the provisions of the Ordinance, or of any Bonds, to the extent that such amendment is permitted by the provisions of this Article,to take effect when and as provided in this Section. Upon adoption of such ordinance, a request that Bondowners consent thereto shall be mailed by the City to the Bondowners and notice that the City is requesting Bondowners to consent to such amendment shall be published at least once in the manner provided in Section 12.2 hereof. Such ordinance shall not be effective unless and until filed with the City are the written consents of the percentages of owners of outstanding Bonds specified in Section 12.7 hereof and a notice is published as hereinafter in this Section provided. Each such consent shall be effective only if accompanied by proof of ownership of the Bonds for which such consent is given, which proof shall be such as is permitted by Section 12.3 hereof. A certificate or certificates of the City Clerk that he has examined such proof and that such proof is sufficient will be conclusive that the consents have been given by the owners of the Bonds described in such certificate or certificates. Any such consent shall be binding upon the owner of the Bonds giving such consent and on every subsequent owner of such Bonds (whether or not such subsequent owner has notice thereof). A notice stating that the ordinance has been consented to by the owners of the required percentages of bonds and will be effective as provided in this Section may be given to the Bondowners by mailing such notice to the Bondowners, and must be published at least once in the manner provided in Section 12.2 hereof. A record, consisting of the papers required by this Section to be filed with the City shall be proof of the matters therein stated, and the ordinance shall be deemed conclusively to be binding upon the City and the owners of all Bonds at the expiration of 30 days after the notice last provided for in this Section, except in the event of a final decree of a court of competent jurisdiction setting aside such consent or annulling the action taken thereby in a legal action or equitable proceeding for such purpose commenced within such period. Section 12.10. Amendment of Ordinance In Any Respect by Approval of All Bondowners. Notwithstanding anything contained in the foregoing provisions of this Article, the rights and obligations of the City and of the owners of the Bonds and the terms and provisions of the Bonds and of the Ordinance may be amended in any respect with the consent of the City, by the affirmative vote of the owners of all said Bonds then outstanding at a meeting of Bondowners called and held as hereinabove provided, or upon the adoption of an ordinance by the City and the consent of the owners of all the Bonds then outstanding, such consent to be given as provided -45- in Section 12.9 except that no notice to Bondowners either by mailing or publication is required, and the amendment shall be effective immediately upon such unanimous vote or written consent of all of the Bondowners. Section 12.11. Bonds Owned by City. Bonds owned or held by or for the account of the City will not be deemed outstanding for the purpose of any vote or consent or other action or any calculation of outstanding Bonds in the Ordinance provided for, and shall not be entitled to vote or consent or take any other action in the Ordinance provided for. Section 12.12. Endorsement of Amendment on Bonds. Bonds delivered after the effective date of any action amending the Ordinance taken as hereinabove provided may bear a notation by endorsement or otherwise as to such action, and in that case, upon demand of the owner of any Bond outstanding at such effective date and presentation of his Bond for the purpose at the principal office of the applicable Paying Agent, suitable notation shall be made on such Bond by the Paying Agent as to any such action. If the City so determines, new Bonds so modified as in the opinion of the City and its counsel to conform to such action will be prepared, delivered and upon demand of the owner of any Bond then outstanding shall be exchanged without cost to such Bondowner for Bonds then outstanding hereunder, upon surrender of such Bonds. ARTICLE XIII SALE OF BONDS Section 13.1. Sale of 2011 Bond. The City hereby authorizes the sale of the Bond to the Purchaser pursuant to the terms of the Purchaser's Proposal attached as Exhibit A hereto and incorporated herein by this reference. The Council further hereby authorizes the Finance Director to accept a binding offer from the Purchaser consistent with the terms of the Proposal. Upon delivery of the Bond, the City shall pay the Purchaser's legal fees in an amount not to exceed$2,000, which fees shall be paid pursuant to the escrow deposit agreement. Section 13.2. General Authorization. The Mayor, City Manager, Director of Public Works and Utilities, Finance Director and City Clerk and each of the other appropriate officers of the City are each hereby authorized and directed to take such steps, to do such other acts and things, and to execute such letters, certificates, agreements, papers, financing statements, assignments or instruments as in their judgment may be necessary, appropriate or desirable in order to carry out the terms and provisions of, and complete the transactions contemplated by, this ordinance. ARTICLE XIV DEFEASANCE, Section 14.1. Defeasance. If money and/or Government Obligations maturing at such time or times and bearing interest to be earned thereon in amounts (together with such money, if necessary) sufficient to redeem and retire the 2011 Bond in accordance with its terms are set aside in a special account to effect such redemption and retirement and such money and the principal of and interest on such Government Obligations are irrevocably set aside and pledged -46- for such purpose, then no further payments need be made into the Bond Account for the payment of the principal of and interest on the 2011 Bond so provided for, and the owner of the 2011 Bond will cease to be entitled to any lien,benefit or security of this ordinance except for the right to receive the money so set aside and pledged, and the 2011 Bond will be deemed not to be outstanding hereunder. Within 30 days of any defeasance of the 2011 Bond, the City will provide notice of defeasance to the Registered Owner. ARTICLE XV NO ONGOING DISCLOSURE; MISCELLANEOUS Section 15.1. No Ongoing Disclosure . The 2011 Bond is exempt from ongoing disclosure requirements of the Securities and Exchange Commission Rule 15c2-12. Section 15.2. Ordinance and Laws a Contract With Bondowners. This ordinance is adopted under the authority of and in full compliance with the Constitution and laws of the State of Washington, as amended and supplemented. In consideration of the purchase and acceptance of the 2011,Bond by the Purchaser, the provisions of this ordinance and of any Supplemental Ordinance authorizing the issuance of Additional Bonds and of said laws shall constitute a contract with the owner or owners of each Bond, and the obligations of the City and its Council under said acts and under this ordinance shall be enforceable by any court of competent jurisdiction; and the covenants and agreements herein set forth to be performed on behalf of the City shall be for the equal benefit, protection and security of the owners of any and all of said Bonds all of which, regardless of the time or times of their issue or maturity, shall be of equal rank without preference, priority or distinction of any of said Bonds over any others thereof except as expressly provided herein. Section 15.3. Severability. If a court of competent jurisdiction declares that any one or more of the covenants and agreements in this ordinance to be performed by the City are contrary to law, then such covenant or covenants, agreement or agreements, will be null and void and will be deemed separable from the remaining covenants and agreements in this ordinance and will in no way affect the validity of other provisions of this ordinance or of the 2011 Bond. Section 15.4. Prior Acts. All acts taken pursuant to the authority of this ordinance but prior to its effective date are hereby ratified and confirmed. Section 15.5. Effective Date of Ordinance. This ordinance will become effective five days from and after its passage and publication as required by law. -47- PASSED by the City Council of the City of Port Angeles, Washington, at a regular meeting of the Council held on the 6`" day of September, 2011. CITY OF PORT ANGELES, WA INGTON yor ATTEST: (2�� City Clerk APPROVED AS TO FORM: PacI a w G-r-4 L P, d Counsel PUBLISHED: , 2011 -48- Affidavit of Publication In the Superior Court of the State of Washington for Clallam/Jefferson County Peninsula Daily News CITY OF PORT ANGELES/LEGAL LEGAL ACCT/CITY CLERK PO BOX 1150 PORT ANGELES,WA 98362-0217 Reference: 4900481 5133221 Summaries of Ordinances Summades,pf-0MJ 06es Ad0P ed by the POS _9�Ela Gour Un� The undersigned being first duly swom on oath, deposes and says. T116 Ord,6ance��rt Anqeies; VVashi ow apth �Su of an exec That she/he is authorized to and does make this affidavit for and traG rave u bond of e ttre;4Glty the on behalf of Peninsula Daily News,a corporation,and that the rActpa�arnbtf i t33`2 ,YD to finance te,cpst ofir 4", att � t�hding:elec- following statements of fact are within her/his personal and tric rVe1t► hsxtds,bfthe nor�p�ier,es the actual knowled e. ,;f' L + �"Menants a 9 tfie c>�d ap Y -fha ,fi to I:iw. . That said corporation is the owner and publisher of the - Peninsula Daily News published in Clallam/Jefferson Counties, Thrq,O►drinarreag- of Pat Angeles, and had been approved as a legal newspaper by order of the les n9l"" 3°s °f. Pdrt eCe�hart dpblxC3ede re►afrnV purchasing Superior Court of said Clallam/Jefferson County of the State Of P e1"anc "6w'ures` Washington. Tfielr terofiie ordlnanaea asrarrre at c�ty htaiNNr►+ e�l�rhh ,e e That the annexed is a true copy of a legal insertion as it was webarte at.Miw4VefQa ug, t' published in regular issues(and not in the supplement form)of u tcer sah 1�u3Q mita 30 4l '' � . said newspaper was regularly distributed to its subscribers $�:e.,°,m✓ to#230 p m 7ta�edlF+�ncas s��, during all of said period. The publishing date cited is the last take effectfrve'c ysfolllovwngtltoc t p Ot,bti sabot by sUtrimaty ' day of publication. Ja Pu ;Septxii,2t)t'1 , 1 Insertion in Pub PDN on 09/11/11 ZZ NO ON Ft llkt �"•flifl �N�� -------- - - - - -S---- ----- ---------------- -------- Sworn to me on this 12nd day of September 2011 NOTARY PUBUC Notary Public in and for the State of Washington residing in Port Angeles. Peninsula Daily News P.O. Box 1330 Port Angeles,WA 98362