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HomeMy WebLinkAbout3407CITY OF PORT ANGELES, WASHINGTON WATER AND WASTEWATER UTILITY REVENUE BONDS, 2010 ORDINANCE NO. 3407 AN ORDINANCE of the City of Port Angeles, Washington, combining the City's storm water utility with the City's water and wastewater utility; authorizing the issuance of water and wastewater utility revenue bonds of the City in the principal amount of $5,695,000 to finance the cost of improvements to the City's storm water utility and water and wastewater utility; establishing the date, form, terms, maturities and covenants of the bonds; and approving the sale of the bonds. Passed August 3, 2010 Prepared By: K&L GATES LLP Seattle, Washington TABLE OF CONTENTS Page Section 1. Definitions 2 Section 2. Combining the Storm Water Utility with the Water and Wastewater Utility 15 Section 3. The Projects 15 Section 4. Compliance with Parity Conditions 15 Section 5. Authorization and Description of Bonds 16 Section 6. Registration, Exchange and Payments 17 Section 7. Redemption; Purchase of Bonds 19 Section 8. Form of Bonds 21 Section 9. Execution of Bonds 25 Section 10. Application of Bond Proceeds 25 Section 11. Revenue Fund 25 Section 12. Rate Stabilization Fund 26 Section 13. Bond Account 26 Section 14. Adequacy of Revenues 28 Section 15. Covenants and Agreements 28 Section 16. Tax Exemption 30 Section 17. Defeasance 31 Section 18. Issuance of Future Parity Bonds 32 Section 19. Sale of Bonds 34 Section 20. Official Statement 34 Section 21. Undertaking to Provide Ongoing Disclosure 35 Section 22. Bond Insurance 37 Section 23. Supplements and Amendments 45 Section 24. Lost or Destroyed Bonds 46 Section 25. Severability 46 Section 26. Effective Date 46 -i- P 1.20391 DOT\20391 2A4 08/03/10 ORDINANCE NO. 3407 AN ORDINANCE of the City of Port Angeles, Washington, combining the City's storm water utility with the City's water and wastewater utility; authorizing the issuance of water and wastewater utility revenue bonds of the City in the principal amount of $5,695,000 to finance the cost of improvements to the City's storm water utility and water and wastewater utility; establishing the date, form, terms, maturities and covenants of the bonds; and approving the sale of the bonds. WHEREAS, the City of Port Angeles, Washington, a municipal corporation of the State of Washington (the "City "), owns and operates a storm water utility and a combined water and wastewater utility; and WHEREAS, it is in the best interest of the City and ratepayers of the storm water utility and the water and wastewater utility that certain improvements be made to facilities of each utility (as further described herein, the "Projects ") and that revenue bonds in the principal amount of $5,695,000 (the "Bonds ") be issued to finance costs of the Projects; and WHEREAS, there are currently outstanding $3,525,000 principal amount of the City's Water and Wastewater Utility Revenue Bonds, 2003 (the "2003 Bonds "), and $7,445,000 principal amount of the City's Water and Wastewater Utility Revenue Refunding Bonds, 2009 (the "2009 Bonds "); and WHEREAS, the ordinances authorizing the 2003 Bonds and the 2009 Bonds permit the City to combine the City's storm water utility with the water and wastewater utility for borrowing purposes, and the City Council of the City (the "Council ") has determined that it is in the best interest of the City and ratepayers of the utilities to combine the utilities; and WHEREAS, the ordinances authorizing the 2003 Bonds and the 2009 Bonds permit the City to issue additional water and wastewater utility revenue bonds on a parity with the 2003 Bonds and the 2009 Bonds if certain conditions are met; and WHEREAS, after due consideration it appears to the Council that those parity conditions can be met and that the City may issue the Bonds on a parity with the 2003 Bonds and 2009 Bonds; and WHEREAS, the City has received the offer of Seattle- Northwest Securities Corporation (the "Underwriter ") to purchase the Bonds, and it is in the best interests of the City and ratepayers of the System that the City accept that offer and sell the Bonds to the Underwriter on the terms set forth in its offer and in this ordinance; NOW, THEREFORE, THE CITY COUNCIL OF THE CITY OF PORT ANGELES, WASHINGTON, DO ORDAIN, as follows: Section 1. Definitions. As used in this ordinance the following words and phrases have the following meanings: "AGC" means Assured Guaranty Corp. or any successor thereto or assignee thereof, as provider of a municipal bond insurance policy for the 2009 Bonds. "AGM" means Assured Guaranty Municipal Corp. (formerly known as Financial Security Assurance Inc.), or any successor thereto or assignee thereof, as provider of a municipal bond insurance policy for the Bonds. "Annual Debt Service," for so long as any 2003 Bonds remain outstanding, for any Fiscal Year or calendar year means the sum of: (a) the interest due in such year on all outstanding Parity Bonds excluding, however, interest to be paid from the proceeds of Parity Bonds, (b) the principal of all outstanding Serial Bonds due in such year, and (c) the Sinking Fund Requirement, if any, for such year. If the interest rate on any such bonds is other than a fixed rate, the rate applicable at the time of the computation shall be used; provided, however, that so long as the 2009 Bonds are outstanding the City may issue variable rate obligations payable from Gross Revenue only as provided in Section 18(d) of this ordinance. From and after the date when no 2003 Bonds remain outstanding, "Annual Debt Service," for any Fiscal Year or calendar year means the sum of: (a) the interest due in such year on all outstanding Parity Bonds excluding, however, interest to be paid from the proceeds of Parity Bonds, (b) the principal of all outstanding Serial Bonds due in such year, and (c) the Sinking Fund Requirement, if any, for such year. For purposes of satisfying the rate covenant in Section 15(a) and the Future Parity Bond test in Section 18(a), Annual Debt Service for any Fiscal Year or calendar year shall exclude any Debt Service Offsets. If the interest rate on any such bonds is other than a fixed rate, the rate applicable at the time of the computation shall be used; provided, however, that so long as the 2009 Bonds are outstanding the City may issue variable rate obligations payable from Gross Revenue only as provided in Section 18(d) of this ordinance. From and after such time as no 2003 Bonds or 2009 Bonds remain outstanding, if the interest rate on any Parity 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 SIFMA Municipal Swap Index over the 12 month period immediately preceding the date of computation, as determined within ten days prior to the date -2- P 120391 DOT\20391_2A4 08/03/10 of computation or, if such computation is being made in connection with the certificate required for the issuance of Future Parity Bonds, then within ten days prior to the date of such certificate. "Assessments" means assessments (including interest and penalties) levied in any utility local improvement district of the City for the acquisition or construction of additions and improvements to and extension of the System, if such assessments are pledged to be paid into the Bond Account. "Average Annual Debt Service" means the amount determined by dividing (a) the sum of all interest and principal to be paid on all Parity Bonds from the date of determination to the last maturity date of such Parity Bonds, by (b) the number of Fiscal Years or calendar years from and including the Fiscal Year or calendar year in which the determination is made to the last Fiscal Year or calendar year in which any of such Parity Bonds will be outstanding. "Bond Account" means the 1994 Water and Wastewater Utility Revenue Bond Fund created by Section 15 of Ordinance No. 2843 and continued pursuant to Section 13 of this ordinance. "Bond Insurance Policy" means the financial guaranty insurance policy issued by AGM to guaranty the payment when due of the principal of and interest on the Bonds as provided therein. "Bond Register" means the books or records maintained by the Bond Registrar for the purpose of registration of the Bonds. "Bond Registrar" means the fiscal agency of the State of Washington in New York, New York whose duties include registering and authenticating the Bonds, maintaining the Bond Register, effecting transfer of ownership of the Bonds, and paying the principal of, premium, if any, and interest on the Bonds. "Bonds" mean the City's Water and Wastewater Utility Revenue Bonds, 2010, issued in the aggregate principal amount of $5,695,000 pursuant to this ordinance. "City" means the City of Port Angeles, 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. "Costs of Maintenance and Operation" means all necessary operating expenses, current maintenance expenses, expenses of reasonable upkeep and repairs, and insurance and administrative expenses of the System, but excludes depreciation, payments for debt service or into reserve accounts and costs of capital additions to or replacements of the System, taxation by the City or payments in lieu of taxes. P \20391_D07\20391_2A4 08/03/10 "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. "Debt Service Account" means the account of that name created in the Bond Account by Section 15 of Ordinance No. 2843 and continued pursuant to Section 13 of this ordinance. "Debt Service Offset" means receipts of the City that are not included in Gross Revenue and that are legally available to pay debt service on Parity Bonds, including without limitation federal interest subsidy payments, designated as such by the City. "DTC" means The Depository Trust Company, New York, New York, a limited purpose trust company organized under the laws of the State of New York, as initial depository for the Bonds or any successor substitute depository for 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 1 of each year and ending December 31 of each year. "Future Parity Bonds" mean any revenue bonds, revenue warrants or other revenue obligations that may be issued in the future with a lien on money in the Revenue Fund to pay and secure the payment of the principal thereof and interest thereon equal to the lien created on the money in such Fund to pay and secure the payment of the principal of and interest on the 2003 Bonds, the 2009 Bonds, and the Bonds. "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. "Gross Revenue" means all earnings, revenue and money, except Assessments, received by the City from or on account of the operation of the System, including proceeds from the sale, lease or other disposition of any of the properties or facilities of the System, and the income from investments of money in the Revenue Fund and any bond fund or from any other investment thereof except the income from investments irrevocably pledged to the payment of revenue bonds pursuant to a plan of retirement or refunding. The term "Gross Revenue" does not include grants or bond proceeds, but does include federal or state reimbursements of operating expenses to the extent such expenses are included as "Costs of Maintenance and Operation." "Letter of Representations" means the Blanket Issuer Letter of Representations from the City to DTC dated September 23, 1998. "MBIA" means the MBIA Insurance Corporation, a stock insurance company incorporated under the laws of the State of New York, or any successor thereto, as provider of a policy of municipal bond insurance for the 2003 Bonds (which policy is currently administered and reinsured by National Public Finance Guarantee Corporation). -4- P \20391_DOT\20391_2A4 08/03/10 "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. "MSRB" means the Municipal Securities Rulemaking Board or any successor to its functions. Bonds. "Net Revenue" means the Gross Revenue less the Costs of Maintenance and Operation. "Parity Bonds" means the 2003 Bonds, the 2009 Bonds, the Bonds and any Future Parity "Permitted Investments" means: (i) any Washington State - administered investment pool in which the City is statutorily permitted or required to invest City funds; and (ii) any of the following investments, if permitted under the laws of the State of Washington as amended from time to time and, so long as the Bonds remain outstanding, if also permitted under section (ii) of this definition of "Permitted Investments ": A. Direct obligations of the United States of America (including obligations issued or held in book -entry form on the books of the Department of the Treasury, and CATS and TGRS) or obligations the principal of and interest on which are unconditionally guaranteed by the United States of America. B. Bonds, debentures, notes or other evidence of indebtedness issued or guaranteed by any of the following federal agencies and provided such obligations are backed by the full faith and credit of the United States of America (stripped securities are only permitted if they have been stripped by the agency itself): 1. U.S. Export-Import Bank: direct obligations or fully guaranteed certificates of beneficial ownership; ownership; 2. Farmers Home Administration: certificates of beneficial 3. Federal Financing Bank; 4. Federal Housing Administration Debentures; 5. General Services Administration: participation certificates; 6. Government National Mortgage Association (GNMA): GNMA - guaranteed mortgage- backed bonds and GNMA - guaranteed pass - through obligations; financing; and 7. U.S. Maritime Administration: guaranteed Title XI -5- P \20391_D01120391_2A4 08/03/10 8. U.S. Department of Housing and Urban Development: project notes; local authority bonds; U.S. government - guaranteed new communities debentures; U.S. government- guaranteed public housing notes and bonds. C. Bonds, debentures, notes or other evidence of indebtedness issued or guaranteed by any of the following non -full faith and credit U.S. government agencies (stripped securities are only permitted if they have been stripped by the agency itself): 1. Federal Home Loan Bank System: senior debt obligations; 2. Federal Home Loan Mortgage Corporation: participation certificates and senior debt obligations; 3. Federal National Mortgage Association: mortgage- backed securities and senior debt obligations; 4. Student Loan Marketing Association: senior debt obligations; 5. Resolution Funding Corp. (REFCORP) obligations; and 6. Farm Credit Systems: consolidated systemwide bonds and notes. D. Money market funds registered under the Federal Investment Company Act of 1940, whose shares are registered under the Federal Securities Act of 1933, and having a rating by S &P of AAAm -G. AAAm or AAm. E. Certificates of deposit secured at all times by collateral described in (A) and /or (B) above. Such certificates must be issued by commercial banks, savings and loan associations or mutual savings banks. The collateral must be held by a third party and the bondholders must have a perfected first security interest in the collateral. F. Certificates of deposit, savings accounts, deposit accounts or money market deposits that are fully insured by FDIC, including BIF and SAIF. G. Investment Agreements, including GIC's, acceptable to MBIA. H. Commercial paper rated, at the time of purchaser, "Prime -1" by Moody's and "A -1" or better by S &P. I. Bonds or notes issued by any state or municipality rated by Moody's and S &P in one of the two highest rating categories assigned by such agencies. J. Federal funds or bankers acceptances with a maximum term of one year of any bank that has an unsecured, uninsured and unguaranteed obligation rating of "Prime -1" or "A3" or better by Moody's and "A" or better by S &P. -6- P \20391 DOT20391 2A4 08/03/10 K. Repurchase agreements providing for the transfer of securities from a dealer bank or securities firm (seller/borrower) to a municipal entity (buyer /lender), and the transfer of cash from a municipal entity to the dealer bank or securities firm with an agreement that the dealer bank or securities firm will repay the cash plus a yield to the municipal entity in exchange for the securities at a specified date. Repurchase Agreements must satisfy the following criteria or be approved by AGM, by AGC (so long as the 2009 Bonds remain outstanding), and by MBIA (so long as the 2003 Bonds remain outstanding): 1. Repos must be between the municipal entity and a dealer bank or securities firm. a. Primary dealers on the Federal Reserve reporting dealer list that are rated A or better by S &P and Moody's, or b. Banks rated "A" or above by S &P and Moody's. 2. The written repo contract must include the following: a. Securities that are acceptable for transfer are: (1) Direct U.S. governments, or (2) Federal agencies backed by the full faith and credit of the U.S. government (and FNMA & FHLMC). b. The term of the repo may be up to thirty (30) days. c. The collateral must be delivered to the municipal entity, trustee (if trustee is not supplying the collateral) or third party acting as agent for the trustee (if the trustee is supplying the collateral) before or simultaneously with payment (perfection by possession of certificated securities). d. The securities must be valued weekly, marked -to- market at current market price plus accrued interest. The value of collateral must be equal to 104% of the amount of cash transferred by the municipal entity to the dealer bank or securities firm under the repo plus accrued interest. If the value of securities held as collateral slips below 104% of the value of the cash transferred by municipality, then additional cash and /or acceptable securities must be transferred. If, however, the securities used as collateral are FNMA or FHLMC, then the value of collateral must equal 105 %. 3. A legal opinion must be delivered to the municipal entity to the effect that the repo meets guidelines under state law for legal investment of public funds. (iii) So long as the Bonds remain outstanding, any of the following investments, if permitted under the laws of the State of Washington as amended from time to time: A. (a) Cash (fully insured by the Federal Deposit Insurance Corporation), (b) direct obligations (other than an obligation subject to variation in principal -7- P \20391_00T120391_2A4 08/03/10 repayment) of the United States of America ( "U.S. Treasury Obligations "), (c) obligations fully and unconditionally guaranteed as to timely payment of principal and interest by the United States of America, (d) obligations fully and unconditionally guaranteed as to timely payment of principal and interest by any agency or instrumentality of the United States of America when such obligations are backed by the full faith and credit of the United States of America, or (e) evidences of ownership of proportionate interests in future interest and principal payments on obligations described above held by a bank or trust company as custodian, under which the owner of the investment is the real party in interest and has the right to proceed directly and individually against the obligor and the underlying government obligations are not available to any person claiming through the custodian or to whom the custodian may be obligated. The above referenced obligations may constitute defeasance 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). B. Federal Housing Administration debentures. C. The following obligations of government- sponsored agencies that are not backed by the full faith and credit of the United States of America: 1. Federal Home Loan Mortgage Corporation (FHLMC) senior debt obligations and Participation certificates (excluded are stripped mortgage securities that are purchased at prices exceeding their principal amounts) 2. Farm Credit System (formerly Federal Land Banks, Federal Intermediate Credit Banks and Banks for Cooperatives) consolidated system -wide bonds and notes 3. Federal Home Loan Banks (FHL Banks) consolidated debt obligations 4. Federal National Mortgage Association (FNMA) senior debt obligations and mortgage- backed securities (excluded are stripped mortgage securities which are purchased at prices exceeding their principal amounts) D. Unsecured certificates of deposit, time deposits, and bankers' acceptances (having maturities of not more than three hundred sixty -five (365) days) of any bank the short-term obligations of which are rated "A -1 +" or better by S &P and "Prime -1" by Moody's. E. Deposits the aggregate amount of which are fully insured by the Federal Deposit Insurance Corporation, in banks that have capital and surplus of at least $15 million. -8- P 120391_D0T120391 2A4 08/03/10 F. Commercial paper (having original maturities of not more than two hundred seventy (270) days) rated "A -1 +" by S &P and "Prime -1" by Moody's. G. Money market funds rated "Aam" or "AAm -G" by S &P, or better and if rated by Moody's rated "Aa2" or better. H. "State Obligations," which means: 1. Direct general obligations of any state of the United States of America or any subdivision or agency thereof to which is pledged the full faith and credit of a state the unsecured general obligation debt of which is rated at least "A3" by Moody's and at least "A -" by S &P, or any obligation fully and unconditionally guaranteed by any state, subdivision or agency whose unsecured general obligation debt is so rated. 2. Direct general short-term obligations of any state agency or subdivision or agency thereof described in (a) above and rated "A -1 +" by S &P and "MIG -1" by Moody's. 3. Special Revenue Bonds (as defined in the United States Bankruptcy Code) of any state or state agency described in (b) above and rated "AA -" or better by S &P and "Aa3" or better by Moody's. I. Pre - refunded municipal obligations rated "AAA" by S &P and "Aaa" by Moody's meeting the following requirements: 1. the municipal obligations are (1) not subject to redemption prior to maturity or (2) the trustee for the municipal obligations has been given irrevocable instructions concerning their call and redemption and the City of the municipal obligations has covenanted not to redeem such municipal obligations other than as set forth in such instructions; 2. the municipal obligations are secured by cash or U.S. Treasury Obligations which may be applied only to payment of the principal of, interest and premium on such municipal obligations; 3. the principal of and interest on the U.S. Treasury Obligations (plus any cash in the escrow) has been verified by the report of independent certified public accountants to be sufficient to pay in full all principal of, interest, and premium, if any, due and to become due on the municipal obligations ( "Verification Report"); 4. the cash or U.S. Treasury Obligations serving as security for the municipal obligations are held by an escrow agent or trustee in trust for owners of the municipal obligations; 5. no substitution of a U.S. Treasury Obligation shall be permitted except with another U.S. Treasury Obligation and upon delivery of a new Verification Report; and -9- P \20391_DO fl20391_2A4 08/03/10 6. the cash or U.S. Treasury Obligations are not available to satisfy any other claims, including those by or against the trustee or escrow agent. J. Repurchase agreements: with (1) any domestic bank, or domestic branch of a foreign bank, the long term debt of which is rated at least "A -" by S &P and "A3" Moody's; or (2) any broker - dealer with "retail customers" or a related affiliate thereof which broker - dealer has, or the parent company (which guarantees the provider) of which has, long- term debt rated at least "A -" by S &P and "A3" by Moody's, which broker - dealer falls under the jurisdiction of the Securities Investors Protection Corporation; or (3) any other entity rated at least "A -" by S &P and "A3" Moody's and acceptable to AGM, to AGC (so long as the 2009 Bonds remain outstanding), and to MBIA (so long as the 2003 Bonds remain outstanding) (each an "Eligible Provider "), provided that: 1. (i) permitted collateral shall include U.S. Treasury Obligations, or senior debt obligations of GNMA, FNMA or FHLMC (no collateralized mortgage obligations shall be permitted for these providers), and (ii) collateral levels must be at least 102% of the total principal when the collateral type is U.S. Treasury Obligations, 103% of the total principal when the collateral type is GNMA's and 104% of the total principal when the collateral type is FNMA and FHLMC ( "Eligible Collateral "); 2. the trustee or a third party acting solely as agent therefore or for the City (the "Custodian ") has possession of the collateral or the collateral has been transferred to the Custodian in accordance with applicable state and federal laws (other than by means of entries on the transferor's books) and such collateral shall be marked to market; 3. the collateral shall be marked to market on a daily basis and the provider or Custodian shall send monthly reports to the trustee, the City, AGM, AGC (so long as the 2009 Bonds remain outstanding), and MBIA (so long as the 2003 Bonds remain outstanding), setting forth the type of collateral, the collateral percentage required for that collateral type, the market value of the collateral on the valuation date and the name of the Custodian holding the collateral; 4. the repurchase agreement (or guaranty, if applicable) may not be assigned or amended without the prior written consent of AGM, AGC (so long as the 2009 Bonds remain outstanding), and MBIA (so long as the 2003 Bonds remain outstanding); 5. the repurchase agreement shall state and an opinion of counsel shall be rendered at the time such collateral is delivered that the Custodian has a perfected first priority security interest in the collateral, any substituted collateral and all proceeds thereof; 6. the repurchase agreement shall provide that if during its term the provider's rating by either Moody's or S &P is withdrawn or suspended or falls below "A -" by S &P or "A3" by Moody's, as appropriate, the provider must, notify the City, the trustee, AGM, AGC (so long as the 2009 Bonds remain outstanding), and MBIA (so long as the 2003 Bonds remain outstanding) within five (5) days of receipt of such notice. Within ten (10) days of receipt of such notice, the provider shall either: (i) provide a written guarantee -10- P \20391 DOi120391_2A4 08/03/10 acceptable to AGM, to AGC (so long as the 2009 Bonds remain outstanding), and to MBIA (so long as the 2003 Bonds remain outstanding), (ii) post Eligible Collateral, or (iii) assign the agreement to an Eligible Provider. If the provider does not perform a remedy within ten (10) business days, the provider shall, at the direction of the trustee (who shall give such direction if so directed by AGM, by AGC (so long as the 2009 Bonds remain outstanding), and by MBIA (so long as the 2003 Bonds remain outstanding) repurchase all collateral and terminate the repurchase agreement, with no penalty or premium to the City or the trustee. K. Investment agreements: with a domestic or foreign bank or corporation the long -term debt of which, or, in the case of a guaranteed corporation the long- term debt, or, in the case of a monoline financial guaranty insurance company, claims paying ability, of the guarantor is rated at least "AA -" by S &P and "Aa3" by Moody's, and acceptable to AGM, to AGC (so long as the 2009 Bonds remain outstanding), and to MBIA (so long as the 2003 Bonds remain outstanding) (each an "Eligible Provider "); provided that: 1. interest payments are to be made to the trustee at times and in amounts as necessary to pay debt service (or, if the investment agreement is for the construction fund, construction draws) on the Bonds; 2. the invested funds are available for withdrawal without penalty or premium, at any time upon not more than seven (7) days' prior notice; the City and the trustee hereby agree to give or cause to be given notice in accordance with the terms of the investment agreement so as to receive funds thereunder with no penalty or premium paid; 3. the provider shall send monthly reports to the trustee, the City, AGM, AGC (so long as the 2009 Bonds remain outstanding), and MBIA (so long as the 2003 Bonds remain outstanding) setting forth the balance the City or trustee has invested with the provider and the amounts and dates of interest accrued and paid by the provider; 4. the investment agreement shall state that is an unconditional and general obligation of the provider, and is not subordinated to any other obligation of, the provider thereof or, if the provider is a bank, the agreement or the opinion of counsel shall state that the obligation of the provider to make payments thereunder ranks pari passu with the obligations of the provider to its other depositors and its other unsecured and unsubordinated creditors; 5. the investment agreement (or guaranty, if applicable) may not be assigned or amended without the prior written consent of AGM, AGC (so long as the 2009 Bonds remain outstanding), and MBIA (so long as the 2003 Bonds remain outstanding); 6. the City, the trustee, AGM, AGC (so long as the 2009 Bonds remain outstanding), and by MBIA (so long as the 2003 Bonds remain outstanding) shall receive an opinion of domestic counsel to the provider that such investment agreement is legal, valid, binding and enforceable against the provider in accordance with its terms; 7. the City, the trustee, AGM, by AGC (so long as the 2009 Bonds remain outstanding), and by MBIA (so long as the 2003 Bonds remain outstanding) shall P \20391_DOT\20391_2A4 08/03/10 receive an opinion of foreign counsel to the provider (if applicable) that (i) the investment agreement has been duly authorized, executed and delivered by the provider and constitutes the legal, valid and binding obligation of the provider, enforceable against the provider in accordance with its terms, (b) the choice of law of the state set forth in the investment agreement is valid under that country's laws and a court in such country would uphold such choice of law, and (c) any judgment rendered by a court in the United States would be recognized and enforceable in such country; 8. the investment agreement shall provide that if during its term: 1. the provider's rating by either S &P or Moody's falls below "AA -" or "Aa3," the provider shall, at its option, within ten (10) days of receipt of publication of such downgrade, either (i) provide a written guarantee acceptable to AGM, to AGC (so long as the 2009 Bonds remain outstanding), and to MBIA (so long as the 2003 Bonds remain outstanding), (ii) post Eligible Collateral with the City, the trustee or a third party acting solely as agent therefore (the "Custodian ") free and clear of any third party liens or claims, or (iii) assign the agreement to an Eligible Provider, or (iv) repay the principal of and accrued but unpaid interest on the investment; 2. the provider's rating by either S &P or Moody's is withdrawn or suspended or falls below "A -" or "A3," the provider must, at the direction of the City or the trustee (who shall give such direction if so directed by AGM, by AGC (so long as the 2009 Bonds remain outstanding), and by MBIA (so long as the 2003 Bonds remain outstanding) within ten (10) days of receipt of such direction, repay the principal of and accrued but unpaid interest on the investment, in either case with no penalty or premium to the City or trustee. 9. if the provider is required to collateralize, permitted collateral shall include U.S. Treasury Obligations, or senior debt obligations of GNMA, FNMA or FHLMC (no collateralized mortgage obligations shall be permitted for these providers) and collateral levels must be 102% of the total principal when the collateral type is U.S. Treasury Obligations, 103% of the total principal when the collateral type is GNMA's and 104% of the total principal when the collateral type is FNMA and FHLMC ( "Eligible Collateral "). In addition, the collateral shall be marked to market on a daily basis and the provider or Custodian shall send monthly reports to the trustee, the City, AGM, AGC (so long as the 2009 Bonds remain outstanding), and MBIA (so long as the 2003 Bonds remain outstanding), setting forth the type of collateral, the collateral percentage required for that collateral type, the market value of the collateral on the valuation date and the name of the Custodian holding the collateral; 10. the investment agreement shall state and an opinion of counsel shall be rendered, if collateral is required to be pledged by the provider under the terms of the investment agreement, at the time such collateral is delivered, that the Custodian has a perfected first priority security interest in the collateral, any substituted collateral and all proceeds thereof; -12- P 120391 D0T\20391 2A4 08/03/10 11. the investment agreement must provide that if during its term: (i) the provider shall default in its payment obligations, the provider's obligations under the investment agreement shall, at the direction of the City or the trustee (who shall give such direction if so directed by AGM, by AGC (so long as the 2009 Bonds remain outstanding), and by MBIA (so long as the 2003 Bonds remain outstanding), be accelerated and amounts invested and accrued but unpaid interest thereon shall be repaid to the City or trustee, as appropriate, and (ii) the provider shall become insolvent, not pay its debts as they become due, be declared or petition to be declared bankrupt, etc. ( "event of insolvency "), the provider's obligations shall automatically be accelerated and amounts invested and accrued but unpaid interest thereon shall be repaid to the City or trustee, as appropriate. "Professional Utility Consultant" means the independent person(s) or firm(s) selected by the City having a favorable reputation for skill and experience with water, wastewater and storm water systems of comparable size and character to the System in such areas as are relevant to the purposes for which they are retained. "Projects" means those improvements to the System authorized by Section 3 of this ordinance. "Projects Account" means the special account authorized to be created in the office of the Finance Director pursuant to Section 10 of this ordinance. "Qualified Insurance" means (i) so long as any 2003 Bonds remain outstanding, any unconditional 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 service corporation is rated in one of the two highest rating categories by Moody's Investors Service, Inc. or any other rating agency then maintaining a rating on the Bonds, provided, that, as of the time of issuance of such policy or surety bond, such insurance company or companies maintain a policy owner's surplus in excess of $500,000,000; and (ii) from and after such time as no 2003 Bonds remain outstanding, any unconditional 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 service corporation, as of the time of issuance of such policy or surety bond, is then rated in one of the two highest rating categories by Moody's Investors Service, Inc. or any other rating agency then maintaining a rating on the Bonds. "Qualified Letter of Credit" means any irrevocable letter of credit issued by a bank for the account of the City and for the benefit of the owners of Parity Bonds, provided that such bank maintains an office, agency or branch in the United States, and provided further, that, as of the time of issuance of such letter of credit, such bank is currently rated in one of the two highest rating categories by either Moody's Investors Service, Inc. or any other rating agency then maintaining a rating on the Bonds. "Rate Stabilization Fund" means the fund of that name created pursuant to Section 13 of Ordinance No. 2843 and continued pursuant to Section 12 of this ordinance. -13- P \20391_DOT\20391_2A4 08/03/10 "Registered Owner" means the person named as the registered owner of a Bond in the Bond Register. For so long as the Bonds are held in book -entry only form, DTC will be deemed to be the sole Registered Owner. "Reserve Account" means the account of that name in the Bond Account created pursuant to Ordinance No. 2843 and continued pursuant to Section 13 of this ordinance. "Reserve Account Requirement" means, with respect to the Bonds or Future Parity Bonds, an amount equal to the least of (a) 125% of Average Annual Debt Service on all outstanding Parity Bonds, (b) 10% of the stated principal amount of all outstanding Parity Bonds, or (c) maximum Annual Debt Service on all outstanding Parity Bonds. "Revenue Fund" means the special fund of the City known as the "City of Port Angeles Water and Wastewater Utility Revenue Fund" created in the office of the Finance Director pursuant to Section 2 of Ordinance No. 2843 and continued pursuant to Section 11 of this ordinance. "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, or its successor. "Serial Bonds" means Parity Bonds other than Term Bonds. "Sinking Fund Requirement" means, for any Fiscal Year or calendar year, the principal amount of Term Bonds required to be purchased, redeemed or paid at maturity in such year as established by the ordinance of the City authorizing the issuance of such Term Bonds. "State Loans" means Public Works Trust Fund loans, Drinking Water Revolving Fund loans, and similar loans to the City for purposes related to the System that are administered by the Public Works Board, Department of Commerce, or other successor or similar state agencies, and are secured by a pledge of Gross Revenue. "System" means the City's combined water supply and distribution utility, sanitary sewage collection and wastewater treatment utility, and storm water utility as the same now exists and as it may hereafter be added to, improved and extended for as long as any of the Bonds are outstanding. "Tax Certificate" means the certificate with respect to federal tax matters relating to the Bonds authorized to be executed by the Finance Director pursuant to the provisions of Section 16 of this ordinance. "Term Bonds" means Parity Bonds of any principal maturity that are subject to mandatory redemption and for which mandatory sinking fund payments are required, including the Bonds identified as such in Section 7(b) of this ordinance. "Underwriter" means Seattle- Northwest Securities Corporation. -14- P \20391_DOT\20391_2A4 08/03/10 "2003 Bonds" means the City's Water and Wastewater Utility Revenue Refunding Bonds, 2003, issued in the original principal amount of $4,220,000 under date of November 18, 2003, pursuant to Ordinance No. 3148 of the City and currently outstanding in the principal amount of $3,525,000. "2009 Bonds" means the City's Water and Wastewater Utility Revenue Refunding Bonds, 2009, issued in the original principal amount of $7,590,000 under date of September 29, 2009, pursuant to Ordinance No. 3375 of the City and currently outstanding in the principal amount of $7,445,000. Words of the masculine gender are deemed and construed to include correlative words of the feminine and neuter genders. Words imparting the singular number include the plural numbers and vice versa unless the context indicates otherwise. Reference to Articles, Sections and other subdivisions of this ordinance are to the Articles, Sections and other subdivisions of this ordinance as originally adopted unless expressly stated to the contrary. The headings or titles of the Articles and Sections hereof, and the Table of Contents appended hereto, are for convenience of reference only and do not define or limit the provisions hereof. Section 2. Combining the Storm Water Utility with the Water and Wastewater Utility. The City's storm water utility and water and wastewater utility are hereby combined for borrowing purposes, as permitted by Ordinance Nos. 3148 and 3375 authorizing the issuance of the 2003 Bonds and the 2009 Bonds. The "System" as defined in such ordinances and in this ordinance shall be deemed to include the storm water utility and the water and wastewater utility as they now exist and as they may hereafter be added to, improved or extended. Section 3. The Projects. The Council hereby approves the acquisition, development and construction of the improvements to the System included or to be included in the City's Capital Facilities Plan, including but not limited to advanced metering infrastructure, water pipeline improvements, sewer pipeline improvements wastewater Supervisory Control and Data Acquisition improvements, a septage receiving station, wastewater treatment plant improvements, and stormwater system improvements (the "Projects "). The estimated cost of the Projects is $5,396,000. In undertaking the Projects, the City will acquire and install all equipment and appurtenances necessary for their proper operation and will acquire by purchase, lease or condemnation all property, both real and personal, or any interest therein, and all rights -of -way, franchises, and easements necessary to complete the Projects. The Projects are subject to those changes as to size or location or any other details as may be authorized by the City either prior to or during the course of construction. The City may also elect to substitute for one or more of the Projects any other System improvements, approved by the Council, that are now or may hereafter be included in the City's Capital Facilities Plan. Section 4. Compliance with Parity Conditions. Ordinance Nos. 3148 and 3375 that authorized the issuance of the 2003 Bonds and the 2009 Bonds provide that the City may issue Future Parity Bonds upon compliance with certain conditions. The Council hereby finds, as required by those provisions of Ordinance Nos. 3148 and 3375, as follows: -15- P 120391 DOT120391 2A4 08/03110 First, that the Bonds are being issued for the purpose of acquiring, constructing and installing additions and improvements to and extensions of, acquiring necessary equipment for, or making necessary replacements or repairs and capital improvements to the System; Second, that at the time of the adoption of this ordinance and at the time of the issuance of the Bonds there is not nor will there be any deficiency in the Bond Account or the Reserve Account; Third, this ordinance provides that (i) the principal of and interest on the Bonds are payable out of the Bond Account, (ii) payments will be made into the Bond Account to satisfy the Sinking Fund Requirements on the Term Bonds, and (iii) proceeds of the Bonds or other funds of the City legally available therefor will be deposited into the Reserve Account in an amount sufficient to satisfy the Reserve Account Requirement for the Bonds, all as required by Ordinance Nos. 3148 and 3375; and Fourth, prior to the issuance of the Bonds, the City will have on file a certificate of a Professional Utility Consultant satisfying the requirements of Section 17(a)(5) of Ordinance No. 3148 and Section 16(a)(5) of Ordinance No. 3375. The parity conditions contained in Ordinance Nos. 3148 and 3375 having been complied with or assured, the payments required in this ordinance to be made out of the Revenue Fund into the Bond Account and Reserve Account to pay and secure the payment of the principal of and interest on the Bonds shall constitute a lien and charge upon the money in such Revenue Fund equal in rank with the lien and charge thereon for the payments required to be made into the Bond Account to pay and secure the payment of the principal of and interest on the 2003 Bonds and 2009 Bonds. Section 5. Authorization and Description of Bonds. To finance costs of the Projects and pay costs of issuing the Bonds, the City will issue its water and wastewater utility revenue bonds in the aggregate principal amount of $5,695,000 (the "Bonds "). The Bonds will be designated as the "City of Port Angeles, Washington, Water and Wastewater Utility Revenue Bonds, 2010," will be dated as of the date of their initial delivery to the Underwriter, will be in the denomination of $5,000 each, or integral multiples thereof (provided that no Bond may represent more than one maturity), will be fully registered as to principal and interest, and will be numbered separately in such manner and with any additional identification as the Bond Registrar deems necessary for identification. The Bonds will bear interest from their date (calculated on the basis of a year of three hundred sixty (360) days and twelve 30 -day months) payable on May 1 and November 1 of each year, beginning on November 1, 2010, at the rates per annum and mature on November 1 of the years and in the principal amounts, as follow: Maturity Year Principal Interest (November 1) Amount Rate * Term Bonds 2030* $3,140,000 4.00% 2034* 2,555,000 4.25 -16- P \20391 D0T120391_2A4 08/03/10 Principal of and interest on the Bonds are payable solely from the Bond Account. The Bonds are not general obligations of the City or of the State of Washington or any political subdivision thereof. Section 6. Registration, Exchange and Payments. (a) Bond Registrar /Bond Register. The City hereby adopts the system of registration and transfer for the Bonds approved by the Washington State Finance Committee, which utilizes the fiscal agency of the State of Washington in New York, New York, as registrar, authenticating agent, paying agent and transfer agent (collectively, the "Bond Registrar "). The Bond Registrar shall keep, or cause to be kept, at its principal corporate trust office, sufficient records for the registration and transfer of the Bonds, which shall be open to inspection by the City. The Bond Registrar is authorized, on behalf of the City, to authenticate and deliver the Bonds transferred or exchanged in accordance with the provisions of such Bonds and this ordinance and to carry out all of the Bond Registrar's powers and duties under this ordinance. The Bond Registrar shall be responsible for its representations contained in the Certificate of Authentication on the Bonds. (b) Registered Ownership. The City and the Bond Registrar may deem and treat the Registered Owner of each 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 any such Bond shall be made only as described in Section 6(g) hereof, but such registration may be transferred as herein provided. All such payments made as described in Section 6(g) shall be valid and shall satisfy the liability of the City upon such Bond to the extent of the amount or amounts so paid. (c) DTC Acceptance /Letter of Representations. The Bonds will be held initially in fully immobilized form by DTC acting as depository. To induce DTC to accept the Bonds as eligible for deposit at DTC, the City has heretofore executed and delivered to DTC the Letter of Representations. Neither the City nor the Bond Registrar will have any responsibility or obligation to DTC participants or the persons for whom they act as nominees with respect to the Bonds for the accuracy of any records maintained by DTC or any DTC participant, the payment by DTC or any DTC participant of any amount in respect of the principal of or interest on the Bonds, any notice that is permitted or required to be given to Registered Owners under this ordinance (except such notices as are required to be given by the City to the Bond Registrar or to DTC), the selection by DTC or any DTC participant of any person to receive payment in the event of a partial redemption of the Bonds, or any consent given or other action taken by DTC as the Registered Owner. For so long as any Bonds are held in fully immobilized form hereunder, DTC or its successor depository shall be deemed to be the Registered Owner for all purposes hereunder, and all references herein to the Registered Owners shall mean DTC or its nominee and shall not mean the owners of any beneficial interest in the Bonds. -17- P 120391_D01120391 _2A4 08/03/10 (d) Use of Depository. (1) The Bonds shall be registered initially in the name of "Cede & Co.," as nominee of DTC, with a single Bond for each maturity in a denomination equal to the total principal amount of that maturity. Registered ownership of such immobilized Bonds, or any portions thereof, may not thereafter be transferred except (i) to any successor of DTC or its nominee, provided that any such successor shall be qualified under any applicable laws to provide the service proposed to be provided by it; (ii) to any substitute depository appointed by the City pursuant to subsection (2) below or such substitute depository's successor; or (iii) to any person as provided in subsection (4) below. (2) Upon the resignation of DTC or its successor (or any substitute depository or its successor) from its functions as depository or a determination by the City to discontinue the system of book entry transfers through DTC or its successor (or any substitute depository or its successor), the Council may hereafter appoint a substitute depository. Any such substitute depository shall be qualified under any applicable laws to provided the services proposed to be provided by it. (3) In the case of any transfer pursuant to clause (i) or (ii) of subsection (1) above, the Bond Registrar shall, upon receipt of all outstanding Bonds, together with a written request on behalf of the City, issue a single new Bond for each maturity of such Bonds then outstanding, registered in the name of such successor or such substitute depository, or their nominees, as the case may be, all as specified in such written request of the City. (4) If (i) DTC or its successor (or substitute depository or its successor) resigns from its functions as depository, and no substitute depository can be obtained, or (ii) the Council determines that it is in the best interest of the beneficial owners of any of the Bonds that they be able to obtain such Bonds in the form of bond certificates, the ownership of Bonds may then be transferred to any person or entity as herein provided, and the Bonds shall no longer be held in fully immobilized form. The City shall deliver a written request to the Bond Registrar, together with a supply of definitive Bonds, to issue Bonds as herein provided in any authorized denomination. Upon receipt of all then outstanding Bonds by the Bond Registrar together with a written request on behalf of the City to the Bond Registrar, new Bonds shall be issued in such denominations and registered in the names of such persons as are requested in such written request. (e) Transfer or Exchange of Registered Ownership; Change in Denominations. The registered ownership of any Bond may be transferred or exchanged, but no transfer of any Bond shall be valid unless it is surrendered to the Bond Registrar with the assignment form appearing on such Bond duly executed by the Registered Owner or such Registered Owner's duly authorized agent in a manner satisfactory to the Bond Registrar. Upon such surrender, the Bond Registrar shall cancel the surrendered Bond and shall authenticate and deliver, without charge to the Registered Owner or transferee therefor, a new Bond (or Bonds at the option of the new Registered Owner) of the same date, maturity and interest rate and for the same aggregate principal amount in any authorized denomination, naming as Registered Owner the person or persons listed as the assignee on the assignment form appearing on the surrendered - 1 8- P \20391_DOT\20391_2A4 08/03/10 Bond, in exchange for such surrendered and cancelled Bond. Any Bond may be surrendered to the Bond Registrar and exchanged, without charge, for an equal aggregate principal amount of Bonds of the same date, maturity and interest rate, in any authorized denomination. The Bond Registrar shall not be obligated to transfer or exchange any Bond during a period beginning at the opening of business on the 15th day of the month next preceding any interest payment date and ending at the close of business on such interest payment date, or, in the case of any proposed redemption of the bonds, after the mailing of notice of the call of such bonds for redemption. (f) Registration Covenant. The City covenants that, until all Bonds have been surrendered and canceled, it will maintain a system for recording the ownership of each Bond that complies with the provisions of Section 149 of the Code. (g) Place and Medium of Payment. Both principal of and interest on the Bonds are payable in lawful money of the United States of America. For so long as all Bonds are in fully immobilized form, payments of principal and interest thereon will be made in accordance with the operational arrangements of DTC referred to in the Letter of Representations. If the Bonds are no longer in fully immobilized form, interest on the Bonds will be paid by check or draft mailed to the Registered Owners at the addresses for such Registered Owners appearing on the Bond Register on the 15th day of the month preceding the interest payment date; provided, however, that if so requested in writing by the Registered Owner of at least $1,000,000 principal amount of Bonds, interest will be paid by wire transfer on the interest payment date to an account with a bank located within the United States. Principal of the Bonds will be payable upon presentation and surrender of the Bonds by the Registered Owners at the principal office of the Bond Registrar. (h) Bond Registrar's Ownership of Bonds. The Bond Registrar may become the Registered Owner of any Bond with the same rights it would have if it were not the Bond Registrar, and to the extent permitted by law may act as depository for and permit any of its officers or directors to act as member of, or in any other capacity with respect to, any committee formed to protect the right of the Registered Owners of Bonds. Section 7. Redemption; Purchase of Bonds. (a) Optional Redemption. The Bonds maturing on or after November 1, 2030 are subject to redemption prior to maturity, at the option of the City, on or after November 1, 2020, in whole or in part on any date (and if in part with maturities to be selected by the City), at a price of par, plus interest accrued thereon to the date fixed for redemption. For so long as the Bonds are in book -entry form, the selection of Bonds within a maturity to be redeemed and the manner of providing notice of redemption to beneficial owners are governed by the operational arrangements of DTC, as then in effect. (b) Mandatory Redemption. The Bonds maturing on November 1, 2030 and November 1, 2034 (the "Term Bonds "), shall be redeemed prior to maturity by lot (or paid or purchased at maturity), not later than November 1 in the years as shown below (to the extent such 2010 Term Bonds have not been previously redeemed or purchased) and in the principal amounts -19- P \20391_DOT120391_2A4 08/03/10 set forth below, without premium, together with the interest accrued to the date fixed for redemption. 2030 Term Bonds Year Amount 2025 $475,000 2026 490,000 2027 510,000 2028 535,000 2029 555,000 2030* 575,000 * Maturity 2034 Term Bonds Year Amount 2031 $600,000 2032 625,000 2033 650,000 2034** 680,000 * * Final Maturity (c) Partial Redemption. If less than all of the principal amount of any Bond is redeemed, upon surrender of such Bond at the principal office of the Bond Registrar, there will be issued to the Registered Owner, without charge, for the then unredeemed balance of the principal amount, a new Bond or Bonds, at the option of the Registered Owner, of like maturity and interest rate in any authorized denomination. (d) Notice of Redemption. Written notice of any redemption of Bonds (which may be conditional) will be given by the Bond Registrar on behalf of the City by first class mail, postage prepaid, no fewer than twenty (20) days nor more than sixty (60) days before the redemption date to the Registered Owners of Bonds that are to be redeemed at their last addresses shown on the Bond Register. So long as the Bonds are in book -entry form, notice of redemption will be given as provided in the Letter of Representations. The Bond Registrar will provide additional notice of redemption (at least twenty (20) days) to the MSRB, in accordance with Section 21. The requirements of this section shall be deemed complied with when notice is mailed, whether or not it is actually received by the owner. Each notice of redemption will contain the following information: (1) the redemption date, (2) the redemption price, (3) any condition to the redemption (including, but not limited to, the receipt of proceeds of refunding bonds), (4) if less than all outstanding Bonds are to be redeemed, the identification (and, in the case of partial redemption, the principal amounts) of the -20- P \20391 DOT20391 2A4 08/03/10 Bonds to be redeemed, (5) that on the redemption date, upon the satisfaction of any conditions, the redemption price will become due and payable upon each Bond or portion called for redemption, and that interest shall cease to accrue from the redemption date, (6) that the Bonds are to be surrendered for payment at the principal office of the Bond Registrar, (7) the CUSIP numbers of all Bonds being redeemed, (8) the dated date of the Bonds, (9) the rate of interest for each Bond being redeemed, (10) the date of the notice, and (11) any other information needed to identify the Bonds being redeemed. Upon the payment of the redemption price of Bonds being redeemed, each check or other transfer of funds issued for such purpose will bear the CUSIP number identifying, by issue and maturity, the Bonds being redeemed with the proceeds of such check or other transfer. (e) Effect of Redemption. Unless a condition to the redemption has not been satisfied, the City will transfer to the Bond Registrar amounts that, in addition to other money, if any, held by the Bond Registrar, will be sufficient to redeem, on the redemption date, all the Bonds to be redeemed. From the redemption date interest on each Bond to be redeemed shall cease to accrue. (f) Amendment of Notice Provisions. The foregoing notice provisions of this section, including but not limited to the information to be included in redemption notices and the persons designated to receive notices, may be amended by additions, deletions and changes to maintain compliance with duly promulgated regulations and recommendations regarding notices of redemption of municipal securities. (g) Purchase of Bonds in Open Market. The City also reserves the right to purchase any of the Bonds in the open market at any time at prices deemed reasonable by the City. Section 8. Form of Bonds. The Bonds shall be in substantially the following form: UNITED STATES OF AMERICA NO. $ Assured Guaranty Municipal Corp. (formerly known as Financial Security Assurance Inc.) ( "AGM "), New York, New York, has delivered its municipal bond insurance policy (the "Policy ") with respect to the scheduled payments due of principal of and interest on this Bond to The Bank of New York Mellon, New York, New York, or its successor, as paying agent for the Bonds (the "Paying Agent "). Said Policy is on file and available for inspection at the principal office of the Paying Agent and a copy thereof may be obtained from AGM or the Paying Agent. All payments required to be made under the Policy shall be made in accordance with the provisions thereof. The owner of this Bond acknowledges and consents to the subrogation rights of AGM as more fully set forth in the Policy. -21- P 120391_D01120391_2A4 08/03/10 STATE OF WASHINGTON CITY OF PORT ANGELES WATER AND WASTEWATER UTILITY REVENUE BOND, 2010 INTEREST RATE: MATURITY DATE: REGISTERED OWNER: CEDE & CO. PRINCIPAL AMOUNT: Dollars CUSIP NO: The City of Port Angeles, Washington (the "City"), a municipal corporation of the State of Washington, for value received hereby 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 payable on the first days of each May and November, commencing on November 1, 2010. Both principal of and interest on this bond are payable in lawful money of the United States of America. For so long as the this bond is held in fully immobilized form, payments of principal and interest thereon shall be made as provided in accordance with the operational arrangements of DTC referred to in the Blanket Issuer Letter of Representations from the City to DTC. If the bonds of this issue are no longer in fully immobilized form, interest on this bond will be paid by check or draft mailed to the Registered Owner at the address appearing on the Bond Register on the 15th day of the month preceding the interest payment date, and principal of this bond will be payable upon presentation and surrender of this bond by the Registered Owner at the principal office of the fiscal agency of the State of Washington in either Seattle, Washington, or New York, New York (collectively the "Bond Registrar "). This bond is one of a series of bonds in the aggregate principal amount of $5,695,000 (the "Bonds "), issued pursuant to Ordinance No. 3407 passed by the City Council on August 3, 2010 (the "Bond Ordinance "), to finance the cost of improvements to the City's water, wastewater and storm water utility. 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 Bonds are payable solely out of the special fund of the City known as the "1994 Water and Wastewater Utility Revenue Bond Fund" ( "Bond Account ") established by Ordinance No. 2843 of the City. The Bonds are special limited obligations of the City and are not obligations 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 the Bonds. Under the Bond Ordinance, the City is obligated to set aside and pay into the Bond Account out of Gross Revenue of the System certain fixed amounts sufficient to pay when due the principal of and interest and premium, if any, on the Bonds and all other Parity Bonds. To the extent provided by the Bond Ordinance, the amounts pledged to be paid from Gross Revenue -22- P \20391_DOT120391_2A4 08/03/10 into the Bond Account and accounts therein are a lien and charge thereon equal in rank to the lien and charge upon Gross Revenue of the amounts required to pay and secure the payment of certain outstanding Parity Bonds and any Future Parity Bonds that the City may issue hereafter, and superior to all other liens and charges of any kind or nature, except the Costs of Maintenance and Operation of the System. The Bond Ordinance sets forth covenants of the City to secure the payment of Parity Bonds, including but not limited to covenants relating to rates and charges of the System, operations of the System, and the issuance of Future Parity Bonds. The Bonds are subject to redemption prior to maturity as provided in the Bond Ordinance. The Bonds may be transferred and exchanged upon surrender to the Bond Registrar as provided in the Bond Ordinance. The Bonds are not "private activity bonds" as such term is defined in the Internal Revenue Code of 1986, as amended (the "Code "). The City has designated the Bonds as "qualified tax - exempt obligations" within the meaning of Section 265(b)(3)(B) of the Code. 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 has 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 seal of the City to be impressed or reproduced hereon, all as of , 2010. (SEAL) CITY OF PORT ANGELES, WASHINGTON By [Manual or Facsimile Signature] -23- Mayor P \20391 DO1120391_2A4 08/03/10 Attest: [Manual or Facsimile Signature] City Clerk Date of Authentication: CERTIFICATE OF AUTHENTICATION This is one of the Water and Wastewater Utility Revenue Bonds, 2010, of the City of Port Angeles, Washington, dated , 2010, as described in the within mentioned Bond Ordinance. WASHINGTON STATE FISCAL AGENCY, Bond Registrar By Authorized Officer ASSIGNMENT FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers unto PLEASE INSERT SOCIAL SECURITY OR TAXPAYER IDENTIFICATION NUMBER OF TRANSFEREE (Please print or typewrite name and address, including zip code, of Transferee) the within bond and does hereby irrevocably constitute and appoint as attorney -in -fact to transfer said bond on the books kept for registration thereof with full power of substitution in the premises. DATED: SIGNATURE GUARANTEED: NOTICE: Signature(s) must be guaranteed pursuant to law. -24- NOTE: The signature on this Assignment must correspond with the name of the Registered Owner as it appears upon the face of the within bond in every particular, without alteration or enlargement or any change whatever. P \20391 DOT\20391_2A4 08/03/10 Section 9. Execution of Bonds. The Bonds shall be executed on behalf of the City with the manual or facsimile signature of the Mayor, attested by the manual or facsimile signature of the City Clerk, and shall have the seal of the City impressed, imprinted or otherwise reproduced on each of the Bonds. In case either of the officers who have signed or attested any of the Bonds cease to be such officer before such Bonds have been actually issued and delivered, such Bonds shall be valid nevertheless and may be issued by the City with the same effect as though the persons who had signed or attested such Bonds had not ceased to be such officers. Only Bonds that bear a Certificate of Authentication in the form set forth in Section 8 hereof, manually executed by the Bond Registrar, will be valid or obligatory for any purpose or entitled to the benefits of this ordinance. Such Certificate of Authentication is conclusive evidence that the Bonds so authenticated have been duly executed, authenticated and delivered and are entitled to the benefits of this ordinance. Section 10. Application of Bond Proceeds. There is hereby authorized to be created in the office of the Finance Director a special account to be designated as the "City of Port Angeles 2010 Water and Wastewater System Projects Account" (the "Projects Account "). Proceeds of the Bonds will be deposited into the Projects Account and applied to pay costs of the Projects and costs of issuance of the Bonds. Money in the Projects Account may be invested in Permitted Investments. Funds remaining in the Projects Account after the Projects have been completed shall be deposited in the Bond Account. Section 11. Revenue Fund. Pursuant to Section 2 of Ordinance No. 2843, there has heretofore been created in the office of the Finance Director a fund of the City known as the "City of Port Angeles Water and Wastewater Utility Revenue Fund," which fund is hereby confirmed and continued. The City hereby obligates and binds itself to pay all Gross Revenue as collected into the Revenue Fund. The money in the Revenue Fund shall be held separate and apart from all other funds and accounts of the City. The Gross Revenue deposited in the Revenue Fund shall be used only for the following purposes and in the following order of priority: FIRST, to pay the Costs of Maintenance and Operation and to maintain a balance in the Revenue Fund sufficient in amount to enable the City to continuously meet Costs of Maintenance and Operation on a current basis; SECOND, to make all payments required to be made into the Bond Account to pay the interest on any Parity Bonds; THIRD, to make all payments required to be made into the Bond Account to pay the maturing principal of any Serial Bonds and to make all payments required to be made into the Bond Account to satisfy the Sinking Fund Requirement; FOURTH, to make all payments required to be made pursuant to a reimbursement agreement or agreements (or other equivalent documents, including the payment obligations to AGM hereunder) in connection with Qualified Insurance or a Qualified Letter of Credit; provided that if there is not sufficient money to make all payments under reimbursement agreements the payments will be made on a pro rata basis; -25- P \20391_DOT\20391_2A4 08/03/10 FIFTH, to make all payments required to be made into the Reserve Account to secure the payment of the principal of and interest on outstanding Parity Bonds; SIXTH, to make all payments required to be made into any revenue bond redemption fund, revenue warrant redemption fund, debt service account, reserve account or bond retirement account created to pay and secure the payment of the principal of and interest on any revenue bonds, or revenue warrants or other revenue obligations of the City, including the State Loans, having a lien upon Gross Revenue junior and inferior to the lien thereon for the payment of the principal of and interest on the Parity Bonds; and SEVENTH, to retire by redemption or purchase in the open market any outstanding water and wastewater utility revenue bonds, warrants or obligations of the System, to make necessary additions, betterments, improvements and repairs to or extensions and replacements of the System, to make deposits into the Rate Stabilization Fund, or for any other lawful City purposes. Section 12. Rate Stabilization Fund. Pursuant to Section 13 of Ordinance No. 2843, a special fund of the City designated the "Water and Wastewater Rate Stabilization Fund" (the "Rate Stabilization Fund ") has heretofore been established in anticipation of future increases in revenue requirements of the System, which fund is hereby confirmed and continued. In accordance with the provisions of Section 9 of Ordinance No. 2843 and Section 11 of this ordinance, the City may from time to time appropriate or budget amounts in the Revenue Fund for deposit in the Rate Stabilization Fund and may from time to time withdraw amounts therefrom for deposit in the Revenue Fund to prevent or mitigate water and wastewater rate increases or for other lawful purposes of the City related to the System. Such deposits or withdrawals may be made up to and including the date ninety (90) days after the end of the fiscal year for which the deposit or withdrawal will be effective. Section 13. Bond Account. Pursuant to Section 15 of Ordinance No. 2843, there has heretofore been created in the office of the Finance Director a fund of the City known as the "1994 Water and Wastewater Utility Revenue Bond Fund" (the "Bond Account "), which fund and the accounts therein are hereby confirmed and continued. The Bond Account is to be drawn upon for the sole purpose of paying the principal of, premium if any, and interest on any Parity Bonds. The money in the Bond Account shall be kept separate and apart from all other funds and accounts of the City. All funds in the Bond Account are held in trust for the benefit of the owners of all Parity Bonds at the time outstanding equally and ratably and without preference or distinction as between Parity Bonds of different series and maturities. (a) Debt Service Account. A special account known as the Debt Service Account has been created in the Bond Account for the purpose of paying the principal of, premium, if any, and interest on the Parity Bonds. As long as any of the Bonds remain outstanding, the City hereby irrevocably obligates and binds itself to set aside and pay from the Revenue Fund into the Debt Service Account, on or before the date due, those amounts necessary, together with Gross Revenue collected and deposited and such other money as is on hand and available therefor in the Debt Service Account, to pay the interest or principal and interest next coming due on the outstanding Bonds. -26- P \20391 D01120391_2A4 08/03/10 The City covenants and agrees that if it issues any Future Parity Bonds that are Term Bonds, it will provide in each ordinance authorizing the issuance of the same for annual payments to be made from the Revenue Fund into the Debt Service Account sufficient, together with Gross Revenue collected and deposited and such other money as is on hand and available therefor in such account, to amortize the principal of future Parity Bonds that are Term Bonds on or before the maturity date thereof. (b) Reserve Account. A Reserve Account has been created in the Bond Account for the purpose of securing the payment of the principal of and interest on the Bonds and any Future Parity Bonds. The City hereby covenants and agrees that it will satisfy the Reserve Account Requirement for the Bonds by depositing into the Reserve Account, from proceeds of the Bonds or other available funds, an amount that will be sufficient to satisfy the Reserve Account Requirement with respect to the Bonds. The City further covenants and agrees that if it issues any Future Parity Bonds it will provide in each ordinance authorizing the issuance of those Future Parity Bonds that on or prior to the date of issuance of the Future Parity Bonds money will be deposited into the Reserve Account, from proceeds of such bonds or other funds available therefor, so that the total amount of money in the Reserve Account will at least equal the Reserve Account Requirement. The City may substitute Qualified Insurance or a Qualified Letter of Credit for amounts required to be deposited into the Reserve Account. Such Qualified Letter of Credit or Qualified Insurance shall not be cancellable on less than 5 years notice. In the event of any cancellation, the Reserve Account shall be funded in accordance with the provisions of this section providing for payment in the event of a deficiency therein, as if the Parity Bonds that remain outstanding had been issued on the date of such notice of cancellation. The City further covenants and agrees that when the required deposits have been made into the Reserve Account, it will at all times maintain therein an amount at least equal to the Reserve Account Requirement, as redetermined in each calendar year with respect to the bonds secured by such Reserve Account. Whenever there is a sufficient amount in the Bond Account, including all accounts therein, to pay the principal of, premium, if any, and interest on all outstanding Parity Bonds, the money in the Reserve Account may be used to pay the principal of, premium, if any, and interest on the Parity Bonds secured thereby. Money in the Reserve Account may also be withdrawn to redeem and retire, and to pay the premium, if any, and interest due to such date of redemption, on the outstanding Parity Bonds secured by such Reserve Account, as long as the money remaining on deposit in such Reserve Account is at least equal to the Reserve Account Requirement determined with respect to the Parity Bonds then outstanding. If the Bonds outstanding are ever refunded, the money set aside in the Reserve Account to secure the payment thereof may be used to retire Bonds or may be transferred to any other reserve account that may be created to secure the payment of any bonds issued to refund the Bonds. If there is a deficiency in the Debt Service Account to meet maturing installments of either interest on or principal of and interest on the outstanding Parity Bonds payable out of such Account, such deficiency shall be made up from the Reserve Account by the withdrawal of -27- P \20391 D0T\20391 2A4 08/03/10 money therefrom 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, and if a deficiency still exists immediately prior to an interest payment date and after the withdrawal of cash, the City shall then draw from any Qualified Letter of Credit, Qualified Insurance, or other equivalent credit facility in sufficient amount to make up the deficiency. Such draw shall be made at such times and under such conditions as the agreement for such Qualified Letter of Credit or such Qualified Insurance shall provide. If more than one Qualified Letter of Credit or Qualified Insurance is available, draws shall be made ratably thereon to make up the deficiency. Any deficiency created in the Reserve Account by reason of any such withdrawal shall then be made up from money in the Revenue Fund first available after making the payments required to be made under paragraphs "FIRST" through "FOURTH" of Section 11 of this ordinance. (c) Lien of Bond Account. The Bonds, together with the interest thereon, shall be payable from Gross Revenue, and such Gross Revenue is hereby pledged and set aside out of the Revenue Fund into the Bond Account. Said amounts so pledged are hereby declared to be a lien and charge upon Gross Revenue and the money in the Revenue Fund equal to the lien and charge thereon to secure and pay the principal of and interest on the 2003 Bonds, the 2009 Bonds, the Bonds and any Future Parity Bonds and superior to all other charges of any kind or nature, except the Costs of Maintenance and Operation. (d) Investment of Money in Bond Account. All money in the Debt Service Account or Reserve Account may be kept in cash or invested in Permitted Investments maturing not later than the last maturity of the Bonds outstanding at the time of such purchase. Interest earned on or profits made from the sale of such investments shall be deposited in and become a part of the Revenue Fund. Section 14. Adequacy of Revenues. The Council hereby declares that in fixing the amounts to be paid into the Bond Account as hereinbefore provided it has exercised due regard for the Costs of Maintenance and Operation and has not obligated the City to set aside and pay into the Bond Account a greater amount of money in the Revenue Fund than in its judgment will be available over and above such Costs of Maintenance and Operation. Section 15. Covenants and Agreements. The City hereby covenants with the owner of each of the Bonds for as long as any of the same remain outstanding as follows: (a) Rates and Charges. The City will establish, maintain and collect lawful rates and charges for the use of the services and facilities of the System, and will adjust such rates and charges from time to time so that: (1) Gross Revenue will at all times be sufficient (a) to pay all Costs of Maintenance and Operations and to pay all taxes, assessments or other governmental charges lawfully imposed on the System or the revenue therefrom or payments in lieu thereof and any and all other amounts that the City may now be and hereafter become obligated to pay from Gross Revenue by law or contract, and (b) together with Assessments actually collected, to pay the principal of and interest on all outstanding Parity Bonds as and when the same become due and -28- P 120391 001120391 2A4 08/03/10 payable, to make all payments required to be made into the Bond Account to satisfy the Sinking Fund Requirement, and to make when due all payments required to be made into the Reserve Account. (2) The Net Revenue in each Fiscal Year will equal at least 1.25 times Annual Debt Service for such year (after deducting Assessments actually collected for such year). For the purpose of meeting the requirement of this paragraph there may be added to Net Revenue for any Fiscal Year any amount withdrawn from the Rate Stabilization Fund and deposited in the Revenue Fund. There shall be subtracted from Net Revenue for any Fiscal Year any amounts in such year withdrawn from the Revenue Fund and deposited into the Rate Stabilization Fund in such Fiscal Year. From and after such time as no 2003 Bonds remain outstanding, Annual Debt Service for purposes of this rate covenant shall be adjusted to reflect any Debt Service Offset. (b) Maintenance of System. The City will at all times keep and maintain the System in good repair, working order and condition, and will at all times operate the same and the business in connection therewith in an efficient manner and at a reasonable cost. (c) Sale or Disposition of the System. The City will not sell or otherwise dispose of the System in its entirety unless simultaneously with such sale or other disposition, the City provides for payment into the Bond Account of cash or Government Obligations sufficient together with interest to be earned thereon to pay the principal of and interest on the then outstanding Parity Bonds, nor will the City sell or otherwise dispose of any part of the useful operating properties of the System unless the City receives the prior written consent of AGC (so long as the 2009 Bonds are outstanding) and AGM and replaces such facilities or provides for payment into the Bond Account of the greater of: (1) An amount that will be in the same proportion to the net amount of Parity Bonds then outstanding (defined as the total amount of the Parity Bonds less the amount of cash and investments in the Bond Account and accounts therein) that the Net Revenue from the portion of the System sold or disposed of for the preceding year bears to the total Net Revenue for such period; or (2) An amount that will be in the same proportion to the net principal amount of Parity Bonds then outstanding that the book value of the part of the System sold or disposed of bears to the book value of the entire System immediately prior to such sale or disposition. The proceeds of any such sale or disposition of a portion of the properties of the System (to the extent required above) shall be paid into the Bond Account. Notwithstanding any other provision of this subsection, the City may sell or otherwise dispose of any of the works, plant, properties and facilities of the System or any real or personal property comprising a part of the same with a value less than 2% of the net utility plant of the System or that has become unserviceable, inadequate, obsolete or unfit to be used in the operation of the System, or no longer necessary, material to or useful in such operation, without making any deposit into the Bond Account. -29- P 120391 D0T120391 2A4 08/03/10 (d) Collection of Assessments. The City will promptly collect all Assessments levied in any utility local improvement district now or hereafter created to secure the payment of the principal of and interest on any Parity Bonds and shall pay the same into the Bond Account without allocation of such Assessments to any particular series of Parity Bonds. It is hereby provided further, however, that nothing in this ordinance or in this subsection shall be construed to prohibit the City from issuing revenue bonds having a lien on Gross Revenue junior to the lien on such revenue for the payment of the principal of and interest on Parity Bonds and pledging as security for the payments of such junior lien bonds assessments levied in any utility local improvement district that may have been created to pay part or all the cost of improvements to the System for which such junior lien revenue bonds were specifically issued; provided, however, that the City may not agree to acceleration as a remedy with respect to any bonds or other obligations having a lien on Gross Revenue junior to the lien thereon of any Parity Bonds. (e) Books and Accounts. The City will maintain complete books and records relating to the operation of the System and its financial affairs, and will cause such books and records to be audited annually, and cause to be prepared an annual financial and operating statement, which statement will be mailed to any owner of Parity Bonds upon request. (f) Insurance. The City will carry fire and extended coverage insurance on the System as is ordinarily carried on the property of similar public utilities by other municipal corporations engaged in the operation of the same, to the full insurable value thereof, and will also carry adequate public liability insurance and other kinds of insurance as under good practices are ordinarily carried on the properties of similar public utilities by private companies engaged in the operation of the same; provided, however, that the City may, if the Council deems necessary and advisable, institute or continue a self - insurance program with respect to any or all of the aforementioned risks. The premiums paid for all such insurance shall be regarded and paid as a Cost of Maintenance and Operation. (g) Delinquencies. The City will promptly collect all service charges and Assessments, determine in a timely manner all delinquencies, and take all necessary legal action to enforce collection of such delinquencies. (h) No Free Service. Except as permitted by law, the City will not furnish any service of the System to any customer whatsoever free of charge. Section 16. Tax Exemption. (a) General. The City intends for interest on the Bonds to be excludable from gross income for federal income tax purposes under sections 103 and 141 through 150 of the Code, and the applicable regulations. The City covenants not to take any action, or knowingly omit to take any action within its control, that if taken or omitted would cause the interest on the Bonds to be includable in gross income, as defined in section 61 of the Code, for federal income tax purposes. (b) Tax Certificate. Upon the issuance of the Bonds, the Finance Director is authorized to execute a federal tax certificate (the "Tax Certificate "), which will certify to various facts and representations concerning the Bonds, based on the facts and estimates known -30- P \20391 DOT20391_2A4 08/C3/10 or reasonably expected on the date of issuance of the Bonds, and make certain covenants with respect to the Bonds, including but not limited to the following: (i) No Private Activity Bonds. The proceeds of the Bonds will not be used in a manner that would cause the Bonds to be "private activity bonds" within the meaning of the Code, as further described in the Tax Certificate. Moreover, the City covenants that it will use the proceeds of the Bonds (including interest or other investment income derived from Bond proceeds), regulate the use of property financed, directly or indirectly, with such proceeds, and take such other and further action as may be required so that the Bonds will not be "private activity bonds." (ii) No Federal Guarantee. The City has not and will not take any action, and has not knowingly omitted and will not knowingly omit to take any action within its control, that, if taken or omitted would cause the Bonds to be "federally guaranteed" within the meaning of the Code, as further described in the Tax Certificate. (iii) No Arbitrage Bonds. The City reasonably expects that the proceeds of the Bonds will not be used in a manner that would cause the Bonds to be "arbitrage bonds" within the meaning of the Code, as further described in the Tax Certificate. (iv) No Hedge Bonds. The City reasonably expects that at least 85% percent of the proceeds of the Bonds will be spent within three years of the date the Bonds are issued to carry out the governmental purposes of the Bonds. The City covenants that it will comply with the Tax Certificate unless it receives advice from nationally recognized bond counsel or the Internal Revenue Service that certain provisions have been amended or no longer apply to the Bonds. (c) Arbitrage Rebate. If the City does not qualify for an exception to the requirements of Section 148(0 of the Code relating to the payment of arbitrage rebate to the United States, the City will take all necessary steps to comply with the requirement that certain amounts earned by the City on the investment of the "gross proceeds" of the Bonds (within the meaning of the Code) be rebated. (d) Special Designation. The City hereby designates the Bonds as "qualified tax - exempt obligations" within the meaning of Section 265(b)(3)(B) of the Code. The City does not expect to issue more than $30,000,000 in qualified tax - exempt obligations during the year 2010. Section 17. Defeasance. If money 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 Bonds or any of them in accordance with their 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 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 Bonds so provided for, and the owners of those Bonds will cease to be entitled to any lien, benefit or security of this ordinance except for the -31- P \20391_D01120391_2A4 08/03/10 right to receive the money so set aside and pledged, and those Bonds will be deemed not to be outstanding hereunder. Within thirty (30) days of any defeasance of Bonds, the City will provide notice of defeasance of Bonds to AGM and the Registered Owners and to the MSRB in accordance with Section 21 hereof. The City will obtain an opinion of nationally recognized bond counsel to the effect set forth in the preceding sentence and that the tax - exempt status of such Bonds is not adversely affected, and a verification from a certified public accountant that the money when due or Government Obligations so set aside will be sufficient to pay the principal, premium, if any, and interest on the Bonds to be refunded. Section 18. Issuance of Future Parity Bonds. The City hereby further covenants and agrees with the owners of the Bonds for as long as any of the same remain outstanding as follows: (a) Parity Conditions. That it will not issue any bonds with a lien on Gross Revenue superior to the lien of the Bonds on such revenue. The City may issue Future Parity Bonds for: First, the purpose of acquiring, constructing and installing additions and improvements to and extensions of, acquiring necessary equipment for, or making necessary replacements or repairs and capital improvements to the System; or Second, the purpose of refunding or purchasing and retiring at or prior to their maturity any outstanding revenue bonds or other obligations payable out of Gross Revenue; and to pledge that payments be made into the Bond Account for the payment of the principal thereof and interest thereon out of the Revenue Fund sufficient to pay the principal of and interest on such Future Parity Bonds and to maintain the reserves required therefor, which such payments may rank equally with the payments out of such Revenue Fund into the Bond Account and the Reserve Account to pay and secure the payment of the principal of and interest on any Parity Bonds then outstanding, upon compliance with the following conditions: (1) That at the time of the issuance of such Future Parity Bonds there is no deficiency in the Bond Account and the Reserve Account. (2) If there are special assessments levied in any utility local improvement district in which additions and improvements to and extensions of the System will be constructed from the proceeds of such Future Parity Bonds, the ordinance authorizing such Future Parity Bonds must require that such special assessments be paid into the Bond Account. (3) If there are special assessments pledged to be paid into a warrant or bond redemption fund for revenue bonds or warrants being refunded by Future Parity Bonds, the ordinance authorizing such Future Parity Bonds must require such special assessments to be used for the refunding or paid into the Bond Account. (4) The principal of and interest on the Future Parity Bonds will be payable out of the Bond Account, and the ordinance authorizing their issuance must further provide for payments into the Bond Account to satisfy the Sinking Fund Requirement and -32- P 120391 DOT120391 2A4 08/03/10 payments into the Reserve Account to satisfy the Reserve Account Requirement, all as required by Section 13 of this ordinance. (5) Prior to the delivery of any Future Parity Bonds, the City must have on file in the office of the City Clerk either: (a) from and after such time as no 2003 Bonds or 2009 Bonds remain outstanding, a certificate of the Finance Director showing that the Net Revenue (without the adjustments described in subsection (5)(b) below) for each calendar or Fiscal Year after the issuance of such Future Parity Bonds will equal at least 1.25 times the Annual Debt Service (after deducting Assessments, allocated to the years in which they would be received if the unpaid balance of each assessment roll were paid in the remaining number of installments with interest on the declining balance at the times and at the rate provided in the ordinance confirming the assessment roll) for each such calendar or Fiscal Year for all Parity Bonds plus the Future Parity Bonds proposed to be issued. From and after such time as no 2003 Bonds remain outstanding, Annual Debt Service for purposes of this rate covenant shall be adjusted to reflect any Debt Service Offset; or (b) a certificate of a Professional Utility Consultant showing: that the Net Revenue determined and adjusted as hereafter provided for each calendar or Fiscal Year after the issuance of such Future Parity Bonds (the "Adjusted Net Revenue ") will equal at least 1.25 times the Annual Debt Service (after deducting Assessments, allocated to the years in which they would be received if the unpaid balance of each assessment, roll were paid in the remaining number of installments with interest on the declining balance at the times and at the rate provided in the ordinance confirming the assessment roll) for each such calendar or Fiscal Year for all Parity Bonds plus the Future Parity Bonds proposed to be issued. From and after such time as no 2003 Bonds remain outstanding, Annual Debt Service for purposes of this rate covenant shall be adjusted to reflect any Debt Service Offset. The Adjusted Net Revenue shall be the Net Revenue for a period of any twelve (12) consecutive months out of the twenty -four (24) months immediately preceding the date of delivery of such proposed Future Parity Bonds as adjusted by such Professional Utility Consultant to take into consideration changes in Net Revenue estimated to occur under the following conditions for each year after such delivery for so long as any Parity Bonds, including the Future Parity Bonds proposed to be issued, shall be outstanding: (i) The additional Net Revenue that would have been received if any change in rates and charges adopted prior to the date of such certificate and subsequent to the beginning of such twelve (12) -month period, had been in force during the full twelve (12) -month period; (ii) The additional Net Revenue that would have been received if any facility of the System that became fully operational after the beginning of such twelve (12) -month period had been so operating for the entire period; and (iii) The additional Net Revenue estimated by such Professional Utility Consultant to be received as a result of any additions, betterments and improvements to -33- P \20391_DOT\20391_2A4 08/03/10 and extensions of any facilities of the System that are (a) under construction at the time of such certificate or (b) will be constructed from the proceeds of the Future Parity Bonds to be issued. Such Professional Utility Consultant may rely upon, and his or her certificate shall have attached thereto, financial statements of the System certified by the Finance Director showing income and expenses for the period upon which the same is based. The certificate of such Professional Utility Consultant shall be conclusive and the only evidence required to show compliance with the provisions and requirements of this subsection (5)(b). (b) Refunding. Notwithstanding the foregoing requirement, if Future Parity Bonds are to be issued for the purpose of refunding at or prior to their maturity any part or all of the then outstanding Parity Bonds, the certificate described in subsection (a)(5) of this section is not required if the Finance Director provides a certificate stating that upon the issuance of such Future Parity Bonds (i) total debt service on all Parity Bonds (including the refunding bonds but not including the bonds to be refunded thereby) will decrease, and (ii) the Annual Debt Service for each year that any Parity Bonds (including the refunding bonds proposed to be issued) will be outstanding will not increase by more than $5,000 by reason of the issuance of such Future Parity Bonds. (c) Junior Lien Obligations. Nothing herein contained shall prevent the City from issuing any revenue bonds, warrants or other obligations that are a charge upon the money in the Revenue Fund junior or inferior to the payments required by this ordinance to be made into the Bond Account and the Reserve Account; provided, however, that the City may not agree to acceleration as a remedy with respect to any bonds or other obligations having a lien on Gross Revenue junior to the lien thereon of any Parity Bonds. (d) Variable Rate Obligations. The City may not issue variable rate obligations payable from Gross Revenue without the prior written consent of AGC (so long as the 2009 Bonds are outstanding) and AGM. Section 19. Sale of Bonds. The City hereby approves the offer of Seattle- Northwest Securities Corporation (the "Underwriter ") to purchase the Bonds on the terms and conditions set forth in its purchase contract received on the date of this ordinance (the "Purchase Contract "). The Mayor or City Manager is hereby authorized to sign the Purchase Contract on behalf of the City and deliver it to the Underwriter. The proper City officials are authorized and directed to do everything necessary for the prompt execution and delivery of the Bonds to the Underwriter, in accordance with this ordinance and the Purchase Contract, and to apply the Bond proceeds in accordance with this ordinance. Section 20. Official Statement. The Council approves the Preliminary Official Statement for the Bonds dated July 22, 2010, and ratifies the Underwriter's distribution of the Preliminary Official Statement in connection with the offering of the Bonds. To permit the Underwriter to comply with the Rule, the City deems the Preliminary Official Statement final as of its date except for the omission of information dependent upon the pricing of the Bonds and the completion of a purchase contract. The City agrees to cooperate with the Underwriter to -34- P \20391_D01120391_2A4 08/03/10 deliver or cause to be delivered, within seven (7) business days from the date of the sale of the Bonds and in sufficient time to accompany any confirmation that requests payment from any customer of the Underwriter, copies of a final Official Statement in sufficient quantity to comply with paragraph (b)(4) of the Rule and the rules of the MSRB. The City Manager and Finance Director are hereby authorized to review and approve on behalf of the City the final Official Statement for the Bonds with such additions and changes as they may deem necessary or advisable. Section 21. Undertaking to Provide Ongoing Disclosure. This Section 21 constitutes the City's written undertaking for the benefit of the owners and Beneficial Owners of the Bonds as required by Section (b)(5) of the Rule. (a) Financial Statements /Operating Data. The City agrees to provide or cause to be provided to the MSRB, in accordance with the Rule, the following annual financial information and operating data for the prior Fiscal Year (commencing in 2011 for the Fiscal Year ended December 31, 2010): (1) Annual financial statements of the System, which statements may or may not be audited, prepared in accordance with the Budget Accounting and Reporting System prescribed by the Washington State Auditor pursuant to RCW 43.09.200 (or any successor statute) and generally of the type included in the official statement for the Bonds under the headings "Water, Wastewater and Stormwater Fund - Statement of Revenues, Expenses and other Changes in Fund Equity" and "Water, Wastewater and Stormwater Utility - Historical Coverage from Operations "; (2) The principal amount of Parity Bonds and debt service coverage for Parity Bonds; (3) Water, wastewater and storm water rates; and (4) Number of water, wastewater and storm water customers of the System. Items (2) — (4) shall be required only to the extent that such information is not included in the annual financial statements provided pursuant to (1). The financial information and operating data described above shall be provided on or before nine (9) months after the end of the City's fiscal year. The City's fiscal year currently ends on December 31. The City may adjust such fiscal year by providing written notice of the change of fiscal year to the MSRB. In lieu of providing such annual financial information and operating data, the City may cross -refer to other documents available to the public on the MSRB's interne website or filed with the Commission. If not provided as part of the annual financial information discussed above, the City shall provide to the MSRB the City's audited annual financial statement prepared in accordance with the Budget Accounting and Reporting System prescribed by the Washington State Auditor pursuant to RCW 43.09.200 (or any successor statute) when and if available. -35- P 120391 DO 120391_2A4 08/03/10 (b) Material Events. The City agrees to provide or cause to be provided, in a timely manner, to the MSRB notice of the occurrence of any of the following events with respect to the Bonds, if material: • Principal and interest payment delinquencies; • Non - payment related defaults; • Unscheduled draws on debt service reserves reflecting financial difficulties; • Unscheduled draws on credit enhancements reflecting financial difficulties; • Substitution of credit or liquidity providers, or their failure to perform; • Adverse tax opinions or events affecting the tax - exempt status of the Bonds; • Modifications to rights of owners; • Optional, contingent or unscheduled Bond calls other than scheduled sinking fund redemptions for which notice is given pursuant to Exchange Act Release 34- 23856; • Defeasances; • Release, substitution or sale of property securing the repayment of the Bonds; and • Rating changes. Solely for purposes of disclosure, and not intending to modify this undertaking, the City advises that no property secures payment of the Bonds. The Reserve Account is the applicable debt service reserve. (c) Notification Upon Failure to Provide Financial Data. The City agrees to provide or cause to be provided to the MSRB, in a timely manner, notice of the City's failure to provide the annual financial information described in subsection (a) above on or prior to the date set forth in subsection (a) above. (d) EMMA, Format for Filings with the MSRB. Until otherwise designated by the MSRB or the Commission, any information or notices submitted to the MSRB in compliance with the Rule are to be submitted through the MSRB's Electronic Municipal Market Access system ( "EMMA "), currently located at www.emma.msrb.org. All notices, financial information and operating data required by this undertaking to be provided to the MSRB must be in an electronic format as prescribed by the MSRB. All documents provided to the MSRB pursuant to this undertaking must be accompanied by identifying information as prescribed by the MSRB. (e) Termination /Modification. The City's obligations to provide annual financial information and notices of material events shall terminate upon the defeasance, prior redemption or payment in full of all of the Bonds. Any provision of this section shall be null and void if the City (i) obtains an opinion of nationally recognized bond counsel to the effect that the portion of the Rule requiring that provision is invalid, has been repealed retroactively or otherwise does not apply to the Bonds; and (ii) notifies the MSRB of such opinion and the cancellation of the provision. Notwithstanding any other provision of this ordinance, the City may amend this Section 21 with an approving opinion of nationally recognized bond counsel and in accordance -36- P 120391 DOT120391 2A4 08/03/10 with the Rule. In the event of any amendment of a provision of this Section 21, the City will describe the amendment in the next annual report, and will include a narrative explanation of the reason for the amendment and its impact on the type (or in the case of a change of accounting principles, on the presentation) of financial information or operating data being presented by the City. In addition, if the amendment relates to the accounting principles to be followed in preparing financial statements, (i) notice of such change will be given in the same manner as for a material event under subsection (b), and (ii) the annual report for the year in which the change is made will present a comparison (in narrative form and also, if feasible, in quantitative form) between the financial statements as prepared on the basis of the new accounting principles and those prepared on the basis of the former accounting principles. (f) Bond Owner 's Remedies Under This Section. The right of any Bond Owner or Beneficial Owner of Bonds to enforce the provisions of this section are limited to a right to obtain specific enforcement of the City's obligations hereunder, and any failure by the City to comply with the provisions of this undertaking shall not be an event of default with respect to the Bonds. For purposes of this Section 21, "Beneficial Owner" means any person who has the power, directly or indirectly, to vote or consent with respect to, or to dispose of ownership of, any Bonds, including persons holding Bonds through nominees or depositories. Section 22. Bond Insurance. (a) Acceptance of Insurance. In accordance with the offer of the Underwriter to purchase the Bonds, the Council hereby approves the commitment of Assured Guaranty Municipal Corp. ( "AGM ") to provide a bond insurance policy guaranteeing the payment when due of principal of and interest on the Bonds (the "Bond Insurance Policy "). The Council further authorizes and directs all proper officers, agents, attorneys and employees of the City to cooperate with AGM in preparing such additional agreements, certificates, and other documentation on behalf of the City as shall be necessary or advisable in providing for the Bond Insurance Policy. The following provisions of this Section 22 shall apply so long as the Bond Insurance Policy is in effect. (b) Notices and Other Information. Any notice that is required to be given to holders of the Bonds (the "Bondholders "), the MSRB, pursuant to the Rule or to the Bond Registrar pursuant to this ordinance shall also be provided to AGM , simultaneously with the sending of such notices. In addition, all information furnished pursuant to Section 21 of this ordinance shall also be provided to AGM, simultaneously with the furnishing of such information. All notices required to be given to AGM shall be in writing and shall be sent by registered or certified mail addressed to: Assured Guaranty Municipal Corp., 31 West 52nd Street, New York, New York 10019, (Re: Policy No. ), Attention: General Counsel, with a copy to Assured Guaranty Corp., Attention: Risk Management Department- Public Finance Surveillance. (1) AGM shall have the right to receive such additional information as it may reasonably request. -37- P \20391_DOT\20391_2A4 08/03/10 (2) The City will permit AGM to discuss the affairs, finances and accounts of the City or any information AGM may reasonably request regarding the security for the Bonds with appropriate officers of the City, and will use best efforts to enable AGM to have access to the facilities, books and records of the City on any business day upon reasonable prior notice. (3) The Bond Registrar shall notify AGM of any failure of the City to provide notices, certificates and other information under this ordinance. (4) The City shall provide to AGM: (i) the fiscal year budget of the City, with respect to the System, within 30 days after the adoption of such budget; (ii) not later than 180 days after the end of the fiscal year of the City the unaudited financial statements of the City, with respect to the System, and the audited financial statements of the City, with respect to the System, once available, together with a certificate of the City stating that no event of default has occurred or is continuing under this ordinance; (iii) notice of any withdrawal of from the Reserve Account within two business days after knowledge thereof other than (a) withdrawals of amounts in excess of the Reserve Account Requirement and (b) withdrawals in connection with a refunding of any Parity Bonds; (iv) notice of any default known to the Bond Registrar within five business days after actual knowledge thereof; (v) prior notice of the advance refunding or redemption of any of the Bonds, including the principal amount, maturities and CUSIP numbers thereof; (vi) notice of the commencement of any proceeding by or against the City commence under the United States Bankruptcy Code or any other applicable bankruptcy, insolvency, receivership, rehabilitation or similar law; (vii) notice of making of any claim in connection with any insolvency proceeding seeking the avoidance as a preferential transfer of any payment of principal of, or interest on, the Bonds; (viii) a full original transcript of all proceedings relating to the execution of any amendment or supplement to this ordinance; (ix) prior to issuing Future Parity Bonds, any official statement or disclosure document or financing agreement pertaining to such Future Parity Bonds, which shall include, without limitation, the applicable maturity schedule, -38- P \20391 DOT\20391 2A4 08 /03 /10 interest rates, redemption and security provisions pertaining to such Future Parity Bonds; and (x) within 30 days following any litigation or investigation that may have a material adverse affect on the Gross Revenue or the System, notice of such litigation or investigation. (c) Defeasance. Notwithstanding anything herein to the contrary, in the event that the principal and/or interest due on the Bonds shall be paid by AGM pursuant to the Bond Insurance Policy, the Bonds shall remain outstanding for all purposes, not be defeased or otherwise satisfied and not be considered paid by the City, and all covenants, agreements and other obligations of the City to the Registered Owners shall continue to exist and shall run to the benefit of AGM, and AGM shall be subrogated to the rights of such Registered Owners including, without limitation, any rights that such Registered Owners may have in respect of securities law violations arising from the offer and sale of the Bonds. In the event that the Bonds are defeased pursuant to Section 17 of this ordinance, AGM shall receive: (1) An opinion of bond counsel stating that (i) such defeasance will not adversely impact the exclusion from gross income for federal income tax purposes of interest on the Bonds and (ii) the Bonds are no longer outstanding under this ordinance. (2) An escrow agreement and an opinion of bond counsel regarding the validity and enforceability of the escrow agreement. The escrow agreement shall provide that: (xi) Any substitution of securities shall require verification by an independent certified public accountant and the prior written consent of AGM. (xii) The City will not exercise any optional redemption of the bonds secured by the escrow agreement or any other redemption other than mandatory sinking fund redemptions unless (i) the right to make any such redemption has been expressly reserved in the escrow agreement and such reservation has been disclosed in detail in the official statement for the refunding bonds, and (ii) as a condition of any such redemption there shall be provided to AGM a verification of an independent certified public accountant as to the sufficiency of escrow receipts without reinvestment to meet the escrow requirements remaining following such redemption. (xiii) The City shall not amend the escrow agreement or enter into a forward purchase agreement or other agreement with respect to rights in the escrow without the prior written consent of AGM. The documents listed in (c) above shall be delivered to AGM no later than five (5) days prior to the funding of the escrow. -39- P \20391 DOT120391 2A4 08/03/10 (d) Bond Registrar. AGM shall receive prior written notice of any name change of the Bond Registrar or the removal, resignation or termination and replacement of the Bond Registrar. (e) Amendments and Supplements. With respect to amendments or supplements to this ordinance that do not require the consent of the Bondholders, Assured Guaranty must be given prior written notice of any such amendments or supplements. With respect to amendments or supplements to this ordinance that do require the consent of the Bondholders, AGM's prior written consent is required. Any amendments or supplements to this ordinance that are consented to by AGM shall be sent to the rating agencies that have assigned a rating to the Bonds. Notwithstanding any other provision of this ordinance, in determining whether the rights of Bondholders will be adversely affected by any action taken pursuant to the terms and provisions thereof, the City shall consider the effect on the Bondholders as if there were no Bond Insurance Policy. (f) Insurer as Third Party Beneficiary. To the extent that this ordinance confer upon or gives or grants to AGM any right, remedy or claim under or by reason of this ordinance, AGM is explicitly recognized as being a third party beneficiary hereunder and may enforce any such right, remedy or claim conferred, given or granted hereunder. (g) Control Rights. AGM shall be deemed to be the holder of all of the Bonds for purposes of (1) exercising all remedies and directing the Bond Registrar to take actions or for any other purposes following an event of default, and (2) granting any consent, waiver, direction or approval or taking any action permitted by or required under this ordinance, to be granted or taken by the Bondholders. Anything in this ordinance to the contrary notwithstanding, upon the occurrence and continuance of an event of default as defined herein, AGM shall be entitled to control and direct the enforcement of all rights and remedies granted to the Bondholders or the Bond Registrar for the benefit of the Bondholders under this ordinance subject to the rights of other Parity Bond owners. (h) Consent of AGM. Any provision of this ordinance expressly recognizing or granting rights in or to AGM may not be amended in any manner that affects the rights of AGM hereunder without the prior written consent of AGM. (i) Consent of AGM in Addition to Bondholder Consent. Wherever this ordinance require the consent of Bondholders, AGM's prior written consent shall also be required. (j) Consent of AGM in the Event of Insolvency. To the extent permitted by law, any reorganization or liquidation plan with respect to the City must be acceptable to AGM. In the event of any such reorganization or liquidation, AGM shall have the right to vote on behalf of all Bondholders who hold Bonds guaranteed by AGM, absent a payment default by AGM under the Bond Insurance Policy. -40- P 120391 DOT\20391_2A4 08/03/10 (k) Payment Procedure Under the Bond Insurance Policy. At least two (2) business days prior to each payment date on the Bonds, the Bond Registrar will determine whether there will be sufficient funds to pay all principal of and interest on the Bonds due on the related payment date and shall immediately notify AGM or its designee on the same business day by telephone or electronic mail, confirmed in writing by registered or certified mail, of the amount of any deficiency. Such notice shall specify the amount of the anticipated deficiency, the Bonds to which such deficiency is applicable and whether such Bonds will be deficient as to principal or interest or both. If the deficiency is made up in whole or in part prior to or on the payment date, the Bond Registrar shall so notify AGM or its designee. (1) The Bond Registrar shall, after giving notice to AGM as provided above, make available to AGM and, at AGM's direction, to any fiscal agent, the registration books of the City maintained by the Bond Registrar and all records relating to the funds maintained under this ordinance. (2) For so long as all Bonds are in fully- immobilized form, payments of principal and interest shall be made as provided in accordance with the operational arrangements of DTC referred to in the Letter of Representations. In the event that the Bonds are no longer in fully- immobilized form, the Bond Registrar shall provide AGM and any fiscal agent with a list of Registered Owners of Bonds entitled to receive principal or interest payments from AGM under the terms of the Bond Insurance Policy, and shall make arrangements with AGM, the fiscal agent or another designee of AGM to (i) mail checks or drafts to the Registered Owners of Bonds entitled to receive full or partial interest payments from AGM and (ii) pay principal upon Bonds surrendered to AGM, the fiscal agent or another designee of AGM by the Registered Owners of Bonds entitled to receive full or partial principal payments from AGM. (3) The Bond Registrar shall, at the time it provides notice to AGM of any deficiency pursuant to clause (1) above, notify Registered Owners of Bonds entitled to receive the payment of principal or interest thereon from AGM (i) as to such deficiency and its entitlement to receive principal or interest, as applicable, (ii) that AGM will remit to them all or a part of the interest payments due on the related payment date upon proof of its entitlement thereto and delivery to AGM or any fiscal agent, in form satisfactory to AGM, of an appropriate assignment of the Registered Owner's right to payment, (iii) that, if they are entitled to receive partial payment of principal from AGM, they must surrender the related Bonds for payment first to the Bond Registrar, which will note on such Bonds the portion of the principal paid by the Bond Registrar and second to AGM or its designee, together with an appropriate assignment, in form satisfactory to AGM, to permit ownership of such Bonds to be registered in the name of AGM, which will then pay the unpaid portion of principal, and (iv) that, if they are entitled to receive full payment of principal from AGM, they must surrender the related Bonds for payment to AGM or its designee, rather than the Bond Registrar, together with the an -41- P \20391 D01120391_2A4 08/03/10 appropriate assignment, in form satisfactory to AGM, to permit ownership of such Bonds to be registered in the name of AGM. (4) In addition, if the Bond Registrar has notice that any holder of the Bonds has been required to disgorge payments of principal of or interest on the Bonds previously due for payment pursuant to a final non - appealable order by a court of competent jurisdiction that such payment constitutes an avoidable preference to such holder within the meaning of any applicable bankruptcy laws, then the Bond Registrar shall notify AGM or its designee of such fact by telephone or electronic notice, confirmed in writing by registered or certified mail. (5) The Bond Registrar will be hereby irrevocably designated, appointed, directed and authorized to act as attorney -in -fact for Bondholders as follows: (i) If and to the extent there is a deficiency in amounts required to pay interest on the Bonds, the Bond Registrar shall (a) execute and deliver to AGM, in form satisfactory to AGM, an instrument appointing AGM as agent for such holders in any legal proceeding related to the payment of such interest and an assignment to AGM of the claims for interest to which such deficiency relates and which are paid by AGM, (b) receive as designee of the respective holders (and not as Bond Registrar) in accordance with the tenor of the Bond Insurance Policy payment from AGM with respect to the claims for interest so assigned, and (c) disburse the same to such respective holders; and (ii) If and to the extent of a deficiency in amounts required to pay principal of the Bonds, the Bond Registrar shall (a) execute and deliver to AGM, in form satisfactory to AGM, an instrument appointing AGM as agent for such holder in any legal proceeding related to the payment of such principal and an assignment to AGM of the Bonds surrendered to AGM in an amount equal to the principal amount thereof as has not previously been paid or for which moneys are not held by the Bond Registrar and available for such payment (but such assignment shall be delivered only if payment from AGM is received), (b) receive as designee of the respective holders (and not as Bond Registrar) in accordance with the tenor of the Bond Insurance Policy payment therefore from AGM, and (c) disburse the same to such holders. (6) Payments with respect to claims for interest on and principal of Bonds disbursed by the Bond Registrar from proceeds of the Bond Insurance Policy shall not be considered to discharge the obligation of the City with respect to such Bonds, and AGM shall become the owner of such unpaid Bond and claims for the interest in accordance with the tenor of the assignment made to it under the provisions of this subsection or otherwise. -42- P \20391 D0T\20391 2A4 08/03/10 (7) Irrespective of whether any such assignment is executed and delivered, the City hereby agrees for the benefit of AGM that: (i) it recognizes that to the extent AGM makes payments directly or indirectly (e.g., by paying through the Bond Registrar), on account of principal of or interest on the Bonds, AGM will be subrogated to the rights of such holders to receive the amount of such principal and interest from the City, with interest thereon as provided and solely from the sources stated in this ordinance and the Bonds; and (ii) it will accordingly pay to AGM the amount of such principal and interest, with interest thereon as provided in this ordinance and the Bonds, but only from the sources and in the manner provided herein for the payment of principal of and interest on the Bonds to holders, and will otherwise treat AGM as the owner of such rights to the amount of such principal and interest. (iii) The City hereby agrees to pay or reimburse AGM all amounts paid by AGM under the Bond Insurance Policy and to the extent permitted by law any and all charges, fees, costs and expenses that AGM may reasonably pay or incur, including, but not limited to, fees and expenses of attorneys, accountants, consultants and auditors and reasonable costs of investigations, in connection with (i) any accounts established to facilitate payments under the Bond Insurance Policy, (ii) the administration, enforcement, defense or preservation of any rights in respect of the trust agreement or any other financing document, including defending, monitoring or participating in any litigation or proceeding (including any bankruptcy proceeding in respect of the City or any affiliate thereof) relating to this ordinance, any party to this ordinance or any other financing document or the transaction contemplated by this ordinance; (iii) the pursuit of any remedies under this ordinance, to the extent such costs and expenses are not recovered from other sources, or (iv) any amendment, waiver or other action with respect to, or related to, this ordinance whether or not executed or completed; costs and expenses shall include a reasonable allocation of compensation and overhead attributable to time of employees of AGM spent in connection with the actions described in clauses (ii) - (iv) above. In addition, AGM reserves the right to charge a reasonable fee as a condition to executing any amendment, waiver or consent proposed in respect of this ordinance. The City will pay interest on the amounts owed in this paragraph from the date of any payment due or paid, at the per annum rate of interest publicly announced from time to time by JP Morgan Chase Bank, National Association, or its successor, at its principal office in New York, New York as its prime lending rate (any change in such prime rate of interest to be effective on the date such change is announced by JPMorgan Chase Bank, National Association) plus three percent (3 %) per annum (the "Reimbursement -43 - P \20391_DO1120391 2A4 08/03/10 Rate "). The Reimbursement Rate shall be calculated on the basis of the actual number of days elapsed over a 360 -day year. In the event JPMorgan Chase Bank ceases to announce its prime rate publicly, the prime rate shall be the publicly announced prime rate or base lending rate of such national bank, as AGM shall specify. (8) In addition to any and all rights of reimbursement, subrogation and any other rights pursuant hereto or under law or in equity, to the extent permitted by law the City agrees to pay or reimburse AGM any and all charges, fees, costs, claims, losses, liabilities (including penalties), judgments, demands, damages, and expenses that AGM or its officers, directors, shareholders, employees, agents and each person, if any, who controls AGM within the meaning of either Section 15 of the Securities Act of 1933, as amended, or Section 20 of the Securities Exchange Act of 1934, as amended, may reasonably pay or incur, including, but not limited to, fees and expenses of attorneys, accountants, consultants and auditors and reasonable costs of investigations, of any nature in connection with, in respect of or relating to the transactions contemplated by this ordinance by reason of: (i) any omission or action (other than of or by AGM) in connection with the offering, issuance, sale, remarketing or delivery of the Bonds; (ii) the negligence, bad faith, willful misconduct, misfeasance, malfeasance or theft committed by any director, officer, employee or agent of the City or the City in connection with any transaction arising from or relating to this ordinance; (iii) the violation by the City of any law, rule or regulation, or any judgment, order or decree applicable to it; (iv) the breach by the City of any representation, warranty or covenant under this ordinance or the occurrence, in respect of the City, under this ordinance of any event of default or any event which, with the giving of notice or lapse of time or both, would constitute any "event of default "; or (v) any untrue statement or alleged untrue statement of a material fact contained in any official statement, if any, or any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, except insofar as such claims arise out of or are based upon any untrue statement or omission in information included in an official statement, if any, and furnished by AGM in writing expressly for use therein. (9) AGM shall be entitled to pay principal of or interest on the Bonds that shall become Due for Payment but shall be unpaid by reason of Nonpayment by the City (as such terms are defined in the Bond Insurance Policy), whether or not -44- P\20391_D01120391_2A4 08/03/10 AGM has received a Notice (as defined in the Bond Insurance Policy) of Nonpayment or a claim upon the Bond Insurance Policy. (10) In addition, AGM shall, to the extent it makes any payment of principal of or interest on the Bonds become subrogated to the rights of the recipients of such payments in accordance with the terms of the Bond Insurance Policy, and to evidence such subrogation (i) in the case of claims for interest, the Bond Registrar shall note AGM's rights as subrogee on the registration books of the City maintained by the Bond Registrar, upon receipt of proof of payment of interest thereon to the registered holders of the Bonds, and (ii) in the case of claims for principal, the Bond Registrar, if any, shall note AGM's rights as subrogee on the registration books of the City maintained by the Bond Registrar, upon surrender of the Bonds together with receipt of proof of payment of principal thereof. (1) No Purchase by City. Without the prior written consent of AGM, no Bonds insured by AGM shall be purchased by the City, or any of its affiliates, in lieu of redemption, unless such Bonds are redeemed, defeased or cancelled. (m) Interest Rate Exchange Agreements. The City may not enter into an interest rate exchange agreement without the prior written consent of AGM. Section 23. Supplements and Amendments. (a) The Council from time to time and at any time may adopt an ordinance or ordinances supplemental hereof, which ordinance or ordinances thereafter shall become a part of this ordinance, for any one or more or all of the following purposes: (1) To add to the covenants and agreements of the City in this ordinance other covenants and agreements thereafter to be observed, which shall not adversely affect the interests of the owners of any Bonds or any Parity Bonds in any material respect, or to surrender any right or power herein reserved to or conferred upon the City. (2) To make such provisions for the purpose of curing any ambiguities or of curing, correcting or supplementing any defective provision contained in this ordinance in regard to such matters or questions as the Council may deem necessary or desirable and not inconsistent with this ordinance and which shall not adversely affect the interests of the owners of any Bonds or any Parity Bonds in any material respect. (3) To amend or supplement any provision contained in this ordinance for the purpose of obtaining or maintaining a rating on the Bonds so long as such amendment or supplement is not inconsistent with this ordinance and will not adversely affect the interests of the owners of any Bonds or any Parity Bonds in any material respect. Any such supplemental ordinance of the Council may be adopted without the consent of the owners of any Bonds at any time outstanding, notwithstanding any of the provisions of subsection (b) of this section; provided, however, that the City shall obtain an opinion of -45- P 120391_D01120391 2A4 08/03/10 nationally recognized bond counsel to the effect that such supplemental ordinance complies with this subsection (a) and will not adversely affect the interests of the owners of any Bonds or any Parity Bonds in any material respect. (b) With the consent of the owners of not less than 65% in aggregate principal amount of the Parity Bonds at the time outstanding, the Council may adopt an ordinance or ordinances supplemental hereto for the purpose of adding any provisions to or changing in any manner or eliminating any of the provisions of this ordinance or of any supplemental ordinance; provided, however, that no such supplemental ordinance shall: (1) Extend the fixed maturity of any Parity Bonds, or reduce the rate of interest thereon, or extend the time of payments of interest from their due date, or reduce the amount of the principal thereof, or reduce any premium payable on the redemption thereof, without the consent of the owner of each bond so affected; or (2) Reduce the aforesaid percentage of bond owners required to approve any such supplemental ordinance, without the consent of the owners of all of the Parity Bonds then outstanding. It shall not be necessary for the consent of bond owners under this subsection (b) to approve the particular form of any proposed supplemental ordinance, but it shall be sufficient if such consent shall approve the substance thereof. (c) Upon the adoption of any supplemental ordinance pursuant to the provisions of this section, this ordinance shall be deemed to be modified and amended in accordance therewith, and the respective rights, duties and obligations of the City under this ordinance and all owners of Bonds outstanding hereunder shall thereafter be determined, exercised and enforced thereunder, subject in all respects to such modification and amendments, and all the terms and conditions of any such supplemental ordinance shall be deemed to be part of the terms and conditions of this ordinance for any and all purposes. Section 24. Lost or Destroyed Bonds. In case any Bonds are lost, stolen or destroyed, the Bond Registrar may authenticate and deliver a new Bond or Bonds of like amount, date and tenor to the Registered Owner thereof if the owner pays the expenses and charges of the Bond Registrar and the City in connection therewith and files with the Bond Registrar and the City evidence satisfactory to both that such Bond or Bonds were actually lost, stolen or destroyed and of his or her ownership thereof, and furnishes the City and the Bond Registrar with indemnity satisfactory to both. Section 25. 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 Bonds. Section 26. Effective Date. This ordinance will become effective five (5) days from and after its passage and publication. -46- P \20391_DOT\20391 2A4 08/03/10 PASSED by the City Council of the City of Port Angeles, Washington, at a regular meeting of the Council held on August 3, 2010. Attest: CITT F PORT ANGELES, WASH GTON / I( / S M. or -47- P 220391_DOT\20391_2A4 08/03/10 CERTIFICATE OF CITY CLERK I, the undersigned, City Clerk of the City of Port Angeles, Washington, DO HEREBY CERTIFY: 1. That the attached is a true and correct copy of Ordinance No. 3407 (the "Ordinance ") of the City, duly passed at a regular meeting of the City Council (the "Council ") of the City held on August 3, 2010. 2. That said meeting was duly convened and held in all respects in accordance with law, and to the extent required by law, due and proper notice of such meeting was given; that a legal quorum was present throughout the meeting and a legally sufficient number of members of the Council voted in the proper manner for the passage of said Ordinance; that all other requirements and proceedings incident to the proper passage of said Ordinance have been fully fulfilled, carried out and otherwise observed; and that I am authorized to execute this certificate. IN WITNESS WHEREOF, I have hereunto set my hand this 3?' day of August, 2010. City Clerk P \20391_DOT20391_2A4 08/03/10