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Ordinance 2903CITY OF EDMONDS, WASHINGTON ORDINANCE NO. 2903 AN ORDINANCE relating to the combined water and sewerage systems comprising the waterworks utility of the City; providing for the issuance of $7,805,000 par value Water and Sewer Revenue Refunding Bonds, 1992, for the purpose of providing the funds to refund portions of the City's outstanding Water and Sewer Revenue Bonds, 1983, and Water and Sewer Revenue Bonds, 1988; providing for and authorizing the purchase of certain obligations out of a portion of the proceeds of the sale of the bonds authorized herein and for the use and application of the money derived from those obligations; authorizing the execution of an agreement with a refunding trustee; fixing the date, form, maturities, interest rates, terms and covenants of those bonds; providing for the sale and delivery of those bonds to Seattle -Northwest Securities Corporation of Seattle, Washington; and establishing an effective date of this ordinance. WHEREAS, the City of Edmonds, Washington (the "City"), by Ordinance No. 1957 passed and approved November 15, 1977, specified and adopted a plan or system for the acquisition and construction of certain additions and betterments to and exten- sions and improvements of the combined water and sewerage systems comprising the waterworks utility of the City (the "System"); declared the estimated cost thereof as nearly as may be; and provided for the issuance of $4,805,000 par value Water and Sewer Revenue Refunding and Construction Bonds, 1977 (the 111977 Bonds"), for the purpose of providing a part of the funds (a) to carry out the plan or system for the acquisition and construction of certain additions and betterments to and extensions and improvements of the System specified and adopted in that ordinance, and (b) to pay, retire and refund the outstanding Water and Sewer Revenue Bonds, 1959, Water and Sewer Revenue -1- Bonds, 1960, Water and Sewer Revenue Bonds, 1961, Water and Sewer Revenue Bonds, 1965, Water and Sewer Revenue Bonds, 1966, Water and Sewer Revenue Bonds, 1967, Water and Sewer Revenue Bonds, 1970 (interest only), Water and Sewer Revenue Refunding Bonds, 1972, and Water and Sewer Revenue Refunding Bonds, 1976, of the City, which 1977 Bonds were issued under date of November 1, 1977; and WHEREAS, by Section 16 of Ordinance No. 1957, the City reserved the right to issue additional and/or refunding water and sewer revenue bonds (therein called "Future Parity Bonds") which would constitute a lien and charge upon the gross revenue of the System on a parity with such 1977 Bonds if the following conditions are met and complied with at the time of the issuance of such Future Parity Bonds: "(1) At the time of issuance of such Future Parity Bonds, there shall not be any deficiency in the Bond Fund or the Reserve Account therein. "(2) Each ordinance providing for the issuance of such Future Parity Bonds shall require that all Assessments levied in any ULID created in connection with the Future Parity Bonds then being issued will be paid directly into the Bond Fund. "(3) Each ordinance providing for the issuance of such Future Parity Bonds shall provide for the payment of the principal thereof and interest thereon out of the Bond Fund. "(4) The ordinance authorizing any Future Parity Bonds shall require that the Reserve Account be increased within a period of five years after the date of issuance of the Future Parity Bonds to an amount equal to the average annual principal and interest requirements on all Future Parity Bonds, including the Bonds and the Future Parity Bonds proposed to be issued, excluding from such amount the principal amount of any Term Bonds included in the Future Parity Bonds issue. -2- "(5) At the time of the issuance of such Future Parity Bonds, the City shall have on file a certifi- cate from an independent licensed professional engineer experienced in the design, construction and operation of municipal utilities, showing that in his professional opinion, the annual Revenue of the System, after payment of Operating and Maintenance Expenses, available for debt service on the Bonds, Future Parity Bonds then outstanding and the Future Parity Bonds proposed to be issued for each year shall be at least equal to the Coverage Requirement (1.25 times that amount of debt service to be paid from operating Revenue and not Assessments). "In determining whether the City is able to comply with the parity conditions, the Revenue of the System of the City, less Operating and Maintenance Expenses, for any twelve consecutive calendar months out of the immediately preceding twenty-four consecutive months shall be used. The following adjustments may be made to the historical net operating Revenue of the System: "(1) Any rate change that has taken place or been approved, may be reflected; "(2) Revenue may be added from customers actually added to the System subsequent to the 12 -month base period; "(3) Revenue may be added from customers to be served by the improvements being constructed out of the proceeds of the Future Parity Bonds to be issued; and "(4) A full year's revenue may be included from any customer being served, but who has not been receiving service for the full period of operation used as a basis for the certificate; and "(5) Actual or reasonably anticipated changes to the Operating and Maintenance Expenses subsequent to such 12 -month period shall be added or deducted, as is applicable.. ."; and WHEREAS, by Ordinance 2363 passed on April 22, 1983, the City authorized the issuance of $1,000,000 par value of its Water and Sewer Revenue Bonds, 1983 (the 111983 Bonds"), which bonds were issued on a parity of lien with the 1977 Bonds; and -3- WHEREAS, by Ordinance No. 2363, the first subsections (4) and (5) of Section 16 of Ordinance No. 1957 were amended to read as follows: "(4) The ordinance authorizing any Future Parity Bonds shall require that the Reserve Account be increased within a period of five years after the date of issuance of the Future Parity Bonds to an amount equal to the average annual principal and interest requirements on all Future Parity Bonds, including the Bonds and the Future Parity Bonds proposed to be issued, excluding from such amount the principal amount of any Term Bonds included in the Future Parity Bonds issue if the payment for such Term Bonds is being provided for by a sinking fund. "(5) At the time of the issuance of such Future Parity Bonds, the City shall have on file a certifi- cate from an independent licensed professional engineer experienced in the design, construction and operation of municipal utilities, showing that in his professional opinion, the annual Revenue of the System, after payment of Operating and Maintenance Expenses, available for debt service on the Bonds, Future Parity Bonds then outstanding and the Future Parity Bonds proposed to be issued for each year shall be at least equal to the Coverage Requirement. . ."; and WHEREAS, by Ordinance No. 2678 passed on August 23, 1988, the City authorized the issuance and sale of $9,990,000 par value of its Water and Sewer Revenue Bonds, 1988 (the "1988 Bonds"), which bonds were issued on a parity of lien with the 1977 Bonds and the 1983 Bonds; and WHEREAS, by Section 6 of Ordinancve 2363, the City reserved the right and option to redeem the 1983 Bonds maturing on May 1 in the years 1994 through 1998, inclusive, on May 1, 1993, at 102% of par plus accrued interest to the date fixed for redemption; and -4- WHEREAS, by Section 7 of Ordinance No. 2678 the City reserved the right and option to redeem the 1988 Bonds maturing on December 1 in the years 1999 through 2008, inclusive, on December 1, 1998, at par plus accrued interest to the date fixed for redemption; and WHEREAS, there are presently outstanding $505,000 principal amount of 1983 Bonds maturing on May 1 in the years 1994 through 1998 (the "1983 Refunded Bonds") bearing interest at various rates from 8.90% to 9.15%, and $6,440,000 principal amount of 1988 Bonds maturing on December 1 in the years 2002 through 2008, inclusive (the "1988 Refunded Bonds") bearing interest at various rates from 7.60% to 7.95% per annum; and WHEREAS, the City Council has determined that the 1988 Refunded Bonds may be refunded by the issuance and sale of the water and sewer revenue bonds authorized herein so that there will be a debt service savings to the City and the ratepayers of combined water and sewerage systems, which refunding will be effected by: (a) The issuance of the refunding bonds authorized by this ordinance and the payment of the costs of issuance and refunding; (b) The call, payment and redemption of the 1983 Refunded Bonds on May 1, 1993 at a price of 102% of par; and (c) The payment of the interest on the 1988 Refunded Bonds when due up to and including December 1, 1998, and, on December 1, 1998, the call, payment and redemption of all of the outstanding 1988 Refunded Bonds at a price of par; and WHEREAS, in order to effect the refunding in the manner that will be most advantageous to the City and the ratepayers of the -5- combined water and sewerage systems, the City Council finds it necessary and advisable that certain acquired obligations (hereinafter defined) bearing interest and maturing at the time or times necessary to accomplish the refunding as aforesaid be purchased out of the proceeds of the sale of the bonds authorized herein; and WHEREAS, Seattle-Northwest Securities Corporation has offered to purchase the bonds to pay the cost of refunding the 1988 Refunded Bonds under the terms and conditions herein set forth, and the City Council has determined it is in the best interest of the City to accept that offer; NOW, THEREFORE, THE CITY COUNCIL OF THE CITY OF EDMONDS, WASHINGTON, DO ORDAIN, as follows: Section 1. Definitions. As used in this ordinance the following words shall have the following meanings: "Acquired Obligations" means United States Treasury Certificates and Notes --State and Local Government Series or other direct non -callable obligations of the United States Government. "Bond Fund" means the special fund of the City known as the Water and Sewer Revenue Bond Fund, 1977, created by Ordinance No. 1957 for the payment of the principal of and interest on the 1977 Bonds and all Future Parity Bonds of the City thereafter issued, including the 1983 Bonds, the 1988 Bonds and the Bonds. "Bonds" means the $7,805,000 par value Water and Sewer Revenue Refunding Bonds, 1992, of the City authorized to be issued by this ordinance. -6- "1977 Bonds" means the outstanding Water and Sewer Revenue Refunding and Construction Bonds, 1977, of the City issued under date of November 1, 1977, pursuant to Ordinance No. 1957. "1983 Bonds" means the outstanding Water and Sewer Revenue Bonds, 1983, of the City issued under date of May 1, 1983, pursuant to Ordinance No. 2363 maturing on May 1, 1993. "1988 Bonds" means the outstanding Water and Sewer Revenue Bonds, 1988, of the City issued under date of September 1, 1988, pursuant to Ordinance No. 2678 maturing up to and including December 1, 2001. "1983 Refunded Bonds" means the 1983 Bonds maturing on May 1 of each of the yeaers 1994 through 1998, inclusive. "1988 Refunded Bonds" means the 1988 Bonds maturing on December 1 of each of the years 2002 through 2008, inclusive. "City" means the City of Edmonds, Washington, a duly organized and existing noncharter code city under the laws of the State of Washington. "Coverage Requirement" means 1.25 times the portion of annual debt service, excluding the principal of any Term Bonds if the payment for such Term Bonds is being provided for by a sinking fund, on the 1977 Bonds, the 1983 Bonds, the 1988 Bonds, the Bonds and any Future Parity Bonds actually paid from the Revenue of the System and not from ULID Assessments, after payment of Operating and Maintenance Expenses. "Future Parity Bonds" means all revenue bonds of the City issued after the date of the issuance of the Bonds and having a lien upon the Revenue of the System for the payment of the -7- principal thereof and interest thereon equal to the lien upon such Revenue for the payment of the principal of and interest on the 1977 Bonds, the 1983 Bonds, the 1988 Bonds, the 1992 Bonds and the Bonds. "Government Obligations" means direct obligations of or obligations the principal of and interest on which are unconditionally guaranteed by the United States of America. "Operating and Maintenance Expenses" means all reasonable expenses incurred by the City in causing the System to be operated and maintained in good repair, working order and condition, but shall not include any depreciation or taxes or charges in lieu of taxes levied or imposed by the City. "Principal and Interest Account" means the account of that name created in the Bond Fund for the payment of the principal of and interest on the 1977 Bonds, the 1983 Bonds, the 1988 Bonds, the Bonds and all Future Parity Bonds of the City payable out of that fund. "Refunding Plan" means: (a) the placement of sufficient proceeds of the Bonds which, with other money of the City, will acquire the Acquired Obligations to be deposited with cash with the Refunding Trustee; (c) the call, payment and redemption of the outstanding 1983 Refunded Bonds on May 1, 1993, at 102% of par; (c) the payment of the interest on the 1988 Refunded Bonds when due up to and including December 1, 2002, and, on December 1, 2002, the call, payment and redemption of all of the outstanding 1988 Refunded Bonds at par; (d) the payment of the costs of issuing the Bonds and carrying out the Refunding Plan. -8- "Refunding Trust Agreement" means that contract between the City and the Refunding Trustee providing for carrying out the Refunding Plan. "Refunding Trustee" means Puget Sound National Bank of Tacoma, Washington. "Reserve Account" means the account of that name created in the Bond Fund for the purpose of securing the payment of the principal of and interest on the 1977 Bonds, the 1983 Bonds, the 1988 Bonds, the Bonds and all Future Parity Bonds of the City payable out of that fund. "Revenue of the System" means all the earnings and revenue received by the System from any source whatsoever, except general ad valorem taxes, ULID Assessments, proceeds from the sale of City property, bond proceeds, and earnings on funds held for payment to the United States of America under Section 148 of the Internal Revenue Code of 1986, as amended. "System" means the combined water supply and distribution system and sanitary sewage disposal system of the City as the same may be added to, improved and extended for as long as any of the 1977 Bonds, the 1983 Bonds, the 1988 Bonds, the 1992 Bonds, the Bonds and any Future Parity Bonds are outstanding. "Term Bond Maturity Year" means any maturity year in which the outstanding principal amount of revenue bonds payable out of the Bond Fund scheduled to mature (regardless of any reservation of rights of redemption prior to maturity) is more than 1.25 times the average annual principal maturity of the bonds payable -9- out of that fund for the three years immediately preceding the Term Bond Maturity Year. "Term Bonds" means the outstanding bonds payable out of the Bond Fund maturing in any Term Bond Maturity Year. "ULID" means utility local improvement district. "ULID Assessments" means the assessments levied in such ULID of the City which may hereafter be created pursuant to state law and shall include installments thereof and interest and any penalties thereon. Section -2. Compliance with Parity Provisions. In accord- ance with the provisions of Section 16 of Ordinance No. 1957, and Section 3 of Ordinance No. 2363, the City Council finds and declares that: (1) At the time of issuance of the Bonds, there will be no deficiency in the Bond Fund or the Reserve Account therein; (2) No ULID is created in connection with the issuance of the Bonds; (3) Provision is made herein for the payment of the principal of and interest on the Bonds out of the Bond Fund; (4) Provision is made herein for the deposit from proceeds of the Bonds of any required additional amount in the Reserve Account of the Bond Fund for the Bonds; and (5) At the time of issuance of the Bonds, there will be on file with the City a certificate from an independent licensed professional engineer experienced in the design, construction and operation of municipal utilities, or another qualifying independent licensed professional engineer, showing that, in his professional opinion, the annual Revenue of the System, after payment of Operating and Maintenance Expenses, available for debt service on the 1977 Bonds, the 1983 Bonds, the 1988 Bonds, the 1992 Bonds and the Bonds for each year shall be at least equal to the Coverage Requirement. -10- Section 3. Purpose and Description of Bonds. For the purpose of providing the funds to pay the cost of carrying out the Refunding Plan and to pay the costs of issuance of the Bonds ("costs of issuance"), the City shall issue the Bonds in the principal amount of $7,805,000. The Bonds shall be dated December 1, 1992; shall be in the denomination of $5,000 or any integral multiple thereof within a single maturity; shall be numbered separately in the manner and with any additional designation as the Bond Registrar (collectively, the fiscal agencies of the State of Washington located in Seattle, Washington, and New York, New York) deems necessary for purposes of identification; and shall bear interest at the rates set forth below (computed on the basis of a 360 -day year of twelve 30 -day months), payable on June 1, 1993, and semiannually thereafter on each succeeding December 1 and June 1, and shall mature on December 1 in years and amounts as follows: Maturity Years Amounts Interest Rates 1993 $ 75,000 3.00% 1994 155,000 3.60 1995 160,000 4.10 1996 165,000 4.40 1997 175,000 4.70 1998 185,000 4.90 1999 65,000 5.00 2000 70,000 5.20 2001 75,000 5.40 2002 865,000 5.55 2003 905,000 5.70 2004 950,000 5.90 2005 1,010,000 6.00 2006 1,080,000 6.05 2007 1,145,000 6.15 2008 725,000 6.20 -11- Section 4. Registration and Transfer of Bonds. The Bonds shall be issued only in registered form as to both principal and interest and recorded on books or records maintained by the Bond Registrar (the "Bond Register"). The Bond Register shall contain the name and mailing address of the owner of each Bond and the principal amount and number of each of the Bonds held by each owner. Bonds surrendered to the Bond Registrar may be exchanged for Bonds in any authorized denomination of an equal aggregate principal amount and of the same interest rate and maturity. Bonds may be transferred only if endorsed in the manner provided thereon and surrendered to the Bond Registrar. Any exchange or transfer shall be without cost to the owner or transferee. The Bond Registrar shall not be obligated to exchange or transfer any Bond during the fifteen days preceding any principal payment or redemption date. Section 5. Payment of Bonds. Both principal of and interest on the Bonds shall be payable in lawful money of the United States of America. Interest on the Bonds shall be paid by checks or drafts mailed by the Bond Registrar on the interest payment date to the registered owners at the addresses appearing on the Bond Register on the fifteenth day of the month preceding the interest payment date. Principal of the Bonds shall be payable upon presentation and surrender of the Bonds by the registered owners at either of the principal offices of the Bond Registrar at the option of the owners. -12- Section 6. Optional Redemption and Open Market Purchase of Bonds. Bonds maturing in the years 1993 through 2002, inclusive, shall be issued without the right or option of the City to redeem those Bonds prior to their stated maturity dates. The City reserves the right and option to redeem the Bonds maturing on or after December 1, 2003, prior to their stated maturity dates on or after December 1, 2002, as a whole at any time, or in part within one or more maturities selected by the City on any interest payment date (and by lot within a maturity in such manner as the Bond Registrar shall determine), at par plus accrued interest to the date fixed for redemption. Portions of the principal amount of any Bond, in install- ments of $5,000 or any integral multiple thereof, may be redeemed. If less than all of the principal amount of any Bond is redeemed, upon surrender of that Bond at either of the principal offices of the Bond Registrar, there shall be issued to the registered owner, without charge therefor, a new Bond (or Bonds at the option of the registered owner) of the same maturity and interest rate in any of the denominations authorized by this ordinance in the aggregate principal amount remaining unredeemed. The City further reserves the right and option to purchase any or all of the Bonds in the open market at any time at any price acceptable to the City plus accrued interest to the date of purchase. All Bonds purchased or redeemed under this section shall be cancelled. -13- Section 7. Notice of Redemption. The City shall cause notice of any intended redemption of Bonds to be given not less than 30 nor more than 60 days prior to the date fixed for redemption by first-class mail, postage prepaid, to the regis- tered owner of any Bond to be redeemed at the address appearing on the Bond Register at the time the Bond Registrar prepares the notice, and the requirements of this sentence shall be deemed to have been fulfilled when notice has been mailed as so provided, whether or not it is actually received by the owner of any Bond. Interest on Bonds called for redemption shall cease to accrue on the date fixed for redemption unless the Bond or Bonds called are not redeemed when presented pursuant to the call. In addition, the redemption notice shall be mailed within the same period, postage prepaid, to Moody's Investors Service, Inc., and Standard & Poor's Corporation at their offices in New York, New York, or their successors, to Seattle -Northwest Securities Corporation at its principal office in Seattle, Washington, or its successor, and to such other persons and withsuch additional information as the City Director of Finance shall determine, but these additional mailings shall not be a condition precedent to the redemption of Bonds. Section 8. Failure to Redeem Bonds. If any Bond is not redeemed when properly presented at its maturity or call date, the City shall be obligated to pay interest on that Bond at the same rate provided in the Bond from and after its maturity or call date until that Bond, both principal and interest, is paid in full or until sufficient money for its payment in full is on -14- deposit in the Bond Fund and the Bond has been called for payment by giving notice of that call to the registered owner of that unpaid Bond. Section 9. Deposits to Bond Fund. So long as Bonds are outstanding against the Bond Fund, the City Director of Finance shall set aside and pay into the Bond Fund out of the Revenue of the System, in addition to the amounts to be deposited therein for the 1977 Bonds, the 1983 Bonds, the 1988 Bonds and the 1992 Bonds,a fixed amount, without regard to any fixed proportion, namely: (a) Into the Principal and Interest Account, at least 20 days prior to each principal payment date and each interest payment date, an amount sufficient, together with any ULID Assessment collections deposited therein in connection with any Future Parity Bonds hereafter issued, to pay the principal amount maturing on each maturity date of the 1977 Bonds, the 1983 Bonds, the 1988 Bonds, the Bonds and any Future Parity Bonds hereafter issued and outstanding and an amount sufficient to pay the interest payable on the 1977 Bonds, the 1983 Bonds, the 1988 Bonds, the Bonds and those Future Parity Bonds on such interest payment date; and (b) Into the Reserve Account from money legally available to be used therefor such amount so that on and after the date of delivery of the Bonds to the purchaser thereof and payment therefor, there shall be on deposit in such Reserve Account a total reserve at least equal to the average annual debt service requirements, both principal and interest, of the 1977 Bonds, the 1983 Bonds, the 1988 Bonds, and the Bonds, excluding the principal of any Term Bonds if the payment for such Term Bonds is being provided for by a sinking fund. The Reserve Account shall be maintained at that total average annual debt service required reserve amount, except for withdrawals therefrom as authorized herein, at all times so long as any of the 1977 Bonds, the 1983 Bonds, the 1988 Bonds, the -15- 1992 Bonds, the Bonds and any Future Parity Bonds are outstanding; except that the amount in the Reserve Account may be reduced at any time to an amount not less than the average annual debt service requirements for the 1977 Bonds, the 1983 Bonds, the 1988 Bonds, the Bonds and any Future Parity Bonds then outstanding. When the total amount in the Bond Fund shall equal the total amount of principal and interest for all outstanding bonds payable out of the Bond Fund to the last maturity thereof, no further payment need be made into the Bond Fund. In the event that there shall be a deficiency in the Principal and Interest Account in the Bond Fund to meet maturing installments of either principal or interest, as the case may be, that deficiency shall be made up from the Reserve Account by the withdrawal of cash therefrom for that purpose. Any deficiency created in the Reserve Account by reason of any such withdrawal shall then be made up from the Revenue of the System and/or ULID Assessments, if any, payable into the Bond Fund first available after making necessary provision for the required payments into the Principal and Interest Account. The money in the Reserve Account shall otherwise be held intact and may be applied against the last outstanding bonds payable out of the Bond Fund. All money in the Bond Fund not needed to meet the payments of principal and interest when due may be kept on deposit in the official bank depository of the City or in any national bank or may be invested in any legal investment. Interest on any such investment or on such bank account shall be deposited in and become a part of the Bond Fund. -16- In the judgment of the City Council, the Revenue of the System anticipated to be derived from the operation and mainte- nance of the System will be more than sufficient to pay the Operating and Maintenance Expenses and to permit the setting aside into the Bond Fund out of the Revenue of the System of sufficient amounts to pay the interest on the 1977 Bonds, the 1983 Bonds, the 1988 Bonds, and the Bonds when due and to pay and redeem all of the 1977 Bonds, the 1983 Bonds, the 1988 Bonds, and the Bonds at maturity or earlier mandatory redemption date. The City Council further declares that in fixing the amounts to be paid into the Bond Fund it has considered and had due regard for Operating and Maintenance Expenses (and the cost of operation and maintenance as used in RCW 35.92) and has not set aside into the Bond Fund a greater amount or proportion of the Revenue of the System that in its judgment will be available over and above Operating and Maintenance Expenses (and such cost of operation and maintenance), and that no portion of the Revenue of the System has been previously pledged for any other outstanding indebtedness except for payment of the 1977 Bonds, 1983 Bonds and 1988 Bonds. Section 10. Lien Position of Bonds. All Revenue of the System is pledged to the payments required to be made into the Bond Fund, and the Bonds shall constitute a charge and lien upon that Revenue prior and superior to all other charges and liens whatsoever, excluding Operating and Maintenance Expenses, except that the charge and lien upon that Revenue for the Bonds shall be on a parity with the charge and lien upon that Revenue and upon. -17- any ULID Assessments hereafter pledged to be paid into the Bond Fund for the 1977 Bonds, the 1983 Bonds, the 1988 Bonds and any Future Parity Bonds. Section 11. Refunding of the Refunded Bonds. (a) Acquisition and Substitution of Acquired Obligations. All of the proceeds of the sale of the Bonds, except for the accrued interest which shall be deposited in the Principal and Interest Account shall be deposited immediately upon the receipt thereof with the Refunding Trustee to discharge the obligation of the City to carry out the Refunding Plan by providing for the payment of the amounts required to be paid by the Refunding Plan. To the extent practicable, such obligations shall be discharged fully by the Refunding Trustee's simultaneous purchase of Acquired Obligations bearing such interest rates and maturing as to principal and interest in such amounts and at such times so as to provide for the payment of the amounts required to be paid by the Refunding Plan. The Acquired Obligations are listed and more particularly described in Schedule A attached to the Refunding Trust Agreement, but are subject to substitution as set forth below. Prior to the purchase of any such Acquired Obligations, the City reserves the right to substitute other direct, non -callable obligations of the United States of America ("Substitute Obligations") for any of the Acquired Obligations and to use any savings created thereby for any lawful City purpose if, (a) in the opinion of Foster Pepper & Shefelman, the City's bond counsel, the interest on the Bonds will remain excluded from -18- gross income for federal income tax purposes under Sections 103, 148 and 149(d) of the Code, and (b) such substitution shall not impair the timely payment of the amounts required to be paid by the Refunding Plan as so verified by a nationally recognized firm of certified public accountants. After the purchase of the Acquired Obligations by the Refunding Trustee, the City reserves the right to substitute therefor cash or Government Obligations subject to the conditions that such money or securities held by the Refunding Trustee shall be sufficient to carry out the Refunding Plan, that such substitution will not cause the Bonds to be arbitrage bonds within the meaning of Section 148 of the Code and regulations thereunder in effect on the date of such substitution and applicable to obligations issued on the issue date of the Bonds, and that the City obtain, at its expense: (1) verification by a nationally recognized firm of certified public accountants acceptable to the Refunding Trustee confirming that the payments of principal of and interest on the substitute Acquired Obligations, if paid when due, and any other money held by the Refunding Trustee will be sufficient to carry out the Refunding Plan; and (2) an opinion from Foster Pepper & Shefelman, bond counsel to the City, its successor, or other nationally recognized bond counsel to the City, to the effect that the disposition and substitution or purchase of such securities, under the statutes, rules and regulations then in force and applicable to the Bonds, will not cause the interest on the Bonds or the Refunded Bonds to be included in gross income for federal -19- income tax purposes and that such disposition and substitution or purchase is in compliance with the statutes and regulations applicable to the Bonds. Any surplus money resulting from the sale, transfer, other disposition or redemption of the Acquired Obligations and the substitutions therefor shall be released from the trust estate and transferred to the City to be used for any lawful System purpose. (b) Administration of Refunding Plan. The Refunding Trustee is authorized and directed to purchase the Acquired Obligations (or substitute obligations) and to make the payments required to be made by the Refunding Plan from the Acquired Obligations (or substitute obligations) and money deposited with the Refunding Trustee pursuant to this ordinance. All Acquired Obligations (or substitute obligations) and the money deposited with the Refunding Trustee and any income therefrom shall be held irrevocably, invested and applied in accordance with the provisions of Ordinances Nos. 2363 and 2678, this ordinance, Chapter 39.53 RCW and other applicable statutes of the State of Washington, and the Refunding Trust Agreement. All necessary and proper fees, compensation and expenses of the Refunding Trustee for the Bonds and all other costs incidental to establishing the escrow to accomplish the refunding of the outstanding Refunded Bonds and costs related to the issuance and delivery of the Bonds, including bond printing, rating service fees, insurance premiums, verification fees, bond counsel's fees and other related expenses, shall be paid out of the proceeds of the Bonds. -20- (c) Authorization for Refunding Trust Agreement. In order to carry out the Refunding Plan provided for by this ordinance, the Mayor or City Finance Director is authorized and directed to execute and deliver to the Refunding Trustee a Refunding Trust Agreement substantially in the form on file with the City Clerk and by this reference made a part hereof, setting forth the duties, obligations and responsibilities of the Refunding Trustee in connection with the payment, redemption and retirement of the outstanding Refunded Bonds as provided herein and stating that the provisions for payment of the fees, compensation and expenses of the Refunding Trustee set forth therein are satisfactory to it. Prior to executing the Refunding Trust Agreement, the Mayor or Finance Director is authorized to make such changes therein which do not change the substance and purpose thereof or which assure that the escrow provided therein and the Bonds are in compliance with the requirements of federal law governing the exclusion of interest on the Bonds from gross income for federal income tax purposes. Section 12. Call for Redemption of the Outstanding 1983 Refunded Bonds and 1988 Refunded Bonds. The City calls for redemption on May 1, 1993, all of the outstanding 1983 Refunded Bonds at a price of 102% of par. The City calls for redemption on December 1, 1998, all of the outstanding 1988 Refunded Bonds at par. Such calls for redemption shall be irrevocable after the delivery of the Bonds to the initial purchaser thereof. The dates on which the 1983 Refunded Bonds and the 1988 Refunded -21- Bonds are called for redemption are the next dates on which those bonds may be called at a premium of 3% or less. The proper City officials are authorized and directed to cause the fiscal agencies to give such notices as required, at the times and in the manner required by Ordinances Nos. 2363 and 2678 in order to effect the redemption prior to their maturity of the 1983 Refunded Bonds and 1988 Refunded Bonds. Section 13. Covenants. The City covenants and agrees with the owner of each Bond at any time outstanding as follows: (a) It will establish, maintain and collect such rates and charges for water and sanitary sewage disposal service so long as any 1977 Bonds, 1983 Bonds, 1988 Bonds, Bonds and Future Parity Bonds are outstanding which, together with other miscellaneous Revenue of the System (excluding ULID Assessments), will provide amounts annually at least equal to the Coverage Requirement. In determining the amount of debt service subject to coverage, there shall be deducted from the annual principal and interest required to be paid each year an amount equal to the percentage of the debt service for each year on each issue of outstanding 1977 Bonds, 1983 Bonds, 1988 Bonds, Bonds and Future Parity Bonds, equal to the percentage arrived at by dividing the original total amount of the ULID Assessments specifically pledged to the Bond Fund in that issue by the original total principal amount of that issue. To simplify, where ULIDs are involved, only the debt service on that portion of any Future Parity Bond issue not covered by ULID Assessments must be subject to the Coverage Requirement. (b) It will at all times maintain and keep the System in good repair, working order and condition, and also will at all times operate the System and the business in connection therewith in an efficient manner and at a reasonable cost. (c) It will not sell, lease, mortgage or in any manner encumber or dispose of all the property of the System unless provision is made for payment into the Bond Fund of a sum sufficient to pay the principal of and interest on all bonds payable out of the Bond Fund at any time outstanding, and that it will not sell, lease, mortgage, or in any manner encumber or dispose -22- of any part of the property of the System that is used, useful and material to the operation thereof unless provision is made for replacement thereof or for payment into the Bond Fund of the total amount of Revenue received which shall not be less than an amount which shall bear the same ratio to the amount of outstanding bonds payable out of the Bond Fund as the Revenue available for debt service for such outstanding bonds for the twelve months preceding such sale, lease, encumbrance or disposal from the portion of the System sold, leased, encumbered or disposed of bears to the Revenue available for debt service for those bonds from the entire System for the same period. Any money so paid into the Bond Fund shall be used to retire those outstanding bonds at the earliest possible date. (d) While any of the Bonds remain outstanding, it will keep proper and separate accounts and records in which complete and separate entries shall be made of all transactions relating to its System, and it will furnish any subsequent owner or owners of the Bonds, if the Bonds shall be owned by other than a Fund of the City, at the written request of such owner or owners, complete operating and income statements of the System in reasonable detail covering any calendar year, showing the financial condition of the water and sewer departments and compliance with the terms and conditions of this ordinance, not more than 120 days after the close of that calendar year, and it will grant any owner or owners of at least 25% of the outstanding Bonds the right at all reasonable times to inspect the entire System and all records, accounts and data of the City relating thereto. Upon request of any owner of any of such Bonds, it will also furnish to that owner a copy of the most recently completed audit of the City's accounts by the State Auditor of Washington or such other audit as is authorized by law in lieu thereof. (e) It will not furnish water or sanitary sewage disposal service to any customer whatsoever free of charge and will promptly take legal action to enforce collection of all delinquent accounts. (f) It will carry the types of insurance on its System properties in the amounts normally carried by private water and sewer companies engaged in the operation of water and sewerage systems or, in lieu thereof, after the retirement or redemption of all of the outstanding 1977 Bonds and 1983 Bonds, or after irrevocable provision is made for the payment of those bonds, the City may self -insure or participate in a joint intergovernmental insurance pool or similar plan -23- providing coverage in the amounts normally carried by such private water companies, and the cost of that insurance or self-insurance shall be considered a part of Operating and Maintenance Expenses. If, as and when the United States of America or some agency thereof shall provide for War Risk Insurance, the City further agrees to take out and maintain such insurance on all or such portions of the System on which such War Risk Insurance may be written in an amount or amounts to cover adequately the value thereof, except that after the retirement or redemption of the outstanding 1977 Bonds and 1983 Bonds, or after irrevocable provision is made for the payment of those bonds, the City will take out and maintain such insurance only if available at rates acceptable to the City. (g) It will pay all Operating and Maintenance Expenses and otherwise meet the obligations of the City as herein set forth. (h) If a ULID is ever established hereafter in connection with the issuance of Future Parity Bonds and the ULID Assessments therefrom pledged to be paid into the Bond Fund, the City will promptly collect all Assessments levied therein. Such Assessments may be used to pay the principal of and interest on any bonds payable out of the Bond Fund without those Assessments being particularly allocated to the payment of principal and interest on any particular series of such Future Parity Bonds, including the 1977 Bonds, the 1983 Bonds, the 1988 Bonds and the Bonds. (i) It will take all actions necessary to prevent interest on the Bonds from being included in gross income for federal income tax purposes, and it will neither take any action nor make or permit any use of proceeds of the Bonds or other funds of the City treated as proceeds of the Bonds at any time during the term of the Bonds which will cause interest on the Bonds to be included in gross income for federal income tax purposes. The City also covenants that, to the extent arbitrage rebate requirements of Section 148 of Section 148 of the Internal Revenue Code of 1986, as amended (the "Code"), are applicable to the Bonds, it will take all actions necessary to comply (or to be treated as having complied) with those requirements in connection with the Bonds, including the calculation and payment of any penalties that the City has elected to pay as an alternative to calculating rebatable arbitrage, and the payment of any other penalties if required under Section 248 of the Code to prevent interest on the Bonds from being -24- included in gross income for federal income tax purposes. The City certifies that it has not been notified of any listing or proposed listing by the Internal Revenue Service to the effect that it is a bond issuer whose arbitrage certifications may not be relied upon. (j) It will use, pay out and distribute the Revenue of the System, other than money deposited in bond redemption funds, in the following order of priority: (1) To pay Operating and Maintenance Expense. (2) To meet the required debt service payments, including Reserve Account accumulation in the Bond Fund, on the 1977 Bonds, the 1983 Bonds, the 1988 Bonds, the Bonds and any Future Parity Bonds hereafter issued. (3) To meet the required debt service on any water and sewer revenue bonds issued having a charge and lien on the Revenue of the System junior to the 1977 Bonds, the 1983 Bonds, the 1988 Bonds, the Bonds and any Future Parity Bonds. (4) To redeem and retire by optional redemption or to purchase in the open market any outstanding water and sewer revenue bonds or obligations of the City, to make necessary betterments and replacements of or repairs, additions or extensions to the System, or for any other lawful purpose. Section 14. Form and Execution of Bonds. The Bonds shall be printed or lithographed on good bond paper in a form consis- tent with the provisions of this ordinance and state law, shall be signed by the Mayor and City Clerk, either or both of whose signatures may be manual or in facsimile, and the seal of the City or a facsimile reproduction thereof shall be impressed or printed thereon. -25- Only Bonds bearing a Certificate of Authentication in the following form, manually signed by the Bond Registrar, shall be valid or obligatory for any purpose or entitled to the benefits of this ordinance: CERTIFICATE OF AUTHENTICATION This bond is one of the fully registered City of Edmonds, Washington, Water and Sewer Revenue Refunding Bonds, 1992, described in the Bond Ordinance. WASHINGTON STATE FISCAL AGENCY Bond Registrar By Authorized Officer The authorized signing of a Certificate of Authentication shall be conclusive evidence that the Bonds so authenticated have been duly executed, authenticated and delivered and are entitled to the benefits of this ordinance. If any officer whose facsimile signature appears on the Bonds ceases to be an officer of the City authorized to sign bonds before the Bonds bearing his or her facsimile signature are authenticated or delivered by the Bond Registrar or issued by the City, those Bonds nevertheless may be authenticated, delivered and issued and, when authenticated, issued and delivered, shall be as binding on the City as though that person had continued to be an officer of the City authorized to sign bonds. Any Bond also may be signed on behalf of the City by any person who, on the actual date of signing of the Bond, is an officer of the City authorized to sign bonds, although he or she did not hold the' required office on the date of issuance of the Bonds. -26- Section 15. Bond Registrar. The Bond Registrar shall keep, or cause to be kept; at its principal corporate trust office, sufficient books for the registration and transfer of the Bonds which shall at all times be open to inspection by the City. The Bond Registrar is authorized, on behalf of the City, to authenticate and deliver Bonds transferred or exchanged in accordance with the provisions of the Bonds and this ordinance, to serve as.the City's paying agent for the Bonds and to carry out all of the Bond Registrar's powers and duties under this ordinance and City Ordinance No. 2451 establishing a system of registration for the City's bonds and obligations. The Bond Registrar shall be responsible for its representa- tions contained in the Bond Registrar's Certificate of Authenti- cation on the Bonds. The Bond Registrar may become the owner of Bonds with the same rights it would have if it were not the Bond Registrar and, to the extent permitted by law, may act as depository for and permit any of its officers or directors to act as members of, or in any other capacity with respect to, any committee formed to protect the rights of Bond owners. Section 16. Bonds Negotiable. The Bonds shall be negoti- able instruments to the extent provided by RCW 62A.8-102 and 62A.8-105. Section 17. Provision for Future Parity Bonds. The City reserves the right to issue Future Parity Bonds which will constitute a charge and lien upon the Revenue of the System and ULID Assessments hereafter pledged to be paid into the Bond Fund on a parity with the 1977 Bonds, the 1983 Bonds, the 1988 Bonds, -27- the 1992 Bonds and the Bonds if the conditions set forth in Section 16 of Ordinance No. 1957, as amended by Section 3 of Ordinance No. 2363, shall be met and complied with at the time of the issuance of those Future Parity Bonds, which sections are incorporated herein and made a part of this ordinance. Nothing contained in the provisions for parity shall prevent the City from issuing revenue bonds having a junior lien on the Revenue of the System or from pledging the payment of ULID Assessments into a bond redemption fund or account created to pay and secure the payment of the principal of and interest on such junior lien bonds as long as such ULID Assessments are levied to pay part or all of the cost of improvements being constructed out of the proceeds of the sale of such junior lien bonds. Neither shall anything contained in this ordinance prevent the City from issuing revenue bonds to refund maturing revenue bonds of the City for the payment of which money is not otherwise available. Section 18. Refunding or Defeasance. In the event the City shall issue advance refunding bonds pursuant to the laws of the State of Washington, or have money available from any other lawful source, to pay the principal of and interest on the Bonds or such portion thereof included in a refunding or defeasance plan as the same become due and payable and to refund or defease all such then outstanding Bonds and to pay the costs of refunding or defeasance, and shall have irrevocably set aside for and pledged to such payment, refunding or defeasance, money and/or Government Obligations sufficient in amount, together with known earned income from the investment thereof, to make such payments -28- and to accomplish the refunding or defeasance as scheduled (hereinafter called the "trust account") and shall make irrevocable provision for the redemption of those Bonds, then in that case the Bonds shall be defeased (hereinafter called the "defeased Bonds"). Thereafter, all right and interest of the owners of the defeased Bonds in the covenants of this ordinance, in the Revenue of the System, and in funds and accounts, including ULID Assessments, obligated to the payment of the defeased Bonds shall cease and become void, except the owners shall have the right to receive payment of the principal of and interest on the defeased Bonds from the trust account. After the establishing and full funding of the trust account, the City may then apply any money in any other fund or account established for the payment or redemption of the defeased Bonds to any lawful purposes as it shall determine, subject only to the rights of the owners of any other bonds then outstanding. In the event that the refunding plan provides that the Bonds being refunded the refunding bonds to be issued be secured by cash and/or direct obligations of the United States of America or Government Obligations pending the prior redemption of those Bonds being refunded and if such refunding plan also provides that certain cash and/or direct obligations of the United States of America or Government Obligations are irrevocably pledged for the prior redemption of those Bonds included in the refunding or defeasance plan, then only the debt service on the Bonds which are not defeased Bonds and the refunding bonds,the payment of which is not so secured by the refunding plan, shall be included -29- in the computation of coverage for issuance of Future Parity Bonds and the annual computation of coverage for determining compliance with the rate covenants. Section 19. Sale and Delivery of Bonds and Preliminary Official Statement Deemed Final. Seattle-Northwest Securities Corporation of Seattle, Washington, has presented a bond purchase contract (the "Bond Purchase Contract") to the City offering to purchase the Bonds under the terms and conditions set forth in the Bond Purchase Contract, which written Bond Purchase Contract is on file with the City Clerk and is incorporated herein by this reference. The City Council finds that entering into the Bond Purchase Contract is in the City's best interest and therefore accepts the offer contained therein and authorizes its execution by City officials. The Bonds will be printed at City expense and will be delivered to the purchaser in accordance with the Bond Purchase Contract, with the approving legal opinion of Foster Pepper & Shefelman, municipal bond counsel of Seattle, Washington, regarding the Bonds printed on each Bond. Bond counsel shall not be required to review and shall express no opinion concerning the completeness or accuracy of any official statement, offering circular or other sales material issued or used in connection with the Bonds, and bond counsel's opinion shall so state. The City Council has been provided with copies of a preliminary official statement dated November 30, 1992 (the "Preliminary Official Statement"), prepared in connection with the sale of the Bonds and for the sole purpose of the purchaser's -30- compliance with Securities and Exchange Commission Rule 15c2 - 12(b)(1), the City "deems final" that Preliminary Official Statement as of its date, except for the omission of information as to offering prices, interest rates, selling compensation, aggregate principal amount, principal amount per maturity, options of redemption, delivery dates, ratings and other terms of the Bonds dependent on such matters. The proper City officials are authorized and directed to do everything necessary for the prompt delivery of the Bonds to the purchaser and for the proper application and use of the proceeds of the sale thereof. Section 20. Temporary Bond. Pending the printing, execu- tion and delivery to the purchaser of definitive Bonds, the City may cause to be executed and delivered to the purchaser a single temporary Bond in the total principal amount of the Bonds. The temporary Bond shall bear the same date of issuance, interest rates, principal payment dates and terms and covenants as the definitive Bonds, shall be issued as a fully registered Bond in the name of the purchaser, and otherwise shall be in a form acceptable to the purchaser. The temporary Bond shall be exchanged for definitive Bonds as soon as they are printed, executed and available for delivery. Section 21. Effective Date. This ordinance, being an exercise of a power delegated to the City legislative body, is not subject to referendum, and shall take effect five days after its passage and publication. -31- PASSED by the City Council of the City of Edmonds, Washington, at a regular open public meeting thereof and APPROVED by the Mayor this 8th day of December, 1992. CITY OF EDMONDS, WASHINGTON Mayor ATTEST: City Clerk FORM APPROVED: Bond Counsel FILED WITH THE CITY CLERK: December 8, 1992 PASSED BY THE CITY COUNCIL: December 8, 1992 PUBLISHED: December 14, 1992 EFFECTIVE DATE: December 19, 1992 ORDINANCE NO. 2903 -32- STATE OF WASHINGTON, COUNTY OF SNOHOMISH, Affidavit of Publication RECEIVED DEC 1 5 1992 Edmonds City Clerk The undersigned, being first duly sworn on oath deposes and says that she is Principal Clerk of THE HERALD, a daily newspaper printed and published in the City of Everett, County of Snohomish, and State of Washington; that said newspaper is a newspaper of general circulation in said County and State; that said newspaper has been approved as a legal newspaper by order of the Superior Court of Snohomish County and that the notice ............................... .... City.of. Edmonds Ordinance No. 2903 ............................................... ................................... ............................... a printed copy of which is hereunto attached, was published in said newspaper proper and not in supplement form, in the regular and entire edition of said paper on the following days and times, namely: December 14, 1992 .................................................................................................................... and that said newspaper was regularly distributed to its subscribers during all of said period. Principal Clerk Subscribed and sworn to before me this.... 14th day of ....December....... 1992..... .............. ....... Notary Public in and for the State of Washington, residing at Everett, Snohomish County. ORDINANCE NO. 2093 AN ORDINANCE relating to the combined water and sewerage systems comprising the waterworks utility of the city; providing for the issuance of $7,805,000 par value Water and Sewer Revenue Refunding Bonds, 1992, for the purpose of providing the funds to refund portions of the City's outstanding Water and Sewer Revenue Bonds, 1983, and Water and Sewer Revenue Bonds, 1988; providing for and authorizing the purchase of certain obligations out of a portion of the proceedsd of the sale of the bonds authorized herein and for the use and application of the money derived from those obligations; authorizing the execution of an agreement with a returning trustee; fixing the date, form, maturities, interest rates, terms and covenants of those bonds; providing for the sale and delivery of those bonds to Seattle-Northwest Securities Corporation of Seattle, Washington; and establishing an effective date of this ordinance. WHEREAS, the City of Edmonds, Washington (the "City"), by Ordinance No. 1957 passed and approved November 15, 1977, specified and adopted a plan or system for the acquisition and constructon of certain additions and betterments to and extensions and improvements of the combined water and sewerage systems comprising the waterworks utility of the City (the "System"); declared the estimated cost thereof as nearly as may be; and provided for the issuance of $4,805,000 par value Water and Sewer Revenue Refunding and Construction Bonds, 1977 (the "1977 Bonds"), for the purpose of providing a part of the funds (a) to carry out the plan or system for the acquisition and construction of certain additions and betterments to and extensions and improvements of the System specified and adopted in that ordinance, and (b) to pay, retire and refund the outstanding Water and Sewer Revenue Bonds, 1959, Water and Sewer Revenue Bonds, 1960, Water and Sewer Revenue Bonds, 1961, Water and Sewer Revenue bonds, 1965, Water and Sewer Revenue Bonds, 1966, Water and Sewer Revenue Bonds, 1967, Water and Sewer Revenue Bonds, 1970 (interest only), Water and Sewer Revenue Refunding Bonds, 1972, and Water and Sewer Revenue Refunding Bonds, 1976, of the City, which 1977 Bonds were issued under date of November 1, 1977; and WHEREAS, by Section 16 of Ordinance No. 1957, the City reserved the right to issue additional and/or refunding water and sewer revenue bonds (there called "Future Parity Bonds") which would constitute a lien and charge upon the gross revenue of the System on a parity with such 1977 Bonds if the following conditions are met and complied with at the time of the issuance of such Future Parity Bonds: "(10 At the time of issuance of such Future Parity Bonds, there shall not be any deficiencyiin the Bond Fund or the Reserve Account therein. "(2) Each ordinance providing for the issuance of such Future Parity Bonds shall require that all Assessments levied in any ULID created in connection with the Future Parity Bonds then being issued will be paid directly into the Bond Fund. "(3) Each ordinance providing for the issuance of such Future Parity Bonds shall provide for the payment of the principal thereof and interest thereon out of the Bond Fund. "(4) The ordinance authorizing any Future Parity bonds shall require that the Reserve Account be increased within a period of five years after the date of issuance of the Future Parity Bonds to an amount equal to the average annual principal and interest requirements on all Future Parity Bonds, including the Bonds and Future Parity Bonds proposed to be issued, excluding from such amount the principal amount of any Term Bonds included in the Future Parity Bonds issue. "(5) At the time of the issuance of such Future Parity Bonds, the city shall have on file a certificate from an independant license professional engineer experienced in the design, construction and operation of municipal utilities, showing that in his professional opinion, the annual Revenue of the System, after payment of Operating and Maintenance Expenses, available for debt service on the Bonds, Future Parity Bonds, then outstanding and the Future Parity Bonds to be issued for each year shall be at least equal to the Coverage Requirement (1.25 times that amount of debt service to be paid from operating Revenue and not Assessments). "In determining whether the City is able to comply with the parity conditions, the Revenue of the System of the City, less Operating and Maintenance Expenses, for any twelve consecutive calendar months out of the immediately preceding twenty-four consecutive months shall be used. The following adjustments may be made to the historical net operating Revenue of the System: "(1) Any rate change that has taken place or been approved may be reflected; "(2) Revenue may be added from customers actually added to the System subsequent to the 12-month base period; "(3) Revenue may be added from customers to be served by the improvements being constructed out of the proceeds of the Future Parity Bonds to be issued; and "(4) A full year's revenue may be included from any customber being served, but who has not been receiving service for the full period of operaton used as a basis for the certificate; and "(5) Actual or reasonably anticipated changes to the Operating and Maintenance Expenses subsequent to such 12-month period shall be added or deducted, as is applicable..."; and WHEREAS, by Ordinance 2363 passed on April 22, 1983, the City authorized the issuance of $1,000,000 par value of its Water and Sewer REvenue Bonds, 1983 (the "1983 Bonds"), which bonds were issued on a parity of lien with teh 1977 Bonds; and WHEREAS, by Ordinance No. 2363, the first subsections (4) and (5) of Section 16 of Ordinance No. 1957 were amended to read as follows: "(4) The ordinance authorizing any Future Parity Bonds shall require that the Reserve Account be increased within a period of five years after the date of issuance of the Future Parity Bonds to an amount equal to the average annual principal and interest requirements on all Future Parity Bonds, including the Bonds and the Future Parity Bonds proposed to be issued, excluding from such amount the principal amount of any Term Bonds included in the Future Parity Bonds issue if the payment for such Term Bonds is being provided for by a sinking fund. "(5) At the time of the issuance of such Future Parity Bonds, the City shall have on file a certificate from an independant licensed professional engineer experienced in the design, construction and operation of municipal utilities, showing that in his professional opinion, the annual Revenue of the System, after payment of Operating and Maintenance Expenses, available for debt service on the Bonds, Future Parity Bonds then outstanding and the Future Parity Bonds proposed to be issued for each year shall be at least equal to the Coverage Requirement..."; and WHEREAS, by Ordinance No. 2678 passe don August 23, 1988, the City authorized the issuance and sale of $9,990,000 par value of its Water and Sewer Revenue bonds, 1988 (the "1988Bonds"), which bonds were issued on a parity of lien with the 1977 Bonds and the 1983 Bonds; and WHEREAS, by Section 6 of Ordinance 2363, the City Reserved the right and option to redeem the 1983 Bonds maturing on May 1 in the years 1994 through 1998, inclusive, on May 1, 1993, at 102% of par plus accrued interest to the date fixed for redemption; and WHEREAS, there are presently outstanding $505,000 principal amount of 1983 Bonds maturing on May 1 in the years 1994 through 1998 (the "1983 Refunded Bonds") bearing interest at varioius rates from 8.90% to 9.15%, and $6,440,000 principal amount of 1988 Bonds maturing on December 1 in the years 2002 through 2008, inclusive (the "1988 Refunded Bonds") bearing interest at various rates from 7.60% to 7.95% per annum; and WHEREAS, the City Council has determined that the 1988 Refunded Bonds may be refunded by the issuance and sale of the water and sewer revenue bonds authorized herein so that there will be a debt service savings to the City and the ratepayers of combined water and sewerage systems, which refunding wil be effected by: (a) the issuance of the refunding bonds authorized by this ordinance and the payment of the costs of issuance and refunding; (b) The call, payment and redemption of the 1983 Refunded Bonds on May 1, 1993 at a price of 102% of par; and (c) The payment of the interest on the 1988 Refunded Bonds when due up to and including December 1, 1998, and, on December 1, 1998, the call, payment and redemption of all of the outstanding 1988 Refunded Bonds at a price of par; and WHEREAS, in order to effect the refunding in the manner that will be most advantageous to the City and the ratepayers of the combined water and sewerage systems, the City Council find it necessary and advisable that certain acquired obligations (hereinafter defined) bearing interest and maturing at the time or times necessary to accomplish the refunding as aforesaid be purchased out of the proceeds of the sale of the bonds authorized herein; and WHEREAS, Seattle-Northwest Securities Corporation has offered to purchase the bonds to pay the cost of refunding the 1988 Refunded Bonds under the terms and conditions herein set forth, and the City Council has determined it is in the best interest of the City to accept that offer; NOW, THEREFORE, THE CITY COUNCIL OF THE CITY OF EDMONDS, WASHINGTON, DO ORDAIN, as follows: Section 1. Definitions. As used in this ordinance the following words shall have the following meanings: "Acquired Obligations" means the United States Treasury Certificates and Notes - State and Local Government Series or other direct non-callable obligatoins of the United States Government. "Bond Fund" means the special fund of the City known as the Water and Sewer Revenue Bond Fund, 1977, created by Ordinance No. 1957 for the payment of the principal of and interest on the 1977 Bonds and all Future Parity Bonds of the City thereafter issued, including the 1983 Bonds, the 1988 Bonds and the Bonds. "Bonds" means the $7,805,000 par value Water and Sewer Revenue Refunding Bonds, 1992, of the City authorized to be issued by this ordinance. "1977 Bonds" means the outstanding Water and Sewer Revenue Refunding and Construction Bonds, 1977, of the City issued under date of November 1, 1977, pursuant to Ordinance No. 1957. "1983 Bonds" means the outstanding Water and Sewer Revenue Bonds, 1983, of the City issued under date of May 1, 1983, pursuant to Ordinance No. 263 maturing on May 1, 1993. "1988 Bonds" means the outstanding Water and Sewer Revenue Bonds, 1988, of the City issued under date of September 1, 1988, pursuant to Ordinance No. 2678 maturing up to and including December 1, 2001. "1983 Refunded Bonds" means the 1983 Bonds maturing on May 1 of each of the years 1994 through 1998, inclusive. "1988 Refunded Bonds" means the 1988 Bonds maturing on December 1 of each of the years 2002 through 2008, inclusive. "City" means the City of Edmonds, Washington, a duly organized and exisitng noncharter code city under the laws of the State of Washington. "Coverage Requirement" means 1.25 times the portion of annual debt service, excluding the principal of any Term Bonds if the payment for such Term Bonds is being provided for by a sinking fund, on the 1977 Bonds, the 1983 Bonds, the 1988 Bonds, the Bonds and any Future Parity Bonds actually paid from the Revenue of the System and not from ULID Assessments, after payment of Operating and Maintenance Expenses. "Future Parity Bonds" means all revenue bonds of the City issued after the date of the issuance of the Bonds and having a lein upon the Revenue of the System for the payment of the principal thereof and interest thereon equal to the lien upon such Revenue for the payment of the principal of and interest on the 1977 Bonds, the 1983 Bonds, the 1992 Bonds and the Bonds. "Government Obligations" means direct obligations of or obligations the principal of and interest on which are unconditionally guaranteed by the United States of America. "Operating and Maintenance Expenses" means all reasonable expenses incurred by the City in causing the System to be operated and maintained in good repair, working order and condition, but shall not include any depreciatoin or taxes or charges in lieu of taxes levied or imposed by the City. "Principal and Interest Account" means the account of that name created in the Bond Fund for the payment of the principal of and interest on the 1977 Bonds, the 1983 Bonds, the 1988 Bonds, the Bonds and all Future Parity Bonds of the City payable out of that fund. "Refunding Plan" means: (a) the placement of sufficient proceeds of the Bonds which, with other money of the City, will acquire the Aquired Obligations to be deposited with cash with the Refunding Trustee; (c) the call, payment and redemtion of the outstanding 1983 Refunded Bonds on May 1, 1993, at 102% of par; (c) the payment of the interest on the 1988 Refunded Bonds when due up to and including December 1, 2002, and, on December 1, 2002, the call, payment and redemption of all of the outstanding 1988 Refunded Bonds at par; (d) the payment of the costs of issuing the Bonds and carrying out the Refunding Plan. "Refunding Trust Agreement" means that contract betwen the City and the Refunding Trustee providing for carrying out the Refunding Plan. "Refunding Trustee" means Puget Sound National Bank of Tacoma, Washington. "Reserve Account" means the account of that name created in the Bond Fund for the purpose of securing the payment of the principal of and interest on the 1977 Bonds, the 1983 Bonds, the 1988 Bonds, the Bonds and all Future Parity Bonds of the City payable out of that fund. "Revenue of the System" means all the earnings and revenue received by the System from any source whatsoever, except general ad valorem taxes, ULID Assessments, proceeds from the sale of City property, bond proceeds, and earnings on funds held for payment to the United States of America under Section 148 of the Internal Revenue Code of 1986, as amended. "System" means the combined water supply and distribution system and sanitary sewage disposal system of the City as the same may be added to, improved and extended for as long as any of the 1977 Bonds, the 1983 Bonds, the 1988 Bonds, the 1992 Bonds, the Bonds and any Future Parity Bonds are outstanding. "Term Bond Maturity Year" mans any maturity year in which the outstanding principal amount of revenue bonds payable out of the Bond Fund scheduled to mature (regardless of any reservation of rights of redemptions prior to maturity) is more than 1.25 times the average principal maturity of the bonds payable out of that fund for the three years immediatly preceding the Term Bond Maturity Year. "Term Bonds" means the outstanding bonds payable out of the Bond Fund maturing in any Term Bond Maturity Year. "ULID" means utility local improvement district. "ULID Assessments" means the assessments levied in such ULID of the City which may hereafter be created pursuant to state law and shall include installments thereof and interest and any penalties thereon. Section 2. Compliance with Parity Provisions. In accordance with the provisions of Section 16 of Ordinance No. 1957, and Section 3 of Ordinance No. 2363, the City Council finds and declares that: (1) At the time of issuance of the Bonds, there will be no deficiency in the Bond Fund or the Reserve Account therein; (2) No ULID is created in connection with the issuance of the Bonds; (3) Provision is made herein for the payment of the principal of and interest on the Bonds out of the Bond Fund; (4) Provision is made herein for the deposit from proceeds of the Bonds of any required additional amount in the Reserve Account of the Bond Fund for the Bonds; and (5) At the time of issuance of the Bonds, there will be on file with the City a certificate from an independant licensed professional engineer experienced in the design, construction and operation of municipal utilities, or another qualifying independant licensed professional engineer, showing that, in his professional opinion, the annual Revenue of the System, after payment of Operating and Maintenance Expenses, available for debt service on the 1977 Bonds, the 1983 Bonds, the 1988 Bonds, the 1992 Bonds and the Bonds for each year shall be at least equal to the Coverage Requirement. Section 3. Purpose and Description of Bonds. For the purpose of providing the funds to pay the cost of carrying out the Refunding Plan and to pay the costs of issuance of the Bonds ("costs of issuance"), the City shall issue the Bonds in the principal amount of $7,805,000. The Bonds shall be dated December 1, 1992; shall be in the denomination of $5,000 or any integral multiple thereof within a single maturity; shall be numbered separately in the manner and with any additional designation as the Bond Registrar (collectively, the fiscal agencies of th State of Washington located in Seattle, Washington, and New York, New York) deems necessary for purposes of identification; and shall bear interest at the rates set forth below (conmputed on teh basis of a 360-day year of twelve 30-day months), payable on June 1, 1993, and semiannually thereafter on each succeeding December 1 and June 1, and shall mature on December 1 in years and amounts as follows: Maturity Years Amounts Interest Rates 1993 $ 75,000 3.00% 1994 155,000 3.60 1995 160,000 4.10 1996 165,000 4.40 1997 175,000 4.70 1998 185,000 4.90 1999 65,000 5.00 2000 70,000 5.20 2001 75,000 5.40 2002 865,000 5.55 2003 905,000 5.70 2004 950,000 5.90 2005 1,010,000 6.00 2006 1,080,000 6.05 2007 1,145,000 6.15 2008 725,000 6.20 Section 4. Registration and Transfer of Bonds. The bonds shall be issued only in registered form as to both principal and interest and recorded on books or records maintained by the Bond Registrar (the "Bond Registrar"). The Bond Registrar shall contain the name and mailing address of the owner of each Bond and the principal amount and number of eah of the Bonds held by each owner. Bonds surrendered to the Bond Registrar may be exchanged for Bonds in any authorized denomination of an equal aggregate principal amount and of the same interest rate and maturity. Bonds may be transferred only if endorsed in the manner provided thereon and surrendered to the Bond Registrar. Any exchange or transfer shall be without cost to the owner or transferee. The Bond Registrar shall not be obligated to exchange or transfer any Bond during the fifteen days preceding any principal payment or redemption date. Section 5. Payment of Bonds. Both principal of and interest on on the Bonds shall be payable in lawful money of the United States of America. Interest on the Bonds shall be paid by checks or drafts mailed by the Bond Registrar on the interest payment date to the registered owners at the addresses appearing on the Bond Rgister on the fifteenth day of the month preceding the interest payment date. Principal of the Bonds shall be payable upon presentation and surrender of the Bonds by the registered owners at either of the principal offices of the Bond Registrar at the option of the owners. Section 6. Optional Redemption and Open Market Purchase of Bonds. Bonds maturing in the years 1993 through 2002, inclusive, shall be issued without the right or option of the City to redeem those Bonds prior to their stated maturity dates. The City reserves the right and optoin to redeem the Bonds maturing on or after December 1, 2003, prior to their stated maturity dates on or after December 1, 2002, as a whole at any time, or in part within one or more maturities selected by the City on any interest payment date (and by lot within a maturity in such manner as the Bond Registrar shall determine), at par plus accrued interest to the date fixed for redemption. Portions of the principal amount of any Bond, in installments of $5,000 or any integral multiple thereof, may be redeemed. If less than all of the principal amount of any Bond is redeemed, upon surrender of that Bond at either of the principal offices of the Bond Registrar, there shall be issued to the registered owner, without charge therefor, a new Bond (or Bonds at the option of the registered owner) of the same maturity and interest rate in any of the denominations authorized by this ordinance in the aggregate principal amount remaining unredeemed. The City further reserves the right and option to purchase any or all of the Bonds in the open market at any time at any price acceptable to the City plus accrued interest to the date of purchase. All Bonds purchased or redeemed under this section shall be cancelled. Sectoin 7. Notice of Redemption. The City shall cause notice of any intended redemption of Bonds to be given not less than 30 nor more than 60 days prior to the date fixed for redemption by first-class mail, postage prepaid, to the registered owner of an Bond to be redeemed at the address appearing on the Bond Register at the time the Bond Registrar prepares the notice, and the requirements of this sentence shall be deemed to have been fulfilled when the notice has been mailed as so provided, whether or not it is actually received by the owner of any Bond. Interest on Bonds called for redemption shall cease to accrue on the date fixed for redemption unless the Bond or Bonds called are not redeemed when presented pursuant to the call. In addition, the redemption notice shall be mailed within the same period, postage prepaid, to Moody's Investors Service , Inc., and Standard & Poor's Corporation at their offices in New York, New York, or their successors, to Seattle-Northwest Securities Corporation at its principal office in Seattle, Washington, or its successor, and to such other persons and with such additional information as the City Director of Finance shall determine, but these additional mailings shall not be a condition precedent to the redemption of Bonds. Section 8. Failure to Redeem Bonds. If any Bond id not redeemed when properly presented at its maturity or call date, the City shall be obligated to pay interest on that Bond at the same rate procided in the Bond from and after its maturity or call date until that Bond, both principal and interest, is paid in full or until sufficient money for its payment in full is on deposit in the Bond Fund and the Bond has been called for payment by giving notice of that call to the registered owner of that unpaid Bond. Section 9. Deposits to Bond Funds. So long as Bonds are outstanding against the Bond Fund, the City Director of Finance shall set aside and pay into the Bond Fund out of the Revenue of the System, in addition to the amounts to be deposited therein for the 1977 Bonds, the 1983 Bonds, the 1988 Bonds and the 1992 Bonds, a fixed amount, without regard to any fixed proportion, namely: (a) Into the Principal and Interest Account, at least 20 days prior to each principal payment date and each interest payment date, an amount sufficient, together with any ULID Assessment collections deposited therein in connection with any Future Parity Bonds hereafter issued, to pay the principal amount maturing on each maturity date of the 1977 Bonds, the 1983 Bonds, the 1988 Bonds, the Bonds and any Future Parity Bonds hereafter issued and outstanding and an amount sufficient to pay the interest payable on the 1977 Bonds, the 1983 Bonds, the 1988 Bonds, the Bonds and those Future Parity Bonds on such interest payment date; and (b) Into the Reserve Account from money legally available to be used therefor such amount so that on and after the date of delivery of the Bonds to the purchaser thereof and paymet therefor, there shall be on deposit in such Reserve Account a total reserve at least equal to the average annual debt service requirements, both principal and interest, of the 1977 Bonds, the 19983 Bonds, the 1988 Bonds, and the Bonds, excluding the principal of any Term Bonds if the payment for such Term Bonds is being provided for by a sinking fund. The Reserve Account shall be maintained at that total average annual debt service required reserve amount, except for withdrawals therefrom as authorized herein, at all times so long as any of the 1977 Bonds, the 1983 Bonds, the 1988 bonds, the 1992 Bonds, the Bonds and any Future Parity Bonds are outstanding; except that the amount in the Reserve Account may be reduced at any time to an amount not less than the average annual debt service requirements for the 1977 Bonds, the 1983 Bonds, the 1988 Bonds, the Bonds and any Future Parity Bonds then outstanding. when the total amount in the Bond Fund shall equal the total amount of principal and interest for all outstanding bonds payable out of the Bond Fund to the last maturity thereof, no further payment need be made into the Bond Fund. In the event that there shall be a deficiency in the Principal and Interest Account in the Bond Fund to meet maturing installments of either principal or interest, as the case may be, that deficeiency shall be made up from the Reserve Account by the withdrawal of cash therefrom for that purpose. Any deficiency created in the Reserve Account by reason of any such withdrawal shall then be made up from the Revenue of the System and/or ULID Assessments, if any, payable into the Bond Fund first available after making necessary provision for the required payments into the Principal and Interest Account. The money in the Reserve Account shall otherwise be held intact and may be applied against the last outstanding bonds payable out of the Bond Fund. All money in the Bond Fund not needed to meet the payments of principal and interest when due may be kept on deposit in the official bank depository of the City or in any national bank or may be investedin any legal investment. Interest on any such investment or on such bank account shall be deposited in and become part of the Bond Fund. In the judgement of the City Council, the Revenue of the System anticipated to be derived from the operation and maintenance of the System will be more than sufficient to pay the Operating and Maintenance Expenses and to permit the setting aside into the Bond Fund out of the Revenue of the System of sufficient amounts to pay the interest on the 1977 Bonds, the 1983 Bonds, the 1988 Bonds and the Bonds when due and to pay and redeem all of the 1977 Bonds, the 1983 Bonds, the 1988 Bonds, and the Bonds at maturity or earlier mandatory redemption date. The City Council further declares that in fixing the amounts to be paid into the Bond Fund it has considered and had due regard fro Operating and Maintenance Expenses (and the cost of operation and maintenance as used in RCW 35.92) and has not set aside into the Bond Fund a greater amount or proportion of the Revenue of the System that in its judgement will be available over and above Operating and Maintenance Expenses (and such cost of operation and maintenance), and that no portion of the Revenue of the System has been previously pledged for any other outstanding indebtedness except for payment of the 1977 Bonds, the 1983 Bonds and 1988 Bonds. Section 10. Lien Position of Bonds. All Revenue of the System is pledged to the payments required to be made into the Bond Fund, and the Bonds shall constitute a charge and lien upon that Revenue prior and superior to all other charges and liens whatsoever, excluding Operating and Maintenance Expenses, except that the charge and lien upon that Revenue for the Bonds shall be on a parity with the charge and lien upon that Revenue and upon any ULID Assessments hereafter pledged to be paid into the Bond Fund for the 1977 Bonds, the 1983 Bonds, the 1988 Bonds and any Future Parity Bonds. Section 11. Refunding of the Refunded Bonds. (a) Acquisition and Substitution of Acquired Obligations. All of the proceeds of the sale of the Bonds, except for the accrued interest which shall be deposited in the Principal and Interest Account shall be deposited immediately upon the receipt thereof with the Refunding Trustee to discharge the obligation of the City to carry out the Refunding Plan by providing for the payment of the amounts required to be paid by the Refunding Plan. To the extent practicable, such obligations shall be discharged fully by the Trustee's simultaneous purchase of Acquired Obligatons bearing such interest rates and maturing as to principal and interest in such amounts and at such times so as to provide for the payment of the amounts required to be paid by the Refunding Plan. The Acquired Obligations are listed and more particularly described in Schedule A attached to the Refunding Trust Agreement, but are subject to substitution as set forth below. Prior to the purchase of any such Acquired Obligations, the City reserves the right to substitute other direct, non-callable obligations of the United States of America ("Substitute Obligations") for any of the Acquired Obligatoin and to use any savings created thereby for any lawful City purpose if, (a) in the opinion of Foster Pepper & Shefelman, the City's Bond counsel, the interest on the Bonds will remain excluded from gross income for federal income tax purposes under Sections 103, 148 and 149(d) of the Code, and (b) such substitution shall not impair the timely payment of the amounts required to be paid by the Refunding Plan as so verified by a nationally recognized firm of certified public accountants. After the purchase of the Acquired Obligations by the Refunding Trustee, the City reserves the right to substitute therefor cash or Government Obilgations subject to the conditions that such money or securities held by the Refunding Trustee shall be sufficient to carry out the Refunding Plan, that such substitution will not cause the Bonds to be arbitrage bonds within the meaning of Section 148 of the Code and regulations thereunder in effect on the date of such substitution and applicable to obligations issued on the issue date of the bonds, and that the City obtain, at its expense: (1) verification by a nationally recogniized firm of certified public accountants acceptable to the Refunding Trustee confirming that the payments of principal of and interest on the substitute Acquired Obligations, if paid when due, and any other money held by the Refunding Trustee will be sufficient to carry out the Refunding Plan; and (2) an opinion from Foster Pepper & Shefelman, bond counsel to the City, its successor, or other nationally recognized bond counsel to the City, to the effect that the disposition and substitution or purchase of such securities, under the statutes, rules and regulations then in force and applicable to the Bonds, will not cause the interest on the Bonds or the Refunded Bonds to be included in gross income for federal income tax purposes and that such disposition and substitution or purchase is in compliance with the statutes and regulations applicable to the Bonds. Any surplus money resulting from the sale, transfer, othe disposition or redemption of the Acquired Obligations and the substitutions therefor shall be released from the trust estate and transferred to the City to be used for any lawful System purpose. shall be added or deducted, as is applicable ... , and WHEREAS, by Ordinance 2763 passed on April 22 1983, the City authorized the issuance of $1,000,000 par value of its Water and Sewer Revenue Bonds, 1983 (the "1987 Bonds"), which bonds were issued on a parity of lien with the 1977 Bonds; and WHEREAS, by Ordinance NO. 2363 to first subsections (4) and (5) of Section 16 of Ordinance No 1957 were amended to read as follows: "(4) The ordinance authorizing any Future Partiy Bonds shall require that the Reserve Account be increased within a period of five years after the date of issuance of the Future Parity Bonds to an amount equal to the average annual principal and interest requirements on all Future Parity Bonds, including the Bonds and the Future Parity Bonds proposed to be issued, excluding from such amount the principal of any Term Bonds included in the Future Parity Bonds issue if the payment for such Term Bonds is being provided for by a sinking fund. "(5) At the time of the issuance of such Future Parity Bonds, the City shall have on file a certificate from an independent Iicensed professional engineer experienced in the design, construction and operation of municipal utilities, showing that in his professional opinion, the annual Revenue of the System, after payment of Operating and Maintenance Expenses, avail- able for debt service on the Bonds, Future Parity Bonds then outstanding and the Future Parity Bonds proposed to be issued for each year shall be at least equal to the Coverage Require- ment..." and WHEREAS, by Ordinance No. 2678 passed on Aupust 23, 1988, the City authorized the issuance and sale of $9,990,000 par value of its Water and Sewer Revenue Bonds 1988 (the "1988 Bonds"), which bonds were issued on a partiy of lien with the 1977 Bonds and the 1983 Bonds; and WHEREAS, by Section 6 of Ordinance 2363, the City reserved the right and option to redeem the 1983 Bonds maturing on May 1 in the years 1994 through 1998, inclusive, on May 1, 1993, at 102% of par plus accrued interest to the date fixed for redemption; and WHEREAS, by Section 7 of Ordinance No. 2678 the City reserved the right and option to redeem the 1988 Bonds maturing on December 1 in the years 1999 through 2008, inclusive, on December 1, 1998, at par plus accrued interest to the date fixed for redemption; and WHEREAS, there are presently outstanding $505,000 principaI amount of 1983 Bonds maturing on May 1 in the years 1994 through 1998 (the "1983 Refunded Bonds") bearing interest at various rates from 8.9% to 9.15%, and $6,440,00 principal amount of 1988 Bonds maturing on December 1 in the years 2002 through 2008, inclusive (the "1988 Refunded Bonds") bearing interest at various rates from 7.60% to 7.95% per annum; and WHEREAS, the City Council has determined that the 1988 Refunded Bonds may be refunded by the issuance and sale of the water and sewer revenue bonds authorized herein so that there will be a debt service savings to the City and the ratepayers of combined water and sewerage systems, which refunding will be affected by. (a) The issuance of the refunding bonds authorized by this ordinance and the payment of the costs of issuance and refund- ing; (b) The call, payment and redemption of the 1983 Refunded Bonds on May 1, 1993 of a price of 102% of par; and (c) The payment of the interest on the 1988 Refunded Bonds when due up to and Including December 1, 1998, and, on December 1, 1998, the call, payment and redemption of all of the outstanding 1988 Refunded Bondsat a price of par; and WHEREAS, in order to effect the refunding in the manner that will be most advantageous to the City and the ratepayers of the combined water and sewerage systems, the City Council finds it necessary and advisable that certain acquired obligations (hereinafter defined) bearing interest and maturing at the time or times necessary to accompllsh the refunding as aforesaid be purchased out of the proceeds of the sale of the bonds authorized herein; and WHEREAS, Seattle-Northwest Securities Corporation has offered to purchase to bonds to pay the cost of refunding the 1988 Refunded Bonds under the terms and conditions herein set forth, and the City Councilhas determined it is in the best interest of the City to accept that offer; NOW, THEREFORE THE CITY COUNCIL OF THE CITY OF EDMONDS, WASHING- TON, DO ORDAIN, as follows: Section 1. Definitions. As used In this ordinance the following words shall have the following meaning: "Acquired Obligations" means United States Treasury Certificates and Notes - State and Local Government Series or other direct non-callable obligations of the United States Government. "Bond Fund" means the special fund of the City known as the Water and Sewer Revenue Bond Fund, 1977, created by Ordinance No. 1957 for the payment of the principal of and inter- est on the 1977 Bonds and all Future Parity Bonds of the City hereafter issued, including the 1983 Bonds, the 1988 Bonds and the Bonds. "Bonds" means the $7,805,000 par value Water and Sewer Revenue Refunding Bonds, 1992, of the City authorized to be issued by this ordinance. "1977 Bonds" means the outstanding Water and Sewer Revenue Refunding and Construction Bonds, 1977 of the City issued under date of November 1, 1977, pursuant to Ordinance No. 1957. "1983 Bonds" means the outstanding Water and Sewer Revenue Bonds, 1983, of the City issued under date of May 1, 1983, pursuant to Ordinance No. 2363 maturing on May 1, 1993. "1988 Bonds" means the outstanding Water and Sewer Revenue Bonds, 1988, of the City issues under the date of September 1, 1988, pursuant to Ordinance No. 2678 maturing up to and including December 1, 2001. "1983 Refunded Bonds" means the 1983 Bonds maturing on May 1 of each of the years 1994 through 1998, inclusive. "1988 Refunded Bonds" means the 1988 Bonds maturing on December 1 of each of the years 2002 through 2008, inclusive. "City" means the City of Edmonds, Washington, a duly organized and existing noncharter code city under the laws of the State of Washington. "Coverage Requirement" means 1.25 times the porton of annual debt service, excluding the principal of any Term Bonds if the payment for such Term Bonds is being provided for by a sinking fund, on the 1977 Bonds, the 1983 Bonds, the 1988 Bonds, the Bonds and any Future Parity Bonds actually paid from the Revenue of the System and not from ULID Assessments, after payment of Operating and Maintenance Expenses. "Future Parity Bonds" means all revenue bonds of the City issued after the date of the issuance of the Bonds and having a lien upon the Revenue of the System for the payment of the principal thereof and interest thereon equal to the lien upon such Revenue for the payment of the principal of and interest on the 1977 Bonds, the 1983 Bonds, the 1988 Bonds, the 1992 Bonds and the Bonds. "Government Obligations" means direct obligations of or obligations the principal of and interest on which are unconditionally guaranteed by the United States of America. "Operating and Maintenance Expenses" means all reasonable expenses incurred by the City in causing the System to be operated and maintained in good repair, working order and condition, but shall not include any depreciation or taxes or charges in lieu of taxes levied or imposed by the City. "Principal and Interest Account" means the account of that name created in the Bond Fund for the payment of the principal of and interest on the 1977 Bonds, the 1983 Bonds, the 1988 Bonds, the Bonds and all Future Parity Bonds of the City payable out of that fund. "Refunding Plan" means: (a) the placement of sufficient proceeds of the Bonds which, with other money of the City, will acquire the Acquired Obligations to be deposited with cash with the Refunding Trustee; (b) the call, payment and redemption of the outstanding 1983 Refunded Bonds on May 1, 1993, at 102% of par; (c) the payment of the interest due on the 1988 Refunded Bonds when due up to and including December 1, 2002, and, on December 1, 2002, the call, payment and redemption of all of the outstanding 1988 Refunded Bonds at par; (d) the payment of the costs of issuing the Bonds and carrying out the Refunding Plan. "Refunding Trust Agreement" means that contract between the City and the Refunding Trustee providing for carrying out the Refunding Plan. "Refunding Trustee" means Puget Sound National Bank of Tacoma, Washington. "Reserve Account" means the account of that name created in the Bond Fund for the purpose of securing the payment of the principal of and interest on the 1977 Bonds, the 1983 Bonds, the 1988 Bonds, the Bonds and all Future Parity Bonds of hte City payable out of that fund. "Revenue of the System" means all the earnings and revenue received by the System from any source whatsoever, except general ad valorem taxes, ULID Assessments, proceeds from the sale of City property, bond proceeds, and earnings on funds held for payment to the United States of America under Section 148 of the Internal Revenue Code of 1986, as amended. "System" means the combined water supply and distribution system and sanitary sewage disposal system of the City as the same may be added to, improved and extended for as long as any of the 1977 Bonds, the 1983 Bonds, the 1988 Bonds, the 1992 Bonds, the Bonds and any Future Parity Bonds are outstanding. "Term Bond Maturity Year" means any maturity year in which the outstanding principal amount of revenue bonds payable out of the Bond Fund scheduled to mature (regardless of any reservation of rights of redemption prior to maturity) is more than 1.25 times the average annual principal maturity of the bonds payable out of that fund for the three years immediately preceeding the Term Bond Maturity Year. "Term Bonds" means the outstanding bonds payable out of the Bond Fund maturing in any Term Bond Maturity Year. "ULID" means utility local improvement district. "ULID Assessments" means the assessments levied in such ULID of the City which may hereafter be created pursuant to state law and shall include installments thereof and interest and any penalties thereon. Section 2. Compliance with Parity Provisions. In accord- ance with the provisions of Section 16 of Ordinance No. 1957, and Section 3 of Ordinance No. 2363, the City Council finds and declares that: (1) At the time of issuance of the Bonds, there will be no deficiency in the Bond Fund or the Reserve Account therein; (2) No ULID is created in connection with the issuance of the Bonds; (3) Provision is made herein for the payment of the principal of and interest on the Bonds out of the Bond Fund; (4) Provision is made herein for the deposit from proceeds of the Bonds of any required additional amount in the Reserve Account of the Bond Fund for the Bonds; and (5) At the time of issuance of the Bonds, there will be on file with the City a certificate from an indepedent licensed professional engineer experienced in the design, construction and operation of municipal utilities, or another qualifying independent licensed professional engineer, showing that, in his professional opinion, the annual Revenue of the System, after payment of Operating and Maintenance Expenses, available for debt service on the 1977 Bonds, the 1983 Bonds, the 1988 Bonds, the 1992 Bonds and the Bonds for each year shall be at least equal to the coverage requirement. Section 3. Purpose and Description of Bonds. For the purpose of providing the funds to pay the cost of carrying out the Refunding Plan and to pay the costs of issuance of the Bonds ("costs of issuance"), the City shall issue the Bonds in the principal amount of $7,805,000. The Bonds shall be dated December 1, 1992; shall be in the denomination of $5,000 or any integral multiple thereof with a single maturity; shall be numbered separately in the manner and with any additional designation as the Bond Registrar (collectively, the fiscal agencies of the State of Washington located in Seattle, Washington, and New York, New York) deems necessary for purposes of identification; and shall bear interest at the rates set forth below (computed on the basis of a 360-day year of 30-day months), payable on June 1, 1993, and semiannually thereafter on each succeeding December 1 and June 1, and shall mature on December 1 in years and amounts as follows: Maturity Years Amounts Interest Rates 1993 $ 75,000 3.00% 1994 155,000 3.60 1995 160,000 4.10 1996 135,000 4.40 1997 175,000 4.70 1998 185,000 4.90 1999 65,000 5.00 2000 70,000 5.20 2001 75,000 5.40 2002 865,000 5.55 2003 905,000 5.70 2004 950,000 5.90 2005 1,010,000 6.00 2006 1,080,000 6.05 2007 1,145,000 6.15 2008 725,000 6.20 Section 4. Registration and Transfer of Bonds. The Bonds shall be issued only in registered form as to both principal and interest and recorded on books or records maintained by the Bond Registrar (the "Bond Register"). The Bond Register shall contain the name and mailing address of the owner of each Bond and the principal amount and number of each of the Bonds held by each owner. Bonds surrendered to the Bond Registrar may be exchanged for Bonds in any authorized denomination of an equal aggregate principal amount and of the same interest rate and maturity. Bonds may be transferred only if endorsed in the manner provided thereon and surrendered to the Bond Registrar. Any exchange or transfer shall be without cost to the owner or transferee. The Bond Registrar shall not be obligated to exchange or transfer any Bond during the fifteen days preceding any principal payment or redemption date. Section 5. Payment of Bonds. Both principal of and interest on the Bonds shall be payable in lawful money of the United States of America. Interest on the Bonds shall be paid by checks or drafts mailed by the Bond Registrar on the interest payment date to the registered owners at the addresses appearing on the Bond Register on the fifteenth day of the month preceding the interest payment date. Principal of the Bonds shall be payable upon presentation and surrender of the Bonds by the registered owners at either of the principal offices of the Bond Registrar at the option of the owners. Section 6. Optional Redemption and Open Market Purchase of Bonds. Bonds maturing in the years 1993 through 2002, inclusive, shall be issued without the right or option of the City to redreem those Bonds prior to their stated maturity dates. The City reserves the right and option to redeem the Bonds maturing on or after December 1, 2003, prior to their stated maturity dates on or after December 1, 2002, as a whole at any time, or in part within one or more maturities selected by the City on any interest payment date (and by lot within a maturity in such manner as the Bond Registrar shall determine), at par plus accrued interest to the date fixed for redemption. Portions of the principal amount of any Bond, in install- ments of $5,000 or any integral multiple thereof, may be redeemed. If less than all of the principle amount of any Bond is redeemed, upon surrender of that Bond at either of the principal offices of the Bond Registrar, there shall be issued to the registered owner, without charge thereafter, a new Bond (or Bonds at the option of the registered owner) of the same maturity and interest rate in any of the denominations authorized by this ordinance in the aggregate principal amount remaining unredeemed. The City further reserves the right and option to puchase any or all of the Bonds in the open market at any time at any price acceptable to the City plus accrued interest to the date of purchase. All Bonds purchased or redeemed under this section shall be cancelled. Section 7. Notice of Redemption. The City shall cause notice of any intended redemption of Bonds to be given not less than 30 nor more than 60 days prior to the date fixed for redemption by first-class mail, postage prepaid, to the regis- tered owner of any Bond to be redeemed at the address appearing on the Bond Register at the time the Bond Registrar prepares the notice, and the requirements of this sentence shall be deemed to have been fulfilled when notice has been mailed as so provided, whether or not it is actually received by the owner of the Bond. Interest on Bonds called for redemption shall cease to accrue on the date fixed for redemption unless the Bond or Bonds called are not redeemed when presented pursuant to the call. In addition, the redemption notice shall be mailed within the same period, postage prepaid, to Moody's Investors Service, Inc., and Standard & Poor's Corporation at their offices in New York, New York, or their successors, to Seattle-Northwest Securities Corporation at its principal office in Seattle, Washington, or its successor, and to such other persons and with such additional information as the City Director of Finance shall determine, but these additional mailings shall not be a condition precedent to the redemption of Bonds. Section 8. Failure to Redeem Bonds. If any bond is not redeemed when properly presented at its maturity or call date, the City shall be obligated to pay interest on that Bond at the same rate provided in the Bond from and after its maturity or call date until that Bond, both principal and interest, is paid in full or until sufficient money for its payment in full is on deposit in the Bond Fund and the Bond has been called for payment by giving notice of that call to the registered owner of that unpaid Bond. Section 9. Deposits to Bond Fund. So long as Bonds are outstanding against the Bond Fund, the City Director of Finance shall set aside and pay into the Bond Fund out of the Revenue of the System, in addition to the amounts to be deposited therein for the 1977 Bonds, the 1983 Bonds, the 1988 Bonds, and the 1992 Bonds, a fixed amount, without regard to any fixed proportion, namely: (a) Into the Principal and Interest Account, at least 20 days prior to each principal payment date and each interest payment date, an amount sufficient, together with any ULID Assessment collections deposited therein in connection with any Future Parity Bonds hereafter issued, to pay the principal amount maturing on each maturity date of the 1977 Bonds, the 1983 Bonds, the 1988 Bonds, the Bonds and any Future Parity Bonds hereafter issued and outstanding and an amount sufficient to pay the interest payable on the 1977 Bonds, the 1983 Bonds, the 1988 Bonds, the Bonds and those Future Parity Bonds on such interest payment date; and (b) Into the Reserve Account from money legally available to be used therefor such amount so that on and after the date of delivery of the Bonds to the purchaser thereof and payment therefor, there shall be on deposit in such Reserve Account a total reserve at least equal to the average annual debt service requirements, both principal and interest, of the 1977 Bonds, the 1983 Bonds, the 1988 Bonds, and the Bonds, excluding the principal of any Term Bonds if the payment for such Term Bonds is being provided for by a sinking fund. The Reserve Account shall be maintained at that total average annual debt service required reserve amount, except for withdrawals therefrom as authorized herein, at all times so long as any of the 1977 Bonds, the 1983 Bonds, the 1988 Bonds, the 1992 Bonds, the Bonds and any Future Parity Bonds are outstanding; except that the amount in the Reserve Account may be reduced at any time to an amount not less than the average annual debt service requirements for the 1977 Bonds, the 1983 Bonds, the 1988 Bonds, the Bonds and any Future Parity Bonds then outstanding. When the total amount in the Bond Fund shall equal the total amount of principal and interest for all outstanding bonds payable out of the Bond Fund to the last maturity thereof, no further payment need be made into the Bond Fund. In the event that there shall be a deficiency in the Principal and Interest Account in the Bond Fund to meet maturing installments of either principal or interest, as the case may be, that deficiency shall be made up from the Reserve Account by the withdrawal of cash therefrom for that pupose. Any deficiency created in the Reserve Account by reason of any such withdrawal shall then be made up from the Revenue of the System and/or ULID Assessments, if any, payable into the Bond Fund first available after making necessary provision for the required payments into the Principal and Interest Account. The money in the Reserve Account shall otherwise be held intact and may be applied against the last outstanding bonds payable out of the Bond Fund. All money in the Bond Fund not needed to meet the payments of principal and interest when due may be kept on deposit in the official bank depository of the City or in any national bank or may be invested in any legal investment. Interest on any such investment or on such bank account shall be deposited in and become a part of the Bond Fund. In the judgement of the City Council, the Revenue of the System anticipated to be derived from the operation and mainte- nance of the System will be more than sufficient to pay the Operating and Maintenance Expenses and to permit the setting aside into the Bond Fund out of the Revenue of the System of sufficient amounts to pay the interest on the 1977 Bonds, the 1983 Bonds, the 1988 Bonds, and the Bonds when due and to pay and redeem all of the 1977 Bonds, the 1983 Bonds , the 1988 Bonds, and the Bonds at maturity or earlier mandatory redemption date. The City Council further declares that in fixing the amounts to be paid into the Bond Fund it has considered and had due regard for Operating and Maintenance Expenses (and the cost of operation and maintenance as used in RCW 35.92) and has not set aside into the Bond Fund a greater amount or proportion of the Revenue of the System that in its judgement will be available over and above Operating and Maintenance Expenses (and such cost of operation and maintenance), and that no portion of the Revenue of the System has been previously pledged for any other outstanding indebtedness except for payemnt of the 1977 Bonds, 1983 Bonds, and 1988 Bonds. Section 10. Lien Position of Bonds. All Revenue of the System is pledged to the payments required to be made into the Bond Fund, and the Bonds shall constitute a charge and lien upon that Revenue prior and superior to all other charges and liens whatsoever, excluding Operating and Maintenance Expenses, except that the charge and lien upon that Revenue for the Bonds shall be on a parity with the charge and lien upon that Revenue and upon any ULID Assessments hereafter pledged to be paid into the Bond Fund for the 1977 Bonds, the 1983 Bonds, the 1988 Bonds and any Future Parity Bonds. Section 11. Refunding of the Refunded Bonds. (a) Acquisition and Substitution of Acquired Obligations. All of the proceeds of the sale of the Bonds, except for the accrued interest which shall be deposited in the Principal and Interest Account shall be deposited immediately upon the receipt thereof with the Refunding Trustee to discharge the obligation of the City to carry out the Refuding Plan by providing for the payment of the amounts required to be paid by the Refunding Plan. To the extent practicable, such obligations shall be discharged fully by the Refunding Trustee's simultaneous purchase of Acquired Obligations bearing such interest rates and maturing as to principal and interest in such amounts and at such times so as to provide for the payment of the amounts required to be paid by the Refunding Plan. The Acquired Obligations are listed and more particularly described in Schedule A attached to the Refunding Trust Agreement, but are subject to substitution as set forth below. Prior to the purchase of any such Acquired Obligations, the City reserves the right to substitute other direct, non-callable obligations of the United States of America ("Substitute Obligations") for any of the Acquired Obligations and to use any savings created thereby for any lawful City purpose if, (a) in the opinion of Foster Pepper & Shefelman, the City's bond counsel, the interest on the Bonds will remain excluded from gross income for federal income tax purposes under Sections 103, 148 and 149(d) of the Code, (b) such substitution shall not impair the timely payment of the amounts required to be paid by the Refunding Plan as so verified by a nationally recognized firm of certified public accountants. After purchase of the Acquired Obligations by the Refunding Trustee, the City reserves the right to substitute therefor cash or Government Obligations subject to the conditions that such money or securities held by the Refunding Trustee shall be sufficient to carry out the Refunding Plan, that such substitution will not cause the Bonds to be arbitrage bonds witin the meaning of Section 148 of the Code and regulations thereunder in effect on the date of such substitution and applicable to obligations issued on the issue date of the Bonds, and that the City obtain, at its expense: (1) verification by a nationally recognized firm of certified public accountants acceptable to the Refunding Trustee confirming that the payments of principal of and interest on the substitute Acquired Obligations, if paid when due, and any other money held by the Refunding Trustee will be sufficient to carry out the Refunding Plan; and (2) an opinion from Foster Pepper & Shefelman, bond counsel to the City, its successor, or other nationally recognized bond counsel to the City, to the effect that the disposition and substitution or purchase of such securities, under the statutes, rules and regulations then in force and applicable to the Bonds, will not cause the interest on the Bonds or the Refunded Bonds to be included in gross income for federal income tax purposes and that such disposition and substitution or purchase is in compliance with the statutes and regulations applicable to the Bonds. Any surplus money resulting from the sale, transfer, other disposition or redemption of the Acquired Obligations and the substitutions therefor shall be released from the trust estate and transferred to the City to be used for any lawful System purpose. (b) Administration of Refunding Plan. The Refunding Trustee is authorized and directed to purchase the Acquired Obligations (or substitute obligations) and to make the payments required to be made by the Refunding Plan from the Acquired Obligations (or substitute obligations) and money deposited with the Refunding Trustee pursuant to this ordinance. All Acquired Obligations (or substitute obligations) and the money deposited with the Refunding Trustee and any income therefrom shall be held irrevocably, invested and applied in accordance with the provisions of Ordinances Nos. 2363 and 2678, this ordinance, Chapter 39.53 RCW and other applicable statutes of the State of Washington, and the Refunding Trust Agreement. All necessary and proper fees, compensation and expenses of the Refunding Trustee for the Bonds and all other costs incidental to establishing the escrow to accomplish the refunding of the outstanding Refunded Bonds and costs related to the issuance and delivery of the Bonds, including bond printing, rating service fees, insurance premiums, verification fees, bond counsel's fees and other related expenses, shall be paid out of the proceeds of the Bonds (c) Authorization for Refunding Trust Agreement. In order to carry out the Refunding Plan provided for by this ordinance, the Mayor or City Finance Director is authorized and directed to execute and deliver to the Refunding Trustee a Refunding Trust Agreement substantially in the form on file with the City Clerk and by this reference made a part hereof, setting forth the duties, obligations and responsibilities of the Refunding Trustee in connection with the payment, redemption and retirement of the outstanding Refunded Bonds as provided herein and stating that the provisions for payment of the fees, compensation and expenses of the Refunding Trustee set forth therein are satisfactory to it. Prior to executing the Refunding Trust Agreement, the Mayor or Finance Director is authorized to make such changes therein which do not change the substance and purpose thereof or which assure that the escrow provided therein and the Bonds are in compliance with the requirements of federal law governing the exclusion of interest on the Bonds from gross income for federal income tax purposes. Section 12. Call for Redemption of the Outstanding 1983 Refunded Bonds and 1988 Refunded Bonds. The City calls for redemption on May 1, 1993, all of the outstanding 1983 Refunded Bonds at a price of 102% of par. The City calls for redemption on December 1, 1998, all of the outstanding 1988 Refunded Bonds at par. Such calls for redemption shall be irrevocable after the delivery of the Bonds to the initial purchaser thereof. The dates on which the 1983 Refunded Bonds and the 1988 Refunded Bonds are called for redemption are the next dates on which those bonds may be called at a premium of 3% or less. The proper City officials are authorized and directed to cause the fiscal agencies to give such notices as required, at the times and in the manner required by Ordinances Nos. 2363 and 2678 in order to effect the redemption prior to their maturity of the 1983 Refunded Bonds and the 1988 Refunded Bonds. Section 13. Covenants. The City covenants and agrees with the owner of each Bond at any time outstanding as follows: (a) It will establish, maintain and collect such rates and charges for water and sanitary sewage disposal service so long as any 1977 Bonds, 1983 Bonds, 1988 Bonds, Bonds, and Future Parity Bonds are outstanding which, together with other miscellaneous Revenue of the System (excluding ULID Assessments), will provide amounts annually at least equal to the Coverage Requirement. In determining the amount of debt service subject to coverage, there shall be deducted from the annual principal and interest required to be paid each year an amount equal to the percentage of the debt service for each year on each issue of outstanding 1977 Bonds, 1983 Bonds, 1988 Bonds, Bonds and Future Parity Bonds, equal to the percentage arrived at by dividing the original total amount of the ULID Assessments specifically pledged to the Bond Fund in that issue by the original total principal amount of that issue. To simplify, where ULIDs are involved, only the debt service on that portion of any Future Parity Bond issue not covered by ULID Assessments must be subject to the Coverage Requirement. (b) It will at all times maintain and keep the System in good repair, working order and condition, and also will at all times operate the System and the business in connection therewith in an efficient manner and at a reasonable cost. (c) It willl not sell, lease, mortgage or in any manner encumber or dispose of all the property of the System unless provision is made for payment into the Bond Fund of a sum sufficient to pay the principal of and interest on all bonds payable out of the Bond Fund at any time outstanding, and that it will not sell, lease, mortgage, or in any manner encumber or dispose of any part of the property of the System that is used, useful and material to the operation thereof unless provision is made for replacement thereof or for payment into the Bond Fund of the total amount of Revenue received which shall not be less than an amount which shall bear the same ratio to the amount of outstanding bonds payable out of the Bond Fund as the Revenue available for debt service for such outstanding bonds for the twelve months preceding such sale, lease, encumbrance or disposal from the portion of the System sold, leased, encumbered or disposed of bears to the Revenue available for debt service for those bonds from the entire System for the same period. Any money so paid into the Bond Fund shall be used to retire those outstanding bonds at the earliest possible date. (d) While any of the Bonds remain outstanding, it will keep proper and separate accounts and records in which complete and separate entries shall be made of all transactions relating ot its System, and it will furnish any subsequent owner or owners of the Bonds, if the Bonds shall be owned by other than a Fund of the City, at the written request of such owner or owners, complete operating and income statements of the System in reasonable detail covering any calendar year, showing the financial condition of the water and sewer departments and compliance with the terms and conditions of this ordinance, not more than 120 days after the close of that calendar year, and it will grant any owner or owners of at least 25% of the outstanding Bonds the right at all reasonable times to inspect the entire System and all records, accounts and data of the City relating thereto. Upon request of any owner of any of such Bonds, it will also furnish to that owner a copy of the most recently completed audit of the City's accounts by the State Auditor of Washington or such other audit as is authorized by law in lieu thereof. (e) It will not furnish water or sanitary sewage disposal service to any customer whatsoever free of charge and will promptly take legal action to enforce collection of all delinquent accounts. (f) It will carry the types of insurance on its System properties in the amounts normally carried by private water and sewer companies engaged in the operation of water and sewerage systems or, in lieu thereof, after the retirement or redemption of all of the outstanding 1977 Bonds and 1983 Bonds, or after irrevocable provision is made for the payment of those bonds, the City may self-insure or participate in a joint intergovernmental insurance pool or similar plan providing coverage in the amounts normally carried by such private water companies, and the cost of that insurance or self-insurance shall be considered a part of Operating and Maintenance Expenses. If, as and when the United States of America or some agency thereof shall provide for War Risk Insurance, the City further agrees to take out and maintain such insurance on all or such portions of the System on which such War Risk Insurance may be written in an amount or amounts to cover adequately the value thereof, except that after the retirement or redemption of the outstanding 1977 Bonds and 1983 Bonds, or after irrevoccable provision is made for the payment of those bonds, the City will take out and maintain such insurance only if available at rates acceptable to the City. (g) It will pay all Operating and Maintenance Expenses and otherwise meet the obligations of the City as herein set forth. (h) If a ULID is ever established hereafter in connection with the issuance of Future Parity Bonds and the ULID Assessments therefrom pledged to be paid into the Bond Fund, the City will promptly collect all Assessments levied therein. Such Assessments may be used to pay the principal of and interest on any bonds payable out of the Bond Fund without those Assessments being particularly allocated to the payment of principal and interest on any particular series of such Future Parity Bonds, including the 1977 Bonds, the 1983 Bonds, the 1988 Bonds and the Bonds. (i) It will take all actions necessary to prevent interest on the Bonds from being included in gross income for federal income tax purposes, and it will neither take any action nor make or permit any use of proceeds of the Bonds or other funds of the City treated as proceeds of the Bonds at any time during the term of the Bonds which will cause interest on the Bonds to be included in gross income for federal income tax purposes. The City also covenants that, to the extent arbitrage rebate requirements of Section 148 of Section 148 of the Internal Revenue Code of 1986, as amended (the "Code"), are applicable to the Bonds, it will take all actions necessary to comply (or to be treated as having complied) with those requirements in connection with the Bonds, including the calculation and payment of any penalties that the City has elected to pay as an alternative to calculating rebatable arbitrage, and the payment of any other penalties if required under Section 248 of the Code to prevent interest on the Bonds from being included in gross income for federal income tax purposes. The City certifies that it has not been notified of any listing or proposed listing by the Internal Revenue Service to the effect that it is a bond issuer whose arbitrage certifications may not be relied upon. (j) It will use, pay out and distribute the Revenue of the System, other than money deposited in bond redemption funds, in the following order of priority: (1) To pay Operating and Maintenance Expense. (2) To meet the required debt service payments, including Reserve Account accumulation in the Bond Fund, on the 1977 Bonds, the 1983 Bonds, the 1988 Bonds, the Bonds, and any Future Parity Bonds hereafter issued. (3) To meet the required debt service on any water and sewer revenue bonds issued having a charge and lien on the Revenue of the System junior to the 1977 Bonds, the 1983 Bonds, the 1988 Bonds, the Bonds and any Future Parity Bonds. (4) To Redeem and retire by optional redemption or to purchase in the open market any outstanding water and sewer revenue bonds or obligatons of the City, to make necessary betterments and replacements of or repairs, additions or extensions to the System, or for any other lawful purpose. Section 14. Form and Execution of Bonds. The bonds shall be printed or lithographed on good bond paper in a form consistent with the provisions of this ordinance and state law, shall be signed by the Mayor and City Clerk, either or both of whose signatures may be manual or in facsimile, and the seal of the City or a facsimile reproduction thereof shall be impressed or printed thereon. Only Bonds bearing a Certificate of Authentication in the following form, manually signed by the Bond Registrar, shall be valid or obligatory for any purpose or entitled to the benefits of this ordinance: CERTIFICATE OF AUTHENTICATION This bond is one of the fully registered City of Edmonds, Washington, Water and Sewer Revenue Refunding Bonds, 1992, described in the Bond Ordinance. WASHINGTON STATE FISCAL AGENCY Bond Registrar By_____________________________ Authorized Officer The authorized signing of a Certificate of Authentication shall be conclusive evidence that the Bonds so authenticated have been duly executed, authenticated and delivered and are entitled to the benefits of this ordinance. If any officer whose facsimile signature appears on the Bonds ceases to be an officer of the City authorized to sign bonds before the Bonds bearing his or her facsimile signature are authenticated or delivered by the Bond Registrar or issued by the City, those Bonds nevertheless may be authenticated, delivered and issued and, when authenticated, issued and delivered, shall be as binding on the City as though that person had continued to be an officer of the City authorized to sign bonds. Any Bond also may be signed on behalf of the City by any person who, on the actual date of signing of the Bond, is an officer of the City authorized to sign bonds, although he or she did not hold the required office on the date of issuance of the Bonds. Section 15. Bond Registrar. The Bond Registrar shall keep, or cause to be kept, at its principal corporate trust office, sufficient books for the registration and transfer of the Bonds which shall at all times be open to inspection by the City. The Bond Registrar is authorized, on behalf of the City, to authenticate and deliver Bonds transferred or exchanged in accordance with the provisions of the Bonds and this ordinance, to serve as the City's paying agent for the Bonds and to carry out all of the Bond Registrar's powers and duties under this ordinance and City Ordinance No. 2451 establishing a system of registration for the City's bonds and obligations. The Bond Registrar shall be responsible for its representations contained in the Bond Registrar's Certificate of Authentication on the Bonds. The Bond Registrar may become the owner of Bonds with the same rights it would have if it were not the Bond Registrar and, to the extent permitted by law, may act as depository for and permit any of its officers or directors to act as members of, or in any other capacity with respect to, any committee formed to protect the rights of Bond owners. Section 16. Bonds Negotiable. The Bonds shall be negotiable instruments to the extent provided by RCW 62A.8-102 and 62A.8-105. Section 17. Provision for Future Parity Bonds. The City reserves the right to issue Future Parity Bonds which will constitute a charge and lien upon the Revenue of the System and ULID Assessments hereafter pledged to be paid into the Bond Fund on a parity with the 1977 Bonds, the 1983 Bonds, the 1988 Bonds, the 1992 Bonds and the Bonds if the conditions set forth in Section 16 of Ordiance No. 1957, as amended by Section 3 of Ordinance No. 2363, shall be met and complied with at the time of the issuance of those Future Parity Bonds, which sections are incorporated herein and made a part of this ordinance. Nothing contained in the provisions for parity shall prevent the City from issuing revenue bonds having a junior lien on the Revenue of the System or from pledging the payment of ULID Assessments into a bond redemption fund or account created to pay and secure the payment of the principal of and interest on such junior lien bonds as long as such ULID Assessments are levied to pay part or all of the cost of improvements being constructed out of the proceeds of the sale of such junior lien bonds. Neither shall anything contained in this ordinance prevent the City from issuing revenue bonds to refund maturing revenue bonds of the City for the payment of which money is not otherwise available. Section 18. Refunding or Defeasance. In the event the City shall issue advance refunding bonds pursuant to the laws of the State of Washington, or have money available from any other lawful source, to pay the principal of and interest on the Bonds or such portion thereof included in a refunding or defeasance plan as the same become due and payable and to refund or defease all such then outstanding Bonds and to pay the costs of refunding or defeasance, and shall have irrevocably set aside for and pledged to such payment, refunding or defeasance, money and/or Government Obligations sufficient in amount, together with known earned income from the investment thereof, to make such payments in the computation of coverage for issuance of Future Parity Bonds and the annual computation of coverage for determining compliance with rate covenants. Section 19. Sale and Delivery of Bonds and Preliminary Official Statement Deemed Final.