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1264 - Ordinance - Waterworks UtilityCITY OF PORT ORCHARD, WASHINGTON ORDINANCE NO. LZ_64/_ ✓ AN ORDINANCE relating to the Waterworks Utility of the City; providing for the issuance of $6,450,000 par value of "Water and Sewer Revenue Bonds, 1984," for the purpose of obtaining funds to pay a part of the cost of (a) carrying out the plan providing for additions to and betterments and extensions of the Waterworks Utility of the City as specified and adopted by Ordinance No. 1220 and as ordered to be carried out by Ordinance No. 1231, including the portion applicable to Utility Local Improvement District No. 1; (b) paying, refunding and retiring the City's outstanding "Refunding Sewer Revenue Bonds, 1962," "Water Revenue Bonds, 1963," "Water and Sewer Revenue Refunding Bonds, 1973," and "Water and Sewer Revenue Bonds, 1977"; fixing the date, form, terms, interest rates, maturities and covenants of such bonds; creating a special refunding fund to provide for the refunding operation; creating a special bond redemption fund to provide for the payment of the bonds authorized herein and bonds hereafter issued on a parity therewith; reserving the right of the City to issue revenue bonds on a parity with such bonds to be issued; providing for and authorizing the purchase of certain obligations out of a portion of the proceeds of the sale of the bonds herein authorized and for the use and application of the money to be derived from such investment; provid- ing for the payment and redemption of the outstanding bonds to be refunded; authorizing the execution of an agreement with Peoples National Bank of Washington as Refunding Trustee; providing for the sale and delivery of the bonds to Foster & Marshall/American Express Inc. and to Terry Thompson & Co., Seattle, Washington; fixing the interest rate on assessment installments of Utility Local Improvement District No. 1 assessment roll; and ratifying and confirming prior actions consistent with this ordinance. WHEREAS, pursuant to Ordinance No. 823 passed March 10, 1969, the municipal water system of the Town of Port Orchard, Washington (now City), and the sanitary sewerage system of the City were combined into a waterworks utility of the City and such combined systems are maintained and operated jointly and the words "Waterworks Utility" hereinafter shall mean the combined municipal water system and sanitary sewerage system of the City together with all additions thereto and betterments and extensions thereof at any time made or constructed; and WHEREAS, the City of Port Orchard, Kitsap County, Washington (the "City"), by Ordinance No. 1220 passed November 22, 1982, adopted a system or plan of additions to and better- ments and extensions of the Waterworks Utility (the "Improve- ments") and authorized the issuance and sale of water and sewer revenue bonds in the principal sum of approximately $7,800,000 to provide a part of the funds to carry out such system or plan, such bonds to be supported by assessments to be levied in a utility local improvement district therein authorized to be established; and WHEREAS, by Ordinance No. 1231, after due notice and public hearings thereon in the manner provided by law, the City duly considered and overruled objections to the proposed Improve- ments, created and ordered the carrying out of the Improvements, established Utility Local Improvement District No. 1 ("ULID No. 1"), and ordered that special assessments be levied and assessed upon properties within ULID No. 1 specially benefited by the Improvements; and WHEREAS, by Ordinance No. 1237 as amended by Ordinance No. 12-63 , and by Ordinance No. 1249, after due notice and public hearings thereon in the manner provided by law, the City Council modified, approved, and confirmed the assessment roll and the assessment roll of omitted properties, respectively, of ULID No. 1 in the total amount of and levied and assessed a part of the cost and expense of the Improvements against the lots, tracts, and parcels of land shown on the roll; and WHEREAS, a January 31, 1983, Intergovernmental Contract for Wastewater Facilities Management between the City and Sewer District No. 5, Kitsap County, as amended by the parties on November 9, 1983 and March _, 1984, provides for the sharing of construction costs and maintenance and operations costs of the - 2 - Improvements, including debt service coverage requirements on the Bonds; and WHEREAS, pursuant to Ordinance No. 690 passed March 26, 1962, the City heretofore issued and sold its "Refunding Sewer Revenue Bonds, 1962," dated April 1, 1962 (hereinafter the "1962 Bonds"), in the original principal amount of $54,000 and bearing interest at 4.25% per annum, of which there are presently outstanding $41,000 par value of 1962 Bonds maturing serially in each of the years 1983 through 1986; and WHEREAS, pursuant to Ordinance No. 713 passed March 25, 1963, the City heretofore issued and sold its "Water Revenue Bonds, 1963," dated April 1, 1963 (hereinafter the "1963 Bonds"), in the original principal amount of $80,000 and bearing Interest at 4% per annum, of which there are presently outstand- ing $10,000 par value of 1963 Bonds maturing on June 1, 1984; and WHEREAS, pursuant to Ordinance No. 909 passed March 12, 1973, the City heretofore issued and sold its "Water and Sewer Revenue Refunding Bonds, 1973," dated March 1, 1973 (hereinafter the "1973 Bonds"), in the original principal amount of $300,000 and bearing interest at 6-1/8% per annum, of which there are presently outstanding $300,000 par value of 1973 Bonds maturing serially in each of the years 1985 through 1994; and WHEREAS, pursuant to Ordinance No. 1022 passed November 14, 1977, the City heretofore issued and sold its "Water and Sewer Revenue Bonds, 1977," dated December 7, 1977 (hereinafter the "1977 Bonds"), in the original principal amount of $278,000 and bearing interest at 6-1/8% per annum, of which there are presently outstanding $236,000 par value of 1977 Bonds maturing serially in each of the years 1984 through 2017; and WHEREAS, the City Council finds that the City is able to pay the principal of and interest on the outstanding 1962 Bonds, 1963 Bonds, 1973 Bonds and 1977 Bonds as they respectively - 3 - become due to their maturity from the invested proceeds to be received from the issuance and sale of the Bonds authorized herein, and that to do so is in the best interests of the City, its ratepayers and the Waterworks Utility in order to establish new and more desirable covenants and other terms relating to the bonds to be refunded and to establish a new lien position for water and sewer revenue bonds to be issued by the City; and WHEREAS, in order to effect such refunding in the manner that will be most advantageous to the City and the public, it is found necessary and advisable that certain Acquired Obligations (hereinafter defined) bearing interest and maturing at such time or times as necessary to accomplish the refunding as aforesaid, be purchased out of a portion of the proceeds of the bonds authorized herein; and WHEREAS, the City Council has now determined that it is necessary to issue and sell $6,450,000 par value of water and sewer revenue bonds to provide a part of the funds necessary to carry out the Improvements applicable to Utility Local Improve- ment District No. 1 and to pay, redeem and refund the 1962 Bonds, the 1963 Bonds, the 1973 Bonds and the 1977 Bonds; and WHEREAS, Ordinance No. 1237 provided that the interest rate on the special assessment installments for ULID No. 1 would be fixed in the ordinance authorizing the sale and issuance of the water and sewer revenue bonds authorized herein; and WHEREAS, Foster & Marshall/American Express Inc. of Seattle, Washington, and Terry Thompson & Co. of Seattle, Washington, have submitted an offer to purchase $6,450,000 par value of water and sewer revenue bonds on the terms and condi- tions hereinafter set forth; NOW, THEREFORE, THE CITY COUNCIL OF THE CITY OF PORT ORCHARD, WASHINGTON, DO ORDAIN, as follows: - 4 - Section 1. As used in this ordinance the following words shall have the following meanings: (a) "Acquired Obligations" shall mean those United States Treasury Certificates of Indebtedness, Notes and Bonds, State and Local Government Series, and other obligations of the United States of America purchased to accomplish the refunding author- ized by this ordinance. (b) "Annual Debt Service" for any issue of bonds payable from the Bond Fund for any calendar year shall mean all the Interest due on those bonds in such year, plus all principal of those bonds (except the principal. of any Term Bonds of that issue due in a Term Bond Maturity Year) and plus all scheduled mandatory redemption and sinking fund requirements for those Term Bonds which will mature or become due in such year, less all bond interest payable in such year from the proceeds of that issue of Bonds and Future Parity Bonds. (c) "Bond Fund" shall mean the "City of Port Orchard Water and Sewer Revenue Bond Fund, 1984," created by this ordinance for the payment of the principal of and interest on the Bonds and any Future Parity Bonds. (d) "Bond Register" shall mean the Bond registration books or records maintained by the Bond Registrar. (e) "Bond Registrar" shall mean one or more of the fiscal agencies of the State of Washington, which shall serve as authenticating trustee, transfer agent, registrar and paying agent in accordance with this ordinance and with any applicable contracts between such fiscal agencies and the City or the State of Washington. (f) "Bonds" shall mean the $6,450,000 par value of "City of Port Orchard Water and Sewer Revenue Bonds, 1984," authorized to be issued by this ordinance. - 5 - (g) "1962 Bonds" shall mean the outstanding "Refunding Sewer Revenue Bonds, 1962," of the City, dated April 1, 1962, issued pursuant to Ordinance No. 690, of which $41,000 are presently outstanding. (h) "1963 Bonds" shall mean the outstanding "Water Revenue Bonds, 1963," of the City, dated April 1, 1963, issued pursuant to Ordinance No. 713, of which $10,000 are presently outstanding. (1) "1973 Bonds" shall mean the outstanding "Water and Sewer Revenue Refunding Bonds, 1973," of the City, dated March 1, 1973, issued pursuant to Ordinance No. 909, of which $300,000 are presently outstanding. (j) "1977 Bonds" shall mean the outstanding "Water and Sewer Revenue Bonds, 1977," of the City, dated December 7, 1977, issued pursuant to Ordinance No. 1022, of which $236,000 are presently outstanding. (k) "City" shall mean the City of Port Orchard, Washington, a duly organized and existing third-class city under the laws of the State of Washington. (1) "Construction Fund" shall mean the "Wastewater Facility Improvement Construction Fund" created by Ordinance No. 1220 in the Office of the City Treasurer for the purpose of paying the cost of carrying out the Improvements and certain other costs and expenses. (m) "Future Parity Bonds" shall mean any additional and/or refunding revenue obligations issued by the City subsequent to the issuance of the Bonds in accordance with Section 12 of this ordinance which will have a charge or lien upon the Net Revenues of the Waterworks Utility and ULID Assessments equal to the charge or lien created by this ordinance upon such Net Revenues and ULID Assessments for the payment of the principal of and interest on the Bonds. - 6 - (n) "Government Obligations" shall mean those government obligations defined by RCW 39.53.010(9) as it now reads or may hereafter be amended and which are otherwise lawful investments of the City at the time of such investment. (o) "Gross Revenues of the Waterworks Utility" shall mean all the earnings and revenue received by the Waterworks Utility from any source whatsoever, except general ad valorem taxes, ULID Assessments, grants, proceeds from the sale of City property and bond proceeds. (p) "Improvements" shall mean those additions to and betterments and extensions of the Waterworks Utility adopted by Ordinance No. 1220 of the City and ordered to be carried out by Ordinance No. 1231. (q) "Maximum Annual Debt Service" shall mean the maximum amount of Annual Debt Service which will mature or come due in the current year or any future year. (r) "Net Revenues of the Waterworks Utility" shall mean the Gross Revenues less the Operating and Maintenance Expenses. (s) "Operating and Maintenance Expenses" shall mean all reasonable expenses incurred by the City in causing the Waterworks Utility to be operated and maintained in good repair, working order and condition, including payments of premiums for insurance on the Waterworks Utility, but excluding depreciation and any City -imposed utility taxes or payments in lieu of taxes payable from Gross Revenues of the Waterworks Utility. (t) "Principal and Interest Account" shall mean the account of that name created in the Bond Fund by Section 9 of this ordinance, to be used to pay the principal of and interest on the Bonds and any Future Parity Bonds. (u) "Refunded Bonds" shall mean the 1962 Bonds, the 1963 Bonds, the 1973 Bonds and the 1977 Bonds. - 7 - (v) "1984 Refunding Fund" shall mean the "1984 Refunding Fund" created by Section 3 of this ordinance and to be used to discharge the obligations of the City by providing for the payment of principal and interest on the 1962 Bonds, the 1963 Bonds, the 1973 Bonds and the 1977 Bonds. (w) "Refunding Trust Agreement" shall mean a Refunding Trust Agreement between the City and the Refunding Trustee substantially in the form of that which is attached as Exhibit A to this ordinance. (x) "Refunding Trustee" shall mean Peoples National Bank of Washington of Seattle, Washington. (y) "Reserve Account" shall mean the account of that name created in the Bond Fund by Section 4 of this ordinance to secure the payment of the principal of and interest on the Bonds and any Future Parity Bonds. (z) "Reserve Requirement" shall mean an initial deposit into the Reserve Account of $767,150 at the time the Bonds are issued, which amount shall be maintained through April 1, 1985, and which requirement shall be adjusted and then maintained after April 1, 1985 at an amount equal to the Maximum Annual Debt Service on the Bonds and any Future Parity Bonds. The Reserve Requirement for each issue of Future Parity Bonds shall be deposited in the Reserve Account within six years after the issuance of any such bonds in accordance with Section 12 of this ordinance. (aa) "Term Bond Maturity Year" shall mean any calendar year in which Term Bonds are scheduled to mature. (bb) "Term Bonds" shall mean those Future Parity Bonds designated as Term Bonds in the ordinance authorizing those Future Parity Bonds. (cc) "ULID No. 1" shall mean Utility Local Improvement District No. 1 of the City, created by Ordinance No. 1231. - 8 - (dd) "Utility Local Improvement District Assessments" or "ULID Assessments" shall mean the assessments levied in ULID No. 1 and in any other Utility Local Improvement District created by the City under State law to pay for improvements to the Waterworks Utility, and shall include installments thereof and interest and any penalties thereon, which assessments are to be paid into the Bond Fund for the payment of the Bonds and any Future Parity Bonds. (ee) "Waterworks Utility" shall mean the combined water system and sanitary sewerage system of the City, as combined by Ordinance No. 823, together with all additions thereto and betterments and extensions thereof at any time made or constructed. Section 2. For the purpose of providing the funds with which to: (1) (a) pay the principal of and interest on the 1962 Bonds as the same shall become due until their final maturity on October 1, 1986; (b) pay the principal of and interest on the 1963 Bonds as the same shall become due on their final maturity on June 1, 1984; (c) pay the principal of and interest on the 1973 Bonds as the same shall become due until their final maturity on December 1, 1994; (d) pay the principal of and interest on the 1977 Bonds as the same shall become due until their final maturity on December 1, 2017; and (2) provide a part of the funds to pay the costs of the Improvements; and (3) pay the cost and expense of issuing the Bonds; there shall be issued and sold the Bonds in the principal amount of $6,450,000. The Bonds shall be serial in form; shall be dated April 1, 1984; shall be in denominations of $5,000 each or any integral multiple thereof within a single maturity; shall be numbered separately and in the manner and with any additional - 9 - designation as the Bond Registrar deems necessary for the purpose of identification; and shall bear interest payable on April 1, 1985, and semiannually thereafter on each succeeding October 1 and April 1, and mature on April 1 of each year in accordance with the following schedule: Amounts Interest _ Rates Maturity _ Years $900,000 6.25% 1985 275,000 6.50 1986 275,000 7.00 1987 275,000 7.50 1988 275,000 7.75 1989 275,000 8.00 1990 275,000 8.25 1991 300,000 8.50 1992 300,000 8.75 1993 300,000 9.00 1994 300,000 9.20 1995 300,000 9.40 1996 300,000 9.50 1997 300,000 9.60 1998 300,000 9.70 1999 300,000 9.75 2000 300,000 9.80 2001 300,000 9.85 2002 300,000 9.875 2003 300,000 9.875 2004 The fiscal agency or agencies of the State of Washington, serving as such at any given time material to this ordinance, is appointed as Bond Registrar. The Bonds shall be issued only in registered form as to both principal and interest on books or records maintained by the Bond Registrar (the "Bond Register"). Such Bond Register shall contain the name and mailing address of the owner of each Bond or nominee of such owner and the principal amount and number of Bonds held by each owner or nominee. Upon surrender thereof to the Bond Registrar, Bonds are interchangeable 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. - 10 - Such exchange or transfer shall be without cost to the owner or transferee. Both principal of and interest on the Bonds shall be payable in lawful money of the United States of America solely out of the Bond Fund. Interest on the Bonds shall be paid by check or draft mailed to the registered owners or nominees at the addresses appearing on the Bond Register on the 15th day of the calendar month immediately 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 principal office of the Bond Registrar in Seattle, Washington, or New York, New York, at the option of such owners. 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 such Bonds and this ordinance and to carry out all of the Bond Registrar's powers and duties under this ordinance. The Bond Registrar shall be responsible for its representa- tions contained in the 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 a member of, or in any other capacity with respect to, any committee formed to protect the rights of Bond owners. The City reserves the right to redeem the Bonds maturing on or after April 1, 1995, prior to their stated maturity dates as a whole, or in part in inverse order of maturity (and by lot within a maturity in such manner as the Bond Registrar shall determine), on April 1, 1994, and on any interest payment date thereafter, at the redemption prices (expressed as percentages of principal amount) set forth in the following table, together with accrued interest to the date of redemption: Redemption Dates Redemption Price April 1, 1994 and October 1, 1994 . . . . . 102% April 1, 1995 and October 1, 1995 . . . . . 101 April 1, 1996 and thereafter . . . . . . . 100 Whenever Bonds are redeemed in part within a maturity, portions of the principal amount of any Bond within such maturity may be redeemed, in amounts of $5,000 or any integral multiple of $5,000. If less than all of the principal amount of any Bond is redeemed, upon surrender of such Bond at the principal office of the Bond Registrar there shall be issued to the registered owner, without charge therefor, a new Bond or Bonds, at the option of the registered owner, of like maturity and interest rate in the total principal amount of the uncalled portion of such Bond in any of the denominations authorized by this ordinance. Notice of any intended redemption prior to maturity shall 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 any Bond to be redeemed at the address appearing on the Bond Register. The requirements of this section shall be deemed to be complied with when notice is mailed as herein provided whether or not it is actually received by the owner of any Bond. The interest on the Bonds so called for redemption shall cease on the date fixed for redemption and such Bonds shall no longer be deemed to be outstanding, unless such Bond or Bonds so called are not redeemed upon presentation made pursuant to such call. In addition, such redemption notice shall be mailed within the same period, postage prepaid, to - 12 - Moody's Investors Service, Inc., and Standard & Poor's Corpora- tion at their offices in New York, New York, or their succes- sors, and to Foster & Marshall/American Express Inc. and Terry Thompson & Co. at their offices in Seattle, Washington, but such mailing to those New York and Seattle firms shall not be a condition precedent to the redemption of such Bonds. The City further reserves the right to purchase any of the Bonds or Future Parity Bonds on the open market at any time at a price not in excess of the next optional redemption price plus accrued interest to date of purchase. The Bonds shall not be a general obligation of the City, shall be payable solely out of the Bond Fund, and shall be a valid claim of the owner thereof only as against such Bond Fund and against the ULID Assessments and the Net Revenues of the Waterworks Utility of the City pledged herein for the payment of the Bonds. Immediately upon receipt of payment in full for the Bonds, the accrued interest received shall be deposited in the Princi- pal and Interest Account in the Bond Fund created by Section 4 of this ordinance, of the principal procee? shall be deposited in the 1984 Refunding Fund created 0111 Section 3 of this ordinance, and the balance of the principal proceeds shall be deposited in the Construction Fund. In addition, $767,150 received by the City from the prepay- ment of assessments levied in ULID No. 1 shall be deposited in the Reserve Account of the Bond Fund. The following amounts from the following funds shall be deposited into the 1984 Refunding Fund: $25,187.15 from the "Sewer Revenue Bond Fund, 1962," $12,888.80 from the "Water Revenue Bond Fund, 1963," $41,297.54 from the "Water and Sewer Revenue Bond Fund, 1973" and $35,571.59 from the "Water and Sewer Revenue Bond Fund, 1977." - 13 - Section 3. There is created and established in the office of the Treasurer of the City a special fund to be known and designated as the "1984 Refunding Fund." The funds in the 1984 Refunding Fund shall immediately be used upon receipt thereof to discharge the obligations of the City under (1) Ordinance No. 690 authorizing the issuance of the 1962 Bonds by providing for the payment as hereinafter set forth in this section of the principal of and interest on such 1962 Bonds, (2) Ordinance No. 713 authorizing the issuance of the 1963 Bonds by providing for the payment as hereinafter set forth in this section of the principal of and interest on such 1963 Bonds, (3) Ordinance No. 909 authorizing the issuance of the 1973 Bonds by providing for the payment as hereinafter set forth in this section of the principal of and interest on such 1973 Bonds, and (4) Ordinance No. 1022 authorizing the issuance of the 1977 Bonds by providing for the payment as hereinafter set forth in this section of the principal of and interest on such 1977 Bonds. To the extent practicable, the City shall discharge such obligations by the purchase of Acquired Obligations bearing such Interest and maturing as to principal and interest in such amounts and at such times as to provide for the payment of the principal of and interest on the 1962 Bonds as the same shall become due up to and including October 1, 1986, the 1963 Bonds as the same shall become due up to and including June 1, 1984, the 1973 Bonds as the same shall become due up to and including March 1, 1994, and the 1977 Bonds as the same shall become due up to and including December 1, 2017. The Acquired Obligations are more particularly described in J Schedule A attached to the Refunding Trust Agreement. The Acquired Obligations and a beginning cash balance of U $ Z•0 o shall be deposited irrevocably with the Refunding - 14 - Trustee. Any amounts described in this section which are not provided for in full by the purchase and deposit of the Acquired Obligations shall be provided for by the irrevocable deposit of a portion of the proceeds of sale of the Bonds or other money of the City with the Refunding Trustee. All the money received as principal of or interest on the Acquired Obligations shall be held by the Refunding Trustee for the credit of the City and the 1984 Refunding Fund, shall be held in trust and shall be used for the sole purpose of paying the 1962 Bonds, the 1963 Bonds, the 1973 Bonds and the 1977 Bonds as aforesaid. Any money remaining in the 1984 Refunding Fund after the payment and retirement in full of the 1962 Bonds, the 1963 Bonds, the 1973 Bonds and the 1977 Bonds as aforesaid shall be transferred and paid into the Principal and Interest Account, unless no Bonds or Future Parity Bonds are outstanding, in which event such money shall be transferred and paid into the Water and Sewer Utility Operating Fund of the City. All of the Acquired Obligations purchased as a part of the refunding plan are dedicated irrevocably to the purpose thereof set forth in this ordinance, and such investments or the earnings or the proceeds therefrom may be used for no other purpose, nor may any of such investments be liquidated prior to maturity, except that the City reserves the right to substitute other direct obliga- tions of the United States of America for any of the Acquired Obligations and to use any savings created thereby for any lawful City purpose if such substituted obligations shall be sufficient to pay the principal and interest on the Refunded Bonds and if there shall have been obtained at the expense of the City an opinion from Roberts & Shefelman, bond counsel to the City, to the City to the effect that the disposition and substitution or purchase of such securities will not, under the - 15 - statutes, rules and regulations then in force and applicable to the Bonds, cause the interest on the Bonds not to be exempt from Federal income taxation and that such disposition and substitu- tion or purchase is not inconsistent with the statutes and regulations applicable to the Bonds. All necessary and proper fees, compensation and expenses of the Refunding Trustee for the Bonds, all other costs incidental to the establishment of the escrow to accomplish the refunding of the 1962 Bonds, the 1963 Bonds, the 1973 Bonds and 1977 Bonds, and the costs relating to the issuance and delivery of the Bonds, including but not limited to bond printing, rating agency fees, the premium for MBIA insurance, escrow computation and certified public accountant verification fees, bond counsel's fees and other related expenses shall be paid out of the principal proceeds of the Bonds. The proper officers and agents of the City are directed to enter into a Refunding Trust Agreement with the Refunding Trustee setting forth the duties, obligations and responsibilities of the Refunding Trustee in connection with the redemption and retirement of the 1962 Bonds, the 1963 Bonds, the 1973 Bonds and the 1977 Bonds as provided herein and stating that such provisions and the payment of the fees, compensation and expenses of such Refunding Trustee are satisfactory to it. In order to carry out the purposes of this ordinance, the Mayor and Treasurer of the City are authorized and directed to execute the Refunding Trust Agreement and deliver it to the Refunding Trustee. Section 4. There is created in the office of the City Treasurer the "Water and Sewer Revenue Bond Fund, 1984" (the "Bond Fund"), which shall be used for the sole purpose of paying the principal of and interest on the Bonds and any Future Parity Bonds which are payable in part from ULID Assessments and/or - 16 - from Net Revenues of the Waterworks Utility, or for purchasing the Bonds or Future Parity Bonds as set forth in section 2 of this ordinance. The Bond Fund is divided into a Principal and Interest Account and a Reserve Account. So long as any of the Bonds are outstanding, the City pledges and binds itself irrevocably to set aside and pay into the Bond Fund all ULID Assessments collected and out of the Net Revenues of the Waterworks Utility a fixed amount without regard to any fixed proportion into the two accounts and to use such money as follows: (a) Principal and Interest Account. There shall be paid into the Principal and Interest Account the accrued interest received from the proceeds of the Bonds and all ULID No. 1 Assessment payments (except for $767,150 of the prepayments of such assessments which will be deposited in the Reserve Account) and, to the extent there is insufficient money in the account to meet the current debt service obligations of the Bond Fund, on or before the fifth business day immediately preceding each interest payment date of the Bonds then outstanding, beginning with the first interest payment date of April 1, 1985 and continuing thereafter the amount of the interest to become due and payable on the Bonds then outstand- ing on that interest payment date, and on or before the fifth business day immediately preceding each principal payment date of the Bonds then outstanding, beginning with the first principal payment date of April 1, 1985, and continuing thereafter the amount of the principal payments next due on the Bonds then outstanding. Subject to the other requirements of the Bonds and this ordinance, additional money may be deposited in such account. Money in the Principal and Interest Account shall be used first to pay the principal of and interest on the Bonds when due and then may be used to redeem or purchase Bonds prior to their maturity dates in accordance with this ordinance. (b) Reserve Account. There shall initially be deposited into the Reserve Account from prepayments of ULID No. 1 assessments a total of $767,150, and after April 1, 1985 there shall be deposited into the Reserve Account from ULID Assessments and from Net Revenues of the Waterworks Utility sufficient money, as necessary, so that the Reserve Requirement will be maintained. The Reserve Account may be accumulated from any other money the City may have available for such purposes in addition to using the Net Revenues of the Waterworks Utility and ULID Assessments therefor. - 17 - When such Reserve Requirement has been paid into the Reserve Account, the City will maintain that amount at all times, except for adjustments or withdrawals therefrom as authorized herein, until there is a sufficient amount in the Bond Fund, including the Reserve Account, to pay the principal of and interest on all outstanding Bonds and Future Parity Bonds, to the final maturity thereof, at which time the money in the Bond Fund, including the Reserve Account, may be used to pay such principal and interest. In the event there shall be a deficiency in the Principal and Interest Account to meet maturing installments of either principal or interest, as the case may be, on any outstanding bonds payable out of the Bond Fund, such 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 Net Revenues of the Waterworks Utility and/or ULID Assessments first available after making necessary provisions for the required payments into the Bond Fund. All money in the Principal and Interest Account and in the Reserve Account may be kept in cash or deposited in institutions permitted by law in an amount in each institution not greater than the amount insured by any department or agency of the United States Government, or may be invested in United States Government obligations having a guaranteed market, or in United States Government obligations maturing not later than the last maturity of any outstanding bonds that are payable out of the Bond Fund. Interest earned on investments of money in the Principal and Interest Account shall be deposited in and become part of the Principal and Interest Account. Interest earned on investments of money in the Reserve Account shall be deposited in and become a part of the Reserve Account until the Reserve Requirement is accumulated therein and then into the Principal and Interest Account. If the City shall fail to set aside and pay into the Bond Fund the amounts which it has obligated itself by this section to set aside and pay therein, the owner of any Bond may -bring suit against the City to compel it to do so. Section 5. In the judgment of the City Council, the Gross Revenues of the Waterworks Utility at the rates to be charged for water and sanitary sewage disposal service furnished on the entire utility, together with ULID Assessments, will be more than sufficient to meet the Operating and Maintenance Expenses and to permit the setting aside into the Bond Fund out of the Net Revenue of the Waterworks Utility and ULID Assessments hereafter collected of amounts sufficient to pay the interest on the Bonds as such interest becomes payable and to pay and redeem all of such Bonds at maturity. The City Council further declares that in creating the Bond Fund and in fixing the amounts to be paid into the same as aforesaid it has exercised due regard for the Operating and Maintenance Expenses, and the City has not bound and obligated itself to set aside and pay into the Bond Fund a greater amount or proportion of the Net Revenues of the Waterworks Utility and ULID Assessments than in the judgment of the City Council will be available over and above such Operating and Maintenance Expenses, and that no portion of the Net Revenue of the Waterworks Utility and ULID Assessments has been pledged previously for any indebtedness other than the Refunded Bonds to be refunded or otherwise paid and retired as stated above. Section 6. Irrevocable provision having been made herein for the payment and retirement of the outstanding 1962 Bonds, 1963 Bonds, 1973 Bonds and 1977 Bonds, the amounts so pledged to be paid into the Bond Fund out of the Net Revenues of the - 19 - Waterworks Utility and ULID Assessments are declared to be a first lien and charge upon such Net Revenues and such ULID Assessments superior in rank to any liens, charges or other encumbrances that may be made upon such Net Revenues and such ULID Assessments. Section 7. The Bonds shall be printed, lithographed or typed on good bond paper in a form consistent with the provi- sions of this ordinance, shall be signed by the Mayor and attested by the City Clerk, either or both of whose signatures shall be in facsimile, and shall have a facsimile of the seal of the City printed thereon. Only such Bonds as shall bear thereon a Certificate of Authentication in the following form, manually executed by the Bond Registrar, shall be valid or obligatory for any purpose or entitled to the benefits of this ordinance: CERTIFICATE OF AUTHENTICATION This bond is one of the fully registered City of Port Orchard, Washington, Water and Sewer Revenue Bonds, 1984, described in the within mentioned ordinance. WASHINGTON STATE FISCAL AGENCY Bond Registrar By Authorized Officer Section 8. The Bonds shall be negotiable instruments to the extent provided by RCW 62A.8-102 and 62A.8-105. Section 9. The City further covenants and agrees with the owner of each of the Bonds as follows: (a) All ULID Assessments shall be paid into the Bond Fund and may be used only to pay the principal of and interest on outstanding Bonds and Future Parity Bonds. However, nothing in this ordinance or this section shall be construed to prohibit the City from issuing water and sewer revenue bonds junior in lien to the Bonds and Future Parity Bonds and pledg- ing as security for their payment assessments levied in any ULID which may have been specifically created to pay part or all of the cost of improvements to the Waterworks Utility for which those junior lien bonds are specifically issued. - 20 - (b) It will at all times maintain and keep the Waterworks Utility in good repair, working order and condition, and also will at all times operate such utility and the business in connection therewith in an efficient manner and at a reasonable cost. (c) It will not mortgage, sell, lease or in any manner encumber or dispose of all the property of the Waterworks Utility, unless provision is made for - payment into the Bond Fund of a sum sufficient to pay the principal of, premium, if any, and interest on all outstanding bonds payable therefrom, nor will it mortgage, sell, lease or in any manner encumber or dispose of any part of the Waterworks Utility that is used, useful and material to the operation of the Waterworks Utility unless provision is made for replacement thereof or for payment into the Bond Fund of an amount which shall bear the same ratio to the amount of the outstanding bonds payable from the Bond Fund as the revenue available for debt service for those bonds for the twelve months preceding such sale, lease, encumbrance or disposal from the portion of the utility so sold, leased, encumbered or dis- posed of bears to the revenue available for debt service for those bonds from the entire Waterworks Utility for the same period. Any such money so paid into the Bond Fund shall be used to retire outstand- ing bonds payable therefrom at the earliest possible date. (d) It will establish, maintain and collect such rates and charges for water and sanitary sewage disposal service furnished which, together with the collection of ULID Assessments and other Net Revenues of the Waterworks Utility, will make available for the payment of the principal of and interest on the Bonds an amount, after payment of Operating and Maintenance Expenses, but before depreciation and any City imposed taxes, which will at all times be at least 1.10 times the Maximum Annual Debt Service. (e) It will keep and maintain proper books of account and accurate records of all of its Gross Revenues of the Waterworks Utility and Operating and Maintenance Expenses and will cause an annual audit to be made of its accounts and records by a certified public accountant experienced in municipal audits; this requirement may be fulfilled by regular audits by the State Auditor. (f) It will carry the types of insurance, including self-insurance, on the properties of the Waterworks Utility in the amounts normally carried by private water and sewer companies engaged in the operation of water and sewerage systems, and the cost of such insurance shall be considered a part of Operating and Maintenance Expenses of the Waterworks Utility. (g) It will not furnish water or sanitary sewage disposal service to any customer whatsoever free of charge and will take legal action promptly to enforce collection of all delinquent accounts and all delinquent ULID Assessments. - 21 - (h) It will spend the proceeds of the Bonds with due diligence to completion of the purposes specified herein and will make no use of the proceeds of the Bonds or other funds of the City at any time during the term of the Bonds which will cause such Bonds to be arbitrage bonds within the meaning of Section 103(c) of the United States Internal Revenue Code of 1954, as amended, and applicable regulations thereunder. Section 10. The Gross Revenue of the Waterworks Utility of the City, including any unpledged moneys in the 'Water & Sewer Utility Operating Fund" of the City or funds other than bond redemption funds, shall be used in the following order of priority: (a) For Operating and Maintenance Expenses. (b) To meet the required payments into the Bond Fund for all bonds payable out of the Bond Fund. (c) To meet the debt service requirements for any water and sewer revenue bonds hereafter issued on a junior lien basis. (d) To redeem and retire any water and sewer revenue bonds of the City then outstanding or make open market purchases of those bonds, and to make necessary additions, betterments, repairs, extensions and replacements of the Waterworks Utility, and other purposes proper to the operation and maintenance of such utility. Section 11. 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 Future Parity Bonds or such portion thereof included in the refunding plan as the same become due and payable and to refund all such then outstanding Bonds and to pay the cost of refunding, and shall have irrevoc- ably set aside for and pledged to such payment and refunding, money and/or direct obligations of the United States of America or other legal investments sufficient in amount, together with known earned income from the investment thereof, to make such payment and to accomplish the refunding as scheduled, and shall irrevocably make provision for redemption of such Bonds or - 22 - Future Parity Bonds, then in that case all right and interest of the registered owners of the Bonds to be so retired or refunded in the covenants of this ordinance and in the revenues, funds and accounts and ULID Assessments obligated to pay such Bonds or Future Parity Bonds, except the right to receive the funds so set aside and pledged, shall thereupon cease and become void, and the City may then apply any money in any fund or account established for the payment or redemption of such Bonds to any lawful purpose as it shall determine. In the event that the refunding plan provides that the refunding bonds be secured by cash and/or direct obligations of the United States of America or other legal investments 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 other legal investments are irrevocably pledged for the prior redemption of those Bonds included in the refunding plan, then only the debt service on the Bonds and the refunding bonds payable from Net Revenues of the Waterworks Utility shall be included in the computation of coverage for determining compliance with the rate covenants. Section 12. The City covenants with the owner and holder of each of the Bonds for as long as the same remain outstanding that it will not issue any Future Parity Bonds or bonds having a superior or parity lien to that of the Bonds on the Net Revenues of the Waterworks Utility, except that it reserves the right to issue Future Parity Bonds which shall constitute a charge or lien upon such Net Revenues and ULID Assessments on a parity of lien with the charge or lien of the Bonds for the following purposes: (a) Acquiring, constructing and installing additions and improvements to and betterments of, acquiring necessary equipment for or making necessary - 23 - replacements of equipment or capital improvements to, the Waterworks Utility, or (b) Exchanging or purchasing and retiring prior to or at their maturity any outstanding water and sewer revenue bonds of the City, and only if the following conditions shall be met and complied with at the time of issuance of such Future Parity Bonds: (a) All payments then required by this ordi- nance and all payments then required by any ordinance hereafter adopted pertaining to any Future Parity Bonds hereafter issued in accordance with the pro- visions of this section shall have been made into the Bond Fund. (b) The ordinance providing for the issuance of such Future Parity Bonds shall provide that all ULID Assessments shall be paid directly into the Bond Fund. (c) The 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 and shall further provide for the payment, within six years of issuance of such Future Parity Bonds, into the Reserve Account in the Bond Fund out of any ULID Assessments levied and collected for the payment of the principal of and interest on such Future Parity Bonds and, if neces- sary, out of any other money of the Waterworks Utility available for such purpose of an amount equal to any Reserve Requirement for the Bonds and such Future Parity Bonds. In the event no ULID Assess- ments are levied for the payment of the principal of and interest on such Future Parity Bonds or those that are so levied are insufficient to satisfy any reserve requirement, the City shall pay from the Net Revenues of the Waterworks Utility or from other legally available sources such amount into the Reserve Account within six years from the date of issuance of such bonds, except in the case of refunding bonds. The ordinance authorizing the issuance of such refunding Future Parity Bonds shall provide that the money in the Reserve Account for the bonds to be refunded shall be retained in the Bond Fund as a reserve for the refunding bonds, or the money in any other reserve account or fund for the bonds being refunded or any money remaining in an account previously established for the refunded bonds, shall be transferred to the Reserve Account in the Bond Fund or used in conjunction with the refunding in any manner deemed prudent by the City, but if such amount does not equal the Reserve Requirement, such Reserve Requirement for the refunding bonds shall be accumulated in the same manner and within the same time as set forth herein for Future Parity Bonds. (d) There shall be on file with the City a certificate of a professional engineer experienced in municipal utilities and licensed to practice in the - 24 - State of Washington to the effect that (1) where ULID Assessments are sufficient to pay 90% or more of the debt service on the Future Parity Bonds, the annual Net Revenues of the Waterworks Utility available for debt service on all then outstanding Bonds and the Future Parity Bonds to be issued, together with ULID Assessments, will be at least equal to 1.10 times the Annual Debt Service requirements of the outstanding Bonds and the Future Parity Bonds, both principal and interest, at any time through the assessment payment period of ULID Assessments; and (2) where ULID Assessments are not sufficient to pay for 90% or more of the debt service on the Future Parity Bonds, the annual Net Revenues of the Waterworks Utility avail- able for debt service on all then outstanding Bonds and the Future Parity Bonds to be issued, together with ULID Assessments, shall be at least equal to 1.30 times such Annual Debt Service requirements. The engineer's certificate, in estimating the Net Revenues of the Waterworks Utility available for debt service, shall use the historical Net Revenues of the Waterworks Utility for any twelve consecutive months out of twenty-four months immediately preced- ing the month of delivery of the Future Parity Bonds. Such Net Revenues may be adjusted to reflect any changes in rates and shall treat such changes having been in effect throughout the twelve-month computation period; may include income derived from customers of the Waterworks Utility that have become customers during the twelve consecutive month period or thereafter adjusted to reflect one year's net revenue from such customers; may include revenues from any customers to be connected to the Waterworks Utility who have paid the required connection charges; may include such Net Revenues to be derived from any person, firm, corporation or municipal corporation under any executed contract for water and/or sewer service which revenue was not included in the historical Net Revenues of the Waterworks Utility; and may include the engineer's estimate of the Net Revenues of the Waterworks Utility to be derived by the City as the result of any additions, Improvements and extensions of the Waterworks Utility then under construction and not fully connected to the facilities of the Waterworks Utility. Such certificate shall further show that, based upon the amortization schedule of principal and interest for all Bonds and the proposed issue of Future Parity Bonds, there shall be sufficient Net Revenues and ULID Assessments available for debt service on all such bonds as will permit the Term Bonds of all issues to be retired by their maturity dates. If Future Parity Bonds proposed to be so issued are for the sole purpose of refunding outstanding water and sewer revenue bonds payable from the Bond Fund, such certification of coverage shall not be required if the amount required for the payment of the principal and interest in each year for the refunding bonds is not increased over the amount - 25 - required for the bonds to be refunded thereby and the maturities of those refunding bonds are not extended beyond the maturities of the bonds to be refunded thereby. The coverage requirements set forth in the first subparagraph of this subsection 12(d) may be waived or modified by written consent of the bondholders representing 75% of the then outstanding principal. indebtedness payable from the Bond Fund. The City reserves the right to issue bonds having a lien upon the Net Revenues of the Waterworks Utility subordinate and junior to the lien thereon of the Bonds or any Future Parity Bonds. Section 13. Foster & Marshall/American Express Inc. and Terry Thompson & Co. of Seattle, Washington, has offered to purchase the Bonds at a price of $97.00 per each $100 par value thereof, plus accrued interest to date of delivery of the Bonds, the City to furnish at its expense the printed Bonds and the approving legal opinion of Roberts & Shefelman, municipal bond counsel of Seattle, Washington. Bond counsel shall not be required to review or express any opinion concerning the completeness or accuracy of any official statement, offering circular or other sales material issued or used in connection with the Bonds, and bond counsel's opinion shall so state. The City Council, being of the opinion that no better price could be secured for the Bonds and that it is in the best interests of the City to accept such offer, accepts the same. The City officials are authorized and directed to deliver the Bonds, immediately upon their execution, to the purchaser upon payment therefor in accordance with the offer of the purchaser. The appropriate officers of the City are authorized to perform such duties and execute such documents as necessary to carry out the purposes of this ordinance. Section 14. The net effective interest rate on the Bonds is declared to be 9.60 percent, and, therefore, in accordance - 26 - with Section 9 of Ordinance No. 1237 and the Treasurer's Notice of Collection of Assessments, the interest rate on unpaid installments of assessments on the final assessment roll for ULID No. 1 is fixed at 10.60 percent per annum. Section 15. Pending the printing, execution and delivery to the purchasers of the definitive Bonds, the City may cause to be executed and delivered to such purchaser a single temporary Bond in the principal amount of $6,450,000. Such temporary Bond shall bear the same date of issuance, interest rates, principal payment dates and terms and covenants as the definitive Bonds, and shall be issued as a fully registered bond in the name of such purchasers, and shall be in such form as acceptable to such purchaser. Such temporary Bonds shall be exchanged for the definitive Bond as soon as the same are printed, executed and available for delivery. Section 16. All actions of the City of Port Orchard, its officers or employees heretofore taken in conformance with this ordinance are hereby ratified and confirmed. PASSED by the City Council at a regular open public meeting thereof and APPROVED by the Mayor of the City of Port Orchard, Washington, this J2/vLt,,day of /Y) R 2c 1-� , 1984. ATTEST: C-eity Clerk APPROVED AS TO FORM: City Ax orney 0387p - 27 - Mayor I, ROBERT G. LLOYD, City Clerk of the City of Port Orchard, Washington, certify that the attached copy of Ordinance No. /2 C z is a true and correct copy of the original ordinance passed on the t7tL day of 1984, as that ordinance appears on the Minute Book of the City. DATED this cL day of , 1984. OBERT G. LLOYD, City Clerk 0387p EXHIBIT A REFUNDING TRUST AGREEMENT THIS AGREEMENT made and entered into as of the ft✓�day of March, 1984, by and between the CITY OF PORT ORCHARD, WASHINGTON, a municipal corporation of the State of Washington (the "City"), and PEOPLES NATIONAL BANK OF WASHINGTON, Seattle, Washington (the "Refunding Trustee"): W I T N E S S E T H: Section 1. Recitals. The City now has outstanding the following bonds: (a) $41,000 principal amount of its "Refunding Sewer Revenue Bonds, 1962" dated April 1, 1962 (the "1962 Bonds"), which 1962 Bonds mature serially on October 1 of each year 1983 through 1986, and bear Interest at 4-1/4% per annum; and (b) $10,000 principal amount of its "Water Revenue Bonds, 1963" dated April 1, 1963 (the "1963 Bonds"), which 1963 Bonds mature serially on June 1 of 1984, and bear interest at 4% per annum; and (c) $300,000 principal amount of its "Water and Sewer Revenue Refunding Bonds, 1973" dated March 1, 1973 (the "1973 Bonds"), which 1973 Bonds mature serially on December 1 of each year 1985 through 1994, and bear interest at 6-1/8% per annum; and (d) $236,000 principal amount of its 'Water and Sewer Revenue Bonds, 1977" dated December 7, 1977 (the "1977 Bonds'), which 1977 Bonds mature serially on December l of each year 1983 through 2017, and bear interest at 5% per annum. (The 1962 Bonds, the 1963 Bonds, the 1973 Bonds and the 1977 Bonds are sometimes hereinafter collectively referred to as the "Outstanding Bonds.') Pursuant to Ordinance No. (Z 6 (the "Bond Ordinance") passed by the City Council of the City on /2 1984, the City has, among other things, determined to pay the principal of and interest on each of the Outstanding Bonds as each shall become due, up to and including the final maturity of each issue, out of the proceeds of the sale of its "Water and Sewer Revenue Bonds, 1984" (the "Refunding Bonds"), and other money of the City legally available therefor. Section 2. Provisions for Refunding the Outstanding Bonds. To accomplish the refunding of all the Outstanding Bonds in the manner hereinafter set forth in this section, the City, simultaneously with the delivery of the Refunding Bonds issued pursuant to the Bond Ordinance, agrees to deposit irrevocably with the Refunding Trustee in trust for the security and benefit of the holders and owners of the Outstanding Bonds and the Refunding Bonds, $ in cash and certain securities, which securities hereinafter are referred to as "Acquired Obligations," of the types and with amounts, interest rates and - 2 - maturities as more particularly set forth in Schedule A attached to this Agreement and by this reference incorporated herein. Such cash and Acquired Obligations, together with the investment income therefrom, will be sufficient to provide the funds to pay the principal of and interest on each of the Outstanding Bonds as the same shall become due, up to and including the final maturity of each issue. Section 3. Provisions Applicable to Refunding. On or before the delivery of the Refunding Bonds, the City agrees that it will cause to be delivered to the Refunding Trustee a state- ment setting forth the amount of interest and principal to be paid on each semiannual interest payment date on all of the Outstanding Bonds to be paid and refunded as hereinbefore set forth, up through the respective maturity dates of the Outstand- ing Bonds. Section 4. Disbursements by Refunding Trustee. The Refunding Trustee shall present for payment on the due date thereof the Acquired Obligations so deposited and shall apply the proceeds derived therefrom in accordance with the provisions of this Agreement. Money shall be transferred by the Refunding Trustee to the City Treasurer in amounts sufficient and in time to pay the principal of and interest on the Outstanding Bonds coming due on or before each respective payment date. Section 5. Restrictions on Reinvestment of Funds; Custody and Safekeeping of "Acquired Obligations." All money deposited - 3 - with the Refunding Trustee or received by the Refunding Trustee as maturing principal or interest on the Acquired Obligations prior to the time required to make the payments hereinbefore set forth shall be held by the Refunding Trustee and shall not be reinvested, unless with such reinvestment the Refunding Bonds will remain exempt from federal income taxation. All income derived from the Acquired Obligations and any money deposited with the Refunding Trustee, which income and/or money is not required to make the payments hereinbefore required to be made, shall be paid to the City Treasurer of the City of Port Orchard for the credit of the "City of Port Orchard Water and Sewer Revenue Bond Fund, 1984" (the "Bond Fund"), as and when realized and collected for use and application in accord- ance with the Bond Ordinance as other money deposited in the Bond Fund. For as long as any of the Outstanding Bonds are outstand- ing, on or before the loth day of each month, commencing with the month of May, 1984, the Refunding Trustee shall render a statement as of the last day of the preceding month to the Treasurer of the City, which statement shall set forth the Acquired Obligations which have matured and the amounts received by the Refunding Trustee by reason of such maturity, the invest- ment income received, and the amounts paid to the City Treasurer for credit to the "1984 Refunding Fund" created and established by the Bond Ordinance, and the dates of such payment, for the - 4 - payment of the maturing principal of and interest on the Out- standing Bonds as the same shall become due and payable and any other transactions of the Refunding Trustee pertaining to its duties and obligations as set forth herein. All Acquired Obligations, money and investment income deposited with or received by the Refunding Trustee pursuant to this Agreement shall be subject to the trust created by this Agreement, and the Refunding Trustee shall be liable for the preservation and safekeeping thereof. Section 6. Substituted Securities. Notwithstanding the foregoing or any other provision of this Agreement, at the request of the City and upon compliance with the conditions hereinafter stated, the Refunding Trustee shall have the power to and shall, in simultaneous transactions, sell, transfer, otherwise dispose of or request the redemption of any or all of the Acquired Obligations held hereunder and to substitute there- for direct obligations of the United States of America subject to the condition that such money or securities held by the Refunding Trustee shall be sufficient to pay the principal of and interest on the Outstanding Bonds when due. The City cove- nants and agrees that it will not request the Refunding Trustee to exercise any of the powers described in the preceding sentence in any manner which will cause the Refunding Bonds to be arbitrage bonds within the meaning of Section 103(c) of the Internal Revenue Code of 1954, as amended, and the regulations thereunder in effect on the date of such request and applicable - 5 - to obligations issued on the issue date of the Refunding Bonds. The Refunding Trustee shall purchase such substituted securities with the proceeds derived from the maturity, sale, transfer, disposition or redemption of the Acquired Obligations held hereunder or from other money available. The transactions may be effected only if there shall have been obtained at the expense of the City, an opinion from Roberts & Shefelman, bond counsel to the City, to the City to the effect that the disposi- tion and substitution or purchase of such securities will not, under the statutes, rules and regulations then in force and applicable to the Refunding Bonds, cause the interest on the Refunding Bonds not to be exempt from Federal income taxation and that such disposition and substitution or purchase is not inconsistent with the statutes and regulations applicable to the Refunding Bonds. Any surplus money resulting from the sale, transfer, other disposition or redemption of the Acquired Obli- gations held hereunder and the substitutions therefor of direct obligations of, or obligations the principal of and interest on which is unconditionally guaranteed by, the United States of America, shall be released from the trust estate and shall be transferred to the City. Section 7. Duties and Obligations of Refunding Trustee. The duties and obligations of the Refunding Trustee shall be as prescribed by the provisions of this Agreement, and the Refund- ing Trustee shall not be liable except for the performance of its duties and obligations as specifically set forth herein and - 6 - to act in good faith in the performance thereof and no implied duties or obligations shall be incurred by such Refunding Trustee other than those specified herein. The Refunding Trustee may consult with counsel of its choice (except as provided below) and the opinion of such coun- sel shall be full and complete authorization and protection in respect to any action taken or not taken or suffered by it hereunder in good faith and in accordance with the opinion of such counsel. For any question relating to the tax exempt status of the Refunding Bonds, the Refunding Trustee must con- sult with Roberts & Shefelman, bond counsel to the City. Provisions for the fees, compensation and expenses of the Refunding Trustee satisfactory to it have been made. ATTEST: ity Clerk CITY OF PORT ORCHARD, WASHINGTON B��� ��� May PEOPLES NATIONAL BANK OF WASHINGTON ° - 7 -