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HomeMy WebLinkAboutRES NO 196-93(2)RESOLUTION NO. j' 9 6 ' g 8(2) RESOLUTION SUPPLEMENTING AND AMENDING FOR CLARITY RESOLUTION NO. 196-93 TO PROVIDE FOR THE ISSUANCE OF THE CITY OF BAKERSFIELD SEWER REVENUE BONDS, SERIES 1997, ON A PARITY WITH THE SERIES 1994 REVENUE BONDS, IN THE AGGREGATE PRINCIPAL AMOUNT OF NOT TO EXCEED $25.0 MILLION, AND AUTHORIZING RELATED ACTIONS AND EXECUTION OF RELATED INSTRUMENTS. (Sewer Revenue Bonds, Series 1997) WHEREAS, the City of Bakersfield (the "City") is a charter city organized and existing under the laws of the State of California (the "State"); and WHEREAS, the City now owns and operates a municipal sewer system (the "Enterprise"); and WHEREAS, by Resolution No. 196-93, duly adopted on December 15, 1993 (the "1994 Resolution"), the City Council (the "Council") of the City provided for the issuance of the sewer revenue refunding bonds, which were issued in February 1994 as the City's Sewer Revenue Refunding Bonds, Series 1994 (the "Series 1994 Bonds"), and were sold and delivered to the Bakersfield Public Financing Authority (the "Authority") as part of the set of local obligations purchased by the Authority with proceeds of the Authority's Series 1994 Revenue Bonds; and WHEREAS, the 1994 Resolution provides that the City may, by supplemental resolution, provide for the issuance of Parity Obligations (as said term is defined in the Resolution) from time to time, subject to the specific conditions set forth therein, and may amend the 1994 Resolution, without the consent of any Owner of the Series 1994 Bonds, to the extent permitted by law and for the purpose, among other purposes, of curing any ambiguity or curing, correcting or supplementing any defective provision contained in the 1994 Resolution or resolving questions arising under the 1994 Resolution, as the City may deem necessary or desirable and which shall not adversely affect the interests of the Owners of the 1994 Bondsl and WHEREAS, the City is in receipt of a written opinion of Orrick, Herrington & Sutcliffe LLP, Bond Counsel to the City for the Series 1997 Bonds, that the amendments proposed by this resolution are within the scope of amendments permitted by Section 6.01 of the 1994 Resolution without the consent of any Owners of the Bonds; and WHEREAS, the conditions specified by the 1994 Resolution for the issuance of Parity Obligations in the amount proposed for this sewer revenue bond issue (the "Series 1997 Bonds") have been satisfied, and the Council has determined that it is in the interests of the City to issue the Series 1997 Bonds in the principal amount of not to exceed $25.0 Million pursuant to the 1994 Resolution, as supplemented by this Supplemental Resolution (collectively, the 1994 Resolution and this Supplemental Resolution are referred to as the "Resolution"), for the purpose of financing a portion of the cost and expense of certain sewer system improvements to the Enterprise (as further defined herein, the "1997 Project"); and WHEREAS, Section 33.3 of the Charter of the City, as implemented by Chapter 3.55 of the Municipal Code of the City, authorizes the City to issue enterprise revenue bonds for such purposes; and WHEREAS, on November 19, 1997, this Council previously adopted its Resolution No. 196-93(1 ), in conformity with Resolution No. 196-93, to authorize issuance of and to provide various terms and conditions respecting issuance of the Series 1997 Bonds; and WHEREAS, the City is in receipt of conditional commitments from Financial Guaranty Insurance Company ("FGIC") to issue both (a) a bond insurance policy and (b) a reserve fund policy with respect to the Series 1997 Bonds, and in order to assure compliance with the conditions imposed by FGIC with respect to issuance of both policies, Orrick, Herrington & Sutcliffe LLP, Bond Counsel to the City for the Series 1997 Bonds, after further review of said conditions and discussion thereof with the City's Finance Director, Disclosure Counsel to the City for the Series 1997 Bonds, and the Underwriter of the Series 1997 Bonds, has prepared this resolution to further supplement and amend Resolution No. 196-93 and has recommended that this Council adopt this resolution to replace and supersede the previous resolution adopted on November 19, 1997. NOW, THEREFORE, BE IT FOUND, DETERMINED AND RESOLVED by the Council of the City of Bakersfield, as follows: ARTICLE IX AUTHORIZATION OF SERIES 1997 BONDS; DEFINITIONS SECTION 9.01. Authorization of Series 1997 Bonds. The City has reviewed all proceedings heretofore taken and has found, as a result of such review, and hereby finds and determines, that all things, conditions and acts required by law and the 1994 Resolution to exist, happen or be performed precedent to and in connection with the issuance of the Series 1997 Bonds to exist, have happened and have been performed in due time, form and manner as required by law and the 1994 Resolution, and the City is now duly empowered, pursuant to each and every requirement of law and the 1994 Resolution, to issue the Series 1997 Bonds in the manner and form provided in this Supplemental Resolution. 2 SECTION 9.02. Definitions. The terms defined in Section 1.02 of the 1994 Resolution shall for all purposes of this Supplemental Resolution have the meanings specified in the 1994 Resolution, unless otherwise provided in this Section 902 (a) The definition of the term "Bonds" is amended to read as follows: "Bonds" means the Series 1994 Bonds, the Series 1997 Bonds and any Parity Obligations heretofore issued; provided that with respect to Sections 2.01, 2.02, 2.03(a) and 3.06 of the 1994 Resolution, "Bonds" means the Series 1994 Bonds. "Series 1994 Bonds" means the City of Bakersfield Sewer Revenue Refunding Bonds, Series 1994. "Series 1997 Bonds" means the City of Bakersfield Sewer Revenue Bonds, Series 1997. Without limiting the generality of the foregoing, the term "Parity Obligations" expressly includes the Loan Contract (the "State Loan"), between the City and the State, acting by and through the State Water Resources Control Board, presently expected to be entered into on or about December 1, 1997, repayment of which will be secured by the Net Revenues on a parity with the Series 1994 Bonds and the Series 1997 Bonds. (b) The definitions of the terms "Aggregate Annual Debt Service," "Annual Debt Service" and "Maximum Annual Debt Service" are amended to refer to "Fiscal Year" in each place where each such definition presently refers to "Bond Year," with the result that Aggregate Annual Debt Service, Annual Debt Service and Maximum Annual Debt Service will be measured on a Fiscal Year basis rather than a Bond Year basis. (c) The definition of the term "Net Revenues" is amended to read as follows: "Net Revenues" means, for any Fiscal Year, the Revenues for such Fiscal Year less the Maintenance and Operation Costs for such Fiscal Year. (d) The definition of the term "Resolution" is amended to read as follows: "Resolution" means the 1994 Resolution, adopted by the Council on December 15, t993, under and pursuant to the Refunding Law, as 3 (e) (f) to read as follows: supplemented and amended by the Supplemental Resolution, adopted by the Council on November 19, 1997, under and pursuant to the 1994 Resolution and Chapter 3.55 of the Municipal Code of the City. A definition of the term "Connection Fees" is added to read as follows: "Connection Fees" means any fee or charge imposed upon any person and payable as a condition to establishing a physical connection to the Enterprise through which sewage effluent will be discharged into the Enterprise. A definition of the term "Maintenance and Operations Costs" is added "Maintenance and Operations Costs" means the reasonable and necessary costs and expenses paid or incurred by the City for maintaining and operating the Enterprise, determined in accordance with generally accepted accounting principles, including all reasonable expenses of management, repair and other expenses necessary to maintain and preserve the Enterprise in good repair and working order, and including all administrative costs of the City that are properly charged directly or apportioned to the operation of the Enterprise, such as salaries and wages of employees, overhead, taxes (if any) and insurance premiums, and including all other reasonable and necessary costs and expenses of the City or charges required to be paid by the City to comply with the terms hereof, such as compensation, reimbursement and indemnification of the Fiscal Agent and fees and expenses of Independent Certified Public Accountants and Independent Financial Consultants; but excluding in all cases Annual Debt Service, depreciation, replacement and obsolescence charges or reserves therefor and amortization of intangibles. 4 (g} The following terms used in this Supplemental Resolution shall have the following meanings: "Bond insurance Policy" means, with respect to the Series 1997 Bonds, the municipal bond new issue insurance policy issued by the Bond Insurer that guarantees payment of principal of and interest on the Series 1997 Bonds. "Bond Insurer" means, with respect to the Series 1997 Bonds, Financial Guaranty Insurance Company, a New York Stock insurance company, or any successor thereto. "Bond InsureCs Fiscal Agent" means, with respect to the Series 1997 Bonds, State Street Bank and Trust Company, N.A., New York, New York, or its successor as fiscal agent to the Bond Insurer. "Bond Law" means Chapter 3.55 of the Municipal Code of the City, entitled the "Enterprise Revenue Bond Law." "1997 Closing Date" means, with respect to the Series 1997 Bonds, the date on which the Series 1997 Bonds are delivered to the original purchaser thereof upon payment of the purchase price thereof in immediately available funds. "Corporate Trust Office" means the corporate trust office of the Fiscal Agent at 550 South Hope Street, Suite 500, Los Angeles, California 90071; provided that, for purposes of registration, transfer, exchange and payment of the Bonds, "Corporate Trust Office" means in care of the corporate trust office of First Trust National Association in St. Paul, Minnesota, or at such other address designated by the Fiscal Agent in written notice filed with the City and the Owners of the Bonds. "Fiscal Agent" means First Trust of California, National Association, a national banking association duly organized and existing under the laws of the United States of America, or any successor thereto appointed by the City. "1997 Project" means the improvements to the Enterprise described in the Preliminary Official Statement respecting the Series 1997 Bonds, dated November 24, 1997, in the section entitled "THE ENTERPRISE AND THE PROJECT - The Project." "1997 Project Fund" means the fund by that name established and held by the Fiscal Agent pursuant to Section 10.07(c). "Rebate Fund" means the fund by that name established and held by the Fiscal Agent pursuant to Section 11.02. "1997 Reserve Fund" means the fund by that name established and held by the Fiscal Agent pursuant to Section 11.01. 5 "1997 Reserve Policy" means the municipal bond debt service reserve fund policy issued with respect to the Series 1997 Bonds by the Bond Insurer. "1997 Reserve Policy Costs" means the sum of (1) any draws under the 1997 Reserve Policy, (2) related reasonable expenses incurred by the Bond Insurer in connection therewith, and (3) interest thereon at a rate equal to the lesser of (a) the prime rate of Morgan Guaranty Trust Company of New York in effect from time to time plus two percent (2%) per annum and (b) the highest rate permitted by law. "1997 Reserve Requirement" means, as of any date of calculation, an amount equal to the lesser of: (i) ten percent (10%) of the original principal amount of the Series 1997 Bonds; (ii) one hundred twenty-five percent (125%) of average annual debt service on the Series 1997 Bonds; and (iii) maximum annual debt service on all Series 1997 Bonds Outstanding. "Supplemental Resolution" means this Supplemental Resolution, specifically authorized by the 1994 Resolution. ARTICLE X THE SERIES 1997 BONDS SECTION 10.01. Authorization and Designation. The Series 1997 Bonds, in the aggregate principal amount not to exceed $25.0 Million, are hereby authorized to be issued by the City under and subject to the terms of the Resolution and the Bond Law. The Series 1997 Bonds shall be designated the "City of Bakersfield Sewer Revenue Bonds, Series 1997." SECTION 10.02. Terms of Series 1997 Bonds. The Series 1997 Bonds shall be issued in fully registered form without coupons in denominations of $5,000 or any integral multiple thereof, numbered consecutively upward in order of issuance. The Series 1997 Bonds shall be initially issued and registered in the name of "Cede & Co.," as nominee of The Depository Trust Company ("DTC"), and shall be evidenced by one Series 1997 Bond maturing on each of the maturity dates specified in the maturity schedule set forth as Appendix A ("Appendix A") to the Purchase Contract (the "Purchase Contract"), dated the date of its execution and to be entered into between the City and George K Baum & Company (the "Underwriter"), as original purchaser of the Series 1997 Bonds, and in a denomination corresponding to the total principal designated in Appendix A to mature on such date. Registered ownership of the Series 1997 Bonds, or any portion thereof, may not thereafter be transferred except as set forth in Section 10.05 of this Supplemental Resolution. 6 Concurrently with the adoption of this Supplemental Resolution, the Council will adopt its resolution approving the form and substance of various documents pertaining to the issuance, sale and delivery of the Series 1997 Bonds, including the Purchase Contract, and providing for establishment of the maturity schedule, interest rates and redemption provisions prior to execution thereof on behalf of the City. The Series 1997 Bonds shall mature and become payable on the Principal Payment Dates in each of the years and in the amounts as set forth and will be subject to redemption in advance of maturity as set forth in Appendix A when executed on behalf of the City. The Series 1997 Bonds shall be dated as provided in the Purchase Contract when executed on behalf of the City, and shall bear interest from said date at the rates shown on Appendix A. Interest shall be paid on each Interest Payment Date to the Owner in whose name the ownership of the Series 1997 Bonds is registered on the Bond Registration Books at the close of business on the immediately preceding Record Date. Interest shall be paid by check of the Fiscal Agent mailed by first class mail, postage prepaid, on each Interest Payment Date to the Owners of the Series 1997 Bonds at their respective addresses shown on the Bond Registration Books as of the close of business on the preceding Record Date; or by wire transfer made on such Interest Payment Date to any Owner of $1,000,000 or more in aggregate principal amount of Series 1997 Bonds who shall have requested such transfer pursuant to written notice filed with the Fiscal Agent, as registrar for the Series 1997 Bonds, received not later than the preceding Record Date. SECTION 10.03. Redemption. (a) Optional Redemption. The Series 1997 Bonds shall be subject to redemption in whole or in part on any date on or after the September 15 to be specified in Appendix A of the Purchase Contract for that purpose, in inverse order of maturity and by lot within a maturity, at the option of the City from any available source of funds, at a redemption price equal to one hundred percent (100%) of the principal amount to be redeemed together with a redemption premium (computed upon the principal amount of the Series 1997 Bonds to be redeemed) to be computed in accordance with a schedule of redemption premiums to be set forth in Appendix A, plus accrued interest to the redemption date; provided that the City and the Underwriter may provide in Appendix A, in lieu of a schedule of redemption premiums, for a specific or set premium for redemption, including a zero premium, and may also provide that the Series 1997 Bonds shall not be subject to optional redemption in advance of maturity. (b) Extraordinary Redemption. The Series 1997 Bonds are also subject to redemption in whole or in part on any date in inverse order of maturity and by lot within a maturity, at the option of the City, without premium, from the net proceeds of insurance or eminent domain available therefor if the City does not apply such net 7 proceeds toward the acquisition or construction of additions, betterments, extensions or improvements to the Enterprise at the principal amount thereof and accrued interest thereon to the date fixed for such extraordinary redemption. (c) Mandatory Sinking Fund Redemption. The Series 1997 Bonds designated as "Term Bonds," if any, in Appendix A are also subject to redemption prior to their respective stated maturity or maturities, as the case may be, in part by lot, from mandatory sinking account payments deposited in the "Mandatory Sinking Account," which the Fiscal Agent shall establish and maintain within the Principal Account in the event Term Bonds are specified in Appendix A, on any September 15 as set forth in Appendix A, at the principal amount thereof and interest accrued thereon to the date fixed for redemption, without premium. Subject to the terms and conditions set forth in this Section, such Series 1997 Bonds shall be redeemed (or paid at maturity, as the case may be) by application of moneys in the Mandatory Sinking Account in the amounts and upon the dates set forth in Appendix A. In the event that Series 1997 Bonds subject to mandatory sinking fund redemption pursuant to this Section, if any, are redeemed in part prior to their stated maturity date from any moneys other than moneys in the Mandatory Sinking Account, the remaining Mandatory Sinking Account Payments, as set forth in Appendix A, for such Series 1997 Bonds shall be reduced proportionately in each year remaining until and including the final maturity date of such Series 1997 Bonds. SECTION 10.04. Form of Series 1997 Bonds. The Series 1997 Bonds shall be substantially in the form set forth in the Resolution, subject to such revisions, additions and omissions as may be appropriate. Without limiting the generality of the foregoing reservation of entitlement to make revisions to the bond form, the Series 1997 Bonds will be established in a form appropriate for book-entry only systems and for authentication, registration and administration by the Fiscal Agent and shall include an appropriate statement of insurance respecting the Bond Insurance Policy. SECTION 10.05. Use of Depository. Notwithstanding any provisions of the Resolution or this Supplemental Resolution to the contrary: (a) 'The Series 1997 Bonds shall be initially issued as provided in Section 10.02 hereof. Registered ownership of such Series 1997 Bonds, or any portions thereof, may not thereafter be transferred except: (i) to any successors of DTC or its nominee, or of any substitute depository designated pursuant to clause (ii) of this subsection (a) ("substitute depository"); provided that such successor of DTC or substitute depository is qualified under any applicable laws to provide the service proposed to be provided by it; (ii) to any substitute depository, upon (1) the resignation of DTC or its successor (or any substitute depository or its successor) from its functions as depository, or (2) a determination by the City that DTC or its successor is no longer able to carry out its functions as depository; provided that any such substitute depository shall be qualified under any applicable laws to provide the services proposed to be provided by it; or (iii) to any person as provided below, upon (1) the resignation of DTC or its successor (or substitute depository or its successor) from its functions as depository, or (2) a determination by the City that DTC or its successor (or substitute depository or its successor) is no longer able to carry out its functions as depository. (b) In the case of any transfer pursuant to clause (i) or clause (ii) of subsection (a) of this Section, upon receipt of all Outstanding Series 1997 Bonds by the City, a single new Series 1997 Bond, which the City shall prepare or cause to be prepared, shall be executed and delivered for each maturity of such Series 1997 Bond then Outstanding, registered in the name of such successor or such substitute depository, or their nominees, as the case may be. In the case of any transfer pursuant to clause (iii) of subsection (a) of this Section, upon receipt of all Outstanding Series 1997 Bonds by the City, new Series 1997 Bonds, which the City shall prepare or cause to be prepared, shall be executed and delivered in such denominations and registered in the names of such persons, subject to the limitations of Section 10.02 hereof. (c) In the case of a partial redemption or an advance refunding of any Series 1997 Bonds evidencing a portion of the principal maturing in a particular year, DTC shall make an appropriate notation on the Series 1997 Bonds indicating the date and amounts of such reduction in principal. The City shall not be liable for DTC's failure to make such notations or DTC's errors in making such notations and the City may rely conclusively on its records as to the registered owners of the Series 1997 Bonds. (d) The City and any Fiscal Agent shall be entitled to treat the person in whose name any Series 1997 Bond is registered as the Owner thereof for all purposes of the Resolution and any applicable laws, notwithstanding any notice to the contrary received by the City; and the City and the Fiscal Agent shall not have responsibility for transmitting payments to, communicating with, notifying, or otherwise dealing with any beneficial owners of the Series 1997 Bonds. Neither the City nor the Fiscal Agent shall have any responsibility or obligations, legal or otherwise, to any such beneficial owners or to any other party, including DTC or its successor (or substitute depository or its successor), except for the Owner of any Series 1997 Bond. (e) So long as all outstanding Series 1997 Bonds are registered in the name of Cede & Co. or its registered assigns, the City and the Fiscal Agent shall cooperate with Cede & Co., as sole registered Series 1997 Bondholder, and its registered assigns in effecting payment of the principal of and redemption premium, if any, and interest on the Series 1997 Bonds by arranging for payment in such manner that funds for 9 such payments are properly identified and are made immediately available on the date they are due. SECTION 10.06. Sale of Bonds. The Finance Director is hereby authorized to negotiate the sale of the Series 1997 Bonds with the Underwriter, in accordance with the terms and conditions of the Purchase Contract; provided that the Purchase Contract may not provide for a principal amount of the Series 1997 Bonds in excess of $25.0 Million, shall provide that the purchase price for the Series 1997 Bonds (exclusive of any original issue discount, if any) shall be not less than 98.8% of the par amount of the Series 1997 Bonds, and shall provide for an average interest rate (excluding the impact of original issue discount or premium, if any) on the Series 1997 Bonds of not to exceed 6.50% per annum. SECTION 10.07. Application of Proceeds from Sale of Series 1997 Bonds. Upon the receipt of the proceeds from the sale of the Series 1997 Bonds, the Fiscal Agent shall deposit said proceeds as follows: (a) The Fiscal Agent shall deposit in the Interest Account the amount of accrued interest and premium, if any, received upon the sale of the Series 1997 Bonds; (b) The Fiscal Agent shall deposit in the Series 1997 Reserve Account the amount of which equals the 1997 Reserve Requirement, to be calculated in accordance with the definition of the 1997 Reserve Requirement set forth above in this Supplemental Resolution; and (c) The Fiscal Agent shall deposit the remainder of the proceeds into the 1997 Project Fund, which fund is hereby created and shall be maintained by the Fiscal Agent until the completion of the 1997 Project. The moneys in the 1997 Project Fund shall be disbursed by the Fiscal Agent to pay (or to make reimbursements or cash advances to the City or any other state agency, public agency or person, firm or corporation for such costs) for costs of the 1997 Project, including Costs of Issuance relating to the Series 1997 Bonds. Any Series 1997 Bond proceeds remaining in the 1997 Project Fund upon completion of the 1997 Project shall be applied by the Fiscal Agent to the payment of debt service on the Series 1997 Bonds or in such other manner as may be determined by the City; provided that, to the extent that any time prior to completion of the 1997 Project and the consequent closing of the 1997 Project Fund, amounts on deposit in the Interest Account or Principal Account or the 1997 Reserve Account are insufficient to pay interest on, principal of or Mandatory Sinking Account payments, if any, with respect to any Series 1997 Bonds when due, on the date such amounts are due, the Fiscal Agent shall transfer moneys on deposit in the 1997 Project fund to such accounts to make such payments. 10 ARTICLE Xl ADDITIONAL COVENANTS OF THE CITY SECTION 11.01. Reserve Account. The City shall cause the Fiscal Agent to establish and hereby covenants to cause the Fiscal Agent to maintain, so long as any of the Series 1997 Bonds are Outstanding, an account separate from any other fund or account established and maintained hereunder designated the "Series 1997 Reserve Account" (the "1997 Reserve Account"). The City hereby covenants to cause the Fiscal Agent to maintain in the Reserve Account an amount equal to the 1997 Reserve Requirement. On or before the last Business Day of each February and August, so long as any Series 1997 Bonds are Outstanding, commencing in February 1998, and after first making the required transfer, if any, to the Trustee for the Pool Bonds for deposit in the Pool Bonds Reserve Fund, the City shall transfer to the Fiscal Agent for deposit in the 1997 Reserve Account that amount of money which shall be required to maintain the 1997 Reserve Account in the full amount of the 1997 Reserve Requirement. Without limiting the generality of the foregoing, in the event of any withdrawal from the 1997 Reserve Account by the Fiscal Agent for transfer to the Interest Account or the Principal Account to fund any deficiency at any time in either of such accounts, the City shall transfer to the Fiscal Agent for deposit in the 1997 Reserve Account that amount of money which shall restore the 1997 Reserve Account to the full amount of the 1997 Reserve Requirement within twelve months of the date of such withdrawal and transfer. All money in the 1997 Reserve account shall be used and withdrawn by the Fiscal Agent solely for the purpose of replenishing the Interest Account or the Principal Account, in that order, in the event of any deficiency at any time in either of such accounts, but solely for the purpose of paying the interest on or principal of or redemption premiums, if any, on the Series 1997 Bonds or for the retirement of all the Series 1997 Bonds then Outstanding, except that so long as the City is not in default hereunder, any cash amounts in the 1997 Reserve Account in excess of the 1997 Reserve Requirement shall be withdrawn from the 1997 Reserve Account on each September 16, beginning September 16, 1998 and deposited in the 1997 Project Fund during construction of the 1997 Project and, upon completion of the 1997 Project, in the Debt Service Fund. All money in the 1997 Reserve Account shall be used and withdrawn by the Fiscal Agent solely for the benefit of the Owners of the Series 1997 Bonds and for the purpose of replenishing the Interest Account or the Principal Account with respect to the Series 1997 Bonds. In the event of issuance of Parity Obligations, any debt service reserve account established with respect to such Parity Obligations shall be separate and apart from the 1997 Reserve Account. The 1997 Reserve Requirement may be satisfied by crediting to the 1997 Reserve Account moneys, a letter of credit, a reserve fund insurance policy, any, o 11 ,:. other comparable credit facility or any combination thereof, which in the aggregate make funds available to the 1997 Reserve Account in an amount equal to the 1997 Reserve Requirement; provided, however, that such letter of credit, reserve fund insurance policy or other comparable credit facility, must be issued by a financial institution whose long term debt or claims paying ability is rated "AA" or better by Moody's and S&P at the time of delivery of such letter of credit, reserve fund insurance policy or other comparable credit facility; and provided further that, so long as the 1997 Reserve Policy is in force, any other credit facility credited to the 1997 Reserve Account shall conform to all requirements imposed by the Bond Insurer with respect to the Bond Insurance Policy and the 1997 Reserve Policy. Upon the deposit with the Fiscal Agent of such letter of credit, reserve fund insurance policy or other comparable credit facility, the Fiscal Agent shall release moneys then on hand in the 1997 Reserve Account to the City in an amount equal to the face amount of the letter of credit, reserve fund insurance policy or other comparable credit facility. SECTION 11.02. Rebate Fund. The City shall cause the Fiscal Agent to maintain a fund separate from any other fund established and maintained hereunder designated the "Series 1997 Bonds Rebate Fund" (the "Rebate Fund"). Subject to a tax certificate dated the 1997 Closing Date and prepared in connection with the issuance, sale and delivery of the Series 1997 Bonds (the "Tax Certificate"), as such Tax Certificate may be amended and supplemented from time to time, moneys held in the Rebate Fund are hereby pledged to secure payments to the United States of America. The City or the Owners shall have no rights in or claim to such moneys. The City specifically covenants that the City will comply with such Tax Certificate and will pay or cause to be paid to the United States of America the rebate amounts as such term is used in such Tax Certificate at the times and in the amounts determined therein. The allocation of money in the Revenue Fund, the investments of money in any fund or account, the application of funds upon acceleration and the defeasance of Outstanding Series 1997 Bonds, all amounts required to be deposited into or on deposit in the Rebate Fund shall be governed exclusively by this Section and by the Tax Certificate (which is incorporated herein by reference). Any funds remaining in the Rebate Fund after redemption and payment with respect to all of the Series 1997 Bonds or provision made therefor, including accrued interest and satisfaction of the Rebate Requirement (as defined in the 1997 Tax Certificate), shall be withdrawn by Fiscal Agent and remitted to the City for any lawful purpose. SECTION 11.03. Continuincj Disclosure. The City hereby covenants and agrees that it will comply with and carry out all of the provisions of that certain continuing disclosure certificate to be entered into in connection with the issuance of the Series 1997 Bonds (the "Continuing Disclosure Certificate"). Notwithstanding any other provision of the Resolution, failure of the City to comply with the Continuing Disclosure Certificate shall not be considered an Event of Default hereunder; however, the Participating Underwriter (as defined in the Continuing Disclosure Certificate) or the Owners of at least 25% aggregate principal amount of Outstanding Series 1997 Bonds, may take such actions as may be necessary and appropriate, including seeking specific performance by court order, to cause the City to comply with its obligations under this Section. SECTION 11.04. Unclaimed Moneys. Anything contained herein to the contrary notwithstanding, any money held by the Fiscal Agent in trust for the payment and discharge of the interest or premium (if any) on or principal of the Series 1997 Bonds which remains unclaimed for two (2) years after the date when the payments of such interest, premium and principal have become payable, if such money was held by the Fiscal Agent at such date, or for two (2) years after the date when the payments of such interest, premium and principal have become payable, if such money was held by the Finance Director (or duly appointed agent hereunder) at such date, or for two (2) years after the date of deposit of such money if deposited with the Fiscal Agent after the date when the interest and premium (if any) on and principal of such Series 1997 Bonds have become payable, shall at the Written Request of the City be repaid by the Fiscal Agent to the City as its absolute property free from trust, and the Fiscal Agent shall thereupon be released and discharged with respect thereto and the Series 1997 Bond Owners shall look only to the City for the payment of the interest and premium (if any) on and principal of such Series 1997 Bonds. The provisions of this Section shall be subject to any contrary provisions of applicable law of the State. ARTICLE Xll AMENDMENT OF 1994 RESOLUTION SECTION 12.01. Amendment of Section 2.03 of the 1994 Resolution. Subparagraphs (b) and (e) of Section 2.03 of the 1994 Resolution are amended to read as follows: "(b) Notice of Redemption. The Fiscal Agent shall mail (by first class mail) notice of any redemption to the respective owners of any Bonds designated for redemption, at least thirty (30) but not more than sixty (60) days prior to the redemption date, at their addresses appearing on the Bond Registration Books; but such mailing shall not be a condition precedent to such redemption, and neither failure to mail or to receive any such notice nor any defect therein shall affect the validity of the proceedings for the redemption of such Bonds. Such notice shall state the redemption date and the redemption price (including the amount of premium, if any) and, if less than all of the then Outstanding Bonds are to be called for 13 redemption, shall designate the numbers of the Bonds to be redeemed by giving the individual number of each Bond or by stating that all Bonds between two stated numbers, both inclusive, or by stating that all of the Bonds of one or more Principal Payment Dates have been called for redemption, and shall require that such Bonds be surrendered at the Corporate Trust Office of the Fiscal Agent for redemption at the said redemption price (including the amount of premium, if any), giving notice also that further interest on such Bonds will not accrue from and after the redemption date. Such notice shall further either (1) explicitly state that the proposed redemption is conditioned on there being on deposit in the applicable fund or account on the redemption date sufficient money to pay the full redemption price of the Bonds to be redeemed, or (2) be sent only if sufficient money to pay the full redemption price of the Bonds to be redeemed is on deposit in the applicable fund or account." "(e) Manner of Redemption. Whenever any Bonds are to be selected for redemption, the Fiscal Agent shall determine by lot, the Bonds or portions thereof to be redeemed. All Bonds redeemed pursuant to this Section 2.03 shall be canceled upon surrender to the Fiscal Agent." SECTION 12.02. Amendment of Section 2.11 of the 1994 Resolution. Subparagraph (b) of Section 2.11 of the 1994 Resolution is amended to read as follows: "(b) An Independent Financial Consultant shall prepare and file a Report with the Finance Director demonstrating and stating (1) that, for the most-recently completed Fiscal Year, Net Revenues (as adjusted for such rate increases for the Enterprise as have been adopted and are either in effect or are to become effective not later than the date on which issuance of the Parity Obligations is authorized) are equal to at least one hundred twenty-five percent (125%) of Maximum Annual Debt Service (including estimated Maximum Annual Debt Service for the Parity Obligations)." In addition, new subparagraphs (e) and (f) of Section 2.11 shall be added to read as follows: "(e) For the period during which any 1997 Reserve Policy Costs remain due and owing to the Bond Insurer, no Parity Obligations can be issued. 14 (f) In the event the City intends to issue Parity Obligations, the City shall provide the Bond Insurer with written notice of such intention and shall not proceed with such issuance without the prior written consent of the Bond Insurer." SECTION 12.03. Amendment of Section 3.02 of the 1994 Resolution. The following sentences are hereby added to the end of Section 3.02 of the 1994 Resolution: "The City may make adjustments from time to time in such charges and may make such classification thereof as it deems necessary, but shall not reduce the charges then in effect unless the revenues generated by such charges will at all times be sufficient to meet the requirements of this Section; provided, that all fees and charges of the City in connection with the Enterprise shall comply with the requirements of Article XItlD, Section 6(b) and 6(c) of the California Constitution to the extent deemed applicable. Furthermore, for any period during which any 1997 Reserve Policy Costs are due and owing to the Bond Insurer, such Net Revenues shall at all times be equal to or greater than one times the amount of such 1997 Reserve Policy Costs due and owing." SECTION 12.04. Amendment of Section 3.04 of the 1994 Resolution. Section 3.04 of the 1994 Resolution is amended to read as follows: "SECTION 3.04. Transfer from Wastewater Treatment Fund: Establishment of Debt Service Fund. There is hereby created a special fund to be known as the City of Bakersfield Sewer Revenue Bond Debt Service Fund (the "Debt Service Fund"), to be held and maintained by the Fiscal Agent. On each March 10 and September 10 while any of the Bonds remain Outstanding, the City shall transfer from the Wastewater Treatment Fund held by the City to the Fiscal Agent for deposit in the Debt Service Fund the Net Revenues; provided, however, that such obligation to transfer Net Revenues shall be limited to an amount of Net Revenues which, when added to other available amounts in the Debt Service Fund, equals the amounts required to be deposited into the Interest Account and the Principal Account pursuant to Section 3.05 and to be deposited in the 1997 Reserve Account pursuant to Section 11.01 ." 15 SECTION 12.05. Amendment of Section 3.05 of the 1994 Resolution. Subparagraphs (a) and (b) of Section 3.05 of the 1994 Resolution are hereby amended to read as follows: "(a) On or before each March 10 preceding a March 15 Interest Payment Date and each September 10 preceding a September 15 Interest Payment Date, beginning March 10, 1998, the Fiscal Agent shall debit the Debt Service Fund and credit the Interest Account with an amount which, when added to any amount already credited to the Interest Account, will be equal to the amount of interest coming due and payable on the Outstanding Bonds on said next succeeding Interest Payment Date. No credit need be made to the Interest Account if the amount contained therein is equal to or greater than the amount of interest coming due on said next succeeding Interest Payment Date. All monies in the Interest Account shall be used and withdrawn by the Fiscal Agent solely for the purpose of paying the interest on the Bonds as it becomes due and payable (including interest on any Bonds purchased or redeemed prior to maturity pursuant to this Resolution)." "(b) On or before each September 10 preceding a September 10 Principal Payment Date, beginning September 10, 1998, the Fiscal Agent shall debit the Debt Service Fund and credit the Principal Account with an amount which, when added to any amount already credited to the Principal Account, will be equal to the principal coming due and payable on the Outstanding Bonds on said Principal Payment Date. No credit need be made to the Principal Account if the amount contained therein is equal to or greater than the amount of principal coming due on the next succeeding Principal Payment Date. All moneys in the Principal Account shall be used and withdrawn by the Fiscal Agent solely for the purpose of paying the principal on the Bonds as it becomes due and payable." SECTION 12.06. Addition of Section 3.07 to the 1994 Resolution. Section 3.07 is hereby added to the 1994 Resolution to read as follows: "SECTION 3.07 Investment of Funds and Accounts. Amounts in all of the funds and accounts established pursuant to the Resolution may be invested by the Fiscal Agent in securities that are permitted investments for City funds under 16 California law, as supplemented by the adopted investment policy of the City, as the same may be amended from time to time. Investment income is to remain in such funds and accounts unless otherwise provided herein." SECTION 12.07. All references to "Paying Agent" in the 1994 Resolution shall be deemed to refer to the "Fiscal Agent," the City having appointed a Fiscal Agent to administer the Bonds and related funds and accounts. Correspondingly, all references to the "City" in the 1994 Resolution with respect to administration of the Bonds shall be deemed to refer to the "Fiscal Agent." In the event of appointment of a successor to the Fiscal Agent, the City shall provide notice to the Bond Insurer and an address for notifications to the successor fiscal agent pursuant to Section 13.07 hereof. ARTICLE Xlll BOND INSURANCE AND RESERVE POLICY PROVISIONS SECTION 13.01. General. The provisions of this Article Xllt are intended to assure compliance with the requirements of the Bond Insurer imposed as conditions to issuance of the Bond Insurance Policy and the 1997 Reserve Policy, as provided by the respective commitments of the Bond Insurer for issuance of the Bond Insurance Policy and the 1997 Reserve Policy, each dated November 14, 1997. These provisions should be liberally construed to effectuate their purpose of compliance with such conditions, and all conflicts with other provisions of the 1994 Resolution or this Supplemental Resolution should be resolved in favor of these provisions of this Article XIII. SECTION 13.02. Default-Related Provisions. (a) In the event that, on any Interest Payment Date or Principal Payment Date, the moneys available in the funds and accounts established under the provisions of the 1994 Resolution and this Supplemental Resolution (including the proceeds of any available draws on the 1997 Reserve Policy and any Additional 1997 Reserve Policy, if any) for any interest and/or principal payable on said date are insufficient for that purpose, the Fiscal Agent shall transfer moneys on deposit in the 1997 Project Fund to the applicable Interest Account or Principal Account, as the case may be, to make such payments. (b) In determining whether an Event of Default has occurred under Section 7.01 of the 1994 Resolution, no effect shall be given to payments made under the Bond Insurance Policy. 17 ~- (c) Notwithstanding the provisions of Article VII of the 1994 Resolution respecting acceleration upon the occurrence of an Event of Default, any declaration of the City of acceleration pursuant to Section 7.01 thereof shall be subject to the prior written consent of the Bond Insurer (if it has not failed to comply with its payment obligations under the Bond insurance Policy). (d) Upon receipt of actual knowledge of an Event of Default by either the Fiscal Agent or the City, the Fiscal Agent or the City, as the case may be, shall immediately provide written notice to the Bond Insurer of such Event of Default. (e) For all purposes of the 1994 Resolution and this Supplemental Resolution governing Events of Default and the remedies pertaining thereto as applied to the Series 1997 Bonds, except for the giving of notice of default to Owners of the Series 1997 Bonds, the Bond Insurer shall be deemed to be the sole owner of the Series 1997 Bonds (if it has not failed to comply with its payment obligations under the Bond Insurance Policy). (f) Pursuant to Section 8.01 of the 1994 Resolution, the Bond Insurer shall be deemed to be a party in interest with respect to all matters pertaining to the Series 1997 Bonds entitled to the benefits of the 1994 Resolution and this Supplemental Resolution as a deemed Owner of the Series 1997 Bonds and, without limiting the generality of the foregoing, shall be entitled to (1) notify the City, the Fiscal Agent or any applicable receiver, if any, of the occurrence of an Event of Default and (2) request the receiver, if any, to intervene in judicial proceedings that affect the Series 1997 Bonds or the security therefor. The receiver, if any, shall be required to accept notice of default from the Bond Insurer. SECTION 13.03. Bond Insurance Policy Payment Provisions. (a) If, on the third day preceding any Interest Payment Date for the Series 1997 Bonds, there is not on deposit with the Fiscal Agent sufficient moneys available to pay all principal of and interest on the Series 1997 Bonds due on such date, the Fiscal Agent shall immediately notify the Bond Insurer and the Bond Insurer's Fiscal Agent of the amount of such deficiency. If, by said Interest Payment Date, the City has not provided the amount of such deficiency, the Fiscal Agent shall simultaneously make available to the Bond Insurer and to the Bond Insureds Fiscal Agent the Bond Registration Books maintained by the Fiscal Agent. In addition, the following shall apply: (b) The Fiscal Agent shall provide the Bond Insurer with a list of the Owners of the Series 1997 Bonds entitled to receive principal or interest payments from the Bond Insurer under the terms of the Bond Insurance Policy and shall make arrangements for the Bond Insurer and its Fiscal Agent (i) to mail checks or drafts to the Owners of the Series 1997 Bonds entitled to receive full or partial interest payments from the Bond Insurer and (ii) to pay principal of the Series 1997 Bonds surrendered to the 18 Bond Insurer's Fiscal Agent by the Owners of the Series 1997 Bonds entitled to receive full or partial principal payments from the Bond Insurer; and (c) The Fiscal Agent shall, at the time it makes the Bond Registration Books available to the Bond Insurer pursuant to subparagraph (a) above, notify the Owners of the Series 1997 Bonds entitled to receive the payment of principal of or interest on the Series 1997 Bonds from the Bond Insurer (i) as to the fact of such entitlement, (ii) that the Bond Insurer will remit to them all or part of the interest payments coming due pursuant to and subject to the terms of the Bond Insurance Policy, (iii) that, except as provided in subparagraph (b) of this Section 13.03, in the event that any Owner of any Series 1997 Bond is entitled to receive full payment of principal from the Bond Insurer, such Owner must tender the subject Series 1997 Bond with the instrument of transfer in the form provided on the subject Series 1997 Bond executed in the name of the Bond Insurer, and (iv) that, except as provided in subparagraph (b) of this Section 13.03, in the event that such Owner is entitled to receive partial payment of principal from the Bond Insurer, such Owner must tender the subject Series 1997 Bond for payment first to the Fiscal Agent, which shall note on such Series 1997 Bond the portion of principal paid by the Fiscal Agent, and then, with an acceptable form of assignment executed in the name of the Bond Insurer, to the Bond Insurer's Fiscal Agent, which will then pay the unpaid portion of principal to the Owner pursuant to and subject to the terms of the Bond Insurance Policy. (d) In the event that the Fiscal Agent has received notice that any payment of principal of or interest on a Series 1997 Bond has been recovered from an Owner pursuant to the United States Bankruptcy Code from a trustee in bankruptcy in accordance with the final, nonappealable order of a court having competent jurisdiction, the Fiscal Agent shall, at the time it provides notice to the Bond Insurer, notify all Owners of the Series 1997 Bonds that in the event that any such Owner's payment is so recovered, such Owner will be entitled to payment from the Bond Insurer to the extent of such recovery, and the Fiscal Agent shall furnish to the Bond Insurer its records evidencing the payments of principal of and interest on the Series 1997 Bonds which have been made by the Fiscal Agent and subsequently recovered from such Owners, and the dates on which such payments were made,. (e) The Bond Insurer shall, to the extent it makes payment of principal of or interest on the Series 1997 Bonds, become subrogated to the rights of the recipients of such payments in accordance with the terms of the Bond Insurance Policy and, to evidence such subrogation, (1) in the case of subrogation as to claims for past due interest, the Fiscal Agent shall note the Bond Insurer's rights as subrogee on the Bond Registration Books upon receipt from the Bond Insurer of proof of the payment of interest thereon to the Owners of such Series 1997 Bonds and (2) in the case of subrogation as to claims for past due principal, the Fiscal Agent shall note the Bond Insurer's rights as subrogee on the Bond Registration Books upon receipt of proof of the payment of principal thereof to the Owners of such Series 1997 Bonds. Notwithstanding anything in this 19 Supplemental Resolution or the Series 1997 Bonds to the contrary, the Fiscal Agent shall make payment of such past due interest and past due principal directly to the Bond Insurer to the extent that the Bond Insurer is a subrogee with respect thereto. SECTION 13.04. Amendments and Supplements. Any amendment or supplement to the 1994 Resolution or this Supplemental Resolution shall be subject to the prior written consent of the Bond Insurer; provided that a supplemental resolution for the purpose of authorizing Parity Obligations in compliance with the conditions of Section 2.11 of the 1994 Resolution, as amended by this Supplemental Resolution, shall not require consent of the Bond Insurer. Any rating agency rating the Series 1997 Bonds must receive notice of each amendment and a copy thereof at least 15 days in advance of its execution or adoption. The Bond Insurer shall be provided with a full transcript of all proceedings relating to the execution of any such amendment or supplement. SECTION 13.05. Defeasance Provisions, Only cash, direct non-callable obligations of the United States of America and securities fully and unconditionally guaranteed as to the timely payment of principal and interest by the United States of America, to which direct obligation or guarantee the full faith and credit of the United States of America has been pledged, Refcorp interest strips, CATS, TIGRS, STRPS, or defeased municipal bonds rated "AAA" by S&P or "Aaa" by Moody's (or any combination of the foregoing) shall be used to effect defeasance of the Bonds unless the Bond Insurer otherwise approves. In the event of an advance refunding, the City shall cause to be delivered a verification report of a nationally recognized Independent Certified Public Accountant. If a forward supply contract is employed in connection with the refunding, (a) such verification report shall expressly state that the adequacy of the escrow to accomplish the refunding relies solely on the initial escrowed investments and the maturing principal thereof and interest income thereon and does not assume performance under or compliance with the forward supply contract, and (b) the applicable escrow agreement shall provide that in the event of any discrepancy or difference between the terms of the forward supply contract and the escrow agreement (or this Supplemental Resolution, if no separate escrow agreement is utilized), the terms of the escrow agreement (or this Supplemental Resolution, if applicable) shall be controlling. SECTION 13.06. Reporting Requirements. (a) The City shall provide the Bond Insurer with the following information: Within 180 days after the end of each of the City's Fiscal Years, the budget for the succeeding year, the annual audited financial statements, a statement of the amount on deposit in the 1997 Reserve Account as of the last valuation, and, if not presented in the audited financial statements, a statement of the Revenues pledged to payment of the Series 1997 Bonds in each such Fiscal Year. (i) The official statement or other disclosure document, if any, prepared in connection with the issuance of any additional debt secured by the Revenues, whether on a parity with the Series 1997 Bonds or subordinate thereto, within 30 days after the sale of such additional debt. (ii) The official statement or other disclosure document, if any, prepared in connection with the issuance of any additional debt secured by the Revenues, whether on a parity with the Series 1997 Bonds or subordinate thereto, within 30 days after the sale of such additional debt. (iii) Notice of any drawing upon or deficiency due to market fluctuation in the amount, if any, on deposit, in the 1997 Reserve Fund. (iv) Notice of the redemption, other than mandatory sinking fund redemption, of any of the Series 1997 Bonds, or of any advance refunding of the Series 1997 Bonds, including the principal amount, maturities and CUSIP numbers thereof. (v) Simultaneously with the delivery of the annual audited financial statements, a statement of the following: (1) The number of Enterprise system users as of the end of the Fiscal Year; (2) Notification of the withdrawal of any Enterprise system user providing five percent (5%) or more of Enterprise system Revenues since the last reporting date; (3) Any significant wastewater treatment plant retirements or expansions planned or undertaken since the last reporting date; (4) Maximum and average daily flows for the Fiscal Year; (5) Updated capital plans for expansion and improvement projects respecting the Enterprise; and (6) Results of annual engineering inspections, if any, occurring during the Fiscal Year. (vi) Such additional information as the Bond Insurer may reasonably request from time to time. 21 SECTION 13.07. Notice Addresses. The notice addresses for the Bond Insurer, the Bond Insurer's Fiscal Agent and the Fiscal Agent are as follows: If to the Bond Insurer: Financial Guaranty Insurance Company 115 Broadway New York, New York 10006 Attention: Risk Management If to the Bond Insurer's Fiscal Agent: State Street Bank and Trust Company, N.A. 61 Broadway New York, New York 10006 Attention: Corporate Trust Department If to the Fiscal Agent: First Trust of California, National Association 550 South Hope Street, Suite 500 Los Angeles, CA 90071 Attention: Corporate Trust Department SECTION 13.08. 1997 Reserve Policy Payment and Reimbursement Provisions. (a) If, on the third day preceding any Interest Payment Date for the Series 1997 Bonds, the amount of money on deposit in the 1997 Reserve Fund is insufficient to cure any deficiency in the Interest Account or the Principal Account to pay the amount of any interest or principal coming due on said Interest Payment Date, the Fiscal Agent shall notify the Bond Insurer as provided by and in accordance with the 1997 Reserve Policy, and subject to the limitations as to the amounts to be advanced and the terms and conditions of the 1997 Reserve Policy, the Bond Insurer shall advance to the Fiscal Agent, for deposit in the 1997 Reserve Fund, the amount of the insufficiency; provided that the obligation of the Bond Insurer pursuant to the 1997 Reserve Policy to advance such amounts shall be limited to the amount which, when combined with the cash balance available in the 1997 Reserve Fund at that time, is equal to the amount of the insufficiency and that the entire amount of any such cash balance shall be exhausted before or concurrently with any such advance by the Bond Insurer pursuant to the 1997 Reserve Policy. If at the time of any such advance by the Bond Insurer pursuant to the 1997 Reserve Policy, there is any other credit facility (the "Additional 1997 Reserve Policy") on deposit in the 1997 Reserve Fund, draws upon the 1997 Reserve Policy and any such Additional 1997 Reserve Policy shall be made on a pro-rata basis (calculated by reference to the maximum amounts available thereunder) after applying all available cash in the 1997 Reserve Fund and prior to replenishment of any such cash draws, respectively. 22 (b) Repayment of 1997 Reserve Policy Costs shall commence in the first month following each draw, and each such monthly payment shall be in an amount at least equal to one-twelfth of the aggregate of 1997 Reserve Policy Costs related to such draw. If and to the extent that cash was also on deposit in the 1997 Reserve Fund at the time of such draw, repayment of any 1997 Reserve Policy Costs shall be made prior to replenishment of any such cash amounts. If, in addition to the 1997 Reserve Policy, any Additional 1997 Reserve Policy is on deposit in the 1997 Reserve Fund at the time of any such draw, repayment of 1997 Reserve Policy Costs and reimbursement of amounts due under the Additional 1997 Reserve Policy shall be made on a pro-rata basis (calculated by reference to the maximum amounts available thereunder). (c) If the City shall fail to repay any 1997 Reserve Policy Costs in accordance with the requirements of subparagraph (b) hereof, the Bond Insurer shall be entitled to exercise any and all remedies available at law or under this Supplemental Resolution document other than (i) acceleration of the maturity of the Series 1997 Bonds or (ii) remedies which would adversely affect Owners of the Bonds. (d) This Supplemental Resolution shall not be discharged until all 1997 Reserve Policy Costs owing to the Bond Insurer shall have been paid in full. (e) As security for the City's repayment obligations with respect to the 1997 Reserve Policy, the Bond Insurer shall be granted a security interest (subordinate only to that of the Owners of the Bonds) in all Revenues and collateral pledged as security for the Series 1997 Bonds. SECTION 13.09. Requirement for Additional Reserve Policy. (a) Such Additional Reserve Policy shall be issued by a company licensed to issue an insurance policy guaranteeing the timely payment of debt service on the Series 1997 Bonds (a "municipal bond insurer") and may be deposited in the 1997 Reserve Account Fund to meet the Reserve Requirement if the claims paying ability of the issuer thereof shall be rated "AAA" or "Aaa" by S&P or Moody's, respectively. The form and substance of such Additional Reserve Policy and the issuer thereof shall be approved by the Bond Insurer prior to deposit into the 1997 Reserve Account. (b) Such Additional Reserve Policy, if an unconditional irrevocable letter of credit issued by a bank, may be deposited in the 1997 Reserve Account to meet the Reserve Requirement if the issuer thereof is rated at least "AA" by S&P. The letter of credit shall be payable in one or more draws upon presentation by the beneficiary of a sight draft accompanied by its certificate that it then holds insufficient funds to make a required payment of principal of or interest on the Series 1997 Bonds. The draws shall be payable within two days of presentation of the sight draft. The letter of credit shall be required to notify the City and the Fiscal Agent, not later than 30 months prior to the stated 23 expiration date of the letter of credit, as to whether such expiration date shall be extended, and if so, shall indicate the new expiration date. If such notice indicates that the expiration date shall not be extended, the City shall deposit in the 1997 Reserve Account an amount sufficient to cause the cash or permitted investments on deposit in the 1997 Reserve Account together with any other qualifying credit instruments, to equal the Reserve Requirement on all outstanding Bonds, such deposit to be paid in equal installments on at least a semi-annual basis over the remaining term of the letter of credit unless the 1997 Reserve Account credit instrument is replaced by a 1997 Reserve Account credit instrument meeting the requirements specified above. The letter of credit shall permit a draw in full not less than two weeks prior to the expiration or termination of such letter of credit if the letter of credit has not been replaced or renewed, and the Fiscal Agent shall draw upon the letter of credit prior to its expiration or termination unless an acceptable replacement is in place or the 1997 Reserve Account is fully funded in its required amount. (¢) The use of any Additional Reserve Policy pursuant to this Section 13.09 shall be subject to receipt of an opinion of counsel acceptable to the Bond Insurer and in form and substance satisfactory to the Bond Insurer as to the due authorization, execution, delivery and enforceability of such instrument in accordance with its terms, subject to applicable laws affecting creditors' rights generally, and, in the event the issuer of such credit instrument is not a domestic entity, an opinion of foreign counsel in form and substance satisfactory to the Bond Insurer. In addition, the use of an irrevocable letter of credit shall be subject to receipt of an opinion of counsel acceptable to the Bond Insurer and in form and substance satisfactory to the Bond Insurer to the effect that payments under such letter of credit would not constitute avoidable preferences under Section 547 of the U.S. Bankruptcy Code or similar state laws with avoidable preference provisions in the event of the filing of a petition for relief under the U. S. Bankruptcy Code or similar state laws by or against the issuer of the bonds (or any other account party under the letter of credit). (d) The obligation to reimburse the issuer of an Additional 1997 Reserve Policy for any fees, expenses, claims or draws upon such an Additional 1997 Reserve Policy shall be subordinate to the payment of debt service on the Series 1997 Bonds. The right of the issuer of an Additional 1997 Reserve Policy to payment or reimbursement of its fees and expenses shall be subordinated to cash replenishment of the 1997 Reserve Account, and, subject to the last sentence of the foregoing subparagraph (c) of this Section 13.09, its right to reimbursement for claims or draws shall be on a parity with the cash replenishment of the 1997 Reserve Account. The Additional 1997 Reserve Policy shall provide for a revolving feature under which the amount available thereunder will be reinstated to the extent of any reimbursement of draws or claims paid. If the revolving feature is suspended or terminated for any reason, the right of the issuer of the Additional 1997 Reserve Policy to reimbursement will be further subordinated to cash replenishment of the 1997 Reserve Account to an amount equal to the difference between the full original amount available under the Additional 1997 Reserve Policy and the amount then available for further draws or claims. If (a) the issuer 24 of an Additional 1997 Reserve Policy becomes insolvent or (b) the issuer of an Additional 1997 Reserve Policy defaults in its payment obligations thereunder or (c) the claims- paying ability of the issuer of the insurance policy or surety bond falls below a S&P "AAA" or a Moody's "Aaa" or (d) the rating of the issuer of the letter of credit falls below a S&P "AA", the obligation to reimburse the issuer of the Additional 1997 Reserve Policy shall be subordinate to the cash replenishment of the 1997 Reserve Account. (e) If (a) the revolving reinstatement feature described in the preceding subparagraph (d) is suspended or terminated or (b) the rating of the claims paying ability of the issuer of the surety bond or insurance policy falls below a S&P "AAA" or a Moody's "Aaa" or (c) the rating of the issuer of the letter of credit falls below a S&P "AA", the Issuer shall either (i) deposit into the 1997 Reserve Account an amount sufficient to cause the cash or permitted investments on deposit in the 1997 Reserve Account to equal the Reserve Requirement on all outstanding Series 1997 Bonds, such amount to be paid over the ensuing five years in equal installments deposited at least semiannually or (ii) replace such instrument with a surety bond, insurance policy or letter of credit meeting the requirements specified above for an Additional 1997 Reserve Policy within six months of such occurrence. In the event (a) the rating of the claims-paying ability of the issuer of the surety bond or insurance policy falls below "A" or (b) the rating of the issuer of the letter of credit falls below "A" or (c) the issuer of the 1997 Reserve Account defaults in its payment obligations or (d) the issuer of the 1997 Reserve Account becomes insolvent, the Issuer shall either (i) deposit into the 1997 Reserve Account an amount sufficient to cause the cash or permitted investments on deposit in the 1997 Reserve Account to equal the Reserve Fund Requirement on all outstanding Series 1997 Bonds, such amount to be paid over the ensuing year in equal installments on at least a monthly basis or (ii) replace such instrument with a surety bond, insurance policy or letter of credit meeting the requirements specified above for an Additional 1997 Reserve Policy within six months of such occurrence. (f) Where applicable, the amount available for draws or claims under the Additional 1997 Reserve Policy may be reduced by the amount of cash or permitted investments deposited in the 1997 Reserve Account pursuant to the provisions of preceding subparagraph (d). (g) If the City chooses the above described alternative as to a cash-funded 1997 Reserve Account, any amounts owed by the City to the issuer of such credit instrument as a result of a draw thereon or a claim thereunder, as appropriate shall be included in any calculation of debt service requirements required to be made pursuant to the 1994 Resolution or this Supplemental Resolution for any purpose, e.g., rate covenant or additional bond test. (h) The Fiscal Agent shall ascertain the necessity for a claim or draw upon the Additional 1997 Reserve Policy and to provide notice to the issuer of the Additional 1997 Reserve Policy in accordance with its terms not later than three days (or such longer period as may be necessary depending on the permitted time period for 25 honoring a draw under the Additional 1997 Reserve Policy prior to each interest payment date. (i) Cash on deposit in the 1997 Reserve Account shall be used (or investments purchased with such cash shall be liquidated and the proceeds applied as required) prior to any drawing on any Additional 1997 Reserve Policy. If and to the extent that more than one Additional 1997 Reserve Policy is deposited in the 1997 Reserve Account, drawings thereunder and repayments of costs associated therewith shall be made on a pro rata basis1 calculated by reference to the maximum amounts available thereunder. ARTICLE XlV MISCELLANEOUS SECTION 14.01. Terms of Series 1997 Bonds Subject to the 1994 Resolution. Except as in this Supplemental Resolution expressly provided, every term and condition contained in the 1994 Resolution shall apply to this Supplemental Resolution and to the Series 1997 Bonds with the same force and effect as if the same were herein set forth at length, with such omissions, variations and modifications thereof as may be appropriate to make the same conform to this Supplemental Resolution. This Supplemental Resolution and all the terms and provisions herein contained shall form part of the 1994 Resolution as fully and with the same effect as if all such terms and provisions had been set forth in the 1994 Resolution. The 1994 Resolution is hereby ratified and confirmed and shall continue in full force and effect in accordance with the terms and provisions thereof, as amended and supplemented hereby. SECTION 14.02. Conflict of Terms. If there is any conflict between the terms of this Supplemental Resolution and the terms of the 1994 Resolution, the terms of this Supplemental Resolution shall control. Except as expressly modified by this Supplemental Resolution, however, the terms of the 1994 Resolution shall remain in full force and effect. SECTION 14.03. November 19, 1997 Resolution Rescinded and Superseded. This Supplemental Resolution supersedes Resolution No. 196-93(1), adopted by this Council on November 19, 1997, to supplement and amend Resolution No. 196-93, and said Resolution No. 196-93(1 ) is hereby rescinded in its entirety. 26 SECTION 14.04. Effective Date of Supplemental Resolution. Resolution shall take effect immediately upon its adoption. This Supplemental .............. o0o .............. 27 I HEREBY CERTIFY that the foregoing Resolution was passed and adopted by the Council of the City of Bakersfield at a regular meeting thereof held on DEC ~ 1997, by the following vote: AYES: NOES: ABSTAIN: ABSENT: COUNCILMEMBER CARSON, DEMOND, ~M~T-H, MCDERMOTT, ROWLES, SULLIVAN, SALVAGGIO COUNCILMEMBER COUNCILMEMBER COUNCILMEMBER CITY CLERK and Ex Officio C~.et'k of the Council of the City of Bakersfield APPROVED DEC' 3 1997 MAYOR of Bakersfield APPROVED as to form: JUDY K. SKOUSEN City Attorney J_I~DY K. S,,(OUSE. ty Attorney JAN:dlr\fet S:~:OUNCIL~RES~SEWERBND.AMD 28