CITY OF OCEAN SHORES, WASHINGTON LOCAL IMPROVEMENT DISTRICT NO BOND ANTICIPATION NOTES, 2007 ORDINANCE NO. 828

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1 CITY OF OCEAN SHORES, WASHINGTON LOCAL IMPROVEMENT DISTRICT NO BOND ANTICIPATION NOTES, 2007 ORDINANCE NO. 828 AN ORDINANCE OF THE CITY COUNCIL OF THE CITY OF OCEAN SHORES, WASHINGTON, AUTHORIZING THE ISSUANCE AND SALE OF BOND ANTICIPATION NOTES IN THE AGGREGATE PRINCIPAL AMOUNT OF $7,615,000 TO PROVIDE INTERIM FINANCING FOR IMPROVEMENTS WITHIN LOCAL IMPROVEMENT DISTRICT NO ; AUTHORIZING THE FORM, TERMS AND MATURITY OF THE NOTES; CREATING A SPECIAL FUND AND A CAPITALIZED INTEREST ACCOUNT THEREIN FOR THE PAYMENT OF THE NOTES; AUTHORIZING AN OFFICIAL STATEMENT; AND APPROVING THE SALE OF THE NOTES. APPROVED ON JULY 23, 2007 PREPARED BY: K&L PRESTON GATES ELLIS LLP Seattle, Washington

2 CITY OF OCEAN SHORES, WASHINGTON ORDINANCE NO. 828 TABLE OF CONTENTS* Page Section 1. Definitions... 2 Section 2. Authorization of Bonds... 3 Section 3. Authorization of Notes... 3 Section 4. No Optional Redemption... 4 Section 5. Registration, Exchange and Payments... 4 Section 6. Notes Repayment Fund; Security for Payment... 7 Section 7. Execution of Notes... 7 Section 8. Application of Note Proceeds... 8 Section 9. Defeasance... 8 Section 10. Lost, Destroyed or Mutilated Notes... 9 Section 11. Representations and Warranties... 9 Section 12. Form of Notes... 9 Section 13. Tax Covenants Section 14. Sale of Notes Section 15. Official Statement Section 16. Undertaking to Provide Ongoing Disclosure Section 17. Ordinance to Constitute Contract Section 18. General Authorization Section 19. Effect of Covenants Section 20. Severability Section 21. Effective Date * This Table of Contents is provided for convenience only and is not a part of this ordinance. Ordinance No. 828

3 ORDINANCE NO. 828 AN ORDINANCE OF THE CITY COUNCIL OF THE CITY OF OCEAN SHORES, WASHINGTON, AUTHORIZING THE ISSUANCE AND SALE OF BOND ANTICIPATION NOTES IN THE AGGREGATE PRINCIPAL AMOUNT OF $7,615,000 TO PROVIDE INTERIM FINANCING FOR IMPROVEMENTS WITHIN LOCAL IMPROVEMENT DISTRICT NO ; AUTHORIZING THE FORM, TERMS AND MATURITY OF THE NOTES; CREATING A SPECIAL FUND AND A CAPITALIZED INTEREST ACCOUNT THEREIN FOR THE PAYMENT OF THE NOTES; AUTHORIZING AN OFFICIAL STATEMENT; AND APPROVING THE SALE OF THE NOTES. WHEREAS, the City of Ocean Shores, Washington (the City ), by Ordinance No. 820, passed by the City Council (the Council ) on March 12, 2007, authorized certain city-wide street improvements (as defined in Ordinance No. 820, the Improvements ) and created Local Improvement District No (the District ) to finance the cost of the Improvements; and WHEREAS, Ordinance No. 820 provided for the issuance of local improvement district bonds and short-term obligations to pay the costs of constructing the Improvements and the expenses incidental thereto; and WHEREAS, pursuant to Chapter RCW, the City is authorized to issue local improvement district bonds to provide long-term financing for the costs of the Improvements; and WHEREAS, pursuant to Chapter RCW, the City is authorized to issue short term obligations in anticipation of the issuance of such local improvement district bonds; and WHEREAS, it is deemed necessary and desirable for the City to issue and sell a first series of local improvement district bond anticipation notes to provide interim financing for a portion of the costs of constructing the Improvements; and WHEREAS, the Council has received the offer of Piper Jaffray & Co. to purchase the notes authorized herein, and it appears to the Council that it is in the best interests of the City to accept such offer; NOW, THEREFORE, THE CITY COUNCIL OF THE CITY OF OCEAN SHORES, WASHINGTON, DOES ORDAIN, as follows: Ordinance No. 828

4 Section 1. following meanings: Definitions. As used in this ordinance, the following words shall have the Beneficial Owner means any person that has or shares the power, directly or indirectly, to make investment decisions concerning ownership of any Note (including persons holding Notes through nominees, depositories or other intermediaries). Bonds mean the local improvement district bonds of the City to be issued to provide long-term financing for the Improvements. Capitalized Interest Account means the LID No Capitalized Interest Account within the Notes Repayment Fund authorized to be established and held by the Depositary by Section 8 of this ordinance. City means the City of Ocean Shores, Washington, a municipal corporation duly organized and existing under and by virtue of the laws of the State of Washington. Code means the federal Internal Revenue Code of 1986, as amended from time to time, and the applicable regulations thereunder. City. Council means the duly constituted City Council as the general legislative body of the Depositary means The Bank of New York Trust Company, N.A., Seattle, Washington, appointed as such pursuant to Section 8 of this ordinance. District means Local Improvement District No of the City established by Ordinance No DTC means The Depository Company, New York, New York, a limited purpose trust company organized under the laws of the State of New York, as depository for the Notes pursuant to Section 5 hereof. Finance Director means the Finance Director of the City, or any successor to the functions of the Finance Director. Government Obligations means those obligations now or hereafter defined as such in Chapter RCW. Improvements mean the city-wide street improvements to be undertaken within the District, as authorized by Ordinance No Improvements Fund means the LID No Improvements Fund authorized to be created in the office of the Finance Director by Section 8 of this ordinance. Letter of Representations means the blanket issuer letter of representations from the City to DTC. Page 2 Ordinance No. 828

5 MSRB means the Municipal Securities Rulemaking Board or any successor to its functions. Note Register means the registration books showing the name, address and tax identification number of each registered owner of the Notes, maintained pursuant to Section 149(a) of the Code. Notes means the City of Ocean Shores, Washington, Local Improvement District No Bond Anticipation Notes, 2007, the sale and issuance of which are authorized herein. Notes Repayment Fund means the LID No Notes Repayment Fund, authorized to be created in the office of the Finance Director by Section 6 of this ordinance. NRMSIR means a nationally recognized municipal securities information repository. Registered Owner means the person named as the registered owner of a Note in the Note Register. For so long as the Notes are held in book-entry form, DTC shall be deemed to be the sole Registered Owner of the Notes. Registrar means the fiscal agency of the State of Washington for the purposes of registering and authenticating the Notes, maintaining the Note Register, effecting transfer of ownership of the Notes and paying interest on and principal of the Notes. Rule means the SEC s Rule 15c2-12 under the Securities and Exchange Act of 1934, as the same may be amended from time to time. SEC means the Securities and Exchange Commission. SID means a state information depository for the State of Washington if one is hereafter created. Underwriter means Piper Jaffray & Co., Seattle, Washington. Section 2. Authorization of Bonds. The issuance of local improvement district bonds (the Bonds ) to provide long-term financing for the Improvements, as heretofore authorized by Ordinance No. 820, is hereby affirmed. The Bonds shall be issued and sold in such form and with such terms, conditions, covenants, dates, interest rates, maturities and other details as shall hereafter be determined by ordinance. The proceeds of the Bonds shall be paid into the Notes Repayment Fund or the Improvements Fund (as hereinafter defined) and shall be applied to the extent necessary, together with other available funds, to pay and redeem the Notes and any additional bond anticipation notes and to pay costs of the Improvements. Section 3. Authorization of Notes. To provide interim financing for costs of the Improvements pending the issuance of the Bonds upon completion of the Improvements and for capitalized interest through August 1, 2010, the Council hereby authorizes the issuance and sale of local improvement district bond anticipation notes in the aggregate principal amount of Page 3 Ordinance No. 828

6 $7,615,000 (the Notes ). The Notes shall be designated as the City of Ocean Shores, Washington, Local Improvement District No Bond Anticipation Notes, 2007 ; shall be dated as of the date of their initial issuance and delivery to the Underwriter; shall be issued in fully registered form in denominations of $5,000 each or any integral multiple thereof; shall be numbered separately in such manner and with any additional designation as the Registrar deems necessary for purposes of identification; shall bear interest at a per annum rate of 4.75%, payable semiannually on each February 1 and August 1, beginning February 1, 2008; and shall mature on August 1, Interest on the Notes shall be calculated on the basis of a year of 360 days and twelve 30-day months. The Notes shall be obligations only of the Notes Repayment Fund and shall be payable and secured as provided herein. Section 4. No Optional Redemption. (a) No Optional Redemption. The Notes are not subject to redemption at the option of the City prior to their stated maturity. (b) Purchase of Notes. The City also reserves the right to purchase any of the Notes offered to the City at any time at a price deemed reasonable by the City. Section 5. Registration, Exchange and Payments. (a) Registrar/Note Register. The City hereby specifies and adopts the system of registration approved by the Washington State Finance Committee from time to time through the appointment of state fiscal agencies. The City shall cause the Note Register to be maintained by the Registrar. So long as any Notes remain outstanding, the Registrar shall make all necessary provisions to permit the exchange or registration or transfer of Notes at its principal corporate trust office. The Registrar may be removed at any time at the option of the Finance Director upon prior notice to the Registrar and a successor Registrar appointed by the Finance Director. No resignation or removal of the Registrar shall be effective until a successor shall have been appointed and until the successor Registrar shall have accepted the duties of the Registrar hereunder. The Registrar is authorized, on behalf of the City, to authenticate and deliver Notes transferred or exchanged in accordance with the provisions of such Notes and this ordinance and to carry out all of the Registrar s powers and duties under this ordinance. The Registrar shall be responsible for its representations contained in the Certificate of Authentication of the Notes. (b) Registered Ownership. The City and the Registrar, each in its discretion, may deem and treat the Registered Owner of each Note as the absolute owner thereof for all purposes (except as provided in Section 16 of this ordinance), and neither the City nor the Registrar shall be affected by any notice to the contrary. Payment of any such Note shall be made only as described in Section 5(h) hereof, but such Note may be transferred as herein provided. All such payments made as described in Section 5(h) shall be valid and shall satisfy and discharge the liability of the City upon such Note to the extent of the amount or amounts so paid. (c) DTC Acceptance/Letters of Representations. The Notes initially shall be held in Page 4 Ordinance No. 828

7 fully immobilized form by DTC acting as depository. To induce DTC to accept the Notes as eligible for deposit at DTC, the City has executed and delivered to DTC a Blanket Issuer Letter of Representations. Neither the City nor the Registrar will have any responsibility or obligation to DTC participants or the persons for whom they act as nominees (or any successor depository) with respect to the Notes in respect of the accuracy of any records maintained by DTC (or any successor depository) or any DTC participant, the payment by DTC (or any successor depository) or any DTC participant of any amount in respect of the principal of or interest on Notes, any notice which is permitted or required to be given to Registered Owners under this ordinance (except such notices as shall be required to be given by the City to the Registrar or to DTC (or any successor depository)), or any consent given or other action taken by DTC (or any successor depository) as the Registered Owner. For so long as any Notes are held in fully-immobilized form hereunder, DTC or its successor depository shall be deemed to be the Registered Owner for all purposes hereunder, and all references herein to the Registered Owners shall mean DTC (or any successor depository) or its nominee and shall not mean the owners of any beneficial interest in such Notes. If any Note shall be duly presented for payment and funds have not been duly provided by the City on such applicable date, then interest shall continue to accrue thereafter on the unpaid principal thereof at the rate stated on such Note until it is paid. (d) Use of Depository. (1) The Notes shall be registered initially in the name of Cede & Co., as nominee of DTC, with one Note maturing on each of the maturity dates for the Notes in a denomination corresponding to the total principal therein designated to mature on such date. Registered ownership of such immobilized Notes, or any portions thereof, may not thereafter be transferred except (A) to any successor of DTC or its nominee, provided that any such successor shall be qualified under any applicable laws to provide the service proposed to be provided by it; (B) to any substitute depository appointed by the Finance Director pursuant to subsection (2) below or such substitute depository s successor; or (C) to any person as provided in subsection (4) below. (2) Upon the resignation of DTC or its successor (or any substitute depository or its successor) from its functions as depository or a determination by the Finance Director to discontinue the system of book entry transfers through DTC or its successor (or any substitute depository or its successor), the Finance Director may hereafter appoint a substitute depository. Any such substitute depository shall be qualified under any applicable laws to provide the services proposed to be provided by it. (3) In the case of any transfer pursuant to clause (A) or (B) of subsection (1) above, the Registrar shall, upon receipt of all outstanding Notes, together with a written request of the Finance Director, issue a single new Note for each maturity then outstanding, registered in the name of such successor or such substitute depository, or their nominees, as the case may be, all as specified in such written request of the Finance Director. (4) In the event that (A) DTC or its successor (or substitute depository or its Page 5 Ordinance No. 828

8 successor) resigns from its functions as depository, and no substitute depository can be obtained, or (B) the Finance Director determines that it is in the best interest of the Beneficial Owners of the Notes that such owners be able to obtain the Notes in the form of certificates, the ownership of such Notes may then be transferred to any person or entity as herein provided, and shall no longer be held in fully-immobilized form. The Finance Director shall deliver a written request to the Registrar, together with a supply of definitive Notes, to issue Notes as herein provided in any authorized denomination. Upon receipt by the Registrar of all then outstanding Notes together with a written request of the Finance Director to the Registrar, new Notes shall be issued in the appropriate denominations and registered in the names of such persons as are requested in such written request. (e) Registration of Transfer of Ownership or Exchange; Change in Denominations. The transfer of any Note may be registered and Notes may be exchanged, but no transfer of any such Note shall be valid unless it is surrendered to the Registrar with the assignment form appearing on such Note duly executed by the Registered Owner or such Registered Owner s duly authorized agent in a manner satisfactory to the Registrar. Upon such surrender, the Registrar shall cancel the surrendered Note and shall authenticate and deliver, without charge to the Registered Owner or transferee therefor, a new Note (or Notes at the option of the new Registered Owner) of the same date, maturity and interest rate and for the same aggregate principal amount in any authorized denomination, naming as Registered Owner the person or persons listed as the assignee on the assignment form appearing on the surrendered Note, in exchange for such surrendered and cancelled Note. Any Note may be surrendered to the Registrar and exchanged, without charge, for an equal aggregate principal amount of Notes of the same date, maturity and interest rate, in any authorized denomination. The Registrar shall not be obligated to register the transfer or to exchange any Note during the 15 days preceding any interest payment or principal payment date any such Note is to be redeemed. (f) Registrar s Ownership of Notes. The Registrar may become the Registered Owner of any Note with the same rights it would have if it were not the Registrar, and to the extent permitted by law, may act as depository for and permit any of its officers or directors to act as member of, or in any other capacity with respect to, any committee formed to protect the right of the Registered Owners of Notes. (g) Registration Covenant. The City covenants that, until all Notes have been surrendered and canceled, it will maintain a system for recording the ownership of each Note that complies with the provisions of Section 149 of the Code. (h) Place and Medium of Payment. Both principal of and interest on the Notes shall be payable in lawful money of the United States of America. For so long as all Notes are in fully immobilized form, payments of principal and interest thereon shall be made as provided in accordance with the operational arrangements of DTC referred to in the Letter of Representations. In the event that the Notes are no longer in fully immobilized form, interest on the Notes shall be paid by check or draft mailed to the Registered Owners at the addresses for such Registered Owners appearing on the Note Register on the fifteenth day of the month preceding the interest payment date, or upon the written request of a Registered Owner of more than $1,000,000 of Notes (received by the Registrar at least 15 days prior to the applicable Page 6 Ordinance No. 828

9 payment date), such payment shall be made by the Registrar by wire transfer to the account within the United States designated by the Registered Owner. Principal of the Notes shall be payable upon presentation and surrender of such Notes by the Registered Owners at the principal office of the Registrar. Section 6. Notes Repayment Fund; Security for Payment. There is hereby authorized to be established in the office of the Finance Director a special fund of the City to be known as the LID No Notes Repayment Fund (the Notes Repayment Fund ), which fund shall be a trust fund to be drawn on only for the payment of the principal of and interest on the Notes. The Notes shall be obligations only of the Notes Repayment Fund. Both the principal of and interest on the Notes are payable solely from the proceeds of sale of the Bonds or refunding bond anticipation notes to be issued by the City and from assessments imposed on property within the District (together with interest and penalty payments thereon); provided, however, that interest on the Notes from their date through August 1, 2010 shall be payable from the Capitalized Interest Account, as provided in Section 8 of this ordinance. In accordance with Ordinance No. 613 of the City, the City s local improvement guaranty fund is not pledged to payment of the Notes. The City hereby covenants with the owners of the Notes that it will issue the Bonds, refunding bond anticipation notes, or a combination of the foregoing, in an amount sufficient, together with assessments imposed within the District, to pay when due the principal of and interest on the Notes. The City has further covenanted that it will deposit such amounts into the Notes Repayment Fund on or before such due date, and thereupon redeem the Notes. The Notes are not a general obligation of the City and are not payable otherwise than as stated herein. The Notes do not constitute indebtedness of the City within the meaning of the statutory and constitutional limitations of the State of Washington. Money in the Notes Repayment Fund may be invested by the City in any investment that is legal for funds of the City. Following repayment in full of the Notes, the balance, if any, in the Notes Repayment Fund shall be transferred to the bond redemption fund established for the Bonds. Section 7. Execution of Notes.. The Notes shall be executed on behalf of the City with the manual or facsimile signature of the Mayor, attested by the manual or facsimile signature of the City Clerk, and shall have the seal of the City impressed, imprinted or otherwise reproduced thereon. In case either or both of the officers who have signed or attested any of the Notes cease to be such officer before such Notes have been actually issued and delivered, such Notes shall be valid nevertheless and may be issued by the City with the same effect as though the persons who had signed or attested such Notes had not ceased to be such officers, and any Note may be signed or attested on behalf of the City by officers who at the date of actual execution of such Note are the proper officers, although at the nominal date of execution of such Note such officer was not an officer of the City. Only such Notes as shall bear thereon a Certificate of Authentication in the form hereinafter specified in Section 12, manually executed by the Registrar, shall be valid or obligatory for any purpose or entitled to the benefits of this ordinance. Such Certificate of Page 7 Ordinance No. 828

10 Authentication shall be conclusive evidence that the Notes so authenticated have been duly executed, authenticated and delivered hereunder and are entitled to the benefits of this ordinance. Section 8. Application of Note Proceeds. (a) Improvements Fund. There is hereby authorized to be established in the office of the Finance Director a special fund of the City to be known as the LID No Improvements Fund (the Improvements Fund ) into which a portion of the proceeds of the sale of the Notes shall be deposited and applied to pay costs of the Improvements (including but not limited to engineering, financing, legal or any other incidental costs) and costs of issuing the Notes and for repaying any advances heretofore or hereafter made on account of such costs or for redeeming the Notes. All money held in the Improvements Fund may be invested in any legal investment for the City s funds, and all investments shall be scheduled to mature as costs of the Improvements are reasonably anticipated to be incurred. Earnings from the investment of money in the Improvements Fund may remain in the Improvements Fund and may be used to pay costs of the Improvements or may be transferred to the Notes Repayment Fund. Upon the completion of the Improvements and the payment of all costs thereof, including the payment of all retainages for construction, the balance on hand in the Improvements Fund shall be transferred to the Notes Repayment Fund, and the Improvements Fund shall be closed. (b) Capitalized Interest Account. There is hereby authorized to be established a special account within the Notes Repayment Fund to be known as the LID No Capitalized Interest Account (the Capitalized Interest Account ), which account is to be held by The Bank of New York Trust Company, N.A., as Depositary (the Depositary ) and drawn upon for the sole purpose of paying the interest due and payable on the Notes from their date through and including August 1, Proceeds of sale of the Notes (approximately $1,008,850) shall be deposited in the Capitalized Interest Account in an amount sufficient, together with proceeds of the investment thereof, to pay such capitalized interest when due. Money held in the Capitalized Interest Account shall be invested in legal investments for the City s funds, and the investments shall be scheduled to mature in the amounts and at the times necessary to pay interest on the Notes from their date through and including August 1, On or before each interest payment date from February 1, 2008, through and including August 1, 2010, the Depositary shall transfer to the Registrar funds from the Capitalized Interest Account to make the payment of interest on the Notes due on such date. To provide for the proper investment and application of funds credited to the Capitalized Interest Account, the Finance Director or his designee is authorized to enter into a depositary agreement with the Depositary in form satisfactory to the Depositary and approved by counsel to the City. Section 9. Defeasance. In the event that money and/or Government Obligations maturing at such time or times and bearing interest to be earned thereon in amounts sufficient to redeem and retire any or all of the Notes in accordance with their terms are set aside in a special account to effect such redemption or retirement and such money and the principal of and interest on such obligations are irrevocably set aside and pledged for such purpose, then no further payments need be made into the Notes Repayment Fund for the payment of the principal of and interest on the Notes so provided for and such Notes shall cease to be entitled to any lien, benefit Page 8 Ordinance No. 828

11 or security of this ordinance except the right to receive the funds so set aside and pledged, and such Notes shall be deemed not to be outstanding hereunder. Section 10. Lost, Destroyed or Mutilated Notes. In the event any Note is lost, destroyed, or mutilated, the City will cause to be issued a new Note, substantially similar to the original, to replace the same, in such manner and upon such reasonable terms and conditions as the Registrar may from time to time determine. Section 11. Representations and Warranties. The City hereby makes the following representations, warranties and agreements. (a) The City has full legal right, power and authority (1) to pass this ordinance, (2) to sell, issue and deliver the Notes as provided herein and (3) to carry out and consummate all other transactions contemplated by this ordinance. (b) By all necessary official action prior to or concurrently herewith, the City has duly authorized and approved the execution and delivery of, and the performance by the City of its obligations contained in the Notes and this ordinance and the consummation by it of all other transactions contemplated by this ordinance in connection with the issuance of the Notes, and such authorizations and approvals are in full force and effect and have not been amended, modified or supplemented in any material respect. (c) This ordinance constitutes the legal, valid and binding obligation of the City. (d) The Notes, when issued, authenticated and delivered, will constitute the legal, valid and binding obligations of the City, in accordance with their terms. (e) The City is not in breach of or default under any applicable judgment or decree or any loan agreement, ordinance, bond, note, ordinance, agreement or other instrument to which the City is a party or to which the City or any of its property or assets is otherwise subject where such breach or default would have a material adverse effect on the operations or financial condition of the City; and (i) the passage of this ordinance, and (ii) the sale, issuance and delivery of the Notes, and compliance with the provisions on the City s part contained therein, will not conflict with or constitute a breach of or default under any constitutional provision, law, administrative regulation, judgment, decree, loan agreement, indenture, bond, note, ordinance, agreement or other instrument to which the City is a party or to which the City or any of its property or assets is otherwise subject, nor will any such passage, execution, delivery, sale, issuance or compliance result in the creation or imposition of any lien, charge or other security interest or encumbrance of any nature whatsoever upon any of the property or assets of the City or under the terms of any such law, regulation or instrument, except as provided by the Notes and this ordinance. Section 12. Form of Notes. The Notes shall be in substantially the following form: Page 9 Ordinance No. 828

12 UNITED STATES OF AMERICA No. $7,615,000 STATE OF WASHINGTON CITY OF OCEAN SHORES LOCAL IMPROVEMENT DISTRICT NO BOND ANTICIPATION NOTE, 2007 INTEREST RATE: MATURITY DATE: CUSIP NO.: 4.75% AUGUST 1, KAH1 REGISTERED OWNER: PRINCIPAL AMOUNT: CEDE & Co. SEVEN MILLION SIX HUNDRED FIFTEEN THOUSAND AND NO/100 DOLLARS THE CITY OF OCEAN SHORES, WASHINGTON (the City ), a municipal corporation duly organized and existing under the laws of the State of Washington, hereby acknowledges itself to owe and for value received promises to pay to the Registered Owner identified above, or registered assigns, on the Maturity Date identified above, the Principal Amount indicated above, and to pay interest thereon from the date hereof or the most recent date to which interest has been paid or duly provided for until payment of this Note at the Interest Rate set forth above, semiannually on the first days of February and August, commencing February 1, Both principal of and interest on this note are payable in lawful money of the United States of America. For so long as the Notes are held in fully immobilized form, payments of principal and interest thereon shall be made as provided in accordance with the operational arrangements of DTC referred to in the Blanket Issuer Letter of Representations from the City to DTC. This note is one of an authorized issue of notes of like date and tenor, in the aggregate principal amount of $7,615,000 (the Notes ), issued to provide interim financing for a portion of the costs of constructing street improvements (the Improvements ) within Local Improvement District No of the City (the District ). The Notes are issued in anticipation of the issuance of local improvement district bonds (the Bonds ) authorized to be issued by the City to provide long-term financing for the costs of the Improvements. The Notes are issued under and in accordance with the provisions of the Constitution and applicable statutes of the State of Washington and ordinances duly adopted by the City Council, including Ordinance No. 828 (the Note Ordinance ). Unless otherwise defined in this note, capitalized terms used herein shall have the meanings given such terms in the Note Ordinance. The Notes are not subject to optional redemption prior to their stated maturity. Page 10 Ordinance No. 828

13 The Notes are obligations solely of the Notes Repayment Fund. Both the principal of and interest on the Notes are payable solely from the proceeds of sale of the Bonds or refunding bond anticipation notes to be issued by the City and from assessments imposed on property within the District (together with interest and penalty payments thereon); provided, however, that interest on the Notes from their date through August 1, 2010 is payable from the Capitalized Interest Account, as provided in the Note Ordinance. The City s local improvement guaranty fund is not pledged to payment of the Notes. By the Note Ordinance, the City has covenanted with the owners of the Notes that it will issue the Bonds, refunding bond anticipation notes, or a combination of the foregoing, in an amount sufficient, with any assessments imposed within the District, to pay when due the principal of and interest on the Notes and will thereupon redeem the Notes. The Notes are not a general obligation of the City and are not payable otherwise than as stated in the Note Ordinance. The Notes do not constitute indebtedness of the City within the meaning of the statutory and constitutional limitations of the State of Washington. The Notes are not private activity bonds as such term is defined in the Internal Revenue Code of 1986, as amended (the Code ). The Notes have been designated by the City as qualified tax-exempt obligations within the meaning of Section 265(b) of the Code. This note shall not be valid or become obligatory for any purpose or be entitled to any security or benefit under the Note Ordinance until the Certificate of Authentication hereon shall have been manually signed by or on behalf of the Registrar. It is hereby certified that all acts, conditions and things required by the Constitution and statutes of the State of Washington to exist, to have happened, been done and performed precedent to and in the issuance of this note have happened, been done and performed and that the issuance of this note and the Notes does not violate any constitutional, statutory or other limitation upon the amount of indebtedness that the City may incur. Page 11 Ordinance No. 828

14 IN WITNESS WHEREOF, the City of Ocean Shores, Washington, has caused this note to be signed with the manual or facsimile signature of the Mayor, to be attested by the manual or facsimile signature of the City Clerk, with the official seal of the City to be impressed or a facsimile to be imprinted hereon, as of this 26 th day of July, CITY OF OCEAN SHORES, WASHINGTON By /s/ Mayor ATTEST: City Clerk /s/ The Registrar s Certificate of Authentication on the Notes shall be in substantially the following form: CERTIFICATE OF AUTHENTICATION This is one of the Local Improvement District No Bond Anticipation Notes, 2007, of the City of Ocean Shores, Washington, dated July 26, 2007, as described in the Note Ordinance. WASHINGTON STATE FISCAL AGENCY, Registrar By Authorized Signer Section 13. Tax Covenants. The City hereby covenants that it will not make any use of the proceeds of sale of the Notes or any other funds of the City that may be deemed to be proceeds of the Notes pursuant to Section 148 of the Code that will cause the Notes to be arbitrage bonds within the meaning of said section and applicable regulations. The City will comply with the requirements of Section 148 of the Code (or any successor provision thereof applicable to the Notes) and the applicable Regulations thereunder throughout the term of the Notes. The City further covenants that it will not take any action or permit any action to be taken that would cause the Notes to constitute private activity bonds under Section 141 of the Code. The City hereby designates the Notes as qualified tax-exempt obligations within the meaning of Section 265(b)(3) of the Code. The City does not anticipate issuing more than $10,000,000 in qualified tax-exempt obligations during Page 12 Ordinance No. 828

15 Section 14. Sale of Notes. The Notes shall be sold by negotiated sale to Piper Jaffray & Co., Seattle, Washington (the Underwriter ), under the terms and conditions set forth in this ordinance and in the purchase contract presented by the Underwriter at this meeting. The Mayor or City Manager is hereby authorized to sign the purchase contract on behalf of the City. The proper City officials are hereby authorized and directed to do everything necessary for the prompt execution and delivery of the Notes to the Underwriter and for the proper application and use of the proceeds of sale thereof. Section 15. Official Statement. The City approves the preliminary Official Statement presented to this Council and ratifies the Underwriter s distribution of the preliminary Official Statement in connection with the offering of the Notes. To permit the Underwriter to comply with the Rule, the Preliminary Official Statement dated July 13, 2007, is hereby deemed final as of its date except for the omission of information dependent upon the pricing of the Notes and the completion of the purchase contract. The City agrees to cooperate with the Underwriter to deliver or cause to be delivered, within seven business days from the date of the sale of the Notes and in sufficient time to accompany any confirmation that requests payment from any customer of the Underwriter, copies of a final Official Statement in sufficient quantity to comply with paragraph (b)(4) of the Rule and the rules of the MSRB. The Finance Director is hereby authorized to review and approve on behalf of the City the final Official Statement relative to the Notes with such additions and changes as he may deem necessary or advisable. Section 16. Undertaking to Provide Ongoing Disclosure. (a) Contract/Undertaking. This section constitutes the City s written undertaking for the benefit of the owners of the Notes as required by Section (b)(5) of the Rule. (b) Financial Statements/Operating Data. The City agrees to provide or cause to be provided to each NRMSIR and to the SID, if any, in each case as designated by the Commission in accordance with the Rule, the following annual financial information and operating data for the prior fiscal year (commencing in 2008 for the fiscal year ended December 31, 2007): 1. Annual financial statements, which statements may or may not be audited, showing ending fund balances for the City s general fund prepared in accordance with the Budget Accounting and Reporting System prescribed by the Washington State Auditor pursuant to RCW (or any successor statute); 2. The amount of the final assessment roll for the District. 3. The date of confirmation of the final assessment roll for the District. 4. The amount of prepaid assessments received with respect to the final assessment roll for the District. Items 2-4 shall be required only to the extent that such information is not included in the annual financial statements. Page 13 Ordinance No. 828

16 The information and data described above shall be provided on or before nine months after the end of the City s fiscal year. The City s current fiscal year ends December 31. The City may adjust such fiscal year by providing written notice of the change of fiscal year to each then existing NRMSIR and the SID, if any. In lieu of providing such annual financial information and operating data, the City may cross-reference to other documents provided to the NRMSIR s, the SID or to the Commission and, if such document is a final official statement within the meaning of the Rule, available from the MSRB. If not provided as part of the annual financial information discussed above, the City shall provide the City s audited annual financial statement prepared in accordance with the Budget Accounting and Reporting System prescribed by the Washington State Auditor pursuant to RCW (or any successor statutes), when and if available, to each then existing NRMSIR and the SID, if any. (c) Material Events. The City agrees to provide or cause to be provided, in a timely manner, to the SID, if any, and to each NRMSIR or to the MSRB notice of the occurrence of any of the following events with respect to the Notes, if material: Principal and interest payment delinquencies; Non-payment related defaults; Unscheduled draws on debt service reserves reflecting financial difficulties; Unscheduled draws on credit enhancements reflecting financial difficulties; Substitution of credit or liquidity providers, or their failure to perform; Adverse tax opinions or events affecting the tax-exempt status of the Notes; Modifications to the rights of Note owners; Note calls (optional, contingent or unscheduled Note calls other than scheduled sinking fund redemptions for which notice is given pursuant to Exchange Act Release ); Defeasances; Release, substitution or sale of property, securing repayment of the Notes; and Rating changes. (d) Termination/Modification. The City s obligations to provide notices of material events shall terminate upon the legal defeasance, prior redemption or payment in full of all of the Notes. Any provision of this section shall be null and void if the City (1) obtains an opinion of nationally recognized bond counsel to the effect that the portion of the Rule that requires that provision is invalid, has been repealed retroactively or otherwise does not apply to the Notes and Page 14 Ordinance No. 828

17 (2) notifies each NRMSIR and the SID, if any, of such opinion and the cancellation of this section. The City may amend this section with an approving opinion of nationally recognized bond counsel in accordance with the Rule. (e) Note Owner s Remedies Under This Section. The right of any owner or Beneficial Owner of Notes to enforce the provisions of this section shall be limited to a right to obtain specific enforcement of the City s obligations under this section, and any failure by the City to comply with the provisions of this undertaking shall not be an event of default with respect to the Notes. (f) DisclosureUSA. The City may elect to submit the information required by this section to be filed with the NRMSIRs and the SID, if any, directly to DisclosureUSA.org unless or until the SEC withdraws its approval of this submission process. Section 17. Ordinance to Constitute Contract. In consideration of the purchase and acceptance of any of the Notes authorized to be issued hereunder by those who shall hold the same from time to time, this ordinance shall be deemed to be and shall constitute a contract between the City and such owners, and the covenants and agreements set forth in this ordinance to be performed on behalf of the City shall be for the equal benefit, protection and security of the owners of any and all of the Notes, all of which shall be of equal rank without preference, priority or distinction of any of the Notes over any other thereof. Section 18. General Authorization. The appropriate officials, agents and representatives of the City are authorized to take any actions and to execute any certificates, agreements or other documents as in their judgment may be necessary or desirable to carry out the terms of, and complete the transactions contemplated by, this ordinance. All acts taken pursuant to the authority of this ordinance but prior to its effective date are hereby ratified and confirmed. Section 19. Effect of Covenants. No covenant, obligation or agreement contained herein shall be deemed to be a covenant, obligation or agreement of any present or future official, member, agent or employee of the City in his or her individual capacity, and neither the members of the Council nor any officer thereof executing the Notes shall be liable personally on the Notes or be subject to any personal liability or accountability by reason of the issuance thereof. No member, officer, agent or employee of the City shall incur any liability in acting or proceeding or in not acting or proceeding, in good faith in accordance with the terms of this ordinance. Section 20. Severability. If any one or more of the provisions of this ordinance or of the Notes shall for any reason be held to be illegal or invalid, such illegality or invalidity shall not affect any other provision of this ordinance or of the Notes, but this ordinance and the Notes shall be construed and enforced as if such illegal or invalid provision had not been contained therein. If any covenant, obligation or agreement contained in the Notes or in this ordinance shall for any reason be held to be in violation of law, then such covenant, obligation or agreement shall be deemed to be the covenant, obligation or agreement of the City to the full extent permitted by law. Page 15 Ordinance No. 828

18 Section 21. Effective Date. This ordinance shall become effective five days after its passage and publication, as required by law. PASSED by the City Council of the City of Ocean Shores, Washington, at a regular meeting thereof, held on July 23, CITY OF OCEAN SHORES, WASHINGTON ATTEST: Michael E. Patrick, Mayor Diane J. Foss, CMC City Clerk APPROVED AS TO FORM: K&L Preston Gates Ellis LLP Bond Counsel to the City Page 16 Ordinance No. 828

19 CERTIFICATE I, Diane J. Foss, City Clerk of City of Ocean Shores, Washington (the City ) and keeper of the records of the City Council (the Council ), DO HEREBY CERTIFY: 1. That the attached ordinance is a true and correct copy of Ordinance No. 828 of the Council (the Ordinance ), duly approved at a regular meeting thereof held on the 23rd day of July, That said meeting was duly convened and held in all respects in accordance with law, and to the extent required by law, due and proper notice of such meeting was given; that a legal quorum was present throughout the meeting and a legally sufficient number of members of the Council voted in the proper manner for the passage of the Ordinance; that all other requirements and proceedings incident to the proper passage of the Ordinance have been duly fulfilled, carried out and otherwise observed; and that I am authorized to execute this certificate. IN WITNESS WHEREOF, I have hereunto set my hand this 23rd day of July, Diane J. Foss, CMC City Clerk Ordinance No. 828