2003 Water Bond Resolution

April 29, 2003

Version 1

THE CITY OF SEATTLE, WASHINGTON

Resolution 30598

A RESOLUTION providing for the sale and issuance of The City of Seattle, Washington, Water System and Refunding Revenue Bonds, 2003; specifying the amount, maturities, interest rates and other terms of the bonds; and ratifying, confirming and approving the notice of bond sale and the actions of the Director of Finance relating to the sale of the bonds.

Adopted April 29, 2003

Resolution _______

A RESOLUTION providing for the sale and issuance of The City of Seattle, Washington, Water System and Refunding Revenue Bonds, 2003; specifying the amount, maturities, interest rates and other terms of the bonds; and ratifying, confirming and approving the notice of bond sale and the actions of the Director of Finance relating to the sale of the bonds.

WHEREAS, pursuant to Ordinance 116705 and Resolution 28745 (the "Refunded Bond Legislation") the City issued its Two Hundred Fifty-Six Million Two Hundred Fifty-Five Thousand Dollars ($256,255,000) principal amount Water System and Refunding Revenue Bonds, 1993 (the "1993 Bonds") payable from and having a charge and lien upon the Net Revenue of the Municipal Water System prior and superior to all other charges whatsoever; and

WHEREAS, pursuant to Ordinance 121094 (the "Bond Ordinance"), The City of Seattle, Washington (the "City") authorized the issuance of not to exceed Two Hundred Ninety-two Million Five Hundred Thousand Dollars ($292,500,000) of its Water System and Refunding Revenue Bonds, 2003 (the "Bonds") to (1) finance certain capital improvements to and conservation programs for the City's Municipal Water System (2) refund certain of the City's outstanding 1993 Bonds (as hereinafter defined, the "Refunded Bonds"), (3) meet the Reserve Requirement for the Bonds; and (4) pay the issuance costs of the Bonds; and

WHEREAS, the Bond Ordinance authorized the Director of Finance to conduct a public or negotiated sale of the Bonds and to recommend to the City Council for its approval by resolution the interest rates and other terms and matters relating to the Bonds consistent with the Bond Ordinance; and

WHEREAS, pursuant to the Bond Ordinance, a preliminary official statement dated April 23, 2003 (the "Preliminary Official Statement") for the public sale of the Bonds has been prepared, an official notice of that sale (the "Notice of Bond Sale") was given, bids have been received in accordance with the Notice of Bond Sale, and the proposed sale of the Bonds to Merrill Lynch & Co. (the "Purchaser") has been recommended to the City Council for its approval with the interest rates and other terms of and matters relating to the Bonds set forth in this resolution; and

WHEREAS, the MBIA Insurance Corporation of Armonk, New York ("Bond Insurer"), has made a commitment to issue a financial guaranty insurance policy (the "Financial Guaranty Insurance Policy") to insure the payment when due of the principal of and interest on the Bonds as provided therein and a debt service reserve surety bond (the "Surety Bond") to provide reserve insurance for the Parity Bonds and the purchase of the Financial Guaranty Insurance Policy and the Surety Bond has been recommended to the City Council for its approval under the terms and conditions set forth in this resolution; NOW, THEREFORE,

BE IT RESOLVED BY THE CITY COUNCIL OF THE CITY OF SEATTLE THAT:

Section 1. Definitions. The meaning of capitalized terms used and not otherwise defined in this resolution shall be as set forth in the Bond Ordinance.

Acquired Obligations means those "government obligations" (as such term is defined in RCW 39.53.010(9) as it now reads or hereafter may be amended or replaced) purchased to accomplish the refunding of the Refunded Bonds as authorized by this resolution.

Bond Insurer means MBIA Insurance Corporation, a stock insurance company incorporated under the laws of the State of New York.

Bond Ordinance means Ordinance 121094 of the City authorizing the issuance of the Bonds.

Financial Guaranty Insurance Policy or Policy means the financial guaranty insurance policy issued by the Bond Insurer insuring the payment when due of the principal of and interest on the Bonds as provided therein.

Refunded Bonds means the outstanding Water System and Refunding Revenue Bonds, 1993, maturing on December 1, 2003, on June 1 and December 1 in the years 2004 through 2006, and on June 1 in the years 2007 through 2010, and 2014, 2018 and 2023, in the aggregate principal amount of $168,530,000.

Refunding Plan means:

(a) the placement of sufficient proceeds of the Bonds, which, with other money of the City, if necessary, will acquire the Acquired Obligations to be deposited, with cash, if necessary, with the Refunding Trustee;

(b) the payment of the interest on the Refunded Bonds when due up to and including June 1, 2003, and the call, payment and redemption on June 1, 2003, of all of the then-outstanding Refunded Bonds, at the following prices:

(i) for the Refunded Bonds maturing in the years 2003 through 2010, and in 2014 and 2018, 102% of par; and

(ii) for the Refunded Bonds maturing in the year 2023, 101% of par.

Refunding Trustee means U.S. Bank National Association of Seattle, Washington, serving as trustee or escrow agent or any successor trustee or escrow agent.

Refunding Trust Agreement means the Refunding Trust Agreement between the City and the Refunding Trustee relating to the Refunded Bonds, substantially in the form attached hereto as Exhibit D.

Surety Bond means the debt service reserve fund surety bond issued by the Bond Insurer to provide Reserve Insurance with respect to the Parity Bonds.

Section 2. The Bonds. The Bonds shall be issued in the aggregate principal amount of Two Hundred Seventy-One Million Three Hundred Twenty Thousand Dollars ($271,320,000). The Bonds shall be called "The City of Seattle, Washington, Water System and Refunding Revenue Bonds, 2003." The Bonds shall be in the denomination of Five Thousand Dollars ($5,000) or any integral multiple thereof within a single maturity; shall be dated their date of initial delivery to the Purchaser; shall be registered as to both principal and interest; and shall bear interest from their date until the Bonds bearing such interest have been paid or their payment has been duly provided for, payable semiannually on each March 1 and September 1, commencing September 1, 2003; and shall mature on September 1 of the following years and in the following amounts and shall bear interest as follows:

Maturities

Principal

Amounts

Interest

Rates

2003

$14,500,000

6.000%

2004

12,660,000

6.000%

2005

10,160,000

4.000%

2006

9,505,000

4.000%

2007

6,875,000

4.500%

2008

7,450,000

4.500%

2009

7,785,000

4.500%

2010

8,145,000

4.500%

2011

8,515,000

4.500%

2012

8,900,000

4.000%

2013

9,265,000

4.000%

2014

9,645,000

4.000%

2015

10,040,000

5.000%

2016

10,545,000

5.000%

2017

11,040,000

5.000%

2018

11,575,000

5.000%

2019

12,185,000

5.000%

2020

12,890,000

5.000%

2021

11,790,000

5.000%

2022

12,480,000

5.000%

2023

12,870,000

5.000%

2024

4,225,000

4.625%

2025

4,420,000

4.625%

**

**

**

2028

14,535,000

4.700%

**

**

**

2033

29,320,000

5.000%

Section 3. Optional Redemption. Bonds maturing on or before September 1, 2013, shall be issued without the right or option of the City to redeem those Bonds prior to their stated maturity dates. The City reserves the right and option to redeem Bonds maturing on and after September 1, 2014, prior to their stated maturity dates, at any time on and after September 1, 2013, as a whole or in part within one or more maturities to be selected by the City (in the manner specified in the Bond Ordinance) at par plus accrued interest, if any, to the dated fixed for redemption.

Section 4. Mandatory Redemption. Bonds maturing in the years 2028 and 2033 are designated as Term Bonds and, if not redeemed under the optional redemption provisions set forth above or purchased in the open market under the provisions set forth in Section 8(d) of the Bond Ordinance, shall be called for redemption in accordance with Section 8(b) of the Bond Ordinance at par plus accrued interest on September 1 in years and amounts as follows:

Term Bonds Maturing 2028

Mandatory Redemption Years

Mandatory Redemption Amounts

2026

$4,625,000

2027

4,840,000

2028(1)

5,070,000

Term Bonds Maturing 2033

Mandatory Redemption Years

Mandatory Redemption Amounts

2029

$5,305,000

2030

5,570,000

2031

5,850,000

2032

6,145,000

2033(1)

6,450,000

(1) maturity

Section 5. Form of Bonds. The Bonds shall be substantially in the form attached hereto as Exhibit A and incorporated herein by this reference.

Section 6. Sale and Delivery of Bonds. The City finds that the sale and delivery of the Bonds to Merrill Lynch & Co. (the "Purchaser") at the interest rates and under the conditions set forth in the Bond Ordinance, this resolution, the Notice of Bond Sale attached hereto as Exhibit B, and the electronic bid of the Purchaser, a printed copy of which is attached hereto as Exhibit C, is in the City's best interest and therefore approves, confirms and ratifies the award of the Bonds to the Purchaser.

Section 7. Authorization of Official Statement. The Director of Finance is hereby authorized and directed to review and approve on behalf of the City a final official statement (the "Official Statement") with respect to the Bonds, substantially in the form of the Preliminary Official Statement and supplemented or amended as he, with the approval of Bond Counsel, deems necessary or appropriate.

Section 8. Provisions Relating to Bond Insurance. The City finds that it is in the City's best interest to purchase, and that a savings will result from purchasing, the Financial Guaranty Insurance Policy from the Bond Insurer pursuant to the Commitment to Issue a Financial Guaranty Insurance Policy (the "Bond Insurance Commitment") attached hereto as Exhibit E-1 and incorporated herein by reference. The City shall purchase the Financial Guaranty Insurance Policy from the Bond Insurer and, to the extent consistent with the Bond Ordinance, shall comply with the Additional Provisions Relating to Bond Insurance attached hereto as Exhibit E-2 and incorporated herein by reference.

Section 9. Provisions for Satisfying Reserve Requirement through Reserve Insurance.

(a) Purchase of Reserve Insurance. The City finds that it is in the City's best interest to satisfy the Reserve Requirement by purchasing the Surety Bond from the Bond Insurer pursuant to the Commitment to Issue a Debt Service Reserve Surety Bond (the "Reserve Insurance Commitment") attached hereto as Exhibit F-1 and incorporated herein by this reference.

(b) Approval and Authorization of Reserve Agreement. In accordance with Section 4 of the Bond Ordinance, the Director of Finance is authorized and directed to accept the Reserve Insurance Commitment and to enter into a Financial Guaranty Agreement with the Bond Insurer substantially in the form attached hereto as Exhibit F-2 and incorporated herein by reference (the "Financial Guaranty Agreement"), in each case with such changes and additions as are deemed necessary or appropriate by the Director of Finance, consistent with the terms of the Bond Ordinance and this resolution and approved by the Bond Insurer. Any reimbursement obligation of the City under the Financial Guaranty Agreement shall be an obligation of the Municipal Water System and not a general obligation of the City.

(c) Additional Provisions Relating to Reserve Insurance. To the extent consistent with the Bond Ordinance, the City shall comply with the Additional Provisions Relating to Reserve Insurance attached hereto as Exhibit F-3 and incorporated herein by this reference while the Surety Bond is in effect.

Section 10. Use of Bond Proceeds; Refunding Plan. The principal proceeds of the Bonds received by the City and, if necessary, other money of the City shall be applied as follows (the amounts to be determined by the Director of Finance prior to the issuance of the Bonds): (i) an amount sufficient to pay the premiums for the Financial Guaranty Insurance Policy and the Reserve Policy shall be paid to the Bond Insurer; (ii) an amount sufficient to carry out the Refunding Plan shall be deposited immediately upon the receipt thereof with the Refunding Trustee and used to discharge the obligations of the City relating to the Refunded Bonds under the Refunded Bond Ordinance pursuant to the Refunding Plan, as defined herein and modified or amplified by the Refunding Trust Agreement; and (iii) the balance of the Bond proceeds shall be deposited in the account(s) within the Water Fund as designated by the Director of Finance and shall be used to pay costs of issuing the Bonds and for the purposes described in the Bond Ordinance.

The Refunding Plan shall be carried out, and proceeds of the Bonds shall be applied, in accordance with the Refunded Bond Legislation, this resolution and the laws of the State. To the extent practicable, the Refunded Bonds shall be discharged fully by the Refunding Trustee's simultaneous purchase of the Acquired Obligations, bearing such interest and maturing as to principal and interest in such amounts and at such times so as to provide, together with a beginning cash balance, if necessary, for the payment of the amounts required to be paid by the Refunding Plan. The Acquired Obligations shall be subject to substitution as set forth in the Refunding Trust Agreement. Any surplus money resulting from the sale, transfer, other disposition or redemption of the Acquired Obligations and the substitutions therefor shall be released from the trust estate and transferred to the Water Fund to be used for any lawful purpose.

Section 11. Call for Redemption of the Refunded Bonds. In accordance with the Refunded Bond Legislation, as a part of the Refunding Plan the City calls the Refunded Bonds for redemption on June 1, 2003, at the redemption prices specified in the Refunding Plan plus accrued interest to the date of redemption.

Such calls for redemption shall be irrevocable after the delivery of the Bonds to the Purchaser thereof.

The proper officials of the City are authorized and directed to give or cause to be given such notices as are required, at the times and in the manner required, pursuant to the Refunded Bond Legislation, in order to effect the redemption prior to their maturity of the Refunded Bonds.

Section 12. City Findings With Respect to Refunding. The City finds and determines that the issuance and sale of the Bonds will effect a savings to the City and its ratepayers. In making such finding and determination, the City has given consideration to the fixed maturities and scheduled redemptions of the Bonds, the costs of issuance of the Bonds, and the known earned income from the investment of the proceeds of the issuance and sale of the Bonds and other money, if any, of the City used in the Refunding Plan pending payment and redemption of the Refunded Bonds. The City further finds and determines that the money to be deposited with the Refunding Trustee for the Refunded Bonds in accordance with the Bond Ordinance and this Resolution will discharge and satisfy the obligations of the City with respect to the Refunded Bonds under the Refunded Bond Legislation, and the pledges, charges, trusts, covenants and agreements of the City therein made or provided for as to the Refunded Bonds, and that the Refunded Bonds shall no longer be deemed to be outstanding under such ordinances immediately upon the deposit of such money with the Refunding Trustee.

Section 13. City Finding as to Sufficiency of Gross Revenues . The City finds and determines (i) that the Gross Revenue and benefits to be derived from the operation and maintenance of the Municipal Water System at the rates to be charged from time to time for water and other services and commodities from the Municipal Water System consistent with Section 21(b) of the Bond Ordinance, will be sufficient to meet all Operation and Maintenance Expenses and to permit the setting aside into the Bond Account out of the Gross Revenue of amounts sufficient to pay the principal of and interest on the Bonds and any mandatory redemption requirements when due, and (ii) that in fixing the amounts to be paid into the Bond Account the City has exercised due regard for Operation and Maintenance Expenses, and has not bound and obligated itself to set aside and pay into the Bond Account a greater amount or proportion of the Gross Revenue than in the judgment of the City will be available over and above the Operation and Maintenance Expenses.

Section 14. Appointment of Refunding Trustee and Authorization of Refunding Trust Agreement. U.S. Bank National Association, Seattle, Washington, is appointed as Refunding Trustee. The Director of Finance is authorized and directed to execute and deliver to the Refunding Trustee a Refunding Trust Agreement with such modifications as the Director of Finance determines are necessary and appropriate and are consistent with the Bond Ordinance and this Resolution.

Section 15. Undertaking to Provide Continuing Disclosure. This Section constitutes the written undertaking (the "Undertaking") for the benefit of the holders of the Bonds as required by paragraph (b)(5) of SEC Rule 15c2-12 (the "Rule"), and pursuant to the Bond Ordinance. For purposes of this Undertaking, the term "holders of the Bonds" shall have the meaning intended for such term under the Rule. The City as an "obligated person" within the meaning of the Rule undertakes to provide or cause to be provided, either directly or through a designated agent:

(a) To each nationally recognized municipal securities information repository designated by the SEC in accordance with the Rule (each "NRMSIR"), and to a state information depository, if one is established in the State of Washington and recognized by the SEC (the "SID"), annual financial information and operating data regarding the Municipal Water System of the type included in the Official Statement for the Bonds as follows: (i) annual financial statements of the Municipal Water System, prepared in accordance with generally accepted accounting principles applicable to governmental units (except as otherwise noted therein), as such principles may be changed from time to time and as permitted by State law, which statements will not be audited, except that if and when audited financial statements are otherwise prepared and available to the City they will be provided; (ii) a statement of authorized, issued and outstanding bond debt secured by the Net Revenue of the Municipal Water System; (iii) debt service coverage ratios; (iv) summary operating statistics for the Municipal Water System, including population served, water sales revenue and billed water use; and (v) current water rates.

Annual financial information, as described above, will be provided to each NRMSIR and the SID, not later than the last day of the ninth month after the end of each fiscal year of the City (currently, a fiscal year ending December 31), as such fiscal year may be changed as permitted or required by State law, commencing with the City's fiscal year which ends December 31, 2003. The annual financial information may be provided in a single or in multiple documents, and may be incorporated by reference from other documents, including official statements of debt issues with respect to which the City is an obligated person as defined by the Rule, which documents have been filed with each NRMSIR and the SID. If the document incorporated by reference is a "final official statement" (as defined by the Rule) with respect to which the City is an obligated person it must be available from the Municipal Securities Rulemaking Board ("MSRB").

(b) To each NRMSIR or to the MSRB, and to the SID, timely notice of the occurrence of any of the following events with respect to the Bonds, if material: (i) principal and interest payment delinquencies; (ii) non-payment related defaults; (iii) unscheduled draws on debt service reserves reflecting financial difficulties; (iv) unscheduled draws on credit enhancements reflecting financial difficulties; (v) substitution of credit or liquidity providers, or their failure to perform; (vi) adverse tax opinions or events affecting the tax-exempt status of the Bonds; (vii) modifications to the rights of the holders of the Bonds; (viii) Bond calls (other than scheduled mandatory redemptions of Term Bonds); (ix) defeasances; (x) release, substitution, or sale of property securing repayment of the Bonds; and (xi) rating changes.

(c) To each NRMSIR or to the MSRB and to the SID timely notice of a failure by the City to provide required annual financial information on or before the date specified in paragraph (a) above.

This Undertaking may be amended without the consent of any holder of any Bond, any broker, dealer, municipal securities dealer, participating underwriter, rating agency, NRMSIR, the SID or the MSRB, under the circumstances and in the manner permitted by the Rule. The City will give notice to each NRMSIR or the MSRB, and to the SID, of the substance (or provide a copy) of any amendment to the Undertaking and a brief statement of the reasons for the amendment. If the amendment changes the type of annual financial information to be provided, the annual financial information containing the amended information will include a narrative explanation of the effect of that change on the type of information being provided.

If the City fails to comply with this Undertaking, the City will proceed with due diligence to cause such noncompliance to be corrected as soon as practicable after the City learns of that failure. No failure by the City or other obligated person to comply with this Undertaking shall constitute a default with respect to the Bonds. The sole remedy of any holder of a Bond will be to take such actions as that holder deems necessary and appropriate to compel the City or other obligated person to comply with this Undertaking.

This Undertaking shall inure to the benefit of the City and any holder of the Bonds, and shall not inure to the benefit of or create any rights in any other person.

Section 16. Termination of Undertaking. The City's obligations under the Undertaking described in Section 15 of this Resolution shall terminate upon the legal defeasance, prior redemption, or payment in full of all of the then outstanding Bonds. In addition, the Undertaking, or any provision thereof, will be null and void if the City (i) obtains an opinion of nationally recognized bond counsel or other counsel familiar with federal securities laws to the effect that those portions of the Rule which require the City to comply with the Undertaking, or any such provision, are invalid, have been repealed retroactively or otherwise do not apply to the Bonds; and (ii) notifies the SID and either the MSRB or each then existing NRMSIR of such Termination.

Section 17. General Authorization. The Mayor and the Director of Finance and each of the other appropriate officers of the City are each authorized and directed to do everything as in their judgment may be necessary, appropriate or desirable in order to carry out the terms and provisions of, and complete the transactions contemplated by, the Bond Ordinance and this resolution.

Section 18. Severability. The provisions of this Resolution are declared to be separate and severable. If a court of competent jurisdiction, all appeals having been exhausted or all appeal periods having run, finds any provision of this resolution to be invalid or unenforceable as to any person or circumstance, such offending provision shall, if feasible, be deemed to be modified to be within the limits of enforceability or validity. However, if the offending provision cannot be so modified, it shall be null and void with respect to the particular person or circumstance, and all other provisions of this resolution in all other respects, and the offending provision with respect to all other persons and all other circumstances, shall remain valid and enforceable.

Section 19. Ratification of Prior Acts. All acts taken pursuant to the authority of this resolution but prior to its effective date are ratified, approved and confirmed.

Section 20. Section Headings. Section headings in this Resolution are used for convenience only and shall not constitute a substantive portion of this resolution.

ADOPTED by the City Council the 29th day of April, 2003, and signed by me in open session in authentication of its adoption this 29th day of April, 2003.

President __________________of the City Council

Filed by me this _______ day of _______________, 2003.

City Clerk

LIST OF EXHIBITS

Exhibit A Bond Form

Exhibit B Notice of Bond Sale

Exhibit C Printed Version of Electronic Bid

Exhibit D Refunding Trust Agreement

Exhibit E-1 Bond Insurance Commitment

Exhibit E-2 Additional Provisions Relating to Bond Insurance

Exhibit F-1 Reserve Insurance Commitment

Exhibit F-2 Financial Guaranty Agreement

Exhibit F-3 Additional Provisions Relating to Reserve Insurance

50379428.02

EXHIBIT A

Bond Form

No. R-______ $___________

Unless this certificate is presented by an authorized representative of The Depository Trust Company, a New York corporation ("DTC"), to City or its agent for registration of transfer, exchange, or payment, and any certificate issued is registered in the name of Cede & Co. or in such other name as is requested by an authorized representative of DTC (and any payment is made to Cede & Co. or to such other entity as is requested by an authorized representative of DTC), ANY TRANSFER, PLEDGE, OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL inasmuch as the registered owner hereof, Cede & Co., has an interest herein.

UNITED STATES OF AMERICA

STATE OF WASHINGTON

THE CITY OF SEATTLE

WATER SYSTEM AND REFUNDING REVENUE BOND, 2003

INTEREST RATE: MATURITY DATE: CUSIP No.:

Registered Owner: CEDE & CO.

Principal Amount: [_______________]

THE CITY OF SEATTLE, WASHINGTON (the "City"), a municipal corporation of the State of Washington, for value received, promises to pay the Registered Owner identified above on the Maturity Date identified above, the Principal Amount identified above and to pay interest (computed on the basis of a 360-day year of twelve 30-day months) thereon from the later of the date of this Bond or from the most recent interest payment date to which interest has been paid at the Interest Rate per annum set forth above, payable semiannually on each March 1 and September 1, commencing September 1, 2003, to the maturity or earlier redemption of this Bond. If this Bond is duly presented for payment and not paid on its maturity or call date, then interest shall continue to accrue at the Interest Rate identified above until this Bond, both principal and interest, is paid in full or until sufficient money for its payment in full is on deposit in the Bond Account and this Bond has been called for payment by giving notice to the Registered Owner.

Principal of and premium, if any, and interest on this Bond are payable in lawful money of the United States of America. Principal of and premium, if any, are payable only to the Registered Owner upon presentation and surrender of this Bond at the principal office of the fiscal agency of the City (presently The Bank of New York, New York, New York) or such other paying agents as designated by the City upon notice to the Registered Owners of the Bonds (the "Bond Registrar"). Payment of each installment of interest shall be made to the Registered Owner whose name appears on the registration books of the City maintained by the Bond Registrar (the "Bond Register") at the close of business on the 15th day of the month next preceding the interest payment date (the "Record Date") and shall be paid by check or draft of the Bond Registrar mailed on the interest payment date to the Registered Owner at the address appearing on the Bond Register or, when requested in writing to the Bond Registrar before the applicable Record Date by the Registered Owner of $1,000,000 or more in principal amount of the Bonds, by wire transfer on the interest payment date. Notwithstanding the foregoing, as long as this Bond is registered in the name of Cede & Co., as nominee of The Depository Trust Company ("DTC"), payment of principal, premium, if any, and interest shall be made as provided in the Letter of Representations.

This Bond is one of an authorized issue of bonds designated The City of Seattle, Washington, Water System and Refunding Revenue Bonds, 2003, aggregating $271,320,000 in principal amount, maturing on September 1 in the years 2003 through 2025, inclusive, and in the years 2028 and 2033, of like date, tenor and effect, except as to numbers, denominations, options of redemption, maturity dates and interest rates. The Bonds are issued by the City pursuant to Ordinance 121094 and Resolution ________ of the City (the "Bond Legislation") for the purposes of paying part of the costs of capital improvements and additions to the Water System described in the Bond Legislation, satisfying the Reserve Requirement, refunding certain of the outstanding 1993 Bonds, and paying the costs of issuing and selling the Bonds, all as provided in the Bond Legislation. The Bonds are issued in fully registered form in the denomination of $5,000 or any integral multiple thereof within a single maturity.

The Bonds are special obligations of the City payable solely out of the Bond Account, including the Reserve Subaccount therein, into which account the City has irrevocably pledged to set aside and pay certain fixed amounts out of the Net Revenue of the Water System, namely, amounts sufficient to pay the principal of and interest on the Parity Bonds when due and to satisfy the Reserve Requirement, all at the times and in the manner set forth in the Bond Legislation.

The Net Revenue of the Water System is pledged to make the required payments into the Bond Account, which pledge constitutes a lien and charge upon such Net Revenue on a parity with the lien and charge of the Outstanding Parity Bonds and any Future Parity Bonds.

THE BONDS ARE SPECIAL AND LIMITED OBLIGATIONS OF THE CITY PAYABLE SOLELY FROM THE SOURCES IDENTIFIED HEREIN AND IN THE BOND LEGISLATION AND ARE NOT GENERAL OBLIGATIONS OF THE CITY, THE STATE OF WASHINGTON OR ANY OTHER POLITICAL SUBDIVISION THEREOF. THE BONDS DO NOT CONSTITUTE A LIEN OR CHARGE UPON ANY GENERAL FUND OR UPON ANY MONEY OR OTHER PROPERTY OF THE CITY, THE STATE OR ANY OTHER POLITICAL SUBDIVISION THEREOF NOT SPECIFICALLY PLEDGED THERETO BY THE BOND LEGISLATION.

Bonds maturing on or before September 1, 2013, are issued without the right or option of the City to redeem those Bonds prior to their stated maturity dates. The City reserves the right and option to redeem Bonds maturing on and after September 1, 2014, prior to their stated maturity dates, at any time on or after September 1, 2013, as a whole or in part within one or more maturities to be selected by the City (and by lot within a maturity in such manner as the Bond Registrar shall determine except that so long as the Bonds are registered in the name of DTC or its nominee, DTC shall select the Bonds or portions thereof to be redeemed in accordance with the Letter of Representations), at par plus accrued interest, if any, to the dated fixed for redemption.

Bonds maturing in the years 2028 and 2033 are Term Bonds and, if not redeemed under the optional redemption provisions set forth above or purchased in the open market under the provisions set forth below, shall be called for redemption by lot (in such manner as the Bond Registrar shall determine) at par plus accrued interest on September 1 in years and amounts as follows:

Term Bonds Maturing 2028

Mandatory Redemption Years

Mandatory Redemption Amounts

2026

$4,625,000

2027

4,840,000

2028(1)

5,070,000

Term Bonds Maturing 2033

Mandatory Redemption Years

Mandatory Redemption Amounts

2029

$5,305,000

2030

5,570,000

2031

5,850,000

2032

6,145,000

2033(1)

6,450,000

(1) maturity

The par amount of the Term Bonds previously redeemed by call or purchased in the open market (irrespective of their actual redemption prices) shall be credited at the par amount thereof against the remaining mandatory redemption requirements as directed by the Director of Finance, or otherwise pursuant to the Bond Legislation.

Notwithstanding the foregoing, for so long as the Bonds are registered in the name of Cede & Co., as nominee of DTC, selection of Bonds for redemption shall be in accordance with the Letter of Representations.

Any Bond in the principal amount of greater than $5,000 may be redeemed partially in any integral multiple of $5,000. In such event, upon surrender of that Bond at either of the principal offices of the Bond Registrar, there shall be issued to the Registered Owner a new Bond (or Bonds, at the option of the Registered Owner) of the same maturity and interest rate in any of the denominations authorized by the Bond Legislation in the aggregate principal amount remaining unredeemed, without charge therefor.

Notice of any such intended redemption shall be sent by first-class mail, postage prepaid, not less than 30 nor more than 60 days prior to the date fixed for redemption, to the Registered Owner of each Bond to be redeemed at the address appearing on the Bond Register at the time the Bond Registrar prepares the notice, and this requirement shall be deemed to be complied with when notice is so mailed, whether or not it is actually received by the owner of any Bond. If such notice has been given, this Bond will cease to bear interest on the date fixed for redemption, provided that funds sufficient to pay all Bonds called for redemption are on deposit with the Bond Registrar on such date, and this Bond shall no longer be deemed outstanding. In addition, the redemption notice shall be mailed within the same period, postage prepaid, to Moody's Investors Service, Inc., and Standard & Poor's Ratings Services, a Division of The McGraw-Hill Companies, Inc., at their offices in New York, New York, or their successors, to [Underwriter] at its office in New York, New York, or its successor, to the Bond Insurer at its office in Armonk, New York, or its successor, and to such other persons and with such additional information as the Director of Finance shall determine, but such mailings shall not be a condition precedent to the redemption of such Bonds. Notwithstanding the foregoing, for so long as the Bonds are registered in the name of Cede & Co., as nominee of DTC, notice of redemption shall be given in accordance with the Letter of Representations.

The City has further reserved the right and option to purchase any or all of the Bonds in the open market at any time at a price acceptable to the City plus accrued interest to the date of such purchase. Bonds so purchased shall be retired and canceled.

Reference is made to the Bond Legislation for other covenants and declarations of the City and other terms and conditions upon which this Bond has been issued, which terms and conditions, including, but not limited to, terms pertaining to defeasance, are made a part hereof by this reference. Reference also is made to the Bond Legislation for the definitions of the capitalized terms used and not otherwise defined herein. The City irrevocably and unconditionally covenants that it will keep and perform all of the covenants of this Bond and of the Bond Legislation.

This Bond shall not be valid or become obligatory for any purpose until the Certificate of Authentication hereon has been signed by the Bond Registrar.

The principal of and premium, if any, and interest on this Bond shall be paid only to the Registered Owner as of the Record Date set forth above and to no other person or entity, and this Bond may not be assigned except on the Bond Register.

In the manner and subject to the limitations set forth in the Bond Legislation, this Bond may be transferred by the Registered Owner or by such Owner's authorized agent at the Bond Registrar on completion of the assignment form appearing hereon and surrender and cancellation of this Bond. Upon such transfer, a new Bond (or Bonds, at the option of the new Registered Owner) of an equal aggregate principal amount and of the same maturity and interest rate in any authorized denomination will be issued to the new Registered Owner, without charge, in exchange therefor. This Bond and other Bonds may be surrendered to the Bond Registrar and exchanged, without charge, for an equal aggregate principal amount of Bonds of the same maturity and interest rate in any authorized denomination. The Bond Registrar shall not be obligated to transfer or exchange any Bond during the period between the record date and the next succeeding principal or interest payment or redemption date.

The City and the Bond Registrar may deem and treat the Registered Owner of this Bond as its absolute owner for the purpose of receiving payment of principal, premium, if any, and interest and for all other purposes, and neither the City nor the Bond Registrar shall be affected by any notice to the contrary other than proper notice of assignment. As used herein, "Registered Owner" means the person or entity named as Registered Owner of this Bond on the front hereof and on the Bond Register.

It is certified and declared that all acts, conditions and things required to be done precedent to and in the issuance of this Bond have been done, have happened and have been performed as required by law.

IN WITNESS WHEREOF, the City has caused this Bond to be executed on behalf of the City by the facsimile signatures of its Mayor and Director of Finance and a facsimile reproduction of the seal of the City to be printed hereon, this _____ day of May, 2003.

THE CITY OF SEATTLE, WASHINGTON

Date of Authentication: ____________________

CERTIFICATE OF AUTHENTICATION

This Bond is one of the fully registered The City of Seattle, Washington, Water System and Refunding Revenue Bonds, 2003, described in the Bond Legislation.

WASHINGTON STATE FISCAL AGENCY

Bond Registrar

By:__________________________________

ASSIGNMENT

For value received, the undersigned Registered Owner does sell, assign and transfer unto:_________________________________________________________________ ________

(Name, address and social security or other identifying number of assignee)

the within-mentioned Bond and irrevocably constitutes and appoints:______________________

to transfer the same on the Bond Register with full power of substitution in the premises.

DATED:________________________

Registered Owner

(NOTE: The signature above must correspond with the name of the Registered Owner as it appears on the front of this Bond in every particular, without alteration or enlargement or any change whatsoever.)

Signature Guaranteed:

(NOTE: Signature must be guaranteed

pursuant to law.)

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K. Boyle

2003 Water Bond Resolution

April 29, 2003

Version 1

K. Boyle

2003 Water Bond Resolution

April 29, 2003

Version 1

15 -

F-3 6

EXHIBIT B

Notice of Bond Sale

OFFICIAL NOTICE OF BOND SALE

THE CITY OF SEATTLE, WASHINGTON

$277,400,000*

WATER SYSTEM AND REFUNDING REVENUE BONDS, 2003

Sealed and electronic bids (as described below) for purchase of The City of Seattle Water System and Refunding Revenue Bonds, 2003 (the "Bonds") will be received by The City of Seattle, Washington (the "City"), at the office of the Director of Finance, 600 Fourth Avenue, Third Floor, Seattle, Washington, and, in the case of electronic bids, via Bidcomp's electronic bidding service, Parity ("Parity"), in the manner described below, until

8:00 A.M., PACIFIC DAYLIGHT TIME, ON APRIL 29, 2003

or such other day or time and under such other terms and conditions as may be established by the Director of Finance and communicated by wire service not less than 24 hours prior to the time bids are to be received. All proper bids received with respect to the Bonds will be considered and acted on by the City Council on April 29, 2003.

Bids must be submitted either:

(i) in a sealed envelope to the Director of Finance, as described herein, or

(ii)

(iii) electronically via Parity in accordance with this notice. For further information about Parity, potential bidders may contact Bidcomp/Parity at (212) 404-8102.

(iv)

No bid will be received after the time for receiving bids specified above.

DESCRIPTION OF THE BONDS

Bond Details

The Bonds will be dated the Date of Delivery. Interest on the Bonds will be payable semiannually on each March 1 and September 1, beginning September 1, 2003.

Registration and Book-Entry Only System

The Bonds are issuable only as fully registered bonds and when issued will be registered in the name of Cede & Co. as registered owner and nominee for the Depository Trust Company ("DTC"), New York, New York. DTC will act as initial securities depository for the Bonds. Purchases of the Bonds will be made in book-entry form, in the denomination of $5,000 or any integral multiple thereof. Purchasers will not receive certificates representing their interest in the Bonds purchased. The principal of and interest on the Bonds are payable by the City's Bond Registrar, currently the fiscal agent of the State of Washington (currently The Bank of New York in New York, New York) to DTC, which is obligated in turn to remit such payments to its participants for subsequent disbursement to beneficial owners of the Bonds.

Election of Maturities

The successful bidder shall designate whether some or all of the principal amounts of the Bonds maturing on or after September 1, 2014, as set forth below, shall be retired on September 1 of each respective year as serial bonds maturing in such year or as amortization installments of Term Bonds maturing in the years specified by the bidder.

Term Bonds, if any, must consist of the total principal payments of two or more consecutive years and mature in the latest of those years.

Serial Maturities Serial Maturities

or Amortization or Amortization

Years Installments* Years Installments*

2003 $ 14,895,000 2019 $ 12,375,000**

2004 13,625,000 2020 13,090,000**

2005 10,775,000 2021 11,995,000**

2006 9,920,000 2022 12,700,000**

2007 7,215,000 2023 13,100,000**

2008 7,695,000 2024 4,270,000**

2009 7,925,000 2025 4,480,000**

2010 8,195,000 2026 4,705,000**

2011 8,530,000 2027 4,940,000**

2012 8,865,000 2028 5,190,000**

2013 9,235,000 2029 5,450,000**

2014 9,700,000** 2030 5,720,000**

2015 10,195,000** 2031 6,005,000**

2016 10,710,000** 2032 6,305,000**

2017 11,215,000** 2033 6,620,000**

2018 11,760,000**

* Preliminary, subject to change.

** These amounts will constitute principal maturities of the Bonds unless Term Bonds are specified by the successful bidder, in which case these amounts may constitute mandatory sinking fund redemptions of Term Bonds.

Redemption

The Bonds maturing on or before September 1, 2013, are not subject to redemption prior to maturity. The Bonds maturing on or after September 1, 2014, are subject to redemption prior to maturity at the option of the City on and after September 1, 2013, in whole or in part at any time (maturities to be selected by the City and within a maturity by lot in such manner as the Bond Registrar may determine and, so long as the Bonds are in book-entry form, in accordance with the procedures established by the securities depository) at a price of par plus accrued interest to the date of redemption.

Purpose

The Bonds are being issued to finance certain capital improvements to and conservation programs for the City's Water System, to refund certain outstanding debt of the Water System, to meet the Reserve Requirement for the Bonds and to pay the issuance costs of the Bonds.

Security

The Bonds are special limited obligations of the City payable from and secured solely by the Net Revenue of the Water System and all money and investments held in the Bond Account, the Rate Stabilization Account and the Construction Account (except money and investments held in a separate fund or account created for the purpose of compliance with rebate requirements under the Code). This pledge constitutes a lien and charge upon the Net Revenue on a parity with that of other Parity Bonds and superior to any other liens or charges.

Payment of principal and interest on the Bonds is secured by a municipal bond insurance policy issued by MBIA.

The Bonds do not constitute general obligations of the City, the State of Washington (the "State') or any political subdivision of the State, or a charge upon any general fund or upon any money or other property of the City, the State or any political subdivision of the State not specifically pledged thereto by the Ordinance. Neither the full faith and credit nor the taxing power of the City, nor any revenues of the City derived from sources other than the Water System, are pledged to the payment of the Bonds.

BIDDING INFORMATION AND AWARD

Bidders are invited to submit bids for the purchase of the Bonds fixing the interest rate or rates that the Bonds will bear. Interest rates bid shall be in multiples of 1/8 or 1/20 of one percent, or both. No more than one rate of interest may be fixed for any one maturity. No bid will be considered for the Bonds that is less than an amount equal to 98 percent of the par value of the Bonds nor more than an amount equal to 105 percent of the par value of the Bonds, or for less than the entire offering of the Bonds. Each individual maturity must be reoffered at a yield that will produce a price of not less than 98 percent and not more than 110 percent of the principal amount for that maturity. For the purpose of the preceding sentence, "price" shall be defined as the lesser of the price at the redemption date or the price at the maturity date. The purchaser of the Bonds must pay accrued interest, if any, to the date of delivery of the Bonds. All bids shall be without condition. For the purpose of comparison only and not as a part of the bid, each bid shall state the true interest cost of the bid.

The City strongly encourages the inclusion of Women and Minority Business Enterprise firms in bidding syndicates. Bidders are requested, but not required, to fax a list of syndicate members to Michael van Dyck, City of Seattle, Department of Finance, (206) 6848286 prior to April 29, 2003.

Modification of Par Amount Before Bid Opening

Bidders are advised that the City may modify the total par amount of the Bonds and/or the amounts of individual maturities prior to the bidding if the City decides not to proceed with the Refunding Plan (as described in the Preliminary Official Statement under "Use of Proceeds Refunding Plan").

Bidding Process

Sealed Bids. All sealed bids shall be made only on the Official Bid Form furnished by the City or on photocopies or facsimiles of such forms, and shall be sealed. Bids must not be submitted by fax directly to the City, but may be sent via fax to an agent for the bidder, for delivery by that agent to the bid site in a sealed envelope.

Electronic Bids. If a bidder submits an electronic bid for the Bonds, such bidder thereby agrees to the following terms and conditions:

(i) If any provision in this Official Notice of Bond Sale conflicts with information or terms provided to or required of the bidder by Parity, this Official Notice of Bond Sale, including any amendments issued by wire service, shall control. Information provided by Parity to bidders shall form no part of any bid or of any contract between the successful bidder and the City unless that information is included in this Official Notice of Bond Sale or in the Official Bid Form provided by the City.

(ii) The bidder is solely responsible for making necessary arrangements to access Parity for purposes of submitting a timely bid in compliance with the requirements of this Official Notice of Bond Sale, including any amendments issued by the City through a wire service, and the Official Bid Form.

(iii) The City shall have no duty or obligation to provide or assure access to Parity, and shall not be responsible for the proper operation of, or have any liability for, any delays or interruptions of, or any damages caused by, use or attempted use of Parity.

(iv) Parity is not the City's agent, but rather is an acceptable bidder's agent for the bidder's convenience in submitting its bid to the City.

(v) The City will regard the electronic transmission of each bid it receives through Parity (including information regarding the purchase price of the Bonds and interest rates for any maturity of the Bonds) as though the information were submitted on the Official Bid Form, including any amendments issued by the City through a wire service, and executed on behalf of the named bidder by a duly authorized signatory.

(vi) If an electronic bid is accepted by the City, this Official Notice of Bond Sale (including any amendments issued by the City through a wire service), the Official Bid Form and the information regarding the purchase price of the Bonds, any Term Bonds specified, and the interest rates for any maturity of the Bonds that is submitted electronically to the City through Parity shall form a contract between the bidder and the City, and the bidder shall be bound by the terms of such contract whether or not the bidder in fact attempted or intended to submit a bid on those terms.

Good Faith Deposit

All bids must be backed by a good faith deposit in the amount of $3,000,000. The good faith deposit shall be in the form of either a financial surety bond or a certified or bank cashier's check, each payable to the order of The City of Seattle and received by the City not later than the time bids are to be received. Each such check will be returned promptly if the bid is not accepted. The City reserves the right to invest the deposit of the successful bidder pending payment for the Bonds, and the successful bidder will not receive credit for any earnings on such investment. The deposit will be applied to the purchase price of the Bonds.

If a financial surety bond is used, it must be from a surety company pre-approved by the City. The City has pre-approved Financial Security Assurance Inc. Acknowledgement that such financial surety bond has been issued must be received by the City's Financial Advisor prior to the bid opening and must identify each bidder whose deposit is guaranteed. If the Bonds are awarded to a bidder using a financial surety bond, that bidder shall submit its good faith deposit to the City in the form of a certified or bank cashier's check or by wire transfer, no later than 2:00 p.m., Pacific Daylight Time, on the next business day following the award. If the deposit in such form is not received by that time, the City may draw on the financial surety bond to satisfy the deposit requirement. If the financial surety bond is called upon and the City has not received the good faith deposit in such form from the surety company that provided the bond within two business days following the bid award, the City may cancel the bid award and have no further obligation to that bidder. The City may, in addition and without limitation, take such steps as it deems appropriate against the provider of the financial surety bond or the successful bidder or both to obtain the amount of the good faith deposit and, in the event the City cancels the bid award, retain the recovered amount as reasonable liquidated damages and not as a penalty.

The good faith deposit of the successful bidder shall be retained by the City as security for the performance of the successful bid and shall be applied to the purchase price of the Bonds upon the delivery of the Bonds to the successful bidder. Pending delivery of the Bonds, the good faith deposit may be invested for the sole benefit of the City. If the Bonds are ready for delivery and the successful bidder fails or neglects to complete the purchase of such Bonds within 30 days following the acceptance of its bid, the good faith deposit shall be retained by the City as reasonable liquidated damages and not as a penalty.

Award

The Bonds will be sold to the bidder making a bid conforming to the terms of the offering and which, on the basis of the City's determination of the lowest true interest cost, is the best bid. The true interest cost to the City will be the rate that, when used to discount to the date of the Bonds all future payments of principal and interest (using semiannual compounding and a 30/360 day basis), produces an amount equal to the bid amount, without regard to the interest accrued to the date of delivery of the Bonds. If there are two or more equal bids and those bids are the best bids received, the Director of Finance will determine by lot which bid will be accepted, which bid will be presented to the City Council.

The City reserves the right to reject any or all bids submitted and to waive any formality or irregularity in the bid or bidding process. If all bids are rejected, then the Bonds may be sold in the manner provided by law. Any bid presented after the time specified for the receipt of bids will not be accepted, and any bid not backed by the required good faith deposit at the time of opening that bid will not be read or considered. The successful bid shall remain in effect until 5:00 p.m., Pacific Daylight Time, on the date following such bid opening.

Adjustment of Principal Amounts and Bid Price After Bid Opening

The City has reserved the right to increase or decrease the preliminary principal amount of the Bonds by an amount not to exceed ten percent (10%) following the opening of the bids. The City also reserves the right to increase or decrease the preliminary principal amount of any maturity by fifteen percent (15%) of the preliminary principal amount of that maturity. The price bid by the successful bidder will be adjusted by the City on a proportionate basis to reflect an increase or decrease in the principal amount and maturity schedule within 24 hours of the bid opening. In the event that the City elects to alter the bond size after the bid pursuant to the Official Notice of Sale, the underwriter's discount, expressed in dollars per thousand, will be held constant. The City will not be responsible in the event and to the extent that any adjustment affects (i) the net compensation to be realized by the successful bidder or (ii) the true interest cost of the winning bid or its ranking relative to other bids.

Issue Price Information

Upon award of the Bonds, the successful bidder shall advise the City and Bond Counsel of the initial reoffering prices to the public of each maturity of the Bonds (the "Initial Reoffering Prices"). Simultaneously with or before delivery of the Bonds, the successful bidder shall furnish to the City and Bond Counsel a certificate in form and substance acceptable to Bond Counsel:

(i) confirming the Initial Reoffering Prices,

(ii) certifying that a bona fide offering of the Bonds has been made to the public (excluding bond houses, brokers and other intermediaries),

(iii) stating the prices at which a substantial amount of each maturity of the Bonds was sold to the public (excluding bond houses, brokers and other intermediaries),

(iv) stating the price at which any Bonds that remain unsold at the date of closing would have been sold on such date,

(v) stating which maturities, if any, are amortization installments of Term Bonds maturing in the years specified by the bidder, and

(vi) stating the offering price of each Bond sold to institutional or other investors at discount.

Modifications

The terms and conditions of this Official Notice of Bond Sale are subject to modification by the Director of Finance. Any such modification will be communicated by wire service not less than 24 hours prior to the time the bids are to be received.

DELIVERY

The City will deliver the Bonds (consisting of one certificate for each maturity) to DTC in New York, New York, or to the Bond Register on behalf of DTC by Fast Automated Securities Transfer, prior to the date of closing. Closing shall occur within 30 days after the sale date. Settlement shall be in immediately available federal funds in Seattle, Washington, on the date of delivery.

If, prior to the delivery of the Bonds, the interest receivable by the owners of the Bonds becomes includable in gross income for federal income tax purposes, or becomes subject to federal income tax other than as described in the Official Statement for the Bonds, the successful bidder, at its option, may be relieved of its obligation to purchase the Bonds and in that case the good faith deposit accompanying its bid will be returned without interest.

Legal Opinion

The approving legal opinion of Foster Pepper & Shefelman PLLC, Seattle, Washington, Bond Counsel, will be provided to the purchaser at the time of the delivery of the Bonds. A no-litigation certificate will be included in the closing papers of the Bonds.

CUSIP Numbers

It is anticipated that CUSIP identification numbers will appear on the Bonds if requested by the purchaser, but neither the failure to insert such numbers on the Bonds nor any error with respect thereto shall constitute cause for a failure or refusal by the purchaser thereof to accept delivery of and pay for the Bonds in accordance with the terms of this Official Notice of Bond Sale. The purchaser is responsible for obtaining CUSIP numbers for the Bonds, and the charge of the CUSIP Bureau shall be paid by the purchaser.

CONTINUING DISCLOSURE UNDERTAKING

In order to assist bidders in complying with paragraph (b)(5) of SEC Rule 15c2-12, the City will undertake to provide certain annual financial information and notices of the occurrence of certain events, if material. A description of this undertaking is set forth in the Preliminary Official Statement and also will be set forth in the final Official Statement.

OFFICIAL STATEMENT AND OTHER INFORMATION

At closing, the City will furnish a certificate of an official or officials of the City, relying on the opinions of Bond Counsel where appropriate, stating that, to the best knowledge of such official(s) as of the date of the Official Statement and as of the date of delivery of the Bonds:

(i) the information (including financial information) regarding the City and Seattle Public Utilities (including the Water System) contained in the Official Statement was and is true and correct in all material respects and did not and does not contain any untrue statement of a material fact or omit any statement or information which is necessary to make the statements therein, in light of the circumstances under which they were made, not misleading (however, the City will make no representation regarding Bond Counsel's form of opinion or the information provided by DTC, The Bank of New York or any entity providing bond insurance, reserve insurance or other credit facility); and

(ii) the descriptions and statements, including financial data, of or pertaining to other bodies and their activities contained in the Official Statement have been obtained from sources that the City believes to be reliable, and the City has no reason to believe that they are untrue in any material respect.

The Preliminary Official Statement is in a form that has been deemed final by the City for the purpose of paragraph (b)(1) of SEC Rule 15c2-12, but is subject to revision, amendment and completion in a final Official Statement, which the City will deliver, at the City's expense, to the purchaser through its designated representative not later than seven business days after the City's acceptance of the purchaser's bid. The City will provide no more than 250 copies of the final Official Statement without charge. Additional copies will be provided at the purchaser's expense.

By submitting the successful proposal, the purchaser's designated senior representative agrees to file the final Official Statement or cause it to be filed with the Municipal Securities Rulemaking Board within one business day following its receipt from the City.

The Preliminary Official Statement (with the Official Notice of Bond Sale and the Official Bid Form) and further information regarding the details of the Bonds may be obtained upon request to the City's Debt Manager, 700 Fifth Avenue, Suite 4200, Seattle, Washington, 98104 (telephone: (206) 684-8347) or to Seattle-Northwest Securities Corporation, 1420 Fifth Avenue, Suite 4300, Seattle, Washington, 98101 (telephone: (206) 628-2882).

DATED at Seattle, Washington, this 23nd day of April, 2003.

/s/ Dwight D. Dively

Director of Finance

OFFICIAL BID FORM

THE CITY OF SEATTLE, WASHINGTON

$277,400,000*

WATER SYSTEM AND REFUNDING REVENUE BONDS, 2003

Mr. Dwight D. Dively

Director of Finance

The City of Seattle

Seattle, Washington

Dear Sir:

For the above-referenced bonds (the "Bonds") described in the Official Notice of Bond Sale, which is hereby made a part of this bid, and for all but not less than all of the Bonds, with interest rates per annum on the Bonds maturing on September 1 in the years and amounts set forth in this Official Bid Form as indicated below:

a. Serial Maturities Serial Maturities

b.

or Amortization or Amortization

Years Amounts* Rates Years Amounts* Rates

2003 $ 14,895,000 2019 $ 12,375,000**

2004 13,625,000 2020 13,090,000**

2005 10,775,000 2021 11,995,000**

2006 9,920,000 2022 12,700,000**

2007 7,215,000 2023 13,100,000**

2008 7,695,000 2024 4,270,000**

2009 7,925,000 2025 4,480,000**

2010 8,195,000 2026 4,705,000**

2011 8,530,000 2027 4,940,000**

2012 8,865,000 2028 5,190,000**

2013 9,235,000 2029 5,450,000**

2014 9,700,000** 2030 5,720,000**

2015 10,195,000** 2031 6,005,000**

2016 10,710,000** 2032 6,305,000**

2017 11,215,000** 2033 6,620,000**

2018 11,760,000**

we offer to pay the sum of $_____________________________________________

(which is not less than $271,852,000 nor more than $291,270,000).

In accordance with the terms of the Official Notice of Bond Sale, a good faith deposit in the amount of $3,000,000 has been provided in the form of either a certified or bank cashier's check or a financial surety bond, each payable to the order of The City of Seattle. The good faith deposit is to be applied in accordance with the terms of the Official Notice of Bond Sale if the Bonds are awarded to us. If the Bonds are not awarded to us and a check has been submitted, such check is to be returned to us. If the Bonds are not awarded to us and we provided the good faith deposit in the form of a surety bond, neither we nor the City have any further obligations with respect to the surety bond.

This bid is submitted in accordance with and subject to all provisions contained in the Official Notice of Bond Sale, including any amendments issued by the City through the wire service and, if applicable, the terms and conditions contained therein under "Bidding Process-Electronic Bids," which is incorporated by reference herein and made a part of this bid.

If our proposal to purchase the Bonds is successful, the person at the designated senior representative's office whom the City or its representatives should contact regarding closing is _______________________________ at the following telephone number: _______________________________.

Very truly yours,

Designated Representative

(Bidders are requested, but not required, to furnish separately by fax to (206) 684-8286 a list of any syndicate members.)

EXHIBIT C

Printed Version of Purchaser's Electronic Bid for the Bond

EXHIBIT D

Refunding Trust Agreement

REFUNDING TRUST AGREEMENT

(Water System and Refunding Revenue Bonds, 2003)

THIS AGREEMENT is made and entered into as of the ____ day of May, 2003, by and between THE CITY OF SEATTLE, WASHINGTON (the "City"), a municipal corporation, and U.S. BANK NATIONAL ASSOCIATION of Seattle, Washington (the Refunding Trustee"). All capitalized terms not defined herein have the respective meanings given in Ordinance ______ and Resolution _____ of the City (collectively, the "Bond Legislation"). All schedules and exhibits attached hereto are incorporated herein by reference.

WHEREAS, pursuant to the Bond Legislation, the City has determined that the Refunded Bonds identified in Schedule 1 be refunded out of a portion of the proceeds of the sale of its Water System and Refunding Revenue Bonds, 2003 (the "Bonds"), for the purpose of realizing a debt service savings for the City; and

WHEREAS, the current refunding of the Refunded Bonds will be accomplished pursuant to this Refunding Trust Agreement and the Bond Legislation, which documents provide for and, for the purpose of Sections 103, 148, and 149(d) of the Internal Revenue Code of 1986, as amended (the "Code"), are to be considered as the Refunding Plan, by:

(a) The delivery by the City to the Refunding Trustee on the date the Bonds are delivered to the original purchaser thereof and the City receives full payment therefor (the "Date of Closing") of proceeds of the Bonds allocated to the Refunding Plan;

(b)

(c) The purchase by the Refunding Trustee on the Date of Closing of the Government Obligations listed on Exhibit A (the "Acquired Obligations"), which Acquired Obligations satisfy the requirements of the Verification described in paragraph (c);

(d)

(e) The delivery to the City and the Refunding Trustee of a verification (the "Verification") by a nationally recognized independent certified public accounting firm verifying the mathematical accuracy of the computations (which computations shall be attached to that report) showing that the Acquired Obligations to be purchased by the Refunding Trustee pursuant to the Bond Legislation and this Refunding Trust Agreement, together with the specified beginning cash balance, if any, and the maturing principal of and interest on such Acquired Obligations, will provide sufficient money (assuming that all principal of and interest on the Acquired Obligations are paid on the due dates thereof and assuming no reinvestment of such maturing principal and interest) to pay interest on the Refunded Bonds up to and including June 1, 2003, and call, pay and redeem on June 1, 2003, all of the outstanding Refunded Bonds at the redemption prices set forth in Schedule 1 hereto;

(f)

(g) The receipt by the Refunding Trustee of the maturing installments of principal of and interest on the Acquired Obligations;

(h)

(i) The Refunding Trustee's payment to the fiscal agencies of the State of Washington of money sufficient to make the payments on the Refunded Bonds set forth herein; and

(j)

(k) The Refunding Trustee's payment of the costs of issuing the Bonds and the costs of carrying out the Refunding Plan set forth in Exhibit B;

(l)

and

WHEREAS, upon the issuance of the Bonds to carry out the Refunding Plan under the authority of chapter 39.53 RCW and other laws of the State of Washington (collectively, the "Refunding Bond Act"), the principal amount of the Refunded Bonds no longer shall be considered outstanding pursuant to the defeasance provisions of Ordinance 116705 and Resolution 28745 (collectively, the "Refunded Bond Legislation") that authorized the issuance of each issue of the Refunded Bonds; and

WHEREAS, the City Council, pursuant to the Bond Legislation, has duly and validly authorized the execution and delivery of this Refunding Trust Agreement, the delivery of a portion of the proceeds of the Bonds to the Refunding Trustee, the purchase by the Refunding Trustee of the Acquired Obligations and the carrying out of the Refunding Plan;

NOW, THEREFORE, in consideration of the mutual covenants hereinafter contained and for the benefit of the City, the parties hereto agree as follows:

Section 1 . Establishment of Refunding Trust Account; Delivery of Money to Refunding Trustee. The Refunding Trustee is directed to establish an account known as The City of Seattle Water System Refunding Trust Account, 2003 (the "Refunding Trust Account"). On the Date of Closing, the City shall cause to be delivered to the Refunding Trustee $______________ of the principal proceeds of the Bonds for deposit into the Refunding Trust Account.

Section 2

Section 3 . Investment and Expenditure of Money. On the Date of Closing, the Refunding Trustee shall apply $___________ to pay on behalf of the City the purchase and/or subscription prices of the Acquired Obligations, from the sources, in the principal amounts, with the dates of maturity and bearing the interest rates or yields set forth in Exhibit A, and $_____ to establish a beginning cash balance. Upon receipt thereof, the Refunding Trustee shall deliver to the City copies of the documents evidencing the purchase of and payment for the Acquired Obligations. Investments in mutual funds and unit investment trusts are prohibited.

Section 4

On the Date of Closing, the Refunding Trustee shall pay the costs of issuance and sale of the Bonds and the costs of carrying out the Refunding Plan as set forth in Exhibit B from the Bond proceeds deposited with the Refunding Trustee and not needed to refund the Refunded Bonds, and shall transfer all remaining proceeds to the City for application in accordance with the Bond Legislation.

Section 5 . Sufficiency of Escrow. Based upon the Verification, the City represents that the Acquired Obligations, the maturing principal thereof and the interest thereon, if paid when due, together with the beginning cash balance, shall be sufficient to make when due the payment required by the Refunding Plan. Such payment is sometimes referred to hereinafter as the "payment described in Section 3." The schedules of the sources, amounts, maturities, and interest rates or yields of the Acquired Obligations and of the Refunded Bonds that will fulfill the foregoing requirements are set forth in the Verification.

Section 6

Section 7 . Collection of Proceeds of Acquired Obligations and Application of Such Proceeds and Money. The Refunding Trustee shall present for payment and shall collect and receive on the due dates thereof the maturing installments of the principal of and the interest on the Acquired Obligations. The Refunding Trustee shall make payment, but only in the amounts received pursuant to this section, in a timely manner to the Bond Registrar of the amounts to be paid on the Refunded Bonds as shown in the Verification. That payment shall be made by check, wire transfer, or such other method of transfer of funds as shall be agreed upon by the Refunding Trustee and the Bond Registrar.

Section 8

Section 9 . Notice of Defeasance. The Refunding Trustee agrees to give a notice of defeasance of the Refunded Bonds pursuant to the terms of the Refunded Bonds and the Refunded Bond Legislation, in substantially the form attached hereto and as described in Exhibit C, to the Bond Registrar for distribution as described therein. The notices of defeasance shall be given immediately following the execution of this Agreement. The cost of giving the notices shall be paid by the City.

Section 10

Section 11 . All Obligations and Money and Proceeds Thereof Held in Trust. The Refunding Trustee irrevocably agrees to hold the Acquired Obligations, the principal thereof and interest thereon, and any other money it may receive pursuant to this Refunding Trust Agreement, in trust and separate at all times from all other funds and investments held by the Refunding Trustee, solely for the purpose of making the payment described in Section 3. The City irrevocably conveys, transfers, and assigns to the Refunding Trustee the Acquired Obligations, the principal thereof and the interest thereon, and any other money and investments deposited with the Refunding Trustee pursuant to this Refunding Trust Agreement, for the purpose of making such payments. The Refunding Trustee shall not sell, transfer, assign, or hypothecate any Acquired Obligations or reinvestments, except pursuant to Sections 11 and 13 hereof.

Section 12

Section 13 . Notice of Insufficiency. If the maturing principal of and interest on the Acquired Obligations and other money held by the Refunding Trustee pursuant to this Refunding Trust Agreement shall be insufficient or shall be projected to become insufficient at any time in the future to make the payment described in Section 3, the Refunding Trustee shall give the City prompt notice of such insufficiency or projected insufficiency.

Section 14

Section 15 . Amendments to Refunding Trust Agreement. The Refunding Trustee and the City recognize that the owners of the Refunded Bonds and the Bonds from time to time have a beneficial interest in the Acquired Obligations and money to be held by the Refunding Trustee as herein provided. Therefore, this Refunding Trust Agreement is irrevocable and shall not be subject to amendment except for the purpose of clarifying any ambiguity herein, increasing the protection of the rights of the owners of the Refunded Bonds or the Bonds, or preserving the exclusion of the interest on the Refunded Bonds and the Bonds from gross income for federal income tax purposes, and only if such amendment is accompanied by an opinion addressed to the City and the Refunding Trustee from Bond Counsel to the effect that such change is necessary for one of the above reasons and does not detrimentally affect the owners of the outstanding Refunded Bonds and the Bonds or that it strengthens the protection of the owners of the Refunded Bonds and the Bonds and does not detrimentally affect the owners of the Refunded Bonds and the Bonds. If such amendment affects the amount of money and investments in the escrow account or the application thereof, prior to the amendment's taking effect there also shall be a verification by a nationally recognized independent certified public accounting firm satisfactory to the Refunding Trustee to the effect that after such amendment the Acquired Obligations and other money in the escrow account will be sufficient to make the payment described in Section 3. A copy of such verification shall be delivered to the Refunding Trustee.

Section 16

Section 17 . Limitation of Liability of Refunding Trustee. None of the provisions contained in this Refunding Trust Agreement shall require the Refunding Trustee to use or advance its own funds in the performance of any of its duties or the exercise of any of its rights or powers hereunder. The Refunding Trustee shall be under no liability for the payment of interest on any funds or other property received by it hereunder except to the extent the Refunding Trustee is required by the express terms of this Refunding Trust Agreement to invest such funds.

Section 18

The Refunding Trustee's liabilities and obligations in connection with this Refunding Trust Agreement are confined to those specifically described herein. The Refunding Trustee is authorized and directed to comply with the provisions of this Refunding Trust Agreement and is relieved from all liability for so doing notwithstanding any demand or notice to the contrary by any party hereto. The Refunding Trustee shall not be responsible or liable for the sufficiency, correctness, genuineness, or validity of the Acquired Obligations deposited with it; the performance or compliance by any party other than the Refunding Trustee with the terms or conditions of any such instruments; or any loss which may occur by reason of forgeries, false representations, or the exercise of the Refunding Trustee's discretion in any particular manner unless such exercise is negligent or constitutes willful misconduct.

If any controversy arises between the City and any third person, the Refunding Trustee shall not be required to determine the same or to take any action in the premises, but it may institute, in its discretion, an interpleader or other proceedings in connection therewith as it may deem proper, and in following either course, it shall not be liable.

Section 19 . City Deposit of Additional Money. The City agrees that it will deposit with the Refunding Trustee in time to make the then current scheduled debt service payment the additional money specified in the Refunding Trustee's notice of insufficiency given pursuant to Section 7 hereof.

Section 20

Section 21 . Remittance of Funds When Refunded Bonds Paid in Full . At such time as the Refunding Trustee has received the representation of the City that the payment described in Section 3 has been made and the confirmation of such representation by the Bond Registrar, together with such other evidence of such payment as shall be satisfactory to the City and the Refunding Trustee, the Refunding Trustee shall deliver forthwith or remit to the City any remaining Acquired Obligations and money held pursuant to this Refunding Trust Agreement.

Section 22

Section 23 . Compensation of Refunding Trustee. The payment arrangement heretofore made between the Refunding Trustee and the City on compensation and expenses of the Refunding Trustee for services rendered by it pursuant to the provisions of this Refunding Trust Agreement is satisfactory to it and to the City, and no further payment to the Refunding Trustee shall be required for such services. Such payment is intended as compensation for and payment of expenses incurred in connection with the ordinary services as contemplated by this Refunding Trust Agreement, and if the Refunding Trustee renders any service hereunder not provided for in this Refunding Trust Agreement, or the Refunding Trustee is made a party to or intervenes in any litigation pertaining to this Refunding Trust Agreement or reasonably institutes interpleader proceedings relative hereto, the Refunding Trustee shall be compensated reasonably by the City for such extraordinary services and reimbursed for all fees, costs, liability, and expenses (including reasonable attorneys' fees) necessarily occasioned thereby. The Refunding Trustee shall not have a lien against or otherwise be compensated for its services and expenses from the Acquired Obligations and money held pursuant to this Refunding Trust Agreement to make the payment described in Section 3.

Section 24

Section 25 . Successor Refunding Trustee. The obligations assumed by the Refunding Trustee pursuant to this Refunding Trust Agreement may be transferred by the Refunding Trustee to a successor if (a) the Refunding Trustee has presented evidence satisfactory to the City and to Bond Counsel that the successor trustee meets the requirements of RCW 39.53.070, as now in effect or hereafter amended; (b) the City approves the appointment of the successor trustee; (c) the successor trustee has assumed all of the obligations of the Refunding Trustee under this Refunding Trust Agreement and has been compensated; and (d) all of the Acquired Obligations and money then held by the Refunding Trustee pursuant to this Refunding Trust Agreement have been duly transferred to such successor trustee.

Section 26

Notwithstanding anything to the contrary contained in this Agreement, any company into which the Refunding Trustee may be merged or converted or with which it may be consolidated or any company resulting from any merger, conversion, or consolidation to which the Refunding Trustee is a party, or any company to which the Refunding Trustee may sell or transfer all or substantially all of its corporate trust business shall be the successor to the Refunding Trustee without execution or filing of any paper or further act, if such company is eligible to serve as Refunding Trustee under RCW 39.53.070.

Section 27 . Miscellaneous. This Refunding Trust Agreement is governed by Washington law without regard to the conflict of laws provisions thereof and may not be modified except by a writing signed by the parties and subject to the limitations of Section 8. If any one or more of the provisions contained in this Refunding Trust Agreement shall for any reason be held to be invalid, illegal, or unenforceable in any respect, such invalidity, illegality, or unenforceability shall not affect any other provisions of this Refunding Trust Agreement, but this Refunding Trust Agreement shall be construed as if such invalid, illegal, or unenforceable provision had never been contained herein.

Section 28

Section 29 . Notice to Rating Agencies. The Refunding Trustee shall notify all national rating agencies maintaining (at the request of the City) a rating on the Refunded Bonds or the Bonds (collectively, the "Rating Agencies"), in writing upon timely receipt of notice or evidence of either of the following circumstances:

Section 30

(a) Prior to their taking effect, any amendments to this Refunding Trust Agreement under Section 8, enclosing the proposed amendatory documents; and

(b)

(c) The holding (referred to in Section 14) that one or more provisions of this Refunding Trust Agreement are invalid, illegal, or unenforceable in any respect, enclosing a copy of that holding.

(d)

Such notices shall be sent to the Rating Agencies by first class mail to the addresses advised by those Rating Agencies.

Section 31 . Counterparts. This Agreement may be executed in counterparts.

Section 32

IN WITNESS WHEREOF, the parties have executed and delivered this Refunding Trust Agreement pursuant to due and proper authorization, all as of the date and year first above written.

THE CITY OF SEATTLE, WASHINGTON

By

Title: Director of Finance

U.S. BANK NATIONAL ASSOCIATION, as Refunding Trustee

By

Title:

SCHEDULE 1

Refunded Bonds

Maturity Dates

Principal Amounts

Redemption Prices

(% of Par)

12/01/2003

$ 9,470,000

102%

6/01/2004

2,385,000

102%

12/01/2004

10,010,000

102%

6/01/2005

3,175,000

102%

12/01/2005

4,820,000

102%

6/01/2006

3,560,000

102%

12/01/2006

3,800,000

102%

6/01/2007

4,780,000

102%

6/01/2008

5,320,000

102%

6/1/2009

5,610,000

102%

6/01/2010

5,935,000

102%

**

**

**

6/01/2014

27,345,000

102%

**

**

**

6/0/2018

34,095,000

102%

**

**

**

12/01/2023

48,225,000

101%

EXHIBIT A

THE CITY OF SEATTLE, WASHINGTON

WATER SYSTEM AND REFUNDING REVENUE BONDS, 2003

ACQUIRED OBLIGATIONS

Type*

Maturity

Date

Par

Amount

Interest

Rate

Purchase

Price

EXHIBIT B

THE CITY OF SEATTLE, WASHINGTON

WATER SYSTEM AND REFUNDING REVENUE BONDS, 2003

COSTS OF ISSUANCE

EXHIBIT C

Notice of Defeasance (

The City of Seattle, Washington

Water System and Refunding Revenue Bonds, Series 1993

NOTICE IS HEREBY GIVEN to the owners of the Refunded Bonds that, pursuant to the Refunding Trust Agreement dated as of May __, 2003, by and between the City and U.S. Bank National Association (the "Refunding Trustee"), there has been deposited into an escrow account, held by the Refunding Trustee, cash and direct, noncallable obligations of the United States of America and/or obligations unconditionally guaranteed by the United States of America, the principal of and interest on which, when due, will provide money to pay the principal of and interest on the City's Water System and Refunding Revenue Bonds, Series 1993 (the "1993 Bonds") maturing on and after December 1, 2003, to their call date as set forth below. Such Refunded Bonds are therefore deemed to be no longer outstanding pursuant to the defeasance provisions of Ordinance 116705 of the City relating to the Refunded Bonds, but will be paid by application of the assets in such escrow account.

The following 1993 Bonds are being defeased:

Maturity

Principal

Interest

Call

Call

Date

Amounts

Rates

Date

Price

CUSIP Nos.

12/01/2003

$9,470,000

5.000%

6/01/2003

102%

6/01/2004

2,385,000

5.100

6/01/2003

102%

12/01/2004

10,010,000

5.100

6/01/2003

102%

6/01/2005

3,175,000

5.200

6/01/2003

102%

12/01/2005

4,820,000

5.200

6/01/2003

102%

6/01/2006

3,560,000

5.375

6/01/2003

102%

12/01/2006

3,800,000

5.375

6/01/2003

102%

6/01/2007

4,780,000

5.375

6/01/2003

102%

6/01/2008

5,320,000

5.375

6/01/2003

102%

6/01/2009

5,610,000

5.375

6/01/2003

102%

6/01/2010

5,935,000

5.500

6/01/2003

102%

**

**

**

**

**

6/01/2014

27,345,000

5.500

6/01/2003

102%

**

**

**

**

**

6/01/2018

34,095,000

5.500

6/01/2003

102%

**

**

**

**

**

12/1/2023

48,225,000

5.250

6/01/2003

101%

By Order of The City of Seattle, Washington

The Bank of New York, as Paying Agent

Dated:

EXHIBIT E-1

Bond Insurance Commitment

REVISED AS OF APRIL 29, 2003

COMMITMENT TO ISSUE A

FINANCIAL GUARANTY INSURANCE POLICY

Application No.: 2003-003115-01

Sale Date: April 2003 (T)

Program Type: Competitive DP

Re: $272,385,000 (Est.) The City of Seattle, Washington, Water System and Refunding Revenue Bonds, 2003

(the "Obligations")

This commitment to issue a financial guaranty insurance policy (the "Commitment") dated April 29, 2003, constitutes an agreement between THE CITY OF SEATTLE, WASHINGTON (the "Applicant") and MBIA Insurance Corporation (the "Insurer"), a stock insurance company incorporated under the laws of the State of New York.

Based on an approved application dated April 23, 2003 (the "Application"), the Insurer agrees, upon satisfaction of the conditions herein, to issue on the earlier of (i) 120 days of said approval date or (ii) on the date of delivery of and payment for the Obligations, a financial guaranty insurance policy (the "Policy") for the Obligations, insuring the payment of principal of and interest on the Obligations when due. The issuance of the Policy shall be subject to the following terms and conditions:

1. Payment by the Applicant, or by the Trustee on behalf of the Applicant, on the date of delivery of and payment for the Obligations, of a nonrefundable premium in the amount of .165% of total debt service, premium rounded to the nearest thousand. The premium set out in this paragraph shall be the total premium required to be paid on the Policy issued pursuant to this Commitment.

2. The Obligations shall have received the unqualified opinion of bond counsel with respect to the tax-exempt status of interest on the Obligations.

3. There shall have been no material adverse change in the terms of the Obligations or the Bond Ordinance and Resolution (together, the "Document") authorizing the issuance of the Obligations or in the final official statement or other similar document, including the financial statements included therein, submitted to the Insurer with the Application or subsequently submitted to be a part of the application to the Insurer.

4. There shall have been no material adverse change in any other information submitted to the Insurer as a part of the Application or subsequently submitted to be a part of the pplication to the Insurer.

5. No event shall have occurred which would allow any underwriter or any other purchaser of the Obligations not to be required to purchase the Obligations at closing.

6. A Statement of Insurance satisfactory to the Insurer shall be printed on the Obligations.

7. Prior to the delivery of and payment for the Obligations, none of the information or documents submitted as a part of the Application to the Insurer shall be determined to contain any untrue or misleading statement of a material fact or fail to state a material fact required to be stated therein or necessary in order to make the statements contained therein not misleading.

8. No material adverse change affecting any security for the Obligations shall have occurred prior to the delivery of and payment for the Obligations.

9. The Insurer's "Payments Under the Policy/Other Required Provisions" (see attached) shall be included in the authorizing document.

10.

11. The Applicant agrees not to use the Insurer's name in any public document including, without limitation, a press release or presentation, announcement or forum without the Insurer's prior consent. In the event that the Applicant is advised by counsel that it has a legal obligation to disclose the Insurer's name in any press release, public announcement or other public document, the Applicant shall provide the Insurer with at least three (3) business days' prior written notice of its intent to use the Insurer's name together with a copy of the proposed use of the Insurer's name and of any description of a transaction with the Insurer and shall obtain the Insurer's prior consent as to the form and substance of the proposed use of the Insurer's name and any such description.

12.

13. This Commitment may be signed in counterpart by the parties hereto.

14.

15. Compliance with the Insurer's following conditions (see attached):

16.

a. General Document Provisions;

b.

c. List of Permissible Investments for Indentured Funds; and

d.

e. Criteria for Current Refundings.

f.

Dated this 29th day of April, 2003.

MBIA Insurance Corporation

By ____________________________

Assistant Secretary

THE CITY OF SEATTLE, WASHINGTON

By: ______________________________

Title: ______________________________

GENERAL DOCUMENT PROVISIONS

A. Notice to the Insurer The basic legal documents must provide that any notices required to be given by any party should also be given to the Insurer, Attn: Insured Portfolio Management.

B.

C. Amendments. In the basic legal document, there are usually two methods of amendment. The first, which typically does not require the consent of the bondholders, is for amendments which will cure ambiguities, correct formal defects or add to the security of the financing. The second, in which bondholder consent is a prerequisite, covers the more substantive types of amendments. For all financings, the Insurer must be given notice of any amendments that are of the first type and the Insurer's consent must be required for all amendments of the second type. All documents must contain a provision which requires copies of any amendments to such documents which are consented to by the Insurer to be sent to Standard & Poor's.

D.

C. Events of Default and Remedies. The Bond Ordinance contains provisions which define the Events of Default and which prescribe the remedies that may be exercised upon the occurrence of an Event of Default.

The Insurer, acting alone, shall have the right to direct all remedies in the Event of a Default under the Bond Ordinance. The Insurer shall be recognized as the registered owner of each bond which it insures for the purposes of exercising all rights and privileges available to bondholders. For bonds which it insures, the Insurer shall have the right to institute any suit, action, or proceeding at law or in equity under the same terms as a bondholder in accordance with applicable provisions of the governing documents. Other than the usual redemption provisions, any acceleration of principal payments must be subject to the Insurer's prior written consent.

D. Defeasance requires the deposit of:

1. Cash

2.

3. U.S. Treasury Certificates, Notes and Bonds (including State and Local Government Series -" SLGs")

4.

5. Direct obligations of the Treasury which have been stripped by the Treasury itself, CATS, TIGRS and similar securities

6.

7. Resolution Funding Corp. (REFCORP) Only the interest component of REFCORP strips which have been stripped by request to the Federal Reserve Bank of New York in book entry form are acceptable.

8.

9. Pre-refunded municipal bonds rated "Aaa" by Moody's and "AAA" by S&P. If however, the issue is only rated by S&P (i.e., there is no Moody's rating), then the pre-refunded bonds must have been prerefunded with cash, direct U.S. or U.S. guaranteed obligations, or AAA rated pre-refunded municipals to satisfy this condition.

10.

11. Obligations issued by the following agencies which are backed by the full faith and credit of the U.S.:

12.

a. U.S. Export-Import Bank (Eximbank)

b.

Direct obligations or fully guaranteed certificates of beneficial ownership

c. Farmers Home Administration (FmHA)

d.

Certificates of beneficial ownership

e. Federal Financing Bank

f.

g. General Services Administration

h.

Participation certificates

i. U.S. Maritime Administration

j.

Guaranteed Title XI financing

k. U.S. Department of Housing and Urban Development (HUD)

l.

Project Notes

Local Authority Bonds

New Communities Debentures U.S. government guaranteed debentures

U.S. Public Housing Notes and Bonds U.S. government guaranteed public housing notes and bonds

The Insurer shall be provided with an opinion of counsel acceptable to the Insurer that the Obligations have been legally defeased and that the escrow agreement establishing such defeasance operates to legally defease the Obligations within the meaning of the Indenture and the Supplemental Indenture relating to the Obligations. In addition, the Insurer will be entitled to receive (i) 15 business days notice of any advance refunding of the Obligations and (ii) an accountant's report with respect to the sufficiency of the amounts deposited in escrow to defease the Obligations.

LIST OF PERMISSIBLE INVESTMENTS FOR INDENTURED FUNDS

A. Direct obligations of the United States of America (including obligations issued or held in book-entry form on the books of the Department of the Treasury, and CATS and TIGRS) or obligations the principal of and interest on which are unconditionally guaranteed by the United States of America.

B. Bonds, debentures, notes or other evidence of indebtedness issued or guaranteed by any of the following federal agencies and provided such obligations are backed by the full faith and credit of the United States of America (stripped securities are only permitted if they have been stripped by the agency itself):

1. U.S. Export-Import Bank (Eximbank)

Direct obligations or fully guaranteed certificates of beneficial ownership

2. Farmers Home Administration (FmHA)

Certificates of beneficial ownership

3. Federal Financing Bank

4. Federal Housing Administration Debentures (FHA)

5. General Services Administration

Participation certificates

6. Government National Mortgage Association (GNMA or "Ginnie Mae")

GNMA guaranteed mortgage-backed bonds

GNMA guaranteed pass-through obligations

not acceptable for certain cash-flow sensitive issues.

7. U.S. Maritime Administration

Guaranteed Title XI financing

8. U.S. Department of Housing and Urban Development (HUD)

Project Notes

Local Authority Bonds

New Communities Debentures U.S. government guaranteed debentures

U.S. Public Housing Notes and Bonds U.S. government guaranteed public housing notes and bonds

C. Bonds, debentures, notes or other evidence of indebtedness issued or guaranteed by any of the following non-full faith and credit U.S. government agencies (stripped securities are only permitted if they have been stripped by the agency itself):

1. Federal Home Loan Bank System

Senior debt obligations

2. Federal Home Loan Mortgage Corporation (FHLMC or "Freddie Mac")

Participation Certificates

Senior debt obligations

3. Federal National Mortgage Association (FNMA or "Fannie Mae")

Mortgage-backed securities and senior debt obligations

4. Student Loan Marketing Association (SLMA or "Sallie Mae")

Senior debt obligations

5. Resolution Funding Corp. (REFCORP) obligations

6. Farm Credit System

Consolidated systemwide bonds and notes

D. Money market funds registered under the Federal Investment Company Act of 1940, whose shares are registered under the Federal Securities Act of 1933, and having a rating by S&P of AAAm-G; AAA-m; or AA-m and if rated by Moody's rated Aaa, Aa1 or Aa2.

E. Certificates of deposit secured at all times by collateral described in (A) and/or (B) above. Such certificates must be issued by commercial banks, savings and loan associations or mutual savings banks. The collateral must be held by a third party and the bondholders must have a perfected first security interest in the collateral.

F. Certificates of deposit, savings accounts, deposit accounts or money market deposits which are fully insured by FDIC, including BIF and SAIF.

G. Investment Agreements, including GIC's, Forward Purchase Agreements and Reserve Fund Put Agreements acceptable to MBIA (Investment Agreement criteria is available upon request).

H. Commercial paper rated, at the time of purchase, "Prime 1" by Moody's and "A-1" or better by S&P.

I. Bonds or notes issued by any state or municipality which are rated by Moody's and S&P in one of the two highest rating categories assigned by such agencies.

J. Federal funds or bankers acceptances with a maximum term of one year of any bank which has an unsecured, uninsured and unguaranteed obligation rating of "Prime 1" or "A3" or better by Moody's and "A1" or "A" or better by S&P.

K. Repurchase Agreements for 30 days or less must follow the following criteria. Repurchase Agreements which exceed 30 days must be acceptable to MBIA (criteria available upon request)

L.

Repurchase agreements provide for the transfer of securities from a dealer bank or securities firm (seller/borrower) to a municipal entity (buyer/lender), and the transfer of cash from a municipal entity to the dealer bank or securities firm with an agreement that the dealer bank or securities firm will repay the cash plus a yield to the municipal entity in exchange for the securities at a specified date.

1. Repos must be between the municipal entity and a dealer bank or securities firm

a. Primary dealers on the Federal Reserve reporting dealer list which are rated A or better by Standard & Poor's Corporation and Moody's Investor Services, or

b. Banks rated "A" or above by Standard & Poor's Corporation and Moody's Investor Services.

2. The written repo contract must include the following:

a. Securities which are acceptable for transfer are:

(l) Direct U.S. governments, or

(2) Federal agencies backed by the full faith and credit of the U.S. government (and FNMA & FHLMC)

b. The term of the repo may be up to 30 days

c. The collateral must be delivered to the municipal entity, trustee (if trustee is not supplying the collateral) or third party acting as agent for the trustee (if the trustee is supplying the collateral) before/simultaneous with payment (perfection by possession of certificated securities).

d. Valuation of Collateral

(l) The securities must be valued weekly, marked-to-market at current market price plus accrued interest

(a) The value of collateral must be equal to 104% of the amount of cash transferred by the municipal entity to the dealer bank or security firm under the repo plus accrued interest. If the value of securities held as collateral slips below l04% of the value of the cash transferred by municipality, then additional cash and/or acceptable securities must be transferred. If, however, the securities used as collateral are FNMA or FHLMC, then the value of collateral must equal 105%.

3. Legal opinion which must be delivered to the municipal entity:

a. Repo meets guidelines under state law for legal investment of public funds.

Additional Notes

(i) There is no list of permitted investments for Resolutioned funds. Your own credit judgment and the relevant circumstances (e.g., amount of investment and timing of investment) should dictate what is permissible.

(ii) Any state administered pool investment fund in which the issuer is statutorily permitted or required to invest will be deemed a permitted investment.

(iii) Reserve Subaccount investments should be valued at fair market value and marked to market at least once per year. Reserve Subaccount investments may not have maturities extending beyond 5 years, except for Investment Agreements approved by the Insurer.

CRITERIA FOR CURRENT REFUNDINGS

A. The period between closing on the refunding bonds and redemption of the refunded bonds shall not exceed 60 days.

B. The proceeds of the refunding issue shall be sufficient to redeem the refunded bonds without reinvestment income (i.e. gross funded).

C. Should the proceeds be invested, such investment(s) must mature in an amount and at such time so that sufficient cash will be available to effect the redemption. The Trustee must verify and confirm this in writing to the Insurer.

D. Investments, to be held in a fiduciary account, must be limited to:

1. Cash

2. Direct obligations of the U.S. Treasury.

3. Money market funds registered under the Federal Investment Company Act of 1940, whose shares are registered under the Federal Securities Act of 1933, and have a rating by S&P of AAAm-G or AAAm. If the money market fund has been rated by Moody's, it must be rated Aaa as well. Investments in money market funds are limited to 10 days.

8/21/92

EXHIBIT E-2

Additional Provisions Relating to Bond Insurance

Payments Under the Policy/Other Required Provisions

A. In the event that, on the second business day, and again on the Business Day, prior to the payment date on the Bonds, the Bond Registrar has not received sufficient moneys to pay all principal of and interest on the Bonds due on the second following or following, as the case may be, business day, the Bond Registrar shall immediately notify the Bond Insurer or its designee on the same business day by telephone or telegraph, confirmed in writing by registered or certified mail, of the amount of the deficiency.

B. If the deficiency is made up in whole or in part prior to or on the payment date, the Bond Registrar shall so notify the Bond Insurer or its designee.

C. In addition, if the Bond Registrar has notice that any Bond holder has been required to disgorge payments of principal or interest on the Bond to a trustee in bankruptcy or creditors or others pursuant to a final judgment by a court of competent jurisdiction that such payment constitutes a avoidable preference to such Bond holder within the meaning of any applicable bankruptcy laws, then the Bond Registrar shall notify the Bond Insurer or its designee of such fact by telephone or telegraphic notice, confirmed in writing by registered or certified mail.

D. The Bond Registrar is hereby irrevocably designated, appointed, directed and authorized to act as attorney-in-fact for holders of the Bonds as follows:

1. If and to the extent there is a deficiency in amounts required to pay interest on the Bonds, the Bond Registrar shall (a) execute and deliver to U.S. Bank Trust National Association, or its successors under the Policy (the "Insurance Paying Agent"), in form satisfactory to the Insurance Paying Agent, an instrument appointing the Bond Insurer as agent for such holders in any legal proceeding related to the payment of such interest and an assignment to the Bond Insurer of the claims for interest to which such deficiency relates and which are paid by the Bond Insurer, (b) receive as designee of the respective holders (and not as Bond Registrar) in accordance with the tenor of the Policy payment from the Insurance Paying Agent with respect to the claims for interest so assigned, and (c) disburse the same to such respective holders; and

2. If and to the extent of a deficiency in amounts required to pay principal of the Bonds, the Bond Registrar shall (a) execute and deliver to the Insurance Paying Agent in form satisfactory to the Insurance Paying Agent an instrument appointing the Bond Insurer as agent for such holder in any legal proceeding relating to the payment of such principal and an assignment to the Bond Insurer of any of the Bond surrendered to the Insurance Paying Agent of so much of the principal amount thereof as has not previously been paid or for which moneys are not held by the Bond Registrar and available for such payment (but such assignment shall be delivered only if payment from the Insurance Paying Agent is received), (b) receive as designee of the respective holders (and not as Bond Registrar) in accordance with the tenor of the Policy payment therefor from the Insurance Paying Agent, and (c) disburse the same to such holders.

E. Payments with respect to claims for interest on and principal of Bonds disbursed by the Bond Registrar from proceeds of the Policy shall not be considered to discharge the obligation of the City with respect to such Bonds, and the Bond Insurer shall become the owner of such unpaid Bonds and claims for the interest in accordance with the tenor of the assignment made to it under the provisions of this subsection or otherwise.

F. Irrespective of whether any such assignment is executed and delivered, the City and the Bond Registrar hereby agree for the benefit of the Bond Insurer that:

1. They recognize that to the extent the Bond Insurer makes payments, directly or indirectly (as by paying through the Bond Registrar), on account of principal of or interest on the Bonds, the Bond Insurer will be subrogated to the rights of such holders to receive the amount of such principal and interest from the City, with interest thereon as provided and solely from the sources stated in the Bond Legislation and the Bonds; and

2. They will accordingly pay to the Bond Insurer the amount of such principal and interest (including principal and interest recovered under subparagraph (ii) of the first paragraph of the Policy, which principal and interest shall be deemed past due and not to have been paid), with interest thereon as provided in the Bond Legislation and the Bonds, but only from the sources and in the manner provided herein for the payment of principal of and interest on the Bonds to holders, and will otherwise treat the Bond Insurer as the owner of such rights to the amount of such principal and interest.

G. In connection with the issuance of additional Bonds, the City shall deliver to the Bond Insurer a copy of the disclosure document, if any, circulated with respect to such additional Bonds.

H. Copies of any amendments made to the documents executed in connection with the issuance of the Bonds which are consented to by the Bond Insurer shall be sent to Standard & Poor's Corporation.

I. The Bond Insurer shall receive notice of the resignation or removal of the Bond Registrar and the appointment of a successor thereto.

J. The Bond Insurer shall receive copies of all notices required to be delivered to Bond holders and, on an annual basis, copies of the audited financial statements and annual budget of the Municipal Water System.

K. The City agrees to reimburse the Bond Insurer immediately and unconditionally upon demand, but only from available Net Revenue of the Municipal Water System and to the extent permitted by law, for all reasonable expenses, including attorneys' fees and expenses, incurred by the Bond Insurer in connection with (i) the enforcement by the Bond Insurer of the City's obligations, or the preservation or defense of any rights of the Bond Insurer, under the Bond Ordinance and this resolution (collectively, the "Bond Legislation"), and (ii) any consent, amendment, waiver or other action with respect to the Bond Legislation, whether or not granted or approved, together with interest on all such expenses from and including the date incurred to the date of payment at Citibank's Prime Rate plus 3% or the maximum interest rate permitted by law, whichever is less. In addition, the Bond Insurer reserves the right to charge a fee in connection with its review of any such consent, amendment or waiver, whether or not granted or approved.

L. The City agrees not to use the Bond Insurer's name in any public document including, without limitation, a press release or presentation, announcement or forum without the Bond Insurer's prior consent. In the event that the City is advised by counsel that it has a legal obligation to disclose the Bond Insurer's name in any press release, public announcement or other public document, the City shall provide the Bond Insurer with at least three (3) business days' prior written notice of its intent to use the Bond Insurer's name together with a copy of the proposed use of the Bond Insurer's name and of any description of a transaction with the Bond Insurer and shall obtain the Bond Insurer's prior consent as to the form and substance of the proposed use of the Bond Insurer's name and any such description.

M. The City shall not enter into any agreement nor shall it consent to or participate in any arrangement pursuant to which Bonds are tendered or purchased for any purpose other than the redemption and cancellation or legal defeasance of such Bonds with the prior written consent of the Bond Insurer.

Notices. Any notice that is required to be given to a holder of the Bond or to the Bond Registrar pursuant to the Bond Legislation shall also be provided to the Bond Insurer. All notices required to be given to the Bond Insurer under the Bond Legislation shall be in writing and shall be sent by registered or certified mail addressed to MBIA Insurance Corporation, 113 King Street, Armonk, New York 10504 Attention: Surveillance."

Amendment of Bond Ordinance. The City shall notify the Bond Insurer of any amendment of or supplement to the Bond Ordinance permitted to be made without the consent of the owners of the Bonds under Section 30(b) of the Bond Ordinance. The prior written consent of the Bond Insurer shall be required for any amendment of or supplement to the Bond Ordinance requiring consent of Bond owners pursuant to Section 30(c) of the Bond Ordinance.

Remedies on Default. Notwithstanding anything in Section 31 of the Bond Ordinance entitled "Defaults and Remedies" to the contrary, the Bond Insurer, acting alone, shall have the right to direct all remedies with respect to the Bonds insured by it if an Event of a Default occurs under the Bond Ordinance. The Bond Insurer shall be recognized as the registered owner of each Bond which it insures for the purposes of exercising all rights and privileges available to owners of the Bonds. For Bonds which it insures, the Bond Insurer shall have the right to institute any suit, action, or proceeding at law or in equity under the same terms as a Bond owner in accordance with Section 31 of the Bond Ordinance.

Defeasance of Bonds. Notwithstanding anything in Section 29 of the Bond Ordinance, entitled "Advance Refunding and Defeasance of the Bonds," to the contrary, the City shall provide or cause to be provided to the Bond Insurer: (i) an opinion of Bond Counsel acceptable to the Bond Insurer that the Defeased Bonds have been legally defeased and that the escrow agreement establishing such defeasance operates to legally defease the Bonds within the meaning of the Bond Ordinance; (ii) 15 business days notice of any advance refunding of all or any portion of the Bonds; and (iii) an accountant's report with respect to the sufficiency of the amounts deposited in escrow to defease the Bonds. In addition, defeasance obligations shall be limited the following:

13. Cash

14.

15. U.S. Treasury Certificates, Notes and Bonds (including State and Local Government

16.

Series -" SLGs")

17. Direct obligations of the Treasury which have been stripped by the Treasury itself, CATS, TIGRS and similar securities

18.

19. Resolution Funding Corp. (REFCORP) Only the interest component of REFCORP strips which have been stripped by request to the Federal Reserve Bank of New York in book entry form are acceptable.

20.

21. Pre-refunded municipal bonds rated "Aaa" by Moody's and "AAA" by S&P. If however, the issue is only rated by S&P (i.e., there is no Moody's rating), then the pre-refunded bonds must have been prerefunded with cash, direct U.S. or U.S. guaranteed obligations, or AAA rated pre-refunded municipals to satisfy this condition.

22.

23. Obligations issued by the following agencies which are backed by the full faith and credit of the U.S.:

24.

m. U.S. Export-Import Bank (Eximbank)

n.

Direct obligations or fully guaranteed certificates of beneficial ownership

o. Farmers Home Administration (FmHA)

p.

Certificates of beneficial ownership

q. Federal Financing Bank

r.

s. General Services Administration

t.

Participation certificates

u. U.S. Maritime Administration

v.

Guaranteed Title XI financing

w. U.S. Department of Housing and Urban Development (HUD)

x.

Project Notes

Local Authority Bonds

New Communities Debentures U.S. government guaranteed debentures

U.S. Public Housing Notes and Bonds U.S. government guaranteed public housing notes and bonds

Permitted Investments. Notwithstanding anything in the Bond Ordinance to the contrary, money in the Bond Account, including the Reserve Subaccount therein, shall be invested only in investments permitted by the Bond Insurer as set forth in the Bond Insurance Commitment, but only to the extent such investments are permitted under State law. Investments, if any, of money in the Reserve Subaccount shall be valued at fair market value and marked to market at least annually. Further, no investment of money in the Reserve Subaccount shall have a maturity in excess of five (5) years, except in the case of investment agreements approved by the Bond Insurer.

EXHIBIT F-1

Reserve Insurance Commitment

REVISED AS OF APRIL 29, 2003

COMMITMENT TO ISSUE A

DEBT SERVICE RESERVE SURETY BOND

Application No.: 2003-003115-02

Sale Date: April 2003 (T)

Program Type: Competitive DP

RE: $4,802,000 (Est.) Debt Service Reserve Fund for the $272,385,000 (Est.) The City of Seattle, Washington, Water System and Refunding Revenue Bonds, 2003 (the "2003 Bonds"), together with any bonds that have been or may be issued on a parity therewith

(collectively, the "Obligations")

This commitment to issue a debt service reserve surety bond (the "Commitment") constitutes an agreement between THE CITY OF SEATTLE, WASHINGTON (the "Applicant"), and MBIA Insurance Corporation (the "Insurer"), a stock insurance company incorporated under the laws of the State of New York.

Based on an approved application dated April 23, 2003 (the "Application"), the Insurer agrees, upon satisfaction of the conditions herein, to issue on the earlier of (i) 120 days of said approval date or (ii) on the date of delivery of and payment for the 2003 Bonds, a debt service reserve surety bond (the "Surety Bond"), for the Obligations, guaranteeing the payment to the issuer of up to $4,802,000 (Est.) on the Obligations. The issuance of the Surety Bond shall be subject to the following terms and conditions:

1. Payment by the Applicant, or by the Trustee on behalf of the Applicant, on the date of delivery of and payment for the Obligations, of a nonrefundable premium in the amount of 1.50% of total surety bond amount, premium rounded to the nearest thousand. PLEASE NOTE: This is an all or none bid with Application No. 2003-003115-01. The premium set out in this paragraph shall be the total premium required to be paid on the Policy issued pursuant to this Commitment.

2. The 2003 Bonds shall have received the unqualified opinion of bond counsel with respect to the tax-exempt status of interest on the 2003 Bonds.

3. There shall have been no material adverse change in the terms of the 2003 Bonds or the Bond Ordinance and Resolution authorizing the issuance of the 2003 Bonds or in the final official statement or other similar document, including the financial statements included therein, submitted to the Insurer as a part of the Application or subsequently submitted to be a part of the Application.

4. There shall have been no material adverse change in any other information submitted to the Insurer as a part of the Application or subsequently submitted to be a part of the Application to the Insurer.

5. No event shall have occurred which would allow any underwriter or any other purchaser of the 2003 Bonds not to be required to purchase the 2003 Bonds at closing.

6. Prior to the delivery of and payment for the 2003 Bonds, none of the information or documents submitted as a part of the Application to the Insurer shall be determined to contain any untrue or misleading statement of a material fact or fail to state a material fact required to be stated therein or necessary in order to make the statements contained therein not misleading.

7. No material adverse change affecting any security for the Obligations shall have occurred prior to the delivery of and payment for the 2003 Bonds.

8. This Commitment may be signed in counterpart by the parties hereto.

9. Compliance with the Insurer's Term Sheet for Debt Service Reserve Fund Program (see Attachment A).

Dated this 29th day of April, 2003.

MBIA Insurance Corporation

By ______________________________

Assistant Secretary

THE CITY OF SEATTLE, WASHINGTON

By: ______________________________

Title: ______________________________

(Attachment A)

TERM SHEET FOR DEBT SERVICE RESERVE FUND PROGRAM

Introduction

The Insurer can, under certain circumstances, issue a debt service reserve fund surety bond (the "Surety Bond"), to be used as a replacement for a cash funded reserve, in any amount up to the full amount of the debt service reserve fund requirement.

The Insurer requires that the issuer and/or the underlying obligor of the bonds enter into a Financial Guaranty Agreement with the Insurer providing for, among other things, the reimbursement to the Insurer of amounts drawn under the Surety Bond. A sample draft of such an agreement is attached.

The Insurer will undertake its standard credit analysis of the issuer and/or obligor which may result in requests for modifications of the structure or certain provisions of the bond documents. These changes would be in addition to the specific changes required in all financings where a Surety Bond will be issued (see Required Terms below).

The Surety Bond may be structured to provide debt service reserve fund replacement for the current issue of bonds and any other debt issued on a parity therewith. However, in all cases, the Surety Bond will expire on the final maturity date of the current issue.

The program criteria are subject to change by the Insurer.

General Terms

Provision should be made in the bond documents for the creation of a debt service reserve fund and there should be a requirement to maintain that fund at a certain level. It should also be provided that this requirement may be satisfied by cash or a qualified surety bond or a combination of these two (Note: A "qualified surety bond" means a surety bond issued by an insurance company rated in the highest rating category by Standard & Poor's and Moody's and, if rated by A.M. Best & Company, must also be rated in the highest rating category by A.M. Best & Company.

In those instances where the issuance of parity debt will cause the debt service reserve fund requirement to increase, the Insurer requires that at the time of issuance of such parity debt, either cash or a qualified surety bond be provided so that the increased requirement will be satisfied.

In any event where the debt service reserve fund contains both an the Insurer Surety Bond and cash, the Insurer requires that the cash be drawn down completely before any demand is made on the Surety Bond. In any event where the debt service reserve fund contains a surety bond from another entity and an INSURER Surety Bond, the documents should provide for a pro-rata draw on each of the surety bonds.

With regard to replenishment, any Net Revenue, as defined in the Bond Ordinance, should be used first to reimburse the Insurer, thereby reinstating the Surety Bond, and second to replenish the cash in the debt service reserve fund.

The rate covenant should be expanded so that, in addition to all other coverage requirements, there are sufficient monies available to pay all amounts owed to the Insurer under the terms of the Financial Guaranty Agreement.

The bond documents should require the Bond Registrar to deliver a Demand For Payment (see attached form) at least three days prior to the date on which funds are required.

Required Terms

With respect to any security interest in collateral granted to the bondholders, the Insurer should be granted that same interest subject only to that of the bondholders. This would apply to existing security, if any, as well as any to be granted in the future.

The Insurer should receive an opinion from counsel to the Issuer that the Financial Guaranty Agreement is a legal, valid and binding obligation of the Issuer and is enforceable against the Issuer in accordance with its terms, subject to standard exceptions.

In general terms, the "flow of funds" would be structured as follows ("low of funds" shall be as set forth in Section 22 of the Bond Ordinance):

All gross revenues should be paid in the following order with the priority indicated:

(l) expenses of operation and maintenance;

(2) debt service on the bonds;

(3) reimbursement of amounts advanced by the Insurer under the Surety Bond;

(4) reimbursement of cash amounts, if any, drawn from the reserve fund;

(5) payment to the Insurer of interest on amounts advanced under the Surety Bond;

(6) all other lawful uses, including the debt service payment on any subordinate bonds.

Provision must be made for the Insurer to be paid all amounts owed to it under the terms of the Financial Guaranty Agreement or any other documents before the Bond Ordinance and Resolution may be terminated.

It will be the responsibility of the Bond Registrar to maintain adequate records, verified with the Insurer, as to the amount available to be drawn at any given time under the Surety Bond and as to the amounts paid and owing to the Insurer under the terms of the Financial Guaranty Agreement.

There may be no optional redemption of bonds unless all amounts owed to the Insurer under the terms of the Financial Guaranty Agreement or any other documents have been paid in full.

8/12/93

ANNEX A

DEBT SERVICE RESERVE

SURETY BOND

MBIA Insurance Corporation

Armonk, New York 10504

Surety Bond No. [POLICY NO.]

MBIA Insurance Corporation (the "Insurer"), in consideration of the payment of the premium and subject to the terms of this Surety Bond, hereby unconditionally and irrevocably guarantees the full and complete payments that are to be applied to payment of principal of and interest on the Obligations (as hereinafter defined) and that are required to be made by or on behalf of The City of Seattle, Washington (the "Issuer") to The Bank of New York, New York, New York, or other bond registrar designated by the Issuer with respect to any issue of Obligations (the "Paying Agent"), as such payments are due but shall not be so paid, in connection with the Issuer's Water System Refunding and Revenue Bonds, 2003 (the "2003 Bonds"), together with any bonds that have been or may hereafter be issued on a parity of lien with the 2003 Bonds(collectively, the "Obligations"), provided, that the amount available hereunder for payment pursuant to any one Demand for Payment (as hereinafter defined) shall not exceed [a: FIXED COVERAGE [Dollar Amount of Coverage] or the then current debt service reserve fund requirement for the Obligations, whichever is less (the "Surety Bond Limit"); provided, further, that the amount available at any particular time to be paid to the Paying Agent under the terms hereof (the "Surety Bond Coverage") shall be reduced and may be reinstated from time to time as set forth herein.]

1. As used herein, the term "Owner" shall mean the registered owner of any Obligation as indicated in the books maintained by the applicable paying agent, the Issuer or any designee of the Issuer for such purpose. The term "Owner" shall not include the Issuer or any person or entity whose obligation or obligations by agreement constitute the underlying security or source of payment for the Obligations.

2. Upon the later of: (i) three (3) days after receipt by the Insurer of a demand for payment in the form attached hereto as Attachment 1 (the "Demand for Payment"), duly executed by the Paying Agent; or (ii) the payment date of the Obligations as specified in the Demand for Payment presented by the Paying Agent to the Insurer, the Insurer will make a deposit of funds in an account with U.S. Bank Trust National Association, in New York, New York, or its successor, sufficient for the payment to the Paying Agent, of amounts that are then due to the Paying Agent (as specified in the Demand for Payment) subject to the Surety Bond Coverage.

3. Demand for Payment hereunder may be made by prepaid telecopy, telex, TWX or telegram of the executed Demand for Payment c/o the Insurer. If a Demand for Payment made hereunder does not, in any instance, conform to the terms and conditions of this Surety Bond, the Insurer shall give notice to the Paying Agent, as promptly as reasonably practicable, that such Demand for Payment was not effected in accordance with the terms and conditions of this Surety Bond and briefly state the reason(s) therefor. Upon being notified that such Demand for Payment was not effected in accordance with this Surety Bond, the Paying Agent may attempt to correct any such nonconforming Demand for Payment if, and to the extent that, the Paying Agent is entitled and able to do so.

4. The amount payable by the Insurer under this Surety Bond pursuant to a particular Demand for Payment shall be limited to the Surety Bond Coverage. The Surety Bond Coverage shall be reduced automatically to the extent of each payment made by the Insurer hereunder and will be reinstated to the extent of each reimbursement of the Insurer pursuant to the provisions of Article II of the Financial Guaranty Agreement dated the date hereof between the Insurer and the Issuer (the "Financial Guaranty Agreement"); provided, that in no event shall such reinstatement exceed the Surety Bond Limit. The Insurer will notify the Paying Agent, in writing within five (5) days of such reimbursement, that the Surety Bond Coverage has been reinstated to the extent of such reimbursement pursuant to the Financial Guaranty Agreement and such reinstatement shall be effective as of the date the Insurer gives such notice. The notice to the Paying Agent will be substantially in the form attached hereto as Attachment 2.

5. Any service of process on the Insurer or notice to the Insurer may be made to the Insurer at its offices located at 113 King Street, Armonk, New York 10504 and such service of process shall be valid and binding.

6. The term of this Surety Bond shall expire on the earlier of (i) [MATURITY DATE] (the maturity date of the 2003 Bonds), or (ii) the date on which the Issuer has made all payments required to be made on the Obligations pursuant to the Document.

7. The premium payable on this Surety Bond is not refundable for any reason, including the payment prior to maturity of the Obligations.

8. This Surety Bond shall be governed by and interpreted under the laws of the State of Wasthingon]. Any suit hereunder in connection with any payment may be brought only by the Paying Agent within [1 or 3 years] after (i) a Demand for Payment, with respect to such payment, is made pursuant to the terms of this Surety Bond and the Insurer has failed to make such payment, or (ii) payment would otherwise have been due hereunder but for the failure on the part of the Paying Agent to deliver to the Insurer a Demand for Payment pursuant to the terms of this Surety Bond, whichever is earlier.

10. There shall be no acceleration payment due under this Policy unless such acceleration is at the sole option of the Insurer.

11. This policy is not covered by the Property/Casualty Insurance Security Fund specified in Article 76 of the New York Insurance Law.

In witness whereof, the Insurer has caused this Surety Bond to be executed in facsimile on its behalf by its duly authorized officers, this [DATE] day of [MONTH,YEAR].

MBIA INSURANCE CORPORATION

________________________________

President

________________________________

Assistant Secretary

SB-DSRF-9-[STATE CODE]

4/95

Attachment 1

Surety Bond No. [POLICY NO.]

DEMAND FOR PAYMENT

_______,20__

MBIA Insurance Corporation

113 King Street

Armonk, New York 10504

Attention: President

Reference is made to the Surety Bond No. [POLICY NO.] (the "Surety Bond") issued by the MBIA Insurance Corporation (the "Insurer"). The terms which are capitalized herein and not otherwise defined have the meanings specified in the Surety Bond unless the context otherwise requires.

The Paying Agent hereby certifies that:

(a) In accordance with the provisions of the Document (attached hereto as Exhibit A), payment is due to the Owners of the Obligations on (the "Due Date") in an amount equal to $ (the "Amount Due").

(b) The [Debt Service Reserve Fund Requirement] for the Obligations is $__________.

(c)

(d) The amounts legally available to the Paying Agent on the Due Date will be $ less than the Amount Due (the "Deficiency").

(e)

(d) The Paying Agent has not heretofore made demand under the Surety Bond for the Amount Due or any portion thereof.

The Paying Agent hereby requests that payment of the Deficiency (subject to the Surety Bond Coverage) be made by the Insurer under the Surety Bond and directs that payment under the Surety Bond be made to the following account by bank wire transfer of federal or other immediately available funds in accordance with the terms of the Surety Bond: _______________________________________________________

[Paying Agent's Account]

[PAYING AGENT]

By ___________________________

Its ___________________________

Attachment 2

Surety Bond No. [POLICY NO.]

NOTICE OF REINSTATEMENT

________, 20__

[Paying Agent]

[Address]

Reference is made to the Surety Bond No. [POLICY NO.] (the "Surety Bond") issued by the MBIA Insurance Corporation (the "Insurer"). The terms which are capitalized herein and not otherwise defined have the meanings specified in the Surety Bond unless the context otherwise requires.

The Insurer hereby delivers notice that it is in receipt of payment from the Obligor pursuant to Article II of the Financial Guaranty Agreement and as of the date hereof the Surety Bond Coverage is $ .

MBIA Insurance Corporation

President

Attest:

Assistant Secretary

ANNEX B

DEFINITIONS

For all purposes of this Agreement and the Surety Bond, except as otherwise expressly provided herein or unless the context otherwise requires, all capitalized terms shall have the meaning as set out below, which shall be equally applicable to both the singular and plural forms of such terms.

"Agreement" means this Financial Guaranty Agreement.

"Closing Date" means May 12, 2003.

"Commitment" means the commitment to issue Municipal Bond Guaranty Insurance in the form attached hereto as Annex C.

"Debt Service Payments" means those payments required to be made by or on behalf of the Issuer which will be applied to payment of principal of and interest on the Obligations.

"Demand for Payment" means the certificate submitted to the Insurer for payment under the Surety Bond substantially in the form attached to the Surety Bond as Attachment l.

"Event of Default" shall mean those events of default set forth in Section 4.01 of the Agreement.

"Insurer" has the same meaning as set forth in the first paragraph of this Agreement.

"Issuer" means The City of Seattle, a municipal corporation of the State.

"Obligations" means, collectively, the Issuer's Water System Refunding and Revenue Bonds, 2003 (the "2003 Bonds"), together with any bonds that have been or may hereafter be issued on a parity with the 2003 Bonds.

"Owners" means the registered owner of any Obligation as indicated in the books maintained by the Paying Agent, the Issuer or any designee of the Issuer for such purpose.

"Parity Bond Documents" means Ordinance ______ and Resolution ________ of the Issuer authorizing the issuance of the 2003 Bonds, together with any ordinance or resolution authorizing any other issue of Obligations..

"Paying Agent" means the Bond Registrar designated from time to time by the Issuer under any Parity Bond Document, currently, The Bank of New York, New York, New York..

"Premium" means [PREMIUM} payable to the Insurer on or prior to the Closing Date.

"Reimbursement Period" means, with respect to a particular Surety Bond Payment, the period commencing on the date of such Surety Bond Payment or on the expiration of [????]x following such Surety Bond Payment.

"Reimbursement Rate" means Citibank's prime rate plus three (3) percent per annum, as of the date of such Surety Bond Payment, said "prime rate" being the rate of interest announced from time to time by Citibank, N.A., New York, New York, as its prime rate. The rate of interest shall be calculated on the basis of the actual number of days elapsed over a 360-day year.

"State" means the State of Washington.

"Surety Bond" means that surety bond attached hereto as Annex A and issued by the Insurer guaranteeing, subject to the terms and limitations thereof, Debt Service Payments required to be made by the Issuer under the Document.

"Surety Bond Coverage" means the amount available at any particular time to be paid under the terms of the Surety Bond, which amount shall never exceed the Surety Bond Limit.

"Surety Bond Limit" means [SURETY BOND LIMIT].

"Surety Bond Payment" means an amount equal to the Debt Service Payment required to be made by the Issuer pursuant to the Parity Bond Documents less (i) that portion of the Debt Service Payment paid by or on behalf of the Issuer, and (ii) other funds legally available for payment to the Owners, all as certified in a Demand for Payment.

EXHIBIT F-2

Financial Guaranty Agreement

FINANCIAL GUARANTY AGREEMENT (ISSUER)

FINANCIAL GUARANTY AGREEMENT made as of May 12, 2003, by and between The City of Seattle, a municipal corporation organized under the laws of the state of Washington (the "Issuer") and MBIA Insurance Corporation (the "Insurer"), organized under the laws of the state of New York.

W I T N E S S E T H :

WHEREAS, the Issuer has or will issue the Obligations; and

WHEREAS, pursuant to the terms of the Parity Bond Documents the Issuer agrees to make certain payments on the Obligations; and

WHEREAS, the Insurer will issue its Surety Bond, substantially in the form set forth in Annex A to this Agreement, guaranteeing certain payments by the Issuer subject to the terms and limitations of the Surety Bond; and

WHEREAS, to induce the Insurer to issue the Surety Bond, the Issuer has agreed to pay the premium for the Surety Bond and to reimburse the Insurer for all payments made by the Insurer under the Surety Bond, all as more fully set forth in this Agreement; and

WHEREAS, the Issuer understands that the Insurer expressly requires the delivery of this Agreement as part of the consideration for the execution by the Insurer of the Surety Bond; and

NOW, THEREFORE, in consideration of the premises and of the agreements herein contained and of the execution of the Surety Bond, the Issuer and the Insurer agree as follows:

ARTICLE I

DEFINITIONS; SURETY BOND

Section 1.01. Definitions. The terms which are capitalized herein shall have the meanings specified in Annex B hereto and, if not defined in Appendix B, shall have the meanings specified in the Parity Bond Documents.

Section 1.02. Surety Bond.

(a) The Insurer will issue the Surety Bond in accordance with and subject to the terms and conditions of the Commitment.

(b) The maximum liability of the Insurer under the Surety Bond and the coverage and term thereof shall be subject to and limited by the terms and conditions of the Surety Bond.

Section 1.03. Premium. In consideration of the Insurer agreeing to issue the Surety Bond hereunder, the Issuer hereby agrees to pay or cause to be paid the Premium set forth in Annex B hereto. The Premium on the Surety Bond is not refundable for any reason.

Section 1.04. Certain Other Expenses. The Issuer will pay all reasonable fees and disbursements of the Insurer's special counsel related to any modification of this Agreement or the Surety Bond.

ARTICLE II

REIMBURSEMENT AND INDEMNIFICATION

OBLIGATIONS OF ISSUER AND SECURITY THEREFOR

Section 2.01. Reimbursement for Payments Under the Surety Bond and Expenses; Indemnification.

(a) The Issuer will reimburse the Insurer, but only from Net Revenue of the Municipal Water System available to be used therefore consistent with the Parity Bond Documents, within the Reimbursement Period, without demand or notice by the Insurer to the Issuer or any other person, to the extent of each Surety Bond Payment with interest on each Surety Bond Payment from and including the date made to the date of the reimbursement at the lesser of the Reimbursement Rate or the maximum rate of interest permitted by then applicable law.

(b) The Issuer also agrees to reimburse the Insurer, but only from Net Revenue of the Municipal Water System available to be used therefore consistent with the Parity Bond Documents, immediately and unconditionally upon demand, to the extent permitted by state law, for all reasonable expenses incurred by the Insurer in connection with the Surety Bond and the enforcement by the Insurer of the Issuer's obligations under this Agreement and the Parity Bond Documents, together with interest on all such expenses from and including the date incurred to the date of payment at the rate set forth in subsection (a) of this Section 2.01.

(c) The Issuer agrees to indemnify the Insurer, but only to the extent permitted by state law, against any and all liability, claims, loss, costs, damages, fees of attorneys and other expenses which the Insurer may sustain or incur by reason of or in consequence of (i) the failure of the Issuer to perform or comply in any material respect with the covenants or conditions of this Agreement or (ii) reliance by the Insurer upon representations made by the Issuer or (iii) a default by the Issuer under the terms of the Parity Bond Documents.

(d) The Issuer agrees that all amounts owing to the Insurer pursuant to Section 1.03 hereof and this Section 2.01 must be paid in full prior to any optional redemption or refunding of the Obligations.

(e) All payments made to the Insurer under this Agreement shall be paid in lawful currency of the United States in immediately available funds at the Insurer's office at 113 King Street, Armonk, New York 10504, Attention: Accounting and Insured Portfolio Management Departments, or at such other place as shall be designated by the Insurer.

Section 2.02. Allocation of Payments. The Insurer and the Issuer hereby agree that each payment received by the Insurer from or on behalf of the Issuer as a reimbursement to the Insurer as required by Section 2.01 hereof shall be applied by the Insurer first, toward payment of any unpaid premium; second, toward repayment of the aggregate Surety Bond Payments made by the Insurer and not yet repaid, payment of which will reinstate all or a portion of the Surety Bond Coverage to the extent of such repayment (but not to exceed the Surety Bond Limit); and third, upon full reinstatement of the Surety Bond Coverage to the Surety Bond Limit, toward other amounts, including, without limitation, any interest payable with respect to any Surety Bond Payments then due to the Insurer.

Section 2.03. Security for Payments; Instruments of Further Assurance. To the extent, but only to the extent, that any Parity Bond Documents, pledges to the Owners or any trustee therefor, or grants a security interest or lien in or on any collateral, property, revenue or other payments ("Collateral and Revenues") in order to secure the Obligations or provide a source of payment for the Obligations, the Issuer hereby grants to the Insurer a security interest in or lien on, as the case may be, and pledges to the Insurer all such Collateral and Revenues as security for payment of all amounts due hereunder and under the Parity Bond Documents, which security interest, lien and/or pledge created or granted under this Section 2.03 shall be subordinate only to the interests of the Owners and any trustee therefor in such Collateral and Revenues, except as otherwise provided. The Issuer agrees that it will, from time to time, execute, acknowledge and deliver, or cause to be executed, acknowledged and delivered, any and all financing statements, if applicable, and all other further instruments as may be required by law or as shall reasonably be requested by the Insurer for the perfection of the security interest, if any, granted under this Section 2.03 and for the preservation and protection of all rights of the Insurer under this Section 2.03.

Section 2.04. Unconditional Obligation. The obligations of Insurer and Issuer hereunder are absolute and unconditional and will be paid or performed strictly in accordance with this Agreement, subject to the limitations of the Parity Bond Documents, irrespective of:

(a) any lack of validity or enforceability of, or any amendment or other modification of, or waiver with respect to the Obligations or the Parity Bond Documents or

(b) any exchange, release or nonperfection of any security interest in property securing the Obligations or this Agreement or any obligations hereunder; or

(c) any circumstances that might otherwise constitute a defense available to, or discharge of, the Issuer with respect to the Obligations or the Parity Bond Documents or any other document executed in connection with the issuance of the Obligations; or

(d) whether or not such obligations are contingent or matured, disputed or undisputed, liquidated or unliquidated.

Section 2.05. Insurer's Rights. The Issuer shall repay the Insurer to the extent of payments made and expenses incurred by the Insurer in connection with the Obligations and this Agreement from the sources and in the manner described in Section 2.01 hereof. The obligation of the Issuer to repay such amounts shall be subordinate only to the rights of the Owners to receive regularly scheduled principal and interest on the Obligations, as more fully described in Section 2.03 hereof.

Section 2.06. On-Going Information Obligations of Issuer.

(a) Annual Reports. The Issuer will provide to the Insurer the annual financial statements of the Municipal Water System audited by an independent certified public accountant selected by the Issuer or by the State Auditor, at the sole option of the Issuer, within 120 days of the end of each fiscal year;

(c) Access to Facilities, Books and Records. The Issuer will grant the Insurer reasonable access to and will make available to the Insurer, at reasonable times and upon reasonable notice, all books and records of the Municipal Water System; and

(d) Compliance Certificate. Upon the written request of the Insurer, the Issuer will provide to the Insurer a certificate confirming that the Issuer is (as of the date of such certificate) in compliance with all covenants and obligations under this Agreement and the Parity Bond Documents.

ARTICLE III

AMENDMENTS TO DOCUMENT

So long as this Agreement is in effect, the Issuer agrees that it will not agree to amend the Parity Bond Documents without the prior written consent of the Insurer.

ARTICLE IV

EVENTS OF DEFAULT; REMEDIES

Section 4.01. Events of Default. The following events shall constitute Events of Default hereunder:

(a) The Issuer shall fail to pay to the Insurer when due any amount payable under Sections 1.03; or

(b) The Issuer shall fail to pay to the Insurer any amount payable under Sections 1.04 and 2.01 hereof and such failure shall have continued for a period in excess of the Reimbursement Period; or

(c) Any material representation or warranty made by the Issuer under the Parity Bond Documents or hereunder or any statement in the application for the Surety Bond or any report, certificate, financial statement, document or other instrument provided in connection with the Commitment, the Surety Bond, the Obligations, or herewith shall have been materially false at the time when made; or

(d) An Event of Default shall occur under the Parity Bond Documents and shall not be cured within the time period specified in the Parity Bond Documents; or

(e) The Issuer shall (i) voluntarily commence any proceeding or file any petition seeking relief under the United States Bankruptcy Code or any other Federal, state or foreign bankruptcy, insolvency or similar law, (ii) consent to the institution of, or fail to controvert in a timely and appropriate manner, any such proceeding or the filing of any such petition, (iii) apply for or consent to the appointment of a receiver, trustee, custodian, sequestrator or similar official for such party or for a substantial part of its property, (iv) file an answer admitting the material allegations of a petition filed against it in any such proceeding, (v) make a general assignment for the benefit of creditors, (vi) become unable, admit in writing its inability or fail generally to pay its debts as they become due or (vii) take action for the purpose of effecting any of the foregoing; or

(f) An involuntary proceeding shall be commenced or an involuntary petition shall be filed in a court of competent jurisdiction seeking (i) relief in respect of the Issuer, or of a substantial part of its property, under the United States Bankruptcy Code or any other Federal, state or foreign bankruptcy, insolvency or similar law or (ii) the appointment of a receiver, trustee, custodian, sequestrator or similar official for the Issuer or for a substantial part of its property; and such proceeding or petition shall continue undismissed for 60 days or an order or decree approving or ordering any of the foregoing shall continue unstayed and in effect for 30 days.

Section 4.02. Remedies. If an Event of Default shall occur and be continuing, then the Insurer may take whatever action at law or in equity may appear necessary or desirable to collect the amounts then due and thereafter to become due under this Agreement or to enforce performance of any obligation of the Issuer to the Insurer under the Parity Bond Documents, and any obligation, agreement or covenant of the Issuer under this Agreement; provided, however, that the Insurer may not take any action to direct or require acceleration or other early redemption of the Obligations or adversely affect the rights of the Owners. All rights and remedies of the Insurer under this Section 4.02 are cumulative and the exercise of any one remedy does not preclude the exercise of one or more of the other available remedies.

ARTICLE V

SETTLEMENT

So long as the Insurer is not in default under the Surety Bond or this Agreement, the Insurer shall have the exclusive right to decide and determine whether any claim, liability, suit or judgment made or brought against the Insurer, the Issuer or any other party on the Surety Bond shall or shall not be paid, compromised, resisted, defended, tried or appealed, and the Insurer's decision thereon, if made in good faith, shall be final and binding upon the Insurer, the Issuer and any other party on the Surety Bond. An itemized statement of payments made by the Insurer, certified by an officer of the Insurer, or the voucher or vouchers for such payments, shall be prima facie evidence of the liability of the Issuer, and if the Issuer fails to immediately reimburse the Insurer upon the receipt of such statement of payments, interest shall be computed on such amount from the date of any payment made by the Insurer at the rate set forth in subsection (a) of Section 2.01 hereof.

ARTICLE VI

MISCELLANEOUS

Section 6.01. Interest Computations. All computations of interest due hereunder shall be made on the basis of the actual number of days elapsed over a year of 360 days.

Section 6.02. Exercise of Rights. No failure or delay on the part of the Insurer to exercise any right, power or privilege under this Agreement and no course of dealing between the Insurer and the Issuer or any other party shall operate as a waiver of any such right, power or privilege, nor shall any single or partial exercise of any such right, power or privilege preclude any other or further exercise thereof or the exercise of any other right, power or privilege. The rights and remedies herein expressly provided are cumulative and not exclusive of any rights or remedies which the Insurer would otherwise have pursuant to law or equity. No notice to or demand on any party in any case shall entitle such party to any other or further notice or demand in similar or other circumstances, or constitute a waiver of the right of the other party to any other or further action in any circumstances without notice or demand.

Section 6.03. Amendment and Waiver. Any provision of this Agreement may be amended, waived, supplemented, discharged or terminated only with the prior written consent of the Issuer and the Insurer. The Issuer hereby agrees that upon the written request of the Paying Agent, the Insurer may make or consent to issue any substitute for the Surety Bond to cure any ambiguity or formal defect or omission in the Surety Bond which does not materially change the terms of the Surety Bond nor adversely affect the rights of the Owners, and this Agreement shall apply to such substituted surety bond. The Insurer agrees to deliver to the Issuer and to the company or companies, if any, rating the Obligations, a copy of such substituted surety bond.

Section 6.04. Successors and Assigns; Descriptive Headings.

(a) This Agreement shall bind, and the benefits thereof shall inure to, the Issuer and the Insurer and their respective successors and assigns; provided, that the Issuer may not transfer or assign any or all of its rights and obligations hereunder without the prior written consent of the Insurer.

(b) The descriptive headings of the various provisions of this Agreement are inserted for convenience of reference only and shall not be deemed to affect the meaning or construction of any of the provisions hereof.

Section 6.05. Other Sureties. If the Insurer shall procure any other surety to reinsure the Surety Bond, this Agreement shall inure to the benefit of such other surety, its successors and assigns, so as to give to it a direct right of action against the Issuer to enforce this Agreement, and "the Insurer," wherever used herein, shall be deemed to include such reinsuring surety, as its respective interests may appear.

Section 6.06. Signature on Surety Bond. The Issuer's liability to the Bond Insurer under this Agreement shall not be affected by the fact that the Issuer is not a signatory to the Surety Bond nor by any claim that other indemnity or security was to have been obtained nor by the release of any indemnity, nor the return or exchange of any collateral that may have been obtained.

Section 6.07. Waiver. The Issuer waives any defense that this Agreement was executed subsequent to the date of the Surety Bond, admitting and covenanting that such Surety Bond was executed pursuant to the Issuer's request and in reliance on the Issuer's promise to execute this Agreement.

Section 6.08. Notices, Requests, Demands. Except as otherwise expressly provided herein, all written notices, requests, demands or other communications to or upon the respective parties hereto shall be deemed to have been given or made when actually received, or in the case of telex or telecopier notice sent over a telex or a telecopier machine owned or operated by a party hereto, when sent, addressed as specified below or at such other address as any of the parties may hereafter specify in writing to the others:

I f to the Issuer: The City of Seattle, Washington

600 4th Avenue, 3rd Floor

Seattle, Washington 98104

Attention: Finance Director

If to the Paying Agent: The Bank of New York

Attention: Corporate Trust Officer

If to the Insurer: MBIA Insurance Corporation

113 King Street

Armonk, New York 10504

Attention: Insured Portfolio

Management Group

Section 6.09. Survival of Representations and Warranties. All representations, warranties and obligations contained herein shall survive the execution and delivery of this Agreement and the Surety Bond.

Section 6.10. Governing Law. This Agreement and the rights and obligations of the parties under this Agreement shall be governed by and construed and interpreted in accordance with the laws of the State.

Section 6.11. Counterparts. This Agreement may be executed in any number of copies and by the different parties hereto on the same or separate counterparts, each of which shall be deemed to be an original instrument. Complete counterparts of this Agreement shall be lodged with the Issuer and the Insurer.

Section 6.12. Severability. In the event any provision of this Agreement shall be held invalid or unenforceable by any court of competent jurisdiction, such holding shall not invalidate or render unenforceable any other provision hereof.

Section 6.13. Survival of Obligations. Notwithstanding anything to the contrary contained in this Agreement, the obligation of the Issuer to pay all amounts due hereunder and the rights of the Insurer to pursue all remedies shall survive the expiration, termination or substitution of the Surety Bond and this Agreement.

IN WITNESS WHEREOF, each of the parties hereto has caused a counterpart of this Agreement to be duly executed and delivered as of the date first above written.

The City of Seattle, Washington

By: _________________________________

Title: Finance Director

MBIA Insurance Corporation

President

Attest:

Assistant Secretary

EXHIBIT F-3

ADDITIONAL PROVISIONS RELATING TO RESERVE INSURANCE

Payment Procedures Under Surety Bond

(i) If and to the extent that money on deposit in the Principal and Interest Subaccount, plus all cash on deposit in and credited to the Reserve Subaccount, are insufficient to pay the amount of principal and interest on the Parity Bonds coming due, then the Bond Registrar shall deliver to Bond Insurer a Demand for Payment in the form attached to the Surety Bond as Attachment 1 (the "Demand for Payment") at least three (3) days prior to the date the funds are required.

(ii) Any cash and investments in the Reserve Subaccount shall be withdrawn to pay principal of and interest due on the Parity Bonds before any demand for payment is made on the Surety Bond or any other Reserve Insurance then in effect with respect to the Parity Bonds.

(iii) Draws on the Surety Bond and any other Reserve Insurance then in effect with respect to the Parity Bonds shall be made on a pro rata basis (calculated by reference to coverage then available under each such Reserve Insurance instrument).

(iv) The Reserve Subaccount shall be replenished in the following priority: (a) principal and interest on Surety Bond and on any other Reserve Insurance shall be paid from first available Net Revenue of the Municipal Water System (consistent with Section 22 of the Bond Ordinance) on a pro rata basis; (b) after all such amounts are paid in full, amounts necessary to fund the Reserve Subaccount to the required level, after taking into account the amounts available under the Surety Bond and any other Reserve Insurance, shall be deposited from next available Net Revenue.

(v) The City, or the Bond Registrar on behalf of the City, shall maintain adequate records, verified with the Bond Insurer, as to amount available to be drawn at any given time under the Surety Bond and as to the amounts paid and owing to the Bond Insurer under the terms of the Financial Guaranty Agreement.

(c) Defeasance of Bonds. Notwithstanding anything in Section 29 of the Bond Ordinance, entitled "Advance Refunding and Defeasance of the Bonds," to the contrary, if the principal of and/or interest due on the Bonds is paid by the Bond Insurer pursuant to the Surety Bond, the Bonds shall be treated as remaining outstanding for all purposes and shall not be considered paid by the City, and the covenants, agreements and other obligations of the City under the Bond Ordinance and this resolution to the registered owners of the Bonds shall continue to exist and run to the benefit of the Bond Insurer until all amounts owed by the City to the Bond Insurer under the Financial Guaranty Agreement have been paid in full.

(d) Optional Redemption of Bonds. Notwithstanding anything in the Bond Ordinance or this resolution to the contrary, if the principal of and/or interest due on the Bonds is paid by the Bond Insurer pursuant to the Surety Bond, the City shall not have the right to optionally redeem the Bonds unless and until the City has repaid all such payments made by the Bond Insurer, including interest thereon, all in accordance with the Financial Guaranty Agreement.

(e) Rate Covenant. The City pledges and covenants with the Bond Insurer to establish, maintain, revise as necessary and collect such rates and charges for the Municipal Water System which will produce Adjusted Net Revenue sufficient to pay all amounts owed to the Bond Insurer under the terms of the Financial Guaranty Agreement.

(f) Reserve Insurance. Notwithstanding anything in the Bond Ordinance to the contrary, any Reserve Insurance shall be issued by an institution which has been assigned a credit rating at the time of issuance in the highest rating category of each of the Rating Agencies.

* Preliminary, subject to change.

* Preliminary, subject to change.

** These amounts will constitute principal maturities of the Bonds unless Term Bonds are specified by the successful bidder, in which case these amounts may constitute mandatory sinking fund redemptions of Term Bonds.

( This notice shall be given not less than 30 nor more than 60 days prior to June 1, 2003, by first class mail, postage prepaid, to each registered owner of the redeemed bonds. In addition, notice shall be mailed within the same period, postage prepaid, to Moody's Investors Service, Inc., and Standard & Poor's at their offices in New York, New York; _________________ at its principal office in _______________________; and The Depository Trust Company of New York, New York, and each NRMSIR.

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