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H1. Reso 5879 - Westside Interceptor Bond.. City of Kalispell Post Office Box 1997 - Kalispell, Montana 59903-1997 Telephone (406) 758-7000 Fax - (406) 758-7758 AYONTANA REPORT TO: Doug Russell, City Manager' FROM: Rick Wills, Finance Director SUBJECT: Resolution 5879 — Authorizing Issuing Sewer Fund Bonds with Montana Department of Natural Resources and Conservation State Revolving Fund Loan Program MEETING DATE: July 2, 2018 — Regular Council Meeting BACKGROUND: Council approved the Fiscal Year 2018 budget which included financing Phase 1 of the West Side Interceptor (WSI) Project by issuing bonds. At the September 25, 2017 Council Work Session, Public Works Staff reviewed the status of Phase I of the WSI Project and the proposal to complete the Phase 2 portion of the WSI Project in conjunction with Phase 1. At that time, Council provided direction to proceed with completing the entire WSI Project (Phase 1 & 2). At the October 16, 2017 regular meeting of the City Council, the budget was amended to include the completion of both phases. The State has approved loaning the City $14,400,000 for completing the WSI project. The interest rate of the bonds is fixed at 2.50% for the 30 year term. The bond agreement and closing documents require Council action to adopt this Resolution authorizing participation in the Montana Department of Natural Resources and Conservation State Revolving Fund Program. Documents are provided. RECOMMENDATION: It is recommended that the City Council, by means of Resolution 5879, authorize the City Manager to execute the necessary agreements included in this packet to finalize this loan with the Montana Department of Natural Resources and Conservation State Revolving Fund Program. FISCAL IMPACT: The debt service on the bond proceeds is fixed at 2.50%. Annual debt service will be approximately $670,000. ATTACHMENTS: Resolution 5879 Bond Documents Memorandum To: Doug Russell, City Manager Charlie Harball, City Attorney City of Kalispell, Montana From: Ben Johnson, Barnes & Thornburg LLP Date: June 27, 2018 Re: Issuance of $14,400,000 City of Kalispell, Montana Sewerage System Revenue Bond (DNRC Water Pollution Control State Revolving Loan Program), Subordinate Lien Taxable Series 2018A, Taxable Series 2018B, and Taxable Series 2018C You have requested a memorandum describing and explaining the proposed issuance of the above - referenced bonds (the "Series 2018 Bonds") by the City of Kalispell (the City") for the Westside Interceptor sewer line project (the "2018 Project"). This memorandum (the "Memo") will describe the proposed issuance of the Series 2018 Bonds (the "Transaction") and the City's role in the proposed Transaction and certain legal considerations for the City with respect to the proposed Transaction. As Bond Counsel to the City, we have drafted the 2018 Resolution and will work with the DNRC and City staff in order to close the bond issue. Background. The information under this section of the Memo is to provide background relating to the issuance of the Series 2018 Bonds for the City Council and City staff. The Series 2018 Bonds will be issued in three series and will be sold in a private placement transaction to the Montana Department of Natural Resources and Conservation (the "DNRC"). The DNRC is an agency of the State of Montana (the "State") operates a revolving loan program (the "Program") along with the Montana Department of Environmental Quality (the "DEQ") in order to provide capital for water pollution programs for municipalities in the State. The DNRC's Program is very similar to programs run in each state to provide for cost-efficient loans to municipalities for sewerage infrastructure. The DNRC's Program provides loans to various municipalities in Montana for a 20 or 25 year term and will bear interest at a rate of 2.50% per annum. Each series of the Series 2018 Bonds will be issued as a drawdown bond which means that interest will only accrue on the portion of the Series 2018 Bonds that has been advanced by the DNRC to pay costs of the 20I8 Project. If the City complies with certain conditions for principal forgiveness, the City's obligation to repay the Series 2018A Bond will be forgiven. The $400,000 Series 2018A Bonds will be issued as a subordinate bond and the principal of the Series 2018A Bond will be forgiven by DNRC upon completion of the 2018 Project. Enclosed with this Memo is the form of a supplemental resolution (the "2018 Resolution") of the City Council of the City that provides for final approval of the issuance of the Series 2018 Bonds. The 2018 Resolution amends and supplements various previous resolutions and ordinances of the City Council of the City starting with Ordinance No. 859 of the City adopted on June 21, 1976 (the "Original Ordinance"). The Series 2018 Bonds are special limited obligations of the City payable from the revenues of the City's sewerage system (the "System"), The Series 2018 Bonds are one of various sewer revenues bonds that the City has issued over the years that are payable from the revenues of the City's System. There are financial requirements that the City must meet that are set forth in the Original Ordinance in order for the City to issue the Series 2018 Bonds in order to fund the 2018 Project and the City is able to meet such requirements. Legal Discussion. The Series 2018 Bonds are proposed to be issued in three series as taxable bonds under both federal and Montana law. As mentioned previously, if the City complies with certain conditions for principal forgiveness, the City's obligation to repay the Series 2018A Bond will be forgiven. The Series 2018 Bonds are not a general or moral obligation of the City and the full faith and credit and taxing power of the City are not pledged to the payment of the Series 2018 Bonds. The Series 2018 Bonds are special, limited obligations of the City payable solely from the revenues derived from the City's operation of the System. Since the City will use the proceeds of the Series 2018 Bonds to fund essential governmental infrastructure (the 2018 Project) both Montana law and federal tax law do not require a public hearing with respect to the issuance of the Series 2018 Bonds. In addition, the Series 2018 Bonds do not count against the City's general obligation debt limit since the Series 2018 Bonds are not a general obligation of the City and no election is required because the Series 2018 Bonds are payable solely from the revenues of the System. We have drafted the 2018 Resolution to clearly indicate that the Series 2018 Bonds are payable solely from the revenues of the City's System and are not a general or moral obligation of the City. Please note that the Original Ordinance and the 2018 Resolution do contain covenants of the City that the City will set rates and charges and operate the System in such a manner as to generate sufficient funds to pay debt service on the Series 2018 Bonds. Conclusion. As Bond Counsel to the City, we would advise the City Council to adopt the 2018 Resolution. The proposed Transaction is an important infrastructure financing for the City and the Series 2018 Bonds are payable from the revenues of the System and the City has operated the System in such a manner that it is able to clearly comply with the requirements under the Original Ordinance for issuance of the Series 2018 Bonds. Please do not hesitate to contact me at bjohnson@btlaw.com or (612) 367-8794 if you or any members of the City Council have any questions regarding the proposed Transaction, this Memo, or the Series 2018 Bonds. 66139-1 (13W.1) 12675683v.2 2 CERTIFICATE AS TO RESOLUTION AND ADOPTING VOTE I, the undersigned, being the duly qualified and acting recording officer of the City of Kalispell, Montana (the "City"), hereby certify that the attached resolution is a true copy of a Resolution entitled: "RESOLUTION RELATING TO $14,400,000 SEWERAGE SYSTEM REVENUE BONDS (DNRC WATER POLLUTION CONTROL STATE REVOLVING LOAN PROGRAM), CONSISTING OF $400,000 SUBORDINATE LIEN TAXABLE SERIES 2018A BOND, $7,000,000 TAXABLE SERIES 2018B BOND and $7,000,000 TAXABLE SERIES 2018C BOND; AUTHORIZING THE ISSUANCE AND FIXING THE TERMS AND CONDITIONS THEREOF" (the "Resolution"), on file in the original records of the City in my legal custody; that the Resolution was duly adopted by the City Council of the City at a regular meeting on July 2, 2018 and that the meeting was duly held by the City Council and was attended throughout by a quorum, pursuant to call and notice of such meeting given as required by law; and that the Resolution has not as of the date hereof been amended or repealed. I further certify that, upon vote being taken on the Resolution at said meeting, the following City Council members voted in favor thereof: voted against the same: abstained from voting thereon: or were absent: WITNESS my hand and seal officially this day of July, 2018. Aimee Brunckhorst, CMC City Clerk (SEAL) SUPPLEMENTAL RESOLUTION Relating to $14,400,000 SEWERAGE SYSTEM REVENUE BONDS (DNRC WATER POLLUTION CONTROL STATE REVOLVING LOAN PROGRAM) CONSISTING OF $400,000 SUBORDINATE LIEN TAXABLE SERIES 2018A BOND, $7,000,000 TAXABLE SERIES 2018B BOND AND $7,000,000 TAXABLE SERIES 2018C BOND CITY OF KALISPELL, MONTANA Adopted: July 2, 2018 TABLE OF CONTENTS (For convenience only, not a part of this Supplemental Resolution) Page ARTICLE I DEFINITIONS, RULES OF CONSTRUCTION AND APPENDICES ..........................2 Section1.1. Definitions.............................................................................................................2 Section 1.2. Other Rules of Construction..................................................................................9 Section1.3. Appendices............................................................................................................9 ARTICLE II AUTHORIZATION, FINDINGS, REPRESENTATIONS AND COVENANTS .........10 Section 2.1. Authorization and Findings.................................................................................10 Section2.2. Representations...................................................................................................I I Section2.3. Covenants............................................................................................................13 Section2.4. [Reserved]...........................................................................................................15 Section 2.5. Maintenance of System; Liens............................................................................15 Section 2.6. Maintenance of Existence; Merger, Consolidation, Etc.; Disposition of Assets...................................................................................................................15 ARTICLE III USE OF PROCEEDS; THE 2018 PROJECT.................................................................16 Section3.1. Use of Proceeds...................................................................................................16 Section 3.2. The 2018 Project.................................................................................................16 Section 3.3. 2018 Project Representations and Covenants......................................................17 Section 3.4. Completion or Cancellation or Reduction of Costs of the 2018 Project .............18 ARTICLE IV THE 2018 LOANS.........................................................................................................18 Section 4.1. The 2018 Loans; Disbursement of 2018 Loans...................................................18 Section 4.2. Commencement of Loan Term............................................................................20 Section 4.3. Termination of Loan Term..................................................................................20 Section 4.4. 2018 Loan Closing Submissions.........................................................................20 ARTICLE V REPAYMENT OF 2018 LOANS...................................................................................20 Section 5.1. Repayment of 2018 Loans...................................................................................20 Section 5.1.1. Interest and Surcharges....................................................................................20 Section 5.1.2. Repayment of 2018A Loan; Principal Forgiveness.........................................21 Section 5.1.3. Repayment of 2018B Loan and 2018C Loan...................................................22 Section 5.1.4. Details Regarding 2018 Loan Repayments......................................................22 Section 5.2. Additional Payments...........................................................................................23 Section5.3. Prepayments........................................................................................................23 Section 5.4. Obligations of City Unconditional......................................................................23 Section 5.5. Limited Liability..................................................................................................24 Section 5.6 Amendment to Section 3.05 of the Original Ordinance Relating To the Replacement and Depreciation Account..................................................24 ARTICLE VI INDEMNIFICATION OF DNRC AND DEQ...............................................................24 i ARTICLE VII ASSIGNMENT...............................................................................................................25 Section7.1. Assignment by City.............................................................................................25 Section 7.2. Assignment by DNRC.........................................................................................25 Section 7.3. State Refunding Bonds........................................................................................25 ARTICLE VIII THE SERIES 2018 BONDS...........................................................................................25 Section 8.1. Net Revenues Available......................................................................................25 Section 8.2. Issuance and Sale of the Series 2018 Bonds........................................................25 Section8.3. Terms...................................................................................................................26 Section 8.4. Negotiability, Transfer and Registration.............................................................26 Section 8.5. Execution and Delivery.......................................................................................26 Section8.6. Form....................................................................................................................26 ARTICLE IX SECURITY FOR THE SERIES 2018 BONDS, DECREASE IN AMOUNTS IN THE RESERVE ALLOCABLE TO THE OUTSTANDING BONDS, AND AMENDMENT TO THE RATE COVENANT...................................................27 Section 9.1 Security for the Series 2018 Bonds.....................................................................27 Section 9.2 Amendment Relating to the Reserve...................................................................27 Section 9.3 Amendment Relating to the Rate Covenant........................................................27 ARTICLE X [RESERVED].................................................................................................................28 ARTICLE XI CONTINUING DISCLOSURE......................................................................................28 ARTICLE XII MISCELLANEOUS.......................................................................................................28 Section12.1. Notices.................................................................................................................28 Section 12.2. Binding Effect.....................................................................................................29 Section12.3. Severability..........................................................................................................29 Section12.4. Amendments........................................................................................................29 Section12.5. Applicable Law...................................................................................................29 Section 12.6. Captions; References to Sections........................................................................29 Section 12.7. No Liability of Individual Officers, Directors, Trustees CityCouncil Members........................................................................................29 Section 12.8. Payments Due on Holidays.................................................................................29 Section 12.9. Right of Others to Perform City's Covenants.....................................................29 Section 12.10. Authentication of Transcript................................................................................30 Section 12.11. Repeals and Effective Date.................................................................................30 APPENDIX A Description of the 2018 Project.............................................................................. A-1 APPENDIX B-1 Form of Series 2018A Bond............................................................................... B-1-1 APPENDIX B-2 Form of Series 2018B Bond............................................................................... B-2-1 APPENDIX B-3 Form of Series 2018C Bond............................................................................... B-3-1 APPENDIX C Collateral Documents............................................................................................. C-1 APPENDIX D Compliance Certificate and Request...................................................................... D-1 ii RESOLUTION NO. 5879 RESOLUTION RELATING TO $14,400,000 SEWERAGE SYSTEM REVENUE BONDS (DNRC WATER POLLUTION CONTROL STATE REVOLVING LOAN PROGRAM), CONSISTING OF $400,000 SUBORDINATE LIEN TAXABLE SERIES 2018A BOND, $7,000,000 TAXABLE SERIES 2018B BOND AND $7,000,000 TAXABLE SERIES 2018C BOND; AUTHORIZING THE ISSUANCE AND FIXING THE TERMS AND CONDITIONS THEREOF RECITALS: WHEREAS, pursuant to the Montana Water Pollution Control State Revolving Fund Act, Montana Code Annotated, Title 75, Chapter 5, Part 11, as amended (the "State Act"), the State of Montana (the "State") has established a revolving loan program (the "Program") to be administered by the Department of Natural Resources and Conservation of the State of Montana, an agency of the State (the "DNRC"), and by the Department of Environmental Quality of the State of Montana, an agency of the State (the "DEQ"), and has provided that a water pollution control state revolving fund (the "Revolving Fund") be created within the State treasury and all federal, state and other funds for use in the Program be deposited into the Revolving Fund, including, but not limited to, all federal grants for capitalization of a state water pollution control revolving fund under the Federal Water Pollution Control Act (the "Clean Water Act"), all repayments of assistance awarded from the Revolving Fund, interest on investments made on money in the Revolving Fund and payments of principal of and interest on loans made from the Revolving Fund; and WHEREAS, the State Act provides that funds from the Program shall be disbursed and administered for the purposes set forth in the Clean Water Act and according to rules adopted by the DEQ and the DNRC; and WHEREAS, the current EPA Capitalization Grant (as hereinafter defined) requires that loans under the Program funded in whole or in part by such grant in the aggregate and not on a loan -by -loan basis be structured in such a way that a percentage of the total proceeds of such grant be subject to loan forgiveness; and WHEREAS, the City of Kalispell, Montana (the "City"), has applied to the DNRC for the 2018 Loans (as hereinafter defined) from the Revolving Fund to enable the City to finance, refinance or reimburse itself for a portion of the costs of the 2018 Project (as hereinafter defined) which will carry out the purposes of the Clean Water Act and to pay costs of issuance of the Series 2018 Bonds (as hereinafter defined); and WHEREAS, the DNRC offered to make loans in the total principal amount of $14,400,000 available to the City, with one loan in the amount of $400,000 that is evidenced by the Series 2018A Bond (as hereinafter defined) contemplated to be forgiven in the event the City satisfies certain conditions; and WHEREAS, the City intends at this time issuing bonds in three series, one a Series 2018A Bond in the maximum principal amount of $400,000 (the "Series 2018A Bond"), one a Taxable Series B Bond in the maximum principal amount of $7,000,000 (the "Series 2018B Bond"), and the other a Taxable Series 2018C Bond in the maximum principal amount of $7,000,000 (the "Series 2018C Bond," and together with the Series 2018B Bond, the "Senior Series 2018 Bonds") being used, along with other funds of the City, in order to fund the 2018 Project (as hereinafter defined); and WHEREAS, provided that the City complies with certain conditions for principal forgiveness, the City's obligation to repay the Series 2018A Bond will be forgiven; and WHEREAS, the City is authorized under applicable laws, ordinances and regulations to adopt this Supplemental Resolution and to issue the Series 2018 Bonds to evidence the 2018 Loans (as hereinafter defined) for the purposes set forth herein; and WHEREAS, the repayment of the Series 2018B Bonds will be on a parity with the Outstanding Bonds (as hereinafter defined) and the repayment of the Series 2018A Bond is junior and subordinate to the Senior Series 2018 Bonds and the City's other Outstanding Bonds. NOW, THEREFORE, BE IT RESOLVED BY THE CITY COUNCIL OF THE CITY, AS FOLLOWS: ARTICLE I DEFINITIONS, RULES OF CONSTRUCTION AND APPENDICES Section I.I. Definitions. In this Supplemental Resolution, unless a different meaning clearly appears from the context, the following terms shall have the following meanings: "Accountant" or "Accountants" means an independent certified public accountant or a firm of independent certified public accountants satisfactory to the DNRC. "Act" means (i) with respect to the City, the Enabling Act, and (ii) with respect to the DNRC, the State Act, as amended from time to time. "Additional Bonds" means any Bonds in addition to the Outstanding Bonds issued pursuant to the Original Ordinance as amended by this Supplemental Resolution in Section 2.1(e). "Administrative Expense Surcharge" means (i) in respect of the 2018B Loan and the 2018C Loan, in any event, and (ii) in respect of the 2018A Loan, upon the delivery of a Noncompliance Statement as provided by this Supplemental Resolution, a surcharge equal to twenty-five hundredths of one percent (0.25%) per annum on the outstanding principal amount of the 2018 Loans from the date of each advance thereof, payable by the City on a Payment Date. "Authorized DNRC Officer" means the Director or Deputy Director of the DNRC, and, when used with reference to an act or document, also means any other individual authorized by resolution of the DNRC to perform such act or sign such document. If authorized by the DNRC, an Authorized DNRC Officer may delegate all or a portion of his authority as an Authorized DNRC Officer to another individual, and such individual shall be deemed an Authorized DNRC Officer for purposes of exercising such authority. "Bond Counsel" means any Counsel nationally recognized as experienced in matters relating to the issuance by states or political subdivisions of municipal obligations selected by the City and acceptable to the DNRC. "Bonds" means the Series 2004 Bond, the Series 2007 Bond, the Series 2013 Bond, the Series 2018B Bond, the Series 2018C Bond, and any Additional Bonds to be issued on a parity therewith pursuant to the Ordinance. "Borrower" or "City" means the City of Kalispell, Montana, or any permitted successor or assign. "Business Day" means any day which is not a Saturday or Sunday, a legal holiday in the State or a day on which banks in the State are authorized or required by law to close. "City Council" means the City Council of the City. "Clean Water Act" means the Federal Water Pollution Control Act, 33 U.S.C. Sections 1251-1387, as amended and all regulations, rules and interpretations issued by the EPA thereunder, as may be amended. "Closing" means the date of delivery of the Series 2018 Bonds to the DNRC. "Code" means the Internal Revenue Code of 1986, as amended. "Collateral Documents" means any security agreement, guaranty or other document or agreement delivered to the DNRC securing the obligations of the City under this Supplemental Resolution and the Series 2018 Bonds. If no Collateral Documents secure such obligations, any reference to Collateral Documents in this Supplemental Resolution shall be without effect. "Committed Amount" means the aggregate amount of the 2018 Loans committed to be lent by the DNRC to the City pursuant to Section 4.1 of this Supplemental Resolution, as such amount may be reduced pursuant to Sections 3.2 and 3.4 of this Supplemental Resolution. "Compliance Certificate and Request" means the certificate and request substantially in the form of the attached Appendix D delivered by the DNRC to the City following the final advance of principal of the 2018A Loan, to be completed, executed and delivered by the City to the DNRC pursuant to Section 5.1.2 of this Supplemental Resolution. "Construction Account" means the account created in the Fund pursuant to the Original Ordinance. "Consultant" means a nationally recognized consultant or firm of consultants, or an independent engineer or firm of independent engineers, or an Accountant, which in any case is qualified and has skill and experience in the preparation of financial feasibility studies or projections for facilities similar to the System or the 2018 Project, selected by the City and satisfactory to the DNRC. "Counsel" means an attorney duly admitted to practice law before the highest court of any state and satisfactory to the DNRC. "Debt" means, without duplication, in respect of the System, (1) indebtedness of the City for borrowed money or for the deferred purchase price of property or services; (2) the obligation of the City as lessee under leases which should be recorded as capital leases under generally accepted accounting principles; and (3) obligations of the City under direct or indirect guarantees in respect of, and obligations (contingent or otherwise) to purchase or otherwise acquire, or otherwise to assure a creditor against loss in respect of, indebtedness or obligations of others of the kinds referred to in clause (1) or (2) above. "Debt Service Account" means the account created in the Fund pursuant to the Original Ordinance. "DEQ" means the Department of Environmental Quality of the State of Montana, an agency of the State, or any successor to its powers, duties and obligations under the State Act or the EPA Agreements. "Determination Statement" means a Forgiveness Statement or a Noncompliance Statement. "DNRC" means the Department of Natural Resources and Conservation of the State of Montana, an agency of the State, and any successor to its powers, duties and obligations under the State Act. "Enabling Act" means Montana Code Annotated, Title 7, Chapter 7, Parts 44 and 45, and Section 7-7-109, as amended from time to time, which authorizes the City to own and operate the System, to undertake the 2018 Project and to issue the Series 2018 Bonds to finance costs of the 2018 Project. "EPA" means the Environmental Protection Agency, an agency of the United States of America, and any successor to its functions under the Clean Water Act. "EPA Agreements" means all capitalization grant agreements and other written agreements between the DEQ, the DNRC and the EPA concerning the Program. "EPA Capitalization Grant" means a grant of funds to the State by the EPA under Title VI of the Clean Water Act and any grant made available by the EPA for deposit in the Revolving Fund pursuant to Section 205(m) of the Clean Water Act. "Forgiveness Statement" means a written statement delivered to the City by the DNRC in response to a Compliance Certificate and Request that the City's obligation to repay the principal of the Series 2018A Bond is forgiven. "Fund" means the Sewerage System Fund established pursuant to Section 3 of the Original Ordinance. "Government Obligations" means direct obligations of, or obligations the principal of and the interest on which are fully and unconditionally guaranteed as to payment by, the United States of America. "Governmental Unit" means governmental unit as such term is used in Section 145(a) of the Code. "Indenture" means the Indenture of Trust, dated as of June 1, 1991, between the Board of Examiners of the State and the Trustee, as such may be supplemented or amended from time to time in accordance with the provisions thereof, pursuant to which, among other things, the Series 2018 Bonds are to be or have been issued. "Loan Loss Reserve Surcharge" means, (i) in respect of the 2018B Loan and the 2018C Loan, in any event, and (ii) in respect of the 2018A Loan, upon the delivery of a Noncompliance Statement as provided by this Supplemental Resolution, a surcharge equal to twenty-five hundredths of one percent (0.25%) per annum on the outstanding principal amount of the 2018 Loans from the date of each advance thereof, payable by the City on a Payment Date. "Loan Term" means that period of time commencing and ending as set in Sections 4.2 and 4.3 of this Supplemental Resolution. "MMIA" means the same as defined in Section 2.3 of this Supplemental Resolution, its successor and assigns. "Net Revenues" means the entire amount of the gross revenues of the System (as described in Section 3.03 of the Ordinance No. 859) remaining upon each such quarterly apportionment, after crediting to the Operating Account the amount required hereby, including sums required to maintain the Operating Reserve in the minimum amount required by the Ordinance. 4 "Noncompliance Statement" means a written statement delivered to the City by the DNRC that the City's obligation to repay the principal of the Series 2018A Bond is not forgiven. "Operating Account" means the account created in the Fund pursuant to Section 3.03 of the Original Ordinance. "Operating Reserve" means the reserve to be maintained in the Operating Account as required by the Original Ordinance. "Opinion of Bond Counsel" means a written opinion of Bond Counsel. "Ordinance" means the Original Ordinance, as amended and supplemented by this Supplemental Resolution and other supplemental resolutions. "Ordinance No. 859" or "Original Ordinance" means Ordinance No. 859, originally adopted on June 21, 1976. "Original Ordinance" means Ordinance No. 859, as amended and supplemented by Ordinance Nos. 862 (August 4, 1976), 1002 (February 1, 1982), 1011 (May 3, 1982), 1421 (May 20, 2002), and 1476 (August 18, 2003), and by Resolution Nos. 2861 (April 10, 1972), 3649 (April 21, 1986), 3980 (April 15, 1991), 4022 (November 4, 1991), 4685 (March 18, 2002), 4910 (July 6, 2004), 5246 (October 15, 2007), 5577 (August 20, 2012), and 5617 (May 6, 2013), all as duly passed and adopted by the City Council of the City. "Outstanding" means, as of the date of determination, all Bonds or notes theretofore issued except: (i) obligations theretofore cancelled by the City or the Registrar or delivered to the City or the Registrar cancelled or for cancellation; (ii) obligations and portions of obligations for whose payment or redemption money or government obligations shall have been theretofore deposited in trust for the holders of such obligations; provided, however, that if such obligations are to be redeemed, notice of such redemption shall have been duly given pursuant to the Ordinance or irrevocable instructions to call such obligations for redemption at a stated redemption date shall have been given to the City; and (iii) obligations in exchange for or in lieu of which other obligations shall have been issued and delivered pursuant to the Ordinance; provided, however, that in determining whether the holders of the requisite principal amount of outstanding obligations have given any request, demand, authorization, direction, notice, consent or waiver hereunder, obligations owned by the City shall be disregarded and deemed not to be outstanding. "Outstanding Bonds" means the Series 2004 Bond, the Series 2007 Bond, the Series 2013 Bond, and any other bonds that are Outstanding and issued on a parity therewith, including, from and after its issuance, the Series 2018B Bond and the Series 2018C Bond. "Parity Bonds" means the City's Outstanding Bonds; provided, however, that the repayment of the Series 2018A Bond is junior and subordinate to the City's other Outstanding Bonds. "Payment Date" means, with respect the 2018B Loan and the 2018C Loan, each January 1 and July 1 during the term of the Series 2018B Bond and the Series 2018C Bond, respectively, on which a payment of interest or principal and interest is due, as determined under this Supplemental Resolution and, if a Noncompliance Statement is delivered with respect to the 2018A Loan, each January 1 and July 1 during the term of the Series 2018A Bond on which a payment of interest or principal and interest is due, as determined under this Supplemental Resolution. "Person" means any Private Person or Public Entity. "Private Person" means an individual, corporation, partnership, association, joint venture, joint stock company or unincorporated organization, except a Public Entity. "Program" means the Water Pollution Control State Revolving Fund Program established by the Act. "Project" means the costs of designing, engineering, acquiring, constructing, installing, improving, or enlarging the System, or any part thereof, financed, refinanced, or the costs of which is being reimbursed to the City in part with proceeds of the Bonds, subordinate obligations, or other funds of the City, including the 2018 Project. "Public Entity" means a municipality, town, county, school district, political or administrative subdivision of State government, irrigation district, drainage district or other public body established by State law. "Recycled Money" means payments and prepayments of principal of loans made under the Program, and any other amounts transferred to the Principal Subaccount in the Revenue Subaccount in the State Allocation Account (as such terms are defined in the Indenture). "Registrar" means, with respect to the Series 2018 Bonds, the Finance Director or any successor appointed pursuant to this Supplemental Resolution, and, with respect to any other series of Bonds, the Person or Persons designated by or pursuant to this Supplemental Resolution or a Supplemental Resolution to receive and disburse the principal of, premium, if any, and interest on the Bonds on behalf of the City and to hold and maintain the Bond Register. "Regulations" means the Treasury Department, Income Tax Regulations, as amended or any successor regulation thereto, promulgated under the Code or otherwise applicable to the Series 2018 Bonds. "Replacement and Depreciation Account" means the Account created in the Fund pursuant to the Original Ordinance. "Reserve" means the reserve account created in the Fund pursuant to the Original Ordinance. "Reserve Requirement" means, as of the date of calculation, an amount equal to one-half the sum of the highest amount of principal and interest payable on all outstanding Bonds (not including the Series 2018A Bond) in any one future fiscal year (giving effect to mandatory sinking fund redemption, if any). "Reserved Amounts" means any undisbursed Committed Amount which will or may be required to pay any remaining costs of the 2018 Project upon completion thereof as provided in Section 3.4(a) of this Supplemental Resolution. "Revenue Bond Account" means the account created in the Fund pursuant to the Original Ordinance. "Revolving Fund" shall have the meaning set forth in the recitals hereof. "Senior Series 2018 Bonds" means, collectively, the Series 2018B Bond and the Series 2018C Bond. "Series 2004 Bond" means the First Amended and Restated Sewerage System Revenue Bond (DNRC Revolving Loan Program), Series 2004, issued by the City, in the original principal amount of $1,009,000. "Series 2007 Bond" means the First Amended and Restated Sewerage System Revenue Bond (DNRC Water Pollution Control State Revolving Loan Program), Series 2007, issued by the City, in the original principal amount of $12,827,000. "Series 2013 Bond" means the Sewerage System Revenue Bond (DNRC Water Pollution Control State Revolving Loan Program), Series 2013, issued by the City, in the original principal amount of $1,271,000. "Series 2018 Bonds" means, collectively, the Series 2018A Bond, the Series 2018B Bond, and the Series 2018C Bond. "Series 2018A Bond" means the City's $400,000 Subordinate Lien Sewerage System Revenue Bond (DNRC Water Pollution Control State Revolving Loan Program), Taxable Series 2018A, issued to the DNRC to evidence the 2018A Loan. "Series 2018B Bond" means the City's $7,000,000 Sewerage System Revenue Bond (DNRC Water Pollution Control State Revolving Loan Program), Taxable Series 2018B, issued to the DNRC to evidence the 2018B Loan. "Series 2018C Bond" means the City's $7,000,000 Sewerage System Revenue Bond (DNRC Water Pollution Control State Revolving Loan Program), Taxable Series 2018C, issued to the DNRC to evidence the 2018C Loan. "State" means the State of Montana. "State Act" means Montana Code Annotated, Title 75, Chapter 5, Part 11, as amended from time to time. "State Bonds" means the State's General Obligation Bonds (Water Pollution Control State Revolving Fund Program), issued or to be issued pursuant to the Indenture. "Subordinate Obligations" mean the Series 2018A Bond and any other subordinate obligations issued under the Original Ordinance. "Supplemental Resolution" means this Supplemental Resolution of the City, adopted on July 2, 2018, as it may from time to time be amended or supplemented in accordance with its terms. "Surplus Account" means the account created in the Fund pursuant to the Original Ordinance. "Surplus Net Revenues" means that portion of the Net Revenues in excess of the current requirements of the Operating Account, the Revenue Bond Account and the Reserve. "System" means the sewerage system of the City, which includes, without limitation, the sanitary sewer facilities and storm sewer facilities of the City's sewerage system, and all extensions, improvements and betterments thereof hereafter constructed and acquired, including the 2018 Project. "Trustee" means U.S. Bank National Association, in Seattle, Washington or any successor trustee under the Indenture. "2018 Loans" or "Loan" means, collectively, the 2018A Loan, the 2018B Loan, and the 2018C Loan made to the City by the DNRC pursuant to the Program in the maximum amount of the Committed Amount to provide funds to pay costs of the 2018 Project and to pay costs of issuance of the Series 2018 Bonds. "2018 Project" means the designing, engineering and construction of the facilities, improvements and activities the cost of which is being financed by or reimbursed to the City in part with proceeds of the 2018 Loans, described in Appendix A hereto. "2018A Committed Amount" means the amount of the 2018A Loan committed to be lent by the DNRC to the City pursuant to Section 4.1 of this Supplemental Resolution, as such amount may be reduced pursuant to Section 3.2 and Section 3.4 of this Supplemental Resolution. "2018B Committed Amount" means the amount of the 2018B Loan committed to be lent by the DNRC to the City pursuant to Section 4.1 of this Supplemental Resolution, as such amount may be reduced pursuant to Section 3.2 and Section 3.4 of this Supplemental Resolution. "2018C Committed Amount" means the amount of the 2018C Loan committed to be lent by the DNRC to the City pursuant to Section 4.1 of this Supplemental Resolution, as such amount may be reduced pursuant to Section 3.2 and Section 3.4 of this Supplemental Resolution. "2018A First Advance" means the first advance of funds of the 2018A Loan by the DNRC to the City. "2018B First Advance" means the first advance of funds of the 2018B Loan by the DNRC to the City. "2018C First Advance" means the first advance of funds of the 2018C Loan by the DNRC to the City. "2018A Loan" means the loan made to the City by the DNRC pursuant to the Program in the maximum amount of the 2018A Committed Amount to provide funds to pay costs of the 2018 Project payable under the Program and to pay costs of issuance of the Series 2018 Bonds. "2018B Loan" means the loan made to the City by the DNRC pursuant to the Program in the maximum amount of the 2018B Committed Amount to provide funds to pay costs of the 2018 Project payable under the Program, fund the Reserve Requirement for the Series 2018B Bond, and to pay costs of issuance of the Series 2018 Bonds. "2018C Loan" means the loan made to the City by the DNRC pursuant to the Program in the maximum amount of the 2018C Committed Amount to provide funds to pay costs of the 2018 Project payable under the Program, fund the Reserve Requirement for the Series 2018C Bond, and to pay costs of issuance of the Series 2018 Bonds. "Undisbursed Committed Amount" means any undisbursed Committed Amount which is not required to pay costs of the 2018 Project as provided in Section 3.4 of this Supplemental Resolution. Section 1.2. Other Rules of Construction. For all purposes of this Supplemental Resolution, except where the context clearly indicates otherwise: (a) All accounting terms not otherwise defined herein have the meanings assigned to them in accordance with generally accepted government accounting standards. (b) Terms in the singular include the plural and vice versa. (c) All references to time shall refer to Kalispell, Montana time, unless otherwise provided herein. (d) All references to mail shall refer to first-class mail postage prepaid. (e) Words of the masculine gender shall be deemed and construed to include correlative words of the feminine and neuter genders. (f) "Or" is not exclusive, but is intended to permit or encompass one, more or all of the alternatives conjoined. Section 1.3. Appendices. Attached to this Supplemental Resolution and hereby made a part hereof are the following Appendices: Appendix A: a description of and estimated budget for the 2018 Project; Appendix B-1: the form of the Series 2018A Bond; Appendix B-2: the form of the Series 2018B Bond; Appendix B-3: the form of the Series 2018C Bond; Appendix C: additional agreements and representations of the City; and Appendix D: Compliance Certificate and Request. ARTICLE II AUTHORIZATION, FINDINGS, REPRESENTATIONS AND COVENANTS Section 2.1. Authorization and Findings. (a) Authorization. Under the provisions of the Enabling Act, the City is authorized to issue and sell its revenue bonds payable during a term not exceeding forty years from their date of issue, to provide funds for the reconstruction, improvement, betterment and extension of the System or to refund its revenue bonds issued for such purpose; provided that the bonds and the interest thereon are to be payable solely out of the net income and revenues to be derived from rates, fees and charges for the services, facilities and commodities furnished by the undertaking, and are not to create any general obligation for the payment of which taxes may be levied except to pay for services provided by the undertaking to the City. (b) The System. The City, pursuant to the Enabling Act and other laws of the State, has established and presently owns and operates the System. (c) The 2018 Project. After investigation of the facts and as authorized by the Enabling Act, this City Council has determined it to be necessary and desirable and in the best interests of the City to acquire and construct the 2018 Project. (d) Outstanding Bonds. Pursuant to the Enabling Act and the Ordinance, the City has previously issued, and has outstanding, the Series 2004 Bond, the Series 2007 Bond, and the Series 2013 Bond. The Series 2004 Bond, the Series 2007 Bond, the Series 2013 Bond, the Series 2018B Bond, and the Series 2018C Bond are payable from Net Revenues of the System, and the Series 2018A Bond is payable solely out of Surplus Net Revenues. No other bonds or indebtedness are outstanding that are payable from or secured by revenues of the System. (e) Additional Parity Bonds. The City reserved the right under Section 4.03 of Ordinance No. 859 to issue Additional Bonds payable from the Revenue Bond Account of the Fund on a parity as to both principal and interest with the Outstanding Bonds the conditions of Section 4.03 of Ordinance No. 859, are satisfied. In no event shall any additional Bonds be issued and made payable from the Revenue Bond Account if the City is then in default in any payment of principal of or interest on any Outstanding Bonds payable therefrom, or if there then exists any deficiency in the balances required by the Ordinance to be maintained in any of the accounts of the Fund, which will not be cured or restored upon the issuance of the additional Bonds. Based on a certificate executed or to be executed by the City Manager and the Finance Director, or either of them, it is hereby determined that the City is authorized to issue (i) $14,000,000 in aggregate principal amount of Additional Bonds pursuant to Section 4.03 of Ordinance No. 859 payable from and secured by the Net Revenues on a parity with the Outstanding Bonds, and (ii) $400,000 in aggregate principal amount of Additional Bonds payable and secured on a junior and subordinate basis to the repayment of the other Outstanding Bonds. The provisions of this Section 2.1(e) hereby amended all of the prior Ordinances (including Section 4.03 of the Original Ordinance) such that the provisions of this Section 2.1(e) apply to the issuance of Additional Bonds going forward for the Borrower and the required debt service coverage ratio is reduced from 125% to 110% for all Additional Bonds to be issued by the City in the future. For purposes of the foregoing certificate, principal of and interest on the 2018A Loan are disregarded. The City acknowledges and agrees that if it fails to deliver timely an acceptable Compliance Certificate and Request as provided in Section 5.1 of this Supplemental Resolution as determined in the sole and complete discretion of the DNRC or if a Noncompliance Certificate is delivered, then principal and interest and surcharges will become due and owing on the Series 2018A Bond as provided in Section 5.1 of this Supplemental Resolution, and the City shall thereupon, and in any event no later than three (3) months after delivery of a Noncompliance Statement, to the extent required by the Ordinance adjust its schedule of fees, rates, and charges applicable to the System to cause Net Revenues and Surplus Net Revenues to be produced in an amount at least equal to that required by the Ordinance. Section 2.2. Representations. The City represents as follows: (a) Organization and Authority. The City: (i) is duly organized and validly existing as a municipal corporation and political subdivision of the State; (ii) has all requisite power and authority and all necessary licenses and permits required as of the date hereof to own, construct and operate the 2018 Project, to adopt this Supplemental Resolution and to enter into the Collateral Documents and to issue the Series 2018 10 Bonds and to carry out and consummate all transactions contemplated by this Supplemental Resolution, the Series 2018 Bonds and the Collateral Documents; (iii) is a Governmental Unit and a Public Entity; and (iv) has taken all proper action to authorize the execution, delivery and performance of its obligations under this Supplemental Resolution, the Series 2018 Bonds and the Collateral Documents and the incurrence of the Debt evidenced by the Series 2018 Bonds in the maximum amount of the Committed Amount. (b) Pending Litigation. There is no litigation or proceeding pending or, to the knowledge of the City, threatened against or affecting the City in any court or before or by any governmental authority or arbitration board or tribunal that, if adversely determined, would materially and adversely affect the existence, corporate or otherwise, of the City, or the ability of the City to make all payments and otherwise perform its obligations under this Supplemental Resolution, the Series 2018 Bonds and the Collateral Documents, or the financial condition of the City, or the transactions contemplated by this Supplemental Resolution, the Series 2018 Bonds and the Collateral Documents or the validity and enforceability of this Supplemental Resolution, the Series 2018 Bonds and the Collateral Documents. If any such litigation should be initiated or threatened, the City will forthwith notify in writing the DNRC, and will furnish the DNRC a copy of all documents, including pleadings, in connection with such litigation. No referendum petition has been filed with respect to any resolution or other action of the City relating to the 2018 Project, the Series 2018 Bonds or any Collateral Documents. (c) Borrowing Legal and Authorized. The adoption of this Supplemental Resolution, the execution and delivery of the Series 2018 Bonds and the Collateral Documents and the consummation of the transactions provided for in this Supplemental Resolution, the Series 2018 Bonds and the Collateral Documents and compliance by the City with the provisions of this Supplemental Resolution, the Series 2018 Bonds and the Collateral Documents, to the knowledge of the City: (i) are within the powers of the City and have been duly authorized by all necessary action on the part of the City; and (ii) do not and will not result in any breach of any of the terms, conditions or provisions of, or constitute a default under, or result in the creation or imposition of any lien, charge or encumbrance upon any property or assets of the City pursuant to any ordinance, resolution, indenture, loan agreement or other agreement or instrument (other than this Supplemental Resolution and any Collateral Documents) to which the City is a party or by which the City or its property may be bound, nor will such action result in any violation of the provisions of any charter or similar document, if applicable, any laws, ordinances, governmental rules or regulations or court or other governmental orders to which the City, its properties or operations are subject. (d) No Defaults. To the knowledge of the City, no event has occurred and no condition exists that, upon execution and delivery of the Series 2018 Bonds and the Collateral Documents, would constitute a default under this Supplemental Resolution or the Collateral Documents. To the knowledge of the City, the City is not in material violation of any term of any agreement, bond resolution, trust indenture, charter or other instrument to which it is a party or by which it or its property may be bound which violation would materially and adversely affect the transactions contemplated hereby or the compliance by the City with the terms hereof or of the Series 2018 Bonds and the Collateral Documents. (e) Governmental Consent. To the knowledge of the City, the City has obtained or made all permits, findings and approvals required to the date of adoption of this Supplemental Resolution by any 11 governmental body or officer for the making and performance by the City of its obligations under this Supplemental Resolution, the Series 2018 Bonds and the Collateral Documents (including any necessary rate increase) or for the 2018 Project, the financing or refinancing thereof or the reimbursement of the City for costs thereof. To the knowledge of the City, no consent, approval or authorization of, or filing, registration or qualification with, any governmental authority (other than those, if any, already obtained) is required on the part of the City as a condition to adopting this Supplemental Resolution, issuing the Series 2018 Bonds or entering into the Collateral Documents and the performance of the City's obligations hereunder and thereunder. If a utility board or commission manages or controls the System, such board or commission has agreed with the DNRC to abide by the terms of the Ordinance and the Collateral Documents, including approving any necessary rate increases. (f) Binding Obligation. The Ordinance, the Series 2018 Bonds and any Collateral Documents to which the City is a parry are the valid and binding special, limited obligations and agreements of the City, enforceable against the City in accordance with their terms except to the extent that the enforceability thereof may be limited by laws relating to bankruptcy, moratorium, reorganization, insolvency or similar laws affecting creditors' rights and general principles of equity. (g) The 2018 Project. The 2018 Project consists and will consist of the facilities, improvements and activities described in Appendix A, as such Appendix A may be amended from time to time in accordance with Article III of this Supplemental Resolution. The 2018 Project comprises facilities of a type that, as determined by the EPA, will facilitate compliance with the national primary sewer system regulations applicable to the 2018 Project or will otherwise significantly further the health protection objectives of the Clean Water Act. (h) The System. The System is a "sewer system" within the meaning of the State Act and the Clean Water Act in that it is a sewer system, comprising collection, treatment, storage and distribution facilities for the provision to the public of sewer services, that serves not less than 15 service connections used by year-round residents of the area served by the System or regularly serves not less than 25 year- round residents. (i) Full Disclosure. There is no fact that the City has not specifically disclosed in writing to the DNRC that materially and adversely affects or (so far as the City can now foresee), except for pending or proposed legislation or regulations that are a matter of general public information, that will materially and adversely affect the properties, operations and finances of the 2018 Project, the City's status as a Public Entity and Governmental Unit, its ability to own and operate the 2018 Project or the City's ability to perform its obligations under this Supplemental Resolution, the Series 2018 Bonds and the Collateral Documents and to pledge any revenues or other property pledged to the payment of the Series 2018 Bonds. 0) Compliance With Law. To the knowledge of the City, it: (i) is in compliance with all laws, ordinances, governmental rules and regulations and court or other governmental orders, judgments and decrees to which it is subject and which are material to the properties, operations and finances of the System or its status as a Public Entity and Governmental Unit; and (ii) has obtained all licenses, permits, franchises or other governmental authorizations necessary to the ownership of the 2018 Project and the operation thereof and agrees to obtain all such licenses, permits, franchises or other governmental authorizations as may be required in the future for the 2018 Project and the operation thereof, which failure to obtain might materially and adversely affect the ability of the City to conduct the operation of the 2018 Project as presently conducted or the condition (financial or otherwise) of the 2018 Project or the City's ability to 12 perform its obligations under this Supplemental Resolution, the Series 2018 Bonds and the Collateral Documents. (k) Outstanding Deb . Prior to the issuance of the Series 2018 Bonds, the City has the following outstanding bonds payable solely from Net Revenues of the System: (i) the Series 2004 Bonds; (ii) the Series 2007 Bonds; and (iii) the Series 2013 Bonds. Section 2.3. Covenants. (a) Insurance. In addition to the requirements of the Ordinance, the City at all times shall keep and maintain with respect to the System property and casualty insurance and liability insurance with financially sound and reputable insurers, or self-insurance as authorized by State law, against such risks and in such amounts, and with such deductible provisions, as are customary in the State in the case of entities of the same size and type as the City and similarly situated and shall carry and maintain, or cause to be carried and maintained, and pay or cause to be paid timely the premiums for all such insurance. All such insurance policies shall name the DNRC as an additional insured to the extent permitted under the policy or program of insurance or risk coverage of the City. Each policy must provide that it cannot be cancelled by the insurer without giving the City and the DNRC 30 days' prior written notice. The City shall give the DNRC prompt notice of each insurance policy it obtains or maintains to comply with this section and of each renewal, replacement, change in coverage or deductible under or amount of or cancellation of each such insurance policy and the amount and coverage and deductibles and carrier of each new or replacement policy. Such notice shall specifically note any adverse change as being an adverse change. The City shall deliver to the DNRC at Closing a certificate providing the information required by this section. To the extent that the City has risk coverage from the Montana Municipal Interlocal Authority ("MMIA") and includes the System on the City's schedule of property to be coverage by MMIA, then such risk coverage shall be deemed to be acceptable insurance for the DNRC. (b) Right of Inspection and Notice of Change of Location. The DNRC, the DEQ and the EPA and their designated agents shall have the right at all reasonable times during normal business hours and upon reasonable notice to enter into and upon the property of the City for the purpose of inspecting the System or any or all books and records of the City relating to the System. (c) Further Assurance. The City shall execute and deliver to the DNRC all such documents and instruments and do all such other acts and things as may be necessary or required by the DNRC to enable the DNRC to exercise and enforce its rights under the Ordinance, the Series 2018 Bonds and the Collateral Documents and to realize thereon, and record and file and re-record and refile all such documents and instruments, at such time or times, in such manner and at such place or places, all as may be necessary or required by the DNRC to validate, preserve and protect the position of the DNRC under the Ordinance, the Series 2018 Bonds and the Collateral Documents. (d) Maintenance of Security; Recordation of Interest. (i) The City shall, at its expense, take all necessary action to maintain and preserve the lien and security interest of the Ordinance and the Collateral Documents so long as any amount is owing under the Ordinance or the Series 2018 Bonds; (ii) The City shall forthwith, after the execution and delivery of the Series 2018 Bonds and thereafter from time to time, cause the Ordinance and any Collateral Documents granting a security interest in revenues or real or personal property and any financing statements or other notices or documents relating thereto to be filed, registered and recorded in such manner and in such places as may be required by law in order to perfect and protect fully the lien and security 13 interest hereof and thereof and the security interest in them granted by the Ordinance and, from time to time, shall perform or cause to be performed any other act required by law, including executing or causing to be executed any and all required continuation statements and shall execute or cause to be executed any further instruments that may be requested by the DNRC for such perfection and protection; and (iii) Except to the extent it is exempt therefrom, the City shall pay or cause to be paid all filing, registration and recording fees incident to such filing, registration and recording, and all expenses incident to the preparation, execution and acknowledgment of the documents described in subparagraph (ii), and all federal or state fees and other similar fees, duties, imposts, assessments and charges arising out of or in connection with the execution and delivery of the Series 2018 Bonds and the Collateral Documents and the documents described in subparagraph (ii). (e) Additional Agreements. The City covenants to comply with all representations, covenants, conditions and agreements, if any, set forth in Appendix C hereto. (f) Financial Information. This Section 2.3(f) supplements, and is not intended to limit, the requirements in the Original Ordinance. The City agrees that for each fiscal year it shall furnish to the DNRC and the DEQ, promptly when: (i) the preliminary budget for the System, with items for the 2018 Project shown separately; and (ii) when adopted, the final budget for the System, with items for the 2018 Project shown separately. (g) Project Accounts. The City shall maintain the 2018 Project accounts in accordance with generally accepted government accounting standards, and as separate accounts, as required by Section 602(b)(9) of the Clean Water Act. (h) Records. After reasonable notice from the EPA or the DNRC, the City shall make available to the EPA or the DNRC such records as the EPA or the DNRC reasonably requires to review and determine compliance with the Clean Water Act, as provided in Section 606(e) of the Clean Water Act. (i) Compliance with Clean Water Act. The City has complied and shall comply with all conditions and requirements of the Clean Water Act pertaining to the 2018 Loans and the 2018 Project and shall maintain sufficient financial, managerial and technical capability to continue to effect such compliance. 0) Compliance with DEQ Requirements. The City shall comply with plan, specification and other requirements for public sewer systems established by the DEQ, as required by Section 75-5-1113(1)(g) of the State Act. Section 2.4. [Reserved]. Section 2.5. Maintenance of System: Liens. The City shall maintain the System, including the 2018 Project, in good condition and make all necessary renewals, replacements, additions, betterments and improvements thereto. The City shall not grant or permit to exist any lien on the 2018 Project or any other property making up part of the System, other than liens securing Debt where a parity or senior lien secures the Series 2018B Bond and the Series 2018C Bond; provided that this Section 2.5. shall not be deemed to be violated if a mechanic's or contractor's lien is filed against any such property so long as the City uses 14 its best efforts to obtain the discharge of such lien and promptly reports to the DNRC the filing of such lien and the steps it plans to take and does take to discharge such lien. Section 2.6. Maintenance of Existence. Merger, Consolidation, Etc.: Disposition of Assets. The City shall maintain its corporate existence, except that it may consolidate with or merge into another Governmental Unit or permit one or more Governmental Units to consolidate with or merge into it or may transfer all or substantially all of its assets to another Governmental Unit and then dissolve if the surviving, resulting or transferee entity (if other than the City) (i) is a Public Entity and (ii) assumes in writing all of the obligations of the City under the Ordinance, the Series 2018 Bonds and the Collateral Documents, and (a) such action does not result in any default in the performance or observance of any of the terms, covenants or agreements of the City under the Ordinance, the Series 2018 Bonds and the Collateral Documents, (b) such action does not violate the State Act or the Clean Water Act, and (c) the City delivers to the DNRC on the date of such action an Opinion of Bond Counsel that such action complies with this Section 2.6. Other than pursuant to the preceding paragraph, the City shall not transfer the System or any portion thereof to any other Person, except for property which is obsolete, outmoded, worn out, is being replaced or otherwise is not needed for the operation of the System, unless the provisions of (a) and (b) of the preceding paragraph are satisfied and the City delivers to the DNRC an Opinion of Bond Counsel to that effect and, in addition, the DNRC consents to such transfer. ARTICLE III USE OF PROCEEDS; THE 2018 PROJECT Section 3.1. Use of Proceeds. The City shall apply the proceeds of the 2018 Loans solely as follows: (a) The City shall apply the proceeds of the 2018 Loans solely to the financing, refinancing or reimbursement of costs of the 2018 Project as set forth in Appendix A hereto, fund the deposit to the Reserve equal to the Reserve Requirement, and this Section 3.1 and to pay costs of issuance of the Series 2018 Bonds. The 2018 Loans will be disbursed in accordance with Article IV hereof and Article VII of the Indenture. The City shall, as quickly as reasonably possible, complete the 2018 Project and expend proceeds of the 2018 Loans to pay costs of completing the 2018 Project. The City's Finance Director is also authorized to deposit such additional amounts into the Reserve or any other funds and accounts as required by the DNRC. (b) No portion of the proceeds of the 2018 Loans shall be used to reimburse the City for costs paid prior to the date of adoption of this Supplemental Resolution or a Project the construction or acquisition of which occurred or began earlier than March 7, 1985. In addition, if any proceeds of the 2018 Loans are to be used to reimburse the City for 2018 Project costs paid prior to the date of adoption of this Supplemental Resolution, the City shall have complied with Section 1.150-2 of the Regulations in respect of such costs. (c) Any Debt to be refinanced with proceeds of the 2018 Loans was incurred after March 7, 1985, or with respect to a Project the construction or acquisition of which began after March 7, 1985. No proceeds of the 2018 Loans shall be used for the purpose of refinancing an obligation the interest on which is exempt from federal income tax or excludable from gross income for purposes of federal income taxation. Section 3.2. The 2018 Project. Set forth in Appendix A to this Supplemental Resolution is a description of the 2018 Project, which describes the property which has been or is to be acquired, installed, constructed or improved and the other activities, if any, to be funded from the 2018 Loans (the 2018 Project 15 may consist of more than one facility or activity), and an estimated budget relating to the 2018 Project. The 2018 Project may be changed and the description thereof in Appendix A may be amended from time to time by the City but only after delivery to the DNRC of the following: (a) a certificate of the City setting forth the amendment to Appendix A and stating the reason therefor, including statements as to whether the amendment would cause an increase or decrease in the cost of the 2018 Project or an increase or decrease in the amount of proceeds of the 2018 Loans which will be required to complete the 2018 Project and whether the change will materially accelerate or delay the construction schedule for the 2018 Project; (b) a written consent to such change in the 2018 Project by an Authorized DNRC Officer; and (c) an Opinion of Bond Counsel stating that the 2018 Project, as constituted after such amendment, is, and was at the time the State Bonds were issued, eligible for financing under the State Act and is, and was at the time the Series 2018 Bonds were issued, eligible for financing under the Enabling Act, such amendment will not violate the State Act or the Enabling Act. Such an Opinion of Bond Counsel shall not be required for amendments which do not affect the type of facility to be constructed or activity to be financed. The City acknowledges and agrees that an increase in the principal amount of the 2018 Loans may be made only upon an application to the DEQ, the DNRC and the Trustee, in such form as the DEQ shall specify, which is approved by the DEQ and the DNRC, in their sole and absolute discretion, and adoption by the governing body of the City of a supplemental resolution authorizing the additional loan and delivery of written certifications by officers of the City to the DEQ, the DNRC and the Trustee to the effect that all representations and covenants contained in this Supplemental Resolution as it may be so amended or supplemented are true as of the date of closing of the additional loan and compliance with applicable tests for the incurrence of such debt. No assurance can be given that any additional loan funds will be available under the Program at the time of any such application. The City acknowledges and agrees that neither the DEQ, the DNRC, the Trustee nor any of their agents, employees or representatives shall have any liability to the City and have made no representations to the City as to the sufficiency of the 2018 Loans to pay costs of the 2018 Project or as to the availability of additional funds under the Program to increase the principal amount of the 2018 Loans. Section 3.3. 2018 Project Representations and Covenants. The City hereby represents to and covenants with the DNRC that: (a) all construction of the 2018 Project has complied and will comply with all federal and state standards, including, without limitation, EPA regulations; (b) all future construction of the 2018 Project, if any, will be done only pursuant to fixed price construction contracts. The City shall obtain a performance and payment bond from the contractor for each construction contract in the amount of 100% of the construction price and ensure that such bond is maintained until construction is completed to the City's, the DNRC's and the DEQ's satisfaction; (c) all future construction of the 2018 Project will be done in accordance with plans and specifications on file with the DNRC and the DEQ, provided that changes may be made in such plans and specifications with the written consent of an Authorized DNRC Officer and the DEQ; co (d) all laborers and mechanics employed by contractors and subcontractors on the 2018 Project have been and will be paid wages at rates not less than those prevailing on projects of a character similar in the locality as determined by the United States Secretary of Labor in accordance with subchapter IV of chapter 31 of title 40, United States Code; (e) the iron and steel products used in the 2018 Project comply with the "American Iron and Steel" requirements of Section 436 of the Consolidated Appropriations Act of 2016 (P.L. 113-76), as those requirements are further interpreted by applicable EPA guidance; (f) to the City's knowledge, the 2018 Project is a project of the type permitted to be financed under the State Act, the Enabling Act and the Program and Title IV of the Clean Water Act; and (g) the City has commenced the 2018 Project and will cause the 2018 Project to be completed as promptly as practicable with all reasonable dispatch, except only as completion may be delayed by a cause or event not reasonably within the control of the City; it is estimated by the City that the 2018 Project will be substantially completed by June 30, 2020. Section 3.4. Completion or Cancellation or Reduction of Costs of the 2018 Project. (a) Upon completion of the 2018 Project, the City shall deliver to the DNRC a certificate stating that the 2018 Project is complete and stating the amount, if any, of the Undisbursed Committed Amount. If Appendix A describes two or more separate projects as making up the 2018 Project, a separate completion certificate shall be delivered for each. (b) If all or any portion of the 2018 Project is cancelled or cut back or its costs are reduced or for any other reason the City will not require the full Committed Amounts, the City shall promptly notify the DNRC in writing of such fact and the amount of the Undisbursed Committed Amount. ARTICLE IV THE 2018 LOANS Section 4.1. The 2018 Loans: Disbursement of 2018 Loans. (a) The DNRC has agreed to lend to the City, from time to time as the requirements of this Section 4.1 are met, an amount up to: (i) $400,000 (the "2018A Committed Amount"); (ii) $7,000,000 (the "2018B Committed Amount"); and (iii) $7,000,000 (the "2018C Committed Amount") for the purposes of financing, refinancing or reimbursing the City for costs of the 2018 Project, funding a deposit to the Reserve in the amount of the Reserve Requirement, and paying costs of issuance of the Series 2018 Bonds; provided the DNRC shall not be required to disburse any proceeds of the 2018 Loans after July 1, 2020. The Committed Amounts may be reduced as provided in Sections 3.2 and 3.4 hereof. (b) The DNRC intends to disburse the 2018 Loans through the Trustee. In consideration of the issuance of the Series 2018 Bonds by the City, the DNRC shall make, or cause the Trustee to make, a disbursement of all or a portion of the 2018 Loans upon receipt of the following documents: (i) an Opinion of Bond Counsel as to the validity and enforceability of the Series 2018 Bonds and the security therefor, in form and substance satisfactory to the DNRC; 17 (ii) the Series 2018A Bond, the Series 2018B Bond, and the Series 2018C Bond, fully executed and authenticated; (iii) a certified copy of the Original Ordinance and this Supplemental Resolution; (iv) any other security instruments or documents required by the DNRC or DEQ as a condition to their approval of the 2018 Loans; (v) if all or part of a 2018 Loan is being made to refinance a Project or reimburse the City for costs of a Project paid prior to the Closing, evidence, satisfactory to the DNRC and the Bond Counsel referred to in subparagraph (1) above, (A) that the acquisition or construction of the Project was begun no earlier than March 7, 1985 or the debt was incurred no earlier than March 7, 1985, (B) of the City's title to the Project, (C) of costs of such Project and that such costs have been paid by the City, and (D) if such costs were paid before adoption of this Supplemental Resolution that the City has complied with Section 1.150-2 of the Regulations; (vi) the items required by the Indenture for the portion of the 2018 Loans to be disbursed at Closing; and (vii) such other certificates, documents and other information as the DNRC, the DEQ or the Opinion of Bond Counsel referred to in subparagraph (1) may require. (c) In order to obtain a disbursement of a portion of the 2018 Loans to pay costs of the 2018 Project, the City shall submit to the DNRC and the Trustee a signed request for disbursement on the form prescribed by the DNRC, with all attachments required by such form. The City may obtain disbursements only for costs which have been legally incurred and are due and payable. All 2018 Loan disbursements will be made to the City only upon proof that cost was incurred. (d) Provided that the EPA Capitalization Grant is available to the Program, from and after the 2018B First Advance and the 2018C First Advance, the 2018 Loans shall be disbursed, subject to the other terms and conditions of this Supplemental Resolution, in the following order: (i) First, the total amount of each advance will be split equally between the 2018A Loan and the 2018B Loan, until the entire amount of the 2018A Loan is advanced; provided that the initial advance shall include the 2018B First Advance, and once the 2018B Loan is fully advanced, then the 2018C First Advance will occur. (ii) Second, after the 2018A Loan is advanced in full, all advances will be from only the 2018B Loan and then from the 2018C Loan. (e) The City shall not be entitled to, and the DNRC shall have no obligation to make, the 2018B First Advance, the 2018C First Advance or any subsequent advance of any amounts under the 2018B Loan or the 2018C Loan until such time as the City shall have funded the Reserve in an amount then required to satisfy the Reserve Requirement for the applicable issue. (f) The City shall submit the request for the 2018B First Advance and the 2018C First Advance in the form required by the DNRC so that it is received in sufficient time for the DNRC to process the information by the date desired by the City for the making of the 2018B First Advance and the 2018C First Advance. 18 (g) For refinancings, a disbursement schedule complying with the requirements of the Clean Water Act shall be established by the DNRC and the City at Closing. (h) If all or a portion of the 2018 Loans is made to reimburse a City for 2018 Project costs paid by it prior to Closing, the City shall present at Closing the items required by Section 4.1(b) relating to such costs. The Trustee shall disburse such amounts to the City pursuant to a disbursement schedule complying with the requirements of the Clean Water Act established by the DNRC and the City at the Closing. (i) Notwithstanding anything herein to the contrary, the Trustee shall not be obligated to disburse the 2018 Loans any faster or to any greater extent than it has available EPA Capitalization Grants, Bond proceeds and other amounts available therefor in the Revolving Fund. The DNRC shall not be required to do "overmatching" pursuant to Section 5.04(b) of the Indenture, but may do so in its discretion. The City acknowledges that if Project costs are incurred faster than the City projected at Closing, there may be delays in making 2018 Loan disbursements for such costs because of the schedule under which EPA makes EPA Capitalization Grant money available to the DNRC. The DNRC will use its reasonable best efforts to obtain an acceleration of such schedule if necessary. 0) Upon making each 2018A Loan disbursement, 2018B Loan disbursement, and 2018C Loan disbursement, the Trustee shall note such disbursement on Schedule A to the Series 2018A Bond, the Series 2018B Bond, and the Series 2018C Bond, respectively. At Closing, Schedule A to the Series 2018B Bond shall note the 2018B First Advance and when the 2018C First Advance is made, then Schedule A to the Series 2018C Bond shall note the 2018C First Advance. (k) The City agrees that it will deposit in the Reserve upon receipt thereof, on the date of the 2018B First Advance and the 2018C Advance and any subsequent disbursement dates, any proceeds of the 2018B Loan and 2018C Loan borrowed for the purpose of increasing the balance in the Reserve to equal the Reserve Requirement. The City further acknowledges and agrees that any portion of the 2018 Loans representing capitalized interest shall be advanced only on Payment Dates and shall be transferred by the Trustee on the Payment Date directly to the Revenue Bond Account. The amount of any such transfer shall be a credit against the interest payments due on the Series 2018 Bonds and interest thereon shall accrue only from the date of transfer. (1) Compliance by the City with its representations, covenants and agreements contained in this Supplemental Resolution and the Collateral Documents shall be a further condition precedent to the disbursement of the 2018 Loans in whole or in part. The DNRC and the Trustee, in their sole and absolute discretion, may make one or more disbursements, in whole or in part, notwithstanding such noncompliance, and without liability to make any subsequent disbursement of the 2018 Loans. Section 4.2. Commencement of Loan Term. The City's obligations under this Supplemental Resolution and the Collateral Documents shall commence on the date hereof unless otherwise provided in this Supplemental Resolution. However, the obligation to make payments under Article V hereof shall commence only upon the first disbursement by the Trustee of the 2018B First Advance and the 2018C First Advance, respectively. Section 4.3. Termination of Loan Term. The City's obligations under this Supplemental Resolution and the Collateral Documents in respect of the Series 2018 Bonds shall terminate upon payment in full of all amounts due under the Series 2018 Bonds and this Supplemental Resolution; provided, however, that the covenants and obligations provided in Article VI of this Supplemental Resolution shall survive the termination of this Supplemental Resolution. 19 Section 4.4. 2018 Loan Closing Submissions. On or prior to the Closing, the City will have delivered to the DNRC and the Trustee the closing submissions required by Section 7.05 of the Indenture. ARTICLE V REPAYMENT OF 2018 LOANS Section 5.1. Repayment of 2018 Loans. The City shall repay the amounts borrowed by it pursuant to Section 4.1 hereof in accordance with this Section 5.1. 5.1.1. Interest and Surcharges. Until a Determination Statement is delivered by the DNRC to the City and so long as the City's obligation to repay the principal of the 2018A Loan is forgiven as provided in Section 5.1.2 below, amounts disbursed by the DNRC under Section 4.1 hereof that are evidenced by the Series 2018A Bond bear interest at the rate of zero percent (0.00%) per annum from the date of each advance; provided, however, if the DNRC delivers to the City a Noncompliance Statement, then all principal of the Series 2018A Bond advanced by the DNRC shall be payable and amounts disbursed by the DNRC under Section 4.1 hereof that are evidenced by the Series 2018A Bond shall bear interest at the rate of two percent (2.00%) per annum and in addition the City shall pay the Administrative Expense Surcharge and the Loan Loss Reserve Surcharge from the date of each advance under the Series 2018A Bond, each at the rate of twenty—five hundredths of one percent (0.25%) per annum. The 2018B Loan and the 2018C Loan shall each bear interest at the rate of two percent (2.00%) per annum and the City shall pay the Administrative Expense Surcharge and Loan Loss Reserve Surcharge on the outstanding principal amounts of the 2018B Loan and the 2018C Loan, respectively, each at the rate of twenty-five hundredths of one percent (0.25%) per annum. For purposes of this Supplemental Resolution and the Program, with respect to the 2018A Loan, the 2018B Loan, and the 2018C Loan, the term "interest on the 2018 Loans" or "interest on the 2018A Loan" or "interest on the 2018B Loan" or "interest on the 2018C Loan," when not used in conjunction with a reference to any surcharges, shall include the Administrative Expense Surcharge and the Loan Loss Reserve Surcharge, if applicable. The City shall pay all Loan Repayments and surcharges in lawful money of the United States of America to the DNRC. Interest, Administrative Expense Surcharge, and Loan Loss Reserve Surcharge shall be calculated on the basis of a year of 360 days comprising 12 months of 30 days each. 5.1.2. Repayment of 2018A Loan: Principal Forgiveness. (a) The City is obligated to repay the principal of and interest and Administrative Expense Surcharge and Loan Loss Reserve Surcharge on the 2018A Loan, unless the DNRC forgives the City's obligation to repay the principal of the 2018A Loan as provided in Section 5.1.2(b) below. Subject to the provisions of Section 5.1.2(b) hereof, the Loan Repayments and the Administrative Expense Surcharge and Loan Loss Reserve Surcharge on the 2018A Loan shall be due on each Payment Date, as follows: (i) Interest and Administrative Expense Surcharge and Loan Loss Reserve Surcharge on the outstanding principal balance of the 2018A Loan shall be payable on each Payment Date following the date of delivery by the DNRC of a Noncompliance Statement and concluding on July 1, 2049 and (ii) the principal of the 2018A Loan shall be payable on each Payment Date, beginning on the Payment Date that is the first to occur following delivery by the DNRC of a Noncompliance Statement and concluding on July 1, 2049, and the amount of each principal payment shall be calculated on the basis of a substantially level debt service at the rate of 2.00% per annum; provided that principal of the 2018A Loan is payable only in amounts that are multiples of $1,000. 20 (b) Notwithstanding Section 5.1.2(a) above, so long as the City is proceeding diligently to completion of the 2018 Project and the City has executed and delivered the Compliance Certificate and Request to the DNRC in form and substance satisfactory to the DNRC and the DEQ in their sole and absolute discretion within thirty (30) days after the date that the Compliance Certificate and Request is provided to the City by the DNRC, the DNRC will, following review and approval of the Compliance Certificate and Request, deliver to the City a Forgiveness Statement and the City will thereafter have no obligation to repay amounts advanced under the Series 2018A Bond or interest or surcharges thereon and the Series 2018A Bond will be marked "CANCELLED" and returned by the DNRC to the City. However, in the event the City fails to deliver timely the Compliance Certificate and Request, or the City cannot submit the Compliance Certificate and Request because it cannot make the certifications required therein, or the Compliance Certificate and Request is delivered in a form that deviates materially from that attached hereto as Appendix D as determined in the sole and absolute discretion of the DNRC and the DEQ, or the DNRC or the DEQ determines at any time that the 2018 Project or any portion thereof or of the work relating thereto fails to comply with Program requirements, then the DNRC will deliver to the City a Noncompliance Statement. Upon delivery of a Noncompliance Statement by the DNRC to the City, all principal advanced or to be advanced under the Series 2018A Bond, together with interest, Administrative Expense Surcharge, and Loan Loss Reserve Surcharge thereon from the date of each advance, shall be payable as provided in Section 5.1.2(a) hereof. (c) In addition, in the event the DNRC delivers a Noncompliance Statement (i) the Series 2018A Bond will continue in effect as a Subordinate Obligation, and (ii) the City will forthwith comply with the rate covenant set forth in Section 5.12 of the Original Ordinance, and, if necessary, increase the rates and charges of the System to satisfy such rate covenant as soon as practicable and in any event no later than three (3) months after the date of delivery to the City by the DNRC of a Noncompliance Statement. 5.1.3. Repayment of 2018B Loan and 2018C Loan. The Loan Repayments and surcharges on the 2018B Loan and 2018C Loan required by this Section 5.1 shall be due on each Payment Date, as follows: (i) interest and Administrative Expense Surcharge and Loan Loss Reserve Surcharge on the outstanding principal balance of the 2018B Loan shall be payable on each January 1 and July 1, beginning on January 1, 2019, and concluding on July 1, 2049; (ii) the principal of the 2018B Loan shall be repayable on each Payment Date, beginning on July 1, 2019 and concluding July 1, 2049, and the amount of each principal payment shall be calculated on the basis of a substantially level debt service at a rate of 2.50% per annum; provided that principal of the 2018B Loan is payable only in amounts that are multiples of $1,000; (iii) interest and Administrative Expense Surcharge and Loan Loss Reserve Surcharge on the outstanding principal balance of the 2018C Loan shall be payable on each January 1 and July 1, beginning on January 1, 2019, and concluding on July 1, 2049; and (ii) the principal of the 2018C Loan shall be repayable on each Payment Date, beginning on July 1, 2019 and concluding July 1, 2049, and the amount of each principal payment shall be calculated on the basis of a substantially level debt service at a rate of 2.50% per annum; provided that principal of the 2018C Loan is payable only in amounts that are multiples of $1,000. 5.1.4. Details Regarding 2018 Loan Repayments. Upon each disbursement of the 2018 Loans to the City pursuant to Section 4.1 hereof, the Trustee shall enter or cause to be entered the amount advanced on Schedule A to the Series 2018A Bond, the Series 2018B Bond, and the Series 2018C Bond, as applicable, 21 under "Advances" and the total amount advanced under Section 4.1, including such disbursement, under "Total Amount Advanced." Loan Repayments and the Administrative Expense Surcharge and the Loan Loss Reserve Surcharge on the 2018B Loan and the 2018C Loan and, if applicable, on the 2018A Loan, accrue on each such advance from the date of disbursement and shall be due and payable on the dates and in the amounts shown in Schedule B to the Series 2018A Bond, the Series 2018B Bond, and the Series 2018C Bond, as such Schedule B shall be modified from time to time as provided in Sections 5.1.2, 5.1.3, 5.1.4 hereof and below. The portion of each such Loan Repayment consisting of principal, of interest, of Administrative Expense Surcharge and of Loan Loss Reserve Surcharge shall be set forth in Schedule B to the Series 2018A Bond, the Series 2018B Bond, and the Series 2018C Bond. If the DNRC shall have delivered a Noncompliance Statement, then Schedule B to the Series 2018A Bond shall continue to reflect interest and surcharges on amounts advanced under the Series 2018A Bond at the rate of 2.00% per annum. If the DNRC delivers a Forgiveness Statement, Schedule B to the Series 2018A Bond will be disregarded and of no effect. Past -due Loan Repayments and the Administrative Expense Surcharge and the Loan Loss Reserve Surcharge shall bear interest at the rate of ten percent (10.00%) per annum, until paid. Any payment of principal and interest as to the Series 2018B Bond and the Series 2018C Bond and, if applicable, the Series 2018A Bond, and the Administrative Expense Surcharge and the Loan Loss Reserve Surcharge as to the Series 2018B Bond and the Series 2018C Bond and, if applicable, the Series 2018A Bond under this Section 5.1 shall be credited against the same payment obligation under the Series 2018B Bond and the Series 2018C Bond and, as applicable, the Series 2018A Bond. Section 5.2. Additional Payments. The City shall also pay, within 30 days after receipt of a bill therefor, from any legally available funds therefor, including proceeds of the 2018 Loans, all reasonable expenses of the DNRC and the Trustee in connection with the 2018 Loans, the Collateral Documents and the Series 2018 Bonds, including, but not limited to: (a) the cost of reproducing this Supplemental Resolution, the Collateral Documents and the Series 2018 Bonds; (b) the fees and disbursements of Bond Counsel and other Counsel utilized by the DNRC and the Trustee in connection with the 2018 Loans, the Ordinance, the Collateral Documents and the Series 2018 Bonds and the enforcement thereof, and (c) all taxes and other governmental charges in connection with the execution and delivery of the Collateral Documents or the Series 2018 Bonds, whether or not the Series 2018 Bonds are then outstanding, including all recording and filing fees relating to the Collateral Documents and the pledge of the State's right, title and interest in and to the Series 2018 Bonds, the Collateral Documents and the Ordinance (and with the exceptions noted therein) and all expenses, including attorneys' fees, relating to any amendments, waivers, consents or collection or enforcement proceedings pursuant to the provisions hereof or thereof. Section 5.3. Prepayments. The City may not prepay all or any part of the outstanding principal amount of the Series 2018B Bond and the Series 2018C Bond and, if applicable, the Series 2018A Bond, unless (i) a Determination Statement has been delivered, (ii) it obtains the prior written consent of the DNRC thereto, and (iii) no Loan Repayment or Administrative Expense Surcharge or Loan Loss Reserve Surcharge is then delinquent. Any prepayment permitted by the DNRC must be accompanied by payment of accrued interest, Administrative Expense Surcharge and Loan Loss Reserve Surcharge to the date of 22 prepayment on the amount of principal prepaid. If the Series 2018 Bonds are prepaid in part pursuant to this Section 5.3, such prepayments shall be applied to principal payments in inverse order of maturity. Section 5.4. Obligations of City Unconditional. The obligations of the City to make the payments required by the Ordinance and the Series 2018 Bonds and to perform its other agreements contained in the Ordinance, the Series 2018 Bonds and Collateral Documents shall be absolute and unconditional, except as otherwise provided herein or in such documents. The City (a) shall not suspend or discontinue any payments provided for in the Ordinance and the Series 2018 Bonds, (b) shall perform all its other agreements in the Ordinance, the Series 2018 Bonds, and the Collateral Documents and (c) shall not terminate the Ordinance, the Series 2018 Bonds or the Collateral Documents for any cause, including any acts or circumstances that may constitute failure of consideration, destruction of or damage to the 2018 Project or the System, commercial frustration of purpose, any dispute with the DNRC or the EPA, any change in the laws of the United States or of the State or any political subdivision thereof or any failure of the DNRC to perform any of its agreements, whether express or implied, or any duty, liability or obligation arising from or connected with the Ordinance. Section 5.5. Limited Liability. All payments of principal of and interest on the 2018 Loans and other payment obligations of the City hereunder and under the Series 2018 Bonds shall be special, limited obligations of the City payable with respect to the Series 2018B Bond and the Series 2018C Bond solely out of the Net Revenues or, with respect to the Series 2018A Bond, solely out of Surplus Net Revenues and shall not, except at the option of the City and as permitted by law, be payable out of any other revenues of the City. The obligations of the City under the Ordinance and the Series 2018 Bonds shall never constitute an indebtedness of the City within the meaning of any State constitutional provision or statutory or charter limitation and shall never constitute or give rise to a pecuniary liability of the City or a charge against its general credit or taxing power. The taxing powers of the City may not be used to pay principal of or interest on the Series 2018 Bonds, no funds or property of the City other than the Net Revenues may be required to be used to pay principal of or interest on the Series 2018B Bond, and the Series 2018C Bond and no funds or property of the City other than the Surplus Net Revenues may be required to be used to pay principal of or interest, if any, on the Series 2018A Bond. Section 5.6. Amendment to Section 3.05 of the Original Ordinance Relating to the Replacement and Depreciation Account. The City acknowledges that the Original Ordinance, in Section 3.05 created a Replacement and Depreciation Account within the Fund and that the Ordinance requires the City to make regular monthly deposits into the Replacement and Depreciation Account from the Net Revenues of the System. The City hereby irrevocably promises to increase the monthly deposit to the Replacement and Depreciation Account by an amount agreed to by the City and DNRC upon issuance of the Series 2018B Bond and the Series 2018C Bond. The City shall periodically review (at least every 3 years) the amount that it is depositing in the Replacement and Depreciation Account and adjust the amount necessary to be deposited monthly into the Replacement and Depreciation Account if the City determines that such increased amount is prudent based upon the City's review. ARTICLE VI INDEMNIFICATION OF DNRC AND DEQ The City shall, to the extent permitted by law, indemnify and save harmless the DNRC and the DEQ and their officers, employees and agents (each an "Indemnified Party" or, collectively, the "Indemnified Parties") against and from any and all claims, damages, demands, expenses, liabilities and losses of every kind asserted by or on behalf of any Person arising out of the acts or omissions of the City or its employees, officers, agents, contractors, subcontractors, or consultants in connection with or with 23 regard or in any way relating to the condition, use, possession, conduct, management, planning, design, acquisition, construction, installation or financing of the 2018 Project. The City shall, to the extent permitted by law, also indemnify and save harmless the Indemnified Parties against and from all costs, reasonable attorneys' fees, expenses and liabilities incurred in any action or proceeding brought by reason of any such claim or demand. If any proceeding is brought against an Indemnified Parry by reason of such claim or demand, the City shall, upon notice from an Indemnified Parry, defend such proceeding on behalf of the Indemnified Party. ARTICLE VII ASSIGNMENT Section 7.1. Assignment by City. The City may not assign its rights and obligations under the Ordinance or the Series 2018 Bonds, except as provided in Section 2.6 hereof. Section 7.2. Assignment by DNRC. The DNRC will pledge its rights under and interest in the Ordinance, the Series 2018 Bonds and the Collateral Documents (except to the extent otherwise provided in the Indenture) as security for the payment of the State Bonds and may further assign such interests to the extent permitted by the Indenture, without the consent of the City. Section 7.3. State RefundingB. In the event the State Bonds are refunded by bonds which are not State Bonds, all references in the Ordinance to State Bonds shall be deemed to refer to such refunding bonds (together, the "Refunding Bonds") or, in the case of a crossover refunding, to the State Bonds and the Refunding Bonds. hi the event the State Bonds are refunded by an issue of Additional State Bonds, all references in the Ordinance to the State Bonds shall be deemed to refer to such Additional State Bonds or, in the case of a crossover refunding, both the State Bonds and such Additional State Bonds. ARTICLE VIII THE SERIES 2018 BONDS Section 8.1. Net Revenues Available. The City is authorized to charge just and equitable rates, charges and rentals for all services directly or indirectly furnished by the System, and to pledge and appropriate to the Series 2018B Bond and the Series 2018C Bond the Net Revenues (and in respect of the Series 2018A Bond, if necessary, the Surplus Net Revenues) to be derived from the operation of the System, including improvements, betterments or extensions thereof hereafter constructed or acquired. The Net Revenues to be produced by such rates, charges and rentals during the term of the Series 2018B Bond and the Series 2018C Bond are expected to be more than sufficient to pay the principal and interest when due on the Series 2018B Bond and the Series 2018C Bond, and to create and maintain reasonable reserves therefor and to provide an adequate allowance for replacement and depreciation, as prescribed herein. For purposes of the foregoing statement, principal of and interest on the 2018A Loan are disregarded. The City acknowledges and agrees that if the DNRC delivers a Noncompliance Statement to the City that the obligation of the City to repay the principal of the 2018A Loan is not forgiven as provided in Section 5.1.2 as determined in the sole and complete discretion of the DNRC and DEQ, then principal and interest and surcharges will become due and owing on the 2018A Loan evidenced by the Series 2018A Bond as provided in Section 5.1.2 and the City shall thereupon, and no later than three months after delivery of such Noncompliance Statement, to the extent required by Section 5.12 of the Original Ordinance, adjust its schedule of fees, rates and charges applicable to the System to cause Net Revenues and Surplus Net Revenues to be produced in an amount at least equal to that required by the Original Ordinance. 24 Section 8.2. Issuance and Sale of the Series 2018 Bonds. The City Council has investigated the facts necessary and hereby finds, determines and declares it to be necessary and desirable for the City to issue the Series 2018 Bonds to evidence the 2018 Loans. The Series 2018 Bonds are issued to the DNRC without public sale pursuant to Montana Code Annotated, Section 7-7-4433. Section 8.3. Terms. The Series 2018A Bond, the Series 2018B Bond, and the Series 2018C Bond shall each be in the maximum principal amount equal to the original 2018A Committed Amount, the 2018B Committed Amount, and the 2018C Committed Amount, respectively, shall each be issued as a single, fully registered bond numbered R-1, shall be dated as of the date of delivery to the DNRC, and shall bear interest at the rate charged by the DNRC on the 2018A Loan, the 2018B Loan, and the 2018C Loan, respectively. The principal of and interest on the Series 2018B Bond and the Series 2018C Bond and, if applicable, the principal of and interest on the Series 2018A Bond, and any Administrative Expense Surcharge and Loan Loss Reserve Surcharge shall be payable on the same dates and in the same amounts as Loan Repayments are payable. Advances of principal of the Series 2018A Bond, the Series 2018B Bond, or the Series 2018C Bond shall be deemed made when advances of the 2018A Loan, the 2018B Loan, or the 2018C Loan, respectively, are made under Section 4.1 hereof, and such advances shall be payable in accordance with Schedule B to the Series 2018B Bond and the Series 2018C Bond and, if applicable, the Series 2018A Bond, as it may be revised by the DNRC from time to time in accordance with Section 5.1 hereof. The Series 2018A Bond is a Subordinate Obligation payable only from the Surplus Net Revenues available in the Replacement and Depreciation Account or the Surplus Account. The City may prepay the Series 2018 Bonds, in whole or in part, only upon the terms and conditions under which it can prepay the 2018 Loans under Section 5.3 hereof. Section 8.4. Negotiability, Transfer and Registration. The Series 2018 Bonds shall be fully registered as to both principal and interest, and shall be initially registered in the name of and payable to the DNRC, shall be dated the date of delivery. While so registered, principal of and interest on the Series 2018 Bonds shall be payable to the DNRC at the Office of the Department of Natural Resources and Conservation, 1625 Eleventh Avenue, Helena, Montana 59620 or such other place as may be designated by the DNRC in writing and delivered to the City. The Series 2018 Bonds shall be negotiable, subject to the provisions for registration and transfer contained in this Section 8.4. No transfer of the Series 2018 Bonds shall be valid unless and until (1) the holder, or his duly authorized attorney or legal representative, has executed the form of assignment appearing on the Series 2018 Bonds, and (2) the Finance Director of the City (or successors), as bond registrar (the "Registrar"), has duly noted the transfer on the Series 2018 Bonds and recorded the transfer on the registration books of the Registrar. The Registrar may, prior to noting and recording the transfer, require appropriate proof of the transferor's authority and the genuineness of the transferor's signature. The City shall be entitled to deem and treat the Person in whose name the Series 2018 Bonds are registered as the absolute owner of the Series 2018 Bonds for all purposes, notwithstanding any notice to the contrary, and all payments to the registered holder shall be valid and effectual to satisfy and discharge the City's liability upon such Series 2018 Bonds to the extent of the sum or sums so paid. Section 8.5. Execution and Delivery. The Series 2018 Bonds shall be executed on behalf of the City by the manual signatures of the Mayor, City Manager and Finance Director. Any or all of such signatures may be affixed at or prior to the date of delivery of the Series 2018 Bonds. In the event that any of the officers who shall have signed the Series 2018 Bonds shall cease to be officers of the City before the Series 2018 Bonds are issued or delivered, their signatures shall remain binding upon the City. Conversely, the Series 2018 Bonds may be signed by an authorized official who did not hold such office on the date of adoption of this Supplemental Resolution. The Series 2018 Bonds shall be delivered to the DNRC, or its attorney or legal representative. 25 Section 8.6. Form. The Series 2018A Bond shall be prepared in substantially the form attached as Appendix B-1. The Series 2018B Bond shall be prepared in substantially the form attached as Appendix B=2. The Series 2018C Bond shall be prepared in substantially the form attached as Appendix B-3. ARTICLE IX SECURITY FOR THE SERIES 2018 BONDS, DECREASE IN AMOUNTS IN THE RESERVE ALLOCABLE TO THE OUTSTANDING BONDS, AND AMENDMENT TO THE RATE COVENANT Section 9.1. Security for the Series 2018 Bonds. The Series 2018B Bond and the Series 2018C Bond are issued as Additional Bonds under the Section 4.03 of the Ordinance and shall, with the Series 2004 Bond, the Series 2007 Bond, the Series 2013 Bond, and any other Additional Bonds issued under the provisions of Sections 4.01 and 4.03 of the Original Ordinance, be equally and ratably secured by the provisions of the Ordinance and payable out of the Net Revenues appropriated to the Revenue Bond Account of the Fund, without preference or priority, all as provided in the Ordinance, and secured by the Reserve, as further provided in Section 4.03 of the Ordinance and in the following sentence. On the date of Closing, the City shall deposit in the Reserve, an amount equal to the initial Reserve Requirement assuming the entire 2018B Committed Amount and the 2018C Committed Amount is advanced on the date of Closing. If less than the entire 2018B Committed Amount or 2018C Committed Amount are advanced, then on the date of the final disbursement of proceeds of the Series 2018B Bond and the Series 2018C Bond, the City shall be entitled, in its discretion, to transfer any amount in excess of the Reserve Requirement to the Revenue Bond Account or the Replacement and Depreciation Account, so long as the amount remaining in the Reserve equals the Reserve Requirement. The Series 2018A Bond is a Subordinate Obligation issued under Section 4.04 of the Original Ordinance and payable from the Surplus Net Revenues that are available after required credits to the Operating Account, the Revenue Bond Account, and the Reserve. No payment of principal or interest shall be made on any Subordinate Obligation, including the Series 2018A Bond, if the City is then in default in the payment of principal of or interest on any Bond or if there is a deficiency in the Operating Account or the Revenue Bond Account or the balance in the Reserve is less than the Reserve Requirement. In the event the principal of and interest and Administrative Expense Surcharge and Loan Loss Reserve Surcharge become payable under the Series 2018A Bond, the City shall cause rates and charges to be increased to produce Net Revenues at least equal to the amount required under the Original Ordinance within three (3) months following delivery of a Noncompliance Statement. The City shall keep, perform and observe each and every one of its covenants and undertakings set forth in the Original Ordinance for the benefit of the registered holders from time to time of the Series 2018 Bonds. Section 9.2. Amendment Relating to the Reserve. Upon issuance of the Series 2018A Bond, the Series 2018B Bond, and the Series 2018C Bond, the City shall be authorized to reduce the amounts in the Reserve allocable to the Outstanding Bonds so that such amounts are equal to the new lower Reserve Requirement set forth and defined in this Supplemental Resolution. The reductions in the Reserve for the allocable Amended Bonds shall be a permanent reduction for the Outstanding Bonds. In addition, this Supplemental Resolution amends the Original Ordinance (including all resolutions supplemental thereto) that provided for the issuance of each series of the Outstanding Bonds to permanently reduce the Reserve Requirement for the allocable Outstanding Bonds. As of the date of adoption of this Supplemental Resolution, the City does not have any publicly sold Outstanding Bonds and the DNRC is the holder of the Outstanding Bonds on the books and records of the City. The DNRC has consented to the reduction in the amount required to be held by the City in the Reserve through the amendment to the definition of Reserve Requirement as described in this Section 9.2 by DNRC's purchase of the Series 2018A Bond, the Series 2018B Bond, and the Series 2018C Bond. Wo Section 9.3. Amendment Relating to the Rate Covenant. Upon issuance of the Series 2018A Bond, the Series 2018B Bond, and the Series 2018C Bond, the rate covenant set forth in Section 5.12 of the Original Ordinance is hereby reduced from a required debt service coverage ratio or 125% to 110% for all fiscal years ending after June 30, 2018 for the Outstanding Bonds, not including the Series 2018A Bond. The DNRC has consented to the reduction the City's rate covenant for fiscal years ending after June 30, 2018 as described in this Section 9.3 by DNRC's purchase of the Series 2018A Bond, the Series 2018B Bond, and the Series 2018C Bond. ARTICLE X [RESERVED] ARTICLE XI CONTINUING DISCLOSURE The City understands and acknowledges that the DNRC is acquiring the Series 2018 Bonds under the Program pursuant to which the State issues from time to time State Bonds to provide funds therefor. The City covenants and agrees that, upon written request of the DNRC from time to time, the City will promptly provide to the DNRC all information that the DNRC reasonably determines to be necessary or appropriate to offer and sell State Bonds or to provide continuing disclosure in respect of State Bonds, whether under Rule 15c2-12 (17 C.F.R. § 240.15c2-12) promulgated by the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended, or otherwise. Such information shall include, among other things and if so requested, financial statements of the City prepared in accordance with governmental accounting standards promulgated by the Governmental Accounting Standards Board or as otherwise provided under Montana law, as in effect from time to time (such financial statements to relate to a fiscal year or any period therein for which they are customarily prepared by the City, and, if for a fiscal year and so requested by the DNRC, subject to an audit report and opinion of an accountant or government auditor, as permitted or required by the laws of the State). The City will also provide, with any information so furnished to the DNRC, a certificate of the Mayor, City Manager and Finance Director of the City to the effect that, to the best of their knowledge, such information does not include any untrue statement of a material fact or omit to state any material fact required to be stated therein to make the statements made, in light of the circumstances under which they are made, not misleading. ARTICLE XII MISCELLANEOUS Section 12.1. Notices. All notices or other communications hereunder shall be sufficiently sent or given and shall be deemed sent or given when delivered or mailed by certified mail, postage prepaid, to the parties at the following addresses: DNRC: Department of Natural Resources and Conservation 1539 Eleventh Avenue P. O. Box 201601 Helena, Montana 59620-1601 Attn: Conservation and Resource Development Division 27 Trustee: U.S. Bank National Association c/o Corporate Trust Services 1420 Fifth Avenue, 7th Floor Seattle, Washington 98101 City: City of Kalispell 201 1st Avenue East P.O. Box 1997 Kalispell, Montana 59903 Attn: City Finance Director Any of the above parties may, by notice in writing given to the others, designate any further or different addresses to which subsequent notices or other communications shall be sent. Section 12.2. BindingE.. This Supplemental Resolution shall inure to the benefit of and shall be binding upon the DNRC, the City and their respective permitted successors and assigns. Section 12.3. Severability. If any provision of this Supplemental Resolution shall be determined to be unenforceable at any time, it shall not affect any other provision of the Ordinance or the enforceability of that provision at any other time. Section 12.4. Amendments. This Supplemental Resolution may not be effectively amended without the written consent of the DNRC. Section 12.5. Applicable Law. This Supplemental Resolution shall be governed by and construed in accordance with the laws of the State. Section 12.6. Captions; References to Sections. The captions in this Supplemental Resolution are for convenience only and do not define or limit the scope or intent of any provisions or Sections of this Supplemental Resolution. References to Articles and Sections are to the Articles and Sections of this Supplemental Resolution, unless the context otherwise requires. Section 12.7. No Liabilitv of Individual Officers_ Directors_ Trustees or Citv Council Members. No recourse under or upon any obligation, covenant or agreement contained in this Supplemental Resolution shall be had against any director, officer or employee, as such, past, present or future, of the DNRC, the DEQ or the Trustee, either directly or through the DNRC, the DEQ or the Trustee, or against any officer, or member of the governing body or employee of the City, past, present or future, as an individual so long as such individual was acting in good faith. Any and all personal liability of every nature, whether at common law or in equity, or by statute or by constitution or otherwise, of any such officer or member of the governing body or employee of the DNRC, the Trustee or the City is hereby expressly waived and released by the City and by the DNRC as a condition of and in consideration for the adoption of this Supplemental Resolution and the making of the 2018 Loans. Section 12.8. Payments Due on Holidays. If the date for making any payment or the last date for performance of any act or the exercise of any right, as provided in this Supplemental Resolution or the Series 2018 Bonds, shall not be a Business Day, such payments may be made or act performed or right exercised on the next succeeding Business Day with the same force and effect as if done on the nominal date provided in this Supplemental Resolution or the Series 2018 Bonds. Section 12.9. Right of Others to Perform City's Covenants. In the event the City shall fail to make any payment or perform any act required to be performed hereunder, then and in each such case the 28 DNRC or the provider of any Collateral Document may (but shall not be obligated to) remedy such default for the account of the City and make advances for that purpose. No such performance or advance shall operate to release the City from any such default and any sums so advanced by the DNRC or the provider of any Collateral Document shall be paid immediately to the parry making such advance and shall bear interest at the rate of ten percent (10%) per annum from the date of the advance until repaid. The DNRC and the provider of any Collateral Document shall have the right to enter the 2018 Project or the facility or facilities of which the 2018 Project is a part or any other facility which is a part of the System in order to effectuate the purposes of this Section. Section 12.10. Authentication of Transcript. The officers of the City are hereby authorized and directed to furnish to the DNRC and to Bond Counsel certified copies of all proceedings relating to the issuance of the Series 2018 Bonds and such other certificates and affidavits as may be required to show the right, power and authority of the City to issue the Series 2018 Bonds, and all statements contained in and shown by such instruments, including any heretofore furnished, shall constitute representations of the City as to the truth of the statements of fact purported to be shown thereby. Section 12.11. Repeals and Effective Date. (a) Repeal. All provisions of other resolutions and other actions and proceedings of the City and this City Council that are in any way inconsistent with the terms and provisions of this Supplemental Resolution are repealed, amended and rescinded to the full extent necessary to give full force and effect to the provisions of this Supplemental Resolution. (b) Effective Date. This Supplemental Resolution shall take effect immediately. (The remainder of this page is intentionally left blank.) 29 PASSED AND APPROVED BY THE CITY COUNCIL AND SIGNED BY THE MAYOR OF THE CITY OF KALISPELL, THIS 2ND DAY OF JULY, 2018. ATTEST: Aimee Brunckhorst, CMC City Clerk Mark Johnson Mayor 30 APPENDIX A DESCRIPTION OF THE 2018 PROJECT The acquisition, construction, and equipping of the Westside Interceptor sewer line project in the City of Kalispell, Montana. A-1 APPENDIX B-1 [Form of the Series 2018A Bond] UNITED STATES OF AMERICA STATE OF MONTANA COUNTY OF FLATHEAD CITY OF KALISPELL CITY OF KALISPELL SUBORDINATE LIEN SEWERAGE SYSTEM REVENUE BOND (DNRC WATER POLLUTION CONTROL STATE REVOLVING LOAN PROGRAM), TAXABLE SERIES 2018A No. R-1 $400,000 FOR VALUE RECEIVED, the City of Kalispell, Montana (the "City"), a duly organized and existing municipal corporation in Flathead County, Montana, acknowledges itself to be specially indebted and, for value received, hereby promises to pay to the Department of Natural Resources and Conservation of the State of Montana (the "DNRC"), or its registered assigns, solely out of available Surplus Net Revenues in the Replacement and Depreciation Account or the Surplus Account of its Sewerage System Fund (the "Fund"), the sum of the principal amounts entered on Schedule A attached hereto under "Total Amount Advanced," with interest on each such amount from the date such amount is advanced hereunder at the rate of two percent (2.00%) per annum on the unpaid balance until paid, together with an Administrative Expense Surcharge and Loan Loss Reserve Surcharge on the outstanding principal amount of this Subordinate Series 2018A Bond from the date of each advance of principal, each at the rate of twenty-five hundredths of one percent (0.25%) per annum, all subject to the effect of the immediately following paragraph. Principal, interest, Administrative Expense Surcharge and Loan Loss Reserve Surcharge shall be payable in semiannual installments payable on each January 1 and July 1 (each a "Payment Date") commencing with the Payment Date that is the first to occur following delivery by the DNRC to the City of a statement that the City's obligation to repay the principal amount of the 2018A Loan is not forgiven and ending on July 1, 2049, all as described in the Supplemental Resolution (as hereinafter defined), subject to earlier redemption. Each installment shall be in the amount set forth opposite its due date in Schedule B attached hereto under "Total Loan Payment." The portion of each such payment consisting of principal, of interest, of Administrative Expense Surcharge and of Loan Loss Reserve Surcharge shall be as set forth in Schedule B attached hereto. Upon each disbursement of the 2018A Loan, the DNRC shall enter (or cause to be entered) the principal amount advanced on Schedule A under "Advances" and the total amount advanced under the Supplemental Resolution, including such advance, under "Total Amount Advanced." The DNRC shall prepare Schedule B and any revised Schedule B, or cause Schedule B and any revised Schedule B to be prepared, as provided in Section 5.1 of the Supplemental Resolution, and the final Schedule B will reflect repayments under Section 5.1.4 of the Supplemental Resolution. Schedule B shall be calculated and recalculated on a level debt service basis assuming an interest rate of two and one-half percent (2.50%) per annum. Past -due payments of principal and interest and Administrative Expense Surcharge and Loan Loss Reserve Surcharge shall bear interest at the rate of ten percent (10.00%) per annum, until paid. Interest and Administrative Expense Surcharge and Loan Loss Reserve Surcharge shall be calculated on the basis of a 360-day year comprising 12 months of 30 days each. All payments under this Subordinate Series 2018A Bond shall be made to the registered holder of this Subordinate Series 2018A Bond, at its address as it appears on the bond register, in lawful money of the United States of America. B-1-1 NOTWITHSTANDING THE FOREGOING PROVISIONS OF THIS SUBORDINATE SERIES 2018A BOND, IN THE EVENT THAT THE CITY TIMELY DELIVERS A COMPLIANCE CERTIFICATE AND REQUEST (AS DEFINED IN THE SUPPLEMENTAL RESOLUTION) IN FORM AND SUBSTANCE SATISFACTORY TO THE DNRC AND THE DNRC IN RESPONSE THERETO SUPPLIES TO THE CITY A FORGIVENESS STATEMENT, THEN THEREUPON INTEREST SHALL BE DEEMED TO ACCRUE ON THE PRINCIPAL OF THIS BOND FROM THE DATE OF EACH ADVANCE AT THE RATE OF ZERO PERCENT (0.00%) PER ANNUM AND THE CITY' S OBLIGATION TO REPAY PRINCIPAL ADVANCED HEREUNDER SHALL BE FORGIVEN, AND THE CITY SHALL HAVE NO OBLIGATION TO REPAY THE DNRC OR ITS REGISTERED ASSIGNS ANY AMOUNTS ADVANCED HEREUNDER OR INTEREST OR ANY SURCHARGE THEREON. THIS SUBORDINATE SERIES 2018A BOND SHALL THEREUPON BE MARKED "CANCELLED" AND RETURNED BY THE HOLDER TO THE CITY, AND THIS SUBORDINATE SERIES 2018A BOND SHALL NO LONGER CONSTITUTE AN OBLIGATION OF THE CITY OR OF THE SYSTEM (AS HEREINAFTER DEFINED). IN ADDITION, UNTIL THE DELIVERY OF A DETERMINATION STATEMENT BY THE DNRC TO THE CITY, THE OBLIGATION OF THE CITY TO REPAY THE OUTSTANDING PRINCIPAL AMOUNT HEREOF SHALL BE DEFERRED UNTIL THE PAYMENT DATE FIRST OCCURRING AFTER DELIVERY OF A NONCOMPLIANCE STATEMENT AND INTEREST SHALL BE DEEMED TO ACCRUE ON THE PRINCIPAL OF THIS BOND FROM THE DATE OF EACH ADVANCE UNTIL DELIVERY OF SUCH A NONCOMPLIANCE STATEMENT AT THE RATE OF ZERO PERCENT (0.00%) PER ANNUM. This Subordinate Series 2018A Bond is one of an issue of Sewerage System Revenue Bonds of the City authorized to be issued in one or more series from time to time, and constitutes a series in the maximum authorized principal amount of $400,000 (the "Series 2018A Bond"). This Subordinate Series 2018A Bond is issued to finance costs of the construction of certain improvements to the Sewerage System of the City (the "System") and to pay costs of issuance of the Series 2018 Bonds (as defined herein). This Subordinate Series 2018A Bond is issued pursuant to and in full conformity with the Constitution and laws of the State of Montana thereunto enabling, including Montana Code Annotated, Title 7, Chapter 7, Part 44 and 45, as amended, and ordinances and resolutions duly adopted by the governing body of the City, including Ordinance No. 859 of the City adopted on June 1976, as amended and supplemented by Ordinance Nos. 862 (August 4, 1976), 1002 (February 1, 1982), 1011 (May 3, 1982), 1421 (May 20, 2002), and 1476 (August 18, 2003), all as duly passed and adopted by the City Council of the City, and by Resolution Nos. 2861 (April 10, 1972), 3649 (April 21, 1986), 3980 (April 15, 1991), 4022 (November 4, 1991), 4685 (March 18, 2002), 4910 (July 6, 2004), 5246 (October 15, 2007), 5577 (August 20, 2012), and 5617 (May 6, 2013) (collectively, the "Original Ordinance"), and Resolution No. , adopted by the City Council of the City on July 2, 2018 (the "Supplemental Resolution," and together with the Original Ordinance, the "Ordinance"). Terms used with initial capital letters but not defined herein have the meanings given to them in the Ordinance. This Subordinate Series 2018A Bond is issuable only as a single, fully registered bond. This Subordinate Series 2018A Bond is issued as a Subordinate Obligation payable out of available Surplus Net Revenues in the Replacement and Depreciation Account or the Surplus Account in the Fund. Simultaneously herewith, the City is issuing its (i) $7,000,000 Sewerage System Revenue Bond (DNRC Water Pollution Control State Revolving Loan Program), Taxable Series 2018B (the "Series 2018B Bond") and (ii) $7,000,000 Sewerage System Revenue Bond (DNRC Water Pollution Control State Revolving Loan Program), Taxable Series 2018C (the "Series 2018C Bond," and together with the Series 2018B Bond and the Series 2018A Bond, the "Series 2018 Bonds"), each of which are payable from the Revenue Bond Account in the Fund on a parity with the City's outstanding Series 2004 Bond, the Series 2007 Bond, and the Series 2013 Bond (together with the Series 2018B Bond and the Series 2018C Bond, the "Outstanding Bonds"). Following the 2018B First Advance, the total amount of each advance will be split equally between the Series 2018A Bond and the Series 2018B Bond, until the entire amount of the Series 2018A Bond is advanced; provided that the initial advance shall include the 2018B First Advance, and once the Series 2018B Bond is fully advanced, then the 2018C First Advance will occur. B-1-2 Reference is made to the Ordinance for a more complete statement of the terms and conditions upon which this Subordinate Series 2018A Bond has been issued, the conditions upon which the Ordinance may be amended, the rights, duties and obligations of the City, and the rights of the owners of this Subordinate Series 2018A Bond. The City may prepay the principal of this Subordinate Series 2018A Bond only if (i) a Determination Statement has been delivered, (ii) it obtains the prior written consent of the DNRC thereto, and (iii) no Loan Repayment or Administrative Expense Surcharge or Loan Loss Reserve Surcharge is then delinquent. Any prepayment permitted by the DNRC must be accompanied by payment of accrued interest, and Administrative Expense Surcharge and Loan Loss Reserve Surcharge to the date of prepayment on the amount of principal prepaid. If this Subordinate Series 2018A Bond is prepaid in part, such prepayments shall be applied to principal payments in inverse order of maturity. This Subordinate Series 2018A Bond, including interest and any premium, are payable solely from the Surplus Net Revenues available for the payment hereof and do not constitute a debt of the City within the meaning of any constitutional or statutory limitation or provision. The City may deem and treat the person in whose name this Series 2018A Bond is registered as the absolute owner hereof, whether this Subordinate Series 2018A Bond is overdue or not, for the purpose of receiving payment and for all other purposes, and the City shall not be affected by any notice to the contrary. This Subordinate Series 2018A Bond may be transferred as hereinafter provided. IT IS HEREBY CERTIFIED, RECITED, COVENANTED AND AGREED that the City has duly authorized and will forthwith construct and complete the improvements to the System hereinabove described; that it will prescribe and collect reasonable rates and charges for all services and facilities afforded by the System, including all additions thereto and replacements and improvements thereof, and has created a special Fund into which the gross revenues of the System will be paid, and a separate and special Replacement and Depreciation Account and Surplus Account in that Fund, into which will be paid, subject to the prior lien thereon of the Operating Account, the Revenue Bond Account and the Reserve, Surplus Net Revenues; that the rates and charges for the System will from time to time be made and kept sufficient, to provide gross income and revenues adequate to pay promptly the reasonable and current expenses of operating and maintaining the System, to produce in each fiscal year Net Revenues in excess of such current expenses, equal to at least 110% of the maximum amount of principal and interest payable from the Revenue Bond Account in any subsequent fiscal year, and to produce in each fiscal year adequate Surplus Net Revenues to pay the principal of and interest on this Subordinate Series 2018A Bond as and when due; that additional Parity Bonds and refunding Bonds may be issued and made payable from the Revenue Bond Account on a parity with the Outstanding Bonds and other parity Bonds upon certain conditions set forth in the Ordinance, but no obligation will be otherwise incurred and made payable from the Net Revenues of the System, unless the lien thereof shall be expressly made subordinate to the lien of the Outstanding Bonds and additional parity Bonds on such Net Revenues and such obligations are payable only from Surplus Net Revenues (as is the case with this Subordinate Series 2018A Bond); that all provisions for the security of the holder of this Subordinate Series 2018A Bond set forth in the Ordinance will be punctually and faithfully performed as therein stipulated; that all acts, conditions and things required by the Constitution and laws of the State of Montana and the ordinances and resolutions of the City to be done, to exist, to happen and to be performed in order to make this Subordinate Series 2018A Bond a valid and binding special obligation of the City according to its terms have been done, do exist, have happened and have been performed as so required; and that this Subordinate Series 2018A Bond and the premium, if any, and interest hereon are payable solely out of available Surplus Net Revenues in the Replacement and Depreciation Account or the Surplus Account of the Fund and do not constitute a debt of the City within the meaning of any constitutional or statutory limitation or provision and the issuance of this Subordinate B-1-3 Series 2018A Bond does not cause either the general or the special indebtedness of the City to exceed any constitutional or statutory limitation. IN WITNESS WHEREOF, the City of Kalispell, Flathead County, Montana, by its City Council, has caused this Subordinate Series 2018A Bond to be executed on its behalf by the facsimile or manual signatures of the Mayor, City Manager and Finance Director and has caused this Subordinate Series 2018A Bond to be dated as of the date set forth below. Dated: July 19, 2018 ATTEST: City Clerk CITY OF KALISPELL, MONTANA Mayor City Manager Finance Director B-1-4 REGISTRATION AND TRANSFER The Subordinate Series 2018A Bond shall be fully registered as to both principal and interest. No transfer of the Subordinate Series 2018A Bond shall be valid unless and until (1) the registered holder of the Bond, or his duly authorized attorney or legal representative, executes the form of assignment appearing on the Subordinate Series 2018A Bond, and (2) the Finance Director, as bond registrar (the "Registrar"), has duly noted the transfer on the Subordinate Series 2018A Bond and recorded the transfer on the Registrar's registration books. The City shall be entitled to deem and treat the person in whose name the Subordinate Series 2018A Bond is registered as absolute owner thereof for all purposes, notwithstanding any notice to the contrary. Payments on account of the Subordinate Series 2018A Bond shall be made only to the order of the registered holder thereof, and all such payments shall be valid and effectual to satisfy and discharge the City's liability upon the Subordinate Series 2018A Bond to the extent of the sum or sums so paid. REGISTER The ownership of the outstanding principal balance of the Subordinate Series 2018A Bond and the interest accruing thereon is registered on the books of City of Kalispell, Montana in the name of the registered holder appearing on the first page hereof or as last noted below: Date of Registration July 19, 2018 Name and Address of Registered Holder Department of Natural Resources and Conservation 1625 Eleventh Avenue Helena, MT 59620 Signature of Finance Director THE FOLLOWING ENTRIES ARE TO BE MADE ONLY BY THE REGISTRAR UPON REGISTRATION OF EACH TRANSFER The Finance Director of the City of Kalispell, Montana, acting as Bond Registrar, has transferred, on the books of the City, on the date last noted below, ownership of the principal amount of and the accrued interest on the Subordinate Series 2018A Bond to the new registered holder noted next to such date, except for amounts of principal and interest theretofore paid. Name of New Signature of Date of Transfer Registered Holder Bond Re ig smear B-1-5 FORM OF ASSIGNMENT For value received, the Subordinate Series 2018A Bond is hereby transferred and assigned by the undersigned holder, without recourse, to of on this day By: (Authorized Signature) For: (Holder) SCHEDULE A SCHEDULE OF AMOUNTS ADVANCED Total Amount Date Advances Advanced Notation Made B B-1-7 Date Principal Interest SCHEDULE B Administrative Expense Surcharge Loan Loss Reserve Surcharge Total Loan Pam APPENDIX B-2 [Form of the Series 2018B Bond] UNITED STATES OF AMERICA STATE OF MONTANA COUNTY OF FLATHEAD CITY OF KALISPELL CITY OF KALISPELL SEWERAGE SYSTEM REVENUE BOND (DNRC WATER POLLUTION CONTROL STATE REVOLVING LOAN PROGRAM), TAXABLE SERIES 2018B No. R-1 $7,000,000 FOR VALUE RECEIVED, the City of Kalispell, Montana (the "City"), a duly organized and existing municipal corporation in Flathead County, Montana, acknowledges itself to be specially indebted and hereby promises to pay to the Department of Natural Resources and Conservation of the State of Montana (the "DNRC"), or its registered assigns, solely from the Revenue Bond Account of its Sewerage System Fund (the "Fund"), the principal sum equal to the sum of the amounts entered on Schedule A attached hereto under "Total Amount Advanced," with interest on each such amount from the date such amount is advanced hereunder at the rate of two percent (2.00%) per annum on the unpaid balance until paid. In addition, the City shall pay an Administrative Expense Surcharge and a Loan Loss Reserve Surcharge on the outstanding principal amount of this Series 2018B Bond, each at the rate of twenty-five hundredths of one percent (0.25%) per annum. Interest and Administrative Expense Surcharge and Loan Loss Reserve Surcharge shall be payable in semiannual installments payable on each January 1 and July 1 (each a "Loan Repayment Date") commencing on January 1, 2019 and concluding on July 1, 2049. Principal shall be payable on the dates set forth in Schedule B hereto. Each installment shall be in the amount set forth opposite its due date in Schedule B attached hereto under "Total Loan Payment." The portion of each such payment consisting of principal, the portion consisting of interest, the portion consisting of Administrative Expense Surcharge, and the portion consisting of Loan Loss Reserve Surcharge shall be as set forth in Schedule B hereto. Upon each disbursement of Loan amounts to the City pursuant to the Resolution described below, the DNRC shall enter (or cause to be entered) the amount advanced on Schedule A under "Advances" and the total amount advanced under the Supplemental Resolution (as hereinafter defined), including such disbursement, under "Total Amount Advanced." The DNRC shall prepare Schedule B and any revised Schedule B, or cause Schedule B and any revised Schedule B to be prepared, as provided in Section 5.1 of the Supplemental Resolution, and the final Schedule B will reflect repayments under Section 5.1.4 of the Supplemental Resolution. Schedule B shall be calculated and recalculated on a level debt service basis assuming an interest rate of 2.50% per annum. Past -due payments of principal and interest and Administrative Expense Surcharge and Loan Loss Reserve Surcharge shall bear interest at the rate of ten percent (10.00%) per annum, until paid. Interest and Administrative Expense Surcharge and Loan Loss Reserve Surcharge shall be calculated on the basis of a 360-day year comprising 12 months of 30 days each. All payments under this Series 2018B Bond shall be made to the registered holder of this Series 2018B Bond, at its address as it appears on the Bond register, in lawful money of the United States of America. This Series 2018B Bond is one of an issue of Sewerage System Revenue Bonds of the City authorized to be issued in one or more series from time to time, and constitutes a series in the maximum authorized principal amount of $7,000,000 (the "Series 2018B Bond"). The Series 2018B Bond is issued to finance a portion of costs of the construction of certain improvements to the Sewerage System of the City (the "System") and to pay costs of issuance of the Series 2018 Bonds (as defined herein). The Series 2018B Bond is issued pursuant to and in full conformity with the Constitution and laws of the State of Montana thereunto enabling, including Montana Code Annotated, Title 7, Chapter 7, Part 44 and 45, as amended, and ordinances and resolutions duly adopted by the governing body of the B-2-1 City, including Ordinance No. 859 of the City adopted on June 1976, as amended and supplemented by Ordinance Nos. 862 (August 4, 1976), 1002 (February 1, 1982), 1011 (May 3, 1982), 1421 (May 20, 2002), and 1476 (August 18, 2003), all as duly passed and adopted by the City Council of the City, and by Resolution Nos. 2861 (April 10, 1972), 3649 (April 21, 1986), 3980 (April 15, 1991), 4022 (November 4, 1991), 4685 (March 18, 2002), 4910 (July 6, 2004), 5246 (October 15, 2007), 5577 (August 20, 2012), and 5617 (May 6, 2013) (collectively, the "Original Ordinance"), and Resolution No. 5879, adopted by the City Council of the City on July 2, 2018 (the "Supplemental Resolution," and together with the Original Ordinance, the "Ordinance"). Terms used with initial capital letters but not defined herein have the meanings given to them in the Ordinance. The Series 2018B Bond is issuable only as a single, fully registered bond. The Series 2018B Bond is issued on a parity with the City's outstanding Series 2004 Bond, the Series 2007 Bond, and the Series 2013 Bond. Simultaneously herewith, the City is issuing its (i) $400,000 Subordinate Lien Sewerage System Revenue Bond (DNRC Water Pollution Control State Revolving Loan Program), Taxable Series 2018A (the "Series 2018A Bond") and (ii) $7,000,000 Sewerage System Revenue Bond (DNRC Water Pollution Control State Revolving Loan Program), Taxable Series 2018C (the "Series 2018C Bond," and together with the Series 2018A Bond and the Series 2018B Bond, the "Series 2018 Bonds"). The 2018B First Advance has been advanced at Closing. Following the 2018B First Advance, the total amount of each advance will be split equally between the Series 2018A Bond the Series 2018B Bond, until the entire amount of the Series 2018A Bond has been advanced; provided that the initial advance shall include the 2018B First Advance, and once the Series 2018B Bond is fully advanced, then the 2018C First Advance will occur. Reference is made to the Ordinance for a more complete statement of the terms and conditions upon which the Series 2018B Bond has been issued, the Net Revenues of the System pledged and appropriated for the payment and security thereof, the conditions upon which additional Bonds may be issued under the Ordinance and made payable from such Net Revenues on a parity with the Series 2004 Bond, the Series 2007 Bond, and the Series 2013 Bond, this Series 2018B Bond, the Series 2018C Bond, and any other parity Bond (collectively, the "Bonds") or otherwise, the conditions upon which the Ordinance may be amended, the rights, duties and obligations of the City, and the rights of the owners of the Series 2018B Bond. The City may prepay the principal of the Series 2018B Bond only if (i) a Determination Statement has been delivered, (ii) it obtains the prior written consent of the DNRC thereto, and (iii) no Loan Repayment or Administrative Expense Surcharge or Loan Loss Reserve Surcharge is then delinquent. Any prepayment permitted by the DNRC must be accompanied by payment of accrued interest and Administrative Expense Surcharge and Loan Loss Reserve Surcharge to the date of prepayment on the amount of principal prepaid. If the Series 2018B Bond is prepaid in part, such prepayments shall be applied to principal payments in inverse order of maturity. The Series 2018B Bond, including interest and any premium, are payable solely from the Net Revenues pledged for the payment hereof and do not constitute a debt of the City within the meaning of any constitutional or statutory limitation or provision. The City may deem and treat the person in whose name this Series 2018B Bond is registered as the absolute owner hereof, whether this Series 2018B Bond is overdue or not, for the purpose of receiving payment and for all other purposes, and the City shall not be affected by any notice to the contrary. The Series 2018B Bond may be transferred as hereinafter provided. IT IS HEREBY CERTIFIED, RECITED, COVENANTED AND AGREED that the City has duly authorized and will forthwith construct and complete the improvements to the System hereinabove described, that it will prescribe and collect reasonable rates and charges for all services and facilities afforded by the System, including all additions thereto and replacements and improvements thereof, and has created a special Fund into which the gross revenues of the System will be paid, and a separate and special Revenue Bond Account in that Fund, into which will be paid each month, from and as a first and prior lien on the Net Revenues then on hand, an amount equal to not less than the sum of one- sixth of principal and the interest to become due within the next six months with respect to all Bonds payable semi-annually from the Revenue Bond Account; that the City has created a Reserve in the Fund into B-2-2 which shall be paid additional Net Revenues, after required credits to the Revenue Bond Account, sufficient to establish and maintain a reserve therein equal to, as of the date of calculation, the Reserve Requirement; that the Revenue Bond Account will be used only to pay the principal of, premium, if any, and interest on the Series 2004 Bond, the Series 2007 Bond, the Series 2013 Bond, the Series 2018B Bond, the Series 2018C Bond, and any other additional Bonds issued pursuant to the Ordinance on a parity therewith; that the rates and charges for the System will from time to time be made and kept sufficient, to provide gross income and revenues adequate to pay promptly the reasonable and current expenses of operating and maintaining the System and to produce in each fiscal year Net Revenues in excess of such current expenses equal to at least 110% of the maximum amount of principal and interest payable from the Revenue Bond Account in any subsequent fiscal year; that additional Bonds and refunding Bonds may be issued and made payable from the Revenue Bond Account on a parity with the Series 2004 Bond, the Series 2007 Bond, the Series 2013 Bond, the Series 2018B Bond, the Series 2018C Bond, and other parity Bonds upon certain conditions set forth in the Ordinance, but no obligation will be otherwise incurred and made payable from the Net Revenues of the System, unless the lien thereof shall be expressly made subordinate to the lien of the Series 2004 Bond, the Series 2007 Bond, the Series 2013 Bond, the Series 2018B Bond, the Series 2018C Bond, and additional Parity Bonds on such Net Revenues and such obligations are payable only from Surplus Net Revenues (as is the case with the Series 2018A Bond); that all provisions for the security of the holder of this Series 2018B Bond set forth in the Ordinance will be punctually and faithfully performed as therein stipulated; that all acts, conditions and things required by the Constitution and laws of the State of Montana and the ordinances and resolutions of the City to be done, to exist, to happen and to be performed in order to make this Series 2018B Bond a valid and binding special obligation of the City according to its terms have been done, do exist, have happened and have been performed as so required; and that this Series 2018B Bond and the premium, if any, and interest hereon are payable solely from the Net Revenues of the System pledged and appropriated to the Revenue Bond Account and do not constitute a debt of the City within the meaning of any constitutional or statutory limitation or provision and the issuance of the Series 2018B Bond does not cause either the general or the special indebtedness of the City to exceed any constitutional or statutory limitation. IN WITNESS WHEREOF, the City of Kalispell, Flathead County, Montana, by its City Council, has caused this Series 2018B Bond to be executed on its behalf by the facsimile or manual signatures of the Mayor, City Manager and Finance Director and has caused this Series 2018B Bond to be dated as of the date set forth below. Dated: July 19, 2018 ATTEST: City Clerk CITY OF KALISPELL, MONTANA Mayor City Manager Finance Director B-2-3 REGISTRATION AND TRANSFER The Series 2018B Bond shall be fully registered as to both principal and interest. No transfer of the Bond shall be valid unless and until (1) the registered holder of the Series 2018B Bond, or his duly authorized attorney or legal representative, executes the form of assignment appearing on the Series 2018B Bond, and (2) the Finance Director as bond registrar (the "Registrar"), has duly noted the transfer on the Bond and recorded the transfer on the Registrar's registration books. The City shall be entitled to deem and treat the person in whose name the Series 2018B Bond is registered as absolute owner thereof for all purposes, notwithstanding any notice to the contrary. Payments on account of the Series 2018B Bond shall be made only to the order of the registered holder thereof, and all such payments shall be valid and effectual to satisfy and discharge the City's liability upon the Bond to the extent of the sum or sums so paid. REGISTER The ownership of the outstanding principal balance of the Series 2018B Bond and the interest accruing thereon is registered on the books of City of Kalispell, Montana in the name of the registered holder appearing on the first page hereof or as last noted below: Date of Registration July 19, 2018 Name and Address of Registered Holder Department of Natural Resources and Conservation 1625 Eleventh Avenue Helena. MT 59620 Signature of Finance Director THE FOLLOWING ENTRIES ARE TO BE MADE ONLY BY THE BOND REGISTRAR UPON REGISTRATION OF EACH TRANSFER The Finance Director of the City of Kalispell, Montana, acting as Bond Registrar, has transferred, on the books of the City, on the date last noted below, ownership of the principal amount of and the accrued interest on the Series 2018B Bond to the new registered holder noted next to such date, except for amounts of principal and interest theretofore paid. Name of New Signature of Date of Transfer Registered Holder Bond Re ig strar FORM OF ASSIGNMENT For value received, the Series 2018B Bond is hereby transferred and assigned by the undersigned holder, without recourse, to of on this day By: (Authorized Signature) For: (Holder) B-2-5 SCHEDULE A SCHEDULE OF AMOUNTS ADVANCED Total Amount Date Advances Advanced Notation Made SCHEDULE B PAYMENT SCHEDULE B-2-7 APPENDIX B-3 [Form of the Series 2018C Bond] UNITED STATES OF AMERICA STATE OF MONTANA COUNTY OF FLATHEAD CITY OF KALISPELL CITY OF KALISPELL SEWERAGE SYSTEM REVENUE BOND (DNRC WATER POLLUTION CONTROL STATE REVOLVING LOAN PROGRAM), TAXABLE SERIES 2018C No. R-1 $7,000,000 FOR VALUE RECEIVED, the City of Kalispell, Montana (the "City"), a duly organized and existing municipal corporation in Flathead County, Montana, acknowledges itself to be specially indebted and hereby promises to pay to the Department of Natural Resources and Conservation of the State of Montana (the "DNRC"), or its registered assigns, solely from the Revenue Bond Account of its Sewerage System Fund (the "Fund"), the principal sum equal to the sum of the amounts entered on Schedule A attached hereto under "Total Amount Advanced," with interest on each such amount from the date such amount is advanced hereunder at the rate of two percent (2.00%) per annum on the unpaid balance until paid. In addition, the City shall pay an Administrative Expense Surcharge and a Loan Loss Reserve Surcharge on the outstanding principal amount of this Series 2018C Bond, each at the rate of twenty-five hundredths of one percent (0.25%) per annum. Interest and Administrative Expense Surcharge and Loan Loss Reserve Surcharge shall be payable in semiannual installments payable on each January 1 and July 1 (each a "Loan Repayment Date") commencing on January 1, 2019 and concluding on July 1, 2049. Principal shall be payable on the dates set forth in Schedule B hereto. Each installment shall be in the amount set forth opposite its due date in Schedule B attached hereto under "Total Loan Payment." The portion of each such payment consisting of principal, the portion consisting of interest, the portion consisting of Administrative Expense Surcharge, and the portion consisting of Loan Loss Reserve Surcharge shall be as set forth in Schedule B hereto. Upon each disbursement of Loan amounts to the City pursuant to the Resolution described below, the DNRC shall enter (or cause to be entered) the amount advanced on Schedule A under "Advances" and the total amount advanced under the Supplemental Resolution (as hereinafter defined), including such disbursement, under "Total Amount Advanced." The DNRC shall prepare Schedule B and any revised Schedule B, or cause Schedule B and any revised Schedule B to be prepared, as provided in Section 5.1 of the Supplemental Resolution, and the final Schedule B will reflect repayments under Section 5.1.4 of the Supplemental Resolution. Schedule B shall be calculated and recalculated on a level debt service basis assuming an interest rate of 2.50% per annum. Past -due payments of principal and interest and Administrative Expense Surcharge and Loan Loss Reserve Surcharge shall bear interest at the rate often percent (10.00%) per annum, until paid. Interest and Administrative Expense Surcharge and Loan Loss Reserve Surcharge shall be calculated on the basis of a 360-day year comprising 12 months of 30 days each. All payments under this Series 2018C Bond shall be made to the registered holder of this Series 2018C Bond, at its address as it appears on the Bond register, in lawful money of the United States of America. This Series 2018C Bond is one of an issue of Sewerage System Revenue Bonds of the City authorized to be issued in one or more series from time to time, and constitutes a series in the maximum authorized principal amount of $7,000,000 (the "Series 2018C Bond"). The Series 2018C Bond is issued to finance a portion of costs of the construction of certain improvements to the Sewerage System of the B-3-1 City (the "System") and to pay costs of issuance of the Series 2018 Bonds. The Series 2018C Bond is issued pursuant to and in full conformity with the Constitution and laws of the State of Montana thereunto enabling, including Montana Code Annotated, Title 7, Chapter 7, Part 44 and 45, as amended, and ordinances and resolutions duly adopted by the governing body of the City, including Ordinance No. 859 of the City adopted on June 1976, as amended and supplemented by Ordinance Nos. 862 (August 4, 1976), 1002 (February 1, 1982), 1011 (May 3, 1982), 1421 (May 20, 2002), and 1476 (August 18, 2003), all as duly passed and adopted by the City Council of the City, and by Resolution Nos. 2861 (April 10, 1972), 3649 (April 21, 1986), 3980 (April 15, 1991), 4022 (November 4, 1991), 4685 (March 18, 2002), 4910 (July 6, 2004), 5246 (October 15, 2007), 5577 (August 20, 2012), and 5617 (May 6, 2013) (collectively, the "Original Ordinance"), and Resolution No. 5879, adopted by the City Council of the City on July 2, 2018 (the "Supplemental Resolution," and together with the Original Ordinance, the "Ordinance"). Terms used with initial capital letters but not defined herein have the meanings given to them in the Ordinance. The Series 2018C Bond is issuable only as a single, fully registered bond. The Series 2018C Bond is issued on a parity with the City's outstanding Series 2004 Bond, the Series 2007 Bond, and the Series 2013 Bond. Simultaneously herewith, the City is issuing its (i) $400,000 Subordinate Lien Sewerage System Revenue Bond (DNRC Water Pollution Control State Revolving Loan Program), Taxable Series 2018A (the "Series 2018A Bond") and (ii) $7,000,000 Sewerage System Revenue Bond (DNRC Water Pollution Control State Revolving Loan Program), Taxable Series 2018B (the "Series 2018B Bond," and together with the Series 2018A Bond and the Series 2018C Bond, the "Series 2018 Bonds"). The 2018A First Advance and the 2018B First Advance have been advanced at Closing. Following the 2018B First Advance, the total amount of each advance will be split equally between the Series 2018A Bond and the Series 2018B Bond, until the entire amount of the Series 2018A Bond is advanced; provided that the initial advance shall include the 2018B First Advance, and once the Series 2018B Bond is fully advanced, then the 2018C First Advance will occur. Reference is made to the Ordinance for a more complete statement of the terms and conditions upon which the Series 2018C Bond has been issued, the Net Revenues of the System pledged and appropriated for the payment and security thereof, the conditions upon which additional Bonds may be issued under the Ordinance and made payable from such Net Revenues on a parity with the Series 2004 Bond, the Series 2007 Bond, and the Series 2013 Bond, the Series 2018B Bond, this Series 2018C Bond, and any other parity Bond (collectively, the "Bonds") or otherwise, the conditions upon which the Ordinance may be amended, the rights, duties and obligations of the City, and the rights of the owners of the Series 2018C Bond. The City may prepay the principal of the Series 2018C Bond only if (i) a Determination Statement has been delivered, (ii) it obtains the prior written consent of the DNRC thereto, and (iii) no Loan Repayment or Administrative Expense Surcharge or Loan Loss Reserve Surcharge is then delinquent. Any prepayment permitted by the DNRC must be accompanied by payment of accrued interest and Administrative Expense Surcharge and Loan Loss Reserve Surcharge to the date of prepayment on the amount of principal prepaid. If the Series 2018C Bond is prepaid in part, such prepayments shall be applied to principal payments in inverse order of maturity. The Series 2018C Bond, including interest and any premium, are payable solely from the Net Revenues pledged for the payment hereof and do not constitute a debt of the City within the meaning of any constitutional or statutory limitation or provision. The City may deem and treat the person in whose name this Series 2018C Bond is registered as the absolute owner hereof, whether this Series 2018C Bond is overdue or not, for the purpose of receiving payment and for all other purposes, and the City shall not be affected by any notice to the contrary. The Series 2018C Bond may be transferred as hereinafter provided. B-3-2 IT IS HEREBY CERTIFIED, RECITED, COVENANTED AND AGREED that the City has duly authorized and will forthwith construct and complete the improvements to the System hereinabove described, that it will prescribe and collect reasonable rates and charges for all services and facilities afforded by the System, including all additions thereto and replacements and improvements thereof, and has created a special Fund into which the gross revenues of the System will be paid, and a separate and special Revenue Bond Account in that Fund, into which will be paid each month, from and as a first and prior lien on the Net Revenues then on hand, an amount equal to not less than the sum of one- sixth of principal and the interest to become due within the next six months with respect to all Bonds payable semi- annually from the Revenue Bond Account; that the City has created a Reserve in the Fund into which shall be paid additional Net Revenues, after required credits to the Revenue Bond Account, sufficient to establish and maintain a reserve therein equal to, as of the date of calculation, the Reserve Requirement; that the Revenue Bond Account will be used only to pay the principal of, premium, if any, and interest on the Series 2004 Bond, the Series 2007 Bond, the Series 2013 Bond, the Series 2018B Bond, the Series 2018C Bond, and any other additional Bonds issued pursuant to the Ordinance on a parity therewith; that the rates and charges for the System will from time to time be made and kept sufficient, to provide gross income and revenues adequate to pay promptly the reasonable and current expenses of operating and maintaining the System and to produce in each fiscal year Net Revenues in excess of such current expenses equal to at least 110% of the maximum amount of principal and interest payable from the Revenue Bond Account in any subsequent fiscal year; that additional Bonds and refunding Bonds may be issued and made payable from the Revenue Bond Account on a parity with the Series 2004 Bond, the Series 2007 Bond, the Series 2013 Bond, the Series 2018B Bond, the Series 2018C Bond, and other parity Bonds upon certain conditions set forth in the Ordinance, but no obligation will be otherwise incurred and made payable from the Net Revenues of the System, unless the lien thereof shall be expressly made subordinate to the lien of the Series 2004 Bond, the Series 2007 Bond, the Series 2013 Bond, the Series 2018B Bond, the Series 2018C Bond, and additional Parity Bonds on such Net Revenues and such obligations are payable only from Surplus Net Revenues (as is the case with the Series 2018A Bond); that all provisions for the security of the holder of this Series 2018C Bond set forth in the Ordinance will be punctually and faithfully performed as therein stipulated; that all acts, conditions and things required by the Constitution and laws of the State of Montana and the ordinances and resolutions of the City to be done, to exist, to happen and to be performed in order to make this Series 2018C Bond a valid and binding special obligation of the City according to its terms have been done, do exist, have happened and have been performed as so required; and that this Series 2018C Bond and the premium, if any, and interest hereon are payable solely from the Net Revenues of the System pledged and appropriated to the Revenue Bond Account and do not constitute a debt of the City within the meaning of any constitutional or statutory limitation or provision and the issuance of the Series 2018C Bond does not cause either the general or the special indebtedness of the City to exceed any constitutional or statutory limitation. IN WITNESS WHEREOF, the City of Kalispell, Flathead County, Montana, by its City Council, has caused this Series 2018C Bond to be executed on its behalf by the facsimile or manual signatures of the Mayor, City Manager and Finance Director and has caused this Series 2018C Bond to be dated as of the date set forth below. B-3-3 Dated: July 19, 2018 ATTEST: City Clerk CITY OF KALISPELL, MONTANA Mayor City Manager Finance Director B-3-4 REGISTRATION AND TRANSFER The Series 2018C Bond shall be fully registered as to both principal and interest. No transfer of the Bond shall be valid unless and until (1) the registered holder of the Series 2018C Bond, or his duly authorized attorney or legal representative, executes the form of assignment appearing on the Series 2018C Bond, and (2) the Finance Director as bond registrar (the "Registrar"), has duly noted the transfer on the Bond and recorded the transfer on the Registrar's registration books. The City shall be entitled to deem and treat the person in whose name the Series 2018C Bond is registered as absolute owner thereof for all purposes, notwithstanding any notice to the contrary. Payments on account of the Series 2018C Bond shall be made only to the order of the registered holder thereof, and all such payments shall be valid and effectual to satisfy and discharge the City's liability upon the Bond to the extent of the sum or sums so paid. REGISTER The ownership of the outstanding principal balance of the Series 2018C Bond and the interest accruing thereon is registered on the books of City of Kalispell, Montana in the name of the registered holder appearing on the first page hereof or as last noted below: Date of Registration July 19, 2018 Name and Address of Registered Holder Department of Natural Resources and Conservation 1625 Eleventh Avenue Helena. MT 59620 Signature of Finance Director THE FOLLOWING ENTRIES ARE TO BE MADE ONLY BY THE BOND REGISTRAR UPON REGISTRATION OF EACH TRANSFER The Finance Director of the City of Kalispell, Montana, acting as Bond Registrar, has transferred, on the books of the City, on the date last noted below, ownership of the principal amount of and the accrued interest on the Series 2018C Bond to the new registered holder noted next to such date, except for amounts of principal and interest theretofore paid. Name of New Signature of Date of Transfer Registered Holder Bond Registrar B-3-5 FORM OF ASSIGNMENT For value received, the Series 2018C Bond is hereby transferred and assigned by the undersigned holder, without recourse, to of on this day By: (Authorized Signature) For: (Holder) SCHEDULE A SCHEDULE OF AMOUNTS ADVANCED Total Amount Date Advances Advanced Notation Made B B-3-7 SCHEDULE B PAYMENT SCHEDULE C none APPENDIX C ADDITIONAL AGREEMENTS, REPRESENTATIONS AND COVENANTS C-1 APPENDIX D $14,400,000 City of Kalispell, Montana Sewerage System Revenue Bonds (DNRC Water Pollution Control State Revolving Loan Program), Consisting of $400,000 Subordinate Lien Taxable Series 2018A Bond, $7,000,000 Taxable Series 2018B Bond, and $7,000,000 Taxable Series 2018C Bond COMPLIANCE CERTIFICATE AND REQUEST We, Mayor, City Manager and Finance Director, hereby certify that we are on the date hereof the duly qualified and acting Mayor, City Manager and Finance Director, respectively, of the City of Kalispell, Montana (the "City"), and that: 1. Pursuant to Ordinance No. 859 of the City adopted on June 1976 (the "Original Ordinance"), as amended and supplemented by a Resolution adopted on July 2, 2018 (the Supplemental Resolution, as so amended and supplemented, the "Ordinance"), the City issued its (i) Subordinate Lien Sewerage System Revenue Bond (DNRC Water Pollution Control State Revolving Loan Program), Taxable Series 2018A, dated, as originally issued, as of July 19, 2018, in the maximum aggregate principal amount of $400,000 (the "Series 2018A Bond"), (ii) Sewerage System Revenue Bond (DNRC Water Pollution Control State Revolving Loan Program), Taxable Series 2018B, dated, as originally issued, as of July 19, 2018, in the maximum aggregate principal amount of $7,000,000 (the "Series 2018B Bond"), and (iii) Sewerage System Revenue Bond (DNRC Water Pollution Control State Revolving Loan Program), Taxable Series 2018C, dated, as originally issued, as of July 19, 2018, in the maximum aggregate principal amount of $7,000,000 (the "Series 2018C Bond"). The City has reviewed the Supplemental Resolution, including, without limitation, Articles II and III thereof, and the definitions relating thereto. The City acknowledges and agrees that the Series 2018A Bond evidences a loan made to the City from the DNRC from funds made available to the DNRC from the EPA Capitalization Grant, and that this Certificate is being relied upon by the DNRC for ensuring compliance with requirements applicable to the City, the DNRC, and the 2018 Project (as hereinafter defined). Capitalized terms used herein without definition shall have the meanings given them in the Original Ordinance or the Supplemental Resolution. 2. The Series 2018A Bond is issued to finance costs of construction and installation of various improvements to the System, generally described as the 2018 Project (the "2018 Project") in the Supplemental Resolution and to pay costs of issuing the Series 2018 Bonds. Construction of the 2018 Project has complied with all federal and state standards, including, without limitation, EPA regulations and standards. The 2018 Project has been completed. 3. Costs of the 2018 Project in the amount of $ have been paid as of the date of delivery of this Certificate. The City hereby waives its right to any remaining 2018B Committed Amount and 2018C Committed Amount not advanced or to be advanced upon delivery hereof. The City specifically confirms and agrees that any remaining amounts of the 2018 Loans to be lent to the City, if any, shall be evidenced by the Series 2018B Bond and the Series 2018C Bond. 4. As of the date hereof, the City has spent the following amounts in connection with the 2018 Project and costs related thereto: D-1 Professional Services Debt Service Reserve $ Bond Counsel & Related costs Construction Engr. Services Construction TOTAL PROJECT COSTS $ Of such amounts, $ were paid from advances of proceeds of the Series 2018A Bond. 5. The Trustee has delivered to the City a copy of Schedule B to be attached to the Series 2018A Bond, which reflects the amortization of all advances made or to be made on the date hereof of proceeds of the Series 2018A Bond (i.e., $ ). The City hereby acknowledges and agrees that Schedule B has been calculated in accordance with the provisions of the Ordinance and the Indenture, and that the Series 2018A Bond, with said Schedule B attached thereto, has been duly issued pursuant to the Ordinance and is a valid and binding obligation of the City in accordance with its terms and the terms of the Ordinance; provided, however, if the DNRC delivers a Forgiveness Statement, the City's obligation to repay the principal of the Series 2018A Bond and interest and surcharges thereon is thereupon forgiven, and if the DNRC delivers a Noncompliance Certificate, amounts advanced under the 2018B Loan evidenced by the Series 2018A Bond shall bear interest from and after the first advance of principal of the Series 2018A Bond at the rate of two percent (2.00%) per annum and the City shall pay currently with interest the Administrative Expense Surcharge and the Loan Loss Reserve Surcharge, all as described in Sections 5.1.2 of the Supplemental Resolution authorizing the Series 2018A Bond. 6. The representations of the City contained in Articles II and III of the Supplemental Resolution are true and complete as of the date hereof as if made on this date, except to the extent that the City has specifically advised the DEQ and the DNRC otherwise in writing. 7. No default in any covenant or agreement on the part of the City contained in the Ordinance has occurred and is continuing. 8. The City is delivering this Certificate to the DNRC, in part, to ensure compliance with EPA regulations and standards. The City certifies that all laborers and mechanics employed by contractors and subcontractors on the 2018 Project have been and will be paid wages at rates not less than those prevailing on projects of a character similar in the locality as determined by the United States Secretary of Labor in accordance with Subchapter IV of Chapter 31 of Title 40, United States Code, and that the iron and steel products used in the 2018 Project comply with the "American Iron and Steel" requirements of Section 436 of the Consolidated Appropriations Act of 2016 (P.L. 113-76), as those requirements are further interpreted by applicable EPA guidance. 9. The City acknowledges and agrees that this Certificate completed by the City in form satisfactory to the DNRC must be executed and delivered to the DNRC by the date that is 30 days after receipt of the form of this Certificate from the DNRC. By submitting this Certificate, the City requests that the DNRC forgive the obligation of the City to repay the principal of the Series 2018A Bond, together with interest and surcharges thereon. The City acknowledges and agrees that (i) the forgiveness of principal of and interest and surcharges on the Series 2018A Bond by the DNRC is contingent on the timely delivery of this Certificate by the City in satisfactory form as determined in the DNRC's sole and complete discretion, (ii) the DNRC has no obligation to grant such forgiveness; and (iii) if the DNRC delivers to the City a Noncompliance Certificate (a) the obligation of the City to repay the principal of the Series 2018A Bond plus interest and Administrative Expense Surcharge and Loan Loss Reserve Surcharge thereon shall continue in full force and effect until the principal of the Series 2018A Bond advanced and interest, Administrative Expense Surcharge and Loan Loss Reserve Surcharge thereon are paid in full, as set forth D-2 in Schedule B delivered pursuant to paragraph 5 above, and as provided in the Series 2018A Bond and the Supplemental Resolution, and (b) the City shall, as necessary, within the 3-month period specified in the Ordinance, adjust its rates and charges to produce Net Revenues and Surplus Net Revenues required by the rate covenant in the Ordinance. WITNESS our hands on behalf of the City as of this day of 12018. CITY OF KALISPELL, MONTANA Mayor City Manager Finance Director D-3