Officers' CertificateOFFICERS' CERTIFICATE
We, Pamela B. Kennedy, James Patrick and Amy H. Robertson, 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, on behalf of the City, certify
that:
1. The undersigned have caused true and correct facsimiles of their signatures as such
officers to be affixed to $3,000,000 General Obligation Bonds, Series 2005, of the City, dated, as
originally issued, as of April 1, 2005 (the "Bonds"). The Bonds mature on the dates, bear
interest at the rates and are substantially in the form prescribed by a resolution duly adopted by
the City Council of the City on March 21, 2005, entitled "Resolution Relating to $3,000,000
General Obligation Bonds, Series 2005; Determining the Form and Details, Authorizing the
Execution and Delivery and Levying Taxes for the Payment Thereof' (the "Resolution"). The
Resolution is in full force and effect in the form it was adopted. We have delivered the Bonds to
Wells Fargo Bank Minnesota, National Association, as Registrar, for authentication and delivery
to The Depository Trust Company, in New York, New York, on behalf of Citigroup Global
Markets Inc., of Los Angeles, California (the "Purchaser"). The Bonds are in fully registered
form pursuant to a system of registration established by the Resolution.
2. The Bonds have been in all respects duly executed for delivery pursuant to authority
conferred upon us as such officers; no obligations other than those described above have been
issued pursuant to such authority; none of the proceedings or records which have been certified
to the Purchaser or to the attorneys approving the legality of the issuance of the Bonds has been
in any manner repealed, amended or changed except as shown by additional proceedings or
records furnished each of them; and there has been no material adverse change in the financial
condition of the City or the circumstances affecting the Bonds, except as shown by the materials
so furnished.
3. No litigation is now pending, or, to the best of our knowledge, threatened (1)
restraining or enjoining the issuance or delivery of the Bonds, (ii) questioning the organization of
the City or the right of any officers of the City to their respective offices, (iii) questioning the
right and power of officers of the City to deliver the Bonds, (iv) challenging the validity of the
election authorizing the issuance of the Bonds, or (v) questioning the levy of any ad valorem
taxes to pay the principal of or interest on the Bonds.
4. To the best of our knowledge, the Official Statement, dated March 21, 2005, relating
to the Bonds, did not, as of the date thereof, and does not, as of the date hereof, contain any
misstatement of a material fact or omit to state any material fact necessary to make the
statements contained therein not misleading in light of the circumstances under which they were
made; provided that we make no comment regarding information provided by the Purchaser for
inclusion in the Official Statement relating to the Purchaser and the reoffering prices of the
Bonds or regarding information regarding the Bond Insurer or the Insurance Policy (each as
hereinafter defined).
5. Pursuant to Section 148 of the Internal Revenue Code of 1986, as amended (the
"Code"), and the Treasury Regulations applicable thereunder (the "Regulations"), we, as the
officers of the City responsible for issuing the Bonds, hereby certify the present expectations of
the City on the date hereof with respect to the Bonds as follows:
(a) The Bonds are being issued to finance the costs of designing, constructing and
equipping a North Fire Sub -station near the intersection of Four Mile Drive and Highway
93 North (the "Project"). The Project is intended for use by the City in providing fire
protection to members of the general public.
(b) The City expects to expend the following sums in connection with the Project
and the issuance of the Bonds:
Acquisition of Land
Feasibility Study
Design & Engineering
Construction
Costs of Issuance
Total
28,595.00
122,919.45
21,500.00
Costs of the Project in excess of the proceeds of the Bonds will be paid from $50,000
donated by a private property owner and other available funds of the City.
(c) The City has entered into or will enter into contracts for the Project within six
months, in the form of purchase of land, engineering and construction contracts, in the
sum of at least five percent of the net sale proceeds of the Bonds (i.e., $152,621).
(d) Work on the Project will proceed with due diligence to completion, and the
Project is expected to be completed by July 1, 2006.
(e) The City will receive $3,004,563.81 from the Purchaser, which amount
represents payment of $3,000,000.00 for the principal of the Bonds, plus $4,563.81
representing accrued interest on the Bonds from April 1, 2005, to the date hereof. The
net original issue premium in respect of the offering of the Bonds in the amount of
$52,419.40 will be applied by the Purchaser to its underwriter's discount of $31,719.40
and to payment of the premium for the Insurance Policy in the amount of $20,700.00.
The initial offering price of the Bonds to the public is $3,052,419.40 (representing net
original issue premium of $52,419.40), plus accrued interest, as evidenced by the
Certificate of D.A. Davidson & Co., the Financial Advisor to the City, and the Certificate
of the Purchaser of even date herewith.
(f) Of the amount the City will receive from the Purchaser, $3,000,000.00 will be
used to pay the costs of the Project set forth in paragraph 5(b) hereof, including
$21,500.00 to pay costs of issuance of the Bonds (representing costs of bond counsel
fees, financial advisor fees, costs of printing and distributing the preliminary and final
official statements, initial registrar and paying agent fees, Bond printing costs, and other
related fees and expenses); and accrued interest in the amount of $4,563.81 will be
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deposited in the Debt Service Account created by the Resolution and used to pay interest
on the Bonds on January 1, 2006.
(g) The amount to be received by the City from the Purchaser, less the costs of
issuance of the Bonds, plus any investment earnings thereon, does not exceed the amount
to be spent by the City with respect to the Project and interest payable on the Bonds
during construction.
(h) The City expects to spend on costs of the Project or costs of issuance of the
Bonds by September 1, 2006, all of the proceeds to be derived by the City from the sale
of the Bonds.
(i) The Bonds are not "hedge bonds" within the meaning of Section 149(g) of the
Code. The City expects to spend not less than 85% of the sale proceeds of the Bonds
within three years after the date hereof and less than 50% of the proceeds of the Bonds
are invested in nonpurpose investments having a substantially guaranteed yield for four
years or more.
0) The yield of the Bonds has been calculated, as provided in Section 1.148-4(b)
of the Treasury Regulations, as that discount rate which when used in computing the
present value as of the issue date of all unconditionally payable payments of principal,
interest, and the fees paid or reasonably expected to be paid for the qualified guarantees
on the Bonds, produces an amount which is equal to the present value, using the same
discount rate, of the aggregate issue price thereof. The "issue price" of the Bonds is
$3,056,983.21, which is the initial offering price of the Bonds to the public, as described
in paragraph 5(e) hereof.
There has been taken into account in determining the yield of the Bonds, as a fee
for a qualified guarantee, the insurance premium of $20,700.00 paid to Ambac Assurance
Corporation (the "Bond Insurer") in connection with the issuance of its Municipal Bond
Insurance Policy (the "Insurance Policy") for the Bonds. As required by Section
1.148-4(f) of the Regulations and based in part on the Certificate of D.A. Davidson & Co.
and certificates of the Purchaser and the Bond Insurer of even date herewith, it is
determined that (i) the present value of the savings resulting from the Insurance Policy
(i.e., the present value of the difference between the interest payable on the Bonds and the
interest which would have been payable on the Bonds if the Insurance Policy had not
been obtained, utilizing a discount rate equal to the yield of the Bonds and taking into
account the insurance premium), is greater than the insurance premium for the Insurance
Policy, (ii) the Insurance Policy unconditionally shifts the ultimate credit risk for the
Bonds to the Bond Insurer, (iii) the premium for the Insurance Policy does not exceed a
reasonable charge for the transfer of credit risk and is comparable to premiums charged
by other guarantors in comparable transactions; and (iv) the premium for the Insurance
Policy does not include any direct or indirect payment for a cost, risk or other element
that is not customarily borne by guarantors of tax-exempt obligations.
Utilizing this methodology and semiannual compounding, the yield of the Bonds
is 3.7943068% per annum.
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(k) Proceeds of the Bonds and investment income thereon, if any, to be used to
finance the costs of the Project and pay costs of issuance of the Bonds will be invested
for a temporary period pursuant to Section 1.148-2(e)(2) of the Regulations ending on the
earlier of. (i) three years from the date hereof, or (ii) the date that the Project would be
completed in the exercise of due diligence and all costs thereof promptly paid. If, at the
conclusion of such temporary period, sale proceeds of the Bonds and investment income
thereon have not been allocated to the governmental purposes of the Bonds, such
amounts will not be invested at a yield greater than the yield of the Bonds, if and to the
extent such restriction is necessary to prevent the Bonds from being arbitrage bonds
within the meaning of Section 148 of the Code and Regulations unless the City
determines to take advantage of Section 1.148-5(c) of the Regulations relating to yield
reduction payments or as provided in paragraph 5(p) hereof.
(1) The Project is not expected to be sold or otherwise disposed of by the City
during the term of the Bonds. The City expects that the Project will be owned and
operated by the City for an indefinite period concluding not earlier than the final stated
maturity date of the Bonds.
The City reasonably expects that during the term of the Bonds no private business
use will be made of the Project and no private payments or security will be made or
furnished that would cause the Bonds to be "private activity bonds" within the meaning
of Section 141 of the Code and applicable Regulations. No proceeds of the Bonds are
being or will be loaned to any nongovernmental person. The City reasonably expects that
the Bonds will not be private activity bonds within the meaning of Section 141 of the
Code.
(m) No other obligations of the City (a) are being issued at substantially the same
time as the Bonds, (b) are being sold pursuant to the same plan of financing as the Bonds,
and (c) are reasonably expected to be paid from substantially the same source of funds
(determined without regard to guarantees from unrelated parties) as will be used to pay
the Bonds, within the meaning of Section 1.150-1(c) of the Regulations.
(n) Pursuant to the Resolution, the principal of and interest on the Bonds are
payable from the 2005 Debt Service Account (the "Debt Service Account") of the City.
The City expects to use only the Debt Service Account to pay the principal of and interest
on the Bonds. The ad valorem taxes appropriated to the Debt Service Account are
expected to produce amounts sufficient to pay all principal of and interest on the Bonds
when due. Based upon the revenues appropriated to the Debt Service Account pursuant
to the Resolution, the amounts on deposit in the Debt Service Account from time to time
are expected not to exceed the amounts to be paid therefrom on or before the next
succeeding July 1 and the reasonable "carryover amount" permitted by the Regulations
(i.e., one -twelfth of the debt service payable on the Bonds in the 12-month period ending
on the preceding July 1). Therefore, the Debt Service Account is expected to constitute a
"bona fide debt service fund" within the meaning of Section 1.148-1 of the Regulations.
C!
(o) If the amount on deposit in the Debt Service Account allocable to the Bonds
ever exceeds the amount described in paragraph 5(n) hereof, the amount in excess
thereof, except as provided in paragraph 5(p) hereof, will be applied to redeem Bonds or
will not be invested at a yield greater than the yield of the Bonds, 3.7943068% per
annum, if and to the extent such use or restriction is necessary to prevent the Bonds from
being arbitrage bonds within the meaning of Section 148 of the Code and the
Regulations.
(p) An aggregate amount not to exceed the Minor Portion Amount permitted by
Section 148(e) of the Code ($100,000) may be invested without restriction as to yield
throughout the term of the Bonds. To the extent that the sum of (i) proceeds of the Bonds
on deposit in the Construction Account remain on hand therein after the conclusion of the
temporary period described in paragraph 5(k) hereof, and (ii) the amount on deposit in
the Debt Service Account, except the amount described in paragraph 5(n) hereof, exceeds
the Minor Portion Amount, such excess will thereafter be invested at a yield not
exceeding the yield of the Bonds, 3.7943068% per annum. It is not expected that any
such restrictions as to yield will be required during the term of the Bonds.
(q) We have investigated the facts, estimates and circumstances surrounding the
issuance of the Bonds, which are described summarily in this Certificate. To the best of
our knowledge and belief, such facts, estimates and circumstances are correct and
complete and the City's expectations as to future events, which are based thereon, are in
all respects reasonable and made in good faith. To the extent that the expectations of the
City are based upon estimates and representations made by others, including the
Purchaser, we have examined such estimates and representations and consider them to be
reasonable. Any statements in this Certificate involving future events, whether or not
expressly so stated, are intended as expectations of the City and not as representations of
fact. On the basis of such facts, estimates and circumstances, it is expected that the
proceeds of the Bonds will be used in a manner that would not cause the Bonds to be
considered "arbitrage bonds" within the meaning of Section 148 of the Code, and there
are no present facts, estimates or circumstances which would change the foregoing
conclusion.
(r) The City has determined in Section 5.03 of the Resolution that the Bonds are
subject to the rebate provisions of Section 148(f) of the Code and has executed a Rebate
Certificate, of even date herewith, agreeing to comply with such provisions.
6. The provisions of this Section 6 are intended to establish and provide for compliance
by the City with Treasury Regulations, Section 1.150-2 (the "Reimbursement Regulations")
applicable to the "reimbursement proceeds" of the Bonds, being those proceeds which will be
used by the City to reimburse itself for any expenditure with respect to the Project which the City
paid or will have paid prior to the issuance of the Bonds (a "Reimbursement Expenditure").
The City hereby certifies and covenants as follows:
(a) Except as hereinafter provided, on or before the date of payment of any
Reimbursement Expenditure, the City made a written declaration of the City's official
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intent in a resolution adopted by the City Council on August 16, 2004 (the "Declaration")
which complies with the provisions of Section 1.150-2(d) and (e) of the Reimbursement
Regulations. The Declaration need not cover, however, Reimbursement Expenditures:
(i) to be paid or reimbursed from sources other than the Bonds, (ii) constituting
"preliminary expenditures" (within the meaning of Section 1.150-2(f)(2) of the
Regulations) for the Project, including engineering or architectural expenses and similar
preparatory expenses, which in the aggregate do not exceed 20% of the "issue price" of
the Bonds, (iii) in a "de minimus" amount (as defined in Section 1.150-2(0(1) of the
Regulations), i.e., $100,000; or (iv) Reimbursement Expenditures paid not more than 60
days before the date of the Declaration.
(b) As of the date of the Declaration, no funds from sources other than the Bonds
were, or were reasonably expected to be, reserved, allocated on a long-term basis, or
otherwise set aside by the City to provide financing for the Reimbursement Expenditure
to be reimbursed from proceeds of the Bonds.
(c) Each Reimbursement Expenditure to be reimbursed from proceeds of the
Bonds, other than costs of issuing the Bonds, is a capital expenditure (i.e., a cost that is
properly chargeable to capital account (or would be with a proper election) under general
federal income tax principles).
(d) The "reimbursement allocation" described in the Reimbursement Regulations
for each Reimbursement Expenditure to be reimbursed from proceeds of the Bonds shall
be made forthwith following (but not prior to) the issuance of the Bonds and in all events
within the period ending on the date which is 18 months after the later of (i) the date of
payment of the Reimbursement Expenditure or (ii) the Project are first placed in service
or abandoned, but in no event more than three years after the Reimbursement
Expenditure is paid.
(e) Each such reimbursement allocation will be evidenced by an entry on the
official books or records of the City maintained for and in connection with the Bonds and
will specifically identify the actual prior Reimbursement Expenditure to be reimbursed
from proceeds of the Bonds.
(f) The City is unaware of any facts or circumstances which would cause it to
question the reasonableness or accuracy of this Section 6 or of the Declaration, or its
compliance with any of the covenants herein contained.
7. The seal impressed below and a facsimile of which appears on the Bonds is the true
and official seal of the City.
G
Dated: April 14, 2005.
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ISIM
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Ma
MONTANA
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City Manager
And
ffinance Director