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Resolution 5577 - Refinancing Sewerage System Revenue BondsiOWN / 1 . t ■ . . . DE IT RESOLVED by the City Council of the City of Kalispell, Montana (the "Issuer"), as follows: Section 1. Recitals. 1.01. Issuance of Bonds. Pursuant to Ordinance No. 859, passed and adopted by the City Council of the City on June 21, 1976, as amended and supplemented by Ordinance Nos. 862, 1002, 1011, 1421, and 1476, and by Resolution Nos. 4022 and 4685 and by Resolution No. 4910, adopted by the City Council on July 6, 2004 (the "2004 Resolution"), and Resolution No. 5246, adopted by the City Council on October 15, 2007 (the "2007 Resolution," and, together with the 2004 Resolution, the "Prior Resolutions") (Ordinance No. 859, as so amended and supplemented, the "Original Ordinance"), the Issuer authorized the issuance of, respectively, its Sewerage System Revenue Bond (DNRC Water Pollution Control State Revolving Loan Program), Series 2004, issued in the maximum principal amount of $1,543,000 (the "Series 2004 Bond") and its Sewerage System Revenue Bond (DNRC Water Pollution Control State Revolving Loan Program), Series 2007, issued in the maximum principal amount of $14,470,000 (the "Series 2007 Bond"), to finance improvements consisting of the acquisition, construction and installation of various improvements of the municipal sewerage system and related improvements (collectively, the "Projects") as part of the municipal sewerage system of the Issuer (the "System"), as more particularly described in the Prior Resolutions. The Series 2004 Bond and the Series 2007 Bond (together, the "Prior Bonds") were issued on August 10, 2004 and November 15, 2007, respectively, and were purchased and are currently held by the Department of Natural Resources and Conservation of the State of Montana (the "DNRC"). There are no other bonds or indebtedness of the Issuer that are outstanding and payable from revenues of the System. Terms with initial capital letters used but not defined herein have the meanings given them in the Original Ordinance. 1.02. Interest Rate Reduction. Pursuant to the Intended Use Plan for fiscal year 2013 (the "IUP") for the Water Pollution Control State Revolving Loan Program (the "Program"), the DNRC and the Department of Environmental Quality of the State of Montana have determined that it is in the best interests of borrowers of loans made under the Program and the Program to reduce the interest rates available under the Program. 1.03. Reduction in Interest Rate on Prior Bonds. It is proposed that debt service on the Prior Bonds be reduced in accordance with the interest rate reduction proposal under the IUP, thereby reducing the interest rate on (i) the Series 2004 Bond from three and three-quarters percent (3.75%) per annum to two and one quarter percent (2.25%) per annum from and after the date of delivery of the First Amended and Restated Series 2004 Bond; and (ii) the Series 2007 Bond from three and three-quarters percent (3.75%) per annum to two and one quarter percent (2.25%) per annum from and after the date of delivery of the First Amended and Restated Series 2007 Bond. Section 2. Amendment of the Original Resolutions. 2.01. Authorization. The Issuer, in Section 11.4 of each of the 2004 Resolution and the 2007 Resolution, reserved the right to amend the Prior Resolutions upon notice to and with the consent of the DNRC. 2.02. Consent of DNRC. The DNRC has agreed to the amendment of certain provisions of the Prior Resolutions in connection with the determination to reduce certain interest rates under the Program. 2.03. Amendment of Prior Resolutions. Pursuant to the authority cited in Sections 2.01 and 2.02 of this resolution, (a) The 2004 Resolution is hereby amended effective as of the date of delivery of the First Amended and Restated Series 2004 Bond (as hereinafter defined) to read as follows: (i) all references to the aggregate interest rate, or that interest rate that includes the interest rate and all surcharges, on the Series 2004 Bond are hereby amended to read 2.25% per annum, instead of 3.75% per annum; (ii) all references to the interest rate on the Series 2004 Bond exclusive of any surcharges are hereby amended to read 1.25% per annum, instead of 2.00% per annum; (iii) the administrative expense surcharge on the Series 2004 Bond will continue in effect at 0.75% per annum; and (iv) all references to the loan loss reserve surcharge on the Series 2004 Bond are hereby amended to read 0.25% per annum, instead 1.00% per annum; and (ii) the total principal amount of the First Amended and Restated Series 2004 Bond is $1,009,000. (b) The 2007 Resolution is hereby amended effective as of the date of delivery of the First Amended and Restated Series 2007 Bond (as hereinafter defined) to read as follows: (i) all references to the aggregate interest rate, or that interest rate that includes the interest rate and all surcharges, on the Series 2007 Bond are hereby amended to read 2.25% per annum, instead of 3.75% per annum; (ii) all references to the interest rate on the Series 2007 Bond exclusive of any surcharges are hereby amended to read 1.25% per annum, instead of 2.00% per annum; (iii) the administrative expense surcharge on the Series 2007 Bond will continue in effect at 0.75% per annum; and (iv) all references to the loan loss reserve surcharge on the Series 2007 Bond are hereby amended to read 0.25% per annum, instead 1.00% per annum; and (ii) the total principal amount of the First Amended and Restated Series 2007 Bond is $12,827,000. (c) Except as expressly noted herein, other interest rates or surcharges are not adjusted, including, without limitation, interest on past -due amounts. -2- 2.04. Amendment of Forms of Bonds. Pursuant to the authority cited in Sections 2.01 and 2.02 of this resolution, effective as of the date of delivery of each series of amended and restated bonds, the Series 2004 Bond attached as Appendix B to the 2004 Resolution is hereby amended and restated in its entirety substantially as set forth on the attached Appendix A (the "First Amended and Restated Series 2004 Bond") and the Series 2007 Bond attached as Appendix B to the 2007 Resolution is hereby amended and restated in its entirety substantially as set forth on the attached Appendix B (the "First Amended and Restated Series 2007 Bond"). 2.05. Effect of Amendments. Except as amended by Sections 2.03 and 2.04 of this resolution, the Prior Resolutions and the Original Ordinance shall remain unamended and, from and after the date of delivery of the First Amended and Restated Bonds (as hereinafter defined), shall continue in full force and effect as amended by Sections 2.03 and 2.04 of this resolution for the benefit of the holders from time to time of the Series 2004 Bond, the Series 2007 Bond and any additional Bonds that may be issued thereunder. Section 3. Preparation and Delivery of First Amended and Restated Bonds. The First Amended and Restated Series 2004 Bond and the First Amended and Restated Series 2007 Bond (together, the "First Amended and Restated Bonds") shall be prepared under the direction of the City Finance Director and shall be executed on behalf of the Issuer by the signatures of the Mayor, the City Manager and the City Finance Director and sealed with the official corporate seal of the Issuer. When the First Amended and Restated Bonds have been executed, the City Finance Director shall cause them to be dated as of the date of delivery and delivered to the DNRC, as purchaser thereof, in anticipation of the surrender of the corresponding Prior Bond. Section 4. Debt Service Account; Reserve Account. The City Finance Director is authorized and directed to transfer amounts in the Debt Service Account to pay interest owing on the Prior Bonds as of the date of delivery of the First Amended and Restated Bonds. The City Finance Director is further authorized and directed to transfer amounts made available in the Reserve Account because of the foregoing interest rate adjustments to the Debt Service Account to prepay any one or more Prior Bonds as of the date of delivery of the First Amended and Restated Bonds, to pay costs of issuance of the First Amended and Restated Bonds, or to any other eligible fund or account or for any other eligible purpose, as described more particularly in certificates or documents delivered in conjunction with the delivery of the First Amended and Restated Bonds. Section 5. Tax Matters. 5.01. General Covenants. The Issuer covenants and agrees with the owners from time to time of the First Amended and Restated Bonds that it will not take or penult to be taken by any of its officers, employees or agents any action which would cause the interest on the First Amended and Restated Bonds to become includable in gross income for federal income tax purposes under the Internal Revenue Code of 1986, as amended (the "Code"), and applicable Treasury Regulations (the "Regulations"), and covenants to take any and all actions within its powers to ensure that the interest on the First Amended and Restated Bonds will not become includable in gross income for federal income tax purposes under the Code and the Regulations. The Projects and the System are each owned and maintained by the Issuer and available for use by members of the general public on a substantially equal basis. The Issuer agrees not to enter -3- into any lease, use or other agreement with any non -governmental person relating to the use of the Projects or the System or security for the payment of the First Amended and Restated Bonds which might cause the First Amended and Restated Bonds to be considered "private activity bonds" or "private loan bonds" within the meaning of Section 141 of the Code. 5.02. Arbitrage Rebate. The City acknowledges that the First Amended and Restated Bonds are subject to the rebate requirements of Section 148(f) of the Code. The City covenants and agrees to retain such records, make such determinations, file such reports and documents and pay such amounts at such times as are required under said Section 148(f) and applicable Treasury Regulations to preserve the exclusion of interest on the First Amended and Restated Bonds from gross income for federal income tax purposes. In furtherance of the foregoing, the Finance Director is hereby authorized and directed to execute a Rebate Certificate, substantially in the form of the Rebate Certificate prepared by Bond Counsel and the City hereby covenants and agrees to observe and perform the covenants and agreements contained therein, unless amended or terminated in accordance with the provisions thereof. 5.03. Certification. The Mayor, the City Manager and the City Finance Director, being the officers of the Issuer charged with the responsibility for issuing the First Amended and Restated Bonds pursuant to this resolution, are authorized and directed to execute and deliver to the DNRC certifications to satisfy the provisions of Sections 1.148-2(b) of the Treasury Regulations relating to a reasonable expectation that the proceeds of the First Amended and Restated Bonds will be used in a manner that will not cause them to be arbitrage bonds. 5.04. Information Reporting. The Issuer shall file with the Secretary of the Treasury, not later than November 15, 2012, a statement concerning the First Amended and Restated Bonds containing the information required by Section 149(e) of the Code. 5.05 No Bank Qualification or Counting Toward Qualified Small Issuer Status. Because the reissuance effected by the First Amended and Restated Bonds is a deemed current refunding and the principal amount of the First Amended and Restated Bonds does not exceed the principal amount of the outstanding Prior Bonds, pursuant to Section 265(b)(3)(C)(ii)(III) of the Code, the First Amended and Restated Bonds are hereby not taken into account in determining the Issuer's status as a qualified small issuer under Section 265(b)(3) of the Code. Section 6. Program Covenants. The Issuer agrees that (i) neither it nor any "related person" to the Issuer (within the meaning of Section 147(a)(2) of the Code) shall, whether pursuant to a formal or informal arrangement, acquire bonds issued by the State under the Trust Indenture for the Program in an amount related to the amount of the First Amended and Restated Bonds; and (ii) the issuance of the First Amended and Restated Bonds constitutes a "deemed" refunding of the Prior Bonds effective as of the date of delivery of the First Amended and Restated Bonds and the DNRC shall be deemed to have relent the proceeds of the Prior Bonds under the Program effective as of such date. Section 7. Certification and Effective Date. 7.01. Certification. The officers of the Issuer are authorized and directed to prepare and furnish to the DNRC and to the attorneys rendering an opinion as to the legality of the First M Amended and Restated Bonds, certified copies of all ordinances, resolutions and records and such other certificates, affidavits and other instruments as may be required to evidence the validity, status of tax-exempt interest, or marketability of the First Amended and Restated Bonds and all such certified copies, certificates and affidavits shall constitute representations of the Issuer as to the truth of all statements of fact contained therein. 7.02. Effective Date. This resolution shall be in full force and effect from and after its passage. The amendments to the First Amended and Restated Bonds noted herein, however, shall be effective only from and after the date of delivery of the First Amended and Restated Bonds. PASSED AND APPROVED BY THE CITY COUNCIL AND SIGNED BY THE MAYOR OF THE CITY OF KALISPELL, THIS 20TH DAY OF AUGUST, 2012. f./J Tammi Fisher Mayor ATTEST: Theresa White City Clerk -5- OWN �1� 01=10116 Iwo 11 'S �001LIJ01 a,&#]= 9 MAN N FIRST AMENDED AND RESTATED SEWERAGE SYSTEM REVENUE BOND (DNRC WATER POLLUTION CONTROL STATE REVOLVING LOAN PROGRAM) SERIES 2004 FOR VALUE RECEIVED, THE CITY OF KALISPELL, MONTANA (the "City"), a duly organized municipal corporation and political subdivision of the State of 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 from the Debt Service Account of its Sewerage System Fund, the principal sum of $1,009,000, with interest on such amount from the date hereof at the rate of one and twenty-five hundredths of one percent (1.25%) 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 Bond at the rates of seventy-five hundredths of one percent (0.75%) and twenty-five hundredths of one percent (0.25%), respectively, 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 I (each a "Loan Repayment Date") commencing January 1, 2013. Each installment shall reflect an interest rate of two and twenty-five hundredths of one percent (2,25%) per annum and shall be in the amount set forth opposite its due date in Schedule A 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 A hereto. Past -due payments of principal, interest, Administrative Expense Surcharge, and Loan Loss Reserve Surcharge shall bear interest at the rate of ten percent (10.00%) per annum, until paid. Interest, 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 Bond shall be made to the registered holder of this Bond, at its address as it appears on the Bond register, in lawful money of the United States of America. This Bond constitutes a series in the maximum authorized principal amount of $1,543,000 (the "Series 2004 Bond"), issued to finance costs of designing and engineering of certain improvements to the sewerage system of the City (the "System"), to make a deposit to a reserve fund for the Bonds and to pay costs of issuance of the Series 2004 Bond. The Series 2004 Bond is issued pursuant to and in full conformity with the Constitution and laws of the M 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, duly passed and adopted on June 21, 1976, as amended and supplemented by Ordinance Nos. 862, 1002, 1011, 1421, and 1476, all as duly passed and adopted by the City Council of the City, and by Resolution Nos. 4022, 4685, 4910, 5246, and 5577 of the City, duly passed and adopted on November 4, 1991, March 18, 2002, July 6, 2004, October 15, 2007, and October 20, 2012, respectively (as so supplemented and amended and as hereafter amended or supplemented in accordance with its terms, the "Ordinance"). The Series 2004 Bond is issuable only as a single, fully registered bond. The Series 2004 Bond is issued on a parity and is equally and ratably secured by the Net Revenues of the System with the City's outstanding First Amended and Restated Sewerage System Revenue Bond (DNRC Water Pollution Control State Revolving Loan Program), Series 2007 (the "Series 2007 Bond"), which is being issued simultaneously herewith. Reference is made to the Ordinance for a more complete statement of the terms and conditions upon which the Series 2004 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 Bonds and the Series 2007 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 2004 Bond. The City may prepay the principal of the Series 2004 Bond only if (i) it obtains the prior written consent of the DNRC thereto, and (ii) no Loan Repayment or Administrative Expense Surcharge is then delinquent. Any prepayment permitted by the DNRC must be accompanied by payment of accrued interest and Administrative Expense Surcharge to the date of prepayment on the amount of principal prepaid. If the Series 2004 Bond is prepaid in part, such prepayments shall be applied to principal payments in inverse order of maturity. The Bonds, including interest and any premium for the redemption thereof, are payable solely from the Net Revenues pledged for the payment thereof and do not constitute a debt of the City within the meaning of any constitutional, statutory or charter limitation or provision. The City may deem and treat the person in whose name this Series 2004 Bond is registered as the absolute owner hereof, whether this Series 2004 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. IT IS HEREBY CERTIFIED, RECITED, COVENANTED AND AGREED that the City has fixed and established and will collect reasonable rates and charges for the services and facilities afforded by the System, and has created a special Sewerage System Fund into which the Revenues (as defined in the Ordinance) of the System, including all additions thereto and replacements and improvements thereof, will be paid, and a separate and special Debt Service Account in that fund, into which will be paid each month, Net Revenues of the System then on hand (the Revenues remaining after the payment of Operating Expenses of the System), in an amount equal to not less than the sum of one -sixth of the interest due within the next six months and one -twelfth of the principal due within the next twelve months with respect to all outstanding Bonds payable from that account, and a Reserve Account in that fund into which shall be paid additional Net Revenues sufficient to establish and maintain a reserve therein equal to, as of the date of calculation, the Reserve Requirement; that the Debt Service Account and the Reserve Account will be used only to pay the principal of, premium, if any, and interest on the Bonds issued pursuant to the authority herein recited; that the rates and charges for the System will from time to time be made and kept sufficient to provide Net Revenues for each Fiscal Year at least equal to 125% of the principal and interest payable from the Debt Service Account in any subsequent Fiscal Year, to maintain the balance in the Reserve Account at the Reserve Requirement, to pay promptly the reasonable and current expenses of operating and maintaining the System, to pay the principal of and interest on any Subordinate Obligations and to provide reserves for the replacement and depreciation of the System; that Additional Bonds and refunding Bonds may be issued and made payable from the Debt Service Account on a parity with the Series 2004 Bond and the Series 2007 Bond upon certain conditions set forth in the Ordinance but no obligation will be otherwise incurred and made payable from the Net Revenues, unless the lien thereof shall be expressly made subordinate to the lien of the Series 2004 Bond, the Series 2007 Bond, and other Additional Bonds on such Net Revenues; that all provisions for the security of this Series 2004 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 2004 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 2004 Bond and the premium, if any, and interest hereon are payable solely from the Net Revenues of the System pledged and appropriated to the Debt Service Account and do not constitute a debt of the City within the meaning of any constitutional, statutory or charter limitation or provision and the issuance of the Series 2004 Bond does not cause either the general or the special indebtedness of the City to exceed any constitutional, statutory or charter limitation. M IN WITNESS WHEREOF, the City of Kalispell, Montana, by its governing body, has caused this Bond to be executed by the signatures of its Mayor, City Manager and City Finance Director, and has caused the official seal of the City to be affixed hereto, and has caused this Bond to be dated as of the _ day of _, 2012. (SEAL) Mayor City Manager City Finance Director W-41 • This Bond shall be fully registered as to both principal and interest. No transfer of this 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 this Bond, and (2) the City 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 Borrower shall be entitled to deem and treat the person in whose name this Bond is registered as absolute owner thereof for all purposes, notwithstanding any notice to the contrary. Payments on account of the 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 Borrower's liability upon the Bond to the extent of the sum or sums so paid. The ownership of the unpaid Principal Balance of this Bond and the interest accruing thereon is registered on the books of the City of Kalispell, Montana in the name of the registered holder appearing on the first page hereof or as last noted below: Date of Name and Address Signature of Registration of Registered Holder City Finance Director Department of Natural Resources and Conservation 1625 Eleventh Avenue Helena, MT 59620 The City Finance Director of the City of Kalispell, Montana, acting as Bond Registrar, has transferred, on the books of the Borrower, on the date last noted below, ownership of the principal amount of and the accrued interest on this Bond to the new registered holder noted next to such date, except for amounts of principal and interest theretofore paid. Date of Transfer Name of New Registered Holder Signature of Bond Registrar M For value received, the undersigned hereby sells, assigns and transfers unto the within Bond and does hereby irrevocably constitute and appoint attorney to transfer the Bond on the books kept for the registration thereof, with full power of substitution in the premises. Dated: Notice: The assignor's signature to this assignment must correspond with the name as it appears upon the face of the within Bond in every particular, without alteration or any change whatsoever. M Date Principal Interest Administrative Expense Surcharge Loan Loss Reserve Surcharge Total Loan Payment MIME i ICIIffib •' •! l' lWWI 1 UNITED STATES OF AMERICA STATE OF MONTANA COUNTY OF FLATHEAD CITY OF KALISPELL FIRST AMENDED AND RESTATED SEWERAGE SYSTEM REVENUE REFUNDING BOND (DNRC WATER POLLUTION CONTROL STATE REVOLVING LOAN PROGRAM) SERIES 2007 R-2 $12,827,000 FOR VALUE RECEIVED, THE CITY OF KALISPELL, MONTANA (the "City"), a duly organized municipal corporation and political subdivision of the State of 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 from the Debt Service Account of its Sewerage System Fund, the principal sum of $12,827,000, with interest on such amount from the date hereof at the rate of one and twenty-five hundredths of one percent (1.25%) 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 Bond at the rates of seventy-five hundredths of one percent (0.75%) and twenty-five hundredths of one percent (0.25%), respectively, 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 January 1, 2013. Each installment shall reflect an interest rate of two and twenty-five hundredths of one percent (2.25%) per annum and shall be in the amount set forth opposite its due date in Schedule A 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 A hereto. Past -due payments of principal, interest, Administrative Expense Surcharge, and Loan Loss Reserve Surcharge shall bear interest at the rate of ten percent (10.00%) per annum, until paid. Interest, 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 Bond shall be made to the registered holder of this Bond, at its address as it appears on the Bond register, in lawful money of the United States of America. This Bond constitutes a series in the maximum authorized principal amount of $14,470,000 (the "Series 2007 Bond"), issued to finance costs of construction of certain improvements to the sewerage system of the City (the "System"), make a deposit to the Reserve Account, and pay costs of issuance of the Series 2007 Bond. The Series 2007 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, duly passed and adopted on June 21, 1976, as amended and supplemented by Ordinance Nos. 862, 1002, 1011, 1421, and 1476, all as duly passed and adopted by the City Council of the City, and by Resolution Nos. 4022, 4685, 4910, 5246, and 5577 of the City, duly passed and adopted on November 4, 1991, March 18, 2002, July 6, 2004, October 15, 2007, and October 20, 2012, respectively (as so supplemented and amended and as hereafter amended or supplemented in accordance with its terms, the "Ordinance"). The Series 2007 Bond is issuable only as a single, fully registered bond. The Series 2007 Bond is issued on a parity with and is equally and ratably secured by the Net Revenues of the System with the City's outstanding First Amended and Restated Sewerage System Revenue Bond (DNRC Water pollution control Revolving Loan Program), Series 2004 (the "Series 2004 Bond"), which is being issued simultaneously herewith. Reference is made to the Ordinance for a more complete statement of the terms and conditions upon which the Series 2007 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 2007B Bond, and any additional Bonds issued on a parity therewith (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 2007 Bond. Terms used with initial capital letters herein but not defined herein have the meaning given to them in the Ordinance. The City may prepay the principal of the Series 2007 Bond only if (1) it obtains the prior written consent of the DNRC thereto, and (ii) no Loan Repayment or Administrative Expense Surcharge is then delinquent. Any prepayment permitted by the DNRC must be accompanied by payment of accrued interest and Administrative Expense Surcharge to the date of prepayment on the amount of principal prepaid. If the Series 2007 Bond is prepaid in part, such prepayments shall be applied to principal payments in inverse order of maturity. The Bonds, including interest and any premium for the redemption thereof, are payable solely from the Net Revenues pledged for the payment thereof and do not constitute a debt of the City within the meaning of any constitutional, statutory or charter limitation or provision. The City may deem and treat the person in whose name this Series 2007 Bond is registered as the absolute owner hereof, whether this Series 2007 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. IT IS HEREBY CERTIFIED, RECITED, COVENANTED AND AGREED that the City has fixed and established and will collect reasonable rates and charges for the services and facilities afforded by the System, and has created a special Sewerage System Fund into which the Revenues (as defined in the Ordinance) of the System, including all additions thereto and replacements and improvements thereof, will be paid, and a separate and special Debt Service Account in that fund, into which will be paid each month, Net Revenues of the System then on hand (the Revenues remaining after the payment of Operating Expenses of the System), in an amount equal to not less than the slim of one -sixth of the interest due within the next six months and one -twelfth of the principal due within the next twelve months with respect to all outstanding Bonds payable from that account, and a Reserve Account in that fund into which shall be paid additional Net Revenues sufficient to establish and maintain a reserve therein equal to, as of the date of calculation, the Reserve Requirement; that the Debt Service Account and the Reserve Account will be used only to pay the principal of, premium, if any, and interest on the Bonds issued pursuant to the authority herein recited; that the rates and charges for the System will from time to time be made and kept sufficient to provide Net Revenues for each Fiscal Year at least equal to 125% of the maximum principal and interest payable from the Debt Service Account in any subsequent Fiscal Year, to maintain the balance in the Reserve Account at the Reserve Requirement, and to pay promptly the reasonable and current expenses of operating and maintaining the System; that Additional Bonds and refunding Bonds may be issued and made payable from the Debt Service Account on a parity with the Series 2004 Bond upon certain conditions set forth in the Ordinance, but no obligation will be otherwise incurred and made payable from the Net Revenues, unless the lien thereof shall be expressly made subordinate to the lien of the Series 2004 Bond, the Series 2007 Bond, and other Additional Bonds on such Net Revenues; that all provisions for the security of this Series 2007 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 2007 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 2007 Bond and the premium, if any, and interest hereon are payable solely from the Net Revenues of the System pledged and appropriated to the Debt Service Account and do not constitute a debt of the City within the meaning of any constitutional, statutory or charter limitation or provision and the issuance of the Series 2007 Bond does not cause either the general or the special indebtedness of the City to exceed any constitutional, statutory or charter limitation. IN WITNESS WHEREOF, the City of Kalispell, Montana, by its governing body, has caused this Bond to be executed by the signatures of its Mayor, City Manager and City Finance Director, and has caused the official seal of the City to be affixed hereto, and has caused this Bond to be dated as of the — day of —, 2012. (SEAL) Mayor City Manager City Finance Director This Bond shall be fully registered as to both principal and interest. No transfer of this 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 this Bond, and (2) the City 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 this Bond is registered as absolute owner thereof for all purposes, notwithstanding any notice to the contrary. Payments on account of the 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. The ownership of the unpaid Principal Balance of this Bond and the interest accruing thereon is registered on the books of the City of Kalispell, Montana in the name of the registered holder appearing on the first page hereof or as last noted below: Date of Name and Address Signature of Registration of Registered Holder City Finance Director Department of Natural Resources and Conservation 1625 Eleventh Avenue Helena MT 59620 The City 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 this Bond to the new registered holder noted next to such date, except for amounts of principal and interest theretofore paid. Date of Transfer Name of New Registered Holder Signature of Bond Registrar •, � For value received, the undersigned hereby sells, assigns and transfers unto the within Bond and does hereby irrevocably constitute and appoint attorney to transfer the Bond on the books kept for the registration thereof, with full power of substitution in the premises. Dated: Notice: The assignor's signature to this assignment must correspond with the name as it appears upon the face of the within Bond in every particular, without alteration or any change whatsoever. Date Principal Interest Loan Loss Administrative Reserve Expense Surcharge Surcharge Total Loan Payment M