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02. Resolution 5174 - Refinancing - Wells Fargo Bank Building PurchaseCity of Kalispell Post Office Box 1997 - Kalispell, Montana 59903-1997 - Telephone (406)758-7740 Fax (406)758-7758 REPORT To: Mayor Kennedy and City C ounc i 1 Members FROM: Amy Robertson, Finance Director James Patrick, City Manager SUBJECT: Refinance of New City Hall Building with fixed rate financing. MEETING DATE: February 5, 2007 BACKGROUND: The City Council is requested to approve the resolution authorizing the City Manager to enter into a fixed rate financing agreement for a term of 10 years to refinance the original Board of Investments variable rate loan. The Municipal Services Group, Inc. will service the new loan. The Board of Investment's loans will most likely see an increase from their current 4.75% so it is to our advantage to enter into a fixed rate. we will fix the rate at 4.48%. There is no prepayment penalty on either the Board of Investments or Municipal Services Group financings. RECOMMENDATION: adopt resolution 5174 7 r Amy Robertson James a k Finance Director City Manager Report compiled: January 30, 2007 RESOLUTIONN NO.5174 A RESOLUTION TO REFINANCE THE PURCHASE OF THE WELLS FARGO (NEW CITY HALL) PROPERTY THROUGH A MUNICIPAL PROJECT LEASE AND OPTION AGREEMENT WITH THE MUNICIPAL SERVICES GROUP, INC. WHEREAS, the Kalispell City Council has determined that a true and very real need exists for the refinancing of the Project (purchase of the wells Fargo property) described in the Municipal Project Lease and Option Agreement No. P 16 10 (the "Agreement") presented to this meeting; and WHEREAS, the Kalispell City Council has taken the necessary steps, including any legal bidding requirements, under applicable law to arrange for the refinancing of such Project; and WHEREAS, the Kalispell City Council hereby directs its legal counsel to review the Agreement and negotiate appropriate modifications to said Agreement so as to assure compliance with state law and local statutory law, prior to execution of the Agreement by those persons so authorized by the governing body for such purpose. NOW, THEREFORE, BE IT RESOLVED BY THE CITY COUNCIL OF THE CITY OF KALISPELL AS FOLLOWS: SECTION I. Approval: Authorized officers. The terms of said Agreement are in the best interests of the City of Kalispell for the refinancing of such Project, and the Kalispell City Council hereby authorizes the execution, delivery, and performance by Lessee of the Agreement and the Ground Lease, and designates and confirms the following persons to execute and deliver the Agreement, the Ground Lease, and any related documents necessary to the consummation of the transactions contemplated by the Agreement. SECTION II. Findings. The Project, under the terms and conditions provided for in the Agreement, is necessary, convenient, in the furtherance of and will at all times be used in connection with Lessee's governmental and proprietary purposes and functions (except to the extent that subleasing of the Project is permitted under terms of the Agreement) and are in the best interests of Lessee, and no portion of the Project will be used directly or indirectly in any trade or business carried on by any person other than a governmental unit of the State on a basis different from the general public. SECTION III. Maintenance. The Kalispell City Council covenants that it will perform all acts within its Hower which are or may be necessary to insure the maintenance of its legal status as being a duly organized and existing entity under the laws of the State, which status is the basis for the interest portion of the Rental Payments coming due under the Agreement to at all times remain exempt from federal income taxation under the laws and regulations of the United States of America as presently enacted and construed or as hereafter amended. PASSED AND APPROVED BY THE CITY COUNCIL AND SIGNED BY THE MAYOR OF THE CITY OF KALISPELL, THIS 5" DAY OF FEBR.UARY 2007. Pamela B. Kennedy Mayor ATTEST: Theresa White City Clerk Agreement No. P1610 MUNICIPAL PROJECT LEASE AND OPTION AGREEMENT Lessor: Municipal Services Group, Inc. 5125 South Kipling Parkway Suite 300 Littleton, CO 80127 Lessee: City of Kalispell 312 First Avenue East Kalispell, MT 59903 This Municipal Project Lease and Option Agreement (the "Agreement") is entered into between Municipal Services Group, Inc. (together with any assignee thereof collectively referred to herein as the "Lessor"), and the City of Kalispell ("Lessee"), a municipal entity duly organized and existing under the laws of the state of Montana (the "State"). WITNESSETH: WHEREAS, Lessee desires to finance the Project (as defined herein) pursuant to the terms of this Agreement; and WHEREAS, Lessor desires to lease the Project to Lessee, and Lessee desires to lease the Project from Lessor, subject to the terms and conditions of and for the purposes set forth in this Agreement; and WHEREAS, Lessee is authorized under the Constitution and laws of the State to enter into this Agreement for the purposes set forth herein; NOW, THEREFORE, for and in consideration of the premises hereinafter contained, the parties hereby agree as follows: ARTICLE 1 COVENANTS OF LESSEE Lessee represents, covenants and warrants, for the benefit of Lessor and its assignees, as follows: (a) Lessee is a municipality duly organized and existing under the Constitution and laws of the State. (b) Lessee will do or cause to be done all things necessary to preserve and keep in full force and effect its existence as a body corporate and politic. (c) Lessee is authorized under the Constitution and laws of the State to enter into this Agreement, the Ground Lease between Lessorr (as Ground Lessee thereunder) and Lessee (as Ground Lessor thereunder) and the transaction contemplated hereby, and to perform all of its obligations hereunder and thereunder. (d) Lessee has been duly authorized to execute and deliver this Agreement and the Ground Lease under the terms and provisions of the ordinance or resolution of its governing body, attached hereto as Exhibit A, and by other appropriate official approval, and further represents and warrants that all requirements have been met, and procedures have occurred in order to insure the enforceability of this Agreement and the Ground Lease, and Lessee has complied with such public bidding requirements as may be applicable to this Agreement and the refinancing by Lessee of the Project hereunder. Lessee shall cause to be executed an opinion of its counsel substantially in the form attached hereto as Exhibit B. (e) During the term of this Agreement, the Project will be used by Lessee only for the purpose of performing one or more governmental or proprietary functions of Lessee consistent with the permissible scope of Lessee's authority and will not be used in a trade or business of any person or entity other than Lessee. (f) The lease of the Project hereunder shall be evidenced by the Agreement, Exhibits and Ground Lease executed by Lessor and Lessee describing specific real property, and setting forth provisions relating to the rent, the term of lease, disposition of Project upon the expiration of the Lease Term (as defined below) and other details with respect to it. The lease of the Project shall become effective on the Accrual Date, as defined below, and the Payment Schedule for the Project shall specify such date as the effective date of the lease. The original term (the "Original Term") shall commence on the Accrual Date as indicated therein and shall terminate the last day of Lessee's then current fiscal year. The term of the lease will be automatically renewed at the end of the Original Term or any renewal term (the "Renewal Term") for an additional one (1) year, unless the governing body of Lessee fails to appropriate sufficient funds for the making of rental payments for the next occurring Renewal Term as provided in Section 4 of this Agreement. The terms and conditions during any Renewal Term shall be the same as the terms and conditions during the Original Term except that the rental payments shall be as provided in the specific exhibit attached to the Payment Schedule. (g) During the period this Agreement is in force, Lessee will annually provide, if requested by Lessor, current financial statements, budgets, proof of appropriation for the ensuing fiscal year and such other financial information relating to the ability of Lessee to continue this Agreement as may be reasonably requested by Lessor or its assignee. (h) The Project under this Agreement will have a useful life in the hands of Lessee that is substantially in excess of the Original Term and all Renewal Terms specifically relating to it. (i) The Project and the use thereof are in compliance with, and Lessee will maintain the condition of the Project so that it shall remain in compliance with, all applicable laws, statutes, ordinances, rules and regulations of any governmental or quasi -governmental authority, specifically including without limitation the Resource Conservation and Recovery Act and the Comprehensive Environmental Response, Compensation and Liability Act, both as amended, and all other environmental protection or toxic waste or hazardous substance handling, treatment, storage or disposal laws, statutes, ordinances, rules and regulations. Lessee agrees to provide Lessor with copies of any notifications of releases of oil or hazardous materials or substances or of any environmental hazards or potential hazards (each a "Release"} which are given by or on behalf of Lessee to any federal, state or local agencies or authorities or which are received by Lessee from any federal, state or local agencies or authorities with respect to the Land. Such copies shall be sent to Lessor concurrently with their being mailed or delivered to the governmental agencies or authorities or within ten days after they are received by Lessee. Lessee agrees to provide Lessor with copies of all emergency and hazardous chemical inventory forms (hereinafter "Notices") with respect to the Land previously given, as of the date hereof, to any federal, state or local governmental authority or agency as required pursuant to the Emergency Planning and Community Right -to -Know Act of 1986, 42 U.S.C.A. Section 1101 et, §gq., and to provide Lessor with copies of all such Notices subsequently sent to any such governmental authority or agency as required pursuant to the Emergency Planning and Community Right -to -Know Act of 1986. Such copies of subsequent Notices shall be sent to Lessor concurrently with their being mailed to any such governmental authority or agency. Lessee hereby covenants and agrees to indemnify, protect and hold harmless Lessor and its successors and assigns from and against any and all claims, demands, liabilities and costs, including without limitation attorneys' fees, arising from (a) any "Release" (as defined herein) or threat of a "Release," actual or alleged, or any "Hazardous Substances" (as defined herein) upon or about the Land or respecting any products or materials previously or now located upon, delivered to or in transit to or from the Land regardless of whether such release or threat of a release or alleged release or threat of a release has occurred prior to the date hereof or hereafter occurs and regardless of whether such release or threat of a release or alleged release or threat of a release occurs as the result of the negligence or misconduct of Lessee or any third party of otherwise, or (b) any violation, actual or alleged, of or any other liability under or in connection with any Environmental Law (as defined herein), upon or about the Land or respecting any products or materials previously or now located upon, delivered to or in transit to or from the Land, regardless of whether such violation or alleged violation has occurred prior to the date hereof or hereafter occurs and regardless of whether such violation or alleged violation occurs as a result of the negligence or misconduct of Lessee or any third party or otherwise. This warranty shall survive any termination of this Agreement. ARTICLE 2 DEFINITIONS The following terms will have meanings indicated below unless the context clearly requires otherwise: "Acceptance Certificate" means the Acceptance Certificate attached hereto as Exhibit F relating to the Project whereby Lessee acknowledges acceptance of the Project. "Accrual Date" is the date when Lessee's obligation to pay rent accrues. The lease of the Project shall become effective on the Accrual Date, which shall be the Dated Date specified in Exhibit(s) E hereto. "Acquisition Costs)" means the total cost of acquiring, including any delivery charges, and preparing the Project for Lessee's use. "Adjusted Base Interest Rate" means the Base Interest Rate as adjusted and as described in Exhibit E hereto. "Base Interest Rate" means the interest rate as set forth in Exhibit E attached hereto. "Code" means the Internal Revenue Code of 1986, as amended, and all regulations proposed or promulgated thereunder. "Environmental Law" means the Comprehensive Environmental Response, Compensation and Liability Act, 42 U.S.C. § 9601 et seq., the Resource Conservation and Recovery Act, 42 U.S.C.§ 9601 et seq., the Hazardous Materials Transportation Act, 49 U.S.C. § 1 802 et seq., the Toxic Substances Control Act, 15 U.S.C. § 2601 et seq., the Federal Water Pollution Control Act, 33 U.S.C. § 1251 et seq., the Clean Water Act, 33 U.S.C. § 1131 et seq., the Clean Air Act, 2 U.S.C. § 7401 et seq., and any other federal, state, county, municipal, local or other statute, law, ordinance, or regulation which may relate to or deal with the human health or the environment, all as may be from time to time amended. "Ground Lease" means a Ground Lease between Lessee and Lessor, substantially in the form attached hereto, pursuant to which Lessee has leased or will lease to Lessor the site of any Project or portion of a Project which constitutes real property or improvements thereto, as such Ground Lease may be amended, modified and supplemented from time to time. "Hazardous Substance" means (i) any dangerous, toxic or hazardous pollutant, contaminant, chemical, material or substance listed or identified in, or regulated by, any Environmental Law, (ii) any of the following, whether or not included in the foregoing: asbestos, urea formaldehyde, polychlorinated biphenyls ("PCBs"), nuclear fuel or material, chemical waste, radioactive material, explosives, known carcinogens, and petroleum products and by-products; and (iii) any "recognized environmental condition", as that term is defined by the American Society for Testing and Materials in its standards for environmental due diligence. "Lease Term" means collectively the Original Term and all Renewal Terms provided for in this Agreement. "Project" means that real property site, the improvements and fixtures thereon, and any equipment and furnishings, if any, therein described generally in Exhibit D to this Agreement as such may be modified in accordance with the terms hereof from time to time, together with any and all additions and attachments thereto, modifications, repairs, replacements and parts thereof and substitutions therefor. "Project Site" means the land described in Exhibit D hereto which is the site on which the Project resides and which is the subject of the Ground Lease. "Purchase Price" means the amount which Lessee may, in its discretion, pay to Lessor in order to purchase the Project, as set forth in Exhibit(s) E hereto. "Rental Payments" mean the rental payments payable by Lessee for the Project pursuant to the provisions of this Agreement during the Lease Term, payable in consideration of the right of Lessee to use the Project during the Lease Term. Rental Payments shall be payable by Lessee to Lessor or its assignee in the amounts and at the times during the Lease Term as set forth in the Exhibit E made a part of this Agreement. ARTICLE 3 ACQUISITION OF PROJECT Section 3.01. Acquisition_ of the Project, Lessor hereby appoints Lessee as its agent solely for the purpose of acquiring the Project and Lessee hereby accepts such appointment. Lessee and Lessor will do all things necessary to effect the acquisition of the Project free and clear of any encumbrances and subject the same to the interests contemplated hereunder. Lessee agrees that the Project will be acquired in accordance with the temps, conditions and specifications therefor and on file with Lessor. ARTICLE 4 LEASE TERM Section 4.01. Lease of Project. Lessor hereby demises, leases and lets to Lessee, and Lessee rents, leases and hires from Lessor, the Project in accordance with the provisions of this Agreement, to have and to hold for the Lease Term. Section 4.02. Commencement of Lie Term, The Lease Term shall commence on the Accrual Date and shall terminate the last day of Lessee's then current fiscal year. The Lease Term will be automatically renewed at the end of the Original Term or any Renewal Term for an additional one year, unless Lessee gives written notice, as provided in Article 6 hereof, of Lessee's intention to terminate this Agreement at the end of the Original Term or Renewal Term upon receipt by Lessor of the Rental Payment due plus the applicable Purchase Price pursuant to Articles 9 or Article 11, as the case may be. The terms and conditions during any Renewal Term shall be the same as the terms and conditions during the Original Term, except that the Rental Payments shall be as provided in the Exhibit E, Schedule of Payments. hereof; Section 4.03. Termination of Leme Term, The Lease Term will terminate upon the earliest of any of the following events: (a) the expiration of the Original Term or any Renewal Term and the non -renewal in the event of non --appropriation of funds pursuant to Section 6.06 (b) the exercise by Lessee of the option to purchase the Project granted under the provisions of Articles 9 or I I hereof; (c) a Default by Lessee and Lessor's election to terminate this Agreement under Article 13; or (d) the payment by Lessee of all Rental Payments, late payment charges, past due finance charges, monies due to release liens of any kind whatsoever, or other taxes and utilities authorized or required to be paid by Lessee hereunder. This Agreement will automatically terminate in whole upon the last day of the last Renewal Term except with respect to any other outstanding charges as set forth herein. Upon payment by Lessee of all Rental Payments and all other monies due under this Agreement, title to the project shall vest in Lessee. ARTICLE 5 ENJOYMENT OF PROJECT Lessor hereby covenants to provide Lessee during the Lease Term with quiet use and enjoyment of the Project, and Lessee shall during the Lease Term, peaceably and quietly have and hold and enjoy the Project, without suit, trouble or hindrance from Lessor, except as expressly set forth in this Agreement. Proj ect. Lessor shall have the right at all reasonable times during business hours to enter into and upon the property site of Lessee for the purpose of inspecting the ARTICLE 6 RENTAL PAYMENTS Section 6.01. Rental Payments Constitute a Current Expense of Lessee. Lessor and Lessee understand and intend that the obligation of Lessee to pay Rental Payments hereunder shall constitute a current expense of Lessee and shall not in any way be construed to be a debt of Lessee in contravention of any applicable constitutional or statutory limitations or requirements concerning the creation of indebtedness by Lessee, nor shall anything contained herein constitute a pledge of the general tax revenues, funds or monies of Lessee. Rental Payments shall be in consideration of Lessee's use of the Project during the year in which such payments are due. Section 6.02. Pa meet of Rental PayMents. Lessee shall pay Rental Payments exclusively from legally available monies from its General Fund and such other funds as may be designated by Lessee in lawful money of the United States of America to Lessor, or in the event of assignment by Lessor, to its assignee, in the amounts and no later than the dates set forth in Exhibit E hereto. In the event Lessor or its assignee does not receive Rental Payments within such period of time, then and in such event, a twenty-five dollar ($25.00) late charge will be assessed plus finance charges based on the applicable unpaid Rental Payment at the rate equal to the lesser of twelve percent (12%) or the highest rate allowed by the laws of the State. Section 6.03. Interest and Principal Components, A portion of each Rental Payment payable hereunder is paid as, and represents payment of, interest, and the balance of the Rental Payment payable hereunder is paid as, and represents payment of, principal. Exhibit(s) E hereto sets forth the interest component and the principal component of each Rental Payment during the Original Term and all Renewal Terms. Section 6.04. Rental Pa menu to be Unconditional. The obligations of Lessee to make payment of the Rental Payments required under this Article 6 and other sections of this Agreement, and to perform and observe the covenants and agreements contained herein, shall be absolute and unconditional in all events, except as expressly provided under this Agreement. Notwithstanding any dispute between Lessee and Lessor, any vendor, contractor, supplier, or any other person, Lessee shall make all Rental Payments when due and shall not withhold any Rental Payments, nor shall Lessee assert any right of withholding, set-off or counterclaim against its obligation to make such payments required under this Agreement. Lessee's obligation to make Rental Payments during the Original Term or any Renewal Term shall not be abated through accident or unforeseen circumstances. Section 6.05. Continuation of Lease Term by Lessee. Lessee intends, subject to the provisions of Section 6.06 below, to continue the lease of the Project through the Original Term and all of the Renewal Terms and to make the Rental Payments as the same shall become due hereunder. Lessee reasonably believes that fm legally available funds in an amount sufficient to make all Rental Payments during the Original Term and each of the Renewal Terms can be obtained. Section 6.06. Lease Term; Discontinuation. This Agreement shall be in effect for the Original Term and for all of the Renewal Terms shown in Exhibit E unless discontinued prior thereto by Lessee as provided in this Section. Lessor shall insert on Exhibit E the period of the Original Term and each Renewal Term, the payment dates of the Rental Payments coming due therein and the total amount of the Rental Payments due during the Original Terns and each Renewal Term. The terms and conditions of this Agreement to be in effect during each Renewal Term shall be the same as the terms and conditions in effect during the Original Term, except that the Rental Payments shall be set forth in Exhibit E. Not less than forty-five (45) days before the end of the Original Term or any Renewal Term, Lessee may give to Lessor written notice of its intention to discontinue this Agreement, and in such event this Agreement shall expire at the end of such Original Term or Renewal Term then in effect. In the event that Lessee gives to Lessor written notice of its intention to discontinue this Agreement at any time within forty-four (44) days of the end of the Original Term or the Renewal Term of this Agreement then in effect, such discontinuation nevertheless shall be effective, but Lessee shall be obligated to pay to Lessor damages in an amount equal to the Rental Payments to become due and owing during the first ninety (90) days of the next Renewal Term of this Agreement as shown in Exhibit E. ARTICLE 7 LEASEHOLD INTEREST Section 7.0 L Leasehold Interest. Lessee agrees to execute such documents, including financing statements, deeds, affidavits, notices and similar instruments, in form satisfactory to Lessor, which Lessor deems necessary or appropriate to establish and maintain its leasehold interest in and to the Project and in all additions, attachments, accessions, and substitutions thereto, and upon assignment, the interest of any assignees of Lessor, in the Project. Section 7.02. Liens and Encumbrances to Title. During the Lease Term, Lessee shall not place or permit any liens or encumbrances to title on the Project or the Project Site nor execute any lease, sublease, extension or lease, easement or other agreement granting any right of occupancy, use or possession with respect to the Project or the Project Site. Lessee shall promptly discharge any mechanics' or materialmen's liens placed on the Project or Project Site and shall cause any tenants occupying the Project or Project Site promptly to discharge any such lien arising out of such use or occupancy. The obligation of Lessee under this Section shall survive the termination of this Agreement. ARTICLE 8 MAINTENANCE; MODIFICATION; TAXES; INSURANCE AND OTHER CHARGES Section 8.01. Maintenance of Project by Lessee, Lessee agrees that at all times during the Lease Term, at Lessee's own cost and expense, to cause maintenance to be perforrned in such a way so as to make all necessary and proper repairs, replacements and renewals of the Project as may from time to time be required and to maintain, preserve and keep the Project in good repair, working order and condition. To the extent of the provisions of this Agreement and except as may otherwise be agreed to, neither Lessor nor any of its assignees shall have responsibility in any of these matters, or for the making of improvements or additions to the Project; provided, however, if required by Lessor, Lessee will enter into such maintenance or management contracts for the Project as Lessor shall require. Section 8.02. Taxes, her Governmental Charizes and till har 9a The parties to this Agreement contemplate that the Project will be used for a governmental or proprietary purpose of Lessee and, therefore, that the Project will be exempt from all taxes presently assessed and levied with respect to personal or real property and from all sales, use or similar excise taxes. In the event that the use, possession or acquisition of the Project is found to be subject to taxation in any form (except for income taxes of Lessor), Lessee will pay during the Lease Term, as the same respectively come due, all taxes and governmental charges of any kind whatsoever that may at any time be lawfully assessed or levied against or with respect to the Project and any equipment or other property acquired by Lessee in substitution for, as a renewal or replacement of, or a modification, improvement or addition to the Project; as well as all gas, water, steam, electricity, heat, power, telephone, utility and other charges incurred in the operation, maintenance, use, occupancy and upkeep of the Project; provided that, with respect to any governmental charges that may lawfully be paid in installments over a period of years, Lessee may elect to pay only such installments as have accrued during the time this Agreement is in effect. Section 8.03. Provisions RegardingReggLding Insurance. At its own expense, Lessee shall cause rental or business interruption, casualty, public liability, contractor's general liability and builders risk, if applicable, and property damage insurance to be carried and maintained, or shall demonstrate to the satisfaction of Lessor that adequate self-insurance is provided based upon actuarial sound insurance criteria as are consistent with generally accepted insurance industry standards with respect to the Project, sufficient to protect the Full Insurable Value (as that term is hereinafter defined) of the Project, and to protect Lessor from liability in all events and which name Lessor and/or its assignee as additional insured and as a Lender Loss Payee thereunder. All insurance proceeds from casualty losses shall be payable as hereinafter provided in this Agreement. Lessee shall furnish to Lessor Certificates evidencing such coverage throughout the Lease Term. Lessee shall notify Lessor within five (5) business days of any event of damage to or destruction of the Project. The term "Full Insurable Value" as used herein shall mean the full replacement value of the Project but in no event less than the then applicable Purchase Price. Any insurance policy pursuant to this Section 8.03 shall be so written or endorsed as to make losses, if any, payable to Lessee and Lessor as their respective interests may appear. The Net Proceeds (as defined in Section 9.01) of the insurance required in this Section 8.03 shall be applied as provided in Article 9 hereof. Each insurance policy provided for in this Section 8.03 shall contain a provision to the effect that the insurance company shall not cancel the policy or modify it materially and adversely to the interest of Lessor without first giving written notice thereof to Lessor at least 30 days in advance of such cancellation. Section 8.04. Advances. In the event Lessee shall fail to maintain the full insurance coverage required by this Agreement or shall fail to keep the Project in good repair and operating condition, Lessor may (but shall be under no obligation to) purchase the required policies of insurance and pay the premiums on the same or may cause to be made such repairs or replacements as are necessary and provide for payment thereof; and all amounts so advanced therefor by Lessor shall become additional rent for the then current Original Term or Renewal Term which amounts, together with interest thereon at the rate of 12% per annum, Lessee agrees to pay. Section 8.05. Tax Covenants. Lessee will not make or direct any use of the proceeds of the obligation provided herein or any other funds of Lessee which will cause such obligation to be an "arbitrage bond" within the meaning of Section 148 of the Code, to be "federally guaranteed" within the meaning of Section 149 of the Code, or to be a "private activity bond" within the meaning of Section 141 (a) of the Code. To that end, so long as any Rental Payments are unpaid, Lessee, with respect to such proceeds and such other funds, will comply with all requirements of such Code sections and all regulations of the United States Department of the Treasury issued thereunder to the extent that such requirements are, at the time, applicable and in effect. Furthermore, to the extent applicable pursuant to Section 148 (f) of the Code, Lessee covenants to complete or cause to be completed all reporting requirements and rebate all required arbitrage income to the United States of America. Lessee covenants that the Project will be used only for the purpose of performing one or more governmental or proprietary functions of Lessee, and the Project will not be used in a trade or business of any person or entity other than Lessee on a basis different from the general public. Lessee will not use or permit the use of the Project by any person for a "private business use" within the meaning of Section 141 (b) of the Code in such manner or to such extent as would result in the inclusion of interest received hereunder in gross income for federal income tax purposes under Section 103 of the Code. Lessor or its assignee(s) and Lessee shall at all times do and perform all acts and things permitted by law which are necessary or desirable in order to assure that the interest component of the Rental Payments will not be included in the gross income of Lessor for federal income tax purposes. ARTICLE 9 DAMAGE, DESTRUCTION AND CONDEMNATION: USE OF NET PROCEEDS Section 9.01. Damam Destruction and_Condemngtion. Unless Lessee shall have exercised its option to purchase the Project by making payment of the Purchase Price as provided herein, if prior to the termination of the Lease Term (a) the Project or any portion thereof is destroyed (in whole or in part) or is damaged by fire or other casualty or (b) title to, or the temporary use of, the Project or any part thereof shall be taken under the exercise of the power of eminent domain by any governmental body or by any person, firm or corporation acting under governmental authority, Lessee and Lessor will cause the Net Proceeds (as defined below) of any insurance claim or condemnation awarded to be applied to the prompt repair, restoration, modification or improvement of the Project, Any balance of the Net Proceeds remaining after such work has been completed shall be paid to Lessee. For purposes of Section 8.03 and this Article 9, the term 'Net Proceeds" shall mean the amount remaining from the gross proceeds of any insurance claim or condemnation award after deducting all expenses (including attorneys' fees) incurred in the collection of such claim or award. Section 9.02. Insufficiency of Net Proceeds. If the Net Proceeds are insufficient to pay in full the cost of any repair, restoration, modification or improvement referred to in Section 9.01 hereof, Lessee shall either (a) complete the repair or replacement of damaged property and pay any costs in excess of the amount of Net Proceeds or (b) pay to Lessor the amount of the applicable Purchase Price, applying Net Proceeds to such payment. ARTICLE 10 DISCLAIMER OF WARRANTIES; VENDOR'S/CONTRACTOR'S WARRANTIES; USE OF THE PROJECT Section 10.01. Disclaimer of Warranties. LESSEE ACKNOWLEDGES THAT THE PROJECT IS IN GOOD ORDER AND CONDITION AND IS OF THE MANUFACTURE, DESIGN AND CAPACITY SELECTED BY LESSEE, THAT LESSEE IS SATISFIED THAT THE SAME IS SUITABLE FOR ITS PURPOSE, AND THAT FOR PURPOSES OF THIS AGREEMENT LESSOR AND ITS ASSIGNEE(S) MAKE NO WARRANTY OR REPRESENTATION, EITHER EXPRESS OR IMPLIED WITH RESPECT TO THE PROJECT, INCLUDING WITHOUT L[M[TATION, ITS VALUE, DESIGN, CAPACITY, CONDITION, MERCHANTABILITY OR FITNESS FOR PARTICULAR PURPOSE OR FITNESS INTENDED FOR USE OF THE PROJECT, OR WARRANTY WITH RESPECT THERETO, AND LESSOR AND ITS ASSIGNEE(S) HEREBY DISCLAIM ALL SUCH REPRESENTATIONS AND WARRANTIES. In no event shall Lessor or its assignee, if any, be liable for any incidental, direct, indirect, special or consequential damage in connection with or arising out of this Agreement or the existence, furnishing, functioning or Lessee's use of any item, building, improvement, equipment, furnishings, or products or services provided for in this Agreement. Section 10.02. Warranties, Lessor hereby irrevocably appoints Lessee its agent and attomey-in-fact during the Lease Term, so long as Lessee shall not be in Default hereunder, to assert from time to time whatever claims and rights, including warranties of the Project, which Lessor may have against any supplier, contractor or vendor of the Project. Lessee's sole remedy for the breach of such warranty, indemnification or representation shall be against the supplier, contractor or vendor of the Project, and not against Lessor or an assignee, if any, of Lessor, nor shall such matter have any effect whatsoever on the rights and obligations of Lessor with respect to this Agreement, including the right to receive full and timely payments hereunder. Lessee expressly acknowledges that an assignee, if any, of Lessor makes, and has made, no representation or warranties whatsoever as to the existence or availability of such warranties of the Project. Section 10.03. Use of the Project. Lessee will not construct, install, use, operate or maintain the Project or cause the Project to be installed, used, operated or maintained improperly, carelessly, in violation of any applicable law or in a manner contrary to that contemplated by this Agreement. Lessee shall provide or cause to be provided all permits and licenses, if any, necessary for the operation of the Project; provided, however, that Lessee may contest in good faith the validity or application of any such law or rule in any reasonable manner which does not, in the opinion of Lessor, adversely affect the estate of Lessor in and to the Project or its interest or rights under this Agreement. Lessee shall notify Lessor within five (5) business days of receipt of actual or constructive notice if there are any claims or lawsuits arising in connection with the Project or use thereof. Section 10.04. Construction on Project. Lessee hereby represents that it has fee simple title to the Project Site, free and clear of all liens and encumbrances except those which are approved by Lessor, and hereby covenants that title to the Project, free and clear of all liens and encumbrances except those which are approved by Lessor, and that any improvements which may be constructed or installed thereon will be constructed and installed in accordance with all applicable laws and regulations. Lessee further covenants that all general contractors who perform any such work in connection with the Project shall be licensed and bonded, and such contractors will provide Lessee with a performance and payment bond equal to the total amount of said contractor's contract to construct or install the improvements and such certificates of insurance as may be required by this Agreement. Lessee agrees that Lessor shall have the right at any time during regular business hours to enter onto the property for the purposes of observing the construction activity thereon. ARTICLE I OPTION TO PURCHASE Lessee is hereby granted the option to prepay its obligations under this Agreement and purchase the Project for the Purchase Price set forth in Exhibit E hereto, plus the amounts set forth in this Article 11. At the request of Lessee, Lessor's interest in the Project will be terminated and this Agreement shall terminate: (a) at the end of the Lease Term, upon payment in full of Rental Payments due hereunder, plus all past due charges and other amounts hereunder then due and owing, if any; or (b) at any regularly scheduled payment due date by making the Rental Payment plus the corresponding Purchase Price as set forth in the Exhibit E, plus all past due charges and other amounts hereunder then due and owing, if any; or (c) at any time prior to the end of the Original Term by paying the first Rental Payment due plus the Purchase Price, or, in the event Lessee wishes to exercise its option following the Original Term or any Renewal Term, but prior to the due date of the next Rental Payment by paying the preceding Purchase Price as set forth in the Exhibit E, Schedule of Payments, plus accrued interest on the outstanding principal balance at the Base Interest Rate thereon to the date of settlement thereof, plus all past due charges and other amounts hereunder then due and owing, if any; or (d) if the Lease Term is terminated pursuant to Article 9 of this Agreement, in the event of total damage, destruction or condemnation of the Project or any portion thereof and, if Lessee is not on such date in Default under this Agreement, upon payment of the then applicable Purchase Price to Lessor plus all past due charges and other amounts hereunder then due and owing, if any, subject to Lessee's right to terminate this Agreement under Section 6.06 hereof, ARTICLE 12 ASSIGNMENT, SUBLEASING, INDEMNIFICATION AND MORTGAGING Section 12.01. Assignment by Lessor. This Agreement, and Lessor's right to receive payments hereunder, may be assigned and reassigned in whole or in part to one or more assignees or subassignees by Lessor at any time subsequent to this execution, without the necessity of obtaining the consent of Lessee; provided, however, that no such assignment or reassignment shall be effective against Lessee unless and until (i) Lessee shall have received notice of the assignment or reassignment disclosing the name and address of the assignee or subassignee, and (ii) in the event that such assignment or reassignment is made to a bank or trust company as trustee for holders of certificates or other evidence representing interest in this Agreement, or rights to receive amounts hereunder, such bank or trust company agrees to maintain, or cause to be maintained on behalf of and as agent for Lessee, a book -entry system by which a record of the names and addresses of such holders as of any particular time is kept and agrees, upon request of Lessee, to furnish such information to Lessee. upon receipt of notice of assignment, Lessee agrees to reflect in a book entry the assignee designated in such notice of assignment, and to make all payments to the assignee designated in the notice of assignment, notwithstanding any claim, defense, set- off or counterclaim whatsoever (whether arising from a breach of this Agreement or otherwise) that Lessee may from time to time have against Lessor, or the assignee. Lessee agrees to execute all documents, including notices of assignment and chattel mortgages or financing statements which may be reasonably requested by Lessor or its assignee to protect their interests in the Project and in this Agreement. Section 12.02. No Sale, Assienment or Subleasing by Lessee.This Agreement and the interest of Lessee in the Project may not be sold, assigned or encumbered by Lessee without the prior written consent of Lessor, which consent may be withheld in the total discretion of Lessor taking into account, among other things, the treatment for federal income tax purposes of the interest component of the Rental Payments. Section 12.03. Release and Indemnification Covenants. Except for the intentional or negligent acts of Lessor or any of its employees or agents thereof arising out of 1) entering into this Agreement, and/or 2) any liability, obligation, loss, claim or damage arising out of or in connection with any misstatement of a material fact or failure to make a statement of material fact by Lessor or any assignee thereof (other than a misstatement by Lessee) in connection with any offer, sale or othertransfer of this Agreement or any interest herein, to the extent permitted by the laws and Constitution of the State, Lessee shall protect, hold harmless, and indemnify Lessor from and against any and all liability, obligations, losses, claims and damages, regardless of cause thereof, and expenses in connection therewith, including, without limitation, counsel fees and expenses, penalties and interest arising out of or as the result of the entering into of this Agreement in connection with the ownership or intended ownership, delivery, rejection, storage or return of the Project or any accident in connection with the operation, use, condition, possession, storage or return of the Project resulting in damage to property or injury to or death to any person. Lessee's agreement to protect, hold harmless, and indemnify Lessor under this paragraph shall continue in full force and effect notwithstanding the full payment of all obligations under this Agreement or the termination of the Lease Term for any reason. ARTICLE 13 EVENTS OF DEFAULT AND REMEDIES Section 13.01. Events of Default Defined. The following shall be "events of default" under this Agreement and the terms "Event of Default" and "Default" shall mean, whenever they are used in this Agreement, any one or more of the following events: (a) Failure by Lessee to pay any Rental Payment or other payment required to be paid hereunder at the time specified herein; and (b) Failure by Lessee to observe and perform any covenant, condition or agreement on its part to be observed or performed, other than as referred to in Section 13.01(a) or 13.01(c), for a period of 30 days after written notice, specifying such failure and requesting that it be remedied as given to Lessee by Lessor, unless Lessor shall agree in writing to an extension of such time prior to its expiration; provided, however, if the failure stated in the notice cannot be corrected within the applicable period, Lessor will not unreasonably withhold its consent to an extension of such time if corrective action deemed appropriate by Lessor in its sole discretion, is instituted by Lessee within the applicable period and diligently pursued until the Default is corrected; and (c) Failure by Lessee to maintain insurance on the Project in accordance with Section 8.03 hereof; and (d) initiation by Lessee of proceeding under any federal or state bankruptcy or insolvency law seeking relief under such laws concerning its indebtedness. The foregoing provisions of this Section 13.01 are subject to (i) the provisions of Section 6.06; and (ii) if by reason of force maieure Lessee is unable in whole or in part to carry out its agreement on its part herein contained, other than the obligations on the part of Lessee contained in Article 6 and Section 8.03 hereof, Lessee shall not be deemed in Default during the continuance of such inability. The term "force majeure" as used herein shall mean, without limitation, the following: acts of God, strikes, lockouts or other industrial disturbances; acts of public enemies, orders or restraints of any kind of the government of the United States of America or of the state wherein Lessee is located or any of their departments, agencies or officials, or any civil or military authority; insurrections; riots; landslides; earthquakes; fires; storms; droughts; floods; or explosions. Section 13.02. Remedies on Default Whenever any Event of Default referred to in Section 13.01 hereof shall have happened and be continuing, Lessor shall have the right, at its sole option without further demand or notice, to take one or any combination of the following remedial steps: (a) Terminate this Agreement, enter onto the Project Site and retake possession of the Project wherever situated, without any court order or other process of law and without liability for entering the premises, and sell, lease, sublease or make other disposition of the Project and the Project Site for use over a term in a commercially reasonable manner, all for the account of Lessee; provided that Lessee shall remain directly liable for the deficiency, if any, between (i) the rent and other amounts due and payable by Lessee through the balance of the then current Original Term or Renewal Term, and (ii) the rent or other amounts paid by a lessee or sublessee of the Project pursuant to such lease or sublease during the same period of time, after deducting all costs and expenses, including reasonable attorneys' fees and expenses, incurred with respect to the recovery, repair and storage of the Project during such period of time. (b) Proceed by appropriate court action to enforce performance by Lessee of the applicable covenants of this Agreement or to recover for the breach thereof, including the payment of all amounts due from Lessee hereunder; subject, however, to the provisions of Section 6.06 hereof. (c) Use or retake such portion of the Project as Lessor, in its sole discretion, may decide. All of Lessee's right, title and interest in the Project, the possession of which is retaken by Lessor upon the occurrence of an Event of Default (including, without limitation, warranties, guaranties or completion assurances applicable to such Project), shall terminate immediately upon such repossession. Section 13.03. Return of Pro, ect. Upon an Event of Default, Lessee agrees to allow Lessor to recover the Project, the costs and expenses of which shall be additional amounts due to Lessor hereunder. Section 13.04. No Remedy Exclusive. No remedy herein conferred upon or reserved to Lessor is intended to be exclusive and every such remedy shall be cumulative and shall be in addition to every other remedy given under this Agreement now or hereafter existing at law or in equity. Any repossession or subsequent sale or lease by Lessor of the Project shall not bar an action against Lessee for a deficiency, and the bringing of any action against or the entry of judgment against Lessee shall not bar Lessor's right to repossess the Project. No delay or omission to exercise any right or power accruing upon any Default shall impair any such right or power or shall be construed to be a waiver thereof, but any such right and power may be exercised from time to time and as often as may be deemed expedient. ARTICLE 14 MISCELLANEOUS Section 14.01. Notices. All notices, certificates or other communications hereunder shall be sufficiently given and shall be deemed given when delivered or mailed by certified mail, postage prepaid, to the parties at their respective places of business. Section 14.02. Sindin� Effect. This Agreement shall inure to the benefit of and shall be binding upon Lessor and Lessee and their respective successors and assigns. Section 14.03. Seyerability. In the event any provision of this Agreement shall be held invalid or unenforceable by any court of competent jurisdiction, such holding shall not invalidate or render unenforceable any other provision hereof, and the invalid or unenforceable provision shall be refonned and revised to be enforceable to the full extent permissible under the laws of the State. Section 14.44. Amendments. The terms of this Agreement shall not be waived, altered, modified, supplemented or amended in any manner whatsoever except by written instrument signed by Lessor and Lessee, nor shall any such amendment that affects the rights of Lessor's assignee be effective without such assignee's consent. Section 14.05. Execution in Counterparts. This Agreement may be executed in several counterparts, each of which shall be an original and all of which shall constitute but one and the same instrument. Section 14.06. Ayylicable Law, This Agreement shall be governed by and construed in accordance with the laws of the state of Montana. Section 14.07. QUtions, The captions or headings in this Agreement are for convenience only and in no way define, limit or describe the scope or intent of any provisions or sections of this Agreement, Section 14.08. Entire Agreement, This Agreement constitutes the entire agreement between Lessor and Lessee as to the matters herein described. No waiver, consent, modification or change of terms of this Agreement shall bind either party unless in writing signed by both parties, and then such waiver, consent, modification or change shall be effective only in the specific instance and for the specific purpose given. There are no understandings, agreements, representations or warranties, express or implied, not specified herein regarding this Agreement or the Project leased hereunder. Any terms and conditions of any purchase order or other document (with the exception of Supplements) submitted by Lessee in connection with this Agreement which are in addition to or inconsistent with the terms and conditions of this Agreement will not be binding on Lessor and will not apply to this Agreement. Lessee, by the signature below of its authorized representative acknowledges that it has read this Agreement, understands it, and agrees to be bound by its tetras and conditions. IN WITNESS WHEREOF, Lessor has executed this Agreement in its corporate name with its corporate seal hereunto affixed and attested by its duly authorized officers, and Lessee has caused this Agreement to be executed in its corporate name with its corporate seal hereunto affixed and attested by its duly authorized officers. This document is dated as of the Accrual Date, whether or not executed as of such date. LESSEE: City of Kalispell By: Title: Date: Vii COUNTY OF On , before me, , personally appeared , personally known to me (or proved to me on the basis of satisfactory evidence) to be the person(s) whose name(s) is/are subscribed to the within instrument and acknowledged to me that he/she/they executed the same in his/her/their authorized capacity(ies), and that by hislherltheir signature(s) on the instrument the person(s), or the entity upon behalf of which the person(s) acted, executed the instrument. Witness my hand and official seal. LESSOR: Municipal Services Group, Inc. By: Title: Date: STATE OF COLORADO COUNTY OF JEFFERSON Notary Public: My commission expires: On , before me, , personally appeared , personally known to me (or proved to me on the basis of satisfactory evidence) to be the person(s) whose name(s) is/are subscribed to the within instrument and acknowledged to me that he/she/they executed the same in his/her/their authorized capacity(ies), and that by his/her/their signature(s) on the instrument the person(s), or the entity upon behalf of which the person(s) acted, executed the instrument. Witness my hand and official seal. Notary Public: My commission expires: Vlll EXHIBITS TO MUNICIPAL PROJECT LEASE AND OPTION AGREEMENT NUMBER P1610 Entered into February 15, 2007, (the "Dated Date") by and between Lessor and Lessee, these Exhibits are made a part of Municipal Project Lease and Option Agreement Number P 1610 and all terms and conditions of said Agreement with respect to Lessee's and Lessor's rights in the Project described in the Agreement are hereby incorporated. These Exhibits consist of: Exhibit A Resolution of Governing Body Exhibit B Opinion of Lessee's Counsel Exhibit C Certificate as to Arbitrage Exhibit D Description of Project and Project Site Exhibit E Schedule of Payments Exhibit F Acceptance Certificate Exhibit G Insurance Coverage Requirements Supplements: 8038-G IRS Filing Bank Eligibility Certificate Small Issuer Exemption Certificate Ground Lease LESSOR: Municipal Services Group, Inc. By: _ Title: Date: LESSEE: City of Kalispell By: — Title: Date: ix EXHIBIT A RESOLUTION OF GOVERNING BODY EXTRACT OF MINUTES LESSEE: City of Kalispell At a duly called meeting of the governing body of Lessee held on the day of , the following Resolution was introduced and adopted. RESOLVED, whereas the governing body of Lessee has determined that a true and very real need exists for the refinancing of the Project described in the Municipal Project Lease and Option Agreement No. P1610 (the "Agreement") presented to this meeting; and WHEREAS, the governing body of Lessee has taken the necessary steps, including any legal bidding requirements, under applicable law to arrange for the refinancing of such Project, WHEREAS, the governing body hereby directs its legal counsel to review the Agreement and negotiate appropriate modifications to said Agreement so as to assure compliance with state law and local statutory law, prior to execution of the Agreement by those persons so authorized by the governing body for such purpose, BE 1T RESOLVED, by the governing body of Lessee that: 1. Approval: Authorized Officers. The terms of said Agreement are in the best interests of Lessee for the refinancing of such Project, and the governing body of Lessee hereby authorizes the execution, delivery, and performance by Lessee of the Agreement and the Ground Lease, and designates and confirms the following persons to execute and deliver the Agreement, the Ground Lease, and any related documents necessary to the consummation of the transactions contemplated by the Agreement. 2. Findin s. The Project, under the terms and conditions provided for in the Agreement, is necessary, convenient, in the fiutherance of and will at all times be used in connection with Lessee's governmental and proprietary purposes and functions (except to the extent that subleasing of the Project is permitted under terms of the Agreement) and are in the best interests of Lessee, and no portion of the Project will be used directly or indirectly in any trade or business carried on by any person other than a governmental unit of the State on a basis different from the general public. 3. Maintenance. Lessee covenants that it will perform all acts within its power which are or may be necessary to insure the maintenance of its legal status as being a duly organized and existing entity under the laws of the State, which status is the basis for the interest portion of the Rental Payments coming due under the Agreement to at all times remain exempt from federal income taxation under the laws and regulations of the United States of America as presently enacted and construed or as hereafter amended. Signature of Party to Execute Municipal Project Title Lease and Option Agreement and Exhibits Full Force and Effect. The undersigned further certifies that the above Resolution has not been repealed or amended and remains in full force and effect and further certifies that the above and foregoing Agreement is the same as presented at said meeting of the governing body of Lessee. (SEAL) Secretary/Clerk EXHIBIT B OPINION OF LESSEE'S COUNSEL (Letterhead of Lessee's Counsel) Date Municipal Services Group, Inc. 5125 South Kipling Parkway Suite 300 Littleton, CO 80 127 Ladies and Gentlemen: As Counsel for the City of Kalispell ("Lessee") we have examined duly executed originals of the Municipal Project Lease and Option Agreement No. P 161 Q and the Ground Lease (collectively, the "Agreements") by and between Lessee and Municipal Services Group, Inc. ("Lessor"), the proceedings taken by Lessee to authorize and execute the Agreements together with the other related documents, and the Constitution and laws of the state of Montana (the "State") as presently enacted and construed. Based upon said examination and upon such other examination as we have deemed necessary or appropriate, it is our opinion that: Lessee was duly organized and validly exists under the Constitution and laws of the State as a political subdivision of the State. 2. The Agreements have been duly authorized, executed, and delivered by Lessee, pursuant to Constitutional, statutory and/or home rule provisions that authorized this transaction and the Resolution attached as Exhibit A to the Municipal Project Lease and Option Agreement. 3. The Resolution has been duly adopted and is a valid and binding obligation of Lessee. 4. The Agreements are legal, valid, and binding obligations of Lessee, enforceable in accordance with their terms. In the event Lessor obtains a judgment against Lessee in money damages, as a result of an Event of Default under the Municipal Project Lease and Option Agreement, Lessee will be obligated to pay such judgment. 5. Applicable public bidding requirements have been complied with. 6. To the best of my knowledge, no litigation is pending or threatened in any court or other tribunal, state or Federal, in any way questioning or affecting the validity of the Resolution or the Agreements. 7. The signatures of the officers of Lessee that appear on the Agreements are true and genuine; I know said officers and know them to hold the offices set forth below their names. 8. Lessee is a political subdivision within the meaning of Section 103 of the Internal Revenue Code and the related regulations and rulings. 9. Lessee has designated the Municipal Project Lease and Option Agreement as a "qualified tax-exempt obligation" under Section 265 (b)(3) of the Internal Revenue Code of 1986, as amended. This Opinion of Counsel may be relied upon by any successor(s) and/or assignee(s) of Municipal Services Group, Inc. Attorney for Lessee Agreement No. P1610 EXHIBIT C CERTIFICATE AS TO ARBITRAGE I, the undersigned officer of the City of Kalispell in the state of Montana ("Lessee") being the person duly charged, with others, with responsibility of issuing Lessee's obligation in the form of that certain Municipal Project Lease and Option Agreement Numbered P 161 0 ("Agreement") by and between Lessee and Municipal Services Group, Inc. as lessor ("Lessor") HEREBY CERTIFY that: 1. The Agreement was executed and delivered by Lessee under and pursuant to existing law to refinance the Project as described in the Agreement. 2. Pursuant to the Agreement, Lessee is entitled to the use and possession of the Project in consideration for the obligations of Lessee under and pursuant to the Agreement. The Project will be used in furtherance of the public purposes of Lessee and only for the performance of one or more governmental or proprietary functions of Lessee consistent with the permissible scope of Lessee's authority. 3. Lessee does not intend to sell the Project during the term of the Agreement. Lessee will not receive any monies, funds or other "proceeds" as a result of the execution or delivery of the Agreement, other than as described in Paragraph 6 hereof. 4. Lessee has not established any sinking fund from which it intends to make payment under the Agreement, and no monies are pledged other than amounts annually appropriated from the General Fund or other legally available funds of Lessee in amounts equal to the required payments under the Agreement. The remaining general funds of Lessee are not reasonably expected to be used to make such payments, and no other monies, except as set forth herein, are pledged to the payments due under the Agreement or reasonably expected to be used to pay principal and interest payments due under the Agreement. 5. Lessee certifies that the Project (as defined in the Agreement) is or will be owned and operated by Lessee and will not be used in the trade or business of any person on a basis different from the general public. 6. The proceeds to be derived from the Agreement by Lessor or its assignee on the date hereof ($ } together with anticipated investment earnings thereon ($ } are expected to pay the costs of the refinancing of the Project ($ and the financing and legal costs in respect of the execution and delivery of the Agreement. 7. Within thirty (30) days after the anniversary of the date of the execution and delivery of the Agreement, Lessee shall determine the amount of required arbitrage rebate, if any, due to the United States government under Section 103 and 148 (f) (2) of the Internal Revenue Code of 1986, as amended (the "Code"), and the regulations promulgated thereunder. Lessee shall pay the required arbitrage rebate amounts to the United States of America from time to time as required by the Code, but not less frequently than once each five (5) years after the date of the execution and delivery of the Agreement, in an amount equal to 90% of the required arbitrage rebate amount earned during such period (and not previously paid to the United States of America) and not later than sixty (60) days after making the final Rental Payment under the Agreement, 100% of the required arbitrage amount. The required arbitrage rebate payments are to be made to the United States government from legally available funds regardless of whether there are any remaining proceeds or other funds attributable to the Agreement that are available for that purpose. Notwithstanding the foregoing, Lessee is obligated to at all times provide for the determination and payment of arbitrage rebate in conformity with all applicable federal statues and regulations as the same may be amended from time to time. 8. Lessee has not received notice that its Certificate may not be relied upon with respect to its own issues, nor has it been advised that any adverse action by the Commissioner of Internal Revenue is contemplated. 9. Lessee is qualified to designate and hereby designates the obligation represented by the Agreement as a "qualified tax-exempt obligation" pursuant to Section 265 (3) (b) of the Internal Revenue Code of 1986, as amended. To the best of my knowledge, information, and belief the expectations herein expressed are reasonable and there are no facts, estimates or circumstances other than those expressed herein that would materially affect the expectations. LESSEE: City of Kalispell By: Title: Date: Agreement No. P1610 EXHIBIT D DESCRIPTION OF PROJECT AND PROJECT SITE The Project which is the subject of the attached Municipal Project Lease and Option Agreement is as follows: Building located at 201 First Avenue East, Kalispell, Montana, to be remodeled for use as City's Administrative Offices Together with all additions, accessions and replacements thereto. The Legal Description of the "Project Site" is as follows: (See attached legal description) Together with all additions, accessions and replacements thereto. Lessee hereby certifies that the description of the Project set forth above constitutes an accurate description of the "Project", as defined in the attached Municipal Project Lease and Option Agreement. LESSEE: City of Kalispell By: Agreement No. P1610 EXMBIT E SCHEDULE OF PAYMENTS Base Interest Rate: 4.48% U.S. Treasury Note Yield: 4.71 % U. S. Treasury Note Index Percent: 95.12% Adjusted Base Interest Rate: Dated Date: February 15, 2007 PMT # Payment Payment Principal interest Purchase Due Date Amount Portion Portion Price 1 Jul-1-2007 637166.41 46,223.42 169942.99 ......... ........ 988,152.11 ................... J.�1..269 6'a a.. 5 . 3 Jul-1-2008 63,166.41 42,394.65 . 20,771.76 902,614.44 .... 4 ..... J� ....1�69 ...... ................................. .. ... 63 1.641 4,34 ... .. .... ... ....... ............. ��2� 2 .. ... . �8,0,27. ..; 5 Jul-1 63,166.41 44,315.20 18,851.21 ............................ 8139201.76 .............. Jr 1 2 . .. 63, 6641 . . 4.36 .8 . 75�5 "66,98�75 7 Jul-1-2010 63,166.41 46,322.76 169843.65 7197738.53 .............................. :` J� 1 20 1 ....................................................................... .63,16�.41 . . 4 ,36 k3 ` 5$ d..� 2 71, 43 .93 9 Jul-1-2611 63,166.41 48,421.26 14,745.15 622,041.25 ............................................. 1.0 J��1612 . 83,16841:. 4,599 36.61~��171,4�.23: 11 Jul-1 63,166.41 50, 614.83 12, 551.58 519, 918.16 ............. . ............... ...1 .... ...................................................................................................................................................................................................................................................................... .................................................. . Jai ° �6 . ........ . . 1 74 ...� 89 . .. ........ 11 4:17. 1:: ............................................................... 4 7 1,34. 6 . 5 $.. 13 Jul-1-2013 63,166.41 52,907.77 10,258.64 413,168.61 14 �l ;20� 4 63,'166:.41 �4;,9.9. �,03�5157�9Y85 15 Jul-1-2014 63,166.41 55,304.58 7,861.83 01,583.18 1 .. n o15 .. 1 .......... ; ... 631 6 1 .. . 5� ......................................... :::: ..: 6 � 0 ...............3.. . 4 9 2 3 68. 6 17 Jul-1-2015 63,166.41 57,809.98 5,356.43 184,942.72 .................................................. ....... .............. ........................... 1 291 �.1....... .... . 63 66 ... `` 9 6 92 ....................................... . 9 . 2 65 6 19 Jul-1-2016 63,166.41 . 60,428.87. 2,737.54 63,018.25 .. :...� :':.2.:7 ::' . ... . ...... ..`' .'..: 63.�.: 6.:bt4 :::. :.:.:78:JY6 ... ,38.3 .:.. R.. TOTAL: 1,263,328.2 17015,000.00 248,328.29 0 Provided all documents have been returned in a form acceptable to Lessor within thirty (30) days of the Dated Date (the "Period"), then the Base Interest Rate can remain in effect during the Period. In the event all documents have not been returned within the Period, in a form acceptable to Lessor, and/or if the U. S. Treasury Note Yield for a maturity comparable to the Lease Term increases significantly, Lessor reserves the right to adjust and determine a new Base Interest Rate (the "Adjusted Base Interest Rate") pursuant to the provisions hereof. The Adjusted Base Interest Rate shall be determined by multiplying the U. S. Treasury Note Yield for a maturity comparable to the Lease Term (as of the business day immediately preceding the receipt of the documents by Lessor) by the U. S. Treasury Note Index Percent. Such Adjusted Base Interest Rate shall be the applicable interest rate for the principal balance of the Project that is the subject of this Agreement, and Lessor and Lessee shall execute a revised Exhibit E to this Agreement to acknowledge such change. LESSEE: City of Kalispell By: Agreement No. P 161 0 EXHIBIT F ACCEPTANCE CERTIFICATE The undersigned, as Lessee under the Municipal Project Lease and Option Agreement (the "Agreement") with Municipal Services Group, Inc. ("Lessor"), acknowledges receipt in good condition of the Project described in the Agreement this day of and certifies that Lessor has fusty and satisfactorily performed all of its covenants and obligations required under the Agreement. Lessee confirms that it will commence payments in accordance with Article 6 of the Agreement or the provisions of the Exhibit E. The undersigned officer of Lessee hereby reaffirms in all respects the Certificate as to Arbitrage attached as Exhibit C to the Agreement, and represents that, to the best of his or her knowledge, information and belief, the expectations therein expressed were reasonable as of the Accrual Date on which they were made, and are reasonable as of this date, and that there were, and are as of this date, no facts, estimates or circumstances other than those expressed therein that would materially affect the expectations expressed therein. LESSEE: City of Kalispell By: Title: Agreement No. P1 61 U EXHIBIT G INSURANCE COVERAGE REQUIREMENTS TO: Municipal Services Group, Inc. 5125 South K.ipling Parkway Suite 300 Littleton, CO 80 127 FROM: City of Kalispell 312 First Avenue East Kalispell, MT 59903 SUBJECT: INSURANCE COVERAGE REQUIREMENTS 1, In accordance with Section 8.03 of the Municipal Project Lease and Option Agreement (the "Agreement"), we have instructed the insurance agent named below (please fill in name, address and telephone number) to issue: a. All Risk Physical Damage Insurance on the leased Project (as defined in the Agreement) evidenced by a Certificate of Insurance and Long Form Loss Payable Clause naming Lessor "and/or its assigns" as Loss Payee. b. Public Liability Insurance evidence by a Certificate of Insurance naming "Lessor and/or its assigns" as an Additional Insured, Minimum Coverage Required: $1,000,000.00 general aggregate OR 2. Pursuant to Section 8.03 of the Agreement, we are self -insured for all risk, physical damage, and public liability and will provide proof of such self-insurance in letter form together with a copy of the statute authorizing this form of insurance. LESSEE: City of Kalispell By: Title: BAND ELIGIBILITY CERTIFICATE THIS BANK ELIGIBILITY CERTIFICATE is entered into this day of , Za and is executed by the City of Kalispell, as Lessee, supplementing and adding to Municipal Project Lease and Option Agreement No. P 161 0. WITNES SETH: WHEREAS, Lessor and Lessee have entered into a Municipal Project Lease and Caption Agreement; and WHEREAS, Lessee desires to supplement the Agreement; NOW THEREFORE, in consideration of the premises hereinafter contained, Lessee hereby certifies that: Lessee has not issued or effected the issuance of, and reasonably anticipates that it shall not issue or effect the issuance of more than Ten Million Dollars ($10,000,000.00) of tax-exempt obligations during the 2007 calendar year, and hereby designates the lease of the Project to which this certificate pertains as a "qualified tax-exempt obligation," as defined by Section 265 (b) (3) of the Internal Revenue Code of 1986, as amended. In witness whereof, Lessee has caused this Supplement to the Agreement to be executed by its respective officers thereunto duly authorized, all as of the date and year first above written. LESSEE: City of Kalispell By: Title: SMALL ISSUER EXEMPTION CERTIFICATE THIS SMALL ISSUER EXEMPTION CERTIFICATE is entered into this day of , 20 and is executed by the City of Kalispell as Lessee, supplementing and adding to the Municipal Project Lease and Option Agreement. WITNESSETH: WHEREAS, Lessor and Lessee have entered into a Municipal Project Lease and Option Agreement; and WHEREAS, Lessee desires to supplement the Agreement; NOW THEREFORE, in consideration of the premises hereinafter contained, the parties hereto agree to supplement the Agreement as follows: Lessee is a governmental unit with general taxing power. Not less than 95% of the proceeds of the Agreement will be used for governmental purpose of Lessee. 3. Lessee (which includes all subordinate entities of Lessee) has not issued or effected the issuance of, and reasonably anticipates that Lessee shall not issue or effect the issuance of, more than Five Million Dollars ($5,000,000.00) of tax-exempt bonds (other than private activity bonds or current refunding bonds, such terms being within the meaning of Section 148 (f)(4)[D) of the Internal Revenue Code of 1986, as amended), during the 2007 calendar year. In witness whereof, Lessee has caused this Supplement to the Agreement to be executed by its respective officers thereunto duly authorized, all as of the date and year first above written. LESSEE: City of Kalispell By: Title: GROUND LEASE This Ground Lease ("Ground Lease"), dated as of February 15, 2407, is entered into by and between the City of Kalispell, existing pursuant to the constitution and laws of the state of Montana, ("District") as lessor, and Municipal Services Group, Inc. ("MSG") as lessee. WITNESSETH WHEREAS, MSG intends to fund the refinancing of the existing building and related improvements on the real estate described in Exhibit A attached hereto and made a part hereof ("Land"). The Land., the improvements, and the equipment located thereon or therein are sometimes hereinafter referred to as the "Project"; and WHEREAS, MSG intends to lease the improvements and equipment and sublease the Land to the District pursuant to a Municipal Project Lease and Option Agreement dated as of the date hereof ("Agreement"). NOW, THEREFORE, IT IS HEREBY MUTUALLY AGREED, AS FOLLOWS: Section 1. Lease. The District hereby teases to MSG, and MSG hereby rents and leases from the District the Land and all improvements, fixtures, and equipment of the District located on the Land ("Premises"), on the terms and conditions hereinafter set forth. Section 2. Term. The term of this Ground Lease shall commence as of February 15, 2007, and shall end on February 15, 2027, unless such term is sooner terminated as hereinafter provided. Section 3. Rental. As and for rental hereunder and in full consideration for the leasing of the Land and the Premises to MSG, the receipt and sufficiency of which are hereby acknowledged by the District, MSG shall, simultaneously with the delivery of this Ground Lease, enter into the Agreement; Section 4. Owner in Fee. The District warrants that it is the owner of unencumbered fee title to the Land. Section 5. Assignments and Subleases. MSG may assign its rights under this Ground Lease or sublet the Project without the written consent of the District (i) in connection with any assignment of its rights under the Agreement, (ii) if the Agreement is terminated for any reason other than as described in Section G hereof, or (iii) if an "Event of Default" as defined in the Agreement has occurred. Section 6. Termination. This Ground Lease shall terminate upon the completion of the term set forth in Section 2, provided however, in the event the District makes payment of the purchase price and other amounts due under the Agreement or makes all of the rental payments provided for in Article VI of the Agreement and other amounts due under the Agreement and exercises the option to purchase MSG's interest in the Project pursuant to Article XI of the Agreement, then this Ground Lease shall be considered assigned to the District and terminated through merger of the leasehold interest with the fee interest if the District is the owner of the fee interest and elects to terminate the leasehold interest so acquired from MSG. MSG agrees, upon such assignment and termination or upon termination of this Ground Lease upon completion of the term set forth in Section 2, to quit and surrender the Project (except as provided in the following paragraph), and agrees that any permanent improvements and structures existing upon the Land at the time of the termination of this Ground Lease shall remain thereon and title thereto shall vest with the District. If an "Event of Default" under the Agreement shall occur and be continuing, MSG shall have the right to possession of the Project for the remainder of MSG's Lease Term and shall have the right to sublease the Project or sell its interest in the Project and this Ground Lease upon whatever terms and conditions it deems prudent, and the District shall recognize the assignee/purchaser as lessee hereunder. Section 7. Default. The District shall not have the right to exclude MSG from the Project or take possession of the Project (other than pursuant to the Agreement) or to terminate this Ground Lease prior to the expiration of its term upon any Default by MSG hereunder, except that if, upon the exercise of the option to purchase MSG's interest in the Project granted to the District in Section 11.01 of the Agreement and after the payment of the purchase price specified therein and other sums payable under the Agreement, MSG fails to convey its interest in the Project to the District pursuant to said option, then the District shall have the right to terminate this Ground Lease, such termination to be effective thirty (30) days after delivery of written notice of such termination to MSG. Section S. Quiet Enjoyment. MSG at all times during the term of this Ground Lease shall peaceably and quietly have, hold and enjoy all of the Project, and shall have the right to assign this Ground Lease and, following termination of the Agreement (other than following the exercises of the District's option to purchase) to sublease the Project. Section 9. Taxes. The District covenants and agrees to pay any and all assessments of any kind or character and also all taxes levied or assessed upon the Land or any part of the Premises. Section 10. Waiver of Personal Liability. All liabilities under this Ground Lease on the part of MSG are solely corporate liabilities of MSG as a corporation, and, to the extent permitted by law, the District hereby releases each and every incorporator, member, director and officer of MSG of and from any personal or individual liability under this Ground Lease. No incorporator, member, director of officer of MSG shall at any time or under any circumstances be individually or personally liable under this Ground Lease for anything done or omitted to be done by MSG under the provisions of this Section 10. The Land and the use thereof are in compliance with, and the District will maintain the condition of the Land so that it shall remain in compliance with, all applicable laws, statutes, ordinances, rules and regulations of any governmental or quasi -governmental authority, specifically including without limitation the Resource Conservation and Recovery Act and the Comprehensive Environmental Response, Compensation and Liability Act, both as amended, and all other environmental protection or toxic waste or hazardous substance handling treatment, storage or disposal laws, statutes, ordinances, rules and regulations. The District agrees to provide MSG with copies of any notifications of releases of oil or hazardous materials or substances or of any environmental hazards or potential hazards (each a "Release") which are given by or on behalf of the District to any federal, state or local agencies or authorities or which are received by the District from any federal, state or local agencies or authorities with respect to the Land. Such copies shall be sent to MSG concurrently with their being mailed or delivered to the governmental agencies or authorities or within ten days after they are received by the District. The District agrees to provide MSG with copies of all emergency and hazardous chemical inventory forms (hereinafter "Notices") with respect to the Land previously given, as of the date hereof, to any federal, state or local governmental authority or agency as required pursuant to the Emergency Planning and Community Right -to -Know Act of 1986, 42 U.S.C.A. Section 1101 et. seg., and to provide MSG with copies of all such Notices subsequently sent to any such governmental authority or agency as required pursuant to the Emergency Planning and Community Right -to - Know Act of 1986. Such copies of subsequent Notices shall be sent to MSG concurrently with their being mailed to any such governmental authority or agency. The District hereby covenants and agrees to indemnify, protect and hold harmless MSG and its successors and assigns from and against any and all claims, demands, liabilities and costs, including without limitation attorneys' fees, arising from (a) any "Release" (as defined above) or threat of a "Release," actual or alleged, or any "Hazardous Substances" (defined as "(i) any dangerous, toxic or hazardous pollutant, contaminant, chemical, material or substance listed or identified in, or regulated by, any Environmental Law, (ii) any of the following, whether or not included in the foregoing: asbestos, urea formaldehyde, polychlorinated biphenyls ("PCBs"), nuclear fuel or material, chemical waste, radioactive material, explosives, known carcinogens, and petroleum products and by-products; and (iii) any "recognized environmental condition", as that term is defined by the American Society for Testing and Materials in its standards for environmental due diligence") upon or about the Land or respecting any products or materials previously or now located upon, delivered to or in transit to or from the Land regardless of whether such release or threat of a release or alleged release or threat of a release has occurred prior to the date hereof or hereafter occurs and regardless of whether such release or threat of a release or alleged release or threat of a release occurs as the result of the negligence or misconduct of the District or any third party of otherwise, or (b) any violation, actual or alleged, of or any other liability under or in connection with any Environmental Law (defined as "the Comprehensive Environmental Response, Compensation and Liability Act, 42 U.S.C. § 9601 et seq., the Resource Conservation and Recovery Act, 42 U.S.C.§ 9601 et seq., the Hazardous Materials Transportation Act, 49 U.S.C. § 1 802 et seq., the Toxic Substances Control Act, 15 U.S.C. § 2601 et seq., the Federal Water Pollution Control Act, 33 U.S.C. § 1251 et seq., the Clean Water Act, 33 U.S.C. § 1131 et seq., the Clean Air Act, 2 U.S.C. § 7401 et seq., and any other federal, state, county, municipal, local or other statute, law, ordinance, or regulation which may relate to or deal with the human health or the environment, all as may be from time to time amended"), upon or about the Land or respecting any products or materials previously or now located upon, delivered to or in transit to or from the Land, regardless of whether such violation or alleged violation has occurred prior to the date hereof or hereafter occurs and regardless of whether such violation or alleged violation occurs as a result of the negligence or misconduct of the District or any third party or otherwise. This agreement shall survive any termination of this Ground Lease. Section 11. Eminent Domain. In the event the whole or any part of the Land is taken by eminent domain proceedings, the interest of the Land shall be recognized; the proceeds of said condemnation to be applied as provided in the Agreement. The District agrees, to the extent lawful, that it shall not exercise any rights of eminent domain with respect to the Project. Section 12. Leaseback to the District; Term; Rental. Contemporaneously herewith MSG and the District will execute the Agreement whereby MSG subleases back to the District and the District subleases from MSG the Premises, and MSG leases to the District and the District leases from MSG the Project and the Premises in accordance therewith. Title to the Premises shall remain with the District at all times. The Agreement between the parties includes the option of the District, upon payment of the purchase price, to purchase MSG's interest in the Project. Section 13. Partial Invalidity. If any one or more of the terms, provisions, covenants or conditions of this Ground Lease shall to any extent be declared invalid, unenforceable, void or voidable for any reason whatsoever by a court of competent jurisdiction, the finding or order or decree of which becomes final, none of the remaining terms, provisions, covenants and conditions of this Ground Lease shall be affected thereby, and each provision of this Ground Lease shall be valid and enforceable to the fullest extent permitted by law. Section 14. Notices. All written notices to be given under this Ground Lease shall be given by mail to the party entitled thereto at its address set forth in the Agreement, or at such address as the party may provide to the other party in writing from time to time. Any such notice shall be deemed to have been received 48 hours after deposit in the United States mail in certified form, with postage fully prepaid. Section 15, Section Headings. All section headings contained herein are for convenience of reference only and are not intended to define or limit the scope of any provision of this Ground Lease. Section 16. Applicable Law. This Ground Lease shall be governed by and construed in accordance with the laws of the state of Montana. Section 17. Execution. This Ground Lease may be executed in any number of counterparts, each of which shall be deemed to be an original but all together shall constitute but one and the same Ground Lease. It is also agreed that separate counterparts of this Ground Lease may separately be executed by MSG and the District. Section 18. Successors. This Ground Lease shalt be binding upon and inure to the benefit of the parties and their respective successors and assigns, including the holder of any mortgage, deed of trust, security or other interest granted by MSG in the Project or its leasehold interest in the Land. IN WITNESS WHEREOF, the City of Kalispell and Municipal Services Group, Inc. have caused this Ground Lease to be executed by their respective officers thereunto duly authorized, all as of the date and year first above written. City of Kalispell By: Title: Date: STATE OF MONTANA COUNTY OF On , before me, , personally appeared , personally known to me (or proved to me on the basis of satisfactory evidence) to be the person(s) whose name(s) is/are subscribed to the within instrument and acknowledged to me that he/she/they executed the same in his/her/their authorized capacity(ies), and that by his/her/their signature(s) on the instrument the person(s), or the entity upon behalf of which the person(s) acted, executed the instrument. Witness my hand and official seal. Notary Public: My commission expires: Municipal Services Group, Inc. By: Title: Date: STATE OF COLORADO COUNTY OF JEFFERSON On , before me, , personally appeared , personally known to me for proved to me on the basis of satisfactory evidence) to be the person(s) whose name(s) is/are subscribed to the within instrument and acknowledged to me that he/she/they executed the same in his/her/their authorized capacity(ies), and that by his/her/their signature(s) on the instrument the person(s), or the entity upon behalf of which the person(s) acted, executed the instrument. Witness my hand and official seal. Notary Public: My commission expires: EXHIBIT A TO GROUND LEASE LAND (See attached legal description)