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Tab 12 No Litigation and Arbitrage Certificate$49520,9000 City of Kalispell, Montana Special Improvement District No. 344 Bonds Series 2006 June 29, 2006 No Litigation and No Arbitrage Certificate We,, the undersigned, being the duly qualified and acting Mayor (the "Mayor"') of the City of Kalispell, Montana (the "City"), the duly qualified and acting City Clerk (the "City Clerk") of the City, and the duly qualified and acting Finance Director (the "Finance Director" and, collectively with the Mayor and the City Clerk, the "City Officials") of the City, as shown beneath our signatures herewith, hereby certify and recite as follows: Description of the Series 2006 Bonds Name of Bonds: Special Improvement District No. 344 Bonds, Series 2006 Dated Date-, June 15, 2006 (Delivered June 29, 2006) Amount of Issue: $4,520,000 Denomination: $5,,000 and any integral multiple of $5,000 Interest Rates: Year of Maturity july Interest Rate Bond Yield 2007 3.700% 3.700% 2008 3.800 3.800 2009 3.850 3.850 2010 3.950 3.950 2011 4.000 4.000 2012 4.100 4.100 2013 4.200 4.200 2014 4.300 4.300 2015 4.400 4.400 2016 4.500 4.500 2017 4.600 4.600 2018 4.700 4.700 2019 4.800 4.800 2020 4.900 4.900 2021 5.000 5.000 2022 5.050 5.050 2023 5.100 5.100 2024 5.100 5.100 2025. 5.100 5.100 2026 5.100 5.100 Interest Payment Dates-, January 1 and July 1, commencing January 1, 2007 Fully registered Bonds payable at: U.S. Bank National Association, Seattle, Washington, as Bond Registrar and Paying Agent Maturity Dates: July I in the years and amounts as follows: Maturity Principal Maturity Principal Year Amount Year Amount 2007 $225�000 2017 $2255000 2008 2255000 2018 225�000 2009 225po 2019 22500 2010 2255000 2020 2255000 2011 22500 2021 22500 2012 22500 2022 2251000 2013 225�000 2023 2305000 2014 225�000 2024 23000 2015 225�000 2025 2309000 2016 225�000 2026 23 O�000 Redemption-, The City may elect on July 1, 2013, and on any day thereafter, to prepay the Bonds due on or after July 1, 2014 at a price of par plus accrued interest. District Formation and Arbitrage and Rebate Matters The City Officials, as officers of the City who have the responsibility together with the City Council of the City for the issuance of the Bonds, certify and reasonably expect that the following will occur with respect to the Bonds: 1 . Gene . Proceeds of the Bonds will not be used directly or indirectly to acquire higher yielding investments or to replace funds which were used directly or indirectly to acquire higher yielding investments, except during temporary periods described 'in Section 148 of the Internal Revenue Code of 1986, as amended (the "Code"), and in Treasury Regulations, Sections 1.148-0 to 1.148-10, as amended (the "Regulations") or amounts 'Invested in the Revolvitig Fund and Reserve Account that do not exceed the Reserve Limitation and are within the Minor Portion Amount. Capitalized terms used in this Certificate and not defined herein shall have meanings granted to them 'in the Bond Resolution. The City elects to adopt of bond year commencing July I and ending on June 30. The first Bond Year for the Bonds will be from June 29, 2006 to June 30, 2006. The second bond year commences July 1, 2006. 2. Project Costs. The Bonds are being issued to provide funds to the City to: (i) finance a portion of the costs of certain public improvements of special benefit to the properties within District 344 (the "District") of the City (the "Improvements"); (il*) pay costs of issuance for the Bonds; (iii) fund a deposit to the City's Special Improvement District Revolving Fund (the "Revolving Fund"); and (iv) and fund a deposit to the separate account within the District (the "Reserve Accounf') securing the Bonds in the Special Improvement District No. 344 Fund (the "District Fund"), as set forth in Resolution No. 5111 (the "Authorizing Resolution") adopted on April 3, 2006 by the City Council of the City, Resolution No. 5120 (the "Award Resolution") adopted on June 13, 2006 by the City Council of the City, and Resolution 2 No. 5123 (the "Bond Resolution") adopted on June 19, 2006 by the City Council of the City. The costs of the Improvements, including incidental costs, are as follows.- Pro.j.ect DesigLiation & Descrivtion: Construction of Improvements Revolving Fund Deposit Reserve Account Deposit Costs of Issuance City Administrative Fee Underwriter's Discount Total Total Project Cost $3�875fiOO 2269000 2261,000 6531600 409000 ---.-.--.9-09,.4.00 3. Establishment of Special Improvement District No. 344 and Various Tax Increment Districts. (a) SID No. 344. (i) Initial Actions. By Resolution No. 5063, adopted October 3, 2005 (the "Intent Resolution"), the City Council of the City declared its intention to create Special Improvement District No. 344 (the "District") for the purpose of making public improvements for the special benefit of the District. The Intent Resolution designated the number of the District, described the boundaries thereof, stated the general character of the public improvements (the "Improvements") to be made in the District and specially benefiting property located therein, and an estimate of the costs thereof, in accordance with the provisions of Montana Code Annotated, Title 7., Chapter 12, Parts 41 and 42, as amended (the "Act"). Pursuant to the Intent Resolution, the City Council of the City also declared its intention to cause the cost and expense of making the Improvements to be assessed against the properties included within the boundaries thereof in accordance with one or more methods of assessment authorized in Sections 7-12-4161 to 7-12-4165 of the Act. (ii) Notices. The City gave notice of the passage of the Intent Resolution as required by Montana law , including Section 7-12-4106(2) of the Act and Montana Code Annotated, Section 7-1-2121, by publication on October 18, 2005, October 25, 2005 and November 1, 2005, in the Daily Inter Lake, a qualified newspaper of general circulation in the City and Flathead County. Notice of the passage of the Intent Resolution was also mailed to all persons, firms or corporations or the agents thereof owning real property within the District listed in their names upon the last completed assessment roll for state, county and school district taxes, at their last known addresses. The notice of passage of the Intent Resolution, in accordance with the provisions thereof, stated the following: (i) the general character of the Improvements; (ii) the estimated cost of the Improvements; (iii) the method or methods of assessment of such costs against properties in the District; (iv) the timg when and the place where the City Council would hear and pass upon all protests made against the making of the Improvements or the creation of the District; (v) referred to the Intent Resolution as being on file in the office of the City Clerk for a description of the boundaries of the District; and (vl*) included a statement that, subject to the limitations the general fund of the City may be used to provide loans to the of Section 7-12-4222 of the Act, I Revolving Fund or a general tax levy may be imposed on all taxable property in the City to meet the financial requirements of the Revolving Fund. (iii) Creation Resolution. At a regularly scheduled meeting on November 7, 2005, the City 0 Council of the City met to hear, consider and pass upon all protests made against the making of the Improvements and the creation of the District. After the public hearing and deliberation, pursuant to Resolution No. 5074, the City Council determined and declared that insufficient protests against the creation of the District or the proposed work had been filed in the time and manner provided by law by 3 the owners of the property to be assessed for the Improvements in the DistTict. By Resolution No. 5074, the City Council created the District and ordered the proposed Improvements. The boundaries of the District have not been amended or altered since the passage of Resolution No. 5074. (b) Tax Increment Districts. (i) Intent Resolutions. Pursuant to pursuant to Montana Code Annotated, Title 7, Chapter 15, Part 42, as amended (the "TIF Acf'), the City has the power to establish tax increment districts for various purposes. By Resolution No. 5070, adopted October 17, 2005 (the "Industrial TIF Intent Resolution"), the City Councill'of the City declared its intention to establish an industrial tax increment district (the "Industrial District .") at Old School Station (within the District) and callfor a public hearing on the establishment of the Industrial District. The Industrial TEF Intent Resolution designated the name of the Industrial District, described the respective boundaries thereof, and stated the reasons for establishment of the Industrial District. By the Industrial TIF Intent Resolution, the City Council of the City also declared its intention to establish the Industrial TIF District for the purpose of providing a financial mechanism to provide the necessary infrastructure support to encourage the growth of secondary, value -adding industries in the City. Pursuant to the Industrial TIF Intent Resolution, the City Council of the City also preliminarily made the findings required by Section 7-15- 4299(l) of the TIF Act for the formation of an industrial tax increment district such as the Industrial District. By Resolution No. 5071, adopted October 17, 2005 (the "Technology TIF Intent Resolution"), the City Council of the City declared its intention to establish a technology tax increment district (the "Technology District") at Old School Station (within the District) and call for a public hearing on the establishment of the Technology District. The Technology TIF. Intent Resolution designated the name of the Technology District, described the boundaries thereof, and stated the reasons for establishment of the Technology District. By the Technology TIF Intent Resolution, the City Council of the City also declared its intention to establish the Technology District for the purpose of assisting in financing necessary industrial infrastructure to encourage the location and retention of technology development projects in the City. Pursuant to the Technology TIF Intent Resolution, the City Council of the City also preliminarily made the findings required by Section 7-15-4295(2) of the TIF Act for the formation of a technology tax increment district such as the Industrial District. (ii) Notices.. The City Council of the City, at its November 7, 2005 meeting, held public hearings with respect to the creation of the Industrial District and the Technology District. Notices of the public hearings with respect to both the Industrial District and the Technology District were published in the Daily Inter Lake, a qualified newspaper of general circulation in the county in which the City is located, on October 25, 2005 and November 1, 2005, as required by Montana law and the TIF Act. The notices of public hearings for the Industrial District and the Technology District stated, respectively, that the proposed ordinance for the creation of each tax increment district could be obtained by contacting the City Clerk. (iii) Public Hearings and Final Ordinances.' At a regularly scheduled meeting on November 7, 2005, the City Council of the City met and held public hearings with respect the formation of both the Industrial District and the Technology District. After the public hearing and deliberation with respect to the Industrial District, the City Council of the City, pursuant to Ordinance No. 1557, established the Industrial District and set January 1, 2005 as the base taxable year for the Industrial District. After the public hearing and deliberation with respect to the Technology District, the City Council of the City, pursuant to Ordinance No. 1558, established the Technology District and set January 1, 2005 as the base taxable year for the Technology District. In Ordinance No. 1557, the City Council of the City confirmed the preliminary findings established in the Industrial TIF Intent Resolution with respect to the requirements of Section 7-15-4299(l) of the TIF Act. Pursuant to Ordinance No. 1558, the City Council of the City confirmed the preliminary findings established in the Technology TIF Intent Resolution with 4 respect to the requirements of Section 7-15-4295(2) of the TIF Act. The boundaries of the Industrial TIF District and the Technology TIF District, respectively, have not been amended or altered since the passage of Ordinance Nos. 1557 and 1558. 4. Reimbursement. The proceeds of the Bonds will not be applied to reimburse expenditures of the City (other than preliminary expenditures) incurred prior to: (i) the date which is sixty (60) days prior to the adoption by the City Council on October 3, 2005, of Resolution No. 5063 (the "Resolution Creating District") with respect to the expenditures referenced in such resolution. The City has entered into contracts for the Improvements, in the form of architectural or engineering services, site development or construction, in the sum of at least $ 2,909,626, which the City has expended on the Improvements. As of the date hereof, the City has paid $ 832,959 for costs of the Improvements, which w ill be reimbursed to the City from proceeds derived from the Bonds. I I 5. Temporga Period — Two Year Election. The City is treating the Bonds as a 44construction issue" within the meaning of the Code and the Regulations. The Bonds are not "private activity bonds" (see Section 9 below) and at least seventy-five percent (75%) are expected to be used for "construction expenditures" with respect to real property owned or to be owned by the City. None of the property to be acquired as part of the Improvements will be built by the City or its employees. The City hereby elects to use its reasonable expectations in determining the qualification of the Bonds as a construction issue pursuant to Section 1.148-6(e)(2) of the Regulations. Thus, the City anticipates that the following percentages -of funds in the Construction Fund will be spent within the following periods from the date of issuance of the Bonds: (i) ten percent (10%) within six months (December 29, 2006),; (H) forty-five percent (45%) within one year (June 29, 2007); (iii) seventy-five percent (75%) within 18 months (December 20, 2007); and (iv) one hundred percent (100%) within two years (June 29, 2008) (subject to a reasonable. contractual retainage amount not exceeding five percent (5.00%) of the available construction proceeds to be spent within three (3) years from the date of issuance). 6. Temporga Period - Due Diligence Test. The City reasonably expects to proceed with due diligence 'in completing the Improvements to be financed with the proceeds of the Bonds and in allocating the net sale proceeds of the Bonds to the expenditures with respect to such Improvements. 7. Temporga Period - Three Year Test. The City will allocate at least eighty-five percent (85%) of the net sale proceeds of the Bonds, within three (3) years from the date of issuance of the Bonds, to the Improvements. 8. No Sale. The Improvements comprising of the Project and upon which proceeds of the Bonds will be expended will not be sold or otherwise disposed of by the City prior to the date of the last maturity of any of the Bonds. 9. Private Activfty Bond Status. The City reasonably expects that during the term of the Bonds no private business use will be made of the Improvements and that no private payments or security will be made or furnished that would cause the Bonds to be "private activity bonds" within the meaning of Section 141 of the Code and applicable Regulations. No proceeds of the Bonds are being or will be loaned to any nongovernmental person and the payment of special assessments levied for payment of the Improvements are levied pursuant to Montana law and are 'intended to meet the exception for tax assessment loans contained in Section 1. 141-5(d) of the Regulations. The City reasonably expects that the Bonds will not be private activity bonds within the meaning of Section 141 of the Code. I 10. Temporga Periods - District Fund. The City Council established a Special Improvement District No. 344 Fund," (the "District Fund") pursuant to the terms of the Bond Resolution. The Bond Resolution authorized deposit 'in the District Fund of special assessments to be levied against properties benefited by the Improvements to pay the principal of and interest on the Bonds when due. The City expects to use only the District Fund to pay the principal of and interest on the Bonds. The special assessments appropriated to the District Fund are expected to produce amounts sufficient to pay all principal of and interest on the Bonds when due. (i) Funds and Accounts. Within the District Fund there shall be maintained three separate accounts, designated as the "Constructibn Fund," "Debt Service Fund" and "Reserve- Account, �9 respectively. Whenever there will be money in the Debt Service Fund in the District Fund on any Interest Payment Date, after paying 'interest on all Bondsr then due, either from the prepayment of special assessments levied on the benefited property or from the transfer of surplus money from the Construction Funds to the Debt Service Fund, the Finance Director is required by law to call for redemption outstanding Bonds or principal installments thereof which, together with the interest thereon to the date of redemption, will equal the amount on hand in the Debt Service Fund on that date. (ii) Debt Service Fund. It is expected that amounts in Debt Service Fund to be used to pay the principal of and interest on the Bonds will be fully expended on each July I (except for an amount not exceeding one -twelfth (1/12"h) of the debt service on the Bonds payable in the 12-month period ending on such date). The amounts on hand 'in the Debt Service Fund from time to time to pay principal of and interest on the Bonds are expected to be expended within twelve months after receipt. Therefore, amounts on deposit in the Debt Service Fund are expected to qualify as a "bona fide debt service fund" w *thin the meaning of Section 1.148-1(b) of the Regulations. As such, the money therein will be eligible for investment at an unrestricted yield for a temporary period of up to 13 months, except as provided herein. (iii) Reserve Account. Money in Reserve Account shall be applied on any Interest Payment Date to payment of principal of and interest on the Bonds at the stated maturity thereof if funds on hand in the Debt Service Fund, prior to the application of Tax Increments as set forth below. Funds in Reserve Account must be used for such purpose before a loan is made by the Revolving Fund therefor. (I"V) Application of Tax Increments. Tax Increments (the "Tax Increments") derived from the Industrial District and the Technology District are pledged by the City, to the limited extent provided in the Bond resolution, by the City as security for the Bonds. Tax Increments derived from the Industrial District or the Technology District will. only be utilized by the City to act as security for Bonds allocable to the cost of Improvements within the applicable tax increment district. The Technology District and the Industrial District are both located within the boundaries of the District. Pursuant to Section 7-15-4290 of the TIF Act, the City may pledge tax increment derived from an industrial tax increment district (such as the Industrial District) or a technology tax increment district (such as the Technology District) to the payment of special assessment bonds (such as the Bonds) 'Issued to pay industrial district and technology district costs described in Sections 7-15-4288 and 7-15-4289 of the TIF Act. Pursuant to Section 7-15- 4288 of the TIF Act, eligible costs to be paid by the City with tax increments include public improvements (such as the Improvements) authorized to be made pursuant to the SID Act. Certain tax increment revenues derived from the Technology District and the Industrial District will be available, to the extent provided in the Bond Resolution, for the payment of and pledged to the cost of the Improvements or paying on the Bonds (as more fully described in the Bond Resolution). In the event that a property owner 'is delinquent in the payment of special assessments and the City has not received payment of any special assessments allocable to such parcel by the date that is fifteen (15) days prior to any Interest Payment Date, the Finance Director is authorized to transfer, after 6. transfers from the Reserve Account, but prior to transfers from the Revolving Fund, any Tax Increments (but only to the extent of such delinquent special assessment payment, to the extent that such funds are on hand in the operating account for each tax increment district and are not pledged by the City to other purposes) derived from the tax increment district in ' which the property is located, and then on deposit w ith the City, to the Debt Service Fund for the pro-rata portion of the payment allocable the delinquent property that is due and owing on the Bonds on the next Interest Payment Date. In the event that a property owner pays delinquent special assessments, after the application of Tax Increments above, to the payment of regularly scheduled debt service on the Bonds, the Finance Director is hereby authorized to transfer an amount equal to such prior payments of Tax Increments for such parcel to the applicable operating account for the tax increment fund in which such parcel is located. Any payment of delinquent special assessments, after the 'application of Tax Increment above, to a payment of debt service on the Bonds shall not be applied to the mandatory redemption of the Bonds. 10. ' Excess Amounts in the Debt Service Fund. As of the first day of each month, the Finance Director will determine the balances in the De bt Service Fund. If the balances therein in -the aggregate exceed the amount described in Section 9, the amount in excess thereof, except as provided in Section 12, will be applied to redeem Bonds or will not be invested at a yield greater than the yield of the Bonds (4.7376561 percent), if and to the extent such use or restriction is necessary to prevent the Bonds from being arbitrage bonds within the meaning of Section 148 of the Code and the Regulations. 11. Revolving Fund and the Reserve Account. The City has established the Revolving Fund pursuant to the Act and Ordinance No. 759, as amended by Ordinance No. 947, to secure certain special improvement district bonds and warrants of the City, including the Bonds. The City shall deposit in the Revolving Fund proceeds of the Bonds in the amount of $226,000. The amount on deposit in the Revolving Fund on the date hereof, after giving effect to the deposit from the proceeds of the Bonds, 'is $286,539. This amount secures special improvement district bonds and warrants of the City, 'including the Bonds, issued in the original aggregate principal amount:of $ 5,7309775. Unless the Regulations otherwise require, the City will allocate amounts on hand in the Revolving Fund, as a commingled reserve fund (as provided in Section 1.1486(e)(6)(i) of the Regulations), to outstanding issues of special improvement district bonds or warrants secured thereby "n proportion to their respective original prn cipal amounts. The City shall reallocate funds on deposit in the Revolving Fund to outstanding 'issues of bonds or warrants secured thereby upon the issuance or retirement of a series of bonds or warrants secured thereby and, if not done otherwise,, at least every three years. The City has also established the Reserve Account to secure the Bonds and has deposited $226,000 of the proceeds of the Bonds in the Reserve Account. The descriptions discussed in this Certificate relating to the investment of amounts in the Reserve Account and the Revolving Fund relate to investing such funds without restriction as to yield. By 'its execution of this Certificate, the City acknowledges that amounts earned in the Reserve Account and the Revolving Fund that are in excess of the Bond yield and are allocable to the Bonds will need to be rebated to the United States Government. D.A. Davidson & Co., as financial advisor to the City, has advised the City that the Revolving 9 Fund and the Reserve Account and funding such accounts to the amounts discussed herein are required for the marketability of the Bonds. The Revolving Fund and the Reserve Account constitute a combined "reasonably required reserve" for the Bonds within the meaning of Section 148(d) of the Code and Section 1. 148-2(f) of the Regulations to the extent that the, amount on deposit in the Revolving Fund and 7 the Reserve Account, combined, allocable to the Bonds (the "Reserve Amount") does not exceed the Reserve Limitation (as hereinafter defined). For purposes of this certificate, the "Reserve Limitation" is equal, as of the date hereof, to the lesser of: (i) ten percent (10%) of the proceeds of the Bonds ($452,000.00); (ii) the maximum amount of principal and interest payable on the Bonds in the current or any future calendar year of the City (initially, $438,152.83), and (iii) 125% of the average annual debt service on the Bonds payable in any calendar year (initially, $425,153.95). The Reserve Limitation may decrease if the amount of debt service paid on the Bonds in any calendar year or the average annual debt service on the Bonds fall below the amounts set forth 'in (0-(iii) of the preceding sentence. The City will not invest any portion of the Reserve Amount that is in excess of the Reserve Limitation at a yield in excess of the yield of the Bonds (4.7376561%), except as permitted by paragraph Section 12 below because such amount is within the Minor Portion Amount (as defined below). As of the date hereof, the Reserve Amount is $452,000. On the date hereof, $26,846.05 of the Reserve Amount, determined as of the date hereof, may be invested at an unrestricted yield because it is less than the Minor Portion Amount. By this Certificate, the City covenants to calculate, on an annual basis, the amount of the Reserve Amount that is 'in excess of the Reserve Limitation and determine whether such amount is within the Minor Portion Amount and may be invested without limitation. In the event that the amount on deposit in the Revolving Fund and the Reserve Account is in excess of the Reserve Limitation and in excess of the Minor Portion Amount the City will not invest such amount at a rate in excess of the yield on the Bonds. 12. Minor Portion Amount. The Code and the Regulations provide that the City may 'invest an amount of the Bonds not to exceed the lesser of (i) five percent (5.00%) of Bond proceeds or (ii) $100,000 (the "Minor Portion Amount") without restriction as to yield throughout the term of the Bonds. To the extent that the sum of (0 proceeds of the Bonds on deposit in the Construction Fund in the District Fund remain on hand therein after the earlier of three years from the date hereof or completion of the Improvements with due diligence and payment of all costs thereof, whichever is earlier; (ii) the special assessments or other money on hand in the Debt Service Fund in excess of the limitation described in Section 10 hereof (except amounts held therein for less than 13 months); and (iii) the Reserve Amount in excess of the Reserve Limitation (initially, $26,846.05) combined do not exceed the Minor Portion Amount, such excess may be 'invested at a yield exceeding the yield of the Bonds (4-7376561%). 13. Issue Price, Yield, No Arbitrage and Rebate. The issue price of the Bonds on the issue date is $4,520,000,, which represents the price at which the Bonds have been offered to the ultimate purchasers of the Bonds (as represented by D.A. Davidson & Co. as purchaser of the Bonds). The determination of issue price with respect to the Bonds 'is based upon the representations of D.A. Davidson & Co., as set forth in its certificate dated as of the date hereof relating to the Bonds. The yield on the Bonds i's 4.7376 percent (4.7376561 percent taken to four decimal places). For purposes of this Certificate, the yield on the Bonds and investments will be calculated as set forth in Section 148(h) of the Code and. Section 1.148-4 of the Regulations (with respect to the yield on the Bonds) and Section 1.148-5 of the Regulations (with respect to the yield on investments). The determination of yield with respect to the Bonds is based on calculations prepared by D.A. Davidson & Co., financial advisor to the City, as set forth in its certificate dated as of the date hereof relating to the Bonds. The City will maintain records of the investments made with the sale proceeds of the Bonds and the investments made with the revenues deposited in the District Fund in adequate detail to enable the City to calculate the total of the excess of the amount earned on any "non -purpose investments" (as defined in the Regulations), excluding tax-exempt obligations, if any, over the amount which would have 8 been earned if the non -purpose investments were 'invested at a rate equal to the yield on the Bonds, plus any earnings attributable to such excess (the "Potential Rebate Amount"). No Potential Rebate Amount will be paid to the United States unless the City Council specifically determines that a portion of the Potential Rebate Amount is required to be rebated to the United States pursuant to the requirements of Section 148(f)(3) of the Code and Section 1. 148-3 of the Regulations. 14. No Other Facts. To the best knowledge and belief of the City Officials, there are no facts or estimates which would materially change the foregoing expectations of the City with respect to the use of the sale proceeds of the Bonds and of the special assessments deposited in the District Fund. 15. No Notification From IRS. To the best knowledge and belief of the City Officials, no member of the City Council and no officer or employee of the City has been notified that the City has 0 been listed or is proposed to be listed by the Internal Revenue Service as an issuer whose certifications as to arbitrage and rebate may not be relied upon. 16. Absence of Litigation. No litigation or otherjudicial or administrative proceeding is now 41 4- pending, or to the best of our knowledge, threatened, (i) restraining or enjoi P ning the sale, issuance or delivery of the Bonds, (14) questioning the existence or organization of the City or the right of any officers of the City to their respective offices, (I*il*) questioning the right and power of officers of the City to execute and deliver the Bonds, (iv) questioning the validity of the creation of the District or the work to be undertaken therein or for the special benefit thereof or any contract relating thereto, (v) challenging the validity of the levy of any special assessments to pay the principal of or interest on the Bonds, (vi) questioning the validity or creation of the Industrial District or the Technology District, (vii) questioning the pledge of Tax Increments as security for the Bonds, or (viii) questioning the levy of any taxes or the making of any loans to fund the Revolving Fund or the pledge thereof to the Bonds. No sufficient petition requesting a referendum has been filed with respect to the Intent or Bond Resolutions or any of the resolutions of the City Council of the City authorizing the issuance and sale of the Bonds or any proceedings preliminary thereto, including the Resolution Creating District or the resolutions or ordinances adopted with respect to the Industrial District or the Technology District. No litigation is now pending or threatened questioning the opinion of Kennedy & Graven, Chartered, as bond counsel, that interest on the Bonds is excludable from gross income for federal income tax purposes. On the basis of the foregoing, it is not expected that the proceeds of the Bonds will be used in a manner that would cause the Bonds to be deemed to be "arbitrage bonds" under Sections 103 and 148 of the Code, under the applicable Regulations, and under the revenue rulings and revenue procedures promulgated under such sections of the Code and the Regulations. Other Matters The City Officials further certify that no obligations have been prepared, executed, or issued pursuant to the Bond Resolution referenced above or other resolutions adopted by the City Council on the same date. The City Officials further certify that the signatures shown below are the duly authorized signatures of the City Officials. The City has an official seal which has been affixed hereto which facsimile ofthe official seal of the City has been imprinted on the Bonds as permitted by law. WITNESS our hands officially as the Mayor, City Manager, and City Finance Director to this NO LITIGATION AND ARBITRAGE CERTIFICATE as of the date and year first listed above. CITY OF KALISPELL, MONTANA ts Mayor ��00000 qm"�� or -,lTs City Finance Director (Signature page to No Litigation and Arbitrage Certificate with respect to the Series 2006 Bonds) S-1