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Resolution 5205 - Refinances Existing Water BondsRESOLUTION NO, 5205 RESOLUTION RELATING TO $1,283,159 WATER SYSTEM REVENUE REFUNDING BOND (DNRC DRINKING WATER STATE REVOLVING LOAN PROGRAM), SERIES 2007A; AUTHORIZING THE ISSUANCE AND FIXING THE TERMS AND CONDITIONS THEREOF WHEREAS, pursuant to the Drinking Water State Revolving Fund Act, Montana Code Annotated, Title 75, Chapter 6, Part 2, as amended (the "State Act"), the State of Montana (the "State") has established a revolving loan program (the "Program") to be administered by the Department of Natural Resources and Conservation of the State of Montana, an agency of the State (the "DNRC"), and by the Department of Environmental Quality of the State of Montana, an agency of the State (the "DEV'), and has provided that a drinking water state revolving fund (the "Revolving Fund") be created within the state treasury and all federal, state and other funds for use in the Program be deposited into the Revolving Fund, including, but not limited to, all federal grants for capitalization of a state drinking water revolving fund under the federal Safe Drinking Water Act (the "Safe Drinking Water Act"), all repayments of assistance awarded from the Revolving Fund, interest on investments made on money in the Revolving Fund and payments of principal of and interest on loans made from the Revolving Fund; and WHEREAS, the State Act provides that funds from the Program shall be disbursed and administered for the purposes set forth in the Safe Drinking Water Act and according to rules adopted by the DEQ and the DNRC; and WHEREAS, the City of Kalispell, Flathead County, Montana (the "City") has applied to the DNRC for a loan (the "2007A Loan") from the Revolving Fund to enable the City to effect the Refunding and fund the Reserve Account which will carry out the purposes of the Safe Drinking Water Act; and WHEREAS, the City is authorized under applicable laws, ordinances and regulations to adopt this Supplemental Resolution and to issue the Series 2007A Bond (as hereinafter defined) to evidence the 2007A Loan for the purposes set forth herein; and WHEREAS, the DNRC will fund the Loan entirely with proceeds of EPA federal capitalization grants, either directly or as that portion of Recycled Money (as hereinafter defined) that is allocable solely to EPA federal capitalization grants. NOW, THEREFORE, BE IT RESOLVED BY THE CITY COUNCIL OF THE CITY OF KALISPELL, MONTANA, AS FOLLOWS: Article I DEFINITIONS, RULES OF CONSTRUCTION AND APPENDICES Section 1.1 Definitions. Unless a different meaning clearly appears from the context, terms used with initial capital letters but undefined in this Supplemental Resolution shall have the meanings given them in the Original Resolution, the Indenture, elsewhere in this Supplemental Resolution, or as follows: "Accountant" or "Accountants" means an independent certified public accountant or a firm of independent certified public accountants satisfactory to the DNRC. "Additional Bonds" means any bonds issued as parity bonds pursuant to Section 6.01 of the original Resolution. "Administrative Expense Surcharge" means a surcharge on the 2007A Loan charged by the DNRC to the City equal to seventy-five hundredths of one percent (0.75%) per annum on the outstanding principal amount of the 2007A Loan, payable by the City on the same dates that payments of interest on the 2007A Loan are due. "Authorized DNRC Officer" means the Director of the DNRC or his or her designee. "Board of Investments" means the Board of Investments of the State of Montana, or any successor to its functions under State law. "Bond Counsel" means any Counsel nationally recognized as experienced in matters relating to the issuance by states or political subdivisions of tax-exempt obligations selected by the City and acceptable to the DNRC. "Bonds" means the Series 2001 Bond, Series 2004 Bond, Series 2007A Bond, and any Additional Bonds. "Borrower" means the City or any permitted successor or assign. "Business Day" means any day which is not a Saturday or Sunday, a legal holiday in the State or a day on which banks in Montana are authorized or required by law to close. "City" means the City of Kalispell, Montana. "Closing„ means the date of delivery of the Series 2007A Bond to the DNRC. "Code77 means the Internal Revenue Code of 1986, as amended. "Collateral Documents" means any security agreement, guaranty or other document or agreement delivered to the DNRC securing the obligations of the City under this Supplemental Resolution and the Series 2007A Bond. If no Collateral Documents secure such obligations, any reference to Collateral Documents in this Supplemental Resolution shall be without effect. "Committed Amount" means the amount of the 2007A Loan committed to be lent by the DNRC to the City pursuant to Section 4.1 of this Supplemental Resolution, as such amount may be reduced pursuant to Section 3.2 and Section 3.3 of this Supplemental Resolution. "Construction Account" means the account created in the Water System Fund pursuant to Section 7.02 of the original Resolution. "Consultant" means a nationally recognized consultant or firm of consultants, or an independent engineer or firm of independent engineers, or an Accountant, which in any case is 2 qualified and has skill and experience in the preparation of financial feasibility studies or projections for facilities similar to the System, selected by the City and satisfactory to the DNRC. "Council" means the City Council of the City of Kalispell, Montana. "Counsel" means an attorney duly admitted to practice law before the highest court of any state and satisfactory to the DNRC. "Debt" means, without duplication, (1) indebtedness of the City for borrowed money or for the deferred purchase price of property or services; (2) the obligation of the City as lessee under leases which should be recorded as capital leases under generally accepted accounting principles; and (3) obligations of the City under direct or indirect guarantees in respect of, and obligations (contingent or otherwise) to purchase or otherwise acquire, or otherwise to assure a creditor against loss in respect of, indebtedness or obligations of others of the kinds referred to in clause (1) or (2) above. "Debt Service Account" means the account created in the Water System Fund pursuant to Section 7.04 of the Resolution. "DEQ" means the Department of Environmental Quality of the State of Montana, an agency of the State, or any successor to its powers, duties and obligations under the State Act or the EPA Agreements. "DNRC" means the Department of Natural Resources and Conservation of the State of Montana, an agency of the State, and any successor to its powers, duties and obligations under the State Act. "Enabling Act" means Montana Code Annotated, Title 7, Chapter 7, Parts 44 and 45, as amended, which authorizes the Borrower to own and operate the System, and to issue the Series 2007A Bond to finance the costs of paying, redeeming, and refunding the Refunded Bonds and to fund the Reserve Account. "EPA" means the Environmental Protection Agency, an agency of the United States of America, and any successor to its functions under the Safe Drinking Water Act. "EPA Agreements" means all capitalization grant agreements and other written agreements between the DEQ, DNRC and the EPA concerning the Program. "EPA Capitalization Grant" means a grant of funds to the State by the EPA under Section 1452 of the Safe Drinking Water Act. "Fund" means the water System Fund established pursuant to Section 7.01 of the Original Resolution. "Governmental Unit" means governmental unit as such term is used in Section 145(a) of the Code. 3 "Indenture" means the Indenture of Trust, dated as of May 1, 1998, between the Board of Examiners of the State and the Trustee, as such may be supplemented or amended from time to time in accordance with the provisions thereof, pursuant to which, among other things, the State Bonds are to be or have been issued. "Loan Loss Reserve Surcharge" means a fee equal to one percent (I%) per annum on the outstanding principal amount of the 2007A Loan, payable on the same dates that payments of interest on the 2007A Loan are due. "Net Revenues" means the Revenues for a specified period less the operating Expenses for the same period. "Operating Account" means the account created in the Water System Fund pursuant to Section 7.03 of the Resolution. "Original Resolution" means Resolution No. 4273, adopted by this Council on June 17, 1996, as amended and supplemented by Resolution Nos. 4603 and 4892, adopted by this Council on March 5, 2001 and May 17, 2004. "Person" means any individual, corporations partnership, joint venture, limited liability company, limited liability partnership, association, joint stock company, trust, unincorporated organization or government or any agency or political subdivision thereof. "Program" means the Drinking water State Revolving Fund Program established by the State Act. "Public Entity" means a State agency, city, municipality, irrigation district, county water - and sewer district, a soil conservation district or other public body established by State law or an Indian tribe that has a federally recognized governing body carrying out substantial governmental duties and powers over any area. "Rebate Account" means the account created in the water System Fund pursuant to Section 7.09 of the original Resolution. "Recycled Money" means payments and prepayments of principal of any Loan, and any other amounts transferred to the Principal Subaccount in the Revenue Subaccount in the State Allocation Account. "Redemption Date" means June 20, 2007. "Refinanced Projects" means, collectively, the 2003 Project, 2004A Project, and 2005 Project. "Refunded Bonds" means, collectively, the outstanding Series 2003 Bond, Series 2004A Bond, and Series 2005 Bond. "Refunded Bonds Resolution" means, collectively, Resolution Nos. 4758, 4927, and 5001, adopted by the City Council on December 2, 2002, August 16, 2004, and April 4, 2005, respectively, Which authorize the issuance of the Series 2003 Bond, the Series 2004A Bond, and the Series 2005 Bond, respectively. "Refunding" means the refunding and redemption of the Refunded Bonds effected by a portion of the proceeds of the 2007A Loan and by funds of the City, as more particularly described herein. "Regulations" means the Treasury Department, Income Tax Regulations, as amended or any successor regulation thereto, promulgated under the Code or otherwise applicable to the Series 2007A Bond. "Repair and Replacement Account" means the Account created in the Water System Fund pursuant to Section 7.07 of the Resolution. "Reserve Account" means the account created in the Water System Fund pursuant to Section 7.05 of the Original Resolution. "Reserve Requirement" means, as of the date of calculation, an amount equal to the lesser of: (i) 10% of the original principal amount of all series of Bonds then outstanding, or (ii) an amount equal to the maximum principal of and interest payable on outstanding Bonds in the current or any future fiscal year (giving effect to mandatory sinking fund redemption, if any). "Resolution" means the Original Resolution as amended and supplemented by this Supplemental Resolution and other Supplemental Resolutions. "Safe Drinking Water Act" means Title XIV of the Public Health Service Act, commonly known as the Safe Drinking Water Act, 42 U.S.C. §§ 300f et seq., as amended, and all regulations, rules and interpretations issued by the EPA thereunder. "Series 2001 Bond" means the $761,000 Water System Revenue Bond (DNRC Drinking Water Revolving Loan Program), Series 2001, issued pursuant to the Resolution and Resolution No. 4603, adopted by the City Council on March 5, 2001, to finance all or a portion of the project identified on Appendix A to Resolution No. 4603 and pay other associated costs. "Series 2003 Bond" means the $907,500 Water System. Revenue Bond, Series 2003, issued pursuant to the Resolution and Resolution No. 4758, adopted by the City Council on December 2, 20021, to finance all or a portion of the project identified in Section 1.03 of Resolution No. 4758 and pay other associated costs. "Series 2004 Bond" means the $1, 840,000 Water System Revenue and Refunding Bonds, Series 2004, issued pursuant to the Resolution and Resolution No. 4892, adopted by the City Council on May 17, 2004, to finance all or a portion of the 2004 Project described therein and effect the refunding described therein and pay other associated costs. "Series 2004A Bond" means the $490,000 Water System Revenue Bond, Series 2004A, issued pursuant to the Resolution and Resolution No. 4927, adopted by the City Council on August 16, 2004, to finance all or a portion of the project identified in Section 1.03 of Resolution No. 4927 and pay other associated costs. R "Series 2005 Bond" means the $517,000 Water System Revenue Bond, Series 2005, issued pursuant to the Resolution and Resolution No. 5001, adopted by the City Council on April 4, 2005, to finance all or a portion of the project identified in Section 1.03 of Resolution No. 5001 and pay other associated costs. "Series 2007A Bond" means the $1,283,159 Water System Revenue Refunding Bond (DNRC Drinking Water State Revolving Loan Program), Series 2007A, issued to the DNRC to evidence the 2007A Loan pursuant to the Resolution. "State" means the State of Montana. "State Bonds" means the State's General obligation Bonds (Drinking Water State Revolving Fund Program), issued pursuant to the Indenture. "State Act" means Montana Code Annotated, Title 75, Part 6, Chapter 2, as amended from time to time. "Supplemental Resolution" means this Resolution No. 5205 of the City adopted on June 4, 2007. "Surplus Account" means the account created in the Water System Fund pursuant to Section 7.08 of the original Resolution. "System" means the water system of the City and all extensions, improvements and betterments thereof heretofore or hereafter constructed and acquired. "Trustee" means U.S. Bank National Association, in Seattle, Washington, or any successor trustee under the Indenture. "2003 Project" means the project financed in whole or part with the proceeds of the Series 2003 Bond, as described more particularly in Section 1.03 of the Resolution No. 4758. "2004A Project" means the project financed in whole or part with the proceeds of the Series 2004A Bond, as described more particularly in Section 1.03 of the Resolution No. 4927. "2005 Project" means the project financed in whole or part with the proceeds of the Series 2005 Bond, as described more particularly in Section 1.03 of the Resolution No. 5001. "2007A Loan" means the loan made to the City by the DNRC pursuant to the Program in the maximum amount of the Committed Amount to provide funds to pay refund and redeem the outstanding Series 2003 Bond, the outstanding Series 2004A Bond, and the outstanding Series 2005 Bond, and to fund a deposit to the Reserve Account. "Water Debt" means Debt incurred to acquire, construct, extend, improve, add to or otherwise pay expenses of or related to the System, without regard to the source of payment and security for such Debt (i.e., without regard to whether it is general obligation or revenue Debt), or Debt payable from, or secured by, in Whole or in part, any Water Revenues. �0 "Water Debt Service's means, for the period of determination, all required payments of principal and interest (including mandatory sinking fund redemptions) on all Water Revenue Debt of the City. "Water Revenue Debt" means all Debt of the City which is secured solely or partly by the Water Revenues. "Water Revenues" means revenues (gross or net) received by the Borrower from or in connection with the operation of the System. "Water System Fund" means the fund created by Section 7.01 of the Original Resolution. Section 1.2 Other Rules of Construction. For all purposes of this Supplemental Resolution, except where the context clearly indicates otherwise: (a) All accounting terms not otherwise defined herein have the meanings assigned to them in accordance with generally accepted government accounting standards. (b) Terms in the singular include the plural and vice versa. (c) All references to time shall refer to Helena, Montana time, unless otherwise provided herein. (d) All references to mail shall refer to first-class mail postage prepaid. (e) Words of the masculine gender shall be deemed and construed to include correlative words of the feminine and neuter genders. (f) "Or" is not exclusive, but is intended to permit or encompass one, more or all of the alternatives conjoined. Section 1.3 Appendices. Attached to this Supplemental Resolution and hereby made a part hereof are the following Appendices: Appendix A: the form of the Series 2007A Bond; and Appendix B: additional agreements and representations of the City. .Article II AUTHORIZATION, FINDINGS, REPRESENTATIONS AND COVENANTS Section 2.1 Authorization and Findings. (a) Authorization. Linder the provisions of the Act, the City is authorized to issue and sell its revenue bonds payable during a term not exceeding forty years from their date of issue, to provide funds for the reconstruction, improvement, betterment and extension of the System or to refund its revenue bonds issued for such purpose; provided that the bonds and the interest thereon are to be payable solely out of the net income and 7 revenues to be derived from rates, fees and charges for the services, facilities and commodities furnished by the undertaking, and are not to create any obligation for the payment of which taxes may be levied except to pay for services provided by the undertaking to the City. Under Section 7-7-4502, M.C.A., the City must realize certain savings by the issuance of refunding bonds or certain other factors must be satisfied. As set forth in Section 2.1(f)(3) below, the City determines that the Series 2007A Bond satisfies the requirements of Section 7-7-4502, M.C.A. (b) The System. The City, pursuant to the Enabling Act and other laws of the State, has established and presently owns and operates the System. (c) The Refunding. After investigation of the facts and as authorized by the Act, this Council has determined it to be necessary and desirable and in the best interests of the City to implement the Refunding. (d) Outstanding -Bonds, Pursuant to the Refunded Bonds Resolution, the City issued its Series 2003 Bond in the maximum authorized principal amount of up to $907,500 in order to finance the 2003 Project, its Series 2oo4A Band in the maximum authorized principal amount of up to $490,000 in order to finance the 2oo4A Project, and its Series 2005 Bond in the maximum authorized principal amount of up to $517,000 in order to finance the 2005 Project. All of the principal amount of the Series 2003 Bond, of the Series 2oo4A Bond, and of the Series 2005 Bond has been advanced. As of June 209 2007, $594,010.67 in principal amount of the Series 2003 Bond together with interest accrued thereon through such date will be Outstanding, $378,297.77 in principal amount of the Series 2oo4A Bond together with interest accrued thereon through such date will be Outstanding, and $463,412.33 in principal amount of the Series 2005 Bond together with interest thereon through such date will be Outstanding, for a total of $1,435,720.77. Pursuant to the Enabling Act and the Original Resolution, the City has issued and there are outstanding its Series 2001 Bond, Series 2003 Bond, Series 2004 Bond, Series 2004A Bond, and Series 2005 Bond. The Series 2001 Bond, Series 2003 Bond, Series 2004 Bond, Series 2004A Bond, and Series 2005 Bond are payable from Net Revenues of the System, and no other bonds or indebtedness are outstanding that are payable from or secured by revenues of the System. (e) Cost of Refunding. The total cost of the Refunding, excluding funding the Reserve Account to the Reserve Requirement and costs of issuance of the Series 2007A Bond, is estimated to total $1,435,720.77, assuming a redemption date of June 20, 2007. Such cost of the Refunding will vary based on the redemption date. The City will apply the proceeds of the Series 2007A Bond to paying, refunding and redeeming the Refunded Bonds and to fund the Reserve Account to the Reserve Requirement. There are approximately $59427.32 in the Debt Service Account allocable to the Refunded Bonds. There are currently $191,450.00 in the Reserve Account allocated to the Series 2003 Bond, Series 2004A. Bond, and Series 2005 Bond. The sum of such amounts (i.e., approximately $280,877.32) shall be applied to the Refunding, thereby reducing the amount of the 2007A Loan. no (f) Findings and Determinations. It is hereby found, determined and declared by this Council as follows: (1) The City is authorized under the Enabling Act to charge just and equitable rates, charges and rentals for all services directly or indirectly furnished by the System, and to pledge and appropriate to the payment of outstanding Bonds the revenues to be derived from the operation of the System, including improvements, betterments or extensions thereof hereafter constructed or acquired; (2) The Water Revenues to be produced by such rates, charges and rentals during the term of the Series 2007A Bond will be sufficient to pay the principal of and interest when due on the Series 2007A Bond, to pay the reasonable and ordinary costs of operating and maintaining the System, and to provide an adequate allowance for replacement and repair, as herein prescribed, (3) In accordance with Section 7-7-4502(2)(c) of the Enabling Act, the City hereby finds that as a result of the Refunding, and comparing the total debt service of the Series 2003 Bond, Series 2004A Bond, and Series 2005 Bond to the total debt service of the Series 2007A Bond, there is a reduction of total debt service to the City and the City will benefit by fixing the interest rate and having a fixed debt service payment. Moreover, the Series 2007A Bond bears interest at the rate of 3.75 % per annum and such rate is more than 318ths of one percent less than the average annual interest rate on the Series 2004A Bond and on the Series 2005 Bond, respectively, calculated over the period of time described in Section 7-7-4502(1)(b) (i.e., 4.50% per annum and 4.50% per annum, respectively); (4) Pursuant to Section 2.03 of the Refunded Bonds Resolution, upon payment of the redemption price of the Refunded Bonds to the DNRC on the date of Closing, the Refunded Bonds will be defeased and the only Water Revenue Debt then in existence shall be evidenced by the Series 2001 Bond, the Series 2004 Bond, and the Series 2007A Bond, the terms and conditions of which shall be governed by the Resolution; (5) It is in the best interests of the City and its residents to issue and sell the Series 2007A Bond to pay the costs of the Refunding and to fund the Reserve Account to the Reserve Requirement as provided in this Supplemental Resolution; and (6) on the date of Closing, the City Finance Director shall deliver, or cause to be delivered, to the appropriate representative of the Board of Investments proceeds of the Series 2007A Bond together with amounts in the Debt Service Account and Reserve Account allocable to the Refunded Bonds totaling $1,435,720.77 necessary to pay, refund, and redeem in full the principal of the Refunded Bonds, together with interest thereon through the date of redemption. In accordance with Section 2.03 of the Refunded Bonds Resolution, the Board of Investments, as registered holder of the Series 2003 Bond, the Series 9 2004A Bond, and the Series 2005 Bond, has consented to redemption of the Outstanding Series 2003 Bond, Series 2004A Bond, and Series 2005 Bond. The Refunded Bonds are hereby called for redemption on the date of Closing. (7) Pursuant to Section 6.01(E) of the Original Resolution, the City Finance Director has received or will receive a report of an Independent Accountant to the effect that the proceeds of the Series 2007A Bond plus any moneys to be withdrawn from the Debt Service Account or the Reserve Account for the Refunding will be not less than an amount sufficient to pay the principal of and redemption premium, if any, on the Refunded Bonds and the interest which will become due and payable thereon on the Redemption Date, and addressing such other matters as required by such Section 6.01(E). Section 2.2Representations. The City represents as follows: (a) Organization and Authority. The City: (1) is duly organized and validly existing as a municipal corporation of the State; (2) has all requisite power and authority and all necessary licenses and permits required as of the date hereof to own and operate the System and to carry on its current activities with respect to the System, to adopt this Supplemental Resolution and to enter into the Collateral Documents and to issue the Series 2007A Bond and to carry out and consummate all transactions contemplated by the Supplemental Resolution, the Series 2007A Bond and the Collateral Documents; (3) is a Governmental Unit and a Public Entity; and (4) has taken all proper action to authorize the execution, delivery and performance of its obligations under this Supplemental Resolution, the Series 2007A Bond and the Collateral Documents and the incurrence of the Debt evidenced by the Series 2007A Bond in the maximum amount of the Committed Amount. (b) Litigation. There is no litigation or proceeding pending, or to the knowledge of the City threatened, against or affecting the City in any court or before or by any governmental authority or arbitration board or tribunal that, if adversely determined, would materially and adversely affect the existence, corporate or otherwise, of the City, or the ability of the City to make all payments and otherwise perform its obligations under the Resolution, the Series 2007A Bond and the Collateral Documents, or the financial condition of the City, or the transactions contemplated by the Resolution, the Series 2007A Bond and the Collateral Documents or the validity and enforceability of the Resolution, the Series 2007A Bond and the Collateral Documents. No referendum petition has been filed with respect to any resolution or other action of the City relating to the Refunding, the Series 2007A Bond or any Collateral Documents and the period for filing any such petition will have expired before issuance of the Series 2007A Bond. 10 (c) Borrowing Le al and Authorized. The adoption of this Supplemental Resolution, the execution and delivery of the Series 2007A Bond and the Collateral Documents and the consummation of the transactions provided for in this Supplemental Resolution, the Series 2007A Bond and the Collateral Documents and compliance by the City with the provisions of the Resolution, the Series 2007A Bond and the Collateral Documents: (1) are within the powers of the City and have been duly authorized by all necessary action on the part of the City; and (2) do not and will not result in any breach of any of the terms, conditions or provisions of, or constitute a default under, or result in the creation or imposition of any lien, charge or encumbrance upon any property or assets of the City pursuant to any resolution, indenture, loan agreement or other agreement or instrument (other than the Resolution and any Collateral Documents) to which the City is a party or by which the City or its property may be bound, nor will such action result in any violation of the provisions of any laws, ordinances, governmental rules or regulations or court or other governmental orders to which the City, its properties or operations are subject. (d) No Defaults. No event has occurred and no condition exists that, upon execution and delivery of the Series 2007A Bond and the Collateral Documents, would constitute a default under the Resolution or the Collateral Documents. The City is not in violation of any term of any agreement, bond resolution, trust indenture, charter or other instrument to which it is a party or by which it or its property may be bound which violation would materially and adversely affect the transactions contemplated hereby or the compliance by the City with the terms hereof or of the Series 2007A Bond and the Collateral Documents. (e) Governmental Consent. The City has obtained or made all permits, findings and approvals required to the date of adoption of this Supplemental Resolution by any governmental body or officer for the making and performance by the City of its obligations under this Supplemental Resolution, the Series 2007A Bond and the Collateral Documents (including any necessary water rate increase) or for the Refunding, the financing or refinancing thereof or the reimbursement of the City for the costs thereof. No consent, approval or authorization of, or filing, registration or qualification with, any governmental authority (other than those, if any, already obtained) is required on the part of the City as a condition to adopting this Supplemental Resolution, issuing the Series 2007A Bond or entering into the Collateral Documents and the performance of the C ity' s obligations hereunder and thereunder. (f) Bindiniz Obligation. The Resolution, the Series 2007A Bond and any Collateral Document to which the City is a party are the valid and binding special, limited obligations and agreements of the City, enforceable against the City in accordance with their terms, except to the extent that the enforceability thereof may be limited by laws relating to bankruptcy, moratorium, reorganization, insolvency or similar laws affecting creditors' rights and general principles of equity. 11 (g) The Refinanced Projects. The Refinanced Projects comprise facilities of a type that, as determined by the EPA, will facilitate compliance with the national primary drinking water regulations applicable to the System or will otherwise significantly further the health protection objectives of the Safe Drinking water Act. (h) The S stem. The System is a "community water system" within the meaning of the Act and the Safe Drinking water Act in that it is a public water system, comprising collection, treatment, storage and distribution facilities for the provision to the public of water for human consumption, that serves not less than 15 service connections used by year-round residents of the area served by the System or regularly serves not less than 25 year-round residents. (i) Full Disclosure. There is no fact that the City has not specifically disclosed in writing to the DNR.0 that materially and adversely affects or (so far as the City can now foresee), except for pending or proposed legislation or regulations that are a matter of general public information, that will materially and adversely affect the properties, operations and finances of the System, the City's status as a Public Entity and Governmental Unit, its ability to own and operate the System in the manner it is currently operated or the City's ability to perform its obligations under the Resolution, the Series 2007A Bond and the Collateral Documents and to pledge any revenues or other property pledged to the payment of the Series 2007A Bond. (j) Compliance With Law. The City: (1) is in compliance with all laws, ordinances, governmental rules and regulations and court or other governmental orders, judgments and decrees to which it is subject and which are material to the properties, operations and finances of the System or its status as a Public Entity and Governmental Unit; and (2) has obtained all licenses, permits, franchises or other governmental authorizations necessary to the ownership of the System and the operation thereof and agrees to obtain all such licenses, permits, franchises or other governmental authorizations as may be required in the future for the System and the operation thereof, which failure to obtain might materially and adversely affect the ability of the City to conduct the operation of the System as presently conducted or the condition (financial or otherwise) of the System or the City"s ability to perform its obligations under the Resolution, the Series 2007A Bond and the Collateral Documents. Section 2.3 Covenants. (a) Insurance. In addition to the requirements of the Original Resolution relating to insurance, the City at all times shall keep and maintain with respect to the System property and casualty insurance and liability insurance with financially sound and reputable insurers, or self-insurance as authorized by State law, against such risks and in such amounts, and with such deductible provisions, as are customary in the State in the case of entities of the same size and type as the City and similarly situated and shall carry 12 and maintain, or cause to be carried and maintained, and pay or cause to be paid timely the premiums for all such insurance. All such insurance policies shall name the DNRC as an additional insured to the full extent permissible under the policy or program of insurance. Each policy must provide that it cannot be cancelled by the insurer without giving the City and the DNRC 30 days' prior written notice. The City shall give the DNRC prompt notice of each insurance policy it obtains or maintains to comply with this Section 2.3(a) and of each renewal, replacement, change in coverage or deductible under or amount of or cancellation of each such insurance policy and the amount and coverage and deductibles and carrier of each new or replacement policy. Such notice shall specifically note any adverse change as being an adverse change. (b) Ri ht of Ins ection and Notice of Chan e of Location. The DNRC, the DEQ and the EPA and their designated agents shall have the right at all reasonable times during normal business hours and upon reasonable notice to enter into and upon the property of the City for the purpose of inspecting the System or any or all books and records of the City relating to the System. (c) Further Assurance. The City shall execute and deliver to the DNRC all such documents and instruments and do all such other acts and things as may be necessary or required by the DNRC to enable the DNRC to exercise and enforce its rights under the Resolution, the Series 2007A Bond and the Collateral Documents and to realize thereon, and record and file and re-record and refile all such documents and instruments, at such time or times, in such manner and at such place or places, all as may be necessary or required by the DNRC to validate, preserve and protect the position of the DNRC under the Resolution, the Series 2007A Bond and the Collateral Documents. (d) Maintenance of Security,iy; Recordation of Interest. (1) The City shall, at its expense, take all necessary action to maintain and preserve the lien and security interest of the Resolution and the Collateral Documents so long as any amount is owing under the Resolution or the Series 2007A Bondy (2) The City shall forthwith, after the execution and delivery of the Series 2007A Bond and thereafter from time to time, cause the Resolution and any Collateral Documents granting a security interest in revenues or real or personal property and any financing statements or other notices or documents relating thereto to be filed, registered and recorded in such manner and in such places as may be required by law in order to perfect and protect fully the lien and security interest hereof and thereof and the security interest in them granted by the Resolution and, from time to time, shall perform or cause to be performed any other act required by law, including executing or causing to be executed any and all required continuation statements and shall execute or cause to be executed any further instruments that may be requested by the DNRC for such perfection and protection; and 13 (3) Except to the extent it is exempt therefrom, the City shall pay or cause to be paid all filing, registration and recording fees incident to such filing, registration and recording, and all expenses incident to the preparation, execution and acknowledgment of the documents described in subparagraph (2), and all federal or state fees and other similar fees, duties, imposts, assessments and charges arising out of or in connection with the execution and delivery of the Series 2007A Bond and the Collateral Documents and the documents described in subparagraph (2). (e) Additional Agreements. The City covenants to comply with all representations, covenants, conditions and agreements, if any, set forth in Appendix B hereto. (f) Financial Information. This Section 23(f) supplements, and is not intended to limit, the requirements in Section 8.06 of the Original Resolution. The City agrees that for each fiscal year it shall furnish to the DNRC and the DEQ, promptly when available: (1) the preliminary budget for the System; and (2) when adopted, the final budget for the System. The City will cause proper and adequate books of record and account to be kept showing complete and correct entries of all receipts, disbursements and other transactions relating to the System, the monthly gross revenues derived from its operation, and the segregation and application of the gross revenues in accordance with the Resolution, in such reasonable detail as may be determined by the City in accordance with generally accepted governmental accounting practice and principles. It will cause such books to be maintained on the basis of the same fiscal year as that utilized by the City. The City shall, within 180 days after the close of each fiscal year, cause to be prepared and supply to the DNRC a financial report with respect to the System for such fiscal year. The report shall be prepared at the direction of the financial officer of the City in accordance with applicable generally accepted governmental accounting principles and, in addition to whatever matters may be thought proper by the financial officer to be included therein, shall include the following: (1) A statement in detail of the income and expenditures of the System for the fiscal year, identifying capital expenditures and separating them from operating expenditures; (ii) A balance sheet as of the end of the fiscal year; (111) The number of premises connected to the System at the end of the fiscal year; (iv) The amount on hand in each account of the Fund at the end of the fiscal year; 14 (v) A list of the insurance policies and fidelity bonds in force at the end of the fiscal year, setting out as to each the amount thereof, the risks covered thereby, the name of the insurer or surety and the expiration date of the policy or bond; and (vi) A determination that the report shows full compliance by the City with the provisions of the Resolution during the fiscal year covered thereby, including proper segregation of the capital expenditures from operating expenses, maintenance of the required balance in the reserve in the Debt Service Account, and receipt of Net Revenues during each fiscal year at least equal to 125% of the maximum amount of principal and interest payable on Outstanding parity Bonds in any subsequent fiscal year, or, if the report should reveal that the revenues have been insufficient for compliance with the Resolution, or that the methods used in accounting for such revenues were contrary to any provision of the Resolution, the report shall include a full explanation thereof, together with recommendations for such change in rates or accounting practices or in the operation of the System as may be required. The City shall also have prepared and supplied to the DNRC and the DEQ, within 180 days of the close of every other fiscal year, an audit report prepared by an independent certified public accountant or an agency of the state in accordance with generally accepted governmental accounting principles and practice with respect to the financial statements and records of the System. The audit report shall include an analysis of the City's compliance with the provisions of the Resolution. (g) Project Accounts. The City shall maintain Project accounts in accordance with generally accepted government accounting standards. (h) Records. After reasonable notice from the EPA or the DNRC, the City shall make available to the EPA or the DNRC such records as the EPA or the DNRC reasonably requires to review and determine compliance with the Safe Drinking Water Act, as provided in Section 75-6-224(1)(h) of the Act. (i) Compliance with Safe Drinking Water Act. The City has complied and shall comply with all conditions and requirements of the Safe Drinking Water Act pertaining to the 2007A Loan and the Refinanced Projects, and shall maintain sufficient financial, managerial and technical capability to continue to effect such compliance. (j) Compliance with DEQ Requirements. The City shall comply with plan, specification and other requirements for public water systems established by the DEQ, as required by Section 756-224(1)(h). Section 2.4 Covenants Relating to the Tax -Exempt Status of the State Bonds. (a) The City covenants and agrees that it will not use or permit to be used any of the proceeds of the Series 2007A Bond or any other funds of the City in respect of the 15 Refunding or the Series 2oo7A Bond, directly or indirectly, in a manner that would cause, or take any other action that would cause, any State Bond to be an "arbitrage bond" within the meaning of Section 148 of the Code or would otherwise cause the interest on the State Bonds to be included in gross income for purposes of federal income taxation. (b) The City agrees that it will not enter into, or allow any "related person" (as defined in Section 147(a)(2) of the Code) to enter into, any arrangement, formal or informal, for the purchase of the State Bonds or any other obligations of the DNRC in an amount related to the amount of the 2007A Loan or the portion of the 2007A Loan derived directly or indirectly from proceeds of the State Bonds or that would otherwise cause any State Bond to be an "arbitrage bond" within the meaning of Section 148 of the Code. (c) The City shall not use or permit the use of the Refinanced Projects directly or indirectly in any trade or business carried on by any Person who is not a Governmental Unit. For the purpose of this subparagraph, use as a member of the general public (within the meaning of the Regulations) shall not be taken into account and any activity carried on by a Person other than a natural person shall be treated as a trade or business. (d) Any portion of the Refinanced Projects being refinanced or the cost of which is being reimbursed was acquired by and is now and shall, during the term of the 2007A Loan, be owned by the City and not by any other Person. Notwithstanding the previous sentence, the City may transfer the Refinanced Projects or a portion thereof to another Governmental Unit which is also a Public Entity if such transfer is otherwise permitted under the Resolution and if such organization agrees with the DNRC to comply with Section 2.2(h), Section 2.2(i) and Section 2.4 of this Supplemental Resolution and if the DNRC receives an Opinion of Bond Counsel that such transfer will not violate the State Act or the Safe Drinking Water Act or adversely affect the exclusion of interest on the State Bonds from gross income or purposes of federal income taxation. In addition, except as otherwise provided in the Resolution or in any Collateral Documents, the City may sell or otherwise dispose of any portion of the Refinanced Projects which has become obsolete or outmoded or is being replaced or for other reasons is not needed by the City or beneficial to the general public or necessary to carry out the purposes of the Safe Drinking Water Act. (e) At the Closing of the 2007A Loan, the DNRC will, if necessary to obtain the Opinion of Bond Counsel described in Section 7.05(a) of the Indenture, deliver to the City instructions concerning compliance by the City with the arbitrage rebate requirements of Section 148 of the Code (the "Arbitrage Rebate Instructions"). The City shall comply with the Arbitrage Rebate Instructions, if any, delivered to it by the DNRC at Closing, as such Instructions may be amended or replaced by the DNRC from time to time. The Arbitrage Rebate Instructions may be amended or replaced by new Arbitrage Rebate Instructions delivered by the DNRC and accompanied by an Opinion of Bond Counsel to the effect that the use of said amended or new Arbitrage Rebate Instructions will not adversely affect the excludability of interest on the State Bonds or any Additional State Bonds (except State Bonds the interest on which the State did not intend to be 16 excluded from gross income for federal income tax purposes) from gross income of the recipients thereof for federal income tax purposes. (f) The City agrees that during the 2007A Loan term it will not contract with or permit any Private Person to manage the Refinanced Projects or any portion thereof except according to a written management contract and upon delivery to the DNRC of an opinion of Bond Counsel to the effect that the execution and delivery of such management contract will not violate the State Act or the Safe Drinking Water Act or adversely affect the exclusion of interest on State Bonds from gross income or purposes of federal income taxation. (g) The City may not lease the Refinanced Projects or any portion thereof to any Person other than a Nonexempt Person which agrees in writing with the City and the State not to cause any default to occur under the Resolution; provided the City may lease all or any portion of the Refinanced Projects to a Nonexempt Person pursuant to a lease which in the Opinion of Bond Counsel delivered to the DNRC will not cause the interest on the State Bonds to be included in gross income for purposes of federal income taxation. (h) The City shall not change the use or nature of the Refinanced Projects if (i) such change will violate the Safe Drinking Water Act, or (ii) so long as the State Bonds are outstanding unless, in the Opinion of Bond Counsel delivered to the DNRC, such change will not result in the inclusion in gross income of interest on the State Bonds for federal income tax purposes. Section 2.5 Maintenance of System; . Liens. The City shall maintain the System, including the Refinanced Projects, in good condition and make all necessary renewals, replacements, additions, betterments and improvements thereto. The City shall not grant or permit to exist any lien on the Refinanced Projects or any other property making up part of the System, other than liens securing Debt where a parity or senior lien secures the Series 2007A Bond; provided that this Section 2.5 shall not be deemed to be violated if a mechanic's or contractor's lien is filed against any such property so long as the City uses its best efforts to obtain the discharge of such lien and promptly reports to the DNRC the filing of such lien and the steps it plans to take and does take to discharge of such lien. Section 2.6 Maintenance of Existence; Merger., Consolidation Etc. • Disposition of Assets. The City shall maintain its corporate existence, except that it may consolidate with or merge into another Governmental Unit or permit one or more Governmental Units to consolidate with or merge into it or may transfer all or substantially all of its assets to another Governmmental Unit and then dissolve if the surviving, resulting or transferee entity (if other than the City) (i) is a Public Entity and (ii) assumes in writing all of the obligations of the City under the Resolution, the Series 2007A Bond and the Collateral Documents, and (a) such action does not result in any default in the performance or observance of any of the terms, covenants or agreements of the City under the Resolution, the Series 2007A Bond and the Collateral Documents, (b) such action does not violate the State Act or the Safe Drinking Water Act and does not adversely affect the exclusion of interest on the Series 2007A Bond or the State Bonds from gross income for federal 17 income tax purposes and (c) the City delivers to the DNRC on the date of such action an Opinion of Bond Counsel that such action complies with this Section 2.6. Other than pursuant to the preceding paragraph, the City shall not transfer the System or any portion thereof to any other Person, except for property which is obsolete, outmoded, worn out, is being replaced or otherwise is not needed for the operation of the System, unless the provisions of (a) and (b) of the preceding paragraph are satisfied and the City delivers to the DNRC an opinion of Bond Counsel to that effect and, in addition, the DNRC consents to such transfer. Article III USE OF PROCEEDS Section 3.1 Use of Proceeds. The City shall apply the proceeds of the 2007A Loan from the DNRC solely as follows: (a) The City shall apply the proceeds of the 2007A Loan to the Refunding and to fund the Reserve Account to the Reserve Requirement. The 2007A Loan will be disbursed in accordance with Article IV hereof and Article VII of the Indenture. (b) No portion of the proceeds of the 2007A Loan shall be used to reimburse the City for costs paid prior to the date of adoption of this Supplemental Resolution of a Project the construction or acquisition of which occurred or began earlier than June 1, 1993. In addition, if any proceeds of the 2007A Loan are to be used to reimburse the City for costs of the Refinanced Projects paid prior to the date of adoption of this Supplemental Resolution, the City shall have complied with Section 1.1 50-2 of the Regulations in respect of such costs. (c) Any Debt to be refinanced with proceeds of the 2007A Loan was incurred after June 1, 1993 for a Project the construction or acquisition of which began after June 1, 1993. No proceeds of the 2007A Loan shall be used for the purpose of refinancing an obligation the interest on which is exempt from federal income tax or excludable from gross income for purposes of federal income taxation unless the DNRC has received an Opinion of Bond Counsel, satisfactory to it, to the effect that such refinancing will not adversely affect the exclusion of interest on the State Bonds from gross income for purposes of federal income taxation. Section 3.2 Representations and Covenants Relatin to Refinanced Pro ects. The Borrower hereby represents to and covenants with the DNRC that: (a) all construction of the Refinanced Projects complied and will comply with all federal and state standards, including, without limitation, EPA regulations and standards; and (b) the Refinanced Projects are projects of the type permitted to be financed under the Enabling Act, the State Act and the Program and Section 1452 of the Safe Drinking Water Act. Im Section 3.3 Available Amount of Loan Funds. No assurance can be given that any additional loan funds will be available under the Program at the time of any such application or thereafter. The City acknowledges and agrees that neither the DEQ, the DNRC, the Trustee nor any of their agents, employees or representatives shall have any liability to the City and have made no representations to the City as to the sufficiency of the 2007A Loan to pay costs of the Refunding and funding the Reserve Account or as to the availability of additional funds under the Program to increase the principal amount of the 2007A Loan. Section 3.4 Refinanced Projects Re resentations and Covenants. The City hereby represents to and covenants with the DNRC that: (a) all construction of the Refinanced Projects has complied and will comply with all federal and state standards, including, without limitation, EPA regulations and standards; and (b) the Refinanced Projects are projects of the type permitted to be financed under the Act, the State Act and the Program and Section 1452 of the Safe Drinking Water Act. Article iv THE 2007A Loan Section 4.1 The 2007A Loan; Disbursement of 2007A Loan. The DNRC has agreed to lend to the City, from time to time as the requirements of this Section 4.1 are met, an amount up to $1,283,159 (the "Committed Amount") for the purposes of refunding, and redeeming the Outstanding Series 2003 Bond, the Series 2004A Bond, and the Series 2005 Bond and funding the Reserve Account to the Reserve Requirement. The 2007A Loan shall be disbursed as provided in this Section 4.1. The DNRC intends to disburse the 2007A Loan through the Trustee. (a) In consideration of the issuance of the Series 2007A Bond by the City, the DNRC shall make, or cause the Trustee to mare, a disbursement of all or a portion of the 2007A Loan upon receipt of the following documents: (1) an opinion of Bond Counsel as to the validity and enforceability of the Series 2007A Bond and the security therefor and stating in effect that interest on the Series 2007A Bond is not includable in gross income for purposes of federal income taxation, in form and substance satisfactory to the DNRC; (2) the Series 2007A Bond, fully executed and authenticated; (3) a certified copy of the Original Resolution and this Supplemental Resolution; (4) any other security instruments or documents required by the DNRC or DEQ as a condition to their approval of the 2007A Loan; 19 (5) if all or part of a loan is being made to refinance a Project or reimburse the City for the costs of a Project paid prior to the Closing, evidence, satisfactory to the DNRC and the Bond Counsel referred to in (1) above, (A) that the acquisition or construction of the Project was begun no earlier than June 1, 1993 or the debt was incurred no earlier than June 1, 1993, (B) of the City's title to the Project, (C) of the costs of such Project and that such costs have been paid by the City and (D) if such costs were paid before adoption of this Supplemental Resolution that the City has complied with Section 1.150-2 of the Regulations; (6) the items required by the Indenture for the portion of the 2007A Loan to be disbursed at Closing; and (7) such other certificates, documents and other information as the DNRC, the DEQ or the Bond Counsel giving the opinion referred to in subparagraph (1) may require (including any necessary arbitrage rebate instructions). (b) In order to obtain a disbursement of a portion of the 2007A Loan to pay costs of the Refunding and of funding the Reserve A.count, the City shall submit to the DNRC and the Trustee a signed request for disbursement on the foam prescribed by the DNRC, with all attachments required by such form. The City may obtain disbursements only for costs which have been legally incurred and are due and payable. All 2007A Loan disbursements will be made to the City only upon proof that cost was incurred. (c) For refinancings, a disbursement schedule complying with the requirements of the Safe Drinking Water Act shall be established by the DNRC and the City at Closing. The Trustee shall disburse 2007A Loan amounts directly to the holder of the debt being refinanced according to such schedule. If the City should repay all or a portion of the debt to be refinanced from other sources or should otherwise not need any portion of the 2007A Loan which was to have been used to refinance such debt, it shall inform the DNRC and the Trustee of such fact pursuant to Section 3.4(b) and a new disbursement schedule shall be drawn up by the DNRC. The DNRC shall obtain a receipt from the holder of the debt being refinanced for each disbursement made to pay or prepay a portion of such debt. (d) If all or a portion of the 2007A Loan is made to reimburse a City for costs paid by it prior to Closing, the City shall present at Closing the items required by Section 4.1(b) relating to such costs. The Trustee shall disburse such amounts to the City pursuant to a disbursement schedule complying with the requirements of the Safe Drinking Water Act established by the DNRC and the City at the Closing. (e) Notwithstanding anything else provided herein, the Trustee shall not be obligated to disburse the 2007A Loan any faster or to any greater extent than it has available EPA Capitalization Grants, Bond proceeds and other amounts available therefor in the Revolving Fund. The DNRC shall not be required to do "overmatching" pursuant to Section 5.04(b) of the Indenture, but may do so in its discretion. 20 (f) Upon making each 2007A Loan disbursement, the Trustee is to note such disbursement on Schedule A to the Series 2007A Bond. (g) The City agrees that it will deposit in the Reserve Account upon receipt any proceeds of the 2007A Loan borrowed for the purpose of causing the balance in the Reserve Account equal the Reserve Requirement, either on the Closing Date of the 2007A Loan or upon any disbursement date. The City further acknowledges and agrees that any portions of the 2007A Loan representing capitalized interest shall be advanced only on Payment Dates and shall be transferred by the Trustee on the Payment Date directly to the Debt Service Account. The amount of any such transfer shall be a credit against the interest payments due on the Series 2007A Bond and interest thereon shall accrue only from the date of transfer. (h) Compliance by the City with its representations, covenants and agreements contained in the original Resolution, this Supplemental Resolution and the Collateral Documents shall be a further condition precedent to the disbursement of the 2007A Loan in whole or in part. The DNRC and the Trustee, in their sole and absolute discretion, may make one or more disbursements, in whole or in part, notwithstanding such noncompliance, and without liability to make any subsequent disbursement of the 2007A Loan. Section 4.2 Commencement of 2007 A Loan Term. The C ity' s obligations under this Supplemental Resolution and the Collateral Documents shall commence on the date hereof unless otherwise provided in this Supplemental Resolution. However, the obligation to make payments under Article V hereof shall commence only upon the first disbursement by the Trustee of 2007A Loan proceeds. Section 4.3 Termination of 2007A Loan Term. The City's obligations under the Resolution and the Collateral Documents in respect of the Series 2007A Bonds shall terminate upon payment in full of all amounts due under the Series 2007A Bond and the Resolution in respect thereof; provided, however, that the covenants and obligations provided in Article VI and Section 10.4 of this Supplemental Resolution shall survive the termination of the Resolution. Section 4.4 2007A Loan Closiniz Submissions. On or prior to the Closing, the City will have delivered to the DNRC and the Trustee the closing submissions required by Section 7.05 of the Indenture. Article V REPAYMENT OF 2007A Loan Section 5.1 Repayment of 2007A Loan. The City shall repay the amounts lent to it pursuant to Section 4.1 hereof, plus interest on the unpaid amounts lent at the rate of two and zero hundredths percent (2.00%) per annum, in semiannual Loan Repayments. In addition, the City shall pay an Administrative Expense Surcharge on the outstanding principal amount of the 2007A Loan at the rate of seventy-five hundredths of one percent (0.75%) per annum and a Loan Loss Reserve Surcharge equal to one percent (1.00%) per annum on the outstanding principal amount of the 2007A Loan. For purposes of this Resolution and the Program, the term "Interest 21 on the Loan" shall include the Administrative Expense Surcharge and the Loan Loss Reserve Surcharge. The City shall pay all Loan Repayments and Administrative Expense Surcharge and Loan Loss Reserve Surcharge in lawful money of the United States of America to the DNRC. Interest and Administrative Expense Surcharge and Loan Loss Reserve Surcharge shall be calculated on the basis of a year of 360 days comprising 12 months of 30 days each. The Loan Repayments required by this Section 5.1, and the Administrative Expense Surcharge and the Loan Loss Reserve Surcharge, shall be due on each January 1 and July 1 (the "Payment Dates"), as follows: (a) interest and Administrative Expense Surcharge and Loan Loss Reserve Surcharge on the outstanding principal balance of the 2007A Loan shall be payable on each January 1 and July 1, beginning on January 1, 2008 and concluding on July 1, 2015; and (b) the principal of the 2007A Loan shall be repayable on each Payment Date, beginning on January 1, 2008 and concluding on July 1, 2015, and the amount of each principal payment shall be calculated on the basis of an interest rate of 3.75 % per annum; provided that principal of the 2007A Loan is payable only in amounts that are multiples of $1,000. The payments of principal of and interest and Administrative Expense Surcharge and Loan Loss Reserve Surcharge on the 2007A Loan shall be due on the dates and in the amounts shown in Schedule B to the Series 2007A Bond, as such Schedule B shall be modified from time to time as provided below. The portion of each such Loan Repayment consisting of principal and the portion consisting of interest and the amount of each Administrative Expense Surcharge and the amount of each Loan Loss Reserve Surcharge shall be set forth in Schedule B to the Series 2007A Bond. Upon each disbursement of 2007A Loan amounts to the City pursuant to Section 4.1 hereof, the Trustee shall enter or cause to be entered the amount advanced on Schedule A to the Series 2007A Bond under "Advances" and the total amount advanced under Section 4.1, including such disbursement, under `Total Amount Advanced." If the advance was made to pay costs pursuant to Section 4.1(b), interest and Administrative Expense Surcharge and Loan Loss Reserve Surcharge on such advance shall accrue from the date the advance is made and shall be payable on each Payment Date thereafter. Once the Refunding has been finally structured to the satisfaction of the DNRC, the Trustee shall finalize Schedule B to the Series 2007A Bond in accordance with this Section 5.1. Past -due payments of principal and interest and Administrative Expense Surcharge and Loan Loss Reserve Surcharge shall bear interest at the rate of ten percent (10.00%) per annum, until paid. Any payment of principal, interest or Administrative Expense Surcharge and Loan Loss Reserve Surcharge under this Section 5.1 shall also be credited against the same payment obligation under the Series 2007A Bond. Section 5.2 Additional Payments. The City shall also pay, within 30 days after receipt of a bill therefor, from any legally available funds therefor, including proceeds of the 2007A 22 Loan, if the City so chooses, all reasonable expenses of the DNRC and the Trustee in connection with the 2007A Loan, the Collateral Documents and the Series 2007A Bond, including, but not limited to: (a) the cost of reproducing this Supplemental Resolution, the Collateral Documents and the Series 2007A Bond; (b) the fees and disbursements of Bond Counsel and other Counsel utilized by the DNRC and the Trustee in connection with the 2007A Loan, the Resolution, the Collateral Documents and the Series 2007A Bond and the enforcement thereof; and (c) all taxes and other governmental charges in connection with the execution and delivery of the Collateral Documents or the Series 2007A Bond, whether or not the Series 2007A Bond is then outstanding, including all recording and filing fees relating to the Collateral Documents and the pledge of the State's right, title and interest in and to the Series 2007A Bond, the Collateral Documents and the Resolution under the Resolution (and with the exceptions noted therein) and all expenses, including attorneys' fees, relating to any amendments, waivers, consents or collection or enforcement proceedings pursuant to the provisions hereof or thereof. Section 5.3 Prepayments. The City may not prepay all or any part of the outstanding principal amount of the Series 2007A Bond unless (i) it obtains the prior written consent of the DNRC thereto, and (ii) no Loan Repayment or Administrative Expense Surcharge or Loan Loss Reserve Surcharge is then delinquent. Any prepayment permitted by the DNRC must be accompanied by payment of accrued interest and Administrative Expense Surcharge and Loan Loss Reserve Surcharge to the date of prepayment on the amount of principal prepaid. If the Series 2007A Bond is prepaid in part pursuant to this Section 5.3, such prepayments shall be applied to principal payments in inverse order of maturity. Section 5.4 Oblijzations ofCit Unconditional. The obligations of the City to male the payments required by the Resolution and the Series 2007A Bond and to perform its other agreements contained in the Resolution, the Series 2007A Bond and Collateral Documents shall be absolute and unconditional, except as otherwise provided herein or in such documents. The City (a) shall not suspend or discontinue any payments provided for in the Resolution and the Series 2007A Bond, (b) shall perform all its other agreements in the Resolution, the Series 2007A Bond and the Collateral Documents and (c) shall not terminate the Resolution, the Series 2007A Bond or the Collateral Documents for any cause, including any acts or circumstances that may constitute failure of consideration, destruction of or damage to the Refinanced Projects or the System, commercial frustration of purpose, any dispute with the DNRC or the EPA, any change in the laws of the United States or of the State or any political subdivision of either or any failure of the DNRC to perform any of its agreements, whether express or implied, or any duty, liability or obligation arising from or connected with the Resolution. Section 5.5 Limited Liability. All payments of principal of and interest on the 2007A Loan and other payment obligations of the City hereunder and under the Series 2007A Bond shall be special, limited obligations of the City payable solely out of the Net Revenues and shall not, except at the option of the City and as permitted by law, be payable out of any other 23 revenues of the City. The obligations of the City under the Resolution and the Series 2007A Bond shall never constitute an indebtedness of the City within the meaning of any state constitutional provision or statutory or charter limitation and shall never constitute or give rise to a pecuniary liability of the City or a charge against its general credit or taxing power. The taxing powers of the City may not be used to pay principal of or interest on the Series 2007A Bond, and no funds or property of the City other than the Net Revenues may be required to be used to pay principal of or interest on the Series 2007A Bond. Article VI INDEMNIFICATION OF DNRC, DEQ AND TRUSTEE The Borrower shall indemnify and save harmless the DNRC, DEQ and their officers, employees and agents (each an "Indemnified Party►' or, collectively, the "Indemnified Parties") against and from any and all claims, damages, demands, expenses, liabilities and losses of every bind asserted by or on behalf of any Person arising out of the acts or omissions of the Borrower or its employees, officers, agents, contractors, subcontractors, or consultants in connection with or with regard or in any way relating to the condition, use, possession, conduct, management, planning, design, acquisition, construction, installation or financing of the Refinanced Projects or the Refunding. The Borrower shall also indemnify and save harmless the Indemnified Parties against and from all costs, reasonable counsel fees, expenses and liabilities incurred in any action or proceeding brought by reason of any such claim or demand. If any proceeding is brought against an Indemnified Party by reason of such claim or demand, the Borrower shall, upon notice from an Indemnified Party, defend such proceeding on behalf of the Indemnified Party. Article V II ASSIGNMENT Section 7.1 Assi ent by City. The City may not assign its rights and obligations under the Resolution or the Series 2007A Bond. Section 7.2 Assl�nment by DNRC. The DNRC will pledge its rights under and interest in the Resolution, the Series 2007A Bond and the Collateral Documents (except to the extent otherwise provided in the Indenture) as security for the payment of the State Bonds and may further assign such interests to the extent permitted by the Indenture, without the consent of the City. Section 7.3 State Refunding Bonds. In the event the State Bonds and Additional State Bonds are refunded by bonds which are not Additional State Bonds, all references in the Resolution to State Bonds and Additional State Bonds shall be deemed to refer to the refunding bonds and any bonds of the State on a parity with such refunding bonds (together, the "Refunding Bonds") or, in the case of a crossover refunding, to the State Bonds and Additional State Bonds and the Refunding Bonds. In the event the State Bonds are refunded by an issue of Additional State Bonds, all references in the Resolution to the State Bonds shall be deemed to refer to such Additional State Bonds or, in the case of a crossover refunding, both the State Bonds and such Additional State Bonds. 24 Article V III THE SERIES 2007A BOND Section 8.1 Net Revenues Available. The City is authorized to charge just and equitable rates, charges and rentals for all services directly or indirectly furnished by the System, and to pledge and appropriate to the Series 2001 Bond, the Series 2004 Bond, and the Series 2007A Bond the Net Revenues to be derived from the operation of the System, including improvements, betterments or extensions thereof hereafter constructed or acquired. The Net Revenues to be produced by such rates, charges and rentals during the term of the Series 2007A Bond will be more than sufficient to pay the principal and interest when due on the Series 2001 Bond, the Series 2004 Bond, and the Series 2007A Bond, and to create and maintain reasonable reserves therefor and to provide an adequate allowance for replacement and depreciation, as herein prescribed. Section 8.2 Issuance and Sale of the Series 2007A Bond. The Council has investigated the facts necessary and hereby finds, determines and declares it to be necessary and desirable for the City to issue the Series 2007A Bond to evidence the 2007A Loan. The Series 2007A Bond is issued to the DNRC without public sale pursuant to Montana Code Annotated, Section 7-7-4433(2)(a). Section 8.3 Terms. The Series 2007A Bond shall be in the maximum principal amount equal to the original Committed Amount of the 2007A Loan, shall be issued as a single, fully registered bond numbered R-1, shall be dated as of the date of delivery to the DNRC, and shall bear interest at the rate charged by the DNRC on the 2007A Loan. The principal of and interest on the Series 2007A Bond shall be payable on the same dates and in the same amounts as principal and interest of the Loan Repayments are payable. Advances of principal of the Series 2007A Bond shall be deemed made when advances of the 2007A Loan are made under Section 4.1, and such advances shall be payable in accordance with Schedule B to the Series 2007A Bond, as it may be revised by the DNRC from time to time in accordance with Section 5.1. The City may prepay the Series 2007A Bond, in whole or in part, only upon the terms and conditions under which it can prepay the 2007A Loan under Section 5.3. Section 8.4 Negotiability, Transfer and Registration. The Series 2007A Bond shall be fully registered as to both principal and interest, and shall be initially registered in the name of and payable to the DNRC. while so registered, principal of and interest on the Series 2007A Bond shall be payable to the DNRC at the Office of the Department of Natural Resources and Conservation, 1625 Eleventh Avenue, Helena, Montana 59620-1601 or such other place as may be designated by the DNRC in writing and delivered to the City. The Series 2007A Bond shall be negotiable, subject to the provisions for registration and transfer contained in this Section. No transfer of the Series 2007A Bond shall be valid unless and until (1) the holder, or his duly authorized attorney or legal representative, has executed the form of assignment appearing on the Series 2007A Bond, and (2) the Clerk of the City (or successors, the "Registrar"), as Bond Registrar, has duly noted the transfer on the Series 2007A Bond and recorded the transfer on the registration books of the Registrar. The Registrar may, prior to noting and recording the transfer, require appropriate proof of the transferor's authority and the genuineness of the transferor's signature. The City shall be entitled to deem and treat the Person in whose name the Series 25 2007A Bond is registered as the absolute owner of the Series 2007A Bond for all purposes, notwithstanding any notice to the contrary, and all payments to the registered holder shall be valid and effectual to satisfy and discharge the City's liability upon such Bond to the extent of the sum or sums so paid. Section 8.5 Execution and Delivery. The Series 2007A Bond shall be executed on behalf of the City by the manual signatures of the Mayor, the City Manager, and the City Finance Director. Any or all of such signatures may be affixed at or prior to the date of delivery of the Series 2007A Bond. The Series 2007A Bond shall be sealed with the corporate seal of the City. In the event that any of the officers who shall have signed the Series 2007A Bond shall cease to be officers of the City before the Series 2007A Bond is issued or delivered, their signatures shall remain binding upon the City. Conversely, the Series 2007A Bond may be signed by an authorized official who did not hold such office on the date of adoption of this Supplemental Resolution. The Series 2007A Bond shall be delivered to the DNRC, or its attorney or legal representative. Section 8.6 Form. The Series 2007A Bond shall be prepared in substantially the form attached as Appendix A. Article IX SECURITY FOR THE SERIES 2007A BOND The Series 2007A Bond is issued as an Additional Bond under Section 6 of the Original Resolution and under this Supplemental Resolution and shall, with the Series 2001 Bond, the Series 2004 Bond, and any other Additional Bonds issued under the provisions of Section 6 of the original Resolution, be equally and ratably secured by the provisions of the Resolution and payable out of the Net Revenues appropriated to the Debt Service Account of the water System Fund, without preference or priority, all as provided in the Resolutions and secured by the Reserve Account, as further provided in Sections 6 and 7.05 of the original Resolution. Upon advancement of principal of the Series 2007A Bond, the City Finance Director shall deposit from proceeds of the Series 2007A Bond such amount or amounts into the Reserve Account to cause the balance therein to equal the Reserve Requirement, treating such principal amount as Outstanding. Upon the first advance of proceeds of the Series 2007A Bond, the deposit to the Reserve Account shall be sufficient to cause the balance in the Reserve Account to equal the Reserve Requirement in respect of the Series 2001 Bond, the Series 2004 Bond, and the principal of the Series 2007A Bond so advanced. The City shall keep, perform and observe each and every one of its covenants and undertakings set forth in the Resolution for the benefit of the registered owners from time to time of the Series 2001 Bond, the Series 2004 Bond, and the Series 2007A Bond. Article .K TAX MATTERS Section 10.1 Use of the Refinance .,.,nce Projects. The Refinanced Projects will be owned .,_ and operated by the City and available for use by members of the general public on a substantially equal basis. The City shall not enter into any lease, use or other agreement with any non -governmental person relating to the use of the Refinanced Projects or the System or 26 security for the payment of the Series 2007A Bond which might cause the Series 2007A Bond to be considered a "private activity bond" or "private loan bond" within the meaning of Section 141 of the Code. Section 10.2 General Covenant. The City covenants and agrees with the owners from time to time of the Series 2007A Bond that it will not take or permit to be taken by any of its officers, employees or agents any action which would cause the interest on the Series 2007A Bond to become includable in gross income for federal income tax purposes under the Code and the Regulations, and covenants to take any and all actions within its powers to ensure that the interest on the Series 2007A Bond will not become includable in gross income for federal income tax purposes under the Code and the Regulations. Section 10.3 Arbitrage Certification. The Mayor, the City Manager, and the City Finance Director, being the officers of the City charged with the responsibility for issuing the Series 2007A Bond pursuant to this Supplemental Resolution, are authorized and directed to execute and deliver to the DNRC a certificate in accordance with the provisions of Section 148 of the Code, and Section 1.148-2(b) of the Regulations, stating that on the basis of facts, estimates and circumstances in existence on the date of issue and delivery of the Series 2007A Bond, it is reasonably expected that the proceeds of the Series 2007A Bond will be used in a manner that would not cause the Series 2007A Bond to be an "arbitrage bond" within the meaning of Section 148 of the Code and the Regulations. Section 10.4 Arbitrage Rebate. The City acknowledges that the Series 2007A Bond is subject to the rebate requirements of Section 148(f) of the Code. The City covenants and agrees to retain such records, make such determinations, file such reports and documents and pay such amounts at such times as are required under said Section 148(f) and applicable Treasury Regulations to preserve the exclusion of interest on the Series 2005 Bond from gross income for federal income tax purposes, unless the Series 2007A Bond qualifies for the exception from the rebate requirement under Section 148(f)(4)(B) of the Code and no "gross proceeds" of the Series 2005 Bond (other than amounts constituting a "bona fide debt service fund") arise during or after the expenditure of the original proceeds thereof. In furtherance of the foregoing, the Finance Director is hereby authorized and directed to execute a Rebate Certificate, substantially in the form of the Rebate Certificate prepared by Bond Counsel and the City hereby covenants and agrees to observe and perform the covenants and agreements contained therein, unless amended or terminated in accordance with the provisions thereof. Section 10.5 Information Reporting. The City shall file with the Secretary of the Treasury, not later than August 15, 2007, a statement concerning the Series 2007A Bond containing the information required by Section 149(e) of the Code. Article XI CONTINUING DISCLOSURE The City understands and acknowledges that the DNRC is acquiring the Series 2007A Bond under the Program pursuant to which the State issues from time to time State Bonds to provide funds therefor. The City covenants and agrees that, upon written request of the DNRC from time to time, the City will promptly provide to the DNRC all information that the DNRC 27 reasonably determines to be necessary or appropriate to offer and sell State Bonds or to provide continuing disclosure in respect of State Bonds, whether under Rule 15c2-12 (17 C.F.R. § 240.15c2-12) promulgated by the Securities and Exchange Council under the Securities Exchange Act of 1934, as amended, or otherwise. Such information shall include, among other things and if so requested, financial statements of the City prepared in accordance with generally accepted accounting principles promulgated by the Financial Accounting Standards Board as modified in accordance with the governmental accounting standards promulgated by the Governmental Accounting Standards Board or as otherwise provided under Montana law, as in effect from time to time (such financial statements to relate to a fiscal year or any period therein for which they are customarily prepared by the City, and, if for a fiscal year and so requested by the DNRC, subject to an audit report and opinion of an accountant or government auditor, as permitted or required by the laws of the State). The City will also provide, with any information so furnished to the DNRC, a certificate of the Mayors the City Manager and the City Finance Director of the City to the effect that, to the best of their knowledge, such information does not include any untrue statement of a material fact or omit to state any material fact required to be stated therein to make the statements made, in light of the circumstances under which they are made, not misleading. Article XII MISCELLANEOUS Section 12.1 Notices. All notices or other communications hereunder shall be sufficiently sent or given and shall be deemed sent or given when delivered or mailed by certified mail, postage prepaid, to the parties at the following addresses: DNRC: Department of Natural Resources and Conservation 1625 Eleventh Avenue P. 0. Box 201601 Helena, Montana 59620-1601 Attn: Conservation and Resource Development Division Trustee: U.S. Bank National Association c/o Corporate Trust Services Two Union Square 601 Union Street, Suite 2120 Seattle, Washington 98 101 City: City of Kalispell 312 1 't Avenue East P.G. Box 1997 Kalispell, Montana 59903 Attn: City Finance Director Any of the above parties may, by notice in writing given to the others, designate any further or different addresses to which subsequent notices or other communications shall be sent. w Section 12.2 B indin Effect. This Supplemental Resolution shall inure to the benefit of and shall be binding upon the DNRC, the City and their respective successors and assigns. Section 12.3 Severability. If any provision of this Supplemental Resolution shall be determined to be unenforceable at any time, it shall not affect any other provision of the Resolution or the enforceability of that provision at any other time. Section 12.4 Amendments. This Supplemental Resolution may not be effectively amended without the written consent of the DNRC. Section 12.5 Applicable Law. This Supplemental Resolution shall be governed by and construed in accordance with the internal laws of the State. Section 12.6 Ca tions• References to Sections. The captions in this Supplemental Resolution are for convenience only and do not define or limit the scope or intent of any provisions or Sections of this Supplemental Resolution. Section 12.7 No Liability of Individual Officers Directors or Trustees. No recourse under or upon any obligation, covenant or agreement contained in this Supplemental Resolution shall be had against any director, officer or employee, as such, past, present or future, of the DNRC, the DEQ or the Trustee, either directly or through the DNRC, the DEQ or the Trustee, or against any officer, or member of the governing body or employee of the City, past, present or future, as an individual so long as such individual was acting in good faith. Any and all personal liability of every nature, whether at common law or in equity, or by statute or by constitution or otherwise, of any such officer or member of the governing body or employee of the DNRC, the Trustee .or the City is hereby expressly waived and released by the City and by the DNRC as a condition of and in consideration for the adoption of this Supplemental Resolution and the making of the 2007A Loan. Section 12.8 Payments Due on Holidays. If the date for making any payment or the last date for performance of any act or the exercise of any right, as provided in this Supplemental Resolution or the Series 2007A Bond, shall not be Business Day, such payments may be made or act performed or right exercised on the next succeeding Business Day with the same force and effect as if done on the nominal date provided in this Supplemental Resolution or the Series 2007A Bond. Section 12.9 Ripht of Others To Perform City,", Covenants. In the event the City shall fail to make any payment or perform any act required to be performed hereunder, then and in each such case the DNRC or the provider of any Collateral Document may (but shall not be obligated to) remedy such default for the account of the City and make advances for that purpose. No such performance or advance shall operate to release the City from any such default and any sums so advanced by the DNRC or the provider of any Collateral Document shall be paid immediately to the party making such advance and shall bear interest at the rate of ten percent (10-00%) per annum from the date of the advance until repaid. The DNRC and the provider of any Collateral. Document shall have the right to enter the Refinanced Projects or the facility or facilities of which the Refinanced Projects are a part or any other facility which is a part of the System in order to effectuate the purposes of this Section. 29 Section 12.10 Authentication of Transcript. The officers of the City are hereby authorized and directed to furnish to the DNRC and to Bond Counsel certified copies of all proceedings relating to the issuance of the Series 2007A Bond and such other certificates and affidavits as may be required to show the right, power and authority of the City to issue the Series 2007A Bond, and all statements contained in and shown by such instruments, including any heretofore furnished, shall constitute representations of the City as to the truth of the statements of fact purported to be shown thereby. Section 12.11 Effective Date. This Supplemental Resolution shall take effect. immediately. Adopted by the City Council of the City of Kalispell, Montana, on this 4th day of June, 2007. Attest: City Clerk (s 30 [Form of the Series 2007A Bond] UNITED STATES OF AMERICA STATE OF MO NTANA COUNTY OF FLATHEAD CITY OF KALISPELL WATER SYSTEM REVENUE REFUNDING BOND (DNRC DRINKING WATER STATE REVOLVING LOAN PROGRAM) SERIES 2007A R- i $1,283,159 FOR VALUE RECEIVED, THE CITY OF KALISPELL, MONTANA (the "City"), a duly organized municipal corporation and political subdivision of the State of Montana, acknowledges itself to be specially indebted and, for value received, hereby promises to pay to the Department of Natural Resources and Conservation of the State of Montana (the "DNRC"), or its registered assigns, solely from the Debt Service Account of its water System Fund, the principal sure equal to the sum of the amounts entered on Schedule A hereto under "Total Amount Advanced," with interest on each such amount from the date such amount is advanced hereunder at the rate of two and zero hundredths percent (2.00%) per annum on the unpaid balance until paid. In addition, the City shall pay an Administrative Expense Surcharge and a Loan Loss Reserve Surcharge on the outstanding principal amount of this Bond at the rates of seventy-five hundredths of one percent (0.75%) and one percent (1-00%), respectively, per annum. Interest and Administrative Expense Surcharge and Loan Loss Reserve Surcharge shall be payable in semiannual installments payable on each January 1 and July 1 (each a "Loan Repayment Date's) commencing January 1, 2008. Principal shall be payable on the dates set forth in Schedule B hereto. Each installment shall be in the amount set forth opposite its due date in Schedule B hereto under "Total Loan Payment." The portion of each such payment consisting of principal, the portion consisting of interest, the portion consisting of Administrative Expense Surcharge and the portion consisting of Loan Loss Reserve Surcharge shall be as set forth in Schedule B hereto. Upon each disbursement of 2007A Loan amounts to the City pursuant to the Resolution described below, the DNRC shall enter (or cause to be entered) the amount advanced on Schedule A under "Advances" and the total amount advanced under the Resolution (as hereinafter defined), including such disbursement, under "Total Amount Advanced." The DNRC shall prepare Schedule B and revised Schedules B, or cause Schedule B and revised Schedules B to be prepared, as provided in Section 5.1 of the Supplemental Resolution. Schedule B shall be calculated and recalculated assuming an interest rate of three and seventy-five hundredths percent (3.75%) per annum. Past -due payments of principal and interest, Administrative Expense Surcharge and Loan Loss Reserve Surcharge shall bear interest at the rate of ten percent (10.00%) per annum, until paid. Interest and Administrative Expense Surcharge and Loan Loss Reserve Surcharge shall be calculated on the basis of a 360-day year comprising 12 months of 30 days each. All payments under this Bond shall be made to the A-1 registered holder of this Bond, at its address as it appears on the Bond register, in lawful money of the United States of America. This Bond constitutes a series in the maximum authorized principal amount of $1,283,159 (the "Series 2007A Bond"), issued to (i) pay, refund, and redeem the Series 2003 Bond, the Series 2004A Bond, and the Series 2005 Bond, which were issued to finance costs of construction of certain improvements to the water system of the City (the "System"), and (ii) make a deposit to the Reserve Account in the Debt Service Account for the Series 2007A Bond. The Series 2007A Bond is issued pursuant to and in full conformity with the Constitution and laws of the State of Montana thereunto enabling, including Montana Code Annotated, Title 7, Chapter 7, Part 44 and 45, as amended, and ordinances and resolutions duly adopted by the governing body of the City, including Resolution No. 4273, adopted by this Council on June 17, 1996, as amended and supplemented by Resolution Nos. 4603 and 4892, adopted by this Council on March 5, 2001 and May 17, 2004, respectively (collectively, the "original Resolution"), as amended and supplemented by Resolution No.-, . (the "Supplemental Resolution"), adopted June 4, 2007 (as so amended and supplemented, collectively, the ``Resolution"). The Series 2007A Bond is issuable only as a single, fully registered bond. The Series 2007A Bond is issued on a parity and is equally and ratably secured by the Net Revenues of the System with the City's outstanding Water System Revenue Bond (DNRC Drinking water Revolving Loan Program), Series 2001 (the "Series 2001 Bond"), and its water System Revenue and Refunding Bonds, Series 2004 (the "Series 2004 Bond"). Reference is made to the Resolution for a more complete statement of the terms and conditions upon which the Series 2007A Bond has been issued, the Net Revenues of the System pledged and appropriated for the payment and security thereof, the conditions upon which additional bonds may be issued under the Resolution and made payable from such Net Revenues on a parity with the Series 2001 Bond, the Series 2004 Bond, and the Series 2007A Bond (collectively, the "Bonds") or otherwise, the conditions upon which the Resolution may be amended, the rights, duties and obligations of the City, and the rights of the owners of the Series 2007A Bond, The City may prepay the principal of the Series 2007A Bond only if (1) it obtains the prior written consent of the DNRC thereto, and (ii) no Loan Repayment or Administrative Expense Surcharge or Loan Loss Reserve Surcharge is then delinquent. Any prepayment permitted by the DNRC must be accompanied by payment of accrued interest and Administrative Expense Surcharge and Loan Loss Reserve Surcharge to the date of prepayment on the amount of principal prepaid. If the Series 2007A Bond is prepaid in part, such prepayments shall be applied to principal payments in inverse order of maturity. The Bonds, including interest and any premium for the redemption thereof, are payable solely from the Net Revenues pledged for the payment thereof and do not constitute a debt of the City within the meaning of any constitutional, statutory or charter limitation or provision. The City may deem and treat the person in whose name this Series 2007A Bond is registered as the absolute owner hereof, whether this Series 2007A Bond is overdue or not, for the purpose of receiving payment and for all other purposes, and the City shall not be affected by any notice to the contrary. A-2 IT IS HEREBY CERTIFIED, RECITED, COVENANTED AND AGREED that the City has duly authorized and will forthwith undertake the improvements to the System hereinabove described, has fixed and established and will collect reasonable rates and charges for the services and facilities afforded by the System, and has created a special water System Fund into which the gross revenues of the System as described in Section 7.01 of the original Resolution (the "Revenues"), including all additions thereto and replacements and improvements thereof, will be paid, and a separate and special Debt Service Account in that fund, into which will be paid each month, Net Revenues of the System then on hand (the gross revenues remaining after the payment of operating expenses of the System), an amount equal to not less than the sum of one - sixth of the interest due within the next six months and one -twelfth of the principal due within the next twelve months with respect to all outstanding Bonds payable from that account, and a Reserve Account in that fund into which shall be paid additional Net Revenues sufficient to establish and maintain a reserve therein equal to, as of the date of calculation, the Reserve Requirement on all outstanding Bonds in the current or any future fiscal year (giving effect to any mandatory sinking fund redemption); that the Debt Service Account and the Reserve Account will be used only to pay the principal of, premium, if any, and interest on the Bonds issued pursuant to the authority herein recited; that the rates and charges for the System will from time to time be made and kept sufficient to provide Net Revenues (revenues less "operating expenses," as defined in the original Resolution) for each fiscal year at least equal to 125 % of the principal and interest payable from the Debt Service Account in any subsequent fiscal year, to maintain the balance in the Reserve Account at the Reserve Requirement, and to pay promptly the reasonable and current expenses of operating and maintaining the System; that additional Bonds and refunding Bonds may be issued and made payable from the Debt Service Account on a parity with the Series 2001 Bond, the Series 2004 Bond, and the Series 2007A Bond upon certain conditions set forth in the Resolution, but no obligation will be otherwise incurred and made payable from the Net Revenues, unless the lien thereof shall be expressly made subordinate to the lien of the Series 2001 Bond, the Series 2004 Bond, and the Series 2007A Bond and other additional Bonds on such Net Revenues; that all provisions for the security of this Series 2007A Bond set forth in the Resolution will be punctually and faithfully performed as therein stipulated; that all acts, conditions and things required by the Constitution and laws of the State of Montana and the ordinances and resolutions of the City to be done, to exist, to happen and to be performed in order to make this Series 2007A Bond a valid and binding special obligation of the City according to its terms have been done, do exist, have happened and have been performed as so required; and that this Series 2007A Bond and the premium, if any, and interest hereon are payable solely from the Net Revenues of the System pledged and appropriated to the Debt Service Account and do not constitute a debt of the City within the meaning of any constitutional, statutory or charter limitation or provision and the issuance of the Series 2007A Bond does not cause either the general or the special indebtedness of the City to exceed any constitutional, statutory or charter limitation. A-3 IN WITNESS WHEREOF, the City of Kalispell, Montana, by its governing body, has caused this Band to be executed by the signatures of its Mayor, City Manager and City Finance Director, and has caused the official seal of the City to be affixed hereto, and has caused this Bond to be dated as of the day of 92007. (SEAL) Mayor City Manager City Finance Director A-4 REGISTRATION AND TRANSFER This Bond shall be fully registered as to both principal and interest. No transfer of this Bond shall be valid unless and until (1) the registered holder of the Bonds or his duly authorized attorney or legal representative, executes the form of assignment appearing on this Bond, and (2) the City Finance Director as bond registrar (the "Registrar"), has duly noted the transfer on the Bond and recorded the transfer on the Registrar's registration books. The City shall be entitled to deem and treat the person in whose name this Bond is registered as absolute owner thereof for all purposes, notwithstanding any notice to the contrary. Payments on account of the Bond shall be made only to the order of the registered holder thereof, and all such payments shall be valid and effectual to satisfy and discharge the City's liability upon the Bond to the extent of the sum or sums so paid. REGISTER. The ownership of the unpaid Principal Balance of this Bond and the interest accruing thereon is registered on the books of the City of Kalispell, Montana in the name of the registered holder appearing on the first page hereof or as last noted below: Date of &egistration ........ 2007 Name and Address of Re ig stered Holder Department of Natural Resources and Conservation 1625 Eleventh Avenue Helena MT 59620 Signature of City Finance Director THE FOLLOWING ENTRIES ARE TO BE MADE ONLY BY THE BOND REGISTRAR UPON REGISTRATION OF EACH TRANSFER The City Finance Director of the City of Kalispell, Montana, acting as Bond Registrar, has transferred, on the books of the City, on the date last noted below, ownership of the principal amount of and the accrued interest on this Bond to the new registered holder noted next to such date, except for amounts of principal and interest theretofore paid. Date of Transfer Name of New Registered Holder Signature of Bond Registrar A- 5 FORM OF ASSIGNMENT For value received, the undersigned hereby sells, assigns and transfers unto the within Bond and does hereby irrevocably constitute and appoint attorney to transfer the Bond on the books Dept for the registration thereof, with full power of substitution in the premises. Dated: Notice: The assignor's signature to this assignment must correspond with the name as it appears upon the face of the within Bond in every particular, without alteration or any change whatsoever. A-6 SCHEDULE A SCHEDULE OF AMOUNTS ADVANCED Total Amount Date Advances Advanced Notation Made Ily - Date Principal Interest S C HED IDLE B Administrative Expense Surcharge Loan Loss Reserve Surcharge Total Loan Payment APPENDIX B ADDITIONAL REPRESENTATIONS AND COVENANTS None Fl