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Attachment 1 ENTER INTO A LEASE AGREEMENT WITH KINF. In order to have a sufficient “ownership interest” in the property, the City and KINF will enter into a long-termlease (the “Long Term Lease”) in a form approved by MMB.In the Long Term Lease KINF (as landlord) will lease the real property and improvements that are to be acquired or improved with proceeds of State GO Bonds to the City (as tenant). This Long Term Lease must be for a term equal to or longer than 125% of the useful life of the property. The Long-TermLease has to be approved by MMB (they have recommended forms that can be used as starting point). The Long-Term Lease cannot include provisions requiring the City to pay rent. MMB requires this long-term leasing arrangement to satisfy the requirement that the City have an ownership interest in the property to comply with the requirements of the Minnesota Constitution. ENTER INTO A LEASE AND MANAGEMENTAGREEMENT WITH KINF. Next, since the City will not operate the program and in order to avoid costs related to the property, the City will enter into a “lease and managementagreement” (also known as a use agreement) with KINF in a form approved by MMB. This lease and management agreement has two aspects: 1) the City (as landlord) will lease the property (the “Use Agreement”) to KINF (as tenant); and 2)KINF will agree to operate the program, including paying for all costs to operate the program and maintain the Facility. All moneys received by the City pursuant to the Use Agreement in excess of the amount needed and authorized to be used to pay operating costs of the property to which it relates must be paid to MMB. The Use Agreement must be for a term substantially less than the useful life of the property (up to 50% of the useful life) but may allow renewal beyond that term upon a determination by the City that KINF’s continued operation of the governmental program at the Facility is necessary and desirable. The Use Agreement will require KINF to provide annual reports to the City including annual program progress reports and budgets so the City can meet its obligations under the grant agreement. The Use Agreement must be terminable by the City if KINF defaults under the contract or if the governmental program is terminated or substantially changed. The expiration of the Use Agreement will likely not require the City to repay the bond proceeds so long as the Facility continues to be operated by the City, or by another nonprofit on behalf of the City for the intended governmental program. COSTS TO THE CITY. The City will bear certain costs in order to assist KINF. First, there are several legal agreements that need to be reviewed, as reflected above. In addition, the City will have to prepare and submit checklists to the State that the Use Agreement and Long Term Lease comply with provisions of the Commissioner’s Order and the Act. Although the State has form contracts and the City could require KINF to draft initial documents, the City will still need to have an attorney reviewand negotiate all of the documents, and prepare the checklists required by MMB to make sure that they comply with the State’s requirements and protect the City. Therefore, the City will have legal fees to negotiate the agreements. To mitigate the City’s costs, it could request that KINF submit an escrow to cover its legal fees (although pursuant to the Commissioner’s Order and the Act, these costs cannot be paid from proceeds of the grant). Secondly, the City will need to supervise several 3 RS160\\1\\946530.v3 Qbhf!335!pg!494