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8A Bond Sale Report
4646 Dakota Street SE Prior Lake, MN 55372 CITY COUNCIL AGENDA REPORT MEETING DATE: JULY 16, 2018 AGENDA #: 8A PREPARED BY: CATHY ERICKSON, FINANCE DIRECTOR PRESENTED BY: CATHY ERICKSON AGENDA ITEM: CONSIDER APPROVAL OF A RESOLUTION FOR THE ISSUANCE AND SALE OF $8,745,000 GENERAL OBLIGATION BONDS, SERIES 2018A DISCUSSION: Introduction A representative from the City’s financial advisor, Mr. Rusty Fifield from Northland Securities Inc., will be present during the meeting. He will present bids for the sale of general obligation bonds, and to request Council approval to award the sale and issue the general obligation bonds in the amount $8.745 million for the following projects: • Fire Pumper Replacement • Fire Station #2 SCBA and Parking Lot Replacement • 2018 Street Improvement Projects o Franklin Area o Huron Area • 2018 Street Mill and Overlay Project • Utility Funds - Automated Meter Reading System Replacement (AMRS) and Huron Area Streets Utility Replacement • 2018 Street Reconstruction Projects o Duluth Ave/TH 13 o County Wide Flashing Yellow Signal Conversion History The City Council approved Resolution #18-095 on June 18, 2018, which provided for the competitive sale of General Obligation Bonds, Series 2018A in an amount not to exceed $9,000,0000. Current Circumstances The bonds have been rated AA+ by Standard and Poor’s. The report issued by S&P is attached to this agenda report. Proposals are due by 10:30 a.m. on July 16, 2018. The bids will be evaluated as specified in the Notice of Sale of the Bonds and the results will be presented to the City Council during the July 16, 2018 City Council meeting. A copy of the resolution prepared by the City’s bond counsel, Briggs and Morgan is attached for the Council’s review. The attached resolution is a template of the resolution that will be presented to the City Council. A revised resolution will be provided to the City Council that contains the information from the recommended bid. 2 Northland will present a sale summary to the City Council at the meeting on July 16. Conclusion The City Council will consider a resolution approving the issuance and sale of bonds. ISSUES: The Duluth Avenue/TH13 street reconstruction project, which is included in this bond issue will go to the Council for bid authorization on July 16 and for contract award in August. The bond sale will be awarded based on the lowest true interest cost. This infor- mation will be shared at the Council meeting. FINANCIAL IMPACT: The repayment of the bond issue is from various sources as noted below: Debt Service Tax Levy: The road project and the Fire Station #1 Equipment and Capital Improvement bonding will be repaid by a debt service tax levy. The average annual net debt service tax levy for the 2018A bond issue is estimated to be $541,000. Water and Sewer Utility Fund Revenues: Water and Sewer Fund revenues are pledged for the debt service for the AMRS and Huron Area streets utility replacement bonding. The annual average debt ser- vice to support this these items is estimated to be $310,000 split equally between the water and the sewer funds. 2018 Street Overlay Special Assessments and General Fund Transfer: The street overlay bonding will be repaid by special assessments with a five- year term and a transfer from the General Fund. The annual average debt service is estimated to be $106,300. The annual average debt service for the total bond issue may change based on the net interest cost of the bond issue. The City has planned for these projects and they are included in the long term financial plan and Capital Improvement Plan. ALTERNATIVES: The following alternatives are available to the City Council: 1. Adopt a Resolution Providing for the Issuance and Sale of $8,745,000 General Obligation Bonds, Series 2018A. 2. Reject bond sale for a specific reason. RECOMMENDED MOTION: Alternative #1 ATTACHMENTS: 1. Resolution 2. Standard & Poor’s Rating Report (AA+) 10824992v2 EXTRACT OF MINUTES OF A MEETING OF THE CITY COUNCIL OF THE CITY OF PRIOR LAKE, MINNESOTA HELD: July 16, 2018 Pursuant to due call, a regular or special meeting of the City Council of the City of Prior Lake, Scott County, Minnesota, was duly held at the City Hall on July 16, 2018, at 7:00 P.M., for the purpose, in part, of authorizing the issuance and awarding the sale of $8,270,000 General Obligation Bonds, Series 2018A. The following members were present: and the following were absent: Member ______________ introduced the following resolution and moved its adoption: RESOLUTION NO. _______ RESOLUTION PROVIDING FOR THE ISSUANCE AND SALE OF $8,270,000 GENERAL OBLIGATION BONDS, SERIES 2018A, PLEDGING FOR THE SECURITY THEREOF REVENUES, SPECIAL ASSESSMENTS AND LEVYING A TAX FOR THE PAYMENT THEREOF A. WHEREAS, the City Council of the City of Prior Lake, Minnesota (the "City") has heretofore determined and declared that it is necessary and expedient to issue $8,270,000 General Obligation Bonds, Series 2018A (the "Bonds" or individually a "Bond"), pursuant to Minnesota Statutes, Chapter 475 and (i) Section 412.301 to finance the acquisition of capital equipment for the City (the "Equipment") (the "Equipment Portion of the Bonds"); and (ii) Section 475.521 to finance the acquisition and betterment of a public safety facility ("Fire Hall") in the City (the "Capital Improvements") (the "Capital Improvement Portion of the Bonds"); and (iii) Chapter 429 to finance public trail improvements to the Franklin Trail and street improvements to the Woodside/Huron Neighborhood located within the City (the "429 Improvements") (the "Improvement Portion of the Bonds"); and (iv) Chapter 429 to finance the 2018 Mill and Overlay improvements within the City (the "PIR Improvements") (the "PIR Portion of the Bonds"); and (v) Section 444.075 to finance improvements to the municipal water system and the municipal sanitary sewer system (the "Utility Improvements") (the "Utility Improvement Portion of the Bonds") to finance the City's Huron Project; and 10824992v2 2 (vi) Section 475.58, Subdivision 3b, to finance street reconstruction improvements under the City's 2017 through 2021 Street Reconstruction Plan dated August 22, 2016, as amended on January 8, 2018 (the "Street Reconstruction Projects") (the "Street Reconstruction Portion of the Bonds"); B. WHEREAS, each item of Equipment to be financed by the Equipment Portion of the Bonds, as hereinafter defined, has an expected useful life at least as long as the term of th e Equipment Portion of the Bonds; and C. WHEREAS, the principal amount of the Equipment Portion of the Bonds does not exceed one-quarter of one percent (0.25%) of the estimated market value of the taxable property in the City ($3,393,205,600 times 0.25% is $8,483,014); and D. WHEREAS, on August 8, 2016, the City Council held a public hearing on the proposed issuance of general obligation capital improvement plan bonds and, pursuant to a resolution approved and adopted on August 22, 2016, the 2016 through 2021 Capital Improvement Plan (the "Plan"), and approved the issuance of general obligation capital improvement plan bonds to finance the Capital Improvements, all pursuant to the Plan and in accordance with the provisions of Minnesota Statutes, Section 475.521; and E. WHEREAS, no petition signed by voters equal to five percent of the votes cast in the City in the last general election requesting a vote on the issuance of the general obligation capital improvement plan bonds has been filed with the City Manager within thirty days after the public hearing on the Plan and on the issuance of the general obligation capital improvement plan bonds; and F. WHEREAS, the City has heretofore determined, in accordance with Minnesota Statutes, Section 475.521, Subd. 4, that the maximum amount of principal and interest to become due in any year on the Capital Improvement Portion of the Bonds, and any other outstanding bonds issued under Minnesota Statutes, Section 475.521, is less than 0.16 percent of the taxable market value of property of the City; and G. WHEREAS, the PIR Improvements and the 429 Improvements are herein referred to collectively as the Improvements and all their components have been ordered prior to the date hereof, after a hearing thereon for which notice was given describing the Improvements or all their components by general nature, estimated cost, and area to be assessed; and H. WHEREAS, the City owns and operates a municipal water system (the "Water System") and a sanitary sewer system (the "Sanitary Sewer System" a nd together with the Water System, the "System") as separate revenue producing public utilities; and I. WHEREAS, the net revenues of the Water System are pledged to the payment of (i) the "Refunding Portion" of the City's outstanding $10,000,000 General Obligation Bonds, Series 2015A, dated May 1, 2015; and (ii) the "Refunding Portion" of the City's outstanding $3,505,000 General Obligation Bonds, Series 2016A, dated May 1, 2016 (together, the 10824992v2 3 "Outstanding Water Bonds"), the interest and principal of which constitutes a prior lien upon the net revenues of the Water System; and J. WHEREAS, there are no outstanding obligations of the City, the interest and principal of which would constitute a prior lien upon the net revenues of the Sanitary Sewer System; and K. WHEREAS, on August 22, 2016, following duly published notice thereof, the Council held a public hearing on its 2017 to 2021 Street Reconstruction Plan (the "Original Plan"); and on January 8, 2018, following duly published notice thereof, the Council held a public hearing on its 2017 to 2021 Amended Street Reconstruction Plan, to effectively amend the Original Plan (the "Amended Plan"). The Amended Plan provides for the issuance of approximately $4,015,000 principal amount of bonds to finance the Street Reconstruction Improvements and all persons who wished to speak or provide written information relative to the public hearing were afforded an opportunity to do so; and L. WHEREAS, no petition signed by voters equal to 5 percent of the votes cast in the City in the last municipal general election requesting a vote on the issuance of the Street Reconstruction Portion of the Bonds has been filed with the City Clerk within 30 days after the public hearing on January 8, 2018; and M. WHEREAS, the City's Street Reconstruction Portion of the Bonds and all other outstanding Bonds that count against the City's debt limit do not exceed the City's net debt limit, calculated in accordance with the provisions of Minnesota Statutes, Section 475.53; and N. WHEREAS, the City has retained Northland Securities, Inc. ("Northland"), as its independent financial advisor, in connection with the sale of the Bonds, and therefore the City is authorized to sell the Bonds by private negotiation in accordance with Minnesota Statutes, Section 475.60; Subdivision 2(9) and proposals to purchase the Bonds have been solicited by Northland; and O. WHEREAS, the proposals set forth on Exhibit A attached hereto were received by the City Manager, or designee, at the offices of Northland, at 10:30 A.M. this same day pursuant to the Notice of Sale established for the Bonds; and P. WHEREAS, it is in the best interests of the City that the Bonds be issued in book- entry form as hereinafter provided; and NOW, THEREFORE, BE IT RESOLVED by the Council of the City of Prior Lake, Minnesota, as follows: 1. Acceptance of Proposal. The proposal of Piper Jaffray & Co. in Minneapolis, Minnesota (the "Purchaser"), to purchase the Bonds in accordance with the Notice of Sale, at the rates of interest hereinafter set forth and to pay therefor the sum of $9,239,549.08, plus accrued interest to the settlement date, is hereby accepted and the Bonds are hereby awarded to the Purchaser. 10824992v2 4 2. Bond Terms. (a) Original Issue Date; Denominations; Maturities; Term Bond Option. The Bonds shall be dated August 15, 2018, as the date of original issue and shall be issued forthwith on or after such date in fully registered form, shall be numbered from R-1 upward in the denomination of $5,000 each or in any integral multiple thereof of a single maturity (the "Authoriz ed Denominations") and shall mature on December 15 in the years and amounts as follows: Year Amount Year Amount 2019 $760,000 2024 $790,000 2020 860,000 2025 805,000 2021 805,000 2026 830,000 2022 835,000 2027 870,000 2023 870,000 2028 845,000 As may be requested by the Purchaser, one or more term Bonds may be issued having mandatory sinking fund redemption and final maturity amounts conforming to the foregoing principal repayment schedule, and corresponding additions may be made to the provisions of the applicable Bond(s). (b) Allocation. The Equipment Portion of the Bonds, being the aggregate principal amount of $605,000, maturing in each of the years and amounts hereinafter set forth, is issued to finance the Equipment. The Capital Improvement Portion of the Bonds, being the aggregate principal amount of $560,000, maturing in each of the years and amounts hereinafter set forth, is issued to finance the Capital Improvements. The Improvement Portion of the Bonds, being the aggregate principal amount of $2,655,000, maturing in each of the years and amounts hereinafter set forth, is issued to finance the 429 Improvements. The PIR Portion of the Bonds, being the aggregate principal amount of $490,000, maturing in each of the years and amounts hereinafter set forth, is issued to finance the PIR Improvements. The Utility Improvement Portion of the Bonds, being the aggregate principal amount of $2,640,000, maturing in each of the years and amounts hereinafter set forth, is issued to finance the Utility Improvements. The Street Reconstruction Portion of the Bonds, being the aggregate principal amount of $1,320,000, maturing in each of the years and amounts hereinafter set forth, is issued to finance the Street Reconstruction Projects. Year Equipment Portion (Amount) Capital Improvement Portion (Amount) Improvement Portion (Amount) PIR Portion (Amount) Utility Improvement Portion (Amount) Street Reconstruction Portion (Amount) Total Amount 2019 $70,000 $50,000 $240,000 $85,000 $210,000 $105,000 $760,000 2020 70,000 60,000 275,000 95,000 240,000 120,000 860,000 2021 60,000 50,000 235,000 100,000 240,000 120,000 805,000 2022 60,000 50,000 245,000 105,000 250,000 125,000 835,000 2023 65,000 55,000 255,000 105,000 260,000 130,000 870,000 2024 70,000 55,000 260,000 - 270,000 135,000 790,000 2025 70,000 55,000 275,000 - 270,000 135,000 805,000 10824992v2 5 2026 70,000 60,000 280,000 - 280,000 140,000 830,000 2027 70,000 60,000 290,000 - 300,000 150,000 870,000 2028 - 65,000 300,000 - 320,000 160,000 845,000 If Bonds are prepaid, the prepayments shall be allocated to the portions of debt service (and hence allocated to the payment of Bonds treated as relating to a particular portion of debt service) as provided in this paragraph. If the source of prepayment moneys is the general fund of the City, or other generally available source, including the levy of taxes, the prepayment may be allocated to any of the portions of debt service in such amounts as the City shall determine. If the source of the prepayment is special assessments pledged to the 429 Improvements, the prepayment shall be allocated to the Improvement Portion of debt service. If the source of the prepayment is special assessments pledged to the PIR Improvements, the prepayment shall be allocated to the PIR Portion of debt service. If the source of the prepayment is System revenues pledged to the Utility Improvements, the prepayment shall be allocated to the Utility Improvement Portion of debt service. (c) Book Entry Only System. The Depository Trust Company, a limited purpose trust company organized under the laws of the State of New York or any of its successors or its successors to its functions hereunder (the "Depository") will act as securities deposit ory for the Bonds, and to this end: (i) The Bonds shall be initially issued and, so long as they remain in book entry form only (the "Book Entry Only Period"), shall at all times be in the form of a separate single fully registered Bond for each maturity of the Bonds; and for purposes of complying with this requirement under paragraphs 5 and 10 Authorized Denominations for any Bond shall be deemed to be limited during the Book Entry Only Period to the outstanding principal amount of that Bond. (ii) Upon initial issuance, ownership of the Bonds shall be registered in a bond register maintained by the Bond Registrar (as hereinafter defined) in the name of CEDE & CO., as the nominee (it or any nominee of the existing or a successor Depository, the "Nominee"). (iii) With respect to the Bonds neither the City nor the Bond Registrar shall have any responsibility or obligation to any broker, dealer, bank, or any other financial institution for which the Depository holds Bonds as securities depository (the "Participant") or the person for which a Participant holds an interest in the Bonds shown on the books and records of the Participant (the "Beneficial Owner"). Without limiting the immediately preceding sentence, neither the City, nor the Bond Registrar, shall have any such responsibility or obligation with respect to (A) the accuracy of the records of the Depository, the Nominee or any Participant with respect to any ownership interest in the Bonds, or (B) the delivery to any Participant, any Owner or any other person, other than the Depository, of any notice with respect to the Bonds, including any notice of redemption, or (C) the payment to any Participant, any Beneficial Owner or any other person, other than the Depository, of any amount with respect to the principal of or prem ium, if any, or interest on the Bonds, or (D) the consent given or other action taken by the 10824992v2 6 Depository as the Registered Holder of any Bonds (the "Holder"). For purposes of securing the vote or consent of any Holder under this Resolution, the City may, however, rely upon an omnibus proxy under which the Depository assigns its consenting or voting rights to certain Participants to whose accounts the Bonds are credited on the record date identified in a listing attached to the omnibus proxy. (iv) The City and the Bond Registrar may treat as and deem the Depository to be the absolute owner of the Bonds for the purpose of payment of the principal of and premium, if any, and interest on the Bonds, for the purpose of giving notices of redemption and other matters with respect to the Bonds, for the purpose of obtaining any consent or other action to be taken by Holders for the purpose of registering transfers with respect to such Bonds, and for all purpose whatsoever. The Bond Registrar, as paying agent hereunder, shall pay all principal of and premium, if any, and interest on the Bonds only to the Holder or the Holders of the Bonds as shown on the bond register, and all such payments shall be valid and effective to fully satisfy and discharge the City's obligations with respect to the principal of and premium, if any, and interest on the Bonds to the extent of the sum or sums so paid. (v) Upon delivery by the Depository to the Bond Registrar of written notice to the effect that the Depository has determined to substitute a new Nominee in place of the existing Nominee, and subject to the transfer provisions in paragraph 10, references to the Nominee hereunder shall refer to such new Nominee. (vi) So long as any Bond is registered in the name of a Nominee, all payments with respect to the principal of and premium, if any, and interest on such Bond and all notices with respect to such Bond shall be made and given, respectively, by the Bond Registrar or City, as the case may be, to the Depository as provided in the Letter of Representations to the Depository required by the Depository as a condition to its acting as book-entry Depository for the Bonds (said Letter of Representations, together with any replacement thereof or amendment or substitute thereto, including any standard procedures or policies referenced therein or applicable thereto respecting the procedures and other matters relating to the Depository's role as book-entry Depository for the Bonds, collectively hereinafter referred to as the "Letter of Representations"). (vii) All transfers of beneficial ownership interests in each Bond issued in book-entry form shall be limited in principal amount to Authorized Denominations and shall be effected by procedures by the Depository with the Participants for recording and transferring the ownership of beneficial interests in such Bonds. (viii) In connection with any notice or other communication to be provided to the Holders pursuant to this Resolution by the City or Bond Registrar with respect to any consent or other action to be taken by Holders, the Depository shall consider the date of receipt of notice requesting such consent or other action as the record 10824992v2 7 date for such consent or other action; provided, that the City or the Bond Registrar may establish a special record date for such consent or other action. The City or the Bond Registrar shall, to the extent possible, give the Depository notice of such special record date not less than fifteen calendar days in advance of such special record date to the extent possible. (ix) Any successor Bond Registrar in its written acceptance of its duties under this Resolution and any paying agency/bond registrar agreement, shall agree to take any actions necessary from time to time to comply with the requirements of the Letter of Representations. (d) Termination of Book-Entry Only System. Discontinuance of a particular Depository's services and termination of the book-entry only system may be effected as follows: (i) The Depository may determine to discontinue providing its services with respect to the Bonds at any time by giving written notice to the City and discharging its responsibilities with respect thereto under applicable law. The City may terminate the services of the Depository with respect to the Bond if it determines that the Depository is no longer able to carry out its functions as securities depository or the continuation of the system of book-entry transfers through the Depository is not in the best interests of the City or the Beneficial Owners. (ii) Upon termination of the services of the Depository as provided in the preceding paragraph, and if no substitute securities depository is willing to undertake the functions of the Depository hereunder can be found which, in the opinion of the City, is willing and able to assume such functions upon reasonable or customary terms, or if the City determines that it is in the best interests of the City or the Beneficial Owners of the Bond that the Beneficial Owners be able to obtain certificates for the Bonds, the Bonds shall no longer be registered as being registered in the bond register in the name of the Nominee, but may be registered in whatever name or names the Holder of the Bonds shall designate at that time, in accordance with paragraph 10. To the extent that the Beneficial Owners are designated as the transferee by the Holders, in accordance with paragraph 10, the Bonds will be delivered to the Beneficial Owners. (iii) Nothing in this subparagraph (d) shall limit or restrict the provisions of paragraph 10. (e) Letter of Representations. The provisions in the Letter of Representations are incorporated herein by reference and made a part of the resolution, and if and to the extent any such provisions are inconsistent with the other provisions of this resolution, the provisions in the Letter of Representations shall control. 3. Project. The Equipment, the Capital Improvements, the 429 Improvements, the PIR Improvements, the Utility Improvements and the Street Reconstruction Projects are herein referred to together as the Project. The total cost of the Project, which shall include all costs 10824992v2 8 enumerated in Minnesota Statutes, Section 475.65, is estimated to be at least equal to the amount of the Bonds. The City covenants that it shall do all things and perform all acts required of it to assure that work on the Project proceeds with due diligence to completion and that any and all permits and studies required under law for the Project are obtained. 4. Interest. The Bonds shall bear interest payable semiannually on December 15 and June 15 of each year (each, an "Interest Payment Date"), commencing June 15, 2019, calculated on the basis of a 360-day year of twelve 30-day months, at the respective rates per annum set forth opposite the maturity years as follows: Maturity Year Interest Rate Maturity Year Interest Rate 2019 4.00% 2024 4.00% 2020 4.00 2025 5.00 2021 4.00 2026 5.00 2022 4.00 2027 5.00 2023 4.00 2028 5.00 5. Redemption. All Bonds maturing on December 15, 2027 and thereafter, shall be subject to redemption and prepayment at the option of the City on December 15, 2026, and on any date thereafter at a price of par plus accrued interest. Redemption may be in whole or in part of the Bonds subject to prepayment. If redemption is in part, the maturities and the principal amounts within each maturity to be redeemed shall be determined by the City; and if only part of the Bonds having a common maturity date are called for prepayment, the specific Bonds to be prepaid shall be chosen by lot by the Bond Registrar. Bonds or portions thereof called for redemption shall be due and payable on the redemption date, and interest thereon shall cease to accrue from and after the redemption date. Mailed notice of redemption shall be given to the paying agent and to each affected registered holder of the Bonds not more than sixty (60) days and not fewer than thirty (30) days prior to the date fixed for redemption. To effect a partial redemption of Bonds having a common maturity date, the Bond Registrar prior to giving notice of redemption shall assign to each Bond having a common maturity date a distinctive number for each $5,000 of the principal amount of such Bond. The Bond Registrar shall then select by lot, using such method of selection as it shall deem proper in its discretion, from the numbers so assigned to such Bonds, as many numbers as, at $5,000 for each number, shall equal the principal amount of such Bonds to be redeemed. The Bonds to be redeemed shall be the Bonds to which were assigned numbers so selected; provided, however, that only so much of the principal amount of each such Bond of a denomination of more than $5,000 shall be redeemed as shall equal $5,000 for each number assigned to it and so selected. If a Bond is to be redeemed only in part, it shall be surrendered to the Bond Registrar (with, if the City or Bond Registrar so requires, a written instrument of transfer in form satisfactory to th e City and Bond Registrar duly executed by the Holder thereof or the Holder's attorney duly authorized in writing) and the City shall execute (if necessary) and the Bond Registrar shall authenticate and deliver to the Holder of the Bond, without service charge, a new Bond or Bonds having the same stated maturity and interest rate and of any Authorized Denomination or 10824992v2 9 Denominations, as requested by the Holder, in aggregate principal amount equal to and in exchange for the unredeemed portion of the principal of the Bond so surrendered. 6. Bond Registrar. Northland Trust Services, Inc., in Minneapolis, Minnesota, is appointed to act as bond registrar and transfer agent with respect to the Bonds (the "Bond Registrar"), and shall do so unless and until a successor Bond Registrar is duly appointed, all pursuant to any contract the City and Bond Registrar shall execute which is consistent herewith. The Bond Registrar shall also serve as paying agent unless and until a successor paying agent is duly appointed. Principal and interest on the Bonds shall be paid to the registered holders (or record holders) of the Bonds in the manner set forth in the form of Bond and paragraph 12. 7. Form of Bond. The Bonds, together with the Bond Registrar's Certificate of Authentication, the form of Assignment and the registration information thereon, shall be in substantially the following form: 10824992v2 10 UNITED STATES OF AMERICA STATE OF MINNESOTA SCOTT COUNTY CITY OF PRIOR LAKE R-_______ $_________ GENERAL OBLIGATION BOND, SERIES 2018A Interest Rate Maturity Date Date of Original Issue CUSIP December 15, August 15, 2018 REGISTERED OWNER: CEDE & CO. PRINCIPAL AMOUNT: The City of Prior Lake, Scott County, Minnesota (the "Issuer"), certifies that it is indebted and for value received promises to pay to the registered owner specified above, or registered assigns, unless called for earlier redemption, in the manner hereinafter set forth, the principal amount specified above, on the maturity date specified above, and to pay interest thereon semiannually on December 15 and June 15 of each year (each, an "Interest Payment Date"), commencing June 15, 2019, at the rate per annum specified above (calculated on the basis of a 360-day year of twelve 30-day months) until the principal sum is paid or has been provided for. This Bond will bear interest from the most recent Interest Payment Date to which interest has been paid or, if no interest has been paid, from the date of original issue hereof. The principal of and premium, if any, on this Bond are payable upon presentation and surrender hereof at the principal office of Northland Trust Services, Inc., in Minneapolis, Minnesota (the "Bond Registrar"), acting as paying agent, or any successor paying agent duly appointed by the Issuer, acting as paying agent, or any successor paying agent duly appointed by the Issuer. Interest on this Bond will be paid on each Interest Payment Date by check or draft mailed to the person in whose name this Bond is registered (the "Holder" or "Bondholder") on the registration books of the Issuer maintained by the Bond Registrar and at the address appearing thereon at the close of business on the first day of the calendar month of such Interest Payment Date (the "Regular Record Date"). Any interest not so timely paid shall cease to be payable to the person who is the Holder hereof as of the Regular Record Date, and shall be payable to the person who is the Holder hereof at the close of business on a date (the "Special Record Date") fixed by the Bond Registrar whenever money becomes available for payment of the defaulted interest. Notice of the Special Record Date shall be given to Bondholders not less t han ten days prior to the Special Record Date. The principal of and premium, if any, and interest on this Bond are payable in lawful money of the United States of America. So long as this Bond is registered in the name of the Depository or its Nominee as provided in the Resolution hereinafter described, and as those terms are defined therein, payment of principal of, premium, if any, and interest on this Bond and notice with respect thereto shall be made as provided in the Letter of Representations, as defined in the Resolution, and surrender of this Bond shall not be required for payment of the redemption price upon a partial redemption of this Bond. Until termination of 10824992v2 11 the book-entry only system pursuant to the Resolution, Bonds may only be registered in the name of the Depository or its Nominee. Optional Redemption. All Bonds of this issue (the "Bonds") maturing on December 15, 2027, and thereafter, are subject to redemption and prepayment at the option of the Issuer on December 15, 2026, and on any date thereafter at a price of par plus accrued interest. Redemption may be in whole or in part of the Bonds subject to prepayment. If redemption is in part, the maturities and the principal amounts within each maturity to be redeemed shall be determined by the Issuer; and if only part of the Bonds having a common maturity date are called for prepayment, the specific Bonds to be prepaid shall be chosen by lot by the Bond Registrar. Bonds or portions thereof called for redemption shall be due and payable on the redemption date, and interest thereon shall cease to accrue from and after the redemption date. Mailed notice of redemption shall be given to the paying agent and to each affected registered holder of the Bonds not more than sixty (60) days and not fewer than thirty (30) days prior to the date fixed for redemption. Prior to the date on which any Bond or Bonds are directed by the Issuer to be redeemed in advance of maturity, the Issuer will cause notice of the call thereof for redemption identifying the Bonds to be redeemed to be mailed to the Bond Registrar and all Bondholders, at the addresses shown on the Bond Register. All Bonds so called for redemption will cease to bear interest on the specified redemption date, provided funds for their redemption have been duly deposited. Selection of Bonds for Redemption; Partial Redemption. To effect a partial redemption of Bonds having a common maturity date, the Bond Registrar shall assign to each Bond having a common maturity date a distinctive number for each $5,000 of the principal amount of such Bond. The Bond Registrar shall then select by lot, using such method of selection as it shall deem proper in its discretion, from the numbers assigned to the Bonds, as many numbers as, at $5,000 for each number, shall equal the principal amount of such Bonds to be redeemed. The Bonds to be redeemed shall be the Bonds to which were assigned numbers so selected; provided, however, that only so much of the principal amount of such Bond of a denomination of more than $5,000 shall be redeemed as shall equal $5,000 for each number assigned to it and so selected. If a Bond is to be redeemed only in part, it shall be surrendered to the Bond Registrar (with, if the Issuer or Bond Registrar so requires, a written instrument of transfer in form satisfactory to the Issuer and Bond Registrar duly executed by the Holder thereof or the Holder's attorney duly authorized in writing) and the Issuer shall execute (if necessary) and the Bond Registrar shall authenticate and deliver to the Holder of the Bond, without service charge, a new Bond or Bonds having the same stated maturity and interest rate and of any Authorized Denomination or Denominations, as requested by the Holder, in aggregate principal amount equal to and in exchange for the unredeemed portion of the principal of the Bond so surrendered. Issuance; Purpose; General Obligation. This Bond is one of an issue in the total principal amount of $8,270,000, all of like date of original issue and tenor, except as to number, maturity, interest rate, denomination and redemption privilege, issued pursuant to and in full conformity with the Constitution and laws of the State of Minnesota and pursuant to a resolution adopted by the City Council on July 16, 2018 (the "Resolution"), for the purpose of providing money to 10824992v2 12 finance the purchase of capital equipment, the construction of various improvement projects, capital improvement projects and street improvement projects, and improvements to the water and sanitary sewer systems within the jurisdiction of the Issuer. This Bond is payable out of the General Obligation Bonds, Series 2018A Fund and the Permanent Improvement Revolving Sinking Fund of the Issuer. This Bond constitutes a general obligation of the Issuer, and to provide moneys for the prompt and full payment of its principal, premium, if any, and interest when the same become due, the full faith and credit and taxing powers of the Issuer have been and are hereby irrevocably pledged. Denominations; Exchange; Resolution. The Bonds are issuable solely in fully registered form in Authorized Denominations (as defined in the Resolution) and are exchangeable for fully registered Bonds of other Authorized Denominations in equal aggregate principal amounts at the principal office of the Bond Registrar, but only in the manner and subject to the limitations provided in the Resolution. Reference is hereby made to the Resolution for a description of the rights and duties of the Bond Registrar. Copies of the Resolution are on file in the principal office of the Bond Registrar. Transfer. This Bond is transferable by the Holder in person or the Holder's attorney duly authorized in writing at the principal office of the Bond Registrar upon presentation and surrender hereof to the Bond Registrar, all subject to the terms and conditions provided in the Resolution and to reasonable regulations of the Issuer contained in any agreement with the Bond Registrar. Thereupon the Issuer shall execute and the Bond Registrar shall authenticate and deliver, in exchange for this Bond, one or more new fully registered Bonds in the name of the transferee (but not registered in blank or to "bearer" or similar designation), of an Authorized Denomination or Denominations, in aggregate principal amount equal to the principal amount of this Bond, of the same maturity and bearing interest at the same rate. Fees upon Transfer or Loss. The Bond Registrar may require payment of a sum sufficient to cover any tax or other governmental charge payable in connection with the transfer or exchange of this Bond and any legal or unusual costs regarding transfers and lost Bonds. Treatment of Registered Owners. The Issuer and Bond Registrar may treat the person in whose name this Bond is registered as the owner hereof for the purpose of receiving payment as herein provided (except as otherwise provided herein with respect to the Record Date) and for all other purposes, whether or not this Bond shall be overdue, and neither the Issuer nor the Bond Registrar shall be affected by notice to the contrary. Authentication. This Bond shall not be valid or become obligatory for any purpose or be entitled to any security unless the Certificate of Authentication hereon shall have been executed by the Bond Registrar. Qualified Tax-Exempt Obligation. This Bond has been designated by the Issuer as a "qualified tax-exempt obligation" for purposes of Section 265(b)(3) of the Internal Revenue Code of 1986, as amended. 10824992v2 13 IT IS HEREBY CERTIFIED AND RECITED that all acts, conditions and things required by the Constitution and laws of the State of Minnesota to be done, to happen and to be performed, precedent to and in the issuance of this Bond, have been done, have happened and have been performed, in regular and due form, time and manner as required by law; that the Issuer has covenanted and agreed with the Holders of the Bonds that it will impose and collect charges for the service, use and availability of its municipal water system and sanitary sewer system (collectively, the "System") at the times and in amounts necessary to produce net revenues, together with other sums pledged to the payment of the Utility Improvement Portion of the Bonds, as defined in the Resolution, adequate to pay all principal and interest when due on the Utility Improvement Portion of the Bonds; and that the Issuer will levy a direct, annual, irrepealable ad valorem tax upon all of the taxable property of the Issuer, without limitation as to rate or amount, for the years and in amounts sufficient to pay the principal and interest on Utility Improvement Portion of the Bonds as they respectively become due, if the net revenues from the System, and any other sums irrevocably appropriated to the Debt Service Account are insufficient therefor; and that this Bond, together with all other debts of the Issuer outstanding on the date of original issue hereof and the date of its issuance and delivery to the original purchaser, does not exceed any constitutional or statutory limitation of indebtedness. IN WITNESS WHEREOF, the City of Prior Lake, Scott County, Minnesota, by its City Council has caused this Bond to be executed on its behalf by the facsimile signatures of its Mayor and its City Manager, the corporate seal of the Issuer having been intentionally omitted as permitted by law. Date of Registration: BOND REGISTRAR'S CERTIFICATE OF AUTHENTICATION This Bond is one of the Bonds described in the Resolution mentioned within. Northland Trust Services, Inc. Minneapolis, Minnesota, Bond Registrar By: Authorized Signature Registrable by: NORTHLAND TRUST SERVICES, INC. Payable at: NORTHLAND TRUST SERVICES, INC. CITY OF PRIOR LAKE, SCOTT COUNTY, MINNESOTA /s/ Facsimile Mayor /s/ Facsimile Manager 10824992v2 14 ABBREVIATIONS The following abbreviations, when used in the inscription on the face of this Bond, shall be construed as though they were written out in full according to applicable laws or regulations: TEN COM - as tenants in common TEN ENT - as tenants by the entireties JT TEN - as joint tenants with right of survivorship and not as tenants in common UTMA - ___________ as custodian for ______________ (Cust) (Minor) under the _____________________ Uniform (State) Transfers to Minors Act Additional abbreviations may also be used though not in the above list. ___________________________________________________________ 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 kept for the registration thereof, with full power of substitution in the premises. Dated:_____________________ ___________________________ Notice: The assignor's signature to this assignment must correspond with the name as it appears upon the face of the within Bond in every particular, without alteration or any change whatever. Signature Guaranteed: ___________________________ Signature(s) must be guaranteed by a national bank or trust company or by a brokerage firm having a membership in one of the major stock exchanges or any other "Eligible Guarantor Institution" as defined in 17 CFR 240.17 Ad-15(a)(2). The Bond Registrar will not effect transfer of this Bond unless the information concerning the transferee requested below is provided. Name and Address: ________________________________________ ________________________________________ ________________________________________ (Include information for all joint owners if the Bond is held by joint account.) 10824992v2 15 8. Execution. The Bonds shall be in typewritten form, shall be executed on behalf of the City by the signatures of its Mayor and City Manager and be sealed with the seal of the City; provided, as permitted by law, both signatures may be photocopied facsimiles and the corporate seal has been omitted. In the event of disability or resignation or other absence of either officer, the Bonds may be signed by the manual or facsimile signature of the officer who may act on behalf of the absent or disabled officer. In case either officer whose signature or facsimile of whose signature shall appear on the Bonds shall cease to be such officer before the delivery of the Bonds, the signature or facsimile shall nevertheless be valid and sufficient for all purposes, the same as if the officer had remained in office until delivery. 9. Authentication. No Bond shall be valid or obligatory for any purpose or be entitled to any security or benefit under this resolution unless a Certificate of Authentication on the Bond, substantially in the form hereinabove set forth, shall have been duly executed by an authorized representative of the Bond Registrar. Certificates of Authentication on different Bonds need not be signed by the same person. The Bond Registrar shall authenticate the signatures of officers of the City on each Bond by execution of the Certificate of Authentication on the Bond and by inserting as the date of registration in the space provided the date on which the Bond is authenticated, except that for purposes of delivering the original Bonds to the Purchaser, the Bond Registrar shall insert as a date of registration the date of original issue, which date is August 15, 2018. The Certificate of Authentication so executed on each Bond shall be conclusive evidence that it has been authenticated and delivered under this resolution. 10. Registration; Transfer; Exchange. The City will cause to be kept at the principal office of the Bond Registrar a bond register in which, subject to such reasonable regulations as the Bond Registrar may prescribe, the Bond Registrar shall provide for the registration of Bonds and the registration of transfers of Bonds entitled to be registered or transferred as herein provided. Upon surrender for transfer of any Bond at the principal office of the Bond Registrar, the City shall execute (if necessary), and the Bond Registrar shall authenticate, insert the date of registration (as provided in paragraph 9) of, and deliver, in the name of the designated transferee or transferees, one or more new Bonds of any Authorized Denomination or Denominations of a like aggregate principal amount, having the same stated maturity and interest rate, as requested by the transferor; provided, however, that no Bond may be registered in blank or in the name of "bearer" or similar designation. At the option of the Holder, Bonds may be exchanged for Bonds of any Authorized Denomination or Denominations of a like aggregate principal amount and stated maturity, upon surrender of the Bonds to be exchanged at the principal office of the Bond Registrar. Whenever any Bonds are so surrendered for exchange, the City shall execute (if necessary), and the Bond Registrar shall authenticate, insert the date of registration of, and deliver the Bonds which the Holder making the exchange is entitled to receive. All Bonds surrendered upon any exchange or transfer provided for in this resolution shall be promptly canceled by the Bond Registrar and thereafter disposed of as directed by the City. 10824992v2 16 All Bonds delivered in exchange for or upon transfer of Bonds shall be valid general obligations of the City evidencing the same debt, and entitled to the same benefits under th is resolution, as the Bonds surrendered for such exchange or transfer. Every Bond presented or surrendered for transfer or exchange shall be duly endorsed or be accompanied by a written instrument of transfer, in form satisfactory to the Bond Registrar, duly executed by the Holder thereof or the Holder's attorney duly authorized in writing. The Bond Registrar may require payment of a sum sufficient to cover any tax or other governmental charge payable in connection with the transfer or exchange of any Bond and any legal or unusual costs regarding transfers and lost Bonds. Transfers shall also be subject to reasonable regulations of the City contained in any agreement with the Bond Registrar, including regulations which permit the Bond Registrar to close its transfer books between record dates and payment dates. The City Manager is hereby authorized to negotiate and execute the terms of said agreement. 11. Rights Upon Transfer or Exchange. Each Bond delivered upon transfer of or in exchange for or in lieu of any other Bond shall carry all the rights to interest accrued and unpaid, and to accrue, which were carried by such other Bond. 12. Interest Payment; Record Date. Interest on any Bond shall be paid on each Interest Payment Date by check or draft mailed to the person in whose name the Bond is registered (the "Holder") on the registration books of the City maintained by the Bond Registrar and at the address appearing thereon at the close of business on the first day of the calendar month of such Interest Payment Date (the "Regular Record Date"). Any such interest not so timely paid shall cease to be payable to the person who is the Holder thereof as of the Regular Record Date, and shall be payable to the person who is the Holder thereof at the close of business on a date (the "Special Record Date") fixed by the Bond Registrar whenever money becomes available for payment of the defaulted interest. Notice of the Special Record Date shall be given by the Bond Registrar to the Holders not less than ten days prior to the Special Record Date. 13. Treatment of Registered Owner. The City and Bond Registrar may treat the person in whose name any Bond is registered as the owner of such Bond for the purpose of receiving payment of principal of and premium, if any, and interest (subject to the payment provisions in paragraph 12) on, such Bond and for all other purposes whatsoever whether or not such Bond shall be overdue, and neither the City nor the Bond Registrar shall be affected by notice to the contrary. 14. Delivery; Application of Proceeds. The Bonds when so prepared and executed shall be delivered by the Finance Director to the Purchaser upon receipt of the purchase price, and the Purchaser shall not be obliged to see to the proper application thereof. 15. Fund and Accounts. There is hereby established a special fund to be designated "General Obligation Bonds, Series 2018A Fund" (the "Fund") to be administered and maintained 10824992v2 17 by the Finance Director as a bookkeeping account separate and apart from all other funds maintained in the official financial records of the City. The Fund shall be maintained in the manner herein specified until the Bonds and the interest thereon have been fully paid. The Operation and Maintenance Account heretofore established by the City for the Water Syste m shall continue to be maintained in the manner heretofore provided by the City. The Operation and Maintenance Account heretofore established by the City for the Sanitary Sewer System shall continue to be maintained in the manner heretofore provided by the City. (The Operation and Maintenance Account for the Water System and the Operation and Maintenance Account for the Sanitary Sewer System are referred to collectively herein as the "Operation and Maintenance Accounts"). All moneys remaining after paying or providing for the items set forth in the resolution establishing the Operation and Maintenance Accounts shall constitute or are referred to as "net revenues" until the Utility Improvement Portion of the Bonds have been paid to which shall be credited and debited all income and disbursements of the System as hereinafter set forth. The Finance Director and all officials and employees concerned therewith shall establish and maintain financial records of the receipts and disbursements of the System in accordance with this resolution. In the fund there is hereby established the following accounts: (a) Capital Account. To the Capital Account there shall be credited the proceeds of the sale of the Equipment Portion and the Capital Improvement Portion of the Bonds. From the Capital Account there shall be paid all costs and expenses of the acquisition and installation of the Equipment and the acquisition and betterment of the Capital Improvements, including the cost of any construction contracts heretofore let and all other costs incurred and to be incurred of the kind authorized in Minnesota Statutes, Section 475.65. Moneys in the Capital Account shall be used for no other purpose except as otherwise provided by law; provided that the proceeds of the Equipment Portion and the Capital Improvement Portion of the Bonds may also be used to the extent necessary to pay interest on the Equipment Portion and the Capital Improvement Portion of the Bonds due prior to the anticipated date of commencement of the collection of taxes herein levied or covenanted to be levied; and provided further that if upon completion of the acquisition of the Equipment and the Capital Improvements there shall remain any unexpended balance in the Capital Account, the balance shall be transfer red to the Debt Service Account. (b) Construction Account. To the Construction Account there shall be credited the proceeds of the sale of the Improvement Portion, Utility Improvement Portion and Street Reconstruction Portion of the Bonds, plus any special assessments levied with respect to the 429 Improvements and collected prior to completion of the 429 Improvements and payment of the costs thereof. From the Construction Account there shall be paid all costs and expenses of making the 429 Improvements, Utility Improvements and the Street Reconstruction Projects, including the cost of any construction or other contracts heretofore let and all other costs incurred and to be incurred of the kind authorized in Minnesota Statutes, Section 475.65. Moneys in the Construction Account shall be used for no other purpose except as otherwise provided by law; provided that the proceeds of the Improvement Portion, Utility Improvement Portion and Street Reconstruction Portion of the Bonds may also be used to the extent necessary to pay interest on the Improvement Portion, Utility Improvement Portion and Street Reconstruction Portion of the Bonds due prior to the anticipated date of commencement of the 10824992v2 18 collection of taxes, special assessments or net revenues herein levied or covenanted to be levied; and provided further that if upon completion of the 429 Improvements there shall remain any unexpended balance in the Construction Account, the balance of the Improvement Portion of the Bonds (other than any special assessments) shall be transferred to the Debt Service Account or may be transferred by the City Council to the fund of any other improvement instituted pursuant to Minnesota Statutes, Chapter 429, and provided further that any special assessments credited to the Construction Account shall only be applied towards payment of the costs of the 429 Improvements upon adoption of a resolution by the City Council determining that the application of the special assessments for such purpose will not cause the City to no longer be in compliance with Minnesota Statutes, Section 475.61, Subdivision 1. (c) Debt Service Account. There shall be maintained five separate subaccounts in the Debt Service Account to be designated the "Equipment Debt Service Subaccount", "Capital Improvements Debt Service Subaccount", the "429 Improvements Debt Service Subaccount", the "Utility Improvements Debt Service Subaccount", and the "Street Reconstruction Projects Debt Service Subaccount". There are hereby irrevocably appropriated and pledged to, and ther e shall be credited to the separate subaccounts of the Debt Service Account: (i) Equipment Debt Service Subaccount. To the Equipment Debt Service Subaccount there shall be credited: (A) all collections of taxes herein or hereinafter levied for the payment of the Equipment Portion of the Bonds and interest thereon; (B) a pro rata share of all funds remaining in the Capital Account after acquisition of the Equipment and payment of the costs thereof; (C) all investment earnings on funds held in the Equipment Debt Service Subaccount; and (D) any and all other moneys which are properly available and are appropriated by the governing body of the City to the Equipment Debt Service Subaccount. The Equipment Debt Service Subaccount shall be used solely to pay the principal and interest and any premium for redemption of the Equipment Portion of the Bonds. (ii) Capital Improvements Debt Service Subaccount. To the Capital Improvements Debt Service Subaccount there shall be credited: (A) collections of all taxes herein or hereafter levied for the payment of the principal and interest on the Capital Improvement Portion of the Bonds; (B) a pro rata share of all funds remaining in the Capital Account after completion of the Capital Improvements and payment of the costs thereof; (C) all investment earnings on funds held in the Capital Improvements Debt Service Subaccount; and (D) any and all other moneys which are properly available and are appropriated by the governing body of the City to the Capital Improvements Debt Service Subaccount. The Capital Improvements Debt Service Subaccount shall be used solely to pay the principal and interest and any premium for redemption of the Capital Improvement Portion of the Bonds and any other general obligation bonds of the City hereafter i ssued by the City and made payable from said subaccount as provided by law. (iii) 429 Improvements Debt Service Subaccount. To the 429 Improvements Debt Service Subaccount there shall be credited: (A) all collections of special 10824992v2 19 assessments herein covenanted to be levied with respect to the 429 Improvements and either initially credited to the Construction Account and not already spent as permitted above and required to pay any principal and interest due on the Improvement Portion of the Bonds or collected subsequent to the completion of the 429 Improvements and payment of the costs thereof; (B) any collections of all taxes herein or hereinafter levied for the payment of the Improvement Portion of the Bonds and interest thereon; (C) a pro rata share of all funds remaining in the Construction Account after completion of the 429 Improvements and payment of the costs thereof; (D) all investment earnings on funds held in the 429 Improvements Debt Service Subaccount; and (E) any and all other moneys which are properly available and are appropriated by the governing body of the City to the 429 Improvements Debt Service Subaccount. The 429 Improvements Debt Service Subaccount shall be used solely to pay the principal and interest and any premium for redemption of the Improvement Portion of the Bonds and any other general obligation bonds of the City hereafter issued by the City and made payable from said subaccount as provided by law. (iv) Utility Improvements Debt Service Subaccount. To the Utility Improvements Debt Service Subaccount there shall be credited: (A) the net revenues of the System not otherwise pledged and applied to the payment of other obligations of the City, in an amount, together with other funds which may herein or hereafter from time to time be irrevocably appropriated to the Utility Improvements Debt Service Subaccount, sufficient to meet the requirements of Minnesota Statutes, Section 475.61 for the payment of the principal and interest of the Utility Improvement Portion of the Bonds; (B) any collections of all taxes which may hereafter be levied in the event that the net revenues of the System and other funds herein pledged to the payment of the principal and interest on the Utility Improvement Portion of the Bonds are insufficient therefore; (C) a pro rata share of all funds remaining in the Construction Account after completion of the Utility Improvements and payment of the costs thereof; (D) all investment earnings on funds held in the Utility Improvements Debt Service Subaccount; and (E) any and all other moneys which are properly available and are appropriated by the governing body of the City to the Utility Improvements Debt Service Subaccount. The Utility Improvements Debt Service Subaccount shall be used solely to pay the principal and interest and any premium for redemption of the Utility Improvement Portion of the Bonds and any other general obligation bonds of the City hereafter issued by the City and made payable from said subaccount as provided by law. (v) Street Reconstruction Projects Debt Service Subaccount. To the Street Reconstruction Projects Debt Service Subaccount there shall be credited: (A) any collections of all taxes herein or hereinafter levied for the payment of the Street Reconstruction Portion of the Bonds and interest thereon; (B) a pro rata share of all funds remaining in the Construction Account after completion of the Street Reconstruction Projects and payment of the costs thereof; (C) all investment 10824992v2 20 earnings on funds held in the Street Reconstruction Projects Debt Service Subaccount; and (D) any and all other moneys which are properly available and are appropriated by the governing body of the City to the Street Reconstruction Projects Debt Service Subaccount. The Street Reconstruction Projects Debt Service Subaccount shall be used solely to pay the principal and interest and any premium for redemption of the Street Reconstruction Portion of the Bonds. 16. Permanent Improvement Revolving Fund; Permanent Improvement Revolving Sinking Fund. There has heretofore been established two special funds designated the "Permanent Improvement Revolving Fund" and "Permanent Improvement Revolving Sinking Fund," respectively, administered and maintained by the Finance Director as bookkeeping accounts separate and apart from all other funds maintained in the official financial records of the City. The funds shall continue to be maintained in the manner herein and hereafter specified until all of the PIR Portion of the Bonds and any other obligations made payable from the Permanent Improvement Revolving Fund (the "Additional Bonds") and the interest thereon and all improvements to be paid from the Permanent Improvement Revolving Fund have been fully paid. The Permanent Improvement Revolving Fund is intended for the payment, in whole or in part, of the costs (i) of "improvements" (as defined in Minnesota Statutes, Chapter 429) designated by the City for funding therefrom for which at least twenty percent of the costs thereof are to be assessed against benefited properties; (ii) of water works, sewer system, or storm sewer system improvements described in Minnesota Statutes, Section 444.075; and/or (iii) of such other improvements as may be permitted in accordance with the terms of Section 429.091. (a) Permanent Improvement Revolving Fund. To the Permanent Improvement Revolving Fund there shall be credited the proceeds of the sale of the PIR Portion of the Bonds, plus any special assessments levied with respect to the PIR Improvements and special assessments levied with respect to the Additional Improvements (as hereinafter defined). From the Permanent Improvement Revolving Fund there shall be paid all costs and expenses of making the PIR Improvements listed in paragraph 20 and such other improvements for which special assessments may be levied as the City Council may designate (the "Additional Improvements"), including the cost of any construction contracts heretofore let and all other costs incurred and to be incurred of the kind authorized in Minnesota Statutes, Section 475.65; and the moneys in the Permanent Improvement Revolving Fund shall be used for no other purpose except as otherwise provided by law; provided that the proceeds of the PIR Portion of the Bonds may also be used to the extent necessary to pay interest on the PIR Portion of the Bonds due prior to the anticipated date of commencement of the collection of taxes and special assessments herein levied or covenanted to be levied; and provided further that if upon completion of the PIR Improvements or the Additional Improvements there shall remain any unexpended balance in the Permanent Improvement Revolving Fund, the balance may be transferred by the Council to the fund of any other improvement instituted pursuant to Minnesota Statutes, Chapter 429, and provided further that any special assessments credited to the Permanent Improvement Revolving Fund shall only be applied towards payment of the costs of the PIR Improvements or the Additional Improvements upon the determination by the City Finance Director that the application of the special assessments for such purpose will not cause 10824992v2 21 the City to no longer be in compliance with Minnesota Statutes, Section 475.61, Subdivision 1. The City reserves the right granted by Minnesota Statutes, Section 429.091, Subdivision 7A to establish a separate construction account within the Permanent Improvement Revolving Fund into which the City may deposit the proceeds of the PIR Portion of the Bonds or the proceeds of Additional Bonds. (b) Permanent Improvement Revolving Sinking Fund. There are hereby irrevocably appropriated and pledged to, and there shall be credited to, the Permanent Improvement Revolving Sinking Fund: (i) all collections of special assessments herein covenanted to be levied or hereafter levied with respect to the PIR Improvements and either initi ally credited to the Permanent Improvement Revolving Fund and not already spent as permitted above and required to pay any principal and interest due on the PIR Portion of the Bonds or collected subsequent to the completion of the PIR Improvements and the payment of the costs thereof; (ii) any collections of all taxes herein and hereafter levied for the payment of the PIR Portion of the Bonds and interest thereon; (iii) all funds remaining in the Permanent Improvement Revolving Fund after completion of the PIR Improvements and the Additional Improvements and payment of the costs thereof; (iv) all investment earnings on funds held in the Permanent Improvement Revolving Sinking Fund; and (v) any and all other moneys which are properly available and are appropriated by the governing body of the City to the Permanent Improvement Revolving Sinking Fund. The Permanent Improvement Revolving Sinking Fund shall be used solely to pay the principal and interest and any premiums for redemption of the PIR Portion of the Bonds and any Additional Bonds. 17. Covenants Relating to the Equipment Portion of the Bonds. (a) Tax Levy; Coverage Test. To provide moneys for payment of the principal and interest on the Equipment Portion of the Bonds there is hereby levied upon all of the tax able property in the City a direct annual ad valorem tax which shall be spread upon the tax rolls and collected with and as part of other general property taxes in the City for the years and in the amounts as follows: Year of Tax Levy Year of Tax Collection Amount See Attached Schedule The tax levies are such that if collected in full they, together with other revenues herein pledged for the payment of the Equipment Portion of the Bonds, will produce at least five percent in excess of the amount needed to meet when due the principal and interest payments on the Equipment Portion of the Bonds. The tax levies shall be irrepealable so long as any of the Equipment Portion of the Bonds are outstanding and unpaid, provided that the City reserves the right and power to reduce the levies in the manner and to the extent permitted by Minnesota Statutes, Section 475.61, Subdivision 3. (b) General Obligation Pledge. For the prompt and full payment of the principal and interest on the Equipment Portion of the Bonds, as the same respectively become due, t he full 10824992v2 22 faith, credit and taxing powers of the City shall be and are hereby irrevocably pledged. If the balance in the Equipment Debt Service Subaccount is ever insufficient to pay all principal and interest then due on the Equipment Portion of the Bonds and any other bonds payable therefrom, the deficiency shall be promptly paid out of any other funds of the City which are available for such purpose, and such other funds may be reimbursed with or without interest from the Equipment Debt Service Subaccount when a sufficient balance is available therein. 18. Covenants Relating to the Capital Improvement Portion of the Bonds. (a) Tax Levy; Coverage Test. To provide moneys for payment of the principal and interest on the Capital Improvement Portion of the Bonds there is hereby levied upon all of the taxable property in the City a direct annual ad valorem tax which shall be spread upon the tax rolls and collected with and as part of other general property taxes in the City for the years and in the amounts as follows: Year of Tax Levy Year of Tax Collection Amount See Attached Schedule The tax levies are such that if collected in full they, together with other revenues herein pledged for the payment of the Capital Improvement Portion of the Bonds, will produce at least five percent in excess of the amount needed to meet when due the principal and interest payments on the Capital Improvement Portion of the Bonds. The tax levies shall be irrepealable so long as any of the Capital Improvement Portion of the Bonds are outstanding and unpaid, provided that the City reserves the right and power to reduce the levies in the manner and to the extent permitted by Minnesota Statutes, Section 475.61, Subdivision 3. (b) General Obligation Pledge. For the prompt and full payment of the principal and interest on the Capital Improvement Portion of the Bonds, as the same respectively become due, the full faith, credit and taxing powers of the City shall be and are hereby irrevocably pledged. If the balance in the Capital Improvements Debt Service Subaccount is ever insufficient to pay all principal and interest then due on the Capital Improvement Portion of the Bonds and any other bonds payable therefrom, the deficiency shall be promptly paid out of any other funds of the City which are available for such purpose, and such other funds may be reimbursed with or without interest from the Capital Improvements Debt Service Subaccount when a sufficient balance is available therein. 19. Covenants Relating to the Improvement Portion of the Bonds. (a) Assessments. It is hereby determined that no less than twenty percent of the cost to the City of each 429 Improvement financed hereunder within the meaning of Minnesota Statutes, Section 475.58, Subdivision 1(3), shall be paid by special assessments to be levied against every assessable lot, piece and parcel of land benefited by any of the 429 Improvements. The City hereby covenants and agrees that it will let all construction contracts not heretofore let within one year after ordering each 429 Imp rovement financed hereunder unless the resolution ordering the 429 Improvement specifies a different time limit for the letting of construction 10824992v2 23 contracts. The City hereby further covenants and agrees that it will do and perform as soon as they may be done all acts and things necessary for the final and valid levy of such special assessments, and in the event that any such assessment be at any time held invalid with respect to any lot, piece or parcel of land due to any error, defect, or irregularity in any action or proceedings taken or to be taken by the City or the City Council or any of the City officers or employees, either in the making of the assessments or in the performance of any condition precedent thereto, the City and the City Council will forthwith do all further acts and take all further proceedings as may be required by law to make the assessments a valid and binding lien upon such property. It is hereby determined that the assessments shall be payable in equal, consecutive, annual installments, with general taxes for the years shown below and with interest on the declining balance of all such assessments at a rate per annum not greater than the maximum permitted by law and not less than the rates per annum shown opposite their collection years specified below: Improvement Designations Levy Years Collection Years Rate Amount See Attached Schedule At the time the assessments are in fact levied the City Council shall, based on the then- current estimated collections of the assessments, make any adjustments in any ad valorem taxes required to be levied in order to assure that the City continues to be in compliance with Minnesota Statutes, Section 475.61, Subdivision 1. (b) Tax Levy; Coverage Test. To provide moneys for payment of the principal and interest on the Improvement Portion of the Bonds there is hereby levied upon all of the taxable property in the City a direct annual ad valorem tax which shall be spread upon the tax rolls and collected with and as part of other general property taxes in the City for the years and in the amounts as follows: Years of Tax Levy Years of Tax Collection Amount See Attached Schedule The tax levies are such that if collected in full they, together with special assessments and other revenues herein pledged for the payment of the Improvement Portion of the Bonds, will produce at least five percent in excess of the amount needed to meet when due the principal and interest payments on the Improvement Portion of the Bonds. The tax levies shall be irrepealable so long as any of the Improvement Portion of the Bonds are outstanding and unpaid, provided that the City reserves the right and power to reduce the levies in the manner and to the extent permitted by Minnesota Statutes, Section 475.61, Subdivision 3. (c) General Obligation Pledge. For the prompt and full payment of the principal and interest on the Improvement Portion of the Bonds, as the same respectively become due, the full faith, credit and taxing powers of the City shall be and are hereby irrevocably pledged. If the balance in the 429 Improvements Debt Service Subaccount is ever insufficient to pay all principal and interest then due on the Improvement Portion of the Bonds and any other bonds 10824992v2 24 payable therefrom, the deficiency shall be promptly paid out of any other funds of the City which are available for such purpose, and such other funds may be reimbursed with or without interest from the 429 Improvements Debt Service Subaccount when a sufficient balance is available therein. 20. Covenants Relating to the PIR Portion of the Bonds. (a) Assessments. It is hereby determined that no less than twenty percent of the cost to the City of each PIR Improvement financed hereunder within the meaning of Minnesota Statutes, Section 475.58, Subdivision 1(3), shall be paid by special assessments to be levied against every assessable lot, piece and parcel of land benefited by any of the PIR Improvements. The City hereby covenants and agrees that it will let all construction contracts not heretofore let within one year after ordering each PIR Improvement financed hereunder unless the resolution ordering the PIR Improvement specifies a different time limit for the letting of construction contracts. The City hereby further covenants and agrees that it will do and perform as soon as they may be done all acts and things necessary for the final and valid levy of such special assessments, and in the event that any such assessment be at any time held invalid with respect to any lot, piece or parcel of land due to any error, defect, or irregularity in any action or proceedings taken or to be taken by the City or the City Council or any of the City officers or employees, either in the making of the assessments or in the performance of any condition precedent thereto, the City and the City Council will forthwith do all further acts and take all further proceedings as may be required by law to make the assessments a vali d and binding lien upon such property. It is hereby determined that the assessments shall be payable in equal, consecutive, annual installments, with general taxes for the years shown below and with interest on the declining balance of all such assessments at a rate per annum not greater than the maximum permitted by law and not less than the rates per annum shown opposite their collection years specified below: Improvement Designations Levy Years Collection Years Rate Amount See Attached Schedule At the time the assessments are in fact levied the City Council shall, based on the then- current estimated collections of the assessments, make any adjustments in any ad valorem taxes required to be levied in order to assure that the City continues to be in compliance with Minnesota Statutes, Section 475.61, Subdivision 1. (b) Tax Levy; Coverage Test. To provide moneys for payment of the principal and interest on the PIR Portion of the Bonds there is hereby levied upon all of the taxable property in the City a direct annual ad valorem tax which shall be spread upon the tax rolls and collected with and as part of other general property taxes in the City for the years and in the amounts as follows: Years of Tax Levy Years of Tax Collection Amount See Attached Schedule 10824992v2 25 The tax levies are such that if collected in full they, together with special assessments and other revenues herein pledged for the payment of the PIR Portion of the Bonds, will produce at least five percent in excess of the amount needed to meet when due the principal and interest payments on the PIR Portion of the Bonds. The tax levies shall be irrepealable so long as any of the PIR Portion of the Bonds are outstanding and unpaid, provided that the City reserves the right and power to reduce the levies in the manner and to the extent permitted by Minnesota Statutes, Section 475.61, Subdivision 3. (c) General Obligation Pledge. For the prompt and full payment of the principal and interest on the PIR Portion of the Bonds, as the same respectively become due, the full faith, credit and taxing powers of the City shall be and are hereby irrevocably pledged. If the balance in the Permanent Improvement Revolving Sinking Fund is ever insufficient to pay all principal and interest then due on the PIR Portion of the Bonds and any other bonds payable therefrom, the deficiency shall be promptly paid out of any other funds of the City which are available for such purpose, and such other funds may be reimbursed with or without interest from the Permanent Improvement Revolving Sinking Fund when a sufficient balance is available therein. 21. Covenants Relating to the Utility Improvement Portion of the Bonds. (a) Sufficiency of Net Revenues. It is hereby found, determined and declared that the net revenues of the System are sufficient in amount to pay when due the principal of and interest on the Utility Improvement Portion of the Bonds and a sum at least five percent in excess thereof. The net revenues of the Water System are sufficient in amount to pay when due the principal of and interest on the Outstanding Water Bonds and a sum at least five percent in excess thereof. The net revenues of the System are hereby pledged on a parity lien with the Outstanding Water Bonds for the payment of the Utility Improvement P ortion of the Bonds and shall be applied for that purpose, but solely to the extent required to meet the principal and interest requirements of the Utility Improvement Portion of the Bonds as the same become due. Nothing contained herein shall be deemed to preclude the City from making further pledges and appropriations of the net revenues of the System for the payment of other or additional obligations of the City, provided that it has first been determined by the City Council that the estimated net revenues of the System will be sufficient in addition to all other sources, for the payment of the Utility Improvement Portion of the Bonds and such additional obligations and any such pledge and appropriation of the net revenues may be made superior or subordinate to, or on a parity with the pledge and appropriation herein. (b) Excess Net Revenues. Net revenues in excess of those required for the foregoing may be used for any proper purpose. (c) Covenant to Maintain Rates and Charges. In accordance with Minnesota Statutes, Section 444.075, the City hereby covenants and agrees with the Holders of the Bonds that it will impose and collect charges for the service, use, availability and connection to the System at the times and in the amounts required to produce net revenues adequate to pay all principal and interest when due on the Utility Improvement Portion of the Bonds. Minnesota Statutes, Section 444.075, Subdivision 2, provides as follows: "Real estate tax revenues should be used only, and then on a temporary basis, to pay general or special obligations when the other revenues are 10824992v2 26 insufficient to meet the obligations." Nothing in this resolution shall preclude the City from levying taxes pursuant to Minnesota Statutes, Section 115.46 to pay for the principal amount of the Utility Improvement Portion of the Bonds that financed improvements to the System. (d) General Obligation Pledge. For the prompt and full payment of the principal and interest on the Utility Improvement Portion of the Bonds, as the same respectively become due, the full faith, credit and taxing powers of the City shall be and are hereby irrevocably pledged. If the balance in the Utility Improvement Debt Service Subaccount is ever insufficient to pay all principal and interest then due on the Utility Improvement Portion of the Bonds and any other bonds payable therefrom, the deficiency shall be promptly paid out of any other funds of the City which are available for such purpose, and such other funds may be reimbursed with or without interest from the Utility Improvement Debt Service Subaccount when a sufficient balance is available therein. 22. Defeasance. When all Bonds have been discharged as provided in this paragraph, all pledges, covenants and other rights granted by this resolution to the registered holders of the Bonds shall, to the extent permitted by law, cease. The City may discharge its obligations with respect to any Bonds which are due on any date by irrevocably depositing with the Bond Registrar on or before that date a sum sufficient for the payment thereof in full; or if any Bond should not be paid when due, it may nevertheless be discharged by depositing with the Bond Registrar a sum sufficient for the payment thereof in full with interest accrued to the date of such deposit. The City may also discharge its obligations with respect to any prepayable Bonds called for redemption on any date when they are prepayable according to their terms, by depositing with the Bond Registrar on or before that date a sum sufficient for the payment thereof in full, provided that notice of redemption thereof has been duly given. The City may also at any time discharge its obligations with respect to any Bonds, subject to the provisions of law now or hereafter authorizing and regulating such action, by depositing irrevocably in escrow, with a suitable banking institution qualified by law as an escrow agent for this purpose, cash or securities described in Minnesota Statutes, Section 475.67, Subdivision 8, bearing interest payable at such times and at such rates and maturing on such dates as shall be required, without regard to sale and/or reinvestment, to pay all amounts to become due thereon to maturity or, if notice of redemption as herein required has been duly provided for, to such earlier redemption date. 23. Compliance With Reimbursement Bond Regulations. The provisions of this paragraph are intended to establish and provide for the City's compliance with United States Treasury Regulations Section 1.150-2 (the "Reimbursement Regulations") applicable to the "reimbursement proceeds" of the Bonds, being those portions thereof which will be used by the City to reimburse itself for any expenditure which the City paid or will have paid prior to the Closing Date (a "Reimbursement Expenditure"). The City hereby certifies and/or covenants as follows: (a) Not later than 60 days after the date of payment of a Reimbursement Expenditure, the City (or person designated to do so on behalf of the City) has made or will have made a written declaration of the City's official intent (a "Declaration") which effectively (i) states the 10824992v2 27 City's reasonable expectation to reimburse itself for the payment of the Reimbursement Expenditure out of the proceeds of a subsequent borrowing; (ii) gives a general and functional description of the property, project or program to which the Declaration relates and for which the Reimbursement Expenditure is paid, or identifies a specific fund or account of the City and the general functional purpose thereof from which the Reimbursement Expenditure was to be paid (collectively the "Project"); and (iii) states the maximum principal amount of debt expected to be issued by the City for the purpose of financing the Project; provided, however, that no such Declaration shall necessarily have been made with respect to: (i) "preliminary expenditures" for the Project, defined in the Reimbursement Regulations to include engineering or architectural, surveying and soil testing expenses and similar prefatory costs, which in the aggregate do not exceed 20% of the "issue price" of the Bonds, and (ii) a de minimis amount of Reimbursement Expenditures not in excess of the lesser of $100,000 or 5% of the proceeds of the Bonds. (b) Each Reimbursement Expenditure is a capital expenditure or a cost of issuance of the Bonds or any of the other types of expenditures described in Section 1.150 -2(d)(3) of the Reimbursement Regulations. (c) The "reimbursement allocation" described in the Reimbursement Regulations for each Reimbursement Expenditure shall and will be made forthwith following (but not prior to) the issuance of the Bonds and in all events within the period ending on the date which is the later of three years after payment of the Reimbursement Expenditure or one year after the date on which the Project to which the Reimbursement Expenditure relates is first placed in service. (d) Each such reimbursement allocation will be made in a writing that evidences the City's use of Bond proceeds to reimburse the Reimbursement Expenditure and, if made within 30 days after the Bonds are issued, shall be treated as made on the day the Bonds are issued. Provided, however, that the City may take action contrary to any of the foregoing covenants in this paragraph upon receipt of an opinion of its Bond Counsel for the Bon ds stating in effect that such action will not impair the tax-exempt status of the Bonds. 24. Investments. No portion of the proceeds of the Bonds shall be used directly or indirectly to acquire higher yielding investments or to replace funds which were used directly or indirectly to acquire higher yielding investments, except (1) for a reasonable temporary period until such proceeds are needed for the purpose for which the Bonds were issued and (2) in addition to the above in an amount not greater than the lesser of five percent of the proceeds of the Bonds or $100,000. To this effect, any proceeds of the Bonds and any sums from time to time held in the Capital Account, Construction Account, Debt Service Account, Permanent Improvement Revolving Fund or Permanent Improvement Revolving Sinking Fund (or any other City account which will be used to pay principal or interest to become due on the bonds payable therefrom) in excess of amounts which under then applicable federal arbitrage regulations may be invested without regard to yield shall not be invested at a yield in excess of the applicable yield restrictions imposed by said arbitrage regulations on such investments after taking into account any applicable "temporary periods" or "minor portion" made available under the federal arbitrage regulations. Money in the Fund shall not be invested in obligations or deposits issued by, guaranteed by or insured by the United States or any agency or instrumentality thereof if and 10824992v2 28 to the extent that such investment would cause the Bonds to be "federally guaranteed" within the meaning of Section 149(b) of the Internal Revenue Code of 1986, as amended (the "Code"). 25. Certificate of Registration. The City Manager is hereby directed to file a certified copy of this resolution with the County Auditor of Scott County, Minnesota, together with such other information as the County Auditor shall require, and there shall be obtained from the County Auditor a certificate that the Bonds have been entered in the County Auditor's Bond Register and that the tax levy required by law has been made. 26. Continuing Disclosure. The City is the sole obligated person with respect to the Bonds. The City hereby agrees, in accordance with the provisions of Rule 15c2 -12 (the "Rule"), promulgated by the Securities and Exchange Commission (the "Commission") pursuant to the Securities Exchange Act of 1934, as amended, and a Continuing Disclosure Undertaking (the "Undertaking") hereinafter described to: (a) Provide or cause to be provided to the Municipal Securities Rulemaking Board (the "MSRB") by filing at www.emma.msrb.org in accordance with the Rule, certain annual financial information and operating data in accordance with the Undertaking. The City reserves the right to modify from time to time the terms of the Undertaking as provided therein. (b) Provide or cause to be provided to the MSRB notice of the occurrence of certain events with respect to the Bonds in not more than ten (10) business days after the occurrence of the event, in accordance with the Undertaking. (c) Provide or cause to be provided to the MSRB notice of a failure by the City to provide the annual financial information with respect to the City described in the Undertaking, in not more than ten (10) business days following such occurrence. (d) The City agrees that its covenants pursuant to the Rule set forth in this paragraph and in the Undertaking is intended to be for the benefit of the Holders of the Bonds and shall be enforceable on behalf of such Holders; provided that the right to enforce the provisions of these covenants shall be limited to a right to obtain specific enforcement of the City's obligations under the covenants. The Mayor and City Manager of the City, or any other officer of the City authorized to act in their place (the "Officers") are hereby authorized and directed to execute on behalf of the City the Undertaking in substantially the form presented to the City Council subject to such modifications thereof or additions thereto as are (i) consistent with the requirements under th e Rule, (ii) required by the Purchaser of the Bonds, and (iii) acceptable to the Officers. 27. Records and Certificates. The officers of the City are hereby authorized and directed to prepare and furnish to the Purchaser, and to the attorneys approving the legality of the issuance of the Bonds, certified copies of all proceedings and records of the City relating to the Bonds and to the financial condition and affairs of the City, and such other affidavits, certificates and information as are required to show the facts relating to the legality and marketability of the Bonds as the same appear from the books and records under their custody and control or as 10824992v2 29 otherwise known to them, and all such certified copies, certificates and affidavits, including any heretofore furnished, shall be deemed representations of the City as to the facts recited therein. 28. Negative Covenant as to Use of Bond Proceeds and Project. The City hereby covenants not to use the proceeds of the Bonds or to use the Project, or to cause or permi t them to be used, or to enter into any deferred payment arrangements for the cost of the Project, in such a manner as to cause the Bonds to be "private activity bonds" within the meaning of Sections 103 and 141 through 150 of the Code. 29. Tax-Exempt Status of the Bonds; Rebate. (a) Equipment Portion of the Bonds. With respect to the Equipment Portion of the Bonds, the City shall comply with requirements necessary under the Code to establish and maintain the exclusion from gross income under Section 103 of the Code of the interest on the Equipment Portion of the Bonds, including without limitation (a) requirements relating to temporary periods for investments, (b) limitations on amounts invested at a yield greater than the yield on the Bonds, and (c) the rebate of excess investment earnings to the United States. The City expects to satisfy the eighteen month expenditure exemption for gross proceeds of the Equipment Portion of the Bonds as provided in Section 1.148-7(d)(1) of the Regulations. The Mayor, City Manager and/or the Finance Director are hereby authorized and directed to make such elections as to arbitrage and rebate matters relating to the Bonds as they deem necessary, appropriate or desirable in connection with the Bond, and all such elections shall be, and shall be deemed and treated as, elections of the City. (b) Capital Improvement Portion, Improvement Portion, PIR Portion, Utility Improvement Portion, and Street Reconstruction Portion of the Bonds . As to the Capital Improvement Portion, Improvement Portion, PIR Portion, Utility Improvement Portion and the Street Reconstruction Portion of the Bonds, the City shall comply with requirements necessary under the Code to establish and maintain the exclusion from gross income under Section 103 of the Code of the interest on the Capital Improvement Portion, Improvement Portion, PIR Portion, Utility Improvement Portion and the Street Reconstruction Portion of the Bonds, including without limitation (a) requirements relating to temporary periods for investments, (b) limitations on amounts invested at a yield greater than the yield on the Bonds, and (c) the rebate of excess investment earnings to the United States. The City expects to satisfy the twenty four month expenditure exemption for gross proceeds of the Capital Improvement Portion, Improvement Portion, PIR Portion, Utility Improvement Portion, and Street Reconstruction Portion of the Bonds as provided in Section 1.148-7(d)(1) of the Regulations. If any elections are available now or hereafter with respect to arbitrage or rebate matters relating to the Bonds, the Mayor, City Manager and/or the Finance Director, or either of them, are hereby authorized and directed to make such elections as they deem necessary, appropriate or desirable in connection with the Bonds, and all such elections shall be, and shall be deemed and treated as, elections of the City. 30. Designation of Qualified Tax-Exempt Obligations. In order to qualify the Bonds as "qualified tax-exempt obligations" within the meaning of Section 265(b)(3) of the Code, the City hereby makes the following factual statements and representations: 10824992v2 30 (a) the Bonds are issued after August 7, 1986; (b) the Bonds are not "private activity bonds" as defined in Section 141 of the Code; (c) the City hereby designates the Bonds as "qualified tax exempt obligations" for purposes of Section 265(b)(3) of the Code; (d) the reasonably anticipated amount of tax exempt obligations (other than private activity bonds, treating qualified 501(c)(3) bonds as not being private activity bonds) which will be issued by the City (and all entities treated as one issuer with the City, and all subordinate entities whose obligations are treated as issued by the City) during this calendar year 2018 will not exceed $10,000,000; (e) not more than $10,000,000 of obligations issued by the City during this calendar year 2018 have been designated for purposes of Section 265(b)(3) of the Code; and (f) the aggregate face amount of the Bonds does not exceed $10,000,000. The City shall use its best efforts to comply with any federal procedural requirements which may apply in order to effectuate the designation made by this paragraph. 31. Official Statement. The Official Statement relating to the Bonds prepared and distributed by Northland is hereby approved and the officers of the City are authorized in connection with the delivery of the Bonds to sign such certificates as may be necessary with respect to the completeness and accuracy of the Official Statement. 32. Payment of Issuance Expenses. The City authorizes the Purchaser to forward the amount of Bond proceeds allocable to the payment of issuance expenses to the Bond Registrar on the closing date for further distribution as directed by Northland. 33. Severability. If any section, paragraph or provision of this resolution shall be held to be invalid or unenforceable for any reason, the invalidity or unenforceability of such section, paragraph or provision shall not affect any of the remaining provisions of this resolution. 34. Headings. Headings in this resolution are included for convenience of reference only and are not a part hereof, and shall not limit or define the meaning of any provision hereof. The motion for the adoption of the foregoing resolution was duly seconded by member Beaton and, after a full discussion thereof and upon a vote being taken thereon, the following voted in favor thereof: _____________________; and the following voted against the same: ______________. Whereupon the resolution was declared duly passed and adopted. 10824992v2 31 STATE OF MINNESOTA COUNTY OF SCOTT CITY OF PRIOR LAKE I, the undersigned, being the duly qualified and acting City Manager of the City of Prior Lake, Minnesota, DO HEREBY CERTIFY that I have compared the attached and foregoing extract of minutes with the original thereof on file in my office, and that the same is a full, true and complete transcript of the minutes of a meeting of the City Council, duly called and held on the date therein indicated, insofar as such minutes relate to authorizing the issuance and awarding the sale of $8,270,000 General Obligation Bonds, Series 2018A. WITNESS my hand on July 16, 2018. ________________________________ City Manager 10824992v2 A-1 EXHIBIT A 10824992v2 LEVY AND ASSESSMENTS SCHEDULES EQUIPMENT PORTION: CAPITAL IMPROVEMENT PORTION: 10824992v2 IMPROVEMENT PORTION: **Special assessment revenue is based on assessments totaling $984,405 assessed at a rate of 4.65% (2% over the net interest cost), with equal annual payments. PIR PORTION: *Special assessment revenue is based on assessments totaling $490,000 assessed at a rate of 4.10% (2% over the net interest cost), with equal annual payments. STREET RECONSTRUCTION PORTION: 10824992v1 A-1 EXHIBIT A PROPOSALS [To be supplied by Northland Securities, Inc.] 10824992v1 LEVY AND ASSESSMENTS SCHEDULES Summary: Prior Lake, Minnesota; General Obligation Primary Credit Analyst: Eric J Harper, Chicago (1) 312-233-7094; eric.harper@spglobal.com Secondary Contact: Cora Bruemmer, Chicago + 1 (312) 233 7099; cora.bruemmer@spglobal.com Table Of Contents Rationale Outlook Related Research WWW.STANDARDANDPOORS.COM/RATINGSDIRECT JUNE 29, 2018 1 Summary: Prior Lake, Minnesota; General Obligation Credit Profile US$8.745 mil GO bnds ser 2018A due 12/15/2028 Long Term Rating AA+/Stable New Rationale S&P Global Ratings assigned its 'AA+' long-term rating to Prior Lake, Minn.'s series 2018A general obligation (GO) bonds. At the same time, we affirmed our 'AA+' long-term rating on the city's existing GO debt. The outlook is stable. The bonds are secured by Prior Lake's GO unlimited property tax pledge. Debt service on the bonds is also payable from the net revenue of its water and sewer utilities and special assessments, but we rate to the GO pledge, which we view as the stronger security. Bond proceeds will be used for capital improvements, street reconstruction, water and sewer projects, and equipment. The rating reflects our view of the city's: • Very strong economy, with access to a broad and diverse metropolitan statistical area (MSA); • Strong management, with "good" financial policies and practices under our Financial Management Assessment (FMA) methodology; • Strong budgetary performance, with a slight operating surplus in the general fund and an operating surplus at the total governmental fund level in fiscal 2017; • Very strong budgetary flexibility, with an available fund balance in fiscal 2017 of 66% of operating expenditures; • Very strong liquidity, with total government available cash at 141.4% of total governmental fund expenditures and 6.6x governmental debt service, and access to external liquidity we consider strong; • Weak debt and contingent liability position, with debt service carrying charges at 21.3% of expenditures and net direct debt that is 179.5% of total governmental fund revenue, but rapid amortization, with 83.8% of debt scheduled to be retired in 10 years; and • Strong institutional framework score. Very strong economy We consider Prior Lake's economy very strong. The city, with an estimated population of 25,433, is in Scott County, about 24 miles southwest of Minneapolis. It is in the Minneapolis-St. Paul-Bloomington MSA, which we consider to be broad and diverse. It has a projected per capita effective buying income of 161% of the national level and per capita market value of $131,273. Overall, market value grew by 7.6% over the past year to $3.3 billion in 2017. The county unemployment rate was 2.9% in 2017. Major employers in the city include the Shakopee Mdewakanton Sioux Community (4,500 employees), which operates WWW.STANDARDANDPOORS.COM/RATINGSDIRECT JUNE 29, 2018 2 the Mystic Lake Casino; the local school district (987); and childcare provider Playworks (175). Market values have increased steadily the last few years and management expects about 6.3% growth in assessed value in 2019. About 90% of the tax base is residential, which has provided the city a stable source of tax base growth in recent years. We expect the economy to remain very strong. Strong management We view the city's management as strong, with "good" financial policies and practices under our FMA methodology, indicating financial practices exist in most areas, but that governance officials might not formalize or monitor all of them on a regular basis. In developing the budget, management uses two years of historical data, outside data sources, and line-item estimates. Budget-to-actual results and investment holdings are reported to the council quarterly. The city maintains a capital improvement plan and long-term forecast that covers the current year and five future years. It maintains an investment management policy. It has a debt management policy but it is not comprehensive, in our opinion. The city's formal reserve policy is to maintain general fund reserves at a minimum of 40% to 50% of expenditures, which it has historically followed. Strong budgetary performance Prior Lake's budgetary performance is strong, in our opinion. The city had slight surplus operating results in the general fund of 1.2% of expenditures, and surplus results across all governmental funds of 5.7% in fiscal 2017. General fund and total governmental fund performance has been mostly positive in recent years (after our adjustments for one-time capital expenditures). The amended 2018 budget assumes about a $500,000 general fund deficit, mostly due to one-time uses of reserves. However, we expect that actual results will likely outperform the budget somewhat, based on the city's prior financial performance. Management expects 2019 general fund results to be at least balanced. We expect budgetary performance to remain at a level we consider strong. Major general fund revenue sources include property taxes (63%), intergovernmental revenue (13%), charges for services (10%), and licenses and permits (6%). In evaluating budgetary performance, we also adjusted recurring transfers to be treated as revenue or expenditures and adjusted debt service costs paid by water enterprise fund transfers. Very strong budgetary flexibility Prior Lake's budgetary flexibility is very strong, in our view, with an available fund balance in fiscal 2017 of 66% of operating expenditures, or $8.3 million. We expect the available fund balance to remain above 30% of expenditures for the current and next fiscal years, which we view as a positive credit factor. The available fund balance includes $6.8 million (54.3% of expenditures) in the general fund and $1.5 million (11.6%) that is outside the general fund but legally available for operations. Over the past three years, the total available fund balance has remained at a consistent level overall, totaling 67% of expenditures in 2016 and 63% in 2015. As part of total available reserves, we included reserves in the city's revolving equipment, revolving park equipment, and facility management funds, which are legally available for general operations with council approval. Based on our expectation of balanced-to-slight surplus general fund operating results over the next two years, and management WWW.STANDARDANDPOORS.COM/RATINGSDIRECT JUNE 29, 2018 3 Summary: Prior Lake, Minnesota; General Obligation having no additional plans to reduce reserves, we expect budgetary flexibility to remain very strong. Very strong liquidity In our opinion, Prior Lake's liquidity is very strong, with total government available cash at 141.4% of total governmental fund expenditures and 6.6x governmental debt service in 2017. In our view, the city has strong access to external liquidity if necessary. The city's $31.4 million in available cash and investments in 2017 were held primarily in money market funds, U.S. agency securities, certificates of deposit, and other investments that we do not consider aggressive. The city has strong access to external liquidity, in our opinion, because of its history of issuing GO debt over the last two decades. We expect liquidity to remain very strong. The city has a 2014 private lease-purchase agreement with approximately $2.1 million outstanding. Events of default are standard under the agreement and debt acceleration, on an event of default, is limited to the amounts owed in the current fiscal year. We do not consider the lease-purchase agreement to be a contingent liability risk. Weak debt and contingent liability profile In our view, Prior Lake's debt and contingent liability profile is weak. Total governmental fund debt service is 21.3% of total governmental fund expenditures, and net direct debt is 179.5% of total governmental fund revenue. Approximately 83.8% of the direct debt is scheduled to be repaid within 10 years, which is, in our view, a positive credit factor. The city expects to issue about $2.5 million in additional debt in 2019 and $4.5 million in 2020. Prior Lake's combined required pension and actual other postemployment benefit (OPEB) contributions totaled 4.4% of total governmental fund expenditures in 2017. The city made its full annual required pension contribution in 2017. The city participates in two cost-sharing multiple-employer pension plans, including the General Employees Retirement Fund (GERF) and the Public Employees Police and Fire Fund (PEPFF). Required pension contributions to these plans are determined by state statute. Statutory contributions have generally not kept pace with actuarially determined contribution (ADC) rates, indicating the potential for future payment acceleration. The state recently passed pension legislation that will marginally increase contributions (for PEPFF only), reduce the investment rate of return to 7.5% (from 8%), and reduce some employee benefits (primarily cost-of-living adjustments). While we view these as positive changes for future plan funding levels, the lack of an actuarial funding policy remains a weakness in these plans. The PEPFF and GERF were 85.4% and 75.9% funded, respectively, in fiscal 2017. The city's proportionate share of the net pension liability for these plans totaled $7.7 million. We consider historical plan funding levels somewhat weak, and we believe that the history of pension contributions below the ADC level increases the risk of payment acceleration. Additionally, in our view, the plan investment portfolios are exposed to significant market risk, with only 22% of its investments allocated to fixed income and cash, which increases the risk for volatility in funding levels. Despite these weaknesses, we believe the city has sufficient taxing and operational flexibility to manage future increases in pension contributions. However, in the future, if pension contributions absorb a larger share of the city's budget, our view of its debt and contingent liability profile could weaken. WWW.STANDARDANDPOORS.COM/RATINGSDIRECT JUNE 29, 2018 4 Summary: Prior Lake, Minnesota; General Obligation The city also provides pension benefits through its single-employer Prior Lake Fire Relief Association plan. In 2017, the plan was 123% funded and the city's net pension asset was $790,000. Contributions to the plan are primarily funded by the state. It maintains a single-employer plan for OPEBs, which it funds on a pay-as-you-go basis. The unfunded actuarial accrued liability was $927,000 as of the latest actuarial valuation (Jan. 1, 2017). Strong institutional framework The institutional framework score for Minnesota cities with a population greater than 2,500 is strong. Outlook The stable outlook reflects our view of Prior Lake's very strong economy and available reserves, as supported by strong management. It also reflects the city's access to the broad and diverse Twin Cities MSA, which has a moderating effect on local economic fluctuations. We do not expect to change the rating within the two-year outlook period. Upside scenario We could raise the rating if debt levels moderated and the economy improved to a level comparable to higher rated peers. Downside scenario We could lower the rating if, due to budgetary imbalance, available reserves declined significantly. Related Research • S&P Public Finance Local GO Criteria: How We Adjust Data For Analytic Consistency, Sept. 12, 2013 • Alternative Financing: Disclosure Is Critical To Credit Analysis In Public Finance, Feb. 18, 2014 • Incorporating GASB 67 And 68: Evaluating Pension/OPEB Obligations Under Standard & Poor's U.S. Local Government GO Criteria, Sept. 2, 2015 • Local Government Pension And Other Postemployment Benefits Analysis: A Closer Look, Nov.8, 2017 Ratings Detail (As Of June 29, 2018) Prior Lake ICR Long Term Rating AA+/Stable Affirmed Prior Lake GO Long Term Rating AA+/Stable Affirmed Prior Lake GO Long Term Rating AA+/Stable Affirmed Prior Lake GO Long Term Rating AA+/Stable Affirmed WWW.STANDARDANDPOORS.COM/RATINGSDIRECT JUNE 29, 2018 5 Summary: Prior Lake, Minnesota; General Obligation Certain terms used in this report, particularly certain adjectives used to express our view on rating relevant factors, have specific meanings ascribed to them in our criteria, and should therefore be read in conjunction with such criteria. Please see Ratings Criteria at www.standardandpoors.com for further information. Complete ratings information is available to subscribers of RatingsDirect at www.capitaliq.com. All ratings affected by this rating action can be found on S&P Global Ratings' public website at www.standardandpoors.com. Use the Ratings search box located in the left column. WWW.STANDARDANDPOORS.COM/RATINGSDIRECT JUNE 29, 2018 6 Summary: Prior Lake, Minnesota; General Obligation WWW.STANDARDANDPOORS.COM/RATINGSDIRECT JUNE 29, 2018 7 STANDARD & POOR’S, S&P and RATINGSDIRECT are registered trademarks of Standard & Poor’s Financial Services LLC. S&P may receive compensation for its ratings and certain analyses, normally from issuers or underwriters of securities or from obligors. S&P reserves the right to disseminate its opinions and analyses. 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The Content shall not be used for any unlawful or unauthorized purposes. S&P and any third-party providers, as well as their directors, officers, shareholders, employees or agents (collectively S&P Parties) do not guarantee the accuracy, completeness, timeliness or availability of the Content. S&P Parties are not responsible for any errors or omissions (negligent or otherwise), regardless of the cause, for the results obtained from the use of the Content, or for the security or maintenance of any data input by the user. The Content is provided on an “as is” basis. S&P PARTIES DISCLAIM ANY AND ALL EXPRESS OR IMPLIED WARRANTIES, INCLUDING, BUT NOT LIMITED TO, ANY WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE, FREEDOM FROM BUGS, SOFTWARE ERRORS OR DEFECTS, THAT THE CONTENT’S FUNCTIONING WILL BE UNINTERRUPTED OR THAT THE CONTENT WILL OPERATE WITH ANY SOFTWARE OR HARDWARE CONFIGURATION. In no event shall S&P Parties be liable to any party for any direct, indirect, incidental, exemplary, compensatory, punitive, special or consequential damages, costs, expenses, legal fees, or losses (including, without limitation, lost income or lost profits and opportunity costs or losses caused by negligence) in connection with any use of the Content even if advised of the possibility of such damages. Copyright © 2018 by Standard & Poor’s Financial Services LLC. All rights reserved. SECURIIIES i,r!\r '*{ City of Prior Lake, Minnesota $8,745,000 General Obligation Bonds, Series 2018A Bond Sale Summary Iuly 16,2018 PURPOSE: FINANCE PLAN RESULTS: Proceeds from the Bonds will be used to purchase equipment; to finance a capital improvement plan project, an improvement project, a permanent improvement revolving fund project, a water project, a sewer project, a street reconstruction project and to finance the costs associated with the issuance of the Bonds. The Capital Improvement Plan Portion, the Improvement Portion, the Water Portion, the Sewer Portion and the Street Reconstruction Portion of the Bonds have been structured over 10 years, with relatively level annual debt service payments. The Equipment Portion has been structured over nine years, with relatively level annual debt service payments. The PIR Fund Portion has been structured over five years with relatively level annual debt service payments. . The City received seven bids. . Bonds were purchased by Piper Jaffray, Minneapolis, Minnesota . Bonds were rated AA+ by S&P. Final Finance on Plan 0711512018 06/18 /2018 Par Amount Average Interest Rate A11 Inclusive Cost (AIC) True Interest Cost (TIC) " Final par amount was reduced by the reoffering premium and rounding on tfu Equipment, CIP and lmprottement portions of the Bonds. fi8,270,000* 4.61.% 2.56% 2.41% $8,745,000 2.79% 3.07% 2.93% Page 1 I *tLa NORIHTAND**plt SECURITIES EXHIBIT A - SOURCES AND USES [4uipment CIP Improvement PIR Fund Water Street S ewer Reconstruction Iss ue S ummary Sources OfFunds 0l Total Sources $67,1,s61.E5 $629,6,13.00 $2.965.934.70 5s24,493.3 0 $l .487.61 7.s0 $1 ,617.s0 $r,487,617.s0 $9,277,485.3s to I to 1 '72 71 4 335.94 I 179.06 to ruction 05 1.2 501.20 Llses Of Funds Isswce Total Uses 70 $674,s61.8s $629,643.00 $2,98s,93,1.70 $s24,493.30 $1,487,617.s0 $1,46?,,617.50 $1,487,617.50 $9,277,4E5.35 EXHIBIT B - PRICING SUMMARY Maturitv Tvpe of Bond Coupon Yield Nlaturity Yalue Price YTM Call Date Call Price DollarPrice t2/tst2019 t2/15t2020 12115/2021 12115/2022 t2/1512023 Serial Coupon Serial Coupon Serial Coupon Serial Coupon 4.000% 1.5s0% 4.000% 1.700% 4.000yo 1.800% 4.000o/o | .900o/o 4.000% 2.000% 760,000.00 860,000.00 805,000.00 83 5,000.00 870,000.00 I03.2190/o 105.237% 107.084% 108.693% 110.067o/o 784,464.40 905,03 8.20 862,026.20 907,5 86.55 Serial on Coupon I2l1 5 12025 Serial Coupon 12115/2026 Serial Coupon 12/15/2027 Serial Coupon 12/15/2028 Serial Coupon s.000% 2.270% 5.000% 2.380o/o 5.000% 2.4s0% 5.000% 2 5t0% 952,661.15 993,468.50 t,036,27 4.40 t,002,296.75 7 957 82.90 876,086 805,000.00 830,000.00 870,000.00 845,000.00 2.672yo 2.902o/o 12115t2026 12/1s/2026 l 00.000% I 00.000% tt0.897% tt8.343% 119.6950/0 ll9 .t t2%o c 118.615% c Total s8,270,000.00 $9,277,485.35 Bid Information Par Amount of Bonds 1 9,277 $7 0 Gross T otal Underwriter's Discourt Bid Total Purchase Price 37,936 08 $9,23 9,549.08 Bond Year Dollars L $4 .67 5 ears 10067 Net Interest Cost 2.6166r49%rue Cost 6t% Page2 remium or (Discount) \ ,"{ NORTH}AND*".f*g,S SECURIT:ES Date EXHIBIT C - DEBT SERVICE SCHEDULE Principal Coupon In te rest Total P+I Fiscal Total 08/l 5/20 I 8 06115/2019 t2t1512019 0611512020 t2t15t2020 760,000.00 4.000% 4.O00o/o 303,5 83.34 1 82,1 50.00 166,950.00 303,5 83.34 942,150.00 166,9s0.00 r,245,733 .34_ tut5n021 061t5/2022 t211512022 061t512023 0.00 805,000.0; 83 5,000.00 4.OOO% 4.000% t66 0.00 149,750.00 133,650.00 13 3,650.00 50.00 149,7 954,7 s0.00 133,650.00 968,650.00 t93 .00 1,104,500.0; 1,102,300.00 06/t5/2024 t2/15/2024 0611512025 t211512025 870,000 790,000.0;4.000o/o 5.000% 99,550.00 99,550.00 83,7s0.00 989,1 00.00 11 50.00 11 50.00 gs 550 00 889,s s0.00 83,750.00 t2fi512026 061t512027 t2lt5/2027 061t5/2028 805 00 830,000.0; 870,000.00 s.000% 5.000% 83 750.00 63,625 .00 42,87 5.00 42,875.00 2l 125.00 88 750.00 63,625.00 893,625 .00 42,875.00 9t2,87 5.00 2l 125.00 00.00 957 ,250.0; 955,750.00 845,000 Total $8,270,000.00 $2,242,183.34 $ I 0,512,1 83.34 Date And Term Structure Dated 8t15t2018 5 Yield S tatistics Net Interest Cost T rue Interest 2.6t66r49% 10886 1% 2.56341 Page 3