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ITEM 6.1 Resolution 2018-42
A OtSTYCe F o MINNESOTA DEPARTMENT INFORMATION Request for City Council Action ORIGINATING DEPARTMENT REQUESTOR: MEETING DATE: Administration City Administrator/Finance Director Flaherty June 11, 2018 PRESENTER(s) REVIEWED BY: ITEM #: Administration City Attorney MacArthur 6.1 STRATEGIC VISION MEETS: I THE CITY OF OTSEGO: Improvement Bonds, Series 2018. Is a strong organization that is committed to leading the community through innovative communication. X Has proactively expanded infrastructure to responsibly provide core services. Yes — Held May 14, 2018 Is committed to delivery of quality emergency service responsive to community needs and expectations in a cost-effective manner. General Obligation Improvement Bonds, Series 2018A Is a social community with diverse housing, service options, and employment opportunities. season. Those projects include: 1) the Mississippi Shores Reconstruction project; and 2) the Kadler Avenue Is a distinctive, connected community known for its beauty and natural surroundings. AGENDA ITEM DETAILS RECOMMENDATION: City staff is recommending that the City Council approve the issuance and sale of General Obligation Improvement Bonds, Series 2018. ARE YOU SEEKING APPROVAL OF A CONTRACT? IS A PUBLIC HEARING REQUIRED? No Yes — Held May 14, 2018 BACKGROUND/JUSTIFICATION: General Obligation Improvement Bonds, Series 2018A The City is proceeding with two significant street improvement projects during the 2018 construction season. Those projects include: 1) the Mississippi Shores Reconstruction project; and 2) the Kadler Avenue and 73`d Street Construction project. City staff is recommending that the City issue $2,345,000 of general obligation bonds as the initial funding source for the projects. The repayment sources will include both special assessments to benefitting property owners and a general property tax levy. The Mississippi Shores project requires $1,480,000 of bonds, for a currently estimated project cost of $1,418,841. The project costs will be allocated approximately 50% to benefiting property owners in the form of special assessments. Those assessments will be amortized over 10 years with an estimated interest rate of 4.10%. The remaining 50% of the project costs will be paid for with a general property tax levied across all properties within the City of Otsego. This funding plan is consistent with the City's special assessment policy and has been applied consistently for street reconstruction projects in the past. The Kadler Avenue and 73`d Street project requires $865,000 of bonds, for a currently estimated project cost of $1,738,596. The City was awarded a grant in the amount of $704,724 from MN DEED to help with the financing of this project. The benefitting property owner will provide upfront financing in the amount of $200,222 and be assessed in the estimated amount of $685,786, with the remainder of the project costs being paid for with a general property tax levied across all properties within the City of Otsego. On May 14, the City Council approved Resolution 2018-34, which authorized Northland Securities, Inc. to provide for a competitive negotiated sale of the general obligation improvement bonds, series 2018A. The competitive sale process includes the City receipting proposals from the competitive marketplace on the sale of the bonds. The proposals were due on June 11 at 1030AM. Since May 14, City staff requested and completed a credit rating analysis from Standard and Poor's (S&P). A credit rating expresses S&P's opinion about the ability and willingness of the City to meet its financial obligations in full and on time. The attached rating summary report provides for the rationale behind the City's credit rating. As outlined in the report, the City's credit rating has been increased from AA to AA+. The bond proposals will be presented to the City Council for consideration by Northland Securities, Inc., who will provide for a recommendation on how the City Council should proceed with the award. Typically, the bonds will be awarded on the basis of the lowest true interest cost to the City. The resolution was prepared by the City's Bond Counsel, Briggs and Morgan, and has been reviewed by City Attorney MacArthur with no comments. SUPPORTING DOCUMENTS ATTACHED: • Standard and Poor's — Rating Summary • Resolution 2018-42 (Note: This is preliminary. The final version will be supplied at the meeting). POSSIBLE MOTION PLEASE WORD MOTION AS YOU WOULD LIKE ITTO APPEAR IN THE MINUTES: Motion to approve Resolution 2018-42 Providing for the Issuance and Sale of General Obligation Improvement Bonds, Series 2018A. BUDGET INFORMATION FUNDING: BUDGETED: Mississippi Shores - Fund #201 Kadler Avenue & 73rd Street — Fund #438 Yes a T R-- I I --- L _jj Summary: Otsego, Minnesota; General Obligation Primary Credit Analyst: Helen Samuelson, Chicago (1) 312-233-7011; helen.samuelson@spglobal.com Secondary Contact: Andrew J Truckenmiller, Chicago + 1 (312) 233 7032; andrew.trucicenmiller@spglobal.com Table Of Contents Rationale Outlook Related Research WWW.STANDARDANDPO0RS.COM/RATINGSDIRECT JUNE 4, 2018 1 Summary: Otsego, Minnesota; General Obligation Credit Profile US$2.55 mil GO imp bnds ser 2018A due 02/01/2034 Long Term Rating AA+/Stable New Otsego GO Long Term Rating AA+/Stable Upgraded Otsego GO (AGM) Unenhanced Rating AA+(SPUR)/Stable Upgraded Rationale S&P Global Ratings raised its long-term rating to 'AA+' from 'AA' on Otsego, Minn.'s existing general obligation (GO) bonds. The raised rating reflects our view of the city's more favorable economic measures stemming from its growing local economy. At the same time, S&P Global Ratings assigned its 'AA+' long-term rating to the series 2018A GO improvement bonds. The outlook on all ratings is stable. The series 2018A bonds are secured by the city's unlimited tax GO pledge, and are payable from property taxes and special assessments from benefitting properties. Officials will use bond proceeds to fund street improvement projects and infrastructure for an industrial park. The city pledges net revenues of its water and sewer utility funds to the series 2009A and 201 OC GO bonds, and other bonds are also paid from special assessments, but we rate them all to the GO pledge. The rating reflects our opinion of the city's: • 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 operating surpluses in the general fund and at the total governmental fund level in fiscal 2016; • Very strong budgetary flexibility, with an available fund balance in fiscal 2016 of 203% of operating expenditures; • Very strong liquidity, with total government available cash at 2.9x total governmental fund expenditures and 18.9x governmental debt service, and access to external liquidity we consider strong; • Weak debt and contingent liability position, with debt service carrying charges at 15.2% of expenditures and net direct debt that is 84.8% of total governmental fund revenue, but rapid amortization, with 96.3% of debt scheduled to be retired in 10 years; and • Strong institutional framework score. WWW.STANDARDANDPOORS.COM/RATINGSDIRECT JUNE 4, 2018 2 Summary. Otsego, Minnesota, General Obligation Strong economy We consider Otsego's economy strong. The city, with an estimated population of 15,720, is located in Wright County in the Minneapolis -St. Paul -Bloomington, MN -WI MSA, which we consider to be broad and diverse. The city has a projected per capita effective buying income (EBI) of 108.8% of the national level and per capita market value of $112,279, which is significantly higher than it was in 2014, when it was $79,971. Overall, the city's market value grew by 11.5% over the past year to $1.8 billion in 2018. The county's unemployment rate was 3.9% in 2016. Otsego is about 30 miles northwest of downtown Minneapolis. The city's tax base has been growing due to an array of various types of growth, with new residential growth, commercial development such as the Nystrom & Associates office building, a multi -family senior housing project, a new school, and an 80 -acre industrial park. We anticipate the city's local economy will continue to grow and benefit from its proximity to Minneapolis. 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. Highlights include its: • Use of at historical information in the formulation of the upcoming -year revenue and expenditure assumptions with the help of outside sources; • Monthly reporting of budget -to -actual performance to the council with the ability to make amendments to the budget as needed; • 10 -year capital plan that is updated on an annual basis, published with the annual budget, and includes sources and uses of funds; • Formalized investment management policy; monthly cash reports and more expansive investment information in the quarterly board reports; • A formalized debt management policy that sets various qualitative standards around debt issuances, and sets a goal that manages its debt service levy; and • Formalized fund balance policy to maintain 45% of subsequent years' expenditures for cash flow and contingency purposes. The policy goes on to state that excess reserves be transferred to the capital improvements fund. The city does not produce a robust general fund forecast, though it does forecast future tax revenue and for its various utilities. Strong budgetary performance Otsego's budgetary performance is strong in our opinion. The city had operating surpluses of 14.6% of expenditures in the general fund and of 16.5% across all governmental funds in fiscal 2016. Our assessment accounts for the fact that we expect budgetary results could deteriorate somewhat from 2016 results in the near term. Otsego has reported generally positive performance, in both general fund and total governmental funds, fueled by its strong economic growth that drives tax capacity and permit revenues. The city's 2018 budget is balanced, with no WWW.STANDARDANDPOORS.COM/RATINGS DIRECT JUNE 4, 2018 3 Sunanaary: Otsego, Minnesota, General Obligation material surplus planned because of its conservative approach to revenues, suggesting budgetary performance may not be as strong as it had been in previous years. Given the city's positive economic trend, we anticipate that its budget will remain at least balanced and likely not show negative budget variances. We have adjusted revenues for annual, formulaic transfers from the enterprise funds, and expenditures for bond proceed and one-time grant spending. The city's positive general fund operations in 2016, and expected for 2017, are at least in part driven by conservative expectations about permit fee revenue. For fiscal 2017, the city expects to report a $1.1 million general fund surplus prior to a roughly $1 million transfer out to the capital improvement fund, for a net $244,000 increase to the general fund balance. The city's fund balance policy calls for excess reserves to be transferred to the capital improvements fund, and transfers were made in fiscals 2014 through 2017. The 2018 general fund budget is balanced, with about $5.3 million of revenue that is growing due to economic growth and permit fees. However, this is counterbalanced by increased personnel -related expenses in areas such as building inspections and public works but also in police and fire services. Police services are provided on a contractual basis by Wright County, and fire services are also provided on a contract basis by a local joint agency. Budget year 2018 permit revenues are ahead of budget, and expenditures are on track with the budget. The city's total governmental fund performance was positive in 2015 and 2016, though the results varied from one year to the next depending on the timing of grant and other receipts as well as capital spending. We anticipate future total governmental fund performance may continue to fluctuate due to capital spending, but overall budgetary performance will likely remain strong. Very strong budgetary flexibility Otsego's budgetary flexibility is very strong, in our view, with an available fund balance in fiscal 2016 of 203% of operating expenditures, or $10.5 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 $3.5 million (68.3% of expenditures) in the general fund and $7.0 million (134% of expenditures) that is outside the general fund but legally available for operations. We anticipate Otsego's budgetary flexibility will remain very strong based on management's intentions to maintain general fund reserves in keeping with its fund balance policy and balanced financial operations. We adjusted the budgetary flexibility to recognize reserves in the capital improvement fund, which was built up with transfers from the general fund. The general fund balance policy calls for amounts in excess of 45% of subsequent year's expenditures to be transferred to the capital fund. The fiscal 2016 audit shows a general fund balance of $3.6 million. Of this amount, $3.3 million is unassigned and $192,408 is classified as assigned, but officials indicate this amount is an insurance reserve that can be considered available. The capital improvement fund held $6.96 million in 2016. We recognize that the reserves in the capital improvement fund, while providing additional flexibility to the city, will likely fluctuate depending on the timing and extent of capital projects, but we expect the general fund reserve will remain stable, and will adhere to the fund balance policy in the current and following year. WWW.STANOAROANOPOORS.COM/RATINGSDIRECT JUNE 4, 2018 4 Summary: Otsego, Minnesota; General Obligation Very strong liquidity In our opinion, Otsego's liquidity is very strong, with total government available cash at 2.9x total governmental fund expenditures and 18.9x governmental debt service in 2016. In our view, the city has strong access to external liquidity if necessary. In our view, Otsego has strong access to external liquidity, based on its regular issuances of GO bonds. We do not consider its use of investments aggressive since the city primarily invests in federal securities and state and local debt with a minimum rating of 'A' or above. The city does not have any contingent liquidity risk that could come due in the near term and put pressure its budget. As such, we expect the city's liquidity position to remain very strong. Weak debt and contingent liability profile In our view, Otsego's debt and contingent liability profile is weak. Total governmental fund debt service is 15.2% of total governmental fund expenditures, and net direct debt is 84.8% of total governmental fund revenue. Approximately 96.3% of the direct debt is scheduled to be repaid within 10 years, which is in our view a positive credit factor. With this issue, the city has about $33 million of GO debt outstanding, with much of it, $23 million, paid from net revenues of the city's water and sewer utilities. We understand the city may issue up to $12 million in additional bonds for a sewer expansion project, which would likely be backed by the city's utility revenues. The city has no direct purchase debt. Otsego's pension contributions totaled 1.0% of total governmental fund expenditures in 2016. The city made its full annual required pension contribution in 2016. Otsego participates in one cost-sharing multiple -employer pension plan, the General Employees Retirement Fund (GERF), administered by the Public Employees Retirement Association of Minnesota (PERA). Required pension contributions to this plan is determined by state statute. Statutory contributions rates have generally not kept pace with actuarially determined contribution (ADC) rates, indicating potential for future payment acceleration. The GERF was 75.9% funded in fiscal 2017. The city's proportionate share of the net pension liability for this plan totaled $1.6 million in fiscal 2016, the most recent year in which data are available. We consider historical plan funding levels somewhat weals, and we believe that the history of pension contributions below ADC increases the risk of payment acceleration. Additionally, in our view, the plan's investment portfolio is exposed to significant market risk, with only 22% of its investments allocated to fixed income and cash, which increases the risk for volatility in plan 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. The city does not pay any portion of retiree healthcare premiums. Strong institutional framework The institutional framework score for Minnesota cities with a population greater than 2,500 is strong. WWW.STANDAH DAN OP00AS.COM/RATINGS OIRECT ,TUNE 4, 2018 S Sunnnaary: Otsego, Minnesota, General Obligation Outlook The stable outlook reflects our view that Otsego will maintain reserves at or above its reserve policy amount, at least adequate budgetary performance, and very strong liquidity. We do not expect a rating change within the two-year outlook period. Downside scenario We could lower the rating if the city's pension and debt burden materially worsens, or if its budget falls out of balance, compromising its budgetary performance and budgetary flexibility. Upside scenario A higher rating is possible if the city's economic measures, such as its income levels and per capita market values, were to improve to levels commensurate with those of its higher -rated peers, all other credit factors remaining equal. Related Research 2017 Update Of Institutional Framework For U.S. Local Governments Ratings Detail (As Of Otsego GO equip certs of indebtness ser 2010A dtd 01/15/2010 due 07/15/2011-2019 Long Term Rating AA+/Stable Upgraded Otsego GO imp crossover rfdg buds Long Term Rating AA+/Stable Upgraded Many issues are enhanced by bond insurance. 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. 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S&P's public ratings and analyses are made available on its Web sites, www.standardandpoors.com (free of charge), and www.ratingsdirect.com and www.globalcreditportal.com (subscription), and may be distributed through other means, including via S&P publications and third -party redistributors. Additional information about our ratings fees is available at www.standardandpoors.com/usratingsfees. STANDARD & POOR'S, S&P and RATINGSDIRECT are registered trademarks of Standard & Poor's Financial Services LLC. WWW.STANDARDANDPOORS.COM/RATINGSDIRECT JUNE 4, 2018 7 EXTRACT OF MINUTES OF A MEETING OF THE CITY COUNCIL OF THE CITY OF OTSEGO, MINNESOTA HELD: JUNE 11, 2018 Pursuant to due call, a regular or special meeting of the City Council of the City of Otsego, Wright County, Minnesota, was duly held at the City Hall on June 11, 2018, at 7:00 P.M., for the purpose, in part, of providing for the issuance and sale of $2,550,000 General Obligation Improvement Bonds, Series 2018A. The following members were present: and the following were absent: Member introduced the following resolution and moved its adoption: RESOLUTION NO. 2018-42 RESOLUTION PROVIDING FOR THE ISSUANCE AND SALE OF $2,550,000 GENERAL OBLIGATION IMPROVEMENT BONDS, SERIES 2018A, PLEDGING FOR THE SECURITY THEREOF SPECIAL ASSESSMENTS AND LEVYING A TAX FOR THE PAYMENT THEREOF A. WHEREAS, the City Council of the City of Otsego, Minnesota (the "City") has heretofore determined and declared that it is necessary and expedient to issue $2,550,000 General Obligation Improvement Bonds, Series 2018A (the 'Bonds" or individually, a 'Bond"), pursuant to Minnesota Statutes, Chapters 475 and 429 to finance various public improvement projects within the City (the "Improvements"); and B. WHEREAS, 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 C. WHEREAS, the City has retained Northland Securities, Inc., in Minneapolis, Minnesota ("Northland"), as its independent municipal adviser for the sale of the Bonds and was therefore 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 D. WHEREAS, the proposals set forth on Exhibit A attached hereto were received by the City Administrator/Finance Director, 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 E. WHEREAS, it is in the best interests of the City that the Bonds be issued in book - entry form as hereinafter provided; and 10670285v1 NOW, THEREFORE, BE IT RESOLVED by the City Council of the City of Otsego, Minnesota, as follows: 1. Acceptance of Proposal. The proposal of , in (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 $ , plus accrued interest to the settlement date, is hereby accepted and the Bonds are hereby awarded to the Purchaser. 2. Bond Terms. (a) Original Issue Date; Denominations; Maturities. The Bonds shall be dated July 11, 2018, as the date of original issue, be issued forthwith on or after such date in fully registered form, be numbered from R-1 upward in the denomination of $5,000 each or in any integral multiple thereof of a single maturity (the "Authorized Denominations") and mature, without option of prepayment, on February 1 in the years and amounts as follows: Year Amount Year Amount 2020 $ 2028 $ 2021 2029 2022 2030 2023 2031 2024 2032 2025 2033 2026 2034 2027 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) Book Entry Only S, stem. 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 depository 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 K 10670285v1 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 premium, if any, or interest on the Bonds, or (D) the consent given or other action taken by the 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 3 10670285v1 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 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. (c) Termination of Book -Entry Onlyystem. 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, 4 lo67oassvl 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. (d) 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. Purpose. The Bonds shall provide funds to finance the Improvements. The total cost of the Improvements, which shall include all costs enumerated in Minnesota Statutes, Section 475.65, is estimated to be at least equal to the amount of the Bonds. Work on the Improvements shall proceed with due diligence to completion. The City covenants that it shall do all things and perform all acts required of it to assure that work on the Improvements proceeds with due diligence to completion and that any and all permits and studies required under law for the Improvements are obtained. 4. Interest. The Bonds shall bear interest payable semiannually on February 1 and August 1 of each year (each, an "Interest Payment Date"), commencing February 1, 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: Maturily ear 2020 2021 2022 2023 2024 2025 2026 2027 Interest Rate Maturity 2028 2029 2030 2031 2032 2033 2034 Interest Rate 5. Redemption. All Bonds maturing on February 1, 2027, and thereafter shall be subject to redemption and prepayment at the option of the City on February 1, 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 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 at least thirty (30) days prior to the date fixed for redemption. 10670285v1 To effect a partial redemption of Bonds having a common maturity date, the 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 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 the Bonds, as many numbers as, at $5,000 for each number, shall equal the principal amount of the 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 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 Registrar (with, if the City or Registrar so requires, a written instrument of transfer in form satisfactory to the City and 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 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. 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 in 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: 10670285v1 Q UNITED STATES OF AMERICA STATE OF MINNESOTA WRIGHT COUNTY CITY OF OTSEGO GENERAL OBLIGATION IMPROVEMENT BOND, SERIES 2018A Interest Rate Maturity Date Date of Original Issue CUSIP % February 1, July 11, 2018 REGISTERED OWNER: CEDE & CO. PRINCIPAL AMOUNT: THE CITY OF OTSEGO, WRIGHT 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 February 1 and August 1 of each year (each, an "Interest Payment Date"), commencing February 1, 2019, at the rate per annum specified above (calculated on the basis of a 360 -day year of twelve thirty -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, fiom 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 Northland Trust Services, Inc., in Minneapolis, Minnesota (the 'Bond Registrar"), acting as paying agent, or any successor paying agent duly appointed by the Issuer (the 'Bond Registrar"), 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 fifteenth day of the calendar month next preceding 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 than 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 VA 10670285vi Bond. Until termination of 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. The Bonds of this issue (the "Bonds") maturing on February 1, 2027, and thereafter, are subject to redemption and prepayment at the option of the Issuer on February 1, 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 at least thirty (3 0) 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 the 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 $2,550,000, all of like date of original issue and tenor, except as to number, maturity, interest rate, redemption privilege and denomination, 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 of the Issuer on June 11, 2018 (the "Resolution"), for the purpose of providing money to finance various public improvement projects within the jurisdiction of the Issuer. This Bond is payable out of the General Obligation Improvement Bonds, Series 2018A Fund of the 10670285v1 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 Obli ag tion. 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. 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, and that this Bond, together with all other debts of the Issuer outstanding on the date of original issue hereof I Io67o2asvl 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 Otsego, Wright 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 Administrator/Finance Director, 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 IN Authorized Signature 10670285vt Registrable by: NORTHLAND TRUST SERVICES, INC. Payable at: NORTHLAND TRUST SERVICES, INC. CITY OF OTSEGO, WRIGHT COUNTY, MINNESOTA /s/ Facsimile Mayor /s/ Facsimile City Administrator/Finance Director 10 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- I5(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.) 11 10670285v1 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 Administrator/Finance Director 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 of July 11, 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 malting 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. 12 Io67o2ssv1 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 this 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 his, her or its 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 Administrator/Finance Director is hereby authorized to negotiate and execute the terns 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 fifteenth day of the calendar month next preceding 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 City Administrator/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 created a special fund to be designated the "General Obligation Improvement Bonds, Series 2018A Fund" (the "Fund") to be administered and maintained by the City Administrator/Finance Director as a bookkeeping account separate 13 lo670285v1 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 all of the Bonds and the interest thereon have been fully paid. There shall be maintained in the Fund the "Construction Account" and "Debt Service Account": (a) Construction Account. To the Construction Account shall be credited the proceeds of the sale of the Bonds, less capitalized interest and less any amount paid for the Bonds in excess of the minimum bid, plus any special assessments levied with respect to the Improvements and collected prior to completion of the Improvements and payment of the costs thereof. From the Construction Account there shall be paid all costs and expenses of making the Improvements listed in paragraph 16, 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 Construction Account shall be used for no other purpose except as otherwise provided by law; provided that the proceeds of the Bonds may also be used to the extent necessary to pay interest on the Bonds due prior to the anticipated date of commencement of the receipt of the collection of taxes or special assessments herein levied or covenanted to be levied; and provided further that if upon completion of the Improvements there shall remain any unexpended balance in the Construction Account, the balance (other than any special assessments) may be transferred by the Council to the Debt Service Account or 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 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. (b) Debt Service Account. There are hereby irrevocably appropriated and pledged to, and there shall be credited to, the Debt Service Account: (i) all collections of special assessments herein covenanted to be levied with respect to the Improvements and either initially credited to the Construction Account and not already spent a permitted above and required to pay any principal and interest due on the Bonds or collected subsequent to the completion of the Improvements and payment of the costs thereof; (ii) all funds paid for the Bonds in excess of the minimum bid; (iii) capitalized interest in the amount of $ (together with interest earnings thereon and subject to such other adjustments as are appropriate to provide sufficient funds to pay interest due on the Bonds on or before February 1, 2019); (iv) any collection of all taxes herein or hereafter levied for the payment of the Bonds; (v) all funds remaining in the Construction Account after completion of the Improvements and payment of the costs thereof; (vi) all investment earnings on funds held in the Debt Service Account; and (vii) any and all other moneys which are properly available and are appropriated by the governing body of the City to the Debt Service Account. The Debt Service Account shall be used solely to pay the principal and interest and any premiums for redemption of the Bonds and any other general obligation bonds of the City hereafter issued by the City and made payable from the account as provided by law. 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 14 10670285v1 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 Construction Account or Debt Service Account (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 the 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 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"). 16. Assessments. It is hereby determined that no less than twenty percent of the cost to the City of each 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 Improvements. The City hereby covenants and agrees that it will let all construction contracts not heretofore let within one year after ordering each Improvement financed hereunder unless the resolution ordering the 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 malting 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. The special assessments have heretofore been authorized. Subject to such adjustments as are required by the conditions in existence at the time the assessments are levied, 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 the rates per annum not less than the rate per annum set forth opposite the collection years specified below: Improvement Designation Levy Years Collection Years Amount Rate See Attached Schedule in Exhibit B 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. 17. Tax Levy; Coverage Test. To provide moneys for payment of the principal and interest on the Bonds there is hereby levied upon all of the taxable property in the City a direct 15 lo67oaasvl 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 See Attached Schedule in Exhibit B Amount The tax levies are such that if collected in full they, together with estimated collections of special assessments and other revenues herein pledged for the payment 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 Bonds. The tax levies shall be irrepealable so long as any 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, 18. 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. 19. 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 Vol 10670285v1 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 twenty percent 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 five percent 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 Bonds stating in effect that such action will not impair the tax-exempt status of the Bonds. 20. General Obligation Pledge. For the prompt and full payment of the principal and interest on 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 Debt Service Account is ever insufficient to pay all principal and interest then due on 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 Debt Service Account when a sufficient balance is available therein. 21. 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 15c242 (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: 17 106702850 (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 Administrator/Finance Director 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 the Rule, (ii) required by the Purchaser of the Bonds, and (iii) acceptable to the Officers. 22. Certificate of Registration. A certified copy of this resolution is hereby directed to be filed in the offices of the County Auditor of Wright County, Minnesota, together with such other information as the County Auditor shall require and to obtain the County Auditor's Certificate that the Bonds have been entered in the County Auditor's Bond Register and the tax levy required by law has been made. 23. 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 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. 24. Negative Covenant as to Use of Bond Proceeds and Improvements. The City hereby covenants not to use the proceeds of the Bonds or to use the Improvements, or to cause or permit them to be used, or to enter into any deferred payment arrangements for the cost of the Improvements, 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. W. 10670285vt 25. Tax -Exempt Status of the Bonds; Rebate. 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 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, if the Bonds (together with other obligations reasonably expected to be issued and outstanding at one time in this calendar year) exceed the small issuer exception amount of $5,000,000. For purposes of qualifying for the exception to the federal arbitrage rebate requirements for governmental units issuing $5,000,000 or less of bonds, the City hereby finds, determines and declares that: (a) the Bonds are issued by a governmental unit with general taxing powers; (b) no Bond is a private activity bond; (c) ninety-five percent or more of the net proceeds of the Bonds are to be used for local governmental activities of the City (or of a governmental unit the jurisdiction of which is entirely within the jurisdiction of the City); and (d) the aggregate face amount of all tax exempt bonds (other than private activity bonds) issued by the City (and all subordinate entities thereof, and all entities treated as one issuer with the City) during the calendar year in which the Bonds are issued and outstanding at one time is not reasonably expected to exceed $5,000,000, all within the meaning of Section 148(f)(4)(D) of the Code. 26. 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: (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. 19 10670285v1 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. 27. 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. 28. 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. 29. 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 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. G1 10670285v1 STATE OF MINNESOTA COUNTY OF WRIGHT CITY OF OTSEGO I, the undersigned, being the duly qualified and acting City Administrator/Finance Director of the City of Otsego, 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 of the City, duly called and held on the date therein indicated, insofar as such minutes relate to providing for the issuance and sale of $2,550,000 General Obligation Improvement Bonds, Series 2018A. WITNESS my hand on June 11, 2018. City Administrator/Finance Director 21 lo67o2ssv1 EXHIBIT A PROPOSALS [To be supplied by Northland Securities, Inc.] A-1 10670285vl EXHIBIT B SCHEDULES [To be supplied by Northland Securities, Inc.] Im lo67oassvl