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7.2. SR 06-20-2005 Item 7.2. MEMORANDUM TO: Mayor and City Council FROM: Lori Johnson, Finance and Administrative Services Director DATE: June 20, 2005 SUBJECT: Consider Resolution Providing for the Issuance and Sale of the City's $1,200,000 Liquor Store Revenue Bonds, Series 2005C; Fixing it's Form and Specifications; Directing its Execution and Delivery; and Providing for its Payment Attached is a resolution authorizing the issuance of $1,200,000 in revenue bonds to pay for the construction of Westbound Liquor. These bonds are being purchased by The Bank of Elk River and First National Bank of Elk River with each bank taking $600,000 at an interest rate of 4.5% for a ten year term with fInal maturity in 2015. The 1997 liquor revenue bonds issued to fInance Northbound Liquor were pre-paid in full on June 15, 2005. The 1997 bonds carried an interest rate of 6.35%. That prepayment provision allowed for the prepayment only for the purpose of fInancing the construction of a second liquor store. The 2005C bonds have a prepayment provision allowing for prepayment for any reason beginning July 1, 2012. Principal payments on the 2005C issue have been structured to coincide with sales and cash flow projections for the fIrst several years of operation. The fIrst principal payment in 2007 is $50,000 with payments accelerating to $200,000 in 2015. Although this structure results in additional interest costs, it helps to ensure that adequate revenues will be available to meet debt service costs while still maintaining the reserves necessary to fund annual transfers to other funds. Action Reauest The City Council is asked to approve the attached resolution providing for the issuance and sale of the city's $1,200,000 liquor store revenue bonds, series 2005C; fixing its form and specifIcations; directing its execution and delivery; and providing for its payment. S:\Council\Lori\2005\Revenue Bonds Lqour Store. doc EXTRACT OF MINUTES OF A MEETING OF THE CITY COUNCIL OF THE CITY OF ELK RIVER, MINNESOTA HELD: June 20,2005 Pursuant to due call and notice thereof, a regular or special meeting of the City Council of the City of Elk River, Sherburne County, Minnesota, was duly held in the City Hall on June 20, 2005, commencing at 7:30 P.M., for the purpose, in part, of awarding the sale of the $1,200,000 Liquor Store Revenue Bonds, Series 200Se. The following members were present: and the following were absent: Member adoption: introduced the following Resolution and moved its RESOLUTION NO. 05- RESOLUTION PROVIDING FOR THE ISSUANCE AND SALE OF THE CITY'S $1,200,000 LIQUOR STORE REVENUE BONDS, SERIES 200SC; FIXING ITS FORM AND SPECIFICATIONS; DIRECTING ITS EXECUTION AND DELIVERY; AND PROVIDING FOR ITS PAYMENT BE IT RESOLVED by the City Council (the "Council") of the City of Elk River, Minnesota (the "City"), as follows: 1. Recitals. It is hereby determined: ( ) The City currently owns and operates a municipal liquor store (the "Existing Liquor Store"), which is in operation and for which the City issued its Liquor Store Revenue Bonds, Series 1997 A. Excess funds on hand in the City's Liquor Store Fund were used to payoffthe Series 1997A Bonds on June 15,2005. The City has heretofore determined to acquire, construct, equip, furnish, operate, and maintain an additional municipal liquor store (the "Liquor Store" and together with the Existing Liquor Store, herein referred to as the "Municipal Liquor Stores"), and the costs of completing (including furniture, fixtures, and equipment) and financing the Liquor Store are currently estimated to be $1,750,000. ( ) The City is authorized to acquire and better the Liquor Store and to finance the same through the issuance of the City's liquor store revenue bonds pursuant to applicable law, including without limitation Minnesota Statutes, Section 426.19, and the Council hereby finds that it is necessary and expedient to the sound financial management of the City that the City do so. ( ) The City presently has no other outstanding bonds, warrants, certificates or other obligations or evidences of indebtedness of money borrowed for or on account of the Municipal Liquor Stores or indebtedness for which any of the revenues of the Municipal Liquor Stores have been appropriated or pledged. 2. Acceptance of Offer. First National Bank Elk River and The Bank of Elk River (collectively, the "Purchaser") have offered to purchase the City's $1,200,000 Liquor Store Revenue Bonds, Series 2005C (the "Bonds") at a price of par ($1,200,000), the Bonds to be subject to the terms and conditions herein provided. The Purchaser has in that connection submitted to the Council for its consideration a certain Bond Purchase Agreement, and the Council hereby approves and accepts said Agreement and authorizes the Mayor and City Administrator to execute the same at such time and with such amendments thereto as they may deem desirable, as evidenced by their execution and delivery thereof. 3. Authorization for Issuance. The City shall forthwith issue the Bonds. The Bonds shall provide funds to finance the Liquor Store, the total cost of which is estimated to be at least equal to the amount of the Bonds. Work on the Liquor Store shall proceed with due diligence to completion. The Bonds shall be two in number (numbered R-l and R-2, respectively), each in the denomination of $600,000, and shall be identical except for the name of the registered owners thereof, being the two purchasing banks, respectively, mentioned in paragraph 2 hereof. The Bonds shall be dated as of the date of delivery thereof to the Purchaser, which shall be July 1, 2005, or as soon thereafter as settlement can be arranged with the Purchaser, shall be a fully registered bond without interest coupons and shall mature and bear interest and be payable as provided in the form of the Bonds set out in paragraph 5 of this Resolution. The Bond shall be subject to redemption in whole or in part at the option ofthe City at any time, in inverse order of the principal maturities thereof, upon prior written notice to the Registered Owner thereof, at par plus accrued interest to the date of redemption. Interest on the Bonds shall be calculated on the basis of a 360-day year consisting of 12 months of 30 days each 4. Bond Registrar. Both principal of and interest on the Bonds shall be payable by the City Finance Director, who shall also act as registrar and transfer agent (the "Bond Registrar") for the Bonds. 5. Form of Bond. Each ofthe Bonds shall be substantially the following form: 2 UNITED STATES OF AMERICA STATE OF MINNESOTA COUNTY OF SHERBURNE CITY OF ELK RIVER R- $600,000 LIQUOR STORE REVENUE BOND, SERIES 2005C THE CITY OF ELK RIVER, SHERBURNE COUNTY, MINNESOTA (the "City"), for value received, hereby promises to pay, but only from the sources and as hereinafter provided, to , or assigns duly registered on the Bond Register (the "Owner") maintained by the City Finance Director, the principal sum of SIX HUNDRED THOUSAND ($600,000) on February 1 in the years and principal amounts, respectively, as follows: Year Principal Amount 2007 2008 2009 2010 2011 2012 2013 2014 2015 $ 25,000 37,500 47,500 50,000 75,000 80,000 87,500 97,500 100,000 or on any earlier date on which the principal amounts of this Bond may be and shall have been duly called for prepayment, and to pay interest to the Owner from the date hereof on the principal amounts hereof until the same are paid at the rate of four and one half percent (4.50%) per annum, interest to maturity payable on February 1, 2006, and on each February 1 and August 1 thereafter. Interest shall be calculated on the basis of a 360-day year consisting of 12 months of 30 days each. Both principal of and interest on this Bond are payable in any coin or currency of the United States of America which on the date of payment is legal tender for public and private debts. At the time of final payment of all principal of and interest on this Bond, the Owner shall surrender this Bond to the City Finance Director. Manner of Payment. The principal of and interest on this Bond are payable when due by check or draft mailed, transferred by wire or otherwise delivered by or on behalf of the City Finance Director to the person that was the Owner hereof as of the end of the day, whether or not a business day, immediately preceding the applicable payment due date; provided that if the City shall be in default in payment of interest due on said date, whenever money becomes available for payment of such defaulted interest, the City Finance Director shall establish a special record date with respect to the payment thereof and shall mail written notice of the special record date 3 not less than fifteen (15) days prior to such date to the Owner ofthe Bond as of the close of business ofthe City on the fifth (5th) business day of the City preceding such mailing, and the Owner as of the special record date shall be entitled to receive the payment of such defaulted interest. Issuance; Purpose; Special Revenue Obligation. This Bond is one of an issue of two Bonds having an aggregate principal amount of $1 ,200,000, both Bonds being of like date, tenor, principal amount, interest rate, and principal payment schedule. The Bonds are issued under and 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, the governing body of the City, on June 20, 2005 (the "Resolution"), for the purpose of providing money to finance the acquisition and betterment of a municipal liquor store to be owned and operated by the City (the "Project"). The principal of and interest on the Bonds are payable solely and exclusively from the Net Revenues of the municipal liquor stores owned by the City (as said Net Revenues are defined in the Resolution) and from such other funds, if any, as may become available to pay debt service on the Bonds pursuant to the Resolution. This Bond is not a general obligation of the City. Reference is made to the Resolution for a fuller statement of the sources of revenue which are or may become available to pay the principal of and interest on the Bonds, of the additional provisions respecting the security of the Bonds, and of the conditions upon which the City may issue other bonds or obligations on a parity with the Bonds. Optional Redemption. The principal amounts of this Bond are subject to prepayment, at par plus accrued interest, without penalty at the option of the City, in whole but not in part, on July 1, 2012, and on any date thereafter upon 15 days' prior written notice to the Owner. Transfer. This Bond is transferable, as provided in the Resolution, upon the Bond Register kept by the City Finance Director at City Hall upon surrender of this Bond, together with a written instrument of transfer duly executed by the Owner or the Owner's attorney duly authorized in writing, and thereupon a new, fully registered Bond in the same aggregate principal amount shall be issued to the transferee in exchange therefor (or the transfer shall be duly recorded on the Bond Register and the Certificate of Registration section hereof), upon the payment of charges and satisfaction of applicable conditions, if any, as therein prescribed; provided that such transfer may occur only with respect to the entire Bond and all of the remaining principal amount hereof. The City may treat and consider the person in whose name this Bond is registered as the absolute Owner hereof for the purpose of receiving payment of or on account of the principal of and interest on this Bond (except for the payment of interest to the Owner as ofa special record date) and for all other purposes whatsoever. Qualified Tax-Exempt Obligation. The Bonds have been designated by the City as a "qualified tax-exempt obligations" within the meaning of and pursuant to Section 265(b )(3) of the Internal Revenue Code of 1986, as amended. IT IS HEREBY CERTIFIED, RECITED AND DECLARED that all acts, conditions and things required to exist, to have happened and to be performed precedent to and in the execution and delivery of this Bond do exist, have happened and have been performed in due form, time and manner, as required by law, and that the issuance ofthe Bonds, together with all other 4 indebtedness of the City, does not exceed or violate any constitutional or statutory limitation of indebtedness. IN WITNESS WHEREOF, the City of Elk River, Sherburne County, Minnesota, by the City Council, has caused this Bond to be executed by the manual signatures of its Mayor and City Administrator; and has caused the official seal of the City to be impressed upon this Bond; and has caused this Bond to be dated July 1, 2005. x X X do not sign City Administrator X X X do not sign Mayor (SEAL) 5 CERTIFICATE OF REGISTRATION It is hereby certified that the foregoing Bond was as of the latest date specified below registered in the name of the last registered Owner noted below and that, at the request of said registered Owner of this Bond, the undersigned City Finance Director has as of said applicable date registered the Bond as to principal and interest in the name of such registered Owner, as indicated in the registration blank below, on the books kept by the undersigned for such purposes. NAME OF REGISTERED OWNER DATE OF REGISTRATION SIGNATURE OF CITY FINANCE DIRECTOR ,2005 '- 6 REGISTER OF PARTIAL PAYMENTS The installment of principal amount of the attached Bond has been prepaid on the dates and in the amounts noted below: DATE AMOUNT SIGNATURE OF REGISTERED OWNER SIGNATURE OF CITY FINANCE DIRECTOR If a notation is made on this register, such notation has the effect stated in the attached Bond. Partial payments do not require the presentation of the attached Bond to the City Finance Director, and a Registered Owner could fail to note the partial payment here. (End of Form of Bond) 7 6. Delivery; Application of Proceeds; Legal Opinion. The Bonds, when prepared and executed as hereinafter described, shall be delivered by the City Finance Director to the Purchasers upon receipt of the purchase price and the Purchasers shall not be obligated to see to the proper application thereof. The City Finance Director shall obtain a copy of the proposed approving legal opinion of bond counsel for the Bonds, Briggs and Morgan, Professional Association St. Paul, Minnesota, and shall cause such opinion to be filed in the offices of the City. 7. Execution. The Bonds shall be executed on behalf of the City by the manual signatures of Mayor and City Administrator and shall be duly registered by the manual signature of the City Finance Director as Bond Registrar. The official seal of the City shall be impressed on the Bonds. The Bonds, when fully executed and sealed, shall be delivered by the City Finance Director to the Purchaser, and the Purchaser shall not be obligated to see to the proper application of the proceeds thereof. 8. Fund and Accounts. In order to provide for the proper administration of all funds which are derived from the operation of the Municipal the Liquor Stores, the City Finance Director has heretofore established and shall continue to maintain a Liquor Store Fund (the "Fund") which shall remain a separate fund of the City subject to the following separate accounting: () Proiect Account. To the Project Account within the Liquor Store Fund there shall be deposited the proceeds from the sale of the Bonds. From the Project Account shall be paid all costs of the Project including legal, engineering, financing and other such expenses incidental thereto. The City hereby covenants to complete the Liquor Store and hereby appropriates such other funds of the City as may be necessary to do so, because the proceeds of the Bonds are insufficient for that purpose. Any balance remaining in the Project Account after the payment of such costs shall be transferred to the Operation and Maintenance Account described below. () Operation and Maintenance Account. To the Operation and Maintenance Account within the Liquor Store Fund shall be paid all revenues and receipts from the operation of the Liquor Store, including all revenues derived from the operation of the Existing Liquor Store (collectively, the "Gross Revenues"). From this account there shall be paid all, but only, current expenses of the Municipal Liquor Stores. Current expenses shall include the reasonable and necessary costs of administering, operating, maintaining and insuring the Municipal Liquor Stores, the cost of salaries, wages, merchandise sold and other similar items, costs of materials and supplies, necessary legal, engineering and auditing services, and all other items which, by sound accounting practices constitute normal, reasonable and current costs of operation and maintenance, but excluding any allowance for depreciation, extraordinary repairs and payments into the Debt Service Account. All money remaining in the Operation and Maintenance Account, after paying or providing for the foregoing items, shall constitute and are referred to in this resolution as "Net Revenues." ( ) Debt Service Account. To the Debt Service Account within the Liquor Store Fund there shall be credited such amounts of Net Revenues as shall be necessary 8 from time to time to make full and timely payment of the debt service on the Bonds, and said funds, when deposited into the Debt Service Account, are irrevocably pledged for such purposes. () Excess Net Revenues. Net Revenues in excess ofthose required for the foregoing purposes may be used for any proper purpose of the City, including without limitation capital and other costs of the Municipal Liquor Stores operation. Any proceeds of the Bonds and any sums from time to time held in the Debt Service Account 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 Liquor Store 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 or any other bonds payable from the Debt Service Account to be "federally guaranteed" within the meaning of Section 149(b) of the Internal Revenue Code of 1986, as amended (the "Code"). 9. Covenants as to Maintenance. Rates and Charges. Sale. Insurance. Etc. The City hereby certifies and represents to, and covenants and agrees with, the Owners from time to time of the Bonds as follows: ( ) The City will complete and continue its ownership and operation of the Municipal Liquor Stores as revenue producing facilities and convenience, in the manner authorized and subject to the restrictions imposed by Minnesota Statutes, the laws of the State of Minnesota, including Minnesota Statutes, Section 340A.601, relating to elections on the licensing of intoxicating liquors. The City will maintain the Municipal Liquor Stores, their furnishings, equipment and merchandise in good condition, and free from all liens, provided that purchase money liens may be created on merchandise acquired for resale, or such merchandise may be acquired subject to liens existing at the time of acquisition. It should be noted that Minnesota Statutes, Section 426.20, would require the City Council to hold a public hearing as a condition to appropriating City funds, other than revenues ofthe Municipal Liquor Stores, to cover any shortfall of revenues necessary for operation costs, but this provision shall not apply to appropriations which may need to be made by the City in order to complete the Liquor Store and any other expenses expressly excepted by the foregoing Section of the Minnesota Statutes. It should also be noted that Minnesota Statues, Section 340A.602, requires that if the Municipal Liquor Stores operate at a loss for any two out of any three consecutive years, the City Council is required to conduct a public hearing on the question of whether or not the City should submit to voter referendum the question of the City's continued operation of the Municipal Liquor Stores; alternatively, a 5% voter petition may also call a referendum on that question in those circumstances. () If any properties constituting capital assets of the Municipal Liquor Stores shall be sold and disposed of, it shall be only at their fair market value, and the proceeds of such sale or disposition shall be used either to produce other capital assets for the 9 Municipal Liquor Stores or deposited into the Operation and Maintenance Account. No such sale or sales shall be made at times or prices such as to imperil the prompt and full payment of the Bonds. ( ) The City will procure and keep in force insurance on the Municipal Liquor Stores and the equipment and furnishings thereof and all stocks of merchandise, protecting against loss or damage by fire, tornado, windstorm, flood, theft and all other causes customarily insured against for like properties. In the event of loss covered by said insurance policies or bonds, the proceeds shall be used to repair or restore the damage or to retire bonds payable from the revenues of the Municipal Liquor Stores. ( ) The City will further keep in force a liability insurance policy (covering its operation of the Municipal Liquor Stores). Said policy shall specifically provide for the payment by the insurance company on behalf of the insured of all sums which the City shall be obligated to pay by reason of liability imposed upon it by law for injuries or damage to persons, other than employees, including liability imposed by reason of Minnesota Statutes, Section 340A.801. The City shall annually provide to each bondholder certificates or other suitable documentary proofs showing that the insurance coverages specified in (c) and (d) of this paragraph 9 are being maintained. ( ) The City will cause proper and adequate books and records of account to be kept separate from all other records of the City, reflecting all receipts and disbursements relating to the Municipal Liquor Stores and their operation. All of said books and records shall be open to inspection and copying at all reasonable times by the Owners of the Bonds, and the City will, without cost, furnish copies of any portions thereof reasonably requested by any bondholder. The City will cause annual operating statements to be prepared and an independent audit of the books of the Municipal Liquor Stores to be made by a competent public accountant, and will furnish a copy thereof without cost to each bondholder. () The Gross and Net Revenues ofthe Municipal Liquor Stores will be used and applied only as prescribed in this Resolution. The City will at all times maintain operating policies concerning the purchase and sale of merchandise and do and perform all other acts and things necessary to assure that the Net Revenues will be at least sufficient to pay the principal and interest on the Bonds. ( ) Each and all of the foregoing provisions of this Resolution which in any way tend to secure or assure prompt and full payment of the principal of and interest on the Bonds will be promptly and faithfully performed and carried out by the City and its officers and agents. 10. Additional Bonds. The City reserves the right to issue additional bonds payable from the Debt Service Account and secured by the covenants set forth in this Resolution on the terms and conditions specified in this paragraph. () Purpose of Bonds: Net Revenues. Additional bonds may be issued only to finance the acquisition and betterment of improvements or additions to the Municipal 10 Liquor Stores, including necessary maintenance equipment, or to refund bonds issued for such purposes. All revenues derived from any such improvements or additions shall be Net Revenues of the Municipal Liquor Stores and subject to the provisions of paragraph 8. ( ) Parity Lien Bonds. Such additional bonds may be made payable from the Debt Service Account and the Net Revenues pledged thereto on a parity as to both principal and interest with all other bonds payable therefrom only if: (0) in the last complete fiscal year of the City immediately preceding the issuance ofthe bonds, the amount of Net Revenues was: (A) equal to not less than 125% of the total amount of principal and interest to become due in any future fiscal year on all outstanding bonds payable from the Debt Service Account and all additional bonds to be issued, but excluding any bonds to be refunded by such additional bonds; and (B) sufficient to pay when due all costs and expenses payable from the Operation and Maintenance Account in such last complete fiscal year; provided that for purposes of this paragraph the Net Revenues for any fiscal year may be increased to reflect any increase in the rates and charges which have been put into effect prior to the issuance of any additional bonds but were not in effect for all of such last complete fiscal year; and (0) the bonds are not made subject to redemption on a date prior to any outstanding bonds payable from the Debt Service Account or, if the bonds are refunding bonds, on a date prior to the one which the refunded bonds were subject to redemption; (0) in the case of refunding bonds, if an escrow fund is to be established, the City obtains a report of an independent certified public accountant that the moneys and securities on hand in the escrow account are sufficient to pay the applicable debt service obligations of the refunded bonds on their stated maturity dates and/or any date on which such obligations have been or are to be called for prior redemption and prepayment; and the City obtains an opinion of nationally recognized bond counsel stating that the issuance of the additional bonds will not cause the interest on any bonds payable from the Debt Service Account to be includible in gross income for federal tax purposes; and (0) the City is not in default under this Resolution or any other resolution authorizing the issuance of any outstanding bonds payable from the Debt Service Account. 11. Subordinate Lien Bonds. Except as provided in paragraph 10, all additional bonds shall be payable from the Net Revenues after the requirements of paragraph 8 are met, and such additional bonds described in this paragraph shall be wholly junior and subordinate to the pledge and appropriation of such Net Revenues to the Bonds. 12. Debt Service Coverage. It is hereby determined and reasonably anticipated that the estimated collections of the revenues available to the Debt Service Account will produce at 11 least 5% in excess of the amount needed to meet, when due, the principal of and interest on the Bonds. 13. 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 ofthe 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. 14. Tax-Exempt Bond Covenants. The City covenants and agrees with the Owners from time to time of the Bonds that the City will not use the proceeds of the Bonds or the Project, or cause or permit the same to be used, in such a manner, and will not take or permit to be taken by any of its officers, employees, or agents any action, which would (a) cause the interest on the Bonds to become subject to taxation under the Internal Revenue Code of 1986, as amended (the "Code"), or (b) cause the Bonds to be "private activity bonds" within the meaning of Sections 103 and 141 through 150 of the Code, and regulations issued thereunder, as now existing or as hereafter amended or proposed and in effect at the time of such action, and that the City will take, or it will cause to be taken, all affirmative actions within its power which may be necessary to insure that such interest will not become subj ect to income taxation and that the Bonds will not be private activity bonds under the Code. In particular, but without limitation, the City covenants to forebear the implementation, effectuation or enforcement of any and all contracts or other agreements respecting the Project, or any property benefitted thereby or assessed with respect thereto, which the City may now or in the future have with users, managers, developers, contractors, owners or any other person or parties to the extent that such implementation, effectuation or enforcement would (individually or in the aggregate) cause the Bonds to become such a "private activity bonds," and to said limited extent the City would and hereby does (solely for the benefit ofthe Owners ofthe Bonds) disavow any and all such provisions, entitlements and enforcements which would or could become so offending. Without limitation of the foregoing, the City shall not enter into any lease, use agreement, management or operation contract or other agreement respecting the Project which would adversely affect the exemption from federal income tax of the interest on the Bonds, taking into account and observing the requirements of Revenue Procedure 97-13 of the Internal Revenue Service and any similar or other applicable revenue procedures or guidelines relating to leases, management contracts and service contracts involving facilities financed with tax-exempt obligations. 15. 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 (1) requirements relating to temporary periods for investments, (2) limitations on amounts invested at a yield greater than the yield on the Bonds, and (3) the rebate of excess investment 12 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 small issuer exception to the federal arbitrage rebate requirements, the City hereby finds, determines and declares that the aggregate face amount of all tax -exempt bonds (other than private activity bonds) issued by the City (and all subordinate entities of 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. 16. Designation of Qualified Tax-Exempt Obligations. The City hereby designates the Bonds as a "qualified tax-exempt obligations" within the meaning of Section 265(b)(3) of the Code, the City hereby represents that: () 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 subordinate to, or treated as one issuer with, the City) during calendar year 2005 will not exceed $10,000,000; and ( ) not more than $10,000,000 of obligations issued or to be issued by the City during calendar year 2005 have been designated for purposes of Section 265(b )(3) of the Code. 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. 17. Defeasance. When any obligation of the Bonds have been discharged as provided in this paragraph, all pledges, covenants and other rights granted by this Resolution to the registered owner of the Bonds (with respect to the obligation thereof so defeased) shall, to the extent permitted by law, cease. The City may at any time discharge any or all of such obligation(s) with respect to the Bonds, subject to the provisions oflaw now or hereafter authorizing or regulating such action, by depositing irrevocably in escrow, with a suitable institution qualified by law as an escrow agent for this purpose, cash or securities which are backed by the full faith and credit of the United States of America, bearing interest payable at such times and at such rates and maturing on such dates and in such amounts as shall be required and sufficient, subject to sale and/or reinvestment in like securities, to pay said obligation(s), which may include any interest payment on such Bonds and/or principal amount due thereon at a stated maturity (or if irrevocable provision shall have been made for permitted prior redemption of such principal amount, at such earlier redemption date). 18. Compliance With Reimbursement Bonds Regulations. With respect to the Liquor Store, the City has complied and will continue to comply with the "Reimbursement Regulations" provided in United States Treasury Regulations Section 1.150-2. In particular, except where the following may not be required by said Regulations (e.g., with respect to certain "preliminary expenditures"), to the extent that any of the proceeds of the Bonds will be used to reimburse the City for a cost of the Liquor Store theretofore paid and temporarily financed by the City out of other City funds, prior to the initial payment thereof (or within applicable time limits thereafter) the City has made or will have made a duly qualifying statement of its official intent to bond for 13 such costs, and will thereafter comply with the requirements of the Reimbursement Regulations (e.g., the requirements applicable to the reimbursement allocation thereunder); otherwise, the proceeds of the Bonds are to be used for initial payment, and not for such reimbursement, of costs of the Liquor Store. 19. 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. 20. Headings. Headings in this Resolution are included for convenience of reference only 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. 14 STATE OF MINNESOTA COUNTY OF SHERBURNE CITY OF ELK RNER I, the undersigned, being the duly qualified and acting City Clerk of the City of Elk River, 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 awarding the sale of $1,200,000 Liquor Store Revenue Bonds, Series 200SC. WITNESS my hand on June , 2005. City Clerk 15