The Taconite Capital of the World

City of Mountain Iron, Minnesota



Resolution 27-02 Issuing Bonds

RESOLUTION NUMBER 27-02

PROVIDING FOR THE ISSUANCE, SALE AND DELIVERY OF $855,000 GENERAL OBLIGATION WATER REVENUE BONDS OF 2002 OF THE CITY OF MOUNTAIN IRON, MINNESOTA, TO PAY A PORTION OF THE COSTS OF UTILITY IMPROVEMENTS; ESTABLISHING THE TERMS AND CONDITIONS THEREFOR; CREATING A CONSTRUCTION ACCOUNT AND A DEBT SERVICE FUND THEREFOR; AND AWARDING THE SALE THEREOF

BE IT RESOLVED, by the Council (the “Council”) of the City of Mountain Iron, St. Louis County, Minnesota (the “Issuer”), as follows:

Section 1. Purpose, Authorization, and Award.

1.01 Authority.

A. Pursuant to authority contained in Minnesota Statutes, Section 444.075 and Chapter 475, the Council does hereby direct the issuance and sale of $855,000 General Obligation Water Revenue Bonds of 2002 of the Issuer dated August 1, 2002 (the “Bonds”), for the purpose of providing funds for the financing of a portion of the construction cost of improvements to the Issuer�s water distribution facilities (the “Water Utility”) (said improvements are herein referred to as the “Project”), expenses incurred by the Issuer related to the issuance of the Bonds and a portion of the interest cost of the Bonds.

B. As further described below, the Bonds are payable from net revenues of the Water Utility and the Issuer�s sewer utility (the “Sewer Utility”). (The Water Utility and the Sewer Utility are collectively referred to herein as the “Utilities.”)

1.02 Independent Financial Advisor. The Issuer has obtained the independent opinion of Juran & Moody, a Division of Miller Johnson Steichen Kinnard as to the fairness of the interest rates payable by the Issuer with respect to the Bonds.

1.03 Sale of the Bonds. Pursuant to Section 475.60, Subdivision 2(9) of the Act, which waives the requirement for a public sale of bonds when an issuer has retained an independent financial advisor, the Issuer has received an offer from ____________________________________ of ___________, __________ (the “Purchaser”), to purchase the Bonds at a cash price of $__________, plus accrued interest on the total principal amount from August 1, 2002, to the date of delivery of the Bonds (the “Accrued Interest”) and upon condition that the Bonds mature and bear interest at the times and annual rates set forth in Section 2. The Issuer, after due consideration, finds such offer reasonable and proper and the offer of the Purchaser is hereby accepted. The Mayor and the Administrator are authorized and directed to execute on the part of the Issuer a contract for the sale of the Bonds in accordance with the Purchaser�s proposal. All actions of the Mayor and the Administrator taken with regard to the sale of the Bonds are hereby ratified and approved.

Section 2. Terms of the Bonds.

2.01 Date and Maturities. A. Serial Maturities. The Bonds to be issued hereunder shall be dated August 1, 2002, as the date of original issue, shall be issued in the denomination of $5,000 each, or any integral multiple thereof, in fully registered form and lettered and numbered R-1 and upward. The Bonds shall bear interest at the annual rates and shall mature on December 1 in the years and amounts shown below:

Year Amount Interest Rate 
2003 25,000 
2004 25,000 
2005 25,000 
2006 30,000 
2007 30,000 
2008 35,000 
2009 35,000 
2010 35,000 
2011 40,000 
2012 40,000 
2013 40,000 
2014 45,000 
2015 45,000 
2016 50,000 
2017 50,000 
2018 55,000 
2019 60,000 
2020 60,000 
2021 65,000 
2022 65,000 

B. Term Bonds. The Bonds maturing on December 1 in the year 20__ shall be subject to mandatory redemption prior to maturity pursuant to the requirements of this Section 2.01B at a redemption price equal to the stated principal amount thereof plus interest accrued thereon to the redemption date, without premium. The Bond Registrar, as designated below, shall select for redemption, by lot or other manner deemed fair, on December 1 in each of the following years the following stated principal amounts:

For Bonds maturing on December 1, 20__ (the “Term Bonds”):

Year Amount 
20__ $______ 
20__ $______ 

The remaining $______ stated principal amount of the Term Bonds shall be paid at maturity on December 1, 20__.]

2.02 Redemption. A. The Bonds maturing in the years 2002 through 2010 shall not be subject to redemption and prepayment before maturity, but those maturing, or subject to mandatory redemption, in the year 2011 and in subsequent years shall each be subject to redemption and prepayment at the option of the Issuer on December 1, 2010, and on any date thereafter, in whole or in part, and if in part, at the option of the Issuer and in such manner as the Issuer shall determine.

B. In the event any of the Bonds are called for redemption, notice thereof identifying the Bonds to be redeemed will be given by the Bond Registrar by mailing a copy of the redemption notice by first class mail (postage prepaid) at least 30 days, but not more than 60 days prior to the date fixed for redemption to the registered owner of each Bond to be redeemed at the address shown on the registration books kept by the Bond Registrar; provided however, that so long as the Bonds are registered in the name of Cede & Co. as nominee of The Depository Trust Company, New York, New York (“DTC”), notice of redemption shall be given in accordance with the terms of the Representation Letter hereinafter described. Failure to give notice by mail to any registered owner, or any defect therein, will not affect the validity of any proceeding for the redemption of Bonds not affected by such defect or failure. Bonds so called for redemption will cease to bear interest after the specified redemption date, provided that the funds for the redemption are on deposit with the place of payment at that time.

C. If less than all the Bonds of a maturity are called for redemption while the Bonds are registered in the name of Cede & Co., the Issuer or the Bond Registrar designated below will notify DTC of the particular amount of such maturity to be prepaid. DTC will determine by lot the amount of each participant�s interest in such maturity to be redeemed and each participant will then select by lot the beneficial ownership interest in such maturity to be redeemed. If less than all the Bonds of a maturity are called for redemption and the Bonds are not registered in the name of Cede & Co., the Bond Registrar will determine by lot or other manner deemed fair, the amount of each maturity to be redeemed. All prepayments shall be at a price equal to the principal amount thereof plus accrued interest.

2.03 Interest Payment Dates. The Bonds shall bear interest at the annual rates stated therefor in Section 2.01. The interest shall be payable semiannually on June 1 and December 1 in each year (each referred to herein as an “Interest Payment Date”) commencing on December 1, 2002. Interest will be computed upon the basis of a 360-day year of twelve 30-day months and will be rounded pursuant to the rules of the Municipal Securities Rulemaking Board. The Bond Registrar designated below shall make all interest payments with respect to the Bonds by check or draft mailed to the registered owners of the Bonds shown on the bond registration records maintained by the Bond Registrar at the close of business on the 15th day (whether or not on a business day) of the month next preceding the Interest Payment Date at such owners� addresses shown on such bond registration records.

2.04 Preparation. The Bonds shall be prepared for execution in accordance with the approved form and shall be signed by the manual or facsimile signature of the Mayor and attested by the manual or facsimile signature of the Administrator. The approving legal opinion of Fryberger, Buchanan, Smith & Frederick, P.A. shall be appended to each Bond. The corporate seal of the Issuer may be omitted from the Bonds as permitted by law. In case any officer whose signature or a facsimile of whose signature shall appear on the Bonds shall cease to be an officer before delivery of the Bonds, such signature or facsimile shall nevertheless be valid and sufficient for all purposes, the same as if he or she had remained in office until delivery.

2.05 Appointment and Duties of Bond Registrar. A. The Council hereby appoints U.S. Bank National Association in St. Paul, Minnesota, as registrar, authenticating agent, paying agent and transfer agent for the Bonds (such bank or its successors is herein referred to as the “Bond Registrar”). No Bond shall be valid or obligatory for any purpose unless or until either (i) the Bond Registrar�s authentication certificate on such Bond, substantially set forth in Section 3.01 hereof, shall have been duly executed by an authorized representative of the Bond Registrar or (ii) the Bonds have been manually executed by at least one officer of the Issuer. Authentication certificates on different Bonds need not be signed by the same representative. The executed Authentication Certificate or the manual signature of at least one officer of the Issuer on each Bond shall be conclusive evidence that it has been authenticated and delivered under this Resolution.

B. The Issuer shall cause to be kept by the Bond Registrar a bond register in which, subject to such reasonable regulations as the Bond Registrar may prescribe, the Issuer shall provide for the registration of the Bonds and the registration of transfers of the Bonds entitled to be registered or transferred as herein provided. In the event of the resignation or removal of the Bond Registrar or its incapability of acting as such, the bond registration records shall be maintained at the office of the successor Bond Registrar as may be appointed by the Council.

C. Upon surrender for transfer of any Bond at the principal corporate office of the Bond Registrar, the Issuer shall execute and the Bond Registrar shall authenticate, if required by law or this Resolution, and deliver, in the name(s) of the designated transferee or transferees, one or more new Bonds of the like aggregate principal amount, as requested by the transferor.

D. Each Bond delivered upon transfer of or in exchange for or in lieu of any other Bond shall carry all of the rights to interest, accrued and unpaid and to accrue, which are carried by such other Bond. Each Bond shall be dated by the Bond Registrar as of the date of its authentication or manual execution, as the case may be. The Issuer and the Bond Registrar shall not be required to make any transfer or exchange of any Bonds called for redemption or to make any such exchange or transfer of the Bonds during the 15 days next preceding the date of mailing of notice of redemption in the case of a proposed redemption of the Bonds.

2.06 Book Entry System. A. In order to make the Bonds eligible for the services provided by DTC, the Issuer agrees to the applicable provisions set forth in the Blanket Issuer Letter of Representations to be executed by the Issuer and DTC (the “Representation Letter”).

B. All of the Bonds shall be registered in the name of Cede & Co., as nominee for DTC. Payment of interest on and principal of any Bond registered in the name of Cede & Co. shall be made by wire transfer or New York Clearing House or equivalent same day funds by 10:00 a.m. CT or as soon as possible thereafter following the Bond Registrar�s receipt of funds from the Issuer on each Interest Payment Date to the account of Cede & Co. on each Interest Payment Date at the address indicated in or pursuant to the Representation Letter.

C. Additional matters with respect to, among other things, notices, consents and approvals by Bondholders and payments on the Bonds are set forth in the Representation Letter.

2.07 Lost or Damaged Bonds. If a Bond becomes mutilated or is destroyed, stolen, or lost, the Bond Registrar will deliver a new Bond of like amount, number, maturity date, and tenor in exchange and substitution for and upon cancellation of the mutilated Bond or in lieu of and in substitution for any Bond destroyed, stolen, or lost, upon the payment of the reasonable expenses and charges of the Bond Registrar and the Issuer in connection therewith, including the cost of printing new Bonds; and, in the case of a Bond destroyed, stolen, or lost, upon filing with the Bond Registrar and the Issuer of evidence satisfactory to it and the Issuer that the Bond was destroyed, stolen, or lost, and of the ownership thereof, and upon furnishing to the Bond Registrar of an appropriate bond or indemnity in form, substance, and amount satisfactory to it and the Issuer and as provided by law, in which both the Issuer and the Bond Registrar must be named as obligees. Bonds so surrendered to the Bond Registrar will be canceled by the Bond Registrar and evidence of such cancellation must be given to the Issuer. If the mutilated, destroyed, stolen, or lost Bond has already matured or been called for redemption in accordance with its terms, it is not necessary to issue a new Bond prior to payment.

2.08 Payment of Bonds. A. The Issuer and the 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 interest on such Bond and for all other purposes whatsoever, whether or not such Bond be overdue, and neither the Issuer nor the Bond Registrar shall be affected by notice to the contrary.

B. The principal of and interest on the Bonds shall be payable by the Bond Registrar in such funds as are legal tender for the payment of debts due the United States of America. The Issuer shall pay the reasonable and customary charges of the Bond Registrar for the disbursement of principal and interest.

2.09 Delivery. Delivery of the Bonds and payment of the purchase price shall be made at a place mutually satisfactory to the Issuer and the Purchaser. Printed or typewritten, and executed Bonds shall be furnished by the Issuer without cost to the Purchaser. The Bonds, when prepared in accordance with this Resolution and executed, shall be delivered by or under the direction of the Finance Director to the Purchaser upon receipt of the purchase price plus accrued interest.

Section 3. Form of the Bonds.

3.01 The Bonds shall be printed or typewritten in substantially the following form:

UNITED STATES OF AMERICA

STATE OF MINNESOTA

COUNTY OF ST. LOUIS

R-__ $_______

CITY OF MOUNTAIN IRON

GENERAL OBLIGATION WATER

REVENUE BONDS OF 2002

Rate Maturity Date Date of Original Issue CUSIP 
% December 1, 20___ August 1, 2002 

REGISTERED OWNER: CEDE & CO.

PRINCIPAL AMOUNT: DOLLARS

The City of Mountain Iron, St. Louis County, Minnesota (the “Issuer”), for value received, promises to pay to the registered owner specified above, or registered assigns, the principal amount specified above, on the maturity date specified above, and to pay interest on said principal amount to the registered owner hereof from the date of original issue set forth above, or from the most recent Interest Payment Date to which interest has been paid or duly provided for, until the principal amount is paid, said interest being at the rate per annum specified above. Interest is payable semiannually on June 1 and December 1 of each year (each referred to herein as an “Interest Payment Date”) commencing on December 1, 2002. Both principal hereof and interest thereon are payable in lawful money of the United States of America by check or draft at the main office of U.S. Bank National Association, in St. Paul, Minnesota, as bond registrar, authenticating agent, paying agent and transfer agent (the “Bond Registrar”), or at the office of such successor Bond Registrar as may be designated by the Council. The Bond Registrar shall make all interest payments with respect to this Bond directly to the registered owner hereof shown on the bond registration records maintained on behalf of the Issuer by the Bond Registrar at the close of business on the 15th day of the month next preceding the Interest Payment Date (whether or not a business day) at such owner�s address shown on said bond registration records, without, except for payment of principal of this Bond, the presentation or surrender of this Bond, and all such payments shall discharge the obligation of the Issuer to the extent of the payments so made. Payment of principal shall be made upon presentation and surrender of this Bond to the Bond Registrar when due. For the prompt and full payment of such principal and interest as they become due, the full faith and credit and taxing power of the Issuer are irrevocably pledged. The Issuer has designated the Bonds of this series as “qualified tax-exempt obligations” pursuant to Section 265(b)(3) of the Internal Revenue Code of 1986, as amended.

This Bond is one of a series issued by the Issuer in the aggregate amount of $855,000, all of like date and tenor, except as to number, maturity date, denomination, redemption privilege and interest rate, pursuant to the authority contained in: (i) Minnesota Statutes, Section 444.075 and Chapter 475 and all other laws thereunto enabling and (ii) an authorizing resolution adopted by the governing body of the Issuer on June 17, 2002 (the “Resolution”), for the purpose of providing funds for the financing of a portion of the construction cost of improvements to the Issuer�s drinking water distribution utility. The principal and interest on the Bonds will be payable primarily from net revenues to be derived from operation of the Issuer�s wastewater and drinking water utilities (the “Utilities”) in excess of normal, reasonable and current costs of the operation and maintenance of said utilities, which net revenues are sufficient to pay the interest on and principal of the Bonds as the same become due and payable. The Issuer has covenanted and agreed in the Resolution that it will impose and collect just and equitable charges for all use and for the availability of all facilities of the Utilities at the times and in the amounts required to pay the normal, reasonable and current expenses of operating and maintaining said utilities, and also to produce net revenues which will be at least adequate at all times to pay the principal and interest due on the Bonds. Reference is hereby made to the Resolution for a full statement of rights and powers thereby conferred.

The Bonds maturing in the year 20__ shall be subject to mandatory redemption and redeemed in installments as provided in the Resolution, at par plus accrued interest to the date of redemption.]

The Bonds of this series maturing in the years 2003 through 2010 are not subject to redemption before maturity, but those maturing, or subject to mandatory redemption in the year 2011 and in subsequent years are each subject to redemption and prepayment at the option of the Issuer on December 1, 2010, and on any date thereafter, in whole or in part, and if in part at the option of the Issuer and in such manner as the Issuer shall determine and by lot as to Bonds maturing in the same year, at a price of par plus accrued interest.

Not less than 30 days nor more than 60 days prior to the date fixed for redemption and prepayment of any Bonds, notice of redemption shall be mailed to each registered owner of a Bond to be redeemed; however, that so long as the Bonds are registered in the name of Cede & Co., as nominee for The Depository Trust Company, New York, New York (“DTC”), notice of redemption shall be given in accordance with the terms of the Blanket Issuer Letter of Representations executed by the Issuer and DTC.

If less than all the Bonds of a maturity are called for redemption while the Bonds are registered in the name of Cede & Co., the Issuer or the Bond Registrar designated below will notify DTC of the particular amount of such maturity to be prepaid. DTC will determine by lot the amount of each participant�s interest in such maturity to be redeemed and each participant will then select by lot the beneficial ownership interest in such maturity to be redeemed. If less than all the Bonds of a maturity are called for redemption and the Bonds are not registered in the name of Cede & Co., the Bond Registrar will determine by lot or other manner deemed fair, the amount of each maturity to be redeemed. All prepayments shall be at a price equal to the principal amount thereof plus accrued interest. If any Bond is redeemed in part, upon surrender of the Bond being redeemed, the Issuer shall deliver or cause to be delivered to the registered owner of such Bond, a Bond in like form in the principal amount equal to that portion of the Bond so surrendered not being redeemed.

The Bonds of this series are issued as fully registered bonds without coupons, in the denomination of $5,000 or any integral multiple thereof. The Issuer will, at the request of the registered owner, issue one or more new fully registered bonds in the name of the registered owner in the aggregate principal amount equal to the unpaid principal balance of this Bond, all of like tenor except as to number and principal amount. This Bond is transferable by the registered owner hereof upon surrender of this Bond for transfer at the principal corporate office of the Bond Registrar, duly endorsed or accompanied by a written instrument of transfer in form satisfactory to the Bond Registrar and executed by the registered owner hereof or the owner�s attorney duly authorized in writing. Thereupon the Issuer shall execute and the Bond Registrar shall authenticate, if required by law or the Resolution, and deliver, in exchange for this Bond, one or more new fully registered bonds in the name of the transferee of an authorized denomination, an aggregate principal amount equal to the unpaid principal amount of this Bond, of the same maturity, and bearing interest at the same rate. No service charge shall be made for any transfer or exchange hereinbefore referred to, but the Issuer may require payment of a sum sufficient to cover any tax or other governmental charge payable in connection therewith.

IT IS CERTIFIED AND RECITED that all acts and conditions required by the laws and the Constitution of the State of Minnesota to be done and to exist precedent to and in the issuance of this Bond, in order to make it a valid and binding general obligation of the Issuer in accordance with its terms, have been done and do exist in form, time and manner as so required; that all taxable property within the limits of the Issuer is subject to the levy of ad valorem taxes to the extent needed to pay the principal hereof and the interest hereon when due, without limitation as to rate or amount and that the issuance of this Bond does not cause the indebtedness of the Issuer to exceed any constitutional or statutory limitation.

This Bond shall not be valid or become obligatory for any purpose or be entitled to any security or benefit under the Resolution until either (i) the Bond Registrar�s Authentication Certificate hereon shall have been executed by the Bond Registrar by one of its authorized representatives or (ii) the Bond has been manually executed by at least one officer of the Issuer.

IN WITNESS WHEREOF, the City of Mountain Iron, St. Louis County, Minnesota, by its governing body, has caused this Bond to be executed in its name by the [facsimile or manual] signature of the Mayor and attested by the [facsimile or manual] signature of the Administrator.

_________________________ 

Administrator Mayor

BOND REGISTRAR�S AUTHENTICATION CERTIFICATE

The Bond Registrar confirms that the books reflect the ownership of this Bond registered in the name of the owner named above in the principal amount and maturing on the date stated above and this Bond is one of the Bonds of the series issued pursuant to the Resolution hereinabove described.

U.S. BANK NATIONAL ASSOCIATION

By 

Authorized Representative

REGISTRATION CERTIFICATE

This Bond must be registered as to both principal and interest in the name of the owner on the books to be kept by U.S. Bank National Association, of St. Paul, Minnesota, as Bond Registrar. No transfer of this Bond shall be valid unless made on said books by the registered owner or the owner�s attorney thereunto duly authorized and similarly noted on the registration books. The ownership of the unpaid principal balance of this Bond and the interest accruing thereon is registered on the books of U.S. Bank National Association, as Bond Registrar, in the name of the registered owner last noted below.

Date Registered Owner Signature of Bond Registrar 
8/__/02 Cede & Co.
c/o The Depository Trust Company

55 Water Street

New York, NY 10041

Federal Taxpayer I.D. No.: 13-2555119

ASSIGNMENT

FOR VALUE RECEIVED, the undersigned sells, assigns and transfers unto _________________________________________

____________________________

_____________________________

(Name and Address of Assignee)

Social Security or Other

Identifying Number of Assignee

the within Bond and all rights thereunder and does hereby irrevocably constitute and appoint attorney to transfer the said Bond on the books kept for registration thereof with full power of substitution in the premises.

Dated: 

________________________ 

________________________

NOTICE: The signature to this assignment must correspond with the name of the registered owner as it appears upon the face of the within Bond in every particular, without alteration or enlargement or any change whatsoever.

Signature Guaranteed:

(Bank, Trust Company, member of

National Securities Exchange)

Section 4. Covenants, Funds and Accounts.

4.01 Sewer Fund. The Issuer covenants and agrees with the holders of the Bonds and with its taxpayers as follows:

A. It will impose and collect just and equitable charges for all use and for the availability of all facilities of the Sewer Utility at the times and in the amounts required to pay the normal, reasonable, and current expenses of operating and maintaining such Sewer Utility, and also to produce net revenues, which along with net revenues of the Water Utility, will be at least adequate at all times to pay the principal and interest due on the Bonds and on all other notes and bonds heretofore or hereafter issued and made payable from said net revenues, and will operate the Sewer Utility and segregate and account for the revenues thereof as provided in this Section.

B. It will place all such charges for the use and availability of the Sewer Utility, when collected, and all money received from the sale of any facilities or equipment of the Sewer Utility in the Sewer Fund (the “Sewer Fund”). Except as provided in this Section, this fund shall be used only to pay claims duly approved and allowed for payment of expenses which, under generally accepted accounting principles, constitute normal, reasonable, and current expenses of operating and maintaining the Sewer Utility, and to maintain such reasonable reserves for such expenses as the Council shall determine to be necessary from time to time. Sums in excess of those required to make such payments and maintain such reserves constitute the net revenues which are herein pledged and appropriated first to pay the principal of and interest when due on the Bonds.

C. Surplus Sewer Utility revenues from time to time received in the Sewer Fund, in excess of payments due from and reserves required to be maintained in the Sewer Fund and in the Debt Service Fund, may be used for necessary capital expenditures for the improvement of the Sewer Utility, for the prepayment and redemption of notes and bonds constituting a lien on the Sewer Utility or the Water Utility, and for any other proper municipal purpose consistent with policies established by resolution of the Council.

4.02 Water Fund. The Issuer covenants and agrees with the holder of the Bonds and with its taxpayers as follows:

A. It will impose and collect just and equitable charges for all use and for the availability of all facilities of the Water Utility at the times and in the amounts required to pay the normal, reasonable, and current expenses of operating and maintaining such Water Utility, and also to produce net revenues, which along with net revenues of the Sewer Utility, will be at least adequate at all times to pay the principal and interest due on the Bonds and on all other notes and bonds heretofore or hereafter issued and made payable from said net revenues, and will operate the Water Utility and segregate and account for the revenues thereof as provided in this Section.

B. It will place all such charges for the use and availability of the Water Utility, when collected, and all money received from the sale of any facilities or equipment of the Water Utility in the Water Fund (the “Water Fund”). Except as provided in this Section, this fund shall be used only to pay claims duly approved and allowed for payment of expenses which, under generally accepted accounting principles, constitute normal, reasonable, and current expenses of operating and maintaining the Water Utility, and to maintain such reasonable reserves for such expenses as the Council shall determine to be necessary from time to time. Sums in excess of those required to make such payments and maintain such reserves constitute the net revenues which are herein pledged and appropriated first to pay the principal of and interest when due on the Bonds.

C. Surplus Water Utility revenues from time to time received in the Water Fund, in excess of payments due from and reserves required to be maintained in the Water Fund and in the Debt Service Fund, may be used for necessary capital expenditures for the improvement of the Water Utility, for the prepayment and redemption of notes and bonds constituting a lien on the Water Utility or the Sewer Utility, and for any other proper municipal purpose consistent with policies established by resolution of the Council.

4.03 Construction Account. On receipt of the purchase price of the Bonds, the Issuer shall credit the proceeds from the sale of the Bonds, less capitalized interest funded from the proceeds of the Bonds (the “Capitalized Interest”), less the amount used to pay part of the interest cost of the issue as allowed by Minnesota Statutes, Section 475.56 (the “Additional Interest”) and less the Accrued Interest to a separate construction account, which is hereby created and designated as the “2002 Water Revenue Bonds Construction Account” (the “Construction Account”). Proceeds from the Bonds on deposit in the Construction Account shall be used from time to time to pay, or reimburse the Issuer for payment of, the capital costs of the Project and costs of issuance of the Bonds, as such become due.

4.04 Debt Service Fund.

A. A separate debt service fund is hereby created and is designated as the “2002 Water Revenue Bonds Debt Service Fund” (the “Debt Service Fund”). The moneys in the Debt Service Fund shall be used for no purpose other than the payment of principal of and interest on the Bonds

B. There are hereby irrevocably appropriated and pledged to the Debt Service Fund: (i) net revenues of the Sewer Utility and net revenues of the Water Utility in such amounts, which, along with the Pledged Revenues, will be sufficient to pay the principal of and interest on the Bonds when due; (ii) the Capitalized Interest; (iii) the Accrued Interest; (iv) the Additional Interest; and (v) investment earnings, if any, on the moneys identified in preceding clauses (i) through (iv). (The funds and investments identified in clauses (ii) through (v) are referred to herein as the “Pledged Revenues.”) Immediately prior to each Interest Payment Date, the Administrator shall transfer to the Debt Service Fund amounts of net revenues of the Utilities which are sufficient, along with Pledged Revenues then on deposit in the Debt Service Fund, for the payment of all interest and principal then due on the Bonds. The money in the Debt Service Fund shall be used for no purpose other than the payment of principal of and interest on the Bonds.

C. If the balances in the Debt Service Fund are ever insufficient to pay all principal and interest then due on the Bonds, the Administrator shall nevertheless provide sufficient money first from the Construction Account, next from the Sewer Fund or the Water Fund and third from any other funds of the Issuer which are available for that purpose, and such other funds shall be reimbursed from the Debt Service Fund when the balance therein is sufficient. All such reimbursements shall comply with Treasury Regulations, Section 1.150-2.

4.05 No Tax Levy. It is estimated that the net revenues of the Water Utility, net revenues from the Sewer Utility and Pledged Revenues herein pledged are in an amount not less than 5% in excess of the amounts needed to meet when due the principal and interest payments on the Bonds and, as allowed by Minnesota Statutes, Section 475.61, Subdivision 6, no tax is presently levied for this purpose.

4.06 Investments. Monies on deposit in the Sewer Fund, Water Fund, Construction Account and the Debt Service Fund may, at the discretion of the Administrator, be invested in securities permitted by Minnesota Statutes, Chapter 118A; provided, that any such investments shall mature at such times and in such amounts as will permit payment of the principal and interest on the Bonds when due.

4.07 Additional Covenants.

A. It is recognized, however, that the Issuer�s liability on the Bonds is not limited to the Pledged Revenues and net revenues of the Utilities pledged for payment of the Bonds, and the Issuer covenants and agrees that it will levy upon all taxable property within the Issuer, and cause to be extended, assessed, and collected, any taxes found necessary for full payment of the principal of and interest on the Bonds, without limitation as to rate or amount.

B. The Issuer will keep complete and accurate books and records showing: receipts and disbursements in connection with the Project and other funds appropriated for payment of the Bonds, collections and disbursements thereof and monies.

C. The Issuer will cause its books and records to be audited and will furnish copies of such audit reports to any interested person upon request.

Section 5. Tax Covenants.

5.01 General. The Issuer covenants and agrees with the holders of the Bonds that it will: (i) take all action on its part necessary to cause the interest on the Bonds to be exempt from federal income taxes including, without limitation, restricting, to the extent necessary, the yield on investments made with the proceeds of the Bonds and investment earnings thereon, making required payments to the federal government, if any, and maintaining books and records in a specified manner, where appropriate, and (ii) refrain from taking any action which would cause interest on the Bonds to be subject to federal income taxes, including, without limitation, refraining from spending the proceeds of the Bonds and investment earnings thereon on certain specified purposes.

5.02 Small-Issuer Arbitrage Rebate Exception. For purposes of qualifying for the small-issuer exception to the federal arbitrage rebate requirements, the Issuer hereby finds, determines and declares that the aggregate face amount of the tax-exempt obligations (other than private activity bonds) issued by the Issuer (and all subordinate entities of the Issuer) during the calendar year in which the Bonds is issued is not reasonably expected to exceed $5,000,000, all within the meaning of Section 148(f)(4)(D) of the Internal Revenue Code of 1986, as amended (the “Code”).

5.03 Bank Qualification of Bonds. In order to qualify the Bonds as “qualified tax-exempt obligations” within the meaning of Section 265(b)(3) of the Code, the Issuer hereby makes the following factual statements and representations:

A. the Bonds are not “private activity bonds” as defined in Section 141 of the Code;

B. the Issuer hereby designates the Bonds as “qualified tax-exempt obligations” for purposes of Section 265(b)(3) of the Code:

C. 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 by issued by the Issuer (and all entities whose obligations will be aggregated with those of the Issuer) during the calendar year in which the Bonds are issued will not exceed $10,000,000; and

D. not more than $10,000,000 of obligations issued by the Issuer during the calendar year in which the Bonds are issued have been designated for purposes of Section 265(b)(3) of the Code.

Section 6. Certificate of Proceedings.

6.01 Filing with County Auditor. The Administrator or the duly authorized designee thereof is directed to file with the County Auditor a certified copy of this Resolution and such other information as the County Auditor may require, and to obtain from the County Auditor a certificate stating that the Bonds herein authorized have been duly entered on the Auditor�s register.

6.02 Certified Proceedings. The officers of the Issuer are authorized and directed to prepare and furnish to the Purchaser of the Bonds and to bond counsel certified copies of all proceedings and records of the Issuer relating to the authorization and issuance of the Bonds and other affidavits and certificates as may reasonably be requested to show the facts relating to the legality and marketability of the Bonds as such facts appear from the official books and records of the officers� custody or otherwise known to them. All of such certified copies, certificates and affidavits, including any heretofore furnished, constitute representations of the Issuer as to the correctness of facts recited therein and the actions stated therein to have been taken.

6.03 Absent or Disabled Officers. In the event of the absence or disability of the Mayor or the Administrator, such officers or members of the Council as in the opinion of the Issuer�s attorney, may act in their behalf, shall without further act or authorization, execute and deliver the Bonds, and do all things and execute all instruments and documents required to be done or executed by such absent or disabled officers.

6.04 Offering Materials. No official statement or prospectus has been prepared or circulated by the Issuer in connection with the sale of the Bonds and the Purchaser has made its own investigation concerning the Issuer as set forth in an investment letter dated as of the date of this Resolution.

DULY ADOPTED BY THE CITY COUNCIL THIS 1st DAY OF JULY, 2002.

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