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172607104v1 <br /> <br /> <br />Bryan Bear <br />April 30, 2025 <br />Page 2 <br /> <br /> <br /> <br />Agreement. The City is merely a conduit and the money and obligations flow only between the <br />Bank and the Borrower. <br />The Note and the resolutions adopted by the City will recite that the Note, if and when <br />issued, will not be payable from or charged upon any of the City’s funds, other than the revenues <br />received under the Loan Agreement and pledged to the payment of the Note, and the City is not <br />subject to any liability on the Note. No holder of the Note will ever have the right to compel any <br />exercise by the City of its taxing powers to pay any of the principal of the Note or the interest or <br />premium thereon, or to enforce payment of the Note against any property of the City except the <br />interests of the City in payments to be made by the Borrower under the Loan Agreement. The <br />Note will not constitute a charge, lien or encumbrance, legal or equitable, upon any property of <br />the City except the interests of the City in payments to be made by the Borrower under the Loan <br />Agreement. The Note is not a moral obligation on the part of the State or its political subdivisions, <br />including the City, and the Note will not constitute a debt of the City within the meaning of any <br />constitutional or statutory limitation. <br />The issuance of the Note will not affect the City’s credit rating on bonds it issues for <br />municipal purposes. <br />The Note will be issued as “bank-qualified”. Each governmental entity may issue up to <br />$10,000,000 of “bank-qualified” bonds in each calendar year. “Bank-qualified” bonds may be <br />issued for the municipality’s own governmental purposes or for a 501(c)(3) organization, like the <br />Borrower. The City of Andover has already issued over $39 million of 501(c)(3) bonds for a <br />different borrower in 2025. Because that amount exceeds $10,000,000, Andover is unable to issue <br />“bank-qualified” bonds for the benefit of the Borrower. In such a case, it is not uncommon to ask <br />another City that has bank-qualification capacity available and a nexus to the Borrower and the <br />project being financed to act as the issuer, with the consent of the host city. In this case, Hugo has <br />a nexus based on its geographic proximity to Andover and the fact that some of its residents are <br />students at the school. Therefore, Hugo residents currently receive and may in the future receive <br />a benefit from the project. <br />It is our understanding that the City does not currently reasonably expect to issue its own <br />bonds and, therefore, will not need bank-qualification capacity in 2025. This does not mean that <br />the City could not issue bonds for its own purposes in 2025 should the need arise. It only means <br />that any such bonds – if the total amount issued exceeds $10,000,000 – could not be designated as <br />“bank-qualified” in 2025, which could mean a slightly higher interest rate. Currently, the <br />Borrower anticipates that the principal amount of the Note would be approximately $5.5 million, <br />leaving $4.5 million of bank-qualification capacity for the City’s own purposes (or for another <br />501(c)(3) organization) in 2025. This would not affect bonds issued by the City in 2026 and future <br />years.