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4.1. ERMUSR 02-11-2014 Elk River Municipal Utilities UTILITIES COMMISSION MEETING TO: FROM: Elk River Municipal Utilities Commission Theresa Slominski, Finance and Office Manager John Dietz—Chair Al Nadeau—Vice Chair Daryl Thompson —Trustee MEETING DATE: AGENDA ITEM NUMBER: February 11, 2014 4.1 SUBJECT: Award of Bonds 2014A - Refunding of Electric Bonds 2006A BACKGROUND: At the January 14th meeting, the Commission passed a resolution to proceed with refunding the bond 2006A issue and the City Council passed it at the January 21s'meeting. At that time it was identified that the award of the bonds by the Utility Commission would come back and be on the February 11 th agenda. DISCUSSION: Utility and City Staff, along with Springsted,were busy preparing for our rating call on February 3`d related to the refunding bonds. It was decided to stay with Moody's for rating purposes and a report was issued on Friday, February 07, 2014 with an Aa3 rating result. Our 2006A bond rating was an A2, so we should have good sale results to award. Proposals for the sale are received February 11th until 10:00AM CST(the Preliminary Official Statement is attached for reference and a bound copy is available, if you prefer). The issuance and awarding of the 2014A Electric Revenue Refunding Bonds in the amount of$2,215,000 template resolution is attached for your review. Terri Heaton from Springsted will be attending our Commission meeting to bring the February 11th market sale information results in an updated resolution for approval. ACTION REQUESTED: Staff recommends that the Elk River Municipal Utilities authorize and award the issuance and sale of the $2,125,000 2014A Electric Revenue Refunding Bonds to refund the Electric 2006A Bonds,per resolution. POWERED If Page 1 of 1 NATURE) Reliable bdler P OWERED To S ERVE 40 EXTRACT OF MINUTES OF MEETING OF THE ELK RIVER MUNICIPAL UTILITIES COMMISSION HELD: February 11, 2014 Pursuant to due call and notice thereof, a regular meeting of the Elk River Municipal Utilities Commission, was duly held in the Utilities Conference Room, 13069 Orono Parkway in said City on the 11th day of February, 2014, at 3:30 P.M., for the purpose, in part, awarding the sale of$2,125,000 Electric Revenue Refunding Bonds, Series 2014A. The following members were present: and the following were absent: Member introduced the following resolution and moved its adoption: RESOLUTION AWARDING THE ISSUANCE AND SALE OF $2,125,000 ELECTRIC REVENUE REFUNDING BONDS, SERIES 2014A AND PLEDGING NET REVENUES FOR THE SECURITY THEREOF BE IT RESOLVED by the Elk River Municipal Utilities Commission (the "Commission"), as follows: Section 1. Definitions; Interpretation. For all purposes of this Resolution, except as otherwise expressly provided or unless the context otherwise requires, the terms defined in this section have the meanings assigned to them in this section. All terms defined in this section include the plural as well as the singular and the female as well as the male. Except as otherwise expressly provided herein, accounting terms not otherwise defined herein have the meanings assigned to them, and all computations herein provided for shall be made, in accordance with generally accepted accounting principles. "Accountant" means a Person engaged in the practice of accounting, retained by the Commission. "Act" means, collectively, Minnesota Statutes, Sections 412.321 through 412.391, and Chapters 453 and 475, including any amendment thereof. "Additional Bonds" means any Bonds issued pursuant to Section 10. "Audited Fiscal Year" means a Fiscal Year for which the financial statements of the Commission have been audited, as required by Section 12(g). 438081 v315B EL185-25 41 "Bond Counsel" means any attorney or firm of attorneys having a favorable reputation for matters relating to tax-exempt financing of properties similar to the Electric System, retained by the Commission. "Bondholder" means the Person in whose name a Bond is registered in the Bond Register. "Bond Register"means the register maintained by the Registrar pursuant to Section 6.01. "Bonds" means any Outstanding Series 2014A Bonds, the Prior Bonds or Additional Bonds. "City" means the City of Elk River, Minnesota, and any successor to its obligations under this Resolution. "Code" means the Internal Revenue Code of 1986, including any amendment thereof. "Commission" means the Elk River Municipal Utilities Commission, and any successor to its obligations under this Resolution. "Commission Resolution" means a resolution or other legislative enactment duly adopted by the Commission. "Consultant" means a Person having a favorable reputation as experienced in planning and financing, and evaluating the economic feasibility, of properties similar to the Electric System, retained by the Commission. "Debt Service Account"means the account so designated in the Electric Fund. "Electric Fund" means the Electric Fund maintained on the official books of account of the City. "Electric System" means the municipal electric light and power plant and distribution system of the City, as it may at any time exist, including any replacement, expansion or improvement thereof. "Fiscal Year" means the period commencing on January 1 of any year and ending on December 31 of the same year, or any other period of twelve consecutive months specified by Commission Resolution as the fiscal year of the Commission. "Government Obligations" means direct obligations of, or obligations the principal of and the interest on which are fully and unconditionally guaranteed by the United States of America. "Gross Revenues" means all revenues and receipts from rates, fees, charges, and rentals imposed by the Commission for the availability, benefit, use and products of the Electric System or any part thereof, and any penalties and interest thereon, and income from the investment thereof. Gross Revenues do not include amounts received from the sale of property which is part of the Electric System or amounts borrowed with respect to the Electric System. 2 438081 v3 JSB EL185-25 42 "Holder"means a Bondholder. "Interest Payment Date" means a date specified in a Bond as a fixed date for payment of an installment of interest on the Bond. "Municipal Utilities Commission"means the governing body of the Commission. "Net Revenues" means the Gross Revenues of the Electric System for any specified period, less the Operating Expenses of the Electric System for the same specified period. "Operating Account"means the account so designated in the Electric Fund. "Operating Expenses" means the current expenses of operation, maintenance and minor or current repair of the Electric System for any specified period. Operating Expenses include, without limitation, administrative expenses of the Commission relating to the Electric System, franchise fees, premiums for insurance relating to the Electric System, and amounts necessary to accumulate and maintain the Operating Reserve Requirement. Operating Expenses do not include depreciation, amortization, or interest expense. "Operating Reserve Requirement" means an amount equal to the greater of (i) one month's Operating Expenses, based upon the financial statements of the Commission for the preceding Audited Fiscal Year, or(ii) a larger amount reasonably determined by the Commission to be necessary to be maintained as a reserve for payment of Operating Expenses. "Outstanding" means when used with reference to the Bonds or the Prior Bonds, as the case may be, as of the date of determination, all Bonds or Prior Bonds, as the case may be, theretofore issued except Bonds or Prior Bonds, as the case may be, which have been paid or are deemed to have been paid as provided in Section 16. "Person" means any individual, corporation, partnership,joint venture, association,joint stock company, trust, unincorporated organization, or government, or any agency or political subdivision thereof. "Prior Bonds" means the $2,875,000 original principal amount of Electric Revenue Bonds, Series 2007A, dated March 28, 2007, $1,960,000 in principal amount of which are currently outstanding. "Prior Resolution" means the resolution duly adopted by the Commission on March 5, 2007. "Project" means improvements and extensions and other capital improvements to the Electric System. "Purchaser"means "Refunded Bonds" means the $3,595,000 original principal amount of Electric Revenue Bonds, Series 2006A, dated March 2, 2006, $2,180,000 in principal amount of which are currently outstanding. 3 438081v3 JSB EL185-25 43 "Refunded Resolution" means the resolution duly adopted by the Commission on February 6, 2006. "Refunding Account" means the Refunding Account established in the Electric Fund pursuant to Section 13 hereof. "Registrar" means U.S. Bank National Association, in St. Paul, Minnesota, or its successor appointed by the Commission pursuant to Section 6.01. "Repair and Replacement Account" means the account so designated in the Electric Fund. "Reserve Account"means the account so designated in the Electric Fund. "Reserve Requirement" means, as of the date of issuance of a series of Bonds, an amount equal to the least of(i) 10% of the original principal amount of the Bonds and the Prior Bonds Outstanding, or (ii) the maximum amount of principal and interest payable during the then current Fiscal Year or any future Fiscal Year on all Bonds and Prior Bonds Outstanding as of the date of issuance of a series of such Bonds, or (iii) 125% of the average annual principal and interest payable on all Bonds and Prior Bonds as of the date of issuance of a series of such Bonds. "Resolution" means this Resolution, including any amendment hereof or supplement hereto adopted in accordance with Section 15. "Series 2014A Bonds" means the Bonds created by Section 5. "State" means the State of Minnesota. Section 2. Recitals. 2.01. Electric System. The City owns and, for financing purposes, operates a municipal Electric System, hereinafter referred to as the "Electric System." 2.02. Municipal Utilities Commission. The City has established the Commission and placed the Electric System under the jurisdiction of the Commission pursuant to the Act. The City has granted to the Commission a non-exclusive franchise to transmit, furnish, deliver or receive electrical energy within the utility service area. The Commission operates the Electric System as a public, revenue-producing convenience, providing service to the City and its inhabitants and residents and other customers in the area surrounding the City, as authorized by the Act. 2.03. Parity of Lien Test. All of the payments required to be made into the various funds and accounts provided for in the Prior Resolution authorizing the issuance of the Prior Bonds and in the Refunded Bonds in the Refunded Resolution have been made and there is sufficient money in the Debt Service Account of the Electric Fund to pay all principal and interest on all obligations payable from the Net Revenues coming due during the 12-month period next succeeding the issuance of the Series 20I4A Bonds. 4 438081v3 JSB EL185-25 44 The gross revenues, expenses of operation and maintenance and Net Revenues of the Electric System from all sources for the Audited Fiscal Year immediately preceding the issuance of the Series 2014A Bonds, adjusted for such Fiscal Year as permitted by the Prior Resolution are as follows: Audited Fiscal Year Ended 2012 OPERATING REVENUES $30,258,690 OPERATING EXPENSES (25,250,718) OPERATING PROFIT $ 5,007,972 (Exclusive of Depreciation) ADD: Non-Operating Revenue $ 262,532 NET REVENUES $ 5.270,504 The Net Revenues of the Electric System for the Audited Fiscal Year immediately preceding the issuance of the Series 2014A Bonds, adjusted as set forth above, were at least 125% of the average annual principal and interest coming due during the remaining term of the Prior Bonds plus the Series 2014A Bonds computed to February 1, 2022 (the final maturity date of the Prior Bonds). The average annual principal and interest requirements, based on the schedule of maturities herein set forth and a net interest cost on the Series 2014A Bonds of % per annum for the Prior Bonds and the Series 2014A Bonds, is $ Other than the Prior Bonds, the Commission has no other bonds, warrants, certificates or other obligations or evidences of indebtedness of money borrowed for or on account of the Electric System or indebtedness for which the Net Revenues of the Electric System have been appropriated or pledged. 2.04. Sufficiency of Gross Revenues and Net Revenues. The Commission reasonably anticipates that the Gross Revenues to be received during the period for which the Series 2014A Bonds will be outstanding will be more than sufficient to pay all costs of the operation and maintenance of the Electric System and to provide Net Revenues adequate to pay the principal of and interest on the Series 2014A Bonds and the Prior Bonds when due. 2.05. Authorization of Series 2014A Bonds. The Commission is authorized by law to borrow money necessary to finance the Project and to pay the related financing costs and fund the Reserve Account. It is necessary and expedient for the City forthwith to issue its Electric Revenue Refunding Bonds, Series 2014A, in the principal amount of$2,125,000. All costs of the Project in excess of the proceeds of the Series 2014A Bonds available for payment of such costs shall be paid from any other funds legally available to the Commission for such purpose. 2.06. Sale of Series 2014A Bonds. The Commission has retained Springsted Incorporated ("Springsted"), as its independent financial advisor for the sale of the Bonds and was therefore authorized to sell the Bonds by private negotiation in accordance with Minnesota Statutes, Section 475.60, Subdivision 2(9) and proposals to purchase the Bonds have been solicited by Springsted. 5 438081v3 JSB EL185-25 45 2.07. Receipt and Acceptance of Proposals. Proposals have been received by the Commission Finance and Office Manager, or designee, at the offices of Springsted on the date hereof pursuant to the Terms of Proposal established for the Bonds and are set forth in Exhibit A. The proposal of (the "Purchaser"), to purchase the Bonds in accordance with the Terms of Proposal, at the rates of interest hereinafter set forth, and to pay therefor the sum of$ , plus interest accrued to settlement, is hereby found, determined and declared to be the most favorable proposal received and is hereby accepted and the Bonds are hereby awarded to the Purchaser. The Finance and Office Manager is directed to retain the deposit of the Purchaser and to return to the unsuccessful bidders any good faith checks or drafts. 2.08. Performance of Requirements. All acts, conditions and things which are required by the Constitution and laws of the State of Minnesota to be done, to exist, to happen and to be performed precedent to and in the valid issuance of the Series 2014A Bonds having been done, existing, having happened and having been performed, it is now necessary to establish the form and terms of the Series 2014A Bonds, to provide security therefor and to issue the Series 2014A Bonds forthwith. Section 3. Security for Series 2014A Bonds. 3.01. Pledge of Net Revenues. From and after their issuance, the principal of and interest on the Series 2014A Bonds, as set forth in Section 5, shall be payable solely from and constitute a parity lien and charge on the respective subaccounts of the Electric Fund, including but not limited to the Debt Service Account, the Reserve Account, and the Net Revenues of the Electric System. 3.02. Reserve Account Requirement. Upon issuance of the Series 2014A Bonds, the Commission shall deposit, from available funds on hand, in the Reserve Account $ , so that the balance in the Reserve Account shall be not less than the applicable Reserve Requirement. 3.03. Not General Obligations. The Series 2014A Bonds are not general obligations of the City or the Commission and the full faith and credit and taxing powers of the City are not pledged for their payment. Section 4. Form of Series 2014A Bonds. 4.01. Series 2014A Bond Form. The Series 2014A Bonds shall be prepared in substantially the following form: 6 438081 v3 JSB EL185-25 46 UNITED STATES OF AMERICA STATE OF MINNESOTA COUNTY OF SHERBURNE CITY OF ELK RIVER ELECTRIC REVENUE REFUNDING BOND, SERIES 2014A No. $ Interest Rate Maturity Date Date of Original Issue CUSIP August 1, , 2014 REGISTERED OWNER: CEDE& CO. PRINCIPAL AMOUNT: THE CITY OF ELK RIVER, Sherburne County, Minnesota (the "City"), acknowledges itself to be indebted and, for value received, hereby promises to pay to the registered owner specified above, or registered assigns, the principal amount specified above, on the maturity date specified above, with interest thereon from the date of original issue specified above or from the most recent interest payment date to which interest has been paid or duly provided for, at the annual rate specified above. Interest hereon is payable on February 1 and August 1 in each year, commencing August 1, 2014, to the person in whose name this Series 2014A Bond is registered at the close of business on the 15th day (whether or not a business day) of the immediately preceding month. The principal of and premium, if any, on this Series 2014A Bond are payable upon presentation and surrender hereof at the principal office of U.S. Bank National Association, in St. Paul, Minnesota (the "Bond Registrar"), acting as paying agent, or any successor paying agent duly appointed by the City. Interest on this Series 2014A Bond will be paid on each Interest Payment Date by check or draft mailed to the person in whose name this Series 2014A Bond is registered (the "Holder" or "Bondholder") 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 15th 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 10 days prior to the Special Record Date. The principal of and premium, if any, and interest on this Series 2014A Bond are payable in lawful money of the United States of America. So long as this Series 2014A 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 Series 2014A 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 Series 2014A Bond shall not be required for payment of the redemption price upon a partial redemption of this 7 438081v3 JSB EL185-25 47 Series 2014A Bond. Until termination of the book-entry only system pursuant to the Resolution, Series 2014A Bonds may only be registered in the name of the Depository or its Nominee. This Series 2014A Bond is one of an issue (the "Series 2014A Bonds") in the aggregate principal amount of $2,125,000, issued pursuant to a resolution adopted by the Elk River Municipal Utilities Commission (the "Commission") on February 11, 2014 (the "Resolution"), to provide funds to refund the August 1, 2014 through August 1, 2021 maturities of the City's Electric Revenue Bonds, Series 2006A, dated March 2, 2006, the proceeds of which were used to pay part of the costs of certain capital improvements to the City's electric system (the "Electric System") and is issued pursuant to and in full conformity with the provisions of the Constitution and laws of the State of Minnesota thereunto enabling, including Minnesota Statutes, Chapter 475 and Sections 412.321 through 412.391. This Series 2014A Bond and the interest thereon are payable solely from Net Revenues, as defined in the Resolution, of the Electric System which have been pledged to the payment thereof, and are issued on a parity of lien with the pledge of Net Revenues to the $2,875,000 original principal amount of Electric Revenue Bonds, Series 2007A, dated March 28, 2007 (the "Prior Bonds"). The Series 2014A Bonds do not constitute a debt of the City within the meaning of any constitutional or statutory limitation of indebtedness, and the full faith and credit and taxing power of the City are not pledged to the payment of the principal of or interest on the Series 2014A Bonds. Additional Bonds may be issued, which are payable on a parity of lien from the Net Revenues of the Electric System, upon the terms and conditions provided in the Resolution. The Series 2014A Bonds are not subject to prepayment prior to their maturity. The Series 2014A Bonds are issuable solely in fully registered form in Authorized Denominations (as defined in the Resolution) and are exchangeable for fully registered Series 2014A 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. This Series 2014A 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 City contained in any agreement with the Bond Registrar. Thereupon the City and the Commission shall execute and the Bond Registrar shall authenticate and deliver, in exchange for this Series 2014A Bond, one or more new fully registered Series 2014A 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 Series 2014A Bond, of the same maturity and bearing interest at the same rate. 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 Series 2014A Bond and any legal or unusual costs regarding transfers and lost Series 2014A Bonds. 8 438081v3150 BL I85-25 48 The City, the Commission and the Bond Registrar may treat the person in whose name this Series 2014A 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 Series 2014A Bond shall be overdue, and neither the City, the Commission nor the Bond Registrar shall be affected by notice to the contrary. This Series 2014A 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. The Series 2014A Bonds have been designated as "qualified tax-exempt obligations" pursuant to the provisions of Section 265(b) of the Internal Revenue Code of 1986, as amended. IT IS HEREBY CERTIFIED, RECITED, COVENANTED AND AGREED that the City, through the Commission, has fixed and established and will collect reasonable rates and charges for the services and facilities provided by the Electric System; that the City, through the Commission, will maintain on its books and records an Electric Fund, and will credit to the Operating Account of the Electric Fund the Gross Revenues of the Electric System as received and pay all Operating Expenses therefrom, and will credit to the Debt Service Account, once each month, out of Net Revenues then on hand, an amount equal to 1/12 of all principal payable on the Series 2014A Bonds and the Prior Bonds during the next 12 months and 1/6 of all interest payable on the Series 2014A Bonds and the Prior Bonds in the next six months, and will credit to the Reserve Account an amount necessary to maintain therein a balance equal to the Reserve Requirement (as defined in the Resolution); that the obligation to credit such amounts to such accounts is cumulative, and if in any month the money in the Electric Fund is insufficient to credit the required amount into any account, the deficiency shall be made up in the following month or months after payment to all other accounts having a claim on such revenues has been paid in full; that the City, through the Commission, will impose and collect such rates and charges as necessary to provide in each Fiscal Year Net Revenues at least equal to one hundred ten percent of the annual principal and interest payable on all bonds payable from the Debt Service Account in such Fiscal Year; that all provisions for the security of the Series 2014A Bonds set forth in the Resolution will be punctually and faithfully performed as therein stipulated; that all acts, conditions and things required by the Constitution and laws of the State of Minnesota, and the ordinances and resolutions of the City and the Commission to be done, to exist, to happen, and to be performed in order to make this Series 2014A Bond a valid and binding special obligation of the City according to its terms have been done, do exist, have happened and have been performed as so required; and that the issuance of this Series 2014A Bond does not cause the indebtedness of the City to exceed any constitutional or statutory limitation. IN WITNESS WHEREOF, the City of Elk River, Sherburne County, State of Minnesota, by the Commission, has caused this Series 2014A Bond to be executed by the signatures of the President and Secretary of the Commission and the Mayor and Clerk of the City and has caused this Series 2014A Bond to be dated as of the Date of Original Issue set forth above. 9 438081v3156 EL185-25 49 Date of Registration: Registrable by: U.S. BANK NATIONAL ASSOCIATION Payable at: U.S. BANK NATIONAL ASSOCIATION CITY OF ELK RIVER, SHERBURNE COUNTY, MINNESOTA BOND REGISTRAR'S CERTIFICATE OF /s/ Facsimile AUTHENTICATION. Mayor This Series 2014A Bond is one of the Series 2014A Bonds described in the /s/ Facsimile Resolution mentioned within. Clerk U.S. Bank National Association, in St. ELK RIVER MUNICIPAL UTILITIES COMMISSION, Paul, Minnesota SHERBURNE COUNTY, MINNESOTA Bond Registrar /s/ Facsimile President By: Authorized Signature /s/Facsimile Secretary 10 438081v3 JSB ELI85-25 50 ABBREVIATIONS • The following abbreviations, when used in the inscription on the face of this Series 2014A Bond, shall be construed as though they were written out in full according to applicable laws or regulations: TEN COM --as tenants in common UTMA as Custodian for (Cust) (Minor) under Uniform Transfers to Minors Act (State) TEN ENT--as tenants by the entireties JT TEN --as joint tenants with right of survivorship and not as tenants in common Additional abbreviations may also be used. ASSIGNMENT For value received, the undersigned hereby sells, assigns and transfers unto the within Series 2014A Bond and does hereby irrevocably constitute and appoint attorney to transfer the Series 2014A 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 Series 2014A Bond in every particular, without alteration or any change whatever. Signature Guaranteed: Signature(s) must be guaranteed by a national bank or trust company or by a brokerage firm having a membership in one of the major stock exchanges or any other "Eligible Guarantor Institution"as defined in 17 CFR 240.17 Ad-15(a)(2). 11 438081v3 JSB ELI85-25 51 The Bond Registrar will not effect transfer of this Series 2014A Bond unless the information concerning the transferee requested below is provided. Name and Address: (Include information for all joint owners if the Series 2014A Bond is held by joint account.) 12 438081v3 JSB ELI85-25 52 PREPAYMENT SCHEDULE This Series 2014A Bond has been prepaid in part on the date(s) and in the amount(s) as follows: AUTHORIZED SIGNATURE DATE AMOUNT OF HOLDER 13 438081v3 JSB ELI85-25 53 Section 5. Series 2014A Bond Terms Execution and Delivery. 5.01. Maturities, Interest Rates, Denominations, Payment and Dating of Bonds. The City shall forthwith issue and deliver the Series 2014A Bonds which shall be in the denomination of$5,000 each or any integral multiple thereof of a single maturity, shall bear a date of original issue, shall mature on August 1 in the years and amounts set forth below and shall bear interest from date of original issue until paid or duly called for redemption at the rates per annum set forth below: Interest Interest Year Amount Rate Year Amount Rate 2014 $430,000 2017 $425,000 2015 420,000 2018 430,000 2016 420,000 As may be requested by the Purchaser, one or more term Series 2014A 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 Series 2014A Bond(s). The Series 2014A Bonds shall be issuable only in fully registered form. The interest thereon and, upon surrender of each Series 2014A Bond, the principal amount thereof, shall be payable by check or draft issued by the Registrar. 5.02. Interest Payment Dates. The Series 2014A Bonds shall bear interest payable semiannually on February 1 and August 1 of each year, commencing August 1, 2014, calculated on the basis of a 360-day year of twelve 30-day months to the person in whose name the Series 2014A Bond is registered in the Bond Register at the close of business on the 15th day of the immediately preceding month, whether or not such day is a business day. 5.03. No Optional Redemption. Series 2014A Bonds will not be subject to prepayment prior to their maturity. 5.04. Application of Proceeds. Immediately upon delivery of the Series 2014A Bonds to the Purchaser, the amount received as accrued interest on the Series 2014A Bonds shall be credited to the Debt Service Account and the remaining proceeds shall be deposited in the Refunding Account and used to pay costs of issuance of the Series 2014A Bonds and costs of refunding the Refunded Bonds, as provided in Section 13. Section 6. Registration; Appointment of Registrar; Book-Entry System. 6.01. Registration. The City, by the Commission, shall appoint, and shall maintain, a bond registrar, transfer agent and paying agent (the "Registrar"). The effect of registration and the rights and duties of the City and the Registrar with respect thereto shall be as follows: 14 438081v3 150 FL185-25 54 (a) Register. The Registrar shall keep at its principal corporate trust office a Bond Register in which the Registrar shall provide for the registration of ownership of Series 2014A Bonds and the registration of transfers and exchanges of Bonds entitled to be registered, transferred or exchanged. (b) Transfer of Series 2014A Bonds. Upon surrender to the Registrar for transfer of any Series 2014A Bond, duly endorsed by the registered owner thereof or accompanied by a written instrument of transfer, in form satisfactory to the Registrar, duly executed by the registered owner thereof or by an attorney duly authorized by the registered owner in writing, the Registrar shall authenticate and deliver, in the name of the designated transferee or transferees, one or more new Series 2014A Bonds of a like aggregate principal amount and maturity, as requested by the transferor. The Registrar shall not be obligated to transfer or exchange any Series 2014A Bond which has been selected for redemption. (c) Exchange of Series 2014A Bonds. Whenever any Series 2014A Bond is surrendered by the registered owner for exchange, the Registrar shall authenticate and deliver one or more new Series 2014A Bonds of alike aggregate principal amount and maturity, as requested by the registered owner or the owner's attorney duly authorized in writing. (d) Cancellation. All Series 2014A Bonds surrendered upon any transfer or exchange shall be promptly canceled by the Registrar and thereafter disposed of as directed by the City. (e) Improper or Unauthorized Transfer. When any Series 2014A Bond is presented to the Registrar for transfer, the Registrar may refuse to transfer the same until it is satisfied that the endorsement on such Series 2014A Bond or separate instrument of transfer is legally authorized. The Registrar shall incur no liability for its refusal, in good faith, to make transfers which it, in its judgment, deems improper or unauthorized. (1) Persons Deemed Owners. The City and the Registrar may treat the Person in whose name any Series 2014A Bond is at any time registered in the Bond Register as the absolute owner of such Series 2014A Bond, whether such Series 2014A Bond shall be overdue or not, for the purpose of receiving payment of, or on account of, the principal of and interest on such Series 2014A Bond and for all other purposes, and all such payments so made to any such registered owner or upon the owner's order shall be valid and effectual to satisfy and discharge the liability of the City upon such Series 2014A Bond to the extent of the sum or sums so paid. (g) Taxes Fees and Charges. For every transfer or exchange of Series 2014A Bonds (except for an exchange upon a partial redemption of a Series 2014A Bond), the Registrar may impose upon the owner thereof a charge sufficient to reimburse the Registrar for any tax, fee or other governmental charge required to be paid with respect to such transfer or exchange. 15 438081v3 JSB EL185-25 55 (h) Mutilated, Lost, Stolen or Destroyed Series 2014A Bonds. In case any Series 2014A Bond shall become mutilated or be lost, stolen or destroyed, the City shall execute and the Registrar shall authenticate and deliver a new Series 2014A Bond of the same series, of like amount, number, maturity date and tenor, in exchange and substitution for and upon cancellation of any such mutilated Series 2014A Bond or in lieu of and in substitution for any such Series 2014A Bond lost, stolen or destroyed, upon the payment of the reasonable expenses and charges of the Registrar in connection therewith, and, in the case of a Series 2014A Bond lost, stolen or destroyed, upon the payment of the reasonable expenses and charges of the Registrar in connection therewith, and, in the case of a Series 2014A Bond lost, stolen or destroyed, upon filing with the Registrar of evidence satisfactory to it that such Series 2014A Bond was lost, stolen or destroyed, and of the ownership thereof, and upon furnishing to the Registrar an appropriate bond or indemnity in form, substance and amount satisfactory to it, in which the City, the Commission, and the Registrar shall be named as obligees. All Series 2014A Bonds so surrendered to the Registrar shall be canceled by it and evidence of such cancellation shall be given to the Commission. If the mutilated, lost, stolen or destroyed Series 2014A Bond has already matured or been called for redemption in accordance with its terms, it shall not be necessary to issue a new Series 2014A Bond prior to payment. 6.02. Appointment of Initial Registrar. U.S. Bank National Association, in St. Paul, Minnesota, is hereby appointed as the initial Registrar. Upon merger or consolidation of the Registrar with another corporation, if the resulting corporation is a bank or trust company authorized by law to conduct such business, such corporation shall be authorized to act as successor Registrar. The City agrees to pay the reasonable and customary charges of the Registrar for the services performed. The City reserves the right to remove any Registrar upon 30 days' notice and upon the appointment of a successor Registrar, in which event the predecessor Registrar shall deliver all cash and Bonds in its possession to the successor Registrar and shall deliver the Bond Register to the successor Registrar. On or before each principal or interest due date, without further order of this Commission, there shall be transmitted to the Registrar, from amounts on hand in the Debt Service Account available therefore, an amount sufficient to pay all principal and interest then due on the Bonds. 6.03. Initial Issue. The Series 2014A Bonds shall be initially issued in the form of a separate single typewritten or printed fully registered Series 2014A Bond for each of the maturities set forth in this Resolution. Upon initial issuance, the ownership of each such Series 2014A Bond shall be registered in the registration books kept by the Registrar in the name of Cede & Co., as nominee for The Depository Trust Company, New York, New York, and its successors and assigns ("DTC"). Except as provided in this Section, all of the outstanding Series 2014A Bonds shall be registered in the registration books kept by the Registrar in the name of Cede & Co., as nominee of DTC. 6.04. DTC. With respect to Series 2014A Bonds registered in the registration books kept by the Registrar in the name of Cede & Co., as nominee of DTC, the City, the Registrar and the Paying Agent shall have no responsibility or obligation to any broker dealers, banks and other financial institutions from time to time for which DTC holds Series 2014A Bonds as securities depository (the "Participants") or to any other person on behalf of which a Participant holds an interest in the Series 2014A Bonds, including but not limited to any responsibility Or 16 43808153 Ise EL185-25 56 obligation with respect to (i) the accuracy of the records of DTC, Cede & Co. or any Participant with respect to any ownership interest in the Series 2014A Bonds, (ii) the delivery to any Participant or any other person other than a registered owner of Series 2014A Bonds, as shown by the registration books kept by the Registrar, of any notice with respect to the Series 2014A Bonds, including any notice of redemption, or (iii) the payment to any Participant or any other person, other than a registered owner of Series 2014A Bonds, or any amount with respect to principal of, premium, if any, or interest on the Series 2014A Bonds. The City, the Registrar and the Paying Agent may treat and consider the person in whose name each Series 2014A Bond is registered in the registration books kept by the Registrar as the holder and absolute owner of such Series 2014A Bond for the purpose of payment of principal, premium and interest with respect to such Series 2014A Bond, for the purpose of registering transfers with respect to such Series 2014A Bonds, and for all other purposes. The Paying Agent shall pay all principal of, premium, if any, and interest on the Series 2014A Bonds only to or on the order of the respective registered owners, as shown in the registration books kept by the Registrar, and all such payments shall be valid and effectual to fully satisfy and discharge the City's obligations with respect to payment of principal of, premium, if any, or interest on the Series 2014A Bonds to the extent of the sum or sums so paid. No person other than a registered owner of Series 2014A Bonds, as shown in the registration books kept by the Registrar, shall receive a certificated Series 2014A Bond evidencing the obligation of this resolution. Upon delivery by DTC to the City of a written notice to the effect that DTC has determined to substitute a new nominee in place of Cede & Co., and the words "Cede & Co.," shall refer to such new nominee of DTC; and upon receipt of such a notice, the City shall promptly deliver a copy of the same to the Registrar and Paying Agent, if the Paying Agent is other than the Registrar. 6.05. Transfers Outside Book-Entry System. In the event the City, by resolution of the Commission, determines that it is in the best interests of the persons having beneficial interest in the Series 2014A Bonds that they be able to obtain Series 2014A Bond certificates, the City shall notify DTC, whereupon DTC shall notify the Participants, of the availability through DTC of Series 2014A Bond certificates. In such event the City shall issue, transfer and exchange Series 2014A Bond certificates as requested by DTC and any other registered owners in accordance with the provisions of this Resolution. DTC may determine to discontinue providing its services with respect to the Series 2014A Bonds at any time by giving notice to the City and discharging its responsibilities with respect thereto under applicable law. In such event, if no successor securities depository is appointed, the City shall issue and the Registrar shall authenticate Series 2014A Bond certificates in accordance with this resolution and the provisions hereof shall apply to the transfer, exchange and method of payment thereof. 6.06. Payments to Cede & Co. Notwithstanding any other provision of this resolution to the contrary, so long as any Series 20I4A Bond is registered in the name of Cede & Co., as nominee of DTC, all payments with respect to principal of, premium, if any, and interest on such Series 2014A Bond and all notices with respect to such Series 2014A Bond shall be made and given, respectively in the manner provided in the representation letter executed by the City and on file with DTC. Section 7. Notice of Redemption. At least thirty days before the date set for mandatory redemption of any Series 2014A Bond, the City shall cause notice of such redemption to be mailed to the registered Holder of each Series 2014A Bond to be redeemed, but no defect 17 438081v3 TSB EL185-25 57 in or failure to give such mailed notice of redemption shall affect the validity of proceedings for the redemption of any Series 2014A Bond not affected by such defect or failure. The notice of redemption shall specify the redemption date, redemption price, the numbers, interest rates and CUSIP numbers of the Series 2014A Bonds to be redeemed and the place at which the Series 2014A Bonds are to be surrendered for payment, which shall be the principal office of the Registrar. Notice of redemption having been given as aforesaid, the Series 2014A Bonds or portions thereof so to be redeemed shall, on the redemption date, become due and payable at the redemption price therein specified and from and after such date (unless the City shall default in the payment of the redemption price) such Series 2014A Bonds or portions thereof shall cease to bear interest. Series 2014A Bonds in a denomination larger than $5,000 may be redeemed in part in any integral multiple of$5,000. The Holder of any Series 2014A Bond redeemed in part shall receive, upon surrender of such Series 2014A Bond to the Registrar, one or more new Series 2014A Bonds of the same series in authorized denominations equal in principal amount to the unredeemed portion of the Series 2014A Bond so surrendered. Section 8. Execution, Authentication and Delivery of Series 2014A Bonds. The Series 2014A Bonds shall be prepared under the direction of the Secretary and shall be executed on behalf of the City by the facsimile signatures of the Mayor and the Clerk and on behalf of the Commission by the facsimile signatures of the President and Secretary of the Commission. In case any officer whose signature appears on the Series 2014A Bonds shall cease to be such officer before the delivery of any Series 2014A Bond, such signature shall nevertheless be valid and sufficient for all purposes, the same as if such officer had remained in office until delivery. Notwithstanding such execution, no Series 2014A Bond shall be valid or obligatory for any purpose or entitled to any security or benefit under this Resolution unless a certificate of authentication on such Series 2014A Bond has been executed by the manual signature of an authorized representative of the Registrar. Certificates of authentication on different Series 2014A Bonds need not be signed by the same representative. The executed certificate of authentication on each Series 2014A Bond shall be conclusive evidence that it has been authenticated and delivered under this resolution. When the Series 2014A Bonds have been so executed and authenticated, they shall be delivered to the original purchaser thereof upon payment of the purchase price in accordance with the contract of sale heretofore made and executed, and the purchaser shall not be obligated to see to the application of the purchase price. Section 9. Electric Fund and Accounts. 9.01. Electric Fund. For the convenient and proper administration of the Electric System, including the revenues thereof and proceeds of the Bonds, and to make adequate and specific security to the purchaser and Holders of the Bonds from time to time, the Commission agrees that there shall continue to be maintained on the books and records of the City so long as any Bonds are Outstanding a separate bookkeeping account designated the Electric Fund. Within the Electric Fund there shall be maintained the separate accounts and subaccounts described in this section, or in lieu thereof there may be maintained the required balances as undesignated components of the Electric Fund. 18 438081v3 J5B ELI g5-25 58 9.02. Operating Account. There shall be credited to the Operating Account all Gross Revenues as received. There shall be paid from the Operating Account when due all reasonable, necessary, and current Operating Expenses of the Electric System. All money on hand in the Operating Account as of the first day of each month in excess of the sum of (i) Operating Expenses then due and payable and to become due and payable during such calendar month, plus (ii) the Operating Reserve Requirement, shall constitute Net Revenues and shall be credited to other accounts in the Electric Fund as provided in Sections 9.03, 9.04, 9.05 and 9.06. 9.03. Debt Service Account. Upon delivery of the Series 2014A Bonds, the Commission shall credit to the Debt Service Account, from the proceeds of the Series 2014A Bonds, the accrued interest, if any, received from the Purchaser of the Series 2014A Bonds. As of the first day of each month there shall be credited to the Debt Service Account out of the Net Revenues on hand in the Operating Account an amount equal to not less than 1/6 of the interest due within the next six months on all Outstanding Bonds and 1/12 of the principal due within the next 12 months on all Outstanding Bonds; provided that the Commission shall be entitled to reduce a monthly apportionment by the amount of any surplus previously credited and then on hand in the Debt Service Account. Money on hand in the Debt Service Account shall be disbursed only to pay principal of and interest on the Outstanding Bonds when due; provided that on any date when the amount then on hand in the Debt Service Account plus the amount in the Reserve Account allocable to a series of Bonds, is sufficient with other money available for the purpose to pay or discharge all Bonds of that series and the interest accrued thereon in full, it may be used for that purpose. If any payment of principal of or interest on the Outstanding Bonds becomes due when money in the Debt Service Account is temporarily insufficient therefor, an amount equal to such deficiency shall be transferred thereto from the Reserve Account or the Repair and Replacement Account, in that order. 9.04. Reserve Account. Upon delivery of the Series 2014A Bonds the Commission shall credit to the Reserve Account from available funds on hand, the sum of$ . If the balance in the Reserve Account is ever less than the applicable Reserve Requirement, as of the first day of each month all Net Revenues in the Operating Account remaining after the required credit to the Debt Service Account shall be credited to the Reserve Account until the balance therein equals the Reserve Requirement. If the balance in the Reserve Account has not been restored to the Reserve Requirement from transfers of Net Revenues within six months of the deficiency, the Commission shall transfer to the Reserve Account from the Repair and Replacement Account, an amount sufficient to restore the balance therein to the Reserve Requirement. If, on any date on which principal or interest is due on the Outstanding Bonds, the balance then on hand in the Debt Service Account is not sufficient to pay such principal and interest in full, the Commission shall immediately transfer from the Reserve Account to the Debt Service Account an amount equal to such deficiency. If any Additional Bonds are issued, the Commission shall, upon issuance of the Additional Bonds, increase the balance in the Reserve Fund to the Reserve Requirement, calculated after giving effect to the issuance of such Additional Bonds. 19 438081v3 J5B EL185-25 59 Money held in the Reserve Account shall be used only to pay maturing principal and interest when money in the Debt Service Account is insufficient therefor. If at any time the balance in the Reserve Account exceeds the Reserve Requirement, the Commission shall transfer such excess to the Debt Service Account. If an entire issue of Bonds shall have been paid in full in accordance with its terms or defeased within the meaning of Section 16 of this Resolution, the Reserve Requirement shall be reduced to that level thereof which would apply had said issue of Bonds, or said obligation of that Bond, as the case may be, never been issued; provided, however, that any such reduction shall be subject to the condition that there shall not at the time be a default continuing with respect to the payment of or security for any Bond or a default continuing under any resolution, indenture or other document pursuant to which any Bonds were issued. 9.05. Repair and Replacement Account. The Repair and Replacement Account has heretofore been established as a separate account within the Electric Fund and there shall be credited to the Repair and Replacement Account from the Operating Account, on the 1st day of each month, such portion of the Net Revenues, in excess of the current requirements of the Debt Service Account and the Reserve Account (which portion of the Net Revenues is referred to herein as "surplus revenues"), as the Commission shall determine to be required for replacement or renewal of worn out, obsolete or damaged properties and equipment of the Electric System. Money in the Repair and Replacement Account shall be used only for the purposes above stated or, if so directed by the Commission, to pay Operating Expenses, to redeem Bonds which are subject to redemption according to their terms, to pay principal or interest when due thereon as required in Section 9.03, to restore a deficiency in the Reserve Account, or to pay the cost of improvements to the Electric System; provided that in the event additional improvements or additions to the Electric System are financed other than from Bonds payable from the Debt Service Account, surplus revenues from time to time received may be segregated and paid into one or more separate and additional accounts for the repayment of such indebtedness and interest thereon, in advance of payments required to be made into the Repair and Replacement Account. 9.06. Deposit and Investment of Funds. The Commission shall cause all money pertaining to the Electric Fund to be deposited as received with one or more depository banks. The balance in such accounts, except such portion thereof as shall be guaranteed by federal deposit insurance, shall at all times be secured to its full amount by bonds or securities of the types authorized by applicable laws. Any such money not necessary for immediate use may be deposited with such depository banks in savings or time deposits. No money shall at any time be withdrawn from such deposit accounts except for the purposes of the Electric Fund as authorized in this Resolution, except that money from time to time on hand in the Electric Fund may at any time, in the discretion of the Commission, be deposited or invested in accounts or securities which are permitted by applicable laws of the State. Except as otherwise expressly provided herein, income received from the deposit or investment of money in said accounts shall be credited to the account from which the deposit was made or the investment was purchased, and handled and accounted for in the same manner as other money in that account. Section 10. Additional Bonds. Additional Bonds shall be issued and made payable from the Net Revenues of the Electric System only as provided in this section. One or more series of Additional Bonds may be issued on a parity of lien with the Outstanding Bonds, if 20 43808Iv31SB BLI85-25 60 (except as otherwise provided in this Section 10) the Net Revenues of the Electric System for the Audited Fiscal Year immediately preceding the issuance of such Additional Bonds, adjusted as hereinafter provided, were not less than 125% of the average annual principal and interest due on all Outstanding Bonds and on the Additional Bonds to be issued, during the remaining term of the Outstanding Bonds. No Additional Bonds shall be issued unless each of the following conditions is satisfied prior to the issuance thereof, such satisfaction to be shown by a certificate of the President of the Commission and the resolution authorizing the issuance thereof: (a) The payments required to be made (at the time of the issuance of such Additional Bonds) into the various accounts provided for in this Resolution have been made. (b) The resolution authorizing such Additional Bonds provides for payment to the Reserve Account upon delivery of such Additional Bonds, from the proceeds thereof or any other source, of an amount necessary to cause the aggregate balance in the Reserve Account to equal the Reserve Requirement. (c) The proceeds of such Additional Bonds shall be used only for the purpose of making improvements, additions, extensions, renewals or replacements to the Electric System, or refunding bonds payable from the Debt Service Account. For purposes of the coverage test set forth above, the Net Revenues for the last Audited Fiscal Year immediately preceding the issuance of such Additional Bonds, may be adjusted for such Fiscal Year as follows: (1) the Gross Revenues for such Audited Fiscal Year may be increased to reflect the Gross Revenues which would have been received had any rate increase placed in effect after the commencement of the Audited Fiscal Year been in effect for the entire Audited Fiscal Year; and (2) by including the additional revenues reasonably determined by the Commission to be likely to result from the acquisition and construction of the facilities to be financed by such Additional Bonds, provided that the debt service on the proposed Additional Bonds is funded until the estimated date of completion of such facilities. The Commission also reserves the right to cause the issuance of Additional Bonds if and to the extent needed to refund maturing Bonds payable from the Debt Service Account in case the money on hand therein is insufficient to pay the same at maturity, which refunding revenue bonds may be on a parity with the Outstanding Bonds, but shall mature subsequent to all Outstanding Bonds which are not to be refunded by such Additional Bonds. The Commission also reserves the right to cause the issuance of Additional Bonds payable on a parity as to both principal and interest with the Outstanding Bonds to refund Bonds if the maximum amount of principal and interest payable on the Outstanding Bonds and such Additional Bonds in the then current or any future calendar year is not increased by more than 5%. Section 11. Priority of Payments. If the money on hand in the Debt Service Account shall be insufficient at any time to pay the principal then due and interest then accrued on all Bonds payable therefrom, said money shall first be applied to the payment pro rata of the accrued interest on all Bonds, and any balance shall be applied first in payment of maturing 21 438081v3 JO ELI85-25 61 principal; as between Bonds having different maturity dates, the principal of earlier maturing Bonds shall be paid first; and as between Bonds maturing on the same date, the principal of Bonds shall be paid pro rata. Section 12. Covenants. For the protection of the Holders of the Bonds, the City and the Commission hereby covenant and agree to and with the Holders thereof from time to time as follows: (a) They will at all times adequately maintain and efficiently operate the Electric System. They will from time to time make all needful and proper repairs, replacements, additions and betterments to the equipment and facilities of the Electric System so that it may at all times be operated properly and advantageously and so that the value and efficiency of the facilities shall be at all times fully maintained and its revenues unencumbered by reason thereof. (b) In order to ensure the efficient and economical operation of the Electric System and the proper maintenance thereof, the Commission on behalf of the City will employ an experienced manager to operate and maintain the Electric System. Such manager shall be employed on a full-time basis and the compensation shall be paid as an operating expense of the Electric System. (c) The rates for all service and the charges for all electricity and services supplied by the Electric System to the City and its residents and to all consumers shall be reasonable and just, taking into account the cost and value of the Electric System, the cost of maintaining and operating the Electric System and the proper and necessary allowances for depreciation and amounts required for the payment of principal and interest on the bonds payable from the Net Revenues. Charges to all customers shall be uniform for all users of the same class. The Commission on behalf of the City will bill its customers and the City on a monthly basis and, subject to the requirements of State law, will discontinue service to any customer whose bill remains unpaid 30 days following the mailing of such bill and service will not be restored until the bill and any penalties have been paid in full. (d) They will establish, maintain and collect such charges and rates as will produce revenues sufficient to pay the reasonable cost of operation and maintenance of the Electric System and to produce, in each Fiscal Year, Net Revenues at least equal to 110% of the annual interest and principal requirements of the Series 2014A Bonds and the Prior Bonds in such Fiscal Year. Such rates and charges will be increased from time to time whenever necessary to carry out the obligations of this Resolution. (e) The City and the Commission will not sell, lease, mortgage, or in any manner dispose of all or substantially all of properties of the Electric System until all of the Outstanding Bonds have been paid in full; provided, however, that the City or the Commission may sell the Electric System as a whole if, simultaneously with the sale of the Electric System, there is deposited with the Registrar the amount necessary to retire all of the Outstanding Bonds payable from the revenues of the Electric System, including interest to accrue to the date when the Outstanding Bonds are callable, or if the 22 438081v3 JSB EL I85-25 62 Outstanding Bonds are then called in accordance with their terms, to the date of redemption. This covenant shall not be construed to prevent the sale by the City or the Commission at fair market value of real estate, equipment or other non-revenue- producing properties which in the judgment of the City or the Commission and a consulting engineer have become unnecessary, uneconomical or inexpedient to use in connection with the Electric System, provided suitable facilities are obtained in place thereof and any cash balance from the transaction is deposited in the Electric Fund. (f) They will procure and keep in force insurance upon the properties of the Electric System of a kind and in an amount which would normally be carried by private companies in a like business, including public liability insurance, with an insurer or insurers in good standing, and will keep in full force and effect fiduciary bonds on employees in charge of the Electric System. In the event of any loss, the proceeds from such insurance (including liability insurance) or bonds shall be used to make good such loss or to repair or restore the Electric System. Insurance premiums shall be paid as a cost of operation. The proceeds of insurance, except the proceeds of public liability insurance, received by the Commission or the City, shall be placed in the Electric Fund. (g) The Commission, on behalf of the City, shall cause to be kept proper books, records and accounts adapted to the Electric System, separate from other accounts of the City and shall cause such books, records and accounts to be audited at the end of each Fiscal Year by a qualified firm of public accountants. The expense of preparing such audit shall be paid as a current operating expense of the Electric System. In addition to whatever other matters are included in the audit, each such audit shall include the following: (1) A statement in detail of the income and expenditures of the Electric System and the component systems thereof for each such Fiscal Year. (2) A balance sheet as of the end of each such Fiscal Year. (3) The accountants' comments, if any, regarding the manner in which the Commission and the City have carried out the requirements of this Resolution and their recommendations for any changes or improvements in the operation of the Electric System. (4) The disposition of any Bond proceeds during such Fiscal Year, and the amount of Outstanding Bonds at the end of each Fiscal Year. The Holders of the Outstanding Bonds shall have the right at all reasonable times to inspect the Electric System and the books, records, accounts and data relating thereto. The Commission agrees to furnish copies of such audit to any Holder who holds Outstanding Bonds upon request within ninety days after the close of each Fiscal Year. (h) They will faithfully and punctually perform all duties with respect to the Electric System required by the Constitution and laws of the State and this Resolution. 23 43808Iv3 JSB ELI85-25 63 Section 13. Refunding Account. 13.01. There is hereby established within the Electric Fund a Refunding Account, into which the Commission shall deposit the proceeds of the Series 2014A Bonds, net of amounts deposited in the Debt Service Account and the Reserve Account, as provided in Section 9 hereof. Moneys on deposit in the Refunding Account may be disbursed by the Commission to pay costs of issuance of the Series 2014A Bonds and costs of refunding the Refunded Bonds. Pending such disbursement, moneys on deposit in the Refunding Account may be invested in Government Obligations maturing or subject to redemption at the option of the holder thereof not later than the date on which such moneys are expected to be needed. 13.02. The pledges and covenants of the City made by the resolution awarding the sale of the Refunded Bonds, are restated and confirmed in all respects until the date the Refunded Bonds are no longer Outstanding. The provisions of such Refunded Resolution are hereby supplemented to the extent necessary to give full effect to the provisions of this Resolution. Section 14. Refunding; Findings; Redemption of Refunded Bonds. 14.01. Purpose of Refunding. The Refunded Bonds are callable on February 1, 2014 and on the date thereafter. It is hereby found and determined that based upon information presently available from Springsted, the issuance of the Bonds is consistent with covenants made with the holders thereof and is necessary and desirable for the reduction of debt service cost to the City. 14.02. Application of Proceeds of Bonds. It is hereby found and determined that the proceeds together with other funds of the City irrevocably appropriated hereunder, including any outstanding balance in the debt service fund for the Refunded Bonds, will be sufficient to prepay all of the principal of, interest on and redemption premium (if any) on the Refunded Bonds. 14.03. Redemption, Date of Redemption, Notice of Redemption. The Refunded Bonds maturing on August 1, 2014 and thereafter will be redeemed and prepaid on May 1, 2014. The Refunded Bonds will be redeemed and prepaid in accordance with their terms and in accordance with the terms and conditions set forth in the forms of Notice of Call for Redemption attached hereto as Exhibit B which terms and conditions are hereby approved and incorporated herein by reference. The Registrar for the Refunded Bonds is hereby authorized and directed to send a copy of the Notice of Redemption to the registered holder of the Refunded Bonds. Section 15. Amendments. The provisions of this Resolution shall constitute a contract between the City, the Commission and the Holders of the Outstanding Bonds and after the issuance of any of the Series 2014A Bonds, no change, variation or alteration of any kind in the provisions of this Resolution shall be made in any manner, except as herein provided, until such time as all of the Series 2014A Bonds and interest thereon have been paid in full. However, the Holders of a majority in principal amount of the Outstanding Bonds shall have the right to consent to, and approve the adoption of resolutions or other proceedings modifying or amending any of the terms or provisions contained in this Resolution, except that without the consent of 100% of the Holders of Outstanding Bonds this Resolution shall not be modified or amended in any manner that may adversely affect the rights of any Holders of the Outstanding Bonds or 24 438081v3 1513 EL185-25 64 reduce the percentage of the number of Holders whose consent is required to effect a further modification. Section 16. Defeasance. When any Bond has been discharged as provided in this section, all pledges, covenants and other rights granted by this Resolution to the Holder of such Bond shall cease, and such Bond shall no longer be deemed to be Outstanding under this Resolution. The obligations with respect to any Bond which is due on any date may be discharged by depositing with the 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 Registrar a sum sufficient for the payment thereof in full with interest accrued to the date of such deposit. The obligations with respect to any Bond which is subject to redemption according to its terms may also be discharged by depositing with the Registrar on or before that date an amount equal to the principal, interest and redemption premium, if any, which will then be due, provided that notice of such redemption has been duly given or provided for. The obligations with respect to any Bonds may also be discharged at any time, subject to the provisions of law now or hereafter authorizing and regulating such action, by depositing irrevocably in escrow, with the Registrar or any bank qualified by law as an escrow agent for this purpose, cash or Government Obligations which are authorized by law to be so deposited, bearing interest payable at such times and at such rates and maturing on such dates as shall be required to pay all principal, interest and redemption premiums to become due on the Bonds to their maturity or redemption date, provided that if any of such Bonds are to be redeemed, notice of redemption has been given or provided for, and provided that such defeasance shall not impair the exemption of interest on any Bonds from federal income taxation. Section 17. Compliance With Reimbursement Bond Regulations. The provisions of this section are intended to establish and provide for the Commission's compliance with United States Treasury Regulations Section 1.150-2 (the "Reimbursement Regulations") applicable to the "reimbursement proceeds" of the Series 2014A Bonds, being those portions thereof which will be used by the Commission to reimburse itself for any expenditure which the Commission paid or will have paid prior to the Closing Date (a "Reimbursement Expenditure"). The Commission 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 the Commission (or person designated to do so on behalf of the City or the Commission) has made or will have made a written declaration of the Commission's official intent (a "Declaration") which effectively (i) states the Commission'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 Commission 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 Commission for the purpose of financing the Project; provided, however, that no such Declaration shall necessarily have been made with respect to: (i) "preliminary 25 438081v3 JSB EL185-25 65 expenditures" for the Project, defined in the Reimbursement Regulations to include engineering or architectural, surveying and soil testing expenses and similar prefatory costs, which in the aggregate do not exceed 20% of the "issue price" of the Series 2014A Bonds, and (ii) a de minimis amount of Reimbursement Expenditures not in excess of the lesser of$100,000 or 5% of the proceeds of the Series 2014A Bonds. (b) Each Reimbursement Expenditure is a capital expenditure or a cost of issuance of the Series 2014A 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 Series 2014A 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 Commission's use of Bond proceeds to reimburse the Reimbursement Expenditure and, if made within 30 days after the Series 2014A Bonds are issued, shall be treated as made on the day the Series 2014A Bonds are issued. Provided, however, that the Commission may take action contrary to any of the foregoing covenants in this section upon receipt of an opinion of its Bond Counsel for the Series 2014A Bonds stating in effect that such action will not impair the tax-exempt status of the Series 2014A Bonds. Section 18. Continuing Disclosure. With respect to the continuing disclosure requirements under Rule 15c2-12(b)(5) (the "Rule") of the Securities and Exchange Commission, on the date of actual issuance and delivery of the Bonds, the Commission and the City will execute and deliver a Continuing Disclosure Certificate (the "Undertaking") whereunder the Commission and the City will covenant to provide certain information specified in the Undertaking. The proposed form of the Undertaking which has been submitted to the Commission for its consideration is hereby approved, and the President and Secretary of the Commission and the Mayor and Clerk of the City, or any other officer of the Commission or the City authorized to act in their place (the "Officers") are hereby authorized to execute and deliver that Undertaking in the proposed form or in such final form thereof reflecting such modifications thereof as are consistent with the Rule, requested by the Purchasers of the Bonds and acceptable to the Officers who shall execute the Undertaking (which consent shall be conclusively evidenced by their execution and delivery thereof). The Undertaking, as so executed and delivered by the Officers, shall be as much a part of this Resolution as if set forth in full herein and shall be for the benefit of the owners from time to time of the Series 2014A Bonds. Section 19. Records and Certificates. The officers of the Commission and 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 Series 2014A Bonds, certified copies of all proceedings and records of the Commission and the City relating to the Series 2014A Bonds and 26 438081v3 JSB ELI85-25 66 to the financial condition and affairs of the Commission and the City, and such other affidavits, certificates and information as are required to show the facts relating to the legality and marketability of the Series 2014A 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 Commission and the City as to the facts recited therein. Section 20. Negative Covenant as to Use of Bond Proceeds and Protect. The Commission and the City hereby covenant not to use the proceeds of the Series 2014A Bonds or to use the Project, or to cause or permit them to be used, or to enter into any deferred payment arrangements for the cost of the Project, in such a manner as to cause the Series 2014A Bonds to be "private activity bonds"within the meaning of Sections 103 and 141 through 150 of the Code. Section 21. Tax-Exempt Status of the Series 2014A Bonds; Rebate. The Commission and 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 Series 2014A 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 Series 2014A Bonds, and (c) the rebate of excess investment earnings to the United States, if the Series 2014A 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. Section 22. Designation of Qualified Tax-Exempt Obligations. In order to qualify the Series 2014A Bonds as "qualified tax exempt obligations" within the meaning of Section 265(6)(3) of the Code, the Commission hereby makes the following factual statements and representations: (a) the Series 2014A Bonds are issued after August 7, 1986; (b) the Series 2014A Bonds are not "private activity bonds" as defined in Section 141 of the Code; (c) the Refunded Bonds were designated as "qualified tax-exempt obligations" for purposes of Section 265(b)(3) of the Code, the proposed average maturity of the Series 2014A Bonds is not longer than the average maturity of the Refunded Bonds and the Series 2014A Bonds are proposed to mature not later than 30 years after the date the Refunded Bonds were issued and therefore the Series 2014A Bonds issued to refund the outstanding principal amount of the Refunded Bonds are deemed designated as "qualified tax-exempt obligations" for purposes of Section 265(b)(3) of the Code; (d) the aggregate face amount of the issue of the Series 2014A Bonds is not greater than $10,000,000; (e) the Commission hereby designates the Series 2014A Bonds as "qualified tax exempt obligations" for purposes of Section 265(b)(3) of the Code; 27 438081v3 JSB EL185-25 67 (f) 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 2014 will not exceed$10,000,000; and (g) not more than $10,000,000 of obligations issued by the City during this calendar year 2014 have been designated for purposes of Section 265(b)(3) of the Code. The Commission shall use its best efforts to comply with any federal procedural requirements which may apply in order to effectuate the designation made by this section. Section 23. Official Statement. The Official Statement relating to the Series 2014A Bonds, prepared and distributed by Springsted is hereby approved and the officers of the Commission are authorized in connection with the delivery of the Series 2014A Bonds, to sign such certificates as may be necessary with respect to the completeness and accuracy of the Official Statement. Section 24. Effective Date. This Resolution, having been concurred in by the City Council by resolution adopted on February 11, 2014, shall be effective immediately. 28 438081v315B EL185-25 68 STATE OF MINNESOTA COUNTY OF SHERBURNE ELK RIVER MUNICIPAL UTILITIES COMMISSION I, the undersigned, being the duly qualified and acting Secretary of the Elk River Municipal Utilities Commission of the City of Elk River, Minnesota, DO HEREBY CERTIFY that I have carefully compared the attached and foregoing extract of minutes of a meeting of the Board of Commissioners, held on the date therein indicated, with the original thereof on file and of record in my office and that the same is a fill, true and complete transcript insofar as the same relates to the $2,125,000 Electric Revenue Refunding Bonds, Series 2014A of the City of Elk River, Minnesota. WITNESS my hand on February , 2014. • Secretary Elk River Municipal Utilities Commission 29 438081v3 J58 EL185-25 69 EXHIBIT A BIDS A-1 438081v3 JSB EL185-25 70 EXHIBIT B NOTICE OF CALL FOR REDEMPTION $3,595,000 ELECTRIC REVENUE BONDS, SERIES 2006A CITY OF ELK RIVER SHERBURNE COUNTY, MINNESOTA NOTICE IS HEREBY GIVEN that, by order of the City Council of the City of Elk River, Sherburne County, Minnesota,there have been called for redemption and prepayment on May 1,2014 all outstanding bonds of the City designated as Electric Revenue Bonds, Series 2006A, dated March 2, 2006, having stated maturity dates of August 1 in the years 2014 through 2021, both inclusive, totaling$2,180,000 in principal amount, and with the following CUSIP numbers: Year Amount CUSIP Number 2014 $235,000 287423 AT4 2015 245,000 287423 AU1 2016 255,000 287423 AV9 2017 265,000 287423 AW7 2018 275,000 287423 AX5 2019 290,000 287423 AY3 2020 300,000 287423 AZO 2021 315,000 287423 BA4 ************ The bonds are being called at a price of par plus accrued interest to May 1,2014, on which date all interest on said bonds will cease to accrue. Holders of the bonds hereby called for redemption are requested to present their bonds for payment at the main office of U.S. Bank National Association, in the City of St. Paul, Minnesota, on or before May 1, 2014, at the following address: 438081v3 ISB ELI85-25 B-1 71 If by mail: If by hand: U.S. Bank National Association U.S. Bank National Association Corporate Trust Operations 60 Livingston Avenue 60 Livingston Avenue 3`d Floor—Bond Drop Window EP-MN-WS3C St. Paul, MN 55107 St. Paul, MN 55107 **************************** Important Notice: In compliance with the Jobs Growth and Tax Relief Reconciliation Act of 2003, federal backup withholding tax will be withheld at the applicable backup withholding rate in effect at the time the payment by the redeeming institutions if they are not provided with your social security number or federal employer identification number, properly certified. This requirement is fulfilled by submitting a W-9 Form, which may be obtained at a bank or other financial institution. The Registrar will not be responsible for the selection or use of the CUSIP number, nor is any representation made as to the correctness indicated in the Redemption Notice or on any Bond. It is included solely for convenience of the Holders. Dated: February 11,2014. 438081v3 ELI 85-25 B-2 72 Springsted Incorporated 380 Jackson Street, Suite 300 Springsted Saint Paul,MN 55101-2887 Tel: 651-223-3000 Fax: 651-223-3046 Email: bond_services @springsted.com www.springsted.com NOTICE TO BIDDERS $2,125,000* City of Elk River, Minnesota Electric Revenue Refunding Bonds, Series 2014A (Book Entry Only) The City of Elk River, Minnesota is issuing the Bonds (as defined herein) for debt service savings. If an adequate level of savings is not achieved through the competitive proposals received on Tuesday, February 11, 2014, the Elk River Municipal Utilities Commission may (i) adjust the size of the Bonds; or (ii) reject all proposals for the Bonds at their meeting that afternoon. January 27, 2014 Public Sector Advisors 73 • PRELIMINARY OFFICIAL STATEMENT DATED JANUARY 27, 2014 REFUNDING ISSUE Moody's Rating: Requested • BANK QUALIFIED c E o In the opinion of Kennedy&Graven, Chartered,Bond Counsel for the Bonds,based on present federal and Minnesota laws,regulations,rulings and decisions(which exclude any pending legislation which may have a retroactive effect),and assuming compliance with certain covenants,interest to be paid on the Bonds is excluded from 5 y gross income for federal income tax purposes and,to the same extent,from taxable net income of individuals,estates and trusts for Minnesota income purposes,and is m`y not a preference item for purposes of computing the federal lte ative minimum tax or the Minnesota alternative minimum tax imposed on individuals,trusts,and estates. V£ m Such interest is taken into account in determining adjusted current eamings for the purpose of computing the federal No opinion minimum tax imposed on certain corporations and is subject to Minnesota franchise taxes on corporations(including financial institutions)measured by income.e.No opinion will be expressed by Kennedy 8 Graven regarding other state or federal tax consequences caused by the receipt or accrual of interest on the Bonds or arising with respect to ownership of the Bonds.The N• m en Bonds will be deemed designated as"qualified tax-exempt obligations"for purposes of Section 265(6)(3)of the Infernal Revenue Code of 1986,as amended,relating to the ability of financial institutions to deduct from income for federal income tax purposes, interest expense that is allocable to carrying and acquiring tax-exempt C obligations.See'TAX EXEMPTION"and"OTHER FEDERAL AND STATE TAX CONSIDERATIONS"herein. C Tj o $2,125,000* wo City of Elk River, Minnesota • ° t Electric Revenue Refunding Bonds, Series 2014A d ='« o t (Book Entry Only) - w ▪ _ N m N L Dated Date: Date of Delivery Interest Due: Each February 1 and August 1, t t d d a commencing August 1,2014 d d o The Bonds will mature August 1 in the years and amounts* as follows: L "5 O 2014 $430,000 2015 $420,000 2016 $420,000 2017 $425,000 2018 $430,000 • o m , w ° o Proposals for the Bonds may contain a maturity schedule providing for a combination of serial bonds and term 2; o bonds. All term bonds shall be subject to mandatory sinking fund redemption at a price of par plus accrued interest .c to the date of redemption scheduled to conform to the maturity schedule set forth above. p 0 N U 0' G e The Bonds will not be subject to payment in advance of their respective stated maturity dates. E do E 8 o, The Bonds will be special obligations of the City of Elk River, Minnesota (the "City") payable solely from — net revenues of the electric system of the Elk River Municipal Utilities Commission (the"Commission") and 3• g shall not constitute a debt for which the full faith and credit or taxing powers of the City will be pledged. , The proceeds of the Bonds will be used to refund the August 1, 2014 through August 1, 2021 maturities of the f' City's Electric Revenue Bonds, Series 2006A, dated March 2, 2006. o dI-1 do Proposals shall be for not less than $2,106,938 plus accrued interest, if any, on the total principal amount of the a a m Bonds. Proposals shall specify rates in integral multiples of 1/100 or 1/8 of 1%. The initial price to the public for E• co each maturity must be 98.0% or greater. Proposals must be accompanied by a good faith deposit in the amount of a•-• ° $21,250 in the form of a certified or cashier's check payable to the order of the City, a wire transfer, or a Financial c N 2 Surety Bond, and delivered to Springsted Incorporated prior to the time proposals will be opened. Award of the E' Bonds will be made on the basis of True Interest Cost(TIC). o m„ y j The City will designate the Bonds as "qualified tax-exempt obligations" pursuant to Section 265(b)(3)of the Internal • o Revenue Code of 1986, as amended, and the Bonds will not be subject to the alternative minimum tax for .(I) o individuals. 0-,,:t2 The Bonds will be issued as fully registered bonds without coupons and, when issued, will be registered in the E�3 name of Cede &Co., as nominee of The Depository Trust Company ("DTC"). DTC will act as securities depository E for the Bonds. Individual purchases may be made in book entry form only, in the principal amount of $5,000 and CI- g integral multiples thereof. Investors will not receive physical certificates representing their interest in the Bonds • Hpurchased. (See "Book Entry System" herein.) U.S. Bank National Association, St. Paul, Minnesota will serve as s E'g registrar (the "Registrar") for the Bonds. The Bonds will be available for delivery at DTC on or about March 13, � ° � 2014. • o O N y PROPOSALS RECEIVED: February 11, 2014 (Tuesday) until 10:00 A.M., Central Time o E AWARD: February 11, 2014 (Tuesday) at 3:30 P.M., Central Time A U m €o d Further information may be obtained from SPRINGSTED Incorporated, c d y Springsted Financial Advisor to the City and the Commission, 380 Jackson Street, 15--E Suite 300,Saint Paul, Minnesota 55101-2887(651)223-3000. w O * Preliminary; subject to change. 74 • • For purposes of compliance with Rule 15c2-12 of the Securities and Exchange Commission, this document, as the same may be supplemented or corrected by the City or the Commission from time to time (collectively, the "Preliminary or Final Official Statement"), may be treated as a Preliminary or Final Official Statement with respect to the Bonds described herein that is deemed final as of the date hereof (or of any such supplement or correction) by the City or the Commission. By awarding the Bonds to any underwriter or underwriting syndicate submitting a Proposal therefor, the City and the Commission agree that, no more than seven business days after the date of such award, it shall provide without cost to the senior managing underwriter of the syndicate to which the Bonds are awarded copies of the Final Official Statement in the amount specified in the Terms of Proposal. The Commission designates the senior managing underwriter of the syndicate to which the Bonds are awarded as its agent for purposes of distributing copies of the Final Official Statement to each Participating Underwriter. Any underwriter delivering a Proposal with respect to the Bonds agrees thereby that if its bid is accepted by the Commission (i) it shall accept such designation and (ii) it shall enter into a contractual relationship with all Participating Underwriters of the Bonds for purposes of assuring the receipt by each such Participating Underwriter of the Final Official Statement. No dealer, broker, salesman or other person has been authorized by the Underwriter, the City, or the Commission to give any information or to make any representations with respect to the Bonds, other than as contained in the Preliminary or Final Official Statements, and if given or made, such other information or representations must not be relied upon as having been authorized by the City or the Commission. Certain information contained in Preliminary or Final Official Statements may have been obtained from sources other than records of the City or the Commission and, while believed to be reliable, is not guaranteed as to completeness or accuracy. THE INFORMATION AND EXPRESSIONS OF OPINION IN THE PRELIMINARY OFFICIAL STATEMENT ARE SUBJECT TO CHANGE, AND NEITHER THE DELIVERY OF THE FINAL OFFICIAL STATEMENT NOR ANY SALE MADE UNDER EITHER SUCH DOCUMENT SHALL CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE CITY OR THE COMMISSION SINCE THE DATE THEREOF. References herein to laws, rules, regulations, resolutions, agreements, reports and other documents do not purport to be comprehensive or definitive. All references to such documents are qualified in their entirety by reference to the particular document, the full text of which may contain qualifications of and exceptions to statements made herein. Where full texts have not been included as appendices to the Preliminary or Final Official Statements, they will be furnished upon request. Any CUSIP numbers for the Bonds included in the Final Official Statement are provided for convenience of the owners and prospective investors. The CUSIP numbers for the Bonds have been assigned by an organization unaffiliated with the City. The City is not responsible for the selection of the CUSIP numbers and makes no representation as to the accuracy thereof as printed on the Bonds or as set forth in the Final Official Statement. No assurance can be given that the CUSIP numbers for the Bonds will remain the same after the date of issuance and delivery of the Bonds. 75 TABLE OF CONTENTS Page(s) Terms of Proposal i-v Introductory Statement 1 Continuing Disclosure 1 The Bonds 2 Risk Factors 4 Authority and Purpose 10 Sources and Uses of Funds 11 Security and Financing 11 Elk River Municipal Utilities 14 The Electric System 14 Utility Financial Statements 17 Debt Service and Coverage Calculation 20 Utility Revenue Debt 21 Future Financing 21 Litigation 21 Legality 22 Tax Exemption 22 Other Federal and State Tax Considerations 22 Bank-Qualified Tax-Exempt Obligations 23 Rating 24 Financial Advisor 24 Certification 24 General Information Concerning the City 25 Proposed Form of Legal Opinion Appendix I Continuing Disclosure Undertaking Appendix II Excerpt of the City's 2012 Comprehensive Annual Financial Report Appendix III Excerpt of the Utility's 2012 Annual Financial Report Appendix IV 76 THE CITY AND THE COMMISSION HAVE AUTHORIZED SPRINGSTED INCORPORATED TO NEGOTIATE THIS ISSUE ON ITS BEHALF. PROPOSALS WILL BE RECEIVED ON THE FOLLOWING BASIS: TERMS OF PROPOSAL $2,125,000* CITY OF ELK RIVER, MINNESOTA ELECTRIC REVENUE REFUNDING BONDS, SERIES 2014A (BOOK ENTRY ONLY) Proposals for the Bonds and the Good Faith Deposit ("Deposit") will be received on Tuesday, February 11, 2014, until 10:00 A.M., Central Time, at the offices of Springsted Incorporated, 380 Jackson Street, Suite 300, Saint Paul, Minnesota, after which time proposals will be opened and tabulated. he Elk River Municipal Utilities Commission (the "Commission") will consider the award of the Bonds at 3:30 P.M., Central Time, of the same day. SUBMISSION OF PROPOSALS Springsted will assume no liability for the inability of the bidder to reach Springsted prior to the time of sale specified above. All bidders are advised that each Proposal shall be deemed to constitute a contract between the bidder, the City and the Commission to purchase the Bonds regardless of the manner in which the Proposal is submitted. (a) Sealed Bidding. Proposals may be submitted in a sealed envelope or by fax (651) 223-3046 to Springsted. Signed Proposals, without final price or coupons, may be submitted to Springsted prior to the time of sale. The bidder shall be responsible for submitting to Springsted the final Proposal price and coupons, by telephone (651) 223-3000 or fax (651) 223-3046 for inclusion in the submitted Proposal. OR (b) Electronic Bidding. Notice is hereby given that electronic proposals will be received via PARITY®. For purposes of the electronic bidding process, the time as maintained by PARITY® shall constitute the official time with respect to all Proposals submitted to PARITY®. Each bidder shall be solely responsible for making necessary arrangements to access PARITY® for purposes of submitting its electronic Proposal in a timely manner and in compliance with the requirements of the Terms of Proposal. Neither the City, the Commission, their agents nor PARITY® shall have any duty or obligation to undertake registration to bid for any prospective bidder or to provide or ensure electronic access to any qualified prospective bidder, and neither the City, the Commission, their agents nor PARITY®shall be responsible for a bidder's failure to register to bid or for any failure in the proper operation of, or have any liability for any delays or interruptions of or any damages caused by the services of PARITY®. The City and the Commission are using the services of PARITY® solely as a communication mechanism to conduct the electronic bidding for the Bonds, and PARITY® is not an agent of the City or the Commission. If any provisions of this Terms of Proposal conflict with information provided by PARITY®, this Terms of Proposal shall control. Further information about PARITY®, including any fee charged, may be obtained from: PARITY®, 1359 Broadway, 2nd Floor, New York, New York 10018 Customer Support: (212) 849-5000 • Preliminary;subject to change. 77 DETAILS OF THE BONDS The Bonds will be dated as of the date of delivery and will bear interest payable on February 1 and August 1 of each year, commencing August 1, 2014. Interest will be computed on the basis of a 360-day year of twelve 30-day months. The Bonds will mature August 1 in the years and amounts* as follows: 2014 $430,000 2015 $420,000 2016 $420,000 2017 $425,000 2018 $430,000 * The City and the Commission reserve the right, after proposals are opened and prior to award, to increase or reduce the principal amount of the Bonds or the amount of any maturity in multiples of $5,000. In the event the amount of any maturity is modified, the aggregate purchase price will be adjusted to result in the same gross spread per $1,000 of Bonds as that of the original proposal. Gross spread is the differential between the price paid to the City for the new issue and the prices at which the securities are initially offered to the investing public. Proposals for the Bonds may contain a maturity schedule providing for a combination of serial bonds and term bonds. All term bonds shall be subject to mandatory sinking fund redemption at a price of par plus accrued interest to the date of redemption scheduled to conform to the maturity schedule set forth above. In order to designate term bonds, the proposal must specify "Years of Term Maturities" in the spaces provided on the Proposal form. BOOK ENTRY SYSTEM The Bonds will be issued by means of a book entry system with no physical distribution of Bonds made to the public. The Bonds will be issued in fully registered form and one Bond, representing the aggregate principal amount of the Bonds maturing in each year, will be registered in the name of Cede & Co. as nominee of The Depository Trust Company ("DTC"), New York, New York, which will act as securities depository of the Bonds. Individual purchases of the Bonds may be made in the principal amount of $5,000 or any multiple thereof of a single maturity through book entries made on the books and records of DTC and its participants. Principal and interest are payable by the registrar to DTC or its nominee as registered owner of the Bonds. Transfer of principal and interest payments to participants of DTC will be the responsibility of DTC; transfer of principal and interest payments to beneficial owners by participants will be the responsibility of such participants and other nominees of beneficial owners. The purchaser, as a condition of delivery of the Bonds, will be required to deposit the Bonds with DTC. REGISTRAR The City will name the registrar which shall be subject to applicable SEC regulations. The City will pay for the services of the registrar. OPTIONAL REDEMPTION The Bonds will not be subject to payment in advance of their respective stated maturity dates. SECURITY AND PURPOSE The Bonds will be special obligations of the City payable solely from net revenues of the electric system of the Commission and shall not constitute a debt for which the full faith and credit or taxing powers of the City will be pledged. The proceeds will be used to refund the August 1, 2014 through August 1, 2021 maturities of the City's Electric Revenue Bonds, Series 2006A, dated March 2, 2006. - ii - 78 BIDDING PARAMETERS Proposals shall be for not less than $2,106,938 plus accrued interest, if any, on the total principal amount of the Bonds. No proposal can be withdrawn or amended after the time set for receiving proposals unless the meeting of the Commission scheduled for award of the Bonds is adjourned, recessed, or continued to another date without award of the Bonds having been made. Rates shall be in integral multiples of 1/100 or 1/8 of 1%. The initial price to the public for each maturity must be 98.0% or greater. Bonds of the same maturity shall bear a single rate from the date of the Bonds to the date of maturity. No conditional proposals will be accepted. GOOD FAITH DEPOSIT Proposals, regardless of method of submission, shall be accompanied by a Deposit in the amount of $21,250, in the form of a certified or cashier's check, a wire transfer, or Financial Surety Bond and delivered to Springsted Incorporated prior to the time proposals will be opened. Each bidder shall be solely responsible for the timely delivery of their Deposit whether by check, wire transfer or Financial Surety Bond. Neither the City nor Springsted Incorporated have any liability for delays in the transmission of the Deposit. Any Deposit made by certified or cashier's check should be made payable to the City and delivered to Springsted Incorporated, 380 Jackson Street, Suite 300, St. Paul, Minnesota 55101. Any Deposit sent via wire transfer should be sent to Springsted Incorporated as the City's agent according to the following instructions: Wells Fargo Bank, N.A., San Francisco, CA 94104 ABA#121000248 for credit to Springsted Incorporated, Account#635-5007954 Ref: Elk River, MN Series 2014A Good Faith Deposit Contemporaneously with such wire transfer, the bidder shall send an e-mail to bond services @springsted.com, including the following information; (i) indication that a wire transfer has been made (including the fed reference number and time released), (ii) the amount of the wire transfer, (iii) the issue to which it applies, and (iv) the return wire instructions if such bidder is not awarded the Bonds. Any Deposit made by the successful bidder by check or wire transfer will be delivered to the City following the award of the Bonds. Any Deposit made by check or wire transfer by an unsuccessful bidder will be returned to such bidder following City action relative to an award of the Bonds. If a Financial Surety Bond is used, it must be from an insurance company licensed to issue such a bond in the State of Minnesota and pre-approved by the City. Such bond must be submitted to Springsted Incorporated prior to the opening of the proposals. The Financial Surety Bond must identify each underwriter whose Deposit is guaranteed by such Financial Surety Bond. If the Bonds are awarded to an underwriter using a Financial Surety Bond, then that underwriter is required to submit its Deposit to the City in the form of a certified or cashier's check or wire transfer as instructed by Springsted Incorporated not later than 3:30 P.M., Central Time on the next business day following the award. If such Deposit is not received by that time, the Financial Surety Bond may be drawn by the City to satisfy the Deposit requirement. The Deposit received from the purchaser, the amount of which will be deducted at settlement, will be deposited by the City and no interest will accrue to the purchaser. In the event the purchaser fails to comply with the accepted proposal, said amount will be retained by the City. - iii - 79 AWARD The Bonds will be awarded on the basis of the lowest interest rate to be determined on a true interest cost (TIC) basis calculated on the proposal prior to any adjustment made by the City and the Commission. The Commission's computation of the interest rate of each proposal, in accordance with customary practice, will be controlling. The Commission will reserve the right to: (i) waive non-substantive informalities of any proposal or of matters relating to the receipt of proposals and award of the Bonds, (ii) reject all proposals without cause, and (Hi) reject any proposal that the City and the Commission determine to have failed to comply with the terms herein. BOND INSURANCE AT PURCHASER'S OPTION Neither the City nor the Commission have applied for or pre-approved a commitment for any policy of municipal bond insurance with respect to the Bonds. If the Bonds qualify for municipal bond insurance and a bidder desires to purchase a policy, such indication, the maturities to be insured, and the name of the desired insurer must be set forth on the bidder's Proposal. The Commission specifically reserves the right to reject any bid specifying municipal bond insurance, even though such bid may result in the lowest TIC to the City and the Commission. All costs associated with the issuance and administration of such policy and associated ratings and expenses (other than any independent rating requested by the City) shall be paid by the successful bidder. Failure of the municipal bond insurer to issue the policy after the award of the Bonds shall not constitute cause for failure or refusal by the successful bidder to accept delivery of the Bonds. CUSIP NUMBERS If the Bonds qualify for assignment of CUSIP numbers such numbers will be printed on the Bonds, but neither the failure to print such numbers on any Bond nor any error with respect thereto will constitute cause for failure or refusal by the purchaser to accept delivery of the Bonds. The CUSIP Service Bureau charge for the assignment of CUSIP identification numbers shall be paid by the purchaser. SETTLEMENT On or about March 13, 2014, the Bonds will be delivered without cost to the purchaser through DTC in New York, New York. Delivery will be subject to receipt by the purchaser of an approving legal opinion of Kennedy & Graven, Chartered of Minneapolis, Minnesota, and of customary closing papers, including a no-litigation certificate. On the date of settlement, payment for the Bonds shall be made in federal, or equivalent, funds that shall be received at the offices of the City or its designee not later than 12:00 Noon, Central Time. Unless compliance with the terms of payment for the Bonds has been made impossible by action of the City, the Commission, or its agents, the purchaser shall be liable to the City and the Commission for any loss suffered by the City or the Commission by reason of the purchaser's non-compliance with said terms for payment. CONTINUING DISCLOSURE In accordance with SEC Rule 15c2-12(b)(5), the City and the Commission will undertake, pursuant to the resolution awarding sale of the Bonds, to provide annual reports and notices of certain events. A description of this undertaking is set forth in the Official Statement. The purchaser's obligation to purchase the Bonds will be conditioned upon receiving evidence of this undertaking at or prior to delivery of the Bonds. - iv - 80 OFFICIAL STATEMENT The City and the Commission have authorized the preparation of a Preliminary Official Statement containing pertinent information relative to the Bonds, and said Preliminary Official Statement will serve as a nearly final Official Statement within the meaning of Rule 15c2-12 of the Securities and Exchange Commission. For copies of the Preliminary Official Statement or for any additional information prior to sale, any prospective purchaser is referred to the Financial Advisor to the City and the Commission, Springsted Incorporated, 380 Jackson Street, Suite 300, Saint Paul, Minnesota 55101, telephone (651) 223-3000. A Final Official Statement (as that term is defined in Rule 15c2-12) will be prepared, specifying the maturity dates, principal amounts and interest rates of the Bonds, together with any other information required by law. By awarding the Bonds to any underwriter or underwriting syndicate submitting a proposal therefor, the City and the Commission agree that, no more than seven business days after the date of such award, it shall provide without cost to the senior managing underwriter of the syndicate to which the Bonds are awarded up to 25 copies of the Final Official Statement. The Commission designates the senior managing underwriter of the syndicate to which the Bonds are awarded as its agent for purposes of distributing copies of the Final Official Statement to each Participating Underwriter. Any underwriter delivering a proposal with respect to the Bonds agrees thereby that if its proposal is accepted by the Commission (i) it shall accept such designation and (H) it shall enter into a contractual relationship with all Participating Underwriters of the Bonds for purposes of assuring the receipt by each such Participating Underwriter of the Final Official Statement. Dated January 14, 2014 BY ORDER OF THE ELK RIVER MUNICIPAL UTILITIES COMMISSION /s/Theresa Slominski Finance and Office Manager -v- 81 PRELIMINARY OFFICIAL STATEMENT $2,125,000* CITY OF ELK RIVER, MINNESOTA ELECTRIC REVENUE REFUNDING BONDS, SERIES 2014A (BOOK ENTRY ONLY) INTRODUCTORY STATEMENT This Preliminary Official Statement contains certain information relating to the City of Elk River, Minnesota (the "City"); the Elk River Municipal Utilities (the "Utility"); the Elk River Municipal Utilities Commission (the "Commission"); and the issuance of $2,125,000* Electric Revenue Refunding Bonds, Series 2014A (the "Bonds"). The Bonds are being issued pursuant to Minnesota Statutes, Chapters 475 and 453, all as amended; a resolution adopted by the City on January 21, 2014 (the "City Resolution") approving the issuance of the Bonds and authorizing certain action to be taken by the Commission with respect to the issuance of the Bonds; and a resolution adopted by the Commission on January 14, 2014 authorizing the issuance of the Bonds. The Commission has been given authority by the City, pursuant to the City Resolution, to adopt the resolution awarding the sale of the Bonds. On February 11, 2014, the Commission will receive proposals to purchase the Bonds. If a proposal for the Bonds is acceptable, the Commission will adopt a resolution (the "Awarding Resolution") authorizing the issuance of the Bonds, establishing the terms of the Bonds, and awarding the sale of the Bonds. The Bonds are special obligations of the City payable solely from Net Revenues (as defined herein) of the City's electric system (the "Electric System") operated by the Commission. The Bonds are being issued on a parity with the City's Electric Revenue Bonds, Series 2007A (the "Outstanding Bonds"). The Outstanding Bonds and the Bonds are collectively referred to as the "Parity Bonds". See "UTILITY REVENUE DEBT" herein. Inquiries regarding the Utility may be directed to Ms. Theresa Slominski, Finance and Office Manager, Elk River Municipal Utilities, 13065 Orono Parkway, Elk River, Minnesota 55330- 0490, by telephoning (763) 635-1325, or by emailing tslominski @elkriverutilities.com. Inquiries regarding the City may be directed to Mr. Tim Simon, Finance Director, City of Elk River, 13065 Orono Parkway, Elk River, Minnesota 55330-0490, by telephoning (763) 635-1000, or by emailing tsimon @elkrivermn.gov. Inquiries may also be made to Springsted Incorporated, 380 Jackson Street, Suite 300, St. Paul, Minnesota 55101-2887, by telephoning (651) 223- 3000, or by emailing bond_services @springsted.com. CONTINUING DISCLOSURE In order to assist the Underwriters in complying with SEC Rule 15c2-12 (the "Rule"), pursuant to the Awarding Resolution, the City and the Commission have covenanted to comply with the continuing disclosure undertaking (the "Undertaking") for the benefit of holders or beneficial owners of the Bonds to provide certain financial information and operating data relating to the City and the Utility to the Municipal Securities Rulemaking Board annually, and to provide notices of the occurrence of certain events enumerated in the Rule to the Municipal Securities Rulemaking Preliminary;subject to change. - 1 - 82 Board and to any state information depository. The specific nature of the Undertaking, as well as the information to be contained in the annual report or the notices of material events, is set forth in the Undertaking in substantially the form attached hereto as Appendix II, subject to such modifications thereof or additions thereto as: (i) consistent with requirements under the Rule, (ii) required by the purchaser of the Bonds from the City, and (Hi) acceptable to the City and the Commission. Pursuant to Rule 15c2-12(f)(3), the City and the Commission certify that for the past five years they have complied in all material respects with all previous undertakings entered into pursuant to the Rule. A failure by the City or the Commission to comply with the Undertaking will not constitute an event of default on the Bonds (although holders or other beneficial owners of the Bonds will have the sole remedy of bringing an action for specific performance). Nevertheless, such a failure must be reported in accordance with the Rule and must be considered by any broker, dealer or municipal securities dealer before recommending the purchase or sale of the Bonds in the secondary market. Consequently, such a failure may adversely affect the transferability and liquidity of the Bonds and their market price. THE BONDS General Description The Bonds are dated as of the date of delivery and will mature annually on August 1, as set forth on the front cover of this Preliminary Official Statement. The Bonds are issued in book entry form. Interest on the Bonds is payable on February 1 and August 1 of each year, commencing August 1, 2014. Interest will be payable to the holder (initially Cede & Co.) registered on the books of the Registrar as of the fifteenth day of the calendar month next preceding such interest payment date. Principal of and interest on the Bonds will be paid as described in the section herein entitled "Book Entry System." U.S. Bank National Association, St. Paul, Minnesota will serve as Registrar for the Bonds, and the City will pay for registrar services. Redemption Provisions Thirty days' written notice of redemption shall be given to the registered owner(s) of the Bonds. Failure to give such written notice to any registered owner of the Bonds or any defect therein shall not affect the validity of any proceedings for the redemption of the Bonds. All Bonds or portions thereof called for redemption will cease to bear interest after the specified redemption date, provided funds for their redemption are on deposit at the place of payment. Optional Redemption The Bonds will not be subject to payment in advance of their respective stated maturity dates. Book Entry System The Depository Trust Company ("DTC"), New York, New York, will act as securities depository for the Bonds. The Bonds will be issued as fully-registered securities registered in the name of Cede & Co. (DTC's partnership nominee) or such other name as may be requested by an authorized representative of DTC. One fully-registered certificate will be issued for each maturity of the Bonds, each in the aggregate principal amount of such maturity, and will be deposited with DTC. - 2 - 83 DTC is a limited-purpose trust company organized under the New York Banking Law, a "banking organization" within the meaning of the New York Banking Law, a member of the Federal Reserve System, a "clearing corporation" within the meaning of the New York Uniform Commercial Code, and a "clearing agency" registered pursuant to the provisions of Section 17A of the Securities Exchange Act of 1934. DTC holds and provides asset servicing for over 3.5 million issues of U.S. and non-U.S. equity issues, corporate and municipal debt issues, and money market instruments (from over 100 countries)that DTC's participants ("Direct Participants") deposit with DTC. DTC also facilitates the post-trade settlement among Direct Participants of sales and other securities transactions in deposited securities through electronic computerized book-entry transfers and pledges between Direct Participants' accounts. This eliminates the need for physical movement of securities certificates. Direct Participants include both U.S. and non-U.S. securities brokers and dealers, banks, trust companies, clearing corporations, and certain other organizations. DTC is a wholly-owned subsidiary of The Depository Trust & Clearing Corporation ("DTCC"). DTCC is the holding company for DTC, National Securities Clearing Corporation, and Fixed Income Clearing Corporation all of which are registered clearing agencies. DTCC is owned by the users of its regulated subsidiaries. Access to the DTC system is also available to others such as both U.S. and non-U.S. securities brokers and dealers, banks, trust companies and clearing corporations that clear through or maintain a custodial relationship with a Direct Participant, either directly or indirectly ("Indirect Participants"). DTC has a Standard & Poor's rating of AA+. The DTC Rules applicable to its Participants are on file with the Securities and Exchange Commission. More information about DTC can be found at www.dtcc.com. Purchases of Bonds under the DTC system must be made by or through Direct Participants, which will receive a credit for the Bonds on DTC's records. The ownership interest of each actual purchaser of each Bond ("Beneficial Owner") is in turn to be recorded on the Direct and Indirect Participants' records. Beneficial Owners will not receive written confirmation from DTC of their purchase. Beneficial Owners are, however, expected to receive written confirmations providing details of the transaction, as well as periodic statements of their holdings, from the Direct or Indirect Participant through which the Beneficial Owner entered into the transaction. Transfers of ownership interests in the Bonds are to be accomplished by entries made on the books of Direct and Indirect Participants acting on behalf of Beneficial Owners. Beneficial Owners will not receive certificates representing their ownership interests in the Bonds, except in the event that use of the book-entry system for the Bonds is discontinued. To facilitate subsequent transfers, all Bonds deposited by Direct Participants with DTC are registered in the name of DTC's partnership nominee, Cede & Co., or such other name as may be requested by an authorized representative of DTC. The deposit of Bonds with DTC and their registration in the name of Cede & Co. or such other DTC nominee do not effect any change in beneficial ownership. DTC has no knowledge of the actual Beneficial Owners of the Bonds; DTC's records reflect only the identity of the Direct Participants to whose accounts such Bonds are credited, which may or may not be the Beneficial Owners. The Direct and Indirect Participants will remain responsible for keeping account of their holdings on behalf of their customers. Conveyance of notices and other communications by DTC to Direct Participants, by Direct Participants to Indirect Participants, and by Direct Participants and Indirect Participants to Beneficial Owners will be governed by arrangements among them, subject to any statutory or regulatory requirements as may be in effect from time to time. Beneficial Owners of Bonds may wish to take certain steps to augment the transmission to them of notices of significant events with respect to the Bonds, such as redemptions, tenders, defaults, and proposed amendments to the Bond documents. For example, Beneficial Owners of the Bonds may wish to ascertain that the nominee holding the Bonds for their benefit has agreed to obtain and transmit notices to Beneficial Owners. In the alternative, Beneficial Owners may wish to provide their names and addresses to the registrar and request that copies of notices be provided directly to them. - 3 - 84 Redemption notices shall be sent to DTC. If less than all of the Bonds within a maturity are being redeemed, DTC's practice is to determine by lot the amount of the interest of each Direct Participant in such maturity to be redeemed. Neither DTC nor Cede & Co. (nor any other DTC nominee) will consent or vote with respect to the Bonds unless authorized by a Direct Participant in accordance with DTC's MMI procedures. Under its usual procedures, DTC mails an Omnibus Proxy to the City as soon as possible after the record date. The Omnibus Proxy assigns Cede & Co.'s consenting or voting rights to those Direct Participants to whose accounts the Bonds are credited on the record date (identified in a listing attached to the Omnibus Proxy). Redemption proceeds, distributions, and dividend payments on the Bonds will be made to Cede & Co. or such other nominee as may be requested by an authorized representative of DTC. DTC's practice is to credit Direct Participants' accounts upon DTC's receipt of funds and corresponding detail information from the City or its agent on the payable date in accordance with their respective holdings shown on DTC's records. Payments by Participants to Beneficial Owners will be governed by standing instructions and customary practices, as is the case with securities held for the accounts of customers in bearer form or registered in "street name," and will be the responsibility of such Participant and not of DTC or the City, subject to any statutory or regulatory requirements as may be in effect from time to time. Payment of redemption proceeds, distributions, and dividend payments to Cede & Co. (or such other nominee as may be requested by an authorized representative of DTC) is the responsibility of the City or agent, disbursement of such payments to Direct Participants will be the responsibility of DTC, and disbursement of such payments to the Beneficial Owners will be the responsibility of Direct and Indirect Participants. DTC may discontinue providing its services as depository with respect to the Bonds at any time by giving reasonable notice to City or agent. Under such circumstances, in the event that a successor depository is not obtained, certificates are required to be printed and delivered. City may decide to discontinue use of the system of book-entry-only transfers through DTC (or a successor securities depository). In that event, certificates will be printed and delivered to DTC. The information in this section concerning DTC and DTC's book-entry system has been obtained from sources that the City believes to be reliable, but the City takes no responsibility for the accuracy thereof. RISK FACTORS INVESTORS SHOULD BE AWARE THAT INVESTMENT IN THE BONDS MAY ENTAIL SOME DEGREE OF RISK. EACH PROSPECTIVE INVESTOR IN THE BONDS IS ENCOURAGED TO READ THIS PRELIMINARY OFFICIAL STATEMENT IN ITS ENTIRETY. PARTICULAR ATTENTION SHOULD BE GIVEN TO THE FACTORS DESCRIBED BELOW WHICH, AMONG OTHERS, COULD AFFECT THE PAYMENT OF PRINCIPAL AND INTEREST ON THE BONDS AND WHICH COULD ALSO AFFECT THE MARKET PRICE OF THE BONDS TO AN EXTENT THAT CANNOT BE DETERMINED. THIS DISCUSSION OF RISK FACTORS IS NOT, AND IS NOT INTENDED TO BE, EXHAUSTIVE. - 4 - 85 Limited Obligation The obligation of the City to pay the principal of and interest on the Bonds is a limited obligation. The full faith and credit and taxing powers of the City are not pledged to pay the principal and interest on the Bonds and the City has not pledged ad valorem property taxes to pay the principal and interest on the Bonds. As further described elsewhere herein, the principal of and interest on the Bonds is payable solely from Net Revenues of the Utility. While it is believed that revenues of the Utility will be sufficient to pay operating and maintenance expenses of the Utility as well as the principal of and interest on the Bonds when due, a number of factors described below may affect the receipt of sufficient revenues from the Utility for such purposes, which may impair the ability of the City to make timely principal and interest payments on the Bonds. General Factors that May Affect Sufficiency of Revenues As stated above, the City is obligated to pay the principal of and interest on the Bonds solely from Net Revenues of the Utility. A number of factors may have an adverse effect on the receipt of moneys in an amount sufficient to pay operating and maintenance expenses of the Utility as well as the principal and interest on the Bonds. These include potential adverse changes in the economic condition of the City, including potential decreases in population that may arise from decisions by employers located in and around the City to relocate their operations elsewhere; and potential unemployment at a level that would preclude residents of the City from paying sufficient user fees in order to support the operations of the Utility and the payment of principal and interest on the Bonds. The loss of any of the major electric users would also have an adverse effect on the revenues of the Utility. Unforeseen Problems with the Utility Payment of the principal of and interest on the Bonds is dependent to a considerable degree upon the continued operation of the Utility for the purposes for which they were designed. While the City believes that the Utility has been designed and constructed in such a manner as to permit their continued operation without requiring unreasonable costs for maintenance or repairs and has provided under the terms of the Awarding Resolution for the creation and maintenance of funds in amounts which the City believes to be sufficient to provide for the necessary repairs and maintenance of the Utility, there can be no assurance that such amounts will, in fact, be sufficient to assure the ongoing operation of the Utility. Although the Utility is covered by policies of insurance as otherwise described herein, casualties and other occurrences may result in damage to the Utility, which may not be covered by the net proceeds of any insurance award. Any material interruption of the operation of the Utility may have an adverse effect on the ability of the City to collect fees from users of the Utility and could, in turn, have a materially adverse effect on the ability of the Utility to make timely payments of principal and interest on the Bonds. The Electric Utility Industry Generally The electric utility industry has been, and in the future will be, affected by a number of factors which could impact the financial condition and competitiveness of electric utilities, such as the Electric System of the Utility. Such factors include, among others, (i) effects of compliance with changing environmental, safety, licensing, regulatory and legislative requirements; (ii) changes resulting from conservation and demand-side management programs on the timing and use of electric energy; (iii) other federal and state legislative changes; (iv) effects of competition from other electric utilities (including increased competition resulting from mergers, acquisitions, and "strategic alliances" of competing electric (and gas) utilities and from competitors offering less expensive electricity from much greater distances transmitted over an interconnected system) - 5 - 86 and new methods of producing low cost electricity; (v) increased competition from independent power producers, marketers and brokers; (vi) "self-generation" by certain industrial and commercial customers; (vii) issues relating to the ability to issue tax-exempt obligations; (viii) severe restrictions on the ability to sell to nongovernmental entities electricity from generation projects financed with outstanding tax-exempt obligations; (ix) changes from projected future load requirements; (x) increases in costs; (xi) shifts in the availability and relative costs of different fuels; and (xii) global warming and the future legislation and regulations that target contributions made by coal-fired and other fossil fueled generating units. Any of these factors and the factors discussed herein (as well as other factors) could have an effect on the financial condition of the Electric System of the Utility. The Utility and other electric utilities are subject to various federal and state laws requiring compliance with environmental rules and regulations. In addition, the Utility is also subject to various federal and state laws relating to its facilities as well as various federal and state laws which affect the construction and operation of its facilities. Energy Policy Act of 1992 The Energy Policy Act of 1992 (the "Energy Policy Act of 1992") made fundamental changes in the federal regulation of the electric utility industry, particularly in the area of transmission access under Sections 211, 212, and 213 of the Federal Power Act. The purpose of these changes, in part, was to bring about increased competition. While the Utility could contest before the Federal Energy Regulatory Commission ("FERC") or in federal court any application under Sections 211, 212 and 213 of the Federal Power Act on jurisdictional, procedural or substantive grounds, those Sections of the Federal Power Act provided the FERC with the authority, upon application by an electric utility, federal power marketing agency, or any person generating electricity for sale or resale, to require a transmitting utility such as the Utility to provide transmission services to the applicant at rates, charges, terms and conditions set by FERC based on standards and provisions in the Federal Power Act. However, the Energy Policy Act of 1992 specifically denied the FERC the authority to mandate "retail wheeling," under which a retail customer of one utility could obtain power from another utility or non-utility power generator. On April 24, 1996, the FERC issued two final rules. The final rules effected significant changes in the regulation of transmission services provided by public utilities (as defined in the Federal Power Act) that own, operate or control interstate transmission facilities and which are subject to the FERC jurisdiction over wholesale contracts, rates and services ("jurisdictional utilities"). The Utility is not a public utility, as defined by the Federal Power Act, and is not a jurisdictional utility under the Federal Power Act for its sales or generation of power. One of the final rules, Order No. 888, (i) requires the provision of open access transmission services on a nondiscriminatory basis by all jurisdictional utilities by requiring all such utilities to file tariffs that offer other entities seeking to effect wholesale power transactions the same transmission services they provide themselves, under comparable terms and conditions, and (ii) may require a non-jurisdictional utility, such as the Utility, that purchases transmission services from a jurisdictional utility under an open access tariff and that owns or controls transmission facilities to, in turn, provide open access service to the jurisdictional utility under terms that are comparable to the service that the non-jurisdictional utility provides itself. This is referred to as the reciprocity requirement. Order No. 888 also includes provisions which, in effect, would permit jurisdictional utilities to recover under certain conditions so-called "stranded costs" for generating and other facilities from wholesale customers of a utility which use open access transmission service to purchase from other power suppliers. - 6 - 87 The other final rule, Order No. 889, (i) implements standards of conduct for jurisdictional utilities that offer open access transmission services to ensure that transmission owners and their affiliates do not have an unfair competitive advantage in using transmission to sell power, and (ii) requires those jurisdictional utilities to establish or use an electronic "Open Access Same-time Information System" ("OASIS") to share transmission-related information (including information about available capacity) on the Internet, and to require that those jurisdictional utilities also obtain information about their transmission systems for their own wholesale power transactions, such as available capacity, in the same way that their competitors do through the OASIS. In 2007, the FERC issued Order No. 890 which, as modified and clarified on rehearing, updated Order Nos. 888 and 889. Order 890 did not substantially change the requirements or jurisdictional reach of those orders with respect to the Utility. The Utility, as a non-jurisdictional utility, is not directly subject to Order No. 888, 889 and 890. Therefore at this time, the Utility is unable to predict what effect, if any these rules will have on the Utility. Energy Policy Act of 2005 The Energy Policy Act of 2005 (the "2005 Act") made additional changes to the federal regulation of the electric utility industry, some of which affect the Utility. The 2005 Act required the creation of an electric reliability organization that has authority to establish and enforce mandatory reliability standards on a nation-wide basis. The electric reliability organization is subject to FERC's oversight. FERC approved the NERC as the electric reliability organization and has approved nation-wide reliability standards. FERC has also approved NERC's delegation of certain functions to regional reliability organizations, including the Midwest Reliability Organization ("MRO"). The standards that are administered by NERC and the MRO apply to all users, owners, and operators of the bulk power system including the Utility. The 2005 Act requires the Department of Energy to designate national interest electric transmission corridors, where constraints or congestion adversely affect consumers. FERC may authorize the siting of transmission facilities within those corridors if the states have failed to act. The courts held that FERC may act when a state, rather than failing to act, has denied an application for siting. It is anticipated that FERC will continue to assert broad authority to authorize the siting of transmission facilities and that Congress might act expressly to expend FERC's authority. The 2005 Act requires price transparency and prohibits market manipulation for all wholesale markets. The requirements apply to all entities that participate in those markets, including the Utility. Retail Electric Service Territories The State of Minnesota (the "State") presently prohibits other electric utilities from serving areas within a municipality which are presently receiving retail electric service from a municipal utility. The State permits municipal utilities to expand their retail electric services to additional areas located within the municipalities' boundaries, including areas added by way of annexation. When municipal utilities expand their retail electric service territory, they are required to pay compensation to any other displaced electric utility. The compensation due to such displaced utilities is determined by the courts, utility regulatory commissions, or by mutual agreement between the two parties. - 7 - 88 State Regulatory Initiatives On May 21, 2001, the Minnesota Legislature passed the Minnesota Energy Security and Reliability Act (the "Act") which was signed by the Governor into law on May 29, 2001 and became Chapter 212 of Laws of Minnesota 2001. Although the Act constituted the most extensive re-write of the State's law on energy policy in 25 years, the focus was primarily on promoting conservation and renewables rather than on creating a more effective process for securing needed transmission and generation facilities. In part, to address the issue of the need for substantial new investment in transmission, the Minnesota Legislature also passed the Omnibus Energy Bill, Laws of Minnesota 2005, Chapter 97 (the "Omnibus Energy Bill"), codified in Minnesota Statutes Chapter 216B, as amended, whose provisions took effect August 1, 2005. The following discussion of some major provisions that affect municipal utilities is a summary and is qualified in its entirety by reference to the Act and the Omnibus Energy Bill. Distributed Generation. The Omnibus Energy Bill establishes the terms and conditions that govern the interconnection and parallel operation of on-site distributed generation. The Public Utility Commission of the State of Minnesota (the "PUC") has established generic standards for utility tariffs providing for the standardized interconnection of facilities and reasonable interconnection agreements. Municipal utilities and cooperatives must adopt tariffs of their own, which must address the same issues as those addressed by the PUC. The Act requires all utilities to keep records of applications for interconnections and to annually report interconnection activity to the Commissioner of the Minnesota Department of Commerce (the "DOC"). • Renewables. Renewables are generally defined as solar, wind, or hydroelectric facilities; however, the Omnibus Energy Bill allows for biogas projects to be eligible for the renewal energy production incentive and promotes the use of soy-diesel and hydrogen as energy sources. The Act, amended in 2010, allows for all utilities to offer its customers one or more options to secure electric energy from renewables or high efficiency, low emissions distributed generation such as fuel cells and micro-turbines fueled by renewable fuels. The DOC Commissioner must certify the applicable power source as renewable. Electric utilities unable to supply their customers with the renewable option must provide an explanation to the PUC. The Omnibus Energy Bill makes a number of changes designed to promote the use of renewable resources, which include expediting regulatory approval of transmission projects related to renewable generation, establishing a framework for a (non-binding) wind energy tariff for community-based energy for development projects, requiring utility participation in a wind integration study, requiring the adjustment of power purchase agreements to account for production tax payments, and requiring a study of the use of bio-diesel fuel to heat homes. The 2005 Minnesota Legislature authorized a study to determine if the State of Minnesota could reliably and cost-effectively integrate a RES mandate. This study was delivered late in 2006 and the 2007 Minnesota Legislature, acting on the strength of the study results, passed into law the Net Generation Energy Act ("NGEA"), Laws of Minnesota 2007, Chapter 3, which will require 25% renewable electric generation by the year 2025, with intervening steps to reach the standard. Consumer Protection. Changes were made to the list of concerns that a municipal or an electric cooperative must address before disconnecting a residential customer for non-payment during the winter heating season. The Act also requires all utilities to offer a payment agreement to residential customers for past due bills or for making up undercharges, if the undercharge is caused through no fault of the customer. If a utility has more than 3,000 customers, it must provide budget billing for residential customers. Conservation Improvement Program ("CIP'). In 2007, the State established a new conservation of energy policy that sets CIP goals for all energy utilities in the State to reduce energy consumption by 1.5% per year. While not a mandate with penalties, this new law will guide the expansion of utility incentives to drive energy efficiency at the consumer level. The 1.5% is an annual target and shouldn't be viewed cumulatively. NGEA also increased mandatory CIP - 8- 89 expenditures from 1% to 1.5% of gross revenues. CIP progress reports submitted to DOC, Division of Energy Resources, have received favorable response. The Omnibus Energy Bill. The Omnibus Energy Bill makes several other major changes to the statutory and regulatory scheme that governs the operation of electric utilities. The Omnibus Energy Bill allows investor-owned utilities ("IOUs"), with the approval of the PUC, to include in their rates the cost of new transmission improvements without going through an expensive general rate case. This authority will provide greater incentive to IOUs to make needed improvements to their transmission systems. The Omnibus Energy Bill modifies several State approval processes involving the construction of large power plants and transmission lines. It transfers the authority for routing transmission lines and siting power plants from the Environmental Quality Board to the PUC, thereby centralizing the need certification and the siting processes in one agency. The law eliminates the limits involved in the need certification and siting processes, provides added criteria to analyze the need for transmission projects, and eliminates the deadline imposed on the PUC for need certification decisions. It is not possible to predict whether the Minnesota State Legislature or Congress will enact further legislation restructuring the electric utility industry or what the substance of any such legislation would be or what the effect might be upon the Utility. Environmental Matters The Utility's generation operations are subject to continuing environmental regulation by the U.S. Environmental Protection Agency (the "EPA"), the Minnesota Pollution Control Agency (the "MPCA") and other regulatory agencies and are in compliance with all regulations. Federal, state and local standards and rules which regulate the environmental impact of generation and transmission facilities used by the Electric System of the Utility are subject to change. These changes may arise from continuing legislative, regulatory and judicial action regarding such standards and rules. Consequently, there is no assurance that the asset in operation or contemplated will remain subject to the regulations currently in effect, will always be in compliance with future regulations, or will always be able to obtain all required operating permits. An inability to comply with environmental standards could result in a reduced operating level or the complete shutdown of individual electric generating units not in compliance. Federal legislation and EPA rule-making have had a significant effect on electric utilities. The Clean Air Act Amendments (CAA) established requirements to obtain operating permits for an affected facility which set forth emissions limits and other requirements, including monitoring, record keeping and reporting. The CAA also established a regulatory program to address the effects of acid rain and impose restrictions on sulfur dioxide (SO2) and nitrogen oxide (NOx). The EPA has introduced or proposed in recent years various rules to reduce NOx and SO2 emissions on a regional level to achieve ambient air quality standards, reduce hazardous air pollutants from power plants, to reduce regional haze and to regulate the disposal and management of coal combustion by-products. The CAA also requires that the EPA establish National Ambient Air Quality Standards and the regulation of greenhouse gases. Revisions to the Clean Water Act Section 316 (a) and (b) may have an impact on the electric utility industry, but the cost at this time is impossible to estimate. The Clean Water Act, Endangered Species Act, and Resource Conservation and Recovery Act currently are scheduled for reauthorization by Congress. The impact of this legislation on the electric utility industry is uncertain; however, no new programs related to the electric utility industry are expected. - 9 - 90 A number of electrical industry and other studies have been conducted regarding the potential long-term health effects resulting from exposure to electromagnetic fields ("EMF") created by transmission and distribution lines and equipment. At this time, any relationship between EMF and certain adverse health effects remains inconclusive; however, electric utilities have been experiencing challenges in various forms claiming financial damages associated with electric equipment and EMF. At this time, it is not possible to predict the extent of the cost, if any, and other impacts which the EMF concern may have on electric utilities, including the Utility. Up to this point there have been no claims against the Utility related to EMF exposure. Litigation claiming personal or property injury arising from alleged stray voltage has resulted in some damage awards against some electric utilities (other than the Utility). In 1993, the Minnesota Legislature extended service requirements governing grounding and stray voltage to electric utilities that provide or furnish retail electric service to agricultural customers in Minnesota. It cannot be predicted at this time whether such legislation or litigation may affect the operations and costs of the Utility. The Utility cannot predict at this time whether any additional legislation or rules will be enacted which will affect the Utility's operations, and if such laws or rules are enacted, what the costs to the Utility might be in the future because of such action. Secondary Markets and Prices Neither the City, the Commission, nor the Purchaser will be obligated to repurchase any of the Bonds, and no representation is made concerning the existence of any secondary market for the Bonds. No assurance can be given that any secondary market will develop following the completion of the offering of the Bonds and no assurance can be given that the initial offering prices for the Bonds will continue for any period of time. AUTHORITY AND PURPOSE The Bonds are being issued pursuant to Minnesota Statutes, Chapters 475 and 453, all as amended, the City Resolution, and the Awarding Resolution. The proceeds of the Bonds, along with available City funds, will be used to refund the August 1, 2014 through August 1, 2021 maturities (the "Refunded Maturities") of the City's Electric Revenue Bonds, Series 2006A, dated March 2, 2006 (the "Series 2006A Bonds"). The Bonds have been structured as a current refunding, which are being issued to achieve debt service savings and to restructure the Utility's debt. It is anticipated that the Refunded Maturities will be called and prepaid at a price of par plus accrued interest on May 1, 2014, which is within 90 days of settlement of the Bonds. - 10 - 91 SOURCES AND USES OF FUNDS The composition of the Bonds is estimated to be as follows: Sources of Funds: Principal Amount $2,125,000 Transfer from Prior Issue Debt Service Reserve Funds 359,500 Total Sources of Funds $2,484,500 Uses of Funds: Deposit to Refunding Account $2,200,656 Deposit to Reserve Account 212,500 Costs of Issuance 53,282 Allowance for Discount Bidding 18,062 Total Uses of Funds $2,484,500 SECURITY AND FINANCING The Bonds are special limited obligations of the City payable, together with the Outstanding Bonds, solely from Net Revenues of the Electric System. Net Revenues of the Electric System are defined as Gross Revenues less Operating Expenses. Operating Expenses are defined as the current expenses of operation, maintenance and minor or current repair of the Electric System for any specified period. Operating Expenses include, without limitation, administrative expenses of the Commission relating to the Electric System, franchise fees, premiums for insurance relating to the Electric System, and amounts necessary to accumulate and maintain the Operating Reserve Requirement. Operating Expenses do not include depreciation, amortization, or interest expense. Gross Revenues are defined as all revenues and receipts from rates, fees, charges, and rentals imposed by the Commission for the availability, benefit, use and products of the Electric System or any part thereof, and any penalties and interest thereon, and income from the investment thereof. Gross Revenues do not include amounts received from the sale of property which is part of the Electric System or amounts borrowed with respect to the Electric System The Bonds have a first charge and lien on the Net Revenues of the Electric System and are issued on a parity with the Outstanding Bonds. Rate Covenant The Commission has pledged to establish user rates and charges for the Electric System so that annual Net Revenues shall not be less than 110% of the average annual debt service on the Parity Bonds and any additional parity bonds. The City and the Commission covenant: to charge reasonable and just rates; to maintain the Electric System in efficient operating condition; to keep proper books and records; to have an annual audit prepared by an independent auditor in accordance with generally accepted accounting principles; to maintain proper billing procedures; to carry insurance; and not to dispose of the Electric System until all Parity Bonds are paid in full or otherwise discharged. - 11 - 92 Funds and Accounts The following summary of certain covenants in the Awarding Resolution are not to be considered a full statement of the provisions of the Awarding Resolution and are qualified by reference to the Awarding Resolution. The Awarding Resolution will provide for the continuation of the Electric Fund (the "Fund") established under prior resolutions of the Commission and the accounts therein. All Gross Revenues of the Electric System are irrevocably pledged and appropriated and shall be credited to the Fund as received. Within the Fund, the accounts discussed below will be maintained, and Gross Revenues received in the Fund shall be apportioned to the said accounts (other than the Refunding Account) as described below. Refunding Account into which there shall be paid the proceeds from the sale of the Bonds, less the proceeds of the Bonds deposited in the Reserve Account, and less any accrued interest paid by the Purchaser of the Bonds upon delivery and any rounding amount deposited into the Debt Service Account, plus available funds from the reserve account for the Series 2006A Bonds. The Commission will use these funds to redeem the Refunded Maturities on May 1, 2014. Operating Account into which all Gross Revenues are received. There shall be paid form the Operating Account when due all reasonable, necessary, and current Operating Expenses of the Electric System. All money on hand in the Operating Account as of the first day of each month in excess of the sum of (i) Operating Expenses then due and payable and to become due and payable during such calendar month, plus (H) the Operating Reserve Requirement, shall constitute Net Revenues and shall be credited to other accounts in the Electric Fund. Debt Service Account into which is deposited any accrued interest paid by the Purchaser of the Bonds upon delivery and any rounding amount deposited into the Debt Service Account. There shall also be credited to the Debt Service Account, out of the Net Revenues on hand in the Operating Account, an amount equal to not less than 1/6 of the interest due within the next six months and 1/12 of the principal due within the next twelve months on all Parity Bonds; provided that the Commission shall be entitled to reduce a monthly apportionment by the amount of any surplus previously credited and then on hand in the Debt Service Account. Money on hand in the Debt Service Account shall be disbursed only to pay principal of and interest on the Parity Bonds when due; provided that on any date when the amount then on hand in the Debt Service Account, plus the amount in the Reserve Account allocable to a series of bonds, is sufficient with other money available for the purpose to pay or discharge all bonds of that series and the interest accrued thereon in full, it may be used for that purpose. If any payment of principal of or interest on the Parity Bonds becomes due when money in the Debt Service Account is temporarily insufficient, an amount equal to such deficiency shall be transferred from the Reserve Account or the Repair and Replacement Account, in that order. Reserve Account in which the Commission will maintain the amount of the Reserve Requirement, which is an amount equal to the least of(i) 10% of the original principal amount of the Parity Bonds and any Additional Bonds; (ii) the maximum amount of principal and interest payable during the then current fiscal year or any future fiscal year on all Parity Bonds and Additional Bonds determined as of the date of issuance of each series of bonds; or(iii) 125% of the average annual principal and interest payable on all Parity Bonds and Additional Bonds determined as of the date of issuance of each series of bonds. Approximately $212,500 will be funded by Bond proceeds and will deposited into the Reserve Account upon delivery of the Bonds. If the balance in the Reserve Account is ever less than the applicable Reserve Requirement, as of the first day of each month all Net Revenues in the Operating Account remaining after the required credit to the Debt Service Account shall be credited to the Reserve Account until the - 12 - 93 balance therein equals the Reserve Requirement. If the balance in the Reserve Account has not been restored to the Reserve Requirement from transfers of Net Revenues within six months of the deficiency, the Commission shall transfer to the Reserve Account, from the Repair and Replacement Account, an amount sufficient to restore the balance to the Reserve Requirement. Repair and Replacement Account into which shall be credited from the Operating Account such portion of the Net Revenues in excess of the current requirements of the Debt Service Account and the Reserve Account ("Surplus Revenues") as the Commission shall determine to be required for replacement or renewal of worn out, obsolete, or damaged properties and equipment of the Electric System. Money in the Repair and Replacement Account shall be used only for the purposes above stated or, if so directed by the Commission, to pay Operating Expenses, to redeem bonds which are subject to redemption according to their terms, to pay principal or interest when due as required by the Awarding Resolution, to restore a deficiency in the Reserve Account, or to pay the cost of improvements to the Electric System; provided that, in the event additional improvements or additions to the Electric System are financed other than from bonds payable from the Debt Service Account, Surplus Revenues from time to time received may be segregated and paid in to on e or more separate and additional accounts for the repayment of such indebtedness and interest thereon, in advance of payments required to be made in to the Repair and Replacement Account. Net Revenues in excess of those required for the foregoing purpose may be used for any proper purpose. Additional Parity Bonds Additional obligations may be issued on a parity of lien with the Bonds and the Outstanding Bonds so long as the Net Revenues of the Electric System for the audited fiscal year immediately preceding the issuance of such Additional Bonds, adjusted as described below, are not less than 125% of the average annual principal and interest due on all Outstanding Bonds and the Additional Bonds to be issued, during the remaining term of the Outstanding Bonds. For purposes of the coverage test set forth above, the Net Revenues for the last audited fiscal year immediately preceding the issuance of such Additional Bonds may be adjusted for such fiscal year as follows: (i) the Gross Revenues for such audited fiscal year may be increased to reflect the Gross Revenues which would have been received had any rate increase placed in effect after the commencement of the audited fiscal year been in effect for the entire audited fiscal year; and (ii) by including the additional revenues reasonably determined by the Commission to be likely to result from the acquisition and construction of the facilities to be financed by such Additional Bonds, provided that the debt service on the proposed Additional Bonds is funded until the estimated date of completion of such facilities. The Commission also reserves the right to cause the issuance of Additional Bonds if and to the extent needed to refund maturing Bonds payable from the Debt Service Account in case the money on hand therein is insufficient to pay the same at maturity, which refunding revenue bonds may be on a parity with the Outstanding Bonds, but shall mature subsequent to all Outstanding Bonds which are not to be refunded by such Additional Bonds. The Commission also reserves the right to cause the issuance of Additional Bonds payable on a parity as to both principal and interest with the Outstanding Bonds to refund Bonds if the maximum amount of principal and interest payable on the Outstanding Bonds and such Additional Bonds in the then current or any future calendar year is not increased by more than 5.00%. - 13 - 94 ELK RIVER MUNICIPAL UTILITIES Organization The control, management and operation of the electric and water systems of the Elk River Municipal Utilities (the "Utility") is under the direction of the Elk River Municipal Utilities Commission (the "Commission"). The three Board members are appointed by the Mayor, with City Council confirmation, and serve three-year overlapping terms. The Commission has complete authority to establish rates and charges for the Utility. The present members of the Commission are: Expiration of Term John Dietz Chair February 28, 2016 Al Nadeau Vice Chair February 28, 2017 Daryl Thompson Member (Trustee) February 28, 2015 Management Mr. Troy Adams serves as the General Manager of the Utility and as Secretary to the Commission, and has been with the Utility since April 2000. Ms. Theresa Slominski serves as the Finance and Office Manager, and has been with the Utility since December 2004. Mr. Mark Fuchs serves as the Superintendent of the Electric Department, and Mr. Eric Volk serves as the Superintendent of the Water Department. The Utility employs a staff of 39, and will be adding two additional employees in 2014. THE ELECTRIC SYSTEM The Utility provides power to the cities of Elk River, Otsego, and Dayton and surrounding rural areas. The Utility purchases a majority of its power from Great River Energy, which is located in the City, and generates a small portion of power for its landfill operations. The Utility distributes electricity at not-for-profit rates as a public service similar to other public services such as the police department, schools, fire department, and local library. The Utility is community-based, which means that utility revenues stay close to home to keep the local economy strong, promote business participation, and ensure response to community needs. The tradition of local ownership and local decisions results in lower electricity rates for the customers. The Utility serves the interests of the community and plans to remain the first choice for electricity in the future. Electric Generating Facilities Year Nameplate Unit No. Model Installed Type of Fuel kW Rating Dependable kW 1 Worthington 1948 Diesel 600 660 2 Worthington 1948 Diesel 600 500 3 Cooper 1962 Gas/Diesel 3,000 3,300 4 Worthington 1972 Gas/Diesel 5,000 5,700 5 3 Caterpillars 2002 Landfill Gas (LFG) 2,400 2,400 6 1 Caterpillar 2006 Landfill Gas (LFG) 800 800 - 14 - 95 • Ten Largest Electric Customers Minnesota Statute 13.685 considers data on customers of municipal electric utilities as private data and will no longer be disclosed. Therefore, the following information is presented without revealing customer names. Percent of Customer kWh Sold Total Revenue Total Sales Customer 1 53,001,600 $4,187,988 14.78% Customer 2 19,051,200 1,636,213 5.77 Customer 3 5,496,000 458,759 1.62 Customer 4 5,292,000 454,374 1.60 Customer 5 5,335,600 449,358 1.59 Customer 6 5,063,400 414,856 1.46 Customer 7 3,629,000 322,837 1.14 Customer 8 3,574,500 313,422 1.11 Customer 9 3,096,960 273,280 0.96 Customer 10 2,958,000 247,109 0.87 $8,758,196 30.90% Electricity Purchased and Purchased Cost kWh Purchased Year Purchased Cost 2012 287,553,108 $20,499,773 2011 276,026,892 19,604,951 2010 264,642,834 18,373,386 2009 247,595,137 16,161,444 2008 241,837,173 14,778,270 Sales History Number of Meters kWh Total Year in Service Sold Billings 2012 9,285 273,455,846 $30,070,045 2011 9,227 261,235,297 27,894,341 2010 9,207 250,711,834 26,060,301 2009 9,170 232,772,722 23,591,485 2008 9,203 224,226,048 22,303,994 Meter Connections Year Residential Commercial Industrial Total 2012 8,166 986 133 9,285 2011 8,124 954 149 9,227 2010 8,112 947 148 9,207 2009 8,091 912 167 9,170 2008 8,125 904 174 9,203 - 15 - 96 Peak Demand Year MW Season 2012 59.6 Summer 2011 57.7 Summer 2010 53.6 Summer 2009 50.1 Summer 2008 57.0 Summer Electric Rates and Charges The following electric rates and charges became effective November 1, 2013. Residential Electric Rates Basic Monthly Charge $10.00 May-September Usage $0.1299 per kWh October-April Usage $0.1161 per kWh Off Peak Rates Energy Storage $0.042 per kWh per month Dual Fuel $0.048 per kWh per month Commercial/Industrial Non-Demand Customers (Demand in kW less than 50kW) Basic Monthly Charge $17.00 May-September Usage $0.1247 per kWh October-April Usage $0.1035 per kWh The minimum bill for non-demand customers is the basic monthly charge plus $1.00 per KVA per month of excess transformer capacity requested by the customer. A power factor of 95% must be maintained or a penalty may be assessed. Demand Customers (Demand in kW greater than 50kW) Basic Monthly Charge $55.00 Energy Charge $0.0616 per kWh May-September Demand Charge $16.21 per kW October-April Demand Charge $11.50 per kW The minimum bill for demand customers is the greater of the maximum billing demand during the previous twelve months times 3% of the demand charge, or the actual demand multiplied by the demand charge; plus $1.00 per KVA per month of excess transformer capacity requested by the customer. A power factor of 95% must be maintained or a penalty may be assessed. - 16 - 97 UTILITY FINANCIAL STATEMENTS The tables on the following pages provide the Utility's Statement of Net Position; Statement of Revenues, Expenses and Changes in Fund Net Position; Statement of Cash Flows of the Electric System for the years ended December 31, 2008 through 2012. The financial statement information was taken from the City's audited comprehensive annual financial reports and should be read in conjunction with the City's 2012 Comprehensive Annual Financial Report, an excerpt of which is provided as Appendix III of this Official Statement. CITY OF ELK RIVER,MINNESOTA Elk River Municipal Utilities-Electric System Statement of Net Position For Fiscal Years Ended December 31 2008 2009 2010 2011' 2012 ASSETS Current Assets Cash and Investments $ 3,908,552 $ 5,366,820 $ 6,587,017 $ 8,380,396 $ 10,646,164 Restricted Cash and Investments 724,500 724,500 724,500 724,500 724,500 Receivables: Interest 27,557 26,090 1,116 4,749 9,286 Accounts 2,023,188 2,061,623 2,455,731 2,503,609 2,318,928 Due from Other Governments 3,161 37,124 1,627 1,627 - Due from Other Funds 3,202 1,581 7,264 - - Inventories 1,329,459 1,034,829 1,018.092 997,125 928,800 Prepaid Items 61,628 75,288 140,116 122,066 187,839 Total Current Assets $ 8,081,247 $ 9,327,855 $10,935,463 $12,734,072 $14,815,517 Noncurrent Assets Deferred Charges $ 128,894 $ 117,724 $ 114,775 $ - $ - Capital Assets: Nondepreciable 344,735 284,884 607,711 401,074 514,396 Depreciable 49,445,896 50,450,158 51,051,029 52,384,131 53,494,906 Accumulated Depreciation (19,975,453) (21,864,361) (23,869,917) (25,885,141) (27,883,481) Total Capital Assets $ 29,815,178 $28,870,681 $27 788,823 $26,900.064 $26,125,821 Total Noncurrent Assets $ 29,944,072 $28,988,405 $27,903,598 $26,900,064 $26,125,821 TOTAL ASSETS $ 38,025,319 $38,316,260 $38,839,061 $39,634,136 $40,941,338 DEFERRED OUTFLOWS OF RESOURCES Deferred Charge on Refunding $ - $ - $ - $ 73,603 $ 67,011 LIABILITIES Current Liabilities Accounts Payable $ 1,712,425 $ 1,958,988 $ 2,138206 $ 2,376,698 $ 2,246,876 Salaries Payable 39,723 60,809 71,655 74,499 81,732 Due to Other Governments 97,749 107,997 122,278 193,408 155,225 Due to Other Funds 326,917 305,232 379,921 372,554 456,681 Unearned Revenue - - - - 8,262 Accrued Interest 131,489 124,284 111,260 103,131 94,796 Compensated Absences Payable(Current) 99,464 79,840 113,845 92,925 101,094 Notes Payable(Current) 177,348 179.328 182,436 183,444 186,588 Bonds Payable(Current) 328,750 512,500 548,000 559,000 588,000 Total Current Liabilities $ 2,913.865 $ 3,328,978 $ 3,667,601 $ 3,955,659 $ 3,919,254 Noncurrent Liabilities Compensated Absences Payable $ 99,359 $ 87,194 $ 100.788 $ 122,119 $ 115,973 Net Other Postemployment Benefits Obligation 10,213 20,243 30,096 35,759 40,360 Notes Payable 2,524,646 2,345,318 2,162,882 1,979,438 1,789,224 Bonds Payable 7,525,000 7,012,500 6,483,597 6,001,525 5,410,254 Total Noncurrent Liabilities $ 10,159,218 $ 9,465,255 $ 8,777,363 $ 8,138,841 $ 7,355,811 TOTAL LIABILITIES $ 13,073,083 $ 12,794,233 $12,444,964 $12,094,500 $11,275,065 NET POSITION Invested in Capital Assets(Net of Related Debt) $ 19.259,434 $18,821,035 $18,411,908 $ 18,250,260 $ 18,218,766 Restricted for Debt Service 724,500 724,500 724,500 724,500 724,500 Unrestricted 4,968,602 5,976,492 7,257,689 8,638,479 10,790,018 TOTAL NET POSITION $ 24,952,536 $25,522,027 $26,394,097 $27,613,239 $29,733,284 ' Restated. - 17 - 98 CITY OF ELK RIVER,MINNESOTA Elk River Municipal Utilities-Electric System Statement of Revenues,Expenses,and Changes In Net Position For Fiscal Years ended December 31 2008 2009 2010 2011 2012 OPERATING REVENUES User Charges $22,531,766 $23,846,258 $26,316,948 $28,150,773 $30,365,645 Delinquency Collections 187,553 209,064 237,319 257,040 238,314 Other 222,584 172,421 173,534 176,173 (345,269) Total Operating Revenues $22,941,903 $24,227,743 $26,727,801 $28,583,986 $30,258,690 OPERATING EXPENSES Personal Services $ 1,615,414 $ 1,700,994 $ 1,773,380 $ 1,692,020 $ 1,707,401 Supplies 117,437 133,347 116,299 132,149 135,161 Purchased Power 14,778,270 16,318,126 18,527,610 19,758,584 20,499,773 Other Service Charges 3,035,938 2,647,498 2,681,960 2,808,580 2,908,383 Depreciation 2,057,851 2,126,794 2,062,942 2,041,717 2,099,594 Total Operating Expense $21,604,910 $22,926,759 $25,162,191 $26,433,050 $27,350,312 OPERATING INCOME(LOSS) $ 1,336,993 $ 1,300,984 $ 1,565,610 $ 2,150,936 $ 2,908,378 NONOPERATING REVENUES(EXPENSES) Connection Charges $ 300,769 $ 78,208 $ 64,761 $ - $ - Interest Income 155,597 87,857 89,948 113,983 117,753 Miscellaneous Revenue 126,969 30,377 48,421 73,712 144,779 Interest Expense (314,775) (299,452) (272,897) (256,141) (236,261) Amortization Expense (11,169) (11,169) (8,819) - - Gain(Loss)on Sale of Capital Assets (8,369) (32,173) (11,609) (37,158) 2,260 Total Nonoperating Revenues(Expenses) $ 249,022 $ (146,352) $ (90,195) $ (105,604) $ 28,531 INCOME(LOSS)BEFORE CONTRIBUTIONS AND TRANSFERS $ 1,586,015 $ 1,154,632 $ 1,475,415 $ 2,045,332 $ 2,936,909 Transfers In - - 53,741 - - Transfers Out (540,636) (585,141) (657,086) (711,415) (816,864) CHANGE IN NET POSITION $ 1,045,379 $ 569,491 $ 872,070 $ 1,333,917 $ 2,120,045 TOTAL NET POSITION(JANUARY 1) $24,015,574 $24,952,536 $25,522,027 $26,279,322 $27,613,239 PRIOR PERIOD ADJUSTMENTS (108,417) - - - - TOTAL NET POSITION,RESTATED(JANUARY 1) $23,907,157 $24,952,536 $25,522,027 $26,279,322 $27,613,239 TOTAL NET POSITION(DECEMBER 31) $24,952,536 $25,522,027 $26,394,097 $27,613,239 $29,733,284 - 18 - 99 CITY OF ELK RIVER,MINNESOTA Elk River Municipal Utilities-Electric System Statement of Cash Flows For Fiscal Years Ended December 31 2008 2009 2010 2011 2012 CASH FLOWS FORM OPERATING ACTIVITIES Receipts From Customers and Users $ 23,171,758 $24,114,123 $26,414,254 $28,519,094 $30,481,587 Other Operating Cash Receipts 202,455 12,506 55,110 121,385 126965 Payments to Suppliers (17,617,200) (18,793,418) (21,426,298) (22,728.996) (23,771,526) Payments to Employees (1,362,656) (1,332.138) (1,446,237) (1,515,439) (1,460,301) Net Cash Provided by Operating Activities $ 4,394,357 $ 4,001,073 $ 3,596,829 $ 4,396,044 $ 5,375,725 CASH FLOWS FROM NONCAPITAL FINANCING ACTIVITIES Transfers From Other Funds $ - $ - $ 53,741 $ - $ - Transfers to Other Funds (540,636) (585,141) (657,086) (711,415) (816,864) Decrease(Increase)in Due From Other Funds (3,202) 1,621 (5,683) (20,287) Increase(Decrease)in Due to Other Funds 30,302 (21,385) 74,689 20,184 84,127 Net Cash Provided(Used)by Noncapital Financing Activities $ (513,536) $ (604,905) $ (534.339) $ (711,518) $ (732,737) CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES Acquisition of Capital Assets $ (2,030,658) $ (1,214,469) $ (998.645) $ (1,010,116) $ (1,517,549) Proceeds From Sale of Capital Assets - - 5.952 - 14,458 Principal Paid on Capital Debt (320,000) (328,750) (512,500) (548,000) (559,000) Interest Paid on Capital Debt (316,535) (306,657) (278,928) (260,945) (241,275) Payments on Shod Term Account to Acquire Capital Assets (89,019) - - - - Proceeds of Refundng Bonds Issued - - 1,105,905 - - Payment to Escrow Agent for Refunded Bond - - (1,099,671) - - Principal Paid on Promissory Note (177,060) (177,348) (179,328) (182,436) (187,070) Net Cash Used by Capital and Related Financing Activities $ (2,933,272) $ (2,027,224) $ (1,957.215) $ (2,001,497) $ (2,490,436) CASH FLOWS FROM INVESTING ACTIVITIES Interest Received 145,826 89,324 114,922 110,350 113,216 Net Increase(Decrease)in Cash and Cash Equivalents $ 1,093,375 $ 1,458,268 $ 1,220,197 $ 1,793,379 $ 2,265,768 Cash and Cash Equivalents(January 1) $ 3,539,677 $ 4,633,052 $ 6,091,320 $ 7,311,517 $ 9,104,896 Cash and Cash Equivalents(December31) $ 4,633.052 $ 6,091,320 $ 7,311,517 $ 9,104,896 $11,370,664 Reconciliation of Cash and Cash Equivalents to the Statement of Net Position Cash and Investments $ 3,908.552 $ 5,366,820 $ 6,587,017 $ 8,380,396 $10,646,164 Restricted Cash and Investments 724,500 724,500 724,500 724,500 724,500 Total Cash and Cash Equivalents $ 4,633,052 $ 6,091,320 $ 7,311,517 $ 9,104,896 $11,370,664 Reconciliation of Operating Income(Loss)to Net Cash Provided by Operating Activities Operating Income(Loss) $ 1336,993 $ 1,300,984 $ 1,565,610 $ 2,150,936 $ 2,908,378 Adjustments to Reconcile Operating Income(Loss) to Net Cash Provided by Operating Activities: Other Revenue Related to Operations 427,738 108,585 113,182 73,712 144,779 Depreciation Expense 2,057,851 2,126,794 2,062,942 2,041,717 2,099,594 (Increase)Decrease in Assets. Accounts Receivable (117,665) (38,435) (394,108) (47,878) 184,681 Due From Other Governments 35,274 (33,963) 35,497 - 1,627 Inventories 54,312 294,630 16,737 20,967 68,325 Prepaid Items 51,853 (13,660) (64.828) 18,050 (65,773) Increase(Decrease)In: Accounts Payable 516,660 246,563 179,218 58,492 50,178 Salaries Payable 16,942 21,086 10,846 2,844 7.233 Due to Other Governments 21.954 10,248 14,281 71,130 (38,183) Unearned Revenue - - - - 8,262 OPEB Liability 10,213 10,030 9,853 5,663 4,601 Compensated Absences Payable (17,768) (31,789) 47,599 411 2,023 Net Cash Provided by Operating Activities $ 4,394,357 $ 4,001,073 $ 3,596,829 $ 4,396,044 $ 5,375,725 Noncash Capital and Related Financing Activities Amortization of Bond Premium $ - $ - $ - $ - $ 3,271 Amortization of Deferred Charges 11,169 11,169 8,819 8,634 - Amortization of Deferred Charges on Refunding - - 6,993 6,600 6,592 Prior Period Adjustment to Accumulated Depreciation 108,417 - - - - Assets Purchased on Account - - - 180,000 - Disposal of Capital Assets 8,369 266,697 74,947 84,778 12,198 - 19 - 100 DEBT SERVICE AND COVERAGE CALCULATION Elk River Municipal Utilities - Electric Fund Net Revenues Available For Debt Service Fiscal Years Ended December 31, 2011 and 2012 December 31, 2011 December 31, 2012 Operating Revenue $ 28,583,986 $ 30,258,690 Operating Expense (26,433.050) (27,350,312) Net Operating Income (Loss) $ 2,150,936 $ 2,908,378 Add: Depreciation 2,041,717 2,099,594 Add: Other Income 187,695 262,532 Available for Debt Service $ 4,380,348 $ 5,270,504 Average Available for Debt Service $ 4,825,426 $ 4,825,426 Average Annual Debt Service * $ 529,092 Coverage 9.12x * Includes average annual debt service for the Bonds and the Series 2007A Bonds. Sources: City's Comprehensive Annual Financial Reports for the fiscal years ended December 31, 2011 and 2012. (The Balance of This Page Has Been Intentionally Left Blank) - 20 - 101 • UTILITY REVENUE DEBT` Est. Principal Date Original Final Outstanding of Issue Amount Purpose Maturity As of 3-13-14 3-28-07 $2,875,000 Electric Revenue 2-1-2022 $1,960,000 3-13-14 2,125,000 Electric Revenue Refunding (the Bonds) 8-1-2018 2,125.000 Total $4,085,000 * Excludes the Refunded Maturities. Estimated Calendar Year Debt Service Payments Utility Revenue Debt Principal Year Principal & Interest* 2014 (at 3-13) $ 430,000 $ 477,274 2015 630,000 723,113 2016 635,000 716,673 2017 650,000 719,093 2018 670,000 724,480 2019 250,000 287,800 2020 260,000 287,600 2021 275,000 291,900 2022 285,000 290,700 Total $4,085,000 $4,518,633 Includes the Bonds at an assumed average annual interest rate of 1.22% and excludes the Refunded Maturities. FUTURE FINANCING The City anticipates issuing general obligation sewer bonds in the Spring of 2014. LITIGATION Neither the City nor the Commission are aware of any threatened or pending litigation affecting the validity of the Bonds or the City's or Commission's ability to meet its financial obligations. - 21 - 102 LEGALITY The Bonds are subject to approval as to certain matters by Kennedy & Graven, Chartered, of Minneapolis, Minnesota, as Bond Counsel. Bond Counsel has not participated in the preparation of this Preliminary Official Statement and will not pass upon its accuracy, completeness, or sufficiency. Bond Counsel has not examined nor attempted to examine or verify, any of the financial or statistical statements, or data contained in this Preliminary Official Statement and will express no opinion with respect thereto. A legal opinion in substantially the form set out in Appendix I herein will be delivered at closing. TAX EXEMPTION At closing Kennedy & Graven, Chartered, of Minneapolis, Minnesota, Bond Counsel for the Bonds, will render an opinion that, at the time of their issuance and delivery to the original purchaser, under present federal and State of Minnesota laws, regulations, rulings and decisions (which excludes any pending legislation which may have a retroactive effect), the interest on the Bonds is excluded from gross income for purposes of United States income tax and is excluded, to the same extent, from taxable net income of individuals, estates and trusts for Minnesota income purposes, and is not a preference item for purposes of computing the federal alternative minimum tax or the Minnesota alternative minimum tax imposed on individuals, trusts, and estates. Such interest is taken into account in determining adjusted current earnings for the purpose of computing the federal alternative minimum tax imposed on certain corporations and is subject to Minnesota franchise taxes on corporations (including financial institutions) measured by income. No opinion will be expressed by Kennedy & Graven regarding other federal or state tax consequences caused by the receipt or accrual of interest on the Bonds or arising with respect to ownership of the Bonds. Preservation of the exclusion of interest on the Bonds from federal gross income and state gross and taxable net income, however, depends upon compliance by the City with all requirements of the Internal Revenue Code of 1986, as amended, (the "Code") that must be satisfied subsequent to the issuance of the Bonds in order that interest thereon be (or continue to be) excluded from federal gross income and state gross and taxable net income. The City will covenant to comply with requirements necessary under the Code to establish and maintain the Bonds as tax-exempt under Section 103 thereof, including without limitation, requirements relating to temporary periods for investments and limitations on amounts invested at a yield greater than the yield on the Bonds. OTHER FEDERAL AND STATE TAX CONSIDERATIONS Property and Casualty Insurance Companies Property and casualty insurance companies are required to reduce the amount of their loss reserve deduction by 15% of the amount of tax-exempt interest received or accrued during the taxable year on certain obligations, including interest on the Bonds. - 22 - 103 Foreign Insurance Companies Foreign companies carrying on an insurance business in the United States are subject to a tax on income which is effectively connected with their conduct of any trade or business in the United States, including "net investment income." Net investment income includes tax-exempt interest such as interest on the Bonds. Branch Profits Tax A foreign corporation is subject to a branch profits tax equal to 30% of the "dividend equivalent amount" for the taxable year. The "dividend equivalent amount" is the foreign corporation's "effectively connected earnings and profits" adjusted for increase or decrease in "U.S. net equity." A branch's earnings and profits may include tax-exempt municipal bond interest, such as interest on the Bonds. Passive Investment Income of S Corporations Passive investment income, including interest on the Bonds, may be subject to federal income taxation under Section 1375 of the Code for an S corporation that has Subchapter C earnings and profits at the close of the taxable year if more than 25% of the gross receipts of such S corporation is passive investment income. Financial Institutions Financial institutions are generally not entitled to a deduction for interest expenses allocable to the owners of tax-exempt obligations purchased after August 7, 1986. The City will designate the Bonds as qualified tax-exempt obligations pursuant to Section 265(b)(3) of the Code. General The preceding is not a comprehensive list of all federal or State tax consequences which may arise from the receipt or accrual of interest on the Bonds. The receipt or accrual of interest on the Bonds may otherwise affect the federal income tax (or Minnesota income tax or franchise tax) liability of the recipient based on the particular taxes to which the recipient is subject and the particular tax status of other items of income or deductions. All prospective purchasers of the Bonds are advised to consult their own tax advisors as to the tax consequences of, or tax considerations for, purchasing or holding the Bonds. BANK-QUALIFIED TAX-EXEMPT OBLIGATIONS The Bonds will be deemed designated as "qualified tax-exempt obligations" for purposes of Section 265(b)(3) of the Internal Revenue Code of 1986, as amended, relating to the ability of financial institutions to deduct from income for federal income tax purposes, interest expense that is allocable to carrying and acquiring tax-exempt obligations. - 23 - 104 RATING Application for a rating of the Bonds has been made to Moody's Investors Service ("Moody's"), 7 World Trade Center, 250 Greenwich Street, 23rd Floor, New York, New York. If a rating is assigned, it will reflect only the opinion of Moody's. Any explanation of the significance of the rating may be obtained only from Moody's. There is no assurance that the rating, if assigned, will continue for any given period of time, or that such rating will not be revised, suspended or withdrawn, if, in the judgment of Moody's, circumstances so warrant. A revision, suspension or withdrawal of the rating may have an adverse effect on the market price of the Bonds. FINANCIAL ADVISOR The City and the Commission have retained Springsted Incorporated, Public Sector Advisors, of St. Paul, Minnesota, as financial advisor (the "Financial Advisor") in connection with the issuance of the Bonds. In preparing the Preliminary Official Statement, the Financial Advisor has relied upon governmental officials, and other sources, who have access to relevant data to provide accurate information for the Preliminary Official Statement, and the Financial Advisor has not been engaged, nor has it undertaken, to independently verify the accuracy of such information. The Financial Advisor is not a public accounting firm and has not been engaged by the City or the Commission to compile, review, examine or audit any information in the Preliminary Official Statement in accordance with accounting standards. The Financial Advisor is an independent advisory firm and is not engaged in the business of underwriting, trading or distributing municipal securities or other public securities and therefore will not participate in the underwriting of the Bonds. CERTIFICATION The City and the Commission have authorized the distribution of this Preliminary Official Statement for use in connection with the initial sale of the Bonds. As of the date of the settlement of the Bonds, the Purchaser will be furnished with a certificate signed by the appropriate officers of the City and the Commission. The certificate will state that the Official Statement did not and does not, as of the date of the certificate, contain any untrue statement of material fact or omit to state a material fact necessary, in order to make the statements made therein, in light of the circumstances under which they were made, not misleading. - 24 - 105 GENERAL INFORMATION CONCERNING THE CITY The Bonds are special obligations of the City payable solely from net revenues of the City's electric system and shall not constitute a debt for which the full faith and credit or taxing powers of the City will be pledged. The following information concerning the City is provided for informational purposes only and not as a representation of security for the Bonds. General Information The City is the Sherburne County seat and is located approximately 30 miles northwest of the Minneapolis/St. Paul metropolitan area. The City encompasses an area of approximately 43.75 square miles (28,000 acres). Population The City's population trend is shown below. Percent Population Change 2012 U.S. Census Estimate 23,273 1.3% 2010 U.S. Census 22,974 39.7 2000 U.S. Census 16,447 47.6 1990 U.S. Census 11,143 64.2 1980 U.S. Census 6,785 -- Source: United States Census Bureau, http.//www.census.gov/ Transportation U.S. Highways 10 and 169, State Highway 101, and Interstate 94 run through and/or adjacent to the City. City residents are served by the Anoka County/Blaine Airport, St. Cloud Regional Airport, and the Minneapolis/St. Paul Regional Airport. Rail service is provided by Burlington Northern Santa Fe Railroad and the Northstar Commuter Rail, which has a station located in the City and provides a convenient connection to downtown Minneapolis and other communities throughout the region. Bus services are provided to City residents by Northstar Link Commuter Bus, Speco Charter Services, Vision of Elk River, and RiverRider. The Sherburne County Veteran's Office also coordinates a transportation program, Sherburne County VA Medical Center Transportation, which provides veterans transportation to the Minneapolis and St. Cloud VA Medical Centers free of charge. - 25 - 106 Major Employers Approximate Number Employer Product/Service of Employees Independent School District No. 728 (Elk River) Education 916 Sherburne County County government 632* Guardian Angels Care Center Skilled nursing facility 374 Wal-Mart Stores, Inc. Retail store 350* Great River Energy Electric power distributor 207 Sportech, Inc. Thermoformed plastic products 185 Menards Retail home improvement 170* Tescom Corporation Pressure control devices 161 Cornerstone Auto Group Automobile dealership 138* Coborn's Grocery store 125* Avalon Home Care Home healthcare service 120* Morrell Companies Freight trucking 115* E&O Tools & Plastics, Inc. Plastic injection molding manufacturer 105 Cub Foods Grocery store 100* Home Depot Retail home improvement 100* ' Includes full-and part-time employees. Source: This does not purport to be a comprehensive list and is based on a January 2014 telephone survey of individual employers. Labor Force Data Annual Average November 2009 2010 2011 2012 2013 Labor Force: Sherburne County 49,460 49,246 49,357 49,556 49,794 State of Minnesota 2,952,963 2,966,097 2,970,653 2,969,607 2,969,149 Unemployment Rate: Sherburne County 9.4% 8.5% 7.3% 6.4% 4.5% State of Minnesota 8.0 7.4 6.5 5.6 4.1 Source: Minnesota Department of Employment and Economic Development, http://www.positivelvminnesota.com. 2013 data are preliminary. Retail Sales and Effective Buying Income (EBI)for Sherburne County Total Retail Total Median Sales ($000) EBI ($000) Household EBI 2013 N/A $1,922,575 $56,306 2012 $775,517 1,854,005 53,726 2011 791,235 1,863,538 53,734 2010 791,553 1,858,590 53,577 2009 772,040 1,892,543 55,400 The 2013 Median Household EBI for the State of Minnesota was $48,180. Source: Claritas, Inc. - 26 - 107 Building Permits New Single New Total Value Family Residential Commercial/Industrial (All Permits) Year Number Value Number Value 2013 (to 12-15) 82 $15,182,066 2 $ 4,225,000 $38,243,137 2012 36 6,588,264 3 1,936,650 25,585,264 2011 11 2,264,011 0 0 20,719,402 2010 15 3,098,919 3 5,120,272 22,311,703 2009 16 3,391,309 5 1,650,863 14,265,340 Source: City of Elk River. Recent Development The development community's interest in Elk River continues to rise, with several major projects approved in 2013. Preferred Powder Coating started construction on a new 100,000 square-foot manufacturing building in October 2013. Expansions were approved for Orluck Industries and Alliance Machine, adding 37,500 square feet to those projects. Smaller economic development projects provided loans to local businesses, including Blue Egg Bakery, and energy efficiency loans for PS Dance and Ralphie's Victory Lane. In 2012, the City opened its newest business/industrial park with Natures Edge Business Center, located south of the Northstar Commuter Rail station. The first phase included three lots, one of which was sold to Preferred Powder Coating. The City anticipates looking into the second phase of the development in 2014. Financial Institutions The following full service banks are located in the City*: Deposits As of 9-30-13 The Bank of Elk River $330,031,000 The First National Bank of Elk River 222553,000 Total $552,584,000 In addition, branch offices of Wells Fargo Bank, National Association; U.S. Bank National Association; Central Bank; Pine River State Bank; and TCF National Bank are located throughout the City. * This does not purport to be a comprehensive list. Source: Federal Deposit Insurance Corporation, http://www2.fdic.dov/idasp/main.asp. - 27 - 108 Health Care Services The following is a summary of health care facilities located in the City: Facility Location No. of Beds Guardian Angels Care Center (Nursing Home) City of Elk River 120 Lavine Place (Supervised Living Facility) City of Elk River 6 Macgregor Place (Supervised Living Facility) City of Elk River 6 Source: Minnesota Department of Health, http://www.health.state.mn.us/. Education Public Education The following district serve the residents of the City: 2012/13* School Location Grades Enrollment Elk River Community Schools City of Elk River K-12 12,753 2013/14 enrollment figures are not yet available. Source: Minnesota Department of Education, http://education.state.mn.us/mde/index.html. Non-Public Education City residents are also served by the following private schools: 2012/13* School Location Grades Enrollment St. Andrew's Catholic School City of Elk River K-6 177 Mary Queen of Peace Catholic School City of Elk River K-12 114 St. John's Lutheran City of Elk River K-12 87 Monarch Montessori School City of Elk River K-6 23 Solid Rock Christian Academy City of Elk River K-12 15 My Own Montessori City of Elk River K 5 2013/14 enrollment figures are not yet available. Source: Minnesota Department of Education, http://education.state.mn.us/mdefindex.html. - 28 - 109 Governmental Organization and Services The City of Elk River was organized as a municipality in 1977 and is a statutory city. The City's governing body is the City Council, comprised of the Mayor and four Council members. The Mayor serves a four-year term of office; Council members are elected by ward to serve overlapping four-year terms. The following individuals comprise the current City Council: Expiration of Term John Dietz Mayor December 31, 2014 Stewart Wilson Council Member, Ward 1 December 31, 2014 Matthew Westgaard Council Member, Ward 2 December 31, 2016 Barbara Burandt Council Member, Ward 3 December 31, 2016 Paul Motin Council Member, Ward 4 December 31, 2014 The daily administration of City operations is the responsibility of the City Administrator, Calvin Portner, who has served in this position since October 2011. Mr. Tim Simon is the City's Finance Director and has served in this position since January 2007. The City has 145 employees. In addition to providing general governmental services, the City provides a full range of other services, including (but not limited to) police and fire protection, building and other safety inspections, planning and zoning, economic development, environmental services, parks and recreation, library, street, snow removal, and infrastructure maintenance and repair. The City also provides municipal water, sewer, garbage, and electric services, and operates two off-sale liquor stores. Cash and Investments (as of December 15, 2013) General Fund $ 6,610,953 Special Revenue Funds 6,230,024 Debt Service Funds 1,506,987 Capital Project Funds 15,889,387 Enterprise Funds 22,303,713* Agency Funds 75,456 Total Cash and Investments $52,616,520 * Includes cash and investments of$14,280,368 for the Elk River Municipal Utilities. The City has a formal investment policy and all investments are made in accordance with Minnesota Statutes. The primary objectives of the City's investment policy, in priority order, include safety, liquidity, return on investment, and maintaining the public's trust. Permitted investments include repurchase agreements, United States securities (excluding high-risk mortgage-backed securities), the Minnesota Joint Powers Investment Trust, State and local securities, commercial paper, and time deposits. Guaranteed investment contracts and reverse repurchase agreements have specifically been excluded from the City's investment policy. As per the City's investment policy, the Finance Director shall be responsible for all transactions undertaken and shall establish a system of controls to regulate the activities of subordinate officials. As of December 15, 2013, the City had investments totaling $38,130,117 (includes money market funds). - 29 - 110 Labor Contracts The status of labor contracts in City is as follows: No. of Expiration Date Bargaining Unit Employees of Current Contract LELS, Local 231 (Police) 23 December 31, 2015 LELS, Local 271 (Police Sergeants) 5 December 31, 2015 Subtotal 28 Non-unionized employees 117 Total employees 145 Employee Pensions All full-time employees and certain part-time employees of the City are covered by defined benefit pension plans administered by the Public Employees Retirement Association of Minnesota (PERA). PERA administers the General Employees Retirement Fund (GERF) and the Public Employees Police and Fire Fund (PEPFF),which are cost-sharing multiple-employer retirement plans. GERF members belong to either the Coordinated Plan or the Basic Plan. Coordinated members are covered by Social Security and Basic members are not. All new members must participate in the Coordinated Plan. All police officers, fire fighters and peace officers who qualify for membership by statute are covered by PEPFF. The City's contributions to GERF and PEPFF are equal to the contractually required contributions for each year as set by State Statute, and are as follows for the past five years: GERF PEPFF 2012 $553,395 $369,421 2011 528,696 355,670 2010 501,726 357,977 2009 496,994 340,677 2008 496,832 317,807 Three Council members of the City are covered by the Public Employees Defined Contribution Plan (PEDCP), a multiple-employer deferred compensation plan administered by PERA. The PEDCP is a tax-qualified plan under Section 401(a) of the Internal Revenue Code and all contributions by or on behalf of employees are tax deferred until the time of withdrawal. Plan benefits depend solely on the amounts contributed to the plan plus investment earnings less administrative expenses. An eligible elected official who chooses to participate in the plan contributes 5% of their salary, which is matched by the elected official's employer. For salaried employees, employer contributions are determined by the employer and must be a fixed percentage of salary. Employees who are paid for their services may elect to make member contributions in an amount not to exceed the employer share. PERA receives 2% of employer contributions and 0.025% of the assets in each member's account annually for administering the plan. - 30 - 111 The City's contributions to PEDCP for the past three years are as follows: PEDCP 2012 $1,405 2011 1,380 2010 1,470 The Elk River Fire Relief Association (the "Association") is the administrator of a single employer public employee defined benefit retirement system established to provide benefits for members of the Elk River Fire Department. The Association maintains a separate special fund to accumulate assets to fund the retirement benefits earned by the Fire Department's membership. Funding for the Association is derived primarily from an insurance premium tax in accordance with the Volunteer Firefighter's Relief Association Financing Guidelines Act of 1971 (Chapter 261 as amended by Chapter 509 of Minnesota Statutes 1980). The financial requirements of the special fund are determined in accordance with Minnesota Statutes, which requires the payment of pension benefits in a lump sum or optionally in annual installments. The Association is comprised of volunteers and, therefore, members do not have any contribution requirements. The payments made by the State of Minnesota to the City for the Association for the past five years are as follows: Firefighter's Association 2012 $118,465 2011 118,522 2010 101,255 2009 97,024 2008 113,999 For more information regarding the liability of the City with respect to its employees, please reference "Note 4, OTHER INFORMATION, D. Pension Plans" of the City's Comprehensive Annual Financial Report for fiscal year ended December 31, 2012, an excerpt of which is included as Appendix IV of this Official Statement. (The City's Comprehensive Annual Financial Report for the fiscal year ended December 31, 2013 is not yet available.) Sources: City's Comprehensive Annual Financial Reports. Other Post-Employment Benefits The Governmental Accounting Standards Board (GASB) has issued Statement No. 45, Accounting and Financial Reporting by Employers for Post-employment Benefits Other Than Pensions (GASB 45), which addresses how state and local governments must account for and report their obligations related to post-employment healthcare and other non-pension benefits (referred to as Other Post Employment Benefits or"OPEB"). The City provides other postemployment health insurance benefits for retired employees through two defined benefit plans: the Municipal Retirees Health Plan (MRHP), a single- employer plan; and the Utilities Retirees Health Plan (URHP), a multi-employer plan. Each plan provides benefits for eligible retirees and their dependents through the City's group health insurance plans, which cover both active and retired members. Since the premium is a blended rate determined on the active and retiree population, the retirees are receiving an implicit rate subsidy. Contribution requirements are reviewed at the time changes are made to the plans. - 31 - 112 Benefit provisions for MRHP are established and amended by the City, while the Utility has been delegated authority to establish and amend benefit provisions for URHP. Eligible retirees receiving benefits are required to pay 100% of the total premium. The City's annual OPEB cost for each plan is calculated based on the annual required contribution (ARC) of the employer, an amount actuarially determined in accordance with the parameters of GASB 45. The ARC represents the level of funding that, if paid on an ongoing basis, is projected to cover normal cost each year and amortize any unfunded actuarial liabilities (or funding excess) over a period not to exceed thirty years. The URHP has elected to calculate the ARC and related information using the alternative measurement method permitted for employers in plans with fewer than one hundred total plan members. Components of the annual OPEB cost, the amount actually contributed to the plan, and the changes in the net OPEB obligation to the plan for the fiscal year ended December 31, 2012 are as follows: MRHP URHP Annual required contribution $100,739 $ 6,527 Interest on net OPEB obligation 6,985 1,430 Adjustment to ARC (10,005) (3,356) Annual OPEB cost (expense) $ 97,719 $ 4,601 Contributions made (36,810) 0 Increase in net OPEB obligation $ 60,909 $ 4,601 Net OPEB obligation — beginning of year 174,636 35.759 Net OPEB obligation —end of year $235,545 $40,360 Funded status of the OPEB as reported in the actuarial reports received to-date: Unfunded UAAL as Actuarial Actuarial a percentage Actuarial Actuarial Value Accrued Accrued of Annual Valuation Date of Assets Liability Liability(UAAL) Covered Payroll MHRP: January 1, 2011 - 0 - $908,610 $908,610 13.17% January 1, 2008 - 0 - 88,718 88,718 2.17 UHRP: January 1, 2011 - 0 - $42,681 $42,681 1.87% January 1, 2008 - 0 - 56,892 56,892 2.47 - 32 - 113 Required contributions as reported in the actuarial reports received to-date: Fiscal OPEB Employer % of Annual OPEB OPEB Year Ended Cost Contributions Cost Contributed Obligation MHRP: December 31, 2012 $97,719 $36,810 38% $235,545 December 31, 2011 99,058 25,001 25 174,636 December 31, 2010 2,734 2,851 104 100,579 December 31, 2009 5,925 2,601 44 100,696 December 31, 2008 99,402 2,030 2 97,372 UHRP: December 31, 2012 $ 4,601 - 0 - - 0 - $40,360 December 31, 2011 5,663 - 0 - - 0 - 35,759 December 31, 2010 9,853 - 0 - - 0 - 30,096 December 31, 2009 10,030 - 0 - - 0 - 20,243 December 31, 2008 10,213 - 0 - - 0 - 10,213 For more information regarding the liability of the City and the Utility with respect to its employees, please reference "Note 4, OTHER INFORMATION, E. Other Postemployment Benefits (OPEB)" of the City's Comprehensive Annual Financial Report for fiscal year ended December 31, 2012, an excerpt of which is included as Appendix IV of this Official Statement. (The City's Comprehensive Annual Financial Report for the fiscal year ended December 31, 2013 is not yet available.) Sources: City's Comprehensive Annual Financial Reports. (The Balance of This Page Has Been Intentionally Left Blank) - 33 - 114 APPENDIX I PROPOSED FORM OF LEGAL OPINION $2,125,000 Electric Revenue Refunding Bonds, Series 2014A City of Elk River Elk River Municipal Utilities Commission Sherburne County,Minnesota We have acted as bond counsel in connection with the issuance by the City of Elk River, Sherburne County, Minnesota, and the Elk River Municipal Utilities Commission (collectively, the "Issuer"), of Electric Revenue Refunding Bonds, Series 2014A, originally dated the date hereof, in the total principal amount of$2,125,000. For the purpose of rendering this opinion we have examined certified copies of certain proceedings taken by the Issuer in the authorization, sale and issuance of the Bonds, including the form of the Bonds, and certain other proceedings and documents furnished by the Issuer. From our examination of such proceedings and other documents, assuming the genuineness of the signatures thereon and the accuracy of the facts stated therein and continuing compliance by the Issuer with its covenants to comply with the Internal Revenue Code of 1986,as amended,and based upon laws, regulations,rulings and decisions in effect on the date hereof,it is our opinion that: 1. The Bonds are in due form, have been duly executed and delivered, and are valid and binding special revenue obligations of the Issuer,enforceable in accordance with their terms,except as such enforcement may be limited by Minnesota or United States laws relating to bankruptcy, reorganization, moratorium or creditors'rights. 2. As provided in a resolution adopted by the Municipal Utilities Commission on February 11, 2014, and a concurring resolution of the City Council on January 21,2014, the Bonds constitute a first and prior parity lien upon the net revenues of the electric utility plant and system in accordance with and subject to the provisions of the resolutions. 3. Interest on the Bonds is excludable from gross income of the recipient for federal income tax purposes and, to the same extent, is excludable from taxable net income of individuals, trusts, and estates for Minnesota income tax purposes, and is not a preference item for purposes of the computation of the federal alternative minimum tax, or the computation of the Minnesota alternative minimum tax imposed on individuals, trusts and estates. However, such interest is taken into account in determining adjusted current earnings for the purpose of computing the federal alternative minimum tax imposed on certain corporations and is subject to Minnesota franchise taxes on corporations (including financial institutions) measured by income. The opinion set forth in this paragraph is subject to the condition that the Issuer comply with all requirements of the Internal Revenue Code of 1986, as amended, that must be satisfied subsequent to the issuance of the Bonds in order that interest thereon be, or continue to be, excludable from gross income for federal income tax purposes and from taxable net income for Minnesota income tax purposes. The Issuer has covenanted to comply with all such requirements. Failure to comply with certain of such requirements may cause interest on the Bonds to be included in gross income for federal income tax purposes and taxable net income for Minnesota income tax purposes retroactively to the date of issuance of the Bonds. We express no opinion regarding tax consequences arising with respect to the Bonds other than as expressly set forth herein. 4. The rights of the owners of the Bonds and the enforceability of the Bonds may be limited by bankruptcy, insolvency, reorganization, moratorium, and other similar laws affecting creditor's rights generally and by equitable principles,whether considered at law or in equity. I-1 115 We have not been asked and have not undertaken to review the accuracy, completeness or sufficiency of the Official Statement or other offering material relating to the Bonds, and accordingly we express no opinion with respect thereto. This opinion is given as of the date hereof and we assume no obligation to update, revise, or supplement this opinion to reflect any facts or circumstances that may hereafter come to our attention or any changes in law that may hereafter occur. Dated at Minneapolis,Minnesota, March ,2014. 1-2 116 APPENDIX II CONTINUING DISCLOSURE UNDERTAKING $2,125,000 Electric Revenue Refunding Bonds, Series 2014A City of Elk River Elk River Municipal Utilities Commission Sherburne County,Minnesota March ,2014 This Continuing Disclosure Certificate(the"Disclosure Certificate")is executed and delivered by the City of Elk River, Minnesota (the "City") and the Elk River Municipal Utilities Commission (the "Commission") in connection with the issuance by the City of its $2,125,000 Electric Revenue Refunding Bonds, Series 2014A(the `Bonds"). The Bonds are being issued under the terms of a resolution adopted by the Commission on January 14, 2014 (the "Authorizing Resolution"), a resolution adopted by the City Council of the City on January 21, 2014 (the "Approving Resolution"), and a resolution adopted by the Commission on February 11,2014 (the"Award Resolution"). The Bonds are being delivered to (the"Purchaser")on the date hereof. Under the terms of the Award Resolution,the City and the Commission have covenanted and agreed to provide continuing disclosure of certain financial information and operating data and timely notices of the occurrence of certain events to provide for the public availability of such information and to permit the Purchaser to comply with the continuing disclosure requirements of the Rule (defined herein). The City and the Commission hereby covenant and agree as follows: Section 1. Purpose of the Disclosure Certificate. This Disclosure Certificate is being executed and delivered by the City and the Commission for the benefit of the Holders(as defined herein) of the Bonds in order to provide for the public availability of such information and assist the Participating Underwriter(s) (defined herein) in complying with the Rule (as defined herein). This Disclosure Certificate, together with the Resolutions, constitutes the written agreement or contract for the benefit of the Holders of the Bonds that is required by the Rule. Section 2. Definitions. In addition to the defined terms set forth in the Resolutions, which apply to any capitalized term used in this Disclosure Certificate unless otherwise defined in this Section, the following capitalized terms shall have the following meanings: "Annual Report"means any annual report provided by the City and Commission pursuant to,and as described in,Sections 3 and 4 of this Disclosure Certificate. "Audited Financial Statements" means annual financial statements, prepared in accordance with generally accepted accounting principles for governmental units ("GAAP") as prescribed by the Governmental Accounting Standards Board ("GASB"), or as otherwise required by Minnesota law for the preceding Fiscal Year, including a balance sheet and statement of revenues, expenditures, and changes in fund balance. "Bonds" means the Electric Revenue Refunding Bonds, Series 2014A, issued by the City in the original aggregate principal amount of$2,125,000. "City" means the City of Elk River, Minnesota, which is the obligated person with respect to the Bonds. "Commission"means the Elk River Municipal Utilities Commission created by the City to exercise exclusive jurisdiction, control, and management of the municipal light, power, and electric operations of the City. 11-1 117 APPENDIX II CONTINUING DISCLOSURE UNDERTAKING $2,125,000 Electric Revenue Refunding Bonds, Series 2014A City of Elk River Elk River Municipal Utilities Commission Sherburne County,Minnesota March ,2014 This Continuing Disclosure Certificate(the"Disclosure Certificate")is executed and delivered by the City of Elk River, Minnesota (the "City") and the Elk River Municipal Utilities Commission (the "Commission") in connection with the issuance by the City of its $2,125,000 Electric Revenue Refunding Bonds, Series 2014A(the "Bonds"). The Bonds are being issued under the terms of a resolution adopted by the Commission on January 14, 2014 (the "Authorizing Resolution"), a resolution adopted by the City Council of the City on January 21, 2014 (the "Approving Resolution"), and a resolution adopted by the Commission on February 11, 2014 (the"Award Resolution"). The Bonds are being delivered to (the"Purchaser")on the date hereof. Under the terms of the Award Resolution,the City and the Commission have covenanted and agreed to provide continuing disclosure of certain financial information and operating data and timely notices of the occurrence of certain events to provide for the public availability of such information and to permit the Purchaser to comply with the continuing disclosure requirements of the Rule (defined herein). The City and the Commission hereby covenant and agree as follows: Section 1. Purpose of the Disclosure Certificate. This Disclosure Certificate is being executed and delivered by the City and the Commission for the benefit of the Holders(as defined herein)of the Bonds in order to provide for the public availability of such information and assist the Participating Underwriter(s) (defined herein) in complying with the Rule (as defined herein). This Disclosure Certificate, together with the Resolutions,constitutes the written agreement or contract for the benefit of the Holders of the Bonds that is required by the Rule. Section 2. Definitions. In addition to the defined terms set forth in the Resolutions, which apply to any capitalized term used in this Disclosure Certificate unless otherwise defined in this Section, the following capitalized terms shall have the following meanings: "Annual Report"means any annual report provided by the City and Commission pursuant to,and as described in,Sections 3 and 4 of this Disclosure Certificate. "Audited Financial Statements" means annual financial statements, prepared in accordance with generally accepted accounting principles for governmental units ("GAAP") as prescribed by the Governmental Accounting Standards Board ("GASB"), or as otherwise required by Minnesota law for the preceding Fiscal Year, including a balance sheet and statement of revenues, expenditures, and changes in fund balance. "Bonds" means the Electric Revenue Refunding Bonds, Series 2014A, issued by the City in the original aggregate principal amount of$2,125,000. "City" means the City of Elk River, Minnesota, which is the obligated person with respect to the Bonds. "Commission"means the Elk River Municipal Utilities Commission created by the City to exercise exclusive jurisdiction, control, and management of the municipal light, power, and electric operations of the City. I1-1 "Disclosure Certificate"means this Continuing Disclosure Certificate. "Disclosure Covenants"means the continuing disclosure obligations of the City and the Commission under this Continuing Disclosure Certificate. "Disclosure Information" means the financial information and operating data referred to in Section 3(a)of this Continuing Disclosure Certificate. "EMMA" means the Electronic Municipal Market Access system operated by the MSRB and designated as a nationally recognized municipal securities information repository and the exclusive portal for complying with the continuing disclosure requirements of the Rule. "Final Official Statement" means the deemed Final Official Statement dated , 2014 together with the Preliminary Official Statement dated January 27, 2014, which constitutes the final official statement delivered in connection with the Bonds,which is available from the MSRB. "Fiscal Year"means the fiscal year of the Commission. "Holder"means the person in whose name a Bond is registered or a beneficial owner of such a Bond. "Material Event"means any of the events listed in Section 5(a)of this Disclosure Certificate. "MSRB"means the Municipal Securities Rulemaking Board located at 1900 Duke Street, Suite 600, Alexandria,VA 22314. "Participating Underwriter" means any of the original underwriter(s) of the Bonds (including the Purchaser)required to comply with the Rule in connection with the offering of the Bonds. "Purchaser"means "Repository"means EMMA, or any successor thereto designated by the SEC. "Rule"means SEC Rule 15c2-12(b)(5)promulgated by the SEC under the Securities Exchange Act of 1934, as the same may be amended from time to time, and including written interpretations thereof by the SEC. "SEC"means Securities and Exchange Commission,and any successor thereto. Section 3. Provision of Annual Financial Information and Audited Financial Statements. (a) On or before 365 days after the end of each Fiscal Year of the Commission, commencing with the Fiscal Year ending December 31,2013, the Commission shall provide to the Repository, on behalf of itself and the City,the following financial information and operating data(the"Disclosure Information"): (i) The Audited Financial Statements of the Commission for such Fiscal Year, certified as to accuracy and completeness in all material respects by the Finance and Office Manager of the Commission(the"Finance and Office Manager"); (ii) The Audited Financial Statements of the City for such Fiscal Year, certified as to accuracy and completeness in all material respects by the Finance Director of the City (the "Finance Director"); 11-2 118 (iii) To the extent not included in the financial statements referred to in clauses (i) and(ii), information of the type set forth in Section 4 below, which information may be unaudited, but is to be certified as to accuracy and completeness in all material respects, with respect to information relating to the Commission, by the Finance and Office Manager of the Commission to the knowledge of the Finance and Office Manager and, with respect to information relating to the City, by the Finance Director of the City to the knowledge of the Finance Director, which certifications may be based on the reliability of information obtained from governmental or other third party sources. The Annual Report and Disclosure Information may be submitted as a single document or as separate documents comprising a package, and may cross-reference other information as provided in Section 4 of this Certificate; provided that the Audited Financial Statements of the Commission and the Audited Financial Statements of the City may be submitted separately from the balance of the Annual Report and will be submitted as soon as available. Any or all of the Disclosure Information may be incorporated, if it is updated as required by the Disclosure Covenants,by reference from other documents, including official statements of debt issues of the City, the Commission,or related public entities,which have been submitted to the Repository or the SEC. If the document incorporated by reference is a final official statement,it must also be available from the MSRB. The Commission shall clearly identify each such other document so incorporated by reference. (b) If any part of the Disclosure Information can no longer be generated because the operations of the City or the Commission have materially changed or have been discontinued, such Disclosure Information need no longer be provided if the Commission includes in the Disclosure Information a statement to such effect; provided, however, if such operations have been replaced by other City or Commission operations in respect of which data is not included in the Disclosure Information and the Commission determines that certain specified data regarding such replacement operations would be material, then, from and after such determination, the Disclosure Information shall include such additional specified data regarding the replacement operations. If the Disclosure Information is changed or the Disclosure Covenants are amended as permitted by this Certificate, then the Commission is to include in the next Disclosure Information to be delivered under the Disclosure Covenants, to the extent necessary, an explanation of the reasons for the amendment and the effect of any change in the type of financial information or operating data provided. (c) If the Commission is unable or fails to provide to the Repository an Annual Report and Disclosure Information by the date required in subsection(a), the Commission shall send a notice of that fact to the Repository. (d) The Commission shall determine each year prior to the date for providing the Annual Report and Disclosure Information the name and address of the Repository. Section 4. Content of Annual Reports. The Annual Report shall contain or incorporate by reference the following sections of the Final Official Statement: 1. Elk River Municipal Utilities 2. The Electric System 3. Utility Financial Statements 4. Debt Service and Coverage Calculation 5. Utility Revenue Debt 6. Population 7. Labor Force Data In addition to the items listed above, the Annual Report shall include Audited Financial Statements submitted in accordance with Section 3 of this Disclosure Certificate. 11-3 119 Any or all of the items listed above may be incorporated by reference from other documents, including official statements of debt issues of the Commission or related public entities, which have been submitted to the Repository or the SEC. If the document incorporated by reference is a final official statement, it must also be available from the MSRB. The Commission shall clearly identify each such other document so incorporated by reference. Section 5. Reporting of Material Events. (a) This Section 5 shall govern the giving of notice of the occurrence of any of the following events("Material Events")with respect to the Bonds: 1. Principal and interest payment delinquencies; 2. Non-payment related defaults, if material; 3. Unscheduled draws on debt service reserves reflecting financial difficulties; 4. Unscheduled draws on credit enhancements reflecting financial difficulties; 5. Substitution of credit or liquidity providers, or their failure to perform; 6. Adverse tax opinions, the issuance by the Internal Revenue Service of proposed or final determinations of taxability, Notices of Proposed Issue (IRS Form 5701—TEB), or other material notices or determinations with respect to the tax status of the security, or other material events affecting the tax status of the security; 7. Modifications to rights of security holders,if material; 8. Bond calls, if material,and tender offers; 9. Defeasances; 10. Release, substitution,or sale of property securing repayment of the securities, if material; 11. Rating changes; 12. Bankruptcy, insolvency,receivership or similar event of the obligated person; 13. The consummation of a merger, consolidation, or acquisition involving an obligated person or the sale of all or substantially all of the assets of the obligated person, other than in the ordinary course of business, the entry into a definitive agreement to undertake such an action or the termination of a definitive agreement relating to any such actions, other than pursuant to its terms, if material; and 14. Appointment of a successor or additional trustee or the change of name of a trustee, if material. (b) The Commission shall file a notice of any Material Event with the Repository or with the MSRB within ten(10)business days of the occurrence of the Material Event. 11-4 120 (c) The Commission shall provide notice, in a timely manner to the Repository and the MSRB, of the occurrence of any of the following events or conditions: (i) the amendment or supplementing of the Disclosure Covenants in accordance with the terms of this Certificate, together with a copy of such amendment or supplement and any explanation provided by the Commission under the Disclosure Covenants; (ii) the termination of the obligations of the City and/or the Commission under the Disclosure Covenants in accordance with the terms of this Certificate; (iii)any change in the accounting principles under the terms of which the Audited Financial Statements of the City or the Commission constituting a portion of the Disclosure Information are prepared; and (iv) any change in the Fiscal Year of the City or the Commission. (d) Unless otherwise required by law and subject to technical and economic feasibility, the Commission shall employ such methods of information transmission as shall be requested or recommended by the designated recipients of such information. (e) The City shall provide notice, in a timely manner to the Repository and the MSRB, of the occurrence of any of the following events or conditions: (i)any amendment or supplement of the Disclosure Covenants in accordance with the terms of this Continuing Disclosure Certificate, together with a copy of such amendment or supplement and any explanation provided by the City under the Disclosure Covenants; (ii) the termination of the obligations of the City under the Disclosure Covenants in accordance with the terms of this Continuing Disclosure Certificate; (iii)any change in the accounting principles under the terms of which the Audited Financial Statements constituting a portion of the Disclosure Information are prepared; and(iv)any change in the Fiscal Year of the City. (f) Unless otherwise required by law and subject to technical and economic feasibility,the City shall employ such methods of information transmission as shall be requested or recommended by the designated recipients of the City's information. Section 6. EMMA. The SEC has designated EMMA as a nationally recognized municipal securities information repository and the exclusive portal for complying with the continuing disclosure requirements of the Rule. Until the EMMA system is amended or altered by the MSRB and the SEC, the Commission shall make all filings required under this Disclosure Certificate solely with EMMA. Section 7. Termination of Reporting Obligation. The Commission's obligations under the Resolutions and this Disclosure Certificate shall terminate upon the legal defeasance, the redemption in full of all Bonds or payment in full of all Bonds. Section S. Agent. The Commission may,from time to time,appoint or engage a dissemination agent to assist it in carrying out its obligations under the Resolutions and this Disclosure Certificate,and may discharge any such agent,with or without appointing a successor dissemination agent. Section 9. Amendment; Waiver. Notwithstanding any other provision of the Resolutions or this Disclosure Certificate, the Commission may amend this Disclosure Certificate, and any provision of this Disclosure Certificate may be waived, if such amendment or waiver is supported by an opinion of nationally recognized bond counsel to the effect that such amendment or waiver would not, in and of itself, cause a violation of the Rule. The provisions of the Resolutions requiring continuing disclosure pursuant to the Rule and this Disclosure Certificate, or any provision hereof, shall be null and void in the event that the Commission delivers to the Repository an opinion of nationally recognized bond counsel to the effect that those portions of the Rule which impose the continuing disclosure requirements of the Resolutions and the execution and delivery of this Disclosure Certificate are invalid,have been repealed retroactively or otherwise do not apply to the Bonds. The provisions of the Resolutions requiring continuing disclosure pursuant to the Rule and this Disclosure Certificate may be amended without the consent of the Holders of the Bonds, but only upon the delivery by the Commission to the Repository of the proposed amendment and an opinion of 11-5 121 nationally recognized bond counsel to the effect that such amendment, and giving effect thereto, will not adversely affect the compliance with the Rule. Section 10. Additional Information. Nothing in this Disclosure Certificate shall be deemed to prevent the Commission from disseminating any other information, using the means of dissemination set forth in this Disclosure Certificate or any other means of communication, or including any other information in any Annual Report or notice of occurrence of a Material Event,in addition to that which is required by this Disclosure Certificate. If the Commission chooses to include any information in any Annual Report or notice of occurrence of a Material Event in addition to that which is specifically required by this Disclosure Certificate, the Commission shall have no obligation under this Disclosure Certificate to update such information or include it in any future Annual Report or notice of occurrence of a Material Event. Section 11. Default. In the event of a failure of the Commission to comply with any provision of this Disclosure Certificate any Holder of the Bonds may take such actions as may be necessary and appropriate,including seeking mandamus or specific performance by court order,to cause the Commission to comply with its obligations under the Resolutions and this Disclosure Certificate. A default under this Disclosure Certificate shall not be deemed an event of default with respect to the Bonds and the sole remedy under this Disclosure Certificate in the event of any failure of the Commission to comply with this Disclosure Certificate shall be an action to compel performance. Section 12. Beneficiaries. This Disclosure Certificate shall inure solely to the benefit of the Commission,the Participating Underwriters,and the Holders from time to time of the Bonds,and shall create no rights in any other person or entity. IN WITNESS WHEREOF, we have executed this Disclosure Certificate in our official capacities effective as of the date and year first written above. CITY OF ELK RIVER,MINNESOTA Mayor City Clerk ELK RIVER MUNICIPAL UTILITIES COMMISSION President Secretary 11-6 122 APPENDIX III EXCERPT OF THE CITY'S 2012 COMPREHENSIVE ANNUAL FINANCIAL REPORT Data on the following pages was extracted from the City's Comprehensive Annual Financial Report (CAFR) for fiscal year ended December 31, 2012. (The City's CAFR for fiscal year ended December 31, 2013 is not yet available.) The reader should be aware that the complete financial statements may contain additional information which may interpret, explain or modify the data presented here. The City's CAFR for the fiscal year ended December 31, 2012 was awarded the Certificate of Achievement for Excellence in Financial Reporting by the Government Finance Officers Association of the United States and Canada (GFOA). The Certificate of Achievement is the highest form of recognition for excellence in state and local government financial reporting. In order to be awarded a Certificate of Achievement, a government unit must publish an easily readable and efficiently organized comprehensive annual financial report (CAFR), whose contents conform to program standards. Such CAFR must satisfy both generally accepted accounting principles and applicable legal requirements. A Certificate of Achievement is valid for a period of one year only. III-1 123 INDEPENDENT AUDITOR'S REPORT Honorable Mayor and City Council City of Elk River,Minnesota Report on the Financial Statements We have audited the accompanying financial statements of the governmental activities,the business-type activities,the discretely presented component unit,each nuns thud,and the aggregate remaining fund information of the City of Elk River.Minnesota(the City),u of and for the year ended Dxanber 31,2012,and the related notes to the financial statements,which collectively comprise the City's basic financial statements as listed In the table of contents. Management's Responsibility for the Plnanetal Statements Management is responsible for the preparation and fist presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America;this includes the design,implementation,and maintenance cinema' control relevant to the preparation and fair presentation of financial statements that are free from material misstatement,whether due to fraud or error. Auditor's Responsibility Our responsibility is to express opinions on these financial statements based on our audit. The prior year comparative information has been derived from the City's 2011 financial statements and,in our report dated May 16,2012 we express unqualified opinions on the respective proprietary ford financial statements. We conducted our audit in accordance with auditing standards generally accepted in the United Stales of America Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor's Judgment,including the assessment of the risks of material misstatement of the financial statements,whether due to fraud or error. In making those risk asessmens,the auditor considers interosl control relevant to the City's preparation and fair prose tatian of the financial statements in order to design audit procedures that are appropriate in the circumstances,but not for the purpose of expressing an opinion on the effectiveness of the City's internal control. Accordingly,we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by mansgeneny as well evaluating the overall financial statement presentation. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinions. OpiIos In our opinion,the financial statements referred to above present fairly,in all material respects,the respective fmancial position of the governmental activities,the business-type activities,the discretely presented component unit,each major Ind,and the aggregate remaining fund information of the City as of December 31,2012,and the respective changes in financial position and,where applicable,cash flows thereof and the respective budgetary comparison fort he General fund for the year then ended in conformity with accounting principles generally accepted in the United States of America. Other Matron Changed Aecoundeg Standards As described in the Note 41 to the financial statements,the City adopted the provisions of Governmental Accounting Standards Board (GASB)Statement No.63,Flnencial Reporting of Deferred Outflows ofRsons,Deferred inflows of Resources,and Net Position and Statement No.65,hear Preview&Reported as Assets and Liabilities,bran year ended December 31,2012. Adoption of the provisions of thew statements resuis in significant change to the classifications of the components of the financial statements. Required Sayfemarsry!attenuation Accounting principles generally accepted in the United Sates of America require that the Management's Discussion and Analysis starting on page 9 and the Schedule of pending Progress on page 64 be presented to supplement the basic financial statements.Such Information,although not a pan of the basic financial statements,is required by the Governmental Accounting Standards Bored who considers it to be an essential part of financial reporting for placing the bask financial statements In an appropriate operational, economic,or historical context.We have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States ofAnexica,which consisted of inquiries of management about the methods of preparing the information and comparing the infanmtion for consistency with management's responses to our inquiries, the basic financial statements,and other knowledge we obtained during our audit of the basic financial statements.We do not expel an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance. Supplementary fybnsr/m s Ruts.,to Me flaatecial Stanaems s a Oink Our audit was conducted for the purpose of fanning opinions on the financial statements that collectively comprise the City's financial statements as a whole.The introductory section,combining and individual fund financial statements and schedules,and statistical section are presented for the purpose of additional analysis and are not a required pas of the financial statements.The combining and individual NM financial statements and schedules are the responsibility of management and were derived from and relate directly to the underlying accounting and other records used to prepare the financial statements.Such information has been subjected to the auditing procedures applied in the audit of the financial statements and certain additional procedures,including comparing and reconciling such Information directly to the underlying accounting and other records used to prepare the financial statements or to the financial statements themselves,end other additional procedmee in accordance with auditing standards generally accepted in the United Sales of America.In ow opinion,the information is fairly stated in all material respects in relation to the financial statements as a whole.The Introductory section and statistical section have not been subjected to the auditing procedures applied In the audit of the basic financial statements and,accordingly,we do not express an opinion or provide any sentence on them. Oar Ueh 4,tANVIO Lt May 17,2013 ABDO,EICK&MEYERS,LLP Minneapolis,Minnesota Cribbed PsbllcAccountans 124 CITY OF ELK RIVER,MINNESOTA STATEMENT OF NET POSITION DECEMBER 31,2012 Primary Government Governmental Business-type Component Activities Activities Total Unit-BRA ASSETS Cash and investments $ 34,235,512 $ 21,335,715 $ 55,571,227 $ 862,972 Restricted cash and investments - 724,500 724,500 - Casb with fiscal agent 1,553,188 - 1,553,188 - Receivables(net): Interest 96,336 33,239 129,575 - Taxes 499,568 - 499,568 13,267 Accounts 453,608 2,531,008 2,984,616 - Special assessments 2,665,342 - 2,665,342 - Notes 334,969 - 334,969 400,000 Due from other governments 127,123 - 127,123 - Due from primary government - - - 235,648 Internal balances (39,333) 39,333 - - Inventories - 1,978,523 1,978,523 - Prepaid items 122,013 222,411 344,424 - Capital assets: Nondepreciable 46,726,031 1,771,694 48,497,725 257,100 Depreciable(net) 67,467,598 70,348,904 137,816,502 173,322 Total assets 154,241,955 98,985,327 253,227,282 1,942,309 DEFERRED OUTFLOWS OF RESOURCES Deferred charge on refunding 367,111 83,765 450,876 LIABILITIES Accounts payable 1,491,240 2,820,830 4,312,070 831 Salaries payable 306,229 127,923 434,152 2,207 Due to other governments 1,464 222,158 223,622 - Due to component unit 235,648 - 235,648 - Accrued interest payable 523,894 149,494 673,388 - Unearned revenue 521,169 41,344 562,513 - Non-current liabilities: Due within one year 5,409,990 1,666,201 7,076,191 - Due in more than one year 28,218,794 10,671,914 38,890,708 - Total liabilities 36,708,428 15,699,864 52,408,292 3,038 NET POSITION Net investment in capital assets 84,060,768 60,351,984 144,412,752 430,422 Restricted for. • Debt service 3,044,599 724,500 3,769,099 - Landfill mitigation 763,939 - 763,939 - Economic development 2,536,506 - 2,536,506 - Insurance benefits 22,850 - 22,850 - Law enforcement 23,288 - 23,288 - Housing and redevelopment - - • 1,508,849 Unrestricted 27,448,688 22,292,744 49,741,432 - Total net position $ 117,900,638 $ 83,369,228 $ 201,269,866 $ 1® 939,271 The notes to the financial statements are an integral part of this statement. 125 f4 8 Et y ^ _ O r9 P Y b r N N -r- U e1 S 8° N A. .' pp yy {+ ��yy ry� �q�qpp yy yy » rNr1 8 Vml („•i r P T O.m m N N M O N o M CO N CO (p fir. �OPCO C N P P N P V P N P OQO vm1 rte. eN•1 m —N I N O N In r • p N CO v- •qe S• .. $ 8, �rvm ro a o N m N g is is F , ,,-;, c4 -7, N m v c m m 8 N N N it _ gp A P A-A g m CO r „� q r.yy-. N y a F. gars ^ n o;kkiy p i � C� QS x°nivm n r mm° r7�_a �, v » pp yp p N �QNVICO�NO p r Or1[`4•NO-V bV�RONO - r/�i b b 8 2 1:o n n m.n r r 0. Q P FN W p P� m P P ryN O 1�Q e m e N O S .P.r b P Q •�-. O m 2 .r G^ rr1 g Vt M p e1 N v v v v r O — P v S 0 » v N N v r a 8 B O P p n o 3 N » » n R c .p^n7p O Q P g I ° g n I N & y x g U 1 pgi N N - N a 29 i 3. P Q[V m m y�p q m •n rmrl rN = m ' -]P O P i V r �• N„ iiilJdhIIa N .4 N W O z z o 8 pm. app. O OO r P IP rrA000110 rr,mQ m Vl a P �r^r� :12 0 A �Ny •O P <qO-0000 - . b eNry f `Dq a `pp . .7.6,f- -7-� .'N N N ear b U N X a A S S fp ° + IjO go d A diuiv IIuP " J !I a CITY OF ELK RIVER,MINNESOTA GOVERNMENTAL FUNDS BALANCE SHEET DECEMBER31,2012 Other Total General Improvement Government Governmental Governmental Fund Projects Buildings Funds Funds ASSETS Cash and investments $ 6,554,601 $ 4,626,825 $ 5,045,469 S 18,008,617 $ 34,235,512 Cash with fiscal agent - - - 1,553,188 1,553,188 Receivables: Interest 22,510 13,273 14,496 46,057 96,336 Taxes 418,830 2,652 - 78,086 499,568 Accounts 12,801 - 117,009 323,798 453,608 Special assessments - 1,112,712 - 1,552,630 2,665,342 Notes - - - 334,969 334,969 Due from other governments 46,920 - - 80,203 127,123 Due from other funds 78,174 - - 1,078,214 1,156,388 Due from component wit 5,317 - - - 5,317 Prepaid items 20,201 - - 101,812 122,013 Total ass $ 7,159,354 , $ 5,755.462 $ 5,176,974 $ 23,157,574 , $ 41.249,364 LIABILITIES Accounts payable $ 326,436 $ - $ 650,609 $ 514,195 $ 1,491,240 Salaries payable 286,660 473 - 19,096 306,229 Due to othergovanmeas - - 1,464 1,464 Due to other Prods - 350,839 - 844,882 1,195,721 Due to component unit - - - 240,965 240,965 Unearned revenue 14,040 - • 507,129 521,169 Total liabilities 627,136 a 650,609 2,127,731 - 3,756,788 DEFERRED INFLOWS OF RESOURCES Unavailable revenue-taxes 326,904 2,049 - 62,786 391,739 Unavailable revenue-special assessments - 1,094,805 - 1,545,679 2,640,484 Unavailable revenue-notes - - - 253,374 253,374 Total deferred inflows of resources 326,904 1,096,854 - 1,861,839 3,285,597 FUND BALANCES Noospendeble 20,201 - - 101,812 122,013 Restricted - - - 7,608,842 7,608,842 Committed 208,486 - - 2,456,185 2,664,671 Assigned 200,000 4,307,296 4,526,365 10,386,149 19,419,810 Unassigned 5,776,627 - - (1,384,984) 4,391,643 Total fund balances 6,205,314 4,307,296 4,526,365 19,168,004 34,206,979 Total liabilities,defined inflows of resources,and fund balances $ 7,159.354 $ 5,755.462 $ 5,176,974 $ 231157,574 $ 41,249,364 The notes to the financial statements are an integral part of this statement. 127 CITY OF ELK RIVER,MINNESOTA RECONCILIATION OF THE GOVERNMENTAL FUNDS BALANCE SHEET TO THE STATEMENT OF NET POSITION DECEMBER 31,2012 FUND BALANCE-TOTAL GOVERNMENTAL FUNDS $ 34,206,979 Amounts reported for governmental activities in the statement of net position are different because: 1. Capital assets used in governmental activities are not financial resources and,therefore,arc not reported in the governmental funds: Governmental capital assets $175,834,852 Less accumulated depreciation (61,641,223) 114,193,629 2. Unavailable revenue in governmental funds is susceptible to full accrual on the government-wide statements. 3,285,597 3. Long-tern liabilities are not due and payable in the current period and, therefore,are not reported in the governmental funds: Bonds payable (30,309,000) Deferred charge on refunding 367,111 Issuance premium (305,972) Contracts for deeds (1,410,000) Accrued interest payable (523,894) Compensated absences (1,395,326) Net OPF.B obligation (208,486) (33,785,567) NET POSITION OF GOVERNMENTAL ACTIVITIES $117,900,638 The notes to the financial statements are an integral part of this statement. 128 CITY OF ELK RIVER,MINNESOTA STATEMENT OP REVENUES,EXPENDITURES,AND CHANGES IN FUND BALANCES GOVERNMENTAL FUNDS FOR THE YEAR ENDED DECEMBER 31,2912 Other Total General Improvement Government Governmental Governmental Fund Projects Buildings Funds Funds REVENUES Taxes: Property taxes $ 9,184,258 S 50,154 S - S 2,485,899 S 11,720,311 Other taxes 125,623 - - - 125,623 Limes and permits 408,232 - - - 408,232 Intergovernmental revenue 542,790 - - 893,823 1,436,613 Charges for services 636,300 - - 1,023,686 1,659,996 Fines and forfeits 121,047 - - 16,772 137,819 Special assessments - 241,515 - 603,597 845,112 Interest income 56,346 45,338 51,006 166,964 319,654 Miscellaneous: Landfill expansion fee - - 671,897 - 671,897 Refuels and reimbursements 60,217 - - 136,951 197,168 Contributions 22,632 - - 978,318 1,000950 Other 4,960 - 19,689 85,543 110,192 Total reverses 11,162,405 337,007 742,592 6,391,553 18,633,557 EXPENDITURES Current General government 2,490,127 - 28,921 96,534 2,615,582 Public safety 5,304,063 - 23,566 24,620 5,352,249 Public works 2,039,644 144,889 287,535 459,658 2,931,726 Culture and recrm,tion 1,739,797 - 9,253 1,090,416 2,839,466 Economic development - - - 1,087,467 1,087,467 Debt service Principal - - - 2,127,000 2,127,000 Interest and service charges - - - 996,454 996,454 Bond issuance costs - - 42,520 26,380 68,900 Capital outlay: General government 15,292 - - 371,722 387,014 Public safety 66,871 - - 260,741 327,612 Public worts 19,623 - 7,733,792 1,485,312 9,237,727 Culture and recreation - - - 311,921 311,921 Total expenditures 11,674.417 14.889 8,125,587 8,338,225 28,283,118 Excess(de0ciency)of revenues over expenditure (512,012) 192,118 (7,382,995) (1,946,672) (9,649,561) OTHER FINANCING SOURCES(USES) Transfers in 1,024,500 40,000 - 3,728,443 4,792,943 Transfers out (604,786) (352,211) (619,040) (1,712,643) (3,288,680) General obligation bonds Sued - - 6,975,000 - 6,975,000 Refunding bonds issued - - - 1,525,000 1,525,000 Premium on debt issued - - 45,413 69,751 115,164 Sale of capital assets - - - 49.470 49,470 Total other financing soma(uses) 419,714 (312,211) 6,401,373 3,660,021 10,168,897 Net change in fund balances (92,298) (120,093) (981,622) 1,713,349 519,336 Fund balance-January l 6,297,612 4,427,389 5,507,987 17,454,655 33,687,643 Fuel balances-December 31 S 6,205,314 S 4,307,296 , S 4,526,365 S 19,168,004 S 34,206,979 The notes to the financial statements are an integral part of this statement. 129 CITY OF ELK RIVER,MINNESOTA RECONCILIATION OF THE STATEMENT OF REVENUES,EXPENDITURES, AND CHANGES IN FUND BALANCES OF GOVERNMENTAL FUNDS TO THE STATEMENT OF ACTIVITIES FOR THE YEAR ENDED DECEMBER 31,2012 NET CHANGE IN FUND BALANCES-TOTAL GOVERNMENTAL FUNDS S 519,336 Amounts reported for governmental activities in the statement of activities we different because: 1. Governmental funds report capital outlays as expenditures. However,in the statement of activities,the cost of these assets is allocated over their estimated useful lives and reported as depreciation expense. This is the amount by which capital outlays exceeded depreciation expense in the current period. Capital outlay $10,047,515 Depreciation expense (5,522,913) 4,524,602 2. The net effect of various miscellaneous transactions involving capital assets including transfers and disposals,which increase net position. Transfers of capital assets 69,800 Disposals (585,873) Depreciation on disposals 583,580 67,507 3. Revenues in the statement of activities that do not provide current financial resources are not reported as revenues in the governmental funds. Property taxes (35,866) Special assessments (704,866) Notes (22,849) (763,581) 4. The issuance of long-term debt provides current financial resources to governmental funds,while the repayment of the principal of long-term debt consumes the current financial resources of governmental funds. Neither transaction,however,has any effect on net position. Also governmental funds report the effect of premiums, discounts and similar items when debt is first issued,whereas these amounts are deferred and amortized in the statement of activities. The amounts below are the effects of these differences in the treatment of long-term debt and related items. Issuance of long-term debt (8,500,000) Repayment of principal of long-term debt 2,127,000 Bond premium (115,164) (6,488,164) 5. Some expenses reported in the statement of activities do not require use of current financial resources and,therefore,are not reported as expenditures in governmental funds. Accrued interest payable (92,864) Amortization of issuance premium 31,131 Amortization of deferred charge from refunding (36,265) Compensated absences (116,455) Net OPEB obligation (52,163) (266,616) CHANGE IN NET POSITION OF GOVERNMENTAL ACTIVITIES S(2,406,916) The notes to the financial statements are an integral part of this statement. 130 CITY OF ELK RIVER,MINNESOTA GENERAL FUND STATEMENT OF REVENUES,EXPENDITURES, AND CHANGES IN FUND BALANCE-BUDGET AND ACTUAL FOR THE YEAR ENDED DECEMBER 31,2012 Budget Variance with Original Final Actual Final Budget REVENUES Taxes: Property taxes 5 9,142,200 $ 9,142,200 $ 9,184,258 $ 42,058 Other taxes 70,000 70,000 125,623 55,623 Licenses and permits 412,650 412,650 408,232 (4,418) Intergovernmental revenue 542,450 542,450 542,790 340 ' Charges for services 665,350 665,350 636,300 (29,050) Fines and forfeits 132,500 132,500 121,047 (11,453) Interest income 100,000 100,000 56,346 (43,654) Miscellaneous revenue: Refunds and reimbursements 66,500 66,500 60,217 (6,283) Contributions 25,650 25,650 22,632 (3,018) Other 8,000 8,000 4,960 (3,040) Total revenues 11,165,300 11,165,300 11,162,405 (2,895) EXPENDITURES Current: General government 2,830,100 2,640,050 2,490,127 149,923 Public safety 5,615,000 5,615,000 5,304,063 310,937 • Public works 2,058,650 2,093,500 2,039,644 53,856 Culture and recreation 1,761,700 1,785,700 1,739,797 45,903 Capital outlay: General government 15,600 15,600 15,292 308 Public safety 69,000 69,000 66,871 2,129 Public works 20,000 20,000 18,623 1,377 Culture and recreation 17,500 17,500 - 17,500 Total expenditures 12,387,550 121256,350 11,674,417 581,933 Deficiency of revenues over expenditures (1,222,250) (1,091,050) (512,012) 579,038 OTHER FINANCING SOURCES(USES) Transfers in 1,146,600 1,146,600 1,024,500 (122,100) Transfers out (290,500) (290,500) (604,786) (314,286) Total other financing sources(uses) 856,100 856,100 419,714 (436,386) Net change in fund balance (366,150) (234,950) (92,298) 142,652 Fund balance-January 1 6,297,612 6,297,612 6,297,612 - Fund balance-Decanber 31 $ 5,931,462 S 6,062,662 S 6,205,314 $ 142,652 The notes to the financial statements are an integral part of this statement. 131 7 „s g _a=S 11:! $ wpm a=z a ��t> asz q 9 MR as wsan FPiR---, 4 4=0.t..as_f L J 1 !1 g� �, t aa g glik x R I1aa =six a s X _I S P � g gqq 0 1 ak iA a^^ g e- %i a RR311kkk G r ^ - 881 a FR; „i ce ao_ _ e- _ P 2 A :,� -- ffl.nIG «''S-Ca . 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' .fie it .1 3 NI5 - i c b q llac ilk � „ � -% it U I x Will X411 ° 1! 9 L" ( 3 114 tWa a ildj W fi d Iftiji 5 i I c y Rj w p ,111, 0 z a m CITY OF ELK RIVER,MINNESOTA REQUIRED SUPPLEMENTARY INFORMATION • DECEMBER 31,2012 Elk River Fire Relief Pension Plan Schedule of Funding Progress Assets in Excess of Pension Actuarial Actuarial Actuarial (Unfunded) Benefit Valuation Value of Accrued Accrued Percentage Per Year Date Assets Liability , Liability Funded of Service 12/31/10 $ 2,190,827 $ 2,398,067 $(207,240) 91.4% $ 5,091 12/31/11 2,260,830 2,540,365 (279,535) 89.0% 5,091 12/31/12 2,456,311 2,551,430 (95,119) 96.3% 5,091 Other Postentployntent Benefits Schedules of Funding Progress Municipal Retiree Health Plan Unfunded UAAL as a Actuarial Actuarial Actuarial Actuarial Annual Percentage Valuation Value of Accrued Accrued Funded Covered of Covered Date Assets(a) Liability(b) Liability(b-a) Rate Payroll(c) Payroll((b-a)/c) 01/01/08 $ - $ 88,718 $ 88,718 0.00% $ 4,095,000 2.17% 01/01/11 - 908,610 908,610 0.00% 6,901,671 13.17% Utilities Retiree Health Plan Unfunded UAAL as a Actuarial Actuarial Actuarial Actuarial Annual Percentage Valuation Value of Accrued Accrued Funded Covered of Covered Date Assets(a) Liability(b) Liability(b-a) Rate Payroll(c) Payroll((b-a)/c) 01/01/08 $ - $ 56,892 $ 56,892 0.00% $ 2,300,000 2.47% 01/01/11 - 42,681 42,681 0.00% 2,286,547 1.87% 151 APPENDIX IV EXCERPT OF THE UTILITY'S 2012 ANNUAL FINANCIAL REPORT Data on the following pages was extracted from the Utility's Annual Financial Report for fiscal year ended December 31, 2012. (The Utility's Annual Financial Report for fiscal year ended December 31, 2013 is not yet available.) The reader should be aware that the complete financial statements may contain additional information which may interpret, explain or modify the data presented here. IV-1 152 9 )4, ABDO Ij ;EICK& MEI'ERSL, &,r H Rdltr 4mwnas&ta,mlmo 5201 Lon Mane thir2:50 Faira en 5.5494 INDEPENDENT AUDITOR'S REPORT Public Utilities Commission Elk River Municipal Utilities Elk River,Minnesota Report on the Financial Statements We have audited the accompanying financial statements of the business-type activities of the Elk River Municipal Utilities(the Utilities)of the City of Elk River,Minnesota(the City),as of and for the years ended December 31,2012 and 2011,and the related notes to the financial statement.,which collectively comprise the City's basic fimrtcial statements as listed in the table of contents. Management's RnponelbWy for the Mandel Stateseate Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United Sores of America;this includes the design,implementation,and maintenance of internal coed relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to Gaud or nor. Author's Responsibility Our responsibility Is to express opinions on than financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America.Those standards require that we plan and perform the audits to obtain reasonable sentience about whether the financial statements are free of venereal misstatement An audh involves performing procedures to obtain audit evidence about the ammo and disclosures in the fiancial statements. The procedures selected depend on the auditor's judgment,including the assessment of the rule of menial misstatement of the uncial stalemate,whether due to fraud or error. In making those risk asaesanranta,the auditor considers internal control relevant to the Utilities preparation and fair presentation of the financial statements in order to design audit procedures then are appropriate in the circumstances,but not for the purpose of expressing an opinion on the effectiveness of the Utilities internal control. Accordingly,we expect no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management,as well as evaluating the overall financial statement presentation. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinions. Opinions As ussedinnnNote IB,the financial statement.present only the Electric and Water enterprise hinds and are not intended to present position of the City and the results of its operations and cash flows of its proprietary fund types in conformity with acooadng principles generally accepted in the United States of Amnia. y In our opinion,the financial statements referred to above present fairly,in all material respects,the financial position of the Electric and Water enterprise funds of the City as of December 31,2012 and 2011 and the rends of its operations and its cash Bows for the years then ended in conformity with accounting principles generally accepted in the United States of America. Other Manses Change be Aeenr Wag Standards As described in the Note 6 to the basic financial statements,the Utilities adopted the provisions of Governmental Accounting Standards Board(GASB)Statement No.63,Financial Reporting of Deferred Outflows of Resources.Deferred Inflows of Resources. and Net Position and Statement No.65,Items Previo rly Reported as Assets and Liabilities.for the year ended December 31,2012. Adoption of the provisions of these statements results in significant change to the classifications of the componens of the financial statements. Agaid Suppfsa se y I*raan.n Accounting principles generally accepted in the United States of America require that the Management's Discussion and Analysis and Schedule of Fending Progress,be presented to anpplement the financial statements.Such information,although not a pant of the financial easement%is required by the Govemment Accounting Standards Board,who considers it to be an essential part of financial repeating for placing the financial statements in an appropriate operational,economic,or hiebrial context We have applied certain limited procedure.to the required supplementary information in accordance with auditing standards generally accepted in the United Stems of America,which consisted ofi nquiries ofmanagsene about the methods of preparing the information and comparing to mo for consistency with management's regnnses to our inquiries,the basic financial statements,and other knowledge we during our audit of the basic financial statements.We do not express an opinion or provide any assurance on the infornaion because the limited procedure do not provide us with sufficient evidence to express an opinion or provide any assurance. Ssq$Gaamary Afnwdon he Relation re the Financial Stemma as Meek Our audits were conducted for the purpose off naming opinion on the financial statements that collectively comprise the Utilities financial statements as a whole,The introductory section and supplemental information listed in the table of contents are presented for the purpose of additional analysis and are not a required pan of the financial statements of the Utilities.The supplemental information, except for the potion marked"unaudited"on which we express no opinion,has been objected to the auditing procedures applied in the audits often financial statements and,in our opinion,is fairly mated in all menial respects in relation to the financial statements taken as a whole.The introductory section has not been subjected to the auditing procedures applied in to audit of the financial statements and,accordingly,we do not express an opinion or provide any assurance on them. 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L • 2 q ° e- FE 3'4 y o _ ({�Lsj Y l Mal[G "e ,$ ...al S ° y A g E .J 81r.5 - .G 3 G 8 6 W.0 G . 12g Y j Fp CF 1' E ° � h e 0.5. a5 ; ge o � C E ° Eyy ��^^ E- •-• .5 E - e u a G • W z g c88= ar$ g i - 8 " 81A g 1. 1a gx L!1 "Le ' 9- 4E4E1 ii!giaE g 8°�.g 1 t'e E 9D cTg Esq i 0 2 §y2-' cYaEg R 0 .per at -' N 5aa._ t<h : e .$4- 11_ 1124 E r; a 5r z eN f1€ ° Eau 5yy � Y 'o lal j aa8` uYI lflh. @g E ¢ :Sl'3 fl ne _-OE 2 F5 . m« F : a B � is E F zE8 Cab 25 k - 2 i2 2 h a ; !n (\ qei ! ! o \ ! �� F- - r» ) ) . . »\;/ W24! ( | ! ! / &: §/ >•; ! ) \ { ! 7 4' )MB§ 2 ) ] atz )\ ` ! - { glo . . # 6. .t“ ; . 1 f § ! ) § ! ! , _ t ~k \ =!!| ` !�%§ ! - m § t!!!! f sal <§ § I §; }) E i i! k } ;} -` { & ;2 w; ~9! | 0 I « ! • Will- � _ - ) f - - k ) | (( ! $$ k / ■! ! |!! / § "7" , 7 _ - _ j 'd 2; f . ; fi f . - t p | . s , . , . K§)\ ! NHt/ � . ; � k» 4 \ HR \G�i p q - -, $f k , /! ..! ! t _ ! - !m 51 /! Vz. ! ! . !; „ 2 / !i/© | \! � Q - - _ � ! ' - a ! ` / i=6°'° \ §k \ } § .!{a � ' °!-!` ! i : 5 4!!) ! 1 * ! | ) £ )�; t! & 2 g . m 1tf )\ {| ) ` ° // Hi ) \ PROPOSAL SALE DATE: February 11, 2014 TO: Ms. Theresa Slominski, Office and Finance Manager Elk River Municipal Utilities Commission, Minnesota c/o Springsted Incorporated 380 Jackson Street, Suite 300 St. Paul, MN 55101-2887 Phone: (651)223-3000 Fax: (651)223-3046 RE: $2,125,000* Electric Revenue Refunding Bonds, Series 2014A For the Bonds of this Issue which shall mature and bear interest at the respective annual rates, as follow, we offer a price of $ (which may not be less than $2,106,938) plus accrued interest, if any, to the date of delivery. Interest Dollar Year Rate (%1 Yield (%) Price 2014 2015 2016 2017 2018 Designation of Term Maturities Years of Term Maturities In making this offer we accept all of the terms and conditions of the Terms of Proposal published in the Preliminary Official Statement dated January 27, 2014. In the event of failure to deliver these Bonds in accordance with the Terms of Proposal as printed in the Preliminary Official Statement and made a part hereof, we reserve the right to withdraw our offer, whereupon the deposit accompanying it will be immediately returned. All blank spaces of this offer are intentional and are not to be construed as an omission. Not as a part of our offer, the above quoted prices being controlling, but only as an aid for the verification of the offer, we have made the following computations: NET INTEREST COST:$ TRUE INTEREST RATE: The Bidder 0 will not ❑ will purchase municipal bond insurance from Account Members Account Manager By: Phone: The foregoing proposal has been accepted by the Commission. Attest: Date: SURE-BID Wire Transfer Good Faith Check Preliminary;subject to change. 171 Springsted Incorporated 380 Jackson Street, Suite 300 Saint Paul,MN 55101-2887 Springsted Tel: 651-223-3000 Fax: 651-223-3002 www.springsted.com $2,125,000(a) CITY OF ELK RIVER, MINNESOTA ELECTRIC REVENUE REFUNDING BONDS, SERIES 2014A (BOOK ENTRY ONLY) AWARD: UBS FINANCIAL SERVICES INC. SALE: February 11, 2014 Moody's Rating: Aa3 Interest Net Interest True Interest Bidder Rates Price Cost Rate UBS FINANCIAL SERVICES INC. 4.00% 2014 $2,189,031.40(4 $46,466.93(b) 0.8973%(b) 3.00% 2015 2.00% 2016-2018 HUTCHINSON, SHOCKEY, ERLEY & CO. 1.50% 2014-2018 $2,154,529.15 $46,514.60 0.9077% BOSC, INC., A SUBSIDIARY OF, 2.00% 2014-2018 $2,178,292.40 $48,099.27 0.9306% BOK FINANCIAL CORP. SUNTRUST ROBINSON HUMPHREY, INC. STERNE, AGEE & LEACH, INC. PIPER JAFFRAY & CO. 2.00% 2014-2018 $2,176,650.55 $49,741.12 0.9629% ROBERT W. BAIRD & COMPANY, 2,00% 2014-2018 $2,176,359.25 $50,032.42 0.9687% INCORPORATED C.L. KING & ASSOCIATES SAMCO CAPITAL MARKETS, INC. EDWARD D. JONES & COMPANY WNJ CAPITAL CRONIN & COMPANY, INC. LOOP CAPITAL MARKETS, LLC CREWS &ASSOCIATES DAVENPORT & COMPANY LLC NORTHLAND SECURITIES, INC. VINING-SPARKS IBG, LIMITED PARTNERSHIP ROSS, SINCLAIRE &ASSOCIATES, LLC DUNCAN-WILLIAMS, INC. WEDBUSH SECURITIES INC. DOUGHERTY & COMPANY LLC ISAAK BOND INVESTMENTS, INC. R. SEELAUS & COMPANY, INC. ALAMO CAPITAL WMBE OPPENHEIMER & CO. INC. BERNARDI SECURITIES, INCORPORATED PNC CAPITAL MARKETS (a) Subsequent to bid opening, the issue size decreased from$2,125,000 to$2,030,000. (b) Subsequent to bid opening, the price, net interest cost and true interest rate have changed to $2,091,436.75, $44,826.58, and 0.8977%, respectively. Public Sector Advisors Interest Net Interest True Interest Bidder Rates Price Cost Rate RAYMOND JAMES &ASSOCIATES, INC. 2.00% 2014-2018 $2,172,042.15 $54,349.52 1.0539% REOFFERING SCHEDULE OF THE PURCHASER Rate Year Yield 4.00% 2014 0.25% 3.00% 2015 0.35% 2.00% 2016 0.45% 2.00% 2017 0.60% 2.00% 2018 0.90% BBI: 4.46% Average Maturity: 2.386 Years • BBI 25-bond (Revenue) and 20-bond (G.O.) Rates for 5 Years Ending 2/6/2014 ----BBI 25 Bond 6.5% —BBI 20 Bond 2/612014 6.0% 25 bond 532% 20 bond'.4.46% `. it% y 5.5% 1y , .r ', S1 `...11 w f^. N 5.0% 1r•..• i♦ • Y'w. TI 10 .. 4 Y 1 te 4.5% �/ e. � i