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5.1. ERMUSR 06-14-2016
>"1*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: June 14, 2016 5.1 SUBJECT: Award of Bonds 2016A &Refunding of Electric Bonds 2016B BACKGROUND: At the May 10th meeting, the Commission passed a resolution to proceed with issuance of $10,000,000 2016A bonds, and the refunding the bond 2007A issue of$1,460,000 2016B bonds, and the City Council passed it at the May 16th meeting. At that time it was identified that the award of the bonds by the Utility Commission would come back and be on the June 14th agenda. DISCUSSION: Utility Staff, along with Springsted,were busy preparing for our rating call on May 31st related to both bonds. It was decided to stay with Moody's for rating purposes and a report will be issued on Friday, June 3rd to award a rating result; we currently have an Aa3 rating. Proposals for the sale are received June 14th 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 2016A Electric Bonds, and the 2016B Electric Revenue Refunding Bonds in the amount of$1,460,000 template resolution is attached for your review. Terri Heaton from Springsted will be attending our Commission meeting to bring the June 14th market sale information results in an updated resolution for approval. ACTION REQUESTED: Staff recommends that the Elk River Municipal Utilities Commission authorize and award the issuance and sale of the $10,000,000 2016A Electric Revenue Bonds, and the 2016B Electric Revenue Refunding Bonds to refund the Electric 2007A Bonds, per resolution. ATTACHMENTS: • Preliminary Official Statement Dated May 26, 2016 • Template Resolution - Awarding the Issuance and Sale of$10,000,000 Electric Revenue Bonds, Series 2016A P I W E A E O Il Page 1 of 2 NATURE Reliable Public Power Provider P OWERED T o S ERV E 103 • Template Resolution—Awarding the Sale of$1,460,000 Electric Revenue Refunding Bonds, Series 2016B PYONEOEO 01 Page 2 of 2 NATURE Reliable Public' Power Provider P OWERED T O S ERV E 104 PRELIMINARY OFFICIAL STATEMENT DATED MAY 26,2016 • ro NEW ISSUES Moody's Ratings: Requested e.= BANK QUALIFIED—THE SERIES 2016A BONDS 2 NOT BANK-QUALIFIED—THE SERIES 2016B BONDS p ti 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 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 not a preference item for purposes of computing the o-5 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 o 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 y institutions)measured by income.No opinion will be expressed by Kennedy&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. See"TAX EXEMPTION"and"OTHER FEDERAL TAX CONSIDERATIONS"herein. I. City of Elk River, Minnesota $10,000,000* $1,460,000* Electric Revenue Bonds, Series 2016A Electric Revenue Refunding Bonds, Series 2016B a o (the"Series 2016A Bonds") (the"Series 2016B Bonds") y C 'y T N p s (Book Entry Only) 'O • • Dated Date: Date of Delivery Interest Due: Each February 1 and August 1, • -F, commencing February 1,2017 o � .-2 The Bonds(as defined herein)will mature as shown on the inside front cover of this Official Statement. c• ° Proposals for the Bonds may contain a maturity schedule providing for a combination of serial bonds and term bonds. All term -5 bonds shall be subject to mandatory sinking fund redemption at a price of par plus accrued interest to the date of redemption "o:C scheduled to conform to the respective maturity schedule set forth on the following page. w_ o a) ti y o 2 The Bonds will be special obligations of the City of Elk River,Minnesota(the"City")payable solely from net revenues of the g t, electric system of the Elk River Municipal Utilities Commission(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 of the Series 2016A Bonds will be used to roc finance a portion of the cost of the acquisition of the Commission's membership interest in the Minnesota Municipal Power co).N Agency(MMPA). The proceeds of the Series 2016B Bonds will be used to refund the February 1, 2017 through February 1, • C w 2022 maturities of the City's Electric Revenue Bonds, Series 2007A,dated March 28,2007. o � c • E o A separate proposal must be submitted for each issue subject to the minimum bid amounts shown below,plus accrued interest, ▪ .Y if any. Proposals shall specify rates in integral multiples of 1/100 or 1/8 of 1%. The initial price to the public for each maturity • of each issue must be 98.0%or greater. Following receipt of proposals,a good faith deposit for each issue will be required to • t4 be delivered to the City by the lowest bidder as described in each "Terms of Proposal"herein. Award of the Bonds will be • og made on the basis of True Interest Cost(TIC). E o Minimum Bid � 3 The Series 2016A Bonds $9,870,000 E• - The Series 2016B Bonds $1,449,780 y5) b The City will designate the Series 2016A Bonds as "qualified tax-exempt obligations" pursuant to Section 265(b)(3) of the Internal Revenue Code of 1986, as amended. The City will not designate the Series 2016B Bonds as "qualified tax-exempt ,• 73 o obligations"pursuant to Section 265(b)(3)of the Internal Revenue Code of 1986,as amended. " The Bonds will be issued as fully registered bonds without coupons and,when issued,will be registered in the name of Cede& •- 'j Co.,as nominee of The Depository Trust Company("DTC"). DTC will act as securities depository for the Bonds. Individual • °:• i purchases may be made in book entry form only, in the principal amount of$5,000 and integral multiples thereof. Investors .b ° will not receive physical certificates representing their interest in the Bonds purchased. (See "Book Entry System" herein.) U.S.Bank National Association, St.Paul,Minnesota will serve as registrar(the"Registrar")for the Bonds. The Bonds will be available for delivery at DTC on or about July 14,2016. PROPOSALS RECEIVED: June 14,2016(Tuesday)until 10:00 A.M.,Central Time C 3 „ AWARD: June 14,2016(Tuesday)at 3:30 P.M., Central Time foo Further information may be obtained from SPRINGSTED Inco orated, b S p r Cl 9 S .e Municipal Advisor to the City, 380 Jackson Street, Suite 300, Saint Paul, F o Minnesota 55101-2887(651)223-3000. * Preliminary;subject to change. 105 City of Elk River, Minnesota $10,000,000* Electric Revenue Bonds, Series 2016A The Series 2016A Bonds will mature February 1 in the years and amounts* as follows: 2019 $465,000 2023 $495,000 2027 $535,000 2031 $595,000 2034 $645,000 2020 $470,000 2024 $505,000 2028 $550,000 2032 $610,000 2035 $665,000 2021 $480,000 2025 $515,000 2029 $565,000 2033 $630,000 2036 $685,000 2022 $485,000 2026 $525,000 2030 $580,000 The City may elect on February 1,2025,and on any day thereafter,to prepay Series 2016A Bonds due on or after February 1,2026 at a price of par plus accrued interest. $1,460,000*Electric Revenue Refunding Bonds,Series 2016B The Series 2016B Bonds will mature February 1 in the years and amounts* as follows: 2017 $235,000 2019 $240,000 2021 $250,000 2018 $235,000 2020 $245,000 2022 $255,000 The Series 2016B Bonds will not be subject to payment in advance of their respective stated maturity dates. * Preliminary;subject to change. 106 CITY OF ELK RIVER, MINNESOTA CITY COUNCIL John Dietz Mayor Jerry Olsen Council Member,Ward 1 Matthew Westgaard Council Member,Ward 2 Barbara Burandt Council Member,Ward 3 Jennifer Wagner Council Member,Ward 4 CITY ADMINISTRATOR Cal Portner INTERIM FINANCE DIRECTOR Lori Ziemer ELK RIVER MUNICIPAL UTILITIES COMMISSION John Dietz Chair Al Nadeau Vice Chair Daryl Thompson Member(Trustee) GENERAL MANAGER Troy Adams FINANCE AND OFFICE MANAGER Theresa Slominski MUNICIPAL ADVISOR Springsted Incorporated St.Paul,Minnesota BOND COUNSEL Kennedy&Graven,Chartered Minneapolis,Minnesota 107 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,may be treated as a Preliminary 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 Commission agrees 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 each Terms of Proposal. No dealer, broker, salesman or other person has been authorized by 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 Official Statement or the Final Official Statement, 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 the Preliminary Official Statement or the Final Official Statement 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 AND THE FINAL OFFICIAL STATEMENT ARE SUBJECT TO CHANGE, AND NEITHER THE DELIVERY OF THE PRELIMINARY OFFICIAL STATEMENT NOR 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 RESPECTIVE 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 Official Statement or the Final Official Statement,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 are assigned by an organization unaffiliated with the City or the Commission. Neither the City nor the Commission is 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 by the City or the Commission that the CUSIP numbers for the Bonds will remain the same after the delivery of the Final Official Statement or the date of issuance and delivery of the Bonds. 108 TABLE OF CONTENTS Page(s) Terms of Proposal $10,000,000* Electric Revenue Bonds, Series 2016A i-v $1,460,000* Electric Revenue Refunding Bonds, Series 2016B vi-ix Introductory Statement 1 Continuing Disclosure 2 The Bonds 2 Risk Factors 5 Authority and Purpose 10 Sources and Uses of Funds 11 Security and Financing 11 Elk River Municipal Utilities 14 The Electric System 15 Utility Financial Statements 18 Debt Service and Coverage Calculation 21 Utility Revenue Debt 21 Future Financing 22 Litigation 22 Legality 23 Tax Exemption 23 Other Federal Tax Considerations 23 Bank-Qualified Tax-Exempt Obligations—The Series 2016A Bonds 24 Not Qualified Tax-Exempt Obligations—The Series 2016B Bonds 25 Ratings 25 Municipal Advisor 25 Certification 25 General Information Concerning the City 26 Proposed Forms of Legal Opinions Appendix I Continuing Disclosure Undertakings Appendix II Excerpt of the City's 2014 Comprehensive Annual Financial Report Appendix III Excerpt of the Utility's 2015 Annual Financial Report Appendix IV * Preliminary;subject to change. 109 THE CITY AND THE COMMISSION HAVE AUTHORIZED SPRINGSTED INCORPORATED TO NEGOTIATE THIS ISSUE ON THEIR BEHALF. PROPOSALS WILL BE RECEIVED ON THE FOLLOWING BASIS: TERMS OF PROPOSAL $10,000,000* CITY OF ELK RIVER,MINNESOTA ELECTRIC REVENUE BONDS, SERIES 2016A (BOOK ENTRY ONLY) Proposals for the Series 2016A Bonds will be received on Tuesday, June 14, 2016, 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. Consideration for award of the Series 2016A Bonds will be by the Elk River Municipal Utilities Commission(the"Commission")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 of Elk River, Minnesota (the "City"), and the Commission to purchase the Series 2016A 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, its agents nor PARITY® shall have any duty or Series 2016A Bond 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, its 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 is using the services of PARITY® solely as a communication mechanism to conduct the electronic bidding for the Series 2016A 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,2❑d Floor,New York,New York 10018 Customer Support: (212) 849-5000 * Preliminary;subject to change. 110 DETAILS OF THE SERIES 2016A BONDS The Series 2016A 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 February 1, 2017. Interest will be computed on the basis of a 360-day year of twelve 30-day months. The Series 2016A Bonds will mature February 1 in the years and amounts* as follows: 2019 $465,000 2023 $495,000 2027 $535,000 2031 $595,000 2034 $645,000 2020 $470,000 2024 $505,000 2028 $550,000 2032 $610,000 2035 $665,000 2021 $480,000 2025 $515,000 2029 $565,000 2033 $630,000 2036 $685,000 2022 $485,000 2026 $525,000 2030 $580,000 * 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 Series 2016A 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 Series 2016A 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 Series 2016A 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 Series 2016A Bonds will be issued by means of a book entry system with no physical distribution of Series 2016A Bonds made to the public. The Series 2016A Bonds will be issued in fully registered form and one Series 2016A Bond, representing the aggregate principal amount of the Series 2016A 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 Series 2016A Bonds. Individual purchases of the Series 2016A 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 Series 2016A 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 Series 2016A Bonds, will be required to deposit the Series 2016A 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 City may elect on February 1, 2025, and on any day thereafter,to prepay Series 2016A Bonds due on or after February 1, 2026. Redemption may be in whole or in part and if in part at the option of the City and in such manner as the City shall determine. If less than all Series 2016A Bonds of a maturity are called for redemption, the City will notify DTC of the particular amount of such maturity to be prepaid. DTC will determine by lot the amount of each participant's interest in such maturity to be redeemed and each participant will then select by lot the beneficial ownership interests in such maturity to be redeemed. All prepayments shall be at a price of par plus accrued interest. -ii - 111 SECURITY AND PURPOSE The Series 2016A 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 of the Series 2016A Bonds will be used to finance a portion of the cost of the acquisition of the Commission's membership interest in the Minnesota Municipal Power Agency(MMPA). BIDDING PARAMETERS Proposals shall be for not less than $9,870,000 plus accrued interest, if any, on the total principal amount of the Series 2016A 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 Series 2016A Bonds is adjourned, recessed, or continued to another date without award of the Series 2016A 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. Series 2016A Bonds of the same maturity shall bear a single rate from the date of the Series 2016A Bonds to the date of maturity. No conditional proposals will be accepted. GOOD FAITH DEPOSIT To have its proposal considered for award,the lowest bidder is required to submit a good faith deposit to the City in the amount of$100,000 (the "Deposit") no later than 1:00 P.M., Central Time on the day of sale. The Deposit may be delivered as described herein in the form of either (i) a certified or cashier's check payable to the City; or (ii) a wire transfer. The lowest bidder shall be solely responsible for the timely delivery of their Deposit whether by check or wire transfer. Neither the City nor Springsted Incorporated have any liability for delays in the receipt of the Deposit. If the Deposit is not received by the specified time,the City may,at its sole discretion,reject the proposal of the lowest bidder, direct the second lowest bidder to submit a Deposit,and thereafter award the sale to such bidder. Certified or Cashier's Check. A Deposit made by certified or cashier's check will be considered timely delivered to the City if it is made payable to the City and delivered to Springsted Incorporated, 380 Jackson Street, Suite 300, St.Paul,Minnesota 55101 by the specified time. Wire Transfer. A Deposit made by wire will be considered timely delivered to the City upon submission of a federal wire reference number by the specified time. Wire transfer instructions will be available from Springsted Incorporated following the receipt and tabulation of proposals. The successful bidder must send an e-mail including the following information: (i) the federal reference number and time released; (ii)the amount of the wire transfer; and(iii)the issue to which it applies. Once an award has been made, the Deposit received from the lowest bidder (the "purchaser") will be retained by the City and no interest will accrue to the purchaser. The amount of the Deposit will be deducted at settlement from the purchase price. In the event the purchaser fails to comply with the accepted proposal,said amount will be retained by the City. AWARD The Series 2016A 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 or 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 Series 2016A Bonds, (ii)reject all proposals without cause, and(iii)reject any proposal that the Commission determines to have failed to comply with the terms herein. -iii- 112 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 Series 2016A Bonds. If the Series 2016A 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 Series 2016A Bonds shall not constitute cause for failure or refusal by the successful bidder to accept delivery of the Series 2016A Bonds. CUSIP NUMBERS If the Series 2016A Bonds qualify for assignment of CUSIP numbers such numbers will be printed on the Series 2016A Bonds, but neither the failure to print such numbers on any Series 2016A Bond nor any error with respect thereto will constitute cause for failure or refusal by the purchaser to accept delivery of the Series 2016A Bonds. The CUSIP Service Bureau charge for the assignment of CUSIP identification numbers shall be paid by the purchaser. SETTLEMENT On or about July 14, 2016, the Series 2016A 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 Series 2016A 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 Series 2016A Bonds has been made impossible by action of the City, or its agents, the purchaser shall be liable to the City for any loss suffered by the City 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 Series 2016A 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 Series 2016A Bonds will be conditioned upon receiving evidence of this undertaking at or prior to delivery of the Series 2016A Bonds. OFFICIAL STATEMENT The City and the Commission have authorized the preparation of a Preliminary Official Statement containing pertinent information relative to the Series 2016A 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 Municipal 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 Series 2016A Bonds, together with any other information required by law. By awarding the Series 2016A Bonds to an underwriter or underwriting syndicate, the Commission agrees that, no more than seven business days after the date of such award, it shall provide without cost to the sole underwriter or to the senior managing underwriter of the syndicate (the "Underwriter" for purposes of this paragraph) to which the Series 2016A Bonds are awarded up to 25 copies of the Final Official Statement. The Commission designates the Underwriter of the syndicate to -iv- 113 which the Series 2016A Bonds are awarded as its agent for purposes of distributing copies of the Final Official Statement to each Participating Underwriter. Such Underwriter agrees that if its proposal is accepted by the Commission, (i) it shall accept designation and (ii) it shall enter into a contractual relationship with all Participating Underwriters of the Series 2016A Bonds for purposes of assuring the receipt by each such Participating Underwriter of the Final Official Statement. Dated May 10,2016 BY ORDER OF THE ELK RIVER MUNICIPAL UTILITIES COMMISSION /s/Theresa Slominski Finance and Office Manager -v- 114 THE CITY AND THE COMMISSION HAVE AUTHORIZED SPRINGSTED INCORPORATED TO NEGOTIATE THIS ISSUE ON THEIR BEHALF. PROPOSALS WILL BE RECEIVED ON THE FOLLOWING BASIS: TERMS OF PROPOSAL $1,460,000* CITY OF ELK RIVER,MINNESOTA ELECTRIC REVENUE REFUNDING BONDS,SERIES 2016B (BOOK ENTRY ONLY) Proposals for the Series 2016B Bonds will be received on Tuesday, June 14, 2016, 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. Consideration for award of the Series 2016B Bonds will be by the Elk River Municipal Utilities Commission (the "Commission") 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 of Elk River, Minnesota (the "City"), and the Commission to purchase the Series 2016B 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, its agents nor PARITY® shall have any duty or Series 2016B Bond 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, its 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 is using the services of PARITY solely as a communication mechanism to conduct the electronic bidding for the Series 2016B 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. -vi - 115 DETAILS OF THE SERIES 2016B BONDS The Series 2016B 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 February 1, 2017. Interest will be computed on the basis of a 360-day year of twelve 30-day months. The Series 2016B Bonds will mature February 1 in the years and amounts* as follows: 2017 $235,000 2019 $240,000 2021 $250,000 2018 $235,000 2020 $245,000 2022 $255,000 * 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 Series 2016E 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 Series 2016B 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 Series 2016B 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 Series 2016B Bonds will be issued by means of a book entry system with no physical distribution of Series 2016B Bonds made to the public. The Series 2016B Bonds will be issued in fully registered form and one Series 2016B Bond, representing the aggregate principal amount of the Series 2016B 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 Series 2016B Bonds. Individual purchases of the Series 2016B 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 Series 2016B 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 Series 2016B Bonds, will be required to deposit the Series 2016B 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 Series 2016B Bonds will not be subject to payment in advance of their respective stated maturity dates. SECURITY AND PURPOSE The Series 2016B 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 February 1, 2017 through February 1, 2022 maturities of the City's Electric Revenue Bonds, Series 2007A, dated March 28,2007. -vii - 116 BIDDING PARAMETERS Proposals shall be for not less than $1,449,780 plus accrued interest, if any, on the total principal amount of the Series 2016B 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 Series 2016B Bonds is adjourned, recessed, or continued to another date without award of the Series 2016B 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. Series 2016B Bonds of the same maturity shall bear a single rate from the date of the Series 2016B Bonds to the date of maturity. No conditional proposals will be accepted. GOOD FAITH DEPOSIT To have its proposal considered for award, the lowest bidder is required to submit a good faith deposit to the City in the amount of$14,600 (the "Deposit") no later than 1:00 P.M., Central Time on the day of sale. The Deposit may be delivered as described herein in the form of either (i) a certified or cashier's check payable to the City; or (ii) a wire transfer. The lowest bidder shall be solely responsible for the timely delivery of their Deposit whether by check or wire transfer. Neither the City nor Springsted Incorporated have any liability for delays in the receipt of the Deposit. If the Deposit is not received by the specified time,the City may,at its sole discretion,reject the proposal of the lowest bidder, direct the second lowest bidder to submit a Deposit,and thereafter award the sale to such bidder. Certified or Cashier's Check. A Deposit made by certified or cashier's check will be considered timely delivered to the City if it is made payable to the City and delivered to Springsted Incorporated, 380 Jackson Street, Suite 300, St.Paul,Minnesota 55101 by the specified time. Wire Transfer. A Deposit made by wire will be considered timely delivered to the City upon submission of a federal wire reference number by the specified time. Wire transfer instructions will be available from Springsted Incorporated following the receipt and tabulation of proposals. The successful bidder must send an e-mail including the following information: (i) the federal reference number and time released; (ii)the amount of the wire transfer; and(iii)the issue to which it applies. Once an award has been made, the Deposit received from the lowest bidder (the "purchaser") will be retained by the City and no interest will accrue to the purchaser. The amount of the Deposit will be deducted at settlement from the purchase price. In the event the purchaser fails to comply with the accepted proposal, said amount will be retained by the City. AWARD The Series 2016B 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 or 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 Series 2016B Bonds, (ii)reject all proposals without cause, and(iii)reject any proposal that the Commission determines 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 Series 2016B Bonds. If the Series 2016B 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 -viii- 117 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 Series 2016B Bonds shall not constitute cause for failure or refusal by the successful bidder to accept delivery of the Series 2016B Bonds. CUSIP NUMBERS If the Series 2016B Bonds qualify for assignment of CUSIP numbers such numbers will be printed on the Series 2016B Bonds, but neither the failure to print such numbers on any Series 2016B Bond nor any error with respect thereto will constitute cause for failure or refusal by the purchaser to accept delivery of the Series 2016B Bonds. The CUSIP Service Bureau charge for the assignment of CUSIP identification numbers shall be paid by the purchaser. SETTLEMENT On or about July 14, 2016, the Series 2016B 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 Series 2016B 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 Series 2016B Bonds has been made impossible by action of the City, or its agents, the purchaser shall be liable to the City for any loss suffered by the City 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 Series 2016B 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 Series 2016B Bonds will be conditioned upon receiving evidence of this undertaking at or prior to delivery of the Series 2016B Bonds. OFFICIAL STATEMENT The City and the Commission have authorized the preparation of a Preliminary Official Statement containing pertinent information relative to the Series 2016B 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 Municipal 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 Series 2016B Bonds, together with any other information required by law. By awarding the Series 2016B Bonds to an underwriter or underwriting syndicate, the Commission agrees that, no more than seven business days after the date of such award, it shall provide without cost to the sole underwriter or to the senior managing underwriter of the syndicate (the "Underwriter" for purposes of this paragraph) to which the Series 2016B Bonds are awarded up to 25 copies of the Final Official Statement. The Commission designates the Underwriter of the syndicate to which the Series 2016B Bonds are awarded as its agent for purposes of distributing copies of the Final Official Statement to each Participating Underwriter. Such Underwriter agrees that if its proposal is accepted by the Commission, (i)it shall accept designation and (ii) it shall enter into a contractual relationship with all Participating Underwriters of the Series 2016B Bonds for purposes of assuring the receipt by each such Participating Underwriter of the Final Official Statement. Dated May 10,2016 BY ORDER OF THE ELK RIVER MUNICIPAL UTILITIES COMMISSION /s/Theresa Slominski Finance and Office Manager -ix - 118 OFFICIAL STATEMENT CITY OF ELK RIVER,MINNESOTA $10,000,000* ELECTRIC REVENUE BONDS, SERIES 2016A $1,460,000* ELECTRIC REVENUE REFUNDING BONDS,SERIES 2016B (BOOK ENTRY ONLY) INTRODUCTORY STATEMENT This 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 $10,000,000* Electric Revenue Bonds, Series 2016A (the "Series 2016A Bonds") and $1,460,000* Electric Revenue Refunding Bonds, Series 2016B (the "Series 2016B Bonds and, together with the Series 2016A Bonds, the "Bonds"). The Bonds are being issued pursuant to Minnesota Statutes, Chapters 475 and 453, and Sections 412.321 through 412.391, all as amended; resolutions adopted by the City on May 16, 2016 (the "City Resolutions")approving the issuance of each series of Bonds and authorizing certain action to be taken by the Commission with respect to the issuance of each series of Bonds; and resolutions adopted by the Commission on May 10, 2016 authorizing the issuance of each series of Bonds. The Commission has been given authority by the City, pursuant to the City Resolutions, to adopt resolutions awarding the sale of each series Bonds. On June 14, 2016, the Commission will receive proposals to purchase each series of Bonds. If a proposal for each series of Bonds is acceptable, the Commission will adopt resolutions (the "Awarding Resolutions") authorizing the issuance of each series of Bonds,establishing the terms of each series of Bonds,and awarding the sale of each series of 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 Refunding Bonds, Series 2014A(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 Ms. Lori Ziemer, Interim Finance Director, City of Elk River, 13065 Orono Parkway, Elk River, Minnesota 55330-0490, by telephoning (763) 635-1000, or by emailing lziemer@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. * Preliminary;subject to change. - 1 - 119 CONTINUING DISCLOSURE In order to assist the Underwriters in complying with SEC Rule 15c2-12 (the "Rule"), pursuant to the Awarding Resolutions, the City and the Commission have covenanted to comply with the continuing disclosure undertakings(the"Undertakings")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 Board and to any state information depository. The specific nature of the Undertakings,as well as the information to be contained in the annual report or the notices of material events, is set forth in the Undertakings in substantially the forms 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(iii)acceptable to the City and the Commission. To the best of its knowledge, the City and the Commission have complied for the past five years in all material respects in accordance with the terms of its previous continuing disclosure undertakings entered into pursuant to the Rule. However, in the interest of full disclosure,the City notes the following: • The Economic Development Authority of the City of Elk River, Minnesota's General Obligation Bonds, Series 2007 were originally insured by MBIA Insurance Corp. ("MBIA") and subsequently became part of the insured portfolio of National Public Finance Guarantee ("NPFG"), an MBIA Public Finance Subsidiary. Material event notices regarding certain insurance rating changes within the past five years have not been filed; however,the information was publicly available through other sources. A failure by the City or the Commission to comply with the Undertakings 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 February 1 as set forth on the inside front cover of this 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 February 1, 2017. 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. -2 - 120 Optional Redemption The City may elect on February 1,2025, and on any day thereafter, to prepay Series 2016A Bonds due on or after February 1, 2026. Redemption may be in whole or in part and if in part at the option of the City and in such manner as the City shall determine. If less than all the Series 2016A Bonds of a maturity are called for redemption, the City will notify DTC of the particular amount of such maturity to be prepaid. DTC will determine by lot the amount of each participant's interest in such maturity to be redeemed and each participant will then select by lot the beneficial ownership interests in such maturity to be redeemed. All prepayments shall be at a price of par plus accrued interest. The Series 2016B 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 each series of the Bonds, each in the aggregate principal amount of such maturity,and will be deposited with DTC. 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"). 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. -3 - 121 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. 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 District 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 District 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 District, 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 District or its 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 District or its agent. Under such circumstances, in the event that a successor depository is not obtained,certificates are required to be printed and delivered. The District 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 District believes to be reliable, but the District takes no responsibility for the accuracy thereof. -4 - 122 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 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. Limited Obligation The obligation of the City to pay the principal of and interest on the Parity 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 Parity Bonds and the City has not pledged ad valorem property taxes to pay the principal and interest on the Parity Bonds. As further described elsewhere herein, the principal of and interest on the Parity Bonds is payable solely from Net Revenues of the Utility (as defined under "SECURITY AND FINANCING"herein). 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 Parity 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 revenues in an amount sufficient to pay operating and maintenance expenses of the Utility as well as the principal and interest on the Parity 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 Parity Bonds. The loss of any of the major electric or water 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 Parity 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 Resolutions 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. -5 - 123 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 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, 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 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 -6 - 124 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. 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 North American Electric Reliability Council("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 - 125 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 could reliably and cost-effectively integrate a Renewable Energy Standard ("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 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 increases mandatory CIP expenditures from 1% to 1.5% of gross revenues. CIP progress reports submitted to DOC,Division of Energy Resources,have received favorable response. -8 - 126 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 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. 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. -9 - 127 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 nor the Commission 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, and Sections 412.321 through 412.391,all as amended,the City Resolutions,and the Awarding Resolutions. The Series 2016A Bonds The proceeds of the Series 2016A Bonds will be used to finance a portion of the cost of the acquisition of the Commission's membership interest in the Minnesota Municipal Power Agency(MMPA). The Commission, on behalf of the City, entered into a New Member Agreement with MMPA dated May 14, 2013 (the "Agreement") under which the City became a member of MMPA effective June 4, 2013. Pursuant to the Agreement, to become a member of MMPA, the Commission is required to pay a buy-in fee to MMPA prior to October 1, 2018, the date on which the City will begin purchasing electric power and energy from MMPA. The buy-in fee is based on the Commission's proportionate share of MMPA's net position (equity) and rate-related accruals as of October 1, 2018. Based on current projections, the Commission will represent approximately 20% of MMPA based on an energy consumption basis, and it is anticipated that the City will be the fourth largest source of member revenue as of October 1,2018. The Series 2016B Bonds The proceeds of the Series 2016B Bonds, along with available City funds, will be used to refund the February 1, 2017 through February 1, 2022 maturities (the "Refunded Maturities") of the City's Electric Revenue Bonds, Series 2007A,dated March 28, 2007 (the"Series 2007A Bonds"). The Series 2016B Bonds have been structured as a current refunding and are being issued to achieve debt service savings. Specifically, it is anticipated that the Refunded Maturities will be called and prepaid at a price of par plus accrued interest on September 1, 2016, which is within 90 days of settlement of the Series 2016B Bonds. - 10 - 128 SOURCES AND USES OF FUNDS The Series 2016A Bonds The composition of the Series 2016A Bonds is estimated to be as follows: Sources of Funds: Principal Amount $10,000,000 Total Sources of Funds $10,000,000 Uses of Funds: Deposit to Project Account $ 9,068,058 Deposit to Reserve Account 711,467 Allowance for Discount Bidding 130,000 Costs of Issuance 90,475 Total Uses of Funds $10,000,000 The Series 2016B Bonds The composition of the Series 2016B Bonds is estimated to be as follows: Sources of Funds: Principal Amount $1,460,000 Transfers from Prior Issue Debt Service Reserve Funds 287,500 Transfer from Prior Issue Debt Service Funds 30,700 Total Sources of Funds $1,778,200 Uses of Funds: Deposit to Refunding Account $1,570,817 Deposit to Reserve Account 146,000 Costs of Issuance 51,163 Allowance for Discount Bidding 10,220 Total Uses of Funds $1,778,200 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. - 11 - 129 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. Funds and Accounts The following summary of certain covenants in the Awarding Resolutions are not to be considered a full statement of the provisions of the Awarding Resolutions and are qualified by reference to the Awarding Resolutions. The Awarding Resolutions 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. Project Account into which there shall be paid the proceeds from the sale of the Series 2016A Bonds,less the proceeds of the Series 2016A Bonds deposited into the Reserve Account,and less any accrued interest paid by the Purchaser of the Series 2016A Bonds and other amounts deposited into the Debt Service Account as determined by the Finance and Office Manager of the Commission. Refunding Account into which there shall be paid the proceeds from the sale of the Series 2016B Bonds, less the proceeds of the Series 2016B Bonds deposited in the Reserve Account, and less any accrued interest paid by the Purchaser of the Series 2016B Bonds and other amounts deposited into the Debt Service Account as determined by the Finance and Office Manager of the Commission, plus available funds from the reserve account and the debt service account for the Series 2007A Bonds. The Commission will use these funds to redeem the Refunded Maturities on September 1,2016. 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 (ii) 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(s) of the Bonds and other amounts deposited into the Debt Service Account as determined by the Finance and Office Manager of the Commission. 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 - 12 - 130 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 $711,467 and $146,000 will be deposited into the Reserve Account upon delivery of the Series 2016A Bonds and the Series 2016B Bonds,respectively. 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 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 Resolutions, 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. - 13 - 131 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%. 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, 2019 Al Nadeau Vice Chair February 28,2017 Daryl Thompson Member(Trustee) February 28,2018 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 44. - 14 - 132 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 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 55,070,400 $3,991,415 13.13% Customer 2 26,035,200 2,302,359 7.57 Customer 3 5,634,000 517,594 1.70 Customer 4 5,265,000 470,441 1.55 Customer 5 4,779,200 440,325 1.45 Customer 6 4,490,400 333,193 1.10 Customer 7 3,448,750 326,632 1.07 Customer 8 3,427,000 312,539 1.03 Customer 9 2,912,600 259,606 0.85 Customer 10 2,724,000 265,593 0.87 $9,219,697 30.32% - 15 - 133 Electricity Purchased and Purchased Cost kWh Purchased Year Purchased Cost 2015 294,441,957 $22,034,307 2014 288,320,724 21,981,079 2013 290,025,919 21,240,936 2012 287,553,108 20,499,773 2011 276,026,892 19,604,951 Sales History Number of Meters kWh Total Year in Service Sold Billings 2015 10,499 282,265,268 $32,704,279 2014 9,449 274,546,059 31,514,246 2013 9,358 273,945,354 30,978,790 2012 9,285 273,455,846 30,070,045 2011 9,227 261,235,297 27,894,341 Meter Connections Year Residential Commercial Industrial Total 2015 9,205 1,105 189 10,499 2014 8,303 1,005 141 9,449 2013 8,237 986 135 9,358 2012 8,166 986 133 9,285 2011 8,124 954 149 9,227 Peak Demand Year MW Season 2015 55.8 Summer 2014 55.3 Summer 2013 61.0 Summer 2012 59.6 Summer 2011 57.7 Summer - 16- 134 Electric Rates and Charges The following electric rates and charges became effective January 1,2015. Residential Electric Rates Basic Monthly Charge $12.00 May-September Usage $0.1360 per kWh October-April Usage $0.1205 per kWh Off Peak Rates Energy Storage $0.0450 per kWh per month Dual Fuel $0.0585 per kWh per month Commercial/Industrial Non-Demand Customers(Demand in kW less than 50kW) Basic Monthly Charge $20.00 May-September Usage $0.1304 per kWh October-April Usage $0.1087 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 $60.00 Energy Charge $0.0649 per kWh May-September Demand Charge $16.94 per kW October-April Demand Charge $11.99 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. - 17 - 135 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, 2010 through 2014. 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 2014 Comprehensive Annual Financial Report ("CAFR"), an excerpt of which is provided as Appendix III of this Official Statement. (The City's CAFR for the fiscal year ended December 31, 2015 is not yet available.) Please reference the Utility's Annual Financial Report for fiscal year ended December 31, 2015,an excerpt of which is included as Appendix IV 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 2010 2011* 2012 2013 2014 ASSETS Current Assets Cash and Investments $ 6,587,017 $ 8,380,396 $ 10,646,164 $ 11,410,293 $ 11,606,610 Restricted Cash and Investments 724,500 724,500 724,500 647,000 490,500 Receivables: Interest 1,116 4,749 9,286 13,225 363 Accounts 2,455,731 2,503,609 2,318,928 2,488,572 2,599,664 Due from Other Governments 1,627 1,627 - 12,209 25,832 Due from Other Funds 7,264 - - - - Inventories 1,018,092 997,125 928,800 963,608 979,129 Prepaid Items 140,116 122,066 187,839 178,028 175,687 Total Current Assets $ 10,935,463 $ 12,734,072 $ 14,815,517 $ 15,712,935 $ 15,877,785 Noncurrent Assets Deferred Charges $ 114,775 $ - $ - $ - $ - Capital Assets: Nondepreciable 607,711 401,074 514,396 1,818,210 470,352 Depreciable 51,051,029 52,384,131 53,494,906 54,095,276 46,395,743 Accumulated Depreciation (23,869,917) (25,885,141) (27,883,481) (28,786,989) (20,038,050) Total Capital Assets $ 27,788,823 $ 26,900,064 $ 26,125,821 $ 27,126,497 $ 26,828,045 Total Noncurrent Assets $ 27,903,598 $ 26,900,064 $ 26,125,821 $ 27,126,497 $ 26,828,045 TOTAL ASSETS $ 38,839,061 $ 39,634,136 $ 40,941,338 $ 42,839,432 $ 42,705,830 DEFERRED OUTFLOWS OF RESOURCES Deferred Charge on Refunding $ - $ 73,603 $ 67,011 $ 60,419 $ 53,827 LIABILITIES Current Liabilities Accounts Payable $ 2,138,206 $ 2,376,698 $ 2,246,876 $ 3,233,508 $ 2,575,115 Salaries Payable 71,655 74,499 81,732 134,394 150,914 Due to Other Governments 122,278 193,408 155,225 - 129,298 Due to Other Funds 379,921 372,554 456,681 550,216 603,790 Unearned Revenue - - 8,262 - - Accrued Interest 111,260 103,131 94,796 82,026 58,867 Compensated Absences Payable(Current) 113,845 92,925 101,094 106,070 58,906 Notes Payable(Current) 182,436 183,444 186,588 189,353 191,518 Bonds Payable(Current) 548,000 559,000 588,000 503,000 672,000 Total Current Liabilities $ 3,667,601 $ 3,955,659 $ 3,919,254 $ 4,798,567 $ 4,440,408 Noncurrent Liabilities Compensated Absences Payable $ 100,788 $ 122,119 $ 115,973 $ 137,437 $ 153,350 Net Other Postemployment Benefits Obligation 30,096 35,759 40,360 45,042 54,932 Notes Payable 2,162,882 1,979,438 1,789,224 1,599,871 1,408,358 Bonds Payable 6,483,597 6,001,525 5,410,254 4,678,983 3,733,556 Total Noncurrent Liabilities $ 8,777,363 $ 8,138,841 $ 7,355,811 $ 6,461,333 $ 5,350,196 TOTAL LIABILITIES $ 12,444,964 $ 12,094,500 $ 11,275,065 $ 11,259,900 $ 9,790,604 NET POSITION Invested in Capital Assets(Net of Related Debt) $ 18,411,908 $ 18,250,260 $ 18,218,766 $ 20,215,709 $ 20,876,440 Restricted for Debt Service 724,500 724,500 724,500 647,000 490,500 Unrestricted 7,257,689 8,638,479 10,790,018 10,777,242 11,602,113 TOTAL NET POSITION $ 26,394,097 $ 27,613,239 $ 29,733,284 $ 31,639,951 $ 32,969,053 *Restated. - 18 - 136 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 2010 2011 2012 2013 2014 OPERATING REVENUES User Charges $ 26,316,948 $ 28,150,773 $ 30,365,645 $ 31,261,292 $ 31,756,165 Delinquency Collections 237,319 257,040 238,314 254,542 244,857 Other 173,534 176,173 (345,269) (669,455) (634,337) Total Operating Revenues $ 26,727,801 5 28,583,986 $ 30,258,690 $ 30,846,379 $ 31,366,685 OPERATING EXPENSES Personal Services $ 1,773,380 $ 1,692,020 $ 1,707,401 $ 1,815,680 $ 2,051,979 Supplies 116,299 132,149 135,161 129,967 172,354 Purchased Power 18,527,610 19,758,584 20,499,773 21,254,950 21,994,652 Other Service Charges 2,681,960 2,808,580 2,908,383 2,897,799 3,259,076 Depreciation 2,062,942 2,041,717 2,099,594 2,029,496 1,914,062 Total Operating Expense $ 25,162,191 $ 26,433,050 $ 27,350,312 $ 28,127,892 $ 29,392,123 OPERATING INCOME(LOSS) $ 1,565,610 $ 2,150,936 $ 2,908,378 $ 2,718,487 $ 1,974,562 NONOPERATING REVENUES(EXPENSES) Connection Charges $ 64,761 $ - $ - $ - $ - Interest Income 89,948 113,983 117,753 81,289 98,442 Miscellaneous Revenue 48,421 73,712 144,779 182,920 229,532 Interest Expense (272,897) (256,141) (236,261) (211,429) (160,274) Bond Issuance Costs - - - - (44,850) Amortization Expense (8,819) - - - - Gain(Loss)on Sale of Capital Assets (11,609) (37,158) 2,260 (83,438) 29,525 Total Nonoperating Revenues(Expenses) $ (90,195) $ (105,604) $ 28,531 $ (30,658) $ 152,375 INCOME(LOSS)BEFORE CONTRIBUTIONS AND TRANSFERS $ 1,475,415 $ 2,045,332 $ 2,936,909 $ 2,687,829 $ 2,126,937 Transfers In 53,741 - - - - Transfers Out (657,086) (711,415) (816,864) (781,162) (797,835) CHANGE IN NET POSITION $ 872,070 $ 1,333,917 $ 2,120,045 $ 1,906,667 $ 1,329,102 TOTAL NET POSITION(JANUARY 1) $ 25,522,027 $ 26,279,322 $ 27,613,239 $ 29,733,284 $ 31,639,951 PRIOR PERIOD ADJUSTMENTS - - - - - TOTAL NET POSITION,RESTATED(JANUARY 1) $ 25,522,027 $ 26,279,322 $ 27,613,239 $ 29,733,284 $ 31,639,951 TOTAL NET POSITION(DECEMBER 31) $ 26,394,097 $ 27,613,239 $ 29,733,284 $ 31,639,951 $ 32,969,053 - 19 - 137 CITY OF ELK RIVER,MINNESOTA Elk River Municipal Utilities-Electric System Statement of Cash Flows For Fiscal Years Ended December 31 2010 2011 2012 2013 2014 CASH FLOWS FORM OPERATING ACTIVITIES Receipts From Customers and Users $ 26,414,254 $ 28,519,094 $ 30,481,587 $ 30,744,006 $ 31,288,755 Other Operating Cash Receipts 55,110 121,385 125,965 134,209 192,433 Payments to Suppliers (21,426,298) (22,728,996) (23,771,526) (24,329,126) (25,686,149) Payments to Employees (1,446,237) (1,515,439) (1,460,301) (1,518,107) (1,748,714) Net Cash Provided by Operating Activities $ 3,596,829 $ 4,396,044 $ 5,375,725 $ 5,030,982 $ 4,046,325 CASH FLOWS FROM NONCAPITAL FINANCING ACTIVITIES Transfers From Other Funds $ 53,741 $ - $ - $ - $ - Transfers to Other Funds (657,086) (711,415) (816,864) (781,162) (797,835) Decrease(Increase)in Due From Other Funds (5,683) (20,287) - - - Increase(Decrease)in Due to Other Funds 74,689 20,184 84,127 93,535 53,574 Net Cash Provided(Used)by Noncapital Financing Activities $ (534,339) $ (711,518) $ (732,737) $ (687,627) $ (744,261) CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES Acquisition of Capital Assets $ (998,645) $ (1,010,116) $ (1,517,549) $ (2,540,610) $ (2,219,085) Proceeds From Sale of Capital Assets 5,952 - 14,458 27,000 33,000 Principal Paid on Capital Debt (512,500) (548,000) (559,000) (813,000) (2,853,000) Proceeds of Bonds Issued,Net of Issuance Costs and Premium on Bonds - - - - 2,046,586 Interest Paid on Capital Debt (278,928) (260,945) (241,275) (220,878) (191,704) Payments on Short Term Account to Acquire Capital Assets - - - - - Proceeds of Refundng Bonds Issued 1,105,905 - - - - Payment to Escrow Agent for Refunded Bond (1,099,671) - - - - Principal Paid on Promissory Note (179,328) (182,436) (187,070) (186,588) (189,348) Net Cash Used by Capital and Related Financing Activities $ (1,957,215) $ (2,001,497) $ (2,490,436) $ (3,734,076) $ (3,373,551) CASH FLOWS FROM INVESTING ACTIVITIES Interest Received 114,922 110,350 113,216 77,350 111,304 Net Increase(Decrease)in Cash and Cash Equivalents $ 1,220,197 $ 1,793,379 $ 2,265,768 $ 686,629 $ 39,817 Cash and Cash Equivalents(January 1) $ 6,091,320 $ 7,311,517 $ 9,104,896 $ 11,370,664 $ 12,057,293 Cash and Cash Equivalents(December 31) $ 7,311,517 $ 9,104,896 $ 11,370,664 $ 12,057,293 $ 12,097,110 Reconciliation of Cash and Cash Equivalents to the Statement of Net Position Cash and Investments S 6,587,017 $ 8,380,396 $ 10,646,164 $ 11,410,293 $ 11,606,610 Restricted Cash and Investments 724,500 724,500 724,500 647,000 490,500 Total Cash and Cash Equivalents $ 7,311,517 $ 9,104,896 $ 11,370,664 $ 12,057,293 $ 12,097,110 Reconciliation of Operating Income(Loss)to Net Cash Provided by Operating Activities Operating Income(Loss) $ 1,565,610 $ 2,150,936 $ 2,908,378 $ 2,718,487 $ 1,974,562 Adjustments to Reconcile Operating Income(Loss) to Net Cash Provided by Operating Activities: Other Revenue Related to Operations 113,182 73,712 144,779 182,920 229,532 Depreciation Expense 2,062,942 2,041,717 2,099,594 2,029,496 1,914,062 (Increase)Decrease in Assets: Accounts Receivable (394,108) (47,878) 184,681 (169,644) (111,092) Due From Other Governments 35,497 - 1,627 (12,209) (13,623) Inventories 16,737 20,967 68,325 (34,808) (15,521) Prepaid Items (64,828) 18,050 (65,773) 9,811 2,341 Increase(Decrease)In: Accounts Payable 179,218 58,492 50,178 386,632 (58,393) Salaries Payable 10,846 2,844 7,233 52,662 16,520 Due to Other Governments 14,281 71,130 (38,183) (155,225) 129,298 Unearned Revenue - - 8,262 (8,262) - OPEB Liability 9,853 5,663 4,601 4,682 9,890 Compensated Absences Payable 47,599 411 2,023 26,440 (31,251) Net Cash Provided by Operating Activities $ 3,596,829 $ 4,396,044 $ 5,375,725 $ 5,030,982 $ 4,046,325 Noncash Capital and Related Financing Activities Amortization of Bond Premium $ - $ - $ 3,271 S 3,271 $ 14,863 Amortization of Deferred Charges 8,819 8,634 - - - Amortization of Deferred Charges on Refunding 6,993 6,600 6,592 6,592 6,592 Prior Period Adjustment to Accumulated Depreciation - - - - - Assets Purchased on Account - 180,000 - 600,000 - Disposal of Capital Assets 74,947 84,778 12,198 110,438 3,475 -20- 138 DEBT SERVICE AND COVERAGE CALCULATION Elk River Municipal Utilities-Electric Fund Net Revenues Available For Debt Service Fiscal Years Ended December 31,2014 and 2015 December 31,2014 December 31,2015 Operating Revenue $ 31,366,685 $ 32,551,722 Operating Expense (29,392,123) (29,896,154) Net Operating Income(Loss) $ 1,974,562 $ 2,655,568 Add: Depreciation 1,914,062 1,922,359 Add: Other Income 167,700 375,020 Available for Debt Service $ 4,056,324 $ 4,952,947 Average Annual Debt Service * $ 796,837 Coverage 6.22x * Includes average annual debt service for the Bonds and the Series 2014A Bonds. Sources: The Utility's Annual Financial Reports for the fiscal years ended December 31,2014 and 2015. UTILITY REVENUE DEBT* Est. Principal Date Original Final Outstanding of Issue Amount Purpose Maturity As of 7-14-16 3-13-14 $ 2,030,000 Electric Revenue Refunding 8-1-2018 $ 1,235,000 7-14-16 10,000,000 Electric Revenue (the Series 2016A Bonds) 2-1-2036 10,000,000 7-14-16 1,460,000 Electric Revenue Refunding (the Series 2016B Bonds) 2-1-2022 1,460,000 Total $12,695,000 * Excludes the Refunded Maturities. -21 - 139 Estimated Calendar Year Debt Service Payments Including the Bonds and Excluding the Refunded Maturities Utility Revenue Debt Principal Year Principal &Interest<a) 2016(at 7-14) $ 405,000 $ 417,350 2017 645,000 936,194 2018 655,000 923,270 2019 705,000 959,116 2020 715,000 959,298 2021 730,000 963,098 2022 740,000 960,541 2023 495,000 704,243 2024 505,000 704,364 2025 515,000 703,780 2026 525,000 702,466 2027 535,000 700,140 2028 550,000 701,845 2029 565,000 702,625 2030 580,000 702,595 2031 595,000 701,729 2032 610,000 700,008 2033 630,000 702,175 2034 645,000 698,046 2035 665,000 697,736 2036 685,000 696,131 Total $12,695,0004') $15,936,750 (a) Includes the Series 2016A Bonds and the Series 2016B Bonds at assumed average annual interest rates of 2.69%and 1.49%, respectively, and excludes the Refunded Maturities. (b) 48.1%of this debt will be retired within ten years. FUTURE FINANCING The City does not anticipate issuing any additional long-term debt within the next 90 days. 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 ability to meet its financial obligations. -22 - 140 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 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 Official Statement and will express no opinion with respect thereto. Legal opinions in substantially the forms 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(s),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 and the Commission 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 and the Commission 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 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. 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. -23 - 141 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. Future Tax Legislation The exclusion of interest on the Bonds from gross income from federal income tax purposes and the exclusion of interest on the Bonds from the net taxable income of individuals, estates, and trusts for State income tax purposes is not mandated or guaranteed by the United States Constitution or the Minnesota Constitution. Accordingly, federal laws providing that interest on the obligations of the states and the political subdivisions of the states is excludable from gross income for federal income tax purposes and Minnesota laws providing that interest on the obligations of the State is excludable from the net taxable income of individuals, estates, and trusts for State income tax purposes may be subject to change. In the event federal or Minnesota law is amended in a manner that results in interest on the Bonds becoming subject to federal or Minnesota income taxation, or if federal or Minnesota income tax rates are reduced, the market value of the Bonds may be adversely affected. 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 SERIES 2016A BONDS The Series 2016A Bonds will be 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. -24 - 142 NOT QUALIFIED TAX-EXEMPT OBLIGATIONS—THE SERIES 2016B BONDS The City will not designate the Series 2016B Bonds 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. RATINGS Application for a rating for each series of 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 ratings are assigned, they will reflect only the opinion of Moody's. Any explanation of the significance of the ratings 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 a rating may have an adverse effect on the market price of the Bonds. MUNICIPAL ADVISOR The City and the Commission have retained Springsted Incorporated,Public Sector Advisors, of St. Paul, Minnesota ("Springsted"), as municipal advisor in connection with certain aspects of the issuance of the Bonds. In preparing this Official Statement, Springsted has relied upon governmental officials, and other sources,who have access to relevant data to provide accurate information for this Official Statement, and Springsted has not been engaged, nor has it undertaken, to independently verify the accuracy of such information. Springsted 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 this Official Statement in accordance with accounting standards. Springsted is an independent advisory firm, registered as a municipal advisor, and is not engaged in the business of underwriting, trading or distributing municipal securities or other public securities. CERTIFICATION The City and the Commission have authorized the distribution of the Preliminary Official Statement for use in connection with the initial sale of the Bonds and a Final Official Statement following award of the Bonds. The Purchaser(s)will be furnished with a certificate signed by the appropriate officers of the City and the Commission stating that the City and the Commission examined each document and that, as of the respective date of each and the date of such certificate, each document did not and does not 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. -25 - 143 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 2014 MN State Demographer Estimate 23,730 3.3% 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 -- Sources: United States Census Bureau, http://www.census.gov/and the Minnesota State Demographic Center, http://mn.gov/admin/demographyt The City's population by age group for the past four years is as follows: Data Year/ Report Year 0-17 18-34 35-64 65 and Over 2015/16 6,385 5,076 9,788 2,728 2014/15 6,447 5,046 9,632 2,570 2013/14 6,473 5,080 9,558 2,433 2012/13 6,635 5,032 9,516 2,351 Source: Claritas,Inc. 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 TriCAP. 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. -26 - 144 Major Employers Approximate Number Employer Product/Service of Employees Independent School District No. 728 (Elk River) Education 2,000(a) Sherburne County County government 616(b) Guardian Angels Care Center Skilled nursing facility 374 Wal-Mart Stores,Inc. Retail store 350(b) Sportech,Inc. Thermoformed plastic products 230 Great River Energy Electric power distributor 2070) Menards Retail home improvement 200(b) Emerson Processing Management(d) Pressure control devices 150 City of Elk River City government 146(b) Cornerstone Auto Group Automobile dealership 138(0)0 Coborn's Grocery store 1300) Morrell Companies Freight trucking 1050) E&O Tools&Plastics,Inc. Plastic injection molding manufacturer 100 Cub Foods Grocery store 1000(c) Home Depot Retail home improvement 1000)(0 (a) Includes full-time, part-time, and contract employees, as well as substitute teachers. Previous number only included teachers. (b) Includes full-and part-time employees. (c) As of January 2014;most recent information available. (d) Formerly Tescom Corporation. Source: This does not purport to be a comprehensive list and is based on a May 2016 telephone survey of individual employers. Some employers do not respond to inquiries. Labor Force Data Annual Average May 2012 2013 2014 2015 2016 Labor Force: Sherburne County 48,815 48,999 49,366 49,794 50,908 State of Minnesota 2,958,272 2,971,523 2,982,750 3,010,366 3,055,197 Unemployment Rate: Sherburne County 6.2% 5.3% 4.5% 4.0% 5.1% State of Minnesota 5.6 4.9 4.2 3.7 4.6 Source: Minnesota Department of Employment and Economic Development, https://apps.deed.state.mn.us/lmi/laust 2016 data are preliminary. -27 - 145 Retail Sales and Effective Buying Income(EBI) City of Elk River Data Year/ Total Retail Total Median Report Year Sales($000) EBI($000) Household EBI 2015/16 $676,924 $607,853 $63,072 2014/15 461,135 558,758 58,966 2013/14 498,560 529,863 56,402 2012/13 379,398 519,015 54,963 Sherburne County Data Year/ Total Retail Total Median Report Year Sales($000) EBI($000) Household EBI 2015/16 $1,475,728 $2,279,505 $63,755 2014/15 1,052,144 2,024,570 57,782 2013/14 985,356 1,922,575 56,306 2012/13 775,517 1,854,005 53,726 The 2015/16 Median Household EBI for the State of Minnesota was $52,458. The 2015/16 Median Household EBI for the United States was$46,738. Source: Claritas,Inc. Building Permits New Single New Total Value Family Residential Commercial/Industrial (All Permits) Year Number Value Number Value 2016(to 4-24) 11 $ 2,135,432 1 $ 120,343 $ 9,103,592 2015 74 15,941,551 8 16,299,690 57,694,602 2014 68 13,792,869 7 6,988,939 49,037,206 2013 82 15,182,066 2 4,225,000 38,440,129 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 following development activity occurred within the City in 2015: Sportech Inc. constructed a 105,000 square-foot manufacturing facility, which is home to their new product development group of design engineers and industrial designers. Sportech Inc. anticipates adding 72 new jobs over the next five years,and expects to retain over 204 jobs. -28 - 146 Morrell Trucking constructed a 13,824 square-foot facility, which includes a wash facility, light duty maintenance, and office space. Morrell Trucking anticipates adding 13 new jobs, and retained 105 employees. GATR Truck Center opened a new 42,912 square-foot facility and anticipates adding eight new jobs in connection with the development. J&J Machine completed construction of a 26,000 square-foot expansion to their existing facility which was operation as of January 1,2016. Distinctive Iron expanded their operations by relocating to a new 13,000 square-foot facility within the City. Distinctive Iron anticipates adding seven new jobs over the next two years. Patriot Converting relocated to the City and renovated a 130,000 square-foot facility for their paper board manufacturing operation. Patriot Converting expects to commence operations on or about July 1,2016. Die Concepts purchased a 20,000 square-foot building which will undergo a substantial renovation and upgrade. Die Concepts expects to relocate its progressive metal stamping operations with an estimated 12 employees to the City by September of 2016. Cornerstone Auto expects to complete a 28,861 square-foot expansion for their new and used auto sales by mid—year 2016. Cornerstone Auto constructed a new 50,000 square-foot KIA dealership on 17.73 acres on adjacent property in 2015. Financial Institutions(a) The following full service banks are located in the City: Deposits as of December 31,2015(b) The Bank of Elk River $336,094,000 The First National Bank of Elk River 200,096,000 Total $536,190,000 In addition, branch offices of Midwestone Bank Wells Fargo Bank, National Association; U.S. Bank National Association;Pine River State Bank; and TCF National Bank are located throughout the City. (a) This does not purport to be a comprehensive list. (b) Most recent information available. Source: Federal Deposit Insurance Corporation, http://www5.fdic.gov/idasp/main.asp. 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/. -29 - 147 Education Public Education The following district serves the residents of the City: 2015/16 District Location Grades Enrollment Elk River Community Schools City of Elk River K-12 13,136 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: 2015/16 School Location Grades Enrollment St.Andrew's Catholic School City of Elk River K-6 143 St.John's Lutheran City of Elk River K-12 84 Mary Queen of Peace Catholic School City of Elk River K-12 49 Monarch Montessori School City of Elk River K-6 21 Solid Rock Christian Academy City of Elk River K-12 14 My Own Montessori City of Elk River K 5 The City is also served by Spectrum Charter School which serves grades 6-12 and has an estimated 625 students. Spectrum Charter School is in the process of expanding their facilities with the potential to add up to 1,000 additional students. Source: The City and Minnesota Department of Education, http://education.state.mn.us/mde/index.html. 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 31,2018 Jerry Olsen Council Member,Ward 1 December 31,2018 Matthew Westgaard Council Member,Ward 2 December 31,2016 Barbara Burandt Council Member,Ward 3 December 31,2016 Jennifer Wagner Council Member,Ward 4 December 31,2018 The daily administration of City operations is the responsibility of the City Administrator,Calvin Portner, who has served in this position since October 2011. Ms. Lori Ziemer is the City's Interim Finance Director and has served in this position since May 2016. The City has 146 employees. Services 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. -30 - 148 Funds on Hand(as of March 31,2016) General Fund $ 4,311,265 Special Revenue Funds 5,523,646 Debt Service Funds 379,642 Capital Project Funds 14,811,360 Enterprise Fund 9,995,265 Agency Funds 111,218 Total Cash and Investments $35,132,396 Investments 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 March 31,2016,the City had investments totaling$31,524,563 (includes money market funds). 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) 24 December 31,2018 LELS,Local 271 (Police Sergeants) 5 December 31,2018 Subtotal 29 Non-unionized employees 117* Total employees 146 * The City is currently negotiating a new labor contract with IUOE Local 49 for 23 employees in street,park, and building maintenance. 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 -31 - 149 PEPFF. PERA provides retirement and disability benefits to its members, and to survivors upon death of eligible members. Benefits are established by State statute;vest after three years of service; and are based on a member's highest average salary for any five successive years of allowable service, age, and a formula multiplier based on years of credit at termination of service. 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 2014 $615,331 $418,280 2013 584,075 383,545 2012 553,395 369,421 2011 528,696 355,670 2010 501,726 357,977 Two 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. The City's contributions to PEDCP for the past three years are as follows: PEDCP 2014 $ 940 2013 940 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 2014 $164,825 2013 167,103 2012 118,465 2011 118,522 2010 101,255 -32 - 150 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, 2014, 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 31,2015 is not yet available.) GASB 68 In June 2012, the Government Accounting Standards Board (GASB) issued Statement No. 68, Accounting and Financial Reporting for Pensions (GASB 68). This statement revises existing standards for measuring and reporting pension liabilities for pension plans provided to City employees and requires recognition of a liability equal to the Issuer's proportionate share of net pension liability, which is measured as the total pension liability less the amount of the pension plan's fiduciary net position. GASB 68 became effective for the City's fiscal year ended December 31, 2015, and the City anticipates some level of impact on its financial statements for the fiscal year ending December 31,2015. 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. The implicit rate subsidy is the additional cost of health insurance to current employees and the City as a result of the higher cost of providing health insurance to retirees. Contribution requirements are reviewed at the time changes are made to the plans. 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 31,2014 are as follows: MRHP URHP Annual required contribution $125,720 $ 10,693 Interest on net OPEB obligation 11,330 1,802 Adjustment to ARC (16,602) (2,605) Annual OPEB cost(expense) $120,448 $ 9,890 Contributions made (39,599) 0 Increase in net OPEB obligation $ 80,849 $ 9,890 Net OPEB obligation—beginning of year 283,261 45,042 Net OPEB obligation—end of year $364,110 $54,932 -33 - 151 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 1,2014 -0 - $996,344 $996,344 13.39% January 1,2011 -0 - 908,610 908,610 13.17 January 1,2008 -0 - 88,718 88,718 2.17 UHRP: January 1,2014 -0 - $68,948 $68,948 2.45% January 1,2011 -0 - 42,681 42,681 1.87 January 1,2008 -0 - 56,892 56,892 2.47 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 31,2014 $120,448 $39,599 33% $364,110 December 31,2013 96,519 48,803 51 283,261 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 UHRP: December 31,2014 $9,890 -0 - -0 - $54,932 December 31,2013 6,073 -0 - -0 - 45,042 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 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, 2014, 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, 2015 is not yet available.) Sources: City's Comprehensive Annual Financial Reports. -34 - 152 APPENDIX I PROPOSED FORMS OF LEGAL OPINIONS `_ £`Offices in 470 U.S.Bank Plaza Kele ' 200 South Sixth Street Minneapolis Minneapolis MN 55402 Saint Paul (612)337-9300 telephone •` (612)337-9310 fax I . St.Cloud httu://www.kennedv-graven.com Affirmative Action Equal Opportunity Employer CHARTERED $10,000,000 Electric Revenue Bonds, Series 2016A 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 Bonds, Series 2016A, originally dated the date hereof, in the total principal amount of $10,000,000. 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 June 14,2016,and a concurring resolution of the City Council on May 16,2016,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. I-1 153 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. 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,July ,2016. I-2 154 " ,.,k•....hpT. xja.3 Offices in 470 U.S.Bank Plaza ' 200 South Sixth Street Minneapolis Minneapolis MN 55402 Saint Paul (612)337-9300 telephone `" (612)337-9310 fax St.Cloud http://www.kennedy-graven.com Affirmative Action Equal Opportunity Employer CHARTERED $1,460,000 Electric Revenue Refunding Bonds,Series 2016B 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 2016B, originally dated the date hereof, in the total principal amount of $1,460,000. 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 June 14,2016,and a concurring resolution of the City Council on May 16,2016,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 I-3 155 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. 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,July ,2016. I-4 156 APPENDIX II CONTINUING DISCLOSURE UNDERTAKINGS $10,000,000 Electric Revenue Bonds, Series 2016A City of Elk River Elk River Municipal Utilities Commission Sherburne County,Minnesota CONTINUING DISCLOSURE CERTIFICATE July ,2016 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 $10,000,000 Electric Revenue Bonds, Series 2016A (the "Bonds"). The Bonds are being issued under the terms of a resolution adopted by the Commission on May 10, 2016 (the "Authorizing Resolution"), a resolution adopted by the City Council of the City on May 16, 2016 (the "Approving Resolution"), and a resolution adopted by the Commission on June 14, 2016 (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 Bonds, Series 2016A, issued by the City in the original aggregate principal amount of$10,000,000. "City" means the City of Elk River, Minnesota, which is the obligated person with respect to the Bonds. II-1 157 "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. "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 ,2016, 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 1300 I Street NW, Suite 1000,Washington,DC 20005. "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 twelve (12) months after the end of each Fiscal Year of the Commission, commencing with the Fiscal Year ending December 31, 2015, 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-2 158 (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"); (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 II-3 159 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. 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. II-4 160 (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 8. 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 II-5 161 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. [The remainder of this page is intentionally left blank.] II-6 162 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 II-7 163 $1,460,000 Electric Revenue Refunding Bonds, Series 2016B City of Elk River Elk River Municipal Utilities Commission Sherburne County,Minnesota CONTINUING DISCLOSURE CERTIFICATE July ,2016 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 $1,460,000 Electric Revenue Refunding Bonds, Series 2016B (the"Bonds"). The Bonds are being issued under the terms of a resolution adopted by the Commission on May 10, 2016 (the"Authorizing Resolution"), a resolution adopted by the City Council of the City on May 16,2016 (the "Approving Resolution"),and a resolution adopted by the Commission on June 14, 2016 (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. Defmitions. 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 fmancial 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 2016B, issued by the City in the original aggregate principal amount of$1,460,000. "City" means the City of Elk River, Minnesota, which is the obligated person with respect to the Bonds. II-8 164 "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. "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 ,2016, 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 1300 I Street NW, Suite 1000,Washington,DC 20005. "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 twelve (12) months after the end of each Fiscal Year of the Commission, commencing with the Fiscal Year ending December 31, 2015, 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-9 165 (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"); (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 II-10 166 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. 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. II-11 167 (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 8. 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 II-12 168 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. [The remainder of this page is intentionally left blank.] II-13 169 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 II-14 170 APPENDIX III EXCERPT OF THE CITY'S 2014 COMPREHENSIVE ANNUAL FINANCIAL REPORT Data on the following pages was extracted from the City's Comprehensive Annual Financial Report for fiscal year ended December 31,2014. (The City's Comprehensive Annual Financial Report for the fiscal year ended December 31, 2015 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 comprehensive annual financial report for the year ending 2014 was awarded the Certificate of Achievement for Excellence in Financial Reporting by the Government Finance Officers Association of the United States and Canada (GFOA). This was the 26th consecutive year that the City has received this award. 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-1 171 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 major fund,and the aggregate remaining fund information of the City of Elk River,Minnesota(the City),as of and for the year ended December 31,2014,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 Financial Statements Management is responsible for the preparation and fair 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 of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement,whether due to baud or error. Auditor's Responsibility Our responsibility is to express opinions on these financial statements based on our audit We conducted our audit in accordance with auditing standards generally accepted in the United States 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 assessments,the auditor considers internal control relevant to the City's preparation and fair presentation 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 management,as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinions. Opinions In our opinion,the financial statements referred to above present fairly,in all material respects,the respective financial position of the governmental activities,the business-type activities,the discretely presented component unit,each major fund,and the aggregate remaining fund information of the City as of December 31,2014,and the respective changes in financial position and,where applicable,cash flows thereof and the respective budgetary comparison for the General fund for the year then ended in accordance with accounting principles generally accepted in the United States of America. Other Matters Required Supplementary Information Accounting principles generally accepted in the United States of America require that the Management's Discussion and Analysis starting on page 9 and the Schedule of Funding Progress on page 63 be presented to supplement the basic financial statements.Such information,although not a part of the basic financial statements,is required by the Governmental Accounting Standards Board who considers it to be an essential part of financial reporting for placing the basic 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 of America,which consisted of inquiries of management about the methods of preparing the information and comparing the information 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 express 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. Other Information Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the City's basic financial statements.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 part of the basic financial statements. The combining and individual fund 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 basic financial statements.Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the basic financial statements or to the basic financial statements themselves,and other additional procedures in accordance with auditing standards generally accepted in the United States of America.In our opinion,the combining and individual fund financial statements and schedules are fairly stated,in all material respects,in relation to the basic 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 assurance on them. °Lib tau? 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SIt !1IP 7 �8r I0illi jiI ~ 1 ill 1 III-7 CITY OF ELK RIVER,MINNESOTA STATEMENT OF NET POSITION DECEMBER 31,2014 Primary Government Governmental Business-type Component Activities Activities Total Unit-BRA ASSETS Cash and investments $ 30,639,963 $ 32,834,889 $ 63,474,852 $ 1,176,709 Restricted cash and investments - 490,500 490,500 - Cash with fiscal agent 9,580,144 - 9,580,144 - Receivables: Interest 76,879 23,431 100,310 - Taxes 410,707 - 410,707 9,235 Accounts 420,840 3,067,214 3,488,054 - Special assessments 1,612,442 - 1,612,442 - Notes,net 398,354 - 398,354 400,000 Due from other governments 48,308 25,832 74,140 - Due from primary government - - - 227,666 Internal balances (254,521) 254,521 - - Inventories - 2,101,105 2,101,105 - Prepaid items 124,635 204,042 328,677 - Property held for resale 261,400 - 261,400 - Capital assets: Nondepreciable 41,661,544 5,129,162 46,790,706 257,100 Depreciable(net) 69,961,053 68,417,821 138,378,874 150,083 Total assets 154,941,748 112,548,517 267,490,265 2,220,793 DEFERRED OUTFLOWS OF RESOURCES Deferred charge on refunding 294,581 67,284 361,865 - LIABILITIES Accounts payable 971,636 4,719,909 5,691,545 11,925 Salaries payable 452,665 215,909 668,574 1,369 Due to other governments - 199,601 199,601 - Due to component unit 227,666 - 227,666 - Accrued interest payable 528,454 187,687 716,141 - Unearned revenue 535,872 75,796 611,668 - Non-current liabilities: Due within one year 3,519,370 1,221,954 4,741,324 - Due in more than one year 34,983,773 17,393,082 52,376,855 - Total liabilities 41,219,436 24,013,938 65,233,374 13,294 NET POSITION Net investment in capital assets 84,921,650 63,392,972 148,314,622 407,183 Restricted for. Debt service 1,599,852 490,500 2,090,352 - Landfill mitigation 574,574 - 574,574 - Economic development 1,625,159 1,625,159 - Law enforcement 26,911 - 26,911 - Park improvements 366,360 - 366,360 - Housing and redevelopment - - - 1,800,316 Unrestricted 24,902,387 24,718,391 49,620,778 - Total net position $ 114,016,893 $ 88,601,863 $ 202,618,756 $ 2,207,499 The notes to the financial statements are an integral part of this statement. 11111 Q N $ ' ' ' 800 . ' ' A N .n. O. n o0 0O n n oQ 'n v 0 00 00 Cs � QQQy+ .N. N `M 2 8 n 8 V a K v N 4.4 69 3 :43V N O' e.'O hog N O' n N 0 N en ' h .-. h O''O M 00 ' ' n O N 'D Z asoN N h O't'' 0 a 0'.n n 00 N N 'e1 00 00 O' 'O H eel ce.F V 0 urmrlooav 'fl, aaelrioo'o .•. v� .. n S 3 �t°.ia°Do�o g m�$_ • '▪ Noe.:''w�44' v " N '4 F• v'�,.v .. ... ..M Ni o` .. .. r M Oa' N v N U w .. , y D\n N v O N N ' O\ h n en N O M M 'O O O M n n n h N 00 N h N '0 b a X004,00 OQ`.O V 4O of ei S.'11. a' O' 0p0 C�7 g ^� ` tQ1 �l '0NeneeetV oma. MO D .• .. r1 M ...... 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F i�l y y .i U Cd g w . ...411 � qN < � °o .1� 42gr aQ s § i V 1 .e ^ 'y o 1 1 baa Gr+`� xC7e'n'3w o ox .8 F U F III-9 CITY OF ELK RIVER,MINNESOTA GOVERNMENTAL FUNDS BALANCE SHEET DECEMBER 31,2014 Other Total General YMCA Governmental Governmental Fund Bonds T1F Districts Funds Funds ASSETS Cash and investments $ 6,485,923 $ 426,101 S 368,548 $ 23,359,391 $ 30,639,963 Cash with fiscal agent - 9,580,144 - - 9,580,144 Receivables: Interest 16,073 - 945 59,861 76,879 Taxes 357,264 10,795 1,328 41,320 410,707 Accounts 14,705 - - 406,135 420,840 Special assessments - - - 1,612,442 1,612,442 Notes,net - - 64,732 333,622 398,354 Due from other governments 46,978 - - 1,330 48,308 Due from other funds 93,293 - - 1,442,767 1,536,060 Due from component unit 2,456 - - - 2,456 Prepaid items 22,725 - - 101,910 124,635 Property held for resale - - - 261,400 261,400 Total assets $ 7,039,417 $ 10,017,040 A....435,= $ 27 620,178 ...5_45 1121188 LIABILITIES Accounts payable $ 308,781 5 - $ 1,262 S 661,593 $ 971,636 Salaries payable 429,314 - - 23,351 452,665 Due to other funds - - 1,454,528 336,053 1,790,581 Due to component unit - - 230,122 - 230,122 Unearned revenue 20 - - 535,852 535,872 Total liabilities 738,115 - 1,685,912 1,556,849 3,980,876 DEFERRED INFLOWS OF RESOURCES Unavailable revenue-taxes 137,700 5,620 - 17,487 160,807 Unavailable revenue-special assessments - - - 1,594,643 1,594,643 Total deferred inflows of resources 137,700 5,620 - 1,612,130 1,755,450 FUND BALANCES Nonspendable 22,725 - - 101,910 124,635 Restricted - 10,011,420 434,225 3,480,038 13,925,683 Committed 317,929 - - 5,829,001 6,146,930 Assigned - - - 15,883,279 15,883,279 Unassigned 5,822,948 - (1,684,584) (843,029) 3,295,335 Total fund balances 6,163,602 10,011,420 (I,250,359) 24,451,199 39,375,862 Total liabilities,deferred inflows of resources,and fund balances $ 7,039,417 $ 10 017 040 $ 435,553 $ 27,,620,178 $ 45,112,188 The notes to the financial statements are an integral part of this statement. CITY OF ELK RIVER,MINNESOTA RECONCILIATION OF THE GOVERNMENTAL FUNDS BALANCE SHEET TO THE STATEMENT OF NET POSITION DECEMBER 31,2014 FUND BALANCE-TOTAL GOVERNMENTAL FUNDS $ 39,375,862 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,are not reported in the governmental funds: Governmental capital assets $182,984,052 Less accumulated depreciation (71,361,455) 111,622,597 2. Unavailable revenue in governmental funds is susceptible to full accrual on the government-wide statements. 1,755,450 3. Long-term liabilities are not due and payable in the current period and, therefore,are not reported in the governmental funds: Bonds payable (34,725,000) Deferred charge on refunding 294,581 Issuance premium (545,528) Contracts for deeds (1,410,000) Accrued interest payable (528,454) Compensated absences (1,504,686) Net OPEB obligation (317,929) (38,737,016) NET POSITION OF GOVERNMENTAL ACTIVITIES $114,016,893 The notes to the financial statements are an integral part of this statement. 118111 CITY OF ELK RIVER,MINNESOTA STATEMENT OF REVENUES,EXPENDITURES,AND CHANGES IN FUND BALANCES GOVERNMENTAL FUNDS FOR THE YEAR ENDED DECEMBER 31,2014 Other Total General YMCA Governmental Governmental Fund Bonds TJF Districts Funds Funds REVENUES Taxes: Property taxes $ 9,264,608 $ 264,472 $ 130,324 $ 980,847 $ 10,640,25! Other taxes 126,765 - - 1,314,494 1,441,259 Licenses and permits 559,286 - - - 559,286 intergovernmental revenue 286,851 - - 551,722 838,573 Charges for services 816,556 - - 1,274,551 2,091,107 Fines and forfeits 128,131 - - 32,167 160,298 Special assessments - - 881,271 881,271 Interest income 48,957 92,953 4,774 999,778 1,146,462 Miscellaneous: Landfill expansion fee - - - 757,960 757,960 Refunds and reimbursements 92,614 - - 117,207 209,821 Contributions 26,919 247,284 - 1,052,704 1,326,907 Other 7,859 - 56,162 64,021 Total revenues 11,358,546 604,709 135,098 8,018,863 20,117,216 EXPENDITURES Current: General government 3,033,392 - - 148,155 3,181,547 Public safety 5,790,772 - - 118,881 5,909,653 Public works 1,929,210 - - 1,045,009 2,974,219 Culture and recreation 1,810,291 - - 1,071,694 2,881,985 Economic development - - 345,591 749,944 1,095,535 Debt service: Principal - 315,000 - 1,220,000 1,535,000 interest and service charges - 656,914 - 448,200 1,105,114 Capital outlay: General government 10,900 - - 212,587 223,487 Public safety - - - 310,166 310,166 Public works - - - 1,436,684 1,436,684 Culture and recreation - - - 307,140 307,140 Total expenditures 12,574,565 971,914 345,591 7,068,460 20,960,530_ Excess(deficiency)of revenues over expenditures (1,216,019) (367,205) (210,493) 950,403 (843,314) OTHER FINANCING SOURCES(USES) Transfers in 1,625,550 250,000 - 2,961,466 4,837,016 Transfers out (300,219) - - (3,204,774) (3,504,993) Sale of capital assets - - - 44,827 44,827 Total other financing sources(uses) 1,325,331 250,000 - (198,481) 1,376,850 Net change in fund balances 109,312 (117,205) (210,493) 751,922 533,536 Fund balances-January 1 6,054,290 10,128,625 (1,039,866) 23,336,622 38,479,671 Prior period adjustment - - - 362,655 362,655 Fund balances,restated-January I 6,054,290 10,128,625 (1,039,866) 23,699,277 38,842,326 Fund balances-December 31 $ 6,163,602 $ 10011,420 $ (l,250,359) $ 24,451,199 $ 39,375,862 The notes to the financial statements are an integral part of this statement. I1112 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 31,2014 NET CHANGE IN FUND BALANCES-TOTAL GOVERNMENTAL FUNDS $ 533,536 Amounts reported for governmental activities in the statement of activities are 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 depreciation expense exceeded capital outlays in the current period. Capital outlay $ 2,202,494 Depreciation expense (5,960,915) (3,758,421) 2. The net effect of various miscellaneous transactions involving capital assets including transfers and disposals,which decrease net position. Donations 3,105,000 Transfers of capital assets (313,287) Disposals (429,632) Depreciation on disposals 414,398 2,776,479 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 (131,020) Special assessments (516,924) (647,944) 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. Repayment of principal of long-term debt 1,535,000 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 14,899 Amortization of issuance premium 51,072 Amortization of deferred charge from refunding (36,265) Compensated absences (61,690) Net OPEB obligation (69,992) (101,976) CHANGE IN NET POSITION OF GOVERNMENTAL ACTIVITIES $ 336,674 The notes to the financial statements are an integral part of this statement. IIjTgI�3 CITY OF ELK RIVER,MINNESOTA GENERAL FUND STATEMENT OF REVENUES,EXPENDITURES, AND CHANGES IN FUND BALANCE-BUDGET AND ACTUAL FOR THE YEAR ENDED DECEMBER 31,2014 Budget Variance with Original Final Actual Final Budget REVENUES Taxes: Property taxes $ 9,181,300 $ 9,181,300 $ 9,264,608 $ 83,308 Other taxes 125,000 125,000 126,765 1,765 Licenses and permits 575,900 535,900 559,286 23,386 Intergovernmental revenue 277,900 277,900 286,851 8,951 Charges for services 755,650 836,550 816,556 (19,994) Fines and forfeits 122,200 122,200 128,131 5,931 Interest income 85,000 85,000 48,957 (36,043) Miscellaneous revenue: Refunds and reimbursements 101,000 101,000 92,614 (8,386) Contributions 15,000 27,500 26,919 (581) Other 6,000 6,000 7,859 12859 Total revenues 11,244,950 11,298,350 11,358,546 60,196 EXPENDITURES Current: General government 3,075,250 3,057,750 3,033,392 24,358 Public safety 5,902,000 5,902,000 5,790,772 111,228 Public works 1,778,300 1,838,300 1,929,210 (90,910) Culture and recreation 1,812,900 1,812,900 1,810,291 2,609 Capital outlay: General government - 10,900 10,900 - Total expenditures 12,568,450 12,621,850 12,574,565 47,285 Deficiency of revenues under expenditures (1,323,500) (1,323,500) (1,216,019) 107,481 OTHER FINANCING SOURCES(USES) Transfers in 1,625,550 1,625,550 1,625,550 - Transfers out (302,050) (302,050) (300,219) 1,831 Total other financing sources(uses) 1,323,500 1,323,500 1,325,331 1,831 Net change in fund balance - - 109,312 109,312 Fund balance-January 1 6,054,290 6,054,290 6,054,290 - Fund balance-December 31 $ 6,054,290 $ 6,054,290 $ 6,163,602 $ 109,312 The notes to the financial statements are an integral part of this statement. I11810 CITY OF ELK RIVER,MINNESOTA STATEMENT OF NET POSITION PROPRIETARY FUNDS DECEMBER 31,2014 Municipal Liquor Garbage Sewer Water Electric Total ASSETS Current assets: Cash and investments S 2,592,308 S 606,357 S 14,348,133 S 3,681,481 S 11,606,610 S 32,834,889 Restricted cash and investments - - - 490,500 490,500 Receivables(net): Interest 6,720 1,549 14,708 91 363 23,431 Accounts - 16,110 234,053 217,387 2,599,664 3,067,214 Due from other governments - - - - 25,832 25,832 Due from other funds - 98,423 319,060 440,828 - 858,311 Inventories 1,105,495 - - 16,481 979,129 2,101,105 Prepaid items - - - 28,355 175,687 204,042 Total current assets 3,704,523 722,439 14,915,954 4,384,623 15,877,785 39,605,324 Noncurrent assets: Capital assets: Nondepreciable 753,961 - 3,198,188 706,661 470,352 5,129,162 Depreciable 3,041,138 - 37,335,092 33,754,157 46,395,743 120,526,130 Accumulated depreciation (1,678,352) - (17,357,072) (13,034,835) (20,038,050) (52,108,309) Total noncurrent assets 2,116,747 - 23,176,208 21,425,983 26,828,045 73,546,983 Total assets 5,821,270 722,439 38,092,162 25,810,606 42,705,830 113,152,307 DEFERRED OUTFLOWS OF RESOURCES Deferred charge on refunding - - - 13,457 53,827 67,284 LIABILITIES Current liabilities: Accounts payable 363,050 107,672 1,252,700 421,372 2,575,115 4,719,909 Salaries payable 25,348 1,059 15,808 22,780 150,914 215,909 Due to other governments 67,603 - - 2,700 129,298 199,601 Due to other fiords - - - - 603,790 603,790 Unearned revenue 2,165 - - 73,631 - 75,796 Accrued interest - - 99,483 29,337 58,867 187,687 Compensated absences payable-current 35,891 - 10,654 24,985 58,906 130,436 Notes payable-current - - - - 191,518 191,518 Bonds payable-current - - - 228,000 672,000 900,000 Total current liabilities 494,057 108,731 1,378,645 802,805 4,440,408 7,224,646 Noncurnmt liabilities: Compensated absences payable 58,520 - 3,463 65,045 153,350 280,378 Net other postemployment benefits obligation 22,310 - 23,871 - 54,932 101,113 Notes payable - - - - 1,408,358 1,408,358 Bonds payable - - 10,000,000 1,869,677 33733,556 15,603,233 Total noncurrent liabilities 80,830 - 10,027,334 1,934,722 5,350,196 17,393,082 Total liabilities 574,887 108,731 11,405,979 2,737,527 9,790,604 24,617,728 NET POSITION Net investment in capital aeras 2,116,74721,058,022 19,341,763 20,876,440 63,392,972 Restricted for debt service - - - - 490,500 490,500 Unrestricted 3,129,636 613,708 5,628,161 3,744,773 11602,113 24,718,391 Total net position S 5,246,383 S 613,708 S 26,686,183 S 23,086,536 S 32,969,053 S 88,601,663 The notes to the financial statements are an integral part of this statement. CITY OF ELK RIVER,MINNESOTA STATEMENT OF REVENUES,EXPENSES,AND CHANGES IN NET POSITION PROPRIETARY FUNDS FOR THE YEAR ENDED DECEMBER 31,2914 Municipal Liquor Garbage Sewer Water Electric Total Sales and cost of sales: Sales $ 6,823,719 $ - $ - $ - $ - $ 6,823,719 Cost of sales (4,750,195) - - - - (4,750,195) Gross profit 2,073,524 - - - - 2,073,524 Operating revenues: User charges - 1,290,451 1,689,080 2,103,508 31,756,165 36,839,204 Delinquency collections - 11,422 2,651 21,557 244,857 280,487 Other 1,623 2,877 42,410 23,262 (634,337) (564,165) Total operating revenues 1,623 1,304,750 1,734,141 2,148,327 31,366,685 36,555,526 Operating expenses: Personal services 634,571 20,388 464,622 471,983 2,051,979 3,643,543 Supplies 57,604 3,080 136,169 275,029 172,354 644,236 Purchased power - - - - 21,994,652 21,994,652 Other service charges 209,746 1,280,475 460,139 520,007 3,259,076 5,729,443 Depreciation 124,757 - 977,931 1,083,770 1,914,062 4,100,520 Total operating expenses 1,026,678 1,303,943 2,038,861 2,350,789 29,392,123 36,112,394 Operating income(loss) 1,048,469 807 (304,720) (202,462) 1,974,562 2,516,656 No operating revalues(expenses): Interest income 105,639 32,394 297,200 23,984 98,442 557,659 Miscellaneous revenue - - - 142,497 229,532 372,029 Interest expense - - (102,093) (72,646) (160,274) (335,013) Bond issuance cats - - (15,375) - (44,850) (60,225) Gain(loss)on disposal of capital assets - - - (35,884) 29,525 (6,359) Total nonoperating revenues(expenses) 105,639 32,394 179,732 57,951 152,375 528,091 Income(las)before contributions and transfers 1,154,108 33,201 (124,988) (144,511) 2,126,937 3,044,747 Contributions-connection fees - - 560,580 375,329 - 935,909 Capital contributions from other funds - - 138,196 175,091 - 313,287 Transfers in - 8,182 - 329,490 - 337,672 Transfers cot (685,060) (43,150) (118,650) (25,000) (797,835) (1,669,695) Change in net position 469,048 (1,767) 455,138 710,399 1,329,102 2,961,920 Net position-beginning 4,777,335 615,475 26,231,045 22,376,137 31,639,951 85,639,943 Net position-ending $ 5,246,383 S 613,708 $ 26,686,183 $ 23,086,536 ,1_,122_,.69 053 $ 88,601,863 The notes to the financial statements are an integral part of this statement. 1418)35 CITY OF ELK RIVER,MINNESOTA STATEMENT OF CASH FLOWS PROPRIETARY FUNDS FOR THE YEAR ENDED DECEMBER 31,2014 Municipal Liquor Garbage Sewer Water Electric Total CASH FLOWS FROM OPERATING ACTIVITIES Receipts from customers and users $ 6,823,772 S 1,292,815 $ 1,668,977 $ 2,142,119 S 31,288,755 $ 43,216,438 Other operating cash receipts 1,623 2,877 42,410 121,231 192,433 360,574 Payments to suppliers (5,007,187) (1,274,947) (572,279) (847,666) (25,686,149) (33,388,228) Payments toemployees (639,530) (19,329) (465,596) (403,343) (1,748,714) (3,276,512) Net cash provided by operating activities 1,178,678 1,416 673,512 1,012,341 4,046,325 6,912,272 CASH FLOWS FROM NONCAPITAL FINANCING ACTIVITIES Transfers from other funds - 8,182 - 329,490 - 337,672 Transfers to other funds (685,060) (43,150) (118,650) (25,000) (797,835) (1,669,695) Increase(decrease)in due to other funds - - - (555,225) 53,574 (501,651) Net cash provided(used)by noncapital financing activities (685,060) (34,968) (118,650) (250,735) (744,261) (1,833,674) CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES Acquisition of capital assets - - (1,929,636) (274,940) (2,219,085) (4,423,661) Proceeds from sale of capital assets - - - 7,254 33,000 40,254 Connection fees received - - 560,580 375,329 - 935,909 Principal paid on capital debt - - (560,000) (527,000) (2,853,000) (3,940,000) Proceeds of bonds issued,net of issuance costs and premium on bonds - - 9,984,625 - 2,046,586 12,031,211 Interest paid on capital debt - - (11,659) (78,846) (191,704) (282,209) Principal paid on promissory note - • - - (189,348) (189,348) Net cash provided(used)by capital and related financing activities - 8,043,910 (498,203) (3,373,551) 4,172,156 CASH FLOWS FROM INVESTING ACTIVITIES Interest received 106,310 33,052 302,689 27,199 111,304 580,554 Net increase(decrease)in cash and cash equivalents 599,928 (500) 8,901,461 290,602 39,817 9,831,308 Cash and cash equivalents,January 1 1,992,380 606,857 5,446,672 3,390,879 12,057,293 23,494,081 Cash and cash equivalents,December 31 $ 2,592,308 $ 606,357 $ 14,348,133 $ 3,681,481 _La..) $234104 aww�w�m Reconciliation of cash and cash equivalents to the statement of net position: Cash and investments $ 2,592,308 $ 606,357 $ 14,348,133 S 3,681,481 $ 11,606,610 $ 32,834,889 Restricted cash and investments - - - 490,500 490,500 Total cash and cash equivalents $ 2,592,308 $ 606,357 .3...242_1......48 133 $ 3,681,481 .1_1,,,10/.7,110 $ 33,325 3L89 The notes to the financial statements are an integral part of this statement. Iy7 CITY OF ELK RIVER,MINNESOTA STATEMENT OF CASH FLOWS PROPRIETARY FUNDS FOR THE YEAR ENDED DECEMBER 31,2014 Municipal Liquor Garbage Sewer Water Electric Total Reconciliation of operating income(loss)to net cash provided by operating activities: Operating income(loss) $ 1,048,469 S 807 $ (304,720) S (202,462) S 1,974,562 $ 2,516,656 Adjustments to reconcile operating income(loss)to net cash provided by operating activities: Other revenue related to operations - - - 142,497 229,532 372,029 Depreciation expense 124,757 - 977,931 1,083,770 1,914,062 4,100,520 (Increase)decrease in assets: Accounts receivable - (2,797) (7,079) (56,769) (111,092) (177,737) Due from other funds - (6,261) (15475) - - (21,936) Due from other govecmaus - - - (13,623) (13,623) Inventories (21,143) - - (1,476) (15,521) (38,140) Prepaid itans • - - 12,063 2,341 14,404 Increase(decrease)in: Accounts payable 29,462 8,608 24,029 (4,587) (58,393) (881) Salaries payable 1,028 1,059 (1,418) 5,470 16,520 22,659 Due to other governments 2,039 - 2,598 129,298 133,935 Unearned revenue 53 - - 30,440 - 30,493 OPEB liability 4,679 - 6,178 - 9,890 20,747 Compensated absences payable (10,666) - (5,734) 797 (31,251) (46,854) Net cash provided by operating activities $ 151,416 $ 673,512 S 1,012,341 S 4,046,325 , $__6I12_7_2 Noncash capital and related financing activities: Amortization of bond premium S - $ - $ - $ 818 $ 14,863 $ 15,681 Amortization of deferred charges on refunding - - - 1,649 6,592 8,241 Contribution of capital assets from other funds - - 138,196 175,09I - 313,287 Capital assets purchased on account - - 1,162,615 349,698 - 1,512,313 Loss on disposal of capital assets - - - 43,138 3,475 46,613 The notes to the financial statements are an integral part of this statement I83 CITY OF ELK RIVER,MINNESOTA STATEMENT OF FIDUCIARY NET POSITION DEVELOPER ESCROW AGENCY FUND DECEMBER 31,2014 Agency Fund ASSETS Cash $ 91,132 Accounts receivable 266 Total assets $ 91,398 LIABILITIES Refundable deposits payable $ 91,398 The notes to the financial statements are an integral part of this statement. 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III-33 APPENDIX IV EXCERPT OF THE UTILITY'S 2015 ANNUAL FINANCIAL REPORT Data on the following pages was extracted from the Utility's Annual Financial Report for fiscal year ended December 31, 2015. 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-1 204 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 Elk River Municipal Utilities(the Utilities)of the City of Elk River, Minnesota(the City),as of and for the year ended December 31,2015,and the related notes to the financial statements,as listed in the table of contents. Management's Responsibility for the Financial Statements Management is responsible for the preparation and fair 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 of internal 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. We conducted our audit in accordance with auditing standards generally accepted in the United States 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 assessments,the auditor considers internal control relevant to the Utilities preparation and fair presentation 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 Utilities 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 management,as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion,the financial statements referred to above present fairly,in all material respects,the financial position of the Utilities of the City as of December 31,2015,and the changes in financial position and cash flows thereof for the year then ended in accordance with accounting principles generally accepted in the United States of America. Emphasis of Matter As discussed in Note 1B,the financial statements present only the Electric and Water enterprise funds and do not purport to,and do not present fairly the financial position of the City as of December 31,2015,the changes in its financial position,or,where applicable, its cash flows for the year then ended in accordance with accounting principles generally accepted in the United States of America. Our opinion is not modified with respect to this matter. Other Matters Change in Accounting Standards As described in Note 6 to the financial statements,the Utilities adopted the provisions of Governmental Accounting Standard Board(GASB)Statement No.68,Accounting and Financial Reporting for Pensions-an Amendment of GASB Statement No.27 and Statement No.71,Pension Transition for Contributions Made Subsequent to the Measurement Date-an Amendment of GASB Statement No.68,for the year ended December 31,2015.Adoption of the provisions of these statements results in significant change to the classifications of the components of the financial statements. Required Supplementary Information Accounting principles generally accepted in the United States of America require that the Management's Discussion and Analysis Page 13 and the Schedule of Employer's Shares of the Net Pension Liability,the Schedule of Employer's Contributions and the Schedule of Funding Progress for Other Post Employment Benefit Plan starting on page 48 be presented to supplement the basic financial statements.Such information,although not a part of the financial statements,is required by the Government Accounting Standards Board,who considers it to be an essential part of financial reporting for placing the 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 of America,which consisted of inquiries of management about the methods of preparing the information and comparing the information 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 express 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. Other Information Our audit was conducted for the purpose of forming opinions 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 part of the financial statements of the Utilities.The supplemental information, except for the portion marked"unaudited"on which we express no opinion,has been subjected to the auditing procedures applied in the audits of the financial statements and,in our opinion,is fairly stated in all material respects in relation to the financial statements taken as a whole.The introductory section and the supplemental information marked"unaudited"have not been subjected to the auditing procedures applied in the audit of the financial statements and,accordingly,we do not express an opinion or provide any assurance on them. 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ELK RIVER MUNICIPAL UTILITIES ELK RIVER,MINNESOTA STATEMENT OF NET POSITION-CONTINUED DECEMBER 31,2015 Electric Water Total CURRENT LIABILITIES Accounts payable $ 2,366,994 $ 94,124 $ 2,461,118 Salaries and benefits payable 78,030 14,173 92,203 Accrued interest payable 49,892 26,563 76,455 Due to other City funds 659,433 23,034 682,467 Due to other governments 140,014 2,976 142,990 Customer deposits payable 489,476 89,053 578,529 Unearned revenue - 86,291 86,291 Compensated absences-current portion 153,002 16,555 169,557 Notes payable-current portion 194,307 - 194,307 Bonds payable-current portion 692,000 233,000 925,000 TOTAL CURRENT LIABILITIES 4,823,148 585,769 5,408,917 NON-CURRENT LIABILITIES Net other postemployment benefits liability 63,041 - 63,041 Compensated absences-less current portion 130,528 12,454 142,982 Notes payable-less current portion 1,214,061 - 1,214,061 Bonds payable,net-less current portion 3,024,375 1,635,859 4,660,234 Net pension liability 2,243,115 234,129 2,477,244 TOTAL NON-CURRENT LIABILITIES 6,675,120 1,882,442 8,557,562 TOTAL LIABILITIES 11,498,268 2,468,211 13,966,479 DEFERRED INFLOWS OF RESOURCES Deferred pension resources 459,746 47,987 507,733 NET POSITION Net investment in capital assets 22,174,223 19,042,489 41,216,712 Restricted for debt service 490,500 - 490,500 Unrestricted 9,970,953 4,207,713 14,178,666 TOTAL NET POSITION $ 32,635,676 $ 23,250,202 $ 55,885,878 The notes to the financial statements are an integral part of this statement. THIS PAGE IS LEFT BLANK INTENTIONALLY SNP ELK RIVER MUNICIPAL UTILITIES ELK RIVER,MINNESOTA STATEMENT OF REVENUES,EXPENSES AND CHANGES IN NET POSITION FOR THE YEAR ENDED DECEMBER 31,2015 Electric Water Total OPERATING REVENUES Charges for services $ 31,629,131 $ 2,141,096 $ 33,770,227 Security systems 251,488 - 251,488 LFG project 1,075,148 - 1,075,148 Generation credit (805,579) - (805,579) Connection maintenance 163,195 42,543 205,738 Customer penalties 238,339 18,898 257,237 TOTAL OPERATING REVENUES 32,551,722 2,202,537 34,754,259 OPERATING EXPENSES Purchased power 22,034,307 - 22,034,307 Production 928,923 465,181 1,394,104 Distribution 1,402,046 168,132 1,570,178 Depreciation 1,922,359 1,131,110 3,053,469 Customer accounts 856,076 67,487 923,563 General and administrative 2,752,443 582,385 3,334,828 TOTAL OPERATING EXPENSES 29,896,154 2,414,295 32,310,449 OPERATING INCOME(LOSS) 2,655,568 (211,758) 2,443,810 NONOPERATING REVENUES(EXPENSES) Interest income 95,533 24,666 120,199 Miscellaneous revenue 279,487 177,298 456,785 Interest expense and other (116,676) (65,135) (181,811) Gain(loss)on sale of capital assets 8,899 - 8,899 TOTAL NONOPERATING REVENUES(EXPENSES) 267,243 136,829 404,072 INCOME(LOSS)BEFORE CONTRIBUTIONS AND TRANSFERS 2,922,811 (74,929) 2,847,882 CAPITAL CONTRIBUTIONS- DEVELOPER INFRASTRUCTURE AND CONNECTION FEES - 253,934 253,934 CONTRIBUTION OF ASSETS FROM CITY - 189,669 189,669 TRANSFERS FROM OTHER CITY FUNDS - 94,703 94,703 TRANSFERS TO OTHER CITY FUNDS (824,743) (30,000) (854,743) CHANGE IN NET POSITION 2,098,068 433,377 2,531,445 NET POSITION,JANUARY 1 AS RESTATED(NOTE 6) 30,537,608 22,816,825 53,354,433 NET POSITION,DECEMBER 31 $ 32,635,676 $ 23,250,202 $ 55,885,878 The notes to the financial statements are an integral part of this statement. ELK RIVER MUNICIPAL UTILITIES ELK RIVER,MINNESOTA STATEMENT OF CASH FLOWS FOR THE YEAR ENDED DECEMBER 31,2015 Electric Water Total CASH FLOWS FROM OPERATING ACTIVITIES Receipts from customers and users $ 32,460,951 $ 2,218,848 $ 34,679,799 Other operating cash receipts 326,880 252,022 578,902 Payments to suppliers (25,682,803) (777,734) (26,460,537) Payments to employees (2,003,949) (530,331) (2,534,280) NET CASH PROVIDED BY OPERATING ACTIVITIES 5,101,079 1,162,805 6,263,884 CASH FLOWS FROM NONCAPITAL FINANCING ACTIVITIES Transfers from City - 94,703 94,703 Transfers to City (824,743) (30,000) (854,743) (Increase)decrease in due from other City funds (1,730) 234,787 233,057 Increase(decrease)in due to other City funds 47,353 5,083 52,436 NET CASH PROVIDED(USED)BY NONCAPITAL FINANCING ACTIVITIES (779,120) 304,573 (474,547) CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES Acquisition of capital assets (2,345,925) (764,695) (3,110,620) Proceeds from sale of capital assets 8,899 - 8,899 Proceeds from connection fees - 253,934 253,934 Principal payments on revenue bonds (672,000) (228,000) (900,000) Interest paid on revenue bonds (136,360) (67,079) (203,439) Principal payments on promissory note (191,508) - (191,508) NET CASH USED BY CAPITAL AND RELATED FINANCING ACTIVITIES (3,336,894) (805,840) (4,142,734) CASH FLOWS FROM INVESTING ACTIVITIES Interest on investments 93,451 24,146 117,597 NET INCREASE IN CASH AND CASH EQUIVALENTS 1,078,516 685,684 1,764,200 CASH AND CASH EQUIVALENTS,JANUARY 1 12,097,110 3,681,481 15,778,591 CASH AND CASH EQUIVALENTS,DECEMBER 31 $ 13,175,626 $ 4,367,165 $ 17,542,791 RECONCILIATION OF CASH AND CASH EQUIVALENTS TO THE STATEMENT OF NET POSITION Cash and temporary investments $ 12,685,126 $ 4,367,165 $ 17,052,291 Restricted cash 490,500 - 490,500 TOTAL CASH AND CASH EQUIVALENTS $ 13,175,626 $ 4,367,165 $ 17,542,791 The notes to the financial statements are an integral part of this statement. I'�'�ig) ELK RIVER MUNICIPAL UTILITIES ELK RIVER,MINNESOTA STATEMENT OF CASH FLOWS-CONTINUED FOR THE YEAR ENDED DECEMBER 31,2015 Electric Water Total RECONCILIATION OF OPERATING INCOME(LOSS)TO NET CASH PROVIDED BY OPERATING ACTIVITIES Operating income(loss) $ 2,655,568 $ (211,758) $ 2,443,810 Adjustments to reconcile operating income(loss) to net cash provided by operating activities Other revenue related to operations 279,487 177,298 456,785 Bad debt expense 42,846 - 42,846 Depreciation 1,922,359 1,131,110 3,053,469 (Increase)decrease in assets/deferred outflows: Accounts receivable (127,006) (10,734) (137,740) Other receivables 21,561 62,064 83,625 Special assessments receivable (1,079) (25,697) (26,776) Due from other governments 25,832 - 25,832 Inventories (12,434) 2,466 (9,968) Prepaid expenses (3,092) (670) (3,762) Deferred pension resources (272,949) (28,490) (301,439) Increase(decrease)in liabilities/deferred inflows: Accounts payable 244,041 58,761 302,802 Salaries and benefits payable (72,884) (8,607) (81,491) Net other postemployment benefits liability 8,109 - 8,109 Unearned revenue - 12,660 12,660 Compensated absences payable 71,274 (61,021) 10,253 Due to other governments 10,716 276 10,992 Customer deposits payable 37,314 52,742 90,056 Net pension liability (188,330) (35,582) (223,912) Deferred pension resources 459,746 47,987 507,733 NET CASH PROVIDED BY OPERATING ACTIVITIES $ 5,101,079 $ 1,162,805 $ 6,263,884 NONCASH CAPITAL AND RELATED FINANCING ACTIVITIES Amortization of bond premium $ 17,181 $ 818 $ 17,999 Amortization of deferred charges on refunding $ 6,472 $ 1,648 $ 8,120 Contribution of capital assets $ - $ 189,669 $ 189,669 The notes to the financial statements are an integral part of this statement. 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O E .5h ao UYAi 4 1 .? g. gig g Y8 Bo Xg � 6 7 i 1dnw ifl '341 ti ; '" F. u Yw o ^ i . g 3s � m doc i4.W E $ km 6p 9 ` $i .to . so. rYo 1 1 12 Q 4 4e aNa 4esx aq o ; m 3N ii e u Z IV-21 ELK RIVER MUNICIPAL UTILITIES ELK RIVER,MINNESOTA REQUIRED SUPPLEMENTARY INFORMATION FOR THE YEAR ENDED DECEMBER 31,2015 Schedule of funding progress for the retiree health plan Unfunded Actuarial UAAL as a Actuarial Actuarial Actuarial Accrued Percentage Valuation Value of Accrued Liability Funded Covered of Covered Date Assets Liability (UAAL) Ratio Payroll Payroll 12/31/2014 $ - $ 68,948 $ 68,948 - % $ 2,810,413 2.50 % 12/31/2011 - 42,681 42,681 - 2,286,547 1.87 12/31/2008 - 56,892 56,892 - 2,300,000 2.47 Schedule of employer's share of PERA net pension liability-General Employees Retirement Fund Required Supplementary Information Utilities Utilities Proportionate Proportionate Share of the Utilities Share of Net Pension Proportionate the Net Pension Liability as a Plan Fiduciary Utilities Share of Liability Utilities Percentage of Net Position Fiscal Proportion of the Net Pension Associated with Covered Covered as a Percentage Year the Net Pension Liability the City Total Payroll Payroll of the Total Ending Liability (a) (b) (a+b) (c) ((a+b)/c) Pension Liability 06/30/15 0.0478 % $ 2,477,244 $ - $ 2,477,244 $ 3,067,653 80.8 % 78.7 % Schedule of employer's PERA contributions-General Employees Retirement Fund Required Supplementary Information Contributions in Relation to the Statutorily Statutorily Contribution Utilities Contributions as Required Required Deficiency Covered a Percentage of Year Contribution Contribution (Excess) Payroll Covered Payroll Ending (a) (b) (a-b) (c) (b/c) 12/31/15 $ 230,074 $ 230,074 $ - $ 3,067,653 7.5 % Iy2v PROPOSAL SALE DATE: June 14,2016 City of Elk River, Minnesota $10,000,000* Electric Revenue Bonds, Series 2016A For the Series 2016A 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$9,870,000)plus accrued interest,if any,to the date of delivery. Interest Dollar Interest Dollar Year Rate(%) Yield(%) Price Year Rate(%) Yield(%) Price 2019 % % % 2028 % % % 2020 % % % 2029 % % % 2021 % % % 2030 % % % 2022 % % % 2031 % % % 2023 % % % 2032 % % % 2024 % % % 2033 % % % 2025 % % % 2034 % % % 2026 % % % 2035 % % % 2027 % % % 2036 % % % Designation of Term Maturities Years of Term Maturities In making this offer on the sale date of June 14,2016 we accept all of the terms and conditions of the Terms of Proposal published in the Preliminary Official Statement dated May 26,2016,including the City's right to modify the principal amount of the Series 2016A Bonds. (See"Terms of Proposal"herein.) In the event of failure to deliver these Series 2016A Bonds in accordance with said Terms of Proposal, 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 0 will purchase municipal bond insurance from . Account Members Account Manager By: Phone: The foregoing proposal has been accepted by the Commission. Attest: Date: Phone: 651-223-3000 * Preliminary;subject to change. Fax: 651-223-3046 Email: bond services(aispringsted.com Website: www.springsted.com Springsted Public Sector Advisors 226 PROPOSAL SALE DATE: June 14,2016 City of Elk River, Minnesota $1,460,000* Electric Revenue Refunding Bonds, Series 2016B For the Series 2016B 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$1,449,780)plus accrued interest,if any,to the date of delivery. Interest Dollar Year Rate(%) Yield(%) Price 2017 2018 2019 2020 2021 2022 Designation of Term Maturities Years of Term Maturities In making this offer on the sale date of June 14,2016 we accept all of the terms and conditions of the Terms of Proposal published in the Preliminary Official Statement dated May 26,2016,including the City's right to modify the principal amount of the Series 2016B Bonds. (See"Terms of Proposal"herein.) In the event of failure to deliver these Series 2016B Bonds in accordance with said Terms of Proposal, 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 0 will purchase municipal bond insurance from Account Members Account Manager By: Phone: The foregoing proposal has been accepted by the Commission. Attest: Date: Phone: 651-223-3000 * Preliminary;subject to change. Fax: 651-223-3046 Email: bond services(aispringsted.com Website: www.springsted.com Springsted Public Sector Advisors 227 EXTRACT OF MINUTES OF MEETING OF THE ELK RIVER MUNICIPAL UTILITIES COMMISSION HELD: June 14, 2016 Pursuant to due call and notice thereof, a special meeting of the Elk River Municipal Utilities Commission, was duly held in the Utilities Conference Room, 13069 Orono Parkway in said City on the 14th day of June, 2016, at 2:30 P.M., for the purpose, in part, awarding the sale of$10,000,000 Electric Revenue Bonds, Series 2016A. 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 $10,000,000 ELECTRIC REVENUE BONDS, SERIES 2016A 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). 479938v3 JSB EL185-41 228 "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 2016A Bonds, any Outstanding Series 2016B Bonds, any Outstanding Prior Bonds and any Outstanding 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 479938v3 JSB EL185-41 229 "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 $2,030,000 original principal amount of Electric Revenue Bonds, Series 2014A, dated March 13, 2014, $1,625,000 in principal amount of which are currently outstanding. "Prior Resolution" means the Resolution duly adopted by the Commission on February 14, 2014. "Project" means the financing of a portion of the cost of the acquisition of the Commission's membership interest in the Minnesota Municipal Power Agency(MMPA). "Project Account"means the Project Account established in the Electric Fund pursuant to Section 13 hereof. "Purchaser"means 3 479938v3 JSB EL185-41 230 "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, or (ii) the maximum amount of principal and interest payable during the then current Fiscal Year or any future Fiscal Year on all 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 Outstanding 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 2016A Bonds"means the Bonds created by Section 5. "Series 2016B Bonds means the $ original principal amount of Electric Revenue Refunding Bonds, Series 2016B, dated July 14, 2016, and issued concurrently with the Series 2016A Bonds. "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 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 2016A Bonds. 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 4 479938v3 JSB EL185-41 231 of the Series 2016A Bonds, adjusted for such Fiscal Year as permitted by the Prior Resolution are as follows: Audited Fiscal Year Ended 2014 OPERATING REVENUES $32,551,722 OPERATING EXPENSES (27,973,795) OPERATING PROFIT $4,577,927 (Exclusive of Depreciation) ADD: Non-Operating Revenue 375,020 NET REVENUES $4,952,947 The Net Revenues of the Electric System for the Audited Fiscal Year immediately preceding the issuance of the Series 2016A 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 2016A Bonds computed to February 1, 2036 (the final maturity date of the Prior Bonds). The combined average annual principal and interest requirement for the Series 2016A Bonds and the Prior Bonds and the Series 2016B Bonds, is $759,481. Other than the Prior Bonds, the Series 2016A Bonds and the Series 2016B 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 2016A 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 2016A Bonds, the Series 2016B Bonds and the Prior Bonds when due. 2.05. Authorization of Series 2016A 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 Bonds, Series 2016A, in the principal amount of$10,000,000. All costs of the Project in excess of the proceeds of the Series 2016A Bonds available for payment of such costs shall be paid from any other funds legally available to the Commission for such purpose. 2.06. Sale of Series 2016A Bonds. The Commission has retained Springsted Incorporated ("Springsted"), as its independent financial advisor for the sale of the Bonds and was therefore authorized to sell the Bonds by private negotiation in accordance with Minnesota Statutes, Section 475.60, Subdivision 2(9) and proposals to purchase the Bonds have been solicited by Springsted. 2.07. Receipt and Acceptance of Proposals. Proposals have been received by the Commission Finance and Office Manager, or designee, at the offices of Springsted on the date hereof pursuant to the Terms of Proposal established for the Bonds and are set forth in Exhibit A. 5 479938v3 JSB EL185-41 232 The proposal of (the "Purchaser"), to purchase the Bonds in accordance with the Terms of Proposal, at the rates of interest hereinafter set forth, and to pay therefor the sum of$ , 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 2016A Bonds having been done, existing, having happened and having been performed, it is now necessary to establish the form and terms of the Series 2016A Bonds, to provide security therefor and to issue the Series 2016A Bonds forthwith. Section 3. Security for Series 2016A Bonds. 3.01. Pledge of Net Revenues. From and after their issuance, the principal of and interest on the Series 2016A 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 2016A Bonds, the Commission shall deposit, from proceeds of the Series 2016A Bonds, in the Reserve Account $711,467, so that the balance in the Reserve Account shall be not less than the applicable Reserve Requirement. 3.03. Not General Obligations. The Series 2016A 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 2016A Bonds. 4.01. Series 2016A Bond Form. The Series 2016A Bonds shall be prepared in substantially the form attached hereto as Exhibit B: Section 5. Series 2016A 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 2016A 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: 6 479938v3 JSB EL185-41 233 Interest Interest Year Amount Rate Year Amount Rate 2019 $465,000 2028 $550,000 2020 470,000 2029 565,000 2021 480,000 2030 580,000 2022 485,000 2031 595,000 2023 495,000 2032 610,000 2024 505,000 2033 630,000 2025 515,000 2034 645,000 2026 525,000 2035 645,000 2027 535,000 2036 685,000 As may be requested by the Purchaser, one or more term Series 2016A 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 2016A Bond(s). The Series 2016A Bonds shall be issuable only in fully registered form. The interest thereon and, upon surrender of each Series 2016A Bond, the principal amount thereof, shall be payable by check or draft issued by the Registrar. 5.02. Interest Payment Dates. The Series 2016A Bonds shall bear interest payable semiannually on February 1 and August 1 of each year, commencing February 1, 2017, calculated on the basis of a 360-day year of twelve 30-day months to the person in whose name the Series 2016A 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. Optional Redemption. The City may elect on February 1,2025, and on any day thereafter to prepay Bonds due on or after February 1, 2026. Redemption may be in whole or in part and if in part, at the option of the City and in such manner as the City will determine. If less than all Bonds of a maturity are called for redemption, the City will notify DTC (as defined in Section 8 hereof) of the particular amount of such maturity to be prepaid. DTC will determine by lot the amount of each participant's interest in such maturity to be redeemed and each participant will then select by lot the beneficial ownership interests in such maturity to be redeemed. Prepayments will be at a price of par plus accrued interest. 5.04. Application of Proceeds. Immediately upon delivery of the Series 2016A Bonds to the Purchaser, the amount received as accrued interest on the Series 2016A Bonds shall be credited to the Debt Service Account and the remaining proceeds, net of the amount deposited in the Reserve Account pursuant to Section 3.02, shall be deposited in the Project Account and used to pay costs of issuance of the Series 2016A Bonds and costs of financing the Project, as provided in Section 13. Section 6. Registration; Appointment of Registrar; Book-Entry System. 7 479938v3 JSB EL185-41 234 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: (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 2016A Bonds and the registration of transfers and exchanges of Bonds entitled to be registered, transferred or exchanged. (b) Transfer of Series 2016A Bonds. Upon surrender to the Registrar for transfer of any Series 2016A 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 2016A 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 2016A Bond which has been selected for redemption. (c) Exchange of Series 2016A Bonds. Whenever any Series 2016A Bond is surrendered by the registered owner for exchange, the Registrar shall authenticate and deliver one or more new Series 2016A 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 2016A 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 2016A 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 2016A 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. (f) Persons Deemed Owners. The City and the Registrar may treat the Person in whose name any Series 2016A Bond is at any time registered in the Bond Register as the absolute owner of such Series 2016A Bond, whether such Series 2016A 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 2016A 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 2016A Bond to the extent of the sum or sums so paid. (g) Taxes Fees and Charges. For every transfer or exchange of Series 2016A Bonds (except for an exchange upon a partial redemption of a Series 2016A Bond), the Registrar may impose upon the owner thereof a charge sufficient to reimburse the 8 479938v3 JSB EL185-41 235 Registrar for any tax, fee or other governmental charge required to be paid with respect to such transfer or exchange. (h) Mutilated, Lost, Stolen or Destroyed Series 2016A Bonds. In case any Series 2016A Bond shall become mutilated or be lost, stolen or destroyed, the City shall execute and the Registrar shall authenticate and deliver a new Series 2016A 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 2016A Bond or in lieu of and in substitution for any such Series 2016A 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 2016A 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 2016A Bond lost, stolen or destroyed, upon filing with the Registrar of evidence satisfactory to it that such Series 2016A 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 2016A 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 2016A Bond has already matured or been called for redemption in accordance with its terms, it shall not be necessary to issue a new Series 2016A 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 2016A Bonds shall be initially issued in the form of a separate single typewritten or printed fully registered Series 2016A Bond for each of the maturities set forth in this Resolution. Upon initial issuance, the ownership of each such Series 2016A 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 2016A 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 2016A 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 9 479938v3 JSB EL185-41 236 other financial institutions from time to time for which DTC holds Series 2016A Bonds as securities depository (the "Participants") or to any other person on behalf of which a Participant holds an interest in the Series 2016A Bonds, including but not limited to any responsibility Or 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 2016A Bonds, (ii) the delivery to any Participant or any other person other than a registered owner of Series 2016A Bonds, as shown by the registration books kept by the Registrar, of any notice with respect to the Series 2016A Bonds, including any notice of redemption, or (iii) the payment to any Participant or any other person, other than a registered owner of Series 2016A Bonds, or any amount with respect to principal of, premium, if any, or interest on the Series 2016A Bonds. The City, the Registrar and the Paying Agent may treat and consider the person in whose name each Series 2016A Bond is registered in the registration books kept by the Registrar as the holder and absolute owner of such Series 2016A Bond for the purpose of payment of principal, premium and interest with respect to such Series 2016A Bond, for the purpose of registering transfers with respect to such Series 2016A Bonds, and for all other purposes. The Paying Agent shall pay all principal of, premium, if any, and interest on the Series 2016A 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 2016A Bonds to the extent of the sum or sums so paid. No person other than a registered owner of Series 2016A Bonds, as shown in the registration books kept by the Registrar, shall receive a certificated Series 2016A 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 2016A Bonds that they be able to obtain Series 2016A Bond certificates, the City shall notify DTC, whereupon DTC shall notify the Participants, of the availability through DTC of Series 2016A Bond certificates. In such event the City shall issue, transfer and exchange Series 2016A 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 2016A 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 2016A 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 2016A 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 2016A Bond and all notices with respect to such Series 2016A Bond shall be made and given, respectively in the manner provided in the representation letter executed by the City and on file with DTC. 10 479938v3 JSB EL185-41 237 Section 7. Notice of Redemption. At least 30 days before the date set for mandatory redemption of any Series 2016A Bond, the City shall cause notice of such redemption to be mailed to the registered Holder of each Series 2016A Bond to be redeemed, but no defect in or failure to give such mailed notice of redemption shall affect the validity of proceedings for the redemption of any Series 2016A 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 2016A Bonds to be redeemed and the place at which the Series 2016A 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 2016A 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 2016A Bonds or portions thereof shall cease to bear interest. Series 2016A 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 2016A Bond redeemed in part shall receive, upon surrender of such Series 2016A Bond to the Registrar, one or more new Series 2016A Bonds of the same series in authorized denominations equal in principal amount to the unredeemed portion of the Series 2016A Bond so surrendered. Section 8. Execution, Authentication and Delivery of Series 2016A Bonds. The Series 2016A 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 2016A Bonds shall cease to be such officer before the delivery of any Series 2016A 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 2016A 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 2016A Bond has been executed by the manual signature of an authorized representative of the Registrar. Certificates of authentication on different Series 2016A Bonds need not be signed by the same representative. The executed certificate of authentication on each Series 2016A Bond shall be conclusive evidence that it has been authenticated and delivered under this resolution. When the Series 2016A 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 11 479938v3 JSB EL185-41 238 described in this section, or in lieu thereof there may be maintained the required balances as undesignated components of the Electric Fund. 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 and 9.05. 9.03. Debt Service Account. Upon delivery of the Series 2016A Bonds, the Commission shall credit to the Debt Service Account, from the proceeds of the Series 2016A Bonds, the accrued interest, if any, received from the Purchaser of the Series 2016A 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 2016A Bonds the Commission shall credit to the Reserve Account from the proceeds of the Series 2016A Bonds, the sum of $711,467. 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. 12 479938v3 JSB EL185-41 239 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. 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. 13 479938v3 JSB EL185-41 240 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 (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%. 14 479938v3 JSB EL185-41 241 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 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 Outstanding 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 15 479938v3 JSB EL185-41 242 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 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. (0 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. 16 479938v3 JSB EL185-41 243 (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. Section 13. Project Account. 13.01. There is hereby established within the Electric Fund a Project Account, into which the Commission shall deposit the proceeds of the Series 2016A 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 Project Account may be disbursed by the Commission to pay costs of issuance of the Series 2016A Bonds and costs of the Project. Pending such disbursement, moneys on deposit in the Project 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. Section 14. 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 2016A 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 2016A 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 reduce the percentage of the number of Holders whose consent is required to effect a further modification. Section 15. Defeasance. When any Series 2016A Bond has been discharged as provided in this section, all pledges, covenants and other rights granted by this Resolution to the Holder of such Series 2016A Bond shall cease, and such Series 2016A Bond shall no longer be deemed to be Outstanding under this Resolution. The obligations with respect to any Series 2016A 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 Series 2016A 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 Series 2016A 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 Series 2016A 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 Series 2016A Bonds to their maturity or redemption date, provided that if any of such Series 2016A Bonds are to be redeemed, notice of redemption has been given or provided for, and provided 17 479938v3 JSB EL185-41 244 that such defeasance shall not impair the exemption of interest on any Series 2016A Bonds from federal income taxation. Section 16. 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 2016A 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 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 2016A 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 2016A Bonds. (b) Each Reimbursement Expenditure is a capital expenditure or a cost of issuance of the Series 2016A 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 2016A 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 2016A Bonds are issued, shall be treated as made on the day the Series 2016A Bonds are issued. 18 479938v3 JSB EL185-41 245 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 2016A Bonds stating in effect that such action will not impair the tax-exempt status of the Series 2016A Bonds. Section 17. 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 Series 2016A 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 Series 2016A 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 2016A Bonds. Section 18. 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 2016A Bonds, certified copies of all proceedings and records of the Commission and the City relating to the Series 2016A Bonds and 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 2016A 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 19. Negative Covenant as to Use of Bond Proceeds and Project. The Commission and the City hereby covenant not to use the proceeds of the Series 2016A 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 2016A Bonds to be"private activity bonds"within the meaning of Sections 103 and 141 through 150 of the Code. Section 20. Tax-Exempt Status of the Series 2016A 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 2016A 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 2016A Bonds, and(c)the rebate of excess investment earnings to the United States. 19 479938v3 JSB EL185-41 246 Section 21. Designation of Qualified Tax-Exempt Obligations. In order to qualify the Series 2016A Bonds as "qualified tax exempt obligations" within the meaning of Section 265(b)(3) of the Code, the Commission hereby makes the following factual statements and representations: (a) the Series 2016A Bonds are issued after August 7, 1986; (b) the Series 2016A Bonds are not "private activity bonds" as defined in Section 141 of the Code; (c) the aggregate face amount of the issue of the Series 2016A Bonds is not greater than$10,000,000; (d) the Commission hereby designates the Series 2016A Bonds as "qualified tax exempt obligations" for purposes of Section 265(b)(3) of the Code; (e) 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 2016 will not exceed$10,000,000; and (f) not more than $10,000,000 of obligations issued by the City during this calendar year 2016 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 22. Official Statement. The Official Statement relating to the Series 2016A 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 2016A Bonds, to sign such certificates as may be necessary with respect to the completeness and accuracy of the Official Statement. Section 23. Effective Date. This Resolution, having been concurred in by the City Council by resolution adopted May 16, 2016, shall be effective immediately. 20 479938v3 JSB EL185-41 247 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 full, true and complete transcript insofar as the same relates to the $10,000,000 Electric Revenue Bonds, Series 2016A of the City of Elk River, Minnesota. WITNESS my hand on June , 2016. Secretary Elk River Municipal Utilities Commission 21 479938v3 JSB EL185-41 248 EXHIBIT A BIDS A-1 479938v3 JSB EL185-41 249 EXHIBIT B UNITED STATES OF AMERICA STATE OF MINNESOTA COUNTY OF SHERBURNE CITY OF ELK RIVER ELECTRIC REVENUE REFUNDING BOND, SERIES 2016A No. $ Interest Rate Maturity Date Date of Original Issue CUSP August 1, , 2016 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 February 1, 2017, to the person in whose name this Series 2016A 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 2016A 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 2016A Bond will be paid on each Interest Payment Date by check or draft mailed to the person in whose name this Series 2016A 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 2016A Bond are payable in lawful money of the United States of America. So long as this Series 2016A 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 2016A Bond and notice with respect thereto shall be 479938v3 JSB EL185-41 B-1 250 made as provided in the Letter of Representations, as defined in the Resolution, and surrender of this Series 2016A Bond shall not be required for payment of the redemption price upon a partial redemption of this Series 2016A Bond. Until termination of the book-entry only system pursuant to the Resolution, Series 2016A Bonds may only be registered in the name of the Depository or its Nominee. This Series 2016A Bond is one of an issue (the "Series 2016A Bonds") in the aggregate principal amount of $10,000,000, issued pursuant to a resolution adopted by the Elk River Municipal Utilities Commission (the "Commission") on June 14, 2016 (the "Resolution"), to provide funds to finance a portion of the costs of the acquisition of the Commissioner's membership interest in the Minnesota Municipal Power Association in connection with 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 2016A 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 $2,030,000 original principal amount of Electric Revenue Bonds, Series 20014A, dated March 13, 2014, (the "Prior Bonds") and to the $ original principal amount of Electric Revenue Refunding Bonds, Series 2016B dated July 14, 2016 (the "Series 2016A Bonds"). The Series 2016A 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 2016A 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 City may elect on February 1,2025, and on any date thereafter to prepay Bonds due on or after February 1, 2026. Redemption may be in whole or in part and if in part,at the option of the City and in such order as the City will determine. If less than all Bonds of a maturity are called for redemption, the City will notify The Depository Trust Company("DTC") of the particular amount of such maturity to be prepaid. DTC will determine by lot the amount of each participant's interest in such maturity to be redeemed and each participant will then select by lot the beneficial ownership interests in such maturity to be redeemed. Prepayments will be at a price of par plus accrued interest. The Series 2016A Bonds are issuable solely in fully registered form in Authorized Denominations (as defined in the Resolution) and are exchangeable for fully registered Series 2016A 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 2016A 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 479938v3 JSB EL185-41 B-2 251 Registrar. Thereupon the City and the Commission shall execute and the Bond Registrar shall authenticate and deliver, in exchange for this Series 2016A Bond, one or more new fully registered Series 2016A 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 2016A 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 2016A Bond and any legal or unusual costs regarding transfers and lost Series 2016A Bonds. The City, the Commission and the Bond Registrar may treat the person in whose name this Series 2016A 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 2016A Bond shall be overdue, and neither the City, the Commission nor the Bond Registrar shall be affected by notice to the contrary. This Series 2016A 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 2016A 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 Bonds (as defined in the Resolution) during the next 12 months and 1/6 of the interest payable on the Bonds (as defined in the Resolution) in the next 6 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 2016A 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 2016A Bond a valid and binding special obligation of the City according to its terms have been done, do exist, have 479938v3 JSB EL185-41 B-3 252 happened and have been performed as so required; and that the issuance of this Series 2016A 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 2016A 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 2016A Bond to be dated as of the Date of Original Issue set forth above. 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 2016A Bond is one of the Series 2016A 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 479938v3 JSB EL185-41 B-4 253 ABBREVIATIONS The following abbreviations, when used in the inscription on the face of this Series 2016A 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 2016A Bond and does hereby irrevocably constitute and appoint attorney to transfer the Series 2016A 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 2016A 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). 479938v3 JSB EL185-41 B-5 254 The Bond Registrar will not effect transfer of this Series 2016A Bond unless the information concerning the transferee requested below is provided. Name and Address: (Include information for all joint owners if the Series 2016A Bond is held by joint account.) PREPAYMENT SCHEDULE This Series 2016A Bond has been prepaid in part on the date(s) and in the amount(s)as follows: AUTHORIZED SIGNATURE DATE AMOUNT OF HOLDER 479938v3 JSB EL185-41 B-6 255 EXTRACT OF MINUTES OF MEETING OF THE ELK RIVER MUNICIPAL UTILITIES COMMISSION HELD: June 14, 2016 Pursuant to due call and notice thereof, a special meeting of the Elk River Municipal Utilities Commission, was duly held in the Utilities Conference Room, 13069 Orono Parkway in said City on the 14th day of June, 2016, at 2:30 P.M., for the purpose, in part, awarding the sale of$1,460,000 Electric Revenue Refunding Bonds, Series 2016B. 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 $1,460,000 ELECTRIC REVENUE REFUNDING BONDS, SERIES 2016B 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). 479283v3 JSB EL185-42 256 "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 2016A Bonds, any Outstanding Series 2016B Bonds, any Outstanding Prior Bonds and any Outstanding 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 479283v3 JSB EL185-42 257 "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 fmancial 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 $2,030,000 original principal amount of Electric Revenue Bonds, Series 2014A, dated March 13, 2014, $1,625,000 in principal amount of which are currently outstanding. "Prior Resolution" means the resolution duly adopted by the Commission on February 14, 2014. "Project" means improvements and extensions and other capital improvements to the Electric System. "Purchaser"means "Refunded Bonds" means the $2,875,000 original principal amount of Electric Revenue Bonds, Series 2007A, dated March 28, 2007, currently outstanding in the principal amount of $1,535,000. 3 479283v3 JSB EL185-42 258 "Refunded Resolution" means the resolution duly adopted by the Commission on February 20, 2007. "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, or (ii) the maximum amount of principal and interest payable during the then current Fiscal Year or any future Fiscal Year on all 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 Outstanding 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 2016A Bonds" means the $ original principal amount of Electric Revenue Bonds, Series 2016A, dated July 14, 2016 and issued concurrently with the Series 2016B Bonds. "Series 2016B 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 4 479283v3 JSB EL185-42 259 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 2016B Bonds. 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 2016B Bonds, adjusted for such Fiscal Year as permitted by the Prior Resolution are as follows: Audited Fiscal Year Ended 2014 OPERATING REVENUES $32,551,722 OPERATING EXPENSES (27,973,795) OPERATING PROFIT $4,577,927 (Exclusive of Depreciation) ADD: Non-Operating Revenue 375,020 NET REVENUES $4,952,947 The Net Revenues of the Electric System for the Audited Fiscal Year immediately preceding the issuance of the Series 2016B 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 2016B Bonds and the Series 2016A Bonds computed to February 1, 2036 (the final maturity date of the Series 2016A Bonds). The combined average annual principal and interest requirement for the Series 2016B Bonds, the Prior Bonds and the Series 2016A Bonds, is $759,481. Other than the Prior Bonds, the Series 2016A Bonds, and the Series 2016B 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 2016B 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 2016A Bonds, Series 2016B Bonds and the Prior Bonds when due. 2.05. Authorization of Series 2016B 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 2016B, in the principal amount of$1,460,000. All costs of the Project in excess of the proceeds of the Series 2016B Bonds available for payment of such costs shall be paid from any other funds legally available to the Commission for such purpose. 2.06. Sale of Series 2016B Bonds. The Commission has retained Springsted Incorporated ("Springsted"), as its independent financial advisor for the sale of the Bonds and 5 479283v3 JSB EL185-42 260 was therefore authorized to sell the Bonds by private negotiation in accordance with Minnesota Statutes, Section 475.60, Subdivision 2(9) and proposals to purchase the Bonds have been solicited by Springsted. 2.07. Receipt and Acceptance of Proposals. Proposals have been received by the Commission Finance and Office Manager, or designee, at the offices of Springsted on the date hereof pursuant to the Terms of Proposal established for the Bonds and are set forth in Exhibit A. The proposal of (the "Purchaser"), to purchase the Bonds in accordance with the Terms of Proposal, at the rates of interest hereinafter set forth, and to pay therefor the sum of$ ,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 2016B Bonds having been done, existing, having happened and having been performed, it is now necessary to establish the form and terms of the Series 2016B Bonds, to provide security therefor and to issue the Series 2016B Bonds forthwith. Section 3. Security for Series 2016B Bonds. 3.01. Pledge of Net Revenues. From and after their issuance, the principal of and interest on the Series 2016B 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 2016B Bonds, the Commission shall deposit, from amounts on deposit, in the Reserve Account in connection with the Refunded Bonds, in the Reserve Account $146,000, so that the balance in the Reserve Account shall be not less than the applicable Reserve Requirement. 3.03. Not General Obligations. The Series 2016B 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 2016B Bonds. 4.01. Series 2016B Bond Form. The Series 2016B Bonds shall be prepared in substantially the form attached hereto as Exhibit B: Section 5. Series 2016B 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 2016B Bonds which shall be in the denomination 6 479283v3 JSB EL185-42 261 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 2017 $235,000 2020 $245,000 2018 235,000 2021 250,000 2019 240,000 2022 255,000 As may be requested by the Purchaser, one or more term Series 2016B 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 2016B Bond(s). The Series 2016B Bonds shall be issuable only in fully registered form. The interest thereon and, upon surrender of each Series 2016B Bond, the principal amount thereof, shall be payable by check or draft issued by the Registrar. 5.02. Interest Payment Dates. The Series 2016B Bonds shall bear interest payable semiannually on February 1 and August 1 of each year, commencing February 1, 2017, calculated on the basis of a 360-day year of twelve 30-day months to the person in whose name the Series 2016B 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 2016B Bonds will not be subject to prepayment prior to their maturity. 5.04. Application of Proceeds. Immediately upon delivery of the Series 2016B Bonds to the Purchaser, the amount received as accrued interest on the Series 2016B 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 2016B 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: (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 2016B Bonds and the registration of transfers and exchanges of Bonds entitled to be registered, transferred or exchanged. 7 479283v3 JSB EL185-42 262 (b) Transfer of Series 2016B Bonds. Upon surrender to the Registrar for transfer of any Series 2016B 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 2016B 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 2016B Bond which has been selected for redemption. (c) Exchange of Series 2016B Bonds. Whenever any Series 2016B Bond is surrendered by the registered owner for exchange, the Registrar shall authenticate and deliver one or more new Series 2016B 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 2016B 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 2016B 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 2016B 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. (0 Persons Deemed Owners. The City and the Registrar may treat the Person in whose name any Series 2016B Bond is at any time registered in the Bond Register as the absolute owner of such Series 2016B Bond, whether such Series 2016B 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 2016B 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 2016B Bond to the extent of the sum or sums so paid. (g) Taxes Fees and Charges. For every transfer or exchange of Series 2016B Bonds (except for an exchange upon a partial redemption of a Series 2016B 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. (h) Mutilated, Lost, Stolen or Destroyed Series 2016B Bonds. In case any Series 2016B Bond shall become mutilated or be lost, stolen or destroyed, the City shall execute and the Registrar shall authenticate and deliver a new Series 2016B 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 2016B Bond or in lieu of and in substitution for any such Series 2016B Bond lost, stolen or destroyed, upon the 8 479283v3 JSB EL185-42 263 payment of the reasonable expenses and charges of the Registrar in connection therewith, and, in the case of a Series 2016B 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 2016B Bond lost, stolen or destroyed, upon filing with the Registrar of evidence satisfactory to it that such Series 2016B 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 2016B 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 2016B Bond has already matured or been called for redemption in accordance with its terms, it shall not be necessary to issue a new Series 2016B 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 2016B Bonds shall be initially issued in the form of a separate single typewritten or printed fully registered Series 2016B Bond for each of the maturities set forth in this Resolution. Upon initial issuance, the ownership of each such Series 2016B 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 2016B 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 2016B 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 2016B Bonds as securities depository (the "Participants") or to any other person on behalf of which a Participant holds an interest in the Series 2016B Bonds, including but not limited to any responsibility Or 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 2016B Bonds, (ii) the delivery to any Participant or any other person other than a registered owner of Series 2016B Bonds, as shown by the registration books kept by the Registrar, of any notice with respect to the Series 2016B Bonds, including any notice of redemption, or (iii) the payment to any Participant or any other person, other than a registered owner of Series 2016B Bonds, or any amount with respect to 9 479283v3 JSB EL185-42 264 principal of, premium, if any, or interest on the Series 2016B Bonds. The City, the Registrar and the Paying Agent may treat and consider the person in whose name each Series 2016B Bond is registered in the registration books kept by the Registrar as the holder and absolute owner of such Series 2016B Bond for the purpose of payment of principal, premium and interest with respect to such Series 2016B Bond, for the purpose of registering transfers with respect to such Series 2016B Bonds, and for all other purposes. The Paying Agent shall pay all principal of, premium, if any, and interest on the Series 2016B 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 2016B Bonds to the extent of the sum or sums so paid. No person other than a registered owner of Series 2016B Bonds, as shown in the registration books kept by the Registrar, shall receive a certificated Series 2016B 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 2016B Bonds that they be able to obtain Series 2016B Bond certificates, the City shall notify DTC, whereupon DTC shall notify the Participants, of the availability through DTC of Series 2016B Bond certificates. In such event the City shall issue, transfer and exchange Series 2016B 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 2016B 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 2016B 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 2016B 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 2016B Bond and all notices with respect to such Series 2016B 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 2016B Bond, the City shall cause notice of such redemption to be mailed to the registered Holder of each Series 2016B Bond to be redeemed,but no defect in or failure to give such mailed notice of redemption shall affect the validity of proceedings for the redemption of any Series 2016B 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 2016B Bonds to be redeemed and the place at which the Series 2016B 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 2016B Bonds or 10 479283v3 JSB EL185-42 265 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 2016B Bonds or portions thereof shall cease to bear interest. Series 2016B 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 2016B Bond redeemed in part shall receive, upon surrender of such Series 2016B Bond to the Registrar, one or more new Series 2016B Bonds of the same series in authorized denominations equal in principal amount to the unredeemed portion of the Series 2016B Bond so surrendered. Section 8. Execution, Authentication and Delivery of Series 2016B Bonds. The Series 2016B 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 2016B Bonds shall cease to be such officer before the delivery of any Series 2016B 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 2016B 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 2016B Bond has been executed by the manual signature of an authorized representative of the Registrar. Certificates of authentication on different Series 2016B Bonds need not be signed by the same representative. The executed certificate of authentication on each Series 2016B Bond shall be conclusive evidence that it has been authenticated and delivered under this resolution. When the Series 2016B 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. 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 and 9.05. 11 479283v3 JSB EL185-42 266 9.03. Debt Service Account. Upon delivery of the Series 2016B Bonds, the Commission shall credit to the Debt Service Account, from the proceeds of the Series 2016B Bonds, the accrued interest, if any, received from the Purchaser of the Series 2016B 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 2016B Bonds the Commission shall credit to the Reserve Account from funds transferred from the Reserve Account for the Refunded Bonds, the sum of$146,000. 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. 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 12 479283v3 JSB EL185-42 267 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 (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: 13 479283v3 JSB EL185-42 268 (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 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: 14 479283v3 7SB EL185-42 269 (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 Outstanding 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 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. 15 479283v3 JSB EL185-42 270 (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. 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 2016B 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 2016B Bonds and costs of refunding the Refunded Bonds. Pending such disbursement, moneys on deposit in the Refunding Account may be invested in 16 479283v3 JSB EL185-42 271 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, 2016 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, 2017 and thereafter will be redeemed and prepaid on September 1, 2016. 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 C 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 2016B 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 2016B 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 reduce the percentage of the number of Holders whose consent is required to effect a further modification. Section 16. Defeasance. When any Series 2016B Bond has been discharged as provided in this section, all pledges, covenants and other rights granted by this Resolution to the Holder of such Series 2016B Bond shall cease, and such Series 2016B Bond shall no longer be deemed to be Outstanding under this Resolution. The obligations with respect to any Series 2016B Bond which is due on any date may be discharged by depositing with the Registrar on or 17 479283v3 JSB EL185-42 272 before that date a sum sufficient for the payment thereof in full; or, if any Series 2016B 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 Series 2016B 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 Series 2016B Bonds to their maturity and provided that such defeasance shall not impair the exemption of interest on any Series 2016B 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 2016B 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 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 2016B 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 2016B Bonds. (b) Each Reimbursement Expenditure is a capital expenditure or a cost of issuance of the Series 2016B 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 2016B Bonds and in all events 18 479283v3 JSB EL185-42 273 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 2016B Bonds are issued, shall be treated as made on the day the Series 2016B 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 2016B Bonds stating in effect that such action will not impair the tax-exempt status of the Series 2016B 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 Series 2016B 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 Series 2016B 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 2016B 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 2016B Bonds, certified copies of all proceedings and records of the Commission and the City relating to the Series 2016B Bonds and 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 2016B 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 Project. The Commission and the City hereby covenant not to use the proceeds of the Series 2016B 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 2016B Bonds to be"private activity bonds"within the meaning of Sections 103 and 141 through 150 of the Code. 19 479283v3 JSB EL185-42 274 Section 21. Tax-Exempt Status of the Series 2016B 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 2016B 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 2016B Bonds, and(c)the rebate of excess investment earnings to the United States. Section 22. Official Statement. The Official Statement relating to the Series 2016B 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 2016B Bonds, to sign such certificates as may be necessary with respect to the completeness and accuracy of the Official Statement. Section 23. Effective Date. This Resolution, having been concurred in by the City Council by resolution adopted May 16, 2016, shall be effective immediately. 20 479283v3 JSB EL185-42 275 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 full, true and complete transcript insofar as the same relates to the $1,460,000 Electric Revenue Refunding Bonds, Series 2016B of the City of Elk River, Minnesota. WITNESS my hand on June , 2016. Secretary Elk River Municipal Utilities Commission 21 479283v3 JSB EL185-42 276 EXHIBIT A BIDS A-1 479283v3 JSB EL185-42 277 EXHIBIT B UNITED STATES OF AMERICA STATE OF MINNESOTA COUNTY OF SHERBURNE CITY OF ELK RIVER ELECTRIC REVENUE REFUNDING BOND, SERIES 2016B No. $ Interest Rate Maturity Date Date of Original Issue CUSIP August 1, , 2016 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 February 1, 2017, to the person in whose name this Series 2016B 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 2016B 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 2016B Bond will be paid on each Interest Payment Date by check or draft mailed to the person in whose name this Series 2016B 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 2016B Bond are payable in lawful money of the United States of America. So long as this Series 2016B 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 2016B 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 479283v3 JSB EL185-42 B-1 278 Series 2016B Bond shall not be required for payment of the redemption price upon a partial redemption of this Series 2016B Bond. Until termination of the book-entry only system pursuant to the Resolution, Series 2016B Bonds may only be registered in the name of the Depository or its Nominee. This Series 2016B Bond is one of an issue (the "Series 2016B Bonds") in the aggregate principal amount of $1,460,000, issued pursuant to a resolution adopted by the Elk River Municipal Utilities Commission (the "Commission") on June 14, 2016 (the "Resolution"), to provide funds to refund the February 1, 2017 through February 1, 2022 maturities of the City's Electric Revenue Bonds, Series 2007A, dated March 28, 2007, 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 2016B 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 $2,030,000 original principal amount of Electric Revenue Bonds, Series 2014A, dated March 13, 2014 (the "Prior Bonds") and to the $ original principal amount of Electric Revenue Bonds, Series 2016A dated July 14, 2016 (the "Series 2016A Bonds"). The Series 2016B 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 2016B 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 2016B Bonds are not subject to prepayment prior to their maturity. The Series 2016B Bonds are issuable solely in fully registered form in Authorized Denominations (as defined in the Resolution) and are exchangeable for fully registered Series 2016B 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 2016B 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 2016B Bond, one or more new fully registered Series 2016B 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 2016B Bond, of the same maturity and bearing interest at the same rate. 479283v3 JSB EL185-42 B-2 279 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 2016B Bond and any legal or unusual costs regarding transfers and lost Series 2016B Bonds. The City, the Commission and the Bond Registrar may treat the person in whose name this Series 2016B 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 2016B Bond shall be overdue, and neither the City, the Commission nor the Bond Registrar shall be affected by notice to the contrary. This Series 2016B 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 2016B Bonds have not 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 Bonds (as defined in the Resolution), during the next 12 months and 1/6 of all interest payable on the Bonds (as defined in the Resolution), in the next 6 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 2016B 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 2016B 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 2016B Bond does not cause the indebtedness of the City to exceed any constitutional or statutory limitation. 479283v3 JSB EL185-42 B-3 280 IN WITNESS WHEREOF, the City of Elk River, Sherburne County, State of Minnesota, by the Commission, has caused this Series 2016B 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 2016B Bond to be dated as of the Date of Original Issue set forth above. 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 2016B Bond is one of the Series 2016B 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 479283v3 JSB EL185-42 B-4 281 ABBREVIATIONS The following abbreviations, when used in the inscription on the face of this Series 2016B 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 2016B Bond and does hereby irrevocably constitute and appoint attorney to transfer the Series 2016B 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 2016B 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). 479283v3 JSB EL185-42 B-5 282 The Bond Registrar will not effect transfer of this Series 2016B Bond unless the information concerning the transferee requested below is provided. Name and Address: (Include information for all joint owners if the Series 2016B Bond is held by joint account.) 479283v3 JSB EL185-42 B-6 283 PREPAYMENT SCHEDULE This Series 2016B Bond has been prepaid in part on the date(s) and in the amount(s) as follows: AUTHORIZED SIGNATURE DATE AMOUNT OF HOLDER 479283v3 JSB EL185-42 B-7 284 EXHIBIT C NOTICE OF CALL FOR REDEMPTION $2,875,000 ELECTRIC REVENUE BONDS, SERIES 2007A 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 September 1,2016 all outstanding bonds of the City designated as Electric Revenue Bonds, Series 2007A, dated March 28,2007,having stated maturity dates of February 1 in the years 2017 through 2022,both inclusive, totaling$1,535,000 in principal amount, and with the following CUSIP numbers: Year Amount CUSIP Number 2017 $225,000 287423 BJ5 2018 240,000 287423 BK2 2019 250,000 287423 BLO 2020 260,000 287423 BM8 2021 275,000 287423 BN6 2022 285,000 287423 BP1 ************ The bonds are being called at a price of par plus accrued interest to September 1, 2016, 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 September 1, 2016, at the following address: 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 3rd Floor—Bond Drop Window EP-MN-WS3C St. Paul, MN 55107 St. Paul, MN 55107 **************************** 479283v3 JSB EL185-42 C-1 285 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: June 14,2016. 479283v3 JSB EL185-42 C-2 286 Springsted Incorporated laSpringsted 380 Jackson Street, Suite 300 Saint Paul,MN 55101-2887 Tel: 651-223-3000 Fax: 651-223-3002 Email: advisors@springsted.com www.springsted.com $10,000,000(a) CITY OF ELK RIVER, MINNESOTA ELECTRIC REVENUE BONDS, SERIES 2016A (BOOK ENTRY ONLY) AWARD: WELLS FARGO BANK, NATIONAL ASSOCIATION SALE: June 14, 2016 Moody's Rating: Aa3 Interest Net Interest True Interest Bidder Rates Price Cost Rate WELLS FARGO BANK, 4.00% 2019-2021 $10,382,953.30(b) $2,770,588.12(b) 2.3168%0b4 NATIONAL ASSOCIATION 3.00% 2022-2025 2.00% 2026-2028 2.25% 2029-2030 2.50% 2031-2032 2.75% 2033 3.00% 2034-2036 PIPER JAFFRAY&CO. 3.00% 2019-2036 $10,598,916.00 $2,903,200.67 2.3942% (a) Subsequent to bid opening, the issue size decreased from$10,000,000 to$9,755,000. (b) Subsequent to bid opening, the price, net interest cost, and true interest rate have changed to$10,121,928.65, $2,725,283.09, and 2.3191%, respectively. Public Sector Advisors Interest Net Interest True Interest Bidder Rates Price Cost Rate ROBERT W. BAIRD&COMPANY, 2.00% 2019-2023 $10,282,907.05 $2,907,530.24 2.4346% INCORPORATED 4.00% 2024-2025 C.L. KING&ASSOCIATES WMBE 2.00% 2026-2028 CRONIN &CO., INC. 2.25% 2029 VINING-SPARKS IBG, 2.50% 2030 LIMITED PARTNERSHIP 2.75% 2031 EDWARD JONES 3.00% 2032-2036 SAMCO CAPITAL MARKETS COASTAL SECURITIES, INC. WNJ CAPITAL CREWS&ASSOCIATES, INC. DAVENPORT&CO. L.L.C. DUNCAN-WILLIAMS, INC. ROSS, SINCLAIRE &ASSOCIATES, LLC DOUGHERTY&COMPANY, LLC LOOP CAPITAL MARKETS BERNARDI SECURITIES, INC. COUNTRY CLUB BANK OPPENHEIMER&CO. SUMRIDGE PARTNERS R. SEELAUS&COMPANY., INC. SIERRA PACIFIC SECURITIES ISAAK BOND INVESTMENTS, INC ALAMO CAPITAL WMBE IFS SECURITIES RAFFERTY CAPITAL MARKETS FIRST EMPIRE SECURITIES UMB BANK, N.A. W.H. MELL ASSOCIATES WAYNE HUMMER&CO. FMS BONDS INC. RAYMOND JAMES &ASSOCIATES, INC. 2.00% 2019-2029 $10,166,689.90 $2,902,687.04 2.4387% 3.00% 2030-2036 STIFEL, NICOLAUS &COMPANY, 3.00% 2019-2036 $10,491,341.75 $3,010,774.92 2.4995% INCORPORATED BANK OF AMERICA MERRILL LYNCH 3.00% 2019-2026 $10,391,376.40 $2,998,741.62 2.5021% 2.00% 2027 2.125% 2028 3.00% 2029-2036 2 REOFFERING SCHEDULE OF THE PURCHASER Rate Year Yield 4.00% 2019 1.00% 4.00% 2020 1.15% 4.00% 2021 1.25% 3.00% 2022 1.35% 3.00% 2023 1.45% 3.00% 2024 1.55% 3.00% 2025 1.65% 2.00% 2026 1.75% 2.00% 2027 1.85% 2.00% 2028 1.95% 2.25% 2029 2.05% 2.25% 2030 2.15% 2.50% 2031 2.25% 2.50% 2032 2.35% 2.75% 2033 2.45% 3.00% 2034 2.55% 3.00% 2035 2.60% 3.00% 2036 2.65% BBI: 3.18% Average Maturity: 11.674 Years 3 Springsted Incorporated 380 Jackson Street, Suite 300 Saint Paul,MN 55101-2887 Springsted Tel: 651-223-3000 Fax: 651-223-3002 Email: advisors@springsted.com www.springsted.com $1,460,000(a) CITY OF ELK RIVER, MINNESOTA ELECTRIC REVENUE REFUNDING BONDS,SERIES 2016B (BOOK ENTRY ONLY) AWARD: ROBERT W. BAIRD&CO., INC. AND SYNDICATE SALE: June 14,2016 Moody's Rating: Aa3 Interest Net Interest True Interest Bidder Rates Price Cost Rate ROBERT W. BAIRD&COMPANY, 2.00% 2017-2021 $1,516,798.6504 $61,971.07(b) 1.3255%0b4 INCORPORATED 4.00% 2022 C.L. KING&ASSOCIATES WMBE CRONIN &CO., INC. EDWARD JONES FIDELITY CAPITAL MARKETS ROSS, SINCLAIRE&ASSOCIATES, LLC WNJ CAPITAL SAMCO CAPITAL MARKETS CREWS&ASSOCIATES, INC. DAVENPORT&CO. L.L.C. LOOP CAPITAL MARKETS NORTHLAND SECURITIES, INC. DOUGHERTY&COMPANY, LLC OPPENHEIMER&CO. R. SEELAUS&COMPANY., INC. DUNCAN-WILLIAMS, INC. VINING-SPARKS IBG, LIMITED PARTNERSHIP IFS SECURITIES BERNARDI SECURITIES, INC. COUNTRY CLUB BANK SIERRA PACIFIC SECURITIES ALAMO CAPITAL WMBE BNYMELLON CAPITAL MARKETS ISAAK BOND INVESTMENTS, INC WAYNE HUMMER&CO. SUMRIDGE PARTNERS W.H. MELL ASSOCIATES FIRST EMPIRE SECURITIES WEDBUSH SECURITIES INC. RAFFERTY CAPITAL MARKETS UMB BANK, N.A J.J.B. HILLIARD,W.L. LYONS, LLC FMS BONDS INC. (a) Subsequent to bid opening, the issue size decreased from$1,460,000 to$1,370,000. (b) Subsequent to bid opening, the price, net interest cost, and true interest rate have changed to $1,423,399.58 $58,220.98, and 1.3256%, respectively. 1 Public Sector Advisors Interest Net Interest True Interest Bidder Rates Price Cost Rate BERNARDI SECURITIES, INCORPORATED 3.00% 2017-2021 $1,514,952.95 $66,619.97 1.4358% 2.00% 2022 REOFFERING SCHEDULE OF THE PURCHASER Rate Year Yield 2.00% 2017 0.07% 2.00% 2018 0.85% 2.00% 2019 1.00% 2.00% 2020 1.11% 2.00% 2021 1.22% 4.00% 2022 1.32% BBI: 3.18% Average Maturity: 3.099 Years 2