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8.1. SR 03-15-2021 Request for Action To Item Number Mayor and City Council 8.1 Agenda Section Meeting Date Prepared by General Business March 15, 2021 Lori Ziemer, Finance Director Item Description Reviewed by Approve Issuance of General Obligation Cal Portner, City Administrator Capital Improvement Plan and Equipment Reviewed by Bonds, Series 2021A and Electric Revenue Bonds, Series 2021B Action Requested Adopt, by motion, the following resolutions:  Resolution Providing for the Competitive Negotiated Sale of $5,225,000 General Obligation Capital Improvement Plan and Equipment Bonds, Series 2021A  Resolution Approving the Issuance of $14,460,000 Electric Revenue Bonds, Series 2021B Background/Discussion The city and Elk River Municipal Utilities (ERMU) have been working with our financial advisor, Baker Tilly, for the issuance of $5,225,000 General Obligation Capital Improvement and Equipment Bonds, Series 2021A and $14,460,000 Electric Revenue Bonds, Series 2021B. The General Obligation Capital Improvement Plan and Equipment Bonds, Series 2021A, will finance the remaining portion for the construction of Fire Station #3 and the purchase of fire trucks and other equipment. The Electric Revenue Bonds, Series 2021B will finance the expansion of the Utilities’ field services facility. The city is the qualified entity to issue the bonds and on March 9, 2021, the ERMU Commission adopted their resolution requesting the Council adopt the resolution approve the issues of the Electric Revenue Bonds. Financial Impact The General Obligation Bonds are a general obligation of the city payable by a tax levy or other sources. The Electric Revenue bonds are not a general obligation of the city but will be a special limited obligation payable solely from the electric utility system. Mission/Policy/Goal Develop a sustainable and prosperous community that reflects the culture of citizens and what is important to the majority. Attachments  Pre-Sale Summary for Issuance of Bonds, Series 2021A  Pre-Sale Summary for Issuance of Bonds, Series 2021B The Elk River Vision A welcoming community with revolutionary and spirited resourcefulness, exceptional service, and community engagement that encourages and inspires prosperity. Updated: August 2020  Resolution Providing for the Sale of General Obligation Capital Improvement Plan and Equipment Bonds, Series 2021A  Resolution Approving the Issuance of Electric Revenue Bonds, Series 2021B N:\\Public Bodies\\Agenda Packets\\03-15-2021\\Final\\x8.1 sr bond sale.docx City of Elk River, Minnesota Pre-Sale Summary for Issuance of Bonds $5,225,000 General Obligation Capital Improvement Plan and Equipment Bonds, Series 2021A The City Council has under consideration the issuance of bonds to finance (i) a capital improvement identified in the City’s 2020-2025 Capital Improvement Plan (the “Capital Improvement Plan Portion”); and the purchase of various capital equipment (the “Equipment Portion). Together the Capital Improvement Plan Portion and the Equipment Portion are referred to as (the “Bonds”). This document provides information relative to the proposed issuance. KEY EVENTS: The following summary schedule includes the timing of some of the key events that will occur relative to the bond issuance: March 15, 2021 Council sets sale date and terms Week of April 5, 2021 Rating conference is conducted April 19, 2021, 10:30 a.m. Competitive proposals are received April 19, 2021, 6:30 p.m. Council considers award of the Bonds May 20, 2021 Proceeds are received RATING: An application will be made to S&P Global Ratings (S&P) for a rating on the Bonds. The City’s general obligation debt is currently rated “AA+” by S&P. THE MARKET: Performance of the tax-exempt market is often measured by the Bond Buyer’s Index (“BBI”) which measures the yield of high-grade municipal bonds in the 20th year for general obligation bonds rated Aa2 by Moody’s or AA by S&P (the BBI 20-Bond GO Index) and the 30th year for revenue bonds rated A1 by Moody’s or A+ by S&P (the BBI 25-Bond Revenue Index). The following chart illustrates these two indices over the past five years: Study No.: 0894.137_1723822 Date: March 11, 2021 Page 2 SCHEDULES ATTACHED: Schedules attached for the Bonds include (i) sources and uses of funds, (ii) projected debt service schedules, as a whole and by purpose, given the current interest rate environment, and (iii) calendar year debt service payments on the City’s outstanding CIP Bonds including the 2021A Bonds. RISKS/SPECIAL CONSIDERATIONS: The outcome of this financing will rely on the market conditions at the time of the sale. Any projections included herein are estimates based on current market conditions. SALE TERMS AND MARKETING: Variability of Issue Size: A specific provision in the sale terms permits modifications to the issue size and/or maturity structure to customize the issue once the price and interest rates are set on the day of sale. Prepayment Provisions: Bonds maturing on or after February 1, 2032 may be prepaid at a price of par plus accrued interest on or after February 1, 2031. Bank Qualification: The City does not expect to issue more than $10 million in tax-exempt obligations that count against the $10 million limit for this calendar year; therefore, the Bonds are designated as bank qualified. $3,985,000 Capital Improvement Plan Portion Description of Purpose PURPOSE: Proceeds of the Capital Improvement Plan Portion will be used to finance various capital improvements identified in the City’s 2020-2025 Capital Improvement Plan (CIP), that was adopted on November 2, 2020. Specifically, the City expects to use proceeds of the Bonds to finance the remaining portion of the City’s Fire Station #3. AUTHORITY: Statutory Authority: The Capital Improvement Plan Portion is being issued pursuant to Minnesota Statutes, Section 475.521, and the City’s 2020-2025 Capital Improvement Plan that was adopted on November 2, 2020. The resolution specifies that the issuance of CIP bonds for Public Safety cannot exceed $17,500,000. The 2020A CIP Bonds authorized under this plan were issued for $9,435,000, leaving $8,065,000 of remaining authority. This $3,985,000 2021A Bond is well below the remaining capacity. Statutory Requirements: Pursuant to Minnesota Statutes, Section 475.521, the maximum calendar year debt service on all outstanding bonds issues under a capital improvement plan, including the proposed issue, cannot exceed an amount equal to 0.16% of the estimated market value of the property within the City for taxes payable in the year the bonds are issued or sold. The City currently has two outstanding bond issues subject to this statutory limitation. The maximum calendar year debt service on the City’s outstanding CIP debt, and the Bonds, is estimated to be $1,871,814, which is less that the maximum annual debt service limitation of $4,075,960, as summarized below: Estimated Market Value For Taxes Payable in 2020 Statutory Principal and Interest Limitation Statutory Maximum Principal and Interest $2,547,475,200 0.16% $4,075,960 Page 3 The City must also have an adopted 5-year Capital Improvement Plan and comply with the public hearing requirements outlined in Minnesota Statutes, Section 475.521. The public hearing for the Bonds was held on November 2, 2020 and the 30-day petition period ended on December 2, 2020. SECURITY AND SOURCE OF PAYMENT: The Capital Improvement Plan Portion is a general obligation of the City, secured by its full faith and credit and taxing power. An amount sufficient to make the February 1, 2022 interest payment for the Capital Improvement Portion is included in the Bonds as capitalized interest. The City will make their first levy for the Capital Improvement Plan Portion in 2021 for collection in 2022. Each year’s tax collections will be used to make the interest payment due on August 1 of the collection year and the February 1 principal and interest payment due in the following year. STRUCTURING SUMMARY: In consultation with City staff, the Capital Improvement Plan Portion has been structured with 20 principal payments beginning on February 1, 2023 to provide for approximately even annual debt service requirements. $1,240,000 Equipment Portion Description of Purpose PURPOSE: Proceeds of the Equipment Portion will be used to finance the purchase of fire trucks and other capital equipment. AUTHORITY: Statutory Authority: The Equipment Portion is being issued pursuant to Minnesota Statutes, Chapter 475 and Section 412.301. Statutory Requirements: Pursuant to Minnesota Statutes, Section 412.301, the City may finance capital equipment with the issuance of certificates of indebtedness without being subject to a petition requirement calling for a referendum if the total amount of the issue does not exceed ¼ of 1% of the estimated market value of the City. Based on the City’s 2019/2020 estimated market value of $2,547,475,200 this represents a maximum issue size of $6,368,688. This issuance of $1,240,000 for the Equipment Portion is within that limitation and is not subject to a taxpayer petition for a referendum. SECURITY AND SOURCE OF PAYMENT: The Equipment Portion will be a general obligation of the City, secured by its full faith and credit and taxing power and will be repaid with ad valorem taxes. An amount sufficient to make the February 1, 2022 interest payment for the Equipment Portion is included in the Bonds as capitalized interest. The City will make their first levy for the Equipment Portion in 2021 for collection in 2022. Each year’s collection of taxes will be used to make the August 1 interest payment due in the collection year and the February 1 principal and interest payment due the following year. STRUCTURING SUMMARY: In consultation with City staff, the Equipment Portion has been structured to provide approximately level annual debt service requirements over a term of 9 years. Page 4 Post Issuance Compliance POST ISSUANCE COMPLIANCE: The issuance of the Bonds will result in post-issuance compliance responsibilities. The responsibilities are in two primary areas: (i) compliance with federal arbitrage requirements and (ii) compliance with secondary disclosure requirements. Federal arbitrage requirements include a wide range of implications that have been taken into account as this issue has been structured. Post-issuance compliance responsibilities for this tax-exempt issue include both rebate and yield restriction provisions of the IRS Code. In general terms the arbitrage requirements control the earnings on unexpended bond proceeds, including investment earnings, moneys held for debt service payments (which are considered to be proceeds under the IRS regulations), and/or reserves. Under certain circumstances any “excess earnings” will need to be paid to the IRS to maintain the tax-exempt status of the Bonds. Any interest earnings on gross bond proceeds or debt service funds should not be spent until it has been determined based on actual facts that they are not “excess earnings” as defined by the IRS Code. The arbitrage rules provide for spend-down exceptions for proceeds that are spent within either a 6-month, 18-month or, for certain construction issues, a 24-month period each in accordance with certain spending criteria. Proceeds that qualify for an exception will be exempt from rebate. These exceptions are based on actual expenditures and not based on reasonable expectations, and expenditures, including any investment proceeds will have to meet the spending criteria to qualify for the exclusion. The City expects to meet the 24-month spending exception for the Capital Improvement Plan Portion and the 18- month spending exception for the Equipment Portion. Regardless of whether the issue qualifies for an exemption from the rebate provisions, yield restriction provisions will apply to Bond proceeds (including interest earnings) unspent after three years and the debt service fund throughout the term of the Bonds. These moneys should be monitored until the Bonds are retired. Secondary disclosure requirements result from an SEC requirement that underwriters provide ongoing disclosure information to investors. To meet this requirement, any prospective underwriter will require the City to commit to providing the information needed to comply under a continuing disclosure agreement. Baker Tilly Municipal Advisors, LLC (“Baker Tilly MA”) currently provides both arbitrage and continuing disclosure services to the City. Baker Tilly MA will work with the City staff to include the Bonds under the existing Agreement for Municipal Advisor Services. SUPPLEMENTAL INFORMATION AND BOND RECORD: Supplementary information will be available to staff including detailed terms and conditions of sale, comprehensive structuring schedules and information to assist in meeting post-issuance compliance responsibilities. Upon completion of the financing, a bond record will be provided that contains pertinent documents and final debt service calculations for the transaction. Baker Tilly Municipal Advisors, LLC is a registered municipal advisor and controlled subsidiary of Baker Tilly US, LLP, an accounting firm. Baker Tilly US, LLP trading as Baker Tilly, is a member of the global network of Baker Tilly International Ltd., the members of which are separate and independent legal entities. © 2021 Baker Tilly Municipal Advisors, LLC Page 5 Page 6 $5,225,000 City of Elk River, Minnesota General Obligation Capital Improvement Plan and Equipment Bonds, Series 2021A Issue Summary NET DEBT SERVICE SCHEDULE Date Principal Coupon Interest Total P+I CIF Net New D/S 105% Levy 02/01/2022 --51,242.35 51,242.35 (51,242.35)-- 02/01/2023 310,000.00 0.550%73,495.00 383,495.00 -383,495.00 402,669.75 02/01/2024 315,000.00 0.750%71,790.00 386,790.00 -386,790.00 406,129.50 02/01/2025 315,000.00 0.850%69,427.50 384,427.50 -384,427.50 403,648.88 02/01/2026 315,000.00 0.900%66,750.00 381,750.00 -381,750.00 400,837.50 02/01/2027 315,000.00 1.000%63,915.00 378,915.00 -378,915.00 397,860.75 02/01/2028 325,000.00 1.200%60,765.00 385,765.00 -385,765.00 405,053.25 02/01/2029 325,000.00 1.350%56,865.00 381,865.00 -381,865.00 400,958.25 02/01/2030 330,000.00 1.450%52,477.50 382,477.50 -382,477.50 401,601.38 02/01/2031 335,000.00 1.500%47,692.50 382,692.50 -382,692.50 401,827.13 02/01/2032 195,000.00 1.550%42,667.50 237,667.50 -237,667.50 249,550.88 02/01/2033 200,000.00 1.600%39,645.00 239,645.00 -239,645.00 251,627.25 02/01/2034 200,000.00 1.650%36,445.00 236,445.00 -236,445.00 248,267.25 02/01/2035 205,000.00 1.700%33,145.00 238,145.00 -238,145.00 250,052.25 02/01/2036 210,000.00 1.750%29,660.00 239,660.00 -239,660.00 251,643.00 02/01/2037 210,000.00 1.800%25,985.00 235,985.00 -235,985.00 247,784.25 02/01/2038 215,000.00 1.850%22,205.00 237,205.00 -237,205.00 249,065.25 02/01/2039 220,000.00 1.900%18,227.50 238,227.50 -238,227.50 250,138.88 02/01/2040 225,000.00 1.950%14,047.50 239,047.50 -239,047.50 250,999.88 02/01/2041 230,000.00 2.000%9,660.00 239,660.00 -239,660.00 251,643.00 02/01/2042 230,000.00 2.200%5,060.00 235,060.00 -235,060.00 246,813.00 Total $5,225,000.00 -$891,167.35 $6,116,167.35 (51,242.35)$6,064,925.00 $6,368,171.25 SIGNIFICANT DATES Dated Date...........................................................................................................................................................5/20/2021 Delivery Date.........................................................................................................................................................5/20/2021 First Coupon Date.................................................................................................................................................2/01/2022 Yield Statistics Bond Year Dollars.................................................................................................................................................$53,747.99 Average Life..........................................................................................................................................................10.287 Years Average Coupon....................................................................................................................................................1.6580479% Net Interest Cost (NIC)...........................................................................................................................................1.7747034% True Interest Cost (TIC)..........................................................................................................................................1.7729866% Bond Yield for Arbitrage Purposes...........................................................................................................................1.6426246% All Inclusive Cost (AIC)...........................................................................................................................................1.9007671% IRS Form 8038 Net Interest Cost...................................................................................................................................................1.6580479% Weighted Average Maturity.....................................................................................................................................10.287 Years 2021A GO CIP and EC Bonds | Issue Summary | 3/ 1/2021 | 9:56 AM Page 7 $3,985,000 City of Elk River, Minnesota General Obligation Capital Improvement Plan and Equipment Bonds, Series 2021A Capital Improvement Plan Portion NET DEBT SERVICE SCHEDULE Date Principal Coupon Interest Total P+I CIF Net New D/S 105% Levy 02/01/2022 --42,009.38 42,009.38 (42,009.38)-- 02/01/2023 175,000.00 0.550%60,252.50 235,252.50 -235,252.50 247,015.13 02/01/2024 180,000.00 0.750%59,290.00 239,290.00 -239,290.00 251,254.50 02/01/2025 180,000.00 0.850%57,940.00 237,940.00 -237,940.00 249,837.00 02/01/2026 180,000.00 0.900%56,410.00 236,410.00 -236,410.00 248,230.50 02/01/2027 180,000.00 1.000%54,790.00 234,790.00 -234,790.00 246,529.50 02/01/2028 185,000.00 1.200%52,990.00 237,990.00 -237,990.00 249,889.50 02/01/2029 185,000.00 1.350%50,770.00 235,770.00 -235,770.00 247,558.50 02/01/2030 190,000.00 1.450%48,272.50 238,272.50 -238,272.50 250,186.13 02/01/2031 190,000.00 1.500%45,517.50 235,517.50 -235,517.50 247,293.38 02/01/2032 195,000.00 1.550%42,667.50 237,667.50 -237,667.50 249,550.88 02/01/2033 200,000.00 1.600%39,645.00 239,645.00 -239,645.00 251,627.25 02/01/2034 200,000.00 1.650%36,445.00 236,445.00 -236,445.00 248,267.25 02/01/2035 205,000.00 1.700%33,145.00 238,145.00 -238,145.00 250,052.25 02/01/2036 210,000.00 1.750%29,660.00 239,660.00 -239,660.00 251,643.00 02/01/2037 210,000.00 1.800%25,985.00 235,985.00 -235,985.00 247,784.25 02/01/2038 215,000.00 1.850%22,205.00 237,205.00 -237,205.00 249,065.25 02/01/2039 220,000.00 1.900%18,227.50 238,227.50 -238,227.50 250,138.88 02/01/2040 225,000.00 1.950%14,047.50 239,047.50 -239,047.50 250,999.88 02/01/2041 230,000.00 2.000%9,660.00 239,660.00 -239,660.00 251,643.00 02/01/2042 230,000.00 2.200%5,060.00 235,060.00 -235,060.00 246,813.00 Total $3,985,000.00 -$804,989.38 $4,789,989.38 (42,009.38)$4,747,980.00 $4,985,379.00 SIGNIFICANT DATES Dated Date............................................................................................................................................................5/20/2021 Delivery Date.........................................................................................................................................................5/20/2021 First Coupon Date.................................................................................................................................................2/01/2022 Yield Statistics Bond Year Dollars..................................................................................................................................................$46,613.43 Average Life..........................................................................................................................................................11.697 Years Average Coupon....................................................................................................................................................1.7269473% Net Interest Cost (NIC)...........................................................................................................................................1.8295358% True Interest Cost (TIC)..........................................................................................................................................1.8298781% Bond Yield for Arbitrage Purposes...........................................................................................................................1.6426246% All Inclusive Cost (AIC)...........................................................................................................................................1.9382412% IRS Form 8038 Net Interest Cost...................................................................................................................................................1.7269473% Weighted Average Maturity.....................................................................................................................................11.697 Years 2021A GO CIP and EC Bonds | Capital Improvement Plan | 3/ 1/2021 | 9:56 AM Page 8 $1,240,000 City of Elk River, Minnesota General Obligation Capital Improvement Plan and Equipment Bonds, Series 2021A Equipment Certificate Portion NET DEBT SERVICE SCHEDULE Date Principal Coupon Interest Total P+I CIF Net New D/S 105% Levy 02/01/2022 --9,232.97 9,232.97 (9,232.97)-- 02/01/2023 135,000.00 0.550%13,242.50 148,242.50 -148,242.50 155,654.63 02/01/2024 135,000.00 0.750%12,500.00 147,500.00 -147,500.00 154,875.00 02/01/2025 135,000.00 0.850%11,487.50 146,487.50 -146,487.50 153,811.88 02/01/2026 135,000.00 0.900%10,340.00 145,340.00 -145,340.00 152,607.00 02/01/2027 135,000.00 1.000%9,125.00 144,125.00 -144,125.00 151,331.25 02/01/2028 140,000.00 1.200%7,775.00 147,775.00 -147,775.00 155,163.75 02/01/2029 140,000.00 1.350%6,095.00 146,095.00 -146,095.00 153,399.75 02/01/2030 140,000.00 1.450%4,205.00 144,205.00 -144,205.00 151,415.25 02/01/2031 145,000.00 1.500%2,175.00 147,175.00 -147,175.00 154,533.75 Total $1,240,000.00 -$86,177.97 $1,326,177.97 (9,232.97)$1,316,945.00 $1,382,792.25 SIGNIFICANT DATES Dated Date...........................................................................................................................................................5/20/2021 Delivery Date.........................................................................................................................................................5/20/2021 First Coupon Date.................................................................................................................................................2/01/2022 Yield Statistics Bond Year Dollars.................................................................................................................................................$7,134.56 Average Life..........................................................................................................................................................5.754 Years Average Coupon....................................................................................................................................................1.2078954% Net Interest Cost (NIC)...........................................................................................................................................1.4164578% True Interest Cost (TIC)..........................................................................................................................................1.4230011% Bond Yield for Arbitrage Purposes...........................................................................................................................1.6426246% All Inclusive Cost (AIC)...........................................................................................................................................1.6709368% IRS Form 8038 Net Interest Cost...................................................................................................................................................1.2078954% Weighted Average Maturity.....................................................................................................................................5.754 Years 2021A GO CIP and EC Bonds | Equipment Certificate Por | 3/ 1/2021 | 9:56 AM Page 9 City of Elk River, Minnesota Calendar Year CIP Debt Service Calendar Year 2020A GO CIP 2020B GO Ref 2021A GO CIP Proposed TOTAL 2021 140,875.47 116,714.83 -257,590.31 2022 239,222.50 1,046,445.00 72,135.63 1,357,803.13 2023 565,847.50 1,071,195.00 234,771.25 1,871,813.75 2024 568,597.50 395,320.00 238,615.00 1,202,532.50 2025 570,347.50 390,320.00 237,175.00 1,197,842.50 2026 566,222.50 389,695.00 235,600.00 1,191,517.50 2027 561,347.50 393,195.00 233,890.00 1,188,432.50 2028 562,722.50 392,595.00 236,880.00 1,192,197.50 2029 565,322.50 388,195.00 234,521.25 1,188,038.75 2030 562,222.50 393,995.00 236,895.00 1,193,112.50 2031 568,222.50 395,170.00 234,092.50 1,197,485.00 2032 575,947.50 396,295.00 236,156.25 1,208,398.75 2033 570,750.00 397,172.50 238,045.00 1,205,967.50 2034 570,027.50 -234,795.00 804,822.50 2035 568,745.00 -236,402.50 805,147.50 2036 571,857.50 -237,822.50 809,680.00 2037 569,352.50 -234,095.00 803,447.50 2038 571,345.00 -235,216.25 806,561.25 2039 572,917.50 -236,137.50 809,055.00 2040 569,101.25 -236,853.75 805,955.00 2041 569,887.50 -237,360.00 807,247.50 2042 570,085.00 -232,530.00 802,615.00 -$11,750,966.72 $6,166,307.33 $4,789,989.38 $17,917,274.06 Max $1,871,813.75 Aggregate | 1/25/2021 | 9:57 AM City of Elk River, Minnesota Pre-Sale Summary for Issuance of Bonds $14,460,000 Electric Revenue Bonds, Series 2021B The City Council and Utilities Commission have under consideration the issuance of bonds (the “Bonds”) to finance the construction of a field house facility to accommodate service trucks, inventory, and offices. This document provides information relative to the proposed issuance. KEY EVENTS: The following summary schedule includes the timing of some of the key events that will occur relative to the bond issuance: March 9, 2021 Utilities Commission sets sale date and terms March 15, 2021 City Council sets sale date and terms and authorizes Utilities Commission to award the Bonds Week of March 29, 2021 Rating conference is conducted April 13, 2021, 10:30 a.m. Competitive bids are received April 13, 2021, 3:30 p.m. Utilities Commission considers award of the Bonds May 13, 2021 Proceeds are received RATING: An application will be made to Moody’s Investors Service (Moody’s) for a rating on the Bonds. The City’s electric revenue supported debt is currently rated “Aa3” by Moody’s. THE MARKET: Performance of the tax-exempt market is often measured by the Bond Buyer’s Index (“BBI”) which measures the yield of high grade municipal bonds in the 20th year for general obligation bonds rated Aa2 by Moody’s or AA by S&P (the BBI 20-Bond GO Index) and the 30th year for revenue bonds rated A1 by Moody’s or A+ by S&P (the BBI 25-Bond Revenue Index). The following chart illustrates these two indices over the past five years: Study No.: 0894.138_1723355 Date: March 4, 2021 Page 2 PURPOSE: Proceeds of the Bonds will be used to finance the construction of a field house facility to accommodate service trucks, inventory, and offices. AUTHORITY: Statutory Authority: The Bonds are being issued pursuant to Minnesota Statutes, Chapters 453 and 475. Existing Covenants/Policies: The Bonds are being issued on a parity (same pledge of revenue) as the Utility’s outstanding electric utility revenue bonds. Existing covenants and the Resolution authorizing the Bonds establishes certain conditions and/or requirements including but not limited to (i) the issuance of additional bonds (ii) rate covenants and (iii) funding a parity debt service reserve requirement, all of which are further detailed below: Additional Bonds: Additional bonds may be issued on a parity of lien with the Utility’s existing electric utility bonds (Parity Bonds) so long as the net revenues of the Electric System for the audited fiscal year immediately preceding the issuance of such additional bonds are not less than 125% of the average annual principal and interest due on all outstanding parity bonds and the additional bonds to be issued, during the remaining term of the outstanding bonds. A coverage ratio of 470% is projected based on the December 31, 2019 Electric Fund audited financial statements and the projected average annual principal and interest payment on the Parity Bonds and the Bonds of $1,515,845 The Utility has three other outstanding issues payable from net revenues of its electric utility system (the “Electric System”): • Electric Revenue Bonds, Series 2016A (the “Series 2016A Bonds”), outstanding in the aggregate principal amount of $8,465,000 with a final maturity of February 1, 2036 • Electric Revenue Refunding Bonds, Series 2016B (the “Series 2016B Bonds”) outstanding in the aggregate principal amount of $240,000 with a final maturity of February 1, 2022 • Electric Revenue Bonds, Series 2018A (the “Series 2018B Bonds”) outstanding in the aggregate principal amount of $9,600,000 with a final maturity of August 1, 2048 Rate Covenant: The Utility 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 Bonds, the Parity Bonds and any additional parity bonds. Debt Service Reserve Account: The Utility will maintain a Debt Service Reserve Account (the “Reserve Account”) in the amount of the Reserve Requirement. “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 outstanding bonds and Additional Bonds, or (ii) the maximum amount of principal and interest payable during the then current Fiscal Year or any future Fiscal Year on all outstanding bonds and Additional Bonds as of the date of issuance of a series of bonds, or (iii) 125% of the average annual principal and interest payable on all outstanding bonds and Additional Bonds as of the date of issuance of a series of bonds. Pursuant to the issuance of the Bonds, the new Reserve Requirement is estimated to be $1,901,494, which is based on 125% of average annual debt service on the Bonds and Page 3 SECURITY AND SOURCE OF PAYMENT: STRUCTURING SUMMARY: SCHEDULES ATTACHED: RISKS/SPECIAL CONSIDERATIONS: SALE TERMS AND MARKETING: Parity Bonds. The current amount on deposit in the Reserve Account is $1,261,359. The difference of $640,135 will be funded with proceeds of the Bonds. The Bonds will be special limited obligations of the City payable solely from net revenues of the City’s Electric System. The Bonds are being issued as Additional Bonds, on parity with the outstanding Parity Bonds as listed above. In consultation with the Utility, the Bonds have been structured to provide for approximately level annual debt service over a term of 30 years. Schedules attached include (i) sources and uses, (ii) debt service, given the current interest rate environment, (iii) proof of reserve requirement, (iv) coverage ratio and additional bonds test, and (v) aggregate electric parity debt service including the Bonds. The outcome of this financing will rely on the market conditions at the time of the sale. Any projections included herein are estimates based on current market conditions. The Bonds are payable solely from net revenues of the City’s Electric Fund. The City and Utility will need to continually review the Electric Fund budget, and user fees and charges, to ensure annual net revenues of the Electric Fund are not less than 110% of the average annual debt service on the Bonds and Parity Bonds. Variability of Issue Size: A specific provision in the sale terms permits modifications to the issue size and/or maturity structure to customize the issue once the price and interest rates are set on the day of sale. Prepayment Provisions: Bonds maturing on or after August 1, 2032 may be prepaid at a price of par plus accrued interest on or after August 1, 2031. Bank Qualification: The City expects to issue more than $10 million in tax- exempt obligations in 2021; therefore the Bonds are not designated as bank qualified. Post Issuance Compliance POST ISSUANCE COMPLIANCE: The issuance of the Bonds will result in post-issuance compliance responsibilities. The responsibilities are in two primary areas: (i) compliance with federal arbitrage requirements and (ii) compliance with secondary disclosure requirements. Federal arbitrage requirements include a wide range of implications that have been taken into account as this issue has been structured. Post-issuance compliance responsibilities for this tax-exempt issue include both rebate and yield restriction provisions of the IRS Code. In general terms the arbitrage requirements control the earnings on unexpended bond proceeds, including investment earnings, moneys held for debt service payments (which are considered to be proceeds under the IRS regulations), and/or reserves. Under certain circumstances any “excess earnings” will need to be paid to the IRS to maintain the tax-exempt status of the Bonds. Any interest earnings on gross bond proceeds or debt service funds should not be spent until it has been determined based on actual facts that they are not “excess earnings” as defined by the IRS Code. The arbitrage rules provide for spend-down exceptions for proceeds that are spent within either a 6-month, 18-month or, for certain construction issues, a 24-month period each in Page 4 accordance with certain spending criteria. Proceeds that qualify for an exception will be exempt from rebate. These exceptions are based on actual expenditures and not based on reasonable expectations, and expenditures, including any investment proceeds will have to meet the spending criteria to qualify for the exclusion. The Utility expects to meet the 24-month spending exception. Regardless of whether the issue qualifies for an exemption from the rebate provisions, yield restriction provisions will apply to Bond proceeds (including interest earnings) unspent after three years and the debt service fund throughout the term of the Bonds. These moneys should be monitored until the Bonds are retired. Secondary disclosure requirements result from an SEC requirement that underwriters provide ongoing disclosure information to investors. To meet this requirement, any prospective underwriter will require the City to commit to providing the information needed to comply under a continuing disclosure agreement. Baker Tilly currently provides continuing disclosure services to the Municipal Utilities and the City. Baker Tilly will work with staff to include the Bonds under the existing Agreement for Municipal Advisor Services. SUPPLEMENTAL INFORMATION AND BOND RECORD: Supplementary information will be available to staff including detailed terms and conditions of sale, comprehensive structuring schedules and information to assist in meeting post-issuance compliance responsibilities. Upon completion of the financing, a bond record will be provided that contains pertinent documents and final debt service calculations for the transaction. Baker Tilly Municipal Advisors, LLC is a registered municipal advisor and controlled subsidiary of Baker Tilly US, LLP, an accounting firm. Baker Tilly US, LLP trading as Baker Tilly, is a member of the global network of Baker Tilly International Ltd., the members of which are separate and independent legal entities. © 2021 Baker Tilly Municipal Advisors, LLC. Page 5 $14,460,000 City of Elk River, Minnesota Electric Revenue Bonds, Series 2021B Issue Summary Sources & Uses Dated 05/13/2021 | Delivered 05/13/2021 Sources Of Funds Par Amount of Bonds.........................................................................................................................................$14,460,000.00 Total Sources...................................................................................................................................................$14,460,000.00 Uses Of Funds Deposit to Project Construction Fund...................................................................................................................13,500,000.00 Deposit to Debt Service Reserve Fund (DSRF)......................................................................................................640,134.56 Total Underwriter's Discount (1.600%).................................................................................................................231,360.00 Costs of Issuance..............................................................................................................................................85,000.00 Rounding Amount..............................................................................................................................................3,505.44 Total Uses........................................................................................................................................................$14,460,000.00 File | Working Elk River MN.sf | 2021 Electric Rev Bonds 3 | SINGLE PURPOSE | 1/22/2021 | 1:45 PM Page 6 $14,460,000 City of Elk River, Minnesota Electric Revenue Bonds, Series 2021B Issue Summary DEBT SERVICE SCHEDULE Date Principal Coupon Interest Total P+I 08/01/2021 ---- 02/01/2022 --191,882.13 191,882.13 08/01/2022 335,000.00 0.500%133,871.25 468,871.25 02/01/2023 --133,033.75 133,033.75 08/01/2023 395,000.00 0.550%133,033.75 528,033.75 02/01/2024 --131,947.50 131,947.50 08/01/2024 395,000.00 0.600%131,947.50 526,947.50 02/01/2025 --130,762.50 130,762.50 08/01/2025 400,000.00 0.650%130,762.50 530,762.50 02/01/2026 --129,462.50 129,462.50 08/01/2026 400,000.00 0.750%129,462.50 529,462.50 02/01/2027 --127,962.50 127,962.50 08/01/2027 405,000.00 0.850%127,962.50 532,962.50 02/01/2028 --126,241.25 126,241.25 08/01/2028 410,000.00 1.000%126,241.25 536,241.25 02/01/2029 --124,191.25 124,191.25 08/01/2029 410,000.00 1.150%124,191.25 534,191.25 02/01/2030 --121,833.75 121,833.75 08/01/2030 415,000.00 1.350%121,833.75 536,833.75 02/01/2031 --119,032.50 119,032.50 08/01/2031 420,000.00 1.550%119,032.50 539,032.50 02/01/2032 --115,777.50 115,777.50 08/01/2032 430,000.00 1.700%115,777.50 545,777.50 02/01/2033 --112,122.50 112,122.50 08/01/2033 435,000.00 1.750%112,122.50 547,122.50 02/01/2034 --108,316.25 108,316.25 08/01/2034 445,000.00 1.850%108,316.25 553,316.25 02/01/2035 --104,200.00 104,200.00 08/01/2035 450,000.00 1.900%104,200.00 554,200.00 02/01/2036 --99,925.00 99,925.00 08/01/2036 460,000.00 2.000%99,925.00 559,925.00 02/01/2037 --95,325.00 95,325.00 08/01/2037 470,000.00 2.050%95,325.00 565,325.00 02/01/2038 --90,507.50 90,507.50 08/01/2038 480,000.00 2.050%90,507.50 570,507.50 02/01/2039 --85,587.50 85,587.50 08/01/2039 490,000.00 2.050%85,587.50 575,587.50 02/01/2040 --80,565.00 80,565.00 08/01/2040 500,000.00 2.100%80,565.00 580,565.00 02/01/2041 --75,315.00 75,315.00 08/01/2041 510,000.00 2.150%75,315.00 585,315.00 02/01/2042 --69,832.50 69,832.50 08/01/2042 520,000.00 2.300%69,832.50 589,832.50 02/01/2043 --63,852.50 63,852.50 08/01/2043 535,000.00 2.300%63,852.50 598,852.50 02/01/2044 --57,700.00 57,700.00 08/01/2044 545,000.00 2.300%57,700.00 602,700.00 02/01/2045 --51,432.50 51,432.50 08/01/2045 560,000.00 2.300%51,432.50 611,432.50 02/01/2046 --44,992.50 44,992.50 08/01/2046 570,000.00 2.300%44,992.50 614,992.50 02/01/2047 --38,437.50 38,437.50 08/01/2047 585,000.00 2.500%38,437.50 623,437.50 02/01/2048 --31,125.00 31,125.00 08/01/2048 600,000.00 2.500%31,125.00 631,125.00 02/01/2049 --23,625.00 23,625.00 08/01/2049 615,000.00 2.500%23,625.00 638,625.00 02/01/2050 --15,937.50 15,937.50 08/01/2050 630,000.00 2.500%15,937.50 645,937.50 02/01/2051 --8,062.50 8,062.50 08/01/2051 645,000.00 2.500%8,062.50 653,062.50 Total $14,460,000.00 -$5,359,965.88 $19,819,965.88 SIGNIFICANT DATES Dated Date..........................................................................................................................................................5/13/2021 Delivery Date.......................................................................................................................................................5/13/2021 First Coupon Date................................................................................................................................................2/01/2022 Yield Statistics Bond Year Dollars................................................................................................................................................$247,858.00 Average Life........................................................................................................................................................17.141 Years Average Coupon..................................................................................................................................................2.1625148% Net Interest Cost (NIC).........................................................................................................................................2.2558585% True Interest Cost (TIC)........................................................................................................................................2.2498337% Bond Yield for Arbitrage Purposes.........................................................................................................................2.1335381% All Inclusive Cost (AIC).........................................................................................................................................2.2932331% IRS Form 8038 Net Interest Cost.................................................................................................................................................2.1625148% Weighted Average Maturity...................................................................................................................................17.141 Years File | Working Elk River MN.sf | 2021 Electric Rev Bonds 3 | SINGLE PURPOSE | 1/22/2021 | 1:45 PM Page 7 $14,460,000 City of Elk River, Minnesota Electric Revenue Bonds, Series 2021B Issue Summary Proof of Reserve Fund Requirement Date Principal Interest Existing D/S TOTAL P+I 08/01/2021 --490,090.63 490,090.63 08/01/2022 335,000.00 325,753.38 1,489,081.25 2,149,834.63 08/01/2023 395,000.00 266,067.50 1,240,531.25 1,901,598.75 08/01/2024 395,000.00 263,895.00 1,240,906.25 1,899,801.25 08/01/2025 400,000.00 261,525.00 1,240,331.25 1,901,856.25 08/01/2026 400,000.00 258,925.00 1,246,431.25 1,905,356.25 08/01/2027 405,000.00 255,925.00 1,249,031.25 1,909,956.25 08/01/2028 410,000.00 252,482.50 1,245,881.25 1,908,363.75 08/01/2029 410,000.00 248,382.50 1,243,881.25 1,902,263.75 08/01/2030 415,000.00 243,667.50 1,250,512.50 1,909,180.00 08/01/2031 420,000.00 238,065.00 1,245,531.25 1,903,596.25 08/01/2032 430,000.00 231,555.00 1,244,118.75 1,905,673.75 08/01/2033 435,000.00 224,245.00 1,246,162.50 1,905,407.50 08/01/2034 445,000.00 216,632.50 1,240,656.25 1,902,288.75 08/01/2035 450,000.00 208,400.00 1,243,456.25 1,901,856.25 08/01/2036 460,000.00 199,850.00 1,249,906.25 1,909,756.25 08/01/2037 470,000.00 190,650.00 560,706.25 1,221,356.25 08/01/2038 480,000.00 181,015.00 561,106.25 1,222,121.25 08/01/2039 490,000.00 171,175.00 560,906.25 1,222,081.25 08/01/2040 500,000.00 161,130.00 562,081.25 1,223,211.25 08/01/2041 510,000.00 150,630.00 562,731.25 1,223,361.25 08/01/2042 520,000.00 139,665.00 562,856.25 1,222,521.25 08/01/2043 535,000.00 127,705.00 562,456.25 1,225,161.25 08/01/2044 545,000.00 115,400.00 561,531.25 1,221,931.25 08/01/2045 560,000.00 102,865.00 559,493.75 1,222,358.75 08/01/2046 570,000.00 89,985.00 561,912.50 1,221,897.50 08/01/2047 585,000.00 76,875.00 563,606.25 1,225,481.25 08/01/2048 600,000.00 62,250.00 559,575.00 1,221,825.00 08/01/2049 615,000.00 47,250.00 -662,250.00 08/01/2050 630,000.00 31,875.00 -661,875.00 08/01/2051 645,000.00 16,125.00 -661,125.00 Total $14,460,000.00 $5,359,965.88 $26,145,471.88 $45,965,437.76 PROOF OF RESERVE FUND MAXIMUM PERIODIC DEBT SERVICE Omit First Period?...............................................................................................................................................Yes 100 % of the Maximum Periodic Debt Service........................................................................................................1,909,956.25 AVERAGE PERIODIC DEBT SERVICE Total P+I............................................................................................................................................................45,965,437.76 Bond Years (Delivery Date)..................................................................................................................................30.22 125 % of the Average Periodic Debt Service..........................................................................................................1,901,493.56 PERCENT OF PAR Existing Par.......................................................................................................................................................21,125,000.00 Total Par (Existing + New)...................................................................................................................................35,585,000.00 10 % of Par........................................................................................................................................................3,558,500.00 RESERVE REQUIREMENT Computed Requirement.......................................................................................................................................640,134.56 Proof's Requirement............................................................................................................................................1,901,493.56 Portion of reserve requirement funded externally.....................................................................................................1,261,359.00 Lowest Requirement less external funding.............................................................................................................640,134.56 2021 Electric Rev Bonds 3 | SINGLE PURPOSE | 3/ 1/2021 | 1:28 PM Page 8 $14,460,000 City of Elk River, Minnesota Electric Revenue Bonds, Series 2021B Coverage Ratio and Additional Bonds Test Date Net Electric Fund Revenues Total Electric Parity Debt Service Coverage 08/01/2021 -490,090.63 - 08/01/2022 7,123,454.00 2,149,834.63 3.3134893x 08/01/2023 7,123,454.00 1,901,598.75 3.7460342x 08/01/2024 7,123,454.00 1,899,801.25 3.7495785x 08/01/2025 7,123,454.00 1,901,856.25 3.7455270x 08/01/2026 7,123,454.00 1,905,356.25 3.7386468x 08/01/2027 7,123,454.00 1,909,956.25 3.7296425x 08/01/2028 7,123,454.00 1,908,363.75 3.7327548x 08/01/2029 7,123,454.00 1,902,263.75 3.7447247x 08/01/2030 7,123,454.00 1,909,180.00 3.7311589x 08/01/2031 7,123,454.00 1,903,596.25 3.7421034x 08/01/2032 7,123,454.00 1,905,673.75 3.7380239x 08/01/2033 7,123,454.00 1,905,407.50 3.7385462x 08/01/2034 7,123,454.00 1,902,288.75 3.7446755x 08/01/2035 7,123,454.00 1,901,856.25 3.7455270x 08/01/2036 7,123,454.00 1,909,756.25 3.7300331x 08/01/2037 7,123,454.00 1,221,356.25 5.8324129x 08/01/2038 7,123,454.00 1,222,121.25 5.8287621x 08/01/2039 7,123,454.00 1,222,081.25 5.8289529x 08/01/2040 7,123,454.00 1,223,211.25 5.8235681x 08/01/2041 7,123,454.00 1,223,361.25 5.8228540x 08/01/2042 7,123,454.00 1,222,521.25 5.8268550x 08/01/2043 7,123,454.00 1,225,161.25 5.8142991x 08/01/2044 7,123,454.00 1,221,931.25 5.8296684x 08/01/2045 7,123,454.00 1,222,358.75 5.8276296x 08/01/2046 7,123,454.00 1,221,897.50 5.8298294x 08/01/2047 7,123,454.00 1,225,481.25 5.8127809x 08/01/2048 7,123,454.00 1,221,825.00 5.8301754x 08/01/2049 7,123,454.00 662,250.00 10.7564424x 08/01/2050 7,123,454.00 661,875.00 10.7625367x 08/01/2051 7,763,588.56 661,125.00 11.7429965x Total $214,343,754.56 $45,965,437.76 - 2019 Net Revenues Available for Debt Service* 38,094,633$ (34,555,086) 3,539,547$ 2,856,258 727,649 7,123,454$ 470% *Source: City of Elk River Comprehensive Annual Financial Report 2019. The 2020 Comprehensive Annual Financial Report is not yet available. 2021 Electric Rev Bonds 3 | SINGLE PURPOSE | 3/ 1/2021 | 2:14 PM Additional Bonds Test Average Annual Debt Service Operating Revenue Operating Expense Net Operating Income (Loss) Add Back Depreciation Add Other Income Page 9 $14,460,000 City of Elk River, Minnesota Electric Revenue Bonds Aggregate Electric Parity Debt Service Including the Bonds Calendar Year Series 2016B Series 2016A Series 2018A Series 2021B TOTAL Projected 2021 4,800.00 110,912.50 374,378.13 -490,090.63 2022 244,800.00 684,775.00 559,506.25 660,753.38 2,149,834.63 2023 -680,525.00 560,006.25 661,067.50 1,901,598.75 2024 -680,900.00 560,006.25 658,895.00 1,899,801.25 2025 -680,825.00 559,506.25 661,525.00 1,901,856.25 2026 -682,925.00 563,506.25 658,925.00 1,905,356.25 2027 -687,275.00 561,756.25 660,925.00 1,909,956.25 2028 -686,375.00 559,506.25 662,482.50 1,908,363.75 2029 -684,575.00 559,306.25 658,382.50 1,902,263.75 2030 -686,806.25 563,706.25 658,667.50 1,909,180.00 2031 -683,025.00 562,506.25 658,065.00 1,903,596.25 2032 -683,212.50 560,906.25 661,555.00 1,905,673.75 2033 -682,256.25 563,906.25 659,245.00 1,905,407.50 2034 -679,350.00 561,306.25 661,632.50 1,902,288.75 2035 -680,150.00 563,306.25 658,400.00 1,901,856.25 2036 -690,200.00 559,706.25 659,850.00 1,909,756.25 2037 --560,706.25 660,650.00 1,221,356.25 2038 --561,106.25 661,015.00 1,222,121.25 2039 --560,906.25 661,175.00 1,222,081.25 2040 --562,081.25 661,130.00 1,223,211.25 2041 --562,731.25 660,630.00 1,223,361.25 2042 --562,856.25 659,665.00 1,222,521.25 2043 --562,456.25 662,705.00 1,225,161.25 2044 --561,531.25 660,400.00 1,221,931.25 2045 --559,493.75 662,865.00 1,222,358.75 2046 --561,912.50 659,985.00 1,221,897.50 2047 --563,606.25 661,875.00 1,225,481.25 2048 --559,575.00 662,250.00 1,221,825.00 2049 ---662,250.00 662,250.00 2050 ---661,875.00 661,875.00 2051 ---661,125.00 661,125.00 -$491,750.00 $10,928,900.00 $15,721,162.50 $19,819,965.88 $45,475,347.13 Average Annual Debt Service $1,515,845 Par Amounts Of Selected Issues 2016B….................................................................................................................................................1,370,000.00 2016A ...................................................................................................................................................9,755,000.00 2018A ...................................................................................................................................................10,000,000.00 2021B ...................................................................................................................................................14,460,000.00 TOTAL...................................................................................................................................................35,585,000.00 Aggregate | 1/20/2021 | 12:30 PM EXTRACT OF MINUTES OF A MEETING OF THE CITY COUNCIL OF THE CITY OF ELK RIVER, MINNESOTA HELD: March 15, 2021 Pursuant to due call and notice thereof, a regular meeting of the City Council of the City of Elk River, Minnesota, was duly called and held at the City Hall in the City on the 15th day of March, 2021, at 6:00 P.M. The following members were present: and the following were absent: Member _______________________ introduced the following resolution and moved its adoption: RESOLUTION PROVIDING FOR THE COMPETITIVE NEGOTIATED SALE OF $5,225,000 GENERAL OBLIGATION GENERAL OBLIGATION CAPITAL IMPROVEMENT PLAN AND EQUIPMENT BONDS, SERIES 2021A BE IT RESOLVED by the City Council of the City of Elk River, Minnesota, as follows: 1. Finding; Amount and Purpose. It is hereby found, determined and declared that the City of Elk River, Minnesota (the “City”), should issue $5,225,000 General Obligation General Obligation Capital Improvement Plan and Equipment Bonds, Series 2021A, to finance (i) construction of various capital improvements identified in the City’s 2020-2025 Capital Improvement Plan adopted November 2, 2020, and (ii) the acquisition of capital equipment. 2. Meeting. This City Council shall meet on the date and at the time and place specified in the form of Terms of Proposal attached hereto as Exhibit A for the purpose of awarding the sale of the Bonds. 3. Competitive Negotiated Sale. The City has retained Baker Tilly Municipal Advisors, LLC (“Baker Tilly MA”) as an independent municipal advisor, and the City Council hereby determines to sell the Bonds by private negotiation, by way of a competitive sale in response to Terms of Proposal for the Bonds which are not published in any newspaper or journal. 4. Terms of Proposal. The terms and conditions of the Bonds and the sale thereof are fully set forth in the “Terms of Proposal” attached hereto as Exhibit A and hereby made a part hereof, provided that the Bonds may be issued in one or more series. EL185-65-699635.v1 5. Official Statement. The City Finance Director and other officers or employees of the City are hereby authorized to participate with Baker Tilly MA in the preparation of an official statement for the Bonds. The motion for the adoption of the foregoing resolution was duly seconded by member _______________ and, after full discussion thereof and upon a vote being taken thereon, the following voted in favor thereof: and the following voted against the same: Whereupon said resolution was declared duly passed and adopted. 2 EL185-65-699635.v1 STATE OF MINNESOTA ) CITY OF ELK RIVER ) SS. SHERBURNE COUNTY ) I, the undersigned, being the duly qualified and acting Clerk of the City of Elk River, Minnesota (the “City”), DO HEREBY CERTIFY that I have carefully compared the attached and foregoing extract of minutes with the original minutes of a meeting of the City Council called and held on the date therein indicated, which are on file and of record in my office, and the same is a full, true and complete transcript therefrom insofar as the same relates to the City’s $5,225,000 General Obligation Capital Improvement Plan and Equipment Bonds, Series 2021A. WITNESS my hand as such Clerk of the City this ____ day of ____________, 2021. _______________________________________ City Clerk S-1 EL185-65-699635.v1 EXHIBIT A THE CITY HAS AUTHORIZED BAKER TILLY MUNICIPAL ADVISORS, LLC TO NEGOTIATE THIS ISSUE ON ITS BEHALF. PROPOSALS WILL BE RECEIVED ON THE FOLLOWING BASIS: TERMS OF PROPOSAL $5,225,000* CITY OF ELK RIVER, MINNESOTA GENERAL OBLIGATION CAPITAL IMPROVEMENT PLAN AND EQUIPMENT BONDS, SERIES 2021A (BOOK ENTRY ONLY) Proposals for the above-referenced obligations (the “Bonds”) will be received by the City of Elk River, Minnesota (the “City”) on Monday, April 19, 2021 (the “Sale Date”) until 10:30 A.M., Central Time (the “Sale Time”) at the offices of Baker Tilly Municipal Advisors, LLC (“Baker Tilly MA”), 380 Jackson Street, Suite 300, Saint Paul, Minnesota, 55101, after which time proposals will be opened and tabulated. Consideration for award of the Bonds will be by the City Council at its meeting commencing at 6:30 P.M., Central Time, of the same day. SUBMISSION OF PROPOSALS Baker Tilly MA will assume no liability for the inability of a bidder or its proposal to reach Baker Tilly MA prior to the Sale Time, and neither the City nor Baker Tilly MA shall be responsible for any failure, misdirection or error in the means of transmission selected by any bidder. All bidders are advised that each proposal shall be deemed to constitute a contract between the bidder and the City to purchase the Bonds regardless of the manner in which the proposal is submitted. (a) Sealed Bidding. Completed, signed proposals may be submitted to Baker Tilly MA by email to bondservice@bakertilly.com or by fax (651) 223-3046, and must be received prior to the Sale Time. OR ® (b) Electronic Bidding. Proposals may also 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, its agents, nor PARITY shall have any duty or obligation to undertake registration to bid for any prospective bidder or to provide or ensure electronic access to any qualified prospective bidder, and neither the City, 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 Bonds, and PARITY is not an agent of the City. ® 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: ®nd PARITY, 1359 Broadway, 2 Floor, New York, New York 10018 Customer Support: (212) 849-5000 * Preliminary; subject to change. Baker Tilly Municipal Advisors, LLC is a registered municipal advisor and controlled subsidiary of Baker Tilly US, LLP, an accounting firm. Baker Tilly US, LLP trading as Baker Tilly is a member of the global network of Baker Tilly International Ltd., the members of which are separate and independent legal entities. © 2021 Baker Tilly Municipal Advisors, LLC. A-1 DETAILS OF THE BONDS The Bonds will be dated as of the date of delivery and will bear interest payable on February 1 and August 1 of each year, commencing February 1, 2022. The Bonds will mature February 1 in the years and amounts* as follows: 2023 $310,000 2027 $315,000 2032 $195,000 2037 $210,000 2042 $230,000 2024 $315,000 2028 $325,000 2033 $200,000 2038 $215,000 2029 $325,000 2034 $200,000 2039 $220,000 2025 $315,000 2030 $330,000 2035 $205,000 2040 $225,000 2026 $315,000 2031 $335,000 2036 $210,000 2041 $230,000 * The City reserves the right, after proposals are opened and prior to award, to increase or reduce the principal amount of the Bonds or the amount of any maturity or maturities in multiples of $5,000. In the event the amount of any maturity is modified, the aggregate purchase price will be adjusted to result in the same gross spread per $1,000 of Bonds as that of the original proposal. Gross spread for this purpose is the differential between the price paid to the City for the new issue and the prices at which the proposal indicates the securities will be initially offered to the investing public. Proposals for the Bonds may contain a maturity schedule providing for a combination of serial bonds and term bonds. All term bonds shall be subject to mandatory sinking fund redemption at a price of par plus accrued interest to the date of redemption scheduled to conform to the maturity schedule set forth above. In order to designate term bonds, the proposal must specify “Years of Term Maturities” in the spaces provided on the proposal form. BOOK ENTRY SYSTEM The Bonds will be issued by means of a book entry system with no physical distribution of Bonds made to the public. The Bonds will be issued in fully registered form and one Bond, representing the aggregate principal amount of the Bonds maturing in each year, will be registered in the name of Cede & Co. as nominee of The Depository Trust Company (“DTC”), New York, New York, which will act as securities depository for the Bonds. Individual purchases of the Bonds may be made in the principal amount of $5,000 or any multiple thereof of a single maturity through book entries made on the books and records of DTC and its participants. Principal and interest are payable by the registrar to DTC or its nominee as registered owner of the Bonds. Transfer of principal and interest payments to participants of DTC will be the responsibility of DTC; transfer of principal and interest payments to beneficial owners by participants will be the responsibility of such participants and other nominees of beneficial owners. The lowest bidder (the “Purchaser”), as a condition of delivery of the Bonds, will be required to deposit the Bonds with DTC. REGISTRAR The City will name the registrar which shall be subject to applicable regulations of the Securities and Exchange Commission. The City will pay for the services of the registrar. OPTIONAL REDEMPTION The City may elect on February 1, 2031, and on any day thereafter, to redeem Bonds due on or after February 1, 2032. 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 Bonds of a maturity are called for redemption, the City will notify DTC of the particular amount of such maturity to be redeemed. 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 redemptions shall be at a price of par plus accrued interest. A-2 SECURITY AND PURPOSE The Bonds will be general obligations of the City for which the City will pledge its full faith and credit and power to levy direct general ad valorem taxes. The proceeds of the Bonds will be used to finance (i) construction of various capital improvements identified in the City’s 2020-2025 Capital Improvement Plan adopted November 2, 2020, and (ii) the purchase of capital equipment. BANK QUALIFIED TAX-EXEMPT OBLIGATIONS The City will designate the Bonds as qualified tax-exempt obligations for purposes of Section 265(b)(3) of the Internal Revenue Code of 1986, as amended. BIDDING PARAMETERS Proposals shall be for not less than $5,162,300 plus accrued interest, if any, on the total principal amount of the Bonds. No proposal can be withdrawn or amended after the time set for receiving proposals on the Sale Date unless the meeting of the City scheduled for award of the Bonds is adjourned, recessed, or continued to another date without award of the Bonds having been made. Rates shall be in integral multiples of 1/100 or 1/8 of 1%. The initial price to the public for each maturity as stated on the proposal must be 98.0% or greater. Bonds of the same maturity shall bear a single rate from the date of the Bonds to the date of maturity. No conditional proposals will be accepted. ESTABLISHMENT OF ISSUE PRICE In order to provide the City with information necessary for compliance with Section 148 of the Internal Revenue Code of 1986, as amended, and the Treasury Regulations promulgated thereunder (collectively, the “Code”), the Purchaser will be required to assist the City in establishing the issue price of the Bonds and shall complete, execute, and deliver to the City prior to the closing date, a written certification in a form acceptable to the Purchaser, the City, and Bond Counsel (the “Issue Price Certificate”) containing the following for each maturity of the Bonds (and, if different interest rates apply within a maturity, to each separate CUSIP number within that maturity): (i) the interest rate; (ii) the reasonably expected initial offering price to the “public” (as said term is defined in Treasury Regulation Section 1.148-1(f) (the “Regulation”)) or the sale price; and (iii) pricing wires or equivalent communications supporting such offering or sale price. Any action to be taken or documentation to be received by the City pursuant hereto may be taken or received on behalf of the City by Baker Tilly MA. The City intends that the sale of the Bonds pursuant to this Terms of Proposal shall constitute a “competitive sale” as defined in the Regulation based on the following: (i) the City shall cause this Terms of Proposal to be disseminated to potential bidders in a manner that is reasonably designed to reach potential bidders; (ii) all bidders shall have an equal opportunity to submit a bid; (iii) the City reasonably expects that it will receive bids from at least three bidders that have established industry reputations for underwriting municipal bonds such as the Bonds; and (iv) the City anticipates awarding the sale of the Bonds to the bidder who provides a proposal with the lowest true interest cost, as set forth in this Terms of Proposal (See “AWARD” herein). Any bid submitted pursuant to this Terms of Proposal shall be considered a firm offer for the purchase of the Bonds, as specified in the proposal. The Purchaser shall constitute an “underwriter” as said term is defined in the Regulation. By submitting its proposal, the Purchaser confirms that it shall require any agreement among underwriters, a selling group agreement, or other agreement to which it is a party relating to the initial sale of the Bonds, to include provisions requiring compliance with the provisions of the Code and the Regulation regarding the initial sale of the Bonds. A-3 EL185-65-699635.v1 If all of the requirements of a “competitive sale” are not satisfied, the City shall advise the Purchaser of such fact prior to the time of award of the sale of the Bonds to the Purchaser. In such event, any proposal submitted will not be subject to cancellation or withdrawal. Within twenty-four (24) hours of the notice of award of the sale of the Bonds, the Purchaser shall advise the City and Baker Tilly MA if 10% of any maturity of the Bonds (and, if different interest rates apply within a maturity, to each separate CUSIP number within that maturity) has been sold to the public and the price at which it was sold. The City will treat such sale price as the “issue price” for such maturity, applied on a maturity-by-maturity basis. The City will not require the Purchaser to comply with that portion of the Regulation commonly described as the “hold-the-offering-price” requirement for the remaining maturities, but the Purchaser may elect such option. If the Purchaser exercises such option, the City will apply the initial offering price to the public provided in the proposal as the issue price for such maturities. If the Purchaser does not exercise that option, it shall thereafter promptly provide the City and Baker Tilly MA the prices at which 10% of such maturities are sold to the public; provided such determination shall be made and the City and Baker Tilly MA notified of such prices whether or not the closing date has occurred, until the 10% test has been satisfied as to each maturity of the Bonds or until all of the Bonds of a maturity have been sold. GOOD FAITH DEPOSIT To have its proposal considered for award, the Purchaser is required to submit a good faith deposit via wire transfer to the City in the amount of $52,250 (the “Deposit”) no later than 1:30 P.M., Central Time on the Sale Date. The Purchaser shall be solely responsible for the timely delivery of its Deposit, and neither the City nor Baker Tilly MA 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. A Deposit 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 Baker Tilly MA 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 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 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. The City's computation of the interest rate of each proposal, in accordance with customary practice, will be controlling. The City will reserve the right to: (i) waive non-substantive informalities of any proposal or of matters relating to the receipt of proposals and award of the Bonds, (ii) reject all proposals without cause, and (iii) reject any proposal that the City determines to have failed to comply with the terms herein. BOND INSURANCE AT PURCHASER'S OPTION The City has not applied for or pre-approved a commitment for any policy of municipal bond insurance with respect to the Bonds. If the Bonds qualify for municipal bond insurance and a bidder desires to purchase a policy, such indication, the maturities to be insured, and the name of the desired insurer must be set forth on the bidder’s proposal. The City 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. All costs associated with the issuance and administration of such policy and associated ratings and expenses (other than any independent rating requested by the City) shall be paid by the successful bidder. Failure of the municipal bond insurer to issue the policy after the award of the Bonds shall not constitute cause for failure or refusal by the successful bidder to accept delivery of the Bonds. A-4 EL185-65-699635.v1 CUSIP NUMBERS If the Bonds qualify for the assignment of CUSIP numbers such numbers will be printed on the Bonds; however, neither the failure to print such numbers on any Bond nor any error with respect thereto will constitute cause for failure or refusal by the Purchaser to accept delivery of the Bonds. Baker Tilly MA will apply for CUSIP numbers pursuant to Rule G-34 implemented by the Municipal Securities Rulemaking Board. The CUSIP Service Bureau charge for the assignment of CUSIP identification numbers shall be paid by the Purchaser. SETTLEMENT On or about May 20, 2021, the Bonds will be delivered without cost to the Purchaser through DTC in New York, New York. Delivery will be subject to receipt by the Purchaser of an approving legal opinion of Kennedy & Graven, Chartered of Minneapolis, Minnesota, and of customary closing papers, including a no-litigation certificate. On the date of settlement, payment for the Bonds shall be made in federal, or equivalent, funds that shall be received at the offices of the City or its designee not later than 12:00 Noon, Central Time. Unless compliance with the terms of payment for the Bonds has been made impossible by action of the City, 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 will undertake, pursuant to the resolution awarding sale of the Bonds to provide annual reports and notices of certain events. A description of this undertaking is set forth in the Official Statement. The Purchaser's obligation to purchase the Bonds will be conditioned upon receiving evidence of this undertaking at or prior to delivery of the Bonds. OFFICIAL STATEMENT The City has authorized the preparation of a Preliminary Official Statement containing pertinent information relative to the Bonds, and said Preliminary Official Statement has been deemed final by the City as of the date thereof within the meaning of Rule 15c2-12 of the Securities and Exchange Commission. For an electronic copy 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, Baker Tilly Municipal Advisors, LLC, by telephone (651) 223-3000, or by email bondservice@bakertilly.com. The Preliminary Official Statement will also be made available at https://connect.bakertilly.com/bond-sales-calendar. A Final Official Statement (as that term is defined in Rule 15c2-12) will be prepared, specifying the maturity dates, principal amounts, and interest rates of the Bonds, together with any other information required by law. By awarding the Bonds to the Purchaser, the City agrees that, no more than seven business days after the date of such award, it shall provide to the Purchaser an electronic copy of the Final Official Statement. The City designates the Purchaser as its agent for purposes of distributing the Final Official Statement to each syndicate member, if applicable. The Purchaser agrees that if its proposal is accepted by the City, (i) it shall accept designation and (ii) it shall enter into a contractual relationship with its syndicate members for purposes of assuring the receipt of the Final Official Statement by each such syndicate member. Dated March 15, 2021 BY ORDER OF THE CITY COUNCIL /s/ Tina Allard City Clerk A-5 EL185-65-699635.v1 EXTRACT OF MINUTES OF MEETING OF THE CITY COUNCIL OF THE CITY OF ELK RIVER, MINNESOTA HELD: March 15, 2021 Pursuant to due call and notice thereof, a regular meeting of the City Council of the City of Elk River, Minnesota, was duly called and held at the City Hall in the City on the 15th day of March, 2021, at 6:00 P.M. The following members were present: and the following were absent: Member ____________ introduced the following resolution and moved its adoption: RESOLUTION APPROVING THE ISSUANCE OF ELECTRIC REVENUE BONDS, AND AUTHORIZING CERTAIN OTHER ACTIONS TO BE TAKEN BY THE ELK RIVER MUNICIPAL UTILITIES COMMISSION WITH RESPECT TO THE ISSUANCE OF ELECTRIC REVENUE BONDS, SERIES 2021B BE IT RESOLVED by the City Council of the City of Elk River (the “City”), Minnesota, as follows: 1. Authority. The City is authorized by Minnesota Statutes, Chapter 453, as amended (the “Electric Utility Act”), to issue bonds to finance the acquisition or construction of any plant, works, system, facilities, and real and personal property of any nature, together with all parts thereof and appurtenances thereto, used or useful in the generation, production, transmission, purchase, sale, exchange, or interchange of electric energy or any interest therein or capacity thereof. Rents, rates, and charges may be established, levied, and collected in connection with the electric utility system of the Elk River Municipal Utilities Commission (the “Commission”) and may be pledged to the payment of the principal of and interest on bonds issued by the City for the benefit of the Commission, including bonds issued to finance the electric utility system of the Commission. 2. Terms of Proposal. The City proposes to issue and the Commission proposes to offer and sell Electric Revenue Bonds, Series 2021B (the “Bonds”), in an aggregate principal amount not to exceed $14,460,000 plus the amount of any premium, to finance the construction of a field house facility to house service trucks, inventory, and offices and pay the costs of issuing the Bonds. The terms and conditions of the Bonds and the negotiation thereof are fully set forth in the “Terms of Proposal” attached hereto as Exhibit A and hereby approved and made a part hereof. The Bonds shall be special obligations of the City payable solely from the net revenues of the electric utility 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. EL185-68-699667.v2 3. Terms of Sale. The City hereby approves the issuance of the Bonds and Terms of Proposal and delegates to the Commission the authority to award the sale of the Bonds in an aggregate principal amount not to exceed $14,460,000 plus the amount of any premium. The resolution of the Commission awarding the sale of the Bonds, fixing the form and details of the Bonds, establishing the terms of the Bonds and the security therefor, and providing for the execution and delivery of the Bonds shall have the same force and effect as if such resolution had been adopted by this Council. 4. No Designation of Qualified Tax-Exempt Obligations. The Bonds will not be designated as a “qualified tax-exempt obligation” within the meaning of Section 265(b)(3) of the Code. 5. Consultants. This Council hereby approves the selection of Baker Tilly Municipal Advisors, LLC, in Saint Paul, Minnesota (“Baker Tilly”), as municipal advisor to the City and the Commission, to assist in the offer and sale of the Bonds, and hereby approves the selection of Kennedy & Graven, Chartered, as bond counsel to the City and the Commission, to render an approving legal opinion with respect to the Bonds. 6. Continuing Disclosure. The City and the Commission will enter into a Continuing Disclosure Certificate (the “Certificate”), dated the date of closing, a form of which is on file with the City. The Mayor and City Clerk of the City are hereby authorized to sign the Certificate. 7. Official Statement. In connection with said competitive negotiated sale, the Finance Manager and other officers or employees of the Commission and the officers or employees of the City are hereby authorized to cooperate with Baker Tilly and participate in the preparation of an official statement for the Bonds, and to execute and deliver it on behalf of the Commission and the City upon its completion. The motion for the adoption of the foregoing resolution was duly seconded by member _____________ and, after full discussion thereof and upon a vote being taken thereon, the following voted in favor thereof: and the following voted against the same: Whereupon said resolution was declared duly passed and adopted. 2 EL185-68-699667.v2 STATE OF MINNESOTA ) COUNTY OF SHERBURNE ) CITY OF ELK RIVER ) I, the undersigned, being the duly qualified and acting Clerk of the City of Elk River, Minnesota, DO HEREBY CERTIFY that I have compared the attached and foregoing extract of minutes with the original thereof on file in my office, and that the same is a full, true and complete transcript of the minutes of a meeting of the City Council, duly called and held on the date therein indicated, insofar as such minutes relate to the Electric Revenue Bonds, Series 2021B. WITNESS my hand this _____ day of ___________________, 2021. Clerk EL185-68-699667.v2 EXHIBIT A THE CITY HAS AUTHORIZED BAKER TILLY MUNICIPAL ADVISORS, LLC TO NEGOTIATE THIS ISSUE ON ITS BEHALF. PROPOSALS WILL BE RECEIVED ON THE FOLLOWING BASIS: TERMS OF PROPOSAL $14,460,000* CITY OF ELK RIVER, MINNESOTA ELECTRIC REVENUE BONDS, SERIES 2021B (BOOK ENTRY ONLY) Proposals for the above-referenced Bonds (the “Bonds”) will be received by the City of Elk River, Minnesota (the “City”) on Tuesday, April 13, 2021 (the “Sale Date”) until 10:30 A.M., Central Time (the “Sale Time”) at the offices of Baker Tilly Municipal Advisors, LLC (“Baker Tilly MA”), 380 Jackson Street, Suite 300, Saint Paul, Minnesota, 55101, after which time proposals will be opened and tabulated. Consideration for award of the Bonds will be by the Utilities Commission (the “Commission”) at its meeting commencing at 3:30 P.M., Central Time, of the same day. SUBMISSION OF PROPOSALS Baker Tilly MA will assume no liability for the inability of a bidder or its proposal to reach Baker Tilly MA prior to the Sale Time, and neither the City nor Baker Tilly MA shall be responsible for any failure, misdirection or error in the means of transmission selected by any bidder. All bidders are advised that each proposal shall be deemed to constitute a contract between the bidder and the City to purchase the Bonds regardless of the manner in which the proposal is submitted. (a) Sealed Bidding. Completed, signed proposals may be submitted to Baker Tilly MA by email to bondservice@bakertilly.com or by fax (651) 223-3046, and must be received prior to the Sale Time. OR ® (b) Electronic Bidding. Proposals may also 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, its agents, nor ® PARITY shall have any duty or 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, 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 Bonds, and PARITY is not an agent of the City. ® 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: ®nd PARITY, 1359 Broadway, 2 Floor, New York, New York 10018 Customer Support: (212) 849-5000 * Preliminary; subject to change. Baker Tilly Municipal Advisors, LLC is a registered municipal advisor and controlled subsidiary of Baker Tilly US, LLP, an accounting firm. Baker Tilly US, LLP trading as Baker Tilly is a member of the global network of Baker Tilly International Ltd., the members of which are separate and independent legal entities. © 2021 Baker Tilly Municipal Advisors, LLC. A-1 EL185-68-699667.v2 DETAILS OF THE BONDS The Bonds will be dated as of the date of delivery and will bear interest payable on February 1 and August 1 of each year, commencing February 1, 2022. Interest will be computed on the basis of a 360- day year of twelve 30-day months. The Bonds will mature August 1 in the years and amounts* as follows: 2022 $335,000 2028 $410,000 2034 $445,000 2040 $500,000 2046 $570,000 2023 $395,000 2029 $410,000 2035 $450,000 2041 $510,000 2047 $585,000 2024 $395,000 2030 $415,000 2036 $460,000 2042 $520,000 2048 $600,000 2025 $400,000 2031 $420,000 2037 $470,000 2043 $535,000 2049 $615,000 2026 $400,000 2032 $430,000 2038 $480,000 2044 $545,000 2050 $630,000 2027 $405,000 2033 $435,000 2039 $490,000 2045 $560,000 2051 $645,000 * The City reserves the right, after proposals are opened and prior to award, to increase or reduce the principal amount of the Bonds or the amount of any maturity or maturities in multiples of $5,000. In the event the amount of any maturity is modified, the aggregate purchase price will be adjusted to result in the same gross spread per $1,000 of Bonds as that of the original proposal. Gross spread for this purpose is the differential between the price paid to the City for the new issue and the prices at which the proposal indicates the securities will be initially offered to the investing public. Proposals for the Bonds may contain a maturity schedule providing for a combination of serial bonds and term bonds. All term bonds shall be subject to mandatory sinking fund redemption at a price of par plus accrued interest to the date of redemption scheduled to conform to the maturity schedule set forth above. In order to designate term bonds, the proposal must specify “Years of Term Maturities” in the spaces provided on the proposal form. BOOK ENTRY SYSTEM The Bonds will be issued by means of a book entry system with no physical distribution of Bonds made to the public. The Bonds will be issued in fully registered form and one Bond, representing the aggregate principal amount of the Bonds maturing in each year, will be registered in the name of Cede & Co. as nominee of The Depository Trust Company (“DTC”), New York, New York, which will act as securities depository for the Bonds. Individual purchases of the Bonds may be made in the principal amount of $5,000 or any multiple thereof of a single maturity through book entries made on the books and records of DTC and its participants. Principal and interest are payable by the registrar to DTC or its nominee as registered owner of the Bonds. Transfer of principal and interest payments to participants of DTC will be the responsibility of DTC; transfer of principal and interest payments to beneficial owners by participants will be the responsibility of such participants and other nominees of beneficial owners. The lowest bidder (the “Purchaser”), as a condition of delivery of the Bonds, will be required to deposit the Bonds with DTC. REGISTRAR The City will name the registrar which shall be subject to applicable regulations of the Securities and Exchange Commission. The City will pay for the services of the registrar. OPTIONAL REDEMPTION The City may elect on February 1, 2031, and on any day thereafter, to redeem Bonds due on or after February 1, 2032. 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 Bonds of a maturity are called for redemption, the City will notify DTC of the particular amount of such maturity to be redeemed. 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 redemptions shall be at a price of par plus accrued interest. A-2 EL185-68-699667.v2 SECURITY AND PURPOSE The Bonds will be special obligations of the City payable solely from net revenues of the electric system of the Commission and shall not constitute a debt for which the full faith and credit or taxing powers of the City will be pledged. The proceeds of the Bonds will be used to finance the construction of a field house facility to house service trucks, inventory, and offices. NOT BANK QUALIFIED TAX-EXEMPT BONDS The City will not designate the Bonds as qualified tax-exempt obligations for purposes of Section 265(b)(3) of the Internal Revenue Code of 1986, as amended. BIDDING PARAMETERS Proposals shall be for not less than $14,228,640 plus accrued interest, if any, on the total principal amount of the Bonds. No proposal can be withdrawn or amended after the time set for receiving proposals on the Sale Date unless the meeting of the City scheduled for award of the Bonds is adjourned, recessed, or continued to another date without award of the Bonds having been made. Rates shall be in integral multiples of 1/100 or 1/8 of 1%. The initial price to the public for each maturity as stated on the proposal must be 98.0% or greater. Bonds of the same maturity shall bear a single rate from the date of the Bonds to the date of maturity. No conditional proposals will be accepted. ESTABLISHMENT OF ISSUE PRICE In order to provide the City with information necessary for compliance with Section 148 of the Internal Revenue Code of 1986, as amended, and the Treasury Regulations promulgated thereunder (collectively, the “Code”), the Purchaser will be required to assist the City in establishing the issue price of the Bonds and shall complete, execute, and deliver to the City prior to the closing date, a written certification in a form acceptable to the Purchaser, the City, and Bond Counsel (the “Issue Price Certificate”) containing the following for each maturity of the Bonds (and, if different interest rates apply within a maturity, to each separate CUSIP number within that maturity): (i) the interest rate; (ii) the reasonably expected initial offering price to the “public” (as said term is defined in Treasury Regulation Section 1.148-1(f) (the “Regulation”)) or the sale price; and (iii) pricing wires or equivalent communications supporting such offering or sale price. Any action to be taken or documentation to be received by the City pursuant hereto may be taken or received on behalf of the City by Baker Tilly MA. The City intends that the sale of the Bonds pursuant to this Terms of Proposal shall constitute a “competitive sale” as defined in the Regulation based on the following: (i) the City shall cause this Terms of Proposal to be disseminated to potential bidders in a manner that is reasonably designed to reach potential bidders; (ii) all bidders shall have an equal opportunity to submit a bid; (iii) the City reasonably expects that it will receive bids from at least three bidders that have established industry reputations for underwriting municipal bonds such as the Bonds; and (iv) the City anticipates awarding the sale of the Bonds to the bidder who provides a proposal with the lowest true interest cost, as set forth in this Terms of Proposal (See “AWARD” herein). Any bid submitted pursuant to this Terms of Proposal shall be considered a firm offer for the purchase of the Bonds, as specified in the proposal. The Purchaser shall constitute an “underwriter” as said term is defined in the Regulation. By submitting its proposal, the Purchaser confirms that it shall require any A-3 EL185-68-699667.v2 agreement among underwriters, a selling group agreement, or other agreement to which it is a party relating to the initial sale of the Bonds, to include provisions requiring compliance with the provisions of the Code and the Regulation regarding the initial sale of the Bonds. If all of the requirements of a “competitive sale” are not satisfied, the City shall advise the Purchaser of such fact prior to the time of award of the sale of the Bonds to the Purchaser. In such event, any proposal submitted will not be subject to cancellation or withdrawal. Within twenty-four (24) hours of the notice of award of the sale of the Bonds, the Purchaser shall advise the City and Baker Tilly MA if 10% of any maturity of the Bonds (and, if different interest rates apply within a maturity, to each separate CUSIP number within that maturity) has been sold to the public and the price at which it was sold. The City will treat such sale price as the “issue price” for such maturity, applied on a maturity-by-maturity basis. The City will not require the Purchaser to comply with that portion of the Regulation commonly described as the “hold-the-offering-price” requirement for the remaining maturities, but the Purchaser may elect such option. If the Purchaser exercises such option, the City will apply the initial offering price to the public provided in the proposal as the issue price for such maturities. If the Purchaser does not exercise that option, it shall thereafter promptly provide the City and Baker Tilly MA the prices at which 10% of such maturities are sold to the public; provided such determination shall be made and the City and Baker Tilly MA notified of such prices whether or not the closing date has occurred, until the 10% test has been satisfied as to each maturity of the Bonds or until all of the Bonds of a maturity have been sold. GOOD FAITH DEPOSIT To have its proposal considered for award, the Purchaser is required to submit a good faith deposit via wire transfer to the City in the amount of $144,600 (the “Deposit”) no later than 1:30 P.M., Central Time on the Sale Date. The Purchaser shall be solely responsible for the timely delivery of its Deposit, and neither the City nor Baker Tilly MA 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. A Deposit 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 Baker Tilly MA 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 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 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. The City's computation of the interest rate of each proposal, in accordance with customary practice, will be controlling. The City will reserve the right to: (i) waive non-substantive informalities of any proposal or of matters relating to the receipt of proposals and award of the Bonds, (ii) reject all proposals without cause, and (iii) reject any proposal that the City determines to have failed to comply with the terms herein. BOND INSURANCE AT PURCHASER'S OPTION A-4 EL185-68-699667.v2 The City has not applied for or pre-approved a commitment for any policy of municipal bond insurance with respect to the Bonds. If the Bonds qualify for municipal bond insurance and a bidder desires to purchase a policy, such indication, the maturities to be insured, and the name of the desired insurer must be set forth on the bidder’s proposal. The City 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. All costs associated with the issuance and administration of such policy and associated ratings and expenses (other than any independent rating requested by the City) shall be paid by the successful bidder. Failure of the municipal bond insurer to issue the policy after the award of the Bonds shall not constitute cause for failure or refusal by the successful bidder to accept delivery of the Bonds. CUSIP NUMBERS If the Bonds qualify for the assignment of CUSIP numbers such numbers will be printed on the Bonds; however, neither the failure to print such numbers on any Bond nor any error with respect thereto will constitute cause for failure or refusal by the Purchaser to accept delivery of the Bonds. Baker Tilly MA will apply for CUSIP numbers pursuant to Rule G-34 implemented by the Municipal Securities Rulemaking Board. The CUSIP Service Bureau charge for the assignment of CUSIP identification numbers shall be paid by the Purchaser. SETTLEMENT On or about May 13, 2021, the Bonds will be delivered without cost to the Purchaser through DTC in New York, New York. Delivery will be subject to receipt by the Purchaser of an approving legal opinion of Kennedy & Graven, Chartered of Minneapolis, Minnesota, and of customary closing papers, including a no-litigation certificate. On the date of settlement, payment for the Bonds shall be made in federal, or equivalent, funds that shall be received at the offices of the City or its designee not later than 12:00 Noon, Central Time. Unless compliance with the terms of payment for the Bonds has been made impossible by action of the City, 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 will undertake, pursuant to the resolution awarding sale of the Bonds, to provide annual reports and notices of certain events. A description of this undertaking is set forth in the Official Statement. The Purchaser's Bond to purchase the Bonds will be conditioned upon receiving evidence of this undertaking at or prior to delivery of the Bonds. OFFICIAL STATEMENT The City has authorized the preparation of a Preliminary Official Statement containing pertinent information relative to the Bonds, and said Preliminary Official Statement has been deemed final by the City as of the date thereof within the meaning of Rule 15c2-12 of the Securities and Exchange Commission. For an electronic copy 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, Baker Tilly Municipal Advisors, LLC, by telephone (651) 223-3000, or by email bondservice@bakertilly.com. The Preliminary Official Statement will also be made available at https://connect.bakertilly.com/bond-sales-calendar. A Final Official Statement (as that term is defined in Rule 15c2-12) will be prepared, specifying the maturity dates, principal amounts, and interest rates of the Bonds, together with any other information required by law. By awarding the Bonds to the Purchaser, the City agrees that, no more than seven business days after the date of such award, it shall provide to the Purchaser an electronic copy of the Final A-5 EL185-68-699667.v2 Official Statement. The City designates the Purchaser as its agent for purposes of distributing the Final Official Statement to each syndicate member, if applicable. The Purchaser agrees that if its proposal is accepted by the City, (i) it shall accept designation and (ii) it shall enter into a contractual relationship with its syndicate members for purposes of assuring the receipt of the Final Official Statement by each such syndicate member. Dated March 9, 2021 BY ORDER OF THE ELK RIVER MUNICIPAL UTILITIES COMMISSION /s/ Melissa Karpinski Finance Manager A-6 EL185-68-699667.v2