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POST ISSUANCE The issuance of these bonds will result in post-issuance compliance responsibilities. The <br />responsibilities are in two primary areas: i) compliance with federal arbitrage requirements <br />COMPLIANCE: <br /> <br />and ii) compliance with secondary disclosure requirements. <br />Federal arbitrage requirements include a wide range of implications that have been taken into <br />account as your issue has been structured. Post-issuance compliance responsibilities for <br />your tax-exempt issue include both rebate and yield restriction provisions of the IRS Code. In <br />general terms the arbitrage requirements control the earnings on unexpended bond <br />proceeds, including investment earnings, moneys held for debt service payments (which are <br />considered to be proceeds under the IRS regulations), and/or reserves. <br />The City expects to meet the 6-month spending exception for the Series 2016A Bonds. <br />Because the Series 2016B Bond refunding transaction is being conducted as a current <br />refunding in which proceeds will be spent within 90 days, the City expects to meet the 6- <br />month spending exception and gross proceeds that meet the test will qualify for an exception <br />to rebate. <br />Yield restriction provisions will apply to the debt service fund and the debt service reserve <br />account and the funds should be monitored throughout the life of the Bonds. <br />Secondary disclosure requirements result from an SEC requirement that underwriters provide <br />ongoing disclosure information to investors. To meet this requirement, any prospective <br />underwriter will require the City to commit to providing the information needed to comply <br />under a continuing disclosure agreement. <br />Springsted will provide arbitrage and continuing disclosure compliance services to the City <br />under separate contracts. Contracts for these services will be provided to City staff. <br />AUTHORITY: <br />Statutory Authority: The Bonds are being issued pursuant to Minnesota Statutes, <br /> <br />Chapters 453 and 475. <br />Parity Debt: In addition to the Bonds, the Utility has two other outstanding issues payable <br />from net revenues of the Electric Utility system the Electric Revenue Bonds, Series 2007A <br /> 2007A he aggregate principal amount <br />of $1,535,000 with a final maturity of February 1, 2022 and the Electric Revenue Refunding <br />Bonds, Series 2014A 2014A <br />principal amount of $1,235,000 with a final maturity of August 1, 2018. The Series 2007A <br />Bonds are being refunded and redeemed in their entirety on September 1, 2016 with the <br />proceeds of the Series 2016B Bonds. <br />Rate Covenant: The Utility has pledged to establish user rates and charges for the Electric <br />System so that annual net revenues shall not be less than 110% of the average annual debt <br />service on the Bonds, the Series 2014A Bonds and any additional parity bonds. <br /> <br />Additional Bonds Test: Additional obligations may be issued on a parity of lien with the Bonds <br />and the Series 2014A Bonds so long as the net revenues of the Electric System for the <br />audited fiscal year immediately preceding the issuance of such additional bonds are not less <br />than 125% of the average annual principal and interest due on all outstanding bonds and the <br />additional bonds to be issued, during the remaining term of the outstanding bonds. The <br />average annual principal and interest payment on the Series 2014A Bonds and the Bonds <br />will be approximately $796,837. <br />Page 2 <br />