35000000 West Knox Utility District

NEW ISSUE Rating: Standard & Poor’s – “AA+” Book-Entry (See MISCELLANEOUS-Rating)

PRELIMINARY OFFICIAL STATEMENT

$35,000,000 WEST KNOX UTILITY DISTRICT OF KNOX COUNTY, TENNESSEE

Water and Sewer Revenue Bonds, Series 2010

The District is requesting bids for the captioned bonds (“Bonds”) optionally as tax-exempt revenue bonds (“Tax- Exempt Bonds”) or as taxable revenue bonds which the District will designate as “Build America Bonds (Direct Pay)” (“Federally Taxable Build America Bonds”) under Section 54AA of the Internal Revenue Code of 1986, as amended (the “Code”). Each bidder is encouraged, but not required, to submit two bids for the Bonds, one with a rate schedule specifying rates assuming that the Bonds will be issued as Tax-Exempt Bonds and a second bid with a rate schedule assuming that the Bonds will be issued as Federally Taxable Build America Bonds. To comply with the “Build America Bond” provisions of the Code, each bid for the Federally Taxable Build America Bonds must specify the reoffering price for each maturity of the Federally Taxable Build America Bonds, and each such reoffering price cannot exceed the par amount of the Federally Taxable Build America Bonds by more than 0.25% multiplied by the number of complete years to the earlier of the maturity date or the first optional redemption date for the maturity of the Federally Taxable Build America Bonds, and the bidder must agree that none of the Federally Taxable Build America Bonds will be offered and sold at reoffering prices exceeding such limitations. Separate bid forms and Parity® provisions have been provided for submitting bids for the Bonds as Tax-Exempt Bonds or Federally Taxable Build America Bonds. Award of the Bonds will be made on the basis of True Interest Cost (TIC), treating the credit available to the District if the Bonds are issued as Federally Taxable Build America Bonds as a reduction in each interest payment and taking into account whether any expected reoffering premiums would prevent the Federally Taxable Build America Bonds from being issued as Build America Bonds.

OFFERED FOR SALE NOT SOONER THAN

Monday, November 15, 2010 at 11:30 a.m., E.S.T. Through the Facilities of PARITY® and at the offices of Morgan Keegan & Company, Inc. Knoxville, Tennessee

Morgan Keegan Financial Advisor

November 5, 2010

NEW ISSUE Rating: Standard & Poor’s – “AA+” (See MISCELLANEOUS-Rating)

PRELIMINARY OFFICIAL STATEMENT DATED NOVEMBER 5, 2010

In the opinion of Bond Counsel, assuming compliance by the District with certain covenants, under existing statutes, regulations, and judicial decisions, (i) if the Bonds are issued on a tax-exempt basis, interest on the Bonds will not be included in the gross income for federal income tax purposes of the holders thereof, will not be an item of tax preference for purposes of the federal alternative minimum tax imposed on individuals and corporations, and interest on the Bonds will not be taken into account in determining adjusted current earnings for purposes of computing the alternative minimum tax on corporations, and (ii) if the Bonds are issued as Federally Taxable Build America Bonds, interest on the 2010 Bonds will not be excluded from gross income for federal income tax purposes, and Bond Counsel will express no opinion regarding any other tax consequences related to the ownership or disposition of, or the accrual or receipt of interest on, the Bonds issued as Federally Taxable Build America Bonds. Under existing law, the Bonds and the income therefrom are exempt from all present state, county and municipal taxes in the State of Tennessee except (a) inheritance, transfer and estate taxes, (b) Tennessee excise taxes on interest on the Bonds during the period the Bonds are held or beneficially owned by any organization or entity, or other than a sole proprietorship or general partnership doing business in the State of Tennessee, and (c) Tennessee franchise taxes by reason of the inclusion of the book value of the Bonds in the Tennessee franchise tax base of any organization or entity, other than a sole proprietorship or general partnership, doing business in the State of Tennessee. See "TAX MATTERS" herein for a description of other tax consequences to holders of the Bonds. $35,000,000 WEST KNOX UTILITY DISTRICT OF KNOX COUNTY, TENNESSEE Water and Sewer Revenue Bonds, Series 2010

Dated: Date of delivery (Assume November 30, 2010) Due: June 1 (as shown below)

The $35,000,000 Water and Sewer Revenue Bonds, Series 2010 (the “Bonds”) are issuable in fully registered form in denominations of $5,000 and authorized integral multiples thereof. The Bonds will be issued in book-entry-only form and registered in the name of Cede & Co., as nominee of The Depository Trust Company, New York, New York (“DTC”). DTC will act as securities depository of the Bonds. So long as Cede & Co. is the registered owner of the Bonds, as the nominee for DTC, principal and interest with respect to the Bonds shall be payable to Cede & Co., as nominee for DTC, which will, in turn, remit such principal and interest to the DTC participants for subsequent disbursements to the beneficial owners of the Bonds. Individual purchases of the Bonds will be made in book-entry-only form, in denominations of $5,000 or integral multiples thereof and will bear interest at the annual rates as shown below. Interest on the Bonds is payable semi-annually from the date thereof commencing on June 1, 2011 and thereafter on each June 1 and December 1 by check or draft mailed to the owners thereof as shown on the books and records of the Registration Agent. In the event of discontinuation of the book-entry system, principal of and interest on the Bonds are payable at the principal corporate trust office of Regions Bank, Nashville, Tennessee, the registrar and paying agent (the “Registration Agent”).

The Bonds are payable from and secured by revenues derived from the System and by the District and on parity with certain obligations described herein. See section entitled “SECURITIES OFFERED – Security”.

The Bonds are subject to redemption prior to maturity as described herein.

Due Interest Due Interest (June 1) Amount Rate Yield CUSIP (June 1) Amount Rate Yield CUSIP 2021 $ 250,000 2034 $ 250,000 2022 250,000 2035 250,000 2023 250,000 2036 2,550,000 2024 250,000 2037 2,675,000 2025 250,000 2038 2,775,000 2026 250,000 2039 2,900,000 2027 250,000 2040 3,025,000 2028 250,000 2041 3,150,000 2029 250,000 2042 3,275,000 2030 250,000 2043 3,475,000 2031 250,000 2044 3,625,000 2032 250,000 2045 3,800,000 2033 250,000

(Accrued Interest to be added)

This cover page contains certain information for quick reference only. It is not a summary of this issue. Investors must read the entire Preliminary Official Statement to obtain information essential to make an informed investment decision.

The Bonds are offered when, as and if issued, subject to the approval of the legality thereof by Bryant Miller Olive, Tampa, Florida, Bond Counsel, whose opinion will be delivered with the Bonds. Certain legal matters will be passed upon from the District by Robertson, Overbey, Wilson and Beeler, Knoxville, Tennessee, Counsel to the District. It is expected that the Bonds will be available for delivery through the facilities of The Depository Trust Company in New York, New York, on or about November __, 2010. Morgan Keegan Financial Advisor November __, 2010

This Preliminary Official Statement speaks only as of its date, and the information contained herein is subject to change.

This Preliminary Official Statement may contain forecasts, projections, and estimates that are based on current expectations but are not intended as representations of fact or guarantees of results. If and when included in this Official Statement, the words "expects," "forecasts," "projects," "intends," "anticipates," "estimates," and analogous expressions are intended to identify forward-looking statements as defined in the Securities Act of 1933, as amended, and any such statements inherently are subject to a variety of risks and uncertainties, which could cause actual results to differ materially from those contemplated in such forward-looking statements. These forward-looking statements speak only as of the date of this Official Statement. The Issuer disclaims any obligation or undertaking to release publicly any updates or revisions to any forward-looking statement contained herein to reflect any change in the Issuer's expectations with regard thereto or any change in events, conditions, or circumstances on which any such statement is based.

This Preliminary Official Statement and the Appendices hereto contain brief descriptions of, among other matters, the Issuer, the Bonds, the Resolution, the Disclosure Certificate, and the security and sources of payment for the Bonds. Such descriptions and information do not purport to be comprehensive or definitive. The summaries of various constitutional provisions and statutes, the Resolution, the Disclosure Certificate, and other documents are intended as summaries only and are qualified in their entirety by reference to such documents and laws, and references herein to the Bonds are qualified in their entirety to the forms thereof included in the Bond Resolution.

The Bonds have not been registered under the Securities Act of 1933, and the Resolution has not been qualified under the Trust Indenture Act of 1939, in reliance on exemptions contained in such Acts. This Preliminary Official Statement does not constitute an offer to sell or the solicitation of an offer to buy, nor shall there be any sale of the Bonds by any person in any jurisdiction in which it is unlawful for such person to make such offer, solicitation, or sale.

No dealer, broker, salesman, or other person has been authorized by the Issuer, the Financial Advisor or the Underwriter to give any information or to make any representations other than those contained in this Official Statement, and, if given or made, such other information or representations should not be relied upon as having been authorized by the Issuer, the Financial Advisor or the Underwriter. Except where otherwise indicated, all information contained in this Preliminary Official Statement has been provided by the Issuer. The information set forth herein has been obtained by the Issuer from sources which are believed to be reliable but is not guaranteed as to accuracy or completeness by, and is not to be construed as a representation of, the Financial Advisor or the Underwriter. The information contained herein is subject to change without notice, and neither the delivery of this Preliminary Official Statement nor any sale made hereunder shall under any circumstances create an implication that there has been no change in the affairs of the Issuer, or the other matters described herein since the date hereof or the earlier dates set forth herein as of which certain information contained herein is given.

In connection with this offering, the Underwriter may over-allot or effect transactions which stabilize or maintain the market prices of the Bonds at a level above that which might otherwise prevail in the open market. Such stabilizing, if commenced, may be discontinued at any time.

WEST KNOX UTILITY DISTRICT OF KNOX COUNTY, TENNESSEE

BOARD OF COMMISSIONERS

Daniel H. Hurst, President Robert H. Sterchi, Vice-President Ruth Ann Milsaps, Secretary

MANAGEMENT

Charles M. Banks, General Manager Drexel A. Heidel, Assistant Manager Kimberly H. Green, Comptroller

BOND REGISTRAR AND PAYING AGENT

Regions Bank Nashville, Tennessee

BOND COUNSEL

Bryant Miller Olive P.A. Tampa, Florida

FINANCIAL ADVISOR

Morgan Keegan & Company, Inc. Knoxville, Tennessee

TABLE OF CONTENTS

SUMMARY STATEMENT ...... i NOTICE OF SALE ...... iv DETAILED NOTICE OF SALE ...... vi BID FORM (TAX EXEMPT) ...... xii BID FORM (FEDERALLY TAXABLE BUILD AMERICA BONDS) ...... xiii

SECURITIES OFFERED Authority and Purpose ...... 1 Description of the Bonds ...... 1 Security ...... 2 Optional Redemption of the Bonds ...... 2 Extraordinary Optional Redemption of Federally Taxable Build America Bonds...... 2 Mandatory Redemption of the Bonds ...... 4 Selection of Bonds for Redemption and Notice of Redemption ...... 5 Payment of Bonds ...... 5

BASIC DOCUMENTATION Registration Agent ...... 8 Book-Entry-Only System ...... 8 Discontinuance of Book-Entry-Only System ...... 11 Disposition of Bond Proceeds ...... 11 Discharge and Satisfaction of Bonds ...... 12 Remedies of Bondholders ...... 13

LEGAL MATTERS Litigation ...... 14 Tax Matters ...... 14 Tax-Exempt Bonds ...... 14 Taxable Bonds ...... 17 State Law ...... 20 Approval of Legal Proceedings ...... 20

MISCELLANEOUS Rating ...... 22 Competitive Public Sale ...... 22 Financial Advisor ...... 22 Debt Limitations ...... 23 Debt Record ...... 23 Continuing Disclosure ...... 23 Content of Annual Report ...... 24 Reporting of Significant Events ...... 25 Termination of Reporting Obligation ...... 25 Amendment; Waiver ...... 25 Default ...... 26 Additional Information ...... 26 CERTIFICATION OF ISSUER ...... 28

APPENDIX A: PROPOSED FORM OF LEGAL OPINIONS

APPENDIX B: SUPPLEMENTAL INFORMATION STATEMENT

APPENDIX C: SUMMARY OF THE BOND RESOLUTION

APPENDIX D: GENERAL PURPOSE FINANCIAL STATEMENTS

SUMMARY STATEMENT

The information set forth below is provided for convenient reference and does not purport to be complete and is qualified in its entirety by the information and financial statements appearing elsewhere in this Preliminary Official Statement. This Summary Statement shall not be reproduced, distributed or otherwise used except in conjunction with the remainder of this Preliminary Official Statement.

The Issuer ...... West Knox Utility District of Knox County, Tennessee (the “District” or “Issuer”). See the section “Appendix C - Supplemental Information Statement” for more information.

Securities Offered ...... $35,000,000 Water and Sewer Revenue Bonds, Series 2010 (the “Bonds”) of the District, dated the date of delivery (estimated to be November 30, 2010). The Bonds will mature each June 1 beginning June 1, 2021 through June 1, 2045, inclusive. See the section entitled “SECURITIES OFFERED – Authority and Purpose”.

Security ...... The Bonds shall be payable from the revenues derived from the operation of the System subject only to the reasonable and necessary costs of operating, maintaining, repairing and insuring the System and to pledges of such revenues in favor of obligations secured by the revenues of the System, on parity with the District’s obligations pursuant to a Loan Agreement between the District and the Public Building Authority of Sevier County, Tennessee dated July 1, 2000 which includes an interest rate swap agreement between the District and Morgan Keegan Financial Products, Inc. dated September 22, 2009 and a Loan Agreement between the District and the Public Building Authority of Sevier County, Tennessee dated August 28, 2009. If issued as Federally Taxable Build America Bonds, then the Bonds are additionally payable from, but not secured by refundable credits received by the District in an amount equal to 35% of interest paid with respect to such Federally Taxable Build America Bonds from the United States Treasury pursuant to Section 54AA and Section 6431 of the Internal Revenue Code of 1986, as amended.

Purpose ...... The Bonds are being issued for the purposes of providing funds to finance or reimburse (i) the acquisition of land for and the construction, improvement, renovation, equipping of improvements and additions to the System; (ii) the acquisition of all property, real and personal, appurtenant thereto or connected thereto; (iii) the payment of legal, fiscal, administrative, architectural and engineering costs incident thereto; and (iv) the payment of costs incident to the issuance of the Bonds.

Optional Redemption ...... The Bonds maturing June 1, 2023 through June 1, 2040 are subject to optional redemption prior to maturity on or after June 1, 2022, at the redemption price of par plus accrued interest. The Bonds maturing June 1, 2041 through June 1, 2045 are subject to optional redemption prior to maturity on or after June 1, 2025, at the redemption price of par plus accrued interest. See section entitled “SECURITIES OFFERED - OPTIONAL REDEMPTION OF THE BONDS”.

Extraordinary Optional Redemption ...... Bonds issued as Federally Taxable Build America Bonds are also subject to extraordinary optional redemption. See the section entitled “SECURITIES OFFERED –EXTRAORDINARY OPTIONAL REDEMPTION OF FEDERALLY TAXABLE BUILD AMERICA BONDS” for additional information.

Mandatory Redemption ...... The Bonds may be issued as term bonds subject to mandatory redemption. See the section entitled “SECURITIES OFFERED – MANDATORY REDEMPTION OF THE BONDS”

Tax Matters ...... In the opinion of Bond Counsel, assuming compliance by the District with certain covenants, under existing statutes, regulations, and judicial decisions, (i) if the Bonds are issued on a tax-exempt basis, interest on the Bonds will not be included in the gross income for federal income tax purposes of the holders thereof, will not be an item of tax preference for purposes of the federal alternative minimum tax imposed on individuals and corporations, and interest on the Bonds will not be taken into account in determining adjusted current earnings for purposes of computing the alternative minimum tax on corporations, and (ii) if the Bonds are issued as Federally Taxable Build America Bonds, interest on the 2010 Bonds will not be excluded from gross income for federal income tax purposes, and Bond Counsel will express no opinion regarding any other tax consequences related to the ownership or disposition of, or the accrual or receipt of interest on, the Bonds issued as Federally Taxable Build America Bonds. Under existing law, the Bonds and the income therefrom are exempt from all present state, county and municipal taxes in the State of Tennessee except (a) inheritance, transfer and estate taxes, (b) Tennessee excise taxes on interest on the Bonds during the period the Bonds are held or beneficially owned by any organization or entity, or other than a sole proprietorship or general partnership doing business in the State of Tennessee, and (c) Tennessee franchise taxes by reason of the inclusion of the book value of the Bonds in the Tennessee franchise tax base of any organization or entity, other than a sole proprietorship or general partnership, doing business in the State of Tennessee. (See "LEGAL MATTERS - TAX MATTERS" herein). See also APPENDIX A (form of opinion) included herein.

Rating ...... Standard & Poor’s: “AA+”. See the section entitled “MISCELLANEOUS - Rating” for more information.

Underwriter ...... ______, ______, ______.

Financial Advisor ...... Morgan Keegan & Company, Inc., Knoxville, Tennessee. See the section entitled “MISCELLANEOUS-Financial Advisor” herein.

Bond Counsel ...... Bryant Miller Olive P.A., Tampa, Florida.

Book-Entry Only ...... The Bonds will be issued under the Book-Entry System except as otherwise described herein. For additional information, see the section entitled “BASIC DOCUMENTATION - Book-Entry System”

Bond Registrar and Paying Agent ...... Regions Bank, Nashville, Tennessee.

General ...... The Bonds are being issued in full compliance with applicable provisions of Title 7, Chapter 82, Tennessee Code Annotated, as supplemented and revised. See “SECURITIES OFFERED” herein. The Bonds will be issued with CUSIP numbers and delivered through the facilities of The Depository Trust Company, New York, New York.

Continuing Disclosure ...... In accordance with rule 15c2-12 of the Securities and Exchange Commission as amended, the District will provide the Municipal Securities Rulemaking Board (“MSRB”) through the operation of the Electronic Municipal Market Access system (“EMMA”) and the State information depository (“SID”), if any, annual financial statements and other pertinent credit or event information, including Comprehensive Annual Financial Reports, see the section entitled “MISCELLANEOUS-Continuing Disclosure.”

Other Information ...... The information in this Preliminary Official Statement is deemed “final” within the meaning of Rule 15c2-12 of the Securities and Exchange Commission as of the date

ii Subject to Change.

which appears on the cover hereof except for the omissions of certain pricing information allowed to be omitted pursuant to Rule 15c2-12. For more information concerning the District or this Preliminary Official Statement contact Mr. Daniel H. Hurst, President, 2328 Lovell Road, Knoxville, Tennessee 37932, (865) 590-2521, or the District's Financial Advisor, Morgan Keegan & Company, Inc., 11400 Parkside Drive, Suite 110, Knoxville, Tennessee 37934, (865) 777-5840.

Summary of Changes In Fund Balances For the Fiscal Year Ended June 30

2006 2007 2008 2009 2010 Gross Revenues (A) $ 11,942,756 $ 12,776,854 $ 14,557,107 $13,536,061 $13,348,152 Operating Expenses (B) 6,721,729 7,284,963 7,961,297 8,165,479 8,162,823 Income Available for Debt Service 5,221,027 5,491,891 6,595,810 5,370,582 5,185,329 Actual Debt Service Requirements (C) & (1) 4,090,634 2,924,357 3,824,964 3,204,423 2,458,754 Bond Coverage (2) 1.28x 1.88x 1.72x 1.68x 2.11x

Source: Comprehensive Annual Financial Reports of the West Knox Utility District of Knox County, Tennessee.

(A) Includes operating revenues, interest income received and cash capital contributions. (B) Does not include depreciation expense. (C) Interest includes interest paid, paying agent’s fees and service charges net of capitalized construction period interest. (1) Includes Debt Service Requirements for the District’s Outstanding Obligations. (2) 1.20x coverage required for senior debt.

iii

[This page was left blank intentionally]

NOTICE OF SALE

$35,000,000 WEST KNOX UTILITY DISTRICT OF KNOX COUNTY, TENNESSEE

Water and Sewer Revenue Bonds, Series 2010

NOTICE IS HEREBY GIVEN that the President of the West Knox Utility District of Knox County, Tennessee (the “District” or “Issuer”) will receive electronic or written sealed bids for the purchase of all, but not less than all, of the District's $35,000,000 Water and Sewer Revenue Bonds, Series 2010 (the “Bonds”) at the office of the District’s Financial Advisor, Morgan Keegan & Company, Inc., 11400 Parkside Drive, Suite 110, Knoxville, Tennessee 37934, until 11:30 a.m. E.S.T. on Monday, November 15, 2010. Prior to accepting bids, the District reserves the right to adjust the principal amount of the Bonds being offered as set forth in the Detailed Notice of Sale, to postpone the sale to a later date, or to cancel the sale based upon market conditions via Bloomberg News Service and/or the PARITY® System not later than 10:30 a.m., Eastern Standard Time, on the day of the bid opening. Such notice will specify the revised principal amount, if any, and any later date selected for the sale, which may be postponed or cancelled in the same manner. If the sale is postponed, a later public sale may be held at the hour and place and on such date as communicated upon at least forty-eight hours notice via Bloomberg News Service and/or the PARITY® System.

Electronic bids must be submitted through PARITY® via the BiDComp Competitive Bidding Service as described in the Detailed Notice of Sale and no other provider of electronic bidding services will be accepted. For the purposes of the bidding process, both written and electronic, the time maintained by PARITY® shall constitute the official time with respect to all bids. To the extent any instructions or directions set forth in PARITY® conflict with the terms of the Detailed Notice of Sale and this Summary Notice of Sale, the Detailed Notice of Sale and this Summary Notice of Sale shall prevail.

The Bonds will be issued in book-entry form (except as otherwise described in the “Detailed Notice of Sale”) and dated their date of issuance and delivery (assume November 30, 2010) and will mature on June 1, 2021 through June 1, 2045, inclusive with term Bonds optional. The Bonds maturing June 1, 2023 through June 1, 2040 are subject to optional redemption prior to maturity on or after June 1, 2022 and (as more fully described in the “Detailed Notice of Sale”) and, if issued as Federally Taxable Build America Bonds, also will be subject to extraordinary optional redemption prior to June 1, 2022 (as more fully described in the “Detailed Notice of Sale”). The Bonds maturing June 1, 2041 through June 1, 2045 are subject to optional redemption prior to maturity on or after June 1, 2025 and (as more fully described in the “Detailed Notice of Sale”) and, if issued as Federally Taxable Build America Bonds, also will be subject to extraordinary optional redemption prior to June 1, 2025 (as more fully described in the “Detailed Notice of Sale”). The approving opinion for the Bonds will be furnished at the expense of the District by Bryant Miller Olive P.A., Bond Counsel, Tampa, Florida. The District is requesting sealed bids for the Bonds optionally as conventional tax-exempt revenue bonds (“Tax-Exempt Bonds”) or as federally taxable revenue bonds which the District will designate as “Qualified Build America Bonds (Direct Pay)” (“Federally Taxable Build America Bonds”) under Section 54AA of the Internal Revenue Code of 1986, as amended (the “Code”). Each bidder is encouraged, but not required, to submit two bids for the Bonds, one with a rate schedule specifying rates assuming that the Bonds will be issued as Tax-Exempt Bonds and a second bid with a rate schedule assuming that the Bonds will be issued as Federally Taxable Build America Bonds. Interest rate or rates bid on Bonds shall not exceed seven and one-quarter percent (7.25%) per annum if bid as Federally Taxable Build America Bonds or five and one-half percent (5.50%) per annum if bid as Tax-Exempt Bonds. There will be no limitation on the number of rates of interest that may be specified in a single bid for the iv

Bonds, but a single rate shall apply to all Bonds of a single maturity in such bid. Bidders must bid not less than ninety-nine and one-half percent (99.50%) of par or more than one hundred and two and three-quarters percent (102.75%) of par, plus accrued interest for all of the Bonds. Additionally, no Bond may be reoffered at a yield more than 7.25%. To comply with the “Build America Bond’ provisions of the Code, each bid for the Federally Taxable Build America Bonds must specify the reoffering price for each maturity of the Bonds, and each such reoffering price cannot exceed the par amount of the Federally Taxable Build America Bonds by more than 0.25% multiplied by the number of complete years to the earlier of the maturity date or the first optional redemption date for the maturity of the Federally Taxable Build America Bonds and the bidder must agree that none of the Federally Taxable Build America Bonds, will be offered and sold at reoffering prices exceeding such limitations. Separate bid forms and Parity® provisions have been provided for submitting bids for the Bonds if to be designated Tax-Exempt Bonds or designated Federally Taxable Build America Bonds. Award of the Bonds will be made on the basis of True Interest Cost (TIC), treating the credit available to the District if the Bonds are issued as Federally Taxable Build America Bonds as a reduction in each interest payment and taking into account whether any expected reoffering premiums would prevent the Federally Taxable Build America Bonds from being issued as Federally Taxable Build America Bonds.

Additional information, including the PRELIMINARY OFFICIAL STATEMENT in near final form and the Detailed Notice of Sale, may be obtained from the undersigned Mr. Daniel H. Hurst, President, 2328 Lovell Road, Knoxville, Tennessee 37932, (865) 590-2521or from the District’s Financial Advisor, Morgan Keegan & Company, Inc., 11400 Parkside Drive, Suite 110, Knoxville, Tennessee 37934, (865) 777-5840. Further information regarding PARITY® may be obtained from i-Deal LLC, 1359 Broadway, 2nd Floor, New York, New York 10018, Telephone: 212-849-5000.

/s/ Daniel H. Hurst President

DETAILED NOTICE OF SALE

$35,000,000 WEST KNOX UTILITY DISTRICT OF KNOX COUNTY, TENNESSEE

Water and Sewer Revenue Bonds, Series 2010

NOTICE IS HEREBY GIVEN that electronic or sealed written bids will be received by the President of West Knox Utility District of Knox County, Tennessee (the “District” or “Issuer”), all or none, until 11:30 a.m. E.S.T. on Monday, November 15, 2010 (or at such later time and date announced at least forty-eight hours in advance via Bloomberg News Service or the PARITY® system) for the purchase of $35,000,000 Water and Sewer Revenue Bonds, Series 2010 (the “Bonds”). See “Bidding Instructions” herein.

Description of the Bonds. The Bonds will be issued in book-entry only form without coupons and will be issued or reissued upon transfer, in $5,000 denominations or multiples thereof, as shall be requested by the purchaser or registered owner thereof, as applicable. Interest on the Bonds will be payable on June 1 and December 1 of each year, commencing June 1, 2011.

The Bonds will mature and be payable on June 1 of each year as outlined below:

Year Amount Year Amount 2021 $ 250,000 2034 $ 250,000 2022 250,000 2035 250,000 2023 250,000 2036 2,550,000 2024 250,000 2037 2,675,000 2025 250,000 2038 2,775,000 2026 250,000 2039 2,900,000 2027 250,000 2040 3,025,000 2028 250,000 2041 3,150,000 2029 250,000 2042 3,275,000 2030 250,000 2043 3,475,000 2031 250,000 2044 3,625,000 2032 250,000 2045 3,800,000 2033 250,000

Registration and Depository Participation. The Bonds, when issued, will be registered in the name of Cede & Co., DTC’s partnership nominee. When the Bonds are issued, ownership interests will be available to purchasers only through a book-entry system maintained by DTC (the “Book-Entry Only System”). One or more fully-registered bond certificates will be issued for each maturity, in the entire aggregate principal amount of the Bonds and will be deposited with DTC. The book-entry system will evidence beneficial ownership interests of the Bonds in the principal amount of $5,000 for the Bonds and any integral multiple of $5,000, with transfers of beneficial ownership interest effected on the records of DTC participants and, if necessary, in turn by DTC pursuant to rules and procedures established by DTC and its participants. The successful bidder, as a condition to delivery of the Bonds, shall be required to deposit the bond certificates with DTC, registered in the name of Cede & Co., nominee of DTC. The Bonds will be payable, at maturity 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, and transfer of

vi principal and interest payments (as applicable) to beneficial owners of the Bonds by Participants of DTC, will be the responsibility of such participants and of the nominees of beneficial owners. The District will not be responsible or liable for such transfer of payments or for maintaining, supervising or reviewing the records maintained by DTC, its participants or persons acting through such participants.

Notwithstanding the foregoing, if the winning bidder certifies that it intends to hold the onds for its own account and has no present intent to reoffer the Bonds, then use of the Book-Entry system is not required.

In the event that the book-entry only system for the Bonds is discontinued and a successor securities depository is not appointed by the District, Bond Certificates in fully registered form will be delivered to, and registered in the names of, the DTC Participants or such other persons as such DTC participants may specify (which may be the indirect participants or beneficial owners), in authorized denominations of $5,000 for the Bonds or integral multiples thereof. The ownership of Bonds so delivered shall be registered in registration books to be kept by the Registration Agent (named herein) at its principal corporate trust office, and the District and the Registration Agent shall be entitled to treat the registered owners of the Bonds, as their names appear in such registration books as of the appropriate dates, as the owners thereof for all purposes described herein and in the Resolution authorizing the Bonds.

Security Pledged. The Bonds shall be payable from the revenues derived from the operation of the System subject only to the reasonable and necessary costs of operating, maintaining, repairing and insuring the System and to pledges of such revenues in favor of obligations secured by the revenues of the System on parity with the District’s obligations pursuant to a Loan Agreement between the District and the Public Building Authority of Sevier County, Tennessee dated July 1, 2000 which includes an interest rate swap agreement between the District and Morgan Keegan Financial Products, Inc. dated September 22, 2009 and a Loan Agreement between the District and the Public Building Authority of Sevier County, Tennessee dated August 28, 2009. If issued as Federally Taxable Build America Bonds, then the Bonds are additionally payable from, but not secured by refundable credits received by the District in an amount equal to 35% of interest paid with respect to such Federally Taxable Build America Bonds from the United States Treasury (“Direct Subsidy Payments”) pursuant to Section 54AA and Section 6431 of the Internal Revenue Code of 1986, as amended (the “Code”).

Purpose. The Bonds are being issued for the purpose of providing funds for (i) the acquisition of land for and the construction, improvement, renovation, equipping of improvements and additions to the System; (ii) the acquisition of all property, real and personal, appurtenant thereto or connected thereto; (iii) the payment of legal, fiscal, administrative, architectural and engineering costs incident thereto; and (iv) the payment of costs incident to the issuance of the Bonds.

Optional Redemption. The Bonds maturing June 1, 2023 through June 1, 2040 are subject to optional redemption prior to maturity on or after June 1, 2022, at the redemption price of par plus accrued interest. The Bonds maturing June 1, 2041 through June 1, 2045 are subject to optional redemption prior to maturity on or after June 1, 2025, at the redemption price of par plus accrued interest. See section entitled “SECURITIES OFFERED - OPTIONAL REDEMPTION OF THE BONDS”.

Extraordinary Optional Redemption. Bonds maturing June 1, 2021 through June 1, 2040 issued as Federally Taxable Build America Bonds shall be subject to extraordinary optional redemption prior to June 1, 2022 as described in the Official Statement. Bonds maturing June 1, 2041 through June 1, 2045 issued as Federally Taxable Build America Bonds shall be subject to extraordinary optional redemption prior to June 1, 2025 as described in the Official Statement. See “SECURITIES OFFERED – EXTRAORDINARY OPTIONAL REDEMPTION OF FEDERALLY TAXABLE BUILD AMERICA BONDS.”

vii

Term Bond Option; Mandatory Redemption. Bidders shall have the option to designate two or more consecutive serial maturities of the Bonds as one or more term Bonds (“Term Bonds”) bearing a single interest rate. If the successful bidder for the Bonds designates certain consecutive serial maturities of the Bonds to be combined as one or more Term Bonds as allowed herein, then each Term Bond shall be subject to mandatory redemption by the District at a redemption price equal to one hundred percent (100%) of the principal amount thereof, together with accrued interest to the date fixed for redemption at the rate stated in the Term Bonds to be redeemed. Each such mandatory redemption payment shall be made on the date on which a consecutive maturity included as part of a Term Bond is payable in accordance with the proposal of the successful bidder for the Bonds and in the amount of the maturing principal installment for the Bonds listed herein for such principal payment date. Term Bonds to be redeemed within a single maturity shall be selected in the manner provided above for optional redemption of Bonds within a single maturity.

Issuable as Tax-Exempt or Federally Taxable Build America Bonds. The District is requesting bids for the Bonds optionally as Tax-Exempt Bonds and as Federally Taxable Build America Bonds. Each bidder is encouraged, but not required, to submit two bids for the Bonds, one with a rate schedule specifying rates assuming that the Bonds will be issued as Tax-Exempt Bonds and a second bid with a rate schedule assuming that the Bonds will be issued as Federally Taxable Build America Bonds.

Bidding Instructions. Bidders are requested to name the interest rate or rates the Bonds are to bear in multiples of one one-hundredth (1/100th) or one-eighth (1/8th) of one percent (1%), but no rate specified shall be in excess of seven and one-quarter percent (7.25%) per annum if bid as Federally Taxable Build America Bonds or five and one-half percent (5.50%) per annum if bid as Tax-Exempt Bonds. There will be no limitation on the number of rates of interest that may be specified in a single bid for the Bonds, but a single rate shall apply to all Bonds of a single maturity. Bidders must bid not less than ninety-nine and one-half percent (99.50%) of par or more than one hundred and two and three-quarters percent (102.75%) of par, plus accrued interest for all of the Bonds. Additionally, no Bond may be reoffered at more than 7.25%. With respect to a bid for Federally Taxable Build America Bonds, the reoffering price for each maturity of Federally Taxable Build America Bonds may not exceed the par amount by more than 0.25% multiplied by the number of complete years to the earlier of the maturity date or the first optional redemption date for the maturity of the Federally Taxable Build America Bonds and the bidder must agree that none of the Federally Taxable Build America Bonds will be offered and sold at reoffering prices exceeding such limitations.

Electronic bids must be submitted through PARITY® via BiDCOMP Competitive Bidding System and no other provider of electronic bidding services will be accepted. Subscription to the i-Deal LLC Dalcomp Division’s BiDCOMP Competitive Bidding System is required in order to submit an electronic bid. The District will not confirm any subscription nor be responsible for the failure of any prospective bidder to subscribe. For the purposes of the bidding process, the time as maintained by PARITY® shall constitute the official time with respect to all bids whether in electronic or written form. To the extent any instructions or directions set forth in PARITY® conflict with the terms of the Detailed Notice of Sale, this Notice shall prevail. An electronic bid made through the facilities of PARITY® shall be deemed an offer to purchase in response to the Detailed Notice of Sale and shall be binding upon the bidder as if made by a signed, sealed written bid delivered to the District. The District shall not be responsible for any malfunction or mistake made by or as a result of the use of the electronic bidding facilities provided and maintained by PARITY®. The use of PARITY® facilities are at the sole risk of the prospective bidders.

For further information regarding PARITY®, potential bidders may contact i-Deal LLC at 1359 Broadway, 2nd Floor, New York, NY 10018, Telephone: 212-849-5000.

In the event of a system malfunction in the electronic bidding process only, bidders may submit a bid prior to the established date and time by facsimile transmission sent to the President at the offices of Morgan Keegan & Company, Inc., (FAX 865-777-5836). Any facsimile submission is made at the sole risk of the

viii prospective bidder. The District and the Financial Advisor shall not be responsible for confirming receipt of any facsimile bid or for any malfunction relating to the transmission and receipt of such bids.

Written sealed bids should be submitted in a sealed envelope marked “Bid for Bonds” to Mr. Daniel H. Hurst, President of the West Knox Utility District, at the offices of Morgan Keegan & Company, Inc., 11400 Parkside Drive, Suite 110, Knoxville, Tennessee 37934. Written bids must be submitted on the Bid Form included with the Preliminary Official Statement.

Unless all bids for the Bonds are rejected, the Bonds will be awarded to the bidder whose bid complies with this notice and results in the lowest true interest cost on the Bonds to be calculated as that rate that, when used in computing the present worth of all payments of principal and interest on the Bonds (compounded semi- annually from the date of the Bonds), produces an amount equal to the purchase price of the Bonds exclusive of accrued interest. For purposes of calculating the true interest cost, the principal amount of Term Bonds scheduled for mandatory redemption as part of the Term Bond shall be treated as a serial maturity in such year, and if the Bonds are issued as Federally Taxable Build America Bonds the credit available to the District will be treated as a reduction in each interest payment. In the event that two or more bidders offer to purchase the Bonds at the same lowest true interest rate, the President shall determine in his sole discretion which of the bidders shall be awarded the Bonds.

The District reserves the right to reject all bids for the Bonds and to waive informalities in the bids accepted.

Good Faith Deposit. No good faith check will be required to accompany any bid submitted. The successful bidder shall be required to deliver to the District's Financial Advisor (wire transfer or certified check) the amount of two percent (2%) of the aggregate principal amount of the Bonds offered for sale which will secure the faithful performance of the terms of the bid. A certified check or wire transfer must be received by the District's Financial Advisor no later than the close of business on the day following the competitive sale. A wire transfer may be sent to First Tennessee Bank, ABA No. 084000026 First Tenn Mem, FAO Account No. 0010000117382 for further credit to Account No. 255000-04.

The good faith deposit shall be applied (without interest) to the purchase price of the Bonds. If the successful bidder should fail to accept or pay for the Bonds when tendered for delivery and payment, the good faith deposit will be retained by the District as liquidated damages.

In the event of the failure of the District to deliver the Bonds to the purchaser in accordance with the terms of this Notice within forty-five (45) days after the date of the sale, the good-faith deposit will be promptly returned to the purchaser unless the purchaser directs otherwise.

Reoffering Prices; Other Information. The successful bidder must furnish the following information to the District to complete the Official Statement in final form within two (2) hours after receipt and award of the bid for the Bonds:

1. The offering prices or yields for the Bonds (expressed as a price or yield per maturity, exclusive of any accrued interest, if applicable);

2. Selling compensation (aggregate total anticipated compensation to the underwriters expressed in dollars, based on the expectation that all Bonds are sold at the prices or yields as provided above);

3. The identity of the underwriters if the successful bidder is part of a group or syndicate and full contact information for the successful bidder; and

4. Any other material information necessary to complete the Official Statement in final form but not known to the District.

In addition, within two hours of the award of the Bonds, the successful bidder shall furnish to the ix

District a certificate acceptable to Bond Counsel stating: (i) the reoffering prices (as shown in the bidder's winning bid); (ii) that the successful bidder will make a bona fide public offering of the Bonds at such reoffering prices; and (iii) that the successful bidder reasonably expects that the Bonds (or at least 10% of each maturity of the Bonds) will be sold to the public (excluding bond houses, brokers and other intermediaries) at those reoffering prices.

As a condition to the delivery of the Bonds, the successful bidder will be required to deliver a certificate to the District confirming that nothing has come to the bidder's attention that would lead it to believe that its certification with respect to the reoffering prices of the Bonds given in connection with the award of the Bonds is inaccurate, and addressing such other matters as to the reoffering prices of the Bonds as Bond Counsel may request.

In addition, with respect to Federally Taxable Build America Bonds, the winning bidder must agree that it will not offer the Federally Taxable Build America Bonds for sale at prices that include original issue premium in excess of the permitted premium described above under “Bidding Instructions.”

Legal Opinion. In the opinion of Bond Counsel, assuming compliance by the District with certain covenants, under existing statutes, regulations, and judicial decisions, (i) if the Bonds are issued on a tax- exempt basis, interest on the Bonds will not be included in the gross income for federal income tax purposes of the holders thereof, will not be an item of tax preference for purposes of the federal alternative minimum tax imposed on individuals and corporations, and interest on the Bonds will not be taken into account in determining adjusted current earnings for purposes of computing the alternative minimum tax on corporations, and (ii) if the Bonds are issued as Federally Taxable Build America Bonds, interest on the 2010 Bonds will not be excluded from gross income for federal income tax purposes, and Bond Counsel will express no opinion regarding any other tax consequences related to the ownership or disposition of, or the accrual or receipt of interest on, the Bonds issued as Federally Taxable Build America Bonds. Under existing law, the Bonds and the income therefrom are exempt from all present state, county and municipal taxes in the State of Tennessee except (a) inheritance, transfer and estate taxes, (b) Tennessee excise taxes on interest on the Bonds during the period the Bonds are held or beneficially owned by any organization or entity, or other than a sole proprietorship or general partnership doing business in the State of Tennessee, and (c) Tennessee franchise taxes by reason of the inclusion of the book value of the Bonds in the Tennessee franchise tax base of any organization or entity, other than a sole proprietorship or general partnership, doing business in the State of Tennessee. See "LEGAL MATTERS - TAX MATTERS" herein for a description of other tax consequences to holders of the Bonds.

Continuing Disclosure. At the time the Bonds are delivered, the District will execute a Continuing Disclosure Certificate in which it will covenant for the benefit of holders and beneficial owners of the Bonds to provide certain financial information relating to the District by not later than twelve months after each of the District's fiscal years, (the “Annual Report”), and to provide notice of the occurrence of certain enumerated events, if determined by the District to be material under applicable federal securities laws. The Annual Report (and audited financial statements, if filed separately) will be filed with the Municipal Securities Rulemaking Board (“MSRB”) through the operation of the Electronic Municipal Market Access system (“EMMA”) and any State Information Depository established in the State of Tennessee (the “SID”). If the District is unable to provide the Annual Report to the MSRB and the SID by the date required, notice of each failure will be sent to the MSRB and the SID on or before such date. The notices of material events will be filed by the District the MSRB and the SID. The specific nature of the information to be contained in the Annual Report or the notices of material events will be summarized in the District's Official Statement to be prepared and distributed in connection with the sale of the Bonds.

Delivery of Bonds. Delivery of the Bonds is expected on November 30, 2010, but is not guaranteed. At least five (5) days notice will be given the successful bidder. Delivery of the Bonds will be made in book-

x entry form through the facilities of The Depository Trust Company, New York, New York. Payment for the Bonds must be made in Federal Funds or other immediately available funds.

CUSIP Numbers. CUSIP numbers will be assigned to the Bonds at the expense of the District. The District will assume no obligation for assignment of such numbers or the correctness of such numbers and neither failure to record such numbers on Bonds nor any error with respect thereto shall constitute cause for failure or refusal by the purchaser thereof to accept delivery of and make payment for the Bonds.

Official Statements; Other. The District has deemed the Preliminary Official Statement to be final as of its date within the meaning of Rule 15c2-12 of the Securities and Exchange Commission (the “SEC”) except for the omission of certain pricing and other information. The District will furnish the successful bidder within seven (7) business days at the expense of the District a reasonable number of copies of the Official Statement in final form, containing the pricing and other information to be supplied by the successful bidder and to be dated the date of the sale, to be delivered by the successful bidder to the persons to whom such bidder and members of its bidding group initially sell the Bonds. Acceptance of the bid will constitute a contract between the District and the successful bidder for the provision of such copies within seven business days of the sale date.

Further Information. Additional information, including the Preliminary Official Statement, the Detailed Notice of Sale and the Official Bid Form, may be obtained from the District’s Financial Advisor, Morgan Keegan & Company, Inc., 11400 Parkside Drive, Suite 110, Knoxville, TN 37934, Telephone: 865- 777-5840. Further information regarding PARITY® may be obtained from i-Deal LLC, 1359 Broadway, 2nd Floor, New York, New York 10018, Telephone: 212-849-5000.

West Knox Utility District Of Knox County, Tennessee

/s/ Daniel H. Hurst, President

BID FORM (Tax-Exempt) (Written Alternative)

Mr. Daniel H. Hurst, President November 15, 2010 2328 Lovell Road Knoxville, Tennessee 37932

Dear Mr. Hurst:

For your legally issued, properly executed $35,000,000 Water and Sewer Revenue Bonds, Series 2010 (the “Bonds”) of the West Knox Utility District of Knox County, Tennessee (the “District”) in all respects as more fully outlined in your Notices of Sale which by reference are made a part hereof, we will pay you a sum of ______.

The Bonds shall be dated the date of delivery (assume November 30, 2010) and shall be callable in accordance with the Detailed Notice of Sale. The Bonds shall mature on June 1 and bear interest at the following rates: Year Amount Rate Year Amount Rate 2021 $ 250,000 ______% 2034 $ 250,000 ______% 2022 250,000 ______% 2035 250,000 ______% 2023 250,000 ______% 2036 2,550,000 ______% 2024 250,000 ______% 2037 2,675,000 ______% 2025 250,000 ______% 2038 2,775,000 ______% 2026 250,000 ______% 2039 2,900,000 ______% 2027 250,000 ______% 2040 3,025,000 ______% 2028 250,000 ______% 2041 3,150,000 ______% 2029 250,000 ______% 2042 3,275,000 ______% 2030 250,000 ______% 2043 3,475,000 ______% 2031 250,000 ______% 2044 3,625,000 ______% 2032 250,000 ______% 2045 3,800,000 ______% 2033 250,000 ______%

We have the option to designate two or more consecutive serial maturities of the Bonds as term bond maturities as indicated: Term Bond 1: Maturities from June 1, 20______through June 1, 20______@ ______%. Term Bond 2: Maturities from June 1, 20______through June 1, 20______@ ______%. Term Bond 3: Maturities from June 1, 20______through June 1, 20______@ ______%. Term Bond 4: Maturities from June 1, 20______through June 1, 20______@ ______%. Term Bond 5: Maturities from June 1, 20______through June 1, 20______@ ______%.

If the Bonds are issued on a tax-exempt basis then it is our understanding that the Bonds are offered for sale subject to the final approving opinion of Bryant Miller Olive P.A., Bond Counsel, Tampa, Florida, whose opinion together with the executed Bonds, will be furnished by the District without cost to us.

If our bid is accepted, we agree to provide a good faith deposit for 2% of the Bonds on which we have bid by the close of business on the date of the competitive public sale as outlined in the Detailed Notice of Sale. Should for any reason we fail to comply with the terms of this bid, this good faith deposit shall be forfeited by us as full liquidated damages. Otherwise, this good faith deposit shall be applied to the purchase price of the Bonds on which we have bid.

Accepted for and on behalf of the Respectfully submitted, West Knox Utility District of Knox County, Tennessee, this 15th day of November 2010.

______Total interest cost from Daniel H. Hurst, President November 30, 2010 to final maturity $ Less: Premium /plus discount, if any $ Net Interest Cost ...... $ True Interest Rate ...... % The computations of net interest cost and true interest rate are for comparison purposes only and are not to be considered as part of this proposal.

xii

[This page was left blank intentionally]

BID FORM (Federally Taxable Build America Bonds) (Written Alternative)

Mr. Daniel H. Hurst, President November 15, 2010 2328 Lovell Road Knoxville, Tennessee 37932

Dear Mr. Hurst:

Max. Max. Max. Max. Year Amount Rate Price Yield Year Amount Rate Price Yield 2021 $ 250,000 ______% 102.50% 7.25% 2034 $ 250,000 ______% 102.75% 7.25% 2022 250,000 ______% 102.75% 7.25% 2035 250,000 ______% 102.75% 7.25% 2023 250,000 ______% 102.75% 7.25% 2036 2,550,000 ______% 102.75% 7.25% 2024 250,000 ______% 102.75% 7.25% 2037 2,675,000 ______% 102.75% 7.25% 2025 250,000 ______% 102.75% 7.25% 2038 2,775,000 ______% 102.75% 7.25% 2026 250,000 ______% 102.75% 7.25% 2039 2,900,000 ______% 102.75% 7.25% 2027 250,000 ______% 102.75% 7.25% 2040 3,025,000 ______% 102.75% 7.25% 2028 250,000 ______% 102.75% 7.25% 2041 3,150,000 ______% 103.50% 7.25% 2029 250,000 ______% 102.75% 7.25% 2042 3,275,000 ______% 103.50% 7.25% 2030 250,000 ______% 102.75% 7.25% 2043 3,475,000 ______% 103.50% 7.25% 2031 250,000 ______% 102.75% 7.25% 2044 3,625,000 ______% 103.50% 7.25% 2032 250,000 ______% 102.75% 7.25% 2045 3,800,000 ______% 103.50% 7.25% 2033 250,000 ______% 102.75% 7.25%

We have the option to designate two or more consecutive serial maturities of the Bonds as term bond maturities as indicated:

Term Bond 1: Maturities from June 1, 20______through June 1, 20______@ ______%. Term Bond 2: Maturities from June 1, 20______through June 1, 20______@ ______%. Term Bond 3: Maturities from June 1, 20______through June 1, 20______@ ______%. Term Bond 4: Maturities from June 1, 20______through June 1, 20______@ ______%. Term Bond 5: Maturities from June 1, 20______through June 1, 20______@ ______%.

We acknowledge that any original issue premium included with respect to any maturity of Bonds described above does not exceed 0.25% multiplied by the number of complete years to the earlier of the maturity date or the first optional redemption date with respect to such maturity (the “Allowable Premium”) and we agree that we will not offer any Bond with original issue premium in excess of the Allowable Premium for Bonds of such maturity.

If the Bonds are issued on a taxable basis then it is our understanding that the final approving opinion of Bryant Miller Olive P.A., Bond Counsel, Tampa, Florida, whose opinion together with the executed Bonds, will be furnished by the District without cost to us.

Accepted for and on behalf of the Respectfully submitted, West Knox Utility District of Knox County, Tennessee, this 15th day of November 2010. ______Total interest cost from Daniel H. Hurst, President November 30, 2010 to final maturity $ Less: Premium /plus discount, if any $ Net Interest Cost ...... $ True Interest Rate ...... %

The computations of net interest cost and true interest rate are for comparison purposes only and are not to be considered as part of this proposal. xiii

$35,000,000 WEST KNOX UTILITY DISTRICT OF KNOX COUNTY, TENNESSEE Water and Sewer Revenue Bonds, Series 2010

SECURITIES OFFERED

AUTHORITY AND PURPOSE

This Preliminary Official Statement, which includes the Summary Information Statement and appendices, is furnished in connection with the offering by the West Knox Utility District of Knox County, Tennessee (the “District” or “Issuer”) of $35,000,000 Water and Sewer Revenue Bonds, Series 2010 (the “Bonds”).

The Bonds are authorized to be issued pursuant to the provisions of Title 7, Chapter 82, Tennessee Code Annotated, as supplemented and amended, and other applicable provisions of law and pursuant a resolution adopted by the Board of Commissioners of the District (the “Board”) on June 11, 1997, as amended and restated in its entirety by a resolution adopted by the Board on August 27, 2009, as amended and supplemented from time to time, as supplemented by a resolution adopted by the Board on October 28, 2010 (collectively, the “Resolution”).

The Bonds are being issued for the purposes of providing funds to finance or reimburse (i) the acquisition of land for and the construction, improvement, renovation, equipping of improvements and additions to the System; (ii) the acquisition of all property, real and personal, appurtenant thereto or connected thereto; (iii) the payment of legal, fiscal, administrative, architectural and engineering costs incident thereto; and (iv) the payment of costs incident to the issuance of the Bonds.

DESCRIPTION OF THE BONDS

The Bonds will be initially dated and bear interest from their date of issuance and delivery (assume November 30, 2010). Interest on the Bonds will be payable semi-annually on June 1 and December 1, commencing June 1, 2011. The Bonds are issuable in book-entry only form in $5,000 denominations or integral multiples thereof as shall be requested by each respective registered owner.

The Bonds shall be signed by the President, shall be attested by the Secretary, and a District Seal shall be printed thereon. No Bond shall be valid until it has been authorized by the manual signature of an authorized officer or employee of the Registrar Agent and the date of the authentication noted thereon.

If the Bonds are awarded as Federally Taxable Build America Bonds, then the District will elect to treat the Bonds as “Build America Bonds” pursuant to Section 54AA of the Internal Revenue Code of 1986, as amended (the “Code”), and will elect to receive a cash subsidy from the United States Treasury in an amount equal to a percentage of interest paid on each interest 1 payment with respect to such Federally Taxable Build America Bonds (“Direct Subsidy Payments”). See “Federally Taxable Build America Bonds” herein.

SECURITY

The Bonds shall be payable from the revenues derived from the operation of the System subject only to the reasonable and necessary costs of operating, maintaining, repairing and insuring the System and to pledges of such revenues in favor of obligations secured by the revenues of the System (the “Net Revenues”). The Bonds shall be issued on parity with the District’s Obligations pursuant to a Loan Agreement between the District and the Public Building Authority of Sevier County, Tennessee dated July 1, 2000 which includes an interest rate swap agreement between the District and Morgan Keegan Financial Products, Inc. dated September 22, 2009 and a Loan Agreement between the District and the Public Building Authority of Sevier County, Tennessee dated August 28, 2009. If issued as Federally Taxable Build America Bonds, then the Bonds are additionally payable from, but not secured by Direct Subsidy Payments. The District has reserved the right to issue other Parity Obligations in the future on parity with the Bonds.

A statutory mortgage lien, which is hereby recognized as valid and binding, is created and granted by the Act on the System in favor of the owner or owners of this Bond and the issue of which it is a part and any Parity Obligations hereafter issued on a parity therewith, and the System shall remain subject to such statutory mortgage lien until the payment in full of the principal of and interest on said Bonds.

The Bonds will not be obligations of the State of Tennessee.

OPTIONAL REDEMPTION OF THE BONDS

The Bonds maturing June 1, 2023 through June 1, 2040 are subject to optional redemption prior to maturity at the option of the District on or after June 1, 2022 and thereafter, as a whole or in part, at any time, at the redemption price of par plus accrued interest to the redemption date. The Bonds maturing June 1, 2041 through June 1, 2045 are subject to optional redemption prior to maturity at the option of the District on or after June 1, 2025 and thereafter, as a whole or in part, at any time, at the redemption price of par plus accrued interest to the redemption date.

EXTRAORDINARY OPTIONAL REDEMPTION OF FEDERALLY TAXABLE BUILD AMERICA BONDS

If the Bonds are issued as Federally Taxable Build America Bonds, then the Bonds maturing June 1, 2021 through June 1, 2040 shall be subject to extraordinary optional redemption prior to June 1, 2022, in whole or in part, at the option of the District, at the "Extraordinary Redemption Price", as described below, upon the occurrence of an "Extraordinary Event", as defined below. If the Bonds are issued as Federally Taxable Build America Bonds, then the Bonds maturing June 1, 2041 through June 1, 2045 shall be subject to extraordinary optional redemption prior to June 1, 2025, in whole or in part, at the option of the District, at the "Extraordinary Redemption Price", as described below, upon the occurrence of an 2 "Extraordinary Event", as defined below. The Extraordinary Redemption Price is equal to the greater of (A) the issue price of the Federally Taxable Build America Bonds, as described in the Federal Tax Certificate (but not less than 100%), to be redeemed or (B) the sum of the present values of the remaining scheduled payments of principal and interest on the Federally Taxable Build America Bonds to be redeemed to the first optional redemption date described above, treating any principal payments due after such optional redemption date as if such principal payments were due on such optional redemption date of such Federally Taxable Build America Bonds, not including any portion of those payments of interest accrued and unpaid as of the date on which the Federally Taxable Build America Bonds are to be redeemed, discounted to the date on which the Federally Taxable Build America Bonds are to be redeemed on a semi-annual basis, assuming a 360-day year consisting of twelve 30-day months, at the Treasury Rate (as defined in below) plus one hundred basis points, plus accrued interest on the Bonds to be redeemed to the Redemption Date.

An "Extraordinary Event" shall have occurred if the District determines that a material adverse change has occurred to Section 54AA or Section 6431 of the Code (as such sections were added by America Recovery and Reinvestment Act, pertaining to Build America Bonds) with respect to the Bonds or there is any guidance published by the Internal Revenue Service or the Department of the Treasury with respect to such sections or any other determination by the Internal Revenue Service of the Department of the Treasury, which determination is not the result of an act or omission by the District to satisfy the requirements to receive the Direct Subsidy Payments, pursuant to which the Direct Subsidy Payments are reduced or eliminated.

"Treasury Rate" means, with respect to any redemption date for a particular Bond, the rate per annum, expressed as a percentage of the principal amount, equal to the semiannual equivalent yield to maturity or interpolated maturity of the Comparable Treasury Issue, assuming that the Comparable Treasury Issue is purchased on the redemption date for a price equal to the Comparable Treasury Price, as calculated by the Designated Investment Banker.

For the purposes of determining the Treasury Rate, the following definitions shall apply:

"Comparable Treasury Issue" means, with respect to any redemption date for a particular Bond, the United States Treasury security or securities selected by the Designated Investment Banker which has or have an actual or interpolated maturity comparable to the remaining life of the applicable Bonds to be redeemed, and that would be utilized in accordance with customary financial practice in pricing new issues of debt securities of comparable maturity to the remaining average life of the applicable Bonds to be redeemed.

"Comparable Treasury Price" means, with respect to any redemption date for a particular Bond, (1) the average of the Reference Treasury Dealer Quotations for such redemption date, after excluding the highest and lowest Reference Treasury Dealer Quotations, or (2) if the Designated Investment Banker obtains fewer than four such Reference Treasury Dealer Quotations, the average of all such quotations.

"Designated Investment Banker" means one of the Reference Treasury Dealers appointed by the District.

3 "Reference Treasury Dealer" means three firms, specified by the District from time to time, that are primary U.S. Government securities dealers in City of New York, New York (each a "Primary Treasury Dealer"); provided, however, that if any of them ceases to be a Primary Treasury Dealer, the District shall substitute another Primary Treasury Dealer.

"Reference Treasury Dealer Quotations" means, with respect to each Reference Treasury Dealer and any redemption date for a particular Bond, the average, as determined by the Designated Investment Banker, of the bid and asked prices for the Comparable Treasury Issue (expressed in each case as a percentage of its principal amount) quoted in writing to the Designated Investment Banker by such Reference Treasury Dealer at 3:30 p.m., New York City time, on the third business day preceding such redemption date.

MANDATORY REDEMPTION OF THE BONDS

Subject to the credit hereinafter provided, the District shall redeem Bonds maturing June ______on the redemption dates set forth on the following page opposite the maturity dates, in aggregate principal amounts equal to the respective dollar amounts set forth below opposite the respective redemption dates at a price of par plus accrued interest thereon to the date of redemption. DTC, as securities depository for the Bonds or such Person as shall then be serving as the securities depository for the Bonds, shall determine the interest of each Participant in the Bonds to be redeemed using its procedures generally in use at that time. If DTC, or another securities depository is no longer serving as securities depository for the Bonds, the Bonds to be redeemed within a maturity shall be selected by the Registration Agent by lot or such other random manner as the Registration Agent in its discretion shall select. The dates of redemption and principal amount of Bonds to be redeemed on said dates are as follows:

Final Maturity Redemption Date Principal Amount Bonds Redeemed

*Final Maturity

At its option, to be exercised on or before the forty-fifth (45th) day next preceding any such redemption date, the District may (i) deliver to the Registration Agent for cancellation Bonds to be redeemed, in any aggregate principal amount desired, and/or (ii) receive a credit in respect of its redemption obligation under this mandatory redemption provision for any Bonds of the maturity to be redeemed which prior to said date have been purchased or redeemed (otherwise than through the operation of this mandatory sinking fund redemption provision) and canceled by the Registration Agent and not theretofore applied as a credit against any redemption obligation under this mandatory sinking fund provision. Each Bond so delivered or previously purchased or redeemed shall be credited by the Registration Agent at 100% of the principal amount thereof on the obligation of the District on such payment date and any excess shall be credited on future redemption obligations in chronological order, and the principal amount of Bonds to be redeemed by operation of this mandatory sinking fund provision shall be accordingly reduced.

4 SELECTION OF BONDS FOR REDEMPTION AND NOTICE OF REDEMPTION

If less than all the Bonds shall be called for redemption, the maturities to be redeemed shall be designated by the Board of Commissioners of the District, in its discretion. If less than all the principal amount of the Bonds of a maturity shall be called for redemption, the interests within the maturity to be redeemed shall be selected as follows:

(i) if the Bonds are being held under a Book-Entry System by DTC, or a successor Depository, the amount of the interest of each DTC Participant in the Bonds to be redeemed shall be determined by DTC, or such successor Depository, by lot or such other manner as DTC, or such successor Depository, shall determine; or

(ii) if the Bonds are not being held under a Book-Entry System by DTC, or a successor Depository, the Bonds within the maturity to be redeemed shall be selected by the Registration Agent by lot or such other random manner as the Registration Agent in its discretion shall determine.

Notice of call for redemption, whether optional or mandatory, shall be given by the Registration Agent not less than twenty (20) nor more than sixty (60) days prior to the date fixed for redemption by sending an appropriate notice to the registered owners of the Bonds to be redeemed by first-class mail, postage prepaid, at the addresses shown on the Bond registration records of the Registration Agent as of the date of the notice; but neither failure to mail such notice nor any defect in any such notice so mailed shall affect the sufficiency of the proceedings for the redemption of any of the Bonds for which proper notice was given. As long as DTC, or a successor Depository, is the registered owner of the Bonds, all redemption notices shall be mailed by the Registration Agent to DTC, or such successor Depository, as the registered owner of the Bonds, as and when above provided, and neither the District nor the Registration Agent shall be responsible for mailing notices of redemption to DTC Participants or Beneficial Owners. Failure of DTC, or any successor Depository, to provide notice to any DTC Participant will not affect the validity of such redemption. From and after any redemption date, all Bonds called for redemption shall cease to bear interest if funds are available at the office of the Registration Agent for the payment thereof and if notice has been duly provided as set forth in the Resolution.

PAYMENT OF BONDS

The Bonds will bear interest from their date or from the most recent interest payment date to which interest has been paid or duly provided for, on the dates provided herein, such interest being computed upon the basis of a 360-day year of twelve 30-day months. Interest on each Bond shall be paid by check or draft of the Registration Agent to the person in whose name such Bond is registered at the close of business on the 15th day of the month next preceding the interest payment date. The principal of and premium, if any, on the Bonds shall be payable in lawful money of the United States of America at the principal corporate trust office of the Registration Agent.

5 Federally Taxable Build America Bonds

General

The American Recovery and Reinvestment Act of 2009, enacted February 17, 2009, added Section 54AA to the Code, allowing state and local governments to issue new types of bonds termed build America bonds (“Federally Taxable Build America Bonds”). Federally Taxable Build America Bonds are taxable governmental bonds with federal subsidies for a portion of the interest payable on such bonds. The subsidies take the form of either tax credits provided to holders of the bonds or refundable tax credits paid to state and local governmental issuers of the bonds.

Federally Taxable Build America Bonds - Direct Payment

If the Bonds are awarded as Federally Taxable Build America Bonds under Section 54AA of the Code, then the District will elect to receive a credit with respect to each interest payment made for the Federally Taxable Build America Bonds. Thus, the District, rather than the bondholders, will receive a federal subsidy for a portion of the interest payable on the Federally Taxable Build America Bonds. Pursuant to Section 6431 of the Code, the District is eligible to receive Direct Subsidy Payments from the United States Treasury equal to 35% of the interest payable on the Federally Taxable Build America Bonds on any interest payment date. To receive a Direct Subsidy Payment, the District must comply with certain requirements of the Code, including those regarding investment and use of bond proceeds, and must file a tax return (the “Form 8038-CP”) with the Internal Revenue Service (the “IRS”) at least forty-five (45) days, but not more than ninety (90) days, before each interest payment date for the Federally Taxable Build America Bonds. Direct Subsidy Payments will only be paid if the Bonds are “Qualified Bonds” under Section 54AA(g) of the Code. The District should generally receive a Direct Subsidy Payment on or around each interest payment date. The District may receive the Direct Subsidy Payment before or after the corresponding interest payment date depending on various factors, including when the Form 8038-CP was filed. If the District fails to file the necessary Form 8038-CP in a timely manner, it is possible the District’s receipt of such Direct Subsidy Payment would be delayed.

Although there is no indication that the District will not receive the Direct Subsidy Payments if it complies with all applicable requirements of the Code, there can be no assurances that the United States Treasury will make the Direct Subsidy Payments to the District, or that the United States Congress will not attempt to reduce the amount of the Direct Subsidy Payments. No assurance can be given that any future legislation, clarification, amendments to the Code, if enacted into law, judicial decisions or failure by the District to file the Form 8038-CP or otherwise satisfy other eligibility requirements will not potentially reduce or eliminate Direct Subsidy Payments expected to be received by the District with respect to the Bonds. Because Direct Subsidy Payments are treated by the IRS as overpayments of tax, the amount of any Direct Subsidy Payment may be offset by certain amounts owed by the District to any federal agency, for any reason, related or unrelated to the Bonds or the Direct Subsidy Payments. The Net Revenues of the District are pledged for the prompt payment of principal of and interest on the Federally Taxable Build America Bonds whether or not the Direct Subsidy Payments are received. 6

Interest on the Federally Taxable Build America Bonds is includable in gross income federal income tax purposes, and neither holders nor beneficial owners of the Federally Taxable Build America Bonds are entitled to any tax credits as a result of either ownership of, or receipt of any interest payments on, the Federally Taxable Build America Bonds. For a further discussion of certain tax consequences of ownership of the Federally Taxable Build America Bonds, see “LEGAL MATTERS - TAX MATTERS - Taxable Bonds” herein. Holders and beneficial owners of the Federally Taxable Build America Bonds should consult their tax advisors with respect to the inclusion of interest on the Federally Taxable Build America Bonds in gross income for federal income tax purposes.

(The remainder of this page left blank intentionally.)

7 BASIC DOCUMENTATION

REGISTRATION AGENT

The Registration Agent, Regions Bank, Nashville, Tennessee, its successor or the District will make all interest payments with respect to the Bonds on each interest payment date directly to Cede & Co., as nominee of DTC, the registered owner as shown on the Bond registration records maintained by the Registration Agent, except as follows. However, if the winning bidder certifies to the District that it intends to hold the Bonds for its own account and has no present intent to reoffer the Bonds, then the use of the Book-Entry System is not required.

So long as Cede & Co. is the Registered Owner of the Bonds, as nominee of DTC, references herein to the Bondholders, Holders or Registered Owners of the Bonds shall mean Cede & Co. and shall not mean the Beneficial Owners of the Bonds. For additional information, see the following section.

BOOK-ENTRY ONLY SYSTEM

The Registration Agent, its successor or the District will make all interest payments with respect to the Bonds on each interest payment date directly to Cede & Co., as nominee of DTC, the registered owner as shown on the Bond registration records maintained by the Registration Agent as of the close of business on the fifteenth day of the month next preceding the interest payment date (the “Regular Record Date”) by check or draft mailed to such owner at its address shown on said Bond registration records, without, except for final payment, the presentation or surrender of such registered Bonds, and all such payments shall discharge the obligations of the District in respect of such Bonds to the extent of the payments so made, except as described above. Payment of principal of the Bonds shall be made upon presentation and surrender of such Bonds to the Registration Agent as the same shall become due and payable.

The Bonds, when issued, will be registered in the name of Cede & Co., DTC’s partnership nominee, except as described above. When the Bonds are issued, ownership interests will be available to purchasers only through a book-entry system maintained by DTC (the “Book-Entry Only System”). One or more fully-registered bond certificates will be issued for each maturity, in the entire aggregate principal amount of the Bonds and will be deposited with DTC.

DTC and its Participants. DTC is a limited-purpose trust company organized under the New York Bank Law, a “banking organization” within the meaning of the New York Banking Law, a member of the Federal Reserve System, a “clearing corporation” within the meaning of the New York Uniform Commercial Code, and a “clearing agency” registered pursuant to the provisions of Section 17A of the Securities Exchange Act of 1934. DTC holds and provides

8 asset servicing for securities that its participants (the “Direct Participants”) deposit with DTC. DTC also facilitates the settlement among Direct Participants of securities transactions, such as transfers and pledges, in deposited securities through electronic computerized book-entry-only changes in DTC Participants’ accounts, thereby eliminating the need for physical movement of securities certificates. Direct Participants include both U.S. and non-U.S. securities brokers and dealers, banks, trust companies, clearing corporations, and certain other organizations. DTC is a wholly-owned subsidiary of The Depository Trust & Clearing Corporation (“DTCC”). DTCC, in turn, is owned by a number of its Direct Participants and Members of the National Securities Clearing Corporation, Government Securities Clearing Corporation, MBS Clearing Corporation, and Emerging Markets Clearing Corporation, (the “NSCC”, “GSCC”, “MBSCC”, and “EMCC”, also subsidiaries of DTCC), as well as by the New York Stock Exchange, Inc. (the “NYSE”), the American Stock Exchange LLC and the National Association of Securities Dealers, Inc. Access to the DTC system is also available to others, such as both U.S. and non-U.S. securities brokers and dealers, banks and trust companies that clear through or maintain a custodial relationship with a Direct DTC Participant, either directly or indirectly (the “Indirect Participants” and, together with the Direct Participants, the “Participants”). DTC has S&P’s highest Ratings: “AAA.” The rules applicable to DTC and its Participants are on file with the Securities and Exchange Commission. More information about DTC can be found at www.dtc.com.

Purchase of Ownership Interests. Purchases of the Bonds under the DTC system must be made by or through Direct Participants, which will receive a credit for the Bonds on DTC’s records. The ownership interest of each actual purchaser of each Bond (a “beneficial owner”) is in turn to be recorded on the Direct and Indirect Participants’ records. Beneficial owners will not receive written confirmation from DTC of their purchase, but beneficial owners are expected to receive written confirmations providing details of the transaction, as well as periodic statements of their holdings, from the Direct or Indirect Participant through whom such beneficial owners entered into the transaction. Transfers of ownership interests in the Bonds are to be accomplished by entries made on the books of Direct and Indirect Participants acting on behalf of beneficial owners. Beneficial owners will not receive certificates representing their ownership interests in the Bonds, except as specifically provided in the Bonds in the event that use of the book-entry-only system is discontinued.

Payments of Principal and Interest. Principal and interest payments on the Bonds will be made to Cede & Co., or such other nominee as may be requested by an authorized representative of DTC. DTC’s practice is to credit Direct Participants’ accounts, upon DTC’s receipt of funds and corresponding detail information from the Registration Agent on the payable date in accordance with their respective holdings shown on DTC’s records, unless DTC has reason to believe it will not receive payment on such date. Payments by Direct and Indirect Participants to beneficial owners will be governed by standing instructions and customary practices, as is the case with municipal securities held for the accounts of customers in bearer form or registered in “street name”, and will be the responsibility of such Participant and not of DTC, the District or the Registration Agent subject to any statutory or regulatory requirements as may be in effect from time to time. Payment of redemption proceeds, principal, tender price and interest payments to Cede & Co. (or such other nominee as may be requested by an authorized representative of DTC) is the responsibility of the Registration Agent, disbursement of such

9 payments to Direct Participants shall be the responsibility of DTC, and disbursement of such payments to the beneficial owners shall be the responsibility of Direct and Indirect Participants.

Notices. Conveyance of notices and other communications by DTC to Direct Participants, by Direct Participants to Indirect Participants, and by Direct Participants and Indirect Participants to beneficial owners will be governed by arrangements among them, subject to any statutory or regulatory requirements as may be in effect from time to time. Beneficial owners of Bonds may wish to take certain steps to augment transmission to them of notices of significant events with respect to the Bonds, such as redemptions, tenders, defaults, and General Obligation amendments to the bond documents. Beneficial owners of the Bonds may wish to ascertain that the nominee holding the Bonds for their benefit has agreed to obtain and transmit notices to beneficial owners, or in the alternative, beneficial owners may wish to provide their names and addresses to the Registration Agent and request that copies of the notices be provided directly to them.

Redemption notices shall be sent to DTC. If less than all of the Bonds within a maturity are being redeemed, DTC’s practice is to determine by lot the amount of the interest of each Direct Participant in such maturity to be redeemed. Neither DTC nor Cede & Co. (nor any other DTC nominee) will consent or vote with respect to the Bonds unless authorized by a Direct Participant in accordance with DTC’s procedures. Under its usual procedures, DTC mails an Omnibus Proxy to the District as soon as practicable after the record date. The Omnibus Proxy assigns Cede & Co.’s consenting or voting rights to those Direct Participants to whose accounts the Bonds are credited on the record date (identified in a listing attached to the Omnibus Proxy).

NONE OF THE DISTRICT, THE UNDERWRITER, THE BOND COUNSEL, THE FINANCIAL ADVISOR OR THE REGISTRATION AGENT WILL HAVE ANY RESPONSIBILITY OR OBLIGATION TO SUCH PARTICIPANTS OR THE PERSONS FOR WHOM THEY ACT AS NOMINEES WITH RESPECT TO THE PAYMENT TO, OR THE PROVIDING OF NOTICE FOR, SUCH PARTICIPANTS OR THE PERSONS FOR WHOM THEY ACT AS NOMINEES.

Transfers of Bonds. To facilitate subsequent transfers, all Bonds deposited by Direct Participants with DTC are registered in the name of DTC’s partnership nominee, Cede & Co. or such other name as may be requested by an authorized representative of DTC. The deposit of the Bonds with DTC and their registration in the name of Cede & Co. or such other nominee do not effect any change in beneficial ownership. DTC has no knowledge of the actual beneficial owners of the Bonds; DTC’s records reflect only the identity of the Direct Participants to whose accounts such Bonds are credited, which may or may not be the beneficial owners. The Direct and Indirect Participants will remain responsible for keeping account of their holdings on behalf of their customers.

None of the District, the Bond Counsel, the Registration Agent, the Financial Advisor or the Underwriter will have any responsibility or obligation, legal or otherwise, to any party other than to the registered owners of any Bond on the registration books of the Registration Agent.

10 DISCONTINUANCE OF BOOK-ENTRY ONLY SYSTEM

In the event that (i) DTC determines not to continue to act as securities depository for the Bonds or (ii) to the extent permitted by the rules of DTC, the District determines to discontinue the Book-Entry System, the Book-Entry System shall be discontinued. Upon the occurrence of the event described above, the District will attempt to locate another qualified securities depository, and if no qualified securities depository is available, Bond certificates will be printed and delivered to beneficial owners.

No Assurance Regarding DTC Practices. The foregoing information in this section concerning DTC and DTC’s book-entry system has been obtained from sources that the District believes to be reliable, but the District, the Bond Counsel, the Registration Agent, the Financial Advisor and the Underwriter do not take any responsibility for the accuracy thereof. So long as Cede & Co. is the registered owner of the Bonds as nominee of DTC, references herein to the holders or registered owners of the Bonds will mean Cede & Co. and will not mean the beneficial owners of the Bonds. None of the District, the Bond Counsel, the Registration Agent, the Financial Advisor or the Underwriter will have any responsibility or obligation to the Participants, DTC or the persons for whom they act with respect to (i) the accuracy of any records maintained by DTC or by any Direct or Indirect Participant of DTC, (ii) payments or the providing of notice to Direct Participants, the Indirect Participants or the beneficial owners or (iii) any other action taken by DTC or its partnership nominee as owner of the Bonds.

For more information on the duties of the Registration Agent, please refer to the Resolution. Also, please see the section entitled “SECURITIES OFFERED – Redemption.”

DISPOSITION OF BOND PROCEEDS

The proceeds of the sale of the Bonds shall be applied by the District as follows:

(a) all accrued interest, if any, shall be deposited to the appropriate fund of the District to be used to pay interest on the Bonds on the first interest payment date following delivery of the Bonds;

(b) the remainder of the proceeds of the sale of the Bonds shall be deposited with a financial institution regulated by the Federal Deposit Insurance Corporation or similar federal agency in a special fund known as the 2010 Construction Fund, or such other designation as shall be determined by the President, (the "Fund") to be kept separate and apart from all other funds of the District. The District shall disburse funds in the Fund to pay costs of issuance of the Bonds, including necessary legal, accounting and fiscal expenses, printing, engraving, advertising and similar expenses, administrative and clerical costs, Registration Agent fees, and other necessary miscellaneous expenses incurred in connection with the issuance and sale of the Bonds. The remaining funds in the Fund shall be disbursed solely to pay or to reimburse the District for the costs of the Project. Money in the Fund shall be secured in the manner prescribed by applicable statutes relative to the securing of public or trust funds, if any, or, in the absence of such a statute, by a pledge of readily marketable securities having at all times a market value of not less than the amount in said Fund. Money in the Fund shall be expended only for the purposes

11 authorized by the resolution. Moneys in the Fund shall be invested at the direction of the General Manager and / or the Accounting Manager in such investments as shall be permitted by applicable law. Earnings from such investments shall be deposited in the Fund.

DISCHARGE AND SATISFACTION OF BONDS

If the District shall pay and discharge the indebtedness evidenced by any of the Bonds in any one or more of the following ways:

(a) By paying or causing to be paid, by deposit of sufficient funds as and when required with the Registration Agent, the principal of and interest on such Bonds as and when the same become due and payable;

(b) By depositing or causing to be deposited with any trust company or financial institution whose deposits are insured by the Federal Deposit Insurance Corporation or similar federal agency and which has trust powers (“an Agent”; which Agent may be the Registration Agent) in trust or escrow, on or before the date of maturity or redemption, sufficient money or Defeasance Obligations, as hereafter defined, the principal of and interest on which, when due and payable, will provide sufficient moneys to pay or redeem such Bonds and to pay interest thereon when due until the maturity or redemption date (provided, if such Bonds are to be redeemed prior to maturity thereof, proper notice of such redemption shall have been given or adequate provision shall have been made for the giving or such notice);

(c) By delivering such Bonds to the Registration Agent for cancellation by it; and if the District shall also pay or cause to be paid all other sums payable hereunder by the District with respect to such Bonds, or make adequate provision therefor, and by resolution of the Governing Body instruct any such escrow agent to pay amounts when and as required to the Registration Agent for the payment of principal of and interest on such Bonds when due, then and in that case the indebtedness evidenced by such Bonds shall be discharged and satisfied and all covenants, agreements and obligations of the District to the holders of such Bonds shall be fully discharged and satisfied and shall thereupon cease, terminate and become void.

If the District shall pay and discharge the indebtedness evidenced by any of the Bonds in the manner provided in either clause (a) or clause (b) above, then the registered owners thereof shall thereafter be entitled only to payment out of the money or Defeasance Obligations (defined herein) deposited as aforesaid.

Except as otherwise provided in this section, neither Defeasance Obligations nor moneys deposited with the Registration Agent nor principal or interest payments on any such Defeasance Obligations shall be withdrawn or used for any purpose other than, and shall be held in trust for, the payment of the principal and interest on said Bonds; provided that any cash received from such principal or interest payments on such Defeasance Obligations deposited with the Registration Agent, (A) to the extent such cash will not be required at any time for such purpose, shall be paid over to the District as received by the Registration Agent and (B) to the extent such cash will be 12 required for such purpose at a later date, shall, to the extent practicable, be reinvested in Defeasance Obligations maturing at times and in amounts sufficient to pay when due the principal and interest to become due on said Bonds on or prior to such redemption date or maturity date thereof, as the case may be, and interest earned from such reinvestments shall be paid over to the District, as received by the Registration Agent. For the purposes hereof, Defeasance Obligations shall mean direct obligations of, or obligations, the principal of and interest on which are guaranteed by, the United States of America, or any agency thereof, obligations of any agency or instrumentality of the United States or any other obligations at the time of the purchase thereof are permitted investments under Tennessee law for the purposes described herein, which bonds or other obligations shall not be subject to redemption prior to their maturity other than at the option of the registered owner thereof.

REMEDIES OF BONDHOLDERS

Any owner of the Bonds shall have such remedies as provided by Title 7, Chapter 82, Tennessee Code Annotated, as amended.

(The remainder of this page left blank intentionally.)

13 LEGAL MATTERS

LITIGATION

There are no claims against the District, including claims in litigation, which, in the opinion of the District, would materially affect the District’s financial position as it relates to its ability to make payments on the Bonds. There are no suits threatened or pending challenging the legality or validity of the Bonds or the right of the District to sell or issue the Bonds. See the subsection entitled “Closing Certificates” for additional information.

TAX MATTERS1

The following language describing tax matters related to Tax-Exempt Bonds will only apply if the Bonds are issued as tax-exempt bonds, and shall not apply in the event the Bonds are issued as Federally Taxable Build America Bonds.

Tax-Exempt Bonds

General. The Code establishes certain requirements which must be met subsequent to the issuance of the Bonds in order that interest on the Bonds be and remain excluded from gross income for purposes of federal income taxation. Non-compliance may cause interest on the Bonds to be included in federal gross income retroactive to the date of issuance of the Bonds, regardless of the date on which such non-compliance occurs or is ascertained. These requirements include, but are not limited to, provisions which prescribe yield and other limits within which the proceeds of the Bonds and the other amounts are to be invested and require that certain investment earnings on the foregoing must be rebated on a periodic basis to the Treasury Department of the United States (the "Treasury"). The District has covenanted in the Resolution to comply with such requirements in order to maintain the exclusion from gross income for federal income tax purposes of the interest on the Bonds.

In the opinion of Bond Counsel, assuming compliance with certain covenants, under existing laws, regulations, judicial decisions and rulings, interest on the Bonds is excluded from gross income for purposes of federal income taxation and is not an item of tax preference for purposes of the federal alternative minimum tax imposed on individuals and corporations. Interest on the Bonds is not taken into account in determining adjusted current earnings for purposes of computing the alternative minimum tax on corporations.

Except as described above, Bond Counsel will express no opinion regarding any other federal income tax consequences resulting from the ownership of, receipt or accrual of interest on, or disposition of the Bonds. Prospective purchasers of the Bonds should be aware that the

1 The Bonds will be issued and designated as Federally Taxable Build America Bonds only if that option produces a lower True Interest Cost (“TIC”) (calculated in the manner described in the Official Notice of Sale) when compared to the option of issuing the Bonds on a tax‐exempt basis. If the Bonds are issued and designated as Federally Taxable Build America Bonds, the name of the issue will be revised accordingly to reflect that the Bonds are being issued as Federally Taxable Build America Bonds. In such case, the opinions expressed with respect the Bonds as tax‐exempt bonds will become inapplicable and in the event the Bonds are issued as Federally Taxable Build America Bonds, the opinions expressed with respect to the Bonds as tax‐exempt bonds shall become inapplicable. Bids for the Bonds will be on an “all or none” basis. 14 ownership of Bonds may result in collateral federal income tax consequences, including (i) the denial of a deduction for interest on indebtedness incurred or continued to purchase or carry Bonds; (ii) the reduction of the loss reserve deduction for property and casualty insurance companies by fifteen percent (15%) of certain items, including interest on the Bonds; (iii) the inclusion of interest on the Bonds in earnings of certain foreign corporations doing business in the United States for purposes of branch profits tax; (iv) the inclusion of interest on the Bonds in passive income subject to federal income taxation of certain Subchapter S corporations with Subchapter C earnings and profits at the close of the taxable year; and (v) the inclusion of interest on the Bonds in "modified adjusted gross income" by recipients of certain Social Security and Railroad Retirement benefits for the purposes of determining whether such benefits are included in gross income for federal income tax purposes.

As to questions of fact material to the opinions of Bond Counsel, Bond Counsel will rely upon representations and covenants made on behalf of the District, certificates of appropriate officers and certificates of public officials (including certifications as to the use of proceeds of the Bonds and the property financed thereby), without undertaking to verify the same by independent investigation.

PURCHASE, OWNERSHIP, SALE OR DISPOSITION OF THE BONDS AND THE RECEIPT OR ACCRUAL OF THE INTEREST THEREON MAY HAVE ADVERSE FEDERAL TAX CONSEQUENCES FOR CERTAIN INDIVIDUAL AND CORPORATE HOLDERS OF THE BONDS, INCLUDING, BUT NOT LIMITED TO, THE CONSEQUENCES DESCRIBED ABOVE. PROSPECTIVE HOLDERS OF THE BONDS SHOULD CONSULT WITH THEIR TAX SPECIALISTS FOR INFORMATION IN THAT REGARD.

Tax Treatment of Original Issue Discount for the Bonds. Under the Code, the difference between the maturity amount of the Bonds maturing on June 1, ____ and June 1, ____ (collectively, the " Discount Bonds"), and the initial offering price to the public (excluding bond houses, brokers or similar persons or organizations acting in the capacity of underwriters or wholesalers) at which price a substantial amount of the Discount Bonds of the same maturity was sold is "original issue discount." Original issue discount will accrue over the term of the Discount Bonds at a constant interest rate compounded periodically. A purchaser who acquires the Discount Bonds in the initial offering at a price equal to the initial offering price thereof to the public will be treated as receiving an amount of interest excludable from gross income for federal income tax purposes equal to the original issue discount accruing during the period he or she holds the Discount Bonds, and will increase his or her adjusted basis in the Discount Bonds by the amount of such accruing discount for purposes of determining taxable gain or loss on the sale or disposition of the Discount Bonds. The federal income tax consequences of the purchase, ownership and redemption, sale or other disposition of the Discount Bonds which are not purchased in the initial offering at the initial offering price may be determined according to rules which differ from those above. Holders of the Discount Bonds should consult their own tax advisors with respect to the precise determination for federal income tax purposes of interest accrued upon sale, redemption or other disposition of the Discount Bonds and with respect to the state and local tax consequences of owning and disposing of the Discount Bonds.

15 Tax Treatment of Bond Premium for the Bonds. The difference between the principal amount of the Bonds maturing on June 1, in the years ____ through and including ____ (collectively, the " Premium Bonds"), and the initial offering price to the public (excluding bond houses, brokers or similar persons or organizations acting in the capacity of underwriters or wholesalers) at which price a substantial amount of such Premium Bonds of the same maturity was sold constitutes to an initial purchaser amortizable bond premium which is not deductible from gross income for federal income tax purposes. The amount of amortizable bond premium for a taxable year is determined actuarially on a constant interest rate basis over the term of each of the Premium Bonds, which ends on the earlier of the maturity or call date for each of the Premium Bonds which minimizes the yield on such Premium Bonds to the purchaser. For purposes of determining gain or loss on the sale or other disposition of a Premium Bond, an initial purchaser who acquires such obligation in the initial offering price is required to decrease such purchaser's adjusted basis in such Premium Bond annually by the amount of amortizable bond premium for the taxable year. The amortization of bond premium may be taken into account as a reduction in the amount of tax-exempt income for purposes of determining various other tax consequences of owning such Premium Bonds. Holders of the Premium Bonds are advised that they should consult with their own advisors with respect to the state and local tax consequences of owning such Premium Bonds.

Information Reporting and Backup Withholding. Interest paid on tax-exempt bonds such as the Bonds is subject to information reporting to the Internal Revenue Service in a manner similar to interest paid on taxable obligations. This reporting requirement does not affect the excludability of interest on the Bonds from gross income for federal income tax purposes. However, in conjunction with that information reporting requirement, the Code subjects certain non- corporate owners of Bonds, under certain circumstances, to "backup withholding" at (i) the fourth lowest rate of tax applicable under Section 1(c) of the Code (i.e., a rate applicable to unmarried individuals) for taxable years beginning on or before December 31, 2010; and (ii) the rate of 31% for taxable years beginning after December 31, 2010, with respect to payments on the Bonds and proceeds from the sale of the Bonds. Any amount so withheld would be refunded or allowed as a credit against the federal income tax of such owner of Bonds. This withholding generally applies if the owner of Bonds (i) fails to furnish the payor such owner's social security number or other taxpayer identification number ("TIN"), (ii) furnished the payor an incorrect TIN, (iii) fails to properly report interest, dividends, or other "reportable payments" as defined in the Code, or (iv) under certain circumstances, fails to provide the payor or such owner's securities broker with a certified statement, signed under penalty of perjury, that the TIN provided is correct and that such owner is not subject to backup withholding. Prospective purchasers of the Bonds may also wish to consult with their tax advisors with respect to the need to furnish certain taxpayer information in order to avoid backup withholding.

Other Tax Matters Relating to the Bonds. Purchasers of the Bonds should consult their tax advisors as to the tax consequences to them of owning the Bonds in their particular state or local jurisdiction.

During recent years, legislative proposals have been introduced in Congress, and in some cases enacted, that altered certain federal tax consequences resulting from the ownership of obligations that are similar to the Bonds. In some cases, these proposals have contained 16 provisions that altered these consequences on a retroactive basis. Such alteration of federal tax consequences may have affected the market value of obligations similar to the Bonds. From time to time, legislative proposals are pending which could have an effect on both the federal tax consequences resulting from ownership of the Bonds and their market value. No assurance can be given that legislative proposals will not be enacted that would apply to, or have an adverse effect upon, the Bonds.

The following language describing tax matters related to Federally Taxable Build America Bonds will only apply if the Bonds are issued as Federally Taxable Build America Bonds, and shall not apply in the event the Bonds are issued as tax-exempt bonds.

Federally Taxable Build America Bonds

General. The District, pursuant to the Recovery Act has issued the Bonds as Build America Bonds and further designated the Bonds as Recovery Zone Economic Development Bonds. The District has elected to receive Direct Subsidy Payments from the United States Treasury equal to 35% of the interest payable on the Bonds. The availability of such Direct Subsidy Payments is subject to the District’s continued compliance with certain covenants and establishment of certain facts and expectations with respect to the Bonds, the use and investment proceeds thereof and the use of property financed thereby.

No assurances can be provided that the District will receive the Direct Subsidy Payments. The amount of any Direct Subsidy Payment is subject to legislative changes by Congress. Direct Subsidy Payments will only be paid if the Bonds are "qualified bonds" under Section 54AA(g) of the Code (hereafter "Qualified Build America Bonds"). For the Bonds to be and remain Qualified Build America Bonds, the District must comply with certain requirements of the Code and establish certain facts and expectations with respect to the Federally Taxable Build America Bonds, including the use and investment of proceeds thereof and the use of property financed thereby. The District has not covenanted to and is not obligated to comply with the requirements of the Code in order for the bonds to remain Qualified Build America Bonds.

In addition, the District must timely file a Form 8038-CP with respect to each interest payment date requesting the associated Direct Subsidy Payment. If the District fails to file the necessary Form 8038-CP in a timely manner, it is possible that the District’s receipt of such Direct Subsidy Payment will be delayed. Direct Subsidy Payments are subject to offset against certain amounts that may, for any reason, related or unrelated to the Bonds or the Direct Subsidy Payment, be owed by the District to an agency of the United States. The District is obligated to make all payments of principal and interest on the Bonds whether or not it receives the Direct Subsidy Payments.

The following is a summary of certain anticipated United States federal income tax consequences of the purchase, ownership and disposition of the Bonds by certain persons. The summary is based upon provisions of the Code, the regulations promulgated thereunder and rulings and court decisions now in effect, all of which are subject to change. This summary is intended as a general explanatory discussion of the consequences of holding the Bonds, limited to those persons who hold the Bonds as “capital assets” within the meaning of Section 1221 of the Code. This summary does not purport to address all aspects of federal income taxation that 17 may affect particular investors in light of their individual circumstances or certain types of investors subject to special treatment under the federal income tax laws, including but not limited to financial institutions, insurance companies, dealers in securities or currencies, persons holding the Bonds as a hedge against currency risks or as a position in a straddle for tax purposes, foreign investors or persons whose functional currency is not the U.S. dollar. This summary does not address alternative minimum tax issues or the indirect consequences to a holder of an equity interest in a holder of the Bonds. Potential purchasers of the Bonds should consult their own tax advisors in determining the federal, state or local tax consequences to them of the purchase, ownership and disposition of the Bonds.

As stated above, interest on the Bonds is not excluded from gross income for federal income tax purposes. Purchasers other than those who purchase the Bonds in the initial offering at their principal amounts will be subject to federal income tax accounting rules affecting the timing and/or characterization of payments received with respect to such Bonds. Generally, interest paid on the Bonds and recovery of accrued original issue and market discount, if any, will be treated as ordinary income to the Bondholder, and, after adjustment for the foregoing, principal payments will be treated as a return of capital.

Original Issue Discount. The following summary is a general discussion of certain federal income tax consequences of the purchase, ownership and disposition of the Bonds issued with original issue discount (" Discount Bonds"). A Bond will be treated as having been issued at an original issue discount if the excess of its "stated redemption price at maturity" (defined below) over its issue price (defined as the initial offering price to the public at which a substantial amount of the Bonds of the same maturity have first been sold to the public, excluding bond houses and brokers) equals or exceeds one quarter of one percent of such Bond's stated redemption price at maturity multiplied by the number of complete years to its maturity.

Generally, a Discount Bond's "stated redemption price at maturity" is the total of all payments provided by the Bonds that are not payments of "qualified stated interest." Generally, "qualified stated interest" includes stated interest that is unconditionally payable in cash or property (other than debt instruments of the issuer) at least annually at a single fixed rate.

In general, the amount of original issue discount includible in income by the initial holder of a Discount Bond is the sum of the "daily portions" of original issue discount with respect to such Bond for each day during the taxable year in which such holder held such Discount Bond. The daily portion of original issue discount is determined by allocating to each day in any accrual period a ratable portion of the original issue discount allocable to that accrual period.

An accrual period may be of any length, and may vary in length over the term of a Discount Bond, provided that each accrual period is not longer than one year and each scheduled payment of principal or interest occurs at the end of an accrual period. The amount of original issue discount allocable to each accrual period is equal to the difference between (i) the product of the Discount Bond's adjusted issue price at the beginning of such accrual period and its yield to maturity (determined on the basis of compounding at the close of each accrual period and appropriately adjusted to take into account the length of the particular accrual period) and (ii) the amount of any qualified stated interest payments allocable to such accrual period. The "adjusted issue price" of a Discount Bond at the beginning of any accrual period is the sum of the issue 18 price of the Discount Bond plus the amount of original issue discount allocable to all prior accrual periods minus the amount of any prior payments on the Discount Bond that were not qualified stated interest payments. Under these rules, holders will have to include in income increasingly greater amounts of original issue discount in successive accrual periods.

Holders of Discount Bonds should consult their own tax advisors as to the determination for federal income tax purposes of the amount of original issue discount properly accruable in any period and as to other federal tax consequences and the treatment of original issue discount for purposes of state and local taxes on, or based on, income.

Market Discount. If a holder purchases the Bonds for an amount that is less than the adjusted issue price of the Bonds, and such difference is not considered to be de minimis, then such discount will represent market discount. Absent an election to accrue market discount currently, upon a sale, exchange or other disposition of the Bonds, a portion of any gain will be ordinary income to the extent it represents the amount of any such market discount that was accrued through the date of sale. In addition, absent an election to accrue market discount currently, the portion of any interest expense incurred to carry a market discount bond is limited. Such holders should consult their own tax advisors with respect to whether or not they should elect to accrue market discount currently, the determination and treatment of market discount for federal income tax purposes and the state and local tax consequences of owning such Bonds.

Bond Premium. If a holder purchases a Bond at a cost greater than its principal amount, such holder may elect to treat such excess as amortizable bond premium. As the tax accounting treatment of bond premium is complex, such holders should consult their own tax advisors with respect to whether or not they should elect to amortize such premium under Section 171 of the Code.

Sale, Exchange or Redemption. Upon a sale, exchange or redemption of the Bonds, holders will generally realize a capital gain or loss on the Bonds equal to the difference between the amount realized on the sale, exchange or retirement (less any accrued qualified stated interest which will be taxable as such) and the holder's adjusted tax basis on the Bonds. The holder's adjusted tax basis for the Bonds is the price such owner pays for the Bonds plus the amount of any original issue discount and market discount previously included in income, reduced on account of any payments received (other than qualified periodic interest payments) and any amortized bond premium. The legal defeasance of the Bonds may result in a deemed sale or exchange of such bonds under certain circumstances, in which event an owner of the Bonds will also recognize taxable gain or loss as described above. Owners of such Bonds should consult their tax advisors as to the federal income tax consequences of any such an event.

Information Reporting and Backup Withholding. Interest paid on bonds such as the Bonds is subject to information reporting to the Internal Revenue Service. In conjunction with the information reporting requirement, the Code subjects certain non-corporate owners of Bonds, under certain circumstances, to "backup withholding" at (i) the fourth lowest rate of tax applicable under Section 1(c) of the Code (i.e., a rate applicable to unmarried individuals) for taxable years beginning on or before December 31, 2010; and (ii) the rate of 31% for taxable years beginning after December 31, 2010, with respect to payments on the 19 Bonds and proceeds from the sale of the Bonds. This withholding generally applies if the owner of Bonds (i) fails to furnish the payor such owner's social security number or other taxpayer identification number ("TIN"), (ii) furnished the payor an incorrect TIN, (iii) fails to properly report interest, dividends, or other "reportable payments" as defined in the Code, or (iv) under certain circumstances, fails to provide the payor or such owner's securities broker with a certified statement, signed under penalty of perjury, that the TIN provided is correct and that such owner is not subject to backup withholding. Backup withholding will not apply, however, with respect to certain payments made to holders, including payments to certain exempt recipients and to certain Nonresidents (defined below). Prospective purchasers of the Bonds may also wish to consult with their tax advisors as to their qualification for an exemption from backup withholding and the procedure for obtaining the exemption.

Nonresidents. Under the Code, interest and original issue discount income with respect to Bonds held by nonresident alien individuals, foreign corporations and other non- United States persons ("Nonresidents") may not be subject to withholding. Payments on the Bonds to a Nonresident that has no connection with the United States other than holding the Bonds will generally be made free of withholding tax, as long as such holder has complied with certain tax identification and certification requirements. Nonresidents should consult their own tax advisors in determining the federal, state or local tax consequences to them of the purchase, ownership and disposition of the Bonds.

State Law

Under existing law, the Bonds and the income therefrom are exempt from all present state, county and municipal taxes in the State of Tennessee except (a) inheritance, transfer and estate taxes, (b) Tennessee excise taxes on interest on the Bonds during the period the Bonds are held or beneficially owned by any organization or entity, or other than a sole proprietorship or general partnership doing business in the State of Tennessee, and (c) Tennessee franchise taxes by reason of the inclusion of the book value of the Bonds in the Tennessee franchise tax base of any organization or entity, other than a sole proprietorship or general partnership, doing business in the State of Tennessee.

Circular 230 Disclosure. The above discussion was written to support the promotion and marketing of the Bonds and was not intended or written to be used, and cannot be used, by a taxpayer for purposes of avoiding United States federal income tax penalties that may be imposed. Each taxpayer should seek advice based on the taxpayer's particular circumstances from an independent tax advisor.

APPROVAL OF LEGAL PROCEEDINGS

Certain legal matters relating to the authorization and the validity of the Bonds are subject to the approval of Bryant Miller Olive P.A., Tampa, Florida, bond counsel. Bond Counsel has not prepared the Preliminary Official Statement or the Official Statement, in final form, or verified their accuracy, completeness or fairness. Accordingly, Bond Counsel expresses no opinion of any kind concerning the Preliminary Official Statement or Official Statement, in final form, except for the information in the section entitled “LEGAL MATTERS - Tax 20 Matters.” The opinion of Bond Counsel will be limited to matters relating to authorization and validity of the Bonds and to the tax-exemption of interest on the Bonds under present federal income tax laws, both as described above. The legal opinion will be delivered with the Bonds and the form of the opinion is included in APPENDIX A.

(The remainder of this page left blank intentionally.)

21 MISCELLANEOUS

RATING

Standard & Poor’s Corporation (“Standard & Poor’s”) has given the Bonds the rating of “AA+”. There is no assurance that such rating will continue for any given period of time or that the rating may not be suspended, lowered or withdrawn entirely by Standard & Poor’s, if circumstances so warrant. Any such downward change in or withdrawal of the rating may have an adverse effect on the secondary market price of the Bonds.

The rating reflects only the views of Standard & Poor’s and any explanation of the significance of such rating should be obtained from Standard & Poor’s.

COMPETITIVE PUBLIC SALE

The Bonds will be offered for sale at competitive public bidding on November 15, 2010. Details concerning the public sale were provided to potential bidders and others in the Preliminary Official Statement dated November 5, 2010.

The successful bidder for the Bonds was an account led by ______, ______, ______(the “Underwriters”) who contracted with the District, subject to the conditions set forth in the Official Notice of Sale and Bid Form to purchase the Bonds at a purchase price of $______(consisting of the par amount of the Bonds, less an underwriter’s discount of $______and an original issue discount of $______) or ____% of par.

FINANCIAL ADVISOR; RELATED PARTIES; OTHER

Financial Advisor. Morgan Keegan & Company, Inc. (“Morgan Keegan”), Knoxville, Tennessee has been employed by the District to serve as its Financial Advisor. The Financial Advisor is a wholly-owned subsidiary of Regions Financial Corporation. The Financial Advisor and/or its affiliates may receive additional fees for providing services as an investment broker or bidding agent with respect to the investment of proceeds from the Bonds.

Financial Advisor - Permission to Bid. Consistent with applicable rules of the Municipal Securities Rulemaking Board (the “MSRB”), Morgan Keegan and/or its affiliated divisions and subsidiaries or related entities have received written permission from the District to bid on the Bonds. Accordingly, Morgan Keegan, and/or its affiliates and subsidiaries submitted a bid for the Bonds, either alone or in association with other dealers and/or dealer banks.

Regions Bank. Regions Bank (the “Bank”) is also a wholly-owned subsidiary of Regions Financial Corporation. The Bank provides, among other services, commercial banking, investments and corporate trust services to private parties and to State and local jurisdictions, including serving as registration, paying agent, filing agent or escrow agent related to debt offerings. The Bank will receive compensation for its role in serving as Registration and Paying Agent for the Bonds. In instances where the Bank serves the District in other normal commercial banking capacities, it will be compensated separately for such services.

22 Official Statements. Certain information relative to the location, economy and finances of the Issuer is found in the Preliminary Official Statement, in final form and the Official Statement, in final form. Except where otherwise indicated, all information contained in this Official Statement has been provided by the Issuer. The information set forth herein has been obtained by the Issuer from sources which are believed to be reliable but is not guaranteed as to accuracy or completeness by, and is not to be construed as a representation of, the Financial Advisor or the Underwriter. The information contained herein is subject to change without notice, and neither the delivery of this Official Statement nor any sale made hereunder shall under any circumstances create an implication that there has been no change in the affairs of the Issuer, or the other matters described herein since the date hereof or the earlier dates set forth herein as of which certain information contained herein is given.

Morgan Keegan distributed the Preliminary Official Statement, in final form, and the Official Statement, in final form on behalf of the District and will be compensated and/or reimbursed for such distribution and other such services.

Bond Counsel. From time to time, Bryant Miller Olive P.A. has represented Morgan Keegan and/or the Bank on legal matters unrelated to the District and may do so again in the future.

Issuer Counsel. From time to time, Robertson, Overbey, Wilson and Beeler has represented Morgan Keegan and/or the Bank on legal matters unrelated to the District and may do so again in the future.

Other. Among other services, Morgan Keegan and the Bank also assist local jurisdictions in the investment of idle funds and may serve in various other capacities. If the District chooses to use one or more of these other services provided by Morgan Keegan and/or the Bank, then Morgan Keegan and/or the Bank may be entitled to separate compensation for the performance of such services. On prior occasions, Morgan Keegan has served the District in other capacities and may do so again in the future.

DEBT LIMITATIONS

Pursuant to Title 7, Chapter 82, Tennessee Code Annotated, as amended, there is no limit on the amount of bonds that may be issued when the District uses the statutory authority granted therein to issue bonds.

DEBT RECORD

There is no record of a default on principal and interest payments by the District from information available. Additionally, no agreements or legal proceedings of the District relating to securities have been declared invalid or unenforceable.

CONTINUING DISCLOSURE

The District will at the time the Bonds are delivered execute a Continuing Disclosure Certificate (“Disclosure Certificate”) under which it will covenant for the benefit of holders and 23 beneficial owners of the Bonds to provide certain financial information and operating data relating to the District by not later than twelve months after the end of the fiscal year commencing with the fiscal year ending June 30, 2010 (the “Annual Report”), and to provide notice of the occurrence of certain enumerated events, if deemed by the District to be material under applicable federal securities laws. The Annual Report (and audited financial statements if filed separately) will be filed by the District with Municipal Securities Rulemaking Board (the “MSRB”). The sole Repository shall be the MSRB, through the operation of the Electronic Municipal Market Access system (“EMMA”) and any State Information Depository which may be established in Tennessee (the “SID”). If the District is unable to provide the Annual Report to the MSRB and the SID, if any, by the date set forth above for the filing of the Annual Report, notice of such failure shall be sent to the MSRB and the SID, if any, on or before such date. The notices of material events will be filed by the District with the MSRB and any SID. The specific nature of the information to be contained in the Annual Report or the notices of material events is summarized below. These covenants have been made in order to assist the Underwriters in complying with SEC Rule 15c2-12(b) (the “Rule”). The District has never failed to comply in all material respects with any previous undertakings with regard to the Rule to provide Annual Reports or notices of Material Events.

Content of Annual Report. The District's Annual Report shall contain or incorporate by reference the General Purpose Financial Statements of the District for the fiscal year, prepared in accordance with generally accepted auditing standards, provided; however, if the District's audited financial statements are not available by the time the Annual Report is required to be filed, the Annual Report shall contain unaudited financial statements in a format similar to the financial statements contained herein, and the audited financial statements shall be filed when available. The Annual Report shall also include in a similar format the following information included in APPENDIX B entitled “SUPPLEMENTAL INFORMATION STATEMENT.”

1. The ten largest customers of the Distrit as shown on page B-8;

2. Water and Sewer Rates of the District as shown on page B-9;

3. Summary of Revenues, Expenditures and Changes in Fund Balances for the fiscal year as shown on page B-19;

4. Summary of bonded indebtedness as of the end of such fiscal year as shown on page B-16;

5. Historical Debt Service Coverage on Bonds - as of the end of such fiscal year as show on page B-18; and

6. Information about the Bonded Debt Service Requirements as of the end of such fiscal year as shown on page B-17.

Any or all of the items listed above may be incorporated by reference from other documents, including OFFICIAL STATEMENTS in final form for debt issues of the District or related public entities, which have been submitted to each of the MSRB or the Securities and Exchange Commission. If the document incorporated by reference is an OFFICIAL 24 STATEMENT, in final form, it will be available from the MSRB. The District shall clearly identify each such other document so incorporated by reference.

Reporting of Significant Events. The District will file notice regarding material events with the MSRB and the SID, if any, as follows:

1. Whenever the District obtains knowledge of the occurrence of a Listed Event (as defined in (3) below), the District shall as soon as possible determine if such event would be material under applicable Federal securities laws.

2. If the District determines that the Listed Event would be material (under applicable Federal securities laws), the District shall promptly file a notice of such occurrence with the MSRBand the SID, if any. Notwithstanding the foregoing, notice of Listed Events described in subsection (3) (h) and (i) need not be given under this subsection any earlier than the notice (if any) of the underlying event is given to holders of affected Bonds pursuant to the Resolution.

3. The following are the Listed Events:

a. Principal and interest payment delinquencies;

b. Non-payment related defaults;

c. Unscheduled draws on debt service reserves reflecting financial difficulties;

d. Unscheduled draws on credit enhancements reflecting financial difficulties;

e. Substitution of credit or liquidity providers, or their failure to perform;

f. Adverse tax opinions or events affecting the tax-exempt status of the security;

g. Modifications to rights of security holders;

h. Bond calls;

i. Defeasances;

j. Release, substitution, or sale of property securing repayment of the securities; and

k. Rating changes.

Termination of Reporting Obligation. The District's obligations under the Disclosure Certificate shall terminate upon the legal defeasance, prior redemption or payment in full of all of the Bonds.

Amendment; Waiver. Notwithstanding any other provision of the Disclosure Certificate, the District may amend the Disclosure Certificate, and any provision of the Disclosure Certificate may be waived, provided that the following conditions are satisfied:

(a) If the amendment or waiver relates to the provisions concerning the Annual Report and Reporting of Significant Events it may only be made in connection with a change in circumstances that arises from a change in legal requirements, change in law, or change in the 25 identity, nature or status of an obligated person with respect to the Bonds, or the type of business conducted;

(b) The undertaking, as amended or taking into account such waiver, would, in the opinion of nationally recognized bond counsel, have complied with the requirements of the Rule at the time of the original issuance of the Bonds, after taking into account any amendments or interpretations of the Rule, as well as any change in circumstances; and

(c) The amendment or waiver either (i) is approved by the Holders of the Bonds in the same manner as provided in the Indenture for amendments to the Indenture with the consent of Holders, or (ii) does not, in the opinion of the Trustee or nationally recognized bond counsel, materially impair the interests of the Holders or beneficial owners of the Bonds.

In the event of any amendment or waiver of a provision of the Disclosure Certificate, the District shall describe such amendment in the next Annual Report, and shall include, as applicable, a narrative explanation of the reason for the amendment or waiver and its impact on the type (or, in the case of a change of accounting principles, on the presentation) of financial information or operating data being presented by the District. In addition, if the amendment relates to the accounting principles to be followed in preparing financial statements, (i) notice of such change shall be given, and (ii) the Annual Report for the year in which the change is made should present a comparison (in narrative form and also, if feasible, in quantitative form) between the financial statements as prepared on the basis of the new accounting principles and those prepared on the basis of the former accounting principles.

Default. In the event of a failure of the District to comply with any provision of the Disclosure Certificate, any Bondholder or any beneficial owner may take such actions as may be necessary and appropriate, including seeking mandate or specific performance by court order, to cause the District to comply with its obligations under the Disclosure Certificate. A default under the Disclosure Certificate shall not be deemed an event of default, if any, under the Resolution, and the sole remedy under the Disclosure Certificate in the event of any failure of the District to comply with the Disclosure Certificate shall be an action to compel performance.

ADDITIONAL INFORMATION

Use of the words "shall," "must," or "will" in the PRELIMINARY OFFICIAL STATEMENT and OFFICIAL STATEMENT in summaries of documents or laws to describe future events or continuing obligations is not intended as a representation that such event will occur or obligation will be fulfilled but only that the document or law contemplates or requires such event to occur or obligation to be fulfilled.

Any statements made in the PRELIMINARY OFFICIAL STATEMENT and OFFICIAL STATEMENT involving estimates or matters of opinion, whether or not so expressly stated, are set forth as such and not as representations of fact, and no representation is made that any of the estimates or matters of opinion will be realized. Neither the PRELIMINARY OFFICIAL STATEMENT and OFFICIAL STATEMENT nor any statement which may have been made orally or in writing is to be construed as a contract with the owners of the Bonds.

26 The references, excerpts and summaries contained herein of certain provisions of the laws of the State of Tennessee, and any documents referred to herein, do not purport to be complete statements of the provisions of such laws or documents, and reference should be made to the complete provisions thereof for a full and complete statement of all matters of fact relating to the Bonds, the security for the payment of the Bonds, and the rights of the holders thereof.

The PRELIMINARY OFFICIAL STATEMENT and OFFICIAL STATEMENT, in final form, and any advertisement of the Bonds, is not to be construed as a contract or agreement between the District and the purchasers of any of the Bonds. Any statements or information printed in this PRELIMINARY OFFICIAL STATEMENT or the OFFICIAL STATEMENT, in final form, involving matters of opinions or of estimates, whether or not expressly so identified, is intended merely as such and not as representation of fact.

The District has deemed this PRELIMINARY OFFICIAL STATEMENT as “final” as of its date within the meaning of Rule 15c2-12(b) of the Securities and Exchange Commission except for the omission of certain pricing information allowed to be omitted pursuant to Rule 15c2-12(b).

(The remainder of this page left blank intentionally.)

[This page was left blank intentionally]

CERTIFICATION OF DISTRICT

On behalf of the District, we hereby certify that to the best of our knowledge and belief, the information contained herein as of this date is true and correct.

West Knox Utility District of Knox County, Tennessee

/s/ President

ATTEST:

/s/ Secretary

APPENDIX A

PROPOSED FORM OF LEGAL OPINIONS

[FOR USE WITH TAX‐EXEMPT BONDS]

FORM OF BOND COUNSEL OPINION

______, 2010

Board of Commissioners West Knox Utility District of Knox County Knoxville, Tennessee

Re: $______West Knox Utility District of Knox County, Tennessee Water and Sewer System Revenue Bonds, Series 2010

Ladies and Gentlemen:

We have acted as Bond Counsel to the West Knox Utility District of Knox County, Tennessee (the ʺDistrictʺ) in connection with the issuance of its $______Water and Sewer System Revenue Bonds, Series 2010 (the ʺSeries 2010 Bondsʺ). The Series 2010 Bonds are being issued pursuant to a decree duly entered on October 18, 1954, in the County Court of Knox County, Tennessee, as supplemented by a decree duly entered in the County Court of Knox County, Tennessee on June 17, 1969, all pursuant to the Utility District Law of 1937, as amended (the ʺUtility District Actʺ ) codified as Title 7, Chapter 82 of the Tennessee Code Annotated, and pursuant to a resolution adopted by the Board of Commissioners of the District (the ʺBoardʺ) on June 11, 1997, as amended and restated in its entirety by a resolution adopted by the Board on August 27, 2009, as amended and supplemented from time to time, and as particularly supplemented by a resolution adopted by the Board on October 28, 2010 (collectively, the ʺBond Resolutionʺ). In such capacity, we have examined such law and certified proceedings, certifications and other documents as we have deemed necessary to render this opinion. Any capitalized undefined terms used herein shall have the meaning set forth in the Bond Resolution.

The Series 2010 Bonds are being issued for the principal purpose of funding (i) the cost of the acquisition of land for and the construction, improvement, renovation, equipping of improvements and additions to the water and sewer system and the acquisition of all property, real and personal, appurtenant thereto or connected thereto, (ii) the payment of legal, fiscal, administrative, architectural and engineering costs incident thereto, and (iii) the costs associated with the issuance of the Series 2010 Bonds.

As to questions of fact material to our opinion, we have relied upon representations of the District contained in the Bond Resolution and in the certified proceedings and other certifications of public officials and others furnished to us, without undertaking to verify the

A‐1

Board of Commissioners West Knox Utility District of Knox County ______, 2010 Page 2

same by independent investigation. We have not undertaken an independent audit, examination, investigation or inspection of such matters and have relied solely on the facts, estimates and circumstances described in such proceedings and certifications. We have assumed the genuineness of signatures on all documents and instruments, the authenticity of documents submitted as originals and the conformity to originals of documents submitted as copies.

In rendering this opinion, we have examined and relied upon the opinion of even date herewith of Robertson, Overbey, Wilson and Beeler, Counsel to the Issuer, as to the due creation and valid existence of the District, the due adoption of the Bond Resolution, the due execution and delivery of the Series 2010 Bonds and the compliance by the District with all conditions contained in ordinances and resolutions of the District precedent to the issuance of the Series 2010 Bonds.

The Series 2010 Bonds are payable from and secured by a pledge of the Net Revenues on parity and equal status with the Districtʹs obligations pursuant to a Loan Agreement between the District and the Public Building Authority of Sevier County, Tennessee dated July 1, 2000 and a Loan Agreement between the District and the Public Building Authority of Sevier County, Tennessee dated August 28, 2009 and the District’s obligations pursuant to an interest rate swap agreement between the District and Morgan Financial Products, Inc. dated September 22, 2009 (collectively, the ʺOutstanding Parity Obligationsʺ). Pursuant to the terms, conditions and limitations contained in the Bond Resolution, the District has reserved the right to issue additional Parity Obligations that have the in the future which shall have a lien on the Net Revenues equal to that of the Series 2010 Bonds and the Outstanding Parity Obligations.

The opinions set forth below are expressly limited to, and we opine only with respect to, the laws of the State of Tennessee and the federal income tax laws of the United States of America.

Based on our examination, we are of the opinion that under existing law:

1. The Bond Resolution constitutes a valid and binding obligation of the District enforceable against the District in accordance with its terms.

2. The Series 2010 Bonds are valid and binding limited obligations of the District enforceable in accordance with their terms, payable solely from the Net Revenues, all in the manner and to the extent provided in the Bond Resolution.

3. The Bond Resolution creates a valid lien upon the Net Revenues for the security of the Series 2010 Bonds on a parity with the Outstanding Parity Obligations and any additional

A‐2

Board of Commissioners West Knox Utility District of Knox County ______, 2010 Page 3

Parity Obligations hereafter issued, all in the manner and to the extent provided in the Bond Resolution.

4. Interest on the Series 2010 Bonds (including any original issue discount properly allocable to an owner thereof) is excludable from gross income for federal income tax purposes and is not an item of tax preference for purposes of the federal alternative minimum tax imposed on individuals and corporations. Interest on the Series 2010 Bonds will not be taken into account in determining adjusted current earnings for purposes of computing the alternative minimum tax on corporations. The opinions set forth in this paragraph are subject to the condition that the District complies with all requirements of the Internal Revenue Code of 1986, as amended (the ʺCodeʺ), that must be satisfied subsequent to the issuance of the Series 2010 Bonds in order that the interest thereon be, and continue to be, excludable from gross income for federal income tax purposes. The District has covenanted in the Bond Resolution to comply with all such requirements. Failure to comply with certain of such requirements may cause interest on the Series 2010 Bonds to be included in gross income for federal income tax purposes retroactively to the date of issuance of the Series 2010 Bonds.

5. Under existing law, the Series 2010 Bonds and the income therefrom are exempt from all present state, county and municipal taxes in the State of Tennessee except (a) inheritance, transfer and estate taxes, (b) Tennessee excise taxes on all or a portion of the interest on the Series 2010 Bonds during the period such Series 2010 Bonds are held or beneficially owned by any organization or entity, other than a sole proprietorship or general partnership, doing business in the State of Tennessee, and (c) Tennessee franchise taxes by reason of the inclusion of the book value of the Series 2010 Bonds in the Tennessee franchise tax base of any organization or entity, other than a sole proprietorship or general partnership doing business in the State of Tennessee.

It is to be understood that the rights of the owners of the Series 2010 Bonds and the enforceability thereof may be subject to the exercise of judicial discretion in accordance with general principles of equity, to the valid exercise of the sovereign police powers of the State of Tennessee and of the constitutional powers of the United States of America and to bankruptcy, insolvency, reorganization, moratorium and other similar laws affecting creditorsʹ rights heretofore or hereafter enacted.

A‐3

Board of Commissioners West Knox Utility District of Knox County ______, 2010 Page 4

or sufficiency of any CUSIP numbers appearing on the Series 2010 Bonds. In addition, we have not been engaged to and, therefore, express no opinion as to compliance by the District or the underwriter with any federal or state statute, regulation or ruling with respect to the sale and distribution of the Series 2010 Bonds or regarding the perfection or priority of the lien, except as described in paragraph 3 above, on the Net Revenues created by the Bond Resolution. Further, we express no opinion regarding federal income or state tax consequences arising with respect to the Series 2010 Bonds other than as expressly set forth herein.

Our opinions expressed herein are predicated upon present law, facts and circumstances, and we assume no affirmative obligation to update the opinions expressed herein if such laws, facts or circumstances change after the date hereof.

Very truly yours,

BRYANT MILLER OLIVE P.A.

j:\wdox\docs\clients\25768\001\opinions\00478776.doc

A‐4

[FOR USE WITH BUILD AMERICA BONDS]

FORM OF BOND COUNSEL OPINION

______, 2010

Board of Commissioners West Knox Utility District of Knox County Knoxville, Tennessee

Re: $______West Knox Utility District of Knox County, Tennessee Taxable Water and Sewer System Revenue Bonds, Series 2010 (Federally Taxable‐ Build America Bonds‐Direct Subsidy)

Ladies and Gentlemen:

We have acted as Bond Counsel to the West Knox Utility District of Knox County, Tennessee (the ʺDistrictʺ) in connection with the issuance of its $______Taxable Water and Sewer System Revenue Bonds, Series 2010 (Federally Taxable‐Build America Bonds‐ Direct Subsidy) (the ʺSeries 2010 Bondsʺ). The Series 2010 Bonds are being issued pursuant to a decree duly entered on October 18, 1954, in the County Court of Knox County, Tennessee, as supplemented by a decree duly entered in the County Court of Knox County, Tennessee on June 17, 1969, all pursuant to the Utility District Law of 1937, as amended (the ʺUtility District Actʺ) codified as Title 7, Chapter 82 of the Tennessee Code Annotated, and pursuant to a resolution adopted by the Board of Commissioners of the District (the ʺBoardʺ) on June 11, 1997, as amended and restated in its entirety by a resolution adopted by the Board on August 27, 2009, as amended and supplemented from time to time, and as particularly supplemented by a resolution adopted by the Board on October 28, 2010 (collectively, the ʺBond Resolutionʺ). In such capacity, we have examined such dlaw an certified proceedings, certifications and other documents as we have deemed necessary to render this opinion. Any capitalized undefined terms used herein shall have the meaning set forth in the Bond Resolution.

As to questions of fact material to our opinion, we have relied upon representations of the District contained in the Bond Resolution and in the certified proceedings and other

A‐5

Board of Commissioners West Knox Utility District of Knox County ______, 2010 Page 6

certifications of public officials and others furnished to us, without undertaking to verify the same by independent investigation. We have not undertaken an independent audit, examination, investigation or inspection of such matters and have relied solely on the facts, estimates and circumstances described in such proceedings and certifications. We have assumed the genuineness of signatures on all documents and instruments, the authenticity of documents submitted as originals and the conformity to originals of documents submitted as copies.

The Series 2010 Bonds are payable from and secured by a pledge of the Net Revenues on parity and equal status with the Districtʹs obligations pursuant nto a Loa Agreement between the District and the Public Building Authority of Sevier County, Tennessee dated July 1, 2000 and a Loan Agreement between the District and the Public Building Authority of Sevier County, Tennessee dated August 28, 2009 and the District’s obligations pursuant to an interest rate swap agreement between the District and Morgan Financial Products, Inc. dated September 22, 2009 (collectively, the ʺOutstanding Parity Obligationsʺ). Pursuant to the terms, conditions and limitations contained in the Bond Resolution, the District has reserved the right to issue additional Parity Obligations in the future which shall have a lien on the Net Revenues equal to that of the Series 2010 Bonds and the Outstanding Parity Obligations.

The opinions set forth below are expressly limited to, and we opine only with respect to, the laws of the State of Tennessee and the federal income tax laws of the United States of America.

Based on our examination, we are of the opinion that under existing law:

1. The Bond Resolution constitutes a valid and binding obligation of the District enforceable against the District in accordance with its terms.

3. The Bond Resolution creates a valid lien upon the Net Revenues for the security

A‐6

Board of Commissioners West Knox Utility District of Knox County ______, 2010 Page 7

of the Series 2010 Bonds on a parity with the Outstanding Parity Obligations and any additional Parity Obligations hereafter issued, all in the manner and to the extent provided in the Bond Resolution.

4. Interest on the Series 2010 Bonds is not excludable from gross income for federal income tax purposes under Section 103 of the Code. Except as expressly stated in the preceding sentence, we express no opinion regarding any other federal income tax consequences of acquiring, carrying, owning or disposing of the Series 2010 Bonds.

The opinion in the preceding paragraph is not intended or written to be used, and cannot be used, by an owner of the Series 2010 Bonds for purposes of avoiding United States federal income tax penalties that may be imposed on such owner of Series 2010 Bonds. The opinion in the preceding paragraph is provided to support the promotion or marketing of the Series 2010 Bonds. Each owner of Series 2010 Bonds should seek advice based on such owner’s particular circumstances from an independent tax advisor.

For purposes of this opinion, we have not been engaged or undertaken to review and, therefore, express no opinion herein regarding the accuracy, completeness or adequacy of the Official Statement or any other offering material relating to the Series 2010 Bonds. This opinion should not be construed as offering material, an offering circular, prospectus or official statement and is not intended in any way to be a disclosure statement used in connection with the sale or delivery of the Series 2010 Bonds. Furthermore, we are not passing on the accuracy or sufficiency of any CUSIP numbers appearing on the Series 2010 Bonds. In addition, we have not been engaged to and, therefore, express no opinion as to compliance by the District or the underwriter with any federal or state statute, regulation or ruling with respect to the sale and distribution of the Series 2010 Bonds or regarding the perfection or priority of the lien, except as described in paragraph 3 above, on the Net Revenues created by the Bond Resolution. Further, we express no opinion regarding federal income or state tax consequences arising with respect to the Series 2010 Bonds other than as expressly set forth herein.

A‐7

Board of Commissioners West Knox Utility District of Knox County ______, 2010 Page 8

Very truly yours,

BRYANT MILLER OLIVE P.A.

j:\wdox\docs\clients\25768\001\opinions\00478698.doc

A‐8

APPENDIX B

SUPPLEMENTAL INFORMATION STATEMENT

GENERAL INFORMATION

LOCATION

The area presently served by the West Knox Utility District (the “District”) is located in the northwest portion of Knox County in East Tennessee between the cities of Knoxville and Oak Ridge. The District’s service area of 72 square miles is bordered on the east by the City of Knoxville, on the south by Interstate Highways 40 and 75 and on the north and west by Anderson and Loudon Counties, respectively. The north and west boundaries of the District are formed by Melton Hill Lake, which was created by the impoundment of the Clinch River by the Melton Hill Dam.

ORGANIZATION

The District was incorporated as a municipal corporation and the current boundaries established on October 18, 1954 by Order of the County Executive (formerly County Judge) of Knox County, Tennessee pursuant to provisions of the District Act, which provides that such an incorporated municipal corporation shall exist in perpetuity and possess the powers set forth in the District Act; however, such Order has been and may be from time to time amended.

The District Act provides that, as long as the District continues to furnish any of the services which it is authorized to furnish, it shall continue to be the sole public corporation having the power to furnish such services within the boundaries of the District, and no other person, firm or corporation shall furnish or attempt to furnish any of such services in the District, unless and until it shall have been established that the public convenience and necessity require other or additional services.

POWERS

The District Act provides that the District is empowered, among other things, to conduct, operate and maintain a system or systems for the furnishing of water, sewer and sewage disposal services. To carry out such purposes, the District has the power and authority to acquire, construct, reconstruct, improve, better, extend, consolidate, maintain and operate such system or systems within or without the District, and to purchase from, furnish, deliver and sell to any municipality, the State, any public institution and the public, generally, any of its services. The District has the power of eminent domain and has the power to issue its negotiable bonds for the purpose of construction, acquiring, reconstructing, improving, bettering or extending any of its facilities or system or systems and to pledge to the payment of such negotiable bonds all or any part of the revenues derived from the operation of such facilities, system or systems or combination thereof. The District has no power to levy or collect taxes.

GOVERNING BODY

All corporate powers of the District are vested in and exercised by the Board of Commissioners (the “Board”). The Board consists of three members, two who are residents of the District and one who does own property within the District. Each member is appointed by the County Mayor of Knox County and serves staggered four-year terms. Not later than thirty

B-1 days prior to the expiration of the term of office of any incumbent commissioner, the Board, or its remaining members, select three nominees to fill such office, in full accordance with any residential requirements that may apply to the office vacated, or to be vacated, and under the seal of the Board certifies such list of nominees in order of preference, to the County Mayor of Knox County. Within twenty-one days of such certification, the County Mayor may enter an order, either appointing one of the nominees or rejecting the entire list, or may refrain from taking any action, in which event the first name on the list of nominees is deemed appointed by operation of law. Upon rejection of the entire list of nominees by the County Mayor, the Board continues to submit new non-identical lists of three nominees to the County Mayor within thirty days of each such rejection until such procedure results in the vacancy being filled. Each commissioner must be either a resident of, or the owner of real property in the District.

Pursuant to the District Act, the Board acts by a majority of its members and must meet at least once each quarter. The Board is authorized by the District Act, among other things, to exercise by vote, ordinance or resolution all of the general and specific powers of the District, to make all necessary rules, regulations and bylaws for the management and conduct of the affairs of the District and to issue bonds of the District by resolution of the Board.

The commissioners are insured by the District’s group medical insurance coverage, which is authorized by the District Act. The District Act also authorizes each commissioner to receive per diem payments for not more than twelve meetings of the Board in any calendar year at rates not greater than three hundred dollars per meeting.

THE BOARD OF COMMISSIONERS

The following is a list of the current members of the Board of Commissioners:

First Appointed Current Term Name and Occupation Commissioner Expires

Daniel H. Hurst, President January 2002 Dec. 31, 2013 Director of Gov. Services, Strata Environmental Knoxville, Tennessee

Robert H. Sterchi, Jr., Vice President December 1999 Dec. 31, 2011 Partner, Holiday Inn-Cedar Bluff Knoxville, Tennessee

Ruth A. Milsaps, Secretary-Treasurer March 2005 Dec 31, 2012 Milsaps Bus Lines Knoxville, Tennessee

B-2 Administrative Personnel

The General Manager of the District serves under an employment contract, and is responsible for the appointment and selection of personnel of the District. Charles Michael Banks has been the General Manager of the District since November 2000. Mr. Banks began his career with the District in March 1976 and served as the Assistant Manager since August, 1976. Mr. Banks is a member of the American Water Works Association, Water Environment Federation and a board member of Tennessee Association of Utility Districts. He is an active member of the Utility Management Federation of Knox County. He holds a Grade II Distribution System Operator Certificate and a Grade III Water Treatment Plant Operator certification.

The Assistant Manager of the District serves under the direction of the General Manager. He provides administrative, management and operational support in day-to-day business of the District. Drexel A. Heidel has served in the capacity of Assistant Manager since November 2000. He began working in the District in October 1993 as the Chief Engineer. He is a registered engineer in the State of Tennessee and holds a Class III Wastewater Operator Certificate. He is a member of the American Water Works Association, Water Environment Federation and the Tennessee Association of Utility Districts. See “THE DISTRICT - Regulation” for a discussion of the State Utility Management Review Board.

The supervisory personnel responsible for the operation of the District include the following:

Name and Position Year Employed

Ron Medley, Superintendent of Water Plants State of Tennessee, Water Operators License, Class IV 1980

Tracy Nuchols, Superintendent of Wastewater Plant State of Tennessee, Wastewater Operators License, Class IV 1983

Charles Buffalo, Superintendent of Water State of Tennessee, Distribution License, Class II 1970

Steve Buchanan, Superintendent of Wastewater 2003 State of Tennessee, Collection License, Class II and Distribution License Class II

EMPLOYEES

The District has 64 full-time employees.

B-3 The turnover in the District's work force has averaged less than two employees per year over the last five years. The tenure of District employees presently averages approximately 19 years.

At the present time, no employees of the District are represented by unions. Officials of the District are unaware of any attempts by any union to organize employees of the District, and the District characterizes its relationship with its employees as satisfactory.

REGULATION

State and Local Regulation. The District is required by law to establish and maintain a set of rules and regulations regarding an adjustment of all complaints which may be made to the District concerning the availability of utility services to persons in need thereof, the quality of service performed, the adjustment of bills and all other complaints of any nature, with provisions relating to the manner of resolution of individual complaints, the types of complaints which may be resolved by salaried employees of the District, and those which may be resolved only by the Board. Such rules must be posted or otherwise available in the offices of the District for inspection by customers and members of the public. The District Act provides that the District may not contractually bind itself to issue bonds that would require a rate increase until the users of the system are given notice thereof. The District has complied with this requirement with respect to all current water and sewer user rates by publishing notice of same on all customers' bills. Pursuant to the District Act, rates charged and services provided by the District may be renewed by the Utility Management Review Board of the State (the "Review Board") upon the filing with the Review Board of a petition signed by a least ten percent of the users within the authorized area of the District (see the discussion under "THE DISTRICT" - Regulation - Review Board). In addition, the District is required to have its books and records audited annually by a certified public accountant, a public accountant, or by the Department of Audit of the Comptroller of the Treasury of the State. The Comptroller of the Treasury of the State, through the Department of Audit, makes a determination as to whether the annual audit of the District has been prepared in accordance with generally accepted governmental auditing standards and whether the audits meet the minimum standards prescribed by the Comptroller. The Comptroller has promulgated rules and regulations to assure that the books and records of utility district are kept in accordance with generally accepted accounting procedures and that audit standards prescribed by the Comptroller are met. The District must file a copy of the audit with the State Comptroller and with the County Executive of Knox County.

Rate Regulation. The District is required by the District Act to charge such rates as shall be sufficient to pay operation and maintenance expenses and to pay principal of and interest on all bond or notes secured by revenues of the System. The Board determines the rates paid by the District's customers. The District is required to publish within ninety days after the close of its fiscal year a statement showing the financial condition of the District and the earnings of the District. Any water and/or sewer user customer of the District may file with the Board a protest concerning the rates. The Board must then give notice of a hearing to determine the validity of the protest and whether the published rates are reasonable. After the Board makes its determination, the customer may seek review of the Board's action and the Review Board, as discussed below, with the right of judicial review by common law writ of certiorari to a court within the county of the District’s principal office.

B-4 Review Board. In 1987, the State legislature established a utility management review board (the "Review Board") for the purpose of advising utility district boards of commissioners throughout the State in the area of utility management. The Review Board consists of nine (9) members consisting of the State Commissioner of Environment, the State Comptroller of the Treasury, and seven (7) members appointed by the Governor, three (3) of whom shall be experienced utility district managers, three (3) of whom shall be experienced utility district commissioners and one (1) of whom shall be a consumer residing in the state who is not engaged in utility district management or operation. The Review Board is given the power, among other things, to review any decision of any utility district relating to rate changes upon petition of any customer of the district, to compel the adoption of and adherence to rules and regulations for the adjustment of customer complaints, hear customer protests of rates or appeal from a hearing before the Board of Commissioners of the District, to oversee operations of "financially distressed utility districts", including the power to compel rate increases sufficient to be in compliance with State law and all covenants with bondholders and compel consolidation with another utility. A "financially distressed utility district" is a district (i) which has failed to charge rates sufficient to pay the costs of operation and maintenance of the system, including depreciation and reserves therefore, as well as to pay all bonds and interest thereon secured by the revenues of the system, including reserves therefore, for a period of two (2) consecutive years, or (ii) which is in default on any outstanding indebtedness, or (iii) which has a retained earnings deficit. The Review Board may not take any action which would adversely impair the obligations of contract or the payment of outstanding bonds of the District. Any party to a proceeding before the Review Board may appeal to a local court seeking review of any action taken.

The District Act contains several exemptions pertaining to the jurisdiction of the Review Board over gas utilities districts. Generally, gas utility districts are exempt from the jurisdiction of the Review Board, except the Review Board does have jurisdiction to hear appeals of customer protests of rates after a hearing before the Board of Commissioners of the District. The Review Board also may review and conduct a hearing of any decision of the District regarding the reasonableness of the District’s requirement that a customer or developer build utility systems to be dedicated to the District or the reasonableness of fees or charges against a customer or developer related to such utility systems.

Licenses, Permits and Approval. In the opinions of the General Manager and Counsel to the District, the District has received all licenses, permits and approvals necessary for the operation of the System.

B-5 THE SYSTEM

INTRODUCTION

The District provides services consisting of (i) the treatment and distribution of water to its customers through its Waterworks System and (ii) the collection, processing and disposal of sewage through its Sewer System. The District provides no other services to its customers.

WATERWORKS SYSTEM

Physical Plant. The District’s Waterworks System was placed in operation in 1957, initially serving approximately 735 customers. The District’s Frank J. Dougherty Treatment Plant was originally constructed in 1964 and expanded in 1968 to its present capacity of 2.48 million gallons per day. In 1976, the District constructed its Melton Hill Lake Treatment Plant. The plant has a treatment capacity of ten million gallons per day. The District currently supplies an average of approximately 5.35 million gallons per day of potable water. At present, the total treatment capacity of the system is 12.48 million gallons per day. It must be noted that the peak day demand is considerably higher than the average daily demand.

Billing Units of the Waterworks System. The following table sets forth the average number of billing units served by the Waterworks System during each of the fiscal years indicated and the number and percentage of billing units served categorized by type of unit for the same periods.

Average Waterworks System Billing Units (Fiscal Year Ended June 30)

Year Residential Commercial Apartments Motel/Hotel Total

2001 15,745 421 2,445 637 19,248 2002 16,354 473 2,485 637 19,949 2003 16,673 496 2,758 637 20,564 2004 17,074 509 2,580 637 20,800 2005 17,333 525 2,153 637 20,648 2006 18,212 610 2,581 637 22,040 2007 18,694 610 2,583 637 22,524 2008 19,922 610 2,583 637 23,752 2009 21,667 787 2,584 637 25,675 2010 21,405 748 3,174 608 25,935 ______Source: Audited Financial Statements and the District.

B-6 Source of Water; Water Treatment and Distribution Facilities. The District obtains water from Melton Hill Lake below Bull Run Creek in Anderson County, Tennessee. The intake at the Frank J. Dougherty Treatment Plant is powered by two alternating raw water pumps, which have capacities of 1,700 and 1,400 gallons each per minute. Three raw water pumps power intake at the newer Melton Hill Lake Treatment Plant. Each pump has capacities of 1,400, 2,800 and 4,200 gallons per minute respectively and treated water pumps to match the raw water pump capacities. All of the pumps are electrically driven.

The District’s distribution system consists of approximately 366 miles of supply lines.

SEWER SYSTEM

Physical Plant. The Sewer System serves portions of three major drainage areas in the District: the Beaver Creek area, the Ten Mile Creek area and the Hickory Creek Area.

The portion of the Beaver Creek area lying within the District is served by a four million gallon per day treatment plant. Since May 20, 1990, most of the sewage flow from the Ten Mile Creek area has been transported to the District’s Karns Sewage Treatment Plant in the Beaver Creek area. The remaining portion of the sewage flow from the Ten Mile Creek area is discharged into the City of Knoxville’s Walker Springs Pumping Station for which the District currently pays the City of Knoxville a treatment rate of $3.73 per 1,000 gallons of water sold or a minimum bill of $28,740 per year. The District and the First Utility District of Knox County, Tennessee (“First Utility District”) are jointly and severally liable to the City of Knoxville for a minimum annual bill of $56,100 of which First Utility District is paying $27,360. The contract with the City of Knoxville is for a term expiring in mid-2013. The City of Knoxville’s facilities are available to the District, on an emergency basis, for the major portion of the Ten Mile Creek area sewage flow at the current cost of $3.73 per 1,000 gallons of actual metered sewage flow.

The District serves a full-service truck stop located in the northeast quadrant of the Watt Road interchange of Interstate Highways 40 and 75 in the Hickory Creek Drainage Basin, which sewage flows to First Utility District for treatment and disposal and pursuant to an agreement between the two Districts. The District also provides water to this area.

In the opinion of Counsel to the District, under both the District Act and the Bond Resolution, the District is obligated to prescribe and collect rates, fees, tolls or charges sufficient to insure that its System shall be and always remain self-supporting and such as will always produce revenues at least sufficient to provide for all expenses of operating and maintenance of the System, including reserves therefore, and to pay when due all bonds and interest thereon for the payment of which such revenues are or shall have been pledged, charged or otherwise encumbered, including reserves therefore.

The District’s distribution system consists of approximately 378 miles of supply lines. The District’s collection system consists of about 260 miles of lines.

B-7 Billing Units of the Sewer System. The following table sets for the average number of billing units served by the Sewer System during each of the fiscal years indicated and the number and percentage of billing units served categorized by type of unit for the same periods.

Average Sewer System Billing Units (Fiscal Year Ended June 30)

Year Residential Commercial Apartments Motel/Hotel Total

2001 11,557 285 2,445 637 14,924 2002 11,989 319 2,445 637 15,390 2003 12,345 324 2,581 637 15,887 2004 12,706 351 2,575 637 16,269 2005 12,963 358 2,579 637 16,537 2006 13,887 395 2,562 637 17,481 2007 13,902 407 2,562 637 17,508 2008 14,890 442 2,562 637 18,531 2009 14,890 497 2,563 637 18,587 2010 16,004 487 3,167 608 20,266 ______Source: Audited Financial Statements and the District.

MAJOR WATER AND SEWER CUSTOMERS

The following is a list of the ten major water and sewer customers of the District for the fiscal year ended June 30, 2010.

% of Customer Type of Business Sales (1) Total Sales 1. Parkwest Hospital Medical Center $ 298,438 2.4% 2. Woodlands West Apartments Rental Real Estate 200,758 1.6% 3. Sunchase Apartments Rental Real Estate 179,155 1.5% 4. Country Club Apartments Rental Real Estate 117,536 1.0% 5. Holiday Inn Express Hospitality 110,970 0.9% 6. Brendon Park Apartments Rental Real Estate 110,770 0.9% 7. Cedar Bluff Apartments Rental Real Estate 84,847 0.7% 8. Warren House Apartments Rental Real Estate 76,739 0.6% 9. Hampton Inn Hospitality 44,817 0.4% 10. Cracker Barrel Food Service 23,485 0.2% TOTAL $1,247,516 10.1%

(1) Sales include only water & wastewater revenues.

B-8 The following is a list of the ten major water and sewer customers of the District for the fiscal year ended June 30, 2009.

% of Customer Type of Business Sales(1) Total Sales

1. Parkwest Hospital Medical Center $290,634 2.41% 2. Woodlands West Apartments Rental Real Estate 190,702 1.58% 3. Sunchase Apartments Rental Real Estate 184,773 1.53% 4. Brendon Park Apartments Rental Real Estate 118,724 0.99% 5. Country Club Apartments Rental Real Estate 112,339 0.93% 6. Cedar Bluff Apartments Rental Real Estate 101,136 0.84% 7. Holiday Inn Express Hospitality 89, 497 0.74% 8. Warren House Apartments Rental Real Estate 78,739 0.65% 9. Hampton Inn Hospitality 39,865 0.33% 10. Cracker Barrel Food Service 23,456 0.19%

TOTAL $1,229,865 10.19%

(1) Sales include only water & wastewater revenues.

RATES

The District’s current rate schedule (in effect as of April 1, 2010) is as follows:

Water Rate Schedule

First 1,500 gallons (Minimum Bill) Residential...... $ 10.55 Commercial ...... 14.25 All over 1,500 gallons ...... 3.21

First 1,500 gallons (Minimum Bill) Hotel/Motel ...... $4.36 All over 1,500 gallons ...... 3.21

Wastewater Rate Schedule

First 1,500 gallons (Minimum Bill) Residential...... $16.27 Next 11,500 gallons ...... 3.84 All over 13,000 gallons ...... No Charge

First 1,500 gallons (Minimum Bill) Commercial ...... $24.80 Hotel/Motel ...... 10.92 Over 1,500 gallons ...... 3.84

B-9

The Average Number of Employees in the District for the Past Five (5) Years

Calendar Year Average Number of Employees

2006 60 2007 59 2008 61 2009 62 2010 64

Historical System Growth

Number of Number of Year Water Customers Sewer Customers

2006 18,840 14,301 2007 19,347 14,767 2008 19,922 15,369 2009 20,225 15,565 2010 20,845 16,208 ______Source: Audited Financial Statements and the District.

B-10 OPERATING AND FINANCIAL HISTORY OF THE SYSTEM

BILLINGS AND COLLECTIONS

The District handles its own billings with the use of its own computer system.

COMPETITION

The District has no competition in its service area.

The District Act provides that as long as the District continues to furnish any of the services which it is authorized to furnish, it shall continue to be the sole public corporation having the power to furnish such services within the boundaries of the District, and no other person, firm or corporation shall furnish or attempt to furnish any of such services within said boundaries. The District Act provides certain limited exceptions to the exclusive service right. The District Act provides that the exclusive right to serve may be lost if it can be established that the public convenience and necessity requires other or additional services. The District's right to serve also is subject to prior rights of a municipality to serve newly annexed territories pursuant to Section 6-51-101 et. seq., Tennessee Code Annotated. The District Act further grants to municipalities the prior right to serve areas outside their boundaries if the areas are not within the boundaries of a utility district authorized to provide the service or are not already being served by a utility district.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The District was created under the authority of Title 7, Chapter 82 of the 1937 Utility District Law of the State of Tennessee.

The District’s Board of Commissioners are appointed by the Knox County Mayor for a term of four years. Knox County does not have any fiscal or budgetary control over the District. The operations of the District are funded by water and wastewater rates established by the Board of Commissioners.

A. The financial statements of the District are reported on the accrual basis. Under this method, revenues are recorded when earned and expenses are recorded when incurred.

B. Certain assets which can only be used for debt service are shown as restricted assets in the accompanying balance sheets.

C. Material and supply inventories are stated at the lower of cost (first in, first out method) or market. Incidental supplies and chemicals are not included in inventory.

B-11 D. Bond issue costs are amortized during the period the bonds are outstanding using the effective interest method of amortization.

E. Property, plant and equipment in service is carried at cost and is depreciated over the estimated useful life of the asset using the straight-line method of depreciation. Cost consists of all direct costs related to construction or acquisition of utility plant assets. In addition, the District capitalizes interest costs related to qualified expenditures for projects under development. Depreciation is not considered in collection lines, pump stations, treatment plants, etc., until the assets are actually put into use. Plant contributed by developers is included at the developers’ cost or estimated cost.

F. Revenues are billed monthly to customers on a cyclical meter reading basis. Revenues are not accrued for usage from the last meter reading date to June 30.

G. Amounts received from customers to connect to the system are recorded as income, to the extent of the cost of the connection. Amounts received substantially in excess of the connection costs are recorded as contributions in-aid of construction.

H. Investments are carried at cost unless a material decline in market value is determined to be permanent, in which case the investment is reduced to market.

I. For purposes of the Statements of Cash Flows, cash equivalents include cash on hand, bank deposits, short-term investments in certificates of deposit and federal government or federal agencies discount notes having a maturity of three months or less at the balance sheet date.

J. The District has elected under Government Accounting Standards Board (GASB) Statement Number 20 to apply only the accounting pronouncements issued by GASB after November 30, 1989.

SUMMARY OF OPERATIONS

The financial statements of the District for the year ended June 30, 2010 have been examined by Bacon Howard & Company, Knoxville, Tennessee, independent accountants, whose report thereon appears herein.

B-12 CAPITALIZATION

The following table sets forth the capitalization of the District as of June 30, 2010.

Outstanding (as of June 30, 2010)

Total Long Term Indebtedness $39,311,064

Total Current Liabilities 2,226,416

Retained Earnings & Contributed Capital 76,835,231

Total Long Term Indebtedness and Total Customers' Equity $118,372,711

UTILITY PLANT

The cost of the District's utility plant as of June 30, 2010 is as follows:

Utility Plant in Service $136,069,518 Accumulated Depreciation (45,216,026) Construction in Progress 5,813,796

TOTAL $96,667,288

B-13 POSSIBLE ANNEXATION BY CITY OF KNOXVILLE

Present State law (Tennessee Code Annotated, Section 6-51-111) provides in pertinent part as follows:

(a) Upon adoption of an annexation ordinance..., an annexing municipality and any affected instrumentality of the State of Tennessee, such as, but not limited to, a utility district, ... shall attempt to reach agreement in writing for allocation and conveyance to the annexing municipality of any or all public functions, rights, duties, property, assets and liabilities of such State instrumentality that justice and reason may require in the circumstances....The annexing municipality if and to the extent that it may choose, shall have the exclusive right to perform or provide municipal and utility functions and services in any territory which it annexes, notwithstanding Section 7-82-301 or any other statute....

(b) Subject to such exclusive right, any such matters upon which the respective parties are not in agreement in writing within sixty (60) days after the operative date of such annexation shall be settled by arbitration with the laws of arbitration of the State of Tennessee effective at the time of submission to the arbitrators....The award so rendered shall be transmitted to the Chancery Court of the county in which the annexing municipality is situated, and thereupon shall be subject to review in accordance with Sections 29-5-113, 29-5-115 and 29-5-118.

(c) (1) If the annexed territory is then being provided with a utility service by a State instrumentality which has outstanding bonds or other obligations payable from the revenues derived from the sale of such utility service, the agreement or arbitration award referred to above shall also provide:

(A) That the municipality will operate the utility property in such territory and account for the revenues there from in such manner as not to impair the obligations of contract with reference to such bonds or other obligations; or

(B) That the municipality will assume the operation of the entire utility system of such State instrumentality and the payment of such bonds or other obligations in accordance with their terms.

(2) Such agreement or arbitration award shall fully preserve and protect the contract rights vested in the holders of such outstanding bonds or other obligations.

From May 8, 1973 to May 20, 1990, all of the District’s Ten Mile Creek drainage basin sewage flow, together with a small portion of the Beaver Creek drainage sewage flow, discharged into the City of Knoxville’s sewage system pursuant to a Wastewater Facility Agreement (“Wastewater Agreement”) dated March 31, 1971, as amended. Since May 20, 1990, all of the District’s Beaver Creek drainage basin sewage flow and most of the Ten Mile Creek drainage basin sewage flow has been discharged into the District’s Karns Sewage Treatment Plant. However, the Wastewater Agreement continues in effect through mid-2013 under which

B-14 the District continues to discharge into the City of Knoxville’s sewage system a small portion of the Ten Mile Creek drainage basin sewage flow, together with emergency facilities for such discharge of the remainder of the Ten Mile Creek drainage basin sewage flows. Section 20 of the Wastewater Agreement reads as follows:

20. In the event that the City of Knoxville shall annex as a part of its corporate limits any substantial portion of the Ten Mile Creek Drainage Basin, it is hereby agreed that the City of Knoxville shall be, and it hereby is, authorized to take over the operation of the waste water facilities herein contemplated to be built by the two Districts upon the assumption by the City of Knoxville of all outstanding obligations of the Districts in connection with said waste water facilities; provided, however, in the event that the City of Knoxville exercises its authority as provided herein, it shall take over the operation of the entire waste water facilities of the respective Districts herein contemplated to the built by the two Districts unless all parties concerned agree in writing that the City of Knoxville shall take over the operation of some portion less than the entire waste water system. It is further understood and agreed that nothing stated herein relative to the authority of the City of Knoxville to annex certain of the waste water facilities of the respective Districts shall in any way apply to the water systems of the respective Districts. It is further understood and agreed that nothing stated herein relative to the authority of the City of Knoxville to annex certain of the waste water facilities of the respective Districts shall in any way apply to any of the waste water facilities of the respective Districts that are not connected with or built and financed under the authority of this Agreement.

Thus, under paragraph 20 of the Wastewater Agreement, in the event of the City of Knoxville’s annexation of any substantial portion of the Ten Mile Creek Drainage Basin, the City may take over the operation of the waste water facilities contemplated to be built by the District under the Wastewater Agreement upon the City’s assumption of all outstanding obligations of the District in connection with such facilities notwithstanding that the City is not annexing the particular facilities contemplated by the Wastewater Agreement.

In 1988, the voters of Knox County approved a new charter form of government for Knox County that Charter vested in the County government, in addition to the traditional powers of County government, full powers of a municipality and public corporation. The new charter government went into effect on September 1, 1990. Knox County is only the second county in Tennessee to establish such a home rule government (the home rule charter government having taken effect for Shelby County, Tennessee, in 1986). Counsel for the District knows of no adjudications of the question of a city lying within a home rule charter county government legally annexing into the larger municipality where the latter is a county government. Programs of the City of Knoxville to annex substantial areas of the County have not been effective since 1962 where the property owners within the proposed annexed area have opposed such annexation. Three law suits during the past fifteen years have resulted in hung juries, which results have rendered the proposed annexations ineffective. While much of the property lying within the District receives all, or most, services that could be provided by the City of Knoxville upon annexation, it is not likely that annexation will occur where the property owners within a given proposed annexed area oppose such annexation. Nevertheless, the possibility of annexation within District remains.

B-15

KNOX COUNTY AND CITY OF KNOXVILLE

LOCATION

Knox County (the “County”) is located in the northeastern portion of the State of Tennessee. Founded in 1791 where the French Broad and Holston Rivers converge to form the Tennessee River, Knoxville (the “City”) is the largest city in East Tennessee and ranks third largest in the State. Knoxville is also the County Seat. The County is located in a broad valley between the Cumberland Mountains to the northwest and the Great Smoky Mountains to the southeast.

To the north, the County is bordered by Union and Grainger Counties. Jefferson and Sevier Counties make up the County's eastern border, while the County's southern border is provided by Blount and Loudon Counties. To the immediate west of the County lies Anderson County. There are 103 square miles in the City of Knoxville and 526 square miles in all of Knox County.

GENERAL

In 2004 Knoxville was designated a Metropolitan Statistical Area (the “MSA”) that had a population of 616,079 according to the 2000 US Census. The MSA includes Knox (Knoxville and Farragut), Anderson (Oak Ridge and Clinton), Blount (Maryville and Alcoa), Loudon (Loudon), and Union (Maynardville) Counties.

The City is also part of the Knoxville-Sevierville-Harriman-LaFollette Combined Statistical Area (the “CSA”). According to the 2000 Census, the CSA had a population of 935,659. The CSA includes Roane, Anderson, Blount, Knox, Loudon, Union, Grainger, Hamblen, Jefferson, Campbell, Cocke and Sevier Counties. The City of Knoxville is the largest city in the CSA with a population of 173,890 according to the 2000 Census. The 2000 Census reported Knox County (including the City) with a 382,032 population.

The following table shows past and current population figures for the City and County:

Population Growth

1970 1980 1990 2000 2009 Knoxville 174,687 175,045 165,121 173,890 185,100 Knox County 276,293 319,694 335,749 382,032 435,725

The only other municipality within the County, Farragut, has a population of approximately 20,689 persons.

B-20 SOCIOECONOMIC DATA

The following socioeconomic factors indicate the standard of living in the County, as compared to that of the Nation and State: National Tennessee Knox County Median Value Owner Occupied Housing $119,600 $93,000 $98,500

% High School Graduates or Higher of Person 25 and Older 80.4% 75.9% 82.5%

% Families with Income Below Poverty Level 9.2% 10.3% 8.4%

Median Family Income $50,890 $43,517 $49,182 Source: 2000 Census of Population

TRANSPORTATION

Interstate. Two of the nation’s most heavily traveled interstates converge in Knoxville-- Interstates 40 and 75. Interstate 640 circles the City to the north, and Interstate 140 connects the County to McGhee Tyson Airport in Blount County. This strategic junction allows 53% of the nation’s marketplace to be within a 650 miles radius (one day tractor trailer driving distance) of Knoxville.

Motor Freight Carriers. There are sixty-five regular route common carrier motor lines with terminals throughout Knox County as well as many irregular routes and special contract carriers supplying Knoxville with efficient motor freight services. Thirty-eight moving and storage companies serve the area. Private terminal facilities are available.

Rail Service. Main rail service in Knoxville is provided by Norfolk Southern Railway System and CSX Transportation. Knoxville is at the junction of major east/west and north/south Southern Railway System lines. Approximately 172 miles of track cross Knox County. Direct one-line service is available to most large and small cities in the Southeast. Freight service is provided by the railroads, and both systems have division freight offices in Knoxville.

McGhee Tyson Airport. The McGhee Tyson Airport is the premier air facility in East Tennessee, serving the commercial airline industry, air cargo, military aviation and general aviation. With parallel 9,000 feet runways, McGhee Tyson Airport can accommodate any size aircraft in today's inventory. The Airport is located within the city limits of Alcoa. Located 12 miles south of downtown Knoxville, the airport occupies more than 2,000 acres of land with space for additional air cargo facilities or economic development. This facility is the principal commercial airport for East Tennessee and is owned and managed by the Metropolitan Knoxville Airport Authority.

The Metropolitan Knoxville Airport Authority (MKAA) was established in 1978 as an independent nonprofit agency to own and operate McGhee Tyson Airport and Downtown Island Airport. The Authority’s nine-member Board of Commissioners is appointed by the Mayor of

B-21 Knoxville and confirmed by City Council. This board determines the policies for the current Airport Authority staff of 150 employees in six departments. The board appoints a President who serves as the chief administrator and executive officer. All of the revenues are generated by user fees and rental income so no taxpayer dollars are used to support airport operations.

Five air cargo services provide daily service. In addition, six passenger airlines carry air cargo on most flights. More than 82,000,000 pounds of airfreight annually pass through its cargo facilities. Federal Express, United Parcel Service and DHL are the main curriers.

McGhee Tyson Airport has several major airlines serving 20 non-stop destinations including Atlanta, Dallas/Ft. Worth, Orlando, Miami, Myrtle Beach, New York, Chicago, Denver and Washington D.C. With more than 120 arrivals and departures each day and more than 4,000 seats available, McGhee Tyson Airport is one of the most convenient and accessible regional airports in the nation.

The airport is served by two low fare carriers: Allegiant Air and AirTran Airways. Las Vegas based Allegiant Travel Company is focused on linking travelers in small cities to world- class leisure destinations such as Myrtle Beach, NC, Orlando, Fla., Ft. Lauderdale, Fla., Sarasota/Fort Meyers, Fla. and Tampa/St. Petersburg, Fla. Through its subsidiary, Allegiant Air, the Company operates a low-cost, high-efficiency, all-jet passenger airline offering air travel both on a stand-alone basis and bundled with hotel rooms, rental cars and other travel related services. AirTran Airways returned to the airport after a nine-year absence to offer new low air fares. Flights began in Summer of 2009.

McGhee Tyson is served by major and regional carriers including:

Major Airlines: Regional Carriers: Allegiant Air American Eagle Northwest Airlink Delta Airlines Comair United Express AirTran Airways Continental Express USAirways Express Source: Metropolitan Knoxville Airport Authority.

These airlines connect passengers with service to several hub airports across the nation on more than 120 flights daily. McGhee Tyson Airport

Total Commercial Total Air Cargo Year Passengers in Pounds 2000 1,735,831 97,746,816 2001 1,433,711 85,565,125 2002 1,431,979 79,667,146 2003 1,428,061 76,826,235 2004 1,607,077 78,691,534 2005 1,846,794 84,346,541 2006 1,674,877 92,219,596 2007 1,821,581 100,286,989 2008 1,742,579 97,366,366 2009 1,680,442 82,304,377 Source: Metropolitan Knoxville Airport Authority.

B-22

McGhee Tyson Airport has undergone many improvements and renovations in the past few years: 1989 Parking garage phase I (775 spaces) $5.7 million 1991 Air cargo complex (FedEX, UPS & DHL) $12 million 1993 Runway 5R/23L 3,000 foot extension $14 million 1995 Parking garage phase II (619 spaces) $3.2 million 1998 Parking garage phase III (1,417 spaces) $8.2 million 2000 Passenger terminal building renovation and expansion $72 million 2000 Continental Express maintenance facility $13.7 million 2002 Northwest Airlines maintenance facility $8.5 million 2008 West Aviation Area $50.7 million 2008 Airport Rescue and Fire Fighting Facility $11.3 million

Source: Metropolitan Knoxville Airport Authority.

TACAir is McGhee Tyson Airport’s general aviation services provider. In addition to providing fuel and services to commercial carriers, they also accommodate the general aviation industry, which includes corporate aviation, charter flights, flight schools and people who fly as a hobby.

The Tennessee Air National Guard’s 134th Air Refueling Group operates 10 aircraft at McGhee Tyson Airport. The Guard’s KC-135E tankers provide refueling to the country’s military aircraft. In addition, the Army Aviation Support Facility, the 110th and 119th Tactical Control Squadrons and the 228th Combat Communications Squadron operate on the base.

The direct and indirect economic impact of McGhee Tyson Airport, including payroll, local spending, transportation cost savings, capital spending and induced benefits is estimated at $1 billion annually. The jobs formed by the aviation industry are perhaps the most important direct benefit that McGhee Tyson Airport offers East Tennessee. Approximately 2,700 people are now employed at McGhee Tyson Airport.

Downtown Island Home Airport. Knoxville’s Downtown Island Home Airport, located five minutes from downtown, serves as another home base for smaller and privately owned airplanes. The Island Home Airport is a 150 acre general aviation facility with a 3,500 foot runway. It is home to more than 100 private and corporate aircraft, with 24 hour a day service available. Construction of three additional private aircraft hangars was completed in 2008. Future projects include a taxiway for new T-Hangars, secondary containment for the fuel depot and mobile fueling equipment and a planning study for future development. These projects are to be funded with a combination of federal grant funds, state grant funds and Airport Authority revenues.

Waterways. Fifteen miles away is the head of the Tennessee River navigation channel in Knoxville. This river is part of the Interconnected Inland Water System that links Knoxville with 21 states, the Mississippi River and the Great Lakes. Linkages may be made to the entire inland waterway system, allowing shipments to be made by water to Houston, Tampa, Pittsburgh, Minneapolis and Little Rock.

B-23 Six active river terminals handle barge shipments throughout the area. The Tennessee- Tombigbee Waterway links East Tennessee with 13 other states and the Gulf of Mexico. This 234-mile canal connects 16,000 miles of waterways throughout Tennessee, Mississippi and Alabama leading to the Port of Mobile and the Gulf of Mexico. This Waterway shortens the shipping between Tennessee and the Gulf of Mexico by 882 miles and enables East Tennessee products to arrive at their Gulf destination from eight to nine days earlier. The development of the Tennessee-Tombigbee Waterway has been a catalyst for the development of industry and agriculture throughout the area. Barge shipping has always been a popular alternative to rail in East Tennessee because of the existence of the Inland Water System.

Knoxville also has a Foreign Trade Zone and is an inland Port of Entry with a U.S. Customs Office. In 1988, Knoxville was given its Foreign Trade Zone designation by the U.S. Department of Commerce. This designation allows manufacturers to ship foreign raw materials and components to parts of Knoxville and store them duty free in Knoxville until used. In May 1991, the Foreign Trade Zone was activated.

Bus Lines and Freight Service. Greyhound/Trailways offers passenger and freight terminals. City transportation is provided by Knoxville Area Transit (the “KAT”), which also provides free Trolley service to downtown and the University of Tennessee Campus. KAT provides around 28 public bus routes, operating 80 vehicles and carrying around 3.2 million passengers a year in the city. In 2004, KAT garnered the prestigious American Public Transportation Association’s Outstanding Achievement Award. In 2008 the City broke ground on a new downtown Knoxville Station Transit Center near the James White Parkway, and was completed in 2010. It has a 20-bus bay facility and state-of-the-art customer amenities to serve as the major transportation hub for metropolitan Knoxville. Eighty percent of the $29 million project's cost was covered by federal funds, with city and state dollars funding the remaining balance.

EDUCATION

Knox County School System. The County operates 87 public schools, including 48 elementary, 14 middle, and 13 high schools, plus two vocational schools and several special/adult education centers. Included in the total are five magnet schools offering enhanced arts and science curriculum. Total fall enrollment in 2009 was about 54,109. The system employs 3,718 teachers, with an average classroom ratio of one teacher for every 15 students. In addition to public education, there are 46 private and parochial schools offering elementary and secondary instruction in Knox County.

Administrators at Austin-East and Fulton High Schools in August 2008 implemented some innovative academic concepts. The changes come as a result of mandates under the federal No Child Left Behind Act. Austin-East has three academic "neighborhoods": Early College, in which students can graduate with a diploma and up to 60 college credits; Entrepreneurial and Innovations, in which students have a chance to apply classroom knowledge in internships and service learning; and Performing and Visual Arts, which include vocational courses. Austin-East High School is located in the eastern section of Knoxville.

B-24 Fulton has four academies - stand-alone schools that have their own floors and adopt professional dress codes to identify students with their schools. The schools are Freshman Experience, School of Communication, School of Liberal Arts and School of Health Science. Both Austin-East and Fulton have an "8-plus" component, a transition year between eighth and ninth grade for rising freshmen who are not academically ready for high school. Fulton is located in the heart of Historic North Knoxville.

Hardin Valley High School opened in fall 2008 with about 1,100 students. Hardin Valley is comprised of four Academies as well as a regular high school program. The four academies are Health Science; Law and Public Affairs; Liberal Arts; Science, Technology, Engineering, and Mathematics. Hardin Valley is located in the western part of the County. Source: Tennessee Department of Education, Knox County School System, Knox Metropolitan Planning Commission and Knoxville News Sentinel.

Post-secondary education is available at 10 public and private four year institutions in Knox County and the surrounding area. The University of Tennessee's main campus is in Knoxville. Pellissippi State Technical Community College and Roane State Community College offer two-year programs for technical and associate degrees along with four other vocational/technical institutions. There are four business colleges located in the area.

University of Tennessee. The University of Tennessee, Knoxville is one of the oldest land-grant universities in the nation. There are 220 buildings on a 550 acre campus. Blount College, the UTK's forerunner, was established in Knoxville in 1794, two years before Tennessee became a state.

With a fall 2009 full-time enrollment of 23,649 students, UT Knoxville is the largest campus in the UT System. The University of Tennessee System is a statewide institution governed by a 26-member Board of Trustees appointed by the governor of Tennessee. Institutions of the UT system are UT Knoxville, UT Health Science Center in Memphis, UT Chattanooga, UT Martin, UT Space Institute in Tullahoma, and UT Institute for Public Service in Knoxville. In addition to the primary campus, the Agricultural Campus houses the UT Institute of Agriculture, a statewide administrative unit that includes the College of Veterinary Medicine, the College of Agricultural Sciences and Natural Resources, the Agricultural Extension Service and the Agricultural Experiment Stations.

The University of Tennessee, Knoxville is a major research institution, attracting more than $150 million in externally sponsored programs annually. The Division of Aeromedical Services is one of the country’s most respected and comprehensive aeromedical programs. The university is a co-manager with Battelle of the nearby Oak Ridge National Laboratory. UT- Battelle, LLC, was established in 2000 as a private not-for-profit company for the sole purpose of managing and operating the Oak Ridge National Laboratory for the U.S. Department of Energy. Formed as a 50-50 limited liability partnership between the University of Tennessee and Battelle Memorial Institute, UT-Battelle is the legal entity responsible delivering the Department of Energy’s research mission at ORNL. Faculty and students experience unparalleled research and learning opportunities at the Department of Energy's largest science and energy lab.

B-25 The University conducts externally-funded research totaling more than $300 million annually, including some $17.3 million annually in research sponsored by ORNL. Areas of joint research with ORNL include the Bioenergy Science Center’s work on cellulosic ethanol; the Center for Computational Sciences partnership with the National Science Foundation; and the Science Alliance, with divisions in biological, chemical, physical, and mathematical/computer science. UT/ORNL Joint Institutes and Centers include Biological Sciences, Computational Sciences, Neutron Sciences, Heavy Ion Research and the National Transportation Center.

To meet the growing demand for pharmacists, a second UT College of Pharmacy building opened on the Knoxville campus in fall 2007 and enrolled an additional 225 students. The three-story building is adjacent to the Health Science Center’s Graduate School of Medicine. The UT College of Pharmacy will extend its reach across the state by adding Clinical Education Centers in Chattanooga, Jackson, Kingsport and Nashville.

In 2008, the University and its statewide campuses brought in at least $2.5 billion annually in income to the State and supported more than 53,600 jobs. The University also generates an estimated $237.6 million in State and local tax revenue per year. Students and visitors attending athletic events at each campus spent approximately $348 million, accounting for $147.3 million in income and 4,879 jobs. Source: University of Tennessee, UT-Battelle and Knoxville News Sentinel.

Johnson Bible College is a private, coeducational institution of higher learning offering associate, bachelor’s and master’s degrees about 6 miles from Knoxville. Founded in 1893, Johnson Bible College is the second oldest continuing Bible College in America. The purpose of the College is to educate students for specialized Christian ministries with emphasis on the preaching ministry. In the fall of 2009 full-time enrollment reached 650 for the 175 acre campus. Source: Johnson Bible College.

Oak Ridge Associated Universities is a consortium of 98 colleges and universities and a contractor for the U.S. Department of Energy (DOE) located in Oak Ridge, Tennessee. Founded in 1946, ORAU works with its member institutions that include the University of Tennessee and its satellite campuses. The purposes are to help their students and faculty gain access to federal research facilities throughout the country; to keep its members informed about opportunities for fellowship, scholarship, and research appointments; and to organize research alliances among its members. Through the Oak Ridge Institute for Science and Education (ORISE), the DOE facility that ORAU operates, undergraduates, graduates, postgraduates, as well as faculty enjoy access to a multitude of opportunities for study and research. A pioneer in technology transfer, with historic contributions in nuclear medicine and health physics, ORAU today conducts specialized training in nuclear related areas of energy, health and the environment. In particular, ORAU has been able to provide technical assistance to government, the academic community, and industry in radiological site assessment, environmental monitoring, and provision of radiopharmaceutical internal dose information. Appointment and program length range from one month to four years. Many of these programs are especially designed to increase the numbers of underrepresented minority students pursuing degrees in science- and engineering-related disciplines. Source: Oak Ridge Associated Universities, University of Tennessee at Chattanooga.

B-26 Pellissippi State Technical Community College. Since its founding in 1974 as State Technical Institute at Knoxville, Pellissippi State has expanded the teaching of technology, the use of technology in instruction, and the transfer of technology to local business and industry in support of regional economic development. Full-time enrollment for fall 2009 was listed as 5,478. The Community College continues to support and develop career/technical associate’s degrees and institutional certificates, university parallel associate’s degree programs, and continuing education opportunities for the citizens of Knox, Blount, and surrounding counties. Pellissippi State Technical Community College (PSTCC) has been named one of the 200 fastest- growing community colleges in the nation, according to Community College Week.

Several campuses make up the Community College. The main campus is the Pellissippi Campus in west Knoxville. The Division Street Campus and the newer Magnolia Avenue Campus, which opened in 2000, are also in Knoxville. Finally, the Blount County Center has been located in Alcoa since 1985, and a new $22 million campus is under construction to be open by late 2010. Source: Pellissippi State Technical Community College and TN Higher Education Commission.

Roane State Community College in West Knoxville. Roane State Community College, which began operation in 1971 in Harriman, Tennessee, is a two-year higher education institution which serves a fifteen county area. Fall 2009 full-time enrollment was 3,464 students. Designed for students who plan to transfer to senior institutions, the Roane State academic transfer curricula include two years of instruction in the humanities, mathematics, natural sciences, and social sciences. Approximately 21 college transfer programs and/or options are offered by the college.

Roane State's 104-acre main campus is centrally located in Roane County where a wide variety of programs are offered. Roane State has nine locations across East Tennessee – the Roane County flagship campus; an Oak Ridge campus; campuses in Campbell, Cumberland, Fentress, Loudon, Morgan and Scott Counties; and a center for health science education in west Knoxville. Source: Roane State Community College.

South College. South College, formerly Knoxville Business College, is a private institution that has been a part of Knoxville since 1882. The main campus facility is located on Lonas Drive. In 2010, the College opened a second campus in the old Goody’s headquarters in Parkside Centre. It has a total enrollment of about 650 students. Throughout its history South College has endeavored to meet the demands of the East Tennessee business community. South College offers a Master's of Health Science in Physician Assistant Studies and baccalaureate degree programs including Pharmaceutical Science (Pre-Pharmacy), Nursing, Health Science (Radiography/Nuclear Medicine), Elementary Education, Business Administration, and Legal Studies. Current associate degree programs include Radiography, Physical Therapist Assistant, Paralegal Studies, Business Administration, Accounting, and Medical Assisting. Nuclear Medicine and Post-Baccalaureate Program (Elementary Education K-6) are the certificate programs offered. Source: South College.

The Tennessee Technology Center at Knoxville. The Tennessee Technology Center at Knoxville is part of a statewide system of 26 vocational-technical schools. The Tennessee

B-27 Technology Center meets a Tennessee mandate that no resident is more than 50 miles from a vocational-technical shop. The institution’s primary purpose is to meet the occupational and technical training needs of the citizens including employees of existing and prospective businesses and industries in the region. The Technology Center at Knoxville serves the central east region of the state including Knox and Blount Counties. The Technology Center at Knoxville began operations in 1966, and the main campus is located in Knox County. Fall 2007 enrollment was 1,457 students. Source: Tennessee Technology Center at Knoxville.

Tusculum College Graduate and Professional Studies Program. Tusculum maintains offices in Knoxville for its Graduate and Professional Studies Program, in addition to other class sites across East Tennessee. Tusculum College is a private college affiliated with the Presbyterian Church. The College was founded in 1794, making it the oldest college in Tennessee and the twenty-eighth oldest college in the nation. Located in Greeneville, Tusculum College lies in the foothills of the Great Smoky Mountains. Fall 2009 full-time enrollment was 2,144. The wooded 140-acre Tusculum College campus has eight buildings and the Tusculum Arch that are listed on the National Register of Historic Places. The College is one of three colleges in the country to operate on a focused calendar, in which courses are scheduled one at a time. Source: Tusculum College.

HEALTHCARE

Knoxville serves as a regional medical center for 27-counties in East Tennessee and Kentucky. The available technology, the specialized institutions, and a reputation for quality health care bring people into Knoxville from a 200-mile radius. There are about 2,251 beds in eight acute care hospitals in the County, including three healthcare systems (Covenant Health Care, Mercy Health Partners and University of Tennessee).

New construction and renovations to existing facilities in the area have made a substantial impact on the local economy. From 2003 to 2008 Knox County has seen two new hospitals open near the Turkey Creek shopping center in west Knoxville, a renovation and expansion of nearby Parkwest Medical Center and the construction of St. Mary’s Medical Center North. Covenant estimates the value of projects it has undertaken since 2006 and plans through 2010 at more than $622 million. Those include extensive renovations at its Oak Ridge medical center, a new Loudon County facility and new hospital in Roane County. Source: Knox Metropolitan Planning Commission and Knoxville News Sentinel.

Covenant Health. Covenant Health is a comprehensive health system established in 1996 by the consolidation of Fort Sanders Health System, Knoxville, Tennessee, and MMC HealthCare System, parent company of Methodist Medical Center of Oak Ridge, Tennessee. With headquarters located in Knoxville, the system provides comprehensive services throughout East Tennessee. It is also the largest employer in the area. The organization is governed by a voluntary board of directors composed of community leaders and medical professionals.

Covenant Health includes 30 member organizations, seven of which are acute care hospitals in East Tennessee: Fort Sanders Regional Medical Center and Parkwest Medical Center in Knoxville, Methodist Medical Center of Oak Ridge, Fort Loudoun Medical Center in Loudon,

B-28 LeConte Medical Center in Sevierville, Roane Medical Center in Harriman and the newest facility Morristown-Hamblen Healthcare System in Morristown. It also includes Peninsula Hospital, a psychiatric hospital in East Tennessee's Blount County. Covenant Health also operates numerous other healthcare facilities for outpatient clinics, cancer centers, breast centers, behavioral health, rehabilitation, home health and weight management to name a few. The system also owned its own health insurance carrier until a merger with Humana in 2008 for $22 million.

Over the last few years, the largest hospital operator in the area has built new or expanded facilities in Loudon, Anderson and Knox counties. It recently began construction for a $75 million expansion project at Fort Sanders Regional Medical Center in Knoxville as well as finished a new $50 million hospital in Roane County. See “RECENT DEVELOPMENTS” for new information on the system.

Fort Sanders Regional Medical Center. Part of Covenant Health, Fort Sanders is a 541- bed full-service acute care hospital with about 318 doctors located in the Fort Sanders community of downtown Knoxville. The hospital was built in 1919 and has about 2,154 employees. Fort Sanders is a regional referral center for neurosurgery, neurological disorders, orthopedics, oncology, cardiology, obstetrics and rehabilitation medicine. The hospital offers a variety of specialized services such as a 24-hour Chest Pain Center, one-day surgery, electrodiagnostics, a Sleep Disorders Center, a Diabetes Center, prenatal education, and sports medicine. A new $150 million expansion is planned for the facility. See “RECENT DEVELOPMENTS” for new construction on the facility. Parkwest Medical Center. Part of Covenant Health, Parkwest is region's only Top 100 Heart Hospital (which the hospital has been named seven times). Parkwest has 462 beds with 342 doctors and a total of 1,956 employees in west Knoxville. The campus includes one of the area's first all-digital catheterization laboratories and a comprehensive breast center with a multidisciplinary approach to women's health. In March 2005 Parkwest opened its six-story Riverstone Tower - part of a $100 million project that comprises 326,000 square feet of new construction, an additional 214 beds, and 45,000 square feet of renovated space. See “RECENT DEVELOPMENTS” for new construction on the facility.

Mercy Health Partners. St. Mary’s Health System merged with Baptist Health System effective January of 2008. The new Mercy Health Partners, whose parent company is still Catholic Healthcare Partners, has seven acute care hospitals. The hospitals located in Knox County have all undergone a name change as of early 2010: Mercy Medical Center, St. Mary’s (St. Mary’s Medical Center); Mercy Medical Center, North (St. Mary’s Medical Center North) and Mercy Medical Center, West (Baptist Hospital West) are all located in Knox County. The remaining hospitals names will change later in 2010 and include: St. Mary’s Medical Center of Campbell County, Baptist Hospital of Cocke County, St. Mary’s Jefferson Memorial Hospital, and St. Mary’s Medical Center of Scott County (Mercy will end its lease of this Scott County facility in 2012). Other operating units include the Baptist Riverside, St. Mary’s Health and Fitness Center, Baptist Primary & Senior Health Centers, St. Mary’s Residential Hospice, Baptist Eye Institute, St. Mary’s and Baptist Home Health Services and the St. Mary’s Ambulatory Surgery Center.

B-29 The new Mercy Health Partners has approximately 6,000 employees and revenue of $600 million. In 2007 Mercy provided over $129 million in uncompensated care to the poor, uninsured and the underinsured. Catholic Healthcare Partners was named one of the Top 10 health systems in the country by Thomson Reuters in 2009. See “RECENT DEVELOPMENTS” for new information on the system.

Mercy Medical Center, St. Mary’s (St. Mary’s Medical Center). Part of Mercy Health Partners, Mercy Medical Center, St. Mary’s is a 401-bed facility with 720 physicians near downtown Knoxville. There are a total of 3,356 employees. Built in 1930, St. Mary’s has five areas of special expertise: Women’s Services, Cancer Care, Orthopedics, Cardiac Care and Neurosciences.

Mercy Medical Center, North (St. Mary’s Medical Center North). Part of Mercy Health Partners, Mercy Medical Center, North opened in the fall of 2007 in north Knox County. The full service facility has 108 beds with 572 physicians. See “RECENT DEVELOPMENTS” for more information on the construction of the new facility.

Mercy Medical Center, West (Baptist Hospital West). Part of Mercy Health Partners, Mercy Medical Center, West has 101 beds with 485 physicians on staff in west Knoxville. Mercy Medical Center, West has a 24-hour, full-service, all-digital campus, completely staffed emergency department that cares for men, women and children of all ages. Every patient room is a private room. An intensive care unit, state-of-the-art surgical suites, imaging services, rehabilitation services and specialized staff and physicians bring groundbreaking, comprehensive treatment. The hospital has merged with the neighboring Baptist Hospital for Women. The merged Mercy Medical Center, West offers labor, delivery, recovery and postpartum suites, backed up by the latest technology. Surgery, mammography, wellness and general care services are all focused on a woman's needs. In the summer of 2008 MHP moved the open-heart program from Baptist Hospital of East Tennessee to Mercy Medical Center, West. The hospital is also home to the Stokely Heart Pavilion and the Baptist Regional Cancer Center. The hospital opened in the summer of 2003 and employs about 397. See “RECENT DEVELOPMENTS” for new construction on the facility.

Mercy Riverside (Baptist Riverside). Part of Mercy Health Partners, the outpatient facility Mercy Riverside (formerly known as Baptist Riverside and Baptist Hospital of East Tennessee) was built in 1948 on the banks of the Tennessee River across from downtown Knoxville. As of the summer of 2008, all the emergency and inpatient services were transferred to other Mercy facilities. Services still remaining at the facility are located in the Mercy Medical Tower, Mercy Professional Building and Mercy Eye Institute. These buildings maintain a presence of physician practices, imaging services, various diagnostic services, sleep studies, cardiac rehab, Blount Pharmacy and the Geriatric Assessment Program. The facility at one point had 329 beds with 216 physicians on staff and had employed about 1,057 people. It was the flagship hospital of the Baptist Health System before the merger with St. Mary’s Health System.

East Tennessee Children’s Hospital. Located in Knoxville, East Tennessee Children’s Hospital is a private, independent, not-for-profit pediatric medical center. There are 152 beds with 430 doctors, of which more than 90 are pediatric subspecialists. The hospital originally opened in 1937, and is the only Comprehensive Regional Pediatric Center in East Tennessee

B-30 certified by the State. Pediatric services offered include ICUs, emergency services, outpatient clinics for oncology, hematology, diabetes, cystic fibrosis and a rehabilitation center. See “RECENT DEVELOPMENTS” for new construction on the facility.

University Health Center. The University of Tennessee Medical Center is part of University Health System Inc. (the “UHS”), a regional health system that comprises the UT Medical Center, the new UT Heart Hospital, UT Health Network and various partnerships and joint ventures with physicians and healthcare companies. UHS is affiliated with the University of Tennessee Graduate School of Medicine and numerous regional hospitals and physician organizations. UHS supports and collaborates with the UT Graduate School of Medicine and other academic endeavors as part of its commitment to excellence in education and research.

The UT Medical Center in Knoxville is an acute care teaching hospital with 581 beds and about 466 doctors. The hospital employs about 3,724 people. Designated as the region’s Level I adult and pediatric Trauma Center by the state of Tennessee, the Medical Center provides the highest level of programs and emergency services. Critically ill patients are transported to the Medical Center via one of LIFESTAR’S two helicopters.

Special care units such as cardiac care, open heart, medical intensive care, neuro- respiratory, and trauma surgical intensive care are available for patients who require maximum medical attention. A Level IV Intensive Care Nursery, a Pediatric Intensive Care Unit, a newborn nursery and many other programs comprising Children’s Health Services enable the hospital to provide the region’s most comprehensive medical services for infants and children. University Hospital also serves as the Regional Perinatal Center. The new Heart Hospital was opened in 2010. See “RECENT DEVELOPMENTS” for new construction on the facility.

Source: Covenant Health, Mercy Health Partners, East TN Children’s Hospital, University Health Center and Knoxville News Sentinel.

SCIENCE AND ENERGY

Nuclear Since the 1940's, the nuclear industry has been the largest employer for the City of Oak Ridge and Roane and Anderson Counties when a weapons fabrication division was built by the U.S. Corps of Engineers. As part of the secret World War II "Manhattan Project", the early task of the plant was the separation of fissionable uranium-235 from the more stable uranium-238 by an electro-magnetic process to be utilized in the world's first atomic bomb. Some 80,000 workers were hired for emergency construction of the laboratories and offices on the 56,000 acre site. At the peak of production during the war, 23,000 employees kept the separation units working at a cost of $500 million for the entire project.

Today, the U.S. Department of Energy (the “DOE”) occupies approximately 33,000 acres and almost 1,200 buildings within the Oak Ridge city limits, and employs approximately 12,927 in engineering, skilled and semi-skilled crafts, technical and administrative support. Since October 1999 The DOE has contracted with the University of Tennessee and Battelle to manage the Oak Ridge National Laboratory (the “ORNL”). UT-Battelle began management of the lab on June 1, 2000. BWXT, Inc. is now the appointed contractor for the Y-12 Plant. DOE awarded

B-31 its environmental cleanup contract to Bechtel Jacobs in 1997, which is to last until 2011.

The ongoing functions of the Y-12 plant are to support the DOE's weapons design labs, recover U-235 from spent nuclear weapons and provide support to other government agencies.

The ORNL is a multiprogram science and technology laboratory managed for the U.S. Department of Energy by UT-Battelle, LLC. Scientists and engineers at ORNL conduct basic and applied research and development to create scientific knowledge and technological solutions that strengthen the nation's leadership in key areas of science; increase the availability of clean, abundant energy; restore and protect the environment; and contribute to national security. ORNL also performs other work for the Department of Energy, including isotope production, information management, and technical program management, and provides research and technical assistance to other organizations. The laboratory is a program of DOE's Oak Ridge Field Office.

ORNL also boasts having the Spallation Neutron Source (the “SNS”) accelerator project and three supercomputers for scientific purposes. These unique projects bring about 3,000 scientists to visit each year for varying periods of time, and numerous small industries to be spun off from the experiments and findings. Each job created is expected to have an impact on housing, retail banking, automobile and transportation, hotels, restaurants, hospitals, and business services. Please see “RECENT DEVELOPMENTS” for more information.

A dedicated effort by the DOE to transfer technology to the private sector that was heretofore held as proprietary to the U.S. Government alone has led to an unparalleled growth in new business development in the area. Licenses have been granted to existing firms as well as start-up firms to manufacture for commercial use products using state-of-the-art technology in robotics, ceramics and nuclear medicine.

Through interagency agreements, DOE's Oak Ridge facilities have launched a highly successful "work for others" program. Local firms contract with numerous federal agencies to provide services and products. The value of these contracts have grown from approximately $50 million in 1983 to $270 million in recent years.

The University of Tennessee's flagship campus in Knoxville is home to a wide array of vigorous programs doing research on issues vital to the community, the state, the nation, and the world. The university has collaborative relationships with public and private agencies including Oak Ridge National Laboratory, Battelle Memorial Institute (forming UT-Battelle), St. Jude Children's Research Hospital, the Memphis Bioworks Foundation, and the Boston-Baskin Cancer group (forming UT Cancer Institute).

The Tennessee Valley Authority (the “TVA”) provides support, technology, expertise, and financial resources to existing businesses and industries in the Valley to help them grow and be more efficient and profitable. These resources include technical assistance, low-interest loans, and other tools needed by businesses for successful operation.

The Technology 2020 project was initiated in 1993 to capitalize on the unique resources of the East Tennessee region: the presence of the Oak Ridge National Lab, the University of

B-32 Tennessee-Knoxville, the headquarters of the Tennessee Valley Authority, and a significant number of both large and small technology companies in the region. A $4.5 million investment has been made by DOE, South Central Bell, the Tennessee Public Service Commission and Lockheed-Martin to set up a regional telecommunications laboratory. This economic development resource center is located in Oak Ridge's Commerce Park. An 18,000 square foot facility has been constructed on the 5.2 acre site. The facility will be used for testing and demonstrating new communications technologies and applications. It will offer video conferencing, training and multi-media presentation capabilities and a new business incubator for emerging companies. The facility is expected to be particularly important to rural communities that might not otherwise have access to advanced communications resources.

Oak Ridge National Laboratory. ORNL is in the final stages of a $300 million project to provide a modern campus for the next generation of great science. A unique combination of federal, state and private funds is building 13 new facilities. Included in these new facilities will be the Laboratory for Comparative and Functional Genomics, the Center for Nanophase Materials Sciences, the Advanced Microscopy Laboratory, the Oak Ridge Center for Advanced Studies and the joint institutes for computational sciences, biological sciences, and neutron sciences. ORNL has been selected as the site of the Office of Science’s National Leadership Computing Facility for unclassified high-performance computing.

In early 2009 ORNL dedicated a 288-foot span of solar array panels. The array will provide 51.25 kilowatts of power to the lab’s grid. This will offset nearly half of the power use in one of ORNL’s research facilities and expand a green initiative know as the “sustainable campus” project. The 288-foot array is the second largest in Tennessee.

ORNL is also completing a series of upgrades at the High Flux Isotope Reactor. This ORNL facility is sometimes referred to as the lab's "other" billion-dollar machine. It is the world's most powerful research reactor, and it is used to perform experiments similar to - but different from - those to be done at the Spallation Neutron Source.

Even during the recent economic turmoil, ORNL has steadily increased the number of employees at the site. As of the end of 2009 ORNL has about 4,434 full-time staff members, up 100 from 2007 and up by more than 600 since 2002.

BioEnergy Sciences Center (the “BESC”). In 2007 ORNL was chosen as one of only three sites in the country to establish and operate one of the DOE’s new bioenergy research centers. BESC will accelerate research in the development of cellulosic ethanol and other biofuels, and make biofuel production cost competitive on a national scale by 2012. The new site will receive $135 million in federal funding. The University of Tennessee serves as one of the academic partners, providing specialized instrumentation, plant breeding technologies and new microbe discovery. Energy crops like switchgrass, which can be grown on marginal crop land, can produce affordable, domestic renewable fuel without raising food or feed costs. The BESC is dedicated to studying how to economically break down the cellulose in those sources to convert it into usable sugars for ethanol production. This is the second biorefinery to be built in East Tennessee; the other is the $40 million Biorefinery in Monroe County operated by the University of Tennessee that opened in early 2010. That biorefinery is about one-tenth the size of a commercial production facility. It will allow researchers to create a system that can be

B-33 expanded to larger plants across the state in coming years.

Spallation Neutron Source. The world’s most powerful neutron science project is the Spallation Neutron Source (the “SNS”) at ORNL. The giant research complex, spread across 75 acres on Chestnut Ridge a couple of miles from the main ORNL campus, is the world's top source of neutrons for experiments. The SNS is an accelerator-based neutron source built in Roane County by the U.S. Department of Energy. The SNS provides the most intense pulsed neutron beams in the world for scientific research and industrial development. At a total cost of $1.4 billion, construction began in 1999 and was completed in 2006. During construction the SNS employed 2,300 workers, but as of December 2008 SNS had 482 staff members. In 2009, SNS reached full power when it set the world record in producing beam power three times more powerful than the previous world record. More neutrons are produced with a higher beam power.

Neutron-scattering research has a lot to do with everyday lives. For example, things like jets; credit cards; pocket calculators; compact discs, computer disks, and magnetic recording tapes; shatter-proof windshields; adjustable seats; and satellite weather information for forecasts have all been improved by neutron-scattering research. Neutron research also helps researchers improve materials used in high-temperature superconductors, powerful lightweight magnets, aluminum bridge decks, and stronger, lighter plastic products. The medical field will also be impacted with new drugs and medicines expected from experiments at the SNS.

Supercomputer. Oak Ridge National Laboratory's three new supercomputers are housed in a recently constructed 170,000-square-foot facility that includes 449 staff and 40,000 square feet of space for computer systems and data storage. The DOE and the National Science Foundation (the “NSF”) sponsor two of the existing supercomputers. The National Oceanic and Atmospheric Administrations will sponsor a new supercomputer funded with recovery Act money. The DOE awarded ORNL and its development partners – Cray Inc., IBM Corp. and Silicon Graphics Inc. - $25 million in funding to build both “Jaguars”. The NSF awarded the University of Tennessee, ORNL and other institutions a $65 million grant in 2007 to build “Kraken”. NOAA awarded Cray and ORNL a $47 million contract to provide a third supercomputer to work on only on climate research, as of yet unnamed.

ORNL new supercomputers are for unclassified uses, and one of them is the world’s fastest computer as of November 2009. The Cray CT4, the original supercomputer called Jaguar, operates at a peak of 263 trillion mathematical calculations per second. In late 2008, sooner than expected, the second new Cray CT5 was installed and connected to the original Jaguar. In November 2009 it became the fastest computer in the world. It is capable of running at 1.75 petaflops – which is 1,750 trillion calculations per second. The only other computers in the world to have operated at that speed have been on classified subjects. A second petaflops machine, known as Kraken, came online in early 2009 to work on a range of scientific challenges, such as climate change and new medicines. UT’s Kraken is housed with the ORNL’s Jaguars. There are still upgrades planned for two of supercomputers that could give the Jaguar the peak capability of 2.3 petaflops. The new supercomputer will be built in three phases and should achieve one petaflop (1,000 trillion calculations per second) sometime in 2011.

B-34 It is hoped that the two Jaguar and Kraken machines will be able to run together to double the capability when needed. Jaguar will be set up for limited users on high-priority science challenges and Kraken will be broadly available to academic users from universities around the country. The new machines will enable breakthrough discoveries in biology, fusion energy, climate prediction, nanoscience and many other fields that will fundamentally change both science and its impact across society.

Y-12 National Security Complex. The other large federal plant in Oak Ridge, the Y-12 National Security Complex (the “Y-12”) is also undergoing a major modernization program. Y- 12 is a key facility in the U.S. Nuclear Weapons Complex and is responsible for ensuring the safety, reliability, and security of the nuclear weapons stockpile and serves as the nation’s primary repository of highly enriched uranium. Y-12 houses the country's stockpile of bomb- grade uranium, builds uranium bomb parts and dismantles nuclear weapon systems as needed to support a much smaller nuclear arsenal. National Nuclear Security Administration's (the “NNSA”) is planning to transform the nuclear weapons complex to be smaller, more efficient and more cost effective. The goal is by 2020 to have only two facilities where there used to be 700 buildings.

A new $549 million Highly Enriched Uranium Materials Facility, a storage complex for weapons-grade uranium, was completed in late 2008. This new storage facility will replace multiple aging facilities and allow storage of its uranium stocks in one central location that represents maximized physical security with minimal vulnerabilities and operating costs. Loading of the uranium stocks will be completed by the summer of 2010. It is designed to protect the large cache of U-235 against any type of terrorist assault.

The Uranium Processing Facility (UPF) Project, cornerstone of Y-12's new modernization strategy, will replace current enriched uranium and other processing operations. It will replace Y-12's main production center and cost billions of dollars. The design phase began in 2006, construction is scheduled for 2010, and operation should start in 2013. Construction of the UPF will accelerate consolidation of aging facilities, bringing production operations currently housed in multiple buildings together, reducing the size of the plant's highest security area by 90 percent, improving the overall security posture, making the plant more secure and saving millions of dollars in annual operating costs.

Contractors have already demolished dozens of World War II era buildings, about a million square feet since 2001, to reduce the surveillance and maintenance costs, and to support the new programs. Some new office buildings already have been built, including the Jack Case Center that holds about a third of the workforce, or around 1,500 employees. This $58 million, 420,000-square-foot office building was completed in the summer of 2007. A new 137,000- square-foot visitor’s center and auditorium, for about $18 million, was also completed in 2007.

Source: City of Oak Ridge, Oak Ridge National Laboratory, Y-12 National Security Complex and the Knoxville News Sentinel.

Solar Tennessee has seen unprecedented growth in the solar business with the introduction of state and federal incentives for solar power generation (the Volunteer State Solar Initiative) and

B-35 an expansion of the TVA’s buy-back program for the power generated by solar and other renewable technologies.

Located in Knoxville, the Tennessee Solar Institute is part of the new Volunteer State Solar Initiative with The University of Tennessee and Oak Ridge National Laboratory. The objective of the Initiative will be to find ways of reducing the cost of producing solar energy and ways to store energy until needed. Among other purposes, it brings together scientists, engineers and technical experts with business leaders, policy makers and industry workers to help speed the deployment of solar photovoltaic technology. It is designed to be a home for regional and state initiatives that foster the creation of new businesses.

Tennessee has attracted a several large solar manufactures to the state. In West Tennessee Sharp Electronics has produced over 2 million solar panels since 2003 and has over 480 employees. In Middle Tennessee, construction has begun on the $1.2 billion dollar Hemlock Semicondutor in Montgomery County that will employ 500 people to produce a primary component used in the manufacture of solar panels and other energy equipment. Hemlock is expected to be in production by the year 2016. East Tennessee has several manufacturing plants. AGC Flat Glass is a solar glass manufacturer with two primary glass plants in Kingsport and Church Hill. A $200 million manufacturing plant of Confluence Solar Inc. began construction in 2010 in Anderson County and should employee about 250 workers. Also to be located in East Tennessee is the $1 billion Wacker Chemie AG plant in Bradley County that will create 500 jobs to produce a silicon used for the solar energy industry (a completion date has not yet been released).

There are several multi-megawatt solar farms either completed or under construction in the state. In West Tennessee, a $31 million, five megawatt solar farm, just 35 miles north of Memphis in Haywood County, will begin construction in October of 2010. Of the six solar generators in operation in Shelby County (Memphis), Sharp Electronics has the largest consisting of nearly 800 solar panels that cover the plant’s roof to generate about 200 kilowatts of power. The largest operational solar array in the state is located in Knoxville (see “RECENT DEVELOPMENTS”).

Source: Memphis Commercial Appeal, Knoxville News Sentinel and the University of Tennessee.

MANUFACTURING AND COMMERCE

Because of its central location in the eastern United States, the Knoxville area serves thousands of industrial and commercial customers in a concentrated eight-state area. It is within 500 miles of approximately one-third of the population of the United States. The City for many years has been known as one of the south's leading wholesale markets. Located within the County and City are approximately 1,000 wholesale and distribution houses and more than 2,100 retail establishments and 3,000 service industries.

Knoxville placed tenth and remained among one of the best cities in the country to do business according to the 2008 Forbes magazine rankings of the top 10 metros for business and careers. The City placed fifth overall among 200 competitors, earning high marks in job growth, cost of living, income growth, and other community indicators.

B-36 The County has 11 business parks and a Technology Corridor to meet a wide range of corporate facility needs. Forks of The River Industrial Park has 1,460 acres with only 14 acres still available. EastBridge Business Park has 807 acres with about 207 left for development. WestBridge Business Park has 252 acres with about 25 acres left. Pellissippi Corporate Center has about 159 acres with 25 acres left. Hardin Business Park is a new light industrial park with the total 95 acres still available. CenterPoint Business Park is a commercial park full with about 56 acres. The 44-acre I-275 Business Park is being sold to Sysco Corp (see “RECENT DEVELOPMENT”).

The County had about 10,929 businesses and the MSA had 15,657 businesses operating in 2007. In 2007, 4,296 building permits totaled $911,858,039. There were 605 industrial buildings totaling over 32 million in square feet in 2007. The vacancy rate for these buildings was only 11%. The County had 493 manufacturing facilities in 2007 and the MSA had 812 for the same period.

Knoxville-Oak Ridge Innovation Valley Inc. is an investor-directed program for 5 counties designed to recruit, retain and expand business growth throughout the Innovation Valley region. The organization is focused on technology-led economic development, as well as education and workforce development. These two areas of focus represent key differentiators in this plan of work.

The area is the trade center for a 42-county area in East Tennessee, Kentucky, Virginia and North Carolina, which serves over 2 million persons. It is also the cultural, tourist and professional center for this area.

In addition to being a manufacturing and distribution center, the County ranks second among the five metropolitan counties of Tennessee in agricultural production. The County's principal crops are barley, tobacco, corn, wheat, hay, vegetables and fruits. Cattle raising and dairying are also important farming activities. Meat packing and preparation of other food products have shown a steady increase in the County in the last several years.

The area also benefits from the State's high ranking in Alexander Grant and Company's General Manufacturing Climates. The study has consistently ranked Tennessee as one of the top areas in the nation for manufacturing.

Source: Knox County Metro Planning Commission 2008 & 2009.

B-37 LARGEST EMPLOYERS

The major areas of employment in Knox County are the services, retail trade and government. Comparatively, both the State and the Nation show a heavier concentration in manufacturing than does Knox County.

Ten Largest Employers in Knox County

Name County Industry Employment The University of TN, Knoxville Knox Education 11,091 Covenant Health Alliance1 Knox Health Care 8,982 Knox County Public Schools Knox Education 8,382 Mercy Health Partners2 Knox Health Care 4,118 K-VA-T Food Stores (Food City) Knox Retail 4,118 University of TN Medical Center Knox Health Care 3,724 State of Tennessee Knox Regional Government 3,709 Knox County Knox Government 3,055 East TN Children’s Hospital Knox Health Care 1,837 City of Knoxville Knox Government 1,575

1 Includes Ft. Sanders Reg Med Center, Parkwest, Methodist Med Center & all other Covenant Hospitals in the area. 2 Includes all Mercy Health System hospitals in the area. Source: Greater Knoxville Chamber of Commerce and Knoxville News Sentinel – 2010.

B-38 The following is a list of the major sources of employment in the Knoxville MSA:

Major Employers in the Knoxville MSA

Name County Industry Employment The University of TN, Knoxville Knox Education 11,091 Covenant Health Alliance1 Knox Health Care 8,982 Knox County Public Schools Knox Education 8,382 Wal-Mart Stores MSA Retail 5,330 B&W Y-122 Roane National Security 4,446 UT Batelle2 Roane National Security 4,434 Mercy Health Partners3 Knox Health Care 4,118 K-VA-T Food Stores (Food City) Knox Retail 4,118 University of TN Medical Center Knox Health Care 3,724 State of Tennessee Knox Regional Government 3,709 Denso4 Blount Automotive Parts 3,374 Knox County Knox Government 3,055 Dollywood Co.5 Sevier Theme Park 2,550 Clayton Homes Blount Mobile Homes 2,511 Kroger Co MSA Retail 2,269 Blount Memorial Hospital Blount Healthcare 2,198 Sevier County Schools Sevier Education 2,100 East TN Children’s Hospital Knox Health Care 1,837 CVS Caremark Inc. MSA Retail 1,775 US Postal Service MSA Mail Service 1,747 Sears, Roebuck & Co. MSA Retail 1,616 Blount County Schools Blount Education 1,600 City of Knoxville Knox Government 1,575 Cracker Barrel MSA Restaurant 1,529 United Parcel Service Knox Transportation 1,460 Bechtel Jacobs Company LLC2 Roane Environmental Management 1,371 ALCOA6 Blount Aluminum Ingot, Coiled Steel 1,368 Ruby Tuesday Inc. 7 MSA Restaurants 1,301 Bros. Management (also McDonald’s Restaurants) MSA Restaurants 1,250 Tennessee Valley Authority8 Knox Power 1,222 Elavon (formally NOVA Information) Knox Credit Card Processing 1,200 DTR Tennessee Inc. Greene Rubber & plastic hoses 1,200 Summit Medical Group Knox Health Care Providers 1,164 Team Health Inc. Knox Healthcare 1,137 Jewelry Television Knox Home-Shopping Cable Network 1,100

B-39 Name County Industry Employment Walgreens Co. MSA Retail 1,030 Pilot Corp. Knox Service Stations 1,024 Copper Cellar Corp Knox Restaurants 1,008 Knoxville Utilities Board Knox Utilities 1,004 Anderson County Schools Anderson Public School System 1,000 Roane County Schools Roane Public School System 1,000 Southeast Foods Co./Pennant Foods (also Wendy’s International Inc.) MSA Restaurant 1,000 Lowe’s Home Improvement MSA Retail 958 Wackenhut-Oak Ridge Team2 Roane National Security 936 Home Depot MSA Retail 910 Science Applications, Int'l. Corp. Anderson IT Research & Engineering 875 Comcast Communications MSA Broadband Communications 837 Scripps Networks (HGTV) Knox Cable Networks 829 First Tennessee Bank Knox Financial Institution 821 Shoney’s of Knoxville MSA Restaurants 820 AT&T Inc MSA Telecommunications 817 U.S. Cellular Corp MSA Wireless Communication 776 Oak Ridge Associated Universities3 Roane National Security 767 Brunswick/Sea Ray Boats 9 Knox Fiberglass Boats 760 Pellissippi State Tech. College Knox Education 748 Blount County Government Blount Government 745 Energy Solutions Anderson Nuclear Remediation Services 716 Collier Restaurant Group Sevier Restaurant 705 Target Co. MSA Retail 700 Oak Ridge Schools Anderson Public School System 697 Kimberly-Clark Corp. Knox Manufacturing 690 Charles Blalock & Sons Sevier Asphalt 690 Hillcrest Healthcare Knox Healthcare 650 Regal Entertainment Group MSA Movie Theaters 639

1 Includes Ft. Sanders Reg Med Center, Parkwest, Methodist Med Center & all other Covenant Hospitals in the area. 2 US Dept. of Energy Oak Ridge Operations has 12 US DOE contractors/departments for a total of 13,182employment. 3 Includes all Mercy Health System hospitals in the area. 4 Headquarters based in Blount Co., but employment excludes some 874 employees working in McMinn Co. 5 Employment figure is based on Operating season, it drops to around 300 during the off-season. 6 Includes some employees working in Knox Co. 7 Includes 500 employees in Blount Co. 8 Includes Corporate headquarters in Knoxville, Bull Run Steam Plant, Norris and Corryton. 9.Corporate headquarters and 2 plants are based in Knox Co., but employment excludes some 500 employees working in Monroe Co. Source: Department of Economic & Community Development, and Knoxville News Sentinel - 2010.

B-40 EMPLOYMENT INFORMATION

For the month of July 2010, the unemployment rate for Knoxville stood at 8.7% with 87,870 persons employed out of a labor force of 96,240. For the month of July2010, the unemployment rate for Knox County stood at 7.5% with 217,620 persons employed out of a labor force of 235,200.

The Knoxville MSA’s unemployment for July 2010 was at 7.7% with 340,690 persons employed out of a labor force of 369,160. As of July 2010, the unemployment rate in the Knoxville-Sevierville-Harriman-LaFollette CSA stood at 8.4%, representing 500,220 persons employed out of a workforce of 546,160.

Unemployment

Annual Annual Annual Annual Annual Average Average Average Average Average 2005 2006 2007 2008 2009

National 5.1% 4.6% 4.6% 5.8% 9.3% Tennessee 5.6% 5.2% 4.7% 6.4% 10.5% Knoxville 6.3% 5.6% 5.0% 7.3% 9.3% Index vs. National 124 122 109 126 100 Index vs. State 118 108 106 114 89

Knox County 4.1% 3.9% 3.4% 4.8% 8.0%

Index vs. National 80 85 74 83 86 Index vs. State 73 75 72 75 76

Knoxville MSA 4.4% 4.1% 3.7% 5.2% 8.7% Index vs. National 86 89 80 90 94 Index vs. State 79 79 79 81 83 Knoxville-Sevierville- Harriman-LaFollette CSA 4.9% 4.7% 4.2% 5.8% 9.7% Index vs. National 96 102 91 100 104 Index vs. State 88 90 89 91 92

Source: Tennessee Department of Employment Security, CPS Labor Force Estimates Summary.

B-41

A diversified economy is credited for the stability of local employment and wages. Employment by industry (excluding self-employed) for the Knoxville MSA in March 2010:

Industry Number Percentage

Government 50,700 16.0%

Educational, Health Services 44,600 14.0%

Professional, Business Services 41,900 13.2%

Retail Trade 41,800 13.2%

Leisure and Hospitality 33,100 10.4%

Manufacturing 28,800 9.1%

Durable goods 21,400 6.7%

Nondurable good 7,400 2.3%

Financial Activities 17,000 5.4%

Wholesale Trade 15,600 5.0%

Natural Resources, Mining, Construction 15,100 4.8%

Other Services 14,300 4.5%

Transportation, Utilities 9,300 2.9%

Information 5,300 1.7%

Total 317,500

Source: Tennessee Department of Labor and Workforce Development

ECONOMIC DATA

Recently, Parenting Magazine ranked Knoxville 5th in their “Best Places to Raise a Family” article. The article cited such factors as absence of crime, low rate of drug and alcohol abuse, good public schools, first rate health care, a clean environment, affordable cost of living, and strong economic growth in determining the rankings.

The quality of life, low cost of living and excellent transportation facilities are among the factors that attract firms to the Knoxville area. Telecommunications is a field that is rapidly

B-42 growing in the area. Five national firms, Bell and Howell Corporation, Hospitality Franchise Systems (Days Inn), Talbots, Whirlpool and Sears have established telecommunication centers in Knoxville. The City has put significant emphasis on attracting companies to the area and on the expansion of existing facilities. Companies which have their corporate headquarters in Knoxville include Pilot Corporation with travel centers across the nation, Clayton Homes, Brunswick, Scripps Networks, Anchor Advanced Products, Inc., Regal Cinemas and Bandit Lites.

Leisure Boat Manufacturing. East Tennessee is fast becoming the leisure boat-building capital of the United States. Due to the Tennessee Valley Authority system of lakes and rivers, it's an excellent place to test boats without worrying about hurricanes while being near the Interstate crossroads. Channelization of the Tennessee River to a 9-foot minimum navigable depth from its junction with the Ohio River at Paducah, Kentucky to Knoxville, Tennessee gives the surrounding communities the benefits of year round, low cost water transportation and a port on the nation's 10,000 mile-inland waterway system. It takes a week to deliver the yachts too large for the interstate from the reservoir down the series of locks on the Tennessee River, along the Tennessee-Tombigbee Waterway, then on to the Gulf of Mexico and beyond. This system formed largely by the Mississippi River and its tributaries, effectively links the River with the Great Lakes to the north and the Gulf of Mexico to the south.

Brunswick Boat Group, with $2.8 billion in revenue in recent years, moved its corporate headquarters to Knoxville from Chicago in 2002. The company, which owns more than two dozen boat brands, is the largest boat builder in the region. The aim is to improve quality and serviceability with a new closed-mold production method and acquisition of companies that will allow it to service boats faster, control quality better and make owning a boat as easy as owning a car. In early 2009 the company announced it would close the Sea Ray plant in the Forks of the River Industrial Park in East Knox County and cut other jobs across the company, losing some 540 jobs in the Knoxville area due to the weak economy. (See “Recent Developments” for more information on the company.)

West coast-based Christensen Shipyards has started construction on a $20 million dollar, 450,000 square foot plant that could employ up to 1,200 workers. The new plant is to build large “superyachts” ranging from 170 feet to 225 feet that cost $40 million to $70 million. The Christensen site is across the lake from the Sea Ray plant. Christensen Yachts chose to build a shipyard in Loudon County for several reasons. The reasons cited were to be closer to European markets, good interstate access, a deep harbor for launching its boats, low taxes and a highly skilled work force. The plant’s construction is on hold as of 2009. Despite the delay, plans are still positive for the plant to continue on course for building superyachts.

Source: Knoxville News Sentinel.

B-43 Boat manufactures in the area listed by county are below:

Knox County: Brunswick Boat Group, Bullet Boats, and Sailabration Houseboats Monroe County: Mastercraft Boats, Yamaha-TWI and Bryant Boats Blount County: Skier's Choice, Allison and Stroker Boats Loudon County: Malibu Boats and Christensen Shipyards Cumberland County: Leisure Kraft Pontoons Campbell County: Norris Craft Boat Company

Historically, due to the County's predominantly commercial economic base, Knox County's level of per capita income has exceeded the State level each year. The following is a chart showing the per capital personal income for the County, the MSA and the CSA of the area.

Per Capita Personal Income

2004 2005 2006 2007 2008

National $33,881 $35,424 $37,698 $39,392 $40,166 Tennessee $30,246 $31,294 $32,871 $34,156 $34,833 Knox County $31,890 $32,844 $34,675 $35,792 $36,342 Index vs. National 94 93 92 91 90 Index vs. State 105 105 105 105 104

Knoxville MSA $30,393 $31,334 $32,952 $34,180 $34,696 Index vs. National 90 88 87 87 89 Index vs. State 100 100 100 100 100 Knoxville-Sevierville- Harriman-LaFollette CSA $28,539 $29,481 $30,902 $32,097 $32,680 Index vs. National 84 83 82 81 81 Index vs. State 94 94 94 94 94

Source: U.S. Department of Commerce, Bureau of Economic Analysis.

RECREATION AND TOURISM

In 2007 Knox County’s tourism industry generated $60.6 million in state and local tax revenue as well as sustaining 9,600 jobs and $278.7 million in wages.

Although industry is frequently considered the core of an economic base, secondary and tertiary activities also make important contributions to economic development. The convention and tourist business contribute to the City's economic base in the sense that income is drawn into the region resulting in employment and investment opportunities in tourist-related facilities.

This influx in tourist related income provides stimulus to economic development in the area. In recognition of the important role tourism plays in the economy of the County, local

B-44 authorities created the Knoxville Tourism and Sports Corporation. The organization’s purpose is to encourage tourism and tourist-related activity.

Knox County has over 5,881 acres of park and recreation space, including 27 recreation centers, six senior citizen centers, the newly opened Knoxville Skatepark, 13 golf courses open to the public, and more than 60 miles of greenway and walking trails. Two big attractions for both young and old are the Knoxville Zoological Gardens and Ijams Nature Center. The Tennessee Smokies provide AA minor league baseball in neighboring Sevier County. The Knoxville Ice Bears provide professional hockey at the Coliseum October through March. National championship UT sports teams, including the 2007 and 2008 NCAA National Champions Lady Vols, draw thousands of enthusiasts to games each year. The city is also home to the Women’s Basketball Hall of Fame. Special seasonal events include the Dogwood Arts Festival and The Expo 10,000 race in the spring; Sundown in the City and Festival on the Fourth in the summer; Boomsday and the Artists' Extravaganza in the fall; and Christmas in the City in December.

The Knoxville Symphony, the Knoxville Opera Company, and the Tennessee Children's Dance Ensemble are among the many exceptional arts organizations in Knoxville. Additional dance companies, civic choral groups, and nine theaters also help celebrate the arts. The Knoxville Museum of Art features changing exhibits throughout the year. Many libraries, historic sites, and museums, such as the Museum of Appalachia, add to the cultural value of the Knoxville area.

Two major interstate highways, I-40 and I-75, extend directly through the County, and the southern end of I-81 terminates just outside the County. The highway system puts the County within a day's drive of more than 70 million people.

The County is the principal gateway area to the Great Smoky Mountains National Park (GSMNP), located 40 miles to the southeast. The beauty of the Great Smoky Mountains has always attracted visitors to this region. There are over 500,000 acres that make up the nation's most visited National Park, extending over the States of Tennessee and North Carolina. The GSMNP received over 9.2 million visitors in 2008, more than twice the number of any other national park in the country. Major attractions in the Smokies are Gatlinburg (40 miles southeast of the City), a tourist town in the mountains with overnight accommodations for 60,000 people, and Pigeon Forge (20 miles southeast of the City), and a tourist town at the foothills of the mountain with overnight accommodations for 40,000 people. Numerous restaurants, gift and craft shops, along with ski lodge, ski lifts and tramway, make Gatlinburg a year-round resort town. Pigeon Forge is known for being home to hundreds of retail outlets and Dollywood, a theme park named for the country music singer, Dolly Parton.

Source: Knoxville News Sentinel and the Knox County Metro Planning Commission 2008 & 2009.

RECENT DEVELOPMENTS

Following are some recent developments within the boundaries of the City and County and the Knoxville MSA that have had a direct economic impact on the area. The source for statistical information below is the Knoxville Area Chamber Partnership, the City of Knoxville,

B-45 the Knoxville-Knox County Metropolitan Planning Commission, the Knoxville News Sentinel and The Daily Times.

East Knox County

Brunswick Boat Group. The Brunswick Boat Group in early 2009 announced major cuts to the company. Brunswick closed the Sea Ray plant in the Forks of the River Industrial Park, and as of 2010 has the plant up for sale. Production was moved to other Brunswick plants in Knoxville and Vonore, TN. About 300 jobs at the plant were lost due to the closing, with an addition 240 jobs lost at the other two Knoxville area plants and headquarters. A decline in boat sales led to the layoffs at many East Tennessee plants, totaling 1,000 employees within the company to be let go. Brunswick reduced its spending by $300 million and its plants from 29 to 17 by the end of 2009.

East Tennessee Zinc Co. As of 2009, East Tennessee Zinc Co. has sold its three zinc mines in Jefferson and Knox Counties to the Belgium company Nyrstar NV for $126 million. East Tennessee had idled the mines in early 2009 due to zinc prices plummeting to about 52 cents a pound. 320 workers were laid off with about 70 staying on to maintain the mines. As of October 2010, Nyrstar has reopened the Coy mine with a limited employment and production. No date has been announced yet when all three mines will be back in full operation again.

The Young mine in New Market opened in 1956; the Coy mine in Strawberry Plains was started in 1957; and the Immel mine in East Knox County's Mascot community opened in 1965. Zinc from the Young, Coy and Immel mines is widely used to galvanize steel.

Efficient Energy of Tennessee. Efficient Energy, in partnership with Natural Energy Group, build a solar panel site in East Knoxville. The site has more than one megawatt worth of solar panels on a five-acre lot. The 4.608 solar panels can produce nearly 1.2 megawatts of electricity, enough to power about 125 homes. The site will also be a resource for local research and educational organizations, such as the Oak Ridge National Lab, Cleveland State Community College and Pellissippii State community College.

Exedy American Corp. Exedy (formerly Daikin Drivetrain Components Corp) had a $56 million expansion to its Mascot plant that added 200 jobs in 2006. The plant in Eastbridge Business Park grew from 330,000 to 412,000 square feet. Exedy makes torque converters for Nissan, Ford Motor Co. and Chrysler.

Green Mountain Coffee. Green Mountain Coffee Company started production in late 2008 at a new 334,000-square-foot facility in Forks of the River Industrial Park. The company invested about $55 million dollars on the plant. An $8 million coffee roasting equipment was installed and coffee silos were built in 2009. The company shares have spiked in value recently due to the success of the company’s K-Cup business, which is individual coffee packs for single cup servings. The company bought three large acquisitions in 2009: Tully’s Coffee Brand for $40.3 million, Timothy’s Coffees of the World Inc. for $157 million and Diedrick Coffee Inc. for $290 million.

B-46 Knox County Detention Center. The Detention Center in east Knoxville installed over 300 solar panels, five solar storage tanks, 65 concrete pads and more than 6,000 feet of copper piping to make it one of the largest solar thermal systems for domestic use in the nation. Trane, Knox County and FLS Energy partnered to save Knox County $60,000 annually in switching from natural gas to solar power as the primary way to heat water for the detention center’s 1,036 inmates. The project was funded by a $1.88 million grant from the U.S. Department of Energy Efficiency. The County also plans to renovate and upgrade 40 facilities, 24 parks and 37 traffic intersections with the grant money, all to be completed by January 2011. The total project is expected to save the County about $6 million annually.

Melaleuca. Located in the Forks of the River Industrial Park, Melaleuca is expanding its operations and will hire up to 500 more workers in the next 10 years. A new 222,000-square- foot distribution center was opened in mid-2010. Melaleuca produces nutritional supplements, cleaning supplies, personal care and other products and sells these through workers who operate as direct marketers. The company has been operating in Knoxville since 1993.

West Knox County

Anderson News. Anderson News closed its headquarters in Knoxville and laid off more than 400 people in early 2009. Founded in 1917, Anderson News, along with its affiliate Anderson Services, grew to become the second-largest magazine wholesaler in the U.S., servicing 30,000 retail customers in 37 states with 9,800 employees. Publishers stopped shipping magazines to Anderson over a disputed price increase in February of 2009.

Cariten Healthcare. The insurance carrier, Cariten Healthcare, has been bought from Covenant Health by Humana for $245 million. The merger was finalized in 2008. Now all Cariten members have in-network access to all Mercy Health Partners facilities.

Cellular Sales Verizon Wireless. Cellular Sales Verizon Wireless is a Knoxville-based company that operates authorized Verizon Wireless stores nationwide. In late 2010 it announced plans to expand its facility in West Knoxville that will result in 200-250 new jobs. The company operates nearly 300 stores from Maine to Florida and to Texas.

East Tennessee Healthcare Center. A $35 million medical office development has begun construction as of May 2008 in the Dowell Springs Business Park. The Knoxville Comprehensive Breast Center and Tennessee Cancer Specialists are the anchor tenants. The development, called the East Tennessee Healthcare Center, is situated on 12 acres in the Dowell Springs Business Park, a central location to physicians, hospitals, and area residences. Initial construction included two buildings which will offer 175,000 square feet of clinical and office space. Space for another 75,000 square foot building is available, as expansion is needed. The project was completed in late 2009. Plans for the grounds support the East Tennessee Healthcare Center's holistic approach to wellness and healthy living with "walking paths, waterfalls and beautiful mountain views."

FBI’s Knoxville Division. The FBI outgrew its downtown Knoxville offices in the John J. Duncan Federal Building. They broke ground on a new $58 million regional field office in the Dowell Springs Business Park off Middlebrook Pike in early 2008. The building should be

B-47 finished in late 2010 and will house about 150 people. The three-story, 99,130-square-foot office building will be built on nine acres. In addition to employees from the Duncan building, the Dowell Springs office also will be home to employees from the FBI’s Joint Terrorism Task Force currently located in a west Knoxville office building and counter-intelligence agents in Oak Ridge.

Fort Sanders Parkwest Medical Center. This Covenant Health facility in 2005 completed $94 million renovation and expansion. It includes a six-story tower with 213 new, private patient rooms; a 20 suite maternity center; a new emergency department; a new two-story atrium lobby to house outpatient services and day surgery; and additional cardiac diagnostic and treatment services. The existing facility, built in 1973, was also modernized to include new bedside technology and a paperless documentation system.

Goody’s Family Clothing. In 2010 nine of the Goody’s stores in Tennessee had reopened after being bought by a Texas company. In 2009 the Knoxville based Goody’s closed the company after filing for Chapter 11 Bankruptcy twice in eleven months. More than 800 Knoxville-area employees were affected by the closing. Goody's entered bankruptcy protection in 2008 for five months, saying it had been hurt by high gasoline and food prices. As part of its restructuring, Goody's closed more than 70 stores, as well as a distribution center and a New York office. It had emerged from bankruptcy in October of 2008 only to re-file in January of 2009. Goody's was founded in 1953 by the Goodfriend family in East Tennessee. It grew to more than 300 stores operating primarily in the South and Midwest. Goody's had about 9,800 employees and annual revenues of $800 million. The old headquarters in Parkside Centre is now partly occupied by a new campus of South College.

IdleAire Inc.. IdleAire was a privately-held corporation formed in 2000. IdleAire had 131 locations in 34 states, providing filtered heating and air conditioning, electrical outlets, and a range of communications and entertainment options that allow long-haul truck drivers to shut down their engines instead of idling for cab comfort during daily rest periods. Since its inception, IdleAire prevented over 855 million pounds of diesel idling emissions from entering the air. Corporate headquarters and a research and development center are located in Knoxville.

In 2008, the company filed for bankruptcy and a group of investors bought its assets and opened a new company called IdleAire Inc. However, the new company also struggled and on early 2010 closed its doors, resulting in 315 layoffs. In 2010, the company was bought again by a New York based company that has resumed service in about 25 locations nationally. The new owners hired about 15 people for local, Knoxville sites and about 25 people for other sites.

Jewelry Television. Knoxville-based Jewelry Television completed construction of its headquarters facility on a 50-acre in the Pellissippi Corporate Center owned by the Knox County Development Corporation. The site is part of the Tennessee Technology Corridor. The headquarters include approximately 200,000 square feet for office, studio, and call center space and an additional 100,000 square feet for warehouse space. The budget for the project was $20- $25 million for construction with another $7-$9 million allocated for furniture and equipment. Construction was completed at the end of 2007.

B-48 In 2008 the company announced that over 900 jobs in Knoxville and Nashville were eliminated in a restructuring effort due to economic stresses. In early 2009 the company returned to profitability and will maintain the reduced workforce of about 1,100 employees from a high of 2,000 in 2008.

Mercy Medical Center, West (formerly Baptist Hospital West). Construction began in early 2009 to build a $15 million adjacent surgery wing, the West Knox Surgery Center, to the Mercy Medical Center, West. The 18,000-square-foot center includes four multipurpose operating rooms and two endoscopy procedure rooms. The new $13 million surgery center opened in early 2010. In the summer of 2008 MHP moved the open-heart program from Baptist Hospital of East Tennessee to Mercy Medical Center, West. As of 2008, Baptist Health System merged with St. Mary’s Health System to create a new healthcare system, Mercy Health Partners.

The Pavilion at Turkey Creek. Turkey Creek is the largest single commercial development ever built in the metropolitan area of Knoxville. Designed for mixed use and beautifully landscaped, Turkey Creek boasts more than 300 acres of space zoned for retail shopping outlets, medical facilities, theaters, office space, banks, restaurants and hotels. The developers of Turkey Creek also created a 58 acre nature preserve and designed greenways throughout the site. Only three miles from the junction of Interstate 75 and 40 to the west and 14 miles from downtown Knoxville makes the site a quick drive from the urban center, suburban Knoxville, and rural counties. When the project reaches its projected completion in 2009, it will include about 1.5 million square feet of retail space, a million feet of office space, and a half- million feet of restaurants and entertainment.

Completed in 2002, the original 287,847 square foot complex is anchored by Office Max and Old Navy. Gander Mountain Company, specializing in outdoor equipment, is opened its 66,000 square foot store for $3.95 million in the fall of 2006. Belk, the nation’s largest privately owned business, also opened a store in 2006. A row of furniture stores are open, including Braden’s Lifestyles, Ethan Allen and Thomasville. Also, Earth Fare opened Tennessee’s first organic market.

Regal Cinemas' Pinnacle 18 in Turkey Creek opened an $18-million megaplex in 2005. The 18-screen theater encompasses over 82,000 square-foot. Regal Cinemas is one of the nation’s fastest growing theater companies and has its corporate offices located in Knoxville. Major movie premiers have occurred at the Pinnacle.

In 2008 two large office buildings were sold to investors for around $40 million. Parkside Plaza I, a five-story office building, and Parkside Plaza II, a three-story medical office building next door. Tenants in Parkside Plaza include Regions Bank, Morgan Keegan and and SunCoke Energy.

In 2009 several retail chains opened stores in Turkey Creek. Belk opened a new 30,000- square-foot store at Colonial Pinnacle that were part of a $3.8 million expansion and renovation project. The final phase at Belk includes an adjacent 74,349-square-foot store that expanded the Women’s and Children’s offerings in the summer of 2009. JCPenneys opened a 104,000-square- foot freestanding store in Turkey Creek. Marshalls opened a new 5,000-square-foot store next to

B-49 Belk, and Off Broadway Shoes also opened a new store.

A new restaurant, Red Robin, opened in April of 2009 next to the new Marshalls. About 100 people were hired. Ashley Furniture closed its doors in summer of 2009 and was very quickly bought by Knoxville Wholesale Furniture. Knoxville Wholesale will keep all the original employees and plans to hire about 52 more after the show room has been renovated.

PBR. In 2009 PBR announced it was shutting down its facility in the WestBridge Business Park in 2010. About 250 workers were laid off as a result. PBR manufactures automotive parts, mainly brake calipers, and is owned by The Bosch Group.

Pellissippi State Technical Community College. In 2007 Pellissippi opened a new $8.25 million Bagwell Center for Media and Art to provide coordinated training in such related disciplines as video production, web technology, graphic and photography. The two-story, 27,000-square-foot building at the College’s main, west Knoxville campus will house students. It features television and photography studios, video-editing suites and computer labs. It also has art studios and a multimedia gallery to feature student work and professional exhibits.

Pilot Corp. Pilot Corp. is headquartered in Knoxville and is the largest U.S. travel center company with 305 Centers in 40 states. A merger with Flying J Inc. was announced in the summer of 2009. Flying J is a Utah-based operator of travel centers, oil refineries, a pipeline and other operations. The merger has been preliminary approved and will pull Flying J out of Chapter 11 bankruptcy. If Flying J Inc. and Pilot Travel Centers complete their merger, the resulting company would be a multi-billion-dollar corporation headquartered in Knoxville with 550 travel centers in more than 40 states and Canada. It would be the largest retail travel center operator in North America and the largest retailer of diesel fuel. There has been no estimated timeline of when the merger will be finalized.

In 2007 Pilot Corp. launched the first gas pump in East Tennessee to sell the environmentally friendly fuel Ethanol 85 at its Pilot store on Walker Springs Road. In 2008 Pilot Corp. and CVC Capital Partners, a global private equity firm, bought 50 percent of the ownership interest of Houston-based Marathon Oil Corp. for $700 million.

Scripps Networks. Scripps Network announced in 2007 plans to upgrade and expand its west Knoxville headquarters. A 150,000-square-foot office building was on 11 acres. The expansion will nearly double the company’s office space and will bring all of its Knoxville divisions into one campus. Scripps Network is the home of Home and Garden TV network.

Semperian LLC. Semperian serviced loans for General Motors Acceptance Corp and closed its doors in April of 2010. About 170 employees were laid off. Semperian has offices in Arkansas, Florida and Texas. The Knoxville office opened in 2002 and provided collection and customer support services for GMAC’s low- and medium-risk loan collections activities, plus accounting and other services.

Summit Healthcare Services. Summit is a Knoxville company that manages 33 physician practices in nine counties with about 1,000 employees and 150 affiliated physicians. There are two construction projects completed: a $3 million expansion of an MRI-CT center in Deane Hill;

B-50 and a $1.8 million office for Concord Medical Group off Kingston Pike near Pellissippi Parkway that opened in early 2004.

University of Tennessee Medical Center. The Medical Center combined two of its divisions to create a new health system and shifted 200 employees to the organization. University Health System was formed by combining the hospital’s management services organization and the University of Tennessee Health Plan and is wholly owned by UT. The management services organization is the hospital’s medical practice area, which includes centralized billing, administrative services, practice developments and physician recruitment. The 200 employees transferred all work in the management services division. The UT Health Plan is a managed-care organization. The new organization began operation in 2006 in offices on Executive Park Drive.

The Medical Center also leased a satellite facility in the Turkey Creek development in 2004. The 103,000 square foot facility will contain private physician offices, outpatient services, rehabilitation services, dentistry, an endoscopy center and an urgent-care clinic.

North Knox County

Panasonic Electronic Devices Corp of America. Panasonic’s Aluminum Foil Plant in the Forks of the River Industrial Plant, which produced speakers and capacitors, was closed in March of 2010. Cornell Dublilier has bought the aluminum foil plant’s assets and resumed production of the specialty product used in electronics. Production was restarted in July 2010 with about 30 employees who used to work in the faculty. This resulted in 140 layoffs. The speaker production was moved to Mexico, and the capacitors were shifted to a plant in Malaysia. The design and program management teams, about 30-35 employees, stayed in Knoxville. Panasonic Electronic Devices Corp of America began manufacturing at Forks of the River in 1982 and had a 359,000-square-foot building on 40 acres. At its peak production in 2002 the company employed 725 people.

Mercy Medical Center, North (formerly St. Mary’s North Medical Center). The Sisters of Mercy, members of the St. Mary’s Health System Board of Directors, broke ground in 2005 on the 52-acre campus for the new $67 million St. Mary’s Medical Center North near I-75. The Mercy Medical Center, North campus was already home to the SMHS Health and Fitness Center, Medical Office Building and the Cancer, Women’s and Imaging Center. The new, acute-care medical center has 72 beds, five operating rooms, two emergency trauma rooms, 10 emergency exams rooms and state-of-the-art clinical and information technology. It is patient and family friendly with large patient rooms, ample free parking and each room has free Internet access for the patients and their families. Opened in the Fall 2007, the six-story building has 206,000 square feet of space and has an initial employment of about 300 associates. The design incorporates the ability to add 36 beds when future conditions warrant the expansion. As of 2008, Baptist Health System merged with St. Mary’s Health System to create a new healthcare system, Mercy Health Partners.

Sysco Corp. Headquartered in Texas, the largest food-service marketer and distributor in North America has bought about 44 acres in the I-275 Business Park north of downtown Knoxville and built a 300,000-square-foot complex that employs about 250. The total

B-51 investment is about $50 million and the distribution facility was operational in May of 2008. The company already has three facilities in Nashville and one in Memphis, with a total of about 170 throughout the United States and Canada.

South Knox County

River Front Development. The 20-year, $139 million effort to develop land fronting Fort Loudoun Lake across from downtown is progressing. Once completed, it is expected to support 1,000 units of housing, 30,000 square feet of retail space and restaurants, 320,000 square feet of office space and more than 100 marina boat slips. Priority projects from the waterfront development include renovation of the Cherokee Trail railroad underpass and a new James White Parkway connection to Sevier Avenue.

Cityview at Riverwalk. A 122-unit waterfront condominium on the site of Knoxville Glove Co. at the South Knoxville waterfront broke ground in spring of 2006 and went into receivership in May 2009. The developers were in default of a $23 million construction loan. The site has now been sold to developers for about $15 million, and an occupation date has not been announced yet. The development consists of one-, two- and three-bedroom units, ranging in price from $165,000 to more than $300,000. The total cost of the residential development is estimated to be about $30.5 million. Cityview amenities include a fitness center, covered secured parking and a marina. The 96-slip marina has been approved by TVA, and some slips are to be sold to the public.

McGhee Tyson Airport. McGhee Tyson Airport is located south of Knoxville in Blount County. In late 2008 a new $11.3 million Airport Rescue and Firefight Facility opened. The new 19,700-square-foot building replaces the original facility built in 1982 and is designed to handle the increase in passengers since then. A new $2.6 million taxiway was also completed in late 2008.

In the summer of 2009 a new food court in the terminal building opened that includes Starbucks Coffee, Quiznos subs, ZIA Smoothies and Soft Serve Treats and Cinnabon Cinnamon Rolls. Construction of a new $35 million parking garage was to begin in the summer of 2009, but due to the weak economy that project is now on hold.

River Towne Condominiums. River Towne Condominiums, a 50-unit complex with a marina, outdoor pool and other amenities, is built on five acres along Scottish Pike. River Towne’s 71,000-square-foot, $9.4 million project was finished 2006.

Woodlands. A $25 million new student-condominium development, The Woodlands is conveniently located five minutes from UT. Located on more than 100 secluded acres, including a dedicated green space, it features walking, running and biking paths. The development features $3 million in amenities: five swimming pools, an 8,000-square-foot clubhouse, on-site courtesy officers and gates with remote-control access.

B-52 Downtown Business District

Knoxville’s downtown in recent years has experienced an upturn in investment, both public and private, to revitalize the center city and bring more people in to live, work and play. With the completion of the $160 million Knoxville Convention Center and renovated World’s Fair Park, attention has turned to public-private partnerships to build new businesses and attractions downtown to complement public sector investments of the past several years.

Bijou Theatre. Downtown’s Bijou celebrated its 100 year anniversary in early 2009. A new Marquee sign was installed to mark the occasion. The Bijou started out as a hotel, the Lamar House, in the 1800s. During the Civil War it was an army hospital. Then it was redesigned into a theater in 1909. In 2006 funds were raised to save it from foreclosure and for renovation. It currently has a steady calendar of concerts and shows booked.

East Tennessee History Center. In 2001, the East Tennessee Historical Society and the Knox County Public Library celebrated the groundbreaking for construction of the new East Tennessee History Center. The $20 million project, spearheaded by the East Tennessee Historical Society and the Knox County Public Library, more than doubles the space available for the three entities who now occupy the building: the East Tennessee Historical Society and Museum, the Calvin M. McClung Historical Collection, and the Knox County Archives. The McClung Collection and the Archives will gain much-needed storage space, as well as improved visitors’ services.

The new facilities, completed in the spring of 2005, provide space for ETHS to showcase more than two centuries of our region's past, the men and women who have shaped it, and the unique contributions of East Tennessee to the national story. A 2,000 square-foot temporary gallery will host large traveling exhibits, some of a national scope. A computer lab, interactive exhibits, more room for school programs, artifact storage, an expanded museum shop, and a large auditorium are among the many features.

Fort Sanders Regional Medical Center. A $150 million expansion of Fort Sanders Regional Medical Center began in 2008. The expansion includes a $78 million surgery center, physicians' offices and parking garage. The new medical building will be built on the current parking lot at Clinch Avenue & 19th Street. The expansion will be a three-floor lobby connector across the block of 19th Street between Laurel and Clinch avenues that will link the hospital’s existing building to a new complex of physicians’ offices. Later phases call for additional floors and could bring the hospital’s investment close to $150 million. The hospital expects the first phase to construct at least three floors of administrative offices with two levels of underground parking and a relocation of its emergency room entrance, which could also net about 100 new jobs.

Gay Streetscape Project. In April 2009 several blocks of Gay Street were closed for a year-long, $3.5 million project to improve sidewalks, trees and on-street parking. Underground utilities were also replaced. Digging below that section of Gay Street may be a problem since in 1919 the street was raised to the second-floor height of the surrounding buildings to be flush with a newly built Gay Street Viaduct.

B-53 Gay Street Regal Movie Theater. Regal Entertainment Group built a multiplex theater in the 500 block of Gay Street on the site of the former S&W Cafeteria. The 2,000-seat, eight- screen project cost about $11.5 million. Construction began in the Spring 2006, and the theater opened in August of 2007. The City owned the project through the industrial board, but it is operated by the Knoxville-based Regal Entertainment Group.

Home Federal Bank. Home Federal completed the new façade and additional parking for the Market Street headquarters downtown. It was finished in early 2007 and cost about $1.75 million. The project replaced a 1960s-era glass-and-steel look with a more traditional finish of brick and pre-cast concrete. Home Federal also announced in 2008 that the plans for a new 60,000-square-foot downtown branch are on hold until the economy improves. Once built, the bank will occupy three of the four floors in the new building, with one floor made available for lease.

ImagePoint Inc. In January of 2009 ImagePoint filed for bankruptcy, closing its sales and manufacturing operations. This laid off 450 employees, 270 at the headquarters on Gay Street and 180 at its plant in Kentucky. ImagePoint made signs and image products for automotive and restaurant businesses, which are struggling due to the weak economy. In the summer of 2008 ImagePoint had closed its second plant in Columbia, cut 58 jobs and moved production to the Kentucky plant. A group of former ImagePoint employees were hired by a UK- based company, Principle Group. Principle USA Inc. is headquartered in west Knox County.

JFG Coffee. Reily Foods, the New Orleans based parent of JFG Coffee, has invested $7 million in an expansion of the Knoxville plant. The 64,000-square-foot addition to its finished- goods distribution center will give the company more room to store coffee, tea, mayonnaise and instant coffee.

JFG Flats. The former JFG Coffee building that was the roasting facility for the company has been turned into an apartment project called JFG Flats. It opened in the summer of 2009. The building still holds the JFG logo and sign on the exterior and many of the apartments are built around the facility’s original roasting equipment and features. When it opened it had about a 60% occupancy.

Mast General Store. The Mast General Store opened a $3.6 million, 23,000 square foot store in August of 2006. The store is located on Gay Street.

Metropolitan Plaza. In early 2009 the City Council approved plans to build a new hotel on the site of the state Supreme Court building. The mixed-use facility will be downtown Knoxville’s first new hotel in more than 25 years. The $78 million project would be called Metropolitan Plaza, or The Met, for short. It would include a 200-room, boutique-style hotel; 25 to 30 condos; office space and retail shops; and a 450-unit parking garage. The hotel would be around 15 stories, while the office complex would top out at about seven. Plus, there is a planned pedestrian crosswalk bridge to the convention center across the street. The City plans to go ahead with the project in spite of the weak economy. Construction should start in 2011.

Riverview Tower. In 2005, a Texas investment group bought the 24-story Riverview Tower next to First Tennessee Plaza at 900 S. Gay for $41 million.

B-54

S & W Cafeteria. Located next to the Regal Movie Theater on Gay Street, the iconic restaurant has been renovated for development and renamed the S&W Grand Café. Some of the original architecture has been preserved: the revolving door and the curving staircase. The restaurant opened in late 2009. The building is about 60 percent leased, including a gelato café, an architecture firm and a landscape/environmental planning firm. It is estimated that the development could create 300 new jobs and bring in roughly a half-million dollars each year in sales tax revenue.

The Tennessee Theatre. The Historic Tennessee Theatre Foundation raised over $20 million to completely restore and renovate the Tennessee Theatre. The ultimate goal was to transform the grand old movie palace into a true performing arts facility for East Tennessee, while retaining the unequaled magnificence of its interior. Restoration of the Tennessee Theatre is one of the cornerstones of the rebirth of downtown Knoxville, providing entertainment, culture, economic prosperity, and historic preservation. The restoration was completed in 2005.

After completion, it is now a true multi-purpose performing arts center, better able to serve Knoxville's arts organizations, national touring productions, and all those who desire to step into the magical world of the Tennessee Theatre. As in the past, local arts organizations such as the Knoxville Symphony Orchestra, the Knoxville Opera Company, the Appalachian Ballet, and City Ballet use the Theatre for concerts and performances. The Theatre has also been the site of special events; wedding receptions, private parties, corporate meetings, and other functions are enhanced by its magnificent interior.

Tennessee Valley Authority. Tennessee Valley Authority (the “TVA”) was established as a wholly-owned corporate agency and instrumentality of the United States of America by the Tennessee Valley Authority Act of 1933, as amended. The Acts' objective is the development of the resources of the Tennessee Valley and adjacent areas in order to strengthen the regional and national economy and the national defense. Its specific purposes include: (1) flood control on the Tennessee River and its tributaries, and assistance to flood control on the lower Ohio and the Mississippi Rivers; (2) a modern navigable channel for the Tennessee River; (3) ample supply of power within an area of 80,000 square miles; (4) development and introduction of more efficient soil fertilizers; and (5) greater agricultural and industrial development and improved forestry in the region. TVA, a corporation owned by the U.S. government, provides electricity for utility and business customers in most of Tennessee and parts of Alabama, Mississippi, Kentucky, Georgia, North Carolina and Virginia — an area of 80,000 square miles with a population of 9 million. The utility operates 29 hydroelectric dams, 11 coal-fired power plants, three nuclear plants and 11 natural gas-fired power facilities and supplies up to 33,700 megawatts of electricity via more than 16,000 miles of high-voltage power lines.

TVA made some major changes in managing its governing structure and workforce. The Board changed from a three-member, full-time board to a full-time CEO who reports to a part- time board as of May 2005.

TVA raised rates and fuel cost adjustments by twenty percent to account for the increased oil prices of 2008. This was the highest rate increase in three decades. As of fall 2009, power rates had been decreased four times during the year in response to the lower price of fuel. These

B-55 decreases have more than offset the twenty percent jump in power rates the prior year. In 2010, the rates have remained flat mainly due to decreases in the fuel cost adjustment.

In 2007 TVA restarted a nuclear reactor at Browns Ferry in North Alabama. It was the first time the reactor had been at full power in 22 years. TVA, a federal utility, spent five years and about $2 billion revamping the reactor. It was the first increase in the United State’s nuclear generating capacity since 1996.

Also, the Unit 2 reactor at Watts Bar Nuclear Plant in Rhea County, TN has been approved for completion. It is estimated to take $2.5 billion dollars and should be operational in 2012. About 600 people were laid off in the spring of 2010 as a result of the engineering design work coming to an end. Around 343 employees were laid off at TVA’s downtown Knoxville office, and 272 more were laid off on site in Rhea County.

Waterfront Development. Knoxville’s downtown waterfront has been undergoing much construction over the past few years. Volunteer Landing Park is a publicly funded waterfront park. It includes a mile of waterfront walkway, interactive water fountains, porch swings, sculpture, and interpretive stops along the way where visitors can hear about Knoxville’s river history. The total development cost for this project was almost $12 million. The Neyland Greenway runs along the Tennessee River bank for about 3 miles. Greenways are corridors of protected open space managed for land and water conservation and recreation.

White Lily Food Co. The downtown Knoxville mill for White Lily was closed in 2008, losing 72 jobs. White Lily flour had operated in Knoxville for 125 years. The parent company, C.H. Guenther & Son Inc., announced that it lost an agreement with J.M. Smucker Co. that bought the White Lily name, therefore flour production was moved to Ohio. At the end of 2008 the mill was bought by the Ohio based Mennel Milling Company. Mennel is a privately owned company.

University of Tennessee

University of Tennessee. UT has opened the International House. The $1.2 million facility has 15,000 square feet of usable space, used primarily for common areas for students, and faculty to gather to relax and share knowledge.

Construction has been completed on the George C. Taylor Law Center. The original law building was completely renovated and an 80,000 square foot extension has been added along the west end of the building. The new 140,000 square foot facility houses classrooms, the law library, moot courtrooms and faculty and staff offices.

Business Incubator. Construction is complete on a 15,000-square-foot facility on the University of Tennessee campus that will house startup enterprises aiming to commercialize technology with a UT connection. The $2.5 million facility, located on UT's Ag Campus, opened in late summer 2007. The incubator is dedicated to "technology businesses," that definition ranges from engineering, materials sciences and electronic devices to medical, veterinary and plant sciences. The State Department of Economic and Community Development, UT, Knox County, Tennessee Valley Authority, and Knoxville Utilities Board together contributed $1.25

B-56 million to secure a matching grant from the U.S. Department of Commerce's Economic Development Administration. The facility includes 15,000 square feet of office space as well as space that could be used for light manufacturing and assembling.

Cherokee Campus. UT plans to use its Cherokee Farms site on Alcoa Highway to develop 77 acres of the 188-acre tract for the future Cherokee campus. The farm is less than a mile from the Knoxville campus. UT officials plan for a site that could accommodate 2 million square feet of building space for science and engineering research initiatives. Moving research to the proposed Cherokee campus would free up buildings on the main campus, which could be renovated and used for additional administration and instructional space.

UT officials said the project would be funded with state appropriations, private investment and gifts. The state government approved $32 million in 2007 to pay for the infrastructure needed to develop the campus. The University has also received $20 million in federal funding and $10 million in matching funding from the state which will go toward construction of the first building, the Joint Institute for Advanced Materials. Preliminary plans show the campus will be completed in 2011. Demolition of the site began in early 2009.

James A. Haslam II Business Building. The College of Business officially opened the new James A. Haslam II Building in early 2009. The new sixth-floor, 174,000-square-foot building houses 34 classrooms, more than 75 offices 35 presentation rooms, a technology center and an atrium. Construction on the building began in November 2005 and the project cost approximately $46 million. The state-of-the-art building was named after Knoxville native and UT graduate Jim Haslam, founder and chairman of the board of Pilot Travel Centers LLC and Pilot Corp. The new building was built on the site of the former Glocker Business Administration Building.

National Institute for Mathematical and Biological Synthesis (NIMBioS). NIMBioS is a first-of-its-kind institute dedicated to combining mathematics and biology to solve problems in both scientific fields. The center is funded by a 2008 $16 million award from the National Science Foundation and is located at the University of Tennessee. A unique aspect of NIMBioS will be its partnership with the Great Smoky Mountains National Park. The park and its Twin Creeks Science Center will play a key role in the institute’s work, with the park serving as a testing ground for many of the ideas that come from NIMBioS. Partners in NIMBioS include the US Department of Agriculture and the US Department of Homeland Security, IBM and ESRI, a developer of software and technology related to geographic information systems. It is expected to draw over 600 researchers each year to Knoxville.

Neyland-Thompson Sports Center. The Neyland-Thompson Sports Center began an expansion in the summer of 2009 to include offices and training rooms in the new annex. Neyland Stadium will also undergo a renovation to increase fan accessibility and improve traffic flow.

Thompson-Boling Arena. Renovations of the basketball arena began in Spring of 2007 and cost about $15 million. Construction was completed in October 2007, in time for the 2007- 2008 UT basketball season. The renovations include reinforcement of the roof's steel trusses, the hanging of a $2.5 million scoreboard in the center of the arena and refinishing the basketball

B-57 court's hardwood floor. The roof trusses were reinforced to handle an additional 200,000 pounds for concert events that require more equipment and lighting. In addition, thirty-two luxury suites were added, each with an adjoining large kitchen and seating area.

As part of the first phase of renovations to Thompson-Boling, a practice facility - Pratt Pavilion – was also constructed next to the arena. Construction began in 2006 and was finished at about the same time as the arena. The arena and pavilion combined cost about $30 million.

University of Tennessee’s Howard Baker Center for Public Policy. Even though operations began in 2003, the grand opening of the Howard Baker Center was in late 2008 with the opening of a new 53,000-square-foot rotunda. The Center will serve as a state-of-the-art multipurpose education and research facility focused on improving public understanding of governance and highlighting the importance of public service.

A UT College of Law graduate, Howard Baker is one of the nation's most respected statesmen. He served three terms as a U.S. senator from Tennessee (1967-1985) and was the first Republican popularly elected to that position. He was vice chairman of the Senate Watergate Committee. He served as Senate Minority Leader from 1977 to 1981 and as majority leader from 1981 until he retired in 1985. Baker also served as President Ronald Reagan's chief of staff from 1987 to 1988. He went on to serve as Ambassador to Japan from 2001 to 2005.

The Baker Center works to create a better understanding of government and foster a greater appreciation for the vital importance of public service. Since it its inception, the Center has engaged thousands of students, teachers and community members in public programs and educational initiatives on topics including energy policy, clean air, the Constitution, presidential history, civic engagement and careers in government. In cooperation with Special Collections of the UT Libraries, the Center established the Modern Political Archives. Plans are underway to establish fellowships in energy policy and legislative decision-making.

University Health System. The new Heart Hospital was opened in 2010. The four-story, 126,000-square-foot, $26 million facility will serve the inpatient needs of the hospital’s Heart Lung Vascular Institute. Just like the 103,000-square-foot Heart Lung Vascular Institute, which opened in 2004, the new tower also will promote medical staff collaboration and offer multidisciplinary care to patients. The area's only teaching hospital and Level One trauma center, UT Medical Center added 74 staffed beds last year and 500 by the end of 2008.

Medical Office Building E, a $13 million project, was completed in 2004 to house the Heart, Lung, Vascular Institute on the Medical Center’s Alcoa Highway Campus. Also completed in 2004 was Medical Office Building D, an $11 million project. Building D houses the medical center’s Cancer Institute, Ambulatory Surgery and outpatient services.

University of Tennessee Veterinary Hospital. Construction began in the spring of 2007 at the veterinary hospital site for the 31,000 square feet, $8 million expansion of the small-animal clinic. The expansion was completed in 2008. The total expansion added about 62,000 square feet. UT's veterinary hospital treats about 35,000 animals annually.

B-58 APPENDIX C

SUMMARY OF BOND RESOLUTION

SUMMARY OF CERTAIN PROVISIONS OF THE GENERAL RESOLUTION AND SUPPLEMENTAL RESOLUTION

Authorization

The resolution adopted by the Board of Commissioners of the District (the "Board") on June 11, 1997, as amended and restated in its entirety by a resolution adopted by the Board on August 27, 2009 (the "General Resolution"), as supplemented by a resolution adopted by the Board on October 28, 2010 (collectively, the "Resolution") authorizes the District to issue Bonds.

Definitions

For purposes of this discussion as used herein, the following capitalized terms are defined in the Resolution as follows:

(a) "Acquired System" shall mean any separate water or sewer system or any combination thereof acquired by the District pursuant to State law.

(b) "Act" shall mean Tennessee Code Annotated Sections 7-82-101 et seq., as amended from time to time;

(c) "Authority" shall mean The Public Building Authority of Sevier County, Tennessee or any other governmental authority authorized to make loans to the District to finance or to refinance extensions and improvements to the System.

(d) "Balloon Indebtedness" shall mean any Obligations, other than Short-Term Indebtedness, 25% or more of the initial principal amount of which matures (or must be redeemed at the option of the holder) during any twelve month period, if such 25% or more is not to be amortized to below 25% by mandatory redemption prior to the beginning of such twelve month period.

(e) "Bond Fund" shall mean the Bond and Interest Fund established pursuant to the Resolution.

(f) "Build America Bonds" shall mean Taxable Bonds of that name as described in the Recovery Act which are issued by the District pursuant to Section 54AA of the Code for which the District elects to receive Direct Subsidy Payments in an amount equal to a percentage of the interest paid on such Bonds.

(g) "Capital Appreciation Bonds" shall mean bonds, which bear interest at a stated interest rate of 0.0% per annum, have a value on any applicable date equal to the Compound Accreted Value thereof on that date, and are payable only at maturity or earlier redemption.

(h) "Code" shall mean the Internal Revenue Code of 1986, as amended, and all lawful regulations promulgated or proposed thereunder.

(i) "Compound Accreted Value" shall mean the value at any applicable date of any Capital Appreciation Bond, computed as the original principal amount thereof for each maturity date, plus an amount equal to interest on said principal amount (computed on the basis of a 360- day year of twelve 30-day months) compounded semi-annually on such dates as shall be

C‐1 established by the Series Resolution authorizing the Capital Appreciation Bonds, from the dated date to said applicable date, at an interest rate which will produce at maturity the Maturity Amount for such maturity date.

(j) "Credit Facility" shall mean, with respect to any Obligations, a Letter of Credit and any Substitute Credit Facility provided by the borrower for such Obligations.

(k) "Credit Provider" shall mean, with respect to any Obligations, the provider of any Credit Facility.

(l) "Current Expenses" means expenses incurred by the District in the operation of the System, determined in accordance with generally accepted accounting principles, including the reasonable and necessary costs of operating, maintaining, repairing and insuring the System, the cost of acquiring water, salaries and wages, cost of material and supplies, and insurance premiums, but shall exclude depreciation, amortization and interest on any bonds, notes or other obligations of the District; provided that any payments made by the District to purchase water for delivery after the end of the then-current Fiscal Year shall be accounted for and charged to Current Expenses in accordance with generally accepted accounting principles, and any debt service incurred for the purpose of purchasing water for delivery after the end of the then-current Fiscal Year shall be treated as a Current Expense if so directed by the authorizing resolution;

(m) "Debt Service Requirement" means the total principal, Maturity Amounts and interest coming due, whether at maturity or upon mandatory redemption (less any amount of interest that is capitalized and payable with the proceeds of debt on deposit with the District or any paying agent for the Obligations or other obligations of the District payable from all or some portion of Revenues), for any period of 12 consecutive calendar months for which such a determination is made, provided:

(1) The Debt Service Requirement with respect to Variable Rate Indebtedness shall be determined as if the variable rate in effect at all times during future periods equaled, at the option of the District, either (A) the average of the actual variable rate which was in effect (weighted according to the length of the period during which each such variable rate was in effect) for the most recent 12-month period immediately preceding the date of calculation for which such information is available (or shorter period if such information is not available for a 12-month period), or (B) the current average annual fixed rate of interest on securities of similar quality and tax status and having a similar maturity date, as certified by a Financial Adviser.

(2) The Debt Service Requirement with respect to any Hedged Obligations for so long as the provider of the related Hedge Agreement has not defaulted on its payment obligations thereunder shall be calculated by adding (x) the amount of interest payable by the District on such Hedged Obligations pursuant to their terms and (y) the amount of Hedge Payments payable by the District under the related Hedge Agreement and subtracting (z) the amount of Hedge Receipts payable by the provider of the related Hedge Agreement at the rate specified in the related Hedge Agreement; provided, however, that to the extent that the provider of any Hedge Agreement is in default thereunder, the amount of interest payable by the District on the related Hedged Obligations shall be the interest calculated as if such Hedge Agreement had not been executed. In determining the amount of Hedge Payments or Hedge Receipts that are not fixed throughout the Hedge Period (i.e., which are variable), payable or receivable for any future period, such Hedge Payments or Hedge Receipts for any period of calculation

C‐2 (the "Determination Period") shall be computed (i) by assuming that the variables comprising the calculation (e.g., indices) applicable to the Determination Period are equal to the average of the actual variables which were in effect (weighted according to the length of the period during which each such variable was in effect) for the most recent 12-month period immediately preceding the date of calculation for which such information is available (or shorter period if such information is not available for a 12- month period) or (ii) by using the same assumptions with respect to the Hedged Obligations as may be used for determining the assumed interest rate for Variable Rate Indebtedness.

(3) For the purpose of calculating the Debt Service Requirement on Balloon Indebtedness and Short-Term Indebtedness, at the option of the District, (x) the actual principal and interest on such Balloon Indebtedness and Short Term Indebtedness shall be included in the Debt Service Requirement, subject to the other assumptions contained in the Resolution, or (y) such Balloon Indebtedness and Short Term Indebtedness shall be assumed to be amortized in substantially equal annual amounts to be paid for principal and interest over an assumed amortization period of 20 years at an assumed interest rate (which shall be the interest rate certified by a Financial Adviser to be the interest rate at which the District could reasonably expect to borrow the same amount by issuing bonds with the same priority of lien as such Balloon Indebtedness and Short Term Indebtedness and with a 20-year term); provided, however, that if the maturity of such Balloon Indebtedness is in excess of 20 years from the date of issuance, then such Balloon Indebtedness shall be assumed to be amortized in substantially equal annual amounts to be paid for principal and interest over an assumed amortization period of years equal to the number of years from the date of issuance of such Balloon Indebtedness to maturity and at the interest rate applicable to such Balloon Indebtedness; provided further that this paragraph shall not be applicable for purposes of determining the District's Debt Service Requirement for purposes of the resolution unless the District has a written commitment from a bank, underwriting firm or other financial institution with a Rating in the investment grade rating categories of at least one Rating Agency (ignoring any gradations within a Rating Category) to refinance at least 90% of the principal amount of such Balloon Indebtedness or Short-Term Indebtedness coming due in the relevant Fiscal Year.

(4) For the purpose of calculating the Debt Service Requirement on any Obligations or proposed Obligations with respect to which the federal government or any agency thereof is obligated to make tax refunds or other payments to the District for the purpose of reducing the interest costs associated therewith (including, without limitation, build America bonds under Section 54AA of the Internal Revenue Code of 1986, as amended), the District may offset any stated interest payment on such Obligations or proposed Obligation by the amount of the scheduled tax refund or other payment corresponding thereto.

(n) "Defeasance Obligations" shall mean direct obligations of, or obligations, the principal of and interest on which are guaranteed by the United States of America, or any agency thereof, obligations of any agency or instrumentality of the United States or any other obligations at the time of the purchase thereof are permitted investments under Tennessee law for the purposes described in the Resolution, which bonds or other obligations shall not be subject to redemption prior to their maturity other than at the option of the registered owner thereof.

(o) "Direct Subsidy Bonds" shall mean Build America Bonds issued pursuant to the Resolution.

C‐3

(p) "Direct Subsidy Payment" shall mean, with respect to Direct Subsidy Bonds issued pursuant to the Resolution, payments in an amount equal to a percentage of interest paid on such Bonds provided directly to the District from the United States Treasury Secretary, or other party designated by the federal government to issue such payments.

(q) "District" shall mean West Knox Utility District of Knox County, Tennessee.

(r) "Financial Adviser" means an investment banking or financial advisory firm, commercial bank, or any other person who or which is retained by the District for the purpose of passing on questions relating to the availability and terms of specified types of debt obligations or the financial condition or operation of the System and is actively engaged in and, in the good faith opinion of the District, has a favorable reputation for skill and experience in providing financial advisory services of the type with respect to which the Financial Adviser has been retained.

(s) "Financial Guaranty Agreement" shall mean any Financial Guaranty Agreement authorized in the Resolution to be executed in connection with a Reserve Fund Credit Facility.

(t) "Fiscal Year" shall mean each fiscal year of the District as determined from time to time by the Governing Body. As of the date hereof, the fiscal year of the District is the annual period which begins on July 1 any calendar year and ends on June 30 in the following calendar year.

(u) "Governing Body" shall mean the Board of Commissioners of the District.

(v) "Hedge Agreement" shall mean, without limitation, (i) any contract known as or referred to or which performs the function of an interest rate swap agreement, currency swap agreement, forward payment conversion agreement, or futures contract; (ii) any contract providing for payments based on levels of, or changes or differences in, interest rates, currency exchange rates, or stock or other indices; (iii) any contract to exchange cash flows or payments or series of payments; (iv) any type of contract called, or designed to perform the function of, interest rate floors, collars, or caps, options, puts, or calls, to hedge or minimize any type of financial risk, including, without limitation, payment, currency, rate, or other financial risk; and (v) any other type of contract or arrangement that the District determines is to be used, or is intended to be used, to manage or reduce the cost of any Obligations, to convert any element of any Obligations from one form to another, to maximize or increase investment return, to minimize investment return risk, or to protect against any type of financial risk or uncertainty.

(w) "Hedged Obligations" shall mean any Obligations for which the District shall have entered into a Hedge Agreement.

(x) "Hedge Payments" shall mean amounts payable by the District pursuant to any Hedge Agreement or under a Loan Agreement (including the II-D-2 Loan Agreement) that relate to a Hedge Agreement, other than Termination Payments, fees, expenses, and indemnity payments.

(y) "Hedge Period" shall mean the period during which a Hedge Agreement is in effect.

C‐4 (z) "Hedge Receipts" shall mean amounts payable by any provider of a Hedge Agreement pursuant to such Hedge Agreement, other than Termination Payments, fees, expenses, and indemnity payments.

(aa) "Loan Agreement(s)" shall mean any agreement or contract entered into by the District with an Authority, where such Authority agrees to advance funds to the District and the District agrees to repay those funds with interest.

(bb) "Maturity Amount" shall mean the Compound Accreted Value on the stated maturity date of a Capital Appreciation Bond.

(cc) "Maximum Annual Debt Service Requirement" shall mean the maximum annual Debt Service Requirement for any Fiscal Year of the District.

(dd) "Net Revenues" shall mean Revenues, excluding any profits or losses on the sale or other disposition, not in the ordinary course of business, of investments or fixed or capital assets, less Current Expenses.

(ee) "Obligations" shall mean outstanding Bonds authorized pursuant to the Resolution and any Parity Obligations issued thereafter.

(ff) "Parity Obligations" shall mean bonds, notes, Loan Agreements, and other debt obligations, including Balloon Indebtedness, Short-Term Indebtedness and Variable Rate Indebtedness, issued by or entered into by the District, including any bonds, notes or other obligations secured by a pledge of and/or lien on an Acquired System and the revenues derived from the operation of such Acquired System (provided such pledge and lien are subject only to normal and customary expenses of operating, maintaining, repairing and insuring any such System), so long as the Acquired System is not being operated separately from the System as is permitted in the Resolution or the revenues from such Acquired System are not excluded from Revenues. Reimbursement Payments constitute Parity Obligations.

(gg) "Payments in Respect of Interest" shall mean (a) payments of interest on Obligations, (b) Hedge Payments net of Hedge Receipts and (c) Reimbursement Payments payable under a Loan Agreement made as a reimbursement for an interest payment or payment of the interest portion of purchase price made by a Credit Provider. Payments in Respect of Interest constitute Parity Obligations.

(hh) "Payments in Respect of Principal" shall mean (a) payments of principal, Compound Accreted Value, and premium, if any, on Obligations and (b) Reimbursement Payments payable under a Loan Agreement made as a reimbursement for principal payment or payment of the principal portion of purchase price made by a Credit Provider. Payments in Respect of Principal constitute Parity Obligations.

(ii) "President" means the duly elected and acting President of the Governing Body, or any other member of the Governing Body acting in the capacity of President when the elected and acting President is unavailable or incapable of acting;

(jj) "Rating" means a rating in one of the categories by a Rating Agency, disregarding pluses, minuses, and numerical gradations.

C‐5 (kk) "Rating Agencies" or "Rating Agency" means Fitch Ratings, Moody's Investors Service, Inc., and Standard & Poor's Ratings Services, a division of The McGraw-Hill Companies, Inc., or any successors thereto and any other nationally recognized credit rating agency.

(ll) "Rebate Year" shall mean, with respect to a particular Series of Bonds issued pursuant to the Resolution, a one-year period (or shorter period from the date of issue) that ends at the close of business on the day in the calendar year selected by the District as the last day of a Rebate Year. The final Rebate Year with respect to a particular Series of Bonds issued pursuant to the Resolution, however, shall end on the date of final maturity of that Series of Bonds.

(mm) "Recovery Act" shall mean the American Recovery and Reinvestment Act of 2009.

(nn) "Reimbursement Agreement" shall mean, with respect to any Obligations, the Reimbursement Agreement or Credit Agreement between the Credit Provider and the District, and any amendments or supplements thereto, together with any reimbursement or similar agreement between the District and any subsequent Credit Provider, and any amendments and supplements thereto.

(oo) "Reimbursement Payments" shall mean any amounts payable by the District under a Loan Agreement or a Reimbursement Agreement to reimburse a Credit Provider for amounts advanced under the related Credit Facility, including interest on the amounts advanced thereunder.

(pp) "Reserve Fund" shall mean any Debt Service Reserve Fund established pursuant to any Series Resolution, and any such Reserve Fund shall not be a commingled reserve fund but shall secure only the specific Obligations issued under the Series Resolution providing for such reserve fund.

(qq) "Reserve Fund Credit Facility" shall mean a municipal bond insurance policy, surety bond, letter of credit, line of credit, guarantee or other agreement provided by a Reserve Fund Credit Facility Issuer which provides for payment of amounts equal to all or any portion of any Reserve Fund Requirement in the event of an insufficiency of moneys in the Bond Fund to pay when due principal of and interest on the Obligation for which such Reserve Fund is created.

(rr) "Reserve Fund Credit Facility Issuer" shall mean the issuer of a Reserve Fund Credit Facility rated in one of the three highest rating categories by each Rating Agency that rates such Reserve Fund Credit Facility Issuer.

(ss) "Reserve Fund Requirement" shall mean, with respect to any Obligation, the amount required to be maintained in any Reserve Fund, which such amount, if any, shall be established in the Series Resolution authorizing such Obligation.

(tt) "Revenue Fund" shall mean the Revenue Fund established pursuant to the Resolution.

(uu) "Revenues" shall mean all revenues, rentals, earnings and income of the District from whatever source, determined in accordance with generally accepted accounting principles, including all revenues derived from the operation of the System; proceeds from the sale of property; proceeds of insurance and condemnation awards and compensation for damages, to the

C‐6 extent not applied to the payment of the cost of repairs, replacements and improvements; and all amounts realized from the investment of money in the accounts and funds of the System, including money in any accounts and funds created by the resolution, and resolutions authorizing any Parity Obligations or obligations subordinate to the Obligations (excluding any investment earnings from construction or improvement funds created for the deposit of bond proceeds pending use, to the extent such income is applied to the purposes for which the bonds were issued, and funds created to refund any Refunded Loan Agreements payable from Revenues of the System); provided, however, (i) at the election of the District, Revenues shall not include any rates, fees, rentals or other charges or other income received by the District from the operation of an Acquired System and any bonds or other obligations issued in connection with such Acquired System shall not be payable from or secured by Net Revenues or be deemed to be Parity Obligations, and (ii) Revenues shall not include any payments to the District with respect to which an adjustment to the Debt Service Requirement has been made pursuant to Section (2)(o)(4) hereof.

(vv) "Secretary" shall mean the Secretary of the District.

(ww) "Series Resolution" shall mean a resolution of the District authorizing the issuance of an Obligation in accordance with the terms and provisions hereof.

(xx) "Short-Term Indebtedness" shall mean Obligations, including Variable Rate Indebtedness, maturing five (5) years or less from their date of issuance, issued by the District as Parity Obligations in accordance with the restrictive provisions of the Resolution.

(yy) "State" shall mean the State of Tennessee.

(zz) "System" shall mean the water and sewer system of the District, any water and/or sewer system hereafter acquired, constructed or otherwise established, including all improvements and extensions made by the District or the Governing Body on behalf of the District while the Obligations remain outstanding, and including all real and personal property of every nature comprising part of or used or useful in connection with the foregoing, and including all appurtenances, contracts, leases, franchises, and other intangibles; provided, however, at the election of the Governing Body, an Acquired System may be included within the System as defined in the Resolution and become a part thereof or, at the election of the District, not become a part of the System but be operated as a separate and independent system by the District with the continuing right, upon the election of the District, to incorporate such separately Acquired System within the System.

(aaa) "Taxable Bond" shall mean any Series 2010 Bond where the interest income thereon is includable in the gross income of the holder thereof for federal income tax purposes or that such interest is subject to federal income taxation.

(bbb) "Termination Payments" means an amount payable by or to the District (whether directly or pursuant to a Loan Agreement upon termination of a Hedge Agreement.

(ccc) "Variable Rate Indebtedness" means any Parity Obligations, the interest rate on which is subject to periodic adjustment, at intervals, at such times and in such manner as shall be determined by a Series Resolution authorizing such Parity Obligations; provided that if the interest rate shall have been fixed for the remainder of the term thereof, it shall no longer be Variable Rate Indebtedness.

C‐7 Source of Payment; Equality of Lien; Pledge of Net Revenues

The punctual payment of Payments in Respect of Principal and Payments in Respect of Interest shall be payable from and secured equally and ratably by the Net Revenues without priority by reason of number or time of sale or execution or delivery. The Net Revenues are hereby irrevocably pledged to the punctual payment of Payments in Respect of Principal and Payments in Respect of Interest as the same become due.

Statutory Mortgage Lien

For the further protection of the registered owners or other holders of the Obligations, a statutory lien in the nature of a mortgage lien upon the System is granted and created by the Act, which said statutory mortgage lien is hereby recognized as valid and binding upon the District and to be a lien upon the System and the System shall remain subject to such statutory mortgage lien until the payment in full of the principal and interest on the Obligations.

Application of Revenues

From and after the delivery of Obligations pursuant to the Resolution, and as long as any Obligations shall be outstanding and unpaid either as to principal or as to interest and other amounts thereunder, or until the discharge and satisfaction of all the Obligations as provided in the Resolution, the entire Revenues of the System shall be deposited as collected to the Revenue Fund of the District hereby established (the "Revenue Fund"). The money so deposited shall be used only as follows:

(a) The money in the Revenue Fund shall be used first from month to month for the payment of Current Expenses.

(b) The money remaining in the Revenue Fund, after payment of Current Expenses, shall next be used to make deposits into a separate and special fund, to be known as the "Bond and Interest Fund" (the "Bond Fund"), to be kept separate and apart from all other funds of the District and used to pay Payments in Respect of Principal and Payments in Respect of Interest on Obligations as the same become due, either by maturity or mandatory redemption. Such deposits shall be made monthly, or as otherwise set forth in the Resolution, until the Obligations are paid in full or discharged and satisfied, beginning in the month next following delivery of the Obligations.

With respect to principal, for the period commencing with the month next following the delivery of the Obligations, each monthly deposit shall be an amount that, together with all other monthly deposits of approximately equal amounts during such period and amounts otherwise in said Bond Fund, will be equal to Payments in Respect of Principal due on the Obligations on the next due date of such Payments in Respect of Principal, divided by the number of months from and including the month of the first such deposit to and including the months preceding the next due date of such Payments in Respect of Principal; provided that, if the next due date of such Payments in Respect of Principal is more than 13 months following the month next following the delivery of the Obligations, such monthly deposits to the Bond Fund shall commence in the month that is 13 months prior to the month of the next due date of such Payments in Respect of Principal.

If Payments in Respect of Interest are payable semi-annually, then there shall be deposited monthly in an amount equal to one-sixth (1/6) of the Payments in Respect of Interest coming due on the next due date of Payments in Respect of Interest, or (ii) if Payments in Respect

C‐8 of Interest are payable more frequently than semi-annually, then as specified in the Series Resolution authorizing such Parity Obligations.

In each month thereafter, each monthly deposit shall consist of an interest component and a principal component. If the Payment in Respect of Interest is payable semi-annually, then the Payment in Respect of Interest shall be an amount equal to not less than one-sixth (1/6th) of the interest coming due on any Obligations then outstanding on the next succeeding interest payment date, unless otherwise specified in the Series Resolution authorizing such Obligations. If the Payment in Respect of Interest is payable more frequently than semi-annually, then the amount of the Payment in Respect of Interest to be deposited shall be specified in any Series Resolution authorizing such Obligations. The principal component shall be an amount not less than one- twelfth (1/12) of the total of the Payment in Respect of Principal coming due, whether by maturity or mandatory redemption, on the Obligations then outstanding during such twelve- month period. No further monthly or periodic deposit shall be required with respect to the next due date of any Payment in Respect of Interest or Payment in Respect of Principal when the Bond Fund balance is equal to or greater than the amount needed to pay the Payment in Respect of Interest coming due on the next interest payment date and the total of the Payments in Respect of Principal payable, either by maturity or mandatory redemption, during the applicable twelve- month period. Money in the Bond Fund shall be used solely and is hereby expressly and exclusively pledged for the purpose of paying Payments in Respect of Interest and Payments in Respect of Principal on the Obligations and Parity Obligations.

Each deposit as to interest shall take into account expected Hedge Payments related to such interest payments.

(c) The next available money in the Revenue Fund shall be paid to any Reserve Fund Credit Facility Issuer or Issuers (pro rata, if more than one) to the extent needed to reimburse the Reserve Fund Credit Facility Issuer for amounts advanced by the Reserve Fund Credit Facility Issuer or Issuers under the Reserve Fund Credit Facility, including any amounts payable under any Financial Guaranty Agreement, together with reasonable related expenses incurred by the Reserve Fund Credit Facility Issuer and interest as provided in the Financial Guaranty Agreement.

(d) Any Reserve Fund with respect to any Obligation shall be established in the Series Resolution authorizing such Obligation, and the Reserve Fund Requirement with respect to any such Reserve Fund shall be established in the Series Resolution authorizing such Obligation. No deposit shall be required to be made to any Reserve Fund unless the amount in the Reserve Fund, together with the Reserve Fund Credit Facility or Facilities, if any, becomes less than the applicable Reserve Fund Requirement.

The next available money in the Revenue Fund shall be used to make deposits on a pro rata basis to any Reserve Fund created by a Series Resolution. In the event deposits to any Reserve Fund shall be required, such deposits shall be made in accordance with the Series Resolution creating such Reserve Fund.

Only so long as there is no deficiency with respect to clauses (e) and (f), funds in excess of the Reserve Fund Requirement with respect to all Reserve Funds, if any, created by any Series Resolution may be released to be used by the District for legally permissible purposes

(e) The next available money in the Revenue Fund shall be used for the payment of all other payments to be made under pursuant to the Resolution.

C‐9

(f) The next available money in the Revenue Fund shall be used for the purpose of the payment of principal of and interest on (including reasonable reserves therefor) any bonds or other obligations payable from revenues of the System, but junior and subordinate to the Obligations. Termination Payments received in connection with a Hedge Agreement shall be deposited to the Revenue Fund and Termination Payments required of a District in connection with a Hedge Agreement shall be paid as a subordinate lien obligation pursuant to this subsection.

(g) Money on deposit in the Funds described in this Section may be invested by the District in such investments as shall be permitted by applicable law, as determined by an authorized representative of the District, all such investments to mature not later than the date on which the money so invested shall be required for the purpose for which the respective Fund was created. All income derived from such investments shall be regarded as Revenues of the System and shall be deposited in the Revenue Fund. Such investments shall at any time necessary be liquidated and the proceeds thereof applied to the purpose for which the respective Fund was created; provided, however, that in no event shall moneys in the Reserve Fund be invested in instruments that mature more than two (2) years from the date the money is so invested. The District is authorized to enter into contracts with third parties for the investment of funds in any of the Funds described in the Resolution.

(h) The Revenue Fund, the Bond Fund, and the Reserve Fund (except to the extent funded with a Reserve Fund Credit Facility or Facilities) shall be held and maintained by the District and, when not invested, kept on deposit with a bank or financial institution regulated by and the deposits of which are insured by the Federal Deposit Insurance Corporation or similar federal agency. All moneys in such Funds so deposited shall at all times be secured to the extent and in the manner required by applicable State law.

Prohibition of Prior Lien; Parity Obligations

The District will issue no other bonds or obligations of any kind or nature payable from or enjoying a lien on the Revenues of the System having priority over the Obligations.

Additional bonds may hereafter be issued on a parity with the Obligations under the following conditions but not otherwise:

(a) Additional bonds may be issued on a parity without regard to the requirements of subsection (c) of this Section, if such bonds shall be issued for the purpose of refunding any of the Obligations which shall have matured or have become subject to mandatory redemption or which shall mature or become subject to mandatory redemption not later than three months after the date of delivery of such refunding bonds and for the payment of which insufficient money is available in the Bond Fund.

(b) Additional bonds may be issued on a parity with the Obligations without regard to the requirements of subsection (c) of this Section, if such bonds shall be issued for the purpose of refunding any outstanding Obligations under circumstances not resulting in the defeasance of all of the Obligations pursuant to the resolution authorizing such Obligations, provided the Maximum Annual Debt Service Requirement computed with respect to all Obligations to be outstanding as of the date of issuance of such additional bonds (and after giving effect to the application of the proceeds thereof) shall not be greater than 105% of the Maximum Annual Debt Service Requirement computed with respect to all Obligations outstanding as of the date immediately preceding the issuance of such additional bonds.

C‐10

(1) Either:

(A) the Net Revenues of the System for twelve consecutive months out of the eighteen months immediately preceding the issuance of such additional bonds must have been equal to at least one and two-tenths (1.20) times the Maximum Annual Debt Service Requirement computed with respect to the bonds proposed to be issued, Parity Obligations intended to be refunded by the proposed additional bonds; or

(B) the Net Revenues of the System for the twelve consecutive months out of the eighteen months immediately preceding the issuance of the proposed additional bonds, as certified by the Financial Advisor, must be equal at least to one and two-tenths (1.20) times the Maximum Annual Debt Service Requirement computed with respect to the bonds proposed to be issued and the outstanding Obligations, and one (1.0) times the Maximum Annual Debt Service on any subordinate lien obligations other than the obligations intended to be refunded by the proposed bonds; provided, however, that if prior to the sale of such additional bonds or the incurring of additional indebtedness the District shall have adopted a revised schedule of rates for the System and resolved to put such rate schedule in effect at or prior to the issuance of the additional bonds, then the Net Revenues for the Fiscal Year immediately preceding the issuance of such additional bonds or the incurring of additional indebtedness, as certified by an independent engineer or engineering firm or a nationally recognized firm of financial feasibility consultants having a favorable reputation for skill and experience in the financial feasibility of water and sewer systems, that would have resulted from such rates had they been in effect for such period, may be used in lieu of the actual Net Revenues for such Fiscal Year; and the Net Revenues for each of the next three Fiscal Years ending after the issuance of the additional bonds, as estimated by an independent engineer or engineering firm, or a nationally recognized firm of financial feasibility consultants, having a favorable reputation for skill and experience in the financial feasibility of water and sewer systems, must be equal to at least one and two-tenths (1.20) times the Maximum Annual Debt Service Requirement computed with respect to the additional bonds proposed to be issued, and the Obligations and one times (1.0) times the Maximum Annual Debt Service Requirement on any subordinate lien obligations other than the Obligations intended to be refunded by the proposed additional bonds; provided, however, that if the proposed additional bonds are to be issued for the acquisition or construction of any extension, improvement or replacement to the System, then the estimate of Net Revenues may be for the next three Fiscal Years ending after the time that such improvement, extension or replacement is expected to be placed in service;

(2) The payments required to be made into the Bond Fund and the Reserve Fund must be current, and all payments under any Financial Guaranty Agreement or with respect to any Reserve Fund Credit Facility must be current;

(3) The proceeds of the additional bonds may be used only to (i) make improvements, extensions, renewals or replacements to the System, to purchase an

C‐11 Acquired System, or to refund Obligations, subordinate lien obligations, or outstanding debt of an Acquired System, (ii) fund necessary reserves related to such additional bonds, (iii) fund capitalized interest related to the additional bonds; or (iv) pay the costs and expenses of issuance and sale of the additional bonds;

(d) Additional Bonds in an amount up to $50,000,000 may be issued without regard to the requirements of subsection (c) of this Section on a parity between the date of the Resolution and December 31, 2010, to (i) make improvements, extensions, renewals or replacements to the System, to purchase an Acquired System, or to refund Obligations, subordinate lien obligations, or outstanding debt of an Acquired System, (ii) fund necessary reserves related to such additional bonds, (iii) fund capitalized interest related to the additional bonds; or (iv) pay the costs and expenses of issuance and sale of the additional bonds of Parity Obligations;

(e) All the provisions and covenants of the Resolution relating to creation and investment of funds and the application of Revenues, the operation of the System and charges for services of the System, the remedies of an Authority and the owners of Obligations, the issuance of additional bonds, modification of the resolution and such other provisions hereof as are appropriate may be incorporated by reference into supplemental resolutions authorizing additional bonds, and said provisions when so incorporated shall be equally applicable to the additional bonds issued pursuant to the terms of this Section in all respects and with like force and effect as though said provisions were recited in full in said supplemental resolutions and shall continue to be applicable so long as any such bonds remain outstanding.

Charges for Services Supplied by the System

While the Obligations remain outstanding and unpaid, the District covenants and agrees that it will permit no free service to be furnished to any consumer or user whatsoever; that the charges for all services supplied through the medium of the System to all consumers and users shall be reasonable and just, taking into account and consideration the cost and value of the System and the cost of maintaining, operating, repairing and insuring the System, a proper and necessary allowance for the depreciation thereof, and the amounts necessary for the payment of principal of and interest on all obligations payable from revenues of the System; and that there shall be charged against all users of the services of the System such rates and amounts as shall be fully adequate to comply with the covenants of the Resolution.

Covenants Regarding the Operation of the System

Pursuant to the Resolution, the District covenanted and agreed with the owners of the Obligations so long as the Obligations shall remain outstanding:

(a) The District shall maintain the System in good condition and operate the System in an efficient manner and at reasonable cost.

(b) The District shall maintain insurance on the properties of the System of a kind and in an amount which would normally be carried by private companies engaged in a similar type and size of business, provided, the District shall not be required to insure beyond the limits of immunity provided by Sections 29-20-101 et seq., Tennessee Code Annotated, or other applicable law. The proceeds of any such insurance, except public liability insurance, shall be used to replace the part or parts of the System damaged or destroyed, or, if not so used, shall be placed in the Revenue Fund.

C‐12 (c) The District will cause to be kept proper books and accounts adapted to the System, will cause the books and accounts to be audited at the end of each Fiscal Year by a recognized independent certified public accountant or a firm of such accountant or accountants and, upon written request, will make available to any registered owner of the Obligations the balance sheet and the profit and loss statement of the District as certified by such accountant or accountants. Each such audit, in addition to whatever matters may be thought proper by the accountant or accountants to be included therein, shall include the following:

(1) A statement in detail of the revenues and expenditures of the System and the excess of revenues over expenditures for the Fiscal Year;

(2) A statement showing beginning and ending balances of each Fund described in the Resolution;

(3) A balance sheet as of the end of the Fiscal Year;

(4) The accountant's comments regarding the manner in which the District has carried out the requirements of the resolution and the accountant's recommendations with respect to any change or improvement in the operation of the System;

(5) The number and classifications of customer service connections to the System as of the end of the Fiscal Year;

(6) The disposition of any Obligation proceeds during the Fiscal Year;

(7) A statement as to all breaches or defaults under the Resolution of which the accountants have knowledge or, in the alternative, a statement that they have no knowledge of any such breach or default.

All expenses incurred in the making of the audits required by this subsection shall be regarded and paid as Current Expenses. The registered owner of any of the Parity Obligations shall have at all reasonable times the right to inspect the System and the records, accounts and data of the District relating thereto. It is further agreed that if the District fails to provide the audits and reports required by this subsection, the registered owner or owners of twenty-five percent (25%) in principal amount of the Parity Obligations may cause such audits and reports to be prepared at the expense of the District.

(d) The District shall continuously own, control, operate, and maintain the System in an efficient and economical manner and on a revenue producing basis and shall at all times prescribe, fix, maintain, and collect rates, fees, and other charges for the services and facilities furnished by the System fully sufficient at all times:

(1) for 100% of the Current Expenses and for the accumulation in the Revenue Fund of a reasonable reserve therefor, in an amount, if any, as shall be determined from time to time by the District; and

(2) such that Net Revenues in each Fiscal Year:

(A) will equal at least 120% of the Debt Service Requirement on the Obligations, and 100% of the Debt Service Requirement on any subordinate lien obligations or other obligations then outstanding for such Fiscal Year;

C‐13 (B) will enable the District to make all required payments, if any, into the Reserve Fund, on any Reserve Fund Credit Facility Agreement and any required payments under any Reimbursement Agreement;

(C) will enable the District to accumulate an amount, which, in the judgment of the District, is adequate to meet the costs of major renewals, replacements, repairs, additions, betterments, and improvements to the System, necessary to keep the same in good operating condition or as is required by any governmental agency having jurisdiction over the System; and

(D) will remedy all deficiencies in required payments into any of the funds and accounts mentioned in the Resolution from prior Fiscal Years.

(e) The District will perform all duties with reference to the System required by the constitution and laws of the State, including the making and collecting of reasonable and sufficient rates for services rendered by the System as above provided, and will apply the revenues of the System to the purposes and Funds specified in the resolution.

(f) The District will not sell, lease, mortgage, or in any manner dispose of the System, or any part thereof, including any and all extensions and additions that may be made thereto, or any facility necessary for the operation thereof; provided, however, the use of any of the System facilities may at any time be permanently abandoned or the System or any portion of the System or of the System facilities sold or otherwise disposed of, provided that:

(1) The District is in full compliance with all covenants and undertakings in connection with the Obligations then outstanding and payable from the Revenues of the System and any required reserve funds for such Obligations have been fully established and contributions thereto are current;

(2) (A) In the event of sale of all or a portion of the System, (i) if all of the System is sold, the proceeds shall be in an amount at least equal to all principal, premium, if any, and interest on the outstanding Obligations and all subordinate lien obligations or if a portion of the System is sold, then the proceeds of the sale shall be in an amount equal to the outstanding Obligations and the outstanding subordinate lien obligations allocable to such portion of the System and the remaining revenues of the System shall be sufficient to pay principal of, premium, if any, and interest on the Obligations and any subordinate lien bonds and sufficient to be in compliance with the covenants set forth in the Resolution as certified by an independent engineer or engineering firm or a nationally recognized firm of financial feasibility consultants having a favorable reputation for skill and experience in the financial feasibility of water and sewer systems and such proceeds will be applied either (A) to prepayment of a Loan Agreement redemption of Parity Obligations in accordance with the provisions governing repayment of such Loan Agreement and Parity Obligations in advance of maturity or (B) to the purchase of the Parity Obligations at the market price thereof so long as such price does not exceed the amount at which the Parity Obligations could be redeemed on such date as set forth in the Resolution, in addition to the prepayment of a Loan Agreement or (C) to replacement of the facility so disposed of by another facility the revenues of which shall be deposited to the District, or (D) to a separate fund to be held by the District to be used for legally authorized purposes; or (ii) the payment of the principal and Compound Accreted Value of, premium, if any, and interest on the Obligations

C‐14 and subordinate lien bonds shall be assumed by the entity to which the System is sold if such assumption does not violate the covenants set forth in the Resolution; or

(B) The abandonment, sale or disposition is for the purpose of disposing of facilities which are no longer necessary or no longer useful to the operation of the System and the operation of the System or its revenue producing capacity is not materially impaired by such abandonment, sale or disposition or any facilities acquired in replacement thereof are of equivalent or greater value or it is in the best interests of the District to otherwise dispose of all or a part of the System as determined by the Governing Body of the District; and

(3) The District receives an opinion of nationally recognized bond counsel to the effect that the disposition of the System or any portion thereof and use of the proceeds therefrom will not adversely affect the exclusion of interest on the Obligations or any subordinate lien obligations from gross income of the holders thereof for purposes of federal income taxation.

Nothing in the Resolution is intended to prohibit the lease purchase of equipment or facilities of the System hereafter to be put in service or to prohibit the transfer or exchange of service areas to provide for more efficient operation of the System so long as the District is in full compliance with the covenants set forth in the Resolution immediately following such transfer or exchange.

(g) Prior to the beginning of each Fiscal Year, the District shall prepare or cause to be prepared and adopted an annual budget of estimated revenues and Current Expenses and capital expenditures for the System for the ensuing Fiscal Year and will undertake to operate the System within such budget to the best of its ability. The Current Expenses incurred in any year will not exceed reasonable and necessary amounts therefor and the District will not expend any amounts or incur any obligations therefor in excess of the amounts provided for Current Expenses in the budget except upon resolution of the District.

(h) Each officer or employee of the District or any other person, other than banks or other financial institutions, having custody of funds of the System shall be under fidelity bond at all times in reasonable and customary amounts.

(i) The District, either directly or indirectly, will not construct, finance or grant a franchise for the development or operation of facilities that compete for service with the services to be provided by the System or consent to the provision of any such services in the area currently served by the District by any other public or private entity and will take all steps necessary and proper, including appropriate legal action to prevent any such entity from providing such service; provided, nothing in the Resolution shall prohibit the transfer or exchange of service areas to provide for more efficient operation of the System so long as the District is in full compliance with the covenants set forth in the Resolution immediately following such transfer or exchange.

(j) For the purpose of assuring the efficient, impartial and non-political operation of the System for the benefit of the District and the owners of the Obligations from time to time outstanding, the complete and independent control and operation of the System shall continue to be vested in the Governing Body, subject, however, to the obligation and duty on the part of the Governing Body to carry out and perform faithfully all of the covenants and agreements contained in the Resolution. It is agreed with the owners from time to time of the Obligations and

C‐15 made a part of the contract rights which will vest in such owners at the time of delivery of the Obligations that the System will be so operated by the Governing Body..

Remedies of Bond Owners

An Authority and any owner of any Obligations, including the holder or assignee of a Loan Agreement, may either at law or in equity, by suit, action, mandamus or other proceedings, in any court of competent jurisdiction enforce and compel performance of all duties imposed upon the District by the provisions of the Resolution, including the making and collecting of sufficient rates, the proper application of and accounting for Revenues of the System, and the performance of all duties imposed by the terms hereof.

If any default be made in the payment of principal or Compound Accreted Value of or interest on Obligations, then upon the filing of suit by an Authority, its assignee or those succeeding to its rights, or any holder of Obligations, including the holder or assignee of a Loan Agreement, any court having jurisdiction of the action may appoint a receiver to administer the System on behalf of the District with power to charge and collect rates sufficient to provide for the payment of all Obligations and obligations outstanding against the System and for the payment of Current Expenses, and to apply the income and revenues thereof in conformity with the provisions of the resolution.

Defeasance

If the District shall pay and discharge the indebtedness evidenced by Resolution in any one or more of the following ways:

(a) By paying or causing to be paid, by deposit of sufficient funds as and when required with the Paying Agent, the principal of and interest on such Obligations as and when the same become due and payable;

(b) By deposing or causing to be deposited with a trust company or financial institution whose deposits are insured by the Federal Deposit Insurance Corporation or similar federal agency and which has trust powers in trust or escrow, on or before the date of maturity or redemption, sufficient money or Defeasance Obligations, the principal of and interest on which, when due and payable, will provide sufficient moneys to pay or redeem such Obligations and to pay interest thereon when due until the maturity or redemption date (provided, if such Obligations are to be redeemed prior to maturity thereof, proper notice of such redemption shall have been given or adequate provision shall have bee made for the giving of such notice;

(c) By delivering such Obligations to the Paying Agent for cancellation by it; and if the District shall also pay or cause to be paid all other sums payable under the Resolution by he District with respect to such Obligations, or make adequate provision therefore, and by resolution of the Board instruct any such escrow agent to pay amounts when and as required to the Paying Agent for the payment of principal of and interest on such Obligations when due, then and in that case the indebtedness evidenced by such Obligations shall be discharged and satisfied and all covenants, agreements and obligations of the District to the holders of such Obligations shall be fully discharged and satisfied and shall thereupon cease, terminate and become void.

If the District shall pay and discharge the indebtedness evidenced by any of the Obligations in the manner provided in either clause (a) or (b) above, then the registered owners thereof shall be entitled only to payment out of the money or Defeasance Obligations deposited as aforesaid.

C‐16 Except as otherwise provided in this section, neither Defeasance Obligations nor moneys deposited with the Paying Agent nor principal or interest payments on any such Defeasance Obligations shall be withdrawn or used for any purpose other than, and shall be held for trust for, the paying of the principal of and interest on said Obligations; provided that any cash received from such principal or interest payments on such Defeased Obligations deposited with the Paying Agent, (a) to the extent such cash will not be required at any time for such purpose, shall be paid over to the District as received by the Paying Agent and (b) to the extent such cash will be required for such purpose at a later date, shall, to the extent practicable, be reinvested in Defeasance Obligations maturing at times and in amounts sufficient to pay when due the principal and interest to become due on said Obligations on or prior to the redemption date or maturity date thereof, as the case may be, and interest earned from such reinvestments shall be paid over to the District, as received by the Paying Agent.

Modification of Resolution

(a) The resolution may be amended without the consent of or notice to the registered owners of the Obligations for the purpose of curing any ambiguity or formal defect or omission in the Resolution.

(b) In addition to the amendments to the resolution without the consent of registered owners as referred to in subsection (a) above or subsection (c) below, the registered owners of a majority in aggregate principal amount of the Parity Obligations at any time outstanding (not including in any case any Parity Obligations which may then be held or owned by or for the account of the District but including such refunding bonds as may have been issued for the purpose of refunding any of such Parity Obligations if such refunding bonds shall not then be owned by the District) shall have the right from time to time to consent to and approve the adoption by the Governing Body of a resolution or resolutions modifying any of the terms or provisions contained in the resolution; provided, however, that the resolution may not be so modified or amended in such manner, without the consent of 100% of the registered owners of the Obligations, as to:

(1) Make any change in the maturities or redemption dates of the Parity Obligations;

(2) Make any change in the rates of interest borne by the Parity Obligations;

(3) Reduce the amount of the principal payments or redemption premiums payable on the Parity Obligations;

(4) Modify the terms of payment of principal of or interest on the Parity Obligations or impose any conditions with respect to such payments;

(5) Affect the rights of the registered owners of less than all of the Parity Obligations then outstanding;

(6) Reduce the percentage of the principal amount of the Parity Obligations the consent of the registered owners of which is required to effect a further modification.

For purposes of this subsection (b) the aggregate principal amount of any Hedge Agreement, shall be deemed to be zero, and the aggregate principal amount with respect to any Reimbursement Agreement shall be the aggregate principal amount of Obligations outstanding relating to such Reimbursement Agreement.

C‐17 Whenever the District shall propose to amend or modify the resolution under the provisions of this Section, it shall cause notice of the proposed amendment to be mailed by first-class mail, postage prepaid, to the owner of each Parity Obligation then outstanding. Such notice shall briefly set forth the nature of the proposed amendment and shall state that a copy of the proposed amendatory resolution is on file in the office of the District for public inspection.

Whenever at any time within one (1) year from the date of mailing of said notice there shall be filed with the Secretary of the Governing Body an instrument or instruments executed by the registered owners of at least a majority in aggregate principal amount of the Parity Obligations then outstanding as in this Section defined, which instrument or instruments shall refer to the proposed amendatory resolution described in said notice and shall specifically consent to and approve the adoption thereof, thereupon, but not otherwise, the District may adopt such amendatory resolution and such resolution shall become effective and binding upon the owners of all Parity Obligations.

If the registered owners of at least a majority in aggregate principal amount of the Parity Obligations outstanding as in this section defined, at the time of the adoption of such amendatory resolution, or the predecessors in title of such owners, shall have consented to and approved the adoption thereof as provided in the Resolution, no registered owner of any Parity Obligations, whether or not such owner shall have consented to or shall have revoked any consent as in this Section provided, shall have any right or interest to object to the adoption of such amendatory resolution or to object to any of the terms or provisions therein contained or to the operation thereof or to enjoin or restrain the District from taking any action pursuant to the provisions thereof.

Any consent given by the registered owner of a Parity Obligation pursuant to the provisions of this Section shall be irrevocable for a period of six (6) months from the date of the publication of the notice above provided for and shall be conclusive and binding upon all future registered owners of the same Parity Obligation during such period. Such consent may be revoked at any time after six (6) months from the date of publication of such notice by the registered owner who gave such consent or by a successor in title by filing notice of such revocation at the District office, but such revocation shall not be effective if the registered owners of a majority in aggregate principal amount of the Parity Obligations outstanding as in this Section defined shall have, prior to the attempted revocation, consented to and approved the amendatory resolution referred to in such revocation.

The fact and date of the execution of any instrument under the provisions of this Section may be proved by the certificate of any officer in any jurisdiction who by the laws thereof is authorized to take acknowledgments of deeds within such jurisdiction, that the person signing such instrument acknowledged before him the execution thereof, or may be proved by an affidavit of a witness to such execution sworn to before such officer.

The amount (number(s)) of the Parity Obligations owned by any person executing such instrument and the date of the ownership of the same shall be proved by reference to the Obligation registration records maintained by the Registration Agent, which records shall constitute conclusive proof of the ownership thereof.

(c) Notwithstanding anything in the Resolution to the contrary, no amendment to the resolution may be made while any other Loan Agreement is outstanding unless consent is obtained from all persons for whom consent must be obtained to amend.

C‐18 Prepayment Notices

The President, the Secretary and the General Manager of the District, or any of them, are authorized to provide notice of prepayment of each Refunded Loan Agreement and the Refunded Bonds the forms of which are attached to the Resolution.

Continuing Disclosure

The District covenanted and agreed in the Resolution that it will provide financial information and material event notices if and as required by Rule 15c2-12 of the Securities Exchange Commission.

C‐19

APPENDIX D

COMPREHENSIVE ANNUAL FINANCIAL REPORT

WEST KNOX UTILITY DISTRICT OF KNOX COUNTY, TENNESSEE

COMPREHENSIVE ANNUAL FINANCIAL REPORT

FOR THE FISCAL YEAR ENDED

JUNE 30, 2010 AND 2009

THE WEST KNOX UTILITY DISTRICT OF KNOX COUNTY Knoxville, Tennessee

COMPREHENSIVE ANNUAL FINANCIAL REPORT FOR THE YEARS ENDED June 30, 2010 and 2009

PREPARED BY:

Kimberly Green Accounting Manager THE WEST KNOX UTILITY DISTRICT OF KNOX COUNTY Knoxville, Tennessee

COMPREHENSIVE ANNUAL FINANCIAL REPORT June 30, 2010 and 2009

CONTENTS Page Number Introductory Section Letter of Transmittal ...... i-vi Organizational Chart...... vii Roster of District Officials and Others ...... viii GFOA Certificate of Achievement...... ix Financial Section Independent Auditor’s Report ...... 1-3 Management’s Discussion and Analysis ...... 4-14 Basic Financial Statements: Balance Sheets ...... 15 Statements of Revenues, Expenses, and Changes in Net Assets...... 16-17 Statements of Cash Flows...... 18-19 Notes to the Financial Statements...... 20-52 Required Supplementary Information: Schedule of Employer Pension Contributions – Last Ten Fiscal Years ...... 53 Schedule of Employer Pension Funding Progress – Last Five Valuation Dates ...... 54 Other Supplementary Information: Schedule of Expenditures of Federal and State Awards ...... 55 Schedule of Debt Service Requirements...... 56 Schedule of Water Rates and Statistics...... 57-58 Schedule of Insurance Coverage...... 59-60 Schedule of Unaccounted for Water ...... 61-62 THE WEST KNOX UTILITY DISTRICT OF KNOX COUNTY Knoxville, Tennessee

COMPREHENSIVE ANNUAL FINANCIAL REPORT June 30, 2010 and 2009

CONTENTS (Continued) Page Number Statistical Section (Unaudited) Net Assets by Component – Last Ten Fiscal Years ...... 63 Changes in Net Assets – Last Ten Fiscal Years ...... 64 Customer Statistics and Rates – Last Ten Fiscal Years...... 65 Water Produced, Sold and Consumed – Last Ten Fiscal Years ...... 66 Annual Tap Sales – Last Ten Fiscal Years...... 67 Number of Water and Sewer Customers by Type – Last Ten Fiscal Years...... 68 Water and Wastewater Rates – Last Ten Fiscal Years...... 69-70 Ten Largest Customers – Current Fiscal Year and Nine Years Ago...... 71 Outstanding Debt Per Customer – Last Ten Fiscal Years ...... 72 Pledged Revenue Coverage – Last Ten Fiscal Years ...... 73 Demographic and Economic Statistics – Last Ten Calendar Years ...... 74 Principal Employers – Current Calendar Year and Nine Years Ago ...... 75 Number of Employees By Activity – Last Ten Fiscal Years ...... 76 Annual Wastewater Plant Flows and Capacity in Millions of Gallons – Last Ten Fiscal Years...... 77 Operating and Capital Indicators – Last Six Fiscal Years...... 78 THE WEST KNOX UTILITY DISTRICT OF KNOX COUNTY Knoxville, Tennessee

COMPREHENSIVE ANNUAL FINANCIAL REPORT June 30, 2010 and 2009

CONTENTS (Continued) Page Number Internal Control and Compliance Section Report on Internal Control Over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance with Government Auditing Standards ...... 79-80 Report on Compliance with Requirements Applicable to Each Major Program and on Internal Control Over Compliance in Accordance with OMB Circular A-133 ...... 81-83 Schedule of Audit Findings and Questioned Costs ...... 84-85 Schedule of Prior Year Audit Findings ...... 86 INTRODUCTORY SECTION

Board of Commissioners The West Knox Utility District of Knox County Page Two

Independent Audit

Bacon, Howard and Company, CPAs have issued an unqualified (“clean”) opinion on the District’s financial statements for the years ended June 30, 2010 and 2009. As stated in the independent auditor’s report, the audit was conducted in accordance with generally accepted auditing standards and Government Auditing Standards, issued by the Comptroller General of the United States. The independent auditor’s report is located at the front of the financial section of this report.

Management’s Discussion and Analysis (MD&A)

Generally Accepted Accounting Principles require that management provide a narrative introduction, overview, and analysis to accompany the financial statements in the form of MD&A. This Letter of Transmittal is designed to complement MD&A and should be read in conjunction with it. The District’s MD&A can be found immediately following the Independent Auditor’s Report.

Profile of the District

The District was created under the authority of Title 7, Chapter 82 of the 1937 Utility District Law of the State of Tennessee. The District began operations on October 18, 1954. The purpose of the District is to “acquire, construct, improve, extend, operate, and maintain a wastewater and water treatment system.” The District serves 25,935 water and 20,266 wastewater customers in the northwestern portion of Knox County. The District’s primary source of water is drawn from the Clinch River that forms Melton Hill Lake which borders Knox and Anderson counties.

The District is governed by a Board of Commissioners composed of three citizens who live or own real estate within the District. Board members are appointed by the Knox County Mayor for a term of four years.

The District’s capital assets consist of two water treatment plants, one wastewater treatment facility, one office building and related maintenance facility, and five water reservoir tanks. The collection system, consisting of mains, laterals and pump stations, is owned and maintained by the District.

-ii- Board of Commissioners The West Knox Utility District of Knox County Page Three

The District receives no financial support from Knox County, Tennessee and has no taxing authority. The District’s water and wastewater revenues are derived from charges based upon metered water consumption of customers. The water and wastewater rates are established by the Board of Commissioners.

Budgeting

The District adopts flexible annual operating and capital budgets. Budgets are adopted on a basis consistent with GAAP. The current operating budget details the District’s plans to earn and expend funds for charges incurred for operation, maintenance, certain interest and general functions, and other charges for the fiscal year. The capital budget details the plan to receive and expend cash basis capital contributions, grants, borrowings and certain revenues for capital projects.

Financial Overview

During 2010, the District’s operating income was $923,215, which was $530,433 less than 2009 or (36.5)%. In addition, the District’s pledged revenue bond coverage ratio increased to 2.11 in 2010 vs. 1.68 in 2009. The operating income decreased mainly due to a decrease in water revenues and an increase in operating expenses. The pledged revenue bond coverage increased due to refinancing three bond issuances from prior years.

Local Economy

The District is located within the Knoxville Metropolitan Statistical Area (MSA) which includes Knox, Blount, Anderson, Sevier, Loudon and Union Counties. The Knoxville MSA is also the trade center for several counties in East Tennessee, and parts of Kentucky, Virginia and North Carolina.

For calendar year-ended 2009, the unemployment rates according to the U.S. Bureau of Labor Statistics for Knox County, State and Nation were 8.0%, 10.5% and 9.3%, respectively.

Per capita income in calendar year 2008 for Knox County, State and Nation was $34,696, $34,833 and $40,166 respectively.

The Knoxville MSA has several large employers including the Tennessee Valley Authority, U.S. Department of Energy, Alcoa Aluminum, several hospitals, Clayton Homes, Denso, the University of Tennessee, Brunswick Boats, Scripps – Howard HGTV Network, and several regional shopping malls and centers. -iii- Board of Commissioners The West Knox Utility District of Knox County Page Four

Long-Term Financial Planning

The District has projected a 2% to 3% annual increase in the number of customers over the next five years. The District is currently making several capital improvements including several water line improvements and extensions.

The financing of the District’s capital improvements is by internally generated cash flows and the issuance of long-term debt. The District’s debt coverage ratio has consistently been in excess of the required bond covenants.

Major Initiatives

The District is currently relocating and improving water and wastewater lines on Lovell Road. The District is also working to expand their Daugherty Water Treatment plant from 2mgd to 8mgd. The Daugherty Water Treatment Plant expansion will also include some significant water main projects. These will involve the installation of larger water transmission mains to transfer the additional treated water into the water distribution system. These projects are to be financed by current operations and internally generated cash flows and a future bond issue.

The District is continuing the preliminary phase of evaluating the wastewater treatment plant options. The existing plant is close to operating at the daily maximum capacity of four million gallons. This project also involves a study of the District’s largest wastewater pump station, the Ten Mile Pump Station. Alternatives are being evaluated on needs for this station and whether flow from the station should be routed to the new wastewater treatment plant. This also involves the evaluation of sewer rehabilitation needs in the Ten Mile Basin. This study will likely result in some significant capital projects. This is to allow the District to service the increasing demand in the area.

The District is currently working to expand the wastewater collection system along Ball Camp Road and Northampton Commons areas.

The District has contracted with a local engineering consulting firm for assistance in evaluating sewer sub-basin 9, the District’s largest sewer sub-basin. This firm will evaluate the entire basin utilizing smoke testing, manhole inspections, flow monitoring, and closed circuit televising of the sewer lines. They will be making recommendations to the District in a report(s) for future capital projects based on their findings. The District’s current 5-year capital improvements plan reflects funds to complete the study and begin some capital improvement projects in this sub-basin.

-iv- Board of Commissioners The West Knox Utility District of Knox County Page Five

The District is in the final design phase of the project to rebuild the Mobileland Wastewater Pump Station. Due to its age and pumping capacity, this station is limited in its ability to meet current needs. This project will soon be ready for bidding and construction.

This District has two design projects underway and is in the process of acquiring easements to replace several problematic and deteriorating water lines within the District’s water distribution system. These projects will replace waterlines at approximately 15 different locations in the water distribution system; most of the existing mains being two-inch diameter galvanized water mains. This project will soon be ready for bidding and construction.

The District has a design complete and is in the process of acquiring easements to replace a sanitary sewer main near Joe Hinton Road with a larger sanitary sewer main. The existing main is approaching capacity to meet current demands and the capacity needs to be increased to avoid regulatory violations. This project will soon be ready for bidding and construction.

Awards

The Government Finance Officers Association of the United States and Canada (GFOA) awarded a Certificate of Achievement for Excellence in Financial Reporting to the District for its CAFR for the fiscal year ended June 30, 2009. This was the sixth consecutive year that the District received this award. In order to be awarded a Certificate of Achievement, the District must publish an easily readable and efficiently organized CAFR. This report must satisfy both generally accepted accounting principles and applicable legal requirements.

A Certificate of Achievement is valid for a period of one year only. We believe that our current comprehensive annual financial report continues to meet the Certificate of Achievement Program’s requirements and we are submitting it to the GFOA to determine its eligibility for another certificate.

-v-

THE WEST KNOX UTILITY DISTRICT OF KNOX COUNTY

ROSTER OF DISTRICT OFFICIALS AND OTHERS June 30, 2010

Board of Commissioners Expiration of Term

Daniel H. Hurst, President December 31, 2013

Robert H. Sterchi, Jr., Vice-President December 31, 2010

Ruth A. Milsaps, Secretary December 31, 2012

Management

Charles M. Banks, General Manager

Drexel A. Heidel, PE, Assistant Manager

Kimberly Green, Accounting Manager

Independent Auditor General and Bond Counsel

John W. Bacon, CPA Richard T. Beeler, Attorney at Law

Bacon, Howard & Company, CPA’s Robertson, Overbey, Wilson & Beeler

Knoxville, Tennessee Knoxville, Tennessee

Consulting Engineer

Louis Robbins

GRW Engineers, Inc.

Nashville, Tennessee

-viii-

FINANCIAL SECTION John W. Bacon, CPA B A C O N ♦ H O W A R D Calvin C. Howard, CPA

& COMPAN Y Certified Public Accountants

INDEPENDENT AUDITOR’S REPORT

Board of Commissioners The West Knox Utility District of Knox County Knoxville, Tennessee

We have audited the accompanying balance sheets of The West Knox Utility District of Knox County (the District) as of June 30, 2010 and 2009, and the related statements of revenues, expenses and changes in net assets and cash flows for the years then ended. These financial statements are the responsibility of the District’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of The West Knox Utility District of Knox County as of June 30, 2010 and 2009, and the changes in financial position and cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.

-1- Board of Commissioners The West Knox Utility District of Knox County Page Two

In accordance with Government Auditing Standards, we have also issued a report dated October 10, 2010, on our consideration of the District’s internal control over financial reporting and our tests of its compliance with certain provisions of laws, regulations, contracts and grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on the internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards and should be considered in assessing the results of our audit.

Management’s Discussion and Analysis on pages 4 through 14, and the Schedule of Employer Pension Contributions on page 53 and the Schedule of Employer Pension Funding Progress on Page 54 are not required parts of the basic financial statements but are supplementary information required by accounting principles generally accepted in the United States of America. Such information, although not a part of the basic financial statements, is required by the Governmental Accounting Standards Board, who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. We have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management’s responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance.

-2- Board of Commissioners The West Knox Utility District of Knox County Page Three

Our audits were conducted for the purpose of forming an opinion on the basic financial statements taken as a whole. The introductory, supplementary and statistical sections are presented for purposes of additional analysis and are not a required part of the basic financial statements. The accompanying Schedule of Expenditures of Federal and State Awards is presented for purposes of additional analysis as required by U.S. Office of Management and Budget Circular A-133, Audits of States, Local Governments, and Non-Profit Organizations, and is also not a required part of the financial statements. The Schedule of Expenditures of Federal and State Awards is the responsibility of management and was derived from and relate directly to the underlying accounting and other records used to prepare the financial statements. The information has been subjected to the auditing procedures applied in the audit of the financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the financial statements or to the financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the information is fairly stated in all material respects in relation to the financial statements as a whole. The introductory and statistical sections have not been subjected to the auditing procedures applied in the audit of the basic financial statements and, accordingly, we express no opinion on them.

Knoxville, Tennessee October 10, 2010

-3- MANAGEMENT’S DISCUSSION AND ANALYSIS

This section presents management’s analysis of The West Knox Utility District of Knox County’s (the District) financial condition and results of operations for the years ending June 30, 2010 and 2009. This information should be read in conjunction with the accompanying financial statements.

FINANCIAL HIGHLIGHTS

Management believes the District’s financial position is strong. The District maintained good debt service coverage and was in compliance with all debt covenants. The following are key financial highlights:

• During 2010, the District delivered 1.79 billion gallons of water and treated 1.48 billion gallons of wastewater, representing a decrease of 6.9% and an increase of 13.3%, respectively, from the previous year.

• Total assets at year-end 2010 were $119.6 million and exceeded liabilities (net assets) by $77.3 million. Of the total net assets, $16.3 million was unrestricted and was available to support short-term operations. Total assets and total net assets increased from 2009 to 2010 by $3.3 million and $3.1 million, respectively. Unrestricted net assets increased during 2010 by $887,264.

• Operating revenues were $12.9 million in 2010, a decrease of $537 from 2009.

• Operating expenses before depreciation decreased by $2,656, or .03% when compared to 2009.

• Operating income for the year was $.9 million, representing a 36.5% decrease from 2009. Increase in net assets, before capital contributions, decreased by $417,276 when compared to 2009.

• The ratios of operating income to total operating revenues were 7.2% for 2010 and 11.3% for 2009.

• Debt service coverage was 211% for 2010, exceeding the 120% required by various bond covenants.

• Cash capital contributions were $770,123 for 2010, an increase of $725,828 when compared to 2009. Developer contributions of facilities were $2,446,918, a decrease of $806,406 or 24.8% when compared to 2009.

-4- MANAGEMENT’S DISCUSSION AND ANALYSIS (Continued)

FINANCIAL HIGHLIGHTS (Continued)

• As a result of ongoing state and county road construction within the District, several water and wastewater line relocation projects were in progress and engineering costs related to the new wastewater treatment plant on Melton Hill Lake. The amount of construction in progress was $5,813,796 and $5,708,098 at year-end 2010 and 2009, respectively. The remaining commitments were $2,265,913 and $1,204,385 at June 30, 2010 and 2009, respectively.

OVERVIEW OF THE ANNUAL FINANCIAL STATEMENTS

Management’s Discussion and Analysis (MD&A) serves as an introduction to the basic financial statements and supplementary information. The MD&A represents management’s examination and analysis of the District’s financial condition and performance. Summary financial statement data, key financial and operational indicators used in the District’s budget, bond resolutions and other management tools were used for this analysis.

The financial statements report information about the District using full accrual accounting methods as utilized by similar business activities in the private sector. However, rate- regulated accounting principles applicable to private sector utilities are not used by government utilities.

The financial statements include a balance sheet; a statement of revenues, expenses, and changes in net assets; a statement of cash flows; and notes to the financial statements. The balance sheet presents the financial position of the District on a full accrual basis of accounting. While the balance sheet provides information about the nature and amount of resources and obligations at year-end, the statement of revenues, expenses, and changes in net assets presents the results of the business activities over the course of the fiscal year and information as to how the net assets changed during the year. All changes in net assets are reported as soon as the underlying event giving rise to the change occurs, regardless of the timing of the related cash flows. This statement also provides certain information about the District’s recovery of its costs. The District’s rates are based on a cost of service rate study that is updated annually. Rate setting policies use different methods of cost recovery not fully provided for by generally accepted accounting standards. The primary objectives of the rate model are to improve equity among customer classes and to ensure that capital costs are allocated on the basis of long-term capacity needs, ensuring that growth pays for growth.

The statement of cash flows presents changes in cash and cash equivalents, resulting from operational, financing, and investing activities. This statement presents cash receipts and cash disbursement information, without consideration of the earnings event, when an obligation arises, or depreciation of capital assets.

-5- MANAGEMENT’S DISCUSSION AND ANALYSIS (Continued)

OVERVIEW OF THE ANNUAL FINANCIAL STATEMENTS (Continued)

The notes to the financial statements provide required disclosures and other information that are essential to a full understanding of material data provided in the statements. The notes present information about the District’s accounting policies, significant account balances and activities, material risks, obligations, commitments, contingencies and subsequent events, if any.

SUMMARY OF ORGANIZATION AND BUSINESS

The District was created under the authority of Title 7, Chapter 82 of the 1937 Utility District Law of the State of Tennessee. The District began operations on October 18, 1954. The purpose of the District is to “acquire, construct, improve, extend, operate and maintain a water and wastewater treatment system. The District serves 25,935 water and 20,266 wastewater customers in the northwestern portion of Knox County. The District’s primary source of water is drawn from the Clinch River that forms Melton Hill Lake which borders Knox and Anderson counties.

The District receives no financial support from Knox County, Tennessee and has no taxing authority. The District’s revenues are derived from water and wastewater charges based upon metered water consumption of customers. The water and wastewater rates are established by the Board of Commissioners.

-6- MANAGEMENT’S DISCUSSION AND ANALYSIS (Continued)

FINANCIAL ANALYSIS

The following comparative condensed financial statements and other selected information provides key financial data and indicators for management, monitoring, and planning.

Condensed Balance Sheets (In Thousands of Dollars) June 30, 2010, 2009 and 2008

ASSETS 2010 2009 2008

Current Assets $ 17,046 $ 16,382 $ 19,042 Capital Assets: Producing – Net 90,854 88,675 82,923 Construction in Progress 5,814 5,708 7,095 Other 5,923 5,546 3,142

TOTAL ASSETS $ 119,637 $ 116,311 $ 112,202

LIABILITIES

Current Liabilities $ 2,240 $ 1,797 $ 2,732 Non-Current Liabilities 40,056 40,318 38,917

Total Liabilities 42,296 42,115 41,649

NET ASSETS

Invested in Capital Assets, Net of Related Debt 58,308 56,071 49,937 Restricted 2,735 2,714 2,492 Unrestricted 16,298 15,411 18,124

Total Net Assets 77,341 74,196 70,553

TOTAL LIABILITIES AND NET ASSETS $ 119,637 $ 116,311 $ 112,202

-7- MANAGEMENT’S DISCUSSION AND ANALYSIS (Continued)

FINANCIAL ANALYSIS (Continued)

Condensed Statements of Revenues, Expenses, and Changes in Net Assets (In Thousands of Dollars) For The Years Ended June 30, 2010, 2009 and 2008

2010 2009 2008 Operating Revenues Water - Net $ 5,841 $ 6,057 $ 6,064 Wastewater 6,021 6,055 6,051 Connection Fees 668 480 1,036 Customer Forfeited Discounts 167 120 164 Service Fees 111 86 116 Wastewater Inspection Fees 13 5 15 Miscellaneous 37 56 96

Total Operating Revenues 12,858 12,859 13,542

Operating Expenses Water Purification and Supply 952 971 985 Wastewater Collection and Treatment 2,002 2,020 1,913 Water Treatment and Distribution 2,056 2,178 2,057 CMOM Program 976 937 981 Shop and General Maintenance 224 244 279 Customer Accounting 131 137 122 Administrative and General 1,822 1,678 1,624 Depreciation 3,772 3,240 2,986

Total Operating Expenses 11,935 11,405 10,947

Operating Income 923 1,454 2,595

-8- MANAGEMENT’S DISCUSSION AND ANALYSIS (Continued)

FINANCIAL ANALYSIS (Continued)

2010 2009 2008

Non-Operating Revenues (Expenses) Investment Income 357 729 1,335 Interest Expense (1,354) (1,782) (1,926) Gain (Loss) on Disposal of Capital Assets 1 (56) -

Total Non-Operating – Net (996) (1,109) (591)

Increase (Decrease) in Net Assets Before Capital Contributions (73) 345 2,004

Capital Contributions Cash Contributions 771 44 94 Non-Cash 2,447 3,254 4,825

Total Capital Contributions 3,218 3,298 4,919

Change in Net Assets 3,145 3,643 6,923

Net Assets, Beginning of Year 74,196 70,553 63,630

Net Assets, End of Year $ 77,341 $ 74,196 $ 70,553

-9- MANAGEMENT’S DISCUSSION AND ANALYSIS (Continued)

OTHER SELECTED INFORMATION

Selected Data: 2010 2009 2008

Employees at Year-End 62 62 63 Average Employees 62 62 61 Customers (Billing Units) at Year End: Water 25,935 25,675 23,099 Wastewater 20,266 18,587 18,110

Water (Millions of Gallons) Treated (Pumped) 1,790 1,922 2,047 Sold 1,659 1,664 1,695

Wastewater Treated (Millions of Gallons) 1,485 1,311 1,131

Per Average Employee: Operating Revenues $ 207,392 $ 207,401 $ 221,996 Operating Expenses 192,502 183,955 179,451

Average Realized Rates per 1,000 Gallons of Water Sold: Water - Residential 3.56 3.67 3.53 Wastewater - Residential 5.24 5.22 4.79

Ratio of Operating Revenues to: Operating Expenses 1.08 1.13 1.24 Operating Expenses – Net of Depreciation 1.58 1.58 1.70 Total Assets .11 .11 .12 Net Assets .17 .17 .19

Debt Related Ratios: Long-Term Debt to Net Assets .52 .54 .55 Long-Term Debt to Total Assets .33 .35 .35 Operating Coverage 2.11 1.68 1.72

-10- MANAGEMENT’S DISCUSSION AND ANALYSIS (Continued)

GENERAL TRENDS AND SIGNIFICANT EVENTS

Customer growth in the District increased 3% during 2010 and 29% over the last ten years.

FINANCIAL CONDITION

The District's financial condition remained strong at year-end with adequate liquid assets and a reasonable level of unrestricted net assets. The current financial condition, staff capabilities, operating plans and upgrade plans to meet future water quality requirements are well balanced and under control.

During 2010, total assets grew $3,326,115, or 2.9%, with $2,284,038 represented by additions to capital assets. Net assets increased in 2010 by $3,144,948, with a substantial portion of the change resulting from capital contributions. During 2009, total assets grew $4,108,513, or 3.7%, with $9,047,981 represented by additions to capital assets. Net assets increased in 2009 by $3,642,802, with a substantial portion of the change resulting from capital contributions.

Accounts receivable at year-end 2010 were 21.2% more than fiscal year 2009 and 22.0% more than fiscal year 2008. At 2010 year-end, 91% of accounts receivable were current within 30 days. The District's provision for bad debt expense for 2010 was $70,984 on $11,862,008 in net water and wastewater sales.

RESULTS OF OPERATIONS

Operating Revenues

Revenues from operations fall into three general categories: water service, wastewater service and ancillary charges. Ancillary charges include connection fees, account set up and penalty fees, and charges for miscellaneous billed services. Operating income decreased $530,433 in 2010, decreased $1,141,554 in 2009, and increased $995,446 in 2008.

The average realized rate from water sales was $3.56 per thousand gallons in 2010, $3.67 in 2009, and $3.53 in 2008.

Capital Contributions

The District collects water and wastewater connection fees to ensure that current customers do not bear the burden of growth. These fees are paid at the time a new customer water meter is connected to the system. In addition, the District accepts new water and wastewater lines that are donated by residential and commercial real estate developers.

-11- MANAGEMENT’S DISCUSSION AND ANALYSIS (Continued)

RESULTS OF OPERATIONS (Continued)

Capital Contributions (Continued)

Capital contributions during 2010, 2009 and 2008 consisted of the following:

2010 2009 2008

Cash Capital Contributions from Various Developers $ 264,561 $ 44,295 $ 93,815 State of TN – ARRA 505,562 - -

Donated Lines by Developers 2,446,918 3,253,324 4,824,962

Total $ 3,217,041 $ 3,297,619 $ 4,918,777

Expenses

Operating expenses, excluding depreciation, decreased by $2,656 in 2010, increased by $204,182 in 2009, and increased $676,334 in 2008 or (.03)%, 2.6%, and 9.3%, respectively. This was a result of significant increases (decreases) in:

2010 2009 2008

Salaries and Benefits $ 44,937 $ 137,171 $ 183,473 Power Purchased (157,751) 158,037 88,685 Repairs and Maintenance 96,251 43,611 125,016 CMOM Program 38,552 (44,010) 99,669 Chemicals (40,466) (65,571) 90,827 Legal 40,079 120,900 (102,342) Treatment of Wastewater (17,683) (45,044) 133,703 Other (6,575) (100,912) 57,303

Total $ (2,656) $ 204,182 $ 676,334

Depreciation expense of the District’s system increased by $532,552 in 2010, increased by $254,483 in 2009, and $145,792 in 2008 or 16.4%, 8.5%, and 5.1%, respectively.

-12- MANAGEMENT’S DISCUSSION AND ANALYSIS (Continued)

CAPITAL ASSETS

The District is undergoing an extensive water and wastewater line relocation, replacement, and extension program. The majority of the relocations are due to several state and county road projects within the District. In addition, the District is improving and increasing the capacity of its water and wastewater treatment facilities in order to provide adequate capacity for future customer growth.

During 2010, 2009, and 2008, the District increased its capital assets before depreciation by $6,022,730, $7,510,333, and $12,409,455, respectively. This increase is due to the following:

2010 2009 2008

Water Line Extensions and Improvements $ 1,784,428 $ 4,494,551 $ 1,541,357 Water Plant Upgrades 735,934 79,903 2,427,884 Wastewater Lines 2,892,098 3,733,615 3,535,363 Wastewater Plant Improvements 241,357 529,312 1,096,725 Office Buildings and Equipment 96,217 48,092 96,100 Vehicles and Equipment 172,398 8,319 (169,156) Land and Easements (5,400) 3,010 55,371 5,917,032 8,896,802 8,583,644 Construction in Progress-Net 105,698 (1,386,469) 3,825,811

Total $ 6,022,730 $ 7,510,333 $ 12,409,455

The District's capital asset activity for 2010 and 2009 is described in Notes 3 and 4 to the financial statements.

DEBT

At year-end 2010, 2009 and 2008, the District had $37.5, $38.1, and $39.6 million in long and short-term debt, a decrease of $587,226 in 2010, a decrease of $1,466,207 in 2009, and a decrease of $1,944,179 in 2008. During 2010, 2009 and 2008, the District paid principal of $1,110,082, $856,893, and $1,383,206, respectively.

The long-term debt to total asset ratio was .33, .35, and .35 in 2010, 2009, and 2008 respectively.

More detailed information about the District’s long-term debt is described in Notes 6 and 7 to the financial statements.

-13- MANAGEMENT’S DISCUSSION AND ANALYSIS (Continued)

ECONOMIC FACTORS AND NEXT FISCAL YEAR

. Number of customers is projected to increase by 2% during 2011.

. Pension contribution rate is 16.5% of salaries for 2010 vs. 14.0% in 2009.

. Overall a salary rate increase of 2% for employees for 2011.

. FY 2011 Budget:

Revenues $ 14,203,217 Expenses (9,239,726)

Increase in Net Assets Before Capital Contributions $ 4,963,491

CONTACTING THE DISTRICT

This comprehensive annual financial report is designed to provide our customers, creditors and regulatory agencies with a general overview of the District's finances. If you have any questions about this report or need additional information, you may contact the District at:

Charles M. Banks, General Manager West Knox Utility District 2328 Lovell Road Knoxville, TN 37932 865-690-2521 www.wkud.com

-14- THE WEST KNOX UTILITY DISTRICT OF KNOX COUNTY

BALANCE SHEETS June 30, 2010 and 2009

ASSETS

2010 2009 Current Assets Cash and Cash Equivalents $ 6,837,921 $ 4,589,299 Cash and Cash Equivalents – Restricted 300,096 332,509 Investments, at Fair Value 7,084,189 10,025,000 Accounts Receivable – (Net of Allowance for Uncollectible Accounts of $60,000 for 2010 and $55,422 for 2009) 1,475,781 1,217,937 Accounts Receivable – ARRA – SRF 1,263,905 - Inventory – Materials 26,100 157,528 Prepaid Expenses 58,005 60,162

Total Current Assets 17,045,997 16,382,435

Non-Current Assets Capital Assets Property, Plant and Equipment 136,069,518 130,152,486 Construction in Progress 5,813,796 5,708,098 Less: Accumulated Depreciation (45,216,026) (41,477,334)

Capital Assets – Net 96,667,288 94,383,250

Other Assets Investments – Restricted, at Fair Value 2,617,233 2,565,132 Bond Issuance Costs – Net 404,981 641,268 Deferred Outflow – Interest Rate Swap 2,900,557 2,337,856 Deposits 560 560

Total Other Assets 5,923,331 5,544,816

Total Non-Current Assets 102,590,619 99,928,066

TOTAL ASSETS $ 119,636,616 $ 116,310,501

The accompanying notes are an integral part of these financial statements. LIABILITIES AND NET ASSETS

2010 2009 Current Liabilities Accounts Payable $ 302,426 $ 272,375 Accounts and Retainage Payable – Construction 236,680 197,755 Payroll and Related Liabilities 251,507 224,347 Other Accrued Liabilities 440,212 409,117 Accrued Revenue Bond Interest Payable 182,148 183,050 Revenue Bonds and Note Payable 827,301 510,097

Total Current Liabilities 2,240,274 1,796,741

Non-Current Liabilities Net Pension Obligation 110,760 117,263 Revenue Bonds and Note Payable Net of Current Portion 36,700,202 37,604,632 Derivative Instrument – Interest Rate Swap 2,900,557 2,337,856 Deferred Compensation Payable 344,030 258,164

Total Non-Current Liabilities 40,055,549 40,317,915

Total Liabilities 42,295,823 42,114,656

Net Assets Invested in Capital Assets – Net of Related Debt 58,307,442 56,070,348 Restricted: Debt Service 2,735,181 2,714,591 Unrestricted 16,298,170 15,410,906

Total Net Assets 77,340,793 74,195,845

TOTAL LIABILITIES AND NET ASSETS $ 119,636,616 $ 116,310,501

-15- THE WEST KNOX UTILITY DISTRICT OF KNOX COUNTY

STATEMENTS OF REVENUES, EXPENSES, AND CHANGES IN NET ASSETS For the Years Ended June 30, 2010 and 2009

2010 2009 Operating Revenues Water – Net $ 5,840,679 $ 6,056,799 Wastewater 6,021,329 6,055,263 Connection Fees 668,361 479,445 Customer Forfeited Discounts 167,133 119,988 Service Fees 110,980 86,260 Wastewater Inspection Fees 12,875 4,850 Miscellaneous 36,955 56,244

Total Operating Revenues 12,858,312 12,858,849

Operating Expenses Water Purification and Supply 952,291 971,010 Wastewater Collection and Treatment 2,001,500 2,019,948 Water Treatment and Distribution 2,056,342 2,177,862 CMOM Program 976,066 937,513 Shop and General Maintenance 223,464 244,752 Customer Accounting 131,183 136,668 Administrative and General 1,821,977 1,677,726 Depreciation – Water System 1,691,918 1,310,101 Depreciation – Wastewater System 1,882,864 1,747,945 Depreciation – Other 197,492 181,676

Total Operating Expenses 11,935,097 11,405,201

Operating Income 923,215 1,453,648

The accompanying notes are an integral part of these financial statements.

-16- THE WEST KNOX UTILITY DISTRICT OF KNOX COUNTY

STATEMENTS OF REVENUES, EXPENSES, AND CHANGES IN NET ASSETS (Continued) For the Years Ended June 30, 2010 and 2009

2010 2009

Non-Operating Revenues (Expenses) Investment Income 357,595 729,434 Interest Expense (1,354,289) (1,781,968) Net Gain (Loss) on Disposal of Capital Assets 1,386 (55,931)

Total Non-Operating Revenues (Expenses) – Net (995,308) (1,108,465)

Increase (Decrease) in Net Assets Before Capital Contributions (72,093) 345,183

Capital Contributions Cash Contributions 770,123 44,295 Developers Contributions of Capital Assets 2,446,918 3,253,324

Total Capital Contributions 3,217,041 3,297,619

Change in Net Assets 3,144,948 3,642,802

Net Assets, Beginning of Year 74,195,845 70,553,043

Net Assets, End of Year $ 77,340,793 $ 74,195,845

The accompanying notes are an integral part of these financial statements.

-17- THE WEST KNOX UTILITY DISTRICT OF KNOX COUNTY

STATEMENTS OF CASH FLOWS For the Years Ended June 30, 2010 and 2009

2010 2009 Cash Flows from Operating Activities Receipts from Customers and Users $ 11,367,658 $ 12,800,448 Payments to Employees (4,056,103) (3,903,714) Payments to Suppliers (3,851,443) (4,354,242)

Net Cash Provided by Operating Activities 3,460,112 4,542,492

Cash Flows from Capital and Related Financing Activities Capital Contributed by Customers 770,123 44,295 Acquisition and Construction of Capital Assets (3,575,870) (4,654,165) Interest Paid on Long – Term Debt (1,345,332) (2,343,291) Principal Paid on Long – Term Debt (1,110,082) (856,893) Other Debt Service Charges (3,340) (4,239) Proceeds from Loan 758,343 -

Net Cash Provided (Used) by Capital and Related Financing Activities (4,506,158) (7,814,293)

Cash Flows from Investing Activities Interest Received on Investments 225,279 632,917 Purchase of Investments (14,074,875) (8,224,743) Sale of Investments 17,111,851 10,764,760

Net Cash Provided (Used) by Investing Activities 3,262,255 3,172,934

Net Increase (Decrease) in Cash and Cash Equivalents 2,216,209 (98,867)

Cash and Cash Equivalents, Beginning of Year 4,921,808 5,020,675

Cash and Cash Equivalents, End of Year $ 7,138,017 $ 4,921,808

The accompanying notes are an integral part of these financial statements.

-18- THE WEST KNOX UTILITY DISTRICT OF KNOX COUNTY

STATEMENTS OF CASH FLOWS (Continued) For the Years Ended June 30, 2010 and 2009

2010 2009 Cash and Cash Equivalents at End of Year Consist of: Unrestricted Cash and Cash Equivalents $ 6,837,921 $ 4,589,299 Restricted Cash and Cash Equivalents 300,096 332,509

Total $ 7,138,017 $ 4,921,808

Reconciliation of Operating Income to Net Cash Provided by Operating Activities Operating Income $ 923,215 $ 1,453,648 Adjustments to Reconcile Operating Income to Net Cash Provided by Operating Activities: Depreciation 3,772,274 3,239,722 Provision for Uncollectible Receivables 70,984 72,800 Changes in: Accounts Receivable – Net (1,521,749) (8,406) Other Current Assets 133,585 (71,686) Accounts Payable 30,051 (150,208) Payroll and Related Liabilities 27,160 (36,919) Other Accrued Liabilities 24,592 43,541

Net Cash Provided by Operating Activities $ 3,460,112 $ 4,542,492

Noncash Investing, Capital and Financing Activities Unrealized Gain (Loss) on Investments $ (21,274) $ (56,612) Accreted Interest Income on U.S. Treasury Strips 153,590 153,129 Accretion of Bond Interest on Series 1997B 12,229 37,299 Amortization of Bond and Note Discounts 4,895 6,885 Amortization of Bond Issuance Costs 26,341 38,376 Amortization of Deferred Cost of Defeased Bonds 39,702 11,878 Contributions of Capital Assets by Developers 2,446,918 3,253,324

The accompanying notes are an integral part of these financial statements.

-19- THE WEST KNOX UTILITY DISTRICT OF KNOX COUNTY

NOTES TO THE FINANCIAL STATEMENTS June 30, 2010 and 2009

NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The West Knox Utility District of Knox County (WKUD) was created under the authority of Title 7, Chapter 82 of the 1937 Utility District Law of the State of Tennessee.

The WKUD Board of Commissioners are appointed by the Knox County Mayor for a term of four years. Knox County does not have any fiscal or budgetary control over WKUD. The operations of WKUD (the District) are funded by water and wastewater rates established by the Board of Commissioners.

A. Basis of Accounting and Presentation

The District's financial statements are presented on the full accrual basis of accounting in accordance with accounting principles generally accepted in the United States of America. The District applies all Governmental Accounting Standards Board (GASB) pronouncements as well as Financial Accounting Standards Board (FASB) statements and interpretations, and the Accounting Principles Board (APB) of the Committee on Accounting Procedure issued on or before November 30, 1989, unless those pronouncements conflict with or contradict GASB pronouncements. The District applies only GASB pronouncements issued after November 30, 1989.

All activities of the District are accounted for within a single proprietary (enterprise) fund. Proprietary funds are used to account for operations that are (a) financed and operated in a manner similar to private business enterprises where the intent of the governing body is that the cost (expenses, including depreciation) of providing goods or services to the general public on a continuing basis be financed or recovered primarily through user charges; or (b) where the governing body has decided that periodic determination of revenues earned, expenses incurred, and/or net income is appropriate for capital maintenance, public policy, management control, accountability, or other purposes.

The District makes a distinction between operating revenues and expenses from non-operating items. Operating revenues and expenses generally result from providing services in connection with its principal ongoing operations. The principal operating revenues of the District are water and wastewater charges to customers. Operating expenses consist of salaries, benefits, utilities, operating contracts for maintenance, insurance and depreciation on capital assets. All revenues and expenses not meeting these definitions are reported as non-operating revenues and expenses.

-20- THE WEST KNOX UTILITY DISTRICT OF KNOX COUNTY

NOTES TO THE FINANCIAL STATEMENTS (Continued) June 30, 2010 and 2009

NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

A. Basis of Accounting and Presentation (Continued)

The accounting and financial reporting treatment applied to the District is determined by its measurement focus. The transactions of the District are accounted for on a flow of economic resources measurement focus. With this measurement focus, all assets and all liabilities associated with the operations are included on the balance sheet. Net assets (i.e., total assets net of total liabilities) are segregated into invested in capital assets, net of related debt; restricted for capital activity and debt service; and unrestricted components.

B. Budgeting

The District adopts flexible annual operating and capital budgets. Budgets are adopted on a basis consistent with generally accepted accounting principles. The current operating budget details the District's plans to earn and expend funds for charges incurred for operation, maintenance, certain interest and general functions, and other charges for the fiscal year. The capital budget details the plan to receive and expend cash basis capital contributions, grants, borrowings and certain revenues for capital projects. The District’s budgets are not legally binding.

There were no budgetary amendments during 2010 and 2009. All of the unexpended and unencumbered appropriations in the operating budget remaining at the end of the fiscal year lapse. No appropriation for a capital project in the capital budget lapses until the purpose for which the appropriation was made has been accomplished or abandoned.

Management submits a proposed budget to the District's Board of Commissioners prior to the June Board meeting. A budget is adopted by resolution prior to July 1. During the year, management is authorized to transfer budgeted amounts between line items within the District's departments.

C. Cash Equivalents, Deposits and Investments

Cash and cash equivalents, for purposes of the statement of cash flows, include restricted and unrestricted cash on hand or on deposit, interest in State Treasurer's Pool, certificates of deposit, and debt security investments with a maturity at purchase of three months or less.

-21- THE WEST KNOX UTILITY DISTRICT OF KNOX COUNTY

NOTES TO THE FINANCIAL STATEMENTS (Continued) June 30, 2010 and 2009

NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

C. Cash Equivalents, Deposits and Investments (Continued)

Investments are reported at their fair value. Fair value is based upon quoted market prices. Realized gains and (losses) from the sale of investments are calculated separately from the change in the fair value. Realized gains or (losses) in the current period include unrealized amounts from prior periods.

D. Restricted Assets

Restricted assets represent cash and investments maintained in accordance with bond resolutions, loan agreements, grant awards, and other resolutions and formal actions of the District or by agreement for the purpose of funding certain debt service payments, depreciation and contingency activities, and improvements and extensions to the system. Restricted assets are generally not available for current operating expenses.

E. Receivables and Revenues

Revenues are billed monthly to customers on a cyclical meter reading basis. Revenues are not accrued for usage from the last meter reading date to year-end.

Accounts receivable are stated at the amount management expects to collect from outstanding balances. The District provides for estimated uncollectible receivables through a reduction (expense) of gross water revenues and a credit to an allowance based on its assessment of the current status of individual accounts and historical write-off experience. Balances that are still outstanding after management has used reasonable collection efforts are written off through a charge to the valuation allowance and a credit to accounts receivable.

Operating revenues consist of water and wastewater revenues net of allowance for uncollectibles, and forfeited discounts, inspection fees and various service fees. Connection (tap) fees are recorded as revenue to the extent of expenses incurred in connecting a customer to the system. Connection fees in excess of costs, if any, are recorded as cash capital contributions.

Non-operating revenue consists of investment income. Investment income is interest earned, the accretion of interest on zero coupon debt instruments and the change in unrealized gains and losses on the fair value of marketable debt securities.

-22- THE WEST KNOX UTILITY DISTRICT OF KNOX COUNTY

NOTES TO THE FINANCIAL STATEMENTS (Continued) June 30, 2010 and 2009

NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

F. Expenses

Operating expenses consist of the cost of water and wastewater collection, treatment, storage, and distribution. Other operating expenses include customer billing, collections, administrative and general and depreciation on capital assets.

Non-operating expenses consist of interest on long-term liabilities and loss on the disposal or impairment of capital assets.

G. Inventories

Material and supply inventories are stated at the lower of cost (first in, first out method) or market. Incidental supplies and chemicals are not included in inventory.

H. Capital Assets

Property, plant and equipment in service and construction in progress are recorded at cost, if purchased or constructed. Assets acquired through contributions from developers or other customers are capitalized at their estimated fair market value, if available, or at engineers’ estimated fair market value or cost to construct at the date of the contribution. Utility systems acquired from other governmental service providers are recorded at the purchase price, limited to fair market value.

Maintenance and repairs, which do not significantly extend the value or life of property plant or equipment, are expensed as incurred. The District defines capital asset as an asset with an initial individual cost, or a project with a cumulative cost, of more than $3,000 and an estimated useful life in excess of one year.

Interest is not capitalized on project costs funded by contributed capital, such as grants, gifts and impact fees. Interest costs of tax-exempt borrowings are capitalized net of related investment earnings on the proceeds. Depreciation is not recorded until the assets are actually put into use.

-23- THE WEST KNOX UTILITY DISTRICT OF KNOX COUNTY

NOTES TO THE FINANCIAL STATEMENTS (Continued) June 30, 2010 and 2009

NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

H. Capital Assets (Continued)

Assets are depreciated on the straight-line method. Depreciation is calculated using the following estimated useful lives:

Years

Source of Supply Equipment 15-50 Water Treatment Plant 40-50 Wastewater Treatment Plant 40 Transmission and Distribution Systems 40-50 Equipment 5-20 Structures and Improvements 10-50 Office Furniture, Equipment and Vehicles 5-20

I. Long-Term Obligations and Costs

Long-term obligations are reported at face value, net of applicable premiums and discounts. Premiums and discounts, issuance costs, and gains or losses on advance refundings and defeasances after June 30, 1994, are deferred and amortized over the life of the bonds.

J. Compensation for Future Absences

Accumulated vacation eligible to be paid to employees at termination is recorded as an expense and liability as the benefits are earned.

K. Contributions

Contributions are recognized in the statement of revenues, expenses, and changes in net assets when earned. Contributions include developer contributed utility systems, capacity and other supplemental support by other utilities and industrial customers and federal, state and local grants in support of system improvements.

-24- THE WEST KNOX UTILITY DISTRICT OF KNOX COUNTY

NOTES TO THE FINANCIAL STATEMENTS (Continued) June 30, 2010 and 2009

NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

L. Net Assets

Net assets comprise the various net earnings from operating and non-operating revenues, expenses and contributions of capital. Net assets are classified in the following three components: invested in capital assets, net of related debt; restricted for capital activity and debt service; and unrestricted net assets. Invested in capital assets, net of related debt, consists of all capital assets, net of accumulated depreciation and reduced by outstanding debt that is attributable to the acquisition, construction and improvement of those assets; debt related to unspent proceeds or other restricted cash and investments is excluded from the determination. Restricted for capital activity and debt service consists of net assets for which constraints are placed thereon by external parties, such as lenders, grantors, contributors, laws, regulations and enabling legislation, including self-imposed legal mandates. Unrestricted consists of all other net assets not included in the above categories.

When both restricted and unrestricted resources are available for use, it is the District’s policy to use restricted resources first, then unrestricted resources as they are needed.

M. Estimates

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make certain estimates and assumptions that effect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the balance sheet date, and reported amounts of revenues and expenses during the reporting period. Estimates are used to determine depreciation expense, the allowance for doubtful accounts and certain claims and judgment liabilities, among other accounts. Actual results may differ from those estimates.

N. New GASB Statements

During 2010, the District adopted the following:

GASB Statement No. 53, Accounting and Financial Reporting for Derivative Instruments, establishes accounting and financial reporting requirements for derivative instruments entered into by state and local governments.

-25- THE WEST KNOX UTILITY DISTRICT OF KNOX COUNTY

NOTES TO THE FINANCIAL STATEMENTS (Continued) June 30, 2010 and 2009

NOTE 2: DEPOSITS AND INVESTMENTS

At June 30, 2010 and 2009, the District had the following deposits and investments:

2010 2009

Weighted Weighted Average Average Fair Maturity Fair Maturity Value (Years) Value (Years) Deposits: Demand Deposits $ 7,138,017 N/A $ 4,921,808 N/A

Investments: Federal Agency Securities 1,834,189 2.01 - N/A U.S. Treasuries 2,273,203 3.57 2,306,968 3.37 Public Building Authority Bonds - N/A 10,025,000 15.93 Mutual Funds 344,030 N/A 258,164 N/A Certificates of Deposit 5,250,000 1.67 - N/A

Total Investments 9,701,422 12,590,132

Total $ 16,839,439 $ 17,511,940

A summary of the deposits and investments on the balance sheets at June 30, 2010 and 2009:

2010 2009 Current Assets: Cash and Cash Equivalents $ 6,837,921 $ 4,589,299 Cash and Cash Equivalents - Restricted 300,096 332,509 Investments 7,084,189 10,025,000 14,222,206 14,946,808 Other Assets: Investments – Restricted 2,617,233 2,565,132

Total $ 16,839,439 $ 17,511,940

-26- THE WEST KNOX UTILITY DISTRICT OF KNOX COUNTY

NOTES TO THE FINANCIAL STATEMENTS (Continued) June 30, 2010 and 2009

NOTE 2: DEPOSITS AND INVESTMENTS (Continued)

At year-end 2010 and 2009, $2,624,828 and $310,194 in investments were purchased with an original maturity of 90 days or less at the date of purchase and are classified as a cash and cash equivalent.

As of June 30, 2010 and 2009, the District’s investments were in the following:

2010 2009

Certificates of Deposits 54.1% 0.0% Federal Agency Securities 18.9 0.0 U.S. Treasuries 23.4 19.3 Public Building Authority Bonds - 78.7 Mutual Funds 3.6 2.0

Total 100.0% 100.0%

Deposits – Custodial Credit Risk

The District's deposits, with a carrying amount of $6,837,921 and $4,771,712 at June 30, 2010 and 2009, respectively, were covered by the bank collateral pool administered by the Treasurer of the State of Tennessee. The bank may use one of three different pledged security levels (90, 100 or 105%) depending on the specific bank holding the deposit. Participating banks determine the aggregate balance of their public fund accounts for the District. Collateral securities required to be pledged by the participating banks to protect their public fund accounts are pledged to the State Treasurer on behalf of the bank collateral pool. The securities pledged to protect these accounts are pledged in the aggregate rather than against each individual account. The members of the pool may be required by agreement to pay an assessment to cover any deficiency. Under this additional assessment agreement, public fund accounts covered by the pool are considered to be insured and classified as Category 1, under GASB Statement No. 40, for purposes of custodial credit risk disclosure. The District’s deposits include a treasury money market fund that is not covered by the state collateral pool or the Federal Deposit Insurance Corporation (FDIC). The carrying amount of the money market fund at June 30, 2010 and 2009, was $300,096 and $150,096, respectively.

-27- THE WEST KNOX UTILITY DISTRICT OF KNOX COUNTY

NOTES TO THE FINANCIAL STATEMENTS (Continued) June 30, 2010 and 2009

NOTE 2: DEPOSITS AND INVESTMENTS (Continued)

Investments, at Fair Value

The District’s investments at June 30, 2010 and 2009, with a carrying amount of $4,107,392 and $12,331,968 are in U.S. Government and Federal Agency Securities and Tennessee Municipal Bonds which are insured or registered or securities held by the District or its agent in the District’s name. As required by GASB Statement No. 31, the carrying value of the investments are presented at fair value.

Investments - Deferred Compensation Plan

The District has a non-qualified deferred compensation plan for several key employees. The District has purchased whole life insurance policies that have cash surrender value invested in various mutual funds. These investments are carried at fair value and were $344,030 and $258,164 at year-end 2010 and 2009, respectively. According to GASB Statement No. 40, these investments are not classified for purposes of custodial credit risk disclosure.

Investment Income

Investment income for 2010 and 2009 consisted of the following:

2010 2009

Interest Income $ 225,279 $ 632,917 Interest Income on the Accreted Value of U.S. Treasury Strips 153,590 153,129 Unrealized Gains (Losses) – Net (21,274) (56,612)

Total $ 357,595 $ 729,434

-28- THE WEST KNOX UTILITY DISTRICT OF KNOX COUNTY

NOTES TO THE FINANCIAL STATEMENTS (Continued) June 30, 2010 and 2009

NOTE 2: DEPOSITS AND INVESTMENTS (Continued)

Investment Policies

State statute (TCA 7-82-108) authorizes the District to invest in obligations of the federal government, federal agency securities, State of Tennessee, state local government investment pool (SLGIP), municipal bonds issued in Tennessee, money market funds, certificates of deposit and other time deposits and repurchase agreements. The District may also invest in collateralized certificates of deposit, money market funds or repurchase agreements by banks pledging specific debt securities or those which participate in the state collateral pool.

Custodial Credit Risk: The District’s investment policy requires that investment securities be registered in the name of West Knox Utility District. All safekeeping receipts for investment instruments are held in accounts in the District’s name and all securities are registered in the District’s name.

Credit Risk: The District’s investment policy and state law limits investments in non-federal obligations to issuers that are rated in the two highest rating categories by a nationally recognized rating agency of such obligations.

Interest Rate Risk: The District’s Investment Policy limits its holdings to obligations having a final maturity on the date of investment of not to exceed forty-eight (48) months, or which may be tendered by the holder to the issuer thereof, or an agent of the issuer, at not less than forty-eight (48) month intervals. Investments are made based upon prevailing market conditions with the intent to hold the instrument until maturity. If the performance of the portfolio can be improved upon by the sale of an investment prior to maturity, the policy allows for the implementation of this strategy.

Concentration of Credit Risk: The District’s Investment Policy has no limit to its exposure to federal government and federal agency issuers as a whole or individually. All other obligations are limited with a maximum exposure of 25% of the entire investment portfolio of all funds.

The District’s Investment Policy does not require diversification among authorized investment broker-dealers. Presently, the District has selected Morgan Keegan & Company, Inc., the Bank of New York, and Regions Bank as authorized broker-dealers.

-29- THE WEST KNOX UTILITY DISTRICT OF KNOX COUNTY

NOTES TO THE FINANCIAL STATEMENTS (Continued) June 30, 2010 and 2009

NOTE 3: CAPITAL ASSETS

A summary of capital asset activity and changes in accumulated depreciation for the year ended June 30, 2010 was as follows: Deletions Balance Additions Retirements Balance 7/1/09 Transfers Transfers 6/30/10 Capital Assets Not Being Depreciated Water System: Land and Easements $ 220,980 $ - $ (5,400) $ 215,580 Construction in Progress 3,013,975 1,036,738 (3,003,448) 1,047,265 Wastewater System: Land and Easements 464,672 - - 464,672 Construction in Progress 2,694,123 3,174,908 (1,102,500) 4,766,531 Office Property, Equipment - Land 244,189 - - 244,189 Total Capital Assets Not Being Depreciated 6,637,939 4,211,646 (4,111,348) 6,738,237

Capital Assets Being Depreciated: Water System: Mains, Lines and Equipment 44,587,138 797,143 987,285 46,371,566 Treatment Facilities 13,369,446 102,130 633,804 14,105,380 Wastewater System: Collection Lines and Equipment 46,611,632 1,789,598 1,102,500 49,503,730 Treatment Facilities 20,897,022 241,357 - 21,138,379 Office Property and Equipment 3,757,407 293,503 (24,888) 4,026,022

Total Capital Assets Being Depreciated 129,222,645 3,223,731 2,698,701 135,145,077

Less Accumulated Depreciation Water System: Mains, Lines and Equipment (12,285,848) (1,365,006) 8,694 (13,642,160) Treatment Facilities (5,486,571) (326,912) - (5,813,483) Wastewater System: Collection Lines and Equipment (12,489,177) (1,146,473) - (13,635,650) Treatment Facilities (8,749,687) (736,391) - (9,486,078) Office Property and Equipment (2,466,051) (197,492) 24,888 (2,638,655)

Total Accumulated Depreciation (41,477,334) (3,772,274) 33,582 (45,216,026)

Total Capital Assets Being Depreciated – Net 87,745,311 (548,543) 2,732,283 89,929,051

Total Capital Assets $ 94,383,250 $ 3,663,103 $ (1,379,065) $ 96,667,288

Depreciation expense was $3,772,274 for 2010.

-30- THE WEST KNOX UTILITY DISTRICT OF KNOX COUNTY

NOTES TO THE FINANCIAL STATEMENTS (Continued) June 30, 2010 and 2009

NOTE 3: CAPITAL ASSETS

A summary of capital asset activity and changes in accumulated depreciation for the year ended June 30, 2009 was as follows: Deletions Balance Retirements Balance 7/1/08 Additions Transfers 6/30/09 Capital Assets Not Being Depreciated Water System: Land and Easements $ 220,980 $ - $ - $ 220,980 Construction in Progress 4,887,793 1,828,481 (3,702,299) 3,013,975 Wastewater System: Land and Easements 461,662 3,010 - 464,672 Construction in Progress 2,206,774 2,041,425 (1,554,076) 2,694,123 Office Property, Equipment - Land 244,189 - - 244,189 Total Capital Assets Not Being Depreciated 8,021,398 3,872,916 (5,256,375) 6,637,939

Capital Assets Being Depreciated: Water System: Mains, Lines and Equipment 40,092,586 943,431 3,551,121 44,587,138 Treatment Facilities 13,289,543 79,903 - 13,369,446 Wastewater System: Collection Lines and Equipment 42,878,017 2,179,539 1,554,076 46,611,632 Treatment Facilities 20,367,710 529,312 - 20,897,022 Office Property and Equipment 3,700,997 56,410 - 3,757,407

Total Capital Assets Being Depreciated 120,328,853 3,788,595 5,105,197 129,222,645

Less Accumulated Depreciation Water System: Mains, Lines and Equipment (11,393,644) (987,451) 95,247 (12,285,848) Treatment Facilities (5,163,921) (322,650) - (5,486,571) Wastewater System: Collection Lines and Equipment (11,447,272) (1,041,905) - (12,489,177) Treatment Facilities (8,043,647) (706,040) - (8,749,687) Office Property and Equipment (2,284,375) (181,676) - (2,466,051)

Total Accumulated Depreciation (38,332,859) (3,239,722) 95,247 (41,477,334)

Total Capital Assets Being Depreciated – Net 81,995,994 548,873 5,200,444 87,745,311

Total Capital Assets $ 90,017,392 $ 4,421,789 $ (55,931) $ 94,383,250

Depreciation expense was $3,239,722 for 2009.

-31- THE WEST KNOX UTILITY DISTRICT OF KNOX COUNTY

NOTES TO THE FINANCIAL STATEMENTS (Continued) June 30, 2010 and 2009

NOTE 4: CONSTRUCTION IN PROGRESS

Construction in progress at June 30, 2010 and 2009 consisted of:

2010 2009 Actual Remaining Actual Remaining Project To Date Commitment To Date Commitment

Joe Hinton Road – Sewer Replacement $ 30,800 $ 68,200 $ 4,900 $ 94,100

Ball Camp Road Water Line Relocation – Engineering 194,750 - 194,750 -

Computer System - - 42,144 47,856

Lovell Road Relocation - - 1,953,990 71,666

Ball Camp/Northampton – Wastewater Lines 1,742,890 1,246,520 - -

Beaver Ridge Booster Pump Station 289,036 34,854 43,669 26,153

Melton Lake WWTP – Engineering 2,749,991 71,700 2,743,593 -

Daugherty Water Plant Upgrades 552,050 817,950 451,600 918,400

Mobile Land Sewage Pump Station – Engineering 48,100 19,900 45,600 22,400

Other Small Projects 206,179 6,789 227,852 23,810

Total $ 5,813,796 $ 2,265,913 $ 5,708,098 $ 1,204,385

-32- THE WEST KNOX UTILITY DISTRICT OF KNOX COUNTY

NOTES TO THE FINANCIAL STATEMENTS (Continued) June 30, 2010 and 2009

NOTE 5: GAIN (LOSS) ON DISPOSAL AND IMPAIRMENT OF CAPITAL ASSETS

During 2010, the District abandoned approximately 500 feet of 12” ductile iron water line along Lovell Road. During 2009, the District abandoned approximately one mile of 12” ductile iron water line along Lovell Road. The gain (loss) on disposal and impairment of capital assets is as follows:

2010 2009 Sales Proceeds $ - $ - Less: Net Book Value of Capital Assets 4,891 (55,931)

Gains (Loss) $ (4,891) $ (55,931)

NOTE 6: REVENUE BONDS AND NOTES PAYABLE

A. Overview

Bonds and notes payable at June 30, 2010 and 2009, consisted of the following:

2010 2009

Water and Sewer Revenue Refunding Bonds, $8,779,460 Series 1997B $ - $ 87,450

Public Building Authority of Sevier County, Tennessee Loan Agreement $10,000,000 Dated August 1, 1997, Series 1997 I-A-1 - 10,000,000

Public Building Authority of Sevier County, Tennessee Loan Agreement $12,500,000 Dated July 1, 2000, Series 2000 II-D-2 - 12,500,000

Public Building Authority of Sevier County, Tennessee Loan Agreement $12,500,000 Dated Dec. 1, 2005, Series 2005 IV-C-1 - 12,500,000

-33- THE WEST KNOX UTILITY DISTRICT OF KNOX COUNTY

NOTES TO THE FINANCIAL STATEMENTS (Continued) June 30, 2010 and 2009

NOTE 6: REVENUE BONDS AND NOTES PAYABLE (Continued)

A. Overview (Continued)

2010 2009

Public Building Authority of Sevier County, Tennessee Loan Agreement $35,425,000 dated August 1, 2009, Series 2009 V-B-1 34,420,000 -

Rural Development Water and Sewer Revenue Bonds, $1,340,000 Series 2004 1,244,823 1,262,455

Note Payable – Knox County, Tennessee 1,700,000 1,700,000

Note Payable – State Revolving Funds 758,343 -

Total Bonds and Notes Payable 38,123,166 38,049,905

Less: Unamortized Discount - (79)

Bond Accretion – Series 1997B - 65,321

Deferred Cost – Defeased Bonds (595,663) (418) 37,527,503 38,114,729 Less: Current Portion (827,301) (510,097)

Total Long-Term Bonds and Notes $ 36,700,202 $ 37,604,632

The bond holders have a statutory mortgage lien upon the District as created by TCA § 7-82-101, and will remain in effect until the various bond issues are paid in full. There is a bond covenant with a minimum coverage ratio of 1.2, and as of June 30, 2010 and in 2009, the ratio was 2.11 and 1.68.

-34- THE WEST KNOX UTILITY DISTRICT OF KNOX COUNTY

NOTES TO THE FINANCIAL STATEMENTS (Continued) June 30, 2010 and 2009

NOTE 6: REVENUE BONDS AND NOTES PAYABLE (Continued)

B. Interest expense for 2010 and 2009 consisted of the following:

2010 2009

Interest Paid $ 1,267,782 $ 1,683,291 Accretion of Bond Interest – Series 1997B 12,229 37,299 Amortization of Bond Discounts 79 1,509 Amortization of Note Discounts 4,816 5,376 Paying Agent’s Fees and Service Charges 3,340 4,239 Amortization of Deferred Cost of Defeasement 39,702 11,878 Amortization of Bond Issuance Cost 26,341 38,376

Total $ 1,354,289 $ 1,781,968

C. Activity

Long-term debt activity during 2010 and 2009 was as follows:

2010 Balance Balance Due Within July 1, 2009 Additions Reductions June 30, 2010 One Year

Revenue Bonds $ 36,415,147 $ 35,437,308 $ 36,187,632 $ 35,664,823 $ 813,443 Notes Payable 1,700,000 758,343 - 2,458,343 13,858 Less: Deferred Cost of Defeasement (418) (595,663) (418) (595,663) - 38,114,729 35,599,988 36,187,214 37,527,503 827,301 Deferred Compensation Payable 258,164 85,866 - 344,030 -

Total $ 38,372,893 $ 35,685,854 $ 36,187,214 $ 37,871,533 $ 827,301

-35- THE WEST KNOX UTILITY DISTRICT OF KNOX COUNTY

NOTES TO THE FINANCIAL STATEMENTS (Continued) June 30, 2010 and 2009

NOTE 6: REVENUE BONDS AND NOTES PAYABLE (Continued)

C. Activity (Continued)

2009 Due Balance Balance Within July 1, 2008 Additions Reductions June 30, 2009 One Year

Revenue Bonds $ 37,893,232 $ 38,808 $ (1,516,893) $ 36,415,147 $ 510,097 Notes Payable 1,700,000 - - 1,700,000 - Less: Deferred Cost of Defeasement (12,296) - 11,878 (418) - 39,580,936 38,808 (1,505,015) 38,114,729 510,097 Deferred Compensation Payable 169,556 88,608 - 258,164 -

Total $ 39,750,492 $ 127,416 $ (1,505,015) $ 38,372,893 $ 510,097

The additions to long-term debt in 2010 and 2009 consisted of the following:

2010 2009

Bond Issuance – Series 2009 V-B-1 $ 35,425,000 $ - Note Payable – State Revolving Funds 758,343 - Deferred Compensation Payable 85,866 88,608 Deferred Cost of Defeasement (595,663) - Accretion of Bond Interest – Series 1997B 12,229 37,299 Amortization of Bond Discounts 79 1,509

Total $ 35,685,854 $ 127,416

-36- THE WEST KNOX UTILITY DISTRICT OF KNOX COUNTY

NOTES TO THE FINANCIAL STATEMENTS (Continued) June 30, 2010 and 2009

NOTE 6: REVENUE BONDS AND NOTES PAYABLE (Continued)

D. Debt Service

A summary of the debt service requirements for principal and interest at June 30, 2010, is as follows:

Fiscal Years Interest-Net Ending June 30, Principal of Swaps Total

2011 $ 827,301 $ 1,783,591 $ 2,610,892 2012 887,871 1,745,458 2,633,329 2013 929,238 1,702,340 2,631,578 2014 1,325,652 1,657,177 2,982,829 2015 672,113 1,609,716 2,281,829 2016-2020 5,944,297 7,488,347 13,432,644 2021-2025 7,039,205 6,118,938 13,158,143 2026-2030 8,932,692 4,218,948 13,151,640 2031-2035 11,137,477 1,807,052 12,944,529 2036-2040 300,266 62,374 362,640 2041-2042 127,054 5,353 132,407

Total $ 38,123,166 $ 28,199,294 $ 66,322,460

E. Description of the 1997B Bonds

The Series 1997B Water and Sewer Revenue Refunding Bonds were issued as fully registered bonds, without coupons, in accreted values at maturity of $5,000. The Series 1997B Bonds shall be dated their date of delivery and accrue interest from that date, compounded semi-annually on June 1 and December 1, commencing December 1, 1997, with a maturity on December 1, 2009. The variable rate has an approximate yield to maturity that ranges between 4.85% and 5.20%. These bonds are not subject to redemption prior to maturity. The entire series matured on December 1, 2009, and has been redeemed.

-37- THE WEST KNOX UTILITY DISTRICT OF KNOX COUNTY

NOTES TO THE FINANCIAL STATEMENTS (Continued) June 30, 2010 and 2009

NOTE 6: REVENUE BONDS AND NOTES PAYABLE (Continued)

F. Description of the Loan Payable to Public Building Authority of Sevier County Series 1997 I-A-1

The Public Building Authority of Sevier County (PBA) is a nonprofit public corporation organized for the purpose of financing any project eligible to be financed by obligations issued by any government or political subdivision in the State of Tennessee. The PBA has issued its Local Government Public Improvement Bonds (Revenue Program), Adjustable Rate Series I-A-1 to obtain funds to provide certain financing for West Knox Utility District under the loan agreement dated August 1, 1997. Interest is paid on the first day of each March, June, September and December. Loan principal payments begin June 1, 2010 and continue through June 1, 2022. Interest rates are determined weekly by the remarketing agent as the rate equal to the lowest rate which would produce as nearly as possible a par bid for the bonds in the secondary market on the first day of the weekly rate period. The maximum rate is the lessor of (a) the highest rate that may be borne by the Series I-A-1 Bonds under state law, or (b) 15% per year. As of June 30, 2010 and 2009, the interest and remarketing cost resulted in an effective interest rate of 2.0% and 2.10%, respectively. These bonds were refunded through the issuance of PBA of Sevier County Series V-B-1 Bonds in August 2009.

G. Description of the Loan Payable to Public Building Authority of Sevier County Series 2000 II-D-2

The Public Building Authority of Sevier County has issued its Local Government Public Improvement Bonds, Adjustable Rate Series II-D-2. The funds are to provide the District financing for certain water and sewer improvement projects under the agreement dated July 13, 2000. Interest payments are made the first of the month each for March, June, September and December. Interest rates are determined weekly by the remarketing agent as the rate equal to the lowest rate which would produce as nearly as possible a par bid for the bonds in the secondary market on the first day of the weekly rate period. The maximum rate is the lessor of 15% per annum or the maximum lawful rate which is the highest interest rate that may be borne by the Series II-D-2 Bonds in effect and applicable from time to time under applicable law. The loan principal payments begin June 1, 2026 and continue through June 1, 2030.

Under its loan agreement, the Public Building Authority, at the request of the District, has entered into an interest rate swap agreement for all of the outstanding Local Government Improvement Revenue Bonds, Series II-D-2. Based on the loan agreement and swap agreement, the District owes interest at an effective fixed rate of 2.95% and 5.78% at June 30, 2010 and 2009, respectively (see Note 7).

-38- THE WEST KNOX UTILITY DISTRICT OF KNOX COUNTY

NOTES TO THE FINANCIAL STATEMENTS (Continued) June 30, 2010 and 2009

NOTE 6: REVENUE BONDS AND NOTES PAYABLE (Continued)

G. Description of the Loan Payable to Public Building Authority of Sevier County Series 2000 II-D-2 (Continued)

The District, through the Bond Trustee, continues to pay interest to the bondholders at the adjustable rate provided by the bonds. However, during the term of the swap agreement, the District effectively pays a fixed rate on the debt plus or minus the difference between the variable interest due the bondholders and the variable rate received from the counterparty. The District would be exposed to variable rates if the counterparty to the interest rate swap agreement defaults, if the variable rate received from the counterparty is less than that due to bondholders, or if the swap is terminated. The Series II-D-2 Bonds are pre-payable at any time with 30 days advance notice. Other than the net interest expenditures resulting from this agreement, no other amounts are recorded in the financial statements. On June 15, 2006, the District amended the Swap Agreement from 70% of the three month London Interbank Offered Rate (LIBOR) to 62% of the five year LIBOR which became effective December 1, 2006. These bonds were refunded through the issuance of PBA Sevier County Series V-B-1 Bonds in August 2009.

H. Description of the Loan Payable to Public Building Authority of Sevier County Series 2005 IV-C-1

The Public Building Authority of Sevier County has issued its Local Government Public Improvement Bonds, Series IV-C-1 (Auction Rate Securities). The funds are to provide the District financing for certain water and sewer improvement projects under the agreement dated December 21, 2005. Interest payments are made the first of the month each for March, June, September and December. Interest is calculated on the outstanding balance of the bonds using the auction rate in effect during the auction period. The auction rate security (ARS) interest rate is estimated using five seven-day periods based upon the auction rate in effect on the date of computation plus 150 basis points. The maximum ARS rate is calculated as the lessor of the applicable percentage rate of (a) the after-tax equivalent rate of the “AA” composite commercial paper rate, (b) the Bond Market Association (BMA) rate or 15% per annum. During fiscal years 2010 and 2009, the average interest rates were 5.06% and 5.32%, respectively. The loan principal payments begin June 1, 2023 and continue through June 1, 2035. These bonds were refunded through the issuance of PBA Sevier County Series V-B-1 Bonds in August 2009.

-39- THE WEST KNOX UTILITY DISTRICT OF KNOX COUNTY

NOTES TO THE FINANCIAL STATEMENTS (Continued) June 30, 2010 and 2009

NOTE 6: REVENUE BONDS AND NOTES PAYABLE (Continued)

I. Description of the Loan Payable to Public Building Authority of Sevier County Series 2009 V-B-1

The Public Building Authority of Sevier County has issued its Local Government Public Improvement Bonds, Series 2009 V-B-1. The bonds are to provide refunding of Series 1997 I-A-1, 2000 II-D-2, and 2005 IV-C-1 Bonds. Interest payments are made the first of each month. Monthly payments include a reimbursement to the letter of credit provider. One monthly payment each quarter includes additional interest and swap payments and fees, in addition to the LOC reimbursement. The effective interest rate of 2010 was 3.4% and the estimated rate for 2011 is 3.5%. The loan principal payments began June 1, 2010, and annual principal payments due June 1 of each year continue through 2035. The current refunding resulted in a difference between the reacquisition price and the net carrying amount of the old debt of $634,946. This difference is reported in the accompanying financial statements as a deduction from bonds payable and is being charged to operations through the year 2034 using the proportionate-to-stated interest requirements method. The bond issue costs are amortized over the life of the bonds using the proportionate-to-stated interest requirements method. Although the reacquisition price exceeded the net carrying amount of the old debt, the District reduced its aggregate debt service payments by $1,237,925. No economic gain or loss was obtained since the transaction exchanged old variable rate debt with new variable rate debt. The amount of the reacquisition price recorded as part of the bond interest expense was $39,283 during 2010.

J. Description of the 2004 Rural Development Bonds

The Series 2004 Water and Sewer Revenue Bonds dated June 23, 2004 were issued by the U.S. Department of Agriculture - Rural Development in the amount of $1,340,000. The Bonds carry an interest rate of 4.375% and are payable in 456 monthly installments of $6,044 beginning July 23, 2004 and ending on June 23, 2042.

-40- THE WEST KNOX UTILITY DISTRICT OF KNOX COUNTY

NOTES TO THE FINANCIAL STATEMENTS (Continued) June 30, 2010 and 2009

NOTE 6: REVENUE BONDS AND NOTES PAYABLE (Continued)

K. Note Payable - Knox County

Knox County agreed to participate with the District by providing funds to expedite utility relocation necessary for construction of improved roadways within the northwest portion of the County. The District has received a total of $2,000,000 from the County.

The District is obligated to repay the funds including an additional $140,000 to reimburse the County for administrative costs associated with the agreement. The funds are to be reimbursed as follows:

Fiscal Years Ending June 30, 2010

2014 $ 350,000 2019 1,490,000

Total $ 1,840,000

The District has accrued a portion of the $140,000 as interest payable. The amount accrued for 2010 and 2009 was $99,596 and $94,780, respectively.

L. Note Payable – State Revolving Fund

The District entered into an agreement with the Tennessee Department of Environment and Conservation’s State Revolving Fund Loan Program on September 29, 2009. The agreement was to provide financing for the wastewater collection system expansion along Ball Camp Road and Northampton Commons areas. The total project is estimated at $3,658,096, of which $1,829,048 will be a loan from the State Revolving Fund and $1,829,048 will be provided by the American Recovery and Reinvestment Act of 2009 (ARRA). The funds provided by ARRA consist of $1,463,238 in debt forgiveness and $365,810 as a note payable. Interest begins after each disbursement request is made by the District as the project progresses at 1.5%. Principal payments begin within 90 days after the project is complete or within 120 days after 90% of the project loan has been disbursed, whichever event occurs earlier. The note payable will be amortized over 20 years. The project is expected to be completed in February 2011. The amount of note payable accumulated as of June 30, 2010 was $758,343.

-41- THE WEST KNOX UTILITY DISTRICT OF KNOX COUNTY

NOTES TO THE FINANCIAL STATEMENTS (Continued) June 30, 2010 and 2009

NOTE 7: INTEREST RATE SWAP

Under its loan agreement, the Public Building Authority of Sevier County, TN (the “Authority”), at the request of the District, has entered into an interest rate swap agreement for all of the outstanding Local Government Improvement Revenue Bonds, Series 2000 II-D-2, which began on July 13, 2000, and matures on June 1, 2028. The District has one interest rate swap classified as a hedging derivative instrument. The hedging derivative is an effective hedge using the regression analysis method. The regression analysis method measures the statistical relationship between the fair value or cash flows of the potential hedging derivative and the hedgeable item.

A. Objective of the Interest Rate Swap

In order to protect against the potential of rising interest rates and to balance its mixture of variable and fixed rate debt, the District requested the Authority, on its behalf, to enter into an interest rate swap in connection with its $12.5 million Series 2000 II-D-2 variable- rate bonds. The intention of the swap was to effectively change the District’s variable interest rate on the bonds to a synthetic fixed rate. The Series II-D-2 bonds have since been refunded with a portion of the proceeds of the Series 2009 V-B-1 bonds and the interest rate swap is now novated with the Series 2009 V-B-1 bonds.

B. Terms

Under the swap, the Authority pays the counterparty a fixed payment of 4.4 percent and receives a variable payment computed as 63.5 percent of the five-year London Interbank Offered Rate (LIBOR). The swap has a notional amount of $12.5 million, and the associated variable-rate bond has a $12.5 million principal amount. At no time will the notional amount or interest rate swap agreement exceed the outstanding principal of the Series 2009 V-B- 1 Bonds. As of June 30, 2010 and 2009, rates were as follows:

2010 2009

Interest Rate Swap: Fixed Payment to Counterparty 4.40% 4.40% Variable Payment from Counterparty (1.71) (1.87)

Net Interest Rate Swap Payments 2.69 2.53 Variable-Rate Bond Coupon Payments .26 3.25

Synthetic Interest Rate on Bonds 2.95% 5.78%

-42- THE WEST KNOX UTILITY DISTRICT OF KNOX COUNTY

NOTES TO THE FINANCIAL STATEMENTS (Continued) June 30, 2010 and 2009

NOTE 7: INTEREST RATE SWAP (Continued)

C. Fair Value

As of June 30, 2010 and 2009, the swap had a negative fair value of $(2,900,557) and $(2,337,856), respectively. The fair value is reported on the balance sheet under non-current assets and liabilities. The negative fair value of the swap may be countered by reductions in total interest payments required under the variable-rate bond, creating lower synthetic rates. Because the rates on the District’s variable-rate bonds adjust to changing interest rates, the bonds do not have a corresponding fair value increase. The fair value model calculates future cash flows by projecting forward rates and then discounts those cash flows at their present value.

D. Credit Risk

As of June 30, 2010 and 2009, the District was not exposed to credit risk because the swap had a negative fair value. However, should interest rates change and the fair value of the swap becomes positive, the District would be exposed to credit risk in the amount of the derivative’s fair value. The swap counterparty, Morgan Keegan Financial Products (“MKFP”) was rated “A+” by Standard and Poor’s as of June 30, 2010, with its Credit Support Provider, Deutsche Bank, rated Aa3/A+/AA- by Moody’s, Standard and Poor’s, and Fitch, respectively.

E. Termination Risk

The derivative contract uses the International Swap Dealers Association Master Agreement, which includes standard termination events, such as failure to pay and bankruptcy. The Schedule to the Master Agreement includes an “additional termination provision.” The Authority or the counterparty may terminate the swap if the other party fails to perform under the terms of the contract. If the swap is terminated, the variable-rate bond would no longer carry a synthetic interest rate. Also, if at the time of termination the swap has a negative fair value, the Authority would be liable to the counterparty for a payment equal to the swap’s fair value. Likewise, if the swap has a positive fair value at termination, the counterparty would be liable to the Authority for a payment equal to the swap’s fair value.

-43- THE WEST KNOX UTILITY DISTRICT OF KNOX COUNTY

NOTES TO THE FINANCIAL STATEMENTS (Continued) June 30, 2010 and 2009

NOTE 7: INTEREST RATE SWAP (Continued)

F. Interest Rate Risk

The District is exposed to interest rate risk on the interest rate swap. The bonds’ variable rates have historically approximated the Securities Industry and Financial Markets Association Index (SIFMA). As the SIFMA swap index decreases, the District’s net payments on the swap increases.

G. Basis Risk

As noted above, the swap exposes the District to basis risk should BMA increase to above 63.5% of LIBOR, thus increasing the synthetic rate on the bonds. If a change occurs that results in the BMA to be below 63.5% of LIBOR, then the synthetic rate on the bonds will decrease.

H. Rollover Risk

The District is not exposed to rollover risk because the maturity dates for the hedged variable rate bonds and the interest rate swap agreement are the same – June 1, 2030.

-44- THE WEST KNOX UTILITY DISTRICT OF KNOX COUNTY

NOTES TO THE FINANCIAL STATEMENTS (Continued) June 30, 2010 and 2009

NOTE 7: INTEREST RATE SWAP (Continued)

I. Swap Payments and Associated Debt

As of June 30, 2010, debt service requirements of the variable-rate debt and net swap payments, assuming current interest rates remain the same, for their term were as follows. As rates vary, variable-rate bond interest payments and net swap payments will vary.

Net Interest Fiscal Year Variable Rate Bonds Rate Swap Ending June 30 Principal Interest Payment Total

2011 $ - $ 32,500 $ 336,164 $ 368,664 2012 - 32,500 336,164 368,664 2013 - 32,500 336,164 368,664 2014 - 32,500 336,164 368,664 2015 - 32,500 336,164 368,664 2016-2020 - 162,500 1,680,819 1,843,319 2021-2025 - 162,500 1,680,819 1,843,319 2026-2030 12,500,000 106,782 1,104,498 13,711,280

$ 12,500,000 $ 594,282 $ 6,146,956 $ 19,241,238

-45- THE WEST KNOX UTILITY DISTRICT OF KNOX COUNTY

NOTES TO THE FINANCIAL STATEMENTS (Continued) June 30, 2010 and 2009

NOTE 8: DEFEASANCE OF DEBT

A. Description of the 1997 Defeasance

In 1997, there was an advance refunding of debt with defeasance under a refunding trust agreement with First Tennessee Bank. The following debt issues were considered extinguished:

Principal Amount Outstanding June 30, 2010 June 30, 2009

Water and Sewer Refunding and Improvement Revenue Bonds, Series 1991B – Serial Capital Appreciation Bonds (Face Value) $ 504,307 $ 1,044,538

B. Description of the 1997B Partial Defeasance

On November 17, 2005 the District made a partial cash defeasance of the Series 1997B Water and Sewer Revenue Refunding Bonds. The District placed $2,747,851 of funds with the escrow agent which was used to purchase State and Local Government Series Securities (SLGS) for the purpose of generating resources for future debt service payments of $3,000,000 for bond maturities of $1,000,000 each on December 1, 2006, December 1, 2007 and December 1, 2008. As a result, the refunded bonds are considered to be defeased and the liability has been removed from the District’s balance sheets. The escrowed securities exceeded the net carrying amount of the old debt by $35,091. This is being amortized over the remaining life of the refunded debt. The refunding was undertaken to reduce annual debt service payments over the next three years by $1,000,000 per year. On September 7, 2007, the District made an additional partial cash defeasance and placed $2,000,000 of funds with the escrow agent to pay future debt service payments of $165,000 on December 1, 2009.

-46- THE WEST KNOX UTILITY DISTRICT OF KNOX COUNTY

NOTES TO THE FINANCIAL STATEMENTS (Continued) June 30, 2010 and 2009

NOTE 9: NET ASSETS

Net assets represent the difference between assets and liabilities. The net assets for 2010 and 2009 were as follows:

2010 2009

Invested in Capital Assets, Net of Related Debt: Net Property, Plant and Equipment $ 96,667,288 $ 94,383,250 Less: Revenue Bonds Payable (35,664,823) (36,415,147) Less: Note Payable (2,458,343) (1,700,000) Less: Reclassification from Restricted for Capital Activity (236,680) (197,755) 58,307,442 56,070,348

Restricted for Capital Activity: Less: Accounts Payable for Capital Assets (236,680) (197,755) Reclassified to Invested in Capital Assets – Net of Related Debt 236,680 197,755 - -

Restricted for Debt Service: Restricted Cash and Cash Equivalents 300,096 332,509 Restricted Investments 2,617,233 2,565,132 Less: Accrued Bond Interest Payable (182,148) (183,050) 2,735,181 2,714,591

Unrestricted 16,298,170 15,410,906

Total $ 77,340,793 $ 74,195,845

-47- THE WEST KNOX UTILITY DISTRICT OF KNOX COUNTY

NOTES TO THE FINANCIAL STATEMENTS (Continued) June 30, 2010 and 2009

NOTE 10: RETIREMENT PLAN

A. Plan Description

The West Knox Utility District Defined Benefit Pension Plan (the Plan) is a single-employer qualified, noncontributory defined benefit retirement plan covering all full-time employees who have been employed for six months, and are 21 years old. The Plan is managed by Metropolitan Life Insurance Company under a Group Annuity Policy. Substantially all of the employees are participants in the plan. Benefits are determined by a formula of 2% per year of service times the compensation base, limited to 100%. The compensation base is defined as the highest consecutive five-year average salary over all years of service. The normal form of benefit is a single life annuity (Qualified Joint and Survivor Annuity is the required standard option). Vesting begins at 20% per year after one year of service. An employee becomes fully vested after five years of service with a normal retirement age of 65. The Plan does not issue separate financial statements. The Board of Commissioners can amend or change the Plan.

B. Funding Policy

The contribution requirement is determined annually by actuarial valuation. It is the intention of the District to pay the full cost of the plan as determined by actuarial valuation; the contribution rates were 16.46% and 13.89% of annual covered payroll for 2010 and 2009, respectively. Contributions are made monthly.

-48- THE WEST KNOX UTILITY DISTRICT OF KNOX COUNTY

NOTES TO THE FINANCIAL STATEMENTS (Continued) June 30, 2010 and 2009

NOTE 10: RETIREMENT PLAN (Continued)

C. Annual Pension Cost and Net Pension Obligation

The District's annual pension cost and net pension obligation for the current year and prior year was as follows:

2010 2009

Annual Required Contribution $ 447,055 $ 466,553

Interest on Net Pension Obligation 8,502 1,602

Adjustment to Annual Required Contribution (10,526) (1,764)

Annual Pension Cost 445,031 466,391

Contributions Made 451,534 372,854

Increase (Decrease) in Net Pension Obligation (6,503) 93,537

Net Pension (Asset) Obligation, Beginning of Year 117,263 23,726

Net Pension (Asset) Obligation, End of Year $ 110,760 $ 117,263

The annual required contribution for the current year was determined as part of the July 1, 2009 actuarial valuation using the aggregate actuarial cost method. The actuarial assumptions for fiscal year 2010 and 2009 included a pre-retirement interest rate of 7.25%, post- retirement rate of 7.25%, and salary increase assumption of 2% per year. Plan investments are in corporate and government bonds and marketable equity securities. For valuation purposes, assets were valued at market value. Under the aggregate actuarial cost method, there is no separate unfunded actuarial liability to be funded.

The plan uses the aggregate actuarial cost method which does not identify or separately amortize unfunded actuarial accrued liabilities. Information about the plan’s funded status and funding progress has been prepared using the entry age actuarial cost method for that purpose and that information presented is intended to serve as a surrogate for the funded status and funding progress of the plan.

-49- THE WEST KNOX UTILITY DISTRICT OF KNOX COUNTY

NOTES TO THE FINANCIAL STATEMENTS (Continued) June 30, 2010 and 2009

NOTE 10: RETIREMENT PLAN (Continued)

C. Annual Pension Cost and Net Pension Obligation (Continued)

The District has recorded a net pension liability of $110,760 and $117,263 at June 30, 2010 and 2009, respectively.

Three-Year Trend Information

Annual Net Fiscal Pension Percentage Pension Year Cost Of APC (Asset) Ending (APC) Contributed Obligation

6-30-10 $ 445,031 101.46% $ 110,760

6-30-09 466,391 79.94% 117,263

6-30-08 406,715 97.87% 23,726

D. Funding Status and Progress

Actuarial Valuation Date 7/1/2009 7/1/2008 7/1/2007

Actuarial Value of Assets $ 2,678,751 $ 2,859,720 $ 2,752,981

Actuarial Accrued Liability 4,822,209 5,071,461 4,503,149

Total Unfunded Actuarial Accrued Liability $ 2,143,458 $ 2,211,741 $ 1,750,168

Funded Ratio (Actuarial Value of Assets as a Percentage of the Actuarial Accrued Liability) 56% 56% 61%

Annual Covered Payroll $ 2,469,788 $ 2,244,806 $ 2,141,834

Ratio of the Unfunded Actuarial Liability to Annual Covered Payroll 87% 99% 82%

-50- THE WEST KNOX UTILITY DISTRICT OF KNOX COUNTY

NOTES TO THE FINANCIAL STATEMENTS (Continued) June 30, 2010 and 2009

NOTE 10: RETIREMENT PLAN (Continued)

D. Funding Status and Progress (Continued)

The Schedule of funding progress, presented as required supplementary information (RSI) following the notes to the financial statements, presents multiyear trend information about whether the actuarial value of plan assets are increasing or decreasing over time relative to the actuarial accrued liability for benefits.

NOTE 11: DEFERRED COMPENSATION PLAN

The West Knox Utility District Deferred Compensation Plan (the Plan) is a Non- Qualified Defined Contribution Deferred Compensation Plan for certain key employees. Under the Plan, the District will pay 10% of the employee’s annual base salary into life insurance policies. The Plan is administered by New England Financial, a MetLife affiliate. If the employee remains employed until age 65 and retires, the employee will receive the cash value of the policy. If the employee is deceased before age 65, his estate will receive the cash surrender value of the underlying life insurance. If the employee leaves the District’s employment before age 65, no benefits are paid. The District is the applicant, owner, and beneficiary of the insurance policies used as a funding vehicle for this benefit. During 2010 and 2009, the District paid and expensed $84,773 and $78,469, respectively, in premiums for the insurance which has an underlying cash value of $344,030 and $258,164 at June 30, 2010 and 2009, respectively. The assets are reported as restricted assets and the obligation is reported as a non-current liability payable from restricted investments. The Board of Commissioners can amend or change the Plan.

NOTE 12: NET WATER REVENUES

Net Water revenues earned during 2010 and 2009 was as follows:

2010 2009

Gross Water Revenues $ 5,911,663 $ 6,129,599 Less: Provision for Bad Debt Expense (70,984) (72,800)

Total Water Revenues - Net $ 5,840,679 $ 6,056,799

-51- THE WEST KNOX UTILITY DISTRICT OF KNOX COUNTY

NOTES TO THE FINANCIAL STATEMENTS (Continued) June 30, 2010 and 2009

NOTE 13 RISK MANAGEMENT

The District is exposed to various risks of losses related to torts; theft of damage to, and destruction of assets; injuries to employees; and natural disasters. The District carries commercial insurance for these risks. Settled claims resulting from these risks have not exceeded commercial insurance coverage in any of the past three years.

NOTE 14: ECONOMIC CONCENTRATION

The majority of the District's customers reside in the western portion of Knox County, Tennessee. A significant number of the District's customers are employed with various federal government contractors located in Oak Ridge, Tennessee. These contractors operate three U.S. Department of Energy (DOE) facilities that are vital to research and development, national defense and waste management. DOE operations are contingent upon annual U.S. congressional appropriations.

The District's 10 largest customers approximate 11% and 10% of water and wastewater sales during 2010 and 2009, respectively. These customers are primarily rental properties, various corporations and a hospital.

NOTE 15: SUBSEQUENT EVENTS

On August 26, 2010, the Board of Commissioners approved a resolution for the issuance of $35 million in bonds for capital improvements to the Daugherty Water Treatment Plant.

-52- REQUIRED SUPPLEMENTARY INFORMATION THE WEST KNOX UTILITY DISTRICT OF KNOX COUNTY

SCHEDULE OF EMPLOYER PENSION CONTRIBUTIONS Last Ten Fiscal Years

Percentage of Fiscal Annual Required Contributions Contributions/ Year Contribution (ARC) Made ARC

2001 $ 213,165 $ 208,701 97.9

2002 230,033 217,088 94.4

2003 266,340 277,514 104.2

2004 283,263 278,111 98.2

2005 314,155 311,057 99.0

2006 335,596 331,963 98.9

2007 368,708 363,766 98.7

2008 406,818 398,067 97.8

2009 466,553 372,854 79.9

2010 447,055 451,534 101.0

-53- THE WEST KNOX UTILITY DISTRICT OF KNOX COUNTY

SCHEDULE OF EMPLOYER PENSION FUNDING PROGRESS Last Five Valuation Dates

Actuarial Valuation Date 7/1/2009 7/1/2008 7/1/2007 7/1/2006 7/1/2005

Actuarial Value of Assets $ 2,678,751 $ 2,859,720 $ 2,752,981 $ 2,296,050 2,238,039

Actuarial Accrued Liability 4,822,209 5,071,461 4,503,149 3,961,457 3,732,662

Total Unfunded Actuarial Accrued Liability $ 2,143,458 $ 2,211,741 $ 1,750,168 $ 1,665,407 1,494,623

- Funded Ratio (Actuarial Value of 5

4 Assets as a Percentage of the Actuarial - Accrued Liability) 56% 56% 61% 58% 60%

Annual Covered Payroll $ 2,469,788 $ 2,244,806 $ 2,141,834 $ 2,017,957 1,860,402

Ratio of the Unfunded Actuarial Liability to Annual Covered Payroll 87% 99% 82% 83% 80%

Note: Data prior to the July 1, 2005 actuarial valuation is unavailable. OTHER SUPPLEMENTARY INFORMATION THE WEST KNOX UTILITY DISTRICT OF KNOX COUNTY

SCHEDULE OF EXPENDITURES OF FEDERAL AND STATE AWARDS For the Year Ended June 30, 2010

Accrued Expenditures/ Accrued CFDA (Deferred) Revenues Amounts (Deferred) Grantor Agency Program Name Number 7/1/2009 Received Earned 6/30/2010

FEDERAL AWARD Direct Federal Loan: Environmental Protection Agency Through the TN Capitalization Dept. of Environment Grants for Clean Water and Conservation. State Revolving Funds Loan (ARRA) 66.458 * $ - $ - $ 126,391 $ 126,391 Principal Forgiveness (ARRA) 66.458 * - - 505,562 505,562 -

5 Total 631,953 631,953 5 - STATE AWARD Direct State Loan: TN Dept of Environment Capitalization Grants for and Conservation Clean Water State Revolving Funds Loan (Non-ARRA) N/A - - 631,952 631,952

TOTAL FEDERAL AND STATE AWARDS $ - $ - $ 1,263,905 $ 1,263,905

* Major Federal Award

Note: Significant Accounting Policies

The Schedule of Federal and State Awards includes the grant activity of the District and is presented on the accrual basis of accounting. The information in this schedule is presented in accordance with requirements of OMB Circular A-133, Audits of States, Local Governments, and Non-Profit Organizations. Therefore, some amounts presented in this schedule may differ from amounts presented in, or used in, the preparation of the basic financial statements. THE WEST KNOX UTILITY DISTRICT OF KNOX COUNTY

SCHEDULE OF DEBT SERVICE REQUIREMENTS June 30, 2010

$1,340,000 Rural $35,425,000 Public Development Water & Fiscal Improvement Revenue Bonds Sewer Revenue Bonds Year Series 2009 V-B-1 Series 2004 Total Revenue Bonds Ending Total Total June 30, Principal Interest Principal Interest Principal Interest

2011 $ 795,000 $ 1,721,000 $ 18,443 $ 54,094 $ 813,443 $ 1,775,094 2012 835,000 1,681,250 19,257 53,271 854,257 1,734,521 2013 875,000 1,639,500 20,117 52,411 895,117 1,691,911 2014 920,000 1,595,750 21,015 51,513 941,015 1,647,263 2015 615,000 1,549,750 21,953 50,575 636,953 1,600,325 2016 995,000 1,519,000 22,933 49,595 1,017,933 1,568,595 2017 1,045,000 1,469,250 23,957 48,571 1,068,957 1,517,821 2018 1,095,000 1,417,000 25,026 47,502 1,120,026 1,464,502 2019 1,150,000 1,362,250 26,143 46,385 1,176,143 1,408,635 2020 - 1,304,750 27,310 45,218 27,310 1,349,968 2021 1,210,000 1,304,750 28,529 43,999 1,238,529 1,348,749 2022 1,270,000 1,244,250 29,803 42,725 1,299,803 1,286,975 2023 1,335,000 1,180,750 31,133 41,395 1,366,133 1,222,145 2024 1,400,000 1,114,000 32,523 40,005 1,432,523 1,154,005 2025 1,470,000 1,044,000 33,974 38,554 1,503,974 1,082,554 2026 1,545,000 970,500 35,491 37,037 1,580,491 1,007,537 2027 1,620,000 893,250 37,075 35,453 1,657,075 928,703 2028 1,700,000 812,250 38,730 33,798 1,738,730 846,048 2029 1,785,000 727,250 40,459 32,069 1,825,459 759,319 2030 1,875,000 638,000 42,265 30,263 1,917,265 668,263 2031 1,970,000 544,250 44,152 28,376 2,014,152 572,626 2032 2,070,000 445,750 46,123 26,405 2,116,123 472,155 2033 2,170,000 342,250 48,181 24,347 2,218,181 366,597 2034 2,280,000 233,750 50,332 22,196 2,330,332 255,946 2035 2,395,000 119,750 52,579 19,949 2,447,579 139,699 2036 - - 54,926 17,602 54,926 17,602 2037 - - 57,378 15,150 57,378 15,150 2038 - - 59,939 12,589 59,939 12,589 2039 - - 62,614 9,914 62,614 9,914 2040 - - 65,409 7,119 65,409 7,119 2041 - - 68,329 4,199 68,329 4,199 2042 - - 58,725 1,154 58,725 1,154

Total $ 34,420,000 $ 26,874,250 $ 1,244,823 $ 1,063,433 $ 35,664,823 $ 27,937,683 Fiscal State Revolving Fund Year Knox County Note Payable Note Payable Total Ending Debt June 30, Principal Interest Principal Interest Service

2011 $ - $ - $ 13,858 $ 8,497 $ 2,610,883 2012 - - 33,614 10,937 2,633,329 2013 - - 34,121 10,429 2,631,578 2014 350,000 - 34,637 9,914 2,982,829 2015 - - 35,160 9,391 2,281,829 2016 - - 35,691 8,860 2,631,079 2017 - - 36,230 8,321 2,631,329 2018 - - 36,777 7,773 2,629,078 2019 1,350,000 140,000 37,333 7,218 4,119,329 2020 - - 37,897 6,654 1,421,829 2021 - - 38,469 6,082 2,631,829 2022 - - 39,050 5,501 2,631,329 2023 - - 39,640 4,911 2,632,829 2024 - - 40,238 4,312 2,631,078 2025 - - 40,846 3,704 2,631,078 2026 - - 41,463 3,087 2,632,578 2027 - - 42,089 2,461 2,630,328 2028 - - 42,725 1,825 2,629,328 2029 - - 43,370 1,180 2,629,328 2030 - - 44,025 525 2,630,078 2031 - - 11,110 29 2,597,917 2032 - - - - 2,588,278 2033 - - - - 2,584,778 2034 - - - - 2,586,278 2035 - - - - 2,587,278 2036 - - - - 72,528 2037 - - - - 72,528 2038 - - - - 72,528 2039 - - - - 72,528 2040 - - - - 72,528 2041 - - - - 72,528 2042 - - - - 59,888

Total $ 1,700,000 $ 140,000 $ 758,343 $ 121,611 $ 66,322,460

-56- THE WEST KNOX UTILITY DISTRICT OF KNOX COUNTY

SCHEDULE OF WATER RATES AND STATISTICS June 30, 2010 and 2009

As of June 30, 2010 and 2009, the District serviced water and wastewater customers as 1. shown below. Hotels, motels and apartments are billed on a commercial per unit basis.

Water Billing Wastewater Billing Customers Units Customers Units 2010 Residential 20,053 21,405 15,681 16,004 Commercial 740 748 482 487 Apartments 47 3,174 40 3,167 Motels and Hotels 5 608 5 608

TOTAL 20,845 25,935 16,208 20,266

2009 Residential 19,455 21,667 15,059 14,890 Commercial 722 787 467 497 Apartments 43 2,584 34 2,563 Motels and Hotels 5 637 5 637

TOTAL 20,225 25,675 15,565 18,587

2. Monthly Water Rate Schedule - (Effective April 1, 2010).

(a) Residential Water Rate:

1st 1,500 Gal. - $10.55 minimum bill All over 1,500 Gal. - $3.21 per 1,000 Gal.

-57- THE WEST KNOX UTILITY DISTRICT OF KNOX COUNTY

SCHEDULE OF WATER RATES AND STATISTICS (Continued) June 30, 2010 and 2009

2. Monthly Water Rate Schedule - (Effective April 1, 2010) - Continued

1st 1,500 Gal. - $14.25 minimum bill All over 1,500 Gal. - $3.21 per 1,000 Gal.

(d) Hotel, Motel per Unit or Space:

1st 1,500 Gal. - $4.36 minimum bill All over 1,500 Gal. - $3.21 per 1,000 Gal.

3. Monthly Wastewater Rate Schedule – (Effective April 1, 2010)

(a) Residential Rate:

1st 1,500 Gal. - $16.27 minimum bill Next 11,500 Gal. - $3.84 per 1,000 Gal. All over 13,000 Gal. - No Charge

(b) Commercial, Municipal, Public Schools, Hospital Rate:

1st 1,500 Gal. - $24.80 minimum bill All over 1,500 Gal. - $3.84 per 1,000 Gal.

1st 1,500 Gal. - $10.92 minimum bill All over 1,500 Gal. - $3.84 per 1,000 Gal.

(d) Industrial Rate determined on an individual basis.

2010 2009 4. Wastewater Treated (Per Thousand Gallons) 1,484,550 1,310,830

-58- THE WEST KNOX UTILITY DISTRICT OF KNOX COUNTY

SCHEDULE OF INSURANCE COVERAGE June 30, 2010

Coverage Selective Insurance Company of South Carolina Commercial General Liability $ 2,000,000 Products Liability and Completed Operations 2,000,000 Personal and Advertising Injury 1,000,000

Selective Insurance Company of South Carolina Comprehensive Automobile Liability: Bodily Injury and Property Damage 1,000,000 Medical Payments (Private Passenger Autos) 5,000 Uninsured Motorist 1,000,000 Comprehensive (Designated Vehicles) – Deductible 500 – 2,000 Collision (Designated Vehicles) – Deductible 500 – 2,000

Selective Insurance Company of South Carolina Fire and Extended Coverage: Office Building and Service Shop: Lovell Road – Co-insurance 80% 1,234,000 Personal Property – Co-insurance 80% 180,000 West Top Trail Tanks 1,350,000 Sewer Plant Lab – Byington Solway Industrial Park – Co-insurance 80% 1,811,710 Personal Property – Co-insurance 80% 150,000 Taylor’s View Road Tank 750,000 Water Treatment Plant – Henderson – Co-insurance 80% 750,000 Personal Property – Co-insurance 80% 100,000 Water Treatment Plant – Williams Bend Road – Co-insurance 80% 1,500,000 Personal Property – Co-insurance 80% 75,000 Chemical Storage Building – Williams Bend Road – Co-insurance 80% 200,000 Personal Property – Co-insurance 80% 50,000 Water Pumping Station – Williams Bend Road – Co-insurance 80% 322,000 Pellissippi and Carmichael Road Tanks 1,500,000 Pump Station – 10 Mile – Co-insurance 80% 500,000 Pump Station – Watt Road – Co-insurance 80% 150,000 Pump Station – Couch Mill Road - Co-insurance 80% 750,000 Pump Station – Karns #1 – Co-insurance 80% 350,000 Pump Station – Karns #2 – Co-insurance 80% 150,000 Pump Station – Pellissippi State 80% 300,000 Pump Station – Dutchtown 80% 200,000 Pump Station – Hardin Valley 80% 300,000 Pump Station – Covered Bridges Road 80% 400,000 Pump Station – Parkwest Hospital 80% 200,000

-59- THE WEST KNOX UTILITY DISTRICT OF KNOX COUNTY

SCHEDULE OF INSURANCE COVERAGE (Continued) June 30, 2010

Coverage Selective Insurance Company of South Carolina Contractors Equipment – $500 Deductible $ 692,874

Selective Insurance Company of South Carolina Business Computer Coverage 342,000

Burglary and Robbery – Inside 1,000 Burglary and Robbery – Outside 1,000

Employee Dishonesty (Per Employee) 100,000

Selective Insurance Company of South Carolina Worker's Compensation: Bodily Injury by Accident 100,000 Bodily Injury by Disease 500,000

All policies begin November 1, 2009 and expire November 1, 2010

-60- THE WEST KNOX UTILITY DISTRICT OF KNOX COUNTY

SCHEDULE OF UNACCOUNTED FOR WATER For the Years Ended June 30, 2010 and 2009

(All amounts in gallons)

For the Year Ended June 30, 2010

Water Treated and Purchased: Water Pumped (Potable) 1,789,928,000 Water Purchased - Total Water Treated and Purchased 1,789,928,000

Accounted for Water: Water Sold 1,640,351,900 Metered for Consumption (in house usage) 18,820,000 Fire Department(s) Usage 0 Flushing 0 Tank Cleaning/Filling 0 Street Cleaning 0 Bulk Sales 0 Water Bill Adjustments 0 Total Accounted for Water 1,659,171,900 Unaccounted for Water 130,756,100 Percent Unaccounted for Water 7.31%

Other (explain) See Below

Explain Other:

All amounts included in this schedule are supported by documentation on file at the water system. If no support is on file for a line item or if the line item is not applicable, a “0” is shown.

-61- THE WEST KNOX UTILITY DISTRICT OF KNOX COUNTY

SCHEDULE OF UNACCOUNTED FOR WATER (Continued) For the Years Ended June 30, 2010 and 2009

(All amounts in gallons)

For the Year Ended June 30, 2009

Water Treated and Purchased: Water Pumped (Potable) 1,921,738,000 Water Purchased - Total Water Treated and Purchased 1,921,738,000

Accounted for Water: Water Sold 1,664,386,700 Metered for Consumption (in house usage) 22,428,700 Fire Department(s) Usage 0 Flushing 0 Tank Cleaning/Filling 0 Street Cleaning 0 Bulk Sales 0 Water Bill Adjustments 0 Total Accounted for Water 1,686,815,400 Unaccounted for Water 234,922,600 Percent Unaccounted for Water 12.22%

Other (explain) See Below

Explain Other:

All amounts included in this schedule are supported by documentation on file at the water system. If no support is on file for a line item or if the line item is not applicable, a “0” is shown.

-62- STATISTICAL SECTION

This part of the District’s Comprehensive Annual Financial Report presents detailed information as a context for understanding what the information in the financial statements, note disclosures, and required supplementary information says about the District’s overall financial health.

Contents Pages

Financial Trends

These schedules contain trend information to help the reader understand how the District’s financial performance and well-being have changed over time. 63-64

Revenue Capacity

These schedules contain information to help the reader assess the District’s operating revenues and customer statistics. 65-71

Debt Capacity

This schedule presents information to help the reader assess the affordability of the District’s current levels of outstanding debt and the District’s ability to issue additional debt in the future. 72-73

Demographic and Economic Information

These schedules offer demographic and economic indicators to help the reader understand the environment within which the District’s financial activities take place. 74-75

Operating Information

These schedules contain service data to help the reader understand how the information in the District’s financial report relates to the water and wastewater services provided by the District. 76-78

Sources: Unless otherwise noted, the information in these schedules is derived from the Comprehensive Annual Financial Reports for the relevant year. THE WEST KNOX UTILITY DISTRICT OF KNOX COUNTY

NET ASSETS BY COMPONENT Last Ten Fiscal Years

Invested in Capital Assets – Restricted Fiscal Net of Capital Debt Year Related Debt Activity Service Unrestricted Total

2001 $ 17,548,772 $ 1,091,283 $ 12,422,768 $ 609,767 $ 41,672,590

2002 31,410,872 - 12,196,804 1,188,450 44,796,126

2003 32,289,627 - 11,977,156 3,462,672 47,729,455

2004 30,367,858 - 8,561,776 10,214,978 49,144,612

2005 33,859,670 - 5,157,203 14,004,317 53,021,190

2006 42,199,197 - 5,888,019 11,620,979 59,708,195

2007 41,267,013 - 2,326,654 20,036,737 63,630,404

2008 49,936,793 - 2,492,214 18,124,036 70,553,043

2009 56,070,348 - 2,714,591 15,410,906 74,195,845

2010 58,307,442 - 2,735,181 16,298,170 77,340,793

-63- THE WEST KNOX UTILITY DISTRICT OF KNOX COUNTY

CHANGES IN NET ASSETS Last Ten Fiscal Years

2001 2002 2003 2004 Operating Revenues Water - Net $ 4,119,839 $ 4,416,040 $ 4,574,082 $ 4,512,092 Wastewater 4.608,573 4,620,475 4,699,518 4,791,587 Connection Fees 207,049 349,152 440,645 463,611 Customer Forfeited Discounts 122,885 117,954 118,555 118,819 Service Fees 67,900 68,630 69,920 73,760 Wastewater Inspection Fees 6,500 9,060 6,620 7,500 Miscellaneous 19,647 23,285 23,783 26,492

Total Operating Revenues 9,152,393 9,604,596 9,933,123 9,993,861

Operating Expenses Water Purification and Supply 514,906 567,914 646,870 725,741 Wastewater Collection & Treatment 1,427,348 1,534,725 1,723,962 1,383,871 Water Treatment and Distribution 1,356,262 1,374,438 1,647,328 1,649,907 CMOM Program - - - 376,059 Shop & General Maintenance 123,844 147,937 150,923 158,571 Customer Accounting 87,399 151,521 190,130 100,850 Administrative & General 1,069,405 1,307,919 1,184,211 1,232,889 Depreciation 2,410,247 2,155,301 2,228,626 2,386,401

Total Operating Expenses 6,989,411 7,239,755 7,772,050 8,014,289

Operating Income 2,162,982 2,364,841 2,161,073 1,979,572

Non-Operating Revenues (Expenses) Investment Income 817,859 929,729 824,425 140,809 Interest Expense (1,796,123) (1,773,992) (1,682,464) (1,578,800) Arbitrage Expense – Net - - - - Net Gain (Loss) on Disposal of Capital Assets (147,645) - - (946,374)

Total Non-Operating Revenues (Expenses) (1,125,909) (844,263) (858,039) (2,384,365)

Increase (Decrease) in Net Assets Before Capital Contributions 1,037,073 1,520,578 1,303,034 (404,793)

Capital Contributions Cash 964,606 248,055 994,500 560,534 Developers Contributions of Capital Assets 1,432,180 1,354,900 635,795 1,259,416

Total Capital Contributions 2,396,786 1,602,955 1,630,295 1,819,950

Change in Net Assets $ 3,433,859 $ 3,123,533 $ 2,933,329 $ 1,415,157

Notes: The CMOM program was mandated by the Tennessee Department of Environment and Conservation in 2004. 2005 2006 2007 2008 2009 2010

$ 4,505,566 $ 4,874,388 $ 5,165,095 $ 6,064,005 $ 6,056,799 $ 5,840,679 4,802,252 5,084,414 5,269,152 6,050,769 6,055,263 6,021,329 758,989 896,803 950,182 1,036,402 479,445 668,361 118,042 127,405 117,458 164,054 119,988 167,133 83,660 115,575 111,045 116,000 86,260 110,980 12,850 14,950 15,200 14,650 4,850 12,875 26,456 49,200 96,034 95,858 56,244 36,955

10,307,815 11,162,735 11,724,166 13,541,738 12,858,849 12,858,312

723,464 825,479 870,009 984,906 971,010 952,291 1,235,609 1,485,914 1,611,691 1,912,549 2,019,948 2,001,500 1,703,661 1,960,942 2,062,880 2,057,085 2,177,862 2,056,342 644,939 814,525 881,854 981,523 937,513 976,066 205,935 193,322 205,248 279,609 244,752 223,464 104,136 105,870 109,609 121,805 136,668 131,183 1,256,631 1,335,677 1,543,672 1,623,820 1,677,726 1,821,977 2,307,360 2,521,052 2,839,447 2,985,239 3,239,722 3,772,274

8,181,735 9,242,781 10,124,410 10,946,536 11,405,201 11,935,097

2,126,080 1,919,954 1,599,756 2,595,202 1,453,648 923,215

524,426 684,283 948,715 1,334,544 729,434 357,595 (1,464,854) (1,822,819) (1,357,753) (1,925,884) (1,781,968) (1,354,289) - - (385,000) - - -

108,335 - (11,817) - (55,931) 1,386

(832,093) (1,138,536) (805,855) (591,340) (1,108,465) (995,308)

1,293,987 781,418 793,901 2,003,862 345,183 (72,093)

33,600 42,150 61,150 93,815 44,295 770,123

2,548,991 5,863,437 3,067,158 4,824,962 3,253,324 2,446,918

2,582,591 5,905,587 3,128,308 4,918,777 3,297,619 3,217,041

$ 3,876,578 $ 6,687,005 $ 3,922,209 $ 6,922,639 $ 3,642,802 $ 3,144,948

-64- THE WEST KNOX UTILITY DISTRICT OF KNOX COUNTY

CUSTOMER STATISTICS AND RATES Last Ten Fiscal Years

Water Wastewater Rates Rates Customer Billing per per Fiscal Units Minimum 1,000 Minimum 1,000 Year Water Wastewater Bill Gallons Bill Gallons

2001 19,248 14,924 $ 8.49 $ 2.58 $ 14.57 $ 3.34

2002 19,949 15,390 8.49 2.58 14.57 3.34

2003 20,564 15,887 9.17 2.79 14.57 3.34

2004 20,800 16,269 9.17 2.79 14.57 3.34

2005 20,648 16,537 9.17 2.79 14.57 3.34

2006 22,040 17,481 9.17 2.79 14.57 3.34

2007 22,524 17,508 10.55 3.21 16.27 3.84

2008 23,099 18,110 10.55 3.21 16.27 3.84

2009 25,675 18,587 10.55 3.21 16.27 3.84

2010 25,935 20,266 10.55 3.21 16.27 3.84

Notes: Rates are based upon a single family residence. Minimum bill is based upon the first 2,500 gallons of water purchased for fiscal years 2001 to 2009. Minimum bill is based upon the first 1,500 gallons of water purchased for fiscal year 2010. The water and wastewater rates are per 1,000 gallons.

-65- THE WEST KNOX UTILITY DISTRICT OF KNOX COUNTY

WATER PRODUCED, SOLD AND CONSUMED Last Ten Fiscal Years

Gallons of Water (In Thousands) Fiscal Water Year Water Pumped Sold and Consumed Water Unbilled Percent Lost

2001 1,809,578 1,539,592 269,986 14.92

2002 1,792,000 1,439,000 353,000 16.63

2003 1,837,000 1,513,000 324,000 20.81

2004 1,956,595 1,529,507 427,088 21.83

2005 1,861,679 1,474,606 387,073 20.79

2006 2,010,141 1,644,854 365,287 18.17

2007 1,941,109 1,595,267 345,842 17.82

2008 2,046,717 1,734,393 312,324 15.26

2009 1,921,738 1,686,815 234,923 12.22

2010 1,789,928 1,659,172 130,756 7.31

-66- THE WEST KNOX UTILITY DISTRICT OF KNOX COUNTY

ANNUAL TAP SALES Last Ten Fiscal Years

Fiscal Year Water Meter Taps Sold Sewer Taps Sold Total Taps

2001 447 324 771

2002 560 421 981

2003 386 323 709

2004 432 361 793

2005 695 634 1,329

2006 663 596 1,259

2007 683 611 1,294

2008 671 586 1,257

2009 263 196 459

2010 522 481 1,003

-67- THE WEST KNOX UTILITY DISTRICT OF KNOX COUNTY

NUMBER OF WATER AND SEWER CUSTOMERS BY TYPE Last Ten Fiscal Years

Fiscal Year Residential Multi-Family Commercial Hotel/Motel Total

Water 2001 15,745 34 421 5 16,205 2002 16,241 39 468 5 16,753 2003 16,660 38 491 5 17,194 2004 17,037 37 503 5 17,582 2005 17,309 40 521 5 17,875 2006 18,190 40 605 5 18,840 2007 18,671 42 629 5 19,347 2008 19,194 42 681 5 19,922 2009 19,498 N/A 722 5 20,225 2010 20,100 N/A 740 5 20,845

Wastewater 2001 11,557 29 285 5 11,876 2002 11,918 32 312 5 12,267 2003 12,336 31 329 5 12,701 2004 12,676 32 346 5 13,059 2005 12,929 32 354 5 13,320 2006 13,874 32 390 5 14,301 2007 14,328 32 402 5 14,767 2008 14,890 32 442 5 15,369 2009 15,093 N/A 467 5 15,565 2010 15,721 N/A 482 5 16,208

Note: Effective July 2009, the multi-family category was eliminated.

-68- THE WEST KNOX UTILITY DISTRICT OF KNOX COUNTY

WATER AND WASTEWATER RATES Last Ten Fiscal Years

Water Rates Fiscal Year Base Rate 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 (First 2,500 Gallons)

Residential $ 8.49 $ 8.49 $ 9.17 $ 9.17 $ 9.17 $ 9.17 $ 10.55 $ 10.55 $ 10.55 $ 10.55 Multi-Family 7.53 7.53 8.13 8.13 8.13 8.13 9.35 9.35 N/A N/A Commercial 11.47 11.47 12.39 12.39 12.39 12.39 14.25 14.25 14.25 14.25 Hotel/Motel (per unit) 3.51 3.51 3.79 3.79 3.79 3.79 4.36 4.36 4.36 4.36

Usage Rates (Per 1,000 Gallons) - 6 Residential $ 2.58 $ 2.58 $ 2.79 $ 2.79 $ 2.79 $ 2.79 $ 3.21 $ 3.21 $ 3.21 $ 3.21 9

- Multi-Family 2.58 2.58 2.79 2.79 2.79 2.79 3.21 3.21 N/A N/A Commercial 2.58 2.58 2.79 2.79 2.79 2.79 3.21 3.21 3.21 3.21 Hotel/Motel (per unit) 2.58 2.58 2.79 2.79 2.79 2.79 3.21 3.21 3.21 3.21

All Over 75,000

Residential $ 1.62 $ 1.62 $ 1.75 $ 1.75 $ 1.75 $ 1.75 $ 2.01 $ N/A $ N/A $ N/A Multi-Family 1.62 1.62 1.75 1.75 1.75 1.75 2.01 N/A N/A N/A Commercial 1.62 1.62 1.75 1.75 1.75 1.75 2.01 N/A N/A N/A Hotel/Motel (per unit) 1.62 1.62 1.75 1.75 1.75 1.75 2.01 N/A N/A N/A

Wastewater Rates Base Rate (First 2,500 Gallons)

Residential $ 14.57 $ 14.57 $ 14.57 $ 14.57 $ 14.57 $ 14.57 $ 16.27 $ 16.27 $ 16.27 $ 16.27 Multi-Family 13.41 13.41 13.41 13.41 13.41 13.41 14.93 14.93 N/A N/A Commercial 21.99 21.99 21.99 21.99 21.99 21.99 24.80 24.80 24.80 24.80 Hotel/Motel (per unit) 9.92 9.92 9.92 9.92 9.92 9.92 10.92 10.92 10.92 10.92 THE WEST KNOX UTILITY DISTRICT OF KNOX COUNTY

WATER AND WASTEWATER RATES (Continued) Last Ten Fiscal Years

Wastewater Rates Fiscal Year Base Rate 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 (Per 1,000 Gallons)

Residential 2,500 to 10,500 $ 3.34 $ 3.34 $ 3.34 $ 3.34 $ 3.34 $ 3.34 $ 3.84 $ 3.84 $ 3.84 $ N/A 1,500 to 11,500 ------3.84

No No No No No No No No No No All over 13,000 Charge Charge Charge Charge Charge Charge Charge Charge Charge Charge

Multi-Family 2,500 to 10,500 $ 3.34 $ 3.34 $ 3.34 $ 3.34 $ 3.34 $ 3.34 $ 3.84 $ 3.84 $ N/A $ N/A -

7 No No No No No No No No No No 0 All over 13,000 Charge Charge Charge Charge Charge Charge Charge Charge Charge Charge -

Commercial All Over 2,500 $ N/A $ N/A $ N/A $ N/A $ N/A $ N/A $ N/A $ 3.67 $ 3.67 $ N/A All Over 1,500 ------3.84 2,500 to 27,500 3.19 3.19 3.19 3.19 3.19 3.19 3.67 N/A N/A N/A Next 45,000 3.15 3.15 3.15 3.15 3.15 3.15 3.62 N/A N/A N/A Next 75,000 2.55 2.55 2.55 2.55 2.55 2.55 2.93 N/A N/A N/A Next 75,000 2.41 2.41 2.41 2.41 2.41 2.41 2.77 N/A N/A N/A Next 75,000 2.39 2.39 2.39 2.39 2.39 2.39 2.75 N/A N/A N/A

Hotel/Motel All Over 1,500 $ N/A $ N/A $ N/A $ N/A $ N/A $ N/A $ N/A $ 3.84 $ 3.84 $ 3.84 2,500 to 10,500 3.34 3.34 3.34 3.34 3.34 3.34 3.84 N/A N/A N/A

All over 13,000 No No No No No No No No No No Charge Charge Charge Charge Charge Charge Charge Charge Charge Charge

*Note: (a) Increases in water and wastewater rates must be approved by the Board of Commissioners. (b) The water rate tier of all over 75,000 was eliminated in 2008. (c) Effective June 2008, the commercial and hotel/motel changed to a single tier rate structure for wastewater. (d) Effective July 2009, the multi-family category was eliminated. (e) Effective April 2010, the minimum bill was reduced from 2,500 gallons to 1,500 gallons. THE WEST KNOX UTILITY DISTRICT OF KNOX COUNTY

TEN LARGEST CUSTOMERS Current Fiscal Year and Nine Years Ago

FY 2010 FY 2001 (A) (A) Total Percentage Total Percentage Type of Annual of Total Annual of Total Customer Business Sales Sales Sales Sales

Parkwest Hospital Medical $ 331,163 2.79% $ 198,141 2.27%

Woodlands West Apartments Rental Real Estate 215,425 1.82 - -

Sunchase Apartments Rental Real Estate 179,155 1.51 159,119 1.82

Country Club Apartments Rental Real Estate 126,071 1.06 94,063 1.08

Brendon Park Apartments Rental Real Estate 120,576 1.02 86,762 0.99

Holiday Inn Hospitality 120,111 1.01 105,043 1.20

Cedar Bluff Apartments Rental Real Estate 84,847 0.71 - -

Warren House Apartments Rental Real Estate 82,941 0.70 - -

Hampton Inn Hospitality 47,956 0.40 - -

Cracker Barrel Food Service 25,258 0.21 - -

Knox County Housing Authority Rental Real Estate - - 50,209 0.58

The Wilkinson Group Rental Real Estate - - 164,291 1.88

Tom’s Foods Food Processor - - 159,086 1.82

Walker Springs Apartments Rental Real Estate - - 60,137 0.69

Rodeway Inn Hospitality - - 48,825 0.56

Total $ 1,333,503 11.23% $ 1,125,676 12.89%

Note: (A) Sales include only water and wastewater net revenues. (B) In prior years some customers were reported under a different name.

-71- THE WEST KNOX UTILITY DISTRICT OF KNOX COUNTY

OUTSTANDING DEBT PER CUSTOMER Last Ten Fiscal Years

Number Outstanding Fiscal Revenue Notes of Debt per Year Bonds Payable Total Customers (A) Customer

2001 $ 40,243,624 $ 2,000,000 $ 42,243,624 19,248 $ 2,195

2002 38,642,974 2,000,000 40,642,974 19,949 2,037

2003 36,850,171 2,000,000 38,850,171 20,564 1,889

2004 36,187,697 1,900,000 38,087,697 20,800 1,831

2005 33,992,462 1,900,000 35,892,462 20,648 1,738

2006 41,418,978 1,900,000 43,318,978 22,040 1,965

2007 39,825,115 1,700,000 41,525,115 22,524 1,844

2008 37,880,936 1,700,000 39,580,936 23,099 1,714

2009 36,415,147 1,700,000 38,115,147 25,675 1,484

2010 35,664,823 2,458,343 38,123,166 25,935 1,470

Note: (A) Number of customers is based upon water customer billing units. (B) No debt to personal income ratio is shown because personal income for the District’s service area is not available.

-72- THE WEST KNOX UTILITY DISTRICT OF KNOX COUNTY

PLEDGED REVENUE COVERAGE Last Ten Fiscal Years

Debt Service Requirements (A) (B) Net Revenues (C) Fiscal Gross Operating Available for Interest Coverage Year Revenues Expenses Debt Service Principal Paid Total Ratio

2001 $ 10,836,444 $ 4,579,164 $ 6,257,280 $ 2,180,000 $ 1,105,552 $ 3,285,552 1.90

2002 10,513,725 5,084,454 5,429,271 2,330,000 996,187 3,326,187 1.63 - 7 2003 11,453,135 5,543,424 5,909,711 2,490,000 940,041 3,430,041 1.72 3 - 2004 10,884,922 5,627,887 5,257,035 2,765,000 927,733 3,692,733 1.43

2005 10,631,562 5,874,375 4,757,187 1,943,393 1,807,015 3,750,408 1.27

2006 11,942,756 6,721,729 5,221,027 1,846,236 2,244,398 4,090,634 1.28

2007 12,776,854 7,284,963 5,491,891 1,117,980 1,806,377 2,924,357 1.88

2008 14,557,107 7,961,297 6,595,810 1,383,206 2,441,758 3,824,964 1.72

2009 13,536,061 8,165,479 5,370,582 856,893 2,347,530 3,204,423 1.68

2010 13,348,152 8,162,823 5,185,329 1,110,082 1,348,672 2,458,754 2.11

Notes: (A) Includes operating revenues, interest income received and cash capital contributions. (B) Does not include depreciation expense. (C) Interest includes interest paid, paying agent’s fees and service charges net of capitalized construction period interest. THE WEST KNOX UTILITY DISTRICT OF KNOX COUNTY

DEMOGRAPHIC AND ECONOMIC STATISTICS (b) Last Ten Calendar Years

Personal Income Per Capita Calendar (Thousands Personal Unemployment Rate Year Population of Dollars) Income County State

2000 382,812 10,930,847 28,554 3.4 4.0

2001 387,092 11,297,562 29,182 3.7 4.6

2002 391,418 11,760,023 30,039 3.9 5.2

2003 396,742 12,257,757 30,901 4.1 5.5

2004 400,340 12,826,956 32,040 4.1 5.4

2005 404,972 13,301,853 32,815 4.4 5.1

2006 411,967 14,140,692 33,963 4.5 4.5

2007 416,352 15,201,428 34,180 3.4 4.7

2008 430,019 15,666,206 34,696 4.8 6.4

2009 435,725 N/A N/A 8.0 10.5

Notes: (a) N/A = Data not available (b) Demographic and economic information is for Knox County Tennessee. This information for the District’s service area is not available. (c) Population – U.S. Bureau of the Census (d) Income – Bureau of Economic Analysis, U.S. Department of Commerce (e) Unemployment Rates – Tennessee Department of Labor and Workforce Development

-74- THE WEST KNOX UTILITY DISTRICT OF KNOX COUNTY

PRINCIPAL EMPLOYERS Current Calendar Year and Nine Years Ago

2009 2000 % of Total % of Total Number of MSA Number of MSA Employer Industry Employees Employees Employees Employees

U.S. Department of Energy Government 13,182 5.78% - - %

The University of Tennessee Education 11,901 5.22 6,100 3.01

Covenant Health Health Care 8,982 3.94 8,500 4.20

Knox County Schools Education 8,382 3.68 7,661 3.78

WalMart Stores Retail 5,330 2.34 - -

Mercy Health Partners Health Care 4,368 1.92 - -

K-VA-T Food Stores Retail Grocery 4,118 1.81 - -

University Health System Health Care 3,724 1.63 3,494 1.73

State of Tennessee Government 3,709 1.63 - -

Knox County Government 3,055 1.33 - -

Manufacturing, Lockheed Martin Research - - 4,165 2.06

St. Mary’s Medical Center Health Care - - 3,135 1.55

Denso Manufacturing - - 2,706 1.35

City of Knoxville Government - - 2,691 1.33

Clayton Homes Manufacturing - - 2,500 1.23

Aluminum Co. of America Manufacturing - - 2,500 1.23

Total 66,751 29.28% 43,452 21.47%

Notes: (a) Only Knox County presented. (b) The Knoxville – Knox County MSA consists of six counties: Anderson, Blount, Knox, Loudon, Sevier and Union.

Source: Greater Knoxville Chamber Partnership.

-75- THE WEST KNOX UTILITY DISTRICT OF KNOX COUNTY

NUMBER OF EMPLOYEES BY ACTIVITY Last Ten Fiscal Years

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 WATER Water Plant Operations 6 8 7 7 7 7 7 7 7 7 Water Plant Maintenance 2 2 2 2 2 2 2 2 2 2 Water Systems Maintenance 9 9 9 10 10 12 12 12 12 13 17 19 18 19 19 21 21 21 21 22

SEWER Sewer Plant Operations 3 3 4 4 4 4 4 4 4 4 - 7 Sewer Plant Maintenance 5 5 4 4 6 7 5 7 7 7 6

- Sewer Systems Maintenance (CMOM) 6 7 7 6 8 9 11 12 13 13 14 15 15 14 18 20 20 23 24 24

ENGINEERING/INSPECTION/CONSTRUCTION Engineering 1 1 1 1 1 1 1 1 1 1 Inspections 1 1 2 2 2 2 2 3 2 2 Construction 3 2 2 2 2 1 1 1 1 1 5 4 5 5 5 4 4 5 4 4

ADMINISTRATION Billing/Customer Service 6 7 6 6 6 6 6 6 6 6 Meter Reading 4 4 5 5 5 5 4 4 3 2 Human Resources 1 1 1 1 1 1 1 1 1 1 Finance & Accounting 1 1 1 1 1 1 1 1 1 1 Executive Administration 2 2 2 2 2 2 2 2 2 2 14 15 15 15 15 15 14 14 13 12

TOTAL EMPLOYEES 50 53 53 53 57 60 59 63 62 62 THE WEST KNOX UTILITY DISTRICT OF KNOX COUNTY

ANNUAL WASTEWATER PLANT FLOWS AND CAPACITY IN MILLIONS OF GALLONS Last Ten Fiscal Years

Annual Annual Unused Percent of Fiscal Wastewater Design Plant Plant Year Plant Flow Flow Capacity Utilization

2001 949.62 1,460.00 510.38 65.0

2002 938.48 1,460.00 521.52 64.3

2003 1,170.85 1,460.00 289.15 80.2

2004 1,403.50 1,460.00 56.50 96.1

2005 1,475.22 1,460.00 (15.22) 101.0

2006 1,269.82 1,460.00 190.18 87.0

2007 1,201.53 1,460.00 258.47 83.0

2008 1,130.71 1,460.00 329.29 77.4

2009 1,310.83 1,460.00 149.17 89.8

2010 1,484.55 1,460.00 (24.55) 101.7

Note: Flows expressed in millions of gallons. Source: Monthly operating reports to the Tennessee Department of Environment and Conservation.

-77- THE WEST KNOX UTILITY DISTRICT OF KNOX COUNTY

OPERATING AND CAPITAL INDICATORS Last Six Fiscal Years

2005 2006 2007 2008 2009 2010

Area in Square Miles: 72 72 72 72 72 72

Water System: Miles of Water Mains 310 315 355 366 368 378 Number of Treatment Plants 2 2 2 2 2 2 Number of Service Connections 17,875 18,840 19,347 19,922 20,225 20,845 Number of Fire Hydrants 934 971 1,011 1,013 1,195 1,195 Daily Average Consumption

- in Gallons 5.35 million 5.10 million 5.73 million 6.0 million 5.65 million 4.90 million 7

8 Maximum Daily Capacity of - Plant in Gallons 12.48 million 12.48 million 12.48 million 12.48 million 12.48 million 12.48 million

Wastewater System: Miles of Sanitary Sewers 150 157 225 236 246 260 Number of Treatment Plants 1 1 1 1 1 1 Number of Service Connections 13,320 14,301 14,767 15,369 15,565 16,208 Daily Average Treatment in Gallons 4 million 4 million 3.29 million 3.10 million 3.59 million 4.11 million Maximum Daily Capacity of Treatment Plant in Gallons 4 million 4 million 4 million 4 million 4 million 4 million

Note: Data prior to 2005 is unavailable. INTERNAL CONTROL AND COMPLIANCE SECTION John W. Bacon, CPA B A C O N ♦ H O W A R D Calvin C. Howard, CPA

& COMPAN Y Certified Public Accountants

REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING AND ON COMPLIANCE AND OTHER MATTERS BASED ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS

Board of Commissioners The West Knox Utility District of Knox County Knoxville, Tennessee

We have audited the financial statements of The West Knox Utility District of Knox County (the District) as of and for the years ended June 30, 2010 and 2009, and have issued our report thereon dated October 10, 2010. We conducted our audits in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States.

Internal Control Over Financial Reporting

In planning and performing our audit, we considered the District’s internal control over financial reporting as a basis for designing our auditing procedures for the purpose of expressing our opinion on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of internal control over financial reporting. Accordingly, we do not express an opinion on the effectiveness of the District’s internal control over financial reporting.

A deficiency in internal control exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct misstatements on a timely basis. A material weakness is a deficiency, or combination of deficiencies, in internal control such that there is a reasonable possibility that a material misstatement of the District’s financial statements will not be prevented, or detected and corrected on a timely basis.

-79- Board of Commissioners The West Knox Utility District of Knox County Page Two

Our consideration of the internal control over financial reporting was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control over financial reporting that might be deficiencies, significant deficiencies, or material weaknesses. We did not identify any deficiencies in internal control over financial reporting that we consider to be material weaknesses, as defined above. However, we identified certain deficiencies in internal control over financial reporting described in the accompanying schedule of Schedule of Audit Findings and Questioned Costs that we consider to be significant deficiencies in internal control over financial reporting as item numbered 10-1.A significant deficiency is a deficiency, or combination of deficiencies, in internal control that is less severe than a material weakness, yet important enough to merit attention by those charged with governance.

Compliance and Other Matters

As part of obtaining reasonable assurance about whether the District’s financial statements are free of material misstatements, we performed tests of its compliance with certain provisions of laws, regulations, contracts and grant agreements, noncompliance with which could have a direct and material effect on the determination of financial statement amounts. However, providing an opinion on compliance with those provisions was not an objective of our audit and, accordingly, we do not express such an opinion. The results of our tests disclosed one instance of noncompliance or other matters that are required to be reported under Government Auditing Standards, which is described in the accompany Schedule of Audit Findings and Questioned Costs as item number 10-1.

The District’s response to the finding numbered 10-1 identified in our audit is described in the accompanying Schedule of Audit Findings and Questioned Costs. We did not audit the District’s response and accordingly, we express no opinion on it.

This report is intended solely for the information and use of management, the Board of Commissioners and various governmental agencies and is not intended to be and should not be used by anyone other than these specified parties.

Knoxville, Tennessee October 10, 2010

-80- John W. Bacon, CPA B A C O N ♦ H O W A R D Calvin C. Howard, CPA

& COMPAN Y Certified Public Accountants

REPORT ON COMPLIANCE WITH REQUIREMENTS APPLICABLE TO EACH MAJOR PROGRAM AND ON INTERNAL CONTROL OVER COMPLIANCE IN ACCORDANCE WITH OMB CIRCULAR A-133

Board of Commissioners The West Knox Utility District of Knox County Knoxville, Tennessee

Compliance

We have audited the compliance of the West Knox Utility District of Knox County (the District), with the types of compliance requirements described in the U.S. Office of Management and Budget (OMB) Circular A-133 Compliance Supplement that are applicable to each of its major federal programs for the year ended June 30, 2010. The District’s major federal programs are identified in the Summary of Auditor’s Results section of the accompanying Schedule of Audit Findings and Questioned Costs. Compliance with the requirements of laws, regulations, contracts and grants applicable to each of its major federal programs is the responsibility of the District’s management. Our responsibility is to express an opinion on the District’s compliance based on our audit.

We conducted our audit of compliance in accordance with auditing standards generally accepted in the United States of America; the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States; and OMB Circular A-133, Audits of States, Local Governments, and Non- Profit Organizations. Those standards and OMB Circular A-133 require that we plan and perform the audit to obtain reasonable assurance about whether noncompliance with the types of compliance requirements referred to above that could have a direct and material effect on a major federal program occurred. An audit includes examining, on a test basis, evidence about the District’s compliance with those requirements and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. Our audit does not provide a legal determination on the District’s compliance with those requirements.

-81- Board of Commissioners The West Knox Utility District of Knox County Page Two

In our opinion, the District complied, in all material respects, with the compliance requirements referred to above that are applicable to each of its major federal programs for the year ended June 30, 2010.

Internal Control Over Compliance

The management of the District is responsible for establishing and maintaining effective internal control over compliance with requirements of laws, regulations, contracts and grants applicable to federal programs. In planning and performing our audit, we considered the District’s internal control over compliance with requirements that could have a direct and material effect on a major federal program in order to determine our auditing procedures for the purpose of expressing our opinion on compliance, and to test and report on internal control over compliance in accordance with OMB Circular A-133, but not for the purpose of expressing an opinion on the effectiveness of internal control over compliance. Accordingly, we do not express an opinion on the effectiveness of the District’s internal control over compliance.

A deficiency in the District’s internal control over compliance exists when the design or operation of a control over compliance does not allow management or employees, in the normal course of performing their assigned functions, to prevent or detect and correct noncompliance with a type of compliance requirement of a federal program on a timely basis. A material weakness in internal control over compliance is a deficiency, or combination of deficiencies, in internal control over compliance, such that there is a reasonable possibility that material noncompliance with a type of compliance requirement of a federal program will not be prevented, or detected and corrected, on a timely basis.

Our consideration of internal control over compliance was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control over compliance that might be deficiencies, significant deficiencies, or material weaknesses. We did not identify any deficiencies in internal control over compliance that we consider to be material weaknesses, as defined above.

-82- Board of Commissioners The West Knox Utility District of Knox County Page Three

This report is intended solely for the information and use of the Board of Commissioners, management, and federal and state awarding agencies and pass-through entities and is not intended to be and should not be used by anyone other than these specified parties.

Knoxville, Tennessee October 10, 2010

-83- THE WEST KNOX UTILITY DISTRICT OF KNOX COUNTY

SCHEDULE OF AUDIT FINDINGS AND QUESTIONED COSTS June 30, 2010

A. SUMMARY OF AUDITOR’S RESULTS

1. The auditor’s report expresses an unqualified opinion on the financial statements of the District.

2. One significant deficiency was disclosed during the audit of the financial statements and is reported in the “Report on Internal Control over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance with “Government Auditing Standards”.

3. One reportable instance of noncompliance material to the financial statements of the District was disclosed during the audit of the financial statements and is reported in the “Report on Internal Control Over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance with Government Auditing Standards”.

4. No significant deficiencies in internal control over major programs were disclosed by the audit.

5. The auditor's report on compliance for the major federal award program for the District expresses an unqualified opinion.

6. There are no audit findings relative to the major federal award programs.

7. The program tested as a major federal award program was the U.S. Environmental Protection Agency – Capitalization Grants for Clean Water State Revolving Funds CFDA #66.458.

8. The threshold for distinguishing Types A and B programs was $300,000.

9. The District was determined to be a high risk auditee.

-84- THE WEST KNOX UTILITY DISTRICT OF KNOX COUNTY

SCHEDULE OF AUDIT FINDINGS AND QUESTIONED COSTS (Continued) June 30, 2010

B. FINDINGS AND QUESTIONED COSTS

Item 10-1: Investment Policy (Significant Deficiency and Instance of Noncompliance)

During our review of investments, we determined that the District is not following their investment policies and state statute (TCA § 7-82-108). At June 30, 2010, the District held $300,096 in a cash management market fund which is not an eligible investment for utility districts in Tennessee.

Recommendation:

We recommend the District notify its trust officer to sell this investment and bring its investments into compliance with state law.

Response:

We advised our trust officer with a letter dated January 22, 2010. We will follow up to ensure this investment is sold.

-85- THE WEST KNOX UTILITY DISTRICT OF KNOX COUNTY

SCHEDULE OF PRIOR YEAR AUDIT FINDINGS June 30, 2010

Item Finding Type Status

09-1 Management Approval – Corrected Journal Entries

09-2 Investment Policy Repeated as a current year finding as Item 10-1.

09-3 Vacation Leave Policy Corrected

-86-