This Preliminary Official Statement has not been approved by the Authority, and the information herein is subject to completion and amendment without notice. Under no circumstances shall this Preliminary Official Statement constitute an offer to sell or the solicitation of an offer to buy, nor shall there be any sale of the Bonds in any jurisdiction in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of such jurisdiction. A definitive Official Statement will be made available prior to the delivery of these securities. 2016 ______, Dated Delivery of Date Dated: the Counsel, Bond of opinion taxation. the income In Alabama from Bonds. exempt computing 2016 be Series of will the purpose the Bonds on the 2016 Code"), income for Series interest ("the income the un the taxable on amended of corporations minimum income recipients as alternative the interest and 1986, in to individuals consequences included of tax preference on Code federal tax fro other tax Revenue of excludable item minimum Internal referred be an alternative the herein will be Indenture of the not (a) the 103 will Bonds in (b) Section forth 2016 and set by Series purpose covenants the imposed certain on conditions with income Board certain the interest to by respect compliance assuming with Counsel, to Bond of opinion the In ONLY BOOK-ENTRY – ISSUE NEW h ia ibreet fsc amnst h eeiilOnr fteSre 06Bnswl etersosblt fteDTC the of responsibility Bonds. the 2016 be Series the will of more Bonds owner and 2016 registered Series defined the System." Owners") interest is the as Only nominee and ("Beneficial of -Book-Entry all 2016 its of BONDS Owners Bonds or Participants, principal Series 2016 Beneficial DTC 2016 The SERIES Indirect as the the as Series long the Co., to Bonds. in the so payments & and 2016 DTC, interests in CEDE Series such Participants to interest beneficial the of of directly in beneficial paid disbursements name of interests be final a the Purchases will their The of in Bonds representing registered 2016 purchasers certificates ("DTC"). Series the be and the of will York only on delivery issued, form New physical when receive book-entry York, not and in New will bonds, made Company, registered be Trust fully will as Depository Bonds issued The be of will nominee Bonds 2016 Series The omn&Hlfed L,Mbl,Aaaa one oteBad ti xetdta h eis21 od ilb vial for available be will Bonds Hoffman, 2016 Speegle, Series by the Board that the expected for is It upon passed Board. be 2016. the ______, will about to matters or counsel on legal DTC Alabama, Certain through Mobile, delivery LLC, Counsel. Holifield, Bond & Holman Alabama, Mobile, are LLC, Daphne Arendall of City the of that nor Board the of for credit Bonds. revenues and 2016 said Bonds faith Series the the full of Additional on the pledge interest Systems Neither the prior any the and the of of with Board. to principal operation subject the the the together Systems, of of from the payment bonds derived Alabama, maintaining for outstanding revenues pledged and Birmingham, operating certain the of of of Association, costs out benefit the payable the National of Board, payment the Company, after of herein obligations Trust defined limited Mellon constitute will York issued, hereafter New of Bank Bonds. 2016 Series the of issuance of costs the pay to and * o nepaaino aig e Rtn"herein. "Rating" see Rating, of explanation an For rlmnr.Sbett change. to Subject Preliminary. h eis21 od r being are Bonds 2016 Series The thereof. multiple integral any or $5,000 of denomination the in bonds registered fully as issuable are Bonds 2016 Series The h eis21 od r fee hn sadi sud ujc oteapoa ftevldt hro yHand by thereof validity the of approval the to subject issued, if and as when, offered are Bonds herein. 2016 described as Series maturities respective The their to prior redemption to subject are Bonds 2016 Series The The to Board the from 2016, 1, April of as dated Indenture Trust a under bonds issued be will which Bonds, 2016 Series The RLMNR FIILSAEETDTDMRH2,2016 28, MARCH DATED STATEMENT OFFICIAL PRELIMINARY H TLTE OR FTHE OF BOARD UTILITIES THE H IYO AHE(ALABAMA) DAPHNE OF CITY ae,GsadSwrRvneBonds Revenue Sewer and Gas Water, ARBOR issued F opoiefnsncsayt eudcranottnigolgtoso h Board the of obligations outstanding certain refund to necessary funds provide to INANCIAL $5,385,000 eis2016 Series e h oe oee,se"a xmto"hri o certain for herein Exemption" "Tax see However, Code. the der ul ecie nti fiilSaeetudrtecpin"THE caption the under Statement Official this in described fully rs noeo h eiinsteeffrFdrlicm tax income Federal for thereof recipients the of income gross m S ERVICES LLC , ssono h niecover inside the on shown as u:Dcme 1, December Due: Rating:* tnad&Po':AA- Poor's: & Standard Amounts, Maturities, Interest Rates, Yields and CUSIPS

Maturity Principal Interest (December 1) Amount Rate Yield CUSIPS 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030

$______% Bonds Due ______, ____ Yield: _____% Cusip No. ______*

$______% Bonds Due ______, ____ Yield: _____% Cusip No. ______*

CUSIP Numbers have been assigned to the Series 2016 Bonds by Standard & Poor’s, CUSIP Service Bureau, a division of the McGraw-Hill Companies, Inc. and are included solely for the convenience of the holders of the Series 2016 Bonds. The Board and the Underwriter are not responsible for the selection, uses or correctness (as listed above) of, or subsequent changes to, CUSIP numbers assigned to the 2016 Bonds. THE UTILITIES BOARD OF THE CITY OF DAPHNE

Members of the Board of Directors

Robert Segalla, Chairman Randy Fry, Vice Chairman Billy Mayhand, Secretary-Treasurer Dane Haygood Selena Vaughn

General Manager Danny Lyndall

Finance Manager Teresa Logiotatos

Board Counsel Speegle, Hoffman, Holman & Holifield, LLC Mobile, Alabama

Bond Counsel Hand Arendall LLC Mobile, Alabama No dealer, broker, salesman or other person has been authorized by The Utilities Board of the City of Daphne, 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 must not be relied upon as having been authorized by any of the foregoing. This 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 Series 2016 Bonds by any person in any jurisdiction in which it is unlawful for such person to make such offer, solicitation or sale. The information set forth herein has been obtained from The Utilities Board of the City of Daphne, and other sources which are believed to be reliable, but it is not guaranteed as to accuracy or completeness by, and is not to be construed as a representation of, the Underwriter. The delivery of this Official Statement at any time does not imply that any information herein is correct as of any time subsequent to this date.

TABLE OF CONTENTS Page

INTRODUCTORY STATEMENT ...... 1 THE SERIES 2016 BONDS...... 2 SECURITY FOR THE SERIES 2016 BONDS...... 6 CURRENT REFUNDING OF THE REFUNDED SRF BONDS ...... 7 SOURCES AND USES OF FUNDS...... 7 THE BOARD ...... 7 THE SYSTEMS ...... 8 FINANCIAL INFORMATION...... 15 ESTIMATED DEBT SERVICE REQUIREMENTS FOR THE...... 17 PRIOR LIEN BONDS, THE SERIES 2016 BONDS ...... 17 AND THE SUBORDINATED SRF BOND...... 17 ECONOMIC AND DEMOGRAPHIC INFORMATION ...... 18 EMPLOYEE RETIREMENT PLAN ...... 22 TAX EXEMPTION...... 22 RATING...... 24 FINANCIAL STATEMENTS...... 25 UNDERWRITING ...... 25 LITIGATION AND CONTINGENT LIABILITIES ...... 25 CONTINUING DISCLOSURE AGREEMENT ...... 25 LEGAL MATTERS ...... 25 MISCELLANEOUS...... 26

Appendix A - Summary of the Indenture Appendix B - Audited Financial Statements of the Board for Fiscal Year 2015 Appendix C - Form of Opinion of Bond Counsel Appendix D - Summary of Continuing Disclosure Agreement

i OFFICIAL STATEMENT pertaining to $5,385,000 THE UTILITIES BOARD OF THE CITY OF DAPHNE Water, Gas and Sewer Revenue Bonds Series 2016

INTRODUCTORY STATEMENT

This Official Statement of The Utilities Board of the City of Daphne ("the Board"), is being furnished to purchasers of $5,385,000* aggregate principal amount of its Water, Gas and Sewer Revenue Bonds, Series 2016, to be dated the date of their delivery ("the Series 2016 Bonds"). The Series 2016 Bonds will be issued under a Trust Indenture dated as of April 1, 2016 ("the Indenture"), from the Board to The Bank of New York Mellon Trust Company, National Association, Birmingham, Alabama, as trustee ("the Trustee"). The Series 2016 Bonds will be limited obligations of the Board, payable solely out of the revenues from the water works system, the natural gas distribution system and the sanitary sewer system of the Board ("the Systems") remaining after the payment of the costs of maintaining and operating the Systems ("the Pledged Revenues"), subject to the prior pledge of the Pledged Revenues in favor of certain bonds of the Board outstanding under a Trust Indenture dated as of June 1, 1990 ("the 1990 Indenture"), from the Board to The Bank of New York Mellon Trust Company, National Association ("the 1990 Trustee"), consisting of (a) the Board's Water, Gas and Sewer Revenue Bonds, Series 2008 ("the Series 2008 Bonds"), which are outstanding in the aggregate principal amount of $2,725,000, (b) the Board's Water, Gas and Sewer Revenue Bonds, Series 2012 ("the Series 2012 Bonds"), which are outstanding in the aggregate principal amount of $3,195,000 and (c) the Board's Water, Gas and Sewer Revenue Bonds, Series 2015 ("the Series 2015 Bonds"), which are outstanding in the aggregate principal amount of $2,495,000. The payment of the Series 2008 Bonds, the Series 2012 Bonds and the Series 2015 Bonds (together, "the Prior Lien Bonds"), are secured by a pledge of the aforesaid revenues from the Systems that is prior to the pledge thereof made in the Indenture for the benefit of the Series 2016 Bonds and any Additional Bonds hereafter issued. In the Indenture, the Board has agreed that it will not hereafter issue any additional parity bonds under the 1990 Indenture.

On March 1, 2011 the Board issued its $3,345,000 Subordinated Water, Gas and Sewer Revenue Bond, Series 2011-CWSRF-DL (Partial Principal Forgiveness Loan) to the Alabama Water Pollution Control Authority. Payment of the principal of and the interest on the aforesaid bond ("the Subordinated SRF Bond") is subordinate to payment of the principal of and the interest on the Prior Lien Bonds, the Series 2016 Bonds and any Additional Bonds hereafter issued under the Indenture. However, the Board has included the annual payments of the principal of and the interest on the Subordinated SRF Bond in any statements in this Official Statement respecting the revenues of the Board that will be available for payment of debt service on the outstanding bonds of the Board.

The Series 2016 Bonds are being issued to provide the funds necessary (a) to refund the Board's (i) Water, Gas and Sewer Revenue Bonds, Series 2005 DWSRF-BL ("the Series 2005 SRF Bonds"), which are outstanding in the aggregate principal amount of $2,025,000, (ii) Water, Gas and Sewer Revenue Bonds, Series 2006-CWSRF-DL ("the Series 2006-A SRF Bonds") which are outstanding in the aggregate principal amount of $665,000 and (iii) Water, Gas and Sewer Revenue Bonds, Series 2006-DWSRF-DL ("the Series 2006-B SRF Bonds") which are outstanding in the aggregate principal amount of $2,575,000 and (b) to pay the costs of issuance of the Series 2016 Bonds. The refunding of the Series 2005 SRF Bonds, the Series 2006-A SRF Bonds and the Series 2006-B SRF Bonds (together, "the Refunded SRF Bonds") by the issuance of the Series 2016 Bonds will enable the Board to realize a savings in its net interest cost.

Wherever in this Official Statement a contract, indenture, resolution, or other document, or official act is referred to or summarized, such reference or summary is qualified by the exact terms of the document or official act so referred to or summarized. All such documents are matters of public record and are available for review by

 Preliminary. Subject to change.

1 owners of the Series 2016 Bonds during usual business hours at the office of the Board. As used in this Official Statement, the term "Bonds" without other qualifying words means the Series 2016 Bonds and any Additional Bonds that may hereafter be issued under the Indenture.

Neither the delivery of this Official Statement nor any sale made hereunder implies that there has been no change in the affairs of the Board at any time subsequent to the date hereof.

THE SERIES 2016 BONDS

General Description of the Series 2016 Bonds

The Series 2016 Bonds will be dated the date of their delivery, will mature in the amounts and on the dates, and will bear interest at the per annum rates set forth on the inside of the cover page hereof, payable on December 1, 2016, and on each June 1 and December 1 thereafter, until the respective maturities thereof. The Series 2016 Bonds will be issued as fully registered bonds in the denomination of $5,000 or any integral multiple thereof and in accordance with the provisions of the Indenture. The Series 2016 Bonds will initially be registered under the book- entry only system described under the caption "Book-Entry Only System" ("the Book-Entry Only System") and the method of payment of the Series 2016 Bonds and matters pertaining to transfers and exchanges while the Series 2016 Bonds are held in the Book-Entry Only System are described under that caption. During any period in which the Series 2016 Bonds are not held in the Book-Entry Only System, the payment and other provisions described below under "Discontinuation of Book-Entry Only System" will apply to the Series 2016 Bonds.

Book-Entry Only System

The Depository Trust Company ("DTC"), New York, NY, will act as securities depository for the Series 2016 Bonds. The Series 2016 Bonds will be issued as fully-registered bonds registered in the name of Cede & Co. (DTC’s partnership nominee) or such other name as may be requested by an authorized representative of DTC. One fully-registered Series 2016 Bond certificate will be issued for each maturity of the Series 2016 Bonds, in the aggregate principal amount of such maturity, and will be deposited with DTC.

DTC, the world’s largest securities depository, is a limited-purpose trust company organized under the New York Banking Law, a "banking organization" within the meaning of the New York Banking Law, a member of the Federal Reserve System, a "clearing corporation" within the meaning of the New York Uniform Commercial Code, and a "clearing agency" registered pursuant to the provisions of Section 17A of the Securities Exchange Act of 1934. DTC holds and provides asset servicing for over 3.5 million issues of U.S. and non-U.S. equity issues, corporate and municipal debt issues, and money market instruments (from over 100 countries) that DTC’s participants ("Direct Participants") deposit with DTC. DTC also facilitates the post-trade settlement among Direct Participants of sales and other securities transactions in deposited securities, through electronic computerized book- entry transfers and pledges between Direct Participants’ accounts. This eliminates the need for physical movement of securities certificates. Direct Participants include both U.S. and non-U.S. securities brokers and dealers, banks, trust companies, clearing corporations, and certain other organizations. DTC is a wholly-owned subsidiary of The Depository Trust & Clearing Corporation ("DTCC"). DTCC is the holding company for DTC, National Securities Clearing Corporation and Fixed Income Clearing Corporation, all of which are registered clearing agencies. DTCC is owned by the users of its regulated subsidiaries. Access to the DTC system is also available to others such as both U.S. and non-U.S. securities brokers and dealers, banks, trust companies, and clearing corporations that clear through or maintain a custodial relationship with a Direct Participant, either directly or indirectly ("Indirect Participants"). DTC has a Standard & Poor’s rating of AA+. The DTC Rules applicable to its Participants are on file with the Securities and Exchange Commission. More information about DTC can be found at www.dtcc.com.

Purchases of the Series 2016 Bonds under the DTC system must be made by or through Direct Participants, which will receive a credit for the Series 2016 Bonds on DTC’s records. The ownership interest of each actual purchaser of each Series 2016 Bond ("Beneficial Owner") is in turn to be recorded on the Direct and Indirect Participants’ records. Beneficial Owners will not receive written confirmation from DTC of their purchase. Beneficial Owners are, however, expected to receive written confirmations providing details of the transaction, as

2 well as periodic statements of their holdings, from the Direct or Indirect Participant through which the Beneficial Owner entered into the transaction. Transfers of ownership interests in the Series 2016 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 Series 2016 Bonds, except in the event that use of the book-entry system for the Series 2016 Bonds is discontinued.

To facilitate subsequent transfers, all Series 2016 Bonds deposited by Direct Participants with DTC are registeredinthenameofDTC’spartnershipnominee,Cede&Co.,orsuchothernameasmayberequestedbyan authorized representative of DTC. The deposit of the Series 2016 Bonds with DTC and their registration in the name of Cede & Co. or such other DTC nominee do not effect any change in beneficial ownership. DTC has no knowledge of the actual Beneficial Owners of the Series 2016 Bonds; DTC’s records reflect only the identity of the Direct Participants to whose accounts such Series 2016 Bonds are credited, which may or may not be the Beneficial Owners. The Direct and Indirect Participants will remain responsible for keeping account of their holdings on behalf of their customers.

Conveyance of notices and other communications by DTC to Direct Participants, by Direct Participants to Indirect Participants, and by Direct Participants and Indirect Participants to Beneficial Owners will be governed by arrangements among them, subject to any statutory or regulatory requirements as may be in effect from time to time. Beneficial Owners of the Series 2016 Bonds may wish to take certain steps to augment the transmission to them of notices of significant events with respect to the Series 2016 Bonds, such as redemptions, tenders, defaults, and proposed amendments to the security documents. For example, Beneficial Owners of the Series 2016 Bonds may wish to ascertain that the nominee holding the Series 2016 Bonds for their benefit has agreed to obtain and transmit notices to Beneficial Owners. In the alternative, Beneficial Owners may wish to provide their names and addresses to the registrar and request that copies of notices be provided directly to them.

Redemption notices shall be sent to DTC. If less than all of the Series 2016 Bonds of a single 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 Series 2016 Bonds unless authorized by a Direct Participant in accordance with DTC’s MMI Procedures. Under its usual procedures, DTC mails an Omnibus Proxy to the Board as soon as possible after the record date. The Omnibus Proxy assigns Cede & Co.’s consenting or voting rights to those Direct Participants to whose accounts the Series 2016 Bonds are credited on the record date (identified in a listing attached to the Omnibus Proxy).

Principal, premium (if any) and interest payments on the Series 2016 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 Board or the Trustee, on a payment date in accordance with their respective holdings shown on DTC’s records. Payments by Participants to Beneficial Owners will be governed by standing instructions and customary practices, as is the case with securities held for the accounts of customers in bearer form or registered in "street name," and will be the responsibility of such Participant and not of DTC, the Trustee or the Board, subject to any statutory or regulatory requirements as may be in effect from time to time. Payment of principal, premium (if any) and interest to Cede & Co. (or such other nominee as may be requested by an authorized representative of DTC) is the responsibility of the Board or the Trustee, disbursement of such payments to Direct Participants will be the responsibility of DTC, and disbursement of such payments to the Beneficial Owners will be the responsibility of Direct and Indirect Participants.

THE BOARD AND THE TRUSTEE CANNOT AND DO NOT GIVE ANY ASSURANCES THAT DTC, THE DTC PARTICIPANTS OR THE INDIRECT PARTICIPANTS WILL DISTRIBUTE TO THE BENEFICIAL OWNERS OF THE SERIES 2016 BONDS (1) PAYMENTS OF PRINCIPAL, REDEMPTION PRICE OR INTEREST ON THE SERIES 2016 BONDS; (2) CERTIFICATES REPRESENTING AN OWNERSHIP INTEREST OR OTHER CONFIRMATION OF BENEFICIAL OWNERSHIP INTERESTS IN SERIES 2016 BONDS OR (3) REDEMPTION OR OTHER NOTICES SENT TO DTC OR CEDE & CO., ITS NOMINEE, AS THE REGISTERED OWNER OF THE SERIES 2016 BONDS, OR THAT THEY WILL DO SO ON A TIMELY BASIS OR THAT DTC, DTC PARTICIPANTS OR INDIRECT PARTICIPANTS WILL SERVE AND ACT IN

3 THE MANNER DESCRIBED IN THIS OFFICIAL STATEMENT. THE CURRENT "RULES" APPLICABLE TO DTC ARE ON FILE WITH THE SECURITIES AND EXCHANGE COMMISSION, AND THE CURRENT "PROCEDURES" OF DTC TO BE FOLLOWED IN DEALING WITH DTC PARTICIPANTS ARE ON FILE WITH DTC.

NEITHER THE BOARD NOR THE TRUSTEE WILL HAVE ANY RESPONSIBILITY OR OBLIGATION TO ANY DTC PARTICIPANT, INDIRECT PARTICIPANT OR ANY BENEFICIAL OWNER OR ANY OTHER PERSON WITH RESPECT TO: (1) THE SERIES 2016 BONDS; (2) THE ACCURACY OF ANY RECORDS MAINTAINED BY DTC OR ANY DTC PARTICIPANT OR INDIRECT PARTICIPANT; (3) THE PAYMENT BY DTC OR ANY DTC PARTICIPANT OR INDIRECT PARTICIPANT OF ANY AMOUNT DUE TO ANY BENEFICIAL OWNER IN RESPECT OF THE PRINCIPAL OR REDEMPTION PRICE OF OR INTEREST ON THE SERIES 2016 BONDS; (4) THE DELIVERY BY DTC OR ANY DTC PARTICIPANT OR INDIRECT PARTICIPANT OF ANY NOTICE TO ANY BENEFICIAL OWNER WHICH IS REQUIRED OR PERMITTED UNDER THE TERMS OF THE INDENTURE TO BE GIVEN TO BONDHOLDERS; (5) THE SELECTION OF THE BENEFICIAL OWNERS TO RECEIVE PAYMENT IN THE EVENT OF ANY PARTIAL REDEMPTION OF THE SERIES 2016 BONDS; OR (6) ANY CONSENT GIVEN OR OTHER ACTION TAKEN BY DTC AS A BONDHOLDER.

Discontinuation of Book-Entry Only System

DTC may determine to discontinue providing its services with respect to the Series 2016 Bonds at any time by giving notice to the Board and the Trustee and discharging its responsibilities with respect thereto under applicable law. Upon the giving of such notice, the book-entry only system for the Series 2016 Bonds will be discontinued unless a successor securities depository is appointed by the Board. In addition, the Board may discontinue the book-entry through DTC (or a successor securities depository) for the Series 2016 Bonds at any time by giving reasonable notice to DTC. In that event, Bond certificates will be printed and delivered as described below.

In the event that the book-entry only system for the Series 2016 Bonds is discontinued, the following provisions would apply, subject to the further conditions set forth in the Indenture:

The principal of the Series 2016 Bonds is payable at the corporate trust office of the Trustee in East Syracuse, New York, only upon presentation and surrender of the Series 2016 Bonds. Interest on the Series 2016 Bonds is computed on the basis of a 360-day year of twelve consecutive 30-day months and is payable by check or draft mailed on the interest payment date by the Trustee to the registered holders of the Series 2016 Bonds at their respective addresses as shown on the registry books of the Trustee pertaining to the Series 2016 Bonds as of the close of business on the May 15 or November 15, as the case may be, next preceding the interest payment date ("the Record Date"). Any principal or interest with respect to any Series 2016 Bond that becomes due on a day other than a Business Day (as defined in the Indenture) shall be payable on the next succeeding Business Day and no interest shall accrue in the interim.

The Indenture makes special provision for payment of overdue interest which may be paid to a holder other than the registered holder of a Series 2016 Bond on the Record Date next preceding the interest payment date on which such interest becomes due and payable.

The Series 2016 Bonds shall be registered as to both principal and interest and may be transferred only on the registry books of the Trustee pertaining to the Series 2016 Bonds. No transfer of the Series 2016 Bonds shall be permitted except upon presentation and surrender of such Series 2016 Bond at the office of the Trustee with written power to transfer signed by the registered owner thereof in person or by a duly authorized attorney in form and with guaranty of signature satisfactory to the Trustee. The holder of one or more of the Series 2016 Bonds may, upon request, and upon the surrender to the Trustee of such Series 2016 Bond, exchange such Series 2016 Bond for Series 2016 Bonds of other authorized denominations ($5,000 principal amount or any integral multiple thereof) of the same maturity and interest rate and together aggregating the same principal amount as the Series 2016 Bonds so surrendered. Any registration, transfer and exchange of Series 2016 Bonds shall be without expense to the holder thereof, except that the holder shall pay all taxes and other governmental charges, if any, required to be paid in connection with such transfer, registration or exchange. The holder of any Series 2016 Bond will be required to pay

4 any expenses incurred in connection with the replacement of a mutilated, lost, stolen or destroyed Series 2016 Bond. If any Series 2016 Bond is duly called for redemption (in whole or in part), the Trustee shall not be required to register, transfer or exchange such Series 2016 Bond during the period of forty-five (45) days next preceding the date fixed for redemption.

Redemption

Optional Redemption. Those of the Series 2016 Bonds having a stated maturity in _____ or thereafter shall be subject to redemption and payment, at the option of the Board, on ______1, ____, and on any date thereafter, as a whole or in part (but if redeemed in part, only in installments of $5,000 or any integral multiple thereof with those of the maturities to be redeemed to be selected by the Board, and if less than all the Series 2016 Bonds of a single maturity are to be redeemed, those (or portions thereof) of that maturity to be redeemed to be selected by the Trustee by lot), at and for a redemption price equal to the principal amount of each such Series 2016 Bond (or portion thereof) to be redeemed, plus accrued interest to the redemption date.

Scheduled Mandatory Redemption. (a) Those of the Series 2016 Bonds having a stated maturity in _____ ("the ____ Term Series 2016 Bonds") shall be subject to redemption and payment, and the Board shall redeem and pay such _____ Term Series 2016 Bonds, at and for a Redemption Price, with respect to each such _____ Term Series 2016 Bond or portion thereof to be redeemed, equal to the principal amount thereof plus accrued interest to the Redemption Date (with those to be redeemed to be selected by the Trustee by lot) but only in the following principal amounts on December 1 in the following years:

Year (December 1) Amount Redeemed

(Maturity)

(b) Those of the Series 2016 Bonds having a stated maturity in _____ ("the ____ Term Series 2016 Bonds") shall be subject to redemption and payment, and the Board shall redeem and pay such _____ Term Series 2016 Bonds, at and for a Redemption Price, with respect to each such _____ Term Series 2016 Bond or portion thereof to be redeemed, equal to the principal amount thereof plus accrued interest to the Redemption Date (with those to be redeemed to be selected by the Trustee by lot) but only in the following principal amounts on December 1 in the following years:

Year (December 1) Amount Redeemed

(Maturity)

Credits Against Scheduled Mandatory Redemption

The Board may, upon written direction to the Trustee not less than sixty (60) days prior to any such scheduled mandatory Redemption Date, direct that any or all of the following amounts be credited against the principal amount of Series 2016 Bonds having a stated maturity required to be redeemed on such date: (i) the principal amount of Series 2016 Bonds having such a stated maturity delivered by the Board for cancellation and not previously claimed as a credit; and (ii) the principal amount of Series 2016 Bonds having such a stated maturity (A) previously redeemed pursuant to the provisions for optional redemption set forth above or (B) called to be redeemed pursuant to the provisions for optional redemption set forth above on or before such scheduled mandatory Redemption Date pursuant to a trust agreement satisfying the requirements of the Indenture, and not previously claimed as a credit.

5 Manner, Notice and Effect of Redemption

The Series 2016 Bonds are subject to redemption only in principal amounts of $5,000 or any integral multiple thereof. Notice of redemption is required to be mailed by registered or certified mail to the registered owner of each Series 2016 Bond called for redemption, such notice to be mailed not more than sixty (60) nor less than thirty (30) days prior to the date fixed for redemption. No further interest will accrue, after the date fixed for redemption, on the principal of any Series 2016 Bonds called for redemption if notice has been duly given as provided in the Indenture, and payment therefore has been duly provided, and in such event any Series 2016 Bond called for redemption will no longer be protected by the provisions of the Indenture.

SECURITY FOR THE SERIES 2016 BONDS

General

The Series 2016 Bonds are not obligations of the State of Alabama, the City of Daphne, Alabama ("the City"), or any other municipality or other political subdivision of the State of Alabama. The Series 2016 Bonds will not constitute a charge against the general credit of the Board and will not be secured by a foreclosable mortgage lien on the Systems. The Board has no taxing power.

The Series 2016 Bonds will constitute limited obligations of the Board, payable solely out of the Pledged Revenues and will be secured by a pledge of the Pledged Revenues on a parity of lien and pledge with the any of the Additional Bonds that may hereafter be issued, but subordinate to the pledge of the Pledged Revenues made in the 1990 Indenture for the benefit of the Prior Lien Bonds. The Series 2016 Bonds and any Additional Bonds hereinafter referred to will be secured by a pledge of the revenues out of which they are payable and by the provisions of the Indenture, provided that such revenues will be applied first to the payment of the costs of operating and maintaining the Systems.

Series 2016 Reserve Fund Credit Facility

Application has been made to National Public Finance Guarantee Corporation ("the Series 2016 Credit Facility Obligor") for a commitment to issue a surety bond (the "Series 2016 Reserve Fund Credit Facility"). The Series 2016 Reserve Fund Credit Facility provides that upon notice from the Trustee to the Series 2016 Credit Facility Obligor to the effect that insufficient amounts are on deposit in the Bond Bund to pay the principal of (at maturity or pursuant to mandatory redemption requirements) and interest on the Bonds secured by the Reserve Fund, the Series 2016 Credit Facility Obligor will promptly deposit with the Trustee an amount sufficient to pay the principal of and interest on the Bonds secured by the Reserve Fund, or the available amount of the Series 2016 Reserve Fund Credit Facility, whichever is less. Upon the later of: (i) three (3) days after receipt of a Demand for Payment in the form attached to the Series 2016 Reserve Fund Credit Facility, duly executed by the Trustee; or (ii) the payment date of the Bonds secured by the Reserve Fund, as specified in the Demand for Payment presented by the Trustee to the Series 2016 Credit Facility Obligor, the Series 2016 Credit Facility Obligor will make a deposit of funds in an account with U.S. Bank Trust National Association, in New York, New York, or its successor, sufficient for the payment to the Trustee, of amounts which are then due to the Trustee (as specified in the Demand for Payment) subject to the Surety Bond Coverage.

The available amount of the Series 2016 Reserve Fund Credit Facility is the initial face amount of the Series 2016 Reserve Fund Credit Facility less the amount of any previous deposits by the Series 2016 Credit Facility Obligor with the Trustee which have not been reimbursed by the Board. The Board and the Series 2016 Credit Facility Obligor have entered into a Financial Guaranty Agreement dated as of April 26, 2016 ("the Guaranty Agreement"). Pursuant to the Guaranty Agreement, the Board is required to reimburse the Series 2016 Credit Facility Obligor, with interest, within one (1) year of any deposit, the amount of such deposit made by the Series 2016 Credit Facility Obligor with the Trustee under the Series 2016 Reserve Fund Credit Facility.

No optional redemption of Bonds may be made until the Series 2016 Reserve Fund Credit Facility is reinstated. The Series 2016 Reserve Fund Credit Facility is held by the Trustee in the Reserve Fund and is provided

6 as an alternative to the Board depositing funds equal to the Maximum Required Reserve Fund Deposit for outstanding Bonds.

CURRENT REFUNDING OF THE REFUNDED SRF BONDS

A portion of the proceeds from the Series 2016 Bonds, along with certain funds on deposit in the special funds created under the 1990 Indenture, will be deposited into a special trust fund ("the Escrow Fund") created under an Escrow Trust Agreement dated as of April 1, 2016, between the Board and the 1990 Trustee. Moneys on deposit in the Escrow Fund will be sufficient, without reinvestment, to pay all principal and interest maturing with respect to the Refunded SRF Bonds on or before ______, _____, and to redeem on ______, _____, those of the Refunded SRF Bonds maturing in ______and thereafter. Prior to the issuance of the Series 2016 Bonds, the Board will call all of the Refunded SRF Bonds for redemption on ______, ______.

SOURCES AND USES OF FUNDS

The proceeds to be derived from the sale of the Series 2016 Bonds, are expected to be applied substantially as follows:

SOURCES: Series 2016 Bonds Net Original Issue [Premium] [Discount] Transfer from 1990 Indenture Funds Total Sources:

USES: Deposit to Escrow Fund Cost of Issuance (including underwriter’s discount) Total Uses:

THE BOARD

General

The Board is a public corporation under the provisions of Act No 175 adopted at the 1951 Regular Session of the Legislature of Alabama, as amended (now codified as Article 9 of Chapter 50 of Title 11 of the Code of the Alabama of 1975, as amended). The creation of the Board, its certificate of incorporation and amendments thereto have, as required by the applicable statutes, been consented to by the governing body of the City of Daphne, Alabama ("the City"). Under its certificate of incorporation and Act No. 175, the Board has corporate power to acquire and operate the Systems and to issue bonds payable from the revenues derived therefrom.

Governing Body

Control of the Board is vested in a five-member board of directors elected by the governing body of the City for six-year staggered terms. The current members of the Board of Directors of the Board and the date of the end of their respective terms are set forth below:

7 Name End of Term Randy Fry June 12, 2016* Mayor Dane Haygood June 12, 2017* Robert Segalla June 12, 2019 Billy Mayhand June 12, 2021 Selene Vaughn June 12, 2021

*The terms of Randy Fry and Mayor Dane Haygood will end on the earlier of the expiration of their terms of office on the Board of Directors of the Board and the end of their terms as a member of the Council or the Mayor, respectively.

Debt Limitation

The Board has full power under the applicable statutes and its certificate of incorporation to incur indebtedness in accordance with the provisions of said Act No. 175 without limitation as to aggregate principal amount. The Board is not subject to any general constitutional or statutory debt limitation.

THE SYSTEMS

General

Administration. The Board owns and operates the Systems. The General Manager is appointed by its Board of Directors and has day-to-day responsibility for the management and supervision of the Systems. The current General Manager, Danny Lyndall, was appointed by the Board of Directors as of September 1, 2014, after having served as Assistant General Manager since 2006. Various supervisory personnel assist Mr. Lyndall with the fulfillment of the tasks assigned to him. The Operations Manager is Van Baggett, PE, the Administrative Services Manager is Drew Klumpp and the Finance Manager is Teresa Logiotatos.

Ratesetting Authority. The Board has complete rate-making authority, and its decisions in regard to rates and charges for services are not subject to regulatory review; the Board's rates and charges are, however, subject to judicial review as to reasonableness.

Franchises. The Board has all necessary franchises to operate those portions of the Systems serving customers within the corporate limits of municipalities.

Personnel. The Board currently employs approximately sixty-seven (67) persons, who are paid from the revenues of the Systems. The benefits and compensation for all employees of the Board are established by the Board of Directors. The employees of the Board are not represented by any union and are not covered by any collective bargaining agreement.

Audit Information. A copy of the audited financial statements of the Board for the fiscal year that ended on September 30, 2015, is attached hereto as Appendix B.

Water System

Service Area. The general service area of the Water System includes the Cities of Daphne and Spanish Fort, a portion of the City of Fairhope and the communities of Montrose and Belforest, as well as the rural areas extending between these communities. The Board is not legislatively restricted with respect to the geographic area within Alabama in which it may provide water service.

Supply, Distribution System and Storage. The water distribution system of the Board is comprised of approximately 250 miles of water main, presently serving approximately 10,685 metered customers. The water source is taken from eleven deep wells with a capacity to produce approximately 7,000,000 gallons per day. The average usage of the Water System during the past year is in excess of 4,000,000 gallons per day, with the highest

8 usage during the past two years of 5,000,000 gallons per day. The Water System has eight storage tanks with a combined capacity of 5,125,000 gallons.

Capital Improvement Program. Some of the capital improvements planned for the Water System in the near future include the following: (a) a 1,000,000-gallon water storage tank on Douglas Road with a cost of approximately $1.2 million and (b) combining wells 1 and 2 into a single facility to meet customer needs on the south portion of the Water System and to meet newly-adopted federal and state regulations for water treatment, with construction to begin in the current fiscal year at an anticipated cost of $1.8 million. The cost of the capital improvements will be paid in part from operating revenues and in part from the capital reserve fund.

Customers. Water System customers for the five fiscal years ending September 30, 2015, were as follows:

Year Customers 2015 10,685 2014 10,640 2013 10,596 2012 10,643 2011 10,836

Customer Rankings Water and Sewer Combined. The relative rankings of Water and Sewer customers are generally the same since the largest water customers are also sewer customers and the sewer customers are billed on a percentage of water used under the rate structure in effect during the fiscal year ended September 30, 2015. Water and Sewer revenues, combined for that customer population, are provided here.

The following table lists the Board's ten largest water and sewer customers, their combined water and sewer revenues and their water usage for the fiscal year ending September 30, 2015:

Annual Water Volume Total Water and Percentage of Customer (1,000 gallons) Sewer Revenues Total Gallons Sold Hilton Garden Inn 5,866 $48,688.86 0.66% ESHRC LLC 4,555 42,752.35 0.51 Hampton Inn 5,325 37,063.55 0.60 Homewood Suites 3,657 35,809.83 0.41 Comfort Suites 3,801 35,047.80 0.43 Eastern Shore Toyota 4,106 33,648.13 0.46 Port city Cleaners 2,428 23,906.51 0.27 Spriggs Enterprises 2,329 19,367.33 0.26 Microtel Inn 2,017 18,817.18 0.23 Wings 1,414 12,311.11 0.16

Average Residential Billing. For the fiscal year ending September 30, 2015, the average residential customer of the Board used 6,000 gallons of water and paid $27.79 per month.

Water Consumption Data. Water consumption, expressed in gallons sold, for the five fiscal years ending September 30, was as follows:

Fiscal Year 1,000 Gallons 2015 891,948 2014 898,718 2013 910,518 2012 981,071 2011 1,220,469

9 Water Rates. The following is the present schedule of rates for water service from the Water System:

Inside City of Daphne Usage (Gallons/Month) Residential Commercial Municipal Up to 1,000 $13.29 minimum $16.78 minimum $15.11 minimum 1,001 and over 2.90 per 1,000 3.44 per 1,000 3.12 per 1,000

Outside City of Daphne Usage (Gallons/Month) Residential Commercial Up to 1,000 $19.51 minimum $19.84 minimum 1,001 and over 3.44 per 1,000 4.29 per 1,000

Irrigation Inside City of Daphne Usage (Gallons/Month) Residential Commercial Municipal First 1,000 $13.29 minimum $16.78 $15.11 1,001 and over 2.90 per 1,000 3.44 per 1,000 3.12 per 1,000

Outside City of Daphne Usage (Gallons/Month) Residential Commercial First 1,000 $19.51 $19.84 1,001 and over 3.44 per 1,000 4.29 per 1,000

10 Water Large Meters Inside City of Daphne 11/2inch Up to 17,000 $43.14 minimum Over 17,000 3.44 per 1,000 2inch Up to 29,000 $71.86 minimum Over 29,000 3.44 per 1,000 3inch Up to 63,000 $151.37 minimum Over 63,000 3.44 per 1,000 4inch Up to 126,000 $301.23 minimum Over 126,000 3.44 per 1,000 Outside City of Daphne

1 1/2 inch Up to 17,000 $43.14 minimum Over 17,000 4.29 per 1,000 2 inch Up to 29,000 $71.86 minimum Over 29,000 4.29 per 1,000 3 inch Up 63,000 $151.37 minimum Over 63,000 4.29 per 1,000 4 inch Up to 126,000 $301.23 minimum Over 126,000 4.29 per 1,000 Municipal Large Meters

1 1/2 inch Up to 17,000 $38.85 minimum 17,001 and over 3.12 per 1,000 2 inch Up to 29,000 $64.68 minimum 29,001 and over 3.12 per 1,000 3 inch Up to 63,000 $136.25 minimum 63,001 and over 3.12 per 1,000

Sewer System

Service Area. The Board presently serves 11,003 residential and 726 commercial sewer customers in the Cities of Daphne and Spanish Fort, and the community of Belforest.

Transmission and Treatment Facilities.TheSewerSystemincludesapproximately164milesof interceptor lines ranging in size from 3" force mains to 24" gravity mains with 76 lift stations, 28 miles of force mains and a 4.17 million-gallon per day activated sludge-extended aeration treatment facility. The waste water treatment facility has a hydraulic capacity of processing 4,170,000 gallons per day. The peak daily flow in fiscal year 2015 was 7.2 MGD. The average daily volume treated in fiscal year 2015 was 2.5 MGD.

11 Customers. Sewer customers of the Board and their usage for the five most-recent fiscal years ending September 30, were as follows:

Usage Year Customers (1,000 gallons) 2015 11,729 622,278 2014 11,612 615,211 2013 11,515 648,706 2012 10,293 616,660 2011 10,206 733,982

Customer Rankings Water and Sewer Combined. The relative rankings of Water and Sewer customers are generally the same, since the largest water customers are also sewer customers. Water and Sewer revenues, combined for that customer population are provided in the section of this Official Statement describing the Water System.

Average Residential Service Billing. For the fiscal year ending September 30, 2015, the average residential customer discharged 6,000 gallons of water and paid $48.55.

Capital Improvement Program. Some of the capital improvements planned for the Sewer System in the near future include the following: (a) upgrades to the Jubilee Point Lift Station to meet the capacity demands of customers, which improvements are expected to cost $500,000; and (b) Timbercreek force main replacement to meet increased capacity demand of customers and current deficiencies in a critical sewer main at an estimated cost of $200,000. The costs of these capital improvements will be paid in part out of operating revenues, in part from the capital reserve fund and in part from a grant from EPA.

Sewer Rates

The Board adopts the rates charged for sewer service by resolution. The rates are not subject to any federal or state regulatory authority. The Board has the following sewer service rate classifications that were instituted October 1, 2015, and are presently in effect:

Inside City of Daphne Usage (Gallons/Month) Residential Commercial Municipal Up to 1,000 $22.00 minimum $24.76 minimum $22.29 minimum 1,001 and over 5.31 per 1,000 6.60 per 1,000 5.95 per 1,000

Outside City of Daphne Usage (Gallons/Month) Residential Commercial Up to 1,000 $27.59 minimum $28.89 minimum 1,001 and over 6.26 per 1,000 7.90 per 1,000

Sewer Flat Rates Residential $37.94 Multi-Family 32.62 Minimal Commercial 51.18 All Other Commercial To be determined

12 Sewer Large Meters Inside City of Daphne 1 1/2 inch Up to 17,000 $60.83 minimum Over 17,000 6.60 per 1,000 2 inch Up to 29,000 $98.38 minimum Over 29,000 6.60 per 1,000 3 inch Up to 63,000 $204.56 minimum Over 63,000 6.60 per 1,000 4 inch Up to 126,000 $401.44 minimum Over 126,000 6.60 per 1,000 Outside City of Daphne 1 1/2 inch Up to 17,000 $60.83 minimum Over 17,000 7.90 per 1,000 2 inch Up to 29,000 $98.38 minimum Over 29,000 7.90 per 1,000 3 inch Up to 63,000 $204.56 minimum Over 63,000 7.90 per 1,000 4 inch Up to 126,000 $401.44 minimum Over 126,000 7.90 per 1,000 Municipal Large Meters 1 1/2 inch Up to 17,000 $55.12 minimum 17,001 and over 5.95 per 1,000 2 inch Up to 29,000 $88.55 minimum 29,001 and over 5.95 per 1,000 3 inch Up to 63,000 $184.04 minimum 63,001 and over 5.95 per 1,000

Gas System

Service Area. The Gas System serves the Eastern Shore area of Baldwin County, Alabama, including the cities, towns and communities of Daphne, Spanish Fort, the Crossroads Community near Bay Minette and southeast to the corporate limits of Silverhill, Alabama and the surrounding rural areas around and between these communities. The Board is not legislatively restricted with respect to the geographic area within Alabama in which it may provide gas service.

Supply. The Board holds a firm, No-Notice Service Contract with Gulf South Pipe Line Company which provides for gas transportation as well as gas storage. The Board's primary supply of natural gas is provided via a Firm Supply Contract with BP Energy Company. Purchases are made by the Board at the point gas is delivered by

13 Gulf South to the Board's system which is through one gate station located approximately 17 miles North of Daphne. Payment for supply from BP Energy Company, as well as No-Notice Service from Gulf South for transportation and service, are made based on actual volumes delivered to the gate station. The Board's contract with Gulf South provides for a maximum daily transportation volume in the winter season of 1,500 MMBTU's, in the summer season of 525 MMBTU's and 750 MMBTU's in the shoulder months of April and October. In addition, the Board has the potential of storing 15,000 DTH of gas within its distribution system to be used as peaking supply and maintains approximately 15,000 DTH of gas at all times as emergency supply. The Board's maximum daily usage in fiscal year 2015 was 2,156,000 cubic feet and the average daily usage in the same period was 1,638,459 cubic feet.

Distribution. The Gas System is comprised of one district regulating station and over 130 miles of main ranging in size from 1" to 4" in diameter which are operated at pressures ranging from 20 psi to 55 psi. In addition, the Gas System has 31 miles of 8" main with available operating pressure of up to 275 psi.

Customers. Total natural gas customers of the Board for the five fiscal years ending September 30, 2015, were as follows:

Year Customers 2015 4,690 2014 4,556 2013 4,448 2012 4,364 2011 4,298

The following table lists the Board's ten largest gas customers and their usage for the fiscal year ending September 30, 2015.

Annual Volume Annual Gas Percentage of Customer (CCF) Revenues Total CCF Sold WJ Carroll School 41,343 $59,925.35 2.16% ESRHC LLC 44,002 55,505.81 2.30 Daphne Elementary 32,629 47,136.60 1.71 Thomas Hospital 34,249 45,483.23 1.79 California Dreaming 30,931 41,712.56 1.62 Infirmary Health System 30,772 41,369.34 1.61 City of Daphne 29,959 39,640.13 1.57 Hilton Garden Inn 24,868 32,182.26 1.30 Wings 20,666 28,031.7 1.08 Cracker Barrel 19,240 26,383.94 1.01

Average Residential Billing. For the fiscal year ending September 30, 2015, the average residential customer of the Board used 26 cubic feet per month of natural gas and paid an average of $41.90 per month. The rate includes a purchased gas adjustment (PGA) mechanism that allowed for the recovery of short term price spikes.

14 Annual Natural Gas Sales. Natural gas sales were, for the five fiscal years ending September 30, 2015, as follows:

Fiscal Year Annual Sales 2015 $1,913,644 2014 2,330,376 2013 1,923,080 2012 1,818,831 2011 2,269,123

Capital Improvement Program. The Board is anticipating increasing its ability to provide CNG service to fleet customers throughout the area and will be upgrading its CNG production facilities in the near future. Anticipated cost over the next three (3) years is $500,000.

Rates. The Board adopts the rates charged for gas service by resolution. The rates are not subject to any federal or state regulatory authority. The following natural gas rates, effective September 30, 2014, are presently in effect:

The following is the schedule of rates for gas service from the Gas System:

$5.50 Flat fee $1.40 Each 100 cubic feet

(rates change monthly).

Billing Procedure

Bills are submitted each month. Each bill is due when rendered, and becomes delinquent twenty-one days from the date thereof. An added charge of ten percent (10%) of the amount of each bill will be added to the delinquent bills. Failure to pay a bill within twenty-seven days of its rendition results in discontinuation of water and sewer service until all amounts owing and unpaid, including reconnection charges of $50.00, have been paid in full.

FINANCIAL INFORMATION

Historical Operations

The following table shows a summary of the revenues and expenses of the Board from the Systems for the fiscal years that ended September 30, 2011, September 30, 2012, September 30, 2013, September 30, 2014 and September 30, 2015:

15 Fiscal Year Fiscal Year Ending Fiscal Year Fiscal Year Fiscal Year Ending 09/30/2014 Ending Ending Ending 09/30/2015 (Restated) 09/30/2013 09/30/2012 09/30/2011

OPERATING REVENUES Service Income $13,233,032 $13,647,480 $12,335,855 $12,222,142 $12,233,806 Capacity Fees 909,362 499,005 722,198 438,193 428,061 Penalties 78,624 78,080 69,100 84,549 72,248 Cut on/off fees 36,799 30,730 35,632 54,068 39,429 Recovery of Bad Debt 0 0 1,212 104,070 0 Aid to construction 33,800 30,475 14,200 19,225 20,800 Other Revenue 90,180 105,630 88,250 101,255 0

TOTAL $14,381,797 $14,391,400 $13,266,447 $13,023,502 $12,794,344 OPERATING EXPENSES Salaries $2,608,189 $2,564,249 $2,675,696 $2,792,447 $2,802,070 Fringe benefits 819,617 967,551 957,675 942,104 868,017 Systems expense 3,077,402 3,654,617 2,935,091 3,198,063 2,870,034 Repairs and Maintenance 704,043 857,135 633,344 582,433 541,237 Bad debts 12,788 32,748 24,898 56,306 65,663 Supplies and other system 731,213 590,960 582,429 629,548 611,196 Communications 89,099 83,189 83,279 81,299 71,617 Professional services 208,202 321,305 233,841 116,756 173,201 Meetings, dues and travel 101,655 106,766 84,580 98,788 84,499 Insurance 182,067 168,910 159,096 161,035 151,331 Vehicle expense 110,131 156,504 174,047 184,850 173,817 Uniforms 35,415 33,614 27,561 29,100 33,634 Depreciation 1,754,237 1,656,017 1,583,409 1,396,882 1,345,836

TOTAL $10,434,058 $11,193,565 $10,154,946 $10,269,611 $9,792,152

NET OPERATING INCOME (LOSS) $3,947,739 $3,197,835 $3,111,501 $2,753,891 $3,002,192

NON-OPERATING REVENUE (EXPENSES) Interest Income $ 10,659 $8,481$10,130 $ 15,927 $ 23,315 Interest expense (544,600) (620,744) (682,692) (770,436) (784,807) Amortization (11,622) (9,502) (9,502) (122,846) (116,783) Other revenue 188,434 Principal forgiveness 2,235,169 Lawsuit settlement 22,814

TOTAL $ (555,563) $ (621,765) $ (682,064) $ (877,355) $1,568,142

INCREASE IN NET POSITION $3,392,176 $2,576,070 $2,429,437 $1,876,536 $4,570,334

NET ASSETS – BEGINNING $35,548,997 $33,138,073 $32,090,493 $25,643,623 OF YEAR $30,213,957

PRIOR PERIOD $ (716,462) $ (165,146) $(1,381,857) 0 0 ADJUSTMENT

NET ASSETS – END OF $38,224,711 $35,548,997 $33,138,073 $32,090,493 $30,213,957 YEAR$

16 ESTIMATED DEBT SERVICE REQUIREMENTS FOR THE PRIOR LIEN BONDS, THE SERIES 2016 BONDS AND THE SUBORDINATED SRF BOND

The following table sets forth the estimated principal and interest requirements for the Prior Lien Bonds, the Series 2016 Bonds and the Subordinated SRF Bond:

Fiscal Year Series 2016 Bonds* Ended Prior Lien Subordinated September 30 Bonds SRF Bond Principal Interest Total 2016 $1,276,317.50 $ 38,285.00 $17,634.58 $1,332,237.08 2017 1,386,355.00 219,322.50 $395,000.00 101,857.50 2,102,535.00 2018 1,383,730.00 219,750.00 455,000.00 93,357.50 2,151,837.50 2019 1,389,620.00 215,100.00 460,000.00 84,207.50 2,148,927.50 2020 1,388,220.00 215,372.50 465,000.00 74,957.50 2,143,550.00 2021 775,170.00 215,490.00 480,000.00 65,507.50 1,536,167.50 2022 204,470.00 215,452.50 490,000.00 56,787.50 966,710.00 2023 205,870.00 215,260.00 495,000.00 48,660.00 964,790.00 2024 201,992.50 219,835.00 510,000.00 39,862.50 971,690.00 2025 207,867.50 219,177.50 515,000.00 30,122.50 972,167.50 2026 203,230.00 218,365.00 525,000.00 19,328.75 965,923.75 2027 208,330.00 217,397.50 295,000.00 10,292.50 731,020.00 2028 202,965.00 216,275.00 300,000.00 3,450.00 722,690.00 2029 202,322.50 219,920.00 422,242.50 2030 201,337.50 218,332.50 419,670.00

*Preliminary. Subject to change.

Debt Service Coverage

The table appearing below shows the actual total income available for debt service of the Board for its fiscal years that ended on September 30, 2014 and September 30, 2015

Revenue Available for Debt Service Fiscal Year Ending September 30 2014 2015 Income from Operations $3,197,835 $3,947,739 Depreciation & Amortization 1,656,017 1,754,237 Interest Income 8,481 10,659 Total $4,862,333 $5,712,635

Based on total Income Available for Debt Service of the Board for fiscal year ended September 30, 2015 ($5,712,635), Average Annual Debt Service on the Prior Lien Bonds, the Subordinated SRF Bond and the Series 2016 Bonds of $1,279,459 would be covered approximately 4.46 times, and Maximum Annual Debt Service on such Bonds of $2,151,837.50 would be covered approximately 2.65 times.

17 ECONOMIC AND DEMOGRAPHIC INFORMATION

General

The City of Daphne is located on the eastern shore of Mobile Bay in Baldwin County, Alabama directly across Mobile Bay from the City of Mobile, Alabama. The City is approximately 15 miles east of Mobile, Alabama, and 45 miles west of Pensacola, Florida. The City is primarily a residential area with its residents working on the eastern shore of Baldwin County or in the Mobile or Pensacola areas. The City experienced rapid growth during the 1980's and the 1990's as a result of both annexations and the relocation of a number of Mobile County residents into the City. The City is linked to Mobile, Alabama to the west and Pensacola, Florida to the east by I-10, a major east- west artery in the nation's interstate system. The City is also located within a short distance of I-65, a major north- south artery in the nation's interstate system. Three U.S. Highways, 90, 98 and 31, and State Highways 225, 104, 69 and 182, also serve the City and its environs.

Baldwin County ("the County") was created and established by the Legislature of the State of Alabama as a political subdivision of the State. The County is located in the extreme southern section of the State of Alabama, and has an area of approximately 1,613 square miles. The County is bordered by Mobile Bay and Mobile County to the west, Clarke County and Monroe County to the north, Escambia County and the State of Florida to the east, and the Gulf of Mexico to the south.

The City of Bay Minette, which is the county seat of the County, is located within thirty miles of Mobile, Alabama, and within fifty miles of Pensacola, Florida. Baldwin County is traversed by two Interstate Highways, 1-10 and 1-65; three U.S. Highways, U.S. 98, 31 and 90; and Alabama Highways 180, 112, 182, 59, 225 and 104.

The County is served by Greyhound Bus Lines as well as by the CSX Transportation System. Mobile Regional Airport is approximately twenty-five miles from the boundary of Baldwin County.

Agriculture, timber, commercial fishing and support industries are a large part of the basic economy, as are oil and gas development, manufacturing and tourism and recreation. The major agricultural products of the County include greenhouse products such as sod and nursery plants, cattle and calves, and to a lesser degree, soybeans, fruits, vegetables and nuts. The major mineral products in Baldwin County are oil and gas.

Population

The following table sets forth certain historical population statistics relating to the City of Daphne and the County:

City of Daphne Baldwin County Census Year Population Population 2014(1) 24,395 200,111 2010 21,570 182,265 2000 16,581 140,415 1990 11,290 98,280 1980 3,406 78,556 1970 2,382 59,382

Source: United States Census Bureau (1) Estimated by State and County QuickFacts Data of the United Stated Census Bureau

The County is located in the second fastest growing metropolitan area in the State. The population within the metropolitan statistical area, comprised of Baldwin and Mobile Counties, increased by 10.2% from 2000 to 2010. From 2000 to 2010 the population of the County increased by 41,850, or 30%. According to census data for 2010, approximately 23.3% of the County's population is under the age of 18, 60% is between the ages of 18-64 and 16.7% of the population is age 65 and over.

18 Major Employers

Manufacturing operations and service industries balance the County's tourism, seafood and agriculture industries. The County's major employers are set out below.

Approximate Number Name of Employer Business of Employees Baldwin County Board of Education Education 3,600 Wal-Mart Super Centers Retail 1,750 Thomas Hospital Healthcare 950 UTC Aerospace Aerospace 820 South Baldwin Regional Medical Center Healthcare 725 Baldwin County Commission Government 670 Standard Furniture Manufacturing 650 Mariott Grand Hotel Hospitality 600 North Baldwin Infirmary Healthcare 350 Vulcan, Inc. Manufacturing 300 Faulkner State Community College Education 285 International Paper Manufacturing 285 Quincy Compressor Manufacturing 220

Source: Baldwin County Economic Development Alliance

Major Categories. The average annual labor force estimates for the County and the Mobile Metropolitan Area are set out below.

Annual Average Labor Force Estimated Baldwin County Employment Status 2014 2013 2012 2011 2010 Civilian Labor Force 85,815 84,953 84,201 84,837 84,060 Employment 80,620 79,392 77,866 77,272 75,765 Unemployment 51,951 5,561 6,335 7,565 8,295 Rate 6.1% 6.5% 7.5% 8.9% 9.9%

Mobile Metropolitan Area Employment Status 2014 2013 2012 2011 2010 Civilian Labor Force 182,413 186,049 188,223 193,238 192,559 Employment 168,242 170,373 170,986 172,550 170,800 Unemployment 14,170 15,676 17,237 20,862 21,759 Rate 7.8% 8.4% 9.2% 10.8% 11.3%

Source: Alabama Department of Industrial Relations Place of residence basis Rate computed on un-rounded data

19 Income Level

Per capita income is the total income of all families and individuals in a given area divided by the total population of the area. For the years 2013 and 2014, the Regional Economic Information System, Bureau of Economic Analysis, Table A1-; internet release date, March, 2015 indicates the following with respect to per capita income levels in the jurisdictions.

2013 2014 Baldwin County 37,922 36,419 State of Alabama 36,176 37,512 United States 44,438 46,049

In 2014, Baldwin County had a per capital personal income (“PCPI”) of $36,419. This PCPI ranked 5th in the state and was 97% of the state average, $37,512, and 79% of the national average of, $46,049. The 2014 PCPI reflected an increase of 2.9% from 2013. The 2013-2014 state change was 3.7% and the national change was 3.6%.

The percentage of all ages in Baldwin County, in the State of Alabama and in the United States with income below the poverty level of 2009-13 is as follows:

Baldwin County 13.9% State of Alabama 18.6 United States 15.4

Source: U.S. Census Bureau: State and County Quick Facts. Data derived from Population Estimates, American Community Survey, and Census of Population and Housing. Release date of December 1, 2015.

Unemployment Rate. The unemployment rate for Baldwin County, the State of Alabama and the United States for the periods shown as follows:

Calendar Year Baldwin County State of Alabama U.S. National Average 2015(1) 5.2% 6.0% 5.3% 2014 6.1 6.8 6.2 2013 6.5 7.2 7.4 2012 7.7 8.9 8.4 2011 7.2 7.5 8.3 2010 8.4 8.9 9.1 2009 10.2 10.6 9.7 2008 4.1 5.1 5.8 2007 2.7 3.6 4.6

Source: Alabama Department of Industrial Relations (1)For the month of November, 2015 only; not an annual average.

20 Ad Valorem Taxes

General. The total ad valorem tax rate applicable for property located in the County and outside of incorporated areas is 30.0 mills. The total ad valorem tax rate is as follows:

Mills State of Alabama 6.5 Baldwin County 0 General and Road & Bridge Fund 7.5 0 School Fund 9.0 0 Special School District Fund 3.0(1) 0 Special School District Fund 1.0(2) Hospital 2.0(3) 0 Health 0.5 0 Volunteer Fire Departments 1.5 0 24.5 Total Tax Rate 30.0

(1) Applicable to School District Two only. (2) Applicable to School District One only. (3) Applicable to northern Precincts l through 7 for northern Baldwin Hospital Fund.

Ad Valorem Taxes Levied by Municipalities Served by the Board. In addition to the ad valorem taxes levied county-wide, the following taxes are levied by the following municipalities served by one or more of the Systems with respect to property located within their respective jurisdictions. The total tax levied with respect to property located in the following jurisdictions is the levy of the respective jurisdiction plus the total county-wide levy shown above:

Municipalities Mills Daphne 15.0 Elberta 5.0 Gulf Shores 5.0 Loxley 6.0 Silverhill 10.0 Summerdale 5.0

Property in Alabama is assessed for ad valorem tax purposes at percentages of market value, varying from ten percent (10%) to thirty percent (30%) depending upon the type of property and the use to which it is being put. The following table shows the assessed value of properties within the City for the past five tax years:

Fiscal Year Ended All Property Other September 30 Than Motor Vehicles (1) Motor Vehicles (2) Total 2015 $329,960,620 $44,532,382 $374,493,002 2014 316,156,140 42,506,788 358,662,928 2013 302,980,260 42,336,658 345,316,918 2012 295,670,780 39,796,596 335,467,376 2011 313,223,360 36,500,570 349,723,930

Sources: (1) Revenue Commissioner of Baldwin County. (2) Baldwin County Judge of Probate

21 Ten Largest Ad Valorem Taxpayers. The ten largest ad valorem taxpayers in the City and the amount of City ad valorem taxes paid by each during the City's fiscal year ended September 30, 2015 (the most recent year for which definitive information is available) are as follows:

Total City Total Taxpayer Tax Due Assessed Value Jubilee Square LLC $101,868.60 6,791,240 Audubon Park Apartments LLC 64,618.20 4,307,880 Myers Family Limited Partnership 43,961.10 2,930,740 Whispering Pines Park LLC 40,041.30 2,669,420 Jubilee Ridge LLC 39,689.40 2,645,960 Lowe's Home Centers, Inc. 33,692.40 2,243,160 Ashley Gates-Brookfield LLC 33,610.80 2,240,720 Wal-Mart Real Estate Business Trust 31,756.20 2,117,080 Esfahant Real Estate Holdings of Alabama 31,078.80 2,071,920 Health Care Reit Inc. 30,080.10 2,005,340

Source: Baldwin County Revenue Commissioner

Health Services

Presently, three (3) hospitals, North Baldwin Hospital, Thomas Hospital, and South Baldwin Regional Medical Center, are operated in Baldwin County. Approximately 240 hospital beds and 565 nursing home beds are maintained in the County.

Utilities

Telephone service is provided throughout the County by several telephone systems including South Central Bell and CenturyLink. Natural gas is provided throughout the County at wholesale by the Board and United Gas Pipeline Company and at retail by municipal systems including Fairhope Utilities and the Board. Electricity is provided by Alabama Power Company, the Board and the Baldwin County Electric Membership Cooperative. Approximately twenty-six (26) public or private water systems are in service in the County. Approximately seven sewage facilities are installed in the County. There is one "Subtitle D" secondary landfill and one transfer station in Baldwin County operated by the County.

EMPLOYEE RETIREMENT PLAN

The Board participates in the Retirement System of the State of Alabama (RSA) which is a cost-sharing multiple employer pension plan. It is the responsibility of the retirement system to act on behalf of the Board as an investment and administrative agent with respect to the pension plan.

For a description of the pension plan and the annual cost to the Board, see Note 3 to the Board's audited financial statements for the fiscal year ended September 30, 2015, attached hereto as Appendix B.

TAX EXEMPTION

General

Pursuant to the provisions of the Internal Revenue Code of 1986, as amended ("the Code"), the exclusion of the interest income on the Series 2016 Bonds from gross income of the recipients thereof for Federal income tax purposes is dependent upon the continued compliance by the Board with certain provisions of the Code subsequent to the issuance of the Series 2016 Bonds, including certain requirements relating to the use and expenditure of the proceeds of the Series 2016 Bonds, restrictions on the investment of proceeds earned prior to expenditure, and the

22 requirement that certain earnings be rebated to the United States of America. In the Indenture, the Board has made certain covenants ("the Compliance Covenants") to the effect that it will comply with all conditions to and requirements imposed by the Code for the exclusion from gross income of the recipients thereof for Federal income tax purposes of the interest income on the Series 2016 Bonds. Failure to comply with the Compliance Covenants may result in the interest income on the Series 2016 Bonds being included in the gross income of the recipients thereof for Federal income tax purposes from the date of issuance of the Series 2016 Bonds.

Hand Arendall LLC, bond counsel, is of the opinion that, under the Code, as presently construed and administered, and assuming compliance by the Board with the Compliance Covenants, the interest income on the Series 2016 Bonds will be excludable from gross income of the recipients thereof for federal income tax purposes pursuant to the provisions of Section 103 of the Code and will not constitute an item of tax preference for the purpose of computing the liability of individuals and corporations for the alternative minimum tax imposed by Section 55 of the Code. Bond Counsel will express no opinion with respect to the Federal tax consequences to the recipients of the interest income on the Series 2016 Bonds under any provision of the Code not referred to above.

Section 265 of the Code provides that, as a general rule, banks, thrifts, and other financial institutions may not deduct that portion of their interest expense that is allocable to tax-exempt obligations acquired after August 7, 1986. There is a specific exception in Section 265 for interest income from a "qualified tax-exempt obligation" which is defined as an obligation (other than a private activity bond) that has been designated by the issuer for purposes of the Code as a "qualified tax-exempt obligation." Under the exception, interest allocable to qualified tax- exempt obligations is subject to the twenty percent (20%) disallowance rule effective prior to the Tax Reform Act of 1986. Section 265 provides that not more than $10,000,000 of obligations may be designated by an issuer as "qualified tax-exempt obligations" during any calendar year and that obligations may not be designated as "qualified tax-exempt obligations" unless the issuer reasonably anticipates that the amount of qualified tax-exempt obligations issued by such issuer during such calendar year will not exceed $10,000,000.

In the proceedings authorizing the issuance of the Series 2016 Bonds, the Board has designated the Series 2016 Bonds as "qualified tax-exempt obligations" for purposes of Section 265 and has, in connection therewith, specifically found that the amount of tax-exempt obligations that have heretofore been issued during the current calendar year and the reasonably anticipated amount of tax-exempt obligations that will be issued by the Board and all "subordinate entities" during the calendar year in which the Series 2016 Bonds will be issued will not exceed $10,000,000. Contemporaneously with the delivery of the Series 2016 Bonds, Bond Counsel will furnish to the Underwriter a supplemental opinion regarding the status of the Series 2016 Bonds as "qualified tax-exempt obligations" under Section 265(b)(3)(B) of the Code.

Bond Counsel is of the opinion that the interest income on the Series 2016 Bonds is exempt from present Alabama income taxation.

Certain Collateral Federal Tax Consequences

Prospective owners of the Series 2016 Bonds should be aware that the ownership of the Series 2016 Bonds may result in collateral Federal income tax consequences to various categories of persons, such as corporations (including S corporations and foreign corporations), financial institutions, property and casualty and life insurance companies, individual recipients of Social Security and railroad retirement benefits, individuals otherwise eligible for the earned income tax credit, and taxpayers deemed to have incurred or continued indebtedness to purchase or carry obligations the interest on which is not included in gross income for Federal income tax purposes. Interest on the Series 2016 Bonds may be taken into account in determining the tax liability of foreign corporations subject to the branch profits tax imposed by Section 884 of the Code. Prospective investors, particularly those who may be subject to special rules, are advised to consult their own tax advisors regarding the Federal tax consequences of owning and disposing of the Series 2016 Bonds.

Original Issue Discount

The initial public offering price to be paid for certain of the Series 2016 Bonds ("the Original Issue Discount Bonds") is less than the principal amount thereof. Under existing law, the difference between (i) the

23 amount payable at the maturity of each Original Issue Discount Bond, and (ii) the initial offering price to the public of such Original Issue Discount Bond constitutes original issue discount with respect to such Original Issue Discount Bond in the hands of any owner who has purchased such Original Issue Discount Bond in the initial public offering of the Series 2016 Bonds. Such initial owner is entitled to exclude from gross income (as defined in Section 61 of the Code) an amount of income with respect to such Original Issue Discount Bond equal to that portion of the amount of such original issue discount allocable to the period that such Original Issue Discount Bond continues to be owned by such owner.

In the event of the redemption, sale or other taxable disposition of such Original Issue Discount Bond prior to stated maturity, however, the amount realized by such owner in excess of the basis of such Original Issue Discount Bond in the hands of such owner (adjusted upward by the portion of the original issue discount allocable to the period for which such Original Issue Discount Bond was held by such initial owner) is includable in gross income.

Under existing law, the original issue discount on each Original Issue Discount Bond is accrued daily to the stated maturity thereof (in amounts calculated as described below for each six-month period ending on the date before the semiannual anniversary dates of the Series 2016 Bonds and ratably within each such six-month period) and the accrued amount is added to an initial owner's basis for such Original Issue Discount Bond for purposes of determining the amount of gain or loss recognized by such owner upon the redemption, sale or other taxable disposition thereof. The amount (if any) to be added to basis for each accrual period is equal to (a) the sum of the issue price and the amount of original issue discount accrued in prior periods (if any) multiplied by the yield to maturity (determined on the basis of compounding at the close of each accrual period and properly adjusted for the length of the accrual period) less (b) the amounts payable as current interest during such accrual period on such Series 2016 Bonds.

The federal income tax consequences of the purchase, ownership, redemption, sale or other disposition of Original Issue 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 described above. All owners of Original Issue Discount Bonds should consult their own tax advisors with respect to the determination for federal, state and local income tax purposes of interest accrued upon redemption, sale or other disposition of such Original Issue Discount Bonds and with respect to the federal, state, local and foreign tax consequences of the purchase, ownership, redemption, sale, gift or other disposition of such Original Issue Discount Bonds.

Original Issue Premium

The initial public offering price to be paid for certain of the Series 2016 Bonds ("the Original Issue Premium Bonds") is greater than the principal amount thereof. Under existing law, any owner who has purchased an Original Issue Premium Bond in the initial public offering of the Series 2016 Bonds is required to reduce his basis in such Original Issue Premium Bond by the amount of premium allocable to periods during which he holds such Original Issue Premium Bond, and the amount of premium allocable to each accrual period will be applied to reduce the amount of interest received by the owner during each such period. All owners of Original Issue Premium Bonds should consult their own tax advisors with respect to the determination for federal, state and local income tax purposes of interest accrued upon redemption, sale or other disposition of such Original Issue Premium Bond and with respect to the federal, state, local and foreign tax consequences of the purchase, ownership, redemption, sale, gift or other disposition of such Original Issue Premium Bond.

RATING

Standard and Poor's Rating Services ("S&P") has assigned a rating to the Series 2016 Bonds of "AA-". Any definitive explanation of the significance of any such rating may be obtained only from S&P. There is no assurance that any such rating will remain in effect for any given period of time or that such rating will not be lowered or withdrawn entirely if, in the judgment of circumstances should warrant such action. Any such downward revision or withdrawal of the rating assigned to the Series 2016 Bonds could have an adverse effect on their market price.

24 FINANCIAL STATEMENTS

The financial statements and selected financial data of the Board included in this Official Statement as Appendix B have been examined by Robertson, Andreoli & Covington, P.C., Bay Minette, Alabama, independent certified public accountants, as set forth in their report appearing in Appendix B, and are included in reliance upon such report and upon the authority of such independent certified public accountant as an expert in auditing and accounting.

UNDERWRITING

The Series 2016 Bonds are being purchased by Harbor Financial Services, LLC ("the Underwriter") at a price equal to $______(reflecting an underwriting discount of $______and a net original issue discount of $______). The Underwriter intends to offer the Series 2016 Bonds to the public at the prices or yields stated on the inside of the cover page hereof. Such initial offering prices may be changed from time to time by the Underwriter. The Board has been advised that the Underwriter may offer the Series 2016 Bonds to certain dealers and others at prices lower than the public offering prices.

LITIGATION AND CONTINGENT LIABILITIES

There is no litigation pending against the Board, nor to the knowledge of its officers or counsel, threatened, which in any way questions or affects the validity of the Series 2016 Bonds, or any proceedings or transactions relating to their issuance, sale and delivery.

While the Board is a defendant in several lawsuits and while it is involved in other pending litigation, it does not believe that such pending lawsuits and litigation (taken as a whole) will have a materially adverse effect upon its financial condition.

CONTINUING DISCLOSURE AGREEMENT

The Board has entered into a Continuing Disclosure Agreement for the benefit of holders of the Series 2016 Bonds wherein the Board has agreed to provide annually certain financial information and operating data relating to the Board ("the Annual Report"), and to provide notices of the occurrence of certain enumerated events. The Annual Report and notices of material events will be filed by the Board with the Municipal Securities Rulemaking Board ("the MSRB") through its Electronic Municipal Market Access ("EMMA") site at http://emma.msrb.org or by any other electronic means subsequently directed by the MSRB pursuant to Rule 15c2-12(b)(5) of the Securities and Exchange Commission. The specific nature of the information to be contained in the Annual Report or the notices of material events and other provisions of the Continuing Disclosure Agreement are summarized in Appendix D – "Summary of Continuing Disclosure Agreement." The Continuing Disclosure Agreement has been entered into in order to assist the Underwriter in complying with Rule.

The Board has previously entered into continuing disclosure agreements ("the Prior Agreements") for the benefit of the holders of the Prior Lien Bonds which are similar to the Continuing Disclosure Agreement for the benefit of the holders of the Series 2016 Bonds. In connection with such Prior Agreements, the Board filed its Annual Report for the fiscal year ended September 30, 2011, four (4) days late. The Board has entered into an agreement with Digital Assurance Certification (DAC) to assure its continuing compliance with the Rule. The Board believes it is otherwise in material compliance with its obligations under the Prior Agreements.

LEGAL MATTERS

Legal matters incident to the authorization and issuance of the Series 2016 Bonds by the Board are subject to the approval of Hand Arendall LLC, Mobile, Alabama, Bond Counsel. Such opinion is expected to be in substantially the form attached hereto as Appendix C. Certain legal matters will be passed on for the Board by its counsel, Speegle, Hoffman, Holman & Holifield, LLC, Mobile, Alabama.

25 MISCELLANEOUS

All references to or summaries of contracts or official acts are qualified by the exact terms of such contracts, documents or acts, each being an item of public record. So far as any statements are made in this Official Statement involving matters of opinion or estimates, whether or not expressly so stated, they are set forth as such and not as representations of fact, and no representation is made that any such estimates will be realized.

The distribution of this Official Statement has been approved by the Board of Directors of the Board.

THE UTILITIES BOARD OF THE CITY OF DAPHNE

By Chairman of the Board of Directors

Dated: ______, 2016

26 APPENDIX A

SUMMARY OF INDENTURE [THIS PAGE INTENTIONALLY LEFT BLANK] APPENDIX A

SUMMARY OF THE INDENTURE

The following constitutes a summary of certain portions of the Indenture. This summary should be qualified by reference to other provisions of the Indenture referred to elsewhere in this Official Statement, and all references and summaries pertaining to the Indenture in this Official Statement are, separately and in whole, qualified by reference to the exact terms of the Indenture, a copy of which may be obtained from the Board.

Selected Definitions

"Additional Bonds" means those authorized to be issued under the Indenture in Article VIII thereof.

"Annual Debt Service Requirement" means, as of any date of determination, the amount of principal and interest maturing or Maturity Amount due in a Fiscal Year less any amount payable or to be payable by the United States of America to the Board or the Trustee during such Fiscal Year as an interest subsidy or rebate with respect to interest (but only to the extent that such subsidy or rebate has not been offset or terminated and there is no inquiry, pending or threatened, pursuant to which the United States of America, or any agency thereof, has challenged the right of the Board or the Trustee to reserve such subsidy or rebate); provided, however,

(a) that the principal amount or Compounded Amount of bonds subject to a Mandatory Redemption Requirement during such Fiscal Year shall, for purposes of this definition, be considered as maturing in the Fiscal Year during which such redemption is required and not in the Fiscal Year in which their stated maturity occurs;

(b) that, for purposes of this definition, bonds that are deemed paid under the provisions of indenture or Resolution pursuant to which they are issued shall not be deemed to be outstanding;

(c) that the principal of and interest on Bonds (including, without limitation, Cross-over Refunding Bonds and Cross-over Refunded Bonds) shall be excluded from such calculation to the extent that amounts in cash or Federal Securities are on deposit in an irrevocable escrow and such amounts (including, where appropriate, the earnings or other increments to accrue on such Federal Securities) are required to be applied to the payment of, and are sufficient (without including any reinvestment of such earnings or other increments) to pay, such principal and interest;

(d) that the rate of interest on Variable Rate Bonds outstanding at the time of such calculation shall be deemed to be the greater of (i) the most recently announced 30-year Revenue Bond Index published by The Bond Buyer,a financial journal published in the City of New York, New York, as of the sixtieth (60th) day prior to the date of such calculation, and (ii) the rate of interest in effect with respect to such Variable Rate Bonds, in accordance with their terms, as of the sixtieth (60th) day prior to the date of such calculation;

(e) that the rate of interest on Variable Rate Bonds then proposed to be issued shall be deemed to be the greater of (i) the most recently announced 30-year Revenue Bond Index published by The Bond Buyer,afinancialjournal published in the City of New York, New York, as of the sixtieth (60th) day prior

A-1 to the date of such calculation, and (ii) the rate of interest borne by any outstanding Variable Rate Bonds; and

(f) that the principal of Balloon Bonds shall be deemed to mature in annual installments over a period equal to the greater of (i) twenty (20) years and (ii) the number of years (rounded to the next lowest number in the case of a part of a year) between the date with respect to which such calculation is made and the date of maturity of such Balloon Bonds, so as to result, in either case, in approximately equal payments of principal and interest (based upon the actual rate of interest borne by such Balloon Bonds).

"Annual Net Income" means, for a Fiscal Year, the total revenues derived from the operation of the Systems plus any earnings on investments (including, so long as the Board is not in default hereunder, investment earnings on the Reserve Fund to the extent deposited into the Revenue Account), less the total of the Operating Expenses.

"Balloon Bonds" means Current Interest Paying Bonds of a series, twenty-five percent (25%) or more of the original principal of which matures during any one Fiscal Year, if such maturing principal amount is not required to be amortized below such percentage by a Mandatory Redemption Provision prior to such Fiscal Year. Put Bonds shall not be treated as Balloon Bonds solely by virtue of the option on the part of the Holders thereof to have such Bonds purchased prior to their respective maturities

"Bank" means (a) a banking institution whose senior long-term debt obligations are rated by a Credit Rating Agency, at the time of the delivery of a Letter of Credit, in one of its three highest rating categories, or (b) a banking institution owned or controlled by a bank holding company whose senior long-term debt obligations are rated by a Credit Rating Agency, at the time of the delivery of a Letter of Credit, in one of its three highest rating categories.

"Base Period Annual Net Income" means the Annual Net Income during the Base Period.

"Base Period" means the most-recent Fiscal Year next preceding the Fiscal Year during which proposed Additional Bonds are to be issued for which audited financial statements are available.

"Base Rate" means a rate of interest per annum established from time to time by the Trustee, as its base lending rate for domestic commercial loans, it being understood that said base rate is one of the basic rates from time to time established which serves as a basis upon which effective rates of interest are calculated for those loans making reference thereto.

"Board" means the party of the first part hereto and, subject to the provisions of the Indenture, includes its successors and assigns and any corporation resulting from or surviving any consolidation or merger to which it or its successors may be a party.

"Bond Fund" means the Bond Principal and Interest Fund created in the Indenture.

"Bond Insurance Policy" means a policy of municipal bond insurance with respect to (a) the payment of principal and interest on any series of Bonds, or (b) the payment to the Trustee of a sum of money to be deposited into the Reserve Fund.

"Bond Insurer" means any insurance company insuring payment of municipal bonds and other similar obligations if such bond or obligations so insured by it are eligible for a rating by a Credit Rating Agency, at the time of the delivery of a Bond Insurance Policy, in one of its three highest rating categories.

A-2 "Bondholder"meanstheHolderofaBond.

"Bonds" means those issued under the Indenture.

"Callable Bonds" means those of the Bonds which under the terms thereof may be redeemed prior to their respective maturities.

"Capital Appreciation Bonds" means any of the Bonds that provide for the addition to the principal due thereon of all or any part of the accrued and unpaid interest thereon.

"Capital Improvements" means improvements, extensions and additions to the Systems that are properly chargeable to fixed capital account by generally accepted accounting practice and includes real estate (and easements and other interests therein) on, under or over which any such improvements, extensions or additions are, or are proposed to be, located.

"City Franchise Payments" means any payments made by the Board to the City.

"City" means the City of Daphne, Alabama, a municipal corporation.

"Code" means the Internal Revenue Code of 1986, as amended.

"Compounded Amount" means, for any date with respect to a Capital Appreciation Bond, the amount set forth in the Supplemental Indenture pursuant to which such Capital Appreciation Bond is issued as the Compounded Amount for such Bond on such date.

"Counsel" means an attorney who is duly licensed to practice before the Supreme Court of Alabama.

"Credit Facility Fees" means the initial, annual, semi-annual or quarterly fees and expenses charged to the Board by a Credit Facility Obligor for issuing and maintaining in effect a Credit Facility or a Reserve Fund Credit Facility; provided, however, that the term "Credit Facility Fees" shall not include any fees or expenses paid out of the proceeds from the issuance of any of the Bonds.

"Credit Facility Obligor" means (a) a Bank or a Bond Insurer issuing a Credit Facility, or (b) a Bank or a Bond Insurer issuing a Reserve Fund Credit Facility.

"Credit Facility" means a Letter of Credit or Bond Insurance Policy guaranteeing or providing for (a) the payment of all or any portion of the principal of or the interest on any Bonds, (b) the payment of all or any portion of the Redemption Price of any Bonds or (c) the purchase price of any Bonds or a portion thereof.

"Credit Rating Agency" means (a) Moody’s, (b) S&P, (c) Fitch, and (d) any successor to any of the foregoing by merger, consolidation or otherwise.

"Cross-over Date", with respect to Cross-over Refunding Bonds, means the date on which the principal portion of the Cross-over Refunded Bonds is anticipated to be paid or redeemed from the proceeds of such Cross-over Refunding Bonds.

"Cross-over Refunded Bonds" means Bonds refunded by Cross-over Refunding Bonds.

"Cross-over Refunding Bonds" means Bonds issued for the purpose of refunding other Bonds if the proceeds of such Cross-over Refunding Bonds are irrevocably deposited in escrow to

A-3 secure the payment on the applicable Cross-over Date of the Cross-over Refunded Bonds, and the earnings on such escrow deposit are required to be applied to pay interest on either or both of such Cross-over Refunding Bonds or such Cross-over Refunded Bonds until the Cross-over Date.

"Current Interest Paying Bonds" means those of the Bonds that are not Capital Appreciation Bonds.

"Directors" means the Board of Directors of the Board.

"Eligible Certificate" means an interest-bearing certificate of deposit that is issued by the Trustee or by any bank, savings and loan association or trust company organized under the laws of the United States of America or any state thereof that is (to the extent not insured by the Federal Deposit Insurance Corporation or the Federal Savings and Loan Insurance Corporation) collaterally secured by a pledge of Federal Securities (a) having at any date of calculation a market value (taking account of any accrued interest thereon) not less than the principal of and the accrued interest on the certificates of deposit secured thereby, (b) deposited and pledged with any Federal Reserve Bank or with any bank or trust company organized under the laws of the United States of America or any state thereof, and having combined capital, surplus and undivided profits of not less than $100,000,000, and (c) for which a receipt signed by the bank or trust company having custody of such collateral securities and containing a sufficient description thereof has been furnished to the Trustee.

"Eligible Investments" shall mean (a) Eligible Certificates, (b) Federal Securities, (c) Secured Deposits, and (d) any money market, cash, sweep or similar accounts or funds invested solely in Federal Securities, customarily utilized by the Trustee for the investment of public funds and rated "AAm," "AAm-G" or better by S&P and if rated by Moody’s, "Aaa," "Aa1" or "Aa2." Such funds may be managed by the Trustee or any of its affiliates or subsidiaries of affiliates.

"Federal Securities" means (a) any securities that are direct obligations of the United States of America, and (b) any securities with respect to which payment of the principal thereof and the interest thereon is unconditionally guaranteed by the United States of America.

"Fifth Series 2016 Bond Year" means the fifth Series 2016 Bond Year and each succeeding fifth Series 2016 Bond Year occurring thereafter until and including the Series 2016 Bond Year during which the Series 2016 Bonds are fully retired.

"Fiscal Year" means the period beginning on October 1 of a calendar year and ending on September 30 of the next succeeding calendar year.

"Fitch"meansFitchIBCA,Inc.

"Fixed Rate Bonds" means Bonds that bear interest at a fixed rate or rates until maturity; provided, however, that a Bond which is initially issued as a Variable Rate Bond, but the interest rate on which has been converted to a fixed rate (whether or not the rate of interest on such Bond is subject to conversion back to a variable rate of interest) shall be considered a "Fixed Rate Bond" for so long as such Bond bears interest at a fixed rate.

"Gas Systems" the natural gas transmission systems of the Board, as it now exists and as it may hereafter be extended and improved.

"Holder" means the person in whose name a Bond is registered on the books of the Trustee pertaining to the Bonds.

"Indenture" means that certain Trust Indenture dated as of April 1, 2016, between the Board and the Trustee pursuant to which the Series 2016 Bonds are being issued.

A-4 "Independent Auditor" means a certified public accountant, or firm thereof, not employed full time by the Board and regularly engaged in the auditing of financial records.

"Independent Counsel" means an attorney who is duly licensed to practice before the Supreme Court of Alabama and who is not employed full time by the Board.

"Independent Engineer" means an engineer who is duly registered and qualified to practice the profession of engineering under the laws of Alabama and who is not a full time employee of the Board.

"Interest Payment Date" means, with respect to all Bonds other than Capital Appreciation Bonds, each June 1 and December 1, commencing December 1, 2016.

"Letter of Credit" means an irrevocable letter of credit issued by a Bank with respect to (a) the payment of principal, interest or premium on any series of Bonds, or (b) the payment to the Trustee of a sum of money to be deposited into the Reserve Fund.

"Mandatory Redemption Requirement" means any provisions that may be set forth in the Indenture or any Supplemental Indenture authorizing the issuance of Additional Bonds, for mandatory redemption of any Bonds at a Redemption Price equal to the principal amount thereof.

"Maturity Amount" means the aggregate principal and interest due and payable at maturity with respect to Capital Appreciation Bonds.

"Maximum Annual Debt Service Requirement"means,asofanydateof determination, the maximum Annual Debt Service Requirement during the then current or any then succeeding Fiscal Year.

"Maximum Required Reserve Fund Deposit" means, as of any date of determination, the lesser of (a) the Maximum Annual Debt Service Requirement with respect to the Bonds secured by the Reserve Fund, (b) one hundred twenty-five percent (125%) of the average Annual Debt Service Requirement with respect to the Bonds secured by the Reserve Fund due in the then current or any then succeeding Fiscal Year or (c) ten percent (10%) of the original principal amount of each series of Bonds secured by the Reserve Fund.

"Moody’s" means Moody’s Investors Service, Inc.

"Operating Expenses" means, for the applicable period or periods, (a) the reasonable and necessary expenses of efficiently and economically administering and operating the Systems, including, without limiting the generality of the foregoing, the cost of water and gas purchased or produced, the cost of sewage treatment, the cost of all items of labor, materials, supplies and equipment (other than equipment which, by generally accepted accounting principles, is properly chargeable to fixed capital account), premiums on insurance and fidelity bonds, fees for engineers, attorneys and accountants for services rendered (except in cases where such fees are properly chargeable, by generally accepted accounting principles, to fixed capital account), reasonable compensation to the Trustee and any co-paying agent for its expenses incurred and services performed under the Indenture, all franchise payments made to any governmental unit (other than the City) in connection with any franchises granted by such governmental unit to the Board with respect to the Systems, all items specifically stated in the Indenture to constitute an operating expense, and all other items except depreciation, interest and any City Franchise Payments that by generally accepted accounting principles are properly chargeable to expenses of administration and operation, and (b) the expenses of maintaining the Systems in good repair and in good operating condition, but not including items that by generally rally accepted accounting principles are properly chargeable to fixed capital account.

A-5 "Outstanding Amount" means, as of any date of determination, the sum of (a) the outstanding principal amount of Bonds issued in the form of Current Interest Paying Bonds, and (b) the then applicable Compounded Amount of the outstanding Bonds issued in the form of Capital Appreciation Bonds.

"outstanding"or"outstanding hereunder"or"outstanding under this Indenture", when used with reference to the Bonds, shall mean, as of any particular time, all Bonds authenticated and delivered under this Indenture, except (a) Bonds cancelled at or prior to the particular time; (b) Bonds deemed paid as provided in the Indenture; and (c) Bonds in lieu of, or in substitution for, which other Bonds shall have been authenticated and delivered pursuant to the provisions of the Indenture.

"Put Bonds" means Bonds (a) which are payable or required to be purchased or redeemed, at the option of the Holder thereof, by or on behalf of the Board prior to their stated maturity date or (b) payable or which are required to be purchased or repurchased by or on behalf of the Board from the Holder thereof prior to their stated maturity date (other than at the option of such Holder), other than pursuant to any Mandatory Redemption Provision relating to such Bonds. PutBondsshallbedeemedtomatureontheirstatedmaturitydateor,ifsuchBondsaresubjectto a Mandatory Redemption Provision, on the date on which such Bonds are required to be redeemed pursuant to such Mandatory Redemption Provision, and such Bonds shall not be deemed to mature on a date on which such Bonds are required to be purchased or redeemed by or on behalf of the Board at the option of the Holder thereof prior to their stated maturity.

"Redemption Price" means the price at which the Callable Bonds called for redemption may be redeemed on the Redemption Date.

"Reimbursement Obligation" means (a) an obligation on the part of the Board to reimburse a Credit Facility Obligor for amounts paid by such Credit Facility Obligor with respect to the principal of or the interest or premium, if any, on the Bonds under the terms of a Credit Facility, together with interest thereon, or (b) an obligation on the part of the Board to reimburse a Credit Facility Obligor for amounts paid by such Credit Facility Obligor with respect to a payment to the Trustee of a sum of money to be deposited into the Reserve Fund under the terms of a Reserve Fund Credit Facility, together with interest thereon; provided, however, that Credit Facility Fees shall not be included in calculating the amount of a Reimbursement Obligation.

"Reserve Fund Credit Facility" means (a) a Letter of Credit, or (b) a Municipal Bond Insurance Policy, providing, in either case, for the payment to the Trustee of a sum of money to be deposited into the Reserve Fund.

"Reserve Fund" means the Debt Service Reserve Fund created in the Indenture.

"Resolution" means a resolution duly adopted by the Directors.

"Revenue Account" means the General Operating Account referred to in the Indenture.

"S&P" means Standard & Poor’s, a division of The McGraw-Hill Companies.

"Secured Deposits" means U.S. dollar denominated deposit accounts, federal funds and banker's acceptances with domestic commercial banks (including without limitation the Trustee), provided that such deposit is collaterally secured by the issuing bank by pledging securities having a market value (exclusive of accrued interest) not less than the face amount of such deposit less the amount of such deposit which is insured by the Federal Deposit Insurance Corporation.

"Series 2008 Bonds" means the Board's Water, Gas and Sewer Revenue Bonds, Series 2008.

A-6 "Series 2012 Bonds" means the Board's Water, Gas and Sewer Revenue Bonds, Series 2012.

"Series 2015 Bonds" means the Board's Water, Gas and Sewer Revenue Bonds, Series 2015.

"Series 2016 Bond Year" means (a) the period of one year (or less) beginning on the date the Series 2016 Bonds were issued and ending on the day in the calendar year that is selected by the Board in accordance with Treasury Regulations §1.148-1 or other applicable regulations, and (b) each period of one year beginning on the day after the expiration of the preceding such bond year.

"Series 2016 Bonds" means those of the Bonds bearing the designation "Series 2016".

"Series 2016 Bonds Required Rebate" means any amount that is required, by the provisions of Section 148(f) of the Code and any applicable regulations, to be paid by the Board to the United States of America in order that the Series 2016 Bonds shall not be treated as "arbitrage bonds" within the meaning of Sections 103(b)(2) and 148 of the Code and any applicable regulations promulgated thereunder.

"Series 2016 Credit Facility Obligor" means National Public Finance Guarantee Corporation, the issuer of the Series 2016 Reserve Fund Credit Facility.

"Series 2016 Reserve Fund Credit Facility" means the Reserve Fund Credit Facility delivered to the Trustee contemporaneously with the issuance of the Series 2016 Bonds providing for the payment of the Trustee of an amount equal to the Maximum Required Reserve Fund Deposit with respect to the Series 2016 Bonds.

"Sewer Systems" means the sanitary sewer systems of the Board, as it now exists and as it may hereafter be extended and improved.

"Subordinated SRF Bond" means the Board's Water, Gas and Sewer Revenue Bond, Series 2011-CWSRF-DL (Partial Principal Forgiveness Loan).

"Supplemental Indenture" means an agreement supplemental hereto.

"Systems" means the Water Systems, the Gas Systems and the Sewer Systems.

"Trustee" means the party of the second part hereto and its successors and any corporation resulting from or surviving any consolidation or merger to which it or its successors may be a party.

"Variable Rate Bonds" means Bonds that bear interest at a rate per annum which is subject to adjustment so that the actual rate of interest is not ascertainable at the time such Bonds are issued; provided, however, that upon the conversion of the rate of interest on a Variable Rate Bond to a fixed rate of interest (whether or not the interest rate on such Bond is subject to conversion back to a variable rate of interest), such Bond shall be considered a "Fixed Rate Bond" for so long as such Bond bears interest at a fixed rate.

"Water Systems" means the waterworks plant and distribution systems of the Board, as it now exists and as it may hereafter be extended and improved.

"1990 Indenture" means that certain Trust Indenture dated as of June 1, 1990, between the Board and the 1990 Trustee, as heretofore supplemented and amended.

A-7 "1990 Indenture Bonds" means the Series 2008 Bonds, the Series 2012 Bonds and the Series 2015 Bonds.

"1990 Trustee" means The Bank of New York Mellon Trust Company, National Association, the trustee under the 1990 Indenture.

In the Indenture the Board has pledged for payment of all Bonds issued thereunder the revenues derived from the operation of the Systems remaining after the payment of the costs of operating and maintaining the same. THE INDENTURE DOES NOT CONSTITUTE A MORTGAGE ON THE SYSTEM AND IS NOT SUBJECT TO FORECLOSURE.

Flow of Funds

Flow of Funds Generally. The Indenture creates three (3) special funds or accounts, which are designated the Revenue Account, the Bond Fund and the Reserve Fund.

Revenue Account. The Board is required to deposit in the Revenue Account, as received by it, all revenues derived from the operation of the Systems after compliance with the provisions of the 1990 Indenture. On or prior to the last day of each month, the Board is required to pay all then current expenses referable to the Systems not otherwise paid pursuant to the 1990 Indenture and thereafter to make the transfers to the Bond Fund and the Reserve Fund (in the order named) hereafter referred to. Any balance remaining in the Revenue Account on the last day of each month after making all required transfers and making up any deficits shall first be applied to the payment of any unpaid Reimbursement Obligations, and the balance may be used by the Board for any lawful purpose. The Trustee is depository and custodian of the Bond Fund and the Reserve Fund but the Board may designate any bank or banks as depository for the Revenue Account.

Bond Fund. The Board is required to deposit in the Bond Fund, on or before the last day of each month, an amount equal to one-sixth (1/6th) of the interest payable with respect to the Bonds on the next succeeding interest payment date and one-twelfth (1/12th) of the principal payable with respect to the Bonds on the next succeeding December 1. Moneys on deposit in the Bond Fund are required to be applied for payment of the principal and interest on the Bonds as the same become due and payable.

Reserve Fund. Contemporaneously with the issuance of the Series 2016 Bonds, there shall be deposited into the Reserve Fund the Series 2016 Reserve Fund Credit Facility. In the event Additional Bonds are to be secured by the Reserve Fund, the Board shall deposit from the proceeds of such Additional Bonds or other funds of the Board the difference between the Maximum Required Reserve Fund Deposit immediately before and upon issuance of such Additional Bonds. Moneys forming a part of the Reserve Fund are to be held as a reserve or cushion for the payment of the principal of and interest on all Bonds outstanding under the Indenture which are secured by the Reserve Fund. Earnings on investments of moneys held in the Reserve Fund are required to be transferred as received to the Revenue Account.

Before making any draw or demand on a Reserve Fund Credit Facility to obtain moneys for transfer to the Bond Fund, the Trustee must first exhaust all moneys and securities on deposit in, or held as a part of, the Reserve Fund. In the event that, as a result of a draw or demand on a Reserve Fund Credit Facility, moneys paid pursuant to a Reserve Fund Credit Facility are transferred to the Bond Fund, then on the last day of each month, commencing with the month next following that during which such moneys were so paid and continuing each month thereafter until the Reimbursement Obligation resulting from such draw or demand has been fully repaid, the Board will, after first making any payments required to be made by the provisions of the Indenture on such date, transfer and pay to the Credit Facility Obligor issuing such Reserve Fund Credit Facility, out of the moneys in the Revenue Fund:

(a) an amount equal to at least one-twelfth (1/12th)oftheReimbursement Obligation referable to or resulting from such draw or demand, or

(b) an amount sufficient to repay in full the Reimbursement Obligation referable to or resulting from such draw or demand.

A-8 The Trustee shall, as of the first day of each June and December ascertain and determine, the amount on deposit in the Reserve Fund based upon the market value of any Eligible Investments held therein. If, according to such determination, there is on deposit in the Reserve Fund an amount based upon such valuation (but not as a result of any transfer to the Bond Fund) less than ninety-five percent (95%) of the amount then required to be on deposit therein, the Trustee shall so notify the Board in writing and the Board shall, within one hundred twenty (120) days, transfer and pay into the Reserve Fund, out of the moneys on deposit in the Revenue Account, an amount which, when added to the amount then on deposit in the Reserve Fund, will equal the amount then required to be on deposit in the Reserve Fund. If, according to such determination, there is on deposit in the Reserve Fund an amount in excess of the amount then required to be on deposit in the Reserve Fund, the Trustee will promptly transfer such excess to the Bond Fund through the transfer of cash or securities (valued as aforesaid) and, if and to the extent necessary to make such transfer in the exact amount required, shall convert to cash investments held in the Reserve Fund.

The amount payable to the Trustee pursuant to a Reserve Fund Credit Facility shall be deemed to be on deposit in the Reserve Fund for purposes of the Indenture subject to the following conditions:

(1) The Reserve Fund Credit Facility shall have a term, as of the date of issuance, of not less than five (5) years;

(2) The Reserve Fund Credit Facility shall not be secured by any interest in the revenues pledged under the Indenture for payment of the Bonds, in favor of the Credit Facility Obligor issuing such Reserve Fund Credit Facility, that is prior to or on a parity with the security interest therein provided by the Indenture;

(3) Prior to any transfer to the Board of moneys on deposit in the Reserve Fund as a result of the delivery to the Trustee of such Reserve Fund Credit Facility, there shall be delivered to the Trustee a certified Resolution specifying the manner in which the Board intends to apply the funds thereby made available to it and an opinion of Bond Counsel to the effect that such transfer and the application of funds thereby made available to the Board in the manner specified in the said Resolution will not result in the interest income on any of the Bonds issued as tax-exempt obligations becoming includable in gross income of the recipients thereof for federal income taxation;

(4) Not less than one hundred eighty (180) days prior to the expiration of any Reserve Fund Credit Facility, the Board will either furnish to the Trustee a substitute Reserve Fund Credit Facility complying with the requirements hereof for the initial Reserve Fund Credit Facility or deposit in the Reserve Fund an amount sufficient to bring the Reserve Fund to its then required level without taking into account any amounts payable under such Reserve Fund Credit Facility; and

(5) In the event that subsequent to the delivery to the Trustee of a Reserve Fund Credit Facility, the issuer of such Reserve Fund Credit Facility shall cease to qualify as a Credit Facility Obligor hereunder as a result of the fact that such issuer is no longer rated by a Credit Rating Agency in one of its three highest rating categories, the Board will restore to the Reserve Fund the amount payable under such Reserve Fund Credit Facility in twelve (12) equal monthly payments, commencing on or before the last day of the month next succeeding the month during which such required rating was reduced or withdrawn.

Subject to the provisions of the preceding paragraph, upon the delivery to the Trustee of a Reserve Fund Credit Facility, any amount then on deposit in the Reserve Fund in excess of the amount then required to be on deposit in the Reserve Fund shall be paid to the Board.

Whenever the moneys on deposit in the Reserve Fund (exclusive of any amounts deemed to be on deposit pursuant to a Reserve Fund Credit Facility) together with the moneys on deposit in the Bond Fund equals or exceeds the aggregate of the principal and interest then remaining unpaid with respect to the Bonds, no further payments

A-9 need be made into the Reserve Fund and the entire balance in the Reserve Fund may be transferred to the Bond Fund."

Investment of Funds. The Board may at its option from time to time cause any or all of the moneys on deposit in the Bond Fund to be invested in securities that are direct obligations of the United States of America and securities unconditionally guaranteed by the United States of America ("Federal Securities") and may cause any or all of the moneys on deposit in the Reserve Fund to be invested in Federal Securities, fully-secured certificates of deposit, securities issued by certain Federal agencies and banks, repurchase agreements fully secured by Federal Securities and money market funds whose investments consist solely of Federal Securities. Moneys on deposit in the Revenue Account may be invested in such manner as may be permitted by applicable law. Such securities, together with all income therefrom, shall become a part of the fund which moneys were used to make such investment to the same extent as if they were moneys on deposit therein; provided, that the Trustee shall pay to the Board, for deposit in the Revenue Account, the interest income from any such securities held in the Reserve Fund. The Indenture requires semiannual valuations of the assets in the Reserve Fund. See "Reserve Fund" above for a description of the required transfer of funds to and from the Reserve Fund in the event the assets on deposit in the Reserve Fund are less than or in excess of the maximum Annual Debt Service Requirement.

Additional Bonds

In the Indenture the Board has reserved the privilege of issuing additional bonds under the Indenture, on a parity with the Series 2016 Bonds, at any time, upon compliance with the conditions hereinafter referred to but otherwise without limit as to principal amount for any one or more of the following purposes: (a) constructing or acquiring capital improvements to the Systems (including the providing of funds with which to reimburse the Board for costs incurred by it in the construction or acquisition of capital improvements); (b) refunding any bonds outstanding under the Indenture; or (c) any other lawful purpose. As used in this Official Statement, the term "Bonds" without other qualifying words means the Series 2016 Bonds and any additional parity bonds ("Additional Bonds")thatmayhereafterbeissuedpursuanttotheaforesaidreservedprivilege.TheAdditionalBondsmaybe issued as Fixed Rate Bonds, Variable Rate Bonds, Current Interest Paying Bonds, Capital Appreciation Bonds, Put Bonds or any combination thereof (all as shall be specified in the Supplemental Indenture providing therefor). Among the conditions prerequisite to the issuance of Additional Bonds are the following:

(1) Supplemental Indenture. The Board and the Trustee shall enter into a Supplemental Indenture containing the following:

(i) a description of the Additional Bonds proposed to be issued, including the date, the aggregate principal amount, the series designation, the interest rate or rates, the maturity or maturities and the form of such additional bonds, and any provisions for redemption thereof prior to their respective maturities;

(ii)astatementofthepurposeorpurposesforwhichthe additional bonds are proposed to be issued;

(iii) if such Additional Bonds are to be entitled to the benefit and the security provided by the Reserve Fund, provisions requiring that any increase in the amount of the Maximum Required Reserve Fund Deposit that will result from the issuance of such Additional Bonds be fully funded out of the proceeds derived by the Board from the sale of such Additional Bonds, or out of other funds of the Board;

(iv) if any of the Additional Bonds proposed to be issued are Capital Appreciation Bonds, a table of Compounded Amounts with respecttosuchAdditionalBonds;and

A-10 (v) any other provisions that do not conflict with the provisions of the Indenture;

(2) Auditor's or Engineer's Certificate. There must be furnished to the Trustee one of the following:

(i) a certificate by an Independent Auditor certifying that the Base Period Annual Net Income was not less than one hundred twenty-five percent (125%) of the Maximum Annual Debt Service Requirement with respect to the 1990 Indenture Bonds, the Bonds and the Subordinated SRF Bond immediately following the issuance of the proposed Additional Bonds;

(ii) a Resolution or Resolutions adopted after the commencement of the Base Period, establishing a revised schedule of rates for water, gas, sewer or other services furnished from the Systems, accompanied by a certificate by an Independent Engineer stating that if the revised schedule of rates had been in effect throughout the Base Period, the Base Period Annual Net Income would have been not less than one hundred twenty-five percent (125%) of Maximum Annual Debt Service Requirement with respect to the 1990 Indenture Bonds, the Bonds and the Subordinated SRF Bond immediately following the issuance of the then proposed Additional Bonds (such engineer's certificate to be accompanied by and to rely upon a certificate of an Independent Auditor certifying the Base Period Annual Net Income,

(iii) in the event that any of the Additional Bonds proposed to be issued are to be issued for the purpose of acquiring or constructing Capital Improvements, a certificate by an Independent Auditor certifying the Base Period Annual Net Income together with a certificate of an Independent Engineer estimating the date of completion of the Capital Improvements and the additional Annual Net Income to be received during each of the three Fiscal Years immediately following the said estimated date of completion as a result of the acquisition or construction of the Capital Improvements and stating that the amount of the Base Period Annual Net Income as certified plus the additional Annual Net Income as estimated by the said Independent Engineer in each of such three Fiscal Years is not less than one hundred thirty-five percent (135%) of the Maximum Annual Debt Service Requirement with respect to the 1990 Indenture Bonds, the Bonds and the Subordinated SRF Bond immediately following the issuance of the then proposed Additional Bonds; or

(iv) A certificate by the Chief Financial Officer of the Board certifying that the Maximum Annual Debt Service Requirement with respect to the 1990 Indenture Bonds, the Bonds and the Subordinated SRF Bond immediately following the issuance of the then proposed Additional Bonds will not exceed the Maximum Annual Debt Service Requirement with respect to the 1990 Indenture Bonds, the Bonds and the Subordinated SRF Bond immediately prior to the issuance of the then proposed Additional Bonds.

In calculating the Maximum Annual Debt Service Requirement, any bonds that are "deemed paid" under the indenture or Resolution pursuant to which they are issued shall be excluded.

Credit Facility for Additional Bonds. The Board may, in connection with the issuance of any series of Additional Bonds,

(a) provide a Credit Facility,

A-11 (b) enter into such agreements as are necessary and appropriate with a Credit Facility Obligor providing, inter alia, for (i) the payment of the fees and expenses of such Credit Facility Obligor, which fees and expenses shall be payable out of the proceeds from the sale of such Additional Bonds or as an Operating Expense, as appropriate and (ii) the terms and conditions of such Credit Facility and any security to be provided for such Credit Facility and for the payment of the obligations of the Board with respect thereto,

(c) secure any of its obligations with respect to such Credit Facility by an agreement providing for the purchase of any Bonds secured thereby, with such adjustments as to interest rates, methods of determination of interest, maturities or redemption provisions as shall be specified by the Board in the applicable Supplemental Indenture,

(d) incur a Reimbursement Obligation which may be secured by a lien or charge on the revenues pledged under the Indenture subordinate to the lien or charge thereon created in the Indenture for the benefit of the Bonds,

(e) provide, in any such agreement and in the appropriate Supplemental Indenture, that for the purpose of giving consents, receiving notices and certain specified other purposes, such Credit Facility Obligor shall be deemed to be the Holder of all Bonds secured by such Credit Facility, and

(f) provide in any such agreement and in the appropriate Supplemental Indenture that the maturity of the Bonds secured by such Credit Facility may not be accelerated without the consent of the Credit Facility Obligor issuing such Credit Facility.

Particular Covenants of the Board

The Indenture will contain the following covenants of the Board, among others:

Maintenance of Books and Records. The Board will maintain, in accordance with accepted accounting principles, complete books, records and accounts pertaining to the Systems.

Annual Audits. The Board will within one hundred eighty (180) days following the close of each Fiscal Year cause an audit of its books for such Fiscal Year to be made by an Independent Auditor. Within ten days following the receipt of such audit, the Board will furnish a copy thereof to the Trustee and to the holder of any of the Bonds who makes written request therefor and to the original purchaser or purchasers of each series of the Bonds. In the event the audit required is not furnished within two hundred seventy (270) days following the close of any Fiscal Year, the Trustee may, at the expiration of such period, employ an Independent Auditor to make the audit for such Fiscal Year.

No Free Service. The Board will not furnish or permit to be furnished by or from the Systems any free water, gas, sewer or other service to any person whatsoever. All water and other service furnished from the Systems will be charged for at the rates at the time established therefor.

Rate Covenant. The Board will make and maintain such rates and charges for the water, gas, sewer and other service supplied from the Systems and make collections from the users thereof in such manner as shall produce Annual Net Income during each Fiscal Year at least equal to the sum of

(a) Operating Expenses during such Fiscal Year, plus

(b) one hundred ten percent (110%) of the Annual Debt Service Requirement during the same Fiscal Year, plus

A-12 (c) the amount required to be paid into the Reserve Fund during such Fiscal Year, plus

(d) City Franchise Payments payable during such Fiscal Year, plus

(e) the amount due under all Reimbursement Obligations, plus

(f) any amounts required to pay or discharge all other charges and liens payable out of revenues from the Systems when due and enforceable.

The Board will from time to time make such increases and other changes in such rates and charges as may be necessary to produce said amounts. Each schedule of rates shall provide that all charges for water and other service supplied from the Systems shall become due not less often than once every two calendar months.

Priority of Pledge. The pledge of revenues from the operation of the Systems shall be prior and superior to any pledge thereof hereafter made for the benefit of any securities hereafter issued or any contract hereafter made by the Board other than any of the Additional Bonds.

Continued Operation of Systems. The Board will not sell or lease the whole or any integral part of the Systems, will continuously operate the Systems or cause the same to be operated, in an economical and efficient manner, and will keep the Systems in good repair and efficient operating condition; provided, however, that the Board may sell or lease portions of the Systems if the Board delivers to the Trustee a certificate of the Chairman of the Board of Directors of the Board to the effect that such sale or lease will not have a material adverse effect on the production of revenues from the Systems. The Board may, however, consolidate with or merge into any public corporation, or transfer the Systems as an entirety to the City or to another public corporation if the property or income of such other public corporation is not subject to taxation and, upon any such consolidation, merger or transfer, the due and punctual payment of the principal of and interest on the Bonds and the observance of the agreements of the Indenture are expressly assumed in writing by the corporation formed by such consolidation or into which such merger shall be made or to which the Systems shall be transferred as an entirety.

Preservation of the Tax-Exempt Status of Series 2016 Bonds. The Indenture contains an agreement on the part of the Board that from and after the date of issuance of the Series 2016 Bonds, the Board will

(a) in a timely manner, make all payments of any amount that is required, by the provisions of Section 148(f) of the Code and any applicable regulations, to be paid by the Board to the United States of America in order that the Series 2016 Bonds shall not be treated as "arbitrage bonds" within the meaning of Section 103(b)(2) and 148 of the Code and any applicable regulations promulgated thereunder, in order to preserve the exemption of the interest on the Series 2016 Bonds from gross income of the recipients thereof for Federal income tax purposes, and

(b) refrain from taking any action that would, under the provisions of Section 103 of the Code (as it now exists) and any applicable regulations, result in the interest on any of the Series 2010 Bonds being or becoming subject to gross income of the recipients thereof for Federal income tax purposes.

The Indenture further provides that such covenants and agreements of the Board relating to the tax-exempt status of the interest on the Series 2016 Bonds shall, if and to the extent that compliance with them is required, survive any so-called "constructive" payment and retirement of the Series 2016 Bonds (including, without limitation, the establishment of an escrow providing for retirement of the Series 2016 Bonds on a future date) and shall continue in effect until (1) all the Series 2016 Bonds have become due and payable in accordance with their terms, whether at maturity, by call for redemption or otherwise, and (2) the entire principal and interest (and premium, if any) due and payable thereon have been paid or moneys sufficient therefor have been irrevocably deposited with the Trustee.

A-13 Insurance

Insurance Required. The Board will keep all portions of the Systems that are of the character and type customarily insured by organizations operating a business similar to the Systems insured against loss by fire, including extended coverage, tornado and windstorm, to the extent of the full insurable value thereof. The Board will also carry workmen's compensation insurance and public liability insurance in such amounts and to such extent as is customarily carried by like organizations engaged in like businesses of comparable size.

Disposition of Insurance Proceeds. Proceeds on physical properties constituting a portion of the Systems coming into the hands of the Trustee shall be applied by the Trustee, at the direction of the Board, for one of the following purposes: (a) the purchase or construction of additional property which the Board shall deem to have utility equal to that destroyed; or (b) the repairing or the renewing of the property damaged or destroyed.

Events of Default and Remedies

Events of Default. The following constitute default under the Indenture:

(a) Failure by the Board to pay the principal of and interest on any of the Bonds when such principal and interest respectively become due and payable, whether by maturity or otherwise;

(b) Failure by the Board to commence the repair or replacement of any property forming a part of the Systems that may be damaged or destroyed and that is necessary to the continued and efficient operation of the Systems, within one hundred twenty (120) days after the occurrence of such damage or destruction;

(c) The sale, lease or other disposition by the Board of the Systems or any integral part thereof in violation of any provisions of the Indenture;

(d) Failure by the Board to perform any of the agreements on its part contained in the Indenture (other than as provided in (a), (b) and (c) above) after thirty (30) days' written notice to it of such failure made by the Trustee or by the holders of twenty-five percent (25%) in Outstanding Amount of the Bonds unless during such period or any extension thereof the Board has commenced and is diligently pursuing appropriate corrective action; or

(e) Determination by a court having jurisdiction that the Board is insolvent or bankrupt, or appointment by a court having jurisdiction of a receiver for the Board or for a substantial part of the Systems, or approval by a court of competent jurisdiction of any petition for reorganization of the Board or rearrangement or readjustment of its obligations under any provisions of the bankruptcy laws of the United States; or

(f) The occurrence and continuation of an "Event of Default" under the 1990 Indenture.

Remedies of Default. Upon the occurrence of default, the Trustee shall have the following right and remedies:

(a) Acceleration. The Trustee may, by written notice to the Board, declare the Outstanding Amount of and the interest accrued on all the Bonds forthwith due and payable, and such Outstanding Amount and interest shall thereupon become and be immediately due and payable, anything herein or in the Bonds to the contrary notwithstanding; provided, however, that a Supplemental Indenture authorizing a series of Additional Bonds secured in whole or in part by a Credit Facility may provide that the right of the Trustee to accelerate the maturity of the Bonds of that series (or the portion

A-14 thereof secured by such Credit Facility) is subject to the consent of the Credit Facility Obligor issuing such Credit Facility. If, however, the Board makes good that default and every other default hereunder (except for those installments of Outstanding Amount and interest declared due and payable that would, absent such declaration, not be due and payable), with interest on all overdue payments of Outstanding Amount and interest, and makes reimbursement of all the reasonable expenses of the Trustee, then the Trustee may (and, if requested in writing by the Holders of a majority in Outstanding Amount of the then outstanding Bonds, shall), by written notice to the Board, waive such default and its consequences, but no such waiver shall affect any subsequent default or right relative thereto.

(b) Suits at Law or in Equity. The Trustee is empowered (1) to sue on the Bonds, (2) by mandamus, suit or other proceedings to enforce and compel performance of all agreements of the Board in the Indenture, including the fixing of rates and the collection, proper segregation and proper application of the revenues from the Systems, (3) by action or suit in equity, to require the Board to account as if it were the trustee of an express trust for the holders of the Bonds, and (4) by action or suit in equity, to enjoin any act or things which may be unlawful or in violation of the rights of the holders of the Bonds.

(c) Receivership. The Trustee shall be entitled to and shall have, regardless of the sufficiency of any security or the availability of any other remedy, the appointment of a receiver to administer and operate the Systems and perform the covenants on the part of the Board contained in the Indenture. Any receiver so appointed shall be entitled to take over and administer all of the following then on hand which shall be applicable to the Systems: cash on hand or on deposit, accounts and notes receivable, stocks, evidences of indebtedness, choses in action, customers' service and extension deposits, water and other property held for sale in the ordinary source of business or for consumption in the operation of the Systems.

Remedies Vested in Trustee for Benefit of Bondholders. All remedies under the Indenture are vested exclusively in the Trustee for the equal and pro rata benefit of all holders of the Bonds, unless the Trustee refuses or neglects to act within a reasonable time after written request so to act addressed to the Trustee by the holders of twenty-five percent (25%) in Outstanding Amount of the Bonds, accompanied by indemnity satisfactory to the Trustee, in which event the holder of any of the Bonds may thereupon so act in the name and behalf of the Trustee or may so act in his own name and behalf in lieu of action by or in the name and behalf of the Trustee. Except as provided in the preceding sentence, no holder of any of the Bonds shall have the right to enforce any remedy under the Indenture, and then only for the equal and pro rata benefit of the holders of all the Bonds.

Concerning the Trustee

Limitation of Liability. The Trustee shall not be liable under the Indenture except for its material noncompliance with the provisions thereof, its willful misconduct or its gross negligence.

Notice of Defaults. The Trustee need not notice any default under the Indenture except a default in the payment of the principal of and the interest on the Bonds, unless requested so to do by the holders of twenty-five percent (25%) in Outstanding Amount.

Institution of Suit. The Trustee may, in its own name and at any time institute or intervene in any suit for the enforcement of all rights under the Indenture without the necessity of joining as parties to such suit or proceedings any holders of the Bonds. The holders of the Bonds appoint the Trustee as their irrevocable agent and attorney in fact for the purpose of enforcing all such rights of action, but such appointment does not include the power to agree to accept new securities of any nature in lieu of the Bonds or to alter or amend the terms of the Indenture except as therein provided.

Payment of Prior Charges. The Trustee may pay any charge which the failure of the Board to pay has made or will make an encumbrance or lien or charge on the revenues for the Systems prior to or on a parity with charge on said revenues contained in the Indenture on the Systems. Any sum so expended by the Trustee shall be

A-15 secured by the Indenture, shall bear interest at the Base Rate from the date of payment thereof, and shall be entitled to priority of payment over any of the bonds or interest thereon.

Resignation and Discharge. The Trustee may resign and be discharged by written notice given to the Board and the holders of the Bonds. The Trustee may at any time be removed by a written instrument signed by the holders of a majority in Outstanding Amount of the Bonds.

Appointment of Successor Trustee. If the Trustee resigns, is removed or is otherwise incapable of acting, a successor may be appointed by the holders of a majority in Outstanding Amount of the Bonds.

Modification of the Indenture

Without the consent of the holders of any Bonds, the Board and the Trustee may, with the consent of the Series 2016 Credit Facility Obligor, amend the Indenture for any of the following purposes: (a) to add to the covenants and agreements of the Board; or (b) to cure any ambiguity, defect or inconsistent provision or to subject additional revenues to the pledge contained in the Indenture.

With the consent of the holders of sixty-six and two-thirds percent (66-2/3%) in Outstanding Amount of the Bonds then outstanding and the Series 2016 Credit Facility Obligor, the Board and the Trustee may enter into supplemental indentures as they deem necessary or desirable for the purpose of modifying, altering, amending, adding to or rescinding in particular any of the terms or provisions of the Indenture; provided that without the written consent of the holders of all Bonds affected no reduction in the principal amount of, rate of interest on, or the premium payable upon redemption of any Bond shall be made; and provided further, that without the written consent of the holders of all the Bonds none of the following shall be permitted:

(a) An extension of the maturity of any installment of principal of or interest on any Bond;

(b) any change in the schedule of mandatory redemption of any series of the Bonds;

(c) the creation of a lien or charge on the Systems or revenues therefrom ranking prior to, or (except in connection with the issuance of Additional Bonds) on a parity with, the lien or charge thereon contained in the Indenture;

(d) the establishment of preferences or priorities as between Bonds; or

(e) a reduction in the Outstanding Amount of Bonds the holders of which are required to consent to such supplemental indenture.

Satisfaction of the Indenture

Whenever the entire indebtedness secured by the Indenture (including, without limitation, any unpaid Reimbursement Obligation), including all proper charges of the Trustee thereunder, shall have been fully paid, the Trustee shall cancel, satisfy and discharge the lien of the Indenture. For purposes of the Indenture (including, without limitation, the provisions pertaining to the issuance of Additional Bonds) any of the Bonds shall be deemed to have been paid when there shall have been irrevocably deposited with the Trustee for payment thereof the entire amount (principal, interest and premium, if any) due or to be due thereon until and at maturity, and, further, any of the callable Bonds shall also be deemed to have been paid when the Board shall have deposited with the Trustee the applicable redemption price of such callable Bond, and evidence that such callable Bond has been called for redemption in accordance with the Indenture.

In addition, any Bonds shall for all purposes of the Indenture be deemed fully paid if the Board and the Trustee enter into a trust agreement making provision for the retirement of such Bonds by creating for that purpose an irrevocable trust fund sufficient to provide for payment and retirement of such Bonds (including payment of the

A-16 interest that will mature thereon until and on the dates they are retired, as such interest becomes due and payable), either by payment of the redemption price to their respective maturities, by payment at their respective maturities or by payment of part thereof at their respective maturities and redemption of the remainder prior to their respective maturities, which said trust fund shall consist of (A) Federal securities which are not subject to redemption prior to their respective maturities at the option of the issuer and which, if the principal thereof and the interest thereon are paid at their respective maturities, will produce funds sufficient so to provide for payment and retirement of such Bonds, or (B) both cash and such securities which together will produce funds sufficient for such purpose, or (C) cash sufficient for such purpose.

A-17 [THIS PAGE INTENTIONALLY LEFT BLANK] APPENDIX B

AUDITED FINANCIAL STATEMENTS OF THE BOARD FOR FISCAL YEAR 2015 [THIS PAGE INTENTIONALLY LEFT BLANK] THE UTILITIES BOARD OF THE CITY OF DAPHNE, ALABAMA

FINANCIAL STATEMENTS WITH INDEPENDENT AUDITORS' REPORT

Years Ended September 30,2015 and 2014 THE UTILITIES BOARD OF THE CITY OF DAPHNE, ALABAMA TABLE OF CONTENTS

Page(s)

Independent Auditors' Report 1 - 2

Management's Discussion and Analysis 3-9

Basic Financial Statements Statements of Net Position 10

Statements of Revenues, Expenses and Changes in Net Position 11

Statements of Cash Flows 12 - 13

Notes to Financial Statements 14 - 30

Supplementary Information Departmental Statement of Revenues and Expenses 31

Statement of Revenues and Expenses - Budget and Actual 32

Compliance and Internal Controls Independent Auditors' 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 33 - 34

Schedule of Findings and Responses 35 INDEPENDENT AUDITORS' REPORT ROBERTSON, ANDREOLI Be COVINGTON, P.C.

James H. Robertson, CPA Members American Institute of Micheal R. Andreoli, CPA CERTIFIED PUBLIC ACCOUNTANTS AND CONSULTANTS Certified Public Accountants A. Neal Covington, CPA Members Alabama Society of Kimberly C. Cain, CPA Certified Public Accountants Tara J. Harville, CPA

INDEPENDENT AUDITORS' REPORT

To the Utilities Board City of Daphne Daphne, Alabama

We have audited the accompanying financial statements of the Utilities Board of the City of Daphne, Alabama (the Board) as of September 30,2015 and 2014, and for the years ended, as listed in the table of contents.

Management's Responsibility for the Financial Statements

The Board's management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error.

Auditors' Responsibility

Our responsibility is to express opinions on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America 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 audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditors' judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity's preparation and fair presentation of the financial statements in order to deSign audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of Significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinions. Opinions In our opinion, the financial statements referred to above present fairly, in all material respects, the respective financial position of the Board, as of September 30, 2015 and 2014, and the respective changes in financial position and cash flows thereof for the years then ended in accordance with accounting principles generally accepted in the United States of America. Other Matters Required Supplementary Information Accounting principles generally accepted in the United States of America require that the management's discussion and analysis on pages 3 through 9 be presented to supplement the basic financial statements. Such information, although not a part of the basic financial statements, is required by the Governmental Accounting Standards Board, who considers it to be an essential part of financial reporting for plaCing the 100 Hand Avenue • Bay Minette, Alabama 36507 • Telephone (251) 937-5561 • Fax (251) 937-5564 • www.racpc.com 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 financial statements, and other knowledge we obtained during our audit of the basic financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance. Other Information Our audit was conducted for the purpose of forming opinions on the financial statements that collectively comprise the Utilities Board of the City of Daphne, Alabama's basic financial statements. The Departmental Statement of Revenues and Expenses on page 31 and the Statement of Revenues and Expenses - Budget and Actual on page 32 are presented for purposes of additional analysis and are not a required part of the financial statements.

The Departmental Statement of Revenues and Expenses and the Statement of Revenues and Expenses - Budget and Actual is the responsibility of management and was derived from and relates directly to the underlying accounting and other records used to prepare the financial statements. Such information has been subjected to the auditing procedures applied in the audit of the financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the financial statements or to the financial statements themselves, 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.

Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated January 16, 2016, on our consideration of the Board's internal control over financial reporting and on 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 internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards in conSidering the Board's internal control over financial reporting and compliance.

Robertson, Andreoli and Covington, P.C. Certified Public Accountants

Bay Minette, Alabama January 16, 2016 MANAGEMENT'S DISCUSSION AND ANALYSIS THE UTILITIES BOARD OF THE 3 CITY OF DAPHNE, ALABAMA Management's Discussion and Analysis

OVERVIEW OF THE FINANCIAL STATEMENTS

This discussion and analysis is intended to serve as an introduction to the Utilities Board of the City of Daphne, Alabama's (The Board) basic financial statements. The Board's basic financial statements are comprised of two components: 1) the financial statements and 2) notes to the financial statements that explain in more detail some of the information in the financial statements.

The basic financial statements present the Statements of Net Position, Statements of Revenues, Expenses and Changes in Net Position, and Cash Flow Statements for the period. The three financial statements are presented with prior year comparative data.

The Statements of Net Position are a point-in-time snapshot of account balances at the end of the fiscal year. It reports assets available for working capital and to pay for any current liabilities owed as of the statement date.

The Statements of Revenues, Expenses and Changes in Net Position are used to report the flow of economic resources which emphasize determination of net income. All revenues earned and all expenses incurred are reported in this statement.

The Cash Flow Statements show the distribution of cash received and expended during the periods. Non• cash transactions such as depreciation are omitted from these statements.

The notes to the financial statements contain important details that assist the user in gaining a full understanding of the statements.

SUMMARY OF ORGANIZATION AND BUSINESS OPERATIONS

The Board provides water, wastewater, and natural gas utility services to more than 25,000 people living in the City of Daphne and the surrounding communities of Spanish Fort, Park City, Montrose, Belforest, and Fairhope.

The Board is a fiscally-independent organization from the City of Daphne. It is organized as a public utility under authority of the Code of Alabama Section 11-50-310. As such, it is solely financed by utility user service charges. The Board has no taxing power nor does it receive any tax revenue from the City of Daphne. Operational and maintenance costs are funded from customer fees and charges, and capital assets are funded by capital contributions from developers, state grants and loans, and utility revenues.

The Board is composed of five members appointed by the City Council of Daphne. The powers and duties of the Board include establishing policy, adopting rules and regulations, adopting an annual budget, establishing rates and fees, and hiring and oversight of the General Manager. The management and operation of the Board is under the direction of the General Manager who directs day-to-day management of a staff of approximately 65 personnel.

The Board provides water to its customers through a series of 11 groundwater wells and 6 treatment facilities with a capacity of 7 million gallons per day of reliable high-quality potable water, irrigation, and fire protection water. The Board has one wastewater treatment plant with a permitted capacity to treat and discharge up to 4.17 million gallons per day. Both water and wastewater systems are regulated by the state and federal government and consistently meet or exceed all regulatory requirements. The Board's natural gas is purchased from BP Energy and transported through the Gulf South Pipeline to a natural gas metering station. The purchase and storage of natural gas supplies is coordinated by SEGAS on behalf of the Utilities Board of the City of Daphne. This arrangement allows the Board to purchase gas at THE UTILITIES BOARD OF THE 4 CITY OF DAPHNE, ALABAMA Management's Discussion and Analysis a competitive rate. The gas local distribution piping is managed by Board staff and is regulated by the federal Department of Transportation and the Alabama Public Service Commission. The Board consistently meets and exceeds all regulatory requirements.

Water. Sewer. Natural Gas, and Miscellaneous Revenue Sources

Water is provided to each customer through a meter and charges for water are based on consumption of water at a rate per 1,000 gallons used. In addition, a minimum charge is assessed to each customer for up to the first 1,000 gallons used to cover fixed expenses. The Board charges different rates for differing classes of customers (i.e., residential, commercial, municipal, wholesale). Sewer users who are also water customers have a similar rate structure and charges are based on the gallons of water consumed. Some sewer customers who are not also water customers are charged a flat rate for sewer use depending on their customer class as residential or commercial. Natural gas rates fluctuate and are calculated monthly based on the Board's cost of purchasing natural gas. The gas used is measured at the customer's meter and is charged in 100 cubic-foot increments (CCF). The cost of the gas purchased by the Board is a straight pass-through to the customer, plus a markup per CCF to cover fixed and variable expenses as well as capital reserves. The Board also receives miscellaneous income during the year from interest on reserve funds, cell site leasing, and septic hauling.

FINANCIAL HIGHLIGHTS

Key financial highlights for the year ended September 30, 2015 are as follows:

• The assets of the Board exceeded its liabilities by $38,224,711 at September 30, 2015. • The Board maintained $13,703,120 of working capital, current assets less current liabilities, at September 30, 2015. • Total operating revenues exceeded operating expenses by $3,947,739.

Revenue

As a whole, revenue for the year was down slightly (-0.07%) from the previous year. This decrease was primarily due to depressed natural gas sales from a warm winter season. An increase in water and sewer rates combined with above average irrigation sales and capacity fee increases largely offset the decline in natural gas revenue. Overall sales of water and wastewater increased from the previous year as a result of a multi-year rate increase for water and wastewater which was instituted in October 2013.

In FY15:

• Water revenue increased to $4,643,144 from $4,453,927 in fiscal year 2014 (+4.2%). • Sewer revenue increased to $6,678,249 from $6,419,741 in fiscal year 2014 (+4.0%). • Gas revenue decreased to $3,055,036 from $3,503,358 in fiscal year 2014 (-13.8%). THE UTILITIES BOARD OF THE 5 CITY OF DAPHNE, ALABAMA Management's Discussion and Analysis

Capacity fees, which are a reflection of the economy to the extent they reflect new construction in the area, increased in fiscal year 2015. The Board received $909,362 in fiscal year 2015 versus $499,005 in fiscal year 2014 (an 82% increase). Though substantial, the majority of this increase was the result of the construction of one large apartment complex. Regardless, the Board's customer base continued its steady, yet modest, growth over the course of the year.

• Water - 1.0% • Sewer - 1.6% • Irrigation - 15.8% • Natural gas - 3.5%

In fiscal year 2016 and beyond, the Board will continue its concerted effort to grow its customer base outside of its existing service area through renewed relationships with development companies and active marketing of its services - particularly natural gas.

Expenses

Operating expenses were lower in the year ended September 30, 2015 than the previous year. A large portion of this decrease was related to lower natural gas purchases due to depressed usage from warm winter temperatures; however, and as noted above, there is a corresponding decrease in natural gas revenue. Salaries and benefits remain one of the largest individual expense items in the overall operation yet, even though overall system capacity increases year over year, this expense remains flat. Management regards this as a testament to its commitment to operating the Board in the most efficient manner, only adding staff when necessary to meet demand and with the willingness to hold positions vacant if not immediately needed.

Similarly, infrastructure repairs and maintenenance are generally significant expenses for the Board each year due to an aging infrastructure which is heavy on mechanical systems required to pump water and wastewater through the system of underground piping. As the system ages, expenses expectedly increase over the years. Through planned preventative maintenance programs and equipment replacements in 2015, these expenses were reduced by approximately 17% from the previous year's level.

Change in Net Position

Change in net position for the year ended September 30, 2015 was slightly higher than the year ended September 30, 2014 and appears to be stable. From an operational standpOint, unforseen circumstances such as depressed natural gas sales prompted management to evaluate discretionary expenses and reprioritize other planned items. Consequently, the Board manages its cash flow and maintains net income at a relatively stable level.

Looking Ahead

In June 2015, Standard & Poor's upgraded the Board's credit rating to AA with a Stable Outlook reflecting the overall fiscal health of the company and reflecting the willingness of the Board to adequately fund operations going forward. In October 2013, the Board of Directors approved a multi-year rate increase for water and wastewater sales in keeping with this overall fiscal policy of providing adequate funding for Board operations. The last of these increases was implemented in October 2015. The decision to implement a multi-year increase was made in light of a comprehensive short-term and long-term capital improvement plan to maintain the existing infrastructure as well as plan for future growth and utility THE UTILITIES BOARD OF THE 6 CITY OF DAPHNE, ALABAMA Management's Discussion and Analysis demand. Capital improvements remain on track and for the near-term, capital expenses will continue to be drawn from operating funds and reserves. Incurring any new debt is not anticipated to fund planned capital improvements over the next three years.

FINANCIAL ANAL YSIS

Net Position A comparative analysis of 2015 and 2014 condensed statements of net position is presented as follows:

Increase 2015 2014 (Decrease) Current assets $ 14,846,485 $ 14,117,188 $ 729,297 5.17 % Restricted assets 2,070,556 2,247,732 (177,176) (7.88) % Capital assets, net 40,858,686 39,948,156 910,530 2.28 % Total assets 57,775,727 56,313,076 1,462,651 2.60 %

Deferred Outflows of Resources 235,009 0 235,009

Total assets and deferred outflows of resources $ 58,010,736 $ 56,313,076 $ 1,697,660 3.01 %

Current liabilities $ 1,143,365 $ 982,473 $ 160,892 16.38 % Current liabilities payable from restricted assets 1,806,545 2,095,832 (289,287) (13.80) % Other liabilities 1,293,378 1,239,119 54,259 4.38 % Long-term liabilities 15,396,403 16,446,655 (1,050,252) (6.39) % Total liabilities 19,639,691 20,764,079 (1,124,388)

Deferred inflows of resources 146,334 0 146,334

Total liabilities and deferred inflows of resources 19,786,025 20,764,079 (978,054) (4.71) %

Net in'vestment in capital assets 24,435,914 21,541,501 2,894,413 13.44 % Restricted for: Retirement of long-term debt 2,070,556 2,247,732 (177,176) (7.88) % Unrestricted 11,718,241 11,759,764 (41,523) (0.35) %

Net position 38,224,711 35,548,997 2,675,714 7.53 %

Total liabilities, deferred inflows of resources and net position $ 58,010,736 $ 56,313,076 $ 1,697,660 3.01 % THE UTILITIES BOARD OF THE 7 CITY OF DAPHNE, ALABAMA Management's Discussion and Analysis

A brief discussion of the major increases and decreases in the individual items previously listed follows:

• Current assets increased during the year by $729,297 or 5.17%. Capacity Fee Revenue increased during 2015, mostly due to the construction of a new apartment building. Capacity fees are used to fund future infrastructure improvements. These fees are utility restricted for this purpose. Several utility funded capital projects are ongoing. Funding for these projects are expected to materialize well into the 2016 fiscal year. • Restricted assets decreased during the year by $177,176 or 7.88%. This item includes cash restricted for long term debt funding and a bond receivable. The restricted bond accounts remain fairly constant year over year absent new or retired bonds. The slight decrease is attributable to the reduction of the bond debt funding requirements. • Capital assets net, increased by $910,530 or 2.28%. Details are listed under the Capital Assets section of the management discussion and analysis. • Total assets increased during the year by $1,697,660 or 3.01 %. The primary reason for this increase was the asset activity as explained above. • Current liabilities increased by $160,897 or 16.38%. The primary reason for this was an increase in accounts payable at year end. The increase is a timing event and will vary from year to year. • Long-term liabilities decreased by $1,050,252 or 6.39%. The decrease was due to the reduction of bond debt.

Revenues, Exe.enses and Changes in Net Position A comparative analysis of 2015 and 2014 condensed statements of revenues, expenses and changes in net position is presented as follows: Increase 2015 2014 (Decrease) Operating revenues $ 14,381,797 $ 14,391,400 $ (9,603) (0.07) % Operating expenses 10,434,058 11,193,565 (759,507) (6.79) % Operating income 3,947,739 3,197,835 749,904 23.45 % Nonoperating revenues (expenses), net (555,563) (621,765) (66,202) 10.65 % Change in net position 3,392,176 2,576,070 816,106 31.68 %

Net position, beginning of year 35,548,997 33,138,073 2,410,924 7.28 % Prior period adjustment-see note 11 0 (165,146) 165,146 (100.00) % Prior period adjustment-GASB 68 (716,462) 0 (716,462) 100.00 % Net position, end of year $ 38,224,711 $ 35,548,997 $ 2,675,714 7.53 %

A brief discussion of the major increases and decreases in the individual items noted above is as follows:

• Operating revenues decreased during the year by $9,603 or .07%. This decrease is a result of lower natural gas prices. The average cost of natural gas decreased during 2015. Customer consumption also saw a small decline. Billing rates are derived from the price we pay for natural gas. If gas rates decrease there will be a parallel decrease in revenue, absent an increase in consumption. There is a slight increase in water and sewer revenue. Capacity fees also realized an increase. THE UTILITIES BOARD OF THE 8 CITY OF DAPHNE, ALABAMA Management's Discussion and Analysis

• Operating expenses decreased during the year by $759,507 or 6.79%. Natural gas costs decreased during 2015. The sewer lift station and plant repairs so prevalent during 2014, decreased. Most of the repairs resulting from the heavy rains were completed during 2014. The aging sewer system will continue to demand substantial future upgrades and repairs. • Non-operating revenues (expenses), net, decreased by $66,202 or 10.65%. The decrease is due to a reduction in interest expense on bond debt. A bond refunding mid-year contributed to the decrease along with the retirement of the 1994-SRF bond issue.

Capital Assets A summary of changes in capital assets is present as follows:

09/30/14 Additions Deletions 09/30/15 Land $ 879,850 $ 15,245 $ 0 $ 895,095 Buildings 3,177,851 0 0 3,177,851 Machinery and equipment 2,518,333 220,356 0 2,738,689 Office equipment 914,657 19,456 0 934,113 Plant 55,385,445 2,409,710 0 57,795,155 Total capital assets 62,876,136 2,664,767 0 65,540,903 Less: accumulated depreciation (22,927,980) (1,754,237) 0 (24,682,217) Capital assets - net $ 39,948,156 $ 910,530 $ 0 $ 40,858,686

Major changes in capital assets included:

• Additions to land of $15,245 for the purchase of two properties to be used for the construction of a sewer pump station. • Additions to machinery and equipment of $220,356 includes the replacement of several fleet vehicles and the purchase of heavy equipment used for utility operations. • Office equipment increased by $19,456 during 2015. Includes the purchase of a copier and various other office equipment. • Plant additions of $2,409,710 include the following projects. WRF Outfall line, Douglas Road Storage, Combining of Well 1 & 2 or the Well 13 project, Corrective Action for Water Mains, Various Sanitary Sewer Rehabs, and other smaller miscellaneous projects.

Long-Term Debt A summary of changes in long-term debt is presented as follows:

09/30/14 Additions Retirement 09/30/15 Revenue bonds payable $ 18,495,000 $ 2,495,000 $ 4,480,000 $ 16,510,000 Notes payable 0 0 0 0 Capital lease payable 0 0 0 0 Total long-term debt $ 18,495,000 $ 2,495,000 $ 4,480,000 $ 16,510,000 THE UTILITIES BOARD OF THE 9 CITY OF DAPHNE, ALABAMA Management's Discussion and Analysis

Major changes in long-term debt included:

• Principal payments reduced the Board's outstanding debt by $1,960,000. • During 2015, the 2007 Series Bonds were refunded in the amount of $2,520,000 and replaced with the 2015 Series in the amount of $2,495,000. By refunding the 2007 series, thus reducing the interest rate, the Board will realize interest savings of approximately $300,000 over the remaining life of the bond. • In total, the Board reduced its long-term debt in 2015 by $1,985,000.

CONTACTING THE BOARD'S FINANCIAL MANAGEMENT

This financial report is designed to provide our users, creditors, customers and member municipalities with a general overview of the Board's finances. If you have questions about this report or need additional financial information regarding the Board, contact Teresa Logiotatos, Finance Manager at Daphne Utilities, P.O. Box 2550 Daphne, AL 36526; or call (251) 626-2628. BASIC FINANCIAL STATEMENTS THE UTILITIES BOARD OF THE CITY OF DAPHNE, ALABAMA STATEMENTS OF NET POSITION September 30, 2015 and 2014

2015 2014 (As Restated) Assets Current Assets Cash $ 12,873,378 $ 12,034,622 Accounts receivable (net of allowance for doubtful accounts of $62,673 in 2015 and $69,820 in 2014) 1,294,554 1,400,337 Other receivables 167,193 163,660 Inventory 253,100 296,719 Prepaid expenses 258,260 221,850 Total current assets 14,846,485 14,117,188

Restricted Assets Cash, restricted for the retirement of long-term debt 2,070,556 2,247,732 Total restricted assets 2,070,556 2,247,732

Capital Assets Land 895,095 879,850 Buildings 3,177,851 3,177,851 Machinery and equipment 2,738,689 2,518,333 Office equipment 934,113 914,657 Plant 57,795,155 55,385,445 65,540,903 62,876,136 Less: accumulated depreciation (24,682,217) (22,927,980)

Total capital assets, net 40,858,686 39,948,156

Total Assets 57,775,727 56,313,076

Deferred Outflows of Resources 235,009 0

Total assets and deferred outflows of resources $ 58,010,736 $ 56,313,076 10

2015 2014 (As Restated) Liabilities Current Liabilities Accounts payable $ 630,870 $ 454,089 Utility tax payable 21,140 20,623 Pilot fee payable 26,792 25,938 Franchise fees payable 5,661 5,602 Accrued salaries and payroll liabilities 154,140 136,845 Accrued vacation payable 147,004 133,557 Deferred income 46,957 98,621 Due to City of Daphne 110,801 107,198 Total current liabilities 1,143,365 982,473

Current Liabilities Payable from Restricted Assets Accrued interest 106,545 135,832 Current portion of bonds payable 1,700,000 1,960,000 Total current liabilities payable from restricted assets 1,806,545 2,095,832

Other Liabilities Customer deposits 1,293,314 1,239,119 Helping hand contributions 64 0 Total other liabilities 1,293,378 1,239,119

Long-Term Liabilities Net pension liability 673,631 0 Bonds payable, less current portion 14,810,000 16,535,000 Unamortized bond premium 19,862 23,473 Unamortized bond discount (107,090) (111,818) Total long-term liabilities 15,396,403 16,446,655

Total Liabilities 19,639,691 20,764,079

Deferred Inflows of Resources 146,334 0

Net Position Net investment in capital assets 24,435,914 21,541,501 Restricted for: Retirement of long-term debt 2,070,556 2,247,732 Unrestricted 11,718,241 11,759,764

Total net position 38,224,711 35,548,997

Total liabilities, deferred inflows of resources and net position $ 58,010,736 $ 56,313,076

See independent auditors' report and notes to the financial statements. THE UTILITIES BOARD OF THE 11 CITY OF DAPHNE, ALABAMA STATEMENTS OF REVENUES, EXPENSES AND CHANGES IN NET POSITION Years Ended September 30,2015 and 2014

2015 2014 (As Restated)

Operating Revenues Service income $ 13,233,032 $ 13,647,480 Capacity fees 909,362 499,005 Penalties 78,624 78,080 Reconnection fees 36,799 30,730 Aid to construction 33,800 30,475 Other revenue 90,180 105,630 Total operating revenues 14,381,797 14,391,400

Operating Expenses Salaries 2,608,189 2,564,249 Fringe benefits 819,617 967,551 System expense 3,077,402 3,654,617 Repairs and maintenance 704,043 857,135 Bad debts 12,788 32,748 Supplies and other system expense 731,213 590,960 Communications 89,099 83,189 Professional services 208,202 321,305 Meetings, dues and travel 101,655 106,766 Insurance 182,067 168,910 Vehicle expense 110,131 156,504 Uniforms 35,415 .33,614 Depreciation 1,754,237 1,656,017 Total operating expenses 10,434,058 11,193,565

Operating Income 3,947,739 3,197,835

Nonoperating Revenues (Expenses) Interest income 10,659 8,481 Interest expense (566,222) (630,246) Total nonoperating revenues (expenses) (555,563) (621,765)

Increase in Net Position 3,392,176 2,576,070

Total Net Position, beginning of year 35,548,997 33,138,073

Prior Period Adjustment - See Note 11 0 (165,146) Prior Period Adjustment - Adoption of GASB 68 (716,462) 0

Total Net Position, end of year $ 38,224,711 $ 35,548,997

See independent auditors' report and notes to the financial statements. THE UTILITIES BOARD OF THE 12 CITY OF DAPHNE, ALABAMA STATEMENTS OF CASH FLOWS Years Ended September 30,2015 and 2014

2015 2014 (As Restated) Cash Flows Provided By Operating Activities Cash received from customers $ 14,491,675 $ 14,335,831 Cash paid to employees (2,473,944) (2,557,891) Cash paid for employee benefits and taxes (1,054,626) (999,140) Cash paid to suppliers for goods and services (5,068,025) (5,907,239) Net cash provided by operating activities 5,895,080 4,871,561

Cash Flows (Used) By Capital Financing Activities Purchase of capital assets (2,664,767) (1,517,267) Bond principal payments (4,480,000) (1,900,000) Bond interest payments (606,014) (638,362) Bond proceeds 2,495,000 59,352 Net cash (used) by capital financing activities (5,255,781) (3,996,277)

Cash Flows Provided By Investing Activities Receipt of interest 10,659 8,481 Net cash provided by investing activities 10,659 8,481

Net Increase In Cash and Cash Equivalents 649,958 883,765 Cash and Cash Equivalents, beginning of year 14,282,354 13,398,589 Cash and Cash Equivalents, end of year $ 14,932,312 $ 14,282,354

Summary Current Assets - cash and cash investments $ 12,873,378 $ 12,034,622 Restricted Assets - cash and cash investments 2,070,556 2,247,732 Total cash and cash investments $ 14,943,934 $ 14,282,354

See independent auditors' report and notes to the financial statements. THE UTILITIES BOARD OF THE 13 CITY OF DAPHNE, ALABAMA STATEMENTS OF CASH FLOWS Years Ended September 30,2015 and 2014 2015 2014 (As Restated) Reconciliation of net income to net cash provided by operating activities: Operating Income $ 3,947,739 $ 3,197,835

Adjustments to reconcile operating income to cash provided (used) by operating activities: Depreciation 1,754,237 1,656,017 Deferred outflows of resources related to GASB 68 (235,009) 0 Change in pension expense as related to GASB 68 103,503 0 Change in current assets and liabilities: (Increase)decrease in accounts receivable 105,783 (128,012) (Increase)decrease in other receivables (3,533) (4,187) (Increase)decrease in inventory 43,619 (11,274) (Increase)decrease in prepaid expenses (36,410) (1,537) Increase(decrease) in accounts payable 176,781 111,320 Increase(decrease) in other payables (15,889) 25,519 Increase(decrease) in customer deposits 54,195 25,880 Increase(decrease) in helping hand donations 64 0 Total adjustments 1,947,341 1,673,726 Net cash provided by operating activities $ 5,895,080 $ 4,871,561

See independent auditors' report and notes to the financial statements. NOTES TO THE FINANCIAL STATEMENTS THE UTILITIES BOARD OF THE 14 CITY OF DAPHNE, ALABAMA NOTES TO FINANCIAL STATEMENTS September 30,2015 and 2014

NOTE 1 - NATURE OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES

Nature of Operations The Utilities Board of the City of Daphne, Alabama (the Board) was formed in 1953, to provide water, gas and sewer services for the Daphne area.

Reporting Entity The Board is comprised of a five member board appointed by the City of Daphne, Alabama (the City), who also created the board to provide water, gas and sewer services for Daphne and the surrounding area. These financial statements present only the Board's operations and are not intended to present fairly the financial position and results of operations of the City in conformity with accounting principles generally accepted in the United States of America. The Board is not financially accountable for any other organizations and, thus, includes only the financial activity of the various funds of the Board.

Basis of Accounting On October 1, 2012, The Board adopted the provisions of Governmental Accounting Standards Board (GASB) Statement No. 62, Codification of Accounting and Financial Reporting Guidance Contained in Pre-November 30, 1989 FASB and AICPA Pronouncements. GASB 62 incorporates into the GASB's authoritative literature certain accounting and financial reporting guidance that is included in the following pronouncments issued on or before November 30, 1989, which does not conflict with or contradict GASB pronouncments: Financial Accounting Standards Board (FASB) Statements and Interpretations, Accounting Principles Board Opinions and Accounting Research Bulletins of the American Institute of Certified Public Accountants (AICPA) Committee on Accounting Procedure. The adoption of GASB 62 did not have any impact on the Board's financial statements.

On October 1, 2012, the Organization implemented GASB 63, Financial Reporting of Deferred Outflows of Resources, Deferred Inflows of Resources, and Net Position. GASB 63 provides financial reporting guidance for deferred outflows of resources and deferred inflows of resources. The Balance Sheet is renamed the Statement of Net Position and includes four components: assets, deferred outflows of resources, liabilities and deferred inflows of resources. The Board has determined they have no deferred outflows or inflows of resources at September 30,2014, under the requirements of GASB 63.

Additionally, GASB 63 supersedes certain provisions of GASB Statement No. 34, Basic Financial Statements - and Management's Discussion and Analysis - for State and Local Governments. GASB 63 requires the classification of net position (formerly net assets in GASB 34) into three components - net investment in capital assets; restricted; and unrestricted. These classifications are defined as follows:

Net investment in capital assets - This component of financial position consists of capital assets, net of accumulated depreciation and reduced by the outstanding balances of any bonds, mortgages, notes or other borrowings that are attributable to the acquisition, construction, or improvement of those assets. Deferred outflows of resources and deferred inflows of resources that are attributable to the acquisition, construction, or improvement of those assets or related debt also should be included in this component of net position. If there are significant unspent related debt also should be included in this component of net position. If there are significant unspent related debt proceeds or deferred inflows of resources at year-end, the portion of the debt or deferred inflows of resources attributable to the unspent proceeds is not included in the calculation of invested in capital assets, net of related debt. Rather, that portion of the debt or deferred inflows or resources is included in the same net position component as the unspent proceeds.

Restricted - This component of net position consists of restricted reduced by liabilities and deferred inflows of resources related to those assets. THE UTILITIES BOARD OF THE 15 CITY OF DAPHNE, ALABAMA NOTES TO FINANCIAL STATEMENTS September 30, 2015 and 2014

NOTE 1- NATURE OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES, continued

Unrestricted - This component of net position consists of the net amount of the assets, deferred outflows of resources, liabilities, and deferred inflows of resources that are not included in the determination of net investment in capital assets or the restricted component of net position.

As of October 1, 2013, the Board implemented GASB Statement No. 65, Items Previously Reported as Assets and Liabilties. GASB Statement No. 65 requires certain items that are currently reported as assets and liabilities to be reclassified as deferred outflows of resources, deferred inflows of resources or current period outflows (expenses) and inflows (revenues). These determinations are based on the following definitions of those elements in Concepts Statement No.4, Elements of Financial Statements:

Deferred outflows of resources are consumptions of net assets by the Board that are applicable to a future reporting period.

Deferred inflows of resources are acquisitions of net assets by the Board that are applicable to a future reporting period.

Outflows of resources are consumptions of net assets by the Board that are applicable to the reporting period.

Inflows of resources are acquisitions of net assets by the Board that are applicable to the reporting period.

During the year ended September 30, 2015, the Board implemented GASB Statement No. 68, Accounting and Financial Reporting for Pensions - An Amendment of GASB and GASB Statement No. 71, Pension Transition for Contributions Made Subsequent to the Measurement Date. These statements create disclosure and reporting requirements that mayor may not be consistent with the basis used for funding the plan. As a result, a net position liability equal to the difference between the actuarial present value of projected benefit payments to be provided through the pension plan to current active and inactive employees that is attributed to those employees' past periods of service, less the amount of the pension plan's fiduciary net position was recognized. Additionally, pension expense and deferred outflows of resources and deferred inflows of resources were recognized from changes in the components of the net position liability. See Notes 3 and 12 for more information.

Major Proprietary Fund The utility fund accounts for all of the activities of the Board. The Board operates the water, gas and sewer plant and distribution system.

Proprietary funds distinguish operating revenues and expenses from nonoperating items. Operating revenues and expenses generally result from providing services and producing and delivering goods in connection with a proprietary fund's principal ongoing operations. The principal operating revenues of the Board's utility fund are charges to customers for services. The Board also recognizes as operating revenue, capacity fees, penalties, reconnection fees, and aid to construction. Operating expenses for the utility fund include the cost of services, administrative expenses, and depreciation on capital assets. All revenues and expenses not meeting this definition are reported as nonoperating revenues and expenses.

When both restricted and unrestricted resources are available for use, it is the government's policy to use restricted resources first, then unrestricted resources as they are needed. THE UTILITIES BOARD OF THE 16 CITY OF DAPHNE, ALABAMA NOTES TO FINANCIAL STATEMENTS September 30, 2015 and 2014

NOTE 1 - NATURE OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES, continued

Cash, Cash Equivalents, and Liquid Investments As part of its cash management program, the Board maintains investments consisting of interest bearing demand accounts, as well as federal agency securities of varying length maturities. The investments are carried at cost, which approximates

At September 30, 2015, the carrying amount of the Board's deposits was $12,873,378 and the bank balance was $12,971,523. Of the bank balance, $750,000 was covered by FDIC insurance, and $12,221,523 was collateralized by securities deSignated for the Security for Alabama Funds Enhancement Act or "SAFE" Program. In addition, at September 30, 2015, the Board had $2,070,556 invested in money market mutual funds, which are unsecured and uncollateralized. At September 30, 2014, the carrying amount of the Board's deposits was $12,034,622 and the bank balance was $12,213,154. Of the bank balance, $750,000 was covered by FDIC insurance, and $11,463,154 was collateralized by securities designated for the Security for Alabama Funds Enhancement Act or "SAFE" Program. In addition, at September 30, 2014, the Board had $2,247,732 invested in money market mutual funds, which are unsecured and uncollateralized.

Investments At September 30, 2015 and 2014, the Board had investments in U.S. Treasury money market mutual funds through its trustee agreement for debt sinking funds. The fair value was $2,070,556 and $2,247,732, respectively. For purposes of these financial statements the Board considers these investments to be cash or cash equivalents.

Investment Risk It is the practice, but not a formal policy, of the Board to invest in securities at staggered maturity dates for planned cash flow availability and yield hedging considerations, except when inverted or flat yield curves provide no advantage to extended investment periods. Investments are intended to be, and generally are, held until their original maturity dates, mitigating exposure to realized fair value losses arising from increasing interest rates.

Credit Risk State statutes authorize the Board's investments. The Board is authorized to invest in U.S. Government obligations and its agencies or instrumentalities, direct obligations of the state, SEC registered mutual funds holding like securities. The Board does not further limit investment choices. As of September 30, 2015, the Board's mutual fund investments' principal stability rating was AA as reported by Standard & Poor's.

Custodial Credit Risk The Board is a participant in the Security for Alabama Funds Enhancement (SAFE) Program, a multiple financial institution collateral pool, administered by the State of Alabama. The program, by law, provides administration of pledged collateral coverage for all governments and agencies in the State and requires qualified financial institutions to provide collateral to the administrator adequate to secure all deposits of public funds in that financial institution. The State guarantees deposits identified as "public funds" will be adequately secured by insurance or collateral. Any collateral shortages of one financial institution are assessed to other member financial institutions

Restricted Assets Based on certain bond covenants, the Board is required to establish and maintain prescribed amounts of resources (consisting of cash and temporary investments) that can be used only to service outstanding debt, a reserve fund to be used only to prevent a default and all bond proceeds to be used only for specific construction projects stated in bond indentures. THE UTILITIES BOARD OF THE 17 CITY OF DAPHNE, ALABAMA NOTES TO FINANCIAL STATEMENTS September 30,2015 and 2014

NOTE 1 - NATURE OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES, continued

Uncollectible Accounts Accounts receivable are reported at their gross value, net of an allowance for doubtful accounts. The Board provides an allowance for doubtful accounts, as needed, for accounts deemed uncollectible. Uncollectible accounts were $62,673 and $69,820 as of September 30,2015 and 2014, respectively.

Property. Plant and Equipment Property, plant and equipment are stated at cost. Assets acquired by gift are recorded at their fair market value at the date of transfer. Depreciation of exhaustible fixed assets is charged as an expense against operations, and accumulated depreciation is reported on the statement of net position. Depreciation has been provided over the estimated useful lives using the straight-line method of depreciation. The service lives by type of asset are as follows:

Water works system 50 years Sewer system 50 years Gas system 50 years Buildings 40 years Furniture and equipment 5-10 years

Compensated Absences Board employees are entitled to certain compensated absences based on their length of employment. With minor exceptions, compensated absences do not vest or accumulate and are recorded as expenses when they are paid.

Inventories Inventories consist of materials and supplies used for repairs and the installation of gas, sewer and water lines, and are valued at the lower of cost or market, with cost determined on the first-in, first-out method. As of September 30,2015 and 2014, respectively, the Board had $253,100 and $296,719 of materials on hand.

Revenue Recognition The Board recognizes revenue from its water, gas, and sewer operations as it is earned. The Board accrues unbilled receivables from the most recent meter readings to the end of the fiscal year.

Concentration of Credit Risk The Board provides water, gas and sewer services to customers primarily in the Daphne, Alabama area. Financial instruments which potentially subject the Board to concentrations of credit risk are accounts receivable. The majority of the Board's accounts receivable consists of a large number of small receivables from residential customers. The Board requires cash deposits from its customers as collateral.

Pavable from Restricted Assets Certain assets of the Board have been restricted for debt service, reserves held to prevent any possible default, and construction financed by the Board's revenue bonds. These assets consist of cash, temporary investments and funds held by an intermediary agency, restricted as follows:

Payable from Restricted Assets 2015 2014 Accrued interest $ 106,545 $ 135,832 Bonds payable (current portion) 1,700,000 1,960,000 $ 1,806,545 $ 2,095,832 THE UTILITIES BOARD OF THE 18 CITY OF DAPHNE, ALABAMA NOTES TO FINANCIAL STATEMENTS September 30,2015 and 2014

NOTE 1 - NATURE OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES, continued

Use of Estimates In conformity with generally accepted accounting principles, the preparation of financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses in the financial statements and accompanying notes. Although these estimates are based on management's knowledge of current events, actual results may ultimately differ from estimates.

Deferred Outflows of Resources Deferred outflows of resources represent deferred losses associated with the issuance of long-term debt and is amortized on the straight-line method over the term of the debt. It also represents the pension plan contributions made between the measurement date of the pension plan and the end of the Board's fiscal year and is amortized over twelve months.

Deferred Inflows of Resources Deferred inflows of resources represent deferred losses on the net difference between projected and actual earnings on the pension plan investments which is amortized on the straight-line method over a five year period.

Exemption from Taxation The Board is a public corporation, exempt from federal income taxes under Section 115 of the Internal Revenue Code. The Board is an instrumentality of the State of Alabama and is exempt from state income taxes, sales taxes, ad valorem taxes, and certain licenses and permits.

Reclassifications Certain reclassifications have been made to prior year balances in order to conform to current year presentation. See note 11 and note 12 for more information.

NOTE 2 - CAPITAL ASSETS

09/30/14 Additions Deletions 09/30/15 Land $ 879,850 $ 15,245 $ 0 $ 895,095 Buildings 3,177,851 0 0 3,177,851 Machinery and equipment 2,518,333 220,356 0 2,738,689 Office equipment 914,657 19,456 0 934,113 Plant 55,385,445 2,409,710 0 57,795,155 Total capital assets 62,876,136 2,664,767 0 65,540,903 Less: accumulated depreciation (22,927,980) (1,754,237) 0 (24,682,217) Capital assets - net $ 39,948,156 $ 910,530 $ 0 $ 40,858,686

During the fiscal years ended September 30, 2015 and 2014, the Board expended $2,664,767 and $1,517,267 respectively, for capital improvements to the water, sewer and gas systems.

NOTE 3 - RETIREMENT PLAN

Plan Description The Board contributes to the Employees' Retirement System of Alabama, an agent multiple-employer public employee retirement system that acts as a common investment and administrative agent for the various state agencies and departments. THE UTILITIES BOARD OF THE 19 CITY OF DAPHNE, ALABAMA NOTES TO FINANCIAL STATEMENTS September 30,2015 and 2014

NOTE 3 - RETIREMENT PLAN, continued

The Employees' Retirement System of Alabama was established as of October 1, 1945, under the provisions of Act 515, Acts of Alabama 1945, for the purpose of providing retirement allowances and other specified benefits for state employees, State Police, and on an elective basis to all cities, counties, towns and quasi-public organizations. The responsibility for general administration and operation of the Employees' Retirement System of Alabama is vested in the Board of Control. The Employees' Retirement System of Alabama Board of Control consists of 13 trustees. The Plan is administered by the Retirement Systems of Alabama. Title 36-Chapter 27 of the Code of Alabama grants the authority to establish and amend the benefit terms to the Employees' Retirement System of Alabama Board of Control. The Plan issues a publicly available financial report that can be obtained at www.rsa-al.gov.

The Employees' Retirement System of Alabama Board of Control consists of 13 trustees as follows:

1. The Governor, ex officio. 2. The State Treasurer, ex officio. 3. The State Personnel Director, ex officio. 4. The State Director of Finance, ex officio. 5. Three vested members of the Employees' Retirement System of Alabama appOinted by the Governor for a term of four years, no two of whom are from the same department of state government nor from any department of which an ex officio trustee is the head. 6. Six members of the Employees' Retirement System of Alabama for a term of four years as follows: a. Two retired members with one from the ranks of retired state employees and one from the ranks of retired employees of a city, county, or a public agency each of whom is an active beneficiary of the Employees' Retirement System of Alabama. b. Two vested active state employees. c. Two vested active employees of an employer participating in the Employees' Retirement System of Alabama pursuant to § 36-27-6.

Substantially all employees are members of the Employees' Retirement System of Alabama. Membership is mandatory for covered or eligible employees of the Board. Contributions made by an employee vest immediately and contributions made by the Board vest after 10 years of creditable service. An employee who leaves the employment of the Board is entitled to his or her contributions and the Board's contributions if vesting requirements are fulfilled.

Funding Policv During its 2012 session, the Alabama Legislature passed and the Governor signed into law changes in the pension plan creating a Tier 2 employee. Employees hired prior to January 1, 2013 (Tier 1 employees) must contribute 5% of their annual covered salary to the pension plan. Employees hired on or after that date (Tier 2 employees) must contribute 6% of their covered salary to the pension plan. The Board is required to contribute at an actuarially determined rate. At September 30, 2015, the total employer contribution rates were 6.07% of annual covered payroll for Tier 1 employees and 3.77% annual covered payroll for Tier 2 employees. Effective October 1, 2014, the total employer contribution rates were 6.07% of annual covered payroll for Tier 1 employees and 3.77% annual covered payroll for Tier 2 employees. The contribution requirements of plan members and the Board are established and may be amended by the Retirement System of Alabama Board of Control.

A Tier 1 employee may retire after 25 years of credited service and receive pension benefits equal to 2.0125% of the employee's average final salary multiplied times years of credited service. A Tier 2 employee may retire after attainment of age of 62 and ten years of service and receive pension benefits equal to 1.65% of the employee's average final salary multiplied times years of credited service. Average THE UTILITIES BOARD OF THE 20 CITY OF DAPHNE, ALABAMA NOTES TO FINANCIAL STATEMENTS September 30, 2015 and 2014

NOTE 3 – RETIREMENT PLAN, continued final salary for Tier 1 employees is defined as the average of the three highest years’ salary out of the last ten years of service. Average final salary for Tier 2 employees is defined as the average of the five highest years’ salary out of the last ten years of service. The pension plan also provides death benefits and disability benefits as determined by state statutes.

Effective for the fiscal year beginning October 1, 2016, the Employees’ Retirement System of Alabama changed the rates to 5.74% for Tier 1 employees and 3.00% for Tier 2 employees. The contribution requirements of plan members and the Board are established and may be amended by the Employees’ Retirement System of Alabama. These required contribution rates are based upon the actuarial valuation dated September 30, 2014, a percent of annual pensionable payroll, and actuarially determined as an amount that, when combined with member contributions, is expected to finance the costs of benefits earned by members during the year, with an additional amount to finance any unfunded accrued liability. Total employer contributions to the pension plan were $148,055 and $139,554 for the years ended September 30, 2015 and 2014, respectively.

The retirement system held no securities of the Board or other related parties during the year or as of the close of the fiscal year.

Plan Membership The Board’s retirement plan membership as of September 30, 2014 is shown in the following table:

Inactive members or their beneficiaries currently receiving benefits 10

Inactive members entitled to but not yet receiving benefits 8

Active members 65

Total members 83

Net Pension Liability The Board’s net pension liability was measured as of September 30, 2014, and the total pension liability used to calculate the net pension liability was determined by an actuarial valuation as of September 30, 2013 rolled forward to September 30, 2014 using standard roll-forward techniques as shown in the following table:

(a) Total Pension Liability as of September 30, 2013 $ 5,391,778

(b) Entry Age Normal Cost for the Period October 1, 2013 - September 30, 2014 240,375

(c) Actual Benefit Payments and Refunds for the Period October 1, 2013 - September 30, 2014 (218,936)

(d) Total Pension Liability as of September 30, 2014 = [(a) x (1.08)] + (b) - [(c) x (1.04)] $ 5,835,802

THE UTILITIES BOARD OF THE 21 CITY OF DAPHNE, ALABAMA NOTES TO FINANCIAL STATEMENTS September 30,2015 and 2014

NOTE 3 - RETIREMENT PLAN, continued

The Retirement Systems of Alabama issues a publicly available financial report that includes financial statements and required supplementary information for the Employees' Retirement System of Alabama. That report may be obtained by writing to the Retirement Systems of Alabama, P.O. Box 302150, Montgomery, Alabama 36130-2150.

Actuarial Assumptions The total pension liability in the September 30, 2013 actuarial valuation was determined as part of actuarial valuations using the entry age actuarial cost method. The actuarial assumptions included (a) 8.0% investment rate of return (net of pension plan investment expense), (b) projected salary increases ranging from 3.75% to 7.25% per year, and an inflation component of 3%. Mortality rates for the Retirement Systems of Alabama were based upon the RP-2000 Combined Mortality Table Projected with Scale AA to 2015 set forward three years for males and two years for females. The rates of mortality for the period after disability retirement are according to the sex distinct RP-2000 Disability Mortality Table.

The actuarial assumptions used in the September 30, 2013 valuation were based on the results of an investigation of the economic and demographic experience for the Retirement Systems of Alabama based upon participant data as of September 30, 2010. The Board of Control accepted and approved these changes on January 27,2012 which became effective at the beginning of fiscal year 2012.

The long-term expected rate of return on pension plan investments was determined using a log-normal distribution analysis in which best-estimate ranges of expected future real rates of return (expected returns, net of pension plan investment expense and inflation) are developed for each major asset class. These ranges are combined to produce the long-term expected rate of return by weighting the expected future real rates of return by the target asset allocation percentage and by adding expected inflation. The target asset allocation and best estimates of geometric real rates of return for each major asset class are as follows:

Long-Term Target Expected Rate Allocation of Return* Fixed Income 25.0% 5.0% U.S. Large Stocks 34.0% 9.0% U.S. Mid Stocks 8.0% 12.0% U.S. Small Stocks 3.0% 15.0% International Developed Market Stocks 15.0% 11.0% International Emerging Market Stocks 3.0% 16.0% Real Estate 10.0% 7.5% Cash 2.0% 1.5%

*Includes assumed rate of inflation of 2.5%

Discount Rate The discount rate used to measure the total pension liability was the long term rate of return, 8.0%. The projection of cash flows used to determine the doscount rate assumed that plan member contributions will be made at the current contribution rate and that the employer contributions will be made in accordance with the funding policy adopted by the Retirement Systems of Alabama Board of Control. Based on those THE UTILITIES BOARD OF THE 22 CITY OF DAPHNE, ALABAMA NOTES TO FINANCIAL STATEMENTS September 30,2015 and 2014

NOTE 3 - RETIREMENT PLAN, continued assumptions, components of the pension plan's fiduciary net position were projected to be available to make all projected future benefit payments of current plan members. Therefore, the long-term expected rate of return on pension plan investments was applied to all periods of projected benefit payments to determine the total pension liability.

Changes in net pension liability are as follows:

Total Pension Plan Fiduciary Net Pension Liability Net Position Liability

Balances at September 30,2013 $ 5,391,778 $ 4,535,762 $ 856,016

Changes for the year: Service cost 240,375 0 240,375 Interest 422,585 0 422,585 Changes of assumptions 0 0 0 Difference between expected and actual experience 0 0 0 Contributions - employer 0 139,554 (139,554) Contributions - employee 0 126,814 (126,814) Net investment income 0 548,879 (548,879) Benefit payments, including refunds of employee contributions (218,936) (218,936) 0 Administrative expense 0 0 0 Transfers among employers 0 30,098 (30,098)

Net changes 444,024 626,409 (182,385)

Balances at September 30, 2014 $ 5,835,802 $ 5,162,171 $ 673,631

Sensitivity of the Net Pension Liabilitv to Changes in the Discount Rate The following table presents the Board's net position liability calculated using the discount rate of 8.0% as well as what the Boards' proportionate share of the net pension liability would be if it were calculated using a discount rate that is 1-percentage-point lower (7.0%) or 1-percentage-point higher (9.0%) than the current rate:

1.0% Current 1.0% Decrease Discount Increase (7.0%) Rate (8.0%) (9.0%) Plan's Net Pension Liability $ 1,454,567 $ 673,631 $ 18,799 THE UTILITIES BOARD OF THE 23 CITY OF DAPHNE, ALABAMA NOTES TO FINANCIAL STATEMENTS September 30,2015 and 2014

NOTE 3 - RETIREMENT PLAN, continued

Pension Plan Fiduciary Net Position Detailed information about the pension plan's fiduciary net position is available in the separately issued Retirement Systems of Alabama Comprehensive Annual Financial Report prepared as of September 30, 2014. The auditor's report dated January 28, 2015 on the Schedule of Changes in Fiduciary Net Position by Employer and accompanying notes is also available. The additional financial and actuarial information is available at www.rsa-al.gov.

Pension Expense and Deferred Outflows of Resources and Deferred Inflows of Resources Related to Pensions For the Year Ended September 30, 2015, the Board recognized pension expense of $103,503.

Service cost $ 240,375

Interest on the total pension liability 422,585

Current-period benefit changes 0

Expensed portion of current-period difference between expected and 0 actual experience in the total pension liability

Expensed portion of current-period changes of assumptions 0

Member contributions (126,814)

Projected earnings on plan in\estments (365,962)

Expensed portion of current-period differences between actual and projected earnings on plan in\estments (36,583)

Transfers among employers (30,098)

Recognition of beginning deferred outflows of resources as pension expense 0

Recognition of beginning deferred inflows of resources as pension expense 0

Pension Expense $ 103,503 THE UTILITIES BOARD OF THE 24 CITY OF DAPHNE, ALABAMA NOTES TO FINANCIAL STATEMENTS September 30,2015 and 2014

NOTE 3 - RETIREMENT PLAN, continued

At September 30, 2015, the Board reported deferred outflows of resources and deferred inflows of resources related to pensions of the following resources:

Deferred Deferred Outflows of Inflows of Resources Resources

Differences between expected and actual experience $ 0 $ 0 Changes of assumptions 0 0 Net difference between projected and actual earnings on plan investments 0 146,334 Employer contributions subsequent to the measurement date 148,055 0

Total $ 148,055 $ 146,334

Amounts reported as deferred outflows of resources and deferred inflows of resources to pensions will be recognized as an increase (decrease) in pension expense as follows:

Year Ending September 30, 2016 $ (111,472) 2017 36,583 2018 36,583 2019 36,585

$ (1,721) THE UTILITIES BOARD OF THE 25 CITY OF DAPHNE, ALABAMA NOTES TO FINANCIAL STATEMENTS September 30,2015 and 2014

NOTE 3 - RETIREMENT PLAN, continued

REQUIRED SUPPLEMENTARY INFORMATION Schedule of Funding Progress

Actuarial Actuarial Accrued Unfunded UAAL as a Actuarial Value of Liability (AAL) AAL Funded Covered Percentage of Valuation Assets * Entry Age (UAAL) Ratio Payroll Covered Payroll

Date (a) {b) 1 {b - a ) {a 1 b) (c) ({b-a)/c) 9/30/2009 $ 3,629,353 $ 4,072,098 $ 442,745 89.1% $ 2,492,363 17.8% 9/30/2010 2 $ 3,704,748 $ 4,631,523 $ 926,775 80.0% $ 2,459,088 37.7% 9/30/2011 4 $ 3,751,948 $ 4,716,502 $ 964,554 79.5% $ 2,607,312 37.0% 9/30/2012 5 $ 3,908,494 $ 4,884,885 $ 976,391 80.0% $ 2,477,214 39.4% 6 9/30/2013 $ 4,329,838 $ 5,158,097 $ 828,259 83.9% $ 2,682,817 30.9% 9/30/2014 $ 4,862,338 $ 5,653,040 $ 790,702 86.0% $ 2,519,601 31.4% 9/30/2014 3 $ 4,862,338 $ 5,674,428 $ 812,090 85.7% $ 2,519,601 32.2%

1 Reflects liability for cost of living benefit increases granted on or after October 1, 1978.

2 Reflects the impact of Act 2011-27, which closes the DROP program to new applicants after March 24, 2011.

3 Reflects the impact of Act 2011-676, which increases the member contribution rates by 2.25% beginning October 1, 2011 and by an additional 0.25% beginning October 1, 2012.

4 Reflects changes in actuarial assumptions.

5 Reflects changes to interest smoothing methodology.

6 Reflects implementation of Board Funding Policy.

* The actuarial value of assets was set equal to the market value of assets as of September 30,2012. Market Value of Assets as of September 30, 2014: $5,162,171

NOTE 4 - LONG-TERM DEBT

The following is a summary of changes in note and bond transactions for the current year:

Bonds Payable Balance, beginning of year $ 18,495,000 Additions 2,495,000 Reductions (4,480,000) Balance, end of year $ 16,510,000 THE UTILITIES BOARD OF THE 26 CITY OF DAPHNE, ALABAMA NOTES TO FINANCIAL STATEMENTS September 30,2015 and 2014

NOTE 4 - LONG-TERM DEBT, continued

A description of the Board's long-term debt is as follows:

2015 2014

a. Series 1994-SRF Water, Gas and Sewer Revenue Bonds, due in annual principal installments each August 1 and semi-annual interest payments each February 1 and December 1, with a 2.85% fixed rate of interest, with a maturity date of August, 2015, secured by a pledge of utility service revenues $ 0 $ 330,000

b. Series 2005-SRF Water, Gas, and Sewer Revenue Bonds due in annual principal installments each August 15, and semi-annual interest payments August 15 and February 15, with a 3.25% fixed rate of interest, with a maturity date of August, 2025, secured by a pledge of utility service revenues 2,025,000 2,195,000

c. Series 2006-SRF Water, Gas, and Sewer Revenue Bonds due in annual principal installments each August 15, and semi-annual interest payments August 15 and February 15, with a 3.25% fixed rate of interest, with a maturity date of August, 2027, secured by a pledge of utility service revenues 665,000 710,000

d. Series 2006-SRF Water, Gas, and Sewer Revenue Bonds due in annual principal installments each August 15, and semi-annual interest payments August 15 and February 15, with a 3.25% fixed rate of interest, with a maturity date of August, 2027, secured by a pledge of utility service revenues 2,575,000 2,750,000

e. Series 2007- Water, Gas, and Sewer Revenue Bonds due in annual principal installments each June 1, and semi-annual interest payments June 1 and December 1, interest rates vary from 3.56% to 4.0%, with a maturity date of June, 2030, secured by a pledge of utility service revenues, refunded in 2015 0 2,640,000 THE UTILITIES BOARD OF THE 27 CITY OF DAPHNE, ALABAMA NOTES TO FINANCIAL STATEMENTS September 30,2015 and 2014

NOTE 4 - LONG-TERM DEBT, continued

2015 2014

f. Series 2008- Water, Gas, and Sewer Revenue Bonds due in annual principal installments each June 1, and semi-annual interest payments June 1 and December 1, interest rates vary from 2.25% to 4.0%, with a maturity date of June, 2020, secured by a pledge of utility service revenues 2,725,000 3,215,000

g. Series 2011-SRF Water, Gas, and Sewer Revenue Bonds due in annual principal installments each February 15, and semi-annual interest payments February 15 and August 15, with a 3.10% rate of interest, with a maturity date of February, 2031, secured by a pledge of utility service revenues 2,830,000 2,965,000

h. Series 2012-Water, Gas, and Sewer Revenue Bonds due in annual principal installments each June 1, and semi-annual interest payments June 1 and December 1, interest rates vary from 2.00% to 2.25%, with a maturity date of June, 2021, secured by a pledge of utility service revenues 3,195,000 3,690,000

i. Series 2015-Water, Gas, and Sewer Revenue Bonds due in annual principal installments each June 1, and semi-annual interest payments June 1 and December 1, interest rates vary from 2.00% to 3.25%, with a maturity date of June, 2030, secured by a pledge of utility service revenues 2,495,000 0

Total bonds payable 16,510,000 18,495,000 Less: current portion 1,700,000 1,960,000

Total long-term bonds payable $ 14,810,000 $ 16,535,000 THE UTILITIES BOARD OF THE 28 CITY OF DAPHNE, ALABAMA NOTES TO FINANCIAL STATEMENTS September 30,2015 and 2014

NOTE 4 - LONG-TERM DEBT, continued

The annual requirements to amortize debt are as follows:

Year Ending September 30, Principal Interest Total 2016 $ 1,700,000 $ 484,275 $ 2,184,275 2017 1,745,000 440,610 2,185,610 2018 1,790,000 389,925 2,179,925 2019 1,840,000 337,353 2,177,353 2020 1,900,000 282,088 2,182,088 2021-2025 4,745,000 826,660 5,571,660 2026-2030 2,570,000 233,450 2,803,450 2031 220,000 3,410 223,410

Totals $ 16,510,000 $ 2,997,771 $ 19,507,771

The bond premiums and discounts of bonds are being amortized, on the straight-line method, over the life of the bonds.

Refunding of Series 2007 Bonds On June 30, 2015, the Board issued $2,495,000 in water, gas, and sewer revenue bonds with interest rates ranging between 2.00% and 3.25%. The Board issued bonds to refund $2,520,000 of the outstanding series 2007 water, gas, and sewer revenue bonds with interest rates ranging between 3.56% and 4.00%.

The refunding reduced total debt service payments over the next 15 years by nearly $336,171. This results in an economic gain (difference between the present values of the debt service payments on the old and new debt) of $324,261.

Restrictive Covenants The bond agreements contain various covenants pertaining to debt service coverage. The board complied with all debt covenants at September 30, 2015, insofar as they relate to accounting matters.

NOTE 5 - DEFERRED SEWER FEES

This amount represents payments made by individual customers for future sewer connections when service is made available. The deferred revenue will be recognized as revenue when individual customers connect to the sewer system.

NOTE 6 - RELATED PARTY TRANSACTIONS

The City Council of the City of Daphne, Alabama (the City) appoints the members of the Board, and because of this appointment power, is a related organization to the Board.

The Board provides billing and collection of garbage fee services for the City. The Board remits to the City on a monthly basis all garbage fees billed during the previous month. Amounts due to the City as of September 30, 2015 and 2014 were $110,801 and $107,198, respectively. THE UTILITIES BOARD OF THE 29 CITY OF DAPHNE, ALABAMA NOTES TO FINANCIAL STATEMENTS September 30,2015 and 2014

NOTE 7 - SUPPLEMENTAL BOND DISCLOSURES

The following is a summary of the activity in the bond cash accounts during the current year:

Beginning Ending Account Name Balance Deposits Withdrawals Balance Replacement Fund Acc!' No. 911053 $ 108,601 $ 11 $ 0 $ 108,612 Series 1994 SRF Acc!' I'b. 911001 56,825 283,600 340,424 2005 DWSRL Bond Fund Acc!' I'b. 911011 40,247 241,227 241,338 40,136 2006 CWSRF Bond Fund Acc!. I'b. 911041 44,088 264,236 264,375 43,949 2006 DWSRF Bond Fund Acc!. I'b. 911021 11,352 67,825 68,075 11,102 2007 Bond Fund Acc!' No. 911071 74,862 205,622 280,484 0 2007 Bond Reserve Fund Acc!' I'b. 911072 238,808 23 238,827 4 2008 Bond Fund Acc!' I'b. 911081 204,127 610,447 611,465 203,109 2008 Bond Reserve Fund Ace!. I'b. 911083 911,222 91 0 911,313 2011 Bond Fund Acc!' I'b. 898901 105,350 227,808 225,162 107,996 2012 Bond Fund Acc!' I'b. 891149 190,250 618,354 618,321 190,283

2012 Bond Reserve Fund Acc!' I'b. 891148 262,000 0 0 262,000 2015 Bond Fund Acc!. No. 586966 0 2,596,950 2,537,108 59,842 2015 Bond Reserve Fund Acc!' I'b. 586965 0 132,209 0 132,209

$ 2,247,732 $ 5,248,403 $ 5,425,579 $ 2,070,556

NOTE 8 - CUSTOMER DEPOSITS

Individual customers are required to make water, sewer and gas meter deposits. The amount of deposits required to be made for homeowners are as follows: water - $50, sewer - $50 and gas - $75. The amount of deposits required to be made for renters are as follows: water - $75, sewer - $75 and gas - $100. The deposits are to be applied against any usage charge not paid by the customer or refunded to the customer when the account is closed.

NOTE 9 - CAPACITY FEES

Capacity fees are required to be paid when a customer connects to the water and sewer systems. The amount of capacity fees for water and sewer are $2,100 and $2,800, respectively.

NOTE 10-GROUND LEASE

On October 12,2012, the Board entered into a lease with Algae Systems, LLC. The Board agreed to rent an office building, natural gas compressor and existing plant infrastructure for a period of five years. In exchange, Algae Systems, LLC agreed to construct a boardwalk and pier which will remain on the property after the termination of the lease. THE UTILITIES BOARD OF THE 30 CITY OF DAPHNE, ALABAMA NOTES TO FINANCIAL STATEMENTS September 30, 2015 and 2014

NOTE 11 - PRIOR PERIOD ADJUSTMENT - VACATION PAYABLE

A prior period adjustment to net position in the amount of $165,146 was made in the year end September 30, 2014 to record a liability for accrued vacation earned by employees, but not yet paid. In addition, accrued vacation payable was accrued as a current liability as of September 30, 2014 in the amount of $133,557.

NOTE 12 - PRIOR PERIOD ADJUSTMENT - GASB 68

Effective October 1, 2014, the Board implemented GASB Statement No. 68, Accounting and Financial Reporting for Pensions and GASB Statement No. 71, Pension Transition for Contributions Made Subsequent to the Measurement Date effective by recording a prior period adjustment in the amount of $716,462. The prior period adjustment increased deferred outflow of resources by $139,554 for the employer pension plan contributions made from the measurement date (September 30, 2014) through September 30,2015 and established a net pension liability in the amount of $856,016.

NOTE 13 - PENDING LITIGATION

In December of 2013, a complaint against the Board was filed in the United States District Court for the Southern District of Alabama. The Board denies the allegations. As of the date of the financial statements, the case has been tried with a verdict in favor of the Board. The complainant has filed an appeal which is pending before the Eleventh Circuit Court of Appeals. The insurance carrier has agreed to provide defense but has reserved its other obi ligations of coverage. Management cannot predict or determine the outcome in this matter or reasonably estimate the amount or range of amounts of any losses that might result from an adverse outcome. It is possible, however, that an adverse outcome could have a material adverse impact on the Board's results of operations, liquidity, and financial position.

In June of 2014, a complaint against the Board was filed with the EEOC. The complaint alleges discrimination based on race. The Board denies the allegations. On December 2, 2015, the EEOC issued a Right to Sue letter to the complainant. The complainant has ninety days from receipt of that letter to file suit. In the event the charges progresses to a lawsuit, it is possible that the plaintiff could recover a verdict from the Board. However, the Board intends to vigorously defend the matter should a lawsuit occur.

In October of 2014, a complaint against the Board was filed with the EEOC. The complain involves charges of discrimination under the Americans with Disabilities Act, Title VII and the Age Discrimination in Employment Act. The Board denies the allegations. As of the date of the financial statements, the EEOC has requested information from the Board to conduct an investigation to determine if there is a reasonable cause to support a finding discrimination has occurred. The evaluation of the outcome of this case is uncertain due to its early stages.

NOTE 14 - SUBSEQUENT EVENTS

Management has evaluated subsequent events through January 16, 2016, the date in which the audit report was available to be issued. SUPPLEMENTARY INFORMATION THE UTILITIES BOARD OF THE 31 CITY OF DAPHNE, ALABAMA DEPARTMENTALSTATEMENT OF REVENUES AND EXPENSES Years Ended September 30,2015 and 2014 (As Restated)

2015 2014 2015 2014 2015 2014 2015 2014 SUPPORT SUPPORT METER METER WATER WATER GAS GAS Operating Revenues Service income $ o $ o $ o $ o $ 4,114,154 $ 4,082,992 $ 2,982,036 $ 3,444,883 Capacity fees 0 0 0 0 350,795 191,930 39,200 28,000 Penalties 0 0 0 0 78,624 78,080 0 0 Reconnection fees 0 0 0 0 36,799 30,730 0 0 Aid to construction 0 0 0 0 0 0 33,800 30,475 Other revenue 5,368 14,374 0 0 62,772 70,195 0 0 Total operating revenues 5,368 14,374 0 0 4,643,144 4,453,927 3,055,036 3,503,358

Operating Expenses Salaries 702,303 714,086 140,868 154,470 441,583 467,685 329,005 263,804 Fringe benefits 203,038 248,690 43,651 51,415 143,370 179,476 101,273 103,169 System expense 8,390 8,782 0 0 594,665 521,132 823,352 1,108,435 Repairs and maintenance 10,249 7,500 101,654 114,288 187,058 292,667 139,294 174,786 Bad debts 12,788 32,748 0 0 0 0 0 0 Supplies and other system expense 588,348 460,156 17,082 7,220 10,617 7,566 48,649 38,215 Communications 24,930 24,369 2,547 3,253 19,624 17,543 4,576 5,526 Professional services 137,145 256,077 521 0 11,653 26,370 521 14,998 Meetings, dues and travel 37,365 46,510 1,436 2,372 8,939 13,980 17,076 28,971 Insurance 182,067 168,910 0 0 0 0 0 0 Vehicle expense 7,262 9,486 14,373 22,432 30,651 44,046 14,653 24,531 Uniforms 534 2,558 2,457 2,075 9,002 7,249 5,641 5,083 Depreciation 153,118 144,544 23,354 22,047 494,416 466,733 254,747 240,484 Total operating expenses 2,067,537 2,124,416 347,943 379,572 1,951,578 2,044,447 1,738,787 2,008,002

Operating Income (Loss) $ (2,062,169) $ (2,110,042) $ (347,943) $ (379,572) $ 2,691,566 $ 2,409,480 $ 1,316,249 $ 1,495,356 2015 2014 2015 2014 2015 2014 SEWER SEWER MAINTENANCE MAINTENANCE TOTAL TOTAL Operating Revenues Service income $ 6,136,842 $ 6,119,605 $ o $ o $ 13,233,032 $ 13,647,480 Capacity fees 519,367 279,075 0 0 909,362 499,005 Penalties 0 0 0 0 78,624 78,080 Reconnection fees 0 0 0 0 36,799 30,730 Aid to construction 0 0 0 0 33,800 30,475 Other revenue 22,040 21,061 0 0 90,180 105,630 Total operating revenues 6,678,249 6,419,741 0 0 14,381,797 14,391,400

Operating Expenses Salaries 635,823 623,736 358,607 340,468 2,608,189 2,564,249 Fringe benefits 202,377 229,390 125,908 155,411 819,617 967,551 System expense 1,585,164 1,951,351 65,831 64,917 3,077,402 3,654,617 Repairs and maintenance 231,042 236,062 34,746 31,832 704,043 857,135 Bad debts 0 0 0 0 12,788 32,748 Supplies and other system expense 18,328 14,210 48,189 63,593 731,213 590,960 Communications 15,672 17,462 21,750 15,036 89,099 83,189 Professional services 55,621 23,860 2,741 0 208,202 321,305 Meetings, dues and travel 27,503 13,199 9,336 1,734 101,655 106,766 Insurance 0 0 0 0 182,067 168,910 Vehicle expense 26,695 35,660 16,497 20,349 110,131 156,504 Uniforms 10,010 9,058 7,771 7,591 35,415 33,614 Depreciation 828,602 782,209 0 0 1,754,237 1,656,017 Total operating expenses 3,636,837 3,936,197 691,376 700,931 10,434,058 11,193,565

Operating Income (Loss) $ 3,041,412 $ 2,483,544 $ (691,376) $ (700,931) $ 3,947,739 $ 3,197,835

See independent auditors' report THE UTILITIES BOARD OF THE 32 CITY OF DAPHNE, ALABAMA STATEMENT OF REVENUES AND EXPENSES BUDGET AND ACTUAL Year Ended September 30,2015, with comparative totals for 2014 Page 1 of 1

2015 2015 2015 2014 BUDGET ACTUAL VARIANCE ACTUAL (As Restated) Operating Revenues Service Income $ 13,599,002 $ 13,233,032 $ (365,970) $ 13,647,480 Capacity fees 57,000 909,362 852,362 499,005 Penalties 97,000 78,624 (18,376) 78,080 Reconnection fees 38,000 36,799 (1,201) 30,730 Aid to construction 30,000 33,800 3,800 30,475 Other revenue 97,538 90,180 (7,358) 105,630 Total operating revenues 13,918,540 14,381,797 463,257 14,391,400

Operating Expenses Salaries 2,691,625 2,608,189 (83,436) 2,564,249 Fringe benefits 1,016,411 819,617 (196,794) 967,551 System expense 3,044,356 3,077,402 33,046 3,628,407 Repairs and maintenance 709,243 704,043 (5,200) 857,135 Bad debts 0 12,788 12,788 32,748 Supplies and other system expense 822,360 731,213 (91,147) 617,170 Communications 101,994 89,099 (12,895) 83,189 Professional services 246,000 208,202 (37,798) 321,305 Meetings, dues and travel 195,595 101,655 (93,940) 106,766 Insurance 175,000 182,067 7,067 168,910 Vehicle expense 153,100 110,131 (42,969) 156,504 Uniforms 36,900 35,415 (1,485) 33,614 Depreciation 1,396,882 1,754,237 357,355 1,656,017 Total operating expenses 10,589,466 10,434,058 (155,408) 11,193,565

Operating Income 3,329,074 3,947,739 618,665 3,197,835

Nonoperating Revenues (Expenses) I nterest income 13,300 10,659 (2,641 ) 8,481 Interest expense (685,377) (566,222) 119,155 (630,246) Total nonoperating revenues (expenses) (672,077) (555,563) 116,514 (621,765)

Change in Net Position $ 2,656,997 3,392,176 $ 735,179 2,576,070

Net Position, beginning of year 35,548,997 33,138,073

Prior Period Adjustment - See Note 11 0 (165,146) Prior Period Adjustment - Adoption of GASB 68 (716,462) 0

Net Position, end of year $ 38,224,711 $ 35,548,997

See independent auditors' report COMPLIANCE AND INTERNAL CONTROLS ROBERTSON, ANDREOLI & COVINGTON, P.C.

James H. Robertson, CPA Members American Institute of Michael R. Andreoli, CPA CERTIFIED PUBLIC ACCOUNTANTS AND CONSULTANTS Certified Public Accountants A. Neal Covington, CPA Members Alabama Society of Kimberly C. Cain, CPA Certified Public Accountants Tara J. Harville, CPA

INDEPENDENT AUDITORS' 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

To the Utilities Board of the City of Daphne, Alabama Daphne, Alabama

We have audited, in accordance with the 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, the financial statements of the Utilities Board of the City of Daphne, Alabama (the Board), as of and for the year ended September 30, 2015, and the related notes to the financial statements, which collectively comprise the Board's basic financial statements, and have issued our report thereon dated January 16, 2016. Internal Control over Financial Reporting In planning and performing our audit of the financial statements, we considered the Board's internal control over financial reporting (internal control) to determine the audit procedures that are appropriate in the circumstances for the purpose of expressing our opinions on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of the Board's internal control. Accordingly, we do not express an opinion on the effectiveness of the Board's internal control. 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 a combination of deficiencies, in internal control, such that there is a reasonable possibility that a material misstatement of the entity's financial statements will not be prevented, or detected and corrected on a timely basis. A significant deficiency is a deficiency, or a 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. Our consideration of internal control was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control that might be material weaknesses or, significant deficiencies. Given these limitations, during our audit we did not identify any deficiencies in internal control that we consider to be material weaknesses. However, material weaknesses may exist that have not been identified. Compliance and Other Matters As part of obtaining reasonable assurance about whether the Board's financial statements are free from material misstatement, 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 no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards. Purpose of this Report The purpose of this report is solely to describe the scope of our testing of internal control and compliance and the results of that testing, and not to provide an opinion on the effectiveness of the entity's internal

100 Hand Avenue • Bay Minette, Alabama 36507 • Telephone (251) 937-5561 • Fax (251) 937-5564 • www.racpc.com 34 control or on compliance. This report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the entity's internal control and compliance. Accordingly, this communication is not suitable for any other purpose.

Robertson, Andreoli and Covington, P.C. Certified Public Accountants

Bay Minette, Alabama January 16, 2016 THE UTILITIES BOARD OF THE 35 CITY OF DAPHNE, ALABAMA SCHEDULE OF FINDINGS AND RESPONSES Year Ended September 30, 2015

SECTION I - Summary of Auditors' Results Financial Statements Type of auditors' report issued: Unmodified

Internal control over financial reporting: Material weakness(es) identified? No Significant deficiencies identified that are not considered to be material weaknesses? None reported Noncompliance material to financial statements noted? No

Section II - Financial Statement Findings None [THIS PAGE INTENTIONALLY LEFT BLANK] APPENDIX C

FORM OF OPINION OF BOND COUNSEL [THIS PAGE INTENTIONALLY LEFT BLANK] APPENDIX C

Form of Opinion of Bond Counsel

[Date of Initial Delivery]

The Utilities Board of the City of Daphne Daphne, Alabama

Re: $______The Utilities Board of the City Of Daphne Water, Gas and Sewer Revenue Bonds, Series 2016

Gentlemen:

We have acted as Bond Counsel in connection with the issuance of the above-referenced bonds (herein called "the Bonds") and as such we have examined certified copies of proceedings showing the organization under the laws of Alabama of The Utilities Board of the City of Daphne (herein called "the Board"), together with copies of proceedings of the Board and other documents submitted to us pertaining to the authorization, sale and issuance of the Bonds.

As to questions of fact material to our opinion, we have relied upon certified proceedings and other certifications of public officials and others furnished to us without undertaking to verify the same by independent investigation. The opinions hereinafter expressed and the statements hereinafter made are based upon our examination of the aforesaid proceedings and documents.

The documents submitted to us show as follows:

(a) that the Board has heretofore executed and delivered to The Bank of New York Mellon Trust Company, National Association (herein called "the 1990 Trustee"), a Trust Indenture dated as of June 1, 1990 (herein called "the 1990 Indenture"), wherein the Board has pledged for payment of any bonds issued under the 1990 Indenture the revenues derived by the Board from the operation of its water system, its natural gas distribution system and its sanitary sewer system, as they may be presently or hereafter constituted that remain after payment of the costs of maintaining and operating such systems (such systems being herein called "the Systems"; and such revenues being herein called "the Pledged Revenues");

(b) that the Board has heretofore issued and there are now outstanding under the 1990 Indenture, as heretofore supplemented, (i) its Water, Gas and Sewer Revenue Bonds, Series 2008 (herein called "the Series 2008 Bonds"), which are now outstanding in the aggregate principal amount of $2,725,000, (ii) its Water, Gas and Sewer Revenue Bonds, Series 2012 (herein called "the Series 2012 Bonds"), which are now outstanding in the aggregate principal amount of $3,195,000 and (iii) its Water, Gas and Sewer Revenue Bonds, Series 2015 (herein called "the Series 2015 Bonds"), which are now outstanding in the aggregate principal amount of $2,495,000. The payment of the Series 2008 Bonds, the Series 2012 Bonds and the Series 2015 Bonds (herein called "the Prior Lien Bonds"), are secured by a pledge of the Pledged Revenues;

(c) that the Bonds are being issued under a Trust Indenture dated as of April 1, 2016 (herein called "the Indenture") between the Board and The Bank of New York Mellon Trust Company, National Association (herein called "the Trustee") wherein the Board has pledged for

C-1 The Utilities Board of the City of Daphne ______, 2016 Page 2

payment of any bonds issued under the Indenture the Pledged Revenues subject to the prior pledge thereof made in the 1990 Indenture for the benefit of the Prior Lien Bonds;

(d) that in the Indenture, the Board has agreed that it will not hereafter issue any additional parity bonds under the 1990 Indenture; and

(e) that the Board has reserved, in the Indenture, the privilege of issuing from time to time additional bonds (herein called "Additional Bonds") in one or more series, without limitation as to principal amount, secured on a parity with the Bonds and any Additional Bonds theretofore issued, upon compliance with the conditions set forth in the Indenture.

We are of the following opinion:

(1) that the Board has been duly organized as a public corporation pursuant to the laws of Alabama and has corporate power to own and operate its Systems, to issue the Bonds and to execute and deliver the Indenture;

(2) that in the authorization, execution and issuance of the Bonds, all applicable requirements of the constitution and laws of Alabama have been complied with;

(3) that the Bonds are in due and legal form and evidence valid special obligations of the Board payable solely out of the revenues derived from the operation of the Systems, remaining after payment of the expenses of operating and maintaining the Systems;

(4) that the Bonds have been issued under the Indenture and are secured, pro rata with any of the Additional Bonds that may hereafter be issued, and without preference or priority of one bond over another, by a pledge of the said revenues out of whichtheyarepayableandbytheprovisionsoftheIndenture;

(5) that the said pledge is a valid pledge of said revenues, subject to all prior lawful charges on said revenues;

(6) that under presently existing law, the interest on the Bonds is exempt from income taxation by the State of Alabama; and

(7) that under the Internal Revenue Code of 1986, as amended (herein called "the Code"), as presently construed and administered, and assuming compliance by the Board with the covenants set forth in the Indenture with respect to certain requirements of Federal tax law, the interest income on the Bonds will be excludable from gross income of the recipients thereof for Federal income tax purposes pursuant to the provisions of Section 103(a) of the Code, and the interest income on the Bonds will not be an item of tax preference included in alternative minimum taxable income for the purpose of computing the alternative minimum tax imposed by Section 55 of the Code. We express no opinion with respect to the Federal tax consequences of ownership of the Bonds under any other provision of the Code.

We have not examined the title of the Board to the Systems, but have, pursuant to instructions, assumed that the Board has good title to the Systems, subject to "Permitted Encumbrances," as that term is defined in the Indenture.

C-2 The Utilities Board of the City of Daphne ______, 2016 Page 3

The Indenture provides that in the event the Board should default in any of the provisions thereof in the manner and for the time therein provided, the Trustee may declare all bonds then outstanding under the Indenture to be forthwith due and payable, whereupon the same shall immediately become due and payable and the Trustee shall be entitled to exercise the rights specified in the Indenture. The Indenture does not, however, constitute a mortgage on the Systems and is not, therefore subject to foreclosure.

We express no opinion with respect to the accuracy, adequacy or completeness of the Official Statement of the Board relating to the Bonds.

Yours very truly,

C-3 [THIS PAGE INTENTIONALLY LEFT BLANK] APPENDIX D

SUMMARY OF THE CONTINUING DISCLOSURE AGREEMENT [THIS PAGE INTENTIONALLY LEFT BLANK] APPENDIX D

SUMMARY OF THE CONTINUING DISCLOSURE AGREEMENT

The following is a summary of the Continuing Disclosure Agreement (herein called "the Agreement") entered into by the Board for the benefit of the holders of the Series 2016 Bonds, in order to assist the Underwriter in complying with the provisions of Rule 15c2-12 ("the Rule"), promulgated by the Securities and Exchange Commission ("the Commission") pursuant to the Securities Exchange Act of 1934. Except where otherwise defined in this Appendix, all capitalized terms have the meaning assigned in the front portion of this Official Statement.

Annual Report of the Board. The Board agrees, in accordance with the provisions of the Rule, to provide or cause to be provided to the Municipal Securities Rulemaking Board (herein called "the MSRB") by any electronic means approved by the MSRB, (i) in the case of audited financial statements referred to in clause (a) below, when available and (ii) in all other cases, within 180 days after the close of each fiscal year of the Board (October 1 – September 30) commencing after September 30, 2015, the following annual financial information and operating data (herein called "the Board's Annual Report"):

(a) audited financial statements comparable to that set forth in Appendix B to the Official Statement; and

(b) unless included in the audited financial statements referred to in clause (a) above, the number of customers for each of the Systems as of the end of the most recent fiscal year and the total revenues for each of the Systems for the most recent fiscal year.

The Board reserves the right to modify from time to time the specific types of information provided or the format of the presentation of the Board's Annual Report, to the extent necessary or appropriate in the judgment of the Board; provided that, the Board agrees that any such modification will be done in a manner consistent with the Rule. The electronic means currently certified by the MSRB for filings pursuant to the Rule is its Electronic Municipal Market Access (herein called "EMMA") site at http://emma.msrb.org.

Notice of Certain Events. The Board agrees to provide or cause to be provided, notice to each NRMSIR, in a timely manner not in excess of ten (10) business days after the occurrence of any of the following events with respect to the Series 2016 Bonds:

(a) Principal and interest payment delinquencies;

(b) Non-payment related defaults, if material;

(c) Unscheduled draws on any reserve funds 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, the issuance by the Internal Revenue Service of proposed or final determinations of taxability. Notice of Proposed Issue (IRS Form 5701 TEB) or other material notices or determinations with respect to the tax status of the Series 2016 Bonds, or other material events affecting the tax status of the Series 2016 Bonds;

(g) Modifications to rights of Bondholders, if material;

(h) Bond calls, if material, and tender offers;

D-1 (i) Defeasances;

(j) Release, substitution or sale of property securing repayment of the Series 2016 Bonds, if material;

(k) Rating changes;

(l) Bankruptcy, insolvency, receivership or similar event with respect to the Board;

(m) The consummation of a merger, consolidation, or acquisition involving the Board or the sale of all or substantially all of the assets of the Board, other than in the ordinary course of business, the entry into a definitive agreement to undertake such an action or the termination of a definitive agreement relating to any such actions, other than pursuant to its terms, if material; or

(n) Appointment of a successor or additional trustee or the change of the name of a trustee, if material.

The Board may from time to time choose to provide notice of the occurrence of certain other events, in addition to those listed above, if, in the judgment of the Board such other event is material with respect to the Series 2016 Bonds, but the Board does not undertake to commit to provide any such notice of the occurrence of any event except those events listed above.

Notice of Non-Compliance. The Board agrees to provide or cause to be provided, in a timely manner to the MSRB notice of any failure by the Board to provide the annual financial information described herein on or prior to the dates respectively set forth in said sections.

Beneficiaries and Enforcement. The Board agrees that its undertaking pursuant to the Rule set forth in the Agreement is intended to be for the benefit of the holders of the Series 2016 Bonds and shall be enforceable by such holders; provided, that the right of the holders of the Series 2016 Bonds to enforce the provisions of the Agreement shall be limited to a right to obtain specific enforcement of the obligations of the Board under the Agreement. No failure by the Board to comply with its obligations under the Agreement shall constitute an event of default under the Indenture.

Amendment. The Agreement may be amended without the consent of any holders of the Series 2016 Bonds if

(a) such amendment is made in connection with a change in circumstances that arises from a change in legal requirements, change in law, or change in the identity, nature, or status of the Board;

(b) the Agreement, as so amended, would have complied with the requirements of the Rule at the time of the execution thereof, after taking into account any amendments or interpretations of the Rule, as well as any change in circumstances; and

(c) the Board receives an opinion of nationally recognized bond counsel that such amendment does not materially impair the interests of any of the holders of the Series 2016 Bonds.

D-2 [THIS PAGE INTENTIONALLY LEFT BLANK] [THIS PAGE INTENTIONALLY LEFT BLANK]