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City of Lino Lakes, Minnesota <br />May 7, 2002 <br />6. Prepayment Provisions <br />7. Credit Rating Comments <br />8. Term Bonds <br />9. Federal Treasury Regulations Concerning <br />Tax - Exempt Obligations <br />(a) Bank Qualification <br />(b) Rebate Requirements <br />The City may elect on February 1, 2008, and <br />on any date thereafter, to prepay the Bonds <br />due on or after February 1, 2009, at a price of <br />par plus accrued interest. <br />An application will be made to Moody's <br />Investors Service for a rating on the Bonds. <br />The City's current general obligation credit <br />rating is "A3 ". <br />We have included a provision that permits the <br />underwriters to combine multiple maturity <br />years into a term bond, subject to mandatory <br />redemption on the same maturity schedule <br />provided in the Terms of Proposal. The <br />advantage to the underwriter is that it provides <br />large blocks of bonds, which are more <br />attractive to bond funds, and certain pension <br />funds, which deal only with large blocks of <br />bonds. This in turn is a benefit to the City <br />since selling larger blocks of bonds reduces <br />the risk to the underwriter, allowing them to <br />lower their costs and the interest coupons. <br />Since the Bonds are being offered on a <br />competitive bid basis and awarded on the <br />lowest true interest cost, the City will award <br />the Bonds to the best bid regardless of <br />whether term bonds are chosen or not. <br />Under Federal Tax Law, financial institutions <br />cannot deduct from income for federal income <br />tax purposes, expense that is allocable to <br />carrying and acquiring tax - exempt bonds. There <br />is an exemption to this for "bank qualified" bonds, <br />which can be so designated if the issuer does <br />not issue more than $10 million of tax exempt <br />bonds in a calendar year. Issues that are bank <br />qualified generally receive slightly lower interest <br />rates than issues that are not bank qualified. <br />Since the City expects to issue Tess than $10 <br />million of tax exempt debt in 2002, this issue is <br />designated as bank qualified. <br />All tax - exempt issues are subject to the federal <br />arbitrage and rebate requirements, which require <br />all excess earnings created by the financing to <br />be rebated to the U.S. Treasury. The <br />requirements generally cover two categories: <br />bond proceeds and debt service funds. There <br />are exemptions from rebate in both of these <br />categories. <br />Page 2 <br />