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• <br />• <br />• <br />City of Lino Lakes, Minnesota <br />October 21, 2003 <br />7. Prepayment Provisions <br />8. Credit Rating Comments <br />9. Term Bonds <br />10. Federal Treasury Regulations Concerning <br />Tax - Exempt Obligations <br />(a) Bank Qualification <br />(b) Rebate Requirements <br />The City may elect on February 1, 2013, and <br />on any date thereafter, to prepay the Bonds <br />due on or after February 1, 2014, 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 "A2 ". <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. <br />There is an exemption to this for "bank <br />qualified" bonds, which can be so designated <br />if the issuer does not issue more than $10 <br />million of tax - exempt bonds in a calendar <br />year. Issues that are bank qualified generally <br />receive slightly lower interest rates than issues <br />that are not bank qualified. Since the City <br />expects to issue Tess than $10 million of tax - <br />exempt debt in 2003, this Issue is designated <br />as bank qualified. <br />All tax - exempt issues are subject to the <br />federal arbitrage and rebate requirements, <br />which require all excess earnings created by <br />the financing to be rebated to the U.S. <br />Treasury. The requirements generally cover <br />two categories: bond proceeds and debt <br />service funds. There are exemptions from <br />rebate that may apply in both of these <br />categories. <br />Page 2 <br />