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City of St. Anthony, Minnesota ` October 24, 1995 Book-Entry We recommend the bonds be issued as "Book-Entry Only" obligations through the Midwest Securities Trust Company of Chicago. Under the Book-Entry system, the holders of the obligations will not receive printed bonds but will have only a record from the broker/dealer stating they are held by the depository. The use of the Book-Entry system eliminates all costs to the City for printing physical bonds. We also recommend the City retain a registrar-paying agent. The registrar's duties will be to notify the City semi-annually of the up-coming payments due and to act as intermediary with the depository if necessary. The registrar's fees will be lower than for full-service. Allowance for Discount Bidding Included in the principal amount of the bonds is an allowance for discount bidding representing $15.00 per $1,000 bond, or $39,750. The discount, representing the underwriter's compensation and/or working capital for purchasing the issue, has been used by the City before and we recommend its use here also. Rating In order to maintain the City's current "A-1" rating from Moody's Investors Service, it is necessary than an application be made to Moody's for a rating on this issue. The rating was reviewed and confirmed by Moody's earlier this year. We will provide Moody's with the necessary data upon which they will make their rating analysis and make the application on your behalf. Federal Rebate —Arbitrage All tax-exempt bonds are subject to federal arbitrage regulations, including rebating arbitrage profits to the U.S. Treasury. Generally speaking, all arbitrage profits (the yield difference between the earnings on the investments and the yield on the obligations) must be rebated to the U.S. Treasury. There are some exemptions to this rebate requirement which include: (i) A small issuer exemption if the obligations are for governmental purposes and the issuer reasonably expects to issue not more than $5,000,000 tax-exempt obligations during the calendar year. (ii) A six-months exemption if all of the proceeds of the obligations are expected within six months of issuance of the obligations. (iii) An. 18-month expenditure test if at least 15% of the proceeds are expended within six months, 60% within 12 months and 100% within 18 months. (iv) A two-year expenditure test if at least 75% of the proceeds of the issue are used for construction and if 10% is expended within six months, 45% within 12 months, 75% within 18 months and 100% within two years. For items (iii) and (iv), if it is reasonably required that a retainage be maintained to enforce the completion of a contract, up to 5% of the proceeds may be retained for an additional 12 months. Net proceeds subject to these expenditure tests include investment earnings on the original bond proceeds. Page 3