BASIC BOND ELIGIBILITY REQUIREMENTS

Qualified small-issue industrial development revenue bonds are an alternative conduit form of financing that provide manufacturers and processors with lower borrowing costs by virtue of the exclusion of interest income on the bonds under Sections 103(a) and 144(a) of the Internal Revenue Code of 1986. There are a number of rules and regulations governing the issuance of bonds and the use of the proceeds of the bonds. Some of the more significant rules include a requirement that at least 75% of the bond proceeds be used for the acquisition of land, buildings and equipment for use in the core manufacturing and processing activities with 25% of the bond proceeds available for ancillary facilities, a limit on the amount of land that may be financed with bond proceeds, a limit on the amount of capital expenditures that may be paid or incurred in the local jurisdiction where the financed project is located to $10 million during the six period beginning three years before the bond issue and ending three years thereafter, and the use of straight-line depreciation for the assets acquired rather than accelerated depreciation. There is also a rehabilitation requirement when bond proceeds are used to acquire an existing building and a general prohibition on refinancing existing debt unless a reimbursement resolution is adopted by the issuer of the bonds within 60 days of the date the expenditure to be financed was paid. The above description is not intended to be a comprehensive review of all of the rules and regulations applicable to industrial development bonds. Accordingly, potential borrowers should consult with bond counsel before incurring any costs which they may seek to finance with industrial development bonds.