Informational Item – Consider New Terms for the Five FSN Notes:

Staff recommends adoption of the new terms of the five FSN notes as outlined in the August 2, 2006 letter from Rick Harp, CEO Farmers Bank & Capital Trust Co.

Refinancing of the FSN Notes are required in response to:

Increasing FSN interest expense - $1.6 million more over 5 year budget than estimated last year.

Increase of FPB payments to CERS Retirement System - $1.35 million to the Telecommunications Department over next five years.

Benefits of the New Terms:

Allows for funds to be available for capital additions necessary for continued expansion of the Full Service Network.

Reduces/delays the need for rate increases to fund growth.

Decreases the ceiling on the FSN variable interest rate 1.25%, from 7.50% to 6.25%. This would equate to approximately $1.64m in the current 5-year budget.

Negatives of New FSN Terms:

Extends pay-off of notes almost 6 years, resulting in additional interest expenditures.

Additional legal fees will be incurred in order to refinance the five notes.

Increases the floor on the FSN variable interest rate .50%, from 3.50% to 4.00%. This would equate to approximately $650,000 in the current 5-year budget.

The current 5 year budget was developed utilizing the new amortization schedule for principle payments on the FSN Notes.