E. J. De La Rosa & Co., Inc

NEW ISSUE - Book-Entry Only RATINGS: Standard & Poor's: AAA (Ambac-insured) Standard & Poor's: BBB+ (Underlying) (See "RATINGS") In the opinion of Quint & Thimmig LLP, San Francisco, California, Bond Counsel, subject, however to certain qualifications described herein, under existing law, the interest on the 2004 Bonds is excluded from gross income for federal income tax purposes and such interest is not an item of tax preference for purposes of the federal alternative minimum tax imposed on individuals and corporations, although for purposes ofcomputing the alternative minimum tax imposed on certain corporations, such interest is taken into account in determining certain income and earnings. In the further opinion ofBond Counsel, interest on the 2004 Bonds is exempt from California personal income taxes. See "TAX MATTERS. " $78, 790,000 EMERYVILLE PUBLIC FINANCING AUTHORITY Revenue Bonds, 2004 Series A (Emeryville Redevelopment, Shellmound Park Redevelopment and Housing Projects) Dated: Date of Delivery Due: September 1, as shown below The Emeryville Public Financing Authority (the "Authority") is issuing the Revenue Bonds captioned above (the "2004 Bonds"). Authority for Issuance. The 2004 Bonds are being issued in accordance with an Indenture of Trust dated as of August I, 2004 (the "Indenture"), by and between the Authority and BNY Western Trust Company, San Francisco, California, or its successors, as trustee (the "Trustee"), and a resolution of the Authority adopted on June 29, 2004. Bond Terms; Book-Entry Only. The 2004 Bonds will be issued and delivered as fully registered bonds without coupons, and when delivered, will be registered in the name of Cede & Co., as nominee of the Depository Trust Company, New York, New York ("DTC"). Payment of principal of and interest on the 2004 Bonds will be paid by the Trustee to DTC, which will in tum remit such principal and interest to its participants for subsequent disbursement to beneficial owners of the 2004 Bonds as described herein. See "APPENDIX G - BOOK-ENTRY ONLY SYSTEM." Interest on the 2004 Bonds is payable semiannually on each March I and September I, commencing March I, 2005. Use ofProceeds. The proceeds of the 2004 Bonds will be loaned to the Emeryville Redevelopment Agency (the "Agency") under three separate loan agreements (the "Loan Agreements") and used (i) to finance redevelopment activities within the Agency's Emeryville Redevelopment Project Area (the "Emeryville Project Area") and the Agency's Shellmound Park Redevelopment Project Area (the "Shellmound Park Project Area"), (ii) to finance low and moderate housing projects of the Agency (the "Housing Projects") in the City of Emeryville (the "City"), (iii) to fund a debt service reserve fund for each of the Loan Agreements, and (iv) to pay certain costs of issuing the 2004 Bonds. See "THE FINANCING PLAN." Security for the 2004 Bonds. The 2004 Bonds are special obligations of the Authority payable from and secured by loan payments made by the Agency under the Loan Agreements and certain other amounts on deposit in the funds and accounts established under the Indenture (collectively, the "Revenues"). Except for the Revenues, no funds or properties of the Authority are pledged to, or otherwise liable for, payment of the principal of, premium (if any) or interest on the 2004 Bonds. See "SECURITY FOR THE 2004 BONDS AND THE LOANS." Security for Loan Agreement Obligations. The Agency's obligations under the Loan Agreement relating to the Emeryville Project Area are secured by a pledge of the Emeryville Tax Revenues (as defined herein). The Loan Agreement relating to the Shellmound Park Project Area is secured by a pledge of the Shellmound Park Tax Revenues (as defined herein). The Loan Agreement relating to the Housing Projects is secured by a pledge of the Housing Set Aside (as defined herein). For a description of the security for the obligations under the Loan Agreements, see "SECURITY FOR THE 2004 BONDS AND THE LOANS" and APPENDIX A - "Summary of Principal Legal Documents." No Cross-Collateralization. Loan payments made by the Agency with respect to one Loan Agreement are not available to make up any shortfalls in loan payments made with respect to another Loan Agreement. Similarly, the debt service reserve fund held with respect to one Loan Agreement is not available to make up any shortfalls in loan payments made with respect to another Loan Agreement. Parity Debt. The Emeryville Tax Revenues, the Shellmound Park Tax Revenues and the Housing Set Aside are also each pledged, on a parity basis, to various outstanding obligations of the Agency. See "OUTSTANDING PARITY DEBT" and "SECURITY FOR THE 2004 BONDS AND THE LOANS - Outstanding Parity Debt" for a list of all the outstanding debt that has parity claims on the Emeryville Tax Revenues, the Shellmound Park Tax Revenues and the Housing Set Aside. The Agency may also incur future debt that has parity claims on the Emeryville Tax Revenues, the Shellmound Park Tax Revenues and the Housing Set Aside. "See "SECURITY FOR THE 2004 BONDS AND THE LOANS - Issuance of Additional Parity Debt". Redemption. The 2004 Bonds are subject to optional redemption and mandatory sinking fund redemption prior to maturity. See "THE 2004 BONDS - Redemption." The payment of principal of and interest on the 2004 Bonds when due will be insured by a financial guaranty insurance policy to be issued concurrently with the delivery of the 2004 Bonds by Ambac Assurance Corporation. Ambac This cover page contains information for reference only. Investors must read the entire Official Statement to obtain information essential in making an informed investment decision. See "BOND OWNERS' RISKS" for a discussion offactors that should be considered, in addition to the other matters set forth herein, in evaluating the investment quality ofthe 2004 Bonds. NEITHER THE 2004 BONDS, THE AUTHORITY'S OBLIGATIONS UNDER THE INDENTURE NOR THE OBLIGATIONS OF THE AGENCY UNDER THE LOAN AGREEMENTS ARE A DEBT OF THE CITY, THE STATE OF CALIFORNIA OR ANY POLITICAL SUBDIVISION THEREOF (OTHER THAN THE AUTHORITY AND THE AGENCY, RESPECTIVELY) AND NEITHER THE CITY, THE STATE NOR ANY POLITICAL SUBDIVISION THEREOF (OTHER THAN THE AUTHORITY AND THE AGENCY, RESPECTIVELY) ARE LIABLE FOR THE 2004 BONDS OR THE OBLIGATIONS OF THE AGENCY UNDER THE LOAN AGREEMENTS. THE 2004 BONDS DO NOT CONSTITUTE AN INDEBTEDNESS WITHIN THE MEANING OF ANY CONSTITUTIONAL OR STATUTORY DEBT LIMITATION OR RESTRICTION. NEITHER THE MEMBERS OF THE AUTHORITY, THE CITY, THE AGENCY NOR ANY PERSONS EXECUTING THE 2004 BONDS ARE LIABLE PERSONALLY ON THE 2004 BONDS BY REASON OF THEIR ISSUANCE. NEITHER THE AUTHORITY NOR THE AGENCY HAS ANY TAXING POWER.

MATURITY SCHEDULE ( see inside cover)

The 2004 Bonds are offered when, as and if issued and accepted by the Underwriters, subject to approval as to legality by Quint & Thimmig LLP, San Francisco, Bond Counsel, and subject to certain other conditions. Certain matters will be passed upon for the Underwriters by Jones Hall, A Professional Law Corporation, San Francisco, California, and for the City and the Authority by the City Attorney. It is anticipated that the 2004 Bonds will be available for delivery through the facilities ofDTC on or about August 26, 2004. STONE & YOUNGBERG LLC E. J. De La Rosa & Co., Inc. The date of this Official Statement is August 12, 2004 MATURITY SCHEDULE (Base CUSIP:t 291195) $54,060,000 Serial Bonds

Maturity Date Principal Interest (September 1) Amount Rate Yield Price CUSIPt 2006 $ 1,895,000 4.00% 1.55% 104.839% KE4 2007 1,970,000 4.00 2.02 105.761 KF 1 2008 2,045,000 4.00 2.47 105.812 KG9 2009 2,135,000 3.50 2.70 103.727 KH7 2010 2,205,000 5.00 3.10 110.351 KJ3 2011 2,310,000 4.50 3.32 107.329 KKO 2012 2,420,000 5.00 3.55 110.036 KLS 2013 2,535,000 5.00 3.62 110.532 KM6 2014 2,660,000 5.00 3.77 110.179 KN4 2015 2,800,000 3.95 3.95 100.000 KP9 2016 2,905,000 4.05 4.05 100.000 KQ7 2017 3,035,000 4.15 4.15 100.000 KR5 2018 3,150,000 4.20 4.20 100.000 KS3 2019 3,290,000 4.25 4.25 100.000 KTl 2020 3,425,000 4.35 4.35 100.000 KUS 2021 3,570,000 4.45 4.45 100.000 KV6 2022 3,725,000 4.50 4.50 100.000 KW4 2023 3,900,000 4.55 4.55 100.000 KZ7 2024 4,085,000 4.60 4.60 100.000 LA 1

$13,495,000 4.80% Term Bond due September 1, 2029, Price: 100% CUSIP:t 291195 KY O

$11,235,000 4.85% Term Bond due September 1, 2034, Price: 100% CUSIP:t 291195 KX 2

t Copyright 2004, American Bankers Association. CUSIP data herein are provided by Standard & Poor's CUSIP Service Bureau, a division of The McGraw-Hill Companies, Inc., and are provided for convenience of reference only. Neither the Authority, the Agency nor the Underwriters assume any responsibility for the accuracy of these CUSIP data. EMERYVILLE PUBLIC FINANCING AUTHORITY

EMERYVILLE REDEVELOPMENT AGENCY

CITY OF EMERYVILLE www.ci.emeryville.ca.us Gary Caffey Chairperson of the Authority and the Agency, Mayor of the City Ken Bukowski Vice Chairperson of the Authority and the Agency, Vice Mayor of the City Ruth Atkin Member of the Authority and the Agency, City Council Member Nora Davis Member of the Authority and the Agency, City Council Member Richard Kassis Member of the Authority and the Agency, City Council Member

Authority, Agency and City Staff John A Flores Secretary of the Authority, Executive Director of the Agency, City Manager Patrick D. O'Keeffe Economic Development and Housing Director of the City Pauline A Marx Treasurer of the Authority and the Agency, Finance Director of the City Michael Biddle Legal Counsel to the Authority and the Agency, City Attorney of the City Karen Hemphill Agency Secretary, City Clerk

Special Services Bond Counsel Quint & Thimmig LLP San Francisco, California Underwriters' Counsel Jones Hall, A Professional Law Corporation San Francisco, California Trustee BNY Western Trust Company San Francisco, California GENERAL INFORMATION ABOUT THIS OFFICIAL STATEMENT

No Offering May Be Made Except by this Official Statement. No dealer, broker, salesperson or other person has been authorized to give any information or to make any representations with respect to the 2004 Bonds other than as contained in this Official Statement, and if given or made, such other information or representation must not be relied upon as having been authorized.

No Unlawful Offers or Solicitations. This Official Statement does not constitute an offer to sell or the solicitation of an offer to buy in any state in which such offer or solicitation is not authorized or in which the person making such offer or solicitation is not qualified to do so or to any person to whom it is unlawful to make such offer or solicitation.

Effective Date. This Official Statement speaks only as of its date, and the information and expressions of opinion contained in this Official Statement are subject to change without notice. Neither the delivery of this Official Statement nor any sale of the 2004 Bonds will, under any circumstances, create any implication that there has been no change in the affairs of the Authority, the Agency or any other parties described in this Official Statement, or in the condition of the security for the 2004 Bonds since the date of this Official Statement.

Use of this Official Statement. This Official Statement is submitted in connection with the sale of the 2004 Bonds referred to in this Official Statement and may not be reproduced or used, in whole or in part, for any other purpose. This Official Statement is not a contract with the purchasers of the 2004 Bonds.

Preparation of this Official Statement. The information contained in this Official Statement has been obtained from sources that are believed to be reliable, but this information is not guaranteed as to accuracy or completeness.

Involvement of Underwriters. The Underwriters have submitted the following statement for inclusion in this Official Statement: The Underwriters have reviewed the information in this Official Statement in accordance with, and as a part of, their respective responsibilities to investors under the Federal Securities Laws as applied to the facts and circumstances of this transaction, but the Underwriters do not guarantee the accuracy or completeness of such information.

Document References and Summaries. All references to and summaries of the Indenture, the Loan Agreements or other documents contained in this Official Statement are subject to the provisions of those documents and do not purport to be complete statements of those documents.

Bonds are Exempt from Securities Laws Registration. The issuance and sale of the 2004 Bonds have not been registered under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, in reliance upon exemptions for the issuance and sale of municipal securities provided under Section 3(a)(2) of the Securities Act of 1933 and Section 3(a)(12) of the Securities Exchange Act of 1934.

Estimates and Projections. Certain statements included or incorporated by reference in this Official Statement constitute "forward-looking statements" within the meaning of the United States Private Securities Litigation Reform Act of 1995, Section 21 E of the United States Securities Exchange Act of 1934, as amended, and Section 27 A of the United States Securities Act of 1933, as amended. Such statements are generally identifiable by the terminology used such as "plan," "expect," "estimate," "budget" or other similar words.

THE ACHIEVEMENT OF CERTAIN RESULTS OR OTHER EXPECTATIONS CONTAINED IN SUCH FORWARD-LOOKING STATEMENTS INVOLVE KNOWN AND UNKNOWN RISKS, UNCERTAINTIES AND OTHER FACTORS WHICH MAY CAUSE ACTUAL RESULTS, PERFORMANCE OR ACHIEVEMENTS DESCRIBED TO BE MATERIALLY DIFFERENT FROM ANY FUTURE RESULTS, PERFORMANCE OR ACHIEVEMENTS EXPRESSED OR IMPLIED BY SUCH FORWARD-LOOKING STATEMENTS. THE AUTHORITY AND THE AGENCY DO NOT PLAN TO ISSUE ANY UPDATES OR REVISIONS TO THOSE FORWARD-LOOKING STATEMENTS IF OR WHEN ITS EXPECTATIONS, OR EVENTS, CONDITIONS OR CIRCUMSTANCES ON WHICH SUCH STATEMENTS ARE BASED OCCUR. TABLE OF CONTENTS

Page Page

INTRODUCTION ...... 1 Authority and Management ...... 27 OUTSTANDING PARITY DEBT ...... 5 Agency Powers and Duties ...... 28 Fl NANCI NG PLAN ...... 6 Agency Financial Statements ...... 28 Financing Purposes ...... 6 Investments ...... 28 Sources and Uses of Funds ...... 6 THE EMERYVILLE PROJECT AREA ...... 31 THE 2004 BONDS ...... 7 Redevelopment Plan Limitations ...... 31 Description ...... 7 Tax Rate ...... 33 Redemption ...... 7 Pass-Through Agreements ...... 33 Purchase of Term Bonds In Lieu of Redemption ..... 8 Tax Sharing Agreement...... 33 Notice of Redemption ...... 9 Tax Collection Fees ...... 33 Other Redemption Provisions ...... 9 Historical Taxable Values and Tax Debt Service Schedules ...... 10 Increment Revenues ...... 33 SECURITY FOR THE 2004 BONDS AND Largest Taxpayers ...... 36 THE LOANS ...... 11 Assessment Appeals ...... 37 Security for the 2004 Bonds ...... 11 New Construction Activity ...... 39 Security for the Loans ...... 11 THE SHELLMOUND PARK PROJECT Reserve Funds ...... 14 AREA ...... 40 Outstanding Parity Debt...... 15 Redevelopment Plan Limitations ...... 40 Issuance of Additional Parity Debt...... 15 Tax Rate ...... 41 BOND INSURANCE ...... 17 Pass-Through Agreements ...... 41 Payment Pursuant to Financial Guaranty Tax Sharing Agreements ...... 41 Insurance Policy ...... 17 Tax Collection Fees ...... 42 Ambac Assurance Corporation ...... 18 Historical Tax Values and Tax Increment Available Information ...... 19 Revenues ...... 42 Incorporation of Certain Documents by Reference 19 Largest Taxpayers ...... 45 LIMITATIONS ON TAX REVENUES AND Assessment Appeals ...... 46 HOUSING SET ASIDE ...... 20 New Construction Activity ...... 48 Property Tax Limitations - Article XIIIA ...... 20 DEBT SERVICE AND ESTIMATED Challenges to Article XIIIA ...... 20 COVERAGE ...... 49 Implementing Legislation ...... 20 BOND OWNERS' RISKS ...... 55 Property Tax Collection Procedures ...... 21 Reduction of Tax Base ...... 55 Appropriations Limitations - Article XIIIB ...... 22 Reduction in Inflationary Rate ...... 55 State Board of Equalization and Future Changes In the Law ...... 55 Property Assessment Practices ...... 22 Levy and Collection of Taxes ...... 56 Exclusion of Tax Revenues for General Concentrated Property Ownership ...... 56 Obligation Bonds Debt Service ...... 23 Litigation Regarding 2 Percent Limitation ...... 56 Proposition 218 ...... 23 Estimates of Tax Revenues ...... 57 Future Initiatives ...... 23 Additional Obligations ...... 57 Low and Moderate Income Housing ...... 23 Earthquake Risk ...... 57 Statement of Indebtedness ...... 24 Hazardous Substances ...... 58 Redevelopment Plan Limitations ...... 24 Bankruptcy Risks ...... 58 Property Assessment Appeals ...... 24 State Budget...... 58 Pass-Through Agreements ...... 25 CERTAIN LEGAL MATTERS ...... 60 Chiron Tax Sharing Agreement ...... 26 RATINGS ...... 60 Bay Street Block E Reimbursement Agreement. ... 26 UNDERWRITING ...... 60 THE EMERYVILLE PUBLIC FINANCING CONTINUING DISCLOSURE ...... 61 AUTHORITY ...... 27 LITIGATION ...... 61 THE EMERYVILLE REDEVELOPMENT TAX MATTERS ...... 61 AGENCY ...... 27 EXECUTION ...... 62

APPENDIX A - Summary of Principal Legal Documents APPENDIX B - City of Emeryville Demographic Information APPENDIX C - Agency's Audited Financial Statements for the Year Ended June 30, 2003 APPENDIX D - Form of Final Opinion of Bond Counsel APPENDIX E - Form of Continuing Disclosure Certificate APPENDIX F - Specimen Financial Guaranty Insurance Policy APPENDIX G - Book-Entry Only System REGIONAL M_A.f . ~ \. L, I,_. - - __:__2:i, .'--, '1

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EMERYVILLE PUBLIC FINANCING AUTHORITY

$78, 790,000 Revenue Bonds, 2004 Series A (Emeryville Redevelopment, Shellmound Park Redevelopment and Housing Projects)

INTRODUCTION

This Official Statement, including the cover page and the attached appendices, provides information regarding the issuance by the Emeryville Public Financing Authority (the "Authority") of the revenue bonds captioned above (the "2004 Bonds").

Authority for Issuance

The 2004 Bonds are being issued under the Constitution and the laws of the State of California (the "State"), including Article 4, Chapter 5, Division 7, Title 1 (commencing with Section 6500) of the California Government Code (the "Bond Law") and a resolution of the Authority adopted on June 29, 2004.

The 2004 Bonds will be issued under an Indenture of Trust (the "Indenture"), dated as of August 1, 2004, by and between the Authority and BNY Western Trust Company, as trustee (the "Trustee").

The 2004 Bonds and the Loan Agreements

The Authority will use the proceeds of the 2004 Bonds to fund three loans (the "Loans") to the Emeryville Redevelopment Agency (the "Agency"), the net proceeds of which will be used to assist the Agency in the following activities:

• the financing of redevelopment activities within the Agency's Emeryville Redevelopment Project Area (the "Emeryville Project Area") and its Shellmound Park Redevelopment Project Area (the "Shellmound Park Project Area"; collectively, the "Project Areas"), and

• the financing of low and moderate housing projects (the "Housing Projects") of the Agency.

The Authority will make the Loans to the Agency pursuant to three separate loan agreements, each dated as of August 1, 2004, among the Authority, the Agency and the Trustee (collectively, the "Loan Agreements"):

• the 2004 Emeryville Project Loan Agreement (the "Emeryville Loan Agreement"),

• the 2004 Shellmound Project Loan Agreement (the "Shellmound Park Loan Agreement"), and

• the 2004 Housing Project Loan Agreement relating to the 2004 Bonds (the "Housing Project Loan Agreement"). The Agency will enter into the Loan Agreements pursuant to the California Community Redevelopment Law, constituting Part 1, Division 24 (commencing with Section 33000) of the California Health and Safety Code (the "Redevelopment Law'').

See "FINANCING PLAN."

Security for the 2004 Bonds and the Loan Agreements

Security for the 2004 Bonds. The 2004 Bonds are limited obligations of the Authority entitled, ratably and equally, to the benefits of the Indenture and are payable solely from and secured by the Authority's interest in loan repayments to be made by the Agency under the Loan Agreements.

Security for the Loan Agreements. The Agency's obligations under the Emeryville Loan Agreement and all debt issued on a parity basis (including outstanding parity debt) are secured, on a co-equal basis, by a pledge of the "Emeryville Tax Revenues," primarily consisting of certain tax revenues and other amounts allocated and paid to the Agency (but excluding amounts required to be set aside for low- and moderate-income housing purposes) derived primarily from taxes assessed on property within the Emeryville Project Area.

The Agency's obligations under the Shellmound Park Loan Agreement and all debt issued on a parity basis (including outstanding parity debt) are secured by a pledge of the "Shellmound Park Tax Revenues," primarily consisting of certain tax revenues and other amounts allocated and paid to the Agency (but excluding amounts subject to the "Pass Through Agreement" (as defined in "LIMITATIONS ON TAX REVENUES AND HOUSING SET ASIDE - Pass-Through Agreements") and amounts required to be set aside for low- and moderate-income housing purposes) derived primarily from taxes assessed on property within the Shellmound Park Project Area.

The Emeryville Tax Revenues and the Shellmound Park Tax Revenues are collectively referred to in this Official Statement as the "Tax Revenues."

The Agency's obligations under the Housing Project Loan Agreement, and all debt issued on a parity basis (including outstanding parity debt) are secured, on a co-equal basis, by a pledge of the "Housing Set Aside," consisting primarily of a portion of the tax increment derived from the Project Areas which is required to be set aside for low- and moderate-income housing purposes pursuant to the Redevelopment Law.

See "OUTSTANDING PARITY DEBT" and "SECURITY FOR THE 2004 BONDS AND THE LOANS."

Bond Insurance. Concurrently with issuance of the 2004 Bonds, Ambac Assurance Corporation (the "Bond Insurer" or "Ambac Assurance") will issue its Financial Guaranty Insurance Policy (the "Financial Guaranty Insurance Policy") for the 2004 Bonds. The Financial Guaranty Insurance Policy unconditionally guarantees the payment of that portion of the principal of and interest on the 2004 Bonds which becomes due for payment, but which is

2 unpaid. See "BOND INSURANCE" and "APPENDIX F - SPECIMEN FINANCIAL GUARANTY INSURANCE POLICY."

Events of Default. An event of default on any or all of the three Loans may result in insufficient Revenues with which to pay the principal of, premium (if any), and interest on the 2004 Bonds. To the extent the Trustee recovers any monies following an event of default on a Loan, such monies and any resulting deficiencies in the payments of principal of and interest on the related 2004 Bonds will be made ratably among maturities. See "APPENDIX A - SUMMARY OF PRINCIPAL LEGAL DOCUMENTS - INDENTURE - Events of Default."

Debt Service and Estimated Coverage

As described more completely in "DEBT SERVICE AND ESTIMATED COVERAGE," the Agency projects the following debt service coverage based on (i) certain assumptions detailed in "DEBT SERVICE AND ESTIMATED COVERAGE" and (ii) the maximum aggregate annual debt service payable in any Bond Year on the Loan Agreements and outstanding Parity Debt:

Description Debt Service Coverage

Emeryville Loan Agreement and Parity Debt 125%

Shellmound Park Loan Agreement and Parity Debt 144

Housing Project Loan Agreement and Parity Debt 136

Tax Allocation Financing

The Redevelopment Law provides a means for financing redevelopment projects based upon an allocation of taxes collected within a designated redevelopment project area. The redevelopment agency establishes the taxable valuation of a project area as last equalized before the adoption of the redevelopment plan, or base roll (the "Base Year Valuation"). Subsequently, the taxing agencies receive the taxes produced by the levy of the then-current tax rate upon the Base Year Valuation (except for any period during which the taxable valuation drops below the Base Year Valuation).

Taxes collected upon any increase in taxable valuation over the Base Year Valuation are allocated to a redevelopment agency and may be pledged by a redevelopment agency to the repayment of any indebtedness incurred in financing or refinancing a redevelopment project. No less than 20% of taxes allocated to a redevelopment agency must be set aside in a separate fund to develop and maintain low- and moderate-income housing in the City. Redevelopment agencies themselves have no taxing power.

The City, the Agency, and the Authority

The City. The City of Emeryville (the "City") is located in the County of Alameda (the "County"). The City was incorporated in 1896, and operates as a general law city. The City has a Council-Manager form of government. Five council members, including a mayor, are elected at large. For certain information with respect to the City, see APPENDIX B - "CITY OF EMERYVILLE DEMOGRAPHIC INFORMATION."

The Agency. The City activated the Agency in 1975 under the Redevelopment Law. The five members of the City Council also serve as members of the Agency and exercise all rights,

3 powers, duties and privileges of the Agency. See "THE EMERYVILLE REDEVELOPMENT AGENCY."

The Agency adopted a redevelopment plan (the "Emeryville Redevelopment Plan") for the Emeryville Project Area in 1976. The Emeryville Project Area consists of approximately 503 acres or approximately 62% of the area of the City. The total assessed valuation of taxable property in the Emeryville Project Area in fiscal year 2004-05 is estimated to be $1,476,907,336, and the corresponding incremental assessed valuation is estimated to be $1,365,434,036. See 'THE EMERYVILLE PROJECT AREA."

The Agency adopted a redevelopment plan (the "Shellmound Park Redevelopment Plan") for the Shell mound Park Project Area in 1987. The Shell mound Park Project Area consists of approximately 270 acres or approximately 33% of the City. Although the Shellmound Park Project Area is almost fully developed, it is currently being redeveloped with changes of land use which are contributing to increased growth in property values. The total assessed valuation of taxable property in the Shellmound Park Project Area in fiscal year 2004-05 is estimated to be $976,065, 178, and the corresponding incremental assessed valuation is estimated to be $786,809,358. See "THE SHELLMOUND PARK PROJECT AREA."

The Authority. The Authority was formed under a Joint Exercise of Powers Agreement dated August 16, 1988, by and between the City and the Agency. See "THE EMERYVILLE PUBLIC FINANCING AUTHORITY."

The Authority was created to provide financing for public capital improvements for the City and the Agency by acquiring such public capital improvements or purchasing "local obligations" within the meaning of Articles 1 through 4, Chapter 5, Division 7, Title 1 of the California Government Code (the "Act"). Under the Act, the Authority has the power to issue bonds to pay the cost of any public capital improvement.

Definitions and Summaries

Definitions of certain terms used in this Official Statement are set forth in "APPENDIX A - SUMMARY OF PRINCIPAL LEGAL DOCUMENTS - INDENTURE - Definitions." This Official Statement contains brief descriptions of, among other things, the 2004 Bonds, the Indenture, the Loan Agreements, the Authority, the Agency and the Project Areas. Such descriptions do not purport to be comprehensive or definitive. All references in this Official Statement to documents are qualified in their entirety by reference to those documents, and references to the 2004 Bonds are qualified in their entirety by reference to the forms of Bond included in the Indenture. Copies of the Indenture, the Loan Agreements and other documents described in this Official Statement may be obtained from the Trustee.

4 OUTSTANDING PARITY DEBT

The Authority has previously issued six series of bonds (the "Outstanding Authority Bonds"), the proceeds of which were lent to the Agency to finance redevelopment activities. The following table identifies the outstanding six series of Outstanding Authority Bonds and the underlying loans securing repayment of the Outstanding Authority Bonds (the loans are payable from Tax Revenues or Housing Set Aside, as applicable, on a parity with the other related loans listed in the table):

TABLE 1 Outstanding Authority Bonds and Related Agency Debt (as of July 1, 2004)

Related Project Area Loans and Bond Amount Loan Amounts Outstanding as of July 1, 2004 Bond Original Outstanding as of Issue Princi1::1al Amount July 1, 2004 Emeryville (1) Shellmound Park (2) Housing (3)

1995 $14,300,000 $6,340,000 NIA NIA $6,340,000

19988 $50,640,000 $46,710,000 $32, 120,000 $6,775,000 $7,815,000 1998C (Taxable) $17,905,000 $16,645,000 $9,605,000 NIA $7,040,000

2001A $23,000,000 $22, 150,000 $17,635,000 $4,515,000 NIA 2001 B (Taxable) $3,420,000 $3,390,000 NIA NIA $3,390,000

2002A $22,120,000 $21,640,000 $21,640,000 NIA NIA Totals $131,385,000 $116,875,000 $81,000,000 $11,290,000 $24,585,000

( 1) These loans are secured by a pledge of and payable from Emeryville Tax Revenues. (2) These loans are secured by a pledge of and payable from Shellmound Park Tax Revenues. (3) These loans are secured by a pledge of and payable from Housing Set Aside.

See "SECURITY FOR THE 2004 BONDS AND THE LOANS - Outstanding Parity Debt."

The Agency has no other outstanding debt that is on a parity with or subordinate to the Loans. However, the Agency may incur additional debt payable on a parity with the Loans in the future. See "SECURITY FOR THE 2004 BONDS AND THE LOANS - Issuance of Additional Parity Debt."

5 FINANCING PLAN

Financing Purposes

The Authority will use the proceeds of the 2004 Bonds to fund the three Loans, the net proceeds of which will be used to assist the Agency in the following activities:

• the financing of redevelopment activities within the Emeryville Project Area and the Shellmound Park Project Area, and

• the financing the Housing Projects.

The Authority will also use a portion of the proceeds of the 2004 Bonds to fund a debt service reserve fund for each of the Loan Agreements, and to pay certain costs of issuance incurred in connection with issuing the 2004 Bonds.

Other than amounts representing costs of issuance and the reserve requirements for each of the A Loans, the proceeds of the Loans will be held by the Agency. Monies held by the Agency under the Loan Agreements will be used for the purposes provided in the Redevelopment Law and the Redevelopment Plans for the Project Areas to which the Loan Agreements relate and are not available for the payment of the principal of and interest on the 2004 Bonds.

Sources and Uses of Funds

The following is a table of estimated sources and uses of funds with respect to the 2004 Bonds, the Emeryville Loan, the Shellmound Park Loan and the Housing Loan.

Emeryville Shell mound Housing Loan Park Loan Loan Total Sources

Par Amount $34,290,000.00 $27,000,000.00 $17,500,000.00 $78,790,000.00 Plus Net Original Issue Premium 863,908.65 418,411.55 299,455.65 1,581,775.85 $35, 153,908.65 $27,418,411.55 $17,799,455.65 $80,371,775.85

Redevelopment $31,667,442.00 $24,947,371.47 $16,167,209.33 $72,782,022.80 Funds (1) Net Reserve Fund Deposits (2) 2,558,066.65 1,740,016.46 1,158,434.72 5,456,517 .83 Costs of Issuance (3) 928,400.00 731,023.62 473,811.60 2, 133,235.22

$35, 153,908.65 $27,418,411.55 $17,799,455.65 $80,371,775.85

(1) With respect to the Emeryville Loan and the Shell mound Park Loan, loan proceeds will be used to finance redevelopment activities within the applicable Project Area. Proceeds of the Housing Loan will be used to finance Housing Projects. (2) Reflects the amount of 2004 Bond proceeds required to be deposited into the Reserve Funds, when combined with moneys on hand with the Trustee, in order for the balance of the Reserve Funds and the reserve funds related to outstanding Parity Debt to equal the Reserve Requirement. (3) Includes underwriters' discount/placement fee, premium for the Financial Guaranty Insurance Policy, fees and expenses of bond counsel, Trustee fees and expenses, costs of printing the preliminary and final official statement and rating agency fees.

6 THE 2004 BONDS

Description

The 2004 Bonds will be issued in fully registered form without coupons in denominations of $5,000 or any integral multiple of $5,000.

The 2004 Bonds will be issued only as one fully registered bond for each maturity of each Series, in the name of Cede & Co., as nominee of The Depository Trust Company, New York, New York ("DTC"), as registered owner of all of the 2004 Bonds. See "APPENDIX G - BOOK-ENTRY ONLY SYSTEM." Ownership may be changed only upon the registration books maintained by the Trustee as provided in the Indenture.

The 2004 Bonds will mature on the dates and in the amounts, and will bear interest (calculated on the basis of a 360 day year comprised of twelve 30-day months) at the rates, set forth on the inside front cover of this Official Statement.

Interest on the 2004 Bonds will be payable on each March 1 and September 1, commencing March 1, 2005 (each an "Interest Payment Date").

Interest will be paid to the person whose name appears on the Registration Books as of the Record Date immediately preceding each Interest Payment Date, by check of the Trustee mailed by first class mail, postage prepaid, on each Interest Payment Date to the Owner his or her address as it appears on the Registration Books as of the preceding Record Date. Payment of interest may be by wire transfer to an account in the United States of America to any Owner of Bonds in the aggregate amount of $1,000,000 or more who has furnished written instructions to the Trustee before the applicable Record Date.

Each Bond will be dated as of its date of delivery and will bear interest from its date of delivery.

Redemption

Optional Redemption. The 2004 Bonds maturing on or after September 1, 2015, are subject to redemption, at the option of the Authority, prior to maturity on any date on or after September 1, 2014, as a whole, or in part by such maturity or maturities as directed by the Agency (or in the absence of such direction, pro rata by maturity) and by lot within a maturity, from prepayments of the Loans made at the option of the Agency under the Loan Agreements.

Redemption will be made at a redemption price equal to the principal amount of the 2004 Bonds to be redeemed, together with accrued interest to the date of redemption, without premium.

Sinking Fund Redemption. The following provisions apply to 2004 Bonds subject to mandatory sinking fund redemption ("Term Bonds"):

The 2004 Bonds maturing on September 1, 2029 are subject to mandatory sinking fund redemption in part by lot on September 1, 2025 and on September 1 in each subsequent year to and including September 1, 2029. The 2004 Bonds maturing on September 1, 2034, are subject to mandatory sinking fund redemption in part by lot on September 1, 2030 and on September 1 in each subsequent year to and including September 1, 2034.

7 Redemption will be made from Sinking Account payments made by the Authority under the Indenture at a redemption price equal to the principal amount to be redeemed together with accrued interest to the redemption date, without premium, in the aggregate principal amounts and on the dates as set forth in the following tables. (In lieu of redemption, Bonds may be purchased in whole or in part by the Authority. See "- Purchase of Term Bonds In Lieu of Redemption" below.)

Term Bonds Mandatory Sinking Fund Redemption

Term Bond Due September 1, 2029

Sinking Account Principal Amount Redemption Date To Be Redeemed (September 1) or Purchased

2025 $4,265,000 2026 4,470,000 2027 1,695,000 2028 1,770,000 2029 (maturity) 1,295,000

Term Bond Due September 1, 2034

Sinking Account Principal Amount Redemption Date To Be Redeemed (September 1) or Purchased

2030 $1,360,000 2031 1,430,000 2032 2,685,000 2033 2,810,000 2034 (maturity) 2,950,000

If some but not all of the 2004 Bonds have been optionally redeemed, the total amount of all future Sinking Account payments set forth above will be reduced by the combined principal amount of 2004 Bonds optionally redeemed, to be allocated among the Sinking Account payments as are subsequently payable on a pro rata basis in integral multiples of $5,000 as determined by the Authority.

Purchase of Term Bonds In Lieu of Redemption

In lieu of mandatory sinking fund redemption of Term Bonds, the Trustee may also use and withdraw amounts on deposit as Sinking Account payments at the written direction of the Authority, at any time, for the purchase of Term Bonds otherwise required to be redeemed on the following September 1. Purchase may be made at public or private sale as and when and at such prices (including brokerage and other charges and including accrued interest) as the Authority may in its discretion determine.

The par amount of any of the Term Bonds so purchased by the Authority and surrendered to the Trustee for cancellation in any twelve-month period ending on July 1 in any

8 year will be credited towards and will reduce the par amount of the Term Bonds otherwise required to be redeemed on the following September 1.

Notice of Redemption

The Trustee, on behalf and at the expense of the Authority, will mail (by first class mail) notice of any redemption to the respective Owners of any Bonds designated for redemption at their respective addresses appearing on the Registration Books, and to the Securities Depositories and to one or more Information Services, at least 30 but not more than 60 days prior to the date fixed for redemption. However, the validity of the proceedings for the redemption of Bonds and the cessation of the accrual of interest on 2004 Bonds called for redemption will not be affected by either the failure to receive any redemption notice so mailed or any defect in any redemption notice.

The Trustee will not mail notice of redemption of 2004 Bonds as described above unless (i) there is then on deposit in the Principal Account all amounts required to pay the principal of and redemption premium (if any) on 2004 Bonds called for redemption, or (ii) all amounts required to pay the principal of and redemption premium (if any) on 2004 Bonds called for redemption are to be paid with the proceeds of refunding bonds.

Other Redemption Provisions

Partial Redemption. If only a portion of any 2004 Bond is called for redemption, then upon surrender of that 2004 Bond the Authority will execute and the Trustee will authenticate and deliver to the Owner thereof, at the expense of the Authority, a new 2004 Bond or 2004 Bonds of the same maturity date of authorized denominations in aggregate principal amount or maturity amount, as applicable, equal to the unredeemed portion of the 2004 Bond to be redeemed.

Effect of Redemption. From and after the date fixed for redemption, if funds available for the payment of the principal of and interest (and premium, if any) on the 2004 Bonds called for redemption have been provided, those 2004 Bonds will cease to be entitled to any benefit under the related Indenture other than the right to receive payment of the redemption price, and no interest will accrue on those 2004 Bonds from and after the redemption date specified in such notice.

Selection of Bonds for Redemption. Whenever any 2004 Bonds or portions of 2004 Bonds are to be selected for redemption by lot, the Trustee will make such selection, in such manner as the Trustee deems fair and appropriate.

9 Debt Service Schedules

The following table sets forth annual debt service on the 2004 Bonds. See "OUTSTANDING PARITY DEBT" and "SECURITY FOR THE 2004 BONDS AND THE LOANS - Outstanding Parity Debt" for a description of certain obligations of the Agency under loan agreements executed with respect to previously issued and outstanding bond issues which are payable from Tax Revenues and Housing Set Aside, as applicable, on a parity with the obligations under the Loan Agreements. See also" DEBT SERVICE AND ESTIMATED COVERAGE" for estimated debt service on the Loan Agreements and all Parity Debt.

Year Ending (Sei;1tember 1} Princii;1al Interest Total 2005 $ 3,615,426.38 $ 3,615,426.38 2006 $ 1,895,000 3,565,900.00 5,460,900.00 2007 1,970,000 3,490, 100.00 5,460, 100.00 2008 2,045,000 3,411,300.00 5,456,300.00 2009 2,135,000 3,329,500.00 5,464,500.00 2010 2,205,000 3,254,775.00 5,459,775.00 2011 2,310,000 3,144,525.00 5,454,525.00 2012 2,420,000 3,040,575.00 5,460,575.00 2013 2,535,000 2,919,575.00 5,454,575.00 2014 2,660,000 2,792,825.00 5,452,825.00 2015 2,800,000 2,659,825.00 5,459,825.00 2016 2,905,000 2,549,225.00 5,454,225.00 2017 3,035,000 2,431,572.50 5,466,572.50 2018 3,150,000 2,305,620.00 5,455,620.00 2019 3,290,000 2, 173,320.00 5,463,320.00 2020 3,425,000 2,033,495.00 5,458,495.00 2021 3,570,000 1,884,507.50 5,454,507.50 2022 3,725,000 1,725,642.50 5,450,642.50 2023 3,900,000 1,558,017.50 5,458,017.50 2024 4,085,000 1,380,567.50 5,465,567.50 2025 4,265,000 1, 192,657.50 5,457,657.50 2026 4,470,000 987,937.50 5,457,937.50 2027 1,695,000 773,377.50 2,468,377.50 2028 1,770,000 692,017.50 2,462,017.50 2029 1,295,000 607,057.50 1,902,057.50 2030 1,360,000 544,897.50 1,904,897.50 2031 1,430,000 478,937.50 1,908,937.50 2032 2,685,000 409,582.50 3,094,582.50 2033 2,810,000 279,360.00 3,089,360.00 2034 2,950,000 143,075.00 3,093,075.00 Total $78,790,000 $59,375, 193.88 $138, 165, 193.88

10 SECURITY FOR THE 2004 BONDS AND THE LOANS

Security for the 2004 Bonds

Subject only to the payment and reimbursement of the fees, charges and expenses of the Trustee, as provided in the Indenture, the 2004 Bonds are secured by:

a first lien and pledge of all of the Revenues,

a pledge of all of the moneys in the Debt Service Fund established and held under the Indenture and all of the accounts therein, including the Interest Account, the Principal Account, the Sinking Account and the Redemption Account, and

all amounts derived from the investment of the moneys in these accounts.

The 2004 Bonds are equally secured by a pledge, charge and lien upon the Revenues and the moneys in these accounts without preference or priority; and the payment of the interest on and principal of the 2004 Bonds and any redemption premiums are secured by an exclusive pledge, charge and lien upon the Revenues and the moneys in these accounts. So long as any 2004 Bonds are outstanding, the Revenues and the moneys in these accounts may not be used for any other purpose except that certain sums may be apportioned out of the Revenues for the purposes expressly permitted under the Indenture.

The term "Revenues" means:

(a) all amounts payable by the Agency under the Emeryville Loan Agreement,

(b) all amounts payable by the Agency under the Shell mound Park Loan Agreement,

(d) all moneys deposited and held from time to time by the Trustee in the funds and accounts established under the Indenture,

(e) investment income held by the Trustee in those funds and accounts, and

(f) any other investment income received under the Indenture.

Limited Obligations. Neither the 2004 Bonds, the Authority's obligations under the Indenture nor the obligations of the Agency under the Loan Agreements are a debt of the City, the State of California or any political subdivision thereof (other than the Authority and the Agency, respectively) and neither the City, the State nor any political subdivision thereof (other than the Authority and the Agency, respectively) is liable therefor. The 2004 Bonds do not constitute an indebtedness within the meaning of any constitutional or statutory debt limitation or restriction. Neither the members of the Authority, the City, the Agency nor any persons executing the 2004 Bonds are liable personally on the 2004 Bonds by reason of their issuance. Neither the Agency nor the Authority has any taxing power.

Security for the Loans

Emeryville Loan Agreement. The Agency's obligations under the Emeryville Loan Agreement and all debt previously or subsequently issued on a parity with the Emeryville Loan Agreement are secured, on a co-equal basis, by a pledge of, security interest in and lien on all of

11 the Emeryville Tax Revenues, without preference or priority. See "- Outstanding Parity Debt" below.

The term "Emeryville Tax Revenues" is defined as follows (all capitalized terms used below but not defined elsewhere in this Official Statement have the meanings set forth in APPENDIX A - "SUMMARY OF PRINCIPAL LEGAL DOCUMENTS"):

All taxes pledged and annually allocated within the Plan Limitations, following the Closing Date, and paid to the Agency with respect to the Emeryville Project Area under Article 6 of Chapter 6 of the Redevelopment Law and Section 16 of Article XVI of the Constitution of the State of California, or pursuant to other applicable State laws, and as provided in the Redevelopment Plan.

Other Amounts Included. "Emeryville Tax Revenues" also include:

all payments, subventions and reimbursements (if any) to the Agency specifically attributable to ad valorem taxes lost by reason of tax exemptions and tax rate limitations, and

all amounts of such taxes required to be deposited into the Low and Moderate Income Housing Fund of the Agency in any Fiscal Year under Section 33334.3 of the Redevelopment Law, to the extent permitted to be applied to the payment of principal, interest and premium (if any) with respect to the Emeryville Loan Agreement (the "Emeryville Loan") and any Parity Debt.

Exclusions. "Emeryville Tax Revenues" specifically exclude:

amounts of such taxes required to be deposited in the Low and Moderate Income Housing Fund of the Agency in any Fiscal Year under Section 33334.3 of the Redevelopment Law, to the extent not permitted to be applied to the payment of principal, interest and premium (if any) with respect to the Emeryville Loan or any Parity Debt.

Shel/mound Park Loan Agreement. The Agency's obligations under the Shellmound Park Loan Agreement and all debt previously or subsequently issued on a parity with the Shellmound Loan Agreement are secured, on a co-equal basis, by a pledge of, security interest in and lien on all of the Shellmound Park Tax Revenues, without preference or priority. See " Outstanding Parity Debt" below.

The term "Shellmound Park Tax Revenues" is defined as follows (all capitalized terms used below but not defined elsewhere in this Official Statement have the meanings set forth in APPENDIX A - "SUMMARY OF PRINCIPAL LEGAL DOCUMENTS"):

All taxes pledged and annually allocated within the Plan Limitations, following the Closing Date, and paid to the Agency with respect to the Shellmound Park Project Area under Article 6 of Chapter 6 of the Redevelopment Law and Section 16 of Article XVI of the Constitution of the State of California, or pursuant to other applicable State laws, and as provided in the Redevelopment Plan.

Other Amounts Included. "Shellmound Park Tax Revenues" also include:

all payments, subventions and reimbursements (if any) to the Agency specifically attributable to ad valorem taxes lost by reason of tax exemptions and tax rate limitations, and

12 all amounts of such taxes required to be deposited into the Low and Moderate Income Housing Fund of the Agency in any Fiscal Year under Section 33334.3 of the Redevelopment Law, to the extent permitted to be applied to the payment of principal, interest and premium (if any) with respect to the Shellmound Park Loan Agreement (the "Shellmound Park Loan") and any Parity Debt.

Exclusions. "Shellmound Park Tax Revenues" specifically exclude:

amounts to be paid under the Pass-Through Agreement.

Housing Project Loan Agreement. The Agency's obligations under the Housing Project Loan Agreement and all debt previously or subsequently issued on a parity with the Housing Loan are secured by, on a co-equal basis by a pledge of, security interest in and lien on all of the Housing Set Aside, without preference or priority. See "- Outstanding Parity Debt" below.

The term "Housing Set Aside" is defined as follows (all capitalized terms used below but not defined elsewhere in this Official Statement have the meanings set forth in APPENDIX A - "SUMMARY OF PRINCIPAL LEGAL DOCUMENTS"):

all taxes pledged and annually allocated within the Plan Limitations, following the Closing Date, and paid to the Agency with respect to the Project Areas under Article 6 of Chapter 6 of the Redevelopment Law and Section 16 of Article XVI of the Constitution of the State of California, or pursuant to other applicable State laws, and as provided in the Redevelopment Plans, required to be deposited in the Low and Moderate Income Housing Fund of the Agency in any Fiscal Year under Section 33334.3 of the Redevelopment Law, to the extent permitted to be applied to the payment of principal, interest and premium (if any) with respect to the Loan made pursuant to the Housing Project Loan Agreement (the "Housing Loan") and any Parity Debt.

Defaults under Loans. An event of default on one or more Loans may result in insufficient Revenues with which to pay the principal of, premium (if any), and interest on the 2004 Bonds.

To the extent the Trustee recovers any monies following an event of default on a Loan, such monies and any resulting deficiencies in the payments of principal of and interest on the related Series of Bonds will be made ratably among maturities. See APPENDIX A - "SUMMARY OF PRINCIPAL LEGAL DOCUMENTS - INDENTURE - Events of Default".

No Cross-Co/lateralization. Loan payments made by the Agency with respect to one Loan Agreement are not available to make up any shortfalls in loan payments made with respect to another Loan Agreement. Similarly, the debt service Reserve Fund held with respect to one Loan Agreement is not available to make up any shortfalls in loan payments made with respect to another Loan Agreement. Finally, amounts held in the Reserve Fund with respect to one Loan Agreement are not available to make up any shortfalls in loan payments made with respect to any Parity Debt, and amounts in the reserve funds held with respect to Parity Debt are not available to pay debt service with respect to any of the Loan Agreements.

13 Tax Revenues

Allocation of Taxes. As provided in the Emeryville Redevelopment Plan and the Shellmound Park Redevelopment Plan, and under Article 6 of Chapter 6 of the Redevelopment Law, and Section 16 of Article XVI of the Constitution of the State, taxes levied upon taxable property in the Project Areas each year by or for the benefit of the State, for cities, counties, districts or other public corporations (collectively, the "Taxing Agencies"), for fiscal years beginning after the effective date of the Redevelopment Plans, will be divided as follows:

1. To Taxing Agencies: The portion of the taxes that would be produced by the rate upon which the tax is levied each year by or for each of the Taxing Agencies upon the total sum of the assessed value of the taxable property in the Project Areas as shown upon the assessment roll used in connection with the taxation of such property by such Taxing Agency last equalized before the establishment of the Project Areas will be allocated to, and when collected will be paid into the funds of, the respective Taxing Agencies as taxes by or for those Taxing Agencies.

2. To the Agency: The portion of such levied taxes each year in excess of such amount will be allocated to, and when collected will be paid into a special fund of, the Agency to the extent necessary to pay indebtedness of the Agency, including but not limited to its obligation on the Loans, to pay the principal of, prepayment premium (if any) and interest on the Loans and to replenish the Reserve Funds established for the 2004 Bonds.

In addition, the Agency is obligated to share a portion of the tax increment generated in the Project Areas with certain taxing entities and two private entities. See "LIMITATIONS ON TAX REVENUES AND HOUSING SET ASIDE- Pass-Through Agreements," " - Chiron Tax Sharing Agreement" and" - Bay Street Block E Reimbursement Agreement".

Possible Limitations on Tax Revenues and Housing Set Aside. The Authority and the Agency have no power to levy and collect property taxes, and any property tax limitation, legislative measure, voter initiative or provisions of additional sources of income to Taxing Agencies that have the effect of reducing the property tax rate could reduce the amount of Tax Revenues that would otherwise be available to pay the Agency's obligations and thus reduce the amount of Revenues available to pay the principal of, premium (if any) and interest on the 2004 Bonds. Likewise, broadened property tax exemptions could have a similar effect. In addition, the State Legislature has, in previous years, enacted legislation, that among other things, reallocated a portion of funds from redevelopment agencies to school districts by shifting each agency's tax increment, net of amounts due to other taxing agencies, to school districts ("ERAF" shifts); the State Legislature has adopted another ERAF shift for Fiscal Year 2004-05 and Fiscal Year 2005-06. See "BOND OWNERS' RISKS" and "LIMITATIONS ON TAX REVENUES AND HOUSING SET ASIDE."

Reserve Funds

Each Loan Agreement establishes a separate Reserve Fund (collectively, the "Reserve Funds") to be held by the Trustee for the benefit of the Authority and the Owners of the related Series of Bonds, as follows.

The "Emeryville Reserve Fund" is the Reserve Fund held under the Emeryville Loan Agreement.

14 The "Shellmound Reserve Fund" is the Reserve Fund held under the Shellmound Park Loan Agreement.

The "Housing Reserve Fund" is the Reserve Fund held under the Housing Project Loan Agreement.

Each Loan Agreement obligates the Agency to maintain in the Reserve Fund and in the reserve funds for Parity Debt an aggregate amount equal to maximum annual debt service on the Loan and all related Parity Debt (the "Reserve Requirement"). The amount to be initially deposited into the Reserve Fund for each Loan Agreement is the amount required, based on the existing balances in the reserve funds for existing Parity Debt, to meet the Reserve Requirement. Although the Reserve Fund for each Loan Agreement is sized based upon (i) maximum annual debt service on the Loan and all related Parity Debt and (ii) the amount in the reserve funds for the related Parity Debt, the Reserve Fund for a Loan is not available to make payments with respect to any Parity Debt, and amounts in the reserve funds for the related Parity Debt are not available to make Loan payments. Similarly, the Reserve Fund held with respect to one Loan Agreement is not available to make up any shortfalls in loan payments made with respect to another Loan Agreement.

Under each Loan Agreement, the Agency reserves the right, with respect to all or any portion of the related Reserve Requirement, to substitute, at any time, one or more Qualified Credit Instruments for cash or any other Qualified Credit Instrument then on deposit in the related Reserve Fund.

See "APPENDIX A - SUMMARY OF THE PRINCIPAL LEGAL DOCUMENTS - Loan Agreements" and "- Definitions."

Outstanding Parity Debt

The Authority has previously issued the Outstanding Authority Bonds, the proceeds of which were lent to the Agency to finance redevelopment activities. The loans underlying the Outstanding Authority Bonds are payable from Tax Revenues or Housing Set Aside, as applicable, on a parity with the Loans, as follows:

• The Emeryville Loan Agreement will be on a parity with respect to Emeryville Tax Revenues with any Parity Debt secured by Emeryville Tax Revenues.

• The Shellmound Loan Agreement will be on a parity with respect to Shellmound Park Tax Revenues with any Parity Debt secured by Emeryville Tax Revenues.

• The Housing Project Loan Agreement will be on a parity with respect to Housing Set Aside with any Parity Debt secured by Housing Set Aside.

See "OUTSTANDING PARITY DEBT' for a summary of the Parity Bonds and their related loans.

Issuance of Additional Parity Debt

Each Loan Agreement provides that the Agency may incur additional indebtedness ("Parity Debt") secured on a parity with the Loan made under that Loan Agreement if certain conditions have been satisfied.

With respect to the Loan Agreements payable from Tax Revenues, one of these conditions is that the Tax Revenues received or to be received for the then current Fiscal Year,

15 exclusive of State subventions, plus, at the option of the Agency the Additional Revenues, shall be at least equal to 125% of Maximum Annual Debt Service on the applicable Loan and the applicable Parity Debt which will be outstanding immediately following the issuance of such Parity Debt. See "APPENDIX A - SUMMARY OF PRINCIPAL LEGAL DOCUMENTS - LOAN AGREEMENTS - Parity Debt." The Housing Loan Agreement has a similar requirement, but does not permit the Agency to count Additional Revenues when calculating whether the Housing Set Aside is equal to at least 125% of Maximum Annual Debt Service.

The Authority has covenanted in the Indenture that it will not create, or permit the creation of, any pledge, lien, charge or other encumbrance upon the Revenues (as defined in Indenture) and other assets pledged or assigned under the Indenture while any of the 2004 Bonds secured by the Indenture are outstanding, except the pledge and assignment created by the Indenture. See "APPENDIX A - SUMMARY OF PRINCIPAL LEGAL DOCUMENTS - INDENTURE - Certain Covenants."

16 BOND INSURANCE

The following information has been furnished by Ambac Assurance for use in this Official Statement. Such information has not been independently confirmed or verified by the Authority. No representation is made herein by the Authority as to the accuracy or adequacy of such information subsequent to the date hereof, or that the information contained and incorporated herein by reference is correct. Reference is made to Appendix F for a specimen of the Financial Guaranty Insurance Policy.

Payment Pursuant to Financial Guaranty Insurance Policy

Ambac Assurance has made a commitment to issue a financial guaranty insurance policy (the "Financial Guaranty Insurance Policy") relating to the 2004 Bonds effective as of the date of issuance of the 2004 Bonds. Under the terms of the Financial Guaranty Insurance Policy, Ambac Assurance will pay to The Bank of New York, New York, New York or any successor thereto (the "Insurance Trustee") that portion of the principal of and interest on the 2004 Bonds which shall become Due for Payment but shall be unpaid by reason of Nonpayment by the Obligor (as such terms are defined in the Financial Guaranty Insurance Policy). Ambac Assurance will make such payments to the Insurance Trustee on the later of the date on which such principal and interest becomes Due for Payment or within one business day following the date on which Ambac Assurance shall have received notice of Nonpayment from the Trustee. The insurance will extend for the term of the 2004 Bonds and, once issued, cannot be canceled by Ambac Assurance.

The Financial Guaranty Insurance Policy will insure payment only on stated maturity dates and on mandatory sinking fund installment dates, in the case of principal, and on stated dates for payment, in the case of interest. If the 2004 Bonds become subject to mandatory redemption and insufficient funds are available for redemption of all outstanding 2004 Bonds, Ambac Assurance will remain obligated to pay principal of and interest on outstanding 2004 Bonds on the originally scheduled interest and principal payment dates including mandatory sinking fund redemption dates. In the event of any acceleration of the principal of the 2004 Bonds, the insured payments will be made at such times and in such amounts as would have been made had there not been an acceleration.

In the event the Trustee has notice that any payment of principal of or interest on a 2004 Bond which has become Due for Payment and which is made to a bondholder by or on behalf of the Authority has been deemed a preferential transfer and theretofore recovered from its registered owner pursuant to the United States Bankruptcy Code in accordance with a final, nonappealable order of a court of competent jurisdiction, such registered owner will be entitled to payment from Ambac Assurance to the extent of such recovery if sufficient funds are not otherwise available.

The Financial Guaranty Insurance Policy does not insure any risk other than Nonpayment, as defined in the Policy. Specifically, the Financial Guaranty Insurance Policy does not cover:

(1) payment on acceleration, as a result of a call for redemption (other than mandatory sinking fund redemption) or as a result of any other advancement of maturity.

(2) payment of any redemption, prepayment or acceleration premium.

(3) nonpayment of principal or interest caused by the insolvency or negligence of any Trustee, Paying Agent or Bond Registrar, if any.

17 If it becomes necessary to call upon the Financial Guaranty Insurance Policy, payment of principal requires surrender of the 2004 Bonds to the Insurance Trustee together with an appropriate instrument of assignment so as to permit ownership of such 2004 Bonds to be registered in the name of Ambac Assurance to the extent of the payment under the Financial Guaranty Insurance Policy. Payment of interest pursuant to the Financial Guaranty Insurance Policy requires proof of Bondowner entitlement to interest payments and an appropriate assignment of the Bondowner's right to payment to Ambac Assurance.

Upon payment of the insurance benefits, Ambac Assurance will become the owner of the 2004 Bonds, appurtenant coupon, if any, or right to payment of principal or interest on such 2004 Bonds and will be fully subrogated to the surrendering Bondowner's rights to payment.

In the event that Ambac Assurance were to become insolvent, any claims arising under the Policy would be excluded from coverage by the California Insurance Guaranty Association, established pursuant to the laws of the State of California.

Ambac Assurance Corporation

Ambac Assurance is a Wisconsin-domiciled stock insurance corporation regulated by the Office of the Commissioner of Insurance of the State of Wisconsin and licensed to do business in 50 states, the District of Columbia, the Territory of Guam, the Commonwealth of Puerto Rico and the U.S. Virgin Islands, with admitted assets of approximately $8,142,000,000 (unaudited) and statutory capital of approximately $4,824,000,000 (unaudited) as of June 30, 2004. Statutory capital consists of Ambac Assurance's policyholders' surplus and statutory contingency reserve. Standard & Poor's Credit Markets Services, a Division of The McGraw-Hill Companies, Moody's Investors Service and Fitch Ratings have each assigned a triple-A financial strength rating to Ambac Assurance.

Ambac Assurance has obtained a ruling from the Internal Revenue Service to the effect that the insuring of an obligation by Ambac Assurance will not affect the treatment for federal income tax purposes of interest on such obligation and that insurance proceeds representing maturing interest paid by Ambac Assurance under policy provisions substantially identical to those contained in its financial guaranty insurance policy shall be treated for federal income tax purposes in the same manner as if such payments were made by the Obligor of the 2004 Bonds. No representation is made by Ambac Assurance regarding the federal income tax treatment of payments that are made by Ambac Assurance under the terms of the Policy due to nonappropriation of funds by the Lessee.

Ambac Assurance makes no representation regarding the 2004 Bonds or the advisability of investing in the 2004 Bonds and makes no representation regarding, nor has it participated in the preparation of, the Official Statement other than the information supplied by Ambac Assurance and presented under the heading "BOND INSURANCE".

18 Available Information

The parent company of Ambac Assurance, Ambac Financial Group, Inc. (the "Company"), is subject to the informational requirements of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance therewith files reports, proxy statements and other information with the Securities and Exchange Commission (the "SEC"). These reports, proxy statements and other information can be read and copied at the SEC's public reference room at 450 Fifth Street, N.W., Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further information on the public reference room. The SEC maintains an internet site at http://www.sec.gov that contains reports, proxy and information statements and other information regarding companies that file electronically with the SEC, including the Company. These reports, proxy statements and other information can also be read at the offices of the New York Stock Exchange, Inc. (the "NYSE"), 20 Broad Street, New York, New York 10005.

Copies of Ambac Assurance's financial statements prepared in accordance with statutory accounting standards are available from Ambac Assurance. The address of Ambac Assurance's administrative offices and its telephone number are One State Street Plaza, 19th Floor, New York, New York, 10004 and (212) 668-0340.

Incorporation of Certain Documents by Reference

The following documents filed by the Company with the SEC (File No. 1-10777) are incorporated by reference in this Official Statement:

1. The Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2003 and filed on March 15, 2004;

2. The Company's Current Report on Form 8-K dated April 21, 2004 and filed on April 22, 2004;

3. The Company's Quarterly Report on Form 10-Q for the fiscal quarterly period ended March 31, 2004 and filed on May 10, 2004;

4. The Company's Current Report on Form 8-K dated July 21, 2004 and filed on July 22, 2004; and

5. The Company's Quarterly Report on Form 10-Q for the fiscal quarterly period ended June 30, 2004 and filed on August 9, 2004.

All documents subsequently filed by the Company pursuant to the requirements of the Exchange Act after the date of this Official Statement will be available for inspection in the same manner as described above in" - Available Information".

19 LIMITATIONS ON TAX REVENUES AND HOUSING SET ASIDE

Property Tax Limitations - Article XIIIA

California voters, on June 6, 1978, approved an amendment (commonly known as both Proposition 13 and the Jarvis-Gann Initiative) to the California Constitution. This amendment, which added Article XIIIA to the California Constitution, among other things, affects the valuation of real property for the purpose of taxation in that it defines the full cash value of property to mean "the county assessor's valuation of real property as shown on the 1975/76 tax bill under full cash value, or thereafter, the appraised value of real property when purchased, newly constructed, or a change in ownership has occurred after the 1975 assessment." The full cash value may be adjusted annually to reflect inflation at a rate not to exceed 2% per year, or any reduction in the consumer price index or comparable local data, or any reduction in the event of declining property value caused by damage, destruction or other factors. The amendment further limits the amount of any ad valorem tax on real property to 1 % of the full cash value except that additional taxes may be levied to pay debt service on indebtedness approved by the voters prior to July 1, 1978. In addition, an amendment to Article XIII was adopted in June 1986 by initiative which exempts any bonded indebtedness approved by two-thirds of the votes cast by voters for the acquisition or improvement of real property from the 1 percent limitation.

In the general election held November 4, 1986, voters of the State of California approved two measures, Propositions 58 and 60, which further amend Article XI I IA. Proposition 58 amends Article XIIIA to provide that the terms "purchased" and "change of ownership," for purposes of determining full cash value of property under Article XIIIA, do not include the purchase or transfer of (1) real property between spouses and (2) the principal residence and the first $1,000,000 of other property between parents and children.

Proposition 60 amends Article XIIIA to permit the Legislature to allow persons over age 55 who sell their residence to buy or build another of equal or lesser value within two years in the same county, to transfer the old residence's assessed value to the new residence. Pursuant to Proposition 60, the Legislature has enacted legislation permitting counties to implement the provisions of Proposition 60.

Challenges to Article XIIIA

There have been many challenges to Article XIIIA of the California Constitution. In Nordlinger v. Hahn, the United States Supreme Court heard an appeal relating to residential property. Based upon the facts presented in Nordlinger, the United States Supreme Court held that the method of property tax assessment under Article XI I IA did not violate the federal Constitution. The Agency cannot predict whether there will be any future challenges to California's present system of property tax assessment and cannot evaluate the ultimate effect on the Agency's receipt of tax increment revenues should a future decision hold unconstitutional the method of assessing property.

Implementing Legislation

Legislation enacted by the California Legislature to implement Article XIIIA (Statutes of 1978, Chapter 292, as amended) provides that, notwithstanding any other law, local agencies may not levy any property tax, except to pay debt service on indebtedness approved by the voters prior to July 1, 1978, and that each county will levy the maximum tax permitted by Article XIIIA.

20 The apportionment of property taxes in fiscal years after 1978/79 has been revised pursuant to Statutes of 1979, Chapter 282 which provides relief funds from State moneys beginning in fiscal year 1978/79 and is designed to provide a permanent system for sharing State taxes and budget surplus funds with local agencies. Under Chapter 282, cities and counties receive about one-third more of the remaining property tax revenues collected under Proposition 13 instead of direct State aid. School districts receive a correspondingly reduced amount of property taxes, but receive compensation directly from the State and are given additional relief.

Future assessed valuation growth allowed under Article XIIIA (new construction, change of ownership, 2% annual value growth) will be allocated on the basis of "situs" among the jurisdictions that serve the tax rate area within which the growth occurs except for certain utility property assessed by the State Board of Equalization which is allocated by a different method discussed herein.

Property Tax Collection Procedures

Classifications. In California, property which is subject to ad valorem taxes is classified as "secured" or "unsecured." Secured and unsecured property are entered on separate parts of the assessment roll maintained by the county assessor. The secured classification includes property on which any property tax levied by the County becomes a lien on that property sufficient, in the opinion of the county assessor, to secure payment of the taxes. Every tax which becomes a lien on secured property has priority over all other liens on the secured property, regardless of the time of the creation of other liens. A tax levied on unsecured property does not become a lien against unsecured property, but may become a lien on certain other property owned by the taxpayer.

Collections. The method of collecting delinquent taxes is substantially different for the two classifications of property. The taxing authority has four ways of collecting unsecured property taxes in the absence of timely payment by the taxpayer: (1) a civil action against the taxpayer; (2) filing a certificate in the office of the county clerk specifying certain facts in order to obtain a judgment lien on certain property of the taxpayer; (3) filing a certificate of delinquency for record in the county recorder's office, in order to obtain a lien on certain property of the taxpayer; and (4) seizure and sale of the personal property, improvements or possessory interests belonging or assessed to the assessee.

The exclusive means of enforcing the payment of delinquent taxes with respect to property on the secured roll is the sale of property securing the taxes to the State for the amount of taxes which are delinquent.

Penalties. A 10% penalty is added to delinquent taxes which have been levied with respect to property on the secured roll. In addition, property on the secured roll on which taxes are delinquent is declared in default on or about June 30 of the fiscal year. Such property may thereafter be redeemed by payment of the delinquent taxes and a delinquency penalty, plus a redemption penalty of 1.5% per month to the time of redemption and a $15 Redemption Fee. If taxes are unpaid for a period of five years or more, the property is recorded in a "Power to Sell" status and is subject to sale by the county tax collector. A 10% penalty also applies to the delinquent taxes on property on the unsecured roll, and further, an additional penalty of 1.5% per month accrues with respect to such taxes beginning the first day of the third month following the delinquency date.

Delinquencies. The valuation of property is determined as of January 1 each year and equal installments of taxes levied upon secured property become delinquent on the following December 10 and April 10. Taxes on unsecured property are due January 1. Unsecured taxes enrolled by July 31, if unpaid, are delinquent August 31 at 5:00 p.m. and are subject to penalty;

21 unsecured taxes added to roll after July 31, if unpaid, are delinquent on the last day of the month succeeding the month of enrollment.

Supplemental Assessments. A bill enacted in 1983, SB 813 (Statutes of 1983, Chapter 498), provides for the supplemental assessment and taxation of property as of the occurrence of a change in ownership or completion of new construction. The statute may provide increased revenue to redevelopment agencies to the extent that supplemental assessments as a result of new construction or changes of ownership occur within the boundaries of redevelopment projects subsequent to the lien date. To the extent such supplemental assessments occur within the Project Area, Tax Revenues and Housing Set Aside may increase.

Tax Collection Fees. SB 2557 (Chapter 466, Statutes of 1990) authorizes county auditors to determine property tax administration costs proportionately attributable to local jurisdictions and to submit invoices to the jurisdictions for such costs. Subsequent legislation specifically includes redevelopment agencies among the entities which are subject to a property tax administration charge. For 2003-04, the amount of such costs was $144,045 for the Emeryville Project Area (approximately 1.1 % of 2003-04 total tax increment revenue for the Emeryville Project Area) and $51,046 for the Shellmound Park Project Area (approximately 1.0% of 2003-04 net tax increment revenue, after pass-throughs (see" - Pass-Through Agreements)). Such costs are deducted prior to a determination of Tax Revenues which are pledged to repay Loans and, ultimately, the 2004 Bonds.

Appropriations Limitations - Article XIIIB

On November 6, 1979, California voters approved Proposition 4, the so-called Gann Initiative, which added Article XIIIB to the California Constitution. The principal effect of Article XIIIB is to limit the annual appropriations of the State and any city, county, school district, authority or other political subdivision of the State to the level of appropriations for the prior fiscal year, as adjusted for changes in the cost of living, population and services rendered by the government entity.

Effective November 30, 1980, the California Legislature added Section 33678 to the Redevelopment Law which provided that the allocation of taxes to a redevelopment agency for the purpose of paying principal of, or interest on, loans, advances, or indebtedness will not be deemed the receipt by such agency of proceeds of taxes levied by or on behalf of the agency within the meaning of Article XIIIB, nor will such portion of taxes be deemed receipt of taxes by, or an appropriation subject to the limitation of, any other public body within the meaning or for the purpose of the Constitution and laws of the State, including Section 33678 of the Redevelopment Law.

State Board of Equalization and Property Assessment Practices

On December 10, 1998, the State Board of Equalization ("SBOE") approved revisions to its guidelines regarding the valuation of intangible business and commercial property for property tax purposes. The SBOE approved these revisions over the strong objections of the California Assessors Association ("CAA"), an organization representing all 58 County Assessors in California.

The Agency is not able to predict whether the revised SBOE guidelines will cause any reductions in tax increment revenues and, hence, in Tax Revenues and the Housing Set Aside. However, the Agency does not believe that the SBOE's adoption of the revised guidelines will affect its ability to pay debt service on the Loans.

22 Exclusion of Tax Revenues for General Obligation Bonds Debt Service

An initiative to amend the California Constitution entitled "Property Tax Revenues Redevelopment Agencies" was approved by California voters at the November 8, 1988 general election. Under prior law, a redevelopment agency using tax increment revenue received additional property tax revenue whenever a local government increased its property tax rate to pay off its general obligation bonds. This initiative amended the California Constitution to allow the California Legislature to prohibit redevelopment agencies from receiving any of the property tax revenues raised by increased property tax rates imposed by local governments to make payments on their bonded indebtedness.

The initiative only applies to tax rates levied to finance general obligation bonds approved by the voters on or after January 1, 1989. Any revenue reduction to redevelopment agencies would depend on the number and value of the general obligation bonds approved by voters in prior years, which tax rate will reduce due to increased valuation subject to the tax or the retirement of the indebtedness. The Agency did not experience a revenue loss as a result of the initiative.

Proposition 218

On November 5, 1996, California voters approved Proposition 218-Voter Approval for Local Government Taxes - Limitation on Fees, Assessments, and Charges-Initiative Constitutional Amendment. Proposition 218 added Articles XIIIC and XIIID to the California Constitution, imposing certain vote requirements and other limitations on the imposition of new or increased taxes, assessments and property-related fees and charges. Tax Revenues and Housing Set Aside securing the 2004 Bonds are derived from property taxes which are outside the scope of taxes, assessments and property-related fees and charges which were limited by Proposition 218.

Future Initiatives

Article XIIIA, Article XIIIB and certain other propositions affecting property tax levies were each adopted as measures which qualified for the ballot pursuant to California's initiative process. From time to time other initiative measures could be adopted, further affecting Agency revenues or the Agency's ability to expend revenues.

Low and Moderate Income Housing

Chapter 1337, Statutes of 1976, added Sections 33334.2 and 33334.3 to the law requiring redevelopment agencies to set aside 20% of all tax increment revenues allocated to redevelopment agencies from redevelopment project areas adopted after December 31, 1976, in a low- and moderate-income housing fund to be expended for authorized low- and moderate income housing purposes. Amounts on deposit in the low- and moderate-income housing fund may also be applied to pay debt service on bonds, loans or advances of redevelopment agencies to provide financing for such low- and moderate-income housing purposes.

The Project Areas are subject to the 20% set-aside requirement for low- and moderate income housing. Amounts segregated by the Agency pursuant to this requirement constitute the Housing Set Aside securing the Housing Project Loan Agreement, as well as certain existing Parity Debt payable from and secured by the Housing Set Aside.

23 Statement of Indebtedness

Under the Redevelopment Law, the Agency must file with the County Auditor a statement of indebtedness for each Project Area by October 1 of each year. As described below, the statement of indebtedness controls the amount of tax increment revenue that will be paid to the Agency in each fiscal year.

Each statement of indebtedness is filed on a form prescribed by the State Controller and specifies, among other things: (i) the total amount of principal and interest payable on all loans, advances or indebtedness (including the Loans and all parity debt) (the "Debt"), both over the life of the Debt and for the current fiscal year, and (ii) the amount of "available revenue" as of the end of the previous fiscal year.

"Available Revenue" is calculated by subtracting the total payments on Debt during the previous fiscal year from the total revenues (both tax increment revenues and other revenues) received during the previous fiscal year, plus any carry-forward from the prior fiscal year. Available Revenue include amounts held by the Agency and irrevocably pledged to the payment of Debt other than amounts set aside for low- and moderate-income housing.

The County Auditor may only pay tax increment revenue to the Agency in any fiscal year to the extent that the total remaining principal and interest on all Debt exceeds the amount of available revenues as shown on the statement of indebtedness.

The statement of indebtedness constitutes prima facie evidence of the indebtedness of the Agency; however, the County Auditor may dispute the statement of indebtedness in certain cases. Section 33675 of the Redevelopment Law provides for certain time limits controlling any dispute of the statement of indebtedness, and allows for Superior Court determination of such dispute if it cannot be resolved by the Agency and the County. Any such action may only challenge the amount of the Debt as shown on the statement, and not the validity of any Debt or its related contract or expenditures. No challenge can be made to payments to a trustee in connection with a bond issue or payments to a public agency in connection with payments by that public agency with respect to a lease or bond issue.

Redevelopment Plan Limitations

In 1993, the California Legislature enacted Assembly Bill 1290 ("AB 1290") which contained several significant changes in the Redevelopment Law. Among the changes made by AB 1290 was a provision that limits the period of time for incurring and repaying loans, advances and indebtedness payable from tax increment revenues. Since then, the Legislature has amended the Redevelopment Law in a variety of ways that impacts the factors regulated by AB 1290.

The Redevelopment Plans for the Project Areas contain tax increment limitations which are in compliance with the Redevelopment Law. See "THE EMERYVILLE PROJECT AREA - Redevelopment Plan Limitations" and "THE SHELLMOUND PARK PROJECT AREA - Redevelopment Plan Limitations" for a discussion of the limits affecting each Project Area.

Property Assessment Appeals

An assessee of locally assessed or state-assessed property may contest the taxable value enrolled by the county assessor or by the State Board of Equalization ("SBE"), respectively. The assessee of SSE-assessed property or locally-assessed personal property, the valuation of which are subject to annual reappraisal, actually contests the determination of the full cash value of property when filing an assessment appeal. Because of the limitations to

24 the determination of the full cash value of locally assessed real property by Article XIIIA, an assessee of locally assessed real property generally contests the original determination of the base assessment value of the parcel, i.e. the value assigned after a change of ownership or completion of new construction. In addition, the assessee of locally assessed real property may contest the current assessment value (the base assessment value plus the compounded annual inflation factor) when specified conditions have caused the full cash value to drop below the current assessment value.

At the time of reassessment, after a change of ownership or completion of new construction, the assessee may appeal the base assessment value of the property. Under an appeal of a base assessment value, the assessee appeals the actual underlying market value of the sale transaction or the recently completed improvement. A base assessment appeal has significant future revenue impact because a reduced base year assessment will then reduce the compounded value of the property prospectively. Except for the 2% inflation factor allowable under Article XIIIA, the value of the property cannot be increased until a change of ownership occurs or additional improvements are added.

Under Section 51 (b) of the Revenue and Taxation Code, the assessor may place a value on the tax roll lower than the compounded base assessment value if the full cash value of real property has been reduced by damage, destruction, depreciation, obsolescence, removal of property or other factors causing a decline in the value. Reductions in value under Section 51 (b), commonly referred to as Proposition 8 appeals, can be achieved either by formal appeal or administratively by assessor staff appraising the property. A reduced full cash value placed on the tax roll does not change the base assessment value. The future impact of a parcel subject to a Proposition 8 appeal is dependent upon a change in the conditions which caused the drop in value. In fiscal years following a successful Proposition 8 appeal, the assessor may determine that the value of the property has increased as a result of corrective actions or improved market conditions and enroll a value on the tax roll up to the parcel's compounded base assessment value. Additionally, successful appeals regarding property on the unsecured rolls does not necessarily affect the valuation of such property in any succeeding fiscal year.

Utility companies and railroads may contest the taxable value of utility property to the SBE. Generally, the impact of utility appeals is on the State-wide value of a utility determined by SBE. As a result, the successful appeal of a utility may not impact the taxable value of the Project Area but could impact a project area's allocation of unitary property taxes.

The actual impact to tax increment is dependent upon the actual revised value of assessments resulting from values determined by the Alameda County Assessment Appeals Board or through litigation and the ultimate timing of successful appeals. Because the Alameda County Controller adjusts revenues to the Agency to reflect roll corrections from successful appeals, the Agency may bear the burden of appeals. The actual valuation impact to the Project Areas from successful assessment appeals will occur on the assessment roll prepared after the actual valuation reduction.

See "THE EMERYVILLE PROJECT AREA - Property Assessment Appeals" and 'THE SHELLMOUND PARK PROJECT AREA - Property Assessment Appeals" for a discussion of certain pending appeals in the Project Areas.

Pass-Through Agreements

Redevelopment agencies can enter into "pass-through" agreements, under which the agency may obligate itself to pass through a portion of its tax increment revenues to a particular taxing entity.

25 Under the Agency's pass-through agreement (the "Pass-Through Agreement") with the County, the Agency is obligated to pass through 32% of the Shellmound Park Tax Revenues to the County through October 1, 2028 (which is prior to the final maturity date of the Bonds and the final Loan payment under the Shellmound Park Loan Agreement), and 43.708% of the Shellmound Park Tax Revenues thereafter. In addition, the Agency is required to pass through an additional 3.68% of the Shellmound Park Tax Revenues to the Alameda County Flood Control and Water Conservation District.

Section 33676 of the Redevelopment Law allows taxing entities to receive additional property taxes in a redevelopment project area above the base year revenue amount. Such payments are based on annual increases in the real property portion of the base year value up to the inflation limit of 2 percent. The Emery Unified School District has elected to receive the revenues attributable to the 2% inflation factor allowable under Article XIII of the California Constitution. The Shellmound Tax Revenue estimates shown in the section entitled "DEBT SERVICE AND ESTIMATED COVERAGE" reflect the subtraction of amounts to be passed through to the County and the Alameda County Flood Control and Water Conservation District.

There are currently no pass-through agreements affecting the Emeryville Project Area, although it is subject to certain statutory pass-through obligations beginning in fiscal year 2004- 05. See "THE EMERYVILLE PROJECT AREA - Redevelopment Plan Limitations" below.

Chiron Tax Sharing Agreement

One of the largest owners of property within the Emeryville Project Area, Chiron Corporation (NASDAQ: CHIR), completed its Life Science Center in late 1998. Pursuant to a tax sharing arrangement with Chiron, the Agency is required to reimburse Chiron for a portion of tax increment revenues attributable to certain improvements and new construction on the project site. In addition, the Agency has agreed to reimburse Chiron (from tax increment revenues attributable to the project) for the annual amount of Chiron's Municipal Services Fee. The Municipal Services Fee is $50,000 for the first two fiscal years following occupancy of the first building (being fiscal years 1999-00 and 2000-01) and $175,000 per year thereafter. With completion of additional buildings (which has not yet occurred), the fee increases to $500,000 and subsequently to an amount up to $1.3 million per year. The Chiron Tax Sharing Agreement impacts property owned by Chiron in both Project Areas.

Under this tax sharing arrangement, the Agency's reimbursement and contribution obligations to Chiron are subordinate to the pledge and lien on the Tax Revenues and the Housing Set Aside created by the Emeryville Loan Agreement, the Shellmound Park Loan Agreement and the Housing Project Loan Agreement, respectively.

Bay Street Block E Reimbursement Agreement

Pursuant to a Reimbursement Agreement dated November 18, 2003 relating to the Bay Street Residential Project, the Agency agreed to reimburse Bay Street Housing Partners, LP ("Bay Street Housing Partners") for certain construction costs incurred in constructing rental apartment units in the City (the "Financial Assistance Obligation").

The Financial Assistance Obligation is payable over a 10-year period (beginning in approximately Fiscal Year 2006-07) in an annual amount equal to the lesser of (i) the Annual Net Tax Increment (defined below) and the Annual Housing Set Aside Revenues (defined below) derived from Lot 6 (which is the air rights parcel where Bay Street Housing Partners is building 250 rental apartment units) or (ii) $380,000. The aggregate amount payable by the Agency under the Reimbursement Agreement may not exceed $3.8 million.

26 Annual Net Tax Increment is defined as the total tax annual tax increment received by the Agency from Lot 6 less Lot 6's share of (A) 20% of the annual increment received by the Agency from Lot 6 to be used for low and moderate income housing, (B) tax-sharing payments to other public agencies, (C) County fees and (D) ERAF shifts.

Annual Housing Set Aside Revenues is defined as 20% of the total tax increment received by the Agency from Lot 6.

Approximately 90% of Lot 6 is located in the Shellmound Park Project Area and approximately 10% is located in the Emeryville Project Area.

The Financial Assistance Obligation is subordinate to the Agency's pledge of Tax Revenues and Housing Set Aside to its obligation to make loan payments under the Loan Agreements.

THE EMERYVILLE PUBLIC FINANCING AUTHORITY

The Emeryville Public Financing Authority was established pursuant to a Joint Exercise of Powers Agreement dated August 16, 1988, as amended, by and between the City and the Agency in accordance with the provision of the Act. The Authority was created to provide financing for public capital improvements for the City and the Agency by acquiring such public capital improvements or purchasing "local obligations" within the meaning of the Act. Under the Act, the Authority has the power to issue bonds to pay the cost of any public capital improvement.

THE EMERYVILLE REDEVELOPMENT AGENCY

Authority and Management

The Emeryville Redevelopment Agency was activated on January 27, 1975 by adoption of Ordinance No. 75-01 by the City Council according to the Redevelopment Law. The City Council members also sit as Agency members.

The officers of the Agency are as follows:

John A Flores, Executive Director and Secretary of the Agency, has over 25 years of city management experience. Mr. Flores has a Master in Public Administration (MPA) from Golden Gate University and a B.A. degree in Social Science from San Jose State University. Prior to becoming City Manager of Emeryville, Mr. Flores was Deputy City Manager in the City of Oakland. Mr. Flores also serves as City Manager of the City.

Patrick D. O'Keeffe, Director of the Agency, joined the management team in 1995. Mr. O'Keeffe has more than 20 years of experience in California redevelopment administration. Prior to Emeryville, Mr. O'Keeffe directed redevelopment and community development for the City of B Cerrito. Mr. O'Keeffe has served as the president of the California Redevelopment Agencies Association. He earned B.A. and M.A. degrees from San Francisco State University. Mr. O'Keeffe also serves as Director of Economic Development and Housing of the City.

Pauline A Marx, Treasurer of the Agency, also joined the management team in 1995. Ms. Marx has more than 20 years of experience in local government management and finance, serving as an investment banker, consultant and finance director. She has an AB. degree from

27 the University of Michigan and a Masters Degree in Business Administration from Yale University. Ms. Marx also serves as Finance Director and Treasurer of the City.

Michael Biddle, City Attorney and Agency General Counsel, is a graduate of the University of California, Berkeley and received his law degree from Golden Gate University. Mr. Biddle joined the management team in 1989 as Assistant City Attorney/Agency General Counsel before assuming his present position in 1994.

Agency Powers and Duties

All powers of the Agency are vested in its five members. The Agency exercises all of the governmental functions authorized under the Redevelopment Law and has, among other powers, the authority to acquire, administer, develop and sell or lease property, including the right to acquire property through the power of eminent domain, and the right to issue bonds and expend the proceeds. The Agency can clear buildings and other improvements, can develop as a building site any real property owned or acquired, and in connection with such development can cause streets, highways and sidewalks to be constructed or reconstructed and public utilities to be installed.

Agency Financial Statements

The Agency's annual financial statements are audited by Maze & Associates, Walnut Creek, California (the "Auditor''), in accordance with generally accepted auditing standards, and contains opinions that the financial statements present fairly the financial position of the various funds maintained by the Agency. The reports include certain notes to the financial statements which may not be fully described below. Such notes constitute an integral part of the audited financial statements. The Agency's audited annual financial statements for the fiscal year ended June 30, 2003, are included as Appendix C to this Official Statement.

The Agency has not requested nor did the Agency obtain permission from the Auditor to include the audited financial statements as an appendix to this Official Statement. Accordingly, the Auditor has not performed any post-audit review of the financial condition or operations of the Agency. In addition, the Auditor has not reviewed this Official Statement.

Investments

The City has established the following criteria and order of priority for the investing and managing of its funds (including the funds of the Agency):

Safety: Safety of principal is the foremost objective of the investment program. Investments of the City shall be undertaken in a manner that seeks to ensure the preservation of capital in the overall portfolio. To attain this objective, diversification is required in the portfolios composition.

Liquidity: The portfolio shall remain sufficiently liquid to meet all operating requirements which might be reasonably anticipated. Liquidity refers to the ability to sell an investment at any given moment with a minimal chance of losing some portion of principal or interest.

Yield: The portfolio shall be designed to attain a market rate of return throughout budgetary and economic cycles, taking into account the investment risk constraints and the cash flow characteristics of the portfolio.

28 In addition, the investment of bond proceeds is governed by the provisions of the related bond indentures or resolutions.

The management of investments is delegated to the Treasurer of the City.

Under the California Government Code Section and its Investment Policy, the City may invest in the following types of securities:

(i) United States Treasury bills, notes, bonds, or certificates of indebtedness, or those for which the faith and credit of the United States are pledged for the payment of principal and interest.

(ii) Obligations issued by agencies or instrumentalities of the U.S. Government.

(iii) Bonds, notes, warrants or other evidence of debt issued by a City of Emeryville entity.

(iv) The Local Agency Investment Fund (LAIF) maintained by the State of California.

(v) Prime commercial paper with a term not to exceed 270 days and the highest rating issued by Moody's Investors Service or Standard & Poor's Corporation. Commercial paper cannot exceed 15% of total surplus funds, provided that if the average maturity of all commercial paper does not exceed 31 days, up to 30% of surplus funds can be invested in this type of security. Eligible paper shall be issued by corporations that are organized and operating within the United States, having total assets in excess of $500,000,000 and having an AAA or higher rating for the debt, other than commercial paper, if any, as provided by Moody's Investors Service or Standard and Poor's Corporation.

(vi) Negotiable certificates of deposit issued by federally or state chartered banks or associations or by a state licensed branch of a foreign bank. Purchases may not exceed 30% of surplus funds.

(vii) Medium term notes with a maximum maturity of five years, by corporations organized and operating in the United States and rated "A" or better by a recognized rating service. No more than 15% of surplus funds can be invested in this type of security.

(viii) Money Market Mutual Funds. Shares of beneficial interest issued by diversified management companies investing in the securities and obligations authorized by this section. Such funds must carry the highest rating of at least two of the largest national rating agencies. No more than 20% of surplus funds can be invested in such funds. The companies shall retain an investment adviser registered with the Securities and Exchange Commission with not less than five years experience investing in the securities and obligations as authorized by this section, and with assets under management in excess of $500,000,000. The purchase price of shares of beneficial interest purchased pursuant to this subdivision shall not include any commission that these companies may charge.

(ix) Insured or collateralized time deposits or savings accounts secured in accordance with the provisions of Sections 53651 and 53652 of the California Government Code. If the collateral is government securities, 110% of market value to the face amount and accrued interest of the deposit is required. If secured by first mortgages and first deeds of trust, the market value must be 150% of the face amount and accrued interest of the deposit. The collateral must be held by a third party.

29 A five year maximum remaining maturity is allowed unless an extension of maturity is granted by the City Council. As of May 31, 2004, the weighted average maturity of the portfolio was 823 days.

The City does not enter into reverse repurchase agreements.

As of May 31, 2004, the funds of the City and Agency, on a combined basis, were invested as follows:

% of Face Cost Est. Market Investment Portfolio Value Basis Value

California Local Agency Investment Fund 36.7% $4 7 ,009,450 $47,009,450 100.07% Government/Agency Issues 55.3 70,906,169 70,912, 106 98.69 Corporate issues or commercial paper 1.2 1,500,000 1,593,970 104.27 Guaranteed investment contracts 6.4 8,264,064 8,264,064 100.00 Bank certificates of deposit 0.4 500,000 500,000 100.00

30 THE EMERYVILLE PROJECT AREA

The Emeryville Project Area encompasses approximately 503 acres. Interstate 80 divides the Project Area into two portions: the eastern side of the highway is characterized as the older portion of the City, and the western side of the highway is composed of approximately 30 acres of more recently developed bay-fill property.

Redevelopment Plan Limitations

The Redevelopment Plan for the Emeryville Project Area established certain limitations with respect to the collection of tax increment revenues and indebtedness within the Emeryville Project Area. Since then, the Redevelopment Plan has been amended a number of times.

AB 1290. In 1993, the California Legislature enacted AB 1290 which contained several significant changes in the Redevelopment Law. Among the changes made by AB 1290 was a provision that limits the period of time for incurring and repaying loans, advances and indebtedness payable from tax increment revenues. The Redevelopment Plan for the Emeryville Project Area contains tax increment limitations which are in compliance with AB 1290, as subsequently amended.

SB 211. On May 20, 2003, pursuant to SB 211, the City Council adopted Ordinance No. 03-007, which amended the redevelopment plan for the Emeryville Project Area to extend the time limit for incurring debt to the final date of the redevelopment plan. SB 211 also requires agencies that extend the time limit for incurring debt to begin sharing tax increment revenues, pursuant to a formula established by state law, with other taxing entities beginning in the year following the original debt limitation (January 1, 2004), and to the extent that revenues are not already shared by a pre-existing tax sharing agreement. As a result, starting in fiscal year 2005- 06, the Agency must begin sharing tax 25% of revenues generated in the Emeryville Project Area as a result of increases in the assessed valuation above the fiscal year 2004-05 assessed valuation.

Housing Set Aside revenues are equal to 20% of gross tax increment and are not subject to SB 211 's tax sharing requirements.

SB 1045. Most recently, pursuant to SB 1045 in connection with adoption of statutes requiring an ERAF shift for fiscal year 2003-04, the State Legislature authorized the Agency to amend its redevelopment plan for the Emeryville Project Area to extend by one year the time limit of the effectiveness of the plan and the time limit to repay indebtedness and receive tax increment. The Agency extended the time limit, as permitted by SB 1045, pursuant to Ordinance No. 04-006 adopted on June 15, 2004.

Plan Limits. As amended, the Redevelopment Plan for the Emeryville Project Area includes the following limits:

31 Limitation Emeryville

Plan Life and Final Date to Incur Debt: July 27, 2017

Final Date to Collect Tax Increment and Repay Debt: July 27, 2027

Limit on Tax Increment Revenues allocated to the $942,610,300 Agency:

Gross Tax Increment Revenues Collected by the $143,969,875 Agency as of June 30, 2004:

If tax increment were to grow at a future annual rate of 5%, the Emeryville Project Area would not reach the cumulative tax increment limit prior to the date on which final Loan payments are due with respect to the Emeryville Loan Agreement and the Housing Project Loan Agreement. If tax increment were to grow at a future annual rate of 10%, the Emeryville Project Area could reach the cumulative tax increment limit in fiscal year 2023-24.

From fiscal year 1996-97 through fiscal year 2003-04, tax increment revenue grew at an average annual rate of approximately 12. 7%. See "- Historical Taxable Values and Tax Increment Revenues" below. The Loan Agreements include a provision intended to protect against the risk that tax increment would grow at a rate that would cause the Agency to exceed the tax increment limit prior to final payment of debt service on the 2004 Bonds.

More specifically, the Loan Agreements obligate the Agency as follows:

(a) To annually cause a report to be prepared which sets forth the estimated annual and cumulative total amount of tax increment revenues remaining available to be received by the Agency under the tax increment limit established by the applicable Redevelopment Plan(s) (the "Remaining Limit Amount"), the estimated "Current Year Obligations" (as defined below), and the estimated "Future Year Obligations" (as defined below).

(b) Each Fiscal Year, to cause to be deposited in a Trustee-held escrow account (the "Defeasance Escrow Account"), for investment in Defeasance Obligations (as defined in the Loan Agreements), that portion of tax increment revenues, if any, allocated to the Agency in excess of the Current Year Obligations to the extent necessary, taking into account (i) the Remaining Limit Amount, (ii) all Future Obligations and (iii) the amounts already existing in the Defeasance Escrow Account, to enable repayment when due of all Future Obligations within the Remaining Limit Amount. Amounts in the Defeasance Escrow Account, including interest earned thereon, shall only be used to pay or prepay the Future Obligations.

"Future Obligations" means the estimated amounts necessary to pay the debt service and other amounts due in all succeeding Fiscal Years with respect to the Loan, on Parity Debt and on Subordinate Debt, deposits in the Housing Fund, pass-through obligations, other statutory obligations and the Agency's administrative costs; provided that in estimating the portion of the Future Obligations related to the Loan, Parity Debt or Subordinate Debt, the amount of remaining

32 debt service shall take into account the early prepayment or defeasance of the Loan, Parity Debt or Subordinate Debt estimated to occur using amounts deposited or to be deposited in the Defeasance Escrow Account.

Tax Rate

A representative tax rate for the property on the secured roll in the Emeryville Project Area for fiscal year 2003-04 is 1.0519%, which is down from a representative tax rate of 1.0553% for the 2002-03 fiscal year; however, the Agency is not entitled to 0.0383% (secured) and 0.0404% (unsecured), which are the override portions of the tax rate payable to Emery Unified School District and the Peralta Community College District. In addition to the one percent general tax levy set by State law, the other taxing entities include the Peralta Community College District, the Emery Unified School District, the East Bay Regional Park District and Bay Area MUD, District 1.

Pass-Through Agreements

There are no pass-through agreements affecting the Emeryville Project Area. However, the Emeryville Project Area is subject to certain statutory pass-through agreements beginning in fiscal year 2005-06 (see" - Redevelopment Plan Limitations" above).

Tax Sharing Agreement

The Agency has entered into a tax sharing arrangement with Chiron Corporation with respect to the Emeryville Project Area, which is subordinate to the 2004 Bonds. See "LIMITATIONS ON TAX REVENUES AND HOUSING SET ASIDE - Chiron Tax Sharing Agreement" above.

In addition, the Agency has agreed to reimburse a residential developer for certain construction costs, and secured the reimbursement obligation with certain tax increment revenue generated in the Emeryville Project Area, which is secured by a portion of the Emeryville Tax Revenues and Housing Set Aside on a basis that is subordinate to the pledge of Emeryville Tax Revenues and Housing Set Aside to the Loan Agreements and Parity Debt. See "LIMITATIONS ON TAX REVENUES AND HOUSING SET ASIDE - Bay Street Block E Reimbursement Agreement" above.

Tax Collection Fees

As discussed in "LIMITATIONS ON TAX REVENUES AND HOUSING SET ASIDE - Property Tax Collection Procedures," the Agency is subject to a property tax administration charge payable to the County. For 2003-04, the amount of such costs was $144,045 for the Emeryville Project Area (approximately 1.1 % of 2003-04 total tax increment revenue for the Emeryville Project Area). The tax collection fees are deducted from tax increment revenue prior to a determination of Tax Revenues.

Historical Taxable Values and Tax Increment Revenues

The following tables set forth historical taxable values and tax increment revenues for the Emeryville Project Area. The total assessed valuation of taxable property in the Emeryville Project Area in fiscal year 2004-05 is estimated to be $1,476,907,336, and the corresponding incremental assessed valuation is estimated to be $1,365,434,036. The following tables provide certain information based on fiscal year 2003-04 assessed valuation because the fiscal year 2004-05 assessed valuation was only recently released to the Agency by the County.

33 TABLE2 EMERYVILLE PROJECT AREA Historical Taxable Values and Tax Increment Revenues Fiscal Years 1996-97 through 2003-04

1996-97 1997-98 1998-99 1999-2000 2000-01 2001-02 2002-03 2003-04 Actual Actual Actual Actual Actual Actual Actual Estimated

Secured $586,269,242 $613,208,801 $709,229,244 $738,867,906 $888,306, 135 $970,396,416 $1,200,544,218 $1,271,857,619

Unsecured 207,271,906 227,595,717 208,907,599 169,765,871 194,388,315 199,717,403 163,466,259 135,013,142

Total 793,541,148 840,804,518 918, 136,843 908,633,777 1,082,694,450 1,170,113,819 1,364,010,477 1,406,870,761

Less Base Year ( 1) (111,473,300) (111,473,300) (111,473,300) (111,473,300) (111,473,300) (111,473,300) (111,473,300) (111,473,300)

Incremental Increase 682,067,848 729,331,218 806,663,543 797, 160,477 971,221, 150 1,058,640,519 1,252,537, 177 1,295,397,461

Gross Tax Increment 7,363, 121 7,792,349 9,396,108 8,344,584 10,504,664 11,274,038 14,418,717 13,919,592 Revenues (2)

County tax collection (20,413) (64,990) (78,787) (55,883) (82,782) (91,700) (130,325) (144,045) fee (3)

Housing Set Aside (1,472,624) (1,558,470) (1,879,222) (1,668,917) (2, 100,933) (2,254,808) (2,883,743) (2,783,918) (20%)

Emeryville Tax $5,870,084 $6,168,889 $7,438,099 $6,619,784 $8,320,949 $8,927,530 $11,404,649 $10,991,628 Revenues (4)

(1) Base Year secured valuation was $80,530,040 and Base Year unsecured valuation was $30,943,260. (2) Includes unitary and supplemental tax increment revenues as well as changes in prior years' tax increment revenue. For Fiscal Year 2003-04, includes unitary and supplemental tax increment revenues as of July 23, 2004. See Table 3. (3) The Agency allocates a portion of the County tax collection fee to the Shell mound Park Project Area and to the Housing Set Aside, which amounts are not reflected in this table. ( 4) Does not reflect the portion of ERAF shifts allocated by the Agency to the Emeryville Project Area because ERAF shifts are not deducted from tax increment revenues in order to calculate Emeryville Tax Revenues pursuant to the Emeryville Loan Agreement. In Fiscal Year 2003-04, the Agency allocated $655,713 of the ERAF shift to the Emeryville Project Area.

Source: Emeryville Redevelopment Agency and County of Alameda Auditor-Controller's Office.

34 The table below sets forth historical gross tax increment revenues (i.e., prior to deduction of ERAF shifts (if any), County tax collection fees, et al.) derived from the Emeryville Project Area and the percentage change in gross tax increment revenues from year to year.

TABLE3 EMERYVILLE PROJECT AREA Historical Total Gross Tax Increment Revenues

Tax Increment Percentage Fiscal Year Revenues (1l Unitary Supplemental (2l Total Change

1996-97 $7,209,814 $54,929 $93,379 $7,363,121 1997-98 7,622,037 61,331 108,982 7,792,349 6% 1998-99 8,398,483 64,376 933,249 9,396,108 21 1999-00 8,135,458 72,770 136,356 8,344,584 (3) (11) 2000-01 9,862,036 71,603 571,025 10,504,664 26 2001-02 10,750,595 69,609 453,834 11,274,038 7 2002-03 12,748,818 82, 167 1,587,732 14,418,717 28 4 2003-04 13,131,557 80,216 707,908 13,919,681( ) (3)

( 1) Housing Set Aside revenues, ERAF payments (if any) and County tax collection fees have not been deducted. (2) Includes supplemental tax increment revenue and changes in prior years' tax increment revenue. (3) Decrease due to a reduction in the assessed value of properties on the unsecured roll offset by the receipt of a large increase in tax increment revenue from the supplemental roll in fiscal year 1998-99. ( 4) Estimated. Includes unitary and supplemental tax increment revenues as of July 23, 2004.

Source: Emeryville Redevelopment Agency.

For projected debt service coverage information with respect to the Emeryville Project Area, see "DEBT SERVICE AND ESTIMATED COVERAGE" below.

35 Largest Taxpayers

The largest tax payers in the Emeryville Project Area according to the 2003-04 assessed valuations are shown below with their respective 2003-04 assessed valuations.

TABLE4 Emeryville Project Area Ten Largest Property Taxpayers Fiscal Year 2003-04

#of Land Assessed Percent Percent of Taxpayer Parcels Use Valuation ofTotal AV Incremental AV Chiron 12 Biotech $243,432,329 17.3% 18.8%

SPK Emeryville Properties LLC 3 Commercial, 146,676,000 10.4 11.3 office Sand Hill Northwest Properties 2 Commercial, 91,556,240 6.5 7.1 office Bay Center Associates 4 Commercial, 49,930,996 3.6 3.9 office Christie Avenue Partners JS 5 Commercial, 44,889,335 3.2 3.5 office HPTMI Properties Trust Hotel 41,642,010 3.0 3.2

Regency Centers LP 18 Shopping center 38,250,000 2.7 3.0

Hardage Hotels 3rd LLC Hotel 37,745,055 2.7 2.9

Emery Station Assoc II LLC Res 84 Residential 36,545,575 2.6 2.8

Bay Center Apartment Associates 425 Residential 36,154,631 2.6 2.8

Total Top Ten 555 $766,822, 171 54.6% 59.3%

(1) For purposes of this table, total valuation of the Emeryville Project Area in fiscal year 2003-04 is $1,406,870,761, and total incremental valuation in fiscal year 2003-04 is $1,295,397,461.

Source: Emeryville Redevelopment Agency.

Chiron Corporation. The largest tax payer in the Emeryville Project Area is Chiron Corporation, a global pharmaceutical company headquartered in Emeryville that manufactures and markets vaccines, blood testing products and biopharmaceuticals. Chiron Corporation was founded in 1981 by three university professors who left the biochemistry departments of Bay Area universities to start a company dedicated to developing and commercializing diagnostic, therapeutic and vaccine products.

Chiron Corporation is listed on the NASDAQ Exchange under the ticker symbol "CHIR." Financial information about Chiron Corporation is included in documents filed with the Securities and Exchange Commission, particularly in its Annual Report on Form 1OK and its most recent quarterly report on Form 1 OQ. Chiron Corporation's Internet homepage is located at www.chiron.com, although the reference to such website is provided for general informational purposes only and the website is in no way incorporated into this Official Statement.

Chiron Corporation is pursuing the development of a life sciences campus in the Emeryville Project Area which is projected to include a total of 2 million square feet of office and research space. The first phase was completed in 1998, consisting of a 280,000 square-foot building with capacity for approximately 500 research scientists and ancillary support staff. The second phase is anticipated to consist of a 310,000 square-foot laboratory facility housing

36 approximately 450-500 staff. The land use approval process for this second phase is anticipated to take place in 2004, and construction is anticipated to begin in 2005.

Equity Office. The second largest tax payer in the Emeryville Project Area is SPK Emeryville Properties LLC, which is a fund managed by Equity Office, a real estate investment trust (REIT) and publicly held owner of office properties across the country. Equity Office's origin dates back to 1976 when Sam Zell, the current chairman of Equity Office, founded a real estate management and acquisition organization. The company's portfolio was consolidated and taken public in July 1997. Since that time Equity Office has expanded through various mergers, including its merger with Spieker Properties, Inc. in July 2001.

Equity Office is listed on the New York Stock Exchange under the ticker symbol "EOP." Financial information about Equity Office is included in documents filed with the Securities and Exchange Commission, particularly in its Annual Report on Form 1OK and its most recent quarterly report on Form 1 OQ. Equity Office's Internet homepage is located at www.equityoffice.com, although the reference to such website is provided for general informational purposes only and the website is in no way incorporated into this Official Statement.

Assessment Appeals

Resolved Appeals. In calendar years 1998 through 2003, property owners in the Emeryville Project Area filed 319 assessment appeals (as shown in the following two tables). Of these appeals, 184 have been resolved, as shown in the following table; of the 184 resolved appeals, 141 were either withdrawn or denied. In the resolved appeals, property owners had requested an aggregate reduction in assessed value of $490,57 4,358. Upon resolution, aggregate assessed value was reduced by $30,870,365, representing 6.29% of the requested reduction.

TABLES Emeryville Project Area Assessment Appeals Resolved Calendar Years 1998 through 2003

Adjustment as Original Amount % of Calendar Number of Assessor's Appeal Contested Of Contested Year {1} A~~eals {2} Value Value Value Adjustment Value

1998 37 $ 194,401,040 $115,439,404 $ 78,961,636 $ (748,234) (0.95)% 1999 38 78,914,932 33,473,969 45,440,963 (754,872) (1.66) 2000 30 483,704,555 426,450,021 57,254,534 (316,091) (0.55) 2001 31 268,918,378 119,385,840 149,532,538 (18, 110,000) (12.11) 2002 36 329,558,701 190,934,722 138,623,979 10,941,168) (7.89) 2003 12 52,260,708 31,500,000 20,760,708 (0.00)

Total 184 (3) $1,407,758,314 $917, 183,956 $490,574,358 $(30,870,365) (6.29)%

( 1) The year in which an appeal is filed does not necessarily correspond with the fiscal year/tax year value contested. (2) In many cases, multiple appeals contesting values for different tax years have been filed on the same parcel. Each appeal is counted as a separate appeal. However, the secured values have been aggregated for multiple appeals on a single parcel for purposes of estimating reductions in future assessed value. As a result, the aggregate values in the table for parcels subject to multiple appeals may exceed the actual assessed value of these parcels. (3) Of the 184 resolved appeals, 141 were either withdrawn or denied.

Source: Alameda County Assessment Appeals Board.

37 Pending Appeals. As detailed in the following table, there are currently 135 appeals pending in the Emeryville Project Area. Based on the historical results of appeals filed in calendar years 1998 through 2003, the Agency has assumed, for purposes of forecasting future Emeryville Tax Revenues and Housing Set Aside, that the fiscal year 2003-04 assessed valuation in the Emeryville Project Area will be reduced by $35,747,385 (a 6.29% reduction) based on historic appeal success rates (see Table 5). While the Agency believes this adjustment to be reasonable, there can be no assurance that actual successful appeals, if any, will not reduce assessed values by a greater amount.

TABLES Emeryville Project Area Pending Assessment Appeals As of June 30, 2004

Original Adjustment as Number of Assessor's Appeal Contested Assumed % of Appeals (1) Value Value Value Reduction Contested Value

135 $1,097,032,733 $528,982,755 $568,049,978 $(35,747,385) (6.29)%

(1) In many cases, multiple appeals contesting values for different tax years have been filed on the same parcel. Each appeal is counted as a separate appeal. However, the secured values have been aggregated for multiple appeals on a single parcel for purposes of estimating reductions in future assessed value. As a result, the aggregate values in the table for parcels subject to multiple appeals may exceed the actual assessed value of these parcels.

Source: Alameda County Assessment Appeals Board.

38 Significant Pending Appeals. The following table details the most significant pending appeals in the Emeryville Project Area, and identifies those pending appeals filed by the 10 largest property taxpayers in the Emeryville Project Area.

TABLE7 Emeryville Project Area Significant Pending Appeals As of June 30, 2004

Original Percentage Property Number Assessor's Appeal Contested of Owner of Ai;n1eals (1) Value Value Value Total

Chiron Corporation (2) 58 $464,667 ,438 $195,449,665 $269,217,773 47%

SPK Emeryville Properties 5 146,676,000 89,507,000 57,169,000 10 LLC (2)

Hardage Hotels 3rd LLC (2) 4 54,500,524 1,574,683 52,925,841 9

Christie Avenue Partners 9 48,649,677 20,500,000 28,149,677 5 JS (2)

Sandhill Northwest 3 91,555,200 66,367,000 25,188,200 4 Properties (2)

HPTMI Properties Trust (2) 5 41,642,010 19,000,000 22,642,010 4

All others §1 249,341,884 136,584,407 112,757,477 20

Total 135 $1,097,032,733 $528,982,755 $568,049,978 100%

Source: Alameda County Assessment Appeals Board.

New Construction Activity

Four ownership residential projects are currently under construction in the Emeryville Project Area totaling 258 units. The estimated future value of these new developments is $86, 135,000, although the Agency has not included this projected value in its estimated Emeryville Tax Revenues (See "DEBT SERVICE AND ESTIMATED COVERAGE" below).

Planned and approved projects that are not yet under construction include 5 residential developments with a total of 444 units; 2 are rental apartment projects and the other 3 are ownership townhouse or condominium units. The Agency projects the value of these planned developments to be $106 million, although the Agency has not included this projected value in its estimated Emeryville Tax Revenues (see "DEBT SERVICE AND ESTIMATED COVERAGE" below). The Agency can provide no assurances that these developments will ever be built as planned or that they will be valued as estimated.

39 THE SHELLMOUND PARK PROJECT AREA

The Shellmound Park Project Area encompasses approximately 270 acres, and comprises approximately 33% of the City. The Shellmound Park Project Area is almost fully developed. The Shellmound Park Project Area is being transformed through redevelopment as properties increase in value due to changes of use that produce greater assessed value. The Shellmound Park Project Area is generally characterized as an industrial area changing to a mixed use of commercial, light industrial and residential.

Redevelopment Plan Limitations

The Redevelopment Plan for the Shellmound Park Project Area established certain limitations with respect to the collection of tax increment revenues and indebtedness within the Emeryville Project Area. Since then, the Redevelopment Plan has been amended a number of times.

The Redevelopment Plan for the Shellmound Park Project Area contains tax increment limitations which are in compliance with AB 1290, as subsequently amended.

SB 211. On May 20, 2003, pursuant to SB 211, the City Council adopted Ordinance No. 03-008, which amended the redevelopment plan for the Shellmound Park Project Area to extend the time limit for incurring debt to the final date of the redevelopment plan. SB 211 also requires agencies that extend the time limit for incurring debt to begin sharing tax increment revenues, pursuant to a formula established by state law, with other taxing entities beginning in the year following the original debt limitation (October 1, 2007), and to the extent that revenues are not already shared by a pre-existing tax sharing agreement. As a result, starting in fiscal year 2008- 09, the Agency must begin sharing 25% of revenues generated in the Shellmound Park Project Area as a result of increases in assessed valuation above the fiscal year 2007-08 assessed valuation. The Agency's two tax sharing agreements, with the County and the Alameda County Flood Control and Water Conservation District, are not affected by the plan amendment adopted pursuant to SB 211.

Housing Set Aside revenues are equal to 20% of gross tax increment and are not subject to SB 211 's tax sharing requirements.

SB 1045. Most recently, pursuant to SB 1045 in connection with adoption of statutes requiring an ERAF shift for fiscal year 2003-04, the State Legislature authorized the Agency to amend its redevelopment plan for the Shellmound Park Project Area to extend by one year the time limit of the effectiveness of the plan and the time limit to repay indebtedness and receive tax increment. The Agency extended the time limit, as permitted by SB 1045, pursuant to Ordinance No. 04-007 adopted on June 15, 2004.

Plan Limits. As amended, the Redevelopment Plan for the Shellmound Park Project Area includes the following limits:

40 Limitation Shellmound Park

Plan Life and Final Date to Incur October 1 , 2028 Debt:

Final Date to Collect Tax October 1 , 2038 Increment and Repay Debt:

Limit on Tax Increment Revenues $180,000,000 (pay as you go) Allocated to the Agency: $425,000,000 plus amounts paid by the Agency under reimbursement agreements with taxing agencies and private entities (if debt financing used)

Limit on outstanding debt: $180,000,000

Gross Tax Increment Revenues $35,550, 112 Collected by the Agency as of June 30, 2004:

If tax increment were to grow at a future annual rate of 5%, the Shellmound Park Project Area would reach the $425 million cumulative tax increment limit in fiscal year 2028-29. If tax increment were to grow at a future annual rate of 10%, the Shell mound Park Project Area could reach the $425 million cumulative tax increment limit in fiscal year 2021-22.

From fiscal year 1996-97 through fiscal year 2003-04, tax increment revenue grew at an average annual rate of approximately 81 %. See "- Historical Taxable Values and Tax Increment Revenues" below. The Loan Agreements include a provision intended to protect against the risk that tax increment would grow at a rate that would cause the Agency to exceed the tax increment limit prior to final payment of debt service on the 2004 Bonds. See 'THE EMERYVILLE PROJECT AREA - Redevelopment Plan Limitations".

Tax Rate

A representative tax rate for the property on the secured roll in the Shellmound Park Project Area for fiscal year 2003-04 is 1.0519%, which is down from a representative tax rate of 1.0553% for the 2002-03 fiscal year; however, the Agency is not entitled to 0.0383% (secured) and 0.0404% (unsecured), which are the override portions of the tax rate payable to Emery Unified School District and the Peralta Community College District. In addition to the one percent general tax levy set by State law, the other taxing entities include the Peralta Community College District, the Emery Unified School District, the East Bay Regional Park District and Bay Area MUD, District 1.

Pass-Through Agreements

The Agency is obligated to pass through a portion of its tax increment revenues derived from the Shellmound Park Project Area to certain taxing entities. See "LIMITATIONS ON TAX REVENUES AND HOUSING SET ASIDE - Pass-Through Agreements" above.

Tax Sharing Agreements

The Agency has entered into a tax sharing arrangement with Chiron Corporation with respect to the Shellmound Park Project Area, which is subordinate to the 2004 Bonds. See

41 "LIMITATIONS ON TAX REVENUES AND HOUSING SET ASIDE - Chiron Tax Sharing Agreement" above.

The Agency has agreed to reimburse a residential developer for certain construction costs, and secured the reimbursement obligation with certain tax increment revenue generated in the Shellmound Park Project Area, which is secured by a portion of the Shellmound Park Tax Revenues and Housing Set Aside on a basis that is subordinate to the pledge of Shellmound Park Tax Revenues and Housing Set Aside to the Loan Agreements and Parity Debt. See "LIMITATIONS ON TAX REVENUES AND HOUSING SET ASIDE - Bay Street Block E Reimbursement Agreement" above.

Tax Collection Fees

As discussed in "LIMITATIONS ON TAX REVENUES AND HOUSING SET ASIDE - Property Tax Collection Procedures," the Agency is subject to a property tax administration charge payable to the County. For 2003-04, the amount of such costs was $51,046 for the Shellmound Park Project Area (approximately 1.0% of 2003-04 net tax increment revenue, after pass throughs (see " - Pass-Through Agreements)). The tax collection fee is deducted from tax increment revenue prior to a determination of Tax Revenues.

Historical Tax Values and Tax Increment Revenues

The following table sets forth historical taxable values and tax increment revenues for the Shellmound Park Project Area. The total assessed valuation of taxable property in the Shellmound Park Project Area in fiscal year 2004-05 is estimated to be $976,065, 178, and the corresponding incremental assessed valuation is estimated to be $786,809,358. The following tables provide certain information based on fiscal year 2003-04 assessed valuation because the fiscal year 2004-05 assessed valuation was only recently released to the Agency by the County.

42 TABLES SHELLMOUND PARK PROJECT AREA Historical Taxable Values and Tax Increment Revenues Fiscal Years 1996-97 through 2003-04

1996-97 1997-98 1998-99 1999-00 2000-01 2001-02 2002-03 2003-04 Actual Actual Actual Actual Actual Actual Actual Estimated Secured $251,715,167 $249,957,001 $261,403,555 $271,073,959 $390,058, 183 $546,682,092 $627, 141,280 $790,008,470

Unsecured 51,722,106 56,332,385 61,753,084 49,679,922 67,674,858 121,589,609 126,159,954 129,105,818 Total 303,437,273 306,289,386 323, 156,639 320,753,881 457,733,041 668,271,701 753,301,234 919, 114,288

Less Base Year ( 1) (189,255,820) (189,255,820) (189,255,820) (189,255,820) (189,255,820) (189,255,820) (189,255,820) (189,255,820)

Incremental Increase 114,181,453 117,033,566 133,900,819 131,498,061 268,477,221 479,015,881 564,045,414 729,858,468

Gross Tax Increment 1,196,978 1,261,686 1,423,362 1,375,631 2,974,910 5,489,594 6,114,320 7,953,219 Revenues (2)

County tax (8,313) (6,324) (7,939) (5,588) (14,249) (26,145) (36,165) (51,046) collection fee (3)

Pass-Throughs (4) (441,419) (452,624) (520,474) (516,624) (1,009, 116) (1,764,820) (2,093,335) (2,690,238)

Housing Set-Aside (239,396) (252,337) (284,672) (275,126) (594,982) (1,097,919) (1,222,864) (1,590,644)

Shellmound Park $507,850 $550,401 $610,277 $578,293 $1,356,563 $2,600,710 $2,761,956 $3,621,291 Tax Revenues (5)

(1) Secured value for base year is $153,055,487. Unsecured value for base year is $36,200,333. (2) Includes unitary and supplemental tax increment revenue as well as changes in prior years' tax increment revenue. For Fiscal Year 2003-04, includes unitary and supplemental tax increment revenues as of July 23, 2004. See Table 9. (3) The Agency allocates a portion of the County tax collection fee to the Emeryville Project Area and to the Housing Set Aside, which amounts are not reflected in this table. ( 4) Represents pass-th roughs to the County and the Flood Control District. (5) The Tax Revenues number does not reflect the portion of the ERAF shifts allocated by the Agency to the Shellmound Park Project Area because ERAF shifts are not deducted from tax increment revenues in order to calculate Shell mound Park Tax Revenues under the Shell mound Park Loan Agreement. In fiscal year 2003-04, the Agency allocated $262,371 of the ERAF shift to the Shell mound Park Project Area.

Source: Emeryville Redevelopment Agency and County of Alameda Auditor-Controller's Office.

43 The table below sets forth historical gross tax increment revenues (i.e., prior to deduction of ERAF shifts (if any), County tax collection fees and pass-throughs) derived from the Emeryville Project Area and the percentage change in gross tax increment revenues from year to year.

Tax increment has increased in the Shellmound Park Project Area in recent years as a result, in part, of commercial and retail development in the Bay Street area, development of Pixar Animation Studios' (NASDAQ: PIXR) headquarters and development by Chiron.

TABLE9 SHELLMOUND PARK PROJECT AREA Historical Total Gross Tax Increment Revenue

Tax Increment Percentage Fiscal Year Revenues (1l Unitary Supplemental (2l Total Change

1996-97 $1,189,266 $4,146 $3,566 $1,196,978 1997-98 1,214,649 5,286 41,751 1,261,686 5% 1998-99 1,387,871 7,705 27,785 1,423,361 13 1999-00 1,341,206 7,821 26,604 1,375,631 (3) 2000-01 2,725,831 7,272 241,807 2,974,910 116 2001-02 4,864,383 4,735 620,476 5,489,594 85 2002-03 5,727,756 10,805 375,759 6, 114,320 11 3 2003-04 7,399,053 10,748 543,418 7,953,219 ( ) 30

( 1) Housing Set Aside revenues, ERAF payments (if any), County tax collection fees and pass-th roughs have not been deducted. (2) Includes supplemental tax increment revenue and changes in prior years' tax increment revenue. (3) Estimated. Includes unitary and supplemental tax revenues as of July 23, 2004.

Source: Emeryville Redevelopment Agency.

For projected debt service coverage information with respect to the Emeryville Project Area, see "DEBT SERVICE AND ESTIMATED COVERAGE."

44 Largest Taxpayers

The largest tax payers in the Shellmound Park Project Area according to the 2003-04 assessed valuations are shown below with their respective 2003-04 assessed valuations.

TABLE10 Shellmound Park Project Area Ten Largest Property Taxpayers Fiscal Year 2003-04

# of Assessed Percent Percent of Taxpayer Parcels Land Use Valuation of Total AV Incremental AV Bay Street Partners LLC 10 Commercial $129,047,977 14.0% 17.7%

Pixar (2) Office 109,050,656 11.9 15.0

Emery Station Joint Venture LLC Commercial, 71,376,035 7.8 9.8 office Emery Station Assoc II LL Commercial, 40,162,606 4.4 5.5 office BEP Emery Tech LLC Commercial, 39,321,489 4.3 5.4 office IKEA Property ex 2 Commercial 32,164,078 3.5 4.4

Hollis Street Investors LLC 3 Commercial, 25,127,927 2.7 3.4 office Chiron Corporation 9 Biotech 20,787,008 2.3 2.8 facilities Cetus ex 2 Biotech 17,300,862 1.9 2.4 facilities Emerybay Plaza JS 1 Commercial 16,000,000 Ll 2.2

Total for Top Ten 31 $500,338,638 54.5% 68.6%

(1) For purposes of this table, total valuation of the Shell mound Park Project Area in fiscal year 2003-04 is $919, 114,288, and total incremental valuation in fiscal year 2003-04 is $729,858,468. (2) Pixar is planning to expand its campus with a 145,000 square foot addition. However, the addition is currently subject to a referendum of 1he City's voters scheduled for late-2004.

Source: Emeryville Redevelopment Agency.

Bay Street Partners LLC. Bay Street Partners LLC is a partnership of Madison-Marquette and California Urban Investment Partners, a 1996 partnership formed by CalPERS, MacFarlane Partners and Earvin "Magic" Johnson.

Madison Marquette was formed in 1995 when The Madison Realty Partnership, developers of specialty retail projects, acquired and merged with Marquette Partners, a property management firm. The company also includes the financial strength and expertise of Capital Guidance Corporation, an investment group that acts as Madison Marquette's equity and financing partner.

MacFarlane Partners is the leading minority-owned real estate investment management firm in the United States, with $1.3 billion in investor equity and an expected $6 billion in real estate assets. MacFarlane Partners' Internet homepage is located at www.macfarlanepartners.com, although the reference to such website is provided for general informational purposes only and the website is in no way incorporated into this Official Statement.

45 Bay Street is a one million-square-foot urban village including retail, residential, hotel and entertainment offerings; it features urban streetscape retail with two to five stories of residential units on the upper floors. With 400,000 square feet of retail, Bay Street offers 65 shops, nine restaurants and an AMC Theatre. The residential component is expected to be completed in 2005; 20% of the units will be set aside for occupancy by very low income residents.

Pixar. The second largest taxpayer in the Shellmound Park Project Area is Pixar Animation Studios, a producer of original films in the medium of computer animation. Pixar is listed on the NASDAQ Exchange under the ticker symbol "PIXR". Financial information about Pixar is included in documents filed with the Securities and Exchange Commission, particularly in its Annual Report on Form 1OK and its most recent quarterly report on Form 1OQ. Pixar's Internet homepage is located at www.pixar.com, although the reference to such website is provided for general informational purposes only and the website is in no way incorporated into this Official Statement.

A proposed 145,000 square foot addition to the Pixar campus is currently subject to a referendum of the City's voters scheduled for late-2004.

Assessment Appeals

Resolved Appeals. In calendar years 1998 through 2003, property owners in the Shellmound Park Project Area appealed the Assessor's valuation on 208 parcels (as shown in the following two tables). Of these appeals, 146 have been resolved, as shown in the following table; of the 146 resolved appeals, 116 were either withdrawn or denied. In the resolved appeals, property owners had requested an aggregate reduction in assessed value of $636,229,993. Upon resolution, aggregate assessed value was reduced by $36,223,619, representing 5.69% of the requested reduction.

46 TABLE 11 Shellmound Park Project Area Assessment Appeals Resolved Calendar Years 1998 through 2003

Adjustment as Original Amount % of Calendar Number of Assessor's Appeal Contested Of Contested Year {1} Appeals {2} Value Value Value Adjustment Value

1998 12 $ 33,055,060 $ 18,140,916 $ 14,914,144 $ (289,353) (1.94)% 1999 18 29,264,056 16,018,360 13,245,696 (18,723) (0.14) 2000 13 20,001,220 11,021,896 8,979,324 (95,325) (1.06) 2001 13 304,201,758 197 ,680,000 106,521,758 (7,956,000) (7.4 7) 2002 33 318,723,026 211,687,163 107,035,863 (17,673,229) (16.51) 2003 2__ 1,014,533,210 629,000,002 385,533,208 (10,190,989) (2.64)

Total 146 (3) $1,719,778,330 $1,083,548,337 $636,229,993 (36,223,619) (5.69)%

( 1) The year in which an appeal is filed does not necessarily correspond with the fiscal year/tax year value contested. (2) In many cases, multiple appeals contesting values for different tax years have been filed on the same parcel. Each appeal is counted as a separate appeal. However, the secured values have been aggregated for multiple appeals on a single parcel for purposes of estimating reductions in future assessed value. As a result, the aggregate values in the table for parcels subject to multiple appeals may exceed the actual assessed value of these parcels. (3) Of the 146 resolved appeals, 116 were either withdrawn or denied.

Source: Alameda County Assessment Appeals Board.

Pending Appeals. As detailed in the following table, there are currently 62 appeals pending in the Shellmound Park Project Area. Based on the historical results of appeals filed in calendar years 1998 through 2003, the Agency has assumed, for purposes of forecasting future Shellmound Park Tax Revenues and Housing Set Aside, that the fiscal year 2003-04 assessed valuation in the Shellmound Park Project Area be reduced by $9,987,711 (a 5.69% reduction) based on historic appeal success rates (See Table 11 ). While the Agency believes this adjustment to be reasonable, there can be no assurance that actual successful appeals, if any, will not reduce assessed values by a greater amount.

TABLE12 Shellmound Park Project Area Pending Assessment Appeals As of June 30, 2004

Original Adjustment as Number of Assessor's Appeal Contested Assumed % of Appeals {1} Value Value Value Reduction Contested Value

62 $371,135,596 $195,697,147 $175,438,449 $(9,987,711) (5.69)%

Source: Alameda County Assessment Appeals Board.

47 Significant Pending Appeals. The following table details the most significant pending appeals in the Shell mound Park Project Area, and identifies those pending appeals filed by the 10 largest property taxpayers in the Shellmound Park Project Area.

TABLE13 Shellmound Park Project Area Significant Pending Appeals As of June 30, 2004

Original Property Number Assessor's Appeal Contested Percentage of Owner of Ai;n1eals (1) Value Value Value Total

Chiron 28 $ 92,956,546 $ 28,660,001 $ 64,296,545 37% Corporation (2)

Pixar Animation 3 88,688,740 43,500,000 45,188,740 26 Studios (2)

Wareham 2 103,261,218 75,000,000 28,261,218 16 Property Group

Hollis Street 3 25,127,927 12,050,000 13,077,927 7 Investors LLC

IKEA Property 2 32,164,078 22,000,000 10, 164,078 6 Inc.

All others 24 28,937,087 14,487,146 14,449,941 ~

Total 62 $371, 135,596 $195,697,147 $175,438,449 100%

Source: Alameda County Assessment Appeals Board.

New Construction Activity

Three major residential developments are currently under construction in the Shellmound Park Project Area, including two apartment developments and an ownership townhouse development. The total number of units is 710. The Agency projects the value of these planned developments upon completion to be $138,950,000, although the Agency has not included this projected value in its estimated Shellmound Park Tax Revenues (see "DEBT SERVICE AND ESTIMATED COVERAGE" below).

Planned and approved projects that are not yet under construction include an additional 53 unit for-sale residential development. The Agency projects the value of these planned developments to be approximately $21 million, although the Agency has not included this projected value in its estimated Shellmound Park Tax Revenues (see "DEBT SERVICE AND ESTIMATED COVERAGE" below). The Agency can provide no assurances that these developments will ever be built as planned or valued as estimated.

48 DEBT SERVICE AND ESTIMATED COVERAGE

Calculation of Projected Tax Revenues. The following tables show the calculations used to project future Tax Revenues:

TABLE14 EMERYVILLE PROJECT AREA Calculation of Projected Emeryville Tax Revenues

Emeryville Project Area 2003-04 Incremental Assessed $1,295,397,461 Value

Adjustment for Appeals ( 1) (35,747,385)

Proposition 13 Inflation Adjustment (1.867%) (2) 12,591,884

Adjusted 2003-04 Incremental Assessed Value $1,272,241,960

Adjusted Estimated Tax Increment Revenue (3) $13,668,979

Less Housing Set Aside (4) (2,733,796)

Less County Tax Collection Fee (5) (144,045)

Emeryville Tax Revenues (6) $10,791,139

(1) Assumes a 6.29% downward adjustment to 2003-04 assessed values as a result of pending (unresolved) appeals. See "THE EMERYVILLE PROJECT AREA - Assessment Appeals". Assumes no increases in 2003-04 assessed values as a result of property transfers or new construction. (2) Equal to the annual inflation adjustment permitted by Proposition 13 for fiscal year 2004-05. In calculating the 125% coverage test for issuance of additional Parity Debt secured by Emeryville Tax Revenues (see "SECURITY FOR THE 2004 BONDS AND THE LOAN - Issuance of Additional Parity Debt"), the Agency may consider "Additional Revenues" generated as a result of increases in assessed values in the Emeryville Project Area due to inflation at an assumed 2% annual inflation rate. Does not reflect adjustments for property transfers or new construction. (3) Includes unitary tax increment revenue and supplemental increment (but not changes in prior years' tax increment revenue) reported by the County as of July 23, 2004 (see Table 3). Assumes 100% collection of property taxes as a result of the Agency and the County's participation in the Teeter Plan (see "BONDOWNERS' RISKS- Levy and Collection ofTaxes"). (4) See the following section entitled" - Calculation of Projected Housing Set Aside" with respect to the calculation of Housing Set Aside for purposes of calculating debt service coverage on the Housing Loan. (5) Equal to the amount charged by the County in fiscal year 2003-04 and allocated by the Agency to the Emeryville Project Area (it does not include amounts allocated to the Shell mound Park Project Area and the Housing Set Aside). (6) The Emeryville Tax Revenues amount does not reflect any deduction for amounts payable under tax sharing agreements with Chiron or Bay Street Housing Partners because the Agency's payment obligation under the tax sharing agreements is subordinate to its obligation to make payments under the Loan Agreements. The Emeryville Tax Revenues amount also does not reflect any deduction for statutory pass-through obligations, which begin in fiscal year 2005-06 as a result of actions taken under SB 211, because the pass-through is payable from amounts generated from incremental assessed value over the 2004-05 base year, and therefore, will not reduce future tax increment revenues below the 2003-04 level. In addition, the Emeryville Tax Revenues amount does not reflect the impact of any ERAF shifts because ERAF shifts are not deducted from tax increment revenues in order to calculate Tax Revenues for purposes of the Loan Agreements.

Source: Emeryville Redevelopment Agency; Alameda County Assessment Appeals Board.

49 TABLE15 SHELLMOUND PARK PROJECT AREA Calculation of Projected Shellmound Park Tax Revenues

Shellmound Park Project Area 2003-04 Incremental $729,858,468 Assessed Values

Adjustment for Appeals ( 1) (9,987,711)

Proposition 13 Inflation Adjustment (1.867%) (2) 7,945,837

Adjusted 2003-04 Incremental Assessed Value $727,816,594

Adjusted Estimated Tax Increment Revenue (3) $7,924,168

Less Housing Set Aside (4) (1,584,834)

Less County Tax Collection Fee (5) (51 ,046)

Less Pass-Through (6) (2,690,238)

Shellmound Park Tax Revenues (7) $3,598,050

(1) Assumes a 5.69% downward adjustment to 2003-04 assessed values as a result of pending (unresolved) appeals. See "THE SHELLMOUND PARK PROJECT AREA - Assessment Appeals". Assumes no increases in 2003-04 assessed values as a result of property transfers or new construction. (2) Equal to the annual inflation adjustment permitted by Proposition 13 for fiscal year 2004-05. In calculating the 125% coverage test for issuance of additional Parity Debt secured by Shellmound Park Tax Revenues (see "SECURITY FOR THE 2004 BONDS AND THE LOAN - Issuance of Additional Parity Debt"), the Agency may consider "Additional Revenues" generated as a result of increases in assessed values in the Shell mound Park Project Area due to inflation at an assumed 2% annual inflation rate. Does not reflect adjustments for property transfers or new construction. (3) Includes unitary tax increment revenue and supplemental increment (but not changes in prior years' tax increment revenue) reported by the County as of July 23, 2004 (see Table 9). Assumes 100% collection of property taxes as a result of the Agency and the County's participation in the Teeter Plan (see "BONDOWNERS' RISKS- Levy and Collection ofTaxes"). (4) See the following section entitled" - Calculation of Projected Housing Set Aside" with respect to the calculation of Housing Set Aside for purposes of calculating debt service coverage on the Housing Loan. (5) Equal to the amount charged by the County in fiscal year 2003-04 and allocated by the Agency to the Shellmound Park Project Area (it does not include amounts allocated to the Emeryville Project Area and the Housing Set Aside). (6) On October 1, 2028, the percentage passed-through to the County will increase from 32% to 43.708%. The following tables reflect the increase beginning in fiscal year 2028-29. (7) The Shellmound Park Tax Revenues amount does not reflect any deduction for amounts payable under tax sharing agreements with Chiron or Bay Street Housing Partners because the Agency's payment obligation under the tax sharing agreements is subordinate to its obligation to make payments under the Loan Agreements. In addition, the Shell mound Park Tax Revenues amount does not reflect the impact of any ERAF shifts because ERAF shifts are not deducted from tax increment revenues in order to calculate Tax Revenues for purposes of the Loan Agreements.

Source: Emeryville Redevelopment Agency; Alameda County Assessment Appeals Board.

50 Calculation of Projected Housing Set Aside. For purposes of calculating the 125% coverage test for issuance of additional Parity Debt secured by Housing Set Aside (see "SECURITY FOR THE 2004 BONDS AND THE LOAN - Issuance of Additional Parity Debt"), the Agency may not consider "Additional Revenues" as it may with respect to Parity Debt secured by Emeryville Tax Revenues and Shellmound Park Tax Revenues.

Accordingly, for purposes of projecting debt service coverage on the Housing Project Loan Agreement and all Parity Debt, the Agency did not increase the assessed value of taxable property in the Project Areas by the Proposition 13 inflation factor of 1.867%, which resulted in the following Housing Set Aside amounts:

Project Area Housing Set Aside

Emeryville Project Area: $1,568,726

Shellmound Park Project Area: 2, 708,270

51 Debt Service Coverage. The following tables detail projected coverage on the Loans and all Parity Debt using the projected Tax Revenues and Housing Set Aside calculated in the preceding tables.

TABLE16 EMERYVILLE PROJECT AREA Emeryville Tax Revenues and Estimated Debt Service Coverage

Interest Principal Total Emeryville Payments Under Payments Under Payments Under Tax Parity Emeryville Emeryville Emeryville Total Fiscal Year (1) Revenues (2) Debt Service (3) Loan Agreement Loan Agreement Loan Agreement (4) Debt Service Coverage 2005 $10,791, 139 $6,074,558 $1,546,066 $1,546,066 $7,620,624 142% 2006 10,791,139 6,071,898 $1,035,000 1,524,888 2,559,888 8,631,785 125 2007 10,791,139 6,072,515 1,075,000 1,483,488 2,558,488 8,631,003 125 2008 10,791,139 6,071,715 1,120,000 1,440,488 2,560,488 8,632,203 125 2009 10,791,139 6,067,865 1,165,000 1,395,688 2,560,688 8,628,553 125 2010 10,791,139 6,071,610 1,205,000 1,354,913 2,559,913 8,631,523 125 2011 10,791,139 6,071,838 1,265,000 1,294,663 2,559,663 8,631,500 125 2012 10,791,139 6,073,934 1,320,000 1,237,738 2,557,738 8,631,671 125 2013 10,791,139 6,073,150 1,385,000 1, 171,738 2,556,738 8,629,888 125 2014 10,791,139 6,076,756 1,450,000 1, 102,488 2,552,488 8,629,244 125 2015 10,791,139 6,069,985 1,530,000 1,029,988 2,559,988 8,629,973 125 2016 10,791,139 6,073,578 1,585,000 969,553 2,554,553 8,628,130 125 2017 10,791,139 6,072,176 1,655,000 905,360 2,560,360 8,632,536 125 2018 10,791,139 6,075,358 1,720,000 836,678 2,556,678 8,632,035 125 2019 10,791,139 6,073,183 1,795,000 764,438 2,559,438 8,632,620 125 2020 10,791,139 6,073,593 1,870,000 688,150 2,558,150 8,631,743 125 2021 10,791,139 6,071,738 1,950,000 606,805 2,556,805 8,628,543 125 2022 10,791,139 6,072,718 2,035,000 520,030 2,555,030 8,627,748 125 2023 10,791,139 6,070,188 2,130,000 428,455 2,558,455 8,628,643 125 2024 10,791,139 6,070,406 2,230,000 331,540 2,561,540 8,631,946 125 2025 10,791,139 6,071,856 2,330,000 228,960 2,558,960 8,630,816 125 2026 10,791,139 6,073,613 2,440,000 117, 120 2,557,120 8,630,733 125

(1) Emeryville Tax Revenues are shown on a fiscal year basis (June 1 - June 30) and debt service is shown on a Bond Year basis (September 2 - September 1). (2) See Table 14. (3) Includes actual debt service on the Emeryville loan agreements relating to the 2002 A Bonds, the 2001 A Bonds and the 1998 Bonds. (4) Represents debt service on the Emeryville Loan Agreement.

Source: Emeryville Redevelopment Agency.

52 TABLE17 SHELLMOUND PARK PROJECT AREA Shellmound Park Tax Revenues and Estimated Debt Service Coverage

Interest Payments Principal Payments Total Shell mound Under Under Shellmound Payments Under Total Fiscal Tax Parity Debt Shellmound Park Park Shellmound Park Debt Year (1) Revenues (2) Service (3) Loan Agreement Loan Agreement Loan Agreement (4) Service Coverage 2005 $3,598,050 $756,238 $1,258,120 $1,258,120 $2,014,357 179% 2006 3,598,050 757,528 $ 500,000 1,240,885 1,740,885 2,498,413 144 2007 3,598,050 758,248 520,000 1,220,885 1,740,885 2,499,133 144 2008 3,598,050 758,388 540,000 1,200,085 1,740,085 2,498,473 144 2009 3,598,050 758,153 565,000 1, 178,485 1,743,485 2,501,638 144 2010 3,598,050 757,183 585,000 1,158,710 1,743,710 2,500,893 144 2011 3,598,050 760,455 610,000 1, 129,460 1,739,460 2,499,915 144 2012 3,598,050 757,730 640,000 1,102,010 1,742,010 2,499,740 144 2013 3,598,050 759,313 670,000 1,070,010 1,740,010 2,499,323 144 2014 3,598,050 759,713 705,000 1,036,510 1,741,510 2,501,223 144 2015 3,598,050 759,303 740,000 1,001,260 1,741,260 2,500,563 144 2016 3,598,050 757,983 770,000 972,030 1,742,030 2,500,013 144 2017 3,598,050 755,823 805,000 940,845 1,745,845 2,501,668 144 2018 3,598,050 757,823 835,000 907,438 1,742,438 2,500,260 144 2019 3,598,050 758,823 870,000 872,368 1,742,368 2,501,190 144 2020 3,598,050 758,613 905,000 835,393 1,740,393 2,499,005 144 2021 3,598,050 757,393 945,000 796,025 1,741,025 2,498,418 144 2022 3,598,050 760,163 985,000 753,973 1,738,973 2,499,135 144 2023 3,598,050 756,663 1,035,000 709,648 1,744,648 2,501,310 144 2024 3,598,050 757,250 1,080,000 662,555 1,742,555 2,499,805 144 2025 3,598,050 756,581 1,130,000 612,875 1,742,875 2,499,456 144 2026 3,598,050 759,656 1,185,000 558,635 1,743,635 2,503,291 144 2027 3,598,050 756,219 1,245,000 501,755 1,746,755 2,502,974 144 2028 3,598,050 756,525 1,300,000 441,995 1,741,995 2,498,520 112 2029 2,791,830 755,319 805,000 379,595 1,184,595 1,939,914 144 2030 2,791,830 757,006 845,000 340,955 1,185,955 1,942,961 144 2031 2,791,830 756,900 885,000 299,973 1,184,973 1,941,873 144 2032 2,791,830 756,238 1,685,000 257,050 1,942,050 1,942,050 144 2033 2,791,830 757,528 1,765,000 175,328 1,940,328 1,940,328 144 2034 2,791,830 758,248 1,850,000 89,725 1,939,725 1,939,725 144

(1) Shellmound Park Tax Revenues are shown on a fiscal year basis (July 1 - June 30), and debt service is shown on a Bond Year basis (September 2 - September 1). (2) See Table 15. On October 1, 2028, the percentage passed-through to the County will increase from 32% to 43.708%. Shellmound Park Tax Revenues, as projected in this table, decrease beginning in fiscal year 2028-29 to reflect increased pass-throughs to the County. (3) Includes actual debt service on the Shellmound Park loan agreement relating to the 2001 A Bonds and the 19988 Bonds. (4) Represents debt service on the Shell mound Park Loan Agreement.

Source: Emeryville Redevelopment Agency.

53 TABLE18 EMERYVILLE AND SHELLMOUND PARK PROJECT AREAS Housing Set Aside and Estimated Debt Service Coverage

Principal Total Parity Interest Payments Under Payments Under Payments Under Fiscal Housing Debt Service Housing Project Housing Project Housing Project Total Year(1) Set Aside (2) (3) Loan Agreement (4) Loan Agreement (4) Loan Agreement (4) Debt Service Coverage 2005 $4,276,995 $1,984,218 $811,240 $ 811,240 $2,795,458 153% 2006 4,276,995 1,981,681 $ 360,000 800,128 1,160,128 3,141,809 136 2007 4,276,995 1,982,164 375,000 785,728 1,160,728 3,142,892 136 2008 4,276,995 1,985,632 385,000 770,728 1,155,728 3,141,360 136 2009 4,276,995 1,981,929 405,000 755,328 1,160,328 3,142,257 136 2010 4,276,995 1,985,316 415,000 741,153 1,156,153 3, 141,469 136 2011 4,276,995 1,985,856 435,000 720,403 1, 155,403 3, 141,259 136 2012 4,276,995 1,983,464 460,000 700,828 1,160,828 3, 144,291 136 2013 4,276,995 1,983,585 480,000 677,828 1,157,828 3,141,413 136 2014 4,276,995 1,985,305 505,000 653,828 1,158,828 3, 144, 133 136 2015 4,276,995 1,983,898 530,000 628,578 1,158,578 3, 142,476 136 2016 4,276,995 1,984,548 550,000 607,643 1,157,643 3, 142, 190 136 2017 4,276,995 1,981,841 575,000 585,368 1,160,368 3,142,209 136 2018 4,276,995 1,985,800 595,000 561,505 1,156,505 3,142,305 136 2019 4,276,995 1,980,843 625,000 536,515 1,161,515 3,142,358 136 2020 4,276,995 1,982,321 650,000 509,953 1,159,953 3,142,273 136 2021 4,276,995 1,984,125 675,000 481,678 1,156,678 3,140,803 136 2022 4,276,995 1,981,148 705,000 451,640 1,156,640 3,137,788 136 2023 4,276,995 1,983,683 735,000 419,915 1, 154,915 3,138,598 136 2024 4,276,995 1,981,010 775,000 386,473 1, 161,473 3, 142,483 136 2025 4,276,995 1,983,180 805,000 350,823 1,155,823 3,139,003 136 2026 4,276,995 1,984,440 845,000 312,183 1,157,183 3,141,623 136 2027 4,276,995 431,360 450,000 271,623 721,623 1,152,983 136 2028 1,568,726 429,400 470,000 250,023 720,023 1, 149,423 136 2029 1,568,726 431,000 490,000 227,463 717,463 1, 148,463 137 2030 1,568,726 430,800 515,000 203,943 718,943 1,149,743 136 2031 1,568,726 428,800 545,000 178,965 723,965 1,152,765 136 2032 1,568,726 1,000,000 152,533 1,152,533 1,152,533 136 2033 1,568,726 1,045,000 104,033 1,149,033 1,149,033 137 2034 1,568,726 1,100,000 53,350 1,153,350 1,153,350 136

(1) Housing Set Aside is shown on a fiscal year basis (July 1 - June 30), and debt service is shown on a Bond Year basis (September 2 - September 1). (2) See the preceding section entitled "- Calculation of Projected Housing Set Aside". The Emeryville Redevelopment Plan terminates on July 27, 2027. Thereafter, Housing Set Aside reflects tax increment generated solely in the Shellmound Park Project Area. (3) Includes actual debt service on the unrefunded portion of the Housing Set Aside loan agreement relating to the 1995 Bonds and actual debt service on the Housing Set Aside loan agreements relating to 1998 Bonds and the 2001 B Bonds. (4) Represents debt service on the Housing Project Loan Agreement.

Source: Emeryville Redevelopment Agency.

54 BOND OWNERS' RISKS

The following information should be considered by prospective investors in evaluating the 2004 Bonds. However, the following does not purport to be an exhaustive listing of risks and other considerations that may be relevant to investing in the 2004 Bonds. In addition, the order in which the following information is presented is not intended to reflect the relative importance of these risks.

Reduction of Tax Base

The Emeryville Tax Revenues, the Shellmound Park Tax Revenues, and the Housing Set Aside allocated to the Agency constitute the primary security for the applicable Loans, and in turn for the Bonds. Tax Revenues and the Housing Set Aside are determined by the amount of incremental assessed value of taxable property in one or more Project Areas, the current rate or rates at which property in such Project Area or Project Areas is taxed, and the percentage of taxes collected in such Project Area or Project Areas.

Several types of events beyond the control of the Agency and the Authority could occur and cause a reduction in available Tax Revenues and the Housing Set Aside that secure the Loans, including among others the following: a reduction of taxable values of property in one or more of the Project Areas caused by local or regional economic factors; a relocation out of one or more of the Project Areas by one or more major property owners; successful appeals by property owners for a reduction in a property's assessed value; a reduction of the general inflationary rate; or the destruction of property caused by natural or other disasters. This risk increases in proportion to the percent of total assessed value attributable to any single assessee in any Project Area. For information regarding the largest assessees of the Project Areas, see "THE EMERYVILLE REDEVELOPMENT PROJECT AREA" and "THE SHELLMOUND PARK REDEVELOPMENT PROJECT AREA."

Reduction in Inflationary Rate

As described in greater detail below, Article XIIIA of the California Constitution provides that the full cash value base of real property used in determining taxable value may be adjusted from year to year to reflect the inflationary rate, not to exceed a 2% increase for any given year, or may be reduced to reflect a reduction in the consumer price index or comparable local data. Such measure is computed on a calendar year basis.

Because Article XIIIA limits inflationary assessed value adjustments to the lesser of the actual inflationary rate or 2%, there have been years in which the assessed values were adjusted by actual inflationary rates, which were less than 2%. Since Article XIIIA was approved, the annual adjustment for inflation has fallen below the 2% limitation five times: in fiscal year 1983-84, 1%; in fiscal year 1995-96, 1.19%; in fiscal year 1996-97, 1.11 %; in fiscal year 1999-00, 1.85%; and in 2004-05, 1.867%. The Agency is unable to predict if any adjustments to the full cash value base of real property within either Project Area, whether an increase or a reduction, will be realized in the future.

Future Changes In the Law

In addition to the existing limitations on Tax Revenues and the Housing Set Aside described herein under "LIMITATIONS ON TAX REVENUES AND HOUSING SET ASIDE," the California electorate or Legislature could adopt future limitations with the effect of reducing Tax Revenues and the Housing Set Aside payable to the Agency.

55 Levy and Collection of Taxes

The Agency has no independent power to levy or collect property taxes. Any reduction in the tax rate or the implementation of any constitutional or legislative property tax decrease could reduce the Tax Revenues and the Housing Set Aside, and accordingly, could have an adverse impact on the ability of the Agency to repay the Loans.

Likewise, delinquencies in the payment of property taxes by the owners of land in the Project Areas, and the impact of bankruptcy proceedings on the ability of taxing agencies to collect property taxes, could have an adverse effect on the Agency's ability to make timely Loan payments. Any reduction in Tax Revenues and the Housing Set Aside, whether for any of these reasons or any other reasons, could have an adverse effect on the Agency's ability to meet its obligations under the Loan Agreements and thus adversely affect the Authority's ability to pay the principal of and interest on the 2004 Bonds.

Alameda County has elected to follow the procedures of Sections 4701 et seq. of the California Revenue and Taxation Code, known as the "Teeter Plan," and consequently, property tax revenues in the Project Area do not reflect actual collections. The County could elect to terminate the Teeter Plan and, in such event, the amount of the levy of tax increment received by the Agency would depend upon the actual collections of the secured taxes within the Project Areas. Substantial delinquencies in the payment of property taxes could impair the timely receipt by the Agency of Tax Revenues and Housing Set Aside.

Concentrated Property Ownership

The 10 largest property taxpayers in each of the Emeryville Project Area and the Shellmound Park Project Area account for approximately 55% of their respective Project Area's assessed valuation, and an even higher percentage of their respective Project Area's incremental assessed valuation. See "THE EMERVYILLE PROJECT AREA - Largest Taxpayers" and "THE SHELLMOUND PARK PROJECT AREA - Largest Taxpayers". Consequently, the Agency's ability to make loan payments on the Loans could be adversely affected in the event one or more of these property taxpayers were to vacate their respective Project Area or successfully apply for a reduction in the assessed value of their property in their respective Project Area. In fact, as described in the sections entitled 'THE EMERYVILLE PROJECT AREA - Assessment Appeals" and 'THE SHELLMOUND PARK PROJECT AREA - Assessment Appeals", a number of the largest property taxpayers have appealed the assessed value of property owned by them in one or both of the Project Areas.

Litigation Regarding 2 Percent Limitation

In a Minute Order issued on November 2, 2001, in County of Orange v. Orange County Assessment Appeals Board No. 3, Case No. OOCC03385, the Orange County Superior Court held that where a home's taxable value did not increase for two years, due to a flat real estate market, the Orange County assessor violated the two percent inflation adjustment provision of Article XIIIA when the assessor tried to "recapture" the tax value of the property by increasing its assessed value by 4% in a single year. The assessors in most California counties use a similar methodology in raising the taxable values of property beyond 2% in a single year.

On December 27, 2001, the Orange County Superior Court issued an order declaring the practice of "recapturing" to be unconstitutional. Following further actions on other related issues in the case (including the certification of class action status for this case), the court entered a Final Judgment on April 18, 2003, and the case is now released from the local court.

56 In 2002 two local courts (Los Angeles and San Diego) ruled differently on the "recapture" issue. When local courts differ, the subject matter is often subject to a uniformity review by higher courts to address statewide issues of uniformity and equal protection.

Orange County, the Orange County Tax Collector and the Orange County Assessor appealed the Superior Court ruling to California Court of Appeal for the Fourth Appellate District. The appellate court issued its ruling on March 26, 2004, overturning the trial court in the case (now captioned County of Orange, et al., v. Bezaire, Case No. 8032412). The appellate court held that the trial court erred in ruling that assessments are always limited to no more than 2% of the previous year's assessment, and that the base on which the 2% inflation factor is figured remains that of the original purchase price (or assessment at the time of new construction), not any reduced based resulting from a reassessment in the wake of a decline in property values.

On May 6, 2004, the case was appealed to the California Supreme Court as Case No. 8124682. On July 21, 2004, the California Supreme Court denied the petition for review.

Estimates of Tax Revenues

To estimate the total revenues available to pay debt service on the 2004 Bonds, the Agency and the Authority have made certain assumptions detailed in "DEBT SERVICE AND ESTIMATED COVERAGE". The Agency and the Authority believe these assumptions to be reasonable, but to the extent that the actual assessed values in the Project Areas, the tax rates, the rate of inflation, the percentage of taxes collected, the results of assessment appeals, or the impact of the State budget situation are different than the Agency and the Authority's assumptions, the total revenues available to pay debt service on the 2004 Bonds could be less than those projected in this Official Statement. See "DEBT SERVICE AND ESTIMATED COVERAGE."

Additional Obligations

The Authority and Agency may issue bonds or incur other obligations payable from Tax Revenues on a parity with the Loans, provided that the conditions set forth in the Loan Agreement are met. See "SECURITY FOR THE 2004 BONDS AND THE LOANS - Issuance of Additional Parity Debt." The Authority and Agency may also issue bonds or incur obligations payable from Tax Revenues or the Housing Set Aside which are subordinate to the 2004 Bonds. See APPENDIX A - "SUMMARY OF PRINCIPAL LEGAL DOCUMENTS."

Earthquake Risk

The City is located in close proximity to several seismically active earthquake faults, including the San Andreas and Hayward faults. The City has experienced earthquakes with a Richter magnitude of 6.0 or greater and with the epicenter being within the San Francisco Bay Area. Earthquake damage in the Project Areas would adversely affect assessed valuation and therefore the ability of the Authority to pay debt service on the 2004 Bonds.

57 Hazardous Substances

The discovery of hazardous substances on the property in the Project Area could limit the beneficial use of taxable property within the Project Areas. In general, the owners and operators of a property may be required by law to remedy conditions of the property relating to releases or threatened releases of hazardous substances. The owner or operator may be required to remedy a hazardous substance condition of property whether or not the owner or operator has anything to do with creating or handling the hazardous substance. Should any of the property within either of the Project Areas be affected by a hazardous substance, the effect could be to reduce the marketability and value of the property by the costs of remedying the condition or other amounts, which could result in the reduction in the assessed value of property in the Project Areas.

Bankruptcy Risks

The enforceability of the rights and remedies of the owners of the 2004 Bonds and the obligations of the Agency may become subject to the following, and the various legal opinions to be delivered concurrently with the delivery of the 2004 Bonds (including Bond Counsel's approving legal opinion) will be qualified as to the enforceability of the various legal instruments by the following: the federal bankruptcy code and applicable bankruptcy, insolvency, reorganization, moratorium, or similar laws relating to or affecting the enforcement of creditors' rights generally, now or hereafter in effect; usual equitable principles which may limit the specific enforcement under state law of certain remedies; the exercise by the United States of America of the powers delegated to it by the federal Constitution; and the reasonable and necessary exercise, in certain exceptional situations of the police power inherent in the sovereignty of the State of California and its governmental bodies in the interest of servicing a significant and legitimate public purpose.

Bankruptcy proceedings, or the exercise of powers by the federal or state government, if initiated, could subject the owners of the 2004 Bonds to judicial discretion and interpretation of their rights in bankruptcy or otherwise and consequently may entail risks of delay, limitation, or modification of their rights.

State Budget

The State of California faces severe budget issues for fiscal year 2004-05 and possibly beyond. In connection with its approval of former budgets, the State Legislature enacted legislation, that among other things, reallocated a portion of funds from redevelopment agencies to school districts by shifting each agency's tax increment, net of amounts due to other taxing agencies, to school districts ("ERAF" shifts).

The Governor signed the 2004-05 State Budget on July 31, 2004. The 2004-05 State Budget again includes a transfer by redevelopment agencies to the applicable ERAFs. However, the aggregate amount of ERAF transfers by redevelopment agencies will increase from $135 million (in Fiscal Year 2003-04) to $250 million in each of Fiscal Years 2004-05 and 2005-06. The Agency's share of the annual $250 million shift for Fiscal Years 2004-05 and 2005-06 is approximately $1.943 million in each fiscal year.

As part of the State Budget, the Governor and the Legislature also agreed to place a constitutional amendment on the November 2004 ballot (the "Local Government Initiative"); the Local Government Initiative would, among other things, prohibit any further transfers of non education local government property taxes for the benefit of the State; however, the Local Government Initiative does not purporl to change existing law with respect to the State's ability to transfer redevelopment agencies' properly tax revenues.

58 The Agency cannot predict whether the State Legislature will enact legislation impacting future Tax Revenues and Housing Set Aside. Given the level of the State's budget deficit problems, it is possible that tax increment available for payment of the 2004 Bonds may be reduced in the future by actions of the State Legislature.

Information about the State budget and State spending is available at various State maintained websites. Text of the budget may be found at the website of the Department of Finance, www.dof.ca.gQ'l, under the heading "California Budget." An impartial analysis of the budget is posted by the Office of the Legislative Analyst at www.lao.ca,_gov. In addition, various State of California official statements for its various debt obligations, many of which contain a summary of the current and past State budgets, may be found at the website of the State Treasurer, www.treasurer.ca&ov. All of such websites are provided for general informational purposes only and the material on such sites is in no way incorporated into this Official Statement.

59 CERTAIN LEGAL MATTERS

Quint & Thimmig LLP, San Francisco, California, Bond Counsel, will render an opinion with respect to the 2004 Bonds substantially in the form set forth in Appendix D to this Official Statement. Copies of this opinion will be available at the time of delivery of the 2004 Bonds. The fee paid to Quint & Thimmig LLP as Bond Counsel is contingent on the successful sale and delivery of the 2004 Bonds.

Certain legal matters will be passed upon for the Agency and the Authority by the City Attorney of the City and for the Underwriters by Jones Hall, A Professional Law Corporation. The fee paid to Jones Hall as Underwriter's counsel is contingent on the successful sale and delivery of the 2004 Bonds.

RATINGS

Standard & Poor's Credit Ratings Services, a division of The McGraw-Hill Companies, Inc. ("S&P"), has assigned the 2004 Bonds a rating of "AAA," upon the understanding that Ambac Assurance will issue the Financial Guaranty Insurance Policy simultaneously with the issuance and delivery of the 2004 Bonds. S&P has also assigned an underlying rating to the 2004 Bonds of BBB+.

These ratings reflect only the views of S&P. Explanations of the significance of such ratings must be obtained from S&P. There is no assurance that such ratings will continue for any given period of time or will not be revised downward or withdrawn entirely by such rating agency, if, in the judgment of such rating agency, circumstances so warrant. Any such downward revision or withdrawal of such ratings may have an adverse effect on the market price of the 2004 Bonds.

UNDERWRITING

A portion of the 2004 Bonds is being purchased for reoffering by Stone & Youngberg LLC and E. J. De La Rosa & Co., Inc. (collectively, the "Underwriters"). The Underwriters have agreed to purchase the 2004 Bonds maturing on September 1, 2006 through September 1, 2014 (the "2004 Underwritten Bonds") for $21,230,458.65 (equal to the principal amount of the 2004 Underwritten Bonds ($20, 175,000), plus an original issue premium on the 2004 Underwritten Bonds to investors of $1,581,775.85 and less an underwriter's discounUplacement fee of $526,317.20). The remainder of the 2004 Bonds, maturing on September 1, 2015 through September 1, 2034, in the aggregate principal amount of $58,615,000, has been privately placed. The Composite Purchase Contract under which the Underwriters are purchasing the 2004 Underwritten Bonds provides that the Underwriters will purchase all of the 2004 Underwritten Bonds if any are purchased. The obligation of the Underwriters to make such purchase is subject to certain terms and conditions set forth in the Composite Purchase Contract.

Offering Prices. The Underwriters may offer and sell the 2004 Underwritten Bonds to certain dealers and others at prices different from the prices stated on the inside front cover page of this Official Statement. The offering prices may be changed from time to time by the Underwriters.

60 CONTINUING DISCLOSURE

The Agency has covenanted for the benefit of Bondowners with respect to each series of 2004 Bonds to provide certain financial information and operating data relating to the Agency by not later than March 31 in each year commencing March 31, 2005 (the "Annual Report"), and to provide notices of the occurrence of certain enumerated events, if material. The Agency will file each Annual Report with each Nationally Recognized Municipal Securities Information Repository, and with the appropriate State information depository, if any. The Agency will file any notices of material events with the Municipal Securities Rulemaking Board (and with the appropriate State information depository, if any). These covenants have been made in order to assist the Underwriters in complying with S.E.C. Rule 15c2-12(b)(5) (the "Rule"). See "APPENDIX E- FORMS OF CONTINUING DISCLOSURE CERTIFICATES."

The Agency has never failed to comply in all material respects with its previous undertakings under the Rule to provide annual continuing disclosure reports and notices of material events.

LITIGATION

There is no litigation pending or, to the Agency's or the Authority's knowledge, threatened in any way to restrain or enjoin the issuance, execution or delivery of the 2004 Bonds, to contest the validity of the 2004 Bonds, the Indenture or the Loan Agreements, or any proceeding of the Agency or the Authority with respect to the 2004 Bonds, the Indenture or the Loan Agreements. In the opinion of the Agency and its counsel there are no lawsuits or claims pending against the Agency that may materially affect the Authority's finances so as to impair its ability to pay the principal of, premium (if any) and interest on the 2004 Bonds when due.

TAX MATTERS

In the opinion of Quint & Thimmig LLP, San Francisco, California, Bond Counsel, subject, however, to the qualifications set forth below, under existing law, the interest on the 2004 Bonds is excluded from gross income for federal income tax purposes and such interest is not an item of tax preference for purposes of the federal alternative minimum tax imposed on individuals and corporations, provided, however, that, for the purpose of computing the alternative minimum tax imposed on corporations (as defined for federal income tax purposes), such interest is taken into account in determining certain income and earnings.

The opinions set forth in the preceding paragraph are subject to the condition that the Authority comply with all requirements of the Code that must be satisfied subsequent to the issuance of the 2004 Bonds in order that such interest be, or continue to be, excluded from gross income for federal income tax purposes. The Authority has covenanted to comply with each such requirement. Failure to comply with certain of such requirements may cause the inclusion of such interest in gross income for federal income tax purposes to be retroactive to the date of issuance of the 2004 Bonds.

In the further opinion of Bond Counsel, interest on the 2004 Bonds is exempt from California personal income taxes.

61 Owners of the 2004 Bonds should also be aware that the ownership or disposition of, or the accrual or receipt of interest on, the 2004 Bonds may have federal or state tax consequences other than as described above. Bond Counsel expresses no opinion regarding any federal or state tax consequences arising with respect to the 2004 Bonds other than as expressly described above.

EXECUTION

All information contained in this Official Statement pertaining to the Agency, the City and the Authority have been furnished by the Agency, the City and the Authority, and the execution and delivery of this Official Statement have been duly authorized by the Authority and the Agency.

EMERYVILLE PUBLIC FINANCING AUTHORITY

By: Isl Pauline A Marx Treasurer

EMERYVILLE REDEVELOPMENT AGENCY

By: Isl John A Flores Executive Director

62 APPENDIX A

SUMMARY OF PRINCIPAL LEGAL DOCUMENTS

The following is a brief summary of the provisions of the Indenture and the Loan Agreements not otherwise summarized in the text of this Official Statement. This summary is not intended to be definitive, and reference is made to the complete text of such documents for the complete terms thereof

INDENTURE

Definitions

"Act" means Articles 1 through 4 (commencing with section 6500) of Chapter 5, Division 7, Title 1 of the California Government Code, as in existence on the Closing Date or as thereafter amended from time to time.

"Agency" means the Emeryville Redevelopment Agency, a public body corporate and politic organized under the laws of the State, and any successor thereto.

"Agreement" means that certain Joint Exercise of Powers Agreement, dated as of July 16, 1988, by and between the City and the Agency, together with any amendments thereof and supplements thereto.

II Ambac Assurance" means Ambac Assurance Corporation, a Wisconsin domiciled stock insurance corporation, and its successors and assigns.

II Authority" means the Emeryville Public Financing Authority, a joint exercise of powers authority duly organized and existing under the Agreement and the laws of the State.

"Board" means the Board of Directors of the Authority.

"Bonds" means the Emeryville Public Financing Authority Revenue Bonds, 2004 Series A (Emeryville Redevelopment, Shellmound Park Redevelopment and Housing Projects), authorized by and at any time Outstanding pursuant to the Bond Law and the Indenture.

"Bond Law" means the Marks-Roos Local Bond Pooling Act of 1985, constituting Article 4 of the Act (commencing with section 6584), as in existence on the Closing Date or as thereafter amended from time to time.

"Bond Proceeds Fund" means the fund by that name established and held by the Trustee pursuant to the Indenture.

"Bond Year" means each twelve-month period extending from September 2 in one calendar year to September 1 of the succeeding calendar year, both dates inclusive; provided that the first Bond Year with respect to the Bonds shall commence on the Closing Date and end on September 1, 2004.

"Business Day" means any day, other than a Saturday or Sunday or a day on which commercial banks in New York, New York, Los Angeles, California, or San Francisco, California, or the corporate trust office of the Trustee, are required or authorized by law to close or a day on which the New York Stock Exchange is closed.

"Certificate of the Agency" means a certificate in writing signed by the Chair, Vice Chair, Executive Director, Treasurer or Secretary of the Agency or by any other officer of the Agency duly authorized by the Agency for that purpose.

Appendix A Page 1 "Certificate of the Authority" means a certificate in writing signed by the Chair, Vice Chair, Executive Director, Treasurer or Secretary of the Authority, or by any other officer of the Authority duly authorized by the Board for that purpose.

"City" means the City of Emeryville, a general law city and municipal corporation organized and existing under the laws of the State.

"Closing Date" means the date of original issuance of the Bonds.

"Code" means the Internal Revenue Code of 1986 as in effect on the date of issuance of the Bonds or (except as otherwise referenced herein) as it may be amended to apply to obligations issued on the date of issuance of the Bonds, together with applicable proposed, temporary and final regulations promulgated under the Code.

"Continuing Disclosure Certificate" means that certain Continuing Disclosure Certificate executed by the Agency and dated the date of issuance and delivery of the Bonds, as originally executed and as it may be amended form time to time in accordance with the terms thereof.

"Costs of Issuance" means all expenses incurred in connection with the authorization, issuance, sale and delivery of the Bonds, compensation, fees and expenses (including, but not limited to fees and expenses for legal counsel) of the Authority and the Trustee, compensation to any financial consultants or underwriters, legal fees and expenses and recording costs, rating agency fees, bond insurance premiums, costs of preparation and reproduction of documents and costs of printing.

"Costs of Issuance Fund" means the fund by that name established and held by the Trustee pursuant to the Indenture.

"Debt Service Fund" means the fund by that name established pursuant to the Indenture.

"Emeryville Redevelopment Project Redevelopment Fund" means the fund of the Agency of that name established by the Agency pursuant to the Law.

"Emeryville Redevelopment Project Reserve Fund" the reserve fund established pursuant to the 2004 Emeryville Project Loan Agreement.

"Event of Default" means, (a) with respect to the Bonds, any of the events described in the Indenture, and (b) with respect to the Loan Agreements, any of the events described in the Loan Agreements.

"Fair Market Value" means the price at which a willing buyer would purchase the investment from a willing seller in a bona fide, arm's length transaction ( determined as of the date the contract to purchase or sell the investment becomes binding) if the investment is traded on an established securities market (within the meaning of section 1273 of the Code) and, otherwise, the term "Fair Market Value" means the acquisition price in a bona fide arm's length transaction (as referenced above) if (i) the investment is a certificate of deposit that is acquired in accordance with applicable regulations under the Code, (ii) the investment is an agreement with specifically negotiated withdrawal or reinvestment provisions and a specifically negotiated interest rate (for example, a guaranteed investment contract, a forward supply contract or other investment agreement) that is acquired in accordance with applicable regulations under the Code, (iii) the investment is a United States Treasury Security--State and Local Government Series that is acquired in accordance with applicable regulations of the United States Bureau of Public Debt, or (iv) the investment is the Local Agency Investment Fund of the State but only if at all times during which the investment is held its yield is reasonably expected to be equal to or greater than the yield on a reasonably comparable direct obligation of the United States.

"Federal Securities" means (a) Cash (insured at all times by the Federal Deposit Insurance Corporation), and (b) obligations of, or obligations guaranteed as to principal and interest by, the United States or any agency or instrumentality thereof, when such obligations are backed by the full

Appendix A Page2 faith and credit of the United States including: (i) United States treasury obligations, (ii) all direct or fully guaranteed obligations, (iii) Farmers Home Administration, (iv) General Services Administration, (v) Guaranteed Title XI financing, (vi) Government National Mortgage Association (GNMA), and (vi) State and Local Government Series.

"Financial Guaranty Insurance Policy" means the insurance policy issued by Ambac Assurance insuring the payment, when due, of the principal and interest with respect to the Bonds.

"Fiscal Year" means any twelve-month period extending from July 1 in one calendar year to June 30 of the succeeding calendar year, both dates inclusive, or any other twelve-month period selected and designated by the Authority and the Agency as their official fiscal year period.

"Housing Project Reserve Fund" the reserve fund established pursuant to the 2004 Housing Project Loan Agreement.

"Indenture" means the Indenture of Trust, as originally executed or as it may from time to time be supplemented, modified or amended by any Supplemental Indenture pursuant to the provisions hereof.

"Information Services" means Financial Information, Inc.'s "Daily Called Bond Service," 30 Montgomery Street, 10th Floor, Jersey City, NJ 07302, Attention: Editor; Mergent/FIS, Inc., 5250-77 Center Drive, Charlotte, NC 28217, Attention: Called Bond Dept.; Kenny S&P, 55 Water Street, New York, NY 10041, Attention: Notification Department; and, in accordance with then current guidelines of the Securities and Exchange Commission, such other addresses and/ or such other information services providing information with respect to called bonds as the Authority may designate in a Written Certificate of the Authority delivered to the Trustee.

"Interest Account" means the account by that name established and held by the Trustee pursuant to the Indenture.

"Interest Payment Date" means March 1 and September 1 in each year, beginning March 1, 2005, and continuing thereafter so long as any Bond remain Outstanding.

"Loan Agreements" means, collectively, the 2004 Emeryville Project Loan Agreement, the 2004 Shellmound Project Loan Agreement and the 2004 Housing Project Loan Agreement.

"Loans" means the loans made by the Authority to the Agency pursuant to the Loan Agreements.

"Loan Payment Date" means, with respect to any Interest Payment Date, the fifteenth (15th) calendar day of the month preceding such Interest Payment Date.

"Loan Payments" means the amounts payable by the Agency pursuant to the Loan Agreements and including any amounts payable upon a delinquency in the payment thereof.

"Low and Moderate Income Housing Fund" means the fund of the Agency by that name established pursuant to section 33334.3 of the Redevelopment Law.

"Moody's" means Moody's Investors Service and its successors.

"2004 Bond Proceeds Account of the Emeryville Redevelopment Project Redevelopment Fund" means the account by that name established by the 2004 Emeryville Project Loan Agreement as an account within the Emeryville Redevelopment Project Redevelopment Fund.

"2004 Bond Proceeds Account of the Low and Moderate Income Housing Fund" means the account by that name established by the 2004 Housing Project Loan Agreement as an account within the Low and Moderate Income Housing Fund.

Appendix A Page3 "2004 Bond Proceeds Account of the Shellmound Park Redevelopment Project Redevelopment Fund" means the account by that name established by the 2004 Shellmound Project Loan Agreement as an account within the Shellmound Park Redevelopment Project Redevelopment Fund.

"Outstanding," when used as of any particular time with reference to Bonds, means (subject to the provisions of the Indenture) all Bonds theretofore executed, issued and delivered by the Authority under the Indenture except (a) Bonds theretofore canceled by the Trustee or surrendered to the Trustee for cancellation; (b) Bonds paid or deemed to have been paid within the meaning of the Indenture; and (c) Bonds in lieu of or in substitution for which other Bonds shall have been executed, issued and delivered pursuant to the Indenture or any Supplemental Indenture.

"Owner" or "Bond Owner" or "Bond Owner," when used with respect to any Bond, means the person in whose name the ownership of such Bond shall be registered on the Registration Books.

"Participating Underwriter" shall have the meaning ascribed thereto in the Continuing Disclosure Certificate.

"Permitted Investments" means any of the following, but only to the extent that the same are acquired at Fair Market Value, provided that the Trustee is entitled to rely upon any investment direction received by it under the Indenture as a certification that such investment constitutes a Permitted Investment under the Indenture:

(a) Federal Securities;

(b) Obligations of any of the following federal agencies which obligations represent the full faith and credit of the United States of America, including: (i) Export-Import Bank, (ii) Rural Economic Community Development Administration, (iii) U.S. Maritime Administration, (iv) Small Business Administration, (v) U.S. Department of Housing & Urban Development (PHAs), (vi) Federal Housing Administration, and (vii) Federal Financing Bank;

(c) Direct obligations of any of the following federal agencies which obligations are not fully guaranteed by the full faith and credit of the United States of America: (i) senior debt obligations issued by the Federal National Mortgage Association (FNMA) or Federal Home Loan Mortgage Corporation (FHLMC), (ii) obligations of the Resolution Funding Corporation (REFCORP), (iii) senior debt obligations of the Federal Home Loan Bank System, (iv) senior debt obligations of other government sponsored agencies approved by Ambac Assurance;

(d) U.S. dollar denominated deposit accounts, federal funds and bankers' acceptances with domestic commercial banks which have a rating on their short term certificates of deposit on the date of purchase of "P-1" by Moody's and "A-1" or "A-1 +" by S&P and maturing not more than 360 calendar days after the date of purchase. (Ratings on holding companies are not considered as the rating of the bank);

(e) Commercial paper which is rated at the time of purchase in the single highest classification, "P-1" by Moody's and "A-1 +" by S&P and which matures not more than 270 calendar days after the date of purchase;

(f) Investments in a money market fund rated "AAAm" or "AAAm-G" or better by S&P;

(g) Pre-refunded municipal obligations defined as follows: any bonds or other obligations of any state of the United States of America or of any agency, instrumentality or local governmental unit of any such state which are not callable at the option of the obligor prior to maturity or as to which irrevocable instructions have been given by the obligor to call on the date specified in the notice; and (A) which are rated, based on an irrevocable escrow account or fund (the "escrow"), in the highest rating category of Moody's or S&P or any successors thereto; or (B) (i) which are fully secured as to principal and interest and redemption premium, if any, by an escrow consisting only of cash or obligations described in paragraph A(2) above, which escrow may be applied only to the payment of such principal of and interest and redemption premium, if any, on such bonds or other obligations on

Appendix A Page4 the maturity date or dates thereof or the specified redemption date or dates pursuant to such irrevocable instructions, as appropriate, and (ii) which escrow is sufficient, as verified by a nationally recognized independent certified public accountant, to pay principal of and interest and redemption premium, if any, on the bonds or other obligations described in this paragraph on the maturity date or dates specified in the irrevocable instructions referred to above, as appropriate;

(h) Municipal obligations rated "Aaa/ AAA" or general obligations of states with a rating of "A2/ A" or higher by both Moody's and S&P;

(i) Investment agreements approved in writing by Ambac Assurance (supported by appropriate opinions of counsel);

(j) the Local Agency Investment Fund maintained by the State of California; and

(k) Shares in a California common law trust established pursuant to Title 1, Division 7, Chapter 5 of the California Government Code which invests exclusively in investments permitted by section 53635 of Title 5, Division 2, Chapter 4 of the California Government Code, as it may be amended, including but not limited to the California Asset Management Program (CAMP).

(1) other forms of investments (including repurchase agreements) approved in writing by Ambac Assurance.

"Principal Account" means the account by that name established and held by the Trustee pursuant to the Indenture.

"Record Date" means, with respect to any Interest Payment Date, the fifteenth (15th) calendar day of the month immediately preceding such Interest Payment Date.

"Redemption Account" means the account by that name established and held by the Trustee pursuant to the Indenture.

"Registration Books" means the records maintained by the Trustee pursuant to the Indenture for the registration and transfer of ownership of the Bonds.

"Request of the Agency" means a request in writing signed by the Chair, Vice Chair, Executive Director, Treasurer or Secretary of the Agency or by any other officer of the Agency duly authorized by the Agency for that purpose.

"Request of the Authority" means a request in writing signed by the Chair, Vice Chair, Executive Director, Treasurer or Secretary of the Authority (or the written designate of either) or by any other officer of the Authority duly authorized by the Board for that purpose.

"Revenue Fund" means the fund by that name established pursuant to the Indenture.

"Revenues" means (a) all amounts payable by the Agency pursuant to the 2004 Emeryville Project Loan Agreement, (b) all amounts payable by the Agency pursuant to the 2004 Shellmound Project Loan Agreement, (c) all amounts payable by the Agency pursuant to the 2004 Housing Project Loan Agreement, (d) any moneys held from time to time by the Trustee in the funds and accounts established hereunder; (e) investment income with respect to any moneys held by the Trustee in the funds and accounts established hereunder; and (f) any other investment income received hereunder.

"S&P" means Standard & Poor's Rating Services, A Division of the McGraw-Hill Companies, Inc., and its successors.

"Securities Depositories" means The Depository Trust Company, 55 Water Street, 50th Floor, New York, NY 10041-0099, Attention: Call Notification Department, Fax (212) 855-7232; and, in accordance with then current guidelines of the Securities and Exchange Commission, such other

Appendix A Page5 addresses and/ or such other securities depositories as the Authority may designate in a Written Certificate of the Authority delivered to the Trustee.

"Serial Bonds" means all Bonds other than Term Bonds.

"Shellmound Park Redevelopment Project Redevelopment Fund" means the fund of the Agency of that name established by the Agency pursuant to the Law.

"Shellmound Park Redevelopment Project Reserve Fund" the reserve fund established pursuant to the 2004 Shellmound Project Loan Agreement.

"Sinking Account" means the account by that name established and held by the Trustee pursuant to the Indenture.

"State" means the State of California.

"Supplemental Indenture" means any indenture, agreement or other instrument hereafter duly executed by the Authority and the Trustee in accordance with the provisions of the Indenture.

"Term Bonds" means the Bonds maturing on September 1, 2029, and September 1, 2034, payable from mandatory Sinking Account payments.

"Trust Office" means the principal corporate trust office of the Trustee in San Francisco, California; provided, however, that the Trustee may from time to time designate other offices for purposes of payment, transfer, exchange or registration of Bonds.

"Trustee" means BNY Western Trust Company, in its capacity as trustee, and its successors and assigns, and any other corporation or association which may at any time be substituted in its place as provided in the Indenture.

"2004 Emeryville Project Loan Agreement" means the Loan Agreement, dated as of August 1, 2004, by and among the Authority, the Agency and the Trustee, relating to the Agency's Emeryville Redevelopment Project Area, as originally entered into or as amended or supplemented pursuant to the provisions thereof.

"2004 Housing Project Loan Agreement" means the Loan Agreement, dated as of August 1, 2004, by and among the Authority, the Agency and the Trustee, relating to the financing of low and moderate income housing projects throughout the geographic boundaries of the City, as originally entered into or as amended or supplemented pursuant to the provisions thereof.

"2004 Shellmound Project Loan Agreement" means the Loan Agreement, dated as of August 1, 2004, by and among the Authority, the Agency and the Trustee, relating to the Agency's Shellmound Park Redevelopment Project Area, as originally entered into or as amended or supplemented pursuant to the provisions thereof.

Application of Proceeds of Sale of Bonds

Upon the receipt of payment for the Bonds on the Closing Date, the Trustee shall deposit the proceeds of sale thereof in the Bond Proceeds Fund.

Bond Proceeds Fund

The Trustee shall establish and maintain a separate fund to be known as the "Bond Proceeds Fund" into which shall be deposited the proceeds of sale of the Bonds. The Trustee shall disburse all amounts in the Bond Proceeds Fund on the Closing Date as follows: (a) the Trustee shall deposit an amount in the Costs of Issuance Fund for the payment of Costs of issuance; (b) the Trustee shall deposit an amount in the Emeryville Redevelopment Project Reserve Fund being the amount required to be deposited therein which, together with reserve funds created for certain parity obligations, is

Appendix A Page6 equal to the Reserve Requirement for the Emeryville Redevelopment Project; (c) the Trustee shall deposit an amount in the Housing Project Reserve Fund being the amount required to be deposited therein which, together with reserve funds created for certain parity obligations, is equal to the Reserve Requirement for the Housing Project; ( d) the Trustee shall deposit an amount in the Shellmound Park Redevelopment Project Reserve Fund being the amount required to be deposited therein which, together with reserve funds created for certain parity obligations, is equal to the Reserve Requirement for the Shellmound Park Redevelopment Project; (e) the Trustee shall transfer to the Agency an amount for deposit by the Agency in the 2004 Bond Proceeds Account of the Emeryville Redevelopment Project Redevelopment Fund in accordance with the 2004 Emeryville Project Loan Agreement; (f) the Trustee shall transfer to the Agency an amount for deposit by the Agency in the 2004 Bond Proceeds Account of the Shellmound Park Redevelopment Project Redevelopment Fund in accordance with the 2004 Shellmound Project Loan Agreement; and (g) the Trustee shall transfer to the Agency an amount for deposit by the Agency in the 2004 Bond Proceeds Account of the Low and Moderate Income Housing Fund in accordance with the 2004 Housing Project Loan Agreement.

Costs of Issuance Fund

The moneys in the Costs of Issuance Fund shall be used to pay Costs of Issuance from time to time upon receipt of a Request of the Authority, which Request shall specify the amount to be paid, the name and address (if not otherwise provided) of the payee, and shall certify that the amount to be paid is a proper charge on the Costs of Issuance Fund. On the date which is six months following the Closing Date, or upon the earlier receipt by the Trustee of a Request of the Authority stating that all Costs of Issuance have been paid, the Trustee shall close the Costs of Issuance Fund and shall transfer all amounts therein to the Revenue Fund as a credit for Loan Payments to be made by the Agency under the Loan Agreement.

Pledge of Revenue: Assignment of Rights

The Bonds shall be secured by a first lien on and pledge (which shall be effected in the manner and to the extent provided in the Indenture) of all of the Revenues and a pledge of all of the moneys in the Interest Account, the Principal Account and the Sinking Account, including all amounts derived from the investment of such moneys. The Bonds shall be equally secured by a pledge, charge and lien upon the Revenues and such moneys without priority for number, date of Bonds, date of execution or date of delivery; and the payment of the interest on and principal of the Bonds and any premiums upon the redemption of any thereof shall be and are secured by an exclusive pledge, charge and lien upon the Revenues and such moneys. So long as any of the Bonds are Outstanding, the Revenues and such moneys shall not be used for any other purpose; except that out of the Revenues there may be apportioned such sums, for such purposes, as are expressly permitted by the Indenture.

The Authority transfers in trust and assigns to the Trustee, for the benefit of the Owners from time to time of the Bonds, all of the Revenues and all of the right, title and interest of the Authority in the Loan Agreement. Such assignment to the Trustee is to the Trustee solely in its capacity as Trustee under the Indenture and is subject to the provisions of the Indenture and, in any action taken by the Trustee pursuant to such assignment, the Trustee shall be entitled to the protections and limitations from liability afforded it under the Indenture. The Trustee shall be entitled to and shall receive all of the Revenues, and any Revenues collected or received by the Authority shall be deemed to be held, and to have been collected or received, by the Authority as the agent of the Trustee and shall forthwith be paid by the Authority to the Trustee. The Trustee also shall be entitled to and, subject to the provisions of the Indenture, shall take all steps, actions and proceedings reasonably necessary in its judgment to enforce, either jointly with the Authority or separately, all of the rights of the Authority and all of the obligations of the Agency under the Loan Agreement.

Receipt Deposit and Application of Revenues

All Revenues shall be promptly deposited by the Trustee upon receipt thereof in the Revenue Fund.

Appendix A Page 7 Moneys in the Revenue Fund shall be transferred by the Trustee in the following amounts, at the following times, to the following respective special accounts, which are established in the Debt Service Fund, and in the following order of priority:

(a) Interest Account. On or before the fifth Business Day preceding each Interest Payment Date, the Trustee shall withdraw from the Revenue Fund and transfer to the Interest Account an amount which when added to the amount contained in the Interest Account on that date, will be equal to the aggregate amount of the interest becoming due and payable on the Outstanding Bonds on such Interest Payment Date. No such transfer and deposit need be made to the Interest Account if the amount contained therein is at least equal to the interest to become due on the next succeeding Interest Payment Date upon all of the Outstanding Bonds. All moneys in the Interest Account shall be used and withdrawn by the Trustee solely for the purpose of paying the interest on the Bonds as it shall become due and payable (including accrued interest on any Bonds redeemed prior to maturity pursuant to the Indenture).

(b) Principal Account. On or before the fifth Business Day preceding September 1 in each year beginning September 1, 2005, the Trustee shall withdraw from the Revenue Fund and transfer to the Principal Account an amount which, when added to the amount then contained in the Principal Account, will be equal to the principal becoming due and payable on the Outstanding Serial Bonds and maturing Term Bonds on the next September 1. No such transfer and deposit need be made to the Principal Account if the amount contained therein is at least equal to the principal to become due on the next September 1 on all of the Outstanding Serial Bonds and maturing Term Bonds. All moneys in the Principal Account shall be used and withdrawn by the Trustee solely for the purpose of paying the principal of the Serial Bonds and maturing Term Bonds as it shall become due and payable.

(c) Sinking Account. No later than the fifth Business Day preceding each September 1 on which any Outstanding Term Bonds are subject to mandatory redemption, the Trustee shall withdraw from the Revenue Fund and transfer to the Sinking Account an amount which, when added to the amount then contained in the Sinking Account, will be equal to the aggregate principal amount of the Term Bonds required to be redeemed on such September 1. All moneys on deposit in the Sinking Account shall be used and withdrawn by the Trustee for the sole purpose of paying the principal of the Term Bonds as it shall become due and payable upon redemption or purchase.

(d) Redemption Account. On or before the fifth Business Day preceding any date on which Bonds are to be redeemed, the Trustee shall withdraw from the Debt Service Fund and deposit in the Redemption Account an amount required to pay the principal of and premium, if any, on the Bonds to be redeemed on such date, taking into account any funds then on deposit in the Redemption Account. The Trustee shall also deposit in the Redemption Account any other amounts received by it from the Authority designated by the Authority in writing to be deposited in the Redemption Account. All moneys in the Redemption Account shall be used and withdrawn by the Trustee solely for the purpose of paying the principal of and premium, if any, on the Bonds to be redeemed, on the respective dates set for such redemption.

Deposit and Investment of Moneys in Funds

Moneys in the Debt Service Fund, the Interest Account, the Principal Account, the Sinking Account, the Redemption Account, the Reserve Fund and the Costs of Issuance Fund shall be invested by the Trustee in Permitted Investments as directed by the Authority in the Written Request of the Authority filed with the Trustee on the Closing Date and thereafter at least two (2) Business Days in advance of the making of such investments. In the absence of any such Written Request of the Authority, the Trustee shall invest any such moneys in Permitted Investments described in clause (d) of the definition thereof, which by their terms mature prior to the date on which such moneys are required to be paid out under the Indenture. The Trustee shall be entitled to rely conclusively upon the written instructions of the Authority directing investments in Permitted Investments as to the fact that each such investment is permitted by the laws of the State, and shall not be required to make further investigation with respect thereto. With respect to any restrictions set forth in the above list which embody legal conclusions (e.g., the existence, validity and perfection of security interests in

Appendix A Page8 collateral), the Trustee shall be entitled to rely conclusively on an opinion of counsel or upon a representation of the provider of such Permitted Investment obtained at the Authority's expense. All interest or gain derived from the investment of amounts in any of the funds or accounts held by the Trustee under the Indenture shall be deposited in the Interest Account. The Trustee may act as principal or agent in the acquisition or disposition of any investment and may impose its customary charges therefor. The Trustee shall incur no liability for losses arising from any investments made at the direction of the Authority or otherwise made pursuant to the Indenture. For investment purposes only, the Trustee may commingle the funds and accounts administered by the Trustee under the Indenture and under the Loan Agreement, but shall account for each separately.

All moneys held by the Trustee shall be held in trust, but need not be segregated from other funds unless specifically required by the Indenture. Except as specifically provided in the Indenture, the Trustee shall not be liable to pay interest on any moneys received by it, but shall be liable only to account to the Authority for earnings derived from funds that have been invested.

Payment Procedure Pursuant to Financial Guaranty Insurance Policy

As long as the Financial Guaranty Insurance Policy shall be in full force and effect, the Authority and the Trustee shall comply with the following provisions:

(a) At least one (1) day prior to an Interest Payment Date, if the Trustee determines that there will be insufficient funds in the Principal Account and/or Interest Account (after transfer therein of all available moneys required under the Indenture to be transferred thereto with respect to such Interest Payment Date) to pay the principal of or interest on the Bonds on such Interest Payment Date, the Trustee shall so notify Ambac Assurance. Such notice shall specify the amount of the anticipated deficiency, the Bonds to which such deficiency is applicable and whether such Bonds will be deficient as to principal or interest, or both. If the Trustee has not so notified Ambac Assurance at least one (1) day prior to an Interest Payment Date, Ambac Assurance shall make payments of principal or interest due with respect to the Bonds on or before the first (1st) day next following the date on which Ambac Assurance shall have received notice of nonpayment from the Trustee.

(b) The Trustee shall, after giving notice to Ambac Assurance as provided in (a) above, make available to Ambac Assurance and The Bank of New York, in New York, New York, as insurance trustee for Ambac Assurance, the Registration Books and all records relating to the funds and accounts maintained under the Indenture.

(c) The Trustee shall provide Ambac Assurance and The Bank of New York with a list of the Owners entitled to receive principal or interest payments from Ambac Assurance under the terms of the Financial Guaranty Insurance Policy, and the Trustee and Ambac Assurance shall make arrangements with The Bank of New York (i) to mail checks or drafts to the Owners entitled to receive full or partial interest payments from Ambac Assurance, and (ii) to pay the principal of the Bonds surrendered to The Bank of New York by the Owners entitled to receive full or partial principal payments from Ambac Assurance.

(d) The Trustee shall, at the time it provides notice to Ambac Assurance pursuant to (a) above, notify the Owners entitled to receive the payment of principal or interest from Ambac Assurance (i) as to the fact of such entitlement, (ii) that Ambac Assurance will remit to them all or a part of the interest payments next coming due, (iii) that should they be entitled to receive full payment of principal from Ambac Assurance, they must tender their Bonds (along with a form of transfer of title thereto) for payment to The Bank of New York, as insurance trustee for Ambac Assurance, and not the Trustee, and (iv) that should they be entitled to receive partial payment of principal from Ambac Assurance they must tender their Bonds for payment thereon first to the Trustee, who shall note on such Bonds the portion of the principal paid by the Trustee, and then, along with a form of transfer of title thereto, to Ambac Assurance, which will then pay the unpaid portion of principal.

(e) In the event that the Trustee has notice that any payment of principal or interest with respect to a Bond which has become due for payment and which is made to an Owner by or on behalf of the Authority has been deemed a preferential transfer and theretofore recovered from such

Appendix A Page9 Owner pursuant to the United States Bankruptcy Code by a trustee in bankruptcy in accordance with the final, non-appealable order of a court having competent jurisdiction, the Trustee shall, at the time Ambac Assurance is notified, notify the Owners of all Outstanding Bonds that in the event that any Owner's payment is so recovered, such Owner will be entitled to payment from Ambac Assurance to the extent of such recovery if sufficient funds are not otherwise available, and the Trustee shall furnish to Ambac Assurance its records evidencing the payments of principal and interest with respect to the Bonds which have been made by the Trustee and, to the extent reflected in the Trustee's records, evidencing the payments subsequently recovered from the Owners and the dates on which such payments were made.

(f) In addition to those rights granted the Authority under the Indenture, Ambac Assurance shall, to the extent it makes payment of principal of or interest on the Bonds, become subrogated to the rights of the recipients of such payments in accordance with the terms of the Financial Guaranty Insurance Policy, and to evidence such subrogation (i) in the case of subrogation as to claims for past due interest, the Trustee shall note Ambac Assurance's rights as subrogee on the Registration Books upon receipt from Ambac Assurance of proof of the payment of interest to the Owners, and (ii) in the case of subrogation as to claims for past due principal, the Trustee shall note Ambac Assurance's rights as subrogee on the Registration Books upon surrender of the Bonds by the Owners thereof together with proof of the payment of principal thereof.

(g) The Authority and the Trustee, as appropriate, shall permit Ambac Assurance upon reasonable request to have access to and to make copies of all books and records relating to the Bonds during regular business hours.

Certain Covenants

Punctual Payments. The Authority shall punctually pay or cause to be paid the principal and interest and the maturity amount and premium (if any) to become due in respect of all the Bonds, in strict conformity with the terms of the Bonds and of the Indenture, according to the true intent and meaning thereof, but only out of Revenues and other assets pledged for such payment as provided in the Indenture.

Extension of Payment of Bonds. The Authority shall not directly or indirectly extend or assent to the extension of the maturity of any of the Bonds or the time of payment of any claims for interest by the purchaser of such Bonds or by any other arrangement, and in case the maturity of any of the Bonds or the time of payment of any such claims for interest shall be extended, such Bonds or claims for interest shall not be entitled, in case of any default under the Indenture, to the benefits of the Indenture, except subject to the prior payment in full of the principal or maturity amount, as applicable, of all of the Bonds then Outstanding and of all claims for interest thereon which shall not have been so extended. Nothing shall be deemed to limit the right of the Authority to issue Bonds for the purpose of refunding any Outstanding Bonds, and such issuance shall not be deemed to constitute an extension of maturity of the Bonds.

Against Encumbrances. The Authority shall not create, or permit the creation of, any pledge, lien, charge or other encumbrance upon the Revenues and other assets pledged or assigned under the Indenture while any of the Bonds are Outstanding, except the pledge and assignment created by the Indenture. Subject to this limitation, the Authority expressly reserves the right to enter into one or more other indentures for any of its corporate purposes, including other programs under the Bond Law, and reserves the right to issue other obligations for such purposes.

Accounting Records and Financial Statement. The Trustee shall at all times keep, or cause to be kept, proper books of record and account, prepared in accordance with industry standards, in which complete and accurate entries shall be made of all transactions made by the Trustee relating to the proceeds of Bonds, the Revenues, the Loan Agreement and all funds and accounts established pursuant to the Indenture. Such books of record and account shall be available for inspection by the Authority and the Agency, during regular business hours with reasonable prior notice.

Appendix A Page 10 No Additional Obligations. The Authority covenants that no additional bonds, notes or other indebtedness shall be issued or incurred which are payable out of the Revenues in whole or in part.

Loan Agreements. The Trustee, as assignee of the Authority's rights pursuant to the Indenture, shall promptly collect all amounts due from the Agency pursuant to the Loan Agreements and, subject to the provision of the Indenture, shall enforce, and take all steps, actions and proceedings reasonably necessary for the enforcement of all of the rights of the Authority thereunder and for the enforcement of all of the obligations of the Agency thereunder.

The Authority and the Agency may at any time amend or modify the Loan Agreements, but only if the Trustee first obtains the written consent of the Owners of a majority in aggregate principal amount of the Bonds then Outstanding to such amendment or modification, if such amendment or modification is for any one or more of the following purposes

(a) to add to the covenants and agreements of the Agency contained in the Loan Agreements, other covenants and agreements thereafter to be observed, or to limit or surrender any rights or power therein reserved to or conferred upon the Agency so long as such limitation or surrender of such rights or powers shall not materially adversely affect the Owners of the Bonds; or

(b) to make such provisions for the purpose of curing any ambiguity, or of curing, correcting or supplementing any defective provision contained in the Loan Agreements, or in any other respect whatsoever as the Agency may deem necessary or desirable, provided under any circumstances that such modifications or amendments shall not materially adversely affect the interests of the Owners of the Bonds; or

(c) to make such additions, deletions or modifications as may be necessary or desirable to assure exemption from federal income taxation of interest on the Bonds; or

(d) comply with the requirements of the provider of a Qualified Credit Instrument.

Tax Covenants.

No Arbitrage. The Authority shall not take, or permit to be taken by the Trustee, the Agency or otherwise, any action with respect to the proceeds of the Bonds which, if such action had been reasonably expected to have been taken, or had been deliberately and intentionally taken, on the date of issuance of the Bonds would have caused the Bonds to be "arbitrage bonds" within the meaning of section 148 of the Code.

Rebate Requirement. The Authority shall cause the Agency to take any and all actions necessary to assure compliance with section 148(f) of the Code, relating to the rebate of excess investments earnings, if any, to the federal government, to the extent that such section is applicable to the Bonds .

Private Activity Bond Limitation. The Authority shall assure that the proceeds of the Bonds are not so used as to cause the Bonds to satisfy the private business tests of section 141(c) of the Code or the private loan financing test of section 141(b) of the Code.

Federal Guarantee Prohibition. The Authority shall not take any action or permit or suffer any action to be taken if the result of the same would be to cause any of the Bonds to be "federally guaranteed" within the meaning of section 149(b) of the Code.

Maintenance of Tax Exemption. The Authority shall take any and all actions necessary to assure the exclusion of interest on the Bonds from the gross income of the Owners of the Bonds to the same extent as such interest is permitted to be excluded from gross income under the Code as in effect on the date of issuance of the Bonds.

Continuing Disclosure. Pursuant to the Loan Agreement, the Agency has undertaken all responsibility for compliance with continuing disclosure requirements and the Authority shall have

Appendix A Page 11 no liability to the holders of the Bonds or any other person with respect to such disclosure matters. Notwithstanding any other provision of the Indenture, failure of the Agency to comply with the Continuing Disclosure Certificate shall not be considered an Event of Default, however, any Participating Underwriter or any holder or beneficial owner of the Bonds may take such actions as may be necessary and appropriate to compel performance, including seeking mandate or specific performance by court order.

Amendments

The Indenture and the rights and obligations of the Authority and of the Owners of the Bonds may be modified or amended at any time by a Supplemental Indenture which shall become binding upon adoption without consent of any Bond Owners, to the extent permitted by law, but only for any one or more of the following purposes-

(a) to add to the covenants and agreements of the Authority in the Indenture contained, other covenants and agreements thereafter to be observed, or to limit or surrender any rights or powers reserved to or conferred upon the Authority so long as such limitation or surrender of such rights or powers shall not materially adversely affect the Owners of the Bonds; or

(b) to make such provisions for the purpose of curing any ambiguity, or of curing, correcting or supplementing any defective provision contained in the Indenture, or in any other respect whatsoever as the Authority may deem necessary or desirable, provided under any circumstances that such modifications or amendments shall not materially adversely affect the interests of the Owners of the Bonds; or

(c) to make such additions, deletions or modifications as may be necessary or desirable to assure exemption from federal income taxation of interest on the Bonds.

Except as set forth above, the Indenture and the rights and obligations of the Authority and of the Owners of the Bonds may only be modified or amended at any time by a Supplemental Indenture which shall become binding when the written consent of the Owners of a majority of the Bonds are filed with the Trustee. No such modification or amendment shall (a) extend the maturity of or reduce the interest on any Bond or otherwise alter or impair the obligation of the Authority to pay the principal and interest and maturity amount or redemption premiums, if any, at the time and place and at the rate and in the currency provided therein of any Bond without the express written consent of the Owner of such Bond, (b) reduce the percentage of the Bonds required for the written consent to any such amendment or modification, or (c) without its written consent thereto, modify any of the rights or obligations of the Trustee.

Effect of Supplemental Agreement

From and after the time any Supplemental Indenture becomes effective, the Indenture shall be deemed to be modified and amended in accordance therewith, the respective rights, duties and obligations of the parties thereto and all Owners of Outstanding Bonds, as the case may be, shall thereafter be determined, exercised and enforced under the Indenture subject in all respects to such modification and amendment, and all the terms and conditions of any Supplemental Indenture shall be deemed to be part of the terms and conditions of the Indenture for any and all purposes.

Events of Default

The following events shall be Events of Default under the Indenture:

(a) Default by the Authority in the due and punctual payment of the principal amount and the maturity amount or redemption premium (if any) of any Bond, whether at maturity as therein expressed, by proceedings for redemption, by declaration or otherwise.

(b) Default by the Authority in the due and punctual payment of any installment of interest on any Bond.

Appendix A Page 12 (c) Default by the Authority in the observance of any of the other covenants, agreements or conditions on its part in the Indenture or in the Bonds contained, if such default shall have continued for a period of thirty (30) days after written notice thereof, specifying such default and requiring the same to be remedied, shall have been given to the Authority by the Trustee, or to the Authority and the Trustee by the Owners of not less than twenty-five percent (25%) of the Bonds; provided that such default shall not constitute an Event of Default under the Indenture if the Authority commences to cure such default within said thirty (30) day period and thereafter diligently and in good faith shall cure such default within a reasonable period of time.

(d) The filing by the Authority of a petition or answer seeking reorganization or arrangement under the federal bankruptcy laws or any other applicable law of the United States of America, or if a court of competent jurisdiction shall approve a petition, filed with or without the consent of the Authority, seeking reorganization under the federal bankruptcy laws or any other applicable law of the United States of America, or if, under the provisions of any other law for the relief or aid of debtors, any court of competent jurisdiction shall assume custody or control of the Authority or of the whole or any substantial part of its property.

Remedies and Rights of Bond Owners

Upon the occurrence of an Event of Default, the Trustee may pursue any available remedy at law or in equity to enforce the payment of the principal and interest and maturity amount and premium, if any, on the Outstanding Bonds, and to enforce any rights of the Trustee under or with respect to the Indenture.

If an Event of Default shall have occurred and be continuing and if requested so to do by the Owners of at least twenty-five percent (25%) of the Bonds, and if the Trustee has been indemnified as provided in the Indenture, the Trustee shall be obligated to exercise such one or more of the rights and powers conferred by the Indenture, as the Trustee, being advised by counsel, shall deem most expedient in the interests of the Bond Owners.

No remedy by the terms of the Indenture conferred upon or reserved to the Trustee, the Bond Owners is intended to be exclusive of any other remedy, but each and every such remedy shall be cumulative and shall be in addition to any other remedy given to the Trustee or to the Bond Owners under the Indenture or now or hereafter existing at law or in equity.

No delay or omission to exercise any right or power accruing upon any Event of Default shall impair any such right or power or shall be construed to be a waiver of any such Event of Default or acquiescence therein; such right or power may be exercised from time to time as often as may be deemed expedient.

Application of Revenues and Other Funds After Default

All amounts received by the Trustee pursuant to any right given or action taken by the Trustee under the provisions of the Indenture shall be applied by the Trustee in the following order upon presentation of the several Bonds, and the stamping thereon of the amount of the payment if only partially paid, or upon the surrender thereof if fully paid -

First, to the payment of the fees, costs and expenses of the Trustee, including reasonable compensation to its agents, attorneys and counsel; and

Second, to the payment of the whole amount of principal of and interest on the Bonds then due and unpaid, with interest on overdue installments of principal and interest, to the extent permitted by law at the rate of interest then borne by the Outstanding Bonds; provided, however, that in the event such amounts shall be insufficient to pay in full the full amount of such interest and principal, then such amounts shall be applied in the following order of priority:

Appendix A Page 13 (a) first, to the payment of all installments of interest on the Bonds then due and unpaid, on a pro rata basis in the event that the available amounts are insufficient to pay all such interest in full,

(b) second, to the payment of principal of all installments of the Bonds then due and unpaid, on a pro rata basis in the event that the available amounts are insufficient to pay all such principal in full,

(c) third, to the payment of the redemption price then due and unpaid (including principal and interest, premium, if any, accrued to the redemption date) of the Bonds to be redeemed from Revenues derived from the acceleration of any Loan, on a pro rata basis in the event that the available amounts are insufficient to pay the redemption price of all such Bonds in full, and

(d) fourth, to the payment of interest on overdue installments of principal and interest, on a pro rata basis in the event that the available amounts are insufficient to pay all such interest in full.

Limited Liability of Authority

Notwithstanding anything in the Indenture contained, the Authority shall not be required to advance any moneys derived from any source of income other than the Revenues for the payment of the principal and interest and maturity amount of the Bonds, or any premiums upon the redemption thereof, or for the performance of any covenants contained in the Indenture (except to the extent any such covenants are expressly payable under the Indenture from the Revenues or otherwise from amounts payable under the Loan Agreement). The Authority may, however, advance funds for any such purpose, provided that such funds are derived from a source legally available for such purpose.

The Bonds shall be revenue bonds, payable exclusively from the Revenues and other funds as in the Indenture provided. The general fund of the Authority is not liable, and the credit of the Authority is not pledged, for the payment of the principal of and interest on and maturity amount of the Bonds and premium (if any) on the Bonds. The Owners of the Bonds shall never have the right to compel the forfeiture of any property of the Authority. The principal of and interest on the Bonds, and any premiums upon the redemption of any thereof, shall not be a legal or equitable pledge, charge, lien or encumbrance upon any property of the Authority or upon any of its income, receipts or revenues except the Revenues and other funds pledged to the payment thereof as in the Indenture provided.

Discharge of Indenture

If the Authority shall pay and discharge the entire indebtedness on all Bonds or any portion thereof in any one or more of the following ways:

(a) by well and truly paying or causing to be paid the principal of and interest and premium (if any) on all or the applicable portion of Outstanding Bonds, as and when the same become due and payable;

(b) by irrevocably depositing with the Trustee or another fiduciary, in trust, at or before maturity, money which, together with the available amounts then on deposit in the funds and accounts established pursuant to the Indenture, is fully sufficient to pay all or the applicable portion of Outstanding Bonds, including all principal, interest and redemption premiums, or;

(c) by irrevocably depositing with the Trustee or another fiduciary, in trust, Federal Securities in such amount as an Independent Accountant shall determine will, together with the interest to accrue thereon and available moneys then on deposit in the funds and accounts established pursuant to the Indenture, be fully sufficient to pay and discharge the indebtedness on all Bonds or the applicable portion of (including all principal, interest and redemption premiums) at or before maturity;

Appendix A Page 14 and, if such Bonds are to be redeemed prior to the maturity thereof, notice of such redemption shall have been given pursuant to the Indenture or provision satisfactory to the Trustee shall have been made for the giving of such notice, then, at the election of the Authority, and notwithstanding that any Bonds shall not have been surrendered for payment, the pledge of the Revenues and other funds provided for in the Indenture and all other obligations of the Trustee and the Authority under the Indenture shall cease and terminate with respect to all Outstanding Bonds or, if applicable, with respect to that portion of the Bonds which has been paid and discharged, except only (a) the covenants of the Authority under the Indenture with respect to the Code, (b) the obligation of the Trustee to transfer and exchange Bonds under the Indenture, (c) the obligations of the Authority under the Indenture, and (d) the obligation of the Authority to pay or cause to be paid to the Owners, from the amounts so deposited with the Trustee, all sums due thereon and to pay the Trustee all fees, expenses and costs of the Trustee. In the event the Authority shall, pursuant to the foregoing provision, pay and discharge any portion or all of the Bonds then Outstanding, the Trustee shall be authorized to take such actions and execute and deliver to the Authority all such instruments as may be necessary or desirable to evidence such discharge, including, without limitation, selection by lot of Bonds of any maturity of the Bonds that the Authority has determined to pay and discharge in part.

To accomplish defeasance, the Authority shall cause to be delivered (i) a report of an independent firm of nationally recognized certified public accountants or such other accountant as shall be acceptable to Ambac Assurance (" Accountant") verifying the sufficiency of the escrow established to pay the Bonds in full on the maturity or redemption date ("Verification"), (ii) an escrow deposit agreement (which shall be acceptable in form and substance to Ambac Assurance), and (iii) an opinion of nationally recognized bond counsel to the effect that the Bonds are no longer Outstanding; each Verification and defeasance opinion shall be acceptable in form and substance to the Authority and Ambac Assurance, and addressed, to the Authority, the Trustee and Ambac Assurance. In the event a forward purchase agreement will be employed in the refunding, such agreement shall be subject to the approval of Ambac Assurance and shall be accompanied by such opinions of counsel as may be required by Ambac Assurance. Ambac Assurance shall be provided with final drafts of the above-referenced documentation not less than five Business Days prior to the funding of the escrow.

Bonds shall be deemed Outstanding under the Indenture unless and until they are in fact paid and retired or the above criteria are met.

Amounts paid by Ambac Assurance under the Financial Guaranty Insurance Policy shall not be deemed paid for purposes of the Indenture and shall remain Outstanding and continue to be due and owing until paid in accordance with the Indenture. The Indenture shall not be discharged unless all amounts due or to become due to Ambac Assurance under the Indenture and under the Loan Agreements have been paid in full or duly provided for.

Provisions Relating to Ambac Assurance

In the event the maturity of the Bonds is accelerated, Ambac Assurance may elect, in its sole discretion, to pay accelerated principal and interest accrued on such principal to the date of acceleration (to the extent unpaid by the Authority) and the Trustee shall be required to accept such amounts. Upon payment of such accelerated principal and interest accrued to the acceleration date as provided above, Ambac Assurance's obligations under the Financial Guaranty Insurance Policy with respect to such Bonds shall be fully discharged.

The rights of Ambac Assurance to direct or consent to Authority, Trustee or Owner actions under the Indenture shall be suspended during any period in which Ambac Assurance is in default in its payment obligations under the Financial Guaranty Insurance Policy (except to the extent of amounts previously paid by Ambac Assurance and due and owing to Ambac Assurance) and shall be of no force or effect in the event the Financial Guaranty Insurance Policy is no longer in effect or Ambac Assurance asserts that the Financial Guaranty Insurance Policy is not in effect or Ambac Assurance shall have provided written notice that it waives such rights.

Appendix A Page 15 The rights granted to Ambac Assurance under the Indenture or the Loan Agreements to request, consent to or direct any action are rights granted to Ambac Assurance in consideration of its issuance of the Financial Guaranty Insurance Policy. Any exercise by Ambac Assurance of such rights is merely an exercise of Ambac Assurance's contractual rights and shall not be construed or deemed to be taken for the benefit or on behalf of the Owners nor does such action evidence any position of Ambac Assurance, positive or negative, as to whether Owner consent is required in addition to consent of Ambac Assurance.

Payments required to be made to Ambac Assurance shall be payable solely from the Revenues and shall be paid (i) prior to an Event of Default, to the extent not paid from the Revenue Fund, and (ii) after an event of default, with respect to amounts other than principal and interest with respect to the Bonds, on the same priority as payments to the Trustee for expenses. The obligations to Ambac Assurance shall survive discharge or termination of the Indenture and the Loan Agreements.

Ambac Assurance shall be deemed to be a third-party beneficiary of the Indenture.

Any provision of the Indenture expressly recognizing or granting rights in or to Ambac Assurance may not be amended in any manner which affects the rights of Ambac Assurance hereunder without the prior written consent of Ambac Assurance.

Ambac Assurance's consent shall be required in lieu of Owner consent, when required, for the following purposes: (i) execution and delivery of any supplemental indenture or any amendment, supplement or change to or modification of the Loan Agreements, (ii) removal of the Trustee and selection and appointment of any successor trustee; and (iii) initiation or approval of any action not described in (i) or (ii) above which requires Owner consent.

LOAN AGREEMENTS

As the Loan Agreements are substantially identical, except as to the source of payments and existing parity obligations, if any, the following summary shall apply to each Loan Agreement except as the context or specific provisions provide otherwise.

Definitions-2004 Emeryville Project Loan Agreement

"Additional Revenues" means, as the date of calculation, the sum of the following:

(a) the amount of Tax Revenues which, as shown in the Report of an Independent Redevelopment Consultant, are estimated to be receivable by the Agency within the Fiscal Year following the Fiscal Year in which such calculation is made, as a result of increases in the assessed valuation of taxable property in the Project Area due to either (i) construction which has been completed but which is not then reflected on the tax rolls, or (ii) transfer of ownership which is not yet reflected on the tax rolls; and

(b) the amount of Tax Revenues which, as shown in the Report of an Independent Redevelopment Consultant, are estimated to be receivable by the Agency within the Fiscal Year following the Fiscal Year in which such calculation is made, as a result of increases in the assessed valuation of taxable property in the Project Area due to inflation at an assumed annual inflation rate of two percent (2%).

For purposes of this definition, the term "increases in the assessed valuation" means the amount by which the assessed valuation of taxable property in the Project Area in any Fiscal Year is estimated to exceed the assessed valuation of taxable property in the Project Area in the Fiscal Year in which such calculation is made.

"Event of Default" means any of the events described in the 2004 Emeryville Project Loan Agreement.

Appendix A Page 16 "Fiscal Year" means any twelve-month period extending from July 1 in one calendar year to June 30 of the succeeding calendar year, both dates inclusive, or any other twelve-month period selected and designated by the Agency as its official fiscal year period pursuant to a Written Certificate of the Agency filed with the Authority.

"Independent Accountant" means any accountant or firm of such accountants appointed by or acceptable to the Agency, and who, or each of whom: (a) is in fact independent and not under the domination of the Agency; (b) does not have any substantial interest, direct or indirect, with the Agency; and (c) is not connected with the Agency as an officer or employee of the Agency, but who may be regularly retained to make annual or other audits of the books of or reports to the Agency.

"Independent Redevelopment Consultant" means any consultant or firm of such consultants appointed by or acceptable to the Agency, and who, or each of whom: (a) is judged by the Agency to have experience in matters relating to the collection of Tax Revenues or otherwise with respect to the financing of redevelopment projects; (b) is in fact independent and not under the domination of the Agency; (c) does not have any substantial interest, direct or indirect, with the Agency, other than as original purchaser of the Bonds or any Parity Debt; and (d) is not connected with the Agency as an officer or employee of the Agency, but who may be regularly retained to make reports to the Agency.

"Indenture" means the Indenture of Trust, dated as of August 1, 2004, by and between the Authority and the Trustee, authorizing the issuance of the Bonds, as originally executed or as it may from time to time be supplemented, modified or amended.

"Loan" means the loan made by the Authority to the Agency under the 2004 Emeryville Project Loan Agreement.

"Loan Payment Date" means, with respect to any Interest Payment Date, the fifteenth (15th) calendar day of the month preceding such Interest Payment Date.

"Maximum Annual Debt Service" means, as of the date of calculation, the largest amount obtained by totaling, for the current or any future Bond Year, the sum of (a) the amount of interest payable on the Loan and all outstanding Parity Debt in such Bond Year, assuming that principal thereof is paid as scheduled and that any mandatory sinking fund payments are made as scheduled, and (b) the amount of principal payable on the Loan and on all outstanding Parity Debt in such Bond Year, including any principal required to be prepaid by operation of mandatory sinking fund payments. For purposes of such calculation, there shall be excluded a pro rata portion of each installment of principal of any Parity Debt, together with the interest to accrue thereon, in the event and to the extent that the proceeds of such Parity Debt are deposited in an escrow fund from which amounts may not be released to the Agency unless the Tax Revenues for the current Fiscal Year, plus at the option of the Agency the Additional Revenues, at least equal one hundred twenty-five percent (125%) of the amount of Maximum Annual Debt Service which would result if the amount on deposit in such escrow fund was applied to redeem such Parity Debt.

"1993 Loan" means the loan made by the Authority to the Agency in the original aggregate principal amount of $37,395,000 pursuant to the 1993 Loan Agreement.

"1993 Loan Agreement" means that certain Loan Agreement, dated as of February 1, 1993, by and between the Agency and the Authority, as originally executed or as it may have been or may be from time to time be amended, modified or supplemented.

"1998B Loan" means the loan made by the Authority to the Agency in the original aggregate principal amount of $34,495,000 pursuant to the 1998B Loan Agreement.

"1998B Loan Agreement" means that certain Loan Agreement, dated as of August 1, 1998, by and between the Authority and the Agency, as originally executed or as it may have been or may be from time to time be amended, modified or supplemented.

Appendix A Page 17 "1998C Loan" means the loan made by the Authority to the Agency in the original aggregate principal amount of $10,390,000 pursuant to the 1998C Loan Agreement.

"1998C Loan Agreement" means that certain Loan Agreement, dated as of August 1, 1998, by and between the Authority and the Agency, as originally executed or as it may have been or may be from time to time be amended, modified or supplemented.

"Parity Debt" means (a) the 1998B Loan, the 1998C Loan, the 2001 Loan and the 2002 Loan, (b) any loans, bonds, notes, advances or indebtedness payable from Tax Revenues on a parity with the Loan to finance the Redevelopment Project, issued or incurred pursuant to and in accordance with the 2004 Emeryville Project Loan Agreement, or (c) any Refunding Debt.

"Parity Debt Instrument" means the 1998B Loan Agreement, the 1998C Loan Agreement, the 2001 Loan Agreement, the 2002 Loan Agreement and any resolution, indenture of trust, trust agreement or other instrument authorizing the issuance of any Parity Debt.

"Plan Limitations" means the limitations contained or incorporated in the Redevelopment Plan on (a) the aggregate principal amount of indebtedness payable from Tax Revenues which may be outstanding at any time, (b) the aggregate amount of taxes which may be divided and allocated to the Agency pursuant to the Redevelopment Plan, and (c) the period of time for establishing or repaying indebtedness payable from Tax Revenues.

"Project Area" means the area of the Redevelopment Project as described in the Redevelopment Plan.

"Qualified Reserve Fund Credit Instrument" means an irrevocable standby or direct-pay letter of credit or surety bond issued by a commercial bank or insurance company and deposited with the Trustee pursuant to the 2004 Emeryville Project Loan Agreement provided that all of the following requirements are met: (i) the long-term credit rating of such bank or insurance company is in the highest rating category by Moody's and S&P, or the claims paying ability of such insurance company is rated in the highest rating category by A.M. Best & Company; (ii) such letter of credit or surety bond has a term of at least twelve (12) months; (iii) such letter of credit or surety bond has a stated amount at least equal to the portion of the Reserve Requirement with respect to which funds are proposed to be released pursuant to the 2004 Emeryville Project Loan Agreement; and (iv) the Trustee is authorized pursuant to the terms of such letter of credit or surety bond to draw thereunder an amount equal to any deficiencies which may exist from time to time in the amounts available to repay the principal of and interest on the Loan.

"Redevelopment Fund" means the fund by that name established and held by the Agency with respect to the Redevelopment Project pursuant to the Redevelopment Law.

"Redevelopment Law" means the Community Redevelopment Law of the State, constituting Part 1 of Division 24 of the California Health and Safety Code, and the acts amendatory thereof and supplemental thereto.

"Redevelopment Plan" means the Redevelopment Plan for the Emeryville Redevelopment Project, approved by Ordinance No. 76-04, enacted by the City Council of the City on July 27, 1976, as amended by Ordinance No. 84-04, enacted by the City Council of the City on June 19, 1984, as amended by Ordinance No. 85-08, enacted by the City Council of the City on June 4, 1985, as amended by Ordinance No. 86-04, enacted by the City Council of the City on August 5, 1986, as amended by Ordinance No. 86-11, enacted by the City Council of the City on December 16, 1986, as amended by Ordinance No. 94-004, enacted by the City Council of the City on March 15, 1994, as amended by Ordinance No. 98-012, enacted by the City Council of the City on December 15, 1998, as amended by Ordinance No. 03-007, enacted by the City Council of the City on May 20, 2003, and as amended by Ordinance No. 04-006, enacted by the City Council of the City on June 15, 2004, together with any amendments thereof at any time duly authorized pursuant to the Redevelopment Law.

Appendix A Page 18 "Redevelopment Project" means the undertaking of the Agency pursuant to the Redevelopment Plan and the Redevelopment Law for the redevelopment of the Project Area.

"Refunding Debt" means any loan, bond, note, advance or indebtedness payable from Tax Revenues on a parity with the Loan; provided that the proceeds thereof are used to refund all or a portion of the Loan or any Parity Debt (and to pay costs of issuance of and fund a reserve fund for such Refunding Debt), and the debt service due on such Refunding Debt in any Bond Year in which the Loan or such Parity Debt is Outstanding is not greater than the debt service due on the portion of the Loan or any Parity Debt refunded with the proceeds of such Refunding Debt.

"Report" means a document in writing signed by an Independent Redevelopment Consultant and including: (a) a statement that the person or firm making or giving such Report has read the pertinent provisions of the 2004 Emeryville Project Loan Agreement to which such Report relates; (b) a brief statement as to the nature and scope of the examination or investigation upon which the Report is based; and (c) a statement that, in the opinion of such person or firm, sufficient examination or investigation was made as is necessary to enable said consultant to express an informed opinion with respect to the subject matter referred to in the Report.

"Reserve Fund" means the fund established and held hereunder by the Trustee pursuant to the 2004 Emeryville Project Loan Agreement.

"Reserve Requirement" means, as of any calculation date, an amount equal to Maximum Annual Debt Service. The Reserve Requirement as of the Closing Date is $8,632,620.00.

"Special Fund" means the fund established and held hereunder by the Agency pursuant to the 2004 Emeryville Project Loan Agreement.

"Subordinate Debt" means any loans, advances or indebtedness issued or incurred by the Agency in accordance with the requirements of the 2004 Emeryville Project Loan Agreement, which are either: (a) payable from, but not secured by a pledge of or lien upon, the Tax Revenues; or (b) secured by a pledge of or lien upon the Tax Revenues which is subordinate to the pledge of and lien upon the Tax Revenues hereunder for the security of the Loan and any Parity Debt.

"Tax Revenues" means all taxes pledged and annually allocated within the Plan Limitations, following the Closing Date, and paid to the Agency with respect to the Redevelopment Project pursuant to Article 6 of Chapter 6 (commencing with section 33670) of the Redevelopment Law and Section 16 of Article XVI of the Constitution of the State, or pursuant to other applicable State laws, and as provided in the Redevelopment Plan, including (a) all payments, subventions and reimbursements (if any) to the Agency specifically attributable to ad valorem taxes lost by reason of tax exemptions and tax rate limitations, and (b) all amounts of such taxes required to be deposited into the Low and Moderate Income Housing Fund of the Agency in any Fiscal Year pursuant to section 33334.3 of the Redevelopment Law, to the extent permitted to be applied to the payment of principal, interest and premium (if any) with respect to the Loan and any Parity Debt; but excluding amounts of such taxes required to be deposited into the Low and Moderate Income Housing Fund of the Agency in any Fiscal Year pursuant to section 33334.3 of the Redevelopment Law, to the extent not permitted to be applied to the payment of principal, interest and premium (if any) with respect to the Loan and/ or any Parity Debt.

"Trustee" means BNY Western Trust Company, a corporation organized and existing under the laws of the State of California, and its successors and assigns acting as trustee under the Indenture.

"2001 Loan" means the loan made by the Authority to the Agency in the original aggregate principal amount of $18,400,000 pursuant to the 2001 Loan Agreement.

"2001 Loan Agreement" means that certain Loan Agreement, dated as of July 1, 2001, by and between the Authority and the Agency, as originally executed or as it may have been or may be from time to time be amended, modified or supplemented.

Appendix A Page 19 "2002 Loan" means the loan made by the Authority to the Agency in the original aggregate principal amount of $22,120,000 pursuant to the 2002 Loan Agreement.

"2002 Loan Agreement" means that certain Loan Agreement, dated as of December 1, 2002, by and between the Authority and the Agency, as originally executed or as it may have been or may be from time to time be amended, modified or supplemented.

"2004 Emeryville Project Loan Agreement" means the 2004 Emeryville Project Loan Agreement, by and among the Authority, the Agency and the Trustee, as originally executed or as it may from time to time be amended, modified or supplemented.

"Written Request of the Agency" or "Written Certificate of the Agency" means a request or certificate, in writing, signed by the Chair, Vice Chair, Executive Director, Assistant Executive Director, Deputy Executive Director, or Treasurer of the Agency, or by any other officer of the Agency duly authorized by the Agency for that purpose.

Definitions-2004 Shellmound Park Project Loan Agreement

"Additional Revenues" means, as the date of calculation, the sum of the following:

"Business Inventory Tax Subvention" means all amounts payable by the State to the Agency under and pursuant to the provisions of Chapter 1.5 of Part 1 of Division 4 of Title 2 (commencing with section 16110) of the California Government Code.

"Event of Default" means any of the events described in the 2004 Shellmound Park Project Loan Agreement.

"Fiscal Year" means any twelve-month period extending from July 1 in one calendar year to June 30 of the succeeding calendar year, both dates inclusive, or any other twelve-month period selected and designated by the Agency as its official fiscal year period pursuant to a Written Certificate of the Agency filed with the Authority.

"Independent Redevelopment Consultant" means any consultant or firm of such consultants appointed by or acceptable to the Agency, and who, or each of whom: (a) is judged by the Agency

Appendix A Page 20 to have experience in matters relating to the collection of Tax Revenues or otherwise with respect to the financing of redevelopment projects; (b) is in fact independent and not under the domination of the Agency; (c) does not have any substantial interest, direct or indirect, with the Agency, other than as original purchaser of the Bonds or any Parity Debt; and (d) is not connected with the Agency as an officer or employee of the Agency, but who may be regularly retained to make reports to the Agency.

"Indenture" means the Indenture of Trust dated as of August 1, 2004, by and between the Authority and the Trustee, authorizing the issuance of the Bonds, as originally executed or as it may from time to time be supplemented, modified or amended.

"Loan" means the loan made by the Authority to the Agency pursuant to 2004 Shellmound Park Project Loan Agreement.

"Loan Payment Date" means, with respect to any Interest Payment Date, the fifteenth (15th) calendar day of the month preceding such Interest Payment Date.

"1998 Loan" means the loan made by the Authority to the Agency in the original aggregate principal amount of $7,410,000 pursuant to the 1998 Loan Agreement.

"1998 Loan Agreement" means that certain Loan Agreement, dated as of August 1, 1998, by and between the Authority and the Agency, as originally executed or as it may have been or may be from time to time be amended, modified or supplemented.

"Parity Debt" means (a) the 1998 Loan and the 2001 Loan, (b) any loans, bonds, notes, advances or indebtedness payable from Tax Revenues on a parity with the Loan to finance the Redevelopment Project, issued or incurred pursuant to and in accordance the 2004 Shellmound Park Project Loan Agreement, or (c) any Refunding Debt.

"Parity Debt Instrument" means the 1998 Loan Agreement, the 2001 Loan Agreement and any resolution, indenture of trust, trust agreement or other instrument authorizing the issuance of any Parity Debt.

"Pass-Through Agreement" means that certain agreement, dated as of January 5, 1988, by and between the Agency and the Alameda County Flood Control and Water Conservation District.

"Project Area" means the area of the Redevelopment Project as described in the Redevelopment Plan.

Appendix A Page 21 "Qualified Reserve Fund Credit Instrument" means an irrevocable standby or direct-pay letter of credit or surety bond issued by a commercial bank or insurance company and deposited with the Trustee pursuant to the 2004 Shellmound Park Project Loan Agreement provided that all of the following requirements are met: (i) the long-term credit rating of such bank or insurance company is in the highest rating category by Moody's and S&P, or the claims paying ability of such insurance company is rated in the highest rating category by A.M. Best & Company; (ii) such letter of credit or surety bond has a term of at least twelve (12) months; (iii) such letter of credit or surety bond has a stated amount at least equal to the portion of the Reserve Requirement with respect to which funds are proposed to be released pursuant to the 2004 Shellmound Park Project Loan Agreement; and (iv) the Trustee is authorized pursuant to the terms of such letter of credit or surety bond to draw thereunder an amount equal to any deficiencies which may exist from time to time in the amounts available to repay the principal of and interest on the Loan.

"Redevelopment Fund" means the fund by that name established and held by the Agency with respect to the Redevelopment Project pursuant to the Redevelopment Law.

"Redevelopment Plan" means the Redevelopment Plan for the Shellmound Park Redevelopment Project, approved by ordinance enacted by the City Council of the City on October 20, 1987, as amended by Ordinance No. 94-005, enacted by the City Council of the City on March 15, 1994, as amended by Ordinance No. 98-012, enacted by the City Council of the City on December 15, 1998, as amended by Ordinance No. 03-008, enacted by the City Council of the City on May 20, 2003, and as amended by Ordinance No. 04-007, enacted by the City Council of the City on June 15, 2004, together with any amendments thereof at any time duly authorized pursuant to the Redevelopment Law.

"Redevelopment Project" means the undertaking of the Agency pursuant to the Redevelopment Plan and the Redevelopment Law for the redevelopment of the Project Area.

"Report" means a document in writing signed by an Independent Redevelopment Consultant and including: (a) a statement that the person or firm making or giving such Report has read the pertinent provisions of the 2004 Shellmound Park Project Loan Agreement to which such Report relates; (b) a brief statement as to the nature and scope of the examination or investigation upon which the Report is based; and (c) a statement that, in the opinion of such person or firm, sufficient examination or investigation was made as is necessary to enable said consultant to express an informed opinion with respect to the subject matter referred to in the Report.

"Reserve Fund" means the fund established and held hereunder by the Trustee pursuant to the 2004 Shellmound Park Project Loan Agreement.

"Reserve Requirement" means, as of any calculation date, an amount equal to Maximum Annual Debt Service. The Reserve Requirement as of the Closing Date is $2,503,291.26.

"Special Fund" means the fund established and held hereunder by the Agency pursuant to the 2004 Shellmound Park Project Loan Agreement.

Appendix A Page 22 II Subordinate Debt" means any loans, advances or indebtedness issued or incurred by the Agency in accordance with the requirements of the 2004 Shellmound Park Project Loan Agreement, which are either: (a) payable from, but not secured by a pledge of or lien upon, the Tax Revenues; or (b) secured by a pledge of or lien upon the Tax Revenues which is subordinate to the pledge of and lien upon the Tax Revenues hereunder for the security of the Loan and any Parity Debt.

"Tax Revenues" means all taxes pledged and annually allocated within the Plan Limitations, following the Closing Date, and paid to the Agency with respect to the Redevelopment Project pursuant to Article 6 of Chapter 6 (commencing with section 33670) of the Redevelopment Law and Section 16 of Article XVI of the Constitution of the State, or pursuant to other applicable State laws, and as provided in the Redevelopment Plan, including (a) all payments, subventions and reimbursements (if any) to the Agency specifically attributable to ad valorem taxes lost by reason of tax exemptions and tax rate limitations, and (b) all amounts of such taxes required to be deposited into the Low and Moderate Income Housing Fund of the Agency in any Fiscal Year pursuant to section 33334.3 of the Redevelopment Law, to the extent permitted to be applied to the payment of principal, interest and premium (if any) with respect to the Loan and any Parity Debt; but excluding (x) amounts of such taxes required to be deposited into the Low and Moderate Income Housing Fund of the Agency in any Fiscal Year pursuant to section 33334.3 of the Redevelopment Law, to the extent not permitted to be applied to the payment of principal, interest and premium (if any) with respect to the Loan and/ or any Parity Debt, (y) the Business Inventory Tax Subvention, and (z) amounts to be paid pursuant to the Pass-Through Agreement.

"Trustee" means BNY Western Trust Company, a corporation organized and existing under the laws of the State of California, and its successors and assigns acting as trustee under the Indenture.

"2001 Loan" means the loan made by the Authority to the Agency in the original aggregate principal amount of $4,600,000 pursuant to the 2001 Loan Agreement.

"2004 Shellmound Park Project Loan Agreement" means the 2004 Shellmound Park Project Loan Agreement by and among the Authority, the Agency and the Trustee, as originally executed or as it may from time to time be amended, modified or supplemented.

Definitions-2004 Housing Loan Agreement

"Emeryville Project Area" means the area of the Emeryville Redevelopment Project as described in the Emeryville Redevelopment Plan.

II Emeryville Redevelopment Plan" means the Redevelopment Plan for the Emeryville Redevelopment Project, approved by Ordinance No. 76-04, enacted by the City Council of the City on July 27, 1976, as amended by Ordinance No. 84-04, enacted by the City Council of the City on June 19, 1984, as amended by Ordinance No. 85-08, enacted by the City Council of the City on June 4, 1985, as amended by Ordinance No. 86-04, enacted by the City Council of the City on August 5, 1986, as amended by Ordinance No. 86-11, enacted by the City Council of the City on December 16, 1986, as amended by Ordinance No. 94-004, enacted by the City Council of the City on March 15, 1994, as amended by Ordinance No. 98-012, enacted by the City Council of the City on December 15, 1998, as amended by Ordinance No. 03-007, enacted by the City Council of the City on May 20, 2003, and as amended by Ordinance No. 04-006, enacted by the City Council of the City on June 15, 2004, together with any amendments thereof at any time duly authorized pursuant to the Redevelopment Law.

Appendix A Page 23 "Emeryville Redevelopment Project" means the undertaking of the Agency pursuant to the Emeryville Redevelopment Plan and the Redevelopment Law for the redevelopment of the Emeryville Project Area.

"Event of Default" means any of the events described in the 2004 Housing Project Loan Agreement.

"Fiscal Year" means any twelve-month period extending from July 1 in one calendar year to June 30 of the succeeding calendar year, both dates inclusive, or any other twelve-month period selected and designated by the Agency as its official fiscal year period pursuant to a Written Certificate of the Agency filed with the Authority.

"Loan" means the loan made by the Authority to the Agency pursuant to the 2004 Housing Project Loan Agreement.

"Loan Payment Date" means, with respect to any Interest Payment Date, the fifteenth (15th) calendar day of the month preceding such Interest Payment Date.

"Maximum Annual Debt Service" means, as of the date of calculation, the largest amount obtained by totaling, for the current or any future Bond Year, the sum of (a) the amount of interest payable on the Loan and all outstanding Parity Debt in such Bond Year, assuming that principal thereof is paid as scheduled and that any mandatory sinking fund payments are made as scheduled, and (b) the amount of principal payable on the Loan and on all outstanding Parity Debt in such Bond Year, including any principal required to be prepaid by operation of mandatory sinking fund payments. For purposes of such calculation, there shall be excluded a pro rata portion of each installment of principal of any Parity Debt, together with the interest to accrue thereon, in the event and to the extent that the proceeds of such Parity Debt are deposited in an escrow fund from which amounts may not be released to the Agency unless the Tax Revenues for the current Fiscal Year, at least equal one hundred twenty-five percent (125%) of the amount of Maximum Annual Debt Service which would result if the amount on deposit in such escrow fund was applied to redeem such Parity Debt.

"1995 Loan" means the loan made by the Authority to the Agency in the original aggregate principal amount of $14,300,000 pursuant to the 1995 Loan Agreement.

"1995 Loan Agreement" means that certain Loan Agreement, dated as of September 1, 1995, by and between the Agency and the Authority, as originally executed or as it may have been or may be from time to time be amended, modified or supplemented.

Appendix A Page 24 "1998B Loan" means the loan made by the Authority to the Agency in the aggregate principal amount of $8,735,000 pursuant to the 1998B Loan Agreement.

"1998C Loan" means the loan made by the Authority to the Agency in the aggregate principal amount of $7,515,000 pursuant to the 1998C Loan Agreement.

"Parity Debt" means (a) the 1995 Loan, the 1998B Loan, the 1998C Loan and the 2001 Loan, (b) any loans, bonds, notes, advances or indebtedness payable from Tax Revenues on a parity with the Loan to finance the Redevelopment Project, issued or incurred pursuant to and in accordance with the 2004 Housing Project Loan Agreement, or (c) any Refunding Debt.

"Parity Debt Instrument" means the 1995 Loan Agreement, the 1998B Loan Agreement, the 1998C Loan Agreement, the 2001 Loan Agreement and any resolution, indenture of trust, trust agreement or other instrument authorizing the issuance of any Parity Debt.

"Plan Limitations" means the limitations contained or incorporated in the Redevelopment Plans on (a) the aggregate principal amount of indebtedness payable from Tax Revenues which may be outstanding at any time, (b) the aggregate amount of taxes which may be divided and allocated to the Agency pursuant to the Redevelopment Plans, and (c) the period of time for establishing or repaying indebtedness payable from Tax Revenues.

"Project Areas" means, collectively, the Emeryville Project Area and the Shellmound Park Project Area.

"Qualified Reserve Fund Credit Instrument" means an irrevocable standby or direct-pay letter of credit or surety bond issued by a commercial bank or insurance company and deposited with the Trustee pursuant to the 2004 Housing Project Loan Agreement provided that all of the following requirements are met: (i) the long-term credit rating of such bank or insurance company is in the highest rating category by Moody's and S&P, or the claims paying ability of such insurance company is rated in the highest rating category by A.M. Best & Company; (ii) such letter of credit or surety bond has a term of at least twelve (12) months; (iii) such letter of credit or surety bond has a stated amount at least equal to the portion of the Reserve Requirement with respect to which funds are proposed to be released pursuant to the 2004 Housing Project Loan Agreement; and (iv) the Trustee is authorized pursuant to the terms of such letter of credit or surety bond to draw thereunder an amount equal to any deficiencies which may exist from time to time in the amounts available to repay the principal of and interest on the Loan.

"Redevelopment Plans" means, collectively, the Emeryville Redevelopment Plan and the Shellmound Park Redevelopment Plan.

"Redevelopment Projects" means, collectively, the Emeryville Redevelopment Project and the Shellmound Park Redevelopment Project.

Appendix A Page 25 such Refunding Debt), and the debt service due on such Refunding Debt in any Bond Year in which the Loan or such Parity Debt is Outstanding is not greater than the debt service due on the portion of the Loan or any Parity Debt refunded with the proceeds of such Refunding Debt.

"Report" means a document in writing signed by an Independent Redevelopment Consultant and including: (a) a statement that the person or firm making or giving such Report has read the pertinent provisions of the 2004 Housing Project Loan Agreement to which such Report relates; (b) a brief statement as to the nature and scope of the examination or investigation upon which the Report is based; and (c) a statement that, in the opinion of such person or firm, sufficient examination or investigation was made as is necessary to enable said consultant to express an informed opinion with respect to the subject matter referred to in the Report.

"Reserve Fund" means the fund established and held hereunder by the Trustee pursuant to the 2004 Housing Project Loan Agreement.

"Reserve Requirement" means, as of any calculation date, an amount equal to Maximum Annual Debt Service. The Reserve Requirement as of the Closing Date is $3,144,291.02.

"Shellmound Park Project Area" means the area of the Shellmound Park Redevelopment Project as described in the Shellmound Park Redevelopment Plan.

"Shellmound Park Redevelopment Plan" means the Redevelopment Plan for the Shellmound Park Redevelopment Project, approved by ordinance enacted by the City Council of the City on October 20, 1987, as amended by Ordinance No. 94-005, enacted by the City Council of the City on March 15, 1994, as amended by Ordinance No. 98-012, enacted by the City Council of the City on December 15, 1998, as amended by Ordinance No. 03-008, enacted by the City Council of the City on May 20, 2003, and as amended by Ordinance No. 04-007, enacted by the City Council of the City on June 15, 2004, together with any amendments thereof at any time duly authorized pursuant to the Redevelopment Law.

"Shellmound Park Redevelopment Project" means the undertaking of the Agency pursuant to the Shellmound Park Redevelopment Plan and the Redevelopment Law for the redevelopment of the Shellmound Park Project Area.

"Subordinate Debt" means any loans, advances or indebtedness issued or incurred by the Agency in accordance with the requirements of the 2004 Housing Project Loan Agreement, which are either: (a) payable from, but not secured by a pledge of or lien upon, the Tax Revenues; or (b) secured by a pledge of or lien upon the Tax Revenues which is subordinate to the pledge of and lien upon the Tax Revenues hereunder for the security of the Loan and any Parity Debt.

"Special Fund" means the fund established and held hereunder by the Agency pursuant to the 2004 Housing Project Loan Agreement.

"Trustee" means BNY Western Trust Company, a corporation organized and existing under the laws of the State of California, and its successors and assigns acting as trustee under the Indenture.

"2001 Loan" means the loan made by the Authority to the Agency in the aggregate principal amount of $3,420,000 pursuant to the 2001 Loan Agreement.

Appendix A Page 26 "2001 Loan Agreement" means that certain Loan Agreement, dated as of July 1, 2001, by and between the Authority and the Agency, as originally executed or as it may have been or may be from time to time be amended, modified or supplemented.

"2004 Housing Project Loan Agreement" means the 2004 Housing Project Loan Agreement, by and among the Authority, the Agency and the Trustee, as originally executed or as it may from time to time be amended, modified or supplemented.

Redevelopment Fund-2004 Emeryville Project Loan Agreement

On the Closing Date the Agency shall deposit into the 2004 Redevelopment Account a portion of the Loan proceeds. Amounts on deposit in the 2004 Redevelopment Account shall be derived solely from the proceeds of the Loan deposited therein pursuant to the 2004 Emeryville Project Loan Agreement and from the interest, profits and other income received from the investment of moneys in the 2004 Redevelopment Account. Amounts in the 2004 Redevelopment Account shall be used solely in the manner provided by the Law and the Redevelopment Plan to provide financing for redevelopment purposes within or for the benefit of the Emeryville Redevelopment Project. Upon completion of the project or projects for which proceeds of the Bonds were deposited in the 2004 Redevelopment Account, any remaining amounts shall be transferred by the Agency to the Trustee for deposit in the Debt Service Fund and applied as a credit against the debt service requirements of the Bonds allocable to the Loan.

Redevelopment Fund-2004 Shellmound Park Project Loan Agreement

On the Closing Date the Agency shall deposit into the 2004 Redevelopment Account a portion of the Loan proceeds. Amounts on deposit in the 2004 Redevelopment Account shall be derived solely from the proceeds of the Loan deposited therein pursuant to the 2004 Shellmound Park Loan Agreement and from the interest, profits and other income received from the investment of moneys in the 2004 Redevelopment Account. Amounts in the 2004 Redevelopment Account shall be used solely in the manner provided by the Law and the Redevelopment Plan to provide financing for redevelopment purposes within or for the benefit of the Redevelopment Project. Upon completion of the project or projects for which proceeds of the Bonds were deposited in the 2004 Redevelopment Account, any remaining amounts shall be transferred by the Agency to the Trustee for deposit in the Debt Service Fund and applied as a credit against the debt service requirements of the Bonds allocable to the Loan.

Low and Moderate Income Housing Fund

On the Closing Date the Agency shall deposit into the 2004 Low and Moderate Income Housing Account a portion of the Loan proceeds. Amounts on deposit in the 2004 Low and Moderate Income Housing Account shall be derived solely from the proceeds of the Loan deposited therein pursuant to the 2004 Housing Loan Agreement and from the interest, profits and other income received from the investment of moneys in the 2004 Low and Moderate Income Housing Account. Amounts in the 2004 Low and Moderate Income Housing Account shall be used solely in the manner provided by the Law and the Redevelopment Plans to provide financing for low and moderate income housing purposes within or for the benefit of the Redevelopment Projects. Upon completion of the project or projects for which proceeds of the Bonds were deposited in the 2004 Low and Moderate Income Housing Account, any remaining amounts shall be transferred by the Agency to the Trustee for deposit in the Debt Service Fund and applied as a credit against the debt service requirements of the Bonds allocable to the Loan.

Appendix A Page 27 Reserve Fund

Establishment of Reserve Fund. The Reserve Fund shall be held by the Trustee in trust for the benefit of the Authority and the Owners of the Bonds. Amounts initially deposited in the Reserve Fund shall be derived from the proceeds of the Bonds deposited therein pursuant to the Indenture. The amount on deposit in the Reserve Fund shall be maintained in an amount equal, at all times prior to the payment of the Loan in full, to the initial deposit therein pursuant to the Indenture, except to the extent required for the purposes set forth below; provided, however, if the aggregate amount on deposit in the Reserve Fund and the reserve fund for each issue of Parity Debt is at any time less than the Reserve Requirement, the Agency shall cause the Trustee to comply with the second sentence of the next paragraph.

Transfers to Principal Account and Interest Account. In the event that the Agency shall fail to deposit with the Trustee the full amount required to be deposited therein, the Trustee shall withdraw from the Reserve Fund and transfer to the Interest Account and the Principal Account, in such order, the difference between the amount required to be deposited and the amount actually deposited by the Agency. In the event that the amount on deposit in the Reserve Fund and in the reserve funds created with respect to Parity Debt shall at any time be less than the Reserve Requirement, the Trustee shall promptly notify the Agency of the amount required to be deposited therein and in the reserve funds created with respect to Parity Debt to restore the aggregate balance to the Reserve Requirement, such notice to be given by telephone, telecopy or other form of telecommunication, promptly confirmed in writing, the Agency shall withdraw from the Special Fund an amount necessary to restore the aggregate balance to the Reserve Requirement, the Agency shall transfer such amount to the Trustee, and

(i) if the deficiency is the result of a withdrawal of the type contemplated by the first sentence of the preceding paragraph from the Reserve Fund or another reserve fund, the Trustee shall first replenish the reserve fund from which the moneys were withdrawn in an amount equal to the amount withdrawn,

(ii) if the deficiency is the result of the expiration of and failure to replace a Qualified Reserve Fund Credit Investment, the Trustee shall first deposit into the applicable reserve fund an amount equal to the stated amount of the Qualified Reserve Fund Credit Investment (provided, however, notwithstanding the foregoing, no such transfer and deposit need to be made upon the occurrence of a default or failure to pay under any Qualified Reserve Fund Credit Instrument, or any termination thereof prior to its stated termination date, except as a result of a default by the Agency), and

(iii) if the deficiency is the result of a cause other than those listed in the preceding clauses (i) and (ii), the Trustee shall make deposits into the Reserve Fund and the other reserve funds on a pro rata basis based upon the then unpaid principal amount of the Loan and the then unpaid principal amount of each issue of Parity Debt.

Transfers of Excess Over Reserve Requirement. In the event that the amount on deposit in the Reserve Fund and in the reserve funds created with respect to Parity Debt on any Interest Payment Date exceeds the Reserve Requirement, the Trustee shall withdraw from the Reserve Fund and from the reserve funds created with respect to Parity Debt and deposit to the Revenue Fund and to the revenue funds created with respect to Parity Debt all amounts in excess of the Reserve Requirement, pro rata based upon the then unpaid principal amount of the Loan and the then unpaid principal amount of each issue of Parity Debt, and credit such amounts towards the deposit then required to be made by the Agency and toward similar deposits required to be made with respect to the payment of Parity Debt.

Transfers Upon Termination of the Loan Agreement and Parity Debt.

(i) On the final Loan Payment Date, amounts on deposit in the Reserve Fund shall, if necessary to maintain the aggregate amount on deposit in the reserve funds created with respect to Parity Debt at the Reserve Requirement (excluding the Reserve Fund), be

Appendix A Page 28 transferred by the Trustee, pro rata based upon the then unpaid principal amount of each issue of Parity Debt, to each such reserve fund created with respect to Parity Debt to maintain the Reserve Requirement at its full amount, and otherwise shall be applied as a credit against the final Loan payment then due.

(ii) On the final payment date with respect to any Parity Debt, amounts on deposit in the reserve fund created for such maturing Parity Debt shall, if necessary to maintain the aggregate amount on deposit in the Reserve Fund and the reserve funds created with respect to other Parity Debt at the Reserve Requirement (excluding the reserve fund for such maturing Parity Debt), be transferred by the Trustee, pro rata based upon the then unpaid principal amount of the Loan and the unpaid principal amount of each other issue of Parity Debt, to the Reserve Fund and to each such reserve fund created with respect to other Parity Debt to maintain the Reserve Requirement at its full amount, and otherwise shall be applied as a credit against the payment then due for such maturing Parity Debt.

Alternative Funding of Reserve Requirement. The Agency may fund all or a portion of the amount required to be maintained on deposit in the Reserve Fund with one or more Qualified Reserve Fund Credit Instruments. Upon deposit of any Qualified Reserve Fund Credit Instrument with the Trustee, the Trustee shall pay to the Agency from amounts in the Reserve Fund an amount equal to the principal of the Qualified Reserve Fund Credit Instrument.

In any case where the Reserve Fund is funded with a combination of cash and a Qualified Reserve Fund Credit Instrument, the Trustee shall deplete all cash balances before drawing on the Qualified Reserve Fund Credit Instrument. With regard to replenishment, any available moneys provided by the Agency shall be used first to reinstate the Qualified Reserve Fund Credit Instrument and second, to replenish the cash in the Reserve Fund. In the event the Qualified Reserve Fund Credit Instrument is drawn upon, the Agency shall make payment of interest on amounts advanced under the Qualified Reserve Fund Credit Instrument after making any payments pursuant to the Loan Agreement.

In the event the Qualified Reserve Fund Credit Instrument will lapse or expire, the Agency shall draw upon such Qualified Reserve Fund Credit Instrument prior to its lapsing or expiring, make deposits from available Tax Revenues to the Reserve Fund to increase the amount on deposit therein to the Reserve Requirement or substitute such Qualified Reserve Fund Credit Instrument with a Qualified Reserve Fund Credit Instrument that satisfies the requirements of this paragraph.

Parity Debt

In addition to the Loan, the Agency may issue or incur Parity Debt in such principal amount as shall be determined by the Agency. The Agency may issue and deliver any Parity Debt subject to the following specific conditions which are made conditions precedent to the issuance and delivery of such Parity Debt issued under the Loan Agreement:

(a) No Event of Default shall have occurred and be continuing, and the Agency shall otherwise be in compliance with all covenants set forth in the Loan Agreement;

(b) The Tax Revenues received or to be received for the then current Fiscal Year based on the most recent taxable valuation of property in the Project Area as evidenced in a written document from an appropriate official of the County, exclusive of State subventions, plus, at the option of the Agency, the Additional Revenues, shall be at least equal to one hundred twenty-five percent (125%) of Maximum Annual Debt Service on the Loan and Parity Debt which will be outstanding immediately following the issuance of such Parity Debt, excepting therefrom Maximum Annual Debt Service on any Refunding Debt;

(c) The aggregate amount of the principal of and interest on the Loan any Parity Debt and any Subordinate Debt coming due and payable following the issuance of such Parity Debt shall not exceed the maximum amount of Tax Revenues permitted under the Tax Increment Plan Limit to be allocated and paid to the Agency following the issuance of such Parity Debt;

Appendix A Page 29 (d) Interest on such Parity Debt shall be payable on March 1 and September 1 in each year in which interest is payable on such Parity Debt, except the first twelve month period, during which interest may be payable on any March 1 or September l;

(e) Principal on such Parity Debt shall be payable on September 1 in any year in which principal is payable;

(f) Money (and/or a Qualified Reserve Fund Credit Instrument) shall be deposited in a reserve account from the proceeds of the sale of such Parity Debt in an amount sufficient so that the total amount held for the Loan, existing Parity Debt and such proposed Parity Debt in the Reserve Fund, respectively, the reserve funds for the existing Parity Debt and the reserve fund for the proposed Parity Debt, is equal to the Reserve Requirement; and

(g) The Agency shall deliver to the Trustee a Certificate of the Agency certifying that the conditions precedent to the issuance of such Parity Debt set forth in paragraphs (a), (b), (c), (d), (e) and (f) above have been satisfied.

Subordinate Debt

In addition to the Loan and Parity Debt, the Agency may issue or incur Subordinate Debt in such principal amount as shall be determined by the Agency. The Agency may issue or incur such Subordinate Debt subject to the following specific conditions precedent:

(a) The Agency shall be in compliance with all covenants set forth in the Loan Agreement and the proceedings for the issuance of any Parity Debt;

(b) If, and to the extent, such Subordinate Debt is payable from Tax Revenues, then the aggregate amount of the principal of and interest to accrue on the Loan any Parity Debt and all Subordinate Debt coming due and payable following the issuance of such Subordinate Debt shall not exceed the maximum amount of Tax Revenues permitted under the Tax Increment Plan Limit; and

(c) The Agency shall deliver to the Trustee a written certificate of the Agency certifying that the conditions precedent to the issuance of such Subordinate Debt set forth in paragraphs (a) and (b) above have been satisfied.

Pledge of Tax Revenues

The Loan and all Parity Debt shall be equally secured for the benefit of the Authority and the Owners of the Bonds by a pledge of, security interest in and lien on all of the Tax Revenues, without preference or priority for series, issue, number, dated date, sale date, date of execution or date of delivery. The Tax Revenues are allocated in their entirety to the payment of the principal of and interest on the Loan and all Parity Debt. Except for the Tax Revenues, no funds or properties of the Agency shall be pledged to, or otherwise liable for, the payment of principal of or interest or premium (if any) on the Loan.

Special Fund; Deposit of Tax Revenues

The Agency shall deposit all of the Tax Revenues received in any Bond Year in the Special Fund (and in any applicable special fund created by any Parity Debt Instrument) promptly upon receipt thereof by the Agency, until such time (if any) during such Bond Year as the amounts on deposit in the Special Fund equal the aggregate amounts required to be transferred to the Trustee pursuant to the Loan Agreement (and any applicable Parity Debt Instrument); and (except as may be otherwise provided in any Parity Debt Instrument) any Tax Revenues received during such Bond Year in excess of such amounts shall be released from the pledge and lien under the Loan Agreement and may be used for any lawful purposes of the Agency. In the event the Agency shall at any time determine that there will be insufficient Tax Revenues to so deposit timely and fully all amounts then required pursuant to the Loan Agreement (and any applicable Parity Debt Instrument), the Agency

Appendix A Page 30 shall so deposit the Tax Revenues which are available pro rata based on the amounts then required pursuant to the Loan Agreement(and any applicable Parity Debt Instrument). Prior to the payment in full of the principal of and interest and prepayment premium (if any) on the Loan and all Parity Debt and the payment in full of all other amounts payable under the Loan Agreement and under any Parity Debt Instrument, the Agency shall not have any beneficial right or interest in the moneys on deposit in the Special Fund, except only as provided in the Loan Agreement and in any Parity Debt Instrument, and such moneys shall be used and applied as set forth in the Loan Agreement and in any Parity Debt Instrument.

Transfer of Tax Revenues to Trustee

The Agency shall withdraw from the Special Fund and transfer to the Trustee the following amounts at the following times:

(a) Payment Amount. No later than each Loan Payment Date, the Agency shall withdraw from the Special Fund and transfer to the Trustee for deposit in the Revenue Fund the amount specified for such date, after taking into account any amount then on deposit in the Revenue Fund allocable thereto, equal to the payment amount on the Loan becoming due and payable on such Loan Payment Date.

(b) Reserve Fund Deposits. In the event that (i) the Trustee shall notify the Agency that the amounts on deposit in the Reserve Fund and in the reserve funds created for Parity Debt are, in the aggregate, less than the Reserve Requirement, or (ii) any Qualified Reserve Fund Credit Investment shall expire and not be replaced, the Agency shall immediately withdraw from the Special Fund and transfer to the Trustee for deposit in the Reserve Fund and in the reserve funds created for Parity Debt an amount of money necessary for deposit therein.

Notwithstanding the foregoing, no such transfer and deposit need to be made upon the occurrence of a default or failure to pay under any Qualified Reserve Fund Credit Instrument, or any termination thereof prior to its stated termination date, except as a result of a default by the Agency.

(c) Surplus. Except as may be otherwise provided in any Parity Debt Instrument, the Agency shall not be obligated to deposit in the Special Fund in any Bond Year an amount of Tax Revenues which, together with other available amounts in the Special Fund, exceeds the amounts required to be transferred to the Trustee in such Bond Year. In the event that for any reason whatsoever any amounts shall remain on deposit in the Special Fund on any May 2 after making all of the transfers theretofore required to be made pursuant to the preceding clause (a) and pursuant to any Parity Debt Instrument, the Agency may withdraw such amounts from the Special Fund, to be used for any lawful purposes of the Agency.

Investment of Moneys; Valuation of Investments

All moneys in the Special Fund shall be invested by the Agency solely in Permitted Investments which are also authorized under the Redevelopment Law, maturing not later than the respective dates on which such moneys are estimated by the Agency to be required for application to the Redevelopment Project or required to be deposited with the Trustee. All moneys in the 2001 Redevelopment Account shall be invested by the Agency in investments authorized under the Redevelopment Law.

The Agency covenants that all investments of amounts deposited in any fund or account created by or pursuant to the Loan Agreement, or otherwise containing gross proceeds of the Bonds (within the meaning of section 148 of the Code) shall be acquired, disposed of, and valued (as of the date that valuation is required by the Indenture or the Code) at Fair Market Value.

Investments in funds or accounts (or portions thereof) that are subject to a yield restriction under applicable provisions of the Code shall be valued by the Authority at their present value (within the meaning of section 148 of the Code).

Appendix A Page 31 Certain Covenants

Punctual Payment. The Agency will punctually pay or cause to be paid the principal of and interest on the Loan together with any prepayment premiums thereon in strict conformity with the terms of the Loan Agreement, and it will faithfully observe and perform all of the conditions, covenants and requirements of the Loan Agreement.

Limitation on Superior Debt. The Agency covenants that, so long as the Loan remains unpaid, the Agency shall not issue any bonds, notes or other obligations, enter into any agreement or otherwise incur any loans, advances or indebtedness, which is in any case secured by a lien on all or any part of the Tax Revenues which is superior to or on a parity with the lien established under the Loan Agreement for the security of the Loan, excepting only any Parity Debt issued pursuant to the Loan Agreement.

Payment of Claims. The Agency will pay and discharge, or cause to be paid and discharged, any and all lawful claims for labor, materials or supplies which, if unpaid, might become a lien or charge upon the properties owned by the Agency or upon the Tax Revenues or any part thereof, or upon any funds in the hands of the Trustee, or which might impair the security of the Loan. Nothing contained in the Loan Agreement shall require the Agency to make any such payment so long as the Agency in good faith shall contest the validity of said claims.

Books and Accounts; Financial Statements. The Agency will keep, or cause to be kept, proper books of record and accounts, separate from all other records and accounts of the Agency in which complete and correct entries shall be made of all transactions relating to the Redevelopment Project, the Tax Revenues, the Special Fund, the Redevelopment Fund and the Low and Moderate Income Housing Fund, and the accounts therein. Such books of record and accounts shall at all times during business hours be subject, upon prior written request, to the reasonable inspection of the Authority, the Trustee (which shall have no duty to so inspect) and the Owners of any Bonds then Outstanding, or their representatives authorized in writing.

The Agency will cause to be prepared and filed with the Trustee annually, within one hundred and eighty (180) days after the close of each Fiscal Year so long as any of the Bonds allocable to the Loan are Outstanding, complete audited financial statements with respect to such Fiscal Year showing the Tax Revenues, all disbursements from the Special Fund, the Redevelopment Fund and the Low and Moderate Income Housing Fund and the accounts therein, and the financial condition of the Project Area, including the balances in all such Funds and Accounts relating to the Project Area, as of the end of such Fiscal Year. The Agency will furnish a copy of such statements, upon reasonable request, to any Bond Owner. The Trustee shall have no duty to review such financial statements or monitor or enforce receipt thereof.

Payments of Taxes and Other Charges. The Agency will pay and discharge, or cause to be paid and discharged, all taxes, service charges, assessments and other governmental charges which may hereafter be lawfully imposed upon the Agency or the properties then owned by the Agency in the Project Area, when the same shall become due. Nothing contained the Loan Agreement shall require the Agency to make any such payment so long as the Agency in good faith shall contest the validity of said taxes, assessments or charges. The Agency will duly observe and conform with all valid requirements of any governmental authority relative to the Redevelopment Project or any part thereof.

Taxation of Leased Property. All amounts derived by the Agency pursuant to section 33673 of the Redevelopment Law with respect to the lease of property for redevelopment shall be treated as Tax Revenues for all purposes of the Loan Agreement, and shall be paid to the Agency for deposit in the Special Fund.

Disposition of Property. The Agency will not participate in the disposition of any land or real property in the Project Area to anyone which will result in such property becoming exempt from taxation because of public ownership or use or otherwise (except property dedicated for public right of-way and except property planned for public ownership or use by the Redevelopment Plan in effect

Appendix A Page 32 on the date of the Loan Agreement) so that such disposition shall, when taken together with other such dispositions, aggregate more than ten percent (10%) of the land area in the Project Area unless such disposition is permitted as provided in the Loan Agreement. If the Agency proposes to participate in such a disposition, it shall thereupon appoint an Independent Redevelopment Consultant to report on the effect of said proposed disposition. If the Report of the Independent Redevelopment Consultant concludes that the security of the Loan or the rights of the Authority, the Bond Owners and the Trustee will not be materially impaired by said proposed disposition, the Agency may thereafter make such disposition. If said Report concludes that such security will be materially impaired by said proposed disposition, the Agency shall disapprove said proposed disposition.

Maintenance of Tax Revenues. The Agency shall comply with all requirements of the Redevelopment Law to insure the allocation and payment to it of the Tax Revenues, including without limitation the timely filing of any necessary statements of indebtedness with appropriate officials of the County of Alameda and (in the case of supplemental revenues and other amounts payable by the State of California) appropriate officials of the State of California. The Agency shall not enter into any agreement with the County of Alameda or any other governmental unit which would have the effect of reducing the amount of Tax Revenues available to the Agency for payment of the Loan. Nothing in the Loan Agreement is intended or shall be construed in any way to prohibit or impose any limitations on the entering into by the Agency of Subordinate Debt.

Tax Covenants.

No Arbitrage. The Agency shall not take, nor permit nor suffer to be taken by the Trustee, the Authority or otherwise, any action with respect to the proceeds of the Loan which, if such action had been reasonably expected to have been taken, or had been deliberately and intentionally taken, on the date of issuance of the Bonds would have caused the Bonds to be "arbitrage bonds" within the meaning of section 148 of the Code.

Rebate Requirement. The Agency shall take any and all actions necessary to assure compliance with section 148(f) of the Code, relating to the rebate of excess investment earnings, if any, to the federal government.

The Agency agrees to furnish all information to, and cooperate fully with the Authority, the Trustee and their respective officers, employees, agents and attorneys, in order to assure compliance with the provisions of the Indenture. In the event that the Authority shall determine that any amounts are due and payable to the United States of America thereunder and that neither the Authority nor the Trustee has on deposit an amount of available moneys (excluding moneys on deposit in the Interest Account, the Principal Account, the Sinking Account or the Reserve Fund and excluding any other moneys required to pay the principal of or interest or redemption premium, if any, on the Bonds) to make such payment, the Authority shall promptly notify the Agency of such fact. Upon receipt of any such notice, the Agency shall promptly pay from available Tax Revenues or any other source of legally available funds the sum of (a) one hundred percent (100%) of the amounts determined by the Authority to be due and payable to the United States of America as a result of the investment of amounts on deposit in any fund or account established under the Loan Agreement, plus (b) all other amounts due and payable to the United States of America.

Private Activity Bond Limitation. The Agency shall assure that the proceeds of the Loan are not so used as to cause the Bonds to satisfy the private business tests of section 141(b) of the Code or the private loan financing test of section 141(c) of the Code.

Federal Guarantee Prohibition. The Agency shall not take any action or permit or suffer any action to be taken if the result of the same would be to cause any of the Bonds to be "federally guaranteed" within the meaning of section 149(b) of the Code.

Maintenance of Tax Exemption. The Agency shall take all actions necessary to assure the exclusion of interest on the Bonds from the gross income of the Owners of the Bonds to

Appendix A Page 33 the same extent as such interest is permitted to be excluded from gross income under the Code as in effect on the date of issuance of the Bonds.

Continuing Disclosure. The Agency covenants and agrees that it will comply with and carry out all of the provisions of the Continuing Disclosure Certificate. Notwithstanding any other provision of the Loan Agreement, failure of the Agency to comply with the Continuing Disclosure Certificate shall not be considered an Event of Default, however, any Participating Underwriter or any holder or beneficial owner of the Bonds may take such actions as may be necessary and appropriate, including seeking specific performance by court order, to cause the Agency to comply with its obligations under the Loan Agreement.

Annual Review of Tax Revenues. The Agency shall annually cause to be prepared a report which sets forth the estimated annual and cumulative total amount of tax increment revenues remaining available to be received by the Agency under the Plan Limitations (the "Remaining Limit Amount"), the estimated Current Year Obligations (as defined below), and the estimated Future Year Obligations (as defined below). Each Fiscal Year, the Agency shall cause to be deposited in a Trustee held escrow account (the "Defeasance Escrow Account"), for investment in Federal Securities, that portion of tax increment revenues, if any, allocated to the Agency in excess of the Current Year Obligations to the extent necessary, taking into account (i) the Remaining Limit Amount, (ii) all Future Obligations and (iii) the amounts already existing in the Defeasance Escrow Account, to enable repayment when due of all Future Obligations within the Remaining Limit Amount. Amounts in the Defeasance Escrow Account, including interest earned thereon, shall only be used to pay or prepay Future Obligations.

"Current Year Obligations" means the amounts necessary to pay the debt service and other amounts due in the applicable Fiscal Year for which the annual report is then being prepared with respect to the Loan, on Parity Debt and on Subordinate Debt, deposits in the Housing Fund, pass through obligations, other statutory obligations and the Agency's administrative costs. "Future Obligations" means the estimated amounts necessary to pay the debt service and other amounts due in all succeeding Fiscal Years with respect to the Loan, on Parity Debt and on Subordinate Debt, deposits in the Housing Fund, pass-through obligations, other statutory obligations and the Agency's administrative costs; provided that in estimating the portion of the Future Obligations related to the Loan, Parity Debt or Subordinate Debt, the amount of remaining debt service shall take into account the early prepayment or defeasance of the Loan, Parity Debt or Subordinate Debt estimated to occur using amounts deposited or to be deposited in the Defeasance Escrow Account.

Payments to Ambac Assurance. The Agency shall pay or reimburse Ambac Assurance for any and all charges, fees, costs and expenses which Ambac Assurance may reasonably pay or incur in connection with (i) the administration, enforcement, defense or preservation of any rights or security in the Loan Agreement or the Indenture; (ii) the pursuit of any remedies under the Loan Agreement or the Indenture or otherwise afforded by law or equity, (iii) any amendment, waiver or other action with respect to, or related to, the Loan Agreement or the Indenture whether or not executed or completed, (iv) the violation by the Agency of any law, rule or regulation, or any judgment, order or decree applicable to it, and (v) any litigation or other dispute in connection with the Loan Agreement or the Indenture or the transactions contemplated thereby, other than amounts resulting from the failure of Ambac Assurance to honor its obligations under the Financial Guaranty Insurance Policy. Ambac Assurance reserves the right to charge a reasonable fee as a condition to executing any amendment, waiver or consent proposed in respect of the I Loan Agreement or the Indenture.

Events of Default and Acceleration of Maturities

The following events shall constitute Events of Default under the Loan Agreement:

(a) Failure by the Agency to pay the principal of or interest or prepayment premiums (if any) on the Loan or any Parity Debt when and as the same shall become due and payable; provided, however, that the Agency shall not be deemed to have defaulted in the payment of the principal of or interest or prepayment premiums (if any) on the Loan to the extent that all available Tax Revenues are applied for that purpose and so long as the Lease Agreement is in full force and effect.

Appendix A Page 34 (b) Failure by the Agency to observe and perform any of the covenants, agreements or conditions on its part contained in the Loan Agreement, other than as referred to in the preceding clause (a), for a period of thirty (30) days after written notice specifying such failure and requesting that it be remedied has been given to the Agency by the Trustee; provided, however, that if in the reasonable opinion of the Agency the failure stated in such notice can be corrected, but not within such thirty (30) day period, the Trustee shall not unreasonably withhold its consent to an extension of such time if corrective action is instituted by the Agency within such thirty (30) day period and diligently pursued until such failure is corrected.

(c) The Agency commences a voluntary action under Title 11 of the United States Code or any substitute or successor statute.

If an Event of Default has occurred and is continuing, the Trustee shall, at the written direction of the Owners of a majority of the Bonds, (a) declare the principal of the Loan, together with the accrued interest on all unpaid installment payments thereof, to be due and payable immediately, and upon any such declaration the same shall become immediately due and payable, anything in the Loan Agreement to the contrary notwithstanding, and (b) to the extent indemnified to its satisfaction from any liability or expense, exercise any other remedies available to the Trustee in law or at equity. Immediately upon becoming aware of the occurrence of an Event of Default, the Trustee shall give notice of such Event of Default to the Agency by telephone, telecopier or other telecommunication device, promptly confirmed in writing. This provision, however, is subject to the condition that if, at any time after the principal of the Loan shall have been so declared due and payable, and before any judgment or decree for the payment of the moneys due shall have been obtained or entered, the Agency shall deposit with the Trustee a sum sufficient to pay all payments on the Loan and any Parity Debt matured prior to such declaration, with interest on such overdue payments at the rate then borne by the Outstanding Bonds, and the reasonable expenses of the Trustee (including but not limited to attorneys fees), and any and all other defaults known to the Trustee shall have been made good or cured to the satisfaction of the Trustee or provision deemed by the Trustee to be adequate shall have been made therefor, then, and in every such case, the Owners of a majority in aggregate principal amount of the Outstanding Bonds may, by written notice to the Trustee and the Agency. However, no such rescission and annulment shall extend to or shall affect any subsequent default, or shall impair or exhaust any right or power consequent thereon.

Application of Funds Upon Default

All amounts received by the Trustee pursuant to any right given or action taken by the Trustee under the provisions of the Loan Agreement shall be applied by the Trustee in the following order:

First, to the payment of the fees, costs and expenses of the Trustee, including reasonable compensation to its agents, attorneys and counsel; and

Second, to the payment of all payments on the Loan then due and unpaid, with interest on overdue payments to the extent permitted by law at the rate of interest then borne by the Outstanding Bonds; provided, however, that in the event such amounts shall be insufficient to pay in full the full amount of such interest and principal, then such amounts shall be applied in the order by which the overdue payments first became delinquent.

Discharge of Loan Agreement

If the Agency shall pay and discharge the indebtedness evidenced by the Loan or any portion thereof in any one or more of the following ways:

(a) by well and truly paying or causing to be paid the payments and prepayment premiums (if any) on the Loan or portion thereof, as and when the same become due and payable;

Appendix A Page 35 (b) by irrevocably depositing with the Trustee, in trust, at or before maturity, cash in an amount which, together with the available amounts then on deposit in any of the funds and accounts established pursuant to the Indenture or the Loan Agreement, is fully sufficient to pay all payments and prepayment premiums (if any) on the Loan or portion thereof; or

(c) by irrevocably depositing with the Trustee or any other fiduciary, in trust, Defeasance Obligations in such amount as an Independent Accountant shall determine will, together with the interest to accrue thereon and available moneys then on deposit in the funds and accounts established pursuant to the Indenture or pursuant to the Loan Agreement, be fully sufficient to pay and discharge the indebtedness on the Loan or portion thereof (including all payments and prepayment premiums) at or before maturity; then, at the election of the Agency but only if all other amounts then due and payable under the Loan Agreement shall have been paid or provision for their payment made, the pledge of and lien upon the Tax Revenues and other funds provided for in the Loan Agreement and all other obligations of the Trustee, the Authority and the Agency under the Loan Agreement with respect to the Loan or with respect to the portion thereof so paid and discharged shall cease and terminate, except only the obligation of the Agency to pay or cause to be paid to the Trustee, from the amounts so deposited with the Trustee or such other fiduciary, all sums due with respect to the Loan and all expenses and costs of the Trustee. Notice of such election shall be filed with the Authority and the Trustee.

Amendment

The Loan Agreement may be amended by the parties thereto but only under the circumstances set forth in, and in accordance with, the provisions of the Indenture. The Authority and the Trustee covenant that the Indenture shall not be amended without the prior written consent of the Agency.

Appendix A Page 36 APPENDIXB

CITY OF EMERYVILLE DEMOGRAPHIC INFORMATION

The following is presented as general background data. The taxing power of the City, the State of California or any political subdivision thereof is not pledged to the payment of the 2004 Bonds.

General

Incorporated in 1896, the City of Emeryville is one of California's oldest municipalities. Bounded by the City of Oakland to the south and east, the City of Berkeley to the north, and the San Francisco Bay to the west, Emeryville lies at the western edge of Alameda County, just north of the San Francisco-Oakland Bay Bridge.

Emeryville's population has grown during the past ten years. This growth is the outcome of a surge in housing development to the east of Interstate Highway 80, which bisects the City.

With a mild climate, Emeryville enjoys "typical" San Francisco Bay Area weather, which most often is characterized by sunny but cool days and fog drifting in from the Golden Gate.

Organization

The City is a general law city and has operated under the Council-Manager form of government since 1984, with a five-member city council elected at large to staggered four-year terms. Annually, the City Council selects a Mayor and a Vice Mayor.

Population

The City of Emeryville is currently estimated to have a population of approximately 7,675. The following table sets forth population statistics for the City and Alameda County since 1940.

TABLE B-1 City of Emeryville and Alameda County Population 1940 to 2004

Year Emeryville % Change Alameda County % Change 1940 2,521 513,011 1950 2,889 15.0% 740,315 44.0% 1960 2,686 (7.0) 908,209 23.0 1970 2,681 (0.2) 1,071,446 18.0 1980 3,714 39.0 1, 105,400 3.0 1990 5,716 13.5 1,255,555 13.5 2000 6,882 20.4 1,443,939 15.0

2001 7,225 1,465,600 2002 7,275 0.7 1,484,700 1.3 2003 7,500 3.1 1,487,700 0.2 2004 7,675 2.3 1,498,000 0.7

Source: U.S. Census (1940-2000) & State Dept. of Finance Population Unit (2001 through 2004).

B-1 Commerce

Total taxable sales reported during the first quarter of calendar year 2003 in the City were reported to be $161,516,000, a 4.1 % decrease over the total taxable sales of $168,403,000 reported during the first quarter of calendar year 2002. The number of establishments selling merchandise subject to sales tax and the valuation of taxable transactions in the City is presented in the following table. Annual figures are not yet available for 2003.

CITY OF EMERYVILLE Taxable Retail Sales Number of Permits and Valuation of Taxable Transactions (Dollars in thousands)

Retail Stores Total All Outlets

Number Taxable Number Taxable of Permits Transactions of Permits Transactions

1998 311 332,379 673 460,345 1999 306 379,147 684 516,853 2000 310 533,724 687 690,642 2001 292 537,287 652 700,462 2002 295 552,435 654 686,576

Source: California State Board of Equalization, Taxable Sales in California (Sales & Use Tax).

The number of establishments selling merchandise subject to sales tax and the valuation of taxable transactions within the County is presented in the following table.

COUNTY OF ALAMEDA Taxable Retail Sales Number of Permits and Valuation of Taxable Transactions (Dollars in thousands)

Retail Stores Total All Outlets

Number Taxable Number Taxable of Permits Transactions of Permits Transactions

1998 19,773 $10,698,611 40,211 $19,221,688 1999 19,069 11,895,998 40,640 20,672,287 2000 18,727 13,868, 169 40,866 23,763,516 2001 18,776 13,682,707 41,079 22,758,085 2002 19,085 13,375,587 41,430 21,264,629

Source: California State Board of Equalization, Taxable Sales in California (Sales & Use Tax).

Effective Buying Income

"Effective Buying Income" is defined as personal income less personal tax and nontax payments, a number often referred to as "disposable" or "after-tax" income. Personal income is the aggregate of wages and salaries, other labor-related income (such as employer contributions to private pension funds), proprietor's income, rental income (which includes imputed rental income of owner-occupants of non-farm dwellings), dividends paid by corporations, interest income from all sources, and transfer payments (such as pensions and welfare assistance). Deducted from this total are personal taxes (federal, state and local), nontax payments (fines, fees, penalties, etc.) and personal contributions to social insurance.

B-2 According to U.S. government definitions, the resultant figure is commonly known as "disposable personal income."

Effective Buying Income As of January 1, 1998 through 2002

Total Effective Median Household Buying Income Effective Buying Year Area (OOO's Omitted) Income

1998 Alameda County $ 26,583,058 $41,715 California 524,439,600 36,483 United States 4,399,998,410 34,618

1999 Alameda County $ 28,649,803 $44,730 California 590,376,663 39,492 United States 4,877,786,658 37,233

2000 Alameda County $ 31,864,401 $50,631 California 652, 190,282 44,464 United States 5,230,824,904 39,129

2001 Alameda County $ 34,081,757 $54,076 California 650,521,407 43,532 United States 5,303,481,498 38,365

2002 Alameda County $ 32,857,351 $49,574 California 647,879,427 42,484 United States 5,340,682,818 38,035

Source: Sales & Marketing Management Survey of Buying Power.

Employment

The City is included in the Oakland Metropolitan Statistical Area labor market area (which consists of Alameda and Contra Costa Counties). The unemployment rate in the Oakland Metropolitan Statistical Area was 5.8 percent in July 2004, up from a revised 5.7 percent in July 2004, and below the year-ago estimate of 6.9 percent. This compares with an unadjusted unemployment rate of 6.5 percent for California and 5.7 percent for the nation during the same period. The unemployment rate was 6.2 percent in Alameda County and 5.3 percent in Contra Costa County.

The following table shows the average annual estimated numbers of wage and salary workers by industry. Does not include proprietors, the self-employed, unpaid volunteers or family workers, domestic workers in households, and persons in labor management disputes.

B-3 OAKLAND MSA (COUNTIES OF CONTRA COSTA AND ALAMEDA) Labor Force, Employment and Unemployment

1999 2000 2001 2002 2003 Civilian Labor Force (1l 1, 198,000 1,233,900 1,256,900 1,276,400 1,268,000 Employment 1,158,700 1, 198,600 1,206, 100 1,197,900 1, 188,300 Unemployment 39,300 35,300 50,800 78,500 79,700 Unemployment Rate 3.3% 2.9% 4.0% 6.1% 6.3% Wage and Salary Emi::1loyment: (2l Agriculture 2,300 3,000 3,000 3,000 2,700 Natural Resources and Mining 2,300 2,400 1,600 1,200 800 Construction 60,000 65,500 69,700 66,600 67,200 Manufacturing 112,100 116,500 113,200 103,600 97,400 Wholesale Trade 51,500 53,700 55,400 53, 100 51,100 Retail Trade 109,500 112,300 113,300 112,000 110,000 Transportation, Warehousing, Utilities 41,700 41,700 41,300 39,500 36,900 Information 35,000 39,000 37,700 35,200 32,300 Finance and Insurance 32,500 33,000 40,300 44,200 49,600 Real Estate and Rental and Leasing 17,600 17,600 18,300 18,300 18,300 Professional and Business Services 160,200 170,200 159,000 149,600 143,400 Educational and Health Services 109,200 110,700 112,500 114,700 117,400 Leisure and Hospitality 72,400 73,700 77,900 79,900 80,600 Other Services 31,000 31,900 35,800 37,800 37,700 Federal Government 20,400 21,000 19,200 18,600 18,300 State Government 45,600 45,900 47,300 49, 100 48,800 Local Government 107,100 109,700 112,300 116,500 115,000 Total, All Industries 1,010,200 1,047,600 1,057,800 1,042,800 1,027,400

(1) Labor force data is by place of residence; includes self-employed individuals, unpaid family workers, household domestic workers, and workers on strike. (2) Industry employment is by place of work; excludes self-employed individuals, unpaid family workers, household domestic workers, and workers on strike. Source: State of California Employment Development Department.

B-4 The tables below set forth the City's largest manufacturing and non-manufacturing employers as of June 30, 2003.

City of Emeryville Largest Employers June 30, 2003

Employers Product/Service

Chiron Corporation Research Development, Manufacturing - Pharmaceutical Biotech Products Pixar Computer Animated Film Production Leapfrog Children's Toy Manufacturer AC Transit Public Transportation Siebel Systems Software Development/Sales Oaks Card Club Cardroom IKEA Household Furnishings Retailer Chevy's Restaurant & Corporate Office Home Depot Hardware & Building Supplies State Farm Insurance Insurance Company Peet's Coffee Coffee Roaster VNA (Visiting Nurses Assn.) Home Care Extensity Software Company City of Emeryville Government Ask Jeeves Search Engine Netopia Internet Browser Development LECG (Navigant Consulting) Consultants Matsco Financial Financial Services Holiday Inn Bay Bridge Hotel

Source: City of Emeryville.

Construction Activity

The following table sets forth construction activity for the past five years in the City.

City of Emeryville BUILDING PERMIT ACTIVITY (Dollars in thousands)

1999 2000 2001 2002 2003 Permit Valuation New Single-family $ 0.0 $ 300.0 $ 510.0 $ 100.0 $ 0.0 New Multi-family 6,000.0 0.0 0.0 0.0 57,361.0 Res. Alterations/Additions 833.7 1,248.8 2,483.0 1,965.0 1,028.4 Total Residential $6,833.7 $1,548.8 $2,993.0 $2,065.0 $58,389.4 New Commercial 50, 100.0 66,050.0 5,370.0 43,638.0 8,700.0 New Industrial 0.0 5,500.0 2,640.0 1,920.0 0.0 New Other 0.0 508.0 148.0 245.0 2,851.7 Com. Alterations/Additions 18,542.2 39,070.8 8,208.0 27,818.3 17,460.5 Total Nonresidential $68,642.2 $111,128.8 $16,366.0 $73,621.3 $29,012.2

New Dwelling Units Single Family 0 2 2 1 0 Multiple Family 67 Q Q Q 503 TOTAL 67 2 2 1 503

Source: Construction Industry Research Board, Building Permit Summary

B-5 Transportation

The San Francisco Bay Area's network of freeways and expressways gives Emeryville access to regional, national and international markets. Interstate Highway 80 passes through Emeryville. Interstate 580 also passes through Emeryville.

The Bay Area Rapid Transit (BART) commuter rail provides high speed transportation through Alameda, Contra Costa and San Francisco Counties. With stations just minutes away in neighboring Oakland and Berkeley, access to Emeryville is enhanced through connections to Emery-Go-Round free shuttle bus service and AC Transit, serving the East Bay and San Francisco. Emery Go Round is a service of the Emeryville Transportation Management Association, a non-profit organization whose primary purpose is to increase access and mobility to, from and within Emeryville while alleviating congestion through operation of the shuttle program. Emeryville recently opened a multi-modal transportation station that features Amtrak commuter service from Sacramento to San Jose as well as long-haul service.

Oakland and San Francisco Ports provide access to domestic and international shipping. The Port of Oakland, the nation's second largest container port, is adjacent to the City of Emeryville.

Oakland International Airport is located less than ten miles from Emeryville and is served by most major domestic and international carriers. In addition to regularly scheduled passenger airlines, the airport provides substantial aircraft maintenance and overhauling services.

Community and Recreational Facilities

The Emeryville Marina and Marina Park offer a natural setting for leisure and recreational activities. The Davenport Mini-Park, located on Emeryville's peninsula along the shore of San Francisco Bay, has become a popular picnic spot. Connecting the Marina with the Watergate Apartments and a Chevy's Restaurant is a rustic boardwalk and landscaped pathway. Further north along the waterfront is Point Emery, a Bay public access point. The 3.5 acre Temescal Creek Park was completed in 1990 and renovated in 1999, a three acre park at Stanford Avenue and Hollis Street was completed in 1992, and the Christie Avenue Park was completed in 1994. Emeryville's Senior Citizen Center, recently renovated and located in the Veterans' Memorial Building, provides instructional programs, lunches, and social events for older city residents.

The Emeryville Child Development Center on 53rd Street, sponsored and managed by the City, offers a unique program of child care for infants through pre-school age children. The recreation center on San Pablo Avenue provides a variety of recreation programs as well as before and after school care.

Arts and Culture

Emeryville is home to over 500 artists and claims the highest per capita artist population in the country. Emeryville has fostered this asset by encouraging the development of live/work spaces, initiating a "Percent for Art" program, and providing assistance to a number of art exhibits and events.

Utilities

Emeryville obtains its gas and electric services from the Pacific Gas and Electric Company. Local telephone service is provided by the Pacific Bell Telephone Company, with numerous companies offering long distance services. Water supply and sewage processing are provided by the East Bay Municipal Utility District.

B-6 Education

The Emery Unified School District administers both primary and secondary education through two city schools. Anna Yates Elementary School, on 41 st and Adeline Streets, includes kindergarten through fifth grade. An Extended Day Care facility, run by the City, is located nearby. Emery High School, located at 1100 Forty-Seventh Street, has consolidated with Emery Middle School, and now includes grades six through twelve. The City also has one privately operated elementary school.

Health Facilities

The following general and acute care medical facilities are located a short distance from Emeryville:

Alta Bates Hospital, Berkeley Highland General Hospital, Oakland Kaiser Permanente Clinic and Hospital, Oakland Summit Medical Center, Oakland Children's Hospital, Oakland

B-7 (THIS PAGE INTENTIONALLY LEFT BLANK) APPENDIXC

AGENCY'S AUDITED FINANCIAL STATEMENTS FOR THE YEAR ENDED JUNE 30, 2003

C-1 (THIS PAGE INTENTIONALLY LEFT BLANK) EMERYVILLE REDEVELOPMENT AGENCY

BASIC COMPONENT UNIT FINANCIAL STATEMENTS

FOR THE YEAR ENDED JUNE 30, 2003 This Page Left Intentionally Blank EMERYVILLE REDEVELOPMENT AGENCY Basic Component Unit Financial Statements For the Year Ended June 30, 2003

Table of Contents

IFINANCIAL SECTION:

Independent Auditor's Report ...... 1

Management's Discussion And Analysis ...... 3

Basic Component Unit Financial Statements:

Government-wide Financial Statements:

Statement of Net Assets ...... 14

Statement of Activities ...... 15

Fund Financial Statements:

Major Governmental Funds:

Balance Sheet ...... 18

Reconciliation of Governmental Fund Balances to Net Assets of Governmental Activities ...... 21

Statement of Revenues, Expenditures, and Changes in Fund Balance ...... 22

Reconciliation of the Net Change in Fund Balances - Total Government Funds With the Statement of Activities ...... 24

Statements of Revenues, Expenditures, and Changes in Fund Balances - Budget and Actual:

1976 Project Area Operating Fund ...... 25

Shellmound Project Area Operating Fund ...... 26

Low-Mod Income Housing Operating Fund - Budget and Actual...... 27

Housing Revolving Loans Operating Fund ...... 28

Notes to Component Unit Financial Statements ...... 29 EMERYVILLE REDEVELOPMENT AGENCY Component Unit Financial Statements For the Year Ended June 30, 2003

Table of Contents

Supplemental Information:

Non-Major Governmental Funds:

Combining Balance Sheets ...... 50

Combining Statements of Revenues, Expenditures and Changes in Fund Balances ...... 52

Report on Compliance and on Internal Control over Financial Reporting Based on an Audit of Financial Statements Performed in Accordance with Government Auditing Standards ...... 55 IIAAzE & • r I' ASSOCIATES

ACCOUNTANCY CORPORATION 1931 San Miguel Drive - Suite 100 Walnut Creek, California 94596 (925) 930-0902 • FAX (925) 930-0135 INDEPENDENT AUDITORS1 REPORT E-Mail: [email protected] Website: www.mazeassociates.com

Members of the Governing Board of the Emeryville Redevelopment Agency Emeryville, California

We have audited the accompanying basic component unit financial statements of the governmental activities, each major fund, and the aggregate remaining fund information of the Emeryville Redevelopment Agency, a component unit of the City of Emeryville, as of and for the year ended June 30, 2003, which collectively comprise the Agency's basic financial statements as listed in the Table of Contents. These basic component unit financial statements are the responsibility of the Agency's management. Our responsibility is to express an opinion on these financial statements based on our audit.

We conducted our audit in accordance with generally accepted auditing standards in the United States of America, and the standards for financial audits contained in Government Audit Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance as to whether the component unit financial statements are free of material misstatement. An audit includes examining on a test basis evidence supporting the amounts and disclosures in the component unit financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall component unit financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

In accordance with Government Auditing Standards, we have also issued reports dated October 10, 2003 on our consideration of the Agency's internal control structure and on its compliance with laws and regulations.

In our opinion, the basic component unit financial statements referred to above present fairly in all material respects the financial position of the governmental activities, each major fund, and the aggregate remaining fund information of the Emeryville Redevelopment Agency as of June 30, 2003 and the respective results of its operations and the budgetary compariso.n listed as part of the basic financial statements for the year then ended, in conformity with generally accepted accounting principles in the United States of America.

Management's Discussion and Analysis is supplementary information required by the Government Accounting Standards Board, but is not part of the basic component unit financial statements. We have applied certain limited procedures to this information, principally inquiries of management regarding the methods of measurement and presentation of this information, but we did not audit this information and we express no opinion on it.

Our audit was made for the purpose of forming an opinion on the basic component unit financial statements taken as a whole. The supplemental information listed in the Table of Contents is presented for purposes ofadditional analysis and are not a required part of the basic component unit financial statements of the Emeryville Redevelopment Agency. Such information has been subjected to the auditing procedures applied in our audit of the basic component unit financial statements, and in our opinion is fairly stated in all material respects in relation to the basic component unit financial statements taken as a whole.

October 10, 2003

I A Professional Corporation This Page Left Intentionally Blank EMERYVILLE REDEVELOPMENT AGENCY MANAGEMENT'S DISCUSSION AND ANALYSIS

This section of the Agency's financial report should be read in conjunction with the accompanying Basic Financial Statements.

FISCAL 2003 FINANCIAL HIGHLIGHTS

The Agency's fiscal 2003 financial results were affected by completion of significant projects in prior years which were added to Redevelopment Agency assessed valuation rolls and which significantly affected tax increment revenues. The Redevelopment Agency also issued $22.1 million in bonds to refund prior bonds and to finance redevelopment activities.

Fiscal 2003 highlights include the following:

Agency-wide: • Agency total assets totaled to $104.9 million, a decrease of $1.7 million form the prior year total of $106.6 million. • Agency total liabilities totaled $124.6 million, a decrease of $1.1 million from the prior year total of $125.7 million. • Agency-wide revenues included general revenues of $24.0 million and program revenues of $0.5 million. • Total Agency-wide expenses were $16.4 million.

Fund Level: • Governmental Fund balances increased to $69.9 million in fiscal 2003, from $59.8 million in fiscal 2002. • Governmental Fund revenues increased to $28.0 million, up $7.8 million from the prior year's $20.2 million. • Governmental Fund expenditures increased to $21.1 million in fiscal 2003, up $3.3 million from fiscal 2002's level of $17.8 million. • Net transfers and other financing sources were $3.1 million in 2003, compared to $26.4 million in fiscal 2002, a decrease of $23.3 million. OVERVIEW OF THE BASIC FINANCIAL STATEMENTS

This report is in three parts: 1) Management's Discussion and Analysis (this part), 2) The Basic Financial Statements, which include the Agency-wide and the Fund financial statements, along with the Notes to these financial statements, 3) Supplemental combining statements for non-major funds.

3 The Basic Financial Statements

The Basic Financial Statements comprise the Agency-wide Financial Statements and the Fund Financial Statements. These two sets of financial statements provide two different views of the Agency's financial activities and financial position-long-term and short-term.

The Agency-wide Financial Statements provide a longer-term view of the Agency's activities as a whole, and comprise the Statement of Net Assets and the Statement of Activities. The Statement of Net Assets provides information about the financial position of the Agency as a whole, including all its capital assets and long-term liabilities on the full accrual basis, similar to that used by corporations . .The Statement of Activities provides information about all the Agency's revenues and all its expenses, also on the full accrual basis, with the emphasis on measuring net revenues or expenses of each the Agency's programs. The Statement of Activities explains in detail the change in Net Assets for the year.

The Fund Financial Statements report the Agency's operations in more detail than the Agency-wide statements and focus primarily on the short-term activities of the Agency's Major Funds. The Fund Financial Statements measure only current revenues and expenditures, current assets, liabilities and fund balances; they exclude capital assets, long-term debt and other long-term amounts.

Major Funds account for the major financial activities of the Agency and are presented individually, while the activities of Non-major funds are presented in summary, with subordinate schedules presenting the detail for each of these other funds. Major Funds are explained below.

Together, all these statements are now called the Basic Financial Statements; formerly they were called the general purpose financial statements.

The Agency-wide Financial Statements

All of the Agency's basic services are considered to be governmental activities, consisting of redevelopment services. These services are supported by general Agency revenues such as property tax increments, and by program revenues such as fees.

Agency-wide financial statements are prepared on the accrual basis, which means they measure the flow of all economic resources of the Agency as a whole.

Fund Financial Statements

Governmental Fund financial statements are prepared on the modified accrual basis, which means they measure only current financial resources and uses. Capital assets and other long-lived assets, along with long-term liabilities, are presented only in the Agency-wide financial statements.

The Fund financial statements provide detailed information about each of the Agency's most significant funds, called Major Funds. The concept of major funds, and the determination of which are major funds, was established by GASB Statement 34 and replaced the concept of combining like funds and presenting them in total. Instead, each Major Fund is presented individually, with all Non-major Funds summarized and presented only in a single column. Subordinate schedules present the detail of these Non-major funds. Major Funds present the major activities of the Agency for the year. The Agency's Redevelopment Projects Funds serve as its general fund, and are always Major Funds, but other funds may change from year to year as a result of changes in the pattern of Agency's activities.

4 The Agency had six Major Governmental Funds in 2003 which are discussed in the Analysis of Major Governmental Funds section. In addition, the Agency elected to treat three funds as Major Funds.

Comparisons of Budget and Actual financial information are presented only for the Major funds.

FINANCIAL ACTIVITIES OF THE AGENCY AS A WHOLE

This analysis focuses on the net assets and changes in net assets of the Agency's governmental activities (Tables 1, 2 and 3). The data for these activities is presented in the Agency-wide Statement of Net Assets and Statement of Activities that follow.

Governmental Activities

Governmental Activities net assets decreased $0.5 million to negative $19.7 million in fiscal 2003. This decrease is the Change in Net Assets reflected in the Statement of Activities shown in Table 2 and is explained below:

Table 1 Governmental Net Assets at June 30 (in Millions) 2003 2002 (reclassified) Cash and investments $ 70.9 $ 61.5 Other assets 29.6 33.2 Capital assets 4.4 11.9

Total Assets $ 104.9 $ 106.6

Long-term debt outstanding 119.2 118.2 Other liabilities 5.4 7.5

Total Liabilities $ 124.6 $ 125.7

Net assets: Invested in capital assets, net of debt Restricted 16.7 16.1 Unrestricted (36.4) (35.2)

Total net assets $ (19.7) $ (19.1)

5 The Agency's net deficit increased $0.5 million in 2003. The deficit is a result of debt which has been issued by the Agency to finance capital assets and infrastructure maintained by third parties and the City and by unrecorded infrastructure assets. As allowed by GASB 34, the City and Redevelopment Agency have until fiscal 2006-07 to record the cost and accumulated depreciation of infrastructure acquired in prior years. Staff is in the process of determining these amounts, which will be added to capital asset balances when completed. In addition, the Agency has a policy whereby completed capital assets are transferred to the City as the City assumes responsibility for their maintenance and upkeep.

The Agency's debt is repayable from future tax increment revenues, which come from property taxes levied by the County annually as part of the County wide property collection process. Current year tax increment revenues were more than sufficient to meet current year debt service requirements.

Cash and investments include $27.9 million of unspent bond proceeds to be spent on projects, $28.3 million available to fund activities of the City and Redevelopment Agency and $14.8 million of debt service reserves held under various trust indentures of debt issues of the Redevelopment Agency and City.

Other assets include loans receivable amounting to $27.2 million arising from various housing programs and development agreements. The largest loan receivable amounts to $20.4 million and was generated from the Bay Street Project land sale which occurred in the fiscal 2001. The first phase of the Project was completed during fiscal year 2003. Details of loans receivable may be found in Note 4 to the financial statements.

Cash and investments increased $9.4 million principally as a result of the issuance of 2002 Series A Revenue Bonds and due to cash generated from redevelopment activities.

Long-term debt increased by $1.0 million due to the issuance of 2002A. Series A Revenue Bonds amounting to $116.9 million, net of current year principal retirements on prior debt amounting to $2.3 million.

Capital assets decreased $7.5 million primarily due to transfer of civic center assets to the City for the reason discussed above.

6 The Change in Net Assets shown in Table 2 is explained below:

The Agency's governmental activities for fiscal 2003 are presented below:

Table 2 Changes in Governmental Net Assets, June 30 (in Thousands)

2003 2002 Revenues Program Revenues Charges for services $ 467 $ 788 Total Program Revenues 467 788

General Revenues

Incremental property tax, net 20,044 16,764 Investment earnings 2,369 1,878 Rental income 111 97 Other revenue 605 30 Total general revenues 23,129 18,769 Total revenues 23,596 19,557

Expenses Redevelopment Agency 10,290 12,144 RDA capital assets contributed to City 7,766 Interest on long-term debt 6,090 6,855

Total expenses 24,146 18,999 Changes in net assets ($550) $558

Of the Agency's fiscal 2003 revenue, $20.5 million came from incremental property taxes, which increased $3.7 million from the $16.8 million amount for the prior year. Incremental property taxes were offset by a payment to the Educational Revenue Augmentation Fund of $0.4 million. This payment was required by the State of California and is part of the State's efforts to balance its budget. Investment earnings accounted for $2.4 million, an increase of $.5 million from the prior year amount.

Redevelopment expenses amount to $10.3 million in fiscal 2003 and represent current year expenses incurred in conducting redevelopment activities including $5.3 million of development service expense, $2.9 million of administration costs paid to the City, $2.1 million of tax increment paid to other governments, and $7.8 million representing the cost of assets transferred to the City.

7 Interest expense represents interest incurred on the Agency's revenue bonds discussed below.

The expenses above include only current year expenses. They do not include capital outlays which are added to the Agency's capital assets. The composition of capital assets is shown in detail at Table 5.

Table 3 below summarizes Agency activity and balances at the fund level:

Table 3 Financial Highlights at Governmental Fund Level at June 30 (in Millions)

2003 2002

Total assets $100.5 $94.6 Total liabilities 30.6 34.8 Total fund balances 69.9 59.8 Total revenues 28.0 20.2 Total expenditures 21.0 17.8 Total other financing sources (uses) 3.1 26.4

Fund balances increased to $10.1 million in fiscal 2003 over the prior fiscal year. The most significant event was the issuance of 2002 Series A fund which increased fund balance $3 .4 million in the form of bond proceeds. Revenues exceeded expenditures by $7.0 million, which increased fund balances as well.

Revenues at the fund level increased $7 .8 million from $20.2 million in the prior fiscal year. Expenditures increased to $21.1 million from $17 .8 million.

Analyses ofMajor Funds

1976 Proiect Area Operating Fund

This Fund accounts for the receipt of tax increment revenue allocated to the 1976 Redevelopment Project Area and for debt service of the project area. It is the administrative fund for the Project Area with expenditures for the ongoing management and oversight of overall Project Area activities.

Total revenues increased $2.7 million or 24% over fiscal 2002. Net total revenues were impacted by a payment to the Educational Revenue Augmentation Fund of $0.4 million. This payment was required by the State of California and is part of the State's efforts to balance its budget. The increase in tax increment revenues amounted to $3.1 million or 28% as result of growth in project area assessed valuation. This increase is part of the cumulative effect of the City's long-term commitment to redevelopment, which has resulted in significant increases in property values in the redevelopment area.

8 Expenditures decreased $.5 million as a result of lower administrative charges paid to the City. Transfers out amounted to $7.2 million in fiscal 2003 and decreased $1.5 million from the prior year. In fiscal 2003, transfers out for low and moderate income housing set-asides amounted to $2.9 million, transfers to debt service funds amounted to $4.3 million and there were no transfers for capital projects.

Shellmound Project Area Operating Fund

This Fund accounts for the receipt of tax increment revenue allocated to the Shellmound Redevelopment Project Area and for debt service of the Project Area. It is the administrative fund for the Project Area with expenditures for the ongoing management and oversight of overall Project Area activities.

Revenues increased $0.6million or 11 % over 2002. Net total revenues were impacted by a payment to the Educational Revenue Augmentation Fund of $0.1 million. This payment was required by the State of California and is part of the State's efforts to balance its budget. The increase in incremental property tax revenues amounted to $0.6 million or 11 % as result of growth in project area assessed valuation. This increase is due the effect on incremental property tax revenues of several large projects which have been purchased or constructed by developers.

Expenditures increased $.5 million or 24% over fiscal 2002. Tax increment paid to other agencies increased $.3 million or 19% as a result of increases in tax increment revenues discussed above. These expenditures represent a portion of tax increment revenues the Redevelopment Agency must remit to other governments pursuant to the Health and Safety Code requirements. Administrative costs charged by the City increased by approximately $.1 million.

In fiscal 2003, Transfers out amounted to $2.0 million and consisted of low and moderate income housing set-asides amounting to $1.2 million and debt service transfers of$. 7 million. There were no transfers for capital projects during the year.

Low/Moderate Income Housing Operating Fund

This Fund accounts for the receipt of the mandated 20% set-aside of tax increment revenue from both the 1976 and Shellmound Project Areas for Low and Moderate Income Housing Programs, and for debt service expenditures.

In fiscal 2003, the Redevelopment Agency transferred $4.1 million into this fund representing the portion of tax increment required to be set-aside for low and moderate income housing programs. Funds amounting to $1.9 million were transferred out for debt service and $0.7 million was transferred to the Housing Capital Fund.

Housing Revolving Loan Fund

This fund accounts for the Redevelopment Agency's First Time Homebuyer Loans. The fund received loan payments and payoffs in the amount of $0.5 million and made investments in new loans of $0.5 million during the fiscal year. Shellmound Capital Projects Fund This Fund accounts for resources from the Shellmound Redevelopment Project Area dedicated by the Redevelopment Agency for specific capital projects of the Project Area. In November 2002, Bay Street mixed-use project opened and the Redevelopment Agency received its first payment from the Developer of the Bay Street Project, leaving a $20.4 million loan receivable.

9 Revenue Bonds 2001, Series A Capital Projects Fund

This Fund accounts for proceeds from the issuance of the 2001, Series A Revenue Bonds which are to be spent on redevelopment activities of the Redevelopment Agency. During the fiscal year $1.2 million was used for redevelopment projects, leaving $19 .2 million available for future projects.

1998 Series B Revenue Bonds Fund

This fund accounts for payment of principal and interest on the 1998 Redevelopment Agency Revenue Bonds. The 1998 Series B Bonds funded improvements or the defeasance of prior debt issues affecting both project areas as well as low and moderate income housing projects. Transfers from both project area operating funds and the low and moderate income housing fund total $2.1 million in fiscal 2003 were recorded in this fund for use in paying debt service. Current year debt service totaled $3.2 million in fiscal 2003.

Housing Capital Projects Fund

This Fund accounts for funds used for low and moderate income capital projects. The Agency has one developer agreement for a housing project called the Andante Project as discussed in Note 6. When completed, this project will provide 24 low and moderate income rental housing units. The site was sold to the developer as of June 30, 2003.

1976 Area Capital Projects Fund

This Fund accounts for resources from the Emeryville Redevelopment Project Area dedicated by the Agency for specific capital projects of the project area. Revenues consist primarily of interest earnings. Expenditures included property acquisition and development subsidies.

CAPITAL ASSETS

GASB 34 requires the City to record all its capital assets including infrastructure costs for current year additions. In fiscal 2002, the City recorded the cost of those assets listed below, and computed the amount of accumulated depreciation for these assets.

As allowed by GASB 34, the City has until fiscal 2006-2007 to record the cost and accumulated depreciation of infrastructure acquired in prior years. City staff is in the process of determining these amounts, which will be added to capital assets once the work has been completed.

10 At the end of fiscal 2003 the cost of capital assets recorded on the City's financial statements was as shown in Table 4 below (further detail may be found in Note 7 to the financial statements):

Table 4 Capital Assets at Year-end (in Millions)

2003 2002 Governmental activities Land and construction in progress $3.73 $3.42 Park improvements and other improvements 0.27 0.27 Buildings and Improvements 0.57 8.80 Furnishings, Vehicles and Equipment 0.00 0.00 Grading, Curb & Gutter, Sidewalks & Driveways 0.31 0.18 Less accumulated depreciation (0.51) (0.78) Governmental activity capital assets, net $4.37 · $11.89

There were no major additions of capital assets in fiscal 2003. The Agency has a policy whereby completed capital assets are transferred t the City as the City assumes responsibility for their maintenance and upkeep. During fiscal 2003 the Agency transferred assets with a cost value amounting to $7.8 million to the City.

The Agency depreciates all its capital assets over their estimated useful lives, as required by GASB 34. The purpose of depreciation is to spread the cost of a capital asset over the years of its useful life so that an allocable portion of the cost of the asset is borne by all users. Additional information on depreciable lives may be found in Note 7.

11 DEBT ADMINISTRATION

The Agency's long-term debt is discussed in more detail in Note 9 to the financial statements. At June 3 0, 2003, the Redevelopment Agency's bonded indebtedness totaled $119 .2 million, which is secured by incremental property tax revenues.

Table 5 Outstanding Debt (in Millions)

Governmental Activity Debt: 2003 2002 Redevelopment Agency Bonds: Public Financing Authority Revenue Bonds, 2002 Series A, 2.00%-5.25%, due 09/01/21 22.12 2001 Series A, 4.00%-5.20%, due 09/01/31 22.65 $23.00 2001 Series B, 7.02%-7.20%, due 09/01/31 3.42 3.42 1998 Series C, 5.75%-6.75%, due 09/01/26 16.94 I 7.22 1998 Series B, 4.00%-5.00%, due 09/01/28 47.59 48.43 Series 1995, 4.00%-6.20%, due 09/01/25 6.48 6.62 1993 Series A, 3.60%-6.50%, due 05/01/21 19.49

Total Redevelopment Agency Bonds 119.20 118.18

In Fiscal 2003, the Redevelopment Agency issued $22.12 million in 2002 Series A Revenue Bonds. The Series A Bonds were issued to defease the outstanding 1993 Series A Revenue Bonds and provide additional funding for capital projects. Repayments of existing debt totaled $21.1 million in Fiscal 2003, $19 .5 of which was due to the bond defeasance.

ECONOMIC OUTLOOK AND MAJOR INITIATIVES

The economy of the City and its major initiatives for the coming year are .discussed in detail in the Transmittal Letter to the City of Emeryville' Comprehensive Annual Financial Report for the fiscal year ended June 30, 2003.

CONTACTING THE CITY'S FINANCIAL MANAGEMENT

These financial statements are intended to provide citizens, taxpayers, investors, and creditors with a general overview of the City's finances. Questions about this Report should be directed to the Finance Department, 1333 Park Avenue, Emeryville, CA 94608.

12 EMERYVILLE REDEVELOPMENT AGENCY

STATEMENT OF NET ASSETS AND STATEMENT OF ACTIVITIES

The Statement of Net Assets and the Statement of Activities are entirely new statements required by Government Accounting Standards Board Statement 34. Their purpose is to summarize the entire Agency's financial activities and financial position. They are prepared on the same basis as is used by most businesses, which means they include all the Agency's assets and all its liabilities, as well as all its revenues and expenses. This is known as the full accrual basis-the effect of all the Agency's transactions is taken into account, regardless .of whether or when cash changes hands, but all material internal transactions between Agency funds have been eliminated.

The Statement of Net Assets reports the difference between the Agency's total assets and the Agency's total liabilities, including all the Agency's capital assets and all its long-term debt. The Statement of Net Assets presents similar information to the old balance sheet format, but presents it in a way that focuses the reader on the composition of the Agency's net assets, by subtracting total liabilities from total assets.

The Statement of Net Assets summarizes the financial position of all the Agency's financial position in a single column.

The Statement of Activities reports increases and decreases in the Agency's net assets. It is also prepared on the full accrual basis, which means it includes all the Agency's revenues and all its expenses, regardless of when cash changes hands. This differs from the "modified accrual" basis used in the Fund financial statements, which reflect only current assets, current liabilities, available revenues and measurable expenditures.

The format of the Statement of Activities differs considerably from those used in the past. It presents the Agency's expenses that are listed by program first. Program revenues-that is, revenues which are generated directly by these programs-are then deducted from program expenses to arrive at the net expense of each program. The Agency's general revenues are then listed and the Change in Net Assets is computed and reconciled with the Statement of Net Assets.

These new financial statements along with the fund financial statements and footnotes are called Component Unit Financial Statements.

13 EMERYVILLE REDEVELOPMENT AGENCY STATEMENT OF NET ASSETS JUNE 30, 2003

ASSETS Cash and investments (Note 3) $57,310,049 Cash and investments with fiscal agents (Note 3) 13,579,964 Receivables: Accounts and taxes (net of allowance for uncollectibles) 1,008,620 Accrued interest 166,306 Loans (Note 4) 27,220,422 Other assets 19,569 Land held for redevelopment (Note 6) 1,201,178 Capital assets, net (Note 7) 4,368,849

Total Assets l 04,874,957

LIABILITIES Accounts payable 1,768,044 Interest payable 2,043,250 Loans payable to City (Note 8) 1,500,000 Deferred revenue 50,000 Long-tern, debt (Note 9) Due within one year 2,315,000 Due in more than one year 116,875,000

Total Liabilities 124,5 51,294

NET ASSETS Invested in capital assets, net of related debt (Note IF) Restricted for: Debt service 13,779,964 Low and moderate income housing 2,962,229

Total restricted net assets 16,742,193

Unrestricted (36,418,530)

Total Net Assets (Deficit) ($19,676,337)

See accompanying notes to component unit financial statements

14 EMERYVILLE REDEVELOPMENT AGENCY STA TEMENT OF ACTIVITIES JUNE 30, 2003

Program Revenues

Charges for Functions/Programs Expenses Services Total Governmental Activities: Current: Redevelopment $10,289,948 $467,402 ($9,822,546) Interest on long-term debt 6,090,177 (6,090, 177)

Total $16,380,125 $467,402 (15,912,723)

General Revenues: Property tax increment revenue 20,533,037 Less educational revenue augmentation revenue fund payment (Note 12) (488,668) Investments earnings 2,368,837 Rental income 110,781 Other revenues 604,513

Total General Revenues 23,128,500

Special item - transfer of capital assets to City (Note 7) (7, 766,433)

Change in Net Assets (550,656)

Net Assets (Deficit) - Beginning (19,125,681)

Net Assets (Deficit) - Ending ($19,676,337)

See accompanying notes to component unit financial statements

15 This Page Left Intentionally Blank FUND FINANCIAL STATEMENTS

GASB 34 revises the format of the Fund Financial Statements so that only individual major funds are presented, while non-major funds are combined in a single column. Major funds are defined generally as having significant activities or balances in the current year. No distinction is made between Fund types and the practice of combining like funds and presenting their totals in separate columns (Combined Financial Statements) has been discontinued, along with the use of the General Fixed Assets and General Long-term Debt Account Groups.

The funds described below were determined to be Major Funds by the Agency in fiscal 2003. Individual non major funds may be found in the Supplemental section.

The 1976 PROJECT AREA OPERA TING FUND accounts for the receipt of tax increment revenue allocated to the 1976 Redevelopment Project Area and for debt service of the project area.

The SHELLMOUND PROJECT AREA OPERATING FUND accounts for the receipt of tax increment revenue allocated to the Shellmound Redevelopment Project Area and for debt service of the project area.

The LOW/MODERATE INCOME HOUSING OPERATING FUND accounts for the receipt of the mandated 20% set-aside of Redevelopment tax increment revenue from the 1976 and Shellmound Project Areas for Low and Moderate Income Housing Programs and for debt service of the fund.

The HOUSING REVOLVING LOANS OPERATING FUND accounts for the Agency's First Time Homebuyer and Rehabilitation loans. The fund was established in 2000. The fund segregates funds available for first time home buyer and rehabilitation loans from other Agency assets. The loan program was previously included as part of the Low and Moderate Income Housing Fund.

The 1998 SERIES B REVENUE BONDS DEBT SERVICE FUND accounts for payments of principal and interest on the 1998 Redevelopment Agency Revenue Bonds.

The HOUSING CAPITAL PROJECTS FUND accounts for funds used for Redevelopment low and moderate income capital projects.

The 1976 AREA CAPITAL PROJECTS FUND accounts for resources from the Emeryville Redevelopment Project Area dedicated by the Emeryville Redevelopment Agency for specific capital projects of the project area.

The SHELLMOUND CAPITAL PROJECTS FUND accounts for resources from the Shellmound Park Redevelopment Project Area dedicated by the Emeryville Redevelopment Agency for specific capital projects of the project area.

The REVENUE BONDS 2001, SERIES A CAPITAL PROJECTS FUND accounts for resources from the Redevelopment 200 I, Series A Bond issue.

17 EMERYVILLE REDEVELOPMENT AGENCY GOVERNMENTAL FUNDS BALANCE SHEET JUNE 30, 2003

1998 Shellmound Low/Moderate Housing Series B 1976 Project Project Income Revolving Revenue Area Area Housing Loans Bonds Operating Operating Operating Operating Debt Service ASSETS

Cash and investments (Note 3) $5,941,269 $2,794,985 $1,707,410 $757,776 Cash and investments with fiscal agents (Note 3) $6,074,455 Receivables: Accounts and taxes (net of allowance for uncollectibles) 654,344 219,661 Accrued interest 7,291 4,232 3,939 1,138 Loans (Note 4) 921,054 9,228 1,007,037 3,849,813 Other assets 17,745 1,824 Land held for redevelopment (Note 6)

Total Assets $7,541,703 $3,029,930 $2,718,386 $4,608,727 $6,074,455

LIABILITIES

Accounts payable $859,500 $54,598 $37,488 Loans payable to City (Note 8) Deferred revenue 971,054 9,228 1,007,037 $3,849,813

Total Liabilities 1,830,554 63,826 1,044,525 3,849,813

FUND BALANCES Reserved for: Encumbrances 46,351 3,746 40,745 Debt service 200,000 $6,074,455 Low and moderate income housing 733,116 Land held for redevelopment Unreserved: Designated for: Unfunded liabilities and projects 3,500,000 2,700,000 700,000 Capital outlay Undesignated, reported in: Special Revenue Funds 2,164,798 262,358 758,914 Capital Projects Funds

TOTAL FUND BALANCES 5,711,149 2,966,104 1,673,861 758,914 6,074,455

Total Liabilities and Fund Balance $7,541, 703 $3,029,930 $2,718,386 $4,608,727 $6,074,455

See accompanying notes to component unit financial statements

18 Housing 1976 Area Shell mound Revenue Bonds Other Total Capital Capital Capital 2001, Series A Governmental Governmental Projects Projects Projec;ts Capital Projects Funds Funds

$4,035,003 $8,035,960 $5,441,592 $19, 182,642 $9,413,412 $57,310,049 7,505,509 13,579,964

134,576 39 l,008,620 3,919 16,810 9,849 86,017 33, 111 166,306 393,827 639,463 20,400,000 27,220,422 19,569 101,178 I, 100,000 1,201,178

$4,533,927 $9,926,809 $25,851,441 $19,268,659 $16,952,071 $100,506, l 08

$10,000 $45,026 $129 $150,729 $610,574 $1,768,044 1,500,000 1,500,000 393,827 735,463 20,400,000 27,366,422

1,903,827 780,489 20,400,129 150,729 610,574 30,634,466

459,191 339,694 124,045 1,013,772 7,505,509 13,779,964 729,454 1,462,570 101,178 l,100,000 1,201,178

6,900,000 7,587,129 5,451,312 18,778,236 7,982,489 39,799,166

3, 186,070 2,528,922 2,528,922

2,630,100 9,146,320 5,451,312 19,117,930 16,341,497 69,871,642

$4,533,927 $9,926,809 $25,851,441 $19,268,659 $16,952,071 $100,506, l 08

19 This Page Left Intentionally Blank EMERYVILLE REDEVELOPMENT AGENCY GOVERNMENTAL FUNDS BALANCE SHEET-RECONCILIATION OF GOVERNMENTAL FUND BALANCES TO NET ASSETS OF GOVERNMENTAL ACTIVITIES JUNE 30, 2003

Total fund balances reported on the governmental funds balance sheet $69,871,642

Amounts reported for Governmental Activities in the Statement of Net Assets are different from those reported in the Governmental Funds above because of the following:

CAPITAL ASSETS Capital assets used in Governmental Activities are not current assets or financial resources 4,368,849 and therefore are not reported in the Governmental Funds.

ACCRUAL OF NON-CURRENT REVENUES AND EXPENSES Revenues which are deferred on the Fund Balance Sheets because they are not available currently are taken into revenue in the Statement of Activities. 27,316,422

LONG TERM ASSETS AND LIABILITIES The assets and liabilities below are not due and payable in the current period and therefore are not reported in the Funds: Long-term debt (119,190,000) Interest payable (2,043,250)

NET ASSETS OF GOVERNMENTAL ACTIVITIES ($19,676,337)

See accompanying notes to component unit financial statements

21 EMERYVILLE REDEVELOPMENT AGENCY GOVERNMENTAL FUNDS STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCE FOR THE YEAR ENDED JUNE 30, 2003

Shellmound Low I Moderate Housing 1998 1976 Project Project Income · Revolving Series B Area Area Housing Loan Revenue Operating Operating Operating Operating Bonds

REVENUES Property tax increment $14,418,717 $6,114,320 Less educational revenue augmentation fund payment (Note 12) (398,492). (90, 176) Investments earnings 90,005 59,095 $36,818 $100,475 $324,553 Rental 92,590 Other revenue 7,445 3,413 68,481 534,676

Total Revenues 14,210,265 6,086,652 105,299 635,151 324,553

EXPENDITURES: Current: Redevelopment 1,110,835 77,023 331,172 475,857 Reimbursement for administrative and other costs 1,597,017 515,672 515,672 Tax increment paid to other agencies 2,093,335 Capital outlay Debt service Principal 845,000 interest and fiscal fees 2,336,908

Total Expenditures 2,707,852 2,686,030 846,844 475,857 3,181,908

EXCESS (DEFICIENCY) OF REVENUES OVER EXPENDITURES 11,502,413 3,400,622 (741,545) 159,294 (2,857,355)

OTHER FINANCING SOURCES (USES): Proceeds from long-term debt (Note 9) Bond issuance premium (Note 9) Payment to refunded bond escrow agent Transfers in (Note 5) 4,106,607 2,153,574 Transfers (out) (Note 5) (7,161,280) (1,951,025) (2,652,732)

Total Other Financing Sources (Uses) (7,161,280) (1,951,025) 1,453,875 2, 153,574

NET CHANGE IN FUND BALANCES 4,341,133 1,449,597 712,330 159,294 (703, 781)

Fund balances at beginning of period 1,370,016 1,516,507 961,531 599,620 6,778,236

Fund balances at end of period $5,711,149 $2,966,104 $1,673,861 $758,914 $6,074,455

See accompanying notes to component unit financial statements

22 Revenue 1976 Bonds Housing Area Shellmound 2001 A Other Total Capital Capital Capital Capital Governmental Governmental Projects Projects Projects Projects Funds Funds

$20,533,037

(488,668) $175,717 $346,867 $371,578 $430,584 $433,145 2,368,837 18,191 110,781 860,000 222,628 3,819,324 5,515,967

1,035,717 587,686 4,190,902 430,584 433, 145 28,039,954

1,235,890 985,214 4,988 1, 175, 168 1,406,101 6,802,248 235,000 2,863,361 2,093,335 66,000 72,703 255,940 655,748 1,050,391

765,000 1,610,000 4,337,934 6,674,842

1,301,890 1,292,917 4,988 1,431,108 7,164,783 21,094,177

(266,173) (705,231) 4,185,914 (1,000,524) (6,731,638) 6,945,777

22,120,000 22,120,000 871,499 871,499 (19,887,160) (19,887, 160) 1,627,000 7,121,545 15,008,726 (907,000) (2,336,689) (15,008,726)

1,627,000 (907,000) 7,889,195 3,104,339

1,360,827 (1,612,23 I) 4,185,914 (1,000,524) 1,157,557 10,050, 116

1,269,273 10,758,551 1,265,398 20,118,454 15,183,940 59,821,526

$2,630,100 $9,146,320 $5,451,312 $19,117,930 $16,341,497 $69,871,642

23 EMERYVILLE REDEVELOPMENT AGENCY RECONCILIATION OF THE NET CHANGE IN FUND BALANCES - TOTAL GOVERNMENT AL FUNDS WITH THE STATEMENT OF ACTIVITIES FOR THE YEAR ENDED JUNE 30, 2003

The schedule below reconciles the Net Changes in Fund Balances reported on the Governmental Funds Statement of Revenues, Expend.itures and Changes in Fund Balance, which measures only changes in current assets and current liabilities on the modified accrual basis, with the Change in Net Assets of Governmental Activities reported in the Statement of Activities, which is prepared on the full accrual basis.

NET CHANGE IN FUND BALANCES $10,050,116

Amounts reported for governmental activities in the Statement of Activities are different because of the following:

CAPITAL ASSETS TRANSACTIONS Governmental Funds report capital outlays as expenditures. However, in the Statement of Activities the cost of those assets is capitalized and allocated over their estimated useful lives and reported as depreciation expense. The capital outlay expenditures are therefore added back to fund balance 441,334 Transfer of capital assets to the City (7, 766,433) Depreciation (201,613)

LONG TERM DEBT PROCEEDS AND PAYMENTS

Bond proceeds provide current financial resources to governmental funds, but issuing debt increases long-term liabilities in the Statement of Net Assets. Repayment of bond principal is an expenditure in the governmental funds, but in the Statement of Net Assets the repayment reduces long-term liabilities.

Proceeds from issuance of long term debt is deducted from fund balance (22, 120,000) Repayment of debt principal is added back to fund balance 1,610,000 Payment to bond escrow agent is added back to fund balance, net of refunding costs 19,485,000

ACCRUAL OF NON-CURRENT ITEMS

The amounts below included in the Statement of Activities do not provide or (require) the use of current financial resources and therefore are not reported as revenue or expenditures in governmental funds (net change): Interest payable 115,326 Deferred revenue (2, 164,386)

CHANGE IN NET ASSETS OF GOVERNMENTAL ACTIVITIES ($550,656)

See accompanying notes to component unit financial statements

24 EMERYVILLE REDEVELOPMENT AGENCY 1976 PROJECT AREA OPERA TING FUND STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES BUDGET AND ACTUAL FOR THE YEAR ENDED JUNE 30, 2003

Variance with Budgeted Amounts Final Budget Actual Amounts Positive Original Final Budgetary Basis (Negative)

Resources (inflows):

Incremental property tax $12,030,000 $12,030,000 $14,418, 717 $2,388,717

Less educational revenue augmentation fund payment (398,480) (398,492) (12)

Investment earnings 57,729 57,729 90,005 32,276

Rental 100,590 100,590 92,590 (8,000)

Other revenue 7,445 7,445

Amounts available for appropriation 12, 188,319 11,789,839 14,210,265 2,420,426

Charges to appropriations (outflows)

Redevelopment 1,480,800 1,480,800 1, 110,835 369,965

Reimbursement for administrative and other costs 1,809,098 1,918,628 1,597,017 321,611

Capital outlay 3,930 3,930 3,930

Transfer out 8,356,000 8,356,000 7,161,280 1,194,720

Total charges to appropriations 11,649,828 11,759,358 9,869,132 1,890,226

Excess of Resources over Appropriations $538,491 $30,481 4,341,133 $4,310,652

Fund balances at beginning of period 1,370,016

Fund balances at end of period $5,711,149

See accompanying notes to component unit financial statements

25 EMERYVILLE REDEVELOPMENT AGENCY SHELLMOUND PROJECT AREA OPERA TING FUND STA TEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES BUDGET AND ACTUAL FOR THE YEAR ENDED JUNE 30, 2003

Variance with Budgeted Amounts Final Budget Actual Amounts Positive Original Final Budgetary Basis (Negative)

Resources (inflows):

Incremental property tax $5,469,800 $5,469,800 $6,114,320 $644,520

Less educational revenue augmentation fund payment (90, 176) (90, 176)

Investment earnings 173,976 173,976 59,095 (l 14,881)

Other revenue 3,413 3,413

Amounts available for appropriation 5,643,776 5,553,600 6,086,652 533,052

Charges to appropriations (outflows)

Redevelopment 83,700 83,700 77,023 6,677

Reimbursement for administrative and other costs 622,876 622,876 515,672 107,204

Tax increment paid to other agencies 1,991,000 1,991,000 2,093,335 (102,335)

Transfers out 1,828,960 1,828,960 1,951,025 (122,065)

Total charges to appropriations 4,526,536 4,526,536 4,637,055 (110,519)

Excess of Resources over Appropriations $1,117,240 $1,027,064 1,449,597 $422,533

Fund balances at beginning of period 1,516,507

Fund balances at end of period $2,966, 104

See accompanying notes to component unit financial statements

26 EMERYVILLE REDEVELOPMENT AGENCY LOW/MOD INCOME HOUSING OPERATING FUND STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES BUDGET AND ACTUAL FOR THE YEAR ENDED JUNE 30, 2003

Variance with Budgeted Amounts Final Budget Actual Amounts Positive Original Final Budgetary Basis (Negative)

Resources (inflows):

Investment earnings $24,661 $24,661 $36,818 $12,157

Other revenue 19,000 19,000 68,481 49,481

Transfers in 3,499,960 3,499,960 4, 106,607 606,647

Amounts available for appropriation 3,543,621 3,543,621 4,211,906 668,285

Charges to appropriations (outflows)

Redevelopment 324,150 324, 150 331,172 (7,022)

Reimbursement for administrative and other costs 622,676 622,676 515,672 107,004

Capital outlay 15,000 15,000 15,000

Transfers out 2,165,000 2,665,000 2,652,732 12,268

Total charges to appropriations 3,126,826 3,626,826 3,499,576 127,250

Excess of Resources over Appropriations $416,795 ($83,205) 712,330 $795,535

Fund balances at beginning of period 961,531

Fund balances at end of period $1,673,861

See accompanying notes to component unit financial statements

27 EMERYVILLE REDEVELOPMENT AGENCY HOUSING REVOLVING LOANS OPERATING FUND STATEMENT OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES BUDGET AND ACTUAL FOR THE FISCAL YEAR ENDED JUNE 30, 2003

Budgeted Amounts Variance Actual Amounts Positive Original Final Budgetary Basis (Negative)

Resources (inflows):

Investment earnings $18,353 $18,353 $100,475 $82,122

Other revenue 534,676 534,676

Amounts available for appropriation 18,353 18,353 635,151 616,798

Charges to appropriations (outflows):

Current:

j::conomic development 220,000 220,000 475,857 (255,857)

Total charges to appropriations 220,000 220,000 475,857 (255,857)

Excess (Deficiency) of Resources over Appropriations ($201,647) ($201,647) 159,294 $360,941

Fund balances at beginning of period 599,620

Fund balances at end of period $758,914

See accompanying notes to component unit financial statements

28 EMERYVILLE REDEVELOPMENT AGENCY Notes to Component Unit Financial Statements

INOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNT POLICIES

A. Organization and Purpose

The Emeryville Redevelopment Agency was created in 1976 under the provisions of the Redevelopment Law (California Health and Safety Code) to clear and rehabilitate areas determined to be. in a declining condition in the Project Areas. The Emeryville Redevelopment Plan was adopted in 1976 and Shellmound Redevelopment Plan was adopted in 1987 to provide an improved physical, social and economic environment in these Project Areas.

Below are examples of Redevelopment projects and programs completed since the inception of the Redevelopment Project Areas:

I. Public Facilities I Infrastructure 1. Emeryville Child Development Center 2. Stanford A venue Park 3. Temescal Creek Park 4. Peninsula Fire Station, Fire Station #2 5. Amtrak Train Station 6. Reconstruction of City streets and construction of new streets to accommodate growth 7. Christie Avenue Park 8. Land assemblage and assessment district for new streets 9. Emeryville Senior CenterNeteran's Building 10. San Pablo Commercial Revitalization Program (street beautification) 11. Point Emery Acquisition 12. Community Gardens Improvements (Doyle St. & Magnolia St.) 13. Public Works Facility Acquisition 14. Greenway Linear Park R.O.W. Acquisition

II. Economic Development Activities 1. Land acquisition for Chiron Life Science Center 2. Land assemblage for Bay Street, a Regional Retail facility 3. Land assemblage for Pixar Campus 4. Business attraction and promotion programs 5. Emery Go Round/Transportation management programs to facilitate pedestrian and vehicle circulation 6. Land acquisition for Promenade mixed use project on San Pablo A venue 7. Financing for four business startup units in Promenade Project 8. Financing for three commercial San Pablo Avenue Fai;ade Improvement Projects 9. Land acquisition/clean up for 285 room Marriott Hotel 10. Circulation improvements for 200 room Woodfin Suites Hotel 11. Land acquisition for Emery Station Office Project

29 EMERYVILLE REDEVELOPMENT AGENCY Notes to Component Unit Financial Statements j NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNT POLICIES (Continued)

III. Affordable Housing Activities I. Implementation of First Time Homebuyers Program 2. Implementation oflnfillNacant Housing Program 3. Implementation of Housing Rehabilitation Program 4. Development of 50 very low-income elderly units (Emery Villa) 5. Development of260 mixed-income units (Emery Bay Club & Apartments) 6. Development of 8 for-sale, infill affordable units 7. Redevelopment of warehouse space (1500 Park Avenue) into 142 for-sale mixed income units 8. Development of 66 very low income senior units (Avalon) 9. Development of220 mixed-income units (Bridge Court) 10. Development of 17 for sale units (Gateway) 11. Development of 6 rental units for very low income AIDs patients 12. Development of20 rental units for very low and low income (Triangle Court) 13. Development of 36 units (Emery Glen) 14. Development of 112 condominium units (Emery Bay Village) 1 15. Redevelopment of warehouse space (45 h Street Artist Coop) 16. Financing for Bay Street Residential: 94 for sale units and 281 rental units 17. Acquisition of Ambassador Laundry Building for 61 unit rental low income residential 18. Development of 102 rental units, mixed income and mixed use A val on Project 19. Adoption of affordable agreements for low and modem income housing units for Liquid Sugars Lofts, Emery Terrace Condos and Elevation 22 Town houses (41 units).

The members of the City Council serve in a separate capacity as the governing board of the Redevelopment Agency and the City Manager serves as the Executive Director. The Redevelopment Agency is an integral part of the City of Emeryville and, accordingly, the accompanying financial statements are included as a component of the basic financial statements prepared by the City. A component unit is a separate governmental unit, agency or nonprofit corporation which, when combined with all other component units, constitutes the reporting entity as defined in the City's basic financial statements. The City provides administrative and other services for the Redevelopment Agency. For the years ended June 30, 2003 and June 30, 2002 the Redevelopment Agency paid the City $2,863,361 and $3,178,288, respectively, for administration and other costs including reimbursements to the Litigation Fund of $235,000 in 2003 and $350,000 in 2002.

B. Revenues

The Redevelopment Agency's primary source of revenue is property taxes, referred to in the accompanying financial statements as "property tax increment revenue". Property taxes allocated to the Redevelopment Agency are computed in the following manner:

a. The assessed valuation of all property in the Project Areas was determined on the date of adoption of the Redevelopment Plan by a designation of a fiscal year assessment role.

b. Property taxes related to any increase in assessed values after the adoption of a Redevelopment Plan are allocated to the Redevelopment Agency; all taxes on the "frozen" assessed valuation of the property are allocated to the City and other districts receiving taxes from the project area.

30 EMERYVILLE REDEVELOPMENT AGENCY Notes to Component Unit Financial Statements j NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNT POLICIES (Continued)

The Redevelopment Agency has no power to levy and collect taxes and any legislative property tax reduction would lower the amount of tax revenues that would otherwise be available to pay the principal and interest on bonds or loans from the City. Any increased tax rate or assessed valuation or any elimination of present exemptions would increase the amount of tax revenues available for this purpose. The Redevelopment Agency is also authorized to finance the Redevelopment Plan from other sources, including assistance from the City, the State and federal governments, interest income and the issuance of Redevelopment Agency debt.

Alameda County assesses properties, and it bills, collects, .· and distributes property taxes for the Redevelopment Agency, remitting the full assessment regardless of the amounts received. Secured and unsecured property taxes are levied January 1 and collected in the following fiscal year.

Secured property tax is due in two installments, on November 1 and March 1, and becomes a lien on those dates. It becomes delinquent on December 10 and April 10, respectively. Unsecured property tax is due on July 1, and becomes delinquent on August 31. Collection of delinquent accounts is the responsibility of the County, which retains all penalties.

The term "unsecured" refers to taxes on personal property other than real estate, land and buildings, on which taxes are secured by liens on the property being taxed. Property tax revenues are recognized by the Redevelopment Agency in the fiscal year they are assessed, provided they become available as defined above.

The Redevelopment Agency has agreements with several agencies under which it must pass through a portion of property tax increments to the Agencies. During fiscal 2002-2003 and 2001-2002 the Redevelopment Agency paid $2,093,335 and $1,764,820, respectively, to these Agencies.

C. Basis ofPresentation

The Agency's Component Unit Financial Statements are prepared in conformity with accounting principles generally accepted in the United States of America. The Government Accounting Standards Board is the acknowledged standard setting body for establishing accounting and financial reporting standards followed by governmental entities in the U.S.A.

The accompanying financial statements are presented on the basis set forth in Government Accounting Standards Board Statements No. 34, Basic Financial Statements-and Management's Discussion and Analysis-for State and Local Governments, No. 36, Recipient Reporting for Certain Non-exchange Revenues, an Amendment of GASE Statement No. 33, No. 37, Basic Financial Statements-and Management's Discussion and Analysis-for State and Local Governments; Omnibus, and No. 38, Certain Fin;ncial Statement Note Disclosures.

These Statements require that the financial statements described below be presented.

Government-wide Statements: The Statement of Net Assets and the Statement of Activities include the financial activities of the overall Agency government. Eliminations have been made to minimize the double counting of internal activities.

31 EMERYVILLE REDEVELOPMENT AGENCY Notes to Component Unit Financial Statements j NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNT POLICIES (Continued)

The Statement of Activities presents a comparison between direct expenses and program revenues for each function of the Agency's governmental activities. Direct expenses are those that are specifically associated with a program or function and, therefore, are clearly identifiable to a particular function. Program revenues include (a) charges paid by the recipients of goods or services offered by the programs, (b) grants and contributions that are restricted to meeting the operational needs of a particular program and (c) fees, grants and contributions that are restricted to financing the acquisition or construction of capital assets. Revenues that are not classified as program revenues, including all taxes, are presented as general revenues.

Fund Financial Statements: The fund financial statements provide information about the Agency. Separate statements for each governmental fund are presented. The emphasis of fund financial statements is on major individual funds, each of which is displayed in a separate column. All remaining governmental funds are aggregated and reported as nonmajor funds.

D. Major Funds

GASB Statement 34 defines major funds and requires that the Agency's major governmental-type funds be identified and presented separately in the fund financial statements.

Major funds are defined as funds that have either assets, liabilities, revenues or expenditures/expenses equal to ten percent of their fund-type total and five percent of the grand total. The General Fund is always a major fund. The Agency may also select other funds it believes should be presented as major funds. The Agency selected the Low-Mod Income Housing Operating and Housing Capital Projects Funds to be major funds.

The Agency reported the following major governmental funds in the accompanying financial statements:

The 1976 Project Area Operating Fund accounts for the receipt of tax increment revenue allocated to the 1976 Redevelopment Project Area and for debt service of the project area.

The Shellmound Project Area Operating Fund accounts for the receipt of tax increment revenue allocated to the Shellmound Redevelopment Project Area and for debt service of the project area.

The Low/Moderate Income Housing Operating Fund accounts for the receipt of the mandated 20% set-aside of tax increment revenue from the 1976 and Shellmound Project Areas for Low and Moderate Income Housing Programs and for debt service of the fund.

The Housing Revolving Loans Operating Fund accounts for the Agency's First Time Homebuyer and Rehabilitation Joans. The fund was established in 2000. The fund segregates funds available for first time home buyer loans from other Agency assets. The loan program was previously included as part of the Low and Moderate Income Housing Fund. ·

The 1998 Series B Revenue Bonds Debt Service Fund accounts for payments of principal and interest on the 1998 Redevelopment Agency Revenue Bonds.

The Housing Capital Projects Fund accounts for funds used for low and moderate income capital projects.

32 EMERYVILLE REDEVELOPMENT AGENCY Notes to Component Unit Financial Statements

INOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNT POLICIES (Continued)

The 1976 Area Capital Projects Fund accounts for resources from the Emeryville Redevelopment Project Area dedicated by the Emeryville Redevelopment Agency for specific capital projects of the project area.

The Shellmound Capital Projects Fund accounts for resources from the Shellmound Park Redevelopment Project Area dedicated by the Emeryville Redevelopment Agency for specific capital projects of the project area.

The Revenue Bonds 2001, Series A Capital Projects Fund accounts for resources from 2001, Series A Bond issue.

E. Basis ofAccounting

The government-wide financial statements are reported using the economic resources measurement focus and the full accrual basis of accounting. Revenues are recorded when earned and expenses are recorded at the time liabilities are incurred, regardless of when the related cash flows take place.

Governmental funds are reported using the current financial resources measurement focus and the modified accrual basis of accounting. Under this method, revenues are recognized when measurable and available. The Agency considers all revenues reported in the governmental funds to be available if the revenues are collected within sixty days after year-end. Expenditures are recorded when the related fund liability is incurred, except for principal and interest on general long-term debt, claims and judgments, and compensated absences, which are recognized as expenditures to the extent they have matured.

General capital asset acquisitions are reported as expenditures in governmental funds. Proceeds of general long-term debt and acquisitions under capital leases are reported as other financing sources.

Non-exchange transactions, in which the Agency gives or receives value without directly receiving or giving equal value in exchange, include property taxes, grants, entitlements, and donations. On an accrual basis, revenue from property taxes is recognized in the fiscal year for which the taxes are levied. Revenue from grants, entitlements, and donations is recognized in the fiscal year in which all eligibility requirements have been satisfied.

Other revenues susceptible to accrual include interest and charges for services.

Under the terms of grant agreements, the Agency may fund certain programs with a combination of cost reimbursement grants, categorical block grants, and unrestricted redevelopment revenues. Thus, both restricted and unrestricted net assets may available to finance program expenditures. The Agency's policy is to first apply restricted grant resources to such programs, followed by unrestricted redevelopment revenues if necessary.

F. Net Assets

GASB Statement 34 adds the concept of Net Assets, which is measured on the full accrual basis, to the concept of Fund Balance, which is measured on the modified accrual basis.

Net Assets is the excess of all the Agency's assets over all its liabilities, regardless of fund. Net Assets are divided into three captions under GASB Statement 34. These captions apply only to Net Assets, which is determined only at the Government-wide level, and are described below:

33 EMERYVILLE REDEVELOPMENT AGENCY Notes to Component Unit Financial Statements j NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNT POLICIES (Continued)

Invested in Capital Assets, net of related debt describes the portion of Net Assets which is represented by the current net book value of the Agency's capital assets, less the outstanding balance of any debt issued to finance these assets.

Generally accepted accounting principals require that these contributed assets be excluded from the Agency's financial statements. As discussed in Note 9, all of the Agency's long-term debt are repayable from tax increment revenues.

Restricted describes the portion of Net Assets which is restricted as to use by the terms and conditions of agreements with outside parties, governmental regulations, laws, or other restrictions which the Agency cannot unilaterally alter. These principally include resources received for debt service requirements and redevelopment funds restricted to low and moderate income purposes.

Unrestricted describes the portion of Net Assets which is not restricted as to use.

As of June 30, 2003, the Agency had long-term debt in excess of assets amounting to $21,229,877. This is a result of capital assets which are contributed or transferred to the City and third party developers upon completion since they are responsible for maintaining them. Long-term debt proceeds used to pay the original cost of capital assets and infrastructure transferred to others amounts to approximately $50,000,000.

G. Fund Balance Reserves and Designations

Governmental fund balances represent the net current assets of each fund. Net current assets generally represent a fund's cash and receivables, less its liabilities. Portions of a fund's balance may be reserved or designated for future expenditure.

Reserves are restrictions placed by outside entities, such as other governments, which restrict the expenditures of the reserved funds to the purpose intended by the entity which provided the funds.

Designations are imposed by the Redevelopment Agency to reflect future spending plans or concerns about the availability of future resources. Designations may be modified, amended or removed by the Redevelopment Agency.

H. New Funds During the year ended June 30, 2003, the 2002A Revenue Bonds Debt Service Fund and the 2002A Revenue Bonds Capital Projects Fund were established. Also, the 1993 Revenue Bonds Debt Service Fund was closed as of June 30, 2003.

34 EMERYVILLE REDEVELOPMENT AGENCY Notes to Component Unit Financial Statements

INOTE 2 - BUDGETS AND BUDGETARY ACCOUNTING

A. Budgets and Budgetary Accounting The Redevelopment Agency operates under the general laws of the State of California and bi-annually adopts a budget for its governmental fund types to be effective July 1 for the ensuing fiscal years; From the effective date of the budget, which is adopted by the Redevelopment Agency and controlled by the Executive Director at the fund level, the amounts stated therein as proposed expenditures become appropriations to the various Redevelopment Agency funds. The Redevelopment Agency may amend the budget by resolution during the fiscal year. The Executive Director may authorize transfers of appropriations from one object to another within the same fund as long as the level of service remains the same. The legal level of budgetary control is the fund level. All appropriations lapse at year-end, except those relating to long-term capital projects. Supplemental appropriations were approved by the Redevelopment Agency during the year ended June 30, 2003 and are included in the final budget amounts presented in the component unit financial statements.

B. Budgetary Basis

Bi-annual budgets are adopted on a basis consistent with the generally accepted accounting principles.

C. Excess Expenditures

For the year ended June 30, 2003, the Shellmound and Housing Revolving Loans Operating Funds Special Revenue Funds had expenditures in excess of budgets in the amounts of $110,519 and $255,857, respectively. Sufficient resources or interfund borrowings were available in each fund to pay for the excess.

INOTE 3 - CASH AND INVESTMENTS

The Redevelopment Agency pools cash from all funds except Cash with Fiscal Agents with the City Treasury so that it can be invested at the maximum yield, consistent with safety and liquidity, while individual funds can make expenditures at any time.

A. Categorization of Credit Risk ofSecurities ln~truments

The Redevelopment Agency invests in individual investments and in investment pools. Individual investments are evidenced by specific identifiable pieces of paper called securities instruments, or by an electronic entry registering the owner in the records of the institution issuing the security, called the book entry system. In order to maximize security, the Redevelopment Agency employs the Trust Department of a bank as the custodian of all Redevelopment Agency managed investments, regardless of their form.

The Redevelopment Agency categorizes its individual securities instruments in ascending order to reflect the relative risk of loss of these instruments. This risk is called Credit Risk, the lower the number, the lower the risk. The three levels of risk prescribed by generally accepted accounting principles are described below:

Category I - Securities instruments in this category are in the Redevelopment Agency's name and are in the possession of the Trust Department of the bank employed by the Redevelopment Agency solely for this purpose. The Redevelopment Agency is the registered owner of securities held in book entry form by the bank's Trust Department. Insured Certificates of Deposit and cash in bank are also included in this category.

35 EMERYVILLE REDEVELOPMENT AGENCY Notes to Component Unit Financial Statements

INOTE 3 - CASH AND INVESTMENTS (Continued)

Category 2 - Securities instruments and book entry form securities in this category are in the bank's name but are held by its Trust Department in the Redevelopment Agency's name.

Category 3 - None of the Redevelopment Agency's investments are in this category, which would include only Redevelopment Agency-owned securities instruments or book entry form securities which were not in the Redevelopment Agency's name or not held by the bank's Trust Department.

Pooled Investments - Pooled investments are not categorized because of their pooled, rather than individual, nature.

The Agency's investments are carried at fair value, as required by generally accepted accounting principals. The Agency adjusts the carrying value of its investments to reflect their fair value at each fiscal year end, and it includes the effects of these adjustments income for that fiscal year.

Investments are carried at fair value, which is the same as fair market value and are categorized as follows at June 30, 2003:

Available for With Fiscal OJ2erations Agents Total Pooled Investments (non Categorized): 0 Money Market Funds $0 (US Securities) $6,870,838 $6,870,838 City of Emeryville Treasury $57,310,049 57,310,049 Investment Agreements 6,709,126 6,709,126 Total Cash and Investments $57,310,049 $13,579,964 $70,890,013

B. City ofEmeryville Treasury

Redevelopment Agency cash not held by the Trustee is included in a City-wide cash and investment pool. The City's cash is fully collateralized with securities held by an agent of the pledging financial institution in the City's name. City policy permits investments in obligations of the U.S. Treasury, its agencies and instrumentalities, commercial paper, medium term corporate notes, the State of California Local Agency Investment Fund, and certificates of deposit.

The Redevelopment Agency engages in programs designed to encourage construction or improvement in low to-moderate income housing or other projects. Under these programs, grants or loans are provided under favorable terms to home-owners or developers who agree to spend these funds in accordance with the Redevelopment Agency's tenns. These loans have been offset by deferred revenue as they are not expected to be repaid immediately.

36 EMERYVILLE REDEVELOPMENT AGENCY Notes to Component Unit Financial Statements

INOTE 4 - LOANS RECEIVABLE AND DEFERRED REVENUE

At June 30, the Redevelopment Agency's notes and loans receivable and related deferred revenue totaled:

Home Rehabilitation and Assistance $764,882 First-Time Homebuyer 2,709,878 Ownership Housing Assistance l,120,049 Homeowner's Association Assessment 19,886 Artists Cooperative 619,200 Bayfront Industrial Center 238,558 Business Development 648,691 Property Improvement (Tenant - ECAP) 55,451 Aids Housing Deferred 393,827 RemarLofts 250,000 Emeryville Town Center (Bay Street) 20,400,000

Total $27,220,422

A. Home Rehabilitation and Assistance Loans

The Redevelopment Agency administers a housing rehabilitation loan program using Community Development Block Grant funds and Redevelopment Agency Low and Moderate Income Housing funds. Under these Programs, individuals with incomes below a certain level are eligible to receive low interest, fifteen year loans, secured by deeds of trust, for rehabilitation work on their homes. The loan repayments may be amortized over the life of the loans, deferred or a combination of both.

B. First-Time Homebuyer Loans

The Redevelopment Agency's First Time Homebuyer Program offers down payment assistance to low and moderate income first time home buyers purchasing a home in the City of Emeryville. The deferred loans bear interest at 5%, require no monthly payments, are not due until the property is sold, transferred or rented and are collateralized by second deeds of trust. The loans are forgiven if the buyer resides in the home for more than thirty years. ·

C. Ownership Housing Assistance Loans

The Redevelopment Agency's Ownership Housing Assistance Program offers down payment assistance to low and moderate income home buyers purchasing a home in the City of Emeryville. The deferred loans bear interest at 5%, require no monthly payments, are not due until the property is sold, transferred or rented and are col lateralized by second deeds of trust.

D. Homeowner's Association Assessment Loans

In December 1999, the Redevelopment Agency provided amortized loans to low-to-moderate income, owner occupants. These loans are secured by trust deeds on the respective properties, bear 6% interest and are fully amortized over 10 years.

E. Artists Cooperative Loan

At June 30, the Redevelopment Agency had a receivable from the 45th Street Artists Cooperative which is due in annual installments until January 5, 2042. Proceeds from this loan were used to finance the first mortgage on housing units within the Redevelopment Project Area. The loan bears 7% interest until paid in full.

37 EMERYVILLE REDEVELOPMENT AGENCY Notes to Component Unit Financial Statements

! NOTE 4 - LOANS RECEIVABLE AND DEFERRED REVENUES (Continued)

F. Bayfront Industrial Center Loan

At June 30, the Redevelopment Agency has a receivable from a developer which used proceeds of the loan to construct a parking facility. The loan is secured by a second deed of trust on the project, bears interest at 6.8% and has monthly payments, including interest, of $1,909 due until August 1, 2021.

G. Business Development Loans

At June 30, the Redevelopment Agency had made loans to six local business developers within the 1976 and Shellmound Project Areas. These loans were made for the purpose of making property improvements to the businesses. The interest rate on these loans is 3% and they are secured by deeds of trusts or equipment and have monthly payments, including interest, due until 2015.

H. Property Improvement Loan

At June 30, the Redevelopment Agency had a receivable due from a property owner which was used for improvements to a building securing the deed of trust under the note. The loan bears interest at 9% with monthly principal and interest payments of $503 and the balance of the loan is due in December 2007.

I. Bay Bridge Corporation (Aids Housing) Deferred Loan

In May 1995, the Redevelopment Agency loaned $325,000 to a nonprofit public benefit corporation which used the funds to develop a 6 unit rental housing project for low income persons who are disabled as a result of being HIV positive or diagnosed with AIDS. The loan is secured by a second deed of trust on the project and bears annual interest rate at 3%. The loan principal and all accrued interest will be due and payable on the earliest of 40 years from the date of the loan, when the property is sold or refinanced or in the event of default on the loan agreement.

J. Remar Lofts Loan

During the fiscal year ended June 30, 2001, the Redevelopment Agency loaned $250,000 to a developer which was used to finance the development of 8 residential units at affordable rental levels for moderate income households. The loan is secured by a second deed of trust. The loan does not have a due date and is only obligated to be repaid to the Agency at 8% interest per annum in the event of a violation of the affordability agreement.

K Emeryville Town Center (Bay Street) Loans

The Redevelopment Agency assembled a twenty-acre site in the Bay Street area, demolished existing improvements and cleaned toxic contaminants. An agreement with Madison-Marquette (Bay Street Partners, LLC), the developer, provides for the Redevelopment Agency sale of the property for the construction of a one million square foot mixed-use project consisting of 400,000 square feet of retail space, 350 residential units and a 250 room hotel.

L. Promenade Center Loan

During the fiscal year ended June 30, 2001, the Redevelopment Agency loaned $860,000 to a developer which was to be used to finance the development of a mixed retail and residential project, including up to 110 housing units, 20% of which were to be sold at affordable housing costs to moderate income households.

38 EMERYVILLE REDEVELOPMENT AGENCY Notes to Component Unit Financial Statements

!NOTE 4 - LOANS RECEIVABLE AND DEFERRED REVENUES (Continued)

On October 29, 2002 the Redevelopment Agency and the developer signed a termination agreement and terminated the plan to develop the residential portion of the project. On November 8, 2002, the balance was repaid in full. The developer sold the parcel of property to Pixar for development which is described in Note 6D below in detail.

During fiscal year ended June 30, 2001, the Redevelopment Agency sold the property for $25,500,000. The developer paid $1.8 million to the Agency, and executed a loan payable to the Agency in the amount of $23, 700,000 secured by an option agreement under which the Agency may purchase the retail parking parcel and structure from the developer for $1. $3,300,000 of the receivable was due the earlier of December 31, 2002 or upon the issuance of a certificate of occupancy for the first tenant. The remaining 1 principal and interest are due annually commencing the 10 h year of the Town Center operations with the final payment due in the 25th year of operation. $3,300,000 was received in fiscal year 2003. At June 30, 2003, the Bay Street Partners, LLC owed principal of $20,400,000 to the Agency.

I NOTE 5 - INTERFUND TRANSACTIONS

A. Transfers Between Funds

With Board approval, resources may be transferred from one Redevelopment Agency fund to another. The purpose of the majority of transfers is to reimburse a fund which has made an expenditure on behalf of another fund.

Transfers between funds during the fiscal year were as follows:

Amount Fund Receiving Transfers Fund Making Transfers Transferred

Low/Moderate Income Housing Operating Special Revenue 1976 Project Area Operating Special Revenue Fund $2,883,743 (A) Shellmound Project Operating Special Revenue Fund 1,222,864 (A)

1998 B Revenue Bonds Debt Service Fund Shellmound Project Operating Special Revenue Fund 476,208 (B) 1976 Project Area Operating Special Revenue Fund 1,053,728 (B) Low/Moderate Income Housing Special Revenue Fund 592,311 (B) Other Governmental Funds 31,327 (B)

Other Governmental Funds Low/Moderate Income Housing Special Revenue Fund 1,340,421 (B) 1976 Project Area Operating Special Revenue Fund 3,223,809 (B) Shellmound Project Operating Special Revenue Fund 251,953 (B) Other Governmental Funds 2,305,362 (B) $15,008,726

The reasons for these transfers are set forth below: (A) State-required set-aside of Low/Moderate Income Housing portion of property tax increment. (B) Transfer of amounts required to fund debt service payments. (C) Transfer to fund capital projects. (D) Transfer to fund property acquisition.

39 EMERYVILLE REDEVELOPMENT AGENCY Notes to Component Unit Financial Statements

!NOTE 5 - INTERFUND TRANSACTIONS (Continued)

The Agency has entered into a variety of development agreements with third parties to provide needed improvements and projects. Activities under agreements that were completed in fiscal 2002-03 or for which there are continuing commitments are disclosed below. The Agency has other agreements that entitle them to collect certain loans or notes receivables which are disclosed above in Note 4.

A. Land Held/or Redevelopment

The Redevelopment Agency has purchased parcels of land as part of its efforts to develop or redevelop blighted properties within the Redevelopment areas. Such land parcels are accounted for at the lower of cost or net realizable value or agreed-upon sales price if a disposition agreement has been made with a developer. j NOTE 6 - DEVELOPMENT AGREEMENTS

B. Development ofEmeryville Amtrak Station

In March of 1993, the Redevelopment Agency entered into a Participation Agreement with Wareham Development Corporation to develop the Emeryville Amtrak Station. Under the terms of the Participation Agreement, the Redevelopment Agency developed the Station public improvements, including tracks, platforms, parking, landscaping and street improvements. Wareham developed the Station building, which the Redevelopment Agency leases from Wareham and subl~ases to Amtrak for a period of twenty-five years, after which time ownership of the station goes to Amtrak.

The Redevelopment Agency is paying annual lease payments of $164,942 for the next fourteen years. Under the lease terms, the Redevelopment Agency is also responsible for property taxes. Under the terms of the Redevelopment Agency's sublease of the Amtrak Station to the National Railroad Passenger Cooperation (Amtrak), the Redevelopment Agency will receive payments as follows:

Year Ending Amount 2004 $80,000 2005 80,000 2006 80,000 2007 80,000 2008 90,000 2009-2013 450,000 2014-2017 360,000 $1,220,000

C. Chiron Project

The Redevelopment Agency has a Development Agreement with Chiron Corporation under which the Corporation will reimburse the Redevelopment Agency for extraordinary costs incurred in remediating and improving property to be used as a site for expansion of Chiron's Biotech Research facilities. The Corporation constructed the first building of the project and is entitled to receive forty percent of future tax increment revenue generated by the Project until fiscal 2026-27 subject to certain limitations defined in the Agreement. During fiscal 2002-03, the Agency incurred $451,491 in tax increment sharing payments to the Corporation.

40 EMERYVILLE REDEVELOPMENT AGENCY Notes to Component Unit Financial Statements

INOTE 6 - DEVELOPMENT AGREEMENTS (Continued)

D. Pixar

Pixar has agreed to reimburse the Redevelopment Agency for costs of acquiring a portion of Watts Street which is to be used along with property owned by Pixar to construct a two phase project involving headquarters and an animation studio. As of June 30, 2003 phase two of the project had not been started.

E. Andante Project

The Redevelopment Agency has agreed to sell certain parcels of land to a developer. The land will be used as a site for a mixed use project including a full-service restaurant, retail and office space, and up to 102 residential rental housing units, of which 20% shall be affordable for low and moderate income households. As of June 30, 2003 the property was sold to the developer.

F. Emeryville Town Center (Bay Street)

The developer has acquired parcels from the Agency for use as a site for the Emeryville Town Center (Bay Street) in exchange for a note receivable due to the Agency which is disclosed in Note 4 above.

!NOTE 7 - CAPITAL ASSETS

All capital assets are valued at historical cost or estimated historical cost if actual historical cost is not available. Contributed fixed assets are valued at their estimated fair market value on the date contributed. The Agency's policy is to capitalize all assets with costs exceeding certain minimum thresholds and with useful lives exceeding two years.

With the implementation of GASB Statement 34, the Agency recorded all current year expenditures for its public domain (infrastructure) capital assets, including grading, curbs and gutters, and sidewalks systems which it maintains. GASB 34 also requires the Agency to look back twenty years and estimate, depreciate and record prior year infrastructure costs. This retroactive restatement has not been completed and is not required until fiscal year 2005-2006. Once completed, the Agency's capital assets and net assets will be increased by the undepreciated balance of infrastructure.

· GASB Statement 34 also requires that the Agency exclude from its financial statements assets maintained by other governments or organizations. The Agency has constructed a variety of capital assets which upon completion were "contributed" to the City or third party developers/operators, as part of development agreements. Since the City and developers/operators maintain the contributed capital assets, those amounts have been excluded from the accompanying financial statements.

GASB Statement 34 requires that all capital assets with limited useful lives be depreciated over their estimated useful lives. Alternatively, the "modified approach" may be used for certain capital assets.

Depreciation is not provided under this approach, but all expenditures on these assets are expensed, unless they are additions or improvements.

41 EMERYVILLE REDEVELOPMENT AGENCY Notes to Component Unit Financial Statements

!NOTE 7 - CAPITAL ASSETS (Continued)

The purpose of depreciation is to spread the cost of capital assets equitably among all users over the life of these assets. The amount charged to depreciation expense each year represents that year's pro rata share of the cost of capital assets.

Depreciation of all capital assets is charged as an expense against operations each year and the total amount of depreciation taken over the years, called accumulated depreciation, is reported on the balance sheet as a reduction in the book value of capital assets.

Depreciation is provided using the straight line method which means the cost of the asset is divided by its expected useful life in years and the result is charged to expense each year until the asset is fully depreciated. The Agency has assigned the useful lives and capitalization thresholds listed below to capital assets.

Useful Lives Capitalization Years Thresholds Park Improvements and Other Improvements 20 years $50,000 Building and Improvements 25-50 years 50,000 Furnishings, Vehicles and Equipment 5-20 years 1,000 Grading, Curb & Gutter, Sidewalks 10-50 years 50,000

Major outlays for capital assets and improvements are capitalized as projects are constructed. Interest incurred during the construction phase is reflected in the capitalized value of the asset constructed, net of interest earned on the invested proceeds over the same period.

42 EMERYVILLE REDEVELOPMENT AGENCY Notes to Component Unit Financial Statements

!NOTE 7 - CAPITAL ASSETS (Continued)

Capital assets at June 30 comprise:

Balance at Balance at June 30, 2002 Additions Transfers June 30, 2003 Governmental activities Capital assets not being depreciated: Land $3,422, 135 $3,422,135 Construction in progress $310,377 310,377

Total capital assets not being depreciated 3,422,135 310,377 3,732,512

Capital assets being depreciated: Park Improvements and other 273,980 273,980 Buildings and Improvements 8,801,216 ($8,233,890) 567,326 Furnishings, Vehicles and Equipment 1,164 1,164 Grading, Curb, Gutter, Sidewalks 177,486 130,957 308,443

Total capital assets being depreciated 9,253,846 130,957 (8,233,890) 1,150,913

Less accumulated depreciation for: Park Improvements and other (42,259) (13,699) (55,958) Buildings and Improvements (738,103) (176,023) 467,457 (446,669) Furnishings, Vehicles and Equipment (58) (58) (116) Grading, Curb & Gutter, Sidewalks (11,833) (11,833)

Total accumulated depreciation (780,420) (201,613) 467,457 (514,576)

Net capital assets being depreciated 8,473,426 (70,656) (7,766,433) 636,337

Governmental activity capital assets, net $11,895,561 $239,721 ($7 ,766,433} $4,368,849

During fiscal 2002-2003, the Agency transferred assets valued at $7,766,433 to the City as it is responsible for maintenance and upkeep costs on the assets.

Capital Asset Contributions

Some capital assets may be acquired using federal and State grant funds, or they may be contributed by developers or other governments. GASB Statement 34 requires that these contributions be accounted for as revenues at the time the capita] assets are contributed.

INOTE 8 - LOAN PAY ABLE TO CITY I

The City has a Cooperation Agreement with the Redevelopment Agency under which the Redevelopment Agency Housing Capital Projects Fund owes the City $1,500,000 for acquisition and development of an affordable housing project. Interest accrues at 6% from June 30, 2003, the date the funds were transferred to Housing Capital Project Fund.

43 EMERYVILLE REDEVELOPMENT AGENCY Notes to Component Unit Financial Statements

I NOTE 9- LONG-TERM DEBT

The Redevelopment Agency generally incurs long-term debt to finance projects or purchase assets which will have useful lives equal to or greater than the related debt.

For governmental activities, bond premiums and discounts, as well as issuance costs, are recognized during the current period. Bond proceeds are reported as another financing source net of the applicable premium discount. Issuance costs, even if withheld from the actual net proceeds received; are reported as debt service expenditures.

A. Current Year Transactions and Balances

The Redevelopment Agency's debt issues and transactions are summarized below and discussed in detail thereafter.

Balance Refunding and Balance Current June 30, 2002 Additions Retirements June 30, 2003 Portion Governmental Activity Debt: Public Financing Authority Revenue Bonds, 2002 Series A, 2.00%-5.25%, due 09/01/21 $22, 120,000 $22, 120,000 $480,000 2001 Series A, 4.00%-5.20%, due 09/01/31 $23,000,000 $355,000 22,645,000 495,000 2001 Series B, 7.02%-7.20%, due 09/01/31 3,420,000 3,420,000 30,000 1998 Series C, 5.75%-6.75%, due 09/01/26 17,215,000 275,000 16,940,000 295,000 1998 Series B, 4.00%-5.00%, due 09/01/28 48,430,000 845,000 47,585,000 875,000 Series 1995, 4.00%-6.20%, due 09/01/25 6,615,000 135,000 6,480,000 140,000 1993 Series A, 3.60%-6.50%, retired 2003 19,485,000 19,485,000

$118,165,000 $22, 120,000 $21,095,000 $119,190,000 $2,315,000

B. Public Financing Authority Revenue Bonds, 2002 Series A

On November 19, 2002, the City and Redevelopment Agency jointly issued, through a financing intermediary called the Emeryville Public Financing Authority, $22,120,000 in Revenue Bonds Series A (2002 Bonds). The bonds proceeds were used to defease the outstanding 1993 Series A Revenue Bonds, to provide financing for various redevelopment projects, and to fund a debt service reserve fund. A portion of proceeds from the 2002 Bonds was placed in an irrevocable trust to provide all the future debt service payments in the defeased 1993 Bonds. The defeased 1993 Bonds were called on January 2003. As a result of the refunding, the aggregate debt service was decreased by $2,913, and an economic gain of $2,851,526 was realized.

Redevelopment Agency tax increment revenue is pledged for the repayment of the 2002 Bonds. Interest is due semiannually each September 1 and March 1. Commencing 2003, principal is payable each September 1 through 2021.

44 EMERYVILLE REDEVELOPMENT AGENCY Notes to Component Unit Financial Statements

! NOTE 9 - LONG-TERM DEBT (Continued) !

C. Public Financing Authority Revenue Bonds, 2001 Series A and Series B

On July 1, 2001, the City and Redevelopment Agency jointly issued, through a financing intermediary called the Emeryville Public Financing Authority, Revenue Bonds, 2001 Series A and 2001 Series B in the principal amounts of $23,000,000 and $3,420,000, respectively. The proceeds of Series A Bonds were used to finance redevelopment activities within the Emeryville Redevelopment Project Area and Shellmound Redevelopment Project Area. The proceeds of Series B Bonds were used to finance low and moderate income housing projects. The Series A Bonds are secured by a.pledge of the Redevelopment Tax Increment Revenues and Series B Bonds are secured by Housing Set Aside revenue.

Interest is due semiannually each September 1 and March 1. Commencing 2002, principal is payable each September 1 through 2031.

D. Public Financing Authority Revenue Bonds 1998 Series Band 1998 Series C

On July 23, 1998, the City and Redevelopment Agency jointly issued, through a financing intermediary called the Emeryville Public Financing Authority, Revenue Bonds, 1998 Series B and 1998 Series C in the principal amounts of $50,650,000 and $17,905,000, respectively to finance certain redevelopment projects. The bonds proceeds were also used to refund a portion of Revenue Bonds, Series 1995 and a portion of 1993 Revenue Bonds, Series A, and to refund all of the Revenue Bonds, Series 1994 by purchasing Federal Securities which were deposited in irrevocable trusts with an escrow agent to provide future debt payments on the refunded bonds. As a result, the Refunded Bonds were considered to be defeased and the liability for those obligations was removed from the Redevelopment Agency's financial statements.

Redevelopment Agency tax increment revenue is pledged for the repayment of the 1998 Bonds. Interest is due semiannually each September 1 and March 1. Principal is payable each September 1 through 2028 for Series B Bonds and 2026 for Series C Bonds.

E. Public Financing Authority Revenue Bonds, Series 1995

The Revenue Bonds, Series 1995 (1995 Bonds) were issued to refinance the Redevelopment Agency's share of the cost of acquisition, construction and funding for Low and Moderate income housing projects. The Bonds are special obligations of the Redevelopment Agency payable solely from and secured by a pledge of and lien upon tax increment revenues. Principal and interest are payable semi-annually each March 1 and September 1. The proceeds from the Bonds were used to advance refund outstanding 1990 Housing Revenue Bonds, Increment Series A ("Refunded Bonds") by purchasing U.S. government securities which were deposited in an irrevocable trust with an escrow agent to provide for all future debt service payments on the Refunded Bonds. As a result, the 1990 Bonds were considered to be defeased and the liability for those obligations were removed from the Redevelopment Agency's financial statements.

F. Public Financing Authority 1993 Series A Revenue Bonds

On February 1, 1993, the City and Redevelopment Agency jointly issued, through a financing intermediary called the Emeryville Public Financing Authority, $37,395,000 in Revenue Bonds Series A (1993 Bonds) for the purpose of redeeming the 1987 Series A Allocation Bonds, advance refunding the 1988 Series A Revenue Bonds, and providing financing for various redevelopment projects. The 1993 Bonds were fully refunded during fiscal year 2003 as discussed above in Note 9B.

45 EMERYVILLE REDEVELOPMENT AGENCY Notes to Component Unit Financial Statements

!NOTE 9 - LONG-TERM DEBT (Continued)

G. Debt Service Requirements

Annual debt service requirements are shown below for all long-term debt except for loans from City which do not have scheduled repayments:

Governmental Activities For the Year Ending June 30 Principal Interest 2004 $2,315,000 $6,069,369 2005 2,795,000 5,966,600 2006 2,905,000 5,850,558 2007 3,020,000 5,729,515 2008 3,145,000 5,601,829 2009-2013 17,925,000 25,738,722 2014-2018 22,695,000 20,783,423 2019-2023 29,490,000 13,781,912 2024-2028 30,775,000 4,821,302 2029-2032 4,125,000 500,288

Total $119,190,000 $94,843,518

H. Housing Revenue Bonds Without Agency Commitment

On October 17, 1998, the Redevelopment Agency assisted Emery Bay II, a developer, in issuing Multifamily Housing Refunding Revenue Bonds, Series 1998 A, Subordinate Series 1998 B and Subordinate Series 1998 C in the principal amount of $20,775,000. Proceeds from the Refunding Revenue Bonds were used to refund the Multifamily Housing Subordinate Revenue Bonds, 1991 Series A & B. The Refunding Bonds are payable from revenues collected by the developer. The Redevelopment Agency is not legally or morally obligated for the repayment of the Bonds. At June 30, 2003, $19,510,000 remains outstanding on these bonds.

On August 15, 1996, the Redevelopment Agency assisted in the issuance of $16,4 70,000 in Revenue Bonds for the purpose of providing funds to make a loan to East Bay Bridge Partners to provide permanent financing for a multifamily rental housing project known as the East Bay Bridge Project. Principal and interest on the bonds are payable semiannually on March 1 and September 1 of each year commencing March 1, 1998. The Redevelopment Agency has no legal or moral commitment for the repayment of these bonds. At June 30, 2003, $15,650,000 remains outstanding on these bonds.

On October 9, 2002, the Redevelopment Agency assisted in the issuance of $66,715,000 in Multifamily Housing Refunding Revenue Bonds, Series 2002 A for the purpose of providing funds to make a loan to Bay Street Housing Partners to provide financing for the acquisition, and construction of a multifamily residential project known as Bay Street Apartments. Interest on the bonds is payable on the fifteenth day of each month commencing October 15, 2002. The bonds are due October 15, 2042. The Redevelopment Agency has no legal or moral commitment for the repayment of these bonds. At June 30, 2003, $66,715,000 remains outstanding on these bonds.

46 EMERYVILLE REDEVELOPMENT AGENCY Notes to Component Unit Financial Statements

!NOTE 9 - LONG-TERM DEBT (Continued)

I. De/eased Bonds

On June 30, 2003, outstanding balances for defeased debt were $6,165,000 for the refunded portion of the Public Financing Authority Revenue Bonds Series 1995, $3,845,000 for the Public Financing Authority Revenue Bonds Series 1994, and $3,770,000 for the Multifamily Housing Subordinate Revenue Bonds, 1991 Issue B.

INOTE 10 - RISK MANAGEMENT

The City and the Redevelopment Agency manages risk by participating in public entity risk pools as discussed in the City's basic financial statements at Note 14.

In addition, the Redevelopment Agency has a pollution legal liability insurance which covers third-party claims and additional cleanup costs related to the Bay Street site for up to $10,000,000. The Agency has a deductible or uninsured liability of $100,000 per claim. The Agency paid a one-time premium of $142,623 for this policy which covers a ten year period from June 16, 1999 to June 16, 2009.

I NOTE 11 - COMMITMENT AND CONTINGENCIES

A. General

The Agency is subject to litigation arising in the normal course of business. In the opinion of the Agency Attorney there is no pending litigation which is likely to have a material adverse effect on the financial position of the Agency.

The Agency participates in several federal and State grant programs. These programs have been audited by the Agency's independent accountants in accordance with the provisions of the federal Single Audit Act Amendments of 1986 and applicable State requirements. No cost disallowances were proposed as a result of these audits; however, these programs are still subject to further examination by the grantors and the amount, if any, of expenditures which may be disallowed by the granting agencies cannot be determined at this time. The Agency expects such amounts, if any, to be immaterial.

, B. Lease Agreement with the Emery Unified School District and Reimbursement Agreement with the City of Emeryville

On October 15, 2002, the City and the Emery Unified School District signed a lease agreement to lease and improve recreational facilities at Emery High School from the District for a period of 40 years for rent payments totaling $1.5 million and estimated improvement costs of $250,000. Through this Lease Agreement, the City will eliminate blighting influences in both the Emeryville and Shellmound Park Redevelopment Areas by improving inadequate public facilities in order to benefit the public. As a result, a Reimbursement Agreement between the City and the Agency was also signed to reimburse the City for all payments disbursed to the District during the fiscal year.

47 EMERYVILLE REDEVELOPMENT AGENCY Notes to Component Unit Financial Statements

NOTE 12 -TAX INCREMENT SHIFT TO EDUCATIONAL REVENUE AUGMENTATION FUND (ERAF)

In fiscal year 2003 the State of California directed that a portion of the incremental property taxes which had been received by redevelopment agencies be paid instead to local educational agencies. During the fiscal year ended June 30, 2003, the Agency paid $488,668 as a result of the State directive. j NOTE 13 - SUBSEQUENT EVENT

In June of 2003, the Redevelopment Agency entered into an Assignment and Assumption Agreement and Exclusive Right to Negotiate with Resources for Community Development (RCD) for the development of the Ambassador Laundry Building located at 1168 36th Street into eighty-three low and extremely low-income housing units. Under the terms of the Assignment and Agreement, the Redevelopment Agency will purchase the Laundry Building site for RCD. On July l 0, 2003, the Agency purchased the site in the amount of $2.2 million.

48 NON-MAJOR GOVERNMENTAL FUNDS

Debt Service Funds

The 1993 Revenue Bond Fund accounts for payments of principal and interest on the 1993 Redevelopment Agency Revenue Bonds. The Bonds were fully refunded and the Fund was closed as of June 30, 2003.

The 1995 Housing Revenue Bonds Fund accounts for payments of principal and interest on the 1995 Redevelopment Agency Housing Increment Revenue Bonds.

The 1998 Series C Bonds Fund accounts for payments of principal and interest on the 1998 Redevelopment Agency Revenue Bonds.

The 2001 Series A and B Bond Funds account for payments of principal and interest on the 2001 Redevelopment Agency Revenue Bonds.

The 2002 Series A Revenue Bonds Fund accounts for payments of principal and interest on the 2002 Redevelopment Agency Revenue Bonds.

Capital Project Funds

The 1995 Low/Mod Housing Fund accounts for bond proceeds and other revenue associated with the Emeryville Redevelopment Project Area 1995 Housing Increment Revenue Bonds. The fund is expended for eligible Redevelopment Agency low and moderate income housing projects.

The 1998 B and C Revenue Bond Funds account for bond proceeds from the 1998 bonds Series B and C which were issued in fiscal 1998-99.

The 2001 B Revenue Bonds Fund account for bond proceeds from the 1998 bonds Series Band C which were issued in fiscal 2001-02.

The 2002 A Revenue Bonds Fund accounts for bond proceeds from the 2002 bonds Series A which were issued in fiscal 2003.

49 EMERYVILLE REDEVELOPMENT AGENCY NON-MAJOR GOVERNMENTAL FUNDS COMBINING BALANCE SHEETS JUNE 30, 2003

DEBT SERVICE FUNDS

1995 1998 2001 2001 1993 Housing Series C Series A Series B Revenue Revenue Revenue Revenue Revenue Bonds Bonds Bonds Bonds Bonds

ASSETS

Cash and investments Cash and investments with fiscal agents $575,078 $1,451,431 $1,586,743 $278,617 Receivables: Accounts and taxes Interest

Total Assets $575,078 $1,451,431 $1,586,743 $278,617

LIABILITIES

Accounts payable

Total Liabilities

FUND BALANCES

Reserved for: Encumbrances Debt service $575,078 $1,451,431 $1,586,743 $278,617 Low and moderate income housing Unreserved: Designated for capital outlay

Total Fund Balance 575,078 1,451,431 1,586,743 278,617

Total Liabilities and Fund Balance $575,078 $1,451,431 $1,586,743 $278,617

50 CAPITAL PROJECTS FUNDS Revenue 2002 Revenue Bonds Revenue Revenue Revenue Total Series A 1995 Bonds 1998 Bonds Bonds Bonds Non-major Revenue Low/ Moderate 1998 Series C 1998C76 2001 2002 Governmental Bonds Housing Series B Housing Taxable Series B Series A Funds

$728,076 $3,342,464 $102,074 $671,001 $2,030,802 $2,538,995 $9,413,412 $3,613,640 7,505,509

39 39 1,378 7,073 193 975 12,208 11,284 33, 111

$3,613,640 $729,454 $3,349,576 $102,267 $671,976 $2,043,010 $2,550,279 $16,952,071

$514,138 $94,996 $1,440 $610,574

514,138 94,996 1,440 610,574

120,247 3,798 124,045 $3,613,640 7,505,509 $729,454 729,454

2,715,191 $102,267 573, 182 $2,043,0 IO 2,548,839 7,982,489

3,613,640 729,454 2,835,438 102,267 576,980 2,043,010 2,548,839 16,341,497

$3,613,640 $729,454 $3,349,576 $102,267 $671,976 $2,043,010 $2,550,279 $16,952,071

51 EMERYVILLE REDEVELOPMENT AGENCY NON-MAJOR GOVERNMENT AL FUNDS COMBINING STATEMENTS OF REVENUES, EXPENDITURES AND CHANGES IN FUND BALANCES FOR THE YEAR ENDED JUNE 30, 2003

DEBT SERVICE FUNDS

1995 1998 2001 2001 1993 Housing Series C Series A Series B Revenue Revenue Revenue Revenue Revenue Bonds Bonds · Bonds Bonds Bonds REVENUES Investment earnings $65,478 $4,786 $40,673 $15,874 $2,284

Total Revenue 65,478 4,786 40,673 15,874 2,284

EXPENDITURES Current: Redevelopment Capital outlay Debt service Principal 135,000 275,000 355,000 Interest and fiscal charges 625,513 396,891 1,129,358 1,095,275 244,485

Total Expenditures 625,513 531,891 1,404,358 1,450,275 244,485

EXCESS (DEFICIENCY) OF REVENUES OVER EXPENDITURES (560,035) (527, 105) ( 1,363,685) (1,434,401) (242,201)

OTHER FINANCING SOURCES (USES): Proceeds from long-term debt Bond issuance premium Payment to refunded bond escrow agent Transfers in 514,532 1,430,739 654,951 241,726 Transfers (out) (l,918,203)

Total Other Financing Sources (Uses) ( 1,918,203) 514,532 1,430,739 654,951 241,726

Net change in fund balances (2,478,238) (12,573) 67,054 (779,450) (475)

Fund balances at beginning of period 2,478,238 587,651 1,384,377 2,366,193 279,092

Fund balances at end of period $575,078 $1,451,431 $1,586,743 $278,617

52 CAPITAL PROJECTS FUNDS Revenue 2002 Revenue Bonds Revenue Revenue Revenue Total Series A 1995 Bonds 1998 Bonds Bonds Bonds Non-major Revenue Low/ Moderate 1998 Series C 1998 C 76 2001 2002 Governmental Bonds Housing Series B Housing Taxable Series B Series A Funds

$15,212 $26,017 $144,357 $3,645 $20,681 $65,909 $28,229 $433, 145

15,212 26,017 144,357 3,645 20,681 65,909 28,229 433,145

218,473 67,579 1,120,049 1,406,101 1,385 654,363 655,748

765,000 644,563 201,849 4,337,934

644,563 1,385 872,836 67,579 1,120,049 201,849 7,164,783

(629,351) 24,632 (728,479) 3,645 (46,898) (1,054,140) (173,620) (6,731,638)

22,120,000 22,120,000 871,499 871,499 (19,887, 160) (19,887,160) 4,242,991 36,606 7,121,545 (418,486) (2,336,689)

4,242,991 2,722,459 7,889, 195

3,613,640 24,632 (728,479) 3,645 (46,898) ( 1,054, l 40) 2,548,839 1,157,557

704,822 3,563,917 98,622 623,878 3,097,150 15, 183,940

$3,613,640 $729,454 $2,835,438 $102,267 $576,980 $2,043,010 $2,548,839 $16,341,497

53 This Page Left Intentionally Blank llAAzE & • •1· ASSOCIATES

ACCOUNTANCY CORPORATION 1931 San Miguel Drive - Suite 100 Walnut Creek, California 94596 (925) 930-0902 • FAX (925) 930-0135 E-Mail: [email protected] Website: www.mazeassociates.com . REPORT ON COMPLIANCE AND ON INTERNAL CONTROL OVER FINANCIAL REPORTING BASED ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS

Members of the Governing Board of the Emeryville Redevelopment Agency Emeryville, California

We have audited the financial statements of Emeryville Redevelopment Agency as of and for the year ended June 30, 2003, and have issued our report thereon dated October l 0, 2003. We conducted our audit in accordance with generally accepted auditing standards in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States.

Compliance

As part of obtaining reasonable assurance about whether the Redevelopment Agency's financial statements are free of material misstatement, we performed tests of its compliance with certain provisions of laws, regulations, contracts and grants, noncompliance with which could have a direct and material effect on the determination of financial statement amounts. Our audit included tests of compliance with provisions of the Guidelines for Compliance Audits of California Redevelopment Agencies. However, providing an opinion on compliance with those provisions was not an objective of our audit and, accordingly, we do not express such an opinion. The results of our tests disclosed no instances of noncompliance, except noted below, that are required to be reported under Government Auditing Standards.

Planning and administrative expenditures are incurred in the Low/Moderate Income Housing Operating Fund during the fiscal year. According to Health & Safety Code Section 33334.3(d), the Agency should have a written determination other than the budget, showing that the planning and administrative expenditures were necessary. We recommend the Agency obtain approval from City Council for these planning and administrative expenditures for fiscal year 2004.

Internal Control Over Financial Reporting

In planning and performing our audit, we considered the Redevelopment Agency's internal control over financial reporting in order to determine our auditing procedures for the purpose of expressing our opinion on the financial statements and not to provide assurance on the internal control over financial reporting. Our consideration of the internal control over financial reporting would not necessarily disclose all matters in the internal control over financial reporting that might be material weaknesses. A material weakness is a condition in which the design or operation of one or more of the internal control components does not reduce to a relatively low level the risk that misstatements in amounts that would be material in relation to the financial statements being audited may occur and not be detected within a timely period by employees in the normal course of performing their assigned functions. We noted no matters involving the internal control over financial reporting and its operation that we consider to be material weaknesses.

This report is intended for the information of the Redevelopment Agency Board, management and federal awarding agencies and pass-through entities. However, this report is a matter of public. record and its distribution is not limited .

October 10, 2003 ·

A Profession~Pcorporation This Page Left Intentionally Blank APPENDIX D

FORM OF FINAL OPINION OF BOND COUNSEL

[Letterhead of Quint & Thimmig LLP]

[Closing Date]

Emeryville Public Financing Authority 1333 Park Avenue Emeryville, California 94608

OPINION: $78,790,000 Emeryville Public Financing Authority Revenue Bonds, 2004 Series A (Emeryville Redevelopment, Shellmound Park Redevelopment and Housing Projects)

Members of the Authority:

We have acted as bond counsel in connection with the delivery by the Emeryville Public Financing Authority (the II Authority") of $78,790,000 aggregate principal amount of the bonds of the Authority designated the "Emeryville Public Financing Authority Revenue Bonds, 2004 Series A (Emeryville Redevelopment, Shellmound Park Redevelopment and Housing Projects)" (the "Bonds"), pursuant to the provisions of Article 4 (commencing with section 6584) of Chapter 5 of Division 7 of Title 1 of the California Government Code (the "Law"), and pursuant to an indenture of trust, dated as of August 1, 2004 (the "Indenture"), by and between the Authority and BNY Western Trust Company, as trustee (the "Trustee"), and a resolution of the governing body of the Authority adopted on June 29, 2004. The Bonds are secured by Revenues, as defined in the Indenture, including (a) certain loan payments made by the Emeryville Redevelopment Agency (the II Agency") under a loan agreement, dated as of August 1, 2004 (the "2004 Emeryville Project Loan Agreement"), by and among the Authority, the Agency and the Trustee, (b) certain loan payments made by the Agency under a loan agreement, dated as of August 1, 2004 (the "2004 Shellmound Project Loan Agreement"), by and among the Authority, the Agency and the Trustee, and (c) certain loan payments made by the Agency under a loan agreement, dated as of August 1, 2004 (the "2004 Housing Project Loan Agreement") by and among the Authority, the Agency and the Trustee. We have examined the Law and such certified proceedings and other papers as we deem necessary to render this opinion.

As to questions of fact material to our opinion, we have relied upon representations of the Authority, the City and the Agency contained in the Indenture, the 2004 Emeryville Project Loan Agreement, the 2004 Shellmound Project Loan Agreement and the 2004 Housing Project Loan Agreement and in the certified proceedings, and upon other certifications furnished to us, without undertaking to verify the same by independent investigation.

Based upon our examination we are of the opinion, under existing law, that:

1. The Authority is a joint exercise of powers agency and public entity duly organized and existing under the laws of the State of California, with power to enter into the Indenture, to perform the agreements on its part contained therein and to issue the Bonds.

2. The Bonds constitute legal, valid and binding special obligations of the Authority enforceable in accordance with their terms and payable solely from the sources provided therefor in the Indenture.

Appendix D Page 1 3. The Indenture has been duly approved by the Authority and constitutes a legal, valid and binding obligation of the Authority enforceable against the Authority in accordance with its terms.

4. The Indenture establishes a valid first and exclusive lien on and pledge of the Revenues (as such term is defined in the Indenture) and other funds pledged thereby for the security of the Bonds, in accordance with the terms of the Indenture.

5. The Agency is a public body corporate and politic, duly organized and existing under the laws of the State of California, with power to enter into the 2004 Emeryville Project Loan Agreement, the 2004 Shellmound Project Loan Agreement and the 2004 Housing Project Loan Agreement and to perform the agreements on its part contained therein. The 2004 Emeryville Project Loan Agreement, the 2004 Shellmound Project Loan Agreement and the 2004 Housing Project Loan Agreement has each been duly approved by the Agency and constitutes the legal, valid and binding obligation of the Agency enforceable against the Agency in accordance with its terms.

6. Interest on the Bonds is excluded from gross income for federal income tax purposes and is not an item of tax preference for purposes of the federal alternative minimum tax imposed on individuals and corporations; it should be noted, however, that for the purpose of computing the alternative minimum tax imposed on corporations (as defined for federal income tax purposes), such interest is taken into account in determining certain income and earnings. The opinions set forth in the preceding sentence are subject to the condition that the Authority comply with all requirements of the Internal Revenue Code of 1986 that must be satisfied subsequent to the issuance of the Bonds in order that interest thereon be, or continue to be, excluded from gross income for federal income tax purposes. The Authority has covenanted to comply with each such requirement. Failure to comply with certain of such requirements may cause the inclusion of interest on the Bonds in gross income for federal income tax purposes to be retroactive to the date of issuance of the Bonds. We express no opinion regarding other federal tax consequences arising with respect to the Bonds.

7. Interest on the Bonds is exempt from California personal income taxation.

The rights of the owners of the Bonds and the enforceability of the Bonds, the Indenture, the 2004 Emeryville Project Loan Agreement, the 2004 Shellmound Project Loan Agreement and the 2004 Housing Project Loan Agreement may be subject to bankruptcy, insolvency, moratorium and other similar laws affecting creditors' rights heretofore or hereafter enacted and their enforcement may be subject to the exercise of judicial discretion in accordance with general principles of equity.

Respectfully submitted,

Appendix D Page2 APPENDIX E

CONTINUING DISCLOSURE CERTIFICATE

This CONTINUING DISCLOSURE CERTIFICATE (the "Disclosure Certificate") is executed and delivered by the EMERYVILLE REDEVELOPMENT AGENCY (the "Agency") in connection with the issuance of $78,790,000 aggregate principal amount of Emeryville Public Financing Authority Revenue Bonds, 2004 Series A (Emeryville Redevelopment, Shellmound Park Redevelopment and Housing Projects) (the "Bonds"). The Bonds are being issued pursuant to an indenture of trust, dated as of August 1, 2004 (the "Indenture"), by and between the Emeryville Public Financing Authority (the "Authority") and BNY Western Trust Company, as trustee (the "Trustee"). The Agency covenants and agrees as follows:

Section 1. Purpose of the Disclosure Certificate. This Disclosure Certificate is being executed and delivered by the Agency for the benefit of the holders and beneficial owners of the Bonds and in order to assist the Participating Underwriters in complying with S.E.C. Rule 15c2-12(b )(5).

Section 2. Definitions. In addition to the definitions set forth in the Trust Agreement, which apply to any capitalized term used in this Disclosure Certificate unless otherwise defined in this Section 2, the following capitalized terms shall have the following meanings:

"Annual Report" shall mean any Annual Report provided by the Agency pursuant to, and as described in, Sections 3 and 4 of this Disclosure Certificate.

"Dissemination Agent" shall mean the Agency, or any successor Dissemination Agent designated in writing by the Agency and which has filed with the Agency and the Trustee a written acceptance of such designation.

"Listed Events" shall mean any of the events listed in Section 5(a) of this Disclosure Certificate.

"National Repository" shall mean any Nationally Recognized Municipal Securities Information Repository for purposes of the Rule.

"Participating Underwriter" shall mean any of the original underwriters of the Bonds required to comply with the Rule in connection with offering of the Bonds.

"Repository" shall mean each National Repository and each State Repository.

"Rule" shall mean Rule 15c2-12(b )(5) adopted by the Securities and Exchange Commission under the Securities Exchange Act of 1934, as the same may be amended from time to time.

"State Repository" shall mean any public or private repository or entity designated by the State of California as a state repository for the purpose of the Rule and recognized as such by the Securities and Exchange Commission. As of the date of this Disclosure Certificate, there is no State Repository.

Section 3. Provision of Annual Reports.

(a) The Agency shall, or upon written direction shall cause the Dissemination Agent to, not later than nine months after the end of the Agency's fiscal year (March 31), commencing with the report for the 2003-2004 fiscal year, provide to each Repository an Annual Report which is consistent with the requirements of Section 4 of this Disclosure Certificate with a copy to the Trustee. Not later than fifteen (15) Business Days prior to said date, the Agency shall provide the Annual Report to the Dissemination Agent (if other than the Agency). The Annual Report may be submitted as a single document or as separate documents comprising a package, and may include by reference other information as provided in Section 4 of this Disclosure Certificate; provided that the audited financial statements of the Agency may be submitted separately from the balance of the Annual Report, and

Appendix E Page 1 later than the date required above for the filing of the Annual Report if not available by that date. If the Agency's fiscal year changes, it shall give notice of such change to the Municipal Securities Rulemaking Board and each State Repository with a copy to the Trustee. The Agency shall provide a written certification with each Annual Report furnished to the Dissemination Agent and the Trustee to the effect that such Annual Report constitutes the Annual Report required to be furnished by the Agency hereunder. If the Agency's fiscal year changes, it shall give notice of such change in the same manner as for a Listed Event under Section S(c).

(b) If the Agency is unable to provide to the Repositories an Annual Report by the date required in subsection (a), the Agency shall send a notice to the Municipal Securities Rulemaking Board and each State Repository in substantially the form attached as Exhibit A.

(i) determine each year prior to the date for providing the Annual Report the name and address of each National Repository and each State Repository, if any; and

(ii) if the Dissemination Agent is other than the Agency, file a report with the Agency certifying that the Annual Report has been provided pursuant to this Disclosure Certificate, stating the date it was provided and listing all the Repositories to which it was provided.

Section 4. Content of Annual Reports. The Agency's Annual Report shall contain or incorporate by reference the following:

(a) Audited Financial Statements prepared in accordance with generally accepted accounting principles as promulgated to apply to governmental entities from time to time by the Governmental Accounting Standards Board. If the Agency's audited financial statements are not available by the time the Annual Report is required to be filed pursuant to Section 3(a), the Annual Report shall contain unaudited financial statements in a format similar to the financial statements contained in the final Official Statement, and the audited financial statements shall be filed in the same manner as the Annual Report when they become available.

(b) Unless otherwise provided in the audited financial statements filed on or prior to the annual filing deadline for Annual Reports provided for in Section 3 above, financial information and operating data with respect to the Agency for preceding fiscal year, substantially similar to that provided in the corresponding tables and charts in the official statement for the Bonds:

(i) TABLE 2-Emeryville Redevelopment Project-Historical Taxable Values and Tax Increment Revenues; (ii) TABLE 3-Emeryville Redevelopment Project-Historical Total Tax Increment Revenues; (iii) TABLE 4-Emeryville Redevelopment Project-Ten Largest Property Taxpayers; (iii) TABLE 8-Shellmound Park Redevelopment Project-Historical Taxable Values and Tax Increment Revenues; (iv) TABLE 9-Shellmound Park Redevelopment Project-Historical Total Tax Increment Revenues; (vi) TABLE 10-Shellmound Park Redevelopment Project-Ten Largest Property Taxpayers.

Any or all of the items listed above may be included by specific reference to other documents, including official statements of debt issues of the Agency or related public entities, which have been submitted to each of the Repositories or the Securities and Exchange Commission. If the document included by reference is a final official statement, it must be available from the Municipal Securities Rulemaking Board. The Agency shall clearly identify each such other document so included by reference.

(c) In addition to any of the information expressly required to be provided under this Disclosure Certificate, the Agency shall provide such further material information, if any, as may be

Appendix E Page2 necessary to make the specifically required statements, in the light of the circumstances under which they are made, not misleading.

Section 5. Reporting of Significant Events.

(a) Pursuant to the provisions of this Section 5, the Agency shall give, or cause to be given, notice of the occurrence of any of the following events with respect to the Bonds, if material:

(i) Principal and interest payment delinquencies. (ii) Non-payment related defaults. (iii) Unscheduled draws on debt service reserves reflecting financial difficulties. (iv) Unscheduled draws on credit enhancements reflecting financial difficulties. (v) Substitution of credit or liquidity providers, or their failure to perform. (vi) Adverse tax opinions or events affecting the tax-exempt status of the security. (vii) Modifications to rights of security holders. (viii) Contingent or unscheduled bond calls. (ix) Defeasances. (x) Release, substitution, or sale of property securing repayment of the securities. (xi) Rating changes.

(b) Whenever the Agency obtains knowledge of the occurrence of a Listed Event, the Agency shall as soon as possible determine if such event would be material under applicable Federal securities law.

(c) If the Agency determines that knowledge of the occurrence of a Listed Event would be material under applicable Federal securities law, the Agency shall promptly file a notice of such occurrence with the Municipal Securities Rulemaking Board and each State Repository with a copy to the Trustee. Notwithstanding the foregoing, notice of Listed Events described in subsections (a)(viii) and (ix) need not be given under this subsection any earlier than the notice (if any) of the underlying event is given to holders of affected Bonds pursuant to the Indenture.

Section 6. Termination of Reporting Obligation. The Agency's obligations under this Disclosure Certificate shall terminate upon the legal defeasance, prior prepayment or payment in full of all of the Bonds.

Section 7. Dissemination Agent. The Agency may, from time to time, appoint or engage a Dissemination Agent to assist it in carrying out its obligations under this Disclosure Certificate, and may discharge any such Dissemination Agent, with or without appointing a successor Dissemination Agent. The initial Dissemination Agent shall be the Agency. Any Dissemination Agent may resign by providing thirty days' written notice to the Agency and the Trustee.

Section 8. Amendment; Waiver. Notwithstanding any other prov1s1on of this Disclosure Certificate, the Agency may amend this Disclosure Certificate, and any provision of this Disclosure Certificate may be waived, provided that the following conditions are satisfied:

(a) if the amendment or waiver relates to the provisions of Sections 3(a) or 4, it may only be made in connection with a change in circumstances that arises from a change in legal requirements, change in law, or change in the identity, nature, or status of an obligated person with respect to the Bonds, or type of business conducted;

(b) the undertakings herein, as proposed to be amended or waived, would, in the opinion of nationally recognized bond counsel, have complied with the requirements of the Rule at the time of the primary offering of the Bonds, after taking into account any amendments or interpretations of the Rule, as well as any change in circumstances; and

(c) the proposed amendment or waiver either (i) is approved by holders of the Bonds in the manner provided in the Indenture for amendments to the Indenture with the consent of holders, or

Appendix E Page3 (ii) does not, in the opinion of nationally recognized bond counsel, materially impair the interests of the holders or beneficial owners of the Bonds.

If the annual financial information or operating data to be provided in the Annual Report is amended pursuant to the provisions hereof, the first annual financial information filed pursuant hereto containing the amended operating data or financial information shall explain, in narrative form, the reasons for the amendment and the impact of the change in the type of operating data or financial information being provided.

If an amendment is made to the undertaking specifying the accounting principles to be followed in preparing financial statements, the annual financial information for the year in which the change is made shall present a comparison between the financial statements or information prepared on the basis of the new accounting principles and those prepared on the basis of the former accounting principles. The comparison shall include a qualitative discussion of the differences in the accounting principles and the impact of the change in the accounting principles on the presentation of the financial information, in order to provide information to investors to enable them to evaluate the ability of the Agency to meet its obligations. To the extent reasonably feasible, the comparison shall be quantitative. A notice of the change in the accounting principles shall be sent to the Repositories in the same manner as for a Listed Event under Section S(c).

Section 9. Additional Information. Nothing in this Disclosure Certificate shall be deemed to prevent the Agency from disseminating any other information, using the means of dissemination set forth in this Disclosure Certificate or any other means of communication, or including any other information in any Annual Report or notice of occurrence of a Listed Event, in addition to that which is required by this Disclosure Certificate. If the Agency chooses to include any information in any Annual Report or notice of occurrence of a Listed Event in addition to that which is specifically required by this Disclosure Certificate, the Agency shall have no obligation under this Disclosure Certificate to update such information or include it in any future Annual Report or notice of occurrence of a Listed Event.

Section 10. Default. In the event of a failure of the Agency to comply with any provision of this Disclosure Certificate the Trustee, at the written direction of any Participating Underwriter or the holders of at least 25% aggregate principal amount of Outstanding Bonds, shall, but only to the extent moneys or other indemnity, satisfactory to the Trustee, has been furnished to the Trustee to hold it harmless from any loss, costs, liability or expense, including fees and expenses of its attorneys and any additional fees of the Trustee, or any holder or beneficial owner of the Bonds may, take such actions as may be necessary and appropriate, including seeking mandate or specific performance by court order, to cause the Agency to comply with its obligations under this Disclosure Certificate. A default under this Disclosure Certificate shall not be deemed an Event of Default under the Trust Agreement, and the sole remedy under this Disclosure Certificate in the event of any failure of the Agency to comply with this Disclosure Certificate shall be an action to compel performance.

Section 11. Duties, Immunities and Liabilities of Dissemination Agent. The Dissemination Agent and the Trustee shall have only such duties as are specifically set forth in this Disclosure Certificate, and the Agency agrees to indemnify and save the Dissemination Agent and the Trustee, their officers, directors, employees and agents, harmless against any loss, expense and liabilities which they may incur arising out of or in the exercise or performance of its powers and duties hereunder, including the costs and expenses (including attorneys fees) of defending against any claim of liability, but excluding liabilities due to the Dissemination Agent's or the Trustee's respective negligence or willful misconduct. The Dissemination Agent shall be paid compensation by the Agency for its services provided hereunder in accordance with its schedule of fees as amended from time to time and all expenses, legal fees and advances made or incurred by the Dissemination Agent in the performance of its duties hereunder. The Dissemination Agent and the Trustee shall have no duty or obligation to review any information provided to it by the Agency and shall not be deemed to be acting in any fiduciary capacity for the Agency, the Bond holders or any other party. The obligations of the Agency under this Section 11 shall survive resignation or removal of the Dissemination Agent and payment of the Bonds.

Appendix E Page4 Section 12. Beneficiaries. This Disclosure Certificate shall inure solely to the benefit of the Agency, the Trustee, the Dissemination Agent, the Participating Underwriters and holders and beneficial owners from time to time of the Bonds, and shall create no rights in any other person or entity.

Date: [Closing Date]

EMERYVILLE REDEVELOPMENT AGENCY

John A. Flores, Executive Director

Appendix E Page5 EXHIBIT A

NOTICE TO MUNICIPAL SECURITIES RULEMAKING BOARD AND EACH STATE REPOSITORY OF FAILURE TO FILE ANNUAL REPORT

Name of Issuer: Emeryville Public Financing Authority

Name of Issue: $78,790,000 Emeryville Public Financing Authority Revenue Bonds, 2004 Series A (Emeryville Redevelopment, Shellmound Park Redevelopment and Housing Projects)

Date of Issuance: [Closing Date]

NOTICE IS HEREBY GIVEN that the Emeryville Redevelopment Agency (the II Agency") has not provided an Annual Report with respect to the above-named Bonds as required by (a) Section 4.12 of that certain 2004 Emeryville Redevelopment Project Loan Agreement, dated as of August 1, 2004, by and among the Issuer, the Agency and BNY Western Trust Company (the "Trustee"), (b) Section 4.12 of that certain 2004 Shellmound Park Redevelopment Project Loan Agreement, dated as of August 1, 2004, by and among the Issuer, the Agency and the Trustee, and (c) Section 4.12 of that certain 2004 Housing Project Loan Agreement, dated as of August 1, 2004, by and among the Issuer, the Agency and the Trustee. The Agency anticipates that the Annual Report will be filed by

Dated: ______

EMERYVILLE REDEVELOPMENT AGENCY

By ______Title ______cc: Trustee

Appendix E Page6 APPENDIXF

SPECIMEN FINANCIAL GUARANTY INSURANCE POLICY

F-1 (THIS PAGE INTENTIONALLY LEFT BLANK) Amba: Assurance Corporation One State Street Plaza, 15th Floor NwYork, NwYork 10004 Financial Guaranty Insurance Policy Telephone: (212) 668-0340

Obliger: Policy Number:

Obligatiais: Prerrium:

Ambac Assurance Corporation (Ambac), a Wiscaisin sta:k insurance cerporatiai, in caisideratia, cf the pa{,(llfflt of the premium and subject to the terms of this Pol icy, hereby cgrees to pay to The Bank of Ne,v York, as trustee, er its~essor (the "I nsuranceTrustee''), for the benefit of the Holders, that portia, cf the principal of and interest a, the abcwe-descrioo:i""ch!igatiais (the "Obligatiais') which shall becane Due for Payment but shall be unpaid°>' reason cf Naipayment 1::rf«iJ;ie Obligd\. \ ~ .....,,~...... ,,,,,~. "+, Amba: will make such payments to the Insurance Trustee within a,e (1) business day follcwing written !\ti ·"'"·,t of Naipayment. Upan a Halder's presentatia, and surrender to the Insurance Trustee cf such unpaip;G.bl igati ' ·atJ. ... ,s, uncancel a::I and in bearer form and free cf any adverse claim, the Insurance Trustee wi 11 qi,sby.r.sl to the H , . the ~)~f principal and inter~ ~ich is then Due fer Payment but is unpaid. Upon such disburse~nt{~mra: shall ~.the cwner of the surrendera::I Obi 1gat1ais and pr coopa,s and shal I be fully subrogata::I to al I of th deler\.n "t9 payment,tliereon. 1:1;. "% ,r ·, '.1. In cases where the Obligatiais are issua::I in registera::1 form, the Insurance Trustee isbO~se· cipal to a Holtfer aily upon presentatia, and surrender to the Insurance Trustee cf the unpaid Obligatiai, unca\:i ~dr,c ,, ~~~se claim, together with an instrument cf assignment, in form satisfcctory toAmba: and tpe·lt:1suranc ,dulY,•execwt-E:q,J19 the Holder or such Hdder'sduly authori2!::d representative, so as to perrrit cwnership cf ~h • 1. ati sr~!ste~ 1:i;,i,tfie name cf Amba: or its nominee. The Insurance Trustee shall disburse interest to a fj,~<;Jer cJ., i~fv, orlfy upon presentatia, to the Insurance Trustee cf pra:f that the claimant is the person entitla\tc5\he · Cf.l tfile Obligatia, and delivery to the Insurance Trustee of an instrument of assignment, in fer isf~,to A'".. • ,,, e~~ nsurance Trustee, duly executa::I °>' the Holder or such Holder's duly authori2!::d representcy~' ··sferring, t~,Arrbf\JII ri¥,'ts under such Obligatia, to receive the interest in respect of which the insurance di sbur~ was rra::le. A.J:ri~ shalJ ~ subrogata::I to al I of the Hal ders' rights to payment a, regi stera::I Obi igati ais to the extent cl a(iy insurance di sbu~ts 5'6'rra::le. j f, 1i:c. -,,,, In the etent that a trustee er paying ~ for die \pbl igati ais h~ notf~tt1:hat any payment of principal of er interest a, an Obi igati a, which has becane Due fg:;1'~nt an&!. wi';li ch is rra::le)'b;a Halder °>' er a, behalf cf the O bl igar has been deerm::I a preferential transfer and theret · era::! fromt~ f'+Qder 8µ,syirt: to the Unita::I States Bankruptcy Code in a:cordancewith a final, naiappealable erder cf a cor1Wentjurr~jcffof(iiJ.,dl Holder wi II be entitla::I to payment fromAmba: tot he extent of such reccwery if sufficient funds . ~ se avai Ian~···" As usa::I herein, the ,,,.····;;""'•, .. , er'' ~s~ perSQR... other than (i) the Obligor or (ii) any person whose obligatiais caistitute the underlying securi ~paymeht,. (~ th,~0e:JJ;,ffgatiaiswho, at the time of Naipayment, is the cwner of an Obligatia, or of a coo pa, relating 9 .1 ~i m As '~"O,Elf"ei n, "Due for Payment", when referring to the principal of Obi igati ais, is when the sch~la::I matu · .,~,.!if mandatay\r-Etlemptia, date fer the applicatia, of a ra:;iuira::1 sinking fund installment has been reac~.~ dee; not . r.f-6' any earlier date a, which payment is due°>' reason of call fer ra::lemptia, (ct:her than°>' applicatia, of ~ra::I sinking furlq i'~allments), a:celeratia, or ct:her advancement of maturity; and, when referring to interest a, the Ol:ii9etiais, is when the%1i~ula::I date for payment cf interest has been reacha::I. As usa::I herein, "Naipayment" meansthefailure of i~ l)o1i§cr-to""'~e pr<=MciEtl sufficient funds to the trustee or paying cgent for payment in ful I of al I principal cf and interest a, the"O'btfga!Joi;;is \vhich are Due for Payment. j t This Pd icy is n "cahcelable. The premium a, this Policy is not refundable for any reason, including payment cf the Obligatiais prier to ~u This Policy dee; not insure cgainst loss of any prepayment or other a:celeratia, payment which at any time Ille:¥ bee~ e in respect of any Obi igatiai, other than at the sole optia, of Amba:, ner cgai nst any risk other than Naipayment. In witness wherrof, Amba: has causa::I this Policy to be affixed with a facsimile of its corporate seal and to be signa::I °>' its duly autheri2!::d officers in fa:simile to becane effective as its eriginal seal and signatures and binding upon Amba: °>' virtue of the countersignature of its duly authori2!::d representative. fdjl2L President Secretary

Effective Date: Authori 21::d Representative

THE BANK OF NEW YORK a:kncwla::lges that it has cgreed to perform the duties of Insurance Trustee under this Pd icy. Form No.: 28-0012 (1;01) A- Ambac Assurance Corporation One Stare Street Plaza, New York, New York 10004 Telephone: (212) 668-0340

Endorsement

Policy for: Attached to and forming part of Policy No.:

\ \ In the event that Ambac Assurance Corporation were p,'b(;,come under the Policy would be excluded from cover b '; Association, established pursuant to the laws of t

ter, waive or extend any of the terms, conditions, provisions, agreements other than as above stated.

mbac has caused this Endorsement to be affixed with a facsimile of its corporate seal and to ·zed officers in facsimile to become effective as its original seal and signatures and binding 1e countersignature of its duly authorized representative.

President Secretary

Authorized Representative

Form No.: 28-0004 (7197) APPENDIXG

BOOK-ENTRY ONLY SYSTEM

The following description of the Depository Trust Company ("OTC"), the procedures and record keeping with respect to beneficial ownership interests in the 2004 Bonds (the "Bonds"), payment of principal, interest and other payments on the Bonds to OTC Participants or Beneficial Owners, confirmation and transfer of beneficial ownership interest in the Bonds and other related transactions by and between OTC, the OTC Participants and the Beneficial Owners is based solely on information provided by OTC. Accordingly, no representations can be made concerning these matters and neither the OTC Participants nor the Beneficial Owners should rely on the foregoing information with respect to such matters, but should instead confirm the same with OTC or the OTC Participants, as the case may be.

Neither the issuer of the Bonds (the "Issuer") nor the trustee or fiscal agent appointed with respect to the Bonds (the ''Trustee") take any responsibility for the information contained in this Appendix.

No assurances can be given that OTC, OTC Participants or Indirect Participants will distribute to the Beneficial Owners (a) payments of interest, principal or premium, if any, with respect to the Bonds, (b) certificates representing ownership interest in or other confirmation or ownership interest in the Bonds, or (c) redemption or other notices sent to OTC or Cede & Co., its nominee, as the registered owner of the Bonds, or that they will so do on a timely basis, or that OTC, OTC Participants or OTC Indirect Participants will act in the manner described in this Appendix. The current "Rules" applicable to OTC are on file with the Securities and Exchange Commission and the current "Procedures" of OTC to be followed in dealing with OTC Participants are on file with OTC.

DTC and its Participants. The Depository Trust Company ("OTC"), New York, NY, will act as securities depository for the Bonds. The Bonds will be issued as fully-registered securities registered in the name of Cede & Co. (DTC's partnership nominee) or such other name as may be requested by an authorized representative of OTC. One fully-registered security certificate will be issued for each maturity of the Bonds, each in the aggregate principal amount of such maturity, and will be deposited with OTC.

OTC, the world's largest depository, is a limited-purpose trust company organized under the New York Banking Law, a "banking organization" within the meaning of the New York Banking Law, a member of the Federal Reserve System, a "clearing corporation" within the meaning of the New York Uniform Commercial Code, and a "clearing agency" registered pursuant to the provisions of Section 17 A of the Securities Exchange Act of 1934. OTC holds and provides asset servicing for over 2 million issues of U.S. and non-U.S. equity issues, corporate and municipal debt issues, and money market instruments from over 85 countries that DTC's participants ("Direct Participants") deposit with OTC. OTC also facilitates the post-trade settlement among Direct Participants of sales and other securities transactions in deposited securities, through electronic computerized book-entry transfers and pledges between Direct Participants' accounts. This eliminates the need for physical movement of securities certificates. Direct Participants include both U.S. and non-U.S. securities brokers and dealers, banks, trust companies, clearing corporations, and certain other organizations. OTC is a wholly-owned subsidiary of The Depository Trust & Clearing Corporation ("DTCC"). DTCC, in turn, is owned by a number of Direct Participants of OTC and Members of the National Securities Clearing Corporation, Government Securities Clearing Corporation, MBS Clearing Corporation, and Emerging Markets Clearing Corporation, (respectively, "NSCC", "GSCC", "MBSCC", and "EMCC", also subsidiaries of DTCC), as well as by the New York Stock Exchange, Inc., the American

G-1 Stock Exchange LLC, and the National Association of Securities Dealers, Inc. Access to the OTC system is also available to others such as both U.S. and non-U.S. securities brokers and dealers, banks, trust companies, and clearing corporations that clear through or maintain a custodial relationship with a Direct Participant, either directly or indirectly ("Indirect Participants"). OTC has Standard & Poor's highest rating: AAA The OTC Rules applicable to its Participants are on file with the Securities and Exchange Commission. More information about OTC can be found at www.dtcc.com.

Book-Entry Only System. Purchases of the Bonds under the OTC system must be made by or through Direct Participants, which will receive a credit for the Bonds on DTC's records. The ownership interest of each actual purchaser of each Security ("Beneficial Owner") is in turn to be recorded on the Direct and Indirect Participants' records. Beneficial Owners will not receive written confirmation from OTC of their purchase. Beneficial Owners are, however, expected to receive written confirmations providing details of the transaction, as well as periodic statements of their holdings, from the Direct or Indirect Participant through which the Beneficial Owner entered into the transaction. Transfers of ownership interests in the Bonds are to be accomplished by entries made on the books of Direct and Indirect Participants acting on behalf of Beneficial Owners. Beneficial Owners will not receive certificates representing their ownership interests in the Bonds, except in the event that use of the book entry system for the Bonds is discontinued.

To facilitate subsequent transfers, all Bonds deposited by Direct Participants with OTC are registered in the name of DTC's partnership nominee, Cede & Co., or such other name as may be requested by an authorized representative of OTC. The deposit of the Bonds with OTC and their registration in the name of Cede & Co. or such other OTC nominee do not effect any change in beneficial ownership. OTC has no knowledge of the actual Beneficial Owners of the Bonds; DTC's records reflect only the identity of the Direct Participants to whose accounts such Bonds are credited, which may or may not be the Beneficial Owners. The Direct and Indirect Participants will remain responsible for keeping account of their holdings on behalf of their customers.

Conveyance of notices and other communications by OTC to Direct Participants, by Direct Participants to Indirect Participants, and by Direct Participants and Indirect Participants to Beneficial Owners will be governed by arrangements among them, subject to any statutory or regulatory requirements as may be in effect from time to time. Beneficial Owners of the Bonds may wish to take certain steps to augment the transmission to them of notices of significant events with respect to the Bonds, such as redemptions, tenders, defaults, and proposed amendments to the Security documents. For example, Beneficial Owners of the Bonds may wish to ascertain that the nominee holding the Bonds for their benefit has agreed to obtain and transmit notices to Beneficial Owners. In the alternative, Beneficial Owners may wish to provide their names and addresses to the registrar and request that copies of notices be provided directly to them.

Redemption notices shall be sent to OTC. If less than all of the Bonds within an issue are being redeemed, DTC's practice is to determine by lot the amount of the interest of each Direct Participant in such issue to be redeemed.

Neither OTC nor Cede & Co. (nor any other OTC nominee) will consent or vote with respect to the Bonds unless authorized by a Direct Participant in accordance with DTC's Procedures. Under its usual procedures, OTC mails an Omnibus Proxy to the issuer as soon as possible after the record date. The Omnibus Proxy assigns Cede & Co.'s consenting or voting rights to those Direct Participants to whose accounts the Bonds are credited on the record date (identified in a listing attached to the Omnibus Proxy).

G-2 Payments of principal of, premium, if any, and interest evidenced by the Bonds will be made to Cede & Co., or such other nominee as may be requested by an authorized representative of OTC. DTC's practice is to credit Direct Participants' accounts upon DTC's receipt of funds and corresponding detail information from the Issuer or the Trustee, on payable date in accordance with their respective holdings shown on DTC's records. Payments by Participants to Beneficial Owners will be governed by standing instructions and customary practices, as is the case with securities held for the accounts of customers in bearer form or registered in "street name," and will be the responsibility of such Participant and not of OTC (nor its nominee), the Issuer or the Trustee, subject to any statutory or regulatory requirements as may be in effect from time to time. Payment of principal of, premium, if any, and interest evidenced by the Bonds to Cede & Co. ( or such other nominee as may be requested by an authorized representative of OTC) is the responsibility of the Issuer or the Trustee, disbursement of such payments to Direct Participants will be the responsibility of OTC, and disbursement of such payments to the Beneficial Owners will be the responsibility of Direct and Indirect Participants.

OTC may discontinue providing its services as depository with respect to the Bonds at any time by giving reasonable notice to the Issuer or the Trustee. Under such circumstances, in the event that a successor depository is not obtained, Security certificates are required to be printed and delivered.

The Issuer may decide to discontinue use of the system of book-entry transfers through OTC (or a successor securities depository). In that event, Bond certificates will be printed and delivered.

Discontinuance of DTC Services. In the event that (a) OTC determines not to continue to act as securities depository for the Bonds, or (b) the Issuer determines that OTC will no longer so act and delivers a written certificate to the Trustee to that effect, then the Issuer will discontinue the Book-Entry Only System with OTC for the Bonds. If the Issuer determines to replace OTC with another qualified securities depository, the Issuer will prepare or direct the preparation of a new single separate, fully registered Bond for each maturity of the Bonds registered in the name of such successor or substitute securities depository as are not inconsistent with the terms of the indenture or fiscal agent agreement executed in connection with the Bonds. If the Issuer fails to identify another qualified securities depository to replace the incumbent securities depository for the Bonds, then the Bonds will no longer be restricted to being registered in the Bond registration books in the name of the incumbent securities depository or its nominee, but will be registered in whatever name or names the incumbent securities depository or its nominee transferring or exchanging the Bonds designates.

If the Book-Entry Only System is discontinued, the following provisions would also apply: (i) the Bonds will be made available in physical form, (ii) principal of, and redemption premiums, if any, on, the Bonds will be payable upon surrender thereof at the corporate trust office of the Trustee, (iii) interest on the Bonds will be payable by check mailed by first-class mail or, upon the written request of any Owner of $1,000,000 or more in aggregate principal amount of Bonds received by the Trustee on or prior to the 15th day of the calendar month immediately preceding the interest payment date, by wire transfer in immediately available funds to an account with a financial institution within the continental United States of America designated by such Owner, and (iv) the Bonds will be transferable and exchangeable as provided in the indenture or fiscal agent agreement executed in connection with the Bonds.

G-3 (THIS PAGE INTENTIONALLY LEFT BLANK)