Tax Increment Revenues (Including

NEW ISSUE - FULL BOOK-ENTRY RATING: Standard & Poor's: A­ (See "Ratings" herein) In the 9pinion of Jones Hall Hill & White, A Professional Law Corporation, San F'rancisco, California, Bond Counsel, subject however to certain qualiji'cations de�;cribed herein, under existing law,the intereston the Bondsls e.xcludedfrom grossincome for federal income tax purposes and such interestis not an item of tax preference for pwposes of the federal alternative minimumtax ilnposed on uulividuals and corporations, although for the purpose of cornputing the alternative1ninimum tax imposed on certain corporations, such interest is taken into account in deterrnining certain incon1e and earning�'. In the furtheropinion of Bond Counsel, interest on the Bonds is exempt fro,n California personal inconw taxes. See "TAX MATTERS" herein. The Authorityhas de�;ignated the Bonds as "qualified tax e,.xenipt obligations" within the meaning of Section 265(b)(3) of the Internal Revenue Code of 1986.

$6,825,000 FOSTER CITY PUBLIC FINANCING AUTHORITY (San Mateo County, California) 1996 REVENUE BONDS, SERIES A (Foster City Community Development Project Loan)

Dated: November 1, 1996 Due: Septemher l, as shown below The Foster City Public Financing Authority (the "Authority") 1996 Revenue Bonds, Series A (Foster City Community Development Project Loan) (the "Bonds") are bein? issued to (i) provide funds for the Authority to n1ake a loan lo the Community Dcvelopn1ent Agency of the City of Foster City (the "Agency') to enable the Agency to finance certain redevelopment activities within the Foster City Community Development Project Area (the "Project Area") of the Agency, (ii) to fund a reserve fund and (iii) to pay the costs. of issuance of the transaction, as more fully described herein. The Bonds are being is_suedon a parity to the outstanding $22,875,000 Foster City Public Financing Authority, 1993 Revenue Bonds Series A (Foster City Community Development ProJect Loan) (the "1993 Bonds"). The Bonds are issued pursuant to the provision of an Indenture of Trust, dated as of November 1, 1996, (the "Indenture") bY.and between the Authority and Wells Fargo Bank, National Association, San Franciscu, California, as trustee (the "Trustee"). The Bonds will be issued in book-entry form, without coupons, initially registered in the name of Cede. & Co., as nominee of the Depository Trust Company, New York, New York ("DTC"). Purchasers of the Bonds will not receive physical certificates representing their interest in the Bonds purchased, OTC will act as security depositoryfor the Bonds. The principal of and interest on the Bonds, which interest is payable on March 1, 1997 and semi­ annually thereafter on each March 1 and September 1, are payable directly to DTC by the Trustee. Upon receipt of payments of such principal and interest, DTCwill in turn remit such principal and interest to the Participants in DTC ( as described herein) for subsequent disbursement to the Beneficial Owners of the Bonds. The Bonds are issuable in denominations of $5,000, or any integral multiple thereof. See "THE BONDS­ Book Entry Only System" herein. The Bonds are subject to optional and mandatory redemption prior to maturity as described herein. The Bonds are limited obli�ations of the Authority payable from and secured by Revenues (as defined herein), which consist pnmari!y of amounts receivedby the Authonty pursuant to a Loan Agreement datedas of November 1, 1996 (the "Loan Agreement") by and between the Authority and the Agency. Except for Revenues, no funds or properties of the Authority are pledged to pay the principal of, premiu1n (if any) or interest on the Bonds. Payments to be .made by the Agency under the Loan Agreement, and for any Parity Debt (as defined in the Indenture), are secured by a first pledge of and lien on Pledged Tax Revenues (as defined herein). Sec "SECURITY FOR THE BONDS­ Pledged TuxRevenues" herein. Other than the Pledged Tax Revenues, no funds or properties of the Agency shall be pledged to the obligations payable by the Agenc)' under the Loan Agreement. See "BONDOWNERS' RISKS" herein. An event of default under the Loan Agreement, including a default in the payment of an installment due thereunder, could result in an acceleration of amounts owing thereunder and the mandatory redemption of Bonds prior to their stated maturities. If such an acceleration were to occur, there could be insufficient Revenues with which to pay the principal of and interest on the Bonds. To_ the extent the Tr ustee recovers any monies following an event of default under the Loan Agreement, any such monies, and any resulting deficiencies in the payments of principal of and interest on the Bonds subject to mandatory, redemption will be pro-rated among maturities. See "THE BONDS­ Mandatol)' Redemption Upon Acceleration of the Agency Loan ' and "SUMMARY OF PRINCIPAL LEGAL DOCUMENTS-The Loan Agreement-Events of Default and Remedies" in Appendix A hereto. THE BONDS ARE NOT A DEBT OF THE AGENCY, THE CITY, THE STA:rE OF CALIFORNIA OR ANY OF ITS POLITICAL SUBDIVISIONS AND NEITHER THE AGENCY, THE CITY, THE STATE NOR ANY OF ITS POLITICAL SUBDIVISIONS IS LIABLE THEREFOR. THE BONDS DO NOT CONSTITUTE AN INDEBTEDNESS WITHIN THE MEANING OF ANY CONSTITUTIONAL OR STATUTORY DEBT LIMITATION OR RESTRICTION AND ARE PAYABLE SOLELY FROM AND SECURED SOLELY BY A PLEDGE OF THE RJ;,'VENUES PLEDGED THEREFORE UNDER THE INDENTURE, INCLUDING PRIMARILY AMOUNTS PAYABLE BY THE AGENCY TO THE AUTHORITY UNDER THE LOAN AGREEMENT. NEITHER THE MEMBERS OF THE AUTHORITY,THE CITY,THE AGENCY NOR ANY PERSONS EXECUTING THE BONDS ARE LIABLE PERSONALLY ON THE BONDS BY REASON m' THEIR ISSUANCE. This cover page contains certain information for quick reference only. It is not a summary of the security or terms of the Bonds. Potential investors arc advised to read this entire Official Statement to obtain information essential to the making of an infonncd investment decision with respect to the Bonds. MATURl1Y SCHEDULE $3,600,000 Serial Bonds due Septentber l as shown below Maturity Principal Interest Price or Maturity Principal Interest Price or (September 1) Amount Rate Yield (September 1) Amount Rate Yield 1997 $265,000 4.90% 3.75o/o 2003 $270,000 4.90%1 100.00% 1998 180,000 4.90 4.00 2004 285,000 5.00 100.00 1999 200,000 4.90 4.20 2005 295,000 5.10 5.15 2000 235,000 4.90 4.40 2006 315,000 5.25 100.00 2001 245,000 4.90 4.60 2007 330,000 5.30 5.35 2002 260,000 4.90 4.75 2008 350,000 5.40 5.45 2009 370,000 5.50 5.55 $1,225,000 5.60% Term Bonds Due September 1, 2012, Yield 5.65% $2,000,000 5.80% Term Bonds Due September 1, 2016, Yield 5.82% (plus accrued interest) The Bonds are offered, when, as and if issued and accepted bythe Undenvriter,subject to the approval as to legality by Jones Hall Hill & White, A Professional Law Corporation, San Francisco, California,Bond Counsel and subject to cerlain other conditions. Certain legal nwtters will be passed upon for the Underwnter by Nossaman, Guthner, Knox & Elliott, LLP,San Francisco, California. It is anticipatedthat the Bonds will be available for delive,y through DTC in New York, New York, on or about November 26, 1996. Stone & Youngberg LLC Dated: November 13, 1996 (THIS PAGE INTENTIONALLY LEFT BLANK) FOSTER CITY PUBLIC FINANCING AUTHORITY CITY OF FOSTER CITY COMMUNITY DEVELOPMENT AGENCY OF THE CITY OF FOSTER CITY

City Council and Agency Board

Eileen Larsen, Mayor and Chair Russ Harter, Vice Mayor & Vice Chair David R. Kruss, Councilmember & Agency Member Jim Lawrence, Councilmember & Agency Member Marland W. Townsend, Councilmember & Agency Member

City/Agency Officials

James C. Hardy, City Manager/Executive Director of the Agency Richard B. Marks, Community Development Director of the City Diane McGrath, Deputy Executive Director of the Agency Charles F. Loucks, Public Works Director of the City Ricardo Santiago, Director of Finance of the City Therese Tyree, City Clerk of the City

SPECIAL SERVICES

Bond Counsel

Jones Hall Hill & White A Professional Law Corporation San Francisco, California

Fiscal Consultant

Katz Hollis Sacramento, California

Trustee

Wells Fargo Bank, National Association San Francisco, California No dealer, broker, salesperson or other person has been authorized to give any information or to make any representations other than those contained herein and, if given or made, such other information or representation must not be relied upon as having been authorized by the Authority, the Agency or the Underwriter. This Official Statement does not constitute an offer to sell or the solicitation of any offer to buy nor will there be any sale of the Bonds by a person in any jurisdiction in which it is unlawful for such person to make such an offer, solicitation or sale.

This Otlicial Statement is not to be construed as a contract with the purchasers of the Bonds. Statements contained in this Official Statement which involve estimates, forecasts or matters of opinion, whether or not expressly so described herein, are intended solely as such and arc not to be construed as a representation of facts.

The information set forth herein has been obtained from official sources which are believed to be reliable but it is not guaranteed as to accuracy or completeness. The information and expression of opinions herein are subject to change without notice and neither delivery of this Official Statement nor any sale made hereunder will, under any circumstances, create any implication that there has been no change in the affairs of the Authority, the Agency, or the City since the date hereof. All summaries of the Indenture, the Loan Agreement or other documents are made subject to the provisions of such documents respectively and do not purport to be complete statements of any or all of such provisions. Reference is hereby made to such documents on file with the Authority, or the Agency for further information in connection therewith.

The Official Statement is submitted in connection with the sale of the Bonds referred to herein and may not be reproduced or used, in whole or in pari, forany other purpose. TABLE OF CONTENTS

INTRODUCTION ...... I THE FINANCING PLAN ...... 2 THE BONDS ...... 3 SOURCES AND USES OF BOND PROCEEDS ...... IO DEBT SERVICE ...... 11 SECURITY FOR THE BONDS...... 12 BONDOWNERS' RISKS ...... 16 LIMITATIONS ON PLEDGED TAX REVENUES...... 20 HISTORICAL AND ESTIMATED PLEDGED TAX REVENUES...... 33 THE AUTHORITY ...... 36 THE AGENCY...... 36 THE REDEVELOPMENT PROJECT...... 37 BANK QUALIFIED...... 43 TAX MATTERS...... 43 LEGAL OPINION...... 44 RATING ...... 44 UNDERWRITING...... 44 MISCELLANEOUS ...... 45

APPENDIX A-Summary of Principal Legal Documents...... A-1 APPENDIX B -General InformationConcerning the City and Region ...... B-1 APPENDIX C -Agency's Audited Financial Statements (Fiscal Year Ending June 30, 1995) ...... C-1 APPENDIX D -Form of Final Opinion of Bond Counsel...... D-1 APPENDIX E-Report of the Fiscal Consultant...... E-1 APPENDIX F -Form of Continuing Disclosure Certificate...... F-1 LOCATIONMAP r-,-�=7�-._�--��.---��--,-,-���--�,c-���-c:-��-==--.������--�� i I r'" \. /( • . .J '­ I 't.,' _ ..!,. ""'-

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INTRODUCTION

The purpose of this Official Statement is to set forth information in connection with the sale by the Foster City Public Financing Authority (the "Authority") of $6,825,000 aggregate principal amount of its 1996 Revenue Bonds, Series A (Foster City Community Development Project Loan) (the "Bonds").

Certain capitalized terms used herein, but not otherwise defined, shall have the meanings assigned thereto in the Indenture (as hereinafterdefined) and as set forthin Appendix A

The Bonds are being issued under authority granted by Article 4 ( commencing with Section 6584) of Chapter 5, Division 7, Title 1 of the Government Code of the State of California (the "State"), as amended (the "Act") and pursuant to an Indenture of Trust dated as of November 1, 1996 (the "Indenture") between the Authority and Wells Fargo Bank, National Association, San Francisco, California, as trustee (the "Trustee"). The Authority is a joint powers authority duly organized and existing pursuant to the laws of the State and a Joint Exercise of Powers Agreement dated May 1, 1993. See the section herein entitled "The Authority" for additional informationregarding the Authority.

The Bonds are being issued to provide funds for the Authority to make a loan (the "Agency Loan") to the Community Development Agency of the City of Foster City (the "Agency") pursuant to a Loan Agreement dated as of November 1, 1996 (the "Loan Agreement") between the Authority and the Agency. The Agency intends to use a portion of the proceeds of the Agency Loan to finance redevelopment activities within or relating to the Agency's Foster City Community Development Project Area (the "Project Area"). The Agency Loan is being entered into by the Agency simultaneously with the issuance of the Bonds pursuant to the provisions of the Community Redevelopment Law of the State, constituting Part I of Division 24 ( commencing with Section 33000) of the Health and Safety Code of the State (the "Redevelopment Law"). The Bonds are being issued on a parity to the outstanding $22,875,000 Foster City Public Financing Authority, 1993 Revenue Bonds SeriesA (Foster City Community Development Project Loan) (the "1993 Bonds"). The Agency Loan is on a parity to a prior loan made by the Authority to the Agency in connection with the issuance of the 1993 Bonds ( the "Prior Loan"). The Prior Loan was made pursuant to a loan agreement dated June 1, 1993 entered into by the Agency and the Authority (the "Prior Loan Agreement").

The Authority's only sources of payment on the Bonds are Revenues which primarily consist of payments made by the Agency on the Agency Loan and moneys on deposit in the

- I - funds and accounts held under the Indenture, including the Reserve Fund. Amounts owed hy the Agency for the Agency Loan under the Loan Agreement are payable from Pledged Tax Revenues which generally consist of amounts of moneys allocated and paid to the Agency pursuant to the Redevelopment Law from a portion of taxes levied upon property in the Project Area. See "SECURITY FOR THE BONDS -- Pledged Tax Revenues" herein.

An event of default under the Loan Agreement, including a default in the payment of an installment due thereunder, could result in insullicient Revenues with which to pay the principal of, premium (if any) and interest on the Bonds, causing the mandatory redemption of the Bonds not yet matured. To the extent the Trustee recovers any monies following an event of default under the Loan Agreement, such monies and any resulting deficiencies in the payments of principal of and interest on the Bonds subject to mandatory redemption will be prorated among maturities. See "THE BONDS -- Mandatory Redemption Upon Acceleration of the Agency Loan" herein and "SUMMARY OF PRINCIPAL LEGAL DOCUMENTS -- LOAN AGREEMENT - Application of Funds Upon Default" in Appendix A.

This Official Statement contains brief descriptions of the Bonds, the Agency Loan, the Indenture, the Loan Agreement. the Agency, the Project Area and the Authority. Such descriptions do not purport to be comprehensive or definitive. All references in this Official Statement to documents arc qualified in their entirety by references to such documents, and references to the Bonds are qualified in their entirety by reference to the form of the Bonds included in the Indenture. Copies of the Indenture. the Loan Agreement and other documents described in this Official Statement may be obtained from the Authority.

THE FINANCING PLAN

The Agency Loan will be entered into by the Authority and the Agency as security for and as a source of payment for the Bonds. The payment and redemption terms of the Bonds and the Agency Loan are identical.

The Bonds are limited obligations of the Authority entitled to the benefits of the Indenture, and are payable solely from and secured by principal and interest payable by the Agency under the Loan Agreement and moneys on deposit in the funds and accounts held under the Indenture (including investment earnings thereon). The Agency Loan is secured by a pledge of a portion of Pledged Tax Revenues. Pledged Tax Revenues generally consist of amounts allocated and paid to the Agency pursuant to the Redevelopment Law from a portion of the taxes levied on property within the Project Area. The pledge of the Pledged Tax Revenues is exclusive of various amounts paid by the Agency to other political subdivisions pursuant to tax sharing agreements (the "Tax Sharing Agreements") and the Agency's obligation under the Redevelopment Law to make deposits to its Low and Moderate Income Housing Fund. The pledge of Pledged Tax Revenues is on a parity with the lien on such revenues for the 1993 Bonds and Parity Debt of the Agency which may hereafter be issued as permitted by the Loan Agreement. However, pursuant to the current redevelopment plan limitations for the Project Area, the Agency cannot issue any more debt secured by tax increment revenues (including

- 2 - Pledged Tax Revenues) from the Project Area after November 30, 1996. See "SECURITY FOR THE BONDS -- Pledged Tax Revenues" and "Parity Debt" and "LIMITATION ON PLEDGED TAX REVENUES -- Tax Sharing Agreements" herein.

Proceeds of the Bonds will be used to fund the Agency Loan under the Loan Agreement. The Agency will use a portion of the proceeds of the Agency Loan to fund (in whole or in part) a variety of improvements in the Project Area.

A portion of the proceeds of the Agency Loan will also be used to fund the Reserve Fund held under the Indenture andto pay the costs of issuing the Bonds and making the Agency Loan.

THE BONDS

General

The Bonds will bear interest at the rates and mature in the amounts and on the dates set forth on the cover page of this Official Statement. The Bonds in the aggregate initial principal amount of $6,825,000 will be issued as fully registered bonds in the denomination of $5,000 each or any integral multiple thereof. The Trustee will maintain books for registration, exchange and transfer of the Bonds at its corporate trust office in San Francisco, California (the "Trust Office").

Interest on the Bonds is payable on March 1, 1997 and semi-annually thereafter each March 1 and September 1 ( each an "Interest Payment Date"). Except as described herein under the caption "Book-Entry Only System", interest on the Bonds is payable by check mailed by first class mail, postage prepaid, to the Owners whose names appear on the registration books of the Trustee as of the close of business on the fifteenth day of the month immediately preceding each Interest Payment Date ( each, a "Record Date") at the address of such Owners as they appear on the registration books as of the applicable Record Date or, upon written request filed with the Trustee at least 15 days prior to any Record Date by an Owner of Bonds in the aggregate principal amount of $1,000,000 or more by wire transfer in immediately available funds to an accow1t within the United States designated by such Owner in such written request. Principal of and redemption premiwn, if any, on any Bond is payable at maturity or redemption upon presentation and surrender thereofat the Trust Officeof the Trustee in San Francisco, California or such other officeas the Trustee may designate. For a description of the manner of payment of the principal of and interest on the Bonds while they are in book-entry-only form, see "Book­ Entry Only System" herein.

Each Bond will be dated as of November I, 1996, and will bear interest (calculated on the basis of a 360-day year comprised of twelve 30-day months) from the Interest Payment Date next preceding the date of authentication thereof, unless (i) it is authenticated after a Record Date and on or before the following Interest Payment Date, in which event it will bear interest from such Interest Payment Date; or (ii) it is authenticated on or beforeFebruary 15, 1997, in which event it

- 3 - will bear interest from November L 1996: provided. however. that if, as of the date of authentication of any Bond, interest thereon is in default such Bond will bear interest from the Interest Payment Date to which interest has previously been paid or made available for payment thereon. Interest on any Bond which is not punctually paid or duly provided for on any Interest Payment Date shall be payable to the person in whose name the ownership of such Bond is registered on the Registration Books at the close of business on a Special Record Date for the payment of such defaulted interest to be fixed by the Trustee. notice of which shall be given to such Owner not less than ten ( I 0) days prior to the Special Record Date.

Transfer and Exchange of Bomls

Any Bond may, in accordance with its terms. be transferred, upon the registration books. by the person in whose name it is registered. in person or by his duly authorized attorney, upon surrender of such Bond for cancellation. accompanied by delivery of a written instrument of transfer in a form approved by the trustee, duly executed. Whenever any 13ond shall be surrendered for transfer, the Authority shall execute and the Trustee shall thereupon authenticate and deliver to the transfereea new Bond or Bonds of like tenor, maturity and aggregate principal mnount. The Trustee shall not be required to transfer. ( a) any Bonds during the period established by the Trustee for the selection of Bonds for redemption, or (b) any Bonds selected by the Trustee for redemption, except the unredeemed portion of a Bond called fr)r redemption in part. The Trustee may require the payment by the Owner requesting such transfer of any tax or other governmental charge required to be paid with respect to such transfer.

The Bonds may be exchanged at the Trust Office of the Trustee for Bonds of the same tenor and maturity and of other authorized denominations, provided that the Trustee will not be required to register the transfer or exchange of any Bond: (i) during the period established by the Trustee for selection of Bonds for redemption: or (ii) selected by the Trustee for redemption pursuant to the [ndenture. The Trustee may require the payment by the Owner requesting such exchange of any tax or other governmental charge required to be paid with respect to such exchange.

The Authority and the Trustee will, under certain circumstances, replace Bonds which have been mutilated, lost, destroyed or stolen. The Authority may require payment by the Owner of a reasonable fee m1d of the expenses which may be incurred by the Authority or the Trustee for each new Bond issued to replace a Bond for such Owner which has been mutilated, lost, destroyed or stolen.

- 4 - Optional Redemption

Bonds maturing on or before September I, 2006, are not subject to call and redemption prior to their stated maturities. Bonds maturing on or after September I, 2007, are subject to optional redemption prior to their respective maturities as a whole on any date or in part on any Interest Payment Date from prepayments of the Agency Loan made at the option of the Agency pursuant to the Loan Agreement, on the date with respect to which such prepayment shall have been made, on or after September I, 2006, at the following redemption prices (expressed as a percentage of the principal amount so redeemed), plus accrued interest thereon to the date of redemption:

Redemption Oates Redemption Price September l, 2006 through August 31, 2007 102.0% September 1, 2007 through August 31, 2008 101.0 September l, 2008 and thereafter 100.0

The Agency is required to give the Authority and the Trustee written notice of its intention to prepay the Agency Loan and shall transfer to the Trustee all amounts required for such prepayment at least thirty but not more than sixty days prior to the date fixed for redemption of the Bonds.

MandatorySinkin g Fund Redemption

The term Bonds maturing on September I, 2012 and September I, 2016 (collectively, the "Term Bonds") are also subject lo redemption prior to their stated maturity, in part by lot, from sinking fund payments made by the Authority, on each September I commencing September 1, 2010 and September 1, 2013, respectively, at the principal amount thereof and interest accrued thereon to the date fixed for redemption, without premium, according to the following schedule:

2012 Tem1 Bond Redemption Date Principal Amount (September 1) Redeemed 2010 $385,000 2011 410,000 2012 (maturity) 430,000

2016 Term Bond Redemption Date Principal Amount (September 1) Redeemed 2013 $455,000 2014 485,000 2015 515,000 2016 (maturity) 545,000

- 5 - The Agency may purchase Term Bonds in lieu of mandatory sinking fond payments, but no Bonds shall be purchased in lieu of redemption with a trade settlement date less than 75 days prior to the relevant redemption date. Further, if some but not all of such Term Bonds have been optionally redeemed, the total amount of all future sinking fundpayments shall be reduced by the aggregate principal amount of such Term Bonds so redeemed, to be allocated among such sinking fund payments as shall be designated by the Authority to the Trustee in writing (or if the Authority shall fail to so designate, pro rata among such sinking fund payments).

Mandatory Redemption Upon Acceleration of the Ai:ency Loan

The Bonds will also be subject to mandatory redemption in whole or in part on any date, from amounts credited towards the payment of principal of the Agency Loan coming due and payable by reason of acceleration of the Agency Loan pursuant to the Loan Agreement at a redemption price equal to the principal amount of Bonds to be redeemed, without premium, together with accrued interest thereon to the redemption date. Pursuant to the Indenture, the Bonds will be subject to mandatory redemption upon acceleration of the Agency Loan solely from amounts credited towards the payment of principal of the Agency Loan due and payable by reason of acceleration and will not be subject to redemption from any amounts credited towards the payment of matured principal which has become due and payable. For a description of the circumstances which could result in an acceleration of the Agency Loan, see "SUMMARY OF PRINCIPAL LEGAL DOCUMENTS -- LOAN AGREEMENT - "Events of Defaults and Remedies" and "Application of Funds Upon Default" in Appendix A.

Selection of Bonds forRedem ption

Whenever provision is made in the Indenture forthe redemption of Bonds and less than all Outstanding Bonds are called for redemption, the Trustee shall select Bonds forredemption, from Outstanding Bonds not previously called for redemption, in such order of maturity as shall be designated by the Authority to the Trustee in writing (or if the Authority shall fail to so designate, pro rata among all maturities) and by lot within a maturity in any manner which the Trustee shall, in its sole discretion, deem appropriate and fair. The Trustee shall promptly notify the Authority and the Agency in writing of the Bonds so selected for redemption.

Notice of Redemption

The Trustee will mail the notice of redemption of Bonds to be redeemed not less than 30 days nor more than 60 days prior to the redemption date to Owners of all such Bonds as their respective names and addresses appear on the registration books of the Trustee. Notice of the redemption of Bonds will be given by the Trustee on behalf of the Authority. Failure of an Owner to receive any such notice so mailed nor any defect therein will not affect the cessation of interest from and after the redemption date if amounts payable upon such redemption have been paid or duly provided forunder the Indenture. All Bonds redeemed pursuant to the redemption provisions of the Indenture will be canceled.

. 6 Partial Redemption

If only a portion of any Bond is called for redemption, then upon surrender of such Bond the Authority will execute and the Trustee will authenticate and deliver to the Ownerthereof, at the expense of the Authority, a new Bond or Bonds of the same series, term and principal payment date, of authorized denominations in aggregate principal amount equal to the unredeemed portion of the 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 Bonds so called for redemption will have been duly provided, such Bonds so redeemed will cease to be entitled to any benefit under the Indenture other than the right to receive payment of the redemption price therefor, and no interest will accrue thereon from and afterthe redemption date specifiedin such notice.

Book-EntryOnly System

THE INFORMATION IN THIS SECTION CONCERNING DTC AND DTC'S BOOK­ ENTRY ONLY SYSTEM HAS BEEN OBTAINED FROM SOURCES THAT THE AUTHORITY, THE AGENCY, THE TRUSTEE AND THE UNDERWRITER BELIEVE TO BE RELIABLE, BUT THE AUTHORITY, THE AGENCY, THE CITY, THE TRUSTEE AND THE UNDERWRITER TAKE NO RESPONSIBILITY FOR THE ACCURACY HEREOF. THE BENEFICIAL OWNERS SHOULD CONFIRM THE FOLLOWING INFORMATION WITH DTC OR THE DTC PARTICIPANTS (AS HEREINAFTER DEFINED).

DTC 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). One fully-registered certificatewill be issued for the Bonds in the aggregate principal amount of such issue, and will be deposited with DTC.

DTC is a limited-purpose trust company organized under the New York Banking Law, a "banking organizatiqn" 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 I 7 A of the Securities Exchange Act of 1934. DTC holds securities that its participants ("Participants") deposit with DTC. OTC also facilitates the Settlement amount Participants of securities transaction, such as transfer and pledges, in deposited securities through electronic computerized book-entry only changes in Participants' accounts, thereby eliminating the need for physical movement of securities certificates. Direct Participants include securities brokers and dealers, banks, trust companies, clearing corporations, and certain other organizations. DTC is owned by a number of its Direct Participants and by the New York Stock Exchange, Inc., the American Stock Exchange, Inc., and the National Association of Securities Dealers, Inc. Access to the DTC system is also available to others such as securities brokers and dealers, banks and trust companies that clear through or maintain a custodial relationship with a Direct Participant,

- 7 - either directly or indirectly ("Indirect Participants"). The Rules applicable to DTC and its Participants are on filewith the Securities and Exchange Commission.

Purchases of Bonds under the DTC system must be made by or through Direct Participants, which will receive a credit of the Bonds on DTC's records. The ownership interest of each actual purchaser of each Bond ("Beneficial Owner") is in turn to be recorded on the Direct arid Indirect Participants' records. Beneficial Owners will not receive written confirmationfrom OTC of their purchase, but Beneficial Owners are expected to receive written confirmations providing details of the transaction, as well as periodic statements of their holdings, from the Direct and Indirect Participant through which the Beneficial Owner entered into the transaction. Transfers of ownership interests in the Bonds arc to be accomplished by entries made on the books of 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 Only System for the Bonds is discontinued.

To facilitate subsequent transfers, all Bonds deposited by participants with DTC arc registered in the name of DTC's partnership nominee, Cede & Co. The deposit of the Bonds with DTC and their registration in the name of Cede & Co. effect no change in beneficial ownership. DTC 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 Participants will remain responsible forkeeping account of their holdings on behalf of their customers.

Conveyance of notices and other communications by DTC to Direct Participants, by Direct Participants to Indirect Participants to Beneficial Owners will be governed by arrangements among them, subject to any statutory or regulatory, requirements as may be in effect fromtime to time.

Neither DTC nor Cede & Co., will consent or vote with respect to the Bonds. Under its usual procedures, OTC mails an Omnibus Proxy to the Authority 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 arc credited on the record date (identified in a listing attached to the Omnibus Proxy).

Payments of principal of and interest on the Bonds will be made to OTC. DTC's practice is to credit Direct participant's accounts on each payable date in accordance with their respective holdings shown on DTC's records unless OTC has reason to believe that it will not receive payment on such payable date. 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 bearerform or registered in "street name," and will be the responsibility of such Participant and not of DTC the Trustee, or the Authority, subject to any statutory or regulatory requirements as may be in effect from time to time. Payment of principal and interest to OTC is the responsibility of the Authority or the Trustee, disbursement of such payments to Direct Participants shall be the responsibility of OTC, and disbursement of such payments to the BeneficialOwners shall be the responsibility of Direct and Indirect Participants.

- 8 - DTC may discontinue providing its services as securities depository with respect to the Bonds at any time by giving reasonable notice to the Authority or the Trustee. Under such circumstances, in the event that a successor securities depository is not obtained, Bond Certificates arerequired to be printed and delivered.

The Authority may decide to discontinue use of the system of book-entry only transfers through DTC (or a successor securities depository). In that event, Bond certificates will be printed anddelivered.

SO LONG AS CEDE & CO. IS THE REGISTERED OWNER OF THE BONDS, AS NOMINEE OF DTC, REFERENCES HEREIN TO THE HOLDERS OF THE BONDS (OTHER THAN AS SET FORTH UNDER "TAX EXEMPTIONS") SHALL MEAN CEDE & CO. AND SHALL NOT MEAN THE BENEFICIAL OWNERS OF THE BONDS.

THE AUTHORITY, THE AGENCY, THE TRUSTEE AND THE UNDERWRITER SHALL NOT HAVE ANY RESPONSIBILITY OR OBLIGATIONS TO DTC PARTICIPANTS, TO INDIRECT PARTICIPANTS, OR ANY BENEFICIAL OWNER, WITH RESPECT TO (i) THE ACCURACY OF ANY RECORDS MAINTAINED BY DTC, ANY DTC PARTICIPANT OR INDIRECT PARTICIPANT; (ii) THE PAYMENT BY DTC OR ANY DTC PARTICIPANT OR INDIRECT PARTICIPANT OF ANY AMOUNT WITH RESPECT TO THE PRINCIPAL OR INTEREST, DUE ON THE BONDS; (iii) THw DELIVERY OF ANY NOTICE THAT IS PERMITTED OR REQUIRED TO BE GIVEN TO THE HOLDERS OF THE BONDS UNDER THE INDENTURE: (iv) THE SELECTION BY DTC OR ANY DTC PARTICIPANT OR INDIRECT PARTICIPANT OF ANY PERSON TO RECEIVE PAYMENT IN THE EVENT OF A PARTIAL REDEMPTION OF THE BONDS; (v) ANY CONSENT GIVEN OR OTHER ACTION TAKEN BY DTC AS REGISTERED OWNER OF THE BONDS; OR (vi) ANY OTHER MATTER.

THE TRUSTEE, AS LONG AS THE BOOK-ENTRY ONLY SYSTEM IS USED FOR THE BONDS, WILL SEND ANY NOTICE OF REDEMPTION OR OTHER NOTICES ONLY TO DTC. ANY FAILURE OF DTC TO ADVISE ANY DTC PARTICIPANT, OR OF ANY DTC PARTICIPANT TO NOTIFY ANY BENEFICIAL OWNER, OF ANY NOTICE AND ITS CONTENT OR EFFECT WILL NOT AFFECT THE VALIDITY OR SUFFICIENCY OF THE PROCEEDINGS RELATING TO THE REDEMPTION OF THE BONDS CALLED FOR REDEMPTION OR OF ANY OTHER ACTION PREMISED ON SUCH NOTICE.

9- SOURCES AND USES OF BOND PROCEEDS

On the date of issuance and delivery of the Bonds, the proceeds of sale of the Bonds shall be paid to the Trustee and deposited by the Trustee in a special fund to be known as the "Loan Fund". On the Closing Date, and without further requisition, pursuant to the Loan Agreement the Trustee shall disburse to the Agency all amounts from the Loan Fund as provided below and close the Loan Fund.

The proceeds from the Loan Fund will be applied as follows:

I. Deposit in the Interest Account (held by the Trustee) under the Indenture an amount equal to the accrued interest on the Bonds.

2. Deposit in the Reserve Fund (held by the Trustee) under the Indenture an amount equal to the Reserve Requirement for the Bonds, initially equal to Maximum Annual Debt Service thereon, being $576,610.00.

3. Deposit in the Costs of Issuance Fund (held by the Trustee) under the Indenture an amount required to pay the costs of issuing of the Bonds and making the Agency Loan.

4. Deposit in the 1996 Redevelopment Loan Proceeds Account of the Redevelopment Fund held by the Agency. all remaining Bond proceeds to provide moneys forprojects of the Agency.

EstimatcJLSources and Uses of Funds

Sources of Funds:

Par Amount of Bonds $6,825,000.00 Less: Underwriter's Discount ( I 09,200.00) Plus: Original Issue Premium 611.70

Total Sources $6,71 6,411.70

Uses of Funds:

Deposit to Reserve Fund $ 576,6 10.00 Deposit to Costs of Issuance Fund 95,000.00 Deposit to Redevelopment Fund 6,044,801.70

Total Uses $6,716,4 11.70

· 10 · DEBT SERVICE

Table 1 sets forth the debtservice on the Bonds through their final scheduled maturity on September I, 2016 as well as the debt service on the 1993 Bonds.

TABLE I FOSTER CITY PUBLIC FINANCING AUTHORITY Scheduled Debt Service

Bonds Debt Service Year Ending 1993 Bonds September I Debt Service Principal Interest Total Total Debt Service

1997 $2, 162,400.00 $265,000.00 $306,889.58 (I) $571,889.58 $2,734,289.58 1998 2,1 63,925.00 180,000.00 355,282.50 535,282.50 2.699,207.50 1999 2,161,860.00 200,000.00 346,462.50 546,462.50 2,708,322.50 2000 2, 1 66,045.00 235,000.00 336,662.50 571,662.50 2,737,707.50 2001 2,164,825.00 245,000.00 325, 147.50 570,147.50 2,734,972.50 2002 2,163,935.00 260,000.00 313,142.50 573, 142.50 2,73 7,077.50 2003 2,163,985.00 270,000.00 300,402.50 570,402.50 2,734,387.50 2004 2, 1 64,585.00 285,000.00 287, 1 72.50 572,172.50 2,736,757.50 2005 2, 165,330.00 295,000.00 272,922.50 567,922 50 2,733,252.50 2006 2, 160,800.00 315,000.00 257,877.50 572,877.50 2, 733,677.50 2007 2, 164,500.00 330,000.00 241,340.00 571,340.00 2,735,840.00 2008 2, 163, 100.00 350,000.00 223,850.00 573,850.00 2,736,950.00 2009 2, 161,600.00 370,000.00 204,950.00 574,950.00 2,736,550.00 2010 2, 1 64, 700.00 385,000.00 184,600.00 569,600.00 2, 734,300.00 201 1 2,161,800.00 410,000.00 163,040.00 573,040.00 2,734,840.00 2012 2, 162,900.00 430,000.00 140,080.00 570,080.00 2,732,980.00 2013 2,1 62,400.00 455,000.00 116,000.00 571,000.00 2, 733,400.00 2014 485,000.00 89,6!0.00 574,610.00 574,610.00 20 15 515,000.00 61,480.00 576,480.00 576,480.00 20 16 545,000.00 31,610.00 576,610.00 576,610.00 TOTAL $36,778,690.00 $6,825,000.00 $4,558,522.08 $1 1,383,522.08 $48,162,212.08

{I) lncludes accrued interest of $25.574. l 3, representing interest on the Bonds from November l, 1996 to November 26, 1996, the scheduled delivery date thereof

- ! I - SECURITY FOR THE:BONDS

General

The Bonds are limited obligations of the Authority payable solely from Revenues. The Bonds do not constitute a debt, liability or obligation of the Authority or of any other entity which is a member or participant in the Authority or of the State or any of its political subdivisions. The Authority has no taxing power. The Bonds are being issued on a parity to the outstanding $22,875,000 aggregate principal amount of Foster City Public Financing Authority, l 993 Revenue Bonds Series A (Foster City Community Development Project Loan) (the "1993 Bonds").

"Revenues" arc defined in the Indenture to mean (a) all amounts payable by the Agency pursuant to the Loan Agreement. other than administrative fees and expenses and indemnity against claims payable to the Authority and the Trustee; (b) any proceeds of Bonds originally deposited with the Trustee and all moneys deposited and held fromtime to time by the Trustee in the funds and accounts established in the Indenture: and ( c) investment income with respect to any moneys held by the Trustee in the funds and accounts established under the Indenture, exclusive of amounts payable to the federal government as a rebate of excess investment earnings under section 148 ofthe Tax Code.

The Loan Agreement is a special obligation of the Agency payable on a parity with the Prior Loan solely from available Pledged Tax Revenues derived from the Foster City Community Development Project Area (the "Project Area"). The Loan Agreement is not a debt of the City, the State or any of its political subdivisions, and neither the City, the State nor any of its political subdivisions is liable on the Loan Agreement. The Agency has no taxing power. Pursuant to the current redevelopment plan limitations forthe Project Area, the Agency cannot issue any more debt secured by tax increment revenues (including Pledged Tax Revenues) from the Project Area after November 30, l 996.

An event of default under the Loan Agreement or the PriorLoan Agreement may result in insufficient Revenues with which to pay the principal o( premium (if any) and interest on the Bonds. To the extent the Trustee recovers any monies following an event of default under the Loan Agreement, such monies and any resulting deficiencies in the payments of principal of and interest on the Bonds not yet matured will be prorated among maturities. See "THE BONDS -­ Mandatory Redemption Upon Acceleration of the Agency Loan" herein and "SUMMARY OF PRINCIPAL LEGAL DOCUMENTS -- LOAN AGREEMENT -- Application of Funds Upon Default" in Appendix A.

Tax Allocation Financing

The Redevelopment Law provides a means for financing redevelopment projects based upon the allocation of taxes collected within a designated redevelopment project area. The taxable valuation of a project area last equalized prior to adoption of the redevelopment plan, or base roll (hereafter referred to as the "Base Year"), is established and, except for any period

- 12 - during which the taxable valuation drops below the Base Year level, the taxing agencies thereafter receive the taxes produced by the levy of the then current tax rate upon the Base Year. Taxes collected upon any increase in taxable valuation over the Base Year ("tax increment revenues") 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. Redevelopment agencies themselves have no authority to levy property taxes. Pledged Tax Revenues of the Agency (as defined below) consist of a portion of such tax increment revenues.

Tax Increment Revenues

Pursuant to Article 6 of Chapter 6 of the Redevelopment Law, Section 16 of Article XVI of the Constitution of the State and the Redevelopment Plan, taxes levied upon taxable property in the Project Area 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 dates of the Redevelopment Plan, will be divided as follows:

I. To Taxjn� A�encjes: The portion of the taxes which would be produced by the rate upon which the tax is levied each year by or for each of said Taxing Agencies upon the total sum of the assessed value of the taxable property in the Project Area as

shown upon the assessment roll used in connection with the taxation of such property by such Taxing Agency last equalized prior to the establishment of the Project Area will be allocated to, and when collected will be paid into the funds of the respective Taxing Agencies as taxes by or for said Taxing Agencies; and

2. To the A�ency : Except for taxes which are attributable to a tax rate levy by a taxing agency for the purpose of producing revenues to repay bonded indebtedness approved by the voters of the Taxing Agency on or after January I, 1989, which shall be allocated to and when collected shall be paid to the respective taxing agency, the portion of such levied taxes each year in excess of such amount will, subject to certain limitations, be allocated to, and when collected, shall 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 under the Loan Agreement and the Parity Debt, such amounts being referred to as "tax increment revenues". The Prior Loan is considered to be "Parity Debt" pursuant to the Indenture.

The Agency has 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 having the effect of reducing the property tax rate could reduce the amount of tax increment revenues that would otherwise be available to pay the Agency's obligations under the Loan Agreement and thus reduce the amount of Revenues available to pay the principal of, premium ( if any) and interest on the Bonds. Likewise, broadened property tax exemptions could have a similar effect. See "BOND OWNERS' RISKS" and "LIMITATIONS ON PLEDGED TAX REVENUES."

- 13 - Pledged Tax Revenues

The Indenture defines "Pledged Tax Revenues" to mean the tax increment revenues of the Agency fromthe Project Area plus reimbursements and subventions, excluding payments to the Agency with respect to personal property within the Project Area pursuant to Section 16110 et seq. of the California Government Code, but including payments made by the State with respect to any property taxes that would otherwise be due on real or personal property but for an exemption of such property from such taxes, but excluding all tax increment revenue required (i) to be deposited into the Agency's Low and Moderate Income Housing Fund pursuant to Section B334.3 of the Redevelopment Law and (ii) to be paid to certain Taxing Agencies under the Tax Sharing Agreements. See "LIMITATIONS ON PI.EDGED TAX REVENUES -- Tax Sharing , Agreements. .

The Loan Agreement provides that the Pledged Tax Revenues received by the Agency on or after the date of delivery of the Loan Agreement are irrevocably pledged to the punctual payment of the principal of, interest on and premiums, if any, on the Agency Loan and all Parity Debt, and the Pledged Tax Revenues and such other money shall not be used for any other purpose while the Agency Loan or Parity Debt remain outstanding except as provided in the Loan Agreement. The Prior Loan is considered to be "Parity Debt" pursuant to the Indenture. This pledge shall constitute a first and exclusive lien on the Pledged Tax Revenues and such other money for the payment of the Loan, the Prior Loan and any other Parity Debt, all in accordance with the terms thereof.

For historical Pledged Tax Revenues and a projection of Pledged Tax Revenues available lo pay debt service on the Agency Loan and any Parity Debt see "HISTORICAL AND ESTIMATED PLEDGED TAXREVENUES" and "APPENDIX E - Fiscal Consultant's Report."

Reserve Fund

The Trustee shall establish and maintain under the Indenture the Reserve Fund into which shall be deposited $576,610.00 of the proceeds of the Bonds. The Indenture requires the amount on deposit in the Reserve Fund to be at all times equal to at least the Reserve Requirement. Reserve Requirement means, as of any date of calculation by the Agency, an amount equal to the least of (a) ten percent ( I0%) of the net proceeds of the Bonds (b) 125% of the average annual debt service (with respect to the Bonds, 1993 Bonds and any Parity Debt) and (c) maximum annual debt service (with respect \0 the Bonds. 1993 Bonds and any Parity Debt) excluding from mch calculation either (i) annual debt service on any Parity Bonds (if any) then on deposit in any special escrow fund or (ii) ten percent (I0%) of the proceeds of any Parity Debt then on deposit in any special escrow fund.

In the event that the Agency shall fail to deposit with the Trustee the lull amount required to be deposited in connection with the payment or mandatory prepayment of the Agency Loan. 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 under the Loan Agreement and the amount actually deposited by the Agency. In the event that

· 14 - the amount on deposit in the Reserve Fund 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 to restore the balance to the Reserve Requirement, such notice to be given by telephone, telecopy or other form of telecommunication, promptly confirmed in writing. Amounts on deposit in the Reserve Fund shall not be secured or applied in any way to the payment of any obligations other than the obligations of the Agency under the Loan Agreement.

The Reserve Requirement may be satisfied by crediting to the Reserve Fund moneys, a letter of credit, a bond insurance policy any other comparable credit facility or any combination thereof, which in the aggregate make funds available in the Reserve Fund an amount equal to the Reserve Requirement; provided, however, that such letter of credit, bond insurance policy or other comparable credit facility, must be issued by a financial institution whose long term debt or claims paying ability is rated in a rating category at least as high as the rating then in place on the Bonds at the time of delivery of such letter of credit, bond insurance policy or other comparable credit facility. Upon the deposit with the Trustee of such letter of credit, bond insurance policy or other comparable credit facility, the Trustee shall release moneys then on hand in the Reserve Fund to the Agency in an amount equal to the face amount of the letter of credit, bond insurance policy or other comparablecredit facility.

Parity Debt

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

(a) No Event of Default under the Loan Agreement 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 Pledged Tax Revenues estimated to be received for the then current Fiscal Year based on the most recent assessed valuation of property in the Project Area ( excluding taxes attributable to a tax rate levied by a taxing agency for the purpose of producing revenues in an amountsufficient to make annual repayments of the principal of, and the interest on, any bonded indebtedness of such taxing agency), as evidenced in writing from the County Assessor or other appropriate official of the County shall be at least equal to one hundred thirty-five-percent (135%) ofMaximun1 Annual Debt Service, including maximum armual debt service on the proposed Parity Debt;

(c) The resolution, indenture of trust, trust agreement or other instrument authorizing the issuance or incurrence of the Parity Debt (the "Parity Debt Instrument") shall provide that interest on such Parity Debt Instrument shall be payable semiannually on March 1 and September I in each full calendar year during the term of such Parity

- 15 - Debt and the principal of such Parity Debt shall be payable on September I in each year principal is paid; ( d) The Agency shall deliver to the Authority and the Trustee a Certificate of the Agency certifying that the aggregate amount of principal of and interest on the Agency Loan, all Parity Debt, all Subordinate Debt and all other indebtedness following the issuance or incurrcnce of such Parity Debt will not exceed the maximum amount of Pledged Tax Revenues permitted under the Plan Limits to be allocated and paid to the Agency followingthe issuance or incurrencc of such Parity Debt;

( e) rhe Agency shall fund a reserve fund forsuch Parity Debt in an amount equal to the Reserve Requirement; and

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

Continuing Disclosure

The Agency will undertake all responsibilities for continuing disclosure to Owners of the l3onds as set forth in the form of Continuing Disclosure Certificate attached as Appendix F hereto.

The Agency will covenant for the benefit or the holders and beneficial owners of the Bonds to provide certain financial information and operating data relating to the Agency by no later than March I in each year commencing March I, 1997 (the "Annual Report"), and to provide notices of the occurrence of certain enumerated events, if material. The Annual Report will be filed with each Nationally Recognized Municipal Securities Information Repository and with any then existing State Depository (collectively, the "Repositories"). Currently, there is no State Depository. The notices of material events will be filed with the Municipal Securities Rulemaking Board (and with the appropriate State Depository, if any). The specific nature of the information to be contained in the Annual Report or the notices of material events is set forth in "APPENDIX F - Form of Continuing Disclosure Certificate"attached hereto. These covenants will be made in order to assist the Underwriter in complying with Securities and Exchange Commission Rule 15c2-12(b)(5).

BONDOWNERS' RISKS

Tax increment revenues allocated to the Agency, other than amounts from State-assessed unitary property, are determined in part by the amount of incremental assessed value of property in the Project Arca and the current rate or rates at which property in the Project Area is taxed. At least four types of events which arc beyond the control of the Agency could occur and cause a reduction in tax increment revenues and, therefore, available Pledged Tax Revenues. First, a reduction of taxable values of property in the Project Area caused by economic factorssuch as a relocation out of the Project Area by one or more major property owners, successful appeals by

.. 16 - property owners for a reduction in a property's assessed value or the destruction of property caused by natural or other disasters could occur, thereby, causing a reduction in the Pledged Tax Revenues that secure the Agency Loan. See Appendix E - "REPORT OF FISCAL CONSULTANT - Project Area Taxable Value, Revenue and Pledged Tax Revenues .• Assessment Appeals". Second, in addition to the existing limitations on Pledged Tax Revenues described herein under "LIMITATIONS ON PLEDGED TAX REVENUES," the California electorate or Legislature could adopt limitations with the effect of reducing Pledged Tax Revenues payable to the Agency. Third, the Agency has made certain assumptions with regard to the tax rates which will be applicable in the Project Area. Although theAgency believes these assumptions to be reasonable, a reduction in Project Area tax rates to levels lower than those assun1ed herein could reduce Pledged Tax Revenues if property values do not increase. See "HISTORICAL AND ESTIMATED PLEDGED TAX REVENUES." Finally, the delinquencies in the payment of property taxes by the owners of land in the Project Area could have an adverse effect on the Agency's ability to make timely debt service payments. Any reduction in Pledged Tax Revenues, whether for any of the foregoing reasons or any other reason, could have an adverse effect on the Agency's ability to pay the principal of, interest on, andpremium, if any, on the Agency Loan and any Parity Debt.

Estimated Tax Revenues

In order to estimate the total revenues available to pay debt service on the Bonds, th<.; Agency has made certain assumptions with regard to the assessed valuation of the Project Area, future tax rates andpercentage of taxes collected. The Agency believes these assumptions to be reasonable, but to the extent the assessed valuation, the tax rates, or the percentage of taxes collected are less than the Agency's assumptions, the total revenues available to pay debt service on the Agency Loan and Parity Debt may be less than those projected.

Reduction in Assessed Valuation

Tax increment revenue allocated to the Agency is determined in part by the amount of incremental assessed value in the Project Area and the current rate at which property in the Project Area is taxed. A reduction in assessed values of taxable property in the Project Area caused by economic factors beyond the Agency's control, or the complete or partial destruction of such property caused by natural disasters (such as earthquakes) or other events, could result in a reduction in assessed values and consequently reduce the Pledged Tax Revenues. Such a reduction of Pledged Tax Revenues could have an adverse effect on the Agency's ability to make timely payments of principal of and interest on the Loan and Parity Debt, which are secured by such Pledged Tax Revenues. See "THE REDEVELOPMENT PROJECT " for a description of the major property taxpayers within the Project Area.

Reduction in InflationaryRate

As described in greater detail below, Article XIIIA of the Californiaconstitution 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 two percent increase for any

- 17 - given calendar year, or may be reduced to reflect a reduction in the consumer price index or comparable local data. The Agency has projected Pledged Tax Revenues to be received by it based, among other things, upon such two percent inflationary increases. Should the assessed value of real property not increase at the allowed annual rate of two percent, the Agency's receipt of future Pledged Tax Revenues may be adversely affected and, consequently, the ability to pay debt service on the Loan and Parity Debt. See "LIMITATIONS ON PLEDGED TAX REVENUES" herein.

Levy and Collection

The Agency does not have any independent power to levy and collect property taxes. Any reduction in the tax rate or the implementation of any constitutional or legislative property tax decrease could reduce the Pledged Tax Revenues and, accordingly, could have an adverse impact on the ability of the Agency to pay debt service on the Loan and Parity Debt. Likewise, delinquencies in the payment of property taxes could have an adverse effect on the Agency's ability to make timely debt service payments on the Loan and Parity Debt.

Risk of Earthquake

There are no known major faultsin the City limits, however, there are several faults in the greater San Francisco bay area that potentially could result in damage to buildings, roads, bridges, and property within the City in the event of an earthquake. Past experiences, including the 1989 Loma Prieta earthquake, have resulted in minimal damage to the infrastructure and property in the City. Faults that could affect the City are the San Andreas Fault west of the City and the Hayward and Calaveras Faults east of the City.

If an earthquake were to substantially damage or destroy taxable property within the Project Area, the assessed valuation of such property could be reduced. Such a reduction of assessed valuations could result in a reduction of the Pledged Tax Revenues that secure the Loan and Parity Debt, which could impair the ability of the Agency to make payments of principal and/or interest on the Loan and Parity Debt when due.

Appeals to Assessed Values

There are two basic types of assessment appeals provided for under California law. The first type of appeal, commonly reforred to as a base year assessment appeal, involves a dispute on the valuation assigned by the assessor immediately subsequent to an instance of a change in ownership or completion of new construction. If the base year value assigned by the assessor is reduced, the valuation of the property cannot increase in subsequent years more than 2 percent annually unless and until another change in ownership and/or additional new construction activity occurs. The second type of appeal, commonly referred to as a Proposition 8 appeal, can result if factors occurcausing a decline in the market value of the property to a level below the property's then current taxable value (escalated base year value). Pursuant to California law, a property owner may apply fora Proposition 8 reduction of the property tax assessment for such

· 18 - owner's property by filing a written application, in form prescribed by the State Board of Equalization, withthe appropriate county board of equalization or assessment appeals board.

In San Mateo County, a property owner desiring a Proposition 8 reduction of the assessed value of such owner's property in any one year must submit an application to the San Mateo County Assessment Appeals Board (the "Appeals Board"). Applications for any tax year must be submitted by September 15 of such tax year. Following a review of the application by the County Assessor's Office (the "Assessor"), the Assessor may offer to the property owner the opportunity to stipulate to a reduced assessment, or may confirm the assessment. If no stipulation is agreed to, and the applicant elects to pursue the appeal, the matter is brought before the Appeals Board ( or, in some cases, a hearing examiner) for a hearing and decision. The Appeals Board generally is required to determine the outcome of appeals within two years of each appeal's filingdate. Any reduction in the assessment ultimately granted applies only to the year for which application is made and during which the written application is filed. The assessed value increases to its pre-reduction level (escalated to the inflation rate of no more than two percent) following the year for which the reduction application is filed. However, the Assessor has the power to grant a reduction not only for the year for which application was originally made, but also for the then current year and any intervening years as well. In practice, such a reduced assessment may and oftendoes remain in effect beyond the year in which it is granted.

Significant appeals to assessed values in the Project Area may be filed from time to time in the future. The Agency cannot predict the extent of these appeals or their likelihood of success.

For more information concerning appeals to assessed values in the Project Area, see 'THE REDEVELOPMENT PROJECT - Assessment Appeals" and "APPENDIX E - REPORT OF FISCAL CONSULTANT - Project Area Taxable Value, Revenue andPledged Tax Revenue - Assessment Appeals".

Bankruptcy

The bankruptcy of a major assessee in the Project Area could delay and/or impair the collection of property taxes by the County with respect to properties in the bankruptcy estate. Although the Agency is not aware of any major property owners in the Project Area that are in bankruptcy or threatening to declare bankruptcy, the Agency cannot predict the effects on the collections of Pledged Tax Revenues if such event were to occur.

Investment Risk

The Reserve Account and all funds held under the Indenture are required to be invested in Permitted Investments as provided under the Indenture. See Appendix A attached hereto for a summary of the definition ofPermitted Investments. The Special Fund, into which all Pledged Tax Revenues are initially deposited, may be invested by the Agency in any investment authorizedby law. All investments, including the Permitted Investments and those authorized by

- 19 - law from time to time for investments by municipalities, contain a certain degree of risk. Such risks include, but are not limited to, a lower rate of return than expected and loss or delayed receipt of principal. The occurrence of these events with respect to amounts held under the Indenture or the Special Fund could have a material adverse affect on the security for the Bonds and Parity Debt.

Further, the Agency cannot predict the effects on the receipt of Pledged Tax Revenue if the Cow1ty or the City were to suffer significant losses in their portfolio of investments or if the County or the City were to become insolvent or declare bankruptcy.

Concentration of Ownership

The taxable value of the top ten taxpayers in the Project Area represent a significant percentage of the total taxable value in the Project Area. Because of this concentration of ownership, a deficiency in the payment of property taxes by some of the top ten taxpayers may have an impact on the receipt of Pledged Tax Revenues by the Agency. However, the Agency is part of a Teeter Plan arrangement with the County pursuant to which the County, subject to certain conditions, distributes the full amount of the Pledged Tax Revenues to the Agency regardless of tax delinquencies. Sec "THE REDEVELOPMENT PROJECT -Teeter Plan" herein.

LIMITATIONS ON PLEDGED TAX REVENUES

Reduction of Tax Revenues

Tax increment revenue allocated to the Agency is determined in part by the amount of incremental assessed value in the redevelopment project area and the current rate at which property in such redevelopment project area is taxed. A reduction in assessed values of taxable property in the redevelopment project area caused by economic factors beyond the Agency's control, or the complete or partial destruction of such property caused by natural disasters (such as earthquakes) or other events, could result in a reduction in assessed values. Such events could reduce the tax increment revenues and thereby Pledged Tax Revenues used by the Agency as a source of payment of the Agency Loan, and subsequently of the Bonds. While the Agency is authorized to receive the Pledged Tax Revenues pledged to payment of the Agency Loan, it does not have the power to levy and collect property taxes directly. Accordingly, any reduction in tax rates, whether as a result of new statutes, constitutional amendment, changes in methods by which assessed valuation is established, the provisions of additional sources of revenues to taxing agencies which would reduce the need for lax increment revenues, or any increases in exemptions for the type of property to be located in the Project Area which are not offset by funds fromofher sources, would have the effect of reducing the Agency's Pledged Tax Revenues pledged forpayment of the of the Agency Loan, and subsequently the Bonds.

· 20 - Assessment Appeals

Property taxable values may be reduced as a result of a successful appeal of the taxable value determined by the County Assessor. An appeal may result in a reduction to the Assessor's original taxable value and a tax refund to the applicant property owner. A reduction in taxable values within the Project Area and the refund of taxes which may arise out of successful appeals by property owners will affect the amount of tax increment revenue and hence Pledged Tax Revenues available for payment ofthe Agency Loan. A number of properties in the Project Area have successfully appealed their assessed value and there are other assessment appeals pending. An analysis of the impact of such appeals on Pledged Tax Revenues is set forth in Appendix E herein. See "THE REDEVELOPMENT PROJECT - Assessment Appeals" and "APPENDIX E - FISCAL CONSULTANT'S REPORT - Project Area Taxable Value, Revenue and Pledged Tax Revenue - Assessment Appeals".

Bankruptcyand Foreclosure

On July 30, 1992, the United States Court of Appeals for the Ninth Circuit issued its opinion in a bankruptcy case entitled In re Glasply Marine Industries. In that case, the court held that ad valorem property taxes levied by Snohomish County in the State of Washington after the date that the property owner filed a petition for bankruptcy were not entitled to priority over a secured creditor with a prior lien on the property. Although the court upheld the priority o, unpaid taxes imposed before the bankruptcy petition, unpaid taxes imposed after thefiling of the bankruptcy petition were declared to be "administrative expenses" of the bankruptcy estate, payable after all secured creditors. As a result, the secured creditor was able to foreclose on the property andretain all the proceeds of the sale except the amount of the pre-petition taxes.

According to the court's ruling, as administrative expenses, post-petition taxes would have to be paid, assuming that the debtor had sufficientassets to do so. In certain circumstances, payment of such administrative expenses may be allowed to be deferred. Once the property is transferred out of the bankruptcy estate (through foreclosure or otherwise) it would at that time become subject to current ad valorem taxes.

On October 22, 1994, the Glasply decision was overturned. Accordingly, it does not apply to bankruptcy petitions filed on or after that date and such a bankruptcy petition filing would not prevent thelien for ad valorem property taxes to attach and such lien will be treated as secured, however, any foreclosure or other collection action will be stayed during the pendency of the bankruptcy in accordance with bankruptcy laws. To the extent Glasply is applied to property owners within the Agency's redevelopment project areas who filed for bankruptcy prior to October 22, 1994 and whose property taxes are a source of tax increment forthe Agency, the amount of tax increment may be reduced.

- 21 - Property Tax CollectionProcedures

Classificali.Qru,

In California, property which is subject to ad valorem taxes is classified as "secured" or "unsecured". The secured classification includes property on which any property tax levied by a county becomes a lien on that property sutlicient, 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 arising pursuant to Stale law 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 the taxed unsecured property, but may become a lien on certain other property owned by the taxpayer.

Collections

Secured and unsecured property are entered separately on the assessment roll maintained by the county assessor. The method of collecting delinquent taxes is substantially different for the two classifications of property. The exclusive means of enforcing the payment of delinquent taxes with respect to property on the secured roll is the sale of the property securing the taxes to the State for the amount of taxes that is delinquent. The taxing authority has four ways of collecting unsecured personal property taxes in the absence of timely payments by the taxpayer: (i) a civil action against the taxpayer; (ii) filing a certificate in the office of the county clerk specifying certain factsin order to obtain a judgment lien on certain property of the taxpayer; (iii) 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 (iv) seizure and sale of personal property, improvements or possessory interests belonging or taxable to the assessce. l'enalties

A ten percent penally 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 sold to the State 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 I 'Iipercent per month to the time of redemption. If taxes arc unpaid fora period of five years or more, the property is deeded to the State and then is subject lo sale by the county tax collector. A IO percent penalty also applies to delinquent taxes on property on the unsecured roll, and further, an additional penalty of I Y, percent per month accrues with respect to such taxes beginning the first day of the third month following the delinquency dale.

Delinquencies

The valuation of property is determined as of January I each year and equal installments of taxes levied upon secured property become delinquent on the following December IO and April IO of the subsequent year. Taxes on unsecured property are due March I and become delinquent August 31 and such laxes arc levied at the prior year's secured tax rate.

- 22 - Supplemental Assessments

Legislation enacted in 1983, (Chapter 498, Statutes of 1983), provides for the supplemental assessment and taxation of property as of the occurrence of a change of ownership or completion of new construction. Previously, California law enabled the assessment of such changes only as of the next March 1 tax lien date following the change and thus delayed the realization of increased property taxes from the new assessments for up to 14 months.

Chapter 498 provided increased revenue to redevelopment agencies to the extent that supplemental assessments of new construction or changes of ownership occur within the boundaries of redevelopment projects subsequent to the March I lien date. To the extent such State supplemental assessments occur within the Project Area, Agency's Pledged Tax Revenues may increase.

Tax Co!lection Fees

In 1990, the State Legislature enacted Senate Bill 2557 (Chapter 466, Statutes of 1990) ("SB 2557") which allows counties to charge for the cost of assessing, collecting and allocating property tax revenues to local government jurisdictions on a prorated basis. Two recent decisions have interpreted the provisions of SB 2557 and have upheld the inclusion of redevelopment agencies as a local government agency which must share the cost of property tax administration. The 1992 enactment of Senate Bill 1559 (Chapter 697) and the decision of the California Court of Appeal in Arcadia Redevelopment Agency v. Ikemoto have clarified that redevelopment agencies, such as the Agency, are to share in the cost of property tax administration charged by most California counties, including the County. For fiscal year 1996/97, the Agency's share of property tax administrative costs is estimated to be $ I 04,000 with respect to the Project Area.

During fiscal years 1994/95 and 1995/96 the County of San Mateo withheld $73,963 and $96, 725 respectively for such administrative costs.

UnitaryPrope rtr

Assembly Bill 454 Statutes of 1987, Chapter 921 ("AB 454"), provided that revenues derived from Unitary Property (consisting mostly of operations property owned by utility companies), commencing with the 1988/89 fiscal year, will be allocated as follows: (I) for revenues generated from the one percent tax rate, (a) each jurisdiction, including redevelopment project areas, will receive a percentage up to 102 percent of its prior year State-assessed unitary revenue; and (b) if county-wide revenues generated from Unitary Property are greater than I 02 percent of the previous year's revenues, each jurisdiction will receive a percentage share of the excess unitary revenues by a specified formula and (2) for revenue generated from the application of the debt service tax rate to county-wide unitary taxable value, each jurisdiction's annual debt service requirements and the percentage of property taxes received by each

- 23 - jurisdiction from unitary property taxes. This provision applies to all Unitary Property except railroads whose valuation will continue to be allocated to individual tax rate areas.

The provisions of AB 454 do not constitute an elimination of assessment of any Stale­ assessed properties nor a revision of the method of assessing utilities by the State Board of Equalization. Generally, AB 454 allows valuation growth or decline of Unitary Property to be shared by all jurisdictions within a county.

On February I, 1991, the Superior Court for the County of Sacramento issued a Statement of Decision in AT&T Communications of California, el al. v State Board of !equalization which reduced the valuation of certain unitary property owned by AT&T for property tax purposes. Under the decision, the valuation method used by the California State Board of Equalization to assess unitary public utility property was declared illegal and a new method of valuation, resulting in significantly lower values and therefore significantly lower potential property tax revenues, was imposed. The effect on AT&T's statewide assessed value was to reduce it from approximately $1,750,000,000 to approximately $1,100,000,000. As a result of this case, on May I, 1992, 57 of California's 58 counties, the State Board of Equalization and a number of other utility companies whose unitary property valuations could be affected by the principles announced in the Superior Court decision entered into a settlement agreement. On July 14, 1993, the Superior Court for the County of Sacramento entered a judgment validating the Settlement Agreement.

Although the Settlement Agreement is complex and extensive, its substance is represented by the signatory public utilities' agreement (except AT&T) to abandon their right to refunds since 1983 in return for lowered assessed valuations for the next eight fiscal years pursuant to an agreed formula.

The Fiscal Consultant's calculation of the amount of tax revenues from such State­ assessed property due to the Agency forfiscal year 1995/96 was $46,000.

Property Tax Rate Limitations - Article XIIIA

California voters, on July 6, 1978, approved an amendment ( commonly known as both Proposition 13 and the Jarvis-Gann Initiative) to the California Constitution which imposes certain limitations on taxes that may be levied against real property. This amendment, which added Article XIIIA to the California Constitution, among other things, definesfull 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 period." This full cash value may be adjusted annually to reflect inflation at a rate not to exceed two percent per year, or any reduction in the event of declining property value caused by damage, common destruction or other factors. The amendment further limits the amount of any ad valorem tax on real property to one percent 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 I, 1978 and on

- 24 - any bonded indebtedness for the acquisition or improvement of real property which is approved after July I, 1978 by two-thirds of the voters voting on such indebtedness.

In the general election held November 4, 1986, voters of the State of Californiaapproved two measures, Propositions 58 and 60, which further amend Article XIIIA. 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 and allows persons age 55 or older to transfer the lower assessed value of their current residence to another newly purchased residence of equal or lesser value. For the exemption to apply, the new residence must be located in the same county and be purchased within two years after the sale of the previous residence. Proposition 60, as such, has no direct state or local fiscal effect unless the county board of supervisors passes an ordinance implementing it. The County of San Mateo has adopted such an ordinance.

The passage of Proposition 58 and Proposition 60 may result in diminution of future increase in property taxes for the Agency. Although the extent of the decrease in revenues in future years is not known, the Agency does not anticipate that such decreased tax increment revenues will have an impact on the Agency's ability to repay the Agency Loan and consequently the Bonds, and the interest payable thereon.

Implementing Legislation Legislation enacted by the CaliforniaLegi slature to implement Article XIIIA (Statutes of 1978, Chapter 292, as amended) provides that, notwithstanding any other law, local agencies may not levy anyproperty 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.

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 hereinabove under the caption "Unitary Property".

Appropriations Limitation -ArticleXIIIB On November 6, 1979, California voters approved Proposition 4, known as the 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 its political subdivisions 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. The "base year" for establishing sueh appropriations limit is the 1978/79 fiscal year and the limit is to be adjusted annually to

- 25 - reflect changes in population, consumer prices and certain mcreases m the cost of services provided by these public agencies.

Appropriations subject to Article XIIlB include generally the proceeds of taxes levied by the State or other entity of local government, exclusive of certain State subventions, refunds of taxes and benefit payments fromretirement, unemployment insurance and disability insurance funds. Proceeds of taxes include, but are not limited to, all tax revenues and the proceeds to an entity of government from (i) regulatory licenses, user charges and user foes (but only to the extent such proceeds exceed the cost of providing the service or regulation), and (ii) the investment of tax revenues.

Article XIIIB includes a requirement that if an entity's revenues in any year exceed the amounts pern1itted to be spent, the excess would have to be returned by revising tax rates or fee schedules over the subsequent two years. While the tax rate is assumed to decline to one percent of taxable value and remain constant in subsequent years, current law permits taxing entities deriving revenues fromthe one percent rate to reduce their levies under certain circumstances. It is the apparent intent of the law to insulate the other taxing entities and redevelopment agencies from the effectsof such reductions on their property tax revenues.

Effective September 30, 1980, the California Legislature added Section 33678 to the Redevelopment Law which provides 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 an agency or proceeds of taxes levied by or on behalf of an agency within the meaning of Article XIl!B, nor will such portion of taxes be deemed receipt of proceeds 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. The constitutionality of Section 33678 has been upheld in two California appellate courtdecisions: Bell Community Redevelopment Agency v. Woolsey 169 Cal. App. 3d 24 (2nd District, 1985) and Brown v. Community Redevelopment Agency of the City of Santa Ana 168 Cal. App. 3d 1014 (4th District, 1985). In the Brown decision, a petition forthe hearing was filedby the plaintiffand subsequently denied by the California Supreme Court. On the basis of these decisions, the Agency does not believe it is subject to the provisions of Article XlIIB, and, as such, has not adopted an appropriations limit.

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 percent of all tax increment revenues allocated and paid to redevelopment agencies fromredevelopment project areas adopted after December 31, 1976 in u low and moderate income housing fund to be expended for authorized low and moderate income housing purposes (the "Housing Set-Aside"). 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.

- '.26 - The Project Area is subject to the 20 percent set-aside requirement for low and moderate income housing. Moneys which must be deposited by law into the Agency's Low and Moderate Income Housing Fund are not included in the definition of Pledged Tax Revenues and have not been pledged to the Agency's payment obligations under the Loan Agreement and therefore are not available for payment of the principal of or interest on the Bonds. See "HISTORICAL AND ESTIMATED TAX REVENUES" herein.

Redevelopment Plan Limitations on Tax Reyennes Sections 33333.2 and 33333.4 of the Redevelopment Law requires each redevelopment agency to either include in each redevelopment plan or to adopt by ordinance a limitation on the number of dollars of taxes which may be divided and allocated to the redevelopment agency with respect to the related redevelopment project area. Pursuant to Section 33333.2, taxes may not be allocated to a redevelopment agency beyond this limitation except by amendment of the redevelopment plan. The Redevelopment Plan forthe Project Area contains such a tax increment limitation. The amount of taxes attributable to real property (land and improvements including personal property) located within the Project Area which may be divided and allocated to the Agency pursuant to the Redevelopment Law is limited as follows:

Plan Life: November, 2016

Cumulative Tax Increment Revenues to be received over the life of the Redevelopment Plan: $170 million

Bonded Indebtedness Cap: $55 million

No Bonded Indebtedness shall be issued afterNovember 30, 1996.

The Redevelopment Plan provides that no more then $170,000,000 of tax increment revenues generated within the Project Area may be divided and allocated to the Agency. The Redevelopment Plan further provides that the amount of tax increment bonds or other indebtedness payable from tax increment revenues which may be outstanding at any one time cannot exceed $55,000,000, and requires that all such bonds or other indebtedness payable from tax increment revenues be issued or incurred by November 30, 1996, which is the fifteenth anniversary of the adoption of the Redevelopment Plan.

The Agency has concluded, based upon advice of its counsel, that the $170,000,000 limitation on tax increment revenues does not include amounts paid to certain taxing agencies or amounts which certain taxing entities have waived pursuant to the Redevelopment Law. See "Tax Sharing Agreements" below. Pursuant to the validation procedure provided by Section 860 et seq of the California Code of Civil Procedure, the Authority and the Agency notified such taxing entities of an intent to issue the Bonds and make the Agency Loan, and of its conclusion with respect to the calculation of the $170,000,000 limit on tax increment revenues. None of the taxing entities responded within the 60 day challenge period set forth in Section 860. As a result,

- 27 - the Agency has concluded that the taxing entities have waived their rights to challenge the Agency's conclusion with respect to the $170,000,000 limitation.

Ordinance No. 417 adopted by the Agency on June 19, 1995 (the "Ordinance") establishes that tax increment revenues, and hence Pledged Tax Revenues can be received by the Agency for up to IO years after the termination date of the plan life (which termination date is November 30, 2016) to repay the outstanding Bonds and any Parity Debt, subject to the cumulative tax increment limit.

The Agency has received approximately $38.1 million in tax increment revenues (exclusive of revenue waived or paid to the taxing entities) through June of fiscal year 1995/96. The Agency currently anticipates reaching the cumulative tax increment revenue cap in fiscal year 2018/19. The Agency has currently outstanding $22,875,000 of Parity Debt (exclusive of the Bonds) secured by Pledged Tax Revenues.

Exclusion of Tax Revenues forGeneral Obligation Bonds Debt Service

An initiative to amend tl1e 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 the debt service on 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 L 1989.

AB 1290

Assembly Bill 1290 ("AB 1290"), the Community Redevelopment Law Reform Act of 1993, includes a number of changes to existing law, among them the imposition of a limit on the period of time that a redevelopment agency may receive tax increment revenues to no later than 50 years from the adoption of a redevelopment plan. For the Project Area the limit is 35 years from adoption of the redevelopment plan, plus an additional IO years pursuant to the Ordinance (see "LIMITATIONS ON TAX REVENUES - Redevelopment Plan Limitations on Tax Revenues" above), making a total of 45 years from 1981, (i.e. 2026). Because this date is later than both the final maturity of the Bonds and the year in which the cap on tax increment revenues is expected to be reached, this particular change in the law is not expected to affect the Agency's pledge of Pledged Tax Revenues for the Agency Loan, and consequently the Bonds.

Tax Sharing Agreements

In connection with the adoption of the Redevelopment Plan for the Project Area, the Agency entered into tax sharing agreements with the taxing entities having jurisdiction over the

28 area in which the Project Area is located, which agreements generally provide that the Agency will allow a form of compensation to the taxing entity for certain income losses of the taxing entity attributable to the adoption of the Redevelopment Plan and the financing of projects in whole or in part from tax increment revenues. The following is a brief summary of each of these agreements.

Agreement with the County of San Mateo

In connection with its adoption of the Redevelopment Plan, the Agency entered into an Agreement dated as of November 23, 1981 (the "County Agreement") with the County of San Mateo (the "County"). The County Agreement provides that the County and the County Library District are to receive their full share of property tax revenues attributable to real property within the Project Area as if the Redevelopment Plan had not been adopted. The County Agreement further provides that the Agency has waived and relinquished to the County and the County Library District any rights the Agency may have under the Redevelopment Law to be allocated and paid that portion of the levied taxes which the County and the County Library District would be allocated and paid but for the existence of the Redevelopment Plan.

As a result ofthe County Agreement, amountspaid and payable to the County and the County Library District have not been included in the historical Pledged Tax Revenues or the projections of Pledged Tax Revenues available for the payment of debt service on the Agency Loan and Parity Debt included herein.

Agreement withthe PeninsulaHospital District

In connection with its adoption of the Redevelopment Plan, the Agency entered into an Agreement dated as of February 1, 1982 (the "PHD Agreement") with the Peninsula Hospital District (the "PHO"). The PHD Agreement provides that the PHD is to receive its full share of property tax revenues attributable to real property within the Project Area as if the Redevelopment Plan had not been adopted. The PHD Agreement further provides that the Agency has waived and relinquished to the PHD any rights the Agency may have under the Redevelopment Law to be allocated and paid that portion of the levied taxes which the PHD would be allocated and paid but forthe existence of the Redevelopment Plan.

As a result of the PHD Agreement, amounts paid and payable to the PHD have not been included in the historical Pledged Tax Revenues or the projections of Pledged Tax Revenues available for the payment of debt service on the Agency Loan and Parity Debt included herein.

Agreement with the Countyof SanMa teo Mosquito Abatement District

In connection with its adoption of the Redevelopment Plan, the Agency entered into an agreement with the County of San Mateo Mosquito Abatement District (the

- 29 - "Mosquito Abatement District") in November 3, 1981, which agreement was superseded by an Agreement dated August 3. 1987 (the "Mosquito Abatement District Agreement") between the Agency and the Mosquito Abatement District. The Mosquito Abatement District is to receive its foll share of property tax revenues attributable to real property within the Project Arca as if the Redevelopment Plan had not been adopted. The Mosquito Abatement District Agreement further provides that the Agency has waived and relinquished to the Mosquito Abatement District any rights the Agency may have under the Redevelopment Law to receive tax increment revenues in an amount equal to the "District Share". The Mosquito Abatement District Agreement defines "District Share" as the amount of the tax increment revenues that, but for the provision of tax increment financing in the Redevelopment Plan, would be allocable and payable to the Mosquito Abatement District, except that, under the Mosquito Abatement District Agreement the District's share shall not exceed .175% of total ad valorem taxes payable pursuant to Section J(a) of Article l 3A of the CaliforniaConstitut ion.

As a result of the Mosquito Abatement District Agreement, amounts paid and payable to the Mosquito Abatement District have not been included in the historical Pledged Tax Revenues or the projections of Pledged Tax Revenues available for the payment of debt service on the Agency Loan and Parity Debt included herein.

Agreement with the San Mateo County Community College District

In connection with its adoption of the Redevelopment Plan, the Agency entered into an Agreement dated as of November 23, 1983 (the "College District Agreement") with the San Mateo County Community College District (the "College District"). Pursuant to the College District Agreement, the Agency agreed to hold the College District harmless from any revenue diversion or loss resulting from the Agency's adoption of the Redevelopment Plan. including the Agency's use of tax increment financing, by reimbursing the College District the full amount of any such revenue diversion or loss. The reimbursement obligation is secured by a first lien pledge of tax increment revenues of the Agency, which lien has priority over all other liens, debts, or obligations of the Agency, except that the first lien priority shall be subordinate, as to 50% of the projected tax increment revenues which are payable to the College District, to the obligations of the Agency with respect to long-term (i.e., more than three years) indebtedness or other long-term obligations of the Agency. The College District Agreement provides that prior to the issuance of any long-term indebtedness or other long-term obligations, a projection of expected tax increment revenues to be received annually by the Agency over the term of the long-term indebtedness or other long-term obligations shall be prepared by an independent financial consultant in order to assure that the Agency can meet its obligation with respect to the reimbursement obligations of Agency to the District which are subordinated to such long-term indebtedness or other long-term obligations.

The Agency anticipates receiving a certificate from the College District (the "College District Certificate") pursuant to which the College District will approve the

30 projection of Pledged Tax Revenues prepared by Katz Hollis, as Fiscal Consultant, and included as Appendix E to this Official Statement. Additionally, in the College District Certificate, the College District will acknowledge that 50% of the tax increment revenues which the College District is entitled to receive under the College District Agreement is subordinated to the payment of long term indebtedness of the Agency.

As a result of the College District Agreement and the College District Certificate, historical Pledged Tax Revenues and the projection of Pledged Tax Revenues available forthe payment of debt service on the Agency Loan and Parity Debt included herein do not include an amount equal to 50% of the College District's share of tax increment revenue determined pursuant to the College District Agreement, but do include the remaining 50% of the College District share which is subordinated.

Ai.:reement with the San Mateo Union Hii.:hSchool District

In connection with its adoption of the Redevelopment Plan, the Agency entered into an agreement with the San Mateo Union High School District (the "High School District"), which agreement was superseded by a Stipulated Judgment and Mutual Release dated as of June 27, 1991 (the "Stipulated Judgment") between the Agency and the High School District. Pursuant to the Stipulated Judgment, the Agency and the High School District rescinded the previous tax sharing agreement and the Agency agreed to pay the High School District a total of not to exceed $9,636,000 in a stipulated annual amount beginning in the 1990/91 fiscal year and continuing through and including the 2015/16 fiscal year. This obligation of the Agency is secured by a pledge of taxes allocated to the Agency from that portion of the Project Area which is subject to tax increment financing, which pledge is subordinate to a pledge of the tax increment revenues with respect to tax allocation bonds issued by the Agency to finance the costs of infrastructure for the Project in whole or in part.

As a result of the Stipulated Judgment, historical Pledged Tax Revenues and projections of Pledged Tax Revenues available for payment of the Agency Loan and Parity Debt as set forth herein do not reflect a reduction from the total Pledged Tax Revenues of the share of tax increment revenue payable to the High School District under the Stipulated Judgment.

Ai.:reement withthe San Mateo-Foster City School District

In connection with its adoption of the Redevelopment Plan, the Agency entered into an agreement with the San Mateo-Foster City School District (the "Local School District") which agreement was superseded by an Agreement and Mutual Release dated as of December 16, 1991 (the "Mutual Release") between the Agency and the Local School District. Pursuant to the Mutual Release, the Agency and the Local School District rescinded the previous tax sharing agreement and the Agency agreed to pay the Local School District $4,000,000 not later than June 30, 1992, as full reimbursement for any and all financial burden or detriment suffered by the Local School District as a result

- 3 1 - of the Project from the date of adoption of the Redevelopment Plan to the date of the agreement. This payment from the Agency to the Local School District was made in June, 1992. Additionally, the Mutual Release provides that if, subsequent to the date of execution of the Mutual Release, the Local School District suffers a revenue loss attributable to the Redevelopment Plan and the Agency's use of tax increment financing, the Agency may be obligated to make additional payments to the Local School District from unencumbered and unobligated Pledged Tax Revenues.

Maintenance of Pledged Tax Revenue�

The Agency shall comply with all requirements of the Redevelopment Law to insure the allocation and payment to it of the Pledged Tax Revenues, including without limitation the timely filing of any necessary statements of indebtedness with appropriate ot1icials of the County and (in the case of supplemental revenues and other amounts payable by the State) appropriate officials of the State. The Agency shall not enter into any agreement with the County or any other governmental unit which would have the effect of reducing the amount of Pledged Tax Revenues available to the Agency for payment of the Agency Loan or Parity Debt ( excluding taxes attributable to a tax rate levied by a taxing agency forthe purpose of producing revenues in an amount sut1icient to make annual repayments of the principal of, and the interest on, any bonded indebtedness of such taxing agency), unless the Agency shall first obtain the Report of an Independent Redevelopment Consultant stating that the Pledged Tax Revenues estimated to be received in the current Fiscal Ycar and in each of the three (3) succeeding Fiscal Years shall be at least equal to one hundred thirty-five percent (135%) of Maximum Annual Debt Service.

Annual Review of Pkdged Tax R�ues

The Agency annually shall cause to be prepared a Report of an Independent Redevelopment Consultant which sets forth the total amount of Pledged Tax Revenues remaining available to be received by the Agency under the Redevelopment Plan's cumulative tax increment limitations, as well as future cumulative debt service on the Bonds and Parity Debt and other obligations of the Agency payable from Pledged Tax Revenues (including any Subordinate Debt). The Agency will not accept Pledged Tax Revenues greater than the aggregate annual debt service payable by the Agency in any year if such acceptance will cause the amount remaining under the tax increment limit to fall below the remaining cumulative debt service, except forthe purpose of depositing such revenues in escrow forfuture debt service or to redeem the Bonds and Parity Debt.

Possible Puture Actioru.

In recent years several initiative measures have been adopted which affect property and other local taxes certain of which arc described above. There is no assurance that the California electorate or Legislature will not at some future time approve additional limitations which could reduce the Pledged Tax Revenues and adversely affect the security of the Agency Loan and the Bonds.

- 32 - HISTORICAL AND ESTIMATED PLEDGED TAX REVENUES

As discussed in the subsection "LIMITATIONS ON TAX REVENUES - Property Tax Rate Limitations - Article XIIIA," the property tax rate applicable within the Project Area is limited by the State Constitution to $ I per $ I00 of taxable property value plus the rate necessary to service certain indebtedness approved by the voters. The table below presents a summary of a secured tax rate corresponding to the Project Area. Pledged Tax Revenues are calculated by using the current year secured tax rate and the previous year's secured tax rate for unsecured property.

TABLE 2 COMMUNITY DEVELOPMENT AGENCY OF THE CITY OF FOSTER CITY Tax Rate forSecured Taxable Value, Fiscal Year 1994/95 and 1996/97 ($1.00 per $100 Taxable Value)

1994/95 1996/97 Tax Rate (1) Tax Rate (2) Basic County-Wide Levy $1.000000 $1.000000 Estero Municipal D. S. Bonds 0.011371 0.003936

TOTAL $1.011371 $1.003939

(]) Reflects weighted average tax rates levied in Project Area, per $/00 of taxable value Although a tax rate was levied/or debtservice in 1994/95, the tax rate is attributable to voter approved debt aft er January 1. 1989 and as such the Agencyis not eligible to receive tax increment revenue as a result of such incremental tax rate.

Source: Fiscal Consultant.

The tax rate shown above is the weighted average tax rate applied to secured taxable values in the Project Area.

- 33 - Table 3 sets forth the current fiscal year's Project Area taxable valuations and tax increment revenues. Tax increment revenue figures arc based on actual Project Area assessed valuation. Table 4 sets forth historical collections of tax increment revenues and the resulting Pledged Tax Revenues. Table 5 sets forth projections of Pledged Tax Revenues and the related debt service coverage.

TABLE 3 COMMUNITY DEVELOPMENT AGENCY OF THE CITY OF FOSTER CITY Taxable Values and Pledged Tax Revenues Fisea I Year 1996/97

San Mateo County Reported 'l'axablc Adjuslfficnts to Adjusted I 996/97 Category Value (!) Taxable Value (2) l'axable Value 1,l)cal Secured Land $216.105.4 19 $ (787,443) $215.3 17.976 Improvements 436.648.062 (14,3 1 5,202) 422,3.12,860 Personal Property l.264.394 () 3,264,394 7 Gross Local Secured --c6 56.0l7.875 ( 15, I 02.645) 640,915,230 Exempt 1.200, 915 () 1.200, 915 Net Local Secured -�$�6�54.816,960 $( 15.102.645) $639,714315 l)nsecured I.and $ 568,857 () $ 568.857 hnprovcments 46.952,747 () 46,952.747 I 1ersonal Property 103.242,970 () I 03,242, 970 lJnsccurcd $150.764.574 $150.764,574

Total Secured & Unsecured $805.581.534 $ (15.102,645) $790.478,889 Base Year Taxable Value 31,143.657 Incremental Taxable Value $759,335.232 l'ax Increment $ 7.608,054 l Jnitary Tax lncre1ncnl 45.838 rota[ Tax Increment Revenue $ 7,653,892

Adjustments to Tax Increment Revenue Property Tax Administration Fees (3) $ 103,746 l)cns on Tax Increment Ilousing Set-Aside (4) $ 1,510,029 Waived Tax Increment (5) 1.954.941 raxing Entity Share - Nonsubordinated (6) 236.977

Pledged Tax Revenue $ J.848,199

( I) Based on taxable values per San Afateo ('aunty C'ontro/ler ( 2) Adjustn1ents j(Jr recently resolved assess,nent appeals (3) Estimated based on 1'195/96 actual amou/11. (4) Based on 20 percent (�l total tax revenue, net rfl adjustments to tax revenue. (5) Based on taxsharinR agreen1ents ivith San A1ateo ('oun(r. the ('ounty lihrary [)tslrict, the S'an ,Mateo ( 'ounty Mosquito Abatetnent f)istrict, and the l'eninsula Hospital f) istrtct. (6) Based on taxsharing agreement tt'ith the San Afateo ( '01n1nuni(V L'ollege f)istrtct.

Source: f,'iscal ('onsultant.

-34 TABLE 4 COMMUNITY DEVELOPMENT AGENCY OF THE CITY OF FOSTER CITY PROJECT AREA Historical Taxable Value Fiscal Years 1992/93 to 1995/96

1992/93 1993/94 1994/95 1995/96 Secured $520,009,983 $539,858,321 $544,345,272 $600,361,984 State Assessed 0 0 0 0 Unsecured 90,650,682 I 02,200,238 120,622,022 139,294,489 Total Taxable Value $610,660,665 $642,058,559 $664,967,294 $739,656,473

Increment Over Base (I) $579,516,808 $610,914,702 $633,823,437 $708,512,616

Tax Increment Revenue (2) $6,012,440 $6,295,027 $6,529,203 $7,431,771

Pledged Tax Revenues $3,024,387 $3,114,842 $3,033, 137 $3,510,782

(I) Through fiscalyear 1995/96 the County utilized a total base year value of $31, 143,857. (2) Actual Receipts based on the records of the Agency.

Source: Fiscal Consultant. TABLE S COMMUNITY DEVELOPMENT AGENCY OF THE CITY OF FOSTER CITY Projected Pledged Tax Revenues and Estimated Debt Service Coverage Fiscal Years 1996/97 -2000/01 ($000) 1996/97 1997/98 1998/99 1999/20 2000/01

Total Tax Increment Revenue $7,654 $7,598 $7,692 $7,772 $7,849

Less: County Agreement & Other 2,296 2,293 2,325 2,351 2,373 Tax Sharing Agreements (I) Less: Housing Set Aside (2) 1,510 1,499 1,518 1,533 1,549 Pledged Tax Revenues $3,848 $3,806 $3,849 $3,888 $3,927 Annual Debt Service 1993 Bonds $2,162 $2,164 $2,162 $2,166 $2,165 Bonds (3) 546 (4) 535 546 572 570 Total Debt Service $2,708 $2,699 $2,708 $2,738 $2,735

Debt Service Coverage 142% 141% 142% 142% 144%

(/) Based on assumptions setfo rth in Figure III� I of the Fiscal Consultant's report in Appendix E. (2) Reflects 20% of the Agency 's tax increnient revenues aft er reductions for property tax adniinistrationfees. See Figure lll�J of the Fiscal Consultant's report in Appendix E. (3) Based on the issue size and term structure as set fr oth on the cover hereof (4) Net of accrued interest.

Source: Fiscal Consultant (except debt service).

- 35 - THE AUTHORITY

The Authority is a joint powers authority, organized pursuant to a Joint Exercise of Powers agreement, dated May I, 1993 (the "Agreement"), between the City of Foster City and the Community Development Agency of the City of Foster City. The Agreement was entered into pursuant to the provisions of Articles l through 4, Chapter 5, Division 7, Title I of the Government Code of the State of California, commencing with Section 6500. The Authority is a separate entity constituting a public instrumentality of the State and was formed for the public purpose of assisting the City and the Agency in financing capital projects.

THE AGENCY

Organization and Personnel

The Agency was established pursuant to the Redevelopment Law. The Agency is broadly empowered to engage in the general economic revitalization and redevelopment of the City through acquisition and development of property in those areas of the City determined to be in a declining condition or in need of development.

Members of the Agency and their terms of officeare set forth below:

Member Tenn Expires Eileen Larsen, Chair November, 1999 Russ Harter, Vice Chair November, 1999 David R. Kruss. Member November, 1997 Jim Lawrence, Member November, 1999 Marland Townsend, Member November, 1997

Key members of the Agency and City staff and their resumes are set forth below:

JamesC, Hard):, City Manager and Agency Executive Director, has served the City since 1981. Mr. Hardy has also been the City Treasurer since 1981. Prior to his current position, Mr. Hardy was the Assistant City Manager. Prior to that Mr. Hardy served the City as the Administrative Services Director. Mr. Hardy's experience includes administrative positions with the City of Manhattan Beach, City of Torrance and the City of Inglewood. Mr. Hardy received his Bachelor of Arts degree in Political Science as well as his Master of Public Administration degree from Brigham Young University. Mr. Hardy is a member of the International City Management Association and also serves on the Administrative Services Policy Committee of the League of CaliforniaCities.

Richard B. Marks, Community Development Director of the City, has been in his current position with the Agency and City since 1986. Previously, Mr. Marks was the City Planning Director. Mr. Marks has held planning positions in the City of Rancho Cucamonga and the Cow1ty of Santa Clara. Mr. Marks received his Bachelor of Arts degree in Political Science from

- 36 - California State University and his Master of Urban Plam1ing degree from San Jose State University.

Diane McGrath, Deputy Executive Director of the Agency has been in her current position since 1986. Prior to her current position, Ms. McGrath was the senior plam1er for the City and prior to that was the senior plam1er for the City of Breckenridge, Colorado forover nine years. Ms. McGrath received her Bachelor of Arts degree from California State University in Long Beach, and her Master of Arts degree in Urban and Regional Plam1ing fromthe University of Colorado. Ms. McGrath serves on several municipal management and redevelopment organizations in the State.

Charles F. Loucks, Director of Public Works, has served the City in his current position since 1984. Prior to his current tenure with the City, Mr. Loucks has served as the Public Works Director for the City of Selma and the City of Brentwood. Mr. Loucks has also held project management positions in the private sector. Mr. Loucks received his engineering degree from the College of San Mateo and is a registered professional engineer (civil engineering and traffic engineering). Mr. Loucks is a member of the Institute for Municipal Engineering and the American Public Works Association.

RicardoG. Santia�o, Finance Director of the City, has served theCity since 1982. Prior to his currentposition, Mr. Santiago was the Assistant Finance Director of the City. Prior to joining the City, Mr. Santiago was the Accounting Manager for the City of San Carlos. Mr. Santiago received his Bachelor of Science Degree in Business Administration, with a major in Accounting, from Far Eastern University, Philippines. Mr. Santiago has been serving as a budget reviewer for the California Society of Municipal Finance Officers Association since 1994.

THE REDEVELOPMENT PROJECT

The Project Area

The City covers approximately 4 square miles or approximately 2,600 acres. The Agency's Project Area includes all of the City's central business district and the major commercial centers as well as certain residential areas. The Project Area consists of approximately 1,208 acres. The Project Area was established on November 30, 1981 by the City Council.

Approximately 88 percent of the Project Area is developed. The Project Area includes residential, commercial and light industrial development. Of the developed area, approximately 8.3 percent is residential, 10 percent is commercial, and 17.6 percent office/R&D. The remainder of the Project Area is generally described as open space and public property/waterway. The table below sets forth the land-use pattern in the Project Area.

- 37 - City of Foster City Community Development Agency Project Area

I Shaded area = Community DeveJ.opment Agency Project Area (1,208 acres) Total City (2,628 acres)

- 38 - Developable Land-Use Type (Vacant) Acres Developed Acres Total Acres

Single Family 0 48 48 Multi-Family 41 42 Retail Commercial 44 107 151 Industrial - Light 0 6 6 R&D/Office 66 188 254 Public/Right of Way (I) 27 363 390 Parks 0 105 105 Lagoon 0 212 212 TOTAL 138 1,070 1,208

(I) Includes these .following components: Open space 44 acres; Public fa cilities 37 acres; Schools 36 acres, Shoreline 34 acres; Streets 239 acres.

Source: Agency.

Property Ownership

According to the data fromthe County of San Mateo, the combined secured and unsecured assessed taxable valuation of the top ten property owners in the Project Area in fiscal year 1996/97 equaled approximately $454.5 million or approximately 56.4% of the total taxable value of the Project Area. Table 6 sets forth the fiscal year 1996/97 top ten property owners and the taxable value of their secured and unsecuredproperty.

TABLE 6 PROJECT AREA Largest Property Tax Assessees Fiscal Year 1996/97

Total Percent of Secured Unsecured 1996197 Project Area Taxable Taxable Taxable Taxable Asses see Business Type Value Value(•) Value(b) Valuation(c) I. Visa Land Development OfficeBuilding $101,839,075 $0 $!01,839,075 12.64% 2. WCB Seventeen Ltd. Commercial 85,210,709 0 85,2!0,709 10.58 3. Metro Center Tower Venture Office Building 67,267,645 0 67,267,645 8.35 4. Foster Apartments Partners Multi-Family Residential 42,806,500 0 42,806,500 5.31 5. Perkin-Elmer Corporation Commercial 0 39,445,767 39,445,767 4.90 6. Town Center East Commercial 30,267,565 0 30,267,565 3.76 7. Metropolitan Life Insurance Co. Co1nmercial/Office 26,502,425 0 26,502,425 3.29 8. Costco Wholesale Corporation Retail 24,031,971 0 24,03 1,971 2.98 9. OB-I Associates Cotnmercial 18,950,000 0 18,950,000 2.35 10. Tsai Shin-Teng, Steve Et. Al. Hotel 18, 172,490 0 18,172,490 2.26 Total Valuation $4 I 5,048.380 $39,445,767 $454,494,147 56.42�0

(a) Unsecured value reflects both real and personal property values. (b) Based on ownership of locally-assessed secured & unsecured property. (c) Based on total 1996197 taxable value of $805, 58!,534 Source: County of San Mateo and Fiscal Consultant.

- 39 - The tenants occupying the facilities of some of the top ten property lax assesses in the Project Area are set fo rth below in Table 7.

TABLE 7 PROJECT AREA Tenants of Some of the Largest Property Tax Assessees Fiscal Year 1996/97

Assessee Tenants

Visa Land Development Visa International

Metro Center Tower Venture Sony Computer Entertainment Co., Microsoft, Federal Express, Eureka Bank. SAP America (Software), Deloitte & Touche

WCB Seventeen Ltd. Cell Genesys, Fujitsu's Business Communication, Gilead Sciences, EFJ, Entcx Information Services, Penedenn Inc., Safeco, Tosoh Medics, Inc., ZD Labs

Metropolitan Life Insurance Co. Metropolitan Life, Applied Bio-Systems

Town Center East Safeway, Longs Drugs

08- 1 Associates Star Graphics, Comdisco, HBO, Net Express, Rudolph Sletten. Cadence Design, Sony, LAN Systems, Citicorp

Tsai Shin-Tent, Steve Et. AL HoliJay Inn

Recent Development Activity

Metro Center: The 100 acre Metro Center currently includes a total of 1,588,000 square feetof general office use. Initial construction included a 22-story office tower, two 4-story office buildings, a I 06,000 square foot retail center known as the Market Place, anchored by Safeway and Long's Drugs; Bank of America and a 147-room Marriott Courtyard Hotel with support coffee shop, lounge and meeting rooms. There is also a 7,500 square foot children's day care center (KinderCare) within the project. A 265-unit residential development (which is part of the central Metro Center complex) has been completed and sold-out. Metro Center was intended to establish a commercial town center which would function as the hub of the City's commercial community and provide a central focal point for the City. In keeping with the vision of providing a city core, Metro Center has emerged as a diverse mixed-use development. Several of the top ten property assessees are part of the Metro Center complex.

VISA International Service Association (in 1995) completed a 12-story 285,000 square foot facility adjacent to the Metro Center tower building as part of its strategy to consolidate its total operation in one campus. An identical, second VISA International facility directly across the street, also 12-story and 295,000 square fe et, was completed in 1996. Two more VISA

- 40 - buildings (Phases III and IV) on the opposite corners from the first two buildings are scheduled to begin construction in the Spring of 1997. Both of these buildings areanticipated to be 6-story and approximately 180,000 square feeteach with detached 4-story parking structures.

A small retail center was completed in July, 1996 on the comer of Metro Center Boulevard and Shell Boulevard. Its four retail spaees include Starbuck's, Jamba Juice, Noah's Bagels, and Boston Market. A 121,000 square foot Price/COSTCO retail store and a 58,000 square foot Orchard supply Hardware (OSH) retail store were recently constructed. The COSTCO opened for business in October and OSH in December of 1994.

CityPark Townhomes (42 units) is expected to be completed in the Spring of 1997. The first half of the units are complete and sold-out. Sixty (60) units of affordable senior rental housing are under construction and expected to be complete in October, 1996.

Vintage Park (WCB Seventeen Ltd.): Vintage Park consists of 132 acres located north of State Route 92 between Foster City Boulevard and the San Mateo City border. Vintage Park is primarily officeand research and development use and featuresa campus-like environment.

At this time, 471,670 square feet of research and development space, 330,760 square feet of office space (one and two story office buildings are considered R&D space pursuant to a development agreement, but office portions are counted as office space) and a total of 29,600 squarefeet in three restaurants have been constructed. There are 244 hotel rooms in operation in one hotel facility (Holiday Inn). A planned expansion (additional 116 rooms) is expected to begin construction in 1997. The buildings in the Vintage Park development are surrounded by landscaping including a five-acre lake and several water features. Tenants already located at Vintage Park include ZD Labs, Cell Genesys, Entex Information Systems, Mircrosoft, Gilead Sciences, Fujitsu's Business Communication, EFI, Safeco and Tosoh Medics.

Thirty-five acres of property on East Third A venue owned by the City has recently been sold to a computer graphics company which plans to begin development of up to 1,000,000 square feetheadquarters of a campus facilityto house their expanding business.

Public Improvements: The City and Agency have completed several major infrastructure projects to aid the utilization and development of the commercial, residential and light industrial properties in the Project Area. Some recent examples are described below.

Vintage Park overcrossing provides for a bridge with five traffic lanes (four through lanes and a left tum lane), pedestrian access and a utility crossing (water line) over State Route 92 from the existing Chess Drive-Vintage park Drive intersection to the Metro Center Drive­ Vintage Park Drive intersection. The overcrossing connects Metro Center and Vintage Park, the twolargest commercial developments in Foster City.

The Foster City Boulevard widening and State Route 92 ramp relocations has significantly improved the flow of traffic across this major thoroughfare which connects the residential part of the City to the Vintage Park development.

- 41 - A 25,000 square foot library and community center is currently under construction. The existing recreation center is currently being renovated and expanded to approximately 36,500 square feet. The City recently completed a levee and flood control improvements project which involved improving and raising the height of the levee to meet the requirements of the National Flood Insurance Program.

The City, in partnership with the neighboring city of San Mateo, to meet the growing needs of the two communities, has recently completed a major project involving the expansion and technological updating of the existing wastewater treatment plant. Assessment Appeals

Property owners can appeal the assessment of their property to the county assessment appeals board. See "BONDO\VNERS' RISKS - Appeals to Assessed Values". The Fiscal Consultant conducted a review of pending and recently resolved assessment appeals in order to determine the potential impact on current and future Project Area value and tax increment revenue.

The following table summarizes the recently resolved assessment appeals forthe Project Area (forboth the secured and unsecured valuation). The table includes the pre-appeal value, the resulting value after resolution of the appeal, and the valuation reduction. Details of the analysis of the appeals are set forth in "APPENDIX E - FISCAL CONSULTANT'S REPORT - Project Area Taxable Value, Revenue and Pledged Tax Revenue - Assessment Appeals:'

OUTSTANDING ASSESSMENT APPEALS Applicants Opinion (1J Historical Average (2) Potential Potential Valuation Valuation Assessee Impact Net Refunds (3) Impact Net Refunds (3)

Transpacific Development (4) NIA $( 165,878) NIA $ (32,912) · franspacificDevelopment $(47,587,490) (637,369) ( 1 3,975,094) ( 1 79,469) Perkin Elmer (I,765,800) (28,586) (1,446, 126) (23,417) ZiffCommun ications (3,21 3.573) (39,114) (732,365) (12,082) Total $(52,566,863) $(870,948) $( 16, 1 53,585) $(247,880)

-- -- (]) Reflects estin1ated reductions based on the applicants optniun r?fva/ue. (2) Reflects estimated reductions based on the average value retluctionfor a/J/ Jeal'i in ihe Pro;ect Area j(,r /994195 and 1995196 of 18 percent. {3) Net refimds aft er reduction fo r waiced revenue and housing set-aside. (4) The parcels.for which prior year appeals were filed hy this Assessee have since been sohl The appeals remain outstanding. Source: f'iscal ('onsultant.

- 42 Teeter Plan

The Board of Supervisors of the County of San Mateo (the "County") adopted the Alternative Method of Distribution of Tax Levies and Collections and of Tax Sale Proceeds (the "Teeter Plan") in fiscal year 1993/94, as provided for in Section 4705 et. seq. of the California Revenue and Taxation Code. Taxes and assessment installments under the 1915 Act are collected by the County and distributed pursuant to the Teeter Plan. Under the Teeter Plan, each entity levying property taxes in the County may draw on the amount of uncollected secured taxes credited to its fund, in the same manner as if the amount credited had been collected. Unsecured taxes are not normally covered under the Teeter Plan. Redevelopment project areas in the County (and the Project Area) are covered under the so-called "modified Teeter Plan," the modification being that unsecured levies, as well as secured levies, arc covered for redevelopment tax increment revenues. Redevelopment agencies in the County (and the Project Area) can expect to receive the full increment of the current year's secured and unsecured assessed valuation, less the base year's secured and unsecured assessed valuation, with no adjustment fordelinquencies, refunds or modifications.

The Teeter Plan is to remain in effect unless the Board of Supervisors orders its discontinuance or unless, prior to the commencement of any fiscal year of the County (which commences on July 1 ), the Board of Supervisors shall receive a petition for its discontinuance joined in by resolutions adopted by two-thirds of the participating revenue districts in the County, in which event the Board of Supervisors is to order discontinuance of the Teeter Plan effective at the commencement of the subsequent fiscal year.

BANK QUALIFIED

The Authority has designated the Bonds as "qualified tax-exempt obligations" within the meaning of Section 265(b)(3) of the Code, such that, in the case of certain financial institutions (within the meaning of Section 265(b)(5) of the Code), a deduction for federal income tax purposes is allowed for 80% of that portion of such financial institution's interest expense allocable to interest on the Bonds.

TAX MATTERS

In the opm1on of Jones Hall Hill & White, A Professional Law Corporation, San Francisco, California, Bond Counsel, subject, however to the qualifications set forth below, under existing law, the interest on the Bonds is excluded from gross income for federal income tax purposes, 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, and the Bonds are "qualified tax-exempt obligations" within the meaning of section

- 43 - 265(b)(3) of the Internal Revenue Code of 1986 (the "Code") such that, in the case of certain financial institutions (within the meaning of section 265(b)(5) of the Code), a deduction for federal income tax purposes is allowed for 80 percent of that portion of such financial institution's interest expense allocable to interest payable on the Bonds.

The opinions set forth in the proceeding 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 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 Bonds.

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

Owners of the Bonds should also be aware that the ownership or disposition of, or the accrual or receipt of interest on, the 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 Bonds other than as expressly described above.

LEGAL OPINION

Jones HallHill & White, A Professional Law Corporation, San Francisco, California, as Bond Counsel, will render an opinion with respect to the validity of the Bonds. Its opinion will be substantially in the form set forth in Appendix D. Copies of this opinion will be available at the time of delivery of the Bonds. Certain legal matters will be passed upon by the Underwriter by its counsel Nossaman, Guthner. Knox & Elliott, LLP. San Francisco, California.

RATING

Standard & Poor's Corporation has assigned its municipal bond rating of "A-" to this issue of Bonds. A rating reflects only an opinion of the agency furnishing the same. There is no assurance that such rating will be in effect for any given period of time or that it will not be revised downward or withdrawn entirely by such rating agency if, in the judgment of such agency, circumstances so warrant. Any such downward revision or withdrawal of such rating may have an adverse effect on the market price of the Bonds. An explanation of the significance of such rating may be obtained only fromthe rating agency furnishingthe san1c.

UNDERWRITING

The Bonds arc being purchased by Stone & Youngberg as underwriter (the "Underwriter"), according to a Purchase Contract dated November 13, 1996 (the "Purchase

- 44 Contract"), pursuant to which the Underwriter agrees to purchase all of the Bonds for an aggregate purchase price of $6,716,411.70 plus accrued interest. The purchase price is the par amount less an underwriter's discount of $109,200.00 and plus an original issue premium to investors of $611. 70, plus accrued interest.

The initial public offering prices to be stated on the cover of this Official Statement may be changed from time to time by the Underwriter. The Underwriter may offer and sell bonds to certain dealers, dealer banks, banks acting as agents and others at prices lower than said public offering prices.

MISCELLANEOUS

No Litigation

To the best knowledge of the Authority and the Agency, there is no action, suit, proceeding or investigation at law or in equity beforeor by any court or governmental agency or body pending or threatened against the Authority or the Agency to restrain or enjoin the authorization, execution or delivery of the Bonds or the Loan Agreement, or the pledge of the Pledged Tax Revenues or the collection of the payments to be made pursuant to the Indenture and the Loan Agreement, or in any way contesting or affecting the validity of the Bonds, the Indenture, or the Loan Agreement.

Additional Information

All summaries and explanations of the documents contained herein do not purport to be complete, and reference is made solely to such documents for full and complete statements of their provisions.

This Official Statement is submitted only in connection with the sale of the Bonds by the Authority. All estimates, assumptions, statistical information and other statements contained herein, while taken from sources considered reliable, are not guaranteed by the Authority, the City or the Agency. The information contained herein should not be construed as representing all conditions affecting the Authority,the Agency, the City or the Bonds.

FOSTER CITY PUBLIC FINANCING AUTHORITY

COMMUNITY DEVELOPMENT AGENCY OF THE CITY OF FOSTER CITY

By: Isl JamesC. Hardy Executive Director

- 45 - (THIS PAGE INTENTIONALLY LEFT BLANK) APPENDIX A

SUMMARY OF PRINOPALLEGAL DOCUMENTS

The following is a brief summary of the provisions of the Indenture and the Loan Agreement. Such summary is not intended to be definitive, and reference is made to the complete documents for the complete terms thereof.

DEHNITIONS Except as otherwise defined in this summary, the terms previously defined in this Official Statement have the respective meanings previously given. In addition, the following terms have the following meanings when used in this summary:

"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 Community Development Agency of the City of Foster City, 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 May 1, 1993, by and between the City and the Agency, together with any amendments thereof and supplements thereto.

"Annual Debt Service" means, for each Bond Year, the sum of (a) the amount of interest payable on the Loan and any 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 any Parity Debt in such Bond Year, including any principal required to be prepaid by operation of mandatory sinking fund payments.

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

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

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

"Bonds" means the $6,825,000 aggregate principal amount of Community Development Agency of the City of Foster City 1996 Revenue Bonds, Series A (Foster City Community Development Project Loan), authorized by and at any time Outstanding pursuant to the Bond Law and 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, except that the first BondYear shall commence on the Closing Date and shall end on September 2, 1997.

Appendix A Page 1 "Business Day" means a day on which banks in Los Angeles or San Francisco, California, arenot required or authorized to remain closed.

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

"Certificate of the Authority" means a certificate in writing signed by the Chairman 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 FosterCity, California.

"Closing Date" means the date upon which there is a physical delivery of the Bonds in ,.,xchange for the amount representing the purchase price of the Bonds by the OriginalPurchaser.

"Costs of Issuance" means all expenses incurred in connection with the authorization, issuance, sale and delivery of the Bonds and the application of the proceeds of the Loan pursuant to the Loan Agreement, including but not limited to all 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 feesand expenses, filing and recording costs, rating agency fees, 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.

"County" means San Mateo County, a county duly organized and existing under the Constitution and laws of the State.

"Debt Service" means, during any period of computation, the amount obtained for such period by totaling the following amounts:

(a) The principal amount of all Outstanding Serial Bonds coming due and payable by their terms in such period;

(b) The minimum principal amount of all Outstanding Term Bonds scheduled to be redeemed by operation of mandatory sinking fund deposits in such period, together with any premium thereon; and

(c) The interest which would be due during such period on the aggregate principal amount of Bonds which would be Outstanding in such period if the Bonds are retired as scheduled, but deducting and excluding from such aggregate amount the amount of Bonds no longer Outstanding.

"Defeasance Obligations" means (a) cash or (b) Federal Securities.

"Event of Default" means, with respect to the Indenture, any of the events described in the Indenture. "Event of Default" means, with respect to the LoanAgreement, any of the events describL'CIin the Loan Agreement.

Appendix A Page 2 "Federal Securities" means direct obligations(including obligations issued or held in book entry form on the books of the Department of Treasury) of the United States of America, including "interest strips" of the Resolution Trust Corporation. "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/ or the Agency as its official fiscal year period. "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 thereof. "Independent Certified Public Accountant"means any certified public accountant or firm of certified public accountants appointed and paid by the Authority, and who, or each of whom (a) is in fact independent and not under domination of the Authority, the City or the Agency; (b) does not have any substantial interest, direct or indirect, in the Authority, the City or the Agency; and (c) is not connected with the Authority, the City or the Agency as an officer or employee of the Authority, the City or the Agency but who may be regularly retained to make annual or other audits of the books of or reports to the Authority, the City or the Agency. "Independent Redevelopment Consultanf' or "Redevelopment Consultant" means any consultant or firm of such consultants appointed by 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 increment revenues or otherwise with respect to the financing of Redevelopment Project; (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, any Parity Debt or any Subordinate 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. "InformationServices" means Financial Information, Inc.' s "Daily Called Bond Service", 30 Montgomery Street, 10th Floor, Jersey City, NJ 07302, Attention: Editor; Kenny Information Services' "Called Bond Service/' 65 Broadway, 16th Floor, New York, NY 10006; Moody's "Municipal and Government," 99 Church Street, 8th Floor, New York, NY 10007, Attention: Municipal News Reports; S&P's "Called Bond Record," 25 Broad Street, 3rd Floor, New York, NY 10004; and, in accordance with then current guidelines of the Securities and Exchange Commission, such other addresses and/ or such other services providing information with respect to called bonds as the Authority may designate in a 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 September 1 and March 1 in each year, beginning March 1, 1997, and continuing thereafter so long as any Bonds remain Outstanding. "Loan" means the loan made by the Authority to the Agency under and pursuant to the Loan Agreement. "Loan Agreement" means the Loan Agreement, dated as of November 1, 1996, by and between the Authority and the Agency, as originally executed or as it may from time to time be supplemented, modified or amended.

Appendix A Page 3 "Loan Fund" means the fund by that name established and held by the Trustee pursuant to the Indenture. "Low and Moderate Income Housing Fund" means the fund of the Agency by that name established pursuant to the Redevelopment Law. "MaximumAnnual Debt Service" means, as of the date of calculation, the largest Annual Debt Service for the current or any future Bond Year. For purposes of such calculation, there shall be excluded the principal of and interest on any Parity Debt to the extent the proceeds thereof are then deposited in an escrow fund from which amounts may not be released to the Agency unless the amount of Pledged Tax Revenues for the most recent Fiscal Year (as evidenced in a written certification from the County Assessor or other appropriate official of the County) at least equals one hundred thirty-five percent (135%) of the amount of Maximum Annual Debt Service which would result if the amount on deposit in such escrow fund were to be released to the Agency from such escrow fund in accordance with the terms of the related Parity Debt Instrument, then, for the purpose of calculating Maximum Annual Debt Service, the annual debt service on such Parity Debt shall be determined as if the amounts then on deposit in the escrow fund were withdrawn therefrom and applied to pay or redeem such Parity Debt in accordance with the terms of the related Parity Debt Instrument. "Moody's" means Moody's Investors Service, and its successors and assigns. "1996 Redevelopment LoanProceeds Account" means the separate account established and held by the Agency within the Redevelopment Fund, pursuant to the Loan Agreement. "Original Purchaser" means the first purchaser of the Bonds upon their delivery by the Trustee on the Closing Date. "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 hy 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", 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. "Parity Debt" means any loans, bonds, notes, advances or indebtedness payable from Pledged Tax Revenues on a parity with the Loan issued or incurred pursuant to and in accordance with the provisions of the Loan Agreement. "Parity Debt Instrument" means any resolution, indenture of trust, Trust Indenture or other instrument authorizing the issuance of any Parity Debt.

Appendix A Page 4 "PermittedInvesbnents" means (a) Federal Securities; (b) debentures of the Federal Housing Administration; (c) obligations of the following agencies which are not guaranteed by the United States of America: (i) participation certificates or debt obligations of the Federal Home Loan Mortgage Corporation; (ii) consolidated system-wide bonds and notes of the Farm Credit Banks (consisting of Federal Land Banks, Federal Intermediate Credit Banks and Banks for Cooperatives); (iii) consolidated debt obligations or letter of credit-backed issues of the Federal Home Loan Banks; (iv) mortgage-backed securities (excluding stripped mortgage securities which are valued greater than par on the portion of unpaid principal) or debt obligations of the Federal National Mortgage Association; or (v) letter of credit-backed issues or debt obligations of the Student Loan Marketing Association; (d) Federal funds, unsecured certificates of deposit, time deposits and bankers acceptances (having maturities of not more than 365 days) of banks (including the Trustee) the short-term obligations of which are rated in the highest Rating Category by S&P; (e) deposits (including those of the Trustee) which are fully insured by the Federal Deposit Insurance Corporation ("FDIC") or, if not so insured, then collateralized in the manner required for the deposit of public funds; (f) debt obligations (excluding securities that do not have a fixed par value and/or whose terms do not promise a fixed dollar amount at maturity or call date) rated in one of the three highest long-term Rating Categories by S&P; (g) commercial paper (having original maturities of not more than 365 days) rated in the highest Rating Category by S&P; (h) money market funds rated in one of the three highest Rating Categories by S&P or Moody's, including funds for which First Interstate Bancorp, its affiliates or subsidiaries provide investment advisory or other management services; (i) repurchase agreements with (1) any institution with long-term debt rated in one of the three highest Rating Categories by S&P or Moody's; (2) financial institutions insured by the FDIC or any broker-dealer with "retail customers" which falls under the jurisdiction of the Securities Investors Protection Corp. ("SIPC"), provided that (A) the collateral must have a remaining maturity of 5 years of less and the market value of the collateral is maintained at 105%; (B) the Trustee or a third party acting solely as agent for the Trustee has possession of the collateral; (C) the Trustee has a perfected first priority security interest in the collateral;

Appendix A Page 5 (D) the collateral is free and clear of any third party lien or claim and, in the case of a broker-dealer with "retail customers" which falls under the jurisdiction of SIPC, the collateral was not acquired pursuant to a repurchase agreement or a reverse repurchase agreement; (E) the repurchase securities must be obligations of, or fu lly guaranteed as to principal and interest by, the United States of America; and

(F) failure to maintain the requisite collateral levels will require the Trustee to liquidate the collateral immediately;

(j) investment agreements, including guaranteed investment contracts, of institutions whose long-term debt or claims paying ability is rated (at the time of execution) in one of the two highest Rating Categories by S&P;

(k) the Local Agency Investment Fund maintained by the Treasurer of the State of California; (!) 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; i.e., the California Arbitrage Management Program (CAMP); and (m) mutual funds investing solely in Federal Securities and rated in the highest Rating Category by Moody's or S&P, including funds for which First Interstate Bancorp, its affiliates or subsidiaries, provide investment advisory or other management services.

"Plan Limits" means the limitations contained in the Redevelopment Plan on the number of dollars of taxes which may be divided and allocated to the Agency pursuant to the Redevelopment Plan, as such limitations are prescribed by Section 33333.2 of the Redevelopment Law.

"Pledged TaxRevenues" means, except as provided below, moneys allocated within the Plan Limits and paid to the Agency derived from (a) that portion of taxes levied upon assessable property within the Project Area allocated to the Agency pursuant to Article 6 of Chapter 6 of the Law and section 16 of Article XVI of the Constitution of the State, or pursuant to other applicable State laws, and (b) reimbursements and subventions, excluding payments to the Agency with respect to personal property within the Project Area pursuant to section 16110, et seq., of the California Government Code, but including payments made by the State with respect to any property taxes that would otherwise be due on real or personal property but for an exemption of such property from such taxes; but excluding all other amounts of such laxes (if any): (i) required to be deposited into the Low and Moderate Income Housing Fund of the Agency pursuant to section 33334.3 of the Law; and (ii) paid to political subdivisions of the State under the Tax Sharing Agreements. "Principal Account" means the account by that name established and held by the Trustee pursuant to the Indenture.

"Project Area" means the Foster City Community Development Project Area described in the Redevelopment Plan.

"Rating Category" means, with respect to any Permitted Investment, one or more of the generic categories of rating by S&P and Moody's applicable to such Permitted Investment,

Appendix A Page 6 without regard to any refinementor gradation of such rating category by a plus or minus sign or a numeral.

"Record Date" means, with respect to any Interest Payment Date, the fifteenth (15th) calendar day of the month immediately preceding such Interest Payment Date, whether or not such day is a Business Day.

"Redevelopment Fund" means the fund of the Agency by that name established for 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 Redevelopment Project, approved by Ordinance No. 245, adopted by the City Council of the City on November 30, 1981, 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.

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

"Report" means a document in writing signed by the entityresponsible for preparing the document and including: (a) a statement that the person or firm making or giving such Report has read the pertinent provisions of the document or provision of document 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.

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

"Reserve Fund" means the fund by that name established under the Indenture.

"Reserve Requirement" means, as of any calculation date, an amount equal to the least of (a) ten percent (10%) of the net proceeds of the Bonds and any Parity Debt, (b) 125% of the average Annual Debt Service, and (c) Maximum Annual Debt Service, excluding from such calculation either (i) Annual Debt Service on any Parity Debt (if any) then on deposit in any special escrow fund or (ii) an amount equal to ten percent (10%) of the proceeds of any Parity Debt then on deposit in any special escrow fund.

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

"Revenues" means: (a) all amounts payable by the Agency pursuant to the Loan Agreement, other than administrative fees and expenses and indemnity against claims payable to the Authority and the Trustee; (b) any proceeds of Bonds originally deposited with the

Appendix A Page 7 Trustee and all moneys deposited and held from time to time by the Trustee in the funds and accounts established hereunder; and (c) investment income with respect to any moneys held by the Trustee in the funds and accounts established hereunder, exclusive of amounts payable to the federal government as a rebate of excess investment earnings under section 148 of the Tax Code.

"S&P" means Standard & Poor' s Corporation, and its successors and assigns.

"Securities Depositories" means The Depository Trust Company, 71 1 Stewart Avenue, Carden City, NY 11530, Fax-(516) 227-4039 or 4190; Midwest Securities Trust Company, Capital Structures-Call Notification, 440 South LaSalle Street, Chicago, [L 60605, Fax-(312) 663-2343; Philadelphia Depository Trust Company, Reorganization Division, 1900 Market Street, Philadelphia, PA 19103, Attention: Bond Department, Fax-(215) 496-5058; and, in accordance with then current guidelines of the Securities and Exchange Commission, such other addresses and/ or such other securities depositories as the Authority may designate in a Certificateof the Authority delivered to the Trustee.

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

"Special Fund" means the fund by that name established and held by the Agency pursuant to the Loan Agreement.

"Special Record Date" means the date established by the Trustee pursuant to the Indenture as a record date for the payment of defaulted interest on the Bonds, if any.

"State" means the State of California.

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

"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.

"Tax Code" means the Internal Revenue Code of 1986.

"Tax Sharing Agreements" means (1) that certain Agreement between the Community Development Agency of the City of Foster City and the San Mateo County Community College District pursuant to Health and Safety Code Section 33401, dated as of November 23, 1981, as to 50% of the tax increment payable by the Agency thereunder; (2) that certain agreement between the Community Development Agency of the City of Foster City and the San Mateo County Mosquito Abatement District Regarding Foster City Redevelopment Plan, dated August 3, 1987; (3) that certain Agreement between the Community Development Agency of the City of Foster City and the Peninsula Hospital District Pursuant to Community Redevelopment Law and Health and Safety Code Section 33000 et. seq., dated February 1, 1982; and (4) that certain Agreement Between the Community development Agency of the Cityof foster City and the County of San Mateo Pursuant to Community Redevelopment Law and Health and Safety Code Section 33000 et seq., dated November 23, 1981.

Appendix A Page K "Term Bonds" means the Bonds maturing on September 1, 2012 and September 1, 2016. "Trust Office" means the principal corporate trust office of the Trustee in San Francisco, California, or such other or additional offices as may be specified to the Autho1ity by the Trustee in writing. "Trustee" means Wells Fargo Bank, National Association, 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.

INDENTURE Establishment of Funds and Accounts; Flow of Funds Loan Fund. The proceeds of sale of the Bonds will be deposited with the Trustee in the Loan Fund. On the Closing Date, the Trustee will disburse all amounts in the Loan Fund to the Agency for the purpose of funding the Costs of Issuance Fund, the Reserve Fund, and the 1996 Redevelopment Loan Proceeds Account of the Redevelopment Fund. Costs of Issuance Fund. A portion of the proceeds of the Loan will be deposited with the Trustee in the Costs of Issuance Fund on the Closing Date. The moneys in the Costs of Issuance Fund will be disbursed to pay Costs of Issuance from time to time upon receipt of Requests of the Authority. On a date which is 90 days following the Closing Date, or upon the earlier receipt of a Request of the Authority stating that all such costs have been paid, the Trustee will transfer all remaining amounts in the Costs of Issuance Fund to the Agency to be deposited by the Agency in the 1996 Redevelopment Loan Proceeds Account of the Redevelopment Fund. Reserve Fund. A portion of the proceeds of the Loan will be deposited with the Trustee in the Reserve Fund on the Closing Date. The amount on deposit in the Reserve Fund shall be maintained at the Reserve Requirement at all times prior to the payment of the Loan in full. In the event that the Agency shall fail to deposit with the Trustee the full amount required to be deposited pursuant to the Loan Agreement on or before the tenth (10th) Business Day preceding any Interest Payment Date or date of prepayment of the Loan, 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 pursuant to the Loan Agreement and the amount actually deposited by the Agency. In the event that the amount on deposit in the Reserve Fund 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 to restore the balance to the Reserve Requirement. The Reserve Requirement may be satisfied by crediting to the Reserve Fund moneys, a letter of credit, a bond insurance policy, any other comparable credit facility or any combination thereof, which in the aggregate make funds available in the Reserve Fund in an amount equal to the Reserve Requirement; provided, however, that such letter of credit, bond insurance policy or other comparable credit facility, must be issued by a financialinstitution whose long term debt or claims paying ability is rated in a Rating Category at least as high as the rating then in place on the Bonds at the time of delivery of such letter of credit, bond insurance policy or other comparable credit facility. Upon the deposit with the Trustee of such letter of credit, bond insurance policy or other comparable credit facility, the Trustee shall release moneys then on hand in the Reserve Fund to the Agency in an amount equal to the face amount of the letter of credit, bond insurance policy or other comparable credit facility.

Appendix A Page 9 Revenue Fund; D�osit and Transfer of Amounts Therein. All Revenues described in clause (a) of the definition thereof shall be promptly deposited by the Trustee upon receipt thereof in a special fund designat!•d as the "Revenue Fund" which the Trustee shall establish, maintain and hoId in trust.

On or before each Interest Payment Date or date of redemption of Bonds, the Trustee shall transfer from the Revenue Fund and deposit into the following respective accounts (each of which the Trustee shall establish and maintain within the Revenue Fund), the following amounts in the following order of priority, the requirements of each such account(including the making up of any deficiencies in any such account resulting from lack of Revenues sufficient to make any earlier required deposit) at the time of deposit to be satisfied before any transfer is made to any account subsequent in priority:

(a) [11_terest_A<:CQllJ1t. On each Interest Payment Date or date of redemption, the Trustee shall deposit in the Interest Account an amount required to cause the aggregate amount on deposit in the Interest Account to equal the amount of interest becoming due and payable on such Interest Payment Date on all Outstanding Bonds. No deposit need be made into the Interest Account if the amount contained therein is at least equal to the interest becoming clue and payable upon all Outstanding Bonds on such Interest Payment Date or date of redemption. 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). All amounts on deposit in the Interest Account on the first day of any Bond Year, to the extent not required to pay any interest then having come due and payable on the Outstanding Bonds, shall be withdrawn therefrom by the Trustee and transferred to the Agency to be used for any lawful purposes of the Agency.

(b) Principal Account. On each Interest Payment Date on which the principal of the Bonds shall be payable or date of redemption of the Bonds, the Trnstee shall deposit in the Principal Account an amount required to cause theaggregate amount on deposit in the Principal Account to equal the principal amount of the Bonds coming due and payable on such redemption date, or the redemption price of the Bonds (consisting of the principal amount therpof and any applicable redemption premiums)required to be redeemed on such Interest Payment Date. All moneys in the Principal Account shall be used and withdrawn by the Trustee solely for the purpose of (i) paying the principal of the Bonds at the maturity thereof, or (ii) paying the principal of and premium (if any) on any Bonds upon the redemption thereof. All amounts on deposit in the Principal Account on the first day of any Bond Year, to the extent not required to pay the principal of any Outstanding Bonds then having come due and payable, shall be withdrawn therefrom and transferred to the Agency to be used for any lawful purposes of the Agency.

Investmentof Funds All moneys in any of the funds or accounts established with the Trustee pursuant to the Trust Indenture shall be invested by the Trustee solely in Permitted Investments, as directed by the Authority in advance of the making of such investments (which directions shall be promptly confirmed in writing). In the absence of any such directions from the Authority, the Trustee shall invest any such moneys in Permitted Investments described in clause (e) or (h) of the definition thereof. Funds on hand in the Reserve Fund shall be invested in Permitted Investments with a maturity date no later than five (5) years from the date such Permitted Investment is purchased.

Appendix A Page 10 All interest or gain derived from the investment of amounts in any of the funds or accounts established under the Trust Indenture shall be deposited in the fund or account from which such investment was made. For purposes of acquiringany investments under the Trust Indenture, the Trustee may commingle funds held by it under the Trust Indenture. The Trustee may act as principal or agent in the acquisition or disposition of any investment.

Covenants of the Authority

Payment of Bonds; No Encumbrances. The Authority will punctually pay or cause to be paid the principal and interest to become due in respect of all the Bonds, in strict conformity with the terms of the Bonds and of the Indenture, but only out of Revenues and other assets pledged for such payment as provided in the Indenture. The Authority will 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.

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

Tax Covenants.

The Authority shall not take, nor permit nor suffer to be taken by the Trustee 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 Closing Date would have caused the Bonds to be "arbitrage bonds" within the meaning of section 148 of the Tax Code.

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

The Authority shall assure that proceeds of the Bonds are not so used as to cause the Bonds to satisfy the private business tests of section 141(b) of the Tax Code.

The Authority shall assure that proceeds of the Bonds are not so used as to cause the Bonds to satisfy the private loan financing test of section 141(c) of the Tax Code.

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 Tax Code.

The Authority 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 the same extent as such interest is permitted to be excluded from gross income under the Tax Code as in effect on the Closing Date.

Loan Agreement; Amendments Thereof. The Trustee, as assignee of the Authority's rights under the Trust Indenture, shall receive all amounts due from the Agency pursuant to the Loan Agreement and shall diligently enforce, and take all steps, actions and proceedings provided under the Loan Agreement 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.

Appendix A Page 11 The Authority, the Trustee and the Agency may at any time amend or modify the Loan Agreement (a) upon the filing with the Trustee of the written consent of the Owners of a majority in aggregate principal amount of the Bonds then Outstanding to such amendment or modification, or (b) without the consent of any of the Bond Owners, 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 Agreement, other covenants and agreements thereafter to be observed, or to limit or surrender any rights or power therein reserved to or conferred upon theAgency so long as such limitation or surrender of such rights or powers shall not, in the opinion of nationally-recognized bond counsel, and as set forth in a Certificate of the Agency (as definedin the Loan Agreement), materially adversely affect the Owners of the Bonds; or

(b) to make such provisions for the purpose of curing any ambiguity, or ot curing, correcting or supplementing any defective provision contained in the Loan Agreement, or in any otht>rrespect whatsoever as the Agency may deem necessary or desirable, provided under any circumstances that such modifications or amendments shall not, in the opinion of nationally-recognized bond counsel, and as set forth in a Certificate of the Agency (as defined in the Loan Agreement), materially adversely affect the interests of the Owners of the Bonds; or

(c) to make such changes as the Agency may deem necessary or desirable in connection with the issuance of Parity Debt under the Loan Agreement, provided that such modifications or amendments shall not materially adversely affect the interests of the Owners of the Bonds.

Amendment of Indenture 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, upon the prior written consent of the Agency but 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 therein reserved to or conferred upon the Authority so long as such limitation or surrender of such rights or powers shall not matNially adversely affect the Ownns 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 ,my other respect whatsoever as the Authority may deem necessary or desirable, provided under any circumstances that such modificationsor amendments shall not, in the opinion of nationally-recognized bond counsel, and as set forth in a Certificate of the Authority, 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 appropriate to assure the exclusion from gross income for federal tax purposes of interest on the Bonds.

Appendix A Page 12 Except as described in the preceding paragraph, 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 (i) the written consent of the Owners of a majority in aggregate principal amount of the Bonds then Outstanding and (ii) the written consent of the Agency are filed with the Trustee. No such modification or amendment shall (a) extend the maturity of or reduce the interest rate on any Bond or otherwise alter or impair the obligation of the Authority to pay the principal, interest or redemption premiums 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 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.

Events of Default

Events of Default Defined. The following events constitute Events of Default under the Indenture:

(a) Default in the due and punctual payment of the principal of any Bond when and as the same shall become due and payable, whether at maturity as therein expressed, by proceedings for redemption, by declaration or otherwise;

(b) Default in the due and punctual payment of any installment of interest on any Bond when and as such interest installment shall become due and payable;

(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 sixty (60) days after written notice thereof, specifyingsuch default and requiring the same to be remedied, shall have been given to the Authority and the Agency by the Trustee, or to the Authority, the Agency and the Trustee by the Owners of not less than twenty-five percent (25%) in aggregate principal amount of the Bonds at the time Outstanding; provided that such default shall not constitute an Event of Default under the Indenture if the Authority shall commence to cure such default within said sixty (60) day period and thereafter diligently and in good faith shall cure such default within a reasonable period of time; or

(d) The filing bythe 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. Upon the occurrence and during the continuance of an Event of Default, the Trustee may pursue any available remedy at law or in equity to enforce the payment of the principal of, premium, if any, and interest on the Outstanding Bonds, and declare the principal of the Bonds to beimmediately due and payable, whereupon that portion of the principal of the Bonds thereby coming due and the interest thereon accrued to the date of payment shall, without further action, become and be immediately due and payable, anything in the Indenture or in the Bonds to the contrary notwithstanding. Upon the occurrence of an Event of Default and upon the filing ofa suit or other commencement of judicial proceedings to enforce the rights of the Trustee and of the Bond Owners under the Indenture, the Trustee shall be entitled, as a

Appendix A Page 13 matter of right, to the appointment of a receiver or receivers of the Revenues and other amounts pledged thereunder, pending such proceedings, with such powers as the court making such appointment shall confer. If an Event of Default has occurred and is continuing and if requested to do so by the Owners of at least 25%, in aggregate principal amount of Bonds then Outstanding and upon being indemnified as provided in the Indenture, the Trustee is obligated to exercise such one or more of the rights and powers conferred by the Indenture as the Trustee, being advised by counsel, deems most expedient in the interests of the Bond Owners. 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.

�ation of Revenues and Other Punds After Default. All amounts received by the Trustee pursuant to any right givl'n or action taken by the Trustee under the Indenture after an Event of Default shall be applied by the Trustee in the following order upon presentation of the Bonds -

First, to the payment of the costs and expenses of the Trustee fees, in declaring si.;ch Event of Default and in carrying out the provisions of the Indenture, including reasonable compensation to its agents, attorneysand counsel; and

Seco11d, to the payment of the whole amount of interest on and principal of the Bonds then due and unpaid, with interest on overdue installments of principal and interest to the extent permitted by law at the net effective rate of interest then borne by the Outstanding Bonds; provided, however, that in the event such amounts shall be iPsufficient to pay in full the full amount of such interest and principal, then such amounts shall be applied in the following order of priority, (and on a pro rata basis within each priority in the event that available amounts are insufficient to make all payments required within such priority):

(a) first, to the payment of all installments of interest on the Bonds then due and unpaid,

(b) second, to the payment of principal of all installments of the Bonds then due and unpaid,

(c) third, to the payment of the redemption price (including principal and interest accrued to the redemption date) of the Term Bonds to be redeemed from Revenues derived from the acceleration of the Loan, and

(d) fourth, to the payment of interest on overdue installments of principal and interest. Limitation on Bond Owners' Right to Sue. No Owner of any Bond has the right to institute any suit, action or proceeding at law or in equity, for any remedy under the Indenture, unless (a) such Owner has previously given to the Trustee written notice of the occurrence of an event of default; (b) the Owners of a majority in aggregate principal amount of all the Bonds then Outstanding have requested the Trustee in writing to exercise its powers under the Indenture; (c) said Owners have tendered to the Trustee indemnity reasonably acceptable to the Trustee against the costs, expenses and liabilities to be incurred in compliance with such request; and (d) the Trustee has refused or failed to comply with such request for a period of 60 days after Sllch written request has been received by the Trustee and said tender of indemnity is made to the Trustee.

Appendix A Page 14 Non-Waiver. Nothing in the Indenture or in the Bonds shall affect or impair the obligation of the Authority, which is absolute and unconditional, to pay the interest on and principal of the Bonds to the respective Owners of the Bonds at the respective dates of maturity, as therein provided, out of the Revenues and other moneys therein pledged for such payment. A waiver of any Event of Default by the Trustee or any Bond Owner will not affect any subsequent default or impair any rights or remedies on the subsequent default. No delay or omission of the Trustee or any Owner of any of the Bonds to exercise any right or power accruing upon any default will impair any such right or power or be construed to be a waiver of or acquiescence in any such default. Power of Trustee to Control Proceedings. In the event that the Trustee, upon the happening of an Event of Default, shall have taken any action, by judicial proceedings or otherwise, pursuant to its duties under the Indenture, whether upon its own discretion or upon the request of the Owners of a majority in aggregate principal amount of the Bonds then Outstanding, it shall have full power, in the exercise of its discretion for the best interests of the Owners of the Bonds, with respect to the continuance, discontinuance, withdrawal, compromise, settlement or other disposal of such action; provided, however, that the Trustee shall not, unless there no longer continues an Event of Default, discontinue, withdraw, compromise or settle, or otherwise dispose of any litigation pending at law or in equity, if at the time there has been filed with it a written request signed by the Owners of a majority in aggregate principal amount of the Outstanding Bonds opposing such discontinuance, withdrawal, compromise, settlement or other disposal of such litigation, and the Trustee shall receive indemnification for its costs and expenses incurred with respect thereto. Any suit, action or proceeding which any Owner of Bonds shall have the right to bringto enforce any right or remedy the Indenture may be brought by the Trustee for the equal benefit and protection of all Owners of Bonds similarly situated and the Trustee is appointed (and the successive respective Owners of the Bonds issued under the Indenture, by taking and holding the same, shall be conclusively deemed so to have appointed it) the true and lawfulattorney-in­ factof the respective Owners of the Bonds for the purpose of bringing any such suit, action or proceeding and to do and perform any and all acts and things for and on behalf of the respective Owners of the Bonds as a class or classes, as may be necessary or advisable in the opinion of the Trustee as such attorney-in-fact. Discharge of Indenture If the Authority shall pay and discharge any or all of the Outstanding Bonds in any one or more of the following ways: (a) by paying or causing to be paid the principal of and interest and redemption premium (if any) on such Bonds, as and when the same become due and payable; (b) by irrevocably depositing with the Trustee, in trust, at or before maturity, money which, together with the amounts then on deposit with the Trustee in the funds and accountsprovided for in the Indenture and the Loan Agreement, is fully sufficient to pay such Bonds, including all principal, interest and redemption premium, if any; or (c) by irrevocably depositing with the Trustee or any other fiduciary, in trust, Defeasance Obligations in such amount as an Independent Certified Public Accountant shall certify in writing will, together with the interest to accrue thereon and moneys then

Appendix A Page 15 on deposit with the Trustee in the funds and accounts provided for in the Indenture and the Loan Agreement, be fully sufficient to pay and discharge the indebtedness on such Bonds (including all principal, interest and redemption premiums) at or before their respective maturity dates. and if such Bonds are to be redeemed prior to the maturity thereof notice of such redemption shall have been mailed pursuant to the Indenture or provision satisfactory to the Trustee shall have been made for the mailing of such notice, then, at the Request of the Authority, and notwithstanding that any of such Bonds shall not have been surrendered for payment, the pledge of the Revenues and other funds provided for in the Indenture with respect to such Bonds, and all other pecuniary obligations of the Authority under the Indenture with respect to such Bonds, shall cease and terminate, except only the obligation of the Authority to pay or cause to be paid to the Owners of such Bonds not so surrendered and paid all sums due thereon from amounts set aside for such purpose as aforesaid, and all expenses and costs of the Trustee. Any funds thereafter held by the Trustee, which are not required for said purposes, shall be paid over to the Authority.

LOAN AGREEMENT

Terms of Loan; Payment of Principal andInterest

Pursuant to the Loan Agreement, the Authority agrees to make the Loan to the Agency on the Closing Date. The principal of the Loan is payable in aggregate installments on September 1 in each of the years and in the amounts, and interest on each installment of the Loan is calculated at the rates per annum and is payable on each Interest Payment Date in the aggregate amounts, corresponding to the amounts of principal and interest then corningdue with respect to the Outstanding Bonds. Principal of and interest on the Loan is payable by the Agency to the Trustee, as assignee of the Authority under the Indenture, in immediately available funds.

Prepayment of Loan The Loan shall not be subject to optional prepayment prior to September 1, 2006. The Loan is subject to optional prepayment in whole on any date occurring on or after September 1, 2007 or in part in any integral multiple of $5,000 on any Interest Payment Date thereafter, from any available source of funds of the Agency, at a prepayment price corresponding to the redemption price of the Bonds to be redeemed from such prepayments.

The principal amount of the Loan coming due and payable on September 1, 2012 and September 1, 2016, shall be subject to mandatory prepayment on September 1 in each year, commencing September 1, 2010, from mandatory payments made by the Agency in accordance with the following schedule, at a prepayment price equal to the principal amount thereof to be prepaid together with accrued interest thereon to the prepayment date, without premium:

Prepayment Date Principal Amount Prepayment Date Principal Amount �ptemb�r 1 l To Be Pre_paid .($eptemll<'r1J ]:Q_Be Prepai_c:l 2010 $385,000 2013 $455,000 201 1 41 0,000 2014 485,000 2012 430,000 2015 515,000 2016 545,000

Appmdix A Page 16 Redevelopment Fund

On the Closing Date the Agency will deposit a portion of the proceeds of the Loan into a separate account within the Redevelopment Fund, to be known as the "1996 Redevelopment Loan Proceeds Account". Amounts on deposit in the 1996 Redevelopment Loan Proceeds Account will be derived solely from the proceeds of the Loan deposited therein pursuant to the Indenture and from the interest, profits and other income received from the investment of moneys in the 1996 Redevelopment Loan Proceeds Account. Amounts in the 1996 Redevelopment Loan Proceeds Account will be used solely in the manner provided by the Redevelopment Law and the Redevelopment Plan to provide financing for the Project.

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:

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

(b) The Pledged Tax Revenues estimated to be received for the then current Fiscal Year based on the most recent assessed valuation of property in the Project Area (excluding taxes attributable to a tax rate levied by a taxing agency for the purpose of producing revenues in an amount sufficientto make annual repayments of the principal of, and the interest on, any bonded indebtedness of such taxing agency), as evidenced in writing from the County Assessor or other appropriate official of the County shall be at least equal to one hundred thirty-five percent (135%) of Maximum Annual Debt Service, including maximum annual debt service on the proposed Parity Debt;

(c) The related Parity Debt Instrument shall provide that interest on such Parity Debt shall be payable semiannually on September 1 and March 1 in each full calendar year during the term of such Parity Debt and the principal of such Parity Debt shall be payable on September 1 in each year principal is paid;

(d) The Agency shall deliver to the Authority and the Trustee a Certificateof the Agency certifying that the aggregate amount of principal of and interest on the Loan, all Parity Debt, all Subordinate Debt and all other indebtedness following the issuance or incurrence of such Parity Debt will not exceed the maximum amount of Pledged Tax Revenues permitted under the Plan Limits to be allocated and paid to the Agency following the issuance or incurrence of such Parity Debt;

(e) The Agency shall fund a reserve fund for such Parity Debt in an amount equal to the Reserve Requirement; and

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

Appendix A Page 17 Subordinate Debt

ln addition to the Loan, the Agency may issue or incur Subordinate Debt in such principal amount as shall be determined by the Agency, as provided in the Loan Agreement.

Pledge and Deposit of Tax Revenues

The Loan and all Parity Debt shall be equally secured by a first pledge of, lien on and security interest in all of the Pledged Tax Revenues, without preference or priority for series, issue, number, dated date, sale date, date of execution or date of delivery. The Loan shall be additionally secured by moneys in the Special Fund. The Pledged Tax Revenues are allocated in their entirety to the payment of the principal of and interest on the Loan and all Parity Debt, except as provided in the Loan Agreement. Except for the Pledged Tax Revenues and amounts in the funds and accounts pledged under the Loan Agreement, 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.

The Agency shall deposit all of the Pledged Tax Revenues received in any l:$ond Year in the Special Fund promptly upon receipt thereof, until such time (if any) during any 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 in any such Bond Year; and (except as may be otherwise provided in any Parity Debt Instruments) any Pledged Tax Revenues received during any such Bond Year in excess of such amounts are released from the pledge, lien and security interest of the Loan Agreement and may be used for any lawful purpose of the Agency.

The Agency shall withdraw from the accounts within the Special Fund and transfer to the Trustee the following amounts at the following times and in the following order of primity:

(a) lnt�rest Account Degg_sits. On the tenth (10th) Business Day preceding each Interest Payment Date or date of prepayment of the Loan under the Loan Agreement or date of prepayment of any Parity Debt under a Parity Debt Instrument, an amount equal to the amount of interest on the Loan or Parity Debt becoming due and payable on such Interest Payment Date or date of prepayment pursuant to the Loan Agreement or date of prepayment for such Parity Debt, as applicable.

(b) Principal Account Deposits.

(i) On the tenth (10th) Business Day preceding each September 1 on which the Agency is obligated to repay principal of the Loan pursuant to the Loan Agreement or any Parity Debt, an amount equal to the amount of principal on the Loan becoming due and payable on such September 1 pursuant to the Loan Agreement or on any Parity Debt under a Parity Debt Instrument.

(ii) On the thirtieth (30th) day preceding any date on which the Agency is to make an optional prepayment of the Loan pursuant to the Loan Agreement or an optional prepayment of any Parity Debt, an amount equal to the amount of principal and premium, if any on the Loan being prepaid on such date pursuant to the Loan Agreement or on any Parity Debt under a Parity Debt lnstru ment.

(iii) On the tenth (10th) Business Day preceding each September 1 on which the Agency is obligated to r('pay principal of the Loan pursuant to the Loan Agreement or is obligated to pay the principal of any Parity Debt in

Appendix A Page 18 connection with Mandatory Sinking Fund redemption of the Bonds, an amount equal to the principal of the Loan becoming due and payable on such September 1 pursuant to the Loan Agreement or on any Parity Debt under a Parity Debt Instrument.

(c) Reserve Fund Deposits. On the tenth (10th) Business Day preceding each Interest Payment Date, such amount, if any, as shall be required to cause the amount on deposit in the Reserve Fund and any similar fund established with respect to Parity Debt to equal the Reserve Requirement.

(d) 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 Pledged 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 pursuant to the Loan Agreement. In the event that for any reason whatsoever any amounts shall remain on deposit in the Special Fund on any September 2 which are not required for any of the transfers required to be made pursuant to the preceding clauses (a), (b) and (c) or 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.

OtherCovenants of theAgency

Limitation on Superior Debt. 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 Pledged Tax Revenues which is superior to the lien established under the Loan Agreement for the security of the Loan, excepting only Parity Debt. Nothing is intended or shall be construed in any way to prohibit or impose any limitations upon the issuance by the Agency of Subordinate Debt; other than the limitations expressly provided in 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 Pledged 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 theAgency in good faith shall contest the validity of said claims.

Books and Accounts; Financial Statements. TI1e Agency will keep, or cause to be kept, proper books of record and accounts, separate from all other records and accounts of the Agency and the City, in which complete and correct entries shall be made of all transactions relating to the Redevelopment Project, the Pledged Tax Revenues, the Special Fund and the 1993 Redevelopment Loan Proceeds Account. Such books of record and accounts shall at all times during business hours be subject, upon prior written request, to thereasonable inspection of the Authority, the Trustee and the Owners of any Bonds then Outstanding, or their representatives authorized in writing.

The Agency will cause to be prepared and sent to the Trustee annually, within 180 days after the close of each Fiscal Year so long as any of the Bonds are Outstanding, complete audited financial statements with respect to such Fiscal Year showing the Pledged Tax Revenues, all disbursements from the Special Fund, the 1993 Redevelopment Loan Proceeds Account and the financial condition of the Redevelopment Project, including the balances in all

Appendix A Page 19 funds and accounts relating to the Redevelopment Project, as of the end of each Fiscal Year. The Agency will furnish a copy of such statements, upon reasonable request, to any Bond Owner.

Protection of Security_ang__Ri)mts, The Agency will preserve and protect the security of the Loan and the rights of the Trustee and the Bond Owners with respect to the Loan. From and after the Closing Date, the Loan shall be incontestable by the Agency.

Payments of Taxes and Other Charges. The Agency will pay and discharg<', 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 in the Loan Agreement shall require the Agency to make any such payment so long as the Agpncy 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 governmentalauthority relative to the Redevelopment Project or any part thereof.

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

Disposition of Proper.!)'. The Agency will not participate in the disposition of any land or real property in the Project Areil to anyone which will result in such property becoming exempt from taxation because of public ownership or use or otherwise (exc,,pt property dedicated for public right-of-way ;rnd except property planned for public ownership or use by the Redevelopment Plan) so that such disposition shall, when taken together with other such dispositions, aggregate more than 10% of the land area in the Project Area. Notwithstandin!,ithe foregoing, however, if the Agency proposes to participate in such a disposition, it may appoint an Independent Redevelopment Consultant to report on the effect of said proposed disposition. If the report of the Independent Redevelopment Consultilntconcludes that the SPcurity of the Loiln and the rights of the Authority, the Bond Owners and the Trustee under the Loan Agreement 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 materiillly impaired by said proposed disposition, the Agency will 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 Pledged Tax Revenues, including without limitation the timely filing of any necessary statements of indebtedness with appropriate officials of the County and appropriate officials of the State of California. The Agency shall not enter into any agreement entered into pursuant to Section 33401 of the Redevelopment Law or any other agreement with the County or any other governmental unit, which would have the effect of reducing the amount of Pledged Tax Revenues available to the Agency for payment of the Loan (excluding taxes attributable to ,1 tax rate levied by a taxing agency for the purpose of producing revenues in an amount sufficient to make annual repayments of the principal of, and the interest on, any bonded indebtedness of such taxing agency), unless the Agency shall first obtain the Report of an Independent Redevelopment Consultant stating that the Pledged Tax Revenues estimated to be received in the current Fiscal Year and in each of the three (3) succeeding Fiscal Years shall be at least equal to one hundred thirty-five percent (135%) of Maximum Annual Debt Service; provided, however, that the Agency may ilmend or replace its Tax-Sharing Agreement with the San Mateo County Community College District so long as such amendment or replacement does not reduce or impair the amount of pledged Tax Revenues able to be collected by the Agency.

Appendix A Page 20 Payment of Expenses; Indemnification. The Agency shall pay to the Trustee from time to time all compensation for all services rendered under the Loan Agreement and the Indenture. Upon the occurrence of an Event of Default, the Trustee shall have a first lien on the Pledged Tax Revenues and the Reserve Fund to secure the payment to the Trustee of all fees, costs and expenses, including reasonable compensation to its experts, attorneys and counsel incurred in declaring such Event of Default and in exercising the rights and remedies set forth in the Loan Agreement. The Agency further covenants and agrees to indemnify and save the Trustee and its officers, directors, agents and employees, harmless against any loss, expense and liabilities which it may incur arising out of or in the exercise and performance of its powers and duties under the Loan Agreement, including the costs and expenses or defending any claim of liability, but excluding any and all losses, expenses and liabilities which are due to the negligence or willful misconduct of the Trustee, its officers, directors, agents or employees. The obligations of the Agency shall survive the resignation or removal of the Trustee under the Indenture, the Loan Agreement and payment of the Loan and the discharge of the Loan Agreement. Amendment of Loan Agreement. The Loan Agreement may only be amended as provided in the Indenture. See "SUMMARY OF PRINCIPAL LEGAL DOCUMENTS - Indenture - Covenants of the Authority - Loan Agreement; Amendments Thereof" herein. Plan Limits. The Agency shall not issue any bonds, notes or other obligations, enter into any agreement or otherwise incur any indebtedness, which is in any case payable from allor any part of the Pledged Tax Revenues, excepting only the Loan, any Parity Debt, and any Subordinate Debt. The Agency shall take no action, including but not limited to the issuance of its bonds, notes or other obligations, which causes or which, with the passage of time, would cause either of the Plan Limits to be exceeded or violated. The Agency shall manage its fiscal affairs in a manner which ensures that it will have sufficient Pledged Tax Revenues available under the Plan Limits in the amounts and at the times required to enable the Agency to pay the principal of and interest and premium (if any) on the Loan when due, and shall make deposits to a sinking fund, if necessary, to assure timely and sufficient payment of the Agency's obligations. The Agency shall prepare or cause to be prepared annually within one hundred eighty (180) days following the close of each Fiscal Year so long as any of the Bonds remain Outstanding, and file with S&P a Certificate of the Agency setting forth a calculation for the Project Area of (a) the total amount of Pledged Tax Revenues which the Agency is permitted to collect while the Loan is outstanding, as limited by the Plan Limits, and (b) the aggregate amount of debt service coming due and payable on the Loan, any Parity Debt and outstanding Subordinate Debt, to the extent payable from Pledged Tax Revenues.

Eventsof Default and Remedies

The following events constitute Events of Default under the Loan Agreement: (a) Failure by the Agency to pay the principal of or interest or prepayment premium (if any) on the Loan or Parity Debt when due and payable. (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 60 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

Appendix A Page 21 failure stated in such notice can be corrected, but not within such 60 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 60 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 under the Loan Agreement, the Trustee may, and at the written direction of the Owners of at least twenty-five percent (25%) in aggregate principal amount of the Outstanding Bonds and any Parity Debt the Trustee shall, (a) declare the principal of the Loan and any Parity Debt, together with the accrued interest on all unpaid installments thereof, to be due and payable immediately, and upon any such declaration the same shall become immediately due and payable, and (b) exercise any other remedies available to the Trustee in law or at equity. This provision, however, is subject to the condition that if, at any time after the principal of the Loan and any Parity Debt 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 installments of principal of the Loan and any Parity Debt matured prior to such declaration and all accrued interest thereon, with interest on such overdue installments of principal and interest at the net effective rate then borne by the Outstanding Bonds, and the reasonable costs, fees and expenses of the Trustee, and any and all other defaults known to the Trustee (other than in the payment of principal of and interest on the Loan and any Parity Debt due and payable solely by reason of such declaration) shall have been made good or cured to the satisfactionof the Trustee or provision deemed by the Trustee to be adequate shall have been made therefor, then the Owners of the majority in aggregate principal amount of the Outstanding Bonds may, by written notice to the Trustee and the Agency, rescind and annul such declaration and its consequences. 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, subject to the rights of the holders of Parity Debt and any Trustee acting on their behalf, be applied by the Trustee in the following order: First, to the payment of the fees, costs and expenses of the Trustee in declaring such Event of Default and in carrying out the provisions of the Loan Agreement relating to remedies, including reasonable compensation to its agents, attorneys and counsel; and Second, to the payment of the whole amount of interest on and principal of the Loan then due and unpaid, with interest on overdue installments of principal and interest to the extent permitted by law at the rates of interest then borne by the Loan; 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: (a) first, to the payment of all installments of interest on the Loan 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,

Appendix A Page 22 (b) second, to the payment of principal of all installments of the Loan then due and unpaid, other than principal having come due and payable solely by reason of acceleration, 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 principal of the Loan then due and unpaid and having come due and payable solely by reason of acceleration, on a pro rata basis in the event that the available amounts are insufficient to pay all such principal in full, and (d) fourth, to the payment of interest on overdue installments of principal and interest on the Loan, on a pro rata basis in the event that the available amounts are insufficientto pay all such interest in full. No Waiver. Nothing in the Loan Agreement shall affect or impair the obligation of the Agency, which is absolute and unconditional, to pay from the Pledged Tax Revenues and other amounts pledged under the Loan Agreement, the principal of and interest and premium (if any) on the Loan and any Parity Debt to the Trustee on the respective Interest Payment Dates or dates of prepayment of the Loan or such Parity Debt, or affect or impair the right of action, which is also absolute and unconditional, of the Trustee to institute suit to enforce such payment by virtue of the contract embodied in the Loan Agreement. A waiver of any default by the Trustee shall not affect any subsequent default or impair any rights or remedies on the subsequent default. No delay or omission of the Trustee to exercise any right or power accruing upon any default shall impair any such right or power or shall be construed to be a waiver of any such default or an acquiescence therein, and every power and remedy conferred upon the Trustee by the Redevelopment Law or by the Loan Agreement may be enforced and exercised from time to time and as often as shall be deemed expedient by the Trustee. Discharge of Loan Agreement

If the Agency shall pay and discharge the entire indebtedness on the Loan and any Parity Debt 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 prepayment premiums (if any) on the Loan and any Parity Debt, as and when the same become due and payable; (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, is fully sufficient to pay all principal of and interest and prepayment premiums (if any) on the Loan and any Parity Debt; or (c) by irrevocably depositing with the Trustee or any other fiduciary,in trust, Defeasance Obligations in such amount as an Independent Certified Public Accountant shall certify in writing 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 the Loan or such portion thereof (including all principal, interest and prepayment premiums) at or before maturity;

Appendix A Page 23 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 has been made, the pledge of and lien upon the Pledged 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 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 any Parity Debt and all expenses and costs of the Trustee.

Appendix A Page 24 APPENDIX B

GENERAL INFORMATION CONCERNING THE CITY AND REGION

The following information is presented as general background data. The Bonds are payable solely from Revenues as defined herein. The taxing power of the City of Foster City, the State of California or any political subdivision thereof is not pledged to the payment of the Bonds.

General

The City is a general law city incorporated April 27, 1971. The City operates under a council-manager form of government. The five councilmembers are elected at large for staggered four-year terms.

The City Manager is appointed by the City Council and serves at the Council's pleasure as the administrative head of the City. The City Manager is responsible for appointment of all City employees except the City Attorney, City Clerk and Treasurer.

Location

Foster City is located midway between San Francisco and San Jose on the western shoreline of the San Francisco Bay. U.S. 101 is on the western edge of the City and provides convenient access to San Francisco Airport and San Francisco to the north and Santa Clara County to thesouth. The City is bisected by State Route 92 (the J. Arthur Younger Freeway), which runs between Half Moon Bay to the west and to Hayward and Highway 880 to the east via the San Mateo-Hayward Bridge.

Stanford University is located approximately 15 miles south of the City and just beyond Stanford University lies the electronics research and manufacturing center known as Silicon Valley. The City of San Jose is at the southern end of Silicon Valley (approximately 30 miles south of Foster City). Foster City has long been recognized as a prime residential community conveniently located mid-way between majorareas of employment to the north and the south.

Population

Table B-1 on the next page sets forth total population statistics for the City of Foster City and the County of San Mateo.

B-1 TABLE B-1 CITY OF FOSTER CITY AND COUNTY OF SAN MATEO Population

County of Year Foster City Percent Change San Mateo Percent Change ------. 1970 9,522 557,261 1980 23,050 142.0% 587,328 ).4o/o 1989 27,750 20.4°10 630,800 7 .4°/o 1990 28,100 1.3�'0 649,623 2.9°10 1991 28,300 .7°.10 657,300 !.2•Yo 1992 28,700 1.4'!,o 670, 100 l.9(Yo 1993 29, 100 1.3 ?,o 677,800 l. I 0/o 1994 29,200 0.3°10 686,500 1.3% 1995 29, I 00 (.3)% 685,400 (.2)% ° 1996 29,300 .7°/o 691 ,500 .9/o

Source: County of San Mateo.

Annual employment statistics in San Mateo County are set forth in Table B-2.

TABLE B-2 SAN MATEO COUNTY Labor Force, 1990 - 1995 (In Thousands)

1990 1991 1992 1993 1994 1995

Civilian Labor Force 372.4 367.4 368.0 370.5 371.1 368.9 Employed 361.9 352.5 349.5 351.5 352.8 352.4 Unemployed 10.5 14.9 18.2 19.0 18.3 16.5 Unemployment Rate 2.8 4.1 4.9 5.1 4.9 4.5 ------. ,\'ource: State of ' CalifOrnia Employment Devclop1nent Departn1ent.

ll-2 MajorEmp loyers Table B-3 sets forth the largest employers in Foster City.

TABLE B-3 CITY OF FOSTER CITY Largest Employers 1995 Estimated Number Business Type of Business of Employees Visa International & Visa USA Corporate Headquarters 900+ Applied Biosystems Division Medical Instrumentation 700+ (Perkin Elmer Corporation) Holiday Inn Hotel 200+ Eureka Bank Corporate Banking Headquarters 150 Storybook Heirlooms Children's Apparel Manufacturer 150+ American Western Life Insurance Co. LifeIns urance 100+ Blyth Software, Inc. Computer Software 100+ CaliforniaState Department of Transportation State Highway Maintenance 100+ Cell Genesys Biotech/Research 100+ Costco Wholesale Wholesale Warehouse 100+ Franklin Distributors, Inc. Publishing Facility 100+ Gilead Sciences Biotech/Research 100+ Information Access Company Periodical Reference Systems 100+ Lincoln Property Company Office Complex Leasing 100+ Nortel Meridian Systems Telephone Switching Eqmt. Mfg. 100+ Rudolph & Sletten Building Contractor 100+

Source: Cityof Foster Chamber of Commerce.

Income

The following table summarizes the Total EBI for the County, the State and the nation for the years 1993 through 1995.

Total Effective Buying Income (In Thousands) County of State of Year San Mateo California United States 1993 14,293,562 509, 152,677 3,916,947,023 1994 14,676,284 528,958,745 4,169,724,052 1995 15,458,280 552,074,838 4,436, 178, 724

Source: "Survey of Buying Power, "Sales & Marketing Management Magazine.

B-3 The following table summarizes the median household EB! forthe County, the State and the nation forthe years 1993 through I 995.

Median Household Effective Buying Income

County of State of Year San Mateo California United States 1993 46,977 37,686 33, 178 1994 48,241 39,330 35,056 1995 50,629 40,969 37,070 . ,)ource: "Surve;' oj Buying Power, " S'ales & A4arketing A4anagement Magazine.

The average household income in the City or Foster City was $60,462 (l989 figures) - ( 1990 census data), as compared to the average for San Mateo County of $49, 900 (U.S. - HUD).

Commercial Activity

Trade outlet and retail sales activity are summarized in Table B-4 based on reports of the State Board of Equalization.

TABLE B-4 CITY OF FOSTER CITY Total Taxable Transactions and Number of Sales Permits 1985-1995 ($000, except permits)

Retail Sales Total Taxable Issued Sales ----Year Retail Sales Permits Transactions Permits

1985 $65,428 136 $120,575 725 1986 75,656 155 I 55,563 802 1987 73,721 163 174.433 910 1988 87,281 160 190,282 912 1989 98,040 166 228,554 932 1990 99,984 172 225,592 951 1991 95,226 175 231,255 899 1992 50,398 181 114,645 972 1993 108,268 176 228,954 986 1994 120,292 177 254,936 972 1995 218,269 178 351,340 96 1 ---- Source: State Board �f Equalization, Taxable Sales in ('alifOrnia.

13-4 TABLE B-5 COUNTY OF SAN MATEO Estimated Number of Wage and Salary Workers by Industry, 1990-1995 (amounts in thousands)

Industry 1990 1991 1992 1993 1994 1995 Total Agriculture 2.9 2.9 2.9 2.9 2.9 2.9 Mining and Construction Mining 15.4 13.3 11.6 10.7 11.2 11.4 Manufacturing 35.7 35.4 33.3 33.0 32.3 32.8 Transportation & Public Utilities 37.7 38.7 38.8 37.7 37.5 3.8 Wholesale & Retail Trade 78.2 76.7 74.3 71.8 72.2 74.2 Finance/Insurance/Real Estate 22.1 23.1 21.8 22.2 22.0 21.7 Services 81.1 82.6 82.8 83.6 86.3 92.0 Government 33.9 34.0 33.3 33.0 32.1 32.3 TOTAL 307.9 306.7 298.8 294.9 296.5 305.3

Source: State Employment Development Department.

Building Activity

Table B-6 summarizes building activity in Foster City since 1990.

TABLE B-6 CITY OF FOSTER CITY Building Activity and Valuation, 1990 - 1995 (In Millions)

Type 1990 1991 1992 1993 1994 1995 Type Residential (I) $4.3 $11.7 $ 2.7 $ 3.4 $ 5.3 $10.7 Commercial/Industrial (I) 8.6 9.1 12.9 24.9 11.8 19.5 TOTAL $12.9 $20.8 $15.6 $28.3 $17. 1 $30.2

Number of Building Permits Single-Family 1 61 0 0 0 39 Multi-Family 0 0 0 0 0 60 TOTAL 61 0 0 0 99

(1) Includes alterations/additions.

Source: Economic �)c iences Corporation.

B-5 Assessed Valuation and Property Ta xes

Table B-7 sets forth a six-year history of the City's assessed property valuation. Over these live years, the City's assessed valuation has increased at an average compound annual rate of approximately ___percent.

TABLE B-7 CITY OF FOSTER CITY Assessed Valuation History, 1990/91 - 1995/96

Fiscal Local Total Before Total After -·---Year Secured Utility Unsecured Rdv. Increment Rdv. Increment 990/9 1 2,259,781 ,842 0 123,637,258 2,383,419, I 00 1,845,485,581 1991/92 2,331 ,527,897 0 127,976,2 12 2,459,504, I 09 1 ,909,079, 134 992/93 2,411,344,332 () 148,866,88 1 2,560,211,213 1,980,694,405 1993/94 2,498,457,915 () 158,388,285 2,656,846,200 2,045,93 1,498 1994/95 2,530,724,941 0 i 77,733,071 2,708,458,0 12 2.074,634,575 1995/96

Source: [�al{/brnia Municipal S'tatistics, Inc.

Table B-8 sets forth the City's secured tax levy for each of the past seven years. The table also includes the dollar amount and percent delinquent as of June 30 of each year.

TABLE B-8 CITY OF FOSTER CITY Secured Tax Charges and Delinquencies, 1990/91 - 1994/95

Secured Amount Delinquent 1Yti Delinquent Fiscal Year Tax Charge (I) .lune 30 June 30

1990/9 1 32,006,50 1.18(2) I,706,444.20 5.33 (3) 1991/92 33,540,346.30(2) 3,756,954.78 11.20 (3) 1992/93 33,852,896.88 1,093,652.67 3.23 1993/94 33,729,4 13.64 623,305.33 1.85 1994/95 (4) n/a n/a n/a

( I) All taxes collected by the County within the Citv (2) Includes special charges (3) The increased percentages of delinquent secured tax charges shown jor 1990/91 and 1991/92 are attributable in part to (a) the 1990/91 and 1991/92 statistics including. for the jirst time. special charges and assessments collecled on the property tax rolls and (h) delinquencies in payments o.{special assessments by the 1najor property owners in two special assessn1ent districts. Since June 30, /992, the C'ity has concluded fhreclosure proceedings against the mqfor delinquent special assesstnent parcels, and back taxes and de!tnquent assessn1ents with respect to those parcels have heen paid and brought current. (4) The County itnp!emented the Teeter J>/an 111fisca/ year /993/94; and subsequently, the ( 'ity has received the _full amount

,\'ource. C'al{fi:1rnia Municipal Statistics. Inc.

B-6 Utilities

The boundaries of the City of Foster City are essentially coterminous with those of the Estero Municipal Improvement District (EMID). EMID was created in 1960 and was granted most of the governing powers associated with an incorporated municipality. EMID sold bonds to financethe major improvements needed for development of the City. EMID provides water and sewer service to Foster City and water service to Mariner's Island and is a separate legal entity with the City Council serving as its Board of Directors.

Education

There are currently four operational schools in Foster City, three elementary and one secondary, which are under the jurisdiction of the San Mateo City School District. Foster City is also within the San Mateo High School District and Foster City students attend either San Mateo or Hillsdale High Schools located in San Mateo.

Transportation

SamTrans (San Mateo County Transit District) provides bus service to Foster City and throughout San Mateo County with connections to the Daly City and Hayward BART stations, San Francisco International Airport, Peninsula Ca!Train Stations, San Francisco Greyhound Depot and downtown San Francisco. The SamTrans system also connects with AC Transit and Golden Gate Transit at San Francisco's Transbay Terminal, and with Santa Clara County Transit in Menlo Park and Palo Alto.

Six SamTrans routes serve Foster City, including three commute routes to San Francisco, two routes to The Fashion Island Shopping Center, Vintage Park, and Hillsdale Shopping Center, and one route between theHayward BART station and Bay Meadows racetrack.

Culture

Foster City's Committee for the Arts provides a range of activities such as workshops, contests, concerts, and monthly showings at the Museum Gallery located in the Foster City Recreation Center, 650 Shell Boulevard.

The Foster City Library, a branch of the San Mateo County Library, is located in the Civic Center complex at 600 Foster City Boulevard and provides library services to the City.

The Hillbarn Theater, located at 1285 East Hillsdale Boulevard, presents community theater productions, including musicals, comedies, and dramas.

The City is one of the sponsors of two annual community events: the Fourth of July Celebration and the City Birthday Party. The Fourth of July Celebration is an all-day event, co­ sponsored by the Lion's Club, and includes fireworks, carnival rides, midway games, demonstrations, and other activities. The City Birthday Party is held the first weekend in June

8-7 and is co-sponsored by the Foster City Chamber of Commerce and the Rotary Club. The Birthday Party includes the Foster City Art and Wine Festival, carnivaL midway games, demonstrations, arts and crafts, a talent show, and other events.

Recreation

The Parks Division of the City oversees twenty parks within the four square miles comprising the City's boundaries. The parks range in size from 0.1 acre to 26 acres fora total of approximately I 00 acres of park land. Each neighborhood has an easily accessible park or open space area. Additionally, the extensive lagoon system, 202 acres of waterways, and the San Francisco Bay provide water oriented recreation such as boating and board sailing to all City residents. The lagoons can be reached from, and represent the major focus of, many of Foster City's parks.

Some parks primarily serve the surrounding neighborhood while others serve the community as a whole. Passive parks have only landscaping and perhaps some playground equipment and/or picnic tables while active parks have sports facilities such as basketball courts and sports fields.

The "pedway" is a unique recreational amenity found in Foster City. The pedway is a pathway that encircles almost the entire city and provides public access to the San Francisco Bay, Belmont Slough, and the Marina Lagoon. Most of the pedway is on the levee and raised above street level and is separated from a street or developed areas with landscaping. The pedway is particularly popular forrunning, walking, and biking around the City.

The Recreation Division is responsible for an extensive recreation program that includes many seasonal outdoor activities, such as summertime concerts in Ryan Park. Programs are offered quarterly and have tripled in number within the last few years.

B-8 KPMG The Global Leader APPENDIX C

AGENCY'S AUDITED FINANCIAL STATEMENTS (Fiscal Year Ending June 30, 1995)

CITY OF FOSTER CITY COMMUNITY DEVELOPMENT AGENCY Combined Financial Statements and Supplemental Schedule June 30, 1995

(Independent Auditors' Report and Independent Auditors' Compliance Report)

C-1 CITY OF FOSTER CITY COMMUNITY DEVELOPMENT AGENCY

TABLE OF CONTENTS June 30, 1995

Independent Auditors' Report ......

Combined Financial Statements: Combined Balance Sheet - All Fund Types and Account Groups...... 2 Combined Statement of Revenues and Expenditures and Changes in Fund Balances ...... 3 Combined Statement of Revenues and Expenditures - Budget (GAAP Basis) and Actual...... 4 Notes to Combined Financial Statements ...... 5-13

Combining Financial Statements: Debt Service Funds: Combining Balance Sheet ...... • 15 Combining Statement of Expenditures and Changes in Fund Balances ...... _ 16 Combining Statement of Expenditures - Budget (GAAP Basis) and Actual...... 17

Capital Projects Funds: Combining Balance Sheet ...... 19 Combining Statement of Revenues, Expenditures and Changes in Fund Balances ...... 20 Combining Statement of Revenues, Expenditures Budget (GAAP Basis) and Actual...... 21

Supplemental Schedule ...... 22

Independent Auditors' Compliance Report ...... 23 KPMG Peat Marwick LLP

Three Embarcadero Center San Francisco, CA 941 11

Independent Auditors' Report

Members of the Boardof the City of Foster City Community Development Agency:

We have audited the combined financial statements of City of Foster City Community Development Agency (the Agency) as of and for the year ended June 30, 1995, as listed in the accompanying table of contents. These combined financial statements are the responsibility of the management of the Agency. Our responsibility is to express an opinion on these combined financial statements based on our audit.

We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the combined financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the combined financial statements. An audit also includes assessing the accounting principles used and significantestimates made by management, as well as evaluating the overall combined financial statement presentation. We believe that our audit provides a reasonable basis forour opinion.

In our opinion, the combined financial statements referred to above present fairly, in all material respects, the financial position of the City of Foster City Community Development Agency as of June 30, 1995, and the results of its operations for the year then ended in conformity with generally accepted accounting principles.

Our audit was made forthe purpose of forming an opinion on the combined financial statements taken as a whole. The combining financial statements and supplemental schedule listed in the accompanying table of contents are presented forpurposes of additional analysis and are not a required part of the combined financial statements. Such information has been subjected to the auditing procedures applied in the audit of the combined financial statements, and in our opinion, is fairly stated in all material respects in relation to the combined financial statements taken as a whole.

October 20, 1995

f\,k,o,(1�; Fir·'n ti K·, Nt"l f'C'fi 1,'0'N CITY OF FOSTER CITY COMMUNITY DEVELOPMENT AGENCY

Combined Balance Sheets . All Fund Typesand Account Groups

June 30, 1995

Q2v,rn�ntal Fund UJXcs A�UDl Gwui,:s General General Total Debt Capital fixed long-term (memorandum Smii;i:_ � = !l.ellt 2lllYl Assets and Other Debits

Cash and investments (note 2) $ 712,000 27,925,900 28,637,900 Restricted cash and investments (note 2) 3,053,255 3,053,255 Fixedassets (notes 3 and 4) 4,499,181 4.499. 181 Other receivable 2,097 2,097 Other debits: Amount available in debt service fund 3,765.255 3,765,255 Amount to beprovided for retirement of general long-term debt 38 521,!87 38.521,l87 Total assets and other debits s 3,765,255 27,927.997 4,499,181 42.286,442 78,478,875

Liabilities. EQuitYand OtherCredits Liabilities: Accounts payable and other liabilities $ 201,878 201.878 Loanpayable to City/District ( note 5) 24.485,000 24.485,000 Advances from City/District (note 5) 13,540.000 13.540,000 Lease payable to City/District (note 5) 740,000 740,000 COSTCO notes ( notes 5 and 7) 3.521.442 3 52) 442

Total liabilities 20)878 42.286.442 42.488.320 Equity: Reserved for loan requirements 2.272.295 2.272.295 Unreserved: Designated for debt service 1.492,960 1,492.960 Designatedfor capital projects(note 3) 27.726,119 27,726.119 Investment in general fixed assets 4499)8) 4A99 161

Total equity and other credits 3 765 255 27 726 112 4499.)8) 35 990555

Commitmen1s and contingencies (notes 3 and 7) Total liabilities, and equity and other credits $ 3,765,255 27,927,997 4,499,181 42,286,442 78,478.875

See accompanying notes to combined financial statements.

2 CITYOF FOSTER CITY COMMUNITYDEVELOPMENT AGENCY Combined Statement of Revenues and Expenditures and Changes in Fund Balances Year ended June 30, 1995

Total Debt Capital (memorandum � Proiects Revenues: Property tax $ 3,202,377 l,274,371 4,476,748 Interest 248.338 1 474,879 t.723.217

Total revenues 3,450,715 2.749.250 6,199,965 Expenditures: Current: Employeeservices 688,721 688,721 Services and supplies 803,138 803,138 Settlements (note 7) 300,000 300,000 Pass through to Educational Revenue Augmentation Fund (note 6) 240,911 240,911 Capital improvements 2,891,579 2,891,579 Capital outlay 341,305 341,305 Affordable housing subsidy 1,4 12,582 1,412,582 Interest on advances from the City/District 840,000 840,000

Debt service: Principal 910,000 910,000 Interest 1,473,983 1,473,983

Total expenditures 2.383,983 7.518.236 9.902.2]9

Excess (deficiency) of revenues over expenditures 1.066,732 (4,768,986) (3,702.254)

Other financing sources (uses): Proceeds from advances from City/District 840,000 840,000 Operating transfers in 228,360 1,267,132 1,495,492 Operating transfers out <1.267, 132) (228.360)

Excess (deficiency) of revenues and financing other sources over (under) expenditures and other financinguses 27,960 (2.890,214) (2,862,254)

Fund balances, July I, 1994 3.737.295 30.616.333 34.353.628

Fund balances, June 30, 1995 $ 3,765,255 27,726,119 31,491,374

See accompanying notes to combined financial statements. 3 CITY OF FOSTER CITY COMMUNITY DEVELOPMENT AGENCY Combined Statement of Revenues and Expenditures Budget (GAAP Basis) and Actual Year endedJune 30, 1995

j Totals {memorandum onl l Debt Service Fund Caeita1 Pro ects Funds r avorable Favorable 3\IOrable (unfavorable) (unfavorable) (unfavorable) Budget � � Budget � � Budget � � Revenues: Propeny tax $ 3.526,000 3,202,377 (323,623) 1,319,000 1.274,371 (44,629) 4,845,000 4,476.748 (368.252) Interest - 248 338 248 338 I 375 200 I 474 879 99 679 I 375 200 1723 217 348 017

Total revenues 3,526,000 3450 715 (75,285 ) 2,694,200 2 749 250 55 050 6,220,200 6 199965 !20,235 J Expenditures: Current: Employeeservices - - 656.475 688,721 (32.246) 656,475 688,72 1 (32,246) Services and supplies 868,090 803.138 64,952 868,090 803,138 64.952 Settlements -- - 300,000 300,000 - 300,000 300,000 Pass lhrough to Educational Revenue Augmentation Fund - - - 240,911 240,911 - 240,911 240,911 Capital improvements - 6,348,000 2,891.579 3,456,421 6,348,000 2,891,579 3,456,421 Capital outlay - - - 238.505 341.305 (102,800) 238.505 341.305 ( 102.800, Affordable housing subsidy - - 2,754,000 1,412,582 1,341,418 2,754,000 1,412,582 1,341,418 Interest on advances from Ci1yfDistrict -- - - 840,000 (840.000) - 840,000 (840,0001 Debi service: Principal 900,000 910,000 ( 10.000) - - - 900,000 910.000 (I0.000) Interest 1480 281 I 473 983 6298 - - I 480 281 I 473 983 6298 Total expenditures 2,380,281 2,383,983 !),702) 11405 9H 7518236 3 887 745 13,786,262 9902219 3 884 043 Excessof revenues over (under) expenditures 1.145 719 1,066,732 (78,987) (8,711,781) (4,768,986) 3 942 795 (7566,062) (3,702,254) 3 863 80� Other financing sources and uses: Proceeds fromadvances from City/District - - 840,000 840,000 840,000 840,000 Operatingtransfers in 226,000 228,360 2,360 1,344,793 1,267,132 (77.661) 1,570,793 1,495,492 (75,301) Operating transfers out (1,344,793) (1,267,132) ___TI ,661 (226.000) (228,360) (2,360) (1,570,793) (1,495,492) (75,301) Total other financing sources and uses (1,1 18,793) (1,038,772) 80021 I 118 793 I 878 772 _759 979 840000 �__ Q,000 Excess (deficiency) of revenues and other financing sources o\

Seeaccompanying notes to combined financial statements.

4 CITY OF FOSTER CITY COMMUNITY DEVELOPMENT AGENCY Notes to Combined Financial Statements June 30, 1995

(I) Significant Accounting Policies (a) Description of the ReportingEntity The Community Development Agency of the City of Foster City (the Agency) was created by ordinance in May 1981, under the provisions of PartI ( commencing with Section 33000) of Division 24 of the Health and Safety Code of the State of California(the Community Redevel­ opment Law) primarily to eliminate and reduce many aspects of economic, physical, and social blight presently existing within the City of Foster City and the Estero Municipal Improvement District, California(the City/District) and more specifically within the boundaries of the Foster City Community Development Project Area (the Project Area), as set forth in the Plan for the Foster City Community Development Project Area (the Plan). Blight encompasses a broad spectrum of problems, ranging from a lack ofpublic improvements, physical characteristics that inhibit sound development of a particularsite, and various other detrimental factors, as well as the stereotypical view of visual blight. In implementing the Plan, the Agency has undertaken various redevelopment activities including surveyingand planning forthe Project Area, undertaking capital improvement proj­ ects within the Project Area, administering activities of the Agency, and adopting a final rede­ velopment plan and planning for the implementation thereof. The Agency adopted the Plan by ordinance in November 1981. Under the Plan adopted by the Agency, the Agency is authorized to financeprojects within the Project Area with financialassistance fromthe City/District, State of California, County of San Mateo, federal government,property tax increments, interest income, Agency notes and bonds, or any other available source. The resulting principal and interest may bepaid from tax increments or any other funds available to the Agency. The Agency has no taxing power and does not have the power to pledge the general creditor taxing power of City/District, the State of Californiaor any political subdivision thereof. However, California'sHealth and Safety Code allows redevelopmentagencies with appropri­ ate approvals of the local legislativebodies to recover costs of financing improvements from increased tax revenues(tax increment) associated with increased property values of individual project areas.

( Continued) 5 CITY OF FOSTER CITY COMMUNITYDEVELOPMENT AGENCY

Notes to Combined Financial Statements

Since the Agency is an integral part of the City/District and the members of the Agency's board are also members of the City's Council and the District's Board of Directors. and the accompanying combined financial statements are included as a blended component unit of the comprehensive annual financial report prepared by the City/District.

(b) Basis of Accounting

The accompanying combined financial statements have been prepared on the modified accrual basis of accounting. Revenues are recorded when susceptible to accrual, i.e., both measurable and available. Available means collectible within the current period or soon enough thereafter to be used to pay liabilities of the current period. Expenditures are recorded when liabilities areexpected to be liquidated with expendable available resources, except for interest on lease obligations and long-term advances from the City/District which are recorded when paid.

( c) Fund Accounting

The accounts of the Agency are organized on the basis of funds, each of which is considered to be a separate accounting entity. The operations of each fundare accounted forby providing a separate set of self-balancing accounts that comprise its assets, liabilities, equity, revenues and expenditures. The following funds are used by the Agency:

• Governmental FundTypes: - Debt Service Funds The Debt Service Funds account for the accumulation of resources for, andthe payment of long-term obligation principal, interest and related costs.

Capital Proiects Funds Capital Projects Funds account for financial resources used for the acqu1s1t1on, construction or management of major capital-related activities. Virtu­ ally all of the Agency's operations are accounted for in these funds.

• Account Groups:

• General Fixed Assets Account Group - used to account for general fixed assets of the Agency and consists primarily of the police facility and the construction of the corpo­ ration yard building.

• General Long-Term Debt Account Group - Long-term liabilities expected to be financedby the governmentalfunds are accounted for in the general long-term debt account group rather than in the governmental funds.

(Continued) CITY OF FOSTER CITY COMMUNITY DEVELOPMENT AGENCY Notes to Combined Financial Statements

(d) Budget and Budgetary Accounting The Agency is required to adopt an annual budget on or before June 30 for the ensuing fiscal year. From the effective date of the budget, the amounts stated therein as proposed expendi­ tures become appropriations to the various governmentalfu nds. The City/District Board of Directors may amend the budget by resolution. The City Manager may transferappropriations from one program, activity, or object to another within the same fund. All appropriations lapse at the end of the fiscal year to the extent they have not been expended or encumbered. All Governmental Fund Type annual operating budgets are presentedon a basis consistent with generally accepted accounting principles (GAAP). Budgeted revenue amounts representthe original budget modifiedby adjustments authorized during the year. Budgeted expenditure amounts represent original appropriations adjusted for supplemental appropriations during the year which werecontingent upon new or additional revenue sources. Total expenditures of each GovernmentalFund may not legally exceed fund appropriations. Actual expendituresexceeded appropriations in the debt service and capital projectsfunds as follows: Exe!:nditures A(!(!ro(!riations Excess Principal payments $ 910,000 900,000 10,000 Employee services 688,721 656,475 32,246 Capital outlay 341,305 238,505 102,800 Interest on advances from City/District 840,000 840,000 The excess in employee services and capital outlay represents additional expendituresfor the completion of certain projects. The excess in intereston advances from City/District represents unbudgeted interest payments. Encumbrance accounting, under which purchase orders, contracts, and other commitments for the expenditureof moneys are recorded in order to reserve that ponion of the applicable appropriation, is employed as an extension of the budgetary process. Fund appropriations lapse at the end of each year. Encumbrances are expectedto be reappropriated in the follow­ ing year. The Agency closes out all purchase orders, contracts and other commitments at year­ end. As such, no encumbrances were outstanding at June 30, 1995.

(Continued) 7 CITY OF FOSTER CITY COMMUNITY DEVELOPMENT AGENCY Notes to Combined Financial Statements

( e) General Fixed Assets General fixed assets are those acquired for general governmental purposes including property held under lease. Such assets currently purchased or constructed are recorded as expenditures in the governmental fund types and capitalized at cost in the General Fixed Assets Account Group. No depreciation is provided on general fixed assets. (I) Property Tax Increment Revenues Incremental property tax revenues represent taxes collected on the project areas from the excess of taxes levied and collected over that amount which was levied and collected in the base year (the year of project inception) property tax assessment. (g) "Total (Memorandum Only)" Columns on the accompanying combined financial statements captioned "Total (Memorandum Only)" do not present consolidated financial information. They are not necessary fora fair presentation of the financial information but are presented as additional analytical data.

(2) Cash and Investments Agency cash and investments are included in the City/District's cash and investment pool and consist of cash in banks, certificates of deposit, U.S. governmental securities, and deposits in County of San Mateo Treasury and the State of CaliforniaLocal Agency Investment Fund. An indication of the relative credit risk of the City/District's cash and investment pool follows: Percent Cash: Insured 21% Uninsured and uncollateralized 1% Investments: Category I 15% Investment in Local Agency InvestmentFund 61% Mutual Funds __2%

Total _ 100% Category 1 includes investments that are insured or registered or for which the securities are held by the City/District or its agent in the City/District's name. Category 2 includes unin­ sured and unregistered investments forwhich the securities are held by the counterparty'strust department or agent in the City/District's name. Category 3 includes uninsuredand unregis­ tered investments for which the securities are held by the counterparty or by its trust depart­ ment or agent but not in the City/District's name.

(Continued) CITY OF FOSTER CITY COMMUNITY DEVELOPMENT AGENCY Notes to Combined Financial Statements

(3) Capital Projects The Agency has funded various capital improvement projects forthe City/District within its project areas. As of June 30, 1995, $8,786,174 offund equity has been reserved forcurrent capital improvementpro jects and $18,939,945 remains designated for future capitalimprove­ ment projects. (4) Fixed Assets A summary of changes in general fixedassets is as follows:

July I,)99 4 Additions Transfers June 30. J995

Building $ 1,400,000 3,099,181 4,499,181 Construction in progress 3,095,38] 3,800 (3.099 )81) $ 4,495,381 3,800 4,499,181 Fixed assets include the police facility (note 5), and corporation yard building. (5) Long-Term Debt Activity in the general long-term debt account group during the year ended June 30, 1995 follows:

Lease Advances loan COSTCO payable to from payable to notes City/District City/District City/District

July I, 1994 balance $ 885,000 12,700,000 25,250,000 3,739,242 • 42,574,242 Additions 840,000 840,000 Repayments 045 000) (765,000) (2]7,800)

June 30, 1995 balance $ 740,000 13,540,000 24,485,000 3,521,442 42,286,442

• Restated by $143,647 to properly reflect Loan Agreement. Lease Payable to City/Disuict - In June 1984, the City/District sold certificates of participation to financethe construction of the police facility. which was completed during the year ended June 30, 1985. TheAgency has agreed to lease from theCity/District the police facility for 15 years with payments equal to the City/District's debt service requirements on the certifi­ cates of participation. Lease payments are funded by any available sources to the Agency.

(Continued) 9 CITY OF FOSTER CITY COMMUNITY DEVELOPMENT AGENCY

Notes to Combined Financial Statements

Total obligations of principal and interest to satisfy the lease obligation are as follows:

Principal Inlmlli. Total Year ending June 30: 1996 $ 160,000 70,020 230,020 1997 175,000 55,140 230,140 1998 190,000 38,690 228,690 1999 2l5.QllQ 20.640 235,64Q Total $ 740,000 184,490 924,490

Advances from City/District are funds advanced to the Agency for administrative support and capital improvements. The repayment of advances is limited to property tax increment reve­ nues. The rate of interest on City/District advances for the year ended June 30, 1995 was 8%. During the year, $840,000 in interest was accrued on the advances increasing the outstanding balance.

Loan Payable to City/District - The City/District and the Agency entered into a Joint Exercise of Powers Agreement dated May I, 1993 establishing the Foster City Public Financing Authority (the Authority). During the year the Authority sold $25,250,000in tax allocation revenue bonds, proceeds of which were loaned to the Agency to finance capital improvements in the project area. Loan payments to the Authority equal debt service payments, and are secured by property tax increment revenues.

Total obligations of principal and interest to satisfy the loan obligation are as follows:

Prio�i12id � Tullll Year ending June 30: 1996 $ 790,000 1,373,850 2,163,850 1997 820,000 1,342,250 2,162,250 1998 855,000 1,307,400 2,162,400 1999 895,000 1,268,925 2.163,925 2000 935,000 1,226,860 2,161,860 Thereafter 2Q. l2.11 000 2,4Ql,l�Q 22,�2l,l�Q $ 24,485,000 15,920,435 40,405,435

COSTCO Notes - The Agency entered into three notes with COSTCO under the COSTCO development agreement. See note 7.

(Continued) IO CITY OF FOSTERCITY COMMUNITY DEVELOPMENT AGENCY Notes to Combined Financial Statements

(6) Educational Revenue Augmentation Fund Beginning in the 1992-93 fiscal year, the State of Californiarequires all redevelopment agen­ cies to make payments (tax increment shifts) to the Educational Revenue Augmentation Fund (ERAF). For the 1994-95 fiscal year, the State Department of Finance required an ERAF payment of $240,91 1 which the Agency paid out of agency tax increment. A schedule related to the tax increment shift (as required by Health & Safety Code Section 33681) is included in this report as a supplemental schedule. (7) Commitment and Contingencies Settlement with San Mateo Union High School District - In 1991, the Agency settled a lawsuit mvolvmg the allocat10n of property tax increment revenueto the San Mateo Unified High School District (the High School District). Based on the settlement, a fixed amount of $500,000 was paid by the Agency to the High School District for theyear ended June 30, 1991. The settlement also requires the Agency to pay the High School District a fixedamount of $300,000of tax increment annually through fiscalyear 1996. For each fiscal year 1997 to 2006, the Agency is obligated to pay the High School District an amount equal to 7.5% of the net tax increment received by the Agency in each fiscal year. For each fiscal year from 2007 to 2016, the Agency is obligated to pay the High School District an amount equal to I 0% of the net tax incrementreceived in each fiscal year. Total payments to the High School District are not to exceed $9,636,000and areto be made only from the tax revenues of the year the payments are made. Accordingly, no liability forthe future settlement payments has been recorded. COSTCO Development Agreement note 5} - On July 6, 1993, the Agency and COSTCO entered mto an agreement whereby tt e Agency acquiredthe site (Lots 26 and 27) in Metro Center from the property owner, Transpacific Development Company, with funds borrowed from COSTCO. The purchase price forthe land and amount borrowed was $7,889,413. The Agency then conveyed the property to COSTCO in partial repayment of the $7,889,413 loan. In satisfaction of $4, 150, 171 of that obligation, the site was conveyed to COSTCO free and clear with the exception ofthe Metro Center Assessment District No. 86-1 obligations. For the remaining $3,739,242 of the obligation, three promissory notes were executed bythe Agency to COSTCO. The payments are contingent upon certain levels of gross sales taxes being generated by the COSTCO store. The firstpromissory note is in the amount of $800,000with an 8% per annum interest rate. The note is payable over twenty years. Payment is due only if the gross sales tax revenue threshold (Section 3, C of the Note) forthat year is met. Payments not made on this basis are forgiven.

( Continued) II CITY OF FOSTER CITY COMMUNITY DEVELOPMENT AGENCY Notes to Combined Financial Statements

The second promissory note is in the amount of $1,939,242 with an 8% per annum interest rate. (This is the approximate amount of the Metro Center Assessment District obligations which currently encumber the property.) The note is payable in annual payments of $217,800 for fourteen years. Payment is due if the gross sales tax revenue threshold (Section 3, C of the Note) forthat year is met. Payments not made on this basis are forgiven. The third promissory note is in the amount of $1,000,000 and bearsno interest. The note is payable annually in an amount equal to the City's sales tax revenues derived fromCOSTCO's sales which are in excess of the threshold (Section 3, C of the Note) for that year. The term of the note is five years. Any unpaid balance after the five year term shall be forgiven. As payments under the notes are contingent upon COSTCO generating specifiedlevels of sales taxes which the Agency believes are achievable, a liability has beenrec ognized by the Agency forthese notes. The Agency has not recorded the purchase and sale of the site as these transactions which occurred simultaneously were effected only to convey title of the site to COSTCO. The COSTCO store opened August 4, 1994, and therefore, pursuant to the Agreement, the first payment year begins October I, 1994 and therefore no payments are due until FY 1995-96.

Maximum Payment Amounts (Principal and Interest) l'.:!.1!11: Toti Y=2. Tulr.l � .Yl:ai:.i Years6-20 llilll

l $ 64,000 64,000 64,000 64,000 64,000 1,760,000 2,080,000 2 217,800• 217,800 217.800 217,800 217,800 1,960,200 3,049,200 200.000 200.000 200.000 200.000 200,000 ).000.000

Total $ 481,800 481.800 481.800 481.800 481.800 3,720,200 6.129,200

• Pre-paid September20, 1994

(Continued) CITY OF FOSTER CITY COMMUNITY DEVELOPMENT AGENCY

Notes to Combined Financial Statements

(8) Subsequent Events

Metro Center Senior Homes Project

On July I 8, 1994, the Community Development Agency approved the financing and develop­ ment of a 60-unit affordable senior housing project consisting of 48 one-bedroom units, 12 two-bedroom units, and common facilities in the Metro Center.

On June 6, 1995, a Loan and Grant Agreement (the Agreement) was executed between the Agency and Bridge Housing Corporation (Bridge). The Agreement established a loan from the Agency to Bridge in the amount of $810,000for the acquisition of land for the senior housing project (the Project). The zero percent loan is due and payable in fifty-fiveyears. However, if the affordability provisions on the Project are maintained forfifty- five years, the loan will be forgiven. Bridge has agreed to acquire the land, and thereafter lease the land to Metro Senior Associates forfifty-five years forthe development and operation of the Project. In addition, Bridge has granted the Agency an option to purchase the Project (or the land in the event that Bridge has not acquired the improvements) for $100.

The Agreement funher established a $1,290,000 grant from the Agency to Bridge forthe payment of annual assessments imposed on the land by the Estero Municipal Improvement District and the Metro Center Assessment District. The annual assessments amount to approximately $98,500and will be completely paid in 2007.

On July I. 1995, the Agency agreed to loan $6,879,774 to Metro Senior Associates (Metro) for the construction of the Project. The loan bears a two percent interest rate. To the extent there is residual cash flow fromthe Project, Metro shall pay the entire residual cash flow to the Agency within ninety days of the end of each calendar year, in satisfaction of principal and interest owed. Residual cash flow is defined as all rents and revenues derived from the Project less operation and other related costs of the Project. Any outstanding principal is due and payable in full in fony years.

To finance the loan of $6,879,774 to Metro, the Agency sold tax allocation bonds of $5,000,000 on July 27,1995. The Agency plans to finance the remainder of the loan through the Agency's accumulated tax increment funds.

13 CITY OFFOSTER CITY COMMUNITY DEVELOPMENT AGENCY

Debt Service Funds

June 30, 1995

Lease payable to Cit /District Fund - Accounts for the payment of principal and interest on 1984 � lease payable to the 1ty/D1stnctfor construction of the police station.

Loan o ayable to Cit�/District Fund - Accounts f r the payments of principal and interest on 1991 and 1992 floan fromCity District.

14 CITY OF FOS1ER CITY COMMUNITY DEVELOPMENT AGENCY Combining Balance Sheet - Debt Service Funds June 30, 1995

Loan Lease payable payable to to City/ City/District District !:'.!!!!& !:'.!!!!& Total Assets Cash and investments $ 712,000 712,000 Restricted cash and investments 3,053,255 3,053,255 Total assets and other debits $ 3,765,255 3,765,255

Liabilities and Equit;i: Liabilities: Accounts payable and other liabilities Total liabilities Equity: Reserve for loan requirements 2,272,295 2,272,295 Unreserved- designated for debt service 1.492,960 1,492,960 Total equity and other credits 3,765,255 3,765,255 Total liabilities and equity, and other credits $ 3,765,255 3,765,255

15 CITY OF FOSTER CITY COMMUNITY DEVELOPMENT AGENCY Debt Service Funds Combined Statement of Revenue and Expenditures and Changes in Fund Balances Year ended June 30, 1995

Loan Lease payable payable to to City/ City/District District Fund Fund Total Revenue: Property tax $ 3,202,377 3,202,377 Interest 248 338 248 338 Total revenue 3.450,7 15 3450 715 Expenditures: Debt service: Principal 145,000 765,000 910,000 Interest 83 360 1,390,623 1.473,983 Total expenditures 228,360 2,155,623 2,383,983 Excess of revenue over (under) expenditures (228,360) 1,295,092 1,066,732 Other financingsources (uses): Operating transfers in 228,360 228,360 Operating transfersout (1,267,t 32) (1,267,1 32) Total other financing sources/( uses) 228,360 (1,267,132) (1,038,772) Excess of revenues and other financing sources over expenditures and other financing uses 27,960 27,960 Fund balances, July l, 1994 3,737,295 3,737,295 Fund balances, June 30, 1995 $ 3,765,255 3,765,255

16 CITY OF FOSTER CITY COMMUNITY DEVELOPMENT AGENCY Debt Service Funds Combining Statement of Expenditures Budget (GAAP) Basis and Actual Year ended June 30. l 995

Lease payable to Loan payable lo City/District Fund City/District Fund Totals Favorable Favorable Favorable (unfavorable) (unfavorable) (unfavorable) Budget Actual variance Budget Actual variance Budget Actual variance Revenue: Property tax $ - 3.526.000 3,202.377 (323.623) 3.526.000 3.202.377 (323,623} Interest - - - - 248 338 248 338 - 248 338 248 338 - Total revenue - - 3,526,000 3 450 715 !75,285) 3,526,000 3450 715 !75,285) Expenditures: Debt service: Principal 135,000 145,000 (I0,000) 765,000 765,000 900,000 9!0,000 (I0.000) Interest 91 000 83 360 7 640 1,389,281 1,390,623 !1,342) 1,480,281 I 473 983 6 298 Total expenditures 226,000 228,360 !2,360) 2,154,28 1 2,155,623 !1,342) 2,380,281 2,383,983 p,702) Excess (deficiency) of revenues over/(under) expenditures (226,000) (228.360) (2,360) 1.371.719 1.295.092 (76.627) l.145,719 1.066,732 (78.987) Other financing sources (uses): Operating transfers in 226.000 228,360 2.360 - - 226 000 228.360 360 Operating transfers out , 2, - - - !1,344,793) !1,267,132) 77 661 !1,344,793) !l,267, 132) 77 661 Total other financing sources (uses) 226,000 228,360 2 360 !1,344,793) p,267,132) 77 661 !1,1 18,793) !1,038,772) 80021 Excess of other financing sources overexpenditures and other financing uses $ - 26,926 27.960 !fil1 26 926 27� 1,0:34

17 CITY OF FOSTERCITY COMMUNITYDEVELOPMENT AGENCY Capital Project Funds June 30, 1995

General Capital Fund is used to account for all financial resources, except those to be accounted for through other funds. Housing Fund is used to account for 20% of tax increment revenues which are designated by law to increase or improve low- and moderate-income housing in the Project Area. Construction Fund is used to account for the funds borrowed from Public Financing Authority for the improvements of designated projects.

18 CITY OF FOS1ER CITY COMMUNITY DEVELOPMENT AGENCY Combining Balance Sheet • Capital Projects Funds June 30, 1995

General Capital Housing Construction Fund Fund Fund Total Assets Cash and investments $ 2,560,170 8,230,274 17,135,456 27,925,900 Other receivable 2097 2097 Total assets $ 2,560,170 8,232,371 17,135,456 27,927,997

Liabilities and Equity Liabilities: Accounts payable and other liabilities 1650 200,228 201,878 Total liabilities 1,650 200,228 201,878 Equity: Unreserved - designated forcapital projects 2,558,520 8,032,143 17,135,456 27,726,119 Total equity 2,558,520 8,032,143 17,135,456 27,726,119 Total liabilities and equity $ 2,560,170 8,232,371 17,135,456 27,927,997

19 CITY OF FOSTERCITY COMMUNITY DEVELOPMENTAGENCY

Capital Projects Funds Combining Statement of Revenues, Expenditures and Changes in Fund Balances

Year ended June 30. 1995

General Capital Housing Construction Fund El!.llil. El!.llil. Revenues: Property tax 1,274,371 1,274,371 Interest 130.274 430,909 913.696 ),474,879

Total revenues 130.274 1.705,280 9)3,696 2.749,250

Expenditures: Current: Employee services 550,977 137,744 688,721 Services and supplies 722,866 80,272 803,138 Settlements 300,000 300,000 Pass through to Educational Revenue Augmentation 240,91 1 240,911 Capital improvements 2,891.579 2,891,579 Capital outlay 341,305 341,305 Affordable housing subsidy 1,412,582 1,412.582 Interest on advances from the City/District 840,000 840,000

Total expenditures 2,996.059 1,630,598 2.891,579 7,518,236

Excess (deficiency)of revenues over (under) expenditures 12.865,785) 74,682 I1,977,883 ) 14,768,986)

Other financingsources (uses): Proceeds fromadvances from City/District 840.000 840,000 Operating transfers in 1.267,132 1,267,132 Operating transfersout 1228.360 ) (228 360 )

Total other financing sources 1,878.772 ).878,772

Excess (deficiency)of revenues and other financing sources over expenditures and other financing uses (987.013) 74,682 (1,977,883) (2,890,214)

Fund balances, July 1, 1994 3 545 533 7,957.461 )9,) )3,339 30,616,333

Fund balances. June 30, 1995 $ 2.558,520 8,032,143 17,135,456 27,726, 119

20 CITY OF FOSTERCITY COMMUNITY DEVELOPMENT AGENCY

Capital Project Funds Combining Statement of Revenues and Expenditures Budget (GAAP Basis) and Actual

Year ended June 30, 1995

General Caeital Fund Housing Fund Construction Fund Totals Favorable Favorable Favorable (unfavorable) (unfavorable) (unfavorable) a"""' � � � � � � � � eoow a£ll!!! � Revenues: Property tax s - - - 1,319,000 1.274,37 1 (44,629) - - - 1.319,000 J,274.37 1 (44,629) Interest 375 200 130274 (2441926) 2.SOillOO 430 909 180909 750000 913696 163l)96 113751200 I 474 879 99 679

Total revenues 375200 130 274 f2441926) 115691000 11705:280 � 7�.exx> 913696 163,696 �200 2,749,250 �50 Expenditures: Curnnt: Employee services 526,{Xx) 550,977 (24,917) 130,4 15 137,744 (7,329) - - 656,475 68s,n1 (32.246) Services and supplies 792.590 722,866 69,724 75,500 80.272 (4,772) -- 868,090 803.138 64,952 Settlements 300,000 300,000 - - - - 300,000 300,000 Pass Throughto Educa1t0nal Revenue Augmentation Fund 240,911 240,911 -- - - - 240,911 240,911 Capital improvements - - - 6,348,000 2,891,579 3,456,421 6,348,000 2,891,579 3,456,421 Capital outlay 238,505 341,305 (102,800) - -- - - 238,505 341,305 (l02,800J Affotdablc housing subsidy - - 2,754,000 1,412,582 1,341,418 - - 2,754,000 1,412,582 1,341.418 Intereston advancesfrom City/District - �000 {8401000) ------840000 i8401000)

Total expenditures ;098,066 2{}961059 18971993) 2,9591915 I1630J98 1,3291317 613111000 21891J79 314561421 11,40.51981 7,.518:236 31887i745

Excessof revenues over (under)expenditures {1:722,866) (2�,78.5) {11142,919) (J,390,915) 74682 l,465J97 �98, 000) !1,977,883) 3,620, 117 !8,711,781) (41768,986) 3 942 795 Otherfinancing sources and l.lSCS: Proceedsfrom advances fromCity/District 840,000 840,000 ------840,000 840,000 Proceedsfrom loon fromCity/District 1.344,793 1,267,132 (77,661) --- - - 1,344,793 1,267,132 (77,661) Operating transfers out (22§:000) {228,360) (2,360) ------(226,000) (228,360) (2,360) Total other financing sources anduses 1 118 793 1 878 772 759979 ------1!.!.t.721 1,878,71� 759979 Excess (deficiency) of revenues and other financing sources over expcndiiures and other financing uses $ {604,073) (9871013) (382,940) (1,390,915) 74682 1,465,597 (5,598,0CO) (l,977,883) 3,620,117 (7,592,988) {�.�29,2 14) 4,702,774

See �ying notes to combined financitl Slllements 21 Supplemental Schedule CITY OF FOSTER CITY COMMUNITY DEVELOPMENT AGENCY Tax Increment Shift to Educational Revenue Augmentation Fund

For the year endedJune 30, 1995

Total tax increment to be shifted to the Educational Revenue Augmentation Fund (ERAF) per State Department of Finance (DOF) letter dated October I, 1994 $ 240,91 1 Funding sources: Community Development Agency: Agency tax increment $ 240,9 11 Other agency funds

Total Agency funds $ ===2=40="9�1=1 Agency borrowing: From current 20% low- and moderate-income housing funds From legislative body Total borrowed funds

Total tax increment shift to ERAF $ =�24�0�9�1=1

22 KPMG Peat Marwick LLP

Three Embarcadero Center San Francisco, CA 941 11

Independent Auditors' Compliance Report

Members of the Board of the City of Foster City Community Development Agency:

We have audited the combined financial statements of City of Foster City Community Development Agency (the Agency) as of and for the year ended June 30, 1995, and have issued our report thereon dated October 20, 1995. We conducted our audit in accordance with generally accepted auditing standards and GovernmentAuditing Standards. Those standards requirethat we plan and perform the audit to obtain reasonable assurance aboutwhether the combined financialstatements are free of material misstatement.

Compliance with laws and regulations applicable to the Agency is the responsibility of the Agency's management. As part of obtaining reasonable assurance about whether the combined financial state­ ments are free of material misstatement, we performed tests of the Agency's compliance with certain provisions of laws and regulations contained in the Guidelines For Compliance Audits of California Redevelopment Agencies issued by the State Controller's Office, Division of Local Government Fiscal Affairs.

The results of our tests indicate that, with respect to the items tested, the Agency complied, in all material respects, with the provisions referred to in the preceding paragraph. With respect to items not tested, nothing came to our attention that caused us to believe that the Agency had not complied, in all material respects, with those provisions.

This report is intended for the information of the Agency, and the State Controller's Office. However, this report is a matter of public record and its distribution is not limited.

October20, 1995

23 (THIS PAGE INTENTIONALLY LEFT BLANK) APPENDIX D

FORM OF FINAL OPINION OF BOND COUNSEL [LETTERHEAD OF JONES HALL HILL & WHITE]

November 26, 1996

Foster City Public FinancingAuthority 610 Foster City Boulevard Foster City, California 94404

OPINION: $6,825,000 Foster City Public Financing Authority 1996 Revenue Bonds, Series A (Foster City Community Development Project Loan)

Members of the Authority:

We have acted as bond counsel to the Foster City Public Financing Authority (the "Authority") in connection with the issuance by the Authority of $6,825,000 1996 Revenue Bonds, Series A (Foster City Community Development Project Loan) (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 Indenture of Trust, dated as of November 1, 1996, by and between the Authority and Wells Fargo Bank, as trustee (the "Indenture"), and a resolution adopted by the Authority on August 26, 1996. The Bonds have been issued by the Authority to provide funds to make a loan (the "Loan") to the Community Development Agency of the City of Foster City (the " Agency"), pursuant to the Loan Agreement, dated as of November 1, 1996 (the "Loan Agreement"), by and between the Authority and the Agency. 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 contained in the Indenture and the Loan Agreement and in the certified proceedings and certifications of public officials and others furnished to us, without undertaking to verify the same by independent investigation. Ft)ster C�ity l 1ublic Financing Auth,>rity N1 >vember 26, 1996 Page 2

Based upon the foregoing we are of the opinion, under existing law, as lollows:

1. The Authority is a joint exercise of powers authority duly organized and validly existing under the laws of the State of California with the full power to enter into the Indenture and the Loan Agreement, to perform the agreements on its part contained therein and to issue the Bonds.

2. The Indenture has been duly approved by the Authority and constitutes a valid and binding obligation of the Authority enforceable against the Authority in accordance with its terms. The Indenture creates 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.

3. The Bonds have been duly authorized, executed and delivered by the Authority and are valid and binding special obligations of the Authority, payable solely from the sources provided therefor in the lndenhtre.

4. The Loan Agreement has been duly approved by the Agency and constitutes a valid ,md binding obligation of the Agency enforceable against the Agency in accordance with its terms. The Loan Agreement is secured by a first and prior pledge of and lien on the Pledged Tax Revenues (as such term is defined in the Indenture).

5. 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 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 Bonds. We express no opinion regarding other federal tax consequences arising with respect to the Bonds.

6. Interest on the Bonds is exempt from personal income taxation imposed by the State of California.

The rights of the owners of the Bonds and the enforceability of the Bonds, the Indenture and the Loan Agreement may be subject to bankruptcy, insolvency, reorganization, moratorium ,md other similar laws affecting creditors' rights heretofore or hereafter enacted and may also be subject to theexercise of judicial discretion in appropriate cases.

Respectfully submitted,

A Professional Law Corporation Katz Hollis APPENDIX E

REPORT OF THE FISCAL CONSULTANT

Prepared forthe

FOSTER CITY COMMUNITY DEVELOPMENT AGENCY

FOSTER CITY COMMUNITY DEVELOPMENT PROJECT

Foster City Public Financing Authority 1996 Revenue Bonds, Series A (Foster City Community Development Project Loan)

Submitted by

Katz Hollis

October 28, 1996

E-1 a003 I.ftc 091196/duc (THIS PAGE INTENTIONALLY LEFT BLANK) Katz Hollis

PART I

INTRODUCTION

The Foster City Public Financing (the "Authority"), is considering the issuance of tax allocation bonds ("Bonds"). The Bonds are being issued on a parity to the outstanding $22,875,000 Foster City Public Financing Authority, 1993 Revenues Bonds Series A. The Bonds will be used to fond a loan from the Authority to the Community Development Agency of the City of Foster City ("Agency"). The Bonds will be secured by a pledge of Authority revenues, consisting primarily of payments made by the Agency to the Authority as repayment for the loan. 111e loan will be secured by the pledge of property tax increment revenues from the Foster City Community Development Project Area ("Project Area").

Outline of Report

In connection with the issuance of the proposed Bonds, the Agency has requested that Katz Hollis verify property tax values, review current and historical taxable values and property tax revenues, and estimate future tax increment revenue for the Project Area. Pursuant to that request, Katz Hollis has prepared this Report. The key data forthe Project Area is summarized in tabular format on Figure 1-1, shown on tbe following page. This report is organized into the following fourparts:

Part I, "lutroduction," provides an outline of the Report and a summary of the Project Area including a Project Area Profile.

Part II, "Project Area Taxable Value, Revenue and Pledged Tax Revenue," covers current and historic values, verification of the Project Area's taxable value, taxable value attributable to major assessees and assessment appeals, and provides informationon the sources of tax increment including unitary property taxes and supplemental property taxes. An analysis describing adjustments to and the impacts of existing liens on tax increment revenues is included in Part II.

Part III, "Projection of Tax Increment," includes a projection of future levels of taxable value added to tbe Project Area from new development and resultant tax increment revenues. Part Ill also includes a brief discussion of the underlying assumptions of the projection.

Part IV, "Background Information," contains background information on the topics covered in Parts I through III of this Report. It has been prepared for those readers of the Report who require further information on the analysis and conclusions presented in prior sections. It also contains a description of pending or recently enacted legislation that could affect the future flow of tax increment.

It should be noted that the value estimates and tax revenue projections in this Report are based upon information believed to be reasonable and accurate as of the date of this analysis. To the extent that new development is delayed, or its scope modified, the resulting tax increment may be other than that projected. The discussion of allocation procedures for property taxes contained in this Report is based largely upon information provided by representatives of San Mateo County. These procedures are in some measure set administratively and are subject to change. No proposed changes to these procedures, other than those discussed herein, have been identified to date.

1-1 Figure 1-1 Pro1ect Profi1e Foster Crty Oe11elopment Agency Copyright Katz hollis 1993 Community Develooment Project Area

PROJECT AREA PROFl:...E

General Information Ten Major Assessees No. qf Parcels !Jfill Amount

Date of Adoption November, 1981 Visa Land Development 2 Office Buildings $101,839 075 Amendments None WCB Seventeen Ud 27 Comm era al 85,210,709 Arna 1.208 Acres Metro Center Tower Venture Office Building 67,267,645 Base Year Value $31.143 857 Foster Apartments Partners Mult1-Fam11y Resklent1a1 42.806,500 Time Limits Perkin-Elmer Corporation Manufacturing 39 445,767 Debt Establishment November 1996 Town Center East 10 Vacarit!Commerc1al 30 267,565 Effect1vness of Plan November 2016 Metropolitan Life Insurance Company 7 Commercial!Office 26,502,425 Receipt of Tax Increment November 2026 Costco Wholesale Corporation 2 Retail 24,031,971 Tax Increment Limit $170,000,000 OB-1 Associates Commercial 18,950, 000 Net Tax Increment Receuej Trxciu;;- S35-'1G • $38.148,727 Tsai Shin-Teng, Steve Et />i H0lel llt 1(fu490 Maximum Bonded Indebtedness L1m1t $55,000.000 $454.494.147 Bonded Debt Outstanding $30 250,000 Percentage of Ten Major Assessees to Total Taxable Value 56.42%

(1) Exclusive ofwai'ved revenue arid :at sharin;; oaymer.ts Major Appeals Net (1) Historical Property Taxable Value/Tax Receipts Est:natec Estimated Refund $!1pu!at1ors }g_'c"2 !:r;pµ,;::: If in 199(\-.91 Incremental H1stoncal Percent Metro Center Tower $; 2.2€7 6.;,S $0 E1scal YE.Ff Tpxabl� Vaj_tJe Req?!£1�.JJ! >1 LW_.i.2J R:0ivnd;; ,3, OB· 1 Associates 2 835 000 0 1996-97 $774.437 677 NIA N;A Total-· St1pulat1ons (2i 15 102 645 0 1995-96 708,512.616 6.703 098 93.33% 479 056 1994-95 633 823 437 5 920 627 91 68% 534.696 Pendmg 1993-94 610914.702 6.C7S.4;4 91 53% 145,427 Transpacrfic Development 13 975 094 212.381 1992-93 579,516 800 5.903.942 9943% 34,015 Perkin-Elmer Corporat!on 1 446 126 23 417 Ziff Comrnun1cat,ons 732.365 12.082 ( 1) Includes tote I secured unsecured and unitary ta)(eS ,ncluding waivers Excludes supp,eme,,tc. paymenh Total- Pending 16.153 585 247 880 (2) R,,;,ce1pts less than levy due to refunds (3) Total refunas ,ncluaing portion at!rib�tabis to ,;,.-a;,e,s aqd hcc.s·nJ seHis,ds (1J Refunds lo be pa,d h:::n strer ma1.s,,oe reso�·ces ;::fAgencv (2) The 1996-97 Revenue Estimate has been reduced for stipulated value rejuct1on Waivers I Tax Sharing Payments !;nilly Payment Amount Subordination 1996·97 Revenue Estimate San Mateo County/library 100% of Share = 24 8% Non-subordinated Secured Value 639,714.315 San Mateo Mosquito Abatment Dist 100% of Share 18% Non-subordinated Unsecured Value 150.764.574 Peninsula Hospital District 100% of Share "' 75% Non-subordinated San Mateo Comm. College Dist None 50% Subordinated Total Value 790,478.889 San Mateo High School District 7.5to 10"k ofNetTl Subordinated Less: Base Year Value 31.143.857

Incremental Value 759,335.032 Projected Pledged Tax Revenue

Tax Increment 7,608,054 4.200 Unitary Tax lncrernerit 45,838 ! ::�: Total Ta)( Increment 7,653 892 iits..;.;�s-1- .!!: l 900 Less. Property Tax Adm1n Fees 103 746

Net Tax Increment Rece1veable 7,550.148 j ::;:: l,600 Liens On Tax Increment -'"' -•,;. 1,. 111a,. 00 o,. 1111o,. ,,. o,. °' Housing Set-Aside 1,510.029 " " " 00 0, "' " "' °' "' Waived Tax Increment 1,954.941 v�, Taxing Entity Share- Nonsubord1na:ad 236.977

Tax Revenue 3,848,199

FSTSYS.XLS10.'23!96 Katz Hollis Foster CityCommunity Development Agency Part I - Introduction

Characteristics of the Project Area The redevelopment plan for the Project Area was adopted by the Foster City City Council on November 30, 1981. The Project Area includes the City's major commercial area, a research and development industrial park and a small amount of residential development. The Project Area consists of approximately 1,208 acres.

1-2 Katz Hollis

PART II

PROJECT AREATAXABLE VALUE, REVENUE AND PLEDGED TAX REVENUE

INTRODUCTION

The following paragraphs provide summarized information regarding property tax valuation and revenues realized or to be realized for the Project Area in past and the current fiscal years. Much of the information regarding current year values and resultant revenue is presented in Figure 11-1, "Estimate of Tax Revenue for Fiscal Year 1996-97." Additional specifics regarding the analyses and assumptions that underlie the information in this Part can be foundin Part IV, ''Background Information." PROJECT AREA TAXABLE VALUE

Historical and Current Taxable Value

The Project Area's historical growth is shown on Figure 11-2, "Historical Property Taxable Values." As shown on Figure 11-1, the total taxable value has grown from $610.7 million in 1992-93 to $805.6 million in 1996-97, an increase of approximately 32 percent. The increase of Project Area taxable value reflects an average annual growth rate of approximately 7 percent. The growth in taxable values is primarily the result of the completion of the two Visa office buildings and the Costco retail development.

A verification of taxable values was not prepared as a part of this analysis. However, a review and verification of previous years taxable values was conducted as a part ,if the Agency's 1993 bond issue. That review revealed only minor aberrations in the County's compilation of the taxable values of the Project Area. The Agency reported the apparent misassignments from the Project Area, totaling approximately $2.7 million in taxable value, to SanMateo County. Per our review, we have determined that these parcels are now correctly assigned to the Project Area. Major Assessees

Figure ll-3, 'Ten Major Property Tax Assessees:· lists the ten major assessees in the Project Area along with the number of parcels assessed to each of the major taxpayers, the total taxable value attributable to the assessee in the Project Area and the percentage of total Project Area taxable value represented by each assessee. As shown on Figure 11-3, the cumulative taxable value of the ten largest assessees represents 56 percent of the total taxable value of the Project Area. Assessment Appeals

Pending and recently resolved assessment appeals were reviewed in order to determine the potential impact on current and future Project Area value and tax increment revenue. Our analysis of currently pending and recently resolved assessment appeals in the Project Area disclosed both recently stipulated appeals and appeals pending hearing before theSan Mateo County Assessment Appeals Board.

Our review revealed recently stipulated appeals for two property owners, as shown on Figure 1-1, "Project Area Profile." Overall, the stipulated appeals will result in reductions to the 1996-97 taxable values reported by San Mateo County of approximately $15.1 million. For purposes of the tax increment projections on Figure 11-1 and 111-1, we have reduced the County's reported taxable value for the appeals impact. Refunds for prior year taxes paid by the property owners were deducted from the Project Area's tax increment revenues in 1995-96.

11-1 Figure li-1 Foster City Development Agency Community Development Project Area

ESTIMATE OF TAX REVENUE FOR FISCAL YEAR 1996-97 San Mateo County Adjusted Reported (1) Adjustments To (2) 1996-97 Category Taxable Value Taxable Value Taxable Value

Local Secured Land $216, 105,419 (787,443) 215,317,976 Improvements 436,648,062 (14,315,202) 422,332,860 Personal Property 3,264,394 0 3,264,394 Gross Local Secured 656,017,875 (15, 1 02,645) 640,915,230 Exempt 1,200,915 0 U00,915 Net Local Secured 654,816,960 (15, 1 02,645) 639,714,315

Unsecured Land 568,857 0 568,857 Improvements 46,952,747 0 46,952,747 Personal Property 103,242,970 0 103,242,970 Unsecured 150,764,574 0 150,764,574

Total Secured & Unsecured 805,581,534 (15, 102,645) 790,478,889 Base Year Taxable Value 31,143,657 Incremental Taxable Value 759,335,232

Tax Increment 7,608,054 Unitary Tax Increment 4.5,.!ru! Total Tax Increment Revenue 7,653,892 Aqjustmentsto Tax Increment Revenue: Property Tax Administration Fees (3) 103,746

Lienson Tax Increment Housing Set-Aside (4) 1,510,029 Waived Tax Increment (5) 1,954,941 Taxing Entity Share - Nonsubordinated (6) 236,977

Pledged Tax Revenue $3,848,199

(1) Based on taxable values per San Mateo County Controller. (2) Adjustments for recently resolved assesement appeals. (3) Estimated based on 1995-96 actual amount. (4) Based on 20 percent of total tax revenue, net of adjustments to tax revenue. (5) Based on tax sharing agreements with San Mateo County, the County Library District, the San Mateo County Mosquito Abatement District, and the Peninsula Hospital District. (6) Based on tax sharing agreement with the San Mateo Community College District.

Katz Hollis FSBND96.XLS10/23/96 Figure 11-2 Foster City Development Agency tax2 Community Development Project Area

HISTORICAL PROPERTY TAXABLE VALUES Total Locally-Assessed Locally-Assessed State-Assessed Total Incremental Fiscal Year Secured Value Unsecured Value Value Taxable Value Value r1 l

1996-97 $654,816,960 $150,764,574 $0 $805,581,534 $774,437,677 1995-96 600,361 ,984 139,294,489 0 739,656,473 708,512,616 1994-95 544,345,272 120,622,022 0 664,967,294 633,823,437 1993-94 539,858,321 102,200,238 0 642,058,559 610,914,702 1992-93 520,009,983 90,650,682 0 610.660.665 579,516,808

(1) Taxable value above base year value Through the 1995-96 fiscal year, San Mateo County utilized a total base year value of $31, 143,857.

Source: Katz Hollis and San Mateo County Controller

FSTSYS.XLS1 0/23/96 Figure 11-3 Foster City Development Agency topten Community Development ProjectArea

TEN MAJOR PROPERTY TAX ASSESSEES Total (2) Secured Unsecured (1) 1996-97 % ofTotal Asses see Type of Use Taxable Value Taxable Value Taxable Value Value (3)

Visa Land Development OfficeBuilding $101,839,075 $0 $101,839,075 12.64%

WCB Seventeen Ltd. Commercial 85,210,709 0 85,210,709 10.58%

Metro Center Tower Venture Office Building 67,267,645 0 67,267,645 8.35%

Foster Apartments Partners Multi-Family Residential 42,806,500 0 42,806,500 5.31%

Perkin-Elmer Corporation Commercial 0 39,445,767 39,445,767 4.90%

Town Center East Vacant/Commerical 30,267,565 0 30,267,565 3.76%

Metropolitan Life Insurance Company Commercial/Office 26,502,425 0 26,502,425 3.29%

Costco Wholesale Corporation Retail 24,031,971 0 24,031,971 2.98%

OB-1 Associates Commercial 18,950,000 0 18,950,000 2.35%

Tsai Shin-Teng, Steve Et. AL Hotel 18,172,490 0 18, 172,490 2.26%

Total Valuation $415,048,380 $39,445,767 $454,494, 147 56.42%

(1) Unsecured value reflects both real and personal property values. (2) Based on ownership of locally-assessed secured and unsecured property. (3) Based on total 1996-97 Project Areataxable value of $805,581,534.

Source: Katz Hollis and San Mateo County Assessors Office.

FSTSYS.XLS10123196 Katz Hollis Foster City Community Development Agency Part II - Project Area Taxable Value, Revenue and Pledged Tax Revenue

Our review disclosed outstanding appeals for three Project Arca assessees, as shown on Figure 11-4. The cumulative applicants opinion of value for the omstanding appeals is approximately $52.6 million lower than the cumulative values shown on the 1996-97 assessment roll. If each applicant is successful with their appeals, total foture Project Area tax increment could be reduced by up to $526,000 annually. Some of the outstanding appeals date back to the 1992-93 tax roll and could require refunds forprior year taxes paid by Project Area assessees. 11 is estimated that the cumulative reduction to net Agency tax increment (tax increment less the housing set-aside and waived revenue) for prior and current year refonds could be approximately $871 ,000. However, the potential impact based on the applicants opinion of value are substantially overstated compared to the historical impact of appeals.

We have therefore reflected the potential im pact on Project Area tax increment from pending appeals on Figure lll-1 based on the average valuation reduction for appeals in the Project Area since 1993-94. On average, appealed values have been reduced by approximately 18 percent As shown on Figure 11-4, reductions in value based on the average decline could equal approximately $16.2 million and result in total net refunds of $248,000. No reductions for refunds have been reflected on Figure lll-1 for outstanding appeals. It is our understanding that the Agency intends to repay any actual refunds out of available fund balances rather than as deductions to futureyears revenues.

PRO.JECT AREA TAX REVENUE

Project Area tax revenues consist of tax increment generated from the application of applicable tax rates to the incremental taxable value of the Project Area. Other tax increment sources can also include unitary property taxes and supplemental property taxes. The Agency's receipt of tax increment is subject to statutory limitations as to the amount of cumulative tax increment received, as described in Part IV of this Report.

Tax Increment and Tax Rates

Tax rates levied in the Project Area include the basic one percent tax rate and debt service tax rates. The latter are utilized to fund the obligations of voter approved indebtedness. The estimated 1996-97 tax rate applied to secured taxable values is 1.003478. As shown on Figure 11-1, total 1996-97 lax increment based on the application of Project Area tax rates to incremental taxable value is estimated to be $7,608,054.

Unitary Property Taxes

The Agency receives an annual allocation of unitary property taxes attributable to the Project Arca. Unitary property taxes are estimated to be $45,838 in 1996-97, based 011 the actual 1995-96 revenues as provided by San Mateo County.

Supplemental Property Taxes

The Agency typically receives supplemental revenue on an annual basis. Supplemental property taxes are a function of new construction activity and transfers of ownership occurring in the Project Area afterthe March I lien date. Annual supplemental prope1ty taxes can be substantial. Shown below are the amounts of supplemental property taxes allocated to the Project Arca over the past five fiscal years.

1991-92 $173,386 1992-93 74,483 1993-94 7 \,\ 86 1994-95 54,724 1995-96 175.327

ll-2 Figure 11-4 Foster City Development Agency Community Development Project Area

OUTSTANDING ASSESSMENT APPEALS

Applicants Opinion (1) Historical Average (2)

Potential Potential Valuation Net (3) Valuation Net (3) Assessee � Refunds � Refun_cts

Transpacific Development (4) N/A ($165,878) N/A ($32,912) Transpacific Development (47,587,490) (637,369) (13,975,094) (179,469) Perkin Elmer {1,765,800) (28,586) (1,446, 126) (23,417) Ziff Communications {3,213,573) (39, 114) (732,365) (12,082)

Total (52,566,863) (870,948) (16,1 53,585) (247,880)

( 1) Reflects estimated reductions based on the applicants opinion of value. (2) Reflects estimated reductions based on the average value reduction for appeals in the Project Area for 1994-95 and 1995-96 of 18 percent (3) Net refunds after reduction for waived revenue and housing set-aside. (4) The parcels forwhich prior year appeals were file by this Assessee have since been sold. The appeals remain outstanding.

Katz Hollis APP97.XLS10/26/96 Katz Hollis Foster City Community Development Agency Part II - Project Area Taxable Value, Revenue and Pledged Tax Revenue

PLEDGED TAX REVENUES

It is our understanding that the Agency intends to pledge those tax increment revenues, described above and allowed by law to be pledged, toward the repayment of the proposed Loan. The pledge of tax increment is subject to the adjustments to tax increment and liens on tax increment described below.

Adjustments to Tax Increment

l Property 'lt¥ Administrative Costs

Legislation enacted in 1990, Senate Bill 2557, authorizes county auditors to determine property tax administrative costs proportionately attributable to local jurisdictions and to invoice the jurisdictions forsuch costs. Subsequent legislation has expressly included redevelopment agencies as jurisdictions that are to be charged for property tax administrative charges. We have included the charges due from the Project Area for 1996-97 on Figure 11-1 based on the actual charges for 1995-96.

Liens on Tax Increment

Waivers a/Tax Increment and Ta< SharinK Al{reements

Concurrent with the adoption of the Project Area, the Agency entered into agreements with San Mateo County and the County Library District, the San Mateo County Mosquito Abatement District, and the Peninsula Hospital District to waive its right to receive the share of tax increment generated by those taxing entities in the Project Area. The agreements provide that each taxing entity will receive that portion of the tax increment it would have received but for the adoption of the Project Area. The three taxing entities' share of tax increment is approximately 26 percent. The amounts are shown on Figure 11-1 as waived tax increment.

The Agency also entered into an agreement with the San Mateo Community College District (the "College District") to hold the College District ham1Jess from possible fiscal detriment resulting from the Agency's receipt of tax increment revenue. Given the College District's current status in relation to state financing of education, the Agency is not required to make payments under the agreement. However, the agreement does represent a potential future liability. Although the provisions of the agreement are unclear as to what portion of the College District's share of tax increment is subordinated to Agency long term debt, it is our understanding that both the Agency and the College District concur that 50 percent of the College District's share of tax increment is subordinated. For this reason, the amount of pledged tax increment shown on Figure 11-1 has been reduced by 50 percent of the College District's share of tax increment to reflect the non­ subordinated amount.

The Agency has also entered into agreements with the San Mateo Union lligh School District and the San Mateo - Foster City School District which provide for Agency paymentsto each district. As the payments are subordinate to Agency bonded indebtedness the amounts arc not shown on Figure 11-1. A discussion of the provisions of each of the waivers of tax increment and tax sharing agreements is contained in Part IV of this Report.

Low and Mo derate Income Housing

Redevelopment agencies must set-aside 20 percent of its tax increment for low and moderate income housing purposes, except under certain specified conditions. The Agency is currently calculating its housing set-aside obligation based on its total tax increment.

11-3 Katz Hollis Foster City Community Development Agency Part II - Project Area Taxable Value, Revenue and Pledged Tax Revenue

Historical Pledged Revenues

Figure II-5 provides an estimate of historical pledged revenues in the Project Area between 1992-93 and 1995- 96. The numbers shown on Figure 11-5 are based on actual receipts of tax increment. Figure 11-5 has been provided to show estimated historical pledged revenues as a point of comparison with the tax increment projections included in Part III.

TAX ALLOCATION PROCEDURES OF SAN MATEO COUNTY

Tax Increment Revenues

San Mateo County calculates the Project Area's tax increment by applying Project Area tax rates to incremental taxable value and by determining the allocation of unitary property taxes. We have noted no apparent aberrations in the County's calculation of tax increment generated from the application of Project Area tax rates.

The County also determines an allocation of unitary property taxes for the Project Area. Based on our previous review of the County's calculation of unitary taxes, it appears that the County is underallocating unitary property tax revenues to the Project Area by approximately $4,500. For purposes of the projections shown on Figure II-I, we have utilized the amount of unitary property tax revenue calculated by the County.

Tax Sharing Revenue and Waived Tax Increment Calculation

The County Controller also calculates the amount of tax sharing revenue due the following taxing entities: San Mateo County; the County Library District; the San Mateo County Mosquito Abatement District and Peninsula Hospital District. Based on our review, we have noted no apparent aberrations in the County's calculation of waived tax increment.

Tax Receipts

San Mateo County has typically allocated I 00 percent of the estimated tax levy to redevelopment agencies. However, the Controller does adjust Agency revenues for most identified roll corrections and property tax refundsdue to assessment appeals. The table below shows Agency receipts of tax increment over the past five fiscal years. As can be seen, Agency receipts have been less than the original levy due to property refunds. It should also be noted that all refunds attributable to resolved appeals have been deducted from Agency revenues in 1995-96 and will therefore not impact the receipt of tax increment in 1996-97. As previously discussed, outstanding appeals could trigger refunds if they are resolved at valuations lower than those recorded on the tax roll. However, the Agency intends to repay such refunds fromavailable fund balances.

Total Less Percentage Receipts (l) Refunds Net Receipts of Levy 1992-93 $5,937,957 $34,015 $5,903,542 99.43 % 1993-94 6,223,841 145,427 6,078,414 97.53 % 1994-95 6,455,323 534,696 5,920,627 91.68 % 1995-96 7,182,154 479,056 6,703,008 93.33 % (1) Total receipts include waived tax increment and tax sharing but exclude supplementals

11-4 11-5 Foster City Development Agency Community Development Project Area pledge

HISTORICAL ANALYSIS OF PLEDGED TAX REVENUE

Catagory 1992-93 1993-94 1994-95 1995-96

Tax Increment $5,888,221 $6,189,196 $6,411,812 $7,136,385 Unitary Revenue 49,736 34,645 43,511 45,769 Supplemental Taxes 74,483 71,18 6 73,880 249,617

Total Tax Increment (1) 6,012,440 6,295,027 6,529,203 7,431 ,771

Adiustments IQ Tax R,,venue: Property Tax Administration Fees (2) 85,762 75,098 73,963 96,725 Refunds 34,015 145,427 534,696 479,056

Liens on Tax Increment Housing Set-Aside (3) 1,1 78,533 1,214,900 1,184,109 1,371 ,198 Waived Tax Increment (4) 1,509,380 1,558,657 1,522,052 1,769,212 Taxing Entity Share Non-Subordinated ( 5) 180,364 186,103 181,247 204,798

Total 2,868,276 2.959,660 2,887,407 3,345,208

Pledged Tax Revenue $3,024,387 $3,114,842 $3,033,137 $3,510,782

(1) Reflects actual receipts based on the records of the Agency. (2) As reported by the San Mateo County Controller. (3) Based on 20 percent of total tax increment less administration fees. (4) Based on tax sharing agreements with San Mateo County, the County Library District, the San Mateo County Mosquito Abatement District, and the Peninsula Hospital District. (5) Based on tax sharing agreement with the San Mateo Community College District. Amount shown is estimated and reflects 50 percent of Districts share.

FSTSYS.XLS10123196 KatzHoll is

PART III

PROJECTION OF TAX INCREMENT

INTRODUCTION

The estimates of futuretaxable values and revenues for the Project Area presented as Figure III-I are provided as an indication of the effect of pending instances of assessment changes and as a model of the future effects of some of the factors discussed in this Report. T11e estimates of annual value and revenue are constructed through a method that attempts to include only existing or imminent instances of changes in values or revenues. As such, the projection is an indication of the effects of less than the full universe of elements that can affect the generation of future revenues in the Project Area.

Projection of Project Area Taxable Values

Real property values included on Figure Ill-I are comprised of locally-assessed secured and unsecured real property values. The 1996-97 real property values are based on taxable values aggregated by Katz Hollis based on the records of San Mateo County. Real property values have been adjusted for resolved and outstanding appeals as described in Part II of this Report.

Pursuant to California law, real property values that do not change ownership or are newly constructed are allowed to increase by an inflationary adjustment of up to two percent annually. According to the State Board of Equalization, the final CPI for 1996-97, as determined by the Department of Industrial Relations, represents an increase of 1.11 148 percent. Thus, assessors have been instructed to prepare the 1996 assessment roll using an inflation factor of 1.0l ll4 (i.e., 1.11 percent above 1995-96 values). The projection shown on Figure III-I assumes an inflationfactor of l. l l percent forall years after 1996-97.

The projections on Figure Ill-I also include the value of new development shown on Figure III-2. Information regarding the scope and timing of the developments were provided by Agency staff. Should the scope and timing of proposed developments vary from current estimates, tax revenue estimates would need to be adjusted accordingly. Estimated valuations for the included developments are based on our understanding of the general assessment practices currently employed by San Mateo County. General assessment practices are subject to policy changes, legislative changes, and the individual appraiser's judgment in a specific situation. While we believe our estimates to be reasonable, taxable values resulting from actual property tax appraisals may vary from the amounts assumed in the projections.

The developments which are included on Figure III-2, "Schedule of New Development," include only those developments currently under construction, as described below.

I. City Park Townhomes. A total of 42 townhomes are being built in the Project Area in two phases. Partial value from the construction of the units is reflected on the 1996-97 tax roll. Additional taxable value from construction completion and sale of the units is expected to occur on the 1997-98 through 1999-2000 tax roll.

2. Starbucks Retail. An 8,000 square foot Starbucks retail area is under construction in the Project Area. It is expected that constructionvalue will be reflected on the 1997-98 tax roll.

The attached projections are based on the assumptions that inflation will remain at a minimum of 1.11 percent annually in future years and that the value of real property will increase annually at this rate. Trended taxable value growth which may occur as the result of inflationary growth or changes in ownership or new

lll-1 F1g,.

PROJECTION OF INCREMENTAL TAX REVENUE (OOO's Omitted)

:ncremental Total Value Over Unitary (5) Total Adjustments Waived Non- Pledged Fiscal Real (1) New (2) Real Otner (3) Total Base Of Tax (4) Tax Tax To Tax (6) Housing (7) Tax Subordinatect Tax Xfil!I !'_<1lll'>[iy Oevetm.tmen frQW1y !'!ll!lfillY � $31 144 � � Increment Revenue Set-Aside Increment (8) Tax Shanng (9) Rfil'=

1996-97 $683,972 $0 $683,972 $106,507 $790,479 $759,335 $7,608 $46 $7,654 $104 $1,510 $1,955 $237 $3,848 1997-98 672,453 5.835 678,288 106,507 784,796 753,652 7,553 46 7,598 103 1,499 1,955 235 3,806 1998-99 685.817 3,169 688,986 106,507 795,493 764,349 7,646 46 7,692 104 1,518 1,983 239 3,849 1999-2000 696.634 621 697,254 106,507 803,762 772,618 7,726 46 7,772 105 1,533 2.004 241 3.888 2000-01 704,994 0 704,994 106,507 811,501 780,357 7,804 46 7,849 106 1,549 2,024 243 3,927 2001-02 712J:!19 0 712.81S 106.507 819,327 788 183 7 882 46 7,928 107 1,564 2,044 246 3,966 2002-03 720.732 0 720,732 106,507 827.239 796,095 7,961 46 8,007 109 1,580 2,064 248 4,006 2003-04 728,732 0 728,732 106.507 835,239 804,095 8,041 46 8,087 110 1 595 2.085 251 4.046 2004-05 736.821 0 736 821 106,507 843,328 812,184 8,122 46 8,168 111 1,61 1 2,106 253 4,066 2005-06 744,999 0 744,999 106.507 851.507 820.363 8,204 46 8,249 112 1.628 2 127 256 4,127

(1) Prior Year Rea! Property, less acquisition and demolition increased by 1.11 percent in 1996-97 and 2 percent in baiance of years. as allowed by Article XHIA of the Ca!iforrna Constitution Values for 1996�97 and 1997-98 also reduced fer appeals. {2) See Figure 1!1·2, Schedule of New Development (3) Includes the value of secured and unsecured persona! property, and state assessed railroad and non·unitary property (4) Based on application of estimated tax rates to projected incremental taxable value. (5) Amount shown reflects County estimate of unitary revenue for 1995-96 and is assumed to remain constant. (6) Estimated property tax administrative fees to be collected by San Mateo County (7) Housing Set-aside reflects 20 percent of the Agency's tax increment revenues after reductions for property tax administration fees. (8) Reflectsproperty tax revenue allocated and paid to San Mateo County and the County Library District. the San Mateo County Mosquito Abatement District and the Peninsula Hospital District pursuant to Agency agreements to waive its right to the share of tax increment generated by those districts in the Project Area. (9) Reflects 50 percent of San Mateo Community Colleg District's share of tax increment

Katz Hollis FSBND96.XLS10123/96 Figure 111-2 Foster City Development Agency Community Development ProjectArea newdev

SCHEDULE OF NEW DEVELOPMENT (OOO's Omitted)

Less: Total Value on Total Development Description Value 1996-97 Value Added 1997-98 1998-99 1999-2000 2000-01 2001-02 2002-03 2003-04

City Park Townhomes - Phase I Construction 2,647 979 $1,667 $1,667 $0 $0 $0 $0 $0 $0 Sale of Units 2,997 0 2,997 2,247 749 0 0 0 0 0 City Park Townhomes - Phase II Construction 2,647 419 2,227 1,671 557 0 0 0 0 0 Sale of Units 2,484 0 2,484 0 1,863 621 0 0 0 0 Starbucks Retail 400 150 250 250 0 0 0 0 0 0

TotalValue Added $11,173 $1,548 $9,625 $5,835 $3,169 $621 $0 $0 $0 $0

KatzHollis FSBND96XLS10/23/96 Katz Hollis Foster City Community Development Agency Part [II - Projection of Tax Increment

construction not specifically included on Figure 111-2 has not been assumed. Should such other changes in ownership or other new construction occur, it is likely that increases in tax increment will result.

Other property values included on Figure 111-1 include the taxable value of secured and unsecured personal property and is based on Katz Hollis' aggregation of taxable values from the records of San Mateo County. The value of other property in the Project Arca has been held constant at its 1996-97 level.

Projection of Project Area Tax Revenue

Tax Increment shown on Figure lll-1 has been calculated by applying applicable tax rates to the incremental taxable value of the Project Area. Total tax revenue does not include supplemental property taxes. Total tax increment assumes that the Agency will receive 100 percent of the tax levy calculated forthe Project Area.

Adjustments to Tax Increment and Liens on Tax Increment

In order to determine the net tax increment revenue available for debt service, i.e. the pledged Tax Revenues, we have reduced total tax increment by the estimated annual amounts of property tax administrative fees, estimated amounts to be deposited into the Agency's Low and Moderate Income Housing Fund, and estimated amounts of waived tax increment and non-subordinated tax sharing payments to the affected taxing entities.

The property tax administration charges paid to San Mateo County have been estimated based on the actual 1995-96 charge of $96,725.

The projections include the housing set-aside computed as 20 percent of Total Tax Increment, net of the property tax administrative foe. No reductions to the housing set-aside as allowed for certain project areas, as described in Part IV of this Report, have been assumed.

The waived tax increment column shown on Figure lll-1 reflects amounts due pursuant to tax sharing agreements between the Agency and Santa Mateo County, the County Library District, the San Mateo County Mosquito Abatement District, the Peninsula Hospital District which are not subordinated to Agency bonded indebtedness. Each of the agreements requires the Agency to pay each taxing entity 100 percent of the tax increment amount they would have received in the absence of tax increment financing in the redevelopment plan for the Project Area. The amounts shown on Figure 111-1 as the non-subordinated taxing entity share reflects 50 percentof the San Mateo Community College District's share of tax increment, which is a potential lien on Agency tax increment.

111-2 KatzHollis

PART IV

BACKGROUND INFORMATION

PROJECT AREA TAXABLE VALUE

Pursuant to provisions of the California Constitution and the California Revenue and Taxation Code, county assessors are directed to determine the full cash value of locally-assessed real and personal property as of March I of each year. (See Legislative Section for recent changes to state law affecting this date.) Locally­ assessed propertyis classified as secured or unsecured. The secured classification includes property on which the property tax levied becomes a lien on the property to secure paymentof the taxes. Property taxes levied on unsecured property does not become a lien against the unsecured property, but may become a lien on other property owned by the taxpayer. The SBE is charged with assessing the value of state-assessed properties as of January I of each year. (All state-assessed property is classified as secured property.) Taxable property is assessed at I 00 percent of its fullcash value.

Locally-Assessed Values

Real property is comprised of locally-assessed secured and unsecured land and improvements. Pursuant to Article XIIIA of the California Constitution (effective as of the 1978-79 fiscal year) and Section 51 of the Revenue and Taxation Code, the taxable value of real property is I imited to the lessor of actual market value or the 1975-76 value (the "base assessment value") compounded by an inflation factor of up to 2 percent annually. A new base assessment value is determined in instances of new construction or changes of ownership, which may result in increased property values above the 2 percent annual inflation factor.

Personal property values are comprised of locally-assessed secured and unsecured personal property. The taxable value of personal property is based on its full cash value and may be revalued annually without regard to the annual 2 percent inflation limitation of Article XIIIA.

State Board of Equalization Values

The SBE determines the annual taxable value of real and personal property of state-assessed utilities. The SBE determines the value of both unitary and non-unitary property of utilities. The taxable value of unitary properties is based on the unit valuation of all properties utilized state-wide in the primary function of a utility. Non-unitary properties are assessed by the SBE but are not part of the primary function of the utility.

Following the passage of Proposition 13, adding Article XIIIA to the State Constitution, the SBE determined that the provisions of that Article requiring a "roll back" of real propertyvalues to their 1975-76 values did not apply to state-assessed property. This interpretation has been upheld by the State Supreme Court (ITT World Communications, Inc. vs. City and County of San Francisco, et al, 37 Cal. 3d 859 - January, /985). Consequently, state-assessed property may be revalued annually, and such assessments are not subject to the annual 2 percent inflation limitation of Article XIIIA.

Prior to the 1988-89 fiscalyear, the SBE reported the value of each utility within each individual tax rate area to the auditor-controller of each county. AB 454 (Chapter 921, Statutes of 1987) revised the method of reporting and allocating propertytaxes generated from state-assessed properties so that only the taxable value of non-unitary properties and all railroad properties is reported for each tax rate area. As a result, the taxable value of the Project Area does not include most state-assessed unitary property. The Agency does receive an allocation of property taxes generated from state-assessed unitary property taxes, a description of which is included below in the "Project Area Tax Revenue" section of this Part IV.

IV-I Katz Hollis Foster City Community Development Agency Part IV - Background Information

Assessment Appeals An assessee of locally-assessed or state-assessed property mav contest the taxable value enrolled by the county assessor or by the SBE, respectively. The assessee of state-assessed property or locally-assessed personal property, the valuation of which are subject to annual reappraisal, actually contests the detennination of the full cash value of property when filing an assessment appeal. Because of the limitations to the determination of the full cash value of locally-assessed real prope1ty by Article X11IA, 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 valu,'.

At the time of reassessment. alter 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 asscssee appeals the actual underlying market value of the sales transaction or the recently completed improvement. A base assessment appeal has significant future revenue impacts because a reduced base year assessment will then reduce the compounded value of the property prospectively. Except forthe 2 percent inflation factor, the value of the property cannot be increased until a change of ownership occurs or additional improvements are added.

Pursuant to Section 5l(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 fu ll cash value of real property has been reduced by damage, destruction, depreciation, obsolescence. removal of prope1ty or other factors causing a decline in the value. Reductions in value pursuant to Section 5 l(b), commonly referred to as Proposition 8 appeals, can be achieved either by formal appeal or administratively by assessor staffappraising 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 subsequent to 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.

Appeals of the taxable value for Project Area assessments could potentially lower taxable values, as currently reported, thereby reducing tax increment. For this reason, currently pending and recently resolved assessment appeals filed by taxpayers in the Project Arca were reviewed. The results of this review are discussed in Part II of this Report.

The taxable value of utility property may be contested by utility companies and railroads 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.

PROJECT AREATAX REVENUE

Pursuant to Article XVI, Section 16 of the California Constitution and Section 33670 of the CaliforniaHealth and SafetyCode, redevelopment agencies are eligible to receive that portion oflevied property taxes which are in excess of levied property taxes generated from the application of tax rates to the base year value of redevelopment project areas. The primary source of the excess property taxes (the "tax increment") is dependent on the total taxable value of a project area. In addition, tax increment may also be generated from property tax sources which are not included in the current taxable value of the project area, but may be directly

IV-2 Katz Hollis Foster City Community Development Agency Part IV - Background Information

or indirectly related to current or past taxable values. These sources include unitary property taxes and supplemental property taxes.

Tax Increment and Tax Rates

By subtracting the base year value of a project area from the total taxable value of secured and unsecured real and personal property, the County Controller determines the incremental taxable value ofa project area. The resultant tax increment revenue is determined by applying applicable tax rates to the incremental taxable value.

The projected tax increment revenues shown on Figures Ill-I have been computed using tax rates comprised of a "basic" rate ($ 1.00 per $100 of taxable value) and debt service tax rates as prescribed by Article XIIIA. Debt service tax rates (rates in excess of $1.00 per $100 of taxable value) typically decline each year. A declining debt service tax rate is the result of several factors: an effective limit from July I, 1978 until June 3, 1986 established by Article XIIIA (and since amended, as discussed below) on the amount of property taxes that can be levied (equal to the annual obligations or indebtedness approved by the voters); rising taxable values within the jurisdictions of taxing entities levying the approved debt service tax rate (which reduces the taxrate needed to be levied by the taxing entity to meet debt service requirement); and the eventualretirement, over time, of the voter-approved indebtedness.

On June 3, 1986, the Californiavoters approved a constitutional amendment to Article XIIIA which allows the levy of an ad valorem property tax in excess of one percent to pay debt service on indebtedness for the acquisition and improvement of real property approved on or afterJuly 1, 1978, by a two-thirds vote. Further, a constitutional amendment approved by the voters on November 8, 1988 and implementing legislation, AB 89 (Chapter 250, Statutes of 1989), added subdivision (e) to Section 33670 which excludes from the calculation of tax increment revenues property taxes generated by any new voter-approved bonded indebtedness approved on or after January I, 1989. The tax rates utilized on Figure lll-1 to calculate tax increment revenues do not reflect any increases in tax rates.

The 1996-97 property tax rate levied in the Project Area is estimated to be $ l .003478. The estimated tax rate for 1996-97 and future fiscal years is based on our review of debt service obligations of the Estero Municipal Improvement District, which levies a debt service tax rate in the Project Area and theaverage annual decline in the rates since 1984-85. The secured property tax rate levied in the Project Area is projected to decline to 1.00000 per $100 by 1998-99.

Unitary Property Taxes

Prior to 1988-89, the SBE reported the value of each utility within each individual tax rate area to the auditor­ controller of each county. AB 454 (Chapter 921, Statutes of 1987) revised the method of reporting and allocating property tax revenues generated from most state-assessed unitary properties beginning with the 1988-89 fiscal year. Under AB 454, the state reports to each county auditor-controller only the county-wide unitary taxable value of each utility, without an indication of the distribution of the value among tax rate areas. AB 454 provides two formulas for auditor-controllers to utilize to detennine the allocation of unitary properly taxes derived from county-wide unitary value:

I) For revenue generated fromthe basic one percent tax rate, each jurisdiction including a redevelopment project area, is to receive up to I 02 percent of its prior year unitary property tax revenue. lf county-wide revenues generated from unitary properties are greater than I 02 percent of prior year revenues, each jurisdiction receives a percentage share of the excess unitary revenues equal to the percentage of each jurisdiction's share of secured property taxes.

IV-3 Katz Hollis Foster City Community Development Agency Part IV - Background Information

2) For revenue generated from the application of the debt service tax rate to county-wide unitary taxable value, each jurisdiction, including a redevelopment project area, is to receive a percentage share of revenue based on the jurisdiction's annual debt service requirements and the percentage of property taxesreceived by each jurisdiction from unitary property taxes.

The provisions of AB 454 apply to all state-assessed property except railroads and non-unitary properties, whose valuation continues to be allocated to individual tax rate areas. The provisions of AB 454 do not constitute an elimination or a revision of the method of assessing utilities by SBE. Generally, Chapter 921 allows valuation growth or decline of state-assessed unitary property to be shared by all jurisdictions within a county.

Supplemental Property Taxes SB 813 (Chapter 498, Statutes of 1983) added sections 75 through 75.13 to the Revenue and Taxation Code which provide forthe supplemental assessment and taxation of property as of the occurrence of a change of ownership or completion of new construction. Previously, statutes enahled the assessment of such changes only as of the March I property tax lien date next following the change, and thus delayed the realization of increased property taxes from the new assessment. As enacted, SB 813 provided increased revenue generated from the supplemental assessment of property to be allocated exclusively to school districts for the 1983-84 and 1984-85 fiscal years. That provision was amended by SB 794 (Chapter 447, Statutes of 1984) such that only supplemental property tax revenues collected for 1983-84 were to be allocated exclusively to school districts. As a result of SB 794, supplemental revenues are to be allocated to redevelopment agencies and taxing entities in the same manner as regularly collected property taxes. For purposes of the analysis conducted as part of this Report, we have not estimated futuresupple mental property taxes.

Tax Increment and Indebtedness Limits Pursuant to Health and Safety Code Section 33333.2, the Agency established a limit on the amount of tax increment which can be allocated to the Agency from the Project Area and a time limit as to the incurrence of indebtedness to be repaid with tax increment from the Project Area. The Agency has established a cumulative tax increment limit of $170 million. The tax increment limit in the Project Area's redevelopment plan is based on cumulative allocated tax increment to the Agency since the inception of the Project Area. Based on an opinion provided by McDonough, Holland & Allen, the Agency's redevelopment legal counsel, the tax increment limit applies to tax increment allocated to the Agency after revenues waived or paid to certain taxing entities is deducted. The provisions of the waiver/tax sharing agreements are briefly described below.

Concurrent with the adoption of the Project Area, the Agency entered into agreements with San Mateo County, the County Library District, the Peninsula Hospital District and the San Mateo County Mosquito Abatement District to waive its right to receive the share of tax increment generated by those districts in the ProJect Area. Each of the agreements provide that each district will receive that portion of tax increment revenue it would have received but for the adoption of the Project Area. In addition, the Agency makes annual tax sharing payments to the San Mateo Union High School District pursuant to a Stipulated Judgment and Mutual Release.

Based on Agency records, the Agency has received approximately $38.1 million in tax increment revenues exclusive of revenue waived or paid to the taxing entities through the 1995-96 fiscal year. Assuming growth in the real property portion of the Project Area·, taxable values of I.I I percent annually, it is estimated the Agency would reach the tax increment limit in 20 18-19. Should tax increment growth exceed amounts Katz Hollis Foster City Community Development Agency Part IV - Background Information attributable to the inflation adjustment, the tax increment limit would be reached sooner. Figure IV-I provides an estimate of when the Agency will reach the tax increment limit.

In 1993, the Legislature passed AB 1290 (Chapter 942, Statutes of 1993) which established time limits for the establishment and repayment of debt and for the effectiveness of redevelopment plans. The time limits contained in the Redevelopment Plan for the establishment of debt and the effectiveness of the Redevelopment Plan forthe Project Area were shorter than those allowed by AB 1290, and therefore the Plan limits govern. Pursuant to Ordinance No. 417 adopted by the City Council in June 1995, the Agency established that tax increment can be received for up to ten years after the effectiveness of the Plan subject to the tax increment limit.

The Redevelopment Plan states that the Agency will not establish indebtedness to finance the Project Area after fifteen (15) years from the effective date of the ordinance approving the redevelopment plan, which was adopted in November, 1981. The Redevelopment Plan is effective for35 years from the date of adoption.

PLEDGED TAX REVENUES

It is our understanding that the Agency intends to pledge those tax increment revenues, described above and allowed by law to be pledged, toward the repayment of the proposed Loan. The pledge of tax increment is subject to adjustment to the tax incrementand the liens on tax increment described below.

Adjustments to Tax Increment

Items included as Adjustments to Tax Increment include annual allocations made from the property tax revenue stream of the Project Area without the need for approval by the Agency. Because such payments are beyond the purview of the Agency they are deducted before computations are made as to the set-aside of monies for the Low and Moderate Income Housing Trust Fund. The one adjustment applicable to the Project Area is administrative charges collected by San Mateo County.

In 1990, the Legislature enacted SB 2557 (Chapter 466, Statutes of 1990) which allows counties to charge for the cost of assessing, collecting and allocating property tax revenues to local government jurisdictions on a prorated basis. As enacted, SB 2557 appeared to exclude redevelopment agencies from either a reduction in tax increment or a charge fora county's property tax administration costs. However, it has been the practice of many Californiacounties, including San Mateo County, to charge redevelopment agencies fortheir prorated share of property tax administrative costs. Legislation enacted during the 1992 session clarified the provisions of SB 2557 as they relate to redevelopment agencies. SB 1559 (Chapter 697, Statutes of 1992) has specifically included redevelopment agencies among the entities subject to a property tax administration charge. For purposes of the projection of tax increment shown on Figure II-I and III-I, we have included deductions forproperty tax administrative charges.

Liens on Tax Increment

Low and Moderate Income Ho using

Chapter 1337, Statutes of 1976, added Sections 33334.2 and 33334.3 to the Health and Safety Code, requiring redevelopment agencies to set aside 20 percent of all tax increment allocated to redevelopment project areas adopted after December 31, 1976, into a low and moderate income housing fund. As provided by Section 33334.2, the low and moderate income housing requirement can be reduced or eliminated if a redevelopment agency finds that: 1) no need exists in the communityto improve or increase the supply of low and moderate income housing; 2) that some stated percentage less than 20 percent of the tax increment is sufficient to meet

IV-5 F.gure 1V-� Foster City Deveiop:ne:i:Age "',;::y Community Development ProjectArea

ANALYSIS OF TAX INCREMENT LIMIT 1.11 PERCENT ANNUAL GROWTH (1)

Adjustments Tax Increment Cumulative {3) Annual {4) Total Property Tax To Tax (2) Waived Tax Tax Sharing Subject to Receivable Receivable Tax i ncremn � Fiscal Year Tax Increment Ref..1ncts � increment Revenue L[mit Tax increment

1 1996-97 $7.654 $0 $104 $1.955 $300 $5,295 $43.444 $5,295 2 1997-98 7,598 0 103 1.955 269 5,271 48,715 5,271 3 1998-99 7,692 0 104 1.983 274 5.331 54,046 5.331 4 1999-2000 7,772 0 105 2.004 279 5.384 59,430 5,384 5 2000-01 7,849 0 106 2.024 284 5.435 64,865 5,435 6 2001-02 7.928 0 107 2.044 290 5.486 70,351 5.486 7 2002-03 8.007 0 109 2.064 295 5,539 75.890 5.539 8 2003-04 8.087 0 110 2 085 300 5.592 81.482 5.592 9 2004-05 8,168 0 111 2.106 306 5,645 87, 127 5,645 10 2005-06 8,249 0 112 2,127 312 5.699 92.826 5,699 11 2006-07 8.332 0 113 2,148 318 5.753 98,579 5,753 12 2007-08 8.416 0 114 2.170 431 5,701 104,280 5,701 13 2008-09 8.500 0 115 2.192 439 5,754 110,034 5,754 14 2009-10 8,586 0 116 2.214 447 5,809 115.843 5.809 15 2010-11 8,672 0 118 2,236 456 5,863 121 .705 5,863 16 2011-12 8,760 0 119 2.259 467 5,915 127,621 5,915 17 2012-13 8,848 0 120 2.281 475 5,972 133.592 5.972 18 2013-14 8.937 0 121 2,304 484 6,028 139,620 6.028 19 2014-15 9.028 0 122 2,328 493 6.085 145,705 6,085 20 2015-16 9.119 0 124 2.351 503 6,141 151,846 6,141 21 2016-17 9,211 0 125 2.375 512 6,199 158.045 6,199 22 2017-18 9.305 0 126 2.399 0 6.779 164,825 6,779 23 2018-19 9,399 0 127 2,423 0 6.848 170,000 5.175 24 2019-20 9,495 0 129 2,448 0 6,918 170,000 0 25 2020-21 9,591 0 130 2,473 0 6.988 170,000 0

( 1) Real property increased by 1 .11 percent annually. plus the value of new construction shown on Figure 111-2. (2) Reductions for property tax administration fees charged by San Mateo County pursuant to SB 2557. (3) Includes $38.1 million in tax increment received through 1995�96. (4} Reflects annual tax increment to be allocated to the Agency,provided cumulative tax increment revenues do not exceed the tax increment limit of $170 million,

FSBND96.XLS11/18196 Katz Hollis KatzHollis Foster City Community Development Agency Part IV - Background Information the housing need; or 3) that other substantial or equivalent efforts, including the obligation of funds of equivalent impact from state, local and federal sources for low and moderate income housing are being provided for in the community.

As amended by AB 315 (Chapter 872, Statutes of 1991), Section 33334.2 restricts the ability to reduce or eliminate the low and moderate income housing requirement. A communitycan claim that no need exists, or can claim that less than 20 percent of tax increment is sufficient, only if that claim is consistent with the housing element of the community's general plan. Communities which have claimed an "equivalent effort" exemption face a June 30, 1993 repeal date for that authority except for obligations incurred prior to May I, 1991 which were entered into with the understanding that the "equivalent effort" exemption would remain intact. The Agency has been making annual deposits into its Low and Moderate Income Housing Fund equal to 20 percent of its total tax increment less adjustments.

Tax Sharing Agreements

Concurrent with the adoption of the Project Area, the Agency entered into agreements with San Mateo County, the County Library District, the Peninsula Hospital District and the San Mateo County Mosquito Abatement District to waive its right to receive the share of tax increment generated by those districts in the Project Area. Each of the agreements provide that each district will receive that portion of tax increment revenue it would have received but for the adoption of the Project Area. Each taxing entity's approximate weighted average share of tax increment is shown below:

San Mateo County 21.68% County Library District: 3.16% Peninsula Hospital District: 0.75% Mosquito Abatement District: 0.18%

In accordance with Section 3340 I of the Health and Safety Code, a redevelopment agency may pay to any other entity collecting property taxesfrom within a redevelopment project area (except the legislative body of the agency) an amount of money found necessary andappropriate to alleviate the financialburden or impact of the redevelopment project on the respective taxing entities. Pursuant to Section 33401, the Agency has entered into an agreement to hold harmless the San Mateo Community College District from possible future fiscal detriment resulting from the Agency's receipt of tax increment revenue. The College District's weighted average share of tax increment is approximately 6.2 percent. Given the College District's current status in relation to state financing of education, the Agency is not required to make payments under the agreement. However, the agreement represents a potential future liability. Although the provisions of the agreement are unclear as to what portion of the College District's share of tax increment is subordinated to Agency long term debt, it is our understanding that both the Agency and the College District concur that 50 percent of the College District's share of tax increment is subordinated. For this reason, tax increment projected on Figure III-! has been reduced by 50 percent of the College Districts share of tax increment to reflect the non-subordinated amount.

The Agency has also entered into tax sharing agreements which are subordinated to Agency bonded indebtedness, as described below:

1. San Mateo Union High School District ("High School District") -- At the time of adoption of the redevelopment plan, the Agency entered into an agreement with the High School District which has since been superseded by a Stipulated Judgment and Mutual Release (the "Stipulated Judgment"). Pursuant to the Stipulated Judgment, the Agency is required to make payments to the High School District of $300,000 annually for fiscal years 1992-93 through

IV-6 Katz Hollis Foster City Community Development Agency Part IV - Background Information

I 995-96. Beginning in 1996-97 and continuing through the last year of the Plan, the Agency is required to make payments equal to between 7.5 percent to IO percent of net tax increment (total tax increment less waived tax increment and housing set-aside deposits). Payments in any fiscal year cannot exceed specific dollar amounts shown under a payment schedule in the Stipulated Judgment.

2. San Mateo - Foster City School District: (the "City School District") -- At the time of adoption of the redevelopment plan, the Agency entered into an agreement with the City School District which has since been superseded by an Agreement and Mutual Release (the "Mutual Release") Pursuant to the Mutual Release, the Agency has paid the City School District $4.0 million forthe construction of school facilities. Additionally, the Mutual Release provides that if the City School District suffers a revenue loss attributable to the Redevelopment Plan and the Agency's use of tax increment financing, the Agency may be obligated to make additional payments to the City School District from unencumbered and unobligated Tax Revenues.

TAX ALLOCATION PROCEDURES OF SAN MATEO COUNTY

Tax Increment Revenue

Under the current property tax allocation system of the San Mateo County Controller, the tax increment revenue of each redevelopment project area is determined by calculating tax increment revenues generated from the application of project tax rates to incremental taxable values and by determining the allocation of unitary property taxes. In October of each year. the County reports the tax increment levy due for each redevelopment project.

In calculating the tax increment levy, the County Controller must also determine the allocation to each project area of county-wide property taxes generated fromstate-assessed unitary properties pursuant to AB 454. San Mateo County has implemented AB 454 by determining the total amount of unitary property taxes received for each redevelopment project area in 1987-88. Allocations of 1988-89 and subsequent years' unitary revenue for each project area are based on the amount of unitary revenue received in 1987-88 and subsequent years plus an allocation of unitary revenue based on growth in county-wide unitary revenue in each year.

Tax Receipts

San Mateo County has typically allocated I 00 percent of the estimated tax levy to redevelopment agencies. As a result, any delinquent property taxes typically have no impact on the Agency's receipt of tax increment. In addition, the County allocates or adjusts revenues to the Agency to reflect roll corrections and refunds which may result from successfully appealed valuations, late assessments or corrected assessments. As a result, the Agency may benefit or bear the burden from any adjustments in property taxes generated from Project Area roll corrections or refunds which may occur.

A review of tax increment revenue received by the Agency for the Project Area was conducted forfiscal years 1992-93 through 1995-96. The findings from this review are discussed in Part II of this Report.

The County pays I 00 percent of unsecured tax increment by November I, and 50 percent of secured tax increment in December and in April of each fiscal year. Supplemental property taxes are paid as the County receives supplemental property tax payments.

I \/-7 Katz Hollis Foster City Community Development Agency Part IV - Background Information

LEGISLATION

Property Tax Reform Package

SB 657 was passed by tbe Legislature and signed by the Governor in October 1995. The bill, entitled the Omnibus Property Tax Reform Package of 1995, would make a number of technical and substantive changes in the assessment of property. The current period for filing assessment appeals would be extended from September 15 to December 15, under specified conditions. The bill would provide tbat intangible assets are not subject to taxation. A number of other provisions are also contained in the bill. The impact of SB 657 on the Project Area Tax Revenue is not known.

Change in Lien Date

SB 327 was passed by the Legislature and signed by the Governor in October 1995. The bill moves the current lien date for the assessment of property from March l to January I of each year. The impact on Project Area tax increment will be based on the timing of development in the Project Area. With the change of lien date, some of the growth in taxable value that would have been captured between January and March in a fiscal year will be applied to the subsequent assessment roll lien date. The Agency will still receive such revenue, only it will come from the supplemental tax roll. The impact of SB 327 has been factored into the tax increment projections shown on Figure lil- l.

Educational Revenue Augmentation Fund

As part of the state's 1992 budget, the Legislature passed and the governor signed legislation requmng redevelopment agencies to make a one-time contribution of revenue to school districts, thereby generating education finance savings of $205 million forthe state in 1992-93. SB 617 (Chapter 699, Statutes of 1992) added Section 97.03 to the Revenue and Taxation Code which established an Educational Revenue Augmentation Fund (Fund) and SB 844 (Chapter 700, Statutes of 1992) added Sections 33681 and 33682 to the Health and Safety Code which provided the method for calculating each redevelopment agency's required deposit into the Fund. Pursuant to SB 844, the contribution equals approximately 16 percent of the tax increment revenue allocated to a redevelopment agency in fiscal year 1990-9 1.

SB 844 authorized redevelopment agencies to use any available revenue source in making the required payment, exclusive of amounts already on deposit in low- and moderate-income housing funds. Agencies may borrow up to 50 percent of their 1992-93 deposit into the housing fund or share the payment with the redevelopment-administering city or county. In the event an agency fails to make the deposit required under SB 844, county auditor-controllers are authorized to confiscate the amounts owed the Fund from revenue otherwise allocable to the administering city or county general fund .

SB 1135, part of the State's 1993-94 budget, requires redevelopment agencies to contribute additional revenues to school districts via the Fund in 1993-94 and 1994-95. SB 113 5 specifies that the amount each agency is to contribute to the school districts is based on 5.675 percent of each agency's 1990-91 net tax increment, revenue available after adjusting for payments to the affected taxingentities.

On January IO, 1995, Governor Wilson released his proposed State Budget for the 1995-96 fiscal year. The proposed Budget does not contain an extension of the requirement for redevelopment agency payments to the Fund. No such payments were enacted by the Legislature although agency contributions were discussed in the course of legislative deliberations on the budget. As a result, no payments were made by the Agency for the 1995-96 fiscal year. To date, no legislation has been introduced tbat would require redevelopment agency payments to the Fund for 1996-97.

IV-8 (THIS PAGE INTENTIONALLY LEFT BLANK) APPENDIX F FORM OF CONTINUING DISCLOSURE CERTIFICATE

This Continuing Disclosure Certificate (the "Disclosure Certificate") is executed and delivered by the Foster City Financing Authority (the"Authority") in connection with the issuance of its $6,825,000 1996 Revenue Bonds, Series A (Foster City Community Development Project Loan) (the "Bonds"). The Bonds are being issued pursuant to an Indenture of Trust (the "Indenture") dated as of November I, 1996 (the "Indenture") between the Authority and Wells Fargo Bank, National Association as Trustee (the "Trustee"). Pursuant to the obligation upon the Authority to provide continuing disclosure set forth in Section 5.13 of the Indenture,the Authority covenants and agrees as follows:

SECTION 1. Purpose of theDiscl osure Certificate. This Disclosure Certificate is beingexecuted and delivered by the Authority for the benefit of the Holders and Beneficial Owners of the Bonds and in order to assist the Participating Underwriters in complying with Securities and Exchange Commission Rule 15c2-12(b)(5). The Authority has undertaken no responsibility with respect to any reports, notices or disclosures provided or required under this Indenture, and has noliability to any person, including any holder of the Bonds, with respect to any such reports, notices or disclosures.

SECTION 2. Defmitions, Inaddition to thedefinitions set forthin theIndenture , which apply to any capitalized term used in this Disclosure Certificate unless otherwise defmed in this Section, the followingcapitalized terms shall have the followingmeanin gs:

"Annual Report" shall mean any Annual Report provided by the Authority pursuant to, and as describedin, Sections 3 and 4 of this DisclosureCertificate.

"Beneficial Owner" shall mean any person which (a) has the power, directly or indirectly, to vote or consent with respect to, or to dispose of ownership of, any Bonds (including persons holding Bonds through nominees, depositories or other intermediaries), or (b) is treated as the owner of any Bonds for federal income tax purposes.

"Disclosure Representative" shall mean the designees of the Authority to act as the disclosure representative.

"Dissemination Agent" shall mean an entity selected and retained by the Authority, or any successor theretoselected by the Authority. The initialDissemination Agent is Wells Fargo Bank, National Association.

"Listed Events" shall mean any of the events listed in Section5(a) of this Disclosure Certificate andany other event legally requiredto be reported pursuant to the Rule.

"National Repository" shall mean any Nationally Recognized Municipal Securities Information Repository forpurposes of the Rule, as they may be designated from time to time pursuant to the Rule. The National Repositories currentlyapproved by the Securitiesand Exchange Commission are set forth in Exhibit B. "Participating Undeiwriters" shallmean any of the original undeiwriters of the Bonds required to comply with the Rule in connection with offeringof the Bonds.

"Repository" shall mean each National Repository and each StateRepository.

"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 beamended from time to time.

"State" shall mean the State of California.

"State Repository" shall mean any public or private repository or entity designatedby the State 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!kpQrts.

(a) The Authority shall, or shall cause the Dissemination Agent to, not later than thefirst day of the eighth month afterthe end of theAuthori ty's fiscal year, commencing with the fiscal yearending June 30, 1996 (and corresponding Annual Report due on March I. 1997), provide to each Repository an Annual Report which is consistent with the requirements of Section 4 of this Disclosure Certificate. 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 Section4 of this Disclosure Certificate. Not later than fifteen (15) Business Days prior to said date, the Authority shall provide the Annual Report to the Dissemination Agent. The Authority shall provide a written certification with each Annual Report furnished to the Dissemination Agent tothe effect that such Annual Report constitutes the Annual Report required to be furnished by the Authority hereunder. The Dissemination Agent may conclusively rely upon such certification ofthe Authority.

(b) If by fifteen (15) Business Days prior to the date specified in subsection (a) for providing the Annual Report to the Repositories, the Dissemination Agent has not received a copy of the Annual Report, the DisseminationAgent shall contact the Authority to determine if the Authority is in compliance with subsection (a).

(c) If the Dissemination Agent is unable to verify that an Annual Report has been provided to the Repositories by the date required in imbsection (a). the Dissemination Agent shall send a notice to the Municipal Securities Rulemaking Board in substantiallythe form attached as Exhibit A.

(d) The Dissemination Agent shall:

(i) determine each year prior to the date for providing the Annual Report the name and address of each National Repository and the State Repository, if any; and

(ii) (if the Dissemination Agent is other than the Authority). to the extent appropriate information is available to it, file a report with the Authority certifying that the Annual Reporthas beenprovided pursuant to this Disclosure Certificate, stating the date it was provided and listing all the Repositories to which it was provided.

F-2 SECTION 4. Contentof Annual Reports. The Authority'sAnnual Report shall contain or include by reference the following:

(a) Audited Financial Statements of the Foster City Redevelopment Agency (the "Agency'') 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 timethe Annual Report is required to be filedpursuant to Section3(a), theAnnual Report shall contain unaudited financialstatements in a fonnat similar to the financial statements contained in the final Official Statement, and the audited financial statements shall be filedin thesame manner as the AnnualReport when theybecom e available.

(b) Infonnation concerning assessed valuation of properties within the Agency's Foster City Community Development Project Area (the "Project Area") and Pledged Tax Revenues allocated to the Agency fonn the Project Area, as well as the ten largest assessees in the Project Area, and the historical debt seivice coverage of theBonds provided by thePledged Tax Revenues.

Any or all of the items listed above may be included by specific reference to other documents, including official statements of debt issues with respect to which the Agency is an "obligated person" (as defined by the Rule), which have been filed with eachof theRepositories or the Securities and Exchange Commission. If thedocument included by reference is a finalofficial statement, it must beavailable from theMunicipal SecuritiesRulemaking Board. TheAuthority shall clearly identify each such other document so included by reference.

SECTION5. Reporting of SignificantEvents.

(a) Pursuant to the provisions of this Section 5, the Authority shall give, or cause to begiven, noticeof the occurrence of any of the following events with respect to the Bonds, if material:

I. principal andinterest payment delinquencies 2. non-payment relateddefaults 3. modificationsto rights of Bondholders 4. optional, contingent or unscheduled Bond calls 5. defeasances 6. rating changes 7. adverse tax opinions or events affecting thetax-exempt status of the Bonds 8. unscheduled draws on the debt seivice reseives, if any, reflecting financial difficulties 9. unscheduled draws on credit enhancementsreflecting financial difficulties 10. substitutionof credit or liquidity providers, or theirfailure to perfonn 11. release, substitution,or sale of property securing repaymentof the Bonds

(b) The Trustee shall, afterobtaining actual knowledgeof the occurrence of anyof the Listed Events, without any detennination as to materiality, contact the Disclosure Representative, infonn such person of the event, and request that the Authority promptly notify the Dissemination Agent in writing whether or not to report the event pursuant to subsection (f). For purposes of this Disclosure Certificate, "actual knowledge" of the occurrence of such Listed Events shall mean knowledge by an officer at the Principal Office of the Trustee with regular responsibility for administration of matters related to the Indenture.

F-3 (c) Whenever the Authority obtains knowledge of the occurrence of a Listed Event. whether because of a notice from the Trustee pursuant to subsection (b) or otherwise, the Authority shall as soon as possible determine if such event would constitute material information for Holdersof Bonds, provided, that any event under subsection (a)(6) will always bedefined to be material.

(d) If the Authority has determined that knowledge of the occurrence of a Listed Event would bematerial under applicable Federal securities laws, theAuthority shall promptlynotify the Dissemination Agent in writing. Such notice shall instruct the Dissemination Agent to report theoccurrence pursuant to subsection (f).

(e) If in response to a request under subsection (b), the Authority determines that the Listed Event would not be material under applicable federal securities laws, the Authority shall so notify the Dissemination Agent in writing and instruct the Dissemination Agent not to report the occurrence pursuant to subsection (f).

(f) If the Dissemination Agent has beenin �tructedby the Authorityto report the occurrence of a Listed Event, the Dissemination Agent shall file a notice of such occurrence with the Repository. Notwithstandingthe foregoing:

(i) notice of the occurrence of a Listed Event described in subsections (a)(!), (4) or (5) shall begiven by the Dissemination Agent unless the Authority gives theDissemination Agent affirmative instructions not to disclosure such occurrence; and

(ii) notice of Listed Events described in subsections (a)(4) and (5) shall not be given under this subsection any earlier than the notice (if any) of the underlying event is given to the Holders of affected Bonds pursuant to the Indenture.

SECTION 6. Termination otJ�WQrting Obligation. The Authority's, Dissemination Agent's and Trustee's obligations under this Disclosure Certificate shall terminate upon the legal defeasance, prior redemptionor payment in full of allof the Bonds. If such terminationoccurs prior to the final maturity of the Bonds, the Autl10rity shall give notice of such termination in the same manner as for a Listed Event under Section 5(1)hereof. If the Authority's obligations underthe Financing Indenture are assumed in full by someother entity, such person shall berespons ible for compliance with thisDisclosure Certificate in the same manner as if it were the Authority, and the original Authority shall have no furtl1er responsibility hereunder.

SECTION 7. J;)issemination Agent. The Authority may, from time to tinle, appoint or engage a Dissemination Agent to assist it in carrying out its obligations underthis Disclosure Certificate, and may discharge any such Dissemination Agent, with or without appointing a successor Dissemination Agent. The Dissemination Agent may resign at any time by providing at least 30 days' notice in writing to the Authority, the Authorityand the Trustee.

SECTION 8. Amendment; Waiver. Notwithstanding any other provision of this Disclosure Certificate, the Authority, the Dissemination Agent and the Trustee may amend this Disclosure Certificate (and the Dissemination Agent and Trustee shall agree to any amendment so requested by the Authority, provided no amendment increa�ing or affecting the obligations or duties of the Dissemination Agent or the Trustee shall be made without the consent of either such party) and any provision of this Disclosure Certificate may be waived if such amendment or waiver is supported by an opinion of counsel expertin federal securities laws acceptable to the Authority, the Authority and the Dissemination Agent to the effect

F-4 thatsuch amendment or waiver would not, in and of itself, cause the undertakings herein toviolate the Rule if such amendment or waiver hadbeen effec tiveon the date hereofbut taking into account any subsequent change in or officialinterpretation of theRule.

SECTION 9. Additional Infonnation. Nothing in this Disclosure Certificate shall be deemed to prevent the Authority from disseminating any otherinf onnation, using the means of dissemination set forth in this Disclosure Certificate or any other means of communication, or including any other infonnationin any Annual Report or notice of occurrence ofa Listed Event, in addition tothat which is required by this Disclosure Certificate. If the Authority chooses to include any infonnation 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 Authority shall have no obligation under this Indenture to update such infonnation or include it in any futureAnnual Reportor noticeof occurrence of a Listed Event.

SECTION 10. Default. In the event of a failure of theAuthority tocomply with any provision of thisDisclosure Certificate,the Trustee shall at the writtendirection of any Participating Underwriter or the holders of at least 25% aggregate principal amount of Outstanding Bonds (but only to the extent indemnified to its satisfaction from any cost, liability or expense, including without limitation fees and expensesof its attorneys) take such actions, or any Holderor Beneficial Ownerof the Bonds may take such actions, as may be necessary and appropriate, including seeking mandate or specificperf onnance by court order, to cause the Authority to comply with its obligations under this Disclosure Certificate. A default under this DisclosureCertificate shall not be deemed and Event of Default under the Indenture, and the sole remedy under this Disclosure Certificate in the event of any failure of the Authority or the Trustee to comply with this DisclosureCertificate shall be an action tocompel perfonnance.

SECTION 11. Duties. Immunities and Liabilities of Trustee and Dissemination Agent. The Dissemination Agent and the Trustee shall have only such duties as are specifically set forth in this Disclosure Certificate, and the Authority 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 theymay incur arising out of or in the exercise or perfonnance of theirrespective 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 Trustee's respective negligence or willfulmisconduct. TheDissemination Agent shall be paid compensationby the Authority forits services provided hereunderin accordance with its schedule of fees as amendedfrom time to time,and all expenses, legal fees and advances made or incurred by the Dissemination Agent in the perfonnance of its duties hereunder. The Dissemination Agent shall have no duty or obligation to review any infonnationprovided to it hereunder and shall not be deemed to be acting in any fiduciary capacity for the Authority, the Authority, the Bondholders, or any other party. The obligations of the Authority under this Section shall survive resignation or removal of the DisseminationAgent or the Trustee andpayment of theBonds.

F-5 SECTION 12. Notices. Any notices or communications to or among any of theparties to this Disclosure Certificatemay begiven as follows:

To the Authority: Foster City Public Financing Authority 610 Foster City Boulevard Foster City. California 94404 Attention: Community DevelopmentDirector

To theTrus tee: Wells Fargo Bank. N.A. 345 CaliforniaStreet, 8thFloor San Francisco, California94104 Attention: Corporate Trust Division

Any person may, by written notice to the other persons listed above, designate a different address or telephone nurnber(s)to which subsequent notices or communications should be sent.

SECTION 13. Beneficiaries. This Disclosure Certificate shall inure solely to the benefit of the Authority, the DisseminationAgent, the Trustee, the Participating Underwriters and Holders and Beneficial Owners fromtime to time ofthe Bonds, and shall create no right.� in any other person orentity.

Date November26, 1996

FOSTER CITY PUBLIC FINANCING AUTHORITY

F-6 EXHIBIT A

NOTICE TO REPOSITORIES OF FAILURE TO FILE ANNUAL REPORT

Name of Authority:Foster City Public Financing Authority

Name of Bond Issue: $ Foster City Financing Authority 1996 Revenue Bonds, Series A (FosterCity Community Development ProjectLoan)

Date oflssuance: November_, 1996

NOTICE IS HEREBY GIVEN that the Foster CityPubl ic Financing Authority (the "Authority") has not providedan Annual Report with respectto theabov e-named Bonds as required by Section 5.13 of the Indenture of Trust dated November 1, 1996 between the Foster City Public Financing Authority (the "Authority") and the Trustee. The Authority anticipates that the Annual Report will be filed by

Dated: ______WELLS FARGO BANK, NATIONAL ASSOCIATION, on behalf of the Authority

By: ______

Ira:______cc: Authority

F-7 EXHIBIT B

Nationally Recognized Municipal Securities Infonnation Repositories approved by the Securities and Exchange Commission as of November 1, 1996:

Bloomberg Municipal Repository R.H. Donnelly Financial P.O. Box 840 Municipal Securities Disclosure Archive Princeton, NJ 0854 2-0840 559 Main Street Internetaddress: [email protected] Hudson, MA 01749 (609) 279-3200 Internet: http://www.municipal com FAX (609)279-3235 (609) 279-5963 TEL(800) 339-6306 FAX (508) 562-1969 Contact: Dave Campbell

The Bond Buyer Secondary MarketDisc losure 395 Hudson Street, 3rd Floor New York, NY 10014 Internetaddress: [email protected] (212) 807-3814 FAX (212) 989-9282 Contact: ThomasGarske

Disclosure, Inc. Document Augmentation/ Municipal Securities 5161 River Road Bethesda, MD 20816 (301) 951-1450 FAX (301) 718-2329 Contact: Barry Sugarman (301) 215-6015

JJ Kenny InformationServices TheRepository 65 Broadway, 16thFloor New York, NY 10006 (212) 770-4568 FAX (212) 797-7994 Contact: Joan Horai, Repository

Moody's NRMSIR Public Finance Information Center 99 Church Street New York, NY 10007-2796 (800) 339-6306 FAX (212) 553-1460 Contact: Claudette Stephenson (212) 553-0345

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