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12/03/2012 Agreement, are not pledged to the repayment of the Bonds. Proceeds of the Bonds and other amounts deposited to the Escrow Fund established under the Escrow Instructions (which will be used to pay the redemption price of the Prior Bonds) are not pledged to, and are not available for, the repayment of the Bonds. See "PLAN OF REFUNDING ---Redemption of Prior Bonds." Special Taxes; Rate and Method. The Special Taxes to be used to pay debt service on the Bonds will be levied in accordance with the Rate and Method (as described under the heading "THE BONDS—Authority for Issuance"). "Special Taxes" are those taxes levied on the Taxable Parcels (as defined under the heading "INTRODUCTION—The District" below) within the District pursuant to the Rate and Method and the Fiscal Agent Agreement. Limitations. The Improvements are not pledged to pay the debt service on the Bonds. In the event that the Special Taxes are not paid when due, the only sources of funds available to repay the Bonds are amounts held by the Fiscal Agent in the Bond Fund, the Special Tax Fund and the Reserve Fund established under the Fiscal Agent Agreement, and the proceeds, if any, from foreclosure sales of the specific Taxable Parcels with delinquent Special Taxes. Reserve Fund The Fiscal Agent Agreement establishes a Reserve Fund as a reserve for the payment of principal of and interest on the Bonds. The Reserve Fund is required to be funded in an amount equal to the lesser of (i) Maximum Annual Debt Service on the Outstanding Bonds, (ii) 125% of average Annual Debt Service for any Bond Year, or (iii) 10% of the original aggregate principal amount of the Bonds (the "Reserve Requirement"). The Reserve Fund will be available to pay the debt service on the Bonds in the event of a shortfall in the amount in the Bond Fund for such purpose, and amounts in the Reserve Fund may also be withdrawn to pay any rebate liability due to the federal government, to pay a portion of the redemption price of Bonds to be redeemed with Special Tax Prepayments, and to transfer to the Bond Fund of amounts therein in excess of the then Reserve Requirement. The Reserve Requirement as of the date of issuance of the Bonds will be S ---------- See " SECURITY FOR THE BONDS— Reserve Fund." The District The District was formed by the City Council pursuant to proceedings conducted under the Act on April 26, 1999. The District includes 55 separate San Mateo County Assessor's parcels subject to the levy of Special Taxes (collectively, the "Taxable Parcels") located in the commercial area of a master -planned community known as "Redwood Shores" in the northeastern portion of the City. The Taxable Parcels have been improved with a total of approximately 4,337,241 square feet of commercial structures. See "THE DISTRICT— Location and Description of the District." The land and improvements comprising the Taxable Parcels were valued by the San Mateo County Assessor for ad valorem property tax purposes on the Fiscal Year 2012-13 property tax roll at an aggregate value of $1,158,163,515. Based on the County's Fiscal Year 2012-13 property valuation, all but 14 of the 55 Taxable Parcels in the District have assessed value to estimated share of Bond principal ratios in excess of 100:1, with only 3 Taxable Parcels having an assessed value to estimated share of Bond principal ratio of less than 70:1. See "THE DISTRICT—Value-to-Bu.rden Ratio" and "APPENDIX H—Taxable Parcels in the District." -3- RESO. # 15237 MUSE # 505