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03-3 Official Statement
-NEW ISSUE NO RATING BOOK-ENTRY ONLY SYSTEM La rite opinion of Orrick. Herrington & Suuttffe LLP, Band Counsef, bused upon an analysis of eristing taws, regeelations, rulings, and court decisions and assuming (among other things) rornptianee with certain covenants, unerest on the Bands is excluded from gross income for federal tax purposes and is ezentpt from State of California personal income Lases. Irz the opinion of Bond Counsel, interest era the Bonds is not n specific preference item far purposes of the federal iadividuat and corporate ahernative mininxum taxes, although Bond Counsel obserees that such iruerest is ietc}uded ua adjusted current earnings in calcufating federal corporate atteraative minimum taxable income. Bond Counsel expresses no opinion regarding any other tax conse9uences caused by the ownership or disposition of, or the accrual or receipt of inlerert on, the Bonds. See "TAX MAZ7"ERS" $6,455,000 CITY OF BAKERSFIELD ASSESSMENT DISTRICT NO. 03-3 i {SEVEN OAKS WEST [II/BRIGHTON PLACE IUFAIRWAY OAKS SOUTH) LIMITED OBLIGATION IMPROVEMENT BONDS i Dated: Date of Delivery Due: September 2, as shown below _ The Bonds described herein {the "Bonds°) are special, limited obligation bonds being issued by the City of Bakersfield, California (the `City"), to i finance [tic acquisition of certain public improvements specially benefiting properties located within the boundaries oC the City's Assessment District No. 03-3 (Seven Oaks West IIIIBrighton Place IUFairway Oaks South) (the "Assessment District"}. The Assessment District was formed and the acquisition of the improvements will be undertaken as authorized under the provisions of the Municipal Improvement Act oC 1913 (Division I2 of the California Streets and Highways Code} and Section 13.OS.070 oC the Municipal Code of the City. The Bonds are being issued pursuant to the provisions of the Cmprovemen[ Bond Ac[ oC 1915 (Division 10 of the California Streets and Highways Code) (the `1915 Act"}. The Bonds are issuable only as Cully registered Bonds in the denomination of $5,000 each or any integ[al multiple thereof. Principal, interest al ntatudty o[ upon earlier redemption, as applicable, and premium, if any, with respect to the Bonds will ba payable upon presentation and surrender therwf at the corporate tmst o[Hce of U.S. Bank National Association, the paying agent, registrar, and transfer agent for the Bonds (the "Paying AgunP'), in Si. Pout, Minnesota. Interest on the Bonds (other than the final payment of interest, which is payable upon surrender of the Bonds) will be payable from their date of delivery, commencing September 2, 2004, and thereafter semiannually on Mamh 2 and September 2 (each an "Interest Payment Date") in each year by check of the Paying Agent mailed on wch Interest Payment Date [o the persons in whose names such Bonds are registered a[ the close of business on the ftCteenth day of the calendar month immediately prior to an Interest Payment Dato (or, in the case of an owner of at least $1,000,000 - in principal amount of the Bonds who so reyuests in writing prior to fhe close of business on the fifteenth day of the month immediately preceding such i Interest Payment Date, by wire transfer). The Bonds will be issued initially io book-entry only Corm through the bookcntry system of The Depository Trust Company, New York, New York. j See `°BOOK-ENTRY ONLY SYSTEM." The Bonds are subject to redemption on any ]oleresl Payment Date in advance o[ maturity at the op[]on of the C`ny upon giving a[ least thirty (30) 1 days prior notice and upon paymcut of the principal therco[ and interest accmed thereon to the date of redemption, plus any applicable redemption premium, as more Cully described herein. _ The Term Bonds maturing nn September 2, 2024 are also subject to mandatory rodc;mption in part prior to their stated maturity, as more fully described herein. Further development of pa[cels within the Asscssroenl llistricy transfers of properly ownership, and other similar circumstances could result iu p[epayment oC all or part n[ the assessments. Such prepaymcut would result in redemption oC a portion of the Bonds prior to their seared maluriUas Under the Provisions of the 1915 Act, installments uC principal and interest sullieient to meet annual debt service requirements with respect hr the i Bonds shall be included nn the regular Kern Ctwnty tax bills sent to owners of property against which there are unpaid assessments. The portion of the annual installments for the payment of principal of and interest on the Bonds is to be paid into the Redemption Fund, to bu held by the Finance Director, and will be used to pay debt services on the Bonds as it becomes due. To provide funds fur payment of the Bonds and the interest thereon as a result oC any delinquent assessment installments, the City will establish a Special Reserve Fund and deposit therein Bond proceeds in the original amount of $549,060. Additionally, the City has covenanted that, under certain circumstances, by no later than October 1 in any year, i[ will file an action in superior Court to foreclose the lien on each delinquent assessment, as more it particularly described herein. IF A DELINQUENCY OCCURS IN THE PAYMENT OF ANY ASSESSMENT INSTALLMENT, THE CI'T'Y WILL HAV E A DUTY ONLY - TO TRANSFF'.R 7NT0 THE REDEMPTION FUND THE AMOUNT OF THE DELWQUENCY OUT OF THE SPECIAL RESERVE FUND. THIS DUTY OF THE CITY IS CONT1NUlNG DURING THE PERIOD OF DELINQUENCY, ONLY TO THE EXTENT OF FUNDS AVAILABLE FROM THE SPECIAL RESERVE FUND, UNTIL REINSTATEMENT, REDEMPTION, OR SALE OF THE DELINQUEN'L PROPERTY'FHERE IS NO ASSURANCE. THtYP SUFFICIENT FUNDS W ILL BE AVAILABLE FROM THE SPEC) AL RESERV E FUND FOR - THIS PURPOSE.. THUS, IF, DURING THE PERIOD OF DELINQUENCY, THERE ARE INSUFFICIENT AVAILABLE FUNDS, A DELAY MAY OCCUR IN PAYMENTS TO THE OWNERS OF 1'HE BONDS. IN ACCORDANCE WITH SECTION 8769(6} OF THE 1915 ACT, THE CITY HAS DETERMINED TRAT TT WILL NOT OBLIGATE ITSELF TO ADVANCE FUNDS FROM I'fS TREASURY TO CURE ANY DEFICIENCY IN THE REDEMPTION FUND. This cover page contains certain information for quick reference only. [t is not a summary of the issue. Investors must read the entire Official Statement to obtain information essential M the making of an informed investment decision. 1 MATURITY SCHEDULE $4,16Q000 Serial Bonds Maturity principal Interest Matuoity Principal [merest ru ~ (September 2) Amount Rate Price CUSIP(" No. (September 2) Amount Ratc Price CUSP No. 2005 $205,000 2.500°h• 100.000% 057510 XRS 2013 $280,000 5.100% lOD.000% 057510XZ7 2006 210,000 3.250 100.000 0575]0 XS3 20]4 295,0{10 5.200 100.000 057510YA1 2007 2]5,000 3.850 100.000 057510 XT1 2015 31Q000 5.350 100.000 057510YB9 2(108 225,000 4.250 100.000 057510 XUS 2016 325,000 5.500 100.000 057510YC7 - 2009 235,000 4.400 100.000 657510 XV6 2017 345,000 5.6(10 '100.000 057510YD5 2010 245,000 4.650 100.000 057510XW4 2018 365,000 5.700 100.000 05751UYE3 ~ 2011 255,000 4,850 100.000 057510 XX2 2019 385,000 5.800 100.000 057510 YFU 2012 265,000 5,000 100.000 057510 XYO $2,295,000 6.100% Term Bond Due September 2, 2024-Price: 100.00090 (CUSIP trr No. 057510 YL7) m Copyright 201)0., American Bankers Assneiatlon. CUSIP data herein is provided by Standard & Poor's CUSIP Servke Bureau, a division of The McGraw-Hill Companies, Inc. This data is nut intended to create a database and deco no[ serve in any way as a substitute Cor the COSiP services. THE BONDS ARE NOT SECURED BY THE GENERA[. TAXING POWER OF THE CITY, THE COUNTY OF KERN (THE "COUNTY"), THE STATE OF CALIFORNIA (THE "STATE"), OR ANY OTHER POLITICAL SUBDIVISION OF'THE STATE„ AND NEITHF„R THE. CITY, NOR THE COUNTY, NOR THE SPATE, NOR ANY O"[HER POLITICAL SUBDIVISION OF"I'HE STATE HAS PLEDGED ]'I'S FULL FAITH ~ AND CREDIT FOR THE PAYMEN'T' OF THE BONDS. The Bonds are being offered when, as, and if issued by the City mad received by tlae Underwriter, subject to prior sate and to the approval of validity ~ by Orrick, Herruagtma & Sutcliffe LIZ' San Francisco, Californta, Bond Counsel, and the approval of certain matters for tae City by the City Attorney of Uae City of Bakersfaeld. Certain other Cegnl naaners wilt be passed on by Pillsbury Winthrop LLP, Los Angeles, Cnfdfornia, as disc osaae counsel to tine City. It is expected that the Bonds in definitive fonra wilt be aoailabfe for delivery in New York, New York, an or about 1uly 8, 2004. Dateu: Tune z4, zoo4 RBC DAIN RAUSCHER No dealer, broker, salesperson or other person has been authorized by the City or the Underwriter to give any information or to make any representations other than those contained in this Official Statement, and, if given or made, such other information or representations must not be relied upon as having been authorized by any of the foregoing. This OfScial Statement does not constitute an offer to sell or the solicitation of an offer to buy, nor will there be any sale of the Bonds by any person in any jurisdiction in which it is unlawful for such person to make such offer, solicitation ar sale. This Official Statement is not to be construed to be 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 described herein, are intended solely as such and are not to be construed as representations of fact. The information set forth herein has been obtained from the City and other sources which are believed to be reliable, but it is not guaranteed as to accuracy or completeness, and it is not to be construed as a representation by the City. The information and expressions of opinion herein are subject to change without notice, and neither the delivery of this Official Statement nor any sale made hereunder will, under any circumstances, create any implication Chat there has been no change in the affairs of the City or the Assessment District since the date hereof. The Underwriter has provided the following sentence for inclusion. in this Official Statement. The Underwriter has reviewed the information in this Official Statement in accordance .with, and as part of, its responsibilities to investors under the federal securities laws as applied to the facts and circumstances of this transaction, but the Underwriter does not guarantee the accuracy or completeness of such information. This 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 part, for any other purpose. THE BONDS HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, IN RELIANCE UPON AN EXEMPTION CONTAINED IN SUCH ACT. THE BONDS HAVE NOT BEEN REGISTERED OR QUALIFIED UNDER THE SECURITIES LAWS OF ANY STATE. IhI CONNECTION WITH THIS OFFERING, THE UNDERWRITER MAY OVERALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE BONDS AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. 5UCH STABILIZING, IF COMMENCED, MAYBE DISCONTINUED AT ANY TIME. AREA MAP bregon h5 Nevada Salt taoilia boaan I-B 09~ierStJeld The City of Bakersfield, California, the. county seat of the County of Kern, is located at the southern end of California's San Joaquin Valley. Bakersfield is approximately 110 miles north of Los Angeles and 290 miles south of San Francisco. p ~r a ~++Y.~ Metdco CTTY OF BAKERSFIELD Mavor and Ciri Council Harvey L. Hall, Mayor Irma Carson, Councihnember First Ward Susan M. Benham, Councihnember Second Ward Mike Maggard, Councilmember Third Ward David R. Couch, Vice Mayor, Counoilmember Fourth Ward Harold Hanson, Councihnember Fifth Ward Jacquie Sullivan, Councilmember Sixth Ward Mark C. Salvaggio, Councibnember Seventh Ward Ci Staff Alan Tandy, City Manager Virginia Gennaro, City Attorney Pamela A. McCarthy, City Clerk Raul M. Rojas, Public Works Director Gregory J. I{limko, Finance Director BOND COUNSEL Orrick, Herrington & Sutclif38 LLP San Francisco, California ASSESSMENT ENGINEER Wilson & Associates Fresno, California PAYING AGENT, REGISTRAR, AND TRANSFER AGENT U.S. Bank National Association Los Angeles, Califomia PROPERTY APPRAISER Launer & Associates, Inc. Bakersfield, California DISCLOSURE COUNSEL Pillsbury Winthrop LLP Los Angeles, Califomia TABLE OF CONTENTS Page INTRODUCTORY STATEMENT ........................................................ The Bonds ....................................................................................... The Assessment District .................................................................. Property Ownership ......................................................................... Improvements .................................................................................. Assessments ..................................................................................... Appraisal ......................................................................................... Security for the Bonds ..................................................................... Reserve Fund ................................................................................... Foreclosure ...................................................................................... Assessment Delinquencies .............................................................. Book-Entry Only System ................................................................ Continuing Disclosure ..................................................................... Forwazd-Looking Statements .......................................................... Miscellaneous .................................................................................. ESTIMATED SOURCES AND USES OF FUNDS .............................. TFIE BONDS .......................................................................................... Purpose of the Bonds ....................................................................... Authority for Issuance ..................................................................... General ............................................................................................ ............. .................... ................. .............. I ............. .................... ................. ..............1 ............. .................... ................. ..............1 ............. .................... ................. ..............1 ............. .................... ................. .............. 2 .............. ................... ................. .............. 2 .............. .........:.......... ................ .............. 2 .............. .................... ................ .............. 3 .............. .................... ................ .............. 3 ........................ ............ 3 ........................ ............ 3 ........................ ............ 4 ........................ ............ 4 ........................ ............ 4 ....................... ............ 4 ....................... ............ 5 ........................ ........... 5 ........................ ........... 5 ........................ ........... 5 ........................ ........... 6 Transfer and Exchange of Bonds ................................................. ...........................................................................6 Bands Mutilated, Destroyed or Lost ........................................... ...........................................................................7 Redemption ................................................................................. ...........................................................................7 Effect of Redemption; Defeasance .............................................. ........................................................................... 8 Refunding Bonds ......................................................................... ...........................................................................8 Disposition of Surplus from the Improvement Fund ................... ...........................................................................8 Investment of Bond Proceeds ...................................................... ...........................................................................9 Security for the Bonds ................................................................. ...........................................................................9 Special Reserve Fund .................................................................. .........................................................................10 Redemption Fund Deficiencies ................................................... ......................................................................... I 1 Covenant to Commence Superior Court Foreclosure .................. ......................................................................... l l Priority of Lien ............................................................................ .........................................................................12 Tax Covenants ............................................................................. .........................................................................12 Debt Service Schedule ................................................................. .........................................................................13 BOOK-ENTRY ONLY SY5TEM ..................................................... .........................................................................13 THE ASSESSMENT DISTRICT AND THE IIvIPROVEMENTS .... .........................................................................15 General ........................................................................................ .........................................................................15 Description of the Community Areas and the Improvements ..... .........................................................................16 Estimated Improvement Costs ..................................................... .........................................................................18 Method of Assessment Spread ..................................................... ........................................................................19 OWNERSHIP" AND PLANNED FINANCING AND DEVELOPMENT OF TFIE ASSESSMENT DISTRICT......20 Ownership of Property in the Assessment District ....................... ........................................................................20 C&C California ............................................................................ ......................_................................................20 Fairway Oaks South ..................................................................... ........................................................................22 Development and Financing Plans ............................................... ........................................................................22 Assessment Roll ........................................................................... ........................................................................26 Utilities ......................................................................................... ........................................................................27 Flood and Earthquake Zanes ........................................................ ........................................................................27 Zoning .......................................................................................... ........................................................................27 Tax Delinquencies ........................................................................ ........................................................................27 Environmental Review ................................................................. ........................................................................28 Bulls Value-to-Assessment Lien Ratio ..................................................................................................... ............28 Duect and Overlapping Debt .................................................................................................................... ............30 SPECIAL RISK FACTORS ............................................................................................................................ ............31 General .......................:.............................................................................................................................. ........... 3 I Risks of Real Estate Secured Investments Generally ................................................................................ ...........31 Availability of Funds to Pay Delinquent Assessment Instalhnents ........................................................... ...........31 Hazardous Substances ............................................................................................................................... ...........32 Endangered and Threatened Species ......................................................................................................... ...........32 Factors Which May Affect Land Development ......................................................................................... ...........33 Private Improvements; Increased Debt ...................................................................................................... ...........33 Subordinate Debt; Payments by FDIC and other Federal Agencies .......................................................... ...........33 Property Values .........................................................................................................:............................... ...........34 Concentration of Ownership ...................................................................................................................... ...........35 Tax Delinqueneies ..................................................................................................................................... ...........35 Limited Obligation of the City Upon Delinquency ................................................................................... ...........35 Bankruptcy and Foreclosure ...................................................................................................................... ...........36 Economic, Poh6cal, Social and Environmental Conditions ...................................................................... ...........37 Articles XIIIA and XBIB of the California Constitution ........................................................................... ...........37 Articles XBIC and XIIID of the California Constihrtion ........................................................................... ...........39 Future Initiatives ........................................................................................................................................ ...........39 Covenant to Commence Superior Court Foreclosare ................................................................................ ...........40 Price Realized Upon Foreclosure .............................................................................................................. ...........40 Priority of Lien .......................................................................................................................................... ...........41 Refunding Bonds ....................................................................................................................................... ...........41 Absence of Market for Bonds .................................................................................................................... ...........41 Loss of Tax Exemption ............................................................................................................................. ...........41 ENFORCEABILITY OF REMEDIES ............................................................................................................. ...........42 ABSENCE OF MATFRTAT LTI'IGATION ..................................................................................................... ...........42 CERTAIN INFORMATION CONCERNING THE CITY .............................................................................. ...........42 TAX MATTERS .............................................................................................................................................. ...........42 APPROVAL OF LEGALITY .......................................................................................................................... ...........43 UNDERWRl'ITNG ........................................................................................................................................... ........... 43 NO RATING .................................................................................................................................................... ...........43 CON'FINITING DISCLOSURE ........................................................................................................................ ...........43 MISCELLANEOUS ......................................................................................................................................... ........... 44 APPENDIX A -CITY OF BAKERSFIELD ECONOMIC, FINANCIAL, AND DEMOGRAPHIC INFORMATION ............................................................... ..............................A-1 APPENDIX B -APPRAISAL ..................................................................................................... ..............................B-1 APPENDIX C -FORM OF OPINION OF BOND COUNSEL .................................................. .............................. C- I APPENDIX D -ASSESSMENT DIAGRAM ............................................................................. ..............................D-1 APPENDIX E -ASSESSMENT ROLL AND VALUE-TO-LIEN DATA ................................. .............................. E-1 APPENDIX F -CONTINUING DISCLOSURE CERTIFICATES ............................................ .............................. F-1 OFFICIAL STATEMENT $6,455,000 CITY OF BAKERSFIELD ASSESSMENT DISTRICT N0.43-3 (SEVEN OAKS WEST HI/BRIGHTON PLACE IUFAIIiWAY OAKS SOUTH) LIMITED OBLIGATION IMPROVEMENT BONDS INTRODUCTORY STATEMENT THIS INTRODUCTORY STATEMENT IS SUBJECT IN ALL RESPECTS TO THE MORE COMPLETE INFORMATION IN THIS OFFICIAL STATEMENT, INCLUDING THE COVER PAGE AND APPENDICES HERETO, AND THE OFFERING OF THE BONDS TO POTENTIAL INVESTORS IS MADE ONLY BY MEANS OF TTIF ENTIRE OFFICIAL STATEMENT. The Bonds The purpose of this Official Statement, which includes the cover page and the appendices hereto, is to set forth certain infomrafion concerning the issuance and sale by the City of Bakersfield, California (the "City"), of $6,455,000 in principal amount of its City of Bakersfield, Assessment District No. 03-3 (Seven Oaks West IIUBrighton Place ]ItFairway Oaks South), Limited Obligation Improvement Bands (the "Bonds"), for Assessment I District No. 03-3 (Seven Oaks West IIIlBrighton Place II/Fairway Oaks South) (the "Assessment District"). The Bonds are issued pursuant to the Improvement Bond Act of 1915, being Division 10 of the California Streets and Highways Code (the "1915 Act"}, the Charter and Municipal Code of the City, and Resolution No. 198-04 adopted by the City Council of the City (the "City Councit") on June 9, 2004 (the `Bond Resolution"}. The Assessment District The Assessment District was formed and the assessments have been levied in accordance with the Municipal Improvement Act of 1913, being Division 12 of the California Streets and Highways Code (the "1913 Act") and Section 13.08.070 of the Municipal Code of the Ciry. Proceedings for the formation of the Assessment District were commenced by the City Council pursuant to property owner petitions filed by Castle & Cooke California, Inc., a California corporation ("C&C California"), and Fairway Oaks South, LP, a California limited partnership ("Fairway Oaks South"), as the owners at the date of the filing thereof of more than 60% of the assessable land within the Assessment District. See "OWNERSHIl' AND PLANNED FINANCING AND DEVELOPMENT OF THE ASSESSMENT DISTRICT." The Assessment District is comprised of three sepazate Community Areas in northwest and southwest Bakersfield that aze identified as (i) the Seven Oaks West III Area, (ii} the Brighton Place II Area, and (iii) the Fairway Oaks South Area (collectively, the "Community Areas"). The Assessment District boundaries are shown on the assessment diagram, a copy of which is attached hereto as APPENDIX D. For a further description of the Assessment Iistrict and the Community Areas, see "THE ASSESSMENT DISTRICT AND THE IMPROVEMENTS -General." Property Ownership C&C California is developing the Seven Oaks West III Area and the Bxightan Place II Area and Fairway Oaks South is developing the Fairway Oaks South Area, which Community Areas will, together, bear 100% of the total assessment lien. The property within the Assessment District is involved in various stages of the land development process. See "OWNERSHIP AND PLANNED FINANCING AND DEVELOPMENT OF THE ASSESSMENT DISTRICT" for a description of the planned development of the respective Community Areas. C&C California owned approximately 86.51% of the assessed property in the Assessment District prior to the recording of the notice of assessment and currently owns approximately 82.02% of the assessed property in the Assessment District. As of June 1, 2004, C&C Califomia has sold 49 lots in the Seven Oaks West BI Area to merchant builders or individuals, but has not sold any lots in the Brighton Place II Area. See "OWNERSHIP AND PLANNED FINANCING AND DEVELOPMENT OF THE ASSESSMENT DISTRICT -Ownership of Property in the Assessment District" herein. Fairway Oaks South owned approximately 10.70% of the assessed property in the Assessment District prior to the recording of the nofice of assessment. Fairway Oaks South has not sold, and does not intend to sell, any lots in the Fairway Oaks South Area to merchant builders. Fairway Oaks South plans to develop the property in the Fairway Oaks South Area far sale to individual homeowners. As of June 1, 2004, approximately 7.28% of the assessed property in the Assessment District was owned by merchant builders or individuals. See "OWNERSHII' AND PLANNED FINANCING AND DEVELOPMENT OF THE ASSESSMENT DISTRICT -Ownership of Property in the Assessment District" herein. Improvements Proceeds from the sale of the Bonds issued pmsuant to the Assessment District proceedings will be used to fmance (i) the acquisition of certain public infrastructure improvements for each of the three Community Areas, which improvements will be owned by the City and operated and maintained by the City (collectively, the "Improvements"); (ii} the cost to pay off existing parcel assessments in the Seven Oaks West IB Area confirmed ', pursuant to City of Bakersfield Assessment District No. 01-2 (Seven Oaks West BlRiver Walk/Southern Oaks) ("AD Ol-2"); and (iii) the payment of certain incidental costs and expenses related to the acquisition of the Improvements, the Assessment District proceedings, and the Bond issuance, including the establishment of a Special Reserve Fund for dte Bonds and the funding of capitalized interest on the Bonds through September 2, 2004. For a I further description of the Community Areas and the Improvements, see "THE ASSESSMENT DISTRICT AND THE IMPROVEMENTS -Description of the Community Areas and the Improvements." The Improvements are proposed to be financed by the City iu accordarrce with the terms and couditions of Acquisition and Disclosure Agreement No. 04-055, effective March 10, 2004, between the City and C&C California (the "C&C California Acquisition Agreement"), and Acquisition and Disclosure Agreement No. 04-056, effective March 10, 2004, between the City and Fairway Oaks South (the "Fairway Oaks South Acquisition Agreement" and, together with the C&C California Acquisition Agreement, the "Acquisition Agreements"}, and, upon their completion, are proposed to be acquired by the City using funds provided through the Assessment District proceedings. Assessments The land within each of the three respective Community Areas in the Assessment District specially benefited by the Improvements has been assessed to pay the estimated cost of the Improvements and certain fmancing costs related thereto. See "THE ASSESSMENT DISTRICT AND THE IMPROVEMENTS -Estimated Improvement Costs." The City Council, pursuant to Resolution No. 148-04, adopted on Tune 9, 2004, confirmed the amount of assessments remaining unpaid for the Assessment District in the aggregate amount of $6,625,000. The Bonds are secured by the assessments as hereinafter described under the heading "THE BONDS -Security for the Bonds." The total assessment lien is not less than the aggregate principal amount of the Bonds being issued. Appraisal An appraisal dated as of April 24, 2004 (the "Appraisal"), of the properly within the Assessment District that is subject to the lien of the assessments has been prepared for the City by Launer & Associates, Inc., Bakersfield, California {the "Appraiser"}. The assumptions and limitations regarding the appraised valuations are i set forth in the Appraisal, which is attached hereto as APPENDIX B. Certain considerations relating to the Appraisal are discussed under the heading "SPECIAL RISK FACTORS." See also "OWNERSHIP AND PLANNED FINANCING AND DEVELOPMENT" OF THE ASSESSMENT DISTRICT -Bulk Value to Assessment Lien Ratio." The complete Appraisal is on 51e with the City. The City makes no representations as to the accuracy or completeness of the Appraisal. 2 See APPENDIX E for a listing of the ratio of the appraised value of each assessed parcel to the amount of the assessment lien against such parcel The appraised values of the Assessment District property reflected in the Appraisal have been determined assuming, among other things, the completion of the Bond-futanced Improvements. See "THE ASSESSMENT DISTRICT AND THE IMPROVEMENTS - Descripfion of the Community Areas and the Improvements" and "OWNERSHIP AND PLANNED FINANCING AND DEVELOPMENT OF THE ASSESSMENT DISTRICT" for descriptions of the plans of C&C California and Fairway Oaks South for the development of the property within the Assessment Distriot. Security for the Bonds The Bonds aze issued upon and secured by the unpaid assessments and, together with interest thereon, constitute security for the redemption and payment of the principal of the Bonds and the interest thereon. All the Bonds are secured by the moneys in the Redemption Fund created pursuant to the Assessment District proceedings and by the unpaid assessments levied to provide for payment of said acquisition of the Improvements, and, including principal and interest, are payable exclusively out of the Redemption Fund. The unpaid assessments represent fixed liens on the pazcels of land assessed under the proceedings. They do not, however, constitute the personal indebtedness of the owners of said pazcels. Under the provisions of the 1915 Act, assessment installments sufficient to meet annual debt service on the Bonds are to be collected on the regular Kern County tax bills sent to owners of property within the Assessment District against which there are unpaid assessments. These annual installments are to be paid into the Redemption Fund, which will be held by the Finance Director and used to pay Bond principal and interest as they become due. The installments billed against each parcel of property each year represent a pro rata shaze of the total principal and interest coming due that year, based on the percentage which the unpaid assessment against that property bears to the total of unpaid assessments within the Assessment District. The Bonds are not secured by the general taxing power of the City, the County of Kern (the "County"}, the State of California {the "State"), or any other political subdivision of the State, and neither the City, nor the County, nor the State, nor any other political subdivision of the State has pledged its full faith and credit for the payment of the Bonds. Reserve Fund T7te City will establish a Special Reserve Fund {the "Special Reserve Fund"} in the amount of $549,060 from Bond proceeds, which amount will be transferred to the Redemption Fund in the event of delinquencies in the payment of the assessment installments to the extent of such delinquencies. The Special Reserve Fuhd will be maintained, from assessment installment payments and from proceeds of redemption or sale of parcels with assessment delinquencies, in an amount equal to the least of (i) 10% of the proceeds of the Bonds, (ii) the maximum annual debt service on the Bonds, or {iii) 125% of the average annual debt service on the Bonds, less any amounts transferred to the Redemption Fund when assessments aze paid followvtg the issuance of the Bonds, as determined from time to time {the "Reserve Requirement"). See "THE BONDS -Special Reserve Fund." Foreclosure The City has covenanted that it will, no later than October 1 in any yeaz, file an action in the Superior Court of the County to foreclose the lien on each delinquent assessment if (i) the sum of uncured assessment delinquencies for the preceding fiscal year exceeds 5°fo of the assessment installments posted to the tax roll for that fiscal yeaz and (ii) the amount in the Special Reserve Fund is less than the Reserve Requirement. See "TILE BONDS -Covenant to Commence Superior Court Foreclosure" and "SPECIAL RISK FACTORS -Covenant to Commence Superior Court Foreclosure." Assessment Delinquencies If a delinquency occurs in the payment of any assessment installment, the City has a duty to transfer into the Redemption Fund the amount of the delinquency out of the Special Reserve Fund. This duty of the City is continuous during the period of delinquency, until reinstatement, redemption, or sale of the delinquent property. There is no assurance that funds will be available for such purpose and if, during the period of delinquency, there are insufficient moneys in the Special Reserve Fund, a delay may occur in payments to the owners of the Bonds. As authorized by the 1915 Act, the City has elected not to obligate itself to advance available funds from its treasury to cure any deficiency which may occur in the Redemption Fund by reason of the failure of a property owner to pay an assessment installment when due. If there are additional delinquencies after depletion of funds in the Special Reserve Fund, the City is not obligated to transfer into the Redemption Fund the amount of such delinquencies out of any other available moneys of the City. Book-Entry Only System The Bonds will be initially issued and registered in the name of Cede & Co., as nominee of The Depository ', Trust Company, New York, New York ("DTC"}. Payment of principal of and interest on the Bonds to the Beneficial Owners (as defined below) will be made in accordance with the procedures of DTC, described below. See "BOOK-ENTRY ONLY SYSTEM." - Continuing Disclosure The Ci and C&C California have each covenanted in its res ective Continuin Disclosure Certificate for ty P g the benefit of Bondholders to provide an annual or semi-annual report, as applicable, containing certain financial information and operating data relating to the Assessment District and the property in the Assessment District and to provide notices of the occurrence of certain enumerated events, if material. The form of such Continuing Disclosure Certificates are attached hereto as "APPENDIX F - CONTINiJING DISCLOSURE CERTIFICATES." These covenants have been made in order to assist the Underwriter in complying with Securities and Exchange Commission Rule 15c2-12{b}(5}, as it may be amended from time to time. See "CONTINUING DISCLOSURE." Fairway Oaks South, as owner of property in the Assessment District that, when aggregated with all other property in the Assessment District owned by Fairway Oaks South or its affiliates, is subject to a lien of less than twenty percent (20%} of the annual assessment securing payment of the Bands, does not have an obligation to provide continuing disclosure information and has not entered into a continuing disclosure certificate. Forward-Looking Statements This Official Statement contains statements relating to future results that are "forward-looking statements" as defined in the Private Securities Litigation Reform Act of 1995. When used in this Official Statement, the words "estimate," "forecast;' "intend," "expect" and similar expressions identify forward-looking statements. Such statements are subject to risks and uncertainties that could cause actual results to differ materially from those contemplated in such forward-looking statements. Any forecast is subject to such uncertainties. Inevitably, some assumptions used to develop the .forecasts will not be realized and unanticipated events aad circumstances may occur. Therefore, there are likely to be differences between forecasts and actual results, and those differences may be material. See also "SPECIAL RISK FACTORS" herein. 1VIiscellaneous Set forth herein are brief descriptions of the Bonds, the Assessment District, the Community Areas, the Improvements, the City, the Bond Resolution, C&C Califomia, Fairway Oaks South, and certain other matters. Such descriptions and the discussions and information contained herein do not purport to be comprehensive or definitive. All references in this Official Statement to documents, the Bonds, and the Assessment District proceedings are qualified in their entirety by references to such documents and the City's resolutions setting forth the terms and descriptions thereof. Copies of the Bond Resolution and other documents described in this Official Statement may be obtained from the City. The City's address for such purpose is: City of Bakersfield, 1501 Truxtun Avenue, Bakersfield, California 93301, Attention: Finance Director; telephone number (661) 326-3030. ESTIMATED SOURCES AND USES OF FUNDS The proceeds of the sale of the Bonds will be deposited with the Finance Director in trust pursuant to the terms of the Bond Resolutionrtt the amounts set forth below. The moneys in the Improvement Fund established for the Bonds will be used to acquire or otherwise finance the hmprovements, to pay off existing pazcel assessments in the Seven Oaks West III Area confnmed pursuant to AD Ol-Z, and to pay certain costs associated with the issuance and delivery of the Bonds. A portion of the net proceeds of the Bonds will be deposited in the Special Reserve Fund. Capitalized 'interest on the Bonds from their dated date to September 2, 2004, will be deposited into the Redemption Fund. The estimated soarces and uses of funds for the Bonds are summarized as follows: Sources of Funds Principal Amount of Bonds $6,455,000.00 Less: Underwriter's Discount 77.460.00 Total $6,377,540.00 Uses of Funds Improvement Fund $5,776,929.50 (t) Special Reserve Fund 549,060.00 Redemption Fund 51,550.50 (Z) Total $6,377,540.00 (1) Includes costs of issuance of approximately $280,665.34. (2} Represents capitalized interest on the Bonds from their dated date to September 2, 2004. THE BONDS Purpose of the Bouds Proceeds from the sale of the Bonds will be used to finance (i) the Improvements, which are comprised of the acquisition andtor construction of certain public improvements within the three Community Areas, (ii} the cost to pay off existing pazcel assessments in the Seven Oaks West BI Area confirmed pursuant to AD Ol-2, and (iii) the payment of incidental costs, including but not limited Yo costs of issuance, as described in the section herein entitled "THE ASSESSMENT DISTRICT AND THE IMPROVEMENTS -Description of the Community Areas and the Improvements." Authority for Issuance The Assessment District proceedings are being conducted pursuant to the 1913 Act, Section 13.08.070 of the Municipal Code of the City, and a Resolution of Intention No. 1320, adopted by the City Council of the City on December 10, 2003. The Bonds, which represent the unpaid assessments levied against privately owned property in the Assessment District, are issued pursuant to the provisions of the 1915 Act and the Bond Resolution approving the issuance of the Bonds under the 1915 Act and the terms thereof. In the proceedings being used by the City for the Assessment District, all costs either aze estimated or are ascertained prior to the construction or acquisition of the improvements, right-of--way, or property involved. Under such proceedings, the assessments are then levied, cash collections are made, and bonds are sold to represent unpaid assessments. The money obtained from cash collections and bond proceeds is used by the City in payment for the improvements to be acquired, for the property or rights-of--way (if any) to be acquired, and for incidental expenses and expenses of the Bond issue. C&C California and Fairway Oaks South have each waived the cash collection period and no such cash collections were made. Assessment district proceedings can be initiated by either a petition or by the City Council without a petition. Petitions filed with the City Council and signed by C&C California and Fairway Oaks South, respectively, the owners of more than 60% of the assessable land within the Assessment District at the time of such filing, inifiated the proceedings for the Assessment District. The property owner petitions were accepted by resolution of the City Council adopted on December 1Q, 2003. After the proceedings were initiated, Wilson & Associates, Fresno, California (the "Assessment Engineer"), prepared a written report, which contains, among other things, the list of improvement costs and the amount of the assessments to be levied against the pazcels in the Assessment District. The assessments were levied on the basis of the special benefit to be derived by such pazcels from the Improvements. {See "THE ASSESSMENT DISTRICT t1ND Tim IMPROVEMENTS -Method of Assessment Spread.") The Assessment Engineer's written report was filed with the City Clerk on Febmary 27, 2004, and was ', approved by the City Council in preliminary form on Mazch 10, 2004. The Assessment Engineer's written report in final form was filed with the City Clerk on April 16, 2004. The public hearing required by law was held on Apri128, 2004. The property ownersttt the Assessment District had the right to protest the levy of the proposed assessments in writing prior to or at the commencement of the hearing and to be heard at the hearing. No such protests were made. In accordance with Article XI® of the State Constitution, the property owners were also requested to submit ballots, weighted according to the proportional financial obligation of the affected property, in favor of or opposition to the assessment. All ballots submitted by property owners were in favor of the assessment. See "SPECIAL RISK FACTORS -Articles XIIIC and XI>m of the California Constitution." Upon conclusion of the hearing, the City Council tabulated the ballots and adopted its resolution confirming the assessments and ordering the acquisition of improvements. The assessments confirmed by the City were based on the improvement costs listed in the Assessment Engineer's final written report (the "Engineer's Report"). After confirmation, the assessments became liens against the assessed pazcels by recordation of a notice of assessment. The property owners in the Assessment District waived published and mailed notice of the opportunity to pay all or a portion of the assessments in cash within thhty (30) days of the recording of the assessments, which recording was made in the Office of the Superintendent of Streets an Apri129, 2004, and in the Office of the County Recorder on May 4, 2004. No cash payments were made by the property owners. General The Bonds will be issued in fully registered form, without coupons, in the denomination of $5,000 each or in any integral multiple thereof. The Bonds will be dated the date of delivery, and will bear interest at the rates per annum, will mature on the dates {each a "Principal Payment Date"), and will mature in the amounts set forth on the front cover pages of this Official Statement. Interest on the Bonds is payable on September 2, 2004, and thereafter semiannually on March 2 and September 2 (each an "Interest Payment Date"). Principal, interest at maturity or upon earlier redemption, if applicable, and premium, if any, with respect to the Bonds will be payable at the corporate trust office of U. S. Bank National Association, as paying agent, registrar, and transfer agent {the "Paying Agent"), in St. Paul, Minnesota, upon presentation and surrender of the Bonds. Interest (other than at maturity or upon earlier redemption) on the Bonds will be payable by check of the Paying Agent mailed on each Interest Payment Date to the owners of record at the addresses shown on the registration books maintained by the Paying Agent for such purposes (the "Registration Books") as of the fifteenth day of the month immediately prior to an Interest Payment Date (or, in the case of an owner of at least $1,000,000 in principal amount of the Bands who so requests in writing prior to the close of business on the fifteenth day of the month immediately preceding such Interest Payment Date, by wire ffansfer). Transfer and Exchange of Bands Any Bond may be transferred or exchanged upon surrender of such Bond for cancellation, accompanied by delivery of a written instrument of transfer or authorization for exchange, duly executed in a form approved by the Paying Agent. The Paying Agent shall not be obligated to make any transfer or exchange of any Bond during the period commencing with the fifteenth day of the month immediately precedmg each Interest Payment Date and ending on such interest Payment Date. The City may require the Bond Owner requesting such transfer or exchange to pay any tax or other governmental charge required to be paid with respect to such transfer or exchange. Bouds Mutilated, Destroyed, or Lost If any Bond becomes mutilated, the Ciry, at the expense of the Owner of such Bond, will execute, and the Paying Agent will authenticate and deliver, a new Bond in exchange and substitution for the Bond so mutilated, but only upon surrender by the owner of the Bond so mutilated. Every mutilated Bond so surrendered wIll be canceled. L` any Bond becomes lost or destroyed, evidence of such loss or destruction may be submitted to the City and, if such evidence is approved by the City and indemnity satisfactory to the City is given, the City, at the expense of the Owner, will execute, and the Paying Agent will authenticate and deliver, a new Bond indieu of and in replacement for the Bond so lost or destroyed. The owner must pay all costs of issuance of the new Bond. Redemption Oafional Redemgtion and Prepayment of Bonds. Any Bond or portion thereof in the amount of $5,000 or any integral thereof outstandtttg may be called for redemption prior to maturity on any Interest Payment Date upon payment of the principal, plus accrued interest to the date of redemption, together with a redemption premium (calculated as a percentage of the par value of Bonds being redeemed) as set forth in the following table: Redemption Dates (March 2 and September 2) Redemption Premium September 2, 2004 through September 2, 2014 3.0°l0 March 2, 2015 and September 2, 2015 2.0°l0 March 2, 2016 and September 2, 2016 L0% March 2, 2017 and thereafter 0.0% No interest will accrue on a Bond beyond the Interest Payment Date on which said Bond is called for redemption. Notice of redemption must be given to the registered owner of the Bond by registered or certified mail or by personal service at least thirty (30} days prior to the redemption date, as provided in the 1915 Act. In accordance with the 1915 Act, the Finance Duector will select Bonds for redemption in such a way that the ratio of outstanding Bonds to issued Bonds will be approximately the same in each annual series insofar as possible. Within each annual series, Bonds shall be selected for redemption by lot. Further development of the parcels in the Assessment District, a transfer of property ownership, and other similar circumstances could result in prepayment of all or part of the assessments. Such prepayment would result in redemption of a portion of the Bonds prior to their stated maturities. Mandatory Redemntion of Term Bonds The Bonds maturing on September 2, 2024 (the "Term Bonds"}, aze subject to mandatory advance redemption in part prior to their stated maturity, as authorized under the Bond Resolution. The redemption shall occur on September 2 in the following years and in the following principal amounts, together with interest accrued on such amounts to the date fixed for redemption, and shall be without premium: Yeaz 2020 2021 i 2022 i 2023 ~ 2024 (maturity) Princinal Amount $405,000 430,000 460,000 485,000 515,000 If the Bonds are redeemed in part, as described under the subheading "Optional Redemption and Prepayment of Bonds" above, the principal of the Term Bonds to be redeemed on each of the payment dates set forth above shall be modified by deducting the principal amount of the Bonds redeemed in $5,000 increments as proportionally as practicable from the principal amounts set forth above. Effect of Redemption; Defeasance From and after the date fixed for redemption pursuant to the Bond Resolution, if funds available for the payment of the principal of and interest (and redemption premium, if any} on the Bonds or portion of Bonds so called for redemption have been duly provided, then Bonds or portion of Bonds so called for redemption will become due and payable at the redemption price therein specified, and from and after such date (unless the City shall default in the payment of the redemption price or interest) such Bonds or portions of Bonds shall be defeased and shall cease to be entitled to any benefit or security under the Bond Resolution (other than the right to receive payment of the redemption price and interest} and shall cease to bear interest. Receipt of notice of redemption by the owner of a Bond shall not be a condition precedent to redemption and failure by the owner of a Band to actually receive such notice of redemption shall not affect the validity of the proceedings for the redemption of such Bond or the cessation of interest. Refunding Bonds Pursuant to the Refunding Act of 1984 for 1915 Improvement Act Bonds {Division 11.5 of the California ', Streets and Highways Code), the City may issue refunding bonds for the purpose of redeeming the Bonds. The City may issue and sell refunding bonds without giving notice to and conducting a hearing for the owners of property in the Assessment District, or giving nofice to the owners of the Bonds, if the City Council fords drat: {A) Each estimated annual instalhnent of principal and interest on the reassessment to secure the refunding bonds is less than the corresponding annual installment of principal and interest on the portion of the original assessment being superseded and supplanted by the same percentage for all subdivisions of land within the Assessment District. Any amount added to the annual installments on the reassessment due to a delinquency in payment on the original assessment need not be considered in this calculation; (B) The number of years to maturity of all refunding bonds is not more than the number of years to the last maturity of the Bonds; and {C) The principal amount of the reassessment on each subdivision of land within the Assessment District is less than the unpaid principal amount of the portion of the original assessment being superseded and supplanted by the same percentage for each subdivision of land within the Assessment District. Any amount added to a reassessment because of a delinquency in payment on the original assessment need not be considered in this calculation. Upon issuing refunding bonds, the City Council could require that the Bonds be exchanged for refunding bonds on any basis which the City Council determines is for the City's benefit, if the Bondowners consent to the exchange. As an alternative to exchanging the refunding bonds for the Bonds, the City could sell the refunding bonds and use the proceeds to pay the principal of and interest and redemption premium, if any, on the Bonds as they become due, or advance dte maturity of the Bonds and pay the principal of and interest and redemption premium thereon. Disposition of Surplus from the Improvement Fund The amount of any surplus remaining in the Improvement Fund after completion of the acquisition of the Improvements and payment of all claims shall be applied as a credit to the assessments or to call Bonds, ail as provided in tha 1913 Act. Investment of Bond Proceeds Moneys held in the Improvement, Redemption, and Special Reserve Funds created pursuant to the Bond Resolution shall be invested by the Finance Director in accordance with generally applicable City investment policies, subject to State law and federal tax regulations governing the investment of tax-exempt bond proceeds. Investment income on moneys in the Redemption Fund shall be retained therein. Proceeds of the investment of amounts in the Improvement Fund and the Special Reserve Fund will be deposited into an Investment Earnings Fund, to be established and maintained by the Finance Director. Moneys in the Investment Eatniugs Fund will be rebated, to the extent required by law, to the federal government. To the extent that moneys in the Investment Earnings Fund aze not required for rebate to the federal government, as determined by the Finance Director as of June 30 of each year, such moneys shall be transferred to the Special Reserve Fund until the balance therein is equal to the Reserve Requirement. The remaining balance, if any, in the Investment Earnings Fund will be transferred, first, to the Improvement Fund until the Improvements are completed and such fund is closed and, thereafter, to the Redemption Fund to be used, in the discrefion of the Finance Director, as a credit upon the annual installments of assessments or for the advance retirement of Bonds. Security for the Bonds The Bonds are issued upon and secured by the unpaid assessments against the properly in the Assessment District, together with interest thereon, and said unpaid assessments, together with interest thereon, constitute security for the redemption and payment of the principal of the Bonds and the interest thereon. The Bonds are ', further secured by the moneys in the Redemption Fund and the Special Reserve Fund created pursuant to the Assessment District proceedings. Principal of and 'interest and redemption premiums, if any, on the Bonds are payable exclusively out of the Redemption Fund. The assessments and each installment thereof and any interest and penalties thereon constitute a lien against the parcels of land on which the assessments are levied until the same aze paid. Such lien is subordinate to all fixed special assessment liens previously imposed upon the same property, but has priority over all existing and future private liens and over all fixed special assessment liens that may thereafter be created against the property. Such lien is co-equal to and independent of the lien for general property taxes and special taxes, including, without limitation, special taxes created pursuant to the "Mello-Roos Community Facilities Act of 1982" (being Chapter 2.5, Part 1, Division 2, Title 5 of the Government Code of the State of California) (the "Mello-Roos Act"), whenever created against the property. Upon the issuance of the Bonds, none of the property in the Assessment District will be subject to any other special assessment lien created under the 1913 Act. All or a portion of the Brighton Place II Area is located in an existing Assessment District No. 46-1 ("AD 96-1"); however, all of the previous AD 96-1 assessment liens have been paid in full. All or a portion of the Seven Oaks West III Area is located in an existing Assessment District No. 96-2 ("AD 96-2"); however, all of the previous AD 96-2 assessment liens have been paid in full. A portion of the Seven Oaks West III Area is currently subject to an existing AD Ol-2 assessment; however such assessment will be paid in full upon the issuance of the Bonds from a portion of the proceeds thereof. The property within the Brighton Place II Area is subject to an existing special tax lien created by Community Faci]ities District No. 92-1 of the RNR School Financing Authority ("RNR CFD No. 92-1") pursuant to the Mello-Roos Act. The amount of special taxes, if any, to which property within RNR CFD No. 92-1 is subject varies based upon the zoning, the entitlements, and the type and level of development of such property. See "'fliE BONDS -Priority of Lien." None of the property within the Assessment District is within, or is subject to the existing special tax lien created by, Community Facilities District No. 96-1 of the Lakeside Union Elementary School District. The Bonds are not secured by the general teeing power of the City, the County, the State, or any other political subdivision of the State, and neither the City, nor the County, nor the State, nor any other political subdivision of the State has pledged its full faith and credit for the payment thereof. Although the unpaid assessments constitute fixed liens on the parcels assessed, they do not constitute the personal indebtedness of the owners of said parcels. Furthermore, there can be no assurance as to the ability or the willingness of such owners to pay the unpaid assessments. In addition, there can be no assurance that the present owners will continue to own all or any of said parcels. The unpaid assessments will be collected in annual installments, together with interest on the declining balance, on the County tax roll on which general taxes on real property are collected, and are payable and become delinquent at the same thne and in the same proportionate amounts and bear the same proportionate penalties and interest after delinquency as do said general taxes. Notwiffistanding the City's covenant to commence foreclosure i proceedings in connection with delinquent assessments, the property upon which the assessments were levied is subject to the same provisions for sale and redemption as aze properties for nonpayment of general taxes. The annual assessment installments are to be paid into the Redemption Fund, which will be held by the Finance Drector and used to pay the principal of and interest on the Bands as they become due. The installments billed against all of the pazcels of property in the Assessment District subject to the assessments will be equal to the total principal and ', interest coming due on all of the Bonds that year, plus, with respect to each parcel in the Assessment District, an ', additional amount to cover the administrative chazges of the City. Special Reserve Fnnd Out of the proceeds of the sale of the Bonds, the City Council will set aside into a Special Reserve Fund the amount of $549,060. The Special Reserve Fund will be maintained, from assessment installment payments and from proceeds of redemption or sale of pazcels with assessment delinquencies, in an amount equal to the least of {i) 10% of the proceeds of the Bonds, (ii) the maximum annual debt service on the Bonds, or {iii) 125% of the average annual debt service on the Bonds, less any amounts transferred to the Redemption Fund when assessments are paid following the issuance of the Bonds, as determined from time to time {the "Reserve Requirement"). The Special Reserve Fund will constitute a tmst fund for the benefit of the owners of the Bonds. The Special Reserve Fund will be maintained, used, transferred, reimbursed, and liquidated as follows: {a) Whenever there are insufficient funds in the Redemption Fund to pay the next maturing installment of principal of or interest an the Bonds, an amount necessary to make up such deficiency will be transferred from the Special Reserve Fund, to the extent of available funds, to the Redemption Fund. The amounts so advanced will be reimbursed from the proceeds of redemption or sale of the parcel for which payment of delinqueut installments of the assessments and interest thereon bas been made from the Special Reserve Fund. In the event flat the Special Reserve Fund is completely depleted from such advances prior to reimbursement from. resales of property or delinquency redemptions, payments to dte owners of the Bonds will be dependent upon reimbursement of the Special Reserve Fund. {b) If any assessment or any portion thereof is prepaid prior to the final maturity of the Bonds, the amount of principal of the assessment to be prepaid will be reduced by an amount which is in the same ratio to the original amount of the Special Reserve Fund as the original amount of the prepaid assessment bears to the total original amount of unpaid assessments originally securing the Bonds. The reduction in the amount of principal prepaid shall be compensated for by a transfer of like amount from the Special Reserve Fund to the Redemption Fund. {c) All proceeds from the investment of moneys in the Special Reserve Fund will be deposited into an Inveshnent Earnings Fund, to be established and maintained by the Finance Drector. Moneys in the Investment Earnings Fund will be rebated, to the extent required by law, to the federal government. To the extent flat moneys in the Investment Earnings Fund are not required for rebate to the federal government, as determined by the Finance Director as of June 30 of each yeaz, such moneys shall be transferred to the Special Reserve Fund until the balance therein is equal to, as of the date of calculation, the Reserve Requirement. Amounts in the Special Reserve Fund can never exceed the Reserve Requirement. See "TFIE BONDS -Investment of Bond Proceeds." (d) When the balance in the Special Reserve Fund is sufficient to retire all Bonds then outstanding (whether by advance retirement or otherwise), the amount of the Special Reserve Fund will be transferred to the Redemption Fund, and the remaining installments of principal and interest not yet due from the assessed property to owners will be canceled without payment, and the Special Reserve Fund will be liquidated upon the retirement of the Bonds. (e) In the event that the balance in the Special Reserve Fund at the time of liquidation exceeds the amount necessary to retire all Bands then outstanding, the excess will be paid to the owners of the assessed parcels in the Assessment District provided, however, that, if the excess is less than $1,000, such excess may be transferred by the Finance Director to the General. Fund of the City. ' The need to make advances from the Special Reserve Fund may result in its total depletion prior to reimbursement from resales of property or delinquency redemptions. ffi that event, there could be a default in payments to owners of the Bonds, the curing of which would be dependent upon reimbursement of the Special Reserve Fund. Redemption Fund Deficiencies If there are not sufficient funds in the Specia( Reserve Fund to fully cover a Redemption Fund deficiency ' and the City Councfl determines that there is a deficiency in the Redemption Fund to pay the principal of and interest on the Bonds such that there will be an ultimate loss accruing to the owners of the Bonds, the City will pay to the owners of the Bonds a proportionate share of the principal and interest due on lire Bonds based on the percentage that the amount on deposit in the Redemption Fund is of the total amount of the unpaid principal of the Bonds and the interest therevn. Thereafter, as moneys representing payments of the assessments are periodically ' deposited into the Redemption Fund, similar proportionate payments will be made to the owners of the Bonds, all in accordance with the procedures set forth in the 1915 Act. If there are not sufficient funds in the Special Reserve Fund to fully cover a Redemption Fund deficiency and it is determined by the Finance Director that there will not be an ultimate loss to the owners of the Bonds, the Finance Director is required tv direct the Paying Agent to pay matured Bonds as presented and pay interest on the Bonds when due as long as there aze available funds h~ the Redemptvn Fund, in the following order of priority: ' (1) all matured interest payments shall be made before the principal of any Bonds is paid; (2) interest on Bonds of earlier maturity shall be paid before interest on Bonds of later maturity; (3} within a single maturity, interest on ' lower-numbered Bonds shall be paid before interest on higher-numbered Bonds; and (4} the principal of Bonds shall ' be paid in the order in which the Bonds are presented for payment. This procedure could result in some matured ', Bonds not being redeemed and interest on the Bonds not being fully paid on the due dates. Such matured Bonds would not be fully redeemed and such delayed interest would not be paid until funds aze available from a foreclosure sale of the property having the delinquent assessment installments. Covenant to Commence Superior Court Foreclosure The 1915 Act provides that in the event any assessment or installment thereof or any interest thereon is not paid when due, the City may order the institution of a court action to foreclose the lien of the unpaid assessment. In such an action, the real property subject to the unpaid assessment may be sold at judicial foreclosure sale. This foreclosure sale procedure is not mandatory. However, in the Bond Resolution, the City has covenanted with the Bondowners that, in the event any assessment or installment thereof, including any interest thereon, is not paid when due, the City will, no later than October 1 in any year, file an action in the Superior Court of the County to foreclose the lien on each delinquent assessment if (i) the sum of uncured assessment delinquencies for the preceding fiscal yeaz exceeds 5°fo of the assessment installments posted to the tax roll for that fiscal year, and (ii) the amount in the Special Reserve Fund is less than the Reserve Requirement. In the event such Superior Court foreclosure or foreclosures aze necessary, there may be a delay in payments to Bondowners pending prosecution of the foreclosure proceedings and receipt by the City of the proceeds of the foreclosure sale. It is also possible that no bid for the purchase of the applicable properly would be received at the foreclosure sale. See "SPECIAL RISK FACTORS - Covenant to Commence Superior Court Foreclosure." tt Priority of Lieo Each assessment {and any reassessment) and each installment thereof, and any interest and penalties thereon, consttutes a lien against the parcel of land on which it was imposed until the same is paid. Such a lien is subordinate to all fixed special assessment liens previously imposed upon the same property, but has priority over all private liens and over all fixed special assessment liens that may thereafter be created against the property. Such a lien is co-equal to and independent of the lien for general property taxes and special taxes, including, without limitation, special taxes created pursuant to the Mello-Roos Act, whenever created against the property. Following the issuance of the Bonds, none of the property in the Assessment District will be subject to any other special assessment lien created under the 1913 Act. The Seven Oaks West III Area is subject to an existing AD Ol-2 assessment; however such assessment will be paid in full upon the issuance of the Bonds from a portion of the proceeds thereof. The property within the Brighton Place II Area, however, is subject to an existing special tax lien created by RNR CFD No. 92-1 pmsuant to the Mello-Roos Act. The amount of special taxes, if any, to which property within RNR CFD No. 92-1 is subject varies based upon the zoning, the entitlements, and the type and level of development of such property. For fiscal year ending June 30, 2004, the properly within the Brighton Place II Area is subject to the following RNR CFD No. 92-1 special taxes: No special taxes are collected from property for which uo final tract map has been recorded. (Final tract maps have been recorded for all property within the Assessment District.} Upon recordation of a final tract map and if no buildutg permit has been issued for a subdivision lot prior to March 1 of the prior fiscal year, an annual special tax, which is currently $121.89 {which may be increased by 2% each fiscal yeaz}per subdivision lot acre of subject property, is payable. Upon the issuance of a residential building permit for a lot or parcel prior to Mazch 1 of the prior fiscal year, aone-time special tax payment, which is currently $1.25 (which may be htcreased each fiscal year based upon the percentage change in the designated constmction cost index} per building squaze foot, is payable, and such parcel is subject to an annual special tax payment, which is currently $477.87 (which may be increased by 2% each fiscal yeaz} per unit. In the alternative, at the time of issuance of such residential building permit, the owner of such parcel may prepay a specified amount, hr which case the ono-time special tax payment and the annual special tax described above will not be levied on such parcel. The prepayment amount is currently $8,643.00 (which may be increased each fiscal year based upon the percentage change in a designated constmction cost index). C&C California has indicated that it does not intend to pay the specified prepayment amount of the special tax for any parcel withru the Brighton Place II Area. Thus, the annual special tax will be payable by all property owners within the Brighton Place II Area after the parcels therein are developed. C&C California has reported the majority of the bullding permits required for the planned development in the Brighton Place II Area have not been obtained as of June 1, 2004. Each assessment (and any reassessment) and each installment thereof, and any interest and penalties thereon, constitutes a lien against the parcel of land on which it was imposed until the same is paid. Such a lien is subordinate to all fixed special assessment liens previously imposed upon the same property, but has priority over all private liens and over all fixed special assessment liens that may thereafter be created against the property. Such a lien is co-equal to and independent of the lien for general property taxes and special taxes, including, without limitation, special taxes created pursuant to the Mello-Roos Act, whenever created against the property. Tax Covenants Pursuant to the Bond Resolution, the City has covenanted that it will not make any use of the proceeds of the Bonds which would cause the Bonds to became "azbitrage bonds" subject to Federal income taxation pursuant to the provisions of Section 148(a) of the Internal Revenue Code of 1986, as amended (the "Code"), or to become "Federally-guaranteed obligations" pursuant to the provisions of Section 149(b) of the Code, pr to become "private activity bonds" pursuant to the provisions of Section 141(a) of the Code. To that end, the City will comply with all applicable requirements of the Code and all regulations of the United States Department of Treasury issued thereunder to the extent such requirements aze, at the time, applicable and in effect. 12 Debt Service Schedule Set forth below is the debt service schedule for the Bonds. Annual Bond Debt Service Period Ending Principal Total Bond (5entember 2) Maturine Interest Debt Service ' 2004 ' $ 51,SSO.SD{'~ $ 51,550.501'1 ~ 2005 $ 205,000.00 ~ 343,670.00 548,670.00 2006 210,000.00 338,545.00 548,545.00 -- 2007 211,000.00 331,720.00 546,720.00 i, 2008 225,000.00 323,442.50 548,442.50 2009 235,000.00 313,880.00 ~ 548,880.00 2010 245,000.00 303,540.00 548,540.00 2011 255,000.00 292,147.50 547,147.50 2012 265,OOD.00 279,780.00 544,780.00 2013 28Q,000.00 266,530.00 546,530.00 2014 295,000.00 252,250.00 547,250.00 - 2015 310,000.00 236,410.00 545,910.00 2016 325,000.00 220,325.00 545,325.00 2017 345,000.00 202,450.00 547,450.00 2018 365,000.00 183,130.00 548,130.00 2019 385,000.00 162,325.00 - 547,325.00 2020 405,000.00 139,995.00 544,995.00 2021 430,000.00 115,290.00 545,290.00 2022 46Q,000.00 89,060.00 549,060.00 2023 485,000.00 61,000.00 546,000.00 2024 515 000 00 31,415.00 546.415.00 Totals $6,455,000.00 $4,538,955.50 $10,993,955.50 ~, (1) Capitalized interest on the Bonds has been funded thro ugh September 2, 2004. '' Source: RBC Dain Rauscher Inc. BOOK-ENTRY ONLY SYSTEM The Bonds will be initially delivered in the form of one fully registered Bond for each of the maturities of the Bonds, registered itr the name of Cede & Co., as nominee of DTC, as registered owner of all the Bonds. The following description of DTC and its book-entry system has been provided by DTC and has not been verified for accuracy or completeness by the City, and the City shall have no liability in respect thereof. The City shall have no responsibility or liability for any aspects of the records maintained by DTC relating to or payments made on account of beneficial ownership, or for maintaining supervising, or reviewing any records maintained by DTC relatng to beneficial ownership, of interests in the Bonds. DTC is a limited purpose trust company organized under the New York Banking Law, a "banking organization" within the meaning of the New York Banking Law, a member of the Federal Reserve System, a "clearing corporation" within the meaning of the New York Uniform Commercial Code and a "clearing agency" registered pursuant to the provisions of Section 17A of the Securites Exchange Act of 1934. DTC holds securities that its participants (the "Participants") deposit with DTC. DTC also facilitates the settlement among Participants of securities transactions, such as transfers and pledges, in deposited securities through electronic computerized book- entry 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 orgattizadons. DTC is owned by a number of its Drect 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, either directly or indirectly ("Indirect Participants"). The rules applicable to DTC and its Participants aze on file with the Securities and Exchange Commission. 13 Purchases of the Bonds under the DTC system must be made by or through Direct Participants, which will receive a credit for the Bonds on DTC's records. The ownership interest of each actual purchaser of each Bond ("Beneficial Owner") is in turn to be recorded on the Direct and Indirect Participants' records. Beneficial Owners will not receive written confvmation from DTC 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 or Indirect Participant through which the Beneficial Owner entered into the transaction. Transfers of ownership interests in the Bonds are to be accomplished by entries made on the books of Participants acting on behalf of Beneficial Owners. Beneficial Owners will not receive certificates representing their ownership interests in the Bonds except in the event that use of the book-entry system for the Bonds is discontinued. To facilitate subsequent transfers, all Bonds deposited by Participants with DTC are registered in the name of DTC's partnership nominee, Cede & Co. or such other name as requested by an authorized representative of DTC. The deposit of Bonds with DTC and their registration in the name of Cede & Co. or such other DTC nominee do not effect any change in beneficial ownership. DTC has no knowledge of the acmal 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 for keeping 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, and by Direct Participants and Indirect Participants to Beneficial Owners will be governed by arrangements among them, subject to any statutory or regulatory requirements as may be in effect from time to time. Beneficial Owners of the Bonds may wish to take certain steps to augment the transmission to them of notces of significant events with respect to the Bonds, such as redemptions and defaults. Beneficial Owners of Bonds may wish to ascertain that the nominee holdrrrg the Bonds for their benefit has agreed to obtain and transmit notices to Beneficial Owners or in the alternative, Beneficial Owners may wish to provide their names and addresses to the registrar and request that copies of notices be provided directly to them. REDEMPTION NOTICES SHALL BE SENT BY THE PAYING AGENT TO DTC. IF LESS THAN ALL OF THE BONDS ARE BEING REDEEMED, DTC'S PRACTICE IS TO DETERMINE BY LOT THE AMOUNT OF THE INTEREST OF EACH DIRECT PARTICH'ANT IN SUCH ISSUE TO BE REDEEMED. Neither DTC nor Cede & Co. (nor such other DTC nominee) will consent or vote with respect to the Bonds. Under its usual procedures, DTC mails an Omnibus Proxy to the City as soon as possible after the record date. The Omnibus Proxy assigns Cede & Co.'s consenting or voting rights to those Direct Participants to whose accounts the Bonds are credited on the record date (identified in a listing attached to the Omnibus Proxy). Principal and interest payments with respect the Bonds will be made to Cede & Co. or such other nominee as may be requested by an authorized representative of DTC. DTC's practice is to credit Direct Participants' accounts upon DTC's receipt of funds and corresponding detail information from the City or the Paying Agent, on the payable date in accordance with their respective holdings shown on DTC's records. Payments by Participants to Beneficial Owners will be govemed by standing instructions and customary practices, as is the case with securities held for the accounts of customers in bearer form or registered in "street name," and will be the responsibility of such Participant and not of DTC (or its nominee}, the Paying Agent, or the City, subject to any statutory or regulatory requirements as may be in effect from time to time. Payment of principal and interest to Cede & Co. (or such other nominee as may be requested by an authorized representative of DTC) is the responsibility of the City or the Paying Agent, disbursement of such payments to Direct Participants shall be the responsibility of DTC, and disbursement of such payments to Beneficial Owners is the responsibility of Direct and Indirect Participants. DTC may discontinue providing its services with respect to the Bonds at any time by giving reasonable notice to the City or the Paying Agent. Under such circumstances, in the event that a successor securities depository is not obtained, Bond certificates are required to be printed and delivered in accordance with the terms of the Bond Resolution. to THE INFORMATION IN THIS SECTION CONCERNING DTC AND DTC'S BOOK-ENTRY SYSTEM HAS BEEN OBTAINED FROM SOURCES THAT THE CITY BELIEVES TO BE RELIABLE, BUT I'F TAKES NO RESPONSB3B,ITY FOR THE ACCURACY THEREOF. THE CITY CANNOT AND DOES NOT GIVE ANY ASSURANCES THAT DTC WII.L DISTRIBUTE PAYMENTS TO DTC PARTICIPANTS OR THAT PARTICIPANTS OR OTHERS WII.L DISTRIBUTE PAYMENTS WITH RESPECT TO THE BONDS RECEIVED BY DTC OR ITS NOMINEES AS THE REGISTERED OWNER, ANY REDEMPTION NOTICES, OR OTHER NOTICES TO THE BENEFICIAL OWNERS, OR THAT THEY WILL DO SO ON A TIMELY ', BASIS, OR THAT DTC WILL SERVE AND ACT IN THE MANNEK DESCRIBED IN THIS OFFICIAL STATEMENT. THE ASSESSMENT DISTRICT AND THE IMPROVEMENTS The information under this heading is taken primarily from the Engineer's Report for the Assessment District prepared by Wilson & Associates, Fresno, California, which Engineer's Report is on fzte with the City, and from Information provided by C&C California and Fairway Daks South. General The Assessment District was formed in accordance with the 1913 Act and Section 13.08.070 of the Municipal Code of the City. Proceedings for the formation of the Assessment District were commenced by the City Council pursuant to property owner petitions filed by C&C California and Fairway Oaks South, who, at the time the pefrtion was filed, were the owners of over 60% of the assessable land within the Assessment District. The petitions were accepted by an approving resolution of the City Council, adopted on December 10, 2003, and the petitions are on file with the City Clerk of the City. The Assessment DistricC is comprised of three (3) sepazate Community Areas in northwest and southwest Bakersfield generally described as (i) the Seven Oaks West III Area, containing approximately 225.5 acres and generally bounded by White Lane on the south, Allen Road on the west, Ming Avenue and Tract Nos. 6030 and b055 on the north, and various parcel lines of the golf course parcels within Parcel Map No. 10617 - Phases A and B, also identified as Tract No. 6086 ("Tract 6086"), Tract No. 6087 ("Tract 6087"), Tract No. 6150 ("Tract 6150"), Tmet No. 6151 ("Tract 6151"}, Tract No. 6199 ("Tract 6199"), and Tract No. 6223 ("Tract 6223"), (ii) the Brighton Place II Area, containing approximately 55.D acres and generally bounded by the Rio Bravo Canal on the southwest, Jewetta Avenue on the southeast and east, and the north boundary of the right-of-way for the proposed Kern River Freeway on the north, also identified as Tract No. 6185 ("Tract 6185"), and (iii) the Fairway Oaks South Area, containing approximately 30.5 acres and generally located at the southwest comer of the intersection of Old River Road and the Southern Pacific Raikoad right-of--way, also identified as Tract No. b079 Unit One ("Tract 6079 Unit One"). The three irregularly shaped Community Areas are located within a rectangular section of northwest and southwest Bakersfield that has anorth-to-south dimension of approximately three and three-quarters miles as measured from the north end of the Brighton Place II Area to the south end of the Fairway Oaks South Area and a ~ west-to-east dimension of approximately two miles as measured from the westerly boundary of the Seven Oaks West >II Area to the easterly boundary of the Fairway Oaks South Area. Each of the three Community Areas is ', involved in various stages of the land development entitlement and/or site development process. See "OWNERSHIP AND Pi,ANNED FINANCING AND DEVELOPMENT OF THE ASSESSMENT DISTRICT." The Assessment Disirict boundaries are shown on the assessment diagram, consisting of fourteen (14) sheets, entitled "ASSESSMENT DIAGRAM OF CITY OF BAKERSFIELD ASSESSMENT DISTRICT NO. 03-3 (SEVEN OAKS WEST IIUBRIGHTON PLACE II/FAIltWAY OAKS SOiJ'ITI), COUNTY OF KERN, STATE OF CALIFORNL4," a copy of which is attached hereto as APPENDIX D. Proceeds from the sale of the Bonds issued pursuant to the Assessment District proceedings will be used to finance (i) the Improvements, which are generally described as the acquisition of certain public infrastructure improvements for each of the three Community Areas, which Improvements will be owned by lire City and operated and maintained by the City, (ii} the cost to pay off existing parcel assessments in the Seven Oaks West III Area 15 confirmed pursuant to AD O1-2, and (iii) the payment of certain incidental costs and expenses related to the acquisition of the Improvements, the Assessment District proceedings, and the Bond issuance, including the establishment of a Special Reserve Fund for the Bonds. The Improvements described above aze proposed to be financed by the City in accordance with the terms ', and conditions of the Acquisition Agreements, as applicable. The Acquisition Agreements set forth the procedure by which the Improvements are to be constructed and installed by C&C Califomia or Fairway Oaks South, as applicable, and, upon their completion, acquired by the City using funds provided through the Assessment District proceedings. The scope of the Improvements includes the acquisition by the Ciry of off-site andtor on-site {ht-tract) subdivision improvements and the payment of incidental costs that are already required or that are expected by C&C California or Fairway Oaks South, as applicable, to be required to be installed as conditions of final subdivision or site plan approvals, as applioable, within the three Community Areas. Each of the three Community Areas is a separate assessment area within the Assessment District. The costs financed by the Assessment District for the acquisition of the respective Improvements located within or adjacent to each of the three Community Areas have been allocated only to the parcels that are located within the Community Area to be served by those Improvements. Bond proceeds are not expected to be used for the acquisition of land, easements, or rights-of--way. Description of the Community Areas and the Improvements The information under this subheading has been provided by the Engineer's Report, C&C California, or i Fairway Oaks South, as applicable, and has not been verified for accuracy or completeness by the City, and the City shall have no liability with respect thereto. The current development plans for the respective Community Areas within the Assessment District are subject to change. Furthermore, the current plans are subject, in large part, to the financial resources and construction and marketing capabilities aad efforts of C&C California and Fairway Oaks South, as applicable, and the builders or other persons to whom the parcels within the Assessment District are sold. There can be no assurance that such development will occur as described herein, or that it will occur at all. Seven Oaks West III Are¢ The Seven Oaks West III Area boundaries encompass an approximately 225.5-acre block of land that is planned for subdivision into a combined total of 503 R-1 lots (as defined in the section entitled "OWNERSHIP AND PLANNED FINANCING AND DEVELOPMENT OF TF1E ASSESSMENT DISTRICT -Zoning"), one commercial use parcel, two park site lots, and two storm drain sump lots pursuant to Tract b08b, Tract 6087, Tract 6150, Tract b151, Tract 6199, and Tract 6223. C&C Califomia is the subdivider of Tract 6086, Tract 6087, Tract 6150, Tract 6151, Tract 6199, and Tract 6223. Accordingly, all of the Improvements for the Seven Oaks West III Area are related to the development of those subdivisions and aze generally described as improvements in and along White Lane, Allen Road, and Chamber Boulevard that aze required to be constructed, ar are expected by C&C California to be required to be constructed, as conditions of approval for those subdivisions. The general location and extent of the planned Improvements for White Lane include completion on the westbound half of the street ', (north half of the street) plus one eastbound center traffic lane from Windermere Street to Allen Road along the frontage of Tract 6223, to its full design width, complete with excavation, paving, curb, gutter, sidewalk, street lights, utility trench, corner sign monuments and subdivision block wall, 16-inch diameter waterline with fue hydrants, 2-inch diameter irrigation service and appurtenances, and median deposit for both sides of the street. The general location and extent of the planned Improvements for Allen Road from Chamber Boulevard to White Lane, j along the frontage of Tract 6223, include completion of the northbound hall of the street (east half of the street) to ', its full design width, complete with excavation, paving, curb, gutter, sidewalk, street fights, utility trench, subdivision block wall, 16-inch diameter waterline with fne hydrants, 2-inch diameter irrigation service and ', appurtenances, and median deposit for both sides of the street. The general location and extent of the planned ', Improvements for Chamber Boulevazd from the west boundary of exiting Tract No. 6045 ("Tract 6045") westerly to Allen Road includes completion of the entire street (both sides) to its full design width, complete with excavafion, paving, curb, gutter, sidewalk, median curb, street lights, utility trench, corner sign monuments and subdivision t6 block wall, 24- and 18-inch diameter storm drain pipelines with manholes, catch basins and appurtenances, and 12- and 8-inch diameter waterline with fire hydrants and appurtenances. The general location and extent of the planned Improvements on the south side of Chamber Boulevard from Windermere Street to the west boundary of Tract 6045 include construction of subdivision block wall and comer sign monuments. Also included in the scope of the Seven Oaks West III Area Improvements aze C&C Califomia's incidental costs for design engineering, construction stalking, soils and materials analysis and testing, plan check and inspection fees, improvement bonds, and bid documents, all as itemized in the Engineer's Report. Brighton Place II Area The Brighton Place II Area boundaries encompass au approximately 55.0-acre block of land that is planned ' for subdivision into 176 R-1 lots, one common area (recreation) lot, and one water recharge basin/future freeway right-of--way parcel pursuant to Tract 6185. C&C California is the subdivider of Tract 6185. Accordingly, all of the i Improvements for the Brighton Place B Area are related to the development of that subdivision and are generally described as improvements in Jewetta Avenue and various City development fees that are required to be constructed and(or paid, or are expected by C&C Califomia to be required to be constructed and(ar paid, as conditions of approval for that subdivision. The general location and extent of the planned Improvements for Jewetta Avenue include the construction of a traffic signal at the intersection of Milverton Way and Jewetta Avenue. The planned City development fees funded as part of the Improvements for the Brighton Place II Area include the Water Availability Fee and Regional Transportation Impact Fee for Tract 6185 (as such terms are defined and required by the City). Also included in the scope of the Brighton Place II Area Improvements are C&C California's incidental ~~ costs for design engineering, construction staking, soils and materials analysis and testing, plan check and inspection fees, improvement bonds, and construction inspection fees, all as itemized in the Engineer's Report. Fairway Oaks South Area The Fairway Oaks South Area boundaries encompass an approximately 30.5-acre block of land that is '~ planned for subdivision into a total of 59 R-1 lots, one super lot (plamred for future subdivisiou into 60 R-1 lots pursuant to Tentative Tract No. 6079), and one storm drain sump lot. Fairway Oaks South is the subdivider of Tract I 6079 Unit One. Accordingly, all of the Improvements for the Fairway Oaks South Area are related to the development of that subdivision and are generally described as improvements in and along Old River Road, and in- tract/on-site sewer and storm drain improvements that are required to be constructed, ar are expected by Fairway Oaks South to be required to be constructed, as conditions of approval for that subdivision. The general location and extent of the planned Improvements for the Old River Road street improvements include completion of the southbound half of the street (west half of the street) to its full design width, along the frontages of Tract 6079 Unit '; One and Tentative Tract No. 6079, Unit Two (which is not included in the Assessment District) (from the Southern Pacific Railroad right-of--way on the north to the future Snowdon Avenue in Tract 6079 Unit One on the south), i complete wvth excavation, paving, curb, gutter, sidewalk, median curb, and street lights. The general location and extent of the planned Improvements for the Old River Road water system improvements include completion of the waterline from the end of the existing waterline located approximately 700 feet north of the Southern Pacific Railroad right-of--way southerly to future Snowdon Avenue, including 12-inch diameter waterline, fire hydrants, ', irrigation services, approximately 100 feet of bore under the railroad right-of--way, and appurtenances. The general ', location and extent of the planned in-tract/on-site sewer Improvements in Tentative Tract No. 6079 include construction of the in-traction-site sewer system for Tentative Tract No. 6074, complete with 10- and 8-inch ', diameter sewer line from Mountain Vista Drive easterly to Old River Road (from west to east boundaries of Tentative Tract No. 6079), in future Lerwick Avenue, Cobblestone Avenue, and Snowdon Avenue, complete with ' manholes and clean outs. The general location and extent of the planned in-tract(on-site storm drain Improvements in the Fairway Oaks South Area include constmction of the in-traction-site smrm drain system, complete with 36-, 30-, 24-, and 18-inch diameter pipelines with manholes and catch basins, and a complete storm drain sump with all ' required excauatians, outlet structures, catch basins, block wall, and gates, alt located within the boundaries of Tract 6079 Unit One. Also included in the scope of the Fairway Oaks South Area Improvements are Fairway Oaks South's incidental cost for design engineering, all as itemized in the Engineer's Report. 17 Estimated Improvement Casts Set forth below are the confirmed assessment amounts with regard to the estimated costs of the Improvements and other costs relating to the Assessment District proceedings, as described in the Engineer's Report. A eopy of the Engineer's Report is on file with the City. ENGINEER'S STATEMENT OF TOTAL ASSESSMENT City of Bakersfield Assessment District No. 03-3 (Seven Oaks West III/Brighton Place II/Fairway Oaks South} '. CONFIRMED ACTTViTY DESCRII'TION ASSESSMENT ' 1. SEVEN OAKS WEST III AREA IMPROVEMENT COST '. A. IMPROVEMENTS $3,326,312.00 - B. INCIDENTALS 655.171.00 - C. TOTAL SEVEN OAKS WEST III AREA DYIPRO VEMENT COST $3,981,453.00 2. BRIGHTON PLACE II AREA IMPROVEMENT COST A. IMPROVEA4ENIS $581,049.00 ' B. INCIDENTALS 26 906 00 I C. TOTAL BRIGHTON PLACE II AREA EYIPROVEMENT COST - $607,955.00 3. FAIIiWAY OAKS SOUTH AREA IMPROVEMENT COST '. A. IMPROVEMENTS $350,957.25 B. INCIDENTALS 30,000.00 ', C. FAIRWAY OAKS SOUTH AREA EVIPROVEMENT COST $580,957.25 ~', 4. PAYOFF OF EXISTING ASSESSMENT DiSTRiCT NO. OI-2 ASSESSMENTS (SEVEN OAKS WEST III AREA ONLY) $324,283.16 ', 5. ESTIMATED ASSESSMENT DISTRICT PROCEEDING COST AND EXPENSE j A. SEVEN OAKS WEST BI AREA $202,295.62 B. BRIGHTON PLACE II AREA 28,563.24 I C. FAIltWAY OAKS SOUTH AREA 49.806.45 '. D. TOTAL ESTIMATED ASSESSMENT DISTRICT PROCEEDING COST AND $280,665.34 '. EXPENSE ', 6. SUBTOTAL COST TO ASSESSMENT ' A. SEVEN OAKS WEST III AREA $4,508,061.78 '. B. BRIGHTON PLACEIIAREA 636,518.24 '. C. FAIltWAY OAKS SOUTH AREA 630 763 73 D. SUBTOTAL COST TO ASSESSMENT $5,775,343.75 it 7. UNDERWRTTER'S DISCOUNT, CAPITALIZED INTEREST, AND RESERVE FUND I A. SEVEN OAKS WEST III AREA $663,216.43 B BRIGHTON PLACE II AREA 93,643.21 I C. FAIltWAY OAKS SOUTH AREA 92.796 61 li D. TOTAL UNDERWRITER'S DISCOUNT, CAPTTALIZED llVTEREST, '~ AND RESERVE FUND $849,656.25 8. TOTAL AMOUNT ASSESSED $6,625,000.00 '. ALLOCATION OF TOTAL AMOUNT ASSESSED TO EACH DEVELOPMENT AREA 1. SEVEN OAKS WEST III AREA $5,171,278.21 2. BRIGHTON PLACE II AREA $730,161.45 3. FAIRWAY OAKS SOUTH AREA $723„460.34 Source: Engineer's Report prepared by W~7son & Associares 18 Method of Assessment Spread Spread of theAssessment District Costs to Benefited Parcels Section 10204 of the 1913 Act requires that the assessments must be levied in proportion to the estimated benefit that the subject properties receive from the works of improvement. The statute does not provide the specific method or formula that should be used iu any particular special assessment district proceedmg. That responsibility rests initially with the Assessment Engineer, who is retained by the City for the purpose of making an independent analysis of the facts and recommendations about the apportionment of the assessment obligation. For the proceedings with respect to the Assessment District, the City has retained Wilson & Associates, Fresno, California, to serve as the Assessment Engineer. The 1913 Act provides that the Assessment Engineer makes his recommendations as to the cost and method of apportionment of the assessments in the Engineer's Report, which is then considered at the public hearing on the Assessment District. Final authority and action with respect to the levy of the assessments rests with the City Council after hearing all testimony and evidence presented at the public hearing. Upon the conclusion of the public hearing, the City Council must take final action in determining the proportionality of the benefits received by the properties assessed. The financed costs will be spread to the assessed parcels in the Assessment District in the manner set forth in Municipal Code Section 13.08.070 -Benefit Spread, which was added to the City's Municipal Code on Apri15, 1995, by City Council adoption of Ordinance No. 3643. The parcel assessment shares far City assessment districts are to be allocated or spread in accordance with the 1913 Act, which requires that the financed cost in a special assessment proceeding be allocated among the benefited parcels of land in proportion to the estimated benefit each parcel can be expected to receive from the work and improvement covered by the assessment. Municipal Code Section 13.08.070 authorizes the `Yeallocation" to altemate properties of assessments initially allocated to parcels in pmportian to their estimated benefit (i. e., hutial allocation made in accordance with the 1913 Act cosWenefit requirement), when such reallocation is so requested by the owner of all property to be assessed and upon the written consent of the owner of the property to which assessments aze reallocated and approval thereof by the City Council. The Assessment District individual pazcel assessment amounts shown on APPENDIX E have been calculated or spread among the assessed pazcels pursuant to Municipal Code Section 13.08.070. The alternate method used by the Assessment Engineer to reallocate the benefit based assessment shares initially allocated by the Assessment Engineer to each assessed parcel has been provided by C&C Califomia and Fairway Oaks South. The Assessment Engineer has determined that the spreading of the assessments in accordance with the altemate method conforms with the requirements of Municipal Code Section 13.08.070. To the extent that any assessments are reapportioned after the Bonds have been issued, the City will approve the same only if the security fox the Bonds is not reduced or impaired. Reallocation Spread Method In accordance with Municipal Code Section 13.08.070, C&C California and Fairway Oaks South have submitted a proposed alternate method and rate of assessment. Further, C&C Califomia and Fairway Oaks South have stated that, as of the date of the approval of the altemate method and rate of assessment, they are the owners of all the property proposed to be reallocated a share of the assessment and that they consent to the reallocation. The Assessment Engineer's estimates of the costs of the Improvements is presented above under the heading "THE ASSESSMENT DISTRICT AND TIIE IMPROVEMENTS -Estimated Improvement Costs." The alternate method {the "Reallocation Spread Method") is described as follows: The total improvement acquisition cost within each of the three Community Areas is spread among the developed and undeveloped parcels within each azea in direct proportion to pazcel acreage and to each planned or existing R-1 lot within those developed and undeveloped pazcels as an equal per R-1 lot cost share. There are no exceptions in any Community Area to the equal cost shaze per acre and equal cost per existing or planned R-1 lot Reallocation Spread Method. 19 OWNERSHIP AND PLANNED FINANCING AND DEVELOPMENT OF THE ASSESSMENT DISTRICT Ownership of Property in the Assessment District I C&C California owned 86.51% of the assessed property in the Assessment District prior to the recording of the notice of assessment and currently owns approximately 82.02°l0 of the assessed property in the Assessment District. As of June 1, 2004, C&C California has sold 491ots in the Seven Oaks West III Area to merchant builders and individuals, but has not sold any lots in the Brighton Place II Area. The following table details the ownership of the land within the Seven Oaks West BI Area as of June 1, 2004: Ownership of Seven Oaks West III Area as of June 1, 2004 Tract No. Zo°inE Acres/Lots Current Owner Tract 6086 Commercial Lot 10.04 acres C&C California Tract 6086 R-1 Lats 291ots C&C Califonua Tract 6087 R-1 Lots 95 lots C&C California and Various Merchant Builders and Individual Owners ~'~ Tract 6150 R-1 Lots 49 lots C&C California Tract 6151 R-1 Lots 471ots C&C California Tract 6199 R-1 Lots 421ots C&C California Tract 6223 R-1 Lots 241 lots C&C California (1} See "OWNERSHIP AND PLANNED FINANCING AND DEVELOPMENT OF TIIE ASSESSMENT DISTRICT - Development and Financing Plans -Sales of Property in Assessment District" herein. Fairway Oaks South owned approximately 10.70% of the assessed property in the Assessment District prior to the recording of the notice of assessment. Fairway Oaks South has not sold, and does not intend to sell, any lots in the Fairway Oaks South Area to merchant builders. Fairway Oaks South plans to develop the property in the Fairway Oaks South Area for sale to individual homeowners. As of June 1, 2004, approximately 7.28% of the assessed property in the Assessment District was owned by merchant builders or individuals. The Community Areas will bear 100% of the total assessment lien. Neither C&C California nor Fairway Oaks South nor any other owner of property within the Assessment District (each, a "Property Owner"), will be personally liable for payments of the assessments to be applied to pay the principal of and interest on the Bonds. In addition, there is no assurance that C&C California, Fairway Oaks South, or any other Property Owner will be able to pay the assessment installments or that C&C California, Fairway Oaks South, or any other Property Owner will pay such installments even if it is financially able to do so. Furthermore, except to the extent expressly set forth herein, no representation is made that C&C California, Fairway Oaks South, or any other Property Owner will have moneys available to complete or improve the development of the land within the Assessment District (other than the Improvements) in the manner described herein. Accordingly, no Property Owner's financial statements are included in this Otlicial 5tatemeot. C&C California The information under this subheading has been provided by C&C California and has not been verified for accuracy or completeness by the City or the Underwriter, and the City and the Underwrtter shall have no liability in respect thereof. C&C California is a California corporation and wholly owned subsidiary of Castle & Cooke, Inc., a Hawaii corporation ("Castle"). Castle was formed on October 10, 1995, to be the successor to the real estate, commercial real estate, and resort business of Dole Food Company, Inc., primarily in the states of Hawaii, California, and 20 Arizona, but also in other states in the United States. C&C Califomia was incorporated on November 16, 1995, and assumed some of Castle's real estate developments in the State of Califomia. C&C Califomia is currently engaged in the development of residential real estate properties in the United States, primarily in the State of California. C&C Califomia develops furished lots for re-sale to homebuilders and is engaged in the construction of some homes. C&C Califomia owns the following real estate developments in the City of Bakersfield: Seven Oaks. Seven Oaks, which includes the Seven Oaks West III Area, is amaster-planned community on approximately 1,700 acres that is designed to be the premier residential development in Bakersfield. Seven Oaks surrounds the Seven Oaks Country Club and Golf Cowse, which was developed by C&C Califomia, and which eventually will be contributed to a nonprofit mutual benefit corporation. C&C California has the exclusive right to sell memberships in the Seven Oaks Country Club. Development of the community is being completed in phases, based on market demand C&C California has developed neighborhoods offering home sites from "move-up" to luxury homes. Approximately 800 homes sites and homes remain to be developed on approximately 600 acres. Salver Creek. Silver Creek is amaster-planned community encompassing approximately 600 acres in the City. C&C California is currently constructing and will sell homes only in the Silver Creek II Area of the Silver Creek development, which area is being mazketed as "Liberty" and is planned to include 154 homes. I Brimhatt North. Brimhall North, a residential community in the City comprised of approximately 1,400 acres, is planned to attract first-time to custom home buyers. Approximately 153 home sites of the total 1,395 sites remain to be sold, located on approximately 106 acres. Brimhald (Brighton). Brimhall (Brighton), a new community that began construction in 2003, encompasses approximately 395 acres in the City, including the Brighton Place II Area. Upon completion, Brimhall (Brighton) will encompass approximately 1,038 homes. Forty-eight lots were sold during late 2003. Prices for lots in the first phase of the development have averaged between $75,000 and $110,000. Southern Oaks. Southern Oaks, a development encompassing approximately 67 acres in the City, is located just south of the Seven Oaks development. There are 175 homes sites in Southern Oaks, of which 77 remain to be sold as of December 31, 2003. The average price of the remaining lots is $67,000. C&C California owns additional development property in the City, including Renfro, an 80-acre single family development currently being master planned, approximately 31 acres of property zoned R-2 (for multifamily use) at Ming Avenue and Gosford Road, and approximately 116 acres of freeway right-of--way in the Brimhall development, which is expected to be developed as an expressway through the southwest portion of the City. Other California properties owned by C&C Califomia include the following: • Approximately 2,132 of open space in the City of San Jose, which is expected to be sold for an average pwchase price of $25,000 per acre. • Coyote Creek Golf Course, located approximately 2.5 miles south of the City of San Jose (adjacent to the San Jose property described above). The Coyote Creek Golf Cowse, formerly knotivn as Riverside Golf Cowse, consists of two 18-hole daily fee cowses designed by Jack Nicklaus, as well as a 12,000 squaze foot clubhouse (constructed with the fast of the two existing cowses in 1999). • Mountaingate, amaster-planned community located in Los Angeles County adjacent to the Mountaingate Country Club. A final map is expected to be recorded and construction is expected to be commenced for this development by December 2004. Mountaingate is planned to include 29 lots that are expected to sell at a price of approximately $1,600,000 each. C&C California, or an affiliate of C&C Califomia, also owns and is developing land in Hawaii, Arizona, Georgia, North Carolina, and Florida. 21 Fairway Oaks South The information under this subheading has been provided by Fairway Oaks South and has not been verged for accuracy or completeness by the City or the Underwriter, and the City and the Underwriter shall have no liability in respect thereof. Fairway Oaks South, LP, is a California Innited partnership formed in July 2, 2003. The sole general ' partner of Fairway Oaks South is McDDivitt Development, lnc., a California oorporarion {"McDivitt"), the sole shazeholders of which are Don Judkins and his wife, Maxine Judkins, each acting in the capacity as Co-Trustee Under Trust Agreement dated January 3, 1985. The shareholders of McDivitt have been developing single family residential subdivisions and building and ' selling single family residences in the Bakersfield area continuously for approximately 28 years, including 158 ' homes in 2003, and have never failed to successfully complete a project. McDivitt is also the sole general partner of Hampton Place LP, a California limited partnership ("Hampton Place LP"). In addition, the shazeholders of ' McDivitt previously owned and operated All Kern Financial Corp., a mortgage banking company, from 1979 until its sale in 1988 and, in late 1998, started another mortgage banking company called Centennial Corp. Hampton Place LP's development, called Hampton Place, is located approximately 4.5 miles from the Fairway Oaks South Area and encompasses approximately 154 single-family residential lots to be built in four phases. Three of the four phases of Hampton Place are complete and homes aze under construction in the fourth phase. In addition, the shareholders of McDivitt, through another entity, recently completed the Fairway Oaks project, a 238-unit single-family residential development located proximate to the Fairway Oaks South Area. Fairway Oaks South was formed to develop the Fairway Oaks South Area only. All of the homes in the portion of the Fairway Oaks South Project currently being developed will be constrncted by Bfltmore Properties, a California corporation doing business as Burlington Homes. Burlington Hornes, a licensed general contractor, is owned by Donavan Judkins, Don and Maxine Judkin's oldest son. Fahway Oaks South does not currently intend to sell lots in the Fairway Oaks South Area to merchant builders. Fairway Oaks South plans to develop the property in the Fairway Oaks South Area for sale to individual homeowners. As a condition to recordation of the final tract map for a project, the City requires that the property owner deliver either bonds or letters of credit to secure the owner's obligation to complete and maintain the subdivision improvements. Jn connection with the recordation of the tract map for Tmct 6079 Unit One, Fairway Oaks South obtained and delivered to the City letters of credit from TriCounties Bank. Accordingly, the Fairway Oaks South Area is currently encumbered by a deed of trust in favor of TriCounfies Bank securing Fairway Oaks South's indemnity obligation related to such letters of credit. Since the letters of credit have not been drawn, there is currently no outstanding indebtedness secured by such deed of trust. Development and Financing Plans The current development plans of C&C California and Fairway Oaks South for the development of the property within the Assessment District are subject to change. Furthermore, the current development plans envisioned for the Assessment District are subject, in large part, to the financial resources and construction and marketing capabilities and efforts of C&C California, Fairway Oaks South, and the merchant builders and other persons to whom the parcels within the Assessment District may be sold. There can be no assurance that such development will occur as described herein, or that it will occur at all. The information under this section has been provided by C&C California or Fairway Oaks South, as applicable, and has not been verified for accuracy or completeness by the City and the City shall have no liability in respect thereof. The C&C California Development Plan C&C California is the developer of dte Seven Oaks West ID Area and the Brighton Place II Area. C&C California plans to develop these Community Areas as follows: 2z Seven Oaks Wesz III Area The Seven Oaks West III Area encompasses approximatey 225.5 acres and has been approved for subdivision into 503 R-1 lots as follows: 29 lots in Tract 6086, 951ots in Tract 6087, 49 lots in Tract 6150, 471ots in Tract 6151, 42 in Tract 6199, and 241 lots in Tract 6223. C&C California plans to develop the property in the Seven Oaks West III Area into developable R-1 lots for sale to merchant builders and/or individuals for construction of single-family residential units. Development in the Seven Oaks West BI Area will also include one commercial use pazcel, comprised of Lot 30 in Tract 6086 ("Tract 6086, Lot 30"). Tract 6086, Lot 30 of the Seven Oaks West >II Area is zoned for commercial uses and is expected to be sold and/or subdivided for commercial purposes. A tentative parcel map has been approved by the City with respect to Tract 6086, Lot 30. Tract 6199 (42 Lots), Phase B of Tract 6087 (8 Lots), and a portion of Tract 6086 (29 Lots) of the Seven Oaks West III Area, also collectively referred to as the "Lexington Development," are being developed in three phases (one phase per tract). The lots are expected to average 10,800 square feet each. Construction in the phases will also include certain required off-site improvements. Prices of the lots in the Lexington Development are expected to begin at $100,000. C&C California estimates that approximately SO lots will be sold each year. As of June 1, 2004, no lots have been sold. Tract 6150 Units 1 and 2 (49 Lots) and Phase A of Tract 6087 {25 Lots) of the Seven Oaks West III Area, also collectively refened to as the "Regency Development," are being developed in three phases {two phases in Tract 6150 and one phase in Tract 6087}. The lots are expected to average 13,540 square feet each Construction in the phases will also include certain required off-site improvements. Prices of the lots in the Regency Development are expected to begin at $180,000 for lots on the golf course and $110,000 for lots off the golf course. C&C i California estimates that approximately 471ots will be sold each year. As of June 1, 2004, 25 lots have been sold to merchant builders and/or individuals. Tract 6151 Units 1 and 2 {47 Lots) of the Seven Oaks West III Area, also referred to as the "Showcase Development," is being developed in two phases. The lots are expected to average 20,250 square feet each. Construction will also include certain required off-site improvements. Prices of the lots in the Showcase Development are expected to begin at $350,000 on the golf course and $175,000 off the golf course. C&C California estimates that approximately 15 lots will be sold each yeaz. As of June 1, 2004, no lots have been sold. Tract 6087 Phase C (27 Lots) and Phase D (35 Lots} of the Seven Oaks West III Area, also referred to as the "Wedgewood Development," is being developed in two phases. The lots are expected to average 8,125 square feet each. Construction in the phases will also include certain required off-site improvements. Prices of the lots in the Wedgewood Development aze expected to begin at $130,000 on the golf course and $85,000 off the golf course. C&C California estimates that approximately 20 lots will be sold each yeaz. As of June 1, 2004, 24 lots have been sold to merchant builders and/or individuals. Tract 6223 (241 Lots} of the Seven Oaks West III Area, also refened to as the "Windemere Development," is being developed in seven phases. The first phase will comprise 29 R-1 lots, the second phase will comprise 40 R- 1 lots, the third phase will comprise 37 R-1 lots, the fourth phase will comprise 34 R-1 lots, the fifth phase will comprise 24 R-I lots, the sixth phase will comprise 39 R-I lots, and the seventh phase will comprise 33 R-1 lots. The lots are expected to average 4,375 square feet each. Construction in several of the phases will also include ', certain required off-site improvements. Prices of the homes in the Windemere Development are expected to begin at $190,000. C&C California estimates that approximately 60 homes will be sold each year. As of June I, 2004, no lots have been sold. Brighton Place II Area. The Brighton Place II Area encompasses approximately 55.0 acres and has been approved for subdivision into 176 R-1 lots in Tract 6185. C&C California plans to develop the property in the Brighton Place II Area into developable R-1 lots for sale to merchant builders and/or individuals for construction of single-family residential units. Development in the Brighton Place II Area will also include one common area lot to be used for recreation, and one parcel that is to be split later into one water recharge basin and a future freeway right-of--way parcel. 23 Tract 6185 of the Brighton Place II Area is being developed in eight phases. The first phase will comprise five R-1 lots, the second phase will comprise 26 R-1 lots, the third phase will comprise 23 R-1 lots, the fourth phase will comprise 31 R-1 lots, the fifth phase will comprise 28 R-1 lots, the sixth phase will comprise 23 R-1 lots, the seventh phase will comprise 24 R-1 lots, and the eighth phase will comprise 15 R-1 lots. The lots are expected to average 5,000 square feet each. Construcfion in the fnst phase will also include certain required off-site improvements. Prices of the homes in Tract 6185 are expected to begin at $300,000. C&C California estimates that approximately 48 homes will be sold each yeaz. As of June 1, 2004, no lots have been sold. ' The Fairway Oaks South Development Plan Fairway Oaks South is the developer of the Fairway Oaks South Area. Fairway Oaks South plans to develop the Fairway Oaks South Area as follows: ', The Fairway Oaks South Area encompasses approximately 30.5 acres and has been approved for subdivision into 54 R-1 lots and one super lot (planned for future subdivision into 60 R-I lots). Fairway Oaks South plans to develop the property in the Fairway Oaks South Area for sale to individual homeowners. The development in the Fairway Oaks South Area is herein referred to as the "Fairway Oaks South Project " The approved 59 R-1 lots in Tract 6079 Unit One are being developed in one phase. The lots aze expected to average 7,000 square feet each. Construction in Tract 6079 Unit One will also include certain required off-site improvements. Homes in the Fairway Oaks South Project are expected to range in size between 1,407 and 2,760 squaze feet and range in price between $190,000 and 300,000. In addition, Fairway Oaks South owns one super lot in the Assessment District, which it plans to subdivide in the future into 60 R-1 lots pursuant to Tentative Tract No. 6079. Sates of Property in Assessment District Since the recordmg of the notice of assessment for the Assessment District, no lots in the Fairway Oaks South Area have been sold to merchant builders or individuals, and Fairway Oaks South does not presently intend to sell any lots in the Fairway Oaks South Area to merchant builders. Since the recording of the notice of assessment for the Assessment District, lots in Tract 6087 of the Seven Oaks West III Area have been sold to several merchant builders and individuals. The following table details the sales of lots in the Seven Oaks West III Area as of June 1, 2004: [Remainder of Page Intentionally Lefr Blank] 24 C&C California Sales of Assessment District Property to Merchant Builders and Individuals ', As of June 1, 2004 Merchant Builder Traet No. Lot Nos . Owner or lndividnal ~~ 6087 - Phase A 1, 4 Phillip L. Gaskill, Inc. Merchant Builder 6087 - Phase A 2, 11, 12, 18 Brian Rice Construction, ffic. Merchant Builder 6087 - Phase A 3, 5, S, 20, 21 , 22, 25 Sweaney Constmction, Inc. Merchant Builder - ~ 6087 - Phase A 6, 7 Gibbons & Wheelan, Inc. Merchant Builder 6087 - Phase A 9, 13, 19 R.R.B., In.c. Merchant Builder 6087 - Phase A 10, 14, I5, 16,17, 23, 24 Froehlich Construction Co., htc. 'Merchant Builder 6087 - Phase D 1 R.R.B., Inc. Merchant Builder 6087 - Phase D 2 Gredall Davis Individual 6087 - Phase D 4 Brandt Homes, Ino. Merchant Builder ' 6087 - Phase D 5 Jerry Richards Individual I 6087 - Phase D 6 W SBG Homes Merchant Builder ~. 6087 - Phase D 8 Edward Armistead Individual 6087 - Phase D 17 Janis Adelhelm Individual ~. 6087 - Phase D 18, 21 Gerald Congdon Industries Merchant Builder '. 6087 - Phase D 19 James A. Rowe Individual ', 6087 - Phase D 20 W. Tracey Chance Individual 6087 - Phase D 22 Jeffrey Bamhazd Individual 6087 - Phase D 23 Williams Development, Inc. Merchant Builder 6087 - Phase D 24 Matthew Jeffries Individual - 6087 - Phase D 25 James Moloney Individual 6087 - Phase D 26 Jane Cormier Individual 6087 - Phase D 27 Lynn D. Wffey Individual 6087 - Phase D 28 Dave Turner Individual 6087 - Phase D 29 Cherif Guixguis ffidividual 6087 - Phase D 30 Delfino Land Co., Inc. Merchant Builder 6087 - Phase D 31 Michael Rinehart Individual 6087 - Phase D 32 Donatd Worth Individual '~. 60S7-PhaseD 33 Fred Worth Individual 6087 - Phase D 34 Gregory Hall Individual ~. Source: C&C California. As of June 1, 2004, no single merchant builder owns property in the Assessment District that in the aggregate bears greater than five percent (5%) of the total assessment lien imposed within the Assessment District. The C&C California Financing Plan In December 2003, C&C California entered into an amended and restated credit agreement (the "Credit Agreement") with a syndicate of banks (the "Credit Banks"). All Improvements in the Assessment Distriot not financed with proceeds from the sale of the Bonds will be financed with moneys derived from the Credit Agreement. Pursuant to the Credit Agreement, the Credit Banks agreed to provide athree-year secured term loan of $125 million and athree-yeaz secured revolving line of credit of up to $250 million, based on a percentage of the value of certain commercial properties, land holdings, and homebuilding inventory, and subject to certain limitations. Repayment obligations under the Credit Agreement are subject to interest at a variable rate based on the London Interbank Offered Rate ("LIBOR"), or at an alternate rate based upon a designated Credit Bank's prime rate or the federal funds rate. The Credit Agreement contains customary covenants, including, but not limited to, limitations on investments, sale of assets, limitation on other debt, financial covenants related to tangible net worth, leverage, interest coverage, and inventory levels. As of December 31, 2003, the amount available under the Credit Agreement was $250 million, with an additional $TO million available for general corporate purposes. 2i C&C California's estimated construction budgets for the Seven Oaks West III Area and the Brighton Place II Area are set forth below: Seven Oaks West III Area Estimated Construction Budget Land Offsite Improvements (Net of Reimbursements from Bond Proceeds) Onsite and Indirect Improvements Capitalized Home Costs Total Expenditures Incurred as of June 1, 2004 Brighton Place II Area Estimated Construction Budget Land Offsite Improvements (Net of Reimbursements from Bond Proceeds) Onsite and Induect Improvements Capitalized home Costs Total Expenditures Incurred as of June f, 2004 The Fairway Oaks South Fiaaucirtg Plan $ 1,493,633 2,016,823 11,197,177 44.359.321 $59,566,954 $5,756,695 $ 325,207 0 2,238,605 20,115.215 $22,679,027 $2,293,783 As its general partners have done with other development projects in the past, Fairway Oaks South intends to fund the construction of all non-Bond fmanced off-site improvements and all of the homes out of its existing cash and projected cash flow, and thereby avoid incurring any liens against the properties in the Fairway Oaks South Area. At the time of recordation of the final map for the Fairway Oaks South Project (except for the super lot), Fairway Oaks South entered into approximately $1,425,814 in aggregate amount of business loan agreements with TriCoanties Bank, in order to provide the performance and maintenance bonds for the first phase of development, the non-Bond financed phase two improvements, and landscaping and maintenance improvements, all as required by the City in connection with the development of the Fairway Oaks South Area. Fairway Oaks South's estimated construction budget for the Fairway Oaks South Area is set forth below: Fairway Oaks South Area Estimated Constrncfiou Budget Land $ 408,000 Planning 180,000 hrfrastructure Improvements (Onsite and Offsite) 1,161,726 Home Conshvetion (59 Approved Lots in Tract 6079 Unit One Only) 7 670 000 Total $9,419,726 Expenditures Incurred as of June 1, 2004 $1,193,713 Assessment Roll Set forth in APPENDIX E is the assessment roll, including Sulk Value (as defined herein) to assessment lien ratio information, for the parcels of property within the Assessment District that aze subject to the lien of the assessments. The assessment roll shows the amount of the total estimated cost of the proposed Improvement acquisition, construction and incidental cost that is assessed upon each of the lots and parcels within the Assessment District based upon the alternate method and rate of assessment permitted under Section 13.08.070 of the Municipal Code of the City. See "TFiB ASSESSMENT DISTRICT AND THE IMPROVEMENTS -Method of Assessment Spread" above. The assessment numbers that appear on the assessment roll correspond to the assessment numbers shown on the assessment diagram, attached hereto as APPENDIX D. 26 Utilities For the Seven Oaks West III Area, alt utilities, including gas, water, electricity, sewer, storm drains, and telephone service are or will be installed in the meets within the Community Area and will connect to existing facilities in the surrounding streets. Natural gas service is provided by Pacific Gas and Electric Company ("PG&E"); water, sewer, and storm sewers are provided by the City; electricity service is provided by PG&E; and telephone service is provided by SBC. . ~ For the Brighton Place II Area, all utilities,trtcluding gas, water, electricity, and telephone services, are in place. Natural gas service is provided by Southern California Gas Company; water, sewer, and storm sewers are provided by the City; electricity service is provided by PG&E; and telephone service is provided by SBC. For the Fairway Oaks South Area, electricity, water, and gas utility services aze located north of the Burlington-Santa Fe Rail Lute ("Burlington-Santa Fe") north of Pacheco Road. Fairway Oaks South has acquired an agreement from Burlington-Santa Fe to allow the routing of these utilities under the railroad tracks to connect to the parcels in the Fairway Oaks South. Area. Sewer connections for the parcels in the Fairway Oaks South Area will tie in to the existing irnuk line in Harris Road and Fairway Oaks South intends to extend such trunk line to Mountain Vista Drive and then to the paroels in the Fairway Oaks South Area. Fairway Oaks South has represented that access to all such utilities facilities will be available to each parcel within the Fairway Oaks South Area upon construction of the planned homes thereon. See "T'f~ ASSESSMENT DISTRICT AND THE IMPROVEMENTS -Description of the Community Areas and the Improvements" and "SPECIAL RISK FACTORS -Factors Which May Affect Land Development." Flood and Earthquake Zones According to maps prepared by the Federal Emergency Management Agency Federal Insurance Adtninistration, the Community Areas aze situated in Zone B (Brighton Place fl Area) or Zone C (Seven Oaks West III Area and Fairway Oaks South) flood azeas. "Zone B" denotes an area protected from the 1% chance of annual flooding by levee, dike, or other structures subject to possible failure or overtopping during larger floods, and "Zone C" denotes an area of minimal flooding. No flood insurance is required for property in Zone B or Zone C flood areas, and no flood insurance has been obtained for any property within the Assessment District. According to Special Publication #42 of the Califomia Division of Mines and Geology, Revised Edition, 1994, entitled "Fault-Rupture Hazazd Zones in California," the Assessment District is not located rtithin any Special Studies Zone, as defined in the Alquist-Priolo Special Studies Zone Act. Zoning According to the Planning Department of the City, approximately ten {10} acres of assessment number 1 is zoned C-2. The C-2 zoning designation allows development for commercial uses and precludes any uses typically allowed under any ft (i.e., residential) designations. The remainder of the pazcels in the Assessment District are zoned R-1. An R-1 zoning designation allows single-family residential land uses, with a minimum lot size of 6,000 squaze feet for each dwelling unit (referred to herein as "R-1 lots"). Tax Delinquencies The City reports that, based upon the records of the office of the Kern County Tax Collector, Utere aze no delinquent taxes or penalties owed against the pazcels in the Assessment District. C&C California and Fairway Oaks South have each reported that it has never been late on making assessment payments in other assessment districts, defaulted on any bond issue, or lost any property to foreclosure as a result of not paying assessments. 27 Environmental Review Pursuant to the Charter and Municipal Code of the City, the formation of an assessment district is exempt from compliance urith the California Environmental Quality Act ("CEQA"}. Accordingly, a Notice of Exemption from CEQA was filed by the City with the Kem County Clerk for the Assessment District proceedings on February I 3, 2004. The City reports that separate environmental review proceedings will be conducted for the improvement projects proposed to be financed by the District as part of the CEQA compliance associated with the land use entitlement and subdivision approval process within each Community Area. Bulk Value-to-Assessment Lien Ratio ', An Appraisal of the property within each of the three Community Areas in the Assessment District that is subject to the lien of Ure assessments has been prepared for the City by the Appraiser. The Appraisal, subject to the various limitations and assumptions set forth therein, provides an estimate of the as-is market value (designated in the Appraisal as the "Bulk Value of Recorded Lots or Land" and defined herein as the "Bulk Value"} of each parcel of property within the Assessment District. Because final maps have been recorded for all parcels in the Assessment District (other than the super lotttt the Fairway Oaks South Area), the Appraiser determined Bulk Value by discounting the Aggregate Finished Lot Value When Complete (as defined below} of each parcel based on the portion of the Completion Costs (as defined below) not yet incurred by C&C California or Fairway Oaks South, as applicable. The "Aggregate Finished Lot Value When Complete" is described in the Appraisal as the value of each pazcel assuming the completion of the Improvements and taking into account the value added by existing improvements, a recorded subdivision map, and the "Completion Costs," which are defined herein as the costs associated with the developer-funded improvements necessary to develop such parcel as a finished lot available for improving with new housing units. The Completion Costs were presumed by the Appraiser to include drect and indirect costs for each lot, taxes during construction, costs associated with school bonds and other applicable direct and overlapping debt, profits, commissions, administrative and miscellaneous expenses, and the thne value of money. See "APPENDIX B -Appraisal. For a discussion of liens encumbering the Assessment District property other than the assessments, see "Duect and Overlapping Debt" below and "THE BONDS -Priority of Lien" herein. Based on the Appraisal, the ratio of the aggregate Bulk Value of the Assessment District property to the aggregate assessment lien is 7.06:1. The following table sets forth the Bulk Value of the Assessment District property and the applicable Bulls Value-to-assessment lien. ratios. [Remainder of Page Intentionally Left Blank] 28 APPRAISED VALUES AND BULK VALUE-TO-ASSESSMENT LIEN RATIOS CITY OF BAKERSFIELD ASSESSMENT DISTRICT N0.03-3 (SEVEN OAKS WEST III/BRIGHTON PL ACE IUFAIIiWAY OAKS SOUTH) BWk Value-to- '~ Net Assessment Assessment Lieo Assessment No. Property (Tmerltl Acres zJ Bolk Value Lim(31 Rafio Seveu Oaks West III Ara: I (Tract 6086. Lot 30 - oumrnerdal ]otj C&C California 10.04 $ 2,017,693 00 $ 260,693.03 7.74 SubtotalsTmet 6086-Commemisl _... 10.04 2,017,693.00 260,693.05 7.74 _ 2-30 (Tract 6086-xeaidendW lots) C&C Califomie 11.33 1,789,OODAO 295,956.78 b.OA 62-69 (Tract 6087, Phase B -residential lots) C&C Califorva 2.72 506,000.00 81,643.26 6.20 23i-276 (Tract 6199-xesidmdat lots} C&C California 17.00 2,386,000.00 428,627.08 5.57 Subtotals Essington Development-Residential 31.05 4,b81,000.OD 806,22712 581 36-60 (Tract 6087,Phase A-resWmtiat loss} C&C California 10.83 2,358,QOO.OD 295,006.45 7.99 135-159 (Tract 6150, Unit 1-residmfiai lots) C&C California 11.46 2,357,000.00 295,Q06.45 7.99 ~. 161-184 (Tract 6150, Umt2-residential lots} C&C Cali£omia 11.34 2,130,400.00 283,205.83 7.52 Subtotals Regency Devetopmmt-Ree;dential 33.63 6,845,000.00 873y17.93 784 186-209 (Tract 6151, Umt1-residemiatlota) C&C Ca13forma 13.92 4,034,000.0(1 372,371.34 10.84 211-233(TcaeC 6151, Unit2-residential lots) C&C California 14.16 3,84L000.00 356,79%38 10.77 Snbmmis Showcase Developmeot-Residen0al 28.08 7,875,000.00 729,109.72 10.80 71-97 (Tract 6087, Phase C-residential lots} C&C California 7.96 2,556,000.00 225,019.90 11.36 99-133(Tract 6087, PkaseD-residential lots} C&C California 11.94 3,319,000AO 291,692.47 11.38 Subtotals Wedgewaod Development-Residential 19.9(1 5,815,000.IXI 516,712.37 11.37 279-307 (Tract 6223, Unit 1-residential lots) C&C Califotnia 11 39 1,31Q572.00 238,897.19 5.49 317-356 (Tract 6223, Uvt2-readmdal late) C&C California 12.41 1,807,685.00 324,513.36 5.49 362-398 (Tract 6223, Umt 3 -residual late) C&C Caltfornta 11 70 1,672,109.00 304,799.87 5.49 402-435(Tract 6223, Unit4-residential lots} C&C California 10.54 1,536,533.00 280,086.35 5.49 444-412 (Tract 6223, Unit 3 -residential lots) C&C California 9.28 1,310,572.00 23%,897.19 5.49 478-516 (Tract 6223, Unit 6-residual lots) C&C California 12.09 1,762,493.00 321,275.53 5.49 521-553 (Tram 6223, I1nit7-re9dmeal lots) C&C Califorva 9.05 1,491,341.00 271,848.53 5.49 Submmis Windemere Development-Residential 76.46 $10,891,305-OD $Iy85,319.02 5.49 TomislAverages for Seven OaksWestIII Area 199.16 $38,184,998.IXI $5,171,27&21 7.38 Brighton Place II Area: 557-561 (Tract 6185, Unit i -residual lass) C&C California 2.31 155,023.00 20,743.22 7.47 565-577 & 579-592 (Tract 6185, Unit 2-residential lots) C&C California 5.84 837,125.00 112,013.40 7.47 596.618 (Tract 6183, Unit 3 -residential lots) C&,C California 3,96 713,107.00 95,418.82 7.47 621-651 (Tract 6185, Unit A-residential lots) C&C California 5.18 961,144.00 128,608.00 7.47 653-680 (Tract 6185, UWt5-residmtiW lots) C&C Califonria 4.82 868,130.00 116,162A5 7.47 682-704 (Tract 6185, Unit 6-residual lots) C&C CalSomia 4.OA 713,ID1.00 95,A18.82 7.47 706-729 (Tract 6165, Unit 7 -residential lots) C&C Cakfomia 4.40 744,111.00 94,567,47 7 47 731-745 (Tract 6185, Unit 8 -residual lots} C&C CWifomia 3.30 463,070.00 62,224.67 7.47 TofalslAVereges for Brighton PlaceIIArea 33.85 $ 5,456,817.Ii0 $730,161.45 7.47 Fairway Oaks South Area: 749-799 & 801-808 {T:aa 6D74 Unit One-residential lots) Fairway Oaks South 14.41 2,061,000.00 358,739.99 5.75 809 (Tract 6079 Unitthe-residual sups lot} Fairway Oaks SOUW 13.51 1,102,010.00 364,824.35 3.02 ToblslAveragea far Fairway Oaks South Area 27.92 $ 3,163,070.00 723,560.34 4.37 Assessment Dishict Tamis 260.93 $4(y804,825.00 $6,b25,001F.00 7.06 (1) Since the recording of the notice of assessment for the Assessment District, certain lots is each of the Cotumtmity Areas have been sold to several merchant builders. See "OWNERSHIP AND PLANNED FINANCING AND DEVELOPMENT OF THE ASSESSMENT DISTRICT -Development sad Financing Plans - Sales to Merchant Builders" herein. (2) "Net Acres" represent the acres within the Assessment Disttia being assessed, and do not include off-site streets, storm drain sumps, water well sites, or pazk sites. (3) For a discussiw of liens encumbering the Assessment District property other than the assessments, see `TNrect and Overlapping Debt" below and "THE BONDS - Priority of Lien" herein. Source: Appraisal (provided, however, [hat the Fn_gineer's Repntt served as the source for Net Acres data). T71e assumptions and limitations regarding the appraised valuations are set forth in the Appraisal, a copy of which is attached hereto as APPENDIX B. See APPENDIX E for additional information regarding the appraised value of each assessed parcel and the ratio of such value to the amount of the assessment lien against such parcel. The City makes no representations as to the accuracy or completeness of the Appraisal. Certain considerations relating to the Appraisal are discussed under the heading "SPECIAL RISK FACTORS." 29 NO REPRESENTATIONS ARE MADE REGARDING THE APPRAISED VALUATIONS QUOTED IN APPENDIX E, AND PROSPECTIVE PURCHASERS ARE CAUTIONED NOT TO RELY ON THE VALUATIONS IN DETERMINIl~IG WHETHER OR NOT THE BONDS DESCRIBED HEREIN ARE A SUITABLE INVESTMENT. PROSPECTIVE PURCHASERS OF THE BONDS SHOULD NOT ASSUME THAT THE PROPERTY WITHIN THE ASSESSMENT DISTRICT COULD BE SOLD FOR THE VALUATION AMOUNT AT A FORECLOSURE SALE FOR DELINQUENT ASSESSMENTS. Direet and Overlapping Debt _ The following table (the "Direct and Overlapping Debt Table") details the direct and overlapping debt currently encumbering property within the Assessment District. The Dtrect and Overlapping Debt Table has been derived from data assembled and reported to the City by California Municipal Statistics, Inc., as of May 1, 2004. Neither the City nor the Underwriter has independently verified the information in the Direct and Overlapping Debt ', Table and neither the City nor the Underwriter guarantees its completeness ar accuracy. The Dtrect and Overlapping Debt Table does not include the special tax liens described under the heading "THE BONDS -Priority of Lien" herein. Direct and Overlapping Debt City of Bakersfield Assessment District No. 03-3 (Seven Oaks West IIUBrighton Place IUFairway Oaks Soutk) ', 2003-041.ocal 5ecuredAssessed Valuation: $5,592,632 ~'~, DIRECT AND OVERLAPPING TAX AND ASSESSMENT DEBT: %Applicable Debt 5lI/04 '', Kem ComruuniTy College District School Facilities Improvement District No. 1 0.013% $ 9,775 Kem County Union High School District 0.020 13,007 Rosedale Union School DisMet 0.069 2,722 City of Bakersfield 0.045 1,373 Kem County Water Agency, LD. No. 4 0.011 245 '~, Kem Delta Water District 0.045 1,071 Kem Community College District Assessment District 0.015 1,482 City of Bakersfield Assessment District No. 03-3 100. - (1) TOTAL GROSS DIRECT AND OVERLAPPBG TAX AND ASSESSMENT DEBT $29,675 Less: City of Bakersfield water bonds 1 373 TOTAL NET DBLECT AND OVERLAPPING TAX AND ASSESSMENT DEBT $28,302 OVERLAPPING GENERAL FUND OBLIGATION DEBT Kem County General Fund Obligations 0.013% $ 13,961 Kem County Pension Obligations 0.013 65,083 Kem County Boazd of Education Certificates of Participation 0.013 12,685 Kern Community College District Certificates of Participation 0.012 10,372 Kern County Union High School District General Fund Obligations 0.021 19,824 City of Bakersfield Certificates of Participation 0.445 15.588 TOTAL OVERLAPPING GENERAL FUND OBLIGATION DEBT $137,513 GROSS COMBINED TOTAL DEBT $167,188 (2) NET COMBINED TOTAL DEBT $165,815 (1) Excludes 1915 Act bonds to be sold (2) Excludes tax and revenue anflcipation notes, enterprise revenue, mortgage revenue and tax allocation bonds and non-bonded capital lease obligations. Ratios to 2003-04 Assessed Valuation: Direct Debt .................................................................................................... . °l° ~! Total Gross Direct and Overlapping Tax and Assessment Debt ......................0.53% '. Total Net Direct and Overlapping Tax and Assessment Debt .......................... 0.51% Gross Combined Total Debt ............................................................................2.99% Net Combined Total Debt ................................................................................2.96% STATE SCHOOL BUILDING AID REPAYABLE AS OF 6130/03: $0 Source: California Municipal Statistics, Inc. 30 SPECIAL RISK FACTORS General Under the provisions of the 1915 Act, assessment installments, from which funds for the payment of annual installments of principal and interest with respect to the Bonds are derived, will be billed to properties against which there are unpaid assessments on the regular property tax bills sent to owners of such properties. Such assessment installments aze due and payable, and bear the same penalties and interest for non-payment, as do regular pmperty tax installments. Therefore, the unwillingness or inability of a property owner to pay regular property tax bills as evidenced by property tax delinquencies will likely indicate an unwillingness or inability to make regular property tax payments and assessment installment payments in the future. In order to pay debt service on the Bonds, it is necessary that unpaid installments of assessments on land within the Assessment District are paid in a timely manner. Should the installments not be paid on time, the City has established a Special Reserve Fund in the initial amount of $549,060, which will thereafter be maintained, from assessment installment payments and fmm proceeds of redemption or sale of parcels with assessment delinquencies, in the amount of the Reserve Requirement, to cover delinquencies in the payment of assessments. The assessments are secuued by a lien on the parcels of land and the City cau institute foreclosure proceedings to sell land in the Assessment District with delinquent installments for the amount of such delinquent installments in order to obtain funds to pay debt service on the Bonds. Failure by owners of the parcels to pay installments of assessments when due, depletion of the Special Reserve Fund, or the inability of the City to sell parcels which have been subject to foreclosure proceedings for amounts sufficient to cover the delinquent installments of assessments levied against such parcels may result in the inability of the City to make full or punctual payments of debt service on the Bonds, and Bondowners would therefore be adversely affected. The Bonds are nut secured by the general taxing power of the City, the County, the State, or any other political subdivision of the State, and neither the City, nor the County, nor the State, nor any other political subdivision of the State has pledged its full faith and credit for the payment thereof. Unpaid assessments do not constitute a personal indebtedness of the owners of the lots and parcels within the Assessment District. There is no assurance the owners will be able to pay the assessment installments or that they will pay such installments even though fmancially able to do so. Risks of Real Estate Secured Investments Generally Owners of the Bonds will be subject to the risks generally incident to an investment secured by real estate, including, without limitation, {i) adverse changes in local market conditions, such as changes in the market value of real property in and in the vicinity of the Assessment District, the supply of or demand for competitive properties in such azea, and the market value of residential property or buildings andlor sites in the event of sale or foreclosure; (ii) changes in real estate tax rote and other operating expenses, governmental roles (including, without limitation, zotting laws and laws relating to endangered species and hazardous materials) and fiscal policies; and (iii) natural disasters (including, without limitation, earthquakes and floods), which may result in uninsured losses. Availability of Funds to Pay Delinquent Assessment Installments The City will establish a Special Reserve Fund out. of Bond proceeds in the amount of $549,060, which will thereafter be maintained, from assessment installment payments and from proceeds of redemption or sale of parcels with assessment delinquencies, in the amount of the Reserve Requirement. As discussed herein under the heading "THE BONDS -Special Reserve Fund," if a delinquency occurs in the payment of any assessment installment, the City has a duty to transfer to the Redemption Fund the amount of the delinquency out of the Special Resexe Fund. This duty of the City is continuing during the period of delinquency, until reinstatement, redemption, or sale of the delinquent property. There is no assurance that the balance in the Special Reserve Fund will always be adequate to 31 pay all delinquent installments and if, during the period of delinquency, there are insufficient funds in the Special Reserve Fund to pay all delinquent installments, a delay may occur in payments to the owners of the Bonds. Hazardous Substances Although governmental taxes, assessments, and chazges are a common claim against the value of an assessed pazcel, other less common claims may be relevant. One of the most serious in terms of the potential I reduction in the value that may be realized to pay the unpaid assessments is a claim with regard to hazardous substances. In general, the owners and operators of parcels within the Assessment District may be required by law to remedy conditions of the parcels related to the releases or threatened releases of hazardous substances. The federal Comprehensive Environmental Response, Compensation, and Liability Act of 1980, sometimes referred to as "CERCLA" or the "Superfund Act," is the most well-known and widely applicable of these laws, but Califomia laws with regard to hazardous substances aze also stringent and similar. Under many of these laws, the owner (or operator) is obligated to remedy a hazazdous substances condition of a property whether or not the owner (or ', operator) has anything to do with creating or handling the hazardous substance. The effect, therefore, should any pazcel within the Assessment District be affected by a hazardous substance, would be to reduce the marketability and value of the parcel by the costs of remedying the condition, because the owner (or operator) is obligated to remedy the condition. Further, such liabilities may arise not simply from the existence of a hazardous substance but from the method of handling or disposing of it. All of these possibilities could significantly affect the financial and legal ability of a property owner to develop the affected parcel or other pazcels, as well as the value of the property that is realizable upon a delinquency and foreclosure. The appraised values set forth in the Appraisal do not, unless expressly noted, take into account the possible reduction in marketability and value of any of the parcels by reason of the possible liability of the owner (or operator} for the remedy of a hazardous substance condition of the pazcel C&C California and Fairway Oaks South have each represented to the City that it is not awaze of any current liability with respect to any of its parcels within The Assessment District. Further, it is possible that liabilities may arise in the future with respect to any of the parcels within the Assessment District resulting from the existence, currently, on the parcel of a substance presently classified as hazardous but which has not been released or the release of which is not presently threatened, or may arise in the future resulting from the existence, currently, on the parcel of a substance not presently classified as hazardous but which may in the future be so classified. Such liabilities may arise not simply from the existence of a hazardous substance but from the method of handling or disposing of it. All of these possibilities could significantly affect the value of an assessed parcel that is realizable upon a delinquency of an unpaid assessment. See "OWNERSHIP AND PLANNED FINANCING AND DEVELOPMENT OF THE ASSESSMENT DISTRICT -Environmental Review." Endangered and Threatened Species No threatened or endangered species (or their respective habitats) have been identified in any of the Community Areas. If; however, any threatened or endangered species (or their respective habitats) were to be discovered on a parcel within the Assessment District prior to or during development, the ability of the then-current landowner to develop the affected parcel could be severely limited. In such an event, the then-current landowner's willingness or ability to pay assessment installments could be adversely affected. The property within the Assessment District is subject to the Metropolitan Bakersfield Habitat Conservation Plan ("MBHCP"j, a joint program of the City and the County that was undertaken to assist urban development applcants in complying with State and federal endangered species laws. Under the MBHCP, each development applicant pays to rite County a mitigation fee for grading or building permits that funds the purchase and maintenance of habitat land to compensate for the effects of urban development on endangered species habitat. The lands acquired for the MBHCP program are generally located outside the metropolitan Bakersfield area. In exchange for the MBHCP mitigation fee, the applicant is relieved of the obligation of demonstrating compliance with the endangered species laws by preparing biological reports, securing compensation lands, and undertaking other measures to avoid impacts to the species. 32 Factors Which May Affect Land Development There is no assurance that the amount to be financed by the assessments will be sufficient to pay for the entire cost of the Improvements. C&C Califomia and Fairway Oaks South will each be obligated to pay all of its costs in excess of the amount financed by the assessments. See "TAE ASSESSMENT DISTRICT AND THE IMPROVEMENTS -Description of the Community Areas and the Improvements." ~ Future development in Ute Assessment District may be affected by changes in the general economic ~~ conditions, fluctuations in the real estate mazket, and other factors. 1n addition, development may be subject to future federal, state, and local regulations. Approval may be required from vazious agencies from time to time in connection with the layout and design of any proposed development in the Assessment District, the nature and ' extent of public improvements, land use, zoning, and other matters. Although no such delays are anticipated, failure to meet any such future regulations ar obtain any such approvals in a timely manner could delay or adversely affect an ro ose de el y p p d v opment in the Assessment District. The development of property within the Assessment District ' could be adversely affected if lawsuits or other actions were commenced to restrict or prevent further development within the Assessment District. Private Improvements; Increased Debt The development of the properly within the Assessment District depends upon both public and private improvement of land within the Assessment District. The cost of additional private improvements within the Assessment District, together with public improvements financed with any additional property secured financing, will increase the public and private debt for which the land within the Assessment District is the security. Any additional public improvements for which the property owners or their properties might be obligated could reduce the ability or willingness of the property owners within the Assessment District to pay the annual assessment ~ instalhents levied against their property. See "SPECIAL RISK -Priority of Lien." In addition to the assessments being levied to finance the construction and acquisition of the hnproventents, the City intends to include as a part of such levy an annual assessment upon each pazcel of ]and in the Assessment District to cover all administrative costs of the City with respect to the Assessment District. These additional administrative assessment amounts could reduce the ability or willingness of the property owners within the Assessment District to pay the annual assessment installments levied against their property. Subordinate Debt; Payments by FDIC and other Federal Agencies C&C California has reported that all of the property owned by C&C California within the Assessment District currently serves as security for its obligations under the Credit Ageement, and Fairway Oaks South has reported that all of the property owned by Fairway Oaks South within the Assessment District currently serves as security for the letters of credit from TriCounties Bank securing Fairway Oaks South's obligation to complete and maintain the subdivision improvements. All or portions of the Assessment District property may in the future secure additional loans of the owners thereof. Any such loans, including the Credit Agreement, are subordinate to the lien of the assessments. However, in the event that any of the financial instihrtions making any loan that is secured by real property within the Assessment District is taken over by the Federal Deposit Insurance Corporation ("FDIC") or if a lien is imposed on the property by the Drug Enforcement Agency, the Internal Revenue Service, or other similar federal governmental agency, and, prior thereto or thereafter, the loan or loans go into defauh, the ability of the City to collect interest and penalties specified by state law and to foreclose the lien of a delinquent unpaid assessment may be limited. Specifically, with respect to the FDIC, an June 4, 1991, the FDIC issued a Statement of Policy Regazding the Payment of State and Local Property Taxes (the "1991 Policy Statement"). The 1991 Policy Statement was revised and superseded by new Policy Statement effective January 9, 1997 (the "Policy Statement"). The Policy Statement provides that real property owned by the FDIC is subject to state and local real property taxes only if those taxes are assessed according to the property's value, and that the FDIC is immune from real property taxes assessed on any basis other than property value. According to the Policy Statement, the FDIC will pay its property tax oblgatons when they become due and payable and will pay claims for delinquent property taxes as promptly as is consistent with sound business practice and the orderly administration of the institution's affavs, unless 33 I abandonment of the FDIC's interest in the property is appropriate. The FDIC will pay claims for interest on delinquent property taxes owed at the rate provided under state law, to the extent the interest payment obligation is secured by a valid lien. The FDIC will not pay any amounts in the nature of fines or penalties and will not pay nor recognize liens for such amounts. If any property taxes (including interest) on FDIC owned property are secured by a valid lien (in effect before the property became owned by the FDIC), the FDIC will pay those claims. The Policy Statement further provides that no property of the FDIC is subject to levy, attachment, garnishment, foreclosure or sale without the FDIC's consent. In addition, the FDLC will not permit a lien or security interest held by the FDIC to be eliminated by foreclosure without the FDIC's consent. The Policy Statement is unclear as to whether the FDIC considers assessments such as those levied by the City to be "real properly taxes" which they intend to pay. However, the Policy Statement states that the FDIC I generally will not pay non-ad valorem taxes, including special assessments, on property in which it has a fee interest ', unless the amount of tax is fixed at the time that the FDIC acquires its fee interest in the property, nor will it recognize the validity of any lien to the extent it purports to secure the payment of any such amounts. T7te City is unable to predict what effect the application of the Policy Statement would have in the event of a delinquency on a parcel within the Assessment District in which the FDIC has or obtains an interest, although prohibiting the lien of the FDIC to be foreclosed at a judicial foreclosure sale would reduce or eliminate the persons willing to purchase a parcel at a foreclosure sale. Owners of the Bonds should assume that the City will be unable to foreclose on any parcel owned by the FDIC. Such an outcome could cause a draw on the Special Reserve Fund and perhaps, ultimately, a default in payment on the Bonds. Based on the secured tax roll as of Apri13Q 2004, the FDIC does not presently own any property within the Assessment District. The City expresses no view concerning the likelihood that the risks described above will materialize while the Bonds aze outstanding. Property Values Reference is made to APPENDIX B, which contains excerpts from the Appraisal summarizing the Appraiser's opinion with respect to the value of the property that is subject to the lien of the assessments and the assumptions made by the Appraiser in connection therewith. Reference is also made to "OWNERSHIP AND PLANNED FINANCING AND DEVELOPMENT OF THE ASSESSMENT DISTRICT -Bulk Value-to- Assessment Lien Ratio" for a summary of the value of the property within each of the three respective Community Areas in the Assessment District that is subject to the lien of the assessments and the ratio of the appraised value of such property to the total amount of the assessment liens on such property that secure the Bonds. See also APPENDIX E for a fisting of the ratio of the appraised value of each assessed parcel to the amount of the assessment lien against such parcel. No assurance can be given that this appraised value to lien ratio will not decline should subsequent liens be placed on property within the Assessment District. Further, there is no assurance that in the event of a foreclosure sale for a delinquent assessment installment, any bid will be received for any such property within the Assessment District or that any bid received or resale price will be sufficient to pay such delinquent installhents (plus costs and penalties). The 1415 Act provides that a pazcel be sold for the delinquent installment(s) amount (plus costs and penalties) and not the entire outstanding assessment. The Appraiser has made various assumptions, which may vary from the assumptions made by other parties (including C&C California and Fairway Oaks South), in order to derive the aggregate valuation estimate of the property within the Assessment District to be assessed. For example, the Appraiser has assumed a rate of absorption ', of the residenfial units being constrncted in the Assessment District that is greater than the rate assumed by C&C California or Fairway Oaks South, as applicable, as described elsewhere in this Official Statement. See APPENDIX B far an explanation of methodology and a statement of contingent and limiting conditions and assumptions used by the Appraiser to derive the aggregate value of the properly. Although these contingent and limiting conditions and assumptions were considered reasonable by the Appraiser based on information available to the Appraiser, neither the Appraiser nor the City can give any assurance that any parcel will he developed in accordance with the uses that the Appraiser has projected 34 Concentration of Ownership C&C California owned approximately 86.51% of the assessed property in the Assessment District prior to the recording of the notice of assessment, which property was subject to approximately 86.41% of the assessment lien. Fairway Oaks South owned approximately 10.70% of the assessed property in the Assessment Disfrict prior to the recording of the notice of assessment, which property was subject to approximately 10.92°to of the assessment lien. As of June 1, 2004, approximately 7.28% of the assessed property in the Assessment District was owned by merchant builders or individuals. Although C&C California has sold approximately 49 lots within the Assessment District and has indicated its intention to sell additional lots to merchant builders, there can be no assurance that it will be successful in so doing. Thus, there is no assurance of any degree of diversification of ownership of the assessed properly. Also, unless and until such ownership is further diversified, the inabIlity or refusal of C&C California or Fairway Oaks South to pay is respective assessment installments when due could result in the rapid total depletion of the Special Reserve Fund prior to reimbursement thereof from foreclosure proceedings. Under such circumstances, there would be insufficient moneys with which to pay principal of and/or interest on the Bonds. Failure of any future property owners to pay installments of assessments when due could also result in a default in payment of the principal of and interest on the Bonds prior to the resales of foreclosed property or delinquency redemptions. In that event, there could be a default in payments of the principal of and interest on the Bonds. Tax Delinquencies Assessment installments, from which funds necessary for the payment of annual installments of principal of and interest on the Bonds aze to be derived, will be billed to each property against which there is an unpaid assessment on the regular property tax bills sent to the owner of such property. Such installments aze due and payable, and bear the same penalties and interest for non-pa}nneut, as do regulaz~ property tax installments. Under certain circumstances, assessment installment payments on parcels of property in Kern County can be made separately from regular property tax payments for such parcels. Property tax payments will not be accepted, however, unless the assessment installments for such pazcels have also been paid Therefore, the unwillingness or inabilty of a property owner to pay regular property tax bills, as evidenced by property tax delinquencies, will likely indicate an unwillingness or inability to make regular property tax payments and assessment installment payments in the future. A failure of groperiy owners to pay installments of assessments when due could result in a default in payments of the principal of and interest on the Bonds. The Ciiy reports that, based upon the records of the office of the Kern County Tax Collector, none of the pazcels in the respective Community Areas within the Assessment District slows delinquencies in the payment of fiscat year 2000-O1, 2001-02, 2002-03, or 2003-04 property tax installments. Limited Obligation of the City Upon Delinquency If a delinquency occurs in the payment of any assessment installment, the City has a duty only to transfer into the Redemption Fund the amount of ttte delinquency out of the Special Reserve Fund and to undertake, under certain circumstances, judicial foreclosure proceedings to recover such delinquencies. This duty of the City is continuing during the period of delinquency, until reinstatement, redemption, or sale of the delinquent property. There is no assurance that funds will be available for this purpose and if, during the period of delinquency, there aze insufficient funds in the Special Reserve Fund, a delay may occur in payments to the owners of the Bonda. If there are additional delinquencies after exhaustion of funds in the Special Reserve Fund, the City is not obligated to transfer into ffie applcable Redemption Fund the amount of such delinquency out of any other available moneys of the City. THE CITY'S LEGAL RESPONSIBILITIES WITH RESPECT TO SUCH DELINQUENT INSTALLMEN'T'S ARE LIMITED TO ADVANCING THE AMOUNT TFLEREOF SOLELY FROM ANY AVALLABLE MONEYS IN THE SPECIAL RESERVE FUND AND TO UNDERTt3KING, UNDER CERTAIN 35 CIRCUMSTANCES, JUDICIAL FORECLOSURE PROCEEDINGS TO RECOVER SUCH DELINQUENCIES. THIS DUTY OF THE CITY TO ADVANCE FUNDS IS CONTINITING DURING THE PERIOD OF DELINQUENCY ONLY TO THI EXTENT OF FUNDS AVAILABLE FROM THE SPECIAL RESERVE FUND UNTIL REINSTATEMENT, REDEMPTION, OR SALE OF THE DELINQUENT PROPERTY. IN ACCORDANCE WITH SECTION 8769(b) OF THE 1915 ACT, THE CTI'Y HAS DETERMINED THAT IT WILL NOT ADVANCE FUNDS FROM ITS TREASURY TO CURE ANY DEFICIENCY IN THE REDEMPTION FUND. Bankruptcy and Foreclosure The payment of assessment installments and the ability of the City to foreclose on the lien of a delinquent unpaid assessment, as discussed below in the section entitled "SPECIAL RISK FACTORS -Covenant to Commence Superior Court Foreclosure," may be limited by bankruptcy, insolvency, or other laws generally affecting creditors' rights or by the laws of the State of California relating to judicial foreclosure. The various legal opinions to be delivered concurrently with the delivery of the Bonds will be qualified, as to the enforceability of Ure various legal instruments, by reference to bankruptcy, insolvency, reorganization, anangement, moratorium, and other similaz laws affecting the rights of creditors generally, to the application of equitable principles, to the exercise of judicial discretion in appropriate cases, and to the limitations on legal remedies in the State. On July 30, 1992, the United States Court of Appeals for the Ninth Circuit issued its opinion in a bankruptcy case entitled ha re Glasply Marlne Industries. In that case, the court held that ad valarem property taxes levied by Snohomish County in the State of Washington after the date that the property owner filed a petiton for bankruptcy were not entitled to priority over a secured creditor with a prior lien on the property. The court upheld the priority of unpaid taxes imposed after the filing of the bankruptcy petition as "administrative expenses" of the bankruptcy estate, payable after all secured creditors. As a result, the secured creditor was able to foreclose on the properly and retain all of 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 has sufficient assets 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. Glasply is controlling precedent on bankruptcy courts in the State of California. Pursuant to statute, the lien date for general ad valorem property taxes levied in the State of Califomia is the January 1 preceding the fiscal year for which the taxes are levied. Therefore, under Glasply, a bankruptcy petition filing would prevent the lien for general ad valorem property taxes levied in subsequent fiscal years from attaching so long as the property was a part of the estate in bankruptcy. Under current law, the lien of an assessment, unlike the hen for general ad valorem property taxes, attaches upon recordation of the notice of assessment. The nofice of assessment for the Assessment District assessments was recorded in the Official Records of the County on September 30, 2003. Thus, before applying Glasply to a bankruptcy situation involving assessments rather than general ad valorem property taxes, a court would need to consider the differences in the statutory provisions for creation of the applicable assessment lien. If a court were to apply Glasply to eliminate lire priority as a secured claim of the assessment lien with respect to post petition levies of the assessments as against properly owners within the Assessment District who file for bankruptcy, collections of the assessments from such property owners could be reduced. It should also be noted that on October 22, 1994, Congress enacted 11 U.S.C. Section 362(bM18), which added a new exception to the automatic stay for ad valorem property taxes imposed by a political subdivision after the filing of a bankruptcy petition. Pursuant to this new provision of law, in the event of a bankruptcy petition filed on or after October 22, 1994, the lien for ad valorem taxes in subsequent fiscal years will attach even if the property is part of the baukraptcy estate. Bondowners should be aware that the potential effect of 11 U.S.C. Section 362{b)(18) on the Assessment District assessments depends upon whether a court were to determine that the assessments should be treated like ad valorem taxes for this purpose. 36 Whether or not bankruptcy proceedings were to cause the assessment ]tens to become extinguished, bankruptcy of a property owner in all likelihood would result in a delay in prosecuting superior court foreclosure proceedings. Such a delay would increase the likelihood of a delay or default in payment of the principal of and interest on the Bonds, and the possibility that delinquent assessment installments might not be paid in full. Economic, Political, Social and Environmental Conditions Prospective investors are encouraged to evaluate current and prospective economic, political, social, and environmental conditions as part of an informed investment decision. Changes in economic, political, social, or environmental conditions on a local, state, federal and/or international level may adversely affect investment risk generally. Such changes may also adversely affect the value of property within the Assessment District and/or the willingness or ability of the owners of land within the Assessment District to pay their assessments. Such conditional changes may include (but are not limited to) fluctuations in business production, consumer prices, or ', fmancial markets, unemployment rates, technological advancements, shortages or surpluses in natural resources or energy supplies, changes in law, social unrest, fluctuations in the crime rate, political conflict, acts of waz or terrorism, envrranrnental damage, and natural disasters. Articles XIIIA and XIIIB of the California Constitution On June 6, 1978, California voters approved an amendment to the California Constitution, commonly known as Pro osition 1 e ~ / p 3 (th Jarvts Gann hritiative) which added Article XIIIA to the California Constitution. The effect of Article XIIIA is to limit ad valorem taxes on real property. On November 7, 1978, California voters j approved Proposition 8, which made certain clarifications to Article XIIIA. Article XIIIA of the California Constitution limits the amount of ad valorem taxes on real property to 1% of "full cash value" as determined by the county assessor. Article XIIIA defines "full cash value" 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 afrer the 1975 assessment." The "full cash value" is subject to annual adjustment to reflect increases, not to exceed 2% per year, or decreases in the consumer price index or comparable local data, or to reflect reductions in property value caused by damage, destruction or other factors. Article XIIIA exempts from the 1% tax ihnitafion any taxes to repay indebtedness approved by the voters prior to July 1, 1978, and allows local governments to raise their property tax rates above the constitutionally mandated 1% ceiling for the purpose of paying off certain new general obligation debt issued for the acquisition or improvement of real property and approved by two-thirds of the votes cast by the qualified electorate. Article XIIIA requires a vote of two-thirds of the qualified electorate to impose special taxes on real property, while otherwise generally precluding the imposition of any additional ad valorem, sales or transaction tax on real property. In addition, Article XIIIA requires the approval of two-thirds of all members of the State Legislature to change any State laws resulting in increased tax revenues. Enactment of Article XIIItI has reduced the amount of general property tax revenues received by the City. This reduction in such revenues makes it less likely that the City will have surplus funds, other than the Special Reserve Fund, with which to advance funds to make any payments or to erne any deficiency in the Redemption Fund, should the City, in the exercise ofrts discrefion, choose to do so. If there are additional delinquencies after exhaustion of funds in the Special Reserve Fund, the City has no obligation to transfer into the Redemption Fund the amount of any such delinquencies out of any surplus moneys of the City. On July 2, 1979, the Fifth District Court of Appeal rendered a 3-0 decision in the case of Counri of Fresno v. Malmstrom (94 Cal. App. 3d 1974) that determined that special assessments are not subject to the limitations of Article X1IIA (Proposition 13). The Court held Ute one percent tax limitation imposed by California Constitution Article XILIA on ad vatorem taxes does not apply to special assessments levied pursuant to the Improvement Act of 1911 (Streets and Highways Code, Section 5000 et seq., the relevant portions of which aze incorporated in the 1915 Act) and the 1913 Act. The Court further held drat because special assessments pursuant to such acts aze not within the defuiltion of "special taxes" in Article XIIIA, the Constitution does not require the levy of assessments and the 37 issuance of bonds to be approved by atwo-thirds vote of the qualified electors in an assessment district. On September 12, 1979, the California Supreme Court refused to hear an appeal of the lower court's decision. At the November b, 1979, general election, Proposition 4 {the Gann Initiative} was approved by the voters of California. Such proposition added Article XIIIB to the California Constimtion. i Article XIIID of the Califomia Constitution limits the annual appropriations of the State and of any city, county, school district, authority or other political subdivision of the State to the level of appropriations of the particuiar governmental entity for the prior fiscal yeaz, as adjusted for changes in the cost of living, population and services rendered by the governmental entity. The "base yeaz" for establishing such appropriation limit is the fiscal year 1978-79 and the limit is to be adjusted annually to reflect changes in population, consumer prices and certain ', increases in the cost of services provided by these public agencies. Appropriations subject to Article XIIID generally include the proceeds of taxes levied by the State or other entity of local government, exclusive of certain State subventions, refunds of taxes, benefit payments from retirement, 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 govetmnent from {i) regulatory licenses, user charges, and user fees (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 permitted to be spent, the excess would have to be allocated to fund schools or be returned by revising tax ', rates or fee schedules over the subsequent two years. On December 17, 1980, the Third District Court of Appeal rendered a 3-0 decision in the case Counri of Placer v. Corin {113 Cal. App. 3d 443) that determined that special assessments aze not subject to the limitation of Article XIIIB (Proposition 4}. The Court held that the defmition of "proceeds of taxes" imposed by California Constitution Article XII~ does not apply to special assessments and improvement bonds issued pursuant to the 1915 Act and the 1913 Act. The decision of the Court was not appealed. The enactment of Article XIIIA of the Califonria Constitution {Proposition 13) and subsequent legislative enactments effectively repeal the otherwise mandatory duty on the paR of the City, under the 1915 Act, to levy and collect a special tax {in an amount necessary to meet delinquencies, but not to exceed ten cents on each $100 of assessable property within the City in any one yeaz) if other funds are not available to cover delinquencies. In early 1990, the U.S. Supreme Court stmek down as a violation of equal protection certain property tax assessment practices in West Virginia, which had resulted in vastly different assessments of similar properties. Since Article XBIA provides that property may only be reassessed up to 2°l°, per year, except upon change of ownership or new conshuctlon, recent purchasers may pay substantially higher property taxes than long-time owners of comparable property in a community. The Supreme Court in the West Virginia case expressly declined to comment in any way on the constitutionality of Article XIIIA. Based on this decision, however, property owners in California brought three suits challenging the acquisition value assessment provisions of Article XIQA. Two cases involve residential property and one case involves commercial property. In all three cases, State trial and appellate courts have upheld the constitutionality of Article XIIIA's assessment Hiles and concluded that the West Virginia case did not apply to California's laws. On June 3, 1991, the U.S. Supreme Court agreed to hear the appeal in the challenge relating to commercial property, but the plaintiff subsequently decided to drop the case. On Octoher 7, 1991, the U.S. Supreme Court granted the plaintiff s petition for a writ of certiorari and agreed to hear the Nardlinger v. Lvnch case. On June 18, 1992, the U.S. Supreme Court afiimred the Nordlinger decision (112 U.S. 2326) of the California Court of Appeal, Second Appellate District, which previously held that Article XIiIA does not violate the U.S. Constitution. The City cannot predict whether any other pending or future challenges to the State's present system of property tax assessment will be successful, when the ultimate resolution of any challenge will occur, or the ultimate 38 effect any decision regarding the State's present system of property tax assessment will have on the City's revenues or on the State's financial obligations to local governments. Articles XIIIC and XIIID of the California Constitution Proposition 218, a state ballot initiative known as the "Right to Vote on Taxes Act," was approved by California voters on November 5, 1496. Proposition 218 added Articles XIIIC and XIIID to the State Constitution, and, with the exception of certain provisions, Articles XIIIC and XIIID became effective on November 6, 1996. Article X11ID, entitled "Assessment and Property Related Fee Reform," contains several new provisions making it generally more difficult for local agencies to levy and maintain "assessments" for municipal services and programs. Article X11ID requires that, beginning July 1, 1997, the proceedings for the levy of any assessment by the City under the 1913 Act (including, if applicable, any increase in such assessment or any supplemental assessment under the 1913 Act} must be conducted in conformity with the provisions of Section 4 of Article XI(m. "Assessment" is defined to mean any levy or chazge upon real property for a special benefit conferred upon the real property. Article XIIID additionally provides that in levying "assessments" a local govetvment must separate the "general benefits" from the "special benefits" conferred on a parcel and may not impose on any parcel an assessment which exceeds the "reasonable cost of the proportional special benefit conferred on that parcel." Article XIIIII also contains various notice requirements and a public hearing requirement and prohibits the imposition of an assessment ff ballots submitted by property owners, weighted according to the proportional financial obligation of the affected property, in opposition to the assessment exceed the ballots submitted in favor of the assessment. The City believes that it has complied with all provisions of Article XIIID applicable to the Assessment District proceedings described herein. All ballots submitted by property owners were in favor of the assessment. Article XIIIC, entitled "Voter Approval for Local Tax Levies," provides, in Section 3 thereof, that the initiative power shall "not be prohibited or otherwise limited in matters reducing or repealing any ... assessment" of the City. Thus, Article XIIIC removes limitations on the initiative power in matters of, among other things, assessments. Consequently, the voters of the City could, by future initiative, repeal, reduce, or prohibit the future imposition or increase of any assessment. "Assessment," is not defined in Article XIIIC and it is not clear whether the definition of that term in Article Xffi~ (which is generally property-related as described above) would be applied to Article XIIIC. No assurance can be given that the voters of the City will not, in the future, approve initiatives that repeal, reduce, or prohibit the future imposition or increase of any assessments. i 1n the case of the unpaid assessments that aze pledged as security for payment of the Bonds, the 1915 Act provides a mandatory, statutory duty of the City and the Kern County Auditor to post installments on account of the ', unpaid assessments to the Kem County property tax roll each yeaz while any of the Bonds are outstanding in aggregate amounts equal to the principal of and interest on the Bonds coming due in the succeeding calendar year. j Although the provisions of Article XIIIC have not been interpreted by the courts, the City believes that the initiative power cannot be used to reduce or repeal the unpaid assessments that are pledged as security for payment of the Bonds or to otherwise interfere with the mandatory, statutory duty of the City and the Kem County Auditor with respect to the unpaid assessments that are pledged as security for payment of the Bonds. The interpretation and application of Proposition 218 will ultimately be determined by the courts with respect to a number of the matters discussed above, and it is not possible at this time to predict with certainty the outcome of such detemrination. Future Initiatives Articles RIBA, XIILB, XIIIC, and X~ of the Constitution were each adopted as measures that qualified for the ballot pursuant to California's initiative process. From time to time other initiative measures could be adopted, which may affect the ability of the City to levy and maintain assessments. 39 Covenant to Commence Superior Court Foreclosure The 1915 Act provides that in the event any assessment or installment thereof or any interest thereon is not paid when due, the City may order the institution of a court action to foreclose the lien of assessment. In such an action, the real property subject to the unpaid assessment may be sold at judicial foreclosure sale. This foreclosure sale procedure is not mandatory. However, in the Bond Resolution, the City has covenanted that, in the event any assessment or installment thereof, including any interest thereon, is not paid when due, the City will, no later. than October 1 in any year, file an acrion in the Superior Court of Kem County to foreclose the lien on each delinquent assessment if (i) the sum of uncured assessment delinquencies for the preceding fiscal year exceeds 5% of the assessment installments posted to the tax roll for that fiscal year and {ii) the amount in the Spacial Reserve Fund is less than the Reserve Requirement. In the event such Superior Court foreclosure or foreclosures are necessary, there may be a delay in payments to the owners of the Bonds, pending prosecution of the foreclosure proceedings and receipt by the City of the proceeds of the foreclosure sale. It is also possible that no bid for the purchase of the applicable property would be received at the foreclosm~e sale. Prior to July 1, 1983, the right of redemption from foreclosure sales was limited to a period of one year from the date of sale. Under legislation effective July 1, 1983, the statutory right of redemption from such foreclosure sales has been repealed. However, a period of 140 days must elapse after a court adjudges and decrees a lien against the lot or parcel of land covered by an assessment or reassessment before the sale of such parcel can be given. Furthermore, if the pwchaser at the sale is the judgment creditor, i. e., the City, an action may be commenced by the delinquent property owner within ninety (90) days after the date of sale to set aside such sale. Price Realized Upon Foreclosure The 1915 Act provides that, under certain circumstances, property may be sold upon foreclosure at less than the Minimum Price or without a Minimum Price upon petition by the City. "Minimum Price" as used in this section is the amount equal to the delinquent installments of principal and interest on the assessment or reassessment, together with all interest, penalties, costs, fees, chazgcs and other amounts more fully detailed in the 1915 Act. The court may authorize a sale at less than the Minimum Price if the court determines, based on the evidence introduced at the required hearing, any of the following: (A} Sale at the lesser Minimum Price or without a Minimum Price will not result in an ultimate loss to the owners of the Bonds. (B) Owners of 75% or more of the outstanding Bonds, by principal amount, have consented to such petition by the City and the sale will not result in an ultimate loss to the non-consenting Bondowners. (C) Owners of 75°l0 or more of the outstanding Bonds, by principal amount, have consented to the petiton and all of the following apply: (1) By reason of determination pursuant to the 1415 Act, the City is not obligated to advance funds to cure a deficiency (the City made such a determination not to be obligated with respect to the Bonds). (2) No bids equal to or greater than the Minimum Price have been received at the foreclosure sale. (3} No funds remain in the Special Reserve Fund (4} The City has reasonably determined that a reassessment and refunding proceeding is not practicable, or has in good faith endeavored to accomplish a reassessment and refunding and has not been successful, or has completed a reassessment and refunding arrangement which will, to the maximum extent feasible, minimize the ultimate loss to the Bondowners. (5) No other remedy acceptable to owners of 75% or more of the outstanding Bonds, by principal amount, is reasonably available. ao The assessment or reassessment lien upon property sold pursuant to this procedure at a lesser price than the Minimum Price shall be reduced by the difference between the Minimum Price and the sale price. In addition, the court shall permit participation by the Bondowners in its consideration of the petition as necessary to its determinations. Implementation of the above-described Minimum Price provision by the court upon foreclosure could result in nonpayment of amounts due to Bondowners who are not in agreement with the 75% of such Bondowners required to approve the sale at less than the Minimum Price. Reference should be made to the 1915 Act for a complete presentation of this provision. Priority of Lien Each assessment (and any reassessment) and each instalhnent thereof, and any interest and penalties thereon, constitutes a lien against the parcel of land on which it was imposed until the same is paid. Such a lien is subordinate to all fixed special assessment liens previously imposed upon the same property, but has priority over all private liens and over all fixed special assessment liens which may thereafter be created against the property. Such a lien is co-equal to and independent of the lien for general property taxes and special taxes, including, without limitation, special taxes created pursuant to the Mello-Roos Act, whenever created against the property. Upon the issuance of the Bonds, none of the property in the Assessment District will be subject to any other special assessment lien created under the 1913 Act. The Seven Oaks West IQ Area is currently subject to an ', existing AD dl-2 assessment; however such assessment will be paid in full upon the issuance of the Bonds from a portion of the proceeds thereof. The property within the Brighton Place B Area is subject to an existing special tax lien created by RNR CFD No. 92-1 pursuant to the Me1lo-Roos Act. The amount of special taxes, if any, to which property within RNR CFD No. 92-1 is subject varies based upon the zoning, the enfidements, and the type and level of development of such property. See "THE BONDS -Priority of Lieu." Refunding Bonds Pursuant to the Refunding Act of 1984 for 1915 Improvement Act Bonds (Division 11.5 of the California Streets and Highways Code), the City may issue refunding bonds for the purpose of redeeming the Bonds. After the making of certain required findings by the City Council, the City may issue and sell refunding bonds without giving notice to and conducting a hearing for the owners of property in the assessment district, or giving notice to the owners of the Bonds. See "THE BONDS -Refunding Bonds." Upon issuing refunding bonds, the City Council could require that the Bonds be exchanged for refunding bonds on any basis which the City Council determines is for the City's benefit, if the Bondowners consent to the exchange. As an alternative to exchanging the refunding bonds fox the Bonds, the City could sell the refunding bonds and use the proceeds to pay the principal of and interest ', and redemption premium, if any, on the Bonds as they become due, or advance the maturity of the Bonds and pay ', the principal of and interest and redemption premium thereon. Absence of Market forBonds No application has been made for a rating for the Bonds, and it is not known whether a rating for the Bonds could be secured either now or in the future. There can be no assurance that there will ever be a secondary mazket for purchase or sale of the Bonds, and from time to time there may be no market for them, depending upon prevailing mazket conditions and the financial condition ar market posifion of firms who may make the secondary market. Loss of Tax Exemption As discussed under the heading "TAX MATTERS," interest on the Bonds could cease to be excluded from gross income for purposes of federal income taxation, retroactive to the date the Bonds were issued, as a result of future acts or omissions of the City. at ENFORCEABILITY OF REMEDIES The remedies available to the Paying Agent, the City, or the owners of the Bonds upon any nonpayment of assessment instalhnents are in many respects dependent upon judicial actions, which are often subject to discretion and delay. Under existing constitutional and statutory law and judicial decisions, including specifically Title 11 of the United States Code (the federal bankruptcy code) and relevant banking and insurance law, the remedies provided in the 1915 Act and the 1913 Act may not be readily available or may be limited. The various legal opinions to be delivered concurrently with the delivery of the Bonds will be qualified as to the enforceability of the various legal instruments by limitations imposed by bankruptcy, reorganization, insolvency, or other similar laws affecting the rights of creditors generally, to the application of equitable principles, to the exercise of judicial discrefion in appropriate cases, and to the limitations on legal remedies in the State of California. ABSENCE OF MATERIAL LITIGATION No litigation is pending contetig the validity of the Bonds or the Bond Resolution, and an opinion of the City Attorney to that effect will be furnished to the purchaser at the time of the original delivery of the Bonds. The City is not aware of any litigation pending or threatened questioning the political existence of the City or contesting the City's ability to pay interest on the Bonds. There are a number of lawsuits and claims pending against the City. In the opinion of the City Attorney, the aggregate amount of liability that the City might incur as a result of adverse decisions in such cases would be covered under the City's insurance policies or self-insurance program. CERTAIN INFORMATION CONCERNING THE C1TY Certain general information concerning the City is included in APPENDIX A hereto. THE GENERAL FUND OF THE CITY IS NOT LIABLE FOR THE PAYMENT OF THE BONDS OR THE INTEREST THEREON, AND THE TAXING POWER OF THE CITY IS NOT PLEDGED FOR THE PAYMENT OF THE BONDS OR THE INTEREST THEREON. TAX MATTERS In the opinion of Orrick, Herrington & Sutcliffe LLP, Bond Counsel, based upon an analysis of existing laws, regulations, rulings, and court decisions, interest on the Bonds is excluded from gross income for federal income tax purposes and is exempt from State of California personal income taxes. Bond Counsel is also of the opinion that interest on the Bonds is not a specific preference item for purposes of the federal individual and corporate alternative minimum taxes, although Bond Counsel observes that such interest is included in adjusted current earnings in calculating federal corporate alternative minimum taxable income. A complete copy of the opinion of Bond counsel is set forth in APPENDIX C hereto. The Internal Revenue Code of 1986 (the "Code") imposes various restrictions, conditions, and requirements relating to the exclusion from gross income for federal income tax purposes of interest on obligations such as the Bonds. The City has covenanted to comply with certain restrictions designed to assure that interest on the Bonds will not be included in federal gross income. Failure to comply with these covenants may result in interest on the Bonds being included in federal gross income, possibly from the date of issuance of the Bonds. The opinion of Bond Counsel assumes compliance with these covenants. Bond Counsel has not undertaken to deternrine (or to inform any person) whether any actions taken (or not taken) or events occurring (or not occurring) after the date of issuance of the Bonds may adversely affect the tax status of the interest on the Bonds. Certain requirements and procedures contained or referred to in the Bond Resolution, the tax certificate to be executed by the City at closing, and other relevant documents may be changed and certain actions (including, without limitation, defeasance of the Bonds) may be taken or omitted under the circumstances and subject to the terms and conditions set forth in such documents. Bond Counsel expresses no opinion as to any Bonds or the interest thereon if any such change occurs or actions aze taken or omitted upon the advice or approval of bond counsel other than Orrick, Herrington & Sutcliffe LLP. However, without 1rmiting the generality of the foregoing, the City has covenanted in the Bond Resolution that, prior to making any change to or taking or omitting to take any action with respect to any of the agreements, requirements, or procedures contained or referred to in the Bond 42 Resolution, the tax certificate, or other relevant documents pertaining to the Bonds, the City will do either of the following: {i) obtain a subsequent opinion of Orrick, Herrington & Sutcliffe LLP that such change, action, or omission will not adversely affect the exclusion from gross income for federal income tax purposes of interest on the Bonds; or {ii) obtain an opinion of alternative nationally recognized bond counsel to the effect originally delivered by Bond Counsel that, notwithstanding such change, action, or omission, interest on the Bonds is excluded from gross income for federal income tax purposes. Although Bond Counsel will render au opinion that interest on the Bonds is excluded from gross income for federal income tax purposes and is exempt from California personal income taxes, the ownership or disposition of, or the accrual or receipt of interest on, the Bonds may otherwise affect a Bondholder's federal tax liability. The nature and extent of these other tax consequences will depend upon the particular tax status of the Bondholder or the Bondholder's other items of income or deduction. Bond Counsel expresses no opinion regarding any such other tax consequences. APPROVAL OF LEGALITY The validity of the Bonds and certain other legal matters aze subject to the approving opinion of Orrick, Herrington & Sutcliffe LLP, Band Counsel. A complete copy of the proposed form of bond counsel opinion is contained in APPENDIX C hereto and is printed on the Bonds. Bond counsel undertakes no responsibility for the ~ accuracy, completeness, or fairness of this Official Statement. Certain matters will be passed upon for the City by !~ the City Attorney of the City of Bakersfield. Certain other matters will be passed upon by Pillsbury Winthrop LLP, ij Los Angeles, California, as disclosure counsel to the City, by Jones & Beardsley, as counsel to C&C California, and by Greg D. Judkins, Esq., as counsel to Fairway Oaks South. UNDERWRITING Pursuant to a Bond Purchase Contract between the City and the Underwriter, the Bonds are being purchased by the Underwriter at a purchase price equal to the principal amount of Bonds being issued less an Underwriter's discount of $77,460. The Bond Purchase Contract provides that the Underwriter will purchase all of the Bonds if any are purchased, the obligation to make such purchase, if made, being subject to certain terms and conditions set forth in the Bond Purchase Contract, the approval of certain legal matters by counsel, and certain other conditions. The Underwriter may offer and sell Bonds to certain dealers and others at a price other than the offering price. The offering price may be changed from time to time by the Underwriter. NO RATING The City has not made and does not contemplate making application to any rating agency for the assignment of a rating to the Bonds. CONTINUING DISCLOSURE The City and C&C Calffornia have each covenanted for the benefit of Bondholders to provide an annual or semi-annual report, as applicable, containing certain financial information and operating data relating to the Assessment District and the property in the Assessment District by not later than nine months after the end of Ute City's fiscal year (i. e., currently not later than April 1 of each year), commencing with the report for the 2003-04 fiscal yeaz, and to provide notices of the occurrence of certain enumerated events, if material. The specific nature of the information to be contained in each annual or semi-annual report, as applicable, or each. notice of material events, if any, is set forth in the respective Continuing Disclosure Certificate, the forms of which are attached hereto as "APPENDIX F -CONTINUING DISCLOSIRE CERTIFICATES." These covenants have been made in order to assist the Underwriter in complying with Securities and Exchange Commission Rule 15c2-12(b}(5), as amended (the "Rule"}. Each of the City and C&C California has represented that it has never failed to comply with any previous undertaking to provide annual or semi-annual reports, as applicable, and notices of material events. 43 Fairway Oaks South, as owner of property in the Assessment District that, when aggregated with all other properly in the Assessment District owned by Fairway Oaks South or its affiliates, is subject to a lien of less than twenty percent (20%) of the annual assessment securing payment of the Bonds, does not have an obligation to provide continuing disclosure information and has not entered into a wntinuing disclosure certificate. MISCELLANEOUS The foregoing summaries or descriptions of provisions of the Bonds, the Bond Resolution, and all references to other materials not purporting to be quoted in full are only brief outlines of some of the provisions thereof and do not purport to summarize or describe all of the provisions thereof, and reference is made to said documents for full and complete statements of their provisions. The appendices hereto are a part of this Official Statement. Any statements in this Official Statement involving matters of opinion, whether or not expressly so stated, are intended as such and not as representations of fact. The Official Statement is not to be constmed as a contract or agreement between the City and the purchasers or owners of any of the Bonds. The execution and delivery of this Official Statement has been duly authorized by the City. CITY OF BAKERSFIELD O gor+ Finance ~~ 44 APPENDIX A CITY OF BAKER5FIELD ECONOMIC, FINANCIAL AND DEMOGRAPHIC INFORMATION General The City is located at the southern end of the San Joaquin Valley, approximately 114 miles north of Los Angeles and 290 miles south of San Francisco. The City includes over 116 square miles of land and an additional 7G square mites of land azea is located within the City's sphere of influence. The City is a regional center for industry, government, transportation, retail trade, medical services, and oil field operations. Major manufacturing activities include iron and steel fabrication, plastic foam products, food products, petroleum refining, and textiles. Bakersfield is one of the leading convention centers of dre state and is the commercial hub of Kern County {the "County"). As the County seat, it is the location of many county, state, and federal offices. The metropolitan area has expanded considerably beyond the City limits. As of January 1, 2004, the estimated population of the County was 724,883 and the estimated population of the City was 279,672, according to the California Deparhnent of Finance and the City's Finance Deparhnent, respectively. The Bakersfield Standard Metropolitan Statistical Area (SMSA) includes all of Kern County, as defined by the State Department of Employment Development. City Government The City was incorporated on January 11, 1898, under the general laws of the State of California (the "State"). The City is a charter city with a counciUmanager form of government. The City Council is comprised of seven council members, elected by ward on a staggered basis for a term of four years. The mayor is directly elected for afour-yeaz term. The council appoints the City Attorney and the City Manager, who also serves as the Executive Director of the Bakersfield Redevelopment Agency (the "Agency"}. There are approximately 1,245 permanent City employees, including 74 persons in management and 150 persons in supervisory positions. Fire protection is provided by 170 Firefighters, manning 13 stations. The police department has 311 Police Officers. Tax Levies and Delinquencies; Assessed Valuation of Taxable Property The Kern County Tax Collector collects ad valorem property tax levies representing taxes levied for each fiscal year on taxable real and personal property which is situated in the County as of the preceding Mazch 1. Unsecured taxes are assessed and payable on Mazch 1 and become delinquent August 31, in the next fiscal year. Accordingly, unsecured taxes are levied at the mte applicable to the fiscal year preceding the one in which they are paid. One half of the secured tax levy is due November 1 and becomes delinquent December 10; the second installment is due Febmary 1 and becomes delinquent April 10. A ten percent penalty is added to any late installment. On June 30, delinquent properties are sold to the State. Property owners may redeem property upon payment of delinquent taxes and penalties. Tax-defaulted properties are subject to a redemption penalty of one and one-half percent (1-112%) of the tax due, chazged from July 1 following the date on which dte property became tax-defaulted to the date of redemption, plus a penalty for every subsequent tax yeaz {i. e., July 1 through June 30) in which the property remains tax-defaulted, at a rate of one and one-half percent {1-1t2%) of the tax due For each such tax year. Properties may be redeemed under an installment plan by paying current taxes, plus 20% of delinquent taxes each yeaz for five yeazs, with interest accruing at one and one-half percent (1-1t2%}per month on the unpaid balance. Li no payments have been made on delinquent taxes at the end of five fiscal yeazs, the property is deeded to the State. Such properties may thereafter be conveyed to the County Tax Collector as provided by law. A-1 The table below summarizes the City's property tax levies, the current amounts delinquent, and total collections for fiscal years 1493-94 through 2002-03. Table A-1 City of Bakersfield Property Tax Levies and Delinquencies {ri Fiscal Years 1993-94 through 2402-03 Fiscal Total Total Tax Percent of Levy Percent of Current Year Tax Lew Collections Collected Taxes Collected 1993-44 $15,835,374 $15,796,355 47.1°l0 99.8% 1994-95 16,349,776 16,239,085 96.7 99.3 1995-96 16,856,805 16,975,278 96.4 100.7 1996-97 17,175,495 17,464,195 97.5 101.7 1997-98 17,289,200 17,430,365 97.4 100.8 1998-99 17,864,445 20,488,683 111.7 114.7 1999-00 18,554,717 19,123,448 99.5 103.1 2000-01 19,093,149 18,199,426 92.9 95.3 2001-02 20,121,528 20,675,415 99.4 102.8 2002-03 21,301,453 23,523,106 107.4 110.4 (1) Excludes redevelopment tax increment revenues. Source: City Comprehensive Affiual Financial Report for Fiscal Year Ended Tune 30, 2003. The table below summarizes the assessed valuations in the City for fiscal years 1993-44 t hrough 2002-03. Table A-2 City of Bakersfield Assessed Value of Taxable Property (Fiscal Years 1993-94 through 2002-03) Percent Total Assessed Increase Fiscal Year Secured Unsecured Utility Value (Decrease) 1993-94 $7,243,647,529 $342,279,574 $13,306,584 $7,594,233,687 4.90% 1994-95 7,662,423,762 342,662,118 14,097,810 8,014,183,640 5.53 1995-96 8,068,506,294 356,616,991 13,232,7$5 8,438,356,070 5.23 1996-97 8,213,247,086 350,499,835 13,971,013 8,577,717,934 1.65 1997-98 8,407,516,746 374,446,012 15,497,196 8,797,459,954 2.56 1998-99 8,628,532,571 453,535,838 17,719,409 9,099,787,818 3.44 1999-00 9,268,459,616 423,862,659 19,424,138 9,711,746,413 6.72 2000-01 9,809,567,800 432,049,903 19,039,560 1Q,260,b57,263 5.65 2001-02 10,111,103,449 462,192,054 18,851,231 10,592,146,734 3.23 2002-03 10,820,926,790 481,183,430 18,614,866 11,320,725,086 6.88 Source: Ciry Comprehensive Annual Financial Report for Fiscal Yeaz Ended June 30, 2003 A-2 The table below shows the assessed valuations of the principal taxpayers in the City as of June 30, 2003. Table A-3 City of Bakersfield Assessed Valuation of Principal Taxpayers (Jane 30, 2003) 2002-03 Assessed Percentage of Total Taxoaver tD Tvne of Business Valuation Assessed Valuation Bakersfield Mall LLC Shopping Center $ 114,341,670 1.01% Castle & Cooke Comm. Inc. Real Estate Development 101,116,491 0.89 Ice Cream Partners, USA Manufacturing 63,866,689 0.56 State Farm Insurance 58,422,309 0.52 Bear Mountain Limited Cogeneration 55,727,020 0.49 Sun Easton Corporation Commerciat 28,721,236 0.25 Wal Mart Stores, Inc. Ratan Sales 24,958,174 0.22 Time Warner Entertainment Cable 24,6$0,726 0.22 Albertsons Inc. Crroceries 24,655,249 0.22 United States Cold Storage of CA Industrial 24,180.07b 0.21 Total taxable assessed value often (10) largest taxpayers $ 520,669,640 4.60 Total taxable assessed value of other taxpayers 10,800,055,446 95_40 Total taxable assessed value of all taxpayers 11.320.725.086 lnn•nn% (I) Related parties g'ouped together on the original source document (County's list of assessed valuations) are included in the total assessed valuation amount for each taxpayer cited. Unitary and operating nonunitary are excluded as valuation by pazcei is no longer available. Source: City Comprehensive Annual Financial Report for Fiscal Year Ended June 30, 2003, citing H DL Coren Bc Cone and Kem County Assessor 2002/03 Combined Tax Rolls. Demographic Statistics The following table sets forth various demographic data regarding the City, including population, estimated median household income, elementary school enrollment, and estimated unemployment rate, from fiscal year 1993- 94through 2002-03. ~ Table A-4 City of Bakersfield Demographic Statisfics (Fiscal Years 1993-94 through 2002-03) Estimated Median Elementary Estimated Household School Unemployment Fiscal Year Population Income Enrollment Rate 1993-94 197,469 $35,885 26,312 13.5% 1994-95 207,472 37,449 26,350 12.8 1495-96 212,715 31,852 26,903 12.4 1996-97 214,554 31,888 27,126 11.4 1997-98 221,689 33,339 27,370 10.9 1998-99 230,771 33,754 27,668 11.0 1999-00 237,222 34,343 27,783 12.5 2000-01 254,368 37,573 28,099 10.4 2001-02 257,914 35,153 28,267 11.2 2002-03 266,784 42,800 28,179 12.0 Sources: City Comprehensive Amtvat Financial Report for Fiscal Yeaz Ended June 30, 2003. A-3 Employment The County's total labor force, the number of persons who work or are available for work, is estimated to be 305,400 for 2003, an increase of 2.11% over the preceding yeaz. The number of employed workers in the labor force is estimated to be 267,900 for the same date. ', The following table sets forth information regarding the si ze of the labor force, employment and unemployment rates for the County, the State, and the United States for th e calendaz years 1998 through 2003. '~ Table A-5 Employment -Averages Calendar Years 1998 - 2003 1998 1999 2000 2001 2002 2003 Kern County Labor Force (OOOs) 277.9 277.9 287.1 292.0 299.1 305.4 Employment (OOOs) 244.2 246.3 254.7 260.9 264.0 267.9 Unemployment Rate 12.1% 11.4% 11.3% 10.6% 11.7% 12.32% State of California Labor Force(OOOs) 16,138.1 16,375.6 16,884.2 17,182.9 17,404.6 17,629.3 Employment(OOOs) 15,180.9 15,522.3 16,048.9 1b,260.1 16,241.8 16,455.4 Unemployment Rate 5.9°l0 5.2% 4.9% 5.4% 6.1% 6.7% i~ United States Labor Force(OOOs} 137,673 (1) 139,368(1) 142,583(1) 143,734 144,863 146,510(1) ', Employment(OOOs) 131,463 (1) 133,488(1) 136,891(1) 136,933 136,485 137,736 Unemployment Rate 4.5% 4.2% 4.0% 4.7% 5.8% 6.0% (1) Not stdctty comparable with data fox prior years. Source: Califorrda Employment Development Department and U.S. Department of Labor Bureau of Labor Statistics. A-4 The following table sets forth the top twenty employers in the City as of July 2003. Table A-6 CTTY OF BAKERSFIELD Principal Employers (As of July 2003) PRODUCT/SERVICE EMPLOYEES -', County of Kem Government 9,400 i Grimmway Enterprises Agriculture 5,000 Giumarra Farms Agriculture 4,000 ~~ Wm. Bolthousa Farms Agriculture 2,400 ~~ Bakersfield Memorial Hospital Hospital 1,350 City of Bakersfield Government 1,275 Aera Energy LLC Oil and Gas Produotion 1,150 '. Mercy Hospitals Hospital 1,100 '. State Farm Insurance ~ Insuranco 1,003 . California State University Bakersfield Education 1,003 ChevronTexaco Oil and Gas Production 1,000 _ Pandol & Sons Agriculture 1,000 San Joaquin Community Hospital Hospital 955 ', ACS Call Center - 800 '. Frito-Lay Inc. Food Production ~ 800 Kaiser Permanents Heaith Care 729 Seazs Logistics Logistics 650 B.A.R.C. Non-Profit 560 Paramount Citrus Association Agriculture 550 Bakersfield College Education 400 i Source: City of Bakersfield. A-5 Building Activity The following table summarizes the City's total annual building perntit valuations since Fiscal Yeaz 1993- 94. I Table A-7 ', CITY OF BAKERSFIELD ', Property Value, Construction, a nd Bank Deposits (1) Fiscal Years 1993-94 through 2002-03 CommereiaL Residential Other Total Construction Construction Construction Constmcflon '. Fiscal Number of Number of Number of Bank Year Units Value Units Value Value Units Value Deposits 1993-94 30 $70,472 1,181 $154,577 $2%,533 1,611 $253,582 - $1,646,679 '.i 1994-95 39 65,891 1,571 150,429 37,167 1,610 253,487 1,563,075 1995-96 50 26,287 1,909 179,127 41,962 1,959 247,376 1,678,075 1996-97 102 42,352 1,332 132,7%5 40,459 1,454 215,596 2,310,008 1997-98 147 49,241 1,983 197,773 67,281 2,130 _ 314,295 2,438,004 1998-99 213 78,199 2,085 223,57b 36,958 2,301 338,733 2,464,202 1999-00 140 51,251 1,890 218,656 34,438 2,030 - 304,245 2,454,280 2000.01 123 38,113 2,012 261,522 48,067 2,135 347,702 2,730,107 2001-02 143 70,874 2,445 311,639 57,983 2,58% 44Q,496 2,865,985 2002-03 141 56,694 2,981 428,534 62,112 3,122 547,340 Not Available Q) Property values and bank deposits aze reported in thousands Sources: City Finance Department. Commercial Activity Consumer spending in calendaz year 2002 resulted in approximately $3,828,193 in taxable sales in the City, which is approxhnately 2.24% above calendar year 2001. The following table sets forth information regazding taxable sales in the City for calendar years 1998 through 2002. Table A-8 CITY OF BAKERSFIELD Taxable Retail Sales 1998 - 2002 (OOOs) 1998 1999 2000 2001 2002 Apparel stores $ 93,522 $ 97,207 $ 109,847 $ 117,059 $ 126,267 General merchandise stores 522,425 564,971 598,519 633,892 667,344 Food stores 148,581 162,505 176,986 181,300 196,060 Eating and drinking places 250,628 266,476 287,815 309,643 330,061 Home furnishings and appliances 102,108 113,435 123,510 126,841 142,019 BuIlding materials and farm implmts. 184,458 217,197 244,146 256,506 286,088 Automobile dealers and auto supplies 531,261 623,868 716,804 845,904 850,364 Service stations 157,046 179,01 l 209,649 187,497 178,716 Other retail stores 318,548 342,586 372.930 384,538 413,285 Total Retail Outlets 2,308,577 2,Sb7,256 2,840,206 3,043,180 3,190,204 All Other Outlets 588.811 629.476 657.574 701.212 637.989 Total All Outlets $2,897,388 $3,196,732 $3,497,780 $3,744,392 $3,828,193 Source: California State Board of Equalization. A-6 There are three major shopping centers in the City. Major department stores with local outlets include Robinsons-May, Macy's, Mervyns, J.C. Penney, and Sears. The retail base includes two Wal-Marts, two Targets, one K-Mart, two Home Depots, a Lowe's Home Improvement Store, and a Costco. The number of sales permits issued and the valuation of taxable transactions for the years 1998 through 2002 is presented in the following table. Table A-9 CITY OF BAKERSFIELD Number of Permits and Valuation of Taxable Transactions 1448-2002 Retail Stores Total All Outlets Year No. of Permits Taxable Transactions No, of Permits Taxable Transactions 1998 2,838 $2,308,577 5,864 $2,897,388 ~ 1999 2,955 2,567,256 5,887 3,196,732 2000 3,163 2,840,206 5,961 3,497,78D 2001 3,422 3,043,180 6,213 3,744,392 2002 3,552 3,190,204 6,359 3,828,193 ~'. Source: State of California, Board of Equalization. Transportation Well-developed surface and air transportation facilities are available to City residents and business fums. Main lines of both the Union Paciftc and the Burlington Northern Santa Fe railroads traverse the area. Amtrak service is available. State Highway 49, the main north-south artery serving the most populous communities along the east side of the Central Valley, runs through the center of the City. State Highway 58 provides east-west linkage between Interstate 5, 20 miles west, and Interstate 15 at Barstow, to the east, Highway 178, heading northeast, is the major route along the Kern River Valley. Highway 65, to the north, provides access to communities east of Highway 99 and to Sequoia National Park. Interurban motor transportation is made available by Orange Belt Stages, Greyhound, and Trailways. Golden Empire Transit provides local bus transportation. Meadows Field (Kern County Airport) adjoins the Cily to the north. Regularly scheduled passenger and air cargo service is available as well as charter service and general aviation services. The main runway is 11,000 feet in length. Utilities Electricity throughout the City is supplied by Pacific Gas and Electric Company. This company, along with Southern California Gas Company, also supplies natural gas. Telephone service is by SBC. Fifteen private water companies serve dre City. Sewer service is provided by the City. Education Public education in the City through the secondary grades is provided by a number of elementary school districts, including the Bakersfield City School District and Kern High School District. There are also a number of private schools, nursery schools, and pre-schools within the City. A-~ The Ciry lies within Kern Community College District, which administers Bakersfield College. This two year institution is located on a 150-acre site in northeast Bakersfield. Vocational and technical courses are offered as well as academic courses designed to equip the student for transfer to a four-year college or university in the third year. Bakersfield College amacts about half the local high school graduating class each year. I California State University, Bakersfield opened in 1970. It is one of the nevvest campuses in the State University system, receiving its university status in 1988. It is on a 375-acre site located in the western portion of ~ the City. Majors offered include anthropology, art, earth sciences, philosophy, mathematics, political science, business and teaching. A graduate program offers the master's degree in a number of fields. j The newest campus in the University of California system , UC Merced, is scheduled to open in 2004. UC Merced will serve the entire San Joaquin Valley, with the mater campus located in the City of Merced and satellite centers located in the City (which satellite center has already opened) and the Cities of Fresno and Modesto. Financial Services Statewide banking systems serving the City include Bank of America, Washington Mutual Bank, Sanwa Bank California, Union Bank, and Wells Fargo Bank. Their services are supplemented by local and regional banks, and various savings and loan associations. Community Facilities The City has six general hospitals with a total bed capacity of 1,075. The City is a primary medical center of a region lazger than some states. Mercy Hospital and Greater Bakersfield Memorial Hospital are among the lazgest employers in the City. Kem Medical Center, administered by the County, is afSliated with UCLA Medical Center of Los Angeles. The daily "Bakersfield Californian" and two weekly newspapers provide regional news coverage. Bakersfield has twenty radio starions, four television stations and three cable TV companies. The City has 47 public parks, covering a total of 395 acres. The Bakersfield Centennial Gazden and Convenfion Center contains a 3,250-seat concert hall, a 9,000-seat azena, four meeting halls, and six conference rooms. Memorial Stadium hosts more National AAU track meets than any other city in the country. County-owned golf courses and five private courses offer year-round golf, and tennis is played throughout the yeaz at the Bakersfield Racquet Club. Cultural advantages of the City include a community theater, the Bakersfield Symphony orchestra, a community concert group, and Cunningham Art Gallery. Bakersfield College and California State University, Bakersfield, sponsor plays, concerts, lectures, and special events throughout the year. A-S APPENDIX B APPRAISAL s-~ APPRAISAL REPORT OF Assessment District 03-3 LOCATED AT: Various Locations in Southwest Bakersfield, California ', Identified as Seven Oaks West III, Brighton Place II and Fairway Oaks South AS OF: April 24, 2004 PREPARED FOR: City of Bakersfield Finance Department 1501 Truxtun Avenue Bakersfield, CA 93301 PREPARED BY: Lauver & Associates, Inc. PO Box 564 Bakersfield, California 93302 (661) 399-0819 Launer & Associates, Inc. Real R'state Appraisal Services PO Box 564 Bakersfield, California 93302 (661) 399-0819 FAX 399-9828 Apri129, 2004 City of Bakersfield Finance Department 1501 Truxtun Avenue Bakersfield, CA 93301 ATTN: Gregory I{limko, Finance Director RE; Assessmeut District 03-3 Seven Oaks West III, Brighton Place II and Fairway Oaks South Bakersfield, California Gentlemen, In accordance with your request, I have inspected the real estate, specific plan documents, and other related data regarding the above real estate, in the incorporated area of the City of Bakersfield, California, as hereinafter described. The inspection was made for the purpose, and as part of the process, of providing value estimates of the subject property, as of Apri124, 2004. The hypothetical sale referred to in the defimition of Market Value, and thus any values in this report are on the basis of all cash to the seller, therefore, no consideration has been given to existing or proposed fmancing. The definition of Market Value as herein used and the property rights appraised are set forth on pages six and eight of this report. The function of this appraisal report is to assist the client in ascertaining their collateral position that is to be secured by the herein-described property. In accordance with our agreement, this appraisal report is a Summary Report (under Standards Rule 2-2, as defined in the Uniform Standards of Professional Appraisal Practice, USPAP) of a Complete Appraisal performed under Standards Rule 1 of the USPAP. As a result of the investigation and based upon the data presented in this report, it is the appraisers fmding that the values applicable to the subject property, as of the date previously mentioned, are as reflected in the Summary of Important Facts and Conclusions on Page 1 of this report. ', All values for the subject properties that were estimated in this report are subject to the liens j imposed by Assessment District 03-3 and school CFD bonded indebtedness (see the Engineer's Report prepared by Wilson & Associates dated April 14, 2004, pages I-4 and I-5 and made a part hereof by reference. It was our finding that the CFD bond payments represent a minor fraction totaling in most cases less than ll10a' of 1% of the monthly sales proceeds in the various assessed areas. Moreover, the payments associated with carrying cost of bonded indebtedness imposed by Assessment District 03-3 are also covered m our estimate of variable indirect expense in the discounted cash flow analyses for each of the areas addressed in this appraisal. The Appraisal, subject to the various limitations and assumptions set forth therein, provides an estimate of the as-is market value (designated in the Appraisal as the "Bulk Value of Recorded ', Lots" and defined herein as the `°Bulk Value") of each parcel of property within.the Assessment District. Because final maps have been recorded for all parcels in the Assessment District, the Appraiser determined Bulk Value by discounting the Aggregate Finished Lot Value When Complete (as defined below} of each parcel based on the portion of the Completion Costs (as defined below} not yet incurred by C&C California, Inc. and Fairway Oaks South, LLC. The "Aggregate Finished Lot Value When Complete" as described in the Appraisal represents the value of each parcel assuming the completion of the Improvements and considers the value added by existing improvements, a recorded subdivision map, and the "Completion Costs," which are defined herein as the costs associated with the developer-funded improvements necessary to develop such parcel as a finished lot available for improving with new housing units. The Completion Costs were presumed by the Appraiser to include direct and indirect costs for each lot, taxes during construction, costs associated with school bonds, profits, commissions, administrative and miscellaneous expenses, and other direct and indirect overlapping debt, discounted to recognize the time value of money. Our research indicates the subject properties have no natural, cultural, recreational or scientific value. The appraiser observed no apparent environmental hazards during the visits to the site. Also, in this regard, please read the Underlying Assumptions and Limiting Conditions, and Certifications sections of this report, both of which are important parts and govern the use and validity of this appraisal report. Based on the studies and investigations conducted, and, after careful consideration of all pertinent factors affecting value, I have formed the conclusion that the `As Is' market values of the subject properties, as defined, as of the effective date of this appraisal, are as shown on Page One (1) of this report. This report is for the exclusive use of the City of Bakersfield, its affiliates, designates and assignees, rating agencies, bond holders and prospective bond holders, and no other parties shall have any right to rely on any service provided by Lauver & Associates, Inc. without prior written consent. The appraiser has granted permission to publish this appraisal in the Official Statement and consented for its use in marketing of the Assessment District 03-3 bonds. Sincerely, Michael Lauver, MAI SRA Certified General Appraiser State of California Certificate No. AG 002049 TABLE OF CONTENTS Title Page Letter of Transmittal Table of Contents DEFIlVITIONS Sununary of Important Facts And Conclusions ........................ ..................................................................................... l Introduction .............................................................................. .....................................................................................3 Use of the Appraisal ................................................................. .....................................................................................3 Function and Objective of the Appraisal .................................. .....................................................................................6 Scope of the Appraisal .............................................................. .....................................................................................7 Property Identification .............................................................. .....................................................................................7 Definition of Market Value ...................................................... .....................................................................................8 Date of Valuation and Statement of Ownership ....................... .......................... .................. $ ......................................... Property rights appraised .......................................................... .....................................................................................9 DESCRIPTIONS General Area Analysis .................................................................................... .............................................................10 City Data ......................................................................................................... .............................................................21 Bakersfield Housing Market ........................................................................... .........._.._.............................................29 Assessed Value and Taxes .............................................................................. .............................................................40 Highest and Best Use ...................................................................................... .............................................................40 SEVEN OAKS WEST III AREA Neighborhood Description ......................................................... ..................................................................................48 Site Descriptions ........................................................................ ..................................................................................52 Proposed Development .............................................................. ..................................................................................57 Valuation Methodology ............................................................. ..................................................................................59 Valuation .................................................................................. ..................................................................................63 Land Improvements ...........:....................................................... ..................................................................................72 Market Value at Completion ..................................................... ..................................................................................74 Reconciliation of Values ........................................................... ..................................................................................90 Commercial Land ..................................................................... ..................................................................................93 BRIGHTON PLACE H AREA Neighborhood Analysis .................................................................................. ...........................................................102 Site Descriptions ............................................................................................. ...........................................................108 Valuation ...................................................................................................... .. .........113 .................................................. Market Value at Completion .......................................................................... ...........................................................118 Income Approach ........................................................................................... ...........................................................118 Reconciliation of Values ................................................................................ ...........................................................121 Certifications .................................................................................................. ...........................................................128 Consolidated Worksheet FAH2WAY OAKS SOUTH AREA Neighborhood Analysis .............................................................................................................................................123 Site Descriptions ........................................................................................................................................................127 Valuation ...................................................................................................................................................................13 5 Unimproved Land Sates ............................................................................................................................................137 Value at Completion ....................... Income Approach ........................... Reconciliation of Values ................ Certifications .................................. Consolidated Worksheet ADDENDA Assumptions & Limiting Conditions Qualifications of Michael Launer MAI, SRA Discounted Cash Flow Analyses Property Photographs ..................142 ..................146 ..................147 ..................149 (THIS PAGE INTENTIONALLY LEFT BLANK) Lanner & Associates Assessment District 03-3 SUMIVIARY OF IMPORTANT FACTS AND CONCLUSIONS Name/Identification Assessment District 03-3 - Various Locations in the Southwest Quadrant of Bakersfield, Califomia Owners of Record: Castle & Cooke California, Inc. and Fairway Oaks South, LP. Other owners as identified in the addenda section of this report I3iEhest & Best IIse Develop with single-family residential Effective Date of Appraisal Apri124, 2004 Client City of Bakersfield Finance Department Gregory Klimko, Finance Director Appraiser Michael Launer, MAI SRA CGREA No. AG002049 1 Lauver & Associates Assessment District 03-3 Value Opinions -Assessment District 03-3 Values P Bulk Value of Assessment Value to ASSMT NO Description Recorded Lots Lien Lien Ratio 1 Portion Tract 6086 C'ml Lot 2,017,643 260,693.05 7.74 Subtotals Tract 6086 -Commercial 2,017,693 260,693.05 7.74 2-30 Tract 6086 1,789,000 295,956.78 6.04 62-69 Tract 6087 Phase B 506,000 81,643.26 6.20 235-276 Tract 6199 2,386,000 428,627.08 5.57 Subtotals Lexington Area -Residential 4,681,000 806,227.12 5.81 36-60 Tract 6087 Phase A 2,358,000 295,006.05 7.99 135-159 Tract 6150 Unit 1 2,357,000 295,006.05 7.99 161-184 Tract 6150 Unit2 2,130,000 283,205.83 7.52 Subtotals Regency Development Area 6,845,000 873,217.93 7.84 186-209 Tract 6151 Unit 1 4,034,000 372,311.34 10.84 211-233 Tract 6151 Unit 2 3,841,000 356,798.38 10.77 Subtotals Showcase Development Area 7,875,000 729,109.72 10.80 71-97 Tract 6087 Phase C 2,556,000 225,019.90 11.36 99-133 Tract b087 Phase D 3,319,000 291,692.47 11.38 Subtotals Wedgewood Development Area 5,875,000 516,712.37 11.37 279-307 Tract 6223 Unit 1 1,310,572 238,897.19 5.49 317-356 Tract 6223 Unit 2 1,807,6$5 329,513.36 5.49 362-398 Tract 6223 Unit 3 1,672,109 304,799.87 5.49 402-435 Tract 6223 Unit 4 1,536,533 280,086.35 5.49 444-472 Tract 6223 Unit 5 1,310,572 238,897.19 5.49 478-516 Tract 6223 Unit 6 1,762,493 321,275.53 5.49 521-553 Tract 6223 Unit 7 1,491,341 271,848.53 5.49 Subtotals Windemere Development Area 10,891,305 1,485,318.02 5.49 Subtotals(Averages for Seven Oaks West III Area 3$,184,998 5,171,278.21 7.38 557-561 Tract b185 Unit 1 155,023 20,743.22 7.47 565-577& 574-592 Tract 6185 Unit 2 837,125 112,013.40 7.47 596-618 Tract 6185 Unit 3 713,107 95,418.82 7.47 621-651 Tract 6185 Unit 4 961,144 128,608.00 7.47 653-680 Tract 6185 Unit 5 868,130 116,162.05 7.47 682-704 Tract 6185 Unit 6 713,107 95,418.82 7.47 706-729 Tract 6185 Unit 7 744,111 99,567.47 7.47 731-745 Tract 6185 Unit 8 465,070 62,229.67 7.47 TotalslAverages for Brighton Place II Area 5,456,817 730,161.45 7.47 749-799 & 801-808 Tract 6079 Unit One 2,061,000 358,739.99 5.75 809 Tract 6079 Unit One Super Pac 1,102,010 364,820.35 3.02 Totals/Averages for Fairway Oaks South Area 3,163,010 723,560.34 4.37 ASSESSMENT DISTRICT TOTALS 46,804,825 6,625,000.00 7.06 2 File 3533 Lauver & Associates Assessment District 03-3 INTRODUCTION PURPOSE OF THE APPRAISAL The purpose of this report is to estimate the "As Is" market values of the various properties identified and described herein, as part of Assessment District 03-3. The "As Is" values represent the "Bulk", or discounted value of the recorded lots as of the effective date of this report. The bulk value of the recorded lots and land recognize the value of the improvements fmanced by the assessment district funds. A consolidated worksheet summarizing the various values developed in this report is presented in the Addenda Section. Assessment District 03-3 is in the Southwest quadrant of Bakersfield and consists of distinct development areas, further described below. A map depicting their location is presented on the following page. The following descriptions of the various areas were taken from the Engineer's report prepared by Wilson & Associates; Fresno, California dated February 26, 2004. Assessment District 03-3 was formed for the purpose of providmg financing for the offsite improvements and infrastructure as described. Seven Oaks West Ili Area I The Seven Oaks West III Area boundaries encompass an approximately 225.5-acre block of land ~ that is planned for subdivision into a combined total of 503 R-i lots, 1 commercial use parcel, 2 park site lots, and 2 storm drain sump lots pursuant to Tract 60$6, Tract 6087, Tract 6150, Tract 6151, Tract 6199, and Tract 6223. One of the District Proponents (Castle & Cooke California, Inc.) is the subdivider of Tract 6086, Tract 6087, Tract 6150, Tract 6151, Tract 6199, and Tract 6223. Accordingly, all of the Improvement Acquisitions for the Seven Oaks West III Area are improvements related to the development of those subdivisions and are generally described as improvements in and along White Lane, Allen Road, and Chamber Boulevard that are required to be constructed, or are expected by this District Proponent to be required to be constructed, as conditions of approval for those subdivisions. The general location and extent of the planned Improvement Acquisitions in White Lane include completion of the westbound half of the street (north half of the street) plus one east-bound center traffic lane from Windermere Street to Allen Road, along the frontage of TR 6223, to its full design width, complete with excavation, paving, 3 Lauver & Associates Assessment District 03-3 curb, gutter, sidewalk, street lights, utility trench, corner sign monuments and subdivision block wall, 16-inch diameter waterline with fire hydrants, 2-inch diameter irrigation service and appurtenances and median deposits for both sides of the street. The general location and extent of 'I the planned Improvement Acquisitions in Allen Road from Chamber Boulevard to White Lane, along the frontage of TR 6223, include completion of the northbound half of the street (east half of the street) to its full design width, complete with excavation, paving, curb, gutter, sidewalk, street lights, utility trench, subdivision block wall, 16-inch diameter waterline with fire hydrants, 2-inch diameter irrigation service and appurtenances, and median deposits for both sides of the street. The general location and extent of the planned Improvement Acquisitions in Chamber Boulevard from the west boundary of existing Tract No. 6045 westerly to Allen Road include completion of the entire street (both sides) to its full design width, complete with excavation, j paving, curb, gutter, sidewalk, median curb, street lights, utility trench, corner sign monuments and subdivision block wall, 24- and 18-inch diameter storm drain pipelines with manholes, catch basins and appurtenances, and 12- and 8-inch diameter waterline with fire hydrants and appurtenances. The general location and extent of the planned Improvement Acquisitions on the south side of Chamber Boulevard from Windermere Street to the west boundary of Tract No. 6045 include construction of subdivision block wall and corner sign monuments. Also included in the scope of the Seven Oaks West III Area Improvement Acquisitions are this District Proponent's incidental costs for design engineering, construction staking, soils and materials analysis and testing, plan check and inspection fees, improvement bonds, and bid documents. Brighton Place R Area The Brighton Place II Area boundaries encompass an approximately 55.0-acre block of land that ! is planned for subdivision into a combined total of 176 R-1 lots, 1 common area {recreation) lot, ', and 1 water recharge basinJfuture freeway right-of--way parcel pursuant to Tract 6185. One of the ', District Proponents {Castle & Cooke California, Inc.} is the subdivider of Tract 6185. Accordingly, all of the Improvement Acquisitions for the Brighton Place II Area are improvements related to the development of that subdivision and are generally described as improvements in Jewetta Avenue and various City development fees that are required to be constructed, and/or paid, or are expected by this District Proponent to be required to be ', constructed and/or paid, as conditions of approval for that subdivision. The general location and 4 File 3533 Lauver & Associates Assessment -istrict 03-3 extent of the planned Improvement Acquisitions for Jewetta Avenue include the construction of a traffic signal at the intersection of Milverton Way and Jewetta Avenue. The planned City development fees funded as a part of the Improvement Acquisitions for the Brighton Place II Area include the Water Availability Fee and Regional Transportation Impact Fee for TR 6185 ', (as defined and required by the City). Also included in the scope of the Brighton Place II Area Improvement Acquisitions are this District Proponent's incidental costs for design engineering, ', construction staking, soils and materials analysis and testing, plan check and inspection fees, improvement bonds, and construction inspection fees. Fairwav Oaks South Area The Fairway Oaks South Area boundaries encompass an approximately 30.5-acre block of land ', that is planned for subdivision into a total of 59 R-1 lots, 1 "Super" lot (planned for future subdivision into 60 R-1 lots pursuant to Tract 6079), and 1 storm drain sump lot pursuant to Tract 6079. One of the District Proponents (Fairway Oaks South, LP) is the subdivider of Tract 6079. Accordingly, all of the Improvement Acquisitions for the Fairway Oaks South Area are improvements related to the development of that subdivision and arc generally described as improvements in and along Old River Road, and in-traction-site sewer and storm drain improvements that are required to be constructed, or are expected by this District Proponent to be required to be constructed, as conditions of approval for that subdivision. The general location and extent of the planned Improvement Acquisitions for the Old River Road street improvements include completion of the southbound half of the street (west half of the street) to its full design width, along the frontages of Tract 6079 Units 1 and 2 (from the Southern Pacific Railroad right- of-way on the north to the future Snowdon Avenue in TR 6079-1 on the south}, complete with excavation, paving, curb, gutter, sidewalk, median curb, and streetlights. The general location !, and extent of the planned Improvement Acquisitions for the Old River Road water system ~I~ improvements include completion of the waterline from the end of the existing waterline located approximately 700 feet north of the Southern Pacific Railroad right-of--way southerly to future Snowdon Avenue, including 12-inch diameter waterline, fire hydrants, irrigation services, approximately 100 feet of bore under the railroad right-or-way, and appurtenances. The general location and extent of the planned in-traction-site sewer Improvement Acquisitions in Tract 6079 includes construction of the in-traction-site sewer system for Txaet 6079, complete with 10- and 5 Lauver & Associates Assessment District 03-3 8-inch diameter sewer line from Mountain Vista Drive easterly to Old River Road (from west to east boundaries of Tract 6079), in future Lerwick Avenue, Cobblestone Avenue, and Snowdon Avenue, complete with manholes and clean outs. The general location and extent of the planned in-traction-site storm drain Improvement Acquisitions in the Fairway Oaks South Area include construction of the in-traction-site storm drain system, complete with 36-, 30-, 24-, and 18-inch diameter pipelines with manholes and catch basins, and a complete storm drain sump with all required excavation, outlet structures, catch basnrs, block wall, and gates, all located within the boundaries of TR 6079-1. Also included in the scope of the Fairway Oaks South Area Improvement Acquisitions are this District Proponent's incidental costs for design engineering. Final maps for all tracts in this report were recorded prior to the valuation date (except super pad}. FUNCTION AND OBJECTIVE OF THE APPRAISAL It is the function of this report to provide the client with market value estimates to aid in the decision-making process regarding the issuance of bonds for the proposed improvements to the property as described in this report. Assessment District 03-3 bonds will fmance the acquisition of offsite subdivision improvements and related incidental costs, where those improvements are either already required or are expected to be required by the City of Bakersfield to be installed as conditions of final subdivision or site plan approvals. It is the objective of this report to provide `As Is' and prospective values of the herein described properties as of Apri124, 2004. INTENDED USE OF THE APPRAISAL It is anticipated that the users of this report will utilize the values presented in this report to estimate alien-to-value relationship of the various described parcels or lots. This appraisal was prepared for the sole and exclusive use of the City of Bakersfield (The CLIENT). The CLIENT is authorized to publish the contents of this report for bond disclosure and marketing. 6 File 3533 Launer & Associates Assessment District 03-3 SCOPE OF THE APPRAISAL The scope of this appraisal assignment involved standard elements of the valuation process, ', including definition of the problem, data collection, highest and best use analyses and implementation of the appropriate valuation approaches. Theory and application of each valuation approach utilized are discussed in their respective sections. Major research emphasis was placed upon the approach or approaches deemed most pertinent to the property under appraisal. Limitations to and assumptions of this appraisal are set forth near the end of this report, although redundancy occurs throughout the report body as needed for clarification. The market was researched for unimproved land sales with residential use potential that were considered similar or provided a reasonable alternative for a prospective purchaser/developer. PROPERTY IDENTIFICATION The subject properties are idenflfied as follows: Assessment District 03-3 ATN Description Aereage EDU Portion of 523-012-02 Commercial Lot 10.04 60 ~ Portion of 523-012-02 Tract 6086 11.33 29 Portion of 523-012-02 Tract 6087 Phases A-D 33.45 95 Portion of 523-012-02 Tract 6199 17.00 42 Portion of 523-012-OS Tract 6150 Units 1& 2 22.80 49 I Portion of 523-012-OS Tract 6151 Units 1 & 2 28.08 47 I Portion of 523-012-02 & 04 Tract 6223 Units 1-7 76.46 241 Portion of 500-450-01 Tract 6185 Units 1-8 33.85 176 Portion of 497-010-13 Tract 6079 Unit One 27.92 119 I 260.93 858 7 Lauver & Associates Assessment District 03-3 DEFIPIITION OF MARKET VALUE The defmition of market value, as herein used, is as follows: "The most probable price which a property should bring in a competitive and open market under all conditions requisite to a fair sate, the buyer and seller, each acting prudently, knowledgeably and assuming the price is not affected by undue stimulus. Implicit in this defmition is the consummation of a sale as of a specified date and the passing of title from seller to buyer under conditions whereby: A, Buyer and seller are typically motivated; B. Both parties are well informed or well advised, and each acting in what he considers his own best interest. C. A reasonable time is allowed for exposure in the open market. D. Payment is made in cash in US. Dollars or in terms of financial arrangements comparable thereto. E. The price represents the normal consideration for the property sold unaffected by special or creative financing or sales concessions granted by anyone associated with the sale."` DATE OF VALUATION The effective date of this appraisal, the date as of which the valuation applies, is April 24, 2004. STATEMENT OF OWNERSHIP To the best of my knowledge, title is currently vested in Castle & Cooke Califomia, Inc., a California corporation, Fairway Oaks South, LP, and other owners as identified in the addenda section of this report. Title X[ Fn2RPA 32, 42 (f7. 8 File 3533 Launer & Ass©ciates Assessment District 03-3 PROPERTY RIGHTS APPRAISED The property rights appraised are the fee simple estates in the subject properties, modified or subject to the following: 1. The fmal values reported are on the basis of discounted and non-discounted market value; 2. The final values reported are on an "all cash" basis; 3. The value is exclusive of any furnishings, mineral rights, and subject to restrictions, reservations, easements and limitations of record, including existing Community Facilities District bonded indebtedness and liens that may apply as a result of the formation of this proposed assessment district. A Fee Simple estate is: "Absolute awnership unencumbered by any other interest or estate; subject only to the limitations of eminent domain, escheat, police power and taxation".' The DiMionary of Real Estate Anoraisal. American Institute of Real Estate Appraisers, Chicago, II,. 1986, pg. 123. 9 Lauver & Associates Assessment District 03-3 GENERAL AREA ANALYSIS Location and Size The subject property described in this report is located in Kern County. Kern County is located in the southern central portion of California, at the southern end of the San Joaquin Valley. The Kern County Economic Development Department has provided a graphic representation of the county's location within the state as shown below: K E R N C O U N T Y ~~ _. ..-E~p.~ ~ tl4 i+ ~e C [aNu ~+ ~~' t f `~ . ~ \ :, 1 1 f ~ 1 vE~es t~ a~` In size, Kern County is third largest among the State's 58 counties, with an aggregate 8,064 square miles (5,160,960 acres). Included in the county's area are 11 incorporated cities and 32 unincorporated communities. 10 File 3533 Launer & Associates Assessment District 03-3 Topography, Weather & Recreation The County is divided into three distinct geographic and climatic zones. About one-third of it, including the area surrounding Bakersfield is located within the valley floor. The Mojave Desert covers another one-third and the remaining one-third is classed as mountainous. Bakersfield is situated near the geographic center of the valley floor, surrounded by the Temblor Mountain Range on the West, the Tehachapi Mountains on the South and the Sierra Nevada Mountains on the East. The topographical diversity creates large climactic variations within relatively short distances. In general, the area is characterized by a semi-arid, mild climate with warm. dry days during the summer, with high temperatures ranging from 100-115 degrees. Winters are cool, with low ', temperatures ranging from 20 to 25 degrees and fog is common during the months from January through March. The following are statistical averages for the area: Mean Temperature, V alley Floor 64.9 degrees Annual Rainfall, Valley Floor 5.72 inches Annual Rainfall, Mountain Areas 10 to 40 inches On the valley floor rainfall is light, occurring mostly between December and March. Annual precipitation, even in the high ranges, is not heavy. However, run-off from the vast amount of mountains provides a large proportion of the water and hydro-electrical power needs of the county. Furthermore, the Lake Isabella Dam project, administered by the U. S. Army Corps of Engineers, and the California State Water Project have greatly augmented water supplies. ', There are a wide variety of recreational facilities available to the public in Kern County, including mountains, parks, golf courses, lakes, and backpacking and riding trails. These ~~ resources provide many forms of recreation including hunting, fishing, mountain climbing, biking, boating, skiing and other activities influenced by the County's varying topography. 11 Lauver & Ass©ciates Assessment District 03-3 Population According to data published by the Kern County Council of Governments and the Economic Development Department, Kern County's population has grown 21°lo since the 1990 census, to approximately 658,935 in January 2000, more than California's growth rate (11.'75%} in the same 10-year period. Kern County's growth was the 14a' largest in the state. In terms of numerical growth, Kern County had a net population increase of 121,635 residents between the 1990 census and January 1, 2000. Following is a chart graphically demonstrating the County's growth from 1980 along with growth rate projections through the year 2010. The 2000 estimated population is also shown. Kern County Growth Trends ~: ! ^ Metro Area I' Kem Kern's population was 658,935 according to the 2000 census. This represents a 21.24% gain from the 1990 census. Most of Kern's gain was due to people moving into the county, according to the Finance Department. The graph illustrates an optimistic growth rate, as indicated by the rate of change, through the year 2010 that exceeds the growth rate for the previous fifteen-year period from 1985-2000. The projections, from the California Department of Finance, Population Research Unit, show Kern County reaching a population of one million in the year 2009. 12 File 3533 1980 1990 1995 1998 2000 2005 2010 Lauver & Associates Assessment District 03-3 Economy The economy of Kern County has, historically been dependent on a combination of petroleum and agricultural production, fluctuating with the cyclical nature of these two industries. Kem County is number one in oil production and number three in the agriculture producing counties in the nation. Warehousing and processing are becoming more important to the county, both in terms of employment and diversification. Oil Kern is one of the nation's leading petroleum-producing counfies, with nearly two-thirds of the oil production in California being extracted from Kern County oil fields. _ Oil production. (and allied industry) provides a significant employment base to the county and is a major source of revenue to the county. Kem County oil fields produced 204,400,000 barrels of oil in 1949. AEriculture Owing to the favorable climate of the San Joaquin Valley with a long frost-free growing season, good supplies of reasonably priced irrigation water and good soil conditions, agriculture is a major industry in the county. Farmland accounts for approximately 54% of Kern County's land area, or a total of 963,761 acres. Of this cropland, 736,217 acres are irrigated, according to the Kern County Farm Bureau. Overall, there are a total of 1,995 farms averaging 1,423 acres in size. There are 1,375 irrigated farms with a total of 736,217 acres. Much of the irrigation water to produce these crops is transported from the north by the Federal Central Valley Project's Friant-Kern Canal and the State Water Project's California Aqueduct. Water districts haue been established in most of the agricultural areas, in an attempt to stabilize ', the irrigation water supply. 13 Lauver & Associates Assessment District 03-3 2002 crop valuation totaled $2,097,687,500 underscoring the importance of agriculture to the local economy. The top ten crops, ranked according to their annual valuation, are presented in the following table: Kern County Ton 10 Crops Rank Crop 2002 Valuation 1 Grapes $414,554,000 2 Citrus, Fresh and Processing 331,003,000 3 Milk, Market and Manufacturing 191,614,000 4 Cotton 167,179,000 5 Almonds 239,998,000 6 Carrots 277,362,000 7 Alfalfa 112,180,000 8 Nursery Crops 115,383,000 9 Pistachios 143,590,000 10 Potatoes 104,824,500 $2,097,687,500 Agricuhure provides employment to a large segment of the labor force, putting millions of dollars in the local economy. On the average about 20% of the work force is engaged in farm work during the peak summer months and accounts for nearly 25% of the County's jobs. Industrial Trends Industrial growth in the County is also being experienced. This increased industrial interest is primarily a result of relatively inexpensive fully developed industrial sites and location of the County midway between Los Angeles and San Francisco distribution points. Municipalities in some of the smaller communities in Kem County have successfully lured state and federal prisons to their domain. Delano, Taft, Tehachapi and Wasco have seen a strengthening of their tax base as a result of nearby prisons. Each of the communities had anticipated that most of the prison workers would retain domiciles and shop nearby. However, many of the workers in the valley communities of Delano, Taft, and Wasco have opted to locate their families in the larger community of Bakersfield due to the diversity of its recreational and 14 File 3533 Launer & Associates Assessment District D3-3 leisure activities. Nevertheless, the presence of the prisons has had a definite net positive effect on Kern County's economy. New Construction Total new building permits in Kern County eclipsed the $1 billion mark for the second consecutive year. Kern County fmished 2003 with $1,147,059,249 in new building permits, up 9.47 percent from the previous year's mark of $1,047,854,043 -- according to figures compiled by the Kem County Board of Trade. Pushed upward by significant gains in Bakersfield, Wasco and unincorporated Kern, the qualifying new construction totaled $94,111,923 in December - a 26.56-percent increase over the $74,363,963 recorded 12 months earlier. Activity in the commercial sector jumped by 53.68 percent in December comparisons, from $11,837,960 to $18,192,050. But for the year, the numbers were down 30.61 percent from $330,441,392 to $229,297,002. While the commercial sector in 2003 did contain a number of major projects, none were the size of the Target Distribution Warehouse in Shaffer, which helped boost the 2002 numbers. However, new housing in the County more than made up that gap. Residential construction in 2003 fmished at $811,700,929 -- 29.49 percent higher than the previous year's $626,858,352. December boasted a gain of 17.58 percent as another $66,236,290 worth of new home permits was issued, up from $56,332,969 in December 2002. Final year-end total permit valuation figures for the county's 12 reporting areas were evenly split with six communities reporting gains for the year while six had less activity. But overall, the gains in Bakersfield, California City, Delano, Maricopa, Tehachapi and Wasco-were more than enough to offset declines in the rest of Kern. 15 Lauver & Assoceates Assessment District 03-3 Retail Sales Retail sales have grown at a steady pace over the past few years. According to figures published by the California State Board of Bqualization, retail sales activity has stabilized at $7.56 billion in 2002. The increase in retail sales is attributed to inflation, increasing population and increasing household income. Retail sales figures are typically utilized as indicators for economic growth or decline. Taxable Retail Sales Year Keru Couuty Bakersfield 1999 $6,324,261 $3,196,732 2000 $6,938,238 $3,497,780 2001 $7,626,392 $3,744,392 2002 $1,565,892 $3,828,193 Source: California State Board of Equalization, February 200 Retail activity within the county is concentrated at two regional malls in Bakersfield, Valley Plaza and East Hills Mall containing a total of eight department stores and numerous assorted specialty retail outlets. Other retail establishments in Kern County include at least one large retailer such as Kmart or Wal-Mart in addition to locally owned retail stores. Employment The following table sets forth information regarding the size of the labor force, employment and unemployment rates for the Kern County Labor Market, the State of California and the United States for the calendar years 1997 through 2002. 16 File 3533 Launer & Associ¢tes Assessment District 03-3 Employment -Averages Calendar Years 1997 - 2002 199? 1998 1999 2000 2001 2002 Kern County Labor Force (OOOs) 279.9 280.3 Employment(OOOs} 245.7 246.4 Unemployment Rate 12.20% 12.1 State Labor Force (OOOs) 15,947.30 16,336.50 Employment {OOOs) 14,942.50 15,367.50 Unemployment Rate 6.30% 5.90% United States Labor Force{OOOs) 136,297 (1) 137,673 Employment{OOOs) 129,558(1) 131,463 Unemployment Rate 4.90% 4.50% Source: California Employment Development Department. 280.7 287.2 293.2 299.1 248.$ 254.7 266.5 264.0 11.4 11.30°/b 9.10% 11.70% 16, 596.50 17,090.80 17, 517.80 17,404,600 15,731.70 16,245.60 16,563.80 16,241, S00 5.20% 4.90% 5.40% 6.70% 139,368 14Q,863 142,314 142, 542 133,488 135,208 134,055 133,952 4.20% 4.00% 5.8% 6.0°/b Kem County's unemployment rate is higher than that of the state and the nation. This is a result of the seasonal agricultural employment conditions. Kern County's employment opportunities have been bolstered however by a number of new business locations and expansions. State Farm's Regional Headquarters and the Elk Corporation's asphalt shingle manufacturing facility added over 1,300 jobs. Frito Lay's recent expansion brought its total employment to 800 and Golden Valley Produce recently built a new facility that employs 300 people. The following table sets forth the annual average nonagricultural employment within the Kem County Labor Market, by employment sector, for the fiscal years 1946 through 2000. 17 Lauver & Associates Assessment -istrict 03-3 Nonagricultural Employment -Averages Calendar Years 1996-2002 By Place of Work Employment by Industry 1998 1999 2000 2001 2002 ', Agriculture 46,500 44,900 48,300 41,800 40,200 Natural Resources and Mining 8,600 1,300 8,200 8,600 7,800 f Construction 10,000 10,700 11,600 13,000 13,600 Manufacturing 10,500 10,700 10,800 11,100 10,800 . Trade, Transportation and Utilities 35,800 36,500 37,200 38,400 38,900 Information ~ 2,500 2,400 2,500 2,500 2,500 I Financial Activities 7,600 7,700 7,600 7,800 8,000 I Professional and Business Services 20,900 21,900 22,200 23,000 23,500 Education and Health Services 17,100 18,100 19,200 20,200 19,800 Leisure and Hospitality 15,900 16,500 16,500 17,200 17,400 Other Services 6,600 6,800 6,700 6,800 6,800 Government 48,800 50,300 51,600 53,600 55,200 Industry Employment Total* 230,800 233,800 242,400 244,000 244,500 ', *2002 Benc(~muk Source: Catiforma Employment Developm ent Deparhnent. Trananortation Two major northJsouth arteries traverse Kern County. Freeway 99 and Interstate 5, rurlrling northlsouth, cover the entire west cost meeting at Interstate 80 in Sacramento. Freeway 99 connects with Highway 46 that provides access to the central coast. Highway 58 traverses the County in an East-West direction and connects with Interstate 40 and 15, providing access to Arizona, Nevada Utah and other major east markets. Interstate 80 and 40 are major corridors across the United States. 13 public airports, two of which have jet runway capacity, and four private airports serve Kem County. In addition there are two airports operated by the military, Edwards Air Force Base and China Lake Naval Weapons Center. Major airlines presently serving the area are American Airlines, which operates a daily jet flight schedule to Dallas-Fort Worth and United Express with flights to San Francisco, San Diego, Las Vegas and Santa Barbara. There are several commuter style airlines with service to various portions of the state including Los Angeles.. 18 File 3533 Launer & Associates _ Assessment District 03-3 The Santa FetBurlingtan Northern and the Union Pacific operate mainline rail service in Kem County with access to all parts of the United States. AMTRAK provides passenger train service north on its San Joaquin route and bus service south to Los Angeles. The county's bus facilities include Greyhound Bus Lines, Orange Belt Stages (a charter service), and Airport Bus of Bakersfield, a local bus line providing daily commuting service to Los Angeles International Airport. Schools Public schools are available throughout the county with an excellent system of elementary and high schools. In addition to the numerous elementary, high schools and community colleges there is a four-year state University, California State Univexsity Bakersfield. The colleges axe accredited and provide vocational and continuing education. Future Trends Irrespective of the natural mountainous boundary separating Los Angeles and Kern County, the decade of the 1480s and 1990s saw the genesis of a trend destined to continue for years to come. Los Angeles area residents are looking to the north in search of a less urbanized life style. There are residents commuting to Las Angeles on a daily basis from Frazier Park, Rosamond and Bakersfield. Additionally, many individuals with working situations requiring them to work several days at a time, such as firefighters, are relocating their families to Kern County and to what they perceive as a safer and lower cost of living. Several "new towns" are planned for agricultural lands at the extreme south-end of the San Joaquin Valley between Bakersfield and Frazier Park. These new towns are being planned to take advantage of Los Angeles residents becoming disturbed with emergence of urban problems in Southern California. There are preliminary discussions towards the development of a high-speed rail system connecting Northern and Southern California. The discussions have reached the point establishing the most feasible route. Factors to be weighed include geographic limitations (impassable mountain ranges), ability to service population centers and certainly the political 19 Lauver & Associates Assessmeut District 03-3 clout of the local representation. At this time there are two routes being given the most consideration, including one in Kern County. The Kem County route would proceed north from Los Angeles to the San Joaquin Valley after a stop in the Antelope Valley. The other route being considered a coastal route somewhat approximating the current location of State Highway 101. Obviously there is anticipation that a valley route would provide a linkage to Southern Califomia sufficient to further the retreat from Los Angeles and spur housing demand in Kern County. Not all of the new residents locating in Kem County are doing so as a launching pad for a commute to Los Angeles. Kern County has some of the lowest costing real estate in Califomia; the typical homeowner can achieve more of the "American Dream" in Kem County. It is not merely individual homeowners benefiting from inexpensive property values. Beyond the county's location near the population center of the state and the availability of adequate labor, the primary impetus for many of the newly arriving manufacturing and distribution jobs is the low cost of land. Conclusion Kern County is continuing to experience steady growth patterns as a result of increased development of irrigated farmland, stable petroleum production and refining, along with a steady industrial growth trend. The economic base of the county that is centered on these resources should continue to be stable. The long-term trends are diversification and urbanization. The county has made considerable efforts to attract potential industrial and manufacturing firms in order to diversify the region's economic base. Some of this compliment the existing agricultural base and some have no relation to the industry. The second trend is the reclamation of farmland for urban or suburban development in the vicinity of Bakersfield. The growth pattern away from Bakersfield in a westerly direction is absorbing productive farmland for more intensive uses. This trend will continue for as long as the disparity in housing costs exists between Kern County and the rest of California. 20 File 3533 Lauver & Associates Assessment District 03-3 CITY DATA Location And Size The subject property is located in the City of Bakersfield. Bakersfield is located 111 miles north of the major metropolitan Los Angeles area, 108 miles south of Fresno, (the next nearest large urban area), and 290 miles south of San Francisco. Annual annexations to the city have taken place at a mean rate of approximately 6%. These annexations represent an average annual addition of 3,344 acres to the city's landmass. Growth has primarily been in the southwest, northeast and northwest quadrants. Population City population has steadily increased. The city's growth and growth projections through the year 2010 is displayed in the following chart. ~~akersfield City Population The population increased 2-'!2 times in the 19?0-1990 period, or an increase of 149%. The mean average annual rate is ?.49% percent, non-compounded. Since the 1990 Census, Bakersfield has grown by 62,244 persons to 237,222 or 35.5% over the ten-year period. It is now the 12th largest 21 Launer & Assaciates Assessment Distract 03-3 city in California. The city's growth increase in the first part of this decade, ranks 14th nationwide among cities of over 100,000 population. Comparison of the City of Bakersfield with Kern County, the State of California and National growth trends indicates the city is growing at a substantially faster rate as reflected in the following table. Population and Projections -1442 - 2003 ', Population Percent Percent State Percent United Percent Chance Coun Chance ~~ Change States 000 Chance --- 579,000 --- 30,845 --- 252,028 --- 3.30% 593,100 2.38% 31,303 1.46% 255,014 1.17% 2.66 604,200 1.84% 31,661 1.13% 257,698 1.04% 5.07 612,800 1.40% 31,910 0.78% 260,244 0.9$% ~ 2.53 620,400 1.23% 32,223 0.97% 2b2,153 0.95% 0.86 629,200 1.40% 32,670 1.37% 265,310 0.96°l0 3.33 637,200 1.26% 33,226 1.67% 267,885 0.96°l0 4,1 645,900 1.35% 33,166 1.60% 270,385 0.42% 2.8 671,295 3.78% 33,872 0.31% 272,828 0.90% ~ 7.23 685,811 2.12% 34,4$3 1.77% 281,422 3.05°/a 2.52% 694,059 1.19% 35,484 2.82% 290,810 3.23% 2.27% 710,294 2.29% 36,442 2.63% 30Q698 3.29% ', The historical and projected growth of the Crreater Bakersfield Metropolitan Area is displayed in the following chart !, Bakersfield Metropolitan Area /~- - aso,ooo~' -, ~ aoo,ooo I '. ,°q 350,000 '.' ~/- "~ - a 300,000 j ~! ~ ,~r~- ~~ v. ~ E" 210,000 " 1~~#t~~ € .` ~ =*"#- ~ -1 _ .S ~ ,I~~ '~.. ' °e 200,000 ~ ~ ~,.~r :a ~.~ "~«`~„~ ._'i ~ 150,000 ~ ~~.a. ~' ~~ i ~ €~' '~ -' a 100,000! q.. ~~ ;~l,y, ~ ~' v ~t _ 50,000 ~~ . 0 ~ 1. .a a ~ ,~~..."i "~ "~~'~~ 1980 1985 1990 1995 2000 2005 2010 22 File 3533 Lauver & Associates Assessment District 03-3 Even though the city has annexed huge areas since 1970, the population increase is tied in great part to new development in the southwest (Stockdale), northwest (Olive DrivetRosedale), and northeast, (Rio Bravo), areas. The GBMA is also referred to as the Immediate Bakersfield Trade Area. The GBMA contains the City of Bakersfield and nearby surrounding communities and/or areas. Geographically, the GBMA is an area measured for an approximate five-mile radius from the center of Bakersfield. The GBMA has grown from a 1980 population of 227,968 to a current estimated population of around 410,000 persons. This represents sixty percent of the total county population. Economv Bakersfield, the marketing, business, service and transportation center of the county, fords its economy closely dependent upon the continued prosperity of the agricultural and petroleum industries. Economic functional classification for a city is generally based upon a city's primary economic base activities, i.e., its reasons} for existence. Bakersfield is classed into two categories: First, the city is a commerce center, (considering it is a farming center and the major county supplier of goods and services); Secondly, it fits a classification commonly known as extractive, due to the large portion of economic activity created by the productions of minerals. Manufacturing firms within -the city are characteristically of small to medium size. Major manufacturing activities include steel fabrication, plastic form products, food and kindred products, and petroleum refining with related industries, and textiles. From an overall point of view, the Greater Bakersfield Metropolitan Area's economy is fairly stable. Manufacturing activities are diversified with no single industrial classification ftunishing more than 25% of the area's jabs. 23 Lauver c~ Ass©eiates Assessment District 43-3 BuildinL Activity Annual total building permit valuation since Fiscal Year 1992-93 is shown in the following tabulation. i City of Bakersfield j Property Value, Construction and Bank Deposits (t) Fiscal Y ears 1989-90 through 2 002-03 ', Fiscal Commercial Construction Residential Construction Other Construction Total Year #Units Value # Units Value # Units Value Value 1992-93 38 37,785 2,022 187,998 2,060 39,612 265,395 1993-94 30 70,472 1,581 154,5'71 1,611 28,533 253,582 1994-95 39 65,891 1,571 150,429 1,610 37,16'7 253,487 1995-96 50 26,287 1,909 179,127 1,959 41,962 247,376 1996-97 102 42,352 1,352 132,785 1,454 40,459 215,596 ', 1997-98 147 49,241 1,983 97,773 2,130 167,281 314,295 1998-49 213 78,199 2,088 223,576 2,301 36,958 338,733 1999-00 140 51,251 1,890 218,656 2,030 34,438 304,245 2000-01 123 38,113 2,012 261,522 2,135 48,067 347,702 2001-02 143 70,784 2,445 311,639 2,588 57,983 547,340 2002-03 104 78,868 3,626 544,534 6,672 92,891 716,294 (1) Property values and bank deposits are reported in thousands. (2) Building data is through 2003. Sources: FDIC and City Building Department Transportation Transportation needs of a city are essential, requiring goods as well as people be moved to-from- and-within the urban environment. Within the Bakersfield Metropolitan Area the main lines of the Burlington NorthernlSanta Fe Railroad service freight needs. Amtrak provides passenger travel. Scheduling by Amtrak, on its "Valley Run", is currently operated seven days a week. All of Amtrak's northern travel on this route originates in Bakersfield, while all southern travel from Oakland terminates in Bakersfield. Truck transport is available from a number of truck carriers, several of which are major interstate lines. 24 File 3533 Lauver & Associates Assessment District 03-3 There are two airports within the GBMA. Bakersfield Airport, a private airport, is located in the southeastern area of the city, and Kem County's Meadows Field is located in the northwest portion of the GBMA. Meadows Field has jet runways and serves as a base for commercial air services. Meadows field is also used by private air traffic. Inter-city bus facilities are provided by the Golden Empire Transit system. Buses currently travel six days a week (not on Sunday), providing service from 7:00 a.m. to 6:30 p.m. The current rate is $0.75 for aone-way travel pass and no charge for transferring. Four firms provide taxi service, all of which are radio dispatched. As for automobile travel, the city lies astride two major all-weather highways, US Highway 99, (which runs north south), and State Route 58, (which runs east west). Government and Social Services The City of Bakersfield utilizes the City Manager form of government with an elected mayor and a seven-person council. Professional administrators with well-supervised and well-trained staffs manage deparments within the city. All departments have a good record. All utilities are available within most areas of the city. These include gas, electricity, water, sewage disposal, telephone, and garbage disposal. The Bakersfield Police Department has 288 personnel and the fire department has 160 firemen and officers. Health care services within the GBMA are provided by six general hospitals, with a combined capacity of 1,075 beds. Within the Metropolitan Area are approximately 375 physicians and surgeons, 24 chiropractors, 19 optometrists and 86 dentists. 25 Launer & Associates Assessment District D3-3 The school districts, encompassing the Bakersfield Metropolitan Area, presently contain 59 elementary schools, 12 Junior High Schools, and 9 High Schools. In addition there is a parochial High School and 8 parochial grade schools. To fill higher educational needs, based in Bakersfield, are an accredited two-year Community College, Bakersfield College, and afour-year accredited school, California State University at Bakersfield, the newest of the State university campuses. Recreational and Cultural Activities The city, due to its central location, offers close proximity to countywide recreational activities. Within the city itself, there are numerous parks, many of which contain public swimming pools and tennis courts. The community maintains a Philharmonic Orchestra, the Bakersfield Convention Center, which seats 3,250 persons, and a community theater. Also, there are college-sponsored lectures and artists, a wide variety of artistic, cultural, and special interest organizations, numerous movie theaters. The new Bakersfield Centennial Garden Arena facilitates various sporting events and trade shows. The library system of the Bakersfield Metropolitan Area contains 10 branches and a bookmobile service, providing access to over 570,200 volumes. ', Media sources include the Bakersfield Californian, a daily newspaper, two weekly newspapers, four television stations, three cable television companies, and twenty radio stations that are divided between AM and FM broadcasting. The Labor Market There is a stable labor force of men and women with diversified skills in fields ranging from agriculture to sophisticated equipment, assembly, and research. 26 File 3533 Lauver & Associates Assessment District 03-3 Over the past two years, over 5,000 jobs have been added in Kem County each year, mostly in the services, government, and retail, manufacturing and construction sectors. With the efforts to attract corporate and manufacturing operations to Kem County, this growth is expected to continue through the next decade. Other factors influencing the county's labor market are: + A source of labor is always available to an employer whose operation permits short training phases during start-up. ~ • Although the labor market is not considered heavily organized, the climate between management and labor is excellent. • The total environment employees and their families enjoy, including short driving distances to jobs and activities, results in excellent longevity records. • Future labor requirements will be filled through coordinated training at high schools, community, and state colleges as a result of a continued evaluation of the job market. • Bakersfield is a participant in various state and federal programs including those with the California State Department of Human Resources Development. As reported by the California Employment Development Department, the average unemployment rate for the Bakersfield labor market for 2002-2043 was 12°l0. This was up from 11.2% the preceding year. Bakersfield is always likely to have an unemployment rate somewhat higher than California or the United States as a result of the seasonal characteristics of the agricultural industry. The following table cites the unemployment rate contrasted with demographic indicators. 27 Launer & Associates Assessment District 03-3 City of Bakersfield Demographic Statistics Median Elementary Estimated Fiscal Household Schaol Unemployment Year Population Income Enrollment Rate 1992-93 192,351 $34,420 26,505 14.8°l0 1993-94 197,469 $35,885 26,312 13.5% 1494-95 207,472 $37,449 26,350 12.8% 1945-96 212,715 $31,852 26,903 12.4% 1996-97 214,554 $31,888 27,126 11.4% 1997-98 221,689 $33,339 27,370 10.7% 1998-99 230,771 $33,754 27,668 11.0% 1999-00 237,222 $34,343 27,783 12.5% 2000-O1 254,368 $37,573 28,094 10.4% 2001-02 257,914 $35,153 28,267 11.2% 2002-03 266,784 $42,800 28,174 12.0% The following table sets forth the top employers in the City as of January 1, 2002. Principal Employers FIRM PRODUCTlSERVICE EMPLOYEES Kern C°unTy Public Schools Education 15,500 County of Kem Government 7,OOD Dole Bakersfield, Inc. Agriculture 2,360 Wm. Bolthouse Farms, Inc. Agriculture 2,000 City of Bakersfield Government 1,600 CHW Central California Medical Caze 1,515 State Farm Insurance Insurance 1,500 ARB, Inc. Constucdon 1,200 Bakersfield Memorial Hospital Medical Care 1,100 Texaco Exploration&Production Industrial 1,100 San 7oaquin Hospital Medical Caze 1,091 Aera Energy LLC Energy 870 Frito-Lay Food 750 Pool California Energy Services Energy 740 Chevron Companies Industrial 540 Bechtel Peholeum Operations Industrial 525 Nestles Ice Cream Company Food 517 Western Oilfields Supply Industrial 450 Ken Small Construction Constuction 425 Pacific Bell Telephone 400 Bakersfield Californian Newspaper 380 Pacific Gas & Electric Utility 380 Continental Labor Resources Employment Agency 375 Bakersfield Family Medical Center Medical 370 Source: City of Bakersfield. 28 File 3533 Lauver & Associates Assessment District 03-3 Housing Market Bakersfield {Kern County) has the most affordable housing in the State of California. The affordability is attributable to inexpensive land and cheap labor. Monthly rentals are available throughout the Bakersfield metropolitan area. One and two bedroom apartments command rents ranging from $400 to $900 per month. Apartment communities within the city are relatively well defined, offering goods and services to apartment dwellers. Two and three bedroom, single- '.., family houses can be rented for $650 to $1,500 per month. There is a good supply of luxury homes priced from $300,000 to $750,000. However, the average residence is selling within the $95,000 to $150,000 price range. Strengthening demand for residential housing has positively affected the building permit activity in the city. Most of the growth and construction of dwelling units in Bakersfield has taken place subsequent to World War II. These dwellings typically have remaining lives. Consequently, there has been little need for in-fill in the older areas of the city. The availability of nearby land ready for construction has enabled a suburban sprawl. Residential growth tends to be primarily found in the northwest and southwest quadrants of Bakersfield. Since 1988, the permit activity was based largely on construction of new single-family dwelling units. This is due in part to the fact that Bakersfield is one of the most affordable urban areas in the western United States. Studies of the sales activity reveal that as much as 50% of the new tract homes are selling to out of the area buyers attracted to this area by the relatively i inexpensive housing. New construction is the defming factor of the Bakersfield low-density housing market. The City of Bakersfield has historically been able to increase its physical area by incorporating surrounding areas previously used for agricultural purposes. These former agricultural lands are considered prime for development as the soil is of good quality and the sites are mostly level, reducing the costs of development. The City also has a rather reliable water source from water rights to the Kern River. 29 Lauver & Associates Assessment District 03-3 During the years from about 1991 to 1995, the Bakersfield housing market was dominated to a large degree by large regional and national housing development firms. Among these were ', Centex, U.S. Home, and Kaufman and Broad. This was a departure from the local area building norms from prior years. Previously, most of the builders were local and residential developments „' i were constructed on a relatively small-scale basis. During the early 1990's, larger firms with access to capital entered the residential market, were able to complete subdivisions more quickly, '~ and thus squeezed profit margins for production housing units. Local builders found it difficult to compete. Over a period of time, the larger building firms found the local market prefers the option of selecting a lot location and having a particular model built on it. The larger builders typically were building full phases with house lot combinations already in place, thus limiting buyer ', choice. The housing product was inferior in quality and fmish compared with the local merchant builders and the large development firms found their expected sales rate much slower than anticipated. For the most part these larger builders have left the Bakersfield housing market to concentrate their efforts in other locations where the market is more receptive to the mass built production housing. Since 1995, the local residential market has firmed up and is experiencing moderate to rapid growth in new housing starts. Because the merchant builders are limiting their new housing starts to models and pre-sold units, there is little standing inventory at any time in the metropolitan area. In the following chart, the total numbers of building pernuts for single- family dwellings are displayed.' City Buildine Permits Issued Year 1996 1997 1998 1999 2000 2001 2002 2003 Permits Issued 1,909 1,352 1,983 1,899 1,944 2,432 2,947 3,626 ~ Source: Kem County Board of Trade 2003. 30 File 3533 Lauver & Associates Assessment District 03-3 Current Residential Trends The residential market in the general Bakersfield remains strong as is borne out by the following chart. The chart shows the number of units sold within the corporate limits sorted by zip code and includes new, resale and condominium housing units. YEAR 2003 ZIP CODE #SALES PRICE 93301 142 $159,714 93304 763 $104,092 93305 414 $103,839 93306 110 $132,817 93301 604 $107,353 93308 655 $134,483 93309 901 $153,087 93311 554 $215,938 93312 1081 $205,138 93313 662 160054 Totals/Averages 6,492 $147,652 Mean List to Sale R atios Mean Days On Market YEAR 2002 /S .FT. #SALES PRICE !S .FT. %CHANGE $108.13 92 $150,639 93.22 16.0% $83.41 560 $91,221 72.23 15.5°l0 $85.75 296 $84,359 70.42 21.8% $88.49 105 $119,669 77.61 14.0% $84.40 548 $89,338 72.40. 16.6% $95.38 558 $120,344 84.16 13.3% $94.38 756 $133,453 81.08 16.4% $115.23 641 $201,470 102.58 12.3% $114.09 956 $187,338 98.65 15.7% 97.95 795 137 854 8536 14.7% $96.72 5,907 $131,569 $83.77 15.63% 98.8% 98.30% 40 50 It can be seen that existing home sales activity in 2003 was up 9.9% over 2002 and all areas of the City are experiencing significant appreciation. With regard to new housing product, our interviews with builders and sales offices indicate that the housing demand from both out of town and local buyers remains strong. The out of town buyer market is somewhat difficult to accurately measure however, since many occupy apartments while waiting for their dwellings to be completed. All subdivision sales offices surveyed indicated that buyers are relocating and/or commuting from the urban Southern California area and from the Central Coast areas such as Ventura and Oxnard. New home construction permits were at an all time high in 2003, with a total of 3,626 penrlits issued in the City. This is a 23% increase over 2002 when 2,947 permits were issued. 31 Launer & Associates Assessment District D3-3 The strength of the residential market is further borne out by reports from subdivision sales offices such as Kyle Carter Homes (a McMillin Company) and Coleman Homes (Lennar). These offices have reporting waiting lists of ten to sixteen pre-qualified purchasers waiting for lot releases. in six Coleman Homes Developments located in the Northwest and Southwest Bakersfield areas we found sales rates from 5 to 12 sales per month depending on the tract location and product type. Again, it was our fording the highest demand and absorption is taking place in the Northwest Bakersfield area in the subject's defined neighborhood. 2003 Builder Sales Activity Rank Builder Permits 1 Coleman Homes 550 I 2 Kyle Carter Homes 428 3 Castle & Cooke 345 4 Lenox Homes 302 5 Centex Homes 281 6 Probuilt Homes 209 Bakersfield's top three builders shown in the chart above are selling the bulk of their houusing ', product in Northwest Bakersfield. It was my fording that more than 60% of all new residential II construction and sale activity is in the Northwest sector. New Residential Building Development Potential and Timing During the data collection phase of this report preparation, the appraiser made an investigation of ', the growth rates, trends and patterns with regard to residential development in the city of Bakersfield. The study of demand, supply and absorption is fundamental to the valuation ' '~ analysis and is a determinate factor in the potential for success in the local market. A study of the demand side of the housing market is the first step in analyzing the relative strength of the housing market and it provides necessary data in studying the interaction of the supply and demand characteristics of the market, and it will assist in forecasting future housing 32 File 3533 Lauver & Associates Assessment District 03-3 needs. The demand side analysis of the residential housing market involves researching characteristics of population growth; occupancy and vacancy rates of single family housing stock; pricing levels; and market segmentation. In the fallowing paragraphs we discuss the various elements of the demand side of the single family housing market. The sources utilized in our analyses are from the E-5 Report, Department of Finance, National Decision Systems, Kern Council of Governments, California Department of Finance, Demographic Research Unit, City of Bakersfield and Kern County Planning Departments. In examining the historical and projected growth rates for the city of Bakersfield', it was noted that in the period from 2000 to year-end 2003, the population increased 8.08%. Projections from 2004 to 2009 indicate a population increase of 24.51% as shown in the following chart. City of Bakersfield Population Year 2000 2004 2009 Population 247,057 267,029 332,500 The projected population growth rate from 2004 to 2009 is 65,471 persons, a compounded increase of 4.48°to per year. Just prior to 1998, the city's corporate limits were expanded by slightly more than 12 square miles. This was a contributing factor in the high growth rate. The housing characteristics of Bakersfield are presented in the following chart. Bakersfield Population and Housine 2003 Population HOllS1nE Total Household Grmp Quartets Total Detached Attached 2-4 5+ Mobile Home Occu ied °/a Vac Persons Per H.H. 266,784 263,118 3,666 94,171 63,056 3,223 10,121 15,197 2,574 89,028 5.46 2.955 City of Bakers5eld Plannirtg Depamnent, 20Q3. 4 California Departrnent of Finance, Demographic Research Unit. The above Sgures include population and housing within the corporate limits. 33 Lauver & Associates Assessment District D3-3 Using the published statistics and projections from the sources cited previously, the population and housing needs within the city are forecast as follows: Year 2004 2009 Po ulation 267,029 332,500 Total Detached Units 63,056 83,125 Owner Occu ied 56,750 74,812 RenterOceu ied 3,152 4,156 Vacant 3,154 4,157 Using the foregoing actual and projected population figures, an estimate of annual housing demand for the next five years is calculated as follows: Bakersfield Detached Housing Demand Forecast 2009 Housing Demand 83,125 Less 2004 Housing Demand 63,056 Five Year Demand 20,069 Annual Housing Demand 4,014 Percentage in Owned Single-Family 90% Armual Single-Family Demand 3,612 The estimated demand side estimate compares well with the 2003 annual permit rate of 3,626 new single-family detached residential units. Suanly Characteristics The next step in the analysis of the residential housing market in the City of Bakersfield is to examine the supply side of the housing market. In this regard, Bakersfield is somewhat unique in its new home marketing strategy. Having suffered during the early 19$0's with an oversupply of standing housing inventory, the local financial institutions implemented a policy of restricting the number of unsold or unsold under construction units in subdivisions financed. Since that time, most of the local builders have voluntarily limited their housing starts to models and in rare instances, one or two speculative units. The exception to this has been from some of the larger, self-financed building firms such as Kaufman & Broad, Barrett Homes or US Homes. These 34 File 3533 Lauver & Associates Assessment District 03-3 builders have, for the most part, left or are now in the final stages of their presence in Bakersfield. These large builders are not expected to have much presence here in the future. Owing to the fact that most dwelling units are constructed an a firm pre-sold basis, the standing inventory maintains a near state of equilibrium between supply and demand in Bakersfield. The building permit figures reflected in the following chart demonstrate this balance. City Building Permits Issued 1996 1997 1998 1999 2000 2001 2002 2003 1,909 1,352 1,983 1,899 1,994 2,432 2,947 3,626 The permit activity shows a pattern of steady increases. This is due to the recovery of the Bakersfield economy (the Bakersfield economy tends to lag behind Southern California) and the favorable institutional lending rates available to homebuyers. Moreover, based on conversations with developers at residential sales offices, the out-of--area buyers now out number the local residents purchasing homes. The next step in the supply side analysis is to estimate the standing inventory and the potential supply from sources at the city Planning Department. The existing supply estimate is calculated below. Current Estimated Housing Supply (Total permits issued Year 2003} 3,626 Plus Estimated Under Construction (Permits through January 2004} 302 Estimated Current Supply based on permits issued 3,928 Less: 95°lo pre-sold _3731 Estimated Unsold Inventory 196 In the Bakersficld market we find that three or four larger corporations such as Castle & Cooke Homes, DeWalt/Fruitvale Properties, Coleman Homes (now Lennar), and Kyle Carter Homes (now owned by McMillin Homes) control the supply of fmished Tats to a large degree. These companies will process unimproved land through the city/county-required stages of entitlement, infrastructure construction and mapping. These developers complete their fmished lots to fmished housetlot combinations ar sell their land either as unimproved subdivision with final maps in place or contract with builders to sell them fmished lots on an option basis. Options are 35 Lauver & Associates Assessment District 03-3 often exercised on a quarterly basis where the builders purchase a given number of lots for a set price. This procedure serves to guarantee the builders a fixed finished lot price and reduces the developer's overhead and carrying costs and resulting financial exposure. The net result is that although there is a good supply of finished lots available, there is virtually no standing inventory of speculative housing. Potential purchasers of single family housing in the Bakersfield market are accustomed to selecting housing units and waiting 90 to 120 days for completion. As a result, the local builders are able to allow many more custom features and amenities than what is typical on previously constructed production units. The larger builders such as Kaufinan & Broad, Barrett Homes and US Homes found that the local market often show a preference for the smaller local builders who can provide more flexibility in floor plans, lot selection, finish options and amenity packages. In checking with some of the major builders, it was our fording that they typically have from 3 to 5 units under construction not sold in their various projects. For example, Coleman Homes may have 4 subdivisions selling in various areas in metropolitan Bakersfield. Kyle Carter Homes has a similar philosophy and has four on-going projects. We were unable to get precise figures from Probuilt, BHA Properties or Centex Homes, but it was our impression that these builders have similar numbers of under construction-unsold units. Based on our examination of the market, we have estimated there are approximately 196 units unsold in the market currently. This is due to the local building industry practice of only starting housing construction after acceptance of deposits from pre-qualified buyers. Interacfion of Demand & Sunnl In the preceding examination of demand and supply conditions, it was determined that based on the past five years average annual permit activity, demand for single-family residential dwelling units is forecast to at 2,800 units annually over the next five years. Analysis of supply conditions indicates that there is potential for an estimated 2,800 new housing units based on tentative tracts and unsold-under construction lots in inventory. On the demand side, we cited the single-family residential pernrit activity over the past six years. In general, permits have been issued at the rate 36 File 3533 Launer & Associates Assessment District 03-3 of 1,500 to 2,200+1- units annually and have averaged 2,268 permits per year citywide since 1996. There are few speculative-built homes unsold other than tract models. Our analysis of the market conditions in Bakersfield suggests that there is a steady demand for new housing product and there is sufficient entitled land available for rapid response in supply to meet the historical demand conditions. Housing Market Conclusions The Mortgage Bankers Association, in its "State of the Real Estate Finance Industry" report released January 22, 2004, said that the amount of new home mortgage money, which reached a i record of $3.8 trillion in 2003, will decline to $1.9 trillion in 2004. The report went on to state that, while the volume of loans originated for home purchases will increase annually across the three-year forecast period of 2004-2006, the refinance share of originations will fall from 66 percent in 2003 to 34 percent in 2004, to 22 percent in 2005, and to 19 percent in 2006. Mortgage interest rates will likely end 2004 in the 6.3 to 6.5 percent range, increasing to over 7 percent by the end of 2005, according to MBA economists. MBA's outlook said home sales will slow slightly over the next two years after having set a third consecutive annual record in 2003. Home prices will continue to rise, but at a slower pace than last year, the association said. Existing home sales will fall by 5.1 percent in 2004, and by 3.6 percent in 2045, with essentially no change in 2006, MBA added. New home sales are expected to fall by 7.2 percent in 2004 and by 3.3 percent in 2005, but remain unchanged in 2006, the forecast said. MBA predicted that real gross domestic product growth would average 4.? percent during 2004, and 4.l percent in 2005 and 2006. It expects the unemployment rate to decline from 5.7 percent now to 5.2 percent by mid-2006, partly because of re-entry of "sidelined" workers to the work force. 37 Lauver & Assacdates Assess tent District D3-3 The Bakersfield housing market will be affected by the national conditions as they relate to pricing. We are not anticipating a decline in sales activity during 2004 however, owing to the steady in-migration of out of the area buyers. The Bakersfield new housing product is priced substantially below most other areas of the State and Bakersfield has a good reputation for a quality life style. The following fact summary lends support to the appraiser's forecast of a continued strong local housing market in 2004: • Overall, the Bakersfield housing market is strong with about 600 homes for sale on any given day • On average in 2003, home sellers received 98.8% of asking price • New home construction permits were at an all time high in 2003, with a total of 3,626 permits issued in the City. This is a 23% increase over 2002 when 2,94'7 permits were issued. • A study of the Bakersfield Metropolitan area sales activity shows the average resale housing prices in 2003 were up nearly 16% over 2002 existing home prices. • The price per square foot of a new construction home during the fourth quarter of 2003 was $117.02 compared with $109.11 for existing housing during the same quarter. • According to Ticor Title Company, housing starts and appreciation are anticipated to stabilize and maintain a 5 to 7% growth rate during 2004. Bakersfield City Conclusions Throughout the United States, the Bakersfield/Kern County area is well recognized as one of the fastest growing Standard Metropolitan Statistical Areas (SMSA) in the country today. It is the 12s` largest city in California, with a population of almost 400,000 within the corporate limits. The expanding population and growth is amibuted to a strong economy that was traditionally tied to oil production and agriculture but is now led by rapid diversification. Bakersfield's central location, low land costs and a strong employment base have helped it emerge as a major relocation alternative for major office users, national manufacturing and distribution industries. Improved and stabilized markets for oil and agriculture will only create additional benefits for the community. 38 File 3533 Lauver & Associates Assessment District 03-3 Bakersfield is centrally located in the south central portion of California's San Joaquin Valley. The city is the county seat of Kern County and is 110 miles north of Los Angeles via Interstate 5 and Highway 99 and 110 miles south of Fresno via Highway 99. This central location along major national transportation arteries contributes to the city becoming a regional headquarters location in the South San 7oaquin Valley. Kem County is the largest oil-producing county in the nation. If it were a state, it would be the fourth largest in the •production of oil. The county is also the third largest grower of agricultural products in the state. In addition to these two major industries, Bakersfield maintains an extremely diversified manufacturing economy with aver 300 manufacturing facilities within the city, highlighted by the existence of two major multi- million dollar manufacturing facilities; Frito Lay and Carnation Company, both of whom are now employing over 800 people. Economic diversification has continued to improve with State Farm Insurance Company's expansion of its employment in its regional office facility, which covers approximately 1.2 million square feet. Bakersfield is a thriving metropolis. The population of greater Bakersfield is now over 450,000 and increasing, maintaining its position as one of the fastest growing cities in the state. In spite of this growth, the city has relatively little congestion and low median housing costs; the city has an excellent kindergarten through 12th grade school system as well as a community college and a California State University. Factors such as these are important amenities to support the employment base and continue to provide an excellent choice for companies relocating to Bakersfield and Kern County. The over-all trend for the city of Bakersfield appears to be stable with a forecast for steady growth in the future. It is anticipated the Greater Bakersfield Metropolitan Area will contain a gradually increasing proportion of the oounty population. This is based on its location as a regional hub of business in the Central Valley, the steadily growing strength of the local economy, the city and county's pro-growthlpro-business attitude and plentiful supply of relatively inexpensive land. Therefore, it is anticipated that the Bakersfield area will continue to experience steady growth through the next decade, and continue to attract new households migrating from the urbanized areas of the San Fernando Valley and Los Angeles basin. Our analysis of the residential market conditions in Bakersfield suggests that there is a steady demand for new housing product, which relates in tum to service, support and shopping 39 Lanner & Associates Assessment District D3-3 space needs, There is sufficient entitled land available for rapid response in supply to meet the historical demand conditions. ASSESSED VALUE AND TAXES Because it is the purpose of this report to determine market value, (which by definition presumes a ready, willing and able buyer), it becomes necessary to allow for an increased or decreased tax liability for the subject property, based upon the valuation reported in this appraisal report. According to a spokesman for the Kern County Tax Assessor and based on a review of the client supplied preliminary title report, there are no delinquent taxes or penalties owed. The details of the Community Facilities District special tax liens applicable to the subject properties are outlined in the previously referenced Engineer's Report, prepared by Wilson & Associates, dated Apri17, 2444 pages I-4 and I-5 and made a part of this report by reference. HIGHEST AND BEST USE Definition The reasonable and probable use that will support the highest present value, as defined, as of the date of appraisal. Alternatively, that use, from among reasonably probable and legal alternative uses, found to be physically possible, appropriately supported, financially feasible, and which results in the highest land value...the most profitable use.' Introduction The following highest and best use discussion will focus on the primary factors examined in determining highest and best use. 5 Real Estate Appraisal Terminology. Published jointly by the American Institute of Real Estate Appraisers and The Society of Real Es[ate Appraisers. Chicago. 1975 Pg. 201. 40 File 3533 Lauver & Associates Assessment District 03-3 1. What uses are legally allowable? 2. What uses are physically possible (what can the site support)? 3. What uses are financially feasible (and appropriately supported)? A. What is the existinglfuture neighborhood land use pattern? B. What is the subject site's most probable use "as if vacant"? 4. What uses are maximally productive? 5. Conclusions Throughout the analysis, the valuation theories and principles of anticipation, balance, conformity, surplus productivity, and externalities are examined. These theories or value influences are defined on the facing page. The highest and best use analysis considers these principles as they apply to the site, first, "as if vacant," and then, "as improved." What Uses Are Leeallv Allowable? The zoning for the residential' portions of the subject is R-1. This zoning allows development for single-family residential uses, with a minimum lot size of 6,000 square feet per dwelling unit. Therefore, the only legal pernussible use possibility for the subject site under the zoning is for one dwelling on a minimum 6,000 square foot lot. What Uses Are Physically Possible? From among the legally allowable land uses, the appraiser must determine the physically possible uses. Under the zoning code, the development of this parcel must consist of single family residences meeting the front, side and rear yard setback requirements set forth under the zoning code. It is thus physically possible and legally permissible to develop this site exclusively with residential lots with one housing unit on each lot. ' The commercial pazcel details aze discussed in the Commercial Land Valuation section of the report. 41 Lauver & Associates Assessment District 03-3 What is The Most Financially Feasible Use of The Site? Financial feasibility deals with the returns expected on an investment. Return implies that the idea proposed is marketable, 'rentable' or 'saleable', and is therefore capable of generating a cash flow, thus allowing for a return on, as well as return of, the dollar invested. Developments that were developed to their legally permissible and physically possible uses as single-family residential resulted in the most fmancially feasible use for the respective properties. Thus, development of the subject for single-family residential purposes is considered the most financially feasible use. Determhring the highest and best use of the site as if vacant from the possible uses also requires examination of the existing and future land use patterns in the neighborhood. Historical and recent additions and proposed and under construction projects in the immediate area consist almost exclusively of residential uses. It was established that this neighborhood's location in the Southwest quadrant of the city is one of Bakersfield's more desirable residential locations, demonstrated by the amount of new residential growth during the past ten years. The latest surveys indicate strong market demand for single-family housing in the area. No evidence is available to suggest that the remaining vacant land in the immediate neighborhood should not develop to single-family residential uses in keeping with the General Plan. Likewise there is no reason to believe the land use pattern or character of the area should deviate from the uses described previously in the future. It was our finding that multi-family housing fords most market acceptance in areas proximate to entry-level housing and along arterials where these developments form buffers for single-family residential subdivisions. Therefore, it was my determination that the use that is most financially feasible and maximally productive while conforming to the character of the neighborhood is for single-family residential use. This use would be in harmony with the principle of balance and conformity with the historical and existing land use patterns in the neighborhood. The supply/demand characteristics were analyzed in a prior section of this report. It was concluded that there is sufficient demand existing to warrant development of single family housing in the general area. 42 File 3533 Lauver & Assrrciates Assessment District 03-3 It was the appraiser's oonclusion that, given the on-going development in the subject's general and immediate vicinity and the rapid absorption rates being experienced for the finished lots and fmished house lot combinations, there is immediate demand for the subject's development. Conclusion The process of determining highest and best use relied upon examining zoning, surrounding land use patterns and a cursory investigation using observation of the growth of residential supply/demand in the subject area. The general neighborhood appears to be steadily improving with single-family residential developments. An examination of the residential housing market in Bakersfield indicates the demand and supply forces are in balance. Because of the practice of making fmished lots available on an option basis, builders have less financial exposure and can immediately adjust to changes in the demand side of the market. It is the appraiser's opinion that the Highest and Best Use for the subject property is its current proposed use, for single-family residential housing. Development could commence immediately owing to the steady demand conditions existing atthis time. PROPERTY HISTORY Uniform Standards of Professional Appraisal Practice and the Standards of Professional Practice of the Appraisal Institute require that an appraisal report must contain an analysis of any prior sales of the property that occurred within athree-year period prior to the date of value. According to the Kem County Recorder, the ownership of the land described as Seven Oaks West III and Brighton Place II in this section of the report is primarily vested in Castle & Cooke California, Inc. Qther owners as identified in the addenda section of this report. Fairway Oaks South, LP, owns the portion described as Fairwa Oaks South. y 43 Lauver & Associates Assessment District D3-3 VALUATION METHODOLOGY In the appraisal of real estate there are three traditional approaches to value. These are the cost, direct sales comparison and income approaches. Methods Analied to the Suhiect Development In appraising the subject subdivision, the Cost Approach and the Sales Comparison approach are the primary value indicators used in the local market and are considered the most pertinent of the value indicators for the subject. The Income Approach, as it pertains to the cash flows the subject is capable of generating, is another indicator of the subject's value and is presented in the report using the discounted cash flow analysis. Cost Annroach Defined The cost approach is defined as: "A set of procedures through which a value indication is derived for the fee simple interests in a property by estimating the current cost to construct a reproduction of, or a replacement for, the existing structure; deducting accrued depreatatton from the reproduction or replacement cost; and adding the estimated land value plus an entrepreneurial profit. Adjustments may then be made to the indicated fee simple value of the subject property to reflect the value of the property interest being appraised. in the property, and adding the estimated land value."' The cost approach involves analysis of land sale data, engineering costs, the cost of city planning studiesfapprovals, in addition to the direct land improvement costs. Improvement costs are estimated and added to the land value estimate for a value indication for the subject. Sales Comparison Approach Defined The sales comparison approach is defined as: "A set of procedures in which an appraiser derives a value indication by comparing the property being appraised to similar properties that have been sold recently, applying appropriate units of comparison, and making adjustments, based on the elements of comparison. The sales The Dictiona of Real fistate A raisal Third Edition 1993, The Appraisal Institute, Page 81. 44 File 3533 Lauver & Ass©eiates Assessment District 03 3 comparison approach may be used to value improved properties, vacant land, or land being considered as though vacant; it is the most common and preferred method of land valuation when comparable sales data are available."' Application of the sales comparison approach involves gathering information on sales transactions involving properties with similar physical and locational characteristics. Since no two properties are exactly alike, adjustments are made to the comparable sales to reflect the characteristics of the subject property. After malting the adjustments,: a range of value is indicated for the subject that is reflective of the current local market conditions. Income Annroach In this analysis, a value from the Income Approach is represented by what is known as a residual cash flow analysis. This methodology is based upon the principle of anticipation that affirms that value is created by the anticipation of future benefits. After concluding the value of the fmished lots using the approaches described previously, deductions are made from the estimated periodic sales revenues. These deductions are estimates of the costs of sale, absorption, construction and profit to indicate net cash flow revenues to the developer. These periodic cash flows are discounted to indicate a net present value that represents the subject's value during the holding period. Methods Anulied to the Subiect All three approaches are pertinent to the appraisal of the subject property. Each approach will be independently applied in the following analysis. The values applicable to the subject and the method used are presented in the following chart. Value Definition Methodolo `As Is' Value of land & improvements as they exist on the Cost, Sales Comparison, effective date of r ort Income A roaches `As Retail Value of fmished vacant lots when ready for Cost, Sales Comparison, Com late' irn rovement with residences Income A roaches The Dic[ion of Real Estate A sisal Third Edition, 1993, The Appraisal Institute, Page 318. 45 Laaner & Associates Assessment District 03-3 Estimated Finished Lot Values `As Complete` The first method employed in valuing the tracts is the Cost Approach. This approach consists of _ estimating the value of the individual lots when fmished and ready to be improved with single- family residences. This approach involves estimating the value of the unimproved land and adding the costs to produce fmished lots. Costing sources used include Marshall Valuation Service, a recognized national costing service, cost estimates from a major bank cost estimating department and estimates from local developers actively involved in the subdivision process. Another method used in estimating the fmished residential value is the Direct Sales Comparison Approach. To apply this technique, sales data pertaining to fmished lots that have sold during the past year is analyzed. These data are compared to the subject and adjusted to represent the subject's characteristics. The adjusted values from this approach will provide a range of values from which the subject's value is selected. The cited methods are then reconciled and the total of the land and improvement values will represent the aggregate market value of the various tracts `As Complete'. It is understood that the on-site development of the subdivisions will require time to complete before any income is realized from lot sales. Consequently, the aggregate market value of the lots As Complete must be discounted to reflect the time period necessary to construct the tract and achieve a full sellout. Establishing an estimate of completion time for the subject tracts, and discounting for the time value of money is the methodology employed. This discounted cash flow analysis will provide the `As Is' value of the subject lots. Exposure and Marketing Time Exposure time and marketing time may or may not be similar depending on whether market activity in the immediate future continues in the same manner as in the immediate past. Indications of the exposure time associated with the market value "As Is" estimate are provided by the marketing threes of sales comparables, interviews with participants in the market and 46 File 3533 Lauver & Associates Assessment District 03-3 analysis of general ecanornic conditions. An estimate of a future marketing time is more difficult, requiring forecasting and analysis of trends. Exposure time is defined as the length of time that a property would have been offered on the market prior to the hypothetical consununation of a sale at market value. It is retrospective opinion of time based on an analysis of past events and assuming a competitive and open market. Exposure times of residential land sales in the subject's market area, as well as surrounding areas were found to be less than six months. Additionally, land developers active in the market area were contacted with regard to the exposure time that they have experienced over the recent past. Based on these conversations, an estimated exposure time of less than six months for each phase was determined reasonable, considering the stage of development readiness of the subject. Marketing time is an opinion of the time to sell a property interest in real estate based on the opinion of market value during the period immediately after the effective date of value. An opinion of reasonable marketing time is determined by comparing the recent exposure time of similar properties and then taking into consideration current and future economic conditions and how they may positively affect marketing of the subject property. A review of exposure times for residential land in the greater Bakersfield area indicates a marketing period of one to twelve months is sufficient to consummate a sale. The residential market has been strong in the metropolitan area surrounding Bakersfield for the past three years. Investors and developers are demonstrating confidence in the Central Valley market as we are seeing increased purchases of undeveloped land and sales of finished lots in bulk or on a rolling option basis. Based on our analysis of current market conditions, we are projecting a marketing time of less than six months for each subdivision as reasonable. 4? Lauver & Associates Assessment District 03-3 NEIGHBORHOOD ANALYSIS -SEVEN OAKS WEST III AREA Assessment Numbers 1 ThrouEh 556, Inclusive Introduction Locational factors are the items that make real estate productive and valuable. These value- generating characteristics axe perhaps more important than the physical attributes of the land or man-made improvements that make land useful for urban purposes. Analyzing the neighborhood involves a study of change, (if any) the protections offered against change, the area's land use pattern and the occupancy situation, among other items. A neighborhood is defined as: "A portion of a larger community, in which there is a homogeneous grouping of inhabitants, buildings, or business enterprises." II "Neighborhood boundaries may consist of well-defined natural or man-made barriers or they may be more or less well-defined by a distinct change in land use or the characteristics of the inhabitants." Selection of Neighborhood Boundaries The subject neighborhood is located in the southwest section of the City of Bakersfield, within the City Limits. The neighborhood covers roughly a two square mile area, bounded by the major streets as follows: Location North Side Boundary South Side Boundary East Side Boundary West Side Boundary Border Street Stockdale Hwy/Kern River Pacheco Road(Union Pacific Gosford Road Allen Road Description Major East-West Arterial Major East-West Arterial Major North-South Arterial Major North-South Arterial The subject neighborhood is located within portions of Census Tracts 28.05, 28.06, 28.08 and 32.01. The physical boundaries of the neighborhood were selected because of the predominantly residential land use patterns in the area. 6 Real Estate Appraisal Terminology. Sponsored jointly by The American Institute of Real Estate Appraisers and The Society of Real Estate Appraisers, 19$1, p. 147 48 File 3533 Lanner & Associates Assessment District 43-3 Neighborhood Mag The neighborhood boundaries and the subject properly location are presented above. Access The neighborhood has good access to all parts of the city via Stockdale Highway and White ', Lane, both with Freeway access ramps, located five miles east of Buena Vista Road. Gosford and ', Buena Vista Roads are major arterials providing access in the north and south directions to Stockdale Highway and White Lane. Stockdale Highway from Freeway 99 to Allen Road (one mile west of Buena Vista) is a divided four-lane highway, with signal-controlled intersections at the major arterials and streets. Buena Vista Road is a divided four-lane, north-south arterial with signal-controlled intersections. The southerly termination point of Allen Road is at White Lane. 49 Launer & Associates Assessment District 43-3 General NeiEhborhood Land Use Pattern ~! The neighborhood is located in the southwest quadrant of Bakersfield. The overall character of the neighborhood continues to be in a state of rapid growth to urban uses. Since much of the vacant land in the planned areas of the City to the east of this neighborhood is approaching full ', build out, it is anticipated that urban development will continue to spread into this area. This would follow the City's historical westerly growth pattern that has steadily shifted to the west over the past twenty-five years. The Seven Oaks master planned community, considered by many to be the most prestigious area in the City, dominates the neighborhood. The Seven Oaks Country Club and golf course is the focal point of the general neighborhood and the surrounding developments contain the majority of the up-scale and luxury housing in the City. Schools, ShapUins and Conveniences Elementary school aged students from Kindergarten to Grade 6th attend various schools such as Del Rio School located on Hidalgo Drive. Junior High school students are bused approximately 2-''/Z miles northwest to Rosedale Middle School. High school students attend Stockdale High School. Community sized shopping centers are located at Stockdale Highway at Gosford Road and Gosford at White Lane and Stockdale Highway. A neighborhood shopping center is at Rosedale Highway and Allen Road, Z 'h miles northwest. A regional mall is located approximately five miles southeast from the subject, on Ming Avenue at Freeway 99 and asub-regional mall is located 2 miles north of the subject on Rosedale Highway between Coffee Road and Calloway Drive. Convenience centers are located throughout the general neighborhood. City, County and Administrative services are in the downtown central business district, approximately 8-''/z miles northeast of the general neighborhood. 50 File 3533 Louver & Associates Assessment District 03-3 Conclusion ', The neighborhood is located in a rapidly developing area of southwest Bakersfield. The area is ~ well located with reference to schools, shopping and other socialleconomic establishments. The overall character of the neighborhood is in a state of steady growth to upscale housing, a result of proxirnity to the master planned Seven Oaks cornrnunity surrounding the country club and golf course. Sales activity in this particular sector of the city has been strong, owing in large part to the long range planning of the developments and good access with linkages to all parts of the city. 51 Lauver & Associates Assessment District 03-3 SITE DESCRIPTIONS Location and Immediate Area Character The assessment district site is located in the southwest quadrant of the city of Bakersfield. The southwesterly corner of the site is situated at the northeast corner of Allen Road and White Lane. In general, the land in this area is considered to be transitional h1 nature to urban land uses expanding from the east. The former agricultural uses are giving way to residential housing developments consisting of good to luxury quality dwellings. The Kern River, the Cross-Valley Canal and bridge and vacant unimproved land and previous Seven Oaks developments are north and east of the subject. Immediately west of the subject is vacant unimproved land, covered with natural vegetation, west of the extension of Allen Road. The southwest corner of Allen Road and Stockdale Highway is improved as a commercial center. To the west and south of this center is the Stockdale Ranchos subdivision, a development improved with good to luxury quality dwellings ranging in size from approximately 2,200 to over 3,500 square feet. These dwellings are typically on lots of '/z acre or slightly larger. This development was completed by the mid 1980's. It tends to enhance the upscale rural residential character of the neighborhood. Traveling east along Stockdale Highway from the intersection of Buena Vista Road is open unimproved land owned by Castle and Cooke and a City of Bakersfield Water Resources Department facility. Castle and Cooke's headquarters housed in a three-story office building, is situated at the northeast comer of Stockdale Highway and Old River RaadlCalloway Drive, approximately one mile to the east. Mercy Southwest Hospital is situated on the southeast corner of Stockdale Ilighway and Old River Road. California State University Bakersfield is located approximately 1-'l2 miles east of the subject on Stockdale Highway. East of this portion of the subject assessment district, along the east line of Buena Vista Road are the monumental entrances to the Seven Oaks master planned community. The Seven Oaks master 52 File 3533 Lauver & Associates Assessu:eut District 03-3 planned community encompasses approximately 1,000 acres. It centers on a privately owned 27 hole championship golf course and country club. Seven Oaks is located south of the Kern River and extends south to White Lane. Stockdale Highway bounds the communities on the North, Allen Road forms the westerly boundary and the Seven Oaks area is bounded on the east by Old River Road. Recent construefion activity adjacent to the east of the Seven ©aks community is the Mercy Southwest Hospital and adjunct medical offices and State Farm Insurance 584,000 square feet, $49 million regional office building. Castle & Cooke Corporation occupies their headquarters, a 75,000 square foot three story office at the corner of Old River Road and Stockdale Highway. Access Portions of the subject property has frontage along three major thoroughfares, White Lane at the south, Allen Road at the west and Chamber Boulevard intersects this portion of the assessment district. Access into the subject tract is via Grand Island Avenue, from Ming Avenue, from Chamber Boulevard, intersecting Buena Vista Road and from Windermere Street off White Lane. Buena Vista Road intersects Stockdale Highway approximately '!a mile north of Ming Avenue. Stockdale Highway is a major east-west highway connecting to Freeway 99, five miles east of Buena Vista Road. Stockdale Highway from Freeway 99 to Allen Road (Allen Road is one mile west of Buena Vista) is a divided four-lane highway. White Lane also connects to Freeway 99, five miles east of Buena Vista Road. Size. Shane and Toaoeranhy The subject land and tracts cover areas that are irregular in shape. The reader may wish to refer to the assessor's plat map, tract maps and Engineer's exhibits for more precise dimensions and boundary lines. 53 Lauver & Associates Assessment District 03-3 The topography is generally level with a slight natural gradient with drainage from east to west. Water drainage appears to be adequate. Utilities . All utilities including gas, water, electricity, sewer, storm drains and telephone service are or will be installed in the streets within the described tracts and will connect to,the existing facilities in the surrounding streets. Natural gas service is provided by Pacific Gas & Electric; water, sewer and storm sewers are provided by the City of Bakersfield; electricity service is provided by Pacific Gas & Electric and telephone service is provided by Pacific Bell. Flood and Earthquake Zones According to the Federal Emergency Management Agency Federal Insurance Administration map panel 060075-1O15B, dated September 29, 1986, the easterly portion of the site is situated within a mapped Zonc C area. Zonc C designates areas of minimal flooding and no flood insurance is required. According to Special Publication #42 of the California Division of Mines and Geology, Revised Edition, 1994, entitled "Fault-Rupture Hazard Zones in California", this parcel is not located within any Special Studies Zones, as defined in the Alquist-Priolo Special Studies Zone Act. Zonine A zoning map covering the two regions in Assessment District 03-3 is reproduced in this section of the report. According to the City of Bakersfield Planning Department, Assessment Number 1, the 10-acre commercial zoned parcel, is zoned C-2. The C-2 designation is a Commercial Zone. This designation permits development of most types of commercial uses including concentrated large-scale retail operations. The C-2 zoning ordinance precludes any uses normally and typically allowed under any of the R (residential) designations. 54 File 3533 Launer & Associates Assessment District 03-3 The residential areas described previously are zoned R-l. This zoning designation allows one- family residential land uses, with a minimum lot size of 6,000 square feet for each dwelling unit. Environmental Characteristics The appraiser has no knowledge concerning the presence or absence of any hazardous materials or wastes within, or in proximity to the subject property. A physical inspection of the subject property revealed no atypical conditions that might contribute to a toxic hazard. It should be ', noted however, that this appraisal report was prepared strictly for the use of the client and does i not constitute an expert environmental assessment of the subject property. The appraiser is not an expert in the field of hazardous materials, and this appraisal report should not be relied upon to -- - determine whether environmental hazards exist on the property. The value presented in this report is predicated on the assumption that the site is free of any hazardous materials, existing or i past soil contamination. If there is any question regarding the presence of any contaminants, the appraiser recommends that the client obtain an environmental assessment from a qualified environmental expert to determine the potential environmental risks associated with ownership of the subject property. If such toxic conditions do exist, the property value may be adversely affected. Residential Lots A listing of the lot sizes in each subdivision is retained in the appraiser's files. A summary of the lot characteristics in each of the tracts in the Seven Oaks West III area of the assessment district is displayed in the chart below. Lot Descriptions There are a total of 503 residential lots in the Seven Oaks West III area of Assessment District 03-3. These have been designed for five housing product types. These range from lots designed for entry-level housing that will be developed and sold by Castle & Cooke Homes, to large lots both on and off the golf course that will be sold to merchant builders who will construct 55 Lauver & Associates Assessment District 03-3 executive and luxury homes. The characteristics of the various product lines and lot characteristics are displayed in the chart below. Product Line Tract No. # Lots Minimum Lot Maximum Lot Average Lot 6086 29 10,563 19,242 13,095 Lexington 6087-B 8 11,32$ 19,247 12,337 6199 42 10,709 23,757 13,864 6087-A 25 13,496 20,762 15,220 Regency 6150-1 25 13,224 20,255 15,954 6150-2 24 13,472 28,612 16,584 6151-1 24 16,713 31,696 21,232 Showcase 6151-2 23 17,663 31,979 21,988 Wedgewood 6087-C 27 7,538 18,050 11,159 608?-D 35 8,123 14,975- 9,036 Windermere 62231-7 241 7,296 14,975- 9,03b Physical Support Characteristics There were no signs of soil subsidence or cracking noted at the time of inspection. The appraiser was not furnished a capy of a Preliminary Geotechnical Engineering Report. It is assumed that a Geotechnical engineering study and report has been made however, and all site preparation has been completed meeting with all recommendations contained in this report, and all governmental approval(s) with regard to support characteristics have been obtained. However, the appraiser cannot guarantee such an occurrence. Traffic Patterns Allen Road provides access to the Seven Oaks portion of Assessment District along its westerly boundary via Chamber Boulevard. Chamber Boulevard is a divided four lane north south arterial. From the south, Windermere provides access into the various tracts in the assessment district. At the north, access is from several streets opening onto Ming Avenue. Major and minor access streets will be improved with concrete curb, gutter and sidewalk and be paved with asphaltic concrete mix. The streets within the tract are 60 feet in width and will be similarly improved. 56 File 3533 Lanner & Ass©ciates Assessment District 03-3 ... The street patterns have been designed to minimize the potential of traffic from Ming Avenue, White Lane and Chamber Boulevard. The proposed subdivisions do not have a significant effect on the level of service on these traffic streets, or other collector routes in the area. Proaosed Off-Site Infrastructure Construction Descrinfions The Seven Oaks West III area encompass an approximately 225.5-acre block of land planned for subdivision into 503 residential lots, 1 commercial parcel, 2 park sites and 2 storm drain sumps. The specifics of these hprovements were described previously in this report. The off-site infrastructure proposed is to be constructed with the proceeds from bond financing issues. These improvements are an essential part of the development described in this report and the value estimates stated herein derive a part of their value as a result of the existence of the bond- financed infrastructure. Commercial Parcel As described previously, the Commercial Development Area boundaries encompass a 10.04-acre block of land that is planned for development as a 10.00-acre net parcel at the Southeast corner of Ming Avenue and Allen Road. The proposed improvements for this area were described on page 4 of this report. Conclusions A review of the lot sizes in the subject tracts indicates that the average lot sizes are typical of previous phases of the Seven Oaks development located adjacent to this assessment district area in southwest Bakersfield. This is a desirable feature and is likely to enhance the appeal of the subject lots and completed housing product competing for market share. No detrimental influences contiguous to any individual parcels in the subject property or in the general area of the subject tract were observed. The subdivision is consistent with the existing General Plan. Its design does not cause substantial environmental damage or substantially and avoidably injure fish or wildlife or their habitat, nor is it likely to cause any serious health 57 Lauver & Associates Assessment District 03-3 problems. The design of this subdivision does not conflict with easements, acquired by the public at large, for access through or use of property within the subdivision. The subject tracts are physically suitable for the type and density of development proposed, and are well located with reference to schools, shopping and other social(economic establishments. Because of its location in proximity to the major arterials such as Allen Road, Ming Avenue and Buena Vista Road, the subject will provide its resident's ease of access and shorter travel times to conveniences. The reputation of the prestigious Seven Oaks development is also anticipated to be a positive factor in the marketing of the tract. The confornuty of the lots to the area and the general development trends in the Southwest Bakersfield area should assist in the marketing of the finished lots with. or without housing units and demand(growth trends should aid in maintaining values into the future. Boundaries of the Seven Oaks West III Area LDGATIO'N MAP bF PROPG$ED QOUNDARIES DF A9~.`ESSh4EN"P.k1FSTRFCT NA- 03-3. ADD TNDEX MAP OrSHEETS.3 THROIiGH .S ~ccw arar nrsc.r, .. ww...mcns wvw. ..__.. _ mnww vmsm w e=~ e.s+.a x..xw. _~.____~ ..: w~w.H.~,o _,,.,.. _._.a..e~,~, a.: _.. .,. ..~....am~x cxua wt nx -.eaK.z-w.., m. ».....v, ~.. 4, ~ as-~ 58 File 3533 Launer & Associates Assessment Dlstrlct 03-3 VALUATION METHODOLOGY In the appraisal of real estate there are three traditional approaches to value. These are the cost, direct sales comparison and income approaches. Methods Applied to the Subiect Develoament In appraising the subject subdivision, the Cost Approach and the Sales Comparison approach are the primary value indicators used in the local market and are considered the most pertinent of the value indicators for the subject. The Income Approach, as it pertains to the cash flows the subject is capable of generating, is another indicator of the subject's value and is presented in the report using the discounted cash flow analysis. Cost Approach Defined The cost approach is defined as: "A set of procedures through which a value indication is derived for the fee simple interests in a property by estimating the current cost to construct a reproduction of, or a replacement for, the existing structure; deducting accrued depreciation from the reproduction or replacement cost; and adding the estimated land value plus an entrepreneurial profit. Adjustments may then be made to the indicated fee simple value of the subject property to reflect the value of the property interest being appraised. in the property, and adding the estimated land value."~ The cost approach involves analysis of land sale data, engineering costs, the cost of city planning studies/approvals, in addition to the direct land improvement costs. Impravement costs are estimated and added to the land value estimate for a value indication for the subject. Sales Comparison Approach Defined The sales comparison approach is defined as: "A set of procedures in which an appraiser derives a value indication by comparing the property being appraised to similar properties that have been sold recently, applying appropriate units of comparison, and making adjustments, based on the elements of comparison. The sales The Dictionary of Real Estate Aopraisal. Third Edition. 1993, The Appraisal Institute, Page 81. 59 Launer & Associates Assessment District 03-3 comparison approach may be used to value improved properties, vacant land, or land being considered as though vacant; it is the most common and preferred method of land valuation when comparable sales data are available."~ Application of the sales comparison approach involves gathering information on sales transactions involving properties with similar physical and locational characteristics. Since no two properties are exactly alike, adjustments are made to the comparable sales to reflect the characteristics of the subject property. After making the adjustments, a range of value is indicated for the subject that is reflective of the current local market conditions. Income Aanroach In this analysis, a value from the Income Approach is represented by what is known as a residual cash flow analysis. This methodology is based upon the principle of anticipation that affirms that value is created by the anticipation of future benefits. After concluding the value of the finished lots using the approaches described previously, deductions are made from the estimated periodic sales revenues. These deductions are estimates of the costs of sale, absorption, construction and profit to indicate net cash flow revenues to the developer. These periodic cash flaws are discounted to indicate a net present value that represents the subject's value during the holding period. Methods Auplied to the Subject All three approaches are pertinent to the appraisal of the subject property. Each approach will be independently applied in the following analysis. The values applicable to the subject and the method used are presented in the following chart. Value Definition Methodolo ` ' Value of land & improvements as they exist on the Cost, Sales Comparison, As Is effective date of re ort Income A roaches `As Retail Value of fmished vacant lots when ready for Cost, Sales Comparison, Com lete' irn rovement with residences Income A roaches The Dicti of Reel Estate A isal Third Edition 1993, The Appraisal Institute, Page 318. 60 File 3533 Lttuuer & Associates Assessment District 03-3 Estimated Finished Lot Values `As Complete' The first method employed in valuing the tracts is the Cost Approach. This approach consists of estimating the value of the individual lots when finished and ready to be improved with single- .. family residences. This approach involves estimating the value of the unimproved land and adding the costs to produce fmished lots. Costing sources used include Marshall Valuation Service, a recognized national costing service, cost estimates from a major bank cost estimating department and estimates from local developers actively involved in the subdivision process. Another method used in estimating the fmished residential value is the Direct Sales Comparison Approach. Ta apply this technique, sales data pertaining to fmished lots that have sold during the past year is analyzed. These data are compared to the subject and adjusted to represent the subject's characteristics. The adjusted values from this approach will provide a range of values from which the subject's value is selected. The cited methods are then reconciled and the total of the land and improvement values will represent the aggregate market value of the various tracts `As Complete'. It is understood that the on-site development of the subdivisions will require time to complete before any income is realized from lot sales. Consequently, the aggregate market value of the lots As Complete must be discounted to reflect the time period necessary to construct the tract and achieve a full. sellout. Establishing an estimate of completion time for the subject tracts, and discounting for the time value of money is the methodology employed. This discounted cash flow analysis will provide the `As Is' value of the subject lots. Exposure and Marketine Time Exposure time and marketing time may or may not be similar depending on whether market activity in the immediate future continues in the same manner as in the immediate past. Indications of the exposure time associated with the market value "As Is" estimate are provided 61 Launer & Associates Assessment Distract 03-3 by the marketing times of sales comparables, interviews with participants in the market and analysis of general economic conditions. An estimate of a future marketing time is more difficult, requiring forecasting and analysis of trends. Exposure time is defined as the length of time that a property would have been offered on the market prior to the hypothetical consummation of a sale at market value. It is retrospective opinion of time based on an analysis of past events and assuming a competitive and open market. Exposure times of residential land sales in the subject's market area, as well as surrounding areas were found to be less than six months. Additionally, land developers active in the market area were contacted with regard to the exposure time that they have experienced over the recent past. Based an these conversations, an estimated exposure time of less than six months for each phase was determined reasonable, considering the stage of development readiness of the subject. Marketing time is an opinion of the time to sell a property interest in real estate based on the opinion of market value during the period immediately after the effective date of value. An opinion of reasonable marketing time is determined by comparing the recent exposure time of 'I similar properties and then taking into consideration current and future economic conditions and how they may posifively affect marketing of the subject property. A review of exposure times for residential land in the greater Bakersfield area indicates a marketing period of one to twelve months is sufficient to consummate a sale. The residential market has been strong in the metropolitan area surrounding Bakersfield for the past three years. Investors and developers are demonstrating confidence in the Central Valley market as we are seeing increased purchases of undeveloped land and sales of finished lots in bulk or on a rolling option basis. Based on our analysis of current market conditions, we are projecting a marketing ~ time of less than six months for each subdivision as reasonable. 62 File 3533 Lauver & Associates Assessment District 03-3 VALUATION -SEVEN OAKS WEST III AREA Value of the suhiect Unimproved Residential Land This portion of the appraisal report covers five distinct subdivisions in the Seven Oaks West III area. These were previously identified as Lexington, Regency, Showcase, Wedgewood and Windermere. The first step in the valuation process involves analysis of vacant land sale transactions wherein the sales have physical characteristics similar to those of the subject. The comparables selected are shown on the following rnap and their characteristics are presented on individual data sheets that follow. 63 Launer & Assoeaates Assessment Distract 03-3 LAND SALE NO. 1 Prooerty Identification Record ID ', Property Type ', Property Name Address Location User 1 Sale Data Grantor Grantee Sale Date Deed Book7Page Property Rights Financing Verification Sale Price Land Data Zoning Topography Utilities Dimensions Shape Landscaping Land Size Information Gross Land Size Useable Land Size ~ Front Footage Indicators Sale Price/Gross Acre Sale Price/Gross SF Sale PricetUseable Acre Sale Price/Useable SF Sale PricelFront Foat 120 Residential Residential Land S. Line of Brimhall Road, West of Jenkins Road, Bakersfield, Kem County, California 93312 TB 2440 H-6 Lot Line Adjustment 116-O1, Parcel A Alma L. Sledge/Judy D. Marshall Soper Homes, Inc. February 1, 2001 121841 Fee Simple Cash to Seller Mike Soper, Soper Homes, 661-631-8620; Launer, MAI SRA $530,000 R-1, Residential Level Electric, Gas, Water, Sewer 861.65 x 1,322.64 Rectangular None Confnmed by Michael 20.000 Acres or 871,200 SF 20.000 Acres or 871,200 SF 100.04% 862 ft S. Line of Hageman, 660' west of Jenkins $26,500 $0.61 $26,500 $0.61 $615 Remarks This parcel was fallow agricultural land located directly south from Westdale Estates on the south line of Brimhall Road, approximately 660 feet west of Jenkins Road, in West Bakersfield. The sale price included mineral rights and abandonment of a well site. Subsequent to the purchase a 40% interest was sold to Batey Trust for the sum of $274,800. Soper Homes, Iuc., who intends to develop it with 44 residential lots averaging approximately 15,000 squaze feet, purchased the parcel as a site for a residential subdivision. The developer intends to finish the lots and improve them with single-family residential units in the 2,400 to 3,500 square foot size range that aze designed to appeal to the move-up buyer segment of the market. 64 File 3533 Lauver & Associates Assessment District 03-3 LAND SALE NO. 2 Prooertv Identification Record ID Property Type Property Name Address Location Tax ID Sale Data Grantor Grantee Sale Date Recorded Plat Property Rights Financing Verification Sale Price Land Data Zoning Topography Utilities Dimensions Shape Landscaping Parking Land Size Information Gross Land Size f Planned Units ~ Front Footage I - Indicators i Sale Price/Gross Acre i Sale Price/Gross SF ~ Sale Price{Unit 179 Residential, Residential Acreage Residential Land Olive Drive & Old Farm Road, Bakersfield, Kem County, California 93312 2401 A-4 462-020-34 & 37 DaveslHashim Trusts Probuilt Homes Inc March 30, 2001 462-*020-34 & 37 Fee Simple Cash to Seller Russ Johnson -Probuilt $1,802,000 Confumed by Michael Lauver, MAI SRA R-I, Residential Level Electricity, Water, Gas, Sewer Irregular -See Plat Rectangular None N/A 67.930 Acres or 2,959,031 SF 251 1380 ft Olive Drive $26,527 $0.61 $7,179 Remarks This sale involved a flag shaped pazcel {azound a future school site) that adjoins Centex Homes Tract 5829 immediately its easterly boundary. It has frontage on the north line of Olive Ihive and along the east line of Old Farm Road in Northwest Bakersfield. At the time of sale it was unimproved agricultural land. It is being subdivided into a total of 73 lots in two phases, known as Tract 5968. Probuilt Homes intends to improve the lots and construct entry level to move-up single-family housing. The purchasers also negotiated an option on the 40-acre parcel (39.1-ac) 462-020-37, on the south line of Olive Drive with these sellers. The option agreement stipulates $26,500 per acre. The option will likely be exercised in early 2003. Overall, this sale represents a total of 67.93-acres and a combined selling price of $1,802,000. 65 Lauver & Associates Assessment District 03-3 LAND SALE NO. 3 Property Identification Record ID Property Type Property Name Address Location Tax H) User 1 Sale Data Grantor Grantee Sale Date Property Rights Financing Verification Sale Price Upward Adjustment Adj asted Price Land Data Zoning Topography Utilities Dimensions Shape Landscaping Land Size Information Gross Laad Size Useable Land Size Planned Units Front Footage Indicators Sale PricelGross Acre Sale PricetGross SF Sale Pricell7seable Acre Sale PricelUseable SF Sale PricetUnit 100 Residental Vacant Residential Land Norris & Coffee Roads, Bakersfield, Kem County 2401 F-5 Remainder Parcel 1, Parcel Map 10557 Parcel Map Book SQ, Page 48 Riverlakes Ranch Land Development LLC Dou Judkins, dba Hampton Place, LLC June 10, 2001 Fee Simple Cash to Seller Don Judkins, 661-396-8800, May 7, 2001; Lauver, MAI SRA $1,350,000 $790,000 $2,140,000 R-l, Residential Level Water, Electricity, Gas 815 x 3,690' +!- Irregular None 75.610 Acres or 3,293,572 SF 69.000 Acres or 3,005,640 SF 91.26°l0 185 3690 fr Norris Road $17,855 Actual or $28,303 Adjusted $0.41 Actual or $0.65 Adjusted $19,565 Actual or $31,014 Adjusted $0.45 Actual or $0.71 Adjusted $1,297 Actual or $11,568 Adjusted Confnmed by Michael Remarks This is a pazcel of undeveloped agricultural land with residential entitlements. A portion has fiontage on the Riverlakes Golf Course. The purchaser intends to construct approximately 185 lazge, single-family lots. These will ultimately be improved with upscale custom built homes. The purchaser stated that he is responsible to improve the parcel frontage along Norris and Coffee Roads to 1/2 width including C&G, sidewalk, and street lights. Costs for these improvements were estimated at $790,000. 66 File 3533 Lanner & Associates Assessment District 03-3 LAND SALE NO. 4 Property Identification Record ID 181 Property Type Residential Subdivision Land Property Name Residential Land Address NWC Noriega and Jewetta, Bakersfield, California 93312 Location 2441 B-1 Tax ID 462-032-56, 57 Sale Data Grantor Obland Investment/1{asmer Family Trust Grantee McMillan Homes Sale Date October 30, 2002 Deed BooklPage 184994 Property Rights Fee Simple Conditions of Sale Buyer must remove orchard Financing See Comments; Cash Equivalent Verification McMillan (developer) Don Renfro, 619-336-3121, October 31, 2002; Sale Price $1,920,803 Upward Adjustment $56,000 Adjusted Price $1,976,803 Land Data Zoning R-1, Residential Topography Level Utilities Electricity, Water, Gas Dimensions Irregular -See Plat Shape Irregulaz rectangle Landscaping None Land Size Information Grass Land Size 56.760 Acres or 2,472,466 SF Useable Land Size 56.730 Acres or 2,471,159 SF 99.95°I° Planned Units 209 Indicators Sale Price/Gross Acre $33,841 Acmal or $34,827 Adjusted Sale Price/Gross SF $0.78 Actual or $0.80 Adjusted Sale Price/ITseable Acre $33,859 Actual or $34,846 Adjusted Sale Price/Useable SF $0.78 Actual or $0.80 Adjusted Sale Price(Unit $9,190 Actual or $9,458 Adjusted Remarks This transaction involved a 56.73-acre pazcel in Northwest Bakersfield. At the time of sale it had vesting tentative tract map 6146 for 212 (209 buildable) lots. Subject was purchased while planted to Pistachios. Estimated cost to remove trees and roots was $1,000 per acre. Pazcel 14 15 16 Cash to sellers 255,170 310,830 275,040 2ndsto sellers 414,830 280,830 275,040 Commisions/Options 63,394 23,666 22,033 Total Consideration 733,394 615,326 572,083 $1,920,803 67 Launer & Associates Assessment District 03-3 LAND SALE NO. 5 Prooerty Identification Record ID 182 Property Type Residential Land, Residential Acreage Property Name Noms Residential Address Norris Road, Bakersfield, Kern County, California 93308 Location 2401 F-5 Tax ID 494-030-O1 Sale Data Grantor George M. Bradford Grantee Probuilt Homes Sale Date December 30, 2002 Property Rights Fee Simple Financing All Cash Verification Chris Hayden, 661-664-2760, February 3, 2003; Confirmed by Michael Launer, MAI SRA Sale Price $1,160,000 Land Data Zoning R-1, Single Family Topography Level at Street grade Utilities Electricity, Gas Dimensions 799.61 x 1323.15 Shape Rectangular Landscaping None Parking N1A Land Size Information Gross Land Size 23.740 Acres or 1,034,114 SF Useable Land Size 23.740 Acres or 1,034,114 SF 100.00% Front Footage 800 ft Total Frontage: 800 ft Norris Road; 1325 ft Quail Creek Road Indicators Sale PricelGross Acre $48,863 Sale PricetGross SF $1.12 Sale PriceNseable Acre $48,863 Sale PriceJUseable SF $1.12 Sale PricetFront Foot $1,450 Remarks This sale involved a 24-acre parcel on the north line of Noms Road at the northeast corner of Oak Creek in Northwest Bakersfield. According to the buyer, several builders were interested in purchasing the land. His bid was the highest aad was accepted by the seller, all cash. Chris Hayden, president of Pro Built Homes, stated it is his intent to develop the land with large lots to be sold as finished lots to merchant builders targeting the up-scale housing market. At the time of sale the parcel had residential entitlements but no maps had been agplied for. The frontages have no street improvements. b8 File 3533 Lauver & Associates Assessment District 03-3 COMPARABLE LAND SALF,S SiTMMARY :Location Sale Date Price - Size in Aeres 'Price! Acre I. Brimhall Road, West of Jenkins Road 02!01 $530,000 20.00 $26,500 2. Olive Drive & Old Farm Road 03/01 $1,802,000 37.93 $26,527 3. Norris & Coffee Roads 06101 $2,140,000 75.61 $28,303 4. NWC Norie a and Jenkins 10102 $1,976,803 56.7b $34,827 5. Norris Road 12/02 $1,160,000 24.74 $48,863 The sales in the above summary were selected as most comparable to the subject owing to the surrounding area improvements. The subject is in a neighborhood with a trend to up-scale development as are the sale data. The sale data cover a time range of slightly more than 3 years and are considered to be the most current available. The sales range in size from 20-acres to over 75-acres. Sale 1 describes a parcel of fallow agricultural land located directly south from Westdale Estates on the south line of Brimhall Road, approximately 660 feet west of Jenkins Road, in West Bakersfield. The sale price included mineral rights and abandonment of a well site. Subsequent to the purchase a 40°lo interest was sold to Batey Trust for the sum of $274,800. Soper Homes, Inc., who intends to develop it with 44 residential lots averaging approximately 15,000 square feet, purchased the parcel as a site for a residential subdivision. The developer intends to finish the lots and improve them with single-family residential units in the 2,400 to 3,500 square foot size range that are designed to appeal to the move-up buyer segment of the market. The parcel had neither offsite improvements nor maps in plane at the time of sale. Overall, this sale is considered inferior with respect to location and is smaller in size. It also requires an adjustment to account for the appreciation in the market. Sale 2 represents a March 2001 transaction involving a flag shaped parcel {around a future school site) that adjoins Centex Homes Tract 5829 immediately along its easterly boundary. It has frontage on the north line of Olive Drive and along the east line of Old Farm Road in Northwest Bakersfield. At the time of sale it was unimproved agricultural land. It is being subdivided into a total of 73 lots in two phases, known as Tract 5968. Probuilt Homes intends to improve the lots and construct entry level to move-up single-family housing. The purchasers also 69 Lauver & Associates Assessment District 03-3 negotiated an option on the 40-acre parcel (39.1-ac) 462-020-37, on the south line of Olive Drive with these sellers. The option agreement stipulates $26,500 per acre. Overall, this sale represents a total of 67.93-acres and a combined selling price of $1,802,000. This sale requires an upward adjustment for market conditions (time) and its inferior location. It is similar in size to the subject. Sale 3 is a parcel of undeveloped agricultural land with residential entitlements. A portion has frontage on the Riverlakes Golf Course. The purchaser intends to construct approximately 185 large, single-family lots. These will ultimately be improved with upscale custom-built homes. The purchaser stated that he is responsible to improve the parcel frontage along Norris and Coffee Roads to l/2 width including C&G, sidewalk, and streetlights Costs for these improvements were estimated at $790,000. This sale is larger than the subject and is superior with regard to location. Both conditions require an adjustment. A time adjustment is also indicated. Sale 4 refers to a transaction that involved a 56.73-acre parcel in Northwest Bakersfield. At the time of sale it had Vesting Tentative Tract Map 6146 for 212 (209 buildable) lots in progress. Subject was purchased while planted to Pistachios. Estimated cost to remove trees and roots was $1,000 per acre. The parcel will be improved with entry-level and move-up housing product. This sale is inferior in terms of location and is larger than the subject. These conditions require ', adjustments. It is representative of near current market conditions. Sale 5 is a December 2002 sale that involved a 24-acre parcel on the north Line of Norris Road at the northeast corner of Oak Creek in Northwest Bakersfield. According to the buyer, several builders were interested in purchasing the land. His bid was the highest and was accepted by the seller, all cash. Chris Hayden, president of Pro Built Homes, stated it is his intent to develop the land with large lots to be sold as finished lots to merchant builders targeting the up-scale housing 70 File 3533 Lauver & Associates Assessment District 43-3 market. At the time of sale the parcel had residential entitlements but no maps had been applied for. The frontages have no street improvements. This sale is the most recent in the data set it is representative of the type of surrounding residential improvements that will influence the subject parcel. Although smaller, it is comparable to the subject in all other respects. Adiustments According to the buyer, Sale 1 sold below market. This was demonstrated by the fact that shortly after the 40% interest was sold to the Batey Trust for the sum of $274,800. This indicates an ', adjustment of 157,000 should be added to the selling price to reflect the below market conditions of sale. The selling price per acre was adjusted upward by $7,850 per acre to an indicated selling price of $34,350 per acre. it As indicated previously, we perceive the market is showing appreciation over time. The market was flat for a period and has adjusted itself for the high demand for residential development land. Therefore it is appropriate that we adjust for appreciation to obtain a more accurate representation of current market conditions. As indicated elsewhere in the report, the Bakersfield residential re-sale market reflected an overall gain of 13.4% from 2001 to 2002 and increases ran ed from 12.3°lo to 21.7% from 2002 to 2003 de endin on location. In the first uarter 2004 g P g q increases in selling prices for homes ranged from 14.4% to 30.5% over the same quarter of 2003. The degree of appreciation City varied from one zip code area to another with the largest, ', sustained increases observed in the Northwest and Southwest sectors at around 28% to 30% ', (based on sales volume). Our studies from surveys of new home tracts are showing an average increase of 1.67°lo per month from November 2003 to Apri12004. An appreciation factor of 1.5% per month was selected to represent the market appreciation in the Northwest and Southwest quadrants of the city. A summary grid displaying the results of the adjustments discussed previously follows: 71 Lauver & Associates Assessment District 03-3 Residential Land Sales Adjustment Grid Location Date Size $/Ac Time Location Size Adj Value Brimhall W/O Jenkins Feb-Ol 20.00 $34,350 21,798 10000 -2000 64,148 Olive/Old Farm Road Mar-Ol 67.93 $26,527 16,391 10000 5000 57,918 Norris t Coffee Jun-Ol 75.61 $28,303 16,070 10000 5000 59,373 NWC Noriega & Jewetta Oct-02 56.76 $34,827 10,469 10000 5000 60,296 Norris Road Dec-02 23.74 $48,863 13,056 5000 -2000 64,919 ', In reviewing the data from the data sheets and the adjustment grid, it can be seen that the adjusted values reflect market conditians that indicate a value for the subject property around $57,000 to $65,000 per acre. A value of $65,000 per acre, unimproved, is supportable in my opinion, owing to the current demand for well-located land in the City's growth path and the ', indicated product type that is to be constructed. Therefore, as a result of my analysis, I have formed the opinion that the subject has a value of $65,000 per acre in an unimproved state. Enhancements to Land The subject tracts are well located with reference to schools, shopping and on-going residential developments. The market data cited previously recognizes the steadily increasing residential land values over time. The supply-demand conditions, locational attributes and the upward progression of residential land values have led me to the conclusion of value for the acreage in the various tracts of $65,000 per acre, unimproved. The developer has enhanced the value of the subdivisions with the installation of on-site improvements such as land clearing and grading, street grading, installation of utilities in trenches, curb gutter and sidewalks. These on-site improvements add value to the land since, were the lots to sell at this point, a developer/purchaser would recognize these as costs they would not have to incur in developing 72 File 3533 Lanner & Associates Assessment District 03-3 fmished lots. Therefore, these enhancements to the land would be recaptured in the event of resale. It is my opinion these could be recaptured at a minimum of adollar-for-dollar cost basis. As of the date of this report, the developer reports costs as follows: Product Line Tract No. # Lots Costs 6086 29 199,755 Lexington 6087-B 8 55,582 6199 42 73,831 6087-A 25 256,144 Regency 6150-1 25 188,450 6150-2 24 44,506 Showcase 6151-1 24 288,521 6151-2 23 44,335 Wedgewood 6087-C 27 86,353 6087-D 35 515,212 Windermere 62231-7 241 323,311 (Totals 503 $2,076,000 Adding these costs to the estimate of unimproved land value yields the subject's "As Is" value of the subject as it existed on the date of value. This was accomplished as follows: Ac Ts Valne of Land withnnt Acsecament Tlictriet Tmnrnvementc Product Line Tract No. Acres $/Ac Land Value Costs As Is Value 6086 11.33 65,000 736,450 199,755 936,205 Lexington 6087-B 2.72 65,000 176,800 55,582 232,382 6199 17 65,000 1,105,000 73,831 1,178,831 6087-A 10.83 65,000 703,950 256,144 960,094 Regency 6150-1 11.46 65,000 744,900 188,450 933,350 6150-2 11.34 65,000 737,100 44,506 781,606 Showcase 6151-1 13.92 65,000 904,800 288,521 1,193,321 6151-2 14.16 65,000 920,400 44,335 964,735 Wedgewood 6087-C 7.96 65,000 517,400 86,353 603,753 6087-D 11.94 65,000 776,100 515,212 1,291,312 Windermere 62231-7 16.46 65,000 4,969,900 323,311 5,293,211 Totals 189.12 12,292,800 $2,076,000 $14,368,800 73 Lauver & Associates Assessment District 03-3 PROSPECTIVE MARKF,T VALUE AT COMPLETION In this section we will present a forecast of the value of the subject at completion. This is the accepted procedure in the appraisal process when lots are in the process of being improved and have not achieved a full sell-out when the appraisal report is written. The process involves the application of the Cost and Sales Comparison approaches to value to reach a value for the Typical interior lot. In addition, we are aware that developers are commanding a premium for large lots, corner lots and cul-de-sac lots. The value of the typical lot premium is added to the interior lot value to arrive at an aggregate value for the subdivision. The aggregate of these values reflects the total value of the entire subdivision at completion. ', Since it is not possible to complete the entire subdivision and sell all the homes on the day of completion, the discounted cash flow analysis is used as a tool to recognize asell-out of the lots over time. Cost Annroach When complete, the Seven Oaks West III area will have 503 buildable residential lots in five distinct areas (or product types); Lexington (79 lots), Regency (74 lots) Showcase (47 lots), Wedgewood (621ots) and Windermere (241 lots). The Cost Approach involves calculation of the value added to the vacant land value that was estimated in the previous section and estimating the cost of developing the land from a raw land state to one of finished lots available for improving with new housing units. Since the lots are in separate areas with various lot sizes, the development costs are expected to differ in the respective subdivisions. Moreover, each area is planned for different sizelquality housing product and will be aimed to capture differing ', segments of the housing market. Income Anaroach The Discounted Cash Flow analysis is also used to estimate the value of the subject lots "As Is". This DCF serves as a check on the "As Is" value presented previously based on the cost and sales 74 File 3533 Launer & Associates Assessment District 03-3 comparison approaches. Both the "As Is" and Prospective Market Value DCF models in this section are calculated using the income and expense projections and assumptions described in the following paragraphs. Lot Production - Finishine Costs The first step in the Cost Approach is to estimate the costs involved in completing the tract to a finished lot state. The costs to bring the tract from a paper lot stage to completed, ready-to-build lots include direct and indirect costs along with developers' overhead and profit. These costs are added to the raw land value estimated previously. The final total is the estimated value of the finished lots by the cost approach. Several local independent civil engineers and land developers who have developed large subdivisions were interviewed to obtain their estimates of the costs to develop land to a fmished lot stage. One of these was Dan Judkins, President and CEO of BHA Properties, Inc. His fum has recently acquired a 66+-acre parcel of entitled land near Allen Road. This land, known as Hampton Place, is now being developed with 154 lots averaging 13,775 square feet. His firm recently fmished build-out of the Fairway Oaks subdivision, a 241-lot residential development located on the west line of Calloway, south of Brimhall Road. In speaking with this developer I learned that development costs for the smaller lot subdivision (6,000 SF typical size) is generally in the $12,000 to $16,040 range, depending on the state of preparation, topography, soil conditions, distance to utilities, etc. A spokesman for Castle & Cooke Homes, indicated cost to finish larger lot subdivision to a stage ready for development is approximately $15,000 to 18,000 per lot for lots in the 8,000 to 10,000 square foot size range and from $19,000 to over $28,000 per lot for the lots in the 12,000 to 22,000 square foot range. Costs have increased somewhat over the levels seen in years past when market activity was less than now. 75 Lanner & Associates Assessment District 03-3 These estimates compare well to subdivision costs incurred by Coleman Homes in development of lots in the Riverlakes Ranch area of Northwest Bakersfield. This firm reports costs to develop 8,000 square foot lots in Tract 5658 was $15,803, not including overhead and profit. In another land development project, Tract 5920 in the Riverlakes Ranch, Coleman is reporting development costs of $16,249 per lot prior to overhead and entrepreneurial profit. In a recent conversation with Ronald Ray, president of Coleman Homes, I learned that the overhead and profit for this type subdivision is typically in the 9-12% range. Based on the information obtained as a result of these interviews, I have concluded a typical cost to bring a subdivision with the lot sizes similar to those of the subject to a finished lot state ranges from $15,000 to $28,000 per lot depending on topography and lot size. It should be kept in mind that the costs cited were quoted prior to the dramatic increase in price and demand for residential land and houses. This has caused a corresponding increase in construction costs. We are finding increases of 25% to 40% over the costs quoted 2-years ago. Therefore, our cost projections that follow will reflect this upward pricing trend we are experiencing Citywide. As indicated previously, the lots in the subject tracts are generally rectangular in shape with typical street frontage. The smaller lots have lower development costs than do the larger ones based on our studies as cited previously. In this instance, the development costs in the Seven Oaks West III area differ based on the typical interior lot size in each development. For example, the Lexington tract has lots averaging around 13,000 square feet each. The cost to complete is likely to be at the mid-point of the cost range cited, around $18,000 per lot, adjusted to 23,000 per lot to account for cost increases since our survey. We anticipate the small lots in the Windermere will be at the lower end of the cost range, around $20,000 per lot. The larger lots in the Showcase subdivision are the largest lots, averaging nearly 22,000 square feet. These will have the highest construction costs; we are projecting current cost adjusted costs of $35,000 per lot. Regency, has 74 lots averaging 16,000 square feet where we are projecting costs of $30,000. Since many will have golf course influence cost to complete these lots is likely to be higher. It has been my experience moreover, that developers of the larger lot subdivisions anticipate higher profit margins on the large lot developments owing to risk factors. 16 File 3533 Lauver & Ass©ciates Assessment District 03-3 Following is the appraiser's summary cost approach for the subdivisions and thus the indicated finished lot values by the cost approach: Lot Value via Cost Approach - Lexin¢ton Land Value Lot construction costs Subtotal Overhead and Contingencies Total Subdivision Cost Cost per Lot Entrepreneurial /Developer Profit Indicated Finished Lot values via Cost Holding Costs 24 Months Indicated Finished Lot values via Cost 31.05 Acres @ 65,000 IAcre 2,018,250 79 Lots @ 23,000 ILot 1,817,000 3,835,250 15% 575,288 4,410,538 55,830 40% (golf course influence) 22,332 78,161 24% 18,759 96,920 Lot Value via Cost Anaroach - Reeenc Land Value 33.63 Acres @ 65,000 !Acre 2,185,950 Lot construction costs 74 Lots @ 30,000 /Lot 2,220,000 Subtotal 4,405,950 Overhead and Contingencies 15% 660,893 Total Subdivision Cost 5,066,843 Cost per Lot 68,471 Entrepreneurial !Developer Profit 40% (golf course influence) 27,388 Indicated Finished Lot values via Cost 95,859 Holding Costs 24 Months 24% 23,006 Indicated Finished Lot values via Cost 118,865 Lot Value via Cost Annroach -Showcase Land Value 28.08 Acres @ 65,000 !Acre 1,825,200 Lot construction costs 47 Lots @ 35,000 ILot 1,645,000 Subtotal 3,470,200 Overhead and Contingencies 15% 520,530 Total Subdivision Cost 3,990,730 Cost per Lot 84,909 Entrepreneurial 1 Developer Profit 40% (golf course influence) 33,964 Indicated Finished Lot values via Cost 118,873 Holding Costs 24 Months 24% 28,529 Indicated Finished Lot values via Cost 147,402 77 Launer & Associates Assessment District 03-3 Lot Value via Cost Aauroach - Wedeewood Land Value 19.9 Acres @ 65,000 !Acre 1,293,500 Lot construction costs 62 Lots @ 22,000 tLot 1,364,000 Subtotal 2,657,500 Overhead and Contingencies 15% 398,625 Total Subdivision Cost 3,056,125 Cost per Lot 49,292 Entrepreneurial /Developer Profit @ 40% (golf course influence) 19,717 Indicated Finished Lot values via Cost 69,009 Holding Costs 24 Months 24% 16,562 Indicated Finished Lot values via Cost 85,572 Lot Value via Cost Aanroach -Windermere Land Value 76.46 Acres @ 65,000 !Acre 4,969,900 Lot construction costs 241 Lots @ 20,000 !Lot 4,820,000 Subtotal 9,789,900 Overhead and Contingencies 15% 1,468,485 Total Subdivision Cost 11,258,385 ~~~ Cost per Lot 46,715 Entrepreneurial (Developer Profit @ 40°fo (golf course influence) 18,686 Indicated Finished Lot values via Cost 65,401 Holding Costs 24 Months 24% 15,696 Indicated Finished Lot values via Cost 81,098 Using the cost approach to value, the appraiser has concluded a value for the lots in the Seven Oaks West III area, As Complete are as follows: Value Conclusions from the Cost Aouroach Lexington $96,420 Regency $118,865 Showcase $147,402 Wedgewaod $85,572 Windermere $81,098 78 File 3533 Lanner & Associates Assessment District 03-3 SALES COMPARISON APPROACH In order to estimate the Prospective Market Value of the improved lots in the Seven Oaks West III area at completion, we researched the market to obtain sales information about similar size lots that were or are about to be improved with housing units that will appeal to a similar market segment. This technique is known as the Sales Comparison Approach. The value indicators resulting from these approaches are reconciled to a final value indicator for the subject "As Complete". In Northwest Bakersfield we investigated the sale of 105 lots in Tract 5658 located in the Riverlakes Ranch area. These lots were constructed by Coleman Bomes and sold to various merchant builders who subsequently developed them with semi-custom built single-family dwelling units. These Lots ranged in size from 7,400 to over 18,000 square feet in size; with an average lot size of approximately 11,000 square feet. Sale prices ranged from $30,950 for the smaller lots, to nearly $55,000 for the largest lot in the subdivision, with an overall average selling price of approximately $41,000, or $3.78 per square foot. The lots sold over atwo-year time frame, indicating an average absorption rate of 4.421ots per month. We obtained information on the sale of fully developed residential lots in Tract 6058, known as Centennial Cove, located in the Riverlakes Ranch area of Northwest Bakersfield. This 14.68-acre site was developed into a 31-lot subdivision. The lots in Centennial Cove ranged in size from ', 9,111 to 19,087 square feet in size, with an average size of 11,720 square feet. According to the developer, Curt Carter, Sr., he purchased the land in March of 2001 and began land development and lot construction in May 2001. Sales began in September 2001 and 29 of the lots were sold in 9 weeks. Carter held the remaining lots for development and reports he has construction contracts on these. This data represents a sales rate of approximately 14 lots per month. The lot prices ranged from $45,000 to $67,000 for an average selling price of $51,446, or $4.48 per square foot overall. The selling prices per square foot ranged from $3.09 for the largest lots to $5.12 per square foot for the typical smaller interior lots. 79 Lauver & Associates Assessment District 03-3 One of the more recent bulk lot sales we investigated was in a portion of Tract 5882, located in Southwest Bakersfield. This is a large lot subdivision with lots ranging in size from 17,487 to 36,684 square feet with an average lot size of 20,080 square feet. The first lot sales closed in October 2001 and there have been a total of 65 closings through March 2003. This indicates a sales rate of 4 lots per month. The selling prices ranged from about $74,000 to over $105,000, with a mean sale price of $86,066 and a median selling price of $88,275 per lot. This represents ', selling prices per square foot that average $4.47. Another Southwest Bakersfield lot sale program was researched that yielded data helpful in - making a value estimate for the subject lots. This sale program involved a total of 48 finished lot sales during the period of September 2001 through March 2003, a rate of about 3 sales per ', month. The selling prices ranged from $53,000 to over $85,000 per lot, with an average selling price of $63,833 per lot. The lots were sold to various merchant builders who improved the lots with custom-built residences. The lots range in size from 13,849 to 22,255 square feet and reflect a selling price per square foot of $3.04 to $4.93 per square foot. Iu the subdivision known as Ambrose, located in Southwest Bakersfield, we investigated a lot sales program to merchant builders that has been on-going since February 2002. In this tract, a total of 91 finished lots have been sold through April 2003. The sales activity represents a sales rate of 6 lots per month. The pricing for these lots ranged from $48,350 to $70,350 depending on size, location and orientation within the subdivision. The mean and median selling prices were $57,575 and $56,350, respectively. The lots range size from 10,000 to 19,549 square feet with an average lot size of 12,000 square feet and an average selling price per square foot centering around $6.00. In the Villages at Brimhall subdivision, located in Southwest Bakersfield, we tracked 25 sales sold by Castle & Cooke Homes to merchant builders. These lots are generally in the .10,000 square foot size range and the tract is being improved with up-scale residential housing. The lots sold between November 2002 and January 16, 2003, with selling prices ranging from $60,000 to $118,000 for a large cul-de-sac lot. The selling prices ranged from approximately $5.62 to $6.30 per square foot. This tract demonstrates a selling rate of over 121ots per month. 80 File 3533 Lauver & Associates Assessment District 03-3 ', Another recent bulk lot sale we investigated was Tract 6116, located in Southwest Bakersfield on Buena Vista Road, between White Lane and Pacheco. Probuilt Homes, Inc. purchased the 58 finished lots in this subdivision for $40,517 per lot. The lots were typically 6,000 to 7,000 square feet in size. The seller is Vernon Burke (805) 474-8231. According to Chris Hayden, President of Pro Built Homes, the eul-de-sac lots and large lot premiums were averaged into the purchase price of the lots. Mr. Hayden stated he intends to develop this tract with entry and move-up type dwellings in the 1,650 to 2,350 square foot size range with pricing from $170,000 to $210,000, not including upgrades or lot premiums. Closing date was May 15, 2003. Another on-going rolling option purchase is taking place in the Stonington subdivision in Southwest Bakersfield. The lots in this subdivision are approximately 8,500 square feet in size and are under contract to Burlington Homes. At the outset, just over ane year ago, the lots were priced at $30,000 each with price increases of $750 per quarter. The buyer was obligated to take down a minimum of 10 lots per quarter. Currently, Stonington is in its fifth phase and lot prices are at $40,000 each and when the final phase begins takedown, prices will be $42,500 per lot. Probuilt Homes purchased a 24-acre parcel on the north line of Norris Road at the northeast corner of Oak Creek in Northwest Bakersfield in December 2002. He subsequently developed the parcel into 61 lots averaging 12,500 square feet each. On the day that he announced sales, he sold all the lots to 5 local merchant builders for an average of $82,000 per lot. The sales will close upon completion of the lots, which is expected in March 2004. Tract 6006 is a 66-lot subdivision located in Southwest Bakersfield. According to the purchase contract and escrow instructions we examined as part of the appraisal process indicated the purchase price is $3,135,000, or $47,500 per lot. The lots range from 6,600 to over 15,000 square feet for the cul-de-sac lots. The average lot size is about 7,200 square feet, indicating an auerage selling price per square foot of $6.60. The sale closed in Apri12004. Iu a recent meeting with corporate staff at Castle & Cooke Homes, Inc., we were provided a file copy of their sale data for the year ending 2003. The specifics of these data (retained in our 81 Launer & Associates Assessment Distract 03-3 office) are being held confidential at their request. Their report shows a total of 495 finished lots were sold in 2003 to merchant builders who constructed housing units for sale to consumers. The firm also sold a total of 221 house/lot combinations directly to homebuyers during the 12-month I period. Analysis of these data supports our value conclusions for the subject lots. ~ Overall, the lot sales activity we investigated represented more than 1,000 finished residential lots. Analysis of the sales indicates the most recent lot sale activity is. demonstrating the high demand for new residential housing that has been most apparent over the past 24 months. The most recent sales data shows selling prices in excess of $6.00 per square foot and the mast recent appear to have a figure of central tendency around $6.00 to $6.75 per square foot. It was noted the highest prices paid are for lots suitable for custom-built homes, with selling prices per lot in '~`t excess of $7.40 per square foot in many instances. In general, the tract production lots are commanding selling prices of approximately $5.75 to $6.50 per square foot. Moreover, in studying the characteristics of the market, it was noted the larger lots are selling for slightly less j per square foot than the smaller ones. This conforms to the inverse relationship of selling price per unit and size, typical of all property types. One of the problems we face in the appraisal process is the fact that each property is unique in nature; no two properties are identical. In this instance, the property being considered does not lend itself to direct comparison with the market in general. This is because the subject is located within a master planned community that has been the most desirable residential location in the City for many years. This reputation has influenced demand and in turn, selling prices for both finished lots and finished housing product to be the most sought after and the highest priced in the metropolitan area. Since the present owner has ownedlcontrolled large parcels of land in southwest Bakersfield, they have in effect controlled the supply and pricing. Having over 20- years experience in the appraisal profession in Bakersfield, it was my fording that Castle & Cooke have commanded and achieved their asking prices for land and lots. Another factor influencing values for the subject is the fact that the areas in this portion of the assessment district are on or in close proximity to the largest and most prestigious golf course in 82 File 3533 Lauver & Assaeiates Assessment District 03-3 Bakersfield. The lack of available lots on and/or near golf courses further drives prices for the lots in the Seven Oaks West III area. Therefore, the market data collected tends to set the base, or lower point of value for the lots in ', the Seven Oaks West III area. In order to most accurately estimate values for the various lot/product types, we have referenced sale data from the Castle & Cooke files. In respect to their ', request to maintain confidentiality, we have retained the data in our. office files and are ', surnrnarizing the data in a somewhat generic manner in our analysis. In valuing the Lexington series lots, we referenced 37 sales in a previous phase of the Lexington product type that closed during the year 2004. These ranged from a low of $76,000 to over $100,000. The average selling price was $91,478, or $7.03 per square foot. We anticipate an ', increase in askinglselling prices during 2004 and estimate the average lot to have a value of I 95 000. $ , The Regency series has lots that front on and off the golf course. We reviewed the sales activity for a previous phase of Regency in Seven Oaks that sold lots between January and October 2003. In a total of 14 sales, the average selling price on the golf course was $179,857. The developer's projected selling price for on golf course lots in the subject phase of Regency is $192,143. We studied similar sized lots in a previous Regency phase that sold during 2003 that did not have golf course finntage. There were a total of 54 lots sold, with values ranging from $94,000 to $116,000 and averaged $103,446 per lot. The values selected as appropriate were $190,000 for golf course frontage lots and $115,000 for off golf course lots. For reporting purposes, the values were blended to reflect average lot values in the tract. This was accomplished as follows: 83 Lauver & Ass©ciates Assessment District 03-3 Regency Completed Lot Values Tract GC Lots Value Total Off GC Value Total Blended/lo 6087-A 7 190,000 1,330,000 18 115,000 2,070,000 136,000 6150-1 9 190,000 1,710,000 16 115,000 1,840,000 142,000 6150-2 8 190,000 1,520,000 16 115,000 1,840,000 140,000 The Showcase lots are the largest lots and have the highest proportionate share of lots on the golf course. Our study of the previous phase of Showcase lots demonstrates sale prices ranging from $261,000 to $391,000 per lot. The developer began selling these lots in September and sold out in December 2003. The mean selling price of the lots was $341,000. There are a total of 11 golf course lots in Tract 6151 Unit 1 and 9 golf course lots in Tract 6151 Unit 2. We have used a blended lot value of $217,500 and $213,478 for these lots, respectively. The Wedgewood area, Tact 6087-C and Tract 6087-D each have 14 lots with golf course frontage. These were valued at $175,000 each since they are considerably smaller than the Regency and Showcase lots. The non-golf course lots were valued at $110,000, for a blended value for the lots in the respective tracts of $143,704 and $136,000, respectively. There are a total of 241 lots in the seven phases of Tract 6223, the Windermere development area. The developer intends to sell these lots averaging 10,000 square feet to merchant builders. These lots are similar to the off golf course lots sold in the Stratford series and the Wedgewood series cited previously. On this basis, we are projecting finished lot values of $80,000 per lot for Tract 6223. The market study conducted led to the following value conclusions: 84 File 3533 Launer & Associates Assessment District 03-3 Conclusion of i,nt Vahiec 'iUhen Cmm~lnfd Product Line Tract No. # Lots Avera a Lot As Com lete Lot Value 6086 29 13,095 $95,000 Lexington 6087-B 8 12,337 $95,000 6199 42 13,864 $95,000 6087-A 25 15,220 $136,000 Regency 6150-1 25 15,954 $142,000 6150-2 24 16,584 $140,000 Showcase 6151-1 24 21,232 $217,500 6151-2 23 21,988 $213,418 Wedgewood 6087-C 27 11,159 $143,?04 608?-D 35 9,036 $136,000 Windermere 62231-7 241 9,036 $80,000 The various approaches to value were pursued in detail in the previous sections of this report. The detailed analysis of all the pertinent facts and data that were considered to influence the value of the subject property have led to the following value estimates: Summary of Valuation Estimates Valuation Premise Lexington Regency Showcase Wedgewood Windermere Lot Value/Cost Approach $96,920 $118,865 $147,402 $85,512 $81,098 Lot ValuelSales Comparison Approack $95,000 $140,000 $215,000 $140,000 $80,000 Summary of Valuation Estimates The first step in estimating the value using the Cost Appraach was to estimate the underlying land value using the Direct Sales Comparison Approach. The value from this approach was considered supportable and based on a sufficient number of reliable data. The direct and indirect costs were based on reliable casting sources supplemented by engineer's cost estimates from similar tracts. The Cost Approach indicated that it requires from about $18,000 to $35,000 including direct costs, indirect costs plus entrepreneurial profit, to develop the typical interior lot in these tracts. The lot construction costs were added to the land value to obtain an indication of the lot value "When Complete" under this premise. However, because of the difficulty in ascertaining investor motivations, the profit margin we selected map not be representative of 85 Launer & Associates Assessment District 03-3 market conditions for this development and the cost approach may not be as reliable as the Sales Comparison approach. The Sales Comparison approach was based on direct comparison with sales of lots sold to merchant builders. The data from this approach was gathered from tracts that offered lots that are considered similar to the subject and reflected the thinking of the typical local market participants. Therefore, as a result of our analysis of costs and market conditions, we have concluded the values shown in the Sales Comparison analysis are the more reliable value estimates. INCOME APPROACH In the previous section of this report, the appraiser estimated the value of the typical lot at completion, ready for construction of a housing unit. The aggregate of these values reflects the total value of the entire subdivision at completion. Since it is not possible to complete the entire subdivision and sell all the homes on the day of completion, the discounted cash flow analysis is used as a tool to recognize asell-out of the lots over time. Using the Discounted Cash Flow analysis the value of the subject lots "As Is'° is presented. This DCF serves as a check on the "As Is" value presented previously based on the cost and sales comparison approaches. The Prospective Market Value DCF model that follows is calculated using the income and expense projections and assumptions described in the following paragraphs. The Prospective Market Value represents the subject tract "As Complete". This value assumes all development costs have been expended and the project is ready for marketing and sales. The process of providing a discounted cash flow analysis requires the following steps: 1. Estimation of the retail value of the individual finished lots and the aggregate retail value of lots including lot premiums; 86 File 3533 Lauver & Associates Assessment District 03-3 2. Estimation of the appropriate absorption or sell-out period required to market the fmished lots; 3. Determination of the approximate selling/holding expenses incurred during the marketing of the lots; 4. Calculation of the indicated periodic cash flow from the projected sales; 5. Subtracting the direct costs, indirect costs (including selling expenses) and profit from the periodic cash flows, and 6. Determination of the present worth of the net cash flows generated during the absorption period. Absorption Analysis The values of the typical lot and lot premiums were estimated in the previous section of this report. The next step is to estimate the time necessary to achieve a full sell-out of the lots in the various subdivisions. To do this we examined the historical absorption of similar size lots and we examined demand conditions for the subject's ultimate housing product. It was our fmding that there is a direct relationship between lot values and absorption time frames. The more expensive and the larger lots and homes require extended marketing periods. The lot sales analyzed and reported previously reflected a sales rate of slightly more than 5 sales per month over the past two years, depending on price range and location. We also analyzed sales of house/lot combinations in tracts developed by the two largest home producers, Coleman Homes, who is developing the subject subdivision, and Kyle Carter Homes. lu the period from January to December 2001, Kyle Carter Homes sold a total of 370 homes in 4 tracts located in Northwest and Southwest Bakersfield. The sales rates ranged from 5.33 per month to 11.36 per month, depending on the tract. The most recent and active subdivisions were the San Lauren and Madison Grove tracts where a total of 237 sales were consummated during the 2001 calendar year. This represents an absorption rate of 17.33 units per month or 11.36 and 8.31 sales per month in the respective tracts. I 87 Lauver & Associates Assessment District 03-3 In six Coleman Homes developments located in the Northwest and Southwest Bakersfield areas we found sales rates from 4 to 11 sales per month depending on the tract location and product type. Moreover, in discussions with tract sales personnel in the tract offices we learned that they maintain lists of 10 to 15 potential purchasers waiting for lots to be released for sale Based on my analysis of the sales activity in competing tracts as shown previously supported from the supplyldemand conditions cited previously, I formed the conclusion that the subject tracts are capable of achieving a sales rate of 5 lots per month for the larger lots and 8 lots per month for the smaller lots. This estimate is well supported by the tract locations and the reputation of the developer in this community. Income Because it is impossible to predict when each finished lot will sell and because of the varying circumstances that could be encountered, the total retail value far the various tracts including profit was used to calculate the expected gross income proceeds from sales. The total aggregate value for the various tracts was calculated by multiplying the individual finished lot value by the number of lots in the tract. The cash flows from sales is shown on a monthly basis for reporting purposes. As the tract development work is completed the sales program will commence; within the next 30 days to 4 months, depending on the tract. Our forecast of sales activity and the marketing periods are shown in the following chart. No. Avg.Lot Tract Zots Value Aggregate Value Lexington 79 $95,000 $7,505,000 Regency 74 $139,333 $10,310,642 Showcase 47 $215,532 $10,130,004 Wedgewood 62 $139,355 $8,640,010 Windermere 241 $80,000 $19,280,000 Exaenses Marketing SaleslMo. Period (months) 3 9 3 9 8 7 2 13 8 30 In our estimate of lot construction expenses, we referenced the cost data from previous subdivisions built by this developer with similar lot sizes and product type. We compared the 88 File 3533 Lauver & Associates Assessment District 03-3 costs from the previous developments with the projected costs far the subject tracts. We found that the developer's costs projections of direct and indirect costs were consistent with costs for similar subdivisions. Since lot construction has commenced, we have subtracted the costs that have been incurred to date from our cost estimates in the various tracts. The subject is subject to Assessment District 03-3 (AD 03-3) bond obligations. The payments are ', submitted an the tax bill to the current landowner and amount to approximately 10% of the tax lien on each lot, payable semi-annually. With varying sell-out periods for the three subdivisions, we determined the developer is responsible for two or more AD payments during the sellout period. In order to reflect the Assessment District payments in the analysis, we have estimated an appropriate set aside for each lot in the respective subdivisions to account for this expense. In our projection, taxes were calculated based on gross sales per month at a 1.25% annual tax rate paid quarterly. We estimate entrepreneurial profit of 15% of gross proceeds based on our interviews with the major local lot producers. We estimate a total of 8% as a reasonable projection for variable indirect expenses. This is segregated into 3% sales costs, 2% for general and administrative {including taxes and interest} expenses and 3% miscellaneous expenses. Discount Rate A discount rate of 12% is selected as appropriate. This is based on the current prime or reference rate of 7.0°lo plus 5% investor's margin to reflect risk and holding factors. It is my opinion that the size and scope of this project requires a somewhat extended marketing period and the proposed housing units are aimed at the entry level and first move-up buyer segment of the market. This indicates a lower element of risk than for the high-end market segment. i The discount rate is fi~rther supported from surveys published by CB Richard Ellis and other sources quoting required IRR's of 25-30% including profit. Since developers in this area are 89 Launer & Associates Assessment District 43-3 reportedly achieving profit margins in the 12-18% range, a discount rate of 12% is considered reasonable. ', Because the absorption estimate results in a fractional amount, our estimate of cash flows was ' revised to reflect a lower sales rate in the last marketing period. A spreadsheet sununary of the present value of the series of periodic income flows for the tracts are presented in the addenda section of this report. This sum of the discounted lot values ~ represents the As Complete value of the subject on April 24, 2004. This sum of the discounted i lot values is the amount a bulk purchaser would likely be willing to pay assuming the finished lot subdivisions were purchased in its entirety. Therefore, as a result of my analysis, I have estimated the Prospective Market Value of 503 final mapped lots in the Seven Oaks West III area to be the sum of $10,891,305. BULK VALUE The bulls values in this instance are identical to the "As Is" values cited previously. RECONCILIATION OF VALUES In the previous sections of this report we examined the characteristics of the subject and analyzed them in terms of the market with regard to desire, demand and competitiveness. The subject lots rate well in all areas of comparability. We developed value estimates for the subject using the Cost Approach, Sales Comparison Approach and an Income Approach using the Discounted Cash Flow analysis technique. In developing the "As Is" value using the Cost Approach, we gathered the most recent unimproved land sales and by using the sales comparison approach, it was possible to arrive at a reliable estimate of the subject's raw land value, which was estimated at $65,000 per acre, or $12,292,800. The costs to improve the subdivision to its present state were obtained from the 90 File 3533 Launer &c Associates Assessment District D3-3 developer. Adding the actual costs that are in place to the underlying land value yielded an indication of the subject's "As Is' value of $14,368,800. The "As Is" value using the Cost Approach represents the value of the parcel, as it existed on the date of value. It does not include selling or holding costs nor does it recognize the entrepreneurial enterprise and coordination required to bring the land to its present state. In developing the "As Is" value using the Income Approach, we used both the cost approach and the sales comparison approach to estimate the value of the individual lots in the respective subdivisions as complete. The sales comparison approach involved investigating recent sales of lots to merchant builders and others enabling us to arrive at an estimated value per lot when complete. The same data enabled us to estimate the typical lot premium over the entire tract, yielding an estimate of the typical fmished lot value in the subdivision. Since the entire tract will not sell in its entirety on the same day, we used the Discounted Cash Flow analysis (DCF) technique to recognize the time value of money during the tract's sell-out period. In the DCF we subtracted the costs to complete the Tats and credited the costs already incurred by the developer. The DCF also accounted for the selling costs, incidental costs and developer profit. The net income resulting from sales was discounted over the marketing period. In selecting the more reliable indicator of the "As Is" value, greater weight is placed on the Income Approach because it is more reflective of the market conditions over time based on the net cash flows, whereas the Cost Approach is a static analysis. The Prospective Value When Complete for the various residential tracts is shown in the following summary. 91 Launer & Associates Assessment District 03-3 Summary of Residential Land Values Bulk Value of ASSMT NO Description Recorded Lots 2-30 Txact6086 1,789,000 62-64 Tract 6087 Phase B 506,000 235-216 Tract 6199 2,386,000 Total Lexington Area -Residential 4,681,000 36-60 Tract 6087 Phase A 2,358,000 135-159 Tract 6150 Unit 1 2,357,000 161-184 Tract 6150 Unit 2 2,130,000 Total Regency Development Area 6,845,000 186-209 Tract 6151 Unit 1 4,034,000 211-233 Tract 6151 Unit 2 .3,841,000 Total Showcase Development Area 7,875,000 71-97 Tract 6087 Phase C 2,556,000 99-133 Tract 6087 Phase D 3,319,000 Total Wedgewood Development Area 5,875,000 279-307 Tract 6223 Unit 1 1,310,572 317-356 Tract 6223 Unit 2 1,807,685 362-398 Tract 6223 Unit 3 1,672,109 402-435 Tract 6223 Unit 4 1,536,533 444-472 Tract 6223 Unit 5 1,310,572 478-516 Tract 6223 Unit 6 1,762,493 521-553 Tract 6223 Unit 7 1,441,341 Total Windemere Development Area 10,891,305 Total Seven Oaks Wes t III Residential Area $36,167,305 92 File 3533 Lauver & Associates Assessment District 03-3 COMMERCIAL LAND Site Descriation and Location This portion of the Seven Oaks West III area consists of a vacant unimproved parcel of land located at the Southeast Corner of Ming Avenue and Allen Road. Ming Avenue forms the north boundary, Allen Road bounds it at the west and the Kern River Canal forms the southerly boundary. The parcel covers approximately 10.04-acres and is triangular in shape. The topography is generally level with a slight natural gradient with drainage from north to south. At the time of my inspection there were no signs of soil subsidence or cracking noted at the time of inspecfion. The appraiser was not furnished a copy of a Preliminary Geotechnical Engineering Report. It is assumed that a Geotechnical engineering study and report has been or will be made however, and all site preparation will be completed meeting with all recommendations contained in such a report, and all governmental approval(s) with regard to support characteristics will be obtained. However, the appraiser cannot guarantee such an occurrence. Street Access to the subject is from Ming Avenue and from Allen Road. At the time of inspection, these are unimproved roads. Ming Avenue is a primary retail arterial in the City. The Valley Plaza regional mall and The Market Place, an upscale community center, are both located on Ming Avenue. A number of retail shopping centers, strip retail outlets, offices and other commercial uses aze located along both sides of Ming Avenue both east and west of Freeway 99. When Allen Road is completed, it will provide anorth-south arterial connecting from Stockdale Highway to White Lane. Conclusion The subject is well located with frontage on two major arterialsJconnectors. When these axe complete, the subject will have good exposure and visibility to traffic. The parcel has good access from these two traffic routes and it is of sufficient size to provide for good on-site circulation patterns. These factors combine as indicators that the subject is capable of maintaining value into the future with or without improvements. 93 Lauver & Associates Assessment District 03-3 Valuation The first step in the valuation process involves analysis of vacant land sale transactions wherein the sales have physical characteristics similar to those of the subject. The comparables selected are shown on the following map and their characteristics are presented in summary table format below. COMPARABLE L.ANI) SALES S[7MMARY " Location <' Date Pr"cee Size'n SF Price(SF r 1. 9715 Brimhall Rd. 08/03 $1,050 000 134,164 $7.83 Z. 1717 Canter Wa 01102 $1,560,000 240,274 $6.49 3. 6200 Colon Street. 10/03 $2,874,960 574,992 $5.00 4. b200 Colon Street 10103 $4,255,500 851,162 $5.00 5. Colon Street 08/03 $2,800,000 446,054 $6.28 The sales range from $5.00 to nearly $8.00 per square foot and range in size from slightly over 3 acres to 19.5-acres. The average size was 10.32-acres, which corresponds to the subject's size of 10.04-acres. The specific of each of the sales is presented on individual data sheets on the following pages. 94 File 3533 Launer & Associates Assessment District 03-3 LAND SALE NO. 1 Property Identification Record ID 227 Property Type Commercial Property Name Commercial Address 9715 Brimhall Rd., Bakersfield, Kern County, California Location Brirnhall Rd. Tax ID 500-030-17 Sale Data Grantor Carosella Tom & Lisa M. Property Rights Fee Shnple Date of Sale 8-13-2003 Financing Cash to Seller Verification Bo Lundy: Michael Burger MAI; Coufinued by Michael Launer, MAI SRA Sale Price $1,050,000 Land Data Zoning Shape Landscaping Land Size Information Gross Land Size Useable Land Size Froot Footage Indicators C-2, Commercial Irregular None 3.080 Acres or 134,164 SF 3.080 Acres or 134,164 SF 100.00% 391 ft Brimhall Sale Price/Gross Acre $340,911 Sale PriceJGross SF $7.83 Sale Price/Useable Acre $340,911 Sale Price/Useable SF $7.83 Sale Price/Front Foot $2,683 Remarks This sale involved an unimproved 3.08-acre parcel purchased by Cazosella, Roselie, Robin and Houchin for $1,050,000 or $7.83/sq.ft. The parcel is located at Brimhall and Coffee Road in an azeathat is beginning to develop with some commercial uses along the Coffee Road arterial. The purchase included an agreement with a third party to purchase a portion of the site for development to the caz wash. The purchase price includes all offsite improvements. 95 Lauver & Associates Assessment District 03-3 LAND SALE NO. 2 Property Identification Record ID Property Type Property Name Address Location Tax ID Sale Data Grantor ~ Grantee _ Sale Date Deed BooklPage Property Rights Financing Verifieation Sale Price Land Data Zoning Topography Utilities Dimensions Shape Landscaping Land Size Information Gross Land Size Useable Land Size Front Footage Indicators Sale PricelGross Acre Sale PricetGross SF Sale PricelUseable Acre Sale PricetUseable SF '~, Sale Price/Front Foot 230 Commercial Commercial 1717 Canter Way, Bakersfield, Kem County, California Canter Way 440-190-02 Ming & Wible Center LLC West Park Baptist Church January 11, 2002 4875 Fee Simple Cash to Seller Bo Lundy: Michael Barger MAI; Confurned by Michael Lauver, MAJ SRA $1,560,000 C-1, Commercial Lever at curb grade Electricity, Water, Gas, Sewer 70 x 109.99 Rectangular None 5.516 Acres or 240,274 SF 5.516 Acres or 240,274 SF 100.00% 70 ft Canter $282,817 $6.49 $282,817 $6.49 $22,286 Remarks This transaction included five contiguous parcels at the Southwest comer of Ming Ave. and Canter Way in Southwest Bakersfield. This area is experiencing rapid new commercial growth and the demographics in the immediate area reflect among the highest prices for both residential and commercial properties in the City. The property is planned for development to a shopping center. Terms were on the basis of all cash to seller. 96 File 3533 Lauver & Associates Assessment District D3-3 LAND SALE NO. 3 Property Identification Record ID 231 Property Type Commercial ', Property Name Commercial Address 6200 Colony St., Bakersfield, Kern County, California Location Colony St. Tax ID 372-021-16 Sale Data Grantor Panama Lane LLC Grantee Athans Ents Inc. Sale Date Ootober 1, 2003 ~ Deed BooklPage 211176 ~ Property Rigbts Fee Simple Financing Cash to Seller Verification Bo Lundy: Michael Burger MAI; Conftrmed by Michael Lauver, MAI SRA Sale Price $2,874,960 Land Data i Zoning MS, Commercial Topography Level at curb grade Utilities Electricity, Water, Gas, Sewer ~ Shape Irregular I Landscaping None Land Size Information Gross Land Size 13.200 Acres or 574,992 SF Useable Land Size 13.200 Acres or 574,992 SF 100.00% Indicators Sale PricelGross Acre $217,800 Sale PricetGrass SF $5.00 ~ Sale PricetUseable Acre $217,800 Sale PriceJUseable SF $5.00 Remarks This sale is one of two pazcels that sold neazly simultaneously and aze at the terminus at the north end of Colony Street. Both have freeway visibility owing to the location proximate to the northeast quadrant of Hwy. 99 and Panama Lane. This and the adjacent parcel were purchased for development with a Lowe's Home Improvement Store and a Wal-Mart superstore is planned on the westerly site. Both are now fully developed sites. 97 Lauver & Associates Assessment District 03-3 LAND SALE NO. 4 Property Identification Record ID 232 Property Type Vacant Land Property Name Commercial Address 6200 Colony, Bakersfield, Kem County, California Location Colony Tax ID 372-021-17 Sale Data Grantor Wal-Mart Real EST. Busn. Trust Grantee Panama Lane LLC Sale Date October 17, 2003 Deed Book/Page 226810 Property Rights Fee Simple Financing Cash to Seller Verification Bo Lundy: Michael Burger MAI; Confirmed by Michael Lauver, MAI SRA Sale Price $4,255,500 Land Data Zoning MS, Vac Land Topography Levelacurb grade Utilities Electrictity, Water, Gas, Sewer Shape Rectangular Landscaping None Land Size Information Gross Land Size 19.540 Acres or 851,162 SF Useable Land Size 19.540 Acres or 851,162 SF 100.00°I° Indicators Sale PricelGross Acre $217,784 Sale PricelGross SF $5.00 Sale PricetlTseable Acre $217,784 Sale Pricet[Jseable SF $5.00 Remarks This pazcel is at the northerly terminus of Colony St., at the northeast quadrant of Hwy. 99 and Panama Lane. The parcel was part of a 2-part parcel sale and was purchased for development to a Lowe's Home Improvement Store. A Wal-Mart superstore is planned on the adjoining pazcel to the west. Both are now fully developed sites. 98 File 3533 Lauver & Associates Assessment District 43-3 LAND SALE NO. 5 Pronertv Identification Record ID Property Type Property Name Address Location Tax ID Sale Data Grantor Sale Date Financing Verification Sale Price Land Data Zoning Topography Utilities Dimensions Skape Landscaping Land Size Information Gross Land Size Useable Land Size Front Footage Indicators Sale PricelGross Acre Sale PricelGross 5F Sale Price/Useable Acre Sale PriceJUseable SF Sale Price/Front Foot 233 Commercial Commercial Colony St., Bakersfield, Kern County, California Colony St. 515-060-07 Stier Family Trust August 11, 2003 $500,000 Cash dower Payment Bo Lundy: Michael Burger MAI; SRA $2,800,000 C-2, Commercial Office Level at curb grade Electrictity, Water, Gas, Sewer 1091 x 446 Irregular None Confirmed by Michael Lauver, MAI 10.240 Acres or 446,054 SF 10.240 Acres or 446,054 SF 100.00°l0 1091 fC Colony St. $273,438 $6.28 $273,438 $b.28 $2,567 Remarks This sale includes two parcels facing the east side of Colony St. south of Panama Lane. ane pazcel east of Hwy. 99. The smaller parcel is designated for drainage and is not included in the area. A Reciprocal Easement Agreement that provides the site, once developed, use of parking field of the lot adjacent to the west, and vice-versa affects these parcels. The REA also limits the allowable building size to 126,000 sq. ft, and it must be squaze in shape and back up to the south end of the parcel. The price excessive in consideration of these restrictions. However, the buyer is the owner of a prominent RV dealership that competes against the adjoining dealership. There appears to be some conflict between the parties, and this may have affected the price. Terms include $500,000 cash down payment to a PMTI7 at market interest rate due by the 2nd quarter of 2004. 99 Laaner & Associates Assessment District D3-3 The sales presented are representative of the current commercial land market. Although they are spread out geographically, all are of a size that provides indicators of value for the subject 10- acre site. The characteristics of the various sales are described below. II' Sale 1 involved an unimproved 3.08-acre parcel purchased by Carosella, Roselie, Hobin and 1 Houchin for $1,050,000 or $7.83/sq.ft. The parcel is located at Brimhall and Coffee Road in an area that is beginning to develop with some commercial uses along the Coffee Road arterial. The purchase included an agreement with a third party to purchase a portion of the site for development to the car wash. The purchase price includes all offsite improvements. This sale is similar to the subject with respect to location. This parcel has frontage along two major roads that are paved and therefore has more visibility and exposure to traffic than the subject. Overall, this sale is considered somewhat superior to the subject in terms of location and immediate area improvement. It also requires downward adjustment for size. Sale 2 is a transaction that included five contiguous parcels at the Southwest corner of Ming Ave. and Canter Way in Southwest Bakersfield. This area is experiencing rapid new commercial growth and the demographics in the immediate area reflect among the highest prices for both residential and commercial properties in the City. The property is planned for development to a shopping center. Terms were on the basis of all cash to seller. This sale also requires downward adjustment for location and size. Sales 3 and 4 are two adjacent parcels that sold nearly simultaneously and are at the terminus at the north end of Colony Street. Both have freeway visibility owing to the location proximate to the northeast quadrant of Hwy. 99 and Panama Lane. This and the adjacent parcel were purchased for development with a Lowe's Home Improvement Store and a Wal-Mart superstore is planned on the westerly site. Both are now fully developed sites. 100 File 3533 Lauver & Assocdates Assessment Distrdct 03-3 These parcels are considered superior with regard to exposure and visibility since they are immediately accessible to Freeway 99 at a four-way traffic interchange. They are larger than the subject but the downward adjustment for superior location is more than offsetting. Sale 5 This sale includes two parcels facing the east side of Colony St. south of Panama Lane, III one parcel east of Hwy. 99. The smaller parcel is designated for drainage and is not included in the area. A Reciprocal Easement Agreement that provides the site, once developed, use of parking field of the lot adjacent to the west, and vice-versa affects these parcels. The REA also limits the allowable building size to 126,000 sq. ft., and it must be square in shape and back up to the south end of the parcel. The price seems excessive in consideration of these restrictions. However, the buyer is the owner of a prominent RV dealership that competes against the adjoining dealership. There appears to be some conflict between the parties, and this may have affected the price. Terms include $500,000 cash down payment to a PMTD at market interest rate due by the 2nd quarter of 2004. This sale also requires downward adjustment for location, access and visibility. It is similar to the subject in size. Ming Avenue is one of the major commercial arterials in the City. At some point in the future, Ming Avenue will be improved along the subject's north line and the subject parcel will take its place among the high value desirable commercial parcels in the market. However, it was my fmding that Ming Avenue may not be extended west past the subject site for two years. Therefore, although this parcel has promise in the future, its present value is placed at the lower end of the value range presented. I have concluded a value of $4.00 per square foot for the subject. This equates to approximately $175,000 per acre for the subject. On the basis of the faregoing analysis, I have concluded a value of $175,040 per acre for the commercial acreage in the Seven Oaks West III area of the assessment district. Multiplying this by the land area of 10.04-acres yields a value of $1,757,000. Since the infrastructure provided by the assessment district will enhance the value of the land, we have added the value of these improvements, $260,643, for a total value of the commercial parcel of $2,017,693. lol Lauver & Associates Assessuzeut District 03-3 NEIGHBORHOOD ANALYSIS -BRIGHTON PLACE II AREA The neighborhood is located near the westerly limits of the City of Bakersfield. The traffic arterial Ming Avenue forms the boundary at the south, Allen Road is at the west, Coffee Road bounds the general neighborhood to the east, and Rosedale Highway borders the neighborhood at the north. This location is presented in the neighborhood map that follows. The subject neighborhood covers all or parts of Census Tracts 32.01 and 38.02. The physical boundaries of the neighborhood were selected because of the land use patterns in the area. The area is in a transitional stage from rural agricultural, rural residential, and some oil related industrial to a neighborhood characterized by urban and suburban residential land uses. Neighborhood Mag a {: _ a [ C -i i ~ v o G d~ ~ r ., - - e.~.~r ~ ~i t . ; ~ + J f ~. ^.~ J ~ I 4..~ ' i i p w~ ~ ~r+7~ 7 ~ .,~,,,, i ` vJ 4 ~ I ~ .. y ~~ I r~ ~ ~C ~ ~ f~ ( F ~ '.... P , d Po R I. ~ f ~ f 4 6M F _T ''1 I ~ ~ ~~ ~ y vv. "~it ? ~~ ~ Y '~ 1 ~. i ~ 1 < k ~ P f d a i ~~ ~ ~~ /-., ... ~ A > ~ +. , I , a F~ p .. ~ t - 9PL6 ~ ~.4~~ _ , ~ ` i ,7 z ,. 1 ~. 4~ a '~ .. Y-' I"~ ~ ~ - ~: S'a 5 ~ Nf1uYtFFU3Yl~! )ili ` fP.N' -"r- . I v 1 . ,u <.- N v 'F ~- C,f 6%<'A~' ~ a ~ '- 3~ ~ - ~ a~ T ~ et E ~~ w "' :I a 9 d ' 1 J !' •' ~ i ::~~ ~ h ~ > \ ~ F r ~ ~ t i s ~ ~. ! - > i N cmw _ I _ ~ ~ t ~ ~ ' ~` ~ ~`~'~ o 1 WX iFIn j L ~ m~ t ' :4 NAt6k[~ I r ~ t l { ,~ ~. 1 ~ ~ f '' jj [jj _f ; } ~ -a } V 'J fv ~ ~ 1 ~: > / i .. . ~Y ~ 4 ~ s { rf t _. ~ ~ Yi ^~ ~ ~ II I ~' ~W:a Y '~ "'y '~' I ~ ~ , ~ R ~r ~ ~ 5 ~ } " ~ / a ~ 5 ti,.^~~"ayuYin u~ r a .--t ~ti ' f ~' `Tisl'esa ix ma a,a ,a~ a i F ~ t i / I Q ~ ~ ~ i ~ y ~ __ _ ~ 1 9 V ~ t ~ 102 File 3533 Launer & Associates Assessment Dirtriet 03-3 Access Commercial traffic arteries such as Stockdale Highway, Rosedale Highway and connectors including Allen Road, Brimhall Road, Coffee Road, and Calloway Drive adequately handle most of the traffic needs. The neighborhood also has good access to all parts of the pity via Freeway 99 (State Route 99), which is approximately 3 miles east of the subject neighborhood. Rosedale and Stockdale Highways also connect with Interstate Highway 5 approximately 12 miles to the west of the larger parcels, which are the subjects of this appraisal. The recent widening of Calloway Drive and completion of the bridge over the Kem River now provides six lanes of north-south vehicular traffic flow to the area, and effectively completes a major arterial loop connecting Northwest and Southwest Bakersfield. The alignment along the Kern River of the proposed freeway by-pass in this area will provide an additional cross town expressway which will alleviate any future potential for traffic congestion on the surface streets. General Neighborhood Character Overall, the subject neighborhood is characterized as a rural residential location in the far west portion of the city. It is approximately 30% improved with mostly newer single-family residential dwellings on large lots, generally ranging from 6,000 square feet to over one acre in size. This area has historically held appeal for the segment of the market desirous of large, estate sized lots with equestrian zoning. Recent additions to the neighborhood have involved smaller lot subdivisions, however. Typical dwellings in the neighborhood range from 40-year-ald cottages and bungalows to new executive and luxury estates, which comprise some of Bakersfield's more exclusive neighborhoods. Many of the more recent developments in the subject neighborhood target the middle and upper income level groups. Dwellings were developed in patterned manner designed to maximize the uniformity of the structures and establish neighborhood identities. 103 Lauver & Associates Assessment District 03-3 Existing and established areas include Country Rose Estates, a development improved with very good to luxury quality dwellings ranging in size from approximately 2,200 to over 3,500 square feet. These dwellings are typically on lots of/2 acre or slightly larger and were completed by the late 1980's. A slightly older but very similar subdivision, Stockdale Ranchos, was completed by the mid 1980's, also enhances the upscale rural residential character of the neighborhood. However, the neighborhood's evolving character is more closely aligned with the Brimhall Estates, Villages at Brimhall, Spring Meadow, Fairway Oaks and Pheasant Run subdivisions, which seem to dominate the construction and sales activity in the neighborhood. Spring Meadow, is an active subdivision development located north of the subject on the south line of Brimhall Road at the Southwest corner of Verdugo Lane. Their housing product consists of dwellings ranging in size from 1,800 square feet (1,800 SF is the minimum dwelling size allowed) to over 2,500 square feet, with pricing in the $170,000 to $300,000 range. The lots in Spring Meadows range from about 9,300 square feet to 10,400 square feet, all with the minimum dwelling size restrictions cited previously. Lot absorption has beeri approximately 4.5 lots per month since opening. Brimhall Estates, is a large lot subdivision that was constructed in three phases. Improvements in Brimhall Estates consist of good to excellent quality, custom-built dwellings, ranging in size from about 2,500 to over 3,500 square feet. Average lots are 18,000 square feet. Completed house/lot combinations are in the $325,000 to over $500,000 range depending on size, quality I and amenities. The last lots that sold were priced from $65,000 to $90,000 depending on size, location and orientation. Sales history reflects an average absorption rate of 2 lots per month since lot sales began. Pheasant Run, is located on the south line of Brimhall Road between Calloway Drive and Jenkins Road. This development opened about six years ago beginning with two initial phases consisting of 280 units. The Pheasant Run subdivision offers dwelling units designed and priced to appeal to the first time homebuyer and `move-up' market segments. Most active housetlot combinations are 1,400 to 1,700 square feet in size, with pricing from about $125,000 to 104 File 3533 Launer & Associates Assessment District 03-3 $155,000. The housing has met with very good market response, averaging over 5 sales per month during their marketing history. Fairway Oaks, located along the west line of Calloway and along the south line of Brimhall, is a 242 lot subdivision built by BHA Properties Inc. It finished its 4-year sales program in early 2002 with an overall sales rate of slightly more than 5 units per month over the sellout period. Dwellings in this development range in size from 1,400 to 2,6'70 square feet in size. The developer reports the 1,900 to 2,700 square foot models were the most popular and accounted for the bulk of the sales in the subdivision. Re-sales reflect average selling prices from around $150,000 to $225,000. The Villages at Brimhall, located along the south line of Brimhall Road north of the subject consists of various residential product types. Stonington, by BHA Properties is offering the same basic floor plans offered in the Fairway Oaks, with selling prices in the $150,000 to $250,000 range. Lot prices in the Stonington area are in the $40,000 to $42,500 range for the basic interior lot. Other subdivisions in the area include the Rutgers, Trinity and Ambrose developments with housing prices in the $250,000 to over $500,000. Lots are sold by a major lot producer and sold to merchant builders, with selling prices from $60,000 to more than $95,000, depending on size and orientation. In terms of commercial land uses, this neighborhood is denoted by industrial developments in the vicinity of Rosedale. The industrial properties support the oil exploration and building industries. While technically located outside the neighborhood boundaries, the developing educational and business cluster around the California State University has a significant impact on the subject neighborhood. The influence will increase now that the Calloway Bridge has opened, providing direct access. Notable developments near the university include a regional office of State Farm Insurance, Dole Citrus, Mercy Hospital with related medical offices, and a new community sized upscale retail center known as The Market Place, on Ming Avenue. New office complexes are emerging in the vicinity of the. Market Place, forming an upscale urban environment that has a positive influence on the subject properties. 105 Lauver & Associates Assessment District 03-3 A new power center known as the Rosedale Promenade is located approximately 1 'h miles north of the subject on Rosedale Highway. The properties that are the subject of this report are within its primary trade area and this major center plays an important role in offering the inhabitants a __ variety of retail outlets within a short driving distance. Conclusion• The overall character of the neighborhood is in a state of steady growth, a result of the growth trends experienced for the past several years in the Northwest, Southwest and the subject's West location in the city. Sales activity in this particular sector of the city has been strong, owing in large part to the relocation of State Farm Insurance employees to their new western regional headquarters in Bakersfield, and the reputation for upscale housing quality in this portion of the city. The growth pattern in the west Bakersfield area, both north and south of the Kern River, is also demonstrated by the recent completion of large commercial structures. In addition to the State Farm Insurance 584,000 square feet, $49 million regional office building, Mercy Southwest Hospital and adjunct medical offices are located inunediately south of the subject neighborhood. Residents will also continue to be attracted by the proximity to California State University, which is just south of the subject neighborhood. These growth and demand trends in this neighborhood are likely to continue to be enhanced by the quality of improvements and many amenities afforded from the master planned community character of the area. These factors combine as indicators that demand for housing units will continue to be strong and will continue to capture a good portion of the market seeking housing in this location. The subject's neighborhood shares many of the same positive locational characteristics that are found in Seven Oaks, an upscale residential community on the south line of Stockdale Highway. The linkages in this area cannot be duplicated elsewhere in the Kern County market. First, the proximity to the Cal State University campus cannot be understated. The hub for cultural and educational activities is a strong selling point for all of the residential markets from entry-level to 106 File 3533 Lauver & Ass©ciates Assessment District 03-3 luxury. Secondly, the proximity to Mercy Hospital is a positive factor. Hospital employees such as physicians and nurses tend to reside nearby for easy access, as do the elderly. The State Farm Insurance facility is another example of major office building construction in the area. The Stockdale Highway area between Gosford Road and Old River is becoming the new focus area for commercial development in Bakersfield. Consequently, residential areas found in Seven Oaks and the subject's neighborhood must be considered the "A+" locations in the market and the city's new growth is likely to focus in this area. 107 Lauver c~ Associates Assessment District 03-3 SITE DESCRIPTIONS -BRIGHTON PLACE AREA Location and Immediate Area Character The subject tract is located in the northwesterly portion of the subject neighborhood in the Northwest quadrant of the city of Bakersfield. At some point in the future, the planned Kern River Freeway will forth the northerly boundary of the Brighton Place Area. The Kern River Freeway is a proposed cross-town freeway connecting the downtown area to Interstate 5 to the west. The property uses surrounding the subject parcel consists primarily of established residential ~ housing tracts to the north beyond the Westside Parkway dedicated land and on-going new construction of new housing developments to the east and southeast. To the west, land uses are primarily agriculture in nature consisting field and row crops. Shane, Size and Topoeraahv The Brighton Place Area is irregular m shape. It forms somewhat of a triangle, with the future Westside Parkway at the north, and generally conforming to the boundaries of the Rio Bravo Canal at the west and portions of the south and Jewetta Avenue forms the easterly boundary. It contains a total of 33.85 gross acres. The topography is generally level with a slight natural gradient with drainage from north to south southwest. Soil Characteristics There were no signs of soil subsidence or cracking noted at the time of inspection. The appraiser was not provided a soils report or a geological survey however, and therefore was unable to determine if there were any underlying soils problems identified by such a soils report. 108 File 3533 Lauver & Associates Assessment District D3-3 Boundaries of the Brighton Place II Area ---y u ~ - t LCJCATIt}SI viAP OF PROPOSEb HO(1NDAAIES is 1 '- " ~i OF ASSESSMENT bi&TRICT N0. p8-3 r'C ' AND INDER AiAP OF -SHEETS 3 THROUf:H 5 x ..~._._. ~ ~ ~' li rt } iM ld R'~Nrh ~v y.-~ Ry'y1rµ (~ v ~ W'A8 LRi6R~ 'ffi aG l L5 y '. w..«.... ti[zxtyyn fA ~~a~ iYNU[i*.T ,..~ rs a 1 3 . Ana , i~ p ~e.. rs:« _ syav ~ f vacs ''m. sraw ` k,~° fi ~ ' m~ ar a~A~a~ .,.,a a~~ ~. „.,~,a~ nr~mcrv~ tr a ~ sj"a ' a w~ s 3 ~ ~ eee nu.n wzwev -mxx : e. Eav.. w. e=-r 1 ~ -__`_',-"_-""'. ~ a .. a ~ _ £ . s " ~ ~ r U« _ tt !~ vie: .u+::'vi s ew- Oa. w ~ ~ _ _-.~ _ -__ .-yz.~;r ~ - uct rv ~ '~' ~ Nah7H ` '1~~ "" + Y,.4 ...,.-...~_..,1_ r ~*'~'-- ~mv 's`;~+am' arw uw w.'w~r.,w ttao I' ~~pp ad xs °eres PROP6SED H6U*dDAR2E9 6F *,/ ~ '~ ~ aaaa„as~ u.e °r` r ~,.,,,r ~„~, cerr ar snneRSn~.v a;sessefsr~x nrsiaucr ;ro. ey-a _._ `_...._ _~ ~..., w.... xmzv aim-vsx ~aFmwrroi ndscn/auw w»aan+n aC~ w.~. Couuq- at Rera .Stara of ~4a11Pornia "WPasvar w '01 s ~ r w Utilities Utilities including gas, water, electricity, and telephone services are m place. Southern California Gas Company provides natural gas service; water, sewer and storm sewers are provided by the City of Bakersfield; electricity service is provided by Pacific Gas & Electric and telephone service is provided by Pacific Bell. Environmental Characteristics The appraiser has no knowledge concerning the presence or absence of any hazardous materials or wastes within, or in proximity to the subject property. A physical inspection of the subject property revealed no atypical conditions that might contribute to a toxic hazard. It should be 109 Launer & Associates Assessment District 03-3 noted however, that this appraisal report was prepared strictly for the use of the client and does not constitute an expert environmental assessment of the subject property. The appraiser is not an expert in the field of hazardous materials, and this appraisal report should not be relied upon to determine whether environmental hazards exist on the property. The value presented in this report is predicated on the assumption that the site is free of any hazardous materials, existing or past soil oontamination. If there is any question regarding the presence of any contaminants, the appraiser recommends that the client obtain an environmental assessment from a qualified environmental expert to determine the potential environmental risks associated with ownership of the subject property. If such toxic conditions do exist, the property value may be adversely affected. Flood and Earthquake Zones According to the Federal Emergency Management Agency Federal Insurance Administration, the subject property is located in a Zone B area, according to Federal Emergency Management Agency map panel 060075-1005B, with an effective date of September 29, 1956. This area is protected from the I% annual chance of (100 year) flood by levee, dike or other structures subject to possible failure or overtopping during larger floods. No flood insurance is required. According to Special Publication #42 of the California Division of Mines and Geology, Revised Edition, 1994, entitled Fault-Rupture Hazard Zones in California, the subject property is not located within any Special Studies Zones, as defined in the Alquist-Priolo Special Studies Zone Act. Access Access to this site is considered excellent, with access to the tract at several places along the eastern line of the parcel on Jewetta Avenue. When Jewetta Avenue is completed, it will form the easterlytsoutherly boundary to the Brighton Place II Area, with its north-south curvilinear orientation connecting to Stockdale Highway at the south and the present Jewetta/Rosedale Highway interchange at the north. 110 File 3533 Launer & Associates Assessment District 03-3 Calloway Drive is a major north-south connector to Stockdale and Rosedale Highways. These highways provided access to Freeway 99, three miles east of the subject. Surrounding Land Usage The subject is separated from the residential housing to the north by the proposed cross-town freeway taking, on the west and the south by the Rio Bravo and Cross Valley Canals, and on the east by Calloway Road. South of the Cross Valley Canal and extending southerly to the Kern River is a narrow strip that will most likely be left in its native state forever. North of the freeway taking is vacant land extending to the Spring Meadows low-density residential development and a proposed high school site. To the west and the northeast are undeveloped agriculture lands that have R-1 residential use entitlements. The surrounding land uses are primarily residential in nature consisting of both entry-level and move-up product, and conform to a good overall j development plan for this area. The parcel immediately east of the subject are the first phases of Brighton Place, already well underway with upscale single-family residential. Further east the east line of Calloway Road is developed with a retirement and care center. This project, known as Glenwood Gardens, has 435 beds in assisted and independent living environments, a 30 to 40-bed facility for Alzheimer's patients, and a 10,000 square foot wellness center. Conclusion A review of the lot sizes in the subject tracts indicates that the average lot sizes are large City lots, which are typical in the west and southwest Bakersfield area. This is a desirable feature and is likely to enhance the appeal of the subject lots and completed housing product competing for market share. No detrimental influences contiguous to any individual parcels in the subject property or in the general area of the subject tract were observed. The subdivision is consistent with the existing 111 Lauver & Associates Assessment District D3-3 General Plan. Its design does not cause substantial environmental damage or substantially and avoidably injure fish or wildlife or their habitat, nor is it likely to cause any serious health problems. The design of this subdivision does not conflict with easements, acquired by the public at large, for access through or use of property within the subdivision. The subject tracts are physically suitable for the type and density of development proposed, and are well located with reference to schools, shopping and other sociaUeconomic establishments. Because of its location in proximity to the major arterials Rosedale Highway, Stockdale Highway, Calloway Road and the future extension of Jewetta Avenue, the subject will provide its resident's ease of access and shorter travel times to conveniences. The location with reference to the new power center on Rosedale Highway and proximity to the new planned commercial areas along Stockdale Highway are also positive factors that will enhance marketing of the tract. The conformity of the lots to the area and the general development trends in the Northwest and Southwest Bakersfield area should assist in the marketing of the finished lots with or without housing units and demandlgrowth trends should aid in maintaining values into the future. 112 File 3533 Lauver & Ass©ciates Assessment District 03-3 VALUATION -BRIGHTON PLACE II AREA The comparable data on which the value of the unimproved acreage was derived was presented in the previous section. The subject tract is well located with reference to schools, shopping and on-going residential developments. The market data cited previously recognizes the steadily increasing residential land values over time. The supply-demand conditions, locational attributes and the upward progression of residential land values have led me to the conclusion of value for the acreage in the various tracts of $65,000 per acre, unimproved.] Enhancements to Land The developer has enhanced the value of the subdivisions with the installation of on-site improvements such as land clearing and grading, street grading, installation of utilities in trenches, curb gutter and sidewalks. These on-site improvements add value to the land since, were the lots to sell at this point, a developerlpurchaser would recognize these as costs they would not have to incur in developing fmished lots. Therefore, these enhancements to the land would be recaptured in the event of resale. It is my ophuon these could be recaptured at a minimum of adollar-for-dollar cost basis. As of the date of this report, the developer reports the expenditures to enhance the land total $169,348. Adding these costs to the estimate of unimproved land value yields the subject's "As Is" value, but does not include any profit, supervision, overhead, contingencies nor does it recognize the value of the time necessary to bring the land to its current state. This will be accounted far and indications of value are developed in the following analysis. 113 Launer & Ass©ciates Assessment District D3-3 PROSPECTIVE MA1tKET VALUE AT COMPLETION In this section we will present a forecast of the value of the subject at completion. This is the accepted procedure in the appraisal process when lots are in the process of being improved and have not achieved a full sell-out when the appraisal report is written. The process involves the application of the Cost and Sales Comparison approaches to value to reach a value for the typical interior lot. In addition, we are aware that developers are commanding a premium for large lots, corner lots and cul-de-sac lots. The value of the typical lot premium is added to the interior lot value to arrive at an aggregate value for the subdivision. The aggregate of these values reflects the total value of the entire subdivision at completion. Since it is not possible to complete the entire subdivision and sell all the homes on the day of completion, the discounted cash flow analysis is used as a too] to recognize asell-out of the lots over time. Cost Apnroach When complete, the Brighton Place Area will .have 176 buildable residential lots. The Cost Approach involves calculation of the value added to the vacant land value that was estimated in the previous section and estimating the cost of developing the land from a raw land state to one of finished lots available for improving with new housing units. Since the lots are in separate areas with various lot sizes, the development costs are expected to differ in the respective subdivisions. Moreover, each area is planned for different sizelquality housing product and will be aimed to capture differing segments of the housing market. Income Approach The Discounted Cash Flow analysis is also used to estimate the value of the subject lots "As Is". This DCF serves as a check on the "As Is" value presented previously based on the cost and sales comparison approaches. Both the "As Is" and Prospective Market Value DCF models in this 114 File 3533 Launer & Ass©ciates Assessment District ©3-3 section are calculated using the income and expense projections and assumptions described in the following paragraphs. Lot Production - Finishing Costs The first step in the Cast Approach is to estimate the costs involved in completing the tract to a fmished lot state. The costs to bring the tract from a paper lot stage to completed, ready-to-build lots include direct and indirect costs along with developers' overhead and profit. These costs are added to the raw land value estimated previously. The fmal total is the estimated value of the fmished lots by the cost approach. The developer reports land improvement costs of $169,348 have been expended to date. In the previous section of this report we cited sources for our estimate of the costs necessary to bring the subdivision to a fmished lot state. We concluded from the lot improvement cost data from several local independent civil engineers and land developers who have developed large subdivisions that it will require approxhnately $22,000 per lot to complete the subject lots. The developer's reported costs equate to $962 per lot. Following is the appraiser's summary cost approach for the subdivisions and thus the indicated finished lot values by the cost approach: Lot Value via Cost Approach - Brighton Place II Area Tract 6185 Units 1-8 Land Value 33.85 Acres @ 45,000 IAcre Lot construction costs 176 Lots @ 22,000 fLot Subtotal Overhead and Contingencies 15% Total Subdivision Cost Cost per Lot Entrepreneurial I Developer Profit 20% Indicated Finished Lot values via Cost Holding Costs 24 Months 24% Indicated Finished Lot values via Cost 1,523,250 3,872,000 5,395,250 809,288 6,204,538 35,253 7,051 42,304 10,153 52,457 lls Lauver & Assoeiates Assessment District 03-3 Using the cost approach to value, the appraiser has concluded a value for the lots in the Brighton Place II Area to be the sum of $9,232,432, or $52,457 per lot. SALES COMPARISON APPROACH In order to estimate the Prospective Market Value of the improved lots in the Brighton Place II ', Area at completion, we researched the market to obtain sales information about similar size lots ', that were or are about to be improved with housing units that will appeal to a similar market segment. This technique, known as the Sales Comparison Approach, was described in the previous section. The value indicators resulting from these approaches are reconciled to a final value indicator for the subject "As Complete". The findings of our investigation of lot sale data were presented in the previous section. It was i the appraiser's conclusion that the most pertinent data involved the sales activity in two subdivisions. I In the subdivision known as Ambrose, a total of 91 finished lots have been sold through April i 2003. The sales activity represents a sales rate of 6 lots per month. The pricing for these lots ranged from $48,350 to $70,350 depending on size, location and orientation within the subdivision. The mean and median selling prices were $57,575 and $56,350, respectively. The lots range size from 10,000 to 19,549 square feet with an average lot size of 12,000 square feet and an average selling price per square foot centering around $6.00. Tract 6006 is a 66-lot subdivision located in Southwest Bakersfield. According to the purchase contract and escrow instructions we examined as part of the appraisal process, indicated the purchase price was $3,135,000, or $47,500 per lot. The lots range from b,600 to over 15,000 square feet for the cul-de-sac lots. The average lot size is about 7,200 square feet, indicating an average selling price per square foot of $6.60. The sale closed in April 2004.-This represented a bulk sale of finished lots with an inherent discount of about 15%. if sold an a rolling option basis, the lots would have commanded a selling price of around $54,000 per lot, according to the seller. 116 File 3533 Lauver & Associates Assessment District 43 3 The most current data indicates the subject lots have a value of $6.60 per square foot. This indicates a value for the subject's average 9,000 square foot lots to be just over $59,000 per lot. Given the rapid appreciation we are experiencing in the market, we are estimating the value of the subject lots to be $60,000, assuming a rolling option purchase, which is most typical in the local market. RECONCILIATION The first step in estimating the value using the Cost Approach was to estimate the underlying land value using the Direct Sales Comparison Approach. The value from this approach was considered supportable and based on a sufficient number of reliable data. The direct and 'indirect costs were based on reliable costing sources supplemented by engineer's cost estimates from similar tracts. The Cost Approach indicated that it requires from about $14,000 to $26,000 including direct costs, indirect costs plus entrepreneurial profit, to develop the typical interior lot in these tracts. We concluded a cost of $22,000 for the subject lots. The lot construction costs were added to the land value to obtain an indication of the lot value "When Complete" wider this premise. However, because of the difficulty in ascertaining investor motivations, the profit margin we selected may not be representative of market conditions for this development and the cost approach may not be as reliable as the Sales Comparison approach. The Sales Comparison approach was based on direct comparison with sales of lots sold to merchant builders. The data from this approach was gathered from tracts that offered lots that are considered similar to the subject and reflected the thinking of the typical local market participants. Therefore, as a result of our analysis of costs and market conditions, we have concluded the values developed as part of the Sales Comparison analysis are the more reliable value estimates. The Prospective Market Value of the 176 lots in Brighton Place II area `When Complete', are concluded at $60,000 each, a total of $10,560,000 for all phases. This should be understood to be an aggregate value representing the sum of the individual lot values. It is not likely this value 117 Lauver & Associates Assessment District D3-3 could be realized in a sale to a single buyer. The discounted cash flow analysis in the following section will more accurately represent the respective tract values with a typical sales program. MARKET VALUE AT COMPLETION In the previous section of this report, the appraiser estimated the value of the typical lot at completion, ready for construction of a housing unit. The aggregate of ahese values reflects the total value of the entire subdivision at completion. Since it is not possible to complete the entire subdivision and sell all the homes on the day of completion, the discounted cash flow analysis is I used as a tool to recognize asell-out of the lots over time. The discounted cash flow analysis is used in the Income Approach as explained in the following section. INCOME APPROACH I The value of the subject lots "As Is" is presented using the Discounted Cash Flow analysis. This DCF serves as a check on the "As Is" value presented previously, which was based on the cost and sales comparison approaches. The Prospective Market Value DCF model that follows is calculated using the income and expense projections and assumptions described in the following paragraphs. The Market Value represents the subject tract "As Is". This value considers the fact that all development costs have not yet been expended and the costs to complete are factored into ', the analysis. The process of providing a discounted cash flow analysis requires the following steps: ', • Estimation of the retail value of the individual fmished lots and the aggregate retail value of lots including lot premiums; • Estimation of the appropriate absorption or sell-out period required to market the fmished lots; ', Determination of the approximate sellingJholding expenses incurred during the marketing of ', the lots; ', • Calculation of the indicated periodic cash flow from the projected sales; 118 File 3533 Launer & Associates Assessment District D3-3 • Subtracting the direct costs, indirect costs (including selling expenses} and profit from the periodic cash flows, and • Determination of the present worth of the net cash flows generated during the absorption period. Absorption Analysis The values of the typical lot and lot premiums as well as the historical absorption of similar size lots were estimated in the previous section of this report. Based on my analysis of the sales activity in competing tracts as shown previously supported from the supplytdemand conditions cited previously, T formed the conclusion that the subject tracts are capable of achieving a sales rate of 81ots per month. This estimate is well supported by the tract locaflons and the reputation of the developer in this community. Income Because it is impossible to predict when each fuushed lot will sell and because of the varying circumstances that could be encountered, the total retail value for the various tracts including profit was used to calculate the expected gross income proceeds from sales. The total aggregate value for the various tracts was calculated by multiplying the individual finished lot value by the number of lots in the tract. The periodic cash flows were estimated at $480,000 for the first six months of the analysis. Expenses In our estimate of lot construction expenses, we referenced the cost data from previous subdivisions built by this developer with similar lot sizes and product type. We compared the costs from the previous developments with the projected costs for the subject tracts. We found that the developer's costs projections of direct and indirect costs were consistent with costs for similar subdivisions. We concluded the cost to develop the lots in the tract at $22,000 per lot. 119 Launer & Associates Assessment District 03-3 Since lot construction has commenced, we have subtracted the costs that have been incurred to date from our cost estimates in the various tracts. The subject is subject to Assessment District 03-3 (AD 03-3) bond obligations. The payments are submitted on the tax bill to the current landowner and amount to approximately 10% of the tax lien on each lot, payable semi-annually. With varying sell-out periods for the three subdivisions, we determined the developer is responsible for two or more AD payments during the sellout period. In order to reflect the Assessment District payments in the analysis, we have estimated an appropriate set aside for each lot in the respective subdivisions to account for this expense. In our projection, taxes were calculated based on gross sales per month at a 1.25% annual tax rate paid quarterly. We estimate entrepreneurial profit of 10% of gross proceeds based on our interviews with the major local lot producers. We estimate a total of 8% as a reasonable projection for variable indirect expenses. This is segregated into 3% sales costs, 2% for general and administrative {including taxes and interest) expenses and 3°lo miscellaneous expenses. Discount Rate A discount rate of 10% is selected as appropriate. This is based on the current prime or reference rate of 6.0% plus 4% investor's margin to reflect risk and holding factors. It is my opinion that the size and scope of this project does not require an extended marketing period although the proposed housing units are aimed at the move-up buyer and luxury home segment of the market. This market segment typically has a rather low element of risk in the current market. The discount rate is further supported from surveys published by CB Richard Ellis and other sources quoting required IRR's of 25-30% including profit. Since developers in this area are reportedly achieving profit margins in the 12-18% range, a discount rate of 12% is considered reasonable. Because the absorption estimate results in a fractional amount, our estimate of cash flows was revised to reflect a lower sales rate in the last marketing period. 120 File 3533 Lauver & Associates Assessment District 03-3 A spreadsheet summary of the present value of the series of periodic income flows for the respective tracts is presented at the end of this section. This sum of the discounted lot values represents the "As Is" value of the subject on April 24, 2404. This sum of the discounted lot values is the amount a bulk purchaser would likely be willing to pay assuming the finished lot subdivisions were purchased in its entirety. As a result of my analysis, I have estimated the Market Value of 176 final mapped lots in the Brighton Place II area to be the sum of $5,456,816. The discounted cash flow analysis for the tract is presented at the end of this section. BULK VALUE The bulk values in this instance are identical to the "As Is" values cited previously. RECONCILIATION OF VALUES In the previous sections of this report we examined the characteristics of the subject and analyzed them in terms of the market with regard to desire, demand and competitiveness. The subject lats rate well in all areas of comparability. We developed value estimates for the subject using the Cost Approach, Sales Comparison Approach and an Income Approach using the Discounted Cash Flow analysis technique. In developing the "As Is" value using the Cost Approach, we gathered the most recent unimproved land sales and by using the sales comparison approach, it was possible to arrive at a reliable estimate of the subject's raw land value, which was estimated at $65,000 per acre, or $2,200,250. The costs to improve the subdivision to its present state were obtained from the developer. The costs of the improvements installed in Brighton Place iI Area totaled $169,348. Adding the actual costs that are in place to the underlying land value and the value added by the 121 Lauver & Associates Assessment District 03-3 off site infrastructure provided by the Assessment District 03-3 improvements yielded an indication of the subject's "As Is' value of $3,099,759. The "As Is" value using the Cost Approach represents the value of the parcel, as it existed on the date of value. It does not include selling or holding costs nor does it recognize the entrepreneurial enterprise and coordination required to bring the land to its present state. In developing the "As Is" value using the Income Approach, we used both the cost approach and the sales comparison approach to estimate the value of the individual lots in the respective - subdivisions as complete. The sales comparison approach involved investigating recent sales of lots to merchant builders and others enabling us to arrive at an estimated value per lot when complete. The same data enabled us to estimate the typical lot premium over the entire tract, yielding an estimate of the typical finished lot value in the subdivision. Since the entire tract will not sell in its entirety on the same day, we used the Discounted Cash Flow analysis (DCF) technique to recognize the time value of money during the tract's sell-out period. In the DCF we subtracted the costs to complete the lots and credited the costs already incurred by the developer. The DCF also accounted for the selling costs, incidental costs and developer profit. The net income resulting from sales was discounted over the marketing period. In selecting the more reliable indicator of the "As Is" value, greater weight is placed on the Income Approach because it is more reflective of the market conditions over time based on the net cash flows, whereas the Cost Approach is a static analysis. The Discounted Cash Flow worksheets are presented in the addenda. 122 File 3533 Lauver & Associates Assessment District 03-3 NEIGHBORHOOD ANALYSIS - FAIl2WAY OAKS SOUTH The subject neighborhood is located in the southwest section of the City of Bakersfield, within the City Limits. The neighborhood covers roughly a two square mile area, bounded by the major streets as follows: Location Border Street Description North Side Boundary Ming Avenue Major East-West Arterial South Side Boundary Panama Lane Major East-West Arterial East Side Boundary Freeway 99 Intrastate Freeway West Side Boundary Buena Vista Road Major North-South Arterial The physical boundaries of the neighborhood were selected because of the predominantly agricultural and residential land use patterns in the area. i w_.... a llVL lYlAN ;_ 0 R % 'fi 1 1'(.m meZmalN 123 Lauver & Associates Assessment District 03-3 General Neighborhood Description The neighborhood is located in the southwest quadrant Bakersfield, approximately 11 miles i south of the downtown civic center area. Large portions of the area are cultivated, irrigated field and row cropland along with large parcels of unimproved underdeveloped land with natural vegetation cover. The overall character of the neighborhood is transitional, from agricultural to urban uses. Since much of the vacant land in the planned areas of the city to the northwest of this neighborhood is approaching full build out, it is anticipated that urban development will continue to spread into this area. This would follow the City's historical westerly growth pattern that has steadily shifted to the west and south over the past twenty-five years Some of the most recent improvements in the vicinity of the subject .were the expansion of previous phases of the Campus Park planned development. The Campus Park area consists of ~, homogeneous single-family dwellings ranging in size from about 1,100 to 1,600 square feet. j These are on smaller city lots of 4,500 to 6,000 square feet, in various tracts. The housing in the area ranges from new, in Tract 5848, to about 12 years of age in Tracts 4619, 4620 and 4601. In these areas, the dwelling units are of medium quality, consisting of Ranch, Spanish, Mediterranean and Contemporary styling in one and two-story design. Our studies indicate that ', sales activity in these nearby developments has been good, with absorption rates from 3 to 10 units per month, depending on the builder, housing product and the time frame analyzed. In general, pricing has been attractive to the first time homebuyer. In the subject's immediate vicinity, approximately 3 blocks southwest of the subject, is Centex Homes newest development known as the Buena Vista Ranch. This area covers approximately 125 net acres. The developer has subdivided the parcel into 4$7 buildable lots as Tract 6104, to be constructed in $ phases. The four northerly phases are known as Greystone and the southerly phases are called Hidden Oaks. The development is well underway and the sales office reports brisk sales activity, with a total of 140 homes sold in both developments since their opening in March of 2003. 124 File 3533 Lauver & Associates Assessment District 03-3 Just west of the subject parcel, along Buena Vista and Pacheco Roads, Coleman Homes is developing a new subdivision, Tract 6156. This tract covers approximately 148 net acres of land and their plans call for a phased development of 234 lots of their Celebrations series. As of the date of this writing, four models are under construction but no tract development has begun. Kyle Carter Homes recently purchased slightly more than 90-acres near the subject at Panama Lane and the east line Old River Road for a new subdivision. Construction has not yet commenced. Access The neighborhood has good access to all parts of the city via Panama Lane and White Lane, both with Freeway 99 on-off ramps five miles east of Buena Vista Road. Gosford and Buena Vista Roads are major arterials providing access in the north and south directions to Stockdale Highway, White Lane and Panama Lane. White Lane from Freeway 99 to Buena Vista Road is a divided four-lane arterial. Panama Lane is a divided four-lane arterial providing access to the west from Freeway 99. Panama Lane narrows to two-lanes at Gosford Road. Buena Vista Road is a divided four-lane, north-south arterial north of Pacheco Road; south of Pacheco it is a two lane secondary street. Both Pacheco and Old River roads are 30-feet wide dedicated two lane streets that lack curb, gutter, sidewallc or streetlights. These will be widened to half-width along the respective subdivisions frontages as part of the City's conditions of residential map approval. Demoeraphics According to the United States Census, and the update conducted in 2001, the described neighborhood has a population of 48,287 persons. This is projected to grow to 54,274 by 2006. 125 Launer & Ass©ciates Assessment District 03-3 From 1990 to the 2000 Census the population in this neighborhood area grew at a 70.49% rate. Currently, there is a total of 16,088 households in this area and by 2006 this area is projected to ', grow to 17,988 households. The 2000 average household size is 3.2 persons. According to our demographics provider, Mapinfo Demographics 2001, the neighborhood had a j median household income level of $63,719 and an average household income of $71,795. _ _~ Approximately 58% of the households had an income in the $35,000 to $100,000 range. Of those in this bracket, 3/4 of the households had incomes in the $50,000 to $75,000 range. The overall neighborhood income characteristics are well above those of the City of Bakersfield, which I shows a median household income of $43,107. Community Services The Bakersfield Police and Fire Departments serve the neighborhood. A fire department substation serving the subject neighborhood is on Stockdale Highway between Ashe and Gosford Roads. Golden Empire Transportation Inc. provides public transportation, with numerous stops ', throughout the neighborhood. Convenience stores are located at the intersections of the major ', commercial arterials throughout the neighborhood. Anew community center, at White Lane and Coffee Road, is anchored by an Albertson's store. Other notable retail uses in the center include Auto Zone, Jack-in the Box, Roadhouse Grill and a Del Taco fast food restaurant. There are several other retail outlets in a satellite retail strip in the center. City, County and Administrative services are in the downtown central business district, approximately l l miles northeast of the general neighborhood. 126 File 3533 Lauver & Associates Assessment District 03-3 Conclusion The neighborhood is considered to have a good location in the Southwest sector of the Greater I Bakersfield Metropolitan area. It is well served by conveniently located schools, shopping, services and conveniences. The overall character of the neighborhood is in a state of transition, from agricultural land, older residential, and outmoded commercial uses, to a very modern residential urban environment; including two rapidly developing master planned communities with desirable, attractive amenity features. The locational characteristics have generated strong market interest for housing in this area, resulting in strong sales activity. Although we have seen some reports that the local resident market demand may have reached a state of equilibrium, there remains considerable demand for residential housin from out of the area bu ers who are relocatin to Bakersfield for the g Y g affordable housing and the quality lifestyle available here. Barring any unforeseen negative economic/social occurrence, all of the discussed findings should assist in maintaining values in the area in general and for the subject in particular. SITE DESCRIPTIONS Location and Access The subject parcel is accessed along its easterly boundary from Old River Road. Old River Road intersects with Panama Lane approximately 'h mile south of the subject parcel. Approximately 400 feet north from the subject is Pacheco Road, which provides access to Buena Vista Road, approximately'/a miles west. Both Pacheco Road and Old River Road are 30' wide 2-lane, dedicated public maintained streets. 127 Launex & Associates Assessment District 03-3 Boundaries of the Fairway Oaks South Area LGCaT101 .SiAF 4F FR4F4SED EOUNDARIES OF e1H9E5S'.SENT AfSTRfC9' N[i, 03_g h\D I?DEX MAA OF SHEETS 3 THROUGH 5 ~.~ ..urs.nr. xan M, u~a eswtta kw,. w.,..,......_ ixs~..s eme'... :, ~ w~.a. ax..vn . _ __ __ awcma> a...r. .._ ., _ ...... 4ae. x :mxexat ~a.~wgff~P~~.'»~.e t. w+. z uar: +ws x41E xeYM'J VMn.KSVCR K.6A.... x. N.S.W/: '.L~.,=.;: CtfY 0? BhKE83l73W3 a8ffiSSNEt4T 91$TRiCf NO. C3- t~at dbml R f ~4xSUV stag n ! rwnaY'aN amF1N County a0. %eso. State oS Ce[ifosnif Size -Shane - Tonogranhv According to the Kem County Assessor's office, the subject covers a portion of Assessor's Parcel Number 497-010-13. This parcel map shows a gross acreage of 79.46-acres. The Tract Map 6079 prepared by SmithTech USA indicates Unit One of Tract 6079 will cover a land area of 14.41-net acres. A portion of the remainder of Tentative Tract 6079 Unit One, approximately 13.51-gross acres, is a super pad and will be developed at a later time into buildable lots. Overall, the parcel is rectangular in shape and has approximately 1,330 feet frontage along the west line of Old River Road and approximately 2,603 feet along the sough line of Pacheco Road. The reader may wish to refer to the reductions of the tract maps shown in this report for a graphic representation of the subject's shape characteristics. 128 File 3533 Launer & Associates Assessment District 03-3 At the time of my inspection, the parcel was generally level with a slight natural gradient sloping downward from northeast to southwest. The soils are classed as average for agricultural cultivation, with generally sandy and sandy loam soil. _ ';:.j Street Improvements Old River and Pacheco Road are public-maintained two-lane north south and east-west streets. There is no curblgutter, streetlights or sidewalks in place at this time. Zonine According to the Bakersfield Planning Department, the subject is currently zoned R-1. This zoning designation allows single-family residential land uses, with a rninimurn lot size of 6,000 square feet for each dwelling unit. Easements and Encroachments The appraiser was not provided with a title report for review. No adverse easements or encroachments were observed on the site or on the plat and it is assumed that none exist; however, the appraiser makes no warranty to that effect. Utilities Electricity, water, gas are located north of the Burlington-Santa Fe Rail line north of Pacheco Road. The developer has acquired an agreement from the railroad company to allow routing these utilities under the railroad tracts to connect to the subject. The Bawer tie in will be from the j existing trunk in Harris Road and the developer will extend it to Mountain Vista and then to the subject property. Installation of these facilities will ensure that all utilities are available for connection to each R-1 lot at such time that the subdivision is constructed. 129 Lauver & Associates Assessment District 03-3 Environmental Characteristics The appraiser has no knowledge concerning the presence or absence of any hazardous materials or wastes within, or in proximity to the subject property. A physical inspection of the subject property revealed no atypical conditions that might contribute to a toxic hazard. It should be noted however, that this appraisal report was prepared strictly for the use of the client and does not constitute an expert environmental assessment of the subject property. The appraiser is not an expert in the field of hazardous materials, and this appraisal report should not be relied upon to determine whether environmental hazards exist on the property. The value presented in this report is predicated on the assumption that the site is free of any hazardous materials, existing or past soil contamination. If there is any question regarding the presence of any contaminants, the appraiser recommends that the client obtani an environmental assessment from a qualified environmental expert to determine the potential environmental risks associated with ownership of the subject property. If such toxic conditions do exist, the property value may be adversely affected. Flood and Earthquake Zones According to the Federal Emergency Management Agency Federal Insurance Administration panel 060075-1015 B, dated September 29, 1986, the subject property is located in a flood plain area Zone C. This designation signifies areas of minimal flooding and no flood insurance in required. According to Special Publication 42 of the California Department of Conservation, Division of Mines and Geology, revised edition, 1990, entitled Fault-Rupture Hazard Zones in California, the subject property is not located within a Special Studies Zone, as defined in the Alquist-Priolo Special Studies Zones Act. 130 File 3533 Lanner & Associates Assessment District 03-3 Surroundine Area Improvements Immediately north of the subject's northerly property boundary is a main rail line of the Burlington NorthernlSanta Fe Railroad. North of the rail line is agricultural field and row cropland. Land uses south, east and west of the subject consist of primarily Feld and row ::.~ cropland with a few older farmhouses on 20-acre or larger parcels. Proposed Lot Sizes Fairway Oaks South area consists of Assessment Number 809, which is unimproved residential land covering an area of 13.51-acres. It is described in this report as a portion of Tract No. 6079 Unit One and is considered a sugar pad. This means that it will have much of the legal, planning, engineering and land clearing completed, but no on-site improvement will have begun. This acreage is valued "as is" as vacant unimproved land. Tract No. 6079 Unit One described as Assessment Numbers 744-799 and 801-808 covers 14.41- acres. Atotal of 59 R-1, single-family residential lots have final map approval. The 59 buildable lots in Tentative Tract 6079 are generally rectangular in shape with typical street frontage of 60 to 65 feet. Depths vary, but are generally a uniform depth of 120 to 125-feet. The lots range in size from 6,003 to 15,198 square feet, with a median lot size of 6,930 square feet and average lot size of 7,709 square feet. A listing of the lot sizes is displayed below. 131 Lauuer & Associates Assessuzent District 03-3 Lot Size Listing -Tract 6079 Unit 1 Lot Size Lot Size 1 8,478 31 7,560 2 14,875 32 6,930 3 14,374 33 6,930 4 6,977 34 6,930 5 6,600 35 6,930 6 6,600 36 6,430 7 6,600 37 7,501 8 7,000 38 7,360 9 7,000 39 6,930 10 6,600 40 6,930 11 6,600 41 6,930 12 6,600 42 6,930 13 7,200 43 6,456 14 13,130 44 6,361 15 13,351 45 7,460 16 6,930 46 7,943 17 7,360 47 1,960 18 7,360 48 7,000 19 6,594 49 6,600 20 14,677 50 6,146 21 15,198 51 6,684 22 6,708 52 Sump 23 7,021 53 6,003 24 7,021 54 6,021 25 7,021 55 6,600 26 7,022 56 6,600 27 7,022 57 6,600 28 7,213 58 6,600 29 8,130 59 6,600 30 8,131 60 7,000 The proposed lots are typical of other parcels that will ultimately be developed with residential housing. The tract is well located in an emerging area of Southwest Bakersfield. The growth trends toward this area are a positive factor that will serve to enhance and maintain property values ih this area. 132 File 3533 Launer & Associates Assessment District 03-3 A review of the lot sizes in the subject tracts indicates that the average lot sizes are typical of many subdivisions in the northwest and southwest Bakersfield area. This is a desirable feature and is likely to enhance the appeal of the subject lots and completed housing product competing for market share. Conclusions• No detrimental influences contiguous to any individual parcels in the subject property or in the general area of the subject tract were observed. The subdivision is consistent with the existing General Plan. Its design does not cause substantial environmental damage or substantially and avoidably injure fish or wildlife or their habitat, nor is it likely to cause any serious health problems. The design of this subdivision does not conflict with easements, acquired by the public at large, for access through or use of property within the subdivision. The subject tract is physically suitable for the type and density of development proposed, and is well located with reference to schools, shopping and other sociaUeconomic establishments. Because of its location in proximity to the major arterials White Lane, Buena Vista and Panama Road, the subject will provide its resident's ease of access and short travel times to conveniences. The confomvty of the lots to the area and the general development trends in the Southwest Bakersfield area should assist in the marketing of the finished lots with or without housing units and demandlgrowth trends should aid in maintaining values into the future. PROPERTY HISTORY Uniform Standards of Professional Appraisal Practice and the Standards of Professional Practice of the Appraisal Institute require that an appraisal report must contain an analysis of any prior sales of the property that occurred within athree-year period prior to the date of value. 133 Lauver & Associates Assessment District 03-3 According to the Kern County Recorder, the ownership of the land described in this section of the report is vested in Fairway Oaks South, LP. In an interview with a spokesman for Fairway Oaks South, I learned that the land being appraised was part of a 79.46-acre agricultural parcel. It was purchased in December of 2000 and closed escrow in January 2001 for a price of $795,000 or $10,000 per acre according to document number 184699. Examination of the official records indicates the previous owners held the property for more than three years prior to the sale to Fairway Oaks South. As of the effective date of this appraisal, all preliminary engineexing work has been completed, clearing and rough grading is complete. ASSESSED VALUE AND TAXES All property hi Kern County is assessed for ad valorem taxes by the Kern County Assessor's Office. The Kern County Board of Supervisors makes the annual tax rate deternvnation. In Kern County, real property assessments are at 100% of their taxable value. The tax rate is a composite of the counTy, city, and special improvement and maintenance districts. In the primary election held June 6, 1978, the voters of California approved the Jarvis-Gann ballot initiative. This measure, known as Proposition XIII, was a total renovation of California's property tax structure. The major net effects of this proposition are: A. The maximum amount of any ad valorem tax on real property shall not exceed one percent (1 %) of the full cash value of such property. B. The market value base may reflect from year to year the inflationary rate not to exceed two percent (2%) of any given year or reduction shown in the consumer price index or comparable data for the area under taxing jurisdiction. 134 File 3533 Lauuer & Associates Assessment District 03-3 C. The full cash value means the County Assessor's valuation of real property as shown on the 1975-1976 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 afrer the 1475 assessment. Because it is the purpose of this report to determine market value, (which by definition presumes a ready, willing and able buyer), it becomes necessary to allow for an increased or decreased tax liability for the subject property, based upon the valuation reported in this appraisal report. According to a spokesman for the Kern County Tax Assessor, there are no delinquent taxes or penalties owed against the subject property. VALUATION As explained previously, both the Cost and Sales Comparison approaches are pertinent to the appraisal of the subject property. Each approach will be independently applied in the following analysis. The values will reflect the value of the super lot "As Is°' and the prospective present value of the 59 lots in Tract 6079 Unit One both "As Is" and "As Complete". Value of Unimproved Residential Land The subject of this analysis consists of two parcels. The first, known as Tract 6079 Unit One, covers a total of 13.51-net acres proposed for development into 59 R-1 lots for future construction with housing units. The portion of the remainder in Tentative Tract 6079 that will be valued here covers approximately 14.41-net acres. It will be valued as a single tract of vacant land (a super pad) to be developed with residential lots at a later date. As of our most recent inspection, lot construction in Tentative Tract 6079 Unit One has begun, with portions of the public fees and engineering, and rough grading completed. Installation of the water system, storm sewers, underground utilities, and initial street cuts is underway and nearly complete. These in-tract improvements represent an estimated expenditure of $249,200 incurred by the developer to date. This was broken down into costs of $144,542 to Tentative Tract 6079 Unit One and $104,658 in the super pad portion. Completion of the underground utilities, in-tract 135 Launer & Associates Assessment District D3-3 street paving, curbJgutter, sidewalks, street lights/signs, fmal lot topping and landscaping remain to be completed in order to have finished lots ready for improvement with housing units. According Kern County Records, the fmal map recording of the 59 lots in Tract 6079 Unit One was completed on March 30, 2004. As a prerequisite to the issuance and recording of the final map, the developer must post a completion bond, which guarantees the completion of the subdivision to a finished lot state. In valuing this land we use two valuation techniques to arrive at the values of both parcels of land. The first method values the raw unimproved land based on sales of parcels having similar characteristics as the subject parcels using the sales comparison approach to value. The improvements to the land that have been installed on the date of value are added to the land value to represent an "As Is" value of the raw land with residential entitlements. This represents the amount a typical purchaser would be willing to pay for the subject land in its present state on the date of value. Valuation of Tract 6079 Unit One also includes the prospective value of the residential lots "As Complete". in this valuation, we collect and analyze the sales characteristics of fmished lots sold to developers who have in turn, constructed housing units on the fmished lots. In order to arrive at a value for the finished lots assuming they were to be sold "in bulls" to a single purchaser, we use a discounted cash flow analysis. This method involves an analysis of the periodic income from sales of the fmished lots less construction casts, marketing costs, taxes, overhead and developer profit, appropriately discounted to recognize the time value of money over the sellout period. Value of Unimaroved Land The first step in the valuation process involves analysis of land sales that have characteristics similar to those of the subject. The pertinent sale data will be discussed and analyzed to obtain economic indicators for the subject. 136 File 3533 Laaner & Associates Assessment District 03-3 The sales were selected as most comparable to the subject owing to their locations in the respective environments. The sale data cover a time range of slightly more than 1 year and are considered to be the most current available. The locations of the land sales cited are depicted in the map below. The sales are summarized in the following grid. 137 Lauver & Associates Assessment District 03-3 COMPARABLE LAND SALES SUNIlNAI2Y Location Sale Date Sale Price SizetAc SPl$ Acre 1. 5EC Johnson & Renfro Roads 2/28/03 $1,047,750 55.22 $18,974 2. Pacheco Road and Buena Vista 5110/03 $3,428,490 165.04 $20,774 3. Panama Lane & Old River Road 6!11/03 $1,941,000 90.57 $21,497 4. SEC Pacheco & Old River Road 10/7/03 $790,500 38.13 $20,732 4. Panama Rd Elo Fwy 99 11/25!03 $865,000 18.21 $47,501 Sale 1 represents a February 2003 transaction involving a fallow agricultural land located at the SEC of Johnson and Renfro Roads in SW Bakersfield. At the time of sale it was unmapped agricultural land. Subsequent to the acquisition the buyer filed for tentative maps. It was the owner's intent to start grading on May 31, 2003 and to commence construction of lots in early winter of 2003. This sale is slightly smaller than the subject indicating a downward adjustment for size. However, this is more than offset by the inferior location that is not yet in an area of intensive development as is the subject. Sale 2 describes the May 2003 sale of an irregular shaped parcel with frontage along the south line of Pacheco Road and along the east line of Buena Vista Road in SW Bakersfield. According to a spokesman for the purchaser stated the purchase will be in two phases; the first portion, 79.8-acres closed on May 10, 2003, for $1,873,000, the remainder, 67.63-acres will close in 90 days with a selling price of $1,555,490, for a total purchase price of $3,428,490. This parcel is lazger than the subject but has frontage on a highly traveled street that offers greater visibility and exposure for the tract sales offices. These are considered offsetting adjustments. Sale 3 refers to the June 2003 sale of a 90.57 gross acre parcel with frontage on Panama Lane in Southwest Bakersfield. At the time of purchase the parcel was devoted to field and row crops but it is to be developed with single-family residential housing tracts. 138 File 3533 Launer & Associates Assessment District 03-3 This sale is in close proximity to the subject and is similar in size. No adjustment is indicated for physical characteristics. Sale 4 describes the October 2003 sale of a 38.13-acre parcel located at the southeast corner of ', Pacheco and Old River Road in Southwest Bakersfield. According to the purchaser, the utilities are being brought in from under the north side of the Burlington-Northern Santa Fe rail line to the parcel directly to the west, which he also owns (Tract 6079). After development of Tract 6079 is underway, the subject will link utilities. This sale is representative of the type of surrounding residential properties that influence the subject parcel. Although smaller, it is comparable to the subject in all other respects. Sale 5 represents the November 2003 sale of an 18-acre parcel located at Freeway 99 and Panama Road. At the time of sale the parcel was unimproved acreage. This parcel is considered somewhat superior to the subject in terms of visibility to major traffic. This attribute is offset however, by the fact that it has no entitlements for urban development and it is not in the City. The long-range plan for the County shows the development has commercial potential but the prospect of a long-term hold tends to set aside the advantage to the potential future land use. As indicated previously, we perceive the market is showing appreciation over time. The market was flat and showed steady appreciation until late 2003. During 2004 the high demand for residential development land being demonstrated throughout the City by the intense negotiations. ', The limited sale data we have is supplemented and supported by several transactions now in escrow. In addition to the above sales, we investigated several offerings, listings and pending sales that influence the current market. 139 Lauver & Associates Assessment District 03-3 On file in our office we have an offer addressed to a realtor from a property owner who owns approximately 20-acres along Hosking Avenue in Southwest Bakersfield. The property is listed for $60,000 per acre and the property owner is willing to accept $45,000 per acre. The letter is dated February 27, 2004. A listing of a 19.57-acre parcel at the south line of Berkshire Road at Freeway 99 was noted. It is being offered at $60,000 per acre. Brian Haupt, a local realtor who deals in residential and other unimproved land in the local area provided us with information on several parcels that are currently pending sales. He supplied escrow details of a 160+J- acre parcel located at the northwest corner of Panama Lane and Old River Road adjacent to the south property line of the Fairway Oaks South subdivision. According to this source, Craig Carver will close escrow on this parcel (497-010-16) in May 2004. The purchase price is $45,000 per acre. The prospective buyer proposes to split the parcel into two parts, both of which have buyers at the close of this transaction. In the first transaction, he has an agreement with a prominent developerJbuilder to purchase the south half of the parcel for $60,000 per acre. After tentative maps are in place on the northerly portion, he has an agreement in place to sell this portion to another prominent local developer for $70,000 per acre. In addition, Mr. Haupt reports APN 497-010-02, O5, 17 & 1$ are in serious negotiations at $70,000 per acre. We also were provided information from Lennar Development about an approximately 40-acre parcel on the north line of Hams Road and east line of Progress Road. They have negotiated a purchase price will be $55,000 per acre. The contact stated the closing date is projected for August 2004. Based on the most recent market evidence, I have formed the conclusion that a value of $45,000 per acre is supportable for the subject, owing to the current demand for well-located land in the 140 File 3533 Lauver & Associates Assessment District D3-3 immediate area and in light of the continued demand for residential housing throughout Bakersfield. "As Is" Value Conclusions via Cost Approach-Tract 6079 Unit One The subject tract is well located with reference to schools, shopping and on-going residential developments. The market data cited previously recognizes the steadily. increasing residential land values over time. The supply-demand conditions, locational attributes and the upward progression of residential land values have led me to the conclusion of value for the unimproved acreage in Fairway Oaks South of $45,000 per acre. The developer has enhanced the value of the described subdivision by installation. of improvements on the land. It is my conclusion that, given the current scarcity of fmished lots and land in the immediate vicinity available for development, the improvements to the land can be recaptured in a market transaction on adollar-for-dollar basis. The developer reports costs for engineering, grading, installation of sewer and water systems and miscellaneous costs of ', $669,857. The value of the developer's improvements is added to the value of the unimproved acreage to obtain an indication of the value "As Is" on Apri124, 2004. The procedure is shown in the chart below. "As Is" Value via Cost Approach Per Tentative Gross Acre Unimproved Costs to "As Is" Tract Acreage Value Land Value Date Value 6079 Unit 1 14.41 $45,000 $648,450 $540,617 $1,189,067 6079 Super Pad 13.51 $45,000 $607,950 $124,240 $737,190 $1,256,400 $669,857 $1,926,257 141 Launer & Associates Assessment District 03-3 PROSPECTIVE MARKET VALUE AT COMPLETION In this section we will present a forecast of the value of the 59 buildable lots in Tract 6079 Unit One at completion. This is the accepted procedure in the appraisal process when lots are in the process of being improved and have not achieved a full sell-out when the appraisal report is written. The process involves the application of the Cost and Sales Comparison approaches to value to reach a value for the typical interior lot. In addition, we are aware that developers are commending premiums for large lots, corner lots and cul-de-sac lots. The value of the typical lot premium is added to the interior lot value to arrive at an aggregate value for the subdivision. The aggregate of these values reflects the total value of the entire subdivision at completion. Since it is not possible to complete the entire subdivision and sell all the homes on the day of completion, the discounted cash flow analysis is used as a tool to recognize asell-out of the lots over time. Cost Approach When complete, Tentative Tract 6079 Unit One will consist of 59 buildable residential lots and one non-buildable sump lot. The Cost Approach involves calculation of the value added to the vacant land value that was estimated in the previous section and estimating the cost of developing the land from its present raw land state to one of fmished lots available for improving with new housing units. In this section we will also present a Discounted Cash Flow analysis {DCF) for the subject tract. The DCF will serve as a check on the "As Is" value presented previously based on the cost and sales comparison approaches. Both the "As Is" and Prospective Market Value DCF models in this section are calculated using the income and expense projections and assumptions that will be described in further portions of this report. 142 File 3533 Lanner & Associates Assessment District 03-3 Lot Production - Finishing Costs The first step in the Cost Approach is to estimate the costs involved in completing the tract to a fmished lot state. The costs to bring the tract from a paper lot stage to completed, ready-to-build lots include direct and indirect costs along with developers' overhead and profit. These costs are added to the raw land value estimated previously. The final total is the estimated value of the finished lots by the cost approach. Several local independent civil engineers and land developers who have developed large subdivisions were interviewed to obtain their estimates of the costs to develop land to a fmished lot stage. The results of these interviews and a summary of the compiled data were referenced in previous sections of this report. Based on these data, we concluded a cast to complete the subject's 591ots at $18,000 each. Following is the appraiser's summary cost approach for the subdivisions and thus the indicated fuushed lot values by the cost approach: Tract 6079 Unit One Land Value 14.41 Acres @ 45,000 (Acre 648,450 Lot construction costs 59 Lots @ 18,000 /Lot 1,062,000 Subtotal 1,710,450 Overhead and Contingencies 15% 256,568 Total Subdivision Cost 1,967,018 Cost per Lot 33,339 Entrepreneurial 1 Developer Profit @ 20% 6,668 Indicated Finished Lot values via Cost 40,007 Holding Costs 24 Months 24% 9,602 Indicated Finished Lot values via Cost $49,609 143 Launer & Associates Assessment District 03-3 SALES COMPARISON APPROACH In order to estimate the Prospective Market Value of the improved lots in the Fairway Oaks South area at completion, we researched the market to obtain sales information about similar size lots that were or are about to be improved with housing units that will appeal to a similar market segment. This technique, known as the Sales Comparison Approach, was described in the previous section. The value indicators resulting from the adjustment of comparable sales are reconciled to a final value indicator for the subject "As Complete". The fmdings of our investigation of lot sale data were presented in the previous section. It was the appraiser's conclusion that the most pertinent data involved the sales activity in the most recent bulk sale subdivision transaction. Tract 6006 is a 66-lot subdivision located in Southwest Bakersfield. According to the purchase contract and escrow instructions we examined as part of the appraisal process, indicated the purchase price was $3,135,000, or $47,500 per lot. The lots range from 6,600 to over 15,000 square feet for the cul-de-sac lots. The average lot size is about 7,200 square feet, indicating an average selling price per square foot of $6.60. The sale closed in April 2004. The builder is constructing pre-fabricated panelized homes and erecting them on the site. These homes are of a size and price that appeals to the entry-level homebuyer. The subject is in a rapid growth area. The typical dwelling units in the subject's immediate area are somewhat larger than those described and have entry-level and move-up product. Based on the lot sale data described in this report, I have formed the opinion the lots in the Fairway Oaks South tract have a value of $50,000 per lot at completion. RECONCILIA7TON Cost Approach: The value for the unimproved land was based on the sales comparison approach was considered supportable and based on a sufficient number of reliable data. The direct and induect costs to develop the land to a fmished lot state were based on reliable costing sources 144 File 3533 Lauver & Associates Assessment Distriet 03-3 supplemented by engineer's cost estimates from similar tracts. The cost to produce fmished lots was concluded to be the sum of $49,600 per lot Sales Comparison Approach: In the sales comparison approach we considered a number of subdivisions that have transferred on either a rolling option basis or in a bulk sale. The most recent transaction was a bulk sale purchase of similar sized lots located in a slightly inferior area. This data; along with the other data cited supports the appraiser's estimate of completed lot values in the subject tract at $50,000 each. Therefore, as a result of our analysis of costs and market conditions, we have concluded the values developed in the Cost Approach and the Sales Comparison analysis are reliable value estimates. The Prospective Market Value of the 59 lots in Fairway Oaks South area `When Complete', are concluded at $50,600 each, a total of $2,950,000. This should be understood to be an aggregate value representing the sum of the individual lot values. It is not likely this value could be realized in a sale to a single buyer. The discounted cash flow analysis in the following section will more accurately represent the respective tract values with a typical sales program. MARKET VALUE AT COMPLETION In the previous section of this report, the appraiser estimated the value of the typical lot at completion, ready for construction of a housing unit. The aggregate of these values reflects the total value of the entire subdivision at completion. Since it is not possible to complete the entire subdivision and sell all the homes on the day of completion, the discounted cash flow analysis is used as a tool to recognize asell-out of the lots over time. The discounted cash flow analysis is used in the Income Approach as explained in the following section. 145 Launer & Associates Assessment District 03-3 INCOME APPROACH The value of the subject lots "As Is" is presented using the Discounted Cash Flow analysis. This DCF serves as a check on the "As Is" value presented previously, which was based on the cost and sales comparison approaches. The Prospective Market Value DCF model that follows is calculated using the income and expense projections and assumptions described in the following paragraphs. The Market Value represents the subject tract "As Is". This_ value considers the fact that all development costs have not yet been expended and the costs to complete are factored into the analysis. Based on my analysis of the sales activity in competing tracts as shown previously and further supported by the supply/demand conditions cited previously, I formed the conclusion that the subject tracts are capable of achieving a sales rate of 8 lots per month. This estimate is well supported by the tract locations and the reputation of the developer in this community. Because the absorption estimate residts in a fractional amount, our estimate of cash flows was revised to reflect a higher sales rate in the first marketing period. A spreadsheet summary of the present value of the series of periodic income flows for the respective tracts is presented in the addenda section. This sum of the discounted lot values represents the "As Is" value of the subject on April 24, 2004. This sum of the discounted lot values is the amount a bulk purchaser would likely be willing to pay assuming the finished lot subdivisions were purchased in its entirety. As a result of my analysis, I have estimated the Market Value of 59 final mapped lots in the Fairway Oaks South area to be the sum of $2,061,000. The discounted cash flow analysis for the tract is presented in the addenda. BULK VALUE The bulk values in this instance are identical to the "As Is" values cited previously. 146 File 3533 Launer & Ass©ciates Assessment District 03-3 RECONCILIATION OF VALUES In the previous sections of this report we examined the characteristics of the subject and analyzed them in terms of the market with regard to desire, demand and competitiveness. The subject lots rate well in all areas of comparability. We developed value estimates for the subject using the Cost Approach, Sales Comparison Approach and an Income Approach using the Discounted Cash Flow analysis technique. In developing the "As Is" value using the Cost Approach, we gathered the most recent unimproved land sales and by using the sales comparison approach, it was possible to arrive at a reliable estimate of the subject's raw land value, which was estimated at $45,000 per acre; broken down as follows: Tract 6079 Unit One 14.41-acres Tract 6079 Unit One, Super lot 13.51-acres Total unimproved land value: $648,500. $607,950. $1,256,400 The casts to improve the subdivision to its present state were obtained from the developer. The costs of the improvements installed in the Fairway Oaks South area totaled $669,857. Adding the actual costs that are in place to the underlying land value and the value added by the off site infrastructure provided by the Assessment District 03-3 improvements yielded an indication of the subject's "As Is' value of $2,649,817. The "As Is" value using the Cost Approach represents the value of the parcel, as it existed on the date of value. It does not include selling or holding costs nor does it recognize the entrepreneurial enterprise and coordination required to bring the land to its present state. In developing the "As Is" value using the Income Approach, we used both the cost approach and the sales comparison approach to estimate the value of the individual lots in the respective subdivisions as complete. The sales comparison approach involved investigating recent sales of lots to merchant builders and others enabling us to arrive at an estimated value per lot when 147 Lauver & Associates Assessment District 03-3 complete. The same data enabled us to estimate the typical lot premium over the entire tract, yielding an estimate of the typical fmished lot value in the subdivision. Since the entire tract will not sell in its entirety on the same day, we used the Discounted Cash Flow analysis (DCF) technique to recognize the time value of money during the tract's sell-out period. In the DCF we subtracted the costs to complete the lots and credited the costs already incurred by the developer. The DCF also accounted for the selling costs, incidental costs and developer profit. The net income resulting from sales was discounted over the marketing period. In selecting the more reliable indicator of the "As Is" value, greater weight is placed on the Income Approach because it is more reflective of the market conditions over time based on the net cash flows, whereas the Cost Approach is a static analysis. 148 File 3533 Launer & Associates Assessment District 03-3 CERTIFICATIONS The undersigned appraiser certifies the following statements are true and correct with respect to this appraisal report: That I personally inspected the subject property. That I have no interest, past, present or contemplated, in the real estate, which is the subject of this appraisal report. Employment to make this appraisal is in no manner contingent upon the final value herein reported. ~, That to the best of my knowledge and belief the statements of fact contained in this report upon which the analysis, opinion and conclusions expressed herein are based, are true and correct. That I have no personal bias with respect to the subject matter of this appraisal or the parties involved and that racial composition of the neighborhood was irr no way considered. This appraisal report is made in conformity with and is subject to the requirements of the Code of Professional Ethics and Standards of Professional Conduct of the Appraisal Institute of which I am a member. The Appraisal Institute conducts a voluntary program of continuing education for its designated members. Members who meet the minimum standards of this program are awarded periodic educational certification. I am currently certified under this program through December 31, 200'7. I certify that the use of this report is subject to the requirements of the Appraisal Institute relating to review by its duly authorized representatives. This appraisal report sets forth all the limiting conditions, imposed by the terms of the assignments or by the undersigned, affecting the analysis, opinions, and conclusions in this report. That no one other than the undersigned prepared the analysis, conclusions, and opinions, (concerning the real estate which is the subject of this report}, that are set forth in this appraisal report. This appraisal has been completed in compliance with the Uniform Standards of Professional Appraisal Practice (iISPAP), as developed by the Appraisal Standards Board of the Appraisal Foundation, and the Office of the Comptroller of the Currency's (OCC) minimum appraisal standards. This appraisal was performed in compliance with RTC regulations. 149 ', Launer & Associates Assessment District 03-3 The appraiser has the appropriate knowledge and experience to complete this assignment competently. As of the date of this report, I have completed the requirements of the continuing education program of the Appraisal Institute. The compensation for appraisal services and future employment prospects are not contingent upon the reporting of a predetermined value of direction in value that favors the cause of the client, the amount of the value estimate, the attainment of a stipulated result, ar the occurrence of a stipulated event. The existence of hazardous materials, which may or may not be presenton the property, was not observed during the physical inspection. The appraiser, however, is not qualified to detect such substances. The presence of substances such as asbestos, urea-formaldehyde foam, radon gas, or other potentially hazardous materials may affect the value of the property. The value estimate is predicated on the assumption that there are no such materials on or in the property that would cause a loss in value. No responsibility is assumed for any such conditions, or for any expertise or engineering required to discover them. Based upon the study and investigations conducted, and after careful consideration of all pertinent factors affecting value, I have formed the conclusion that the values pertinent to the subject properties as defined, as of the effective date of this appraisal are as shown on the following page. 150 File 3533 Lauver & Associates Assessment District 03-3 Valae Opinions -Assessment District 03-3 Values Bulk Value of Assessment Value to ASSMT NO Description Recorded Lots Lien Lien Ratio 1 Portion Tract 6086 C'rnl Lot 2,017,693 260,693.45 7.74 Subtotals Tract 6086 -Commercial 2,017,693 260,693.05 7.74 2-30 Tract 6086 1,784,000 245,956.78 6.04 62-69 Tract 6087 Phase B 506,000 81,643.26 6.20 235-276 Tract 6199 2,386,000 428,627.08 5.57 Subtotals Lexington Area -Residential 4,681,000 806,227.12 5.81 36-60 Tract 6087 Phase A 2,358,000 295,006.05 7.99 135-159 Tract 6150 Unit 1 2,357,000 295,006.05 7.99 161-184 Tract 6150 Unit 2 2,130,000 283,205.83 7.52 Subtotals Regency Development Area 6,845,000 873,217.93 7.84 186-209 Tract 6151 Unit 1 4,034,000 372,311.34 10.84 211-233 Tract 6151 Unit 2 3,841,000 356,798.38 10.77 Subtotals Showcase Development Area 7,875,000 729,109.72 10.80 71-97 Tract 6087 Phase C 2,556,000 225,019.90 11.36 99-133 Tract 6087 Phase D 3,319,000 291,692.47 11.38 Subtotals Wedgewood Development Area 5,875,000 S1b,712.37 11.37 279-307 Tract 6223 Unit 1 1,310,572 238,897.19 5.49 317-356 Tract 6223 Unit 2 1,807,685 329,513.36 5.49 362-398 Tract 6223 Unit 3 1,672,109 304,799.87 5.49 402-435 Tract 6223 Unit 4 1,536,533 280,086.35 5.44 444-472 Tract 6223 Unit 5 1,310,572 238,897.14 5.44 478-516 Tract 6223 Unit 6 1,762,493 321,275.53 5.49 521-553 Tract 6223 Unit 7 1,491,341 271,848.53 5.49 Subtotals Windemere Development Area 10,891,305 1,985,318.02 5.49 SubtotalslAverages for Seven Oaks West III Area 38,184,998 5,171,278.21 7.38 557-561 Tract 6185 Unit 1 155,023 20,743.22 7.47 565-577& 579-542 Tract 6185 Unit 2 837,125 112,013.40 7.47 546-618 Tract 6185 Unit 3 713,107 95,418.82 7.47 621-651 Tract 6185 Unit 4 961,144 128,608.00 7.47 653-680 Tract 6185 Unit 5 868,130 116,162.05 7.47 682-704 Tract 6185 Unit 6 713,107 95,418.82 7.47 706-729 Tract 6185 Unit 7 744,111 99,567.47 7.47 731-745 Tract 61$5 Unit 8 465,070 62,229.67 7.47 TotalslAverages for Brighton Place II Area 5,456,817 730,161.45 7.47 749-799 & 801-808 Tract 6079 Unit One 2,061,000 358,739.99 5.75 809 Tract 6079 Unit One Super Pac 1,102,010 364,820.35 3.02 TotalslAverages for Fairway Oaks South Area 3,163,010 723,560.34 4.37 ASSESSMENT DISTRICT TOTALS 46,804,825 6,625,000.00 7.06 151 Lauver & Associates Assessment District 03-3 Please read the Underlying Assumptions and Limiting Conditions, which are an integral part of this document. 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LAUNER, MAI SRA APPRAISAL EDUCATION SAN BERNARDINO VALLEY COLLEGE Year Completed Advanced Residential Appraising 1918 Advanced Income Property Appraising 1978 SOCIETY OF REAL ESTATE APPRAISERS Course 101 - Intro to Appraising Real Property 1977 Course 201 - Principles of Income Property Appraising 1919 Course 202 - Applied Income Properly Valuation 1984 R-2 Residential Proficiency Examination 1979 j Narrative Report Writing Seminar 1979 Subdivision Analysis 1993 APPRAISAL INSTITUTE Basic Valuation Procedures/Income Capitalization Part A & B 1988 Real Estate Principles •1990 Standards of Professional Practice Course 410 1994 Standards of Professional Practice Course 420 1994 Highest & Best Use and Marketing Analysis Course 520 1994 OREA Required Update Seminar 1945 Environmental Risk and the Real Estate Appraisal 1945 Appraising Rural Transitional Properties in S. California Seminar 1996 Litigation Loss Prevention Program for Real Estate Appraisers 1997 Federal and State Laws and Regulations 1997 The Appraiser's Role in the Redevelopment Process 1998 Valuation Considerations in Partial Acquisition 1998 Valuation of Detrimental Considerations in Real Estate 1999 Condemnation Appraising -Basic Applications Course 710 1999 Condemnation Appraising- Advanced Topics Course 720 1999 Standards of Professional Practice Part C Course 430 1999 Real Estate Fraud & The Appraiser's Role 2000 Highest and $est Use Applications Seminar 2002 Standards of Professional Practice Course 400 2003 PROFESSIONAL DESIGNATIONS & AFFILIATIONS STATE OF CALIFORNIA CERTIFIED GENERAL APPRAISER License Number AG002049 Issued 1991 APPRAISAL INSTITUTE MAI -Member Appraisal Institute 1992 SRA -Senior Residential Appraiser 1986 Certified Administrative Instructor for: Appraisal Institute: Course 110 Appraisal Principles Appraisal Institute: Course 120 Appraisal Procedures Appraisal Institute: Course 210 Applied Residential Appraisal Appraisal Institute: Course 310 Basic Income Capitalization Appraisal Foundation: Uniform Standards of Professional Appraisal Practice Currently: Associates Guidance Chair -General Appraisal Institute Positions Held: Candidate Guidance Chairman -Appraisal Institute, Bakersfield Chapter 1991-2000 Admissions Chairman -Appraisal Institute, Bakersfield Chapter 1991-1999 President, Society of Real Estate Appraisers Bakersfield Chapter 75, 1987-1989 President -Appraisal Institute, Bakersfield Chapter, 2001 President -Appraisal Institute, Bakersfield Chapter, 2002 Finance Chair, Appraisal Institute Region VII Member, Regional Ethics and Counseling Panel BAKERSFIELD COLLEGE INSTRUCTOR - Real Estate 63 -Intro to RE Appraisal 1988-1498 Real Estate 68 - Advanced RE Appraisal 1993-95 PROFESSIONAL ASSIGNMENTS Valuation appraisals, feasibility studies, depreciation analysis and investment consultations regarding: hotel, motels, office projects, residential subdivisions, mobile home parks, mobile home subdivisions, restaurants, vacant acreage, commercial lots, rehabilitation projects and a variety of commercial properties. Special purpose assignments have included: manufacturing, processing and cold storage facilities, oil refinery, quarry, winery and rock crushing facility. Other assignments have included the appraisal of livestock and agricultural properties. APPRAISAL AND BUSINESS EXPERIENCE Presently Principal, - Launer & Associates, Real Estate Valuation & Consulting 1986 -1488 Senior Vice President, Chief Appraiser, Paramount Bank 1985 - 1986 Commercial Appraiser - A.L. Appraisal Company 1977 - 19$5 Commercial Appraiser -Bank of America NT & SA California License: ADDITIONAL PROPERTY O~YNERS The following ownerships are in addition to those previously specified in this report: Assessment No 103 104 116 117 118 119 120 123 124 125 126 Owner Name Address City Jerry Richards 10203 Mountaingate Lane Bakersfield WSBG Homes 3500 Coffee Road $akersfield Gerald Congdon Industries, Inc 1400 Easton Drive Suite 104 Bakersfield James & Shannon Rowe 10413 Dee Dee Avenue Bakersfield W. Tracey Change 11612 Crabbet Park Bakersfield Gerald Congdon Industries, Inc 1400 Easton Drive Suite 104 Bakersfield Jeffrey & Rhonda Barnhard 3524 Country Club Drive Bakersfield James Maloney & Leslie Watsc 8200 Kroll Way #336 Bakersfield Jane Cormier PO Box 9284 Bakersfield D. Linn & Nancy Wiley, Truste 11018 Deer Canyon Road Alta Loma David A. Turner Custom Home PO Box 20065 Bakersfield UNDERLYING ASSUMPTIONS & LIMITING CONDITIONS CONTINGENT AND LIMITING CONDITIONS: The certification of the Appraiser whose signature appears in this appraisal report is subject to the following conditions and to such other specific and limiting conditions as are set forth by the Appraiser in the report. 1. The Appraiser assumes no responsibility for matters of a legal nature affecting the property appraised or the title thereto, nor does the Appraiser render any opinion as to the title, which is assumed to be good and marketable. The property is appraised as though under responsible ownership. 2. Any sketch in the report may show approximate dimensions and is included to assist the reader in visualizing the property. The Appraiser has made no survey of the property. 3. The Appraiser is not required to give testimony or appear in court because of having made the appraisal with reference to the property in question, unless arrangements have been previously made therefore. 4. Any distribution of the valuation in the report between land and improvements applies only under the existing program of utilization. The separate valuations for land and building must not be used in conjunction with any other appraisal and are invalid if so used. 5. The Appraiser assumes that there are no hidden or unapparent conditions of the property, subsoil, or structures, which would render it more or less valuable. The Appraiser assumes no responsibility for such conditions, or for engineering, which might be required to discover such factors. 6. Information, estimates, and opinions furnished to the Appraiser, and contained in the ' report, were obtained from sources considered reliable and believed to be true and correct. However, the Appraiser can assume no responsibility for accuracy of such items famished the Appraiser. ', 7. Disclosure of the contents of the appraisal report is governed by the Bylaws and Regulations of the professional appraisal organizations with which the Appraiser is j affiliated. 8. Neither all, nor any part of the content of the report, or copy thereof (including conclusions as to the property value, the identity of the Appraiser, professional designations, reference to any professional appraisal organizations, or the firm with which the Appraiser is connected, shall be used for any purposes by anyone but the client specified in the report, the borrower if appraisal fee paid by same, the mortgagee or its successors and assigns, mortgage insurers, consultants, professional appraisal organizations, any state or federally approved financial institution, any department, agency, or instrumentality of the United States or any state or the District of Columbia, without the previous written consent of the Appraiser; nor shall it be conveyed by anyone to the public through advertising, public relations, news, sales, or other media, without the written consent and approval of the Appraiser. 9. On all appraisals, subject to satisfactory completion, repairs, or alterations, the appraisal report and value conclusion are contingent upon completion of the improvements in a workmanlike manner. 10. The appraiser is not an expert in survey, soils, drainage, and geological or seismic conditions. The property is assumed to be free of such significant detrimental conditions. Unless otherwise noted hi the report, the appraiser observed no noticeable problems in this regard. The client is urged to seek appropriate outside expert opinions however, if concerned about these factors. 11. The appraiser is not an expert in structural analysis. The property is assumed to be free of structural deficiencies, buildmg code violations, and unsafe conditions. This includes the assumption that all heating, plumbing, electrical, and mechanical systems as well as the appliances and the roof are in adequate working order. Unless otherwise noted in the report, the appraiser observed no noticeable problems in this regard. The client is urged to seek appropriate outside expert opinions however, if concerned about these factors. 12. The appraiser is not an expert hi the detection of potentially hazardous or toxic substances such as the presence of urea formaldehyde foam insulation, asbestos building materials fibers, radon gas, or any other harmful environmental substances. The appraiser observed no such substances and the property is assumed to be free of such substances. The client is urged to seek outside expert opinions however, if concerned about these factors. 13. This appraisal is predicated on the assumption that all improvements constructed will be of the size and materials represented in the developer supplied documentation. Any modifications or variations should be submitted to the undersigned to determine what effect, if any, the modifications will have on the fmal value estimate. 14. I certify that, to the best of my knowledge and belief, the reported analyses, opinions and conclusions were developed, and this report has been prepared, in conformity with the requirements of the Code of Professional Ethics and the Standards of Professional Practice of the Appraisal Institute, of which I am a member. 15. I certify that the use of this report is subject to the requirements of the Appraisal Institute relating to review by its authorized representatives. 16. The hypothetical sale referred to in the definition of Market Value, and thus any values in this report are on the basis of all cash to the seller, therefore, no consideration has been given to existing or proposed fmancing. 17. To the best of my knowledge, all pertinent information available to the appraiser is contained within this report. If, subsequent to the date of the report, should information become available or submitted to the appraiser that could materially affect the value reported herein, the appraiser reserves the right to modify the appraisal report. 18. The values assigned reflect value for the real estate only. No value consideration has been given to the in-use value of any equipment, personal property or fixtures. 19. This appraisal report is prepared for the sole and exclusive use of the City of Bakersfield (THE CLIENT). No third parties are authorized to rely upon any service provided by Launer & Associates. Inc. without prior written consent. The appraiser has granted permission to publish this appraisal in the Official Statement and consented for its use in marketing of the Assessment District 03-3 bonds. Date: Apri124, 2004 Michael Launer, MAI, SRA Certified General Appraiser State of California Certificate No. AG 002049 Discounted Cash Flow Analysis Worksheets o ~ ~ °o ~ o rn O o 0 0o b ~o h N N .. N » ~ O '~ O ~n 'L '~ m a v a V U G o y W b m .v+ ~ Q +4 o m ~, Us ova ~, ~ y ~~ U Y U W Q V P~ 0 m m m U y O ~' U 6 G m p a ~~ '~ a`~i ~ R .'~ ~~ a ~~Q oogoogooo o atl- ~? °\~ ~'o~07 O O v~ ~ v , W N "~ ~0 0 N N .r .+ b ~ O~ n c~ N O Ir N N~~ ~D Vl MIi ~ 07 MIS Sapp ~~,~p p o ~°~° a ~ ~o~~ M *. V Q O p Or O~ O O i ~ ff' O~ O . ~ v } . i O ~ vi N h ~--i o0 W ~ .-+ r+ ,appl ~~pp N O m r ~ vv'~i ~ h r h ~ ~ ~ ~ ;ma a ~e~ N M ~ M ~ .. o M S~ h GO O ~ O ~ M O n i ~ ~ ~ O b +~+ ~ N O M v~ M vi N O ~ ONi vMi ~ Obi ~ ~ O b .. 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North boundary at right APPENDIX C FORM OF OPINION OF BOND COUNSEL Closing Date, 2004 City Council City of Bakersfield 1501 Tnxxtun Avenue Bakersfield, CA 93301 City of Bakersfield Assessment District No. 03-3 (Seven Oaks West III/Brighton Place II/Fairway Oaks Sonth) Limited Obligation Improvement Bonds (Final Opinion) Ladies and Gentlemen: We have acted as bond counsel in connection with the issuance by the City of Bakersfield (the "Issuer") of $6,455,000 aggregate principal amount of the City of Bakersfield Assessment District No. 03-3 (Seven Oaks West IBlBrighton Place IUFairway Oaks South) Limited Obligation Improvement Bonds (the "Bonds") pursuant to the provisions of the Municipal Improvement Act of 1913 and the Improvement Bond Act of 1915 and Resolution No. 198-04, adopted by the City Council on June 9, 2004 (the "Resoluton"). Capitalized teens not otherwise defined herein shall have the meanings ascribed to them in the Resolution. In such connection, we have reviewed the Resolution, the Tax Certificate of the Issuer dated the date hereof (the "Tax Certificate") an opinion of counsel to the Issuer, certifications of the Issuer and others and such other documents, opinions and matters to the extent we deemed necessary to render the opinions set forth herein. Certain agreements, requirements and procedures contained or referred to in the Resolution, the Tax Certificate and other relevant documents may be changed and certain actions(including, without limitation, defeasance of the Bonds) may be taken or omitted under the circumstances and subject to the terms and conditions set forth in such documents. No opinion is expressed herein as to any Bond or the interest thereon if any such change occurs or action is taken or omitted upon the advice or approval of counsel other than ourselves. The opinions expressed herein are based on an analysis of existing laws, regulations, rulings and court decisions and cover certain matters not dvectly addressed by such authorities. Such opinions may be affected by actions taken or omitted or events occurring after the date hereof. We have not undertaken to determine, or to inform any person, whether any such actions are taken or omitted or events do occur. Our engagement with respect to the Bonds has concluded with their issuance, and we disclaim any obligation to update this opinion. We have assumed the genuineness of all documents and signatures presented to us (whether as originals or copies) and the due and legal execufion and delivery thereof by, and validity against, any parties other than the Issuer. We have not undertaken to verify independently, and have assumed, the accuracy of the factual matters represented, warranted or certified in the documents, and of the legal conclusions contained in the opinion, referred to in the second pazagraph hereof. Furthermore, we have assumed compliance with all covenants and agreements contained in the Resolution and the Tax Certificate, including (without limitation) covenants and agreements compliance with which is necessary to assure that future actions, omissions or events will not cause interest on the Bonds to be included in gross income for federal income tax purposes. In addition, we call attention to the fact that the rights and obligations under the Bonds, the Resoluton and the Tax Certificate may be subject to bankruptcy, insolvency, reorganization, arrangement, fraudulent conveyance, moratorium and other similaz laws relating to or affecting creditors' rights, to the application of equitable principles, to the exercise of jrulicial discretion in appropriate cases and to the limitations on legal remedies against cities in the State of California. c-t We express no opinion on the plans, specifications, maps and other engineering details of the proceedings, or upon the validity of the individual separate assessments securing the Bonds which validity depends, in addition to the legal steps required, upon the accuracy of certain of the engineering details. Finally, we undertake no responsibility For the accuracy, completeness or fairness of the Official Statement or other offering material relating to the Bonds and express no opinion with respect thereto. Based on and subject to the foregoing, and in reliance thereon, as of the date hereof, we are of the following opinions: I. The Bonds constitute valid and binding special assessment obligations of the Issuer, payable solely from and secured by the unpaid assessments and certain funds held under the Resolution, 2. The Resolution has been duly adopted and cons6mtes a valid and binding obligation of the Issuer. 3. Interest on the Bonds is excluded from gross income for federal income tax purposes under Section 103 of the Internal Revenue Code of 1986 and is exempt from State of California personal income taxes. Interest on the Bonds is not a specific preference item for purposes of the federal individual or corporate alternative minimum taxes, although we observe that it is included in adjusted current earnings in calculating corporate alternative minimum taxable income. We express no opinion regarding other tax consequences related to the ownership or disposition of, or the accrual or receipt of interest on, the Bonds. Faithfully yours, ORRICK, I-IERRINGTON & SLTTCLIFFE LLC per C-2 APPENDIX D ASSESSMENT DIAGRAM. D-1 (THIS PAGE INTENTIONALLY LEFT' BLANK) ~ rr F-'-~1 ~ _ x w Q ~ ~ o I ~ O m u i o `~ ~ ¢ ~ I o 0 r+ Q w oo s~ T h U ~ ~ I `J \ ~a m a ® ~ i F ~ ~ ~ ~ ~ I i W ~ ~ ~ O ' ~ i Z~ ~ w 0. ~ },> o rn ~ a ~ °4, ~° „ I € y ~ ~ C ~ N ~~ ° W w x ~I ~ ~~ r ~ w ~ O ~! te, ~ ~ P i m ~ ?s '_ ' ~ ~y V 1 [ z ~ ~ ' ~ C." z~ o`o I W w ~ ~ O ~~ ~~ ~/~ V 1 ~ G (a. 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E N ~ <i H. v_rm z W `~ ~ pj - DVDN Y3NN Q70 ~ 7° ~r ~ m 'x G 3 ,rs ,a .on n w u7 ~ i .~o otr =°o a Cl] a ~ ~ ®v iai ©s ut ~O i H W x "t2 C rye 1 N~ sY mi N ~ ~ ~ O F °~ ~~ ~~ ~~ ~~ ~~ q ~ ~ ~ ~ 0 ~ ~m ~ ~w ° .[YM I nr~ o.~ ~ ~ m~ I «~ ~w 3 a ~ g a ~ RNOQ.[02iJ ~~ _ ~v ~ o o ~~~ ri ~ I O 'ti ~~ ~ m ~p R dVAI 3DQlN8dA7~ `w~ $~ • - ~ ~~ rPO ^ ^ S Z Ea <~ j N R ? ¢ o^gze pig I o_ Z ~ Gg~~ Ss4 W m~ ~I ~ n~ ry~ aW W~ a~ ~}` ~ or.ac ~~ °~ r~ n~ I ,SYM ~ ~i O 6 ~°,~ I °~ ~ 34'6A9N1TTI~J m~ ~~ °~~_ wa ~~~ ~ooza c ~o ~srt O rn°' ao4 - s ~a F ~ ~~ C W o x ~ - ° ,."s F F ~ - w z _ - ~ F w ~ vii ~ ~ F w a ~^ ~ ~ ~ <c ~ o e, ~~ ~ ~ ~ a _ z s 3 ~ o, w ~ ~ "~~ w ~ o z w ~~ ~ a~ ~~ I s~ I ° U. APPENDIX E ASSESSMENT ROLL AND VALUE-TO-LIEN DATA E-1 (THIS PAGE INTENTIONALLY LEFT BLANK) 0 I Of I f 0 U W i C I ~ J ~ O f W W J y7 O Z a 4 J a ~ 0 w~ LLZ ~~ N N ~ N 4 ~ U , m m I I ( I ;II I i 2 ~j ? 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Q. i m n 0 0~ r~ r O H~ h~ m O -~ -~ -~ (THIS PAGE INTENTIONALLY LEFT BLANK) APPENDIX F CONTINUING DISCLOSURE CERTIFICATES CTTY OF BAKERSFIELD ASSESSMENT DISTRICT N0.03-3 (SEVEN OAKS WEST HI/BRIGHTON PLACE IIlFAHiWAY OAKS SOUTH) LIMITED OBLIGATION IMPROVEMENT BONDS CITY CONTINUING DISCLOSURE CERTIFICATE This Continuing Disclosure Certificate (the "Disclosure Certificate") is executed and delivered by the City of Bakersfield (the "City") in connection with the issuance by the City of $6,455,000 in aggregate principal amount of the above-referenced bonds {the "Bonds"} for Assessment District No. 03-3 (Seven Oaks West BI/Brighton Place II/Fairway Oaks Soutlt) (the "Assessment District"). The Bonds aze being issued pursuant to a resolution authorizing issuance of the Bonds, being Resolution No. 198-04 (the "Resolution"), adopted by the City Council of the City on June 9, 2004. The City covenants and agrees as follows: Section 1. Purpose of the Disclosure Certificate. This Disclosure Certificate is being executed and delivered by the City for the benefit of the Holders and Beneficial Owners of the Bonds and in order to assist the Participating Underwriter in complying with Securities and Exchange Commission Rule 15c2-12(b)(5), as amended. Section 2. Definitions. In addition to the defmitions set forth above and in the Resolution, which apply to any capitalized term used in this Disclosure Certificate, unless otherwise defined in this section, the following capitalized terms shall have the following meanings: "Annual Report" shall mean any Annual Report provided by the City pursuant to, and as described in, Sections 3 and 4 of this Disclosure Certificate. `Beneficial Owner" shall mean any person who 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). "Dissemination Agent" shall mean the City, or any successor Dissemination Agent designated in writing by the City and which has filed with the City a written acceptance of such designation. "Fiscal Year" shall mean the 12-month period beginning on July 1 and ending on the next following June 30, unless and until changed by the City. "Holder" shall mean either the registered owner of any Bond, or, if the Bonds are registered in the name of DTC or another recognized depository, any Beneficial Owner or applicable participant in its depository system. "Listed Events" shall mean any of the events listed in Section 5{a) of this Disclosure Certificate. "National Repository" shall mean any Nationally Recognized Municipal Securities Information Repository for purposes of the Rule. The current National Repositories aze listed on the Securities and Exchange Commission website at http:llwwwseo.govtinfolmunicipallnrmsir.htm. "Official Statement" shall mean the final Official Statement, dated June 24, 2004, pertaining to the Bonds. "Participating Underwriter" shall mean RBC Dain Rauscher Inc., and any other original underwriters of the Bonds required to comply with the Rule in connection with offering of the Bonds. "Repository" shall mean each National Repository and each State Repository. F-1 "Rule" shall mean Rule 15c2-12(bx5) adopted by the Securities and Exchange Commission under the Securities Exchange Act of 1434, as the same may be amended from time to time. "State Repository" shall mean any public or private repository or entity designated by the State of California as a state repository for the purpose of the Rule and recognized as such by the Securifies and Exchange Commission. As of the date of this Disclosure Certificate, there is no State Repository. Section 3. Provision of Annual Reports. {a) The City shall, or shall cause the Disseminafion Agent to, not later than nine (4) months after the end of the City's Fiscal Year {i. e., currently not later than April 1 of each year}, commencing with the report for the 2003-04 Fiscal Year, 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 sepazate documents comprising a package, and may include by reference other information as provided in Secfion 4 of this Disclosure Certificate; provided that the audited fmancial statements of the Ciiy may be submitted sepazately firm the balance of the Annual Report, and later than the date required above for the filing of the Annual Report if not available by that date. If the City's Fiscal Year changes, it shall give notice of such change in the same manner as for a Listed Event under Section 5(c). (b) Not later than fifteen (15) Business Days prior to the date required in subsection (a}, the City shall ', provide the Annual Report to the Dissemination Agent (if other than the City}. If the City is unable to provide to ', each Repository an Annual Report by the date required in subsection {a}, the City shall send to each Repository a notice in substantially the form attached hereto as Exhibit A. {c) The Dissemination Agent shall: (i) determine each year, prior to the date for providing the Armual Report, the name and address of each Repository, and file the Annual Report with each Repository, and (ii} if the Dissemination Agent is other than the City, &le a report with the City certifying that the Annual Report has been provided pursuant to this Disclosure Certifcate, stating the date it was provided and listing all the Repositories to which it was provided. Section 4. Content of Annual Reports. The City's Annual Report shall contain or incorporate by reference the following: (a) The audited fmancial statements of the City for the prior Fiscal Year, prepazed 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 City's audited £mancial statements are not available by the time the Annual Report is required to be filed pursuant to Secfion 3(a}, the Annual Report shall contain unaudited fmancial statements in a format similar to the fmancial statements contained in the final Official Statement, and the audited (mancial statements shall be filed in the same manner as the Annual Report when they become available. Notwithstanding the foregoing, each Annual Report or other filing containing the City's (mancial statements may include the following or other similaz statement: THE FOLLOWING FINANCIAL STATEMENTS ARE PROVIdED SOLELY TO COMPLY Wl'I'H THE SECURTTIES AND EXCHANGE COMM[SSION STAFF'S INTERPRETATION '~ OF RULE 15c2-12, NO FUNDS OR ASSETS OF THE CTIY OF BAKERSFIELD (OTHER THAN THE ASSESSMENTS LEVIED IN'fI~ ASSESSMENT DISTRICT} t1RE REQUIRED ', TO BE USED TO PAY DEBT SERVICE ON THE BONDS, AND THE CITY IS NOT OBLIGATED TO ADVANCE AVAB.ABLE FUNDS FROM THE CTFY TREASURY TO I COVER ANY DELINQUENCIES. INVESTORS SHOULD NOT RELY ON T'FIE FINANCIAL CONDITION OF THE CITY IN EVALUATING WHETHER TO BUY, HOLD, OR SELL THE I BONDS. F-2 (b} The following information with respect to the City for the Fiscal Year to which the Annual Report relates, which information may be provided by its inclusion in the audited financial statements of the City for the prior Fiscal Yeaz described in subsection (a) above: (i) The principal amount of Bonds outstanding, including principal amounts and yeazs of maturity of Bonds, if any, called for redemption in advance of maturity. (ii) The balances as of the end of such Fiscal Yeaz in each of the following funds established pursuant to the Resolution (A) the Improvement Fund; (B) the Redemption Fund; and (C}the Reserve Fund. (iii) Identification of each parcel for which any installment of the unpaid assessment is delinquent, together with the following information respecting each such parcel (A) the amount delinquent (exclusive of late charges and monthly penalties for reinstatement); (B) the date (December 10 or April 10) of the first delinquency; (C) in the event a foreclosure complaint has been filed respecting such delinquent parcel and such complaint has not yet been dismissed, the date on which the complaint was filed in the Kern County Superior Court; and (D) in the event a foreclosure sale has occurred respecting such delinquent parcel, a summary of the resuhs of such foreclosure sale. (iv} A current statement of the status of completion or progress toward completion of the public improvements described in the Official Statement under the subheading "THE ASSESSMENT DISTRICT AND THE IMPROVEMENTS -Description of the Community Areas and the Improvements." (v} A current statement of the land-secured public financing information summarized in the Official Statement under the subheading "THE BONDS -Priority of Lien." (vi) A current statement of the pazcel information set faith in Columns 5 through 9, inclusive, of APPENDIX E to the Official Statement, for both existing and future pazcels. (c) In addition to any of the information expressly required to be provided under paragraphs (a) and (b) of this Section, the City shall provide such further information, if any, as may be necessary to make the specifically requred statements, in the light of the circumstances under which they are made, not misleading. Any or all of the items listed above may be included by specific reference to other documents, including official statements of debt issues of the City or related public entities, which have bean submitted to eaoh of the Repositories or the Securities and Exchange Commission. If the document included by reference is a final official statement, it must be available from the Municipal Securities Rulemaking Board. The City shall clearly identify each such other document so included by reference. Section 5. Reporting of Sienificant Events. (a} Pursuant to the provisions of this Section 5, the City shall give, or cause to be given, notice of the occurrence of any of the following events (each, a "Listed Event") with respect to the Bonds, if material: (i) principal and interest payment delinquencies; {ii} non-payment related defaults; (iii) modifications to rights of Bond Holders; (iv) optional, contingent, or unscheduled Bond calls; (vj defeasances; (vi) rating changes; F-3 (vii) adverse tax opinions or events adversely affecting the tax-exempt status of the Bonds; (viii) unscheduled draws on the debt service reserves reflecting fmancial difficulties; {ix) unscheduled draws on credit enhancements reflecting fmancial difficuhies; (x) substitution of credit or liquidity providers, or their failure to perform; or i (xi) release, substitution, or sale of property securing repayment of the Bonds. (b) Whenever the City obtains knowledge of the occurrence of a Listed Event, the City shall as soon as possible determine ff such event would be material under applicable Fedeml securities law. (c) If the City determines that knowledge of the occurrence of a Listed Event would be material under applicable Federal securities law, the City shall promptly file a notice of such occurrence with either (i) the ' Municipal Securities Rulemaking Boazd and the State Repository or (ii} the Repositories. Notwithstanding the foregoing, notice of Listed Events described in subsections (a)(iv) and (v) need not be given under this subsection any earlier than the notice (if any} of the underlying event is given to Holders of affected Bonds pursuant to the Resolution. Section 6. Temrirtation of Reporting Obligation. The City's obligations under this Disclosure Certificate shall terminate upon the legal defeasance, prior redemption,. or payment in full of all of the Bonds. If I, such termination occurs prior to the fmal maturity of the Bonds, the City shall give notice of such termination in the same manner as for a Listed Event under Section 5(c). Section 7. Dissemination Agent. The City may, from time to time, appoint or engage a Dissemination Agent to assist it in carrying out its obligations under this Disclosure Certificate, and may disehazge any such Dissemination Agent, with or without appointing a successor Dissemination Agent. Section 8. Amendment: Waiver. Notwithstanding any other provision of this Disclosure Certificate, the City may amend this Disclosure Certificate, and any provision of this Disclosure Certificate may be waived, provided that the following conditions are satisfied: (a) if the amendment or waiver relates to The provisions of Section 3(a), 4, or 5(a), it may only be made in connection with a change in circumstances that arises from a change in legal requirements, change in law, or change in the identity, nature, or status of an obligated person with respect to the Bonds, or type of business conducted; {b) the undertakings herein, as proposed to be amended or waived, would, in the opinion of nationally recognized bond counsel, have complied with the requirements of the Rule at the time of the primary offering of the Bonds, after taking into account any amendments or interpretations of the Rule, as well as any change in circumstances; and (c) the proposed amendment or waiver either (i) is approved by Holders of the Bonds in the manner provided in the Resolution for amendments to the Resolution with the consent of Holders, or {ii) does not, in the opinion of nationally recognized bond counsel, materially impair the interests of the Holders or Beneficial Owners of the Bands. If the annual financial information or operating data to be provided in the Annual Report is amended pursuant to the provisions hereof, the first annual fmancial information filed pursuant hereto containing the amended operating data or fmancial information shall explain, in narrative form, the reasons for the amendment and the impact of the change in the type of operating data or fmancial information being provided. In the event of any amendment or waiver of a provision of this Disclosure Agreement, the City shall describe such amendment in the next Annual Report, and shall include, as applicable, a narrative explanation of the F-4 I reason for the amendment or waiver and its impact on the type (or, in the case of a change of accounting principles, ', on the presentation) of fmancial information or operating data being presented by the City. If an amendment is made to the undertaking specifying the accounting principles to be followed in preparing fmancial statements, the annual fmancial information for the year in which the change is made shall present a comparison between the fmancial statements or information prepared on the basis of the new accounting principles and those prepared on the basis of the former accounting principles. The comparison shall include a qualitative discussion of the differences in the accounting principles and the impact of the change in the accounting principles on the presentation of the ', fmancial information, in order to provide infonnafion to investors to enable them to evaluate the ability of the City to meet its obligations. To the extent reasonably feasible, the comparison shall be quantitative. A notice of the change in the accounting principles shall be sent to the Repositories in the same manner as far a Listed Event under I Section 5(0). I Section 9. Additional Information. Nothing in this Disclosure Certificate shall be deemed to prevent the City from disseminating any other information, using the means of dissemination set forth in this Disclosure Certificate or any other means of communication, or including any other information in any Annual Report or notice of ocemrence of a Listed Event, in addition to that which is required by this Disclosure Certificate. If the Ciry chooses to include any information in any Annual Report or notice of occurrence of a Listed Event in addition to that which is specifically required by this Disclosure Certificate, the City shall have no.obligation under this Disclosure Certificate to update such information or include it in any future Annual Report or notice of occurrence of a Listed Event. Section 10. Default. in the event of a failure of the City to comply with any provision of this Disclosure Certificate any Holder or Beneficial Owner of the Bonds may take such actions as may be necessary and appropriate, including seeking mandate or specific performance by court order, to cause the City to comply with its obligations under this Disclosure Certificate. A default under this Disclosure Certificate shall not be deemed an Event of Default under the Resolution, and the sole remedy under this Disclosure Certificate in the event of any failure of the Crty to comply with this Disclosure Certificate shall be an action to compel performance. Section 11. Duties, Immunities, and Liabilities of Dissemination Arent. The Disseminaton Agent shall have only such duties as are specifically set forth in this Disclosure Certificate, and the City agrees to indemnify and save the Dissemination Agent, its officers, directors, employees, and agents, harmless against any losses, expenses, and liabilities which it may incur arising out of or in the exercise or performance of its powers and dufies 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 negligence or willful misconduct. The obligations of the City under this Secflon shall survive resignation or removal of the Dissemination Agent and payment of the Bonds. Section 12. Beneficiaries. T7us Disclosure Certificate shall inure solely to the benefit of the City, the Dissemination Agent, the Participating Underwriter, and Holders and Beneficial Owners from time to time of the Bonds, and shall create no rights in any other person or entity. Date: [Closing Date] CITY OF BAKERSFIELD By: Finance Director F-5 EXHII3TT A NOTICE OF FAILURE TO FILE ANNOAL REPORT Name of Issuer: City of Bakersfield, California Name of Bond Issue: Assessment District No. 03-3 (Seven Oaks West IIIfBrighton Place IUFairway Oaks South) Limited Obligation Improvement Bonds Date of Issuance; [Closing Date] NOTICE IS HEREBY GNEN that the City of Bakersfield, California (the "City), has not provided an Annual Report with respect to the above-named Bonds as required Section 4(a) of the Continuing Disclosure Certificate executed by the City on [Closing Date]. The City anticipates that the Annual Report will be filed by Dated: CITY OF Br1KERSFIELD By: Finance Director F-6 CITY OF BAKERSFIELD ASSESSMENT DISTRICT N0.03-3 (SEVEN OAKS WEST IIUBRIGHTON PLACE IUFAIItWAY OAKS SOUTH) LIMITED OBLIGATION IMPROVEMENT BONDS DEVELOPER'S CONTINUING DISCLOSURE CERTIFICATE This Continuing Disclosure Certificate (the "Disclosure Certificate"} is executed and delivered by Castle & ', Cooke California, Inc., a California corporation (the "Developer"), in connection with the issuance by the City of Bakersfield (the "City") of $6,455,000 in aggregate principal amount of the above-referenced bonds (the "Bonds") for Assessment District No. 03-3 (Seven Oaks West III/Brighton Place IIlFairway Oaks South) (the "Assessment District"). The Bonds are being issued pursuant to a resolution authorizing issuance of the Bonds, being Resolution No. 198-04 (the "Resolution"), adopted by ffie City Council of the City on June 9, 2004. The Developer covenants and agrees as follows: SECTION 1. Pumose of the Disclosure Certificate. This Disclosure Certificate is being executed and delivered by the Developer for the benefit of the City, RBC Dain Rauscher Inc., as the underwriter of the Bands (the "Underwriter"), and the Holders and Beneficial Owners (each as defined below) of the Bonds in order to assist the Underwriter in complying with Securities and Exchange Commission Rule 15c2-12{b)(5), as amended. SECTION 2. Definitions. In addition to the definitions set forth above and in the Resolution,which apply to any capitalized term used in this Disclosure Certificate, unless otherwise defined in this section, the following capitalized terms shall have the fallowing meanings; "Affiliate" of another Person shall mean (a) a Person duectly or indirectly owning, controlling, or holding with power to vote, 5°l0 or more of the outstanding voting securities of such other Person, (b} any Person 5% or mare of whose outstanding voting securities aze directly or indirectly owned, controlled, or held with power to vote by such other Person, or (c} any Person directly or indirectly controlling, controlled by, or under common control with, such other Person. For purposes hereof, "control" means the power to exercise a controlling influence over the management or policies of a Person, unless such power is solely the result of an official position with such Person. "Assumption Agreement" means an agreement or certificate by a Successor Developer, containing terms substantially similar to this Disclosure Certificate, whereby such Successor Developer shall agree to provide Semi- ', Annual Reports and notices of Listed Events with respect to the property in the Assessment District owned by such Successor Developer and its Affiliates, if any. "Beneficial Owner" shall mean any person who has the power, directly or indirectly, to vote or consent with respect to, or to dispose of ownership of, any Bond or Bonds, including persons holding Bonds through nominees, depositories, or other intermediaries. "Development Plan" shall mean the specific improvements the Developer intends to make, or cause to be made, in order for the Community Area to reach the Planned Development Stage, the time frame in which such improvements aze intended to be made, and the estimated costs of such improvements... The Developer's Development Plan, as of the date hereof, is described in the Official Statement under the heading "OWNERSHIP AND PLANNED FINANCING AND DEVELOPMENT OF THE ASSESSMENT DISTRICT." "Disclosure Period" shall mean the six-month period begiuuing on July 1 or January 1 and ending on the next following June 30 ar December 31, as applicable. F-7 "Disclosure Representative" shall mean the president, the managing member, any vice-president, or the chief fmancial officer of the Developer or his or her designee, or such other officer, employee, or agent as the Developer shall designate in writing to the Dissemination Agent and the City from time to time. "Dissemination Agent" shall mean the City, or any successor Dissemination Agent designated in writing by the City and which has filed with the City a written acceptance of such designation. "Event of Banlauptcy" shall mean, with respect to a Person, that such Person files a petition m institutes a proceeding under any act or acts, state or federal, dealing with or relating to the subject or subjects of bankruptcy or insolvency, or under any amendment of such act or acts, either as a bankrupt or as an insolvent, or as a debtor, or in atry similar capacity, wherein or whereby such Person asks, seeks, or prays to be adjudicated a bankrupt, or is to be discharged from any or all of such Person's debts or obligations, or offers to such Person's creditors to effect a composition or extension of time to pay such Person's debts or obligations, or asks, seeks, or prays for reorganization or to effect a plan of reorganization, or for a readjustment of such Person's debts, or far any other similar relief, or if any such petition or any such proceedings of the same or similar kind or character is filed or instituted or taken against such Person, or if a receiver of the business, property, or assets of such Person is appointed by any court, or if such Person makes a general assignment for the benefit of such Person's creditors. "Financing Plan" shall mean the method by which Developer intends to fmance its Development Plan, including specific sources of funding for such Development Plan. The Developer's Financing Plan, as of the date ', hereof, is described in the Official Statement under the heading "OWNERSHIP AND PLANNED FINANCING I AND DEVELOPMENT OF THE ASSESSMENT DISTRICT." "Financial Statements" shall mean the full financial statements, special purpose fmancial statements, project operating statements, or other reports reflecting the fmancial position of the Developer's parent company or, if such financial statements are prepazed sepazately for the Developer, reflecting the financial position of the Developer; provided that, if such financial statements or reports aze otherwise prepared as audited financial statements or reports, then "Financial Statements" means such audited financial statements or reports. The Financial Statements for the Developer or its parent company shall consist of a balance sheet, an income statement, and a statement of cash flows, all prepared in accordance with generally accepted accounting principles. "Holders" shall mean either the registered owners of the Bonds, or, if the Bonds are registered in the name of The Depository Trust Company or another recognized depository, any Beneficial Owner or applicable participant in its depository system. "Listed Event" shall have the meaning given to such term in Section 5 of this Disclosure Certificate. "National Repository" shall mean any Nationally Recognized Municipal Securities hrformation Repository for purposes of the Rule. The current National Repositories are listed on the Securities and Exchange Commission website at httpalwwwsec.govtinfotmunicipallnrmsir.htm. "Official Statement" shall mean the final Official Statement dated June 24, 2604, pertaining to the Bonds. "Person" means an individual, a corporation, a partnership, an association, a joint stock company, a limited hability company, a trust, any unincorporated organization, or a government or a political subdivision thereof. "Planned Development Stage" shall mean, with respect to any property in the Assessment District owned by the Developer or its Affiliates, if any, the stage of development to which the Developer intends to develop such property, as described in the Official Statement, which is the stage at which backbone infrastructure is in place for the applicable Community Area, and the Developer has completed construction andlor development as described in the Official Statement under the heading "OWNERSHB' AND PLANNED FINANCING AND DEVELOPMENT OF'fFIE ASSESSMENT DISTRICT." "Repository" shall mean each National Repository and each State Repository. F-S "Rule" shall mean Rule 15c2-12(b)(5) adopted by the Securities and Exchange Commission under the Securities Exchange Act of 1934, as the same may be amended from time to time. "Semi-Annual Report" shall mean any Semi-Annual Report provided by the Developer pursuant to, and as described in, Sections 3 and 4 of this Disclosure Certificate. "State Repository" shall mean any public or private repository or entity designated by the State of California as a state repository for the purpose of the Rule and recognized as such by the Securities and Exchange Commission. As of the date of this Disclosure Certificate, there is no State Repository. "Successor Developer" shall mean any property owner, other than the Developer or its Affiliates, which purchases property in the Assessment District for the purpose of developing the property and not merely as an end- user. SECTION 3. Provision of Semi-Annual Renorts. (a} So long as the Developer is obligated hereunder and said obligation has not been terminated pursuant to Section 6 of this Disclosure Certificate, the Developer shall provide, or shall cause the Dissemination Agent to provide, not later than three (3} months after the end of each Disclosure Period (i. e., not later than September 30 or March 31 of each yeaz, as applicable), commencing with the report for the Disclosure Period ending June 30, 2004, to each Repository aSemi-Annual Report relating to the immediately preceding Disclosure Period which is consistent with the requirements of Section 4 of this Disclosure Certificate. The Semi-Annual Report may be submitted as a single document or as separate documents comprising a package, and may cross- ' reference other information as provided in Section 4 of this Disclosure Certificate; provided, however, that if audited Financial Statements aze required to be provided, such audited Financial Statements may be submitted separately from the balance of the Semi-Annual Report, and later than the date required above for the filing of the Semi- Annual Report, if not available by that date. (b) So long as the Developer is obligated hereunder and said obligation has not been terminated pursuant to Section 6 of this Disclosure Certificate, not later than fifteen (15) business days prior to the date required in subsection (a) hereof, the Developer shall provide the Semi-Annual Report to the Dissemination Agent. If the Developer is unable to provide, or cause to be provided, to each Repository aSemi-Annual Report by the date required in subsection (a) hereof, the Disseminarion Agent shall, first, confirm that the Developer's obligation hereunder has not been terminated pursuant to Section 6 of this Disclosure Certificate, and, if the Developer is still obligated hereunder, the Dissemination Agent shall send to each Repository a notice in substanfially the form attached hereto as Exhibit A. (c) The Dissemination Agent shall: (i} determine each year, prior to the date for providing the Semi-Annual Report, the name and address of each Repository, and file the Semi-Annual Report with each Repository, and (ii) following the filing of the Semi-Annual Report with each Repository, file a certificate with the City and the Developer certifying that the Semi-Annual Report has been filed with each Repository pursuant to this Disclosure Certificate, stating the date on which the Semi-Annual Report was filed, and listing each Repository (byname and address) with which it was filed. SECTION 4. Content of Semi-Annual Reports. So Long as the Developer is obligated hereunder and said obligation has not been terminated pursuant to Section 6 of this Disclosure Certificate, the Developer shall provide aSemi-Annual Report for the preceding Disclosure Period with respect to property within dte Assessment District owned by the Developer or its Affiliates, if any, which Semi-Annual Report shall contain or incorporate by reference the following: F-9 {a) The Developer shall provide a general description of progress made in the Development Plan, and any significant changes in the Development Plan, Financing Plan, or zoning during the prior Disclosure Period. The Developer shall track actual absorpfion relative to projected absorption according to the framework described in the Official Statement under the heading "OWNERSHIP AND PLANNED FINANCING AND DEVELOPMENT OF THE ASSESSMENT DISTRICT." The Developer shall identify any material deviations in aciual versus expected sale prices, and identify zoning changes, if any. The Developer shall else include information concerning the recordation of fmal maps, if applicable, and information concerning the sale or transfer of property to Persons that are not ~liates of the Developer. The Developer shall describe any significant changes in the Financing Plan for its development project including, without limitation, changes in status of the Developer's credit line (or the credit line of any Affiliates of the Developer that own property within the Assessment District), if applicable. The Developer shall describe (i) any change in the legal structure of the Developer or of any of its Affiliates that own property within the Assessment District; (ii) any previously undisclosed amendments to the land use entitlements or environmental conditions or other governmental conditions that aze necessary to complete its Development Plan; or (iii) any previously undisclosed legislative, administrative, arjudicial challenges to the Development Plan, if known. (d) Each fiscal year, one Semi-Annual Report shall make reference to the quarterly and annual financial statements of the Developer, on file with the Securities and Exchange Commission (if applicable). All such references shall contain the following caveat: The quarterly and annual reports of the Developer are referred to for informational purposes only. In the event of a failure to pay any installment of assessments, and after depletion of the Reserve Fund, the real property in the Assessment District is the sole security for the Bonds. The obligation of the Developer to pay the unpaid assessment installments does not constitute a personal indebtedness of the Developer for which the funds or assets (other than the property in the Assessment District) of the Developer may be required, by operation of law or otherwise, to be used to pay debt service on the Bonds. It should not be inferred from the reference to the quarterly and annual reports of the Developer that the funds or assets (other than the property in the Assessment District) are available to cure any delinquencies in the payment of assessments. (e) To the extent that Financial Statements are prepared separately for the Developer, Financial Statements prepared in accordance with generally accepted accounting principles, as in effect from time to time, shall be provided. To the extent that audited Financiat Statements aze prepazed separately for the Developer, if audited Financial Statements are required to be provided and such audited Financial Statements are not available by the time the applicable Semi-Annual Report is required to be provided pursuant to Section 2(a) of this Disclosure Certificate, the applicable Semi-Annual Report shall contain unaudited Financial Statements, and the audited Financial Statements shall be ffied in the same manner as the applicable Semi-Annual Report when they become available. Such Financial Statements shall be for the most recently ended fiscal year for the entity covered thereby. To the extent that audited Financial Statements of the Developer are prepazed, the Developer shall include such audited Financial Statements in the applicable Semi-Annual Report. To the extent that the provisions of this subsection (e) become applicable, the provisions of subsection (d) above shall cease to be applicable. All such audited Financial Statements of the Developer, if any, shall contain the following caveat: The audited financial statements of the Developer aze included for informational purposes only. In the event of a failure to pay any installment of assessments, and after depletion of the Reserve Fund, the real property in the Assessment District is the sole security for the Bonds. The obligation of the Developer to pay the unpaid assessment installments does not constitute a personal indebtedness of the Developer for which the funds or assets (other than the property in the Assessment District) of the Developer may be required, by operation of law or otherwise, to be used to pay debt service on the Bonds. It should not be inferred from audited financial statements of the Developer that the funds or assets (other than the property in the Assessment District) are available to cure any delinquencies in the payment of assessments. F-10 (f} In addition to any of the infomtation expressly required to be provided under this Section, the Developer shall provide such further information, if any, as may be necessary to make the specifically required statements, in the light of the circumstances under which they aze made, not misleading. ', Any or all of the items listed above may be included by specific reference to other documents that have been submitted to each of the Repositories or the Securities and Exchange Commission. L the document included ', by reference is a final official statement, it must be available from the Municipal Securities Rulemaking Board. The Developer shall cleazly identify each such other document so included by reference. SECTION 5. Developer's Renort of Listed Events. (a) So long as the Developer is obligated hereunder and said obligation has not been terminated pursuant to Section 6 of this Disclosure Certificate, pursuant to the provisions of this Section 5, the Developer shall promptly give, or cause to be given notice of the occurrence of any of the following events (each, a "Listed Event") ~ with respect to Developer and any of its Affiliates that own property within the Assessment District: {i) Any conveyance by the Developer or any of its Affiliates to a Successor Developer or its Affiliates, if any, of property that, when aggregated with all other property in the Assessment District then-owned by such Successor Developer and its Affiliates, if any, is subject to the lien of greater than twenty percent (20%) of the annual assessment securing payment of the Bonds. (ii) Any failure of the Developer or any of its Affiliates to pay when due general property taxes, special taxes, or assessments with respect to its property within the Assessment District. {iii) Any termination of a line of credit or loan, any termination of, or uncured material default under, any line of credit or loan, or any other loss of a source of funds that could have a material adverse affect on the Developer's most recently disclosed Financing Plan or Development Plan, if any, or on the ability of the Developer or any of its Affiliates to pay assessment installments with respect to the Assessment District when due. ', (iv} The occurrence of an Event of Bankruptcy with respect to the Developer or any of its Affiliates that could have a material adverse affeot on the Developer's most recently disolosed Financing Plan or ' Development Plan, if any, or on the ability of the Developer or any of its Affiliates to pay assessment installments ', with respect to the Assessment District when due. (v) Any significant amendments to land use entitlements for the Developer's or its Affiliates property in the Assessment District, if material. (vi) Any previously undisclosed governmentally-imposed preconditions to commencement or continuation of development on the Developer's or its Affiliates' property in the Assessment District, if material. {vii} Any previously undisclosed legislative, administrative, or judicial challenges to development on the Developer's or its Affiliates' property in the Assessment District, if material. (viii) Any changes, if material, in the alignment, design, or likelt7tood of oompletion of significant public improvements, including major thoroughfazes, sewers, water conveyance systems, and simrlaz facilifies. (ix} The assumption of any obligations by a Successor Developer pursuant to Section 6 of this Disclosure Certificate. (b) Whenever the Developer obtains knowledge of the occurrence of a Listed Event, the Developer shall promptly notify the Dissemination Agent in writing. Such nofice shall instruct the Disseminaton Agent to report the occurrence pursuant to subsection (c) below. F-11 {c) ff the Dissemination Agent has been instructed by the Developer to report the occurrence of a Listed Event, the Dissemination Agent shall file a notice of such occurrence with either (i) the Municipal Securities Rulemaking Board and each State Repository or (ii) the Repositories, with a copy to the Participating Underwriter. SECTION 6. Termination of Developer's Reportine Obhaation. The Developer's continuing obligation to provide aSemi-Annual Report and notices of material Listed Events will terminate upon the eazlier of (1}the legal defeasance, prior redemption, or payment in full of all of the Bonds, or {2) the date upon which the Developer and its Affiliates, if any, cease to own property in the Assessment District that, when aggregated with all other property in the Assessment District then-owned by the Developer and its Affiliates, if any, is subject to the lien of greater than twenty percent (20%} of the annual assessment securing payment of the Bonds, or {3}when the Developer's Community Area has reached the,Planned Development Stage. If the Developer conveys m a Successor Developer property in the Assessment District prior to the time at which such property reaches the Planned Development Stage, and such property conveyed, when aggregated with all other property in the Assessment District then-owned by such Successor Developer and its Affiliates, if any, is subject to the lien of greater than twenty percent (20%) of the annual assessment securing payment of the Bonds, then the Developer shall require a Successor Developer to enter into an Assumption Agreement, but only to the extent and upon the terms, if any, required by the Rule. SECTION 7. Dissemination Agent. The City may, from time to time, appoint or engage a Dissemination Agent to assist the Developer in carrying out its obligations under this Disclosure Certificate, and the City may discharge any such Dissemination Agent, with or without appointing a successor Dissemination Agent. SECTION 8. Amendment: Waiver. Notwithstanding any other provision of this Disclosure Certificate, the Developer may amend this Disclosure Certificate, and any provision of this Disclosure Certificate may be waived, provided that the City agrees in writing and the following conditions are satisfied: (a) if the amendment or waiver relates to the provisions of Section 3(a}, 4, or 5, it may only be made in connection with a change in circumstances that arises from a change in legal requirements, change in ]aw, or change in the identity, nature, or status of an obligated person with respect to the Bonds, or type of business conducted; (b) the undertakings herein, as proposed to be amended or waived, would, in the opinion of nationally I recognized bond counsel, have complied with the requirements of the Rule at the time of the primary offering of the Bonds, after taking into account any amendments or interpretations of the Rule, as well as any change in circumstances; and (e) the proposed amendment or waiver either (i} is approved by Holders of the Bonds in the manner provided in the Resolution for amendments to the Resolution with the consent of Holders, or {ii) does not, in the opinion of nationally recognized bond counsel, materially impair the interests of the Holders or Beneficial Owners I of the Bonds. If the annual financial information or operating data to be provided in the Semi-Annual Report is amended pursuant to the provisions hereof, the first annual financial information filed pursuant hereto containing the amended operating data or financial information shall explain, in narrative form, the reasons for the amendment and the impact of the change in the type of operating data or financial information being provided. In the event of any amendment or waiver of a provision of this Disclosure Agreement, the Developer shall describe such amendment in the next Semi-Annual Report, and shall include, as applicable, a narrative exphmation of the reason for the amendment or waiver and its impact on the type (or, in the case of a change of accounting principles, on the presentafion) of financial informafion or operating data being presented by the Developer. if an amendment is made to the undertaking specifying the accounting principles to be followed in preparing financial statements, the annual financial information for the year in which the change is made shall present a comparison F-12 between the financial statements or information prepared on the basis of the new accounting principles and those prepared on the basis of the former accounting principles. The comparison shall include a qualitative discussion of the differences in the accounting principles and the impact of the change in the accounting principles on the presentation of the financial information, in order to provide information to investors to enable them to evaluate the ability of the Developer to meet its obligations. To the extent reasonably feasible, the comparison shall be quantitative. A notice of the change in the accounting principles shall be sent to the Repositories in the same manner as for a Listed Event under Section 5. SECTION 9. Additional Information. Nothing in this Disclosure Certiftcate shall be deemed to prevent the Developer from disseminating any other information using the means of dissemination set forth in this Disclosure Certificate or any other means of communication or including any other information in any Semi-Annual Report or notice of occurrence of a Listed Event, in addition to that which is required by this Disclosure Certificate. If the Developer chooses to include any information in any Semi-Annual Report or notice of occurrence of a Listed Event in addition to that which is specifically required by this Disclosure Certificate, the Developer shall have no obligation under this Disclosure Certificate to update such information or include it in any future Semi-Annual Report or notice of occurrence of a Listed Event. SECTION 14. Default. In the event of a failure of the Developer to comply with any provision of this Disclosure Certificate, the Underwriter, the City, or any Holder or Beneficial Owner of outstanding Bonds may take such actions as may be necessary and appropriate, including seeking mandate or specific performance by court order, to cause the Developer to comply with its obligations under this Disclosure Certificate. A default under this Disclosure Agreement shall not be deemed to be an event of default under the Resolution, and the sole remedy under this Disclosure Certificate in the event of any failure of the Developer to comply with this Disclosure Certificate shall be an action to compel performauce. SECTION 11. Duties, Immunities and Liabilities of Dissemination Atent. The Dissemination Agent shall have only such duties as are specifically set forth in this Disclosure Certificate, and the Developer agrees to indemnify and save the City, the Dissemination Agent, and their respective officers, directors, employees, and agents, harmless against any losses, expenses, and liabilities which either or both of them may incur arising out of or in the exercise or performance of the Developer's 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 City's or the Dissemination Agent's negligence or willful misconduct. The obligations of the Developer under this Section shall survive resignation or removal of the Dissemination Agent and payment of the Bonds. SECTION 12. Beneficiaries. This Disclosure Certificate shall be binding upon the Developer and shall inure solely to the benefit of the Developer, the Dissemination Agent, the Underwriter, the City, and the Holders and Beneficial Owners from time to time of the Bonds, and shall create no rights in any other person or entity. Date: [Closing Date] CASTLE & COOKS CALIFORNIA, INC., a California corporation By: Title: F-13 EXHIBTf A NOTICE TO REPOSITORIES OF FAILURE TO FILE SEMI-ANNUAL REPORT Name of Developer: CASTLE & COOKS CALIFORNIA, INC., a California corporation Name of Bond Issue: CITY OF BAKERSFIELD, CALIFORNIA ASSESSMENT DISTRICT N0.03-3 (SEVEN OAKS WEST IBlBRiGHTON PLACE II/FAB3WAY OAKS SOUTH) LIlVIlT'ED OBLIGATION II~4PROVEMENT BONDS Date of Issuance: [Closing Date] NOTICE IS HEREBY GIVEN that Castle & Cooke California, Inc., a California corporation (the "Developer"), has not provided aSemi-Annual Report with respect to the above-named Bonds as required by Section 3 of the Developer's Continuing Disclosure Certificate, dated [Closing Date]. The Developer anticipates that the Semi-Annual Report will be filed by Date: i 'I THE CITY OF BAKERSFIELD, ', as Dissemination Agent, on behalf of CASTLE & COOKS CALIFORNIA, INC., a California corporation i By: Finance Director F-14