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HomeMy WebLinkAboutTMP-651 Adoption of Resolution by CC of CFD No. 2006-1 & Resolution by PFA of Special Tax BondsCITY OF LAKE ELSINORE JOINT REPORT TO CITY COUNCIL AND PUBLIC FINANCING AUTHORITY TO: HONORABLE MAYOR AND MEMBERS OF THE CITY COUNCIL HONORABLE CHAIRPERSON AND MEMBERS OF THE PUBLIC FINANCING AUTHORITY FROM: GRANT YATES CITY MANAGER/ EXECUTIVE DIRECTOR DATE: JANUARY 27, 2015 SUBJECT: ADOPTION OF RESOLUTION BY THE CITY COUNCIL ACTING AS THE LEGISLATIVE BODY OF COMMUNITY FACILITIES DISTRICT NO. 2006 -1 (SUMMERLY) IN CONNECTION WITH THE ISSUANCE OF SPECIAL TAX BONDS BY SUCH COMMUNITY FACILITIES DISTRICT FOR IMPROVEMENT AREA B; AND ADOPTION OF RESOLUTION BY THE PUBLIC FINANCING AUTHORITY IN CONNECTION WITH THE ISSUANCE OF SPECIAL TAX BONDS BY THE AFOREMENTIONED COMMUNITY FACILITIES DISTRICT Recommendations 1) City: Adopt City Resolution No. 2015 -_ approving the execution and delivery of a bond purchase agreement and continuing disclosure agreement, and authorizing the taking of other actions related to the issuance of bonds of Community Facilities District No. 2006 -1 for Improvement Area B; and 2) Public Financing Authority (PFA): Adopt PFA Resolution No. 2015 -_ approving the official statement and approving the execution and delivery of a bond purchase agreement and continuing disclosure agreement, and authorizing the taking of other actions related to the issuance of bonds of the PFA. CFD 2006 -1 (Summerly IA -B) January 27, 2015 Page 2 Background The City of Lake Elsinore Community Facilities District No. 2006 -1 and Improvement Area B therein was formed pursuant to the Mello -Roos Community Facilities District Act of 1982, as amended. McMillian serves as the master developer of the community within CFD No. 2006 -1, which is part of a larger development commonly referred to as "Summerly." The property within Improvement Area B is planned for 182 residential lots /units. Residential construction by two merchant homebuilders is underway and of the 182 planned residential lots /units, 85 have been sold and closed to homeowners, 15 are under contract or in escrow and 82 are scheduled to be built and sold in the next year. On December 9, 2014, the City and PFA approved resolutions authorizing the issuance of bonds (the "2015 Bonds ") which will be secured by special taxes levied within Improvement Area B. Discussion The proposed 2015 Bonds would be approximately $3 million in par amount with a final maturity of 2044. Proceeds from the 2015 Bonds will be primarily used to finance public facilities within the CFD. The final interest rates will be determined when the 2015 Bonds are priced and sold. The pricing date would be targeted for some time in early February 2015, assuming that interest rates remain attractive. The bond closing is expected to occur in late February. The table below highlights a few statistics of the proposed 2015 Bonds. 'Preliminary; Subject to chance "Annual Assigned Special Tax will increase at 2% per year. Documents to be Approved Approval of the attached Resolutions will approve and authorize the execution of the following financing documents: ✓ Preliminary Official Statement; ✓ Bond Purchase Agreement, and ✓ Continuing Disclosure Agreement Bond Counsel and the City Attorney have reviewed the attached financing documents on behalf of the PFA and CFD. CFD 2006 -1 (Summerly IA -B) January 27, 2015 Page 3 Fiscal Impact There is no cost to the City of Lake Elsinore; however, the property owners are expected to pay approximately $936.17 per parcel annually, increasing at 2% per year through 2044, as illustrated in the previous table. The average estimated rate per year for FY 2043 -44 will be approximately $1,695.75. The bonds average interest rate is estimated to be to 4.70 %. Prepared by: Jason Simpson Director of Administrative Services Approved by: Grant Yates City Manager/ Executive Director Attachments: 1. City Resolution No. 2015 -_ 2. PFA Resolution No. 2015- 3. Preliminary Official Statement 4. Bond Purchase Agreement 5. Continuing Disclosure Agreement RESOLUTION NO. 2015- A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF LAKE ELSINORE, CALIFORNIA, ACTING AS THE LEGISLATIVE BODY OF CITY OF LAKE ELSINORE COMMUNITY FACILITIES DISTRICT NO. 2006 -1 (SUMMERLY), APPROVING THE EXECUTION AND DELIVERY OF A BOND PURCHASE AGREEMENT AND A CONTINUING DISCLOSURE AGREEMENT, AND AUTHORIZING THE TAKING OF OTHER ACTIONS RELATED TO THE ISSUANCE OF CITY OF LAKE ELSINORE COMMUNITY FACILITIES DISTRICT NO. 2006 -1 (SUMMERLY) SPECIAL TAX BONDS, 2015 SERIES (IMPROVEMENT AREA B) WHEREAS, the City Council (the "Council ") of the City of Lake Elsinore (the "City ") has previously formed the City of Lake Elsinore Community Facilities District No. 2006 -1 (Summerly) (the "District ") pursuant to the Mello -Roos Community Facilities Act of 1982, as amended (the "Act "); and WHEREAS, the Council, acting as the legislative body of the District, previously adopted Resolution No. 2014 -076 approving the issuance of the City of Lake Elsinore Community Facilities District No. 2006 -1 (Summerly) Special Tax Bonds, 2015 Series (Improvement Area B) (the "District Bonds ") and authorizing the preparation of a Bond Purchase Agreement and a Continuing Disclosure Agreement for approval by the Council; NOW, THEREFORE, THE CITY COUNCIL OF THE CITY OF LAKE ELSINORE, CALIFORNIA, ACTING AS THE LEGISLATIVE BODY OF CITY OF LAKE ELSINORE COMMUNITY FACILITIES DISTRICT NO. 2006 -1 (SUMMERLY), DOES HEREBY RESOLVE AS FOLLOWS: SECTION 1. The City Council, as the legislative body of the District, hereby approves the Bond Purchase Agreement in substantially the form on file with the City Clerk. The Mayor, the City Manager, the Director of Administrative Services, and any designee of any of them (each, a "Responsible Officer ") is hereby authorized to execute the Bond Purchase Agreement, in substantially the form presented hereto, with such revisions, amendments and completions as shall be approved by any Responsible Officer, with the advice of Bond Counsel, such approval to be conclusively evidenced by the execution and delivery thereof by any Responsible Officer, provided that, the true interest cost on the District Bonds shall not exceed 5.5 %. SECTION 2. The City Council, as the legislative body of the District, hereby approves the Continuing Disclosure Agreement in substantially the form on file with the City Clerk. Any Responsible Officer is hereby authorized to execute the Continuing Disclosure Agreement in substantially the form presented hereto, with such revisions, amendments and completions as shall be approved by any Responsible Officer, with the advice of Bond Counsel, such approval to be conclusively evidenced by the execution and delivery thereof by any Responsible Officer. City Council Resolution No. 2015 -, Page 2 SECTION 3. The City Manager, the Director of Administrative Services, the City Clerk and all other officers of the City are hereby authorized and directed, for and in the name and on behalf of the City and the District, to do any and all things and take any and all other actions, including the publication of any notices necessary or desirable in connection with the sale of the District Bonds and execution and delivery of any and all assignments, certificates, requisitions, agreements, notices, consents, instruments of conveyance, warrants and other documents, which they, or any of them, deem necessary or advisable in order to consummate the lawful issuance and sale of the District Bonds and the consummation of the transactions as described herein. SECTION 4. This Resolution shall take effect from and after the date of its passage and adoption. PASSED, APPROVED AND ADOPTED on this 27th day of January, 2015. Steve Manos, Mayor ATTEST: Virginia J Bloom, City Clerk APPROVED AS TO FORM: Barbara Zeid Leibold, City Attorney STATE OF CALIFORNIA COUNTY OF RIVERSIDE SS CITY OF LAKE ELSINORE I, VIRGINIA J. certify that Resolution Elsinore at a regular vote: AYES: NOES: ABSENT: ABSTAIN: 0.7710723.1 BLOOM, City Clerk of the City of Lake Elsinore, California, hereby No. 2015 -_ was adopted by the City Council of the City of Lake meeting held on the 27th day of January, 2015 by the following Virginia J. Bloom, CMC City Clerk RESOLUTION NO. PFA -2015- A RESOLUTION OF THE BOARD OF DIRECTORS OF THE LAKE ELSINORE PUBLIC FINANCING AUTHORITY APPROVING AN OFFICIAL STATEMENT, APPROVING THE EXECUTION AND DELIVERY OF A BOND PURCHASE AGREEMENT, AND AUTHORIZING THE TAKING OTHER ACTIONS RELATED TO THE ISSUANCE OF THE LAKE ELSINORE PUBLIC FINANCING AUTHORITY LOCAL AGENCY REVENUE BONDS (SUMMERLY IA B), 2015 SERIES A WHEREAS, the Lake Elsinore Public Financing Authority (the "Authority ") is a joint exercise of powers authority duly organized and existing under and pursuant to that certain Joint Exercise Powers Agreement by and between the City of Lake Elsinore (the "City ") and the Redevelopment Agency of the City of Lake Elsinore (the "Agency "), under the provisions of Articles 1 through 4 (commencing with Section 6500) of Chapter 5 of Division 7 of Title 1 of the Government Code of the State of California (the "Act'), and is authorized pursuant to Article 4 of the Act to borrow money for the purpose of financing the acquisition of bonds, notes and other obligations to provide financing and refinancing for capital improvements of member entities of the Authority; and WHEREAS, the Authority previously adopted Resolution No. PFA- 2014 -002 approving the issuance of its Local Agency Revenue Bonds (Summerly IA B), 2015 Series A (the "Bonds ") and authorizing the preparation of a Bond Purchase Agreement and a Preliminary Official Statement for approval by the Board of Directors (the "Board ") of the Authority; NOW, THEREFORE, THE BOARD OF DIRECTORS OF THE LAKE ELSINORE PUBLIC FINANCING AUTHORITY DOES HEREBY RESOLVE AS FOLLOWS: SECTION 1. The foregoing recitals are true and correct and the Authority hereby so finds and determines. SECTION 2. The Authority hereby authorizes the sale of the Bonds to Stifel, Nicolaus & Company, Incorporated, as the underwriter, and the purchase of related local obligations of the City of Lake Elsinore Community Facilities District No. 2006 -1 (Summerly) (the "District') from the District pursuant to and in accordance with the Bond Purchase Agreement (the "Purchase Agreement'), which Purchase Agreement the Authority hereby approves in substantially the form on file with the Secretary of the Authority and presented to the Board at this meeting. Any one of the Chairperson, the Executive Director and the Secretary of the Authority, and each of them, and any designee of any of them (collectively, the "Authorized Officers "), is hereby authorized and directed, for and in the name and on behalf of the Authority, to execute and deliver the Purchase Agreement, with such insertions and changes as may be approved by the Authorized Officer executing the same, subject to the provisions of this Resolution, such approval to be conclusively evidenced by such execution and delivery. The Public Financing Authority Resolution No. PFA- 2015 - Page 2 underwriter's discount for the Bonds specified in the Purchase Agreement shall not exceed 2.0 %, exclusive of original issue discount. The true interest cost applicable to the Bonds shall not exceed 5.5 %. The maturity date of the Bonds shall not extend beyond 2055. SECTION 3. The Authority hereby approves the Preliminary Official Statement (the "Preliminary Official Statement ") in substantially the form on file with the Authority Secretary, with such changes and modifications as shall be necessary or appropriate for completion to the satisfaction of the Executive Director of the Authority, and approval by Authority's Counsel. The Chairperson or the Executive Director is authorized and directed, on behalf of the Authority to deem the Preliminary Official Statement "final" pursuant to Rule 15c2 -12 under the Securities and Exchange Act of 1934. The Authority further approves distribution of the Preliminary Official Statement by the Underwriter to persons who may be interested in purchasing the Bonds. The Board hereby approves the final Official Statement (the "Official Statement ") describing the Bonds. Distribution of the final Official Statement by the Underwriter is hereby approved. The Chairperson or the Executive Director, subject to approval by the Authority's Counsel, is hereby authorized and directed to approve any changes in or additions to the final form of the Official Statement to conform to the requirements of the Purchase Agreement and the Indenture, as applicable. SECTION 4. The Authorized Officers, the other officers and employees of the Authority, the members of the Authority's Board of Directors, Bond Counsel, Authority's Counsel and the other consultants to and agents of the Authority, are each hereby authorized and directed to do all things and take all actions necessary or desirable to effectuate the transactions contemplated by this Resolution, and to execute such other assignments, agreements, certificates, receipts, endorsements, orders, opinions and other documents in connection with such transactions, including, without limitation, closing documents in connection with the issuance of the Bonds, and all actions heretofore taken by the officers, employees and agents of the Authority in connection with the issuance of the Bonds are hereby ratified, approved and confirmed in every respect. SECTION 5. This Resolution shall take effect from and after the date of its passage and adoption. Public Financing Authority Resolution No. PFA -2015- Page 3 PASSED, APPROVED AND ADOPTED on this 27th day of January, 2015. Natasha Johnson, Chairperson ATTEST: Virginia J Bloom, Secretary APPROVED AS TO FORM: Barbara Zeid Leibold, Counsel to the Authority STATE OF CALIFORNIA COUNTY OF RIVERSIDE SS CITY OF LAKE ELSINORE I, VIRGINIA J. BLOOM, Secretary of the Lake Elsinore Public Financing Authority hereby certify that Resolution No. PFA- 2015 -_was adopted by the Board of Directors of the Lake Elsinore Public Financing Authority at a regular meeting held on the 27th day of January, 2015 by the following vote: AYES: NOES: ABSENT: ABSTAIN: Virginia J. Bloom, CIVIC Secretary 47710718.1 4 LAKE ELSINORE PUBLIC FINANCING AUTHORITY LOCAL AGENCY REVENUE BONDS (SUMMERLY IA B), 2015 SERIES A BOND PURCHASE AGREEMENT ,2015 Lake Elsinore Public Financing Authority 130 South Main Street Lake Elsinore, California 92530 City of Lake Elsinore Community Facilities District No. 2006 -1 (Sur unerly) 130 South Main Street Lake Elsinore, California 92530 Ladies and Gentlemen: Stifel, Nicolaus & Company, Incorporated, as underwriter (the "Underwriter "), acting not as a fiduciary or agent for you, but on behalf of itself, offers to enter into this Bond Purchase Agreement (this "Purchase Agreement ") with the Lake Elsinore Public Financing Authority (the "Authority ") and the City of Lake Elsinore Community Facilities District No. 2006 -1 (Summerly) (the "Community Facilities District ") on behalf of Improvement Area B (the `Improvement Area "), which upon acceptance will be binding upon the Underwriter, the Authority and the Community Facilities District. The agreement of the Underwriter to purchase the Bonds (as hereinafter defined) is contingent upon the Authority purchasing the Special Tax Bonds (as hereinafter defined) from the Community Facilities District, and upon the Authority and the Community Facilities District satisfying all of the obligations imposed upon them under this Purchase Agreement. This offer is made subject to the Authority's and the Community Facilities District's acceptance by the execution of this Purchase Agreement and its delivery to the Underwriter at or before 8:00 P.M., local time, on the date hereof, and, if not so accepted, will be subject to withdrawal by the Underwriter upon notice delivered to the Authority and the Community Facilities District at any time prior to the acceptance hereof by the Authority and the Community Facilities District. All capitalized terms used herein, which are not otherwise defined, shall have the meaning provided for such terms in the Indenture of Trust, dated as of , 2015 (the `Indenture "), by and between the Authority and MUFG Union Bank, N.A., as trustee (the "Trustee"). Purchase, Sale and Delivery of the Bonds. Subject to the terms and conditions and in reliance upon the representations, warranties and agreements set forth herein: (i) the Underwriter hereby agrees to purchase from the Authority and the Authority hereby agrees to sell to the Underwriter all (but not less than all) of the $ aggregate principal amount of the Lake Elsinore Public Financing Authority 9017305.0 Local Agency Revenue Bonds, (Summmerly IA B) 2015 Series A (the "Bonds "), dated the Closing Date (as hereinafter defined), bearing interest at the rates and maturing on the dates and in the principal amounts set forth in L:xhibit A hereto; and (ii) the Authority hereby agrees to purchase from the Community Facilities District special tax bonds of Improvement Area B (the "Special Tax Bonds ") in the amounts listed on Exhibit B hereto, and the Community Facilities District hereby agrees to sell all (but not less than all) of the Special Tax Bonds to the Authority, bearing interest at the rates and mahuing on the dates and in the principal amounts set forth in Exhibit B hereto. The purchase price for the Bonds shall be $ (being 100% of the aggregate principal amount thereof plus a net original issue premium /[less original issue discount] of $__ _ and less an Underwriter's discount of $ ). The purchase price for the Special Tax Bonds shall be $ (being 100% of the aggregate principal amount thereof plus a net original issue premium /discount of $ and less an original purchaser's discount of $ ). The Underwriter agrees to make a bona fide public offering of all of the Bonds initially at the public offering prices (or yields) set forth in Exhibit A attached hereto and incorporated herein by reference. Subsequent to the initial public offering, the Underwriter reserves the right to change the public offering prices (or yields) as it deems necessary in connection with the marketing of the Bonds, provided that the Underwriter shall not change the interest rates set forth in Exhibit A. The Bonds will be offered and sold to certain dealer at prices Tower than such initial offering prices. The Bonds shall be substantially in the form described in, shall be issued and secured under the provisions of, and shall be payable from the Revenues and Redemption Revenues as provided in the Indenture, the Preliminary Official Statement (as hereinafter defined), and the Marks -Roos Local Bond Pooling Act of 1985, as amended, being Article 4, Chapter 5, Division 7, Title 1 of the Government Code of the State of California (the `Bond Law "). The issuance of the Bonds has been duly authorized by the Authority pursuant to a resolution (the "Authority Resolution ") adopted by the Board of Directors of the Authority on _ 2015. The net proceeds of the Bonds will be used to purchase the Special Tax Bonds. 'fhe Special Tax Bonds shall be substantially in the form described in, shall be issued and secured under the provisions of, and shall be payable from special taxes pledged thereto as provided in the Fiscal Agent Agreement (the "Special Tax Bonds Fiscal Agent Agreement. "), dated as of 2015 by and between the Community Facilities District and MUFG Union Bank, N.A., as fiscal agent (the "Fiscal Agent "). The Special Tax Bonds are issued under the Mello -Roos Community Facilities Act of 1982, as amended, being Chapter 2.5, Part 1, Division 2, Title 5 of the Government Code of the State of California (the "Community Facilities District Act"). The issuance of the Special Tax Bonds has been duly authorized by the City Council of the City of Lake Elsinore (the "City Council ") as the legislative body for the Community Facilities District (for and on behalf of the Improvement Area within the Community Facilities District), pursuant to a resolution (the "Community Facilities District Resolution of Issuance ") adopted by the City Council on 2015. The net proceeds of the Special Tax Bonds will be used, as indicated in the Special Tax Bonds Fiscal Agent Agreement, for the following purposes: (1) financing a portion of certain public facilities eligible to be financed by Improvement Area B; (2) paying costs of issuance of the Bonds and the Special Tax Bonds; and (3) funding the Reserve Account. 2 9017305.0 A. The Authority and the Community Facilities District hereby acknowledge that the Underwriter is entering into this Purchase Agreement in reliance on the representations, warranties and agreements made by the Authority and the Community Facilities District herein, and the Authority shall take all action necessary to enforce its rights hereunder for the benefit of the Underwriter and shall immediately notify the Underwriter if it becomes aware that any representation, warranty or agreement made by the Community Facilities District herein is incorrect in any material respect. The Authority and the Community Facilities District acknowledge and agree that (i) the purchase and sale of the Bonds pursuant to this Purchase Agreement is an arm's - length commercial transaction among the Authority, the Community Facilities District, and the Underwriter, (ii) in connection therewith and with the discussions, undertakings and procedures leading up to the consummation of such transaction, the Underwriter is and has been acting solely as principal and not as the agent or fiduciary of the Authority or the Community Facilities District, (iii) the Underwriter has not assumed an advisory or fiduciary responsibility in favor of the Authority or the Community Facilities District with respect to (a) the offering of the Bonds or the process leading thereto (whether or not the Underwriter, or any affiliate of the Underwriter, has advised or is currently advising the Authority or the Community Facilities District on other matters) or (b) any other obligations to the Authority or the Community Facilities District with respect to the offering contemplated hereby, except tine obligations expressly set forth in this Purchase Agreement or otherwise imposed by law, (iv) the Underwriter has financial interests that differ from those of the Authority and the Community Facilities District and (v) the Authority and the Community Facilities District have consulted their own legal, financial and other advisors to the extent they have deemed appropriate in connection with this transaction. The Authority and the Community Facilities District, acknowledge that each has previously provided the Underwriter with an acknowledgement of receipt of the required Underwriter disclosure under Rule G -17 of the Municipal Securities Rulemaking Board ( "MSRB "). The Authority acknowledges and represents that it has engaged Urban Futures Incorporated as its municipal advisor (as defined in Securities and Exchange Commission Rule 1513al) and will rely solely on the financial advice of Urban Futures Incorporated with respect to the Bonds. B. Pursuant to the authorization of the Authority, the Underwriter has distributed copies of the Preliminary Official Statement dated 2015, relating to the Bonds, which, together with the cover page, inside cover page and appendices thereto is herein called the "Preliminary Official Statement." By its acceptance of this Purchase Agreement, the Authority and the Community Facilities District hereby ratify the use by the Underwriter of the Preliminary Official Statement, and the Authority agrees to execute a final official statement relating to the Bonds (the "Official Statement ") which will consist of the Preliminary Official Statement with such changes as may be made thereto, with the approval of Fulbright & Jaworski LLP, Los Angeles, California, a member of Norton Rose Fulbright, the Community Facilities District's and the Authority's Bond Counsel ( "Bond Counsel "), Stradling Yocca Carlson & Rauth, a Professional Corporation, Disclosure Counsel ( "Disclosure Counsel "), and the Underwriter, and to provide copies thereof to the Underwriter as set forth in Section 2(0) hereof. The Authority and the Community Facilities District hereby authorize and require the Underwriter to use and promptly distribute, in connection with the offer and sale of the Bonds, the Preliminary Official Statement, the Official Statement and any supplement or amendment thereto. The Authority and the Community Facilities District further authorize the Underwriter to use and distribute, in connection with the offer and sale of the Bonds, the Indenture, the Special Tax Bonds Fiscal Agent Agreement, this Purchase Agreement and all information contained herein, and all other documents, certificates and statements furnished by or on 3 9017305.vl behalf of the Authority or the Community Facilities District to the Underwriter in connection with the transactions contemplated by this Purchase Agreement. C. To assist the Underwriter in complying with Securities and Exchange Commission Rule 15c2- 12(b)(5) (the "Rule "), the Community Facilities District will undertake for and on behalf of the Authority pursuant to the Continuing Disclosure Agreement, in the form attached to the Official Statement as Appendix E (the "Continuing Disclosure Agreement'), to provide annual reports and notices of certain enumerated events. A description of this undertaking is set forth in the Preliminary Official Statement and will also be set forth in the Official Statement. D. Except as the Underwriter, the Community Facilities District and the Authority may otherwise agree, the Authority will deliver to the Underwriter, at the offices of Bond Counsel in Los Angeles, California, or at such other location as may be mutually agreed upon by the Underwriter, the Community Facilities District and the Authority, the documents hereinafter mentioned; and the Authority will deliver to the Underwriter through the facilities of The Depository Trust Company ( "DTC ") in New York, New York, the Bonds, in definitive form (all Bonds hearing CIJSIP numbers), duly executed by the Authority and authenticated by the Trustee in the manner provided for in the Indenture and the Bond Law at 8:00 a.m. California time, on 2015 (the "Closing Date "), and the Underwriter will accept such delivery and pay the purchase price of the Bonds as set forth in paragraph (A) of this Section by wire transfer, payable in federal or other immediately available funds (such delivery and payment being herein referred to as the "Closing "). The Bonds shall be in fully registered book -entry form (which may be typewritten) and shall be registered in the name of Cede & Co., as nominee of DTC. E. Except as the Authority and the Underwriter may otherwise agree, the Conununity Facilities District will deliver to the Authority and the Underwriter, at the offices of Bond Counsel in Los Angeles, California, or at such other location as may be mutually agreed upon by the Underwriter, the Community Facilities District and the Authority, the documents hereinafter mentioned and the Community Facilities District will deliver to the Authority, at a location to be designated by the Authority, the Special Tax Bonds, in definitive form, duly executed by the Community Facilities District and authenticated by the Fiscal Agent in the manner provided for in the Special Tax Bonds Fiscal Agent Agreement and the Community Facilities District Act, no later than 8:00 a.m., California time, on the Closing Date, and the Authority will accept such delivery and pay or cause to be paid the purchase price of the Special Tax Bonds as set forth in paragraph (A) above by wire transfer or by other means acceptable to the Underwriter, in any case payable in federal or other immediately available funds (such delivery and payment being herein referred to as the "Closing "). The Special Tax Bonds shall be in fully registered form and shall be registered in the name of the Fiscal Agent. 2. Representations, Warranties and Covenants of the Authority. The Authority represents, warrants and covenants to the Underwriter that: A. The Authority is a joint exercise of powers authority, duly organized and existing under the Constitution and laws of the State of California (the "State "), and formed pursuant to Articles 1 through 4 (commencing with Section 6500) of Chapter 5, Division 7, Title 1 of the Government Code (the "JPA Act'), with full right, power and authority: (i) to enter into this Purchase Agreement; (ii) to enter into the Indenture; (iii) to adopt the Authority Resolution authorizing the issuance of the Bonds and entry into this Purchase Agreement and the Indenture and to take all other actions on the part of the Authority relating thereto (the "Authority Proceedings "); 4 9017305.0 (iv) to issue, sell and deliver the Bonds to the Underwriter as provided herein; (v) to purchase the Special Tax Bonds; and (vi) to carry out and consummate the transactions on its part contemplated by this Purchase Agreement, the Indenture, and the Official Statement. The Indenture, the Bonds and this Purchase Agreement are collectively referred to herein as the "Authority Documents." B. By all necessary official action of the Authority, the Authority has duly authorized and approved the execution and delivery by the Authority of, and the performance by the Authority of the obligations on its part contained in, the Authority Documents, and has approved the use by the Underwriter of the Preliminary Official Statement and the Official Statement and, as of the date hereof, such authorizations and approvals are in full force and effect and have not been amended, modified or rescinded. When executed and delivered by the parties thereto, the Authority Documents will constitute the legally valid and binding obligations of the Authority enforceable upon the Authority in accordance with their respective terms, except as enforcement may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws or equitable principles relating to or affecting creditors rights generally. To the best of the Authority's knowledge, the Authority has complied, and will at the Closing Date be in compliance in all respects, with the terms of the Authority Documents that are applicable to the Authority. C. The information in the Preliminary Official Statement and in the Official Statement relating to the Authority and the Bonds (other than statements pertaining to the book-entry system, as to which no view is expressed), is true and correct in all material respects and does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading; and, upon delivery and up to and including 25 days after the End of the Underwriting Period (as defined in paragraph (D) below), the Official Statement will be amended and supplemented so as to contain no misstatement of any material fact or omission of any statement necessary to make the statements contained therein, in the light of the circumstances in which such statements were made, not misleading. D. Up to and including 25 days after the End of the Underwriting Period (as defined below), the Authority will advise the Underwriter promptly of any proposal to amend or supplement the Official Statement and will not effect or consent to any such amendment or supplement without the consent of the Underwriter, which consent will not be unreasonably withheld. The Authority will advise the Underwriter promptly of the institution of any proceedings known to it by any governmental agency prohibiting or otherwise materially affecting the use of the Official Statement in connection with the offering, sale or distribution of the Bonds. As used herein, the term "End of the Underwriting Period" means the later of such time as: (i) the Bonds are delivered to the Underwriter; or (ii) the Underwriter does not retain, directly or as a member of an underwriting syndicate, an unsold balance of the Bonds for sale to the public. Unless the Underwriter gives notice to the contrary, the End of the Underwriting Period shall be deemed to be the Closing Date. Any notice delivered pursuant to this provision shall be written notice delivered to the Authority and the Community Facilities District at or prior to the Closing Date, and shall specify a date (other than the Closing Date) to be deemed the "End of the Underwriting Period." E. As of the time of acceptance hereof and as of the Closing Date, except as otherwise disclosed in the Official Statement, the Authority is not, and as of the Closing Date, will not be, in breach of or in default under any applicable constitutional provision, law or administrative 5 9017305.0 rule or regulation of the State or the United States, or any applicable judgment or decree or any trust agreement, loan agreement, bond, note, resolution, ordinance, agreement or other instrument to which the Authority is a party or is otherwise subject; and, to the Authority's knowledge, no event has occurred and is continuing which, with the passage of time or the giving of notice, or both, would constitute a default or event of default under any such instrument which breach, default or event could have an adverse effect on the Authority's ability to perform its obligations under the Authority Documents; and, as of such times, except as disclosed in the Official Statement, the authorization, execution and delivery of the Authority Documents and compliance by the Authority with the provisions of each of such agreements or instruments does not and will not conflict with or constitute a breach of or default under any applicable constitutional provision, law or administrative rule or regulation of the State or the United States, or any applicable judgment, decree, license, permit, trust agreement, loan agreement, bond, note, resolution, ordinance, agreement or other instrument to which the Authority (or any of its officers in their respective capacities as such) is subject, or by which it or any of its properties is bound; nor will any such authorization, execution, delivery or compliance result in the creation or imposition of any lien, charge or other security interest or encumbrance of any nature whatsoever upon any of its assets or properties or under the terms of any such law, regulation or instrument, except as may be provided by the Authority Documents. F. At the time of acceptance hereof there is, and as of the Closing Date, there will be no action, suit, proceeding, inquiry or investigation, at law or in equity, before or by any court, government agency, public board or body (collectively and individually, an "Action ") pending (notice of which has been served on the Authority) or to the best knowledge of the Authority threatened, in which any such Action: (i) in any way questions the corporate existence of the Authority or the titles of the officers of the Authority to their respective offices, (ii) affects, contests or seeks to prohibit, restrain or enjoin the issuance or delivery of any of the Bonds, or the payment or collection of Revenues (as defined in the Indenture) or any amounts pledged or to be pledged to pay the principal of and interest on the Bonds, or in any way contests or affects the validity of the Authority Documents or the consummation of the transactions on the part of the Authority contemplated thereby; (iii) contests the exclusion of the interest on the Bonds from federal or state income taxation or contests the powers of the Authority which may result in any material adverse change relating to the financial condition of the Authority; or (iv) contests the completeness or accuracy of the Preliminary Official Statement or the Official Statement or any supplement or amendment thereto or asserts that the Preliminary Official Statement or the Official Statement contained any untrue statement of a material fact or omitted to state any material fact required to be stated therein o' necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading; and, as of the time of acceptance hereof, there is, and as of the Closing Date, there will be no known basis for any action, suit, proceeding, inquiry or investigation of the nature described in clauses (i) through (iv) of this sentence. G. The Authority will furnish such information, execute such instruments and lake such other action in cooperation with the Underwriter and at the expense of the Underwriter as the Underwriter may reasonably request in order: (i) to qualify the Bonds for offer and sale under the Blue Sky or other securities laws and regulations of such states and other jurisdictions of the United States as the Underwriter may designate; and (ii) to determine the eligibility of the Bonds for investment under the laws of such states and other jurisdictions, and will use its best efforts to continue such qualifications in effect so long as required for the distribution of the Bonds, provided; however, that the Authority will not be required to execute a special or general consent to service of process or qualify as a foreign corporation in connection with any such qualification in any ,jurisdiction. 6 9017305.0 H. The Authority Documents conform as to form and tenor to the descriptions thereof contained in the Official Statement. The Authority represents that the Bonds, when issued, executed and delivered in accordance with the Indenture and sold to the Underwriter as provided herein, will be validly issued and outstanding obligations of the Authority, entitled to the benefits of the Indenture. The Indenture creates a valid pledge of the moneys in certain funds and accounts established pursuant to the Indenture, subject in all cases to the provisions of the Indenture permitting the application thereof for the purposes and on the terms and conditions set forth therein. [Reserved.] J. The Authority has not been notified of any listing or proposed listing by the Internal Revenue Service to the effect that the Authority is a bond issuer whose arbitrage certifications may not be relied upon. K. Any certificate signed by any authorized officer of the Authority and delivered to the Underwriter in connection with the issuance and sale of the Bonds shall be deemed to be a representation and covenant by the Authority to the Underwriter as to the statements made therein. L. The Authority will apply the proceeds of the Bonds in accordance with the Indenture and as described in the Preliminary Official Statement and Official Statement. M. Between the date of this Purchase Agreement and the Closing Date, the Authority will not offer or issue any bonds, notes or other obligations for borrowed money not previously disclosed to the Underwriter. N. Until such time as moneys have been set aside in an amount sufficient to pay all then outstanding Bonds at maturity or to the date of redemption if redeemed prior to maturity, plus unpaid interest thereon and premium, if any, to maturity or to the date of redemption if redeemed prior to maturity, the Authority will faithfully perform and abide by all of the covenants, undertakings and provisions contained in the Indenture. O. The Preliminary Official Statement was deemed final by a duly authorized officer of the Authority prior to its delivery to the Underwriter, except for the omission of such information as is permitted to be omitted in accordance with paragraph (b)(1) of the Rule. The Authority hereby covenants and agrees that, within seven (7) business days from the date hereof, or upon reasonable written notice fi-can the Underwriter within sufficient time to accompany any confirmation requesting payment from any customers of the Underwriter, the Authority shall cause a final printed form of the Official Statement to be delivered to the Underwriter in sufficient quantity to comply with paragraph (b)(4) of the Rule and Rules G -12, G -15, G -32 and G -36 of the Municipal Securities Rulemaking Board. The Authority hereby approves the preparation and distribution of the Official Statement, consisting of the Preliminary Official Statement with such changes as are noted thereon and as may be made thereto, with the approval of Bond Counsel, Disclosure Counsel and the Underwriter, from time to time prior to the Closing Date. The Authority hereby ratifies any prior use of and authorizes the future use by the Underwriter, in connection with the offering and sale of the Bonds, of the Preliminary Official 7 9017305.0 Statement, the Official Statement, this Purchase Agreement and all information contained herein, and all other documents, certificates and written statements furnished by the Authority to the Underwriter in connection with the transactions contemplated by this Purchase Agreement. The execution and delivery of this Purchase Agreement by the Authority shall constitute a representation to the Underwriter that the representations and warranties contained in this Section 2 are true as of the date hereof. 3. [Reserved]. 4. Representations, Warranties and Covenants of the Community Facilities District. The Community Facilities District represents, warrants and covenants to the Underwriter on behalf of itself and the City of Lake Elsinore (the "City ") that: A. The City is duly organized and validly existing as a general law city under the Constitution and laws of the State of California and has duly authorized the formation of the Community Facilities District pursuant to resolutions duly adopted by the City Council (the "Community Facilities District Formation Resolution" and, together with the Community Facilities District Resolution of Issuance, the "Community Facilities District Resolutions ") and the Community Facilities District Act. The City Council, as the legislative body of the City and the Community Facilities District, has duly adopted the Community Facilities District Formation Resolution, and has caused to be recorded in the real property records of the County of Riverside, notices of special tax lien, and any required amendments thereof (collectively, the "Notice of Special Tax Lien') (the Community Facilities District Formation Resolution and Notice of Special Tax Lien being collectively referred to herein as the "Formation Documents "), and has duly adopted a Community Facilities District Resolution of Issuance on behalf of the Improvement Area. Each of its Formation Documents remains in full force and effect as of the date hereof and has not been amended. The Community Facilities District is duly organized and validly existing as a Community Facilities District under the laws of the State of California. The Community Facilities District has, and at the Closing Date will have, as the case may be, full legal right, power and authority: (i) to execute, deliver and perform its obligations under this Purchase Agreement and the Special Tax Bonds Fiscal Agent Agreement, and to carry out all transactions contemplated by each of such agreements; (ii) to issue, sell and deliver its Special Tax Bonds to the Authority as provided herein; (iii) to enter into the Continuing Disclosure Agreement; and (iv) to carry out, give effect to and consummate the transactions contemplated by the Formation Documents, the Special Tax Bonds Fiscal Agent Agreement, Special Tax Bonds, this Purchase Agreement and the Official Statement. This Purchase Agreement, the Special Tax Bonds Fiscal Agent Agreements, the Special 'tax Bonds and the Continuing Disclosure Agreement are collectively referred to herein as the "Community Facilities District Documents." B. ']'be Community Facilities District and the City, as applicable, have each complied, and will at the Closing Date be in compliance in all material respect's, with the Formation Documents and the Community Facilities District Documents, and any immaterial noncompliance by the Community Facilities District and the City, if any, will not impair the ability of the Community Facilities District and the City, as applicable, to carry out, give effect to or consummate the transactions contemplated by the foregoing. From and after the date of issuance of its Special Tax, the Community Facilities District will continue to comply with the covenants of the Community Facilities District contained in the Community Facilities District Documents. 8 9017305.0 C. Except as described in the Preliminary Official Statement, the Community Facilities District is nol, in any respect material to the transactions referred to herein or conl'emplated hereby, in breach of or in default under, any law or administrative rule or regulation of the State of California, the United States of America, or of any department, division, agency or instrumentality of either thereof, or under any applicable court or administrative decree or order, or under any loan agreement, note, resolution, indenture, contract, agreement or other instrument to which the Community Facilities District is a party or is otherwise subject or bound, and the performance of its obligations under the Community Facilities District Documents and compliance with the provisions of each thereof, or the performance of the conditions precedent to be performed by the Community Facilities District pursuant to this Purchase Agreement, will not conflict with or constitute a breach of or default under any applicable law or administrative rule or regulation of the State, the United States of America, or of any department, division, agency or instrumentality of either thereof, or under any applicable court or administrative decree or order, or under any loan agreement, note, resolution, indenture, contract, agreement or other instrument to which the Community Facilities District is a party or is otherwise subject or bound, in any manner which would materially and adversely affect the performance by the Community Facilities District of its obligations under the Community Facilities District Documents or the performance of the conditions precedent to be performed by the Community Facilities District pursuant to this Purchase Agreement. D. Except as may be required under the "blue sky" or other securities laws of any ,jurisdiction, all approvals, consent's, authorizations, elections and orders of, or filings or registrations with, any governmental authority, board, agency or commission having jurisdiction which would constitute a condition precedent to, or the absence of which would materially adversely affect, the performance by the Community Facilities District of its obligations under the Community Facilities District Documents, and the performance of the conditions precedent to be performed by the Community Facilities District pursuant to this Purchase Agreement, have been or will be obtained at the Closing Date and are or will be in full force and effect at the Closing Date. E. The Community Facilities District Documents conform as to form and tenor to the descriptions thereof contained in the Official Statement. F. The Special Tax Bonds are payable from the Special Tax Revenues and Redemption Revenues of the Improvement Area, as set forth in the Special Tax Bonds Fiscal Agent Agreement, the levy of which has been duly and validly authorized pursuant to the Community Facilities District Act and the Special Taxes within the Improvement Area will be fixed and levied in an amount which, together with other available funds, is required for the payment of the principal of, and interest on, the Special Tax Bonds when due and payable, all as provided in the Special Tax Bonds Fiscal Agent Agreement. The Community Facilities District has covenanted to cause the Special Taxes to be levied and collected at the same time and in the same manner as ordinary ad valorem property taxes. G. The Special Tax Bonds Fiscal Agent Agreement creates a valid pledge o'f, first lien upon and security interest in, the Special Tax Revenues and Redemption Revenues of the Improvement Area, and in the moneys in the Special Tax Fund established pursuant to the Special Tax Bonds Fiscal Agent Agreement, on the terms and conditions set forth in the Special Tax Bonds Fiscal Agent Agreement'. H. Except as disclosed in the Preliminary Official Statement, there are, to the best of the Community Facilities District's knowledge, no entities with outstanding assessment liens 9 9017305.0 against any of the properties within the Community Facilities District or which are senior to or on a parity with the Special Taxes of the Improvement Area referred to in paragraph (G) hereof. 1. The information contained in the Preliminary Official Statement and in the Official Statement (other than statements therein pertaining to the DTC and its book -entry system, as to which no view is expressed) is true and correct in all material respects and such information does not and shall not contain any untrue or misleading statement of a material fact or omit to state any material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. J. At the time of acceptance hereof there is and as of the Closing there will be no Action pending (notice of which has been served on the Community Facilities District) or to the best knowledge of the Comnnmity Facilities District or the City threatened, in which any such Action: (i) in any way questions the existence of the Community Facilities District or the titles of the officers of the Community Facilities District to their respective offices; (ii) affects, contests or seeks to prohibit, restrain or enjoin the issuance or delivery of the Bonds or the Special Tax Bonds or the payment or collection of Special Taxes or any amounts pledged or to be pledged to pay the principal of and interest on the Special Tax Bonds or the Bonds, or in any way contests or affects the validity of the Community Facilities District Documents or the consummation of the transactions on the part of the Community Facilities District contemplated thereby; (iii) contests the exemption of interest on the Special Tax Bonds from federal or State income taxation or contests the powers of the Community Facilities District which may result in any material adverse change relating to the financial condition of the Community Facilities District; or (iv) contests the completeness or accuracy of the Preliminary Official Statement or tine Official Statement or any supplement or amendment thereto or asserts that the Preliminary Official Statement or the Official Statement contained any untrue statement of a material fact or omitted to state any material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading; and as of the time of acceptance hereof there is and, as of the Closing Date, there will be no basis for any action, suit, proceeding, inquiry or investigation of the nature described in clauses (i) through (iv) of this sentence. IC Any certificate signed on behalf of the Community Facilities District by any Officer or employee of the Community Facilities District authorized to do so shall be decmed a representation and warranty by the Community Facilities District to the Authority and the Underwriter on behalf of itself and the Community Facilities District as to the statements made therein. 11. At or prior to the Closing the Community Facilities District, will have duly authorized, executed and delivered the Continuing Disclosure Agreement in substantially the form attached as Appendix E to the Official Statement. Based upon a review of its previous undertakings, and except as disclosed in the Preliminary Official Statement, the District has not failed to comply in all respects with any previous Undertakings with regard to the Rule to provide annual reports or notices of material events in the last five years. M. The Community Facilities District will apply the proceeds of its Special Tax Bonds in accordance with the Special Tax Bonds Fiscal Agent Agreement, 10 9017305.0 N. Between the date of' this Purchase Agreement and the date of Closing, the Community Facilities District will not offer or issue any bonds, notes or other obligations for borrowed money not previously disclosed to the Underwriter. The execution and delivery of this Pruchase Agreement by the Community Facilities District shall constitute a representation by the Community Facilities District to the Authority and the Underwriter that the representations and warranties contained in this Section 4 with respect to the Community Facilities District are true as of the date hereof. 5. Conditions to the Obligations of the Underwriter. The obligation of the Underwriter to accept delivery of and pay for the Bonds on the Closing Date shall be subject, at the option of the Underwriter, to the accuracy in all material respects of the representations and warranties on the part of the Authority and the Community Facilities District contained herein, to the accuracy in all material respects of the statements of the officers and other officials of the Authority and the Community Facilities District made in any certificates or other documents furnished pursuant to the provisions hereof, to the performance by the Authority and the Community Facilities District of their obligations to be performed hereunder at or prior to the Closing Date, and in reliance upon the representations and covenants of Ryland Homes of California, Inc., a Delaware corporation ( "Ryland ") and Meritage Homes of California, Inc., a California corporation ( "Meritage ", and together with Ryland, the "Developers ") contained in the certificates delivered as of the Closing Date, and to the following additional conditions: A. At the Closing Date, the Authority Resolution, the Community Facilities District Resolutions, the Authority Documents and the Community Facilities District Documents shall be in full force and effect, and shall not have been amended, modified or supplemented, except as may have been agreed to in writing by the Underwriter, and there shall have been taken in connection therewith, with the issuance of the Bonds and with the Special Tax Bonds, and with the transactions contemplated thereby, and by this Purchase Agreement, all such actions as, in the opinion of Bond Counsel, shall be necessary and appropriate. B. At the Closing Date, except as was described in the Preliminary Official Statement, the Authority shall not be, in any respect material to the transactions referred to herein or contemplated hereby, in breach of or in default under, any law or administrative rule or regulation of the State of California, the United States of America, or of any department, division, agency or instrumentality of either thereof, or under any applicable court or administrative decree or order, or under any loan agreement, note, resolution, indenture, contract, agreement or other instrument to which the Authority is a party or is otherwise subject or bound, and the performance by the Authority of its obligations under the Bonds, the Authority Documents, the Authority Resolution, this Purchase Agreement and any other instruments contemplated by any of such documents, and compliance with the provisions of each thereof, will not conflict with or constitute a breach of or default under any applicable law or administrative rule or regulation of the State of California, the United States of America, or of any department, division, agency or instrumentality of either thereof, or under any applicable court or administrative decree or order, or under any loan agreement, note, resolution, indenture, contract, agreement or other instrument to which the Authority is a party or is otherwise subject or bound, in any manner which would materially and adversely affect the performance by the Authority of its obligations under the Authority Documents, the Bonds or the Authority Resolution. C. At the Closing Date, except as described in the Preliminary Official Statement, the City shall not be, in any respect material to the transactions referred to herein or 9017305.0 contemplated hereby, in breach of or in default under, any law or administrative rule or regulation of the State of California, the United States of America, or of any department, division, agency or instrumentality of either thereof, or raider any applicable court or administrative decree or order, or under any loan agreement, note, resolution, indenture, contract, agreement or other instrument to which the City is a party or is otherwise subject or bound, and the performance of the conditions precedent to be performed hereunder will not conflict with or constitute a breach of or default under any applicable law or administrative rule or regulation of the State of California, the United States of America, or of any department, division, agency or instrumentality of either thereof, or under any applicable court or administrative decree or order, or under any loan agreement, note, resolution, indenture, contract, agreement or other instrument to which the City is a party or is otherwise subject or bound, in any manner which would materially and adversely affect the performance of the conditions precedent to be performed by the City hereunder. D. At the Closing Date, except as described in the Preliminary Official Statement, the Community Facilities District shall not be, in any respect material to the transactions referred to herein or contemplated hereby, in breach of or in default under, any law or administrative rule or regulation of the State of California, the United States of America, or of any department, division, agency or instrumentality of either thereof, or under any applicable court or administrative decree or order, or under any loan agreement, note, resolution, indenture, contact, agreement or other instrument to which the Community Facilities District is a party or is otherwise subject or bound, and the performance by the Community Facilities District of its obligations under its Special Tax Bonds, the Community Facilities District Resolutions, the Special Tax Bonds Fiscal Agent Agreement, and any other instruments contemplated by any of such documents, and compliance with the provisions of each thereof, or the performance of the conditions precedent to be performed hereunder, will not conflict with or constitute a breach of or default under any applicable law or administrative rule or regulation of the State of California, the United States of America, or of any department, division, agency or instrumentality of either thereof, or under any applicable court or administrative decree or order, or under any loan agreement, note, resolution, indenture, contract, agreement or other instrument to which the Community Facilities District is a party or is otherwise subject or bound, in any manner which would materially and adversely affect the performance by the Community Facilities District of its obligations under the Special Tax Bonds Fiscal Agent Agreement, the Special Tax Bonds issued by the Community Facilities District or the performance of the conditions precedent to be performed by the Community Facilities District hereunder. E. The information contained in the Official Statement is, as of the Closing Date and as of the date of any supplement or amendment thereto pursuant hereto, true and correct in all material respects and does not, as of the Closing Date or as of the date of any supplement or amendment thereto, contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in the Tight of the circumstances under which they were made, not misleading. F. Between the date hereof and the Closing Date, the market price or marketability, at the initial offering prices set forth on the cover page of the Official Statement, of the Bonds or the ability of the Underwriter to enforce contracts for the sale of the Bonds, shall not have been materially adversely affected, in thejudgment of the Underwriter (evidenced by a written notice to the Authority and the Community Facilities District terminating the obligation of the Underwriter to accept delivery of and pay for the Bonds), by reason of any of the following: 12 9017305.0 I . Legislation introduced in or enacted (or resolution passed) by the Congress of the United States of America or recommended to the Congress by the President of the United States, the Department of the Treasury, the Internal Revenue Service, or any member of Congress, or favorably reported for passage to either House of Congress by any committee of such House to which such legislation had been referred for consideration, or a decision rendered by a court established under Article III of the Constitution of the United States of America or by the Tax Court of the United States of America, or an order, ruling, regulation (final, temporary or proposed), press release or other form of notice issued or made by or on behalf of the Treasury Department of the United States of America or the Internal Revenue Service, with the purpose or effect, directly or indirectly, of imposing federal income taxation upon such interest as would be received by any owners of the Bonds beyond the extent to which such interest is subject to taxation as of the date hereof; 2. Legislation introduced in or enacted (or resolution passed) by the Congress or an order, decree or injunction issued by any court of competent jurisdiction, or an order, ruling, regulation (final, temporary or proposed), press release or other form of notice issued or made by or on behalf of the Securities and Exchange Commission, or any other governmental agency having jurisdiction of the subject matter, to the effect that obligations of the general character of the Bonds or the Special Tax Bonds, including any or all underlying arrangements, are not exempt from registration under or other requirements of the Securities Act of 1933, as amended, or that the Indenture or the Special Tax Bonds Fiscal Agent Agreement are not exempt from qualification under or other requirements of the Trust Indenture Act of 1939, as amended, or that the issuance, offering or sale of obligations of the general character of the Bonds or the Special Tax Bonds, including any or all underlying arrangements, as contemplated hereby or by the Official Statement or otherwise is or would be in violation of the federal securities laws as amended and then in effect; 3. A general suspension of trading in securities oil the New York Stock Exchange, or a general banking moratorium declared by Federal, State of New York or State of California officials authorized to do so; 4. The introduction, proposal or enactment of any amendment to the Federal or California Constitution or any action by any Federal or California court, legislative body, regulatory body or other authority materially adversely affecting the tax status of the Authority or the Community Facilities District, their property, income, securities (or interest thereon), the validity or enforceability of Special Taxes, or the ability of the Authority to purchase any Special Tax Bonds as contemplated by the Special Tax Bonds Fiscal Agent Agreement and the Official Statement; 5. Any event occurring, or information becoming known which, in the judgment of the Underwriter, makes untrue in any material respect any statement or information contained in the Preliminary Official Statement or in the Official Statement, or has the effect that the Preliminary Official Statement or the Official Statement contains any untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading; 6. Any national securities exchange, the Comptroller of the Currency, or any other governmental authority, shall impose as t0 the Bonds, the Special Tax Bonds or obligations of the general character of the Bonds or the Special Tax Bonds, any material restrictions not now in force, or increase materially those now in force, with respect to the extension of credit by, or the charge to the net capital requirements of, the Underwriter; 13 9017305.v1 7. There shall have occurred any material outbreak or escalation of hostilities or other calamity or crisis the effect of which on the financial markets of the United States is such as to make it impracticable, in the judgment of the Underwriter, following consultation with the Authority, to sell the Bonds; or 8. Any proceeding shall have been commenced or be threatened in writing by the Securities and Exchange Commission against the City or the Authority. 9. The commencement of any Action described in Sections 2(F) or 4(J). G. At or prior to the Closing Date, the Underwriter shall have received a counterpart original or certified copy of the following documents, in each case satisfactory in form and substance to the Underwriter: 1. The Official Statement, executed on behalf of the Authority by its Executive Director or other authorized officer; 2. The Indenture, duly executed and delivered by the Authority and the Trustee, and the Special Tax Bonds Fiscal Agent Agreement, duly executed and delivered by the Community Facilities District and the Fiscal Agcnt; 3. The Authority Resolution, together with a certificate of the Secretary of the Authority, dated as of the Closing Date, to the effect that such resolution is a true, correct and complete copy of the resolution duly adopted by the Board of Directors of tine Authority; 4. The Community Facilities District Resolution, the Community Facilities District Documents and the Formation Documents, together with a certificate dated as of the Closing Date of the City Clerk to the effect that the Community Facilities District Resolutions are true, correct and complete copies of the ones duly adopted by the City Council; 5. The Continuing Disclosure Agreement executed and delivered by the Community Facilities District; 6. An unqualified approving opinion for the Bonds, dated the Closing Date and addressed to the Authority and the Community Facilities District, of Bond Counsel, to the effect that the Bonds are the valid, legal and binding obligations of the Authority and that the interest thereon is excluded from gross income for federal income tax purposes and exempt from personal income taxes of the State of California, in substantially the form included as Appendix D to the Official Statement, together with a letter of Bond Counsel, dated the Closing Date and addressed to the Underwriter, to the effect that such opinion addressed to the Authority and the Community Facilities District may be relied upon by the Underwriter to the same extent as if such opinion was addressed to it; 7. A supplemental opinion or opinions, dated the Closing Date and addressed to the Underwriter, of Bond Counsel, to the effect that: (i) this Purchase Agreement has been duly authorized, executed and delivered by the Authority and the Community Facilities District and, assuming due authorization, execution and delivery by the other parties thereto, constitutes the legal, valid and binding agreement of the Authority and the Community Facilities District and is enforceable in 14 9017305.0 accordance with its terms, except to the extent that enforceability may be limited by moratorium, bankruptcy, reorganization, insolvency or other similar laws affecting creditors' rights generally or by the exercise ofjudicial discretion in accordance with general principles of equity or otherwise in appropriate cases and by limitations on legal remedies against public agencies in the State; (ii) the Continuing Disclosure Agreement has been duly authorized, executed and delivered by the Community Facilities District and, assuming due authorization, execution and delivery by the other party thereto, constitutes the legal, valid and binding agreement of the Community Facilities District by and is enforceable in accordance with its terms, except to the extent that enforceability may be limited by moratorium, bankruptcy, reorganization, insolvency or other similar laws affecting creditors' rights generally or by the exercise of judicial discretion in accordance with general principles of equity or otherwise in appropriate cases; (iii) the Bonds and the Special Tax Bonds are not subject to the registration requirements of the Securities Act of 1933, as amended, and the Indenture and the Special Tax Bonds Fiscal Agent Agreement are exempt from qualification under the Trust Indenture Act of 1939, as amended; (iv) the information contained in the Official Statement on the cover and under the captions "THE BONDS" (other than the captions "Estimated Debt Service Schedules; Bonds and District Bonds" and "Debt Service Coverage for the Bonds "), "SECURITY FOR THE BONDS," "LEGAL MATTERS —Tax Matters," " —Legal Opinion" and in Appendices A, D and E to the Official Statement, are accurate insofar as such statements purport to summarize certain provisions of the Bonds, the Special Tax Bonds, the Indenture, the Special Tax Bonds Fiscal Agent Agreement, Bond Counsel's final approving opinion, the Community Facilities District Act, the JPA Act and the Bond Law; (v) The Special Tax Bonds have been duly and validly authorized by the Community Facilities District, and are legal, valid and binding obligations of the Community Facilities District, enforceable in accordance with their terms and the terms of the Special Tax Bonds Fiscal Agent Agreement, except to the extent that enforceability may be limited by moratorium, bankruptcy, reorganization, insolvency or other similar laws affecting creditor' rights generally or by the exercise of judicial discretion in accordance with general principles of equity or otherwise ill appropriate cases; (vi) the Community Facilities District Documents have been duly and validly authorized, executed and delivered by the Community Facilities District and constitute the legal, valid and binding obligations of the Community Facilities District, enforceable in accordance with their respective terms, except as enforcement thereof may be limited by bankruptcy, insolvency or other laws affecting enforcement of creditors' rights and by the application of equitable principles if equitable remedies are sought. 8. A letter, dated the Closing Date and addressed to the Underwriter, of Disclosure Counsel, to the effect that such counsel is not passing upon and has not undertaken to determine independently or to verify the accuracy or completeness of the statements contained in the Official Statement, and is, therefore, unable to make any representation to the Underwriter in that regard, but on the basis of its participation in conferences with representatives of the Authority, the City, the City Attorney, Bond Counsel, Stephen G. White, MAI, Albeit A. Webb Associates, Urban 15 9017305.0 Futures Incorporated, representatives of the Underwriter and others, during which conferences the content of the Official Statement and related matters were discussed, and its examination of certain documents, and, in reliance thereon and based on the information made available to it in its role as Disclosure Counsel and its understanding of applicable law, Disclosure Counsel advises the Underwriter as a matter of fact, but not opinion, that no information has come to the attention of the attorneys in the firm working on such matter which has led them to believe that the Official Statement (excluding therefrom the financial and statistical data, forecasts, charts, numbers, estimates, projections, assumptions and expressions of opinion included in the Official Statement, information regarding DTC and its book entry system and the information set forth in Appendices A, B, C, D and E. as to all of which no opinion is expressed) as of its date and as of the Closing Date contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading, and advising the Underwriter that, other than reviewing the various certificates and opinions required by this Purchase Agreement regarding the Official Statement, Disclosure Counsel has not taken any steps since the date of the Official Statement to verify the accuracy of the statement's contained in the Official Statement; 9. A certificate, dated the Closing Date and signed by the Executive Director of the Authority or other authorized officer, to the effect that: (i) the representations and warranties of the Authority contained herein are true and correct in all material respects on and as of the Closing Date with the same effect as if made on the Closing Date; (ii) to the best knowledge of such officer, no event has occurred since the date of the Official Statement which should be disclosed in the Official Statement for the purpose for which it is to be used or which it is necessary to disclose therein in order to make the statements and information therein not misleading in any material respect; and (iii) the Authority has complied with all the agreements and satisfied all the conditions on its part to be performed or satisfied under the Authority Documents and the Authority Resolution at or prior to the Closing Date; M A certificate dated the Closing Date and signed by an authorized representative of the Community Facilities District or an authorized designee, on behalf of the Community Facilities District to the effect that: (i) the representations and warranties made by the Community Facilities District contained herein are true and correct in all material respects on and as of the Closing Date with the same effect as if made on the Closing Date: (ii) to the best knowledge of such officer, no event has occurred since the date of the Official St'at'ement which should be disclosed in the Official Statement for the purpose for which it is to be used or which it is necessary to disclose therein in order to make the statements and information therein not misleading in any material respect; (iii) the Community Facilities District has complied with all the agreement's and satisfied all the conditions on its part to be satisfied under this Purchase Agreement, the Community Facilities District Resolutions, the Community Facilities District Documents and the Official Statement at or prior to the Closing Date; and (iv) all information in the Official Statement relating to the Community Facilities District (other than information therein provided by the Special Tax Consultant) is true and correct in all material respect's as of the date of the Official Statement and as of the Closing Date; 11. [Reserved]; 16 9017305.0 12. An opinion of the City Attorney of the City, as counsel to the Authority, dated the date of Closing and addressed to the Underwriter, the Authority and the Community Facilities District, to the effect that: (i) The Authority is a public body, corporate and politic, duly organized and validly existing as a joint powers authority under the laws of the State of California; (ii) The Authority has full legal power and lawful authority to enter into the Authority Documents and to carry out the transactions contemplated under the Authority Documents; (iii) The Authority Resolution was duly adopted at a meeting of the governing body of the Authority, which was called and held pursuant to law and with all public notice required by law and at which a quorum was present and acting throughout, and the Authority Resolution is in fill force and effect and has not been modified, amended, rescinded or repealed since the date of its adoption; (iv) The Authority Documents have been duly authorized, executed and delivered by the Authority and constitute the legal, valid and binding obligations of the Authority enforceable against the Authority in accordance with their terms, subject to bankruptcy, insolvency, reorganization, moratorium and other similar laws affecting creditors' rights, to the application of equitable principles where equitable remedies are sought and to the exercise of judicial discretion in appropriate cases; (v) To the best knowledge of such counsel, the execution and delivery of the Authority Documents and the Official Statement and compliance with the provisions thereof under the circumstances contemplated thereby: (a) do not in any material respect conflict with or constitute on the part of the Authority a breach of or default under any agreement or other instrument to which the Authority is a party or by which it is bound; and (b) do not and will not in any material respect or constitute on the part of the Authority a violation, breach of or default under any court order or consent decree to which the Authority is subject; (vi) The Authority Documents and the Official Statement have been duly authorized by the Board of Directors of the Authority and executed on its behalf by an authorized officer of the Authority; (vii) Except as may be stated in the Official Statement, there is no action, suit, proceeding or investigation before or by any coot, public board or body pending (notice of which has been served on the Authority) or, to the City Attorney's knowledge, threatened wherein an unfavorable decision, ruling or finding would: (a) affect the creation, organization, existence or powers of the Authority, or the titles of its members and officers to their respective offices; (b) enjoin or restrain the issuance, sale and delivery of the Bonds, the collection of the Revenues and the Redemption Revenues or the pledge thereof; (c) in any way question or affect any of the rights, powers, duties or obligations of the Authority with respect to the Revenues or the moneys and assets pledged or to be pledged to pay the principal of, premium, if any, or interest on the Bonds; (d) in any way question or affect any authority for the issuance of the Bonds, or the validity or enforceability of the Bonds; or (e) in any way question or affect the Authority Documents or the transactions contemplated by the Authority Documents, the Official Statement, or any activity regarding the Bonds; 17 9017305.0 13. An opinion of the City Attorney of the City, dated the date of Closing and addressed to the Underwriter, the Authority and the City, to the effect that: (i) The City is a general law city, corporate and politic, duly organized and existing under the Constitution and Taws of the State of California; (ii) The Community Facilities District Resolutions have been duly adopted at meetings of the City Council, which were called and held pursuant to law and with all public notice required by law and at which a quorum was present and acting throughout, and the Community Facilities District Resolutions are in full force and effect and have not been modified, amended, rescinded or repealed since tine respective dates of their adoption; (iii) ']'he Conmounity Facilities District Documents and tine Official Statement have been duly authorized, executed and delivered by the City and constitute the legal, valid and binding obligations of the Community Facilities District enforceable against the Community Facilities District in accordance with their terms, subject to bankruptcy, insolvency, reorganization, moratorium and other similar laws affecting creditors' rights, to the application of equitable principles where equitable remedies are sought and to the exercise ofjudicial discretion in appropriate cases; (iv) Except as may be stated in the Official Statement, there is no action, suit, proceeding or investigation before or by any court, public board or body pending (notice of which has been sewed on the City or t11e Community Facilities District) or, to such counsel's knowledge, threatened wherein an unfavorable decision, ruling or finding would: (a) affect the creation, organization, existence or powers of the City, or the titles of its members and officers to their respective offices; or (b) affect the validity of the Community Facilities District Documents or restrain or enjoin the repayment of the Special Tax Bonds or in any way contest or affect the validity of the Community Facilities District Documents or contest the authority of the City to enter into or perform its obligations under any of the Community Facilities District Documents or under which a determination adverse to the City would have a material adverse effect upon the financial condition or the revenues of the City, questions the right of the Community Facilities District to use Special Taxes levied within the Improvement Area for the repayment of the Special Tax Bonds or affects in any mamner the right or ability of the Community Facilities District to collect or pledge the Special Taxes levied within the Improvement Area for the repayment of the Special Tax Bonds; 14. Written confirmation from in a form acceptable to the Underwriter that, other than as disclosed in the Official Statement, the Authority and the City and its community facilities districts have timely filed materially complete continuing disclosure reports with respect to the Authority's and the City's and its community facilities districts continuing disclosure requirements relating to Rule 15c2 -12 in each of the last five fiscal years; and 15. A certificate dated the Closing Date from Stephen G. White, MAI addressed to the Authority, the Community Facilities District and the Underwriter to the effect that the statements in the Official Statement provided by Stephen G. White, MAI concerning Special Taxes in the Improvement Area and all information supplied by it for use hn the Official Statement were as of the date of the Official Statement and are as of the Closing Date true and correct, and do not contain any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading M.1 9017305.0 16. A certificate dated the Closing Date from Albert A. Webb Associates addressed to the Authority, the Community Facilities District and the Underwriter to the effect that: (i) the Special Tax if collected in the maximum amounts permitted pursuant to the Rate and Method of Apportionment of Special Taxes of the Improvement Area as of the Closing Date would generate at least 110% of the annual debt service payable with respect to the related issue of Special Tax Bonds plus budgeted administrative expenses in each year, based on such assumptions and qualifications as shall be acceptable to the Underwriter; and (ii) the statements in the Official Statement provided by Albert A. Webb Associates concerning Special Taxes in the Improvement Area and all information supplied by it for use in the Official Statement were as of the date of the Official Statement and are as of the Closing Date true and correct, and do not contain any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading; 17. Certified copies of the general resolution of the Trustee and Fiscal Agent authorizing the execution and delivery of certain documents by certain officers of the Trustee and Fiscal Agent, which resolution authorizes the execution of the Indenture, the Special Tax Bonds Fiscal Agent Agreement and the authentication of the Bonds and the Special Tax Bonds; 18. A certificate of the Trustee and the Fiscal Agent, addressed to the Underwriter, the Authority and the Community Facilities District dated the Closing Date, to the effect that: (i) the Trustee and the Fiscal Agent are authorized to carry out corporate trust powers, and have full power and authority to perform their respective duties under the Indenture, the Special Tax Bonds Fiscal Agent Agreement and the Developer Continuing Disclosure Agreement (as defined below); (ii) the Trustee and the Fiscal Agent are duly authorized to execute and deliver the Indenture, the Special Tax Bonds Fiscal Agent Agreement and the Developer Continuing Disclosure Agreement, to accept the obligations created by the Indenture, the Special Tax Bonds Fiscal Agent Agreement and the Developer Continuing Disclosure Agreement and to authenticate the Bonds and the Special Tax Bonds pursuant to the terms of the Indenture and the Special Tax Bonds Fiscal Agent Agreement, respectively; (iii) no consent, approval, authorization or other action by any governmental or regulatory authority having jurisdiction over the Trustee and the Fiscal Agent that has not been obtained is or will be required for the authentication of the Bonds or the Special Tax Bonds or the consummation by the Trustee and the Fiscal Agent of the other transactions contemplated to be performed by the Trustee and the Fiscal Agent in connection with the authentication of the Bonds and the Special Tax Bonds and the acceptance and performance of the obligations created by the Indenture and the Special Tax Bonds Fiscal Agent Agreement; and (iv) to the best of its knowledge, compliance with the terms of the Indenture, the Special Tax Bonds Fiscal Agent Agreement and the Developer Continuing Disclosure Agreement will not conflict with, or result in a violation or breach o'f, or constitute a default under, any loan agreement, indenture, bond, note, resolution or any other agreement or instrument to which the Trustee and Fiscal Agent is a party or by which it is bound, or any law or any rule, regulation, order or decree of any court or governmental agency or body having jurisdiction over the Trustee and Fiscal Agent or any of its activities or properties; 19. An opinion of counsel to the Trustee and the Fiscal Agent dated the Closing Date, addressed to the Underwriter, the Authority and the Conmumity Facilities District to the effect that each of the Trustee and the Fiscal Agent is a national banking association duly organized and validly existing under the laws of the United States having full power and being qualified to enter into, accept and agree to the provisions of the Indenture and the Special Tax Bonds Fiscal Agent Agreement, and that each of such documents has been duly authorized, executed and 19 9017305.v1 delivered by the Trustee or the Fiscal Agent, as applicable, and, assuming due execution and delivery by the other parties thereto, constitutes the legal, valid and binding obligation of the Trustee or the Fiscal Agent, as applicable, enforceable in accordance with its terms, subject to bankruptcy, insolvency, reorganization, moratorium and other laws affecting the enforcement of creditors' rights in general and except as such enforceability may be limited by the application of equitable principles if equitable remedies are sought; 20. A certificate of the Authority dated the Closing Date, in a form acceptable to Bond Counsel and the Underwriter, that the Bonds are not arbitrage bonds within the meaning of Section 148 of the Internal Revenue Code of 1986, as amended; 21. An opinion of counsel to Ryland Homes of California, Inc. ( "Ryland "), dated the date of the Closing, addressed to the Underwriter, the Authority and the Community Facilities District, in substantially the form set forth in Exhibit C hereto. 22. An opinion of counsel to Meritage Homes of California, Inc. ( "Meritage "), dated the date of the Closing, addressed to the Underwriter, the Authority and the Community Facilities District, in substantially the form set forth in Exhibit D hereto. 23. A Letter of Representations of Ryland and of Meritage, each dated the date of printing the Preliminary Official Statement, substantially in the applicable form attached hereto as Exhibit E. 24. A Closing Certificate of Ryland and of Meritage, each dated the date of the Closing, substantially in the applicable form attached hereto as Exhibit F or as such Closing Certificate may be modified with the approval of the Underwriter and Disclosure Counsel. 25. Representation by counsel to Ryland and Meritage regarding review of computerized searches over the Internet of the (i) Superior Coma records (civil filings only) of the Counties of Los Angeles, Orange, Riverside, San Bernardino, San Diego, and (ii) United States Bankruptcy Court records of the Central District of California, Eastern District of California and Southern District of California have been performed as of a date within four days of the preclosing and that no material filings which have not previously been disclosed appear in such records. 26. The Continuing Disclosure Agreement of Ryland (the "Developer Continuing Disclosure Agreement "), substantially in the form attached to the Preliminary Official Statement as Appendix __. 27. Copies of the Letter of Credit delivered by each of Ryland and Meritage. 28. An opinion of Nossaman LLP, counsel to the Underwriter ( "Underwriter's Counsel "), dated the date of Closing and addressed to the Underwriter in form and substance acceptable to the Underwriter; and 29. Such additional legal opinions, certificates, instruments and other documents as the Underwriter may reasonably request to evidence the truth and accuracy, as of the date hereof and as of the Closing Date, of the material representations and warranties of the Authority and the Community Facilities District contained herein, and of the statements and 20 9017305.0 information contained in the Official Statement and the due performance or satisfaction by the Authority and the Community Facilities District at or prior to the Closing of all agreements then to be performed and all conditions then to be satisfied by the Community Facilities District and the Authority in connection with the transactions contemplated hereby and by the Special Tax Bonds Fiscal Agent Agrecment, the Indenture and the Official Statement. If the Authority shall be unable to satisfy the conditions to the obligations of the Underwriter to purchase, accept delivery of and pay for the Bonds contained in this Purchase Agreement, or if the obligations of the Underwriter to purchase, accept delivery of and pay for the Bonds shall be terminated for any reason permitted by this Purchase Agreement, this Purchase Agreement shall terminate and neither the Authority nor the Underwriter shall be under any further obligation hereunder, except that the respective obligations of the Underwriter and the Authority set forth in Section 6 hereof shall continue in full force and effect. 6. Conditions to the Obligations of the Authority. A. The obligation of the Authority to accept delivery of and pay for the Special Tax Bonds on the Closing Date shall be subject, at the option of the Authority, to the sale of the Bonds, to the accuracy in all material respects of the representations and warranties on the part of the Community Facilities District contained herein, to the accuracy in all material respects of the statements of the officers and other officials of the City and the Community Facilities District made in any certificates or other documents furnished pursuant to the provisions hereof and to the performance by the Community Facilities District of its obligations to be performed hereunder and the conditions precedent to be performed by the Community Facilities District pursuant hereto at or prior to the Closing Date. The obligations of the Authority shall be further subject to the satisfaction of the conditions contained in Section 5 Of this Purchase Agreement. B. If the Community Facilities District or the Authority shall be unable to satisfy the conditions to the obligations of the Authority to purchase, accept delivery of and pay for the Special Tax Bonds contained in this Purchase Agreement, or if the obligations of the Authority to purchase, accept delivery of and pay for the Special Tax Bonds shall be terminated for any reason permitted by this Purchase Agreement, this Purchase Agreement shall terminate and neither the Authority nor the Community Facilities District shall be under any 'further obligation hereunder, except that the respective obligations of the City, the Community Facilities District and the Authority set forth in Section 7 hereof shall continue in full force and effect. 7. Expenses. Whether or not the transactions contemplated by this Purchase Agreement are consummated, the Underwriter shall be under no obligation to pay, and the Authority shall pay only from the proceeds of the Bonds, or cause the City and the Conununity Facilities District to pay out of the proceeds of the Special Tax Bonds or any other legally available funds of the City, the Community Facilities District or the Authority, but only as the Authority and such other party providing such services may agree, all expenses and costs of the Authority incident to the performance of its obligations in connection with the authorization, execution, sale and delivery of the Bonds to the Underwriter, including, without limitation, printing costs, rating agency fees and charges, initial fees of the Trustee, including fees and disbursements of their counsel, if any, fees and disbursements of Bond Counsel, Disclosure Counsel [and counsel to the Underwriter] and other professional advisors employed by the Authority, costs of preparation, printing, signing, transportation, delivery and safekeeping of the Bonds and for expenses (included in the expense component of the spread) incurred by the Underwriter on behalf of the Authority's employees which 21 9017305.0 are incidental to implementing this Purchase Agreement, including, but not limited to, meals, transportation, lodging, and entertainment of those employees. The Underwriter shall pay all out -of- pocket expenses of the Underwriter, including, without limitation, advertising expenses, the California Debt and Investment Advisory Commission fee, CUSIP Services Bureau charges, regulatory fees imposed on new securities issuers and any and all other expenses incurred by the Underwriter in connection with the public offering and distribution of the Bonds. 8. Undertakings of the Authority. The Authority agrees: (a) to inform the Underwriter, from time to time, upon the reasonable request of the Underwriter, of the amount then on deposit in Reserve Account, the Cash Flow Management Fund and the Delinquency Management Funds (as defined in the Official Statement); and (b) to make available to the Underwriter, upon reasonable request of the Underwriter, at the expense of the Authority or the City, sufficient copies of its audited financial statements, if any, and any resolutions of its legislative body with respect to the Authority Resolution, the Bonds, the Special Tax Bonds, the Indenture, the Official Statement, any amendments or supplements thereto, and other documents relating to the Bonds or the Special Tax Bonds and pertaining to the City, the Authority or the Community Facilities District adopted or executed, as the case may be, after the Closing Date, to the extent that such documents are publicly available. 9. Notices. Any notice of other communication to be given to the Community Facilities District or the Authority under this Purchase Agreement may be given by delivering tine same in writing to the City of Lake Elsinore, 130 South Main Street, Lake Elsinore, California 92530, Attention: Director of Administrative Services: any notice or other communication to be given to the Underwriter under this Purchase Agreement may be given by delivering the same in writing to Stifel, Nicolaus & Company, Incorporated, 515 South Figueroa Street, Suite 1800, Los Angeles, California 90071, Attention: John Kim. 10. Parties In Interest. This Purchase Agreement is made solely for the benefit of the Authority, the Community Facilities District and Underwriter (including any successors or assignees of the Underwriter) and no other person shall acquire or have any right hereunder or by virtue hereof. 11. Survival of Representations and Warranties. The representations and warranties of the Authority and the Community Facilities District under this Purchase Agreement shall not be deemed to have been discharged, satisfied or otherwise rendered void by reason of the Closing and regardless of any investigations made by or on behalf of the Underwriter (or statements as to the results of such investigations) concerning such representations and statements of the Community Facilities District or the Authority and regardless of delivery of and payment for the Bonds. 12. Execution in Counterparts. This Purchase Agreement may be executed by the parties hereto in separate counterparts, each of which when so executed and delivered shall be an original, but al I such counterparts shall together constitute but one and the same instrument. 13. Effective. This Purchase Agreement shall become effective and binding upon the respective parties hereto upon the execution of the acceptance hereof by the Authority and the Community Facilities District and shall be valid and enforceable as of the time of such acceptance. 14. No Prior Agreements. This Purchase Agreement supersedes and replaces all prior negotiations, agreements and understanding among the parties hereto in relation to the sale of the Bonds by the Authority and the sale of the Special Tax Bonds to the Authority. 22 9017305.0 15. Governing Law. This Purchase Agreement shall be governed by the laws of the State of California. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] 23 9017305.0 16. Effective Date. This Purchase Agreement shall become effective and binding upon the respective parties hereto upon the execution of the acceptance hereof by the Authority and the Community Facilities District and shall be valid and enforceable as of the time of such acceptance. Very truly yours, STIFLE, NICOLAUS & COMPANY, INCOPORATED By: Its: Authorized Officer ACCEPTED AS OF 2015 at n.: LAKE ELSINORE PUBLIC FINANCING AUTHORITY By: Its: Executive Director CITY OF LAKE ELSINORE COMMUNITY FACILITIES DISTRICT NO. 2006 -1 0 City Manager 24 9017305.0 EXHIBIT A LAKE ELSINORE PUBLIC FINANCING AUTHORITY LOCAL AGENCY REVENUE BONDS (SUMMERLY IA B), 2015 SERIES A Schedule of Bond Maturities, Principal Amounts and Interest Rates Maturity Date (September I) Principal Amount Interest Rate Yield 'T'erm Bonds. Yield to call date of September 1, at par. A -1 9017305.x1 EXHIBIT B LAKE ELSINORE PUBLIC FINANCING AUTHORITY LOCAL AGENCY REVENUE BONDS (SUMMERLY IA B), 2015 SERIES A List of Special Tax Bonds Special Tax Bonds B -1 9017305.vl Principal Amount EXHIBIT B -1 CITY OF LAKE ELSINORE COMMUNITY FACILITIES DISTRICT NO. 2006 -1 (SUMMERLY) SPECIAL TAX BONDS, 2015 SERIES (IMPROVEMENT AREA B) Schedule of Bond Maturities, Principal Amounts and Interest Rates Maturity Date (September I) Principal Amount Interest Rate B -1 -1 9017305.0 EXHIBIT C RYLAND HOMES OF CALIFORNIA, INC., COUNSEL'S OPINION (To be attached) W 9017305.0 EXHIBIT I) MERITAGE HOMES OF CALIFORNIA, INC., COUNSEL'S OPINION (To be attached) D -1 9017305.v1 EXHIBIT E FORM OF RYLAND HOMES OF CALIFORNIA, INC., AND MERITAGE HOMES OF CALIFORNIA, INC., LETTERS OF REPRESENTATION (See attached) E -1 9017305.v1 LAKE ELSINORE PUBLIC FINANCING AUTHORITY LOCAL AGENCY REVENUE BONDS (SUMMERLY IA B) 2015 SERIES A LETTER OF REPRESENTATIONS — RYLAND HOMES OF CALIFORNIA, INC. 2015 Lake Elsinore Public Financing Authority 130 South Main Street Lake Elsinore, California 92530 City of Lake Elsinore Community Facilities District No. 2006 -1 130 South Main Street Lake Elsinore, California 92530 Stifel, NicolauS & Company, Incorporated 515 South Figueroa Street, Suite 1800 Los Angeles, California 90071 Ladies and Gentlemen: Reference is made to the Lake Elsinore Public Financing Authority Local Agency Revenue Bonds (Summerly IA B), 2015 Series A (the "Bonds ") and to the Bond Purchase Agreement to be entered into in connection therewith (the "Bond Purchase Agreement "). This Letter of Representations (the "Letter of Representations ") is delivered pursuant to and in satisfaction of Section 0(23) the Bond Purchase Agreement. Capitalized terms used herein and not otherwise defined have the meanings ascribed to them in the Bond Purchase Agreement. The undersigned certifies that lie is familiar with the facts herein certified and is authorized and qualified to certify the same as an authorized officer or representative of Ryland Homes of California, Inc., a Delaware corporation (the "Developer "), and the undersigned, on behalf of the Developer, further certifies as follows: 1. The Developer is duly organized and validly existing under the laws of the State of Delaware, qualified to transact business in the State of California and has all requisite right, corporate power and authority (i) to execute and deliver this Letter of Representations, (ii) to perform all the duties contemplated to be performed by the Developer under the Developer Continuing Disclosure Agreement, dated as of , 2015, by and between the Developer and [Goias First Naaional Bank], as dissemination agent (the "Developer Continuing Disclosure Agreement') and (iii) to undertake all of the transactions on its part described in the Preliminary Official Statement. 2. As set forth in the Preliminary Official Statement, title to a certain portion of the property within Improvement Area B within Conuuunity Facilities District No. 2006 - I(Su111111e1-ly) (the "Community Facilities District') is held in the name of the Developer (herein the "Property "). The undersigned, on behalf of the Developer, makes the representations herein E2 9017305.0 with respect to all such Property to which it holds title in the Community Facilities District as of the date hereof. Except as otherwise described in the Preliminary Official Statement, the Developer is and the Developer's current expectations are that the Developer shall remain the party responsible for the development of the Property. The Developer has not entered into an agreement for development or management of the Property by any other entity, except such subcontracts, consultant agreements and similar agreements for land development activities associated with the Developer's development plan as are entered into in the ordinary course of business. 3. Except as disclosed in the Preliminary Official Statement, to the Actual Knowledge of the Undersigned,' the Developer is not aware of any material failures with previous undertakings by it to provide periodic continuing disclosure reports or notices of material events with respect to community facilities districts or assessment districts within the past five years. 4. Except as disclosed in the Preliminary Official Statement, to the Actual Knowledge of the Undersigned,' (a) the Developer and its Relevant Entities'- have not violated any applicable law or administrative regulation of the State of California or the United States of America, or any agency or instrumentality of either, which violation could reasonably be expected to materially and adversely affect the Developer's ability to perform its obligations under the Developer Continuing Disclosure Agreement or to pay Special Taxes prior to delinquency with respect to the Property, and (b) no event has occurred and is continuing which with the passage of time or giving of notice, or both, would constitute such a violation. 5. Except as disclosed in the Preliminary Official Statement, to the Actual Knowledge of the Undersigned, (a) the Developer and its Relevant Entities are not in breach of or in default under any applicable judgment or decree or any loan agreement, option agreement, development agreement, indenture, fiscal agent agreement, agreement, bond, note or other instrument (collectively, the "Material Agreements') to which the Developer or its Relevant Entities are, or will upon issuance of the Bonds be, a party or otherwise subject, which breach or default could reasonably be expected to materially and adversely affect the ability of the Developer to perform its obligations under the Developer Continuing Disclosure Agreement or to 'As used in (Iris Letter of Representations, the phrase "Actual Knowledge of the Undersigned" shall mean the knowledge that the undersigned currently has as of the date hereof or has obtained from interviews with such current officers and responsible employees of the Developer and its Relevant Eutities as the undersigned has determined are likely, in the ordinary course of their respective duties, to have knowledge of the matters set forth herein. The undersigned has not conducted any extraordinary inspection or inquiry other than such inspections or inquiries as are prudent and customary in connection with the ordinary course of the Developer's current business and operations. The Developer has not contacted individuals who are no longer with line Developer or its Relevant Entities. e "Relevant Entity" means, with respect to a Person fit ,lily other Person directly, or indirectly through one or more intermediaries, curreuty controlling, controlled by or under coalition control with such Pelson, and (ii) for whonh informatiou, including financial information or operating dicta, concerning such Person referenced in clause fit is material to an evaluation of the Community Facilities District and the Bonds (i.e., information relevan( to the Developer's development of its property, within Improvement Area B of the Community facilities District, the payment of its Special Taxes, such Person's assets or funds or such Person's compliance with continuing disclosure undertakings under the Rule that would materially affect the Developer's ability to develop its Property as proposed in the Preliminary Official Statement o to pay its Special Taxes or relate to the Developer's compliance with continuing disclosure undertakings under the Rule). "Person" nheans an individual, a corporation, a parmcrship, a limited liability company, an association, it ,joint stock company, a trust, any unincorporated organization or a government or political subdivision thereof. fa' purposes hereof, the term "conaol" (including the terms °amtrolling," "controlled by" or "under common control with ") means tine possession, direct or indirect, of the power to direct or cause the direction of the mo-uhagement and policies of a Person, whether through the ownership of voting securities, by contract or otherwise. E -3 9017305.0 develop the Property as stated in the Preliminary Official Statement or to pay the Special Taxes prior to delinquency with respect to the Property in Improvement Area B and (b) no event has occurred and is continuing that with the passage of time or giving of notice, or both, would constitute such a breach or default which could reasonably be expected to materially and adversely affect the ability of the Developer to develop the Property as stated in the Preliminary Official Statement or to pay the Special Taxes prior to delinquency with respect to the Property. 6. Except as described in the Preliminary Official Statement, there are no material loans outstanding and unpaid and no material lines of credit of the Developer or its Relevant Entities, that are secured by an interest in the Property and neither the Developer nor any of its Relevant Entities is currently in material default on any loans, lines of credit or other obligation related to the development of the Property or any other project which default is reasonably likely to materially and adversely affect the Developer's ability to develop the Property as stated in the Preliminary Official Statement or to pay the Special Taxes prior to delinquency with respect to the Property. 7. Except as set forth in the Preliminary Official Statement, no action, suit, proceeding, inquiry or investigation at law or in equity, before or by any court, regulatory agency, public board or body is pending against the Developer (with proper service of process to the Developer having been accomplished) or, to the Actual Knowledge of the Undersigned, is pending against any current Relevant Entity (with proper service of process to such Relevant Entity having been accomplished) or to the Actual Knowledge of the Undersigned is threatened in writing against the Developer or any such Relevant Entity (a) to restrain or enjoin the collection of Special Taxes or other sums pledged or to be pledged to pay the principal of and interest on the Bonds (e.g., the Reserve Fund established under the Fiscal Agent Agreement), (b) to restrain or enjoin the execution of and performance of the Developer's obligation under the proposed Developer Continuing Disclosure Agreement, (c) to restrain or enjoin the development of the Property as stated in the Preliminary Official Statement, (d) in any way contesting or affecting the validity of the Special Taxes or the Developer Continuing Disclosure Agreement, or (e) which is reasonably likely to materially and adversely affect the Developer's ability to complete the development and sale of the Property it currently owns within Improvement Area B of the Community Facilities District or to pay Special Taxes prior to delinquency with respect to the Property. 8. As of the date thereof, the Preliminary Official Statement, solely with respect to information contained therein with respect to the Developer, its Relevant Entities, the proposed development of the Property, ownership of the Property, the Developer's development plan, the Developer's financing plan, the Developer's lenders (if any), and contractual arrangements of the Developer or any Relevant Entities, as set forth under the sections of the Preliminary Official Statement captioned "CONTINUING DISCLOSURE" and "DEVELOPMENT OF PROPERTY IN IMPROVEMENT AREA NO. B — Development by Ryland" (excluding therefrom in all cases information regarding the appraisal, market value ratio and annual special tax ratio and information which is identified as having been provided by a source other than the Developer) is true and correct in all material respects and did not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading. 9 The Developer covenants that, while the Bonds or any refunding obligations related thereto are outstanding, the Developer and its Relevant Entities which it controls will not bring any action, suit, proceeding, inquiry or investigation at law or in equity, before any court, regulatory agency, public board or body, that in any way seeks to challenge or overturn the E -4 9017305.0 formation of the Community Facilities District, to challenge the adoption of the ordinance of the Community Facilities District levying Special "Faxes within Improvement Area B of the Community Facilities District, to invalidate the Community Facilities District or any of the Bonds or any refunding bonds, or to invalidate the special tax liens imposed under Section 3115.5 of the Streets and Highways Code based on recordation of the notice of special tax lien relating thereto. The foregoing covenant shall not prevent the Developer in any way fi-om bringing any other action, suit or proceeding including, without limitation, (a) an action or suit contending that the Special Tax has not been levied in accordance with the methodologies contained in the Rate and Method of Apportionment of Special Taxes pursuant to which the Special Taxes are levied, (b) an action or suit with respect to the application or use of the Special Taxes levied and collected or (c) an action or suit to enforce the obligations of the Authority and /or the Community Facilities District under the Procedural Resolutions, the Fiscal Agent Agreement or any other agreements among the Developer, the Authority and /or the Community Facilities District or to which the Developer is a beneficiary. 10. Except as disclosed in the Preliminary Official Statement, to the Actual Knowledge of the Undersigned, the Developer is not aware that any other public debt secured by a tax or assessment on the Property exists or is in the process of being authorized or any assessment districts or community facilities districts have been or are in the process of being formed that include any portion of the Property. H. The Developer has been developing or has been involved in the development of numerous projects over an extended period of time. It is likely that the Developer and some of its Relevant Entities have been delinquent at one time or another in the payment of ad valorem property taxes, special assessments or special taxes. To the Actual Knowledge of the Undersigned, neither the Developer nor any current Relevant Entity is currently delinquent in any material amount in the payment of ad valorem property taxes, special assessments or special taxes on property owned by the Developer or on property in California owned by any such Relevant Entity. Except as disclosed in the Preliminary Official Statement, to the Actual Knowledge of the Undersigned, neither the Developer nor any Relevant Entity has been delinquent in the last five years in the payment of special assessments or special taxes on property in California owned by the Developer or by any such Relevant Entity during the period of its ownership included within the boundaries of a community facilities district or assessment district within California that would have caused a draw on a reserve fund relating to such assessment district or community facilities district financing. 12. The Developer consents to the issuance of the Bonds. The Developer acknowledges and agrees that the proceeds of the Bonds will be used as described in the Preliminary Official Statement. The Developer acknowledges that the costs to acquire and construct improvements are estimates, and that any increase in costs in excess of the estimated costs will reduce the improvements which may be financed by the Community Facilities District, and neither the Authority nor the Community Facilities District has any obligation to provide moneys to pay for any such costs. 13. The Developer is aware of the requirement to comply with the provision of the Mello -Roos Community Facilities District Act of 1952, as amended relating to the Notice of Special Tax described in Government Code Section 53341.5 in connection with the sale of the Property, or portions thereof. 14. To the Actual Knowledge of the Undersigned, the Developer is able to pay its bills as they become due and no legal proceedings are pending against the Developer (with proper E -5 9017305.0 service of process having been accomplished) or, to the Actual Knowledge of the Undersigned, threatened in writing in which the Developer may be adjudicated as bankrupt or discharged from any and all of its debts or obligations, or granted an extension of time to pay its debts or obligations, or be allowed to reorganize or readjust its debts, or be subject to control or supervision of the Federal Deposit Insurance Corporation. 15. To the Actual Knowledge of the Undersigned, Relevant Entities of the Developer are able to pay their bills as they become due and no legal proceedings are pending against any Relevant Entity of the Developer (with proper service of process having been accomplished) or to the Actual Knowledge of the Undersigned, threatened in writing in which the Relevant Entities of the Developer may be adjudicated as bankrupt or discharged from any or all of their debts or obligations, or granted an extension of time to pay their debt or obligations, or be allowed to reorganize or readjust their debts or obligations, or be subject to control or supervision of the Federal Deposit Insurance Corporation. 16. The Developer has not filed for the reassessment of the assessed value of portions of the Property, other than in connection with the sale of homes to individual homebuyers. 17. To the Actual Knowledge of the Undersigned, there are no claims, disputes, suits, actions or contingent liabilities by and among the Developer, its Relevant Entities or any contractors working on the development of the Property which is reasonably likely to materially and adversely affect the development of the Property as stated in the Preliminary Official Statement or the payment of the Special Taxes prior to delinquency with respect to the Property. 18. To the Actual Knowledge of the Undersigned, all written information submitted by the Developer's employees as authorized by the Developer to the Authority the Community Facilities District, the Special Tax Consultant, Disclosure Counsel or the Underwriter in connection with the issuance of the Bonds, and to Stephen G. White, MAI (the "Appraiser ") in connection with the preparation of the appraisal relating to Improvement Area B of the Community Facilities District was, at the time of submission and is as of the date hereof, except as modified by later information submitted by, or on behalf of and authorized by, the employees of the Developer involved in the issuance of the Bonds, true and correct in all material respects. 19. Solely as to the limited information described in Paragraph 8 above concerning the Developer, its Relevant Entities, the proposed development of the Property, ownership of the Property, the Developer's development plan, the Developer's financing plan, the Developer's lenders (if any), and contract arrangements of the Developer and its Relevant Entities, the Developer agrees to indemnify and hold harmless, to the extent permitted by law, the Authority, the Community Facilities District and their officials and employees, and each Person, if any, who controls any of the foregoing within the meaning of Section 15 of the Securities Act of 1933, as amended, or of Section 20 of the Securities Exchange Act of 1934, as amended, against any and all losses, claims, damages or liabilities, joint or several, to which such indemnified party may become subject under any statute or at law or in equity or otherwise and shall reimburse any such indemnified party for any reasonable legal or other expense incurred by it in connection with investigating any such claim against it and defending any such action, insofar and to the extent such losses, claims, damages, liabilities or actions arise out of or are based upon any untrue statement or alleged untrue statement of a material fact or the omission or alleged omission of a material fact in the above - referenced information in the Preliminary Official Statement as of its date or in any annual report or other disclosure statement provided by or on behalf of the Developer pursuant to the Developer Continuing Disclosure Agreement as of its date, necessary E -6 9017305.0 to make the statements therein, in light of the circumstances under which they were made not misleading. This indemnity provision shall not be construed as a limitation on any other liability which the Developer may otherwise have to any indemnified party, provided that in no event shall the Developer be obligated for double indemnification, or for the negligence and willful misconduct of an indemnified party. 20. The Developer has agreed to execute the Developer Continuing Disclosure Certificate in substantially the form included in Appendix F to the Preliminary Official Statement. 21. If between the date hereof and the Closing Date any event relating to or affecting the Developer, its Relevant Entities, the proposed development of the Property, ownership of the Property, the Developer's development plan, the Developer's financing plan, the Developer's lenders (if any), and contractual arrangements of the Developer or any Relevant Entities shall occur of which the Developer has actual knowledge which would cause the information under the sections of the Preliminary Official Statement indicated in Paragraph 8 hereof, to contain an untrue statement of a material fact or to omit to state a material fact necessary to make the statements therein, in the Tight of the circumstances under which they were made, not misleading, the Developer shall notify the Authority the Community Facilities District and the Underwriter and if in the opinion of counsel to the Authority, the Community Facilities District or the Underwriter such event requires the preparation and publication of a supplement or amendment to the Preliminary Official Statement, the Developer shall reasonably cooperate with the Authority and the Community Facilities District in the preparation of an amendment or supplement to the Preliminary Official Statement in form and substance satisfactory to counsel to the Authority and to the Underwriter. 22. For the period through 25 days after the "End of the Underwriting Period" as defined in the Purchase Agreement, if any event relating to or affecting the Developer, its Relevant Entities or the development of the Property shall occur as a result of which the information referred to in Paragraph 8 hereof contains an untrue statement of a material fact or omits to state a material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading, the Developer shall notify the Authority, the Community Facilities District and the Underwriter, and if, in the opinion of counsel to the Authority, the Community Facilities District or the Underwriter, such event requires the preparation and publication of a supplement or amendment to the Official Statement, the Developer shall reasonably cooperate with the Authority, the Community Facilities District and the Underwriter in the preparation of an amendment or supplement by the Community Facilities District to the Official Statement in form and substance satisfactory to counsel to the Authority, the Community Facilities District and the Underwriter. 23. The Developer agrees to deliver a Closing Certificate dated the date of issuance of the Bonds at the time of issuance of the Bonds in substantially the form attached as Exhibit A. 24. When requested by the Community Facilities District and /or Albert A. Webb Associates, the Developer agrees to provide to the Community Facilities District and /or Albert A. Webb Associates a statement as to the number of building permits issued and as to the number of closed homes sales for the Property, which information the Community Facilities District may include in its annual disclosure filings with the Municipal Securities Rulenraking Board in connection with the Bonds. 25. The Developer acknowledges and agrees that: (i) in connection with the purchase and sale of the Bonds under the Bond Purchase Agreement, and with the discussions, E -7 9017305.vl undertakings and procedures leading up to the consummation of the purchase and sale of the Bonds under the Bond Purchase Agreement, the Underwriter is and has been acting solely as principal and is not acting as the agent or fiduciary of the Developer; (iii) the Underwriter has not assumed a fiduciary responsibility in favor of the Developer with respect to (a) the offering of the Bonds contemplated hereby or the process leading thereto (whether or not the Underwriter, or any affiliate of the Underwriter, has advised or is currently advising the Developer on other matters), or (b) any other obligation to the Developer with respect to the offering contemplated by the Bond Purchase Agreement; and (iii) the Developer has consulted its own legal, financial and other advisors to the extent it has deemed appropriate in connection with the offering contemplated by the Bond Purchase Agreement. 26. On behalf of the Developer, I have reviewed the contents of this Letter of Representations and have met with counsel to the Developer, for the purpose of discussing the meaning of its contents. The undersigned acknowledges and understands that a variety of state and federal securities laws, including but not limited to the Securities Act of 1933 and Rule IOb -5 promulgated under the Securities Exchange Act of 1934, may apply to the Developer and that under some circumstances certification as to the matters set forth in this Letter of Representations, without additional disclosures or other action, may not fully discharge all duties and obligations of the Developer under such securities laws. RYLAND HOMES OF CALIFORNIA, INC., a Delaware corporation Name: Title: [EXECUTION PAGE OF LETTER OF REPRESENTATIONS — RYLAND HOMES OF CALIFORNIA, INC.] E -8 9017305.0 LAKE ELSINORE PUBLIC FINANCING AUTHORITY LOCAL AGENCY REVENUE BONDS (SUMMERLY IA B) 2015 SERIES A LETTER OF REPRESENTATIONS — MERITAGE HOMES OF CALIFORNIA, INC. 2015 Lake Elsinore Public Financing Authority 130 South Main Street Lake Elsinore, California 92530 City of Lake Elsinore Community Facilities District No. 2006 -1 130 South Main Street Lake Elsinore, California 92530 Stifel, Nicolaus & Company, Incorporated 515 South Figueroa Street, Suite 1800 Los Angeles, California 90071 Ladies and Gentlemen: Reference is made to the Lake Elsinore Public Financing Authority Local Agency Revenue Bonds (Su n uerly IA B), 2015 Series A (the "Bonds ") and to the Bond Purchase Agreement to be entered into in connection therewith (the "Bond Purchase Agreement "). This Letter of Representations (the "Letter of Representations ") is delivered pursuant to and in satisfaction of Section G(23) the Bond Purchase Agreement. Capitalized terms used herein and not otherwise defined have the meanings ascribed to them in the Bond Purchase Agreement. The undersigned certifies that lie is familiar with the facts herein certified and is authorized and qualified to certify the same as an authorized officer or representative of Meritage Homes of California, Inc., a California corporation (the "Developer "), and the undersigned, on behalf of the Developer, further certifies as follows: I. The Developer is duly organized and validly existing under the laws of the State of California, qualified to transact business in the State of California and has all requisite right, corporate power and authority (i) to execute and deliver this Letter of Representations, and (ii) to undertake all of the transactions on its part described in the Preliminary Official Statement. 2. As set forth in the Preliminary Official Statement, title to a certain portion of the property within Improvement Area b within Community Facilities District No. 2006 -1 (the "Community Facilities District") is held in the name of the Developer (herein the `Property "). The undersigned, on behalf of the Developer, makes the representations herein with respect to all such Property to which it holds title in the Community Facilities District as of the date hereof. Except as otherwise described in the Preliminary Official Statement, the Developer is and the E-9 9017305.0 Developer's current expectations are that the Developer shall remain the party responsible for the development of the Property. The Developer has not entered into an agreement for development or management of the Property by any other entity, except such subcontracts, consultant agreements and similar agreements for land development activities associated with the Developer's development plan as are entered into in the ordinary course of business. 3. Except as disclosed in the Preliminary Official Statement, to the Actual Knowledge of the Undersigned,' (a) the Developer has not violated any applicable law or administrative regulation of the State of California or the United States of America, or any agency or instrumentality of either, which violation could reasonably be expected to materially and adversely affect the Developer's ability to pay Special Taxes prior to delinquency with respect to the Property, and (b) no event has occurred and is continuing which with the passage of time or the giving of notice, or both, would constitute such a violation. 4. Except as disclosed in the Preliminary Official Statement, to the Actual Knowledge of the Undersigned, (a) the Developer is not in breach of or in default under any applicable judgment or decree or any loan agreement, line of credit, option agreement, development agreement, indenture, fiscal agent agreement, agreement, bond, note or other instrument (collectively, the "Material Agreements') to which the Developer is, or will upon issuance of the Bonds be, a party or otherwise subject, which breach or default could reasonably be expected to materially and adversely affect the ability of the Developer to develop the Property as stated in the Preliminary Official Statement or to pay the Special Taxes prior to delinquency with respect to the Property in Improvement Area B and (b) no event has occurred and is continuing that with the passage of time or giving of notice, or both, would constitute such a breach or default under any Material Agreements which could reasonably be expected to materially and adversely affect the ability of the Developer to develop the Property as stated in the Preliminary Official Statement or to pay the Special Taxes prior to delinquency with respect to the Property. 5. Except as described in the Preliminary Official Statement, there are no material loans outstanding and unpaid and no material lines of credit of the Developer that are secured by an interest in the Property. 6. Except as set forth in the Preliminary Official Statement, no action, suit, proceeding, inquiry or investigation at law or in equity, before or by any court, regulatory agency, public board or body is pending against the Developer (with proper service of process to the Developer having been accomplished) or to the Actual Knowledge of the Undersigned is threatened in writing against the Developer (a) to restrain or enjoin the collection of Special Taxes or other sums pledged or to be pledged to pay the principal of and interest on the Bonds (e.g., the Reserve Fund established under the Fiscal Agent Agreement), (b) to restrain or enjoin the development of the Property as stated in the Preliminary Official Statement, (c) in any way contesting or affecting the validity of the Special Taxes, or (d) which, if successful, is reasonably likely to materially and adversely affect the Developer's ability to complete the development and sale of the Property it currently owns within Improvement Area No. A of the Community Facilities District or to pay Special Taxes prior to delinquency with respect to the Property. 'As used in this Letter of Representations, the phrase "Actual Knowledge of the Undersigned" shall mean the knowledge that the undersigned currently has as of the dale hereof or has obtained from interviews with such eurrent officers and responsible employees of the Developer and its Relevant Entities (as defined below) as the undersigned has determined are likely, in the ordinary course of their respective duties, to have knowledge of the maacrs set forth herein. The undersigned has not conducted any extraordinary inspection or inquiry other than such inspections or inquiries its are prudent and customary in connection with the ordinary anu'se ofthe Developer's cun'enl business and operations. E -10 9017305.0 7. As of the date thereof, the Preliminary Official Statement, solely with respect to information contained therein with respect to the Developer, the proposed development of the Property, ownership of the Property, the Developer's development plan, the Developer's financing plan, the Developer's lenders (if any), and contractual arrangements of the Developer, as set forth under the sections of the Preliminary Official Statement captioned "DEVELOPMENT OF PROPERTY IN IMPROVEMENT AREA NO. B — Development by Meritage " (excluding therefrom in all cases information regarding the appraisal, market value ratio and annual special tax ratio and information which is identified as having been provided by a source other than the Developer), is true and correct in all material respects and did not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading. 8. The Developer covenants that, while the Bonds or any refunding obligations related thereto are outstanding, the Developer will not bring any action, suit, proceeding, inquiry or investigation at law or in equity, before any court, regulatory agency, public board or body, that in any way seeks to challenge or overturn the formation of the Community Facilities District, to challenge the adoption of the ordinance of the Community Facilities District levying Special Taxes within Improvement Area B of the Community Facilities District, to invalidate the Community Facilities District or any of the Bonds or any refunding bonds, or to invalidate the special tax liens imposed under Section 3115.5 of the Streets and Highways Code based on recordation of the notice of special tax Tien relating thereto. The foregoing covenant shall not prevent the Developer in any way from bringing any other action, suit or proceeding including, without limitation, (a) an action or suit contending that the Special Tax has not been levied in accordance with the methodologies contained in the Rate and Method of Apportionment of Special Taxes pursuant to which the Special Taxes are levied, (b) an action or suit with respect to the application or use of the Special Taxes levied and collected or (c) an action or suit to enforce the obligations of the Authority and /or the Community Facilities District under the Procedural Resolutions, the Fiscal Agent Agreement or any other agreements among the Developer, the Authority and /or the Community Facilities District or to which the Developer is a beneficiary. 9. Except as disclosed in the Preliminary Official Statement, to the Actual Knowledge of the Undersigned, the Developer has not received actual notice of (a) the existence of any other public debt secured by a tax or assessment on the Property, (b) nor submitted an application for the formation or authorization of any assessment districts or community facilities districts that include any portion of the Property. 10. The Developer has been developing or has been involved in the development of numerous projects over an extended period of time. It is likely that the Developer has been delinquent at one time or another in the payment of ad valorem property taxes, special assessments or special taxes. To the Actual Knowledge of the Undersigned, the Developer is not currently delinquent in any material amount in the payment of ad valorem property taxes, special assessments or special taxes on property owned by the Developer. Except as disclosed in the Preliminary Official Statement, to the Actual Knowledge of the Undersigned, the Developer has not been delinquent in the last five years in the payment of special assessments or special taxes on property in California owned by the Developer during the period of its ownership included within the boundaries of a community facilities district or assessment district within California that would have caused a draw on a reserve fund relating to such assessment district or community facilities district financing. E -1I 9017305.0 I1. The Developer consents to the issuance of the Bonds. The Developer acknowledges and agrees that the proceeds of the Bonds will be used as described in the Preliminary Official Statement. The Developer acknowledges that the costs to acquire and construct improvements are estimates, and that any increase in costs in excess of the estimated costs will reduce the improvements which may be financed by the Community Facilities District, and neither the Authority not the Community Facilities District has any obligation to provide moneys to pay for any such costs. 12. The Developer is aware of the requirement to comply with the provision of the Mello -Roos Community Facilities District Act of 1982, as amended relating to the Notice of Special Tax described in Government Code Section 53341.5 in connection with the sale of the Property, or portions thereof. 13. To the Actual Knowledge of the Undersigned, the Developer is able to pay its bills as they become due and no legal proceedings are pending against the Developer (with proper service of process having been accomplished) or, to the Actual Knowledge of the Undersigned, threatened in writing in which the Developer may be adjudicated as bankrupt or discharged from any and all of its debts or obligations, or granted an extension of time to pay its debts or obligations, or be allowed to reorganize or readjust its debts, or be subject to control or supervision of the Federal Deposit Insurance Corporation. 14. The Developer has not filed for the reassessment of the assessed value of portions of the Property, other than in connection with the sale of homes to individual homebuyers. 15. To the Actual Knowledge of the Undersigned, there are no claims, disputes, suits, or actions by and among the Developer or any contractors working on the development of the Property which is reasonably likely to materially and adversely affect the development of the Property as stated in the Preliminary Official Statement or the payment of the Special Taxes prior to delinquency with respect to the Property. 16. To the Actual Knowledge of the Undersigned, all written information submitted by the Developer's employees as authorized by the Developer to the Authority, the Community Facilities District, the Special Tax Consultant, Disclosure Counsel or the Underwriter in connection with the issuance of the Bonds, and to Stephen G. White, MAI (the "Appraiser ") in connection with the preparation of the appraisal relating to Improvement Area B of the Community Facilities District was, at the time of submission and is as of the date hereof, except as modified by later information submitted by, or on behalf of and authorized by, the employees of the Developer involved in the issuance of the Bonds, true and correct in all material respects. 17. Solely as to the limited information described in Paragraph 7 above concerning the Developer, the proposed development of the Property, ownership of the Property, the Developer's development plan, the Developer's financing plan, the Developer's lenders (if any), and contractual arrangements of the Developer, the Developer agrees to indemnify and hold harmless, to the extent permitted by law, the Authority, the Community Facilities District and their officials and employees, and each Person, if any, who controls any of the foregoing within the meaning of Section 15 of the Securities Act of 1933, as amended, or of Section 20 of the Securities Exchange Act of 1934, as amended, against any and all losses, claims, damages or liabilities,joint or several, to which such indemnified party may become subject under any statute or at law or in equity or otherwise and shall reimburse any such indemnified party for any reasonable legal or other expense incurred by it in connection with investigating any such claim E -12 9017305.0 against it and defending any such action, insofar and to the extent such losses, claims, damages, liabilities or actions arise out of or are based upon any untrue statement or alleged untrue statement of a material fact or the omission or alleged omission of a material fact in the above - referenced information in the Preliminary Official Statement, as of its date or necessary to make the statements therein, in light of the circumstances under which they were made not misleading. This indemnity provision shall not be construed as a limitation on any other liability which the Developer may otherwise have to any indemnified party, provided that in no event shall the Developer be obligated for double indemnification, or for the negligence and willful misconduct of an indemnified party. 18. If between the date hereof and the Closing Date any event relating to or affecting the Developer, the proposed development of the Property, ownership of the Property, the Developer's development plan, the Developer's financing plan, the Developer's lenders (if any), and contractual arrangements of the Developer shall occur of which the Developer has Actual Knowledge which would cause the information under the sections of the Preliminary Official Statement indicated in Paragraph 7 hereof, to contain an untrue statement of a material fact or to omit to state a material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading, the Developer shall notify the Authority, the Community Facilities District and the Underwriter and if in the opinion of counsel to the Authority, the Community Facilities District or the Underwriter such event requires the preparation and publication of a supplement or amendment to the Preliminary Official Statement, the Developer shall reasonably cooperate with the Authority and the Community Facilities District in the preparation of an amendment or supplement to the Preliminary Official Statement in form and substance satisfactory to counsel to the Authority and to the Underwriter. 19. For the period through 25 days after the "End of the Underwriting Period" as defined in the Purchase Agreement, if any event relating to or affecting the Developer or the development of the Property shall occur as a result of which the information referred to in Paragraph 7 hereof contains an untrue statement of a material fact or omits to state a material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading, the Developer shall notify the Authority, the Community Facilities District and the Underwriter, and if in the opinion of the Underwriter or counsel to the Authority, the Community Facilities District or the Underwriter, such event requires the preparation and publication of a supplement or amendment to the Official Statement, the Developer shall reasonably cooperate with the Authority, the Community Facilities District and the Underwriter in the preparation of an amendment or supplement by the Community Facilities District to the Official Statement in form and substance satisfactory to counsel to the Authority, the Community Facilities District and the Underwriter which will amend or supplement the Official Statement so that it will not contain an untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in light of the circumstances existing as of the date of the amendment or supplement to the Official Statement, not misleading 20. 'there is no "Relevant Entity" of the Developer, with respect to the development of the Property as described in the Preliminary Official Statement or the Developer's ability to pay Special Taxes on the Property, where the term "Relevant Entity" means, with respect to a Person" " "Person" means an individual, it corporation, a pat'mershi p, a limited liability company, an association, ajoint stock company, a trust, any unincorporated organization or a government or political subdivision thereof: For proposes hereof, the term "control" (including the terms "controlling," "controlled by" or "under common control wida ") means the possession, direct or indirect, of the power to direct or cause the direction of the managemcnt and policies of a Pcrson, whether through the ownership of voting securities, by contract or otherwise. E -13 9017305, v1 (i) any other Person directly, or indirectly through one or more intermediaries, currently controlling, controlled by or under common control with such Person, and (ii) for whom information, including financial information or operating data, concerning such Person referenced in clause (i) is material to an evaluation of the Community Facilities District and the Bonds (i.e., information relevant to (a) the Developer's proposed development of the Property, ownership of the Property, the Developer's development plan, the Developer's financing plan, the Developer's lenders, if any, and contractual arrangements of the Developer, (b) the payment of the Developer's Special Taxes with respect to the Property and (c) the Developer's compliance with continuing disclosure undertakings under the Rule). 21. The Developer agrees to deliver a Closing Certificate dated the date of issuance of the Bonds at the tine of issuance of the Bonds in substantially the form attached as Exhibit A, 22. Until such time as the Developer no longer owns any portion of the Property, when requested by the Community Facilities District and /or Albert A. Webb Associates, the Developer agrees to provide to the Community Facilities District and /or Albert A. Webb Associates a statement as to the number of building permits issued and as to the number of closed homes sales for the Property, which information the Community Facilities District may include in its annual disclosure filings with the Municipal Securities Rulemaking Board in connection with the Bonds; provided, however, the Developer shall have no obligation to provide such statements more frequently than needed in connection with the preparation of the Community Facilities District's annual disclosure filing. 23. The Developer acknowledges and agrees that: (i) in connection with the purchase and sale of the Bonds under the Bond Purchase Agreement, and with the discussions, undertakings and procedures leading up to the consummation of the purchase and sale of the Bonds under the Bond Purchase Agreement, the Underwriter is and has been acting solely as principal and is not acting as the agent or fiduciary of the Developer; (ii) the Underwriter has not assumed a fiduciary responsibility in favor of the Developer with respect to (a) the offering of the Bonds contemplated hereby or the process leading thereto (whether or not the Underwriter, or any affiliate of the Underwriter, has advised or is currently advising the Developer on other matters), or (b) any other obligation to the Developer with respect to the offering contemplated by the Bond Purchase Agreement; and (iii) the Developer has consulted its own legal, financial and other advisors to the extent it has deemed appropriate in connection with the offering contemplated by the Bond Purchase Agreement. 24. On behalf of the Developer, I have reviewed the contents of this Letter of Representations and have met with counsel to the Developer, for the purpose of discussing the meaning of its contents. The undersigned acknowledges and understands that a variety of state and federal securities laws, including but not limited to the Securities Act of 1933 and Rule lOb -5 promulgated under the Securities Exchange Act of 1934, may apply to the Developer and that under some circumstances certification as to the matters set forth in this Letter of Representations, without additional disclosures or other action, may not fully discharge all duties and obligations of the Developer under such securities laws. E -14 9017305.0 MERITAGE I TOMES OF CALIFORNIA, INC., a California corporation By: Kevin Kimball, Division President (EXECUTION PAGE OF LETTER OF REPRESENTATIONS — MERITAGE HOMES OF CALIFORNIA, INC] E -15 9017305. vl EXHIBIT F CLOSING CERTIFICATES OF RYLAND HOMES OF CALIFORNIA, INC., AND MERITAGE HOMES OF CALIFORNIA, INC. (see attached) 9017305.0 LAKE ELSINORE PUBLIC FINANCING AUTHORITY LOCAL AGENCY REVENUE BONDS (SUMMERLY IA B) 2015 SERIES A CLOSING CERTIFICATE — RYLAND HOMES OF CALIFORNIA, INC. To: Lake Elsinore Public Financing Authority City of Lake Elsinore Community Facilities District No. 2006 -1 Stilel, Nicolaus & Company, incorporated Ladies and Gentlemen: Reference is made to the Lake Elsinore Public Financing Authority Local Agency Revenue Bonds (Smnmerly IA b), 2015 Series A (the "Bonds ") and to the Bond purchase Agreement, dated 2015 (the Bond Purchase Agreement "), entered into in connection therewith. This certificate is delivered pursuant to the Bond Purchase Agreement. Capitalized terms used herein and not otherwise defined have the meanings ascribed to them in the Letter of Representations (the "Letter of Representations'), dated _ , 2015, delivered by Ryland Homes of California, Inc., a Delaware corporation, which is attached hereto as Exhibit A. The undersigned certifies that he is familiar with the facts herein certified and is authorized and qualified to certify the same as an authorized officer or representative of the Developer, and the undersigned, on behalf of the Developer, further certifies as follows: I. The Developer has received the final Official Statement relating to the Bonds. Each statement, representation and warranty made in the Letter of Representations is true and correct in all material respects on and as of the date hereof with the same effect as if made on the date hereof, except that all references therein to the Preliminary Official Statement shall be deemed to be references to the final Official Statement. 2. To the Actual Knowledge of the Undersigned, no event has occurred since the date of the Preliminary Official Statement affecting the statements and information described in Paragraph 7 of the Letter of Representations relating to the Developer and its Relevant Entities, the proposed development of the Property, ownership of the Property, the Developer's development plan, the Developer's financing plan, the Developer's lenders, if any, and contractual arrangements of the Developer or any Relevant Entities (including, if material to the Developer's development plan or the Developer's financing plan, other loans of such Relevant Entities) which should be disclosed in the Official Statement for the purposes for which it is to be used in order to make such statements and information contained in the Official Statement not misleading in any material respect. 3. Each statement made in the Letter of Representations referring to the proposed Developer Continuing Disclosure Certificate is affirmed as if it relates to the Developer Continuing Disclosure Certificate as executed and delivered. F -2 9017305.vl 4. The Developer has duly executed and delivered the Developer Continuing Disclosure Certificate, has the authority to perform the obligations on its part to be performed thereunder, and the Developer Continuing Disclosure Certificate constitutes the legal, valid and binding obligations of the Developer. Dated: 2015 RYLAND HOMES OF CALIFORNIA, INC., a Delaware corporation By: Name: Richard P. Douglass Title: Vice President [EXECUTION PAGE OF CLOSING CERTIFICATE — RYLAND HOMES OF CALIFORNIA, INC.] F -3 9017305.0 LAKE ELSINORE PUBLIC FINANCING AUTHORITY LOCAL AGENCY REVENUE BONDS (SUMMERLY IA B) 2015 SERIES A CLOSING CERTIFICATE — MERITAGE HOMES OF CALIFORNIA, INC. To: Lake Elsinore Public Financing Authority City of Lake Elsinore Community Facilities District No. 2006 -1 Stifel, Nicolaus & Company, Incorporated Ladies and Gentlemen: Reference is made to the Lake Elsinore Public Financing Authority Local Agency Revenue Bonds (Suniulerly IA b), 2015 Series A (the "Bonds ") and to the Bond Purchase Agreement, dated 2015 (the `Bond Purchase Agreement'), entered into in connection therewith. This certificate is delivered pursuant to the Bond Purchase Agreement. Capitalized terms used herein and not otherwise defined have the meanings ascribed to them in the Letter of Representations (the "Letter of Representations "), dated 2015, delivered by Meritage homes of California, Inc., a California corporation, which is attached hereto as Exhibit A. The undersigned certifies that he is familiar with the facts herein certified and is authorized and qualified to certify the same as an authorized officer or representative of the Developer, and the undersigned, on behalf of the Developer, further certifies as follows: 5. The Developer has received the final Official Statement relating to the Bonds. Each statement, representation and warranty made in the Letter of Representations is true and correct in all material respects on and as of the date hereof with the same effect as if made on the date hereof, except that all references therein to the Preliminary Official Statement shall be deemed to be references to the final Official Statement. 6. To the Actual Knowledge of the Undersigned, no event has occurred since the date of the Preliminary Official Statement affecting the statements and information described in Paragraph 7 of the Letter of Representations relating to the Developer and its Relevant Entities, the proposed development of the Property, ownership of the Property, the Developer's development plan, the Developer's financing plan, the Developer's lenders, if any, and contractual arrangements of the Developer or any Relevant Entities (including, if material to the Developer's development plan or the Developer's financing plan, other loans of such Relevant Entities) which should be disclosed in the Official Statement for the purposes for which it is to be used in order to make such statements and information contained in the Official Statement not misleading in any material respect. 7. Each statement made in the Letter of Representations referring to the proposed Developer Continuing Disclosure Certificate is affirmed as if it relates to the Developer Continuing Disclosure Certificate as executed and delivered. F -4 9017305, v1 8. The Developer has duly executed and delivered the Developer Continuing Disclosure Certificate, has the authority to perform the obligations on its part to be performed thereunder, and the Developer Continuing Disclosure Certificate constitutes the legal, valid and binding obligations of the Developer. Dated: 3015 MERITAGE HOMES OF CALIFORNIA, INC., a California corporation By: F -5 9017305.vl Name: Kevin Kimball Title: Division president CONTINUING DISCLOSURE AGREEMENT This Continuing Disclosure Agreement (the "Disclosure Agreement "), dated as of February 1, 2015, is executed and delivered by the City of Lake Elsinore Community Facilities District No. 2006 -1 (Summerly) (the "District') and Albert A. Webb Associates, as Dissemination Agent (the "Dissemination Agent "), in connection with the issuance of the $ Lake Elsinore Public Financing Authority Local Agency Revenue Bonds (Summerly IA B), 2015 Series A (the `Bonds "). The Bonds are being issued pursuant to provisions of an Indenture of Trust, dated as of February 1, 2015 (the "hndenture "), by and between the Lake Elsinore Public Financing Authority (the "Authority ") and MUPG Union Ban](, N.A. (the "Trustee "). 'The District and the Dissemination Agent covenant and agree as follows: SECTION 1. Purpose of the Disclosure Agreement. This Disclosure Agreement is being executed and delivered by the District and the Dissemination Agent for the benefit of the 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). SECTION 2. Definitions. In addition to the definitions set forth in the Indenture, which apply to any capitalized term used in this Disclosure Agreement 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 District pursuant to, and as described in, Sections 3 and 4 of this Disclosure Agreement. "Beneficial Owner" shall mean any person which (a) has the power, directly or indirectly, to vote or consent with respect to, or to dispose of ownership of, any Bonds (including persons holding Bonds through nominces, depositories or other intermediaries), or (b) is treated as the owner of any Bonds for federal income tax purposes. "Disclosure Representative" shall mean the City Manager of the City or his or her designee, or such other officer or employee as the District shall designate in writing to the Dissemination Agent from time to time. "Dissemination Agent" shall mean Albert A. Webb Associates, acting in its capacity as Dissemination Agent hereunder, or any successor Dissemination Agent designated in writing by the District. "Listed Events" shall mean any of the events listed in Section 5(a) of this Disclosure Agreement. "MSRB" shall mean the Municipal Securities Rulemaking Board established pursuant to Section 1513(b)(I) of the Securities Exchange Act of 1934 or any other entity designated or authorized by the Securities and Exchange Commission to receive reports pursuant to the Rule. Until otherwise designated by the MSRB or the Securities and Exchange Commission, filings with the MSRB are to be made through the Electronic Municipal Marketplace Access (EMMA) website of the MSRB, currently located at 17111),Ilcii7ina.rnssrb.org. 477n69s4J "Participating Underwriter" shall mean any of the original underwriters of the Bonds required to comply with the Rule in connection with offering of the Bonds. "Rule" shall mean Rule 15c2- 12(b)(5) adopted by the Securities and Exchange Commission under the Securities Exchange Act of 1934, as the same may be amended from time to time. "State" shall mean the State of California. SECTION 3. Provision of Annual Reports. (a) The District shall, or shall cause the Dissemination Agent to, not later than December 31 of each year, commencing December 31, 2015, provide to the MSRB and the Participating Underwriter an Annual Report which is consistent with the requirements of Section 4 of this Disclosure Agreement. The Annual Report may be submitted as a single document or as separate documents comprising a package, and may include by reference other information as provided in Section 4 of this Disclosure Agreement. (b) Not later than fifteen (15) Business Days prior to the date specified in subsection (a) for providing the Annual Report to the MSRB, the District shall provide the Annual Report to the Dissemination Agent. If by such date, the Dissemination Agent has not received a copy of the Annual Report, the Dissemination Agent shall contact the District to determine if the District is in compliance with the first sentence of this subsection (b). The District shall provide a written certification with each Annual Report furnished to the Dissemination Agent to the effect that such Annual Report constitutes the Annual Report required to be furnished by it hereunder. The Dissemination Agent may conclusively rely upon such certification of the District and shall have no duty or obligation to review such Annual Report. (c) If the Dissemination Agent is unable to verify that an Annual Report has been provided to the MSRB by the date required in subsection (a), the Dissemination Agent shall send a notice to the MSRB in substantially the form attached as Exhibit A. (d) The Dissemination Agent shall, to the extent information is known to it, file a report with the Authority and (if the Dissemination Agent is not the Trustee) the Trustee certifying that the Annual Report has been provided pursuant to this Disclosure Agreement, stating the date it was provided. SECTION 4. Content of Annual Reports. The District's Annual Report shall contain or include by reference the following (as of June 30 next preceding the Annual Report date or the most recent readily available information): (a) The principal amount of the Bonds outstanding. (b) The balance held in the Reserve Account and the amount of the Reserve Requirement, the balance held in the Cash Flow Management Fund and the amount of the Cash 47706934.1 2 Flow Management Fund requirement, and the balance held in the Delinquency Management Fund and the amount of the Delinquency Management Fund Requirement. (c) The status of the payment of special taxes for the properties within Improvement Area B of the District which were due and payable during the preceding fiscal year (the "Special Taxes "), including as to delinquent parcels: (1) the number of parcels delinquent in the payment of Special Taxes; (2) the aggregate amount of the delinquent Special Taxes; and (3) the assessment delinquency rate for such preceding fiscal year. (d) The status of any judicial foreclosure proceedings initiated by the District as a result of the delinquency in the payment of Special Taxes and the summary of the results of foreclosure sales, if available. (e) For Improvement Area B of the District, the total assessed valuation (per the Riverside County Assessor's records) of all parcels currently subject to the Special Tax showing the total assessed valuation for all land and the total assessed valuation for the then current Fiscal Year. (f) A current debt service schedule for the outstanding Bonds. (g) The audited financial statements for the City for the preceding fiscal year (or if not available at the time of filing, the unaudited financial statements). The audited financial statements shall be prepared in accordance with generally accepted accounting principles as prescribed for governmental units by the Governmental Accounting Standards Board; provided, however, that the City may from time to time, if required by federal or state legal requirements, modify the basis upon which its financial statements are prepared. (h) The principal amount of prepayments of the Special Tax for the preceding fiscal year. 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 District or related public entities, which are available to the public on the MSRB's Internet Web site or filed with the Securities and Exchange Commission. SECTION 5. Reporting of Listed Events. (a) Pursuant to the provisions of this section, upon the occurrence of any of the following events (in each case to the extent applicable) with respect to the Bonds, the District shall give, or cause to be given by so notifying the Dissemination Agent in writing and instructing the Dissemination Agent to give, notice of the occurrence of such event, in each case, pursuant to Section 5(c) hereof: principal or interest payment delinquencies; 47706934.1 3 2. non - payment related defaults, if material; 3. modifications to the rights of the Bond Owner, if material; 4. optional, contingent or unscheduled calls, if material, and tender offers; 5. defeasances; 6. rating changes; 7. adverse tax opinions or the issuance by the Internal Revenue Service of proposed or final determinations of taxability, Notices of Proposed Issue (IRS Form 5701 -TEB) or other material notices or determinations with respect to the tax status of the Bonds or other material events affecting the tax status of the Bonds; 8. unscheduled draws on the debt service reserves reflecting financial difficulties; 9. unscheduled draws on the credit enhancements reflecting financial difficulties; 10. substitution of the credit or liquidity providers or their failure to perform; 11. release, substitution or sale of property securing repayment of the Bonds, if material; 12. bankruptcy, insolvency, receivership or similar proceedings of the Authority, which shall occur as described below; 13. appointment of a successor or additional trustee or the change of name of a trustee, if material, or; 14. the consummation of a merger, consolidation, or acquisition involving the Authority or the sale of all or substantially all of the assets of the Authority other than in the ordinary course of business, the entry into a definitive agreement to undertake such an action or the termination of a definitive agreement relating to any such actions, other than pursuant to its terns, if material. For these proposes, any event described in item 12 of this Section 5(a) is considered to occur when any of the following occur: the appointment of a receiver, fiscal agent, or similar officer for the Authority in a proceeding under tine United States Bankruptcy Code or in any other proceeding under state or federal law in which a court or governmental authority has assumed ,jurisdiction over substantially all of the assets or business of the Authority, or if such jurisdiction has been assumed by leaving the existing governing body and officials or officers in possession but subject to the supervision and orders of a court or governmental authority, or the entry of an order confirming a plan of reorganization, arrangement, or liquidation by a court or 47706934.1 4 governmental authority having supervision or.jurisdiction over substantially all of the assets or business of the Authority. (b) Upon receipt of notice from the District and instruction by the District to report the occurrence of any Listed Event, the Dissemination Agent shall provide notice thereof to the MSRB in accordance with Section 5(c) hereof. In the event the Dissemination Agent shall obtain actual knowledge of the occurrence of any of the Listed Events, the Dissemination Agent shall, immediately after obtaining such knowledge, contact the Disclosure Representative, inform such person of the event, and request that the District promptly notify the Dissemination Agent in writing whether or not to report the event pursuant to Section 5(c). For purposes of this Disclosure Agreement, "actual knowledge" of the occurrence of such Listed Event shall mean actual knowledge by the Dissemination Agent, if other than the Trustee, and if the Dissemination Agent is the Trustee, then by the officer at the corporate trust office of the Trustee with regular responsibility for the administration of matters related to the Indenture. The Dissemination Agent shall have no responsibility to determine the materiality, if applicable, of any of the Listed Events. (c) The District, or the Dissemination Agent, if the Dissemination Agent has been instructed by the District to report the occurrence of a Listed Event, shall file a notice of such occurrence with the MSRB in a timely manner not more than ten business days after the occurrence of the event. SECTION 6. Termination of Reporting Obligation. The District's obligations under this Disclosure Agreement shall terminate upon the legal defeasance, prior redemption or payment in full of all of the Bonds. If such termination occurs prior to the final maturity of the Bonds, the District shall give notice of such termination in the same manner as for a Listed Event under Section 5(c). SECTION 7. Dissemination Agent. The District may, from time to time, appoint or engage a Dissemination Agent to assist it in carrying out its obligations under this Disclosure Agreement, and may discharge any such Dissemination Agent, with or without appointing a successor Dissemination Agent. The Dissemination Agent shall not be responsible in any manner for the content of any notice or report prepared by the District pursuant to this Disclosure Agreement. The initial Dissemination Agent shall be Albert A. Webb Associates. The Dissemination Agent may resign by providing thirty days' written notice to the District. The Dissemination Agent shall not be responsible for the content of any report or notice prepared by the District. The Dissemination Agent shall have no duty to prepare any information report nor shall the Dissemination Agent be responsible for filing any report not provided to it by the District in a timely manner and in a form suitable for filing. SECTION 8. Amendment; Waiver. Notwithstanding any other provision of this Disclosure Agreement, the District and the Dissemination Agent may amend this Disclosure Agreement (and the Dissemination Agent shall agree to any amendment so requested by the District) provided, the Dissemination Agent shall not be obligated to enter into any such amendment that modifies or increases its duties or obligations hereunder, and any provision of this Disclosure Agreement may be waived, provided that in the opinion of nationally recognized bond counsel, such amendment or waiver is permitted by the Rule. In the event of any 47706934/ 5 amendment or waiver of a provision of this Disclosure Agreement, the District shall describe such amendment in the next Annual Report, and shall include, as applicable, a narrative explanation 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 presentation) of financial information or operating data being presented by the District. SECTION 9. Additional Information. Nothing in this Disclosure Agreement shall be deemed to prevent the District from disseminating any other information, using the means of dissemination set forth in this Disclosure Agreement or any other means of communication, or including any other information in any Annual Report or notice of occurrence of a Listed Event, in addition to that which is required by this Disclosure Agreement. If the District 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 Agreement, the District shall have no obligation under this Disclosure Agreement to update such information or include it in any future Annual Report or notice of occurrence of a Listed Event. SECTION 10. Filings with the MSRB. All financial information, operating data, financial statements, notices, and other documents provided to the MSRB in accordance with this Disclosure Agreement shall be provided in an electronic format prescribed by the MSRB and shall be accompanied by identifying information as prescribed by the MSRB. SECTION 11. Default. In the event of a failure of the District or the Dissemination Agent to comply with any provision of this Disclosure Agreement, any Owner 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 District or Dissemination Agent, as the case may be, to comply with its obligations under this Disclosure Agreement. A default under this Disclosure Agreement shall not be deemed an Event of Default under the Indenture, and the sole remedy under this Disclosure Agreement in the event of any failure of the District or the Dissemination Agent to comply with this Disclosure Agreement shall be an action to compel performance. SECTION 12. Duties, lmmunities and Liabilities of Dissemination Agent. Article VI of the Indenture pertaining to the Trustee is hereby made applicable to this Disclosure Agreement as if this Disclosure Agreement were (solely for this purpose) contained in the Indenture and the Dissemination Agent shall be entitled to the protections, limitations from liability and indemnities afforded the Trustee thereunder. The Dissemination Agent shall have only such duties as are specifically set forth in this Disclosure Agreement, and the District agrees to indemnify and save the Dissemination Agent, its officers, directors, employees and agents, harmless against any loss, expense and liabilities which they may incur arising out of or in the exercise or performance of its powers and duties hereunder, including the costs and expenses (including attorneys' fees) of defending against any claim of liability, but excluding liabilities due to the Dissemination Agent's negligence or willful misconduct. The Dissemination Agent shall be paid compensation by the District for its services provided hereunder in accordance with its schedule of fees as amended from time to time and all expenses, legal fees and advances made or incurred by the Dissemination Agent in the performance of its duties hereunder. The Dissemination Agent shall have no duty or obligation to review any information provided to it hereunder and shall not be deemed to be acting in any fiduciary capacity for the District, the 47706934J 6 Bond Owners, or any other party. The Dissemination Agent shall not have any liability to the Bond Owners or any other party for any monetary damages or financial liability of any kind whatsoever related to or arising from this Disclosure Agreement. The obligations of the District under this Section shall survive resignation or removal of the Dissemination Agent and payment of the Bonds. SECTION 13. Notices. Any notices or communications to or among any of the parties to this Disclosure Agreement may be given as follows: To the District: City of Lake Elsinore Community Facilities District No. 2006-1 (Sunnuerly) c/o City of Lake Elsinore 130 South Main Street Lake Elsinore, California 92530 Attn: City Manager Telephone: (951) 674 -3124 To the Dissemination Agent: Albert A. Webb Associates 3788 McCray Street Riverside, California 92506 Attn: Municipal Finance Telephone: (951) 248 -4281 Any person may, by written notice to the other persons listed above, designate a different address or telephone number(s) to which subsequent notices or communications should be sent. SECTION 14. Beneficiaries. This Disclosure Agreement shall inure solely to the benefit of the District, the Dissemination Agent, the Participating Underwriter and Owners and Beneficial Owners from time to time of the Bonds, and shall create no rights in any other person or entity. 477069341 SECTION 15. Counterparts. This Disclosure Agreement may be executed in several counterparts, each of which shall be an original and all of which shall constitute but one and the same instrwnent. CITY OF LAKE, ELSINORE COMMUNITY FACILITIES DISTRICT NO. 2006 -1 (SUMMERLY) By Mayor, on behalf of the District ALBERT A. WEBB ASSOCIATES, as Dissemination Agent By Authorized Signatory 47706934) 8 EXHIBIT A NOTICE TO MSRB OF FAILURE TO FILE ANNUAL REPORT Name of Obligated Party: City of Lake Elsinore Community Facilities District No. 2006 -1 (Summerly) Name of Bond Issue: Lake Elsinore Public Financing Authority Local Agency Revenue Bonds (Summerly IA B), 2015 Series A Date of Issuance: February , 2015 NOTICE IS HEREBY GIVEN that the District has not provided an Annual Report with respect to the above -named Bonds as required by the Continuing Disclosure Agreement, dated as of February 1, 2015, with respect to the Bonds. [The District anticipates that the Annual Report will be filed by .] Dated: ALBERT A. WEBB ASSOCIATES, as Dissemination Agent on behalf of District cc: Authority 47706934/ o� s o— n y v � p c a .. U � m � v E sw z c c � o O C y O a� O .0 is E � o� c o � o p w c o E U V U � c � o v c H a a E ro E vw � O �- ro v � a E � o � � v o � N `v `o � U O v � E .= c c o U u U N � o w a ° o C U t N p U c c v O � U C G Y c C ro E m' a � � v .N � ffi 7 m =' c a v E = c 0 yr E a ro � W N O ro V V ro "- c O`^ 0 U V Is w E Siradling ) occa Carlson & Rautla Draft of 1 /21/15 PRELIM I NARY OFFICIAL STATEME'N'T DATED JANUARY , 2015 NEW ISSUE -FULL BOOK ENTRY NO RATING In the opinion of Norton Rose Fulbrighl US LLP, Los Angeles, Caliitarnia ( "Bond Counsel "), under existing lain, and assuming compliance with the lax covenau.s described herein, interest an the Bonds is excluded pursuant to section 103(0) of the Internal Revenue Code oj1986.1rom the gross income ofthe owners thereofjorjederal intone tax proposes and is not an item oflns preference fbr pu po.v,s of the federal alternalive minimum tax. It is also the opinion of Bond Counsel that under existing lm' interest on the Bonds is exempt jrom personal income laxe.s of the Stale of Cahjornia. See "LEGAL IvlA771-.'16 Tax Matters- herein. $2,000,000 LAKE ELSINORE PUBLIC FINANCING AUTHORITY LOCAL AGENCY REVENUE BONDS (SUMMERLY IA B), 2015 SERIES A Due: September 1 as shown on inside cover Dated: Dateof Delivery The Lake Elsinore Public Financing Authority Local Agency Revenue Bonds (Smnmerly IA B), 2015 Series A (the "Bonds") are being issued by the Lake Elsinore Public Financing Authority (the "Authority") primarily to acquire cattail) special tax bonds (the `District Bonds ") of Improvement Area B (`Improvement Area B ") of City of Lake Elsinore Community Facilities Disu-iel No. 2006 -1 (Sonmealy) (the "District') formed by the City of Lake Elsinore. The District Bonds are being issued to (it to finance a portion of certain public facilities eligible to be financed by Improvement Area B; (ii) fund it reserve account: (iii) fund capitalized on the District Bonds through September I, 2015 and (iv) pay costs of issuance of the Bonds. See "FINANCING PLAN." 'I'hc Bonds are payable solely from Revenues and Redemption Revenues (defined herein) pledged by the Authority pursuant to that certain Indenture of Trust, dated as of February I, 2015 (the "Indenture "), by and between the Authority and MUFG Union Bank, N.A., as tr'ustea (the "Trustee "). Revenues consist primarily of special taxes levied in Improvement Area Band paid to the Authority as debt service on the District Bonds. Developers owning property within Improvement Area B have committed to provide irrevocable letters of credit to secure payment of such developers' Special Taxes for a limited period. See "SECURITY FOR THE BONDS — Revenues: Flow of Funds" and "SECURITY FOR THE DISTRICT BONDS— Developers' Letters of Credit" "I7te Bonds will be issued in denominations of $5,000 or any integral multiple thereof. Interest on the Bonds is payable on each March I and September 1, commencing September L 2015. The Bonds will be initially issued only in book -city from and registered in the name of Cede & Co. as nominee of The Depository Trust Company, New York, New York (`DTC "), which will act as securities depository of the Bonds. Principal and interest (and premium, if any) on the Bonds is payable by the li ustee to DTC, which is to remit such payments to its Participants for subsequent distribution to the beneficial owners of the Bonds. See "THE BONDS General Provisions" and — Book -Entry Only System" herein. The Bonds arc subject to optimal, mandatory and extraordinary redemption prior to maturity as described herein. See "TLI I : 13ON DS -- Redemption." CERTAIN EVENTS COULD AFFECT 771E ABILITY OF THE AUTHORITY TO PAY THE PRINCIPAL OF AND INTEREST ON THE BONDS WHEN DUE. THE PURCHASE OF THE BONDS INVOLVES SIGNIFICANT INVESTMENT RISKS, AND THE BONDS MAY NOT BE SUITABLE INVESTMENTS FOR MANY INVESTORS. SEE 777E SECTION OF THIS OFFICIAL STATEMENT ENTITLED "SPECIAL RISK FACTORS" FOR A DISCUSSION OF CERTAIN RISK FACTORS THAT SHOULD BE CONSIDERED, IN ADDITION TO THE OTHER MATTERS SET FORTH HEREIN, IN EVALUATING THE INVESTMENT QUALITY OF THE BONDS. Mahtri!f Schedule (see inside cover) The Bonds will be offered when, as and if issued and received by the Underwriter, subject to the approval as to their legality by Norton Rose Fullmight US LLP, Los Angeles, California, as Bond Counsel. Certain legal matters will be passed upon Irr the City and the Authority by the City Attorney and by Stradling Yocca Carlson & Rauth, it Professional Corporation, Newport Beach, California, as Disclosure Counsel. Certain legal matters will be passed on for the Underwriter by Nossaman LLP, Irvine, California. It is anticipated that the Bonds in definitive Irani will be available for delivery to DTC or its agent on or about February 25, 2015. Dated: February —,2015 P, ehrrtlnay. .sad {leer to change. Stifel MATURITY SCHEDULE LAKE ELSINORE PUBLIC FINANCING AUTHORITY LOCAL AGENCY REVENUE BONDS (SUMMERLY ]A B), 2015 SERIES A Maluritp (September 1) Principal Amount Interest Rate Yield CUSIPr No. S — '% Term Bonds dnc September 1, 20_; Yield ; CUSIPt ' CI 411'UD u a registered widenmr /s of the Aniertcai Bankers A.ssaciatian. C101' Glohal Services ( "CGS ") is nnaaaged mr beliclU if the American Banters Association by V P Caphal /Q. Co/sw ighiC{i 2015 CUS11) Global Set vices. A// rights reserved. This data is nol blended to create a damhase and does not s'etve in an+ ivay as a sab,stitute for CGS. CUSIPCto it, mbers w provided fo, convenience (if) gference 01711'. Nether the Aathoritp nor the Underwriter take %may resprmsihihi j)joi the acna'aey of.such namhers. LAKE ELSINORE PUBLIC FINANCING AUTHORITY Natasha Johnson, Chair Brian Tisdale, Vice Chair Daryl Hickman, Board Member Robert Magee, Board Member Steve Maros, Board Member CITY AND AUTHORITY OFFICIALS Grant Yates, City Manager /Authority Executive Director and Secretary Jason Simpson, City Director of Administrative Services /Authority Treasurer Barbara Leibold, Esq., City Attorney /Authority Counsel CITY OF LAKE ELSINORE, CALIFORNIA CITY COUNCIL Steve Manos, Mayor Brian Tisdale, Mayor Pro Tem Daryl I lickman, Council Member Natasha Johnson. Council Member Robert Magee, Council Member BOND COUNSEL Norton Rose Fulbright US LLP Los Angeles, California DISCLOSURE COUNSEL Stradling Yocca Carlson & Rauth, a Professional Corporation Newport Beach, California FINANCIAL ADVISOR Urban Futures Incorporated Orange, California SPECIAL TAX CONSULTANT Albert A. Webb Associates Riverside, California REAL ESTATE APPRAISER Stephen G. White, MAI Fullerton, California TRUSTEE MUFG Union Bank, N.A. Los Angeles, California hn,cslmenl in the Bonds involves risks which are not approlmale for cerlain inveslor.s. 7'her'e7ore, on/V persons with .sabslantial finaneiol resources On nel worth or income) who underslond tho,sc risks should consider .such an inveshnew. Except where otherwise indicated, all information contained in this Official Statement has been provided by the Authority, the City and the District. No dealer, broker. salesperson or other person has been authorized by the Authority, the City, the District, the Trustee or the Underwriter to give any information or to make any representations in connection with the offer m salc of the Bonds other than those contained herein; and, if given or made, such other information or representations most not be relied upon as having been authorized by the Authority, the City, the District, the Trustee or the Underwriter. This Official Statement does not constitute an offer to sell or the solicitation of an offer to buy not shall there be any sale of the Bonds by a person in any jurisdiction in which it is unlawful for such person to make such an offer, solicitation or sale. The information set forth herein which has been obtained from third party sources is believed to be reliable but is not guanmteed as to accuracy or completeness by the Distict, the City or the Authority. 'this Official Statement is not to be conshued as a contract with the purchasers or Owners of' the Bonds. Statements contained in this Official Statement which involve estimates, forecasts or matters of opinion, whether or not expressly so described herein, are intended solely as such are not to be construed as representations of fact. 'the Underwriter has provided the following sentence for inclusion in this Official Statement: The Undewriter has reviewed the infornodion in this Official Statement in accordance with, and as a 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 of completeness ot'such information. 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 shall, under any circumstances, create any implication that there has been no change in the affairs of the Authority, the City, the District or any other parties described herein since the date hereof. All summaries of the Indenture or other documents are made subject to the provisions of such documents respectively and do not purport to be complete statements of any or all of such provisions. Reference is hereby made to such documents on file with the City for further information in connection therewith. Certain statements included o- incorporated by reference in this Official Statement constitute "forward- looking statements" within the meaning of the United States private Securities Litigation Reform Act of 1995, Section 21E. of the United States Securities Exchange Act of 1934, as amended, and Section 27A of the United States Securities Act of 1933. as amended. Such statements are generally identifiable by the terminology used such as "plan," "expect," "estimate," "project. "`budget" or other similar words. 'fhe achievement of certain results or other expectations contained in such forward - looking statements involve (mown and unknown risks, uncertainties and other factors which may cause actual results, performance of achievements described to be materially different from any future results, performance or achievements expressed or implied by such forward - looking statements. The Authority does not plan to issue any updates of revisions to the forward-looking statements set forth in this Official Statement. The District is obligated to provide continuing disclosure for certain historical information only. See the caption "MISCELLANEOUS — Continuing Disclosure" herein. IN CONNECTION WITH THE OFFERING OF THE BONDS, THE UNDERWRITER MAY OVERALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF SUCH BONDS AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. THE BONDS HAVE NOT 13EEN 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. TABLE OF CONTENTS Paste FINANCINGPLAN ........................................................................................................................ ..............................6 Purposeof Issue ........................................................................................................................ ..............................6 Estimated Sources and Uses of Funds ...................................................................................... ..............................7 THEBONDS ................................................................................................................................... ..............................8 GeneralProvisions ................................................................................................................... ..............................8 Redemption................................... ......................................... ........... .... ..... ........................................................... 9 Book -Envy Only System ...................................................................................................... ............................... 12 Estimated Debt Service Schedules: Bonds and District Bonds ............................................ ............................... 13 Debt Service Coverage for the Bonds ................................................................................... ............................... 15 SECURITYFOR THE BONDS._ .................................................................................................. .............................18 General.................................................................................................................................... .............................18 Revenues; Flow of Funds ...................................................................................................... ............................... 18 ReserveAccount ...................................................................................................................... .............................20 CashPlow Management Fund ............................................................................................... ............................... 21 RedemptionFund .................................................................................................................... .............................22 NoParity Debt ......................................................................................................................... .............................22 SECURITY FORTHE DISTRICT BONDS_ ............................................................................... .............................22 General.................................................................................................................................. ............................... 22 Special Tax Revenues and District Redemption Revenues ..................................................... .............................23 NoTeeter Plan ......................................................................................................................... .............................25 DistrictParity Bonds ............................................................................................................... .............................25 Priorityof Lien of Special " Taxes ............................................................................................. .............................26 Covenantsof the District ......................................................................................................... .............................26 Developers' Letters of Ci edif................ .. ........................................................... .................................................. 28 THE DISTRICT AND IMPROVEMENT AREA B ...................................................................... .............................28 GeneralInformation ................................................................................................................ .............................28 ImprovementArea B ............................................................................................................... .............................29 Rateand Method of Apportionment ........................................................................................ .............................30 AppraisalReport ...................................................................................................................... .............................33 EstimatedValue -To -Lien Ratios ........................................................................................... ............................... 34 Directand Overlapping Debt ........................................................................ ........................... .............................37 TopTaxpayers ......................................................................................................................... .............................39 DelinquencyHistory ................................................................................................................ .............................40 DEVELOPMENT OP PROPERTY IN IMPROVEMENT AREA B ............................ ....... ...................................... 41 General Description of the Development .............................................................................. ............................... 41 Developmentby Ryland .............................. ..................................................... .............. ...... .. ............... .............. 41 Developmentby Meritage ....................................................................................................... .............................45 SPECIALRISK FACTORS ......................................................................................................... ............................... 49 Risks of Real Estate Secured Investments G enerally .......................................... ..._....... ..................................... 49 Concentration of Ownership._.._ ............................................................................................. .............................49 Failure to Develop Remaining Homes— ........................................................ ---- .......... ............... 49 TABLE OF CONTENTS (continued) Pie The Bonds are Limited Obligations ofthe Authority .............................................................. .............................50 NoObligation of City_ ............................ ........................... .. .. .. .. ..................................... .......................... 51 ProperlyValues ..................................................................................................................... ............................... 51 NaturalDisasters ................................................................................................................... ............................... 52 HazardousSubstances ........................................................................................................... ............................... 52 Parity Taxes and Special Assessments .................................................................................... .............................53 Payment of the Special Tax is not a Personal Obligation of the Owners ................................ .............................53 Disclosures to Future Purchasers ............................................................................................. .............................53 SpecialTax Delinquencies ...................................................................................................... .............................54 Insufficiencyof Special Taxes ................................................................................................ .............................54 PriorityAdministrative Expenses ............................................................................................ .............................55 FDIC /Federal Government Interests in Properties .................................................................. .............................55 Bankruptcyand Foreclosure .................................................................................................... .............................57 NoAcceleration Provision .......... ........................ ....... .............. ........ ... .... ... .... ................................... .. ........ ......... 57 Limitationson Remedies ......................................................................................................... .............................57 Lossof Tax Exemption ........................................................................................................... .............................58 LimitedSecondary Market ................................. ........................ .... .... .............. ................................ .................... 58 Proposition218 ........................................................................................................................ .............................59 Ballot Initiatives and Legislative Matters ................................................................................ .............................60 LEGAL, MATTERS ....................................................................................................................... .............................61 TaxMatters .............................................................................................................................. .............................61 Absenceof Litigation ............................ .......................................................................... ....... . ............................. 63 LegalOpinion .......................................................................................................................... .............................63 MISCELLANEOUS....................................................................................................................... .............................64 NoRating ................................................................................................................................ .............................64 Underwriting......................................................................................................................... ............................... 64 ContinuingDisclosure ............................................................................................................. .............................64 PendingLegisl ation ................................................................................................................. .............................66 AdditionalInformation .......................................................................................................... ............................... 66 APPENDIX A SUMMARY OF CERTAIN PROVISIONS OF PRINCIPAL LEGAL DOCUMENTS ..............A -1 APPENDIX B RATE AND METHOD OF APPORTIONMENT OF SPECIAL T AXES .... ............................... B -1 APPENDIX C APPRAISAL REPORT ..... ................................. ........................................................................... C -1 APPENDIX D FORM OF BOND COUNSEL OPINION ........... ..................................... .................................... D -1 APPENDIX E FORM OF DISTRICT CONTINUING DISCLOSURE AGREEMENT ...... ............................... E -1 APPENDIX F FORM OF RYLAND CONTINUING DISCLOSURE AGREEMEN' f .......... ..............................F 1 APPENDIX G DTC AND THE BOOK -ENTRY -ONLY SYSTEM ............................. ........................... ............G -1 REGIONAL MAP /PHOTO OFFICIAL. STATEMENT $2,800,000` LAKE ELSINORE PUBLIC FINANCING AUTHORITY LOCAL AGENCY REVENUE BONDS (SUMMERLY IA B), 2015 SERIES A INTRODUCTION The propose of this Official Statement, which includes the cover page and Appendices hereto (the "Official Statement "), is to provide certain information concerning the sale and issuance of the Lake Elsinore Public Financing Authority Local Agency Revenue Bonds (Summerly IA B), 2015 Series A (the `Bonds ") issued under the Indenture (defined below). This hilroduction is not a summary o this Official Statement. It is only a briefdescriptiorz of and guide to, and is qualified by, more complete and detailed information contained in the entire Official Statement and the documents summarized or described herein. A full review should be made of entire Offcial Statement. The of fering gfthe Bonds to potential investors is made only by means of the entire Official Statement. Capitalized terms not defined herein shall have the meaning set forth in Appendix A hereto. See AppendixA — "SUMMARY OF CERTAIN PROVISIONS OF PRINCIPAL LEGAL DOCUMENTS." Financing Purpose Purpose of the Bonds. The Bonds are being issued by the Lake Elsinore Public Financing Authority (the "Authority ") pursuant to an Indenture of Trust dated as of February 1, 2015 (the "Indenture "), by and between the Authority and MUFG Union Bank, N.A., as trustee (the "Trustee "). The proceeds of the Bonds will be used to acquire the City of Lake Elsinore Community Facilities District No. 2006 -1 (Summerly) Special Tax Bonds, Series 2015 (Improvement Area B) (the "District Bonds "), to fund a reserve account for the Bonds (the "Reserve Account") and to pay the costs of issuing the Bonds. The principal and interest payments on the District Bonds to be received by the Authority are the primary source of repayment for the Bonds. See "FINANCING PLAN" herein. Purpose gfthe District Bonds, The District Bonds are being issued by City of Lake Elsinore Community Facilities District No. 2006 -1 (Sunmuerly) (the "District') for Improvement Area B (`Improvement Area B ") therein. The District Bonds are secured by special taxes (the "Special Taxes ") paid by taxpayers within Improvement Area B in accordance with the Rate and Method of Apportionment of Special Taxes for Improvement Area B (the "Rate and Method "). The District was formed by the City of Lance Elsinore (the "City ") to finance certain public facilities. See "THE DISTRICT AND IMPROVEMf`NT AREA B — Improvement Area B" and Appendix B — "RATE AND METHOD OF APPORTIONMENT OF SPECIAL TAXES" herein. P, eliniinmy, sublcci to charge. The net proceeds of the District Bonds, along with other available funds, will be used as follows (see "FINANCING PLAN" herein): W to finance a portion of certain public facilities eligible to be financed by Improvement Area B; (ii) to pay the costs of issuing the Bonds; (iii) to fund capitalized interest on the District Bonds through September 1, 2015; and (iii) to fund the Reserve Account established under the Indenture The Bonds; The District Bonds The Bonds will be issued and will be secured under the Indenture by a pledge and lien on the Revenues and Redemption Revenues (as defined below). Revenues consist primarily of revenues received by the Authority from the payment of debt service on the District Bonds and amounts held in the finds and accounts established and held for the benefit of the Bonds under the Indenture. Debt service on the District Bonds is paid from the proceeds of Special Taxes levied on the taxable property within Improvement Area B which remain after the payment of administrative expenses. Redemption Revenues consist of (a) amounts received from the redemption of the District Bonds from amounts constituting prepayments of Special Taxes, (b) amounts received from the optional redemption of the District Bonds, and (c) amounts received from the special mandatory redemption and mandatory redemption of the District Bonds. See "SECURITY FOR THE BONDS" and Appendix B — "RATE AND METHOD OF APPORTIONMENT OF SPECIAL TAXES." Legal Authority The Bonds. The Bonds are being issued under Article 4 of Chapter 5 of Division 7 of Title 1 of the Government Code of the State of California (the "Act ") and the Indenture. The District Bonds. The District Bonds are being issued pursuant to the Mello -Roos Community Facilities Act of 1982, as amended, being Chapter 2.5, Part 1, Division 2, Title 5 of the Government Code of the State of California (the "Mello -Roos Act'). The District Bonds are issued and secured under a fiscal agent agreement dated as of February 1, 2015 (the "Fiscal Agent Agreement "), by and between the District and MUFG Union Bank, N.A. (the "Fiscal Agent'). The Fiscal Agent Agreement was approved by the City Council of the City of Lake Elsinore (the "City Council "), acting as the legislative body of the District. Sources of Payment for the Bonds and the District Bonds The Bonds. The Bonds are secured by a first lien on and pledge of all of the Revenues and Redemption Revenues and a first lien and pledge of all moneys in the Bond Fund, the Revenue Fund, the Redemption Fund and the Cash Flow Management Fund (subject to the transfers from such Cash Flow Management Fund as authorized by the Indenture). See "SECURITY FOR THE BONDS." Certain Account Not Pledged. Amounts held in the Rebate Account are not pledged to the repayment of the Bonds. See "SECURITY FOR THE BONDS Revenues; Flow of Funds" herein. 2 District Bonds. The District Bonds will be payable from Special Tax Revenues and any District Redemption Revenues (as defined below). Notwithstanding the foregoing, "Special Tax Revenues" does not include any penalties or interest in excess of the interest payable on the Bonds collected in connection with delinquent Special Taxes. The Developers (as defined herein) have each committed to provide, on the Closing Date, an irrevocable letter of credit to secure payment of Special Taxes levied on the property in Improvement Area B owned by each respective Developer for a limited period. See "SECURITY FOR THE DISTRICT BONDS — Special Tax Revenues and District Redemption Revenues" and "— Developers' Letters of Credit." Description of the Bonds Payments. Interest on the Bonds is payable on each March 1 and September 1, commencing September 1, 2015. Principal of and premium, if any, on the Bonds shall be payable by the Trustee. See "THE BONDS — General Provisions" and " —Book -Entry Only System" herein. Denominations. The Bonds will be issued in denominations of $5,000 each or integral multiples thereof. Redempion. The Bonds are subject to optional, mandatory and extraordinary redemption prior to maturity. See "THE BONDS — Redemption" herein. Registration, tra refers and exchanges. The Bonds will be issued as fully registered bonds, registered in the name of Cede & Co. as nominee of The Depository Trust Company, New York ( "DTC "), and will be available to actual purchasers of the Bonds (the "Beneficial Owners ") under the book -entry system maintained by DTC. See "THE BONDS— Book -Entry Only System." Neither the Bonds nor the District Bonds are a debt of the City, and no revenues of the City are pledged to repayment of the Bonds or the District Bonds. The Authority The Authority is a joint exercise of powers authority organized and existing pursuant to the Act. Its members are the City and the Lake Elsinore Redevelopment Agency (the "Agency "), and its Board of Directors consists of the members of the City Council from time to time. The City Manager serves as the Executive Director and Secretary of the Authority. The City's Director of Administrative Services serves as the Treasurer of the Authority. On June 28, 2011, the Governor of the State of California (the "State ") signed ABXI 26 (the "Dissolution Act ") and on December 29, 2011, the State Supreme Court upheld the Dissolution Act which dissolved all redevelopment agencies in the State. The State Supreme Court decision also extended by four months all deadlines in the Dissolution Act occurring prior to May 2012. Therefore, based on the State Supreme Court's ruling and the Dissolution Act, all redevelopment agencies were dissolved as of February 1, 2012. The Dissolution Act creates successor agencies to continue to satisfy enforceable obligations of each former redevelopment agency. Pursuant to the Dissolution Act, the successor agency (the "Successor Agency ") is the sponsoring community of the redevelopment agency unless it elects not to serve in that capacity. In the case of the former Agency, the City elected to be the Successor Agency. Under the Dissolution Act, agreements contracts or arrangements between a city or county, or city and county that created a redeployment agency and a redevelopment agency are invalid. However, the Dissolution Act provides that notwithstanding the foregoing, certain of such agreements are not invalid, including a joint exercise of power agreement in which a redevelopment agency is a member of the joint powers authority. The District GeneraL The District comprises a portion of Summerly, a planned residential community located in the southeast portion of the City, to the east of Lake Elsinore. McMillin Communities ( "McMillin') acquired the Summerly project in 2010 and serves as the master developer. At buildout, the Summerly project is expected to include approximately 1,500 single family detached homes, commercial, recreational and open space. The Summerly project will be built in four phases or Villages. The District is located within Village I of the Summerly project. Improvement Arca B. Improvement Area B is located in the City to the south of Malaga Road and cast of Diamond Drive. Improvement Area B contains approximately 33.4 gross acres and 25.5 net acres being developed by Ryland Homes of California, Inc., a Delaware corporation ( "Ryland ") and Meritage Homes of California, Inc., a California corporation ( "Meritage" and together with Ryland, the "Developers "). The proposed developments by Ryland and Meritage consist of 106 and 76 planned single family residences, respectively. As of December 10, 2014 (the Date of Value set forth in the Appraisal as further described below), within Improvement Area B, Ryland and Meritage had completed and conveyed 45 and 33 homes to individual homeowners, respectively. All the in -tract infrastructure necessary to complete the planned development within Improvement Area B has been constructed. McMillin no longer owns any property within Improvement Area B. See "THE BONDS Debt Service Coverage for the Bonds" and "DEVELOPMENT OF PROPERTY IN IMPROVEMENT AREA B." Formation Process. In 2006, the City formed the District and designated three improvement areas (`Improvement Area Nos. 1 through 3 ") therein pursuant to the Mello -Roos Act. In 2011, the City completed proceedings to amend the District. The amendment proceedings established six improvement areas (Improvement Areas A through F) from portions of the area within Improvement Area Nos. 1 through 3 and left remaining a certain portion of one improvement area (Improvement Area No. I ). The amendment proceedings also authorized special taxes to be levied within each of Improvement Areas A through F in accordance with separate rates and methods of apportionment of special taxes and the incurring of bonded indebtedness for each of such improvement areas. See "THE DISTRICT AND IMPROVEMENT AREA B" herein. Appraisal Report An MAI appraisal of the land and existing improvements within Improvement Area B was prepared by Stephen G. White, MAI, Fullerton, California (the "Appraiser'). The appraisal is dated December 15, 2014, and is entitled "Appraisal Report Covering Community Facilities District No. 2006 -1 of the City of Lake Elsinore, Improvement Area B (Summerly)" (the "Appraisal Report'). See APPENDIX C — "APPRAISAL REPORT." The Appraisal Report provides an estimate of the aggregate market value of the as -is condition of the taxable property within Improvement Area B as of the date of value, December 10, 2014 (the "Date of Value "). Improvement Area B is being developed by the Developers into two separate neighborhoods: Sunrise Springs at Summerly (developed by Ryland) and Meridian at Summerly (developed by Meritage). 4 As of the Date of Value, of the 182 lots within Improvement Area B, 78 completed homes had been sold and conveyed to individual homeowners and 14 completed homes (including five model homes), 20 homes in various stages of construction, 44 lots in a near finished lot condition with building permits issued and 26 lots in a near finished lot condition for which no building permits had been issued were owned by the Developers. As of the Date of Value, the Appraiser estimated the market value of the fee simple interest of the property within Improvement Area B to be $36,250,000, consisting of (i) $24,660,000 for the 78 completed homes owned by individual homeowners, (ii) $1,145,000 for the 14 completed homes (including five model homes) owned by the Developers, (iii) $2,650,000 for the 20 homes in various stages of construction owned by the Developers, and (iii) $5,320,000 for the 70 or near finished lots owned by the Developers. The Appraisal Report is based upon a variety of assumptions and limiting conditions that are described in APPENDIX C. The City and the District make no representation as to the accuracy of the Appraisal Report. See "IMPROVEMENT AREA B -- Appraisal Report" and "— Estimated Value -to -Lien Ratios." There is no assurance that the property within Improvement Area B can be sold for the prices set forth in the Appraisal Report or that any parcel can be sold for a price sufficient to pay the Special Tax for that parcel in the event of a default in payment of Special Taxes by the landowner. See "THE DISTRICT AND IMPROVEMENT AREA B," "SPECIAL RISK FACTORS — Property Values" and APPENDIX C — "APPRAISAL REPORT" herein. Professionals Involved in the Offering All proceedings in connection with the issuance of the Bonds are subject to the approval of Fulbright & Jaworski LLP, Los Angeles, California, a member of Norton Rose Fulbright, Bond Counsel. The City Attorney will render a legal opinion on certain matters for the Authority. Certain legal matters will be passed upon for the Authority and the District by Stradling Yocca Carlson & Rauth, a Professional Corporation, Newport Beach, California, Disclosure Counsel. Urban Futures, Inc. is acting as Financial Advisor to the Authority. Albert A. Webb Associates is acting as Special Tax Consultant to the City. MUFG Union Bank, N.A., Los Angeles, California, will act as the Trustee for the Bonds. Stifel, Nicolaus & Company, Incorporated (the "Underwriter ") is acting as underwriter in connection with the issuance and delivery of the Bonds. Nossaman LLP, Irvine, California, will act as counsel to the Underwriter ("Underwriter's Counsel "). Bond Counsel, Disclosure Counsel, the Underwriter and Underwriter's Counsel will receive compensation contingent upon issuance of the Bonds. Continuing Disclosure The District will execute a Continuing Disclosure Agreement and will covenant therein for the benefit of holders and Beneficial Owners of the Bonds to provide certain financial information and operating data relating to the District in an annual report (the "Annual Report") to be filed no later than December 31 of each year commencing with the Annual Report for the year ending December 31, 2015 (the "Annual Report "), and to provide notices of the occurrence of certain enumerated events. The Annual Report shall contain or include by reference the information set forth in the Continuing Disclosure Agreement. The Annual Report and notices of enumerated events will be filed by the Authority with the Municipal Securities Rulemaking Board through its Electronic Municipal Market Access system at Inttf_ / /emma.msrb,o�g . These covenants will be made in order to assist the Underwriter in complying with Securities and Exchange Commission Rule 15c2- 12(b)(5) (the "Rule "). 5 During the last five years, the Authority, the City, the Agency and the District failed to comply in certain respects with their continuing disclosure obligations related to outstanding bonded indebtedness. See" MISCELLANEOUS — Continuing Disclosure." Additionally, Ryland will execute a Continuing Disclosure Agreement (the `Ryland Continuing Disclosure Agreement"), pursuant to which Ryland has agreed to provide, or cause to be provided, on a semi -annual and annual basis, to EMMA, certain financial information and operating data concerning Ryland's development within Improvement Area B as well as notice of certain listed events until such time as Ryland is no longer expected to be responsible for more than 20% of the Special Tax levy. These covenants will be made in order to assist the Underwriter in complying with the Rule. Ryland's division is the division which will be responsible for complying with Ryland's obligations under the Ryland Continuing Disclosure Agreement. Other than as described in this Official Statement under the heading "MISCELLANEOUS — Continuing Disclosure," Ryland has not failed to comply in all material respects with any filing requirements under the Rule under other bond continuing disclosure agreements in southern California in the last five years. See "MISCELLANEOUS — Continuing Disclosure," APPENDIX E and APPENDIX F for a description of the specific nature of the semi - annual reports, annual reports and notices of listed events to be provided by the District and Ryland. FINANCING PLAN Purpose of Issue The Authority is issuing the Bonds to purchase the District Bonds, to fund the Reserve Account and to pay the costs of issuing the Bonds. See "— Estimated Sources and Uses of Funds" below. Estimated Sources and Uses of Funds The Bonds. The anticipated sources and uses of funds relating to the Bonds and certain funds transferred firm the District are as follows: Sources: Principal Amount of the Bonds $ Plus /Less Original Issue Premium /Discount Transfer from the Districttlt Total Sources Usest`l: Bond Purchase Fund $ Reserve Account Administrative Expense Fundt3l Underwriter's Discount Cost of Issuance Total Uses ft Includes amounts it ansfcrred from certain District funds. M The Authority will acquits the Disu'ict Bonds for a total purchase price of $ and in consideration of the purchase, the District and the Authority will agree to the application of the purchase r picc of the District Bonds as set fmlh below under the caption " District Bonds." tit The Authority will transfer $ into the administrative expense fund held under the Fiscal Agent Agreement for the District Bonds. See the caption "— Districl Bonds" below. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] 7 District Bonds. The anticipated sources and uses of funds relating to the District Bonds and prior funds of the District are as follows: Sources Principal Amount S Plus /Less Net Original Issue Premium /Discount Prior Funds of the Distriettll Total Sources S Uses Total Improvement Fund Interest Aeeotu t(2) Reserve Account(3) Administrative Expense Fund Costs of Issuance Fund (4) Underwriter's Discount Total Uses (1) Includes amounts transferred firm certain District fluids. t2i Represents interest on the District Bonds capitalized through September 1, 2015. to On the date of issuance of Ole Bonds and the District Bonds, the District will transfer a portion of the proceeds fi-om the sale of the District Bonds to the Authority for deposit into the Reserve Account established under the Indenture. 0) On the date of issuance of the Bonds and the District Bonds, the Disu'ict will transfcr a portion of the proceeds from the sale of the District Bonds to the Authority for deposit into the Costs of Issuance Fund held under the Indenture. Amounts in the Costs of Issuance Fund will be used to pay 'Trustee fees, Bond COW1Se1, Disclosure Counsel, the Appraiser, the Special Tax Consultant and other legal fees, printing costs and other related costs. THE BONDS General Provisions The Bonds will be dated their date of delivery, and the Bonds will mature in the amounts and on the dates set forth on the inside front cover hereof: The Bonds will bear interest from their dated date at the rates per annum set forth on the inside front cover hereof, payable each March I and September 1, commencing September 1, 2015 (each, an "Interest Payment Date"), The Bonds will be issued in fully registered form in denominations of $5,000 each or any integral multiple thereof so long as no Bond shall have more than one maturity date. Interest on the Bonds shall be payable on each Interest Payment Date to the person whose name appears on the Registration Books as the Owner thereof as of the Record Date immediately preceding each such interest Payment Date, such interest to be paid by check ofthe Trustee mailed by first -class mail, postage prepaid, on each Interest Payment Date to the Owner at the address of such Owner as it appears on the Registration Books as of the preceding Record Date; provided, however, that at the written request of the Owner of at least $1,000,000 in aggregate principal amount of Outstanding Bonds filed with the Trustee prior to any Record Date, interest on such Bonds shall be paid to such Owner on each succeeding Interest Payment Date by wire transfer of immediately available funds to an account in the continental United Slates designated in such written request. Any such written request shall remain in effect until rescinded in writing by the Owner. Principal of and premium (if any) on any Bond shall be paid upon presentation and surrender thereof, at maturity or the prior redemption thereof, at the Corporate Trust Office. The principal of and interest and premium (if any) on the Bonds shall be payable in lawful money of the United States of America. Each Bond shall bear interest from the Interest Payment Date next preceding the date of authentication thereof, unless (a) it is authenticated on or before the Interest Payment Date and after the close of business on the preceding record date, in which event it shall bear interest from such Interest Payment Date; or (b) it is authenticated on or before August 15, 2015, in which event it shall bear interest from the Closing Date; or (c) interest with respect to any outstanding Bond is in default, such Bond shall bear interest from the Interest Payment Date to which interest has previously paid in full or made available for payment thereon payable on each Interest Payment Date. The Bonds will be registered in the name of Cede & Co., as nominee of DTC. DTC will act as securities depository of the Bonds. Ownership interests in the Bonds may be purchased in book- entry form only in denominations of $5,000 and any integral multiple thereof. See the subsection hereof entitled "Book - Entry Only System." Redemption Optional Redemption., The Bonds are subject to redemption prior to maturity at the option of the Authority on any date on or after September 1, 20 , as a whole or in part from such maturities as selected by the Authority and by lot within a maturity, from any available source of fiords at the redemption price equal to the principal amount of Bonds to be redeemed, together with accrued interest thereon to the date fixed for redemption, without premium. Mandatory Sinking Fund Redemption.` The Bonds maturing on September 1, 20 are subject to mandatory redemption in part by lot, on September I in each year, commencing September 1, 20 , from mandatory sinking payments made by the Authority into the Principal Account of the Bond Fund field under the Indenture, at a redemption price equal to the principal amount thereof to be redeemed, without premium, plus accrued interest thereon to the date of redemption in the aggregate principal amounts and on September I in the respective years as set forth in the following schedules; provided, however, that (i) in lieu of redemption thereof, such Bonds may be purchased by the Authority and tendered to the Trustee, and (ii) if some but not all of such Bonds have been redeemed pursuant to the optional redemption, mandatory sinking payment redemption or special mandatory redemption from prepayment of Special Taxes and surplus funds provisions in the Indenture, the total amount of all future mandatory sinking payments will be reduced by the aggregate principal amount of such Bonds so redeemed, to be allocated among such mandatory sinking payments on a pro rata basis (as nearly as practicable) in integral multiples of $5,000, as determined by the Authority. l'rxlin,inary, subject/ io change 9 Bonds Maturing September 1, 20 Sinking Fund Principal Amount Redemption Dole to Be (September 1) Redeemed x Maturity. Special Mandatory Redemption From Prepayment of Special Taxes and Surplus Funds. The Bonds are subject to mandatory redemption prior to maturity on any date on or after March 1, 20_, in whole or in part from such maturities as selected by the Authority and by lot within a maturity, from the redemption of District Bonds from amounts constituting prepayments of Special Taxes and from amounts held in the Delinquency Management Fund under the Fiscal Agent Agreement and from amounts in the Cash Flow Management Fund under the Indenture at the following redemption prices (expressed as a percentage of the principal amount of Bonds to be redeemed) together with accrued interest thereon to the redemption date. Redemption Dates Redemption Prices % Notice of Redemption. The Trustee oil behalf and at the expense of the Authority will mail (by first -class mail) notice of any redemption to the respective Owners of any Bonds designated for redemption at their respective addresses appearing on the Registration Books, to the Securities Depositories and to one or more Information Services, at least' thirty (30) but not more than sixty (60) days prior to the date fixed for redemption. Neither failure to receive any such notice so mailed nor any defect therein will affect the validity of the proceedings for the redemption of such Bonds or the cessation of the accrual of interest thereon. Such notice will state the date of the notice, the redemption date, and the redemption price and will designate the CUSIP numbers, the Bond numbers (but only if less than all of the Outstanding Bonds are to be redeemed) and the maturity of the Bonds to be redeemed, and will require that such Bonds be then surrendered at the Corporate Trust Office of the Trustee for redemption at the redemption price, giving notice also that further interest on such Bonds will not accrue from and after the redemption date. If at the time of mailing of any notice of optional redemption has not been deposited with the Trustee moneys sufficient to redeem all the Bonds called for redemption, such notice will state that it is subject to the deposit of the redemption moneys with the Trustee not later than the opening of business on the redemption date and will be of no effect unless such moneys are so deposited. The Authority will have the right to rescind any notice of optional redemption by written notice to the Trustee on or prior to the date fixed for redemption. Any notice o'f such redemption will be cancelled and annulled if for any reason funds will not be or are not available on the date fixed for 10 redemption for the payment in full of the Bonds then called for redemption, and such cancellation will not constitute an event of default under the Indenture. The Authority and the Trustee will have no liability to the Owners or any other party related to or arising from such rescission of redemption. The Trustee will mail notice of such rescission of redemption in the same manner as the original notice of redemption was sent. In addition to the foregoing notice, further notice will be given by the Trustee in said form by first -class mail to any Bond Owner whose Bond has been called for redemption but who has failed to tender his Bond for payment by the date which is sixty days after the redemption date, but no defect in said further notice nor any failure to give all or any portion of such further notice will in any manner defeat the effectiveness of a call for redemption. Upon the payment of the redemption price of Bonds being redeemed, each check or other transfer of funds issued for such purpose shall, to the extent practicable, bear the CUS1P number identifying, by issue and maturity, the Bonds being redeemed with the proceeds of such check or other transfer. Selection of Boards for Redemption. If less than all of the Bonds Outstanding are to be redeemed, the portion of any Bond of a denomination of more than $5,000 to be redeemed will be in the principal amount of $5,000 or an integral multiple thereof. In selecting portions of such Bonds for redemption, the Trustee will treat such Bonds as representing that number of Bonds of $5,000 denominations which is obtained by dividing the principal amount of such Bonds to be redeemed in part by $5,000. The Trustee will promptly notify the Authority in writing of the Bonds, or portions thereof, selected for redemption. Partial Retlemj3tion of Bonds. In the event only a portion of any Bond is called for redemption, then, upon surrender of such Bond, the Authority will execute and the Trustee will authenticate and deliver to the Owner thereof, at the expense of the Authority, a new Bond or Bonds of the same series and maturity date, of authorized denominations in aggregate principal amount equal to the unredeemed portion of the Bond to be redeemed. ,fleet of Retlernption. From and after the date fixed for redemption, if funds available for the payment of the principal of and interest (and premium, if any) on the Bonds so called for redemption have been duly provided, such Bonds so called will cease to be entitled to any benefit under this Indenture other than the right to receive payment of the redemption price, and no interest will accrue thereon from and after the redemption date specified in such notice. All Bonds redeemed pursuant to the Indenture shall be canceled and destroyed. Authority Notice. Notwithstanding any provisions in the Indenture to the contrary, upon any optional redemption or mandatory redemption from Special "faxes of District Bonds in part, the Authority will deliver a Written Certificate to the Trustee stating that the remaining payments of principal and interest on the District Bonds, together with other Revenues, will be sufficient on a timely basis to pay debt service on the Bonds. The Authority will certify in such Written Certificate that sufficient moneys for purposes of such redemption are or will be on deposit in the Redemption Fund under the Indenture, and is required to deliver such moneys to the Trustee together with other Revenues, if any, then to be delivered to the Trustee, which moneys are required to be identified to the Trustee in the Written Certificate delivered with the Revenues. Boole -Entry Only System The Bonds will be issued as fully registered bonds, registered in the name of Cede & Co. as nominee of DTC, and will be available to the Beneficial Owners purchasing interests in the Bonds in the Authorized Denominations, under the book -entry system maintained by DTC, only through brokers and dealers who are or act through DTC Participants (as defined herein) as described herein. Beneficial Owners will not be entitled to receive physical delivery of the Bonds. While the Bonds are subject to the book -entry system, the principal, interest and any redemption premium will be paid by the Trustee to DTC, which in turn is obligated to remit such payment to its DTC Participants for subsequent disbursement to Beneficial Owners of the Bonds. The Authority gives no assurance that DTC or the DTC Participants will distribute payments or notices to Beneficial Owners. See Appendix — "DTC AND THE BOOK -ENTRY ONLY SYSTEM." In the event that the book - entry -only system is no longer used with respect to the Bonds, the Bonds will be registered and transferred in accordance with the Indenture. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] 12 Estimated Debt Service Schedules: Bonds and District Bonds The table below presents the debt service schedule for the Bonds assuming there is no optional or special mandatory redemption of the Bonds prior to maturity. DEBT SERVICE SCHEDULE FOR THE BONDS Year Ending September I Principal Interest Total Debt Service Total,,,'— Source: The Underwriter. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] 13 The table below summarizes the anticipated debt service payments to be received by the Authority as the result of its ownership ofthe District Bonds, assuming there is no default in payment and no optional or special mandatory redemption of District Bonds prior to maturity. DEBT SERVICE SCHEDULE FOR THE DISTRICT BONDS Band Year Ending Total September 1 Principal Interest Revenues n� Total g---- - --... Si-- - - - - -— (') Equals the total anticipated debt service on the District Bonds in each Bond Year ending September I. Somcc: The Underwriter. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] 14 Debt Service Coverage for the Bonds` The table below sets forth the projected debt service coverage for the Bonds from Revenues assuming timely payment of debt service on the District Bonds while the Bonds are outstanding. In the event of delinquencies in the payment of the District Bonds, these coverage levels will not be realized and amounts would need to be drawn from the Reserve Account and the Cash Flow Management Fund, to the extent funds are needed to pay debt service on the Bonds. DEBT SERVICE COVERAGE FOR THE BONDS Year Total Revenues Bonds Debt Ending Bonrls Debt from District Service September I Service Bondstrt Coverage(2) 2015 $ 88,540.31 $ 88,540.31 1.00 2016 137,481.26 137,481.26 1.00 2017 142,181 26 142,181.26 1.00 2018 141,681.26 141,68126 1.00 2019 146,131.26 146,131.26 1.00 2020 150,381.26 150,38126 1.00 2021 154,481.26 154,481.26 1.00 2022 153,343.76 153,343.76 1.00 2023 157,118.76 157,118.76 1.00 2024 160,618.76 160,618.76 1.00 2025 163,931.26 163,931.26 1.00 2026 166,931.26 166,931.26 1.00 2027 169,731.26 169,731.26 1.00 2028 177,256.26 177,256.26 1.00 2029 179,281.26 179,281.26 1.00 2030 181,093.76 181,093.76 1.00 2031 187,693.76 187,693.76 1..00 2032 188,756.26 188,756.26 1.00 2033 194,600.00 194.600.00 1.00 2034 199,875.00 199,875.00 1.00 2035 199,700.00 199,700.00 1.00 2036 204,300.00 204,300.00 1.00 2037 208,450.00 208,450.00 1.00 2038 212,150.00 212,150.00 1.00 2039 220,400.00 220,400.00 1.00 2040 222,975.00 222,975.00 1.00 2041 229,662.50 229,662.50 1.00 2042 230,637.50 230,637.50 1..00 2043 236,137.50 236,137.50 1.00 2044 240,925.00 240,925.00 1.00 t�> Revenues consist of dcbt service on the District Bonds. rz� Calculated by dividing 'total Revenues from Dis0'icl Bonds column by Bonds Debt Service column, expressed as a percentage. Source: 'I lie Underwriter. P, ch"inaly. mbjce/to diange. 15 The table below sets forth the projected debt service and Administrative Expense coverage for the District Bonds from Special Tax Revenues from Developed Property based on a levy at 100% of the Assigned Annual Special Tax assuming all 182 parcels will be classified as Developed Property beginning with Fiscal Year 2015 -16. In the event of delinquencies in the payment of the Special Taxes, these coverage levels will not be realized and amounts would need to be drawn from the Delinquency Management Fund established under the Fiscal Agent Agreement, to the extent funds are available therein, to pay the District Bonds. Administrative Expenses are paid prior to the payment of debt service on the District Bonds. For Fiscal Year 2014 -15, the District has budgeted Administrative Expenses of $20,000 for Improvement Area B. The District estimates Administrative Expenses for Fiscal Year 2015 -16 of $20,400 for Improvement Area B. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] 16 DEBT SERVICE COVERAGE CAPACITY ON THE DISTRICT BONDS' Debt Service and Special Tax Revenues shown are equal to 100% of the Assigned Annual Special fax for such fiscal year, escalating at 2% per fiscal year, assuming all 182 parcels within hnprovement Area n are classified as Developed Property beginning with Fiscal Yeat 2015 -16. As of December It)- 2014, there were 156 units of Developed Properly and 26 units of Undeveloped Property within Improvement Area n. Pursuant to Section 53321(d) of the Government Code, the special lax levied against any Assessor's parcel for which an occupancy permit for private residential use has been issued shall not be increased as a consequence of delinquency or default by the owner of any other Assessor's parcel within Improvement Area B by more than 10% above the amount that Would have been levied in that fiscal year had there never been any such delinquencies or defaults. As a result, it is likely that the City may not be able to increase the tax levy to the Assigned special Rate lax in all years and that actual coverage might act exceed 110 %ofdebt service plus Administrative Expenses. Amounts reflect special Fax revenues, net of Administrative Expenses. For Fiscal Year 2615 -16, the District estimates Adminisimtive Expenses of $20,400 for Improvement Area B, i0 Interest on the District Bonds will be capitalized through September 1, 2015, Source: Albert A. Webb Associates; the Underwriter. Annual debt service for the District Bonds has been structured so that, assuming no delinquencies, Special Taxes levied at the Assigned Annual Special Tax rates on 156 parcels of Developed Property and 26 parcels of Undeveloped Property for Fiscal Year 2015 -16 and Special "faxes levied at the Assigned Annual Special Tax on 182 parcels of Developed Property in each i ,el.n."I'l, I, sn6jecl to Change. 17 Administrative rheal Special Tax District Bonds Expense Year Revennessl >l1 >I3> Debt Service(') Coveragef2b 2015 $99,502.00 $88,540.31 1.12 2016 154,293.81 137,481.26 1.12 2017 157,379.68 142,181.26 1.11 2018 160,527.28 141,681.26 1.13 2019 163,737.82 146,131.26 1.12 2020 167,012.58 150,381.26 1.11 2021 170,352.83 154,481.26 1.10 2022 173,759.89 153,343.76 1.13 2023 177,235.09 157,118.76 1.13 2024 180,779.79 160,618.76 1.13 2025 184,395.38 163,931.26 1.12 2026 188,08129 166,931.26 1.13 2027 191,844.96 169,731.26 1.13 2028 195,681.86 177,256.26 1.10 2029 199,595.49 179,281.26 1.11 2030 203,587.40 181,093.76 1.12 2031 207,659.15 187,693.76 1.11 2032 211,812.34 188,756 26 1.12 2033 216,048.58 194,600.00 1.11 2034 220,369.55 199,875.00 1.1.0 2035 224,776.94 199,700.00 1.13 2036 229,272.48 204,300.00 1.12 2037 233,857.93 208,450.00 1.12 2038 238,535.09 212,150.00 1.12 2039 243,305.79 220,400.00 1.10 2040 248,171.91 222,975.00 1.11 2041 253,135.35 229,662.50 1.10 2042 258,198.05 230,637.50 1.12 2043 263,362.02 236,137.50 1.12 2044 268,629.26 240,925.00 1.11 Special Tax Revenues shown are equal to 100% of the Assigned Annual Special fax for such fiscal year, escalating at 2% per fiscal year, assuming all 182 parcels within hnprovement Area n are classified as Developed Property beginning with Fiscal Yeat 2015 -16. As of December It)- 2014, there were 156 units of Developed Properly and 26 units of Undeveloped Property within Improvement Area n. Pursuant to Section 53321(d) of the Government Code, the special lax levied against any Assessor's parcel for which an occupancy permit for private residential use has been issued shall not be increased as a consequence of delinquency or default by the owner of any other Assessor's parcel within Improvement Area B by more than 10% above the amount that Would have been levied in that fiscal year had there never been any such delinquencies or defaults. As a result, it is likely that the City may not be able to increase the tax levy to the Assigned special Rate lax in all years and that actual coverage might act exceed 110 %ofdebt service plus Administrative Expenses. Amounts reflect special Fax revenues, net of Administrative Expenses. For Fiscal Year 2615 -16, the District estimates Adminisimtive Expenses of $20,400 for Improvement Area B, i0 Interest on the District Bonds will be capitalized through September 1, 2015, Source: Albert A. Webb Associates; the Underwriter. Annual debt service for the District Bonds has been structured so that, assuming no delinquencies, Special Taxes levied at the Assigned Annual Special Tax rates on 156 parcels of Developed Property and 26 parcels of Undeveloped Property for Fiscal Year 2015 -16 and Special "faxes levied at the Assigned Annual Special Tax on 182 parcels of Developed Property in each i ,el.n."I'l, I, sn6jecl to Change. 17 Fiscal Year thereafter, will generate in each Fiscal Year not less than 110% of debt service payable, plus Administrative Expenses, with respect to the District Bonds in the calendar year that begins in that Fiscal Year. Limitation on Special Tax Levy and Potential Impact on Coverage. Pursuant to Section 53321(d) of the Mello -Roos Act and the Rate and Method for Improvement Area B, under no circumstances may Special 'Faxes levied against any parcel of property used for private residential purposes be increased by more than ten percent (10 %) as a consequence of delinquency or default by the owner of any other parcel within Improvement Area B. Therefore, it is possible that Special Taxes may not be levied up to 100% of the Assigned Annual Special Tax rates in any particular fiscal year as a consequence of Special Tax delinquencies in Improvement Area B. SECURITY FOR THE BONDS General As described below, the Bonds are payable from Revenues and Redemption Revenues consisting primarily of amounts received by the Authority from the debt service payments on the District Bonds and amounts on deposit in the Reserve Account, the Cash Flow Management Fund (subject to the transfers from such fund as authorized by the Indenture) and the Redemption ],Laid. See "SECURITY FOR THE BONDS — Reserve Account," " —Cash Flow Management Fund" and — Redemption Fund." Debt service payments in the District Bonds are paid from the Special Tax Revenues and District Redemption Revenues. See "SECURITY FOR THE DISTRICT BONDS — Special Tax Revenues and District Redemption Revenues." The Bonds are special obligations of the Authority payable solely from and secured solely by the Revenues and Redemption Revenues pledged therefor in the Indenture. The Bards are not a debt or liability of the City, the State of California or any political subdivisions thereof other than the Authority to the limited extent described herein. The faith and credit of the Authority are not pledged to secure the payment of Bonds, nor is any other political subdivision liable therefor, nor in any event shall the Bonds or any interest or redemption premium thereon be payable out of any funds or properties other than those of the Authority as set forth in the Indenture. The Authority has no taxing power. Revenues; Flow of Funds Pledge of Revenues. The Bonds are secured by a first Lien on and pledge (which is effected in the manner and to the extent provided in the Indenture) of all of the Revenues and Redemption Revenues and a first pledge of all of the moneys in the Bond Fund, the Revenue Fund, the Redemption Fund and the Cash Flow Management Fund of the Indenture, including all amounts derived from the investment of such moneys. The Bonds are equally secured by a pledge, charge and first lien upon the Revenues and Redemption Revenues and such moneys without priority for number, date of Bonds, date of execution or date of delivery; and the payment of the interest on and principal of the Bonds and any premiums upon the redemption of any thereof are secured by an exclusive pledge, charge and first lien upon the Revenues and Redemption Revenues and such moneys. The term "Revenues" is defined in the Indenture as: (a) all amounts received by the Authority from the District as principal of or interest on the District Bonds, (b) all moneys deposited and held 18 from time to time by the Trustee in the funds and accounts established under the Indenture for the Bonds, other than the Rebate Account and the Redemption Fund; and (c) income and gains with respect to the investment of amounts on deposit in the funds and accounts established under the Indenture for the Bonds, other than the Rebate Account and the Redemption Fund. The term "Redemption Revenues" is defined in the Indenture as: (a) amounts received from the redemption of the District Bonds from amounts constituting prepayments of Special Taxes, (b) amounts received from the optional redemption of the District Bonds, and (c) amounts received from the special mandatory redemption and mandatory redemption of the District Bonds. So long as any of the Bonds are Outstanding, the Revenues and Redemption Revenues and such other money will not be used for any other purpose except as described in the Indenture for the payment of the Bonds; except that out of the Revenues and Redemption Revenues there may be apportioned such sums, for such purposes, as are expressly permitted by the Indenture. The Authority transfers under the Indenture in trust and assigns to the Trustee, for the benefit of the Owners from time to time of the Bonds, all of the Revenues and all of the right, title and interest of the Authority in the District Bonds. The Trustee is entitled to and will receive all of the Revenues, and any Revenues collected or received by the Authority will be deemed to be held, and to have been collected or received, by the Authority as the agent of the Trustee and will forthwith be paid by the Authority to the Trustee. Deirosit and Transfer of Revenues. All Revenues (excluding Redemption Revenues) derived from the District Bonds will be promptly deposited by the Trustee upon receipt thereof in the Revenue Fund. On or before each Interest Payment Date, the Trustee shall transfer from the Revenue Fund for deposit in Bond Fund for application in the order described under the caption "- Application of Revenues" below; provided, however, that all Redemption Revenues will be deposited in the Redemption Fund in the amounts and on the dates required to effect the required redemption of the Bonds as set forth in the Indenture. See "THE BONDS — Redemption" and "SECURITY FOR THE BONDS — Redemption Find" herein. Apptieation of Revenues. On or before each Interest Payment Date, the Trustee will transfer from the Revenue Fund, and deposit into the Bond Fund and the following respective accounts therein for the Bonds, the following amounts in the following order of priority, the requirements of each such account (including the making up of any deficiencies in any such account resulting from lack of Revenues sufficient to make any earlier required deposit) at the time of deposit to be satisfied before any transfer is made to any account subsequent in priority: Interest Account. On or before each Interest Payment Date, the Trustee will deposit in the Interest Account an amount required to cause the aggregate amount on deposit in the Interest Account to equal the amount of interest becoming due and payable on such Interest Payment Date on all Outstanding Bonds. No deposit need be made into the Interest Account if the amount contained therein is at least equal to the interest becoming due and payable upon all Outstanding Bonds on such Interest Payment Date. All moneys in the Interest Account will be used and withdrawn by the Trustee solely for the purpose of paying the interest on the Bonds as it becomes due and payable (including accrued interest on any Bonds redeemed prior to maturity). 19 Principal Account. On or before each date on which the principal of the Bonds are payable, the Trustee will deposit in the Principal Account an amount required to cause the aggregate amount on deposit in the Principal Account to equal the aggregate amount of principal (including sinking fund payments) coming due and payable on such date on the Bonds pursuant to the Indenture. All moneys in the Principal Account will be used and withdrawn by the 'trustee solely for the propose of paying the principal of the Bonds (including sinking fund payments). Reserve Account'. All amounts on deposit in the Revenue Fund on or before each Interest Payment Date, to the extent not required to pay any interest on or principal of any Outstanding Bonds then having come due and payable, will be credited to the replenishment of the Reserve Account in an amount sufficient to maintain the Reserve Requirement therein, All remaining amounts on or as soon as practicable after September 2 (or the next Business Day to the extent September 2 is not a Business Day) of each year, commencing September 2, 2015, on deposit in the Revenue Fund will be tr'ans'ferred to the Cash Flow Management Fund. See " Cash Flow Management Fmid" below. Deposit into Rebate Account. The Trustee will deposit in the Rebate Account (which account shall be established as a separate account to be held by the Trustee upon receipt of a Written Request from the Authority) from time to time, as set forth in the Indenture, an amount determined by the Authority to be subject to rebate to the United States of America in accordance with the Indenture. Amounts in the Rebate Account are not pledged to the payment of the Bonds. Reserve Account A Reserve Account or the Bond Fund will be established under the Indenture which account will be held by the Trustee and will be funded in an amount equal to the Reserve Requirement. An amount of $ _, equal to the initial Reserve Requirement will be deposited into the Reserve Account from the proceeds of the Bonds and the District Bonds. The Reserve Requirement on any calculation date will not be greater than the initial Reserve Requirement. The Authority shall deposit 'from the repayment of the District Bonds, and, to the extent necessary and to the extent permitted by law, from available surplus revenues with respect to other series of bonds issued by the Authority relating to community facilities districts, and maintain an amount of money equal to the Reserve Requirement in the Reserve Account at all times while the Bonds are Outstanding. Amounts in the Reserve Account will be used to pay debt service on the Bonds to the extent other moneys (including amounts in the Cash Flow Management Fund) are not available therefor. Earnings on amounts in the Reserve Account in excess of the Reserve Requirement will be deposited into the Revenue Fund, if and to the extent such earnings are not required to be retained in the Reserve Account to meet the Reserve Requirement. Upon redemption of the Bonds, amounts on deposit in the Reserve Account will be reduced (to an amount not less than the Reserve Requirement) and the excess moneys will be transferred to the Redemption Account and used for the redemption of the Bonds. Amounts in the Reserve Account may be used to pay the final year's debt service on the Bonds. 20 Cash Flow Management Fund A Cash Flow Management Fund will be established under the Indenture which fund will be held by the Trustee. On September 2 of each year, commencing September 2, 2015 (or the next business day to the extent September 2 is not a business day), the Trustee will transfer any amounts on deposit in the Revenue Fund to the Cash Flow Management Fund. The Cash Flow Management Fund may also be funded at the election of the Authority ftom amounts on deposit in cash flow management funds created with respect to other local agency revenue bonds issued by the Authority and any available surplus revenues with respect to other series of local agency revenue bonds issued by the Authority to the extent such amounts are loaned to replenish the Cash Flow Management Fund to the Cash Flow Management Fund Requirement. The Cash Flow Management Fund Requirement is, as of any calculation date, an amount equal to 15% of the Maximum Annual Debt Service. Amounts, if any, deposited into the Cash Flow Management Fund will be applied for the following proposes in the following order of priority: (i) The Trustee will, prior to any draw on the Reserve Account, pay debt service on the Bonds from amounts in the Cash Flow Management Fund to the extent Revenues are insufficient for such propose. (ii) Upon the written direction of the Authority, the Trustee will transfer any amounts in the Cash Flow Management Fund to the trustee of any other series of local agency revenue bonds issued by the Authority to the extent any surplus revenues from such other series of local agency revenue bonds were loaned to replenish the Cash Flow Management Fund. (iii) Upon the written direction of the Authority, the Trustee will transfer any amounts in the Cash Flow Management Fund to the trustee of any other series of local agency revenue bonds issued by the Authority in an amount estimated by the Authority to be necessary to prevent a shortfall in the amount required to pay debt service on such other series of local agency revenue bonds or to the fiscal agent of any local agency bonds issued by the City an amount estimated by the Authority necessary to prevent a shortfall in the amount required to pay debt service on such local agency bonds, which all such transfers shall be treated as loaned amounts. (iv) Upon the written direction of the Authority, the Trustee will transfer such amount as may be directed by the Authority for deposit in the Redemption Fund. (v) On or as soon as practicable after September 2 of each year, commencing September 2, 2015, upon the written direction of the Authority, the Trustee shall transfer all remaining amounts in the Cash Flow Management Fund in excess of the Cash Flow Management Fund Requirement to the Fiscal Agent for the District Bonds for deposit in the Delinquency Management Fund held under the Fiscal Agent Agreement on a proportionate basis based on the respective Delinquency Management Fund Requirement. Subject to the foregoing transfers and applications in (ii) through (v) above, amounts in the Cash Flow Management Fund are pledged to the repayment of the Bonds. 21 Redemption Fund ']here is established under the Indenture the Redemption Fund to be held by the Trustee, to the credit of which the Authority will deposit, immediately upon receipt, all Redemption Revenues. Under the Indenture, "Redemption Revenues" includes (a) amounts received from the redemption of the District Bonds from amounts constituting prepayments of Special Taxes, (b) amounts received from the optional redemption of the District Bonds, and (c) amounts received from the special mandatory redemption and mandatory redemption of the District Bonds. Moneys in the Redemption Fund will be held in trust by the Trustee for the benefit of the Authority and the Owners of the Bonds, and will be used and withdrawn by the Trustee pursuant to any optional redemption, mandatory sinking payment redemption or special mandatory redemption from prepayment of special taxes or surplus funds. No Parity Debt Except for the Bonds, or bonds issued for the purpose of refunding the Bonds, the Authority covenants that no additional bonds, notes or other indebtedness will be issued or incurred which are payable out of the Revenues or the Redemption Revenues in whole or in part. SECURITY FOR THE DISTRICT BONDS General The District Bonds issued by the District are limited obligations of the District payable solely from Special Tax Revenues (after payment of Administrative Expenses) collected in Improvement Area B and from amounts on deposit in the Special Tax Receipt Fund and Special Tax Fund (after payment Administrative Expenses) established under the Fiscal Agent Agreement. The District's limited obligation to pay the principal of, premium, if any, and interest on the District Bonds from Special "Tax Revenues collected in Improvement Area B and amounts in the Special Tax Fund (after payment Administrative Expenses) is absolute and unconditional. No District Bond issued by the District (and no additional bonds issued for refunding purposes under the Fiscal Agent Agreement relating to a District Bond, each a "District Parity Bond ") is a legal or equitable pledge, charge, lien or encumbrance upon any of such District's property, or upon any of its income, receipts or revenues, except the Special Tax Revenues collected in Improvement Area B and other amounts in the Special Tax Fund (after payment Administrative Expenses). Except for the Special Tax Revenues, neither the credit nor the taxing power of the District or the City is pledged for the payment of the District Bonds or related interest, and no Owner of the Bonds may compel the exercise of taxing power by the City or the District or the forfeiture of any of its property. The principal of and interest on the District Bonds and premiums upon the redemption thereof, if any, are not a debt of the District or the City, the State of California or any of its political subdivisions within the meaning of any constitutional or statutory limitation or restriction. 22 Special Tax Revenues and District Redemption Revenues Special Tax Revenues. The "Special Tax Revenues" are the Special Taxes authorized to be levied and collected by the District in Improvement Area B according to the Rate and Method. The Special Taxes are collected in the manner and at the same time as ad valorem property taxes arc collected and is subject to the same penalties and the same procedure, sale, and lien priority in case of delinquency as is provided for ad valorem property taxes. See "THE DISTRICT AND IMPROVEMENT AREA B" and Appendix B — "RATE AND METHOD OF APPORTIONMENT OF SPECIAL TAXES." The "Special Tax Revenues" pledged by the District for the District Bonds (and any related District Parity Bonds) is defined in the Fiscal Agent Agreement as (a) the proceeds of the Special Taxes received by the District, (b) income and gains with respect to the investment of amounts on deposit in the funds and accounts established under the Fiscal Agent Agreement, and (c) proceeds of the redemption or sale of property sold as a result of foreclosure of the lien of the Special Taxes and (d) the net proceeds of the sale of any Special Tax Receivables equal to the par amount of such Special Tax Receivables. Notwithstanding the foregoing, "Special Tax Revenues" do not include any penalties or interest in excess of the interest payable on the District Bonds collected in connection with delinquent Special Taxes. "Special Taxes" means the special taxes levied within Improvement Area B pursuant to the Mello -Roos Act, the Fiscal Agent Agreement and the Rate and Method. The Developers have each committed to provide, on the Closing Date, an irrevocable letter of credit (each a "Letter of Credit ") in favor of the Fiscal Agent to secure payment of Special Taxes levied on such Developer's property within Improvement Area B for a limited period. See "— Developers' Letters of Credit" herein. The District will covenant in the Fiscal Agent Agreement that it will receive all Special Taxes and amounts paid to it by the Authority under the Indenture in trust for the Owners of its District Bonds, and will immediately deposit such amounts with the Fiscal Agent, and the District shall have no beneficial right or interest in the amounts so deposited except as provided by the Fiscal Agent Agreement. The Fiscal Agent, under the Fiscal Agent Agreement will, on each date on which the Special Tax Revenues are received from the District, deposit the Special Taxes in the Special Tax Fund and will deposit in the Delinquency Management Fund all amounts paid to it by the Authority to be held in trust for the Authority as the owner of the related District Bonds. The Fiscal Agent will (after payment of Administrative Expenses) transfer the Special Tax Revenues on deposit in the Special Tax Fund on the dates and in the amounts set forth in the Fiscal Agent Agreement, in the following order of priority, to the following funds and accounts held under the Fiscal Agent Agreement: (1) The Interest Account of the Bond Fund; (2) The Principal Account of the Bond Fund; and (3) The Delinquency Management Fund. Delinquency Management Fund. The Fiscal Agent Agreement establishes a Delinquency Management Fund held by the Fiscal Agent. On September 2 of each year, commencing September 2, 2015, the Fiscal Agent will transfer any amounts remaining in the Special Tax Fund following 23 disbursement to the Interest Account and the Principal Account as described above, to the Delinquency Management Fund. Moneys in the Delinquency Management Fund shall be held by the Fiscal Agent for the benefit of the Owners of the Bonds, and shall be disbursed as follows: (1) The Fiscal Agent will transfer to the appropriate accounts within the Bond Fund to pay debt service on the Bonds to the extent Special Tax Revenues are insufficient for such purpose. (2) The Fiscal Agent will transfer from any amounts in the Delinquency Management Fund in excess of the Delinquency Management Fund Requirement (defined in the Fiscal Agent Agreement as the amount equal to 15% of Maximum Annual Debt Service for District Bonds, as of any calculation date) to the Administrative Expense Fund in an amount determined by the District to pay Administrative Expenses to the extent amounts in the Administrative Expense Fund are insufficient therefore. (3) ']'he Fiscal Agent will transfer all remaining amounts in the Delinquency Management Fund in excess of the Delinquency Management Fund Requirement upon the written direction of the District, on the next redemption date lot- which notice of redemption can timely be given, to the Special Mandatory Redemption Account of the Redemption Fund held under the Fiscal Agent Agreement for redemption of the District Bond unless the Fiscal Agent has received written direction from the District to expend such remaining funds held in the Delinquency Management Fund for any lawful purposes of the District including, but not limited to, paying costs of public capital improvements or reducing the Special Taxes which are to be levied in the current or the succeeding Fiscal Year upon the properties which are subject to the Special Tax. Subject to the foregoing transfers and applications in (1) through (3) above, amounts in each Delinquency Management Fund are pledged to the repayment of the District Bond. Administrative Expense Fund. The Fiscal Agent Agreement establishes an Administrative Expense Fund held by the District. The District will deposit in the Administrative Expense Fund the amount budgeted and levied for Administrative Expenses. Li Fiscal Year 2014 -15, the District budgeted $20,000 for Administrative Expenses for Improvement Area B. 'fire District estimates Administrative Expenses of $20,400 in Fiscal Year 2015 -16 for Improvement Area B. Amounts in the Administrative Expense Fund will be withdrawn by the District to pay Administrative Expenses. Annually, at least five (5) days prior to the last day of each Bond Year, the District will withdraw any amounts then remaining in the Administrative Expense Fund that have not been allocated to pay Administrative Expenses incurred but not yet paid, and which are not otherwise encumbered or expected to be needed for the purposes of such fund, and transfer such amoU0t5 to the Fiscal Agent for deposit in the Special Tax Fund. Redemption Fund; District Redemption Revenues. The Fiscal Agent Agreement establishes a Redemption Fund (which fund will consist solely of an "Optional Redemption Account" and a "Special Mandatory Redemption Account" to be established and created upon receipt of a written direction of the District), to the credit of which the District shall deposit, immediately upon receipt, all District Redemption Revenues received by the District to the credit of which the District or the City, on behalf of the District, will deposit, immediately upon receipt, all District Redemption Revenues received by the District. District Redemption Revenues are defined in the Fiscal Agent Agreement to include (a) prepayments of the Special Taxes, (b) any amounts transferred pursuant to the Indenture for the redemption of the District Bonds, (c) amounts transferred from the Delinquency Management Fund for the redemption of the District Bonds, and (d) any amounts deposited for the 24 mandatory redemption and special mandatory redemption of the District Bonds pursuant to the Fiscal Agent Agreement. Moneys in the Redemption Fund will be held by the Fiscal Agent for the benefit of the District and the Owners of the District Bonds, will be disbursed as provided below and, pending any disbursement, will be subject to a lien in favor of the Owners of the District Bonds. Moneys in the Redemption Fund will be applied as follows: (1) All prepayments of Special Taxes and amounts transferred from the Delinquency Management Fund for the redemption of Bonds or transferred from the Authority under the Indenture for the redemption of the District Bonds will be deposited in the Special Mandatory Redemption Account to be used to redeem the District Bonds on the next date for which notice of redemption can timely be given. (2) Any amounts transferred for the optional redemption of the District Bonds will be deposited into the Optional Redemption Account to be used to redeem the District Bonds on the next date for which notice of redemption can timely be given. No Teeter Plan Although the County Board of Supervisors has adopted the Alternative Method of Distribution of Tax Levies and Collections and of Tax Sale Proceeds (the "Teeter Plan ") which allows each entity levying secured property taxes in the County to draw on the amount of property taxes levied rather than the amount actually collected, as provided for in Section 4701 et seq. of the California Revenue and Taxation Code, the District is not included in the County Teeter Plan. Consequently, the District may not draw on the County Tax Loss Reserve Fund in the event of delinquencies in Special Tax payments within Improvement Area B. Certain community facilities districts formed by the City enter into agreements from time to time with the California Statewide Communities Development Authority pursuant to which such community facilities districts receive amounts equal to delinquent installments of special taxes levied by such community facilities districts in exchange for the sale and assignment of the right to receive such delinquent special taxes (the "CSCDA Program "). The District has not entered into an agreement to participate in the CSCDA Program and does not have any right to receive delinquent installments of Special Taxes under such program. The District has covenanted under the Fiscal Agent Agreement to cause judicial foreclosure proceedings to be filed against properties for which the Special Taxes remain delinquent if certain conditions are met. To the extent the District enters into the CSCDA Program (or a similar program) and sells delinquent Special Taxes for at least 100% of such delinquent amounts, the District may treat such delinquent amounts as having been paid. See "— Priority of Special Tax Lien — Commence Foreclosure Proceedings" below. District Parity Bonds The Fiscal Agent Agreement authorizes the District to issue on behalf of Improvement Area B additional bonds secured by Special Taxes on a parity with the District Bonds (the "Dish let Parity Bonds ") but only for the purpose of refunding all or a portion of the District Bonds or District Parity Bonds. For a description of the conditions established in the Fiscal Agent Agreement for the 25 issuance of District Parity Bonds, see Appendix A — "SUMMARY OF CERTAIN PROVISIONS OF PRINCIPAL LEGAL DOCUMENTS." Priority of Lien of Special Taxes Each installment of the Special Taxes and any interest and penalties thereon, constitutes a lien on the parcel of land on which it was imposed until the same is paid. Such Tien is co-equal to and independent of the lien for general taxes and any other community facilities district special taxes. See "THE DISTRICT AND IMPROVEMENT AREA B Direct and Overlapping Debt' herein. Covenants of the District In the Fiscal Agent Agreement, the District will covenant as follows, among other things Punctual Payment. ]'be District will punctually pay or cause to be paid the principal of, and interest and any premium on, each District Bond when and as due in strict conformity with the terms of the Fiscal Agent Agreement and any Supplemental Agreement, and it will faithfully observe and perform all of the conditions, covenants and requirements of the Fiscal Agent Agreement and all Supplemental Agreements and of each District Bond. Against Encumbrance. 'The District will not encumber, pledge or place any charge or lien upon any of the Special Tax Revenues, or other amounts pledged to each District Bond superior to or on a parity with the pledge and lien herein created for the benefit of the Bonds, except as permitted by the Fiscal Agent Agreement. Collection ofSpecial Tax Revenues. The District will comply with all requirements of the Mello -Roos Act so as to assure the timely collection of Special Tax Revenues, including without limitation, the enforcement of delinquent Special Taxes. The 'Treasurer (who is the person acting in the capacity as finance director of administrative services director to the City) will effect the levy of the Special 'Taxes each Fiscal Year on the parcels within Improvement Area B in accordance with the Rate and Method, such that the computation of the levy is complete before the final date on which the auditor /tax collector of the County (the "Auditor ") will accept the transmission of the Special Tax amounts for the parcels within Improvement Area B for inclusion on the next secured tax roll. Upon the completion of the computation of the amounts of the levy, the Treasurer will prepare or cause to be prepared, and will transmit to the Auditor, such data as the Auditor requires to include the levy of the Special Taxes on the next secured tax roll. "The Special Taxes so levied will be payable and be collected in the same manner and at the same time and in the same installments as the general taxes on real property are payable, and have the same priority, become delinquent at the same time and in the same proportionate amounts and bear the same proportionate penalties and interest after delinquency as do the general taxes on real property, unless otherwise provided by the District. In the event that the Treasurer determines to levy all or a portion of the Special Taxes by means of direct billing of the property owners of the parcels within Improvement Area B. the Treasurer will, not less than ninety (90) days prior to each Interest Payment Date, send bills to the owners of such real property located within Improvement Area B subject to the levy of the Special Taxes for Special Taxes in an aggregate amomrt necessary to meet the financial obligations of the District due on the next Interest Payment Date, said bills to specify that the amounts so levied will be 26 due and payable not less than forty-five (45) days prior to such Interest Payment Date and will be delinquent if not paid when due. In any event, the Treasurer will fix and levy the amount of Special Taxes within Improvement Area B required (i) for the payment of principal of and interest on any outstanding District Bonds becoming due and payable during the ensuing year (taking into consideration anticipated delinquencies), and (ii) to pay the Administrative Expenses during such year, all in accordance with the applicable Rate and Method. The Special Taxes so levied will not exceed the authorized amounts as provided in the proceedings pursuant to the Resolution of Formation. The District has covenanted in the Fiscal Agent Agreement, that to the extent there is a draw upon the Reserve Account pursuant to the Indenture as a result of a delinquency in the collection of Special Taxes, the District will cause the Treasurer to effect the next annual levy of Special Taxes in an amount sufficient to replenish such delinquency in addition to those required by the Fiscal Agent Agreement and in addition to amounts that would be levied if there were no such delinquency; provided, however, the amount of Special 'faxes levied will not exceed the maximum permitted by the Mello -Roos Act and the Rate and Method. The Treasurer is authorized to employ consultants to assist in computing the levy of the Special Taxes under the Fiscal Agent Agreement and any reconciliation of amounts levied to amounts received. The fees and expenses of such consultants and the costs and expenses of the Treasurer (including a charge for City or District staff time) in conducting its duties under the Fiscal Agent Agreement will be an Administrative Expense. Commence Foreclosure Proceedings. The District will review the public records of the County in connection with the collection of the Special Tax not later than July 31 of each year to determine the amount of Special Tax collected in the prior Fiscal Year; and with respect to individual delinquencies, the District will send or cause to be sent a notice of delinquency and a demand for immediate payment thereof to the property owner within 45 days of such determination, and if the District determines that any single property owner subject to the Special Tax is delinquent in the payment of Special Taxes in the aggregate of $10,000 or more or delinquent in the payment of three consecutive installments of Special Tax or that the delinquent Special Taxes represent more than 5% of the aggregate Special Taxes levied within Improvement Area B of the District or if there has been a draw on the funds on deposit in the Reserve Account established under the Indenture, and if the delinquency remains uncured, the District will cause judicial foreclosure proceedings to be filed in the superior court against all properties for which the Special Taxes remain delinquent. Prior to commencement of any judicial foreclosure proceedings, the District shall continue with its efforts to collect the delinquent Special Taxes by sending subsequent notice of delinquency and a demand for immediate payment thereof. The District may treat any delinquent Special Tax sold to an independent third -party or to any funds of the City for at least 100% of the delinquent amount as having been paid. Proceeds of any such sale up to 100% of the delinquent amount shall be deposited in the Special Tax Fund. The City Attorney is authorized under the Fiscal Agent Agreement to employ counsel to conduct any such foreclosure proceedings. The fees and expenses of any such counsel and costs and expenses of the City Attorney (including a charge for City or District staff time) in conducting foreclosure proceedings is an Administrative Expense. 27 Notwithstanding any provision of the Mello -Roos Act or other law of the State to the contrary, in connection with any foreclosure related to delinquent Special Taxes: (a) The District or the Fiscal Agent is expressly authorized under the Fiscal Agent Agreement to credit bid at any foreclosure sale, without any requirement that funds be placed in the Bond Fund or otherwise be set aside in the amount so credit bid, in the amount specified in Section 53356.5 of the Mello -Roos Act, or such less amount as determined under clause (b) below or otherwise under Section 53356.6 of the Mello -Roos Act. (b) The District may permit, in its sole and absolute discretion, property with delinquent Special Tax payments to be sold for less than the amount specified in Section 53356.5 of the Mello - Roos Act, if it determines that such sale is in the interest of the Bond Owners. The Bond Owners, by their acceptance of the Bonds, consent to such sale for such lesser amounts (as such consent is described in Section 53356.6 of the Mello -Roos Act), and hereby release the District, and its officers and agents from any liability in connection therewith. (c) The District is expressly authorized under the Fiscal Agent Agreement to use amounts in the Special Tax Fund to pay costs of foreclosure of delinquent Special Taxes. See Appendix A — "SUMMARY OF CERTAIN PROVISIONS OF PRINCIPAL. LEGAL DOCUMENTS" for a more complete description of the District's covenants under the Fiscal Agent Agreement. Developers' Letters of Credit The Developers have each committed to provide, on the Closing Date, an irrevocable letter of credit to secure payment of Special Taxes levied on the property in Improvement Area B owned by each respective Developer, each of which identifies the Fiscal Agent as beneficiary. During each Fiscal Year in which the Developers' Letters of Credit are in effect, the "Stated Amount" of each Letter of Credit must equal the estimated amount of Special Taxes to be levied on property owned by such Developer or its successors -in- interest (other than individual homeowners) during that Fiscal Year. The initial amount of the Letter of Credit for Ryland and Meritage, shall be $96,442.02 and $90,755.56, respectively. Such amounts are equal to two years of the Special Tax levy attributable to parcels owned by each Developer as of the Closing Date. The initial term of each Letter of Credit is one year, and both Ryland and Meritage will maintain and cause the issuing bank to annually renew their respective Letter of Credit on I of each year until such Developer has conveyed 80% or more of the parcels being developed by such Developer in Improvement Area B. When such Developer has conveyed 80% or more of the residential lots that it is developing within Improvement Area B, such Developer's Letter of Credit will be released. Notwithstanding the foregoing, the District may elect to waive the requirement for the Developers to obtain the Letters of Credit or may release such Letters of Credit at any time. THE DISTRICT AND IMPROVEMENT AREA B General Information The District was formed in 2006, by the City pursuant to the Act for the financing of public improvements to meet the needs of new development within the District. At the time the District was formed, three improvement areas were designated within the District (Improvement Area Nos. 1 28 through 3). In 2011, pursuant to a request from McMillian, the then owner of all the property within the District, the City instituted change proceedings to re- designate certain property within Improvement Area Nos. 1 through 3 into six new improvement areas (Improvement Areas A through F). At a special election held on March 8, 2011 within Improvement Area B, the qualified electors within Improvement Area B, which consisted solely of the then owner of land in Improvement Area B, (i) authorized the District to incur bonded indebtedness for Improvement Area B of up to $6,500,000 in order to finance certain public facilities and various costs related thereto, (ii) approved the Rate and Method, and (iii) approved the levy of a Special Tax on the taxable property within Improvement Area B to pay the principal and interest on the District Bonds and annual Administrative Expenses of the District, and to make any replenishments to the reserve account for the District Bonds. Improvement Area B Improvement Area B is part of Village 1 of the Summerly project and is located in the City to the south of Malaga Road and east of Diamond Drive. Improvement Area B contains approximately 33.4 gross acres and 25.5 net acres being developed by the Developers. The proposed developments by Ryland and Meritage consist of 106 and 76 planned single family residences, respectively. As of December 10, 2014, within Improvement Area B, Ryland and Meritage had completed and conveyed 45 and 33 homes to individual homeowners, respectively. Based on development status as of December 10, 2014, the estimated Special Tax levy for Fiscal Year 2015 -16 will be on 156 parcels of Developed Property and 26 parcels of Undeveloped Property. All in -tract infrastructure necessary to complete the planned development within Improvement Area B has been constructed. Ryland's development within Improvement Area B is planned for 106 single family detached homes in a neighborhood called "Sunrise Springs at Summerly." As of the Date of Value, Ryland had completed and conveyed 45 homes to individual homeowners. As of such date, Ryland owned 10 completed homes (including three model homes), 11 homes under construction (of which six were approximately 20 -30% complete and five were in a very early stage of construction, with trenching for foundations) and 40 lots in a near finished lot condition (with building permits issued for all such lots as of January 15, 2015). See "DEVELOPMENT OF PROPERTY WITHIN IMPROVEMENT AREA B — Development by Ryland." Meritage's development within Improvement Area B is planned for 76 single family detached homes in a neighborhood called "Meridian at Summerly." As of the Date of Value, Meritage had completed and conveyed 33 homes to individual homeowners. As of such date, Meritage owned four completed homes (including two model homes), nine homes under construction (of which five were approximately 95% complete, three were approximately 50 -60% complete and one less than 10% complete) and 30 lots in a near finished lot condition (with building permits issued for 14 of such lots as of January 15, 2015). See "DEVELOPMENT OF PROPERTY WITHIN IMPROVEMENT AREA B -- Development by Meritage." Water and sewer service to the property within Improvement Area B is currently supplied by the Elsinore Valley Municipal Water District. Electricity is currently supplied by Southern California Edison, gas by Southern California Gas Company and telephone services by Verizon Communications. Although, like all o'f Southern California, the land within the Community Facilities District is subject to seismic activity, it is not located within an Alquist - Priolo Earthquake Fault Zone. 29 A map showing the location of the District and an aerial photograph thereof appear following the Table of Contents, respectively, and information about the ownership and planned development of such property is set forth under the caption "DEVELOPMENT OF PROPERTY WITHIN IMPROVEMENT AREA B." Rate and Method of Apportionment The Rate and Method is contained in Appendix B — "RATE AND METHOD OF APPORTIONMENT OF SPECIAL TAXES." In general, the Rate and Method imposes a different Maximum Special Tax on Taxable Property within Improvement Area B depending upon whether such Taxable Property is classified as "Developed Property" (in general, Taxable Property included in a Final Map recorded prior to the January I preceding the Fiscal Year in which the Special Tax is being levied and for which a building permit for new construction was issued prior to the May I preceding such Fiscal Year), `Undeveloped Property" (in general, Taxable Property that is not "Developed Property ," "Taxable Public Property" or "Taxable Property Owner Association Property "), "Taxable Public Property" or "Taxable Property Owner Association Property." Different Maximum Special Taxes are also applicable to Developed Property depending upon whether such Developed Property is considered "Residential Property" or "Non - Residential Property." Pursuant to the Rate and Method the Board is required to determine the "Special Tax Requirement for Facilities" (as defined therein) for each Fiscal Year. The Special Tax Requirement for Facilities (the "Special Tax Requirement ") is the amount required in any Fiscal Year to pay: (i) debt service on all outstanding Bonds during the calendar year which commences in the Fiscal Year for which the Special Tax is being levied, (ii) periodic costs on the Bonds, (iii) Administrative Expenses, (iv) any amounts required to establish or replenish the Reserve Account, (v) pay for reasonable anticipated Special Tax for Facilities delinquencies, (vi) pay directly for acquisition or construction of Authorized Facilities to the extent that the inclusion of such amount does not increase the Special Tax for Facilities levied on Undeveloped Property, less (vi) a credit for funds available to reduce the annual Improvement Area B Special Tax levy as determined pursuant to the Indenture. The Special Tax Requirement is to be satisfied first by levying the Special Tax Proportionately on each Assessor's Parcel of Developed Property within Improvement Area B at up to 100% of the applicable Assigned Special Tax. If additional moneys are needed to satisfy the Special Tax Requirement, the Special Tax shall be levied Proportionately on each Assessor's Parcel of Undeveloped Property within Improvement Area B at up to 100% of the Maximum Special Tax for Facilities for Undeveloped Property. If additional moneys are still needed to satisfy the Special Tax Requirement, the Special Tax that is to be levied on each Parcel of Developed Property within Improvement Area B whose Maximum Special Tax is derived by the application of the Backup Special Tax shall be increased in equal percentages from the Assigned Special Tax up to the Maximum Special Tax. Finally, any additional amounts required in order to satisfy the Special 'fax Requirement shall be raised by the levy of the Special Tax Proportionately on each Parcel of Taxable Public Property and /or Taxable Property Owner Association Property within Improvement Area B. Notwithstanding the above, under no circumstances will the Special Tax levied against any Parcel of Residential Property within Improvement Area B be increased by more than 10% per Fiscal Year as a consequence of a delinquency or default by the owner of any other Parcel within Improvement Area B. For Fiscal Year 2015 -16, the Assigned Special Taxes for Developed Property within Improvement Area B that is classified as Residential Property range from $552.03 to $1,573.31, 30 depending upon the size of the residence. Developed Property within Improvement Area B that is Non - Residential Property has an Assigned Tax of $7,904.10 per acre for Fiscal Year 2015 -16. Such Assigned Special Tax Rates increase by 2% on July 1 of each Fiscal Year. The District intends to size the District Bonds so that, assuming no delinquencies in Improvement Area B, Net Special Taxes, levied in accordance with the Rate and Method, will generate in each Fiscal Year beginning in Fiscal Year 2015 -16 not less than 110% of debt service payable with respect to the District Bonds in the calendar year that begins in that Fiscal Year. See Table I below. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] 31 N M cL o 000I-, ,o�,- �00000� 000,�o- _- 00000� ri a � U p o N 0. E E a ne y o 00 oN o--wn o 00 ooN � N N � jy y >✓ 0 0 0 �? w 0 '- O w 0 0 0 0 0 w .- �, 1 vl W m f1 Q bq C tl a d u a q 0 0 o M •- o 0 0 0 o e1 a � M P M N 41 Q ^ �o Q I W � M F^ N O U V ? 0 o O N lE 000IF a F E F¢ vo a 0 °�I-1 W y e d r�r v) y4 1E py o �a W vl In moo„ d In In rn o r O O O O O O O O O m - .�- N N N N 11 N m m A` � N 6 N V fn n V Vl 4 J�'aa�:�DPD'aa��'a� .ono =mod hEEEEE E E E E E E E E E ,� m ro ro ro m m ro ro ro m m m m r.,. m. Iz. u.wwu. rz kawu. n.w�. .ro m an - a, c C bq M bq bA 7F, bll bb by by bb bf) bl) M W N V) [n fn to N l/) V1 M 0 7 c o v N M Appraisal Report The estimated net assessed value of the property within Improvement Area B, as shown on the Comity's assessment roll for Fiscal Year 2014 -15, is approximately $6,166,847. However, as a result of the requirements of Article XIIIA of the California Constitution, a property's assessed value is not necessarily indicative of its market value. In order to provide information with respect to the value of the property within Improvement Area B, the District engaged the Appraiser, to prepare the Appraisal Report. The propose of the Appraisal Report was to estimate the aggregate market value of the "as- is" condition, subject to special tax and special assessment liens, of the taxable property within Improvement Area B. Subject to the contingencies, assumptions and limiting conditions set forth in the Appraisal Report, the Appraiser concluded that, as of December 10, 2014, the market value of the fee simple interest of the taxable property within Improvement Area B to be $36,250,000, consisting of (i) $24,660,000 for the 78 completed homes owned by individual homeowners within Improvement Area B as of December 10, 2014, (ii) $1,145,000 for the 14 completed homes (including five model homes) owned by the Developers, (iii) $2,650,000 for the 20 homes in various stages of construction owned by the Developers, and (iii) $5,320,000 for 70 near finished lots owned by the Developers. Reference is made to APPENDIX C for a complete list of the assumptions and limiting conditions and a full discussion of the appraisal methodology and the basis for the Appraiser's opinions. In the event that any of the contingencies, assumptions and limiting conditions are not actually realized, the value of the property within Improvement Area B may be less than the amount reported in the Appraisal Report. In any case, there can be no assurance that any portion of the properly within Improvement Area B would actually sell for the amount indicated by the Appraisal Report. The Appraisal Report merely indicates the Appraiser's opinion as to the market value of the property referred to therein as of the date and under the conditions specified therein. The Appraiser's opinion reflects conditions prevailing in the applicable market as of the date of value. The Appraiser's opinion does not predict the future value of the subject property, and there can be no assurance that market conditions will not change adversely in the future. The Appraiser has an "MAI" designation from the Appraisal Lnstitute and has prepared numerous appraisals for the sale of land - secured municipal bonds. The Appraiser was selected by the City and has no material relationships with the City or the owners of the land within Improvement Area B other than the relationship represented by the engagement to prepare the Appraisal Report and other similar engagements for the City. The City instructed the Appraiser to prepare its analysis and report in conformity with City - approved guidelines and the Appraisal Standards for Land Secured Financings published in 1994 and revised in 2004 by the California Debt and Investment Advisory Commission. A copy of the Appraisal Report is included as APPENDIX C to this Official Statement. It is a condition precedent to tine issuance of the Bonds that the Appraiser deliver to the District a certification to the effect that, while the Appraiser has not updated the Appraisal Report since the date of the Appraisal Report and has not undertaken any obligation to do so, nothing has come to the attention of the Appraiser subsequent to the date of the Appraisal Report that would cause the Appraiser to believe that the value of the property in Improvement Area B is less than the 33 value of Improvement Area B reported in the Appraisal Report. However, the Appraiser notes that acts and events may have occurred since the date of the Appraisal Report which could result in both positive and negative effects on market value within Improvement Area B. Estimated Value -To -Lien Ratios Table 2 below incorporates the values assigned to parcels in the Appraisal Report, the estimated principal amount of the District Bonds allocable to each category of parcels and the estimated appraised value -to -lien ratios for various categories of parcels based upon land values and property ownership in Improvement Area B. Table 2 calculates the appraised value -to -lien ratios based upon the principal amount of the District Bonds and does not include other overlapping general obligation debt described in Table 4. The estimated appraised Improvement Area B wide value -to- lien ratio including all Developed Property and Undeveloped Property as of December 10, 2014, and including the District Bonds in such calculation is 6.01- to -1.` However, the estimated appraised value -to -lien ratio within Improvement Area B including only property classified as Developed Property as o'f December 10, 2014 and including the District Bonds in such calculation is 5.66- to -1'. See Table 2 below. In the Annual Reports provided pursuant to the Continuing Disclosure Agreement, Table 2 will not be updated based on appraised value, but similar information will be provided based on current assessed value. Table 3 below sets for the stratification of value -to -liens of the parcels within Improvement Area B as of December 10, 2014, based on the Appraised Value and such parcels' respective shares of the principal amount of the outstanding direct or overlapping land secured debt in Improvement Area B, allocated to each parcel based upon its respective share of the total projected Special Tax levy for Fiscal Year 2015 -16, and the ratio of the Appraised Value to its share of the District Bonds. Each of the aforesaid value to lien ratios is for all Taxable Property within Improvement Area B, however, the ratios of the value of individual lots within Improvement Area B to their respective shares of the principal amount of the District Bonds can be expected to vary substantially depending upon the status of development and selling price thereof. The apportionment of existing land secured debt other than the District Bonds is a function of the rate and method of apportionment attributable to such community facilities districts. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] P, ell"Immy.Subject to chmrge. 34 m [ y � C � � � cYV' •� m o ooaM F •• V w .o m p F 'O ° a y 7 F b 14 ti v O n O M u 0 O b O M ti o o tf m F � ° Q a mvcti N ^ � a° ~ Q V V O V M M N h F c b � po a�N no aF In °v o� P4 ww� W zEi fYi o �GO s3 f° q W a pa ti Q F ^ O W V W 4 j O U a W V d �0�1 �N � C3 0� O vi o0 O o0 vt M 0q m h W v°i �^ 44 bFll V O iO 4 v a F- o C n N y Y � ttl Q y U G d v � 9 F a w .ro O E o � � 99'06 Cp,�p,�vp 'v a>i C�ggUF m \� \� \ \�\\) »2 22 /aae \ } \K) �\ } \ \ \% \ \\\ } { \z {. \\� 6a; & y z \m\ ))r4 § \ {\f 2 /(/ � in ®/\ \\\ \ \ }k { c } £e §) \ 5«) /»z2= ~) / »2 22 /aae \ } \K) �\ } \ \ \% \ \\\ Direct and Overlapping Debt Improvement Area B is included within the boundaries of numerous overlapping local agencies providing governmental services. Some of these local agencies have outstanding bonds. and /or the authority to issue bonds, payable from taxes or assessments. The existing and authorized indebtedness payable from taxes and assessments that may be levied upon the property within Improvement Area B is shown in Table 4 below. In addition to current debt, new community facilities districts and /or special assessment districts could be formed in the future encompassing all or a portion of the property within Improvement Area B; and such districts or the agencies that formed them could issue more bonds and levy additional special taxes or assessments. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] 37 TABLE 4 COMMUNITY FACILITIES DISTRICT NO. 2006 -1 (SUMMERLY) IMPROVEMENT AREA B SECURED PROPERTY TAX ROLL AND DIRECT AND OVERLAPPING DEBT APPRAISED VALUEIo N36,250,000 LAND SECURED BONDED INDEB FEDNESS Pnrccls'in A Iof /ntpr at, .aenl Debt Dour Ill, Dhmaad Merl to, 6a,rded Debt Type Area I Oalsrnt +ding APPlicnhle A,dkable LUUSD CPD No, 2006 -2 Iapmvetacnt Area A CPD 182 510,330,000 510,330,000 31 % 5 3,233,274 CPD No, 2006 -1 halaovaaenl Area Is(Smnmerry) CPD 108 2,800,000 2,800,000 100% 2900.000' 'Total Oatstamling Land Scenred 13nndc l Debt S 6,033,274 Pa,'el,in Aatbrni,el d 11W d Direct mat OrMapplag Lnpraremeat n Baa led Debt Area Authorized Uaiseve.I Applicable Applicable LEUSD CPU No 2006 -2 Improve a as Ama A OFD 182 516,000,000 SOa, 31 % S 0 CI'D No 2006 -1 Improvement Area B (Sutanncdy) CPD 108 56,500,000 S00) 100 %, S 0 TTrlal unissued Land Secures huh,brrdllese 0 Total Outstanding and Unisated Land sec ared Indehtalness S 6,1133,274' GENERAL OBLIGATION BOND INDEBTEDNESS Par "Is in In" ovuaeat Amain t of Oulstaadlag Direct sad OveilaPPiaR Banded Debt A, a13 lwo,l Oarsmadlag AppBcable Debt Meaopolita, Wamr Debt se,,,,c 60 182 S850,000,000 132,275,000 0 352 'Total General Obligation Bnndad Debt $ 352 Parcels' in Author ized aarl Unissued Direct lead (Terlappi ig /n,prmea,cat Laleblednen, Area 13 Authorized Urrtsrvmd Applicable Applicable Metropolitan Water Debt Service GO 182 850,000,000 0 0 so Total Unissued General Obligation Indebtedness(') S 0 Total Outstanding and Unissued General Obligation Indebtedness(') $ 352 TOTAL OF ALL OUTSTANDING, DIRECT' AND OVERLAPPING DEBT S 6,033,626' 1 O AL OF ALL OUTSTANDING AND UNISSUED DIRECT AND S 6,033,626' OVERLAPPING INDEBTEDNESS Badly, to 2014 -15 Assessed Vtdnafian Outstanding laud Secured Bonded Dobl 6.01'.1' Outstanding Direct and Overlapping Branded Deht 6.01 1' • Prcliminap', snhjcct to cha,ge. °) 13ased on Appraisal Report as oche Dale oTVnlac. m Additional bands tally he issuwl far reTnnding paposes only. 10 Additional bonded debt or available bond authorization may oxisi but is not shown because n Ne, was .m levied for the mRaenced fiscal year. Sou,, Alhen A. Webb Associatos. Annual debt service for the District Bonds has been structured so that, assuming no delinquencies, Special Taxes levied at the Assigned Annual Special 'fax rates on 156 parcels of Developed Property and 26 parcels of Undeveloped Property for Fiscal Year 2015 -16 and Special "faxes levied at the Assigned Annual Special Tax on 182 parcels of Developed Property in each Fiscal Year thereafter, will generate in each Fiscal Year not less than 110% of debt service payable, plus Administrative Expenses, with respect to the District Bonds in the calendar year that begins in that Fiscal Year. Based on the District Bond sizing and assuming that Fiscal Year 2015 -I6 tax rates for all other taxing jurisdictions within Improvement Area B equal the Fiscal Year 2014 -15 tax rates, the projected average total Fiscal Year 2015 -16 effective tax rate for Developed Property in 38 Improvement Area B will range fi'om approximately 1.70% to 1.74% of the applicable Appraised Value. The following table sets forth the estimated total tax obligation of sample categories of residential properties in Improvement Area B for Fiscal Year 2015 -16, based on the Appraised Value as of the Date of Value. TABLE 5 COMMUNITY FACILITIES DISTRICT NO. 2006 -1 (SUMMERLY) IMPROVEMENT AREA B PROJECTED FISCAL YEAR 2015 -16 TAX OBLIGATION FOR INDIVIDUALLY OWNED SAMPLE DEVELOPED PROPERTY Developer Merilage Rrland Appraised Value for Completed and Sold Homes(l) $345,000 $295,000 Ad Valorem Property "faxes: General Purpose $3,450 $2,950 Metro Water East 1301999 (0.00350 %) 12 10 Total General Property Taxes $3,462 $2,960 Assessment, Special Taxes & Parcel Chargest''t CSA #152 LK Elsinore Stormwater $8 $8 City of Lake Elsinore CFD Public Safety 373 373 City of Lake Elsinore LLMD #I 1 1 City of Elsinore LLMD 7 7 Northwest Mosquito & Vector Control Dist 2 2 Metro Water Dist Standby West 9 9 Elsinore Valley Muni Wn Dst Standby 10 10 Elsinore Valley MWD Regional Sewer 10 10 Lake Elsinore LSD CFD 2006.2 lA A 596 596 Lake Elsinore CFD 2006 -1 IA B Debt(3) 1,092 858 Lake Elsinore CFD 2006 -1 IA B Svcs 289 289 Total Assessments & Parcel Charges $2,397 $2,163 Projected Total Properly Tax $5,859 $5,123 Projected Effective Tax Rate 1.70% 1.74% 0) Based on Appraisal Report as of the Date of Value. (2) Reflects average Fiscal Year 2014 -15 overlapping special assessment and tax levy. t3) Reflects projected Fiscal Year 2015 -16 Special Tax Requirement. Includes projected debt scrvice on the District Bonds and estimated Administrative Expenses of $20,400. Sources: Albert A. Webb Associates, Top Taxpayers Special Taxes for Fiscal Year 2015 -16 are projected to be levied on 156 parcels classified as Developed Property and 26 parcels classified as Undeveloped Property, based on development status as of December 10, 2014. Individual homeowners, Ryland and Meritage are projected to be responsible for approximately 47 %, 33% and 20% of the projected Fiscal Year 2015 -16 Special Tax levy, respectively, based on ownership and development status within Improvement Area B as of December 10, 2014. The District is not aware of any property owner other than the Developers within Improvement Area B which owns more than one home. 39 Delinquency History Fiscal Year 2013 -14 was the first year in which the Special Taxes were levied within Improvement Area B. There were no delinquent special taxes for Fiscal Year 2013 -14. As of the first installment for Fiscal Year 2014 -15, there were $1,921.30 in delinquent Special Taxes, representing 3.09°/% of the Fiscal Year 2014 -15 Special Tax levy. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] 40 DEVELOPMENT OF PROPERTY IN IMPROVEMENT AREA B The information about the property in Improvement Area B contained in this Official Slalement has been provided by representalives ofRyland, Meritage, and others, and has not been independently confirmed or verified Gy the Underwriter, the 00, or the District. The Underwriter, the ('ill,, and the Diso-icl matte no representation as to the accuracy or adequacy of the h1lbrnration contained in this caption. There may he material adverse changes in this information after the dale of this Offrcial S[atemetrt. Neither the Bonds, the District Bonds nor the Special Taxes securing the Bonds, the District Bonds, or any bonds issued to refund the foregoing are personal obligations of Ryland, Meritage, or any afftliale thereof or airy other property owner and, in the event that any property owner defauhs in the payment of its Special Taxes, the District may proceed with judicial. foreclosure bill has no direct recourse to the assets of any properly owner or any affiliate klrereof See the caption "SPECIAL RISK FACTORS. " General Description of the Development The District comprises a portion of Smnmerly, a planned residential community located in the southern portion of the City, approximately one and a half miles to the east/southeast of Lake Elsinore. McMillin Communities acquired the Summerly project in 2010 and serves as the master developer. At buildout, the Summerly project is expected to include approximately 1,500 single family detached homes, commercial and recreational facilities and open space. The Summerly project will be built in four phases or villages. Recreational facilities that have been completed within Village I of the Summerly project include a neighborhood park (Spirit Park) and The Links at Swmnerly golf course. Improvement Area B is included within Village 1 of the Summerly project and is located in the City to the south of Malaga Road and east of Diamond Drive. Improvement Area B contains approximately 33.4 gross acres and 25.5 net acres being developed by the Developers. The proposed developments by Ryland and Meritage consist of 106 and 76 planned single family residences, respectively. As of December 10, 2014, within Improvement Area B, Ryland and Meritage had completed and conveyed 45 and 33 homes to individual homeowners, respectively, All in -tract infrastructure necessary to complete the planned development within Improvement Area B has been constructed. McMillin no longer owns any property within Improvement Area B. Development by Ryland General Description o/ Development. Ryland acquired 106 lots within Improvement Area B from McMillin on February 28, 2013 for $1,775,500 located in Tract No. 31920 -2. Ryland's planned development within Improvement Area B includes 106 single family detached homes in a neighborhood called "Sunrise Springs at Summerly." As of December 10, 2014, Ryland had completed and conveyed 45 of the 106 planned homes to individual homeowners. Such sales occurred between April and December of 2014. As of December 10, 2014, Ryland owned 10 completed homes (including three model homes), l I homes under construction (of which six were approximately 20 -30% complete and five were in a very early stage of construction, with trenching for foundations) and 40 hots in a near finished lot condition (with building permits issued for all such lots as of January 1, 2015). Ryland expects that development of the 106 total parcels will be complete and conveyed to individual homeowners in 2016. Ryland's planned development within Improvement Area B contains four plans on lots ranging in size from approximately 4,792 square feet to approximately 5,975 square feet with the following estimated square footage and base sales prices: 41 Ryland's Proposed Development Financing Plan. As of December 10, 2014, Ryland had expended approximately $1,775,500 in acquiring its land in Improvement Area B and approximately $11,000,000 in land improvements, home construction costs and other development, marketing and sales costs (exclusive of internal financing repayment). As of such date, Ryland owned 11 homes under construction and 40 lots in a near finished lot condition in Improvement Area B. Ryland expects its remaining land improvements, home construction costs and other development, marketing and sales costs within Improvement Area B to be approximately $7,500,000. To date, Ryland has financed its land acquisition and various site development and home construction costs related to its property in Improvement Area B with cash generated from its home building operations and, where necessary, internal corporate financing. Ryland expects to finance its remaining site development and ]ionic construction costs in Improvement Area B with a combination of cash generated from its home building operations (including revenues generated from home sales in Improvement Area B) and, where necessary, internal corporate financing. Notwithstanding the internal corporate financing and revenues generated from home sales in Improvement Area B, there can be no assurance that Ryland will have timely access to the sources of funds which will be necessary to complete the remaining proposed development in Improvement Area B. Ryland has no legal obligation to Bond Owners to make any such funds available to fund the remaining development costs or to pay ad valorem property taxes or Special Taxes related to Ryland's property in Improvement Area B. Many factors beyond Ryland's control, or a decision by Ryland to alter its current plans, may cause the actual sources and uses to differ from the projections. If and to the extent that internal funding, including but not limited to home sales revenues are inadequate to pay the costs to complete the planned development by Ryland within Improvement Area B and other 'financing by Ryland is not put into place, there could be a shortfall in the funds required to complete the proposed development by Ryland in Improvement Area B and the remaining portions of the project in Improvement Area B may not be developed Based on the ownership information and development status as of as of December 10, 2014 within Improvement Area B, Ryland is expected to be responsible for approximately 33% of the projected Fiscal Year 2015 -16 Special Taxes within Improvement Area B. 42 Completed R Closed to Individual Permitted / Under Projected Nomemvnen Construction Number of Units as of as of Estimated Estimated Base Plan at Builrlout December 10, 2014 December 10, 20140) Square Feet (r) Sales Price (2) 1 30 14 3 1,520 $276,090 2 30 12 4 1,735 289,090 3 17 9 1 1,870 295,490 4 29 10 3 1,856 294,990 Total 106 45 11 M As ol'.lanuary 1, 2015, building permits had been issued for all parcels oNvaed by Ryland within Improvement Area 13. (2) Base home prices shown exclude Ryland's estimate of lot premiums, the sale of options and extras and any incentives a' price reductions. Based on base home sales prices as of December lo, 2014. Financing Plan. As of December 10, 2014, Ryland had expended approximately $1,775,500 in acquiring its land in Improvement Area B and approximately $11,000,000 in land improvements, home construction costs and other development, marketing and sales costs (exclusive of internal financing repayment). As of such date, Ryland owned 11 homes under construction and 40 lots in a near finished lot condition in Improvement Area B. Ryland expects its remaining land improvements, home construction costs and other development, marketing and sales costs within Improvement Area B to be approximately $7,500,000. To date, Ryland has financed its land acquisition and various site development and home construction costs related to its property in Improvement Area B with cash generated from its home building operations and, where necessary, internal corporate financing. Ryland expects to finance its remaining site development and ]ionic construction costs in Improvement Area B with a combination of cash generated from its home building operations (including revenues generated from home sales in Improvement Area B) and, where necessary, internal corporate financing. Notwithstanding the internal corporate financing and revenues generated from home sales in Improvement Area B, there can be no assurance that Ryland will have timely access to the sources of funds which will be necessary to complete the remaining proposed development in Improvement Area B. Ryland has no legal obligation to Bond Owners to make any such funds available to fund the remaining development costs or to pay ad valorem property taxes or Special Taxes related to Ryland's property in Improvement Area B. Many factors beyond Ryland's control, or a decision by Ryland to alter its current plans, may cause the actual sources and uses to differ from the projections. If and to the extent that internal funding, including but not limited to home sales revenues are inadequate to pay the costs to complete the planned development by Ryland within Improvement Area B and other 'financing by Ryland is not put into place, there could be a shortfall in the funds required to complete the proposed development by Ryland in Improvement Area B and the remaining portions of the project in Improvement Area B may not be developed Based on the ownership information and development status as of as of December 10, 2014 within Improvement Area B, Ryland is expected to be responsible for approximately 33% of the projected Fiscal Year 2015 -16 Special Taxes within Improvement Area B. 42 Ryland. Ryland Homes of California, Inc., a Delaware corporation, is a wholly owned subsidiary of The Ryland Group, Inc. ( "The Ryland Group'), a publicly traded company listed on the NYSE under the symbol "RYL." Founded in 1967, The Ryland Group is a national homebuilder and mortgage - related financial services firm operating in the United States. The Ryland Group's homebuilding segment specializes in the sale and construction of single - family attached and detached housing units. The Ryland Group builds homes primarily for first -time buyers, as well as for move - up buyers. The Ryland Group's financial services segment provides loan origination, title, escrow and insurance brokerage services for its homebuilding customers and maintains a portfolio of mortgage- backed securities and notes receivable. The Ryland Group markets and builds homes that are constructed onsite in three regions, north, south and west, comprised of 27 housing markets in the United States. As of December 31, 2014, The Ryland Group operated in metropolitan markets including Baltimore, Chicago, Cincinnati, Indianapolis, Minneapolis and Washington, D.C. (north); Atlanta, Austin, Charleston, Charlotte, Dallas, Greensboro, Greenville, Houston, Jacksonville, Orlando, San Antonio, Tampa and Fort Myers (south); and California's Central Valley, California's Inland Empire, Denver, Las Vegas, Phoenix, Sacramento, San Diego and the San Francisco Bay Area (west). The development of Ryland's property within Improvement Area B is being undertaken by its Division. The Ryland Group is subject to the informational requirements of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance therewith files reports, proxy statements and other information with the Securities and Exchange Commission (the "SEC "). Such filings, particularly Ryland Group's Annual Report on Form 10 -K for the Fiscal Year ended December 31, 2013, and its Quarterly Report on Form 10 -Q for the six months ended September 30, 2014, set forth certain data relative to the consolidated results of operations and financial position of The Ryland Group and its subsidiaries as of such dates. The SEC maintains an Internet web site that contains reports, proxy and information statements and other information regarding registrants that file electronically with the SEC. The address of such Internet web site is www.see.gov, The Internet addresses and references to filings with the SEC are included for reference only, and the information on these Internet sites and on file with the SEC are not a part of this Official Statement and are not incorporated by reference into this Official Statement. History of Ryland's Property Tax Payments; Loan Defaults; Litigation; Bankruptcy. Ryland has represented to the Community Facilities District as follows: L [ as described in this Official Statement, there is no material indebtedness of Ryland or its Affiliates (defined below) that is secured by an interest in the Property (defined below). Neither Ryland nor, to the Actual Knowledge of Ryland (defined below), any of its Affiliates is in default on any obligation to repay borrowed money, which default is reasonably likely to materially and adversely affect Ryland's ability to develop the Property as proposed in this Official Statement or to pay the Special Taxes when due with respect to tine Property. 2. Except as set forth in this Official Statement, no action, suit, proceeding, inquiry or investigation at law or in equity, before or by any court, regulatory agency, public board or body is pending against Ryland (with proper service of process or proper notice to Ryland having been accomplished) or, to the Actual Knowledge of Ryland, is pending against any current Affiliate (with proper service of process to such Affiliate having been accomplished) or to the Actual Knowledge of 43 Ryland is threatened in writing against Ryland or any such Affiliate (a) to restrain or enjoin the collection of Special Taxes or other sums pledged or to be pledged to pay the principal of and interest on the District Bonds (e.g., the Reserve Account established under the Indenture), (b) to restrain or enjoin the development of the Property as proposed in this Official Statement, (c) in any way contesting or affecting the validity of the Special Taxes, or (d) which if successful, is reasonably likely to materially and adversely affect Ryland's ability to complete its development planned within Improvement Area B as described in this Official Statement or to pay the Special Tax or act valorem tax obligations on its Property when due. 3. As a large, nation -wide developer of residential projects, Ryland cannot represent with assurance that neither it nor any Affiliate has ever been delinquent in the payment of ad valorem property taxes; however, to the actual knowledge of the employees of Ryland involved in the issuance of the Bonds, neither it nor any Affiliate has been delinquent to any material extent in the payment of any ad valorem property tax, special assessment or special tax on property included within the boundaries of a community facilities district or an assessment district that would have (a) caused a draw on a reserve fund relating to such assessment district or community facilities district or (b) resulted in a foreclosure action being commenced. 4. To the Actual Knowledge of Ryland, Ryland is able to pay its bills as they become due and no legal proceedings are pending against Ryland (with proper service of process to Ryland having been accomplished) or, to the Actual Knowledge of Ryland, threatened in writing in which Ryland may be adjudicated as bankrupt or discharged from any and all of its debts or obligations, or granted an extension of time to pay its debts or obligations, or be allowed to reorganize or readjust its debts, or be subject to control or supervision of the Federal Deposit Insurance Corporation. 5. To the Actual Knowledge of Ryland, Affiliates of Ryland are able to pay their bills as they become due and no legal proceedings are pending against any Affiliates of Ryland (with proper service of process to such Affiliate having been accomplished) or to the Actual Knowledge of Ryland, threatened in writing in which the Affiliates of Ryland may be adjudicated as bankrupt or discharged from any or all of their debts or obligations, or granted an extension of time to pay their debts or obligations, or be allowed to reorganize or readjust their debts or obligations, or be subject to control or supervision of the Federal Deposit Insurance Corporation. As used in the above representations of Ryland, the following defined terms and phrases have the 'following meanings: "Actual Knowledge of Ryland" shall mean the knowledge of the authorized officer of Ryland signing the certificate containing the above representations (the "Ryland Letter of Representations ") as of the date of the Ryland Letter of Representations obtained from interviews with such current officers and responsible employees of Ryland and its Affiliates as the authorized officer signing the Ryland Letter of Representations has determined are likely, in the ordinary course of their respective duties, to have knowledge of the matters set forth in the Ryland Letter of Representations. The authorized officer of Ryland signing the Ryland Letter of Representations has not conducted any extraordinary inspection or inquiry other than such inspections or inquiries as are prudent and customary in connection with the ordinary course of Ryland's current business and operations. "Affiliate" means, with respect to a Person (i) any other Person directly, or indirectly through one or more intermediaries, controlling, controlled by or under common control with such Person, and (ii) for whom information, including financial information or operating data, concerning such 44 Person referenced in clause (i) is material to an evaluation of the District and the Bonds (i.e., information relevant to Ryland's development plans with respect to its Property and its payment of Special Taxes, or such Person's assets or funds that would materially affect Ryland's ability to develop its Property as described in this Official Statement or to pay its Special Taxes). For purposes of the Ryland Letter of Representations. Affiliates shall exclude and its Affiliates (other than Ryland and its direct or indirect subsidiaries). "Person" means an individual, a corporation, a partnership, a limited liability company, an association, a joint stock company, a trust, any unincorporated organization or a government or political subdivision thereof. "Control" (including the terms "controlling," "controlled by" or "under common control with ") means the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of voting securities, by contract or otherwise. "Property" nneans the property within Improvement Area B held in the name of Ryland. Development by Meritage Meritage acquired 76 lots within Improvement Area B from McMillin on February 28, 2013 for $2,200,000 located in Tract No. 31920 -3. Meritage's planned development within Improvement Area B includes 76 single family detached homes in a neighborhood called "Meridian at Summerly." As of December 10, 2014, Meritage had completed and conveyed 33 of the 76 planned homes to individual homeowners. Such sales occurred between November 2013 and November 2014. As of December 10, 2014, Meritage owned four completed homes (including two model homes), nine homes under construction (of which five were approximately 95% complete, three were approximately 50 -60% complete and I less than 10% complete) and 30 lots in a near finished lot condition (with building permits issued for 14 of such lots as of January 15, 2015). Meritage expects that development of the 76 total parcels will be complete by 2016 and expects to convey all such homes to individual homeowners by 2016. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] 45 Meritage's planned development within Improvement Area B contains four plans on lots ranging in size from approximately 5,663 square feet to approximately 11,326 square feet with the following estimated square 'footage and base sales prices: Heritage's Proposed Development Financing Plan. As of December 10, 2014, Meritage had expended approximately $2,200,000 in acquiring its land in Improvement Area B and approximately $17,822,009 in land improvements, home construction costs and other development, marketing and sales costs (exclusive of internal financing repayment). As of such date, Meritage owned nine homes under construction and 30 lots in a near finished lot condition in Improvement Area B. Meritage expects the remaining land improvements, home construction costs and other development, marketing and sales costs within Improvement Area B to be approximately $7,579,891. To date, Meritage has financed its land acquisition and various site development and home construction costs related to its property in Improvement Area B through home sales and internally generated funds. Meritage expects to use home sales, internal funding and funding under its revolving credit facility to complete its development in Improvement Area B. I Iowever, home sales revenues for Meritage's project in Improvement Area B are not segregated and set aside for the payment of costs required to complete its project in Improvement Area B. Homes sales revenue is accumulated by Meritage and used to pay costs of Meritage's operations, to pay debt service on outstanding debt and for other corporate purposes, and may be diverted to pay costs other than the costs of completing the project in Improvement Area B at the discretion of Meritage management. Notwithstanding the foregoing, Meritage believes that it will have sufficient finds available to complete its proposed development in Improvement Area B in accordance with the development schedule described in this Official Statement. Notwithstanding the internal corporate financing and revenues generated fi-om home sales in Improvement Area B, there can be no assurance that Meritage will have timely access to the sources of funds which will be necessary to complete the remaining proposed development in Improvement Area B. Meritage has no legal obligation to Bond Owners to make any such funds available to fund the remaining development costs or to pay ad valorem property taxes or Special Taxes related to Meritage's property in Improvement Area B. Many factors beyond Meritage's control, or a decision by Meritage to alter its current plans, may cause the actual sources and uses to differ fi-om the projections. 46 Completed & Closed to Individual Permitted / Under Projected Homeowners Construction Number of Units as of as of Estimated Cslimated Base Plan at Buildout December 10, 1014 December 10, 2014'1 Square Peet l''1 Sales Pricehl 1 3 3 0 2,182 $310,499 2 24 16 3 2,376 341,866 3 25 5 3 2,480 327,438 4 24 9 3 2,551 343,580 Total 76 33 9 111 As of.lanuary 1, 2014, 14 building permits had been issued for parcels owned by Meritage within Improvement Arca 13. f21 Base home prices shown exclude Mentage's estimate of lot premiums, the sale of options and extras and any incentives or price reductions. Based on base home sales prices as of December 10, 2014, Financing Plan. As of December 10, 2014, Meritage had expended approximately $2,200,000 in acquiring its land in Improvement Area B and approximately $17,822,009 in land improvements, home construction costs and other development, marketing and sales costs (exclusive of internal financing repayment). As of such date, Meritage owned nine homes under construction and 30 lots in a near finished lot condition in Improvement Area B. Meritage expects the remaining land improvements, home construction costs and other development, marketing and sales costs within Improvement Area B to be approximately $7,579,891. To date, Meritage has financed its land acquisition and various site development and home construction costs related to its property in Improvement Area B through home sales and internally generated funds. Meritage expects to use home sales, internal funding and funding under its revolving credit facility to complete its development in Improvement Area B. I Iowever, home sales revenues for Meritage's project in Improvement Area B are not segregated and set aside for the payment of costs required to complete its project in Improvement Area B. Homes sales revenue is accumulated by Meritage and used to pay costs of Meritage's operations, to pay debt service on outstanding debt and for other corporate purposes, and may be diverted to pay costs other than the costs of completing the project in Improvement Area B at the discretion of Meritage management. Notwithstanding the foregoing, Meritage believes that it will have sufficient finds available to complete its proposed development in Improvement Area B in accordance with the development schedule described in this Official Statement. Notwithstanding the internal corporate financing and revenues generated fi-om home sales in Improvement Area B, there can be no assurance that Meritage will have timely access to the sources of funds which will be necessary to complete the remaining proposed development in Improvement Area B. Meritage has no legal obligation to Bond Owners to make any such funds available to fund the remaining development costs or to pay ad valorem property taxes or Special Taxes related to Meritage's property in Improvement Area B. Many factors beyond Meritage's control, or a decision by Meritage to alter its current plans, may cause the actual sources and uses to differ fi-om the projections. 46 If and to the extent that internal funding, including but not limited to home sales revenues are inadequate to pay the costs to complete the planned development by Meritage within improvement Area B and other financing by Meritage is not put into place, there could be a shortfall in the funds required to complete the proposed development by Meritage in Improvement Area B and the remaining portions of the project in Improvement Area B may not be developed. Based on the ownership information and development status as of as of December 10, 2014 within Improvement Area B, Meritage is expected to be responsible for approximately 20% of the projected Fiscal Year 2015 -16 Special Taxes within Improvement Area B. Meritage. Meritage Homes of California, Inc., a California corporation, is owned by Meritage Homes Corporation ( "Meritage Homes Corporation "), a Maryland corporation. Meritage IJomes Corporation is a homebuilder focused primarily on high - growth regions of the western and southern United States. Meritage Homes Corporation operates as a holding company, has no independent assets or operations, and is traded on the New York Stock Exchange ( "NYSE ") under the ticker symbol MTH. Homebuilding, construction, development and sales activities are conducted through subsidiaries. As of June 30, 2014, Meritage Homes Corporation was actively selling homes in 175 communities with average (tome closing prices ranging fi-om approximately $130,000 to $875,000. Meritage Homes Corporation is subject to the informational reporting requirements of the Securities Exchange, and files reports, proxy statements and other information with SEC. Such filings, particularly Meritage ]Ionics Corporation's Annual Report on Form 10 -K for the Fiscal Year ended December 31, 2013, and its Quarterly Report on Form 10 -Q for the six months ended September 30, 2014, set forth certain data relative to the consolidated results of operations and financial position of Meritage Homes Corporation and its subsidiaries as of such dates. History of Meritage's Property Tax Payments; Loan Defaults; Litigation; Ba¢kruptey. Meritage has represented to the Community Facilities District as follows: 1. Except as described in this Official Statement, there is no material indebtedness of Meritage that is secured by an interest in the Property (defined below). Meritage is not in default on arty obligation to repay borrowed money, which default is reasonably likely to materially and adversely affect Meritage's ability to complete the development of the Property as proposed in this Official Statement or to pay the Special Taxes due with respect to the Property. 1 Except as set forth in this Official Statement, no action, suit, proceeding, inquiry or investigation at law or in equity, before or by any court, regulatory agency, public board or body is pending against Meritage (with proper service of process or proper notice to Meritage having been accomplished) or to the Actual Knowledge of Meritage is threatened in writing against Meritage which if successful, is reasonably likely to materially and adversely affect Meritage's ability to complete the development of the Property as described in this Official Statement or to pay the Special Tax or ad valorem tax obligations on its property within Improvement Area B when due. 3. Meritage has been developing or has been involved in the development of numerous projects over all extended period of time. It is likely that Meritage has been delinquent at one time or another in the payment of ad valorem property taxes, special assessments or special taxes. To the Actual Knowledge of Meritage, Meritage is not delinquent to any material extent in the payment of ad valorem property taxes, special assessments or special taxes on the Property. Except as disclosed 47 in this Official Statement, to the Actual Knowledge of Meritage, in the last five years, Meritage has not, during the period of its ownership, been delinquent to any material extent in the payment of special assessments or special taxes on property owned by Meritage that is included within the boundaries of a community facilities district or assessment district within California that (a) would have caused a draw on a reserve fund relating to such assessment district or community facilities district financing or (b) resulted in a foreclosure action being commenced against the Meritage. 4. There are no Affiliates of Meritage the financial viability of which could have a materially adverse impact on the ability of Meritage to complete its development within Improvement Area B as described in this Official Statement or to pay the Special Tax or ad valorem tax obligations on its Property when due. As used in the above representations of Meritage, the following defined terms and phrases have the following meanings: "Affiliate" means, with respect to a Person (i) any other Person directly, or indirectly through one or more intermediaries, controlling, controlled by or under common control with such Person, and (ii) for whom information, including financial information or operating data, concerning such Person referenced in clause (i) is material to an evaluation of Improvement Area B and the Bonds (i.e., information relevant to Meritage's development plans with respect to its Property and the payment of its Special "faxes, or such Person's assets or funds that would materially affect Meritage's ability to develop its Property as described in this Official Statement or to pay its Special Taxes). "Person" means an individual, a corporation, a partnership, a limited liability company, an association, a joint stock company, a trust, any unincorporated organization or a government or political subdivision thereof. For proposes hereof, the term "control" (including the terms "controlling," "controlled by" or "under common control with ") means the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of voting securities, by contract or otherwise. "Actual Knowledge of Meritage" shall mean the knowledge of the authorized officer of Meritage (the "Authorized Officer ") signing the certificate containing the above representations (the "Meritage Certificate ") as of the date of the Meritage Certificate obtained from interviews with such current officers and responsible employees of Meritage as such Authorized Officer has determined are likely, in the ordinary course of their respective duties, to have knowledge of the matters set forth in the Meritage Certificate. The Authorized Officer will not conduct any extraordinary inspection or inquiry other than such inspections or inquiries as are prudent and customary in connection with the ordinary course of Meritage Homes' current business and operations. Homes. "Property" means taxable property within Improvement Area B held in the name of Meritage 48 SPECIAL RISK FACTORS The purchase gfthe Bonds involves certain invesoment risks which are discussed throughout his Official .Statement Euch prospective investor should make an independent evaluation of all infbrnnation presented in this Official Statement in order to make an informed inveshnent decision. Particular attention should he given to the factors described below which, among others, could affect the payment ofdebtservice on the Bonds. Risks of Real Estate Secured Investments Generally Because the timely payment of debt service on the Bonds will be dependent upon the timely payment of the District Bonds and the timely payment of the District Bonds will be dependent upon the timely payment of Special Taxes, which are secured ultimately by the Taxable Property within Improvement Area B, the Bond Owners 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 around the vicinity of Improvement Area B, the supply of or demand for competitive properties in such area, and the market value of residential property or buildings and /or sites in the event of sale or foreclosure; (ii) changes in real estate tax rates and other operating expenses, governmental rules (including, without limitation, zoning laws and laws relating to endangered species and hazardous materials) and fiscal policies; (iii) natural disasters (including, without limitation, earthquakes and floods), which may result in uninsured losses; (iv) adverse changes in local market conditions; and (v) increased delinquencies due to rising mortgage costs and other factors. Concentration of Ownership Based on the ownership and development status of the taxable property within Improvement Area B as of December 10, 2014 (and assuming no further development or sales to individual homeowners), the estimated Special Tax levy required for Fiscal Year 2015 -16 would result in approximately 47% of the Special Taxes securing the District Bonds being paid by individual homeowners and approximately 53% by the Developers. Until the construction and sale of all homes to individual homeowners, the receipt of the Special Taxes is dependent, in part, on the willingness and the ability of Ryland, Meritage, or their successors to pay the Special Taxes when due. Failure of Ryland, Meritage or their successors to pay the annual Special Taxes prior to delinquency could be a material factor in a default in payments of the principal of, and interest on, the District Bonds and the Bonds, when due. See the caption "— Failure to Develop Remaining Homes." No assurance can be given that Ryland, Meritage, or their successors will complete the remaining construction and development in Improvement Area B in the timeframe or for estimated costs predicted herein or that they will complete it at all. See the caption "-- Failure to Develop Remaining Homes." No assurance cat) be given that the individual homeowners, Ryland, Meritage or their successors will pay Special Taxes in the future or that they will be able to pay such Special Taxes on a timely basis. See the caption "— Bankruptcy and Foreclosure" for a discussion of certain limitations on the District's ability to pursue judicial proceedings with respect to delinquent parcels. Failure to Develop Remaining Homes Development of property within Improvement Area B may be subject to unexpected delays, disruptions and changes which may affect the willingness and ability of Ryland, Meritage, or any 49 property owner to pay the Special Taxes when due. Land development is subject to comprehensive federal, State and local regulations. Approval is required from various agencies in connection with the layout and design of developments, the nature and extent of improvements, construction activity, land use, zoning, school and health requirements, as well as numerous other matters. See the caption "DEVELOPMENT OF PROPERTY IN IMPROVEMENT AREA B" for a discussion of the remaining homes to be completed and sold within Improvement Area B. No assurance can be given that the remaining proposed residential development will be partially or 'fully completed, and for purposes of evaluating the investment quality of the Bonds, prospective purchasers should consider the possibility that such parcels will remain vacant and only partially improved. See the caption "DEVELOPMENT OF PROPERTY IN IMPROVEMENT AREA B." Undeveloped or partially developed property is inherently less valuable than developed property and provides less security to the Bond Owners should it be necessary for the District to foreclose on the property due to the nonpayment of Special Taxes. The failure to complete development of the required infrastructure for development in Improvement Area B as planned, or substantial delays in the completion of the development or any required infrastructure for the development due to litigation or other causes may reduce the value of the property within Improvement Area B and increase the length of time during which Special Taxes will be payable from partially developed property, and may affect the willingness and ability of the owners of property within Improvement Area B to pay the Special Taxes prior to delinquency. There can be no assurance that property development within Improvement Area B will not be adversely affected by a future deterioration of the real estate market and economic conditions or future local, State and federal governmental policies relating to real estate development, an increase in mortgage interest rates, the income tax treatment of real property ownership, or the national economy. In that event, there could be a default in the payment of principal of, and interest on, the District Bonds and the Bonds, when due. The Special Taxes that may be levied on Developed Property exceed the amount required to pay debt service on the District Bonds. Special Taxes may also be levied on the remaining lots classified as Undeveloped Property. Undeveloped Property is less valuable per unit of area than Developed Property, especially if there are no plans to develop such property or if there are severe restrictions on the development of such property. The Undeveloped Property also provides less security for the District Bonds and ultimately, the Bond Owners should it be necessary for the District to foreclose on Undeveloped Property due to the nonpayment of the Special Taxes. The Bonds are Limited Obligations of the Authority The Bonds are limited obligations of the Authority payable only from amounts pledged under the Indenture, which consist primarily of payments made to the Trustee on the District Bonds and amounts in the Reserve Account, the Cash Flow Management Fund and the Redemption Fund. Funds for the payment of the principal of and the interest on the District Bonds are derived only from payments of Special Taxes. The amount of Special Taxes that are collected could be insufficient to pay principal of and interest on the District Bonds due to non - payment of the Special Taxes levied or due to insufficient proceeds received from a judicial foreclosure sale of land within Improvement Area B following delinquency. A District's legal obligation with respect to any delinquent Special Taxes is limited to the institution of judicial foreclosure proceedings under certain circumstances 50 with respect to any parcels for which Special Taxes is delinquent. The Bonds cannot be accelerated in the event of any default. Failure by owners of the parcels within Improvement Area B to pay Special Tax installments when due, delay in foreclosure proceedings, or the inability of the District to sell parcels which have been subject to foreclosure proceedings for amounts sufficient to cover the delinquent installments of Special 'faxes levied against such parcels may result in the inability of the District to make full or timely payments of debt service on the District Bonds, which may, in turn, result in the depletion of the Reserve Account and the Cash Flow Management Fund, and the inability of the Authority to make full or timely payment on the Bonds. No Obligation of City The District Bonds and the interest thereon, and in turn, the Bonds, are not payable from the general funds of the City. Except with respect to the Special Taxes, neither the credit nor the taxing power of the District or the City is pledged for the payment of the District Bonds or the interest thereon, and except to compel a levy of the Special 'faxes securing the District Bonds, no Owner of the Bonds may compel the exercise of any taxing power by the District or the City or force the forfeiture of any property of the City or the District. The Bonds are not a debt of the City or the District or a legal or equitable pledge, charge, lien or encumbrance upon any of the City's or the District's property or upon any of the City's or the District's income, receipts or revenues, except the Revenues and other amounts pledged under the Indenture. Property Values The value of the property within Improvement Area B is a critical factor in determining the investment quality of the Bonds. If a property owner is delinquent in the payment of Special Taxes, the District's only remedy is to commence foreclosure proceedings against the delinquent parcel in an attempt to obtain funds to pay the Special Taxes. Reductions in property values due to a downturn in the economy, physical events such as earthquakes, fires or floods, stricter land use regulations or other events will adversely impact the security underlying the Special Taxes. See "THE DISTRICT AND IMPROVEMENT AREA B — Estimated Value -to -Lien Ratio." The Appraiser has estimated, on the basis of certain definitions, assumptions and limiting conditions contained in the Appraisal Report that, as of December 10, 2014, the aggregate market value of the as -is condition of the taxable property within Improvement Area B was $36,250,000. The Appraisal Report does not reflect any possible negative impact which could occur by reason of the presence of hazardous substances or other adverse soil conditions within Improvement Area B or other similar conditions. See "THE DISTRICT AND IMPROVEMENT AREA B — Appraisal Report." The Appraisal Report indicates the Appraiser's opinion as to the aggregate market value of the as -is condition of the taxable property within Improvement Area B as of the Date of Value, subject to the conditions prevailing in the applicable market as of the Date of Value. The Appraiser's opinion does not predict the future value of the subject property, and there can be no assurance that market conditions will not change adversely in the future. Prospective purchasers of the Bonds should not assume that the property within Improvement Area B could be sold for the appraised amount at a foreclosure sale for delinquent Special Taxes. In 51 arriving at the estimate of market value, the Appraiser assumes that any sale will be unaffected by undue stimulus and will occur following a reasonable marketing period, which is not always present in a foreclosure sale. See APPENDIX C for a description of other assumptions made by the Appraiser and for the definitions and limiting conditions used by the Appraiser. Any event which causes one of the Appraiser's assumptions to be untrue could result in a reduction of the value of the land within Improvement Area B from that estimated by the Appraiser. No assurance can be given that any bid will be received for a parcel with delinquent Special Taxes offered for sale at foreclosure or, if a bid is received, that such bid will be sufficient to pay all delinquent Special Taxes. See "SECURITY FOR THE DISTRICT BONDS — Special Tax Revenues and District Redemption Revenues" and "— Covenants of the District." Natural Disasters The land within Improvement Area B, like all California communities, may be subject to unpredictable seismic activity, fires, floods or other natural disasters. The occurrence of one of the foregoing natural disasters in Improvement Area B could result in substantial damage to properties in such Improvement Areas which, in turn, could substantially reduce the value of such properties and could affect the ability or willingness of the property owners to pay their Special 'taxes. Any major damage to structures as a result of natural disasters could result in a greater reliance on undeveloped property in the payment of Special Taxes. Hazardous Substances The value of a parcel may be reduced as a result of the presence of a hazardous substance. In general, the owners and operators of a parcel may be required by law to remedy conditions of the parcel relating to 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 California laws with regard to hazardous substances are also stringent and similar. Under many of these laws, the owner or operator is obligated to remedy a hazardous substance condition of property whether or not the owner or operator has anything to do with creating or handling the hazardous substance. The effect, therefore, should any of the taxed parcels be affected by a hazardous substance, is to reduce the marketability and value of the parcel by the costs of remedying the condition, because the purchaser, upon becoming owner, will become obligated to remedy the condition just as is the seller. Further, it is possible that liabilities may arise in the 'future with respect to any of the parcels 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. Further, such liabilities may arise not simply from the existence of a hazardous substance but from the method of handling it. All of these possibilities could significantly affect the value of a parcel that is realizable upon a Special Tax delinquency. The value of the taxable property within Improvement Area B, as set forth in the various tables in the Official Statement, does not reflect the presence of any hazardous substance or the possible liability of the owner (or operator) for the remedy of a hazardous substance condition of the 52 property. The District has not independently verified, but is not aware, that any owner (or operator) of any of the parcels within Improvement Area B has such a current liability with respect to any such parcel. The Developers represent that they are not aware of any hazardous substances located on their property within Improvement Area B. However, it is possible that such liabilities do currently exist and that the District is not aware of them. Parity Taxes and Special Assessments Property within Improvement Area B is subject to taxes and other charges levied by several other public agencies. See the discussion of direct and overlapping indebtedness under the heading "THE, DISTRICT AND IMPROVEMENT AREA B." The Special Taxes and any penalties thereon will constitute a lien against the lots and parcels of land on which they will be annually imposed until they are paid. Such lien is on a parity with the Tien of all special taxes and special assessments levied by other agencies and is co -equal to and independent of the lien for general ad valorem property taxes regardless of when they are imposed upon the same properly. The Special "faxes have priority over all existing and future private liens imposed on the property. See "— Bankruptcy and Foreclosure" below. None of the Authority, the District m• the City has control over the ability of other entities and districts to issue indebtedness secured by special taxes, ad valorem taxes or assessments payable from all o• a portion of the property within Improvement Area B. In addition, the landowners within Improvement Area B may, without the consent or knowledge of the Authority, the District o• the City, petition other public agencies to issue public indebtedness secured by special taxes, ad valorem taxes o• assessments. Any such special taxes, ad valorem taxes or assessments may have a lien on such property on a parity with the Special Taxes and cold reduce the estimated value -to -lien ratios for property within Improvement Area B described herein. Payment of the Special Tax is not a Personal Obligation of the Owners An owner of a taxable parcel is not personally obligated to pay the Special Tax. Rather, the Special Tax is an obligation which is secured only by a lien against the taxable parcel. If the proceeds received from the sale of a taxable parcel following a Special Tax delinquency are not sufficient, taking into account other liens imposed by public agencies, to pay the full amount of the Special Tax delinquency, the District has no recourse against the owner of the parcel. Disclosures to Future Purchasers The willingness or ability of an owner of a parcel to pay the Special Tax may be affected by whether or not the owner was given due notice of the Special Tax authorization at the time the owner purchased the parcel, was informed of the amount of the Special Tax on the parcel should the Special Tax be levied at the maximum tax rate and the risk of such a levy and, at the time of such a levy, has the ability to pay it as well as pay other expenses and obligations. The City has caused a notice of the Special Tax that may be levied against the taxable parcels in Improvement Area B to be recorded in the Office of the Recorder for the County. While title companies normally refer to such notices in title reports, there can be no guarantee that such reference will be made or, if made, that a prospective purchaser or lender will consider such Special Tax obligation in the purchase of a property within Improvement Area B or lending of money thereon. 53 The Mello -Roos Act requires the subdivider (or its agent or representative) of a subdivision to notify a prospective purchaser or long -term lessor of any lot, parcel, or unit subject to a Mello -Roos special tax of the existence and maximum amount of such special tax using a statutorily prescribed form. California Civil Code Section 1102.6b requires that in the case of transfers other than those covered by the above requirement, the seller must at least make a good faith effort to notify the prospective purchaser of the special tax lien in a format prescribed by statute. Failure by an owner of the property to comply with the above requirements, or failure by a purchaser or lessor to consider or understand the nature and existence of the Special Tax, could adversely affect the willingness and ability of the purchaser or lessor to pay the Special Tax when due. Special Tax Delinquencies Special 'Faxes are the primary source for the repayment of the District Bonds, which are the only source of Revenues to repay the Bonds. Delinquencies could result in a draw on the Delinquency Management Fund, the Cash Flow Management Fund and the Reserve Account and, if such funds and accounts were depleted, in a default in payment on the Bonds. Under provisions of the Mello -Roos Act, the Special 'faxes, from which funds necessary for the payment of principal of and interest on the District Bonds and, thus, the Bonds are derived, are customarily billed to the properties within Improvement Area B on the ad valorem property tax bills sent by the County to owners of such properties. The Mello -Roos Act currently provides that such Special Tax installments are due and payable, and bear the same penalties and interest for non- payment, as do ad valorem property tax installments. As described under the heading "THE DISTRICT AND IMPROVEMENT AREA B — Delinquency History," as of January 20, 2015, there were $1,921.30 in delinquent Special Taxes due for the first installment of Fiscal Year 2014 -15, representing 3.09% of the Fiscal Year 2014 -15 Special Tax levy. See "SECURITY FOR THE DISTRICT BONDS — Covenants of the District - Commence Foreclosure Proceedings," for a discussion of the provisions which apply, and procedures which each District is obligated to follow under the Fiscal Agent Agreement, in the event of delinquencies in the payment of Special Taxes. See "— Bankruptcy and Foreclosure" below for a discussion of the policy of the Federal Deposit Insurance Corporation (the "FDIC ") regarding the payment of special taxes and assessment and limitations on the District's ability to 'foreclose on the lien of the Special Taxes in certain circumstances. Insufficiency of Special Taxes Notwithstanding that the maximum Special Taxes that may be levied in Improvement Area B exceeds debt service due on the District Bonds, the Special Taxes collected could be inadequate to make timely payment of debt service either because of nonpayment or because property becomes exempt from taxation. The Rate and Method governing the levy of the Special Taxes within Improvement Area B expressly exempts up to a specified number of acres of property owned by public entities, homeowner associations, churches and other specified owners. If for any reason property within Improvement Area B becomes exempt from taxation by reason of ownership by a non - taxable entity such as the federal government, another public agency or other organization determined to be 54 exempt, subject to the limitations of the maximum authorized rates, the Special Tax will be reallocated to the remaining taxable properties within Improvement Area B. This could result in certain owners of property paying a greater amount of the Special Tax and could have an adverse impact upon the ability and willingness of the owners of such property to pay the Special Tax when due. The Mello -Roos Act provides that, if any property within Improvement Area B not otherwise exempt from the Special Tax is acquired by a public entity through a negotiated transaction, or by gift or devise, the Special Tax will continue to be levied on and enforceable against the public entity that acquired the property. In addition, the Mello -Roos Act provides that, if property subject to the Special Tax is acquired by a public entity through eminent domain proceedings, the obligation to pay the Special Tax with respect to that property is to be treated as if it were a special assessment and be paid from the eminent domain award. The constitutionality and operation of these provisions of the Mello -Roos Act have not been tested in the courts. Due to problems of collecting taxes from public agencies, if a substantial portion of land within Improvement Area B became exempt from the Special Tax because of public ownership, or otherwise, the maximum Special Taxes which could be levied upon the remaining taxable property therein might not be sufficient to pay principal of and interest on the related District Bonds when due and a default could occur with respect to the payment of such principal and interest, and, in turn, a default could occur in the payment of the principal and interest on the Bonds. Priority Administrative Expenses Administrative Expenses are paid prior to the payment of debt service on the District Bonds. In Fiscal Year 2014 -15, the District budgeted $20,000 for the Administrative Expenses of Improvement Area B. For Fiscal Year 2015 -16, the District estimates Administrative Expenses of $20,400 for Improvement Area B. Administrative Expenses in each fiscal year may be greater than budgeted, which could result in a draw on the Delinquency Management Fund, the Cash Flow Management Fund and the Reserve Account and, if such funds and accounts were depleted, in a default in payment on the Bonds. FDIC /Federal Government Interests in Properties General. The ability of the District to foreclose the lien of delinquent unpaid Special Tax installments may be limited with regard to properties in which the Federal Deposit Insurance Corporation (the "FDIC "), the Drug Enforcement Agency, the Internal Revenue Service, or other federal agency has or obtains an interest. The supremacy clause of the United States Constitution reads as follows: "This Constitution, and the Laws of the United States which shall be made in Pursuance thereof; and all Treaties made, or which shall be made, under the Authority of the United States, shall be the supreme law of the Land; and the Judges in every State shall be bound thereby, any Thing in the Constitution or Laws of any State to the contrary notwithstanding." This means that, unless Congress has otherwise provided, if a federal governmental entity owns a parcel that is subject to Special Taxes within Improvement Area B but does not pay taxes and assessments levied on the parcel (including Special 'faxes), the applicable state and local governments cannot foreclose on the parcel to collect the delinquent taxes and assessments. 55 Moreover, unless Congress has otherwise provided, if the federal government has a mortgage interest in the parcel and the District wishes to foreclose on the parcel as a result of delinquent Special Taxes, the property cannot be sold at a foreclosure sale unless it can be sold for an amount sufficient to pay delinquent taxes and assessments on a parity with the Special Taxes and preserve the federal government's mortgage interest. In Rust v. JOIMS011 (9th Circuit; 1979) 597 F.2d 174, the United States Court of Appeal, Ninth Circuit held that the Federal National Mortgage Association ( "FNMA ") is a 'federal instrumentality for purposes of this doctrine, and not a private entity, and that, as a result, an exercise of state power over a mortgage interest held by FNMA constitutes an exercise of state power over property of the United States. The District has not undertaken to determine whether any federal governmental entity currently has, or is likely to acquire, any interest (including a mortgage interest) in any of the parcels subject to the Special Taxes within Improvement Area B, and therefore expresses no view concerning the likelihood that the risks described above will materialize while the Bonds are outstanding. FDIC. In the event that any financial institution malting any loan which is secured by real property within Improvement Area B is taken over by the FDIC, and prior thereto or thereafter the loan or loans go into default, resulting in ownership of the property by the FDIC, then the ability of the District to collect interest and penalties specified by State law and to foreclose the lien of delinquent unpaid Special Taxes may be limited. The FDIC's policy statement regarding the payment of state and local real property taxes (the "Policy Statement ") provides that 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 inunune from real property taxes assessed on any basis other than property value. According to the Policy Statement, the FDIC will pay its property tax obligations 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 affairs, unless 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 FDIC 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 states that the FDIC 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. Special taxes imposed under the Mello -Roos Act and a special tax formula which determines the special tax due each year are specifically identified in the Policy Statement as being imposed each year and therefore covered by the FDIC's 'federal immunity. The Ninth Circuit issued a ruling on August 28, 2001 in which it determined that the FDIC, as a federal agency, is exempt from Mello -Roos special taxes. The District is unable to predict what effect the application of the Policy Statement would have in the event of a delinquency in the payment of Special Taxes on a parcel within improvement Area B in which the FDIC has or obtains an interest, although prohibiting the lien of the Special 56 Taxes to be foreclosed out at a judicial foreclosure sale could reduce or eliminate the number of persons willing to purchase a parcel at a foreclosure sale. Such an outcome could cause a draw on the Delinquency Management Fund, the Reserve Account or the Cash Flow Management Fund, and perhaps, ultimately, if enough property were to become owned by the FDIC, a default in payment on the District Bonds and the Bonds. Bankruptcy and Foreclosure In the event of a delinquency in the payment of the Special Taxes, the District, under certain circumstances, is required to commence enforcement proceedings as described under the heading "SECURITY FOR FHE DISTRICT BONDS -- Covenants of the District." However, prosecution of such proceedings could be delayed due to crowded local court calendars, dilatory legal tactics, or bankruptcy. It is also possible that the District will be unable to realize proceeds in an amount sufficient to pay the applicable delinquency. Moreover, the ability of the District to commence and prosecute enforcement proceedings may be limited by bankruptcy, insolvency and other laws generally affecting creditors' rights (such as the Soldiers' and Sailors' Relief Act of 1940) and by the laws of the State relating to judicial and non- judicial foreclosure. Although bankruptcy proceedings would not cause the liens of the Special Taxes to become extinguished, bankruptcy of a property owner could result in a delay in the enforcement proceedings because federal bankruptcy laws provide for an automatic stay of foreclosure and tax sale proceedings. Any such delay could increase the likelihood of delay or default in payment of the principal of and interest on the District Bonds. The various legal opinions delivered in connection with the issuance of the Bonds, including Bond Counsel's approving legal opinion, are qualified as to the enforceability of the Bonds, the Indenture, the District Bonds and the Fiscal Agent Agreement by reference to bankruptcy, reorganization, moratorium, insolvency and other laws affecting the rights of creditors generally or against public corporations such as the District. No Acceleration Provision The Bonds do not contain a provision allowing for the acceleration of the Bonds in the event of a payment default or other default under the terms of the Bonds or the Indenture. Pursuant to the Indenture, an Owner of the Bonds is given the right for the equal benefit and protection of all owners similarly situated to pursue certain remedies described in APPENDIX A — "SUMMARY OF CERTAIN PROVISIONS OF PRINCIPAL LEGAL DOCUMENTS — SUMMARY OF AUTHORITY INDENTURE — EVENTS OF DEFAULT AND REMEDIES OF BOND OWNERS" following the occurrence of an Event of Default. Limitations on Remedies Remedies available to the Owners of the Bonds may be limited by a variety of factors and may be inadequate to assure the timely payment of principal of and interest on the Bonds or to preserve the exclusion from gross income for federal income tax purposes of interest on the Bonds. Bond Counsel has limited its opinion as to the enforceability of the Bonds and of the Indenture to the extent that enforceability may be limited by bankruptcy, insolvency, reorganization, fraudulent conveyance or transfer, moratorium, or other similar laws affecting generally the enforcement of creditors' rights, by equitable principles, by the exercise of judicial discretion and by limitations on remedies against public agencies in the State. The lack of availability of certain 57 remedies or the limitation of remedies may entail risks of delay, limitation or modification of the rights of the owners of the Bonds. Loss of Tax Exemption As discussed under the caption "LEGAL MAT'T'ERS — Tax Matters" herein, interest on the Bonds could become includable in gross income for purposes of federal inconne taxation retroactive to the date the Bonds were issued, as a result of future acts or omissions of the Authority, the City or the District in violation of covenants in the Indenture or the Fiscal Agent Agreement, respectively. Legislative changes have been proposed in Congress, which, if enacted, would result in additional federal income tax being imposed on certain owners of tax - exempt state or local obligations, such as the Bonds. The introduction or enactment of any of such changes could adversely affect the market value or liquidity of the Bonds. Should such an event of taxability occur, the Bonds are not subject to a special redemption and will remain outstanding until maturity or until redeemed under one of the other redemption provisions contained in the Indenture. Current or future legislative proposals, if enacted into law, clarification of the Internal Revenue Code of 1986 (the "Code ") or coot decisions may cause interest on the Bonds to be subject, directly or indirectly, to federal income taxation or to be subject to or exempted fi-om state income taxation, or otherwise prevent Beneficial Owners from realizing the full current benefit of the tax status of such interest. Legislative changes have been proposed in Congress, which, if enacted, would result in additional federal income tax being imposed on certain owners of tax - exempt state or local obligations, such as the Bonds. The introduction or enactment of any of the pending or future legislative proposals, clarification of the Code or coot decisions may also affect the market price for, or marketability of the Bonds. Prospective purchasers of the Bonds should consult their own tax advisors regarding any pending or proposed federal or state tax legislation, regulations or litigation, as to which Bond Counsel expresses no opinion. It is possible that subsequent to the issuance of the Bonds there might be federal, State, or local statutory changes (or judicial or regulatory interpretations of federal, State, or local law) that affect the federal, State, or local tax treathnent of the Bonds or the market value of the Bonds. No assurance can be given that subsequent to the issuance of the Bonds such changes or interpretations will not occur. See "LEGAL MATTERS —Tax Matters" below. Limited Secondary Market ]'here can be no guarantee that there will be a secondary market for the Bonds, or, if a secondary market exists, that the Bonds can be sold for any particular price. Although the District has committed to provide certain financial information and operating data on an annual basis, there can be no assurance that such information will be available to Beneficial Owners of the Bonds on a timely basis. The failure to provide the required annual information does not give rise to monetary damages but merely an action for specific performance. Occasionally, because of general market conditions, lack of current information, the absence of a credit rating, or adverse history or economic prospects connected with a particular issue, secondary marketing practices in connection with a particular issue are suspended or terminated. Additionally, prices of issues for which a market is being made will depend upon then prevailing circumstances. Such prices could be substantially different from the original purchase price. 58 proposition 218 An initiative measure commonly referred to as the "Right to Vote on Taxes Act" (the "Initiative ") was approved by the voters of the State of California at the November 5, 1996 general election. The Initiative added Article XIII C and Article X111 D to the California Constitution. According to the "Title and Summary" of the Initiative prepared by the California Attorney General, the Initiative limits "the authority of local governments to impose taxes and property- related assessments, fees and charges." The provisions of the Initiative continue to be interpreted by the courts. The Initiative could potentially impact the Special Taxes available to the District to pay the principal of and interest on the District Bonds as described below. Among other things, Section 3 of Article XIII states that "... the initiative power shall not be prohibited or otherwise limited in matters of reducing or repealing any local tax, assessment, fee or charge." The Mello -Roos Act provides for a procedure which includes notice, hearing, protest and voting requirements to alter the rate and method of apportionment of an existing special tax. However, the Mello -Roos Act prohibits a legislative body from adopting any resolution to reduce the rate of any special tax or terminate the levy of any special tax pledged to repay any debt incurred Pursuant to the Mello -Roos Act unless such legislative body determines that the reduction or termination of the special tax would not interfere with the timely retirement of that debt. On August 1, 1997, a bill was signed into law by the Governor of the State enacting Government Code Section 5854, which states that: Section 3 of Article XIIIC of the California Constitution, as adopted at the November 5, 1996, general election, shall not be construed to mean that any owner or beneficial owner of a municipal security, purchased before or after that date, assumes the risk of, or in ally way consents to, any action by initiative measure that constitutes an impairment of contractual rights protected by Section 10 of Article I of the United States Constitution. Accordingly, although the matter is not free from doubt, it is likely that the Initiative has not conferred on the voters the power to repeal or reduce the Special Taxes if such reduction would interfere with the timely retirement of the District Bonds. It may be possible, however, for voters or the City Council, acting as the legislative body of the District, to reduce the Special Taxes in a manner which does not interfere with the timely repayment of the District Bonds, but which does reduce the maximum amount of Special Taxes that may be levied in any year below the existing levels. Therefore, no assurance can be given with respect to the levy of Special Taxes for Administrative Expenses. Furthermore, no assurance can be given with respect to the future levy of the Special Taxes in amounts greater than the amount necessary for the timely retirement of the District Bonds. Nevertheless, to the maximum extent that the law permits it to do so, the District will covenant in the Fiscal Agent Agreement that it will not approve any reduction to the Assigned Annual Special Tax rates in Improvement Area B which would prohibit the District from levying the Special Taxes at a level which would generate Net Taxes (defined in the Fiscal Agent Agreement as Special Taxes less Administrative Expenses) at least equal to 110% of debt service for the District Bonds of Improvement Area B in each Fiscal Year. However, no assurance can be given as to the enforceability of the foregoing covenant. With respect to the approval of the Special Taxes, on August 1, 2015, the California Court of Appeal, Fourth Appellate District, Division One, issued its opinion in City of San Diego v. Melvin 59 Shapiro, et al. (D063997) (the "San Diego Decision "). The case involved a Convention Center Facilities District (the "CCFD ") established by the City of San Diego (the "City "). The CCFD is a financing district much Tike a community facilities district established under the provisions of the Act. ']'he CCFD is comprised of all of the real property in the entire City. However, the special tax to be levied within the CCFD was to be levied only on hotel properties located within the CCFD. The election authorizing the special tax was limited to owners of hotel properties and lessees of real property owned by a governmental entity on which a hotel is located. Thus, the election was not a registered voter election. Such approach to determining who would constitute the qualified electors of the CCFD was modeled after Section 53326(c) of the Act, which generally provides that, if a special tax will not be apportioned in any tax year on residential property, the legislative body may provide that the vote shall be by the landowners of the proposed district whose property would be subject to the special tax. The Court held that the CCFD special tax election was invalid under the California Constitution because Article XIIIA, Section 4 thereof and Article XIBC, Section 2 thereof require that the electors in such an election be the registered voters within the district. The facts of the San Diego Decision show that there were thousands of registered voters within the CCFD (viz., all of the registered voters in the City). Improvement Area B had no registered voters residing within its boundaries at the time of the election to authorize the Special Tax. In the San Diego Decision, the Court expressly stated that it was not addressing the validity of landowner voting to impose special taxes pursuant to the Act in situations where there are fewer than 12 registered voters. Thus, by its terms, the Court's holding does not apply to the Special Tax election in the District. Moreover, Section 53341 of the Act provides that any "action or proceeding to attack, review, set aside, void or annul the levy of a special tax... shall be commenced within 30 days after the special tax is approved by the voters." Similarly, Section 53359 of the Act provides that any action to determine the validity of bonds issued pursuant to the Act be brought within 30 days of the voters approving the issuance of such bonds. Voters within Improvement Area B approved the Special Tax and the issuance of bonds on March 8, 2011. Based on Sections 53341 and 53359 of the Act and analysis of existing laws, regulations, rulings and court decisions, Bond Counsel is of the opinion that no successful challenge to the Special 'Fax being levied in accordance with the Rate and Method may now be brought. The interpretation and application of the Initiative 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 determination or the timeliness of any remedy afforded by the courts. See "— Limitations on Remedies" above. Ballot Initiatives and Legislative Matters Articles XBI A, X111 B, XIII C and XIII D, all of which placed certain limitations on the power of local agencies to tax, collect and expend revenues, were adopted pursuant to measures qualified for the ballot pursuant to California's constitutional initiative process and the State Legislature has in the past enacted legislation which has altered the spending limitations or established minimum funding provisions for particular activities. From time to time, other initiative measures could be adopted by California voters or legislation enacted by the legislature. The adoption of any such initiative or legislation might place limitations on the ability of the State, the City, or the District to increase revenues or to increase appropriations or on the ability of the landowners within Improvement Area B to complete proposed future development. 60 LEGAL MATTERS Tax Matters Tax Exemption. The Internal Revenue Code of 1986 (the "Code ") imposes certain requirements that must be met subsequent to the issuance and delivery of the Bonds for interest thereon to be and remain excluded pursuant to section 103(a) of the Code from the gross income of the owners thereof for federal income tax purposes. Noncompliance with such requirements could cause the interest on the Bonds to be included in the gross income of the owners thereof for federal income tax purposes retroactive to the date of issuance of the Bonds. Each of the Authority, the District and the City has covenanted to maintain the exclusion of the interest on the Bonds from the gross income of the owners thereof for federal income tax purposes. In the opinion of Norton Rose Ftidbright US LLP, Los Angeles, California, Bond Counsel, under existing law, interest on the Bonds is exempt from personal income taxes of the State of California and, assuming compliance with the covenants mentioned herein, interest on the Bonds is excluded pursuant to section 103(a) of the Code from the gross income of the owners thereof for federal income tax purposes. It is the further opinion of Bond Counsel that, under existing law, the Bonds are not "specified private activity bonds" within the meaning of section 57(x)(5) of the Code and for that reason interest on the Bonds is not treated as an item of tax preference for purposes of computing the alternative minimurn tax imposed by section 55 of the Code. Receipt or accrual of interest on Bonds owned by a corporation may affect the computation of the alternative minimum taxable income of that corporation. A corporation's alternative minimum taxable income is the basis on which the alternative minimum tax imposed by section 55 of the Code will be computed. Pursuant to the Indenture and the Fiscal Agent Agreement and in the Tax Certificate Pertaining to Arbitrage and Other Matters under Sections 103 and 141 -150 of the Internal Revenue Code of 1986, to be delivered by the by the City, the District and the Authority in connection with the issuance of the Bonds, each of the Authority, the District and the City will make representations relevant to the determination of, and will snake certain covenants regarding or affecting, the exclusion of interest on the Bonds from the gross income of the owners thereof for federal income tax purposes. In reaching its opinions described in the immediately preceding paragraph, Bond Counsel will assume the accuracy of such representations and the present and future compliance by the Authority and the City with such covenants. Except as stated in this section above, Bond Counsel will express no opinion as to any federal or state tax consequence of the receipt of interest on, or the ownership or disposition of, the Bonds. Furthermore, Bond Counsel will express no opinion as to any federal, state or local tax law consequence with respect to the Bonds, or the interest thereon, if any action is taken with respect to the Bonds or the proceeds thereof predicated or permitted upon the advice or approval of other counsel. Bond Counsel has not undertaken to advise in the future whether any event after the date of issuance of the Bonds may affect the tax status of interest on the Bonds or the tax consequences of the ownership of the Bonds. Bond Counsel's opinion is not a guarantee of a result, but represents its legal judgment based upon its review of existing statutes, regulations, published rulings and court decisions and the representations and covenants of the Authority described above. No ruling has been sought from the Internal Revenue Service (the "Service ") with respect to the matters addressed in the opinion of Bond Counsel, and Bond Counsel's opinion is not binding on the Service. The Service has an ongoing 61 program of auditing the tax - exempt status of the interest on municipal obligations. If an audit of the Bonds is commenced, under current procedures the Service is likely to treat the Authority as the "taxpayer" and the owners would have no right to participate in the audit process. In responding to or defending an audit of the tax - exempt status of the interest on the Bonds, the Authority may have different or conflicting interest from the owners. Public awareness of any future audit of the Bonds could adversely affect the value and liquidity of the Bonds during the pendency of the audit, regardless of its ultimate outcome. Existing law may change to reduce or eliminate the benefit to bondholders of the exemption of interest on the Bonds fiom personal income taxation by the State of California or of the exclusion of the interest on the Bonds from the gross income of the owners thereof for federal income tax purposes. Any proposed legislation or administrative action, whether or not taken, could also affect the value and marketability of the Bonds. Prospective purchasers of the Bonds should consult with their own tax advisors with respect to any proposed or future change in tax law. A copy of the form of opinion of Bond Counsel relating to the Bonds is included in Appendix D. Tax Accounting D-catment qf Bond Premium and Original Issue Discount on Bonds. To the extent that a purchaser of a Bond acquires that Bond at a price in excess of its "stated redemption price at maturity" (within the meaning of section 1273(a)(2) of the Code), such excess will constitute "bond premium" under the Code. Section 171 of the Code, and the Treasury Regulations promulgated thereunder, provide generally that bond premium on a tax - exempt obligation must be amortized over the remaining term of the obligation (or a shorter period in the case of certain callable obligations); the amount of premium so amortized will reduce the owner's basis in such obligation for federal income tax purposes, but such amortized premium will not be deductible for federal income tax purposes. Such reduction in basis will increase the amount of any gain (or decrease the amount of any loss) to be recognized for federal income tax purposes upon a sale or other taxable disposition of the obligation. The amount of premium that is amortizable each year by a purchaser is determined by using such purchaser's yield to maturity. The rate and timing of the amortization of the bond premium and the corresponding basis reduction may result in an owner realizing a taxable gain when its Bond is sold or disposed of for an amount equal to or in some circumstances even less than the original cost of the Bond to the owner. The excess, if any, of the stated redemption price at maturity of Bonds of a maturity over the initial offering price to the public of the Bonds of that maturity is "original issue discount." Original issue discount accruing on a Bond is treated as interest excluded from the gross income of the owner thereof for federal income tax purposes and is exempt from California personal income tax to the same extent as would be stated interest on that Bond. Original issue discount on any Bond purchased at such initial offering price and pursuant to such initial offering will accrue on a semiannual basis over the term of the Bond on the basis of a constant yield method and, within each semiannual period, will accrue on a ratable daily basis. The amount of original issue discount on such a Bond accruing during each period is added to the adjusted basis of such Bond to determine taxable gain upon disposition (including sale, redemption or payment on maturity) of such Bond. 'file Code includes certain provisions relating to the accrual of original issue discount in the case of purchasers of Bonds who purchase such Bonds other than at the initial offering price and pursuant to the initial Offering. 62 Persons considering the purchase of Bonds with original issue discount or initial bond premium should consult with their own tax advisors with respect to the determination of original issue discount or amortizable bond premium on such Bonds for federal income tax purposes and with respect to the state and local tax consequences of owning and disposing of such Bonds. Bond Counsel will express no opinion regarding such determination or such tax consequences. Other Federal Income Tux Consequences. Although interest on the Bonds may be exempt front California personal income tax and excluded from the gross income of the owners thereof for federal income tax purposes, an owner's federal, state or local tax liability may be otherwise affected by the ownership or disposition of the Bonds. The nature and extent of these other tax consequences will depend, inter alia, upon the owner's other items of income or deduction. Without limiting the generality of the foregoing, prospective purchasers of the Bonds should be aware that (i) section 265 of the Code denies a deduction for interest on indebtedness incurred or continued to purchase or cant' the Bonds and the Code contains additional limitations on interest deductions applicable to financial institutions that own tax - exempt obligations (such as the Bonds), (ii) with respect to insurance companies subject to the tax imposed by section 831 of the Code, section 832(b)(5)(B)(i) reduces the deduction for loss reserves by 15% of the sum of certain items, including interest on the Bonds, (iii) interest on the Bonds earned by certain foreign corporations doing business in the United States could be subject to a branch profits tax imposed by section 884 of the Code, (iv) passive investment income, including interest on the Bonds, may be subject to federal income taxation under section 1375 of the Code for Subchapter S corporations that have Subchapter C earnings and profits at the close of the taxable year if greater than 25% of the gross receipts of such Subchapter S corporation is passive investment income, (v) section 86 of the Code requires recipients of certain Social Security and certain Railroad Retirement benefits to take into account, in determining the taxability of such benefits, receipts or accruals of interest on the Bonds and (vi) under section 32(i) of the Code, receipt of investment income, including interest on the Bonds, may disqualify the recipient thereof from obtaining the earned income credit. Bond Counsel will express no opinion regarding any such other tax consequence. Absence of Litigation The Authority will certify at the time the Bonds are issued that no litigation is pending or threatened concerning the validity of the Bonds or the District Bonds and that no action, suit or proceeding is known by the Authority to be pending that would restrain or enjoin the delivery of the Bonds or the District Bonds, or contest or affect the validity of the Bonds or the District Bonds or any proceedings of the Authority taken with respect to the Bonds or the District Bonds. The District will also certify at the time the Bonds are issued that no litigation is pending or threatened concerning the validity the District Bonds and that no action, suit or proceeding is known by the District to be pending that would restrain or enjoin the delivery of the District Bonds, or contest or affect the validity of the District Bonds or any proceedings of such District taken with respect to the District Bonds. Legal Opinion Certain proceedings in connection with the issuance of the Bonds are subject to the approval as to their legality of Norton Rose Fulbright US LLP, Los Angeles, California, Bond Counsel for the Authority in connection with the issuance of the Bonds. The opinion of Bond Counsel approving the validity of the Bonds substantially in the form attached as Appendix D hereto will be attached to each Bond. Bond Counsel's employment is limited to a review of legal procedures required for the 63 approval of the Bonds and to rendering an opinion as to the validity of the Bonds and the exemption of interest on the Bonds from income taxation. Bond Counsel expresses no opinion to the Owners of the Bonds as to the accuracy, completeness or fairness of this Official Statement or other offering materials relating to the Bonds and expressly disclaims any duty to do so. Payment of the fees of Bond Counsel, Disclosure Counsel, Financial Advisor, the Underwriter and Underwriter's Counsel is contingent upon issuance of the Bonds. MISCELLANEOUS No Rating The Authority has not made and does not contemplate making application to any rating agency for the assignment of a rating of the Bonds. Underwriting The Bonds are being purchased by Stifel, Nicolaus & Company, Incorporated (the "Underwriter ") at a purchase price of $ (representing the par amount of the Bonds, less underwriter's discount of $ and plus /less net original issue premium /discount of $ ). The purchase contract relating to the Bonds between the Authority, the District and the Underwriter provides that all Bonds will be purchased if any are purchased, and that the obligation to make such purchase is subject to certain terms and conditions set forth in said purchase contract, including, but not limited to, the approval of certain legal matters by counsel. Continuing Disclosure District Continuing Disclosure. Pursuant to a Continuing Disclosure Agreement, the District will agree to provide, or cause to be provided, through the Electronic Municipal Market Access system ( "EMMA ") maintained by the Municipal Securities Rulemaking Board (or with such other entity as is designated or authorized under Rule 15c2 -12 adopted by the Securities and Exchange Commission) certain annual financial information and operating data. The Annual Report to be filed by the District will include audited financial statements of the District, if any are prepared, and additional financial and operating data concerning Improvement Area B as set forth in Section 4 of the Continuing Disclosure Agreement attached hereto as Appendix E. The Continuing Disclosure Agreement will more solely to the benefit of any Dissemination Agent, the Underwriter and Owners or Beneficial Owners from time to time of the Bonds. A default under the Continuing Disclosure Agreement is not a default under the Indenture and the sole remedy following a default is an action to compel specific performance by the District with the terms of the Continuing Disclosure Agreement. During the last five years the Authority, the City and the Agency failed to comply in certain respects with continuing disclosure obligations related to outstanding bonded indebtedness. The failures to comply include late filings with respect to several annual reports and incomplete filings with respect to other annual reports. The incomplete filings omitted one or more of the following items: 64 (1) Comprehensive audited financial statements of the City or the Agency, as applicable; however, such comprehensive audited financial statements not provided for certain issuances of bonded indebtedness were otherwise available on EMMA in connection with the Authority's, the Agency's or the City's other issuances of bonded indebtedness; (2) Updated tabular and other operating information relating to the City, the Agency and community facilities districts; and (3) Material event notices of changes in the ratings of outstanding bonded indebtedness of the Authority and the Agency resulting from changes in the ratings to the bonds or to the bond insurers insuring such bonds. Other than as set forth above, the Authority, the City and the Agency believe in the last five years they have materially complied with their continuing disclosure undertakings. The Authority has made additional filings to provide certain of the previously omitted information; provided that with respect to ratings changes, notice has been provided only of the existing rating or ratings applicable to each outstanding issuance of bonds. The City believes that in several instances annual reports were timely provided to the dissemination agent but the dissemination agent either failed to file such reports or did not file the complete report. Ill order to promote compliance by the Authority, the City, the Agency and the District with continuing disclosure undertakings in the future, the City has retained Albert A. Webb Associates to serve as the new dissemination agent with respect to issuances of land- secured bonded indebtedness and Urban Futures Incorporated to serve as the new dissemination agent with respect to other types of bonded indebtedness. Additionally, the City has adopted formal policies and procedures with respect to its continuing disclosure practices. Ryland Conthming Disclosure. Pursuant to the Ryland Continuing Disclosure Agreement, until such time as Ryland is no longer expected to be responsible for more than 20% of the Special Tax levy, Ryland has agreed to provide, or cause to be provided, on a semi - annual and annual basis, to EMMA, certain financial information and operating data concerning Ryland's development within Improvement Area B. Ryland has further agreed to provide notice to EMMA of certain listed events. These covenants have been made in order to assist the Underwriter in complying with Rule 15e2 -12. During the previous five years, Ryland failed to file certain semi - annual reports required pursuant to its continuing disclosure undertakings and filed certain semi - annual reports after their respective due dates. To ensure timely compliance with the Ryland Continuing Disclosure Agreement, the appropriate employees of Ryland will use the EMMA feature which provides reminders of semi - annual report due dates. In addition, the Ryland Continuing Disclosure Agreement provides that the dissemination agent appointed thereunder shall send a reminder notice to Ryland in advance of each semi - annual due date if the dissemination agent has not received the applicable semi - annual report by 15 calendar days prior to each semi- annual due date. See APPENDIX E and APPENDIX F for a description of the specific nature of the semi- annual reports, annual reports and notices of listed events to be provided by the District and Ryland. 65 Pending Legislation The Authority is not aware of any significant pending legislation which would have material adverse consequences on the Bonds or the ability of the Authority to pay the principal of and interest on the Bonds when due. Additional Information References are made herein to certain documents and reports which are brief summaries thereof which do not purport to be complete or definitive, and reference is made to such documents and reports for full and complete statements of the contents thereof. 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. This Official Statement is not to be construed as a contract or agreement between the Authority and the purchasers or Owners of any of the Bonds. The execution and delivery of this Official Statement has been duly authorized by the Authority. LAKE ELSINORE PUBLIC FINANCING AUTHORITY By: Executive Director 66 APPENDIX A SUMMARY OF CERTAIN PROVISIONS OF PRINCIPAL LEGAL DOCUMENTS The following is a brief summary of certain provisions of the Indenture governing the terms of the Bonds and the Fiscal Agent Agreement which is being separately executed by the District governing the terms of the District Bands. This summary includes only the provisions of the documents not already summarized in the Official Statement and does not purport to be complete and is qualified in its entirety by reference to said documents. [TO COME FROM BOND COUNSEL] A -1 SUMMARY OF THE FISCAL AGENT AGREEMENT The District Bonds issued by the District will he issued pursuant to the Fiscal Agent Agreenaeiat substantially in the,Jorrn summarized below. A? APPENDIX B RATE AND METHOD OF APPORTIONMENT FOR CITY OF LAKE ELSINORE COMMUNITY FACILITIES DISTRICT NO. 2006 -1 (SUMMERLY) IMPROVEMENT AREA B A Special Tax shall be levied on all Assessor's Parcels in City of Lake Elsinore Community Facilities District No. 2006 -1 (Summerly) Improvement Area B ( "CFD No. 2006 -1 (IA B) ") and collected each Fiscal Year commencing in Fiscal Year 2010-2011, in an amount determined through the application of this Rate and Method of Apportionment as described below. All of the real property in CFD No. 2006 -1 (IA B), unless exempted by law or by the provisions hereof shall be taxed for the proposes, to the extent and in the manner herein provided. A. DEFINITIONS The terms hereinafter set forth have the following meanings "Acre or Acreage" means the land area of an Assessor's Parcel as shown on an Assessor's Parcel Map, or if the land area is not shown oil an Assessor's Parcel Map, the land area shown on the applicable final map, parcel map, condominium plan, or other recorded County Parcel map. "Act" means the Mello -Roos Community Facilities Act of 1982, being Chapter 2.5, Part 1, Division 2 of Title 5 of the California Government Code. "Administrative Expenses" means the following actual or reasonably estimated costs directly related to the administration of CFD No. 2006 -1 (IA B): the costs of computing the Special 'Faxes and preparing the annual Special Tax collection schedules (whether by the City or designee thereof or both); the costs of collecting the Special Taxes (whether by the City or otherwise); the costs of remitting the Special 'Faxes to the Trustee; the costs of the Trustee (including its legal counsel) in the discharge of the duties required of it under the indenture; the costs to the City, CFD No. 2006 -1 (IA B) or any designee thereof of complying with arbitrage rebate requirements; the costs to the City, CFD No. 2006 -1 (IA B) or any designee thereof of complying with disclosure requirements of the City, CFD No. 2006 -1 (IA B) or obligated persons associated with applicable federal and state securities laws and the Act; the costs associated with preparing Special Tax disclosure statements and responding to public inquiries regarding the Special Taxes; the costs of the City, CFD No. 2006 -1 (IA B) or any designee thereof related to an appeal of the Special Tax; the costs associated with the release of funds from an escrow account; and the City's annual administration fees and third party expenses. Administrative Expenses shall also include amounts estimated by the CFD Administrator or advanced by the City or CFD No. 2006 -1 (IA B) for any other administrative purposes of CFD No. 2006 -1 (IA B), including attorney's fees and other costs, and attorney's fees and other costs related to commencing and pursuing to completion any foreclosure of delinquent Special Taxes. "Assessor's Parcel" means a lot or parcel shown in an Assessor's Parcel Map with an assigned Assessor's Parcel number. B -1 "Assessor's Parcel Map" means an official map of the County Assessor of the County designating parcels by Assessor's Parcel number. "Assigned Special Tax for Facilities" means the Special Tax for Facilities for each Land Use Class of Developed Property, as determined in accordance with Section C1(b) below. "Authorized Facilities" means those authorized improvements, as listed in an exhibit to the Resolution of Formation. "Backup Special Tax for Facilities" means the Special Tax for Facilities applicable to each Assessor's Parcel of Developed Property, as determined in accordance with Section C.I.(c) below. "Certificate of Occupancy" means a certificate issued by the City that authorizes the actual occupancy of a dwelling unit for habitation by one or more residents. "CFD Administrator" means an official of the City, or designee thereof, responsible for determining the Special Tax Requirement for Facilities, the Special Tax Requirement for Services as determined in accordance with Section I below, and providing for the levy and collection ofthe Special Taxes. "CFD No. 2006 -1" means City of Lake Elsinore Community Facilities District No. 2006 -1 (Sunvnerly). "CFD No. 2006 -1 (IA B)" means Improvement Area B of CFD No. 2006 -1 as identified oil the boundary map for CFD No. 2006 -1. "CFD No. 2006 -1 (IA B) Bonds" means any bonds or other debt (as defined in Section 53317(d) of the Act), whether in one or more series, issued by CFD No. 2006 -1 (IA B) and secured solely by the Special 'Fax for Facilities levy on property within the boundaries of CFD No. 2006 -1 (IA B) under the Act. "City" means the City of Lake Elsinore. "City Council" means the City Council of the City of Lake Elsinore, acting as the legislative body of CFD No. 2006 -1 (IA B). "County" means the County of Riverside. "Developed Property" means, with respect to the Special Tax for Facilities, for each Fiscal Year, all Taxable Property, exclusive of Taxable Public Property and Taxable Property Owner Association Property, for which the Final Subdivision was recorded on or before January 1 of the prior Fiscal Year and a building permit for new construction was issued on or before May 1 of the Fiscal Year preceding the Fiscal Year for which the Special Tax for Facilities is being levied. "Final Subdivision" means (i) a final map, or portion thereof, approved by the City pursuant to the Subdivision Map Act (California Government Code Section 66410 et seq.) that creates individual lots for which building permits may be issued, or (ii) for condominiums, a final map, or portion thereof, approved by the City and a condominium plan recorded pursuant to B -2 California Civil Code Section 1352 that creates individual lots for which building permits may be issued. "Funding Agreement" means the Funding, Construction and Acquisition Agreement entered into by the City, on behalf of CFD No. 2006 -1, as it may be amended. "Fiscal Year" means the period starting July 1 and ending on the following June 30. "Indenture" means the indenture, fiscal agent agreement, resolution or other instrument pursuant to which CFD No. 2006 -1 (IA B) Bonds are issued, as modified, amended and /or supplemented from time to time, and any instrument replacing or supplementing the same. "Land Use Class" means any of the classes listed in Table I below. "Maxine m Special Tax for Facilities" means the maximum Special Tax for Facilities, determined in accordance with Section C below, that can be levied in any Fiscal Year on any Assessor's Parcel. "Non- Residential Property" means all Assessor's Parcels of Developed Property for which a building permit permitting the construction of one or more non - residential units or facilities has been issued by the City. "Outstanding Bonds" means all CFD No. 2006 -1 (lA B) Bonds which are deemed to be outstanding under the Indenture. "Property Owner Association Property" means, for each Fiscal Year, any property within the boundaries of CFD No. 2006 -1 (]A B) that was owned by a property owner association, including any master or sub - association, as of January 1 of the prior Fiscal Year. "Proportionately" means for Developed Property that the ratio of the actual Special Tax for Facilities levy to the Assigned Special Tax for Facilities is equal for all Assessor's Parcels of Developed Property. For Undeveloped Property, "Proportionately" means that the ratio of the actual Special 'Fax for Facilities levy per Acre to the Maximum Special Tax for Facilities per Acre is equal for all Assessor's Parcels of Undeveloped Property. The term "Proportionately" may similarly be applied to other categories of Taxable Property as listed in Section D below. "Public Property" means, for each Fiscal Year, (i) any property within the boundaries of CFD No. 2006 -1 (IA B) owned by, irrevocably offered or dedicated to, or over, through or under which an easement for purposes of public use has been granted, to the federal government, the State, the County, the City, the Lake Elsinore Unified School District, or any local government or other public agency as of January I of the previous Fiscal Year, provided that any property leased by a public agency to a private entity and subject to taxation under Section 53340.1 of the Act shall be taxed and classified according to its use; or (ii) ally property within the boundaries of CFD No. 2006 -1 (LA B) that was encumbered, as of January I of the previous Fiscal Year, by an unmanned utility easement making impractical its utilization for other than the purpose set forth in the easement. B -3 "Residential Floor Area" means all of the square footage of living area within the perimeter of a residential structure, not including any carport, walkway, garage, overhang, patio, enclosed patio, or similar area. The determination of Residential Floor Area for an Assessor's Parcel shall be made by reference to the building permits) issued for such Assessor's Parcel. "Residential Property" means all Assessor's Parcels of Developed Property for which a building permit permitting the construction thereon of one or more residential dwelling units has been issued by the City. "Resolution of Formation" means the resolution of formation for CFD No. 2006 -1 (IA B). "Special Tax" means any of the special taxes authorized to be levied by CFD No. 2006 -1 (IA B) pursuant to the Act. "Special Tax for Facilities" means the special tax to be levied in each Fiscal Year on each Assessor's Parcel of Developed Property, Taxable Property Owner Association Property, Taxable Public Property, and Undeveloped Property to fund the Special Tax Requirement for Facilities. "Special Tax Requirement for Facilities" means that amount required in any Fiscal Year for CFD No. 2006 -1 (IA B) to: (i) pay debt service on all Outstanding Bonds due in the calendar year commencing in such Fiscal Year; (ii) pay periodic costs on the CFD No. 2006 -1 (IA B) Bonds, including but not limited to, credit enhancement and rebate payments on the CFD No. 2006 -1 (IA B) Bonds due in the calendar year commencing in such Fiscal Year; (iii) pay Administrative Expenses; (iv) pay any amounts required to establish or replenish any reserve funds for all Outstanding Bonds; (v) pay for reasonably anticipated Special Tax for Facilities delinquencies; (vi) pay directly for acquisition or construction of Authorized Facilities to the extent that the inclusion of such amount does not increase the Special Tax for Facilities levy on Undeveloped Property; less (vii) a credit for funds available to reduce the annual Special Tax for Facilities levy, as determined by the CFD Administrator pursuant to the Indenture. "State" means the State of California. "Taxable Property" means all of the Assessor's Parcels within the boundaries of CFD No. 2006 -1 (IA B) which are not exempt from the Special Tax for Facilities pursuant to law or Section E below. -Taxable Property Owner Association Property" means all Assessor's Parcels of Property Owner Association Property that are not exempt pursuant to Section E below. "Taxable Public Property" means all Assessor's Parcels of Public Property that are not exempt pursuant to Section E below. "Trustee" means the trustee or fiscal agent under the Indenture. "Undeveloped Property" means, for each Fiscal Year, all Taxable Property not classified as Developed Property, Taxable Property Owner Association Property, or Taxable Public Property. B -4 B. ASSIGNMENT TO LAND USE CATEGORIES Each Fiscal Year, all Taxable Property within CFD No. 2006 -1 (IA B) shall be classified as Developed Property, Taxable Public Property, Taxable Property Owner Association Property, or Undeveloped Property, and shall be subject to Special 'Faxes in accordance with this Rate and Method of Apportionment determined pursuant to Sections C and D below. Residential Property shall be assigned to Land Use Classes l through 14 as listed in Table I below based on the Residential Floor Area for each unit. Non - Residential Property shall be assigned to Land Use Class 15. With respect to Residential Property, the Residential Floor Area shall be determined from the most recent building permit issued prior to the issuance of a Certificate of Occupancy for such Assessor's Parcel. C. MAXIMUM SPECIAL TAX FOR FACILITIES Prior to the issuance of the first building permit within CFD No. 2006 -1 (IA B), the Assigned Special Tax for Facilities on Developed Property (set forth in Table 1), and the Backup Special Tax for Facilities attributable to a Final Subdivision, may be reduced in accordance with, and subject to the conditions set forth in this paragraph. if it is reasonably determined by the CFD Administrator that the overlapping debt burden (as defined in the Statement of Goals and Policies for the Use of the Mello -Roos Community Facilities Act of 1982 adopted by the City Council, the "Goals and Policies ") calculated pursuant to the Goals and Policies based upon the Assigned Special Tax for Facilities on Developed Property exceeds the City's maximum overlapping debt burden set forth in such document, the Assigned Special Tax for Facilities on Developed Property, and the Backup Special Tax for Facilities attributable to a Final Subdivision, may be reduced to the maximum overlapping debt burden level with the written consent of the CFD Administrator. The reductions permitted pursuant to this paragraph shall be reflected in an amended Notice of Special Tax Lien which the City shall cause to be recorded by executing a certificate in substantially the form attached hereto as Exhibit "A ". In addition, prior to the issuance of CFD No. 2006 -1 (IA B) Bonds, the Assigned Special Tax for Facilities on Developed Property and the Backup Special Tax for Facilities attributable to a Final Subdivision may be reduced upon the written request of the "Owner" under the Funding Agreement. Such written request shall include, at a minimum, the amount of the reduced tax requested for each Land Use Class shown in Table I below. The City and CFD Administrator shall review the written request, and if approved, the reductions permitted pursuant to this paragraph shall be reflected in an amended Notice of Special Tax Lien which the City shall cause to be recorded by executing a certificate in substantially the form attached hereto as Exhibit "A ". Developed Property (a) Maximum Special Tax for Facilities The Maximum Special Tax for Facilities for each Assessor's Parcel classified as Developed Property shall be the greater of (j) the amount derived by application of the Assigned Special Tax for Facilities or (ii) the amount derived by application of the Backup Special Tax for Facilities. B -5 (h) Assigned Special Tax for Facilities The Fiscal Year 2010 -2011 Assigned Special Tax for Facilities for each Land Use Class is shown below in Table 1. TA13LE 1 Assigned Special Tax for Facilities for Developed Property Community Facilities District No. 2006 -1 (Improvement Area B) Fiscal Year 2010 -2011 Land Use Class Description Residential F1oorArea Assigned Special Tax ,for Facilities 1 Residential Property Less than 1,100 sq. ft. $500 per unit 2 Residential Property 1,100 -1,299 sq. ft. $575 per unit 3 Residential Pro perry 1,300 - 1.499 sq. ft. $650 per unit 4 Residential Property 1,500 -1,699 sq. ft. $725 per unit 5 Residential Property 1,700- 1,899 sq. ft. $800 pet, unit 6 Residential Property 1,900 - 2,099 sq. ft. $850 per unit 7 Residential property 2,100 - 2,299 sq. ft. $900 per unit 8 Residential Property 2300 - 2,499 sq. ft. $975 per unit 9 Residential Property 2,500 - 2,699 sq. ft. $1.050 per unit 10 Residential Property 2,700 - 2,899 sq. ft. $1,125 per unit 11 Residential Property 2,900 - 3,099 sq. ft. $1,200 er unit 12 Residential Property 3,100 - 3,299 sq. ft. $1,275 per unit 13 Residential Property 3,300 - 3,499 sq. ft. $1,350 per unit 14 Residential Property More than 3,500 sq. ft. $1,425 per unit 15 Non - Residential Property NA $7,159 per Acre (c) Backup Special Tax for Facilities The Fiscal Year 2010 -2011 Backup Special Tax for Facilities attributable to a Final Subdivision will equal $7,159, multiplied by the Acreage of all Taxable Property, exclusive of any Taxable Property Owner Association Property and Taxable Public Property, therein. The Backup Special Tax for Facilities for each Assessor's Parcel of Residential Property shall be computed by dividing the Backup Special Tax for Facilities attributable to the applicable Final Subdivision by the number of Assessor's Parcels for which building permits for residential construction have or may be issued (i.e., the number or residential lots). The Backup Special Tax for Facilities for each Assessor's Parcel of Non - Residential Property therein shall equal $7,159 multiplied by the Acreage of such Assessor's Parcel. B -6 If a Final Subdivision includes Assessor's Parcels of Taxable Property for which building permits for both residential and non- residential construction may be issued, exclusive of Taxable Property Owner Association Property and Taxable Public Property, then the Backup Special Tax for Facilities for each Assessor's Parcel of Residential Property shall be computed exclusive of the Acreage and Assessor's Parcels of property for which building permits for non - residential construction may be issued. Notwithstanding the foregoing, if all or any portion of the Final Subdivision(s) described in the preceding paragraphs is subsequently changed or modified by recordation of a lot line adjustment or similar instrument, and only if the CFD Administrator determines that such change or modification results in a decrease in the number of Assessor's Parcels of Taxable Property for which building permits for residential construction have or may be issued within such Final Subdivision, then the Backup Special Tax for Facilities for each Assessor's Parcel of Developed Property that is part of the lot line adjustment or similar instrument for such Final Subdivision shall be a rate per Acre as calculated below. The Backup Special 'Fax for Facilities previously determined for an Assessor's Parcel of Developed Property that is not a part of the lot line adjustment or similar instrument for such Final Subdivision shall not be recalculated. Determine the total Backup Special Tax for Facilities anticipated to apply to the changed or modified portion of the Final Subdivision area prior to the change or modification. 2. The result of paragraph 1 above shall be divided by the Acreage of Taxable Property which is ultimately expected to exist in such changed or modified portion of the Final Subdivision area, as reasonably determined by the CFD Administrator. 3. The result of paragraph 2 above shall be the Backup Special Tax for Facilities per Acre which shall be applicable to Assessor's Parcels of Developed Property in such changed or modified portion of the Final Subdivision area for all remaining Fiscal Years in which the Special Tax for Facilities may be levied. (d) Release of Obligation to Pay and Disclose Backup Special Tax All Assessor's Parcels within CFD No. 2006 -1 (IA B) will be relieved simultaneously and permanently from the obligation to pay and disclose the backup Special Tax if the CFD Administrator determines that the annual debt service required for the Outstanding Bonds, when compared to the Assigned Special Taxes for Facilities that may be levied against all Assessor's Parcels of Developed Property results in 110% debt service coverage (i.e., the aggregate Assigned Special Taxes for Facilities that may be levied against all Developed Property in each remaining Fiscal Year based on then existing development in CFD No. 2006 -1 (IA B) is at least equal to the sum of (i) the Administrative Expenses and (ii) 1.10 times maxinuun annual debt service, in each remaining Fiscal Year on the Outstanding Bonds). B -7 (e) Increase in the Assigned Special Tax for Facilities and Backup Special Tax for Facilities The Fiscal Year 2010 -2011 Assigned Special Tax for Facilities, identified in Table I above, and Backup Special Tax for Facilities shall increase thereafter, commencing on July 1, 2011 and on July 1 of each Fiscal Year thereafter, by an amount equal to two percent (2 %) of the amount in effect for the previous Fiscal Year. (f) Multiple Land Use Classes In sore instances an Assessor's Parcel of Developed Property may contain more than one Land Use Class. The Maximum Special Tax for Facilities levied on an Assessor's Parcel shall be the suer of the Maximum Special Tax for Facilities for all Land Use Classes located on that Assessor's Parcel, The CFD Administrator's allocation to each type of property shall be final. 2. Taxable Property Owner Association Property, Taxable Public Property, and Undeveloped Property The Fiscal Year 2010 -2011 Maximum Special Tax for Facilities for Taxable Property Owner Association Property, Taxable Public Property, and Undeveloped Property shall be $7,159 per Acre and shall increase thereafter, commencing on July 1, 2011 and on July 1 of each Fiscal Year thereafter, by an amount equal to two percent (2 %) of the Maximum Special Tax for Facilities in effect for the previous Fiscal Year. D. METHOD OF APPORTIONMENT OF THE SPECIAL TAX FOR FACILITIES Commencing with Fiscal Year 2010 -2011 and for each following Fiscal Year, the City Council shall determine the Special Tax Requirement for Facilities and levy the Special Tax for Facilities until the amount of Special Tax for Facilities levy equals the Special Tax Requirement for Facilities. The Special Tax for Facilities shall be levied each Fiscal Year as follows: First: The Special Tax for Facilities shall be levied on each Assessor's Parcel of Developed Property in an amount equal to 100% of the applicable Assigned Special Tax for Facilities; Second: If additional monies are needed to satisfy the Special Tax Requirement for Facilities after the first step has been completed, the Special Tax for Facilities shall be levied Proportionately on each Assessor's Parcel of Undeveloped Property at up to 100% of the Maximum Special Tax for Facilities for Undeveloped Property; Third: If additional monies are needed to satisfy the Special Tax Requirement for Facilities after the first two steps have been completed, then the levy of the Special Tax for Facilities on each Assessor's Parcel of Developed Property whose Maximum Special Tax for Facilities is determined through the application of the Backup Special Tax for Facilities shall be increased in equal percentages from the Assigned Special Tax for Facilities up to the Maximum Special Tax for Facilities for each such Assessor's Parcel, Fourth: If additional monies are needed to satisfy the Special Tax Requirement for Facilities after the first three steps have been completed, then the Special Tax for Facilities shall be levied Proportionately on each Assessor's Parcel of Taxable Property Owner Association Property and Taxable Public Property at up to 100% of the Maximum Special Tax for Facilities for Taxable Property Owner Association Property or Taxable Public Property. Notwithstanding the above, the City Council may, in any Fiscal Year, levy Proportionately less than 100% of the Assigned Special Tax for Facilities in step one (above), when (i) the City Council is no longer required to levy the Special Tax for Facilities pursuant to steps two through four above in order to meet the Special Tax Requirement for Facilities; (ii) all authorized CFD No. 2006 -1 (lA B) Bonds have already been issued or the City Council has covenanted that it will not issue any additional CFD No. 2006 -1 (IA B) Bonds (except refunding bonds) to be supported by the Special Tax for Facilities; and (iii) all Authorized Facilities have been constructed and /or acquired. Further notwithstanding the above, under no circumstances will the Special Tax for Facilities levied against any Assessor's Parcel of Residential Property for which a Certificate of Occupancy has been issued be increased by more than ten percent as a consequence of delinquency or default by the owner of any other Assessor's Parcel within CFD No. 2006 -1 (IA B). E. EXEMPTIONS No Special Tax for Facilities shalt be levied on up to 21.72 Acres of Property Owner Association Property and /or Public Property in CFD No. 2006 -1 (IA B). Tax - exempt status will be assigned by the CFD Administrator in the chronological order in which property becomes Property Owner Association Property or Public Property. However, should an Assessor's Parcel no longer be classified as Property Owner Association Property or Public Property, its tax - exempt status will be revoked. Property Owner Association Property or Public Property that is not exempt from Special Tax for Facilities under this section shall be subject to the levy of the Special Tax for Facilities and shall be taxed Proportionately as part of the fourth step in Section D above, at up to 100% of the Maximum Special Tax for Facilities for Taxable Property Owner Association Property or Taxable Public Property. F. MANNER OF COLLECTION The Special Tax for Facilities shall be collected in the same manner and at the same time as ordinary ad valorem property taxes; provided, however, that CFD No. 2006 -1 (lA B) may directly bill the Special Tax for Facilities, may collect Special Taxes at a different time or in a different manner if necessary to meet its financial obligations, and may covenant to foreclose and may actually foreclose on delinquent Assessor's Parcels as permitted by the Act. G. PREPAYMENT OF SPECIAL TAX FOR FACILITIES The following additional definitions apply to this Section G "Buihlout" means, for CFD No. 2006 -1 (IA B), that all expected building permits have been issued. "CFD Public Facilities Costs" means either $5,090,000 in 2010 dollars, which shall increase by the Construction Inflation Index on July 1, 2011, and on each July 1 thereafter, or such lower number as (i) shall be determined by the CFI) Administrator as sufficient to fund the Authorized Facilities to be provided by CFD No. 2006 -1 (IA B) under the authorized bonding program for CFD No. 2006 -1 (IA B), or (ii) shall be determined by the City Council concurrently with a covenant that it will not issue any more CFD No. 2006 -1 (IA B) Bonds (except refunding bonds) to be supported by the Special Tax for Facilities levy under this Rate and Method of Apportionment as described in Section D above. "Construction Inflation Index" means the annual percentage change in the Engineering News Record Building Cost Index for the City of Los Angeles, measured as of the calendar year which ends in the previous Fiscal Year. In the event this index ceases to be published, the Construction Inflation Index shall be another index as determined by the CFD Administrator that is reasonably comparable to the Engineering News Record Building Cost Index for the City of Los Angeles. "Future Facilities Costs" means the CFD Public Facilities Costs minus (i) public facility costs previously paid from the Improvement Fund, (ii) moneys currently on deposit in the Improvement Fund, and (iii) moneys currently on deposit in an escrow fund that are expected to be available to finance the cost of Authorized Facilities. "Improvement Fund" means an account specifically identified in the Indenture to hold funds which are currently available for expenditure to acquire or construct Authorized Facilities eligible under the Act. "Previously Issued Bonds" means, for any Fiscal Year, all Outstanding Bonds that are deemed to be outstanding under the Indenture after the first interest and /or principal payment date following the current Fiscal Year. 1. Prepayment in Full Only an Assessor's Parcel of Developed Property, or Undeveloped Property for which a building permit has been issued, may be prepaid. The obligation of the Assessor's Parcel to pay the Special Tax for Facilities may be permanently satisfied as described herein, provided that a prepayment may be made with respect to a particular Assessor's Parcel only if there are no delinquent Special Taxes with respect to such Assessor's Parcel at the time of prepayment. An owner of an Assessor's Parcel intending to prepay the Special Tax for Facilities obligation shall provide the CFD Administrator with written notice of intent to prepay. Within 30 days o'f receipt of such written notice, the CFD Administrator shall notify such owner of the prepayment amount for such Assessor's Parcel, The CFD Administrator may charge a reasonable fee for providing this service. Prepayment must be trade not less than 45 days prior to the next occurring date that notice of redemption of CFD No. 2006 -1 B -10 (IA B) Bonds from the proceeds of such prepayment may be given by the Trustee pursuant to the Indenture. The Special Tax for Facilities Prepayment Amount (defined below) shall be calculated as summarized below (capitalized terms as defined below): Bond Redemption Amount plus Redemption Premium plus Future Facilities Amount plus Deleasanee Amount plus Administrative Fees and Expenses less Reserve Fund Credit less Capitalized Interest Credit Total: equals Special Tax for Facilities Prepayment Amount As ofthe proposed date of prepayment, the Special Tax for Facilities Prepayment Amount shall be calculated as follows: Paragraph No.: Confirm that no Special Tax delinquencies apply to such Assessor's Parcel. 2. For Assessor's Parcels of Developed Property, compute the Assigned Special Tax for Facilities and Backup Special Tax for Facilities. For Assessor's Parcels of Undeveloped Property for which a building permit has been issued, compute the Assigned Special Tax for Facilities and Backup Special Tax for Facilities for that Assessor's Parcel as though it was already designated as Developed Property, based upon the building permit which has already been issued for that Assessor's Parcel. 3. (a) Divide the Assigned Special 'Pax for Facilities computed pursuant to paragraph 2 by the total estimated Assigned Special Tax for Facilities for the entire CFD No. 2006 -1 (IA B) based on the Developed Property Special Tax for Facilities which could be levied in the current Fiscal Year on all expected development through Buildout of CFD No. 2006 -1 (IA B), excluding any Assessor's Parcels which have been prepaid, and (b) Divide the Backup Special Tax for Facilities computed pursuant to paragraph 2 by the total estimated Backup Special Tax for Facilities at Buildout for the entire CFD No. 2006 -1 (IA B), excluding any Assessor's Parcels which have been prepaid. 4. Multiply the larger quotient computed pursuant to paragraph 3(a) or 3(b) by the Previously Issued Bonds to compute the amount of Previously Issued Bonds to be retired and prepaid (the "Bond Redemption Arno nt "). 5. Multiply the Bond Redemption Amount computed pursuant to paragraph 4 by the applicable redemption premium (e.g., the redemption price - 100 %), if any, on the Previously Issued Bonds to be redeemed (the "Redemption Premium "). Compute the current Future Facilities Costs. B -1 I 7. Multiply the larger quotient computed pursuant to paragraph 3(a) or 3(b) by the amount determined pursuant to paragraph 6 to compute the amount of Future Facilities Costs to be prepaid (the "Future Facilities Amount "). 8. Compute the amount needed to pay interest on the Bond Redemption Amount from the first bond interest and /or principal payment date following the current Fiscal Year until the earliest redemption date for the Previously Issued Bonds. 9. Determine the Special Tax for Facilities levied on the Assessor's Parcel in the current Fiscal Year which has not yet been paid. 10. Compute the minimum amount the CFD Administrator reasonably expects to derive from the reinvestment of the Special Tax for Facilities Prepayment Amount less the Future Facilities Amount and the Administrative Fees and Expenses (defined below) from the date of prepayment until the redemption date for the Previously Issued Bonds to be redeemed with the prepayment. 11. Add the amounts computed pursuant to paragraphs 8 and 9 and subtract the amount computed pursuant to paragraph 10 (the "Defeasance Amount "). 12. The administrative fees and expenses of CFD No. 2006 -1 (]A B) are as calculated by the CFD Administrator and include the costs of computation of the prepayment, the costs to invest the prepayment proceeds, the costs of redeeming CFD No. 2006 -1 (IA B) Bonds, and the costs of recording any notices to evidence the prepayment and the redemption (the "Administrative Fees and Expenses "). 13. The reserve fund credit (the "Reserve Fund Credit ") shall equal the lesser of: (a) the expected reduction in the reserve requirement (as defined in the Indenture), if any, associated with the redemption of Previously Issued Bonds as a result of the prepayment, or (b) the amount derived by subtracting the new reserve requirement (as defined in the indenture) in effect after the redemption of Previously Issued Bonds as a result of the prepayment from the balance in the reserve fund on the prepayment date, but in no event shall such amount be less than zero. No Reserve Fund Credit shall be granted if the amount then on deposit in the reserve fund for the Previously Issued Bonds is below 100% of the reserve requirement (as defined in the Indenture). 14. If any capitalized interest for the Previously Issued Bonds will not have been expended as of the date immediately following the first interest and /or principal payment following the current Fiscal Year, a capitalized interest credit shall be calculated by multiplying the larger quotient computed pursuant to paragraph 3(a) or 3(b) by the expected balance in the capitalized interest 'fund or account under the Indenture after such first interest and /or principal payment (the "Capitalized Interest Credit"). 15. The Special Tax for Facilities prepayment is equal to the sum of the amounts computed pursuant to paragraphs 4, 5, 7, 11 and 12, less the amounts computed pursuant to paragraphs 13 and 14 (the "Special Tax for Facilities Prepa7meent Amount "). B -12 From the Special Tax for Facilities Prepayment Amount, the amounts computed pursuant to paragraphs 4, 5, 11, 13 and 14 shall be deposited into the appropriate fund as established under the Indenture and be used to retire CFD No. 2006 -1 (IA B) Bonds or make debt service payments. The amount computed pursuant to paragraph 7 shall be deposited into the Improvement Fund. The amount computed pursuant to paragraph 12 shall be retained by CFD No. 2006 -1 (IA B). The Special Tax for Facilities Prepayment Amount may be insufficient to redeem a fill $5,000 increment of CFD No. 2006 -1 (IA B) Bonds. In such cases, the increment above $5,000 or integral multiple thereof will be retained in the appropriate fund established under the Indenture to be used with the next prepayment of CFD No. 2006 -1 (IA B) Bonds or to make debt service payments. As a result of the payment of the current Fiscal Year's Special Tax for Facilities levy as determined under paragraph 9 (above), the CFD Administrator shall remove the current Fiscal Year's Special Tax for Facilities levy for such Assessor's Parcel from the County tax rolls. With respect to any Assessor's Parcel that is prepaid, the City COlmcl shall cause a suitable notice to be recorded in compliance with the Act, to indicate the prepayment of the Special Tax for Facilities and the release of the Special Tax for Facilities lien on such Assessor's Parcel, and the obligation of such Assessor's Parcel to pay the Special Tax for Facilities shall cease. Notwithstanding the foregoing, no Special Tax for Facilities prepayment shall be allowed unless, at the time of such proposed prepayment, the amount of Maximum Special Tax for Facilities that may be levied on Taxable Property within CFD No. 2006 -1 (IA B) (after excluding 21.72 Acres of Property Owner Association Property and /or Public Property in CFD No. 2006 -1 (IA B) as set forth in Section E) both prior to and after the proposed prepayment is at least equal to the sum of (i) the Administrative Expenses, as defined in Section A above, and (ii) 1.10 times maximum annual debt service, in each remaining Fiscal Year on the Outstanding Bonds. 2. Prepayment in Part The Special Tax for Facilities on an Assessor's Parcel of Developed Property or an Assessor's Parcel of Undeveloped Property for which a building permit has been issued may be partially prepaid. The amount of the prepayment shall be calculated as in Section G.1; except that a partial prepayment shall be calculated according to the following formula: PP = [(Pr: — A) x F] + A These terms have the following meaning: PP = the partial prepayment. Pe = the Special Tax for Facilities Prepayment Amount calculated according to Section G.1. F= the percentage, expressed as a decimal, by which the owner of the Assessor's Parcel is partially prepaying the Special Tax for Facilities. A = the Administrative Fees and Expenses calculated according to Section G.1, B -13 The owner of any Assessor's Parcel who desires such prepayment shall notify the CFD Administrator of such owner's intent to partially prepay the Special Tax for Facilities and the percentage by which the Special Tax for Facilities shall be prepaid. The CFD Administrator shall provide the owner with a statement of the amount required for the partial prepayment of the Special "Fax for Facilities for an Assessor's Parcel within 30 days of the request and may charge a reasonable fee for providing this service. With respect to any Assessor's Parcel that is partially prepaid, the City Council shall (i) distribute the funds remitted to it according to Section G.1, and (ii) indicate in the records of CFD No. 2006 -1 (IA B) that there has been a partial prepayment of the Special Tax for Facilities and that a portion of the Special Tax for Facilities with respect to such Assessor's Parcel, equal to the outstanding percentage (1.00 - F) of the remaining Maximum Special Tax for Facilities, shall continue to be levied on such Assessor's Parcel pursuant to Section D above. H. TERM OF SPECIAL TAX FOR FACILITIES The Special 'fax for Facilities shall be levied until Fiscal Year 2052 -2053, provided however that the Special 'Pax for Facilities will cease to be levied in an earlier Fiscal Year if the CFD Administrator has determined (i) that all required interest and principal payments on the CFD No. 2006 -1 (IA B) Bonds have been paid; (ii) all Authorized Facilities have been acquired and all reimbursements required by the Funding Agreement have been paid; and (iii) all other obligations of CFD No. 2006 -1 (IA B) have been satisfied. Bonds shall not be issued after eighteen (18) months have elapsed following the issuance of the final Certificate of Occupancy within CFD No. 2006 -1 (]A B), except as otherwise provided in the Funding Agreement. L SPECIAL TAX FOI2 SERVICES The following additional definitions apply to this Section I "Developed Multifamily Unit" means a residential dwelling unit within a building in which each of the individual dwelling units has or shall have at least one common wall with another dwelling unit and a building permit has been issued by the City for such dwelling unit on or prior to May I preceding the Fiscal Year in which the Special Tax for Services is being levied. "Developed Single Family Unit" means a residential dwelling unit other than a Developed Multifamily Unit on an Assessor's Parcel for which a building permit has been issued by the City on or prior to May I preceding the Fiscal Year in which the Special 'Fax for Services is being levied. "Maximum Special Tax for Services" means the maximum Special 'fax f'or Services that can be levied by CFD No. 2006 -1 (IA B) in any Fiscal Year on any Assessor's Parcel. "Operating Fund" means a fund that shall be maintained for CFD No. 2006 -1 (IA B) for any Fiscal Year to pay for the actual costs of maintenance related to the Service Area, and the applicable Administrative Expenses. "Operating Ford Balance" means the amount of funds in the Operating Fund at the end of the preceding Fiscal Year. B -14 "Service Area" means public parks, open space, and storm drains "Special Tax for Services" means any of the special taxes authorized to be levied within CFD No. 2006 -1 (IA B) pursuant to the Act to fund the Special Tax Requirement for Services. "Special Tax Requirement for Services" means the amount determined in any Fiscal Year for CFD No. 2006 -1 (]A B) equal to (i) the budgeted costs directly related to the Service Area, including maintenance, repair and replacement of certain components of the Service Area which have been accepted and maintained or are reasonably expected to be accepted and maintained during the current Fiscal Year, (ii) pay Administrative Expenses, and (iii) anticipated Special Tax for Services delinquencies, less (iv) the Operating Fund Balance, as determined by the CFD Administrator. 1. Rate and Method of Apportionment of the Special Tax for Services Commencing with Fiscal Year 2010 -2011 and for each subsequent Fiscal Year, the City Council shall levy the Special Tax for Services on (i) all Assessor's Parcels containing a Developed Single Family Unit or Developed Multifamily Unit and (ii) all Assessor's Parcels of Non - Residential Property, up to the applicable Maximum Special Tax for Services to fund the Special Tax Requirement for Services. The Maximum Special Tax for Services for Fiscal Year 2010 -11 shall be $267.18 per Developed Single Family Unit, $133.59 per Developed Multifamily Unit, and $601.72 per Acre for each Assessor's Parcel of Non-Residential Property. On each July 1, commencing July 1, 2011, the Maximum Special Tax for Services shall be increased by two percent (2.00°/x) of the amount in effect in the prior Fiscal Year. 2. Duration of the Special Tax for Services The Special Tax for Services shall be levied in perpetuity to fiord the Special Tax Requirement 1'or Services, unless no longer required as determined at the sole discretion of the City Council. 3. Collection of the Special Tax for Services The Special Tax for Services shall be collected in the same manner and at the same time as ordinary ad valorein property taxes, provided, however, that CFD No. 2006 -1 (IA B) may collect the Special Tax for Services at a different time or in a different manner if necessary to meet its funding requirements. J. APPEALS AND INTERPRETATIONS Any landowner or resident who feels that the amount of the Special Tax levied on their Assessor's Parcel is in error may submit a written appeal to CFD No. 2006 -1 (IA B). The CFD Administrator shall review the appeal and if the CFD Administrator concurs, the amount of the Special Tax levied shall be appropriately modified. B -15 The City Council may interpret this Rate and Method of Apportionment for purposes of clarifying any ambiguity and make determinations relative to the annual administration of the Special Tax and any landowner or resident appeals. Any decision of the City Council shall be final and binding as to all persons. 13 -16 EXHIBIT "A" CITY OF LAKE ELSINORE AND CFD No. 2006 -1 B) CERTIFICATE Pw-suaut to Section C of the Rate and Method of Apportionment, the City of Lake Elsinore and City of Lake Elsinore Community Facilities District No. 2006 -1 Improvement Area B ( "CFD No. 2006 -1 (JAB) ") hereby agree to a reduction in the Assigned Special Tax for Facilities for Developed Property, and the Backup Special Tax for Facilities attributable to a Final Subdivision within CFD No. 2006 -1 (IA B): (a) The information in Table I relating to the Assigned Special Tax for Facilities for Developed Properly within CFD No. 2006 -1 (IA B) shall be modified as follows: Lanni Use Class Description Residential Floor Area Assigned Special Tai. %r Facilities 1 Residential Property Less than 1,100 sq.. ft. $ _ per unit 2 Residential Property 1,100 - 1,299 sq. ft. $ per unit 3 Residential Property 1,300 - 1,499 sq. ft. $ per unit 4 Residential Property 1,500 - 1,699 sq. ft. $ per unit 5 Residential Property 1,700 - 1,899 sq. ft. $ Pei' unit 6 _7 Residential Property 1,900 - 2,099 sq. ft. $_ per unit Residential Property 2,100 - 2,299 sq. ft. $ Pei- unit 8 Residential Property 2,300 - 2,499 sq. ft. $ per unit 9 Residential Property 2,500 - 2,699 sq. ft. $ per unit 10 Residential Property 2,700 - 2,899 sq. ft. $ per unit 1 I Residential Property 2,900 - 3,099 sq. ft. $ per unit 12 Residential Property 3,100 - 3,299 sq. ft. $ Per unit 13 Residential Pro eq 3,300 - 3,499 sq. ft. $ er unit 14 Residential Property More than 3,500 sq. ft. $ per unit 15 Non - Residential Property NA $ per unit (b) The Backup Special Tax for Facilities attributable to a Final Subdivision within CFD No. 2006 -1 (IA B), as stated in Section C.L(c), shall be reduced from $7,159 per Acre to $__._ per Acre. 2. The Special Tax for Facilities may be modified prior to the first building permit issuance within CFI) No. 2006 -1 (]A B) and prior to the issuance of the first series of Bonds of CFD No. 2006 -1 (lA B). 3. Upon execution of the Certificate by the City of Lake Elsinore and "Owner" under the Funding Agreement, the City shall cause an amended notice of Special Tax lien for CFD No. 2006 -1 (IA B) to be recorded reflecting the modifications set forth herein. By execution hereof, the undersigned acknowledges, on behalf of the City of Lake Elsinore and CFD No. 2006 -1 (IA B), receipt of this Certificate and modification of the Rate and Method of Apportionment as set forth in this Certificate. B -17 CITY OF LAKE ELSINORE Bv: CFD Administrator Owner per Funding Agreement By: B -18 APPENDIX C APPRAISAL REPORT C-1 APPENDIX D FORM OF BONI) COUNSEL OPINION Lake Elsinore Public Financing Authority 130 South Main Street Lake Elsinore, California 92530 R Lake Elsinore Public Financing Authority Local Agency Revenue Bonds (Summerly IA B, 2015 Series A Members of the Board of Directors: We have acted as bond counsel to the Lake Elsinore Public Financing Authority (the "Authority ") in connection with the issuance by the Authority of $ aggregate principal amount of Lake Elsinore Public Financing Authority Local Agency Revenue Bonds (Summerly IA B), 2015 Series A (the `Bonds "), pursuant to the provisions of Article 4 (commencing with section 6584) of Chapter 5 of Division 7 of Title 1 of the California Government Code (the "Law"), pursuant to an Indenture of Trust, dated as of February 1, 2015 (the "Indenture "), by and between the Authority and MUFG Union Bank, N.A., as trustee (the "Trustee "). The Bonds are being issued for the purpose of financing the acquisition of a series of bonds being issued contemporaneously herewith (the "District Bonds ") of the City of Lake Elsinore Community Facilities District No. 2006- 1 (Summerly) (the "District "), a community facilities district organized and existing under and by virtue of the laws of the State of California; the District Bonds are being issued pursuant to a Fiscal Agent Agreement (the "Fiscal Agent Agreement "), by and between the District and MUFG Union Bank, N.A., as Fiscal Agent, to providing financing for public capital improvements benefitting the District. We have examined the Law and such certified proceedings and other papers as we deem necessary to render this opinion. As to questions of fact material to our opinion, we have relied upon representations of the Authority contained in the Indenture and in the certified proceedings and certifications of public officials and others furnished to us, without undertaking to verify the same by independent investigation. Based upon the foregoing, we are of the opinion that: 1. The Bonds constitute valid and binding limited obligations of the Authority as provided in the Indenture, and are entitled to the benefits of the Indenture. The Bonds are payable from Revenues (as such term is defined in the Indenture). 2. The Indenture has been duly and validly authorized, executed and delivered by the Authority and, assuming the enforceability thereof against the Trustee, constitutes the legally valid and binding obligation of the Authority, enforceable against the Authority in accordance with its terms. The Indenture creates a valid pledge, to secure the payment of principal of and interest on the Bonds, of the Revenues and other amounts held by the Trustee in the funds and accounts established D -I pursuant to the Indenture, subject to the provisions of the Indenture permitting the application thereof for other purposes and on the terms and conditions set forth therein. 3. Under existing law, interest on the Bonds is exempt frorn personal income taxes of the State of California and, assuming compliance with the covenants mentioned herein, interest on the Bonds is excluded pursuant to section 103(x) of the Code from the gross income of the owners thereof for federal income tax proposes. In our further opinion, under existing statutes, regulations, rulings and court decisions, the Bonds are not "specified private activity bonds" within the meaning of section 57(a)(5) of the Code and, therefore, interest on the Bonds will not be treated as an item of tax preference for proposes of computing the alternative minimum tax imposed by section 55 of the Code. Receipt or accrual of interest on Bonds owned by a corporation may affect the computation of the alternative minimum taxable income. A corporation's alternative minimum taxable intone is the basis on which the alternative minimum tax imposed by section 55 of the Code will be computed. The Code imposes certain requirements that must be met subsequent to the issuance and delivery of the Bonds for interest thereon to be and remain excluded pursuant to section 103(a) of the Code from the gross income of the owners thereof for federal income tax proposes. Noncompliance with such requirements could cause the interest on the Bonds to fail to be excluded from the gross income of the owners thereof retroactive to the date of issuance of the Bonds. Pursuant to the Indenture and the Fiscal Agent Agreement, and in the Tax Certificate Pertaining to Arbitrage and Other Matters under Sections 103 and 141 -150 of the Internal Revenue Code of 1986 being delivered by the City of Lake Elsinore (the "City "), the District and the Authority in connection with the issuance of the Bonds, each of the Authority, the District and the City is making representations relevant to the determination of and is undertaking certain covenants regarding or affecting, the exclusion of interest on the Bonds from the gross income of the owners thereof for federal income tax purposes. In reaching our opinions described in the immediately preceding paragraph, we have assumed the accuracy of such representations and the present and future compliance by each of the Authority, the District and the City with its covenants. Further, except as stated in the preceding paragraph, we express no opinion as to any federal or state tax consequence of the receipt of interest on, or the ownership or disposition of, the Bonds. Furthermore, we express no opinion as to any federal, state or local tax law consequence with respect to the Bonds, or the interest thereon, if any action is taken with respect to the Bonds or the proceeds thereof predicated or permitted upon the advice or approval of other counsel. The opinions expressed in paragraphs 1 and 2 above are qualified to the extent the enforceability of the Bonds and the Indenture may be limited by applicable bankruptcy, insolvency, debt adjustment, reorganization, moratorium or similar laws or equitable principles relating to or limiting creditors' rights generally or as to the availability of any particular remedy. The enforceability of the Bonds and the Indenture is subject to the effect of general principles of equity, including, without limitation, concepts of materiality, reasonableness, good faith and fair dealing, to the possible unavailability of specific performance or injunctive relief, regardless of whether considered in a proceeding in equity or at law, and to the limitations on legal remedies against governmental entities in California. Our opinions are based on existing law, which is subject to change. Such opinions are further based on our knowledge of facts as of the date hereof We assume no duty to update or supplement our opinions to reflect any facts or circumstances that may hereafter come to our attention or to reflect any changes in any law that may hereafter occur or become effective. Moreover, our opinions are not a guarantee of result and are not binding on the Internal Revenue Service; rather, such C2 opinions represent our legal judgment based upon our review of existing law that we deem relevant to such opinions and in reliance upon the representations and covenants referenced above. No opinion is expressed herein on the accuracy, completeness or sufficiency of the Official Statement or other offering material relating to the Bonds. This opinion is limited to the laws of the State of California and the federal laws of the United States. Respectfully submitted, G3 APPENDIX E FORM OF DISTRICT CONTINUING DISCLOSURE AGREEMENT [TO COME FROM BOND COUNSEL] E -1 rlumwuonsa FORM OF RYLAND CONTINUING DISCLOSURE AGREEMENT APPENDIX G DTC AND THE BOOK -ENTRY -ONLY SYSTEM The information in this section concerning DTC and DTC's book - entry only system has been obtained ,from sources that the Authority believes to be reliable, but the Authority takes no responsibility for the completeness or accuracy thereof The following description gf the procedures and record keeping with respect to beneficial ownership interests in the Bonds, pawnent gf principal, premimn, if arp), accreted value and interest on the Bonds to DTC Participants or Beneficial Owners, corvfirmation and transfers of beneficial ownership interests in the Bonds and other related transactions by and between DTC the DTC Participants and the Beneficial Owners is based .solely on inforntalion provided ky DTC. 1. The Depository Trust Company ( "DTC "), New York, NY, will act as securities depository for the Bonds (the "Securities "). The Securities will be issued as fully- registered securities registered in the name of Cede & Co. (DTC's partnership nominee) or such other name as may be requested by an authorized representative of DTC. One fully- registered Security certificate will be issued for each maturity of the Securities in the aggregate principal amount of such maturity, and will be deposited with DTC. 2. DTC, the world's largest securities depository, is a limited- purpose trust company organized under the New York Banking Law, a "banking organization" within the meaning of the New York Banking Law, a member of the Federal Reserve System, a "clearing corporation" within the meaning of the New York Uniform Commercial Code, and a "clearing agency" registered pursuant to the provisions of Section 17A of the Securities Exchange Act of 1934. DTC holds and provides asset servicing for over 3.5 million issues of U.S. and non -U.S. equity issues, corporate and municipal debt issues, and money market instruments (from over 100 countries) that DTC's participants ( "Direct Participants ") deposit with DTC. DTC also facilitates the post -trade settlement among Direct Participants of sales and other securities transactions in deposited securities, through electronic computerized book-entry transfers and pledges between Direct Participants' accounts. This eliminates the need for physical movement of securities certificates. Direct Participants include both U.S. and non -U.S. securities brokers and dealers, banks, trust companies, clearing corporations, and certain other organizations. DTC is a wholly -owned subsidiary of The Depository Trust & Clearing Corporation ( "DTCC "). DTCC is the holding company for DTC, National Securities Clearing Corporation and Fixed Income Clearing Corporation, all of which are registered clearing agencies. DTCC is owned by the users of its regulated subsidiaries. Access to the DTC system is also available to others such as both U.S. and non -U.S. securities brokers and dealers, banks, trust companies, and clearing corporations that clear through or maintain a custodial relationship with a Direct Participant, either directly or indirectly ( "Indirect Participants "). DTC has a Standard & Poor's rating of AA +, The DTC Rules applicable to its Participants are on file with the Securities and Exchange Commission. More information about DTC can be found at www.dtce.com. 3. Purchases of Securities under the DTC system must be made by or through Direct Participants, which will receive a credit for the Securities on DTC's records. °fhe ownership interest of each actual purchaser of each Security ( "Beneficial Owner ") is in turn to be recorded on the Direct and Indirect Participants' records. Beneficial Owners will not receive written confirmation from DTC of their purchase. Beneficial Owners are, however, expected to receive written confirmations providing details of the transaction, as well as periodic statements of their holdings, from the Direct G -1 or Indirect Participant through which the Beneficial Owner entered into the transaction. Transfers of ownership interests in the Securities are to be accomplished by entries made on the books of Direct and Indirect Participants acting on behalf of Beneficial Owners. Beneficial Owners will not receive certificates representing their ownership interests in Securities, except in the event that use of the book -entry system for the Securities is discontinued. 4. To facilitate subsequent transfers, all Securities deposited by Direct Participants with DTC are registered in the name of DTC's partnership nominee, Cede & Co., or such other name as may be requested by an authorized representative of DTC. The deposit of Securities 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 actual Beneficial Owners of the Securities; DTC's records reflect only the identity of the Direct Participants to whose accounts such Securities are credited, which may or may not be the Beneficial Owners. The Direct and Indirect Participants will remain responsible for keeping account of their holdings on behalf of their customers. 5. 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 Securities may wish to tale certain steps to augment the transmission to them of notices of significant events with respect to the Securities, such as redemptions, tenders, defaults, and proposed amendments to the Security documents. For example, Beneficial Owners of Securities may wish to ascertain that the nominee holding the Securities for their benefit has agreed to obtain and transmit notices to Beneficial Owners. In the alternative, Beneficial Owners may wish to provide their names and addresses to the registrar and request that copies of notices be provided directly to them. 6. Redemption notices shall be sent to DTC. If less than all of the Securities within a maturity are being redeemed, DTC's practice is to determine by lot the amount of the interest of each Direct Participant in such maturity to be redeemed. 7. Neither DTC nor Cede & Co. (nor any other DTC nominee) will consent or vote with respect to Securities unless authorized by a Direct Participant in accordance with DTC's MMI Procedures. Under its usual procedures, DTC mails an Omnibus Proxy to the District 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 Securities are credited on the record date (identified in a listing attached to the Omnibus Proxy). 8. Principal, redemption price and interest payments on the Securities 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 District or the Trustee, on payable date in accordance with their respective holdings shown on DTC's records. Payments by Participants to Beneficial Owners will be governed by standing instructions and customary practices, as is the case with securities held for the accounts of customers in bearer form or registered in "street name," and will be the responsibility ofsuch Participant and not of DTC, the Trustee, or the District, subject to any statutory or regulatory requirements as may be in effect from time to time. Payment of principal, redemption price and interest payments to Cede & Co. (or such other nominee as may be requested by an authorized representative of DTC) is the responsibility of the District or the Trustee, disbursement of G -2 such payments to Direct Participants will be the responsibility of DTC, and disbursement of such payments to the Beneficial Owners will be the responsibility of Direct and Indirect Participants. 9. If applicable, a Beneficial Owner shall give notice to elect to have its Securities purchased or tendered, through its Participant, to the Trustee, and shall effect delivery of such Securities by causing the Direct Participant to transfer the Participant's interest in the Securities, on DTC's records, to tender /remarketing agent. The requirement for physical delivery of Securities in connection with an optional tender or a mandatory purchase will be deemed satisfied when the ownership rights in the Securities are transferred by Direct Participants on DTC's records and followed by a book -entry credit of tendered Securities to tender/remarketing agent's DTC account. 10. DTC may discontinue providing its services as depository with respect to the Securities at any time by giving reasonable notice to the District or the Trustee. Under such circumstances, in the event that a successor depository is not obtained. Security certificates are required to be printed and delivered. I1. The Authority may decide to discontinue use of the system of book - entry -only transfers through DTC (or a successor securities depository). In that event, Security certificates will be printed and delivered to DTC. G -3