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HomeMy WebLinkAbout10 ISSUANCE OF SPECIAL TAX BONDS FOR TUSTIN COMMUNITY FACILITIES DISTRICT NO. 06-1AGENDA Agenda Item 10 REPORT 06 Reviewed: City Manager Finance Director MEETING DATE: OCTOBER 19, 2010 TO: DAVID C. BIGGS, CITY MANAGER FROM: PAMELA ARENDS-KING, FINANCE DIRECTOR SUBJECT: ISSUANCE OF SPECIAL TAX BONDS FOR TUSTIN COMMUNITY FACILITIES DISTRICT NO. 06-1 u.: Approval by the City of Tustin is requested to authorize the issuance and sale of Special Tax Bonds ("Bonds") in an aggregate principal amount not to exceed $2 million to finance the acquisition and construction of public facilities necessary for the development of Tustin Community Facilities District No. 06-1(Tustin Legacy/Columbus Villages)( the "District") RECOMMENDATION: It is recommended that the City adopt Resolution 10-103, authorizing the issuance and sale of the Bonds to finance the acquisition and construction of public facilities necessary for the development of the District, approving the form of related documents and authorizing all actions necessary by the City's officers to consummate the issuance and sale of the Bonds. a. Bond Purchasing Agreement; b. First Supplemental Indenture; c. Continuing Disclosure Agreement; and d. Preliminary Official Statement. FISCAL IMPACT: The Bonds will have no financial impact on the City. All expenses relating to the bond issuance, administration, principal and interest payments on the Bonds will be paid solely from annual assessments on property within the District. BACKGROUND: On June 5, 2006 the City Council adopted Resolution No. 06-67 establishing a Community Facilities District and to authorize the levy of special taxes. Resolution No. 06-68 was also adopted to incur bonded indebtedness for the District. On August 7, 2007 Resolution No. 07-62 was adopted authorizing the issuance of not to exceed $60 million of aggregate principal amount Special Tax Bonds for the District. The District issued $53,570,000 in bonds on September 6, 2007 to finance the acquisition and construction of public facilities. The issuances of bonds not to exceed $2 million are on Issuance Of Special Tax Allocation Bonds for Tustin Community Facilities District 06-1 October 19, 2010 Page 2 parity with the 2007 bonds and the proceeds will be used to continue the acquisition and construction of public facilities for the development of the District. The City resolution being presented for approval authorizes the issuance of the Bonds and approves the related financing documents including a draft "Official Statement" that describes the terms of the Bonds. These documents will be finalized when the exact terms of the Bonds are determined at the time the Bonds are sold to investors, anticipated to occur in early -November. The date for the closing of the Bond issue, and the time when Bond proceeds are expected to be available, is currently expected to be November 4, 2010. ��4�" Pamela Arends-King Finance Director Attachment(s): Resolution City 10-103 Continuing Disclosure Agreement First Supplemental Indenture Preliminary Official Statement Bond Purchase Agreement RESOLUTION NO. 10-103 A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF TUSTIN, CALIFORNIA AUTHORIZING THE ISSUANCE OF NOT TO EXCEED $2,000,000 AGGREGATE PRINCIPAL AMOUNT OF CITY OF TUSTIN COMMUNITY FACILITIES DISTRICT NO. 06-1 (TUSTIN LEGACY/COLUMBUS VILLAGES) SPECIAL TAX BONDS, SERIES 2010, APPROVING THE EXECUTION AND DELIVERY OF A FIRST SUPPLEMENTAL INDENTURE, A BOND PURCHASE AGREEMENT AND A CONTINUING DISCLOSURE AGREEMENT AND THE PREPARATION OF AN OFFICIAL STATEMENT AND OTHER MATTERS RELATED THERETO The City Council of the City of Tustin does hereby resolve as follows: WHEREAS, the City Council (the "City Council") of the City of Tustin (the "City") has formed the City of Tustin Community Facilities District No. 06-1 (Tustin Legacy/Columbus Villages) (the "Community Facilities District") under the provisions of the Mello -Roos Community Facilities Act of 1982 (the "Act"); WHEREAS, the Community Facilities District is authorized under the Act to levy special taxes (the "Special Taxes") to pay for the costs of certain public facilities (the "Facilities") and to authorize the issuance of bonds payable from the Special Taxes; WHEREAS, in order to provide funds to finance certain of the Facilities, the Community Facilities District previously issued its City of Tustin Community Facilities District No. 06-1 (Tustin Legacy/Columbus Villages) Special Tax Bonds, Series 2007 A (the "Series 2007 Bonds"), in the aggregate principal amount of $53,570,000; WHEREAS, the Series 2007 Bonds were issued pursuant to the Indenture, dated as of September 1, 2007 (the "Original Indenture"), by and between the Community Facilities District and Union Bank of California, N.A. (now known as Union Bank, N.A.), as trustee (the "Trustee") (capitalized undefined terms used herein have the meanings ascribed thereto in the Original Indenture); WHEREAS, the Original Indenture provides that the Community Facilities District may at any time issue one or more Series of Additional Bonds (in addition to the Series 2007 Bonds) payable from Net Special Tax Revenues as provided therein on a parity with all other Bonds theretofore issued thereunder, but only subject to the conditions set forth therein; WHEREAS, in order to provide funds to finance certain of the Facilities, the Community Facilities District desires to' issue a Series of Additional Bonds, to be designated the City of Tustin Community Facilities District No. 06-1 (Tustin Resolution No. 10-103 Page 2 Legacy/Columbus Villages) Special Tax Bonds, Series 2010 (the "Series 2010 Bonds"), in the aggregate principal amount of not to exceed $2,000,000; WHEREAS, the Original Indenture provides that the Original Indenture and the rights and obligations of the Community Facilities District, the Trustee and the Owners of the Bonds may be modified or amended from time to time and at any time by a Supplemental Indenture, which the Community Facilities District and the Trustee may enter into without the consent of any Bond Owners for the purpose of providing for the issuance of one or more Series of Additional Bonds, and to provide the terms and conditions under which such Series of Additional Bonds may be issued, subject to and in accordance with the provisions of the Original Indenture; WHEREAS, in order to provide for the authentication and delivery of the Series 2010 Bonds, to establish and declare the terms and conditions upon which the Series 2010 Bonds are to be issued and secured and to secure the payment of the principal thereof, premium, if any, and interest thereon, the Community Facilities District proposes to enter into a First Supplemental Indenture with the Trustee (such Indenture, in the form presented to this meeting, with such changes, insertions and omissions as are made pursuant to this Resolution, being referred to herein as the "Indenture"); WHEREAS, Stone & Youngberg LLC (the "Underwriter") has presented the Community Facilities District with a proposal, in the form of a Bond Purchase Agreement, to purchase the Series 2010 Bonds from the Community Facilities District (such Bond Purchase Agreement, in the form presented to this meeting, with such changes, insertions and omissions as are made pursuant to this Resolution, being referred to herein as the "Purchase Agreement"); WHEREAS, Rule 15c2-12 promulgated under the Securities Exchange Act of 1934 ("Rule 15c2-12") requires that, in order to be able to purchase or sell the Series 2010 Bonds, the underwriter of the Series 2010 Bonds must have reasonably determined that the Community Facilities District or an obligated person has undertaken in a written agreement or contract for the benefit of the holders of the Series 2010 Bonds to provide disclosure of certain financial and operating data and certain material events on an ongoing basis; WHEREAS, in order to assist in providing for the satisfaction of such requirement, the Community Facilities District desires to enter into a Continuing Disclosure Agreement with the Trustee (such Continuing Disclosure Agreement, in the form presented to this meeting, with such changes, insertions and omissions as are made pursuant to this Resolution, being referred to herein as the "Continuing Disclosure Agreement"); WHEREAS, a Preliminary Official Statement to be used in connection with the offering and sale of the Series 2010 Bonds has been prepared (such Preliminary Official Statement in the form presented to this meeting, with such changes, insertions and omissions as are made pursuant to this Resolution, being referred to herein as the "Preliminary Official Statement"); Resolution No. 10-103 Page 3 WHEREAS, Harris Realty Appraisal has prepared and provided to the Community Facilities District an appraisal of the property in the Community Facilities District (the "Appraisal"), which has been submitted to this meeting; WHEREAS, there have been prepared and submitted to this meeting forms of: (a) the First Supplemental Indenture; (b) the Purchase Agreement; (c) the Continuing Disclosure Agreement; and (d) the Preliminary Official Statement; WHEREAS, the City Council is the legislative body of the Community Facilities District; and WHEREAS, the City Council desires to authorize the issuance of the Series 2010 Bonds and the execution and delivery of such documents and the performance of such acts by or on behalf of the Community Facilities District as may be necessary or desirable to effect the issuance of the Series 2010 Bonds; NOW, THEREFORE, it is hereby ORDERED and DETERMINED, as follows: Section 1. Subject to the provisions of Section 2 hereof, the issuance of the Series 2010 Bonds, in an aggregate principal amount of not to exceed $2,000,000, on the terms and conditions set forth in, and subject to the limitations specified in, the First Supplemental Indenture, is hereby authorized and approved. The Series 2010 Bonds shall be dated, shall bear interest at the rates, shall mature on the dates, shall be subject to call and redemption, shall be issued in the form and shall be as otherwise provided in the First Supplemental Indenture, as the same shall be completed as provided in this Resolution. Section 2. The First Supplemental Indenture, in substantially the form submitted to this meeting and made a part hereof as though set forth herein, be and the same is hereby approved. Each of the Mayor of the City, and such other members of the City Council as the Mayor may designate, the City Manager of the City, the Assistant City Manager of the City and the Finance Director of the City, and such other officers of the City as the City Manager may designate (the "Authorized Officers") is hereby authorized, and any one of the Authorized Officers is hereby directed, for and in the name of the Community Facilities District, to execute and deliver the First Supplemental Indenture in the form submitted to this meeting, with such changes, insertions and omissions as the Authorized Officer executing the same may require or approve, such requirement or approval to be conclusively evidenced by the execution of the First Supplemental Indenture by such Authorized Officer; provided, however, that such changes, insertions and omissions shall not authorize an aggregate principal amount of Series 2010 Bonds in excess of $2,000,000, shall not result in a final maturity date of Resolution No. 10-103 Page 4 the Series 2010 Bonds later than September 1, 2040 and shall not result in a true interest cost for the Series 2010 Bonds in excess of 7.0%. Section 3. The Purchase Agreement, in substantially the form submitted to this meeting and made a part hereof as though set forth in full herein, be and the same is hereby approved. Each of the Authorized Officers is hereby authorized, and any one of the Authorized Officers is hereby directed, for and in the name of the Community Facilities District, to execute and deliver the Purchase Agreement in the form presented to this meeting, with such changes, insertions and omissions as the Authorized Officer executing the same may require or approve, such requirement or approval to be conclusively evidenced by the execution of the Purchase Agreement by such Authorized Officer; provided, however, that such changes, insertions and omissions shall not result in an aggregate underwriter's discount (not including any original issue discount) from the principal amount of the Series 2010 Bonds in excess of 4% of the aggregate principal amount of the Series 2010 Bonds. The City Council hereby finds and determines that the sale of the Series 2010 Bonds at negotiated sale as contemplated by the Purchase Agreement will result in a lower overall cost. Section 4. The Continuing Disclosure Agreement, in substantially the form submitted to this meeting and made a part hereof as though set forth in full herein, be and the same is hereby approved. Each of the Authorized Officers is hereby authorized, and any one of the Authorized Officers is hereby directed, for and in the name of the Community Facilities District, to execute and deliver the Continuing Disclosure Agreement in the form presented to this meeting, with such changes, insertions and omissions as the Authorized Officer executing the same may require or approve, such requirement or approval to be conclusively evidenced by the execution of the Continuing Disclosure Agreement by such Authorized Officer. Section 5. The Preliminary Official Statement, in substantially the form presented to this meeting and made a part hereof as though set forth in full herein, with such changes therein as may be approved by an Authorized Officer, be and the same is hereby approved, and the use of the Preliminary Official Statement in connection with the offering and sale of the Series 2010 Bonds is hereby authorized and approved. Each of the Authorized Officers is hereby authorized, and any one of the Authorized Officers is hereby directed, for and in the name of the Community Facilities District, to certify to the Underwriter that the Preliminary Official Statement has been "deemed final" for purposes of Rule 15c2-12. Section 6. The preparation and delivery of a final Official Statement (the "Official Statement"), and its use in connection with the offering and sale of the Series 2010 Bonds, be and the same is hereby authorized and approved. The Official Statement shall be in substantially the form of the Preliminary Official Statement with such changes, insertions and omissions as may be approved by an Authorized Officer, such approval to be conclusively evidenced by the execution and delivery thereof. Each of the Authorized Officers is hereby authorized, and any one of the Authorized Officers is hereby directed, for and in the name of the Community Facilities District, to execute the final Official Statement and any amendment or supplement thereto. Resolution No. 10-103 Page 5 Section 7. Based upon the property values within the Community Facilities District reported in the Appraisal and the value -to -lien information set forth in the Preliminary Official Statement, the City Council, for purposes of Section 53345.8 of the Act, hereby finds and determines that the value of the real property that would be subject to the Special Tax to pay debt service on the Series 2010 Bonds will be at least three times the principal amount of the Series 2010 Bonds to be sold and the principal amount of all other bonds outstanding that are secured by a special tax levied pursuant to the Act on property within the Community Facilities District or a special assessment levied on property within the Community Facilities District. Section 8. The officers and employees of the City are, and each of them is, hereby authorized and directed, for and in the name of the Community Facilities District, to do any and all things and to execute and deliver any and all documents which they or any of them deem necessary or advisable in order to consummate the transactions contemplated by this Resolution and otherwise to carry out, give effect to and comply with the terms and intent of this Resolution. Section 9. All actions heretofore taken by the officers and employees of the City with respect to the issuance of the Series 2010 Bonds, or in connection with or related to any of the agreements or documents referred to herein, are hereby approved, confirmed and ratified. Section 10. This Resolution shall take effect from and after the date of its passage and adoption. PASSED AND ADOPTED at a regular meeting of the Tustin City Council held on the 19th day of October, 2010. Jerry Amante Mayor ATTEST: Pamela Stoker City Clerk Resolution No. 10-103 Page 6 STATE OF CALIFORNIA COUNTY OF ORANGE CITY OF TUSTIN I, Pamela Stoker, City Clerk and ex -officio Clerk of the City Council of the City of Tustin, California do hereby certify that the whole number of the members of the City Council of the City of Tustin is five; that the above and foregoing Resolution No. 10-103 was duly passed and adopted at a regular meeting of the Tustin City Council, held on the 19th day of October, 2010 by the following vote: COUNCILMEMBER AYES: COUNCILMEMBER NOES: COUNCILMEMBER ABSTAINED: COUNCILMEMBER ABSENT: Pamela Stoker City Clerk CONTINUING DISCLOSURE AGREEMENT by and between CITY OF TUSTIN COMMUNITY FACILITIES DISTRICT NO. 06-1 (TUSTIN LEGACY/COLUMBUS VILLAGES) and UNION BAND, N.A., AS TRUSTEE Dated as of 192010 Relating to City of Tustin Community Facilities District No. 06-1 (Tustin Legacy/Columbus Villages) Special Tax Bonds, Series 2010 DHS West:240968277.2 CONTINUING DISCLOSURE AGREEMENT THIS CONTINUING DISCLOSURE AGREEMENT (this "Disclosure Agreement"), dated as of 1, 2010, is by and between CITY OF TUSTIN COMMUNITY FACILITIES DISTRICT NO. 06-1 (TUSTIN LEGACY/COLUMBUS VILLAGES), a community facilities district organized and existing under the laws of the State of California (the "Community Facilities District"), and UNION BANK, N.A. (formerly known as Union Bank of California, N.A.), a national banking association organized and existing under the laws of the United States of America, as trustee (the "Trustee"). WITNESSETH: WHEREAS, pursuant to the Indenture, dated as of September 1, 2007, by and between the Community Facilities District and the Trustee, as amended and supplemented by the First Supplemental Indenture, dated as of 1, 2010, by and between the Community Facilities District and the Trustee (as so amended and supplemented, the "Indenture"), the Community Facilities District has issued the City of Tustin Community Facilities District No. 06-1 (Tustin Legacy/Columbus Villages) Special Tax Bonds, Series 2010 (the "Series 2010 Bonds") in the aggregate principal amount of $ ; and WHEREAS, this Disclosure Agreement is being executed and delivered by the Community Facilities District and the Trustee for the benefit of the Owners and Beneficial Owners of the Series 2010 Bonds and in order to assist the underwriter of the Series 2010 Bonds in complying with Securities and Exchange Commission Rule 15c2 -12(b)(5); NOW, THEREFORE, for and in consideration of the mutual premises and covenants herein contained, the parties hereto agree as follows: Section 1. Definitions. Capitalized undefined terms used herein shall have the meanings ascribed thereto in the Indenture. In addition, the following capitalized, terms shall have the following meanings: "Annual Report" means any Annual Report provided by the Community Facilities District pursuant to, and as described in, Sections 2 and 3 hereof. "Annual Report Date" means the date in each year that is eight months after the end of the Community Facilities District's fiscal year, which date, as of the date of this Disclosure Agreement, is March 1. "Disclosure Representative" means the Finance Director of the City of Tustin, or such other officer, employee or agent of the Community Facilities District as the Community Facilities District shall designate in writing to the Trustee from time to time. "Dissemination Agent" means the Trustee, or any successor Dissemination Agent designated in writing by the Community Facilities District and which has filed with the Trustee a written acceptance of such designation. "EMMA System" means the MSRB's Electronic Municipal Market Access system, or OHS West:260968277.2 I such other electronic system designated by the MSRB. "Listed Events" means any of the events listed in Section 4(a) hereof. "MSRB" means the Municipal Securities Rulemaking Board, or any successor thereto. "Official Statement" means the Official Statement, dated , 2010, relating to the Series 2010 Bonds. "Participating Underwriter" means Stone & Youngberg LLC. "Rule" means 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. Section 2. Provision of Annual Reports. (a) The Community Facilities District shall, or, upon furnishing the Annual. Report to the Dissemination Agent, shall cause the Dissemination Agent to, provide to the MSRB through the EMMA System, in an electronic format and accompanied by identifying information all as prescribed by the MSRB, an Annual Report which is consistent with the requirements of Section 3 hereof, not later, than the Annual Report Date, commencing with the report for the 2009-10 fiscal year. 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 3 hereof; provided, however, that the audited financial statements of the Community Facilities District, if any, may be submitted separately from the balance of the Annual Report, and later than the date required above for the filing of the Annual Report if not available by that date. If the Community Facilities District's fiscal year changes, it shall give notice of such change in the same manner as for a Listed Event under subsection (e) of Section 4 hereof. (b) Not later than 15 business days prior to the date specified in subsection (a) of this Section for the providing of the Annual Report to the MSRB, the Community Facilities District shall provide the Annual Report to the Dissemination Agent and the Trustee (if the Trustee is not the Dissemination Agent). If by such date, the Trustee has not received a copy of the Annual Report, the Trustee shall contact the Community Facilities District and the Dissemination Agent to inquire if the Community Facilities District is in compliance with the first sentence of this subsection (b). (c) If the Trustee is unable to verify that an Annual Report has been provided to the MSRB by the date required in subsection (a) of this Section, the Trustee shall send a notice to the MSRB through the EMMA System in substantially the form attached as Exhibit A. (d) The Dissemination Agent shall: (i) provide any Annual Report received by it to the MSRB, as provided herein; and (ii) file a report with the Community Facilities District and (if the Dissemination Agent is not the Trustee) the Trustee certifying that the Annual Report has been provided pursuant to this Disclosure Agreement and stating the date it was so OHS West:260968277.2 2 provided. Section 3. Content of Annual Reports. The Community Facilities District's Annual Report shall contain or incorporate by reference the following: (a) The Community Facilities District's audited financial statements, if any, prepared in accordance with generally accepted accounting principles as promulgated to apply to governmental entities from time to time by the Governmental Accounting Standards Board. if the Community Facilities District's audited financial statements, if any, are not available by the time the Annual Report is required to be filed pursuant to subsection (a) of Section 2 hereof, the Annual Report shall contain unaudited financial statements in a format similar to that used for the Community Facilities District's audited financial statements, and the audited financial statements, if any, shall be filed in the same manner as the Annual Report when they become available. (b) The following information: (i) The principal amount of Series 2010 Bonds Outstanding as of the September 30 next preceding the Annual Report Date. (ii) The principal amount of Bonds Outstanding as of the September 30 next preceding the Annual Report Date. (iii) The balance in the Reserve Fund, and a statement of the Reserve Requirement, as of the September 30 next preceding the Annual Report Date. (iv) The balance in the Construction Account and the Acquisition Account, as of the September 30 next preceding the Annual Report Date. (v) The total assessed value of all parcels within the Community Facilities District on which the Special Taxes are levied, as shown on the assessment roll of the Orange County Assessor last equalized prior to the September 30 next preceding the Annual Report Date, and a statement of assessed value -to -lien ratios therefor, either by individual parcel or by categories (e.g. "below 3:1 ", "3:1 to 4:1" etc.). (vi) The Special Tax delinquency rate for all parcels within the Community Facilities District on which the Special Taxes are levied, as shown on the assessment roll of the Orange County Assessor last equalized prior to the September 30 next preceding the Annual Report Date, the number of parcels within the Community Facilities District on which the Special Taxes are levied and which are delinquent in payment of Special Taxes, as shown on the assessment roll of the Orange County Assessor last equalized prior to the September 30 next preceding the Annual Report Date, the amount of each delinquency, the length of time delinquent and the date on which foreclosure was commenced, or similar information pertaining to delinquencies deemed appropriate by the Community Facilities District; provided, however, that parcels with aggregate delinquencies of $2,500 or less (excluding penalties and interest) may be grouped together and such information may be provided by category. OHS west260968277.2 3 (vii) The status of foreclosure proceedings for any parcels within the Community Facilities District on which the Special Taxes are levied and a summary of the results of any foreclosure sales as of the September 30 next preceding the Annual Report Date. (viii) The identity of any property owner representing more than 5% of the annual Special Tax levy who is delinquent in payment of such Special Taxes, as shown on the assessment roll of the Orange County Assessor last equalized prior to the September 30 next preceding the Annual Report Date. (ix) A land ownership summary listing property owners responsible for more than 5% of the annual Special Tax levy, as shown on the assessment roll of the Orange County Assessor last equalized prior to the December next preceding the Annual Report Date. In addition to any of the information expressly required to be provided under paragraphs (a) and (b), above, the Community Facilities District shall provide such further information, if any, as may be necessary to make the specifically required statements, in the light of the circumstances under which they are made, not misleading. Any or all of the items listed above may be included by specific reference to other documents, including official statements of debt issues of the Community Facilities District or related public entities, which have been submitted to the MSRB through the EMMA System. The Community Facilities District shall clearly identify each such other document so included by reference. Section 4. Reporting of Significant Events. (a) Pursuant to the provisions of this Section, the Community Facilities District shall give, or cause to be given, notice of the occurrence of any of the following events with respect to the Series 2010 Bonds, if material: (i) Principal and interest payment delinquencies. (ii) Non-payment related defaults. (iii) Unscheduled draws on debt service reserves reflecting financial difficulties. (iv) Unscheduled draws on credit enhancements reflecting financial difficulties. (v) Substitution of credit or liquidity providers, or their failure to perform. (vi) Adverse tax opinions or events affecting the tax-exempt status of the security. (vii) Modifications to rights of security holders. (viii) Contingent or unscheduled bond calls. OHS West:260968277.2 4 (ix) Defeasances. (x) Release, substitution, or sale of property securing repayment of the securities. (xi) Rating changes. (b) The Trustee shall, within one business day of obtaining actual knowledge of the occurrence of any of the Listed Events, contact the Disclosure Representative, inform . such person of the event, and request that the Community Facilities District promptly notify the Dissemination Agent in writing whether or not to report the event pursuant to subsection (e) of this Section. (c) As soon as practicable based on the time needed to discover the occurrence of a Listed Event and to assess the materiality thereof, the Community Facilities District shall, if the Community Facilities District has determined that the occurrence of such Listed Event would be material under applicable Federal securities law, notify the Dissemination Agent thereof in writing and instruct the Dissemination Agent to report the occurrence pursuant to subsection (e) of this Section. (d) If in response to a request under subsection (b) of this Section, the Community Facilities District determines that the Listed Event would not be material under applicable Federal securities law, the Community Facilities District shall so notify the Trustee in writing and instruct the Dissemination Agent not to report the occurrence pursuant to subsection (e) of this Section. (e) If the Dissemination Agent has been instructed by the Community Facilities District to report the occurrence of a Listed Event, the Dissemination Agent shall file a notice of such occurrence with the MSRB through the EMMA System. Notwithstanding the foregoing, notice of Listed Events described in paragraphs (viii) and (ix) of subsection (a) of this Section need not be given under this subsection any earlier than the notice (if any) of the underlying event is given to Owners of affected Series 2010 Bonds pursuant to the Indenture. Section 5. Termination of Reportiny- Obligation. The Community Facilities District's obligations under this Disclosure Agreement shall terminate upon the legal defeasance, prior redemption or payment in full of all of the Series 2010 Bonds. If such termination occurs prior to the final maturity of the Series 2010 Bonds, the Community Facilities District shall give notice of such termination in the same manner as for a Listed Event under subsection (e) of Section 4 hereof. Section 6. Dissemination AP-ent. The Community Facilities 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 may resign by providing 30 days' written notice to the Community Facilities District and the Trustee. The Dissemination Agent shall have no duty to prepare the Annual Report. The Dissemination Agent shall be paid compensation by the Community Facilities District for its services provided hereunder in accordance with its schedule of fees as amended from time to time, as agreed to between the OHS West:260968277.2 5 Dissemination Agent and the Community Facilities District, and all reasonable expenses, legal fees and advances made or incurred by the Dissemination Agent in the performance of its duties hereunder. If at any time there is not any other designated Dissemination Agent, the Trustee shall be the Dissemination Agent. Section 7. Amendment; Waiver. Notwithstanding any other provision of this Disclosure Agreement, the Community Facilities District and the Trustee may amend this Disclosure Agreement (and the Trustee shall agree to any amendment so requested by the Community Facilities District, so long as such amendment does not adversely affect the rights or obligations of the Trustee hereunder), and any provision of this Disclosure Agreement may be waived, provided that the following conditions are satisfied: (a) if the amendment or waiver relates to Sections 2(a), 3 or 4(a) hereof, it may only be made in connection with a change in circumstances that arises from a change in legal requirements, change in law, or change in the identity, nature, or status of an obligated person with respect to the Series 2010 Bonds, or type of business conducted; (b) the undertakings herein, as proposed to be amended or waived, would, in the opinion of nationally recognized bond counsel, have complied with the requirements of the Rule at the time of the primary offering of the Bonds, after taking into account any amendments or interpretations of the Rule, as well as any change in circumstances; and (c) the proposed amendment or waiver (i) is approved by Owners of the Series 2010 Bonds in the manner provided in the Indenture for amendments to the Indenture with the consent of Owners, or (ii) does not, in the opinion of nationally recognized bond counsel, materially impair the interests of Owners or Beneficial Owners. If the annual financial information or operating data to be provided in the Annual Report is amended pursuant to the provisions hereof, the first annual financial information containing the amended operating data or financial information shall explain, in narrative form, the reasons for the amendment and the impact -of the change in the type of operating data or financial information being provided. If an amendment is made to the undertaking specifying the accounting principles to be followed in preparing financial statements, the annual financial information for the year in which the change is made shall present a comparison between the financial statements or information prepared on the basis of the new accounting principles and those prepared on the basis of the former accounting principles. The comparison shall include a qualitative discussion of the differences in the accounting principles and the impact of the change in the accounting principles on the presentation of the financial statements or information, in order to provide information to investors to enable them to evaluate the ability of the Community Facilities District to meet its obligations, including its obligation to pay debt service on the Series 2010 Bonds. To the extent reasonably feasible, the comparison shall be quantitative. A notice of the change in the accounting principles shall be given in the same manner as for a Listed Event under subsection (e) of Section 4 hereof. OHS West:260968277.2 6 Section 8. Additional Information. Nothing in this Disclosure Agreement shall be deemed to prevent the Community Facilities 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 Community Facilities 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 Community Facilities 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 9. Default. In the event of a failure of the Community Facilities District, the Trustee or the Dissemination Agent to comply with any provision of this Disclosure Agreement, the Trustee may (and, at the written direction of any Participating Underwriter or the Owners of at least 25% aggregate principal amount of Outstanding Series 2010 Bonds, shall), or any Owner or Beneficial Owner of the Series 2010 Bonds may, take such actions as may be necessary and appropriate, including seeking mandate or specific performance by court order, to cause the Community Facilities District, the Trustee or the 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 Community Facilities District, the Trustee or the Dissemination Agent to comply with this Disclosure Agreement shall be an action to compel performance. Section 10. Duties, Immunities and Liabilities of Trustee and Dissemination Agent. Article VIII of the Indenture is hereby made applicable to this Disclosure Agreement as if this Disclosure Agreement were (solely for this purpose) contained in the Indenture. Neither the Trustee nor the Dissemination Agent shall be responsible for the form or content of any Annual Report or notice of Listed Event. The Dissemination Agent shall receive reasonable compensation for its services provided under this Disclosure Agreement. The Dissemination Agent (if other than the Trustee or the Trustee in its capacity as Dissemination Agent) shall have only such duties hereunder as are specifically set forth in this Disclosure Agreement, and the Community Facilities District agrees to indemnify and save the Dissemination Agent and the Trustee, their officers, directors, employees and agents harmless against any loss, expense and liabilities which it may incur arising out of or in the exercise or performance of its powers and duties hereunder, including the costs and expenses (including attorneys fees) of defending against any claim of liability, but excluding liabilities due to the Dissemination Agent's or the. Trustee's negligence or willful misconduct. The obligations of the Community Facilities District under this Section shall survive resignation or removal of the Dissemination Agent and payment of the Series 2010 Bonds. Section 11. Beneficiaries. This Disclosure Agreement shall inure solely to the benefit of the Community Facilities District, the Trustee, the Dissemination Agent, the Participating Underwriter and Owners and Beneficial Owners from time to time of the Series 2010 Bonds, and shall create no rights in any other person or entity. OHS West:260968277.2 7 Section 12. 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 instrument. IN WITNESS WHEREOF, the parties hereto have executed this Disclosure Agreement as of the date first above written. CITY OF TUSTIN COMMUNITY FACILITIES DISTRICT NO. 06-1 (TUSTIN LEGACY/COLUMBUS VILLAGES) UNION BANK, N.A., AS TRUSTEE LI -M OHS West:260968277.2 8 Authorized Signatory EXHIBIT A NOTICE OF FAILURE TO FILE ANNUAL REPORT Name of Issuer: City of Tustin Community Facilities District No. 06-1 (Tustin Legacy/Columbus Villages) Name of Bond Issue: City of Tustin Community Facilities District No. 06-1 (Tustin Legacy/Columbus Villages) Special Tax Bonds, Series 2010 Date of Issuance: 2010 NOTICE IS HEREBY GIVEN that City of Tustin Community Facilities District No. 06- 1 (Tustin Legacy/Columbus Villages) (the "Community Facilities District") has not provided an Annual Report with respect to the above-named Bonds as required by the Continuing Disclosure Agreement, dated as of 1, 2010, by and between the Community Facilities District and Union Bank, N.A., as Trustee. [The Community Facilities District anticipates that the Annual Report will be filed by , 20_.] Dated: UNION BANK, N.A., as Trustee, on behalf of the City of Tustin Community Facilities District No. 06-1 (Tustin Legacy/Columbus Villages) cc: City of Tustin Community Facilities District No. 06-1 (Tustin Legacy/Columbus Villages) OHS West:260968277.2 A-1 Document comparison by Workshare Professional on Monday, October 11, 2010 4.58.45 PM Document 1 ID interwovenSite://LADMS01/US WEST/260968277/1 #260968277v1 <US_WEST> - Continuing Disc K Tustin Description CFD 06-1 Series 2010 Document 2 ID interwovenSite://LADMS01/US WEST/260968277/2 #260968277v2<US_WEST> - Continuing Disc K Tustin Description CFD 06-1 Series 2010 Rendering set standard FIRST SUPPLEMENTAL INDENTURE by and between CITY OF TUSTIN COMMUNITY FACILITIES DISTRICT NO. 06-1 (TUSTIN LEGACY/COLUMBUS VILLAGES) and UNION BAND, N.A., AS TRUSTEE Dated as of 192010 Relating to City of Tustin Community Facilities District No. 06-1 (Tustin Legacy/Columbus Villages) Special Tax Bonds, Series 2010 OHS West:260967v536.2 TABLE OF CONTENTS ARTICLE XII SERIES 2010 BONDS Section12.01. Definitions........................................................................................................ 3 Section 12.02. Terms of Series 2010 Bonds............................................................................ 4 Section 12.03. Issuance of Series 2010 Bonds........................................................................ 5 Section 12.04. Application of Proceeds of the Series 2010 Bonds .......................................... 5 Section 12.05. Costs of Issuance Fund.................................................................................... 6 Section 12.06. Redemption of Series 2010 Bonds................................................................... 6 Section 12.07. Series 2010 Rebate Fund................................................................................. 7 Section 12.08. Series 2010 Tax Covenants.............................................................................. 8 Section 12.09. Continuing Disclosure..................................................................................... 8 Section 12.10. Effect of First Supplemental Indenture............................................................ 9 Section 12.11. Execution in Several Counterparts................................................................... 9 Section 12.12. Effective Date.................................................................................................. 9 EXHIBIT C - FORM OF SERIES 2010 BOND...................................................................... C-1 OHS West:260967636.2 i FIRST SUPPLEMENTAL INDENTURE THIS FIRST SUPPLEMENTAL INDENTURE (this "Indenture"), dated as of 1, 2010, is by and between CITY OF TUSTIN COMMUNITY FACILITIES DISTRICT NO. 06-1 (TUSTIN LEGACY/COLUMBUS VILLAGES), a community facilities district organized and existing under and by virtue of the laws of the State of California (the "Community Facilities District'), and UNION BANK, N.A. (formerly known as Union Bank of California, N.A.), a national banking association organized and existing under the laws of the United States of America, as trustee (the "Trustee"). WITNESSETH: WHEREAS, the City Council of the City of Tustin has formed the Community Facilities District under the provisions of the Mello -Roos Community Facilities Act of 1982 (the "Act'); WHEREAS, the Community Facilities District is authorized under the Act to levy special taxes (the "Special Taxes") to pay for the costs of certain public facilities (the "Facilities") and to authorize the issuance of bonds payable from the Special Taxes; WHEREAS, in order to provide funds to finance certain of the Facilities, the Community Facilities District previously issued its City of Tustin Community Facilities District No. 06-1 (Tustin Legacy/Columbus Villages) Special Tax Bonds, Series 2007 A (the "Series 2007 Bonds"), in the aggregate principal amount of $53,570,000; WHEREAS, the Series 2007 Bonds were issued pursuant to the Indenture, dated as of September 1, 2007 (the "Original Indenture"), by and between the Community Facilities District and the Trustee (capitalized undefined terms used herein have the meanings ascribed thereto in the Original Indenture); WHEREAS, the Original Indenture provides that the Community Facilities District may at any time issue one or more Series of Additional Bonds (in addition to the Series 2007 Bonds) payable from Net Special Tax Revenues as provided therein on a parity with all other Bonds theretofore issued thereunder, but only subject to the conditions set forth therein; WHEREAS, the Community Facilities District has determined to issue a Series of Additional Bonds, to be designated the City of Tustin Community Facilities District No. 06-1 (Tustin Legacy/Columbus Villages) Special Tax Bonds, Series 2010 (the "Series 2010 Bonds"), in the aggregate principal amount of $ ; WHEREAS, the Original Indenture provides that the Original Indenture and the rights and obligations of the Community Facilities District, the Trustee and the Owners of the Bonds may be modified or amended from time to time and at any time by a Supplemental Indenture, which the Community Facilities District and the Trustee may enter into without the consent of any Bond Owners for the purpose of providing for the issuance of one or more Series of Additional Bonds, and to provide the terms and conditions under which such Series of Additional Bonds may be issued, subject to and in accordance with the provisions of the Original Indenture; OHS West:260967636.2 WHEREAS, in order to provide for the authentication and delivery of the Series 2010 Bonds, to establish and declare the terms and conditions upon which the Series 2010 Bonds are to be issued and secured and to secure the payment of the principal thereof, premium, if any, and interest thereon, the Community Facilities District has authorized the execution and delivery of this First Supplemental Indenture; and WHEREAS, the Community Facilities District has determined that all acts and proceedings required by law necessary to make the Series 2010 Bonds, when executed by the Community Facilities District, authenticated and delivered by the Trustee and duly issued, the valid, binding and legal special obligations of the Community Facilities District, and to constitute this First Supplemental Indenture a valid and binding agreement for the uses and purposes herein set forth in accordance with its terms, have been done and taken„ and the execution and delivery of this First Supplemental Indenture has been in all respects duly authorized; NOW, THEREFORE, the Community Facilities District and the Trustee do hereby agree that the Original Indenture is hereby modified and amended by adding thereto an additional Article, as follows: OHS West.260967636.2 2 ARTICLE XII SERIES 2010 BONDS Section 12.01. Definitions. Unless the context otherwise requires, the terms defined in this Section shall for all purposes of this Indenture and of any certificate, opinion or other document herein or therein mentioned, have the meanings herein specified. "First Supplemental Indenture" means the First Supplemental Indenture, dated as of 1, 2010, by and between the Community Facilities District and the Trustee. "ORA Ainsley" means ORA Ainsley Park 84, LLC, a limited liability company organized and existing under the laws of the State of Delaware, and its successors. "ORA Ainsley Continuing Disclosure Agreement" means the Continuing Disclosure Agreement, dated as of 1, 2010, by and between ORA Ainsley and the Trustee, as originally executed and as it may be amended from time to time in accordance with the terms thereof. "ORA Astoria" means ORA Astoria 60, LLC, a limited liability company organized and existing under the laws of the State of Delaware, and its successors. "ORA Astoria Continuing Disclosure Agreement" means the Continuing Disclosure Agreement, dated as of 1, 2010, by and between ORA Astoria and the Trustee, as originally executed and as it may be amended from time to time in accordance with the terms thereof. "ORA Mirabella" means ORA Mirabella 60, LLC, a limited liability company organized and existing under the laws of the State of Delaware, and its successors. "ORA Mirabella Continuing Disclosure Agreement" means the Continuing Disclosure Agreement, dated as of 1, 2010, by and between ORA Mirabella and the Trustee, as originally executed and as it may be amended from time to time in accordance with the terms thereof. "Series 2010 Bonds" means the City of Tustin Community Facilities District No. 06-1 (Tustin Legacy/Columbus Villages) Special Tax Bonds, Series 2010, issued hereunder. "Series 2010 Closing Date" means the date upon which the Series 2010 Bonds are delivered to the Original Purchaser, being , 2010. "Series 2010 District Continuing Disclosure Agreement" means the Continuing Disclosure Agreement, dated as of 1, 2010, by and between the Community Facilities District and the Trustee, as originally executed and as it may be amended from time to time in accordance with the terms thereof. "Series 2010 Original Purchaser" means the original purchaser of the Series 2010 Bonds from the Community Facilities District. OHS West:2b0%7636.2 3 "Series 2010 Participating Underwriter" has the meaning ascribed thereto in the Series 2010 District Continuing Disclosure Agreement and the Series 2010 Developer Continuing Disclosure Agreement. "Series 2010 Rebate Fund" means the fund by that name established and held by the Trustee pursuant to Section 12.07. "Series 2010 Rebate Requirement" has the meaning ascribed thereto in the Series 2010 Tax Certificate. "Series 2010 Tax Certificate" means the Tax Certificate executed by the Community Facilities District at the time of issuance of the Series 2010 Bonds relating to the requirements of Section 148 of the Code, as originally executed and as it may be amended from time to time in accordance with the terms thereof. Section 12.02. Terms of Series 2010 Bonds. (a) The Series 2010 Bonds shall be designated "City of Tustin Community Facilities District No. 06-1 (Tustin Legacy/Columbus Villages) Special Tax Bonds, Series 2010." The aggregate principal amount of Series 2010 Bonds that may be issued and Outstanding under this Indenture shall not exceed $ , except as may be otherwise provided in Section 2.08. (b) The Series 2010 Bonds shall be issued in fully registered form without coupons in denominations of $5,000 or any integral multiple thereof, so long as no Series 2010 Bond shall have more than one maturity date. The Series 2010 Bonds shall be dated as of the Series 2010 Closing Date, shall be issued in the aggregate principal amount of $ , shall mature on September 1 of each year and shall bear interest (calculated on the basis of a 360 -day year comprised of twelve 30 -day months) at the rates per annum as follows: Maturity Date Principal Interest (September 1) Amount Rate (c) Interest on the Series 2010 Bonds shall be payable from the Interest Payment Date next preceding the date of authentication thereof unless (i) a Series 2010 Bond is authenticated on or OHS West:260967636.2 4 before an 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, (ii) a Series 2010 Bond is authenticated on or before the first Record Date, in which event interest thereon shall be payable from the Series 2010 Closing Date, or (iii) interest on any Series 2010 Bond is in default as of the date of authentication thereof, in which event interest thereon shall be payable from the date to which interest has previously been paid or duly provided for. Interest shall be paid in lawful money of the United States on each Interest Payment Date. Interest shall be paid by check of the Trustee mailed by first class mail, postage prepaid, on each Interest Payment Date to the Series 2010 Bond Owners at their respective addresses shown on the Registration Books as of the close of business on the preceding Record Date. Notwithstanding the foregoing, interest on any Series 2010 Bond which is not punctually paid or duly provided for on any Interest Payment Date shall, if and to the extent that amounts subsequently become available therefor, be paid on a payment date established by the Trustee to the Person in whose name the ownership of such Series 2010 Bond is registered on the Registration Books at the close of business on a special record date to be established by the Trustee for the payment of such defaulted interest, notice of which shall be given to such Owner not less than ten days prior to such special record date. (d) The principal of the Series 2010 Bonds shall be payable in lawful money of the United States of America upon presentation and surrender thereof upon maturity or earlier redemption at the Office of the Trustee. Payment of principal of any Series 2010 Bond shall be made only upon presentation and surrender of such Bond at the Office of the Trustee. (e) The Series 2010 Bonds shall be subject to redemption as provided in Section 12.06. (f) The Series 2010 Bonds shall initially be issued as Book -Entry Bonds. (g) The Series 2010 Bonds shall be in substantially the form set forth in Exhibit C hereto, with appropriate or necessary insertions, omissions and variations as permitted or required hereby. Section 12.03. Issuance of Series 2010 Bonds. The Community Facilities District may, at any time, execute the Series 2010 Bonds and deliver the same to the Trustee. The Trustee shall authenticate the Series 2010 Bonds and deliver the Series 2010 Bonds to the Series 2010 Original Purchaser upon receipt of a Written Request of the Community Facilities District and upon receipt of the purchase price therefor. Section 12.04. Application of Proceeds of the Series 2010 Bonds. On the Series 2010 Closing Date, the proceeds of the sale of the Series 2010 Bonds received by the Trustee, $ , shall be deposited by the Trustee as follows: (a) [the Trustee shall deposit the amount of $ in the Bond Fund;] (b) the Trustee shall deposit the amount of $ in the Reserve Fund; (c) the Trustee shall deposit the amount of $ in the Costs of Issuance Fund; and OHS West:260967636.2 5 (d) the Trustee shall deposit the amount of $ in the Construction Account. Section 12.05. Costs of Issuance Fund. The Trustee shall reopen and reestablish the Costs of Issuance Fund. On the Series 2010 Closing Date, the Trustee shall deposit in the Costs of Issuance Fund the amount required to be deposited therein pursuant to Section 12.04. On the last Business Day that is no later than six months after the Series 2010 Closing Date, the Trustee shall transfer any amount remaining in the Costs of Issuance Fund to the Construction Account and, upon making such transfer, the Costs of Issuance Fund shall be closed. Section 12.06. Redemption of Series 2010 Bonds. (a) Optional Redemption. The Series 2010 Bonds shall be subject to optional redemption, in whole or in part, on any Interest Payment Date on or after September 1, 20_, from any source of available funds, at the following respective Redemption Prices (expressed as percentages of the principal amount of the Series 2010 Bonds to be redeemed), plus accrued interest thereon to the date of redemption: Redemption Dates Redemption Price September 1, 20_ and March 1, 20_ % September 1, 20_ and March 1, 20_ September 1, 2020_ and thereafter The Community Facilities District shall give the Trustee written notice of its intention to redeem Series 2010 Bonds pursuant to this subsection not less than 45 days prior to the applicable redemption date, unless such notice shall be waived by the Trustee. (b) Mandatory Redemption from Special Tax Prepayments. The Series 2010 Bonds shall be subject to mandatory redemption, in whole or in part, on any Interest Payment Date on or after March 1, 2011, from and to the extent of any prepayment of Special Taxes, at the following respective Redemption Prices (expressed as percentages of the principal amount of the Series 2010 Bonds to be redeemed), plus accrued interest thereon to the date of redemption: Redemption Dates Redemption Price March 1, 2011 through March 1, 20_ % September 1, 20_ and March 1, 20_ September 1, 20_ and March 1, 20_ September 1, 2020_ and thereafter (c) Mandatory Sinking Fund Redemption. The Series 2010 Bonds maturing September 1, 20_ shall be subject to mandatory sinking fund redemption, in part, on September 1 in each year, commencing September 1, 20_, at a Redemption Price equal to the principal amount of the Series 2010 Bonds to be redeemed, without premium, plus accrued interest thereon to the date of redemption, in the aggregate respective principal amounts in the respective years as follows: Sinking Fund Principal Amount OHS West:260%7636.2 6 Redemption Date to be (September 1) Redeemed 20_ (Maturity) If some but not all of the Series 2010 Bonds maturing on September 1, 20 are redeemed pursuant to Section 12.06(a), the principal amount of Series 2010 Bonds maturing on September 1, 20 to be redeemed pursuant to Section 12.06(c) on any subsequent September 1 shall be reduced, by $5,000 or an integral multiple thereof, as designated by the Community Facilities District in a Written Certificate of the Community Facilities District filed with the Trustee; provided, however, that the aggregate amount of such reductions shall not exceed the aggregate amount of Series 2010 Bonds maturing on September 1, 20 redeemed pursuant to Section 12.06(a). If some but not all of the Series 2010 Bonds maturing on September 1, 20_ are redeemed pursuant to Section 12.06(b), the principal amount of Series 2010 Bonds maturing on September 1, 20 to be redeemed pursuant to Section 12.06(c) on any subsequent September 1 shall be reduced by the aggregate principal amount of the Series 2010 Bonds maturing on September 1, 20_ so redeemed pursuant to Section 12.06(b), such reduction to be allocated among redemption dates as nearly as practicable on a pro rata basis in amounts of $5,000 or integral multiples thereof, as determined by the Trustee, notice of which determination shall be given by the Trustee to the Community Facilities District. Section 12.07. Series 2010 Rebate Fund. (a) The Trustee shall establish and maintain a special fund designated the "Series 2010 Rebate Fund." There shall be deposited in the Series 2010 Rebate Fund such amounts as are required to be deposited therein pursuant to the Series 2010 Tax Certificate, as specified in a Written Request of the Community Facilities District. All money at any time deposited in the Series 2010 Rebate Fund shall be held by the Trustee in trust, to the extent required to satisfy the Series 2010 Rebate Requirement, for payment to the United States of America. Notwithstanding defeasance of the Series 2010 Bonds pursuant to Article X hereof or anything to the contrary contained herein, all amounts required to be deposited into or on deposit in the Series 2010 Rebate Fund shall be governed exclusively by this Section and by the Series 2010 Tax Certificate (which is incorporated herein by reference). The Trustee shall be deemed conclusively to have complied with such provisions if it follows the written directions of the Community Facilities District, and shall have no liability or responsibility to enforce compliance by the Community Facilities District with the terms of the Series 2010 Tax Certificate. The Trustee may conclusively rely upon the Community Facilities District's determinations, calculations and certifications required by the Series 2010 Tax Certificate. The Trustee shall have no responsibility to independently make any calculation or determination or to review the Community Facilities District's calculations. (b) Any funds remaining in the Series 2010 Rebate Fund after payment in full of all of the Series 2010 Bonds and after payment of any amounts described in this Section, shall, upon OHS West:260967636.2 7 receipt by the Trustee of a Written Request of the Community Facilities District, be withdrawn by the Trustee and remitted to the Community Facilities District. Section 12.08. Series 2010 Tax Covenants. (a) The Community Facilities District shall not take any action, or fail to take any action, if such action or failure to take such action would adversely affect the exclusion from gross income of interest on the Series 2010 Bonds under Section 103 of the Code. Without limiting the generality of the foregoing, the Community Facilities District shall comply with the requirements of the Series 2010 Tax Certificate, which is incorporated herein as if fully set forth herein. This covenant shall survive payment in full or defeasance of the Series 2010 Bonds. (b) In the event that at any time the Community Facilities District is of the opinion that for purposes of this Section it is necessary or helpful to restrict or limit the yield on the investment of any moneys held by the Trustee in any of the funds or accounts established hereunder, the Community Facilities District shall so instruct the Trustee in writing, and the Trustee shall take such action as may be necessary in accordance with such instructions. (c) Notwithstanding any provisions of this Section, if the Community Facilities District shall provide to the Trustee an opinion of Bond Counsel to the effect that any specified action required under this Section is no longer required or that some further or different action is required to maintain the exclusion from federal income tax of interest on the Series 2010 Bonds, the Trustee may conclusively rely on such opinion in complying with the requirements of this Section and of the Series 2010 Tax Certificate, and the covenants hereunder shall be deemed to be modified to that extent. Section 12.09. Continuing Disclosure. (a) Each of the Community Facilities District and the Trustee shall comply with and carry out all of the provisions of the Series 2010 District Continuing Disclosure Agreement applicable to it. Notwithstanding any other provision of this Indenture, failure of the Community Facilities District or the Trustee to comply with the Series 2010 District Continuing Disclosure Agreement shall not be considered an Event of Default; provided, however, that the Trustee may (and, at the written direction of the Series 2010 Participating Underwriter or the holders of at least 25% aggregate principal amount of Outstanding Series 2010 Bonds, and upon indemnification of the Trustee to its reasonable satisfaction, shall) or any holder or beneficial owner of the Series 2010 Bonds may, take such actions as may be necessary and appropriate to compel performance, including seeking mandate or specific performance by court order. (b) ORA Ainsley and the Trustee have entered into the ORA Ainsley Continuing Disclosure Agreement. Notwithstanding any other provision of this Indenture, failure of ORA Ainsley or the Trustee to comply with the ORA Ainsley Continuing Disclosure Agreement shall not be considered an Event of Default; provided, however, that the Trustee may (and, at the written direction of the Series 2010 Participating Underwriter or the holders of at least 25% aggregate principal amount of Outstanding Series 2010 Bonds, and upon indemnification of the Trustee to its reasonable satisfaction, shall) or any holder or beneficial owner of the Series 2010 Bonds may, take such actions as may be necessary and appropriate to compel performance, including seeking mandate or specific performance by court order. OHS West:260967636.2 8 (c) ORA Astoria and the Trustee have entered into the ORA Astoria Continuing Disclosure Agreement. Notwithstanding any other provision of this Indenture, failure of ORA Astoria or the Trustee to comply with the ORA Astoria Continuing Disclosure Agreement shall not be considered an Event of Default; provided, however, that the Trustee may (and, at the written direction of the Series 2010 Participating Underwriter or the holders of at least 25% aggregate principal amount of Outstanding Series 2010 Bonds, and upon indemnification of the Trustee to its reasonable satisfaction, shall) or any holder or beneficial owner of the Series 2010 Bonds may, take such actions as may be necessary and appropriate to compel performance, including seeking mandate or specific performance by court order. (d) ORA Mirabella and the Trustee have entered into the ORA Mirabella Continuing Disclosure Agreement. Notwithstanding any other provision of this Indenture, failure of ORA Mirabella or the Trustee to comply with the ORA Mirabella Continuing Disclosure Agreement shall not be considered an Event of Default; provided, however, that the Trustee may (and, at the written direction of the Series 2010 Participating Underwriter or the holders of at least 25% aggregate principal amount of Outstanding Series 2010 Bonds, and upon indemnification of the Trustee to its reasonable satisfaction, shall) or any holder or beneficial owner of the Series 2010 Bonds may, take such actions as may be necessary and appropriate to compel performance, including seeking mandate or specific performance by court order. Section 12.10. Effect of First Supplemental Indenture. This First Supplemental Indenture and all of the terms and provisions herein contained shall form part of the Indenture as filly and with the same effect as if all such terms and provisions had been set forth in the Indenture. The Indenture is hereby ratified and confirmed and shall continue in full force and effect in accordance with the terms and provisions thereof, as amended and supplemented hereby. If there shall be any conflict between the terms of this First Supplemental Indenture and the terms of the Indenture (as in effect on the day prior to the effective date of this First Supplemental Indenture), the terms of this First Supplemental Indenture shall prevail. Section 12.11. Execution in Several Counterparts. This First Supplemental Indenture may be executed in any number of counterparts and each of such counterparts shall for all purposes be deemed to be an original, and all such counterparts shall together constitute but one and the same instrument. Section 12.12. Effective Date. This First Supplemental Indenture shall take effect upon the Series 2010 Closing Date. OHS West:260967636.2 9 IN WITNESS WHEREOF, the Community Facilities District has caused this First Supplemental Indenture to be signed in its name by its representative thereunto duly authorized, and the Trustee has caused this First Supplemental Indenture to be signed in its corporate name by its officer thereunto duly authorized, all as of the day and year first above written. CITY OF TUSTIN COMMUNITY FACILITIES DISTRICT NO. 06-1 (TUSTIN LEGACY/COLUMBUS VILLAGES) UNION BANK, N.A., AS TRUSTEE LIM OHS West260967636.2 10 Authorized Officer No. INTEREST RATE EXHIBIT C FORM OF SERIES 2010 BOND CITY OF TUSTIN COMMUNITY FACILITIES DISTRICT NO. 06-1 (TUSTIN LEGACY/COLUMBUS VILLAGES) SPECIAL TAX BOND, SERIES 2010 MATURITY DATE DATED DATE , 2010 REGISTERED OWNER: CEDE & CO PRINCIPAL AMOUNT: CUSIP The City of Tustin Community Facilities District No. 06-1 (Tustin Legacy/Columbus Villages) (the "Community Facilities District"), for value received, hereby promises to pay, solely from the sources hereinafter described, to the Registered Owner identified above or registered assigns (the "Registered Owner"), on the Maturity Date identified above or on any earlier redemption date, the Principal Amount identified above in lawful money of the United States of America; and to pay interest thereon at the Rate of Interest identified above in like lawful money from the date hereof payable semiannually on March I and September 1 in each year, commencing March 1, 2011 (the "Interest Payment Dates"), until payment of such Principal Amount in full. This Bond shall bear interest from the Interest Payment Date next preceding the date of authentication of this Bond (unless this Bond is authenticated on or before an Interest Payment Date and after the fifteenth calendar day of the month preceding such Interest Payment Date, whether or not such day is a business day, in which event it shall bear interest from such Interest Payment Date, or unless this Bond is authenticated on or prior to February 15, 2011, in which event it shall bear interest from the Dated Date identified above; provided, however, that if, at the time of authentication of this Bond, interest is in default on this Bond, this Bond shall bear interest from the Interest Payment Date to which interest hereon has previously been paid or duly provided for). The Principal Amount hereof is payable upon surrender hereof upon maturity or earlier redemption at the Office of the Trustee (as hereinafter defined). Interest hereon is payable by check of Union Bank, N.A. (formerly known as Union Bank of California, N.A.), as Trustee (the "Trustee"), mailed by first class mail on each Interest Payment Date to the Registered Owner hereof at the address of the Registered Owner as it appears on the Registration Books of the Trustee as of the close of business on the fifteenth calendar day of the month preceding such Interest Payment Date. "Office of the Trustee" means the OHS West:260967636.2 C-1 principal corporate trust office of the Trustee in Los Angeles, California, or such other office as may be specified to the Community Facilities District by the Trustee in writing. This Bond is one of a series of a duly authorized issue of bonds approved by the qualified electors of the Community Facilities District, pursuant to the Mello -Roos Community Facilities Act of 1982, constituting Sections 53311 et seq. of the California Government Code (the "Act'), and issued for the purpose of financing certain public facilities, and is one of the series of bonds designated "City of Tustin Community Facilities District No. 06-1 (Tustin Legacy/Columbus Villages) Special Tax Bonds, Series 2010" (the "Series 2010 Bonds") in the aggregate principal amount of $ . The Series 2010 Bonds are issued pursuant to the Indenture, dated as of September 1, 2007, by and between the Community Facilities District and the Trustee, as amended and supplemented by the First Supplemental Indenture of Trust, dated as of 1, 2010, by and between the Community Facilities District and the Trustee (as so amended and supplemented, the "Indenture"), and this reference incorporates the Indenture herein, and by acceptance hereof the owner of this Bond assents to said terms and conditions. The Community Facilities District has previously issued its City of Tustin Community Facilities District No. 06-1 (Tustin Legacy/Columbus Villages) Special Tax Bonds, Series 2007 A (the "Series 2007 Bonds"), with which the Series 2010 Bonds are on a parity. Pursuant to and as more particularly provided in the Indenture, additional bonds ("Additional Bonds") may be issued by the Community Facilities District secured by a lien on a parity with the lien securing the Series 2007 Bonds and the Series 2010 Bonds. The Series 2007 Bonds, the Series 2010 Bonds and any Additional Bonds are collectively referred to as the `Bonds." The Indenture is entered into, and this Bond is issued under, the Act and the laws of the State of California. Capitalized undefined terms used herein shall have the meanings ascribed thereto in the Indenture. Pursuant to the Act and the Indenture, the principal of and interest on the Bonds are payable solely from Net Special Tax Revenues and the other assets pledged therefor under the Indenture. Net Special Tax Revenues generally consist of the annual special tax authorized under the Act to be collected within the Community Facilities District, after the payment therefrom of certain administrative expenses. Subject only to the provisions of the Indenture permitting the application thereof for the purposes and on the terms and conditions set forth therein, all of the Net Special Tax Revenues and any other amounts (including proceeds of the sale of the Bonds) held in the Bond Fund and the Reserve Fund established under the Indenture are pledged to secure the payment of the principal of, premium, if any, and interest on the Bonds in accordance with their terms, the provisions of the Indenture and the Act. Said pledge constitutes a first lien on such assets. The Series 2010 Bonds are subject to redemption on the dates, at the Redemption Prices and pursuant to the terms set forth in the Indenture. Notice of redemption of any Series 2010 Bond or any portion thereof shall be given as provided in the Indenture. The Series 2010 Bonds are issuable as fully registered Bonds without coupons in denominations of $5,000 or any integral multiple thereof. Subject to the limitations and upon payment of the charges, if any, provided in the Indenture, fully registered Series 2010 Bonds may be exchanged at the Office of the Trustee for a like aggregate principal amount and maturity of fully registered Series 2010 Bonds of other authorized denominations. OHS West:260%7636.2 C-2 This Bond is transferable by the Registered Owner hereof, in person or by his attorney duly authorized in writing, at the Office of the Trustee, but only in the manner, subject to the limitations and upon payment of the charges provided in the Indenture, and upon surrender and cancellation of this Bond. Upon such transfer a new fully registered Series 2010 Bond or Series 2010 Bonds, of authorized denomination or denominations, for the same aggregate principal amount and of the same maturity will be issued to the transferee in exchange herefor. The Community Facilities District and the Trustee may treat the Registered Owner hereof as the absolute owner hereof for all purposes, and the Community Facilities District and the Trustee shall not be affected by any notice to the contrary. The Indenture and the rights and obligations of the Community Facilities District, the Trustee and. the Owners may be modified or amended in the manner, to the extent, and upon the terms provided in the Indenture. The Indenture contains provisions permitting the Community Facilities District to make provision for the payment of the principal of and the interest and premium, if any, on any of the Bonds so that such Bonds shall no longer be deemed to be Outstanding under the terms of the Indenture. All obligations of the Community Facilities District under the Indenture shall be special obligations of the Community Facilities District, payable solely from Special Tax Revenues and the other assets pledged therefor thereunder; provided, however, that all obligations of the Community Facilities District under the Bonds shall be special obligations of the Community Facilities District, payable solely from Net Special Tax Revenues and the other assets pledged therefor thereunder. Neither the faith and credit nor the taxing power of the Community Facilities District (except to the limited extent set forth herein and in the Indenture), the City of Tustin or the State of California, or any political subdivision thereof, is pledged to the payment of the Bonds. Unless this Bond is presented by an authorized representative of The Depository Trust Company to the Trustee for registration of transfer, exchange or payment, and any Bond issued is registered in the name of Cede & Co. or such other name as requested by an authorized representative of The Depository Trust Company and any payment is made to Cede & Co., ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL since the registered owner hereof, Cede & Co., has an interest herein. OHS West:260967636.2 C-3 IN WITNESS WHEREOF, the Community Facilities District has caused this Bond to be signed in its name and on its behalf by the facsimile signatures of the Mayor of the City of Tustin and the City Clerk of the City of Tustin, all as of the Dated Date identified above. CITY OF TUSTIN COMMUNITY FACILITIES DISTRICT NO. 06-1 (TUSTIN LEGACY/COLUMBUS VILLAGES) Mayor of the City of Tustin Attest: City Clerk of the City of Tustin OHS West:260967636.2 C-4 TRUSTEE'S CERTIFICATE OF AUTHENTICATION This is one of the Series 2010 Bonds described in the within -mentioned Indenture and registered on the Registration Books. Date: 92010 UNION BANK, N.A., AS TRUSTEE Authorized Signatory OHS West:260969636.2 C-5 ASSIGNMENT For value received the undersigned hereby sells, assigns and transfers unto whose address and social security or other tax identifying number is , the within -mentioned Bond and hereby irrevocably constitute(s) and appoint(s) attorney, to transfer the same on the registration books of the Trustee with full power of substitution in the premises. Dated: Signature Guaranteed: Note: Signature(s) must be guaranteed by an eligible guarantor. Note: The signature(s) on this Assignment must correspond with the name(s) as written on the face of the within Bond in every particular without alteration or enlargement or any change whatsoever. OHS West:260967636.2 C-6 OH&S 10/11/10 Draft PRELIMINARY OFFICIAL STATEMENT DATED OCTOBER _, 2010 NEW ISSUE - BOOK -ENTRY ONLY NO RATINGS In the opinion of Orrick, Herrington & Sutcliffe LLP, Bond Counsel to the District, based upon an analysis of existing laws, regulations, rulings and court decisions, and assuming. among other matters, the accuracy ofcertain representations and compliance with certain covenants, interest on the Series 2010 Bonds is excluded from gross income forfederal income tax purposes under Section 103 of the Internal Revenue Code of 1986 and is exempt from State of California personal income taxes. In the further opinion of Bond Counsel, interest on the Series 2010 Bonds is not a specific preference item for purposes of the federal individual and corporate alternative minimum tares, nor is it included in adjusted current earnings when calculating corporate alternative minimum taxable income. Bond Counsel expresses no opinion regarding any other tax consequences related to the ownership or disposition of, or the accrual or receipt of interest on, the Series 2010 Bonds. See "CONCLUDING INFORMATION — Tax Exemption " herein. STATE OF CALIFORNIA COUNTY OF ORANGE $[1,455,0001* CITY OF TUSTIN COMMUNITY FACILITIES DISTRICT NO. 06-1 (TUSTIN LEGACY/COLUMBUS VILLAGES) SPECIAL TAX BONDS, SERIES 2010 Dated: Date of Delivery Due: September 1, as shown below The City of Tustin Community Facilities District No. 06-1 (Tustin Legacy/Columbus Villages) Special Tax Bonds, Series 2010 (the "Series 2010 Bonds') are being issued under the Mello -Roos Community Facilities Act of 1982 (the "Act") and the Indenture, dated as of September 1, 2007 (the "Original Indenture'), as amended and supplemented by the First Supplemental Indenture, dated as of 1, 2010 (the "First Supplement" and, together with the Original Indenture, the "Indenture'), each by and between City of Tustin Community Facilities District No. 06-1 (Tustin Legacy/Columbus Villages) (the "District') and Union Bank, N.A. (formerly known as Union Bank of California, N.A.), as trustee (the "Trustee"), and are payable from the Net Special Tax Revenues (as defined herein) derived from the Special Taxes (as defined herein) levied on property within the District according to the rate and method of apportionment of the Special Taxes approved by the qualified electors of the District and by the City Council of the City of Tustin, California (the "City'). On September 6, 2007, the District issued its $53,570,000 original principal amount of its City of Tustin Community Facilities District No. 06-1 (Tustin Legacy/Columbus Villages) Special Tax Bonds, Series 2007A (the "Series 2007A Bonds") pursuant to the Original Indenture, payable from the Net Special Tax Revenues on a parity with the Series 2010 Bonds. Pursuant to the Indenture, additional bonds ("Additional Bonds") may be issued by the District on a parity with the Series 2007A Bonds and the Series 2010 Bonds for the purposes set forth in the Indenture and as further described herein. The Series 2007A Bonds, the 2010 Bonds and any Additional Bonds are collectively referred to as the "Bonds." The Series 2010 Bonds are being issued to provide funds (a) to pay the cost and expense of acquisition and construction of certain public facilities necessary for the development of the District, (b) to pay a portion of interest due on the Series 2010 Bonds to September 1, 2011, (c) to fund a reserve fund and (d) to pay the costs of issuing the Series 2010 Bonds. See "ESTIMATED SOURCES AND USES OF FUNDS" herein. The Series 2010 Bonds are being issued in fully registered book -entry only form, initially registered in the name of Cede & Co., as nominee of The Depository Trust Company, New York, New York ("DTC"). Interest on the Series 2010 Bonds is payable semiannually on March 1 and September I of each year, commencing on March 1, 2011. Purchasers will not receive certificates representing their interest in the Series 2010 Bonds. Individual purchases will be in principal amounts of $5,000 or integral multiples thereof. Principal of and interest and premium, if any, on the Series 2010 Bonds will be paid by the Trustee to DTC for subsequent disbursement to DTC Participants who are obligated to remit such payments to the beneficial owners of the Series 2010 Bonds. See Appendix F —"Book -Entry Only System." The Series 2010 Bonds are subject to optional and mandatory redemption prior to maturity as described herein. See "THE SERIES 2010 BONDS — Redemption of the Series 2010 Bonds" herein. NEITHER THE FAITH AND CREDIT NOR THE TAXING POWER OF THE CITY, THE STATE OF CALIFORNIA OR ANY POLITICAL SUBDIVISION THEREOF OTHER THAN THE DISTRICT TO THE LIMITED EXTENT DESCRIBED IN THE INDENTURE IS PLEDGED TO THE PAYMENT OF THE BONDS. EXCEPT FOR THE SPECIAL TAXES, NO OTHER TAXES ARE PLEDGED TO THE PAYMENT OF THE BONDS. THE BONDS ARE NOT GENERAL OR SPECIAL OBLIGATIONS OF THE CITY NOR GENERAL OBLIGATIONS OF THE DISTRICT, BUT ARE SPECIAL OBLIGATIONS OF THE DISTRICT PAYABLE SOLELY FROM NET SPECIAL TAX REVENUES AND CERTAIN OTHER ASSETS PLEDGED THEREFOR UNDER THE INDENTURE, AS MORE FULLY DESCRIBED HEREIN. MATURITY SCHEDULE $ Serial Series 2010 Bonds Maturity Date Principal Interest Maturity Date Principal Interest (September 1) Amount Rate Yield CUSIP No.' (September 1) Amount Rate Yield CUSIP No. t 2011 2017 2012 2018 2013 2019 2014 2020 2015 2021 2016 2022 $ _% Term Bonds due September 1, 2037 - Yield: %` CUSIP No.t ' Copyright 2010, American Bankers Association. CUSIP numbers provided by Standard & Poor's CUSIP Service Bureau, a division of The McGraw-Hill Companies, Inc. CUSIP data herein are set forth for convenience of reference only. This data is not intended to serve as a database and does not in any way serve as a substitute for the CUSIP Service Bureau. The District and the Underwriter assume no responsibility for the accuracy of such data. Priced to an assumed first call on September 1, 20 ­ Investment in the Series 2010 Bonds involves risks which may not be appropriate for some investors. See "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 Series 2010 Bonds. This cover page contains information for quick reference only. It is not a complete summary of the Series 2010 Bonds. Investors should read the entire Official Statement to obtain information essential to the making of an informed investment decision. The Series 2010 Bonds are offered when, as and if issued and delivered to the Underwriter, subject to the approval as to their validity by Orrick. Herrington & Sutcliffe LLP, Bond Counsel, and subject to certain other conditions. Orrick, Herrington & Sutcliffe LLP is acting as disclosure counsel in connection with the Series 2010 Bonds. Certain legal matters will be passed upon for the Underwriter by its counsel, Quint & Thimmig, LLP, San Francisco, California, and.for the City and the District by their counsel, Woodruff, Spradlin & Smart, A Professional Corporation, Orange, California. It is anticipated that the Series 2010 Bonds will be available_for delivery in book-entryform through the facilities of DTC on or about November, 2010. Stone & Youngberg Dated: November_, 2010 Preliminary, subject to change. OHS West:260984201.4 42081-9 MKH No dealer, broker, salesperson or other person has been authorized by the City, the District or the Underwriter to give any information or to make any representations with respect to the City, the District or the Series 2010 Bonds other than the information contained herein and, if given or made, such other information or representation in connection with the offer and sale of the Series 2010 Bonds must not be relied upon as having been authorized by the City, the District or the Underwriter. This Official Statement does not constitute an offer to sell or the solicitation of an offer to buy nor shall there be any sale of the Series 2010 Bonds by a person in any jurisdiction in which it is unlawful for such person to make such an offer, solicitation or sale. This Official Statement is not to be construed as a contract with the purchasers of the Series 2010 Bonds. Statements contained in this Official Statement which involve estimates, forecasts or matters of opinion, whether or not expressly so described herein, are intended solely as such and are not to be construed as a representation of facts. Certain of the information set forth herein has been obtained from sources which the City and the District believe to be reliable, but such information is not guaranteed by the City or the District as to accuracy or completeness. The Underwriter has provided the following sentence for inclusion in this Official Statement. The Underwriter has reviewed the information in this Official Statement in accordance with, and as 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 or completeness of such information. All summaries of the Indenture or other documents are made subject to the complete provisions thereof 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 District for further information in connection therewith. This Official Statement is submitted in connection with the sale of the Series 2010 Bonds referred to herein.and may not be reproduced or used, in whole or in part, for any other purpose. This Official Statement contains forward-looking statements within the meaning of the Federal securities laws. Such statements are based on currently available information, expectations, estimates, assumptions, projections and general economic conditions. Such words as expects, intends, plans, believes, estimates, anticipates or variations of such words or similar expressions are intended to identify forward-looking statements and include, but are not limited to, statements under the captions "SECURITY FOR THE SERIES 2010 BONDS," "THE DISTRICT" and in Appendix A — "Appraisal." The forward-looking statements are not guarantees of future performance. Actual results may vary materially from what is contained in a forward-looking statement. The District and the City assume no obligation to provide public updates of forward-looking statements. THE ACHIEVEMENT OF CERTAIN RESULTS OR OTHER EXPECTATIONS CONTAINED IN SUCH FORWARD-LOOKING STATEMENTS INVOLVES KNOWN AND UNKNOWN RISKS, UNCERTAINTIES AND OTHER FACTORS WHICH MAY CAUSE ACTUAL RESULTS, PERFORMANCE OR ACHIEVEMENTS DESCRIBED TO BE MATERIALLY DIFFERENT FROM ANY FUTURE RESULTS, PERFORMANCE OR ACHIEVEMENTS EXPRESSED OR IMPLIED BY SUCH FORWARD-LOOKING STATEMENTS. WHILE THE DISTRICT HAS AGREED TO PROVIDE CERTAIN ONGOING FINANCIAL AND OPERATING DATA (SEE "CONTINUING DISCLOSURE"), THE DISTRICT DOES NOT PLAN TO ISSUE ANY UPDATES OR REVISIONS TO THOSE FORWARD-LOOKING STATEMENTS IF OR WHEN ITS EXPECTATIONS, OR EVENTS, CONDITIONS OR CIRCUMSTANCES ON WHICH SUCH STATEMENTS ARE BASED OCCUR. In connection with this offering, the Underwriter may overallot or effect transactions which stabilize or maintain the market price of the Series 2010 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 Underwriter may offer and sell the Series 2010 Bonds to certain dealers and dealer banks and banks acting as agent at prices lower than the public offering prices stated on the cover page hereof and such public offering prices may be changed from time to time by the Underwriter. The City maintains a website. However, the information presented on that website is not part of this Official Statement and prospective investors should not rely on any information presented on the City's website in making an investment decision to purchase the Series 2010 Bonds. OHS West260984201.4 42081-9 MKH CITY OF TUSTIN, CALIFORNIA (Orange County, California) CITY COUNCIL Jerry Amante, Mayor John Nielsen, Mayor Pro Tem Doug Davert, Councilmember Deborah Gavello, Councilmember Jim Palmer, Councilmember CITY STAFF David C. Biggs, City Manager George W. Jeffries, City Treasurer Christine A. Shingleton, Assistant City Manager Pamela Stoker, City Clerk Pamela Arends-King, Director of Finance Doug Stack, Director of Public Works PROFESSIONAL SERVICES Bond Counsel Orrick, Herrington & Sutcliffe LLP Los Angeles, California City Attorney Woodruff, Spradlin & Smart, A Professional Corporation Orange, California Trustee Union Bank, N.A. Los Angeles, California Special Tax Consultant David Taussig & Associates, Inc. Newport Beach, California Appraiser Harris Realty Appraisal Newport Beach, California Special Tax Administrator MuniFinancial, Inc. Temecula, California OHS West:260984201.4 42081-9 MKH TABLE OF CONTENTS Page INTRODUCTION....................................................................................................................................................... 1 THESERIES 2010 BONDS........................................................................................................................................ 5 Authorityfor Issuance................................................................................................................................... 5 Descriptionof the Series 2010 Bonds........................................................................................................... 5 Redemptionof the Series 2010 Bonds.......................................................................................................... 5 DebtService Schedule................................................................................................................................... 8 ESTIMATED SOURCES AND USES OF FUNDS................................................................................................... 9 THEPROJECT......................................................................................................................................................... 10 SECURITYFOR THE SERIES 2010 BONDS......................................................................................................... 10 General...................................................................................................................................................... 10 TheSpecial Taxes....................................................................................................................................... 11 SpecialTax Fund......................................................................................................................................... 13 ReserveFund............................................................................................................................................... 13 AdditionalBonds......................................................................................................................................... 14 Covenant for Superior Court Foreclosure................................................................................................... 15 PropertyValues........................................................................................................................................... 16 Directand Overlapping Debt...................................................................................................................... 18 EstimatedValue -to -Lien Ratios.................................................................................................................. 21 EffectiveTax Rates..................................................................................................................................... 22 THEDISTRICT........................................................................................................................................................ 25 General...................................................................................................................................................... 25 TustinLegacy.............................................................................................................................................. 25 Summary of District Proceedings................................................................................................................ 25 Rate and Method of Apportionment............................................................................................................ 26 Former Marine Corps Air Station Tustin and Tustin Legacy Project.......................................................... 29 CEQACompliance...................................................................................................................................... 32 EntitlementStatus....................................................................................................................................... 33 Property Ownership and Development........................................................................................................ 33 SPECIALRISK FACTORS...................................................................................................................................... 38 Insufficiency of Special Taxes.................................................................................................................... 38 The Series 20140 Bonds are Limited Obligations of the District.................................................................. 39 The Special Taxes are not Personal Obligations of the Property Owners ................................................... 40 SpecialTax Delinquencies.......................................................................................................................... 40 Failureto Develop Property........................................................................................................................ 40 OHS West:260984201.4 42081-9 MKH 1 TABLE OF CONTENTS (continued) Page Unconventional Mortgage Structures.......................................................................................................... 41 Risks Related to Current Market Conditions............................................................................................... 42 AppraisedValues........................................................................................................................................ 42 Bankruptcy.................................................................................................................................................. 42 Disclosures to Future Purchasers................................................................................................................. 43 Billingof Special Taxes.............................................................................................................................. 43 NaturalDisasters......................................................................................................................................... 43 SoilConditions in the District..................................................................................................................... 43 HazardousSubstances.................................................................................:............................................... 44 Payments by FDIC or Other Federal Agencies........................................................................................... 44 ExemptProperties....................................................................................................................................... 46 Cumulative Burden of Parity Taxes, Special Assessments......................................................................... 46 Value -to -Lien Ratios................................................................................................................................... 47 Limitationson Remedies............................................................................................................................. 47 Rightto Vote on Taxes Act......................................................................................................................... 47 Lossof Tax Exemption............................................................................................................................... 48 ForwardLooking Statements...................................................................................................................... 48 Limited Liquidity of the Series 2010 Bonds............................................................................................... 48 LITIGATION............................................................................................................................................................ 49 CONTINUINGDISCLOSURE................................................................................................................................. 49 CONCLUDINGINFORMATION............................................................................................................................ 50 LegalOpinions............................................................................................................................................ 50 FinancialInterest......................................................................................................................................... 50 TaxExemption............................................................................................................................................ 50 Underwriting............................................................................................................................................... 52 NoRatings................................................................................................................................................... 52 Miscellaneous.............................................................................................................................................. 52 APPENDIXA - APPRAISAL................................................................................................................................. A-1 APPENDIX B - RATE AND METHOD OF APPORTIONMENT OF SPECIAL TAX ........................................ B-1 APPENDIX C - PROPOSED FORM OF OPINION OF BOND COUNSEL......................................................... C-1 APPENDIXD - SUMMARY OF INDENTURE.................................................................................................... D-1 APPENDIX E - FORMS OF CONTINUING DISCLOSURE AGREEMENTS .....................................................E-1 APPENDIX F - BOOK -ENTRY ONLY SYSTEM.................................................................................................F-1 OHS West:260984201.4 42081-9 MKH 11 INSERT REGIONAL MAP OHS West: 260984201.4 42081-9 MKH INSERT AERIAL PHOTO OHS West260984201.4 42081-9 MKH OFFICIAL STATEMENT $[1,455,000]'` CITY OF TUSTIN COMMUNITY FACILITIES DISTRICT NO. 06-1 (TUSTIN LEGACY/COLUMBUS VILLAGES) SPECIAL TAX BONDS, SERIES 2010 INTRODUCTION The purpose of this Official Statement, including the cover page, table of contents and the Appendices, is to provide certain information concerning the issuance of and sale by City of Tustin Community Facilities District No. 06-1 (Tustin Legacy/Columbus Villages) (the "District") of $[1,455,000]* aggregate principal amount of its Special Tax Bonds, Series 2010 (the "Series 2010 Bonds"). This introduction is not a summary of this Official Statement. It is only a brief description of and guide to, and is qualified by, more complete and detailed information contained in the entire Official Statement, including the cover page and Appendices hereto, and the documents summarized or described herein. A full review should be made of the entire Official Statement. The sale and delivery of the Series 2010 Bonds to potential investors is made only by means of the entire Official Statement. The Series 2010 Bonds are being issued pursuant to the Mello -Roos Community Facilities Act of 1982, constituting Section 53311 et seq. of the California Government Code (the "Act") and the Indenture, dated as of September 1, 2007 (the "Original Indenture"), as amended and supplemented by the First Supplemental Indenture, dated as of 1, 2010 (the "First Supplement" and, together with the Original Indenture, the "Indenture"), each by and between the District and Union Bank, N.A. (formerly known as Union Bank of California, N.A.), as trustee (the "Trustee"). Capitalized undefined terms used herein shall have the meanings ascribed thereto in the Indenture. The Series 2010 Bonds will be issued as fully registered bonds in denominations of $5,000 or any integral multiple thereof and will be dated as of and bear interest from the date of delivery, at the rates set forth on the cover page hereof. On September 6, 2007, the District issued its $53,570,000 original principal amount of its City of Tustin Community Facilities District No. 06-1 (Tustin Legacy/Columbus Villages) Special Tax Bonds, Series 2007A (the "Series 2007A Bonds") pursuant to the Original Indenture, payable from the Net Special Tax Revenues on a parity with the Series 2010 Bonds. Pursuant to the Indenture, additional bonds ("Additional Bonds") may be issued by the District on a parity with the Series 2007A Bonds and the Series 2010 Bonds for the purposes set forth in the Indenture and as further described herein. The Series 2007A Bonds, the 2010 Bonds and any Additional Bonds are collectively referred to as the "Bonds." See "SECURITY FOR THE SERIES 2010 BONDS — Additional Bonds." Preliminary, subject to change. OHS West260984201.4 42081-9 MKH Pursuant to the Act, the qualified electors of the District approved the levy of a special tax (the "Special Tax") within the boundaries of the District. The Special Tax is comprised of a Special Tax A for facilities and a Special Tax B for services; however, only the Special Tax A is pledged to the payment of the Bonds. References to the Special Tax herein refer only to the Special Tax A pledged to the payment of the Bonds. See "THE DISTRICT — Summary of District Proceedings." The Bonds are payable from and secured by a pledge of Net Special Tax Revenues and certain other amounts held under the Indenture as described herein. See "SECURITY FOR THE SERIES 2010 BONDS" and Appendix D — "Summary of Indenture." The District constitutes a portion of the phased development of the former Marine Corps Air Station Tustin (the "Air Station"). The portion of the Air Station located in the City and an additional parcel is being developed as an approximately 1,533 gross acre master planned community called Tustin Legacy ("Tustin Legacy"). Approximately 73 acres of the former Air Station are located in the City of Irvine. See "THE DISTRICT." The District is comprised of two zones (each, a "Zone") located in the City of Tustin (the "City"). As a result of the annexation into Zone 1 of the District ("Zone 1") in October 2008 of an additional 5.8 gross acres of property, approximately 70 net acres in Zone 1 are subject to the Special Tax and approximately 55.8 net acres in Zone 2 of the District ("Zone 2") are subject to the Special Tax. Each Zone is obligated to the payment of the Special Taxes in full, with the Special Taxes levied in each Zone cross -collateralized with respect to the payment of debt service on the Bonds. Zone 1 is part of the master planned community known as Columbus Square and Zone 2 is part of the master planned community known as Columbus Grove. See "THE DISTRICT — General." Substantially all major infrastructure improvements are complete throughout the District with the exception of sidewalks and landscaping adjacent to vacant homesites. Of 1,540 planned dwelling units, 1,092 have been completed and sold to individual homeowners. The land subject to the Special Tax is under the ownership of the 1,092 individual homeowners and, with respect to remaining development, is under the ownership of Moffett Meadows Partners, LLC ("Moffett Meadows") (owner of four near finished lots), Tustin Coventry Seniors, L.P. ("Tustin Coventry Seniors") (owner of an age -restricted housing development known as Coventry Court with 24 rental dwelling units in one building and near finished sites to be improved with an additional 216 dwelling units, for a total of 240 total rental dwelling units), and the remainder of proposed development in the District is owned by subsidiaries of ORA Residential Investments I, L.P., a California limited partnership ("ORI"). In December of 2007, three wholly owned subsidiaries (the "ORA Entities") of ORI acquired from William Lyon Homes, Inc. ("William Lyon Homes") an aggregate of 204 sites under the following ownerships: ORA Astoria 60, LLC ("ORA Astoria"); ORA Mirabella 60, LLC ("ORA Mirabella"); and ORA Ainsley Park 84, LLC ("ORA Ainsley"), collectively referred to as ORA Entities. Subsequent to the acquisition, the ORA Entities retained William Lyon Homes as a fee builder to construct, market and sell residential units upon the lots on behalf of the ORA Entities pursuant to a series of agreements for each of the three projects owned by the ORA Entities. As described herein, each respective ORA Entity may terminate its agreements at any time upon 30 days' prior written notice to William Lyon Homes, or earlier for cause. See "THE DISTRICT — Property Ownership and Development." ORI is managed by Resmark Equity Partners, LLC, a real estate investment company ("Resmark") and the principal investor in ORI is the California Public Employees' Retirement System ("Ca1PERS11). The ORA Entities, Moffett Meadows, Tustin Coventry Seniors and individual homeowners are collectively referred to herein as the "Property Owners." The ORA Entities, Moffett Meadows and Tustin Coventry Seniors are collectively responsible for approximately 19% OHS West: 260984201.4 42081-9 MKH 2 of the 2010-11 Special Tax levy, with the ORA Entities collectively responsible for approximately 16% of the 2010-11 Special Tax levy at the Maximum Special Tax assuming build -out as proposed and described herein. Resmark is a Los Angeles based private equity firm specializing in the U.S. housing sector. Resmark and its affiliates on behalf of its institutional funds provide equity and debt financing to homebuilders and land developers in select markets throughout the United States, acquire land and homesites directly on behalf of its funds and are engaged in the acquisition and the development of, principally, multifamily communities. Resmark and its affiliates manage investment capital for CalPERS and a limited number of other investors. Resmark was founded in 1995 and maintains offices in Los Angeles and San Diego, California. William Lyon Homes is primarily engaged in the design, construction and sales of single family detached and attached homes in California, Arizona and Nevada. William Lyon Homes' corporate headquarters are located in Newport Beach, California. Moffett Meadow Partners, LLC ("Moffett Meadows"), is a single -purpose affiliate of Lennar Homes of California, Inc., a California corporation ("Lennar Homes" herein) and William Lyon Homes. Moffett Meadows was originally formed to acquire the property within the District from the United States Government, to secure necessary entitlement approvals from the City and the City of Irvine, to construct required infrastructure, to develop the property to a superpad condition (i.e., mass grading and installation of street improvement and utilities to access the parcels, but excluding fine grading, street improvements, utilities and landscape improvements within the parcels), and to sell parcels to, or at the direction of, Lennar Homes and William Lyon Homes. After acquiring the property comprising the District from the United States Government, Moffett Meadows sold the property (excluding its 4 lots described herein) to various merchant builders and related land banks. See "THE DISTRICT — Property Ownership and Development." It is expected that the District will be developed with 1,540 residential units among 14 subdivisions to be improved with 1,300 attached and detached for -sale dwelling units, plus the age - restricted affordable housing development known as Coventry Court, proposed for 240 age -restricted rental dwelling units. Of the expected 1,540 residential units, as of the August 15, 2010 date of value of the Appraisal, 1,116 residential units have been completed within 12 different products and approximately 424 residential units remain to be built reflecting 4 different products. Of the 1,116 completed residential units, 1,092 have been sold to individual homeowners. Approximately 308 of the units in the District are subject to the City's affordable housing requirements, of which 155 have been sold to homeowners and the remainder are to be part of the affordable rental program in Coventry Court. The units subject to the City's affordable housing requirements are subject to the Special Tax, but at lower rates than market -rate residential units. See Appendix B — "Rate and Method of Apportionment of Special Tax." The following table indicates the name of each development, the number of units to be constructed within such development, the type of product to be constructed, and certain other information as of August 15, 2010. See "THE DISTRICT — Property Ownership and Development" for additional information regarding development within the District. Coventry Court includes 153 units designated for affordable housing. Completed affordable housing units include: 50 units in the Cambridge Lane project, 63 units in the Camden Place project and 42 units in the Clarendon project. OHS West: 260984201.4 42081-9 MKH 3 The property in the District is owned by the following entities: Pronertv Owner # of Units Product Name Zone 1 (Columbus Square): Tustin Coventry Seniors(') 240 Coventry Court ORA Mirabella 60 Mirabella ORA Astoria 60 Astoria, now Augusta Moffett Meadows 4 Astoria, now Augusta Individual Homeowners Gables, Meriwether, Camden, Astoria, 711 Cambridge Lane, Verandas Subtotal 1,075 Zone 2 (Columbus Grove): ORA Ainsley 84 Ainsley Park Ciara, Clarendon, Westbourne, Cantara, Individual Homeowners 381 Madison Subtotal 465 Total 1,540 (1) The Coventry Court site was conveyed to Tustin Coventry Seniors on August 25, 2010. Source: ORA Entities, Lennar Homes. The proceeds from the sale of the Series 2010 Bonds will be used to (a) pay the cost and expense of the acquisition and construction of certain public facilities necessary for the development of the District (see "THE PROJECT"), (b) pay a portion of interest due on the Series 2010 Bonds to September 1, 2011, (c) fund a reserve fund and (d) pay the costs of issuing the Series 2010 Bonds. See "ESTIMATED SOURCES AND USES OF FUNDS." Certain risk factors should be considered, in addition to other matters set forth herein, in evaluating the investment quality of the Series 2010 Bonds. See "SPECIAL RISK FACTORS." Neither the faith and credit nor the taxing power of the City, the State of California (the "State") or any political subdivision thereof other than the District to the limited extent described in the Indenture is pledged to the payment of the Bonds. Except for the Special Taxes, no other taxes are pledged to the payment of the Bonds. The Bonds are not general or special obligations of the City nor general obligations of the District, but are special obligations of the District payable solely from the Net Special Tax Revenues and certain other assets pledged therefor under the Indenture, as more fully described herein. Brief descriptions of the Series 2010 Bonds, the Indenture, the security for the Series 2010 Bonds, the District, the status of development within the District and certain other information are included in this Official Statement. Such descriptions and information do not purport to be comprehensive or definitive. The descriptions herein of the Series 2010 Bonds, the Indenture and other documents are qualified in their entirety by reference to the forms thereof and the information with respect thereto included in the Series 2010 Bonds, the Indenture and other documents. Copies of such documents may be obtained from the office of the City Clerk of the City, at 300 Centennial Way, Tustin, California 92780, Attention: City Clerk. OHS West260984201.4 42081-9 MKH 4 THE SERIES 2010 BONDS Authority for Issuance The Bonds were authorized at a special election held in the District on July 17, 2006. The Series 2010 Bonds will be issued pursuant to the Act and the Indenture. Description of the Series 2010 Bonds The Series 2010 Bonds will be issued in fully registered form only, and when delivered, will be registered in the name of Cede & Co., as nominee of DTC. DTC will act as securities depository for the Series 2010 Bonds. Ownership interests in the Series 2010 Bonds may be purchased in book - entry form only, in denominations of $5,000 or any integral multiple thereof within a single maturity. The Series 2010 Bonds will be dated as of and bear interest from the date of delivery at the rates set forth on the cover page hereof. The principal of and premium, if any, on the Series 2010 Bonds will be paid in lawful money of the United States of America at the office of the Trustee upon presentation and surrender of the Series 2010 Bonds. The Series 2010 Bonds will mature as indicated on the cover hereof, and are subject to optional and mandatory redemption as set forth herein. Interest on the Series 2010 Bonds will be paid semiannually on March 1 and September 1 (each an "Interest Payment Date"), commencing on March 1, 2011. Interest on the Series 2010 Bonds will be calculated on the basis of a 360 -day year comprised of twelve 30 -day months. Payment of interest on the Series 2010 Bonds will be made to the respective Owner by check of the Trustee mailed by first class mail, postage prepaid, on each Interest Payment Date, to the Owner at his or her address as it appears on the registration books to be kept by the Trustee for the Series 2010 Bonds (the "Bond Register"), as of the close of business on the fifteenth day of the month preceding each Interest Payment Date, regardless of whether such day is a business day (the "Record Date"). So long as DTC or its nominee is the registered owner of the Series 2010 Bonds, interest payments will be made as described in Appendix F — "Book -Entry Only System." Interest on the Series 2010 Bonds will be payable from the Interest Payment Date next preceding the date of authentication thereof unless (a) a Series 2010 Bond is authenticated on or before an Interest Payment Date and after the close of business on the preceding Record Date, in which event it will bear interest from such Interest Payment Date, (b) a Series 2010 Bond is authenticated on or before the first Record Date, in which event interest thereon will be payable from the date of delivery of such Series 2010 Bond, or (c) interest on any Series 2010 Bond is in default as of the date of authentication thereof, in which event interest thereon will be payable from the date to which interest has previously been paid or duly provided for. Redemption of the Series 2010 Bonds Optional Redemption" The Series 2010 Bonds are subject to optional redemption, in whole or in part, on any Interest Payment Date, from any source of available funds, at the following respective redemption prices Preliminary, subject to change. OHS West260984201.4 42081-9 MKH (expressed as percentages of the principal amount of the Series 2010 Bonds to be redeemed), plus accrued interest thereon to the date of redemption: Redemption Dates Redemption Price March 1, 2011 through March 1, 2018 103% September 1, 2018 and March 1, 2019 102 September 1, 2019 and March 1, 2020 101 September 1, 2020 and thereafter 100 k Mandatory Redemption from Special Tax Prepayments The Series 2010 Bonds are subject to mandatory redemption, in whole or in part, on any Interest Payment Date, from and to the extent of any prepayment of Special Taxes, at the following respective redemption prices (expressed as percentages of the principal amount of the Series 2010 Bonds to be redeemed), plus accrued interest thereon to the date of redemption: Redemption Dates Redemption Price March 1, 2011 through March 1, 2018 103% September 1, 2018 and March 1, 2019 102 September 1, 2019 and March 1, 2020 101 September 1, 2020 and thereafter 100 Mandatory Sinking Fund Redemption The Series 2010 Bonds maturing on September 1, 20_, are subject to mandatory sinking fund redemption, in part, on September 1 in each year, commencing September 1, 20_, at a redemption price equal to the principal amount of the Series 2010 Bonds to be redeemed, without premium, plus accrued interest thereon to the date of redemption, in the aggregate respective principal amounts in the respective years as follows: Sinking Fund Redemption Date Principal Amount (,September 1) to be Redeemed 20 * * Maturity If some but not all of the Series 2010 Bonds maturing on September 1, 20_ are optionally redeemed, the principal amount of Series 2010 Bonds maturing on September 1, 20_ to be subject to mandatory sinking fund redemption on any subsequent September 1 will be reduced, by $5,000 or OHS West:260984201.4 42081-9 MKH 6 an integral multiple thereof, as designated by the District in a Written Certificate of the District filed with the Trustee; provided, however, that the aggregate amount of such reductions shall not exceed the aggregate amount of Series 2010 Bonds maturing on September 1, 20_ so optionally redeemed. If some but not all of the Series 2010 Bonds maturing on September 1, 20_ are redeemed from Special Tax prepayments, the principal amount of Series 2010 Bonds maturing on September 1, 20_ to be subject to mandatory sinking fund redemption on any subsequent September 1 will be reduced by the aggregate principal amount of the Series 2010 Bonds maturing on September 1, 20_ so redeemed from Special Tax prepayments, such reduction to be allocated among redemption dates as nearly as practicable on a pro rata basis in amounts of $5,000 or integral multiples thereof, as determined by the Trustee. Selection of Bonds for Redemption If less than all of the Bonds outstanding are to be redeemed, the Trustee shall select the Bonds to be redeemed from all Bonds not previously called for redemption (a) with respect to any optional redemption of Series 2010 Bonds, among maturities as directed in a Written Request of the District, (b) with respect to any redemption from Special Tax prepayments, among maturities of all Series of Bonds on a pro rata basis as nearly as practicable, and (c) with respect to any other redemption of Additional Bonds, among maturities as provided in the Supplemental Indenture pursuant to which such Additional Bonds are issued, and by lot among Bonds of the same Series with the same maturity in any manner which the Trustee in its sole discretion shall deem appropriate and fair. For purposes of such selection, all Bonds will be deemed to be comprised of separate $5,000 denominations and such separate denominations will be treated as separate Bonds which may be separately redeemed. Notice of Redemption So long as DTC is acting as securities depository for the Series 2010 Bonds, notice of redemption, containing the information required by the Indenture, will be mailed by first class mail, postage prepaid, by the Trustee to DTC (not to the Beneficial Owners of any Series 2010 Bonds designated for redemption) at least 30 days but not more than 60 days prior to the redemption date. The actual receipt by DTC (or any Owner of a Series 2010 Bond in the event that the book -entry only system is discontinued) of such notice of redemption is not a condition precedent to redemption, and neither the failure to receive such notice nor any defect in such notice will affect the validity of the proceedings for redemption of the Series 2010 Bonds or the cessation of interest on the redemption date. Such notice may state that such redemption is conditional upon receipt by the Trustee, on or prior to the date fixed for such redemption, of moneys that, together with other available amounts held by the Trustee, are sufficient to pay the redemption price of, and accrued interest on, the Series 2010 Bonds to be redeemed, and that if such moneys shall not have been so received said notice shall be of no force and effect and the District shall not be required to redeem such Series 2010 Bonds. In the event a notice of redemption of Series 2010 Bonds contains such a condition and such moneys are not so received, the redemption of Series 2010 Bonds as described in the conditional notice of redemption shall not be made and the Trustee shall, within a reasonable time after the date on which such redemption was to occur, give notice to the Persons and in the manner in which the notice of redemption was given, that such moneys were not so received and that there shall be no redemption of Series 2010 Bonds pursuant to such notice of redemption. Partial Redemption of Series 2010 Bonds Upon surrender of any Series 2010 Bonds to be redeemed in part only, the District. will execute and the Trustee will authenticate and deliver to the Owner, at the expense of the District, a OHS West:260984201.4 42081-9 MKH new Series 2010 Bond, or new Series 2010 Bonds, in authorized denominations equal in aggregate principal amount representing the unredeemed portion of the Bonds surrendered. Effect of Notice of Redemption Notice of redemption having been mailed as described above, and the amount necessary for the redemption and the interest to the applicable date fixed for redemption, having been set aside in the Redemption Fund, the Bonds shall become due and payable on said date, and, upon presentation and surrender thereof at the Office of the Trustee, said Bonds shall be paid at the redemption price thereof, together with interest accrued and unpaid to said date. If, on said date fixed for redemption, moneys for the redemption price of all the Bonds to be redeemed, together with interest to said date, shall be held by the Trustee so as to be available therefor on such date, and, if notice of redemption thereof shall have been mailed in accordance with the Indenture and not canceled, then, from and after said date, interest on said Bonds shall cease to accrue and become payable. All moneys held by or on behalf of the Trustee for the redemption of Bonds shall be held in trust for the account of the Owners of the Bonds so to be redeemed without liability to such Owners for interest thereon, and as of the date fixed for redemption, no Owner of any Bonds, or portions thereof so designated for redemption, will be entitled to any of the benefits of the Indenture or to any other rights, except with respect to payment of the redemption price and unpaid interest accrued to the redemption date from the amounts so made available. Debt Service Schedule The debt service schedule for the Series 2007A Bonds and the Series 2010 Bonds (including mandatory sinking fund redemption on their respective September 1 redemption dates) is set forth below: OHS West:260984201.4 42081-9 MKH 8 Year Ending Series 2007A Bonds September 1 Debt Service Principal 2011 $3,241,972.50 2012 3,309,960.00 2013 3,374,425.00 2014 3,445,025.00 2015 3,511,800.00 2016 3,584,137.50 2017 3,656,350.00 2018 3,727,100.00 2019 3,802,600.00 2020 3,876,218.76 2021 3,953,687.50 2022 4,033,050.00 2023 4,115,062.50 2024 4,199,200.00 2025 4,282,931.26 2026 4,367,525.00 2027 4,455,225.00 2028 4,545,625.00 2029 4,632,825.00 2030 4,726,225.00 2031 4,819,625.00 2032 4,917,125.00 2033 5,017,525.00 2034 5,119,625.00 2035 5,222,225.00 2036 5,324,125.00 2037 5,429,125.00 TOTAL $114,690,320.02 Total Interest(') Debt Service A portion of the interest due on the Series 2010 Bonds is to be paid from proceeds thereof. See "ESTIMATED SOURCES AND USES OF FUNDS." ESTIMATED SOURCES AND USES OF FUNDS The estimated sources and uses of funds with respect to the Series 2010 Bonds are set forth in the following table: OHS West:260984201.4 42081-9 MKH 9 Sources: Principal Amount of Series 2010 Bonds Plus: Net Original Issue Premium Total Sources Uses: Construction Account Interest Accounel) Reserve Fund (2) Costs of Issuance (3) Total Uses (1) To pay a portion of interest due on the Series 2010 Bonds to September 1, 2011. (2) Amount necessary to increase the amount on deposit in the Reserve Fund sufficiently to equal the Reserve Requirement. (3) Includes Underwriter's discount, legal fees and other issuance costs. THE PROJECT The Series 2010 Bonds are being issued to finance the acquisition and construction of certain public facilities (the "Project") necessary for the development of certain remaining public infrastructure of the District, which may include remaining street improvements, including grading, paving, curbs and gutters, sidewalks, street signalization and signage, street lights and parkway and landscaping related thereto, storm drains, utilities, public parks and recreation facilities, public library facilities, fire protection facilities and equipment and land, rights-of-way and easements necessary for any of such facilities. SECURITY FOR THE SERIES 2010 BONDS General Pursuant to the Act and the Indenture, the Bonds, including the Series 2010 Bonds, are payable from the Net Special Tax Revenues. "Net Special Tax Revenues" is defined under the Indenture to mean Special Tax Revenues less amounts required to pay Administrative Expenses. "Special Tax Revenues" is defined under the Indenture to mean the proceeds of the Special Taxes received by or on behalf of the District, including prepayments thereof, interest and penalties thereon and proceeds of the redemption or sale of property sold as a result of foreclosure of the lien of the Special Taxes, which shall be limited to the amount of said lien and interest and penalties thereon. "Administrative Expenses" is defined under the Indenture to mean "costs directly related to the administration of the District, consisting of the costs of computing the Special Taxes and preparing the annual Special Tax schedules and the costs of collecting the Special Taxes, the costs of remitting the Special Taxes to the Trustee, the fees and costs of the Trustee (including its legal counsel) in the discharge of the duties required of it under the Indenture, the costs incurred by the District in complying with the disclosure provisions of any continuing disclosure undertaking and the Indenture, including those related to public inquiries regarding the Special Tax and disclosures to Owners, the costs of the District related to an appeal of the Special Tax, any amounts required to be rebated to the federal government in order for the District to comply with the Indenture, an allocable share of the salaries of the staff of the City providing services on behalf of the District directly related to the foregoing and a proportionate amount of general administrative overhead of the City related thereto, and the costs of foreclosure of delinquent Special Taxes." "Special Taxes" is defined under the OHS West:260984201.4 42081-9 MKH 10 Indenture to mean the special taxes levied as Special Tax A within the District pursuant to the Act, the Ordinance and the Indenture. The payment of the principal of, premium, if any, and interest on the Bonds will be exclusively paid from the Net Special Tax Revenues and other amounts in the Special Tax Fund, the Bond Fund and the Reserve Fund. The amount of Special Taxes that the District may levy in any year is strictly limited by the maximum rates approved by the qualified electors within the District, as set forth in the Rate and Method. See "THE DISTRICT — Rate and Method of Apportionment." The full text of the Rate and Method is set forth in Appendix B hereto. Net Special Tax Revenues deposited in the Rebate Fund and. the Administrative Expense Fund are not pledged to the payment of any of the Bonds, and neither the Rebate Fund nor the Administrative Expense Fund will be construed as a trust fund held for the benefit of the Owners of any Bonds. The Special Taxes In the Indenture, the District has covenanted that, so long as any Bonds are outstanding, it will levy the amount of Special Taxes within the District in accordance with the Rate and Method and, subject to the limitations in the Rate and Method as to the maximum Special Tax that may be levied, in an amount sufficient, together with other amounts on deposit in the Special Tax Fund and available for such purpose, to pay the principal of and interest on the Bonds becoming due and payable during the Bond Year commencing in such fiscal year, the Administrative Expenses estimated for such year, any amounts required to replenish the Reserve Fund to the Reserve Requirement and reasonably anticipated delinquent Special, Taxes based on the delinquency rate for Special Taxes levied in the previous fiscal year (collectively, the "Special Tax Requirement"). No assurance can be given that the amounts collected in any given year will, in fact, equal the Special Tax Requirement due to a variety of factors, including the maximum Special Tax rates and the forty - year maximum term of the Special Tax levy on each parcel in the District imposed by the Rate and Method. Each Zone is obligated to the payment of the Special Taxes in full, with the Special Taxes levied in each Zone cross -collateralized with respect to the payment of debt service on the Bonds. See "THE DISTRICT — Rate and Method of Apportionment' and Appendix B hereto. Moreover, it is possible that under certain circumstances the maximum rates could be reduced from current levels. See "SPECIAL RISK FACTORS — Right to Vote on Taxes Act' below. The Special Taxes will be payable and be collected in the same manner and at the same time and in the same installment 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 ad valorem taxes on real property. When received, such Special Taxes will be applied as follows: first, to the Administrative Expense Fund for the payment of Administrative Expenses; second, to the Bond Fund for payment of debt service on (including payment for redemption of) the Bonds; third, for deposit in the Reserve Fund to the extent needed to restore the balance therein to the Reserve Requirement; and fourth, for transfer to the Rebate Fund the amounts, if any, due and owing to the United States Treasury. The District has covenanted that it will not initiate proceedings under the Act to modify the Rate and Method if such modification would adversely affect the security for the Bonds. The District has also covenanted that in the event any initiative or referendum measure is proposed that purports to modify the Rate and Method in a manner that would adversely affect the security for the Bonds, OHS West260984201.4 42081-9 MKH 1 1 the District will, to the extent permitted by law, commence and pursue reasonable legal actions to prevent the modification of the Rate and Method in a manner that would adversely affect the security for the Bonds. The amount of Special Taxes the District may levy in any year is strictly limited by the maximum rates approved by the qualified electors within the District. See "THE DISTRICT — Rate and Method of Apportionment" and APPENDIX B — "RATE AND METHOD OF APPORTIONMENT OF SPECIAL TAX." In addition and pursuant to the Act, under no circumstances may the Special Tax levied against any Assessor's Parcel of Residential Property for which an occupancy permit for private residential use has been issued be increased by more than 10% as a consequence of delinquency or default by the owner of any other Assessor's Parcel within the District. As defined in the Rate and Method, the term "Residential Property" means all Assessor's Parcels of Developed Property for which a building permit has been issued for purposes of constructing one or more residential units. Accordingly, the Special Tax levied against any such parcel of residential property may not be increased 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. The application of this limitation to an assessor's parcel containing one or more apartment units is unclear and remains subject to clarification by act of the legislature or the courts. Although the Special Taxes will be levied against, and constitute a lien against, taxable parcels within the District, they do not constitute a personal indebtedness of the respective property owners. There is no assurance that the property owners will be financially able to pay the annual Special Taxes or that they will pay such taxes even if financially able to do so. See "SPECIAL RISK FACTORS — Special Tax Delinquencies." The following table shows the Special Taxes to be levied within each Zone in the District at the 2010-11 Maximum Special Tax per property owner as of August 15, 2010, assuming remaining build -out of the District as described herein. Delinquencies in the collection of the Special Taxes to date have been less than I% of the annual levy. OHS West:260984201.4 42081-9 MKH 12 Table 1 City of Tustin Community Facilities District No. 06-1 (Tustin Legacy/Columbus Villages) Special Taxes per Property Owner Assuming Development Zone 1 Zone 2 2010-11 Maximum Property Owner() # of Units (3) Special Tax (3) % of Total 2010-11 Levy Tustin Coventry Seniors (2) 240 $ 105,492 2.81% ORA Mirabella 60 150,804 4.02 ORA Astoria 60 162,440 4.33 Moffett Meadows 4 10,835 0.29 Individual Homeowners 711 1,124,630 30.00 Subtotal 1,075 $1,554,200 41.45% Zone 2 (1) Source: First American Data Tree, Springbrook Advisors and Lennar Homes. t2 1 The Coventry Court site was conveyed to Tustin Coventry Seniors on August 25, 2010. (3) Assumes build out of the project. _ Source: David Taussig and Associates, Inc. Special Tax Fund The Special Tax Fund is created and established under the Indenture, and is maintained by the Trustee. Pursuant to the Indenture, as soon as practicable after the District receives any Special Tax Revenues, but in any event no later than the date ten Business Days prior to the Interest Payment Date after such receipt, the District will transfer such Special Tax Revenues to the Trustee for deposit in the Special Tax Fund; provided, however, that any portion of any such Special Tax Revenues that represents prepaid Special Taxes that are to be applied to the payment of the redemption of Bonds in accordance with the mandatory redemption from special tax prepayments provisions of the Indenture are required to be identified to the Trustee as such by the District and be deposited in the Redemption Fund. Pursuant to the Indenture, the Trustee will transfer amounts on deposit in the Special Tax Fund to the Administrative Expense Fund, the Bond Fund, the Reserve Fund and the other funds established under the Indenture on the dates, in the amounts and in the priority set forth in the Indenture. See Appendix D — "Summary of Indenture." Reserve Fund The Indenture provides that a Reserve Fund must be maintained in an amount equal to the Reserve Requirement. At the time of the issuance of the Series 2007A Bonds, $5,170,088.67 was deposited in the Reserve Fund. Upon the issuance of the Series 2010 Bonds an amount sufficient, OHS West260984201.4 42081-9 MKH 13 2010-11 Maximum Property Owner(" # of Units (3) Special Tax (3) % of Total 2010-11 Levy ORA Ainsley 84 $ 283,184 7.55% Individual Homeowners 381 1,911,768 50.99 Subtotal 465 $2,194,952 58.55% 100.00% Total 1,540 $3,749,152 (1) Source: First American Data Tree, Springbrook Advisors and Lennar Homes. t2 1 The Coventry Court site was conveyed to Tustin Coventry Seniors on August 25, 2010. (3) Assumes build out of the project. _ Source: David Taussig and Associates, Inc. Special Tax Fund The Special Tax Fund is created and established under the Indenture, and is maintained by the Trustee. Pursuant to the Indenture, as soon as practicable after the District receives any Special Tax Revenues, but in any event no later than the date ten Business Days prior to the Interest Payment Date after such receipt, the District will transfer such Special Tax Revenues to the Trustee for deposit in the Special Tax Fund; provided, however, that any portion of any such Special Tax Revenues that represents prepaid Special Taxes that are to be applied to the payment of the redemption of Bonds in accordance with the mandatory redemption from special tax prepayments provisions of the Indenture are required to be identified to the Trustee as such by the District and be deposited in the Redemption Fund. Pursuant to the Indenture, the Trustee will transfer amounts on deposit in the Special Tax Fund to the Administrative Expense Fund, the Bond Fund, the Reserve Fund and the other funds established under the Indenture on the dates, in the amounts and in the priority set forth in the Indenture. See Appendix D — "Summary of Indenture." Reserve Fund The Indenture provides that a Reserve Fund must be maintained in an amount equal to the Reserve Requirement. At the time of the issuance of the Series 2007A Bonds, $5,170,088.67 was deposited in the Reserve Fund. Upon the issuance of the Series 2010 Bonds an amount sufficient, OHS West260984201.4 42081-9 MKH 13 together with funds currently on deposit in the Reserve Fund, to equal to the Reserve Requirement, will be deposited in the Reserve Fund. The Indenture provides that the Reserve Requirement means, as of any date of calculation, an amount equal to the least of (a) 10% of the original aggregate principal amount of the Bonds (excluding any Bonds refunded with proceeds of Additional Bonds), (b) Maximum Annual Debt Service, and (c) 125% of average Annual Debt Service. Moneys in the Reserve Fund will be used and withdrawn by the Trustee solely for the purpose of making transfers to the Bond Fund in the event of any deficiency at any time in the Bond Fund of the amount then required for payment of the principal of and interest on the Bonds or for the purpose of redeeming Bonds. Transfers will be made from the Reserve Fund to the Bond Fund in the event of a deficiency in the Bond Fund, in accordance with the Indenture. Whenever the balance in the Reserve Fund exceeds the amount required to redeem or pay the Outstanding Bonds, including interest accrued to the date of payment or redemption and premium, if any, due upon redemption, the Trustee will, upon receipt of a Written Request of the District, transfer the amount in the Reserve Fund to the Bond Fund or Redemption Fund, as applicable, to be applied, on the next succeeding Interest Payment Date to the payment and redemption of all of the Outstanding Bonds. In connection with an optional redemption of Bonds or a mandatory redemption of Bonds from Special Tax prepayments, a proportionate share of the amount on deposit in the Reserve Fund will, on the Business Day on which amounts to redeem such Bonds are deposited in the Redemption Fund, be transferred by the Trustee from the Reserve Fund to the Redemption Fund and will be applied to the redemption of said Bonds; provided, however, that such amount shall be so transferred only if and to the extent that the amount remaining on deposit in the Reserve Fund will be at least equal to the Reserve Requirement (excluding from the calculation thereof said Bonds to be redeemed). Such proportionate share shall be equal to the largest integral multiple of $5,000 that is not larger than the amount equal to the product of (a) the amount on deposit in the Reserve Fund on the date five Business Days prior to the date notice of redemption of such Bonds is required to be given pursuant to the Indenture, times (b) a fraction, the numerator of which is the principal amount of Bonds to be so redeemed and the denominator of which is the principal amount of Bonds to be Outstanding on the day prior to the date on which such Bonds are to be so redeemed. Additional Bonds At the time of the formation of the District, property owners approved the issuance of bonded indebtedness in an amount not to exceed $65,000,000 to pay for Facilities. The Indenture provides that the District may, at any time after the issuance and delivery of the Series 2010 Bonds, issue Additional Bonds payable from the Net Special Tax Revenues on a parity with all other Bonds issued under the Indenture. Additional Bonds may be issued for the purposes of (a) paying the costs of Facilities and (b) providing funds to refund Bonds issued under the Indenture. In the case of Additional Bonds issued for the purpose of paying the costs of Facilities, no more than $10,120,000' aggregate principal amount of Additional Bonds may be issued. Prior to the issuance of any Additional Bonds, the District will receive a certificate from one or more Independent Consultants, which, taken together, certify that: k Preliminary, subject to change. OHS West260984201.4 42081-9 MKH 14 W on the basis of the parcels of land and improvements existing in the District as of the January 1 preceding the proposed issuance of such Additional Bonds, for each Fiscal Year that Bonds will be Outstanding, the amount of the Available Special Taxes that may be levied on all Taxable Property in such Fiscal Year is at least equal to 110% of Annual Debt Service for the Corresponding Bond Year on all Outstanding Bonds; provided, however that there will be excluded from such calculation of any Available Special Taxes levied or that may be levied on any parcel of Taxable Property that, as of the date of such certificate, is in default in the payment of any Special Taxes; and (ii) the sum of (A) the Assessed Value of parcels of Taxable Property for which a Qualified Appraisal Report has not been provided, plus (B) the Appraised Value of parcels of Taxable Property for which a Qualified Appraisal Report has been provided, as such Appraised Value is shown in such Qualified Appraisal Report, is at least three times the sum of (I) the aggregate principal amount of Outstanding Bonds, plus (II) the aggregate principal amount of all fixed lien special assessments levied on parcels of Taxable Property, based upon information from the most recent Fiscal Year for which such information is available, plus (III) the sum of a portion of the aggregate principal amount of Other CFD Bonds, which portion shall be equal to the aggregate principal amount of such Other CFD Bonds multiplied by a fraction, the numerator of which is the amount of special taxes levied for such Other CFD Bonds on parcels of Taxable Property, and the denominator of which is the total amount of special taxes levied for such Other CFD Bonds on all parcels of land (such fraction to be determined based upon the maximum special taxes which could be levied in the year in which maximum annual debt service on such Other CFD Bonds occurs), based upon information from the most recent Fiscal Year for which such information is available. Notwithstanding the foregoing, if such Additional Bonds are to be issued solely for the purpose of providing funds to refund any Outstanding Bonds issued under the Indenture, and, upon such issuance, Annual Debt Service in each Bond Year, calculated for all Bonds to be Outstanding after the issuance of such Additional Bonds, shall be less than or equal to Annual Debt Service in such Bond Year, then receipt of such certificate or certificates shall not be a condition precedent to the issuance of such Additional Bonds. The issuance of Additional Bonds is subject to certain additional specific conditions precedent. See Appendix D — "Summary of Indenture." Covenant for Superior Court Foreclosure In the event of a delinquency in the payment of any installment of Special Taxes, the District is authorized by the Act to order institution of an action in the Superior Court of the State to foreclose any lien therefor. In such action the real property subject to the Special Taxes may be sold at a judicial foreclosure sale. Such judicial foreclosure proceedings are not mandatory. However, in the Indenture, the District has covenanted for the benefit of the Owners of the Bonds that it will commence judicial foreclosure proceedings against parcels with delinquent Special Taxes; provided, however that the District is not required to order the commencement of foreclosure proceedings if (a) the total Special OHS West:260984201.4 42081-9 MKH 15 Tax delinquency in the District for such fiscal year is less than 5% of the total Special Tax levied in such fiscal year and (b) the amount then on deposit in the Reserve Fund is equal to the Reserve Requirement. Notwithstanding the foregoing, if the District determines that any single property owner in the District is delinquent in excess of $5,000 in the payment of the Special Tax, then the District will diligently institute, prosecute and pursue foreclosure proceedings against such property owner. The District may, but is not obligated to, advance funds from any source of legally available funds in order to maintain the Reserve Fund at the Reserve Requirement. In a foreclosure proceeding the District is entitled to recover penalties and interest on the delinquent Special Taxes through the date that an order of sale is entered. Prompt commencement of foreclosure proceedings may not, in and of itself, result in a timely or complete payment of delinquent Special Taxes. The ability of the District to foreclose the lien of delinquent unpaid Special Taxes may be limited in certain instances and may require prior consent of the obligee in the event the property is owned by or in receivership of the Federal Deposit Insurance Corporation. See "SPECIAL RISK FACTORS — Bankruptcy, "— Payments by FDIC or Other Federal Agencies" and "— Billing of Special Taxes." If the Reserve Fund is depleted, there could be a default or a delay in payments to the Owners of the Bonds pending prosecution of foreclosure proceedings and receipt by the District of foreclosure sale proceeds, if any. However, within the limits of the Rate and Method, the District may adjust the Special Taxes levied on all taxable property within the District to provide an amount required to pay debt service, including defaulted interest and principal payments, on the Bonds and to replenish the Reserve Fund. No assurances can be given that a judicial foreclosure action, once commenced, will be completed or that it will be completed in a timely manner. If a judgment of foreclosure and order of sale is obtained, the judgment creditor (the District) must cause a Notice of Levy to be issued. Under current law, a judgment debtor (property owner) has 120 days from the date of service of the Notice of Levy in which to redeem the property to be sold, which period may be shortened to 20 days for parcels other than those on which a dwelling unit for not more than four persons is located. If a judgment debtor fails to redeem and the property is sold, his only remedy is an action to set aside the sale, which must be brought within 90 days of the date of sale. If, as a result of such an action, a foreclosure sale is set aside, the judgment is revived and the judgment creditor is entitled to interest on the revived judgment as if the sale had not been made (Section 701.680 of the California Code of Civil Procedure). The constitutionality of the aforementioned legislation, which repeals the former one-year redemption period, has not been tested; and there can be no assurance that, if tested, such legislation will be upheld. Property Values An appraisal of the property in the District, dated August 19, 2010 (the "Appraisal"), was prepared by Harris Realty Appraisal (the "Appraiser"). The Appraisal was prepared to estimate the minimum market value of the land in the District in its "as is" condition (the "Minimum Market Value"). The property within the. District designated for park, open space or civic uses and not subject to tax or special assessment was not included in the Appraisal. The estimated values expressed in the Appraisal were stated as of August 15, 2010. See the Appraisal included in Appendix A hereto for a description of the assumptions made and the valuation methodologies used by the Appraiser. DHS West:260984201.4 42081-9 MKH 16 The 1,540 residential units proposed to be developed within the District consist of 14 for sale products and one rental product. Of the 15 products, eight represent detached residential projects (for a total of 562 units), one represents a duplex projects (for a total of 84 units), three represent townhome projects (for a total of 438 units), two represent townhome projects in a triplex configuration (for a total of 216 units), and one represents an age -restricted residential rental project, originally designed as condominiums (for a total of 240 units). Of the expected 1,540 residential units, as of the August 15, 2010 date of value of the Appraisal, 1,116 residential units have been completed within 12 different products (1,092 of which have been sold to individual homeowners) and approximately 424 residential units remain to be built reflecting 4 different products. See Table 5 for a summary of the remaining development in the District and within each Zone. Approximately 308 of the units in the District are subject to the City's affordable housing requirements, of which 155 have been sold to homeowners and the remainder are to be part of the affordable rental program in Coventry Court. The Appraiser has provided separate valuations for the property in each Zone within the District. The Appraiser has utilized the static residual analysis for those lots where construction of homes had yet to commence as of the August 15, 2010 date of value of the Appraisal. For those lots with sold model and production homes as of the August 15, 2010 date of value of the Appraisal, the Appraiser analyzed such lots separately. In estimating the Minimum Market Value of the for -sale residential property in each Zone without unit construction, the Appraiser considered the "as is" value of land and site improvements. In order to estimate the Minimum Market Value of the residential property, the Appraiser used the static residual analysis (i.e., a calculation of land value by deducting costs, including direct costs of construction, marketing, taxes, overhead, and costs to finish the lot as well as required profit margin to attract an investor in light of the risks and uncertainties of the project, from the average base price for a specific product). According to the Appraiser, the static residual analysis is often a better indication of land value when real estate market conditions are in flux, as is currently the case. See "SPECIAL RISK FACTORS — Risks Related to Current Market Conditions." The Appraiser estimated the aggregate bulk values of the land and site improvements as of August 15, 2010. The estimated values consider the land without unit construction, give consideration to the finished lot condition and then deduct the costs necessary to bring each lot to the finished lot condition. An additional deduction is made for remaining site costs. Such costs reduce the value of the property because they represent costs that must be incurred in order for the property to reach the state in which it was valued for purposes of the Appraisal (i.e., a finished lot condition). Thus, subtracting the costs to complete on-site improvements from the aggregate bulk values of the land in Zone 1, the Appraiser estimated the aggregate Minimum Market Value of land without unit construction in Zone 1 as of August 15, 2010, to be approximately $23,100,000 and in Zone 2 to be approximately $15,300,000, the Appraiser has concluded that the value of the land in the District was not less than such amounts. In estimating the Minimum Market Value of the for -sale residential property in each Zone with unit construction, the Appraiser gave consideration to the average size home and average sales price per square foot for each product in the District during 2007, 2008, 2009 and the first seven months of 2010. The Appraiser also gave consideration to currently selling products in comparable communities, giving consideration to current incentives, locations and other factors. The Appraiser concluded at a conservative price per square foot for each product in the District, which represents the Appraiser's estimate of Minimum Market Value for the sold homes in each product. The OHS West:260984201.4 42081-9 MKH 17 aggregate of the values is the total Minimum Market Value for the 1,092 sold homes as of August 15, 2010. As of the August 15, 2010 date of value of the Appraisal, 711 units had been built and sold in Zone 1 and near finished lots for the Mirabella and Augusta products numbered 124 in Zone 1. The Appraiser estimated the aggregate Minimum Market Value for such completed and sold homes to be approximately $347,000,000 and the aggregate Minimum Market Value for such near finished lots to be approximately $23,100,000. With respect to the age -restricted Coventry Court project in Zone 1, the Appraiser noted a recent sales price of $2,500,000 attributed to the improvements, with the total Minimum Market Value for the entire Coventry Court project in its "As Is" condition to be $2,500,000 for a total of $372,600,000 in Zone 1. In Zone 2, 381 homes had been built and sold and near finished lots numbered 84. The Appraiser estimated the aggregate Minimum Market Value for such completed and sold homes to be approximately $277,000,000 and the aggregate Minimum Market Value for such near finished lots to be approximately $15,300,000 for a total of $292,300,000 in Zone 2. Based on the above, as of the August 15, 2010 date of value of the Appraisal, the total Minimum Market Value for the 208 near finished lots within the District was $38,400,000, the total Minimum Market Value for the 1,092 built and sold dwelling units within the District was $624,000,000, and the total Minimum Market Value for the 240 -unit rental project was $2,500,000. Thus, based on the above -summarized analyses and the assumptions set forth in the Appraisal, the Appraiser estimated the Minimum Market Value of the property within the District as of August 15, 2010 to be approximately $664,900,000 (rounded). Direct and Overlapping Debt Contained within the District are overlapping local agencies providing public services. Some of such local agencies have outstanding bonds or authorization to issue bonds payable from taxes or special assessments. Water District Debt The property in the District receives water and sewer service from the Irvine Ranch Water District ("IRWD") and is located within IRWD's Improvement District Nos. 113 and ,213 (collectively, the "IRWD Improvement Districts"). At an election held on August 31, 2004, IRWD received authorization to issue not to exceed $26,000,000 aggregate principal amount of general obligation bonds for Improvement District No. 113 and $87,000,000 aggregate principal amount of general obligation bonds for Improvement District No. 213. IRWD issued approximately $1,500,000 aggregate principal amount of general obligation bonds for Improvement District No. 113 and approximately $11,100,000 aggregate principal amount of general obligation bonds for Improvement District No. 213 in February 2006, approximately $5,000,000 aggregate principal amount of general obligation bonds for Improvement District No. 113 and approximately $6,300,000 aggregate principal amount of general obligation bonds for Improvement District No. 213 pursuant to such authorization in July 2007 and approximately $2,900,000 aggregate principal amount of general obligation bonds for Improvement District No. 113 and approximately $6,300,000 aggregate principal amount of general obligation bonds for Improvement District No. 213 in June 2009. IRWD Improvement District bonds are general obligation bonds payable from ad valorem taxes; the amount of the tax levy on each parcel is based on the assessed valuation of the land only. OHS West:260984201.4 42081-9 MICH 18 The District cannot predict the amount of authorized but unissued bonds for IRWD Improvement Districts that will ultimately be issued by IRWD, nor can it predict when such debt will be issued or the debt service payments thereon. 06-1 School District CFD Debt The Tustin Unified School District (the "School District") has established Community Facilities District No. 06-1 of the Tustin Unified School District (the "06-1 School District CFD") and has authorized the issuance of bonded debt in the amount of $25,000,000 (the "06-1 School District CFD Bonds"), and the levy of special taxes against the property in the 06-1 School District CFD to pay for debt service on the 06-1 School District CFD Bonds, for certain costs of providing school facilities, and for related incidental expenses. The 06-1 School District CFD expects to issue the 06-1 School District CFD Bonds pursuant to such authorization in several series. The first such issuance occurred in April 2010 in the aggregate principal amount of $13,560,000. Any debt issued by the CFD 06-1 School District will be payable by the owners of property in Zone 1 but not Zone 2 of the District. The City cannot predict the extent to which the 06-1 School District CFD will issue its remaining authorized but currently unissued debt, the timing of any such issuances or the debt service payments thereon. School District Debt The School District received authorization at an election held on November 5, 2002, by an affirmative vote of the eligible voters within the School District to issue bonds on behalf of School Facilities Improvement District No. 2002-1 of the School District (the "02-1 Improvement District") in an amount not to exceed $80,000,000 (the "02-1 School District Bonds"). The School District, on behalf of the 02-1 Improvement District, issued 02-1 School District Bonds in 2003, 2006, 2008 and 2010. As of October 1, 2010, none such authorized debt was unissued. The 02-1 School District Bonds are general obligation bonds of the School District, on behalf of the 02-1 Improvement District, payable from ad valorem taxes; the amount of the tax levy on each parcel is based on the assessed valuation of the taxable property within the boundaries of the 02-1 Improvement District. If, as property is developed and sold within the Community Facilities District, the assessed valuation of such parcels increases disproportionately to other parcels within the 02-1 Improvement District, then such parcels' share of the general obligation bond debt of the School District would increase. The School District received authorization at an election held on November 4, 2008, by an affirmative vote of the eligible voters within the School District to issue bonds on behalf of School Facilities Improvement District No. 2008-1 of the School District (the "08-1 Improvement District") in an amount not to exceed $95,000,000 (the "08-1 School District Bonds"). The School District, on behalf of the 08-1 Improvement District, issued 08-1 School District Bonds in 2010 in the principal amount of $25,000,000. As of October 1, 2010, $70,000,000 of such authorized debt was unissued. The 08-1 School District Bonds are general obligation bonds of the School District, on behalf of the 08-1 Improvement District, payable from ad valorem taxes; the amount of the tax levy on each parcel is based on the assessed valuation of the taxable property within the boundaries of the 08-1 Improvement District. If, as property is developed and sold within the Community Facilities District, the assessed valuation of such parcels increases disproportionately to other parcels within the 08-1 Improvement District, then such parcels' share of the general obligation bond debt of the School District would increase. OHS West:260984201.4 42081-9 MKH 19 The City cannot predict the extent to which the School District will issue its authorized but currently unissued debt, the timing of any such issuances or the debt service payments thereon. OHS West260984201.4 42081-9 MKH 20 Lq Wl �,-�v0000 goo N iM A N O O 1O O C p'Dj = ^ M D\ N O O O O �Q�CC V�iN 'It 7o) y F � Q � -to 800 0 0 0 0 0 O C m r0 0 0 0 0 A pp O G V N � N t� M M 0 7 M V1 V > F° 7 N N 0 .M -i VMi O N O sNs 7 a T O y -S v W l- 1— Cl 00 l- a C t`M� MN7 0 C Q O N V ;; O 00 l— I 1��00 Moo 7 O 0 r.7 m7�O�i�01 M O 0 T T W O N O 0 N C C c5 0o N v j O o .0.0 o 0 0 C C Q Q Q V) On U U o a :tt a F 0 N 7 Other Potential Debt The District has no control over the amount of additional debt payable from taxes or assessments levied on all or a portion of the property within the District which may be incurred in the future by other governmental agencies having jurisdiction over all or a portion of the property within the District. Furthermore, nothing prevents the owners of property within the District from consenting to the issuance of additional debt by other governmental agencies which would be secured by taxes or assessments on a parity with the Special Taxes. To the extent such indebtedness is payable from assessments, other special taxes levied pursuant to the Act or taxes, such assessments, special taxes and taxes will be secured by liens on the property within the District on a parity with the lien of the Special Taxes. Accordingly, the debt on the property within the District could increase, without any corresponding increase in the value of the property therein, and thereby severely reduce the estimated value -to -lien ratio that exists at the time the Series 2010 Bonds are issued. The imposition of such additional indebtedness could reduce the willingness and ability of the property owners within the District to pay the Special Taxes when due. See "SPECIAL RISK FACTORS — Cumulative Burden of Parity Taxes, Special Assessments." Moreover, in the event of a delinquency in the payment of Special Taxes, no assurance can be given that the proceeds of any foreclosure sale of property with delinquent Special Taxes would be sufficient to pay the delinquent Special Taxes. See "SPECIAL RISK FACTORS — Appraised Values." Estimated Value -to -Lien Ratios The values, direct and overlapping debt and total tax burden on property vary among parcels within the District. The $54,880,000` principal amount of Bonds constitutes direct debt for the property in the District. As set forth in Table 2 under "Direct and Overlapping Debt — Direct and Overlapping Debt Summary" above, as of September 3, 2010, there is approximately $29,922,666 of other outstanding public indebtedness applicable to property in the District including, without limitation the Series 2007A Bonds. Thus, the estimated direct and overlapping debt allocable to the property in the District is approximately $84,802,666.* The Minimum Market Value of the property in the District as of August 15 2010, as estimated by the Appraiser in the Appraisal, was approximately $664,900,000 (rounded), which is approximately 12.11 * times the principal amount of the Bonds and 7.84* times the sum of the principal amount of the Bonds, plus the amount of all the other outstanding public indebtedness allocable thereto, under the assumptions, and excluding certain direct and overlapping debt, described in Table 2. The foregoing value -to -lien ratios represent estimated averages for the property within the District only; the actual ratios for individual parcels of land within the District may vary significantly. No assurance can be given that any of the foregoing value -to -lien ratios will be maintained during the period of time that the Series 2010 Bonds are Outstanding. The District has no control over future property values or the amount of additional indebtedness that may be issued in the future by other public agencies, the payment of which, through the levy of a tax or an assessment, is on a Preliminary, subject to change. OHS West: 260984201.4 42081-9 MKH 22 parity with the Special Taxes. See "SPECIAL RISK FACTORS — Appraised Values" and "— Value - to -Lien Ratios." Effective Tax Rates The following two tables set forth the tax rates for fiscal year 2010-11 based on the fiscal year 2010-11 tax rates in Zone 1 and Zone 2 for residences of various square footages within the District. The estimated tax rates and amounts presented herein are based on the best available information available as of September 1, 2010. The actual amounts charged are expected to vary and may increase in future years. OHS West260984201.4 42081-9 MKH 23 R L Q V1 ti O ti Q X 0 0 O O O Q� o�000 V N M .... M 64 c k, 0 E o�a,ov M R O Q� O\r�DO�O CID 'fl G4N I MOt�NQ a�"tl Nm M N E 64 0 con _ o0 W W O'O x{000 AGO M�p000 Qn a0N7nr � N69 v r r r N cn r N elt C o A O 0 0 0 ✓fib N� 0�0 �0�0 n � d x F 'a C C O 7 0 C14 cm oMO NvNi 6N4 O — N00 00 00 r 00 M 00 00 — N M 664 6�9 �c a v O'o"T � N N 'IT M V) � 6A 69 O V l r (71 N M M M M O zt N 00 O 64 64 o 0 O O M M 00 0 0 0 O N O O O O T >, > C 7E C OO la d O W y O `°NQo°aw 4 F O (U 0 �3Cl) cl) C't: N- -1 O� Oit 3t lA dm��rxfx o N o .-• O Q d N O\ D\ 00 z z b M ON 64 164 �O N 00 O a \ O N� v v� zza,a,� yj N 64 oa00 v �oddo`oo�o �c zzNC- a 64 ^ N — 6'4 10 N 00 vi—Cddr�N O R zz�r� M N N — � oao v o d zzo�- cn M N 00 69 64 � O N 00 0— O O O M — V1 .-. O Vl r ¢ d d 64 M z z z I H IR O d O N a x F E w O M O ^ r 6N9 � O Do07en 7I� M Vl 679 679 OO\7 D O+N O N M ^I� k V 69 69 v M V r O\i&q T N- M O 10 W 00 609 O U M t- M N 7 vi o0 M M 00 N N 69 16A 0 0 O O O M O O OMrfl 00 a, �n 01 O O O O - O - — o 0 0 01. \0 N 00 _ O O O v�.-•� OOt`n� � 69 M ~ 679 �O N o0 O O O O M O t— n t, 69 69 'o N 00 O O O, O M ONO 00 N O 69 � W u u > T t ¢ c o U 0.. O [� N N v z c a¢ m a (c'w' F �` E" y U y 'a y � a m Q ti .D U U V) V) U woO�AtnA¢ oo a ov-)¢ I o o v z U A A O O y -U zz a, `wim0 E w�oAAUU� wcooa�a�oo y E E a a a U d > .� � 2 0 to N U o N o C) lu 0 N C U W O M r � 00 M o 69 69 c a � O QNi O R v CD r- rn M 00 cc o Ev N t3 69 h c i's \0 N 00 _ O O O v�.-•� OOt`n� � 69 M ~ 679 �O N o0 O O O O M O t— n t, 69 69 'o N 00 O O O, O M ONO 00 N O 69 � W u u > T t ¢ c o U 0.. O [� N N v z c a¢ m a (c'w' F �` E" y U y 'a y � a m Q ti .D U U V) V) U woO�AtnA¢ oo a ov-)¢ I o o v z U A A O O y -U zz a, `wim0 E w�oAAUU� wcooa�a�oo y E E a a a U d > .� � 2 0 to N U C) lu 0 C U W O c v U � 7 O O ¢ ON U U C N O O c a � A x R � � w •a o> cc o Ev t3 h c o e ¢ y O O y N O ry Q T 'C', 7 O y N N 0 0 o F rn iC R �tl R C1 Oa 0.l A y � 3� � o0 THE DISTRICT General The District was established in accordance with the Act and constitutes a legally constituted governmental entity separate and apart from the City. The District consists of two non-contiguous sites referred to in this Official Statement as Zone 1 and Zone 2. Zone 1 is located on the south side of Edinger Avenue, east of Red Hill Avenue. Zone 1 is commonly referred to as Columbus Square. Zone 2 is located on the west side of Harvard Avenue between Moffett Avenue to the north and Warner Avenue to the south. The Peters Canyon Flood Channel is located on the west side of Zone 2. Zone 2 is commonly referred to as Columbus Grove. The District consists of approximately 70 net acres of land, including 5.8 gross acres of property transferred by the United States Government to Moffett Meadows and annexed into Zone 1 of the District in October 2008, which are subject to the Special Tax in Zone 1 and 55.8 net acres of land which are subject to the Special Tax in Zone 2. Of the expected 1,540 residential units, as of the August 15, 2010 date of value of the Appraisal, 1,116 residential units have been completed within 12 different products and approximately 424 residential units remain to be built reflecting 4 different products. Approximately 308 of the units in the District are subject to the City's affordable housing requirements, of which 155 have been sold to homeowners and the remainder are to be part of the affordable rental program in Coventry Court. Of the 1,116 completed residential units, 1,092 have been sold to individual homeowners. See "—Property Ownership and Development." Tustin Legacy The District is a part of the further development of the 1,533 gross acre master planned community in central Orange County known as Tustin Legacy. Tustin Legacy is the City's proposed development for that portion of the former Marine Corps Air Station (MCAS) Tustin located in the City and an additional four acre parcel acquired from The Irvine Company, dba Irvine Community Development Company, LLC ("The Irvine Company"). Approximately 73 acres of the original Air Station are located in the City of Irvine and are not a part of Tustin Legacy. See "Former Marine Corps Air Station Tustin and Tustin Legacy Project." Tustin Legacy is currently planned to include 4,210 residential units, schools, parks, and numerous business and commercial uses including up to approximately 10 million square feet of non-residential square footage. Tustin Legacy is generally bounded by single-family residential and business park uses to the north, light industrial and research and development uses to the west, light industrial and commercial uses to the south, and residential uses to the east in the City of Irvine. The Tustin Legacy project area is in close proximity to the Costa Mesa/Newport (SR -55), the Santa Ana (I-5), and the San Diego (I-405) Freeways. Jamboree Road provides access to the Eastern Transportation Corridor. John Wayne Airport is located approximately three miles to the south. Summary of District Proceedings Pursuant to the Act, the City Council of the City adopted Resolution No. 06-67 on June 5, 2006 stating its intention to establish the District and to authorize the levy of special taxes within the boundaries of the District. On the same date, the City Council of the City also adopted Resolution No. 06-68 stating its intention to have the District incur bonded indebtedness in an amount not to exceed $65,000,000. OHS West260984201.4 42081-9 MKH 26 Following public hearings conducted pursuant to the provisions of the Act, the City Council of the City adopted Resolution No. 06-89 on July 17, 2006 establishing the District. The City Council of the City also adopted Resolution No. 06-90 determining the necessity to have the District incur up to $65,000,000 of bonded indebtedness. Both resolutions called for a special election to submit propositions to authorize the levy of the Special Tax and incurring of the bonded indebtedness to the qualified electors of the District. At a special election held on July 17, 2006, the owners of the property within the boundaries of the District authorized the District to incur bonded indebtedness in an amount not to exceed $65,000,000 and approved the Rate and Method to pay the principal of and interest on all bonds issued by the District. On September 6, 2007, the District issued its $53,570,000 original principal amount of its Series 2007A Bonds pursuant to the Original Indenture, payable from the Net Special Tax Revenues on a parity with the Series 2010 Bonds. An additional 5.8 gross acres of property transferred by the United States Government to Moffett Meadows was annexed into Zone 1 of the District pursuant to the provisions of the Act and the adoption by the City Council of Resolution No. 08-71 on October 7, 2008. As a result of this annexation of 5.8 gross acres of property, approximately 70 net acres in Zone 1 are subject to the Special Tax Rate and Method of Apportionment The District is legally authorized and has covenanted to cause the levy of the Special Taxes in an amount determined according to a methodology, i.e., the Rate and Method, which the City Council of the City and the qualified electors of the District have approved. The Rate and Method apportions the total amount of Special Taxes to be collected among the taxable parcels in the District as more particularly described herein. The District adopted the Rate and Method following a public hearing and an election conducted pursuant to the provisions of the Act. The full text of the Rate and Method is set forth in Appendix B hereto and capitalized terms used under this caption but not defined shall have the meanings ascribed thereto in the Rate and Method. The Rate and Method classifies all Taxable Property, i.e., all assessor's parcels in the District not exempt pursuant to law or the Rate and Method, into four categories: Developed Property, Taxable Public Property, Taxable Property Owner Association Property and Undeveloped Property. The Rate and Method further classifies the Special Taxes as Special Tax A and Special Tax B. The Special Tax A is the Special Tax levied to fund the Special Tax Requirement. The Special Tax B is the Special Tax levied to fund the provision of certain services but is not pledged to the payment of the Bonds. The Special Tax A is pledged to the payment of the Bonds and amounts levied in one Zone will support the payment of the Bonds in the other Zone. The amount of Special Taxes that the District may levy is limited by the Maximum Special Tax rates set forth in the Rate and Method. Under the Rate and Method, the Maximum Special Tax A for a parcel of Developed Property will be increased on each July 1, by an amount equal to two percent of the amount in effect for the previous fiscal year. Under the Rate and Method, each Zone has distinct classifications for Developed Property. In Zone 1, Developed Property is further classified into 17 categories (each a "Land Use Class"): (a) six categories of Single Family Detached Property (with such categories based on the square footage of residential floor area), (b) six categories of Single Family Attached Property (with such categories OHS West260984201.4 42081-9 MKH 27 based on the square footage of residential floor area), (c) one category of Senior Units, (d) three categories of Affordable Units (based on the income -level of the proposed owner) and (e) one category of Non -Residential Property. For Zone 1, the Maximum Special Tax for Developed Property for fiscal year 2010-11 for each Land Use Class for Maximum Special Tax A is shown in the Rate and Method as Table 1 (set forth in Appendix B hereto). In Zone 2, Developed Property is further classified into 13 Land Use Classes: (a) seven categories of Single Family Detached Property (with such categories based on the square footage of residential floor area), (b) three categories of Single Family Attached Property (with such categories based on the square footage of residential floor area), (c) two categories of Affordable Units (based on the income -level of the proposed owner) and (d) one category of Non -Residential Property. For Zone 2, the Maximum Special Tax for Developed Property for fiscal year 2010-11 for each Land Use Class for Maximum Special Tax A is shown in the Rate and Method as Table 2. In instances where an assessor's parcel contains more than one Land Use Class, the Maximum Special Tax on such parcel will be the sum of the Maximum Special Taxes for all Land Use Classes located on such parcel for the applicable Zone. Under the Rate and Method, the Maximum Special Tax A for Taxable Property Owner Association Property, Taxable Public Property and Undeveloped Property is $r per acre for fiscal year 2010-11, subject to increase on each July 1, by an amount equal to two percent of the amount in effect for the previous fiscal year. In accordance with the Rate and Method, The City Council of the City, acting in its capacity as the legislative body of the District, will in each fiscal year determine the Special Tax Requirement and will levy the Special Tax A until the total Special Tax Levy A equals the Special Tax Requirement. The Special Tax Requirement for Facilities is defined under the Rate and Method as the amount required in any fiscal year for the District to pay the sum of (a) debt service on all outstanding bonds or other debt issued by the District under the Act ("Outstanding Debt"), (b) periodic costs on the Outstanding Debt, including but not limited to credit enhancement and rebate payments thereon, (c) Administrative Expenses, (d) any amounts required to establish or replenish any reserve funds for all Outstanding Debt, (e) reasonably anticipated Special Tax A delinquencies based on the delinquency rate for the Special Tax A levy in the previous fiscal year, and (f) the acquisition or construction of Authorized Facilities to the extent the inclusion of such amount does not increase the Special Tax A levy on Undeveloped Property. In arriving at the Special Tax Requirement for Facilities, a credit is to be given for funds available to reduce the annual Special Tax A levy. The City Council of the City levies the Special Tax A in four steps, in the following order, until the amount of the levy equals the amount needed to be collected to satisfy the Special Tax Requirement for Facilities: First: the Special Tax A is levied Proportionately on each assessor's parcel of Developed Property at up to 100% of the applicable Maximum Special Tax A; Second: if additional moneys are needed to satisfy the Special Tax Requirement for Facilities after the first step has been completed, then the Special Tax A will be levied proportionately on each assessor's parcel of Undeveloped Property at up to 100% of the Maximum Special Tax A for Undeveloped Property; Third: if additional moneys are needed to satisfy the Special Tax Requirement for Facilities after the first and second steps have been completed, then the Special Tax A will be levied OHS West:260984201.4 42081-9 MKH 28 Proportionately on each assessor's parcel of Taxable Property Owner Association at up to 100% of the Maximum Special Tax A for Taxable Property Owner Association Property; and Fourth: if additional moneys are needed to satisfy the Special Tax Requirement for Facilities after the first, second and third steps have been completed, then the Special Tax A will be levied Proportionately on each assessor's parcel of Taxable Public Property at up to the Maximum Special Tax A for Taxable Public Property. Notwithstanding the above, under no circumstances may the Special Tax levied against any Assessor's Parcel of Residential Property for which an occupancy permit for private residential use has been issued be increased by more than 10% as a consequence of delinquency or default by the owner of any other Assessor's Parcel within the District. The amount of Special Taxes the District may levy in any year is strictly limited by the maximum rates approved by the qualified electors within the District. See APPENDIX B "RATE AND METHOD OF APPORTIONMENT OF SPECIAL TAX." For purposes of this paragraph, a parcel will be considered used for private residential purposes not later than the date on which an occupancy permit for private residential use is issued. Accordingly, the Special Tax levied against any such parcel of residential property may not be increased 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. The application of this limitation to an assessor's parcel containing one or more apartment units is unclear and remains subject to clarification by act of the legislature or the courts. The term "Proportionately" as used in the above steps means (a) as applied to. Developed Property, that the ratio of the actual Special Tax A levy to the Maximum Special Tax A is equal for all assessor's parcels of Developed Property in the District and (b) as applied to Undeveloped Property, that the ratio of actual Special Tax A levy per acre to the Maximum Special Tax A per acre is equal for all assessor's parcels of Undeveloped Property in the District. The Rate and Method also provides that the Special Tax A will be levied on each assessor's parcel for a period not to exceed forty years commencing which, as to the taxable parcels prior to annexation, commenced with fiscal year 2006-07. Under the Rate and Method, up to 31.01 acres of Property Owner Association Property and 0.13 acres of Public Property are exempt from the levy of Special Taxes in Zone 1 and up to 30.31 acres of Property Owner Association Property and 0.16 acres of Public Property are exempt from the levy of Special Taxes in Zone 2. The Special Tax A obligation applicable to a lot within the District may be prepaid and the obligation to pay any Special Tax A for such lot may be fully or partially satisfied as described in the Rate and Method. In order to obtain a building permit, a merchant builder may be required to prepay Special Tax A (the "Special Tax A Buydown") if there is a reduction in the total expected number of dwelling units or if smaller residential units than were originally anticipated in the Rate and Method are constructed within the District. Moneys from any such Special Tax A Buydown will be deposited in the Redemption Fund and applied pursuant to the Indenture. See "THE SERIES 2010 BONDS — Redemption of the Series 2010 Bonds — Mandatory Redemption from Special Tax Prepayments." As discussed herein, two for -sale projects remain to be built within Columbus Square each entailing smaller residential units than were originally anticipated in the Rate and Method. The townhome project, known as Mirabella, and the Astoria project, now known as Augusta were OHS West: 260984201.4 42081-9 MKH 29 originally planned for products with larger floor plans than those currently proposed. Each was put on hold and has been redesigned with smaller floor plans. Former Marine Corps Air Station Tustin and Tustin Legacy Project Tustin Legacy was formerly a part of the Marine Corps Air Station Tustin. The Air Station was in operation for over 50 years as a military base but was included in base closure and realignment actions taken by the United States Government in 1991, 1993 and 1995. In 1992, the City began preparing a reuse plan for the Air Station. In October 1996, the City Council of the City adopted the "MCAS Tustin Specific Plan/Reuse Plan" (the "Reuse Plan") which addressed transportation, housing, employment and recreational issues relating to the closure and subsequent reuse of the Air Station property. Such Reuse Plan was subsequently amended in September 1998. Pursuant to the Defense Base Closure and Realignment Act of 1990, the Air Station was closed on July 2, 1999. In January 2001, the City Council of the City adopted a general plan land use designation entitled "Marine Corps Air Station Tustin Specific .Plan" for Tustin Legacy. The City also prepared a Specific Plan detailing planning policies, regulations and implementation strategies to guide development within Tustin Legacy. Approximately 1,153 acres of the former Air Station were conveyed to the City pursuant to the "Agreement Between the United States of America and the City of Tustin, California for the Conveyance of a Portion of the Former Marine Corp Air Station Tustin" dated May 13, 2002 (the "Economic Development Conveyance Agreement"). In February 2003, the City Council of the City adopted the Specific Plan. The Specific Plan sets forth the zoning and entitlement framework for the development of Tustin Legacy, which includes the District. The Specific Plan conforms to and implements the Reuse Plan and the City's General Plan. Since its adoption in 2003, the Specific Plan has been amended from time to time including amendments which affect the District Since adoption of the Specific Plan, significant progress has occurred. The City and Tustin Community Redevelopment Agency (the "Agency") have been responsible for administering the conveyance, development and leasing of City—owned properties conveyed to the City by the Navy under the terms of an Economic Development Conveyance Agreement. Since 2002, a significant amount of acreage owned by the City within the Tustin Legacy Project intended for conveyance or leasing to private entities, public agencies, and non-profit institutions has been committed to uses and development consistent with the Specific Plan through conveyance agreements, disposition and development agreements, or interim lease agreements intended for eventual conveyance, as appropriated. Under the Specific Plan, significant private and institutional development has occurred within Tustin Legacy over the last several years despite the economic recession, including the following: • As of September 2010, 1,671 dwelling units have been constructed or 40% of the potential 4,210 dwelling units that would be permitted by the Specific Plan. Major housing projects completed have been all ownership tenure and include 565 homes at Tustin Field 1 and Tustin Field II, 735 homes at Columbus Square, and 381 homes at Columbus Grove. • The City has recognized that the lack of affordable housing can be a barrier to a strong economy and have required that at least twenty percent of the housing within Tustin Legacy to be sold at affordable housing prices to address the critical need for affordable housing in the region, OHS West:260984201.4 42081-9 MKH .30 This is important to the City and Orange County because only 11 % of Orange County residents can afford to buy a median -price home. To date, the Agency has facilitated 70 Very Low income, 87 Low income and 116 Moderate income households (for a total of 273 affordable households) being able to purchase for -sale Affordable Housing Units within Tustin Legacy. • Approximately one million square feet of retail space has been constructed within a regional Class A retail center identified as the "District at Tustin Legacy." • Two community college districts have completed campus improvements including the Rancho Santiago Community College Law Enforcement Training Facility and Phase 1 of the South Orange County Community College District's Advanced Technology Education Campus. • The Orange County Rescue Mission has completed a transitional homeless facility, known as the Village of Hope, that contains 192 units. • The County of Orange Social Services Department has completed The Tustin Family Campus, a facility intended to provide a supportive living environmental to meet the unmet needs of abused and neglected children and their families accommodating as many as 90 children and their parents in residence. A considerable amount of demolition has been completed and will occur in the overall redevelopment of the Tustin Legacy Project. Since adoption of the Specific Plan, significant demolition has included the removal of runways and tarmac areas, demolition of obsolete and substandard buildings and military housing, and demolition of pre-existing roadways and obsolete utility systems. Over 80% of the materials generated as a result of these demolition activities have also been recycled on-site and are being used for construction of public and private streets. In addition, significant progress has been made in both the Navy's responsibilities for investigating and remediating former military contaminants. In addition to private developments within the Specific Plan area, over $130 million dollars of infrastructure and related capital improvement projects have been completed to date. Work has been completed on the following infrastructure and roadways with all related utility systems, including storm drains, dry utilities and traffic control improvements. • Kensington Park Road • Valencia Avenue (from Red Hill Avenue to Kensington Park Road) • Landsdowne Avenue • Edinger Avenue widening — from approximately 1400 ft. east of Red Hill Avenue to Harvard Avenue • Armstrong Avenue — from Valencia Avenue to future Warner Avenue • Park Avenue — from Warner Avenue to Tustin Ranch Road • Moffett Avenue — from Harvard to the Peters Canyon Channel • Tustin Ranch Road — from Warner Avenue to Barranca Parkway OHS West:260984201.4 42081-9 MKH 31 Barranca Parkway widening — from Jamboree Road to Tustin Ranch Road Warner Avenue — from Tustin Ranch Road to Jamboree Road • Modification to the Warner Ramp at Jamboree Road and the transition area of the west leg of the Eastern Transportation Corridor Severyn's Road • A Regional Hiking and Bike Trail segment paralleling the Southern California Regional Rail Authority right-of-way in the northeast portion of the Project. Significant national and regional recognition has also been given to Tustin for its progress in dealing with the complexity of development of a former military base. • In August 2006, the City's Assistant City Manager Christine Shingleton was awarded the Community Redevelopment Leadership award of efforts in redeveloping the former MCAS - Tustin by the Association of Defense Communities, the largest organization in the country representing active and closed military facilities. • In August 20.08, the City was awarded the Base Redevelopment Community of the Year by the Association of Defense Communities, for its significant progress in redevelopment of the former MCAS -Tustin. • In February 2007, the Orange County, California Branch of the American Society of Civil Engineers, awarded the City the Land Development Project of. the Year award for its significant progress, and its unique public/private partnership approaches to development. • In May 2010, the City received the "Media Award" from the Orange County Chapter of the American Planning Association for completion of a written history, documentary video, and exhibits on the history of the former Marine Corps Air Station. Visit the City's web site . at www.tustinca.org to view The Tustin Hangars: Titans of History video. • In August 2010, the City was awarded, the Most Innovative Community Project of the Year by the Association of Defense Communities also for completion of the written history, documentary video and exhibits on the history of the former Marine Corps Air Station. In addition to the project's progress and successes to date, there is still a considerable amount of new development within the Tustin Legacy Project yet to come and a Master Plan and "Vision" for the future build out of the Tustin Legacy Project over the next twenty years. The current economic conditions have caused some delays with anticipated future development, but as conditions improve, the development of major residential and commercial projects are expected to recommence. One of the largest remaining portions of the. project, would be the development of 820 acre master planned urban activity center in center of the Project which is still anticipated, of which approximately 420 acres will be available for private residential and non-residential development. The 820 acres includes public and private park and open spaces, school uses, and local and Tustin Legacy backbone infrastructure right-of-way areas. Some of the unique planned amenities for this future development would include the development of a lineal park that will traverse the development and enhance the view of the nearby Saddleback Mountains. The parkland will include OHS West:260984201.4 42081-9 MKH 32 walkable spaces, playgrounds, sports parks, and tranquil natural areas. Plans for additional development within this portion of the Project will include 2,105 new dwelling units, 6.7 million square feet of non-residential space, and new roadways, community facilities and infrastructure. Other new development activity expected shortly include the following: • A Master Plan is in preparation for the Tustin Legacy Community Park, a 25 -acre active sports park, to be located next to the Columbus Square neighborhoods, construction funds have already been appropriated for this project. • Plans are near completion for a new fire station to be constructed at Edinger and Kensington Park Road, construction funds have already been appropriated for this project. • South Orange County Community College District will be proceeding with demolition of most of the remaining military buildings on its site and intends to proceed with a subsequent development phase shortly. • The County of Orange is moving forward with planning efforts on development of an 84 acre regional park at Tustin Legacy and has plans for development of a Sheriff's Regional Law Enforcement facility and a regional animal control facility. Delays in development are largely a result of active environmental remediation which the Navy is still undertaking on the County sites. CEQA Compliance The City (the lead agency responsible for processing and approving the master entitlement and environmental review documents for the Air Station) and the United States Government prepared a Joint Final Environmental Impact Statement and Environmental Impact Report for the Disposal and Reuse of Marine Air Corps Station Tustin ("FEIS/EIR") in accordance with the National Environmental Protection Act and the California Environmental Quality Act. The City adopted the FEIS/EIR on January 21, 2001 and certified a supplement to the FEIS/EIR in December 2004 and an addendum to the FEIS/EIR in April 2006 (as so supplemented from time to time, the "Final FEIS/EIR"). In March 2001 the United States Government issued a Record of Decision approving the FEIS/EIR and the Reuse Plan. The Final FEIS/EIR is a program environmental impact report ("program EIR") under CEQA. By statute, additional future environmental review on any public or private development activity may be necessary if (i) substantial changes are proposed in the project, (ii) substantial changes occur with respect to the circumstances under which the project is undertaken, or (iii) new information becomes available that was not known at the time the environmental impact report was certified as complete. However, the program EIR may make subsequent, extensive environmental review unnecessary. CEQA guidelines establish that where an EIR has been prepared and certified for a program consistent with the requirements established thereby, any lead agency for a later project pursuant to or consistent with such program should limit the EIR or negative declaration on the later project to effects which (i) were not examined as significant effects on the environment in the prior EIR, or (ii) are susceptible to substantial reduction or avoidance by the choice of specific revisions in the project, by the imposition of conditions or other means. The developers of property in Tustin Legacy, including the District, will be responsible for adhering to all applicable provisions of the FEIS/EIR and all requirements of CEQA that might apply to development activities by any such developer either on-site or off-site. OHS West:260984201.4 42081-9 MKH 33 In conjunction with the approval of entitlements for the District, the City conducted an initial environmental assessment and determined that no changes to the original FEIS/EIR were needed, and included applicable mitigation measures in the project entitlements for the District. Accordingly, no further CEQA action is required in connection with the development within the District. Entitlement Status The City approved the original final tract maps for the District in February 2006, with minor amendments having been subsequently approved by the City. The master developer, Moffett Meadows, has completed all commitments related to development of Columbus Square, with the exception of the final acceptance of the off-site facilities pending acceptance from the City and the on-site installation of landscape and sidewalks adjacent to the lots that have not been improved with dwelling units, that are pending final approval by the City upon completion of homes. The master developer is also pending final acceptance from the City for the off-site facilities related to the Columbus Grove community and pending final approval by the City for the on-site improvements which will occur after the remaining units are built. Final approval by the City would occur after homes are built and improvements are complete The age -restricted housing development known as Coventry Court is proposed for 240 dwelling units for persons 55 years of age and older. This development currently has one 3 -story building built with the balance of the land undeveloped. Coventry Court was originally entitled for 240 age -restricted condominium units which would consist of 153 affordable units and 87 market rate units. An application has recently been approved by the City for the age -restricted units to allow for 153 affordable rental units and 87 market rate rental units. See "THE PROJECT." Property Ownership and Development The following information regarding ownership and planned development of the District has been provided by publically available sources, the ORA Entities, Resmark, Tustin Coventry Seniors, and William Lyon Homes, or as stated in the Appraisal. The information provided under this caption has been included because it may be considered relevant to an informed evaluation and analysis of the Series 2010 Bonds and the District. No assurance can be given, however, that the proposed development of the remaining partially developed property within the District will occur, or that it will occur in a timely manner or in the configuration or to the density described herein, or that the ORA Entities, Tustin Coventry Seniors, or Moffett Meadows, or any affiliates thereof, or any other property owner described herein will or will not retain ownership of its property within the District. No representation is made by the City or the District as to the accuracy or adequacy of such information. As described under the caption, "Former Marine Corps Air Station Tustin and Tustin Legacy Project," above, the District represents a phase of residential development within Tustin Legacy consistent with the Reuse Plan. The following discussion describes the various entities involved with the development of the District, commencing with the purchase of the property which constitutes the District from the United States Government. Currently, major infrastructure improvements are complete throughout the District with the exception of sidewalks and landscaping adjacent to vacant homesites. Of 1,540 planned dwelling units, 1,092 have been completed and sold to individual homeowners and, with respect to remaining development, is under the ownership of Moffett Meadows (owner of four near finished lots), Tustin Coventry Seniors (owner of Coventry Court, consisting of 24 rental dwelling units in one building (none of which are currently rented) and near OHS West:260984201.4 42081-9 MKH 34 finished sites to be improved with an additional 216 dwelling units, for a total of 240 total rental dwelling units), with the remainder of proposed development in the District is owned by subsidiaries of ORI. With respect to the land owned by subsidiaries of ORI, title is held by three single purpose entities: ORA Astoria, ORA Mirabella and ORA Ainsley. All of the single family detached homes proposed to be built in the District have been completed and sold. The remaining development within the District and not yet completed is proposed for a mix of attached dwelling units and the age -restricted housing development known as Coventry Court. As of the August 15, 2010 date of value, 711 dwellings were complete and sold within Columbus Square, with an additional 381 dwellings complete and sold within Columbus Grove. The three projects expected to be built by William Lyon Homes are in near finished lot condition. Two projects are located within Columbus Square. There is one townhome site proposed for 60 dwelling units known as Mirabella and there are 64 4,500 -square foot lots known as Augusta. The ownership of four of the Augusta lots was retained by Moffett Meadows, as a result of timing of transfer of remaining interests to the ORA Entities, and Moffett Meadows reportedly has no time -line to sell its four near finished lots for development and reportedly has not determined who will build on the four near finished lots. The third project expected to be built by William Lyon Homes is located within Columbus Grove. This product is known as Ainsley Park and is proposed for 84 duplex or paired homes. As of the August 15, 2010 date of value, the three proposed subdivisions known as Augusta, Mirabella and Ainsley Park, had not started unit construction. Development of each tract is anticipated to be completed by William Lyon Homes. The Mirabella townhome project (60 dwelling units) was proposed for dwellings ranging in size from 2,125 to 2,685 square feet. The product has been revised and is currently proposed for three floor plans ranging from 1,661 square feet to 2,106 square feet. Trenching is scheduled to begin for the model townhomes in November 2010. Production construction is scheduled to begin in April 2011, with an expected start for sales in or about April 2011. The Appraiser has estimated costs to bring the Mirabella site from its "As Is" condition to a finished lot condition ready to start unit construction at $3,109,231 or $51,820 per proposed unit. The Augusta product was originally a part of the Astoria product which was originally planned for 102 dwellings on 4,500 square foot lots. The Astoria product ranged in size from 2,749 to 3,529 square feet. Of the 102 dwellings, 4 model homes and 34 production homes were built and sold. The project was then put on hold. The Augusta product is currently planned for 3 floor plans ranging from 2,610 square feet to 3,001 square feet. Trenching is scheduled to begin for the model homes in November 2010. Production construction is scheduled to begin in April 2011, with an expected start for sales in or about April 2011. The Appraiser has estimated costs to bring the 64 Augusta lots from its "As Is" condition to a finished lot condition ready to start unit construction at $1,542,403 or $27,707 per lot. Also remaining to be constructed is the 84 duplex (paired homes) product, known as Ainsley Park. The product ranges in size from 1,659 square feet to 2,364 square -feet, offering 4 floor plans. The builder has recently started trenching for the four model homes. A sales trailer is on-site, and the opening for pre -sales is scheduled for September 2010, with model homes expected to be open in November 2010. The Appraiser has estimated costs to bring the Ainsley Park site from its "As Is" condition to a finished lot ready to start unit construction are estimated to be $1,736,502 or $20,673 per proposed unit. OHS West260984201.4 42081-9 MKH 35 Finally, the age -restricted development known as Coventry Court is proposed for 240 dwelling units for persons 55 years of age and older. An application has recently been approved by the City to require 153 affordable rental units and allow up to 87 market rate rental units. This development currently has one 3 -story building built with the balance of the land in near finished lot condition. The development is owned by Tustin Coventry Seniors, an affiliate of Meta Housing Corporation, a developer of affordable and market -rate apartment communities in Southern California. Of the proposed 240 residential units, 24 have been completed, but are not rented. The project is scheduled to commence vertical construction of the remaining 216 unconstructed units in early 2011 with preleasing scheduled to start in Summer 2011 and occupancies scheduled to commence in the fall of 2011. As detailed in the Appraisal, major infrastructure improvements are complete throughout the District with the exception of sidewalks and landscaping adjacent to vacant homesites. The development cost to complete is estimated to be $700,041. See "Entitlement Status" above. As of August 15, 2010, the property remaining to be developed in the District was as follows: Table 5 City of Tustin Community Facilities District No. 06-1 (Tustin Legacy/Columbus Villages) Summary of Remaining Development in the District As of August 15, 2010 Site Condition Near finished lots. Near finished lots, 38 models and production homes completed and conveyed to individuals Blue -top lots; first budding containing 24 homes complete Near finished lots (1) The property owner of these lots have retained William Lyon Homes to construct, market and sell residential units upon the sites on behalf of the property owners pursuant to a series of agreements for each of the three products. ('-) 153 units have been designated for affordable housing in the Coventry Court project. The affordable units are subject to special tax, but at a lower rate than market dwelling units. As of the August 15, 2010 date of value of the Appraisal, none of the 24 completed rental dwelling units are rented. (3) The Coventry Court site was conveyed to Tustin Coventry Seniors on August 25, 2010. Source: ORA Entities, Lennar Homes. Each of ORA Mirabella, ORA Astoria, and ORA Ainsley Park entered into a separate series of development and services, construction, and marketing and sales agreements with William Lyon Homes under which William Lyon Homes has agreed to construct, market and sell the Mirabella, Augusta, and Ainsley Park products at the direction of the respective property owner. All costs associated with the development of lots and the construction of the homes will be paid by the respective ORA Entity. The respective ORA Entity retains the discretion over all decisions regarding OHS West260984201.4 42081-9 MKH 36 # of Units Remaining to be Product Name Description Completed Property Owner Zone 1 (Columbus Square): Mirabella(l) Townhomes 60 ORA Mirabella Augusta(') Detached homes 64 ORA Astoria and Moffett Meadows (4 units) Coventry Courtt3) Age -restricted 216(2) Tustin Coventry Seniors rental units Subtotal 340 Zone 2 (Columbus Grove): Ainsley Park(') Townhomes 84 ORA Ainsley Park Subtotal 84 Total 424 Site Condition Near finished lots. Near finished lots, 38 models and production homes completed and conveyed to individuals Blue -top lots; first budding containing 24 homes complete Near finished lots (1) The property owner of these lots have retained William Lyon Homes to construct, market and sell residential units upon the sites on behalf of the property owners pursuant to a series of agreements for each of the three products. ('-) 153 units have been designated for affordable housing in the Coventry Court project. The affordable units are subject to special tax, but at a lower rate than market dwelling units. As of the August 15, 2010 date of value of the Appraisal, none of the 24 completed rental dwelling units are rented. (3) The Coventry Court site was conveyed to Tustin Coventry Seniors on August 25, 2010. Source: ORA Entities, Lennar Homes. Each of ORA Mirabella, ORA Astoria, and ORA Ainsley Park entered into a separate series of development and services, construction, and marketing and sales agreements with William Lyon Homes under which William Lyon Homes has agreed to construct, market and sell the Mirabella, Augusta, and Ainsley Park products at the direction of the respective property owner. All costs associated with the development of lots and the construction of the homes will be paid by the respective ORA Entity. The respective ORA Entity retains the discretion over all decisions regarding OHS West260984201.4 42081-9 MKH 36 the type, size, and location of the residential units, as well as the timing of commencement of construction. The various agreements expire on the earlier to occur of the close of escrow on the sale of the last residential unit within a project or December 31, 2020. The ORA Entities have engaged William Lyon Homes as an independent contractor to perform these services. The respective ORA Entity may terminate the agreements at any time upon 30 days' prior written notice to William Lyon Homes, or earlier for cause, and, therefore, there can be no assurance that William Lyon Homes will construct and sell all or any part of the 208 units on the land owned by the ORA Entities. A description of Resmark, the ORA Entities, Moffett Meadows, and Tustin Coventry Seniors, together with a description of William Lyon Homes, follows. The Coventry Court site was conveyed to Tustin Coventry Seniors on August 25, 2010, after the August 15, 2010 date of value. Resmark Equity Partners, LLC is a Los Angeles based private equity firm specializing in the U.S. housing sector. Resmark and its affiliates on behalf of its institutional funds provide equity and debt financing to homebuilders and land developers in select markets throughout the United States, acquire land and homesites directly on behalf of its funds and are engaged in the acquisition and the development of, principally, multifamily communities. Resmark was founded in 1995 and maintains offices in Los Angeles and San Diego, California. Resmark's institutional investors include The California Public Employees' Retirement System ("Ca1PERS") the nation's largest public pension fund and the California State Teachers' Retirement System ("Ca1STRS"), the country's second- largest public pension fund. Resmark first became a Ca1PERS advisor in 1995, initially.managing $60 million of committed equity in Ca1PERS' acquisition and development fund (under Ca1PERS' broader housing program). Resmark became a Ca1STRS advisor in the summer of 2010 with an initial deal to manage $125 million. Resmark and ORI intend to finance development activities for the ORA Entities' projects through internal sources, and intends to use this source of funds, together with the proceeds of future home sales, to finance acquisition costs, home construction costs, carrying costs, and all other costs for the property until all of homes in this project have been sold to individual homeowners. While Resmark believes that such sources of funds will be available and sufficient to finance the development of these projects in the District, no assurance can be given that the sources of financing available to Resmark or ORI will be sufficient to complete property development and home construction as currently anticipated. With respect to internal funding, while Resmark has made such internal financing available in the past, there can be no assurance whatsoever of its willingness or ability to do so in the future. Resmark has no legal obligation of any kind to make any internal funds or proceeds of house sales available or to obtain loans. ORA Astoria, LLC. ORA Astoria, LLC, a California limited liability company (previously defined as "ORA Astoria"), was formed by ORI, the sole member of ORA Astoria. The Astoria project began development with 4 model homes and 34 production homes. As of the August 15, 2010 date of value, the 38 homes have sold to individual homeowners and the project was placed on hold. The build out of Astoria will have a name change to Augusta with revised and smaller floor plans. The project is currently completed to finished lot condition only. Additional in -tract site improvements are required for the new project of Augusta. Development fees are paid by the merchant builder prior to the issuance of a building permit. ORA Astoria is obligated to pay any remaining on-site infrastructure improvements and all general and special real estate taxes, assessments and other charges associated with the lots owned by ORA Astoria. As of the August 15, 2010 date of value, unit construction has not commenced. Trenching is scheduled to begin for the OHS West:260984201.4 42081-9 MKH 37 model homes in November 2010. Production construction is scheduled to begin in April 2011, with an expected start for sales in or about April 2011. ORA Mirabella 60, LLC. ORA Mirabella 60, LLC, a California limited liability company, was formed by ORI, the sole member of ORA Mirabella 60. The project is currently completed to finished lot condition only. Unit construction never began for Mirabella, although building permits were issued and have since expired. The floorplans have been revised and are smaller than those originally envisioned for the site. Additional in -tract site improvements are required for the Mirabella project. Development fees are paid by the merchant builder prior to the issuance of a building permit. ORA Mirabella 60 is obligated to pay any remaining on-site infrastructure improvements and all general and special real estate taxes, assessments and other charges associated with the lots owned by ORA Mirabella 60. As of the August 15, 2010 date of value, unit construction has not commenced. Trenching is scheduled to begin for the model homes in November 2010. Production construction is scheduled to begin in April 2011, with an expected start for sales in or about April 2011. ORA Ainsley Park 84, LLC. ORA Ainsley Park 84, LLC, a California limited liability company, was formed by ORI, the sole member of ORA Ainsley Park 84. The project is currently completed to finished lot condition only. Additional in -tract site improvements are required for the Ainsley project. Development fees are paid by the merchant builder prior to the issuance of .a building permit. ORA Ainsley Park 84 is obligated to pay any remaining on-site infrastructure improvements and all general and special real estate taxes, assessments and other charges associated with the lots owned by ORA Ainsley Park 84. As of the August 15; 2010 date of value, unit construction has not commenced. The builder has recently started trenching for the four model homes. A sales trailer is on-site, and the opening for pre -sales is scheduled for September 2010, with model homes expected to be open in November 2010. Coventry Court Development Plan and Financing Plan. The Coventry Court site was conveyed to Tustin Coventry Seniors, L.P. ("Tustin Coventry Seniors") on August 25, 2010. The Coventry Court project is a 240 residential unit, age -restricted residential rental project, originally designed as condominiums. Tustin Coventry Seniors is an affiliate of Meta Housing Corporation ("Meta"), a developer of affordable and market -rate apartment communities in Southern California. Over their 40 year history, Meta, its principals and affiliates have developed more than 12,000 residential units. The Coventry Court project is a 240 residential unit, age -restricted residential rental project, originally designed as condominiums. Currently, 24 of the residential units have been completed but are not rented. Tustin Coventry Seniors has obtained commitments from an institutional lender for construction and permanent financing for the project. The project is scheduled to commence vertical construction of the remaining 216 unconstructed units in early 2011 with preleasing scheduled to start in Summer 2011 and occupancies scheduled to commence in the fall of 2011. William Lyon Homes, Inc. William Lyon Homes, Inc., a California corporation (previously defined as "William Lyon Homes"), is a wholly owned subsidiary of William Lyon Homes, a Delaware corporation ("William Lyon Corporation"). William Lyon Corporation's principal executive offices are located in Newport Beach, California. William Lyon Corporation and its subsidiaries are primarily engaged in designing, constructing and selling single family detached and attached homes in California, Arizona and Nevada. Since the founding of its predecessor in 1956, William Lyon Corporation has sold over 72,000 homes. William Lyon Corporation conducts its homebuilding operations through four geographic divisions (Southern California, Northern OHS West:260984201.4 42081-9 MKH 38 California, Arizona and Nevada) including both wholly owned projects and projects being developed in joint ventures. William Lyon Corporation is a privately -held company. Moffett Meadows Partners, LLC. Moffett Meadow Partners, LLC ("Moffett Meadows"), is a single -purpose affiliate of Lennar Homes and William Lyon Homes. Moffett Meadows was formed by Lennar Homes and William Lyon Homes to acquire the property within the District from the United States Government, to secure necessary entitlement approvals from the City and the City of Irvine, to construct required infrastructure, to develop the property to a superpad condition (i.e., mass grading and installation of street improvement and utilities to access the parcels, but excluding fine grading, street improvements, utilities and landscape improvements within the parcels), and to sell parcels to, or at the direction of, Lennar Homes and William Lyon Homes. After acquiring the property comprising the District from the United States Government, Moffett Meadows sold the property (except for the four lots that it continues to own) to Lennar Homes, William Lyon Homes and other merchant builders. Moffett Meadows reportedly has no time -line to sell its four. near finished lots for development and reportedly has not determined who will build on the four near finished lots. As indicated above, the preceding description of expected development by the ORA Entities, Moffett Meadows and Tustin Coventry Seniors is based on information made available to the District by publically available sources, the ORA Entities, Resmark, Tustin Coventry Seniors, and William Lyon Homes, or as stated in the Appraisal. No representation is made as to the experience, abilities or financial resources of the ORA Entities, Resmark, Tustin Coventry Seniors, or Moffett Meadows or any other purchaser or potential purchaser of property within the District or as to the likelihood that the ORA Entities, Tustin Coventry Seniors, or Moffett Meadows, or any other purchaser or potential purchaser of property within the District will be successful in developing the purchased properties within the District. The District has not made, nor will it make, any investigation of the ORA Entities, Resmark, Moffett Meadows and Tustin Coventry Seniors or any other purchaser or potential purchaser of property within the District. See "SPECIAL RISK FACTORS — Failure to Develop. " SPECIAL RISK FACTORS The following is a discussion of certain risk factors which should be considered, in addition to other matters set forth herein, in evaluating the investment quality of the Series 2010 Bonds. This discussion does not purport to be comprehensive or definitive. The occurrence of one or more events discussed herein could adversely affect the value of the property in the District. Moreover, the occurrence of one or more of the events discussed herein could adversely affect the ability or willingness of property owners in the District to pay their Special Taxes when due. Such a failure to pay Special Taxes could result in the inability of the District to make full and punctual payments on the Series 2010 Bonds. Insufficiency of Special Taxes Under the Rate and Method, the annual amount of Special Tax to be levied on each taxable parcel in the District will be based on whether such parcel is publicly owned or otherwise exempt from Special Taxes and whether such parcel is Developed Property or Undeveloped Property. See "THE DISTRICT — Rate and Method of Apportionment." Accordingly, to the extent that Undeveloped Property does not become Developed Property, the collection of a portion of the Special Taxes will be dependent on the willingness and ability of the owners of Undeveloped OHS West260984201.4 42081-9 MKH 39 Property to pay such Special Taxes when due. See"— Failure to Develop," below, for a discussion of the risks associated with Undeveloped Property. For Developed Property, the annual amount of Special Tax to be levied is further dependent on the Land Use Class designation. See "THE DISTRICT — Rate and Method of Apportionment." The Rate and Method specifies a four -step process for determining the amount of the Special Tax A to be levied in order to equal the amount needed to be collected to satisfy the Special Tax Requirement. Basically, with respect to the Special Tax A, each category of Developed Property will be taxed up to the applicable Maximum Special Tax A rates, until the amount levied equals the Special Tax Requirement. Taxation of property owners at rates higher than presently anticipated could have an impact on the willingness and ability of the property owners to pay such Special Taxes when due. All property to be taxed is categorized as Developed Property, Taxable Public Property, Taxable Property Owner Association Property or Undeveloped Property and becomes subject to tax at the beginning of each fiscal year (July 1). See Appendix B — "Rate and Method of Apportionment of Special Tax." The Rate and Method exempts up to 31.14 acres of property classified as Property Owner Association Property and Public Property from the Special Tax in Zone 1 and up to 30.47 acres of property similarly classified from the Special Tax in Zone 2. The Act provides that if any property within the District not otherwise exempt from the Special Tax is acquired by a public entity through a negotiated transaction, or by gift or devise, the Special Taxes will continue to be levied on and. enforceable against the public entity that acquired the property. In addition, the 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 operative effect of these provisions have not been tested in the courts. If for any reason property subject to the Special Tax becomes exempt from taxation by reason of ownership by a nontaxable entity such as the federal government, or another public agency, subject to the limitation of the. maximum Special Taxes, the Special Taxes will be reallocated to the remaining properties within the District. This would result in the owners of such properties paying a greater amount of the Special Tax and could have an adverse effect on the timely payment of the Special Tax. In addition, pursuant to Section 53321 of the Act as applied to the District, under no circumstances will the special tax levied in any Fiscal Year against any parcel used for private residential purposes be increased as a consequence of delinquency or default by the owner or owners of any other parcel or parcels within the District 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. For such purposes, a parcel will be considered used for private residential purposes not later than the date on which an occupancy permit for private residential use is issued. The District contains a substantial residential component consisting of condominiums and apartments. The application of this limitation to an assessor's parcel containing one or more apartment units is unclear and remains subject to clarification by act of the legislature or the courts. The Series 2010 Bonds are Limited Obligations of the District Funds for the payment of the principal of, and interest on, the Bonds are derived from Special Taxes levied in the District. The Special Taxes collected by the District could be insufficient to pay debt service on the Bonds due to non-payment of annual Special Taxes or insufficient proceeds received from the sales of land within the District due to delinquencies. The District's obligation OHS West.260984201.4 42081-9 MKH 40 with respect to delinquent Special Taxes is limited to the institution of judicial foreclosure proceedings under the circumstances described in the Indenture. See "SECURITY FOR THE SERIES 2010 BONDS — Covenant for Superior Court Foreclosure." The Special Taxes are not Personal Obligations of the Property Owners The obligation to pay Special Taxes levied within the District does not constitute, a personal obligation of the current or subsequent owners of the property in the District. Enforcement of Special Tax payment obligations by the District is limited to judicial foreclosure in the Orange County Superior Court. See "SECURITY FOR THE SERIES 2010 BONDS — Covenant for Superior Court Foreclosure." There is no assurance that any current or subsequent owner of a parcel subject to Special Taxes will be able to pay the Special Taxes, or that such owner will choose to pay such installments even though financially able to do so. Special Tax Delinquencies The Special Taxes will be billed to properties within the District on the ad valorem property tax bills sent to owners of such properties. Such Special Tax installments will be due and payable and bear the same penalties and interest for non-payment, as do ad valorem property tax installments. Delinquencies in the payment of annual Special Tax installments typically arise as a result of the failure by the property owner to pay such Special Taxes when due. However, delinquencies in the payment of annual Special Tax installments may also occur as a result of delay by the jurisdiction responsible for tax collection in issuing new tax bills to property owners upon the transfer of property to such property owner and/or delay by the jurisdiction responsible for tax collection in allocating property taxes to individual parcels upon the recordation of a final tract map, subdivision map, master parcel map or lot line adjustment. Significant delinquencies in the payment of annual Special Tax installments, or delays in the prosecution of foreclosure proceedings to collect such Special Taxes, could result in the depletion of the Reserve Fund and default in payment of debt service on the Series 2010 Bonds. Delinquencies in the collection of the Special Taxes to date have been less than 1 % of the annual levy. See "SECURITY FOR THE SERIES 2010 BONDS — Covenant for Superior Court Foreclosure," for a discussion of the provisions that apply, and the procedures that the District is obligated to follow, under the Indenture in the event of delinquencies in the payment of Special Taxes. See "— Payments by FDIC or Other Federal Agencies" and "— Bankruptcy" below, for a discussion of the policy of the Federal Deposit Insurance Corporation regarding the payment of special taxes and limitations on the District's ability to foreclose on the lien of the Special Taxes in certain circumstances. Failure to Develop Property Land development operations are 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. It is possible that the approvals necessary to complete development of the remaining partially developed property within the District will not be obtained on a timely basis. Failure to obtain any such agency approval or satisfy any such government requirement could adversely affect land development operations. In addition, there is a risk that future governmental restrictions, including, but not limited to, governmental policies OHS West:260984201.4 42081-9 MKH 41 restricting or controlling development within the District, will be enacted, and a risk that future land use initiatives approved by the voters in the City could add more restrictions and requirements on development within the District. Moreover, there can be no assurance that the means and incentive to conduct land development operations within the District will not be adversely affected by a deterioration of the real estate market and economic conditions or future local, State and federal governmental policies relating to real estate development, the income tax treatment of real property ownership, or the national economy. See "— Risks Related to Current Market Conditions." While property owners are obligated to pay the Special Tax or risk foreclosure, affiliates and related entities are likely not obligated to the payment of the Special Tax or to advance any funds to complete the development as described herein. Investors are advised that ORI and Resmark each has no legal obligation of any kind to make any internal funds or proceeds of house sales available or to obtain loans. Undeveloped property is less valuable per acre 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. Undeveloped property also provides less security to the Owners of the Series 2010 Bonds should it be necessary for the District to foreclose on undeveloped property due to the nonpayment of the Special Taxes. The timely payment of Special Taxes levied on undeveloped property depends primarily upon the ability and willingness of landowners to pay such taxes when due. A slowdown in or cessation of the development of land within the District could reduce the ability and willingness of such owners to make Special Tax payments, and could greatly reduce the value of such property in the event it has to be foreclosed upon to collect delinquent special taxes. See "— Bankruptcy" below for a discussion of certain limitations on the ability of the District to pursue judicial foreclosure proceedings with respect to taxpayers with delinquent Special Taxes. Unconventional Mortgage Structures One factor contributing to the housing boom in southern California from 2002 through the first quarter of 2006 was the use- of adjustable rate mortgages. Adjustable rate mortgages take various forms, but commonly have low initial interest rates. As interest rates begin to rise and adjustable rates are reset and result in higher interest rates, homeowners in the District who financed the purchase of their homes with an adjustable rate mortgage can expect their monthly mortgage payments to increase. Such interest rate adjustments may affect the ability or willingness of the owners to not only meet their mortgage obligations but also pay their Special Tax installments. See "SECURITY FOR THE BONDS — Covenant for Superior Court Foreclosure." In addition, it is possible that as interest rates rise on new loans and adjustable rates are reset on existing loans, there will be a decrease in home sale prices, resulting in recent homebuyers having loan balances in excess of the value of their homes. While the majority of the homes in the District have not closed escrow and thus the availability of unconventional mortgage structures for purchasers of homes within the District has been limited, the foregoing conditions have contributed to a general softening of the housing market in Southern California. Some economists believe that community facilities districts are more vulnerable to a softening housing market because they are concentrated in a specific geographic location. Bankruptcy filings by homeowners with delinquent Special Taxes would delay the commencement and completion of foreclosure proceedings to collect delinquent Special Taxes. See "— Bankruptcy" below. OHS West:260984201.4 42081-9 MKH 42 Risks Related to Current Market Conditions The Bonds are being issued at a time of economic uncertainty and volatility. Unemployment rates have increased to approximately 9.0% for the City for May 2010 (not seasonally adjusted) as compared to 5.2% for calendar year 2008 and 8.9% for calendar year 2009 (not seasonally adjusted). Unemployment rates have increased to 9.2% for Orange County for May 2010 (not seasonally adjusted) as compared to 5.3% for calendar year 2008 and 9.0% for calendar year 2009 (not seasonally adjusted). The District cannot predict how long these conditions will last or whether to what extent they may affect the ability of homeowners to pay Special Taxes or the marketability of the Bonds. Since 2007, the Southern California housing market has weakened and a number of public home builders with significant operations in the Southern California housing market have reported in SEC filings slowing demand, significant increases in sales cancellation rates and increasing inventory build-ups (including increasing investor/speculator resale inventory). See "— Failure to Develop Properties" below. Additional information is contained in the Appraisal. See Appendix A — "Appraisal." Appraised Values The Appraisal was prepared for the purpose of estimating the Minimum Market Value of the property in the District as of August 15, 2010 on the basis of certain assumptions. See the Appraisal included in Appendix A hereto for a description of the analysis used and assumptions made by the Appraiser. No assurance can be given that the market values of property in the District set forth in the Appraisal will be maintained during the period of time the Series 2010 Bonds are Outstanding. The market values of the property in the District can be adversely affected by a variety of factors, including, but not limited to, the occurrence of one or more of the special risk events discussed herein. A decrease in the market values of property in the District may lessen the ability or willingness of the owners of such property to pay Special Taxes when due. Prospective purchasers of the Series 2010 Bonds should not assume that the land within the District could be sold for the appraised amount described herein at the present time or at a foreclosure sale for delinquent 'Special Taxes. Bankruptcy The payment of Special Taxes and the ability of the District to foreclose the lien of a delinquent Special Tax may be limited by bankruptcy, insolvency, or other laws generally affecting creditor's rights or by the laws of the State relating to judicial foreclosure. The various legal opinions to be delivered concurrently with the delivery of Series 2010 Bonds (including Bond Counsel's approving legal opinion) will be qualified, as to the enforceability of the various legal instruments, by bankruptcy, reorganization, insolvency, or other similar laws affecting the rights of creditors generally. Although bankruptcy proceedings would not cause the Special Taxes to become extinguished, the amount of any lien on property securing the payment of delinquent Special Taxes could be reduced if the value of the property were determined by the bankruptcy court to have become less than the amount of the lien, and the amount of the delinquent Special Taxes in excess of the reduced lien would then be treated as an unsecured claim by the court. Further, bankruptcy of a property owner could result in a delay in prosecuting superior court foreclosure proceedings. Such a OHS West: 260984201.4 42081-9 MKH 43 delay would increase the likelihood of a delay or default in payment of the principal of, and interest on, the Series 2010 Bonds and the possibility of delinquent tax installments not being paid in full. The prosecution of foreclosure proceedings could also be delayed for other reasons, including crowded court calendars and procedural delaying tactics. Disclosures to Future Purchasers The District has recorded a Notice of Special Tax Lien in the Office of the County Recorder of 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 homebuyer or lender will consider such obligation for Special Taxes in the purchase of a home or the lending of money secured thereby. Failure to disclose the existence of the Special Taxes or the full amount of the pro rata share of debt on the land in the District may affect the willingness and ability of future owners of land within the District to pay the Special Taxes when due. Billing of Special Taxes A special tax formula can result in a substantially heavier property tax burden being imposed upon properties within a community facilities district than elsewhere in a city or county, and this in turn can lead to problems in the collection of the special tax. In some community facilities districts the taxpayers have refused to pay the special tax and have commenced litigation challenging the special tax, the community facilities district and the bonds issued by the community facilities district. Under provisions of the Act, the Special Taxes are to be billed to the properties within the District which were entered on the Assessment Roll of the County Assessor by January I of the previous fiscal year on the regular property tax bills sent to owners of such properties. Such Special Tax installments are due and payable, and bear the same penalties and interest for non-payment, as do regular property tax installments. These Special Tax installment payments cannot be made separately from property tax payments. Therefore, the unwillingness or inability of a property owner to pay regular property tax bills as evidenced by property tax delinquencies may also indicate an unwillingness or inability to make regular property tax payments and installment payments of Special Taxes in the future. See "SECURITY FOR THE SERIES 2010 BONDS — Covenant for Superior Court Foreclosure," for a discussion of the provisions which apply, and procedures which the District is obligated to follow, in the event of delinquency in the payment of installments of Special Taxes. Natural Disasters The District, like all California communities, may be subject to unpredictable seismic activity, fires due to the vegetation and topography, or flooding in the wake of fires or in the event of unseasonable rainfall. There is significant potential for destructive ground -shaking during the occurrence of a major seismic event. In addition, land susceptible to seismic activity may be subject to liquefaction during such an event. The occurrence of earthquakes, fires or flooding in or around the District could result in substantial damage to both property and infrastructure in the District 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 when due. Soil Conditions in the District The soils in the District are characterized as poorly drained soils in alluvial fans, flood plains or basins. The soils have slight to no erosion hazard but do have moderate to severe building site OHS West260984201.4 42081-9 MKH 44 development limitations. Moderate limitations can be overcome or minimized through planning and design. Severe limitations require a major increase in construction effort, design or maintenance and require remedial measures prior to construction to prevent damage to foundations, structures and infrastructure. Such remedial measures include soil import and amendment and have been completed in connection with the grading of the property within the District. Hazardous Substances The market value of the property in the District is subject to diminution upon the future release or discovery thereon of a hazardous substance. In general, the owners and operators of a parcel may be required by law to remedy conditions 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 "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) had anything to do with creating or handling the hazardous substance. The effect therefore, should any of the parcels be affected 'by a hazardous substance, would be to reduce the marketability and value 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. The value of the property within the District, as set forth in the Appraisal 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 property. The District has not independently verified, and is not aware, that any owner (or operator) of any of the parcels within the District has such a current liability with respect to any such parcel. However, it is possible that such liabilities do currently exist and that the District is not aware of them. Further, it is possible that liabilities may arise in the future with respect to any of the land within the District resulting from the existence, currently, 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 adversely affect the value of a parcel and the willingness or ability of the owner of any parcel to pay the Special Tax installments. Payments by FDIC or Other Federal Agencies The ability of the District to collect the Special Taxes and interest and penalties specified by State law, and to foreclose the lien of delinquent Special Taxes, may be limited in certain respects with regard to properties in which the Federal Deposit Insurance Corporation (the "FDIC") or other similar federal governmental agencies has or obtains an interest. On June 4, 1991, the FDIC issued a Statement of Policy Regarding the Payment of State and Local Property Taxes (the "1991 Policy Statement"). The 1991 Policy Statement was revised and superseded by a new Policy Statement effective January 9, 1997 (the "Policy Statement"). The Policy Statement provides that real property owned by the FDIC is subject to state and local real property taxes only if those taxes are assessed according to the property's value, and that the FDIC is immune from real property taxes assessed on any basis other than property value. According to the Policy Statement, the FDIC will pay its OHS West260984201.4 42081-9 MKH 45 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 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 District, is unable to predict what effect the FDIC's application of the Policy Statement would have in the event of a delinquency on a parcel within the District in which the FDIC has an interest, although prohibiting the lien of the FDIC to be foreclosed at a judicial foreclosure sale would reduce or eliminate the persons willing to purchase a parcel at a foreclosure sale. Owners of the Series 2010 Bonds should assume that the District will be unable to foreclose on any parcel owned by the FDIC. As of [January 1, 2009], no property in the District was owned by the FDIC. The FDIC has taken a position similar to that expressed in the Policy Statement in legal proceedings brought against Orange County in United States Bankruptcy Court and in Federal District Court. The Bankruptcy Court issued a ruling in favor of the FDIC on certain of such claims. Orange County appealed that ruling, and the FDIC cross -appealed. On August 28, 2001, the Ninth Circuit Court of Appeals issued a ruling favorable to the FDIC except with respect to the payment of pre -receivership liens based upon delinquent property tax. In the case of Fannie Mae and Freddie Mac, in the event a parcel of taxable property is owned by a federal government entity or federal government sponsored entity, such as Fannie Mae or Freddie Mac, or a private deed of trust secured by a parcel of taxable property is owned by a federal government entity or federal government sponsored entity, such as Fannie Mae or Freddie Mac, the ability to foreclose on the parcel or to collect delinquent Special Taxes may be limited. Federal courts have held that, based on the supremacy clause of the United States Constitution "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, anything in the Constitution or Laws of any State to the contrary notwithstanding." In the absence of Congressional intent to the contrary, a state or local agency cannot foreclose to collect delinquent taxes or assessment in foreclosure would impair the federal government interest. This means that, unless Congress has otherwise provided, if a federal government entity owns a parcel of taxable property but does not pay OHS West:260984201.4 42081-9 MKH 46 taxes and assessments levied on the parcel (including Special Taxes), the applicable state and local governments cannot foreclose on the parcel to collect the delinquent taxes and assessments. 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. For a discussion of risk associated with taxable parcels within the District becoming owned by the federal government, federal government entities or federal government sponsored entities, see "-Insufficiency of Special Taxes." The District's remedies may also be limited in the case of delinquent Special Taxes with respect to parcels in which other federal agencies (such as the Internal Revenue Service and the Drug Enforcement Administration) have or obtain an interest. Exempt Properties Certain properties are exempt from the Special Taxes in accordance with the Rate and Method (see Appendix B — "Rate and Method of Apportionment of Special Tax"). In addition, the Act provides that properties or entities of the federal, State or local government are exempt from the Special Tax; provided, however, that property within the District acquired by a public entity through a negotiated transaction or by gift or devise, which is not otherwise exempt from the Special Tax, will continue to be subject to. the Special Tax. Property acquired by a public entity following a tax sale or foreclosure based upon failure to pay taxes may become exempt from the Special Tax. In addition, although the 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. The constitutionality and operation of these provisions of the Act have not been tested. If additional property is dedicated to the City or other public entities, this additional property might become exempt from the Special Tax. The Act further provides that no other properties or entities are exempt from the Special Tax unless the properties or entities are expressly exempted in a resolution of consideration to levy a new special tax or to alter the rate and method of apportionment of an existing special tax. Cumulative Burden of Parity Taxes, Special Assessments The Special Taxes constitute a lien against the parcels of land on which they have been levied. Such lien is on a parity with all special taxes levied by other agencies and is co -equal to and independent of the lien for general property taxes, regardless of when they are imposed upon the same property. The District does not have control over the ability of other entities to issue indebtedness secured by ad valorem taxes, special taxes or assessments payable from all or a portion of the property within the District. In addition, the owners of property within the District may, without the consent or knowledge of the District, petition other public agencies to issue public indebtedness secured by ad valorem taxes, special taxes or assessments. Any such special taxes may have a lien on such property on a parity with the lien of the Special Taxes. See "SECURITY FOR THE SERIES 2010 BONDS — Direct and Overlapping Debt." OHS West: 260984201.4 42081-9 MKH 47 Value -to -Lien Ratios The estimated value -to -lien ratios set forth herein under the caption "SECURITY FOR THE SERIES 2010 BONDS — Estimated Value -to -Lien Ratios" are based on the appraised "not less than" values of property in the District as of August 15, 2010 and the direct and overlapping debt allocable to property in the District as of September 3, 2010. No assurance can be given that such value -to - lien ratios will be maintained over time. As discussed herein, many factors which are beyond the control of the District could adversely affect the property values within the District. The District also has no control over the amount of additional indebtedness that may be issued by other public agencies, the payment of which, through the levy -of a tax or an assessment, is on a parity with the Special Taxes. See "— Cumulative Burden of Parity Taxes, Special Assessments" and "SECURITY FOR THE SERIES 2010 BONDS —Direct and Overlapping Debt." A decrease in the property values in the District or an increase in the parity liens on property in the District, or both, could result in a lowering of the value -to -lien ratios of the property in the District. Limitations on Remedies Remedies available to the Owners may be limited by a variety of factors and may be inadequate to assure the timely payment of principal of and interest on the Series 2010 Bonds or to preserve the tax-exempt status of the Series 2010 Bonds. Bond Counsel has limited its opinion as to the enforceability of the Series 2010 Bonds and of the Indenture to the extent that enforceability may be limited by bankruptcy, insolvency, reorganization, fraudulent conveyance or transfer, moratorium, or others similar laws affecting generally the enforcement of creditor's rights, by equitable principles, by the exercise of judicial discretion and by limitations on remedies against public agencies in the State of California. Additionally, the Bonds are not subject to acceleration in the event of the breach of any covenant or duty under the Indenture. The lack of availability of certain remedies or the limitation of remedies may entail risks of delay, limitation or modification of the rights of the Owners. Right to Vote on Taxes Act On November 5, 1996, the voters of the State approved Proposition 218, the so-called "Right to Vote on Taxes Act." Proposition 218 added Articles XIIIC ("Article XIIIC") and XIIID to the State Constitution, which contain a number of provisions affecting the ability of local agencies to levy and collect both existing and future taxes, assessments, fees and charges. 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 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 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 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. Accordingly, although the matter is not free from doubt, it is likely that Article XIIIC 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 Series 2010 Bonds. It may be possible, however, for voters or the District to reduce the Special Taxes in a manner which does not interfere with the timely repayment of the Series 2010 Bonds, but which does OHS West: 260984201.4 42081-9 MKH 48 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 Series 2010 Bonds. The interpretation and application of Article XHIC 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 "SPECIAL RISK FACTORS — Limitations on Remedies." Loss of Tax Exemption As discussed under the caption "CONCLUDING INFORMATION — Tax Exemption," interest on the Series 2010 Bonds could become includable in gross income for purposes of federal income taxation retroactive to the date the Series 2010 Bonds were issued, as a result of acts or omissions of the District in violation of the Code. Should such an event of taxability occur, the Series 2010 Bonds are not subject to redemption and will remain Outstanding until maturity or until redeemed under the optional redemption or mandatory redemption provisions of the Indenture. Forward Looking Statements This Official Statement contains forward-looking statements within the meaning of the Federal securities laws. Such statements are based on currently available information, expectations, estimates, assumptions, projections and general economic conditions. Such words as expects, intends, plans, believes, estimates, anticipates or variations of such words or similar expressions are intended to identify forward-looking statements and include, but are not limited to, statements under the captions "SECURITY FOR THE SERIES 2010 BONDS" and "THE DISTRICT" and in Appendix A — "Appraisal." The forward-looking statements are not guarantees of future performance. Actual results may vary materially from what is contained in a forward-looking statement. The District and the City assume no obligation to provide public updates of forward- looking statements. THE ACHIEVEMENT OF CERTAIN RESULTS OR OTHER EXPECTATIONS CONTAINED IN SUCH FORWARD-LOOKING STATEMENTS INVOLVES KNOWN AND. UNKNOWN RISKS, UNCERTAINTIES AND OTHER FACTORS WHICH MAY CAUSE ACTUAL RESULTS, PERFORMANCE OR ACHIEVEMENTS DESCRIBED TO BE MATERIALLY DIFFERENT FROM ANY FUTURE RESULTS, PERFORMANCE OR ACHIEVEMENTS EXPRESSED OR IMPLIED BY SUCH FORWARD-LOOKING STATEMENTS. WHILE THE DISTRICT HAS AGREED TO PROVIDE CERTAIN ONGOING FINANCIAL AND OPERATING DATA (SEE "CONTINUING DISCLOSURE"), THE DISTRICT DOES NOT PLAN TO ISSUE ANY UPDATES OR REVISIONS TO THOSE FORWARD- LOOKING STATEMENTS IF OR WHEN ITS EXPECTATIONS, OR EVENTS, CONDITIONS OR CIRCUMSTANCES ON WHICH SUCH STATEMENTS ARE BASED OCCUR. Limited Liquidity of the Series 2010 Bonds The District has not applied for, and does not expect to receive, a rating on the Series 2010 Bonds from any nationally recognized rating organization. This fact may limit the secondary market for, and therefore the liquidity of, the Series 2010 Bonds. OHS West:260984201.4 42081-9 M" 49 LITIGATION At the time of delivery of and payment for the Series 2010 Bonds, the District will certify that there is no action, suit, litigation, inquiry or investigation before or by any court, governmental agency, public board or body served, or to the best knowledge of the District threatened, against the District in any material respect affecting the existence of the District or the titles of its officers to their respective offices or seeking to prohibit, restrain or enjoin the sale, execution or delivery of the Series 2010 Bonds or challenging directly or indirectly the proceedings to levy the Special Taxes or issue the Series 2010 Bonds. CONTINUING DISCLOSURE The District has covenanted for the benefit of the Owners of the Series 2010 Bonds to provide certain financial information and operating data relating to the Series 2010 Bonds, the District, ownership of the property in the District which is subject to the Special Tax, the occurrence of delinquencies in payment of the Special Tax, and the status of foreclosure proceedings, if any, respecting Special Tax delinquencies (the "District Annual Report"), and to provide notices of the occurrence of certain enumerated events, if material. The financial information and operating data will be provided annually. A form of the District's undertaking is included in Appendix E — "Forms of Continuing Disclosure Agreements." Each District Annual Reports is to be provided by the District not later than March 1 of each year, commencing March 1, 2011. The District Annual Reports and any notices of the occurrence of certain enumerated events, if material will be filed by the District with the Municipal Securities Rulemaking Board's ("MSRB") Electronic Municipal Market Access (EMMA) system, or such other electronic system designated by the MSRB. These covenants have been made in order to assist the Underwriter in complying with Securities and Exchange Commission Rule 15c2 -12(b)(5) (the "Rule"). The District has never failed to comply in all material respects with any previous undertakings with regard to said Rule to provide annual reports or notices of material events. The District is a legally constituted governmental entity separate and apart from the City. However, pursuant to the Act, the City Council is the legislative body of the District. The City has never failed to comply in all material respects with any previous undertakings with regard to said Rule to provide annual reports or notices of material events. Pursuant to an agreement (each a "Developer Continuing Disclosure Agreement") with Union Bank, N.A., in its capacity as Trustee and as Dissemination Agent, each of the three ORA entities has covenanted for the benefit of the Owners of the Series 2010 Bonds to provide, semi- annually, certain limited data relating, respectively, to the development of property owned by the respective ORA Entity (each a "Developer Disclosure Report"), and to provide notices of the occurrence of certain enumerated events, if material, until such developer's obligation to so provide such information, data and notices is otherwise terminated in accordance with the provisions of the applicable Developer Continuing Disclosure Agreement. A form of each Developer Continuing Disclosure Agreement is included in Appendix E — "Forms of Continuing Disclosure Agreements. Such information is to be provided, respectively, by the ORA Entities not later than [April 1 and October] 1 of each year, commencing [April 1, 2011.] The Developer Disclosure Reports are required to be filed by each of the ORA Entities with the MSRB's Electronic Municipal Market Access (EMMA) system, or such other electronic system designated by the MSRB. These covenants have been made in order to assist the Underwriter in complying with the Rule. OHS West260984201.4 42081-9 MKH 50 The District has no obligation to enforce the production or dissemination any of the Developer Disclosure Reports. None of the ORA Entities has ever assumed an obligation under any undertakings with regard to said Rule to provide annual reports or notices of material events. CONCLUDING INFORMATION Legal Opinions The validity of the Series 2010 Bonds and certain other legal matters are subject to the approving opinion of Orrick, Herrington & Sutcliffe LLP, Bond Counsel. Orrick, Herrington & Sutcliffe LLP is acting as disclosure counsel in connection with the Series 2010 Bonds. Bond Counsel undertakes no responsibility for the accuracy, completeness or fairness of this Official Statement and Bond Counsel expresses no opinion as to the matters set forth herein. A complete copy of the proposed form of Bond Counsel opinion is contained in Appendix C hereto and will accompany the Series 2010 Bonds. Certain legal matters will be passed upon for the Underwriter by Quint & Thimmig, LLP, San Francisco, California, and for the City and the District by Woodruff, Spradlin & Smart, A Professional Corporation, Orange, California. Financial Interest Payment of the fees and expenses of Bond Counsel and Underwriter's counsel is contingent upon the issuance and delivery of the Series 2010 Bonds. From time to time, Orrick, Herrington & Sutcliffe LLP represents Stone & Youngberg LLC on matters unrelated to the Series 2010 Bonds, and, from time to time, Quint & Thimmig, LLP, San Francisco, California, represents the City and its redevelopment agency on matters unrelated to the Series 2010 Bonds. Tax Exemption In the opinion of Orrick, Herrington & Sutcliffe LLP, as bond counsel to the District ("Bond Counsel"), based upon an analysis of existing laws, regulations, rulings and court decisions, and assuming, among other matters, the accuracy of certain representations and compliance with certain covenants, interest on the Series 2010 Bonds is excluded from gross income for Federal income tax purposes under Section 103 of the Internal Revenue Code of 1986 (the "Code") and is exempt from State of California personal income taxes. In the further opinion of Bond Counsel, interest on the Series 2010 Bonds is not a specific preference item for purposes of the federal individual and corporate alternative minimum taxes, nor is it included in adjusted current earnings when calculating corporate alternative minimum taxable income. A complete copy of the proposed form of opinion of Bond Counsel is included herein as Appendix C hereto. To the extent the issue price of any maturity of the Series 2010 Bonds is less than the amount to be paid at maturity of such Series 2010 Bonds (excluding amounts stated to be interest and payable at least annually over the term of such Series 2010 Bonds), the difference constitutes "original issue discount," the accrual of which, to the extent properly allocable to each Beneficial Owner thereof, is treated as interest on the Series 2010 Bonds which is excluded from gross income for Federal income tax purposes and State of California personal income taxes. For this purpose, the issue price of a particular maturity of the Series 2010 Bonds is the first price at which a substantial amount of such maturity of the Series 2010 Bonds is sold to the public (excluding bond houses, brokers, or similar persons or organizations acting in the capacity of underwriters, placement agents or wholesalers). The original issue discount with respect to any maturity of the Series 2010 Bonds accrues daily over the term to maturity of such Series 2010 Bonds on the basis of a constant interest rate compounded OHS West:250984201.4 42081-9 MKH 51 semiannually (with straight-line interpolations between compounding dates). The accruing original issue discount is added to the adjusted basis of such Series 2010 Bonds to determine taxable gain or loss upon disposition (including sale, redemption, or payment on maturity) of such Series 2010 Bonds. Beneficial Owners of the Series 2010 Bonds should consult their own tax advisors with respect to the tax consequences of ownership of Series 2010 Bonds with original issue discount, including the treatment of Beneficial Owners who do not purchase such Series 2010 Bonds in the original offering to the public at the first price at which a substantial amount of such Series 2010 Bonds is sold to the public. Series 2010 Bonds purchased, whether at original issuance or otherwise, for an amount higher than their principal amount payable at maturity (or, in some cases, at their earlier call date) ("Premium Bonds") will be treated as having amortizable bond premium. No deduction is allowable for the amortizable bond premium in the case of bonds, like the Premium Bonds, the interest on which is excluded from gross income for federal income tax purposes. However, the amount of tax- exempt interest received, and a Beneficial Owner's basis in a Premium Bond, will be reduced by the amount of amortizable bond premium properly allocable to such Beneficial Owner. Beneficial Owners of Premium Bonds should consult their own tax advisors with respect to the proper treatment of amortizable bond premium in their particular circumstances. The Code imposes various restrictions, conditions and requirements relating to the exclusion from gross income for federal income tax purposes of interest on obligations such as the Series 2010 Bonds. The District has made certain representations and covenanted to comply with certain restrictions, conditions and requirements designed to ensure that interest on the Series 2010 Bonds will not be included in federal gross income. Inaccuracy of these representations or failure to comply with these covenants may result in interest on the Series 2010 Bonds being included in gross income for federal income tax purposes, possibly from the date of original issuance of the Series 2010 Bonds. The opinion of Bond Counsel assumes the accuracy of these representations and compliance with these covenants. Bond Counsel has not undertaken to determine (or to inform any person) whether any actions taken (or not taken) or events occurring (or not occurring), or any other matters coming to Bond Counsel's attention, after the date of issuance of the Series 2010 Bonds may adversely affect the value of, or the tax status of interest on, the Series 2010 Bonds. Accordingly, the opinion of Bond Counsel is not intended to, and may not, be relied upon in connection with any such actions, events or matters. Although Bond Counsel is of the opinion that interest on the Series 2010 Bonds is excluded from gross income for federal income tax purposes and is exempt from State of California personal income taxes, the ownership or disposition of the Series 2010 Bonds, or the accrual or receipt of interest on the Series 2010 Bonds, may otherwise affect a Beneficial Owner's federal, state or local tax liability. The nature and extent of these other tax consequences will depend upon the particular tax status of the Beneficial Owner or the Beneficial Owner's other items of income or deduction. Bond Counsel expresses no opinion regarding any such other tax consequences. Future legislative proposals, if enacted into law, clarification of the Code or court decisions may cause interest on the Series 2010 Bonds to be subject, directly or indirectly, to federal income taxation or to be subject to or exempted from state income taxation, or otherwise prevent Beneficial Owners from realizing the full current benefit of the tax status of such interest. The introduction or enactment of any such future legislative proposals, clarification of the Code or court decisions may also affect the market price for, or marketability of, the Series 2010 Bonds. Prospective purchasers of the Series 2010 Bonds should consult their own tax advisors regarding any pending or proposed OHS West:260984201.4 42081-9 MKH 52 federal or state tax legislation, regulations or litigation, as to which Bond Counsel expresses no opinion. The opinion of Bond Counsel is based on current legal authority, covers certain matters not directly addressed by such authorities, and represents Bond Counsel's judgment as to the, proper treatment of the Series 2010 Bonds for federal income tax purposes. It is not binding on the Internal Revenue Service ("IRS") or the courts. Furthermore, Bond Counsel cannot give and has not given any opinion or .assurance about the future activities of the District, or about the effect of future changes in the Code, the applicable regulations, the interpretation thereof or the enforcement thereof by the IRS. The District has covenanted, however, to comply with the requirements of the Code. Bond Counsel's engagement with respect to the Series 2010 Bonds ends with the issuance of the Series 2010 Bonds, and, unless separately engaged, Bond Counsel is not obligated to defend the District or the Beneficial Owners regarding the tax-exempt status of the Series 2010 Bonds in the event of an audit examination by the IRS. Under current procedures, parties other than the District and its appointed counsel, including the Beneficial Owners, would have little, if any, right to participate in the audit examination process. Moreover, because achieving judicial review in connection with an audit examination of tax-exempt bonds is difficult, obtaining an independent review of IRS positions with which the District legitimately disagrees, may not be practicable. Any action of the IRS, including but not limited to selection of the Series 2010 Bonds for audit, or the course or result of such audit, or an audit of bonds presenting similar tax issues may affect the market price for, or the marketability of, the Series 2010 Bonds, and may cause the District or the Beneficial Owners to incur significant expense. Underwriting The Series 2010 Bonds are being purchased by Stone & Youngberg LLC (the "Underwriter") pursuant to a Bond Purchase Agreement between the Underwriter and the District (the "Purchase Agreement"). As provided in the Purchase Agreement; the Underwriter has agreed to purchase all of the Series 2010 Bonds for an aggregate purchase price of $ , subject to certain conditions set forth therein. The purchase price reflects an underwriter's discount of $ and net original issue premium of $ . The initial offering prices stated on the cover of this Official Statement may be changed from time to time by the Underwriter. The Underwriter may offer and sell the Series 2010 Bonds to certain dealers (including dealers depositing Series 2010 Bonds into investment trusts), dealer banks, banks acting as agent and others at prices lower than said public offering prices. No Ratings The District has not made, and does not contemplate making, any application to any rating agency for the assignment of a rating to the Series 2010 Bonds. The Series 2007A Bonds are not rated. Miscellaneous The quotations from, and the summaries and explanations of the Indenture and other statutes and documents contained herein do not purport to be complete, and reference is made to such documents and statutes for the full and complete statements of their respective provisions. OHS West:260984201.4 42081-9 MKH 53 This Official Statement is submitted only in connection with the sale of the Series 2010 Bonds by the District. This Official Statement does not constitute a contract with the purchasers of the Series 2010 Bonds. Any statements made in this Official Statement involving matters of opinion or of estimates, whether or not so expressly stated, are set forth as such and not as representations of fact, and no representation is made that any of the estimates will be realized. The execution and delivery of this Official Statement have been duly authorized by the District. CITY OF TUSTIN COMMUNITY FACILITIES DISTRICT NO. 06-1 (TUSTIN LEGACY/COLUMBUS VILLAGES) Finance Director of the City of Tustin OHS West:260984201.4 42081-9 MKH 54 APPENDIX A APPRAISAL OHS West: 260984201.4 42081-9 MKH A-1 APPRAISAL REPORT CITY OF TUSTIN COMMUNITY FACILITIES DISTRICT NO. 06-1 SPECIAL TAX BONDS, SERIES 2010 A TUSTIN LEGACY/COLUMUS VILLAGES Prepared for: CITY OF TUSTIN 300 Centennial Way Tustin, CA 92780 James B. Harris, MAI Berri Cannon Harris Harris Realty Appraisal 5100 Birch Street, Suite 200 Newport Beach, CA 92660 August 2010 Harris Reaity Appraisal 5100 Birch Street, Suite 200 Newport Beach, California 92880 949-851-1227 FAX 949 - 851-2055 www.harris-appraisal.com August 19, 2010 Ms. Christine Shingleton Assistant City Manager CITY OF TUSTIN 300 Centennial Way Tustin, CA 92780 Re: Community Facilities District No. 06-1, Series 2010 A Tustin Legacy/Columbus Villages Dear Ms. Shingleton: In response to your authorization, we have prepared a self-contained appraisal report which addresses the property within the boundaries of the City of Tustin Series 2010 A Special Tax Bonds of Community Facilities District No. 06-1 (the "District" or "CFD No. 06-1"). This appraisal includes an estimate of Minimum Market Value of the completed dwellings units and land under site and unit construction within CFD No. 06-1, subject to a special tax levy. The residential land subject to special tax is under the ownerships of Moffett Meadows Partners, LLC (4 lots) and Resmark, a real estate investment company. The land owned by Resmark holds title as ORA Astoria 60, LLC, ORA Ainsley Park 84, LLC and ORA Mirabella 60, LLC. Also within the District is a site proposed for 240 rental units. Of the 240 units, one 3 -story building is complete which includes 24 units. This development is under the ownership of Tustin Coventry, LLC (Lennar Homes). As of the date of value the site and building were in escrow and scheduled to close before the end of August 2010. As of the date of value, August 15, 2010, 1,092 model homes and production homes have transferred to individual ownerships. Three proposed for -sale products remain to be built and sold. According to the specific guidelines of the California Debt and Investment Advisory Commission (CDIAC), the District is valued in bulk, representing a discounted value to each ownership as of August 15, 2010, the date of value. The aggregate of the bulk values, of the various proposed uses, represents our opinion of the Minimum Market Value of the entire property within CFD No. 06-1 subject to a special tax levy. Ms. Christine Shingleton August 19, 2010 Page Two Based on the investigation and analyses undertaken, our experience as real estate appraisers and subject to all the premises, assumptions and limiting conditions set forth in this report, the following opinion of Minimum Market Value is formed as of August 15, 2010. CFD NO. 06-1 SIX HUNDRED SIXTY-FOUR MILLION NINE HUNDRED THOUSAND DOLLARS $664,900,000 The self-contained report that follows sets forth the results of the data and analyses upon which our opinions of value are, in part, predicated. This report has been prepared for the City of Tustin for use in the sale of City of Tustin Community Facilities District No. 06-1 Series 2010 A Special Tax Bonds. The intended users of this report are City of Tustin, its underwriter, legal counsel, consultants, and potential bond investors. This appraisal has been prepared in accordance with and is subject to the requirements of The Appraisal Standards for Land Secured Financing as published by the California Debt and Investment Advisory Commission; the Uniform Standards of Professional Appraisal Practice (USPAP) of the Appraisal Foundation; and the Code of Professional Ethics and the Standards of Professional Appraisal Practice of the Appraisal Institute. We meet the requirements of the Competency Provision of the Uniform Standards of Professional Appraisal Practice. A statement of our qualifications appears in the Addenda. Respectfully submitted, Berri Cannon Harris Vice President AG009147 Q ames-B. Harris, MAI resident AG001846 FIVNI ILWFIL;� Wlvm� 77 r. A X 77 r. A SUMMARY OF FACTS AND CONCLUSIONS EFFECTIVE DATE OF August 15, 2010 APPRAISAL DATE OF REPORT August 19, 2010 BOND NAME City of Tustin Community Facilities District No. 06-1 Special Tax Bonds, Series 2010 A (Tustin Legacy Columbus Villages) (the "District" or "CFD No. 06-1") INTEREST APPRAISED Fee Simple Estate, subject to special tax and special assessment liens. OWNERSHIPS, TRACT NAMES COLUMBUS SQUARE — Zone 1 & LEGAL DESCRIPTIONS Builder: Lennar Homes Gables — 84 total dwelling units 84 built homes — 84 individual homeowners Lots 1-7, 87-102, 137-180, 249-262 & 362-364, Tract No. 16581 Medwether— 114 total dwelling units 114 built homes —114 individual homeowners Unit Nos. 1-114, Lots 315-330 & 355-361, Tract No. 16581 Camden Place — 222 total dwelling units 222 built homes — 222 individual homeowners Units Nos. 1-222, Lots 294 - 314 & 332-354, Tract No. 16581 Builder: William Lyon Homes Cambridge Lane —156 total dwelling units 156 built homes —156 individual homeowners Units 1-156, Lots 273- 292, Tract No. 16581 Verandas — 97 total dwelling units 97 built homes — 97 individual homeowners Lots 8-86, & 366-383, Tract No. 16581 Astoria — 38 total dwelling units 38 built homes — 38 individual homeowners Lots 103-136 & 212-215, Tract No. 16581 Augusta — 64 total dwelling units 60 near finished lots— ORA Astoria 60, LLC Lots 181-211, 216-241 & 246-248 Tract No. 16581 4 near finished lots — Moffett Meadows Partners, LLC Lots 242-245 Tract No. 16581 V SUMMARY OF FACTS AND CONCLUSIONS Mirabella — 60 total dwelling units 60 blue -top lots — ORA Mirabella 60, LLC Lots 266-272, Tract No. 16581 Coventry Court — 240 total rental dwelling units 24 built units in one building — Tustin Coventry, LLC 216 near finished lots — Tustin Coventry, LLC Lot 265, Tract No. 16581 COLUMBUS GROVE — ZONE 2 Builder: Lennar Homes Westbourne — 59 total dwelling units 59 built homes — 59 individual homeowners Lots 99-141 & 271-286, Tract No. 16582 Cantars — 68 total dwelling units 68 built homes — 68 individual homeowners Lots 89-98, 142-172 & 244-270, Tract No. 16582 Builder: William Lyon Homes Ciara — 67 total dwelling units 67 built homes — 67 individual homeowners Lots 1-23 & 36-79, Tract No. 16582 Clarendon —102 total dwelling units 102 built homes —102 individual homeowners Unit Nos. 1-102, Lots 238-241, Tract No. 16582 Ainsley Park — 84 total dwelling units 84 near finished lots — ORA Ainsley Park 84, LLC Unit Nos. 1-84, Lots 242 & 243 Tract No. 16582 Builder: KB Home Madison — 85 total dwelling units 85 built homes — 85 individual homeowners Lots 24-35, 80-88 & 173-236, Tract No. 16582 SITE CONDITION The District is known as the planned communities of Columbus Square and Columbus Grove, in the City of Tustin, which is a part of the Marine Corp Air Station (MCAS) Tustin Specific Plan/Reuse Plan project. The District has all common area improvements complete. In - tract improvements are required for the proposed Mirabella project. vi SUMMARY OF FACTS AND CONCLUSIONS HIGHEST AND BEST USE Continued development of the master planned communities known as Columbus Square and Columbus Grove. The District is proposed for 14 subdivisions to be improved with 1,300 attached and detached for -sale dwelling units, plus an age -restricted development known as Coventry Court, proposed for 240 rental dwelling units. VALUATION CONCLUSION Minimum Market Value CFD NO. 06-1 - $664,900,000 Value of 1,092 completed and sold dwellings: $624,000,000 Value of unimproved land proposed for 208 dwellings: $38,400,000 Value of 240 -Unit Rental Project: $2,500,000 vii TABLE OF CONTENTS Section Paqe TransmittalLetter............................................................................................................. i Aerial "' Summary of Facts and Conclusions................................................................................ iv Tableof Contents............................................................................................................. vi Introduction........................................................................................................................ 1 AreaDescription.............................................................................................................. 19 SiteAnalysis.................................................................................................................... 38 Improvement Description................................................................................................ 52 Highest and Best Use and Feasibility Analysis............................................................... 58 ValuationMethodology............................................................................................... 69 Valuation Sold Dwelling Units..................................................................................... 71 Valuation of Near Finished Sites/Lots........................................................................... 75 Valuation of Proposed 240 Unit Rental Project............................................................. 86 ValueConclusion............................................................................................................. 87 Certification................................................................................................................. .. 88 Addenda Qualifications Summary of Sold Units within the District viii HRA INTRODUCTION Purpose of the Report The purpose of this appraisal is to estimate the Minimum Market Value for the fee simple estate, subject to special tax and special assessment liens for all the taxable property within the City of Tustin Community Facilities District No. 06-1 Special Tax Bonds, Series 2010 A (referred to herein as "CFD No. 06-1" or the "District"). The purpose of this appraisal is to estimate the "As Is" Minimum Market Value of the land and improvements subject to the special tax of the District, under numerous ownerships. . The opinions set forth are subject to the assumptions and limiting conditions set forth herein and the speck appraisal guidelines as set forth by the City of Tustin. Function of the Report and Intended Use It is our understanding that this Appraisal Report is to be used for District bond financing purposes only. The subject property is described more particularly within this report. The bonds will be issued pursuant to the Mello -Roos Community Facilities Act of 1982, as amended. The maximum authorized bond indebtedness for the District is $65,000,000. Client and Intended Users of the Report This report was prepared for our client, the City of Tustin. The intended users of the report include the City of Tustin, its underwriter, legal counsel, consultants and potential bond investors. Scope of the Assignment According to specific instructions from the District and the CDIAC guidelines, the total value conclusion includes the "As Is" estimate of Minimum Market Value giving consideration to the numerous ownerships within the boundaries of CFD No. 06-1. Any lands designated for park, open space or civic uses within CFD No. 06-1 and not subject to tax or special assessment are not included in this assignment. The affordable units are subject to special tax, but at a lower rate than market dwelling units. CONSULTING REAL ESTATE APPRAISERS 1 MRA The land and site improvements are valued in their "As Is" condition as of the date of value. Based on physical inspection of the District and interview with the master developer, the District is essentially in a physically finished lot condition. In -tract paving and landscape improvements are required within the proposed Mirabella project. The proposed Augusta project, Ainsley Park project and Coventry Court are in a physically finished lot condition. Weed abatement is required on the undeveloped land. All major streets are complete throughout the District. There are 14 proposed for -sale residential projects, subject to special tax, within the District. Of the 14 proposed projects, all but three projects are developed and have sold to individual homeowners. A total of 1,300 attached and detached for -sale dwellings are proposed. Of the 1,300 dwellings, 1,092 dwellings have been built and sold. The for rent project, known as Coventry Court, includes one completed building with 24 units. None of the units are rented. Within Columbus Square, Zone 1, the Astoria detached project has built and sold 38 dwellings. The balance of the project, proposed for 64 dwellings is currently on hold. According to the builder, William Lyon Homes, the product has been revised and is known as "Augusta." Trenching is scheduled to begin for the model homes in November, 2010. Production construction is scheduled to begin in April, 2011. The Mirabella townhome project proposed for 60 dwelling units is also currently on hold. Similarly, this product line has been revised to a smaller product. Trenching for the model homes and production homes are expected to begin in November, 2010. Within Columbus Grove, Zone 2, the Ainsley Park duplex (paired homes) product has recently started trenching for the four model homes. A sales trailer is on-site, and the opening for pre -sales is scheduled for August 28, 2010. We have analyzed the subject property based upon the proposed uses and our opinion of its highest and best use. The following paragraphs summarize the process of collecting, confirming and reporting of data used in the analysis. 1. Gathered and analyzed demographic data from sources including the California Department of Finance (population data), Employment Development Department of the State of California (employment CONSULTING REAL ESTATE APPRAISERS 2 HRA data), City of Tustin (zoning information, building permit trends), City of Tustin Chamber of Commerce (local demographic trends), Hanley Wood Market Intelligence (housing sales, inventory levels, and absorption), and sales personnel of comparable projects (market trends of individual home sales). Subject property information was gathered from the developers/builders and their consultants. 2. Inspected the subject's neighborhoods and reviewed proposed product and similar products for consideration of Highest and Best Use of the proposed lots. 3. Searched for comparable merchant builder land sales within the Orange County market area. Gathered and analyzed and residential attached and detached dwelling unit sales, within the subject's primary and secondary market areas. Data was gathered from sources including, but not limited to, Comps.com, brokers, appraisers, builders active in the area and developers within the Southern California area. Where feasible, data were confirmed with both the buyer and seller. Date of Value and Report The opinions of Minimum Market Value expressed in this report are stated as of August 15, 2010. The date of the Appraisal Report is August 19, 2010. Date of Inspection The subject property was inspected on numerous occasions, with the most recent inspection on August 22, 2010. Property Rights Appraised The property rights appraised are those of the fee simple estate subject to special tax and special assessment liens of the real estate described herein. Property Identification The subject property consists of the taxable land within CFD No. 06-1, commonly known as the planned communities of Columbus Square and Columbus Grove in the City of Tustin, which is a part of the MCAS Tustin Specific Plan/Reuse Plan project. Please refer to the original CFD No. 06-1 boundary maps and the annexation boundary map, on the following pages. Columbus Square, Zone 1, is located on the south side of CONSULTING REAL ESTATE APPRAISERS 3 Edinger Avenue, east of Red Hill Avenue, within the City of Tustin. According to the MCAS Tustin Specific Plan/Reuse Plan, Columbus Square, Zone 1 is identified as Planning Areas 4 and 5. Columbus Grove, Zone 2, is located on the west side of Harvard Avenue between Moffett Avenue to the north and Warner Avenue to the south. The Peters Canyon Channel is situated to the west of the planned community of Columbus Grove. To the south of Zone 2 is the City of Irvine portion of Columbus Grove which is completed and sold to individual homeowners. According to the WAS Tustin Specific Plan/Reuse Plan, Columbus Grove, Zone 2, is identified as a portion of Planning Area 21. A report entitled "City of Tustin Community Facilities District No. 06-1 (Tustin Legacy/Columbus Villages)" (the "Community Facilities District report") prepared by the City's Special Tax Consultant David Taussig & Associates, Inc., stated that the District encompasses approximately 191.8 gross acres. Of the total acres, originally 64.2± acres were subject to special tax within Zone 1, Columbus Square. An additional 5.8 gross acres were authorized to be annexed into Zone 1 on October 7, 2008. At build -out Zone 1 is anticipated to be improved with 1,075 dwelling units, of which 86 units are within the Annexation Area. The Community Facilities District report states that Columbus Grove, Zone 2 includes approximately 55.8 acres to be subject to special tax, which are expected to be built -out with 465 dwelling units. Legal Description and Ownership As previously mentioned, the subject of this appraisal includes 1,092 individual home ownerships as of the valuation date. The Mirabella project is proposed for 60 attached dwellings and is identified as Lots 266 through 272 of Tract No. 16581. This land is under the ownership of ORA Mirabella 60, LLC. A portion of the Astoria project was built and then put on hold due to market conditions. Sixty of the remaining 64 lots proposed for the build -out of the tract, now known as the Augusta product, are under CONSULTING REAL ESTATE APPRAISERS 4 HRA the ownership of ORA Astoria 60, LLC and are identified as Lots 181-211, 216-241 and 246-248 of Tract No. 16581. Lots 242-245 are under the ownership of Moffett Meadows Partners, LLC. Ainsley Park is proposed for 84 duplex homes and is identified as Lots 242 and 243 of Tract No. 16582. This land is under the ownership of ORA Ainsley Park 84, LLC. Please refer to the Addenda of this report for a lot by lot summary of the sold dwellings and legal descriptions. Property History The appraisers have been provided with numerous purchase and sale agreements for the subject properties. Reportedly, Moffett Meadows Partners, LLC, purchased the property more than 6 years ago. We have not been provided information on this transaction. On July 29, 2005, the majority of the land within the District was sold by Moffett Meadows Partners, LLC to William Lyon Homes, Inc., MW Housing Partners III, L.P., Tustin Villas Partners, LLC, ORA Ciara, LLC, and ORA Astoria, LLC. On February 28, 2006, Lennar Homes of California, Inc. assigned to KB Home Coastal Inc. land to be developed with the Madison product pursuant to the Assignment and Assumption of Option Agreement. On February 21, 2007, reportedly all of the land under the ownership of MW Housing Partners 111, L.P., to be built by Lennar Homes, was sold to Landsource Holding Company, LLC (document no. 2007000111629). A subsequent deed was recorded to correct the legal description of the land on April 18, 2007 (Document No. 2007000250231). Three transfers of undeveloped land from William Lyon Homes, Inc. to a land investment company occurred on December 27, 2007. William Lyon Homes, Inc. transferred near finished lots proposed for 84 duplex homes to ORA Ainsley Park 84, LLC for an indicated price of $11,111,500 or $132,280 per lot. Near finished lots proposed for 60 Augusta (then Astoria) homes sold to ORA Astoria 60, LLC for an indicated price of $12,344,000 or $207,538 per lot. Land proposed for a 60 unit townhome product known as Mirabella transferred to ORA Mirabella 60, LLC for an indicated price of $4,293,500 or $71,558 per unit. CONSULTING REAL ESTATE APPRAISERS 5 HRA r— M 6 1 -1 o La Ufib- r'E � c �1 . � Nco .2 U p3' N N H C w Y 4306 c3 E 3 a o �� $ 1 c 9 M g c T 6_0 Q 'Wn V LL Z O (!) U>WQ W w-(A(3Z xZ�mQcZx 00)MM LL �F=—�JOQ OLL-O00 U. 0 O _j W � U > aU�0n< a uj Z J U) V ~ ti wj LL 0 r H w w 2 W CONSULTING REAL ESTATE APPRAISERS 11 HRA 09 M O W ci U. Z J Q � J to 0>WQ W Co < p: ca 0 0 W p 2 W �F V) L -JQ w W O m0F=VEILL 0 -'�o W UVZW 0 U (!) 0 < ZJ �F- oF- m u- 0 N r W W V) N roan y 0 4- L OL co) VLR O O U M t7 w IL C31:OQ O Qct 00 Ln 0cr tocyNto y � V Lin z .� cV M w .0 w ic N 73 CO w C O C O O .� Ui '„1 h+j :3 04L L L QOD d O w w (O (7 U) ( -H Lf) IL L Q Q r C f+ tri U lz w V C Q) V w O H d a N c7 C K C C C y w.,q Z 41 O yUJcQrl a.-% r-1 (n -04c .-1 Y a O U E a C y 0� 00M O cLRecL•rlm 7 C m y O L d M (o ,j 0 LO i.wN(Q 6 U. 4-zlFM O w O)C Co O i+ M w / +, o O fl. N O a w Q C r= O xmco) m C �/ N N W L � N N % w w N � Q aZI SNAG IgAgS �1 CONSULTING REAL ESTATE APPRAISERS 7 p H N W O O im L +-) +-J Q e 0. 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Q I "I / 0 0 00400050 00 X L I L � N N % w w N � Q aZI SNAG IgAgS �1 CONSULTING REAL ESTATE APPRAISERS 7 p H N A . a "7 > Q e 0. c Z mUp O W 9 2 O "I +1 co N o F X L I C Q 16 c I Q �: ■ • ■ ■ ■ 1 - W vI Ll u- Z p J W U > W Q 0:cn(DZ �Of Z m Z w IOWF32 LL z co:)0Q J 0LL.W00U co �}}0JU�ILL LLJ F- QULLLL.QOQ o u Z V � � �H OP r) � 41 0 ccao� L r-•1 t r) to �•�rn°atioT �- = C cD O +-+ 4- O M CD 04 C o ca r_ 0 ..o —4 E+-� NtoOU cv r cd O N to c cn g N rn m C C O N fA L o M L CD O O O L O 04- 4-J B;( WEv�H C t cC0 c O O co c0i Y N E N O F- N O -H O •p 0 y GO O = L L C) C to m i-+ O S 40 N C O C y •ri •rl L CONSULTING REAL ESTATE APPRAISERS 8 N C m ++ � N S CD CA CD O 2 O 00+- N >NNNN d O cD cD cD (D b O dN 0mcr)COcq H ro W O N ..r a � 41 0 ccao� L r-•1 t r) to �•�rn°atioT �- = C cD O +-+ 4- O M CD 04 C o ca r_ 0 ..o —4 E+-� NtoOU cv r cd O N to c cn g N rn m C C O N fA L o M L CD O O O L O 04- 4-J B;( WEv�H C t cC0 c O O co c0i Y N E N O F- N O -H O •p 0 y GO O = L L C) C to m i-+ O S 40 N C O C y •ri •rl L CONSULTING REAL ESTATE APPRAISERS 8 H vi U- T w W �~ Na o N to U c p ) 16 O U =9 0 y' G E io .i� V _J-A� 3� N T M a C a •N � w V4 CONSULTING REAL ESTATE APPRAISERS . 9 L dw°- O 0 41 4.m C to `0 21 °2 � 4) m v U . -4 b E Ol 2 W 41 a V CL Z 0 L F � 0 m O O O L (6.0 C N CL M O N eE L • 4 Y- 4 N V O C L c N y m C N c C 43 L W L O � r _^^ VJ rWn V zg O U?WQ Ozcn ��zIX zp,cow p a D C) zi f' LLJ LL 0 o4 JV�U- U O $ U LL O H Q < z Z -j P CO O� tJ~'�% vi U- T w W �~ Na o N to U c p ) 16 O U =9 0 y' G E io .i� V _J-A� 3� N T M a C a •N � w V4 CONSULTING REAL ESTATE APPRAISERS . 9 L dw°- O 0 41 4.m C to `0 21 °2 � 4) m v U . -4 b E Ol 2 W 41 a V CL Z 0 L F � 0 m O O O L (6.0 C N CL M O N eE L • 4 Y- 4 N V O C L c N y m C N c C 43 L W L O � W 4 y a c6 w 0 uJ ogZ O U > Lu U) U Z 0Z1 -D x Zcnm 0 LL. < D0zi 2LL p W o O V 00-JU O ~¢¢ UUZW uul p0Q 2 LuUU) Z 0 F - v 0 N F -- W W cA 41 N w ° CO C Q J 4 O Q J rM 3(o �co4-, wozo ev0 C c N ° v as a mom+ ��`r,;M U F d A r O N 0 m C` •O L C7 Rp L C co C t0 Ry c" O Q o c0 m •�+ w a IV Y O m O o m u .. C CL Gm1 m eC M V U ++ O O V wCrj a 0 .174 41 ID 'o 'n m r1 m r B ai�W dCMV) �4r M wMN O = O a ;- " wCC z° O C) L N T ^Q o o 0 CU N p��+�+Q M t L y NU.) L 0' 00 a W R O E�Nim M..q Q I --z CD C7 ,-J cc m a� L .. T p �ryy lam' �Q a� NN p� pp • t+j t�5 Y T Y Y T N N N N N N N N N (N d V 41 go c� chi A. ox9 �cLic'"�c»��n�o�mN atn N' N N N Y N N N N N N N N .0 c �dM M yd v o v< a v v v v v v e v a v v m N 5 t SNANgAgS CONSULTING REAL ESTATE APPRAISERS 10 0 Z LLJ 0 W J 6 ir a Jj HRA Numerous phased take -downs between the various land banks and the merchant builder entities occurred between July 2005 and April 2008. All of the land, with the exception of the land proposed for the Mirabella product, Augusta product, Ainsley Park product, and Coventry Court has been improved with attached and detached dwelling units that have closed escrow to individual homeowners. Please refer to the Addenda of this report for a summary of the 1,092 sold model and production homes as of the date of value. The sales information has been abstracted from the individual Grant Deeds as provided by North American Title Company and Fidelity National Title Company. The individual grant deeds are retained in the appraisers' work files. Definitions Market Value' The most probable price in terms of money which a property should bring in a competitive and open market under all conditions requisite to. a fair sale, the buyer and seller, each acting prudently, knowledgeably and assuming the price is not affected by undue stimulus. Implicit in this definition is the consummation of a sale as of a specified date and the passing of title from seller to buyer under conditions whereby: (a) Buyer and seller are typically motivated. (b) Both parties are well informed or well advised, and each acting in what he considers his own best interest. (c) A reasonable time is allowed for exposure in the open market. (d) Payment is made in terms of cash in U.S. dollars or in terms of financial arrangements comparable thereto. (e) The price represents the normal consideration for the property sold unaffected by special or creative financing or sales concessions granted by anyone associated with the sale. Assessed Value2 The value of a property according to the tax rolls in ad valorem taxation. May be higher or lower than market value, or based on an assessment ratio that is a percentage of market value. Part 563, subsection 563.17-1 a(b)(2), Subchapter D, Chapter V, Title 12, Code of Federal Regulations. 2 The Dictionary of Real Estate Appraisal, Third Edition, published by The Appraisal Institute, 1993, Page 22 CONSULTING REAL ESTATE APPRAISERS Fee Simple Estate 3 Absolute ownership unencumbered by any other interest or estate subject only to the four powers of government. Fee Simple Estate and Leased Fee Estate Subject to Special Tax and Special Assessment Liens Empirical evidence (and common sense) suggests that the selling prices of properties encumbered by such liens are discounted compared to properties free and clear of such liens. In new development projects, annual Mello -Roos special tax and/or special assessment payments can be substantial, and prospective buyers take this added tax burden into account when formulating their bid prices. Taxes, including special taxes, are legally distinct from assessments. Because fee simple ownership is subject to the governmental power of taxation, but not the power to levy assessments, appraisers sometimes treat special tax and assessment liens differently. The Minimum Market Value included herein, reflects the value potential home buyers would consider given the special taxes of CFD No. 06-1. Minimum Market Value It may be appropriate for projects that have built -out and occupied product to use mass appraisal techniques, utilizing conservative per dwelling unit estimates. When conforming groups of property types within the same CFD are built and have achieved a stabilized occupancy, appraisers may use a limited valuation to value a sampling of similar properties. The value conclusions reached, render an overall conservative value estimate, or Minimum Market Value for the tract. Retail Value Retail value should be estimated for all fully improved and occupied properties. Retail value is an estimate of what an end user would pay for a finished property under the conditions requisite to a fair sale. Bulk Sale Value4 Bulk sale value should be estimated for all vacant properties --both unimproved properties and improved or partially improved but unoccupied properties. Bulk sale value is derived -by discounting retail values to present value by an appropriate discount rate, through a procedure called Discounted Cash Flow Analysis. A second method is to use bulk land sales. 31bid, Page 140 4 Appraisals Standard for Land -Secured Financings, published by MAC, 1004, Page 10 CONSULTING REAL ESTATE APPRAISERS 12 HRA These are sales of numerous individual parcels sold to one buyer. Bulk sale value is defined as follows: The most probable price, in a sale of all parcels within a tract or development project, to a single purchaser or sales to multiple buyers, over a reasonable absorption period discounted to present value, as of a specified date, in cash, or terms equivalent to cash, for which the property rights should sell after reasonable exposure, in a competitive market under all conditions requisite to a fair sale, with buyer and seller each acting prudently, knowledgeably, and for self-interest, and assuming that neither is under undue stress. Mass Appraisal When a tract or project is built -out and absorbed, the appraiser may use an aggregate value estimate based upon conservative per dwelling unit estimates. It is implicit in mass appraisal that some individual value conclusions will not meet standards of reasonableness, consistency and accuracy. However, appraisers engaged in mass appraisal have a professional responsibility to ensure that, on an overall basis, the value conclusions meet attainable standards of accuracy. The appraisers have used an average conservative value, for the average size unit within each tract. By utilizing average value estimates, individual home values could be higher or lower, depending on unit size. However, on an overall basis, the value conclusions are reasonable and meet attainable standards of accuracy. Finished Sites Land that is improved so that it is ready to be used for a speck purpose. (Improvements include rough graded site, streets to the site boundary, utilities to the site boundary, and all fees required to pull building permits paid.) Blue -top Graded Parcel Graded parcel to blue -top, which includes streets cut and padded lots with utilities stubbed to the site and perimeter streets in. Mass -Graded Parcel/Superpad Parcel Mass -graded parcel with utilities stubbed to the site and perimeter streets in. 5 ibid, Page 334 CONSULTING REAL ESTATE APPRAISERS 13 HRA Contingencies, Assumptions and Limiting Conditions The analyses and opinions set forth in this report are subject to the following assumptions and limiting conditions: Standards Rule ("S.R.") 2-1(c) of the "StandaFds of Professional Appraisal Practice" of the Appraisal Institute requires the appraiser to "clearly and accurately disclose any extraordinary assumption or limiting condition that directly affects an appraisal analysis, opinion, or conclusion." In compliance with S.R. 2-1(c) and to assist the reader in interpreting the report, the following contingencies, assumptions and limiting conditions are set forth as follows: Contingencies of the Appraisal The development site cost and builder in -tract site cost information were provided by Lennar Homes and William Lyon Homes. It is a contingency of this appraisal that the costs are all the costs associated with development of the District and that they satisfy the Conditions of Map Approval and the current development plans. These costs are assumed to be correct. We have not engaged an independent cost estimator or civil engineer to examine the reasonableness of the development cost estimates. Any variance in development costs could alter our value conclusion. Assumptions and Limiting Conditions of the Appraisal No responsibility is assumed by your appraisers for matters which are legal in nature. No opinion of title is rendered, and the property is appraised as though free of all encumbrances and the title marketable. No survey of the boundaries of the property was undertaken by your appraisers. All areas and dimensions fumished to your appraisers are presumed to be correct. The date of value for which the opinion of Minimum Market Value is expressed in this report is August 15, 2010. The dollar amount of this value opinion is based on the purchasing power of the United States dollar on that date. The appraisers have been provided with five preliminary title reports for the undeveloped land within the District. For purposes of this appraisal, we are not aware of any easements, encroachments or restrictions that would adversely affect the value of the subject property. The title reports for Augusta and Mirabella did not report the lien for the City of Tustin CFD No. 06-1. Maps, plats, and exhibits included herein are for illustration only, as an aid for the reader in visualizing matters discussed within the report. They should CONSULTING REAL ESTATE APPRAISERS 14 not be considered as surveys or relied upon for any other purpose, nor should they be removed from, reproduced, or used apart from this report. Oil, gas, mineral rights and subsurface rights were not considered in making this appraisal unless otherwise stated and are not a part of the appraisal, if any exist. The appraisers have previously been provided with geotechnical reports prepared by Leighton and Associates, Inc., dated February 24, 2003, for Columbus Square and dated February 20, 2003 for Columbus Grove. The reports concluded that the proposed developments are feasible from a geotechnical standpoint provided their recommendations included in the reports are incorporated in the project plans. For purposes of this appraisal, the soil is assumed to be of adequate load bearing capacity to support all uses considered under our conclusion of highest and best use. The appraisers have been provided with several letters from various agencies regarding environmental issues on the former Marine Corps Air Station Tustin. To the best of our review, it appears that all environmental issues have been mitigated. However, the appraisers have not been provided with, nor have they reviewed, all of the documentation prepared for the District regarding environmental issues. For purposes of this appraisal, it is assumed that all environmental issues have been resolved and that the entire District is/or can be developed as currently planned. As previously discussed, all of the District has been graded to at least a near finished site condition. Of the 1,540 planned dwelling units within the District, 1,092 have been built and sold to individual homeowners. A three story building providing 24 dwelling units has been completed within the Coventry Court development. The remaining three for -sale projects are expected to start model home and production home construction within the next year. Current plans for the build -out of the Coventry Court development are to pull building permits by the end of 2010 and begin unit construction the beginning of 2011. Information contained in this report has been gathered from sources which are believed to be reliable, and, where feasible, has been verified. No responsibility is assumed for the accuracy of information supplied by others. The parcel sizes have been calculated by the engineering firm of Tait & Associates, Inc. and MDS Consulting as shown on the recorded tract maps. We have relied on their calculations in estimating acreage. Our value estimate is, in part, based on the accuracy of this information. Since earthquakes are common in the area, no responsibility is assumed for their possible impact on individual properties, unless detailed geologic reports are made available. CONSULTING REAL ESTATE APPRAISERS 15 HRA Your appraisers inspected as far as possible by observation, the land; however, it was impossible to personally inspect conditions beneath the soil. Therefore, no representations are made as to these matters unless specifically considered in the report. The appraisers assume no responsibility for economic or physical factors which may occur after the date of this appraisal. The appraisers, in rendering these opinions, assume no responsibility for subsequent changes in management, tax laws, environmental regulations, economic, or physical factors which may or may not affect said conclusions or opinions. No engineering survey, legal, or engineering analysis has been made by us of this property. It is assumed that the legal description and area computations furnished are reasonably accurate. However, it is recommended that such an analysis be made for exact verification through appropriate professionals before demising, hypothecating, purchasing or lending occurs. Unless otherwise stated in this report, the existence of hazardous substances, including without limitation asbestos, polychlorinated biphenyls, petroleum leakage, or agricultural chemicals, which may or may not be present on the property, or other environmental conditions, were not called to the attention of nor did the appraisers become aware of such during the appraisers' inspection. The appraisers have no knowledge of the existence of such materials on or in the property unless otherwise stated. The appraisers, however, are not qualified to test for such substances or conditions. The presence of such substances such as asbestos, urea formaldehyde, foam insulation, or other hazardous substances or environmental conditions may affect the value of the property. The value estimated herein is predicated on the assumption that there is no such condition on or in the property or in such proximity thereto that it would cause a loss in value. No responsibility is assumed for any such conditions, nor for any expertise or engineering knowledge required to discover them. The client is urged to retain an expert in the field of environmental impacts upon real estate if so desired. The cost and availability of financing help determine the demand for and supply of real estate and therefore affect real estate values and prices. The transaction price of one property may .differ.from that of an identical property because financing arrangements vary. Our forecasts of future events which influence the valuation process are predicated on the continuation of historic and current trends in the market. The property appraised is assumed to be in full compliance with all applicable federal, state, and local environmental regulations and laws, and CONSULTING REAL ESTATE APPRAISERS 16 HRA the property is in conformance with all applicable zoning and use ordinances/restrictions, unless otherwise stated. We shall not be required, by reason of this appraisal, to give testimony or to be in attendance in court or any governmental or other hearing with reference to the property without prior arrangements having first been made with the appraisers relative to such additional employment. In the event the appraisers are subpoenaed for a deposition, judicial, or administrative proceeding, and are ordered to produce their appraisal report and files, the appraisers will immediately notify the client. The appraisers will appear at the deposition, judicial, or administrative hearing with their appraisal report and files and will answer all questions unless the client provides the appraisers with legal counsel who then instructs them not to appear, instructs them not to produce certain documents, or instructs them not to answer certain questions. These instructions will be overridden by a court order, which the appraisers will follow if legally required to do so. It shall be the responsibility of the client to obtain a protective order. The appraisers have personally inspected the subject property; however, no opinion as to structural soundness of proposed improvements or conformity to City, County, or any other agency building code is made. No responsibility for undisclosed structural deficiencies/conditions is assumed by the appraisers. No consideration has been given in this appraisal to personal property located on the premises; only the real estate has been considered unless otherwise specified. James B. Harris is a Member of the Appraisal Institute. The Bylaws and Regulations of the Institute require each Member to control the uses and distribution of each appraisal report signed by such Member. Except as hereinafter provided, possession of this report, or a copy of it, does not carry with it the right of publication. It may not be used for any purpose by any person other than the party to whom it is addressed without the written consent of the appraiser and in any event only with properly written qualification and only in its entirety. Neither all nor any part of the contents of this report (especially any conclusions as to value, the identity of the appraisers or the firm with which they are connected, or any reference to the Appraisal Institute or the MAI designation) shall be disseminated to the public through advertising media, public relations, news media or any other public means of communication without the prior consent and approval of the undersigned. The City of Tustin, its underwriter and legal counsel may publish this report in the Preliminary and Final Official Statements provided or published for the Special Tax Bonds to be issued by CFD No. 06-1, Series 2010 A. CONSULTING REAL ESTATE APPRAISERS 17 HRA The acceptance of and/or use of this appraisal report by the client or any third party constitutes acceptance of the following conditions: The liability of Harris Realty Appraisal and the appraisers responsible for this report is limited to the client only and to the fee actually received by the appraisers. Further, there is no accountability, obligation or liability to any third party. If the appraisal report is placed in the hands of anyone other than the client for whom this report was prepared, the client shall make such party and/or parties aware of all limiting conditions and assumptions of this assignment and related discussions. Any party who uses or relies upon any information in this report, without the preparers written consent, does so at his own risk. If the client or any third party brings legal action against Harris Realty Appraisal or the signer of this report and the appraisers prevail, the party initiating such legal action shall reimburse Harris Realty Appraisal and/or the appraisers for any and all costs of any nature, including attorneys' fees, incurred in their defense. CONSULTING REAL ESTATE APPRAISERS 18 HRA AREA DESCRIPTION The following section of this report will summarize the major demographic and economic characteristics such as population, employment, income and other pertinent characteristics for the Southern California region, Orange County, City of Tustin and the subject market area. Southern California Regional Overview The Southern California region, as defined in this report, encompasses six individual counties including Los Angeles, Orange, Riverside, San Bernardino, San Diego, and Ventura Counties. The Southern California region extends from the Califomia-Mexico border on the south to the Tehachapi mountain range on the north and from the Pacific Ocean on the west to the California -Arizona border on the east. The region covers an estimated 38,242 square miles and embodies a diverse spectrum of climates, topography, and level of urban development. Please refer to the following page for a location map. Population The Southern California region has added about 8.5 million new residents since 1980 as indicated in the table shown on page 21. According to the California Department of Finance, the most recent data available indicate that as of January 2010, the regional population stood at over 21.8 million. If the region were an individual state, it would rank as one of the most populous in the nation. Since 2000, annual population gains from natural increase and immigration have ranged from a low of 81,400 persons in 2008 up to 397,400 persons in 2002. These figures represent annual gains of 0.3% to 2.0%. During the past five years, the population of the six -county Southern California region grew by 0.3% to 1.3% per annum. As of January 2010 the population of the six -county area stood at 21,889,400 persons. Looking toward the future it is estimated that the region's population will continue CONSULTING REAL ESTATE APPRAISERS 19 Regional Map 90puena Park hrt s,Feton 3 'j a Placita Parket'eitvePark CA -9 _ ^- `II E LaP Palma Avq., _ e, 91 ✓" R��h Rd .. Goiony Lrn ; . ori Park Park ' co' Ave (, ' �� Weir Cany , 39 W _Lincoln A" .Oak Pa; Anaheim 1. ,.. Olive Oak P k - m: Hill Park CO._. ,�' 5 Mealsi Af, Villa W Bal W_. B ' { I Rd_ all E 8111 Rd_ m' I_ - k_ mti �Pa m _.Cal oStantoll ! W Katella Av �' - Irvine Gollll _. Park I' z `Ave o y�c' C11hap-mai n Ave Cn ; v Sheriffs Dept > Garden - , -_r p _ c 22 Palm Mini Park o Westminst4r o �.Ra 2a, V est St San ` olsa Avg,_ is A na 1 - - --,,_ . __ Gale Park _ SIB -. to Cor net Palk City of Tustin CFD No. 06-1 Inger.Ave„Edinge�.Ave ' Zone 1 Columbus Square j W .Edinger Ave ! C A L i F R . N.:' c4. �,, <:,,, ^ Limestone Canyon 39 'i to �e'” City of Tustin CFD No. 06-1 Avs Regional Park amtrr Zone 2 Columbus Grove } I o our�tain Vsabey m o R N G E IEllis j -AL4e--- Ci,Q Hunitin n-_ r M Irvine c ul !i quare `O?fie, BEa'rh (maker :"� �,, Park 5 �' _ ICD \tel 133Ilk /�iSO ,� �. t: ,,gltA a?�o4 6osta fillwaa .. p Q*7� v - Atlanta Ave ! enUrtivJ*fst.l -Q .;. ._ _.._..tit T — Linn gh Eia `iew Park (� ark ' rr o Park o Huntington 55 y Beach State ` Ensign ��r Lake For Park Channel View 73 Mlssion- Place Park Park' >p +Sn Re 'Park V alejoo , NeWpOr! 1 Old *Spyglass ill Par's Beach SckDol_ _ = Laguna Coast R! Park V'.'� i Wilderness-�o una,�ll' Las Arenas y`' rk AP Park + o' �".`" 133 /! ' L Street Park 4- U t Inspiration Point eCrystal Gulf of Santa Catalina P a c i f i c O c e a n Cove State Z' Park so Aliso Viejo 1 Laguna Nlgillelo Laguna �- Beach Riddle Field Aliso/Wood Canyons f Nita Carmen Regional Park' Park Omi 2 4 6 Copyright ® and (P)1988-2008 Microsoft Corporation and/or its suppliers. All rights reserved. http://www.microsaft.com/streets/ Certain mapping and direction data m 2008 NAVrEQ. All rights reserved. The Data for areas of Canada includes information taken with permission from Canadian authorities, including: m Her Majesty the Queen in Right of Canada, ® Queen's Printer for Ontario. NAVrEQ and NAViEQ ON BOARD are trademarks of NAVrEQ. Q 2008 Tele Atlas North America, Inc. All rights reserved. Tele Atlas and Tele Atlas North America are trademarks of Tele Atlas, Inc. Q 2008 by Applied Geographic Systems. All rights reserved. HRA to climb as new residents seek out the Southern California area. Starting with the economic downturn from 1992 through 1996, and continuing through 2010, the population growth rate declined compared to the growth experienced in the late 1980s. Population Trends 1980-2009 r,%VP 11 1, 3VVV, f"'. V, GI IV GVVV, QII VL1 PUP YVON0 VON 1U01 1 Source: California Department of finance 5/10 The future rate of growth will depend on a number of factors that may dramatically affect the region. Some of the major factors include availability of developable land, availability of water, national economic climate, and public policy toward growth and the assimilation of a large number of new foreign immigrants. The continued growth of the population within the region, even during periods of economic slowdown, provides a positive indicator as to the desirability of the Southern California region. Employment In conjunction with the population growth, a key indicator of the region's economic vitality is the trend in employment. The most common measure of employment growth is the change in non-agricultural wage employment. The table on the next page illustrates the non-agricultural wage employment trends in Southern California. CONSULTING REAL ESTATE APPRAISERS 21 Average Annual Change Year Population Number Percent 1980' 13,359,673 -- — 1990 17,029,545 366,987 2.7% 2000 19,187,500 215,795 1.3% 2001 19,522,500 335,000 1.7% 2002 19,919,900 397,400 2.0% 2003 20,299,100 379,200 1.9% 2004 20,629,300 330,200 1.6% 2005 20,902,600 273,300 1.3% 2006 21,147,200 244,600 1.2% 2007 21,430,300 266,100 1.3% 2008 21,491,700 61,400 0.3% 2009 21,710,400 218,700 1.0% 2010 21,889,400 179,000 0.8% A. :1 A Anon A^^ __! norm -11 _iL-_..____ 1__..__. A r,%VP 11 1, 3VVV, f"'. V, GI IV GVVV, QII VL1 PUP YVON0 VON 1U01 1 Source: California Department of finance 5/10 The future rate of growth will depend on a number of factors that may dramatically affect the region. Some of the major factors include availability of developable land, availability of water, national economic climate, and public policy toward growth and the assimilation of a large number of new foreign immigrants. The continued growth of the population within the region, even during periods of economic slowdown, provides a positive indicator as to the desirability of the Southern California region. Employment In conjunction with the population growth, a key indicator of the region's economic vitality is the trend in employment. The most common measure of employment growth is the change in non-agricultural wage employment. The table on the next page illustrates the non-agricultural wage employment trends in Southern California. CONSULTING REAL ESTATE APPRAISERS 21 HRA Southern California Region Employment Trends 1983-2009' &VVV UU M 11imai Source: Employment Development Department 3/10 In the Southern California region, average annual non-agricultural employment has grown from 5,691,000 jobs in 1983, to a then peak employment of 8,015,300 in 2001. Employment declined to 8,007,500 in 2002. This decline was mostly caused by a 46,800 job decrease in Los Angeles County. Each year between 2003 and 2007, Southern California employment climbed to a new record level, 8,514,100 in 2007. This was in spite of Los Angeles County only adding an additional 139,000± net jobs in four years. In 2008, the number of jobs declined by 149,000 to 8,365,100. The job losses accelerated in 2009 to a loss of 527,800 jobs for a total of 7,837,300 jobs. This two year decline wipes out about ten years of increases. This represents a decrease of over 80,000 new jobs since 2000 in Southern California. As the economy entered into an economic recession during the latter part of 1990, employment growth slowed. The average annual gain in 1990 was approximately 192,100 jobs or 2.7%. In 1992 when the full weight of the recession was felt, area employment suffered the highest annual decline in jobs registered in the 25 years, losing nearly 204,000 jobs or a percentage decrease of 2.9%. This was followed by further employment CONSULTING REAL ESTATE APPRAISERS 22 Average Annual Change Year Employment Number Percent 1983 5,691,000 7,288,100 228,1x7 4.0%1990 -2000 7,918,200 63,000 0.9% 2001 8,015,300 97,100 1.2% 2002 8,007,500 (7,800) (0.1%) 2003 8,035,400 27,800 0.3% 2004 8,159,700 124,300 1.5% 2005 8,310,500 150,800 1.8% 2006 8,481,600 171.,100 2.1% 2007 8,514,100 32,500 0.4% 2008 8,365,100 (149,000) (1.8%) 2009 7,837,300 (527,800) (6.3%) &VVV UU M 11imai Source: Employment Development Department 3/10 In the Southern California region, average annual non-agricultural employment has grown from 5,691,000 jobs in 1983, to a then peak employment of 8,015,300 in 2001. Employment declined to 8,007,500 in 2002. This decline was mostly caused by a 46,800 job decrease in Los Angeles County. Each year between 2003 and 2007, Southern California employment climbed to a new record level, 8,514,100 in 2007. This was in spite of Los Angeles County only adding an additional 139,000± net jobs in four years. In 2008, the number of jobs declined by 149,000 to 8,365,100. The job losses accelerated in 2009 to a loss of 527,800 jobs for a total of 7,837,300 jobs. This two year decline wipes out about ten years of increases. This represents a decrease of over 80,000 new jobs since 2000 in Southern California. As the economy entered into an economic recession during the latter part of 1990, employment growth slowed. The average annual gain in 1990 was approximately 192,100 jobs or 2.7%. In 1992 when the full weight of the recession was felt, area employment suffered the highest annual decline in jobs registered in the 25 years, losing nearly 204,000 jobs or a percentage decrease of 2.9%. This was followed by further employment CONSULTING REAL ESTATE APPRAISERS 22 HRA declines of 102,600 jobs in 1993. It appears that by the middle of 1994, the economic recovery finally began to take hold in the Southern California region. The adverse employment issues experienced in the prior three years had abated. In 1998, total non- agricultural employment stood at 7.4 million, finally exceeding the prior high in 1990. As of year-end 2001, employment was over 8.0 million. Forecasts prior to September 11, 2001, indicate that job growth would continue to be positive in 2001 and increase moderately over the next one to two years. However, with the terrorist attack on the United States and the conflict with Iraq, there was a flat to slightly declining economy, during 2002 and first half of 2003, but recovery began during the second half of 2003. 2003 showed a small increase over the previous high mark in 2001. 2004 had a moderate gain over 2003. Employment gains continued to recover in 2005, 2006, and 2007 with an additional 354,400 new jobs or a 4.3% increase. 2008 showed the first major decline since 1991- 1993 with a loss of 149,000 jobs, or a 1.8% decline from 2007. During 2009, an additional 527,800 jobs were lost, or a 6.3% declined from 2008. Employment among the individual industry categories reflects some fundamental regional changes in the economy during the past decade. The level of mining activity in Southern California continues to steadily decline as reflected in the consistent decrease in mining employment. Construction employment, as of 1989, was at a high level in response to the level of construction activity that had occurred in the region during the previous five years. During the period from 1991 through 1994, ' construction employment declined in response to decreased residential and commercial construction activity. From 1994 through 2006, as the economy rebounded, residential construction increased bringing back more than the amount of construction jobs lost during the recession. Construction jobs have declined since the first quarter of 2007 as the residential market and commercial markets have weakened. Total manufacturing employment in the region has exhibited little gain from the levels .recorded in 1980. Due to the high labor, land, and capital costs in most of the Southern California region, some manufacturing firms have expanded or relocated their manufacturing operations outside of the area. CONSULTING REAL ESTATE APPRAISERS 23 HRA The Southern California economy, which historically depended heavily on aerospace and defense related employment, was dealt a double blow. First from the reduction of the space program and reduced defense spending which affected manufacturers and suppliers, and second from the closure of several military bases which has had a ripple effect throughout the local economy. Areas heavily dependent on military spending will be impacted as the units are deployed abroad. The finance, insurance, and real estate ("FIRE") employment category grew rapidly as the economy recovered from the 1981-1982 national recession. As the economy entered a new recessionary cycle, the FIRE employment sector exhibited little growth from 1991 through 1995. Over the last ten years, job growth in this sector has been significant. However, jobs declined in 2006 and continue to decline in 2007, 2008 and 2009 as real estate loan demand declined. Some of the manufacturing and aerospace jobs permanently displaced from the economy were slowly being replaced with administrative, marketing and research employment. It is reasonable to assume that similar stagnant growth in this area will be experienced during the current economy. The employment group that has contributed most to the employment growth in the region is the service sector. Since 1980, the majority of all new jobs have been created in the service category. The service sector was the leader in new job growth during the last ten years. Government employment tends to mirror the growth of the population that it services. It is expected that government employment will grow at a rate similar to the area population. The future employment growth in the Southern California. region is expected to continue but at a level moderately lower than recent years. Factors that will affect employment growth include the direction of the national economy, wage jevels, housing prices, and population trends. However, the California state budget deficit has negatively impacted both state and local government employment. CONSULTING REAL ESTATE APPRAISERS 24 HRA Oransae County Orange County consists of 34 individual cities and numerous unincorporated communities. Orange County is bounded by the Pacific Ocean to the west, Los Angeles County to the north, Riverside County to the east, and San Diego County to the south. Orange County offers a wide variety of terrain from the Pacific Ocean beaches to foothill landscapes. A strategic location and quality of life are the primary factors for Orange County's evolution from a rural, agricultural dominated economy, into a premier urbanized commercial center. Prior to 1959, the county was considered to be a bedroom community of Los Angeles County. During the 1950's and 1960's, improvements in the transportation network and economic growth in Los Angeles County gave rise to the suburbanization of Orange County. By the 1970's, the commercial and industrial development transformed Orange County into an urbanized commercial center. Today, despite the severe economic downturn of 1991-1996, the filing by the county of Orange for bankruptcy in December 1994, the 2001-2002 recession, and the current national economic crash, Orange County remains one of the most economically vibrant and diverse components of the Southern California region. Population Orange County has added over 1,200,000 new residents since 1980 as illustrated in the following table. The most recently released population data indicates that as of January 2010, the countywide population stood at 3,160,500 residents. Annual population gains from natural increase and immigration have ranged from 9,400 to 50,300 persons annually, since 2001. These gains represent annual changes of 0.3% to 1.7%. CONSULTING REAL ESTATE APPRAISERS 25 HRA Population Trends 1980-20101 ' April 1, 1980, 1990, and 2000, all other years January 1. Source: California Department of Finance, U.S. Census 5/10 The high cost of housing in Orange County compared to other areas has slowed the number of people relocating to Orange County. The current decline in the Orange County economy began in 2007 and continues today. This weakness was led by the decline in the residential real estate market. Both the sales rate and median dwelling prices have declined over 40% since the peaks of 2006. These declines are estimated to continue until late 2009 or 2010. Employment As of July 2010, Orange County had an unemployment rate of 9.8%, compared to one year ago, in July 2009, the County unemployment rate was 7.5%. The annual average rate for 2008 was 5.3%. This indicates a 23% increase in the unemployment rate in one year and a 67% increase in two years. The most common measure of employment growth is the increase in nonagricultural wage and salary employment. During the 1980's, the Orange County employment base expanded rapidly as the area became a financial and service center in the Southern California region. The following exhibit illustrates the area's unemployment compared to California as of July 2010. Labor Force Unemployment California 18,370,300 12.8% Orange County 1,619,100 9.8% CONSULTING REAL ESTATE APPRAISERS 26 Average Annual Change Year Population Number Percent 1980 1,932,921 - — 1990 2,410,668 47,775 2.5% 2000 2,846,289 43,562 1.8% 2001 2,880,200 33,911 1.2% 2002 2,930,500 50,300 1.7% 2003 2,978,800 48,300 1.6% 2004 3,017,300 38,500 1.4% 2005 3,047,000 29,700 1.0% 2006 3,072,300 25,300 0.8% 2007 3,098,100 25,800 0.8% 2008 3,107,500 9,400 0.3% 2009 3,139,000 31,500 1.0% 2010 3;160,500 21,500 0.7% ' April 1, 1980, 1990, and 2000, all other years January 1. Source: California Department of Finance, U.S. Census 5/10 The high cost of housing in Orange County compared to other areas has slowed the number of people relocating to Orange County. The current decline in the Orange County economy began in 2007 and continues today. This weakness was led by the decline in the residential real estate market. Both the sales rate and median dwelling prices have declined over 40% since the peaks of 2006. These declines are estimated to continue until late 2009 or 2010. Employment As of July 2010, Orange County had an unemployment rate of 9.8%, compared to one year ago, in July 2009, the County unemployment rate was 7.5%. The annual average rate for 2008 was 5.3%. This indicates a 23% increase in the unemployment rate in one year and a 67% increase in two years. The most common measure of employment growth is the increase in nonagricultural wage and salary employment. During the 1980's, the Orange County employment base expanded rapidly as the area became a financial and service center in the Southern California region. The following exhibit illustrates the area's unemployment compared to California as of July 2010. Labor Force Unemployment California 18,370,300 12.8% Orange County 1,619,100 9.8% CONSULTING REAL ESTATE APPRAISERS 26 HRA Job growth in 2003 increased 25,300 jobs. During 2004, the total non-farm employment was 1,456,700, an increase of 1.9% or 27,700 jobs. In 2005, the increase in job growth was reported at 2.4% or an increase of 34,300 jobs. Job growth slowed to 1.9% in 2006 or 27,900 new jobs, for a record total of 1,518,900 jobs. In 2007, job growth declined 3,400 jobs to 1,515,500, or a negative 0.2%. In 2008, there was a decline of 33,900 jobs, or a negative 2.2% job growth. The decline increased in 2009 to a job loss of 109,200 positions or a 7.4% decline to 1,371,400 jobs. The job loss over the last three years has wiped out about 10 years of job growth. Over the last 12 months, employment has increased 8,800 or 0.7% to 1,362,000 jobs. This is the first year -over -year employment gain since April 2007. However, the County lost 10,300 jobs compared to June 2010. Employment Trends 1983-20091 ' 2009 benchmark Source: Employment Development Department — 3/10 The ten largest employers in Orange County are shown below. Company/Institution No. of Employees Average Annual Change Year Employment Number Percent 1983 869,200 — — 1990 1,172,400 43,314 5.0% 2000 1,388,900 21,600 1.8% 2001 1,413,700 24,800 1.8% 2002 1,403,700 (10,000) (0.7%) 2003 1,429,000 25,300 1.8% 2004 1,456,700 27,700 1.9% 2005 1,491,000 34,300 2.4% 2006 1,518,900 27,900 1.9% 2007 1,515,500 (3,400) (0.2%) 2008 1,481,600 (33,900) (2.2%) 2009 1,371,400 (109,200) (7.4%) ' 2009 benchmark Source: Employment Development Department — 3/10 The ten largest employers in Orange County are shown below. Company/Institution No. of Employees Walt Disney Co. 19,800 University of California, Irvine (UCI) 19,279 St. Joseph Health System (St. Joseph) 10,929 Boeing Co. 8,477 Yum! Brands Inc. 7,000 Target 6,226 Supervalu 5,923 KaiserPermanente 5,598 Memorial Health Services 5,533 Bank of America 5,450 Source: Oranae Countv Business Journal — 2010 Book of Lists CONSULTING REAL ESTATE APPRAISERS 27 HRA Income The 2010 median household income in Orange County is estimated to be $76,412. These figures are significantly above the Southern California region median. The 2010 average income is estimated at $101,692. This is significantly above the region average. The higher income level is due to the higher percentage of financial, insurance, real estate, and business service employment which typically have higher wage scales. Orange County Household Income Distribution 2010 Income Range Households Percent 1/ Less than $15,000 61,271 6.13% $15,000 - $24,999 61,191 6.12% $25,000 - $34,999 71,396 7.14% $35,000 - $49,999 116,938 11.69% $50,000 - $74,999 180,854 18.09% $75,000 - $99,999 148,001 14.80% $100,000 - $149,999 183,914 18.40% $150,000 - $499,999 159,405 15.94% $500,000 or more 17.048 1.70% Total 1,000,016 100.0% Median Household Income $76,412 Average Household Income $101,692 1/ Percent of total distribution Source: Claritas 8/10 Over 50% of the County's households have annual income over $75,000. This high income level, in part, provides the financial means to support the continued demand in the residential market. Retail Sales For Orange County, taxable retail sales have increased from $8.5 billion in 1980 to an estimated $35.77 billion in 2008 (the most recent annual data available). Sales for 1999 and 2000 increased 10.4% and 10.9%, respectively, to $27.49 billion. In 2001 the sales growth moderated to 3.8% or $28.52 billion. For 2002, sales increased 4.0%, up to $29.65 billion. During 2003, taxable retail sales totaled $32.28 billion; this was an 8.9% increase. This increase continued through 2004 with retail sales at $35.44 billion, which is a 9.8% increase. In 2005 the growth moderated to 6.3%, with sales at $37.67 billion. In 2006 the CONSULTING REAL ESTATE APPRAISERS HRA growth further moderated to 3.7%, with sales at $39.07 billion. In 2007, there was an actual decline to $38.99 billion, a 0.2% decline. In 2008, the decline increased to a negative 8.3% or an.actual decline of $3.2 billion to $35.77 billion. The 2008 retail sales were at an amount that declined back to the 2004-05 levels. Although not reported yet, 2009 annual retail sales are forecast to decline 5% to 6%. Retail Sales Trends' 1985-2008 Retail stores, taxable retail sales total Source: State Board of Equalization 3/10 Real Estate The following table shows Orange County in relation to the remaining Southern California counties for median price and number of dwellings sold. Southern California Home Sales Taxable Average Annual Change Retail Sales Number Pct. Year 000's 000's Percent 1985 $13,007,407 - - 1990 $17,486,433 $ 895,805 6.9% 2000 $27,485,000 $ 999,857 5.7% 2001 $28,519,000 $1,034,000 3.8% 2002 $29,646,818 $1,127,848 4.0% 2003 $32,287,697 $2,640;879 8.9% 2004 $35,441,953 $3,163,256 9.8% 2005 $37,672,834 $2,230,881 6.3% 2006 $39,074,451 $1,401,617 3.7% 2007 $38,988,227 ($ 86,224) (0.2%) 2008 $35,768;595 ($3,219,632) (8.3%) Retail stores, taxable retail sales total Source: State Board of Equalization 3/10 Real Estate The following table shows Orange County in relation to the remaining Southern California counties for median price and number of dwellings sold. Southern California Home Sales Source: DQNews.cem 8/10 CONSULTING REAL ESTATE APPRAISERS K01 No. Sold - All Homes Median Price - All Homes July July Pct. July July Pct. Coun 2209 2010 Chg. 2009 2010 Cha. Los Angeles 8,082 6,515 -19.4% $321,000 $339,000 5.6% Orange County 3,128 2,527 -19.2% $420,000 $450,000 7.1% Riverside 4,699 3,529 -24.9% $185,000 $200,000 8.1% San Bernardino 3,549 2,556 '-28.0% $140,000 $155,000 10.7% San Diego 3,809 3,070 -19.4% $320,000 $338,000 5.6% Ventura 837 749 -10.5% $375,000 $370,000 -1.3% Southern Califomia 24,104 18,946 -21.4% $268,000 $295,000 10.1 Source: DQNews.cem 8/10 CONSULTING REAL ESTATE APPRAISERS K01 HRA During the period from 1988 through 1989, housing values appreciated at rates approaching an average of 15% per annum throughout much of Orange County and Southern California. During the period from 1990 through 1993 as the economic recession influenced all segments of potential homebuyers, the rate of house price appreciation fell dramatically with decreases of approximately 4% to 6% per annum. During 1996 home prices stabilized, and most new subdivisions experienced significant price increases from 1997 to mid -2005 with annual double digit appreciation. Over the past 48+ months sales prices have significantly decreased. In all, 2,527 homes were reported to trade hands in July 2010, which is a decrease of 19.2% from July 2009. The July decline followed sales increases in 23 of the last 24 months, which followed 33 straight months of declining sales. Sales for July are more than 41% below the 1997- 2006 year average of July home sales for Orange County. The July sales were over 4% lower than the average sales for the first half of 2010. The first half year sales for 2010 are the highest in three years. However, since the end of June 2010, and the end of the time -frame in which to close escrow on a new home and receive the $8,000 tax credit, sales have significantly declined. The number of sales during all of 2009 was over 40.0% below the annual average sales from 1988 to 2009. Over the past 12 months, the median sales price has increased 7.1%, according to DataQuick. This is a vast improvement from the 20% to 25% annual declines on a monthly basis in 2007 and 2008. The July 2010 median price of $450,000 is 30.2% below the peak price of $645,000 in June 2007. City of Tustin The City of Tustin is located in central Orange County. It was incorporated on September 2, 1927, though the City's origins date back to the 1860's. It is adjacent to the City of Santa Ana to the west, the City of Irvine to the southeast and the City of Orange to the north. The more rural unincorporated areas of Orange County are located northeast of the City limits. Tustin is accessible from the Santa Ana Freeway (1-5) and the Costa Mesa Freeway (S-55), while the Garden Grove Freeway (S-22) and the Riverside Freeway (S- 91) are within five minutes driving time. Please refer to the next page for a neighborhood map of the District. CONSULTING REAL ESTATE APPRAISERS Wo lmulylluulIlvuu Ivldp Ro X101 A sf oP� 4 Q � 16e QF �a7 2a �� S0 m� Qh 100 7� 9 Oo ol gI, X00* Tustin C'r Q� ay O1 eai ,4 ,A City of Tustin CFD No. 06-1 y4 f Zone 1 -Columbus Square e �r261� Q- - i3erry Rd * OA �107 c oy2 O� Clip Peri <an St: cca: Q `� 9e� r Tustin Marine Corps Air Station F e - City of Tustin CFD No' Zone 2 -Columbus Grove Como Q' L arc aC y 00 c r\ 2 ca ell RedhaWk `�11f o} earner Ave UJ\a Odd W `�' p a q Col Barber Marine�e '' Ca ca �e �� y7 Corps Memorial Pk A Nig Irvineh�h01PIF San $C'b�P s�0% Alton Pkwy � creed N `90n Mafxl" p Alton Athletic Park 0 m 0.2 0.4 0.6 0.8 1 Copyright © and (P) 1988-2006 Microsoft Corporation and/or its suppliers. All rights reserved. http://www.microsoft.com/streets/ Certain mapping and direction data © 2008 NAVrEQ. All rights reserved. The Data for areas of Canada includes information taken with permission from Canadian authorities, including: Q Her Majesty the Queen in Right of Canada, G Queen's Printer for Ontario. NAVTEQ and NAVrEQ ON BOARD are trademarks of NAVTEQ. © 2008 Tele Atias North America, Inc. All rights reserved. Tele Atias and Tele Atlas North America are trademarks of Tele Atlas, Inc. 0 2008 by Applied Geographic Systems. All rights reserved. HRA Tustin has shared in the rapid growth of the region, particularly during the 1960's and 1970's. Nearly all of this population growth has been the result of people moving to the newer job markets in Orange County. Tustin's population in 2010 was reported at 75,800 according to the California Department, of Finance. This is more than double the population in 1980 of 32,317. The primary cause of the population growth is home buyers attracted to the newer residential developments within the City's remaining vacant acreage. These areas have been located predominantly in the eastern portion of the City and include the community of Tustin Ranch and the reuse areas of MCAS Tustin, known as Tustin Legacy. Population As of the 2000 Census, Tustin had a population of 67,504 persons or a 33% increase over its 1990 population. The State of California has estimated the City's 2010 population at 75,773 persons for the City of Tustin, a 12.3%t increase since 2000. Income Levels The City of Tustin has an income distribution lower than the countywide distribution. The median household income for Tustin is $70,878, which is below the countywide figure. The average household income in the City is $95,344, which is lower than the countywide figure. The following data is provided by Claritas as of August 2010. City of Tustin Household Income Distribution 2010 Income Range Households Percent 1/ Less than $15,000 1,396 5.48% $15,000 - $24,999 1,422 5.59% $25,000 - $34,999 1,965 7.72% $35,000 - $49,999 3,540 13.90% $50,000 - $74,999 5,276 20.72% $75,000 - $99,999 3,732 14.66% $100,000 - $149,999 4,230 16.61% $150,000 - $499,999 3,558 13.98% $500,000 or more 340 1.34% Total 25,459 100.0%. Median Household Income $70,878 Average Household Income $95,344 CONSULTING REAL ESTATE APPRAISERS 32 HRA Retail Sales In 2008 the City generated retail sales of $1,440,485,000 or 4.0% of the County's total retail sales. The retail sales increased 20.6% from the City's 2000 level, while the County increased 30.1% during the same period. Although the annual detail sales for 2009 have not been reported, sales are forecast to decline 5%-6%. Employment The City of Tustin has a reported labor force of 42,100 persons, for August 2010. The unemployment rate for this area is 9.5%, similar to the countywide rate. The top ten employers (2008 - most current data available) in the City are shown on the following table. Name of Companies Ricoh Electronics, Inc. ADC DSL Systems Auto Nation Raj Manufacturing Inc. Cherokee International Balboa Instruments Toshiba America Medical Systems Revere SI Allegany Tustin Hospital & Medical Center BEI Duncan Electronics of Tustin 11/08 Transportation in Tustin Electronic Manufacturer Telecommunications Manufacturer Auto Dealerships in Tustin Auto Center Apparel Manufacturer Switch Mode Power Supply Manufacturer Custom Electronic Controls for Spas Distributor of Medical Equipment Sensors and Static Weighing Equipment Hospital Sensors Manufacturing Tustin has very good freeway access provided by State Highway 55 (Costa Mesa Freeway), which is contiguous with the west City limits, and Interstate 5 (Santa Ana Freeway), the major north/south freeway in California. These major freeways intersect at an interchange situated in the west portion of the City. From here, the Costa Mesa Freeway extends north to the Riverside Freeway (S-91) providing access into Riverside and San Bernardino counties and west into Los Angeles. The Costa Mesa Freeway continues southwest from Tustin to Costa Mesa and Newport Beach. The Santa Ana Freeway generally bisects the City. It extends northwest to Los Angeles and further to CONSULTING REAL ESTATE APPRAISERS 33 HRA Ventura County and central California. To the south, it provides access to San Clemente and ultimately to San Diego and the international border with Mexico. Also available is the Eastern Transportation Corridor, a toll road that runs from the Riverside Freeway near Anaheim to Tustin, merging into Jamboree Road just north of the subject. This provides access to the major employment centers of Central and Coastal Orange County. Jamboree Road is classified as an eight -lane major arterial from the SCRRA/CTA Railroad, north of Edinger Avenue, to Barranca Parkway. Jamboree Road forms the transition area for the southerly terminus of the west leg of the Eastern Transportation Corridor (ETC). There is a grade -separated interchange at Edinger Avenue, just west of Zone 2, Columbus Grove. Currently, Jamboree Road has an average daily traffic volume between 65,000 and 78,000 cars. Edinger Avenue has a volume of 23,800 cars. Edinger Avenue has been improved to Major Arterial standards. The City of Tustin acquired approximately six feet of right-of-way along the south side of Edinger Avenue, which has been widened to its ultimate width. Harvard Avenue is classified as a Primary Arterial from Edinger Avenue to Barranca Parkway. Harvard Avenue is classified as a Secondary Arterial from Edinger Avenue to the railroad right-of-way. Moffett Avenue is classified as a Local Collector Street with two travel lanes (one in each direction) and sidewalks from Harvard Avenue to the future Valencia North Loop Road. The current road terminates before the Peters Canyon Channel and will be completed in the future. Kensington Park Road is classified as a secondary arterial from Edinger Avenue to Armstrong Avenue. Armstrong Avenue is also a secondary arterial from Valencia to Warner Avenue (and will be ultimately extended to Barranca Parkway). Private streets for attached and detached residential dwellings with no parallel parking within the travel way shall have a minimum paved width of 24 feet. Private streets for attached and detached dwellings where on -street parallel parking will be limited to one side only shall have a minimum paved width of 32 feet. Private streets for attached and detached residential dwellings with on -street parallel parking permitted on both sides of the street shall have a minimum paved width of 36 feet. CONSULTING REAL ESTATE APPRAISERS 34 HRA Immediate Neighborhood Tustin Legacy/MCAS Tustin is located in Southern California near the center of Orange County, and is approximately 40 miles southeast of downtown Los Angeles. The MCAS Tustin Specific Plan/Reuse Plan project area encompasses approximately 1,606 gross acres. The majority of the Plan area, 1,533 acres, lies in the southern portion of the City of Tustin and is known as Tustin Legacy. Approximately 74 acres, consisting of former military family housing and vacant land, lies within the City of Irvine. The City of Santa Ana borders the site to the southwest. Columbus Square is located on the south side of Edinger Avenue, east of Red Hill Avenue. This site is generally surrounded by undeveloped land to the south and east. The MCAS Tustin Specific Plan encompasses an area bounded by four freeways: the Costa Mesa (SR -55), Santa Ana (1-5), Laguna (SR -133), and San Diego (1-405) Freeways. The major roadways which border the project area include Red Hill Avenue on the west, Edinger Avenue/Irvine Center Drive on the north, Harvard Avenue on the east and Barranca Parkway on the south. Jamboree Road transects the site and provides access to the Eastern Transportation Corridor. John Wayne Airport is located approximately three miles to the southwest, and a Metrolink Commuter Rail station providing daily passenger service to employment centers in Orange, Los Angeles, Riverside, and San Diego counties is located immediately to the north of the project area. Virtually an island in a highly urbanized location, the Specific Plan area is generally bounded by single-family residential uses and business park uses to the north, light industrial and research and development uses to the west, light industrial and commercial uses to the south, and residential uses to the east of Harvard Avenue in the City of Irvine. Tustin Legacy is one of the largest remaining tracts of developable land in central Orange County. Its locational advantages in terms of proximity to transportation facilities, community services, and regional commercial and cultural facilities make it a prime location for urban development. At the northwest corner of Barranca Parkway and Jamboree Road a new retail center known as "The District" has been constructed. This center is built on approximately CONSULTING REAL ESTATE APPRAISERS 35 HRA 88 acres within the MCAS Tustin Specific Plan/Reuse Plan area. The extension of Tustin Ranch Road from Walnut Avenue to Barranca Parkway borders the west side of the center. "The District" consists of 1 -million square feet of retail space. "The District' consists of three distinct areas known as The Lifestyle and Entertainment Village, Promotional Retail District and the Regional District. The Lifestyle and Entertainment Village is anchored by a AMC/Tustin 14, a 14 -screen multiplex theater along Barranca Parkway. The Promotional Retail District features specialty shops along Jamboree Road, including Best Buy, Whole Foods and T.J. Maxx. The Regional District includes big box warehouse stores along Tustin Ranch Road, including Costco, Lowes, Target, Office Depot and Petsmart. CFD No. 06-1 consists of two non-contiguous sites within the proposed development of Tustin Legacy. Zone 1, Columbus Square, is located on the south side of Edinger Avenue, east of Red Hill Avenue. This site is generally surrounded by undeveloped land to the south and east. Zone 2, Columbus Grove, is located on the west side of Harvard Avenue between Moffett Avenue to the north and Warner Avenue to the south. The Peters Canyon Channel is located on the west side of Zone 2. North of Zone 2 is the recently developed portion of Tustin Legacy by Laing Homes. To the south of Zone 2 is the community of Columbus Grove -Irvine, within the City limits of Irvine. To the west is Jamboree Road, a "super street" which is elevated above the surface level of the subject. West of Jamboree Road is the remainder of the future Tustin Legacy project to Red Hill Avenue. Conclusions of Area Analysis The strength of the economy for Orange County is evident in the relatively stable employment and, correspondingly, population of the County. While the employment and population figures have shown continued gFowth, local unemployment has consistently been below the national and state averages. The rebound from the past recession has shown significant gain in population and employment numbers. Most economists predict a continuation of expansion once this current recession is over. CONSULTING REAL ESTATE APPRAISERS 36 Imo. The stock market peaked in September 2007, with a Dow Jones Industrial (DJI) average index of over 14,000. As of early March 2009, the average stood at about 6,550, a decline of about 53% in 18 months. As of mid August, 2010, it had gained back to about 10,200, a gain of about 55%, but still 27% below the peak. A significant portion of the drop occurred between September 30, 2008, and October 27, 2008 when the DJI declined 2,675 points or almost 25%. As this crash occurred, financial and credit markets throughout the world also crashed. Commercial and real estate loans and commercial lines of credit are extremely difficult to obtain at the present time, which has negatively impacted all segments of the local, regional, national and world economy. This includes real estate where the ability to obtain financing for home purchases to the ability to obtain construction financing has been severely restricted. At this time, it appears that the housing market may have hit bottom and prices appear to be stabilizing in Orange County. Until July, sales volumes had been rising over the past year. The median price of an existing Orange County home declined by nearly $3,500 in July from June, 2010. Sales volumes declined almost 15% from the previous month according to the California Association of Realtors. The communities of Columbus Square and Columbus Grove offer affordable housing (as compared to many nearby communities) while building a good reputation. The area provides good schools and community amenities, which are desirable characteristics for families as well as young and, established professionals. Local growth provides an economic and employment base for retail and service businesses that will be supplemented by jobs resulting from the development of the surrounding business parks. The industrial and retail development of the cities of Tustin and Irvine has generated strong interest in the area. Local development will result in continued demand for housing. CONSULTING REAL ESTATE APPRAISERS 37 HRA SITE ANALYSIS Location CFD No. 06-1 consists of two non-contiguous sites in the City of Tustin within the MCAS Tustin Specific Plan/Reuse Plan known as Tustin Legacy. The MCAS Tustin Specific Plan/Reuse Plan project area encompasses approximately 1,606 gross acres. The MCAS Tustin Specific Plan/Reuse Plan covers an area bounded by four freeways: the Costa Mesa (SR -55), Santa Ana (1-5), Laguna (SR -133), and San Diego (1-405) Freeways. The major roadways which border the District include Red Hill Avenue on the west, Edinger Avenue/Irvine Center Drive on the north, Harvard Avenue on the east and Barranca Parkway on the south. Jamboree Road transects the site and provides access to the Eastern Transportation Corridor. Zone 1, commonly known as Columbus Square, is located on the south side of Edinger Avenue, east of Red Hill Avenue. Zone 2, Columbus Grove - Tustin, is located on the west side of Harvard Avenue between Moffett Avenue to the north and Warner Avenue to the south. The Peters Canyon Channel is located on the west side of Zone 2. Tustin Legacy The Tustin Legacy Specific Plan envisions a collection of neighborhoods which will have their own characteristics within Tustin Legacy. A neighborhood may be comprised of more than one land use designation. The neighborhoods of Tustin Legacy are intended to establish a community structure and provide the basis for the range of land uses, intensity of development and urban design characteristics. The Tustin Legacy Specific Plan contains eight neighborhoods. The land uses are according to the MCAS Tustin Speck Plan/Reuse Plan, adopted February 3, 2003, and amended and adopted on April 3, 2006. Neighborhood A — Education Village Neighborhood A is located along the west edge of Tustin Legacy. The Education Village will be an important anchor for the community with a range of public -serving uses within a walkable campus setting. By virtue of its uses and operation, the Education Village will be linked to many other uses and activities within Tustin CONSULTING REAL ESTATE APPRAISERS 38 HRA Legacy. Its primary functions are to provide education, training, and specific social service functions. Neighborhood B — Village Housing Neighborhood B is located in the northwestern quadrant of Tustin Legacy. Through reuse or new development of a range of housing types, Neighborhood B is expected to offer basic, affordable housing. The housing will be complemented by commercial services that will meet the daily shopping needs of residents, employees and visitors to the site. The neighborhood will also have a supporting function as a transition or buffer area between existing residential neighborhoods north of Edinger Avenue, which are not part of Tustin Legacy, and the Education Village and Community Core uses. Zone 1, Columbus Square, is located within this neighborhood. Neighborhood C — Urban Regional Park Neighborhood C is located near the center of Tustin Legacy, bordered by North Loop Road (extension of Valencia Avenue) on the north and Armstrong Avenue on the west. The Urban Regional Park will be a significant public amenity that will not only serve regional needs, but provide a buffer between the living environment and commercial and business areas. This area will serve a number of functions including open space conservation, recreation, community resource services, concession commercial supportive to the park, and historic preservation and/or display. Neighborhood D — Community Core Neighborhood D encompasses the central area of Tustin Legacy. This neighborhood will provide an opportunity for one or more unique, large-scale development proposals that would complete the Specific Plan area. The primary functions of Neighborhood D include: maintaining long-range flexibility as a major opportunity area, providing opportunities for mixed-use development {which includes medium-high density residential projects), and revenue generation to offset especially high infrastructure and demolition costs. CONSULTING REAL ESTATE APPRAISERS 39 HRA Neighborhood E — Employment Center Neighborhood E is located in the southwest quadrant of Tustin Legacy. This neighborhood will be an employment center for the community. It will provide a business park setting for a full range of professional offices, research and development, and commercial business uses. Neighborhood F — Regionally -Oriented Commercial District Neighborhood F is located on the southeast quadrant of Tustin Legacy. This neighborhood will be an auto -oriented, regional level commercial center. Desired commercial uses will include regional commercial and retail uses, specialty merchandising, wholesale, and discount commercial businesses. Neighborhood G — Residential Core Neighborhood G is located on the northeastern portion of Tustin Legacy. The Residential Core is intended to function as the primary residential enclave within the community. The Residential Core will provide a range of housing types including transitional family units, entry-level units, higher -end housing and commercial opportunities. This neighborhood will also include recreationally -based amenities. It will provide the opportunity to tie existing housing to the community through uses, access and design. Neighborhood G will also provide a desirable transition to existing Tustin and Irvine residential neighborhoods to the north and east. Zone 2, Columbus Grove, is located within this neighborhood. Neighborhood H — Irvine Residential Neighborhood Neighborhood H is in the southeast corner of Tustin Legacy. The family housing provides a buffer between Irvine residential neighborhoods to the east and business uses to the west. It also contains an alternate school facilities and park facilities as needed to support residents in the vicinity. Current Site Condition All major infrastructure improvements are complete throughout the District with the exception of sidewalks and landscaping adjacent to vacant home sites and final bond CONSULTING REAL ESTATE APPRAISERS 40 UMA exoneration. The estimated development cost to complete is $700,041. Of the $700,041, $195,943 remains to be paid 50/50 by Lennar Homes and William Lyon Homes. The balance is to be paid by Moffett Meadows Partners, LLC. The master developer, Moffett Meadows Partners, LLC is reportedly a partnership between William Lyon Homes, Inc., Lennar Homes of California, Inc. and an equity partner, with Lennar Homes as the managing partner. The master developer has completed all commitments related to development of Columbus Square and Columbus Grove, with the exception of the final acceptance of certain on-site facilities pending acceptance from the City of Tustin including, but not limited to, dedication of certain right- of-way. In Columbus Square the remaining work also includes on-site installation of landscape and sidewalks adjacent to the lots that have not been improved with dwelling units. The age -restricted housing development known as Coventry Court is proposed for 240 dwelling units for persons 55 years of age and older. This development currently has one 3 -story building built with the balance of the land undeveloped. Coventry Court was originally entitled for 240 age -restricted condominium units which would consist of 153 affordable units and 87 market rate units. An application has recently been approved by the City for the age -restricted units to allow for 153 affordable rental units and 87 market rate rental units. According to one merchant builder, Lennar Homes, all in -tract site improvements for the Lennar neighborhoods are completed. According to the second merchant builder, William Lyon Homes, additional in -tract site improvements are required for the Ainsley Park tract, Mirabella tract and the new project of Augusta. Development fees are paid by the merchant builder prior to the issuance of a building permit. According to the builder, William Lyon Homes, the remaining site costs for Ainsley Park are $1,736,502 or $20,673 per lot; for Mirabella are $3,109,231 or $51,820 per lot; and $1,542,403 or $25,707 per lot for 60 lots of Augusta. The District is expected to be developed by William Lyon Homes on behalf of Resmark (three entities) and Meta Housing for the age -restricted rental project. As of the date of value, three for -sale proposed subdivisions known as Ainsley Park, Augusta and CONSULTING REAL ESTATE APPRAISERS 41 ■ Mirabella have not started unit construction. Development of each tract is anticipated to be completed by William Lyon Homes. The Astoria project, by William Lyon Homes, began development with 4 model homes and 34 production homes. As of the date of value, the 38 homes have sold to individual homeowners and the project was placed on hold. The build out of Astoria will have a name change to Augusta with revised and smaller floor plans. Similarly, the original plans for the Mirabella project did not meet market demands at the time of market entry. Unit construction never began for Mirabella, although .building permits were issued, and have since expired. The floorplans have been revised and are smaller than those originally envisioned for the site. Trenching for the model homes is expected to begin in November for both Mirabella and Augusta projects. Trenching for the Mirabella production homes is also scheduled for November. Trenching for the Augusta production homes is scheduled to begin in April 2011. Trenching for the model homes of Ainsley Park is in process and trenching for the production homes is scheduled to begin in September 2010. A sales trailer is on-site, and the opening for pre -sales is scheduled for August 28, 2010. With the exception of Coventry Court, the remaining subdivisions have sold out. Size and Shape The District consists of two non -continuous irregular shaped sites. According to the District's Special Tax Consultant, the District encompasses approximately 191.8 gross acres. Of the total acres approximately 88 acres are slated for residential development. Final Tract Map No. 16581, Planning Areas 4 and 5 of the Specific Plan includes all of the proposed development of Zone 1, Columbus Square, proposed for 1,075 dwelling units. Tract Map No. 16581 consists of 105.471 gross acres according to the recorded tract map. As mentioned, Columbus Square in its entirety is proposed for the 835 for -sale dwelling units, plus the age -restricted development of Coventry Court proposed for 240 rental dwelling units. The Community Facilities District report states that Zone 2, Columbus Grove, includes approximately 55.8 acres subject to special tax, which are proposed for 465 dwelling units. Zone 2 contains all of Tract Map No. 16582, which is a portion of Planning Area 21 of the Specific Plan, which consists of 86.257 gross acres. Please CONSULTING REAL ESTATE APPRAISERS 42 HRA refer to the following two pages for copies of the two tract maps. The boundary maps can be found on pages 6 through 10. Soils and Geolo-gy The appraisers have previously been provided with a geotechnical report prepared by Leighton and Associates, Inc., dated February 24, 2003, for Columbus Square and dated February 20, 2003 for Columbus Grove. The reports concluded that the proposed developments are feasible from a geotechnical standpoint provided their recommendations included in the reports are incorporated in the project plans. The appraisers have previously reviewed the Environmental Impact Report (EIR) for Tustin Legacy prepared in 1999. The EIR reported that there are generally five soil types found on the total Speck Plan area. The majority of Tustin Legacy, including all of the northern and central area and a portion of the southern area, is covered with Chino silty clay loam, drained. The area adjacent to the Peters Canyon Channel is covered with Chino silty clay loam. Soil classified as Omni clay and Omni clay drained can be found in the former military housing area along Harvard Avenue, along with Sorrento sandy loam. All of the soils in the Tustin Legacy area are characterized by being poorly drained soils in alluvial fans, flood plains, or basins. The on-site soils have only a slight erosion hazard, but do have a moderate to severe building site development limitation. A moderate limitation (Chino silty clay loam, drained; Chino silty clay loam; Sorrento sandy loam) indicates that soil properties and site features are unfavorable for urban use, but the limitations can be overcome or minimized by special planning and design. A severe limitation (Omni clay and Omni clay, drained) indicates that one or more soil properties or site features are so unfavorable or difficult to overcome that a major increase in construction effort, special design, or intensive maintenance is required. Remedial measures must be taken prior to construction to prevent damage to foundations, structures, and infrastructure. CONSULTING REAL ESTATE APPRAISERS 43 HRA I 00 d to gg 0 f Z 01 I'd tl <� Q PRO Vit; oil as °�4 44 ba R o 61 RJR n O ®® 9 age foil • ae� e ! R HRA ■MEET ' o O 6" ARG !6.217 AnE7 EROSS TRACT N0. 16582 NIG eM702 ACR$ NE7 MNW, A IMS: gee M RHE CIEY OF nW M, =MY Of O■ M STALE Of CKF MN unm VIM 70 MMTWE TIM WAOF E Ip IOee1) QWW. DOKION. LS. 410.1 DATE Of SWVEY: MAW 2004 GENERAL NOTES: QI NM.40 LOT R KWM 70 K CLAVA D m THE Mff OF MOM M SMAMIF 0MMhKM, AT IID CMV TO M Offp IUSIIN, m ACCOypMiE MUNE iE M CAWM Down 1RONN, MT •r. O M0715 WM ROMIED TO t QUIF RIM TO 1/E aff OF 7IL0M n SIFAMIN 16111AM, AM NO COLT m THE MY OF TOM. 7 EASEI M AM OMOM HO MN m 1E Off 01 DAM M ""I,, VOROE KZM AM K" saw, YDeC. E6MSS No EG7,m MM05ES OVER LOIN'K MUM *01 INnO■N.'RY,'AK.'NF. 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A0. M, AK MM IQ. 8% IC, i. f0. , M. st. M, 10 CONSULTING REAL ESTATE APPRAISERS 45 HRA As previously mentioned, all of the land has been graded to a physically finished lot condition throughout the District. Of the 465 dwellings proposed for Zone 2, Columbus Grove, 381 have been completed and sold to individual homeowners. Within Zone 1, Columbus Square, 711 of the 835 for -sale dwellings have been completed and sold to individual homeowners. Coventry Court is planned for 240 rental dwelling units. As of the date of value, one three-story building has been completed which includes 24 units. For purposes of this appraisal assignment, we assume the soil conditions are suitable for the proposed highest and best uses. The appraisers are not experienced in determining the suitability of soil conditions; therefore, it is suggested that the client contact a professional soil expert to determine the suitability of the soil conditions of the land. This appraisal report is also based on the fact that there are no hazardous materials contaminating the soil. No representation is made by the appraisers concerning the soil conditions. Topography/Drainage CFD No. 06-1 in its entirety consists of a large flat plain. The neighborhoods are built on the flat plain areas. The parcels do not offer significant view potential. It is assumed for purposes of this appraisal that the builders have fulfilled all grading/drainage requirements of the City of Tustin. Zoning The District is currently zoned SP — Specific Plan, by the City of Tustin. Allowed uses include: residential, commercial, retail, office, entertainment retail, mixed use, and institutional. Tract No. 16581, Zone 1, Columbus Square, consists of Planning Areas 4 and 5 of the Tustin Legacy Specific Plan. This tract has an approved zoning of MDR -Medium Density Residential and LDR-Low Density Residential. The Low Density zone allows for residential developments with a density of 1 to 7 units per acre. The Medium Density zone allows for residential developments with a density of 8 to 15 units per acre. CONSULTING REAL ESTATE APPRAISERS M Columbus Square in its entirety is proposed for 1,075 dwelling units. The indicated overall density for Tract No. 16581 is 10.2 units per acre, which appears to be within the allowable densities. Tract Map No. 16581 recorded on March 6, 2006, as Document No. 2006000148498, and is proposed for a total development of 1,075 dwelling units. Zone 1 of the District is within Tract Map No. 16581. Tract No. 16582, Zone 2, Columbus Grove, consists of Planning Area 21 of the Tustin Legacy Specific Plan. This tract has an approved zoning of LDR-Low Density Residential. The Low Density zone allows for residential developments with a density of 1 to 7 units per acre. Columbus Grove is proposed for 465 dwelling units. The indicated overall density for Tract No. 16582 is 5.4 units per acre, which is within the allowable density requirements of the Low Density designation. Tract Map No. 16582 recorded on October 28, 2005 as Document No. 200500867370 and is proposed for development of 465 dwelling units. Zone 2 of the District is within Tract Map No. 16582. Access and Circulation Regional access to the area is provided by the Santa Ana (1-5) Freeway. Interstate 5 runs in a southeasterly direction from Los Angeles through Orange County, bisecting the Saddleback Valley and continuing southeast to San Diego. Access to the subject's immediate area is via Jamboree Road and Edinger Avenue/Irvine Center Drive. Jamboree Road is a major north/south thoroughfare traversing the Tustin, Irvine, and Newport Beach communities. Jamboree Road has a full interchange with the 1-5 Freeway about one mile north of the subject. Edinger Avenue/Irvine Center Drive is a major east/west thoroughfare which connects to full interchange facilities with the SR -55 Freeway, to the west. Full freeway interchange facilities with SR -55 are three miles to the west. The primary access to Zone 1, Columbus Square, is Edinger Avenue (Irvine. Center Drive, east of Red Hill Avenue). Columbus Square is located on the south side of Edinger Avenue, east of Red Hill. The Metrolink Rail line runs north of Columbus Square, with a Metrolink Rail station along Edinger Avenue. Zone 2, Columbus Grove, is located.on the CONSULTING REAL ESTATE APPRAISERS 47 HRA west side of Harvard Avenue south of Edinger/Irvine Center Drive. Primary access to Columbus Grove is Harvard Avenue and secondary access is Moffett Avenue. It appears that the interior streets, offer adequate access to the dwellings and minimize traffic. The streets within the development are asphalt paved, with concrete curbs and gutters. With the completion of the Eastern Transportation Corridor {S-261), additional regional access is available. This link from the S-91 Freeway to the 1-5 Freeway and Jamboree Road is complete. Easements The appraisers have been provided with five preliminary title policies for the four undeveloped parcels within the District. The policy for the Coventry Court site was prepared by North American Title Company, dated July 6, 2010. The policy does state that Lot 265 of Tract No. 16581 is for condominium purposes. A Deed of Trust for $16,000,000 dated October 31, 2007 was disclosed showing the Trustor as Tustin Coventry, LLC; Trustee as First Santa Clara Corporation and Beneficiary as Bank of the West. Fidelity National Title Company prepared three policies, dated March 15, 2010 for the Augusta (60 of the 64 lots) and Mirabella project; dated May 3, 2010 for the Mirabella project and dated July 29, 2010 for the Ainsley Park project. The Ainsley Park title policy disclosed a Deed of Trust for $9,025,000 dated April 23, 2010 showing the Trustor as ORA Ainsley Park 84, LLC; Trustee as Fidelity National Title Company and Beneficiary as California Bank & Trust. North American Title Company prepared a policy for the 4 lots owned by Moffett Meadows Partners, LLC, that are assumed to be a part of the build -out of the Augusta product. A Notice of Special Tax Lien for the City of Tustin Community Facilities District No. 06-1 was not disclosed in the title policies for the Augusta or Mirabella sites. A review of the policies did not indicate any easements, encroachments, agreements or conditions that would adversely affect the value of the properties. CONSULTING REAL ESTATE APPRAISERS 48 HRA However, this appraisal is contingent upon the fact that there are no easements, encroachments, or conditions that would adversely affect the value of the property. Utilities As of the date of this appraisal, all of the utilities are available to the subject property. The utilities required to support the subject property to its highest and best use are provided by the following companies/agencies: Electricity: Southern California Edison Natural Gas: Southern California Gas Company Telephone: AT&T/Cox Fire: Orange County Fire Authority Police: City of Tustin Transit: Orange County Transit District Water: Irvine Ranch Water District Sewer: Irvine Ranch Water District Earthquake, Flood Hazards, and Nuisances The subject property, as of the date of valuation, was not located in a designated Earthquake Study Zone as determined by the State Geologist. However, all of Southern California is subject to seismic activity. In addition, the subject property is located in a Zone "X" flood designated area according to Federal Emergency Management Agency Community Panel No. 06059CO279H, effective date February 18, 2004. This designation references an area of minimal flooding, which is outside the 0.2% annual change flood plain. Flood insurance is not required. The subject site is affected by noise from an existing railroad line north of Zone 1, Columbus Square. Until 1994, noise was generated by Amtrak passenger trains and Atchison, Topeka and Santa Fe (AT&SF) freight trains. Noise from the trains, combined with noise from vehicular traffic on Edinger Avenue generated an average noise level of about 70 dB CNEL. In March 1994, the SCRRA began the Metrolink Orange County Line commuter rail service. The current number of Metrolink trains on the line is 19. The current number of Amtrak passenger trains on the line is approximately 44. Freight trains of the Burlington Northern Santa Fe also use the tracks. Maintenance of the railroad track, which CONSULTING REAL ESTATE APPRAISERS 49 HRA may occur between midnight and 4:00 a.m., when fewer trains are scheduled to operate, may include noisy, heavy on -track equipment, bright lights, and dust. Hazardous MateriaUToxic Waste Physical inspection of the District did not indicate evidence of on-site hazardous materials and/or toxic waste. All of the District has been blue -top to final -graded. Eleven of the 14 proposed subdivisions are complete and have sold to 1,092 individual owners. The appraisers have previously been provided with a Phase 1 Environmental Site Assessment Report for Tustin Villas, dated February 23, 2003. We have also reviewed several letters from the United States Environmental Protection Agency, California Regional Water Quality Control Board and the Department of Toxic Substances Control. Based on the information provided and the current physical condition of the parcels, it appears that development as proposed and as it exists is allowed. Environmental Issues The subject sites were formerly military use lands. No rare or threatened species were observed on the subject sites. Transportation Vital to an area's growth and economic expansion are its transportation facilities for both business and residents. The following is a summary of the existing transportation facilities available in the area. Rail: Amtrak stops in Tustin. Truck: 11 major trucking lines serve Orange County. Air: John Wayne Airport (3 miles), Los Angeles International Airport (50 miles) Bus: Orange County Transit District, Dial -A -Ride, Park -N -Ride. Water: Long Beach Harbor/Port of Los Angeles (40 miles). Highways: Santa Ana Freeway (Interstate 5) San Diego Freeway (Interstate 405) Costa Mesa Freeway (State 55) Eastern Transportation Corridor (S-241). CONSULTING REAL ESTATE APPRAISERS W HRA Taxes and Special Assessments Pursuant to Proposition 13, passed in California in 1978, current assessed values may or may not have any direct relationship to current market value. Except in limited circumstances, real estate tax increases are limited according to Proposition 13 to a maximum of 2% per year. If the property is sold, real estate taxes are normally subject to modification to the then current market value. The basic levy for the properties is 1 %. In addition, there are taxes and assessments for Metropolitan Water District, Irvine Ranch Water District and Vector Control. Zone 1, Columbus Square, is also within the boundaries of the Tustin Unified School District. The age -restricted development of Coventry Court is not subject to special tax by the Tustin Unified School District. Zone 2, Columbus Grove, is within the boundaries of the Irvine Unified School District and subject to special taxes. Properties within both zones are subject to special tax by the City of Tustin CFD No. 06-1. Community Facilities District No. 06-1. The developed total tax rate is generally estimated between 1.6%t and 2.1%t of the sales prices of the individual homes. David Taussig & Associates, Inc. has estimated the Special Taxes on the undeveloped land and dwelling units within CFD No. 06-1. According to the District's CFD Administrator, Wilkian Financial Services, there are five parcels with delinquent taxes for Fiscal Year 2008-2009 and 13 parcels with delinquent taxes for fiscal Year 2009-2010. It is a specific assumption and condition of this appraisal that all of the property taxes due are paid in full and that there are no delinquencies within the District. CONSULTING REAL ESTATE APPRAISERS 51 HRA IMPROVEMENT DESCRIPTION General The proposed and existing residential developments within Columbus Square and Columbus Grove are part of the Tustin Legacy Specific Plan which is a collection of neighborhoods envisioned to have their own characteristics within the Tustin Legacy planned community. The neighborhoods of Tustin Legacy are intended to establish a community structure and provide the basis for the range of land uses, intensity of development and urban design characteristics. The District is being developed by Lennar Homes and William Lyon Homes. One subdivision known as Madison within Columbus Grove was built by KB Home. The age -restricted development, now proposed for 240 -rental units, is to be built by Meta Housing, an apartment developer. Columbus Square includes a recreational area, club house and four parks. Columbus Grove includes two parks and a common area which includes pool, tot lot and club house within the District. The residents also have a second park with amenities of pools, tot lot and restrooms in the Irvine portion of the Columbus Grove community. Columbus Square in its entirety is proposed for a build -out of 1,075 dwelling units. Within Columbus Square is the age -restricted project known as Coventry Court. Coventry Court was originally entitled for 240 age -restricted condominium units which would consist of 153 affordable units and 87 market rate units. An application has recently been approved by the City to allow for 153 affordable rental units and 87 market rate rental units. Single family detached homes have been completed for 283 lots ranging from a minimum lot size of 2,700 square feet to a maximum of 4,950 square feet. The remaining development is proposed for a mix of attached dwelling units, of which 113 units of the attached products are income restricted. As of the date of value, 711 dwellings were complete and sold. Two for -sale projects remain to be built within Columbus Square. The townhome project, known as Mirabella, was originally planned for a product with larger floor plans than those currently proposed. Due to current market conditions, the development was put on hold and has been redesigned with smaller floor plans. The Astoria project was originally proposed for 102 dwelling units. Due to market demands, only 38 dwelling CONSULTING REAL ESTATE APPRAISERS 52 units were built and sold. The project was put on hold and redesigned to better meet current market demands. The build out of Astoria is now known as Augusta with smaller floor plans. The Augusta project is planned to start model home construction in November 2010. Production home construction is planned to begin in April 2011, when sales also will begin. The Mirabella project is also planned to begin model home construction in November 2010. Production home construction is also scheduled to begin in November 2010 with sales to start in April 2011. Columbus Grove is proposed for a build -out of 465 for -sale dwellings. Of the homes proposed, 279 are single family detached homes on lots ranging from 4,050 square feet to 7,150 square feet. In addition, 186 attached units are proposed, of which a 102- unit triplex product is built and sold. Only the 84 duplex (paired homes) product, known as Ainsley Park, remains to be constructed within Columbus Grove. Model home construction just began in August 2010. Construction of the production homes is scheduled to begin in September 2010. Presales are to begin August 28, 2010. As of the date of value, 381 dwellings within Columbus Grove have been built and sold to individual homeowners. Please refer to the following pages for a summary of the existing and proposed projects within the District. Current base pricing has been estimated by the builder, William Lyon Homes. Affordable Housing Requirements The City of Tustin plans to provide for "affordable" housing or subsidized housing so lower-income people can afford to rent or buy in the City. In general, the number of units required to be set aside for "affordable" housing is 15% of the total number of planned residential units. The resale of the new for -sale affordable units will be controlled by the City for 45 years. According to the information provided by the developer, the current number of units existing and planned to comply with the "affordable" housing requirements are 308 units within Columbus Square which includes the 153 units within Coventry Court that are currently proposed to be rental units. The following table summarizes the number of CONSULTING REAL ESTATE APPRAISERS 53 HRA Project Name Builder ,nbus Scuare • Zc PING PROJECTS SUMMARY OF EXISTING AND PROPOSED PROJECTS Unit Lowest Base Minimum Planned Number Garage Size Base Price Lot Size Units Beds Baths of Floors Spaces (SF) Price oar SF tdas 2,700 97 3 2.5 2 m Lyon William Lyon 3 2.5 2 3.5 2 4 2.5 2 fridge Lane TH 156 1 1.5 1 n Lyon Garden Sold -out 1 1.5 2 Mirabella TH 60 2 2.5 2 es 50 Income Restricted Units William Lyon 2 2.5 2 2.5 2 3 2.5 2 rs 5,700 84 3 2 1 r 3 3 3.5 2 William Lyon Sold -out 4 3.5 2 2 2 4 4.5 2 ether TH 114 2 2 2 r Triplex 1 3 2 2 ( 1 bldg. 2 3 3 2 on Place TH 222 2 2.5 3 r Row Includes 153 Income Restricted Units 2 2.5 3 2 N/A 3 3 3 es 63 Income Restricted Units 2 N/A 3 (T) storia 4,500 38 4 3 1 William Lyon 2 4 3.5 2 2,164 5 5.5 2 PROPOSED PROJECTS 1,231 Sold -out 2 1,302 Mirabella TH 60 3 2.5 2 William Lyon Sold -out 3 2.5 2 2 2,125 4 3 2 Augusta 4,500 64 3 2.5 2 William Lyon Sold -out 4 3 2 2 1,272 4 3 2 Coventry Court Rental units 240 1 1 N/A To Be Determined Age -restricted ( 1 bldg. 2 2 N/A 2 w/ 24 units 2 2 NIA Includes 153 Income Restricted Units has been 2 2 N/A 2,749 built) 2 2 N/A 3 (T) 3,529 2 2.5 NIA Total Dwelling Units Zone 1: 1,075 1,661 $440,000 $265 2 2 1,887 Sold -out 2 2,211 Sold -out 2 2,394 Sold -out Average 2,164 1 1,114 Sold -out 1 1,231 Sold -out 2 1,302 Sold -out 2 1,259 Sold -out 2 1,599 Sold -out Average 1,301 2 2,125 Sold -out 2 2,957 Sold -out 2 3,227 Sold -out 2 4,191 Sold -out Average 3,125 2 1,272 Sok!-out 2 1,706 Sold -out 2 1,922 Sob -out Average 1,633 2 1,155 Sold -out 2 1,465 Sold -out 2 1,685 Solo -out Average 1,435 2 2,749 Sold -out 2 3,146 Sold -out 3 (T) 3,529 Sold -out A verage 3,141 2 1,661 $440,000 $265 2 1,816 $470,000 $259 2 2,106 $495,000 $235 Average 1,861 2 2,610 $730,000 $280 2 2,739 $760,000 $277 3 3,001 $800,000 $267 Average 2,783 N/A 661 Rental rates N/A N/A 916 Rental rates N/A N/A 946 Rental rates N/A N/A 956 Rental rates N/A N/A 1,465 Rental rates N/A N/A 1,757 Rental rates NIA CONSULTING REAL ESTATE APPRAISERS 54 Vim Project Name Builder SUMMARY OF EXISTING AND PROPOSED PROJECTS Minimum Planned Number Garage Lot Size Units Beds Baths of Floors Spaces Unit size SF Lowest Base Price per Base' Price SF Columbus Grove - Zone EXISTING PROJECTS Madison 4,400 85 3 2.5 2 3 2,592 Sold -out KB Home 5 3 2 3 2,732 Sold -out 5 4 2 3 2,879 Sold -out Average 2,734 Westbourne 5,500 59 4 3.5 1 3 3,004 Sold -out Lennar 5 4 2 3 (T) 3,374 Sold -out 5 4.5 2 3 (T) 3,822 Sold -out Average 3,400 Cantors 4,050 68 4 3 2 2 2,580 Sold -out Lennar 5 3 2 2 2,765 Sold -out 4 3 2 2 3,109 Sold -out Average 2818 Clara 7,150 67 4 3.5 1 2 3,101 Sold -out William Lyon 5 4.5 2 2 4,237 Sold -out 5 4.5 2 2 4,271 Sold -out 5 4.5 2 2 4,524 Sold -out Average 4,033 Clarendon TH 102 3 2.5 2 2 1,217 Sold -out William Lyon tri-plex 3 2.5 2 2 1,764 Sold -out 3 2.5 2 2 2,042 Sold -out Includes 42 Income Restricted Units Average 1,674 PROPOSED PROJECTS Insley Park Duplex 84 3 2.5 2 2 1,659 $490,000 $295 William Lyon paired 3 2.5 2 2 1,766 $515,000 $292 3 2.5 2 2 1,827 $535,000 $293 4 3 2 2 2,364 $590,000 $250 Average 1,904 Total Dwelling Units Zone 2: 465 TOTAL DWELLING UNITS: 1,540 CONSULTING REAL ESTATE APPRAISERS 55 dwelling units to be set aside to meet the affordable housing requirements subject to Special Tax within the District. Due to the higher than required number of income restricted units within Columbus Square, a Density Bonus was granted; allowing for development as currently proposed. Project Name Total Units Very Low Low Moderate Transitional Columbus Square — Zone 4 Cambridge Lane 50 14 36 0 0 Camden Place 63 11 28 24 0 Coventry Court — Rental 153 36 61 56 0 Columbus Grove - tone 2 Clarendon 42 0 0 30 12 Total for District 308 61 125 110 12 The affordable requirements include three levels of income restrictions combined with the number of bedrooms to reach an appropriate price level for each dwelling unit. The income levels Eire referred to as Very Low, Low and Moderate. Cambridge Lane includes 50 income restricted units which includes 14 Very Low and 36 Low income. Camden Place has 63 income restricted units which includes 11 Very Low, 28 Low and 24 Moderate. Covertry Court is an age -restricted project proposed for 240 rental units. Of those, 153 units will be set aside to help satisfy the affordable housing requirements; 36 are proposed for Very Low incomes, 61 for Low incomes and 56 for Moderate incomes. Clarendon includes 42 units which includes 30 for Moderate incomes and 12 Transitional units. Conclusion of the Improvements Based on physical inspection of the existing projects, the dwellings appear to be of good quality and are consistent with market demands of the subject area. Market response has been consistent with similar developments given market conditions at the time of sales. The floorplans are functional and competitive with current design standards. Remainina Economic Life The total/remaining economic life, according to the Marshall Valuation Service, is considered to be 50 years from date of completion. CONSULTING REAL-ESTATE APPRAISERS HRA Homeowner's Association All of the projects within the District have individual homeowner's associations. All of the detached projects planned for Columbus Square are estimated to have monthly dues of $113.40 at build -out for the master association dues. The various attached projects are expected to have monthly dues between $198.00 and $230.00 at buildout plus the $113.40 master association dues. The detached projects within Columbus Grove are planned to have monthly dues of $158.00 at build -out. The association dues for the paired attached project, Ainsley Park, are estimated to be $150.00 per month in addition to the master HOA of $'158.00 per month. The association dues for the attached products within Columbus Grove are expected to range between $147.50 and $237.00 per month at build -out. CONSULTING REAL ESTATE APPRAISERS 57 HRA HIGHEST AND BEST USE The term highest and best use is an appraisal concept that has been defined as follows: The reasonably probable and legal use of vacant land or an improved property, whir :h is physically possible, appropriately supported, financially feasible, and that results in the highest value. The four criteria the highest and best use must meet are legal permissibility, physical possibility, financial feasibility, and maximum productivitys The determination of highest and best use, therefore, requires a separate analysis for the land as legally permitted, as if vacant. Next, the highest and best use of the property with its improvements must be analyzed to consider any deviation of the existing improvements from the ideal. "The highest and best use of both land as though vacant and property as improved must meet four criteria. The highest and best use must be: legally permissible, physically possible, financially feasible, and maximally productive. These criteria are often considered sequentially."7 The four criteria interact and, therefore, may also be considered in concert. A use may be financially feasible, but it is irrelevant if it is physically impossible or legally prohibited. Leual Considerations The legal factors influencing the highest and best use of the subject property are primarily govemmenl:al regulations such as zoning and building codes. The District is a portion of the 1;600* gross acre Tustin Legacy Planned Community within the MCAS Tustin Specific Plan, which was approved by the City of Tustin in 2003 and amended in April 2006. The District is currently zoned SP — Speck Plan, by the City of "f ustin. Allowable uses include residential development of low density and medium density. 6 The Dictionary of Fea/ Estate Appraisal, 4th Edition, Pub. by the Appraisal Institute, Chicago, IL., p. 135. 7 The Appraisal of Reel Estate, 10th Edition, Pub. by the Appraisal Institute, Chicago, IL., p. 280. CONSULTING REAL ESTATE APPRAISERS 58 HRA Physical and Locational Considerations The physical and locational characteristics of the subject property, CFD No. 06-1, are considered gooc for the existing and proposed uses. The subject property is a natural extension of Existing residential developments located in the cities of Tustin and Irvine. The subject area is established and offers a large employment base near the District. . Tract No. 16581 consists of Planning Areas 4 and 5 of the Tustin Legacy Specific Plan. This tract has an approved zoning of MDR -Medium Density Residential and LDR- Low Density Residential. Tract No. 16582, Zone 2, consists of Planning Area 21 of the Tustin Legacy Specilic Plan. This tract has. an approved zoning of LDR-Low Density Residential. The Low Density zone allows for residential developments with a density of 1 to 7 units per acre. The Medium Density zone allows for residential developments with a density of 8 to 15 unit:-. per acre. Zone 1 of the District is proposed for 1,075 dwelling units. The indicted overall density for Tract No. 16581 is 10.2 units per acre, which appears to be within the allowable densities. Zone 2 of the District is proposed for 465 dwelling units. The indicated overall density for Tract No. 16852 is 5.4 units per acre, which is within the allowable density requirements of the Low Density designation. Tract Map. No. 16581 recorded on March 6, 2006, as Document No. 2006000148498 and is proposed for a total development of 1,075 dwelling units. Zone 1 of the District is within this map. Tract Map No. 16582 recorded on October 28, 2005 as Document No. 2005C 0867370 and is proposed for development of 465 dwelling units. Zone 2 of the District is within this map. The City of Tustin requires all new developments to satisfy their Affordable Housing requirements, which currently requires 15% of all new dwelling units to be reserved and restricted to Very Low, Low or Moderate income households. The developments of Columbus Grove — Tustin and Columbus Square are currently proposed for 1,540 swelling units. Fifteen percent of the planned development would CONSULTING REAL ESTATE APPRAISERS 59 indicate a total of 231 units to be set aside for low income households. According to the information provided by the developers and builders, the current plans are to set aside 308 dwelling units. It is our understanding that the current plans satisfy the Affordable Housing requirements of the City of Tustin. Due to the higher than required number of income restricted units within the District, a Density Bonus was granted; allowing for development as currently proposed. The subject's planned communities and common area amenities contribute to the demand for residential homes. Development for detached and attached products in the District and adjacent and nearby communities have met with average to good response from the market, even during the past four years of a weak residential market. All necessary utilities are available within the District. The utility capacity to serve the sites is reported to be adequate for the existing and proposed improvements. All street improvements, including sidewalks, curbs and gutters are in place, with the exception of one tract. The site's access and configuration are good. Topography is level. The subject parcels do not appear to present any development constraints. This report and the values included herein assume there are no soil problems or hazardous conditions that would have an adverse impact to development of the District. Based on the physical analysis, the subject parcels appear to be viable for numerous types of development based on its size and topography. However, the site's location would suggest the lands have a primary use of residential development due to the adjacent residential developments and existing dwellings within the District. Market Conditions and Feasibility The financial feasibility of the development of the District is based on its ability to generate sufficient income and value in excess of the costs to develop the property to its highest and best use. Please refer to the Valuation section of this report, which gives support to the financial feasibility of the District. CONSULTING REAL ESTATE APPRAISERS HRA Residential Demand The attractiveness of residential development anywhere in Orange County is evidenced by market activity which has taken place over the last 30 years. Although the market was hampered by the national recession during the early 1980's, the demand for and development of detached dwellings in Orange County increased significantly from 1985 to 1990. However, from 1990 through mid-1996, home prices dropped along with demand. Detached homes in the upper price levels were the most negatively impacted. Sale volumes also dropped dramatically due to the inability of potential buyers to sell their existing residences. The slowdown was due, in part, to the credit crunch, resulting from the lack of residential lenders to replace the faltering savings and loan industry. Beginning in 1996/1997 and continuing through 2005, significant price increases occurred and incentives and concessions disappeared. The general consensus was that demand for residential land exceeded supply over the 10± year period. Both land sales and home sales showed annual double-digit appreciation from 1996/1997 through 2005. For the last four years, both the number of home sales and sales prices have shown significant declines. However, over the last ten to twelve months sales activity has increased. Both month-to-month and year-to-year prices have appeared to reach a market bottom. However, since the federal income tax credit for first time homebuyers expired in April 2010, home prices and sales rates have once again declined. Home sales in July declined almost 20% for existing homes and about 30% for new homes. The current condition of the housing market is that there has been a decline in sales and prices over the past 48t months. During the beginning of the downturn there were significant increases in cancellation rates particularly by investors; significant decreases in sales, significant increases in inventory, rising interest rates and significant decreases in sales prices. Incentives and concessions returned in most markets. First concessions were seen, which were difficult to quantify as most sales agents were often not forthright in this information. It appears that the amount of concessions and/or incentives can vary for a home that may have just fallen out of escrow and is now standing inventory, to homes that may not be ready to close escrow for 3 to 4 months. However, in most markets there were significant price reductions, particularly for CONSULTING REAL ESTATE APPRAISERS 61 1 ■ A projects that just entered the market. The decline in demand for residential homes appears to have started in November 2005. There was a delay in the time it takes for prices to adjust to reduced sales. The slowdown in sales activity appears to have hit both the more affordable markets and the higher end markets. According to sales agents and most builders, incentives, other than price reductions, have not proven very effective in stimulating sales. The early thinking was that the extreme slowdown in sales was not due to lack of demand, but largely caused by overpriced houses that were not in balance with affordability levels. But, as the downturn continued, demand weakened. Currently, homes are not selling unless prices are 30%+ below the price levels of 2006-2007. The current national recession has exacerbated the already weakened residential market. Once the prices and costs are brought down to a level that is more effectively supported by economic growth, demand and sales activity is expected to resume. There appears to be a belief that a market bottom is occurring and with the current low interest rates, people are deciding it's time to buy. While prices may or may not go down more, interest rates are likely to go up during the next 12 months. . However, loan availability and refinancing remain more difficult with stringent underwriting standards. It appears that the more affordable homes are more active than the more expensive homes. The builder's confidence in current sales activity and in particular the outlook for sales over the next six months has improved, although it is not as optimistic as it was several months ago. The general thinking is that the improvement in sales activity is attributed primarily to improved affordability. The recently expired home tax credit was very helpful in stimulating sales. Some builders have estimated that asking prices of existing homes in Orange County are, on average, lower by about 5% over the past 90 days, since the credit expired. The subjects' Competitive Market Area ("CMA") is defined as the Central area which includes the cities of Anaheim, Anaheim Hills, Buena Park, Cypress, Fountain CONSULTIf3 REAL ESTATE APPRAISERS 62 HRA Valley, Garden Grove, Irvine, Orange, Santa Ana, Stanton, Tustin and Westminster. The median new detached home price in Orange County was at $773,333 during the second quarter of 2010. The median priced new detached home in the Central market area was $773,333. During the second quarter of 2010, a total of 295 new single family detached homes were sold countywide. This was a 19.9% increase from sales levels in the same quarter of 2009. Sales rates of detached projects averaged 2.8 units per project per month, up from 1.8 units per month from last year up 54.7%. Absorption in the Central submarket also increased from 2,6 units per project per month to 4.6 units per project per month, up 72.7% from the second quarter of 2009. During the second quarter of 2010, there were 179 new detached units reportedly sold in the subject market area, up 23.4%. During the second quarter of 2010, the subject's submarket did not sell any detached homes priced under $400,000; 17 detached homes priced between $400,000 and $599,999 were sold, 65 detached homes priced between $600,000 and $749,999 were sold; 91 detached homes priced between $750,000 and $999,999 were sold; and 6 detached homes priced over $1,000,000 were sold. Within the Central submarket area there are 16 active detached projects, which is two less than the beginning of the quarter. The subject's market area had no standing (built, but unsold) inventory units and 7 unsold units under construction. This is about a 0.1 -month absorption time for the completed units and the units under construction. Total inventory, which includes units built, under construction and future construction, totals 200 units which equates to a 3.9 -month supply at the current sales rate. One year ago total inventory was at 374 units, and the months to absorb based on last year's sales rate was around 12.5 -months. The supply/demand balance for the completed, under construction and total inventory of detached products is well below the 5 to 6 month normal range. During the second quarter of 2010, a total of 268 new single family attached homes were sold countywide. This was an 8.8% decrease from sales levels in the same quarter CONSULTING REAL ESTATE APPRAISERS '63 HRA of 2009. Sales rates of attached projects averaged 2.9 units per project per month, up from 2.7 units per month from last year. Absorption in the Central submarket also increased from 3.2 units per project per month to 3.4 units per project per month. During the second quarter of 2010, there were 206 new attached units reportedly sold in the subject market area. During the second quarter of 2010, the subject's submarket sold 41 attached homes prices under $350,000; 27 attached homes priced between $350,000 and $399,999 were sold; 77 attached homes priced between $400,000 and $499;999 were sold; 40 attached homes priced between $500,000 and $749,999 were sold; 13 attached homes priced between $750,000 and $999,999 were sold; and 8 attached homes priced over $1,000,000 were sold. Within the Central submarket area there are 21 active attached projects, which is four less than the beginning of the quarter. The subject's market area had 69 standing (built, but unsold) inventory units and 97 unsold units under construction. This is about 2.7 - month absorption time for the completed units and the units under construction. Total inventory, which includes units built, under construction and future construction, totals 1,097 units which equates to an 18.1 -month supply at the current sales rate. One year ago total inventory was at 1,225 units, and the months to absorb based on last year's sales rate was 23.1 -months. This indicates that future competition will be very strong if the market continues to decline or all units are built. The supply/demand balance for both completed and under construction attached products is below the 5 to 6 month normal range. The table on the following two pages illustrates the currently selling projects within the subject's market area. In general, the attached projects are selling at rates between 1.4 and 14.3 units per month. The detached projects are generally selling between 1.5 and 13.1 units per month. Since the beginning of 2010, four attached products and five detached products have opened in the adjacent City of Irvine. The attached products ranged from 2.5 units per month to 14.3 units per month and averaged 10.0 units per month. The detached products ranged from 6.6 units per month to 13.1 units sold per month. The five products averaged 9.5 units sold per month. CONSULTING REAL ESTATE APPRAISERS 64 HRA Comparable Residential Project Summary Attached and Detached Single Family Homes August 25, 2010 Product Price Size $/Sq. Ft. No. No. Sold Overall No. Protect. Builder & City Units Type Ranae Ra_ ng_ Ran a Released Start Dt. Mo. Abs. La Casella ATTACHED PROJECTS $606,990 1,656 $366.54 27 23 2.2 Lennar Homes 1 Santa Rosa 112 TH $320,000 1,060 $301.89 98 97 14.3 $726,990 Van Daele Homes $275.06 $348,000 1,120 $310.71 Irvine Jan -10 Woodbury East $385,000 1,180 $326.27 78 TH $479,750 1,682 $285.23 Irvine 78 11.5 $456,000 1,431 $318.66 $555,000 1,772 $313.21 2 Santa Rosa 11 70 TH $320,000 1,060 $301.89 28 16 11.9 Van Daele Homes Irvine $348,000 1,120 $310.71 Jul -10 Stonegate East Paloma 88 Duplex $385,000 1,180 $326.27 88 87 1.7 Irvine $678,800 $456,000 1,431 $318.66 Jul -06 3 Ivy 135 TH $393,990 1,180 $333.89 114 103 7.6 William Lyon Homes 2,320 $290.43 $429,990 1,394 $308.46 Jul -09 $712,800 Woodbury East $281.74 $466,990 1,500 $311.33 San Carlos II 92 TH $327,990 CONSULTING REAL ESTATE APPRAISERS 65 Irvine 4 La Casella 47 TH $606,990 1,656 $366.54 27 23 2.2 Lennar Homes $645,990 2,090 $309.09 Oct -09 Woodbury $726,990 2,643 $275.06 Irvine 5 Monterey 78 TH $479,750 1,682 $285.23 78 78 11.5 Brookfield Homes $555,000 1,772 $313.21 Jan -10 Woodbury East $585,000 1,806 $323.92 Irvine 6 Paloma 88 Duplex $648,800 1,723 $376.55 88 87 1.7 Brookfield Homes $678,800 2,245 $302.36 Jul -06 Portola Springs $664,800 2,235 $297.45 Irvine $673,800 2,320 $290.43 $712,800 2,530 $281.74 7 San Carlos II 92 TH $327,990 1,126 $291.29 34 12 2.5 William Lyon Homes $344,990 1,220 $282.78 Apr -10 Portola Springs $378,990 1,293 $293.11 Irvine $457,990 1,736 $263.82 $481,990 1,901 $253.55 $471,990 1,720 $274.41 $495,990 1,653 $300.05 $468,990 1,756 $267.08 8 Coronado 101 Det. Condc $580,000 1,715 $338.19 101 100 11.9 KB Home $647,000 1,877 $344.70 Dec -09 Woodbury East $655,000 1,944 $337.45 Irvine 9 Harbor Station 184 TH Afforable DU 833 N/A 117 107 2.5 Shea Homes Afforable DU 1,068 N/A Feb -07 Glenwood at Aliso Viejo $456,000 1,575 $289.52 Aliso Viejo $454,000 1,526 $297.51 $459,000 1,523 $301.38 10 Latitudes North at Vantis 165 TH $414,900 1,401 $296.15 80 75 1.6 Shea Homes $421,900 1,457 $289.57 Nov -06 Aliso Viejo $423,900 1,594 $265.93 $498,900 1,863 $267.79 CONSULTING REAL ESTATE APPRAISERS 65 HRA CONSULTING REAL ESTATE APPRAISERS 66 Irvine Comparable Residential Project Summary Attached and Detached Single Family Homes 14 Primrose 131 Cluster $569,990 1,739 August 25, 2010 14 10 6.6 KB Home Product Price Size $/Sq. Ft. No. No. Sold Overall No. Project. Builder & City Units Tvce Ranae Range Ranne Released Start Dt• Mo. Abs. 11 Latitudes South at Vantis 101 TH Afforable DU 868 N/A 68 62 1.4 Shea Homes Afforable DU 1,188 $0.00 Nov -06 Sonoma 95 Aliso Viejo $793,500 $415,900 1,298 $320.42 95 89 13.1 TRI Pointe Homes $415,900 1,264 $329.03 2,477 $351.23 Jan -10 $459,900 1,480 $310.74 $908,990 2,622 $346.68 $449,900 1,475 $305.02 Irvine $447,900 1,627 $275.29 16 Carmel 64 DETACHED PROJECTS $917,000 2,625 $349.33 57 57 7.8 12 Montecito 138 Cluster $760,000 2,156 $352.50 98 89 12.1 Jan -10 Brookfield Homes Detached $804,500 2,308 $348.57 Jan -10 3,250 $309.85 Woodbury 3,500 $814,500 2,336 $348.67 Irvine Irvine 17 Vista Vallarta 13 Santa Cruz 112 3,000 $677,000 2,027 $333.99 63 57 7.8 Van Daele Homes $696,000 2,144 $324.163 3,688 Jan -10 Feb -09 Woodbury East $722,000 2,283 $316.25 $1,021,900 3,885 CONSULTING REAL ESTATE APPRAISERS 66 Irvine 14 Primrose 131 Cluster $569,990 1,739 $327.77 14 10 6.6 KB Home Detached $579,990 1,673 $309.66 JUI-10 Portola Springs $619,990 2,056 $301.55 Irvine 15 Sonoma 95 3,500 $793,500 2,350 $337.66 95 89 13.1 TRI Pointe Homes $869,990 2,477 $351.23 Jan -10 Woodbury $908,990 2,622 $346.68 Irvine 16 Carmel 64 4,500 $917,000 2,625 $349.33 57 57 7.8 The New Home Company avg. $946,000 3,122 $303.01 Jan -10 Woodbury $1,007,000 3,250 $309.85 Irvine 17 Vista Vallarta 100 6,000 $964,900 3,474 $277.75 32 30 1.7 Shea Homes $1,001,900 3,688 $271.66 Feb -09 Glenwood at Aliso Viejo $1,021,900 3,885 $263.04 Aliso Viejo $1,034,000 3,892 $265.67 18 Birch River 69 5,000 $864,900 3,096 $279.36 62 56 1.5 Shea Homes $884,900 3,258 $271.61 Jun -07 Glenwood at Aliso Viejo $894,900 3,425 $261.28 Aliso Viejo 19 Pasadera 149 3,240 $716,900 2,652 $270.32 93 84 2.3 .Shea Homes $721,900 2,718 $265.60 Aug -07 Glenwood at Aliso Viejo $754,900 3,163 $238.67 Aliso Viejo $654,900 2,224 $294.47 CONSULTING REAL ESTATE APPRAISERS 66 HRA Although the Irvine market has been very strong so far this year, other areas of Orange County have lagged behind. The Aliso Viejo products have ranged from 1.4 to 2.5 sales per month. The four remaining submarkets in Orange County averaged on 2.6 sales per month in the second quarter. As has been discussed, the residential market has slowed significantly since the end of 2005. First decreases in sales traffic occurred, followed by a significant drop in sales activity. Subsequently, incentives and concessions were offered, followed by significant decreases in sales prices. In general, it appears that there has been a decrease of 3b%+ in net sales prices, particularly for standing inventory. This decrease is seen in actual price reductions plus significant incentives which can range from free upgrades, payment of closing costs, payment of HOA dues, and interest rate buy - downs. Our survey indicated that current incentives for projects outside of Irvine typically range from $10,000 to $25,000. Most of the Irvine projects are reporting $1,500 for using their lender to no incentives. As of the date of value, there were no new projects actively selling in the City of Tustin. Clearly, most agree that we are entering a market where prices should stabilize. At that time a return to a more normal market is anticipated with normal appreciation, as unemployment goes down and the recession ends. Maximally Productive In considering what uses would be maximally productive for the District, we must consider the previously stated legal considerations. We are assuming the land uses allowed under the Specific Plan approved by the City of Tustin are the most productive uses that will be allowed at the present time. Current zoning, approved uses and dwelling unit construction indicate that other alternative uses are not feasible at this time. The residential development for both attached and detached products should continue to meet with adequate response from the market. Given the improving demand for residential product in Central Orange County, it is our opinion that development as proposed provides the highest land value and is, therefore, maximally productive. CONSULTING REAL ESTATE APPRAISERS 67 HRA Conclusion Legal, physical, and market considerations have been analyzed to evaluate the highest and best use of the property. This analysis is presented to evaluate the type of uses which will generate the greatest level of future benefits possible from the land. After reviewing the alternatives available and considering this and other information, it is the opinion of the appraisers that the highest and best use for the subject properties, as vacant and as improved, is for residential development similar to that proposed and existing within CFD No. 06-1. The projects appear to have the location, features, and pricing structure to obtain an acceptable sales rate under normal financing and market conditions. As Vacant After reviewing the alternatives available and considering this and other information, it is these appraisers' opinion that ultimate development of a variety of residential for -sale projects is considered the highest and best use of the property. As Improved The existing and proposed uses are a legal use of the property and the value of the property as improved far exceeds the value of the site if vacant. This means that the improvements contribute substantial value to the site. Based on these considerations, it is our opinion that the proposed and existing improvements constitute the highest and best use of the District. CONSULTING REAL ESTATE APPRAfSERS .: HRA VALUATION METHODOLOGY Basis of Valuation Valuation is based upon general and specific background experience, opinions of qualified informed persons, consideration of all data gathered during the investigative phase of the appraisal, and analysis of all market data available to the appraiser. Valuation Approaches Three basic approaches to value are available to the appraiser: Cost Approach This approach entails the preparation of a replacement or reproduction cost estimate of the subject property improvements new (maintaining comparable quality and utility) and then deducting for losses in value sustained through age, wear and tear, functionally obsolescent features, and economic factors affecting the property. This is then added to the estimated land value to provide a value estimate. Income Approach This approach is based upon the theory that the value of the property tends to be set by the expected net income therefrom to the owner. It is, in effect, the capitalization of expected future income into present worth. This approach requires an estimate of net income, an analysis of all expense items, the selection of a capitalization rate, and the processing of the net income stream into a value estimate. Direct Comparison Approach This approach is based upon the principle that the value of a property tends to be set by the price at which comparable properties have recently been sold or for which they can be acquired. This approach requires a detailed comparison of sales of comparable properties with the subject property. One of the main requisites, therefore, is that sufficient transactions of comparable properties be available to provide an accurate indicator of value and that accurate information regarding price, terms, property description, and proposed use be obtained through interview and observation. CONSULTING REAL ESTATE APPRAISERS HRA Static Residual Analysis is used to estimate the merchant builder finished lot value. From the estimated base retail home price, all costs associated with the home construction including direct construction costs, indirect construction costs, financing and profit are deducted. Following the deduction of costs, the residual figure is an estimate of the merchant builder finished lot value. The Direct Comparison Approach is typically used for the valuation of land when sufficient recent comparable sales are available. The Static Residual Analysis is also used to value land as it more closely reflects current market conditions. The Income Approach is typically used when appraising income producing properties. This approach is not applicable in the valuation of land as land is not typically held to generate monthly income, but rather purchased to construct an end product that may or may not generate income. The Cost Approach is not an appropriate tool in the valuation of land. As previously discussed, the District includes 1,092 completed and sold dwelling units and physically finished lots proposed for one townhome project, one duplex project and one single family detached project. In addition, there is a site with one 24 -unit 3 - story building complete and the balance of the site in a physically finished lot condition proposed for 216 additional units, known as Coventry Court. For the land without unit construction the Static Residual Analysis is used for valuation purposes due to the lack of recent comparable land sales. From the estimated value of each merchant builder parcel assuming finished lot condition, a deduction for the remaining in -tract site costs is made. A deduction for the remaining developer site costs is also made, to estimate the "As Is" value. This appraisal assignment is to provide a Minimum Market Value for the District. To value the completed and sold dwellings, the appraisers will estimate a conservative price per square foot for an average size unit of each project. The District includes 1,092 completed and sold attached and detached dwellings within 11 projects. CONSULTING REAL ESTATE APPRAISERS 70 VALUATION COMPLETED AND SOLD DWELLING UNITS As previously discussed, there are 1,092 completed dwelling units that are sold to individual homeowners as of August 15, 2010. Please refer to the Addenda of this report for a lot by lot summary of each ownership, date of sale, and sales price. Due to the built -out status of the majority of the District, CFD No. 06-1, the appraisers have utilized a mass appraisal technique in the valuation of the completed and sold dwelling units. When implementing a mass appraisal, conservative estimates are to be used in the valuation. It is implicit in mass appraisal that some individual value conclusions will not meet standards of reasonableness, consistency and accuracy. However, appraisers engaged in mass appraisal have a professional responsibility to ensure that, on an overall basis, the value conclusions meet attainable standards of accuracy. The appraisers have used an average conservative value, for the average size unit within each tract. By utilizing average value estimates, individual home values could be higher or lower, depending on unit size. However, on an overall basis, the value conclusions are reasonable and meet attainable standards of accuracy. The 1,092 completed dwellings are located within 11 projects in the District. All of the projects are sold -out or have stopped production due to the weak residential market conditions that have occurred over the past 4+ years. Within the Improvement Description section of this report, a summary of the projects and average size dwelling unit is estimated. To estimate a conservative price per square foot for the average size unit of each project we have -reviewed the average price per square foot per project for 2007, 2008, 2009 and 2010 sales, when available. Also included is the number of sales that were available for analysis each year. Camden Place (18 sales); Meriwether (26 sales) Gables (18 sales); Madison (3 sales); Cantara (39 sales); and Westbourne (19 sales) include sales in 2006, but were not included in this analysis. The appraisers have utilized the public information available to them for all sales prior to August 15, 2010, as provided by the builder's title companies. The average price per square foot of similar projects in an active sales program as illustrated in the Highest and Best Use section of CONSULTING REAL ESTATE APPRAISERS 71 l L. this report were also analyzed. Particular consideration is given to the projects recently opened for sales. Current incentives in the actively selling tracts were considered as well as the project's absorption rates. It would be reasonable to expect the 2009 average price per square foot to be below that of the 2008 average price per square foot, and the 2008 average price per square foot to be below that of 2007, due to the declining prices over this time frame. The Camden Place, Cambridge Lane and Clarendon projects have been valued on an overall price per square foot, giving consideration to the number of income restricted units within each tract and the type of income restrictions; that is, for very low, low and moderate income families and transitional units as described within the Improvement Description section of this report. Please refer to the table on the following page that provides indications of average price per square foot per project per year. The following table includes the appraisers' conservative estimate of price for the average size unit in each project. The following table summarizes the project and number completed homes, of which 1,092 have sold to individual home owners as of the date of value. The table includes the overall Minimum Market Value per project and total estimated Minimum Market Value per Zone and for the 1,092 completed dwellings. The estimated Minimum Market Value for the completed and sold homes within Columbus Square, Zone 1, is $347,000,000 and within Columbus Grove, Zone 2, is $277,000,000. Columbus Square —Zone 1 Proiect Name Avg. Sz• / SF $/Ava. Sz DU No. DUs Total Value Cambridge Lane 1,301 $245 $318,745 156 $49,724,200 Camden Place 1,435 $280 $401,800 222 $89,199,600 Meriwether 1,633 $285 $465,405 114 $53,056,170 Verandas 2,164 $275 $595,100 97 $57,724,700 Gables 3,125 $275 $859,375 84 $72,187,500 Astoria 3,141 $255 $800,955 38 $30,436,290 TOTAL: 711 $347,537,260 ROUNDED: $347,000,000 CONSULTING REAL ESTATE APPRAISERS 72 HRA IAverage PRICE PER SQUARE FOOT VALUE CONCLUSIONS 2,700 $316 $301 $283 $303 $275 Price Per Square Foot j Proect Name Avg. Sz Avg. Lot 2007 2008 2009 2010 Value/SF COLUMBUS SQUARE -ZONE 1 $301 $283 N/A $275 Attached Products 36 sales 20 sales 10 sales Astoria Cambridge Lane 1,301 TH/Condo $247 $265 $265 N/A $245 50 -income rest. Garden 89 sales 36 sales 31 sales COLUMBUS GROVE *- ZONE 2 (very low & low) very low inc. Attached Products Camden Place 1,435 TH/Condo $371 $322 $318 $320 $280 63 -income rest. N/A Row 119 sales 29 sales 48 sales 8 sales Tri-plex (very low, low & mod) (moderate & transistional) Meriwether 1,633 TH $371 $330 $305 N/A $285 Tri-plex 52 sales 25 sales 11 sales 4,400 $338 Detached Products Verandas 2,164 2,700 $316 $301 $283 $303 $275 26 sales 26 sales 37 sales 8 sales Gables 3,125 5,700 $297 $301 $283 N/A $275 36 sales 20 sales 10 sales Astoria 3,141 4,500 $303 $255 N/A N/A $255 26 sales 12 sales COLUMBUS GROVE *- ZONE 2 Attached Products Clarendon 1,674 TH $271 N/A N/A N/A $240 42 -income rest. Tri-plex 102 sales (moderate & transistional) Detached Products Madison 2,734 4,400 $338 $307 $313 N/A $275 28 sales 39 sales 15 sales Cantara 2,818 4,050 $326 N/A N/A N/A $270 29 sales Westbourne 3,400 5,500 $327 N/A N/A N/A $260 40 sales Ciara 4,033 7,150 $345 $294 $274 N/A $255 39 sales 17 sales 11 sales CONSULTING REAL ESTATE APPRAISERS 73 HRA Columbus Grove — Zone 2 Project Name Avg. Sz. l SF $lAva. Sz DU No. DUs Total Value Clarendon 1,674 $240 $401,760 102 $40,979,520 Madison 2,734 $275 $751,850 85 $63,907,250 Cantara 2,818 $270 $760,860 68 $51,738,480 Westbourne 3,400 $260 $884,000 59 $52,156,000 Ciara 4,033 $255 $1,028,415 67 $68,903,805 TOTAL: 381 $277,685,055 ROUNDED: $277,000,000 The total Minimum Market Value for the 1,092 built and sold dwelling units within the District is $624,000,000. CONSULTING REAL ESTATE APPRAISERS 74 HRA VALUATION OF NEAR FINISHED SITES General Information The District is to be built -out by three merchant builders and one apartment builder. Within Columbus Square, eight for -sale products are built or proposed to be built by Lennar Homes and William Lyon Homes. The Coventry Court property, including one building with 24 units, is in escrow and will ultimately be sold for the development of 240 age -restricted rental units. Escrow is expected to close on August 25, 2010. Within Columbus Grove, one product has been built by KB Home and the remaining five products are built or to be built by Lennar Homes and William Lyon Homes. The total number of existing and proposed for -sale dwelling units within CFD No. 06-1 subject to special tax is 1,540. Of the 1,540 dwelling units, 1,300 units are for -sale detached and attached products. The previous section of this report valued the 1,092 dwelling units that have sold to individual home owners as of the date of value. This section of the report will value the land without unit construction. There are three for -sale projects to be built by William Lyon Homes that are in near finished lot condition. All of the for -sale lots, with the exception of 4 lots proposed for the Augusta development, are owned by Resmark entities and plan to proceed with development of the lots in the near-term. Two projects are located within Columbus Square. There is one townhome site proposed for 60 dwelling units known as Mirabella. There are 64 4,500 -square foot lots known as Augusta. Of the 64 lots, 4 lots are owned by Moffett Meadows Partners, LLC. This ownership entity reportedly has no time -line to sell the lots for development and reportedly has not determined who will build on the 4 lots. For purposes of this appraisal, we have assumed similar size homes as those currently proposed for the Augusta product and that development of the 4 lots will occur in a timely manner. There is one remaining project to be built within Columbus Grove. This product is known as Ainsley Park and is proposed for 84 duplex or paired homes. OONSULTIN a REAL ESTATE APPRA[SERS 75 The Mirabella project is proposed for 60 townhomes. The original product was proposed for dwellings, ranging in size from 2,125 to 2,685 square feet. According to the builder, the product has been revised and is currently proposed for three floor plans ranging from 1,661 square feet to 2,106 square feet. Trenching for the model homes and production homes is scheduled to begin in November 2010. Sales are scheduled to begin in April 2011. The costs to bring the Mirabella site from its "As Is" condition to a finished lot condition ready to start unit construction are $3,109,231 or $51,820 per proposed unit. William Lyon Homes has provided the cost to complete information which is dated August 2010. The Augusta product was originally a part of the Astoria product which was originally planned for 102 dwellings on 4,500 square foot lots. The Astoria product ranged in size from 2,749 to 3,529 square feet. Of the 102 dwellings, 4 model homes and 34 production homes were built and sold. The project was put on hold. According to the builder, William Lyon Homes, the build out of the 64 lots will be with a new product known as Augusta. The Augusta product is currently planned for 3 floor plans ranging from 2,610 square feet to 3,001 square feet. Trenching for the model homes is scheduled to begin in November 2010. Trenching for the production homes is scheduled to begin in April 2011, along with the sales program. The costs to bring the 64 Augusta lots from its "As Is" condition to a finished lot condition ready to start unit construction are $1,542,403 or $27,707 per lot. William Lyon Homes has provided the cost to complete information which is dated August 2010. The duplex product, Ainsley Park, is planned for 84 "paired" units. The product ranges in size from 1,659 square feet to 2,364 square feet, offering 4 floor plans. Trenching for the model homes began in August 2010. Trenching for the production homes is scheduled to begin in September 2010, along with a sales program. The costs to bring the Ainsley Park site from its "As Is" condition to a finished lot ready to start unit construction are $1,736,502 or $20,673 per proposed unit. The costs were provided by William Lyon Homes, dated August 2010 CONSULTING REAL ESTATE APPRAISERS Valuation of Finished Sites/Lots Land is typically valued by the Direct Comparison Approach when recent comparable land sales are available for comparison. The Static Residual Analysis is also used for valuation purposes when recent comparable land sales are not available as it more closely reflects current market conditions. Due to the significant downturn in the residential market over the past three years, recent comparable land sales are not available for comparison. The Static Residual Analysis will be used to value the three merchant builder parcels. Static Residual Analysis to Finished Lot Value The purpose of this analysis is to estimate a finished lot value for the land assuming no direct construction has taken place. This method is particularly helpful when development for a subdivision represents the highest and best use and when competitive house sales are available. Reportedly, this analysis is by far the most commonly used by merchant builders when determining price for land. This analysis is useful for projects that will have a typical holding period of one to two years which represents the typical holding period sought by merchant builders. The Static Residual Analysis best replicates the investor's analysis when determining what can be paid for the land based on proposed product. Purchase of the land is simply treated as one of the components necessary to build the houses to sell to the homeowner. When all the components of the end -product -can be identified and reasonable estimates of costs and profit can be allocated, the Static Residual Analysis becomes the best indicator of value to a merchant builder for a speck product. Speck product information is available, which makes this analysis particularly meaningful. The analysis uses an estimated average base sales price for a specific product, then deducts the various costs including direct and indirect costs of construction, marketing, taxes and overhead, as well as the required profit margin to attract an investor in light of the risks and uncertainties of the project. This analysis is most helpful when significant lot and or view premiums are not present. When negotiating land price, builders typically will consider the value of lot premiums when they are significant, but CONSULTING REAL ESTATE APPRAISERS 77 HRA typically do not give the premiums full consideration. When a downturn in the market occurs or a slight stall in a sales program, premiums are typically the first to be negotiated away. End -product Sales Prices The analysis uses the average base price without lot premiums. Our estimate of sales price includes a review of the comparable projects included in the Highest and Best Use section of this report and the base prices included in the Improvement Description section of this report, provided by the merchant builder, William Lyon Homes. The estimate of the average base price used in the Static Residual Analyses gives consideration to incentives currently offered in the market. Direct Development Costs The builder has provided direct construction costs to build each product. Direct construction costs of $68.00 per square foot, has been provided for Mirabella, and $60.25 per square foot has been provided for Augusta and $60.00 per square foot has been provided for Ainsley Park. The builder's estimate of direct construction costs are as of August 2010. The appraisers have recently interviewed builders in the Orange County area and are aware that direct construction costs have decreased over the past four years. The appraisers have given consideration to the builder's estimates of direct construction costs as well of costs from other builders in the Orange County area in the analyses. Indirect construction costs have been estimated at 4% of sales price, which is found to be an industry standard used for this analysis. General and Administrative General and administrative costs are estimated at 4% of retail value. This category covers such expenses as administrative, professional fees, real estate taxes, HOA dues, and miscellaneous costs. This estimate is typical and consistent with the market. CONSULTING REAL ESTATE APPRAISERS 78 HRA Marketing and Warranty Marketing and sales expenses plus warranty costs are estimated at 8% of retail value. This category covers such expenses as advertising and sales commissions and home warranties. This estimate is considered supported given current market conditions. Interest During Holding Period A typical allowance for financing during the holding period has been between 5% and 7%. Due to lenders requiring a higher equity participation from builders, an allowance for profit has been decreased. Based on recent interviews with builders in the subject's market area, we have chosen a 6% deduction for financing during the holding period. Developer Profit The line item for profit reflects the required margin to attract an investor in light of the risk and uncertainties of the specific project. This analysis assumes a finished lot and no on-site construction. Therefore, additional risk of development is unknown. Given the current residential market, and demand for the proposed projects, the risk of development is more than in a healthy residential market. Based on surveys of builders, profit requirements are typically between 8% and 12% of revenues, with occasional responses as high as 15%. These profit estimates are for projects that can be constructed and sold out in a two-year period. Higher profits can be required for longer construction/sellout periods and riskier projects. Lower profits can be accepted in inexpensive land cost areas where homes sell quickly. The District is proposed for attached and detached products in an area of demand in Orange County. Based on a review of competing subdivisions, a sales rate of 2.0+ units per month for the detached and attached products appears reasonable. Based on current market conditions and the outlook for the next 12 to 24 months, we have used a 12% line item for profit for the two more affordable attached products and 15% for the detached product. CONSULTING REAL ESTATE APPRAISERS 79 HRA Site Costs Because this analysis residuals to a finished lot condition, deductions for costs to bring to a finished lot condition are not included. The following pages illustrate the Static Residual Analysis for the three undeveloped for -sale projects within the District. Conclusion of Finished Lot Values Please refer to the following three pages which illustrate the Static Residual Analysis for each product. As indicated, the finished lot value for the detached product, Augusta, is $285,000. The finished site value for the duplex product, Ainsley Park, is $207,000. The finished site value for the attached product, Mirabella, is $165,000. CONSULTING REAL ESTATE APPRAISERS 60 HRA MIRABELLA Estimated Finished Lot Value Plan No. Size Base Price 1 1,661 $440,000 2 1,816 $470,000 3 2,106 $495,000 Average 1,861 $468,333 Incentives @ 3% Net Base S/P Mirabella by William Lyon Homes Townhomes 60 Proposed Units verage Retail Value of Improvements verage Dwelling Size (Sq. Feet) Direct Building Cost Per Sq. Ft. Indirect Construction Costs General & Administrative Costs Marketing and Warranty Costs Builder's Profit Interest During Holding Period Costs to bring to Finished Lot inished Lot Value Estimate 1,861 $72.00 4.00% 4.00% 8.00% 12.00% 6.00% Rounded to: -$14,050 $454,283 $454,283 $244.11 {Per sq. ft.) $133,992 $18,171 $18,171 $36,343 $54,514 $27,257 None $165,835 $165.000 CONSULTING REAL ESTATE APPRAISERS 81 Land Ratios Finished Lot 0.36 HRA AINSLEY PARK Estimated Finished Lot Value Plan No. Size Base Price 1 1,659 $490,000 2 1,766 $515,000 3 1,827 $535,000 4 2,364 $590,000 Average 1,904 $532,500 Incentives 0, 3% 8.00% -$15,975 Net Base S/P 12.00% $516,525 Isley Park by William Lyon Homes fired Townhomes Proposed Units ,verage Retail Value of Improvements $516,525 $271.28 (Per sq, ft.) ,verage Dwelling Size (Sq. Feet) 1,904 Direct Building Cost Per Sq. Ft. $70.00 $133,280 Indirect Construction Costs 4.00% $20,661 General & Administrative Costs 4.00% $20,661 Marketing and Warranty Costs 8.00% $41,322 Builder's Profit 12.00% $61,983 Interest During Holding Period 6.00% $30,992 Costs to bring to finished Lot None inished Lot Value Estimate $207,627 Rounded to: $207.000 CONSULTING REAL ESTATE APPRAISERS 82 Land Ratios Finished Lot 0.40 AUGUSTA Estimated Finished Lot Value Plan No. Size Base Price 1 2,610 $730,000 2 2,739 $760,000 3 3,001 $800,000 Average 2,783 $763,333 Incentives @ 3% 4.00% -$22,900 Net Base S/P 8.00% $740,433 Augusta by William Lyon Homes Detached homes on 4,500 SF Minimum .Lots 64 Proposed Units verage Retail Value of Improvements $740,433 $266.02 (Per sq. ft.) verage Dwelling Size (Sq. Feet) 2,783 Direct Building Cost Per Sq. Ft. $65.00 $180,917 Indirect Construction Costs 4.00% $29,617 General & Administrative Costs 4.00% $29,617 Marketing and Warranty Costs 8.00% $59,235 Builder's Profit 15.00% $111,065 Interest During Holding Period 6.00% $44,426 Costs to bring to Finished Lot None inished Lot Value Estimate $285,556. Rounded to: $285.004 CONSULTING REAL ESTATE APPRAISERS 83 Land Ratios Finished Lot 0.38 HRA "As Is" Value of Near -Finished Lots To arrive at an estimate of value for the "As Is" condition of the land within the District, a deduction for the costs associated with development of the land from its current condition to a finished lot condition is made. A deduction for the costs to complete as of August 2010, is made to arrive at an indication of the "As Is" condition of the land for each product. In addition to the merchant builder in -tract improvements that require completion, the developer has also provided site improvement costs for the District. According to Lennar Homes, the remaining development costs associated with CFD No. 06-1 is $700,041. The costs are for installation of sidewalks and landscaping adjacent to vacant home sites and final bond exoneration. The following table summarizes the finished lot estimates, costs to complete, and "As Is" value of each parcel. Columbus Square —Zone 1 Augusta 64 4,600 -square foot detached lots $285,0001 Finished Lot X 64 Lots = $18,240,000 Less Cost to Complete ($ 1,542,403) "As Is" Value 64 Near -finished Lots $16,697,597 Mirabella 60 Townhome sites $165,000/ Finished Site X 60 Sites = $ 9,900,000 Less Cost to Complete ($ 3,109,231) "As Is" Value 60 Near -finished Sites $ 6,790,769 Less Developer Cost to Complete for Zone 1 l$ 395.475)- "As Is" Value 124 Near -Finished Lots/Sites= $23,092,891 Rounded to $23,100,000 CONSULTING HEAL ESTATE APPRAISERS HRA Columbus Grove — Zone 2 Ainsley Park 84 duplex lots $207,000/ Finished Lot K 84 Lots = $17,388,000 Less Cost to Complete ($1.736,502) "As Is" Value 84 Near -finished Lots $15,651,498 Less Developer Cost to Complete for Zone 2 ($ 304,566) "As Is" Value 84 Near -Finished Lots/Sites = $15,346,932 Rounded to: $15,300,000 The total Minimum Market Value for the 208 near finished lots/sites within the District is $38,400,000. CONSULTING REAL ESTATE APPRAISERS 65 HRA VALUATION PROPOSED 240 -UNIT RENTAL PROJECT The age -restricted project, Coventry Court, is now proposed for a 240 -unit rental development. The 240 unit project is proposed to include 153 income restricted units, of which 36 are for Very Low incomes, 61 for Low incomes and 56 for Moderate incomes. Over 60% of the project is proposed for income restricted units. Coventry Court was originally planned for small, affordable condominium units. The Very Low and Low income restricted units set sales price that did not cover the direct construction costs, not to mention the other costs of building condominium units. Interviews with a representative of Lennar Homes indicated that their business plan did not show any value for the land proposed for development of Coventry Court. One building of the Coventry Court development has been built and includes 24 dwelling units. The building was originally planned to include the model homes for the condominium development. Due to the downturn in the housing market, along with the significant number of income restricted units, the project was put on hold. Subsequently, an application was filed with the City to allow for 153 affordable rental units and 87 market rate rental units, which has been approved. The existing building and near finished land proposed for the 240 -unit age - restricted rental development is in escrow and scheduled to close before the end of August, 2010. The reported sales price is $2,500,000 for the building and land. According to an interview with Lennar Homes, the sales price is less than the building cost to build. The sales price has been confirmed by the buyer. Based on the above discussions, we have not attributed value to the land proposed for the age -restricted Coventry Court project. The sales price of $2,500,000 is attributed to the improvements. Therefore, the total Minimum Market Value for the entire Coventry Court project in its "As Is" condition is $2,500,000. CONSULTING REAL ESTATE APPRAISERS K-1 HRA VALUATION CONCLUSION Based on the investigation and analyses undertaken, our experience as real estate appraisers, and subject to all the premises, assumptions and limiting conditions set forth in this report, the following opinion of Minimum Market Value has been formed as of August 15, 2010. CFD NO. 06-1 SIX HUNDRED SIXTY-FOUR MILLION NINE HUNDRED THOUSAND DOLLARS $664,900,000 Summary of Land and Unit Values "As Is" Value for 1,092 sold dwellings: $624,000,000 "As Is" Value for land proposed for 208 units: $ 38,400,000 "As Is" Value proposed 240 rental units: 2,500,000 Total Minimum Market Value CFD No. 06-1: $664,900,000 CONSULTING REAL ESTATE APPRAISERS 87 HRA CERTIFICATION We hereby certify that during the completion of this assignment, we personally inspected the property that is the subject of this appraisal and that, except as specifically noted: We have no present or contemplated future interest in the real estate or personal interest or bias with respect to the subject matter or the parties involved in this appraisal. We have provided appraisal services regarding the subject property within the three years immediately preceding the acceptance of this appraisal assignment, for our client, the City of Tustin and the Tustin Unified School District. To the best of our knowledge and belief, the statements of fact contained in this appraisal report, upon which the analyses, opinions, and conclusions expressed herein are based, are true and correct. Our engagement in this assignment was not contingent upon developing or reporting predetermined results. The compensation is not contingent upon the reporting of a predetermined value or direction in value that favors the cause of the client, the amount of the value estimate, the attainment of a stipulated result, or the occurrence of a subsequent event. The appraisal assignment was not based on a requested minimum valuation, a specific valuation, or the approval of a loan. The reported analyses, opinions, and conclusions were developed, and this report has been prepared, in conformity with the requirements of the Code of Professional Ethics & Standards of Professional Appraisal Practice of the Appraisal Institute, which include the Uniform Standards of Professional Appraisal Practice. As of the date of this report, James B. Harris has completed the requirements of the continuing education program of the Appraisal Institute. The reported analyses, opinions, and conclusions are limited only by the reported assumptions and limiting conditions, and are our personal, unbiased professional analyses, opinions, and conclusions. No one provided significant real property appraisal assistance to the persons signing this report. CONSULTING REAL'ESTATE APPRAISERS 88 HRA The use of this report is subject to the requirements of the Appraisal Institute relating to review by its duly authorized representatives. In furtherance of the aims of the Appraisal Institute to develop higher standards of professional performance by its Members, we may be required to submit to authorized committees of the Appraisal Institute copies of this appraisal and any subsequent changes or modifications thereof. Respectfully submitted, /�'L� 0 "WV' -t )U&Nz-) Berri Cannon Harris Vice President AG009147 761AV~ ames. Harris, MAI t AG001846 CONSULTING REAL ESTATE APPRAISERS 89 ADDENDA n G,7 HARRIS REALTY APPRAISAL 5100 Birch Street, Suite 200 Newport Beach, CA 92660 (949) 851-1227 QUALIFICATIONS OF JAMES B. HARRIS, MAI PROFESSIONAL BACKGROUND Actively engaged as a real estate analyst and consulting appraiser since 1971. President and Principal of Harris Realty Appraisal, with offices at: 5100 Birch Street, Suite 200 Newport Beach, California 92660 Before forming Harris Realty Appraisal, in 1982, was employed with Real Estate Analysts of Newport, Inc. (REAN) as a Principal and Vice President. Prior to employment with REAN was employed with the Bank of America as the Assistant Urban Appraisal Supervisor. Previously, was employed by the Verne Cox Company as a real estate appraiser. PROFESSIONAL ORGANIZATIONS Member of the Appraisal Institute, with MAI designation No. 6508 Director, Southern California Chapter —1998, 1999 Chair, Orange County Branch, Southern California Chapter -1997 Vice -Chair, Orange County Branch, Southern California Chapter - 1996 Member, Region VII Regional Governing Committee - 1991 to 1995, 1997, 1998 Member, Southern California Chapter Executive Committee - 1990, 1997 to 1999 Chairman, Southern California Chapter Seminar Committee - 1991 Chairman, Southern California Chapter Workshop Committee - 1990 Member, Southern California Chapter Admissions Committee - 1983 to 1989 Member, Regional Standards of Professional Practice Committee -1985 - 1997 Member of the International Right -of -Way Association, Orange County Chapter 67. California State Certified Appraiser, Number AGO01846 EDUCATIONAL ACTIVITIES B.S., California State Polytechnic University, Pomona, 1972. Successfully completed the following courses sponsored by the Appraisal Institute and the Right -of - Way Association: Course I -A Principles of Real Estate Appraisal Course 1-8 Capitalization Theory Course II Urban Properties Course IV Litigation Valuation Course VI Investment Analysis Course VIII Single -Family Residential Appraisal Course SPP Standards of Professional Practice Course 401 Appraisal of Partial Acquisitions Has attended numerous seminars sponsored by the Appraisal Institute and the International Right - of -Way Association. TEACHING AND LECTURING ACTIVITIES Seminars and lectures presented to the Appraisal Institute, the University of California -Irvine, UCLA, California Debt and Investment Advisory Commission, Stone & Youngberg and the National Federation of Municipal Analysts. MISCELLANEOUS Member of the Advisory Panel to the California Debt and Investment Advisory Commission, regarding Appraisal Standards for Land Secured Financing (March 2003 through June 2004) LEGAL EXPERIENCE Testified as an expert witness in the Superior Court of the County of Los Angeles and the County of San Bernardino and in the Federal Bankruptcy Courts five times concerning the issues of Eminent Domain, Bankruptcy, and Specific Performance. He has been deposed numerous times concerning these and other issues. This legal experience has been for both Plaintiff and Respondent clients. He has prepared numerous appraisals for submission to the IRS, without having values overturned. He has worked closely with numerous Bond Counsel in the completion of 175 Land Secured Municipal Bond Financing appraisals over the last five years. SCOPE OF EXPERIENCE Feasibility and Consultive Studies Feasibility and market analyses, including the use of computer-based economic models for both land developments and investment properties such as shopping centers, industrial parks, mobile home parks, condominium projects, hotels, and residential projects. Appraisal Projects Has completed all types of appraisal assignments from San Diego to San Francisco, California. Also has completed out-of-state appraisal assignments in Arizona, Florida, Georgia, Hawaii, Nevada, New Jersey, Oklahoma, Oregon, and Washington. Residential Residential subdivisions, condominiums, planned unit developments, mobile home parks, apartment houses, and single-family residences. Commercial Office buildings, hotels, motels, retail store buildings, restaurants, power shopping centers, neighborhood shopping centers, and convenience shopping centers. Industrial Multi -tenant industrial parks, warehouses, manufacturing plants, and research and development facilities. Vacant Land Community Facilities Districts, Assessment Districts, master planned communities, residential, commercial and industrial sites; full and partial takings for public acquisitions. QUALIFICATIONS OF BERRI CANNON HARRIS PROFESSIONAL BACKGROUND Actively engaged as a real estate appraiser since 1982. Vice President of Harris Realty Appraisal, with offices at: 5100 Birch Street, Suite 200 Newport Beach, California 92660 Before joining Harris Realty Appraisal was employed with Interstate Appraisal Corporation as Assistant Vice President. Prior to employment with Interstate Appraisal was employed with Real Estate Analysts of Newport Beach as a Research Assistant. PROFESSIONAL ORGANIZATIONS Candidate of the Appraisal Institute for the MAI designation. Co -Chair, Southern California Chapter Hospitality Committee - 1994 - 1998 Chair, Southern California Chapter Research Committee - 1992, 1993 Women in Commercial Real Estate, Member Orange County Chapter. Chair, Special Events — 1998, 1999, 2000, 2001, 2002, 2003 Second Vice -President - 1996, 1997 Treasurer - 1993, 1994, 1995 Chair, Network Luncheon Committee - 1991, 1992 California State Certified Appraiser, Number AG009147 EDUCATIONAL ACTIVITIES B.S.B.A., University of Redlands, Redlands, California Successfully .completed the following courses sponsored by the Appraisal Institute: Principles of Real Estate Appraisal Basic Valuation Procedures Capitalization Theory and Techniques - A Capitalization Theory and Techniques - B Report Writing and Valuation Analyses Standards of Professional Practice Case Studies in Real Estate Valuation Has attended numerous seminars sponsored by the Appraisal Institute. Has also attended real estate related courses through University of California -Irvine. LECTURING ACTIVITIES Seminars and lectures presented to UCLA, California Debt and Investment Advisory Commission, and Stone & Youngberg. MISCELLANEOUS Member of the Advisory Panel to the California Debt and Investment Advisory Commission, regarding Appraisal Standards for Land Secured financing (March 2003 through June 2004) SCOPE OF EXPERIENCE Appraisal Projects Has completed all types of appraisal assignments from San Diego to San Francisco, California. Also has completed out-of-state appraisal assignments in Arizona and Hawaii. Residential Residential subdivisions, condominiums, planned unit developments, mobile home parks, apartment houses, and single-family residences. Commercial Office buildings, retail store buildings, restaurants, neighborhood -shopping centers, strip retail centers. Industrial Multi -tenant industrial parks, warehouses, manufacturing plants, and research and development facilities. Vacant Land Residential sites, commercial sites, industrial sites, large multi -unit housing, master planned unit developments, and agricultural acreage. Specializing in Community Facilities District and Assessment District appraisal assignments. PARTIAL LIST OF CLIENTS Lending Institutions Bank of America Bank One Commerce Bank Downey S&L Assoc. Fremont Investment and Loan Institutional Housing Partners Army Corps of Engineers California State University Caltrans City of Adelanto City of Aliso Viejo City of Beaumont City of Camarillo City of Corona City of Costa Mesa City of Encinitas City of Fontana City of Fullerton City of Hesperia City of Honolulu City of Huntington Beach City of Indian Wells City of Indio City of Irvine City of Lake Elsinore City of Loma Linda City of Los Angeles City of Moreno Valley City of Newport Beach City of Oceanside City of Ontario Arter & Hadden Bronson, Bronson & McKinnon Bryan, Cave, McPheeters & McRoberts Richard Clements Cox, Castle, Nicholson Gibson, Dunn & Crutcher Hill, Farrer & Burrill NationsBank Preferred Bank Santa Monica Bank Tokai Bank Union Bank Wells Fargo Bank Public Agencies City of Palm Springs City of Perris City of Rialto City of Riverside City of San Marcos City of Tustin City of Victorville City of Yucaipa County of Hawaii County of Orange County of Riverside County of San Bernardino Eastern Municipal Water District Orange County Sheriff's Department Ramona Municipal Water District Rancho Santa Fe Comm. Services District Capistrano Unified School District Hemet Unified School District Hesperia Unified School District Romoland School District Saddleback Valley Unified School District Santa Ana Unified School District Sulphur Springs School District Val Verde Unified School District Yucaipa-Calimesa Unified School District Law Firms McClintock, Weston, Benshoof, Rochefort & MacCuish Palmiri, Tyler, Wiener, Wilhelm, & Waldron Sonnenschein Nath & Rosenthal Strauss & Troy Wyman, Bautzer, Rothman, Kuchel & Silbert SUMMARY OF SOLD DWELLING UNITS SoI Dw@fling �lnitstriW a pwnersni , vii Tract 16581 Cambridge Lane 1 Hill 6/11/2007 $55,500 2 Moon/Lee 7/17/2007 $376,000 3 Dept. of Veterans Affairs of the State of CA 6/12/2007 $498,500 4 Batasee 6/11/2007 $67,500 5 Jones 6/13/2007 $76,500 6 Loo 6/13/2007 $499,500 7lturzaeta 6/15/2007 $590,500 8 Hernandez 5/25/2007 $623,500 9 Lin 5/25/2007 $478,000 10 Davis 5/29/2007 $76,500 11 Vansambeek 5/29/2007 $137,000 12 Burne 5/30/2007 $498,000 13 Huang 7/2/2007 $400,500 14 Pestolesi 5/31/2007 $55,500 15 La 1/25/2008 $67,500 16 Motschenbacher 6/25/2007 $395,000 17 Murphy 6/5/2007 $488,500 18 Park/Tumba a 6/5/2007 $495,500 19 Davis 6/7/2007 $112,500 20 Thai 6/7/2007 $76,500 21 Ithivon su hakit/Buranda 7/17/2007 $460,000 22 Wall 6/8/2007 $567,500 23 Huan /Okawa 1/25/2008 $414,500 24 Knapp 6/18/2007 $498,000 25 Pizana 6/19/2007 $76,500 26 Tsai 6/19/2007 $112,500 27 Sharp/Martinez 6/27/2007 $481,000 28 Tu/Maekawa 6/20/2007 $475,000 29 Rodriguez/Maguire 6/22/2007 $443,000 30 Shafer 6/22/2007 $116,500 31 ' Bithell 10/24/2007 $95,000 32' Petersen 11/29/2007 $370,000 33 Lee 10/22/2007 $507,500 34 Ochoa/Segura 10/23/2007 $470,500 35 Espinoza 10/23/2007 $112,500 36 Tilva 10/26/2007 $126,500 37 Sarvate/Joshi 10/24/2007 $479,000 38 Kokawa 10/24/2007 $592,000 39 Harte 10/5/2007 $591,000 40 Ascher 10/5/2007 $504,000 41 Ascencio 10/31/2007 $126,500 42 Monaghan 10/5/2007 $67,000 43 Parrett 10/12/2007 $112,500 44 MacLean 10/9/2007 $522,00 45 Huson 10/10/2007 $412,500 46 Esakoff 10/11/2007 $467,500 s S�I�.�C��►,�ll�t�� Ulnt� � �� � .��,. 47 Kadi/Skvirska a 10/12/2007 $116,500 48 Torres 10/12/2007 $387,000 49 Halverson 10/16/2007 $480,500 50 Yoshida 10/15/2007 $468,000 51 Leavitt 10/18/2007 $112,500 52 Za ed/Ha ue 10/15/2007 $126,500 53 N u en/Tran 10/25/2007 $462,500 54 Gewelber 11/5/2007 $592,000 55 Liu/Anuccavech 10/26/2007 $594,000 561deo 10/30/2007 $484,000 57 Avila 10/19/2007 $126,500 58 Schennum/Davis 10/29/2007 $122,500 59 Marasco 10/30/2007' $464,500 60 Cat 12/4/2007 $456,000 61 Agnes 11/21/2007 $404,500 62 Cao 10/31/2007 $95,000 63 Cart 12/14/2007 $95,000 64 Murray12/14/2007 $386,500 65 Almeida 12/18/2007 $453,500 66 Ananad 12/28/2007 $397,500 67 Le 12/18/2007 $112,500 68 Chen/Liu 12/18/2007 $126,500 69 Bishop 12/19/2007 $407,500 70Iliff 12/27/2007 $504,500 71 Froman 11/30/2007 $577,500 72 Lomax 12/28/2007 $399,000 73 Martinez 12/5/2007 $126,500 74 Baker 12/5/2007 $112,500 75 Fre ermuth 12/24/2007 $404,500 76 Mastrodonato 12/28/2007 $420,000 77 Cabezas/Narmaki 12/7/2007 $394,000 78 Trump 12/5/2007 $116,50 79 Martinez 12/20/2007 $55,500 80 Ksiazkiewica/Jhun'hunuwala 12/21/2007 $350,500 81 Azizollahoff 12/26/2007 $414,000 82 Va lien /Larson 12/26/2007 $407,500 83 Vasquez 12/27/2007 $67,500 84 Foster 12/27/2007 $76,500 85 Huang 12/28/2007 $397,500 86 Wang/Chen 4/30/2008 $482,500 87 Green 6/6/2008 $488,500 88 Gratzer 2/21/2008 $410,000 89 Nguyen 12/10/2007 $126,500 90 Printzen 12/11/2007 $67,506 91 Pack 12/26/2007 $414,500 92 Takata 12/28/2007 $426,000 93, Dizon 12/12/2007 $388,000 94 Finn 12/12/2007 $55,500 S�Ttl`I�►�ili�tt� l7`fii '�;Ii pY PrgjpeVLot & it # Owne 95 Fernandez 9/26/2008 $95,000 96 Myers 9/25/2008 $369,500 97 Rowe/Tran 10/10/2008 $417,500 98 Wallace/Ferrin 9/29/2008 $435,500 99 Farmand 9/30/2008 $67,500 100 Favis 9/30/2008' $154,000 101 Na ai/Teramoto 10/1/2008 $423,000 102 Gellerman 10/31/2008 $487,000 103 T!�miri 10/3/2008 $472,500 104 Pike 10/20/2008 $436,000 105 Scott 10/3/2008 $126,500 106 Chen 10/3/2008 $112,50 107 D'Souza/Bhatankar 10/7/2008 $409,500 108 Wilson/Brunnell 10/7/2008. $426,500 109 Smail 10/8/2008 $365,000 110 Nguyen 10/8/2008 $360,500 111 Cornelius 11/14/2008 $394,500 112 Schlatter 11/14/2008 $394,000 113 Mayoral 11/13/2008 $428,000 114 Pena 1/16/2009 $425,000 115 Ridgeway 11/18/2008 $425,000 116 Weaver 11/18/2008 $126,500 117 Huang and Cheung 11/19/2008 $408,000 118 Townsend 12/1/2008 $507,500 119 Pan 11/6/2008 $509,500 120 Montilla and Fernandez 11/14/2008 $413,000 121 McAula 11/20/2008 $126,500 122 Martinez 11/18/2008 $112,500 123 Zheng and Yi 11/24/2008 $411,000 124 Restre o 11/12/2008 $434,000 125 Mandich 11/12/2008 $373,000 126 Powell and Diaz 11/26/2008 $347,000 127 N oc 4/16/2009 $332,500 128 Lee 4/29/2009 $318,000 129 Swain 4/30/2009 $418,500 130 Wang and Kwan 4/24/2009 $370,000 131 To 5/22/2009 $376,500 132 Del Rosario 5/26/2009 $126,500 133 Tierney 5/11/2009 $395,000 134 Chai 4/28/2009 $467,500 135 Quevedo and Vance 5/11/2009 $480,000 136 Ma 6/26/2009 $373,000 137 Del Rosario and Gamallo 8/7/2009 $154,000 138 Wu and Chen 6/11/2009 $396,000 139 McCabe and Duon 5/15/2009 $433,000 140 Lian 5/6/2009. $353,000 141 Giermann 5/6/2009 $321,500 142 Johnson 8/6/2009 $355,000 i M So�[viriln�t �aA ,� 14 m Pryctl[.oi,.�wnershl.a �... :,. 143 Raza x 9/10/2009 $350,000 144 Park 9/18/2009 $420,000 145 Cheung 8/25/2009 $411,000 146 Zahid and Sobhana 9/2/2009 $154,000 147 McCarthyand Huang 9/11/2009 $388,000 148 Baker 8/17/2009 $515,000 149 Dash 7/31/2009 $470,000 150 Kwok 8/17/2009 $385,000 151 McBride 8/20/2009 $126,500 152 Murlock amd Storm 8/14/2009 $137,000 153 Schmidt 7/31/2009 $370,500 154 Hacato an 8/12/2009 $403,000 155 N oc 9/10/2009 $327,000 156 S ietz 8/26/2009 $116,500 156, Closed Escrows TOTAL: $51,660,000 AVG. S/P: $331,154 x � �.,,�/�( 9i i'�i X14 } Tract 16581, Lots 294 through 314, Unit Nos. Camden Place - Parcel 1 1 Ready Development Advisors, LLC 7/26/2006 $594,500 2 Gross 8/29/2006 $575,500 3 Caputo 7/31/2006 $539,000 4 Schumann 8/1/2006 $577,500 5 Russel 11/20/2006 $582,000 6 Dizon 12/29/2006 $565,000 7 Ly 11/21/2006 $552,000 8 Hernandez 11/22/2006 $568,500 9 Aranda Jr. 11/30/2006 $586,000 10 Bhatt 11/30/2006 $586,000 11 Crume 11/27/2006 $545,000 12 Ratnam 11/29/2006 $531000 13 Peck 11/28/2006 $529,000 14 Pham 12/29/2006 $530,000 15 Fender 11/29/2006 $609,500 16 Aro 12/29/2006 $570,000 17 Dahl 12/27/2006 $562,000 18 English 2/28/2007 $539,000 19 Quon 12/28/2006 $568,000 20 Parker 1/19/2007 $599,000 21 Rickard 1/22/2007 $552,500 22 Larkins 1/22/2007 $530,00 23 Sterck 1/25/2007 $539,000 24 Cerda 2/28/2007 $549,000 25 Bielman 1/24/2007 $578,000 26 Nichols 1/25/2007 $603,500 27 Butterworth-Contino 1/30/2007 $561,000 28 Apodaca 1/23/2007 $545,000 29 Talebi 1/31/2007 $611,000 30 Green 2/9/2007 $588,000 31 Sanborn 2/9/2007 $582,500 32 Pavico 2/28/2007 $539,000 33 Yip 2/14/2007 $588,000 34 Doll/Chin 2/16/2007 $590,000 35 Kaneko 2/16/2007 $565,500 36 Dicostanzo 2/18/2007 $539,000 37 Achackzad 2/21/2007 $555,000 38 Mon'azeb 2/23/2007 $580,000 39 Perez-Osorio/Perez 2/28/2007 $580,000 40 Cadra/Wise 2/26/2007 $536,000 41 Mc owan 2/26/2007 $579,000 42 No ola 2/28/2007. $538,000 43 Hansen 2/27/2007 $591,000 44 Woods 3/8/2007 $616,500 45 Kirkwood 3/9/2007$579,500 46 Shroff 3/9/2007 $570,000 47. Tonelli 3/12/2007 $570,500 Y "t4 ?r' 48 Pascua/Bai 3/15/2007 $580,000 49 Lu/Lee 3/15/2007 $580,000 50 Raefski 3/16/2007 $574,000 51 Klein 3/18/2007 $551,000 52 Hara anahalli 3/20/2007 $564,500 53 Kufuor-Mensah 3/20/2007 $604,000 54 Bui 4/30/2007 $587,000 55 Rudolf 3/23/2007 $552,000 56 Peiffer -Seitz 3/26/2007 $568,000 57 Caruso 4/27/2007 $564,000 58 Crooker/Chamberlin 3/28/2007 $586,000 59 Cuenca 6/26/2007 $550,000 60 Yee 4/5/2007 $551,000 61 Ortiz 4/20/2007 $589,500 62 Kerr 4/13/2007 $577,500 63 Johnson/Bie ler 4/12/2007 $587,000 64 Mercado 4/16/2007 $586,000 65 Hare 4/18/2007 $579,500 66 Velasquez 4/19/2007 $539,000 67 Luu/Roan 4/18/2007 $585,500 68 Kerr 4/19/2007 $553,000 69 Lee and Chau 5/31/2007 $587,000 70 Biener 4/20/2007 $586,000 71 Hu nh/Truon 4/24/2007 $564,000 72 George 4/27/2007 $581,500 73 Smirnov/Mironova 4/26/2007 $572,500 74 A uilera 4/27/2007, $587,000 75 Qui'ano 5/31/2007 $599,000 76 Herman 5/24/2007. $546,000 77 Tanabe 5/24/2007 $554,000 78'Wong and Lau 6/1/2007 $587,000 79 Ali 5/25/2007 $587,000 80 Chen 6/25/2007 $529,00 81 Sorensen 5/30/2007 $569,000 82 Hi uchi 5/31/2007 $539,000 83 Thai and Hau 6/22/2007 $529,000 84 Ward 6/4/2007 $594,000 85 Emanuelson and McLaughlin 5/30/2007 $619,000 86 An elakis 5/31/2007 $571,000 87 Cone and Si ismondo 617/2007 $613,000 88 Tda 8/21/2007 $587,000 89 Garvey and Lanz 10/31/2007 $453,000 90 Se esman 8/24/2007 $570,500 91 Johnson and Gorski 10/29/2007 $439,000 92 Wade Jr. and Shahin 8/29/2007 $597,500 93 Baraan 8/29/20071 $596,000 94 Ou 8/29/2007 $566,500 95 Colburn 8/30/2007 $544,000 96 Vo 8/23/2007 $559,000 r. t y , ON 97 Nguyen 5/2/2008 $500,000 98 Yeh 2/18/2010 $521,000 99 Chiu 2/19/2010 $458,000 100 Vossou hi 2/23/2010 $424,000 101 Dai 2/23/2010 $458,000 102 Abboud 2/24/2010 $458,00 103 Pinzon 2/25/2010 $495,000 103 Closed Escrows - Parcel 1 TOTAL: $57,813,000 AVG. S/P: $561,291 Tract 16581, Lots 332 through 354, Unit Nos. Camden Place - Parcel 2 Mastro 10/31/2007 $466,500 2 Pokrywa and Nguyen 11/1/2007 $436,000 3 Campbell and Mendez 10/23/2007 $454,000 4 Be row 10/26/2007 $468,000 5 Dimmerlin 10/30/2007 $458,000 6 Williams and Howerton 10/30/2007 $439,000 7 Burrows 11/2/2007 $430,000 8 Matsuna a 10/18/2007 $447,500 9 Torres and Cocker 10/19/2007 $464,000 10 Ahina uah 10/22/2007 $587,000 11 Lam and Yan 10/31/2007 $434,000 12 Botello and Herrera 11/9/2007 $434,000 13 Wong and Nguyen 10/26/2007 $566,500 14 Townes and Roshak 10/30/2007 $459,000 15 Gupta and Gupta 11/15/2007 $459,000 16 Chang and Zhou 11/16/2007 $414,000 17 Ter 11/16/2007 $551,000 18 Pham 11/29/2007 $500,000 19 Chen 11/20/2007 $436,500 20 Hustedt 11/19/2007 $439;OW 21' Blush 12/18/2007, $530,000 22 Do 11/20/2007 $415,500 23 Kwon 11/21/2007 $434,000 24 Wang and Liu 11/21/2007 $408,000 25 Reed 11/16/2007 $487,000 26 Hansalia 11/15/2007 $587,000 27, Popham Jr. 11/28/2007 $434,000 28 Has 11/27/2007 $414,000 29 Heo and Park 5/28/2008 $450,000 30 Wang and Hsu 11/28/2007 $459,000 31 Shbeeb 12/20/2007 $506,000 32 Zhou 12/17/2007 $444,000 33 Williams and Brou her 1 12/21/20071 $478,000 34 Simkin 12/21/2007 $436,000 35 Peck 12/18/2007 $464,000 36 Weber 12/31/2007 $489,000 046 bet/Lot 1 O�lrtiers V' 37 Kurada and Chitra u 12/27/2007 $470,500 38 Grabin er 12/27/2007 $464,000 39 Shu 12/28/2007 $414,000 40 Kwon 12/28/2007 $464,000 41 Shafii 12/28/2007 $450,000 42 Chedalawada and Ravipati 12/28/2007 $469,000 43 Mazza and Weiss 9/24/2008 $506,000 44 Lee 9/26/2008 $420,000 45 Jewell 11/5/2008 $445,000 46 Nelson 9/26/2008 $489,000 47 Romero 10/6/2008 $495,000 48 Woods Jr. 10/7/2008 $443,000 49 Valle and Herrera 10/17/2008 $445,000 50 Serkovich and Whetstone 10/10/2008 $465,50 51 Perez 10/15/2008 $489,00 52 Narciso 10/20/2008 $495,000 53 Tin 10/20/2008 $443,000 54 Needham 10/24/2008 $420,000 55 Chui 10/22/2008 $489,000 56 Perez and Medina 12/19/2008 $495,000 57 Hill and Yakos 11/13/2008 $445,000 58 Khare and Sheth 11/14/2008 $462,000 59 Chen and Peden 1/30/2009 $423,000 60 Beaty and Lin 11/17/2008 $500,000 61 Chinen 11/17/2008 $506,500 62 Tran 11/18/2008 $443,000 63 Peros 11/18/2008 $443,000 64Correa 11/19/2008 $435,000 65 Yoder 11/19/2008 $449,000 66 Frem en and Bergeron 2/13/2009 $480,000 67 Bonno 11/26/2008 $460,000 68 Barnes 11/20/2008 $443,000 69 Baker 12/1/2008 $435,00 70 Tan and Chun 11/21/20081 $443,000 71 Moble 11/24/2008 $443,000 72 Shen 3/2/2009 $483,500 73 Lear 2/20/2009 $490,000 74 Tran 2/26/2009 $423,000 75 Nieves 2/18/2009 $430,000 76. Tran 2/18/2009 $425,000 77 Crease 2/19/2009 $482,000 78 On 3/2/2009 $480,000 79 Chan and Cheung2/23/2009 $423,000 80 Keese 8/28/2009 $443,000 81 Schnars and Rooney3/2/2009 $435,000 82 Chan 5/29/2009 $482,000 83 Shan 3/23/2009 $482,000 84 Lovelad 3/23/2009 $430,500 85 Chan 3/24/2009 $423,000 -3an � o y' iact/Lo>i;'$��T�r#°;=,sVifi�i O _ 86 Olson and Vliem 3/25/2009 $423,000 87 Soni 3/25/2009 $425,500. 88 S iruan sakun 3/26/2009 $480,000 89 Ne ishi 8/27/2009 $491,000 90 Flinn 8/27/2009 $443,000 91 Won 8/28/2009 $429,000 92 Fisher and Pinheiro 8/28/2009 $443,000 93 Klittivit and Shimizu 8/31/2009 $443,000 94 Peck 8/31/2009 $491,000 95 Lowe 9/15/2009 $489,.000 96 Martin and Lambden 9/15/2009 $424,000 97 Bums 11/13/2009 $433,000 98 Nguyen and Kim 10/21/2009 $480,000 99 Fong and Deering 9/8/2009 $491,000 100 Floyd 9/9/2009 $443,000 101 Shea 12/1/2009 $424,000 102 Gonzalez 9/11/2009 $491,000 103.Huang 11/24/2009 $501,000 104 Bartolome and Ventus 11/20/2009 $443,000 105 Ha a 11/18/2009 $443,000 106 Brown 3/31/2010 $435,000 107 Hu 11/19/2009 $443,000 108 Chah 11/17/2009 $501,000 109 Sedlezk 11/20/2009 $480,000 110 Nguyen and Diaz 11/20/2009 $443,000 111 Ochoa 11/24/2009 $424,000 112 Sabado 11/23/2009 $443,000 113 Cordell 11/23/2009 $433,000 114 McCormick 11/23/2009 $499,000 115 Wu 12/29/2009 $501,000 116 Phan 12/17/2009 $443,000 117 Estiandan 2/25/2010 $435,000 118 Goei and Calilon 12/18/2009 $443,000 11 Puente 12/18/2009 1481.000, 119 Closed Escrows - Parcel 2 TOTAL: $54,726,500 AVG. S/P: $459,887 222 Total Sales Camden Place $112,539,500 AVG. S/P: $506,935 V �✓� � l� Q��� l� w S*�-!�,'1L\�RI�,Y'� ��� �.'� { ?? Mf+�, `y' %L i. Tract 16581 & Unit Nos. Meriwether 1 Seiler 7/31/2006 $572,500 2 LeWinter etal 7/31/2006 $677,000 3 LeWinter etal 7/31/2006 $697,000 4 Mastroianni Jr. 10/27/2006 $498,000 5 Starczewski 10/27/2006 $697,500 6 Lon 10/1/2006 $673,000 7 Carter Sr. 10/27/2006 $498,500 8 Wh Id 10/27/2006 $653,000 9 Mumaw 10/30/2006 $713,000 10 Le 10/27/2006 $500,50 11 Won 10/27/2006 $674,000 12 Lavarro 10/27/2006 $690,000 13 Kim 10/27/2006 $521,000 14 Quon 11/7/2006, $655,500 15 McDonald 11/9/2006 $699,000 16 Thornton 11/27/2006, $560,500 17 Enders 11/27/2006 $671,000 18 Stelzner 11/28/2006 $731,500 19 Cano 11/28/2006 $523,500 20 Casteel 11/29/2006 $679,500 21 Pan 11/29/2006 $710,500 22 Downie 11/29/2006 $518,500 23 Ramirez 11/30/2006 $701,500 24 Roy 11/30/2006 $688,000 25 Bailey 12/19/2006 $515,000 26 McManus 11/30/2006 $662,500 27 Cu u an 1/17/2007 $720,500 28 Enes amd Stemmler 2/13/2007 $529,000 29 Ditto 2/27/2007 $639,000 30 Arnold 2/15/2007 $657,000 31 Javaheri/Chian 2/20/2007 $534,500 32 Kubat Jr. 2/22/2007 $635,000 33 Lubinski 2/16/2007 $652,000 34 Scott 2/28/2007 $516,000 35 Irwin 3/7/2007 $661,000 36 Hin orani 3/23/2007 $687,000 37 Swine 3/13/2007 $516,500 38 Ta 2/28/2007 $674,500 39 Dienhart 3/15/2007 $692,500 40 Do 4/25/2007 $520,500 41 Ride 5/3/2007 $674,900 42 Tostado and Ng 6/25/2007 $688,000 43 Stone 4/30/2007 $523,500 44 Singer 5/1/2007 $662,000 45 Gould 6/22/2007 $689,500 4 b�. P ' Oct/Lot flWn rsfi 46 Nitta 4/30/2007 $515,000 47 Hawley 5/9/2007 $660,000 48 Dan 4/30/2007 $670,000 49 Riding 5/9/2007 $531,000 50 Vo/Le 5/14/2007 $650,000 51 Vint 5/16/2007 $657,500 52 Stavast 5/14/2007 $521,000 53 Hazboun 5/30/2007 $679,500 54 Hazboun 5/30/2007 $595,000 55 Chu and Kim 5/17/2007 $523,000 56 Reinmiller 5/21/2007 $664,000 57 Miller 7/31/2007 $669,000 58 Randazzo 5/23/2007 $524,000 59 Castillo 5/30/2007 $654,000 60 Blankinship 6/28/2007 $699,500 61 Ansari 5/31/2007 $520,000 62 Fuschi 5/31/2007 $667,000 63 Perlber 7/20/2007 $660,000 64 Self and Mi ahara 10/23/2007 $494,000 65 Morris 10/29/2007 $600,000 66 Nair 11/20/2007 $582,000 67 Harrison 10/30/2007 $513,500 68 Alhakeem and Mahmoud 11/5/2007 $612,000 69 Chang and Van 10/26/2007 $658,000 70 Yoshimoto 10/31/2007 $495,000 71 Hekimian 11/2/2007 $602,500 72 Zaidi and Ursani 11/16/2007 $635,500 73 Morris, II and Wagner 11/5/2007 $499,500 74 Nguyen and Duon 11/21/2007 $565,000 75 Shen 11/7/2007 $625,000 76 Sueiro 11/13/2007 $521,00 77 Bortman 11/21/2007 $542,000 78 Chua and Won 11/13/2007 $607,000 79 Dooley 1/25/2008 $494,000 80 Panetti 2/20/2008 $569,000 81 Chandra and Sanu 2/27/2008 $575,000 82 Maeda 1/30/2008 $494,000 83 Zhao and Qian 2/29/2008 $553,000 84 Wendelin 1/29/2008 $575,000 85 Wan 2/4/2008 $495,000 86 Chew 2/28/2008 $560,000 87 Chen 2/25/2008 $585,000 88 Ki otake 4/20/2009 $424,000 89 Williston 11/21/2008 $530,000 90Watanabe 10/30/2008 $572,000 91 Dabbene 10/24/200 $461,000 92 Van Dorp 1 10/31/2008 $557,000 NM �i{, 9j— Tk J ,' S, N 4wt 3 Ate, i i '} 4 ) P `W. .yY e• � . '% l : , 93 Davis 10/1/2008 $574,0 94 Rieser and Martinelli 10/30/2008 $451,500 95 Gadre 10/30/2008 $557,000 96 Pham 10/31/2008 $574,000 97 Artunian 11/12/2008 $465,000 98 Rohde and Mayor 11/12/2008 $559,000 99 Darnell 11/13/2008 $575,500 100 Chen 11/14/2008 $452,500 101 Chao 11/21/2008 $557,000 102 Lee 11/17/2008 $572,000 103 Rumley and Chea 4/24/2009 $424,000 104 Yrueta 11/18/2008 $555,000 105 Solis 11/19/2008 $570,000 106 Goode 5/1/2009 $424,000 107 Lan 4/27/2009 $535,000 108 Umali 5/29/2009 $584,000 109 Killets 5/29/2009 $424,000 110 Pon 5/28/2009 $537,000 111 Crum ton and P e 5/29/2009 $586,000 112 Bamon 6/11/2009 $424,000 113 Lam and Yang 7/31/2009 $535,000 114 Kang and Lee 6/11/2009 $584,000 114 Closed Escrows TOTAL: $66,829,000 AVG. SIP: $586,219 by i kll 'Un r .y ,n Tract 16581 Verandas 8 Mone 11/17/2007 $670,000 9 Berwick 9/26/2007 $699,500 10 Trinh 12/11/2007 $702,500 11 Chang/Sevilla 9/28/2007 $716;500 12 Cheenan/Balaram 12/21/2007 $601,500 13 Nguyen 12/7/2007 $687,500 14 Nguyen 10/2/2007 $678,500 15 Hawkins 10/3/2007 $678,000 16 Lee 12/11/2007 $705,500 17 Korori 2/29/2008 $600,000 18 Knighton 10/15/2007 $722,500 19 Roszkowski/Szmitko 10/5/2007 $658,50 20 Lin/Hsia 10/12/2007 $705,500 21 Ahmad 10/12/2007 $669,500 22 Gin rich/Samra 12/21/2007 $684,000 23 Policare 12/3/2007 $715,500 24 Jones 12/28/2007 $585,500 25 Nance 11/15/2007 1703,000 26 Patel 12/28/2007 $640,500 27 Kellogg 11/14/2007 $693,500 28 Vakil 11/14/2007 $708,50 29 Lee 12/28/2007 $639,500 30 Bui/N u en 11/16/2007 $665,000 31 Atherton 11/21/2007 $723,500 32 Chen 3/25/2008 $620,000 33 Ho 12/21/2007 $686,500 34 Hurst 12/10/2007 $774,000 35 Tran/Do 12/12/2007 $640,000 36 Contreras 5/30/2008 $602,500 37 Ra'an 6/25/2008 $668,500 38 Salha 5/28/2008 $669,000 39 Rosenblum 5/8/2008 $626,000 40 ChuNu 4/30/2008 $697,000 41 Cabada/Baez 6/6/2008 $646,000 42 Hel esen 6/10/2008 $642,500 43 Contreras 5/6/2008 $593,000 44 Chun /Na aishi 4/30/2008 $660,500 45 Schlosser 6/20/2008 $638,000 46 Wang/Lau 4/30/2008 $668,000 47 Maclean/Schreiber 5/23/2008 $669,000 48 Aranke 12/4/2008 $638,000 49 Tandjung and Lo 11/20/2008 $662,000 50 Nguyen 12/29/2008 $658,000 51 Tong and Shen 11/21/2008 $628,000 52 Shao and Men 11/25/2008, $644,500 53 Collie 12/24/2008 $690,000 54 Hale 2/5/2009 $627,000 55 Twer 12/11/2008 $690,000 56 Huang4/30/2009 $565,000 �F 'f r y + n a��.,. �� iec>M7Lt� '� .., rf # � .. ,- Otft►h�lf�t 3 :� , .. , 57 Blake 12/26/2008 $710,000 58 Shallahamer 6/26/2009 $575,000 59 Liao 5/20/2009 $644,000 60 Pomeroy and Meister 12/29/2008 $603,000 61 Portman 12/31/2008 $700,000 62 Rudolph 1/23/2009 $670;500 63 Huang 12/31/2008 $662,000 64 Refa 12/30/2008 $638,000 65 Mehta 3/29/2010 $638,000 66 Wang and Kao 3/29/2010 $655,500 67 Lam and Chan 12/21/2009 $627,000 68 Chen 12/23/2009 $634,500 69 Chan 12/22/2009 $627,000 70 Le and Cao 12/21/2009 $572,000 71 Hwang and Lee 12/24/2009 $630,000 72 Zhao and Chen 10/22/2009 $575,000 73 Zhon 10/19/2009 $604,000 74 Chan 11/3/2009 $616,000 75 Kwon 10/21/2009 $620,500 76 Ho and Yeun 12/21/2009 $630,000 77 Le 12/23/2009 $617,500 78 Windsor 12/22/2009 $625,000 79 Zucker 12/29/2009 $679,000 80 Shih 12/24/2009 $600,000 81 Lee and Niu 3/26/2010 $635,000 82 Lev 3/26/2010 $638,000 83 Shu and Yin 3/30/2010 $684,000 84 Chan 3/30/2010 $630,500 85 Chen 3/29/2010 $670,000 86 Chian 3/29/2010 $710,000 366 Li and Yeh 10/27/2009 $605,000 367 Terra 10/26/2009 $551,500 368 Agnew 11/6/2009 $649,000 369 Kim 10/28/2009 $572,000 370 Liu 11/4/2009 $607,500 371 Kaczor 11/18/2009 $626,000 372 Kwon 9/23/2009 $634,000 373 Linton 9/24/2009 $647,500 374 Hoang 9/28/2009 $604,500 375 Yu and Un 9/30/2009 $564,500 376 Orzel 10/1/2009 $578,500 377 Chun 11/13/2009 $622,000 378 Choi 11/6/2009 $620,000 379 Lee and Nishimura 10/8/2009 $600,000 380 Vu 9/29/2009 $629,000 381 Bryant 10/1/2009 $647,500 382 He 10/7/2009 $602,000 383 O'Neil and Corrie 10/9/2009 1591,000 97 Closed Escrows TOTAL: $62,629,500 AVG. SIP: $645,665 Piro ec#/Lox.Tr Tract 16581 & Lot No. Gables 1 Tsai 4/26/2007 $830,000 2 Bui 4/6/2007 $815,50 3 Wolverton 4/10/2007 $809,500 4 Akiona 9/28/2007 $980,500 5 Uboldi 9/28/2007 $930,000 6 Gana 10/1/2007 $966,500 7 Shube 10/19/2007 $854,000 87 Adelseck 11/25/2008 $1,150,000 88 Rodriguez and Hessler 5/26/2009 $915,000 89 Nguyen and Tran 5/29/2009 $815,000 90 Nguyen 7/13/2009 $1,000,000 91 Licuanan and Bhansali 5/28/2009 $800,000 92 Watkins and Ramirez 5/29/2009 $940,000 93 Le 5/28/2009 $815,000 94 Teng and Chen 5/27/2009 $985,000 95 Miller 7/28/2006 $1,572,000 96 Eod ers 7/31/2006 $1,429,000 97 Wi anto 7/31/2006 $1,309,500 98 Pon 5/21/2009 $815,000 99 Won 5/29/2009 $800,000 100 Hin orani 11/26/2008 $1,090,000 101 Nguyen 11/14/2008 $920,000 102 N u en 10/21/2008 $800,000 137 Chan 5/20/2008 $950,000 138 Shitanishi 5/22/2008 $860,000 139 Bates 5/29/2008 $899,000 140 Parrish and Stone 5/29/2008 $770,000 141 J -M Manufacturing Company, Inc. 7/25/2008.. $1,264,000 142 Estes 5/23/2008 $860,000 143 Lontoc 6/2/2008 $899,000 144 McCafferty 5/30/2008 $809,000 145 Chun 5/29/2009 $950,000 146 Nguyen and Le 10/29/2008 $930,000 147 Burress 11/19/2007 $999,000 148 Truon 11/19/2007 $890,000 149 Tong and Chia 11/21/2007 $980,000 150 Crain 12/5/2007 $1,297,000 151 Shaked and Schroer 3/31/2008 $923,000 152 Madrid and Galvez 4/25/2008 $1,000,000 153 Tu and Le 6/13/2008 $800,000 154 Shif 4/1/2008 $1,044,000 155 Nanduri 4/3/2008 $999,000 156 Smith 1 3/28/2008 $820,000 157 Chueh and Yao 4/28/2008 $999,000 158 Cho ra 12/1/2007 $1,337,000 IIj y z f 159 O'Hean 11/20/2007 $960,000 160 Akoubian 11/21/2007 $1,088,00 161 Nguyen 11/22/2006 $896,000 162 Hu 1/31/2007 $1,025,000 163 Black 11/10/2006 $1,152,500 164 Gill 12/20/2006 $936,000 165 Crawford 11/29/2006 $870,500 166' Pham 2/14/2007 $900,000 167 Chen 2/21/2007 $1,007,000 168 Dsa 12/28/2006 $925,000 169 Johnson/Chen 2/20/2007 $890,000 170 Ghotra 12/19/2006 $842,500 171 Hinterme er 1/29/2007 $1,016,000 172 Chien/Tu 2/28/2007 $919,000 173 Suhrward 2/27/2007, $919,000 174 Nguyen 2/26/2007 $910,000 175 Nguyen 12/21/2006 $1,191,000 176 Martinez 10/27/2006 $931,000 177 Chieu-Chin 10/27/2006 $979,000 178 Le 10/30/2006 $1,050,000 179 Chun 10/27/2006 $1,024,00 180 Mann etal 11/29/2006 $1,099,00 249 Pepys 4/20/2007 $854,000 250 Fong 4/12/2007 $961,000 251 Touse /Firouzbakhsh 3/27/2007 $939,000 252 B de 4/24/2007 $829,000 253 Liu 9/24/2007 $1,035,000 254 Scanzio 9/25/2007 $994,000 255 Paik 9/27/2007 $1,115,OW 256 Doan 2/16/2007 $834,000 257 Mo ulla/Chan al 2/27/2007 $930,000 258 Call 2/23/2007 $919,000 259 Lee 1/23/2007 $875,500 260 Chin 2/26/2007 $950,000 261 Won 3/30/2007 $919,000 262 Foothill Properties 3/23/2007 $790,000 362 DelValle 11/1/2006 $1,018,000 363 Markowitz 11/3/2006 $1,042200 364 Chin 11/28/2006 $1,090,000 84 Closed Escrows TOTAL: $81,245,500 AVG. S/P: 1 $967,208 .l ,I t ' +fir Y „Over eRshi i6 �' "y.1�'Se .W� _ - Ki•'� n F • S yy�j w" i" Tract 16581 & Lot No. Astoria 103 Sharma/Verma/Godhad 5/25/2007 $1,035,000 104 Buckalew/Gandolfo 10/31/2007 $933,500 105 Phan/Bui 2/20/2007 $1,064,500 106 Grandolfo 10/29/2007 $884,000 107 Jensen/Park 2/16/2007 $1,052,500 108 Nixon 2/22/2007 $1,129,500 109 Le 7/6/2007 $939,500 110 Yang/Ho 8/30/2007 $922,000 111 Swanson 5/11/2007 $881,000 112 Bryant 7/20/2007 $918,000 113 Bell 9/27/2007 $914,000 .114 Sanders/Caudle 7/5/2007 $1,008,500 115 Wan 3/8/2007 $955,000 116 Bromma/Pham 8/9/2007 $901,500 117 Anderson/Bon'ean 2/28/2007 $1,082,500 118 Whiteley 11/30/2007 $1,053,500 119Dinnebier 2/26/2008 $762,000 120 Roque/Ortiz 11/30/2007 $889,000 121 Mo s ch n 3/7/2008 $809,000 122 Cheung 3/31/2008 $754,000 123 Whittington 11/16/2007 $851,500 124 Pierro 12/18/2007 $865,000 125 Chen 11/29/2007 $958,000 126 N u en/Wa 4/4/2008 $786,500 127 Sherbanee 4/23/2008 $785,000 128 Badin 11/27/2007 $915,000 129 Spear/Daniels 5/6/2008 $758,000 130 Rambod 3/3/2008 $734,000 131 Chan 12/14/2007 $927,500 132 Sun/Sun-Chian 12/14/2007 $854,500 133 McCraner/Friedland 12/6/2007 $952,500 134 Ayres 3/14/2008 $743,000 135 Casillas/Garcia 12/10/2007 $905,500 136 Molina 12/11/2007 $978,000 212 De'en 6/30/2008 $816,000 213 Lawrence 9/26/2008 $900,000 214 Muller 5/29/2008 $905,000 215 Hernandez/Kranz 6/24/2008 $865,000 38 Closed Escrows TOTAL: $34,388,500 AVG. S/P: $904,961 .wbfd`Dwbfo,�,, - eiatflto Tract 16582 Madison 24 Allam 1/11/2008 $825,000 25 Cruz 5/29/2008 $853,000 26 Lau and Cheung 5/30/2008 $857,500 27 Mansour 5/23/2008 $919,000 28 Diep and Lu 11/29/2007 $854,500 29 Lee and Chiu 11/30/2007 $939,50 30 Goodemote and Tran 11/29/2007 $904,000 31 Bishop12/26/2007 $951,500 32 Coords and Warren 1/31/2008 $931,000 33 Zhao and Liu 12/6/2007 $853,500 34 Bakr 11/31/07 $899,000 35 Stearns 2/1/2008 $405,000 80 Li 7/28/2008 $858,000 81 Yoon 7/17/2008 $877,000 82 Kim and Chiueh 7/2/2008 $837,500 83 Chen 6/30/2008 $902,500 84 Bluemke 7/1/2008 $355,000 85 Barbery and Dye 8/13/2008 $905,000 86 Yu 7/11/2008 $839,000 87 Witherspoon 7/10/2008 $902,500 88 Silva 7/25/2008 $872,000 173 Hu nh and Lee 11/2/2007 $862,500 174 Jiang 2/22/2008 $900,000 175 Liang and Wen 12/7/2007 $850,000 176 Mullins 11/1/2007 $972,500 177. Chase 12/4/2007 $810,000 178 Jiang and Shao 10/31/2007 $940,000 179 Basit 9/27/2007 $958,500 180 Tran and Won 11/14/2008 $855,000 181 Na ori 11/19/2008 $784,000 182 Breller and Chen 11/21/2008 $833,000 183 Pta 12/31/2008 $862,DW 184 Wilhelm and Hu nh 11/21/2008 $882,000 185 Stimson 11/24/2008 $885,000 186 Bowman 11119/2008 $874,500 187 Vu and Dinh 11/26/2008 $825,000 1881mhoof 11/25/2008 $881,500 189 Le 2007 Family Trust 3/3/2009 $819,000 190 Phillips 11/26/2008 $850,000 191 Sabeh and Colarelli 11/19/2008 $887,500 192 Heiberg 11/19/2008 $868,500 193 Li and Wan 11/25/2008 $897,500 194 Kim and Nguyen 11/14/2008 $800,500 195 Kumar and Munasse 1/9/2008 $860,000 196 Lo and Wan 10/30/2007 $881,000 197 Kuo 11/26/2008 $865,500 198 Kuo 11/26/2008 $826,500 199Chen 11/25/2008 $890,000 200 Wolf 12/3/2008 $828,000 p 3 P� � reci<li_$,� � � ,��•��-0�ii►rters r ' .,� _ 201 Park 7/21/2009 $850,000 202 Gupta 7/28/2009 $845,000 203 Brown 3/13/2009 $916,000 204 Lim and Jun 3/2/2009 $834,000 205 McAlister 5/15/2009 $845,000 206 Oien 5/22/2009 $825,000 207 Xu and Wan 12/3/2008 $887,000 208 Dao and Jacox and Lee 12/18/2008 $853,500 209 Yan and Chen 11/25/2008 $843,045 210 Lee and Tamang 11/26/2008 $900,000 211 Weinstein 1/31/2007 $1,049,500 212 Nguyen 11 /27/2006 $946,000 213 De La Cruz 3/29/2007 $932,000 214 Yan /Lias 4/20/2007 $901,500 215 Ramos 12/20/2006 $947,500 216 Axten 11/30/2006 $1,075,000 217 Reilly/Totten 3/23/2007 $978,500 218 Evans 3/19/2007 $1,041,000 219 Jeu 1/31/2007 $933,500 220 Pai 4/13/2007 $937,000 221 Do and Mai 8/23/2007 $959,000 222'Strong 8/21/2007 $921,318 223 Gandia 8/21/2007 $974,500 224 Kalantar 1/16/2009 $800,000 225 Dang and Hun 8/24/2007 $958,000 226 Wang 7/30/2007 $933,500 227 Chou 7/30/2007 $957,000 228 Pantelides 12/1/2007 $820,000 229 Vales 8/7/2007 $1,00,50 230 Chen 11/15/2007 $830,000 231 Lin 3/2/2009 $941,000 232 Deeb 2/5/2009 $880,000 233 Masuraha and Gupta 9/8/2009 $855,000 234 Cheung 8/19/2009 $857,000 235 Nevitt 5/13/2009 $829,500 236 Chen 6/19/2009 $855,000 85 Closed Escrows TOTAL: $74,504,864 AVG. S/P: $876,528 ''Sold -Ow + hjing�U .W. Or C. Tract 16582 Westbourne 99 Paulsen 10/10/2006 $1,122,500 100 Chan 10/26/2006 $1,254,500 101 Xiao 11/27/2006 $1,120,000 102 Paster 10/18/2006 $1,106,500 103 Wan 10/30/2006 $1,050,000 104 Lee 10/24/2006 $1,179,000 105 Hon 11/29/2006 $1,050,000 106 Joe 11/3/2006 $1,107,500 107 Tonthat 11/16/2006 $1,274,000 108 Bhar ava 11/7/2006 $1,100,00 109 Good 11/8/2006 $1,303,000 110 Lee and Yamato 8/30/2007 $1,171,000 111 Doyle 8/31/2007 $1,197,500 112 Yang and Shiao 8/23/2007 $1,133,000 113 Toshima 8/23/2007 $1,218,500 114 Son 9/24/2007 $1,063,000 115 Nguyen and Dao 10/29/2007 $1,050,000 116 Nguyen and Luu 11/7/2007 $1,117,000 117 Samuel 11/15/2007 $1,118,000 118 Malet and Koonin 11/29/2007 $1,073,000 119 Nguyen 11/19/2007 $1,050,000 120 Skelly 11/21/2007 $1,100,000 121 Nguyen 1/5/2007 $1,352,000 122 Mukherji 1/10/2007 $1,074,500 123 Holden 2/23/2007 $1,134,000 124 Ha 1/12/2007 $1,104,000 125 D'Ambrosio 2/27/2007 $1,120,000 126 Lin 1/31/2007 $1,039,500 127 Templin 3/27/2007 $1,099,000 128 Kundu 1/24/2007 $1,082,500 129 Kuan 1/26/2007 $1,178,000 130 Rice 1/29/2007 $1,160,500 131 Lee 7/27/2006 $1,367,000 132 Ku 8/3/2006 $1,466,000 133 Pham 8/29/2006 $1,260,500 134 Kim 11/21/2007 $975,000 135 Vivanco 11/20/2007 $1,000,000 136 Khalid 11/9/2006 $1,274,000 137 Chan 11/13/2006 $1,130,000 139 -Nguyen 8/25/2008 $950,000 138 Huang 11/21/2006 $1,050000 140 Wagner 1 11/15/2006 $1,102,500 141 Stiegler 1 11/22/20061 $1,240,000 271 Lesseos 1 3/30/20071 $1,035,000 272 Wu 3/21/2007 $1,100,000 273 Lee 3/23/2007 $1,087,000 274 Cowell 3/28/2007 $1,153,000 275 Vickers/Templin 3/29/2007 $1,068,500 276 Ward 4/17/2007 $1,098,500 277 Hackett 4/4/2007 $1,175,000 278 Swaroo /Tripathi 4/10/2007 $1,075,000 279 Russell 5/17/2007 $1,236,500 280 Self and Bassil 5/17/2007 $1,117,500 281 Bramucci and Cannon 5/18/2007 $1,140,500 282 Orr 7/16/2007 $1,142,000 283 Ho 6/25/2007 $1,098,000 284 Grando 6/12/2007 $1,182,000 285 Park 6/19/2007 $1,088,000 286. Wainberg and Gleiter 6/4/2007 $1,197,000 59 TOTAL: $67,110,500 AVG. S/P: $1,137,466 3 Tract 16582 Cantara 89 Torres 12/15/2006 $967,000 90 Bach 11/29/2006 $800,000 91 Tran 11/29/2006 $907,000 92 Zamora 11/29/2006 $967;000 93 He 12/15/2006 $1,017,500 94 Stottlem er 12/18/2006 $947,000 95 Woll 12/20/2006 $1,061,000 96 Gerard 12/22/2006 $865,000 97 Tran 11/30/2006 $1,031,000 98 Arshaid 11/29/2006 $925,000 142 Kuan -Yu Lin 7/31/2-006 $1,153, 143 Paul & Jana Lu 8/7/2006 $1,101,500 144 Timothy& Jennifer Brown 8/9/2006 $998,000 145 Paul & Tana Cocking 8/11/2006 $925;000 146 Jee Sun Choi 8/15/2006 $1,094,500 147 Chowdhury 9/27/2007 $859,000 148 Ara ue 9/24/2007 $944,000 149 Miller 8/1/2006 $1,049,000 150 Miller 7/28/2006 $1,102,000 151 Miller 8/1/2006 $1,194,000 152 Won & Young Keh 8/17/2006 $1,105,000 153 Alfred Shen & Kim Nguyen 8/31/2006 $930,000 154 Celeste Barnes, Trustee 8/23/2006 $916,500 155 Timothy Truong & Twie Tran 8/31/2006 $955,000 156 Benjamin & Jacqueline Karter 8/31/2006. $870,000 157 Norbert & Jacquelyn Oesch 9/12/2006 $1,091,000 158 Hitesh & Nina Patel 9/28/2006 $950,00 159 Robert Johnson 9/18/2006 $1,024,500 160 Kim 10/31/2006 $890,000 161 Akerman 10/4/2006 $1,086,500 162 Kelm 10/26/2006 $855,000 163 Obeid 10/24/2006 $909,000 164 Thon srinoon 10/27/2006 $899,000 165 Hoover 10/16/2006 $902,000 166 Risser 10/18/2006 $934,500 167 Poblete 10/26/2006 $921,000 168 Son 10/30/2006 $905,000 169 Sha at 10/24/2006 $894,000 170 Mua adazem 10/31/2006 $835,500 171' Cavic 10/31/2006 $875,000 172 Thai 10/31/2006 $853,000 244 Yim 5/18/2007 $909,000 245 EI aali 5/16/2007 $947,500 246 De Luca 5/30/2007 $919,000 247 Kim 5/25/2007 $990,500 Sold DW -61 thg t s tat � i :,Ownerisfl O i Ac yi F 248 Calisan 5/22/2007 $949,000 249 Jeang and Wang 5/24/2007 $939,000 250 Lee 5/29/2007 $988,000 251 Kim and Lee 5/31/2007 $910,000 252 Smaili 9/7/2007 $953,000 253 Mehl 8/16/2007 $1,033,500 254 Luchetta 8/20/2007 $870,000 255 Zhang and Hua 8/22/2007 $925,000 256 Shen 10/25/2007 $799,000 257 Sheth 8/23/2007 $835,000 258 Wu and Au 8/21/2007 $910,000 259 Tran/On 2/28/2007 $925,000 260 Subramaniam/Haran 3/7/2007 $930,000 261 Cowell 2/28/2007 $943,500 262 Su e/Te 3/12/2007 $890,000 263 Hao/Xue 3/13/2007 $899,000 264 Corto assi 3/15/2007 $949,000 265 Loscial o 3/19/2007 $930,000 266 Nguyen/Tran 3/21/2007 $899,000 267 Faroo 3/29/2007 $899,000 268 Pacheco 3/26/2007 $890,000 269 Sun/Xu 3/27/2007 $896,500 270 Depasquale 3/28/2007 $934,000 68 TOTAL: $64,371,500 AVG. S/P: $946,640 Sok! b�iretlil';L�n'�E I?rJ,d ecULot? r` O�vn�rsti { Tract 16582 Ciara 1 Garrett 4/21/2009 $1,040,000 2 Hun 6/25/2009 $1,045,000 3 Park 4/24/2009 $1,078,000 4 Leh 4/30/2009 $982,000 5 Nguyen 5/6/2009 $1,077,000 6 HaUawi 5/29/2009 $1,200,000 7 Cadavona 6/20/2009 $1,095,000 8 Wolfe 6/27/2008 $1,066,000 9 Thayer 6/12/2008 $1,350,000 10 Guian 9/8/2008 $1,210,000 11 Khan 7/15/2008 $1,312,000 12 Chen 8/15/2008 $1,050,000 13 Nahum 9/27/2007 $1,278,500 14 Dinh 1/25/2008 $1,225,000 15 McKnight 5/28/2008 $950,000 16 Aleman 10/23/2007 $1,536,000 17 Forbis 10/16/2007 $1,530,500 18 Yu 9/28/2007 $1,317,000 19 Hsin-Kai/Nie 4/20/2007 $1,489,000 20 Robinson 8/9/2007 $1,283,000 21 Patel 4/24/2007 $1,565,000 22 Blanchet 5/10/2007 $1,551,500 23 Wan 4/30/2007 $1,324,500 36 Khodai 5/4/2007 $1,467,000 37 Cervantes 5/8/2007 $1,760,000 38 Sharshar 5/11/2007 $1,513,000 39 Doan and Nguyen 5/23/2007 $1,447,000 40 Robertson 5/31/2007 $1,339,000 41 You 10/4/2007 $1,537,500 42 Dor 10/31/2007 $1,190,000 43 Hu 10/5/2007 $1,302,500 44 Chun 10/9/2007 $1,415,DW 45 Makhani 11/15/2007 $1,370,000 46 N u en 12/28/2007 $1,160,000 47 Tsai 8/11/2008 $1,103,500 48 Khamis 9/5/2008 $1,212,500 49 Pham and Le 8/5/2008 $1,027,500 50 Chan 11/21/2008 $1,100,000 51 Liu and Hsu 9/22/2008 $1,283,500 52 Chang and Liao 10/10/2008 $1,230,000 53 Lee and Chao 5/13/2009 $1,048,000 54 Hsieh 12/19/2008 $1,350,000 55 Lee 3/2/2009 $1,410,000 56 Tsen 4/17/2009 $1,200,000 57 Hu nh 5/18/2009 $1,011,500 58 Chen and Lam 3/25/2008 $1,188,000 59.Kennedy 12/18/2007 $1,430,000 60 Wan 12/11/2007 $1,483,000 61 Marino 12/13/2007 $1,269,000 L yr 62 Huang 12/18/2007 $1,349,500 63 Swen 5/13/2008 $1,188,000 64 Young 4/11/2008 $1,310,000 65 Stein 12/19/2007 $1,274,500 66 Bouman and Jiang 12/28/2007 $1,283,000 67 Lee 12/21/2007 $1,427,500 68 Han 12/27/2007 $1,245,500 69 Patel 5/21/2007. $1,260,000 70 Cheung 5/29/2007 $1,335,000 71 Canton and Patel 5/15/20071 $1,294,000 72 Rossi 2128/20071 $1,464,500 73 Patel 3/5/20071 $1,305,500 74 Koh 6/12/2007 $1,512,500 75 Saran 3/2/2007 $1,278,500 76 Mehta 3/7/2007 $1,468,500 77 Lee 3/8/2007 $1,454,500 78 Truon /Le 3/14/2007 $1,466,000 79 Ashour 3/21/2007 $1,309,500 67 Closed Escrows TOTAL: $86,629,000 AVG. S/P: $1,292,970 Tadd DiV0111149 Tract 16562 & Unit No. Clarendon 1 Human Options, Inc. 8/24/2007 $0 2 Courtney 3/23/2007 $656,000 3 Shin 3/23/2007 $634,000 4 Lim 8/17/2007 $302,500 5 Rao 3/27/2007 $670,500 6 Haun /Chien 3/28/2007 $663,500 7 Liang and Chen 5/24/2007 $270,500 8 Safarian/Bozor khan 3/29/2007 $656,500 9 Taslim/Dewi 3/30/2007 $633,500 10 Yee 3/30/2007 $629,000 11 Gee 3/30/2007 $749,500 12 Oran a Coast Interfaith Shelther, Inc. 7/27/2007 $0 13 Attia 6/29/2007 $270,500 14 Zhan 4/6/2007 $665,500 15 Pinheiro 4/6/2007 $619,000 16 Do 4/14/2007 $270,500 17 Morad 4/24/2007 $270,500 18 Human Options, Inc. 8/24/2007 $0 19 Durham 4/12/2007 $634,500 20 Yang 4/13/2007 $663,500 21 Esmaeili 5/17/2007 $270,500 22 Robertson 4/25/2007 $270,500 23 T'ia 4/17/2007 $712,500 24 Dhillon 4/18/2007 $647,500 25 Hta 4/30/2007 $270,500 26 Lee 4/24/2007 $270,500 27 Orange Coast Interfaith Shelther, Inc. 7/27/2007 $0 28 Bermudez 5/18/2007 $270,500 29 Kan/Liew 5/11/2007 $660,000 30 Ng/Bak 5/11/2007 $652,000 31 DePaul 5/18/2007 $659,500 32 Chen/Men 5/15/2007 $663,500 33 L'Ecu er 8/17/2007 $302,500 34 Dan 5/17/2007 $270,500 35 Es artero 5/17/2007 $679,000 36 Lapidus 5/18/2007 $634,500 37.Oelschla er 5/21/2007 $636,500 38, Lee and Ahn 6/4/2007 $683,000 39 Human Options, Inc. 8/24/2007 $0 40 Vu 6/20/2007 $270,500 41 Biener 5/8/2007 $656,500 42 Pa awai 5/16/2007 $446,682 43 Sin h and Kaur 5/16/2007 $270,500 44 Gouldin 5/25/2007 $270,500 45 Oran a Coast Interfaith Shelther, Inc. 7/27/2007 $0 46 Park 8/31/2007 $302,500 4 Tirona 5/3/2007 $683,000 6dfdf D.w6II I fr .y 48 Shah/Shrishrimal 5/2/2007 $630,000 49 Chew 4/26/2007 $270,500 50 Katabi/Alamin 4/26/2007 $270,500 51 Human Options, Inc. 8/24/2007 $0 52 Orange Coast Interfaith Shelther, Inc. 8/21/2007 $0 53 Moon 8/30/2007 $666,500 54 Suttle 8/20/2007 $658,500 55 Tannenbaum 8/17/2007 $627,500 56 Chun 8/16/2007 $665,000 57 A ati 8/17/2007 $270,500 58 Armstrong 9/28/2007 $270,500 59 Choi 8/15/2007 $677,000 60 Gilbert 8/20/2007 $649,000 61 Bradshaw and Leonardo 8/10/2007 $610,500 62 Chan 8/27/2007 $635,000 63 Orange Coast Interfaith Shelther, Inc. 8/10/2007 $0 64 Tsai 8/7/2007 $623,000 65 Ahn 8/7/2007 $652,000 66 Ngo 8/31/2007 $302,500 67 Human Options, Inc. 8/24/2007 $0 68 Tirona 8/23/2007 $686,000 69 Vu 8/30/2007 $591,000 70 Jung and Son 8/28/2007 $623,500 71 Flint 8/31/2007 $660,500 72 Gladnikov 12/10/2007 $270,500 73 Chvat 12/19/2007 $618,500 74o Hauge 12/24/2007 $630,000 75 Barrios 12/20/2007 $270,500 76 Lea 12/3/2007 $625,000 77 Sun 12/28/2007 $599,000 78, Culciar 12/5/2007 $270,500 79 Human Op tions, Inc. 10/16/2007 $0 80 Paul 10/5/2007 $270,500 81 Del adillo 10/5/2007 $270,500 82 Bee 12/14/2007 $560,000 83 Du iredd and Mut ala 11/7/2007 $641,000 84 Quant 11/21/2007 $302,500 85 Sabba h and Sin hal 12/20/2007 $449,000 86 Gupta 10/18/2007 $672,000 87 Lowe and Kim 10/19/2007 $593,500 88 Cali atti and Subramanian 10/17/2007 $525,000 89 Le, Le and Nguyen 10/26/2007 $614,000 90 Sun 1/30/2008 $525,000 91 Srinivasan 11/15/2007 $654,000 92 Monterastelli 10/18/2007 $635,000 93 Sabba h and Singhal 10/19/2007 $551,000 94 Achackzad 10/31/2007 $270,500 95 Lee 2/11/2008, $570,000 96 Ponniah and Ramachandran 12/21/2007 $540,000 y„ a " 97 Orange Coast Interfaith Shelther, Inc. 10/24/2007 $0 98 Settles 10/25/2007 $270,500 99 Rector 12/14/2007 $571,000 100 Hy and Flaum 12/4/2007 $610,500 101 Guerra and Lintotawela 12/4/2007 $691,500 102 Ng and Zhen 11/30/2007 $270,500 102 Closed Escrows TOTAL: $46,094,182 AVG. S/P: $451,904 APPENDIX B RATE AND METHOD OF APPORTIONMENT OF SPECIAL TAX OHS West:260984201.4 42081-9 MKH B-1 RATE AND METHOD OF APPORTIONMENT FOR CITY OF TUSTIN COMMUNITY FACILITIES DISTRICT NO. 06-1 (TUSTIN LEGACY/COLUMBUS VILLAGES) A Special Tax shall be levied on all Assessor's Parcels in the City of Tustin Community Facilities District No. 06-1 (Tustin Legacy/Columbus Villages) ("CFD No. 06-1 ") and collected each Fiscal Year commencing in Fiscal Year 2006-2007, in an amount determined through the application ofthe Rate and Method of Apportionment as described below. All of the real property in CFD No. 06-1, unless exempted by law or by the provisions hereof, shall be taxed for the purposes, to the extent and in the manner herein provided. A. 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 on an Assessor's Parcel Map, the land area shown on the applicable final map, parcel map, condominium plan, or other recorded County parcel map. The square footage of an Assessor's Parcel is equal to the Acreage of such parcel multiplied by 43,560. "Act" means the Mello -Roos Community Facilities Act of 1982, being Chapter 2.5, 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. 06-1: the costs of computing the Special Taxes 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 County or otherwise); the costs of remitting the Special Taxes to the Trustee; the costs ofthe Trustee (including its legal counsel) in the discharge of the duties required of it under the Indenture; the costs to the City, CFD No. 06-1 or any designee thereof of complying with arbitrage rebate requirements; the costs to the City, CFD No. 06-1 or any designee thereof of complying with City, CFD No. 06-1 or obligated persons disclosure requirements of 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. 06-1 or any designee thereof related to an appeal of the Special Tax; the costs associated with the release of funds from any escrow account; and the City's annual administration fees and third party expenses. Administrative Expenses shall also include amounts estimated or advanced by the City or CFD No. 06-1 for any other administrative purposes of CFD No. 06-1, including attorney's fees and other costs related to commencing and pursuing to completion any foreclosure as a result of delinquent Special Taxes. "Affordable Units" means residential dwelling units located on one or more Assessor's Parcels of Residential Property that are subject to deed restrictions, resale restrictions, and/or regulatory agreements recorded in favor of the City providing for affordable housing. Affordable Units shall be further classified as Moderate Income, Lower Income, or Very City of Tustin — Tustin Legacy/Columbus Villages July 17, 2006 CFD No. 06-I Pape 1 Low Income (as defined in Sections 50079.5, 50093, and 50105 of the California Health and Safety Code) and Affordable Housing Costs for said households are defined in Section 50052.5 (9b) of the California Health and Safety Code. Before the annexation of the Future Annexation Area, the total number of Affordable Units in Zone 1 shall not exceed 71 Moderate Income units, 117 Lower Income Units and 61 Very Low Income units and the total number of Affordable Units in Zone 2 shall not exceed 30 Moderate Income units and 12 Very Low Income units. After the annexation of the Future Annexation Area, the total number of Affordable Units in Zone 1 shall not exceed 80 Moderate Income units, 125 Lower Income Units and 61 Very Low Income units and the total number of Affordable Units in Zone 2 shall not exceed 30 Moderate Income units and 12 Very Low Income units. Affordable Units constructed within each Zone within the CFD shall be designated by the CFD Administrator in the chronological order in which the building permits for such units are issued within that Zone. However, if for either Zone, the total number of Affordable Units constructed in any one of the three affordable income categories exceeds the amount stated above for such income category, then the units exceeding such total shall not be considered Affordable Units and shall be assigned to a Land Use Class based on the type of use and Residential Floor Area for each such unit. "Assessor's Parcel" means a lot or parcel shown in an Assessor's Parcel Map with an assigned Assessor's Parcel number. "Assessor's Parcel Map" means an official map of the County Assessor of the County designating parcels by Assessor's Parcel number. "Authorized Services" means those authorized services proposed to be financed by CFD No. 06-1 pursuant to the Act and listed in Exhibit A to this Rate and Method of Apportionment. "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. 06-1 under the Act. "CFD Administrator" means an official of the City, or designee thereof, responsible for determining the Special Tax Requirement for Facilities and the Special Tax Requirement for Services and providing for the levy and collection of the Special Taxes. "CFD No. 06-1" means City of Tustin Community Facilities District No. 06-1 (Tustin Legacy/Columbus Villages). "City" means the City of Tustin. "Consumer Price Index" means, for each Fiscal Year, the Consumer Price Index published by the U.S. Bureau of Labor Statistics for "All Urban Consumers" in the Los Angeles - Anaheim - Riverside Area, measured as of the month of December in the calendar year which ends in the previous Fiscal Year. In the event this index ceases to be published, the Consumer Price Index shall be another index as determined by the CFD Administrator that is reasonably comparable to the Consumer Price Index for the City of Los Angeles. City of Tustin — Tustin Legacy/Columbus Villages July 17, 2006 CFD No. 06-1 Pate 2 "Council" means the City Council of the City, acting as the legislative body of CFD No. 06- 1. "County" means the County of Orange. "Developed Property" means, for each Fiscal Year, all Taxable Property, exclusive of Taxable Public Property and Taxable Property Owner Association Property, for which the Final Subdivison was recorded on or prior to January 1 of the prior Fiscal Year and a building permit for new construction was issued after January 1, 2005 and prior to May I of the prior Fiscal Year. "Final Subdivision" means a subdivision of property by recordation of a final map, parcel map, or lot line adjustment, pursuant to the Subdivision Map Act (California Government Code Section 66410 et seq.) or recordation of a condominium plan pursuant to California Civil Code 1352 that creates individual lots for which building permits may be issued without further subdivision. "Fiscal Year" means the period starting July 1 and ending on the following June 30. "Future Annexation Area" means the property designated as Future Annexation Area on the boundary map for CFD No. 06-1, as identified in Exhibit B. "Indenture" means the indenture, fiscal agent agreement, resolution or other instrument pursuant to which Bonds are issued, as modified, amended and/or supplemented from time to time. "Land Use Class" means any of the classes listed in Table I below. "Maximum Special Tax" means the maximum Special Tax A and/or maximum Special Tax B, as applicable. "Maximum Special Tax A" means the Maximum Special Tax A determined in accordance with Section C below, that can be levied in any Fiscal Year on any Assessor's Parcel within CFD No. 06-1. "Maximum Special Tax B" means the Maximum Special Tax B determined in accordance with Section C below, that can be levied in any Fiscal Year on any Assessor's Parcel within CFD No. 06-1. "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 Bonds which are deemed to be outstanding under the Indenture. City of Tustin —Tustin Legacy/Colo mous Villages July 17, 2006 CFD No. 06-1 Page 3 "Property Owner Association Property" means, for each Fiscal Year, any property within the boundaries of CFD No. 06-1 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 ofthe actual Special Tax A levy to the Maximum Special Tax A is equal for all Assessor's Parcels of Developed Property and that the ratio of the actual Special Tax B levy to the Maximum Special Tax B is equal for all Assessor's Parcels of Developed Property. For Undeveloped Property, "Proportionately" means that the ratio of the actual Special Tax A levy per Acre to the Maximum Special Tax A 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 E below. "Public Property" means property within the boundaries of CFD No. 06-1 owned by, irrevocably offered or dedicated to, or over, through or under which an easement for purposes of public right-of-way has been granted, to the federal government, the State, the County, the City, or any local government or other public agency, 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. "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 permit(s) 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. "Single Family Attached Property" means all Assessor's Parcels ofResidential Property for which building permits have been issued for attached residential units. "Single Family Detached Property" means all Assessor's Parcels of Residential Property for which building permits have been issued for detached residential units. "Special Tax" means the Special Tax A and/or Special Tax B, as applicable. "Special Tax A" means the special tax to be levied in each Fiscal Year on each Assessor's Parcel of Taxable Property within CFD No. 06-1 to fund the Special Tax Requirement for Facilities. "Special Tax A Buydown" means a mandatory bond principal buydown payment made by the property owner to reduce the amount of Outstanding Bonds to compensate for a loss of Special Tax A revenues resulting from the construction of fewer residential dwelling units, smaller residential dwelling units, or a modified amount of non-residential Acreage, as determined in accordance with Section D below. City of Tustin — Tustin Legacy/Columbus Villages July 17, 2006 CFD No. 06-1 Paffe 4 "Special Tax B" means the special tax to be levied in each Fiscal Year on each Assessor's Parcel of Taxable Property within CFD No. 06-1 to fund the Special Tax Requirement for Services. "Special Tax Requirement for Facilities" means that amount required in any Fiscal Year for CFD No. 06-1 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 Bonds, including but not limited to, credit enhancement and rebate payments on the 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 A delinquencies based on the delinquency rate for the Special Tax A levy in the previous Fiscal Year; (vi) pay directly for acquisition or construction ofAuthorized 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 A levy, as determined by the CFD Administrator pursuant to the Indenture. "Special Tax Requirement for Services" means that amount required in any Fiscal Year for CFD No. 06-1 to (i) pay directly for Authorized Services due in the calendar year commencing in such Fiscal Year; (ii) pay a proportionate share ofAdministrative Expenses; less (iii) a credit for funds available to reduce the annual Special Tax B levy, as determined by the CFD Administrator. "State" means the State of California. "Taxable Property" means all ofthe Assessor's Parcels within the boundaries of CFD No. 06-1 which are not exempt from the Special Tax pursuant to law or Section F below. "Taxable Property Owner Association Property" means, for each Fiscal Year, all Assessor's Parcels of Property Owner Association Property that are not exempt from the Special Tax pursuant to Section F below. "Taxable Public Property" means, for each Fiscal Year, all Assessor's Parcels of Public Property that are not exempt from the Special Tax pursuant to Section F 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 Public Property or Taxable Property Owner Association Property. "Zone" means Zone 1 or Zone 2, as applicable. "Zone V means the land geographically identified as Tract 16851 on a map filed in Book 877, Pages 33 through 50 of Miscellaneous Maps, and as Instrument Number 200600148498, in Records of Orange County, California, excepting therefrom lots 242, 243, City of Tustin — Tustin LegacylColumbus Villages July 17, 2006 CFD No. 06-1 Page 5 244, 245, 332, 333, 341, 342, 346, 348, 349, 350, 351, 352, 353, 354, 355, 361,F (portion), G (portion), Z, AA, AB, AC, AM (portion), AN, AO, AP, AQ, AR, BA, BB (portion), ZA, ZB and DDL. "Zone 2" means the land geographically identified as Tract 16582 on a map fled in Book 874, Pages 1 through 30 of Miscellaneous Maps, and as instrument number 200500867370 in Records of Orange County, California. B. ASSIGNMENT TO LAND USE CATEGORIES Each Fiscal Year, all Taxable Property within each Zone shall be classified as Developed Property, Taxable Public Property, Taxable Property Owner Association Property, or Undeveloped Property, and shall be subject to Special Taxes in accordance with this Rate and Method of Apportionment determined pursuant to Sections C, D, and E below. C. MAXIMUM SPECIAL TAX 1. Developed Property (a). Maximum Special Tax The Maximum Special Tax A and the Maximum Special Tax B for each Land Use Class in each Zone is shown below in Tables l and 2. The Maximum Special Tax for each Assessor's Parcel classified as Developed Property shall be the Maximum Special Tax A plus Maximum Special Tax B applicable to such Assessor's Parcel for the Zone in which the Assessor's Parcel is located. City of Tustin — Tustin Legacy/Columbus Villages July 17, 2006 CFD No. 06-I Page 6 TABLE 1 Maximum Special Tax for Developed Property in Zone 1 City of Tustin Community Facilities District No. 06-1 (Tustin Legacy/Columbus Villages) Fiscal Year 2006-2007 ^� ` Y and ltes1de11tia s Use Mserint' jons,, =rGfisS k� 4&,111 1 Single Family Detached Property > 3,600 s.f. $3,256 per unit $1,950 per unit 2 Single Family Detached Property 3,226 - 3,600 s.f $2,843 per unit $1,725 per unit 3 Single Family Detached Property 2,851- 3,225 s.f. $2,507 per unit $1,538 per unit 4 Single Family Detached Property 2,476 - 2,850 s.f. $2,498 per unit $1,425 per unit 1 5 Single Family Detached Property 2,101-2,475 s.f. $2,229 per unit $1,245 per unit 6 Single Family Detached Property <= 2,100 s.f. $2,217 per unit $1,170 per unit 7 Single Family Attached Property > 2,550 s.f $2,410 per unit $1,335 per unit 8 Single Family Attached Property 2,301-2,550 s.f. $2,338 per unit $1,260 per unit 9 Single Family Attached Property 2,051 - 2,300 s.f. $2,217 per unit $1,170 per unit 10 Single Family Attached Property 1,801 - 2,050 s.f. $1,905 per unit $1,020 per unit I 1 Single Family Attached Property 1,551 -1,800 s.f. $1,352 per unit $795 per unit 12 Single Family Attached Property <= 1,550 s.f. $895 per unit $600 per unit 13 Senior Units NA $734 per unit $488 per unit 14 Affordable Units - Moderate NA $350 per unit $600 per unit 15 Affordable Units - Low NA $200 per unit $200 per unit 16 Affordable Units - Very Low NA $50 per unit $50 per unit 17 Non -Residential Property NA $22,478 per Acre $6,000 per Acre City ofTustin - Tustin Legacy/Columbus Villages July 17, 2006 CFD No. 06-1 Page 7 TABLE 2 Maximum Special Tax for Developed Property in Zone 2 City of Tustin Community Facilities District No. 06-1 (Tustin Legacy/Columbus Villages) Fiscal Year 2006-2007 i I Single Family Detached Property > 4,300 s.f. $7,448 per unit $2,250 per unit 2 Single Family Detached Property 3,951 - 4,300 s.f. $6,988 per unit $2,115 per unit 3 Single Family Detached Property 3,601-- 3,950 s.f. $6,629 per unit $2,010 per unit 4 Single Family Detached Property 3,251 - 3,600 s.f. $6,118 per unit $1,860 per unit 5 Single Family Detached Property 2,901- 3,250 s.f. $5,094 per unit $1,560 per unit 6 Single Family Detached Property 2,551 - 2,900 s.f. $4,838 per unit $1,485 per unit 7 Single Family Detached Property <-- 2,550 s.f. $4,582 per unit $1,410 per unit 8 Single Family Attached Property > 1,800 s.f. $3,268 per unit $1,020 per unit 9 Single Family Attached Property 1,601 - 1,800 s.f. $2,961 per unit $930 per unit 10 Single Family Attached Property <= 1,600 s.f. $2,449 per unit $780 per unit I I Affordable Units - Moderate NA $350 per unit $600 per unit 12 Affordable Units - Very Low NA $50 per unit $50 per unit 13 Non -Residential Property NA $39,534 per Acre $6,000 per Acre (b). Increase in the Maximum Special Tax On each July 1, commencing on July 1, 2007 the Maximum Special Tax A, identified in Tables I and 2 above, be increased by an amount equal to two percent (20/6) of the amount in effect for the previous fiscal year. On each July 1, commencing on July 1, 2007, the Maximum Special Tax B listed in Tables 1 and 2 above shall be increased based on the percentage change in the Consumer Price Index, with a maximum annual increase of six percent (6%) and a minimum annual increase of two percent (2%) per Fiscal Year. City of Tustin - Tustin Legacy/Columbus Villages July 17, 2006 CFD No. 06-1 Page 8 (c). Multiple Land Use Classes In some instances an Assessor's Parcel of Developed Property may contain more than one Land Use Class. The Maximum Special Tax levied on an Assessor's Parcel shall be the sum of the Maximum Special Taxes for all Land Use Classes located on that Assessor's Parcel. 2. Undeveloped Property, Taxable Public Property, and Taxable Property Owner Association Property (a). Maximum Special Tax A The Fiscal Year 2006-2007 Maximum Special Tax A for Undeveloped Property, Taxable Public Property, and Taxable Property Owner Association Property shall be $40,377 per Acre. (b). Maximum Special Tax B The Fiscal Year 2006-2007 Maximum Special Tax B for Undeveloped Property, Taxable Public Property, and Taxable Property Owner Association Property shall be $6,000 per Acre. (c). Increase in the Maximum Special Tax A and Special Tax B On each July 1, commencing on July 1, 2007 the Maximum Special Tax A for Undeveloped Property, Taxable Public Property, and Taxable Property Owner Association Property, shall be increased by an amount equal to two percent (2%) of the amount in effect for the previous fiscal year. On each July 1, commencing on July 1, 2007, the Maximum Special Tax B for Undeveloped Property, Taxable Public Property, and Taxable Property Owner Association Property, shall be increased based on the percentage change in the Consumer Price Index, with a maximum annual increase of six percent (6%) and a minimum annual increase of two percent (2%) per Fiscal Year. D. SPECIAL TAX A BUYDOWN All of the requirements of this Section D, which describes the need for a Special Tax A Buydown that may result from a change in development as determined pursuant to this Section D, shall only apply after the sale of Bonds by CFD No. 06-1. The following definitions apply to this Section D: "Certificate of Satisfaction of Special Tax A Buydown" means a certificate from the CFD Administrator stating that the property described in such certificate has sufficiently met the Special Tax A Buydown Requirement for such property as calculated under this Section D. City of Tustin — Tustin Legacy/Columbus Villages July 17, 2006 CFD No. 06-1 Pare 9 "Letter of Compliance" means a letter from the CFD Administrator allowing the issuance of building permits based on the prior submittal of a request for Letter of Compliance by a property owner. "Special Tax A Buydown Requirement" means the total amount of Special Tax A Buydown necessary to be prepaid to permit the issuance of building permits listed in a request for Letter of Compliance, as calculated under this Section D. "Update Property" means an Assessor's Parcel of Undeveloped Property for which a building permit has been issued. For purposes of all calculations in this Section D, Update Property shall be taxed as if it were already Developed Property during the current Fiscal Year. 1. Request for Letter of Compliance The CFD Administrator must submit a Letter of Compliance to the City for a specific Assessor's Parcel or lot prior to the issuance by the City of a building permit for the construction of any residential and/or non-residential development on that Assessor's Parcel or lot. If a Letter of Compliance has not yet been issued, and a property owner wishes to request a building permit for an Assessor's Parcel or lot, the property owner must first request a Letter of Compliance from the CFD Administrator. The request from the property owner shall contain a list of all building permits currently being requested, the Assessor's Parcels or tract and lot numbers on which the construction is to take place, and the Residential Floor Area (for each residential dwelling unit) or the Acreage (for each non- residential parcel) associated with each building permit. 2. Issuance of Letter of Compliance Upon the receipt of a request for Letter of Compliance, the CFD Administrator shall assign each building permit identified in such request to Land Use Classes 1 through 17 for Zone 1 and Land Use Classes 1 through 13 for Zone 2 as listed in Tables 3 and 4 below, based on the type of use and the Residential Floor Area identified for each such building permit. When using Table 3, if Bonds are secured solely by parcels in the portion of Zone 1 that does not include the Future Annexation Area, the column entitled "Expected Units Without Future Annexation Area" shall be utilized for purposes of this analysis. If Bonds are secured by all of Zone 1, including the Future Annexation Area, the column entitled "Expected Units Including Future Annexation Area" shall be utilized for purposes of this analysis. If the CFD Administrator determines (i) that the number of building permits requested for each Land Use Class, plus those building permits previously issued for each Land Use Class, will not cause the total number of residential units or non-residential Acreage within any such Land Use Class to exceed the number of units or Acreage for such Land Use Class identified in Tables 3 and 4 below, and (ii) that the total number of residential dwelling units anticipated to be constructed pursuant to the current development plan for CFD No. 06-1 will not be less than 989 for Zone 1 and 465 for Zone 2 prior to the annexation of the Future Annexation Area and not less than 1,075 for Zone 1 and 465 for Zone 2 after the annexation of the Future Annexation Area, then a Letter of Compliance shall be submitted to the City by the CFD Administrator approving the issuance of the requested building permits. This Letter City of Tustin — Tustin Legacy/Columbus Mages July 17, 2006 CFD No. 06-1 Paee 10 of Compliance shall be submitted by the CFD Administrator within ten days of the submittal of the request for Letter of Compliance by the property owner. However, should (i) the building permits requested, plus those previously issued, cause the total number of residential units or non-residential Acreage within any such Land Use Class to exceed the number of units or non-residential Acreage for such Land Use Class identified in Tables 3 and 4 below, or (ii) the CFD Administrator determine that changes in the development plan may cause a decrease in the number of residential dwelling units within CFD No. 06-1 to below 989 dwelling units in Zone 1 or 465 dwelling units in Zone 2 before the annexation of the Future Annexation Area or below 1,075 dwelling units in Zone 1 or 465 dwelling units in Zone 2 after the annexation of the Future Annexation Area, then a letter of Compliance will not be issued and the CFD Administrator will be directed to determine if a Special Tax A Buydown shall be required. TABLE 3 Expected Dwelling Units per Land Use Class and Non -Residential Acreage City of Tustin Community Facilities District No. 06-1 (Tustin Legacy/Columbus Villages) Zone 1 y .s if .';+.' a'"' • 1 Y Y� ST "t�J, i1f,SN y 4N V � ��:�^�� ..'7'a , a" �1 Y Y.s �'y �r •s,y "7w p t $ r ✓sP � -c tT � cd' ✓ A � r C s �� v"pv� lQ✓,� � r , y rb. r rX » { P P d 1 Single Family Detached Property > 3,600 s.f. 10 units 10 units 2 Single Family Detached Property 3,226 — 3,600 s.f. 61 units 62 units 3 Single Family Detached Property 2,851 — 3,225 s.f 66 units 67 units 4 Single Family Detached Property 2,476 — 2,850 s.f. 25 units 27 units 5 Single Family Detached Property 2,101 — 2,475 s.f. 86 units 86 units 6 Single Family Detached Property <-- 2,100 s.f. 31 units 31 units 7 Single Family Attached Property > 2,550 s.f. 27 units 27 units 8 Single Family Attached Property 2,301 — 2,550 s.f 9 units 9 units 9 Single Family Attached Property 2,051— 2,300 s.f. 24 units 24 units 10 Single Family Attached Property 1,801 — 2,050 s f. 32 units 38 units 11 Single Family Attached Property 1,551— 1,800 s f. 164 units 217 units 12 Single Family Attached Property <-- 1,550 s.f. 118 units 124 units 13 Senior Units NA 87 units 87 units City of Tustin — Tustin Legacy/Columbus Villages July 17, 2006 CFD No. 06-1 Pa-ae 11 TABLE 4 Expected Dwelling Units per Land Use Class and Non -Residential Acreage City of Tustin Community Facilities District No. 06-1 (Tustin Legacy/Columbus Villages) Zone 2 City of Tustin — Tustin Legacy/Columbus Villages July 17, 2006 CFD No. 06-1 Page 12 'Mt • {`t {,' {� k . ♦ '4i ;* i 'k 'f a;sJf id `.� 1 x t fi ; E rJi`1 ! � f'"`��R s '} �}� i �' `r iP 1 '1.' • �� 'tr `•� � / Ifl ., ..`r♦ ��� .� " -Yp �� f t " 1., "7 (+{�'f�, t d+a • } •11f r r. . �; � l Kx, v w �,i r t b ;i •sI frr �+�. ,,,,� i r y tt ♦ r '1 . �x i r �,ytw r �.��"S i•1�.11't r .Y. e H �. • LI , 1 Z ♦ thY � , �k ,� A ��y.t�T'r t r 'R�u � ' Y�L Y� t ! ''i � i � � r,. ,iF }S�`�:.i � � •� 4 t.t� � �ty�„« t 't t`t a^ yr,��' tr ��. t � 'yQ r j � 4��i���i f"'f Y ! v: M _��.. i i4r ,l •%!' tyi �.J.i� J, ::'K 1 w..r ,'Y i rxlty. '� \ r �y !� �V��'' Affordable Units — Moderate Affordable Units — Low Affordable Units — Very Low Non -Residential Property TABLE 4 Expected Dwelling Units per Land Use Class and Non -Residential Acreage City of Tustin Community Facilities District No. 06-1 (Tustin Legacy/Columbus Villages) Zone 2 City of Tustin — Tustin Legacy/Columbus Villages July 17, 2006 CFD No. 06-1 Page 12 3. Calculation of Special Tax A Buydown If a Special Tax A Buydown calculation is required as a result of item 2, above, the CFD Administrator shall review the current development plan for CFD No. 06-1 in consultation with the current property owners for all remaining Undeveloped Property in CFD No. 06-1, and shall prepare an updated version of Tables 3 and 4 identifying the revised number of units or non-residential Acreage anticipated within each Land Use Class. The CFD Administrator shall not be responsible for any delays in preparing the updated Tables 3 and 4 that result from a refusal on the part of one or more current property owners of Undeveloped Property to provide information on their future development. The CFD Administrator shall then review the updated Tables 3 and 4 and determine the Special Tax A Buydown Requirement, if any, to be applied to the property identified in the request for Letter of Compliance to assure the CFD's ability to collect Special Taxes equal to 110% debt service coverage on the Outstanding Bonds, plus the cost of annual CFD administration. The calculations shall be undertaken by the CFD Administrator as follows: Step 1. Compute the sum of the Maximum Special Tax A to be levied on all Developed Property and Update Property within CFD No. 06-1, plus the sum ofthe Maximum Special Tax A to be levied on all future development as identified in the current development plan as determined by the CFD Administrator in consultation with the property owner. Step 2. Determine the amount of Special Tax A required to provide 110% debt service coverage on the Outstanding Bonds, plus any other costs associated with the Special Tax Requirement for Facilities. Step 3. If the total sum computed pursuant to step 1 is greater than or equal to the amount computed pursuant to step 2, then no Special Tax A Buydown will be required and a Letter of Compliance shall immediately be issued by the CFD Administrator for all of the building permits currently being requested. Ifthe total sum computed pursuant to step 1 is less than the amount computed pursuant to step 2, then continue to step 4. Step 4. Determine the Maximum Special Tax A shortfall by subtracting the total sum computed pursuant to step 1 from the amount computed pursuant to step 2. Divide this Maximum Special Tax A shortfall by the amount computed pursuant to step 2. Step 5.The Special Tax A Buydown Requirement shall be calculated using the prepayment formula described in Section I.1, with the following exceptions: (i) skip Paragraphs 1, 2 and 3, and begin with Paragraph 4; (ii) the Bond Redemption Amount in Paragraph 4 of the prepayment formula described in Section I.1 shall equal the product of the quotient computed pursuant to step 4 above times the Previously Issued Bonds, as defined in Section 1.1; (iii) the City of Tustin -- Tustin Legacy/Columbus Villages July 17, 2006 CFD No. 06-1 Page 13 Capitalized Interest Credit described in Paragraph 12 of Section 1.1 shall be $0; and (iv) any payments of the Special Tax A Buydown (less Administrative Fees and Expenses) shall be disbursed pursuant to the Indenture. The Special Tax A Buydown computed under step 5 shall be billed directly to the property owner of each Assessor's Parcel identified in the request for Letter of Compliance and shall he due within 30 days of the billing date. If the Special Tax A Buydown is not paid within 45 days of the billing date, a delinquent penalty of 10 percent shall be added to the Special Tax A Buydown. Upon receipt of the Special Tax A Buydown payment, the CFD Administrator shall issue a Letter of Compliance and a Certificate of Satisfaction of Special Tax A Buydown for the subject property. 4. Costs and Expenses Related to Implementation of Special Tax A Buydown The property owner of each Assessor's Parcel identified in the request for Letter of Compliance shall pay all costs of the CFD Administrator or other consultants required to review the application for building permits, calculate the Special Tax A Buydown, issue Letters of Compliance or any other actions required under Section D. Such payments shall be due 30 days after receipt of invoice by such property owner. A deposit may be required by the CFD Administrator prior to undertaking work related to the Special Tax A Buydown. E. METHOD OF APPORTIONMENT OF THE SPECIAL TAX 1. Special Tax A Commencing with Fiscal Year 2006-2007 and for each following Fiscal Year, the Council shall determine the Special Tax Requirement for Facilities and shall levy the Special Tax A until the total Special Tax A levy equals the Special Tax Requirement for Facilities. The Special Tax A shall be levied each Fiscal Year as follows: First: The Special Tax A shall be levied Proportionately on each Assessor's Parcel of Developed Property at up to 100% of the applicable Maximum Special Tax A; Second: If additional monies are needed to satisfy the Special Tax Requirement for Facilities after the first step has been completed, the Special Tax A shall be levied Proportionately on each Assessor's Parcel of Undeveloped Property at up to 100% of the Maximum Special Tax A 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 Special Tax A shall be levied Proportionately on each Assessor's Parcel of Taxable Property Owner Association Property at up to the Maximum Special Tax A for Taxable Property Owner Association Property; City of Tustin — Tustin Legacy/Columbus Villages July 17, 2006 CFD No. 06-1 Fake 14 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 A shall be levied Proportionately on each Assessor's Parcel of Taxable Public Property at up to the Maximum Special Tax A for Taxable Public Property. 2. Special Tax B Commencing with Fiscal Year 2006-2007 and for each following Fiscal Year, the Council shall levy the Special Tax B until the total Special Tax B levy equals the Special Tax Requirement for Services. The Special Tax B shall be levied each Fiscal Year as follows: First: The Special Tax B shall be levied Proportionately on each Assessor's Parcel of Developed Property at up to 100% of the applicable Maximum Special Tax B; Second: If additional monies are needed to satisfy the Special Tax Requirement for Services after the first step has been completed, the Special Tax B shall be levied Proportionately on each Assessor's Parcel of Undeveloped Property at up to 100% of the Maximum Special Tax B for Undeveloped Property. F. EXEMPTIONS 1. Special Tax A Prior to Annexation of Future Annexation Area No Special Tax A shall be levied on up to 0.13 Acres of Public Property and up to 31.01 Acres of Property Owner Association Property in Zone 1, and on up to 0.16 Acres of Public Property and up to 30.31 Acres of Property Owner Association Property in Zone 2. Tax- exempt status will be assigned by the CFD Administrator in the chronological order in which property becomes Public Property and Property Owner Association Property within each Zone. However, should an Assessor's Parcel no longer be classified as Public Property or Property Owner Association Property, its tax-exempt status will be revoked. Public Property or Property Owner Association Property that is not exempt from the Special Tax A under this section shall be subject to the levy of the Special Tax A and shall be taxed Proportionately as part of the third and fourth steps in Section E.1. 2. Special Tax A After Annexation of Future Annexation Area No Special Tax A shall be levied on up to 0.20 Acres of Public Property and up to 32.80 Acres of Property Owner Association Property in Zone 1, and on up to 0.16 Acres of Public Property and up to 30.31 Acres of Property Owner Association Property in Zone 2. Tax- exempt status will be assigned by the CFD Administrator in the chronological order in which property becomes Public Property and Property Owner Association Property within each Zone. However, should an Assessor's Parcel no longer be classified as Public Property or Property Owner Association Property, its tax-exempt status will be revoked. City of Tustin — Tustin Legacy/Columbus Villages July 17, 2006 CFD No. 06-1 Pare 15 Public Property or Property Owner Association Property that is not exempt from the Special Tax A under this section shall be subject to the levy of the Special Tax A and shall be taxed Proportionately as part of the third and fourth steps in Section E.1. 3. Special Tax B No Special Tax B shall be levied on Public Property or Property Owner Association Property. G. APPEALS AND INTERPRETATIONS Any landowner or resident who feels that the amount of the Special Tax levied on such landowner's or resident's Assessor's Parcel is in error may submit a written appeal to CFD No, 06-1. The CFD Administrator shall review the appeal and if the CFD Administrator concurs, the amount of the Special Tax levied shall be appropriately modified. The Council may interpret this Rate and Method of Apportionment of Special Tax for purposes of clarifying any ambiguity and make determinations relative to the amount of Administrative Expenses and any landowner or resident appeals. Any decision of the Council shall be final and binding as to all persons. H. MANNER OF COLLECTION Special Tax A and Special Tax B will be collected in the same manner as ordinary ad valorem property taxes or in such other manner as the Council shall determine, including direct billing of the affected property owners. The Special Tax A Buydown shall be directly billed to the property owner at the time such Special Tax is being levied. I. PREPAYMENT OF SPECIAL TAX A The following additional definitions apply to this Section 1. "Buildout" means, for CFD No. 06-1, that all expected building permits have been issued. "CFD Public Facilities" means either $42,949,043 in 2006 dollars, which shall increase by the Construction Inflation Index on July 1, 2007, and on each July 1 thereafter, or such lower number as (i) shall be determined by the CFD Administrator as sufficient to provide the public facilities to be provided by CFD No. 06-1 under the authorized bonding program for CFD No. 06-1, or (ii) shall be determined by the City Council concurrently with a covenant that it will not issue any more CFD No. 06-1 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 City of Tustin — Tustin Legacy/Columbus Villages July 17, 2006 CFD No. 06-1 Page 16 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 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 CFD Public Facilities. "Improvement Fund" means an account specifically identified in the Indenture to hold funds which are currently available for expenditure to acquire or construct CFD Public 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. I. Prepayment in Full Only an Assessor's Parcel of Developed Property, or Taxable Property Owner Association Property, Taxable Public 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 of 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 made not less than 45 days prior to the next occurring date that notice of redemption of CFD No. 06-1 Bonds from the proceeds of such prepayment may be given by the Trustee pursuant to the Indenture. The Special Tax B may not be prepaid. The Special Tax A 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 Defeasance Amount plus Administrative Fees and Expenses less Reserve Fund Credit less Capitalized Interest Credit Total: equals Special Tax A Prepayment Amount City of Tustin — Tustin Legacy/Columbus Villages July 17, 2006 CFD No. 06-1 Page 17 As of the proposed date of prepayment, the Special Tax A 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, Taxable Property Owner Association Property, or Taxable Public Property for which a building permit has been issued, compute the Maximum Special Tax A for the current Fiscal Year applicable for the Assessor's Parcel to be prepaid. For Assessor's Parcels of Undeveloped Property for which a building permit has been issued, compute the Maximum Special Tax A for the current Fiscal Year applicable 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. Divide the Maximum Special Tax A computed pursuant to paragraph 2 by the total estimated Maximum Special Tax A for the entire CFD No. 06-1 based on the Developed Property Special Tax A which could be levied in the current Fiscal Year on all expected development through Buildout of CFD No. 06-1, excluding any Assessor's Parcels which have been prepaid. Multiply the quotient computed pursuant to paragraph 3 by the Previously Issued Bonds to compute the amount of Previously Issued Bonds to be retired and prepaid (the "Bond Redemption Amount"), 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"). 6. Compute the current Future Facilities Costs. 7. Multiply the quotient computed pursuant to paragraph 3 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 A 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 A Prepayment Amount less the Future Facilities Amount and the Administrative Fees and Expenses (defined below) from City of Tustin — Tustin Legacy/Columbus Villages July 17, 2006 CFD No. 06-1 Pa --e 18 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. 06-1 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. 06-1 Bonds, and the costs of recording art notices to evidence the prepayment and the redemption (the "Administrative Fees and Expenses"). 13. If reserve funds for the Previously Issued Bonds, if any, are at or above 100% of the reserve requirement (as defined in the Indenture) on the prepayment date, a reserve fund credit shall be calculated as a reduction in the applicable reserve fund for the Previously Issued Bonds to be redeemed pursuant to the prepayment (the "Reserve Fund Credit'). No Reserve Fund Credit shall be granted if reserve funds are below 100% of the reserve requirement. 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 quotient computed pursuant to paragraph 3 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 A 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 A Prepayment Amount"). 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. 06-1 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. 06-1. The Special Tax for Facilities Prepayment Amount may be insufficient to redeem a full $5,000 increment of CFD No. 06-1 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. 06-1 Bonds or to make debt service payments. As a result of the payment of the current Fiscal Year's Special Tax A levy as determined under paragraph 9 (above), the CFD Administrator shall remove the current Fiscal Year's Special Tax A levy for such Assessor's Parcel from the County tax rolls. With respect to any Assessor's Parcel that is prepaid, the City Council shall cause a suitable notice to be City of Tustin — Tustin Legacy/Columbus Villages July 17, 2006 CFD No. 06-1 Pape 19 recorded in compliance with the Act, to indicate the prepayment of the Special Tax A and the release of the Special Tax A lien on such Assessor's Parcel, and the obligation of such Assessor's Parcel to pay the Special Tax A shall cease. Notwithstanding the foregoing, no Special Tax A prepayment shall be allowed unless, at the time of such proposed prepayment, the amount of Maximum Special Tax A that may be levied on Taxable Property within CFD No, 06-1 (after excluding Public Property and Property Owner Association Property in Zone 1 and Zone 2 as set forth in Section F) both prior to and after the proposed prepayment is at least 1.1 times the maximum annual debt service on all Previously Issued Bonds, plus the cost of annual CFD administration. 2. Prepayment in Part The Special Tax A on an Assessor's Parcel of Developed Property or an Assessor's Parcel of Taxable Property Owner Association Property, Taxable Public Property, or 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 I.1; except that a partial prepayment shall be calculated according to the following formula: PP = PE x F. These terms have the following meaning: PP = the partial prepayment PE= the Special Tax A Prepayment Amount calculated according to Section 1.1 F= the percentage, expressed as a decimal, by which the owner ofthe Assessor's Parcel is partially prepaying the Special Tax A. 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 A and the percentage by which the Special Tax A shall be prepaid. The CFD Administrator shall provide the owner with a statement of the amount required for the partial prepayment of the Special Tax A 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 Council shall (i) distribute the funds remitted to it according to Section I.1, and (ii) indicate in the records of CFD No. 06-1 that there has been a partial prepayment of the Special Tax A and that a portion of the Special Tax A with respect to such Assessor's Parcel, equal to the outstanding percentage (1.00 - F) of the remaining Maximum Special Tax A, shall continue to be levied on such Assessor's Parcel pursuant to Section E.1. Notwithstanding the foregoing, no Special Tax A prepayment shall be allowed unless, at the time of such proposed prepayment, the amount of Maximum Special Tax A that may be levied on Taxable Property within CFD No. 06-1 (after excluding Public Property and Property Owner Association Property in Zone 1 and Zone 2 as set forth in Section F) both City of Tusdn — Tustin Legacy/Columbus Villages July 17, 2006 CFD No. 06-1 Page 20 prior to and after the proposed prepayment is at least 1.1 times the maximum annual debt service on all Previously Issued Bonds, plus the cost of annual CFD administration. J. TERM OF SPECIAL TAX The Special Tax A shall be levied for a period not to exceed forty years commencing with Fiscal Year 2006-2007. The Special Tax B shall be levied as long as necessary to meet the Special Tax Requirement for Services. KACLIENTS2\Tusun Cit\TustinMCAS\Lennar\RMAEonnar 9 doe City of Tustin — Tustin ,Legacy/Columbus Mages July 17, 2006 CFD No. 06-1 Page 21 APPENDIX C PROPOSED FORM OF OPINION OF BOND COUNSEL Upon delivery of the Series 2010 Bonds, Orrick, Herrington & Sutcliffe LLP, Los Angeles, California, Bond Counsel to the District, proposes to render its final approving opinion with respect to the Series 2010 Bonds in substantially the following form: [Date of Delivery] City of Tustin Community Facilities District No. 06-1 (Tustin Legacy/Columbus Villages) 300 Centennial Way Tustin, California City of Tustin Community Facilities District No. 06-1 (Tustin Legacy/Columbus Villages) Special Tax Bonds, Series 2010 (Final Opinion) Ladies and Gentlemen: We have acted as bond counsel to the City of Tustin Community Facilities District No. 06-1 (Tustin Legacy/Columbus Villages) (the "Community Facilities District') in connection with the issuance by the Community Facilities District of its Special Tax Bonds, Series 2010 (the "Series 2010 Bonds"), in the aggregate principal amount of $ issued pursuant to the Indenture, dated as of September 1, 2007 (the "Original Indenture"), as amended and supplemented by the First Supplemental Indenture, dated as of 1, 2010 (the "First Supplement' and, together with the Original Indenture, the "Indenture"), each by and between the Community Facilities District and Union Bank, N.A. (formerly known as Union Bank of California, N.A.), as trustee (the "Trustee"). Capitalized undefined terms used herein have the meanings ascribed thereto in the Indenture. In such connection, we have reviewed the Indenture, the Tax Certificate, opinions of counsel to the Community Facilities District and the Trustee, certificates of the Community Facilities District, the Trustee and others and such other documents, opinions and matters to the extent we deemed necessary to render the opinions set forth herein. The opinions expressed herein are based on an analysis of existing laws, regulations, rulings and court decisions and cover certain matters not directly addressed by such authorities. Such opinions may be affected by actions taken or omitted or events occurring after the date hereof. We have not undertaken to determine, or to inform any person, whether any such actions are taken or omitted or events do occur or any other matters come to our attention after the date hereof. Accordingly, this opinion speaks only as of its date and is not intended to, and may not, be relied upon in connection with any such actions, events or matters. Our engagement with respect to the Series 2010 Bonds has concluded with their issuance, and we disclaim any obligation to update this OHS West260984201.4 42081-9 MKH C-1 letter. We have assumed the genuineness of all documents and signatures presented to us (whether as originals or as copies) and the due and legal execution and delivery thereof by, and validity against, any parties other than the Community Facilities District. We have assumed, without undertaking to verify, the accuracy of the factual matters represented, warranted or certified in the documents referred to in the second paragraph hereof. Furthermore, we have assumed compliance with all covenants and agreements contained in the Indenture and the Tax Certificate, including, without limitation, covenants and agreements compliance with which is necessary to assure that future actions, omissions or events will not cause the interest on the Series 2010 Bonds to be included in gross income for federal income tax purposes. In addition, we call attention to the fact that the rights and obligations under the Series 2010 Bonds, the Indenture and the Tax Certificate and their enforceability may be subject to bankruptcy, insolvency, reorganization, arrangement, fraudulent conveyance, moratorium and other laws relating to or affecting creditors' rights, to the application of equitable principles, to the exercise of judicial discretion in appropriate cases, and to the limitations on legal remedies against governmental entities such as the Community Facilities District in the State of California. We express no opinion with respect to any indemnification, contribution, penalty, choice of law, choice of forum, choice of venue, waiver or severability provisions contained in the foregoing documents, nor do we express any opinion with respect to the plans, specifications, maps, reports or other engineering or financial details of the proceedings, or upon the Rate and Method or the validity of the Special Taxes levied upon any individual parcel. Finally, we undertake no responsibility for the accuracy, completeness or fairness of the Official Statement or other offering material relating to the Series 2010 Bonds and express no opinion with respect thereto. Based on and subject to the foregoing, and in reliance thereon, as of the date hereof, we are of the following opinions: 1. The Series 2010 Bonds constitute valid and binding special. obligations of the Community Facilities District, payable, as provided in the Indenture, solely from Net Special Tax Revenues and the other assets pledged therefor under the Indenture. 2. The Indenture has been duly executed and delivered by, and constitutes a valid and binding obligation of, the Community Facilities District. 3. Interest on the Series 2010 Bonds is excluded from gross income for federal income tax purposes under Section 103 of the Internal Revenue Code of 1986 and is exempt from State of California personal income taxes. Such interest is not a specific preference item for purposes of the federal individual or corporate alternative minimum taxes, nor is it included in adjusted current earnings when calculating corporate alternative minimum taxable income. We express no opinion regarding other tax consequences related to the ownership or disposition of, or the accrual or receipt of interest on, the Series 2010 Bonds. Faithfully yours, OHS West: 260984201.4 42081-9 MKH C-2 APPENDIX D SUMMARY OF INDENTURE OHS Vk'est:260984201.4 42081-9 MKH D-1 APPENDIX E FORMS OF CONTINUING DISCLOSURE AGREEMENTS FORM OF DISTRICT CONTINUING DISCLOSURE AGREEMENT THIS CONTINUING DISCLOSURE AGREEMENT (this "Disclosure Agreement"), dated as of 1, 2010, is by and between CITY OF TUSTIN COMMUNITY FACILITIES DISTRICT NO. 06-1 (TUSTIN LEGACY/COLUMBUS VILLAGES), a community facilities district organized and existing under the laws of the State of California (the "Community Facilities District"), and UNION BANK, N.A. (formerly known as Union Bank of California, N.A.), a national banking association organized and existing under the laws of the United States of America, as trustee (the "Trustee"). WITNESSETH: WHEREAS, pursuant to the Indenture, dated as of September 1, 2007, by and between the Community Facilities District and the Trustee, as amended and supplemented by the First Supplemental Indenture, dated as of 1, 2010, by and between the Community Facilities District and the Trustee (as so amended and supplemented, the "Indenture"), the Community Facilities District has issued the City of Tustin Community Facilities District No. 06-1 (Tustin Legacy/Columbus Villages) Special Tax Bonds, Series 2010 (the "Series 2010 Bonds") in the aggregate principal amount of $ ; and WHEREAS, this Disclosure Agreement is being executed and delivered by the Community Facilities District and the Trustee for the benefit of the Owners and Beneficial Owners of the Series 2010 Bonds and in order to assist the underwriter of the Series 2010 Bonds in complying with Securities and Exchange Commission Rule 15c2 -12(b)(5); NOW, THEREFORE, for and in consideration of the mutual premises and covenants herein contained, the parties hereto agree as follows: Section 1. Definitions. Capitalized undefined terms used herein shall have the meanings ascribed thereto in the Indenture. In addition, the following capitalized terms shall have the following meanings: "Annual Report" means any Annual Report provided by the Community Facilities District pursuant to, and as described in, Sections 2 and 3 hereof. "Annual Report Date" means the date in each year that is eight months after the end of the Community Facilities District's fiscal year, which date, as of the date of this Disclosure Agreement, is March 1. "Disclosure Representative" means the Finance Director of the City of Tustin, or such other officer, employee or agent of the Community Facilities District as the Community Facilities District shall designate in writing to the Trustee from time to time. OHS West260984201.4 42081-9 MKH E-1 "Dissemination Agent" means the Trustee, or any successor Dissemination Agent designated in writing by the Community Facilities District and which has filed with the Trustee a written acceptance of such designation. "EMMA System" means the MSRB's Electronic Municipal Market Access system, or such other electronic system designated by the MSRB. "Listed Events" means any of the events listed in Section 4{a) hereof. "MSRB" means the Municipal Securities Rulemaking Board, or any successor thereto. "Official Statement" means the Official Statement, dated _, 2010, relating to the Series 2010 Bonds. "Participating Underwriter" means Stone & Youngberg LLC. "Rule" means 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. Section 2. Provision of Annual Reports. (a) The Community Facilities District shall, or, upon furnishing the Annual Report to the Dissemination Agent, shall cause the Dissemination Agent to, provide to the MSRB through the EMMA System, in an electronic format and accompanied by identifying information all as prescribed by the MSRB, an Annual Report which is consistent with the requirements of Section 3 hereof, not later than the Annual Report Date, commencing with the report for the 2009-10 fiscal year. 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 3 hereof, provided, however, that the audited financial statements of the Community Facilities District, if any, may be submitted separately from the balance of the Annual Report, and later than the date required above for the filing of the Annual Report if not available by that date. If the Community Facilities District's fiscal year changes, it shall give notice of such change in the same manner as for a Listed Event under subsection (e) of Section 4 hereof. (b) Not later than 15 business days prior to the date specified in subsection (a) of this Section for the providing of the Annual Report to the MSRB, the Community Facilities District shall provide the Annual Report to the Dissemination Agent and the Trustee (if the Trustee is not the Dissemination Agent). If by such date, the Trustee has not received a copy of the Annual Report, the Trustee shall contact the Community Facilities District and the Dissemination Agent to inquire if the Community Facilities District is in compliance with the first sentence of this subsection (b). (c) If the Trustee is unable to verify that an Annual Report has been provided to the MSRB by the date required in subsection (a) of this Section, the Trustee shall send a notice to the MSRB through the EMMA System in substantially the form attached as Exhibit A. (d) The Dissemination Agent shall: (i) provide any Annual Report received by it to the MSRB, as provided herein; and (ii) file a report with the Community Facilities District and (if the Dissemination Agent is not the Trustee) the Trustee certifying that the Annual Report has been provided pursuant to this Disclosure Agreement and stating the date it was so provided. OHS West:260984201.4 42081-9 MKH E-2 Section 3. Content of Annual Reports. The Community Facilities District's Annual Report shall contain or incorporate by reference the following: (a) The Community Facilities District's audited financial statements, if any, prepared in accordance with generally accepted accounting principles as promulgated to apply to governmental entities from time to time by the Governmental Accounting Standards Board. If the Community Facilities District's audited financial statements, if any, are not available by the time the Annual Report is required to be filed pursuant to subsection (a) of Section 2 hereof, the Annual Report shall contain unaudited financial statements in a format similar to that used for the Community Facilities District's audited financial statements, and the audited financial statements, if any, shall be filed in the same manner as the Annual Report when they become available. (b) The following information: (i) The principal amount of Series 2010 Bonds Outstanding as of the September 30 next preceding the Annual Report Date. (ii) The principal amount of Bonds Outstanding as of the September 30 next preceding the Annual Report Date. (iii) The balance in the Reserve Fund, and a statement of the Reserve Requirement, as of the September 30 next preceding the Annual Report Date. (iv) The balance in the Construction Account and the Acquisition Account, as of the September 30 next preceding the Annual Report Date. (v) The total assessed value of all parcels within the Community Facilities District on which the Special Taxes are levied, as shown on the assessment roll of the Orange County Assessor last equalized prior to the September 30 next preceding the Annual Report Date, and a statement of assessed value -to -lien ratios therefor, either by individual parcel or by categories (e.g. "below 3:1 "3:1 to 4:1" etc.). (vi) The Special Tax delinquency rate for all parcels within the Community Facilities District on which the Special Taxes are levied, as shown on the assessment roll of the Orange County Assessor last equalized prior to the September 30 next preceding the Annual Report Date, the number of parcels within the Community Facilities District on which the Special Taxes are levied and which are delinquent in payment of Special Taxes, as shown on the assessment roll of the Orange County Assessor last equalized prior to the September 30 next preceding the Annual Report Date, the amount of each delinquency, the length of time delinquent and the date on which foreclosure was commenced, or similar information pertaining to delinquencies deemed appropriate by the Community Facilities District; provided, however, that parcels with aggregate delinquencies of $2,500 or less (excluding penalties and interest) may be grouped together and such information may be provided by category. (vii) The status of foreclosure proceedings for any parcels within the Community Facilities District on which the Special Taxes are levied and a summary of the results of any foreclosure sales as of the September 30 next preceding the Annual Report Date. OHS West:260984201.4 42081-9 MKH E-3 (viii) The identity of any property owner representing more than 5% of the annual Special Tax levy who is delinquent in payment of such Special Taxes, as shown on the assessment roll of the Orange County Assessor last equalized prior to the September 30 next preceding the Annual Report Date. (ix) A land ownership summary listing property owners responsible for more than 5% of the annual Special Tax levy, as shown on the assessment roll of the Orange County Assessor last equalized prior to the December next preceding the Annual Report Date. In addition to any of the information expressly required to be provided under paragraphs (a) and (b), above, the Community Facilities District shall provide such further information, if any, as may be necessary to make the specifically required statements, in the light of the circumstances under which they are made, not misleading. Any or all of the items listed above may be included by specific reference to other documents, including official statements of debt issues of the Community Facilities District or related public entities, which have been submitted to the MSRB through the EMMA System. The Community Facilities District shall clearly identify each such other document so included by reference. Section 4. Reportingof Significant Events. (a) Pursuant to the provisions of this Section, the Community Facilities District shall give, or cause to be given, notice of the occurrence of any of the following events with respect to the Series 2010 Bonds, if material: (i) Principal and interest payment delinquencies. (ii) Non-payment related defaults. (iii) Unscheduled draws on debt service reserves reflecting financial difficulties. (iv) Unscheduled draws on credit enhancements reflecting financial difficulties. (v) Substitution of credit or liquidity providers, or their failure to perform. (vi) Adverse tax opinions or events affecting the tax-exempt status of the security. (vii) Modifications to rights of security holders. (viii) Contingent or unscheduled bond calls. (ix) Defeasances. (x) Release, substitution, or sale of property securing repayment of the securities. (xi) Rating changes. (b) The Trustee shall, within one business day of obtaining actual knowledge of the occurrence of any of the Listed Events, contact the Disclosure Representative, inform such person of the event, and request that the Community Facilities District promptly notify the Dissemination - Agent in writing whether or not to report the event pursuant to subsection (e) of this Section. (c) As soon as practicable based on the time needed to discover the occurrence of a Listed Event and to assess the materiality thereof, the Community Facilities District shall, if the Community Facilities District has determined that the occurrence of such Listed Event would be material under applicable Federal securities law, notify the Dissemination Agent thereof in writing and instruct the Dissemination Agent to report the occurrence pursuant to subsection (e) of this Section. OHS West:2W984201.4 42081-9 MKH E-4 (d) If in response to a request under subsection (b) of this Section, the Community Facilities District determines that the Listed Event would not be material under applicable Federal securities law, the Community Facilities District shall so notify the Trustee in writing and instruct the Dissemination Agent not to report the occurrence pursuant to subsection (e) of this Section. (e) If the Dissemination Agent has been instructed by the Community Facilities District to report the occurrence of a Listed Event, the Dissemination Agent shall file a notice of such occurrence with the MSRB through the EMMA System. Notwithstanding the foregoing, notice of Listed Events described in paragraphs (viii) and (ix) of subsection (a) of this Section need not be given under this subsection any earlier than the notice (if any) of the underlying event is given to .Owners of affected Series 2010 Bonds pursuant to the Indenture. Section 5. Termination of Resorting Obligation. The Community Facilities District's obligations under this Disclosure Agreement shall terminate upon the legal defeasance, prior redemption or payment in full of all of the Series 2010 Bonds. If such termination occurs prior to the final maturity of the Series 2010 Bonds, the Community Facilities District shall give notice of such termination in the same manner as for a Listed Event under subsection (e) of Section 4 hereof. Section 6. Dissemination Agent. The Community Facilities 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 may resign by providing 30 days' written notice to the Community Facilities District and the Trustee. The Dissemination Agent shall have no duty to prepare the Annual Report. The Dissemination Agent shall be paid compensation by the Community Facilities District for its services provided hereunder in accordance with its schedule of fees as amended from time to time, as agreed to between the Dissemination Agent and the Community Facilities District, and all reasonable expenses, legal fees and advances made or incurred by the Dissemination Agent in the performance of its duties hereunder. If at any time there is not any other designated Dissemination Agent, the Trustee shall be the Dissemination Agent. Section 7. Amendment: Waiver. Notwithstanding any other provision of this Disclosure Agreement, the Community Facilities District and the Trustee may amend this Disclosure Agreement (and the Trustee shall agree to any amendment so requested by the Community Facilities District, so long as such amendment does not adversely affect the rights or obligations of the Trustee hereunder), and any provision of this Disclosure Agreement may be waived, provided that the following conditions are satisfied: (a) if the amendment or waiver relates to Sections 2(a), 3 or 4(a) hereof, it may only be made in connection with a change in circumstances that arises from a change in legal requirements, change in law, or change in the identity, nature, or status of an obligated person with respect to the Series 2010 Bonds, or type of business conducted; (b) the undertakings herein, as proposed to be amended or waived, would, in the opinion of nationally recognized bond counsel, have complied with the requirements of the Rule at the time of the primary offering of the Bonds, after taking into account any amendments or interpretations of the Rule, as well as any change in circumstances; and (c) the proposed amendment or waiver (i) is approved by Owners of the Series 2010 Bonds in the manner provided in the Indenture for amendments to the Indenture with the consent of OHS West:260984201.4 42081-9 MKH E-5 Owners, or (ii) does not, in the opinion of nationally recognized bond counsel, materially impair the interests of Owners or Beneficial Owners. If the annual financial information or operating data to be provided in the Annual Report is amended pursuant to the provisions hereof, the first annual financial information containing the amended operating data or financial information shall explain, in narrative form, the reasons for the amendment and the impact of the change in the type of operating data or financial information being provided. If an amendment is made to the undertaking specifying the accounting principles to be followed in preparing financial statements, the annual financial information for the year in which the change is made shall present a comparison between the financial statements or information prepared on the basis of the new accounting principles and those prepared on the basis of the former accounting principles. The comparison shall include a qualitative discussion of the differences in the accounting principles and the impact of the change in fhe accounting principles on the presentation of the financial statements or information, in order to provide information to investors to enable them to evaluate the ability of the Community Facilities District to meet its obligations, including its obligation to pay debt service on the Series 2010 Bonds. To the extent reasonably feasible, the comparison shall be quantitative. A notice of the change in the accounting principles shall be given in the same manner as for a Listed Event under subsection (e) of Section 4 hereof. Section 8. Additional Information. Nothing in this Disclosure Agreement shall be deemed to prevent the Community Facilities 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 Community Facilities. 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 Community Facilities 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 9. Default. In the event of a failure of the Community Facilities District, the Trustee or the Dissemination Agent to comply with any provision of this Disclosure Agreement, the Trustee may (and, at the written direction of any Participating Underwriter or the Owners of at least 25% aggregate principal amount of Outstanding Series 2010 Bonds, shall), or any Owner or Beneficial Owner of the Series 2010 Bonds may, take such actions as may be necessary and appropriate, including seeking mandate or specific performance by court order, to cause the Community Facilities District, the Trustee or the 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 Community Facilities District, the Trustee or the Dissemination Agent to comply with this Disclosure Agreement shall be an action to compel performance. Section 10. Duties, Immunities and Liabilities of Trustee and Dissemination Agent. Article VIII of the Indenture is hereby made applicable to this Disclosure Agreement as if this Disclosure Agreement were (solely for this purpose) contained in the Indenture. Neither the Trustee nor the Dissemination Agent shall be responsible for the form or content of any Annual Report or notice of Listed Event. The Dissemination Agent shall. receive reasonable compensation for its services provided under this Disclosure Agreement. The Dissemination Agent (if other than the Trustee or the OHS West260984201.4 42081-9 MKH E-6 Trustee in its capacity as Dissemination Agent) shall have only such duties hereunder as are specifically set forth in this Disclosure Agreement, and the Community Facilities District agrees to indemnify and save the Dissemination Agent and the Trustee, their officers, directors, employees and agents harmless against any loss, expense and liabilities which it may incur arising out of or in the exercise or performance of its powers and duties hereunder, including the costs and expenses (including attorneys fees) of defending against any claim of liability, but excluding liabilities due to the Dissemination Agent's or the Trustee's negligence or willful misconduct. The obligations of the Community Facilities District under this Section shall survive resignation or removal of the Dissemination Agent and payment of the Series 2010 Bonds. Section 11. Beneficiaries. This Disclosure Agreement shall inure solely to the benefit of the Community Facilities District, the Trustee, the Dissemination Agent, the Participating Underwriter and Owners and Beneficial Owners from time to time of the Series 2010 Bonds, and shall create no rights in any other person or entity. Section 12. 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 instrument. IN WITNESS WHEREOF, the parties hereto have executed this Disclosure Agreement as of the date first above written. CITY OF TUSTIN COMMUNITY FACILITIES DISTRICT NO. 06-1 (TUSTIN LEGACY/COLUMBUS VILLAGES) UNION BANK, N.A., AS TRUSTEE Authorized Signatory OHS West260984201.4 42081-9 MKH E-% EXHIBIT A NOTICE OF FAILURE TO FILE ANNUAL REPORT Name of Issuer: City of Tustin Community Facilities District No. 06-1 (Tustin Legacy/Columbus Villages) Name of Bond Issue: City of Tustin Community Facilities District No. 06-1 (Tustin Legacy/Columbus Villages) Special Tax Bonds, Series 2010 Date of Issuance: 12010 NOTICE IS HEREBY GIVEN that City of Tustin Community Facilities District No. 06-1 (Tustin Legacy/Columbus Villages) (the "Community Facilities District") has not provided an Annual Report with respect to the above-named Bonds as required by the Continuing Disclosure Agreement, dated as of 1, 2010, by and between the Community Facilities District and Union Bank, N.A., as Trustee. [The Community Facilities District anticipates that the Annual Report will be filed by , 20_.] Dated: UNION BANK, N.A., as Trustee, on behalf of the City of Tustin Community Facilities District No. 06-1 (Tustin Legacy/Columbus Villages) Authorized Signatory cc: City of Tustin Community Facilities District No. 06-1 (Tustin Legacy/Columbus Villages) OHS West260984201.4 42081-9 MKH E-8 FORM OF DEVELOPER CONTINUING DISCLOSURE AGREEMENT THIS CONTINUING DISCLOSURE AGREEMENT (this "Disclosure Agreement"), dated as of 1, 2010, is by and among , a Delaware limited liabilty corporation (the "Developer") and UNION BANK, N.A., a national banking association organized and existing under and by virtue of the laws of the United States of America (the "Bank"), in its capacity as trustee (the "Trustee") and in its capacity as Dissemination Agent (the "Dissemination Agent"). WITNESSETH: WHEREAS, pursuant to the Indenture, dated as of September 1, 2007, by and between the Community Facilities District and the Trustee, as amended and supplemented by the First Supplemental Indenture, dated as of 1, 2010, by and between the Community Facilities District and the Trustee (as so amended and supplemented, the "Indenture"), the Community Facilities District has issued the City of Tustin Community Facilities District No. 06-1 (Tustin Legacy/Columbus Villages) Special Tax Bonds, Series 2010 (the "Series 2010 Bonds") in the aggregate principal amount of $ - ; and WHEREAS, the Series 2010 Bonds are payable from and secured by special taxes levied on certain of the real property within the Community Facilities District; WHEREAS, the Developer is developing a portion of the property within the Community Facilities District; and WHEREAS, this Disclosure Agreement is being executed and delivered by the Developer and the Bank for the benefit of the Owners and Beneficial Owners of the Series 2010 Bonds and in order to assist the underwriter of the Series 2010 Bonds in complying with Securities and Exchange Commission Rule 15c2 -12(b)(5); NOW, THEREFORE, for and in consideration of the mutual premises and covenants herein contained, the parties hereto agree as follows: Section 1. Definitions. Capitalized undefined terms used herein shall have the meanings ascribed thereto in the Indenture. In addition, the following capitalized terms shall have the following meanings: "Affiliate" of another Person means (a) a Person directly or indirectly owning, controlling, or holding with power to vote, 5% or more of the outstanding voting securities of such other Person, (b) any Person 5% or more of whose outstanding voting securities are directly or indirectly owned, controlled, or held with power to vote, by such other Person, and (c) any Person directly or indirectly controlling, controlled by, or under common control with, such other Person; for purposes hereof, "control" means the power to exercise a controlling influence over the management or policies of a Person, unless such power is solely the result of an official position with such Person. "Disclosure Representative" means any of the Developer or such other person as the Developer shall designate in writing to the Trustee from time to time. OHS West:260984201.4 42081-9 MKH E-9 "Dissemination Agent" means the Bank, acting in its capacity as Dissemination Agent hereunder, or any successor Dissemination Agent designated in writing by the Developer and which has filed with the Trustee a written acceptance of such designation. "EMMA System" means the MSRB's Electronic Municipal Market Access system, or such other electronic system designated by the MSRB. "First Report Date" means the date in each year that is months after the end of the Developer's fiscal year, which date, as of the date of this Disclosure Agreement, is April 1. "Listed Events" means any of the events listed in Section 4(a) hereof. "MSRB" means the Municipal Securities Rulemaking Board, or any successor thereto. "Official Statement" means the Official Statement, dated _, 2010, relating to the Series 2010 Bonds. "Participating Underwriter" means Stone & Youngberg LLC. "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. "Property" means the real property within the boundaries of the District that is not exempt from the Special Taxes. "Property Owner" means any Person that owns a fee interest in any Property "Report Date" means, as applicable, the First Report Date or the Second Report Date. "Rule" means 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. "Second Report Date" means the date in each year that is ten months after the end of the Developer's fiscal year, which date, as of the date of this Disclosure Agreement, is October 1. "Semi -Annual Report" means any Semi -Annual Report provided by the Developer pursuant to, and as described in, Sections 2 and 3 hereof. Section 2. Provision of Semi -Annual Reports. (a) The Developer shall, or, upon furnishing the Semi -Annual Report to the Dissemination Agent, shall cause the Dissemination Agent to, provide to the MSRB through the EMMA System, in an electronic format and accompanied by identifying information all as prescribed by the MSRB, a Semi -Annual Report which is consistent with the requirements of Section 3 hereof, not later than the Report Date, commencing April 1, 2011. The Semi -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 3 hereof. (b) Not later than 15 business days prior to the date specified in subsection (a) of this Section for the providing of the Semi -Annual Report to the MSRB, the Developer shall provide the Semi -Annual Report to the Dissemination Agent and the Trustee (if the Trustee is not the OHS West260984201.4 42081-9 MKH E-10 Dissemination Agent). If by such date, the Trustee has not received a copy of the Semi -Annual Report, the Trustee shall contact the Disclosure Representative and the Dissemination Agent to inquire if the Developer is in compliance with the first sentence of this subsection (b). (c) If the Trustee is unable to verify that a Semi -Annual Report has been provided to the MSRB by the date required in subsection (a) of this Section, the Trustee shall send a notice to the MSRB through the EMMA System, in substantially the form attached as Exhibit A. (d) The Dissemination Agent shall: (i) provide any Semi -Annual Report received by it to the MSRB, as provided herein; and (ii) file a report with the Developer and (if the Dissemination Agent is not the Trustee) the Trustee certifying that the Semi -Annual Report has been provided pursuant to this Disclosure Agreement and stating the date it was so provided. Section 3. Content of Semi -Annual Reports. The Developer's Semi -Annual Report shall contain or incorporate by reference the following information: (a) A description of the number of building permits issued with respect to the Developer's Property during the six-month period ending on the last day of the second month preceding the month in which the Report Date occurs. (b) The number of single family residences on the Developer's Property conveyed to individual buyers by the Developer during the six-month period ending on the last day of the second month preceding the month in which the Report Date occurs. (c) A description of the number of certificates of occupancy issued with respect to the Developer's Property during the six-month period ending on the last day of the second month preceding the month in which the Report Date occurs. (d) An update of the status of any previously reported Listed Event described in Section 4 hereof. Section 4. Reporting of Significant Events. (a) Pursuant to the provisions of this Section, the Developer shall give, or cause to be given notice of the occurrence of any of the following events with respect to the Developer: (i) Any conveyance by the Developer of Property owned by the Developer to an entity that is not an Affiliate of such Developer. (ii) Any failure of the Developer, or any Affiliate of such Developer, to pay prior to delinquency general property taxes or assessments with respect to its Property. (iii) The assumption of any obligations by the Developer pursuant to Section 5 hereof. (b) Whenever the Developer obtains knowledge of the occurrence of a Listed Event, if there is no Dissemination Agent, the Developer shall promptly file a notice of such occurrence with the Trustee, the Community Facilities District and the MSRB through the EMMA System. Whenever the Developer obtains knowledge of the occurrence of a Listed Event, if there is a OHS West260984201.4 42081-9 MKH E-11 Dissemination Agent, the Developer shall promptly notify the Dissemination Agent, the Trustee and the Community Facilities District in writing. Such notice shall instruct the Dissemination Agent to report the occurrence pursuant to subsection (c). The Developer shall provide the Dissemination Agent with a form of notice of such event in a format suitable for reporting to the MSRB through the EMMA System. (c) If the Dissemination Agent has been instructed by the Developer to report the occurrence of a Listed Event, the Dissemination Agent shall file a notice of such occurrence with the MSRB through the EMMA System. Section 5. Assumption of Obligations. If a portion of the Property owned by the Developer, or any Affiliate of the Developer, is conveyed to a Person prior to the termination of the reporting obligations under this Disclosure Agreement, the obligations of the Developer hereunder with respect to the Property owned by such Developer and its Affiliates, are to be assumed. In order to effect such assumption, the Developer or Affiliate shall enter into an Assumption Agreement. Section 6. Termination of Reporting Obligation. The Developer's obligations under this Disclosure Agreement shall terminate upon the earliest to occur of (a) the date on which the Developer has no more than building permits outstanding and units remaining to be sold on its Property, (b) the date on which the Developer no longer has any obligations under this Disclosure Agreement as a result of such obligations having been assumed under one or more Assumption Agreements entered into pursuant to Section 5 hereof, or (c) the date on which all of the Series 2010 Bonds have been legally defeased, redeemed, or paid in full; upon such termination, the Developer shall have no obligation to provide any Semi -Annual Report that it would otherwise have been obligated to provide after the date of such termination. Upon the occurrence of any such termination prior to the final maturity of the Series 2010 Bonds, the Developer shall give notice of such termination in the same manner as for a Listed Event under Section 4 hereof. Section 7. Dissemination Agent. The Developer 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, without cause, any such Dissemination Agent, with or without appointing a successor Dissemination Agent. The Dissemination Agent may resign by providing 30 days' written notice to the Developer and the Trustee. The Dissemination Agent shall have no duty to prepare the Semi - Annual Report. The Developer shall be responsible for paying the fees and expenses of the Dissemination Agent. Section 8. Default. In the event of a failure of the Developer or the Trustee to comply with any provision of this Disclosure Agreement, the Trustee may (and, at the written direction of any Participating Underwriter or the Ownerss of at least 25% aggregate principal amount of Outstanding Series 2010 Bonds, shall, upon receipt of indemnification reasonably satisfactory to the Trustee), or any Owner or Beneficial Owner of the Series 2010 Bonds may, take such actions as may be necessary and appropriate, including seeking mandate or specific performance by court order, to cause the Developer or the Trustee, 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 Developer or the Trustee to comply with this Disclosure Agreement shall be an action to compel performance. Neither the Developer nor the Trustee shall have any liability to the holders of the Series 2010 Bonds or any other party for monetary damages relating to or arising from the default of the Developer or the Trustee under this Disclosure Agreement. OHS West:260984201.4 42081-9 MKH E-12 Section 9. Duties Immunities and Liabilities of Trustee and Dissemination Agent. The Dissemination Agent and the Trustee shall have only such duties hereunder as are specifically set forth in this Disclosure Agreement. The Developer agrees to indemnify and save each of the Trustee and the Dissemination Agent, and their respective officers, directors, employees and agents, harmless against any loss, expense and liabilities which it or 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 any loss, expense and liabilities due to the Trustee's or the Dissemination Agent's and their respective officers', directors', employees' and agents' negligence or willful misconduct. The Dissemination Agent shall have no responsibility for the preparation, review, form or content of any Semi -Annual Report or any notice of a Listed Event. No provision of this Disclosure Agreement shall require or be construed to require the Dissemination Agent to interpret or provide an opinion concerning any information disclosed hereunder. The Dissemination Agent may conclusively rely on the determination of the Developer as to the materiality of any event for purposes of Section 4 hereof. Neither the Trustee nor the Dissemination Agent make any representation as to the sufficiency of this Disclosure Agreement for purposes of the Rule. The Developer's obligations under this Section shall survive the termination of this Disclosure Agreement. Section 10. Beneficiaries. This Disclosure Agreement shall inure solely to the benefit of the Developer, the Trustee, the Dissemination Agent, the Participating Underwriter and Onwers and Beneficial Owners from time to time of the Series 2010 Bonds, and shall create no rights in any other person or entity. Section 11. 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 instrument. IN WITNESS WHEREOF, the parties hereto have executed this Disclosure Agreement as of the date first above written. [DEVELOPER] UNION BANK, N.A., AS TRUSTEE LCM OHS West:260984201.4 42081-9 MKH E-13 Authorized Signatory EXHIBIT A NOTICE OF FAILURE TO FILE ANNUAL REPORT Name of Issuer: City of Tustin Community Facilities District No. 06-1 (Tustin Legacy/Columbus Villages) Name of Bond Issue: City of Tustin Community Facilities District No. 06-1 (Tustin Legacy/Columbus Villages) Special Tax Bonds, Series 2010 Date of Issuance: __,2010 NOTICE IS HEREBY GIVEN that (the "Developer") has not provided a Semi - Annual Report with respect to the above-named Bonds as required by the Continuing Disclosure Agreement, dated as of as of 1, 2010, by and among the Developer and Union Bank, N.A., in its capacity as Trustee and in its capacity as Dissemination Agent. [The Developer anticipates that the Semi -Annual Report will be filed by .] Dated: UNION BANK, N.A., as Trustee, on behalf of (the "Developer") Authorized Signatory cc: (the "Developer") City of Tustin Community Facilities District No. 06-1 (Tustin Legacy/Columbus Villages) OHS West:260984201.4 42081-9 MKH E-14 APPENDIX F BOOK -ENTRY ONLY SYSTEM The following description of the procedures and record-keeping with respect to beneficial ownership interests in the Series 2010 Bonds, payment of principal, interest and other payments on the Series 2010 Bonds to DTC Participants or Beneficial Owners, confirmation and transfer of beneficial ownership interests in such Series 2010 Bonds, other related transactions by and between DTC, the DTC Participants and the Beneficial Owners is based solely on information provided by DTC. Accordingly, no representations can be made concerning these matters and neither the DTC Participants nor the Beneficial Owners should rely on the following information with respect to such matters, but should instead confirm the same with DTC or the DTC Participants, as the case may be. The Depository Trust Company ("DTC"), New York, NY, will act as securities depository for the Series 2010 Bonds. The Series 2010 Bonds will be issued as fully -registered securities registered in the name of Cede & Co. (DTC's partnership nominee) or such other name as may be requested by an authorized representative of DTC. One fully -registered Series 2010 Bond certificate will be issued for the Series 2010 Bonds, in the aggregate principal amount of such issue, and will be deposited with DTC. 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 Standard & Poor's highest rating: AAA. 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.dtcc.com and www.dtc.org. Purchases of Series 2010 Bonds under the DTC system must be made by or through Direct Participants, which will receive a credit for the Series 2010 Bonds on DTC's records. The ownership interest of each actual purchaser of each Series 2010 Bond (`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 or Indirect Participant through which the Beneficial Owner entered into the OHS West260984201.4 42081-9 MKH F-1 transaction. Transfers of ownership interests in the Series 2010 Bonds are to be accomplished by entries made on the books of Direct and Indirect Participants acting on behalf of Beneficial Owners. Beneficial Owners will not receive certificates representing their ownership interests in Series 2010 Bonds, except in the event that use of the book -entry system for the Series 2010 Bonds is discontinued. To facilitate subsequent transfers, all Series 2010 Bonds 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 Series 2010 Bonds with DTC and their registration in the name of Cede & Co. or such other DTC nominee do not effect any change in beneficial ownership. DTC has no knowledge of the actual Beneficial Owners of the Series 2010 Bonds; DTC's records reflect only the identity of the Direct Participants to whose accounts such Series 2010 Bonds are credited, which may or may not be the Beneficial Owners. The Direct and Indirect Participants will remain responsible for keeping account of their holdings on behalf of their customers. Conveyance of notices and other communications by 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 Series 2010 Bonds may wish to take certain steps to augment the transmission to them of notices of significant events with respect to the Series 2010 Bonds, such as redemptions, tenders, defaults, and proposed amendments to the Indenture and other documents securing the Bonds. For example, Beneficial Owners of Series 2010 Bonds may wish to ascertain that the nominee holding the Series 2010 Bonds for their benefit has agreed to obtain and transmit notices to Beneficial Owners. In the alternative, Beneficial Owners may wish to provide their names and addresses to the registrar and request that copies of notices be provided directly to them. Redemption notices shall be sent to DTC. If less than all of the Series 2010 Bonds within an issue are being redeemed, DTC's practice is to determine by lot the amount of the interest of each Direct Participant in such issue to be redeemed. Neither DTC nor Cede & Co. -(nor any other DTC nominee) will consent or vote with respect to Series 2010 Bonds 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 Series 2010 Bonds are credited on the record date (identified in a listing attached to the Omnibus Proxy). Redemption proceeds, distributions, and dividend payments on the Series 2010 Bonds will be made to Cede & Co., or such other nominee as may be requested by an authorized representative of DTC. DTC's practice is to credit Direct Participants' accounts upon DTC's receipt of funds and corresponding detail information from the 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 of such 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 redemption proceeds, distributions, and dividend payments to Cede & Co. (or such other nominee as may be requested by OHS West:260984201.4 42081-9 MKH F-2 an authorized representative of DTC) is the responsibility of the District or the Trustee, disbursement of 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. DTC may discontinue providing its services as depository with respect to the Series 2010 Bonds 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, Series 2010 Bond certificates are required to be printed and delivered. The District may decide to discontinue use of the system of book -entry -only transfers through DTC (or a successor securities depository). If the District determines to replace the DTC (or a successor securities depository) with another qualified securities depository, the District shall prepare or direct the preparation of a new single, separate, fully -registered Series 2010 Bond for each maturity date of such Book -Entry Bonds, registered in the name of such successor or substitute qualified securities depository or its nominee. If the District fails to identify another qualified securities depository to replace DTC (or a successor securities depository), then the Book -Entry Bonds shall no longer be restricted to being registered in the Registration Books in the name of the Nominee, but shall be registered in whatever name or names the Owners transferring or exchanging such Bonds shall designate, in accordance with the Indenture. NOTWITHSTANDING THE FOREGOING, THE TRUSTEE, AS LONG AS A BOOK - ENTRY -ONLY SYSTEM IS USED FOR THE SERIES 2010 BONDS, WILL SEND ANY NOTICE OF REDEMPTION OR OTHER NOTICES ONLY TO CEDE & CO., OR ITS SUCCESSOR AS DTC'S PARTNERSHIP NOMINEE. ANY FAILURE OF CEDE & CO., OR ITS SUCCESSOR AS DTC'S PARTNERSHIP NOMINEE TO ADVISE ANY PARTICIPANT, OR OF ANY PARTICIPANT TO NOTIFY ANY BENEFICIAL OWNER OF ANY NOTICE AND ITS CONTENT OR EFFECT WILL NOT AFFECT THE VALIDITY OR SUFFICIENCY OF THE PROCEEDINGS RELATING TO THE REDEMPTION OF THE SERIES 2010 BONDS CALLED FOR REDEMPTION OR OF ANY OTHER ACTION PREMISED ON SUCH NOTICE. OHS West:260984201.4 42081-9 MKH F-3 Quint & Thimmig LLP CITY OF TUSTIN COMMUNITY FACILITIES DISTRICT NO. 06-1 (TUSTIN LEGACY/COLUMBUS VILLAGES) SPECIAL TAX BONDS, SERIES 2010 BOND PURCHASE AGREEMENT November _, 2010 City of Tustin Community Facilities District No. 06-1 (Tustin Legacy/Columbus Villages) c/o City of Tustin 300 Centennial Way Tustin, California 92780 Ladies and Gentlemen: 9/22/10 10/4/10 10/8/10 The undersigned, Stone & Youngberg LLC (the "Underwriter"), offers to enter into this Bond Purchase Agreement (this "Bond Purchase Agreement") with the City of Tustin Community Facilities District No. 06-1 (Tustin Legacy/Columbus Villages) (the "District"), which upon acceptance by the District will be binding upon the District and the Underwriter. This offer is made subject to acceptance of it by the District on the date hereof, and if not so accepted will be subject to withdrawal by the Underwriter upon notice delivered to the District at any time prior to the acceptance hereof by the District. 1. Purchase Sale and Delivery of the Bonds. (a) Subject to the terms and conditions and in reliance upon the representations, warranties and agreements set forth herein, the Underwriter agrees to purchase from the District, and the District agrees to sell to the Underwriter, all (but not less than all) of the City of Tustin Community Facilities District No. 06-1 (Tustin Legacy/Columbus Villages) Special Tax Bonds, Series 2010 (the "Bonds"), in the aggregate principal amount of $ . The Bonds are to be dated their date of issuance and bear interest payable semiannually on each March 1 and September 1, commencing March 1, 2011, at the respective rates per annum and maturing on the respective dates and in the respective amounts as set forth in Exhibit A hereto. The purchase price for the Bonds shall be $ (representing the initial principal amount of the Bonds of $ , plus [less] net original issue premium [discount] of $ , and less Underwriter's discount of $ ). The Bonds shall be in the form described in, will be issued and secured under the provisions of, and will be payable and subject to redemption as provided in the Indenture, dated as of September 1, 2007 (the "Original Indenture"), between the District and Union Bank of California, N.A. (now known as Union Bank, N.A.), as trustee (the "Trustee"), as amended and supplemented by a First Supplemental Indenture, dated as of November 1, 2010 (the "First Supplement"), between the District and the Trustee. The Original Indenture, as amended and supplemented by the First Supplement, is referred to in this Bond Purchase Agreement as the "Indenture." The execution and delivery by the District of the First Supplement and the Bonds 19031.06:J10916 have been authorized pursuant to a resolution (the "Resolution") adopted by the City Council of the City of Tustin, California (the "City Council"), acting as the legislative body for the District, on October 19, 2010. The Bonds and interest thereon will be payable from a special tax (the "Special Tax") levied and collected in accordance with the Indenture and Ordinance No. 1315 adopted by the City Council, acting as the legislative body for the District, on August 7, 2006 (the "Ordinance"). The District is comprised of two zones (each, a "Zone") in the City. Approximately 70 acres in Zone 1 of the District ("Zone 1") is subject to the Special Tax, and approximately 55.8 acres in Zone 2 of the District ("Zone 2") subject to the Special Tax. The Special Taxes levied in each Zone support the payment of the Bonds. Zone 1 is part of the master planned community known as Columbus Square and Zone 2 is part of the master planned community known as Columbus Grove. At present, the following entities own the following property in the District: (i) individual homeowners own 1,092 lots improved with single family homes; {ii) Moffett Meadows Partners, LLC ("Moffett") owns 4 lots each developed or to be developed with a single family detached home; (iii) Tustin Coventry Seniors, L.P. ("Coventry") owns property that includes a lot expected to be developed with a 24 unit residential rental facility for seniors, along with lots expected to be developed with an additional 216 senior rental housing units; (iv) ORA Astoria 60, LLC ("ORA Astoria") owns 60 lots each expected to be developed with a single family detached home; (v) ORA Mirabella 60, LLC ("ORA Mirabella") owns 60 lots each expected to be developed with a single family attached home, and (vi) ORA Ainsley Park 84, LLC ("ORA Ainsley") owns 84 lots each expected to be developed with a single family attached home. ORA Astoria, ORA Mirabella and ORA Ainsley (collectively, the "ORA Entities") have contracted with William Lyon Homes, Inc. ("William Lyon") to construct the homes on the lots owned by them. Coventry will deliver a Letter of Representations to the District and the Underwriter dated the date of the Preliminary Official Statement in substantially the form attached hereto as Exhibit B-1. William Lyon will deliver a Letter of Representations to the District and the Underwriter dated the date of the Preliminary Official Statement in substantially the form attached hereto as Exhibit B-2. Each of the ORA Entities will deliver a separate Letter of Representations to the District and the Underwriter dated the date of the Preliminary Official Statement in substantially the form attached hereto as Exhibit B-3. Moffett will deliver a Letter of Representations to the District and the Underwriter dated the date of the Preliminary Official Statement in substantially the form attached hereto as Exhibit C. Each of the ORA Entities will execute a separate Continuing Disclosure Agreement, each dated as of November 1, 2010, as described in 1(b) below. The proceeds of the sale of the Bonds will be used in accordance with the Indenture and the Mello -Roos Community Facilities Act of 1982, constituting Section 53311 et seq. of the California Government Code (the "Act"), to (i) pay the cost and expense of the acquisition and construction of certain public facilities authorized to be funded by the District, (ii) pay a portion of the debt service due on the Bonds through September 1, 2011, (iii) increase the amount in a reserve fund for the Bonds and for the Series 2007 Bonds (as defined in the First Supplement) to the amount of the Reserve Requirement (as defined in the Indenture) in effect following the issuance of the Bonds, and (iv) pay the costs of issuing the Bonds. The Bonds are being issued in accordance with the provisions of the Indenture and the Act. (b) Pursuant to the authorization of the District, the Underwriter has distributed copies of the preliminary official statement, dated October _, 2010 relating to the Bonds, which, together with the cover page and all appendices thereto, is herein called the "Preliminary Official Statement" and which, as amended by the District with the prior approval of the Underwriter, will be referred to herein as the "Official Statement," as the same may be -2- supplemented and amended from time to time. The District hereby ratifies the use by the Underwriter of the Preliminary Official Statement and authorizes the Underwriter to use and distribute the Official Statement, the Indenture, and any other documents or contracts to which the District is a party, including this Bond Purchase Agreement, in connection with the offer and sale of the Bonds by the Underwriter. At or prior to the Closing Date (defined below), the District shall have authorized, executed and delivered the Continuing Disclosure Agreement, dated as of November 1, 2010, as described in the Official Statement (the "District Continuing Disclosure Agreement"), and each of the three ORA Entities shall have authorized, executed and delivered a separate Continuing Disclosure Agreement, dated as of November 1, 2010 (collectively, the "Property Owner Continuing Disclosure Agreements"), pursuant to Rule 15c2- 12, each in substantially the form described in the Official Statement. (c) At 5:00 A.M., Pacific time, on November _, 2010, or at such earlier time or date as shall be agreed upon by the Underwriter and the District (such time and date being herein referred to as the "Closing Date"), the District will deliver or cause to be delivered to the Underwriter (i) through the facilities of The Depository Trust Company ("DTC'), in New York, New York, the Bonds in definitive form, bearing CUSIP numbers, and duly executed by the officers of the District as provided in the First Supplement, and (ii) at the offices of Orrick, Herrington & Sutcliffe LLP ('Bond Counsel") in Los Angeles, California, or such other location as may be agreed to by the District and the Underwriter, the other documents herein mentioned; and the Underwriter shall accept such delivery and pay the purchase price of the Bonds in immediately available funds (such delivery and payment being herein referred to as the "Closing"). Notwithstanding the foregoing, the Underwriter may, in its discretion, accept delivery of the Bonds in temporary form upon making arrangements with the District which are satisfactory to the Underwriter relating to the delivery of the Bonds in definitive form. The Bonds shall be in fully registered form, registered in the name of Cede & Co., as nominee of DTC. 2. Representations, Warranties and Agreements of the District. The District represents, warrants and covenants to and agrees with the Underwriter that: (a) The District is duly organized and validly existing as a community facilities district under the laws of the State of California (the "State"), including the Act, and 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 Bond Purchase Agreement, the Indenture, the Acquisition Agreement (as defined in the Original Indenture) and the District Continuing Disclosure Agreement and to carry out all transactions on its part contemplated by this Bond Purchase Agreement, (ii) to issue, sell and deliver the Bonds to the Underwriter pursuant to the Resolution and the Indenture as provided herein and therein, and (iii) to carry out, give effect to and consummate the transactions on its part contemplated by the Resolution, the Ordinance, the Acquisition Agreement, the Official Statement, the Indenture, the District Continuing Disclosure Agreement and this Bond Purchase Agreement. (b) The District has complied, and will at the Closing Date be in compliance, in all respects with the Resolution, the Ordinance, the Indenture, the Act, the Acquisition Agreement, the District Continuing Disclosure Agreement and this Bond Purchase Agreement, and the District will continue to comply with the covenants of the District contained in the Indenture so long as the Bonds are outstanding. (c) The City Council, acting as the legislative body for the District, has duly and validly: (i) adopted the Resolution and the Ordinance; (ii) called, held and conducted in accordance with all requirements of the Act an election to approve the levy of the Special Taxes; (iii) authorized and approved the execution and delivery of the Bonds, the Indenture, the Acquisition Agreement, the District Continuing Disclosure Agreement and this Bond Purchase Agreement; -3- (iv) authorized the preparation and delivery of the Preliminary Official Statement and the Official Statement; and (v) authorized and approved the performance by the District of its obligations contained in, and the taking of any and all action as may be necessary to carry out, give effect to and consummate the transactions on its part contemplated by, each of said documents (including, without limitation, the collection of the Special Tax and the use of the Special Tax to repay the Bonds), and at the Closing Date the Resolution, the Indenture, the Ordinance, the Bonds, the District Continuing Disclosure Agreement, the Acquisition Agreement and this Bond Purchase Agreement will constitute the valid, legal and binding obligations of the District, and (assuming due authorization, execution and delivery by other parties thereto, where necessary) will be enforceable upon the District in accordance with their respective terms, subject to bankruptcy, insolvency, reorganization, moratorium and other laws affecting the enforcement of creditors' rights in general and to the application of equitable principles if equitable remedies are sought. (d) The District is not in breach of or default under any applicable law or administrative rule or regulation of the State, or of any department, division, agency or instrumentality 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 District is a party or is otherwise subject or bound, a consequence of which could be to materially and adversely affect the performance by the District of its obligations under the Bonds, the Resolution, the Indenture, the Ordinance, the District Continuing Disclosure Agreement, the Acquisition Agreement or this Bond Purchase Agreement, and compliance with the provisions of each thereof will not in any respect material to the transactions referred to herein or contemplated hereby, conflict with or constitute a breach of or default under any applicable law or administrative rule or regulation of the State, or of any department, division, agency or instrumentality 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 District is a party or is otherwise subject or bound. (e) All approvals, consents, authorizations, elections and orders of or filings or registrations with any State 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 District of its obligations hereunder, or under the Resolution, the Indenture, the Ordinance, the Bonds, the Acquisition Agreement or the District Continuing Disclosure Agreement, have been or will be obtained and are in full force and effect, except that the District provides no representation regarding compliance with blue sky or other securities laws or regulations. (f) The Special Tax constituting the source of funds to repay the Bonds has been duly and lawfully authorized and may be levied under the Act and the Constitution and the applicable laws of the State, and such Special Tax, when levied, will constitute a valid and legally binding lien on the properties on which it has been levied. (g) Until the date which is twenty-five (25) days after the "end of the underwriting period" (as hereinafter defined), if any event shall occur of which the District is aware, as a result of which it may be necessary to supplement the Official Statement in order to make the statements in the Official Statement, in light of the circumstances existing at such time, not misleading, the District shall forthwith notify the Underwriter of any such event of which it has knowledge and shall cooperate fully in furnishing any information available to it for any supplement to the Official Statement necessary, in the Underwriter's opinion, so that the statements therein as so supplemented will not be misleading in light of the circumstances existing at such time and the District shall promptly furnish to the Underwriter a reasonable number of copies of such supplement. As used herein, the term "end of the underwriting period" means the later of such time as (i) the District delivers the Bonds to the Underwriter, or -4- (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 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." (h) The Indenture creates a valid pledge of the Net Special Tax Revenues (as defined in the Indenture) and any other amounts (including the proceeds of the sale of the Bonds) held in the Bond Fund, the Special Tax Fund and the Reserve Fund 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. (i) 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 or, to the best knowledge of the District, threatened against the District (i) which would materially adversely affect the ability of the District to perform its obligations under the Bonds, the Indenture, the Resolution, the Ordinance, the Acquisition Agreement or the District Continuing Disclosure Agreement, or (ii) seeking to restrain or to enjoin the development of the land within the District, the issuance, sale or delivery of the Bonds, the application of the proceeds of the Bonds in accordance with the Indenture, or the collection or application of the Special Tax pledged or to be pledged to pay the principal of and interest on the Bonds, or the pledge thereof, or in any way contesting or affecting the validity or enforceability of the Bonds, the Resolution, the Indenture, the Ordinance, the District Continuing Disclosure Agreement, this Bond Purchase Agreement or the Acquisition Agreement, or any action of the District contemplated by any of said documents, or (iii) in any way contesting the completeness or accuracy of the Preliminary Official Statement or the powers or authority of the District with respect to the Bonds, the Resolution, the Indenture, the District Continuing Disclosure Agreement, the Acquisition Agreement or the Ordinance or any action of the District contemplated by any of such documents, or (iv) which alleges that interest on the Bonds is not excludable from gross income for federal income tax purposes or is not exempt from California personal income taxation. (j) The District will furnish such information, execute such instruments and take such other action in cooperation with the Underwriter as the Underwriter may reasonably request in order for the Underwriter 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; provided, however, the District shall not be required to register as a dealer or a broker of securities nor shall the District be required to consent to service of process or jurisdiction or qualify to do business in any jurisdiction or to expend funds for this purpose. (k) Any certificate signed by any official of the District or the City of Tustin authorized to do so and delivered pursuant to this Bond Purchase Agreement shall be deemed a representation and warranty of the District to the Underwriter as to the statements made therein. (1) The District will apply the proceeds of the Bonds in accordance with the Indenture and the Act and as described in the Official Statement. (m) The information contained in the Preliminary Official Statement was, and in the Official Statement now is and on the Closing Date will be, true and correct in all material respects and such information does 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. -5- (n) The Preliminary Official Statement heretofore delivered to the Underwriter is deemed final by the District as of its date except for the omission of such information as is permitted to be omitted in accordance with Rule 15c2-12. The District hereby covenants and agrees that, within seven (7) business days from the date hereof, or upon reasonable written notice from the Underwriter within sufficient time to accompany any confirmation requesting payment for the Bonds from any customers of the Underwriter, the District shall cause a final printed form of the Official Statement to be delivered to the Underwriter in sufficient quantity as requested by the Underwriter to comply with paragraph (b)(4) of Rule 15c2-12 and Rules G- 12, G-15, G-32 and G-36 of the Municipal Securities Rulemaking Board. 3. Conditions to the Obligations of the Underwriter. The Underwriter have entered into this Bond Purchase Agreement in reliance upon the representations, warranties and agreements of the District contained herein and of each Merchant Builder contained in its respective Letter of Representations, the representations, warranties and agreements to be contained in the documents and instruments to be delivered at the Closing, the performance by the District of its obligations hereunder and the opinions of Bond Counsel, counsel to the Trustee, counsel to the District, counsel to Resmark Equity Partners, LLC, counsel to the ORA Entities, counsel to William Lyon and counsel to the Underwriter described hereafter. Accordingly, the Underwriter' obligations under this Bond Purchase Agreement to purchase, to accept delivery of and to pay for the Bonds shall be conditioned upon and subject to (i) the performance by the District and the Trustee of their obligations to be performed hereunder, under the Indenture or the Bonds and (ii) the accuracy in all material respects, in the reasonable judgment of the Underwriter, of the representations and warranties of the District herein and of the Merchant Builders contained in their respective Letters of Representations as of the date hereof and as of the time of the Closing, and shall also be subject to the following additional conditions: (a) The representations, warranties and agreements of the District contained herein shall be true and correct on the date hereof and on and as of the date of the Closing; (b) At the Closing, the Resolution, the Ordinance, the Indenture, the District Continuing Disclosure Agreement, each Property Owner Continuing Disclosure Agreement, the Acquisition Agreement, this Bond Purchase Agreement, the Bonds and the Official Statement shall have been duly authorized, executed and delivered by the respective parties thereto, in substantially the forms heretofore submitted to the Underwriter, with only such changes as shall have been agreed to in writing by the Underwriter, and said agreements shall not have been amended, modified or supplemented, except as may have been agreed to in writing by the Underwriter, and each shall be in full force and effect; (c) At the Closing, the Official Statement shall not have been amended, modified or supplemented, except as may have been agreed to in writing by the Underwriter; (d) At the time of the Closing, there shall not have occurred any change or any development involving a prospective change in the condition, financial or otherwise, or in the operations of the District, Coventry, Moffett, William Lyon, Resmark Equity Partners, LLC, or any of the ORA Entities that makes it, in the judgment of the Underwriter, impracticable to market the Bonds on the terms and in the manner contemplated by the Official Statement; and (e) In the judgment of the Underwriter, between the date hereof and the Closing, the marketability of the Bonds at the initial offering prices set forth in the Official Statement shall not have been materially adversely affected by reason of any of the following: (1) Legislation, judicial Decisions or Rulings. An amendment to the Constitution of the United States or the Constitution of the State shall have been passed or legislation -6- enacted, introduced in the Congress or in the legislature of the State or recommended for passage by the President of the United States, or a decision rendered by a court established under Article III of the Constitution of the United States or by the Tax Court of the United States, or an order, ruling, regulation (final, temporary or proposed) or official statement issued or made: (A) by or on behalf of the State or the California Franchise Tax Board, with the purpose or effect, directly or indirectly, of imposing California personal income taxation upon payments of the general character of the interest as would be received by the Owners of the Bonds; or (B) by or on behalf of the Treasury Department of the United States or the Internal Revenue Service or by or on behalf of the State or the California Franchise Tax Board, with the purpose or effect, directly or indirectly, of changing the federal or State income tax rates, respectively; or (C) by or on behalf of the Securities and Exchange Commission, or any other governmental agency having jurisdiction over the subject matter, to the effect that obligations of the general character of the Bonds, including any or all underlying arrangements, are not exempt from registration under the Securities Act of 1933, as amended, or that the Trust Agreement is not exempt from qualification under the Trust Indenture Act of 1939, as amended; (2) War. The United States' engagement, alone or as a participant, in an outbreak or escalation of hostilities or any change in financial markets or any calamity or crisis the effect of which in the Underwriter' sole judgment makes it impracticable or impossible to proceed with the solicitation of offers to purchase the Bonds on the terms and in the manner contemplated by the Official Statement; (3) Banking Moratorium. The declaration of a general banking moratorium by federal, New York or State authorities, or the general suspension of trading on any national securities exchange; (4) Securities Exchange Restrictions. Trading generally shall have been suspended or materially limited on or by the New York Stock Exchange or other national securities exchange, or the imposition by the New York Stock Exchange or other national securities exchange, or any governmental authority, of any material restrictions not now in force with respect to the Bonds or obligations of the general character of the Bonds, or the material increase of any such restrictions now in force, including those relating to the extension of credit by, or the charge to the net capital requirements of, Underwriter; (5) Regarding Federal Securities Laws. An order, decree or injunction of any court of competent jurisdiction, or order, ruling, regulation or official statement by the Securities and Exchange Commission, or any other governmental agency having jurisdiction of the subject matter, issued or made to the effect that the execution, delivery, offering or sale of obligations of. the general character of the Bonds, or the execution, delivery, offering or sale of the Bonds, including any or all underlying obligations, as contemplated hereby or by the Official Statement, is or would be in violation of any federal securities law as amended and then in effect; (6) Official Statement Untrue or Incomplete. Any event occurring, or information becoming known which, in the reasonable judgment of the Underwriter, makes untrue in any material respect any statement or information contained in the Official -7- Statement, or has the effect that the Official Statement contains any 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; or (7) Certain Amendments to the Official Statement. An event occurs prior to the Closing which, in the reasonable judgment of the Underwriter, requires or has required a supplement or amendment to the Official Statement. 4. Letters of Representation. The Underwriter's obligations under this Purchase Contract are and shall be further subject to the receipt of a Letter of Representations from Coventry, each of the ORA Entities and William Lyon, each in substantially the applicable form attached hereto as Exhibit B, and receipt of a Letter of Representations from Moffett in substantially the form attached hereto as Exhibit C. 5. Documents to be Delivered at Closing. On the Closing Date, the Underwriter shall have received counterpart originals or certified copies of the following documents, in each case satisfactory in form and substance to the Underwriter: (a) the Resolution and the Ordinance, together with a certificate dated as of the Closing Date of the City Clerk or deputy thereof of the City to the effect that each is a true, correct and complete copy of the one duly adopted by the City Council; (b) an executed copy of the Indenture; (c) an executed copy of the Official Statement; (d) an executed copy of the District Continuing Disclosure Agreement; (e) an executed copy of each of the three Property Owner Continuing Disclosure Agreements (one from each of the three ORA Entities); (f) an approving opinion, dated the Closing Date and addressed to the District, of Bond Counsel for the District, in the form attached as Appendix C to the Official Statement and a letter of such counsel, dated the Closing Date and addressed to the Underwriter, to the effect that such opinion addressed to the District may be relied upon by the Underwriter to the same extent as if such opinion was addressed to it; (g) a supplemental opinion, dated the Closing Date and addressed to the Underwriter, of Bond Counsel for the District, to the effect that (i) this Bond Purchase Agreement and District Continuing Disclosure Agreement have been duly authorized, executed and delivered by the District, and, assuming the execution and delivery by the other parties thereto as appropriate, this Bond Purchase Agreement and the District Continuing Disclosure Agreement constitute valid and binding obligations of the District, except as enforcement may be limited by bankruptcy, moratorium, insolvency or other laws affecting creditor's rights or remedies and is subject to general principles of equity (regardless of whether such enforceability is considered in equity or at law); (ii) the .Bonds are not subject to the registration requirements of the Securities Act of 1933, as amended, and the Indenture is exempt from qualification under the Trust Indenture Act of 1939, as amended; and (iii) the statements contained in the Official Statement under the headings "INTRODUCTION," "THE SERIES 2010 BONDS" (excluding under the subheading "Debt Service Schedule"), "SECURITY FOR THE SERIES 2010 BONDS" (excluding Table 1 under the subheading "The Special Taxes," and the statements under the subheadings "Property Values," "Direct and El Overlapping Debt," "Estimated Value -to -Lien Ratios" and "Effective Tax Rates"), "CONCLUDING INFORMATION—Tax Exemption" and in APPENDIX D— SUMMARY OF INDENTURE, excluding any material that may be treated as included under such captions by cross-reference, insofar as such statements expressly summarize certain provisions of the Bonds, the Indenture and the form and content of Bond Counsel's final opinion with respect to the Bonds, are accurate in all material respects; (h) an opinion, dated the Closing Date and addressed to the District and the Underwriter of Orrick, Herrington & Sutcliffe LLP, Disclosure Counsel, to the effect that without having undertaken to determine independently the accuracy, completeness or fairness of the statements contained in the Official Statement, but on the basis of its participation in conferences with representatives of the District, counsel to the District, Moffett, Coventry, Resmark Equity Partners, LLC, David Taussig and Associates, Inc., Harris Realty Appraisal, the Underwriter, and others, and their examination of certain documents, no information has come to their attention which would lead them to believe that the Official Statement as of its date contained any untrue statement of a material fact or omitted to state any material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading (except that no opinion or belief need be expressed as to any financial, accounting, statistical, economic, engineering, or demographic data or forecasts, numbers, charts, tables, graphs, maps, estimates, projections, assumptions or expressions of opinion, or any information about feasibility, valuation, appraisals, real estate, archaeological or environmental matters, the Appendices to the Official Statement or any information about debt service requirements, book -entry, The Depository Trust Company, or tax exemption contained in the Official Statement); (i) an opinion, dated the Closing Date and addressed to the Underwriter, of Quint & Thimmig LLP, San Francisco, California, in form and substance acceptable to the Underwriter; (j) a Certificate, dated the Closing Date and signed by an authorized representative of the District, ratifying the use and distribution by the Underwriter of the Preliminary Official Statement and the Official Statement in connection with the offering and sale of the Bonds and certifying that (i) the representations and warranties of the District contained in this Bond Purchase Agreement 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) no event has occurred since the date of the Official Statement affecting the matters contained therein which should be disclosed in the Official Statement for the purposes for which it is to be used in order to make the statements and information contained in the Official Statement with respect to the District not misleading in any material respect, and the Bonds, the Indenture and other applicable agreements conform as to form and substance to the descriptions thereof contained in the Official Statement; and (iii) the District has complied with all the agreements and satisfied all the conditions on its part to be performed or satisfied under this Bond Purchase Agreement, the Resolution, the Ordinance, the Acquisition Agreement and the Original Indenture at or prior to the Closing Date; (k) an opinion, dated the Closing Date and addressed to the Underwriter, of the Law Offices of Woodruff, Spradlin & Smart, A Professional Corporation, acting as counsel to the District, to the effect that (i) the District is duly organized and validly existing as a community facilities district under the laws of the State, with full legal right, power and authority to issue the Bonds and to perform all of its obligations under the Indenture, this Bond Purchase Agreement, the Acquisition Agreement, the -9- District Continuing Disclosure Agreement and the Tax Certificate, dated the Closing Date, of the District (collectively, the "Community Facilities District Documents"), and the Bonds, and to adopt the Resolution and the Ordinance; (ii) the City Council of the City has duly and validly adopted the Resolution and the Ordinance and approved the issuance of the Bonds, the Acquisition Agreement and the Indenture 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 at the time of adoption, and the Resolution, the Ordinance, the Indenture and the Acquisition Agreement are now if full force and effect and the same have not been amended (except as the Original Indenture has been amended by the First Supplement); (iii) the District has duly authorized, executed and delivered the Community Facilities District Documents and the Bonds, and has duly authorized the preparation and delivery of the Official Statement and the Bonds, and the Community Facilities District Documents and the Bonds constitute legal, valid and binding agreements of the District, enforceable in accordance with their respective terms, subject to bankruptcy, insolvency, reorganization, moratorium and other laws affecting the enforcement of creditors' rights in general and to the application of equitable principles if equitable remedies are sought and to limitations on remedies imposed in actions against public entities in the State; (iv) the City has duly authorized, executed and delivered the Acquisition Agreement, and the Acquisition Agreement constitutes a legal, valid and binding agreement of the City, enforceable in accordance with its respective terms, subject to bankruptcy, insolvency, reorganization, moratorium and other laws affecting the enforcement of creditors' rights in general and to the application of equitable principles if equitable remedies are sought and to limitations on remedies imposed in actions against public entities in the State; (v) except for the adoption of the resolution approving the annual levy of the Special Tax, the District has obtained all approvals, consents, authorizations, elections and orders of or filings or registrations with any State governmental authority, board, agency or commission having jurisdiction which constitute a condition precedent to the levy of the Special Tax, the issuance of the Bonds or the performance by the District of its obligation thereunder or under the Indenture, except that no opinion need be expressed regarding compliance with blue sky or other securities laws or regulations; (vi) 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 or, to the best knowledge of such counsel, threatened against the District which would materially adversely affect the ability of the District to perform its obligations under the Bonds, the Resolution, the Ordinance or the Community Facilities District Documents, or seeking to restrain or to enjoin the issuance, sale or delivery of the Bonds, or the application of the proceeds thereof in accordance with the Indenture, or the collection or application of the Special Tax to pay the principal of and interest on the Bonds, or in any way contesting or affecting the validity or enforceability of the Bonds, the Resolution, the Ordinance, the Community Facilities District Documents or the accuracy of the Official Statement, or any action of the District contemplated by any of said documents; (vii) 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 or, to the best knowledge of such counsel, is threatened against the City which would materially adversely affect the ability of the City to perform its obligations under the Acquisition Agreement or in any way contesting or affecting the validity or enforceability of the Acquisition Agreement, or any action of the City contemplated by the Acquisition Agreement; (1) the Tax Certificate of the District, dated the Closing Date, in a form acceptable to Bond Counsel; -10- (m) a certificate of William Lyon, dated the Closing Date, in a form acceptable to Disclosure Counsel and the Underwriter, to the effect that the statements in the Official Statement relating to William Lyon and its contractual and financial arrangements with respect to the development of property owned by the ORA Entities under the captions "INTRODUCTION" and "THE DISTRICT—Property Ownership and Development" are accurate in all material respects and do not contain any untrue statement of 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, and the representations and warranties of William Lyon contained in its Letter of Representations (referred to in 1(a) above) 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, except that all references therein to the Preliminary Official Statement shall be deemed to be references to the Official Statement; (n) a certificate of Coventry, dated the Closing Date, in a form acceptable to Disclosure Counsel and the Underwriter, to the effect that the statements in the Official Statement relating to Coventry, its proposed development of certain property in the District, its property ownership and its contractual and financial arrangements with respect thereto under the captions "INTRODUCTION" and "THE DISTRICT—Property Ownership and Development" are accurate in. all material respects and do not contain any untrue statement of 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, and the representations and warranties of Coventry contained in its Letter of Representations (referred to in 1(a) above) 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, except that all references therein to the Preliminary Official Statement shall be deemed to be references to the Official Statement; (o) a certificate of each ORA Entity, each dated the Closing Date, in a form acceptable to Disclosure Counsel and the Underwriter, to the effect that the statements in the Official Statement relating to the respective ORA Entity, its proposed development of certain property in the District, its property ownership and its contractual and financial arrangements with respect thereto under the captions "INTRODUCTION" and "THE DISTRICT—Property Ownership and Development" are accurate in all material respects and do not contain any untrue statement of 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, and the representations and warranties of the respective ORA Entity contained in its Letter of Representations (referred to in 1(a) above) 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, except that all references therein to the Preliminary Official Statement shall be deemed to be references to the Official Statement; (p) a certificate of Moffett, dated the Closing Date, in a form acceptable to Disclosure Counsel and the Underwriter, to the effect that the statements in the Official Statement relating to Moffett and the status of completion of the infrastructure improvements in the District under the captions "INTRODUCTION" and "THE DISTRICT—Property Ownership and Development" are accurate in all material respects and do not contain any untrue statement of 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, and the representations and warranties of Moffett contained in its Letter of Representations (referred to in 1(a) above) are true and correct in all material respects on and as of the Closing Date with the same effect -11- as if made on the Closing Date, except that all references therein to the Preliminary Official Statement shall be deemed to be references to the Official Statement; (q) an opinion addressed to the Underwriter and the District by counsel to each of the ORA Entities, to the effect that (i) based solely on the good standing certificates, each ORA Entity has been duly formed as a limited liability company and is validly existing in good standing under the laws of the State, (ii) based upon its experience as counsel to each ORA Entity and its review of the Official Statement, no facts came to its attention that would lead it to believe that, as of the date of the Official Statement and as of the date of the Closing, the statements contained in the Official Statement relating to each of the ORA Entities, the property in the District owned by the ORA Entities, the ORA Entities development plans with respect to such property, and the ORA Entities financing plan with respect to such property under the captions "INTRODUCTION" and "THE DISTRICT—Property Ownership and Development" contained or contain any untrue statement of a material fact or omitted 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; (iii) there is no litigation pending or threatened against or affecting any of the ORA Entities (A) which affects or seeks to prohibit, restrain or enjoin the development by one or more of them of the property within the District, or (B) in which an ORA Entity or any of its members may be adjudicated as bankrupt or discharged from any or all of its debts or obligations or granted an extension of time to pay its debts or a reorganization or readjustment of its debts, or (C) which seeks to grant an extension of time to pay an ORA Entity's debts, or (D) seeks to effect a reorganization or readjustment of an ORA Entity's debts; (r) an opinion addressed to the Underwriter and the District by counsel to Resmark Equity Partners, LLC ("Resmark"), to the effect that (i) based upon its experience as counsel to Resmark and its review of the Official Statement, no facts came to its attention that would lead it to believe that, as of the date of the Official Statement and as of the date of the Closing, the statements contained in the Official Statement relating to Resmark and its relationship to the ORA Entities under the captions "INTRODUCTION" and "THE DISTRICT—Property Ownership and Development contained or contain any untrue statement of a material fact or omitted 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 (ii) there is no litigation pending or threatened against or affecting Resmark (A) in which Resmark or any of its partners may be adjudicated as bankrupt or discharged from any or all of its debts or obligations or granted an extension of time to pay its debts or a reorganization or readjustment of its debts, or (B) which seeks to grant an extension of time to pay Resmark's debts, or (C) seeks to effect a reorganization or readjustment of Resmark's debts; (s) an opinion addressed to the Underwriter and the District by counsel to William Lyon, to the effect that based upon its experience as counsel to William Lyon and its review of the Official Statement, no facts came to its attention that would lead it to believe that, as of the date of the Official Statement and as of the date of the Closing, the statements contained in the Official Statement relating to William Lyon and its contractual relations with ORA Entities under the captions "INTRODUCTION" and "THE DISTRICT—Property Ownership and Development" contained or contain any untrue statement of a material fact or omitted 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; -12- (t) a certificate from David Taussig & Associates, Inc. to the effect that (i) the Special Tax, if applied and collected in accordance with the terms set forth in the Act, the Ordinance, the Resolution and the Indenture, would generate an amount at least equal to the aggregate of the debt service on the Bonds and on the Series 2007 Bonds, (ii) the Special Taxes, if collected in the maximum amounts permitted under the Indenture on the date hereof, would generate at least 110% of the maximum aggregate debt service on the Bonds and the Series 2007 Bonds, based on such assumptions and qualifications as shall be acceptable to the Underwriter, and (iii) the information supplied by such firm for use in the Preliminary Official Statement and the Official Statement, including (but not limited to) Tables 1, 2, 3 and 4, and the information with respect to the Special Taxes, the Rate and Method of Apportionment of Special Taxes for the District, and direct and overlapping indebtedness in the sections thereof captioned "INTRODUCTION," "SECURITY FOR THE SERIES 2010 BONDS—The Special Taxes," "SECURITY FOR THE SERIES 2010 BONDS—Direct and Overlapping Debt" "SECURITY FOR THE SERIES 2010 BONDS—Effective Tax Rates" and "THE DISTRICT—Rate and Method of Apportionment" does 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; (u) a letter from Harris Realty Appraisal (the "Appraiser") to the effect that it has prepared the appraisal report (the "Report") for the property located within the District and that (i) summaries of the Report in, and the Report contained in an appendix to, the Preliminary Official Statement and the Official Statement, may be included in the Preliminary Official Statement and the Official Statement, (ii) the information under the captions "SECURITY FOR THE SERIES 2010 BONDS—Property Values" and "SPECIAL RISK FACTORS—Appraised Values" does 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, (iii) no events or occurrences have been ascertained by it or have come to its attention that would materially change. its opinion of value set forth in the Report, and (iv) the value of the property in the District, described in the Report, as of the Closing Date, is not less than the value of such property as of August 15, 2010; (v) the Appraisal Report, dated August 19, 2010; (w) a certificate of the Trustee, dated the Closing Date, to the effect that (i) the Trustee is authorized to carry out corporate trust powers, and has full ,power and authority to perform its duties under the Indenture, each Property Owner Continuing Disclosure Agreement and the District Continuing Disclosure Agreement .(collectively, the "Continuing Disclosure Agreements"); (ii) the Trustee is duly authorized to execute and deliver the Indenture and the Continuing Disclosure Agreements, to accept the obligations created by the Indenture and the Continuing Disclosure Agreements and to authenticate the Bonds pursuant to the terms of the Indenture; (iii) no consent, approval, authorization or other action by any governmental or regulatory authority having jurisdiction over the Trustee that has not been obtained is or will be required for the authentication of the Bonds of the consummation by the Trustee of the other transactions contemplated to be performed by the Trustee in connection with the authentication of the Bonds and the acceptance and performance of the obligations created by the Indenture and the Continuing Disclosure Agreements; and (iv) compliance with the terms of the Indenture and the Continuing Disclosure Agreements, will not conflict with, or result in a violation or breach of, or constitute a default under, any loan agreement, indenture, bond, note, resolution or any other agreement or instrument to which the Trustee is a party or by which it is bound, or any law or any -13- rule, regulation, order or decree of any court or governmental agency or body having jurisdiction over the Trustee or any of its activities or properties; (x) an opinion of counsel to the Trustee, dated the Closing Date, addressed to the Underwriter and the District to the effect that the Trustee is a national banking association duly organized and validly existing under the laws of the United States of America having full power and being qualified to enter into, accept and agree to the provisions of the Indenture and the Continuing Disclosure Agreements, and that the Indenture and the Continuing Disclosure Agreements have been duly authorized, executed and delivered by the Trustee and, assuming due execution and delivery by the other parties thereto, constitute the legal, valid and binding obligations of the Trustee, enforceable in accordance with their respective 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; and (y) 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 statements and information contained in the Preliminary Official Statement and the Official Statement, of the District's representations and warranties contained herein and of Coventry, the ORA Entities, Resmark, Moffett and William Lyon contained in their respective Letters of Representations and the due performance or satisfaction by the District at or prior to the Closing of all agreements then to be performed and all conditions then to be satisfied by the District in connection with the transactions contemplated hereby and by the Resolution and the Official Statement. If the District 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 Bond 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 Bond Purchase Agreement, this Bond Purchase Agreement shall terminate and neither the Underwriter nor the District shall be under any further obligation hereunder, except that the respective obligations of the District and the Underwriter set forth in Section 6 hereof shall continue in full force and effect. 6. Expenses. The District shall pay or cause to be paid from the proceeds of the Bonds or other funds available to it the expenses incident to the performance of its obligations hereunder, including but not limited to: (a) the cost of printing and distribution of the Preliminary Official Statement and Official Statement in reasonable quantities and all other documents (other than as set forth in the next succeeding paragraph) prepared in connection with the transactions contemplated hereby, including distribution costs and all mailing, including overnight and express delivery, costs; (b) the fees and disbursements of the Trustee and its counsel in connection with the execution and delivery of the First Supplement, the Continuing Disclosure Agreements and the Bonds; (c) the fees and disbursements of Bond Counsel and Disclosure Counsel, David Taussig and Associates, Inc., the Appraiser and any other experts or consultants retained by the District in connection with the transactions contemplated hereby; (d) the cost of mailing or delivering the definitive Bonds; (e) any Underwriter disbursements for telephone conference calls and out-of-state travel and lodging undertaken at the request of the District; and (f) expenses incurred on behalf of the District's employees which are incidental to the issuance of the Bonds, including, but not limited to, meals, transportation, lodging, and entertainment of those employees. -14- The Underwriter shall pay: (a) all advertising expenses in connection with the public offering of the Bonds; (b) the fees and expenses of counsel to the Underwriter, and any fees in connection with the qualification of the Bonds for sale under the Blue Sky or other securities laws and regulations of various jurisdictions; (c) California Debt and Investment Advisory Commission fees; and (d) all other expenses incurred by it in connection with its public offering and distribution of the Bonds. 7. No Advisory or Fiduciary Role. The District hereby acknowledges and agrees that (a) the purchase and sale of the Bonds pursuant to this Bond Purchase Agreement is an arm's- length commercial transaction between the District and the Underwriter, (b) 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 a principal and is not acting as the agent or fiduciary of the District, (c) the Underwriter has not assumed an advisory or fiduciary responsibility in favor of the District with respect to the offering and sale of the Bonds contemplated hereby or the discussions, undertakings and procedures leading thereto (irrespective of whether the Underwriter has provided other services or is currently providing other services to the District or the City of Tustin on other matters) and the Underwriter has no obligation to the District with respect to the offering and sale of the Bonds contemplated hereby except the obligations expressly set forth in this Bond Purchase Agreement, and (d) the District has consulted its own legal, financial and other advisors to the extent it has deemed appropriate, in connection with the Bonds and the matters contemplated by this Bond Purchase Agreement. 8: Notices. Any notice or other communication to be given to the District under this Bond Purchase Agreement may be given by delivering the same in writing to c/o City of Tustin, 300 Centennial Way, Tustin, CA 92780, Attention: Finance Director; and any notice or other communication to be given to the Underwriter under this Bond Purchase Agreement may be given -by delivering the same in writing to Stone & Youngberg LLC, 515 South Figueroa Street, Suite 1800, Los Angeles, CA 90071, Attention: Sara Brown, Managing Director. 9. Parties in Interest. This Bond Purchase Agreement is made solely for the benefit of the District and the Underwriter (including their successors or assigns), and no other person shall acquire or have any right hereunder or by virtue hereof. 10. Survival of Representations and Warranties. The representations and warranties of the District set forth in or made pursuant to this Bond Purchase Agreement shall not be deemed to have been discharged, satisfied or otherwise rendered void by reason of the Closing or termination of this Bond Purchase Agreement 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 District and regardless of delivery of and payment for the Bonds. 11. Effective. This Bond Purchase Agreement shall become effective and binding upon the respective parties hereto upon the execution of the acceptance hereof by the District and shall be valid and enforceable as of the time of such acceptance. This Bond Purchase Agreement may be signed in counterparts by each party. 12. No Prior Agreements. This Bond Purchase Agreement supersedes and replaces all prior negotiations, agreements and understandings between the parties hereto in relation to the sale of Bonds for the District. -15- 13. Governing Law. This Bond Purchase Agreement shall be governed by the laws of the State applicable to contracts made and performed in the State. 19031.06:J10916 -16- Very truly yours, STONE & YOUNGBERG LLC, as Underwriter By Sara Brown, Managing Director CITY OF TUSTIN COMMUNITY FACILITIES DISTRICT NO. 06-1 (TUSTIN LEGACY/COLUMBUS VILLAGES) By Pamela Arends-King, Finance Director EXHIBIT A MATURITY SCHEDULE Maturity Principal Interest (September 1) Amount Rate Yield Price c Priced to the par call date. Exhibit A Page 1 EXHIBIT B-1 FORM OF TUSTIN COVENTRY SENIORS, L.P. LETTER OF REPRESENTATIONS November _, 2010 City of Tustin Community Facilities District No. 06-1 Tustin, California Stone & Youngberg LLC, Los Angeles, California Ladies and Gentlemen: This Letter of Representations is delivered by Tustin Coventry Seniors, L.P., a California limited partnership (the "Representing Entity") in connection with the City of Tustin Community Facilities District No. 06-1 (Tustin Legacy/Columbus Villages) Special Tax Bonds, Series 2010 (the "Bonds") in the aggregate principal amount of $ . In connection with the execution and delivery of the Bond Purchase Agreement, dated the date hereof (the "Bond Purchase Agreement"), by and between Stone & Youngberg LLC, as underwriter, and the City of Tustin Community Facilities District No. 06-1 (Tustin Legacy/Columbus Villages) (the "District"), the Representing Entity hereby represents, and warrants to you as follows: 1. The Representing Entity is a limited partnership duly created and validly existing under the laws of the State of California, is in good standing under the laws of the State of California. 2. Except as set forth in the Preliminary Official Statement, dated October _, 2010, relating to the sale of the Bonds (the "Preliminary Official Statement"), there is no action, suit, proceeding or investigation at law or in equity before or by any court or governmental agency or body pending for which the Representing Entity has received services of process, or to the actual knowledge of the Representing Entity, threatened in writing against the Representing Entity in any way (a) in which the Representing Entity may be adjudicated as bankrupt, or discharged from all or a portion of its debts or obligations or granted an extension of time to pay its debts or obligations, or be allowed to reorganize to readjust its debts or obligations, (b) if determined adversely to the Representing Entity, would. have a material adverse effect on the financial position or operations of the Representing Entity or would have a materially adverse effect on the Representing Entity's ability to develop property in the District or pay special taxes prior to delinquency, or (c) seeks to restrain or to enjoin the continuation or completion of the Representing Entity's proposed development of its property in the District as described in the Preliminary Official Statement. 3. To the actual knowledge of the Representing Entity, there is no consent, approval, authorization or other order of, or filing with, or certification by, any governmental authority, board, agency or commission or other regulatory authority having jurisdiction over the Representing Entity, required for the consummation by the Representing Entity of the other transactions on its part described in or contemplated by the Preliminary Official Statement. 4. Any and all information submitted by the Representing Entity in connection with the preparation of the Preliminary Official Statement and any and all information submitted by the Representing Entity to the Special Tax Consultant and the Appraiser, respectively, was as of its Exhib it B-1 Page 1 date, to the actual knowledge of the Representing Entity, true and correct and, except for any such information that was modified or supplemented by subsequent information submitted by the Representing Entity and reflected in the Preliminary Official Statement, to the actual knowledge of the Representing Entity, no material change has occurred with respect to such information as of the dated date hereof. 5. The statements in the Preliminary Official Statement relating to the Representing Entity, its proposed development of certain property in the District, its property ownership and its contractual and financial arrangements with respect thereto under the captions "INTRODUCTION" and "THE DISTRICT—Property Ownership and Development" are accurate in all material respects and do not contain any untrue statement of 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. 6. Except as set forth in the Preliminary Official Statement, to the actual knowledge of the Representing Entity, the Representing Entity has obtained all environmental permits required for the development of the Representing Entity's property in the District as described in the Preliminary Official Statement and none of the parcels which constitute land within the District owned by the Representing Entity are delinquent in the payment of any taxes or assessments. Capitalized terms used herein and not defined herein have the meanings ascribed to such terms in the Bond Purchase Agreement. As used herein, the "actual knowledge" of the Representing Entity means the knowledge that the undersigned currently has or has obtained from interviews with such officers and responsible employees of the Representing Entity as the undersigned has determined are likely, in the ordinary course of their respective duties, to have knowledge of the matters set forth herein or from a review of such documents as the undersigned deemed necessary to obtain such knowledge of the matters set forth herein. Other than as set forth in the immediately preceding sentence, with your permission, the undersigned has not conducted any additional inspection or inquiry. Tustin Coventry Seniors, L.P., a California limited partnership By Name: Title: Exhibit B-1 Page 2 EXHIBIT B-2 FORM OF WILLIAM LYON LETTER OF REPRESENTATIONS November —, 2010 City of Tustin Community Facilities District No. 06-1 Tustin, California Stone & Youngberg LLC, Los Angeles, California Ladies and Gentlemen: This Letter of Representations is delivered by William Lyon Homes, Inc., a California corporation ("William Lyon"), in connection with the City of Tustin Community Facilities District No. 06-1 (Tustin Legacy/Columbus Villages) Special Tax Bonds, Series 2010 (the "Bonds") in the aggregate principal amount of $ . In connection with the execution and delivery of the Bond Purchase Agreement, dated the date hereof (the 'Bond Purchase Agreement"), by and between Stone & Youngberg LLC, as underwriter, and the City of Tustin Community Facilities District No. 06-1 (Tustin Legacy/Columbus Villages) (the "District"), William Lyon hereby represents, and warrants to you as follows: 1. There is no action, suit, proceeding or investigation at law or in equity before or by any court or governmental agency or body pending for which William Lyon has received services of process, or to the actual knowledge of William Lyon, threatened in writing against William Lyon in any way (a) in which William Lyon may be adjudicated as bankrupt, or discharged from all or a portion of its debts or obligations or granted an extension of time to pay its debts or obligations, or be allowed to reorganize to readjust its debts or obligations, (b) if determined adversely to William Lyon, would have a material adverse effect on the financial position or operations of William Lyon or would have a materially adverse effect on William Lyon's ability to develop property owned by the ORA Entities in the District pursuant to its agreements with the ORA Entities, or (c) seeks to restrain or to enjoin the continuation or completion of William Lyon's proposed development of property owned by the ORA Entities in the District as described in the Preliminary Official Statement, dated October —, 2010, relating to the sale of the Bonds (the "Preliminary Official Statement"). 2. Any and all information submitted by or on behalf of William Lyon in connection with the preparation of the Preliminary Official Statement and any and all information submitted by William Lyon to the Special Tax Consultant and the Appraiser, respectively, was as of its date, to the actual knowledge of William Lyon, true and correct and, except for any such information that was modified or supplemented by subsequent information submitted by William Lyon and reflected in the Preliminary Official Statement, to the actual knowledge of William Lyon, no material change has occurred with respect to such information as of the dated date hereof. 3. The statements in the Official Statement relating to William Lyon and its contractual arrangements with the ORA Entities with respect to the development of property owned by the ORA Entities in the District under the captions "INTRODUCTION" and "THE DISTRICT— Property Ownership and Development" are accurate in all material respects and do not contain any untrue statement of material fact or omit to state a material fact necessary to make the Exhibit B-2 Page 1 statements therein, in the light of the circumstances under which they were made, not misleading. Capitalized terms used herein and not defined herein have the meanings ascribed to such terms in the Bond Purchase Agreement. As used herein, the "actual knowledge" of William Lyon means the knowledge that the undersigned currently have or have obtained from interviews with such officers and responsible employees of William Lyon as the undersigned have determined are likely, in the ordinary course of their respective duties, to have knowledge of the matters set forth herein or from a review of such documents as the undersigned deemed necessary to obtain such knowledge of the matters set forth herein. Other than as set forth in the immediately preceding sentence, with your permission, the undersigned have not conducted any additional inspection or inquiry. WILLIAM LYON HOMES, INC., a California corporation By Name: Title: By Name: Title: Exhibit B-2 Page 2 EXHIBIT B-3 FORM OF ORA ENTITIES LETTER OF REPRESENTATIONS November _, 2010 City of Tustin Community Facilities District No. 06-1 Tustin, California Stone & Youngberg LLC, Los Angeles, California Ladies and Gentlemen: This Letter of Representations is delivered by ORA , LLC, a Delaware limited liability company (the "Representing Entity") in connection with the City of Tustin Community Facilities District No. 06-1 (Tustin Legacy/Columbus Villages) Special Tax Bonds, Series 2010 (the "Bonds") in the aggregate principal amount of $ . In connection with the execution and delivery of the Bond Purchase Agreement, dated the date hereof (the "Bond Purchase Agreement"), by and between Stone & Youngberg LLC, as underwriter, and the City of Tustin Community Facilities District No. 06-1 (Tustin Legacy/Columbus Villages) (the "District"), the Representing Entity hereby represents, and warrants to you as follows: 1. The Representing Entity is a Delaware limited liability company duly created and validly existing under the laws of the State of Delaware, is in good standing under the laws of the State of California. 2. Except as set forth in the Preliminary Official Statement, dated October _, 2010, relating to the sale of the Bonds (the "Preliminary Official Statement"), there is no action, suit, proceeding or investigation at law or in equity before or by any court or governmental agency or body pending for which the Representing Entity has received services of process, or to the actual knowledge of the Representing Entity, threatened in writing against the Representing Entity in any way (a) in which the Representing Entity may be adjudicated as bankrupt, or discharged from all or a portion of its debts or obligations or granted an extension of time to pay its debts or obligations, or be allowed to reorganize to readjust its debts or obligations, (b) if determined adversely to the Representing Entity, would have a material adverse effect on the financial position or operations of the Representing Entity or would have a materially adverse effect on the Representing Entity's ability to develop property in the District or pay special taxes prior to delinquency, or (c) seeks to restrain or to enjoin the continuation or completion of the Representing Entity's proposed development of its property in the District as described in the Preliminary Official Statement. 3. To the actual knowledge of the Representing Entity, there is no consent, approval, authorization or other order of, or filing with, or certification by, any governmental authority, board, agency or commission or other regulatory authority having jurisdiction over the Representing Entity, required for the consummation by the Representing Entity of the transactions on its part described in or contemplated by the Preliminary Official Statement. 4. Any and all information submitted by the Representing Entity in connection with the preparation of the Preliminary Official Statement and any and all information submitted by the Representing Entity to the Special Tax Consultant and the Appraiser, respectively, was as of its Exhibit B-3 Page 1 date, to the actual knowledge of the Representing Entity, true and correct and, except for any such information that was modified or supplemented by subsequent information submitted by the Representing Entity and reflected in the Preliminary Official Statement, to the actual knowledge of the Representing Entity, no material change has occurred with respect to such information as of the dated date hereof. 5. The statements in the Preliminary Official Statement relating to the Representing Entity, its proposed development of certain property in the District, its property ownership and its contractual and financial arrangements with respect thereto under the captions "INTRODUCTION" and "THE DISTRICT—Property Ownership and Development" are accurate in all material respects and do not contain any untrue statement of 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. 6. Except as set forth in the Preliminary Official Statement, to the actual knowledge of the Representing Entity, the Representing Entity has obtained all environmental permits required for the development of the Representing Entity's property in the District as described in the Preliminary Official Statement and none of the parcels which constitute land within the District owned by the Representing Entity are delinquent in the payment of any taxes or assessments. Capitalized terms used herein and . not defined herein have the meanings ascribed to such terms in the Bond Purchase Agreement. As used herein, the "actual knowledge" of the Representing Entity means the knowledge that the undersigned currently has or has obtained from interviews with such officers and responsible employees of ORA LLC as the undersigned has determined are likely, in the ordinary course of their. respective duties, to have knowledge of the matters set forth herein or from a review of such documents as the undersigned deemed necessary to obtain such knowledge of the matters set forth herein. Other than as set forth in the immediately preceding sentence, with your permission, the undersigned has not conducted any additional inspection or inquiry. ORA LLC, a Delaware limited liability company By Name: Title: Exhibit B-3 Page 2 EXHIBIT C FORM OF MOFFETT LETTER OF REPRESENTATIONS November _; 2010 City of Tustin Community Facilities District No. 064 Tustin, California Stone & Youngberg LLC, Los Angeles, California Ladies and Gentlemen: This Letter of Representations is delivered by Moffet Meadows Partners, LLC (the "Infrastructure Developer") in connection with the City of Tustin Community Facilities District No. 06-1 (Tustin Legacy/Columbus Villages) Special Tax Bonds, Series 2007A (the "Bonds") in the aggregate principal amount of $ . In connection with the execution and delivery of the Bond Purchase Agreement, dated the date hereof (the "Bond Purchase Agreement"), by and between Stone & Youngberg LLC, as underwriter, and the City of Tustin Community Facilities District No. 06-1 (Tustin Legacy/Columbus Villages) (the "District"), the Infrastructure Developer hereby represents, and warrants to you as follows: 1. The Infrastructure Developer is a limited liability company duly created and validly existing under the laws of the State of Delaware and in good standing under the laws of the State of California and has all necessary power and authority to enter into and perform its duties under the Acquisition Agreement and the Acquisition Agreement constitutes a legal, valid and binding obligation of the Infrastructure Developer enforceable upon the Infrastructure Developer in accordance with its terms except as enforcement against the Infrastructure Developer may be limited by bankruptcy, insolvency or other laws affecting the enforcement of creditors' rights generally and by the application of equitable principles if equitable remedies are sought. 2. There is no action, suit, proceeding or investigation at law or in equity before or by any court or governmental agency or body pending for which Infrastructure Developer has received service of process, or to the actual knowledge of the Infrastructure Developer, threatened in writing against the Infrastructure Developer in any way (a) contesting or affecting the validity of the Acquisition Agreement or contesting the powers of the Infrastructure Developer to enter into or perform its obligations under any of the foregoing, (b) in which the Infrastructure Developer may be adjudicated as bankrupt, or discharged from all or a portion of its debts or obligations or granted an extension of time to pay its debts or obligations, or be allowed to reorganize to readjust its debts or obligations, (c) if determined adversely to the Infrastructure Developer, would have a material adverse effect on the financial position or operations of the Infrastructure Developer, or (d) seeks to restrain or to enjoin the continuation or completion of the Infrastructure Developer's proposed development activities within the District as described in the Preliminary Official Statement. 3. To the actual knowledge of the Infrastructure Developer, there is no consent, approval, authorization or other order of, or filing with, or certification by, any governmental authority, board, agency or commission or other regulatory authority having jurisdiction over the Infrastructure Developer, required for the consummation by the Infrastructure Developer of Exhibit C Page 1 the transactions on its part contemplated by the Preliminary Official Statement or the Acquisition Agreement (except for customary construction -related permits and approvals). 4. Any and all information submitted by the Infrastructure Developer in connection with the preparation of the Preliminary Official Statement and any and all information submitted by the Infrastructure Developer to the Special Tax Consultant and the Appraiser, respectively, was as of its date, to the actual knowledge of the Infrastructure Developer, true and correct and, except for any such information that was modified or supplemented by subsequent information submitted by the Infrastructure Developer, to the actual knowledge of the Infrastructure Developer, no material change has occurred with respect to such information as of the dated date hereof. 5. The statements in the Preliminary Official Statement with respect to the Infrastructure Developer and the state of completion of the infrastructure improvements in the District to be constructed by the Infrastructure Developer under the captions "INTRODUCTION" and "THE DISTRICT—Property Ownership and Development are accurate in all material respects and do not contain any untrue statement of 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. 6. None of the parcels which constitute land within the District owned by the Infrastructure Developer are delinquent in the payment of any taxes or assessment. 7. No event has occurred prior to the date hereof which, with the passage of time, would constitute a material default by the Infrastructure Developer on any of its.obligations under the Acquisition Agreement. Capitalized terms used herein and not defined herein have the meanings ascribed to such terms in the Bond Purchase Agreement. Very truly yours, MOFFETT MEADOWS PARTNERS, LLC, a Delaware limited liability corporation By: Marble Mountain Partners, LLC, a Delaware limited liability corporation, Its Sole member By: Tustin Villas Partners, LLC, a Delaware limited liability company, Its Administrative member By: Lennar Homes of California, Inc., a California Corporation, Its . managing member By Name Title Exhibit C Page 2