The URL can be used to link to this page

Home My WebLink About15 COMM FACILITIES DISTRICT 07-01 08-07-07Agenda Item 15 #' Reviewed: -- AGENDA REPORT City Manager . f ~~~ Finance Director MEETING DATE: August 7, 2007 TO: William A. Huston, City Manager FROM: Ronald A. Nault, Finance Director SUBJECT: City of Tustin Resolution No. 07-63 Authorizing the Issuance of Not to Exceed $16 Million Aggregate Principal Amount of Special Tax Bonds for Tustin Community Facilities District No. 07-1 SUMMARY: This is the final stage in completing the Community Facilities District formation and bond issuance for the Vestar-Kimco Tustin, L.P. project at Tustin Legacy. Resolution No. 07-63 authorizes the issuance of $16 million of CFD bonds and executes all documents including the Indenture and Preliminary Official Statement. RECOMMENDATION: 1. Adopt Resolution No. 07-63 Authorizing the Issuance of Not to Exceed $16 Million Aggregate Principal Amount of City of Tustin Community Facilities District No. 07-1 (Tustin Legacy/Vestar-Kimco Tustin, L.P.) Special Tax Bonds and Authorizing the Mayor, City Manager, City Attorney and Finance Director to execute the Indenture between the District and Union Bank as Trustee, an Acquisition and Funding Agreement between the District and Vestar-Kimco Tustin, L.P., a Bond Purchase Agreement between the District and Banc of America Securities, LLC, a Continuing Disclosure Agreement between the District and Union Bank as Dissemination Agent, the preparation of an Official Statement, and other matters related to the District and bond issue. 2. Adopt Resolution No. 07-65 executing a Second Amendment to the Infrastructure Construction and Payment Agreement between the City and Vestar-Kimco Tustin, L.P. FISCAL IMPACT: All expenses relating to the bond issuance and administration will be recovered from annual assessments on property within the district. DISCUSSION: The recommended actions will finalize the formation process and allow for the issuance of bonds that will provide the cash flow for backbone infrastructure projects. We are currently on schedule to close this bond issue during early September. Long term interest rates have increased somewhat with modest daily fluctuations. We expect these issues will price very aggressively as demand is high and supply is low for these types of securities. Staff is available to answer questions of the Council during the meeting. Ronald A. Nault Finance Director Attachments: 1. Preliminary Official Statement 2. Indenture 3. Continuing Disclosure Agreement 4. Authorizing Resolution 5. Second Amendment to Infrastructure Construction and Payment Agreement 6. Resolution Regarding Amendment to Infrastructure Construction and Payment Agreement CommunityFacilitiesDistrict07-1 Resolution07-63AuthorizingThelssuanceofSpecialTaxBonds.doc PRELIMINARY OFFICIAL STATEMENT DATED , 2007 NEW ISSUE -BOOK-ENTRY ONLY NO RATINGS In the opinion of Orrick, Herrington & Sutcl~e LLP, Bond Counsel to the Community Facilities District (defined below), 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 2007 Bonds (defined below) 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. In the further opinion of Bond Counsel, interest on the Series 2007 Bonds is not a specific preference item for purposes of the federal individual or corporate alternative minimum taxes, although Bond Counsel observes that such interest is 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 2007 Bonds. See "CONCLUDING INFORMATION -Tax Exemption "herein. STATE OF CALIFORNIA $15,365,000' CITY OF TUSTIN COMMUNITY FACILITIES DISTRICT NO. 07-1 (TUSTIN LEGACY/RETAIL CENTER) SPECIAL TAX BONDS, SERIES 2007 Dated: Date of Delivery COUNTY OF ORANGE Due: September 1, as shown below The City of Tustin Community Facilities District No. 07-1 (Tustin Legacy/Retail Center) Special Tax Bonds, Series 2007 (the "Series 2007 Bonds") are being issued under the Mello-Roos Community Facilities Act of 1982 (the "Act") and the Indenture, dated as of 1, 2007 (the "Indenture"), by and between City of Tustin Community Facilities District No. 07-1 (Tustin Legacy/Retail Center) (the "Community Facilities District") and Union Bank of Califomia, 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 Community Facilities District according to the rate and method of apportionment of the Special Taxes approved by the qualified electors of the Community Facilities District and by the City Council of the City of Tustin, California (the "City'). Pursuant to the Indenture, additional bonds ("Additional Bonds") may be issued by the Community Facilities District for refunding purposes as set forth in the Indenture and as further described herein. The Series 2007 Bonds and any Additional Bonds are collectively referred to as the "Bonds" The Series 2007 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 Community Facilities District, (b) to fund a reserve fund for the Series 2007 Bonds and (c) to pay the costs of issuing the Series 2007 Bonds. See "ESTIMATED SOURCES AND USES OF FUNDS" herein. The Series 2007 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 2007 Bonds is payable semiannually on March 1 and September 1 of each year, commencing on March 1, 2008. Purchasers will not receive certificates representing their interest in the Series 2007 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 2007 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 2007 Bonds. See Appendix Fhereto - "Book-Entry Only System." The Series 2007 Bonds are subject to optional and mandatory redemption prior to maturity as described herein. See "THE SERIES 2007 BONDS -Redemption of the Series 2007 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 COMMUNITY FACILITIES 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 COMMUNITY FACILITIES DISTRICT, BUT ARE SPECIAL OBLIGATIONS OF THE COMMUNITY FACILITIES 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 2007 Bonds Maturity Date (September 1) Interest Price or Maturity Date Principal Interest Price or Rate Yield CUSIP No.t (September 1) Amount Rate Yield CUSIP No. t Principal Amount Term Bonds due September 1, 20_ -Yield: % CUSIP No.t Term Bonds due September 1, 20 -Yield: %CUSIP No.t ' Copyright 2007, 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 Community Facilities District and the Underwriter assume no responsibility for the accuracy of such data. Investment in the Series 2007 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 2007 Bonds. This cover page contains information for quick reference only. It is not a complete summary of the Series 2007 Bonds. Investors should read the entire Official Statement to obtain information essential to the making of an informed investment decision. The Series 2007 Bonds are offered when, as and if issued and delivered to the Underwriter, subject to the approval as to their validity by Orrick, Herrington & Sutclifj-e LLP, Bond Counsel, and subject to certain other conditions. Orrick, Herrington & Sutcliffe LLP is acting as disclosure counsel in connection with the Series 2007 Bonds. Certain legal matters will be passed upon for the Underwriter by its counsel, Ballard Spahr Andrews & Ingersoll, LLP, Salt Lake City, Utah, and for the City and the Community Facilities District by their counsel, Woodruff, Spradlin & Smart, A Professional Corporation, Orange, California. It is anticipated that the Series 2007 Bonds will be available for delivery in book-entry form through the facilities ofDTC on or about , 2007. * Preliminary, subject to change. OHS WEST:260269009.2 Banc of America Securities LLC Dated: , 2007 OHS WEST:260269009.2 CITY OF TUSTIN, CALIFORNIA (Orange County, California) CITY COUNCIL Lou Bone, Mayor Jerry Amante, Mayor Pro Tem Doug Davert, Councilmember Tony Kawashima, Councilmember Jim Palmer, Councilmember CITY STAFF William A. Huston, City Manager George W. Jeffries, City Treasurer Christine A. Shingleton, Assistant City Manager Pamela Stoker, City Clerk Ronald A. Nault, Director of Finance Tim Serlet, 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 Financial Advisor Gardner, Underwood and Bacon, LLC Los Angeles, California Trustee Union Bank of California, 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:260269009.2 No dealer, broker, salesperson or other person has been authorized by the City, the Community Facilities District or the Underwriter to give any information or to make any representations with respect to the City, the Community Facilities District or the Series 2007 Bonds other than the information contained herein and, if given or made, such other information or representation must not be relied upon as having been authorized by the City, the Community Facilities 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 2007 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 2007 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 Community Facilities District believe to be reliable, but such information is not guaranteed by the City or the Community Facilities 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 Community Facilities District for further information in connection therewith. This Official Statement is submitted in connection with the sale of the Series 2007 Bonds referred to herein and may not be reproduced or used, in whole or in part, for any other purpose. In connection with this offering, the Underwriter may overallot or effect transactions which stabilize or maintain the market price of the Series 2007 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 2007 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 maybe changed from time to time by the Underwriter. OHS WEST:260269009.2 TABLE OF CONTENTS Page INTRODUCTION ......................................................................................................................... 1 THE SERIES 2007 BONDS .......................................................................................................... 3 Authority for Issuance ........................................................................................................ 3 Description of the Series 2007 Bonds ................................................................................ 3 Redemption of the Series 2007 Bonds ............................................................................... 4 Debt Service Schedule ....................................................................................................... 7 ESTIMATED SOURCES AND USES OF FUNDS ..................................................................... 8 THE PROJECT .............................................................................................................................. 8 SECURITY FOR THE SERIES 2007 BONDS ............................................................................ 8 General ............................................................................................................................... 8 The Special Taxes .............................................................................................................. 9 Special Tax Fund ............................................................................................................. 10 Reserve Fund ................................................................................................................... 10 Additional Bonds ............................................................................................................. 11 Covenant for Superior Court Foreclosure ........................................................................ 11 Property Values ................................................................................................................ 12 Direct and Overlapping Debt ........................................................................................... 13 Estimated Value-to-Lien Ratios ....................................................................................... 15 THE COMMUNITY FACILITIES DISTRICT .......................................................................... 16 General ............................................................................................................................. 16 Tustin Legacy ................................................................................................................... 16 Summary of District Proceedings .................................................................................... 17 Rate and Method of Apportionment ................................................................................ 17 Former Marine Corps Air Station Tustin ......................................................................... 18 CEQA Compliance .......................................................................................................... 19 Disposition and Development Agreement ....................................................................... 20 Property Ownership and Development ............................................................................ 21 SPECIAL RISK FACTORS ........................................................................................................ 31 Concentration of Ownership and Leasehold Interests ..................................................... 31 Risk of Changes in Market Conditions ............................................................................ 31 OHS WEST:260269009.2 1 TABLE OF CONTENTS (continued) Page The Series 2007 Bonds are Limited Obligations of the Community Facilities District .................................................................................................................. 32 The Special Taxes are not Personal Obligations of the Developer or Subsequent Property Owners .................................................................................................. 32 Special Tax Delinquencies ............................................................................................... 32 Bankruptcy ....................................................................................................................... 3 2 Insufficiency of Special Taxes ......................................................................................... 33 Disclosures to Future Purchasers ..................................................................................... 33 Billing of Special Taxes ................................................................................................... 33 Natural Disasters .............................................................................................................. 34 Payments by FDIC or Other Federal Agencies ................................................................ 34 Exempt Properties .............................:.............................................................................. 35 Cumulative Burden of Parity Taxes, Special Assessments ............................................. 35 Additional and Overlapping Debt .........................................................................:.......... 36 Limitations on Remedies ................................................................................................. 36 Right to Vote on Taxes Act ............................................................................................. 36 Loss of Tax Exemption .................................................................................................... 37 Limited Liquidity of the Series 2007 Bonds .................................................................... 37 LITIGATION ............................................................................................................................... 3 7 CONTINUING DISCLOSURE ................................................................................................... 37 CONCLUDING 1NFORMATION .............................................................................................. 38 Legal Opinions ................................................................................................................. 3 8 Financial Interest .............................................................................................................. 39 Tax Exemption ................................................................................................................. 39 Underwriting .................................................................................................................... 41 No Ratings ....................................................................................................................... 41 Miscellaneous .................................................................................................................. 41 OHS WEST:260269009.2 11 TABLE OF CONTENTS (continued) Page APPENDIX A 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 APPENDIX D SUMMARY OF INDENTURE ........................................................................ D-1 APPENDIX E FORMS OF CONTINUING DISCLOSURE AGREEMENTS ........................ E-1 APPENDIX FBOOK-ENTRY ONLY SYSTEM ......................................................................F-1 OHS WEST:260269009.2 111 INSERT AERIAL PHOTO OHS WEST:260269009.2 INSERT REGIONAL MAP OHS WEST:260269009.2 OFFICIAL STATEMENT $15,365,000* CITY OF TUSTIN COMMUNITY FACILITIES DISTRICT N0.07-1 (TUSTIN LEGACY/RETAIL CENTER) SPECIAL TAX BONDS, SERIES 2007 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. 07-1 (Tustin Legacy/Retail Center) (the "Community Facilities District") of $15,365,000* aggregate principal amount of its Special Tax Bonds, Series 2007 (the "Series 2007 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 2007 Bonds to potential investors is made only by means of the entire Official Statement. The Series 2007 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 1, 2007 (the "Indenture"), by and between the Community Facilities District and 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 2007 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. In accordance with the provisions of the Indenture, and subject to the conditions specified therein, the Community Facilities District may issue additional bonds (the "Additional Bonds") but only for the purpose of providing funds to refund the Series 2007 Bonds. See "SECURITY FOR THE SERIES 2007 BONDS -Additional Bonds." The Series 2007 Bonds and any such Additional Bonds are collectively referred to herein as the "Bonds." Pursuant to the Act, the qualified electors of the Community Facilities District approved the levy of a special tax (the "Special Tax") within the boundaries of the Community Facilities 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. Unless expressly provided otherwise in this Official Statement, references to the Special Tax herein refer only to the * Preliminary, subject to change. OHS WEST:260269009.2 Special Tax A pledged to the payment of the Bonds. See "THE COMMUNITY FACILITIES 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 2007 BONDS" and Appendix D - "Summary of Indenture." The Community Facilities District is located in the City of Tustin (the "City") and encompasses approximately 82.57 gross acres of land, of which approximately 44.3 acres are anticipated to be subject to the Special Tax. The Community Facilities District consists of a shopping center known as "The District at Tustin Legacy" that is being developed by Vestar/Kimco Tustin, L.P., a California limited partnership (the "Developer") and, upon development, is expected to be comprised of approximately 985,000 square feet of commercial retail space. See "THE COMMUNITY FACILITIES DISTRICT - Property Ownership and Development." Pursuant to the rate and method of apportionment for the Community Facilities District (the "Rate and Method"), certain property in the Community Facilities District referred to as Privately Owned Specific Retail Property will not be subject to the Special Tax. The Privately Owned Specific Retail Property consists of seven parcels improved or to be improved with a Costco, Target, Lowe's, Wells Fargo Bank, In-N-Out Burger and Chick-Fil-A. See "THE COMMUNITY FACILITIES DISTRICT - General" and Appendix B - "Rate and Method of Apportionment of Special Tax." Grading in the Community Facilities District began in January 2006 and approximately 90 percent of the construction within the Community Facilities District was complete as of June 30, 2007. Construction is expected to be substantially complete by November 2007. The Community Facilities District represents the first commerical phase of 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 COMMUNITY FACILITIES DISTRICT." The proceeds from the sale of the Series 2007 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 Community Facilities District (see "THE PROJECT"), (b) fund a reserve fund for the Series 2007 Bonds and (c) pay the costs of issuing the Series 2007 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 2007 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 Community Facilities 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 Community Facilities District, but are special obligations of the Community Facilities District payable solely from the Net Special Tax Revenues and certain other assets pledged therefor under the Indenture, as more fully described herein. OHS WEST:260269009.2 2 Certain statements included or incorporated by reference in this Official Statement constitute "forward-looking statements" within the meaning of the United States Private Securities Litigation Reform Act of 1995, Section 21E of the United States Securities Exchange Act of 1934, as amended, and Section 27A of the United States Securities Exchange Act of 1933, as amended. Such statements are generally identifiable by the terminology used such as "plan," "expect," "estimate," "project," "budget" or other similar words. Such forward-looking statements include, but are not limited to, certain statements contained in the information under the caption "SECURITY FOR THE SERIES 2007 BONDS" and in Appendix A - "Appraisal." Brief descriptions of the Series 2007 Bonds, the Indenture, the security for the Series 2007 Bonds, the Community Facilities District, the status of development within the Community Facilities 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 2007 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 2007 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. THE SERIES 2007 BONDS Authority for Issuance The Bonds were authorized at a special election held in the Community Facilities District on June 19, 2007. The Series 2007 Bonds will be issued pursuant to the Act and the Indenture. Description of the Series 2007 Bonds The Series 2007 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 2007 Bonds. Ownership interests in the Series 2007 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 2007 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 2007 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 2007 Bonds. The Series 2007 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 2007 Bonds will be paid semiannually on March 1 and September 1 (each an "Interest Payment Date"), commencing on March 1, 2008. Interest on the Series 2007 Bonds will be calculated on the basis of a 360-day year comprised of twelve 30-day months. Payment of interest on the Series 2007 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 2007 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 2007 Borids, interest payments will be made as described in Appendix F - "Book-Entry Only System." OHS WEST:260269009.2 3 Interest on the Series 2007 Bonds will be payable from the Interest Payment Date next preceding the date of authentication thereof unless (a) a Series 2007 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 2007 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 2007 Bond, or (c) interest on any Series 2007 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 2007 Bonds Optional Redemption The Series 2007 Bonds are 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 2007 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, 20_ and thereafter Mandatory Redemption from Special Tax Prepayments The Series 2007 Bonds are subject to mandatory redemption, in whole or in part, on any Interest Payment Date on or after March 1, 2008, 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 2007 Bonds to be redeemed), plus accrued interest thereon to the date of redemption: Redemption Dates Redemption Price March 1, 2008 through March 1, 20_ September 1, 20_ and March 1, 20_ September 1, 20_ and March 1, 20_ September 1, 20_ and thereafter Mandatory Sinking Fund Redemption The Series 2007 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 2007 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: OHS WEST:260269009.2 4 Sinking Fund Redemption Date Principal Amount (September 1) to be Redeemed * Maturity If some but not all of the Series 2007 Bonds maturing on September 1, 20_ are optionally redeemed, the principal amount of Series 2007 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 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 2007 Bonds maturing on September 1, 20_ so optionally redeemed. If some but not all of the Series 2007 Bonds maturing on September 1, 20_ are redeemed from Special Tax prepayments, the principal amount of Series 2007 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 2007 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. The Series 2007 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 2007 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 (,September 1) Principal Amount to be Redeemed 20 * Maturity If some but not all of the Series 2007 Bonds maturing on September 1, 20_ are optionally redeemed, the principal amount of Series 2007 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 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 2007 Bonds maturing on September 1, 20_ so optionally redeemed. If some but not all of the Series 2007 Bonds maturing on September 1, 20_ are redeemed from Special Tax prepayments, the principal amount of Series 2007 Bonds maturing on September 1, 20_ to be subject to mandatory sinking fund OHS WEST:260269009.2 redemption on any subsequent September 1 will be reduced by the aggregate principal amount of the Series 2007 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 Series 2007 Bonds for Redemption If less than all of the Series 2007 Bonds outstanding are to be redeemed, the Trustee shall select the Series 2007 Bonds to be redeemed from all Series 2007 Bonds not previously called for redemption (a) with respect to any optional redemption, among maturities of Series 2007 Bonds as directed in a Written Request of the Community Facilities District, and (b) with respect to any redemption from Special Tax prepayments, among all maturities of the Series 2007 Bonds on a pro rata basis as nearly as practicable. For purposes of such selection, all Series 2007 Bonds will be deemed to be comprised of separate $5,000 denominations and such separate denominations will be treated as separate Series 2007 Bonds which maybe separately redeemed. Notice of Redemption So long as DTC is acting as securities depository for the Series 2007 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 2007 Bonds designated for redemption) at least 30 days but not more than 60 days prior to the redemption date. The Trustee must give notice of redemption to each of certain specified securities depositories and information services designated in the Indenture. The actual receipt by DTC (or any Owner of a Series 2007 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 2007 Bonds or the cessation of interest on the redemption date. Partial Redemption of Series 2007 Bonds Upon surrender of any Series 2007 Bonds to be redeemed in part only, the Community Facilities District will execute and the Trustee will authenticate and deliver to the Owner, at the expense of the Community Facilities District, a new Series 2007 Bond or Bonds of authorized denominations equal in aggregate principal amount to the unredeemed portion of the Series 2007 Bonds surrendered, with the same interest rate and the same maturity. Effect of Notice of Redemption Notice of redemption having been mailed as described above, and the amount necessary for the redemption having been made available for that purpose and being available therefor on the date fixed for such redemption, (a) the Series 2007 Bonds, or portions thereof, designated for redemption, will become due and payable at the redemption price thereof as provided in the Indenture, (b) upon presentation and surrender of such Series 2007 Bonds at the office of the Trustee, the redemption price of such Series 2007 Bonds, together with unpaid accrued interest to said redemption date, will be paid to the Owners thereof, (c) at the redemption date the Series 2007 Bonds, or portions thereof so designated for redemption, will be deemed to be no longer outstanding and such Series 2007 Bonds, or portions thereof, will cease to bear further interest, and. (d) as of the date fixed for redemption, no Owner of any Series 2007 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 OHS WEST:260269009.2 6 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 2007 Bonds (including mandatory sinking fund redemption on their respective September 1 redemption dates) is set forth below: Year Ending September 1 TOTAL Total Principal Interest Debt Service OHS WEST:260269009.2 7 ESTIMATED SOURCES AND USES OF FUNDS The estimated sources and uses of funds with respect to the Series 2007 Bonds are set forth in the following table: Sources: Principal Amount of Series 2007 Bonds [Less/Plus]: Net Original Issue [Discount/Premium] Total Sources Uses: Improvement Fund Reserve Fund~l~ Costs of Issuance~2~ Total Uses ~1~ Equals the Reserve Requirement for the Series 2007 Bonds. ~2~ Includes Underwriter's discount, and legal fees, financial advisory fees and other issuance costs. THE PROJECT The Series 2007 Bonds are being issued, in part, to finance the acquisition and construction of certain public facilities necessary for the development of the Community Facilities District, which may include the acquisition and construction of all or a portion of 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. The Community Facilities District expects to use a portion of the proceeds from the sale of the Series 2007 Bonds to finance the acquisition from the Developer of those facilities to be constructed by the Developer as set forth in the Second Amendment to Infrastructure Construction and Payment Agreement, dated as of August 1, 2007, by and between the City and the Developer. Such facilities consist of improvements to the [Park Avenue Roadway from Tustin Ranch Road to Warner, Avenue.] SECURITY FOR THE SERIES 2007 BONDS General Pursuant to the Act and. the Indenture, the Bonds, including the Series 2007 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 Community Facilities 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 Community Facilities District, consisting of the costs of computing the Special Taxes and preparing the annual Special Tax schedules and the costs OHS WEST:260269009.2 $ 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 Community Facilities 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 Community Facilities District related to an appeal of the Special Tax, any amounts required to be rebated to the federal government in order for the Community Facilities District to comply with the Indenture, an allocable share of the salaries of the staff of the City providing services on behalf of the Community Facilities 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 Indenture to mean the special taxes levied as Special Tax A within the Community Facilities 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 Community Facilities District may levy in any year is strictly limited by the maximum rates approved by the qualified electors within the Community Facilities District, as set forth in the Rate and Method. See "THE COMMUNITY FACILITIES 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 Community Facilities District has covenanted that, so long as any Bonds are outstanding, it will levy the amount of Special Taxes within the Community Facilities 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 calendar year commencing in such fiscal year, the Administrative Expenses estimated for such year, periodic costs on the Bonds, including but not limited to rebate payments, 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 or otherwise reasonably expected, less funds available pursuant to the Indenture (collectively, the "Special Tax Requirement for Facilities"). No assurance can be given that the amounts collected in any given year will, in fact, equal the Special Tax Requirement for Facilities due to a variety of factors, including the maximum Special Tax rates and the 45-year maximum term of the Special Tax levy on each parcel in the Community Facilities District imposed by the Rate and Method. See "THE COMMUNITY FACILITIES 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 OHS WEST:260269009.2 9 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 Community Facilities 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 Community Facilities 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, the Community Facilities 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. Although the Special Taxes will be levied against, and constitute a lien against, taxable parcels within the Community Facilities District, they do not constitute a personal indebtedness of the respective property owners. There is no assurance that the Developer or subsequent 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." 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 Community Facilities 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 Community Facilities 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 Series 2007 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 Community Facilities 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. Upon the issuance of the Series 2007 Bonds, $ , an amount equal to the initial 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. OHS WEST:260269009.2 10 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 Community Facilities 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 date on which amounts to redeem such Bonds are deposited in the Redemption Fund or otherwise deposited with the Trustee in connection with the defeasance of Bonds, be transferred by the Trustee from the Reserve Fund to the Redemption Fund or otherwise deposited with the Trustee 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 of such transfer, 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 The Indenture provides that the Community Facilities District may, at any time after the issuance and delivery of the Series 2007 Bonds, issue Additional Bonds payable from the Net Special Tax Revenues on a parity with all other Bonds issued under the Indenture. Additional Bonds maybe issued solely for the purpose of providing funds to refund the Series 2007 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 Community Facilities 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 maybe sold at a judicial foreclosure sale. Such judicial foreclosure proceedings are not mandatory. However, in the Indenture, the Community Facilities 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 Community Facilities District is not required to order the commencement of foreclosure proceedings if (a) the total Special Tax delinquency in the Community Facilities District OHS WEST:260269009.2 11 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 Community Facilities District determines that any single property owner in the Community Facilities District is delinquent in excess of [$5,000] in the payment of the Special Tax, then the Community Facilities District will diligently institute, prosecute and pursue foreclosure proceedings against such property owner. The Community Facilities 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 Community Facilities 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 Community Facilities 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 Community Facilities District of foreclosure sale proceeds, if any. However, within the limits of the Rate and Method, the Community Facilities District may adjust the Special Taxes levied on all taxable property within the Community Facilities 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 Community Facilities 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 Community Facilities District, dated June 14, 2007 (the "Appraisal"), was prepared by Harris Realty Appraisal (the "Appraiser"). The Appraisal was prepared to estimate the market value of the land in the Community Facilities District in its "as is" condition (the "Market Value"). Any land designated for park, open space or civic uses within the Community Facilities District was not included in the Appraisal, nor was property that is not subject to the Special Tax. The estimated value expressed in the Appraisal was stated as of June 1, 2007. See the Appraisal included in Appendix A hereto for a description of the assumptions made and the valuation methodology used by the Appraiser. OHS WEST:260269009.2 12 The Appraiser has utilized the direct comparison approach to value the land in the Community Facilities District. As noted above, the Appraiser excluded the parcels defined in the Rate and Method as Privately Owned Specific Retail Property (i.e., the parcels that are not subject to the Special Tax) from the Appraisal. The land and improvements thereon were valued in their "as is" condition as of June 1, 2007, the date of value. The Community Facilities District is essentially in a finished lot condition; however certain off-site improvements are still under construction but are expected to be substantially complete by November 2007. Based on the direct comparison approach and the assumptions set forth in the Appraisal, the Appraiser estimated the Market Value of the property subject to the Special Tax within the Community Facilities District as of June 1, 2007, to be approximately $140,000,000. Proceeds of Series 2007 Bonds of approximately $13,000,000 are expected to be used to reimburse the Developer for a portion of the approximately $[190,000,000] in on-site and off-site improvements expended or to be expended by the Developer within the Community Facilities District. Direct and Overlapping Debt Contained within the Community Facilities 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 Community Facilities 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 $1,500,000 aggregate principal amount of general obligation bonds for Improvement District No. 113 and $11,100,000 aggregate principal amount of general obligation bonds for Improvement District No. 213 in February 2006. IRWD issued additional general obligation bonds pursuant to such authorization for Improvement District No. 113 in the aggregate principal amount of $5,000,000 and for Improvement District No. 213 in the aggregate principal amount of $6,300,000 in July 2007. 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. The Community Facilities 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. OHS WEST:260269009.2 13 r w ~O 4~ brp .~ O U .~, A ..-, CCS . ,.., U v] O C~ ~--+ C~ ~, cr3 Q~ r~ i~-~ .~ c~ a~ O .b U b a~ /~ TI O c~ C~ .3 O N U ~ .~ ~ Q ~--+ V] .~ . ,.,, . r, •~--~ ~ r.~ ~-I--i r ~n ~ 0 U .--~ ~ O _ ~ ~~y .~^ •~ V ~ ~ ~ '~ A ~ ^~ °?~, ~~•~ .Dw'~ ~a e~ O ~ ~ ¢' [--~ ~, ' V V w ~ ~ ~~ O .~ ~ rte.! ~ ~ ~i~l/ O i..~ V A 0 M ~'.~ ~I ~O~~I COI vO1 `' .--~ U .~ +~+ b9 M O ~ '~ ~ ? ~; O^ O .--~ ~ N ~O 00 M ri vi ~~ O~ O ~ O O1 °v L1 0 ° I I `~ I `~' Q ~ Y ° O [~ O O O ~ O O O D\ O O ~ O O ~ N ~--~ M 69 ~ V Q v OA p ~ ~ ~., ~ ~ O ~" N > ~ _° ~~ 0 H a ~~ O U U U ~ R1 ~Q ~ • ~ ~, ~. O U a~ 0 a~ U O N ~ N ~ ~ i ~ .~ w ~ oU~~ ~~ U ~ ~ Q ~, a ~ a. ° o U ai >, ~ U ~ Cd .-+ 4-. ' ~ w U ~ ~'~~ o a ~ Q d o 0 U O ~ N `--+ i o~ bA .~ 0 O o0 I~ O O o0 0o a\ ~ ~..~ .~ o~o~ o, O ~ M M N N t~ ~o 00 ~n ~O M O\ O\ M ~O 00 O t~ M O O 6H N M N o~~ O cn ~ 00 V •--~ ~ D\ O M O O O ~ N 00 ~--~ M 0 ~, 0 0 'v f]] ~ ~ M M N •--~ ° zz Y Y U ~ U U 'E o ~ Q O '~^ Q s.. 0 C ~ ~w ~ ~ ~ 61 U 3 ~ o 0 ~o~~ .~ .~ ~ Q ~' 3 3 ~~,xx Q Q ao .~ 7 ° b U a~ Q 4-. O N w a~i i 0 N .~ p. d .b w w 0 0 .~ C .i O N ~v .~ a u. at .~ '~ 3 .U b -o r-+ U ~ .~ N N b 3 ~ o ~~ o -~ ~ U O vii per. ~°o N ~' `' 3 Q ~ ~ Y3Q °' ~~// U ~ V-i ~'' 4--i ~ ~, E ° ~ ~ ~ N ~ ~ Q ~i ~~' ~ °Y' o b • ~ ~ ,~ 3 0 o }! U '~ ,~ ~ ~ 4. N `~ bA ~ x .d a O '~ ~ ~ o a. ~ ~ ~ ~ .~~0 ~ 0 U o ~ b .~ .Y ,~ ~ ti cd ~ ~~ ~ ~ N a~ o ~ Q ~ a ;~ ~ I ~ o ~~~,~ U 00 U ~ ~ 4., p N ~, L1. bA O O ~O .~ Q^ ' in ~ N ~ y ~' ~ ~ ,-" y ~ co o ... ~~~~~> N U ~ Q cd~ P. W v ~~ ~~ '--~ N O O U N 0 N H w 3 z 0 Other Potential Debt The Community Facilities 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 Community Facilities District which maybe incurred in the future by other governmental agencies having jurisdiction over all or a portion of the property within the Community Facilities District. Furthermore, nothing prevents the owners of property within the Community Facilities 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 Community Facilities District on a parity with the lien of the Special Taxes. Accordingly, the debt on the property within the Community Facilities 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 2007 Bonds are issued. The imposition of such additional indebtedness could reduce the willingness and ability of the property owners within the Community Facilities 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 Community Facilities District. The $15,365,000* principal amount of Series 2007 Bonds constitutes direct debt for the property in the Community Facilities District. As set forth in Table 1 under "Direct and Overlapping Debt -Direct and Overlapping Debt Summary" above, as of May 1, 2007, there is approximately $3,821,944 of other outstanding public indebtedness applicable to property in the Community Facilities District. Thus, the estimated direct and overlapping debt allocable to the property in the Community Facilities District is approximately $19,186,944. The market value of the property in the Community Facilities District as of June 1, 2007, as estimated by the Appraiser in the Appraisal, was approximately $140,000,000, which is approximately 9.1 * times the principal amount of the Series 2007 Bonds and 7.3 * times the sum of the principal amount of the Series 2007 Bonds, plus the amount of all the other outstanding public indebtedness allocable thereto, under the assumptions described in Table 1. The foregoing value-to-lien ratios represent estimated averages for the property within the Community Facilities District only; the actual ratios for individual parcels of land within the Community Facilities 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 2007 Bonds are Outstanding. The Community Facilities * Preliminary, subject to change. OHS WEST:260269009.2 15 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 parity with the Special Taxes. See "SPECIAL RISK FACTORS -Appraised Value" and "- Additional and Overlapping Debt." THE COMMUNITY FACILITIES DISTRICT General The Community Facilities District was established in accordance with the Act and constitutes a legally constituted governmental entity separate and apart from the City. The Community Facilities District is located at the northwest corner of Barranca Parkway and Jamboree Road. An extension of Tustin Ranch Road from Walnut Avenue to Barranca Parkway will border the west side of the Community Facilities District. The Community Facilities District represents additional development of the 1,533 acre master planned community known as Tustin Legacy, which was formerly the Marine Corps Air Station Tustin and is the first phase of commercial development in Tustin Legacy. See "Former Marine Corps Air Station Tustin." The Community Facilities District consists of approximately 82.57 gross acres of land, of which approximately 44.3 acres are anticipated to be subject to the Special Tax. The Community Facilities District will consist of a shopping center named "The District at Tustin Legacy." The District at Tustin Legacy is intended to be the primary retail and entertainment component of Tustin Legacy. The District at Tustin Legacy is expected to include approximately 985,000 square feet of building area, including three "big box" buildings, freestanding retail and restaurant pads, inline retail tenant spaces, and a movie theater complex, with supporting parking facilities and landscaping. The movie theater complex contains 14 screens and approximately 3,000 stadium- style seats. The three "big box" buildings will be occupied by Costco, Lowe's, and Target. Pursuant to the Rate and Method, Privately Owned Specific Retail Property is not subject to the Special Tax. The Privately Owned Specific Retail Property consists of seven parcels improved or to be improved with a Costco, Lowe's, Target, Wells Fargo Bank, In-N-Out Burger and Chick-Fil-A. Costco and Lowe's own the property on which their buildings are situated. Target is leasing the property on which its building will be situated from the Developer. See "-Property Ownership and Development." Grading in the Community Facilities District began in January 2006 and approximately 90 percent of the construction within the Community Facilities District was complete as of June 30, 2007. Construction is expected to be substantially complete by November 2007. Tustin Legacy Tustin Legacy is an approximately 1,533 acre planned community in central Orange County. The Community Facilities District represents an additional phase of development of 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. OHS WEST:260269009.2 16 Tustin Legacy is currently planned to include 4,210 residential units, schools, parks, and numerous business and commercial uses. 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 bounded by the Costa Mesa, Santa Ana, Laguna and San Diego Freeways. Jamboree Road provides access. to the Eastern Transportation Corridor. Summary of District Proceedings Pursuant to the Act, the City Council of the City adopted Resolution No. 07-_ on May 1, 2007, stating its intention to establish the Community Facilities District and to authorize the levy of special taxes within the boundaries of the Community Facilities District. On the same date, the City Council of the City also adopted Resolution No. 07-_ stating its intention to have the Community Facilities District incur bonded indebtedness in an amount not to exceed $16,000,000. Following public hearings conducted pursuant to the provisions of the Act, the City Council of the City adopted Resolution No. 07-44 on June 19, 2007, establishing the Community Facilities District. The City Council of the City also adopted Resolution No. 07-45 determining the necessity to have the Community Facilities District incur up to $16,000,000 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 Community Facilities District. At a special election held on June 19, 2007, the owners of the property within the boundaries of the Community Facilities District authorized the Community Facilities District to incur bonded indebtedness in an amount not to exceed $16,000,000 and approved the Rate and Method to pay the principal of and interest on all bonds issued by the Community Facilities District. Rate and Method of Apportionment The full text of the Rate and Method is set forth in Appendix B hereto. Capitalized terms used under this caption have the meanings ascribed thereto in the Rate and Method. The Community Facilities 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 Community Facilities District have approved. The Rate and Method apportions the total amount of Special Taxes to be collected among the taxable parcels in the Community Facilities District as more particularly described herein. The Community Facilities District adopted the Rate and Method following a public hearing and an election conducted pursuant to the provisions of the Act. The Rate and Method classifies the Special Taxes as Special Tax A and Special Tax B. The Rate and Method classifies Taxable Property as either Developed Property, Undeveloped Property or Public Property. The Rate and Method exempts Privately Owned Specific Retail Property and Public Property from the Special Tax A. The Special Tax A is the Special Tax levied to fund the Special Tax Requirement for Facilities and is pledged to the payment of the Bonds. 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. OHS WEST:260269009.2 17 The amount of Special Taxes that the Community Facilities District may levy is limited by the Maximum Special Tax rates set forth in the Rate and Method. The Rate and Method sets forth the Maximum Special Tax A for each Lot of Developed Property. Under the Rate and Method, the Maximum Special Tax A for a parcel of Developed Property will be increased on each July 1, commencing July 1, 2008, by an amount equal to two percent of the amount in effect for the previous fiscal year. Under the Rate and Method, the Maximum Special Tax A for Undeveloped Property is $26,051 per acre for fiscal year 2007-08, subject to escalation on each July 1, commencing July 1, 2008, by an amount equal to two percent of the amount in effect for the previous fiscal year. Commencing with fiscal year 2007-08 and each following fiscal year, the City Council of the City, acting in its capacity as the legislative body of the Community Facilities District, will determine the Special Tax Requirement for Facilities and will levy the Special Tax A until the total Special Tax Levy A equals the Special Tax Requirement for Facilities. The Special Tax Requirement for Facilities is defined under the Rate and Method as the amount required to pay the sum of the principal of and interest on the Bonds becoming due and payable during the calendar year commencing in such fiscal year, the Administrative Expenses estimated for such year, periodic costs on the Bonds, including but not limited to rebate payments, 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 or otherwise reasonably expected, less funds available pursuant to the Indenture. The City Council of the City levies the Special Tax A 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; and 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. The term "Proportionately" as used in the above steps means that the ratio of the actual Special Tax levy to the Maximum Special Tax is equal for all Lots of Taxable Property. A "Lot" is defined under the Rate and Method as a lot created by a final map for which building permits may or have been issued. 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 45 years commencing with fiscal year 2007-08. The Special Tax A obligation applicable to a lot within the Community Facilities 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. OHS WEST:260269009.2 18 Former Marine Corps Air Station Tustin Tustin Legacy was formerly a part of the Marine Corps Air Station Tustin. The Air Station was in operation for approximately 50 years as a military base but was included in base closure 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. 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 Community Facilities 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. 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. OHS WEST:260269009.2 19 The developers of property in Tustin Legacy, including the Community Facilities 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. In conjunction with the approval of entitlements for the Community Facilities District, Twining Laboratories, Inc. (the "Environmental Consultant"), prepared a Phase I Environmental Site Assessment, dated October 6, 2004 (the "Phase I Report"), for the property included in the Community Facilities District. The Phase I Report concluded, among other things, that, with the exception of certain portions of the Community Facilities District property that were in the process of being remediated by the Department of the Navy at the time the Phase I Report was completed, the Community Facilities District property had been approved for "no further action" status by the responsible regulatory agencies. Since the date of the Phase I Report, all of the Community Facilities District property that was excepted from "no further action" status has been remediated. Accordingly, the City has determined that no further CEQA action is required in connection with the development within the Community Facilities District. Disposition and Development Agreement General. The Developer and the City have entered into the Tustin Legacy Disposition and Development Agreement (Retail Development), dated as of July 20, 2004, as amended by the First Amendment to Tustin Legacy Disposition and Development Agreement (Retail Development), dated as of March 25, 2005, as further amended by the Second Amendment to Tustin Legacy Disposition and Development Agreement (Retail Development), dated as of June 8, 2005 (collectively, the "DDA"). The DDA establishes an agreement between the City and the Developer for the purchase from the City and the development by the Developer of most of the developable property within the Community Facilities District. The DDA contemplates that the Developer will construct three types of improvements within the Community Facilities District in connection with the Development: (1) "vertical improvements," consisting of buildings, other structures and landscaping; (2) "horizontal improvements," consisting of on-site and off-site infrastructure improvements, such as improvements to public streets, wet and dry utilities, and common areas and parks; and (3) Tustin Legacy Backbone Infrastructure Work Program Improvements (as defined in the DDA), including the widening and improvement of certain roads and intersections and other public backbone infrastructure surrounding the Community Facilities District. The DDA includes default provisions that, among other things, permit the City to repurchase from the Developer all or any portion of the Developer's property within the Community Facilities District, together with the improvements thereon, at a price equal to such property's Fair Market Value (as defined in the DDA). The DDA also permits the City, under limited circumstances, to exercise a right of reversion in the event of uncured defaults by the Developer thereunder, which right of reversion permits the City to (a) terminate the DDA as to all or a portion of the Developer's Community Facilities District property and/or the improvements thereon, and (b) thereafter to re-enter the affected property and/or improvements and re-vest title thereto in the City, such title to be subject to any existing mortgages permitted under the DDA. Status of the Development. Grading in the Community Facilities District began in January 2006. Approximately 90 percent of the construction within the Community Facilities OHS WEST:260269009.2 20 District was complete as of June 30, 2007. Construction is expected to be substantially complete by November 2007. Pursuant to the DDA, upon completion of all improvements required under .the DDA, the Developer will submit a request to the City for a final certificate of compliance. Upon the approval of such request by the City, the City will issue the final certificate of compliance and will cause it to be recorded in the official records of the County. Property Ownership and Development The following information regarding ownership and planned development of the Community Facilities District has been provided by the Developer. The information provided under this caption has been included because it may be considered relevant to an informed evaluation and analysis of the Series 2007 Bonds and the Community Facilities District. No assurance can be given, however, that the proposed development of the property within the Community Facilities District will occur, or that it will occur in a timely manner or in the configuration described herein, or that the Developer or any other property owner described herein will or will not retain ownership of its property within the Community Facilities District. No representation is made by the City or the Community Facilities District as to the accuracy or adequacy of such information provided by the Developer. The Developer The Developer, Vestar/Kimco Tustin, L.P., is a California limited partnership. Vestar California XXX, L.L.C., an Arizona limited liability company ("Vestar California"), is the sole general partner of the Developer and Kimco Tustin, Inc., a Delaware corporation ("Kimco Tustin"), is the sole limited partner of the Developer. The following entities own more than 5% membership interest in Vestar California: (i) Hanley Investments Limited Partnership, an Arizona limited partnership, (ii) Kuhle Investments II Limited Partnership, an Arizona limited partnership, (iii) Larcher Investments Limited Partnership, an Arizona limited partnership, (iv) Rhodes Investments IV Limited Partnership, an Arizona limited partnership, and (v) SPT Investments Limited Partnership, an Arizona limited partnership. Each of the foregoing entities is owned by or affiliated with the owners of Vestar Development Co., an Arizona corporation ("Vestar Development Co."). Kimco Tustin is affiliated with Kimco Realty Corporation, apublicly-traded real estate investment trust ("Kimco Realty Corporation"). The Developer is a single purpose entity that was formed in 2003 as a partnership between affiliates of Vestar Development Co. and Kimco Realty Corporation for the purpose of purchasing the property in the Community Facilities District and constructing the improvements thereon. Kimco Realty Corporation is one of the nation's largest owner and operator of neighborhood and community shopping centers with interests in more than 1,337 properties in 45 states, comprising over 174.4 million square feet of leaseable space. Vestar Development Co. was founded in 1989 by the five senior executives of the commercial division of a large Arizona homebuilder. Vestar Development Co., through affiliated entities and joint ventures (collectively, "Vestar"), develops and manages commercial real estate across the United States, with significant holdings and development activities in the Phoenix, Los Angeles, and San Diego metropolitan areas. Vestar specializes in the development and management of large, unenclosed shopping and entertainment centers, also called "power centers," that serve as community focal points. OHS WEST:260269009.2 21 Experience of the Developer Some of Vestar's most notable completed projects include the following: Crossroads Towne Center. Crossroads Towne Center is a 140-acre, 1.3 million square- foot regional entertainment and power center located in Chandler, Arizona. Completed in 2007, Crossroads Towne Center is anchored by Super-Target, Wal-Mart, Home Depot, Harkins Theaters, Ross Dress For Less, Michaels, PetsMart, Linens `N Things, and Cost Plus. Crossroads Towne Center is one of the largest shopping centers in the Southeast Valley of the Phoenix Metropolitan Area. Desert Ridge Marketplace. Desert Ridge Marketplace is a 1.2 million-square-foot regional entertainment, lifestyle, and power center located in northeast Phoenix, Arizona. Completed in 2001, Desert Ridge Marketplace occupies 110 acres and offers strategically integrated shopping, dining, .and entertainment in a festive, pedestrian oriented, town center environment. Desert Ridge Marketplace is anchored by AMC Theaters, Target, Old Navy, Kohl's, Albertson's, Barnes & Noble, Ross Dress For Less, PetsMart, and Marshall's. Over 17 million shoppers visited Desert Ridge Marketplace during its first year of operations. Long Beach Towne Center. Long Beach Towne Center is a 1 million square-foot power center located in Long Beach, California. Completed in 2000, Long Beach Towne Center is anchored by Wal-Mart, Lowe's, Sam's Club, Barnes & Noble, Linens-N-Things, Staples, Ross Dress for Less, Old Navy, Pier 1 Imports, and In-N-Out Burger. Spectrum Towne Center. Spectrum Towne Center is an 830,000 square foot freeway- oriented regional power center located in Chino, California. Completed in 2002, the Spectrum Towne Center is anchored by Wal-Mart, Sam's Club, Kohl's, Linens `n Things, Marshalls, Nordstrom Rack, and Borders Books & Music. Ahwatukee Foothills Towne Center. Ahwatukee Foothills Towne Center is a 950,000 square-foot power center located in Phoenix, Arizona. Completed in 1993, Ahwatukee Foothills Towne Center is anchored by Target, Mervyn's, AMC Theaters, Best Buy, Ross Dress For Less, Barnes & Noble, Babies R Us, Old Navy, and Pier 1 Imports. College Grove Marketplace. College Grove Marketplace is a 650,000 square-foot power center located in San Diego, California. Completed in 1999, College Grove Marketplace was developed as a redevelopment project (the site was formerly a regional mall) and won unprecedented support from local residents. Pico Rivera Towne Center. Pico Rivera Towne Center is a 629,000 square foot regional power center located in Pico Rivera, California. Completed in 2002, the Pico Rivera Towne Center is anchored by Wal-Mart, Lowe's, Borders Books & Music, Ross Dress for Less, Marshalls, Staples, and Walgreens, and includes in-line shops, specialty retailers, full-service and quick service restaurants, and pad retail users. Pico Rivera Towne Center is part of a 200-acre master planned development that includes over 3 million square feet of retail, office, research and development, and industrial uses. OHS WEST:260269009.2 22 Santee Trolley Square. Santee Trolley Square is a 438,072 square foot power center located in the heart of Santee, California. Completed in 2002, Santee Trolley Square is anchored by Target, 24 Hour Fitness, TJ Maxx, Bed Bath & Beyond, Barnes & Noble, Staples, PetsMart, and Old Navy. Santee Trolley Square also features retail, entertainment, and transportation elements and is distinguished by a unique design, which includes water features located at entries and gathering areas and more than 1,000 trees. Among several projects in development, Vestar is currently constructing the Tempe Marketplace, a 1.3 million square foot regional retail center in Tempe, Arizona. The Tempe Marketplace and the Development constitute two of the largest retail developments currently under development in the western United States. The Tempe Marketplace will have significant lifestyle and entertainment components and, like the Development, will change the retail landscape in its community. In addition to the Community Facilities District, Vestar had the following projects under construction as of June 30, 2007. Table 2 City of Tustin Community Facilities District No. 07-01 (Tustin Legacy/Retail Center) Vestar Projects Currently Under Construction as of June 30, 2007 Name of Project Location Tempe Marketplace Tempe, AZ Lake Pleasant Towne Center Peoria, AZ Oro Valley Marketplace Tucson, AZ Queen Creek Marketplace Queen Creek, AZ Sundance Towne Center Buckeye, AZ Total Square Footage Under Construction Source: Developer. Property Ownership in the Community Facilities District Estimated Total Square Feet Completion Date 1,300,000 December 2007 630,000 December 2007 850,000 December 2007 900,000 June 2008 650,000 December 2009 4,330,000 The following two tables set forth ownership information for the property in the Community Facilities District, the number of acres subject to the Special Tax per parcel and certain other information as of June 30, 2007. Table 3 describes the status of the leases on property in the Community Facilities District subject to the Special Tax for The District at Tustin Legacy as of June 30, 2007. Note, however, that the obligation to pay the Special Taxes when due is ultimately the responsibility of the Developer or any future property owner, not the tenant. The lease terms for each tenant vary. See "SPECIAL RISK FACTORS -Concentration of Ownership and Leasehold Interests." [insert site map here] OHS WEST:260269009.2 23 Table 2 City of Tustin Community Facilities District No. 07-01 (Tustin Legacy/Retail Center) Ownership and Levy of Special Taxes within the Community Facilities District as of June 30, 2007 Parcel ~'~ Acres Owner Lessee~2~ APN 434-431-24 1.785 Costco N/A APN 434-441-12 0.918 Developer In-N-Out APN 434-441-16 9.044 Developer N/A APN 434-441-17 8.735 Developer N/A APN 434-441-18 3.887 Developer N/A LLA 2006-01 (Parcel 1) 0.920 Developer N/A LLA 2006-01 (Parcel 2) 10.001 Developer Target LLA 2006-02 (Parcel 1) 1.330 Developer N/A LLA 2006-02 (Parcel 2) 1.148 Developer Wells Fargo Bank LLA 2006-03 (Parcels 2 and 3) 2.296 Developer N/A LLA 2006-03 (Parcel 4) 0.918 Developer Chick-Fil-A LLA 2006-04 (Parcels 1 and 2) 17.005 Developer N/A LLA 2006-OS (Parcel 1) 1.035 Developer N/A LLA 2006-07 (Parcel 1) 9.924 Lowe's N/A LLA 2006-07 (Parcel 2) 13.624 Costco N/A Total Acres 82.570 ~'~ Parcels are identified by the applicable assessor's parcel number ("APN") or by the applicable lot line adjustment ("LLA"). ~Z~ The property in the Community Facilities District owned by Costco and Lowe's and owned by the Developer but subject to leases with In-N-Out, Target, Wells Fargo Bank and Chick-Fil-A is are exempt from the lien of Special Tax. See Table 3 for the parcels of property in the Community Facilities District owned by the Developer that are subject to the lien of the Special Tax. Source: Developer. OHS WEST:260269009.2 24 Table 3 City of Tustin Community Facilities District No. 07-01 (Tustin Legacy/Retail Center) Expected Retail Uses within the Community Facilities District Approx.S quare Lease Renewal Opening/Projected Tax Parcel~l~ Owner/Lessee Footage Term Options Opening Date APN 434-431-24 and Costco 160,417 NA NA 6/7/2007 LLA 2006-07 (Parcel 2)~2~ APN 434-441-12~2~ In-N-Out 3,200 20 yr 3 5-yr 11/1/2007 APN 434-441-16 AMC 68,000 20 yr 4 5-yr 7/12/2007 Tilly's 10,000 10 yr 2 5-yr 7/12/2007 Borders 21,570 15 yr 3 5-yr 7/12/2007 DSW 24,030 10 yr 3 5-yr 9/1/2007 Strike 28,189 10 yr 2/ l /2008 Sharkey's 2,950 10 yr 2 5-yr 8/15/2007 Red Brick Pizza 1,508 10 yr 2 5-yr 7/12/2007 Go Roma 2,650 10 yr 2 5-yr 7/12/2007 Ben & Jerry's 1,024 10 yr 2 5-yr 7/12/2007 Rocky Mountain Chocolate 1,067 10 yr 2 5-yr 7/12/2007 Chaparosa Grill 3,542 10 yr 1-5 yr 8/1/2007 Beach Bums 3,903 7 yr 1 7-yr 7/12/2007 Hot Topic 1,716 10 yr 2 5-yr 7/12/2007 Finish Line 3,905 10 yr 1-5 yr 7/12/2007 Johnny Rockets 2,200 10 yr 2 5-yr 7/12/2007 Thai Bamboo 1,530 10 yr 2 5-yr 7/12/2007 JT Schmid's 8,008 15 yr 2 5-yr 9/1/2007 The Cravery 1,157 10 yr 2-5 yr 8/15/2007 Sunglass Hut 1,157 10 yr 2-5 yr 7/12/2007 Claires 1,157 5 yr 1-5 yr 7/12/2007 Madison Bleu 1,663 5 yr 2-5 yr 8/15/2007 Play N Trade 1,450 5 yr 1-5 yr 8/15/2007 Available 4,964 10 yr 2-5 yr 2/1/2008 MGMT 3,700 10 yr 2 5-yr 12/1/2007 Panera Bread 4,600 10 yr 2 5-yr 7/12/2007 Justice 4,056 10 yr 1 5-yr 7/12/2007 Blush 2,500 10 yr 2 5-yr 7/12/2007 Gstage 4,500 10 yr 1-5 yr 8/ 1 /2007 Zumiez 2,988 10 yr 2-5 yr 7/12/2007 Heavenly Coutoure 1,800 10 yr 2 5-yr 11/15/2007 No Fear 1,500 10 yr 2 5-yr 7/12/2007 Vans 2,412 10 yr 2-5 yr 11/15/2007 Shimoni 822 5 yr 1 5-yr 2/1/2008 Tacone 1,555 10 yr 2 5-yr 7/12/2007 Peet's Coffee 1,728 10 yr 2 5-yr 7/12/2007 Bluewater Grill 7,250 15 yr 3- 5 yr 10/15/2007 Lids 750 10 yr 2 5-yr 7/12/2007 Ra Sushi 4,500 10 yr 2 5-yr 10/1/2007 The Auld Dubliner 5,000 10 yr 2 5-yr 10/15/2007 APN 434-441-17~2~ None (Parking) NA NA NA APN 434-441-18 Petsmart 20,087 15 yr 4 5-yr Open Office Depot 18,361 15 yr 3 5-yr 6/1/2007 Cingular 3,040 5 yr 1 5-yr 6/15/2007 Face Logic 1,267 5 yr 1 5-yr 9/1/2007 OHS WEST:260269009.2 25 Approx.S quare Lease Renewal Opening/Projected Tax Parcel~l~ Owner/Lessee Footage Term Options Opening Date Finest Nails 1,773 10 yr 2 5-yr 6/15/2007 LLA 2006-01 (Parcel 1) Dry Cleaner 1,400 10 yr 2 5 yr 9/1/2007 UPS Store 900 5 yr 1 5-yr 8/1/2007 Sport Clips 960 5 yr 1 5-yr 8/1/2007 Kinecta Credit Union 2,901 10 yr 2 5-yr 9/1/2007 ONO 1,495 10 yr 2 5-yr 9/1/2007 Quiznos 1,083 10 yr 2 5-yr 6/15/2007 Juice It Up 1,055 10 yr 2 5-yr 6/15/2007 Daphnes 1,000 10 yr 2 5-yr 6/15/2007 Daphnes 1,000 10 yr 2 5-yr 6/15/2007 LLA 2006-01 (Parcel 2) (z) Target 135,286 25 yr 5 5-yr 7/29/2007 LLA 2006-02 (Parcel 1) Pei Wei 3,235 10 yr 2 5-yr 7/30/2007 Farmers and Merchants 5,306 10 yr 2 5-yr 6/15/2007 Bank Verizon Wireless 3,482 5 yr 1- 5-yr 6/15/2007 LLA 2006-02 (Parcel 2) ~Z~ Wells Fargo Bank 5,000 20 yr 4 5-yr 6/15/2007 LLA 2006-03 (Parcels 2&3) CPK 5,500 10 yr 2 5-yr 3/1/2008 The Winery 7,000 20 yr 2 5-yr 8/1/2007 LLA 2006-03 (Parcel 4) (z) Chick Fil-A 4,500 15 yr 4 5-yr 5/31/2007 LLA 2006-04 (Parcels 1&2) West Italian Bistro 8,000 20 yr 2 5-yr 3/1/2008 Ulta Cosmetics 10,200 10 yr 2 5-yr 11/15/2007 Best Buy 30,000 10 yr 3 5-yr 11/15/2007 Whole Foods 60,550 20 yr 4 S-yr 8/22/2007 TJ Maxx/Home Goods 56,658 10 yr Open Michaels 20,957 10 yr 3 5-yr 8/1/2007 Hush Baby 2,084 10 yr 2 5-yr 9/1/2007 Valentino Chocolate 921 10 yr 1-Syr 9/1/2007 Shea Optometric 950 10 yr 2 5-yr 9/1/2007 Right Start 2,460 10 yr 2 5-yr 9/1/2007 Aveda 1,495 10 yr 1 5-yr 2/1/2008 Available 3,700 10 yr 2 5-yr 2/1/2008 Pinkberry Yogurt 1,500 10 yr 2 5-yr LLA 2006-OS (Parcel 1) Lucille's Smoke House 10,000 20 yr 4 5-yr 5/30/2007 LLA 2006-07 (Parcel 1)~Z~ Lowe's 138,134 6/24/2007 ~'~ Parcels are identified by the applicable assessor's pa rcel number ("APN") or by th e applicable lot line adjustment ("LLA"). All parcels within the Community Facilities District are subject to the Special Tax B for services. ~~~ Not subject to the Special Tax for facilities. Source: Developer. The Developer's Financing Plan Construction Loan. The Developer has obtained a construction loan (the "Construction Loan") from a consortium of banks led by Bank of America, NA, and JPMorgan Chase & Co. The Construction Loan is secured by a deed of trust that encumbers the property owned by the OHS WEST:260269009.2 26 Developer in the Community Facilities District. The original committed amount to be borrowed under the Construction Loan was $221,675,000. The outstanding balance of the Construction Loan as of June 30, 2007, was approximately $163,702,662. The Construction Loan is subject to interest-only payments at interest only at a rate equal to the London Interbank Offered Rate ("LIBOR"), plus 1.75%. The principal of the Construction Loan is due and payable on June 1, 2008, subject to two one-year extensions. In addition to the proceeds of the Construction Loan, the Developer has expended approximately $69,900,000 in available cash to pay for a portion of the construction costs related to the Community Facilities District. Estimated Development Costs. As of June 30, 2007, the Developer estimates that it had expended approximately $223,656,000 in construction costs. After subtracting parcel sales of approximately $21,720,000 and development reimbursements of approximately $17,800,908, the net development costs were approximately $184,135,000 as of June 30, 2007. The following table describes the estimated construction budget as of June 30, 2007. There can be no assurance that there will not be changes in the budgeted amounts shown in the table below. Although the following table reflects the Developer's current projections, many factors beyond its control, or a decision by the Developer to alter its current plans, may cause the actual costs required to construct and complete the development in the Community Facilities District to differ from the projections set forth below. The inclusion of the following budget in this Official Statement is not intended to guarantee a particular result, but rather to indicate that, based on expected revenues and expenditures, the Developer believes that the development described herein is feasible. Future changes in the Developer's financial projections are expected to be included in the continuing disclosure reports to be prepared by the Developer in accordance with the Continuing Disclosure Agreement to be executed by the Developer upon the issuance of the Bonds. See Appendix E - "Forms of Continuing Disclosure Agreements." OHS WEST:260269009.2 27 Table 4 City of Tustin Community Facilities District No. 07-01 (Tustin Legacy/Retail Center) Construction Budget (as of June 30, 2007) Cost Item Budgeted Amount Total Expenditures Percent To Date Completed Land Acquisition Costs Land Acquisition Land Sales Total Land Acquisition Costs Construction Costs $33,414,170 $31,581,490 94.5% (25,742,607) (21,720,177) 84.4 $ 7,671,563 $ 9,861,313 100.0% Off-Site Improvements $ 83,447,660 $ 61,755,752 64.6% On-Site Improvements 50,216,890 43,645,679 80.2 Building Improvements 58,831,803 39,001,963 50.1 Tenant Improvement Allowances 10,061,293 2,149,861 17.9 Hard Cost Contingency 1,000,000 0 0.0 Total Construction Costs $203,557,646 $146,553,255 72.0% Soft Costs Government Permits and Fees $ 7,256,773 $ 7,246,161 99.9% Utility Design and Construction Fees 399,073 293,974 73.7 Architecture and Engineering 10,153,144 8,944,116 88.1 Leasing and Sales Commissions 5,603,526 2,882,424 51.4 Legal and Accounting 1,554,499 1,330,143 85.6 Lender Legal 428,283 429,372 100.0 Title/Escrow, Inspections, Appraisal 212,520 215,629 100.0 Property Taxes and Insurance 3,658,576 3,579,171 97.8 Marketing and Administration 2,011,796 1,587,802 78.9 Soft Cost Contingency 100,000 0 0.0 Total Soft Costs $31,378,190 $26,508,792 84.5% Financing Costs $14,617,677 $11,328,347 77.5% Development Fees $9,352,262 $7,684,696 82.2% Development Reimbursement Costs ($77,521,267) ($17,800,908) 23.0% Total Development Costs $189,056,071 $184,135,495 97.4% Source: The Developer. As indicated above, the preceding description of expected development by the Developer is based on information provided to the Community Facilities District by the Developer for purposes of this Official Statement. No representation is made as to the experience, abilities or financial resources of the Developer or as to the likelihood that the Developer will be successful in developing OHS WEST:260269009.2 28 the Community Facilities District. The Community Facilities District has not made, nor will it make, any investigation of the Developer. 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 2007 Bonds. This discussion does not purport to be comprehensive or definitive. The occurrence of one or more of the events discussed herein could adversely affect the ability or willingness of property owners in the Community Facilities District to pay their Special Taxes when due. Such a failure to pay Special Taxes could result in the inability of the Community Facilities District to make full and punctual payments on the Series 2007 Bonds. Concentration of Ownership and Leasehold Interests As of June 1, 2007, the property within the Community Facilities District subject to the Special Tax was owned by the Developer. See "THE COMMUNITY FACILITIES DISTRICT - Property Ownership and Development." The timely payment of debt service on the Series 2007 Bonds depends upon the willingness and ability of the Developer to pay the Special Tax installments when due. Conditions may affect the willingness of the Developer, or any other property owners, to pay Special Tax installments on property and there is no assurance that the owners will pay such Special Tax installments even if financially able to do so. The initial terms of the leases are significantly shorter than the September 1, 20 maturity date of the Series 2007 Bonds. In the event that tenants do not execute lease extensions after the expiration of their initial lease terms, the Developer will be required to find new tenants. There can be no assurance that such tenants will exercise lease extensions after the initial terms of their respective leases, and if not, that the Developer can or will find replacement tenants. The failure of such tenants to extent their leases or the inability of the Developer to find replacement tenants could adversely effect the ability or willingness of the Developer to pay Special Tax installments on the property in the Community Facilities District. See "THE COMMUNITY FACILITIES DISTRICT - Property Ownership and Development -Table 3." Risks Associated with Ongoing Ownership and Operation of "The District at Tustin Legacy" The ability or willingness of the Developer to pay the Special Taxes could be adversely affected by the ability of the Developer to establish appropriate rental rates for, and the continuing ability to rent space in, The District at Tustin Legacy. In addition, in order to lease retail space, it may be necessary for the Developer to expend a significant amount of funds. There is no assurance that the Developer will have funds available for this purposes, or that it will choose to utilize available funds for this purpose as leases expire. Moreover, to the extent there are any expenditures required to maintain The District at Tustin Legacy that are not foreseen by the Developer, the only source of money to pay such unanticipated expenses would be the Developer, and there can be no assurance that the Developer would be willing or able to pay such additional expenditures. Any of the foregoing events may adversely affect the Developer's ability to generate sufficient rental income to pay the Special Tax installments when due. OHS WEST:260269009.2 29 Risk of Changes in Market Conditions The financial viability of the commercial business in the Community Facilities District could be adversely affected as a result of changes in real estate market conditions and changes in general economic conditions. The leases provide that the tenants are responsible for the payment of the taxes on the space occupied by the tenant. If any tenant defaults in the payment of such taxes, the Developer or any subsequent owner is responsible for such payments. There can be no assurance that any such change in real estate market conditions or general economic conditions will not impact the ability of the tenants to pay their taxes when due, which in turn, may adversely affect the ability of the Developer to pay the Special Tax installments when due. The Series 2007 Bonds are Limited Obligations of the Community Facilities District Funds for the payment of the principal of, and interest on, the Series 2007 Bonds are derived from Special Taxes levied in the Community Facilities District. The Special Taxes collected by the Community Facilities District could be insufficient to pay debt service on the Series 2007 Bonds due to non-payment of annual Special Taxes or insufficient proceeds received from the sales of land within the Community Facilities District due to delinquencies. The Community Facilities District's obligation 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 2007 BONDS -Covenant for Superior Court Foreclosure." The Special Taxes are not Personal Obligations of the Developer or Subsequent Property Owners The obligation to pay Special Taxes levied within the Community Facilities District does not constitute a personal obligation of the Developer or subsequent owners of the property in the Community Facilities District. Enforcement of Special Tax payment obligations by the Community Facilities District is limited to judicial foreclosure in the Orange County Superior Court. See '"SECURITY FOR THE SERIES 2007 BONDS -Covenant for Superior Court Foreclosure." There is no assurance that the Developer or any 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 Community Facilities District on the ad valorem property tax bills sent to owners of such properties, i.e., the Developer. 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. 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 2007 Bonds. See "SECURITY FOR THE SERIES 2007 BONDS -Covenant for Superior Court Foreclosure," for a discussion of the provisions that apply, and the procedures that the Community Facilities 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 OHS WEST:260269009.2 30 special taxes and limitations on the Community Facilities District's ability to foreclose on the lien of the Special Taxes in certain circumstances. Bankruptcy The payment of Special Taxes and the ability of the Community Facilities 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 2007 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 delay would increase the likelihood of a delay or default in payment of the principal of, and interest on, the Series 2007 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. Insufficiency of Special Taxes The Act provides that if any property within the Community Facilities 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 Community Facilities 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. Disclosures to Future Purchasers The Community Facilities 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 purchaser will consider such obligation for Special Taxes in the purchase of a parcel subject to the Special Tax 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 Community Facilities District OHS WEST:260269009.2 31 may affect the willingness and ability of future owners of land within the Community Facilities 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 Community Facilities District which were entered on the Assessment Roll of the County Assessor by January 1 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 2007 BONDS -Covenant for Superior Court Foreclosure," for a discussion of the provisions which apply, and procedures which the Community Facilities District is obligated to follow, in the event of delinquency in the payment of installments of Special Taxes. Natural Disasters The Community Facilities 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 Community Facilities District could result in substantial damage to .both property and infrastructure in the Community Facilities District which, in turn, could substantially reduce the ability or willingness of the Developer or any future property owner to pay their Special Taxes when due. Payments by FDIC or Other Federal Agencies The ability of the Community Facilities District to collect the Special Taxes and interest and penalties specified by State law, and to foreclose the lien of delinquent Special Taxes, maybe 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 property tax obligations when they become due and payable and will pay claims for OHS WEST:260269009.2 32 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 Community Facilities 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 Community Facilities 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 2007 Bonds should assume that the Community Facilities District will be unable to foreclose on any parcel owned by the FDIC. As of July 31, 2007, no property in the Community Facilities District was owned by the FDIC. 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 Community Facilities 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. OHS WEST:260269009.2 33 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 Community Facilities 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 Community Facilities District. In addition, the owners of property within the Community Facilities District may, without the consent or knowledge of the Community Facilities 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 2007 BONDS - Direct and Overlapping Debt." Additional and Overlapping Debt The property in the Community Facilities District is subject to direct and overlapping tax and assessment debt as set forth herein under the caption "SECURITY FOR THE SERIES 2007 BONDS Direct and Overlapping Debt." The Developer and any subsequent owners of the property in the Community Facilities District subject to the Special Tax are required to pay the Special Taxes and any and all annual special assessments and general property tax levies. The Community Facilities District has no control over the amount of additional indebtedness that maybe 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 2007 BONDS -Direct and Overlapping Debt." A decrease in the property value in the Community Facilities District or an increase in the parity liens on property in the Community Facilities District, or both, could reduce the ability or willingness of the Developer to pay the Special Taxes on the property in the Community Facilities 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 2007 Bonds or to preserve the tax-exempt status of the Series 2007 Bonds. Bond Counsel has limited its opinion as to the enforceability of the Series 2007 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 Series 2007 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 OHS WEST:260269009.2 34 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 2007 Bonds. It may be possible, however, for voters or the Community Facilities District to reduce the Special Taxes in a manner which does not interfere with the timely repayment of the Series 2007 Bonds, but which does reduce the maximum amount of Special Taxes that maybe 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 2007 Bonds. The interpretation and application of Article XIIIC 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 2007 Bonds could become includable in gross income for purposes of federal income taxation retroactive to the date the Series 2007 Bonds were issued, as a result of acts or omissions of the Community. Facilities District in violation of the Code. Should such an event of taxability occur, the Series 2007 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. Limited Liquidity of the Series 2007 Bonds The Community Facilities District has not applied for, and does not expect to receive, a rating on the Series 2007 Bonds from any nationally recognized rating organization. This fact, coupled with the fact that the Series 2007 Bonds are secured by Special Taxes payable by one landowner, may limit the secondary market for, and therefore the liquidity of, the Series 2007 Bonds. LITIGATION At the time of delivery of and payment for the Series 2007 Bonds, the Community Facilities 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 OHS WEST:260269009.2 35 Community Facilities District threatened, against the Community Facilities District in any material respect affecting the existence of the Community Facilities 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 2007 Bonds or challenging directly or indirectly the proceedings to levy the Special Taxes or issue the Series 2007 Bonds. CONTINUING DISCLOSURE The Community Facilities District has covenanted for the benefit of the Owners of the Series 2007 Bonds to provide certain financial information and operating data relating to the Series 2007 Bonds, the Community Facilities District, ownership of the property in the Community Facilities 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 Disclosure 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 Community Facilities District's undertaking is included in Appendix E - "Forms of Continuing Disclosure Agreements." The annual reports are to be provided by the Community Facilities District not later than March 1 of each year, commencing March 1, 2008. The Community Facilities District Disclosure Reports will be filed by the Community Facilities District with each Nationally Recognized Municipal Securities Information Repository and with each State Repository, if any. 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 Community Facilities 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 Community Facilities 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 Community Facilities 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 (a "Developer Continuing Disclosure Agreement") with Union Bank of California, N.A., in its capacity as Trustee and as Dissemination Agent, the Developer has covenanted for the benefit of the Owners of the Series 2007 Bonds to provide semi-annually certain financial information and operating data relating to it, its development plans and financing plans (each a "Developer Disclosure Report"), and to provide notices of the occurrence of certain enumerated events, if material, until the Developer's obligation to so provide such information, data and notices is otherwise terminated in accordance with the provisions of the Developer Continuing Disclosure Agreement. A form of the Developer Continuing Disclosure Agreement is included in Appendix E - "Forms of Continuing Disclosure Agreements." Such information is to be provided by the Developer not later than May 1 and November 1 of each year, commencing November 1, 2007. The Developer Disclosure Reports are required to be filed by the Developer with each Nationally Recognized Municipal Securities. Information Repository and with each State Repository, if any. These covenants have been made in order to assist the Underwriter in complying with the Rule. The Developer has not 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. OHS WEST:260269009.2 36 CONCLUDING INFORMATION Legal Opinions The validity of the Series 2007 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 2007 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 2007 Bonds. Certain legal matters will be passed upon for the Underwriter by Ballard Spahr Andrews & Ingersoll, LLP, ,and for the City and the Community Facilities 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 2007 Bonds. From time to time, Orrick, Herrington & Sutcliffe LLP represents Banc of America Securities LLC on matters unrelated to the Series 2007 Bonds. Tax Exemption In the opinion of Orrick, Herrington & Sutcliffe LLP, as bond counsel to the Community Facilities 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 2007 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. Bond Counsel is of the further opinion that interest on the Series 2007 Bonds is not a specific preference item for purposes of the federal individual or corporate alternative minimum taxes, although Bond Counsel observes that such interest is 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. To the extent the issue price of any maturity of the Series 2007 Bonds is less than the amount to be paid at maturity of such Bonds (excluding amounts stated to be interest and payable at least annually over the term of such 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 2007 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 2007 Bonds is the first price at which a substantial amount of such maturity of the Series 2007 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 2007 Bonds accrues daily over the term to maturity of such Bonds on the basis of a constant interest rate compounded semiannually (with straight-line interpolations between compounding dates). The accruing original issue discount is added to the adjusted basis of such Bonds to determine taxable gain or loss upon disposition (including sale, redemption, or payment on maturity) of such Bonds. Beneficial owners of the Series OHS WEST:260269009.2 37 2007 Bonds should consult their own tax advisors with respect to the tax consequences of ownership of Series 2007 Bonds with original issue discount, including the treatment of beneficial owners who do not purchase such Bonds in the original offering to the public at the first price at which a substantial amount of such Bonds is sold to the public. Series 2007 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 tax purposes of interest on obligations such as the Series 2007 Bonds. The Community Facilities District has made representations and covenanted to comply with certain restrictions, conditions and requirements designed to ensure that interest on the Series 2007 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 2007 Bonds being included in gross income for federal income tax purposes, possibly from the date of issuance of the Series 2007 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 2007 Bonds may adversely affect the value of, or the tax status of interest on, the Series 2007 Bonds. Although Bond Counsel is of the opinion that interest on the Series 2007 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 2007 Bonds, or the accrual or receipt of interest on the Series 2007 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 2007 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. As one example, on May 21, 2007, the United States Supreme Court agreed to hear an appeal from a Kentucky state court which ruled that the United States Constitution prohibited the state from providing a tax exemption for interest on bonds issued by the state and its political subdivisions but taxing interest on obligations issued by other states and their political subdivisions. 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 2007 Bonds. Prospective purchasers of the Series 2007 Bonds should consult their own tax advisors regarding any pending or proposed federal or state tax legislation, regulations or litigation, as to which Bond Counsel expresses no opinion. OHS WEST:260269009.2 3 $ 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 2007 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 Community Facilities 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 Community Facilities District has covenanted, however, to comply with the requirements of the Code. Bond Counsel's engagement with respect to the Bonds ends with the issuance of the Bonds, and, unless separately engaged, Bond Counsel is not obligated to defend the Community Facilities District or the beneficial owners regarding the tax-exempt status of the Series 2007 Bonds in the event of an audit examination by the IRS. Under current procedures, parties other than the Community Facilities 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 oftax-exempt bonds is difficult, obtaining an independent review of IRS positions with which the Community Facilities District legitimately disagrees, may not be practicable. Any action of the IRS, including but not limited to selection of the Series 2007 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 2007 Bonds, and may cause the Community Facilities District or the beneficial owners to incur significant expense. Underwriting The Series 2007 Bonds are being purchased by Banc of America Securities LLC (the "Underwriter"). .Pursuant to a Bond Purchase Agreement between the Underwriter and the Community Facilities District (the "Purchase Agreement"), the Underwriter has agreed to purchase all of the Series 2007 Bonds for an aggregate purchase price of $ ,subject to certain conditions set forth in the Purchase Agreement. The purchase price reflects an underwriter's discount of $ and [net original issue discountlpremium 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 2007 Bonds to certain dealers (including dealers depositing Series 2007 Bonds into investment trusts), dealer banks, banks acting as agent and others at prices lower than said public offering prices. No Ratings The City has not made, and does not contemplate making, any application to any rating agency for the assignment of a rating to the Series 2007 Bonds. 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. This Official Statement is submitted only in connection with the sale of the Series 2007 Bonds by the Community Facilities District. This Official Statement does not constitute a contract with the purchasers of the Series 2007 Bonds. OHS WEST:260269009.2 39 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 Community Facilities District. CITY OF TUSTIN COMMUNITY FACILITIES DISTRICT N0.07-1 (TUSTIN LEGACY/RETAIL CENTER) By: Finance Director of the City of Tustin OHS WEST:260269009.2 40 APPENDIX A APPRAISAL OHS WEST:260269009.2 APPENDIX B RATE AND METHOD OF APPORTIONMENT OF SPECIAL TAX OHS WEST:260269009.2 APPENDIX C PROPOSED FORM OF OPINION OF BOND COUNSEL Upon delivery of the Series 2007 Bonds, Orrick, Herrington ~ Sutcliffe LLP, Bond Counsel, proposes to render its final approving opinion with respect to the Series 2007 Bonds in substantially the following form: [Date of Delivery] City of Tustin Community Facilities District No. 07-1 (Tustin Legacy/Retail Center) 300 Centennial Way Tustin, California City of Tustin Community Facilities District No. 07-1 (Tustin Legacy/Retail Center) ~ecial Tax Bonds, Series 2007 (Final Opinion) Ladies and Gentlemen: We have acted as bond counsel to the City of Tustin Community Facilities District No. 07-1 (Tustin Legacy/Retail Center) (the "Community Facilities District") in connection with the issuance by the Community Facilities District of its Special Tax Bonds, Series 2007 (the "Series 2007 Bonds"), in the aggregate principal amount of $ ,pursuant to the provisions of the Mello- Roos Community Facilities Act of 1982 (being Sections 53311 et seq. of the California Government Code) and an Indenture, dated as of 1, 2007 (the "Indenture"), by and between the Community Facilities District and Union Bank of California, N.A., as trustee (the "Trustee"). Capitalized terms not otherwise defined herein shall have the meanings ascribed thereto in the Indenture. In such connection, we have reviewed the Indenture, the Tax Certificate of the Community Facilities District, dated the date hereof (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 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 2007 Bonds has concluded OHS WEST:260269009.2 C-1 with their issuance, and we disclaim any obligation to update this 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 2007 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 2007 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 Tax 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 2007 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 2007 Bonds constitute valid and binding special obligations of the Community Facilities District, payable solely from Net Special Tax Revenues and 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 2007 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, although we observe that it is 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 2007 Bonds. Faithfully yours, OHS WEST:260269009.2 C-2 APPENDIX D SUMMARY OF INDENTURE OHS WEST:260269009.2 D-1 APPENDIX E FORMS OF CONTINUING DISCLOSURE AGREEMENTS OHS WEST:260269009.2 E-1 APPENDIX F BOOK-ENTRY ONLY SYSTEM The following description of the procedures and record-keeping with respect to beneficial ownership interests in the Series 2007 Bonds, payment of principal, interest and other payments on the Series 2007 Bonds to DTC Participants or Beneficial Owners, confirmation and transfer of beneficial ownership interests in such Series 2007 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. DTC will act as securities depository for the Series 2007 Bonds. The Series 2007 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 bond certificate for each maturity of the Series 2007 Bonds will be issued for the Series 2007 Bonds in the aggregate principal amount of such maturity, and will be deposited with DTC. DTC, the world's largest depository, is alimited-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 2 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 its participants ("Direct Participants") deposit with DTC. DTC also facilitates 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, in turn, is owned by a number of Direct Participants of DTC and Members of the National Securities Clearing Corporation, Fixed Income Clearing Corporation and Emerging Markets Clearing Corporation (NSCC, FICC and EMCC, also subsidiaries of DTCC), as well as by the New York Stock Exchange, Inc., the American Stock Exchange, LLC, and the National Association of Securities Dealers, Inc. 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 DTC and 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 the Series 2007 Bonds under the DTC system must be made by or through Direct Participants, which will receive a credit for the Series 2007 Bonds on DTC's records. The ownership interest of each actual purchaser of each Series 2007 Bond ("Beneficial Owner") is in turn to be recorded on the Direct and Indirect Participants' records. Beneficial Owners will not receive OHS WEST:260269009.2 F-1 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 transaction. Transfers of ownership interests in the Series 2007 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 Bonds, except in the event that use of the book-entry system for the Series 2007 Bonds is discontinued. To facilitate subsequent transfers, all Series 2007 Bonds deposited by Direct Participants with DTC are registered in the name of DTC's partnership nominee, Cede & Co., or such other name as maybe requested by an authorized representative of DTC. The deposit of Series 2007 Bonds with DTC and their registration in the name of Cede & Co. do not effect any change in beneficial ownership. DTC has no knowledge of the actual Beneficial Owners of the Series 2007 Bonds; DTC's records reflect only the identity of the Direct Participants to whose accounts such Bonds are credited, which may or may not be the Beneficial Owners. The 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 maybe in effect from time to time. Redemption notices shall be sent to Cede & Co. If less than all of the Series 2007 Bonds within a maturity are being redeemed, DTC's practice is to determine by lot the amount of the interest of each Direct Participant in such maturity to be redeemed. Neither DTC nor Cede & Co. (nor such other DTC nominee) will consent or vote with respect to the Series 2007 Bonds unless authorized by a Direct Participant in accordance with DTC's procedures. Under its usual procedures, DTC mails an Omnibus Proxy to the issuer of securities registered to Cede & Co. as soon as possible after the record date. The Omnibus Proxy assigns Cede & Co.'s consenting or voting rights to those Direct Participants to whose accounts the Series 2007 Bonds are credited on the record date (identified in a listing attached to the Omnibus Proxy). Principal, premium, if any, and interest payments with respect to the Series 2007 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 Community Facilities District on a payable date in accordance with their respective holdings shown on DTC 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 each Participant and not of DTC or its nominee, the Trustee, or the Community Facilities District, subject to any statutory or regulatory requirements as maybe in effect from time to time. Payment of principal and interest to Cede & Co. (or such other nominee as may be requested by an authorized representative of DTC) is the responsibility of the Trustee, disbursement of such payments to Direct Participants shall be the responsibility of DTC, and disbursement of such payments to the Beneficial Owners shall be the responsibility of Direct and Indirect Participants. OHS WEST:260269009.2 F-2 DTC may discontinue providing its services as securities depository with respect to the Bonds at any time by giving reasonable notice to the Trustee. Under such circumstances, in the event that a successor securities depository is not obtained, bond certificates are required to be printed and delivered. NOTWITHSTANDING THE FOREGOING, THE TRUSTEE, AS LONG AS A BOOK- ENTRY-ONLY SYSTEM IS USED FOR THE SERIES 2007 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 2007 BONDS CALLED FOR REDEMPTION OR OF ANY OTHER ACTION PREMISED ON SUCH NOTICE. OHS WEST:260269009.2 F-3 INDENTURE by and between . CITY OF TUSTIN COMMUNITY FACILITIES DISTRICT N0.07-1 (TUSTIN LEGACY/RETAIL CENTER) and UNION BANK OF CALIFORNIA, N.A., AS TRUSTEE Dated as of 1, 2007 Relating to City of Tustin Community Facilities District No. 07-1 (Tustin Legacy/Retail Center) Special Tax Bonds OHS West:260258353.2 TABLE OF CONTENTS ARTICLE I DEFINITIONS; EQUAL SECURITY ............................................................. Section 1.01. Definitions ........................................... 3 Section 1.02. Equal Security ................................................................................................ 11 ARTICLE II THE BONDS Section 2.01. Authorization of Bonds .................................................................................. 12 Section 2.02. Terms of Series 2007 Bonds .......................................................................... 12 Section 2.03. Transfer and Exchange of Bonds ................................................................... 13 Section 2.04. Registration Books ......................................................................................... 14 Section 2.05. Execution of Bonds ........................................................................................ 14 Section 2.06. Authentication of Bonds ................................................................................ 14 Section 2.07. Temporary Bonds ........................................................................................... 14 Section 2.08. Bonds Mutilated, Lost, Destroyed or Stolen .................................................. 14 Section 2.09. Book-Entry Bonds ......................................................................................... 15 ARTICLE III ISSUANCE OF BONDS; APPLICATION OF PROCEEDS; ADDITIONAL BONDS Section 3.01. Issuance of Series 2007 Bonds ...................................................................... 18 Section 3.02. Application of Proceeds of the Series 2007 Bonds ........................................ 18 Section 3.03. Costs of Issuance Fund .................................................................................. 18 Section 3.04. Improvement Fund ......................................................................................... 19 Section 3.05. Conditions for the Issuance of Additional Bonds .......................................... 19 Section 3.06. Procedure for the Issuance of Additional Bonds ........................................... 21 Section 3.07. Additional Bonds ........................................................................................... 21 ARTICLE IV REDEMPTION OF BONDS Section 4.01. Redemption of Series 2007 Bonds ................................................................. 23 Section 4.02. Notice of Redemption .................................................................................... 24 Section 4.03. Selection of Bonds for Redemption ............................................................... 25 Section 4.04. Partial Redemption of Bonds ......................................................................... 25 Section 4.05. Effect of Notice of Redemption ..................................................................... 26 ARTICLE V SECURITY FOR BONDS; FLOW OF FUNDS; INVESTMENTS Section 5.01. Pledge ............................................................................................................. 27 OHS West:260258353.2 1 TABLE OF CONTENTS Section 5.02. Special Tax Fund ........................................................................................... 27 Section 5.03. Bond Fund ...................................................................................................... 27 Section 5.04. Redemption Fund ........................................................................................... 28 Section 5.05. Reserve Fund ................................................................................................. 28 Section 5.06. Rebate Fund ................................................................................................... 29 Section 5.07. Administrative Expense Fund ........................................................................ 29 Section 5.08. Investment of Moneys .................................................................................... 30 ARTICLE VI COVENANTS Section 6.01. Collection of Special Tax Revenues .............................................................. 32 Section 6.02. Foreclosure ..................................................................................................... 32 Section 6.03. Punctual Payment ........................................................................................... 33 Section 6.04. Extension of Payment of Bonds ..................................................................... 33 Section 6.05. Against Encumbrances ................................................................................... 33 Section 6.06. Power to Issue Bonds and Make Pledge ........................................................ 33 Section 6.07. Accounting Records and Financial Statements .............................................. 33 Section 6.08. Tax Covenants ............................................................................................... 34 Section 6.09. Continuing Disclosure ................................................................................... 34 Section 6.10. Compliance with Act ..................................................................................... 35 Section 6.11. State Reporting ............................................................................................... 35 Section 6.12. Annual Reports to the California Debt and Investment Advisory Commission ................................................................................................... 35 Section 6.13. Non-Cash Payments of Special Taxes ........................................................... 35 Section 6.14. Reduction in Special Taxes ............................................................................ 35 Section 6.15. Further Assurances ......................................................................................... 35 ARTICLE VII EVENTS OF DEFAULT AND REMEDIES Section 7.01. Events of Default ........................................................................................... 36 Section 7.02. Foreclosure ..................................................................................................... 36 Section 7.03. Other Remedies .............................................................................................. 36 Section 7.04. Application of Net Special Tax Revenues After Default ............................... 37 Section 7.05. Power of Trustee to Enforce .......................................................................... 37 Section 7.06. Owners Direction of Proceedings .................................................................. 37 OHS West:260258353.2 11 TABLE OF CONTENTS Section 7.07. Limitation on Owners' Right to Sue ...........................................................:.. 38 Section 7.08. Absolute Obligation ....................................................................................... 38 Section 7.09. Termination of Proceedings ........................................................................... 38 Section 7.10. Remedies Not Exclusive ................................................................................ 3 8 Section 7.11. No Waiver of Default ..................................................................................... 39 ARTICLE VIII TRUSTEE Section 8.01. Duties and Liabilities of Trustee .................................................................... 40 Section 8.02. Merger or Consolidation ............................................................:................... 41 Section 8.03. Liability of Trustee ........................................................................................ 41 Section 8.04. Right to Rely on Documents .......................................................................... 42 Section 8.05. Preservation and Inspection of Documents .................................................... 43 Section 8.06. Compensation and Indemnification ............................................................... 43 ARTICLE IX MODIFICATION OR AMENDMENT Section 9.01. Amendments Permitted .................................................................................. 44 Section 9.02. Effect of Supplemental Indenture .................................................................. 45 Section 9.03. Endorsement of Bonds; Preparation of New Bonds ...................................... 45 Section 9.04. Amendment of Particular Bonds .................................................................... 45 ARTICLE X DEFEASANCE Section 10.01. Discharge of Indenture ................................................................................... 46 Section 10.02. Bonds Deemed To Have Been Paid ............................................................... 46 Section 10.03. Payment of Bonds After Discharge of Indenture ........................................... 47 ARTICLE XI MISCELLANEOUS Section 1 1.01. Special Obligations ........................................................................................ 48 Section 1 1.02. Successor Is Deemed Included in All References to Predecessor ................. 48 Section 1 1.03. Limitation of Rights ....................................................................................... 48 Section 1 1.04. Waiver of Notice; Requirement of Mailed Notice ......................................... 48 Section 1 1.05. Destruction of Bonds ..................................................................................... 48 Section 1 1.06. Severability of Invalid Provisions .................................................................. 48 Section 1 1.07. Notices ........................................................................................................... 49 OHS West:260258353.2 111 TABLE OF CONTENTS Section 11.08. Evidence of Rights of Owners ......... .............................................................. 49 Section 11.09. Disqualified Bonds ........................... .............................................................. 50 Section 11.10. Money Held for Particular Bonds .... .............................................................. 50 Section 11.11. Funds and Accounts ......................... .............................................................. 50 Section 11.12. Payment on Non-Business Days ...... .............................................................. 51 Section 11.13. Waiver of Personal Liability ............ .............................................................. 51 Section 11.14. Interpretation .................................... .............................................................. 51 Section 11.15. Conflict with Act .............................. .............................................................. 51 Section 11.16. Conclusive Evidence of Regularity . .............................................................. 51 Section 11.17. Governing Laws ............................... .............................................................. 51 Section 11.18. Execution in Several Counterparts ... .............................................................. 51 EXHIBIT A -FORM OF SERIES 2007 BOND ........... ............................................................ A-1 OHS West:260258353.2 1V INDENTURE THIS INDENTURE (this "Indenture"), dated as of 1, 2007, is by and between CITY OF TUSTIN COMMUNITY FACILITIES ~ DISTRICT NO. 07-1 (TUSTIN LEGACY/RETAIL CENTER), a community facilities district organized and existing under the laws of the State of California (the "Community Facilities District"), and 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 desires to provide for the issuance of City of Tustin Community Facilities District No. 07-1 (Tustin Legacy/Retail Center) Special Tax Bonds, Series 2007 (the "Series 2007 Bonds"), in the aggregate principal amount of not to exceed $ ; WHEREAS, the Community Facilities District desires to provide for the issuance of additional bonds (the "Additional Bonds") for refunding purposes, payable from the Special Taxes on a parity with the Series 2007 Bonds (the Series 2007 Bonds and any such Additional Bonds being collectively referred to as the "Bonds"); WHEREAS, in order to provide for the authentication and delivery of the Bonds, to establish and declare the terms and conditions upon which the 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 Indenture; and WHEREAS, the Community Facilities District has determined that all acts and proceedings required by law necessary to make the 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 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 Indenture has been in all respects duly authorized; NOW, THEREFORE, THIS INDENTURE WITNESSETH, that in order to secure the payment of the principal of, premium, if any, and the interest on all Bonds at any time issued and outstanding under this Indenture, according to their tenor, and to secure the performance and observance of all the covenants and conditions therein and herein set forth, and to declare the terms and conditions upon and subject to which the Bonds are to be issued, and in consideration of the premises and of the mutual covenants herein contained and of the purchase and acceptance of the Bonds by the owners thereof, and for other valuable consideration, the receipt whereof is hereby OHS West:260258353.2 acknowledged, the Community Facilities District does hereby covenant and agree with the Trustee, for the benefit of the respective owners from time to time of the Bonds, as follows: OHS West:260258353.2 ARTICLE I DEFINITIONS; EQUAL SECURITY Section 1.01. 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. "Act" means the Mello-Roos Community Facilities Act of 1982, constituting Sections 53311 et seq. of the California Government Code. "Additional Bonds" means Bonds other than Series 2007 Bonds issued hereunder in accordance with the provisions of Sections 3.05 and 3.06. "Administrative Expense Fund" means the fund by that name established and held by the Trustee pursuant to Section 5.07. "Administrative Expenses" means costs directly related to the administration of the Community Facilities 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 this Indenture, the costs incurred by the Community Facilities District in complying with the disclosure provisions of any continuing disclosure undertaking and this Indenture, including those related to public inquiries regarding the Special Tax and disclosures to Owners, the costs of the Community Facilities District related to an appeal of the Special Tax, any amounts required to be rebated to the federal government in order for the Community Facilities District to comply with Section 6.08, an allocable share of the salaries of the staff of the City providing services on behalf of the Community Facilities 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. "Annual Debt Service" means, for each Bond Year, the sum of (a) the interest due on the Outstanding Bonds in such Bond Year, assuming that the Outstanding Bonds are retired as scheduled (including by reason of mandatory sinking fund redemptions), and (b) the principal amount of the Outstanding Bonds due in such Bond Year (including any mandatory sinking fund redemptions due in such Bond Year). "Auditor" means the auditor of the County of Orange. "Authorized Representative" means, with respect to the Community Facilities District, the Finance Director of the City, and any other Person designated as an Authorized Representative of the Community Facilities District in a Written Certificate of the Community Facilities District filed with the Trustee. "Average Annual Debt Service" means the average of the Annual Debt Service for all Bond Years, including the Bond Year in which the calculation is made. OHS West:260258353.2 3 "Bond Counsel" means a firm of nationally recognized bond counsel selected by the Community Facilities District. "Bond Fund" means the fund by that name established and held by the Trustee pursuant to Section 5.03. "Bond Year" means each twelve-month period beginning on September 2 in each year and extending to the next succeeding September 1, both dates inclusive, except that the first Bond Year shall begin on the Closing Date and end on September 1, 2008. "Bonds" means the City of Tustin Community Facilities District No. 07-1 (Tustin Legacy/Retail Center) Special Tax Bonds issued hereunder, and includes the Series 2007 Bonds and any Additional Bonds. "Book-Entry Bonds" means the Bonds of a Series registered in the name of the nominee of DTC, or any successor securities depository for such Series of Bonds, as the registered owner thereof pursuant to the terms and provisions of Section 2.09. "Business Day" means a day which is not (a) a Saturday, Sunday or legal holiday in the State of California, (b) a day on which banking institutions in the State of California, or in any state in which the Office of the Trustee is located, are required or authorized by law (including executive order) to close, or (c) a day on which the New York Stock Exchange is closed. "Cede & Co." means Cede & Co., the nominee of DTC, and any successor nominee of DTC with respect to a Series of Book-Entry Bonds. "City "means the City of Tustin, a general law city organized and existing under the laws of the State of California, and any successor thereto. "City Council" means the City Council of the City. "Closing Date" means the date upon which the Series 2007 Bonds are delivered to the Original Purchaser, being , 2007. "Code" means the Internal Revenue Code of 1986. "Community Facilities District" means City of Tustin Community Facilities District No. 07-1 (Tustin Legacy/Retail Center), a community facilities district organized and existing under the laws of the State of California, and any successor thereto. "Costs of Issuance" means all items of expense directly or indirectly payable by or reimbursable to the Community Facilities District relating to the authorization, issuance, sale and delivery of the Bonds, including but not limited to printing expenses, rating agency fees, filing and recording fees, initial fees, expenses and charges of the Trustee and its counsel, including the Trustee's first annual administrative fee, fees, charges and disbursements of attorneys, financial advisors, accounting firms, consultants and other professionals, fees and charges for preparation, execution and safekeeping of the Bonds and any other cost, charge or fee in connection with the original issuance of the Bonds. OHS West:260258353.2 4 "Costs of Issuance Fund" means the fund by that name established and held by the Trustee pursuant to Section 3.03. "Developer" means Vestar/Kimco Tustin, L.P., a limited partnership organized and existing under the laws of the State of California, and its successors. "Developer Continuing Disclosure Agreement" means the Continuing Disclosure Agreement, dated as of the date hereof, by and between the Developer and the Trustee, as originally executed and as it maybe amended from time to time in accordance with the terms thereof. "District Continuing Disclosure Agreement" means the Continuing Disclosure Agreement, dated as of the date hereof, by and between the Community Facilities District and the Trustee, as originally executed and as it maybe amended from time to time in accordance with the terms thereof. "DTC" means The Depository Trust Company, alimited-purpose trust company organized under the laws of the State of New York, and its successors as securities depository for any Series of Book-Entry Bonds, including any such successor appointed pursuant to Section 2.09. "Federal Securities" means (a) direct general obligations of the United States of America (including obligations issued or held in book entry form on the books of the Department of the Treasury of the United States of America), and (b) obligations of any agency, department or instrumentality of the United States of America the timely payment of principal of and interest on which are fully guaranteed by the United States of America. "Fiscal Year" means the period beginning on July 1 of each year and ending on the next succeeding June 30, or any other twelve-month period hereafter selected and designated as the official fiscal year period of the Community Facilities District. "Improvement Fund" means the fund by that name established and held by the Trustee pursuant to Section 3.04. "Indenture" means this Indenture, as originally executed and as it may be amended or supplemented from time to time by any Supplemental Indenture. "Independent Consultant" means any consultant or firm of such consultants selected by the Community Facilities District and who, or each of whom (a) is generally recognized to be qualified in the financial consulting field, (b) is in fact independent and not under the domination of the Community Facilities District or the City, (c) does not have any substantial interest, direct or indirect, with or in the Community Facilities District or the City, or any owner of real property in the Community Facilities District, or any real property in the Community Facilities District, and (d) is not connected with the Community Facilities District or the City as an officer or employee thereof, but who may be regularly retained to make reports to the Community Facilities District or the City. "Infrastructure Agreement" means the Infrastructure Construction and Payment Agreement, dated as of the March 2005, as amended and supplemented by the First Amendment to Infrastructure Construction and Payment Agreement, dated , 2007 and OHS West:260258353.2 5 the Second Amendment to Infrastructure Construction and Payment Agreement, dated as of 1, 2007, each by and between the City and the Developer, as the same maybe amended from time to time in accordance with its terms. "Interest Payment Dates" means March 1 and September 1 of each year, commencing March 1, 2008, so long as any Bonds remain Outstanding. "Maximum Annual Debt Service" means the largest Annual Debt Service for any Bond Year, including the Bond Year the calculation is made. "Moody's" means Moody's Investors Service, Inc., a corporation duly organized and existing under the laws of the State of Delaware, and its successors and assigns, except that if such entity shall be dissolved or liquidated or shall no longer perform the functions of a securities rating agency, then the term "Moody's" shall be deemed to refer to any other nationally recognized securities rating agency selected by the Community Facilities District. "Net Special Tax Revenues" means Special Tax Revenues, less amounts required to pay Administrative Expenses. "Office of the Trustee" means the principal corporate trust office of the Trustee in Los Angeles, California, or such other office as maybe specified to the Community Facilities District by the Trustee in writing. "Ordinance" means any ordinance adopted by the City Council levying the Special Taxes. "Original Purchaser" means the original purchaser of the Series 2007 Bonds from the Community Facilities District. "Outstanding" means, when used as of any particular time with reference to Bonds, subject to the provisions of Section 11.09, all ~ Bonds theretofore, or thereupon being, authenticated and delivered by the Trustee under this Indenture except (a) Bonds theretofore canceled by the Trustee or surrendered to the Trustee for cancellation, (b) Bonds with respect to which all liability of the Community Facilities District shall have been discharged in accordance with Section 10.01, including Bonds (or portions of Bonds) disqualified under Section 11.09, and (c) Bonds for the transfer or exchange of or in lieu of or in substitution for which other Bonds shall have been authenticated and delivered by the Trustee pursuant to this Indenture. "Owner" means, with respect to a Bond, the Person in whose name. such Bond is registered on the Registration Books. "Participant" means any entity which is recognized as a participant by DTC in the book- entry system of maintaining records with respect to Book-Entry Bonds. "Participating Underwriter" has the meaning ascribed thereto in the District Continuing Disclosure Agreement and each Developer Continuing Disclosure Agreement. "Permitted Investments" means the following, to the extent that such securities are otherwise eligible legal investments of the Community Facilities District: OHS West:260258353.2 6 (a) Federal Securities; (b) any of the following direct or indirect obligations of the following agencies of the United States of America: (i) direct obligations of the Export-Import Bank; (ii) certificates of beneficial ownership issued by the Farmers Home Administration; (iii) participation certificates issued by the General Services Administration; (iv) mortgage-backed bonds or pass-through obligations issued and guaranteed by the Government National Mortgage Association, the Federal National Mortgage Association, the Federal Home Loan Mortgage Corporation or the Federal Housing Administration; (v) project notes issued by the United States Department of Housing and Urban Development; and (vi) public housing notes and bonds guaranteed by the United States of America; (c) interest-bearing demand deposit accounts or time deposits (including certificates of deposit) in a federal or state chartered bank (including the Trustee and its affiliates) or a state licensed branch of a foreign bank or a state or federal association (as defined in Section 5102 of the California Financial Code), provided that (i) the unsecured short-term obligations of such commercial bank or savings and loan association shall be rated Al or better by S&P, or (ii) such demand deposit accounts or time deposits shall be fully insured by the Federal Deposit Insurance Corporation; (d) commercial paper rated in the highest short-term rating category by S&P, issued by corporations which are organized and operating within the United States of America, and which matures not more than 180 days following the date of investment therein; (e) bankers acceptances, consisting of bills of exchange or time drafts drawn on and accepted by a commercial bank whose short-term obligations are rated in the highest short-term rating category by S&P, which mature not more than 270 days following the date of investment therein; (f) obligations the interest on which is excludable from gross income pursuant to Section 103 of the Code and which are rated A or better by S&P; (g) obligations issued by any corporation organized and operating within the United States of America having assets in excess of $500,000,000, which obligations are rated A or better by S&P; (h) money market funds which are rated Am or better by S&P, including funds for which the Trustee and its affiliates provide investment advisory or other management services; (i) an investment agreement or guaranteed investment contract with, or guaranteed by, a financial institution or corporation, the long-term unsecured obligations of which are or, in the case of an insurance company, the long term financial strength of which is, rated ``AA-" or -better by S&P at the time of initial investment; provided, that the investment agreement shall be subject to a downgrade provision with at least the following requirements: OHS West:260258353.2 7 (1) the agreement shall provide that within ten Business Days after the financial institution's long-term unsecured credit rating has been withdrawn, suspended, or reduced below "AA-" by S&P (such events referred to as "rating downgrades") the financial institution shall give notice to the Community Facilities District and the Trustee and, within such ten-day period, and for as long as the rating downgrade is in effect, shall deliver in the name of the Community Facilities District or the Trustee Federal Securities with an aggregate current market value equal to at least 105% of the principal amount of the investment agreement invested with the financial institution at that time, and shall deliver additional Federal Securities as needed to maintain an aggregate current market value equal to at least 105% of the principal amount of the investment agreement within three days after each evaluation date, which shall be at least weekly, and (2) the agreement shall provide that, if the financial institution's long- term unsecured credit rating is reduced below "A-" by S&P, the financial institution shall give notice of the downgrade to the Community Facilities District and the Trustee within five Business Days, and the Trustee may, upon five Business Days' written notice to the financial institution, withdraw all amounts invested pursuant to the investment agreement, with accrued but unpaid interest thereon to the withdrawal date, and terminate the agreement. (j) repurchase agreements with (i) any domestic bank, or domestic branch of a foreign bank, the long-term debt of which is rated at least "A" by S&P and Moody's; (ii) any broker-dealer with "retail customers" or a related affiliate thereof, which broker- dealer has, or the parent company (which guarantees the provider) of which has, long- term debt rated at least "A" by S&P and Moody's, which broker-dealer falls under the jurisdiction of the Securities Investors Protection Corporation; or (iii) any other entity (or entity whose obligations are guaranteed by an affiliate or parent company) rated at least "A" by S&P and Moody's, provided that: (1) the market value of the collateral is maintained at levels and upon such conditions as would be acceptable to S&P and Moody's to maintain an "A" rating in an "A" rated structured financing (with a market value approach); (2) the Trustee or a third party acting solely as agent therefor or for the Community Facilities District (the "Holder of the Collateral") has possession of the collateral or the collateral has been transferred to the Holder of the Collateral in accordance with applicable state and federal laws (other than by means of entries on the transferor's books); (3) the repurchase agreement shall state and an opinion of counsel shall be rendered at the time such collateral is delivered that the Holder of the Collateral has a perfected first priority security interest in the collateral, any substituted collateral and all proceeds thereof (in the case of bearer securities, this means the Holder of the Collateral is in possession); OHS West:260258353.2 g (4) all other requirements of S&P and Moody's in respect of repurchase agreements shall be met; and (5) the repurchase agreement shall provide that if during its term the provider's rating by either S&P or Moody's is withdrawn or suspended or falls below "A-" or "A3" respectively, the provider must immediately notify the Community Facilities District and Trustee and the provider must, at the direction of the Community Facilities District or the Trustee, within 10 days of receipt of such direction, repurchase all collateral and terminate the agreement, with no penalty or premium to the Community Facilities District or Trustee. "Person" means an individual, corporation, limited liability company, firm, association, partnership, trust, or other legal entity or group of entities, including a governmental entity or any agency or political subdivision thereof. "Project" means the facilities authorized to be financed by the Community Facilities District, as more particularly described in the Resolution of Formation. "Rate and Method" means the rate and method of apportionment of the Special Taxes approved by the qualified electors of the Community Facilities District. "Rebate Fund" means the fund by that name established and held by the Trustee pursuant to Section 5.06. "Rebate Requirement" has the meaning ascribed thereto in the Tax Certificate. "Record Date" means the 15th calendar day of the month preceding each Interest Payment Date, whether or not such day is a Business Day. "Redemption Fund" means the fund by that name established and held by the Trustee pursuant to Section 5.04. "Redemption Price" means the aggregate amount of principal of and premium, if any, on the Bonds upon the redemption thereof pursuant hereto. "Registration Books" means the records maintained by the Trustee for the registration of ownership and registration of transfer of the Bonds pursuant to Section 2.04. "Representation Letter" means the Letter of Representations from the Community Facilities District to DTC, or any successor securities depository for any Series of Book-Entry Bonds, in which the Community Facilities District makes certain representations with respect to issues of its securities for deposit by DTC or such successor depository. "Reserve Fund" means the fund by that name established and held by the Trustee pursuant to Section 5.05. "Reserve Requirement" means, as of the date of any calculation, the least of (a) 10% of the original aggregate principal amount of the Bonds (excluding Bonds refunded with the proceeds OHS West:260258353.2 9 of subsequently issued Bonds), (b) Maximum Annual Debt Service, and (c) 125% of Average Annual Debt Service. "Resolution of Formation" means Resolution No. 07-44, adopted by the City Council on June 19, 2007, as originally adopted and as it maybe amended or supplemented from time to time. "S&P" means Standard & Poor's Ratings Services, a division of The McGraw-Hill Companies, Inc., a corporation duly organized and existing under the laws of the State of New York, and its successors and assigns, except that if such entity shall be dissolved or liquidated or shall no longer perform the functions of a securities rating agency, then the term "S&P" shall be deemed to refer to any other nationally recognized securities rating agency selected by the Community Facilities District. "Series" means the initial series of Bonds executed, authenticated and delivered on the date of initial issuance of the Bonds and identified pursuant to this Indenture as the Series 2007 Bonds, and any Additional Bonds issued pursuant to a Supplemental Indenture and identified as a separate Series of Bonds. "Series 2007 Bonds" means the City of Tustin Community Facilities District No. 07=1 (Tustin LegacylRetail Center) Special Tax Bonds, Series 2007, issued hereunder. "Special Tax Fund" means the fund by that name established and held by the Trustee pursuant to Section 5.02. "Special Tax Revenues" means the proceeds of the Special Taxes received by or on behalf of the Community Facilities District, including any 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. "Special Taxes" means the special taxes described in the Rate and Method as "Special Tax A" levied within the Community Facilities District pursuant to the Act, the Ordinance and this Indenture. "Supplemental Indenture" means any supplemental indenture amendatory of or supplemental to this Indenture, but only if and to the extent that such Supplemental Indenture is specifically authorized hereunder. "Tax Certificate" means the Tax Certificate executed by the Community Facilities District at the time of issuance of the Series 2007 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. "Trustee" means Union Bank of California, N.A., a national banking association organized and existing under the laws of the United States of America, or any successor thereto as Trustee hereunder, appointed as provided herein. OHS West:260258353.2 10 "Written Certificate" and "Written Request" of the Community Facilities District mean, respectively; a written certificate or written request signed in the name of the Community Facilities District by an Authorized Representative. Any such certificate or request may, but need not, be combined in a single instrument with any other instrument, opinion or representation, and the two or more so combined shall be read and construed as a single instrument. Section 1.02. Equal Security. In consideration of the acceptance of the Bonds by the Owners thereof, this Indenture shall be deemed to be and shall constitute a contract among the Community Facilities District, the Trustee and the Owners from time to time of all Bonds authorized, executed, issued and delivered hereunder and then Outstanding to secure the full and final payment of the principal of, premium, if any, and interest on all Bonds which may from time to time be authorized, executed, issued and delivered hereunder, subject to the agreements, conditions, covenants and provisions contained herein; and all agreements and covenants set forth herein to be performed by or on behalf of the Community Facilities District shall be for the equal and proportionate benefit, protection and security of all Owners of the Bonds without distinction, preference or priority as to security or otherwise of any Bonds over any other Bonds by reason of the number or date thereof or the time of authorization, sale, execution, issuance or delivery thereof or for any cause whatsoever, except as expressly provided herein or therein. OHS West:260258353.2 11 ARTICLE II THE BONDS Section 2.01. Authorization of Bonds. The Community Facilities District hereby authorizes the issuance of the Bonds under and subject to the terms of this Indenture, the Act and other applicable laws of the State of California. The Bonds may consist of one or more Series of varying denominations, dates, maturities, interest rates and other provisions, subject to the provisions and conditions contained herein. The Bonds shall be designated generally as the "City of Tustin Community Facilities District No. 07-1 (Tustin Legacy/Retail Center) Special Tax Bonds," each Series thereof to bear such additional designation as may be necessary or appropriate to distinguish such Series from every other Series of Bonds. Section 2.02. Terms of Series 2007 Bonds. (a) The Series 2007 Bonds shall be designated "City of Tustin Community Facilities District No. 07-1 (Tustin Legacy/Retail Center) Special Tax Bonds, Series 2007." The aggregate principal amount of Series 2007 Bonds that may be Outstanding under this Indenture shall not exceed $ ,except as may be otherwise provided in Section 2.08. (b) The Series 2007 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 2007 Bond shall have more than one maturity date. The Series 2007 Bonds shall be dated as of the 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 2007 Bonds shall be payable from the Interest Payment Date next preceding the date of authentication thereof unless (i) a Series 2007 Bond is authenticated on or OHS West:260258353.2 12 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 2007 Bond is authenticated on or before the first Record Date, in which event interest thereon shall be payable from the Closing Date, or (iii) interest on any Series 2007 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 Owners of Series 2007 Bond 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 2007 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 2007 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 2007 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 2007 Bond shall be made only upon presentation and surrender of such Bond at the Office of the Trustee. (e) The Series 2007 Bonds shall be subject to redemption as provided in Article IV. (f) The Series 2007 Bonds shall be in substantially the form set forth in Exhibit A hereto, with appropriate or necessary insertions, omissions and variations as permitted or required hereby. Section 2.03. Transfer and Exchange of Bonds-. Any Bond may, in accordance with its terms, be transferred upon the Registration Books by the Person in whose name it is registered, in person or by his duly authorized attorney, upon surrender of such Bond for cancellation, accompanied by delivery of a written instrument of transfer, duly executed in a form acceptable to the Trustee. Whenever any Bond or Bonds shall be surrendered for transfer, the Community Facilities District shall execute and the Trustee shall authenticate and shall deliver a new Bond or Bonds of the same Series and maturity in a like aggregate principal amount, in any authorized denomination. The Trustee shall require the Owner requesting such transfer to pay any tax or other governmental charge required to be paid with respect to such transfer. The Bonds may be exchanged at the Office of the Trustee for a like aggregate principal amount of Bonds of the same Series and maturity of other authorized denominations. The Trustee shall require the payment by the Owner requesting such exchange of any tax or other governmental charge required to be paid with respect to such exchange. The Trustee shall not be obligated to make any transfer or exchange of Bonds of a Series pursuant to this Section during the period established by the Trustee for the selection of Bonds of such Series for redemption, or with respect to any Bonds of such Series selected for redemption. OHS West:260258353.2 ~ 13 Section 2.04. Registration Books. The Trustee shall keep or cause to be kept, at the Office of the Trustee, sufficient records for the registration and transfer of ownership of the Bonds, which shall be open to inspection during regular business hours and upon reasonable notice by the Community Facilities District; and, upon presentation for such purpose, the Trustee shall, under such reasonable regulations as it may prescribe, register or transfer or cause to be registered or transferred, on such records, the ownership of the Bonds as hereinbefore provided. Section 2.05. Execution of Bonds. The Bonds shall be executed in the name and on behalf of the Community Facilities District with the manual or facsimile signature of the Mayor of the City attested by the manual or facsimile signature of the City Clerk of the City. The Bonds shall then be delivered to the Trustee for authentication by it. In case any of such officers of the City who shall have signed or attested any of the Bonds shall cease to be such officers before the Bonds so signed or attested shall have been authenticated or delivered by the Trustee, or issued by the Community Facilities District, such Bonds may nevertheless be authenticated, delivered and issued and, upon such authentication, delivery and issue, shall be as binding upon the Community Facilities District as though those who signed and attested the same had continued to be such officers, and also any Bonds may be signed and attested on behalf of the Community Facilities District by such Persons as at the actual date of execution of such Bonds shall be the proper officers of the City although at the nominal date of such Bonds any such Person shall not have been such officer of the City. Section 2.06. Authentication of Bonds. Only such of the Bonds as shall bear thereon a certificate of authentication substantially in the form as that set forth in Exhibit A hereto for the Series 2007 Bonds, manually executed by the Trustee, shall be valid or obligatory for any purpose or entitled to the benefits of this Indenture, and such certificate of or on behalf of the Trustee shall be conclusive evidence that the Bonds so authenticated have been duly executed, authenticated and delivered hereunder and are entitled to the benefits of this Indenture. Section 2.07. Temporary Bonds. The Bonds of a Series may be issued in temporary form exchangeable for definitive Bonds of such Series when ready for delivery. Any temporary Bonds maybe printed, lithographed or typewritten, shall be of such authorized denominations as may be determined by the Community Facilities District, shall be in fully registered form without coupons and may contain such reference to any of the provisions of this Indenture as may be appropriate. Every temporary Bond shall be executed by the Community Facilities District and authenticated by the Trustee upon the same conditions and in substantially the same manner as the definitive Bonds. If the Community Facilities District issues temporary Bonds of a Series it shall execute and deliver definitive Bonds of such Series as promptly thereafter as practicable, and thereupon the temporary Bonds of such Series may be surrendered, for cancellation, at the Office of the Trustee and the Trustee shall authenticate and deliver in exchange for such temporary Bonds an equal aggregate principal amount of definitive Bonds of such Series and maturities in authorized denominations. Until so exchanged, the temporary Bonds of such Series shall be entitled to the same benefits under this Indenture as definitive Bonds of such Series authenticated and delivered hereunder. Section 2.08. Bonds Mutilated, Lost, Destroyed or Stolen. If any Bond shall become mutilated, the Community Facilities District, at the expense of the Owner of said Bond, shall execute, and the Trustee shall thereupon authenticate and deliver, a new Bond of like tenor and OHS West:260258353.2 14 Series in exchange and substitution for the Bond so mutilated, but only upon surrender to the Trustee of the Bond so mutilated. Every mutilated Bond so surrendered to the Trustee shall be canceled by it and delivered to, or upon the order of, the Community Facilities District. If any Bond shall be lost, destroyed or stolen, evidence of such loss, destruction or theft may be submitted to the Trustee and, if such evidence and indemnity satisfactory to the Trustee shall be given, the Community Facilities District, at the expense of the Owner, shall execute, and the Trustee shall thereupon authenticate and deliver, a new Bond of like tenor and Series in lieu of and in replacement for the Bond so lost, destroyed or stolen (or if any such Bond shall have matured or shall have been selected for redemption, instead of issuing a replacement Bond, the Trustee may pay the same without surrender thereof). The Community Facilities District may require payment by the Owner of a sum not exceeding the actual cost of preparing each replacement Bond issued under this Section and of the expenses which may be incurred by the Community Facilities District and the Trustee. Any Bond of a Series issued under the provisions of this Section in lieu of any Bond of such Series alleged to be lost, destroyed or stolen shall constitute an original additional contractual obligation on the part of the Community Facilities District whether or not the Bond so alleged to be lost, destroyed or stolen be at any time enforceable by anyone, and shall be entitled to the benefits of this Indenture with all other Bonds of such Series secured by this Indenture. Section 2.09. Book-Entry Bonds. (a) Prior to the issuance of a Series of Bonds, the Community Facilities District may provide that such Series of Bonds shall initially be issued as Book-Entry Bonds and, in such event, the Bonds of such Series for each maturity shall be in the form of a separate single fully registered Bond (which may be typewritten). The Series 2007 Bonds shall initially be issued as Book-Entry Bonds. Except as provided in subsection (c) of this Section, the registered Owner of all of the Book-Entry Bonds shall be DTC and the Book-Entry Bonds shall be registered in the name of Cede & Co., as nominee of DTC. Notwithstanding anything to the contrary contained in this Indenture, payment of interest with respect to any Book-Entry Bond registered as of each Record Date in the name of Cede & Co. shall be made by wire transfer of same-day funds to the account of Cede & Co. on the payment date for the Book-Entry Bonds at the address indicated on the Record Date for Cede & Co. in the Registration Books or as otherwise provided in the Representation Letter. (b) The Trustee and the Community Facilities District may treat DTC (or its nominee) as the sole and exclusive Owner of the Book-Entry Bonds registered in its name for the purposes of payment of the principal, premium, if any, or interest with respect to the Book-Entry Bonds, selecting the Book-Entry Bonds or portions thereof to be redeemed, giving any notice permitted or required to be given to Owners of Book-Entry Bonds under this Indenture, registering the transfer of Book-Entry Bonds, obtaining any consent or other action to be taken by Owners of Book-Entry Bonds and for all other purposes whatsoever, and neither the Trustee nor the Community Facilities District shall be affected by any notice to the contrary. Neither the Trustee nor the Community Facilities District shall have any responsibility or obligation to any Participant, any person claiming a beneficial ownership interest in the Book-Entry Bonds under or through DTC or any Participant, or any other person which is not shown on the Registration Books as being an Owner, with respect to the accuracy of any records maintained by DTC or any Participant, the payment by DTC or any Participant of any amount in respect of the principal, OHS West:260258353.2 1 S premium, if any, or interest with respect to the Book-Entry Bonds, any notice which is permitted or required to be given to Owners of Book-Entry Bonds under this Indenture, the selection by DTC or any Participant of any person to receive payment in the event of a partial redemption of the Book-Entry Bonds, or any consent given or other action taken by DTC as Owner of Book- Entry Bonds. The Trustee shall pay all principal, premium, if any and interest with respect to the Book-Entry Bonds, only to DTC, and all such payments shall be valid and effective to fully satisfy and discharge the Community Facilities District's obligations with respect to the principal, premium, if any, and interest with respect to the Book-Entry Bonds to the extent of the sum or sums so paid. Except under the conditions of subsection (c) of this Section, no person other than DTC shall receive an executed Book-Entry Bond for each separate stated maturity. Upon delivery by DTC to the Trustee of written notice to the effect that DTC has determined to substitute a new nominee in place of Cede & Co., and subject to the provisions herein with respect to record dates, the term "Cede & Co." in this Indenture shall refer to such new nominee of DTC. (c) In the event (i) DTC, including any successor as securities depository for a Series of Bonds, determines not to continue to act as securities depository for such Series of Bonds, or (ii) the Community Facilities District determines that the incumbent securities depository shall no longer so act, and delivers a written certificate to the Trustee to that effect, then the Community Facilities District will discontinue the book-entry system with the incumbent securities depository for such Series of Bonds. If the Community Facilities District determines to replace the incumbent securities depository for such Series of Bonds with another qualified securities depository, the Community Facilities District shall prepare or direct the preparation of a new single, separate fully registered Bond of such Series for the aggregate outstanding principal amount of Bonds of such Series of each maturity, registered in the name of such successor or substitute qualified securities depository, or its nominee, or make such other arrangement acceptable to the Community Facilities District, the Trustee and the successor securities depository for the Bonds of such Series as are not inconsistent with the terms of this Indenture. If the Community Facilities District fails to identify another qualified successor securities depository for such Series of Bonds to replace the incumbent securities depository, then the Bonds of such Series shall no longer be restricted to being registered in the Registration Books in the name of the incumbent securities depository or its nominee, but shall be registered in whatever name or names the incumbent securities depository for such Series of Bonds, or its nominee, shall designate. In such event the Community Facilities District shall execute, and deliver to the Trustee, a sufficient quantity of Bonds of such Series to carry out the transfers and exchanges provided in Sections 2.03, 2.07 and 2.08. All such Bonds of such Series shall be in fully registered form in denominations authorized by this Indenture. (d) Notwithstanding any other provision of this Indenture to the contrary, so long as any Book-Entry Bond is registered in the name of DTC, or its nominee, all payments with respect to the principal, premium, if any, and interest with respect to such Book-Entry Bond and all notices with respect to such Book-Entry Bond shall be made and given, respectively, as provided in the Representation Letter. (e) In connection with any notice or other communication to be provided to Owners of Book-Entry Bonds pursuant to this Indenture by the Community Facilities District or the Trustee with respect to any consent or other action to be taken by Owners, the Community OHS West:260258353.2 16 Facilities District or the Trustee, as the case may be, shall establish a record date for such consent or other action and give DTC notice of such record date not less than 15 calendar days in advance of such record date to the extent possible. OHS West:260258353.2 17 ARTICLE III ISSUANCE OF BONDS; APPLICATION OF PROCEEDS; ADDITIONAL BONDS Section 3.01. Issuance of Series 2007 Bonds. The Community Facilities District shall, on or before the Closing Date, execute the Series 2007 Bonds and deliver the same to the Trustee. The Trustee shall, on the Closing Date, authenticate the Series 2007 Bonds and deliver the Series 2007 Bonds to the Original Purchaser upon receipt of a Written Request of the Community Facilities District and upon receipt of the purchase price therefor. Section 3.02. Application of Proceeds of the Series 2007 Bonds. On the Closing Date, the proceeds of the sale of the Series 2007 Bonds received by the Trustee, $ , shall be deposited by the Trustee as follows: (a) the Trustee shall deposit the amount of $ in the Reserve Fund, which is equal to the Reserve Requirement; (b) the Trustee shall deposit the amount of $ in the Costs of Issuance Fund; and (c) the Trustee shall deposit the amount of $ in the Improvement Fund. Section 3.03. Costs of Issuance Fund. The Trustee shall establish and maintain a separate fund designated the "Costs of Issuance Fund." On the Closing Date, the Trustee shall deposit in the Costs of Issuance Fund the amount required to be deposited therein pursuant to Section 3.02. The moneys in the Costs of Issuance Fund shall be used and withdrawn by the Trustee from time to time to pay the Costs of Issuance upon submission of a Written Request of the Community Facilities District stating (a) the Person to whom payment is to be made, (b) the amount to be paid, (c) the purpose for which the obligation was incurred, (d) that such payment is a proper charge against the Costs of Issuance Fund, and (e) that such amounts have not been the subject of a prior disbursement from the Costs of Issuance Fund, in each case together with a statement or invoice for each amount requested thereunder. On the date that is six months after the Closing Date, the Trustee shall (i) if the Improvement Fund has not been closed in accordance with Section 3.04(c), transfer from the Costs of Issuance Fund to the Improvement Fund the amount remaining on deposit in the Costs of Issuance Fund on such date, and (ii) if the Improvement Fund has been closed in accordance with Section 3.04(c), transfer from the Costs of Issuance Fund to the Bond Fund the amount remaining on deposit in the Costs of Issuance Fund on such date. Upon making such transfer or transfers, as the case maybe, the Costs of Issuance Fund shall be closed. If the Costs of Issuance Fund has been closed in accordance with the provisions hereof, such Fund shall be reopened and reestablished by the Trustee in connection with the issuance of any Additional Bonds, if so provided in the Supplemental Indenture pursuant to which such Additional Bonds are issued. There shall be deposited in the Cost of Issuance Fund the portion, if any, of the proceeds of the sale of any Additional Bonds required to be deposited therein under the Supplemental Indenture pursuant to which such Additional Bonds are issued. OHS West:260258353.2 18 Section 3.04. Improvement Fund. (a) The Trustee shall establish and maintain a separate fund designated the "Improvement Fund." On the Closing Date, the Trustee shall deposit in the Improvement Fund the amount required to be deposited therein pursuant to Section 3.02. (b) The moneys in the Improvement Fund shall be used and withdrawn by the Trustee from time to time to pay the costs of the Project upon submission to the Trustee of a Written Request of the Community Facilities District stating (i) the Person to whom payment is to be made, (ii) the amount to be paid, (iii) the purpose for which the obligation was incurred, (iv) that such payment constitutes a cost of the Project and is a proper charge against the Improvement Fund, (v) that such amounts have not been the subject of a prior disbursement from the Improvement Fund, and (vi) whether or not such costs of the Project are to be paid pursuant to the Infrastructure Agreement, in each case together with a statement or invoice for each amount requested thereunder. (c) Upon the filing of a Written Certificate of the Community Facilities District stating (i) that the portion of the Project to be financed from the Improvement Fund has been completed and that all costs of such Project have been paid, or (ii) that such portion of the Project has been substantially completed and that all remaining costs of such portion of the Project have been determined and specifying the amount to be retained therefor, the Trustee shall (A) if the amount remaining in the Improvement Fund (less any such retention) is equal to or greater than $25,000, transfer the portion of such amount equal to the largest integral multiple of $5,000 that is not greater than such .amount to the Redemption Fund, to be applied to the redemption of Bonds, and (B) after making the transfer, if any, required to be made pursuant to the preceding clause (A), transfer all of the amount remaining in the Improvement Fund (less any such retention) to the Bond Fund, to be applied to the payment of interest on the Bonds. Upon making such transfer or transfers, as the case maybe, the Improvement Fund shall be closed. Section 3.05. Conditions for the Issuance of Additional Bonds. 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 herein on a parity with all other Bonds theretofore issued hereunder, but only subject to the following conditions, which are hereby made conditions precedent to the issuance of such Additional Bonds: (a) The issuance of such Additional Bonds shall have been authorized under and pursuant to the Act and under and pursuant hereto and shall have been provided for by a Supplemental Indenture which shall specify the following: (i) The purposes for which the proceeds of such Additional Bonds are to be applied, which purposes may only include one or more of (A) providing funds to refund any Bonds issued hereunder, (B) providing funds to pay Costs of Issuance incurred in connection with the issuance of such Additional Bonds, and (C) providing funds to make any deposit to the Reserve Fund required pursuant to paragraph (vi) below; (ii) The principal amount and designation of such Series of Additional Bonds and the denomination or denominations of the Additional Bonds; OHS West:260258353.2 19 (iii) The date, the maturity date or dates, the interest payment dates and the dates on which mandatory sinking fund redemptions, if any, are to be made for such Additional Bonds; provided, that (A) the serial Bonds of such Series of Additional Bonds shall be payable as to principal annually on September 1 of each year in which principal falls due, and the term Bonds of such Series of Additional Bonds shall have annual mandatory sinking fund redemptions on September 1, (B) the Additional Bonds shall be payable as to interest semiannually on March 1 and September 1 of each year, except that the first installment of interest maybe payable on either March 1 or September 1 and shall be for a period of not longer than twelve months and the interest shall be payable thereafter semiannually on March 1 and September 1, (C) all Additional Bonds of a Series of like maturity shall be identical in all respects, except as to number or denomination, and (D) serial maturities of serial Bonds or mandatory sinking fund redemptions for term Bonds, or any combination thereof, shall be established to provide for the redemption or payment of such Additional Bonds on or before their respective maturity dates; (iv) The redemption premiums and terms, if any, for such Additional Bonds; (v) The form of such Additional Bonds; (vi) The amount, if any, to be deposited from the proceeds of sale of such Additional Bonds in the Reserve Fund; provided, that the amount on deposit in the Reserve Fund at the time that such Additional Bonds become Outstanding shall be at least equal to the Reserve Requirement; and (vii) Such other provisions that are appropriate or necessary and are not inconsistent with the provisions hereof; (b) Upon the issuance of such Additional Bonds, no default shall have occurred and be continuing hereunder; and (c) 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, calculated for all Bonds Outstanding immediately prior to the issuance of such Additional Bonds. Nothing contained herein shall limit the issuance of any special tax bonds payable from Special Taxes if, after the issuance and delivery of such special tax bonds, none of the Bonds theretofore issued hereunder will be Outstanding. Section 3.06. Procedure for the Issuance of Additional Bonds. At any time after the sale of any Additional Bonds in accordance with the Act, such Additional Bonds shall be executed by the Community Facilities District for issuance hereunder and shall be delivered to the Trustee and thereupon shall be authenticated and delivered by the Trustee, but only upon receipt by the Trustee of the following: OHS West:260258353.2 2~ (a) A certified copy of the Supplemental Indenture authorizing the issuance of such Additional Bonds; (b) A Written Request of the Community Facilities District as to the delivery of such Additional Bonds; (c) A Written Certificate of the Community Facilities District stating that the conditions precedent to the issuance of such Additional Bonds specified in Section 3.05 have been satisfied; (d) An opinion of Bond Counsel substantially to the effect that (i) this Indenture and all Supplemental Indentures have been duly authorized, executed and delivered by, and constitute the valid and binding obligations of, the Community Facilities District, enforceable in accordance with their terms (except as enforcement may be limited by bankruptcy, insolvency, reorganization, moratorium and other similar laws affecting creditors rights and by the application of equitable principles and by the exercise of judicial discretion in appropriate cases and subject to the limitations on legal remedies against political subdivisions in the State of California), (ii) such Additional Bonds constitute valid and binding special obligations of the Community Facilities District payable solely from Net Special Tax Revenues as provided herein and are enforceable in accordance with their terms (except as enforcement may be limited by bankruptcy, insolvency, reorganization, moratorium and other similar laws affecting creditors rights and by the application of equitable principles and by the exercise of judicial discretion in appropriate cases and subject to the limitations on legal remedies against political subdivisions in the State of California), and (iii) the issuance of such Additional Bonds, in and of itself, will not adversely affect the exclusion of interest on the Bonds Outstanding prior to the issuance of such Additional Bonds from gross income for federal income tax purposes; (e) The proceeds of the sale of such Additional Bonds; and (f) Such further documents or money as are required by the provisions hereof or by the provisions of the Supplemental Indenture authorizing the issuance of such Additional Bonds. Section 3.07. Additional Bonds. So long as any of the Bonds remain Outstanding, the Community Facilities District shall not issue any Additional Bonds or obligations payable from Net Special Tax Revenues on a parity with the Bonds, except pursuant to Sections 3.05 and 3.06. So long as any of the Bonds remain Outstanding, the Community Facilities District shall not issue any obligations payable from Net Special Tax Revenues on a basis senior or subordinate to the Bonds. OHS West:260258353.2 21 ARTICLE IV REDEMPTION OF BONDS Section 4.01. Redemption of Series 2007 Bonds. (a) Optional Redemption. The Series 2007 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 2007 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, 20_ and thereafter The Community Facilities District shall give the Trustee written notice of its intention to redeem Series 2007 Bonds pursuant to this subsection not less than 45 days prior to the applicable redemption date, unless a later date is agreed to by the Trustee. (b) Mandatory Redemption from Special Tax Prepayments. The Series 2007 Bonds shall be subject to mandatory redemption, in whole or in part, on any Interest Payment Date on or after September 1, 2007, 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 2007 Bonds to be redeemed), plus accrued interest thereon to the date of redemption: Redemption Dates Redemption Price March 1, 2008 through March 1, 20_ September 1, 20_ and March 1, 20_ September 1, 20_ and March 1, 20_ September 1, 20_ and thereafter (c) Mandatory Sinking Fund Redemption. The Series 2007 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 2007 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 (September 1) Principal Amount to be R Pc~PPmecl (Maturity) OHS West:260258353.2 22 If some but not all of the Series 2007 Bonds maturing on September 1, 20_ are redeemed pursuant to Section 4.01(a), the principal amount of Series 2007 Bonds maturing on September 1, 20 to be redeemed pursuant to Section 4.01(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 2007 Bonds maturing on September 1, 20_ redeemed pursuant to Section 4.01(a). If some but not all of the Series 2007 Bonds maturing on September 1, 20_ are redeemed pursuant to Section 4.01(b), the principal amount of Series 2007 Bonds maturing on September 1, 20_ to be redeemed pursuant to Section 4.01(c) on any subsequent September 1 shall be reduced by the aggregate principal amount of the Series 2007 Bonds maturing on September 1, 20_ so redeemed pursuant to Section 4.01(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. The Series 2007 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 2007 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 Redemption Date to be (September 1) ~ Redeemed 2037 (Maturity) If some but not all of the Series 2007 Bonds maturing on September 1, 20_ are redeemed pursuant to Section 4.01(a), the principal amount of Series 2007 Bonds maturing on September 1, 20_ to be redeemed pursuant to Section 4.01(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 2007 Bonds maturing on September 1, 20_ redeemed pursuant to Section 4.01(a). If some but not all of the Series 2007 Bonds maturing on September 1, 20_ are redeemed pursuant to Section 4.01(b), the principal amount of Series 2007 Bonds maturing on September 1, 20_ to be redeemed pursuant to Section 4.01(c) on any subsequent September 1 shall be reduced by the aggregate principal amount of the Series 2007 Bonds maturing on September 1, 20_ so redeemed pursuant to Section 4.01(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 4.02. Notice of Redemption. The Trustee on behalf and at the expense of the Community Facilities District shall mail (by first class mail) notice of any redemption to the OHS West:260258353.2 23 respective Owners of any Bonds designated for redemption at their respective addresses appearing on the Registration Books and to the Original Purchaser at least 30 but not more than 60 days prior to the date fixed for redemption. Such notice shall state the date of the notice, the redemption date, the redemption place and the Redemption Price and shall designate the CUSIP numbers, the Bond numbers and the maturity or maturities of the Bonds to be redeemed (except in the event of redemption of all of the Bonds of such maturity or maturities in whole), and shall require that such Bonds be then surrendered at the Office of the Trustee for redemption at the Redemption Price, giving notice also that further interest on such Bonds will not accrue from and after the date fixed for redemption. Neither the failure to receive any notice so mailed, nor any defect in such notice, shall affect the validity of the proceedings for the redemption of the Bonds or the cessation of accrual of interest thereon from and after the date fixed for redemption. With respect to any notice of any optional redemption of Bonds of a Series, unless at the time such notice is given the Bonds to be redeemed shall be deemed to have been paid as provided in Section 10.02, such notice shall 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 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 Community Facilities District shall not be required to redeem such Bonds. In the event a notice of redemption of Bonds contains such a condition and such moneys are not so received, the redemption of 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 Bonds pursuant to such notice of redemption. Section 4.03. Selection of Bonds for Redemption. Whenever provision is made in this Indenture for the redemption of less than all of the Bonds, 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 Bonds of a Series, among maturities of Bonds of such Series as directed in a Written Request of the Community Facilities District, (b) with respect to any redemption pursuant to Section 4.01(b) and the corresponding provision of any Supplemental Indenture pursuant to which Additional Bonds are issued, 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 shall be deemed to be comprised of separate $5,000 denominations and such separate denominations shall be treated as separate Bonds which may be separately redeemed. Section 4.04. Partial Redemption of Bonds. Upon surrender of any Bonds redeemed in part only, the Community Facilities District shall execute and the Trustee shall authenticate and deliver to the Owner thereof, at the expense of the Community Facilities District, a new Bond or Bonds of the same Series in authorized denominations equal in aggregate principal amount representing the unredeemed portion of the Bonds surrendered. OHS West:260258353.2 24 Section 4.05. Effect of Notice of Redemption. Notice having been mailed as aforesaid, and moneys for the Redemption Price, 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 as aforesaid 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. All Bonds paid at maturity or redeemed prior to maturity pursuant to the provisions hereof shall be canceled upon surrender thereof and destroyed. OHS West:260258353.2 25 ARTICLE V SECURITY FOR BONDS; FLOW OF FUNDS; INVESTMENTS Section 5.01. Pledge. Subject only to the provisions of this Indenture permitting the application thereof for the purposes and on the terms and conditions set forth herein, all of the Net Special Tax Revenues and any other amounts (including proceeds of the sale of the Bonds) held in the Special Tax Fund, the Bond Fund and the Reserve Fund are hereby 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 this Indenture and the Act. Said pledge shall constitute a first lien on such assets. Section 5.02. Special Tax Fund. The Trustee shall establish and maintain a separate fund designated the "Special Tax Fund." As soon as practicable after the receipt by the Community Facilities District of 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 Community Facilities District shall 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 Price of Bonds in accordance with the provisions hereof shall be identified to the Trustee as such by the Community Facilities District and shall be deposited in the Redemption Fund. Upon receipt of a Written Request of the Community Facilities District, the Trustee shall withdraw from the Special Tax Fund and transfer to the Administrative Expense Fund the amount specified in such Written Request of the Community Facilities District as the amount necessary to be transferred thereto in order to have sufficient amounts available therein to pay Administrative Expenses. On the Business Day immediately preceding each Interest Payment Date, after having made any requested transfer to the Administrative Expense Fund, the Trustee shall withdraw from the Special Tax Fund and transfer, first, to the Bond Fund, Net Special Tax Revenues in the amount, if any, necessary to cause the amount on deposit in the Bond Fund to be equal to the principal and interest due on the Bonds on such Interest Payment Date, and, second, to the Reserve Fund, Net Special Tax Revenues in the amount, if any, necessary to cause the amount on deposit in the Reserve Fund to be equal to the Reserve Requirement. Section 5.03. Bond Fund. The Trustee shall establish and maintain a separate fund designated the "Bond Fund." On the Closing Date, the Trustee shall deposit in the Bond Fund the amount required to be deposited therein pursuant to Section 3.02. The Trustee shall deposit in the Bond Fund from time to time the amounts required to be deposited therein pursuant to Section 5.02. There shall additionally be deposited in the Bond Fund the portion, if any, of the proceeds of the sale of Additional Bonds required to be deposited therein under the Supplemental Indenture pursuant to which such Additional Bonds are issued. On each Interest Payment Date, the Trustee shall withdraw from the Bond Fund for payment to the Owners of the Bonds the principal, if any, of and interest on the Bonds then due OHS West:260258353.2 26 and payable, including principal due and payable by reason of mandatory sinking fund redemption of such Bonds. In the event that, on the Business Day prior to an Interest Payment Date, amounts in the Bond Fund are insufficient to pay the principal, if any, of and interest on the Bonds due and payable on such Interest Payment Date, including principal due and payable by reason of mandatory sinking fund redemption of such Bonds, the Trustee shall withdraw from the Reserve Fund, to the extent of any funds therein, the amount of such insufficiency, and shall transfer any amounts so withdrawn to the Bond Fund. Section 5.04. Redemption Fund. The Trustee shall establish and maintain a special fund designated the "Redemption Fund." As soon as practicable after the receipt by the Community Facilities District of prepaid Special Taxes, but in any event not later than ten Business Days after such receipt, the Community Facilities District shall transfer such prepaid Special Taxes to the Trustee for deposit in the Redemption Fund. Additionally, the Trustee shall deposit in the Redemption Fund amounts received from the Community Facilities District in connection with the Community Facilities District's exercise of its rights to optionally redeem Series 2007 Bonds pursuant to Section 4.01(a) and any other amounts required to be deposited therein pursuant to Section 5.05 or pursuant to any Supplemental Indenture. Amounts in the Redemption Fund shall be disbursed therefrom for the payment of the Redemption Price of Series 2007 Bonds redeemed pursuant to Section 4.01(a) or Section 4.01(b) and to pay the Redemption Price of Additional Bonds redeemed under the Supplemental Indenture pursuant to which such Additional Bonds are issued. Section 5.05. Reserve Fund. The Trustee shall establish and maintain a special fund designated the "Reserve Fund." On the Closing Date, the Trustee shall deposit in the Reserve Fund the amount required to be deposited therein pursuant to Section 3.02. The Trustee shall deposit in the Reserve Fund from time to time the amounts required to be deposited therein pursuant to Section 5.02. There shall additionally be deposited in the Reserve Fund, in connection with the issuance of Additional Bonds, the amount required to be deposited therein under the Supplemental Indenture pursuant to which such Additional Bonds are issued. Except as otherwise provided in this Section, all amounts deposited in the Reserve Fund shall 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, in accordance with the provisions of this Section, for the purpose of paying or redeeming Bonds. Transfers shall be made from the Reserve Fund to the Bond Fund in the event of a deficiency in the Bond Fund, in accordance with Section 5.03. Whenever Bonds are to be redeemed pursuant to Section 4.01(a) or Section 4.01(b) or the corresponding provisions of a Supplemental Indenture, a proportionate share, determined as provided below, of the amount on deposit in the Reserve Fund shall, on the date on which amounts to redeem such Bonds are deposited in the Redemption Fund or otherwise deposited with the Trustee pursuant to Section 10.02, be transferred by the Trustee from the Reserve Fund to the Redemption Fund or to such deposit held by the Trustee and shall be applied to the OHS West:260258353.2 27 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 of such transfer, 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. 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 shall, upon receipt of a Written Request of the Community Facilities 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. If, as a result of the scheduled payment of principal of or interest on the Bonds, the Reserve Requirement is reduced, the Trustee shall transfer an amount equal to the amount of such reduction to the Bond Fund. Section 5.06. Rebate Fund. (a) The Trustee shall establish and maintain a special fund designated the "Rebate Fund." There shall be deposited in the Rebate Fund such amounts as are required to be deposited therein pursuant to the Tax Certificate, as specified in a Written Request of the Community Facilities District. All money at any time deposited in the Rebate Fund shall be held by the Trustee in trust, to the extent required to satisfy the Rebate Requirement, for payment to the United States of America. Notwithstanding defeasance of the 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 Rebate Fund shall be governed exclusively by this Section and by the 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 Tax Certificate. The Trustee may conclusively rely upon the Community Facilities District's determinations, calculations and certifications required by the 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 Rebate Fund after payment in full of all of the Bonds and after payment of any amounts described in this Section, shall, upon 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 5.07. Administrative Expense Fund. The Trustee shall establish and maintain a special fund designated the "Administrative Expense Fund." The Trustee shall deposit in the Administrative Expense Fund the amounts transferred from the Special Tax Fund and required to be deposited therein pursuant to Section 5.02. OHS West:260258353.2 28 The moneys in the Administrative Expense Fund shall be used and withdrawn by the Trustee from time to time to pay the Administrative Expenses upon submission of a Written Request of the Community Facilities District stating (a) the Person to whom payment is to be made, (b) the amount to be paid, (c) the purpose for which the obligation was incurred and that such purpose constitutes an Administrative Expense, (d) that such payment is a proper charge against the Administrative Expense Fund, and (e) that such amounts have not been the subject of a prior disbursement from the Administrative Expense Fund; in each case together with a statement or invoice for each amount requested thereunder. Section 5.08. Investment of Moneys. Except as otherwise provided herein, all moneys in any of the funds or accounts established pursuant to this Indenture and held by the Trustee shall be invested by the Trustee solely in Permitted Investments, as directed in writing by the Community Facilities District two Business Days prior to the making of such investment. Moneys in all funds and accounts held by the Trustee shall be invested in Permitted Investments maturing not later than the date on which it is estimated that such moneys will be required for the purposes specified in this Indenture; provided, however, that Permitted Investments in which moneys in the Reserve Fund are so invested shall mature no later than the earlier of five years from the date of investment or the final maturity date of the Bonds; provided, further, that if such Permitted Investments may be redeemed at par so as to be available on each Interest Payment Date, any amount in the Reserve Fund may be invested in such redeemable Permitted Investments maturing on any date on or prior to the final maturity date of the Bonds. Absent timely written direction from the Community Facilities District, the Trustee shall invest any funds held by it in Permitted Investments described in clause (h) of the definition thereof; provided, however, that ar~y such investment shall be made with due regard for the Trustee's obligations and responsibilities as a fiduciary hereunder. Subject to the provisions of Section 5.06, all interest, profits and other income received from the investment of moneys in any fund or account established pursuant to this Indenture (other than the Reserve Fund) shall be retained therein. Subject to the provisions of Section 5.06, all interest, profits or other income received from the investment of moneys in the Reserve Fund shall, prior to the date on which a Written Certificate of the Community Facilities District is delivered to the Trustee pursuant to Section 3.04(c), be transferred to the Improvement Fund and, thereafter, shall be deposited in the Bond Fund; provided, however, that, notwithstanding the foregoing, any such transfer shall be made only if and to the extent that, after such transfer, the amount on deposit in the Reserve Fund is at least equal to the Reserve Requirement. Permitted Investments acquired as an investment of moneys in any fund or account established under this Indenture shall be credited to such fund or account. For the purpose of determining the amount in any fund or account, all Permitted Investments credited to such fund shall be valued by the Trustee at the market value thereof, such valuation to be performed not less frequently than semiannually on or before each February 15 and August 15. The Trustee may utilize and rely upon securities pricing services available to it for such valuations, including those available through the Trustee's accounting system. The Trustee may act as principal or agent in the making or disposing of any investment. Upon the Written Request of the Community Facilities District, the Trustee shall sell or present for redemption any Permitted Investments so purchased whenever it shall be necessary to provide OHS West:260258353.2 29 moneys to meet any required payment, transfer, withdrawal or disbursement from the fund to which such Permitted Investments is credited, and the Trustee shall not be liable or responsible for any loss resulting from any investment made or sold pursuant to this Section. For purposes of investment, the Trustee may commingle moneys in any of the funds and accounts established hereunder. The Community Facilities District acknowledges that to the extent regulations of the Comptroller of the Currency or other applicable regulatory entity grant the Community Facilities District the right to receive brokerage confirmations of security transactions as they occur, the Community Facilities District specifically waives receipt of such confirmations to the extent permitted by law. The Trustee will furnish the Community Facilities District periodic cash transaction statements which include detail for all investment transactions made by the Trustee hereunder. OHS West:260258353.2 30 ARTICLE VI COVENANTS Section 6.01. Collection of Special Tax Revenues. The Community Facilities District shall comply with all requirements of the Act so as to assure the timely collection of Special Tax Revenues, including without limitation, the enforcement of delinquent Special Taxes. Prior to August 1 of each year, the Community Facilities District shall ascertain from the Orange County Assessor the relevant parcels on which the Special Taxes are to be levied, taking into account any parcel splits during the preceding and then current year. The Community Facilities District shall effect the levy of the Special Taxes each Fiscal Year in accordance with the Ordinance by each August 10 that the Bonds are Outstanding, or otherwise such that the computation of the levy is complete before the final date on which the Auditor will accept the transmission of the Special Tax amounts for the parcels within the Community Facilities District for inclusion on the next real property tax roll. Upon the completion of the computation of the amounts of the levy, the Community Facilities District shall prepare or cause to be prepared, and shall transmit to the Auditor, such data as the Auditor requires to include the levy of the Special Taxes on the next real property tax roll. The Community Facilities District shall fix and levy the amount of Special Taxes within the Community Facilities District in each Fiscal Year 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 to yield Special Tax Revenues in the amount required for (a) the payment of principal of and interest on any Outstanding Bonds becoming due and payable during the Bond Year commencing in such Fiscal Year, (b) any necessary replenishment of the Reserve Fund, and (c) the payment of Administrative Expenses estimated to be required to be paid from such Special Tax Revenues, taking into account the balances in the funds and accounts established hereunder. The Special Taxes shall 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. Section 6.02. Foreclosure. Pursuant to Section 53356.1 of the Act, the Community Facilities District hereby covenants with and for the benefit of the Owners of the Bonds that it will determine or cause to be determined, no later than August 15 of each year, whether or not any owners of property within the Community Facilities District are delinquent in the payment of Special Taxes and, if such delinquencies exist, the Community Facilities District will order and cause to be commenced no later than October 1, and thereafter diligently prosecute, an action in the superior court to foreclose the lien of any Special Taxes or installment thereof not paid when due; provided, however, that the Community Facilities District shall not be required to order the commencement of foreclosure proceedings if (a) the total Special Tax delinquency in the Community Facilities 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 OHS West:260258353.2 31 Reserve Requirement. Notwithstanding the foregoing, if the Community Facilities District determines that any single property owner in the Community Facilities District is delinquent in excess of [$5,000] in the payment of the Special Tax, then the Community Facilities District will diligently institute, prosecute and pursue foreclosure proceedings against such property owner. Section 6.03. Punctual Payment. The Community Facilities District shall punctually pay or cause to be paid the principal, premium, if any, and interest to become due in respect of all the, Bonds, in strict conformity with the terms of the Bonds and of this Indenture, according to the true intent and meaning thereof, but only out of Net Special Tax Revenues and other assets pledged for such payment as provided in this Indenture and received by the Community Facilities District or the Trustee. Section 6.04. Extension of Payment of Bonds. The Community Facilities District shall not directly or indirectly extend or assent to the extension of the maturity of any of the Bonds or the time of payment of any claims for interest by the purchase of such Bonds or by any other arrangement, and in case the maturity of any of the Bonds or the time of payment of any such claims for interest shall be extended, such Bonds or claims for interest shall not be entitled, in case of any default hereunder, to the benefits of this Indenture, except subject to the prior payment in full of the principal of all of the Bonds then Outstanding and of all claims for interest thereon which shall not have been so extended. Nothing in this Section shall be deemed to limit the right of the Community Facilities District to issue Bonds for the purpose of refunding any Outstanding Bonds, and such issuance shall not be deemed to constitute an extension of maturity of the Bonds. Section 6.05. Against Encumbrances. The Community Facilities District shall not create, or permit the creation of, any pledge, lien, charge or other encumbrance upon the Special Tax Revenues and other assets pledged under this Indenture while any of the Bonds are Outstanding, except as permitted by this Indenture. Section 6.06. Power to Issue Bonds and Make Pledge. The Community Facilities District is duly authorized pursuant to the Act to issue the Bonds and to enter into this Indenture and to pledge the Net Special Tax Revenues and other assets pledged under this Indenture in the manner and to the extent provided in this Indenture. The Bonds and the provisions of this Indenture are and will be the legal, valid and binding special obligations of the Community Facilities District in accordance with their terms, and the Community Facilities District and the Trustee (subject to the provisions of Article VIII) shall at all times, to the extent permitted by law, defend, preserve and protect said pledge of Net Special Tax Revenues and other assets and all the rights of the Owners under this Indenture against all claims and demands of all Persons whomsoever. Section 6.07. Accounting Records and Financial Statements. The Trustee shall at all times keep, or cause to be kept, proper books of record and account, prepared in accordance with prudent corporate trust industry standards, in which accurate entries shall be made of all transactions made by it relating to the proceeds of the Bonds, the Special Tax Revenues and all funds and accounts established by it pursuant to this Indenture. Such books of record and account shall be available for inspection by the Community Facilities District, during regular business hours and upon reasonable notice and under reasonable circumstances as agreed to by OHS West:260258353.2 32 the Trustee. The Trustee shall deliver to the Community Facilities District a monthly accounting of the funds and accounts it holds under this Indenture; provided, however, that the Trustee shall not be obligated to deliver an accounting for any fund or account that (a) has a balance of zero, and (b) has not had any activity since the last reporting date. Section 6.08. 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 2007 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 Tax Certificate, which is incorporated herein as if fully set forth herein. This covenant shall survive payment in full or defeasance of the Series 2007 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 2007 Bonds, the Trustee may conclusively rely on such opinion in complying with the requirements of this Section and of the Tax Certificate, and the covenants hereunder shall be deemed to be modified to that extent. Section 6.09. Continuing Disclosure. The Community Facilities District and the Trustee shall comply with and carry out all of the provisions of the District Continuing Disclosure Agreement. Notwithstanding any other provision of this Indenture, failure of the Community Facilities District or the Trustee to comply with the District Continuing Disclosure Agreement shall not be considered an Event of Default; provided, however, that the Trustee may (and, at the written direction of any Participating Underwriter or the holders of at least 25% aggregate principal amount of Outstanding Series 2007 Bonds, and upon indemnification of the Trustee to its reasonable satisfaction, shall) or any holder or beneficial owner of the Series 2007 Bonds may, take such actions as may be necessary and appropriate to compel performance, including seeking mandate or specific performance by court order. The Developer and the Trustee have entered into the Developer Continuing Disclosure Agreement. Notwithstanding any other provision of this Indenture, failure of the Developer or the Trustee to comply with the Developer Continuing Disclosure Agreement shall not be considered an Event of Default; provided, however, that the Trustee may (and, at the written direction of any Participating Underwriter or the holders of at least 25% aggregate principal amount of Outstanding Series 2007 Bonds, and upon indemnification of the Trustee to its reasonable satisfaction, shall) or any holder or beneficial owner of the Series 2007 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:260258353.2 33 Section 6.10. Compliance with Act. The Community Facilities District shall comply with all applicable provisions of the Act. Section 6.11. State Reporting. If at any time the Trustee fails to pay principal or interest due on any scheduled payment date for the Bonds, or if funds are withdrawn from the Reserve Fund to pay principal or interest on the Bonds, the Trustee shall notify the Community Facilities District in writing of such failure or withdrawal, and the Community Facilities District shall notify the California Debt and Investment Advisory Commission of such failure or withdrawal within 10 days of the failure to make such payment or the date of such withdrawal. Section 6.12. Annual Reports to the California Debt and Investment Advisory Commission. Not later than October 30 of each year, commencing October 30, 2008 and until the October 30 following the final maturity of the Bonds, the Community Facilities District shall supply to the California Debt and Investment Advisory Commission the information required to be provided thereto pursuant to Section 53359.5(b) of the Act. Such information shall be made available to any Owner upon written request to the Community Facilities District accompanied by a fee determined by the Community Facilities District to pay the costs of the Community Facilities District in connection therewith. The Community Facilities District shall in no event be liable to any Owner or any other person or entity in connection with any error in any such information. Section 6.13. Non-Cash Payments of Special Taxes. The Community Facilities District shall not authorize owners of taxable parcels within the Community Facilities District to satisfy Special Tax obligations by the tender of Bonds unless the Community Facilities District shall have first obtained a report of an Independent Consultant certifying that doing so would not result in the Community Facilities District having insufficient Special Tax Revenues to pay the principal of and interest on all Outstanding Bonds when due. Section 6.14. Reduction in Special Taxes. The Community Facilities District shall not initiate proceedings under the Act to modify the Rate and Method if such modification would adversely affect the security for the Bonds. If an 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, the Community Facilities District shall, 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. Section 6.15. Further Assurances. The Community Facilities District shall make, execute and deliver any and all such further agreements, instruments and assurances as may be reasonably necessary or proper to carry out the intention or to facilitate the performance of this Indenture and for the better assuring and confirming unto the Owners of the Bonds of the rights and benefits provided in this Indenture. OHS West:260258353.2 34 ARTICLE VII EVENTS OF DEFAULT AND REMEDIES Section 7.01. Events of Default. The following events shall be Events of Default: (a) Failure to pay any installment of principal of any Bonds when and as the same shall become due and payable, whether at maturity as therein expressed, by proceedings for redemption or otherwise. (b) Failure to pay any installment of interest on any Bonds when and as the same shall become due and payable. (c) Failure by the Community Facilities District to observe and perform any of the other covenants, agreements or conditions on its part in this Indenture or in the Bonds contained, if such failure shall have continued for a period of 60 days after written notice thereof, specifying such failure and requiring the same to be remedied, shall have been given to the Community Facilities District by the Trustee or the Owners of not less than 5% in aggregate principal amount of the Bonds at the time Outstanding; provided, however, if in the reasonable opinion of the Community Facilities District the failure stated in the notice can be corrected, but not within such 60 day period, such failure shall not constitute an Event of Default if corrective action is instituted by the Community Facilities District within such 60 day period and the Community Facilities District shall thereafter diligently and in good faith cure such failure in a reasonable period of time. (d) The Community Facilities District or the City shall commence a voluntary case under Title 11 of the United States Code or any substitute or successor statute. Section 7.02. Foreclosure. If any Event of Default shall occur under Section 7.01(a) or Section 7.01(b) then, and in each and every such case during the continuance of such Event of Default, the Trustee may, or at the written direction of the Owners of not less than a majority in aggregate principal amount of the Bonds at the time Outstanding, and upon being indemnified to its satisfaction therefor, shall, commence foreclosure against any- parcels of land in the Community Facilities District with delinquent Special Taxes, as provided in Section 53356.1 of the Act; provided, however, that the Trustee need not commence any such foreclosure if such foreclosure has been commenced by the Community Facilities District. Section 7.03. Other Remedies. If an Event of Default shall have occurred under Section 7.01, the Trustee shall have the right: (a) by mandamus, suit, action or proceeding, to compel the Community Facilities District and its officers, agents or employees to perform each and every term, provision and covenant contained in this Indenture and in the Bonds, and to require the carrying out of any or all such covenants and agreements of the Community Facilities District and the fulfillment of all duties imposed upon it by this Indenture and the Act; (b) by suit, action or proceeding in equity, to enjoin any acts or things which are unlawful, or the violation of any of the Trustee's or Owner's rights; or OHS West:260258353.2 35 (c) by suit, action or proceeding in any court of competent jurisdiction, to require the Community Facilities District and its officers and employees to account as if it and they were the trustees of an express trust. Section 7.04. Application of Net Special Tax Revenues After Default. If an Event of Default shall occur and be continuing, all Net Special Tax Revenues and any other funds thereafter received by the Trustee under any of the provisions of this Indenture shall be applied by the Trustee as follows and in the following order: (a) To the payment of any expenses necessary in the opinion of the Trustee to protect the interests of the Owners of the Bonds and payment of reasonable fees, charges and expenses of the Trustee (including reasonable fees and disbursements of its counsel) incurred in and about the performance of its powers and duties under this Indenture; (b) To the payment of the principal of and interest then due with respect to the Bonds (upon presentation of the Bonds to be paid, and stamping thereon of the payment if only partially paid, or surrender thereof if fully paid) subject to the provisions of this Indenture, as follows: First: To the payment to the Persons entitled thereto of all installments of interest then due in the order of the maturity of such installments and, if the amount available shall not be sufficient to pay in full any installment or installments maturing on the same date, then to the payment thereof ratably, according to the amounts due thereon, to the Persons entitled thereto, without any discrimination or preference; and Second: To the payment to the Persons entitled thereto of the unpaid principal of any Bonds which shall have become due, whether at maturity or by call for redemption, with interest on the overdue principal at the rate borne by the respective Bonds on the date of maturity or redemption, and, if the amount available shall not be sufficient to pay in full all the Bonds, together with such interest, then to the payment thereof ratably, according to the amounts of principal due on such date to the Persons entitled thereto, without any discrimination or preference; and (c) Any remaining funds shall be transferred by the Trustee to the Special Tax Fund. Section 7.05. Power of Trustee to Enforce. All rights of action under this Indenture or the Bonds or otherwise may be prosecuted and enforced by the Trustee without the possession of any of the Bonds or the production thereof in any proceeding relating thereto, and any such suit, action or proceeding instituted by the Trustee shall be brought in the name of the Trustee for the benefit and protection of the Owners of such Bonds, subject to the provisions of this Indenture. Section 7.06. Owners Direction of Proceedings. Anything in this Indenture to the contrary notwithstanding, the Owners of a majority in aggregate principal amount of the Bonds then Outstanding shall have the right, by an instrument or concurrent instruments in writing executed and delivered to the Trustee, and upon indemnification of the Trustee to its reasonable satisfaction, to direct the method of conducting all remedial proceedings taken by the Trustee OHS West:260258353.2 36 hereunder, provided that such direction shall not be otherwise than in accordance with law and the provisions of this Indenture, and that the Trustee shall have the right to decline to follow any such direction which in the opinion of the Trustee would be unjustly prejudicial to Owners not parties to such direction. Section 7.07. Limitation on Owners' Right to Sue. No Owner shall have the right to institute any suit, action or proceeding at law or in equity, for the protection or enforcement of any right or remedy under this Indenture, the Act or any other applicable law with respect to such Bonds, unless (a) such Owner shall have given to the Trustee written notice of the occurrence of an Event of Default, (b) the Owners of a majority in aggregate principal amount of the Bonds then Outstanding shall have made written request upon the Trustee to exercise the powers hereinbefore granted or to institute such suit, action or proceeding in its own name, (c) such Owner or said Owners shall have tendered to the Trustee indemnity against the costs, expenses and liabilities to be incurred in compliance with such request, and (d) the Trustee shall have refused or omitted to comply with such request for a period of 60 days after such written request shall have been received by, and said tender of indemnity shall have been made to, the Trustee. Such notification, request, tender of indemnity and refusal or omission are hereby declared, in every case, to be conditions precedent to the exercise by any Owner of any remedy hereunder or under law; it being understood and intended that no one or more Owners shall have any right in any manner whatever by his or their action to affect, disturb or prejudice the security of this Indenture or the rights of any other Owners, or to enforce any right under the Bonds, this Indenture, the Act or other applicable law with respect to the Bonds, except in the manner herein provided, and that all proceedings at law or in equity to enforce any such right shall be instituted, had and maintained in the manner herein provided and for the benefit and protection of all Owners of the Outstanding Bonds, subject to the provisions of this Indenture. Section 7.08. Absolute Obligation. Nothing in Section 7.07 or in any other provision of this Indenture or in the Bonds contained shall affect or impair the obligation of the Community Facilities District, which is absolute and unconditional, to pay the principal of and interest on the Bonds to the respective Owners at their respective dates of maturity, or upon call for redemption, as herein provided, but only out of the Net Special Tax Revenues and other assets herein pledged therefor and received by the Community Facilities District or the Trustee, or affect or impair the right of such Owners, which is also absolute and unconditional, to enforce such payment by virtue of the contract embodied in the Bonds. Section 7.09. Termination of Proceedings. In case any proceedings taken by the Trustee or any one or more Owners on account of any Event of Default shall have been discontinued or abandoned for any reason or shall have been determined adversely to the Trustee or the Owners, then in every such case the Community Facilities District, the Trustee and the Owners, subject to any determination in such proceedings, shall be restored to their former positions and rights hereunder, severally and respectively, and all rights, remedies, powers and duties of the Community Facilities District, the Trustee and the Owners shall continue as though no such proceedings had been taken. Section 7.10. Remedies Not Exclusive. No remedy herein conferred upon or reserved to the Trustee or to the Owners is intended to be exclusive of any other remedy or remedies, and OHS West:260258353.2 37 each and every such remedy, to the extent permitted by law, shall be cumulative and in addition to any other remedy given hereunder or now or hereafter existing at law or in equity or otherwise. Section 7.11. No Waiver of Default. No delay or omission of the Trustee or of any Owner to exercise any right or power arising upon the occurrence of any default shall impair any such right or power or shall be construed to be a waiver of any such default or an acquiescence therein, and every power and remedy given by this Indenture to the Trustee or to the Owners maybe exercised from time to time and as often as maybe deemed expedient. OHS West:260258353.2 3 g ARTICLE VIII TRUSTEE Section 8.01. Duties and Liabilities of Trustee. (a) Duties of Trustee Generally. The Trustee shall, prior to an Event of Default, and after the curing or waiver of all Events of Default which may have occurred, perform such duties and only such duties as are expressly and specifically set forth in this Indenture. The Trustee shall, during the existence of any Event of Default which has not been cured or waived, exercise such of the rights and powers vested in it by this Indenture, and use the same degree of care and skill in their exercise, as a prudent person would exercise or use under the circumstances in the conduct of such person's own affairs. (b) Removal of Trustee. The Community Facilities District may, upon 30 days' prior written notice to the Trustee, remove the Trustee at any time unless an Event of Default shall have occurred and then be continuing, and shall remove the Trustee if at any time requested to do so by an instrument or concurrent instruments in writing signed by the Owners of not less than a majority in aggregate principal amount of the Bonds then Outstanding (or their attorneys duly authorized in writing) or if at any time the Trustee shall cease to be eligible in accordance with subsection (e) of this Section, or shall become incapable of acting, or shall be adjudged a bankrupt or insolvent, or a receiver of the Trustee or its property shall be appointed, or any public officer shall take control or charge of the Trustee or of its property or affairs for the purpose of rehabilitation, conservation or liquidation, in each case by giving written notice of such removal to the Trustee and thereupon shall appoint a successor Trustee by an instrument in writing. (c) Resignation of Trustee. The Trustee may at any time resign by giving written notice of such resignation by first class mail, postage prepaid, to the Community Facilities District, and to the Owners at the respective addresses shown on the Registration Books. Upon receiving such notice of resignation, the Community Facilities District shall promptly appoint a successor Trustee by an instrument in writing. The Trustee shall not be relieved of its duties until such successor Trustee has accepted appointment. (d) Appointment of Successor Trustee. Any removal or resignation of the Trustee and appointment of a successor Trustee shall become effective upon acceptance of appointment by the successor Trustee; provided, however, that under any circumstances the successor Trustee shall be qualified as provided in subsection (e) of this Section. If no qualified successor Trustee shall have been appointed and have accepted appointment within 45 days following giving notice of removal or notice of resignation as aforesaid, the resigning Trustee or any Owner (on behalf of himself and all other Owners) may petition any court of competent jurisdiction for the appointment of a successor Trustee, and such court may thereupon, after such notice (if any) as it may deem proper, appoint such successor Trustee. Any successor Trustee appointed under this Indenture shall signify its acceptance of such appointment by executing and delivering to the Community Facilities District and to its predecessor Trustee a written acceptance thereof, and after payment by the Community Facilities District of all unpaid fees and expenses of the predecessor Trustee, then such successor Trustee, without any further act, deed or conveyance, shall become vested with all the moneys, estates, properties, rights, powers, trusts, duties and obligations of such predecessor Trustee, with like effect as if originally named Trustee herein; but, nevertheless at the Written Request of the Community Facilities District or the request of the successor Trustee, such predecessor Trustee shall OHS West:260258353.2 39 execute and deliver any and all instruments of conveyance or further assurance and do such other things as may reasonably be required for more fully and certainly vesting in and confirming to such successor Trustee all the right, title and interest of such predecessor Trustee in and to any property held by it under this Indenture and shall pay over, transfer, assign and deliver to the successor Trustee any money or other property subject to the trusts and conditions herein set forth. Upon request of the successor Trustee, the Community Facilities District shall execute and deliver any and all instruments as maybe reasonably required for more fully and certainly vesting in and confirming to such successor Trustee all such moneys, estates, properties, rights, powers, trusts, duties and obligations. Upon acceptance of appointment by a successor Trustee as provided in this subsection, the Community Facilities District shall mail or cause the successor Trustee to mail, by first class mail postage prepaid, a notice of the succession of such Trustee to the trusts hereunder to each rating agency which then maintains a rating on the Bonds and to the Owners at the addresses shown on the Registration Books. If the Community Facilities District fails to mail such notice within 15 days after acceptance of appointment by the successor Trustee, the successor Trustee shall cause such notice to be mailed at the expense of the Community Facilities District. (e) Qualifications of Trustee. The Trustee shall be a trust company or bank having trust powers in good standing in or incorporated under the laws of the United States or any state thereof, having (or if such bank or trust company is a member of a bank holding company system, its parent bank holding company shall have) a combined capital and surplus of at least $75,000,000, and subject to supervision or examination by federal or state agency. If such bank or trust company publishes a report of condition at least annually, pursuant to law or to the requirements of any supervising or examining agency above referred to, then for the purpose of this subsection the combined capital and surplus of such bank or trust company shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published. In case at any time the Trustee shall cease to be eligible in accordance with the provisions of this subsection (e), the Trustee shall resign immediately in the manner and with the effect specified in this Section. Section 8.02. Merger or Consolidation. Any bank or trust company into which the Trustee may be merged or converted or with which it may be consolidated or any bank or trust company resulting from any merger, conversion or consolidation to which it shall be a party or any bank or trust company to which the Trustee may sell or transfer all or substantially all of its corporate trust business, provided such bank or trust company shall be eligible under subsection (e) of Section 8.01 shall be the successor to such Trustee, without the execution or filing of any paper or any further act, anything herein to the contrary notwithstanding. Section 8.03. Liability of Trustee. (a) The recitals of facts herein and in the Bonds contained shall be taken as statements of the Community Facilities District, and the Trustee shall not assume responsibility for the correctness of the same, or make any representations as to the validity or sufficiency of this Indenture or of the Bonds or shall incur any responsibility in respect thereof, other than as expressly stated herein in connection with the respective duties or obligations herein or in the Bonds assigned to or imposed upon it. The Trustee shall, however, be responsible for its representations contained in its certificate of authentication on the Bonds. The Trustee makes no representations as to the validity or sufficiency of this Indenture or of any Bonds, or in respect of the security afforded by this Indenture and the Trustee shall incur no OHS West:260258353.2 40 responsibility in respect thereof. The Trustee shall be under no responsibility or duty with respect to the issuance of the Bonds for value, the application of the proceeds thereof except to the extent that such proceeds are received by it in its capacity as Trustee, or the application of any moneys paid to the Community Facilities District or others in accordance with this Indenture. The Trustee shall not be liable in connection with the performance of its duties hereunder, except for its own negligence or willful misconduct. The Trustee shall not be liable for any action taken or omitted by it in good faith and believed by it to be authorized or within the discretion or rights or powers conferred upon it by this Indenture. The Trustee may become the Owner of Bonds with the same rights it would have if it were not Trustee, and, to the extent permitted by law, may act as depository for and permit any of its officers or directors to act as a member of, or in any other capacity with respect to, any committee formed to protect the rights of Owners, whether or not such committee shall represent the Owners of a maj ority in aggregate principal amount of the Bonds then Outstanding. (b) The Trustee shall not be liable for any error of judgment made in good faith by a responsible officer, unless it shall be proved that the Trustee was negligent in ascertaining the pertinent facts. (c) The Trustee shall not be liable with respect to any action taken or omitted to be taken by it in good faith in accordance with the direction of the Owners of not less than a majority in aggregate principal amount of the Bonds at the time Outstanding relating to the time, method and place of conducting any proceeding for any remedy available to the Trustee, or exercising any trust or power conferred upon the Trustee under this Indenture. (d) No provision of this Indenture shall require the Trustee to risk or advance its own funds. The Trustee may execute any of its powers or duties hereunder through attorneys, agents or receivers and shall not be answerable for the actions of such attorneys, agents or receivers if selected by it with reasonable care. (e) The Trustee shall not be deemed to have knowledge of an Event of Default hereunder unless it has actual knowledge thereof. (fl The Trustee shall have no responsibility with respect to any information, statement or recital in any official statement or any other disclosure material prepared or distributed with respect to the Bonds. Section 8.04. Right to Rely on Documents. The Trustee shall be protected in acting upon any notice, resolution, request, consent, order, certificate, report, opinion, bonds or other paper or document believed by it to be genuine and to have been signed or presented by the proper party or parties. The Trustee may consult with counsel, who may be counsel of or to the Community Facilities District, with regard to legal questions, and the opinion of such counsel shall be full and complete authorization and protection in respect of any action taken or suffered by it hereunder in good faith and in accordance therewith. Whenever in the administration of the duties imposed upon it by this Indenture the Trustee shall deem it necessary or desirable that a matter be ,proved or established prior to taking or suffering any action hereunder, such matter (unless other evidence in respect thereof be herein OHS West:260258353.2 41 specifically prescribed) may be deemed to be conclusively proved and established by a Written Certificate of the Community Facilities District, and such Written Certificate shall be full warrant to the Trustee for any action taken or suffered in good faith under the provisions of this Indenture in reliance upon such Written Certificate, but in its discretion the Trustee may, in lieu thereof, accept other evidence of such matter or may require such additional evidence as it may deem reasonable. Section 8.05. Preservation and Inspection of Documents. All documents received by the Trustee under the provisions of this Indenture shall be retained in its possession and shall be subject during business hours and upon reasonable notice to the inspection of the Community Facilities District, the Owners and their agents and representatives duly authorized in writing. Section 8.06. Compensation and Indemnification. Subject to the provisions of Section 11.01, the Community Facilities District shall pay to the Trustee from time to time all reasonable compensation pursuant to apre-approved fee letter for all services rendered under this Indenture, and also all reasonable expenses, charges, legal and consulting fees pursuant to apre-approved fee letter and other disbursements pursuant to apre-approved fee letter and those of its attorneys, agents and employees, incurred in and about the performance of their powers and duties under this Indenture. Subject to the provisions of Section 11.01, the Community Facilities District further agrees, to the extent permitted by law, to indemnify and save the Trustee harmless against any liabilities, costs, claims or expenses, including those of its attorneys, which it may incur in the exercise and performance of its powers and duties hereunder and under any related documents, including the enforcement of any remedies and the defense of any suit, and which are not due to its negligence or its willful misconduct. The duty of the Community Facilities District to indemnify the Trustee shall survive the termination and discharge of this Indenture. OHS West:260258353.2 42 ARTICLE IX MODIFICATION OR AMENDMENT Section 9.01. Amendments Permitted. (a) This Indenture and the rights and obligations of the Community Facilities District, the Owners of the Bonds and the Trustee 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 with the written consent of the Owners of a majority in aggregate principal amount of all Bonds then Outstanding, which shall have been filed with the Trustee. No such modification or amendment shall (i) extend the fixed maturity of any Bonds, reduce the amount of principal thereof or the rate of interest thereon, alter the redemption provisions thereof or extend the time of payment thereof, without the consent of the Owner of each Bond so affected, or (ii) reduce the aforesaid percentage of Bonds the consent of the Owners of which is required to effect any such modification or amendment, without the consent of the Owners of all of the Bonds then Outstanding, or (iii) permit the creation of any lien on the Net Special Tax Revenues and other assets pledged under this Indenture prior to or on a parity with the lien created by this Indenture or deprive the Owners of the Bonds of the lien created by this Indenture on such Net Special Tax Revenues and other assets (except as expressly provided in this Indenture), without the consent of the Owners of all of the Bonds then Outstanding. It shall not be necessary for the consent of the Owners to approve the particular form of any Supplemental Indenture, but it shall be sufficient if such consent shall approve the substance thereof. (b) This Indenture and the rights and obligations of the Community Facilities District, the Trustee and the Owners of the Bonds may also 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 Owners for any one or more of the following purposes: (i) to add to the covenants and agreements of the Community Facilities District in this Indenture contained other covenants and agreements thereafter to be observed, to pledge or assign additional security for the Bonds (or any portion thereof), or to surrender any right or power herein reserved to or conferred upon the Community Facilities District; (ii) to make such provisions for the purpose of curing any ambiguity, inconsistency or omission, or of curing or correcting any defective provision contained in this Indenture; (iii) to provide 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 maybe issued, subject to and in accordance with the provisions of Article III; (iv) to modify, amend or supplement this Indenture in such manner as to permit the qualification hereof under the Trust Indenture Act of 1939, as amended, or any similar federal statute hereafter in effect, and to add such other terms, conditions and provisions as may be permitted by said act or similar federal statute; OHS West:260258353.2 43 (v) to modify, amend or supplement this Indenture in such manner as to cause interest on the Bonds to be excludable from gross income for purposes of federal income taxation by the United States of America; and (vi) in any other respect whatsoever as the Community Facilities District may deem necessary or desirable, provided that such modification or amendment does not materially adversely affect the interests of the Owners hereunder. (c) Promptly after the execution by the Community Facilities District and the Trustee of any Supplemental Indenture, the Trustee shall mail a notice (the form of which shall be furnished to the Trustee by the Community Facilities District), by first class mail postage prepaid, setting forth in general terms the substance of such Supplemental Indenture, to the Owners of the Bonds at the respective addresses shown on the Registration Books. Any failure to give such notice, or any defect therein, shall not, however, in any way impair or affect the validity of any such Supplemental Indenture. Section 9.02. Effect of Supplemental Indenture. Upon the execution of any Supplemental Indenture pursuant to this Article, this Indenture shall be deemed to be modified and amended in accordance therewith, and the respective rights, duties and obligations under this Indenture of the Community Facilities District, the Trustee and all Owners of Bonds Outstanding shall thereafter be determined, exercised and enforced hereunder subject in all respects to such modification and amendment, and all the terms and conditions of any such Supplemental Indenture shall be deemed to be part of the terms and conditions of this Indenture for any and all purposes. Section 9.03. Endorsement of Bonds; Preparation of New Bonds. Bonds delivered after the execution of any Supplemental Indenture pursuant to this Article may, and if the Community Facilities District so determines shall, bear a notation by endorsement or otherwise in form approved by the Community Facilities District and the Trustee as to any modification or amendment provided for in such Supplemental Indenture, and, in that case, upon demand of the Owner of any Bonds Outstanding at the time of such execution and presentation of his Bonds for the purpose at the Office of the Trustee a suitable notation shall be made on such Bonds. If the Supplemental Indenture shall so provide, new Bonds so modified as to conform, in the opinion of the Community Facilities District and the Trustee, to any modification or amendment contained in such Supplemental Indenture, shall be prepared and executed by the Community Facilities District and authenticated by the Trustee, and upon demand of the Owners of any Bonds then Outstanding shall be exchanged at the Office of the Trustee, without cost to any Owner, for Bonds then Outstanding, upon surrender for cancellation of such Bonds, in equal aggregate principal amount of the same interest rate and maturity. Section 9.04. Amendment of Particular Bonds. The provisions of this Article shall not prevent any Owner from accepting any amendment as to the particular Bonds held by such Owner. OHS West:260258353.2 44 ARTICLE X DEFEASANCE Section 10.01. Discharge of Indenture. If the Community Facilities District shall pay or cause to be paid or there shall otherwise be paid to the Owners of all Outstanding Bonds the principal thereof and the interest and premium, if any, thereon at the times and in the manner stipulated herein and therein, then the Owners of such Bonds shall cease to be entitled to the pledge of the Net Special Tax Revenues and the other assets as provided herein, and all agreements, covenants and other obligations of the Community Facilities District to the Owners of such Bonds hereunder shall thereupon cease, terminate and become void and be discharged and satisfied. In such event, the Trustee shall execute and deliver to the Community Facilities District all such instruments as may be necessary or desirable to evidence such discharge and satisfaction, and the Trustee shall pay over or deliver to the Community Facilities District all money or securities held by it pursuant hereto which are not required for the payment of the principal of and interest and premium, if any, on such Bonds. Subject to the provisions of the above paragraph, when any of the Bonds shall have been paid and if, at the time of such payment, the Community Facilities District shall have kept, performed and observed all of the covenants and promises in such Bonds and in this Indenture required or contemplated to be kept, performed and observed by the Community Facilities District or on its part on or prior to that time, then this Indenture shall be considered to have been discharged in respect of such Bonds and such Bonds shall cease to be entitled to the lien of this Indenture and such lien and all covenants, agreements and other obligations of the Community Facilities District hereunder shall cease, terminate become void and be completely discharged as to such Bonds. Notwithstanding the satisfaction and discharge of this Indenture or the discharge of this Indenture in respect of any Bonds, those provisions of this Indenture relating to the maturity of the Bonds, interest payments and dates thereof, exchange and transfer of Bonds, replacement of mutilated, destroyed, lost or stolen Bonds, the safekeeping and cancellation of Bonds, non- presentment of Bonds, and the duties of the Trustee in connection with all of the foregoing, shall remain in effect and shall be binding upon the Trustee and the Owners of the Bonds and the Trustee shall continue to be obligated to hold in trust any moneys or investments then held by the Trustee for the payment of the principal of and interest and premium, if any, on the Bonds, to pay to the Owners of Bonds the funds so held by the Trustee as and when such payment becomes due. Notwithstanding the satisfaction and discharge of this Indenture or the discharge of this Indenture in respect of any Bonds, those provisions of this Indenture contained in Section 8.06 relating to the compensation of the Trustee shall remain in effect and shall be binding upon the Trustee and the Community Facilities District. Section 10.02. Bonds Deemed To Have Been Paid. If moneys shall have been set aside and held by the Trustee for the payment or redemption of any Bonds and the interest thereon at the maturity or redemption date thereof, such Bonds shall be deemed to have been paid within the meaning and with the effect provided in Section 10.01. Any Outstanding Bonds shall prior to the maturity date or redemption date thereof be deemed to have been paid within the meaning of and with the effect expressed in Section 10.01 if (a) in case any of such Bonds are to be redeemed on any date prior to their maturity date, the Community Facilities District OHS West:260258353.2 45 shall have given to the Trustee in form satisfactory to it irrevocable instructions to mail, on a date in accordance with the provisions of Section 4.02, notice of redemption of such Bonds on said redemption date, said notice to be given in accordance with Section 4.02, (b) there shall have been deposited with the Trustee either (i) money in an amount which shall be sufficient, or (ii) Federal Securities that are not subject to redemption other than at the option of the holder thereof, the interest on and principal of which when paid will provide money which, together with the money, if any deposited with the Trustee at the same time, shall, as verified by an independent certified public accountant, be sufficient to pay when due the interest to become due on such Bonds on and prior to the maturity date or redemption date thereof, as the case may be, and the principal of and premium, if any, on such Bonds, which sufficiency shall be verified in a report of an independent firm of nationally recognized certified public accountants, and (c) in the event such Bonds are not by their terms subject to redemption within the next succeeding 60 days, the Community Facilities District shall have given the Trustee in form satisfactory to it irrevocable instructions to mail as soon as practicable, a notice to the owners of such Bonds that the deposit required by clause (b) above has been made with the Trustee and that such Bonds, are deemed to have been paid in accordance with this Section and stating the maturity date or redemption date upon which money is to be available for the payment of the principal of and premium, if any, on such Bonds. Section 10.03. Payment of Bonds After Discharge of Indenture. Notwithstanding any provisions of this Indenture, to the extent permitted by law, any moneys held by the Trustee in trust for the payment of the principal of, or premium or interest on, any Bonds and remaining unclaimed for two -years after the date of deposit of such moneys, shall be repaid to the Community Facilities District free from the trusts created by this Indenture, and all liability of the Trustee with respect to such moneys shall thereupon cease; provided, however, that before the repayment of such moneys to the Community Facilities District as aforesaid, the Trustee may (at the cost of the Community Facilities District) first mail, by first class mail postage prepaid, to the Owners of Bonds which have not yet been paid, at the respective addresses shown on the Registration Books, a notice, in such form as may be deemed appropriate by the Trustee with respect to the Bonds so payable and not presented and with respect to the provisions relating to the repayment to the Community Facilities District of the moneys held for the payment thereof. OHS West:260258353.2 46 ARTICLE XI MISCELLANEOUS Section 11.01. Special Obligations. All obligations of the Community Facilities District under this Indenture shall be special obligations of the Community Facilities District, payable solely from Special Tax Revenues and the other assets pledged therefor hereunder; 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 hereunder. Neither the faith and credit nor the taxing power of the Community Facilities District (except to the limited extent set forth herein), the City, or the State of California, or any political subdivision thereof, is pledged to the payment of the Bonds. Section 11.02. Successor Is Deemed Included in All References to Predecessor. Whenever in this Indenture either the Community Facilities District or the Trustee is named or referred to, such reference shall be deemed to include the successors or assigns thereof, and all the covenants and agreements in this Indenture contained by or on behalf of the Community Facilities District or the Trustee shall bind and inure to the benefit of the respective successors and assigns thereof whether so expressed or not. Section 11.03. Limitation of Rights. Nothing in this Indenture or in the Bonds expressed or implied is intended or shall be construed to give to any Person other than the Trustee, the Community Facilities District and the Owners of the Bonds, any legal or equitable right, remedy or claim under or in respect of this Indenture or any covenant, condition or provision therein or herein contained, and all such covenants, conditions and provisions are and shall be held to be for the sole and exclusive benefit of the Trustee, the Community Facilities District and the Owners of the Bonds. Section 11.04. Waiver of Notice; Requirement of Mailed Notice. Whenever in this Indenture the giving of notice by mail or otherwise is required, the giving of such notice maybe waived in writing by the Person entitled to receive such notice and in any such case the giving or receipt of such notice shall not be a condition precedent to the validity of any action taken in reliance upon such waiver. Whenever in this Indenture any notice shall be required to be given by mail, such requirement shall be satisfied by the deposit of such notice in the United States mail, postage prepaid, by first class mail. Section 11.05. Destruction of Bonds. Whenever in this Indenture provision is made for the cancellation by the Trustee and the delivery to the Community Facilities District of any Bonds, the Trustee shall, in lieu of such cancellation and delivery, destroy such Bonds. Section 11.06. Severability of Invalid Provisions. If any one or more of the provisions contained in this Indenture or in the Bonds shall for any reason be held to be invalid, illegal or unenforceable in any respect, then such provision or provisions shall be deemed severable from the remaining provisions contained in this Indenture and such invalidity, illegality or unenforceability shall not affect any other provision of this Indenture, and this Indenture shall be construed as if such invalid or illegal or unenforceable provision had never been contained OHS West:260258353.2 47 herein. The Community Facilities District hereby declares that it would have entered into this Indenture and each and every other Section, subsection, paragraph, sentence, clause or phrase hereof and authorized the issuance of the Bonds pursuant thereto irrespective of the fact that any one or more Sections, subsections, paragraphs, sentences, clauses or phrases of this Indenture may be held illegal, invalid or unenforceable. Section 11.07. Notices. Any written notice, statement, demand, consent, approval, authorization, offer, designation, request or other communication to be given hereunder shall be given to the party entitled thereto at its address set forth below, or at such other address as such party may provide to the other parties in writing from time to time, namely: If to the Community Facilities District: City of Tustin Community Facilities District No. 07-1 (Tustin Legacy/Retail Center) c/o City of Tustin 300 Centennial Way Tustin, California 92680 Attention: Finance Director If to the Trustee: Union Bank of California, N.A. 120 South San Pedro Street, 4th Floor Los Angeles, California 90012 Attention: Each such notice, statement, demand, consent,, approval, authorization, offer, designation, request or other communication hereunder shall be deemed delivered to the party to whom it is addressed (a) if given by courier or delivery service or if personally served or delivered, upon delivery, (b) if given by telecopier, upon the sender's receipt of an appropriate answerback or other written acknowledgment, (c) if given by registered or certified mail, return receipt requested, deposited with the United States mail postage prepaid, 72 hours after such notice is deposited with the United States mail, or (d) if given by any other means, upon delivery at the address specified in this Section. Section 11.08. Evidence of Rights of Owners. Any request, consent or other instrument required or permitted by this Indenture to be signed and executed by Owners maybe in any number of concurrent instruments of substantially similar tenor and shall be signed or executed by such Owners in Person or by an agent or agents duly appointed in writing. Proof of the execution of any such request, consent or other instrument or of a writing appointing any such agent, or of the holding by any Person of Bonds transferable by delivery, shall be sufficient for any purpose of this Indenture and shall be conclusive in favor of the Trustee and the Community Facilities District if made in the manner provided in this Section. OHS West:260258353.2 48 The fact and date of the execution by any Person of any such request, consent or other instrument or writing may be proved by the certificate of any notary public or other officer of any jurisdiction, authorized by the laws thereof to take acknowledgments of deeds, certifying that the Person signing such request, consent or other instrument acknowledged to him the execution thereof, or by an affidavit of a witness of such execution duly sworn to before such notary public or other officer. The ownership of Bonds shall be proved by the Registration Books. Any request, consent, or other instrument or writing of the Owner of any Bond shall bind every future Owner of the same Bond and the Owner of every Bond issued in exchange therefor or in lieu thereof, in respect of anything done or suffered to be done by the Trustee or the Community Facilities District in accordance therewith or reliance thereon. Section 11.09. Disqualified Bonds. In determining whether the Owners of the requisite aggregate principal amount of Bonds have concurred in any demand, request, direction, consent or waiver under this Indenture, Bonds which are known by the Trustee to be owned or held by or for the account of the Community Facilities District, or by any other obligor on the Bonds, or by any Person directly or indirectly controlling or controlled by, or under direct or indirect common control with, the Community Facilities District or any other obligor on the Bonds, shall be disregarded and deemed not to be Outstanding for the purpose of any such determination. Bonds so owned which have been pledged in good faith may be regarded as Outstanding for the purposes of this Section if the pledgee shall establish to the satisfaction of the Trustee the pledgee's right to vote such Bonds and that the pledgee is not a Person directly or indirectly controlling or controlled. by, or under direct or indirect common control with, the Community Facilities District or any other obligor on the Bonds. In case of a dispute as to such right, any decision by the Trustee taken upon the advice of counsel shall be full protection to the Trustee. Section 11.10. Money Held for Particular Bonds. The money held by the Trustee for the payment of the interest, principal or premium due on any date with respect to particular Bonds (or portions of Bonds in the case of Bonds redeemed in part only) shall, on and after such date and pending such payment, be set aside on its books and held in trust by it for the Owners of the Bonds entitled thereto, subject, however, to the provisions of Section 10.03 but without any liability for interest thereon. Section 11.11. Funds and Accounts. Any fund or account required by this Indenture to be established and maintained by the Trustee may be established and maintained in the accounting records of the Trustee, either as a fund or an account, and may, for the purposes of such records, any audits thereof and any reports or statements with respect thereto, be treated either as a fund or as an account; but all such records with respect to all such funds and accounts shall at all times be maintained in accordance with prudent corporate trust industry standards to the extent practicable, and with due regard for the requirements hereof and for the protection of the security of the Bonds and the rights of every Owner thereof. The Trustee may establish any such additional funds or accounts as it deems necessary to perform its obligations hereunder. OHS West:260258353.2 49 Section 11.12. Payment on Non-Business Days. In the event any payment is required to be made hereunder on a day which is not a Business Day, such payment shall be made on the next succeeding Business Day with the same effect as if made on such non-Business Day. Section 11.13. Waiver of Personal Liability. No member, officer, agent or employee of the Community Facilities District or the City shall be individually or personally liable for the payment of the principal of or premium or interest on the Bonds or be subject to any personal liability or accountability by reason of the issuance thereof; but nothing herein contained shall relieve any such officer, agent or employee from the performance of any official duty provided by law or by this Indenture. Section 11.14. Interpretation. (a) Unless the context otherwise indicates, words expressed in the singular shall include the plural and vice versa and the use of the neuter, masculine, or feminine gender is for convenience only and shall be deemed to include the neuter, masculine or feminine gender, as appropriate. (b) Headings of articles and sections herein and the table of contents hereof are solely for convenience of reference, do not constitute a part hereof and shall not affect the meaning, construction or effect hereof. (c) All references herein to "Articles," "Sections" and other subdivisions are to the corresponding Articles, Sections or subdivisions of this Indenture; the words "herein," "hereof," "hereby," "hereunder" and, other words of similar import refer to this Indenture as a whole and not to any particular Article, Section or subdivision hereof. Section 11.15. Conflict with Act. In the event of any conflict between any provision of this Indenture and any provision of the Act, the provision of the Act shall prevail over the provision of this Indenture. Section 11.16. Conclusive Evidence of Regularity. Bonds issued pursuant to this Indenture shall constitute evidence of the regularity of all proceedings under the Act relative to their issuance and the levy of the Special Taxes. Section 11.17. Governing Laws. This Indenture shall be governed by and construed in accordance with the laws of the State of California. Section 11.18. Execution in Several Counterparts. This 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. OHS West:260258353.2 5~ IN WITNESS WHEREOF, the Community Facilities District has caused this Indenture to be signed in its name by its representative thereunto duly authorized, and the Trustee, in token of its acceptance of the trusts created hereunder, has caused this 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 N0.07-1 (TUSTIN LEGACY/RETAIL CENTER) By: UNION BANK OF CALIFORNIA, N.A., AS TRUSTEE By: Authorized Officer OHS West:260258353.2 51 EXHIBIT A FORM OF SERIES 2007 BOND No. CITY OF TUSTIN COMMUNITY FACILITIES DISTRICT NO. 07-1 (TUSTIN LEGACY/RETAIL CENTER) SPECIAL TAX BOND, SERIES 2007 INTEREST RATE MATURITY DATE DATED DATE CUSIP REGISTERED OWNER: PRINCIPAL AMOUNT: The City of Tustin Community Facilities District No. 07-1 (Tustin Legacy/Retail Center) (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 1 and September 1 in each year, commencing March 1, 2008 (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, 2008, 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 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 principal corporate trust office of the Trustee in OHS West:260258353.2 A-1 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. 07-1 (Tustin Legacy/Retail Center) Special Tax Bonds, Series 2007" (the "Series 2007 Bonds") in the aggregate principal amount of $ .The Series 2007 Bonds are issued pursuant to the Indenture, dated as of 1, 2007 (the "Indenture"), by and between the Community Facilities District and the Trustee, and this reference incorporates the Indenture herein, and by acceptance hereof the owner of this Bond assents to said terms and conditions. Pursuant to and as more particularly provided in the Indenture, additional bonds ("Additional Bonds") maybe issued by the Community Facilities District secured by a lien on a parity with the lien securing the Series 2007 Bonds. The Series 2007 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 Special Tax Fund, 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 2007 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 2007 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, 20_ and thereafter The Series 2007 Bonds shall be subject to mandatory redemption, in whole or in part, on any Interest Payment Date on or after March 1, 2008, 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 2007 Bonds to be redeemed), plus accrued interest thereon to the date of redemption: OHS West:260258353.2 A-2 Redemption Dates Redemption Price March 1, 20_ through March 1, 20_ September 1, 20 and March 1, 20_ September 1, 20_ and March 1, 20_ September 1, 20_ and thereafter The Series 2007 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 such Series 2007 Bonds to be redeemed, without premium, plus accrued interest thereon to the date of redemption, in the aggregate respective principal amounts specified in the Indenture. The Series 2007 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 such Series 2007 Bonds to be redeemed, without premium, plus accrued interest thereon to the date of redemption, in the aggregate respective principal amounts specified in the Indenture. The Trustee on behalf and at the expense of the Community Facilities District shall mail (by first class mail) notice of any redemption to the respective owners of any Series 2007 Bonds designated for redemption, at their respective addresses appearing on the Registration Books maintained by the Trustee, at least 30 but not more than 60 days prior to the redemption date; provided, however, that neither failure to receive any such notice so mailed nor any defect therein shall affect the validity of the proceedings for the redemption of such Series 2007 Bonds or the cessation of the accrual of interest thereon. The redemption price of the Series 2007 Bonds to be redeemed shall be paid only upon presentation and surrender thereof at the Office of the Trustee. From and after the date fixed for redemption of any Series 2007 Bonds, interest on such Series 2007 Bonds will cease to accrue. The Series 2007 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 2007 Bonds maybe exchanged at the Office of the Trustee for a like aggregate principal amount and maturity of fully registered Series 2007 Bonds of other authorized denominations. 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 2007 Bond or Series 2007 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. OHS West:260258353.2 A-3 The Indenture and the rights and obligations of the Community Facilities District, the owners of the Bonds and the Trustee may be modified or amended from time to time and at any time in the manner, to the extent, and upon the terms provided in the Indenture; provided that no such modification or amendment shall (a) extend the fixed maturity of any Bonds, reduce the amount of principal thereof or the rate of interest thereon, alter the redemption provisions thereof or extend the time of payment thereof, without the consent of the Owner of each Bond so affected, (b) reduce the percentage of Bonds the consent of the owners of which is required to effect any such amendment or modification, without the consent of the owners of all outstanding Bonds, or (c) permit the creation of any lien on the Net Special Tax Revenues and other assets pledged under the Indenture prior to or on a parity with the lien created by the Indenture, or deprive the Bonds owners of the lien created under the Indenture on such Net Special Tax Revenues and such other assets (except as expressly provided in the Indenture), without the consent of the owners of all outstanding Bonds. The Indenture contains provisions permitting the Community Facilities District to make provision for the payment of interest on, and the principal and premium, if any, of any of the Bond 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:260258353.2 A-4 IN WITNESS WHEREOF, the Community Facilities District has caused this Bond to be signed in its name and on its behalf by the manual or 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 N0.07-1 (TUSTIN LEGACY/RETAIL CENTER) By: Mayor of the City of Tustin Attest: By: City Clerk of the City of Tustin OHS West:260258353.2 A-5 CERTIFICATE OF AUTHENTICATION This is one of the Series 2007 Bonds described in the within-mentioned Indenture and registered on the Registration Books. Date: By: UNION BANK OF CALIFORNIA, N.A., AS TRUSTEE Authorized Signatory OHS West:260258353.2 A-6 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. Date: 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:260258353.2 A-7 CONTINUING DISCLOSURE AGREEMENT by and among CITY OF TUSTIN COMMUNITY FACILITIES DISTRICT N0.07-1 (TUSTIN LEGACY/RETAIL CENTER) and UNION BANK OF CALIFORNIA, N.A., AS TRUSTEE and UNION BANK OF CALIFORNIA, N.A., AS DISSEMINATION AGENT Dated as of 1, 2007 City of Tustin Community Facilities District No. 07-1 (Tustin Legacy/Retail Center) Special Tax Bonds, Series 2007 OHS West:260258729.2 CONTINUING DISCLOSURE AGREEMENT THIS CONTINUING DISCLOSURE AGREEMENT (this "Disclosure Agreement"), dated as of 1, 2007, is by and among CITY OF TUSTIN COMMUNITY FACILITIES DISTRICT NO. 07-1 (TUSTIN LEGACY/RETAIL CENTER), a community facilities district organized and existing under the laws of the State of California (the "Community Facilities District"), and UNION BANK OF CALIFORNIA, N.A., a national banking association organized and existing under 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 1, 2007 (the "Indenture"), by and between the Community Facilities District and the Trustee, the Community Facilities District has issued the City of Tustin Community Facilities District No. 07-1 (Tustin Legacy/Retail Center) Special Tax Bonds, Series 2007 (the "Series 2007 Bonds") in the aggregate principal amount of $ ;and WHEREAS, this Disclosure Agreement is being executed and delivered by the Community Facilities District and the Bank for the benefit of the holders and beneficial owners of the Series 2007 Bonds and in order to assist the underwriters of the Series 2007 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 his or her designee, or such other person as the Community Facilities District shall designate in writing to the Trustee from time to time. "Dissemination Agent" means the Bank, acting in its capacity as Dissemination Agent hereunder, 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. "Listed Events" means any of the events listed in Section 4(a) hereof. OHS West:260258729.2 "National Repository" means any Nationally Recognized Municipal Securities Information Repository for purposes of the Rule. The Nationally Recognized Municipal Securities Information Repository for purposes of the Rule are identified in the Securities and Exchange Commission website located at http://www.sec.gov/info/municipal/nrmsir.htm. "Official Statement" means the Official Statement, dated , 2007, relating to the Series 2007 Bonds. "Participating Underwriter" means any of the original underwriters of the Series 2007 Bonds required to comply with the Rule in connection with the offering of the Series 2007 Bonds. "Repository" means each National Repository and each State Repository. "Rule" means Rule 15c2-12(b)(5) adopted by the Securities and Exchange Commission under the Securities Exchange Act of 1934, as the same maybe amended from time to time. "State Repository" means any public or private .repository or entity designated by the State of California as a state repository for the purpose of the Rule and recognized as such by the Securities and Exchange Commission. As of the date of this Disclosure Agreement, there is no State Repository. 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 each Repository 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 2006-07 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 instruct the Dissemination Agent to give notice of such change in the same manner as for a Listed Event under Section 4(fl hereof. (b) Not later than 15 business days prior to the date specified in subsection (a) for providing the Annual Report to Repositories, the Community Facilities District shall provide the Annual Report (in a form suitable for reporting to the Repositories) 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 Disclosure Representative 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 Repositories by the date required in subsection (a), the Trustee shall send a notice to the Municipal Securities Rulemaking Board and the appropriate State Repository, if any, in substantially the form attached as Exhibit A. OHS West:260258729. 22 (d) The Dissemination Agent shall: (i) determine each year prior to the date for providing the Annual Report the name and address of each National Repository and each State Repository, if any; (ii) provide any Annual Report received by it to each Repository, as provided herein; and (iii) 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, stating the date it was provided and listing all the Repositories to which it was 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 Section 2(a) 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 2007 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 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.). (v) 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 OHS West:260258729. 23 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 $2,000 or less (excluding penalties and interest) maybe grouped together and such information may be provided by category. (vi) 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. (vii) 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. (viii) Aland 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 September next preceding the Annual Report Date. (ix) An update of Table 1 in the Official Statement, entitled "Direct and Overlapping Debt Summary." (c) 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 each of the Repositories or the Securities and Exchange Commission. If the document included by reference is a final official statement, it must be available from the Municipal Securities Rulemaking Board. The 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 promptly give, or cause to be given, notice of the occurrence of any of the following events with respect to the Series 2007 Bonds, if material: (i) Principal and interest payment delinquencies. (ii) Non-payment related defaults. OHS West:260258729. 24 (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 five business days 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 (f). The Trustee shall have no responsibility for determining the materiality of any of the Listed Events. (c) Whenever the Community Facilities District obtains knowledge of the occurrence of a Listed Event, whether because of a notice from the Trustee pursuant to subsection (b) or otherwise, the Community Facilities District shall as soon as possible determine if such event would be material under applicable Federal securities law. (d) If the Community Facilities District determines that knowledge of the occurrence of a Listed Event would be material under applicable Federal securities law, and there is no Dissemination Agent, the Community Facilities District shall file a notice of such occurrence with the Municipal Securities Rulemaking Board and each State Repository. Notwithstanding the foregoing, notice of Listed Events described in subsections (a)(viii) and (ix) need not be given under this subsection any earlier than the notice (if any) of the underlying event is given to holders of affected Series 2007 Bonds pursuant to the Indenture. If the Community Facilities District determines that knowledge of the occurrence of a Listed Event would be material under applicable Federal securities law, and there is a Dissemination Agent, the Community Facilities District shall promptly notify the Dissemination Agent in writing. Such notice shall instruct the Dissemination Agent to report the occurrence pursuant to subsection (f). The Community Facilities District shall provide the Dissemination Agent with a form of notice of such event in a format suitable for reporting to the Municipal Securities Rulemaking Board and each State Repository, if any. OHS West:260258729. 25 (e) If in response to a request under subsection (b), 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 Dissemination Agent in writing and instruct the Dissemination Agent not to report the occurrence pursuant to subsection (f). (f) 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 Municipal Securities Rulemaking Board and each State Repository. Notwithstanding the foregoing, notice of Listed Events described in subsections (a)(viii) and (ix) need not be given under this subsection any earlier than the notice (if any) of the underlying event is given to holders of affected Series 2007 Bonds pursuant to the Indenture. Section 5. Electronic Filing. Submission of Annual Reports and notices of Listed Events to DisclosureUSA.org or another "Central Post Office" designated and accepted by the Securities and Exchange Commission shall constitute compliance with the requirement of filing such reports and notices with each Repository hereunder, and the Community Facilities District may satisfy its obligations hereunder to file any notice, document or information with a Repository by filing the same with any dissemination agent or conduit, including DisclosureUSA.org or another "Central Post Office" or similar entity, assuming or charged with responsibility for accepting notices, documents or information for transmission to such Repository, to the extent permitted by the Securities and Exchange Commission or Securities and Exchange Commission staff or required by the Securities and Exchange Commission. For this purpose, permission shall be deemed to have been granted by the Securities and Exchange Commission staff if and to the extent the agent or conduit has received an interpretive letter, which has not been revoked, from the Securities and Exchange Commission staff to the effect that using the agent or conduit to transmit information to the Repository will be treated for purposes of the Rule as if such information were transmitted directly to the Repository. Section 6. Termination of Reporting 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 2007 Bonds. If such termination occurs prior to the final maturity of the Series 2007 Bonds, the Community Facilities District shall give notice of such termination in the same manner as for a Listed Event under Section 4(f) hereof. Section 7. 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. OHS West:260258729. 26 Section 8. Amendment; Waiver. Notwithstanding any other provision of this Disclosure Agreement, the Community Facilities District, the Trustee and the Dissemination Agent may amend this Disclosure Agreement (and the Trustee and the Dissemination Agent 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 or the Dissemination Agent), 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 2007 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 holders of the Series 2007 Bonds in the manner provided in the Indenture for amendments to the Indenture with the consent of holders, or (ii) does not, in the opinion of nationally recognized bond counsel, materially impair the interests of holders. 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 2007 Bonds. To the extent reasonably feasible, the comparison shall be quantitative. A notice of the change in the accounting principles shall be sent to the Repositories in the same manner as for a Listed Event under Section 4(f) hereof. Section 9. 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 OHS West:260258729. 27 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 10. Default. In the event of a failure of the Community Facilities District 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 holders of at least 25% aggregate principal amount of Outstanding Series 2007 Bonds, shall, upon receipt of indemnification reasonably satisfactory to the Trustee), or any holder or beneficial owner of the Series 2007 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 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 Community Facilities District or the Trustee to comply with this Disclosure Agreement shall be an action to compel performance. Section 11. 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, and the Trustee and the Dissemination Agent shall be entitled to the protections, limitations from liability and indemnities afforded to the Trustee thereunder. The Dissemination Agent and the Trustee shall have only such duties hereunder as are specifically set forth in this Disclosure Agreement. This Disclosure Agreement does not apply to any other securities issued or to be issued by the Community Facilities District. The Dissemination Agent shall have no responsibility for the preparation, review, form or content of any 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 Community Facilities District 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 Community Facilities District's obligations under this Section shall survive .the termination of this Disclosure Agreement. Section 12. Beneficiaries. This Disclosure Agreement shall inure solely to the benefit of the Community Facilities District, the Trustee, the Dissemination Agent, the Participating Underwriters and holders and beneficial owners from time to time of the Series 2007 Bonds, and shall create no rights in any other person or entity. Section 13. 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. OHS West:260258729. 2g IN WITNESS WHEREOF, the parties hereto have executed this Disclosure Agreement as of the date first above written. CITY OF TUSTIN COMMUNITY FACILITIES DISTRICT N0.07-1 (TUSTIN LEGACY/RETAIL CENTER) By: UNION BANK OF CALIFORNIA, N.A., AS TRUSTEE By: Authorized Officer UNION BANK OF CALIFORNIA, N.A., AS DISSEMINATION AGENT By: Authorized Officer OHS West:260258729. 29 EXHIBIT A NOTICE TO MUNICIPAL SECURITIES RULEMAKING BOARD OF FAILURE TO FILE ANNUAL REPORT Name of Issuer: City of Tustin Community Facilities District No. 07-1 (Tustin Legacy/Retail Center) Name of Bond Issue: City of Tustin Community Facilities District No. 07-1 (Tustin Legacy/Retail Center) Special Tax Bonds, Series 2007 Date of Issuance: , 2007 NOTICE IS HEREBY GIVEN that City of Tustin Community Facilities District No. 07- 1 (Tustin Legacy/Retail Center) (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, 2007, by and among the Community Facilities District and Union Bank of California, N.A., in its capacity as Trustee and in its capacity as Dissemination Agent. [The Community Facilities District anticipates that the Annual Report will be filed by 20_.] Dated: UNION BANK OF CALIFORNIA, N.A., as Trustee, on behalf of the City of Tustin Community Facilities District No. 07-1 (Tustin Legacy/Retail Center) cc: City of Tustin Community Facilities District No. 07-1 (Tustin Legacy/Retail Center) OHS West:260258729.2 A-1 RESOLUTION NO.07-63 A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF TUSTIN AUTHORIZING THE ISSUANCE OF NOT TO EXCEED $16,000,000 AGGREGATE PRINCIPAL AMOUNT OF CITY OF TUSTIN COMMUNITY FACILITIES DISTRICT NO. 07-1 (TUSTIN LEGACY/RETAIL CENTER) SPECIAL TAX BONDS, SERIES 2007, APPROVING THE EXECUTION AND DELIVERY OF AN INDENTURE, AN ACQUISITION AGREEMENT, A BOND PURCHASE AGREEMENT AND A CONTINUING DISCLOSURE AGREEMENT AND THE PREPARATION OF AN OFFICIAL STATEMENT AND OTHER MATTERS RELATED THERETO WHEREAS, the City Council (the "City Council") of the City of Tustin (the "City") has formed the City of Tustin Community Facilities District No. 07-1 (Tustin Legacy/Retail Center) (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 desires to provide for the issuance of City of Tustin Community Facilities District No. 07-1 (Tustin Legacy/Retail Center) Special Tax Bonds, Series 2007 (the "Bonds"), in the aggregate principal amount of not to exceed $16,000,000; WHEREAS, in order to provide for the authentication and delivery of the Bonds, to establish and declare the terms and conditions upon which the 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 an Indenture with Union Bank of California, N.A., as trustee (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, the Community Facilities District, the City and Vestar/Kimco Tustin, L.P. (the "Developer") propose that the Developer construct, or cause to be constructed, such Facilities, that the Community Facilities District purchase such Facilities from the Developer and that the Developer convey such purchased Facilities to the City, pursuant to an Acquisition and Funding Agreement, by and among the Community Facilities District, the City and the Developer (such Acquisition and Funding 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 "Acquisition Agreement"); OHS WEST:260258014.1 42081-10 GH1 WHEREAS, Banc of America Securities LLC (the "Underwriter") has presented the Community Facilities District with a proposal, in the form of a Bond Purchase Agreement, to purchase the 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 Bonds, the underwriter of the 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 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 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"); WHEREAS, there have been prepared and submitted to this meeting forms of: (a) the Indenture; (b) the Acquisition Agreement; (c) the Purchase Agreement; (d) the Continuing Disclosure Agreement; and (e) the Preliminary Official Statement; WHEREAS, the City Council desires to authorize the issuance of the Bonds and the execution and delivery of such documents and the performance of such acts by or on behalf of the Community Facilities District and the City as may be necessary or desirable to effect the issuance of the Bonds; NOW, THEREFORE, BE IT RESOLVED, by the City Council the City of Tustin, as follows: Section 1. Subject to the provisions of Section 2 hereof, the issuance of the Bonds, in an aggregate principal amount of not to exceed $16,000,000, on the terms and conditions set forth in, and subject to the limitations specified in, the Indenture, is hereby authorized and approved. The Bonds shall be dated, shall bear interest at the rates, shall mature on the dates, shall be OHS WEST:260258014.1 42081-10 GH1 2 subject to call and redemption, shall be issued in the form and shall be as otherwise provided in the Indenture, as the same shall be completed as provided in this Resolution. Section 2. The 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. The Mayor of the City, and such other members of the City Council as the Mayor may designate, the 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 of the Community Facilities District") are, and each of them is, hereby authorized and directed, for and in the name of the Community Facilities District, to execute and deliver the Indenture in the form submitted to this meeting, with such changes, insertions and omissions as the Authorized Officer of the Community Facilities District executing the same may require or approve, such requirement or approval to be conclusively evidenced by the execution of the Indenture by such Authorized Officer of the Community Facilities District; provided, however, that such changes, insertions and omissions shall not authorize an aggregate principal amount of Bonds in excess of $16,000,000, shall not result in a final maturity date of the Bonds later than September 1, 2037 and shall not result in a true interest cost for the Bonds in excess of 6.25%. Section 3. The Acquisition 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. The Authorized Officers of the Community Facilities District are, and each of them is, hereby authorized and directed, for and in the name of the Community Facilities District, to execute and deliver the Acquisition Agreement in .the form presented to this meeting, with such changes, insertions and omissions as the Authorized Officer of the Community Facilities District executing the same may require or approve, such requirement or approval to be conclusively evidenced by the execution of the Acquisition Agreement by such Authorized Officer of the Community Facilities District. The Mayor of the City, and such other members of the City Council as the Mayor may designate, the 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 of the City") are, and each of them is, hereby authorized and directed, for and in the name of the City, to execute and deliver the Acquisition Agreement in the form presented to this meeting, with such changes, insertions and omissions as the Authorized Officer of the City executing the same may require or approve, such requirement or approval to be conclusively evidenced by the execution of the Acquisition Agreement by such Authorized Officer of the City. Section 4. 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. The Authorized Officers of the Community Facilities District are, and each of them is, hereby authorized and 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 of the Community Facilities District 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 of the Community Facilities District; 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 Bonds in excess of 1.5% of the aggregate principal amount of OHS WEST:260258014.1 42081-10 GH1 3 the Bonds. The City Council hereby finds and determines that the sale of the Bonds at negotiated sale as contemplated by the Purchase Agreement will result in a lower overall cost. Section 5. 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. The Authorized Officers of the Community Facilities District are, and each of them is, hereby authorized and 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 of the Community Facilities District 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 of the Community Facilities District. Section 6. 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 maybe approved by an Authorized Officer of the Community Facilities District, be and the same is hereby approved, and the use of the Preliminary Official Statement in connection with the offering and sale of the Bonds is hereby authorized and approved. The Authorized Officers of the Community Facilities District are, and each of them is, hereby authorized and 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 7. The preparation and delivery of a final Official Statement (the "Official Statement"), and its use in connection with the offering and sale of the 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 of the Community Facilities District, such approval to be conclusively evidenced by the execution and delivery thereof. The Authorized Officers of the Community Facilities District are, and each of them is, hereby authorized and directed to execute the final Official Statement and any amendment or supplement thereto, for and in the name of the Community Facilities District. Section 8. Pursuant to Section 53345.8 of the Act, the City Council 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 Bonds will be at least three times the principal amount of the 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 9. The Authorized Officers of the Community Facilities .District and the officers and employees of the Community Facilities District 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. The Authorized Officers of the City and the officers and employees of the City are, and each of them is, hereby authorized and directed, for and in the name of the City, to do any and all things and to OHS WEST:260258014.1 42081-10 GH 1 4 execute and deliver any and all documents which they or any of them deem necessary or advisable in order to consummate the execution and delivery by the City of the Acquisition Agreement. Section 10. All actions heretofore taken by the officers and employees of the City with respect to the issuance of the Bonds, or in connection with or related to any of the agreements or documents referred to herein, are hereby approved, confirmed and ratified. Section 11. This Resolution shall take effect immediately upon its adoption. APPROVED and ADOPTED by the City Council of the City of Tustin on August 7, 2007. Doug Davert, Mayor ATTEST: Pamela Stoker, City Clerk OHS WEST:260258014.1 42081-10 GH1 5 CLERK'S CERTIFICATE STATE OF CALIFORNIA COUNTY OF ORANGE CITY OF TUSTIN I, Pamela Stoker, City Clerk of the City of Tustin, California hereby certify that the foregoing is a full, true and correct copy of a Resolution duly adopted at a regular meeting of the City Council of said City duly and regularly held at the regular meeting place thereof on August 7, 2007, of which meeting all of the members of said City Council had due notice and at which a majority thereof were present; and that at said meeting said Resolution was adopted by the following vote: AYES: COUNCIL MEMBERS: NOES: COUNCIL MEMBERS: ABSENT: COUNCIL MEMBERS: An agenda of said meeting was posted at least 72 hours before said meeting at 300 Centennial Way, Tustin, California, a location freely accessible to members of the public, and a brief general description of said Resolution appeared on said agenda. I further certify that I have carefully compared the same with the original minutes of said meeting on file and of record in my office; that the foregoing Resolution is a full, true and correct copy of the original Resolution adopted at said meeting and entered in said minutes; and that said Resolution has not been amended, modified or rescinded since the date of its adoption, and the same is now in full force and effect. Dated: , 2007 Pamela Stoker, City Clerk OHS WEST:260258014.1 42081-10 GH1 SECOND AMENDMENT TO INFRASTRUCTURE CONSTRUCTION AND PAYMENT AGREEMENT This SECOND AMENDMENT TO INFRASTRUCTURE CONSTRUCTION AND PAYMENT AGREEMENT (this "Second Amendment") is entered into as of , 2007 (the "Effective Date") by and between the CITY OF TUSTIN ("City") and Vestar/KIMCO TUSTIN, L.P., a California limited partnership ("Developer"). The City and the Developer are sometimes referred to herein individually as a "Party" and collectively as the "Parties." RECITALS A. City and the Developer entered into that certain Infrastructure Construction and Payment Agreement dated June 8, 2005 ("Original Agreement"), pursuant to the Tustin Legacy Disposition and Development Agreement (Retail Development) dated as of June 21, 2004, as amended ("DDA") pursuant to which, among other things, the Developer agreed to: (i) pay the Project Fair Share Contribution (as defined in the DDA) with respect to the Tustin Legacy Backbone Infrastructure Program and (ii) (x) to design and construct those portions of the Tustin Legacy Infrastructure Program denominated in the DDA as "Developer's Backbone Infrastructure Work" and (y) to maintain the same until the City's acceptance of such completed Tustin Legacy Backbone Infrastructure Program Improvements. The physical infrastructure improvements which are a part of Developer's Infrastructure Backbone Infrastructure Work are referred to as the "Facilities" and were set forth in Exhibit A of the Original Agreement and further broken down by Segments as described in Exhibit A. B. City and the Developer entered into the First Amendment to Infrastructure Construction and Payment Agreement dated , 2007 ("First Amendment"), in order to amend and modify Exhibit A to the Original Agreement, which sets forth the description of the Segments and Estimated Release Price for each Segment. C. The Original Agreement, as amended and modified by the First Amendment, is referred to herein as the "First Amended Agreement." D. Pursuant to a petition of the Developer, the City Council of the City has formed the City of Tustin Community Facilities District No. 07-1 (Tustin Legacy/Retail Center) ("CFD No. 07- 1") under the provisions of the Mello-Roos Community Facilities Act of 1982 (the "Act"). E. CFD No. 07-1 is authorized under the Act to levy special taxes to pay for the costs of certain public facilities (the "CFD No. 07-1 Facilities") and to authorize the issuance of bonds payable from such special taxes. F. CFD No. 07-1 is also authorized under the Act to levy special taxes to pay for certain City services and the availability of such special taxes to pay for such services constitutes valuable consideration to the City. OHS West:260272124.2 1 G. In order to provide funds to finance certain of the CFD No. 07-1 Facilities, CFD No. 07-1 is issuing the City of Tustin Community Facilities District No. 07-1 (Tustin Legacy/Retail Center) Special Tax Bonds, Series 2007 (the "CFD No. 07-1 Bonds"). H. The CFD No. 07-1 Facilities constitute Facilities (as defined in the First Amended Agreement), and the City and the Developer desire to provide for the acquisition by the City of one of the Segments (as defined in the First Amended Agreement) from the Developer and the payment to the Developer of the purchase price of such Segment, which purchase price will be payable solely from the proceeds of the CFD No. 07-1 Bonds. I. The City and the Developer desire to amend and modify the First Amended Agreement in order to provide for such acquisition and payment. OHS West:260272124.2 2 AGREEMENT NOW, THEREFORE, in consideration of the foregoing Recitals, which are hereby incorporated in the operative provisions of this Second Amendment by this reference and other good and valuable consideration the receipt and sufficiency of which is hereby acknowledged, the Parties further agree as follows: 1. Modification and Amendment of First Amended Agreement. The First Amended Agreement is hereby modified and amended by adding to Article III thereof a new Section 3.6, which shall read in full as follows: Section 3.6 Payment of Purchase Price. (a) Definitions used in this Section and not otherwise defined in Section 1.1 of the First Amended Agreement shall have the meanings set forth herein. "Indenture" means the Indenture, dated as of 1, 2007, by and between CFD No. 07-1 and the Trustee. "CFD No. 07-1" means City of Tustin Community Facilities District No. 07-1 (Tustin Legacy/Retail Center). "CFD No. 07-1 Bonds" means the City of Tustin Community Facilities District No. 07-1 (Tustin Legacy/Retail Center) Special Tax Bonds, Series 2007. "Improvement Fund" means the fund by that name established and held by the Trustee pursuant to the Indenture. "Purchase Price" means, with respect to the Subject Segment, an amount equal to the Release Price of the Subject Segment, as such Release Price is determined and confirmed in accordance with this Agreement; provided that said Purchase Price shall not exceed the amount deposited in the Improvement Fund in connection with the CFD No. 07-1 Bonds. "Subject Segment" means the Segment described in Exhibit A as [insert from Exhibit A the complete description of the Segment to be purchased with proceeds of the CFD No. 07-1 Bonds]. "Trustee" means Union Bank of California, N.A., as trustee under the Indenture. (b) On the Acceptance Date of the Subject Segment, the Developer shall transfer to the City, and the City shall acquire from the Developer, the Subject Segment. Within ten business days after the Acceptance Date of the Subject Segment, the City shall cause CFD No. 07-1 to direct the Trustee to pay from the Improvement Fund the Purchase Price of the Subject Segment to, or upon the order of, the Developer. OHS West:260272124.2 3 (c) The Purchase Price of the Subject Segment is to be paid from proceeds of the CFD No. 07-1 Bonds deposited in the Improvement Fund. Neither the City nor CFD No. 07-1 shall. be obligated to pay the Purchase Price of the Subject Segment except from the proceeds of the CFD No. 07-1 Bonds. Neither the City nor CFD No. 07-1 makes any warranty,. either express or implied, that the proceeds of the CFD No. 07-1 Bonds available for the payment of the Purchase Price of the Subject Segment will be sufficient for such purpose. (d) The payment of the Purchase Price of the Subject Segment to the Developer shall not cause or result in a reduction in the amount of the Developer's Infrastructure Payment, as determined in accordance with the provisions of this Agreement. (e) This Section provides only for the payment of the Purchase Price of the Subject Segment upon the acquisition thereof. All of the remaining provisions of this Agreement continue to be applicable to the Subject Segment, and none of such provisions are modified or amended by this Section. (f) For purposes of this Agreement, the Purchase Price of the Subject Segment paid to Developer from proceeds of the CFD No. 07-1 Bonds deposited in the Improvement Fund shall be deemed to be part of the Developer's Infrastructure Payment under Section 4.2.1 of this Agreement. 2. Miscellaneous. 2.1 Agreement Ratified. Except as specifically amended or modified herein, each and every term, covenant and condition of the First Amended Agreement is hereby ratified and shall remain in full force and effect. Each and every reference to the "Agreement" in the First Amended Agreement and in this Second Amendment shall be deemed to refer to the First Amended Agreement as amended by this Second Amendment. 2.2 Binding Agreement. This Second Amendment shall be binding upon and inure to the benefit of the parties hereto, their legal representatives, successors and permitted assigns. 2.3 Governing Law. This instrument shall be interpreted and construed in accordance with the laws of the State of California. IN WITNESS WHEREOF, City and the Developer have executed this Second Amendment as of the date first set forth above. CITY OF TUSTIN Dated: , 2007 By: William Huston, City Manager OHS West:260272124.2 4 APPROVED AS TO FORM Special Counsel for City STEEFEL, LEVITY & WEISS A PROFESSIONAL CORPORATION By: Dated: , 2007 DEVELOPER: VESTAR/KIMCO TUSTIN, L.P., a California limited partnership By: Vestar California ~.XX, L.L.C., an Arizona limited liability company Its: General Partner By: _ Name: Title: OHS West:260272124.2 RESOLUTION N0.07-65 A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF TUSTIN AUTHORIZING THE EXECUTION AND DELIVERY OF A SECOND AMENDMENT TO INFRASTRUCTURE CONSTRUCTION AND PAYMENT AGREEMENT WHEREAS, the City Council (the "City Council") of the City of Tustin (the "City") has initiated proceedings under the Mello-Roos Community Facilities Act of 1982 (the "Act") to establish City of Tustin Community Facilities District No. 07-1 (Tustin Legacy/Retail Center) (the "Community Facilities District"), to authorize the levy of special taxes (the "Special Taxes") upon the land within the Community Facilities District and to issue bonds secured by such Special Taxes; WHEREAS, the Community Facilities District is authorized under the Act to levy Special Taxes to pay for the costs of certain public facilities (the "Facilities"); WHEREAS, Section 53313.5 of the Act provides that a community facilities district may only finance the purchase of facilities whose construction has been completed, as determined by the legislative body, before the resolution of formation to establish the community facilities district is adopted pursuant to Section 53325.1 of the Act, except that a community facilities district may finance the purchase of facilities completed after the adoption of the resolution of formation if the facility was constructed as if it had been constructed under the direction and supervision, or under the authority of, the local agency establishing the community facilities district; and WHEREAS, Vestar/KIMCO TUSTIN L.P., a California limited partnership (the "Landowner") has constructed certain of the Facilities to be owned and operated by the City proposed to be financed by the Community Facilities District pursuant to the Act, and the Community Facilities District proposes to purchase such Facilities from the Landowner pursuant to a Second Amendment to Infrastructure Construction and Payment Agreement and there has been presented to this meeting a form of Second Amendment to Infrastructure Construction and Payment Agreement by and between the City and the Landowner (the "Second Amendment"); NOW, THEREFORE, BE IT RESOLVED by the City Council of the City of Tustin as follows: Section 1. The Second Amendment, 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. The Mayor of the City, and such other member of the City Council as the Mayor may designate, the City Manager of the City, the Finance Director of the City, and such other officer or employee of the City as the City Manager may designate (the "Authorized Officers") are, and each of them is, hereby authorized and directed, for and in the name of the City, to execute and deliver the Second Amendment in the form submitted to this meeting, with such changes, insertions and omissions as OHS WEST:260277397.1 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 Second Amendment by such Authorized Officer. Section 2. The officers, employees and agents of the City are hereby authorized and directed to take all actions and do all things which they, or any of them, may deem necessary or desirable to accomplish the purposes of this Resolution and not inconsistent with the provisions hereof. Section 3. This Resolution shall take effect immediately upon its adoption. APPROVED and ADOPTED by the City Council of the City of Tustin on August 7, 2007. Mayor ATTEST: Pamela Stoker, City Clerk OHS WEST:260277397.1 2 CLERK'S CERTIFICATE STATE OF CALIFORNIA ) COUNTY OF ORANGE ) CITY OF TUSTIN ) I, Pamela Stoker, City Clerk of the City of Tustin, California hereby certify that the foregoing is a full, true and correct copy of a Resolution duly adopted at a regular meeting of the City Council of said City duly and regularly held at the regular meeting place thereof on August 7, 2007, of which meeting all of the members of said City Council had due notice and at which a majority thereof were present; and that at said meeting said Resolution was adopted by the following vote: AYES: COUNCIL MEMBERS: NOES: COUNCIL MEMBERS: ABSENT: COUNCIL MEMBERS: An agenda of said meeting was posted at least 72 hours before said meeting at 300 Centennial Way, Tustin, California, a location freely accessible to members of the public, and a brief general description of said Resolution appeared on said agenda. I further certify that I have carefully compared the same with the original minutes of said meeting on file and of record in my office; that the foregoing Resolution is a full, true and correct copy of the original Resolution adopted at said meeting and entered in said minutes; and that said resolution has not been amended, modified or rescinded since the date of its adoption, and the same is now in full force and effect. Dated: , 2007 Pamela Stoker, City Clerk OHS WEST:260277397.1