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HomeMy WebLinkAbout11 CFD 04-01 - $13M - JOHN LAING HOMES 11-15-04 AGENDA REPORT Agenda Item 11 Reviewed: r City Manager Finance Director MEETING DATE: November 15, 2004 TO: William A. Huston, City Manager FROM: Ronald A. Nault, Finance Director SUBJECT: City of Tustin Resolution No. 04-92 Authorizing the Issuance of Not to Exceed $13 Million Aggregate Principal Amount of Special Tax Bonds for Tustin Community Facilities District No. 04-1 SUMMARY: This is the final stage in completing the first Community Facilities District formation and bond issuance for Tustin Legacy. Resolution No. 04-92 authorizes the issuance of $13 million of CFD bonds and executes all documents including the Indenture and Preliminary Official Statement. RECOMMENDATION: Adopt Resolution No. 04-92 Authorizing the Issuance of Not to Exceed $13 Million Aggregate Principal Amount of City of Tustin Community Facilities District No. 04-1 (Tustin Legacy/John Laing Homes) Special Tax Bonds and Authorizing the Mayor, City Manager, City Attorney and the Finance Director to execute the Indenture between the District and US Bank as Trustee, an Acquisition and Funding Agreement between the District and WL Homes LLC, a Bond Purchase Agreement between the District and CitiGroup Global Markets, Inc., a Continuing Disclosure Agreement between the District and US Bank as Trustee and US Bank as Dissemination Agent, the preparation of an Official Statement, and other matters related to the District and bond issue. FISCAL IMPACT: All expenses relating to the bond issuance and annual administration will be recovered from assessments on property within the district. DISCUSSION: The City began the process of formation of the first Legacy Community Facilities District (CFD) earlier in the year. The recommended actions will finalize the process and allow for the issuance of bonds that will provide the cash flow for the first of many Legacy infrastructure projects. Staff anticipates formation of several additional CFDs during the life of the project. establishes the template from which future CFDs will be structured. CFD 04-1 We are currently on schedule to close this first bond issue on Wednesday, December 15. Long term interest rates appear to be holding steady with modest daily fluctuations. We expect these issues to 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. Attachments U :INault( RAN )ICommunityF acilities Dist,ict04-1 ResolutionNumbe,O4-92StaffReport.doc RESOLUTION NO. 04-92 A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF TUSTIN, CALIFORNIA AUTHORIZING THE ISSUANCE OF NOT TO EXCEED $13,000,000 AGGREGATE PRINCIPAL AMOUNT OF CITY OF TUSTIN COMMUNITY FACILITIES DISTRICT NO. 04-1 (TUSTIN LEGACY/JOHN LAING HOMES) SPECIAL TAX BONDS, SERIES 2004, APPROVING THE EXECUTION AND DELIVERY OF AN INDENTURE, AN ACQUISITION AND FUNDING 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. 04-1 (Tustin Legacy/John Laing Homes) (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. 04-1 (Tustin Legacy/John Laing Homes) Special Tax Bonds, Series 2004 (the "Bonds"), in the aggregate principal amount of not to exceed $13,000,000; 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 U.S. Bank National Association, 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, WL Homes LLC (the "Developer") proposes to construct, or cause to be constructed, certain of the Facilities, and the Community Facilities District proposes to purchase such Facilities from the Developer 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"); WHEREAS, Citigroup Global Markets Inc. (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 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: the Indenture; (a) (b) the Acquisition Agreement; the Purchase Agreement; (c) (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 as may be necessary or desirable to effect the issuance of the Bonds; and WHEREAS, the City Council desires to authorize the execution and delivery of the Acquisition Agreement by the City; 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 $13,000,000, 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 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. 2 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 $13,000,000, shall not result in a final maturity date of the Bonds later than September 1, 2035 and shall not result in a true interest cost for the Bonds in excess of 6.50%. 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 submitted 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 approvai 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 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. 3 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 may be 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 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. 4 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- PASSED and ADOPTED by the City Council of the City of Tustin on November 15, 2004. Tony Kawashima, Mayor A nEST: Pamela Stoker, City Clerk 5 CLERK'S CERTIFICATE RESOLUTION NO. 04-92 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 November 15, 2004, 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: Pamela Stoker, City Clerk DOCSLAl:479316.2 42081-8 GHI INDENTURE by and between CITY OF TUSTIN COMMUNITY FACILITIES DISTRICT NO. 04-1 (TUSTIN LEGACY/JOHN LAING HOMES) and u.S. BANK NATIONAL ASSOCIATION, AS TRUSTEE Dated as of 1,2004 Relating to City of Tustin Community Facilities District No. 04-1 (Tustin Legacy/John Laing Homes) Special Tax Bonds DOCSLA1:479316.2 42081-8GHl Authentication of Bonds............................................................................... 14 Temporary Bonds......................................................................................... 14 Bonds Mutilated, Lost, Destroyed or Stolen................................................. 15 Book-Entry Bonds........................................................................................15 ARTICLE ill ISSUANCE OF BONDS; APPLICATION OF PROCEEDS; ADDmONAL BONDS Section 1.01. Section 1.02. Section 2.01. Section 2.02. Section 2.03. Section 2.04. Section 2.05. Section 2.06. Section 2.07. Section 2.08. Section 2.09. Section 3.01. Section 3.02. Section 3.03. Section 3.04. Section 3.05. Section 3.06. Section 3.07. Section 4.01. Section 4.02. Section 4.03. Section 4.04. Section 4.05. Section 5.01. DOcSLA1:479316.2 42081.8GHl TABLE OF CONTENTS ARTICLE I DEFINITIONS; EQUAL SECURITY Definitions.................................................................,.................................... 3 Equal Security .............................................................................................. II ARTICLE II THE BONDS Authorization of Bonds ........................................"...................................... 12 Terms of Series 2004 Bonds......................................................................... 12 Transfer and Exchange of Bonds.................................................................. 13 Registration Books....................................................................................... I 4 Execution of Bonds...................................................................................... I 4 Issuance of Series 2004 Bonds .....................................................................18 Application of Proceeds of the Series 2004 Bonds....................................... 18 Costs of Issuance Fund................................................................................. 18 Improvement Fund ....................................................................................... 19 Conditions for the Issuance of Additional Bonds ......................................... 20 Procedure for the Issuance of Additional Bonds........................................... 21 Additional Bonds .........................................................................................22 ARTICLE IV REDEMPTION OF BONDS Redemption of Series 2004 Bonds ............................................."................ 23 Notice of Redemption .................................................................................. 25 Selection of Bonds for Redemption.............................................................. 25 Partial Redemption of Bonds........................................................................ 25 Effect of Notice of Redemption.................................................................... 26 ARTICLE V SECURITY FOR BONDS; FLOW OF FUNDS; INVESTMENTS Pledge......................................................................,....................................27 Section 5.02. Section 5.03. Section 5.04. Section 5.05. Section 5.06. Section 5.07 . Section 5.08. Section 5.09. Section 6.01. Section 6.02. Section 6.03. Section 6.04. Section 6.05. Section 6.06. Section 6.07. Section 6.08. Section 6.09. Section 6.10. Section 6.11. Section 6.12. Section 6.13. Section 7.01. Section 7.02. Section 7.03. Section 7.04. Section 7.05. Section 7.06. Section 7.07. DOcSLA1:479316.2 42081.8 GHl TABLE OF CONTENTS Special Tax Fund..................----.....................--...............................-----......... 27 Bond Fund....................................................................................................27 Redemption Fund.................---.....................--.--.............................--............ 28 Reserve Fund................................................................................................28 Rebate Fund ..............."...................--...........................--.............................. 29 Administrative Expense Fund ...................................................................... 30 Investment of Moneys ,--""""""""""'--""""""""""""""--"--""""""""""" 30 State ..Reporting...............................................................................--.......... 31 ARTICLE VI COVENANTS Collection of Special Tax Revenues.....---.......................--...--....................... 32 Foreclosure..........................................................................,........................ 32 Punctual Payment.........................................................................................33 Extension of Payment of Bonds ...---...........................-----..........................--.33 Against Encumbrances ................................................................................. 33 Power to Issue Bonds and Make Pledge......................--.--............................ 33 Accounting Records and Financial Statements............--.............................-- 33 Tax Covenants..............................................................................................34 Continuing Disclosure..................................................................................34 Annual Reports to the California Debt and Investment Advisory Commission ..............................................,..................................................34 Non-Cash Payments of Special Taxes ....................................."................... 35 Reduction in Special Taxes .....--...................--.--...........................--.............. 35 Further Assurances.......................................................................................35 ARTICLE vn EVENTS OF DEFAULT AND REMEDIES Events of Default.........................................................................................36 Foreclosure................................................................................................... 36 Other Remedies............................................................................................36 Application of Net Special Tax Revenues After Default.............................. 37 Power of Trustee to Enforce....................................................--................... 37 Bond Owners Direction of Proceedings ....................................................--_37 Limitation on Bond Owners' Right to Sue .....................--........................".. 38 ii Section 7.08. Section 7.09. Section 7.10. Section 7.11. Section 8.01. Section 8.02. Section 8.03. Section 8.04. Section 8.05. Section 8.06. Section 9.01. Section 9.02. Section 9.03. Section 9.04. Section 10.01. Section 10.02. Section 10.03. Section 11.01. Section 11.02. Section 11.03. Section 11.04. Section 11.05. Section 11.06. Section 11.07. Section 11.08. DOcSLA1 :479316.2 42081.8 GH1 TABLE OF CONTENTS Absolute Obligation .....................................................................................38 Termination of Proceedings ......................................................................... 38 Remedies Not Exclusive ..........".................................................................. 39 No Waiver of Default................................................................................... 39 ARTICLE Vill TRUSTEE Duties and Liabilities of Trustee ...................................---............................40 Merger or Consolidation ..............................................,...............................41 Liability of Trustee....................................................................................... 41 Right to Rely on Documents ..........---............................................---............ 42 Preservation and Inspection of Documents................................................... 43 Compensation and Indemnification .............................................................. 43 ARTICLE IX MODIFICATION OR AMENDMENT Amendments Permitted ..............."............................................................... 44 Effect of Supplemental Indenture................................................................. 45 Endorsement of Bonds; Preparation of New Bonds ..............---....................45 Amendment of Particular Bonds .................................................................. 45 ARTICLE X DEFEASANCE Discharge of Indenture ......."........................................................................ 46 Bonds Deemed To Have Been Paid....................---.......................................46 Payment of Bonds After Discharge of Indenture.......................................... 47 ARTICLE XI MISCELLANEOUS Special Obligations ...................................................................................... 48 Successor Is Deemed Included in All References to Predecessor................. 48 Limitation of Rights ..................................................................................... 48 Waiver of Notice; Requirement of Mailed Notice........................................ 48 Destruction of Bonds.................................................................................... 48 Severability of Invalid Provisions ................................................................ 48 Notices .........................................................................................................49 Evidence of Rights of Bond Owners ............................................................49 iii Section 11.09. Section 11.1 O. Section 11.1 L Section 11.12. Section 11.13. Section 11.14. Section 11.15. Section 11.16. Section 11.17. Section 11.18. TABLE OF CONTENTS Disqualified Bonds.......................................................................................50 Money Held for Particular Bonds................................................................. 50 Funds and Accounts ..................................................................................... 50 Payment on Non-Business Days................................................................... 51 Waiver of Personal Liability ..............................--------..................................51 Interpretation................................................................................................ 51 Conflict with Act......--.......---------..----.....--------............................................... 51 Conclusive Evidence of Regularity """""""""""""""""""""""------"--""" 51 Execution in Several Counterparts ............................................................... 51 Governing Laws........................................................................................... 51 EXHffiIT A - FORM OF SERIES 2004 BOND......................................................--_.............A-I EXHffiIT B - PROlECT..-----.--.----..--.--..----...--.--....--............................................................... B-1 DOcSLA1:479316.2 42081.8GHl iv INDENTURE TIllS INDENTURE (this "Indenture"), dated as of 1,2004, is by and between CITY OF TUSTIN COMMUNITY FACILITIES DISTRICT NO. 04-1 (TUSTIN LEGACY/JOHN LAING HOMES), a community facilities district organized and existing under and by virtue of the laws of the State of California (the "Community Facilities District"), and U.S. BANK NATIONAL ASSOCIA nON, 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. 04-1 (Tustin Legacy/John Laing Homes) Special Tax Bonds, Series 2004 (the "Series 2004 Bonds"), in the aggregate principal amount of not to exceed $ WHEREAS, the Community Facilities District desires to provide for the issuance of additional bonds, provided that said issuance is for the purpose of refunding previously issued bonds of the Community Facilities District (the "Additional Bonds") payable from the Special Taxes on a parity with the Series 2004 Bonds (the Series 2004 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, TIllS 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 received, and in consideration of the premises and of the mutual covenants herein contained and of the purchase and DOcSLA1:479316.2 42081.8GHl acceptance of the Bonds by the owners thereof, and for other valuable consideration, the receipt whereof is hereby 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: DOcSLA1:479316.2 42081.8 GH1 2 ARTICLE I DEFINITIONS; EQUAL SECURITY Section 1.01. Defmitions. 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. "Acquisition Account" means the account by that name within the Improvement Fund established and held by the Trustee pursuant to Section 3.04. "Acqnisition Agreement" means the Acquisition and Funding Agreement, dated as of the date hereof, by and among the Community Facilities District, the City and the Developer, as originally executed or as the same may be amended from time to time in accordance with its terms. "Acquisition Project" means the means the portion of the Project described on Exhibit B hereto under the caption "Acquisition Project" "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 2004 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 govemment 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. DOcSLA1:479316.2 42081-8 GHl 3 "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. "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 I, both dates inclusive, except that the first Bond Year shall begin on the Closing Date and end on September I, 2005. "Bonds" means the City of Tustin Community Facilities District No. 04-1 (Tustin Legacy/John Laing Homes) Special Tax Bonds issued hereunder, and includes the Series 2004 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. "Capitalized Interest Account" means the account by that name within the Bond Fund established and held by the Trustee pursuant to Section 5.03. "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 and by virtue of the laws of the State of Califomia, and any successor thereto. "City Council" means the City Council of the City. "Closing Date" means the date upon which the Series 2004 Bonds are delivered to the Original Purchaser, being , 2004. "Code" means the Internal Revenue Code of 1986. DOcSLA1:479316.2 42081.8 GH1 4 "Community Facilities District" means City of Tustin Community Facilities District No. 04-1 (Tustin Legacy/John Laing Homes), a community facilities district organized and existing under and by virtue of the laws of the State of California, and any successor thereto. "Construction Account" means the account by that name within the Improvement Fund established and held by the Trustee pursuant to Section 3.04. "Construction Project" means the means the portion of the Project described on Exhibit B hereto under the caption "Acquisition Project." "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 rust annual administrative fee, fees, charges and disbursements of attomeys, 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. "Costs of Issuance Fund" means the fund by that name established and held by the Trustee pursuant to Section 3.03. "Developer" means WL Homes LLC, a limited liability company organized and existing under the laws of the State of Delaware, and its successors. "Developer Continning 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 may be 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 may be amended from time to time in accordance with the terms thereof. "DTC" means The Depository Trust Company, a limited-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 I 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 designated in a Written Certificate of the Community Facilities District delivered to the Trustee. DOcSLA1:479316.2 42081.8GHl 5 "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 [urn 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. "Interest Payment Dates" means March I and September I of each year, commencing March I, 2005, 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 and by virtue of 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 may be 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 2004 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. DOcSLA1:479316.2 42081.8 GH1 6 "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 the Developer Continuing Disclosure Agreement. "Payment Request" has the meaning ascribed to such term in the Acquisition Agreement. "Pennitted Investments" means the following, to the extent that such securities are otherwise eligible legal investments of the Community Facilities District: (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; DOCSLA1:479316.2 42081.8 GH1 7 (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: (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 CUITent 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: DOcSLA1:479316.2 42081.8 GH1 8 (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 transfelTed 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 fITSt 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); (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 I 0 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, fmn, 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 Reqnirement" 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. DOcSLA1:479316.2 42081-8GHl 9 "Redemption Price" means the aggregate amount of principal of and prenùum, 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 of subsequently issued Bonds), (b) Maximum Annual Debt Service, and (c) 125% of Average Annual Debt Service. "Resolution of Formation" means Resolution No. -, adopted by the City Council on , 2004, as originally adopted and as it may 'be amended or supplemented from time to time. "S&P" means Standard & Poor's Ratings Services, a division of The McGraw-Hili Companies, Inc., a corporation duly organized and existing under and by virtue of the laws of the State of New York, and its su=ssors 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 2004 Bonds, and any Additional Bonds issued pursuant to a Supplemental Indenture and identified as a separate Series of Bonds. "Series 2004 Bonds" means the City of Tustin Community Facilities District No. 04-1 (Tustin Legacy/John Laing Homes) Special Tax Bonds, Series 2004, 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 linùted to the amount of said lien and interest and penalties thereon. DOcSLA1:479316.2 42081.8 GHI 10 "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 2004 Bonds relating to the requirements of Section 148 of the Code, as originally executed and as it may be amended ftom time to time in accordance with the terms thereof. "Trustee" means U.S. Bank National Association, 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. "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. Eoual 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. DOcSLA1:479316.2 42081.8GHl 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. 04-1 (Tustin Legacy/John Laing Homes) 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 2004 Bonds. (a) The Series 2004 Bonds shall be designated "City of Tustin Community Facilities District No. 04-1 (Tustin Legacy/John Laing Homes) Special Tax Bonds, Series 2004." The aggregate principal amount of Series 2004 Bonds that may be issued and Outstanding under this Indenture shall not exceed $ , except as may be otherwise provided in Section 2.08. (b) The Series 2004 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 2004 Bond shall have more than one maturity date. The Series 2004 Bonds shall be dated as of the Closing Date, shall be issued in the aggregate principal amount of $ , shall mature on September I 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 (Seutember I) Principal Amount Interest Rate DOcSLA1:479316.2 42081.8 GHl 12 (c) Interest on the Series 2004 Bonds shall be payable from the Interest Payment Date next preceding the date of authentication thereof unless (i) a Series 2004 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 shall bear interest from such Interest Payment Date, (ii) a Series 2004 Bond is authenticated on or before the rust Record Date, in which event interest thereon shall be payable from the Closing Date, or (iii) interest on any Series 2004 Bond is in default as of the date of authentication thereof, in which event interest thereon shall be payable from the date to which interest has previously been paid or duly provided for. Interest shall be paid in lawful money of the United States on each Interest Payment Date. Interest shall be paid by check of the Trustee mailed by first class mail, postage prepaid, on each Interest Payment Date to the Series 2004 Bond Owners at their respective addresses shown on the Registration Books as of the close of business on the preceding Record Date. Notwithstanding the foregoing, interest on any Series 2004 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 2004 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 2004 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 2004 Bond shall be made only upon presentation and surrender of such Bond at the Office of the Trustee. (e) The Series 2004 Bonds shall be subject to redemption as provided in Article IV. (1) The Series 2004 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 Exchal11!e 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 Cornmunity 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 Bond 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 Bond Owner requesting such exchange of any tax or other governmental charge required to be paid with respect to such exchange. DOcSLA1:479316.2 42081.8 GHI 13 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. Section 2.04. Re!!istration Books. The Trustee will 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 Corumunity 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 2004 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. Temnorarv 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 may be 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. DOCSLA1:479316.2 42081.8GHl 14 Section 2.08. Bonds Mutilated. Lost. Destroved 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 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-Entrv 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 2004 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 DOcSLA1:479316.2 42081.8 GH1 15 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, 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 Districts 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, O( (ii) the Community Facilities District determines that the incumbent securities depository shall no longer so act as securities depository for such Series of Bonds, 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. DOcSLA1:479316.2 42081.8GHl 16 (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 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. DOcSLA1:479316.2 42081.8 GHl 17 ARTICLE III ISSUANCE OF BONDS; APPLICATION OF PROCEEDS; ADDITIONAL BONDS Section 3.01. Issuance of Series 2004 Bonds. The Community Facilities District may, at any time, execute the Series 2004 Bonds and deliver the same to the Trustee. The Trustee shall authenticate the Series 2004 Bonds and deliver the Series 2004 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 2004 Bonds. On the Closing Date, the proceeds of the sale of the Series 2004 Bonds received by the Trustee, $ , shall be deposited by the Trustee as follows: (a) the Trustee shall deposit the amount of $ Interest Account; in the Capitalized (b) the Trustee shall deposit the amount of $ which is equal to the Reserve Requirement; in the Reserve Fund, (c) the Trustee shall' deposit the amount of $ l~suance Fund; in the Costs of (d) the Trustee shall deposit the amount of $ Administrative Expense Fund; in the (e) the Trustee shall deposit the amount of $ Account; and in the Acquisition (f) the Trustee shall deposit the amount of $ Construction Account. in the 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 I, 2005, all amounts, if any, remaining in the Costs of Issuance Fund shall be withdrawn therefrom by the Trustee and transferred to the Construction Account, and the Costs of Issuance Fund shall be closed. DOcSLA1:479316.2 42081.8 GH1 18 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. Section 3.04. Imnrovement Fund. (a) The Trustee shall establish and maintain a separate fund designated the "Improvement Fund." Within the Improvement Fund, the Trustee shall establish and maintain a separate account designated the "Acquisition Account" and a separate account designated the "Construction Account." On the Closing Date, the Trustee shall deposit in the Acquisition Account and the Construction Account the respective amounts required to be deposited therein pursuant to Section 3.02. (b) The moneys in the Acquisition Account shall be used and withdrawn by the Trustee from time to time to pay the costs of the Acquisition 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 Acquisition Project and is a proper charge against the Acquisition Account, (v) that such amounts have not been the subject of a prior disbursement from the Acquisition Account, and (vi) whether or not such costs of the Acquisition Project are to be paid pursuant to a Payment Request submitted in accordance with the Acquisition Agreement, in each case together with a statement or invoice for each amount requested thereunder. If costs of the Acquisition Project are to be paid pursuant to a Payment Request submitted in accordance with the Acquisition Agreement, a duplicate original of the signed and approved Payment Request relating to such costs of the Acquisition Project, together with all exhibits and attachments thereto, must accompany such Written Request of the CommuIrity Facilities District. Upon the filing of a Written Certificate of the Community Facilities District stating (i) that the portion of the Acquisition Project to be financed from the Acquisition Account has been completed and that all costs of such Acquisition Project have been paid, or (ii) that such portion of the Acquisition Project has been substantially completed and that all remaiIring costs of such portion of the Acquisition Project have been determined and specifying the amount to be retained therefor, the Trustee shall (A) if the amount remaiIring in the Acquisition Account (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 Acquisition Account (less any such retention) to the Bond Fund, to be applied to the payment of interest on the Bonds; provided, however, that if so specified in a Written Request of the CommuIrity Facilities District, all or a portion of said remaiIring amount shall be transferred to the Construction Account. (c) The moneys in the Construction Account shall be used and withdrawn by the Trustee from time to time to pay the costs of the Construction 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 Construction Project and is a proper charge DOcSLA1:479316.2 42081.8 GH1 19 against the Construction Account, and (v) that such amounts have not been the subject of a prior disbursement from the Construction Account. Upon the filing of a Written Certificate of the Community Facilities District stating (i) that the portion of the Construction Project to be financed from the Construction Account has been completed and that all costs of such Construction Project have been paid, or (ii) that such portion of the Construction Project has been substantially completed and that all remaining costs of such portion of the Construction Project have been determined and specifying the amount to be retained therefor, the Trustee shall (A) if the amount remaining in the Construction Account (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 Construction Account (less any such retention) to the Bond Fund, to be applied to the payment of interest on the Bonds; provided, however, that if so specified in a Written Request of the Community Facilities District, all or a portion of said remaining amount shall be transferred to the Acquisition Account. 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 2004 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: (1) The purpose for which such Additional Bonds are to be issued; provided, that the proceeds of the sale of such Additional Bonds shall be applied only for the purpose of (i) providing funds to refund any Bonds issued hereunder, (ii) providing funds to pay Costs of l~suance incurred in connection with the issuance of such Additional Bonds, and (iii) providing funds to make any deposit to the Reserve Fund required pursuant to paragraph (6) below; (2) The principal amount and designation of such Series of Additional Bonds and the denomination or denominations of the Additional Bonds; (3) 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 (i) the serial Bonds of such Series of Additional Bonds shall be payable as to principal annually on September I 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 I, (ii) the Additional Bonds shall be payable as to interest semiannually on March I and September I of each year, except that the first installment of interest may be payable on either March I or September I and shall be for a period of not longer than twelve months and the interest shall be payable DOcSLA1:479316.2 42081.8 GH1 20 thereafter semiannually on March I and September 1, (iii) all Additional Bonds of a Series of like maturity shall be identical in all respects, except as to number or denomination, and (iv) 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; (4) Bonds; The redemption premiums and terms, if any, for such Additional (5) The form of such Additional Bonds; (6) The amount to be deposited fiom the proceeds of sale of such Additional Bonds in the Reserve Fund; provided, that the Reserve Fund shall be increased at the time that such Additional Bonds become Outstanding to an amount at least equal to the Reserve Requirement, and an amount at least equal to the Reserve Requirement shall thereafter be maintained in the Reserve Fund; and (7) Such other provisions that are appropriate or necessary and are not inconsistent with the provisions hereof; (b) Upon the issuance of such Additional Bonds, the Community Facilities District shall be in compliance with all agreements, conditions, covenants and terms contained herein required to be observed or performed by it; 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 fiom 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: (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) An opinion of Bond Counsel substantially to the effect that (i) this Indenture and all Supplemental Indentures have been duly authorized, executed and DOcSLAl:479316.2 42081.8 GHI 21 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 Califomia), 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; (d) The proceeds of the sale of such Additional Bonds; and (e) Such further documents or money as are required by the provisions hereof or by the provisions or'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. DOcSLA1:479316.2 42081.8GHI 22 ARTICLE IV REDEMPTION OF BONDS Section 4.01. RedemDtion of Series 2004 Bonds. (a) Optional Redemption. The Series 2004 Bonds shall be subject to optional redemption, in whole or in part, on any Interest Payment Date on or after March I, 2005, from any source of available funds, at the following respective Redemption Prices (expressed as percentages of the principal amount of the Series 2004 Bonds to be redeemed), plus accrued interest thereon to the date of redemption: Redemption Dates Redemvtion Price March 1,2005 through March 1, 20- September I, 20- and March 1,20- September I, 20- and March I, 20- September I, 20- and thereafter 103% 102 101 100 The Community Facilities District shall give the Trustee written notice of its intention to redeem Series 2004 Bonds pursuant to this subsection not less than 45 days prior to the applicable redemption date, unless such notice shall be waived by the Trustee. (b) Mandatory Redemption from Special Tax Prepayments. The Series 2004 Bonds shall be subject to mandatory redemption, in whole or in part, on any Interest Payment Date on or after March I, 2005, 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 2004 Bonds to be redeemed), plus accrued interest thereon to the date of redemption: Redemvtion Dates Redemption Price March I, 2005 through March I, 20- September I, 20- and March 1,20- September I, 20- and March I, 20- September I, 20- and thereafter 103% 102 101 100 (c) Mandatory Sinking Fund Redemption. The Series 2004 Bonds maturing September 1, 20- shall be subject to mandatory sinking fund redemption, in part, on September I in each year, commencing September 1,20_, at a Redemption Price equal to the principal amount of the Series 2004 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 (Sevtember I) Principal Amount to be Redeemed (Maturity) DOcSLA1:479316.2 42081.8 GH1 23 If some but not all of the Series 2004 Bonds maturing on September 1, 20- are redeemed pursuant to Section 4.01(a), the principal amount of Series 2004 Bonds maturing on September I, 20- to be redeemed pursuant to Section 4.01(c) on any subsequent September I 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 2004 Bonds maturing on September I, 20- redeemed pursuant to Section 4.01(a). If some but not all of the Series 2004 Bonds maturing on September I, 20- are redeemed pursuant to Section 4.01(b), the principal amount of Series 2004 Bonds maturing on September I, 20- to be redeemed pursuant to Section 4.01(c) on any subsequent September I shall be reduced by the aggregate principal amount of the Series 2004 Bonds maturing on September I, 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 2004 Bonds maturing September I, 20- shall be subject to mandatory sinking fund redemption, in part, on September I in each year, commencing September I, 20_, at a Redemption Price equal to the principal amount of the Series 2004 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 I) Principal Amount to be Redeemed (Maturity) If some but not all of the Series 2004 Bonds maturing on September I, 20- are redeemed pursuant to Section 4.01(a), the principal amount of Series 2004 Bonds maturing on September I, 20- to be redeemed pursuant to Section 4.01(c) on any subsequent September I 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 2004 Bonds maturing on September I, 20- redeemed pursuant to Section 4.01 (a). If some but not all of the Series 2004 Bonds maturing on September I, 20- are redeemed pursuant to Section 4.01(b), the principal amount of Series 2004 Bonds maturing on September I, 20- to be redeemed pursuant to Section 4.01(c) on any subsequent September I shall be reduced by the aggregate principal amount of the Series 2004 Bonds maturing on September I, 20- so redeemed pursuant to Section 4.01(b), such reduction to be allocated among redemption dates as nearly as practicable on a pro DOcSLA1:479316.2 42081.8 GHl 24 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 RedemDtion. 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 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 within the meaning of Section 10.01, 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 Redemntion. 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 ~I.O4. Partial Redemntion of Bonds. Upon surrender of any Bonds redeemed in part only, the Community Facilities District shall execute and the Trustee shall authenticate DOCSLA1:479316.2 42081.8 GHl 25 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. Section 4.05. Effect of Notice of Redemntion. 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, ITom 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. DOcSLA1:479316.2 42081.8GHl 26 ARTICLE V SECURITY FOR BONDS; FLOW OF FUNDS; INVESTMENTS Section 5.01. Pled2:e. 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 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. SDecial 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 ITom 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. (a) The Trustee shall establish and maintain a separate fund designated the "Bond Fund." Within the Bond Fund, the Trustee shall establish and maintain a separate account designated the "Capitalized Interest Account." On the Closing Date, the Trustee shall deposit in the Capitalized Interest Account 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 and the Capitalized Interest Account 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. (b) 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 DOcSLA1:479316.2 42081.8GHl 27 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. (c) 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 and payable, including principal due and payable by reason of mandatory sinking fund redemption of such Bonds. On each Interest Payment Date through and including September 1, 200_, the amount set forth in the following table shall be transferred from the Capitalized Interest Account to the Bond Fund. Any amount remaining in the Capitalized Interest Account on September 2, 200_, shall, unless otherwise provided in a Supplemental Indenture, be transferred to the Bond Fund. There shall additionally be transferred from the Capitalized Interest Account to the Bond Fund the amounts required to be so transferred under any Supplemental Indenture. Interest Pavment Date Amount Transferred Section 5.04. Redemvtion 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 2004 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 2004 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. 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 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. DOcSLA1:479316.2 42081-8 GHl 28 So long as no Event of Default shall have occurred and be continuing, any amount in the Reserve Fund in excess of the Reserve Requirement on September 2 of each year shall be withdrawn from the Reserve Fund by the Trustee and shall be deposited in the Bond Fund. Notwithstanding the foregoing before any such deposit shall be made, such amount shall be available for the payment of any rebate that may be owed under the Code, as specified in a Written Request of the Community Facilities District delivered to the Trustee. 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. 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 Business Day prior to the date on which such Bonds are to be redeemed, be transferred by the Trustee from the Reserve Fund to the Redemption Fund and shall 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 FUtid will be at least equal to the Reserve Requirement (excluding from the calculation thereof said Bonds to be redeemed). Such proportionate share shall be equal to the largest integral multiple of $5,000 that is not larger than the amount equal to the product of (a) the amount on deposit in the Reserve Fund on the date five Business Days prior to the date notice of redemption of such Bonds is required to be given pursuant to the provisions hereof, 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. 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. DOcSLA1:479316.2 42081.8GH1 29 (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 ExDense Fund. The Trustee shall establish and maintain a special fund designated the "Administrative Expense Fund." On the Closing Date, the Trustee shall deposit in the Administrative Expense Fund the amount required to be deposited therein pursuant to Section 3.02. The Trustee shall additionally 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. 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 putpose 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 Monevs. 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 putposes 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. 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 Capitalized Interest Account and 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 Capitalized Interest Account shall be transferred to the Acquisition Account. 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(b), be transferred to the Acquisition Account 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, DOcSLA1:479316.2 42081.8GHl 30 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 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 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. Section 5.09. State Reportinl!. 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. DOcSLA1:479316.2 42081.8 GHI 31 ARTICLE VI COVENANTS Section 6.01. Collection of Snecial 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 I 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 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 the amount required for the payment of principal of and interest on any Outstanding Bonds becoming due and payable during the Bond Year commencing in such Fiscal Year, the amount required for any necessary replenishment of the Reserve Fund and the amount estimated to be sufficient to pay the Administrative Expenses during such year, 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 I, 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 Reserve Requirement. Notwithstanding the foregoing, if the Community Facilities District DOcSLA1:479316.2 42081-8 GHl 32 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 payor 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 Commu~ity 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. Al!ainst 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 Pledl!e. 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 Bond Owners under this Indenture against all claims and demands of all Persons whomsoever. Section 6.07. Accountinl! 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 the Trustee. The Trustee shall deliver to the Community Facilities District a monthly accounting DOcSLA1:479316.2 42081.8 GHl 33 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 2004 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 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 2004 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. ContinuiIU!' 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 2004 Bonds, and upon indemnification of the Trustee to its reasonable satisfaction, shall) or any holder or beneficial owner of the Series 2004 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 2004 Bonds, and upon indemnification of the Trustee to its reasonable satisfaction, shall) or any holder or beneficial owner of the Series 2004 Bonds may, take such actions as may be necessary and appropriate to compel performance, including seeking mandate or specific performance by court order. Section 6.10. Annual ReDOrts to the California Debt and Investment Advisorv Commission. Not later than October 30 of each year, commencing October 30, 2005 and until DOcSLA1:479316.2 42081.8GHl 34 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 6.11. Non-Cash Payments of Snecial 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 6.12. Reduction in Snecial 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 securjty 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 6.13. 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. DOcSLA1:479316.2 42081.8 GHI 35 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 corrècted, 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 II 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. Section 7.03. Other Remedies. If an Event of Default shall have occurred under Section 7.0 I, 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 Bond Owner's rights; or DOcSLA1:479316.2 42081.8 GH1 36 (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 bome 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. (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. Bond Owners Direction of Proceedines. 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 DOcSLA1:479316.2 42081.8 GH1 37 Trustee 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 Bond Owners not parties to such direction. Section 7.07. Limitation on Bond Owners' Ri!!:ht to Sue. No Owner of any Bonds 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 Bonds of any remedy hereunder or under law; it being understood and intended that no one or more Owners of Bonds 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 of Bonds, 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 Oblif.!ation. 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 of the Bonds 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 Proceedinf.!s. In case any proceedings taken by the Trustee or anyone or more Bond 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 Bond Owners, then in every such case the Community Facilities District, the Trustee and the Bond 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 Bond Owners shall continue as though no such proceedings had been taken. DOcSLA1:479316.2 42081-8 GHI 38 Section 7.10. Remedies Not Exclusive. No remedy herein conferred upon or reserved to the Trustee or to the Owners of the Bonds is intended to be exclusive of any other remedy or remedies, and 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 of the Bonds 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 of the Bonds may be exercised from time to time and as often as may be deemed expedient. DOcSLA1:479316.2 42081.8GHI 39 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 persons own affairs. (b) Removal of Trustee. The Community Facilities District may upon 30 days prior written notice 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 attorueys 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 ÍJUtpose 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 Bond 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 Bond Owner (on behalf of himself and all other Bond 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 DOcSLA1:479316.2 42081-8 GH1 40 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 may be 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 fust 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 Bond 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 Jaws 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 refeJTed to, then for the purpose of this subsection the combined capital and surpJus 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. Meæer 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 DOcSLAl:479316.2 42081.8GHI 41 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 Bond Owners, whether or not such committee shall represent the Owners of a majority 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 Il1Iljority 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. Section 8.04. Ri2ht 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 lndenture 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 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 wmant to the Trustee for any action taken or suffered in good faith under the provisions of this Indenture in DOcSLA1:479316.2 42081.8 GHl 42 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 Insoection 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. Comoensation and Indenmification. 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 a pre-approved fee letter for all services rendered under this Indenture, and also all reasonable expenses, charges, legal and consulting fees pursuant to a pre- approved fee letter and other disbursements pursuant to a pre-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 termin'ation and discharge of this Indenture. DOcSLA1:479316.2 42081.8 GHl 43 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 I).ot be necessary for the consent of the Bond 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 Bond Owners for anyone 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 may be issued, subject to and in accordance with the provisions of Article ill; (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 DOCSLA1:479316.2 42081.8GH1 44 terms, conditions and provisions as may be permitted by said act or similar federal statute; (v) to modify, amend or supplement this Indenture in such manner as to cause interest on the Bonds to be excludable ITom 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 Bond 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 Bond 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 Bond Owner ITom accepting any amendment as to the particular Bonds held by such Owner. DOcSLA1:479316.2 42081.8 GH1 45 ARTICLE X DEFEASANCE Section lO.O1.Dischaœe of Indenture. If the Community Facilities District shall payor 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 lO.O2.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 shall have DOcSLA1:479316.2 42081.8 GHI 46 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 lO.O3.Pavrnent of Bonds After Discharl!e 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. DOcSLA1:479316.2 42081-8 GHI 47 ARTICLE XI MISCELLANEOUS Section 11.01.Soecial OblÍlmtions. 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 Ri!!hts. 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 may be 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.Severabilitv of Invalid Provisions. If anyone 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 DOcSLA1:479316.2 42081-8 GHl 48 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. 04-1 (Tustin Legacy/John Laing Homes) c/o City of Tustin 300 Centennial Way Tustin, California 92680 Attention: Finance Director If to the Trustee: Attention: Corporate Trust Department 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 personally served or delivered, upon delivery, (b) if given by electronic communication, whether by telex, telegram or 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, (d) if given by overnight courier, with courier charges prepaid, 24 hours after delivery to said ovemight courier, or (e) if given by any other means, upon delivery at the address specified in this Section. Section 11.08. Evidence of llli!:hts of Bond Owners. Any request, consent or other instrument required or permitted by this Indenture to be signed and executed by Bond Owners may be in any number of concurrent instruments of substantially similar tenor and shall be signed or executed by such Bond 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. DOcSLA1:4793]6.2 4208].8 GH1 49 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 I1.D9.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 deteimination. 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 H.ID.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 H.ll.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 of Section 6.07 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. DOCSLA1:479316.2 42081.8 GHI 50 Section 11.12.Pavment on Non.Business Davs. 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 Liabilitv. 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. Interoretation. (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 tö "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 Rel!ularitv. 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. Execution in Several Counteroarts. 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. Section 11.18. Governinl! Laws. This Indenture shall be governed by and construed in accordance with the laws of the State of California. DOcSLA1:479316.2 42081.8 GHI 51 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 coIpOrate name by its officer thereunto duly authorized, all as of the day and year [ust above written. CITY OF TUSTIN COMMUNITY FACILITIES DISTRICT NO. 04.1 (TUSTIN LEGACY/JOHN LAING HOMES) By: U.S. BANK NATIONAL ASSOCIATION, AS TRUSTEE By: Authorized Officer DOcSLA1:479316.2 42081.8 GHI 52 EXHIBIT A FORM OF SERIES 2004 BOND No. $ CITY OF TUSTIN COMMUNITY FACILITIES DISTRICT NO. 04-1 (TUSTIN LEGACY/JOHN LAING HOMES) SPECIAL TAX BOND, SERIES 2004 INTEREST RATE MATURITY DATE DATED DATE CUSIP REGISTERED OWNER: PRINCIPAL AMOUNT: The City of Tustin Community Facilities District No. 04-1 (Tustin Legacy/John Laing Homes) (the "Community Facilities District"), for value r=ived, hereby promises to pay, solely from the sources hereinafter described, to the Registered Owner identified above or registered assigns (the "Registered Owner"), on the Maturity Date identified above or on any earlier redemption date, the Principal Amount identified above in lawful money of the United States of America; and to pay interest thereon at the Rate of Interest identified above in like lawful money from the date hereof payable semiannually on March I and September I in each year, commencing March I, 2005 (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, 2005, 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 DOcSLA1:479316.2 42081.8 GHI A-I 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 U.S. Bank National Association, 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 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 Govemment 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. 04-1 (Tustin Legacy/John Laing Homes) Special Tax Bonds, Series 2004" (the "Series 2004 Bonds") in the aggregate principal amount of $ . The Series 2004 Bonds are issued pursuant to the Indenture, dated as of 1,2004 (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 BQnds") may be is,Sued by the Community Facilities District secured by a lien on a parity with the lien securing the Series 2004 Bonds. The Series 2004 Bonds and any Additional Bonds are collectively referred to as the "Bonds." The Indenture is entered into, and this Bond is issued under, the Act and the laws of the State of California. Capitalized undefined terms used herein shall have the meanings ascribed thereto in the Indenture. Pursuant to the Act and the Indenture, the principal of and interest on the Bonds are payable solely from Net Special Tax Revenues and the other assets pledged therefor under the Indenture. Net Special Tax Revenues generally consist of the annual special tax authorized under the Act to be collected within the Community Facilities District, after the payment therefrom of certain administrative expenses. Subject only to the provisions of the Indenture permitting the application thereof for the purposes and on the terms and conditions set forth therein, all of the Net Special Tax Revenues and any other amounts (including proceeds of the sale of the Bonds) held in the Bond Fund and the Reserve Fund established under the Indenture are pledged to secure the payment of the principal of, premium, if any, and interest on the Bonds in accordance with their terms, the provisions of the Indenture and the Act. Said pledge constitutes a [ust lien on such assets. The Series 2004 Bonds shall be subject to optional redemption, in whole or in part, on any Interest Payment Date on or after March I, 2005, from any source of available funds, at the following respective redemption prices (expressed as percentages of the principal amount of the Series 2004 Bonds to be redeemed), plus accrued interest thereon to the date of redemption: RedemDtion Dates RedemDtion Price March I, 2005 through March I, 20- September I, 20- and March 1,20- September I, 20- and March I, 20- September I, 20- and thereafter 103% 102 101 100 DOcSLA1:479316.2 42081.8 GH1 A-2 The Series 2004 Bonds shall be subject to mandatory redemption, in whole or in part, on any Interest Payment Date on or after March 1,2005, 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 2004 Bonds to be redeemed), plus accrued interest thereon to the date of redemption: Redemvtion Dates Redemption Price March 1, 2005 through March I, 20- September I, 20- and March 1,20- September I, 20- and March 1, 20- September I, 20- and thereafter 103% 102 101 100 The Series 2004 Bonds maturing September 1, 20- shall be subject to mandatory sinking fund redemption, in part, on September I in each year, commencing September I, 20- at a redemption price equal to the principal amount of such Series 2004 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 2004 Bonds maturing September I, 20- shall be subject to mandatory sinking fund redemption, in part, on September I in each year, commencing September I, 20- at a redemption price equal to the principal amount of such Series 2004 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 2004 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 2004 Bonds or the cessation of the accrual of interest thereon. The redemption price of the Series 2004 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 2004 Bonds, interest on such Series 2004 Bonds will cease to accrue. The Series 2004 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 2004 Bonds may be exchanged at the Office of the Trustee for a like aggregate principal amount and maturity of fully registered Series 2004 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 2004 Bond or Series 2004 Bonds, of DOcSLA1:479316.2 42081-8 GHI A-3 authorized denomination or denominations, for the same aggregate principal amount and of the same maturity will be issued to the transferee in exchange herefor. The Community Facilities District and the Trustee may treat the Registered Owner hereof as the absolute owner hereof for all purposes, and the Community Facilities District and the Trustee shall not be affected by any notice to the contrary. The Indenture and the rights and obligations of the Community Facilities District, the owners of the Bonds and the Trustee may be modified or amended ITOm time to time and at any time in the manner, to the extent, and upon the tenus provided in the Indenture; provided that no such modification or amendment shall (a) extend the fixed maturity of any Bonds, or reduce the principal thereof or the rate of interest borne thereby, or extend the time of payment, without the consent of the owner of such Bond, (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) pennit 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 pennitting 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 ÍÌ'Om 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 ÍÌ'Om Net Special Tax Revenues and the other assets pledged therefor thereunder. Neither the faith and credÜ 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. DOcSLA1:479316.2 42081-8 GHI 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 facsimile signatures of the Mayor of the City of Tustin and the City Clerk of the City of Tustin, all as of the Dated Date identified above. CITY OF TUSTIN COMMUNITY FACILITIES DISTRICT NO. 04.1 (TUSTIN LEGACY/JOHN LAING HOMES) By: Mayor of the City of Tustin Attest: By: City Clerk of the City of Tustin DOcSLA1:479316.2 42081.8 GH1 A-5 TRUSTEE'S CERTIFICATE OF AUTHENTICATION This is one of the Series 2004 Bonds described in the within-mentioned Indenture and registered on the Registration Books. Date: U.S. BANK NATIONAL ASSOCIATION, AS TRUSTEE By: Authorized Signatory DOcSLA1:479316.2 42081.8GHl 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. Dated: Signature Guaranteed: Note: Signature(s) must be guaranteed by an eligible guaranlOr. Note: The signature(s) on lhis Assignment must correspond wilh lhe narne(s) as written on lhe face oflhe wilhin Bond in every particular wilhout alteration or enlargement or any change whatsoever. DOcSLA1:479316.2 42081.8GHl A-7 EXHffiIT B PROJECT Acquisition Project Construction Project DOcSLA1:479316.2 42081.8 GHI B-1 ACQUISITION AND FUNDING AGREEMENT by and among CITY OF TUSTIN COMMUNITY FACILITIES DISTRICT NO. 04.1 (TUSTIN LEGACY/JOHN LAING HOMES) and CITY OF TUSTIN and WL HOMES LLC Dated as of 1,2004 City of Tustin Community Facilities District No. 04-1 (Tustin Legacy/John Laing Homes) Special Tax Bonds DOcSLA1:476389.5 42081-8 GH1 ARTICLE I Section 1.1. ARTICLE n Section 2.1. Section 2.2. Section 2.3. Section 2.4. Section 2.5. ARTICLE ill Section 3.1. Section 3.2. Section 3.3. Section 3.4. Section 3.5. Section 3.6. Section 3.7. Section 3.8. ARTICLE IV Section 4.1. Section 4.2. Section 4.3. Section 4.4. Section 4.5. ARTICLE V Section 5.1. Section 5.2. Section 5.3. Section 5.4. Section 5.5. ARTICLE VI DOCSLA1 :476389.5 42081.8 GH1 TABLE OF CONTENTS Page DEFINITIONS...............................................................................................2 Definitions..........................................................................................2 ACQUISITION OF FACILITIES """"""""""--"""""""""""""""""'--""'" 6 Acquisition of Facilities.............................................................--....... 6 Payment of Purchase Price ..--............................................................. 6 Payments of Credit Amount """"""""""""""""""""""""""""""'" 6 Dedication of Property and Easements to City................................... 7 Modifications to Segments and Acquisition Costs............................-- 7 CONSTRUCTION OF FACILITIES ............------....................................--..... 8 Preparation and Approval of Plans and Specifications ....................... 8 Duty of Developer to Construct.......................................................... 8 Public Works Requirements ..--.........................................--...--........... 8 Bonding Requirements ....................................................................... 9' Inspection; Completion ofConstruction--...................................--....IO Maintenance of Facilities; Warranties ..--..........................................10 Insurance Requirements ..............--..--.----...................................----...10 Ownership of Facilities...............................................................--....II REPRESENTATIONS, WARRANTIES AND COVENANTS; INDEMNIFICATION .........................--.......................................................13 Representations and Warranties of the Developer ............................13 Covenants of the Developer..............................................--..............14 Representations and Warranties of the Community Facilities District and the City..........................--..............................................15 Covenants of the Community Facilities District and the City........... 16 Indemnification """""""""""""""""""""""""""""""""""""""-- 16 TERMINATION; DAMAGES ....................................................................18 Termination by Agreement...........................................--..................18 Termination by City ...............................--........................................18 Termination by Developer......................----...................................... 20 Remedies in General; Damages Limited ..................--......................20 Force Majeure .................................................................................. 21 MISCELLANEOUS.....................................................................................23 -i- Section 6.1. Section 6.2. Section 6.3. Section 6.4. Section 6.5. Section 6.6. Section 6.7. Developer as Independent Contractor............................................... 23 Other Agreements.............................................................................23 Binding on Successors and Assigns.................................................. 23 Amendments.....................................................................................23 Waivers ............................................................................................23 No Third Party Beneficiaries ....................................."..................... 23 Notices .............................................................................................24 Section 6.8. Attorneys' Fees ................................................................................ 24 Section 6.9. Governing Law ...............................---...............................................24 Section 6.10. Usage of Words ................................................................................ 24 Section 6.11. Counterparts ..................................................................................... 25 EXHIBIT A - FACILITIES .....................................................................................................A-I EXHIBIT B - FORM OF PAYMENT REQUEST .................................................................. B-1 DOCSLA1 :476389.5 42081.8 GHl -ii- ACQUISITION AND FUNDING AGREEMENT THIS ACQUISITION AND FUNDING AGREEMENT (this "Acquisition Agreement") is made and entered into as of 1,2004, by and among the CITY OF TUSTIN COMMUNITY FACILITIES DISTRICT NO. 04-1 (TUSTIN LEGACY/JOHN LAING HOMES) (the "Community Facilities District"), the CITY OF TUSTIN (the "City") and WL HOMES LLC (the "Developer"). WITNESSETH: WHEREAS, the City Council of the City (the "City Council") has, pursuant to the provisions of the Mello-Roos Community Facilities Act of 1982 (the "Act"), established the Community Facilities District; WHEREAS, pursuant to the Act, the proceedings of the City Council and an election held within the Community Facilities District, the Community Facilities District is authorized to issue special tax bonds (the "Bonds") secured by special taxes (the "Special Taxes") levied within the Community Facilities District to finance certain public facilities; WHEREAS, the Community Facilities District will, upon satisfaction of the conditions and in accordance with the terms set forth in this Acquisition Agreement, purchase certain of such public facilities described herein (the "Facilities"), the City will take title thereto and the Developer will be paid from the proceeds of the Bonds and the Special Taxes for the costs of acquisition, construction and improvement of the Facilities at the prices as determined as set forth herein; WHEREAS, pursuant to the Indenture, dated as of I, 2004, by and between the Community Facilities District and U.S. Bank National Association, as trustee (the "Trustee"), the Community Facilities District will establish or cause the Trustee to establish an acquisition account into which a portion of the proceeds of the Bonds will be deposited, which amounts will be used to finance the acquisition of 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; and WHEREAS, the Facilities are to be acquired by the City under this Acquisition Agreement pursuant to the Act and, specifically, pursuant to the provisions of Sections 53313.5 thereof; NOW, THEREFORE, for and in consideration of the mutual premises and covenants contained herein, the parties hereto agree as follows: DOcSLA1:476389.5 42081.8GHI ARTICLE I DEFINITIONS Section 1.1. Defmitions. All terms defined in the lndenture shall have the same meaning in this Acquisition Agreement, except as indicated. Unless the context otherwise requires, the terms defined in this Article I shall have the meanings herein specified: "Acceptable Title" means title to land, or an easement therein, delivered free and clear of all liens, taxes, assessments, leases, easements and encumbrances, whether any such item is recorded or unrecorded, except those non-monetary items which are reasonably determined by the City not to interfere with the intended use of such land or easement and therefore are not required to be cleared from title. "Acceptance Date" means, with respect to a Segment, the date that the Purchase Price thereof is payable to the Developer pursuant to the terms hereof and of the Indenture. "Acquisition Account" means the account by that name established under the Indenture. "Acquisition Agreement" means this Acquisition and Funding Agreement, dated as of I, 2004, by and among the Community Facilities District, the City and the Developer, as originally executed or as the same may be amended from time to time in accordance with its terms. "Acquisition Cost" means, with respect to a Segment, the amount specified as the Acquisition Cost for such Segment in Exhibit A attached hereto, as the same may be modified by one or more supplements thereto entered into in accordance with Section 2.5 hereof. "Act" means the Mello-Roos Community Facilities Act of 1982, constituting Sections 53311 et seq. of the California Government Code. "Actual Cost" means, with respect to a Segment, an amount equal to the sum of (a) the Developer's actual, reasonable cost of constructing such Segment, including labor, material and equipment costs, (b) the Developer's actual, reasonable cost of designing and preparing the Plans for such Segment, including engineering services provided in connection with designing and preparing such Plans, (c) the Developer's actual, reasonable cost of environmental evaluations required specifically for such Segment, (d) the amount of any fees actually paid by the Developer to governmental agencies in order to obtain permits, licenses or other necessary governmental approvals and reviews for such Segment, (e) the Developer's actual, reasonable cost for professional services directly related to the construction of such Segment, including engineering, legal, accounting, inspection, construction staking, materials testing and similar professional services, which costs shall not exceed 5% of the costs of constructing such Segment, as determined pursuant to clause (a) of this definition, (f) the Developer's actual, reasonable cost for construction management services, which costs shall not exceed 3% of the costs of constructing such Segment, as determined pursuant to clause (a) of this definition, (g) the Developer's actual, reasonable cost of payment, performance or maintenance bonds and insurance (including any title insurance required hereby) for such Segment, and (h) the Developer's actual, reasonable cost of any real property or interest therein acquired after DOcSLAl :476389.5 42081.8 GH12 October I, 2004 from a party other than the Developer, which real property or interest therein is either necessary for the construction of such Segment (e.g., temporary construction easements, haul roads, etc.) or is required to be conveyed with such Segment in order to convey Acceptable Title thereto to the City or its designee, all as specified in a Payment Request that has been reviewed and approved by the City Engineer; provided, however, that (x) no item of cost relating to a Segment shall be included in more than one category of cost specified in clauses (a) through (h) of this definition, and (y) each item of cost shall include only amounts actually paid by the Developer to third parties and shall not include overhead or other internal expenses of the Developer. "Aff'lliate" of another Person means (a) each Person that, directly or indirectly, owns or controls, whether beneficially or as trustee, guardian, or other fiduciary, 50% or more of any class of equity securities of such other Person, and (b) each Person that controls, is controlled by or is under common control with or by such Person or any Affiliate of such Person. For the purpose of this definition, "control" of a Person shall mean the possession, directly or indirectly, of the power to direct or cause the direction of its management or policies, whether through the ownership of voting securities, by contract or otherwise. "Aggregate Overage Amount" means, as of any date, the sum of the Overage Amounts for all Segments for which the Acceptance Date occurred on or before such date. . "Aggregate Savings Amount" means, as of any date, the sum of the Savings Amounts for all Segments for which the Acceptance Date occurred on or before such date. "Bond Year" has the meaning ascribed thereto in the Indenture. "Bonds" means the City of Tustin Community Facilities District No. 04-1 (Tustin Legacy/John Laing Homes) Special Tax Bonds issued under the Indenture. "City" means the City of Tustin, a general law city organized and existing under the laws of the State, and its successors. "City Engineer" means the City Engineer of the City, and any designee of said City Engineer. "Closing Date" has the meaning ascribed thereto in the Indenture. "Community Facilities District" means the City of Tustin Community Facilities District No. 04-1 (Tustin Legacy/John Laing Homes), a community facilities district organized and existing under the laws of the State, and its successors. "Credit Amount" means, as of any date, the remainder of (a) the Aggregate Savings Amount as of such date, minus (b) the Aggregate Overage Amount as of such date, minus (c) the aggregate amount paid to the Developer prior to such date pursuant to Section 2.3 hereof; provided, however, that in no event shall the Credit Amount exceed the remainder of (x) the Aggregate Savings Amount as of such date, minus (y) the aggregate amount paid to the Developer prior to such date pursuant to Section 2.3 hereof. DOcSLA1:476389.5 42081.8 GH13 "Developer" means WL Homes LLC, a limited liability company organized and existing under the laws of the State of Delaware, and its successors and assigns, acting as the master developer of inftastructure within the Community Facilities District. "Developer Certificate" means the certificate executed by the Developer, dated the date of the Purchase Agreement, the form of which is attached as Exhibit - to the Purchase Agreement. "Developer Representative" means the person or persons designated as such in a certificate signed by the Developer and delivered to the Community Facilities District and the Trustee, which certificate shall contain an original or specimen signature of each person so designated. "Disposition and Development Agreement" means the Tustin Legacy Disposition and Development Agreement for Parcel 34, dated October 31,2003, by and between the City and the Developer, as originally executed or as the same may be amended ftom time to time in accordance with its terms. "Facilities" means the facilities described in Exhibit A attached hereto. "General Prevailing Wage Rates" means those rates as determined by the Director of the Department of Industrial Relations of the State of California. "Hazardous Material" has the meaning ascribed thereto in the Disposition and Development Agreement. "Indenture" means the Indenture, dated as of I, 2004, by and between the Community Facilities District and the Trustee, as originally executed or as the same may from time to time be supplemented or amended by any Supplemental Indenture entered into pursuant to the provisions thereof or, if such Indenture has been discharged in accordance with its terms, the indenture, trust agreement, fiscal agent agreement or similar instrument, regardless of title, pursuant to which bonds, notes or other evidences of indebtedness of the Community Facilities District have been issued and are outstanding, as originally executed or as the same may from time to time be supplemented or amended pursuant to the provisions thereof. "Official Statement" means the Official Statement of the Community Facilities District relating to the City of Tustin Community Facilities District No. 04-1 (Tustin Legacy/John Laing Homes) Special Tax Bonds, Series 2004. "Overage Amount" means, with respect to a Segment, the amount, if any, by which the Actual Cost of such Segment exceeds the Acquisition Cost of such Segment. "Payment Request" means the document to be provided by the Developer to substantiate the Purchase Price of one or more Segments, which shall be substantially in the form of Exhibit B attached hereto. DOCSLA1:476389.5 42081.8 GH14 "Person" means an individual, a corporation, a partnership, an association, a limited liability company, a joint stock company, a trust, any unincorporated organization or a government or political subdivision thereof. "Plans" means the plans and specifications for the Facilities prepared or to be prepared at the direction ofthe Developer pursuant to Section 3.1 hereof. "Property" means the real property located within the Community Facilities District. "Purchase Agreement" means the Bond Purchase Agreement, dated 2004, by and between the Community Facilities District and the underwriter named therein. "Purchase Price" means, with respect to a Segment, subject to the provisions of Section 2.2 hereof, the lesser of the Actual Cost or the Acquisition Cost of such Segment. "Rate and Method" has the meaning ascribed thereto in the Indenture. "Related Property" means, with respect to a Segment, the property on, in or over which such Segment is located, which property, or an easement thereon or other interest therein, is dedicated or otherwise conveyed to the City as provided in Section 2.4 hereof. "Savings Amount" means, with respect to a Segment, the amount, if any, by which the Acquisition Cost of such Segment exceeds the Actual Cost of such Segment. "Segments" means the discrete portions of the Facilities identified as such and described in Exhibit A attached hereto, as the same may be modified by one or more supplements thereto entered into in accordance with Section 2.5 hereof. "Special Taxes" has the meaning ascribed thereto in the Indenture. "State" means the State of California. "Trustee" means U.S. Bank National Association, as trustee under the Indenture, and any successor thereto permitted under the Indenture. DOcSLA1:476389.5 42081-8 GH15 ARTICLE II ACQUISITION OF FACILITIES Section 2.1. AcQuisition of Facilities. The Developer hereby agrees to sell to the Community Facilities District, and the Community Facilities District hereby agrees to purchase from the Developer, each Segment for the Purchase Price thereof, subject to the terms and conditions hereof. Title to each Segment purchased pursuant hereto shall be transferred to the City as of the Acceptance Date of such Segment. In connection with the execution hereof, the Community Facilities District is issuing the Bonds. The Purchase Price of the Segments is to be paid from proceeds of the Bonds deposited in the Acquisition Account. The Community Facilities District shall not be obligated to pay the Purchase Price of the Segments except from the proceeds of the Bonds. Neither the Community Facilities District nor the City makes any warranty, either express or implied, that the proceeds of the Bonds available for the payment of the Purchase Price of the Segments will be sufficient for such purpose. Section 2.2. Pavment of Purchase Price. In order to receive the Purchase Price for a completed Segment, the Developer shall deliver to the Community Facilities District and the City Engineer (a) a Payment Request for such Segment, together with all attachments and exhibits to be included therewith, (b) a copy of the documents conveying, or which previously conveyed, to the City Acceptable Title to the Related Property of such Segment, as described in Section 2.4 hereof, and (c) a copy of the Notice of Completion of such Segment which will be filed in accordance with Section 3093 of the California Civil Code, if applicable. Upon receipt of a completed Payment Request (and accompanying documentation) for a Segment, the City Engineer shall conduct a review in order to confirm that such Segment was constructed in accordance with the Plans therefor and to verify and approve the Actual Cost of such Segment specified in such Payment Request. The Developer agrees to cooperate with the City Engineer in conducting each such review and to provide the City Engineer with such additional information and documentation as is reasonably necessary for the City Engineer to conclude each such review. The City agrees to cause the City Engineer to conduct such review without unreasonable delay. If the City Engineer determines that the Actual Cost specified in such Payment Request as initially submitted exceeds the Developer's actual, reasonable cost of constructing such Segment, the Developer shall resubmit such Payment Request, with the Actual Cost specified therein modified so as to take into account such determination by the City Engineer. Upon confirmation that such Segment has been constructed in accordance with the Plans therefor, and verification and approval of the Actual Cost of such Segment, the City Engineer shall sign the Payment Request and forward the same to the Community Facilities District. Upon receipt of the reviewed and fully signed Payment Request, the Community Facilities District shall, without unreasonable delay, direct the Trustee to pay the Purchase Price of such Segment to the Developer. Section 2.3. Pavments of Credit Amount. If and when the amount of the Credit Amount is greater than zero, the Developer shall be entitled to be paid from the Acquisition Account an amount equal to the Credit Amount. In order to receive all or a portion of the Credit DOcSLA1:476389.5 42081-8 GH16 Amount, the Developer shall deliver to the Community Facilities District a written request signed by a Developer Representative stating (a) the amount to be paid, and (b) that such amount does not exceed the amount of the Credit Amount as of the date of delivery of such written request. Such written request shall be accompanied by a calculation demonstrating the amount of the Credit Amount as of the date of delivery of such written request. Upon receipt of such written request and accompanying calculation, the Community Facilities District shall, without unreasonable delay, direct the Trustee to pay such amount from the Acquisition Account to the Developer. Section 2.4. Dedication of ProDertv and Easements to City. Acceptable Title to all property on, in or over which each Segment will be located shall be deeded over to the City by way of grant deed, quitclaim, or dedication of such property, or easement thereon, if such easement is approved by the City as being a sufficient interest therein to permit the City to properly own, operate and maintain such Segment located therein, thereon or thereover, and to permit the Developer to perform its obligations as set forth in this Acquisition Agreement. Upon the request of the City, the Developer shall furnish to the City a title report for such property not previously dedicated or otherwise conveyed to the City or its designee, for review and approval at least 20 calendar days prior to the transfer of Acceptable Title to a Segment to the City or its designee. The City shall approve the title report unless it reveals a matter which, in the reasonable judgment of the City, could materiallÝ affect the City'š or its designee's use and enjoyment of any part of the property or easement covered by the title report. In the event the City does not approve the title report, the City shall not be obligated to accept title to such Segment, and the Community Facilities District shall not be obligated to pay any portion of the Purchase Price for such Segment, until the Developer has cured such objections to title to the reasonable satisfaction of the City. Section 2.5. Modifications to Sel!ments and Aconisition Costs. The Community Facilities District, the City and the Developer may make modifications in the composition and description of a Segment, or in the amount of the Acquisition Cost for a Segment, whenever the Community Facilities District, the City and the Developer deem such modifications to be appropriate. Any such modification shall be approved and implemented by the Community Facilities District, the City and the Developer executing a supplement to Exhibit A containing a description of the modified Segment and, if applicable, Acquisition Cost. Upon the execution of any such supplement to Exhibit A, the description of the Segment and, if applicable, the Acquisition Cost in Exhibit A shall be deemed to have been modified in accordance therewith. DOcSLA1:476389.5 42081.8 GH17 ARTICLE III CONSTRUCTION OF FACILITIES Section 3.1. Preoaration and Aooroval of Plans and Soecifications. To the extent that it has not already done so, the Developer shall cause Plans to be prepared for the Facilities. The Developer shall obtain the written approval of the Plans from all appropriate departments of the City or from any other public agency or public utility from which such approval must be obtained. Copies of all such Plans shall be provided by the Developer to the City Engineer. Section 3.2. Dutv of Develooer to Construct. The Developer shall construct or cause to be constructed the Segments in accordance with the approved Plans and the specifications approved by the City Engineer. The Developer shall perform all of its obligations hereunder and shall conduct all operations with respect to the construction of the Segments in a good, workmanlike and commercially reasonable manner, with the standard of diligence and care normally employed by duly qualified persons utilizing commercially reasonable efforts in the performance of comparable work and in accordance with generally accepted practices appropriate to the activities undertaken. The Developer shall not be relieved of its obligation to construct a Segment, and convey such Segment to the City in accordance with the terms hereof, even if the Purchase Price for such Segment is less than the Actual Cost of such Segment. Notwithstanding ¡he foregoing, nothing set forth in this Acquisition Agreement shall be construed to require the Developer to perform any work requiring a contractor's license, nor shall the Developer be deemed to be perfornring construction services pursuant to this Acquisition Agreement. Section 3.3. Public Works ReQuirements. (a) In order to insure that the Segments are constructed as if they had been constructed under the direction and supervision, or under the authority of, the City, so that they may be acquired pursuant to California Government Code Section 53313.5, the Developer shall comply with all of the requirements of this Section. (b) The contract for the construction of any Facilities within a Segment or Segments shall be awarded to the responsible bidder submitting the lowest responsive bid for the construction of such Facilities after notice inviting sealed bids is given as required for public works projects pursuant to any applicable provisions of the California Public Contracts Code and the rules, regulations and policies of the City, including the Uniform Public Construction Cost Accounting Act, to which the City, pursuant to Resolution No. 03-37, adopted by the City Council of the City on March 17,2003, has elected to subject itself. (c) The Developer shall require, and the specifications and bid and contract documents shall require, all contractors, subcontractors, vendors, equipment operators and owner operators, in each such case to the extent such Persons are engaged to perform work on a Segment, to pay at least General Prevailing Wage Rates to all workers employed in the execution of the contract, to post a copy of the General Prevailing Wage Rates at the job-site in a conspicuous place available to all employees and applicants for employment, and to otherwise comply with applicable provisions of the California Labor Code, the California Government Code and the California Public Contracts Code relating to public works projects of cities. The DOcSLAI:476389.5 42081.8 GH18 City has provided the Developer with copies of tables setting forth the General Prevailing Wage Rates, and the Developer hereby acknowledges receipt thereof. The Developer shall require, and the specifications and bid and contract documents shall require, for all contracts involving in excess of $30,000 or 20 working days, all contractors, subcontractors, vendors, equipment operators and owner operators, in each such case to the extent such Persons are engaged to perform work on a Segment, to comply with the provisions of Section 1777.5 ofthe California Labor Code with respect to all apprenticeable occupations upon the project. (d) In performing its obligations under this Acquisition Agreement, the Developer shall comply with the applicable nondiscrimination and affirmative action provisions of the laws of the United States of America, the State and the City. In performing its obligations under this Acquisition Agreement, the Developer shall not discriminate in its employment practices against any employee, or applicant for employment, because of such person's race, religion, national origin, ancestry, sex, sexual orientation, age, physical handicap, marital status or medical condition. The Developer shall require, in any contract it enters into for the construction of any Segment, that the contractor be subject to the provisions of this paragraph. (e) The Developer shall require each contractor, subcontractor, vendor, equipment operator and owner operator, in each such case to the extent such Person is engaged to perform work on a Segment, to provide proof of insurance coverage satisfying the requirements of Section 3.7 hereof throughout the term of the construction of such Segment; provided, however, that, rather than requiring such contractors, subcontractors, vendors, equipment operators and owner operators to provide such insurance, the Developer may elect to provide the same for the benefit of such contractors, subcontractors, vendors, equipment operators and owner operators. (f) The Developer shall comply, and shall cause each contractor, subcontractor, vendor, equipment operator and owner operator, in each such case to the extent such Person is engaged to perform work on a Segment, to comply, with such other requirements relating to the construction of the Segments as the City may impose by written notification delivered to the Developer, to the extent legally required as a result of changes in applicable federal, State or City laws. (g) The Developer shall require, and the specifications and bid and contract documents shall require, all contractors, subcontractors, vendors, equipment operators and owner operators, in each such case to the extent such Persons are engaged to perform work on a Segment, to submit certified weekly payroll records to the Developer for inspection by the City, and to furnish certified payroll records to the City promptly upon request. The Developer shall provide proof to the City, at such intervals and in such form as the City may reasonably require, that the foregoing requirements have been satisfied as to all of the Segments. Section 3.4. Bondißl! Requirements. Prior to the commencement of construction of a Segment, the Developer shall secure, or caused to be secured, appropriate bonds for the construction and completion of construction of such Segment, a faithful performance bond and a DOCSLA1 :476389.5 42081.8 GH19 bond for the security of laborers and materialmen, each in an amount that is equal to 100% of the contract price for such Segment. Each issuer of any such bond shall be duly authorized to issue such bond in the State. Each such bond shall comply with the provisions of California Government Code Sections 66499.1 and 66499.2. Section 3.5. Insoection: Comnletion of Construction. The City shall have primary responsibility for providing inspection of the work of construction of the Segments to insure that the work of construction is accomplished in accordance with the Plans. The City's personnel shall have access to the site of the work of construction at all reasonable times for the purpose of accomplishing such inspection. Upon the completion of the construction of a Segment to the satisfaction of the City's inspectors, the Developer shall notify the Community Facilities District, the City and the City Engineer in writing that the construction of such Segment has been completed in accordance with the Plans. No later than ten days after receiving notification pursuant to Section 2.2 that a Segment was constructed in accordance with the Plans therefor, the Developer shall forthwith file with the Orange County Recorder a Notice of Completion, in form acceptable to the City Engineer, pursuant to the provisions of Section 3093 of the California Civil Code, if applicable. The Developer shall fumish to the City and the Community Facilities District a duplicate copy of each such Notice of Completion showing thereon the date of filing with said çounty Recorder: Section 3.6. Maintenance of Facilities: Warranties. The Developer shall maintain each Segment in good and safe condition until the Acceptance Date of such Segment. Prior to the Acceptance Date of a Segment, the Developer shall be responsible for maintaining such Segment in proper operating condition, and shall perform such maintenance on such Segment as the City Engineer reasonably detennines to be necessary. As of the Acceptance Date of a Segment, the performance bond provided by the Developer for such Segment pursuant to Section 3.4 hereof shall be reduced to an amount equal to 10% of the original amount thereof and shall serve as a warranty bond to guarantee that such Segment will be free from defects due to faulty workmanship or materials for a period of 12 months from the Acceptance Date of such Segment, or the Developer may elect to provide a new warranty bond in such an amount. As of the Acceptance Date of a Segment, the Developer shall assign to the City all of the Developer's rights in any warranties, guarantees, maintenance obligations or other evidence of contingent obligations of third Persons with respect to such Segment. Section 3.7. Insurance ReQnirements. The Developer shall or, pursuant to Section 3.3(e) hereof, shall cause each contractor, subcontractor, vendor, equipment operator and owner operator, in each such case to the extent such Person is engaged to perform work on a Segment, to, at all times prior to the final Acceptance Date of all Segments, maintain, deliver to the City and keep in full force and effect, the following insurance policies: (a) general liability insurance which includes, but is not limited to, coverage for personal injury, premises and operations liability, losses related to independent contractors, products and completed operations, contractual liability, explosion, collapse, and underground hazards having not less than a combined single limit of $2,000,000 for one or more persons injured and property damage in each occurrence; DOCSLAI :476389.5 42081.8 GH11O (b) automobile liability insurance which includes, but is not limited to, owned, non-owned and hired automobiles, in the amount of not less than a combined single limit of $1,000,000 for one or more persons injured and property damage in each accident; (c) course of construction insurance to the extent that it may apply to materials to be used in the construction of a Segment, during the course of construction of such Segment; and (d) worker's compensation insurance as required by the California Labor Code for all persons employed directly or indirectly by Developer or any contractor or subcontractor in connection with the construction of any Segment, accompanied by employer's liability insurance in the amount of not less than $1,000,000 policy limit per employee, which policy shall contain a waiver of subrogation in favor of the City. Each policy of insurance shall be issued by an insurer licensed to do business in the State by the California Department of Insurance, which insurer shall have a Bests' rating of Grade A and Class VII (seven) (if an Admitted Insurer) and Grade A- and Class X (ten) or better (if offered by a Surplus Line Broker); provided, however, that policies of worker's compensation insurance may be issued by insurers with a Bests' rating of no less than B- and Class VII (seven) or better or such insurance may be provided through .the State Compensation Fund. Each policy of insurance shall provide, or shall bear an endorsement that provides (a) that the City, its elective and appointive boards, officers, agents and employees are additional insureds under the policy as to the work being performed under the contract, (b) that the coverage provided under the policy is primary and no other insurance carried by the City will be called upon to contribute to a loss under the policy, (c) that the policy covers blanket contractual liability, (d) that the policy limits or liability are provided on an occurrence basis, (e) that the policy covers broad form property damage liability, (1) that the policy covers personal injury as well as bodily injury liability, (g) that the policy covers explosion, collapse and underground hazards, (h) that the policy covers products and completed operations, (i) that the policy covers use of non-owned automobiles, and (j) that the coverage provided by the policy shall not be cancelled or terminated unless 30 days' written notice is first given to the City. If Developer fails to maintain or cause to be maintained any insurance required hereby, the City may, but shall not be obligated to, procure such insurance and recover the amount of the premiums therefor from the Developer or retain such amount from any monies due to the Developer under this Acquisition Agreement. The failure of the City to procure any such insurance shall in no way relieve the Developer of any of its obligations under this Acquisition Agreement. Section 3.8. Ownershio of Facilities. Notwithstanding the fact that some or all of the Facilities may be constructed in dedicated street rights-of-way or on property which has been or will be dedicated to the City, the Facilities shall be and remain the property of the Developer until title thereto is conveyed to the City as provided herein. Such ownership by the Developer shall likewise not be affected by any agreement which the Developer may have entered into or may enter into with the City pursuant to the provisions of the Subdivision Map Act, Section DOcSLAl :476389.5 42081-8 GH111 66410 et seq. of the California Government Code, and the provisions of this Section shall control. DOcSLAI :476389.5 42081-8 GH112 ARTICLE IV REPRESENTATIONS, WARRANTIES AND COVENANTS; INDEMNIFICATION Section 4.1. ReDresentations and Warranties of the DeveloDer. The Developer makes the following representations and warranties for the benefit of the Community Facilities District and the City: (a) Organization. The Developer represents and warrants that the Developer is a limited liability company duly organized, validly existing and in good standing under the laws of the State of Delaware, is authorized to conduct business and is in good standing under the laws of the State, and has the power and authority to own its properties and assets and to carry on its business as now being conducted and as now contemplated. (b) Authority. The Developer represents and warrants that the Developer has the power and authority to enter into this Acquisition Agreement, and has taken all action necessary to cause this Acquisition Agreement to be executed and delivered, and this Acquisition Agreement has been duly and validly executed and delivered on behalf of the Developer. (c) Binding Obligation. The Developer represents and warrants that this Acquisition Agreement is a valid and binding obligation of the Developer and is enforceable against the Developer in accordance with its terms, subject to bankruptcy, insolvency, reorganization or other similar laws affecting the enforcement of creditors' rights in general and by general equity principles. (d) Official Statement. The Developer represents and warrants that the statements relating to the Developer, its property ownership, its contractual arrangements, the development of the Property and the risks associated therewith contained in the Official Statement, including statements relating to Hazardous Materials on, under or in the Property and the risks associated therewith and statements relating to material legal impediments to the Developer's proceeding with and completing the construction of the Facilities or to the development of the Property as contemplated by the Developer, did not, as of the date of the Official Statement, contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading. (e) Environmental Matters Relating to Segments. The Developer represents and warrants that neither the Developer, nor any subcontractor, agent or employee thereof, has used, generated, manufactured, procured, stored, released, discharged or disposed of (whether accidentally or intentionally) any Hazardous Material on, under or in any Segment or the Related Property of such Segment, or transported (whether accidentally or intentionally) any Hazardous Material to or from such Segment or such Related Property, in violation of any federal, state or local law, ordinance, regulation, rule or decision regulating Hazardous Material. DOcSLAl :476389.5 42081.8 GHl13 The Developer represents and warrants that, as of the Acceptance Date of each Segment, there will not be present on, under or in such Segment or the Related Property of such Segment, or any portion thereof, any Hazardous Materials, except for (i) any types or amounts that do not require remediation or mitigation under federal, state or local laws, ordinances, regulations, rules or decisions, (ii) those that have been remediated or mitigated in full compliance with applicable federal, state or local laws, ordinances, regulations, rules or decisions, or (iii) those with respect to which ongoing remediation or mitigation is being performed in full compliance with applicable federal, state or local laws, ordinances, regulations, rules or decisions. (f) Environl11£ntal Matters Relating to Property. The Developer represents and warrants that neither the Developer, nor any subcontractor, agent or employee thereof has used, generated, manufactured, procured, stored, released, discharged or disposed of (whether accidentally or intentionally) at any time on or prior to the date hereof any Hazardous Material on, under or in the Property, or any structure, fixtures, equipment, or other objects thereon, or transported (whether accidentally or intentionally) any Hazardous Material to or from the Property, or any structure, fixtures, equipment, or other objects thereon, in violation of any federal, state or local law, ordinance, regulation, rule or decision regulating Hazardous Material. The Developer represents and warrants that there is not present on, under or in the Property or any structure, fixtures, equipment, or other objects thereon, or any portion thereof, any Hazardous Materials, except for (i) any types or amounts that do not require remediation or mitigation under federal, state or local laws, ordinances, regulations, rules or decisions, (ii) those that have been remediated or mitigated in full compliance with applicable federal, state or local laws, ordinances, regulations, rules or decisions, and (iii) those with respect to which ongoing remediation or mitigation is being performed in full compliance with applicable federal, state or local laws, ordinances, regulations, rules or decisions. The Developer represents and warrants that the Developer has not received notice of, and to the best of the Developer's knowledge there is not, any proceeding or formal inquiry by any governmental authority, body or agency with respect to the presence of Hazardous Materials on, under or in the Property, or any structure, fixtures, equipment, or other objects thereon, or the migration thereof from or to other property. The Developer represents and warrants that, except as disclosed in the Official Statement, there is no legal impediment that would make infeasible (i) the Developer's proceeding with and completing the construction of the Facilities, or (ii) the development of the Property as contemplated by the Developer. Section 4.2. Covenants of the DeveloDer. The Developer makes the following covenants for the benefit of the Community Facilities District and the City: (a) Completion of Segments. The Developer covenants that it will use its reasonable and diligent efforts to do all things which may be lawfully required of it in DOcSLAl :476389.5 42081.8 GHI14 order to cause the Segments to be completed in accordance with this Acquisition Agreement. (b) Compliance with Laws. The Developer covenants that, while the Facilities are owned by the Developer or required pursuant to this Acquisition Agreement to be maintained by the Developer, it will not commit, suffer or permit any of its agents, employees or contractors to commit any act to be done in, upon or to the Facilities in violation in any material respect of any law, ordinance, rule, regulation or order of any governmental authority or any covenant, condition or restriction now or hereafter affecting the Property or the Facilities. (c) Payment Requests. The Developer covenants that (i) it will not request payment from the Community Facilities District under this Acquisition Agreement for the acquisition of any improvements that are not part of a Segment, and (ii) it will diligently follow all procedures set forth in this Acquisition Agreement with respect to Payment Requests. (d) Financial Records. Until the final Acceptance Date of the Facilities, the Developer covenants to maintain proper books of record and account for the Facilities and all costs related thereto. The Developer covenants that such accounting books will be maintained in' accordance wit!Í generally accepted accounting principles, and will be available for inspection by the Community Facilities District and the City within a reasonable time after the Community Facilities District or the City submits a written request to the Developer requesting that such books be made available for inspection. (e) Environmental Matters Relating to Segments. The Developer covenants that neither the Developer, nor any subcontractor, agent or employee thereof, will use, generate, manufacture, procure, store, release, discharge or dispose of (whether accidentally or intentionally) at any time on or prior to the Acceptance Date of each Segment any Hazardous Material on, under or in such Segment or the Related Property of such Segment, or transport (whether accidentally or intentionally) any Hazardous Material to or from such Segment or such Related Property, in violation of any federal, state or local law, ordinance, regulation, rule or decision regulating Hazardous Material in effect at the time of such use, generation, manufacturing, procurement, storage, release, discharge, disposal or transportation. (0 Permits. The Developer covenants that it will obtain all governmental or other permits required to proceed with the construction of the Facilities and that it will pay all fees relating thereto that are required to be paid. Section 4.3. Representations and Warranties of the Community Facilities District and the City. The Community Facilities District and the City make the following representations and warranties for the benefit of the Developer: (a) Authority. The Community Facilities District represents and warrants that the Community Facilities District has the power and authority to enter into this Acquisition Agreement, and has taken all action necessary to cause this Acquisition DOcSLA1:476389.5 42081.8 GHll5 Agreement to be executed and delivered, and this Acquisition Agreement has been duly and validly executed and delivered on behalf of the Community Facilities District. The City represents and warrants that the City has the power and authority to enter into this Acquisition Agreement, and has taken all action necessary to cause this Acquisition Agreement to be executed and delivered, and this Acquisition Agreement has been duly and validly executed and delivered on behalf of the City. (b) Binding Obligation. The Community Facilities District represents and warrants that this Acquisition Agreement is a valid and binding obligation of the Community Facilities District and is enforceable against the Community Facilities District in accordance with its terms. The City represents and warrants that this Acquisition Agreement is a valid and binding obligation of the City and is enforceable against the City in accordance with its terms. Section 4.4. Covenants of the Communitv Facilities District and the Citv. The Community Facilities District and the City make the following covenants for the benefit of the Developer: (a) Completion of Segments. The City covenants that it will use its reasonable and diligent efforts to take all actions which may be lawfully required of it in issuing . permits, processing and approving Plans and inspecting the Segments in accordance with this Acquisition Agreement. (b) Payment Requests. Each of the Community Facilities District and the City covenants that it will diligently follow all procedures set forth in this Acquisition Agreement with respect to each Payment Request. (c) Financial Records. Until the final Acceptance Date, the Community Facilities District covenants to maintain proper books of record and account for the Special Taxes and the Bonds. The Community Facilities District covenants that such accounting books will be maintained in accordance with generally accepted accounting principles applicable to governmental entities, and will be available for inspection by the Developer within a reasonable time after the Developer submits a written request to the Community Facilities District requesting that such books be made available for inspection. Section 4.5. Indemnification. The Developer agrees to protect, indemnify, defend and hold the Community Facilities District and the City, and their respective officers, employees and agents, and each of them, harmless from and against any and all claims, losses, expenses, suits, actions, decrees, judgments, awards, attorney's fees, and court costs which the Community Facilities District or the City, or their respective officers, employees and agents, or any combination thereof, may suffer or which may be sought against or recovered or obtained from the Community Facilities District or the City, or their respective officers, employees or agents, or any combination thereof, as a result of or by reason of or arising out of or in consequence of (a) the acquisition, construction, installation or financing of the Facilities, (b) the untruth or inaccuracy of any representation or warranty made by the Developer in this Acquisition Agreement, in the Developer Certificate or in any certifications delivered by the Developer DOcSLA1:476389.5 42081.8 GHll6 pursuant hereto, (c) the release, threatened release, storage, treatment, transportation or disposal of any Hazardous Materials on, under, in, from or to the Property, and (d) any act or ollÙssion of the Developer or any of its subcontractors, or their respective officers, employees or agents, in connection with the Facilities, including noncompliance with any covenants made by the Developer in this Acquisition Agreement. If the Developer fails to do so, the Community Facilities District and the City shall have the right, but not the obligation, to defend the same and charge all of the direct or incidental costs of such defense, including any fees or costs, to and recover the same from the Developer. No indemnification is required to be paid by the Developer for any claim, loss or expense (a) arising from the willful llÙsconduct or negligence of the Community Facilities District or the City, or their respective officers, employees or agents, or (b) arising from the use or operation of a Segment after the Acceptance Date thereof, unless such claim, loss or expense results from the defective or improper design, acquisition, construction or installation of such Segment. The provisions of this Section shall survive the termination of this Acquisition Agreement. Neither this Section nor any provision hereof is intended to lillÙt or supersede the Developer's indemnities set forth in the Disposition and Development Agreement. DOcSLA1:476389.5 42081.8 GH117 ARTICLE V TERMINATION; DAMAGES Section 5.1. Termination by A!!:reement. This Acquisition Agreement may be tenninated by written agreement of the Community Facilities District, the City and the Developer. Upon such tennination, the City may, but shall not be obligated to, complete the acquisition, construction and installation of any Segments not theretofore acquired from the Developer pursuant hereto, and the Community Facilities District and the City may use all or any portion of the monies in the Acquisition Account to pay for such acquisition, construction and installation. In the event of such tennination, the Developer shall have no claim or right to any further payments for the Purchase Price of any Segment except as otherwise may be provided in such written agreement. Section 5.2. Termination by City. (a) The following events shall constitute grounds for the Community Facilities District and the City, at their option, to tenninate this Acquisition Agreement, without the consent of the Developer: (i) the Developer shall voluntarily file for reorganization or other relief under any Federal or state bankruptcy or insolvency law; . (ii) the Developer shall have any involuntary bankruptcy or insolvency action filed against it, or shall suffer a trustee in bankruptcy or insolvency or receiver to take possession of the assets of Developer, or shall suffer an attachment or levy of execution to be made against the property it owns within the Community Facilities District unless, in any of such cases, such action, possession, attachment or levy shall have been tenninated or released within 60 days after the commencement thereof; (iii) except to the extent that the Developer's obligation to construct the Facilities is excused pursuant to Section 5.5 hereof, the Developer shall abandon construction of the Facilities (failure for a period of three consecutive months or failure for two periods of two consecutive months to undertake substantial work related to the construction of the Facilities shall constitute a non-exclusive example of such abandonment); (iv) the Developer shall breach any material covenant or default in the performance of any material obligation under this Acquisition Agreement, or any representation or warranty of the Developer set forth herein or in any certifications delivered by the Developer hereunder shall prove to have been false or misleading in any material respect when made or deemed made; (v) the Developer shall transfer any of its rights or obligations under this Acquisition Agreement, without the prior written consent of the Community Facilities District and the City; (vi) the Developer shall have made any material misrepresentation or material omission in any written materials furnished in connection with any preliminary official DOcSLA1:476389.5 42081.8 GH118 statement, official statement or bond purchase contract which has not been corrected and is used in connection with the sale of any Bonds; (vii) the Developer or any of its partners, permitted assigns or successors-in- interest under this Acquisition Agreement or any Affiliate of the Developer shall at any time bring any action, suit, proceeding, inquiry or investigation at law or in equity, before any court, regulatory agency, public board or body which in any way seeks to challenge or overturn the Community Facilities District, the levy of the Special Tax in accordance with the Rate and Method or the validity of the Bonds or the proceedings leading up to their issuance; provided, however, that the Developer or any of its partners, permitted assigns or successors-in-interest under this Acquisition Agreement or any Affiliate of the Developer that owns any of the Property may bring an action or suit contending that the Special Tax has not been levied in accordance with the methodology contained in the Rate and Method; (viii) the Developer shall materially fail to complete the Facilities as contemplated in this Acquisition Agreement; or (ix) the Developer or any of its partners, permitted assigns or successors-in- interest under this Acquisition Agreement or any Affiliate of the Developer shall fail to pay the Spécial Taxes as and when due. (b) If any event listed in subsection (a)(i), (a)(ii) or (a)(vii) above occurs, this Acquisition Agreement shall automatically terminate. (c) If any event listed in subsection (a)(iii), (a)(iv), (a)(v), (a)(vi), (a) (viii) or (a)(ix) above occurs, the Community Facilities District and the City may elect to terminate this Acquisition Agreement. If the Community Facilities District and the City intend to terminate this Acquisition Agreement, the Community Facilities District and the City shall first notify the Developer in writing of such intention and of the grounds for such termination and allow the Developer 60 days to eliminate or mitigate to the reasonable satisfaction of the Community Facilities District and the City the grounds for such termination. If, in the reasonable opinion of the CommuIDty Facilities District and the City, such grounds for termination can be eliminated or mitigated, but not within such 60 day period, such period shall be extended in order to provide a reasonably sufficient amount of time to accomplish such elimination or mitigation, but only if the Developer has instituted corrective action within such 60 day period and the Developer is thereafter proceeding with diligence to eliminate or mitigate such grounds for termination. If at the end of such period (and any extension thereof), the Developer has not eliminated or completely mitigated such grounds for termination to the reasonable satisfaction of the Community Facilities District and the City, the Community Facilities District and the City may then terminate this Acquisition Agreement by delivering a written notice of such termination to the Developer. If any of the grounds listed in subsection (a)(iii), (a)(iv), (a)(v), (a)(vi), (a)(viii) or (a)(ix) above for termination of this Acquisition Agreement by the Community Facilities District and the City has occurred and has not been eliminated or mitigated to the reasonable satisfaction of the Community Facilities District and the City or waived by the Community Facilities District and the City, the Community Facilities District, fiom and after the occurrence thereof, shall have no obligation to acquire any Segment pursuant hereto. DOcSLA1:476389.5 42081.8 GHll9 Section 5.3. Termination bv Develooer. (a) The following events shall constitute grounds for the Developer, at its option, to terminate this Acquisition Agreement, without the consent of the Community Facilities District or the City: (i) the City or the Community Facilities District shall voluntarily file for reorganization or other relief under any Federal or state bankruptcy or insolvency law; (ii) the City or the Community Facilities District shall have any involuntary bankruptcy or insolvency action filed against it, or shall suffer a trustee in bankruptcy or insolvency or receiver to take possession of the assets of the City or the Commuruty Facilities District, as applicable, or shall suffer an attachment or levy of execution to be made against the property it owns unless, in any of such cases, such action, possession, attachment or levy shall have been terminated or released within 60 days after the commencement thereof; (iii) the Community Facilities District or the City shall breach any material covenant or default in the performance of any material obligation under this Acquisition Agreement, or any representation or warranty of the Community Facilities District or the City set forth herein shall prove to have been false or misleading in any material respect when made; and (iv) the Community Facilities District or the City shall transfer any of its respective rights or obligations under this Acquisition Agreement, without the prior written consent of the Developer; (b) If any event listed in subsection (a) above occurs, the Developer may elect to terminate this Acquisition Agreement. If the Developer intends to terminate this Acquisition Agreement, the Developer shall first notify the Community Facilities District and the City in writing of such intention and of the grounds for such termination and allow the Community Facilities District and the City 60 days to eliminate or mitigate to the reasonable satisfaction of the Developer the grounds for such termination. If, in the reasonable opinion of the Developer, such grounds for termination can be eliminated or mitigated, but not within such 60 day period, such period shall be extended in order to provide a reasonably sufficient amount of time to accomplish such elimination or mitigation, but only if the Community Facilities District and the City have instituted corrective action within such 60 day period and the Community Facilities District and the City are thereafter proceeding with diligence to eliminate or mitigate such grounds for termination. If at the end of such period (and any extension thereof), the Community Facilities District and the City have not eliminated or completely mitigated such grounds for termination to the reasonable satisfaction of the Developer, the Developer may then terminate this Acquisition Agreement by delivering a written notice of such termination to the Commuruty Facilities District and the City. Section 5.4. Remedies in General: Damal!es Limited. The Developer acknowledges that neither the Community Facilities District nor the City would have entered into this Acquisition Agreement if it were to be liable in damages under or with respect to this Acquisition Agreement. Any and all obligations of the Commuruty Facilities District and the City hereunder shall be payable only from amounts on deposit in the Acquisition Account. DOcSLAl :476389.5 42081.8 GH120 Neither the Community Facilities District nor the City shall have any pecuniary liability under this Acquisition Agreement for any act or omission of the Community Facilities District or the City, except as set forth in this Section. In no event will an act, or an omission or failure to act, by the Community Facilities District or the City with respect to the sale or proposed sale of the Bonds subject the Community Facilities District or the City to pecuniary liability therefor. In general, each of the parties hereto may pursue any remedy at law or equity available for the breach of any provision of this Acquisition Agreement; provided, however, that the Community Facilities District and the City shall not be liable in damages to the Developer. In light of the foregoing, the Developer covenants not to sue for or claim any damages for any alleged breach of, or dispute which arises out of, this Acquisition Agreement. Section 5.5. Force Majeure. Except as may be specifically provided in this Acquisition Agreement, the performance by the Community Facilities District, the City or the Developer of its respective obligations hereunder shall be excused during, and the period of time for performance of its respective obligations hereunder shall be extended for a period of time equal to, any period of delay caused by reason of (a) acts of God or civil commotion, (b) riots, strikes, picketing or other labor disputes, (c) shortages of materials or supplies, (d) damage to work in progress by reason of fire, floods, earthquakes or other casualty, (e) enactment of laws which prevent or preclude compliance by the Community Facilities District, the City or the D~veloper with a material provision of this Acquisition Agreement, (f) administrative proceedings challenging the Community Facilities District, the Bonds, this Acquisition Agreement or a Payment Request brought by Persons other than the Community Facilities District, the City or the Developer, or any Affiliate thereof, (g) litigation (including the pendency thereof), brought by Persons other than the Community Facilities District, the City or the Developer, or any Affiliate thereof, including, without limitation, litigation challenging the Community Facilities District, the development of the Property, the Bonds, this Acquisition Agreement, a Payment Request, (h) pendency of initiatives or referenda affecting the Community Facilities District, the development of the Property, the Bonds, this Acquisition Agreement or a Payment Request, or (i) any other cause beyond the reasonable control of the Community Facilities District, the City or the Developer, respectively; provided, however that, as to any party (x) the financial inability of such party itself to perform under this Acquisition Agreement, and (y) the negligence or willful misconduct of such party shall not constitute a permitted delay for purposes of this Section and, provided, further, that any action, omission, or failure to approve a Payment Request or other approval, or the imposition of additional requirements or restrictions in connection therewith by the Community Facilities District or the City, caused by the Developer's actual failure to comply with applicable laws or regulations or the provisions of this Acquisition Agreement (other than an actual failure to comply that results from the enactment of laws which prevent or preclude compliance by a party with a material provision of this Acquisition Agreement, administrative proceedings challenging the Community Facilities District, the Bonds, this Acquisition Agreement or a Payment Request or other approval, litigation brought by persons other than a party, or an Affiliate of a party, including without limitation, litigation challenging the Community Facilities District, the development of the Property, the Bonds, this Acquisition Agreement or a Payment Request or other approval, initiative or referenda affecting the Community Facilities District, the development of the Property, the Bonds, this Acquisition Agreement or a Payment Request or other approval), shall not constitute a permitted delay for the Developer for purposes of this Section. DOcSLA1:476389.5 42081.8 GH121 If the Community Facilities District, the City or the Developer shall claim that performance of its respective obligations hereunder is excused by a pennined delay pursuant to this Section, such party shall give the other parties hereto written notice of the commencement of such pemùned delay within 30 days after first gaining knowledge of such pemùtted delay. If the Community Facilities District, the City or the Developer shall claim that performance of its respective obligations hereunder is excused by a pemùned delay pursuant to this Section, such party's performance shall only be excused during, and the period of time for performance of its obligations hereunder shall only be extended for a period of time equal to, the period of time for which the cause of such pemùtted delay is in effect and is actually causing a delay in performance by such party of its obligations hereunder. The Community Facilities District, the City and the Developer shall act diligently and in good faith to avoid foreseeable delays in performance and to remove the cause of any pemùtted delay under this Section or develop a reasonable altemative means of performance of its respective obligations hereunder. DOcSLA1:476389.5 42081.8 GHl22 ARTICLE VI MISCELLANEOUS Section 6.1. Develooer as Indeoendent Contractor. In performing under this Acquisition Agreement, it is mutually understood that the Developer is acting as an independent contractor, and not an agent of the Community Facilities District or the City. Neither the Community Facilities District nor the City shall have any responsibility for payment to any contractor, subcontractor or supplier of the Developer. Section 6.2. Other Al!reements. Nothing contained herein shall be construed as affecting the City's or the Developer's respective duty to perform its respective obligations under other agreements (including, without limitation, the Disposition and Development Agreement), land use regulations or subdivision requirements relating to the development of the Property, which obligations are and shall remain independent of the Developer's rights and obligations, and the City's rights and obligations, under this Acquisition Agreement; provided, however, that the Developer shall use its reasonable and diligent efforts to perform each and every covenant to be performed by it under any lien or encumbrance, instrument, declaration, covenant, condition, restriction, license, order, or other agreement, the nonperformance of which could reasonably be expeçted to materially' and adversely affect the acquisition, construction and installation of the Segments. Section 6.3. Bindilll! on Successors and Assil!ns. Neither this Acquisition Agreement nor the duties and obligations of the Developer hereunder may be assigned to any Person other than an Affiliate of the Developer without the written consent of the Community Facilities District and the City, which consent shall not be unreasonably withheld or delayed. Neither this Acquisition Agreement nor the duties and obligations of the City or the Community Facilities District hereunder may be assigned to any Person, without the written consent of the Developer, which consent shall not be unreasonably withheld or delayed. The agreements and covenants included herein shall be binding on and inure to the benefit of any partners, permitted assigns, and successors-in-interest of the parties hereto. Section 6.4. Amendments. This Acquisition Agreement may be amended by an instrument in writing executed and delivered by the Community Facilities District, the City and the Developer. Section 6.5. Waivers. No waiver of, or consent with respect to, any provision of this Acquisition Agreement by a party hereto shall in any event be effective unless the same shall be in writing and signed by such party, and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which it was given. Section 6.6. No Third Party Beneficiaries. No person or entity shall be deemed to be a third party beneficiary hereof, and nothing in this Acquisition Agreement (either express or implied) is intended to confer upon any person or entity, other than the Community Facilities District, the City and the Developer (and their respective successors and assigns), any rights, remedies, obligations or liabilities under or by reason of this Acquisition Agreement. DOCSLAI :476389.5 42081.8 GH123 Section 6.7. 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 party in writing from time to time, namely: Community Facilities District: City of Tustin Community Facilities District No. 04-1 (Tustin Legacy/John Laing Homes) c/o City of Tustin 300 Centennial Way Tustin, California 92680 Attention: Finance Director City: City of Tustin 300 Centennial Way Tustin, California 92680 Attention: Assistant City Manager and Public Works Director Developer: WL Homes LLC 3121 Michelson Drive, Suite 200 Irvine, California 92612 Attention: Vice President, Planning and Development 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 personally served or delivered, upon delivery, (b) if given by electronic communication, whether by telex, telegram or 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, (d) if given by overnight courier, with courier charges prepaid, 24 hours after delivery to said overnight courier, or (e) if given by any other means, upon delivery at the address specified in this Section. Section 6.8. Attorneys' Fees. If any action is instituted to interpret or enforce any of the provisions of this Acquisition Agreement, the party prevailing in such action shall be entitled to recover from the other party thereto reasonable attorney's fees and costs of such suit (including both prejudgment and post judgment fees and costs) as determined by the court as part of the judgment. Section 6.9. Goyerninl!: Law. This Acquisition Agreement and any dispute arising hereunder shall be governed by and interpreted in accordance with the laws of the State. Section 6.10. Usal!:e of Words. As used herein, the singular of any word includes the plural, and terms in the masculine gender shall include the feminine. DOcSLAl :476389.5 42081-8 GH124 Section 6.11. Counterparts. This Acquisition Agreement may be executed in counterparts. each of which shall be deemed an original. IN WITNESS WHEREOF, the parties hereto have executed this Acquisition Agreement as of the day and year first hereinabove written. CITY OF TUSTIN COMMUNITY FACILITIES DISTRICT NO. 04.1 (TUSTIN LEGACY/JOHN LAING HOMES) By: CITY OF TUSTIN By: WI. HOMES LLC By: DOcSLA1:476389.5 42081.8 GH125 EXHIBIT A FACILITIES Se!!ment ACQuisition Cost I. Moffett Drive from Harvard Avenue to the bridge over Peters Canyon Channel: Roadway improvements including curbs, gutters, sidewalks, pavement, signing and striping, landscaped median, water, reclaimed water, sewer, storm drain, dry utilities (electric, gas, telephone, cable, etc.) and street lights. $1,312,427.92 2. Bike Trail from Harvard Avenue to Peters Canyon Channel adjacent to the southerly side of the OCTAlSCRRA Railway Right-of-Way: AC bike trail improvements including fencing, trail bollards and signing, drainage fa,:ilities and landsc~ping. $511,579.30 DOcSLA1:476389.s 42081.8 GHll EXHmIT B FORM OF PAYMENT REQUEST City of Tustin Community Facilities District No. 04-1 (Tustin Legacy/John Laing Homes) WL Homes LLC (the "Developer"), hereby requests payment of the Purchase Price of the Segment or Segments described in Attachment A attached hereto. Capitalized undefined terms shall have the meanings ascribed thereto in the Acquisition and Funding Agreement, dated as of I, 2004 (the "Acquisition Agreement"), by and among the City of Tustin Community Facilities District No. 04-1 (Tustin Legacy/John Laing Homes) (the "Community Facilities District"), the City of Tustin (the "City"), and the Developer. In connection with this Payment Request, the undersigned hereby represents and warrants to the Community Facilities District and the City as follows: 1. The undersigned is a Developer Representative, qualified to execute this request for payment on behalf of the Developer and knowledgeable as to the matters set forth herein. 2. The Developer has submitted or submits herewith to the City Engineer as-built drawings or similar Plans and specifications for the Segments for which payment is requested, and such drawings or plans and specifications, as applicable, are true, correct and complete. 3. Each of the Segments described in Attachment A has been constructed in accordance with the Plans therefor, and in accordance with all applicable City standards and the requirements of the Acquisition Agreement, and the as-built drawings .or similar Plans and specifications referenced in paragraph 2 above. 4. The true and correct Actual Cost of each Segment for which payment is requested is set forth in Attachment A. 6. The Developer has submitted or submits herewith to the City Engineer invoices, receipts, worksheets and other evidence of costs which are in sufficient detail to allow the City Engineer to verify the Actual Cost of each Segment for which payment is requested. 7. There has not been filed with or served upon the Developer notice of any lien, right to lien or attachment upon, or claim affecting the right to receive the payment requested herein which has not been released or will not be released simultaneously with the payment of such obligation, other than materialmen's or mechanics' liens accruing by operation of law. Copies of lien releases for all work for which payment is requested hereunder are attached hereto. 8. No event listed in Section 5.2(a)(i)-(ix) of the Acquisition Agreement has occurred and is continuing or will occur upon the making of any payment requested hereunder. 12. The representations and warranties of the Developer set forth in Section 4.1 of the Acquisition Agreement are true and correct on and as of the date hereof with the same force and DOcSLAl :476389.5 42081-8 GH11 effect as if made on and as of the date hereof (except that no certification is made with respect to the representations and warranties contained in subsections (d) and (f) of said Section 4.1). 13. The Developer represents and warrants that, as of the date hereof, there is not present on, under or in any Segment described in Attachment A or the Related Property of such Segment, or any portion thereof, any Hazardous Materials, except for (i) any types or amounts that do not require remediation or mitigation under federal, state or local laws, ordinances, regulations, rules or decisions, (ii) those that have been remediated or mitigated in full compliance with applicable federal, state or local laws, ordinances, regulations, rules or decisions, (iii) those with respect to which ongoing remediation or mitigation is being performed in full compliance with applicable federal, state or local laws, ordinances, regulations, rules or decisions or (iv) any types or amounts that do not present a human health risk or hazard to the public. I hereby declare under penalty of peJjury that the above representations and warranties are true and correct. Date: WL HOMES LLC By: Name: Title: DOcSLAl :476389.5 42081-8 GH12 APPROVAL BY THE CITY ENGINEER The City Engineer has confirmed that each Segment described in Attachment A was constructed in accordance with the Plans therefor and the Actual Cost of each Segment described in Attachment A has been reviewed, verified and approved by the City Engineer. Payment of the Purchase Price of each such Segment is hereby approved. Date: CITY ENGINEER OF THE CITY OF TUSTIN By: DOcSLA1:476389.5 42081.8 GHl3 ATTACHMENT A Segment Acquisition Cost Actual Cost Purchase Price* Total Purchase Price to be Paid: *Lesser of Acquisition Cost or Actual Cost DOcSLA1 :476389.5 42081-8 GH1 HD&W Fourth Draft-1112/04 $ CITY OF TUSTIN COMMUNITY FACILITIES DISTRICT NO. 04-1 (TUSTIN LEGACY/JOHN LAING HOMES) SPECIAL TAX BONDS, SERIES 2004 BOND PURCHASE AGREEMENT December -, 2004 City of Tustin Community Facilities District No. 04-1 (Tustin Legacy/John Laing Homes) of the City of Tustin, California Ladies and Gentlemen: The undersigned, Citigroup Global Markets Inc. (the "Underwriter"), offers to enter into this Bond Purchase Agreement (this "Bond Purchase Agreement") with the City of Tustin Conununity Facilities District No. 04-1 (Tustin Legacy/John Laing Homes) (the "District"), which upon written acceptance will be binding upon the District and upon the Underwriter. This offer is made subject to acceptance of it by the District on the date hereof, and if not accepted will be subject to withdrawal by the Underwriter upon notice delivered to the District at any time prior to the acceptance hereof by the District. 1. Purchase, Sale and Deliverv of the Bonds. (a) Subject to the terms and conditions and in reliance upon the representations, warranties and agreements set forth herein, the Underwriter agrees to purchase from the District, and the District agrees to sell to the Underwriter, all (but not less than all) of the City of Tustin Conununity Facilities District No. 04-1 (Tustin Legacy/John Laing Homes) Special Tax Bonds, Series 2004 (the "Bonds") in the aggregate principal amount specified in Exhibit A hereto. The Bonds are dated their date of delivery and bear interest payable semiannually on March 1 and September 1 in each year, commencing on March 1,2005 at the rates per annum and maturing on the dates and in the amounts, with mandatory sinking fund payments, as set forth in Exhibit A hereto. The purchase price for the Bonds shall be the amount specified as in Exhibit A hereto. The Bonds shall be substantially in the form described in, shall be issued and secured under the provisions of, and shall be payable and subject to redemption as provided in the Indenture, dated as of - 1, 2004 (the "Indenture"), by and between the District and U.S. Bank National Association, as trustee (the "Trustee"). The execution and delivery of the Indenture and the Bonds have been authorized under a resolution (the "Resolution") adopted by the City Council of the City of Tustin, California (the "City Council"), as the legislative body of the District, on -, 2004. The Bonds and interest 13775.7027605 AGMT thereon will be payable from a special tax (the "Special Tax") levied and collected in accordance with the Indenture and an ordinance adopted by the City Council on -' 2004 (the "Ordinance"). The proceeds of the sale of the Bonds will be used in accordance with the Indenture and the Mello-Roos Community Facilities Act of 1982, constituting Sections 53311 et seq. of the California Government Code (the "Act"), to acquire a portion of the improvements described in a resolution (the "Resolution of Fonnation") adopted by the City Council on , 2004. A portion of such improvements will be acquired pursuant to an Acquisition Agreement and Funding Agreement, dated as of I, 2004 (the "Acquisition Agreement"), by and among the District, the City of Tustin, California (the "City"), and the WL Homes LLC, a limited liability company organized and existing under the laws of the State of Delaware (the "Developer"). The Bonds are being issued in accordance with the provisions of the Indenture and the Act. The Developer will deliver a Letter of Representations to the District and the Underwriter in substantially the fonn attached hereto as Exhibit A. (b) Pursuant to the authorization of the District, the Underwriter has distributed copies of the Preliminary Official Statement, dated -, 2004 relating to the Bonds, which, together with the cover page and all appendices thereto, is herein called the "Preliminary Official Statement" and which, æ¡ amended by the District with the prior approval of the Underwriter, will be referred to herein as the "Official Statement," as the same may be supplemented and amended from time to time. The District hereby ratifies the use by the Underwriter of the Preliminary Official Statement and authorizes the Underwriter to use and distribute the Official Statement, the Indenture, the other documents or contracts to which the District is a party, including this Bond Purchase Agreement, and all infonnation contllined therein, and all other documents, certificates and statements furnished by the District to the Underwriter in connection with the transactions contemplated by this Bond Purchase Agreement, in connection with the offer and sale of the Bonds by the Underwriter. At or prior to the Closing Date (defined below), the District shall have authorized, executed and delivered its Continuing Disclosure Agreement, dated as of -, 2004 (the "District Continuing Disclosure Agreement"), which complies with paragraph (b)(l) of Section 240.15c2-12 in Chapter II of Title 17 of the Code of Federal Regulations ("Rule 15c2-12"), and the Developer shall have authorized, executed and delivered a Continuing Disclosure Agreement, dated as of -, 2004 (the "Developer Continuing Disclosure AgreemenC), which complies with Rule 15c2-12, each in substantially the fonn described in the Official Statement. (c) At 8:00 A.M., Los Angeles time, on -, 2004, or at such earlier time or date as shall be agreed upon by the Underwriter and the District (such time and date being herein referred to as the "Closing Date"), the District will deliver or cause to be delivered to the Underwriter (i) through the facilities of The Depository Trust Company ("DTC") , in New York, New York, the Bonds in temporary or definitive fonn, bearing CUSIP numbers, and duly executed by the officers of the District as provided in the Indenture and (ii) at the offices of Orrick, Herrington & Sutcliffe LLP ("Bond Counsel"), or such other location as may be agreed to by the District and the Underwriter, the other documents herein mentioned; and the Underwriter shall accept such delivery and pay the purchase price of the Bonds in immediately available funds (such delivery and payment being herein referred to as the "Closing"). Notwithstanding the foregoing, the Underwriter may, in its discretion, accept delivery of the Bonds in temporary fonn upon making arrangements with the District which are satisfactory to the Underwriter relating to the delivery of the Bonds in definitive fonn. The Bonds shall be in fully registered fonn, registered in the name of Cede & Co., as nominee of DTc. 2. Representations. Warranties and Agreements of the District. The District represents, warrants and covenants to and agrees with the Underwriter that: (a) The District is duly organized and validly existing as a community facilities district under the laws of the State of California (the "State") and has, and at the Closing Date will have, 2 13775.7027605 AGMT as the case may be, full legal right, power and authority (i) to execute, deliver and perfonn its obligations under this Bond Purchase Agreement, the Indenture, the Acquisition Agreement, the District Continuing Disclosure Agreement and to carry out all transactions contemplated by the Bond Purchase Agreement, (ii) to issue, sell and deliver the Bonds to the Underwriter pursuant 10 the Resolution and the Indenture as provided herein and therein, and (iii) to carry out, give effect to and consummate the transactions contemplated by the Resolution, the Resolution of Fonnation, the Ordinance, the Acquisition Agreement, the Official Statement, the Indenture, the District Continuing Disclosure Agreement and this Bond Purchase Agreement; (b) The District has complied, and will at the Closing Date be in compliance, in all respects with the Resolution, the Resolution of Fonnation, the Indenture, the Act, the Acquisition Agreement, the District Continuing Disclosure Agreement and this Bond Purchase Agreement and the District will continue to comply with the covenants of the District contained in the Indenture; (c) The City Council has duly and validly: (i) adopted the Resolution, the Resolution of Fonnation and the Ordinance; (ii) called, held and conducted in accordance with all requirements of the Act an election to approve the levy of the Special Taxes; (iii) authorized and approved the execution and delivery of the Bonds, the Indenture, the Acquisition Agreement, the District Continuing Disclosure Agreement and this Bond Purchase Agreement; (iv) authorized the preparation and delivery of the Official Statement; and (v) authorized and approved the performance by the District of its obligations contained in, and the laking of any and all action as may be necessary to carry out, give effect to and consummate the transactions contemplated by, each of said documents (including, without limitation, the collection of the Special Tax and the use of the Special Tax to acquire public improvements), and at the Closing Date the Resolution, the Resolution of Fonnation, the Indenture, the Ordinance, the Bonds, the District Continuing Disclosure Agreement, the Acquisition Agreement and this Bond Purchase Agreement wHl constitute the valid, legal and binding obligations of the District, and (assuming due authorization, execution and delivery by other parties thereto, where necessary) will be enforceable in accordance with their respective tenDS, subject to bankruptcy, insolvency, reorganization, moratorium and other laws affecting the enforcement of creditors' rights in general and to the application of equitable principles if equitable remedies are sought; (d) The District is not in breach of or default under any applicable law or administrative rule or regulation of the State, or of any department, division, agency or instrumentality thereof, or under any applicable court or administrative decree or order, or under any loan agreement, note, resolution, indenture, contract, agreement or other instrument to which the District is a party or is otherwise subject or bound, a consequence of which could be to materially and adversely affec1 1he perfonnance by the District of its obligations under the Bonds, the Resolution, the Indenture, the Resolution of Fonnation, the Ordinance, the District Continuing Disclosure Agreement, the Acquisition Agreement or this Bond Purchase Agreement, and compliance with the provisions of each thereof, will not in any respect material to the transactions referred to herein or contemplated hereby, conflic1 with or constitute a breach of or default under any applicable law or administrative rule or regulation of the State, or of any depanment, division, agency or instrumentality thereof, or under any applicable court or administrative decree or order, or under any loan agreement, note, resolution, indenture, contract, agreement or other instrument to which the District is a party or is otherwise subject or bound; (e) All approvals, consents, authorizations, elections and orders of or filings or registrations with any State govemmental authority, board, agency or commission having jurisdiction which would constitute a condition precedent to, or the absence of which would materially adversely affect, the perfonnance by the District of its obligations hereunder, or under the Resolution, the Indenture, the Resolution of Fonnation, the Ordinance, the Bonds, the Acquisition Agreement or the District Continuing Disclosure Agreement have been or wHl be obtained and are in full force and effect, except 3 13775.7027605 AGMT that the District provides no representation regarding compliance with blue sky or other securities laws or regulations whatsoever; (f) The Special Tax constituting the security for the Bonds has been duly and lawfully authorized and may be levied under the Act and the Constitution and the applicable laws of the State, and such Special Tax constitutes a valid and legally binding lien on the properties on which it has been levied; (g) Until the date which is twenty-five (25) days after the "end of the underwriting period" (as hereinafter defined), if any event shall occur of which the District is aware, as a result of which it may be necessary to supplement the Official Statement in order to make the statements in the Official Statement, in light of the circumstances existing at such time, not misleading, the District shall forthwith notify the Underwriter of any such event of which it has koowledge and shall cooperate fully in furnishing any infonnation available to it for any supplement to the Official Statement necessary, in the Underwriter's opinion, so that the statements therein as so supplemented will not be misleading in light of the circumstances existing at such time and the District shall promptly furnish to the Underwriter a reasonable number of copies of such supplement. As used herein, the tenn "end of the underwriting period" means the later of such time as (i) the Distric1 delivers the Bonds to the Underwriter, or (ii) the Underwriter does not retain, directly or as a member of an underwriting syndicate, an unsold balance of the Bonds for sale to the public. Unless the Underwriter gives notice to the contrary, the "end of the underwriting period" shall be deemed to be the Closing Date. Any notice delivered pursuant to this provision shall be written notice delivered to the District at or prior to the Closing Date, and shall specify a date (other than the Closing Date) to be deemed the "end of the underwriting period"; (h) The Indenture creates a valid pledge of the Net Special Tax Revenues (as defined in the Indenture) and any other amounts (including the proceeds of the sale of the Bonds) held in the Bond Fund and the Reserve Fund established pursuant to the Indenture, including the investments thereof, subject in all cases to the provisions of the Indenture pennitting the application thereof for the purposes and on the tenns and conditions set forth therein; (i) No action, suit, proceeding, inquiry or investigation, at law or in equity, before or by any court, regulatory agency, public board or body is pending or, to the best koowledge of the District, threatened against the District (i) which would materially adversely affect the ability of the District to perfonn its obligations under the Bonds, the Indenture, the Resolution, the Resolution of Fonnation, the Ordinance, the Acquisition Agreement or the District Continuing Disclosure Agreement, or (ii) seeking to restrain or to enjoin the development of the land within the District, the issuance, sale or delivery of the Bonds, the application of the proceeds thereof in accordance with the Indenture, or the collection or application of the Special Tax pledged or to be pledged to pay the principal of and interest on the Bonds, or the pledge thereof, or in any way contesting or affecting the validity or enforceability of the Bonds, the Resolution, the Resolution of Fonnation, the Indenture, the Ordinance, the District Continuing Disclosure Agreement, this Bond Purchase Agreement, the Acquisition Agreement or any other instruments relating to the development of any of the property within the District, or any action of the District contemplated by any of said documents or (iii) in any way contesting the completeness or accuracy of the Preliminary Official Statement or the powers or authority of the District with respect to the Bonds, the Resolution, the Indenture, the District Continuing Disclosure Agreement, the Resolution of Fonnation, the Acquisition Agreement and the Ordinance or any action of the District contemplated by any of such documents; or (iv) which alleges that interest on the Bonds is not excludable from gross income for federal income tax purposes or is not exempt from California personal income taxation; (j) The District will furnish such infonnation, execute such instruments and take such other action in cooperation with the Underwriter as the Underwriter may reasonably request in order 4 13775.7027605 AGMT for the Underwriter to qualify the Bonds for offer and sale under the "Blue Sky" or other securities laws and regulations of such states and other jurisdictions of the United States as the Underwriter may designate; provided, however, the District shall not be required to register as a dealer or a broker of securities nor shall the District be required to consent to service of process or jurisdiction or qualify to do business in any jurisdiction or to expend funds for this purpose; (k) Aoy cenificate sigued by any authorized official of the District authorized to do so shall be deemed a representation and warranty of the District to the Underwriter as to the statements made therein; (I) The District will apply the proceeds of the Bonds in accordance with the Indenture and the Act and as described in the Official Statement; (m) The information contained in the Preliminary Official Statement was, and in the Official Statement is and on the Closing Date shall be, true and correct in all material respec1s and such information does not contain any untrue or misleading statement of a material fact or omit to state any material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading; and (n) The Preliminary Official Statement heretofore delivered to the Underwriter is deemed final by the District as of its date except for the omission of such information as is permitted to be omitted in accordance with Rule l5c2-l2. The District hereby covenants and agrees that, within seven (7) business days from the date hereof, or upon reasonable written notice from the Underwriter within sufficient time to accompany any confirmation requesting payment from any customers of the Underwriter, the District shaH cause a final printed form of the Official Statement to be delivered to the Underwriter in sufficient quantity to comply with paragraph (b)(4) of Rule l5c2-l2 and Rules G-12, G-15, G-32 and G-36 of the Municipal Securities Rulemaking Board. 3. Conditions to the Obli!¡ations of the Underwriter. The Underwriter has entered into this Bond Purchase Agreement in reliance upon the representations, warranties and agreements of the District contained herein and of the Developer contained in its Letter of Representa1ions, the representations, warranties and agreements to be contained in the documents and instruments to be delivered a1 the Closing, the performance by the District of its obligations hereunder and the opinions of Bond Counsel, counsel to the Trustee, counsel to the District, counsel to the Developer and counsel to the Underwriter described hereafter. Accordingly, the Underwriter's obligations under this Bond Purchase Agreement to purchase, to accept delivery of and to pay for the Bonds shall be conditioned upon and subject to (i) the performance by the District and the Trustee of their obligations to be performed hereunder, under the Indenture and the Bonds and under such documents and instruments as shall reasonably be requested by the Underwriter or its counsel at or prior to the Closing and (ii) the accuracy in all material respects, in the reasonable judgment of the Underwriter, of the representations and warranties of the District herein and of the Developer contained in its Letter of Representations as of the date hereof and as of the time of the Closing, and shaH also be subject to the foHowing additional conditions: (a) The representations, warranties and agreements of the District contained herein shall be true, complete and correct on the date hereof and on and as of the date of the Closing; (b) At the Closing, the Resolution, the Resolution of Formation, the Ordinance, the Indenture, the District Continuing Disclosure Agreement, the Acquisition Agreement, this Bond Purchase Agreement, the Bonds and the Official Statement shall have been duly authorized, executed and delivered by the respective parties thereto, in substantially the forms heretofore submitted to the Underwriter, with only such changes as shall have been agreed to in writing by the Underwriter, and said agreements shall 5 13775.7027605 AGMT not have been amended, modified or supplemented, except as may have been agreed to in writing by the Underwriter, and each shall be in full force and effect; (c) Al the Closing, the Official Statement shall not have been amended, modified or supplemented, except as may have been agreed to in writing by the Underwriter; (d) Al the time of the Closing, there shall not have occurred any change or any development involving a prospective change in the condition, financial or otherwise, or in the operations of the District, from that set fOM in the Official Statement that makes it, in the judgment of the Underwriter, impracticable to market the Bonds on the tenns and in the manner contemplated by the Official Statement; (e) In the judgment of the Underwriter, between the date hereof and the Closing, the marketability of the Bonds at the initial offering prices set fOM in the Official Statement shall not have been materially adversely affected by reason of any of the following: (I) Legislation. Judicial Decisions or Rulings. An amendment to the Constitution of the United States or the Constitution of the State shall have been passed or legislation enacted, introduced in the Congress or in the legislature of the State or recommended for passage by the President of the United States, or a decision rendered by a court established under Article III of the Constitution of the United States or by the Tax Court of the United States, or an order, ruling, regulation (final, temporary or proposed) or official statement issued or made: (i) Regarding State Tax ExemDtion - by or on behalf of the State of California or the California Franchise Tax Board, with the purpose or effect, directly or indirectly, of imposing California personal income taxation upon payments of the general character of the interest as would be received by the Owners of the Bonds; or (ii) Regarding Federal or State Tax Rates - by or on behalf of the Treasury Department of the United States or the Intemal Revenue Service or by or on behalf of the State of California or the California Franchise Tax Board, with the purpose or effect, directly or indirectly, of changing the federal or State of CalifoITÙa income tax rates, respectively; or (iii) Regarding Securities Registration ExemDtion - by or on behalf of the Securities and Exchange Commission, or any other governmental agency having jurisdiction over the subject matter, to the effect that obligations of the general character of the Bonds, including any or all underlying arrangements, are not exempt from registration under the Securities Act of 1933, as amended, or that the Trust Agreement is not exempt from qualification under the Trust Indenture Act of 1939, as amended; (2) War. The United States' engagement, alone or as a participant, in an outbreak or escalation of hostilities or any change in financial markets or any calaITÙty or crisis the effect of which in the Underwriter's sole judgment makes it impracticable or impossible to proceed with the solicitation of offers to purchase the Bonds on the tenns and in the manner contemplated by the Official Statement; (3) Banking Moratorium. The declaration of a general banking moratorium by federal, New York or State authorities, or the general suspension of trading on any national securities exchange; 6 13775.7027605 AGMT (4) Securities Exchan!!e Restrictions. Trading generally shall have been suspended or materially limited on or by me New York Stock Exchange or oilier national securities exchange, or me imposition by me New York Stock Exchange or oilier national securities exchange, or any governmental aumority, of any material restrictions not now in force willi respect to me Bonds or obligations of me general character of me Bonds, or me material increase of any such restrictions now in force, including IDose relating to the extension of credit by, or me charge to me net capital requirements of, Underwriter; (5) Re!!ardin!! Federal Securities Laws. An order, decree or injunction of any court of competent jurisdiction, or order, ruling, regulation or official statement by me Securities and Exchange Commission, or any oilier governmental agency having jurisdiction of me subject matter, issued or made to the effect mat me execution, delivery, offering or sale of obligations of me general character of me Bonds, or me execution, delivery, offering or sale of me Bonds, including any or all underlying obligations, as contemplated hereby or by me Official Statement, is or would be in violation of any federal securities law as amended and men in effect; (6) Official Statement Untrue or IncomDlete. Any event occurring, or infonnation becoming known which, in me reasonable judgment of me Underwriter, makes untrue in any material respect any statement or infonnation contained in me Official Statement, or has the effect mat the Official Statement contains any untrue statement of a material fact or omits to state a material fact necessary to make me statements merein, in me light of me circumstances under which mey were made, not misleading; or (7) Cenain Amendments to me Official Statement. An event occurs prior to the Closing which, in me reasonable judgment of me Underwriter, requires or has required a supplement or amendment to me Official Statement. 4. The Underwriters' obligations under this Purchase Contract are and shall be funher subject to me receipt of me Letter of Representations from me Developer in substantially me fonn attached hereto as Exhibit A. 5. On me Closing Date, me Underwriter shall have received counterpan originals or certified copies of me following documents, in each case satisfactory in fonn and substance to me Underwri1er: (1) The Resolution, me Resolution of Fonnation and me Ordinance, togemer willi a cenificate dated as of me Closing Date of me Clerk or deputy mereof of the City Council to the effect mat each is a true, correct and complete copy of me one duly adopted by the City Council; (2) (3) An executed copy of me Indenture; An executed copy of me Acquisition Agreement; (4) (5) An execu1ed copy of me Official Statement; An executed copy of me District Continuing Disclosure Agreement; (6) An executed copy of me Developer Continuing Disclosure Agreement; 7 13775.7027605 AGMT (7) An unqualified approving opinion, dated the Closing Date and addressed to the District, of Bond Counsel for the District, in the form attached to the Official Statement and a letter of such counsel, dated the Closing Date and addressed to the Underwriter, to the effect that such opinion addressed to the District may be relied upon by the Underwriter to the same extent as if such opinion was addressed to it; (8) A supplemental opinion, da1ed the Closing Date and addressed to the Underwriter, of Bond Counsel for the District, to the effect that (i) the Bond Purchase Agreement and District Continuing Disclosure Agreement have been duly authorized, executed and delivered by the District, and, assuming the execution and delivery by the other parties there10 as appropriate, the Bond Purchase Agreement and the District Continuing Disclosure Agreement, constitute the legally valid and binding agreements of the District enforceable in accordance with their respective 1erms, except as enforcement may be limited by bankruptcy, moratorium, insolvency or other laws affecting creditor's rights or remedies and is subject to general principles of equity (regardless of whether such enforceability is considered in equity or at law); (ii) the Bonds are not subject to the registration requirements of the Securities Act of 1933, as amended, and the Indenture is exempt from qualification under the Trust Indenture Act of 1939, as amended; and (iii) the information contained in the Official Statement with respect to the Bonds under the captions "INTRODUCTION," "THE SERIES 2004 BONDS," "SECURITY FOR THE SERIES 2004 BONDS," "CONCLUDING INFORMATION - Tax Exemption" and in APPENDIX E - "SUMMARY OF THE INDENTURE" (except information relating to DTC and its book-entry system, as to which no opinion need be expressed) is accurate in all material respects; (9) An opinion, dated the Closing Date and addressed to the Underwriter, of Hawkins Delafield & Wood LLP, Los Angeles, California, in form and substance acceptable to the Underwriter; (10) A Certificate, dated the Closing Date and signed by an authorized representative of the District, ratifying the use and distribution by the Underwriter of the Preliminary Official Statement and the Official Statement in connection with the offering and sale of the Bonds and certifying that (i) the representations and warranties of the Distric1 contained in this Bond Purchase Agreement are true and correct in all material respects on and as of the Closing Date with the same effect as if made on the Closing Date; (ii) no event has occurred since the date of the Official Statement affecting the matters contained therein which should be disclosed in the Official Statement for the purposes for which it is to be used in order to make the statements and information contained in the Official Statement with respect to the District not misleading in any material respect, and the Bonds, the Indenture and other applicable agreements conform as to form and substance to the descriptions thereof contained in the Official Statement; and (iii) the District has complied with all the agreements and satisfied all the conditions on its part to be performed or satisfied under this Bond Purchase Agreement, the Resolution, the Resolution of Formation, the Ordinance, the Acquisition Agreement and the Indenture a1 or prior to the Closing Date; (II) An opinion, dated the Closing Date and addressed to the Underwriter, of counsel to the District, 10 the effect that (i) no action, suit, proceeding, inquiry or investigation, at law or in equity, before or by any court, regulatory agency, public board or body is pending or, to the best knowledge of such counsel, threatened against the District which would materially adversely affect the ability of the District to perform its obligations hereunder or under the Bonds, the Indenture, the Resolution, the Resolution of Formation, the Ordinance, the District Continuing Disclosure Agreement, the Acquisition Agreement or seeking to restrain or to enjoin the issuance, 8 13775.7027605 AGMT sale, delivery of the Bonds, or the application of the proceeds thereof in accordance with the Iodenture, or the col1ection or application of the Special Tax to pay the principal of and interest on the Bonds, or in any way contesting or affecting the validity or enforceability of the Bonds, the Resolution, the Resolution of Formation, the Iodenture, the Ordinance, the District Continuing Disclosure Agreement or this Bond Purchase Agreement or the accuracy of the Official Statement, or any action of the District contemplated by any of said documents; (ii) the District is duly organized and validly existing as a community facilities district under the laws of the State, with ful1legal right, power and authority to issue the Bonds and to perform all of its obligations under this Bond Purchase Agreement, the Bonds, the Indenture, the Acquisition Agreement and the District Continuing Disclosure Agreement and to adopt the Resolution and Ordinance; (iii) except for the adoption of the resolution approving the annual levy of the Special Tax, the District has obtained al1 approvals, consents, authorizations, elections and orders of or filings or registrations with any State governmental authority, board, agency or commission having jurisdiction which constitute a condition precedent to the levy of the Special Tax, the issuance of the Bonds or the performance by the District of its obligations thereunder or under the Iodenture, except that no opinion need be expressed regarding compliance with blue sky or other securities laws or regulations, whatsoever; (iv) the City Council has duly and validly adopted the Resolution, the Resolution of Formation and the Ordinance and approved the Acquisition Agreement and the Indenture at meetings of the City Council which were called and held pursuant to law and with all public notice required by law and at which a quorum was present and acting at the time of adoption, and the Resolution, the Resolution of Formation, the Ordinance and the Iodenture and the Acquisition Agreement are now in ful1 force and effect and the same have not been amended; and (v) the Dis1rict has duly authorized, execUted and delivered this Bond Purchase Agreement, the Iodenture and the Bonds and has duly authorized the preparation and delivery of the Official Statement, and this Bond Purchase Agreement, the Bonds, the District Continuing Disclosure Agreement, the Acquisition Agreement and the Indenture constitute legal, valid and binding agreements of the District, enforceable in accordance with their respective terms, subject to bankruptcy, insolvency, reorganization, moratorium and other laws affecting the enforcement of creditors' rights in general and to the application of equitable principles if equitable remedies are sought and to limitations on remedies imposed in actions against public entities in the State; (12) A tax certificate of the District, in a form accep1able to Bond Counsel; (13) A certificate of the Developer, dated the Closing Date, in a form acceptable to Bond Counsel and addressed to the Underwriter and the District thaI the statements in the Official Statement under the caption "THE DISTRICT - Property Ownership and Development" are accurate in all material respects and do not contain any untrue statement of material fact or omit to state a material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading and the representations and warranties of the Developer contained in its LetJer of Representations are true and correc1 in all material respects on and as of the Closing Date with the same effect as if made on the Closing Date; (14) An opinion addressed to the Underwriter and the District, by counsel to the Developer, to the effect that (i) based upon the appropriate good standing certificates, the Developer is duly organized and validly existing and in good standing as a limited liability company organized and existing under the laws of the State of Delaware, and is qualified to do business in the State; (ii) the Developer has full power and authority to execute, deliver, and perform its obligations under the Acquisition Agreement and the Developer Continuing Disclosure Agreement, has duly authorized, executed, and delivered the Acquisition Agreement 9 13775.7027605 AGMT and the Developer Continuing Disclosure Agreement, and has authorized the perfonnance of its respective duties and obligations thereunder; (iii) there is no litigation pending or threatened against or affecting the Developer (a) which affects or seeks to prohibit, restrain or enjoin the development by the Developer of the property owned by the Developer within the District, or (b) in which the Developer or any of the members of the Developer may be adjudicated as bankrupt or discharged from any or all of its debts or obligations or granted an extension of time to pay its debts or a reorganization or readjustment of its debts, or (c) which seeks to grant an extension of time to pay the Developer's debts, or (d) seeks to effect a reorganization or readjustment of the Developer's debts; and (iv) the statements contained in the Official Statement under the caption "THE DISTRICT - Property Ownership and Development," as of the date of the Official Statement and the date of Closing, is true and comct and no infonnation came to the altention of the Developer's Counsel which caused such counsel to believe that, as of the date of the Official Statement and the date of Closing, the statements contained in the Official Statement relating to the Developer and the Development and contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make such statements, in the light of the circumstances under which they were made, not misleading; (15) A certificate from David Taussig & Associates, Inc. to the effect that (i) the Special Tax, if applied and collected in accordance with the tenns set forth in the Act, the Ordinance, the Resolution, the Resolution of Fonnation and the Indenture, would generate an amount at least equal to debt service on the Bonds, (ii) the Special Taxes, if collected in the maximum amounts pennilted under the Indenture on the date hereof, would generate at least - % of the maximum debt service on the Bonds, based on such assumptions and qualifications as shall be acceptable to the Underwriter, and (iii) the infonnation supplied by such finn for use in the sections captioned "SECURITY FOR THE SERIES 2004 BONDS - The Special Taxes," "THE DISTRICT - Rate and Method of Apportionment" and "- Special Tax Levy," does not contain any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading; (16) A lelter from Harris Realty Appraisal (the "Appraiser") to the effect that it has prepared the appraisal report on the property located within the DistriC1 and that (a) summaries of the report in the Preliminary Official Slatement and in the Official Statement, may be included in the Preliminary Official Statement and the Official Statement, (b) the infonnation under the captions "SECURITY FOR THE SERIES 2004 BONDS" and "SPECIAL RISK FACTORS - Appraised Values" does not contain any untrue statement of a material fact or omit to stale a material fact necessary in order 10 make the statements therein, in light of the circumstances under which they were made, not misleading, (c) no events or occurrences have been ascertained by it or have come to its attention that would materially change the opinion set forth in its report and (d) the value of the property, described in the report, as of the Closing Date, is not less than the value of such property as of -, 2004; (17) A letter from Meyers Group to the effect that it has prepared the market absorption study refemd to in the Official Statement and that (a) the summary of the study in Appendix B thereto may be included in the Preliminary Official Statement and the Official Statement, (b) neither the sununary nor the infonnation regarding the proposed development under the captions "SECURITY FOR THE SERIES 2004 BONDS - Market Absorption Study" and "SPECIAL RISK FACTORS - Appraised Values" in the Official Statement contains any untrue statement of a material fact or omits to state a material fact necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading, and 10 13775.7027605 AGMT (c) no events or occurrences have been ascertained by it or have come to its attention that would materially change the opinion set forth in its report; (18) The Appraisal Report, dated July 2004; (19) The Market Analysis and Absorption Projection, dated -, 2004; (20) A certificate of the Trustee, dated the Closing Date, to the effect that (i) the Trustee is authorized to carry out corporate trust powers, and has full power and authority to perform its duties under the Indenture and the Developer Continuing Disclosure Agreement and the District Continuing Disclosure Agreement (collectively, the "Continuing Disclosure Agreements"); (ii) the Trustee is duly authorized to execute and deliver the Indenture and the Continuing Disclosure Agreements, to accept the obligations created by the Indenture and the Continuing Disclosure Agreements and to authenticate the Bonds pursuant to the terms of the Indenture; (iii) no consent, approval, authorization or other action by any governmental or regulatory authority having jurisdiction over the Trustee that has not been obtained is or will be required for the authentication of the Bonds of the consummation by the Trustee of the other transactions contemplated to be performed by the Trustee in connection with the authentication of the Bonds and the acceptance and performance of the obligations created by the Indenture and the Continuing Disclosure Agreements; and (iv) compliance with the terms of the Indenture and the Continuing Disclosure Agreements, will not conflict with, or result in a violation or breach of, or constitute a default. under, any loan agreement, indenture, bond, note, resolution or any other agreement or instrument to which the Trustee is a party or by which it is bound, or any law or any rule, regulation, order or decree of any court or governmental agency or body having jurisdiction over the Trustee or any of its activities or properties; (21) An opinion of counsel to the Trustee, dated the Closing Date, addressed to the Underwriter and the District to the effect that the Trustee is a national banking association duly organized and validly existing under the laws of the State having full power and being qualified to enter into, accept and agree to the provisions of the Indenture and the Continuing Disclosure Agreements, and that the Indenture and the Continuing Disclosure Agreements have been duly authorized, executed and delivered by the Trustee and, assuming due execution and delivery by the other parties thereto, constitute the legal, valid and binding obligations of the Trustee, enforceable in accordance with their respective terms, subject to bankruptcy, insolvency, reorganization, moraJorium and other laws affecting the enforcement of creditors' rights in general and except as such enforceability may be limited by the application of equitable principles if equitable remedies are sought; and (22) Such additional legal opinions, certificates, instruments and other documents as the Underwri1er may reasonably request to evidence the truth and accuracy, as of the date hereof and as of the Closing Date, of the statements and information contained in the Preliminary Official Statement and the Official Slatement, of the District's representations and warranties contained herein and of the Developer contained in its Letter of Representations and the due performance or satisfaction by the District at or prior to the Closing of all agreements then to be performed and all conditions then to be satisfied by the District in connection with the transactions contemplated hereby and by the Resolution and the Official Statement. If the District shall be unable to satisfy the conditions to the obligations of the Underwriter to purchase, accept delivery of and pay for the Bonds contained in this Bond Purchase Agreement, or if the obligations of the Underwriter to purchase, accept delivery of and pay for the Bonds shall be terminated for any reason permitted by this Bond Purchase Agreement, this Bond Purchase Agreement shall II 13775.7027605 AGMT tenninate and neither the Underwriter nor the District shall be under any further obligation hereunder, except that the respective obligations of the District and the Underwriter set forth in Section 6 hereof shall continue in full force and effect. 6. Expenses. The District shall payor cause to be paid from the proceeds of the Bonds or other funds available to it the expenses incident to the performance of its obligations hereunder, including but not limited to: (a) the cost of printing and distribution of the Official Statement in reasonable quantities and all other documents (other than as set forth in the next succeeding paragraph) prepared in connection with the transac1ions contemplated hereby, including distribution costs and all mailing, including ovemight and express delivery, costs; (b) the fees and disbursements of the Trustee in connection with the execution and delivery of the Bonds; (c) the fees and disbursements of Bond Counsel, and any other experts or consultants retained by the District in connection with the transactions contemplated hereby; (d) the costs related to obtaining ratings; (e) the coS1 of mailing or delivering the definitive Bonds; (t) the Underwriter's disbursements for telephone conference calls and out-of-state travel and lodging undertaken at the request of the District; and (g) expenses incurred on behalf of the District's employees which are incidental to the issuance of the Bonds, including, but not limited to, meals, transportation, lodging, and entertainment of those employees. (a) The Underwriter shall pay: (a) all advertising expenses in connection with the public offering of the Bonds; (b) the fees and expenses of counsel to the Underwriters, including their fees in connection with the qualification of the Bonds for sale under the Blue Sky or other securities laws and regulations of various jurisdictions; (c) California Debt and Investment Advisory Commission fees; and (d) all other expenses incurred by it in connection with its public offering and distribution of the Bonds. 7. Indemnification. (a) To the extent permitted by law, the District agrees to indemnify and hold hannless the Underwriter and their officers and employees (collectively, the "Indemnified Persons," and individually, an "Indemnified Person") from and against any losses, claims, damages or liabilities to which any Indemnified Person may become subject insofar as such losses, claims, damages or liabilities (or actions in respect thereot) arise out of, or are based upon, any untrue statement or alleged untrue statement of a material fact contained in the Official Statement or arise out of, or are based upon, the omission or alleged omission to state therein a material fact necessary to make the statements therein not misleading, and will reimburse each Indemnified Person for any legal or other expenses reasonably incurred by such Indemnified Person in investigating, defending or preparing to defend any such action or claim; provided, however, that the District shall not be liable in any such case as to any Indemnified Person to the extent that any such loss, claim, damage or liability arises out of, or is based upon, any untrue statement or alleged untrue statement or omission or alleged omission made in the Official Statement, in reliance upon and in confonnity with written information furnished to the District by or on behalf of any Indemnified Person specifically for inclusion therein; and provided further, however, that the indemnity with respect 10 the Official Statement shall not inure to the benefit of the Underwriter on account of any loss, expense, liability or claim arising from the sale of the Bonds by the Underwriter to any person if a copy of the Official Statement (as amended or supplemented, or as proposed by the District to be amended or supplemented, if the District shall have furnished, or in the case of such proposed amendment or supplement, if the District shall have furnished, to the Underwriter at leas1 one full business day prior to confirmation of such sale by the Underwriter an amended Official Statement or amendments or supplements to the Official Statement relating to the untrue statement or alleged untrue statement or omission or alleged omission for which indemnity is sought, as the case may be) shall not have been sent or given to such person at or prior to the confirmation of the sale of such Bonds 10 such person. 12 13775.7027605 AGMT (b) Promptly after receipt by an Indemnified Person under paragraph (a) of this Section of notice of the commencement of any action, such Indemnified Person shall, if a claim in respect thereof is to be made against the District under such paragraph, notify the Dis1rict in writing of the commencement thereof. In case any such action shall be brought against any Indemnified Person, and such Indemnified Person shall notify the District of the commencement thereof, the District shall be entitled to participate in and, to the extent that it wishes, to assume the defense of, with counsel saJisfactory to such Indemnified Person, and after notice from the District to such Indemnified Person of its election so to assume the defense thereof, the District shall not be liable to such Indemnified Person under paragraph (a) of this Section for any legal or other expenses subsequently incurred by such Indemnified Person in connection with the defense thereof other than reasonable costs of any investigation; provided, however, that if the named parties to any such action (including any impleaded parties) include both the Indemnified Persons and the District, and the Indemnified Persons or the District shall have reasonably concluded that there may be one or more legal defenses available to it which are different from or additional to those available to the District, the Indemnified Persons shall have the right to select separate counsel to assume such legal defenses and to otherwise participate in the defense of such action on behalf of the Indemnified Persons; provided further, however, that the District shall not, in connection with anyone such action or separate but substantially similar or related actions arising out of the same general allegations or circumstances, be liable for the fees and expenses of more than one separate firm of attorneys at any point in time for the Indemnified Persons. (c) The Underwri1er agrees to indemnify and hold harmless the District and its officers and employees to the same extent as the indemnity from the District to the Indemnified Persons. described in paragraph (a) of this Section but only with respect to information relating to the Underwriter furnished in writing by the Underwriter or on its behalf, which includes certain information furnished for the inside and outside of the cover of the Official Statement and under the caption "Underwriting" as set forth in the Official Statement. In case any action shall be brought against the District in respect of which indemnity may be sought against the Underwriter, the Underwriter shall have the rights and duties given to the District and the District shall have the rights and duties given to the Underwriter by paragraph (b) of this Section and the term "Indemnified Person" shall include the District and its officers and employees. 8. Notices. Any notice or other communication to be given to the District under this Bond Purchase Agreement may be given by delivering the same in writing to , Attention: : and any notice or other communication to be given to the Underwriter under this Bond Purchase Agreement may be given by delivering the same in writing to Citigroup Global Markets Inc., 444 S. Flower Street, 27"' Floor, Los Aogeles, California 90071, Attention: Christopher Mukai, Director. 9. Parties in Interest. This Bond Purchase Agreement is made solely for the benefit of the District and the Underwriter (including their successors or assigns), and no other person shall acquire or have any right hereunder or by virtue hereof. 10. Survival of Representations and Warranties. The representations and warranties of the District set forth in or made pursuant to this Bond Purchase Agreement shall not be deemed to have been discharged, satisfied or otherwise rendered void by reason of the Closing or termination of this Bond Purchase Agreement and regardless of any investigations made by or on behalf of the Underwriter (or statements as to the results of such investigations) concerning such representations and statements of the District and regardless of delivery of and payment for the Bonds. II. Effective. This Bond Purchase Agreement shall become effective and binding upon the respective parties hereto upon the execution of the acceptance hereof by the District and shall be valid and 13 13775.7027605 AGMT enforceable as of the time of such acceptance. This Bond Purchase Agreement may be signed in counterpans by each pany. 12. No Prior Agreements. This Bond Purchase Agreement supersedes and replaces all prior negotiations, agreements and understandings between the panies hereto in relation to the sale of Bonds for the District. 14 13775.7027605 AGMT State. 13. Governing Law. This Bond Purchase Agreement shall be governed by the laws of the Very truly yours, CITIGROUP GLOBAL MARKETS INC. By: Christopher Mukai COMMUNITY FACILITIES DISTRICT NO. 04-1 By: Authorized Representative 15 13775.7027605 AGMT EXHIBIT A LETTER OF REPRESENTATIONS OF WL HOMES LLC ,2004 Community Facilities District No. 04-1 City of Tustin, California Citigroup Global Markets Inc. Los Angeles, California Ladies and Gentlemen: This Letter of Representations is delivered in connection with the City of Tustin Community Facilities District No. 04-1 (Tustin Legacy/John Laing Homes) Special Tax Bonds, Series 2004 (the "Bonds"). In connection with the execution and delivery of the Bond Purchase Agreement, dated the date hereof (the "Bond Purchase Agreement"), by and between Citigroup Global Markets Inc. and the City of Tustin Community Facilities District No. 04-1 (Tustin Legacy/John Laing Homes) (the "District"), the Developer hereby represents, and warrants to you as follows: L the Developer is a limited liability company duly created and validly existing under the laws of Delaware and in good standing under the laws of the State of California and has all necessary power and authority to enter into and perform its duties under the Acquisition Agreement and the Developer Continuing Disclosure Agreement (collectively, the "Developer Documents"), and when executed and delivered by the respective parties thereto, will constitute legal, valid and binding obligations of the Developer in accordance with their respective terms except as enforcement against the Authority may be limited by bankruptcy, insolvency or other laws affecting the enforcement of creditors' rights generally and by the application of equitable principles if equitable remedies are sought; 2. there is no action, suit, proceeding or investigation at law or in equity before or by any court or governmental agency or body pending, or to the best knowledge of the Developer, threatened against the Developer in any way (a) contesting or affecting the validity of the Developer Documents or contesting the powers of the Developer to enter into or perform its obligations under any of the foregoing, (b) in which the Developer may be adjudicated as bankrupt, or discharged from all or a portion of its debts or obligations or granted an extension of time to pay its debts or obligations, or be allowed to reorganize to readjust its debts or obligations, (c) if determined adversely to the Developer, would have a material adverse effeC1 on the financial position or operations of the Developer, or (d) seeks to restrain or to enjoin the continuation or completion of proposed development of the District as described in the Official Statement; 3. there is no consent, approval, authorization or other order of, or filing with, or certification by, any govemmental authority, board, agency or commission or other regulatory authority having jurisdiction over the Developer, required for the execution and delivery of the Developer Documents or the consummation by the Developer of the other transactions contemplated by the Official Statement or the Developer Documents; 4. any and all information submitted by the Developer in connection with the preparation of the Official Statement and any and all information submitted by the Developer to the Special Tax A-I 13775.7027605 AGMT Consultant, the Appraiser and the Market Absorption Consultant, respectively, was as of its date true and correct and, except for any such infonnation that was modified or supplemented by subsequent infonnation submitted by the Developer, no material change has occurred with respec1 to such infonnation as of the dated date hereof; 5. the statements in the Official Statement under the caption "THE DISTRICT - Property Ownership and Development" will be accurate in all material respects and will not contain any untrue statement of material fact or omit to state a material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading; 6. the Developer has obtained all environmental pennits required and none of the parcels which constitute land within the District owned by the Developer or any of its affiliates are delinquent in the payment of any taxes or assessments; and 7. no event has occuITed prior to the date hereof which, with the passage of time, would constitute a material default by the Developer on any of its obligations under the Developer Documents. Capitalized tenns used and not defined herein shall have the meanings ascribed to such tenns in the Bond Purchase Agreement. Very truly yours, WL HOMES LLC By; Authorized Representative A-2 13775.7027605 AGMT CONTINUING DISCLOSURE AGREEMENT by and among CITY OF TUSTIN COMMUNITY FACILITIES DISTRICT NO. 04-1 (TUSTIN LEGACY/JOHN LAING HOMES) and U.S. BANK NATIONAL ASSOCIATION, AS TRUSTEE and U.S. BANK NATIONAL ASSOCIATION, AS DISSEMINATION AGENT Dated as of 1,2004 City of Tustin Community Facilities District No. 04.1 (Tustin Legacy/John Laing Homes) Special Tax Bonds, Series 2004 DOcSLA1 :479526.2 42081.8GH1 CONTINUING DISCLOSURE AGREEMENT THIS CONTINUING DISCLOSURE AGREEMENT (this "Disclosure Agreement"), dated as of I, 2004, is by and among CITY OF TUSTIN COMMUNITY FACILITIES DISTRICT NO. 04-1 (TUSTIN LEGACY/JOHN LAING HOMES), a community facilities district organized and existing under and by virtue of the laws of the State of California (the "Community Facilities District"), and U.S. BANK NATIONAL ASSOCIATION, a national banking association organized and existing under and by virtue of the laws of the United States of America (the "Bank"), in its capacity as trustee (the "Trustee") and in its capacity as Dissemination Agent (the "Dissemination Agent"). WITNESSETH: WHEREAS, pursuant to the Indenture, dated as of 1, 2004 (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. 04-1 (Tustin Legacy/John Laing Homes) Special Tax Bonds, Series 2004 (the "Series 2004 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 2004 Bonds and in order to assist the underwriters of the Series 2004 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 I. "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. DOcSLA1 :479526.2 42081.8 GH1 "Listed Events" means any of the events listed in Section 4(a) hereof. "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/ir¡fo/municipal/nnnsir.htm. "Official Statement" means the Official Statement, dated the Series 2004 Bonds. , 2004, relating to "Participating Underwriter" means any of the original underwriters of the Series 2004 Bonds required to comply with the Rule in connection with the offering of the Series 2004 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 may be 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 [2003-04] 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(f) 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). DOcSLA1 :479526.2 42081.8 GHI 2 (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. (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) herein; and provide any Annual Report received by it to each Repository, as provided (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 refere.nce 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 2004 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.). DOcSLAl:479526.2 42081.8 GHI 3 (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 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) may be 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) A land ownership summary listing property owners responsible for more than 5% of the annual Special Tax levy, as shown on the assessment roll of the Orange County Assessor last equalized prior to the September next preceding the Annual Report Date. (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. Renortim! of Sil!nificant 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 2004 Bonds, if material: (i) Principal and interest payment delinquencies. DOcSLAl :479526.2 42081.8GH1 4 (ii) (iii) difficulties. (iv) difficulties. (v) (vi) security. (vii) Non-payment related defaults. Unscheduled draws on debt service reserves reflecting financial Unscheduled draws on credit enhancements reflecting financial Substitution of credit or liquidity providers, or their failure to perform. Adverse tax opinions or events affecting the tax-exempt status of the Modifications to rights of security holders. (viii) Contingent or unscheduled bond calls. (ix) (x) securities. (xi) Defeasances. Release, substitution, or sale of property securing repayment of the 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, 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. (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, DOcSLA1 :479526.2 42081.8 OHl 5 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 (t). (t) 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 2004 Bonds pursuant to the Indenture. Section 5. Termination of ReDortin!! Obli!!ation. 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 2004 Bonds. If such termination occurs prior to the final maturity of the Series 2004 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 6. Dissemination A!!ent. The Community Facilities District may, from time to time, appoint or engage a Dissemination Agent to assist it in carrying out its obligations under this Disclosure Agreement, and may discharge any such Dissemination Agent, with or without appointing a successor Dissemination Agent. The Dissemination Agent. may resign by providing 30 days' written notice to the Community Facilities District and the Trustee. The Dissemination Agent shall have no duty to prepare the Annual Report. If at any time there is not any other designated Dissemination Agent, the Trustee shall be the Dissemination Agent. Section 7. Amendment: Waiver. Notwithstanding any other provision of this Disclosure Agreement, the Community Facilities District, 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 2004 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 2004 Bonds in the manner provided in the Indenture for amendments to the Indenture DOcSLA1:479526.2 42081.8 GH1 6 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 2004 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 8. Additional Information. Nothing in this Disclosure Agreement shall be deemed to prevent the Community Facilities District from disseminating any other information, using the means of dissemination set forth in this Disclosure Agreement or any other means of communication, or including any other information in any Annual Report or notice of occurrence of a Listed Event, in addition to that which is required by this Disclosure Agreement. If the Community Facilities District chooses to include any information in any Annual Report or notice of occurrence of a Listed Event in addition to that which is specifically required by this Disclosure Agreement, the Community Facilities District shall have no obligation under this Disclosure Agreement to update such information or include it in any future Annual Report or notice of occurrence of a Listed Event. Section 9. Default. In the event of a failure of the Community Facilities District 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 2004 Bonds, shall, upon receipt of indemnification reasonably satisfactory to the Trustee), or any holder or beneficial owner of the Series 2004 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. DOcSLA1:479526.2 42081.8GH1 7 Section 10. Duties. Immunities and Liabilities of Trustee and Dissemination Al!ent. 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 11. 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 2004 Bonds, and shall create no rights in any other person or entity. Section 12. Counterparts. This Disclosure Agreement may be executed in several counterparts, each of which shall be an original and all of which shall constitute but one and the same instrument. DOcSLAl:479526.2 42081.8 GHI 8 IN WITNESS WHEREOF, the parties hereto have executed this Disclosure Agreement as of the date fIrst above written. CITY OF TUSTIN COMMUNITY FACILITIES DISTRICT NO. 04.1 (TUSTIN LEGACY/JOHN LAING HOMES) By: U.S. BANK NATIONAL ASSOCIATION, AS TRUSTEE By: Authorized Officer' U.S. BANK NATIONAL ASSOCIATION, AS DISSEMINATION AGENT By: Authorized Officer DOcSLA1:479526.2 42081-8GHl 9 EXHmIT A NOTICE TO MUNICIPAL SECURITIES RULEMAKING BOARD OF FAILURE TO FILE ANNUAL REPORT Name of Issuer: City of Tustin Community Facilities District No. 04-1 (Tustin Legacy/John Laing Homes) Name of Bond Issue: City of Tustin Community Facilities District No. 04-1 (Tustin Legacy/John Laing Homes) Special Tax Bonds, Series 2004 Date of Issuance: ,2004 NOTICE IS HEREBY GIVEN that City of Tustin Community Facilities District No. 04- I (Tustin Legacy/John Laing Homes) (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 I, 2004, by and among the Community Facilities District and U.S. Bank National Association, 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: U.S. Bank National Association, as Trustee, on behalf of the City of Tustin Community Facilities District No. 04-1 (Tustin Legacy/John Laing Homes) cc: City of Tustin Community Facilities District No. 04-1 (Tustin Legacy/John Laing Homes) DOcSLAl:479526.2 42081.8 GHI A-I PRELIMINARY OFFICIAL STATEMENT DATED -, 2004 NEW ISSUE . BOOK-ENTRY ONLY NO RATINGS In the opinion of Orric~ Haringlon & Sutcliffe UP. Bond ú>unsel. based upon on analy';, of ex;,ting law,. "gulation,. ruling' and co.,1 deci,ion,. and ",roming. among otha moo",. the mcurocy of wtain "p"sentation, and compliome with cmain c"",non". intm" on the Sene, 2004 Bonds ~ exxclukdfrom gro" i== foe feMrol imo= tas pu'POse, unduS"tion 103 oft/w Intemal Rmn~ COM of 1986 and iu=mptfeom State of California pa,"=1 imo= t=,. In t/wfunhaopinion of Bond Ú>unsel. inte"" on the Senex 2004 Bonds ~ Mt a SfH'cific pee/mnce item foe pU'PO'" of t/w federol individual oe c°'POmte altemari", minimum t=,. although Bond Counsel obse~, that roch inte"" ¡, imlukd in odju"ed cumnt earning' v.4ten cakularing cocpomte altemari", minimum !amble "",0=. Bond Ú>un,d expm", M opinion "gaeding any otha tas conseq~mex ,daled to t/wo_"hipoedÜpo,itionot octhe mc=l oe "c",pt ofintaexf 0"- the Senex 2004 Bond,. See "CONCLUDING INFORMATION. Tas fumprion" /w"in. STATE OF CALIFORNIA COUNTY OF ORANGE $ CITY OF TUSTIN COMMUNITY FACILITIES DISTRICT NO. 04-1 (TUSTIN LEGACY/JOHN LAING HOMES) SPECIAL TAX BONDS, SERIES 2004 Dated: Date ofDelivery Due: September 1. as shown below The CiTy of Tustin CommuniTy Facilities District No. 04.1 (Tustin Legacy/John Laing Homes) Special Tax Bonds, Series 2004 (rhe "Series 2004 Bonds") are being issued under rhe Mello-Roos Community Facilities Act of 1982 (the "Act") and the Indemure. dated as of - 1. 2004. by and between City of Tustin Community Facilities District No. 04.1 (Tustin Legacy/John Laing Homes) (the "District") and U.S. Bank National Association. as ttustee (the "Trustee"). and are pnyable fi:om the Net Special Tax Revenues (as defined herein) derived fi:om the Special Taxes (as defined herein) levied on propeny within the District according to rhe rate and merhod of apportionmem of the Special Taxes approved by the qnalified electors of the District and by the City Council of the City of Tustin. California (rhe "City"). The Special Taxes will be collected in rhe same manner and at the same time as ad valocem propeny taxes are collected by the Treasurer.Tax Collecwr of the County of Orange. Additional bonds ("Additional Bonds") may be issued by rhe District on a pariTy wirh rhe Series 2004 Bonds but oaly for rhe purpose of refunding all or a portion of rhe Series 2004 Bonds or such Additional Bonds. The Series 2004 Bonds and any Additional Bonds are collectively referred to as the "Bonds." The Series 2004 Bonds are being issued to provide funds (a) to pny the cost and expen." of acqui~tion and construction of certain public facilities necessary for rhe development of the Districc (b) to pay capitalized interest on rhe Series 2004 Bonds w September 1. 2005. (c) w fund a reserve fund for rhe Series 2004 Bonds. and (d) W pay the costs of issuing rhe Series 2004 Bonds. See "ESTIMATED SOURCES AND USES OF FUNDS" herein. The Series 2004 Bonds are being issued in fully registered book.entry oaly form. iuitially registered in rhe name of Cede & Co" as nominee of The Depository Trust Company. New York. New York ("DTC"). Interest on the Series 2004 Bonds is payable sem¡annnally on March 1 and. September 1 of eacb year. commencing on Marcb 1. 2005. Purchasers will not receive certificates representing their interest in rhe Series 2004 Bonds. Individnal purchases will be in principal amounts of $5.000 or integral multiples thereof. Principal of and interest and premium. if any. on rhe Series 2004 Bonds will be paid by the Trustee to DTC for subseqnent disbursement 10 DTC Participants who are obligated to remit such payments to the beneficial owners ofrhe Series 2004 Bonds. See Appendix Hhereto. "Book.Entry Only System." The Series 2004 Bonds are subject to optional and mandatOry redemption prier to maturity as described herein. See "TIJE SERIES 2004 BONDS. Redemption ofrhe Series 2004 Bonti," herein. NEITHER THE FAITH AND CREDIT NOR THE TAXING POWER OF THE CITY, THE STATE OF CALIFORNIA OR ANY POLITICAL SUBDIVISION THEREOF OTIIER THAN TIlE DISTRICT TO THE LIMITED EXTENT DESCRmED IN THE INDENTURE IS PLEDGED TO THE PAYMENT OF THE BONDS. EXCEPT FOR THE SPECIAL TAXES, NO OTHER TAXES ARE PLEDGED TO THE PAYMENT OF THE BONDS. THE BONDS ARE NOT GENERAL OR SPECIAL OBLIGATIONS OF THE CITY NOR GENERAL OBLIGATIONS OF THE DISTRICT, BUT ARE SPECIAL OBLIGATIONS OF THE DISTRICT PAYABLE SOLELY FROM NET SPECIAL TAX REVENUES AND CERTAIN OTHER ASSETS PLEDGED THEREFOR UNDER THE INDENTURE, AS MORE FULLY DESCRIBED HEREIN. MATURITY SCHEDULE Serial Series 2004 Bonds CUSIP Not Maturity Date (September 1) Maturity Date (September 1) Principal Amount Interest Rate Price! Yield Principal Amount Interest Rate Price! Yield CUSIP No. .1 $ $ % Tenn Bonds due September 1, 2°- - YieId: % Tenn Bonds due September I, 2°- - Yield: % CUSIP No. % CUSIPNo. t t , Copyright 2004, American Bankers Association. CUSIP numbers provided by StandMd & Poor's CUSIP Service Bureau, a division of The McGraw.Hill Companies. Inc. CUS1P data herein are set fonh for convenience of reference only. The District and the Underwriter assume no responsibility for rhe accuracy of such datA. Investment In the Series 2004 Bonds involves risks which may not be appropriate for some investors. See "SPECIAL RISK FACTORS" for a discnssion of certain mk factors that should be considered, in addition to tbe other matters set forth herein, in evBloating the investment qoality of the Series 2004 Bonds. This cover page contains information for quick reference only. It Is not a eomplete summary of the Series 2004 Bonds. Investors should read the entire OIIIcial Statement to obtatn information essential to the making of an Infonned investment decision. The Seri" 2004 Bont/.¡ ace offered when. a' and if i"ued and delivered to the Underwriter, ,ubject to the oppmval a, to their validity by Orric~ Hercington & Sutcliffe Ill'. Bond Counsel, and subject to "flain ot/wr condilioos. Orrick. Hercington & Sutcliffe Ill' i, acting a, di,clo,uce counsel in connection with the Seri" 2004 Bont/.¡. Certain legal malt'" will be pa"ed uponfor l/w Underwrifu by ilS counse( Hawkins Delajield & Wood Ill', ÙJs Angel", California. andfo, the City and f/w . Preliminary. subject to change. DOCSLA1:481479.4 District by their counsel Woodruff. Spradlin & Smnr, A Professionnl Corporation, Orange. California. It is onticipoted thOt the Series 2004 Bonds will be availnble for delivery in book-entry form through the focilities of DTC on or obout December 15. 2004. Citigroup Dated; _.2004 DOCSLA1 :481479.4 CITY OF TUSTIN, CALIFORNIA (Orange County, California) CITY COUNCIL Tony Kawashima, Mayor Lou Bone, Mayor Pro Tem Doug Davert, Councilmember Jeffrey M. Thomas, Councilmember Tracy Worley Hagen, 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 Trustee U.S. Bank National Association Los Angeles, California Special Tax Consultant David Taussig & Associates, Inc. Newport Beach, California Appraiser Harris Realty Appraisal Newport Beach, California Market Absorption Analyst Meyers Group Solana Beach, California Special Tax Administrator MuniFinancial, Inc. Temecula, California DOCSLA1 :481479.4 No dealer, broker, salesperson or other person has been authorized by the City, the District or the Underwriter to give any information or to make any representations with respect to the City, the District or the Series 2004 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 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 2004 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 2004 Bonds. Statements contained in this Official Statement which involve estimates, forecasts or matters of opinion, whether or not expressly so described herein, are intended solely as such and are not to be construed as a representation of facts. Certain of the information set forth herein has been obtained from sources which the City and the District believe to be reliable, but such information is not guaranteed as to accuracy or completeness. The Underwriter has provided the following sentence for inclusion in this Official Statement. The Underwriter has reviewed the information in this Official Statement in accordance with, and as a part of, its responsibilities to investors under the federal securities laws as applied to the facts and circumstances of this transaction, but the Underwriter does not guarantee the accuracy or completeness of such information. All summaries of the Indenture or other documents are made subject to the complete provisions thereof and do not purport to be complete statements of any or all of such provisions. Reference is hereby made to such documents on file with the District for further information in connection therewith. This Official Statement is submitted in connection with the sale of the Series 2004 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 2004 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 2004 Bonds to certain dealers and dealer banks and banks acting as agent at prices lower than the public offering prices stated on the cover page hereof and such public offering prices may be changed from time to time by the Underwriter. DOCSLA1 :481479.4 TABLE OF CONTENTS Page INTRODUCTION .......................................................................................................................1 THE SERIES 2004 BONDS........................................................................................................3 Authority for Issuance................................................."""""""""""""""""""""""""'" 3 Description of the Series 2004 Bonds .............................................................................. 3 Redemption of the Series 2004 Bonds ............................................................................. 4 Debt Service Schedule ."""""""""""""""""""""""""""""""""""""""""""""""""" 8 ESTIMATED SOURCES AND USES OF FUNDS .................................................................... 9 THE PROJECT ........................................................................................................................... 9 SECURITY FOR THE SERIES 2004 BONDS """""""""""""""""""""""""""""""""""'" 10 General ..........................................................................................................................10 The Special Taxes..........................................................................................................10 Special Tax Fund .........................';.........................::...................................................... II Reserve Fund """""""""""""""""""""""""""""""""""""""""""""""".................12 Additional Bonds.......................................................................... .................................13 Covenant for Superior Court Foreclosure ...................................................................... 13 Market Absorption Study...............................................................................................14 Property Values .............................................................................................................14 Direct and Overlapping Debt ...........---................................................---........................15 Estimated Value-to-Lien Ratios..................................................................................... 18 The Teeter Plan..............................................................................................................19 THE DISTRICT ........................................................................................................................20 General ..........................................................................................................................20 Tustin Legacy """"""""""""""""""""""""""""""""""""""""""""""""'".............20 Summary of District Proceedings ..................................................................................21 Rate and Method of Apportionment..........................---.................................................. 21 Former Marine Corps Air Station Tustin ....................................................................... 23 CEQA Compliance ........................................................................................................24 Property Ownership and Development """"""""""""""""""""""""""""""""""""" 24 SPECIAL RISK FACTORS ...................................................................................................... 31 Concentration of Ownership .......................................................................................... 31 DOCSLA1:481479.4 TABLE OF CONTENTS (continued) Page Insufficiency of Special Taxes ....................................................................................... 31 The Series 2004 Bonds are Limited Obligations ofthe District .....--..---......................... 32 The Special Taxes are not Personal Obligations ofthe Property Owners....................... 32 Special Tax Delinquencies.............................................................................................32 Failure to Develop Property ...........................................................................................33 Appraised Values...........................................................................................................34 Teeter Plan Termination..--.............................................................................................34 Bankruptcy................................................................,....................................................34 Disclosures to Future Purchasers ...............................................................,,--................ 35 Billing of Special .Taxes................................................................................................ 35 Natural Disasters.................................................,..........................................................35 Soil Conditions in the District.....................--..--............................................................. 36 Endangered Species ................................................................................--.....".............. 36 Hazardous Substances.......................................................,............................................ 36 Payments by FDIC or Other Federal Agencies ....----.--................................................... 37 Cumulative Burden of Parity Taxes, Special Assessments....................................----..... 38 Value-to-Lien Ratios.....................................................................--............................... 38 Limitations on Remedies ..................------..--........................................----..------............... 39 Right to Vote on Taxes Act.....--...................................................--..--............................ 39 Loss of Tax Exemption..................................................................................................40 Limited Liquidity of the Series 2004 Bonds ......................--..----..--................................40 LITIGATION ..........................................................................................................,.................40 CONTINUING DISCLOSURE.................................................................................................40 CONCLUDING INFORMATION .........................------.........................................--..................41 Legal Opinions................................................................................................,..............41 Financial Interest .................,.......................................,................................................. 41 Tax Exemption...............................................................................................................41 Underwriting...............................................................,..................................................44 No Ratings.....................................................................................................................44 Miscellaneous .......................................,........................................................................44 DOCSLA1:481479.4 ii TABLE OF CONTENTS (continued) Page APPENDIX A - APPRAISAL................................................................................................. A-I APPENDIX B - SUMMARY OF MARKET ABSORPTION STUDY ................................... B-1 APPENDIX C - RATE AND METHOD OF APPORTIONMENT OF SPECIAL TAX ......... C-I APPENDIX D - PROPOSED FORM OF OPINION OF BOND COUNSEL.......................... D-I APPENDIX E - SUMMARY OF INDENTURE..................................................................... E-I APPENDIX F - FORMS OF CONTINUING DISCLOSURE AGREEMENTS ......................F-I APPENDIX G - AUDITED FINANCIAL STATEMENTS FOR WL HOMES...................... G-I APPENDIX H - BOOK-ENTRY ONLY SYSTEM ................................................................H-I DQCSLA1:481479.4 iii INSERT AERIAL PHOTO DOCSLA1:481479.4 OFFICIAL STATEMENT $ CITY OF TUSTIN COMMUNITY FACILITIES DISTRICT NO. 04.1 (TUSTIN LEGACY/JOHN LAING HOMES) SPECIAL TAX BONDS, SERIES 2004 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. 04-1 (Tustin Legacy/John Laing Homes) (the "District") of $ . aggregate principal amount of its Special Tax Bonds, Series 2004 (the "Series 2004 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 2004 Bonds to potential investors is made only by means of the entire Official Statement. The Series 2004 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 I, 2004 (the "Indenture"), by and between the District and U.S. Bank National Association, as trustee (the "Trustee"). Capitalized undefined terms used herein shall have the meanings ascribed thereto in the Indenture. The Series 2004 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 District may issue additional bonds (the "Additional Bonds") payable on a parity with the Series 2004 Bonds, but only for the purpose of refunding all or a portion of the Series 2004 Bonds or such Additional Bonds. See "SECURITY FOR THE SERIES 2004 BONDS - Additional Bonds." The Series 2004 Bonds and any such Additional Bonds are collectively referred to herein as the "Bonds." Pursuant to the Act, the qualified electors of the District approved the levy of a special tax (the "Special Tax") within the boundaries of the District. The Special Tax is comprised of a Special Tax A for facilities and a Special Tax B for services; however, only the Special Tax A is . Preliminary, subject to change. DOCSLA1:481479.4 pledged to the payment of the Bonds. References to the Special Tax herein refer only to the Special Tax A pledged to the payment of the Bonds. See "THE DISTRICT - Summary of District Proceedings." The Bonds are payable from and secured by a pledge of Net Special Tax Revenues and certain other amounts held under the Indenture as described herein. See "SECURITY FOR THE SERIES 2004 BONDS" and Appendix E - "Summary of Indenture." The District consists of approximately 68.4 gross acres of property located in the City of Tustin (the "City"). See "THE DISTRICT - General." WL Homes LLC, dba John Laing Homes ("WL Homes") currently owns the property in the District. The District constitutes the first phase of development of the former Marine Air Corps Station Tustin (the "Air Station"). The portion of the Air Station located in the City and an additional four acre parcel is being developed as an approximately 1,511 gross acre master planned community called Tustin Legacy ("Tustin Legacy"). Approximately 95 acres of the former Air Station are located in the City of Irvine. See "THE DISTRICT - Property Ownership and Development." WL Homes plans to develop the District with 565 residential units in seven distinct projects. The residential units proposed to be developed by WL Homes within the District consist of 58 row townhouse units, 140 cluster townhouse units, 315 detached units and 52 paired home units. The residential units are being offered for sale in two phases. The first phase opened for sale in May 2004. The second phase is scheduled to open for sale in February 2005. See "THE DISTRICT - Property Ownership and Development." The proceeds from the sale of the Series 2004 Bonds will be used to (a) pay the cost and expense of the acquisition and construction of certain public facilities necessary for the development of the District (see "THE PROJECT"), (b) pay capitalized interest on the Series 2004 Bonds to September I, 2005, (c) fund a reserve fund for the Series 2004 Bonds, and (d) pay the costs of issuing the Series 2004 Bonds. See "ESTlMA TED 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 2004 Bonds. See "SPECIAL RISK FACTORS." Neither the faith and credit nor the taxing power of the City, the State of California (the "State") or any political subdivision thereof other than the District to the limited extent described in the Indenture is pledged to the payment of the Bonds. Except for the Special Taxes, no other taxes are pledged to the payment of the Bonds. The Bonds are not general or special obligations of the City nor general obligations of the District, but are special obligations of the District payable solely from the Net Special Tax Revenues and certain other assets pledged therefor under the Indenture, as more fully described herein. 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 2IE of the United States Securities Exchange Act of 1934, as amended, and Section 27 A of the United States Securities Exchange Act of 1933, as amended. Such statements are generally identifiable by the tenninology 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 DOCSLA1:481479.4 2 the caption "SECURITY FOR THE SERIES 2004 BONDS" and in Appendix A - "Appraisal" and Appendix B - "Summary of Market Absorption Study." Brief descriptions of the Series 2004 Bonds, the Indenture, the security for the Series 2004 Bonds, the District, the status of development within the District and certain other information are included in this Official Statement. Such descriptions and information do not purport to be comprehensive or definitive. The descriptions herein of the Series 2004 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 2004 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 2004 BONDS Authority for Issuance The Bonds were authorized at a special election held in the District on July 19,2004. The Series 2004 Bonds will be issued pursuant to the Act and the Indenture. Description of the Series 2004 Bonds The Series 2004 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 2004 Bonds. Ownership interests in the Series 2004 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 2004 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 2004 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 2004 Bonds. The Series 2004 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 2004 Bonds will be paid semiannually on March I and September I (each an "Interest Payment Date"), commencing on March 1,2005. Interest on the Series 2004 Bonds will be calculated on the basis of a 360-day year comprised of twelve 30-day months. Payment of interest on the Series 2004 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 2004 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 2004 Bonds, interest payments will be made as described in Appendix H - "Book-Entry Only System." Interest on the Series 2004 Bonds will be payable from the Interest Payment Date next preceding the date of authentication thereof unless (a) a Series 2004 Bond is authenticated on or before an Interest Payment Date and after the close of business on the preceding Record Date, in DOCSLA1:481479.4 3 which event it will bear interest from such Interest Payment Date, (b) a Series 2004 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 Bond, or (c) interest on any Series 2004 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 2004 Bonds Optional Redemption The Series 2004 Bonds are subject to optional redemption, in whole or in part, on any Interest Payment Date on or after March I, 20_, from any source of available funds, at the following respective redemption prices (expressed as percentages of the principal amount of the Series 2004 Bonds to be redeemed), plus accrued interest thereon to the date of redemption: RedemDtion Dates March 1,20- through March 1,20- September I, 20- and March 1,20- September I, 20- and March 1,20- September I, 20- and thereafter RedemDtion Price Mamkdory Redemptionfrom Special Tax Prepayments The Series 2004 Bonds are subject to mandatory redemption, in whole or in part, on any Interest Payment Date on or after March 1, 20_, 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 2004 Bonds to be redeemed), plus accrued interest thereon to the date of redemption: RedemDtion Dates March 1,20- through March 1,20- September I, 20- and March 1,20- September I, 20- and March 1,20- September I, 20- and thereafter Redemption Price Mamkdory Sinking Fund Redemption The Series 2004 Bonds maturing on September I, 20_, are subject to mandatory sinking fund redemption, in part, on September I in each year, commencing September I, 20_, at a redemption price equal to the principal amount of the Series 2004 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: DOCSLA1 :481479.4 4 Sinking Fund Redemption Date (September 1) Principal Amount to be Redeemed * * Maturity If some but not all of the Series 2004 Bonds maturing on September I, 20- are optionally redeemed, the principal amount of Series 2004 Bonds maturing on September I, 20- to be subject to mandatory sinking fund redemption on any subsequent September I will be reduced, by $5,000 or an integral multiple thereof, as designated by the District in a Written Certificate of the District filed with the Trustee; provided, however, that the aggregate amount of such reductions shall not exceed the aggregate amount of Series 2004 Bonds maturing on September I, 20- so optionally redeemed. If some but not all of the Series 2004 Bonds maturing on September I, 20- are redeemed from Special Tax prepayments, the principal amount of Series 2004 Bonds maturing on September I, 20- to be subject to mandatory sinking fund redemption on any subsequent September I will be reduced by the aggregate principal amount of the Series 2004 Bonds maturing on September I, 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. The Series 2004 Bonds maturing on September I, 20_, are subject to mandatory sinking fund redemption, in part, on September I in each year, commencing September I, 20_, at a redemption price equal to the principal amount of the Series 2004 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 I) Principal Amount to be Redeemed * * Maturity If some but not all of the Series 2004 Bonds maturing on September I, 20- are optionally redeemed, the principal amount of Series 2004 Bonds maturing on September I, 20- to be subject to mandatory sinking fund redemption on any subsequent September I will be reduced, by $5,000 or an integral multiple thereof, as designated by the District in a Written Certificate of the District filed with the Trustee; provided, however, that the aggregate amount of such reductions shall not exceed the aggregate amount of Series 2004 Bonds maturing on DOCSLA1:481479.4 5 September 1, 20- so optionally redeemed. If some but not all of the Series 2004 Bonds maturing on September I, 20- are redeemed from Special Tax prepayments, the principal amount of Series 2004 Bonds maturing on September 1, 20- to be subject to mandatory sinking fund redemption on any subsequent September I will be reduced by the aggregate principal amount of the Series 2004 Bonds maturing on September I, 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. Selection of Series 2004 Bonds for Redemption If less than all of the Series 2004 Bonds outstanding are to be redeemed, the Trustee shall select the Series 2004 Bonds to be redeemed from all Series 2004 Bonds not previously called for redemption (a) with respect to any optional redemption, among maturities of Series 2004 Bonds as directed in a Written Request of the District, and (b) with respect to any redemption from Special Tax prepayments, among all maturities of the Series 2004 Bonds on a pro rata basis as nearly as practicable. For pmposes of such selection, all Series 2004 Bonds will be deemed to be comprised of separate $5,000 denominations and such separate denominations will be treated as separate Series 2004 Bonds which may be separately redeemed. Notice of Redemption So long as DTC is acting as securities depository for the Series 2004 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 2004 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 2004 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 2004 Bonds or the cessation of interest on the redemption date. Partial Redemption of Series 2004 Bonds Upon surrender of any Series 2004 Bonds to be redeemed in part only, the District will execute and the Trustee will authenticate and deliver to the Owner, at the expense of the District, a new Series 2004 Bond or Bonds of authorized denominations equal in aggregate principal amount to the unredeemed portion of the Series 2004 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 2004 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 2004 Bonds at the office of the Trustee, the redemption price of such Series 2004 Bonds will be paid to the Owners thereof, (c) at the redemption date the Series 2004 Bonds, or portions thereof so designated for redemption, DOCSLA1 :481479.4 6 will be deemed to be no longer outstanding and such Series 2004 Bonds, or portions thereof, will cease to bear further interest, and (d) as of the date fixed for redemption, no Owner of any Series 2004 Bonds, or portions thereof so designated for redemption, will be entitled to any of the benefits of the Indenture or to any other rights, except with respect to payment of the redemption price and interest accrued to the redemption date from the amounts so made available. DOCSLA1:481479.4 7 Debt Service Schedule The debt service schedule for the Series 2004 Bonds ([including mandatory sinking fund redemption on their respective September I redemption dates]) is set forth below: Year Ending September I Principal $ Interest $ Total Debt Service $ TOTAL $ $ $ (1) Interest on the Series 2004 Bonds is capitalized to September 1, 2005. DOCSLA1:481479.4 8 ESTIMATED SOURCES AND USES OF FUNDS The estimated sources and uses of funds with respect to the Series 2004 Bonds are set forth in the following table: Sources: Principal Amount of Series 2004 Bonds Less: Original Issue Discount Total Sources Uses: Acquisition Account Construction Account Capitalized Interest Account(1) Reserve Fund(2) Administrative ExEense Fund Costs of Issuance( Total Uses (1) To pay interest on the Series 2004 Bonds to September I, 2005. (2) Équals the Reserve Requirement for the Series 2004 Bonds. (3) Includes Underwriter's discount, amounts to reimburse the City for certain expenses, and legal fees, financial advisory fees and other issuance costs. THE PROJECT The Series 2004 Bonds are being issued, in part, to finance the acquisition and construction of certain public facilities (the "Project") necessary for the development of the District. The Project is expected to 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 and flood control facilities, public 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. Pursuant to the Acquisition and Funding Agreement, dated as of 1,2004 (the "Acquisition Agreement"), by and among the District, the City and WL Homes, the District will use a portion of the Series 2004 Bonds to finance the acquisition from WL Homes of those facilities to be constructed by WL Homes as set forth in the Acquisition Agreement. Such facilities consist of the construction of a bike trail and improvements to Moffett Avenue. DOCSLA1:481479.4 9 SECURITY FOR THE SERIES 2004 BONDS General Pursuant to the Act and the Indenture, the Bonds, including the Series 2004 Bonds, are payable from the Net Special Tax Revenues. "Net Special Tax Revenues" is defined under the Indenture to mean Special Tax Revenues less amounts required to pay Administrative Expenses. "Special Tax Revenues" is defined under the Indenture to mean the proceeds of the Special Taxes received by or on behalf of the District, including prepayments thereof, interest and penalties thereon and proceeds of the redemption or sale of property sold as a result of foreclosure of the lien of the Special Taxes, which shall be limited to the amount of said lien and interest and penalties thereon. "Administrative Expenses" is defined under the Indenture to mean "costs directly related to the administration of the District, consisting of the costs of computing the Special Taxes and preparing the annual Special Tax schedules and the costs of collecting the Special Taxes, the costs of remitting the Special Taxes to the Trustee, the fees and costs of the Trustee (including its legal counsel) in the discharge of the duties required of it under the Indenture, the costs incurred by the District in complying with the disclosure provisions of any continuing disclosure undertaking and the Indenture, including those related to public inquiries regarding the Special Tax and disclosures to Owners, the costs of the District related to an appeal of the Special Tax, any amounts required to be rebated to the federal government in order for the District to comply with the Indenture, an allocable share of the salaries of the-staff of the City providing services on behalf of the District directly related to the foregoing and a proportionate amount of general administrative overhead of the City related thereto, and the costs of foreclosure of delinquent Special Taxes." "Special Taxes" is defined under the Indenture to mean the special taxes levied as Special Tax A within the District pursuant to the Act, Ordinance No. - adopted by the City Council of the City on , 2004, and the Indenture. See "- The Teeter Plan" for further information regarding the collection and distribution of delinquent Special Taxes. The payment of the principal of and interest on the Bonds and any premiums upon redemption thereof will be exclusively paid from the Net Special Tax Revenues and other amounts in the Bond Fund and the Reserve Fund. The amount of Special Taxes that the District may levy in any year is strictly limited by the maximum rates approved by the qualified electors within the District, as set forth in the Rate and Method. See "THE DISTRICT - Rate and Method of Apportionment." The full text of the Rate and Method is set forth in Appendix C hereto. Net Special Tax Revenues deposited in the Rebate Fund and the Administrative Expense Fund are not pledged to the payment of any of the Bonds, and neither the Rebate Fund nor the Administrative Expense Fund will be construed as a trust fund held for the benefit of the Owners of any Bonds. The Special Taxes In the Indenture, the District has covenanted that, so long as any Bonds are outstanding, it wi11levy the Special Taxes in an amount sufficient, together with other amounts on deposit in the Special Tax Fund and available for such purpose, to pay the principal of and interest on the Bonds becoming due and payable during the Bond Year commencing in such fiscal year, the DOCSLA1:481479.4 10 Administrative Expenses estimated for such year, and any amounts required to replenish the Reserve Fund to the Reserve Requirement (collectively, the "Special Tax Requirement"). No assurance can be given that the amounts collected in any given year will, in fact, equal the Special Tax Requirement due to a variety of factors, including the maximum Special Tax rates and the forty-year maximum term of the Special Tax levy on each parcel of Developed Property in the District imposed by the Rate and Method. See "THE DISTRICT - Rate and Method of Apportionment" and Appendix C hereto. Moreover, it is possible that under certain circumstances the maximum rates could be reduced from current levels. See "- The Teeter Plan" and "SPECIAL RISK FACTORS - Right to Vote on Taxes Act" below. The Special Taxes imposed by the District will be billed with ad valorem property taxes and collected by the County. 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 Special Tax Fund for payment of debt service on (including payment for redemption of) the Bonds; third, for deposit in the Reserve Fund to the extent needed to restore the balance therein to the Reserve Requirement; and fourth, for transfer to the Rebate Fund the amounts, if any, due and owing to the United States Treasury. The District has covenanted that it will not initiate proceedings under the Act to modify the Rate and Method if such modification would adversely affect the security for the Bonds. The District has also covenanted that in the event any initiative is adoþted by the qualified electors in the District that purports to modify the Rate and Method in a manner that would adversely affect the security for the Series 2004 Bonds, the District will, to the extent permitted by law, commence and pursue reasonable legal actions to prevent the modification of the Rate and Method in a manner that would adversely affect the security for the Series 2004 Bonds. Although the Special Taxes will be levied against, and constitute a lien against, taxable parcels within the District, they do not constitute a personal indebtedness of the respective property owners. There is no assurance that the property owners will be financially able to pay the annual Special Taxes or that they will pay such taxes even if financially able to do so. See "SPECIAL RISK FACTORS - Special Tax Delinquencies." Special Tax Fund The Special Tax Fund is created and established under the Indenture, and is maintained by the Trustee. 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. See Appendix E - "Summary of Indenture." DOCSLA1:481479.4 11 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 2004 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. 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. So long as no Event of Default has occurred and is continuing, any amount in the Reserve Fund in excess of the Reserve Requirement on September 2 of each year will be withdrawn from the Reserve Fund by the Trustee and be deposited in the Bond Fund, after making any required transfer to the Rebate Fund. Whenever the balance in the Reserve Fund exceeds the amount required to redeem or pay the Outstanding Bonds, including interest accrued to the date of payment or redemption and premium, if any, due upon redemption, the Trustee will, upon receipt of a Written Request of the District, transfer the amount in the Reserve Fund to the Bond Fund or Redemption Fund, as applicable, to be applied, on the next succeeding Interest Payment Date to the payment and redemption of all of the Outstanding Bonds. In connection with an optional redemption of Bonds or a mandatory redemption of Bonds from Special Tax prepayments, a proportionate share of the amount on deposit in the Reserve Fund will, on the Business Day prior to the date on which such Bonds are to be redeemed, be transferred by the Trustee from the Reserve Fund to the Redemption Fund and will be applied to the redemption of said Bonds; provided, however, that such amount shall be so transferred only if and to the extent that the amount remaining on deposit in the Reserve Fund will be at least equal to the Reserve Requirement (excluding from the calculation thereof said Bonds to be redeemed). Such proportionate share shall be equal to the largest integral multiple of $5,000 that is not larger than the amount equal to the product of (a) the amount on deposit in the Reserve Fund on the date five Business Days prior to the date notice of redemption of such Bonds is required to be given pursuant to the Indenture, times (b) a fraction, the numerator of which is the principal amount of Bonds to be so redeemed and the denominator of which is the principal amount of Bonds to be Outstanding on the day prior to the date on which such Bonds are to be so redeemed. . Preliminary, subject to change. DOCSLA1:481479.4 12 Additional Bonds The District may, at any time after the issuance and delivery of the Series 2004 Bonds, issue Additional Bonds payable from the Net Special Tax Revenues on a parity with all other Bonds issued under the Indenture; provided, however, that Additional Bonds may only be issued for the purpose of providing funds to refund Bonds issued under the Indenture. The issuance of Additional Bonds is subject to certain additional specific conditions precedent. See Appendix E - "Summary of Indenture." Covenant for Superior Court Foreclosure In the event of a delinquency in the payment of any installment of Special Taxes, the District is authorized by the Act to order institution of an action in the Superior Court of the State to foreclose any lien therefor. In such action the real property subject to the Special Taxes may be sold at a judicial foreclosure sale. The District is a participant in the County's Teeter Plan, which is an alternative method for the distribution of secured property taxes to local agencies. See "- The Teeter Plan" below. So long as the District remains a participant in the County's Teeter Plan and is paid under the Teeter Plan for all Special Taxes levied, the proceeds of any foreclosure sale will be paid to the County's Teeter Plan and not to the District. Such judicial foreclosure proceedings are not mandatory. However, in the Indenture, the District has covenanted for the benefit of the Owners of the Bonds that it will commence juwcial foreclosure proceedings against parcels with delinquent Special Taxes; provided, however that the District is not required to order the commencement of foreclosure proceedings if (a) the total Special Tax delinquency in the District for such fiscal year is less than 5% of the total Special Tax levied in such fiscal year and (b) the amount then on deposit in the Reserve Fund is equal to the Reserve Requirement. Notwithstanding the foregoing, if the District determines that any single property owner in the District is delinquent in excess of $5,000 in the payment of the Special Tax, then the District will diligently institute, prosecute and pursue foreclosure proceedings against such property owner. The District may, but is not obligated to, advance funds from any source of legally available funds in order to maintain the Reserve Fund at the Reserve Requirement. In a foreclosure proceeding the District is entitled to recover penalties and interest on the delinquent Special Taxes through the date that an order of sale is entered; provided, however, that so long as the District is a participant in the County's Teeter Plan and is paid under the Teeter Plan for all Special Taxes levied, the proceeds of any foreclosure sale will be paid to the County's Teeter Plan and not to the District. See "- The Teeter Plan." Prompt commencement of foreclosure proceedings may not, in and of itself, result in a timely or complete payment of delinquent Special Taxes. The ability of the District to foreclose the lien of delinquent unpaid Special Taxes may be limited in certain instances and may require prior consent of the obligee in the event the property is owned by or in receivership of the Federal Deposit Insurance Corporation. See "SPECIAL RISK FACTORS - Bankruptcy," "- Payments by FDIC or Other Federal Agencies" and "- Billing of Special Taxes." If the County's Teeter Plan is terminated (or if the County fails to make payments to the District when due under the Teeter Plan) and 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 DOCSLA1:481479.4 13 proceedings and receipt by the District of foreclosure sale proceeds, if any. However, within the lirnits of the Rate and Method, the District may adjust the Special Taxes levied on all taxable property within the District to provide an amount required to pay debt service, including defaulted interest and principal payments, on the Bonds and to replenish the Reserve Fund. No assurances can be given that a judicial foreclosure action, once commenced, will be completed or that it will be completed in a timely manner. If a judgment of foreclosure and order of sale is obtained, the judgment creditor (the District) must cause a Notice of Levy to be issued. Under current law, a judgment debtor (property owner) has 120 days from the date of service of the Notice of Levy in which to redeem the property to be sold, which period may be shortened to 20 days for parcels other than those on which a dwelling unit for not more than four persons is located. If a judgment debtor fails to redeem and the property is sold, his only remedy is an action to set aside the sale, which must be brought within 90 days of the date of sale. If, as a result of such an action, a foreclosure sale is set aside, the judgment is revived and the judgment creditor is entitled to interest on the revived judgment as if the sale had not been made (Section 701.680 of the California Code of Civil Procedure). The constitutionality of the aforementioned legislation, which repeals the former one-year redemption period, has not been tested; and there can be no assurance that, if tested, such legislation will be upheld. Market Absorption Study In order to provide information with respect to the potential market demand for the proposed development within the District, The Meyers Group (the "Market Absorption Consultant") has prepared a Market Analysis and Absorption Projection dated [June] 2004 (the "Absorption Study"). The Absorption Study analyzes the 565 residential units proposed for development in the District. The Absorption Study concludes that build-out of the District will be completed by [July] 2006. See Appendix B - "Summary of Market Absorption Study for a discussion of the specific assumptions and methodology employed by the Market Absorption Consultant and a more detailed discussion of its conclusions. Property Values An appraisal of the property in the District, dated July 12, 2004 (the "Appraisal") was prepared by Harris Realty Appraisal (the "Appraiser"). The Appraisal was prepared to estimate the market value of the land in the District in its "as is" condition (the "Market Value"). The property within the District designated for park, open space or civic uses and not subject to tax or special assessment was not included in the AppraisaL The estimated values expressed in the Appraisal were stated as of July I, 2004. See the Appraisal included in Appendix A hereto for a description of the assumptions made and the valuation methodology used by the Appraiser. The 565 residential units proposed to be developed within the District in two phases consist of 58 row townhouse units, 140 cluster townhouse units, 315 detached units and 52 paired home units. All of the residential units are being developed by WL Homes. The Appraisal sets forth separate valuation analyses for the residential property in phase one, referred to as Tustin Field I (consisting of 376 units) ("Tustin Field f'), and phase two, referred to as Tustin Field II (consisting of 189 units) ("Tustin Field 11"). DOCSLA1:481479.4 14 In estimating the Market Value of the for-sale residential property in Tustin Field I, the Appraiser considered the "as is" value of land and improvements. In order to estimate the Market Value of the residential property, the Appraiser used the direct comparison approach (i.e., a detailed comparison of actual sales of comparable property) as the primary indication of land values and also completed a static residual analysis (i.e., a calculation of land value by deducting costs, including direct costs of construction, marketing, taxes, and overhead, as well as required profit margin to attract an investor in light of the risks and uncertainties of the project, from the average base price for a specific product) as a secondary indication. The Appraiser estimated the aggregate bulk values of the land and improvements in Tustin Field I proposed for residential product to be, as of July 1, 2004, approximately $96,721,764. Such value assumes that all development fees are satisfied with credits or payments from the seller and that all required improvements by WL Homes are complete. The Appraiser estimated WL Homes' costs to complete on-site improvements for Tustin Field I, based on information provided by Hunsaker & Associates, to be approximately $8,766,337. Such costs reduce the value of the property because they represent costs that must be incurred in order for the property to reach the state in which it was valued for purposes of the Appraisal. Thus, subtracting the costs to complete on-site improvements from the aggregate bulk values of the land in Tustin Field I, the Appraiser estimated the aggregate Market Value of Tustin Field I as of July I, 2004, to be approximately $88,000,000 (rounded). In estimating the Market Value of the for -sale residential property in Tustin Field IT, the Appraiser considered the "as is" value of land. In order to estimate the Market Value of the for- sale residential property, the Appraiser also used the direct comparison approach as the primary indication of land values and also completed a static residual analysis as a secondary indication. The Appraiser estimated the aggregate bulk values of the land in Tustin Field IT proposed for residential product to be, as of July 1, 2004, approximately $59,180,000. Such value assumes that all development fees are satisfied with credits or payments from the seller and that all required improvements by WL Homes are complete. The Appraiser estimated WL Homes' costs to complete on-site improvements for Tustin Field IT, based on information provided by Hunsaker & Associates, to be approximately $15,000,000. Such costs reduce the value of the property because they represent costs that must be incurred in order for the property to reach the state in which it was valued for purposes of the Appraisal. Thus, subtracting the costs to complete on-site improvements from the aggregate bulk values of the land in Tustin Field IT, the Appraiser estimated the aggregate Market Value of Tustin Field IT as of July I, 2004, to be approximately $44,180,000. Thus, based on the above-summarized analyses and on the assumptions set forth in the Appraisal, the Appraiser estimated the Market Value of the property within the District as of July 1,2004 to be approximately $141,000,000 (rounded), calculated as the sum of the Market Value of Tustin Field I and Tustin Field IT, plus proceeds of Series 2004 Bonds of approximately $9,000,000. Direct and Overlapping Debt Contained within the District are overlapping local agencies providing public services. Some of such local agencies have outstanding bonds or authorization to issue bonds payable from taxes or special assessments. DOCSLA1:481479.4 15 Water District Debt The property in the District receives water and sewer service from the Irvine Ranch Water District ("IRWD") and is located within IRWD's Improvement District Nos. 113 and 213 (collectively, the "IRWD Improvement Districts"). At an election held on August 31, 2004, IRWD received authorization to issue not to exceed $26,000,000 aggregate principal amount of general obligation bonds for Improvement District No. 113 and $87,000,000 aggregate principal amount of general obligation bonds for Improvement District No. 213. No bonds have been issued for the IRWD Improvement Districts; however, IRWD expects to issue general obligations bonds for the IRWD Improvement Districts in 2005. 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 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. DOCSLA1:481479.4 16 Direct and Overlapping Debt Summary Set forth in the table below is a summary of the direct and overlapping debt payable from taxes or special assessments in the District. Table 1 City of Tustin Community Facilities District No. 04.1 (Tustin Legacy/John Laing Homes) Direct and Overlapping Debt Summary Overlapping DistriC1 (I) Metropolitan Water District of Southern California G.O. Bonds Irvine Ranch Water District ID No. 113 G.O. Bonds (3) Amount of Levy Percent of Levy 2004-2005 on Parcels in on Parcels in Total Debt Total Levy the District the District Outstanding (2) $100,114,039 $4,053 0.00405% $447,475,000 No Levy No Levy NA None No Levy No Levy NA None Irvine Ranch Water District ID No. 213 G.O. Bonds (3) Total Overlapping Debt Plus: CFD No. 04-1 Bonds (4) Estimate Share of Direct and Overlapping Debt Appraised Value (5) Estimated Value to Lien (I) Includes ad valorem, general obligation. special taxes, and standby charges that support any type of outstanding debt. (2) As of September 1,2004. (3) No general obligation bonds for JRWD 1D Nos. 113 & 213 have been sold to date. (4) Preliminary, subject to change. (5) Provided by Harris Realty Appraisal. 17 District Share of Total Debt Outstanrung $ 18,115 $ o $ ° $ 18,115 $ 12,000,000 $ 12,018,115 $141,000,000 11.73 Other Potential Debt The District has no control over the amount of additional debt payable from taxes or assessments levied on all or a portion of the property within the District which may be incurred in the future by other governmental agencies having jurisdiction over all or a portion of the property within the District. Furthermore, nothing prevents the owners of property within the District from consenting to the issuance of additional debt by other governmental agencies which would be secured by taxes or assessments on a parity with the Special Taxes. To the extent such indebtedness is payable from assessments, other special taxes levied pursuant to the Act or taxes, such assessments, special taxes and taxes will be secured by liens on the property within the District on a parity with the lien of the Special Taxes. Accordingly, the debt on the property within the District could increase, without any corresponding increase in the value of the property therein, and thereby severely reduce the estimated value-to-lien ratio that exists at the time the Series 2004 Bonds are issued. The imposition of such additional indebtedness could reduce the willingness and ability of the property owners within the District to pay the Special Taxes when due. See "SPECIAL RISK FACTORS - Cumulative Burden of Parity Taxes, Special Assessments." Moreover, in the event of a delinquency in the payment of Special Taxes, no assurance can be given that the proceeds of any foreclosure sale of property with delinquent Special Taxes would be sufficient to pay the delinquent Special Taxes. See "SPECIAL RISK FACTORS - Appraised Values." Estimated Value.to.Lien Ratios The values, direct and overlapping debt and total tax burden on property vary among parcels within the District. The $ . principal amount of Series 2004 Bonds constitutes direct debt for the property in the District. As set forth in Table I under "Direct and Overlapping Debt - Direct and Overlapping Debt Summary" above, as of June 30, 2004, there is approximately $18,115 of other outstanding public indebtedness applicable to property in the District. Thus, the estimated direct and overlapping debt allocable to the property in the District is approximately $ . The market value of the property in the District as of July I, 2004, as estimated by the Appraiser in the Appraisal, is approximately $141,000,000, which is approximately (a)- times the principal amount of the Series 2004 Bonds, and (b) - times the sum of the principal amount of the Series 2004 Bonds, plus the amount of all the other outstanding public indebtedness allocable thereto, under the assumptions described in Table I. Based on the County's fiscal year 2004-05 assessor's roll, the estimated aggregate assessed value of taxable property in the District, is $69,896,021, which is approximately (a) - times the principal amount of the Series 2004 Bonds, and (b) - times the sum of the principal amount of the Series 2004 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 . Preliminary, subject to change. DOCSLA1:481479.4 18 District only; the actual ratios for individual parcels of land within the District may vary significantly. No assurance can be given that any of the foregoing value-to-lien ratios will be maintained during the period of time that the Series 2004 Bonds are Outstanding. The District has no control over future property values or the amount of additional indebtedness that may be issued in the future by other public agencies, the payment of which, through the levy of a tax or an assessment, is on a parity with the Special Taxes. See "SPECIAL RISK FACTORS - Appraised Values" and "- Value-to-Lien Ratios." The Teeter Plan In 1949, the California Legislature enacted an alternative method for the distribution of secured property taxes to local agencies. This method, known as the Teeter Plan, is now set forth in Sections4701-4717 of the California Revenue and Taxation Code. Upon adoption and implementation of the Teeter Plan by a county board of supervisors, local agencies for which the county acts as "bank" and certain other public agencies and taxing areas located in the county receive annually the full amount of their share of property taxes on the secured roll, including delinquent property taxes which have yet to be collected. While a county benefits from the penalties associated with these delinquent taxes when they are paid, the Teeter Plan provides participating local agencies with stable cash flow and the elimination of collection risk. To implement a Teeter Plan, the board of supervisors of a county generally must elect to do so by July 15 of the fiscal year in which it is to apply. The Board of Supervisors adopted the Teeter Plan on June 29, 1993 and has elected to include in its Teeter Plan special taxes levied in certain community facilities districts, including the District, on the secured roll. Once adopted, a county's Teeter Plan will remain in effect in perpetuity unless the board of supervisors orders its discontinuance or unless prior to the commencement of a fiscal year a petition for discontinuance is received and joined in by resolutions of the governing bodies of not less than two-thirds of the participating districts in the county. An electing county may, however, opt to discontinue the Teeter Plan with respect to any levying agency in the county if the board of supervisors, by action taken not later than July 15 of a fiscal year, elects to discontinue the procedure with respect to such levying agency and the rate of secured tax delinquencies in that agency in any year exceeds 3% of the total of all taxes and assessments levied on the secured roll by that agency. See "SPECIAL RISK FACTORS - Teeter Plan Termination." The County has never discontinued the Teeter Plan with respect to any levying agency. In connection with the issuance of $155,000,000 Orange County Special Financing Authority Teeter Plan Revenue Bonds, Series A through E (the "Teeter Bonds"), the County covenanted not to discontinue its participation in the Teeter Plan or, to the extent permitted by law, permit any taxing agency to discontinue its participation in the Teeter Plan, (a) at any time prior to the later of (i) the Scheduled Expiration Date (as defined in the Sales and Servicing Agreement executed and delivered in connection with the Teeter Bonds issuance), as such date may be extended in accordance with the Sales and Servicing Agreement, and (ii) the date upon which all Obligations (as defined in the Teeter Bond Indenture) owed to the Bank (as defined by the Teeter Bonds Sales and Servicing Agreement) shall have been satisfied in full and the Credit DOCSLA1:481479.4 19 Facility (as defined by the Teeter Bonds Sales and Servicing Agreement) shall have expired, or (b) unless such discontinuance is required by applicable law. The foregoing covenant is not made for the benefit of the Owners of the Series 2004 Bonds and the Owners of the Series 2004 Bonds have no rights to enforce such covenant against the County. Upon making a Teeter Plan election, a county must initially provide a participating local agency with 95% of the estimated amount of the then accumulated tax delinquencies (excluding penalties) for that agency. In the case of the initial year distribution of special taxes and assessments (if a county has elected to include assessments), 100% of the special tax delinquencies (excluding penalties) are to be apportioned to the participating local agency which levied the special tax. After the initial distribution, each participating local agency receives annually 100% of the secured property tax levies to which it is otherwise entitled, regardless of whether the county has actually collected the levies. If any tax or assessment which was distributed to a Teeter Plan participant is subsequently changed by correction, cancellation or refund, a pro rata adjustment for the amount of the change is made on the records of the treasurer and auditor of the county. Such adjustment for a decrease in the tax or assessment is treated by the County as an interest-free offset against future advances of tax levies under the Teeter Plan. To the extent that the County's Teeter Plan continues in existence and is carried out as adopted, the County's Teeter Plan may help protect the Owners of the Series 2004 Bonds from the risk of delinquencies in Special Taxes. See "SPECIAL RISK FACTORS - Teeter Plan Termination." THE DISTRICT General The District was established in accordance with the Act and constitutes a legally constituted governmental entity separate and apart from the City. The District is bordered by a Southern California Regional Rail Authority right-of-way and railroad line on the north, Harvard Avenue on the east, Moffett Avenue on the south and the Peters Canyon Flood Control Channel on the west. The District consists of approximately 68.4 gross acres of land, of which approximately 40 acres are anticipated to be subject to Special Taxes. The District encompasses approximately 5.0% of Tustin Legacy (based on gross acreage) and the development of the property in the District constitutes the first phase of development in Tustin Legacy. WL Homes plans to develop the property in the District with 565 residential units. See "-Property Ownership and Development." Tustin Legacy Tustin Legacy is an approximately 1,511 acre planned community in central Orange County. The District is the first 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 DOCSLA1:481479.4 20 95 acres of the original Air Station are located in the City of Irvine and are not a part of Tustin Legacy. Tustin Legacy is currently planned to include 4,049 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. John Wayne Airport is located approximately three miles to the south. Summary of District Proceedings Pursuant to the Act, the City Council of the City adopted Resolution No. - on June 7, 2004 stating its intention to establish the District and to authorize the levy of special taxes within the boundaries of the District. On the same date, the City Council of the City also adopted Resolution No. - stating its intention to have the District incur a bonded indebtedness in an amount not to exceed $15,000,000. Following public hearings conducted pursuant to the provisions of the Act, the City Council of the City adopted Resolution No. - on July 19, 2004 establishing the District. The City Council of the City also adopted Resolution No. - determining the necessity to have the District incur up to $15,000,000 of bonded indebtedness. Both resolutions called for a special election to submit propositions to authorize the levy of the Special Tax and incurring of the bonded indebtedness to the qualified electors of the District. At a special election held on July 19, 2004, the owners of the property within the boundaries of the District authorized the District to incur a bonded indebtedness in an amount not to exceed $15,000,000 and approved the Rate and Method to pay the principal of and interest on all bonds issued by the District. Rate and Method of Apportionment The District is legally authorized and has covenanted to cause the levy of the Special Taxes in an amount determined according to a methodology, i.e., the Rate and Method, which the City Council of the City and the qualified electors of the District have approved. The Rate and Method apportions the total amount of Special Taxes to be collected among the taxable parcels in the District as more particularly described herein. The District adopted the Rate and Method following a public hearing and an election conducted pursuant to the provisions of the Act. The full text of the Rate and Method is set forth in Appendix C hereto. The Rate and Method classifies all Taxable Property, i.e., all assessor's parcels in the District not exempt pursuant to law or the Rate and Method, into four categories: Developed Property, Taxable Public Property, Taxable Property Owner Association Property and Undeveloped Property. The Rate and Method further classifies the Special Taxes as Special Tax A and Special Tax B. The Special Tax A is the Special Tax levied to fund the Special Tax Requirement. The Special Tax B is the Special Tax levied to fund the provision of certain DOCSLA1:481479.4 21 services but is not pledged to the payment of the Bonds. The Special Tax A is pledged to the payment of the Bonds. The amount of Special Taxes that the District may levy is limited by the Maximum Special Tax rates set forth in the Rate and Method. Under the Rate and Method, the Maximum Special Tax A for a parcel of Developed Property is not subject to change and will remain the same for each fiscal year. Developed Property is further classified into fourteen categories (each a "Land Use Class"): (a) eight categories of Single Family Detached Property (with such categories based on the square footage of residential floor area), (b) two categories of Single Family Attached Property (with such categories based on the square footage of residential floor area), (c) three categories of Affordable Units (based on the income-level of the proposed owner) and (d) one category of Non-Residential Property. The Maximum Special Tax for Developed Property for fiscal year 2004-05 for each Land Use Class for Maximum Special Tax A is shown in the Rate and Method (set forth in Appendix C hereto). In instances where an assessor's parcel contains more than one Land Use Class, the Maximum Special Tax on such parcel will be the sum of the Maximum Special Taxes for all Land Use Classes located on such parcel. Under the Rate and Method, the Maximum Special Tax A for Taxable Property Owner Association Property, Taxable Public Property and Undeveloped'Property is $29,414 per acre for fiscal year 2004-05 and each fiscal year thereafter. Commencing with fiscal year 2004-05 and each following fiscal year, the City Council of the City, acting in its capacity as the legislative body of the District, will determine the Special Tax Requirement and will levy the Special Tax A until the total Special Tax Levy A equals the Special Tax Requirement. The Special Tax Requirement is defined under the Rate and Method as the amount required in any fiscal year for the District to pay the sum of (a) debt service on all outstanding bonds or other debt issued by the District under the Act ("Outstanding Debt"), (b) periodic costs on the Outstanding Debt, including but not limited to credit enhancement and rebate payments thereon, (c) Administrative Expenses and (d) any amounts required to establish or replenish any reserve funds for all Outstanding Debt. In arriving at the Special Tax Requirement, reasonably anticipated delinquent Special Taxes based on the delinquency rate for the Special Tax A levied in the previous fiscal year are to be taken into account and a credit is to be given for funds available to reduce the annual Special Tax A levy. The City Council of the City levies the Special Tax A in four steps, in the following order, until the amount of the levy equals the amount needed to be collected to satisfy the Special Tax Requirement: First: the Special Tax A is levied proportionately on each assessor's parcel of Developed Property at up to 100% of the applicable Maximum Special Tax A; Second: if additional moneys are needed, the Special Tax A is levied proportionately on each assessor's parcel of Undeveloped Property at up to 100% of the Maximum Special Tax A for Undeveloped Property; DOCSLA1:481479.4 22 Third: if additional moneys are needed, the Special Tax A is levied proportionately on each assessor's parcel of Taxable Property Owner Association at up to 100% of the Maximum Special Tax A for Taxable Property Owner Association Property; and Fourth: if additional moneys are needed, then the Special Tax A is levied proportionately on each assessor's parcel of Taxable Public Property at up to the Maximum Special Tax A for Taxable Public Property. The term "proportionately" as used in the above steps means (a) as applied to Developed Property, that the ratio of the actual Special Tax A levy to the Maximum Special Tax A is equal for all assessor's parcels of Developed Property in the District and (b) as applied to Undeveloped Property, that the ratio of actual Special Tax A levy per acre to the Maximum Special Tax A per acre is equal for all assessor's parcels of Undeveloped Property in the District. The Rate and Method also provides that the Special Tax A will be levied on each assessor's parcel for a period not to exceed forty years commencing with fiscal year 2004-05. Under the Rate and'Method, up to 27.1 acres of Property Owner Association Property and 1.4 acres of Public Property are exempt from the levy of Special Taxes. The Special Tax A obligation applicable to a lot within the District may be prepaid and the. obligation of such lot to pay any Special Tax A may be fully or partially satisfied as described in the Rate and Method. In order to obtain a building permit, WL Homes may be required to prepay Special Tax A (the "Special Tax A Prepayment") if there is a reduction in the total expected number of dwelling units or if smaller residential units than were originally anticipated in the Rate and Method are constructed within the District. Moneys from any such Special Tax A Prepayments will be deposited in the Redemption Fund pursuant to the Indenture. 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 Department of the Navy 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 PlanlReuse Plan" (the "Reuse Plan") which addressed transportation, housing, employment and recreational issues relating to the closure and subsequent reuse of the Air Station property. Such Reuse Plan was subsequently amended in September 1998. Pursuant to the Defense Base Closure and Realignment Act of 1990, the Air Station was closed on July 2, 1999. In January 2001, the City Council of the City adopted a general plan land use designation entitled "Marine Corps Air Station Tustin Specific Plan" for Tustin Legacy. The City also prepared a Specific Plan detailing planning policies, regulations and implementation strategies to guide development within Tustin Legacy. Approximately 1,153 acres of the former Air Station were conveyed to the City pursuant to the "Agreement Between the United States of America and the City of Tustin, California for the Conveyance of a Portion of the Former Marine Corp Air Station Tustin" dated May 13, 2002 (the "Conveyance Agreement"). In Febrnary 2003, the DOCSLA1 :481479.4 23 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. The Specific Plan conforms to and implements the Reuse Plan and the City's General Plan. CEQA Compliance The City and the Department of the Navy prepared a Joint Final Environmental Impact Statement and Environmental Impact Report for the Disposal and Reuse of Marine Air Corps Station Tustin ("FEISÆIR") in accordance with the National Environmental Protection Act and the California Environmental Quality Act. The City adopted the FEISÆIR on January 21, 2001. In March 2001 the Department of the Navy issued a Record of Decision approving the FEISÆIR and the Reuse Plan. The Final FEISÆIR 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 with 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. All developers of property in Tustin Legacy will be responsible for adhering to all applicable provisions of the FEISÆIR 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 Tustin Field I and Tustin Field II, the City conducted an initial environmental assessment and determined that no changes to the original FEISÆIR were needed, and included applicable mitigation measures in the project entitlements for the District. Accordingly, no further CEQA action is required in connection with the development within the District. Property Ownership and Development The following infonnation regarding ownership and planned development of the District has been provided by WL Homes. No representation is made by the District as to the accuracy or adequacy of such information provided by WL Homes. WLHomes WL Homes is the master developer of the 565 residential units planned for development in the District. WL Homes is a limited liability company created under the laws of the State of Delaware. WL Homes was formed in April 1998 as the result of a merger between John Laing DOCSLA1:481479.4 24 Homes and Watt Homes. Prior to the merger, John Laing Homes had been in the homebuilding industry for more than 150 years and Watt Homes had been building homes for approximately 50 years. WL Homes maintains construction and development operations in the Inland Empire region of California, the Los AngelesN entura area, Orange County and Sacramento, as well as in Colorado Springs and Denver, Colorado. The South Coast Division of WL Homes is managing the development of the property in the District. During fiscal year 2003, the South Coast Division of WL Homes completed the construction of 406 homes and the South Coast Division anticipates it will complete approximately 388 homes in fiscal year 2004. Other Projects Undertaken by the South Coast Division of WL Homes. Other development projects in California recently completed or currently under development by WL Homes or its affiliates include the following. Estimated Price Number Estimated! Actual Site Name Location Range of Homes Status(l) Completion Date The Tides Carlsbad $675,000 108 In progress January 2005 695,000 Seahouse Carlsbad $745,000 III In progress February 2005 795,000 Potter's Bend Ladera Ranch $377,000 109 Completed May 2004 406,000 Reserve West San Clemente $665,000 110 Completed May 2004 695,000 Casalon Irvine $484,000 165 In progress December 2004 614,000 Stonetree Irvine $740,000 91 In progress August 2006 795,000 Juliet's Balcony Irvine $1,200,000 - 65 In progress June 2006 1,340,000 Sailhouse Newport $739,000 89 Completed April 2004 Beach 845,000 St. May's Road Ladera Ranch $282,000 141 Completed September 2003 372,000 Sumner's Way Ladera Ranch $575,000 56 Completed May 2004 608,000 The Boulevard Ladera Ranch $275,000 56 In progress September 2005 649,000 (1) Based on developmen1 status as of September 30, 2004. Source: Laing Homes. WLHomes' Development Plan WL Homes acquired most of the property within the District from the City in 2003 pursuant to a Disposition and Development Agreement for Parcel 33, dated March 3, 2003 (as amended from time to time, the "Tustin Field I DDA"), and a Disposition and Development Agreement for Parcel 34 dated October 31, 2003 (the "Tustin Field II DDA"), each by and between the City and WL Homes. In 2003, WL Homes also acquired an approximately four acre DOCSLA1:481479.4 25 parcel from The Irvine Company which is included within the District. The property acquired from The Irvine Company and the property acquired pursuant to the Tustin Field I DDA is referred to as "Tustin Field f' and the property acquired pursuant to the Tustin Field II DDA is referred to as "Tustin Field II." Tustin Field I has been subdivided pursuant to Vesting Final Subdivision Map No. 16474 approved by the City. The City has approved Vesting Tentative Subdivision Map No. 16507 for Tustin Field II and WL Homes expects that the final subdivision map for Tustin Field II will be approved by the end of 2004. Development and Disposition Agreements The Tustin Field I DDA and Tustin Field II DDA (the "DDAs") establish an agreement between the City and WL Homes for the purchase from the City and development by WL Homes of most of the developable property within the District. The DDAs contemplate two general types of i~provements to be constructed by WL Homes in connection with the development of the District: "horizontal improvements" consisting of on-site and off-site infrastructure improvements required to serve such areas such as public streets, wet and dry utilities, common areas and parks, and "vertical improvements" consisting of buildings, other structures and landscaping. The DDAs include a Schedule of Performance which establishes time periods and outside dates for the completion of horizontal improvements and vertical improvements. The DDAs include requirements for WL Homes' construction of affordable housing units and impose limitations on the close of escrow for market rate units based on the completion of construction of affordable housing units. The Tustin Field I DDA requires II affordable housing units to be constructed in Phase I of Tustin Field I prior to the close of escrow on any market rate unit in Phase 3 of Tustin Field I. One affordable housing unit is to be completed for every six market rate units that are allowed to close escrow thereafter. The close of escrow of the final 20 market rate units in Tustin Field I cannot occur until all 78 affordable housing units in Tustin Field I are completed. WL Homes expects five affordable housing units will be completed by the end of 2004. The Tustin Field II DDA includes similar provisions tying the close of escrow of market rate units to the completion of construction of affordable housing units. As described above, the City has sold most of the developable property within the District to WL Homes. Such sale to WL Homes was at not less than fair market value and includes a future subsequent profit participation when each unit in the District is sold (which profit participation is a percentage of the total gross sales price of each dwelling unit). Pursuant to the terms of the City's Conveyance Agreement with the United States of America, any proceeds from a sale of a dwelling unit received by the City during the first seven years after recordation of the quitclaim from the Department of the Navy (May 13, 2002) must be used to support long-term job creation and the economic redevelopment of, or be related to, the former Air Station. The DDAs include default provisions which, among other things, allow the City to repurchase from WL Homes all or any portion of the property that has not been sold to an individual homeowner at a price equal to (y) the greater of 75% of the fair market value of the property purchased or (z) the amount required to repay any existing private lien on the property. The DDAs also allow the City to exercise a right of reverter in accordance with certain DOCSLA1:481479.4 26 conditions in the event of WL Homes' material default under the applicable DDA. The DDAs provide that the City shall subordinate its right of reverter to the lien of any community facilities district or other financing bonds issued with respect to Tustin Field I or Tustin Field II upon the request of the holder of such lien. If WL Homes were to default under either DDA and the City were to exercise its right of repurchase or right of reverter, the property reacquired by the City would be subject to the levy of the Special Taxes in accordance with the Rate and Method. See "SPECIAL RISK FACTORS - Exempt Properties." Tustin Field I Tustin Field I is proposed for development of 376 dwelling units consisting of 298 market rate units and 78 affordable housing units. The Special Tax applicable to all designated affordable housing units within the District is substantially lower than the Special Tax applicable to market rate units. The 376 units in Tustin Field I are expected to be constructed and marketed as four projects named "Wright's Landing," "Amelia," "Corrigan" and "Lindy Crossing." As of the date of the Appraisal, 136 of the units in Tustin Field I were under construction. As of September 30, 2004, building permits had been issued for 230 units in Tustin Field I. Wright's Landing. Wright's Landing is a townhome project that is expected to include 58 market rate units. The square footage of such units is expected to range from 1,588 to 1,661 square feet and the expected average retail price is estimated at $509,000. As of September 30, 2004, two model homes had been completed, building permits had been issued for 41 additional units and 28 units were in escrow for sale to homeowners with the first closing expected in November 2004. Amelia. Amelia is a cluster townhome project that is expected to include 140 units. 78 of such units will be designated affordable housing units. The square footage of the market rate units is expected to range from 1,546-1,938 square feet and the expected average retail price is estimated at $516,000. The expected square footage of the affordable housing units ranges from 1,225 to 1,379 square feet and the expected average retail price is estimated at $216,000. As of September 30, 2004, five model homes had been completed, building permits had been issued for 43 market rate units and 47 affordable housing units, and 17 market rate units and 21 affordable housing units were in escrow for sale to homeowners with the first closings expected in December 2004. Corrigan. Corrigan is a cluster detached project that is expected to include 126 market rate units. The expected square footage of such units ranges from 1,354 to 1,488 square feet and the expected average retail price is estimated at $569,000. As of September 30, 2004, three model homes have been completed and building permits had been issued for 50 additional units, of which 42 were in escrow for sale to homeowners with the first closings expected in November 2004. Lindy Crossing. Lindy Crossing is a paired home project that is expected to include 52 units. The expected square footage of such units ranges from 1,610 to 2,145 square feet and the expected average retail price is estimated at $616,000. As of September 30, 2004, four model homes have been completed and building permits had been issued for 40 additional units of which 37 were in escrow for sale to homeowners with the first closings expected in October 2004. DOCSLA1:481479.4 27 Tustin Field II Tustin Field II is proposed for development of 189 detached units consisting of 149 market rate units and 40 affordable housing units. The 189 units in Tustin Field II are expected to be constructed and marketed as three distinct projects named "Cayley Way," "Bennett's Place" and "Ellyson Pointe" respectively. As of September 30, 2004, building permits had been issued for seven model homes in Tustin Field II. Cayley Way. Cayley Way is a detached project that is expected to include 51 units, 40 of which will be designated affordable housing units. The expected square footage of the II market rate units is approximately 2,357 square feet and the expected average retail price is estimated at $700,000. The expected square footage of the 40 affordable housing units ranges from 1,550 to 1,850 square feet and the expected average retail price is estimated at $198,231. As of September 30, 2004, a building permit had been issued for one model home and building permits for the first phase of production units are expected to be issued in January 2005. Bennett's Place. Bennett's Place is a detached project that is expected to include 61 market rate units. The expected average square footage of such units is 2,808 square feet and the expected average retail price is estimated at $833,000. As of September 30, 2004 building permits had been issued for three model homes and building permits for the first production units are expected to be issued in January 2005. Ellyson Pointe. Ellyson Pointe is a detached project that is expected to include 77 market rate units. The expected average square footage of such units is 3,255 square feet and the expected average retail price is estimated at $912,000. As of September 30, 2004 building permits had been issued for three model homes and building permits for the first production units are expected to be issued in January 2005. WLHomes' Financing Plan As described above, as of September 30, 2004, the costs to complete the construction of the remaining on-site and off-site infrastructure required for the planned development of the property in the District to a finished lot condition are approximately $21,454,000. See "SECURITY FOR THE SERŒS 2004 BONDS - Property Values." WL Homes has obtained separate acquisition and development loans from Housing Capital Company ("Housing Capital") to fund the acquisition and development of Tustin Field I and Tustin Field II (the "Tustin Field I Loan" and "Tustin Field II Loan," respectively). The Tustin Field I Loan is secured by a deed of trust on the Tustin Field I property, is payable as to accrued interest commencing on May I, 2003 and as to principal is payable in a fixed amount upon individual home closings within Tustin Field I. The current term of the Tustin Field I Loan ends in April 2005 and as of September 30, 2004, the outstanding principal balance of the loan was $25,310,000. The Tustin Field II Loan is secured by a deed of trust on the Tustin Field II property, is payable as to accrued interest commencing on December I, 2003 and as to principal is payable in a fixed amount upon individual home closings within Tustin Field II. The current term of the Tustin Field II Loan ends in November 2005 and as of September 30, 2004, the outstanding principal balance of the loan was $28,277,000. Extensions of the Tustin Field I Loan and the Tustin Field II Loan are permitted under the existing loan documents. Add DOCSLA1:481479.4 28 additional detail re length of extensions permitted, whether such extensions are automatic or need to be negotiated.] WL Homes has separate revolving construction loans from Housing Capital (each, a "Construction Loan") to fund the construction of homes within each of the currently active projects in Tustin Field I. In this method of financing, the lender authorizes a maximum amount of loan that may be outstanding at one time. The developer draws on the loan to pay construction costs and then pays down a portion of the loan as homes are sold. The loan terms require that it be completely repaid at or before delivery of the final homes. Therefore, the amount of the loan outstanding at any time depends on the timing relationship of home construction costs and home closings. Each Construction Loan is secured by a deed of trust on the property on which the corresponding project is being developed. The Construction Loans for the Wright's Landing, Amelia, Corrigan and Lindy Crossing projects within Tustin Field I are in the maximum authorized amounts of $12 million, $13 million, $15 million, and $22 million, respectively, of which approximately $10.2 million, $9.3 million, $12.8 million and $9.8 million was outstanding as of September 30, 2004. WL Homes expects to obtain revolving construction loans with Housing Capital, or some other lender, for the purpose of funding the construction of homes within the three projects planned for Tustin Field II. There can be no assurance, however, that such loans will be obtained. Set forth below is WL Homes' project pro-forma budget for Tustin Field I and Tustin Field II, which sets forth the project budget through 2006, when development within the District is expected to be complete. The estimated sources and uses of cash set forth in the pro-forma are based on WL Homes' current plans and assumptions. As noted in the sources of funds, remaining development costs will be funded with proceeds from the Series 2004 Bonds, development and construction loan proceeds and proceeds from home closings. DOCSLA1:481479.4 29 Sources Series 2004 Bond proceed, (I) Development and construction loan proceeds (2) Proceeds from home closings (31 Total Sources Uses Land acquisition Development costs of public facilities (II Lot developmeut costs including all on-site and non-public off-site development (4) Home construction costs (51 Development and construction loan payoff (61 Overhead (7) Total Uses Net Cash Flow Table No.2 Tustin Field I and Tustin Field II Projected Cash Flow (Amounts in $OOO's) Project As of Remainder 9/30/2004 of2004 2005 2006 Total $ $ $ 1,824 $ $ 1,824 95,448 7,140 86,093 17,485 206,166 - 46.948 173.743 109.586 330.277 $ 95448 $54088 $261 660 $127071 $538267 $ 69,599 $ $ $ $ 69,599 1,824 1,824 21.986 2,669 15,888 2.897 43,440 14,207 2,559 64.869 15,004 96,639 31,449 111,406 63,311 206,166 -.lUQl 9.874 28.479 10.855 64.309 $120893 $46551 $ 222 466 $ 92067 $ 481977 $ (25 445) $ 7537 $ 39194 ~ $ 56290 (jj Represents portion of the Series 2004 Bond proceeds used to finance construction ofa bike Irail and improvements to Moffett Avenue. See 'THE PROJECT." (2) See 'THE DISTRICT - Property Ownership and Development - WL Homes' Financing Plan." (3) Includes estimated gross sales prices including base, options and upgrades. and 101 premium sales revenues. (4) All horizontal improvements (Le.. grading. streets. stann drain. sewer, water, dry utililies, landscaping. recreational facility. engineering and similar improvements). (5) Includes all vertical improvements (i.e., slabs, framing, drywall, cabinets. appliances and option/upgrade costs) and similar improvements. (6) Estimated payoff based on revolving construction and fixed acquisition and development loans. (7) Includes all other actual costs of the project (i.e., architects. interest. property taxes. sales and marketing. closing costs, commissions. on-site salaries, warranty. iusurance, participation to City. building permits and impact fees). Excludes allocated builder overhead. 30 WL Homes will expend funds for the development of the property in the District only if it determines that doing so is in its best interests. All expectations of WL Homes described above are based upon the current and actual knowledge of WL Homes and present facts and circumstances, and such expectations may change as the result of facts and circumstances occurring or discovered after the date of this Official Statement. In short, there is no assurance that WL Homes' expectations described above will actually materialize or that the money necessary to implement WL Homes' development plan for the property in the District will in fact be available for such purpose. Notwithstanding the Tustin Field I Loans, the Tustin Field IT Loans and the Construction Loans, there can be no assurance that WL Homes will have timely access to the sources of funds shown in Table 6 which will be necessary to construct the various public facilities and other capital improvements necessary to accommodate the proposed development and to construct homes. There can also be no assurance that there will be no substantial changes in the sources and uses of funds shown in Table 2. Although Table 2 reflects WL Homes' projections as of September 30, 2004, many factors beyond WL Homes' control, or a decision by WL Homes to alter its current plans, may cause the actual sources and uses to differ from the projections. Table 2 is presented to show that WL Homes projects that revenues will be sufficient to make the proposed development feasible. There is no guarantee that such revenues will be achieved. As indicated above, the preceding description of expected development ùy WL Homes is based on informLltion included in the Appraisal and information provided to the District by WL Homes for purposes of this Official Statement. No representation is made as to the experience, abilities or financial resources of WL Homes or as to the likelihood that WL Homes will be successful in developing the purchased properties within the District. ]he District has not made, nor will it make, any investigation of WL Homes or any other purchaser or potential purchaser of property within the District. See "SPECIAL RISK FACTORS - Failure to Develop." DOCSLA1:481479.4 31 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 2004 Bonds. This discussion does not purport to be comprehensive or definitive. The occurrence of one or more events discussed herein could adversely affect the value of the property in the District. Moreover, the occurrence of one or more of the events discussed herein could adversely affect the ability or willingness of property owners in the District to pay their Special Taxes when due. Such a failure to pay Special Taxes could result in the inability of the District to make full and punctual payments of the Series 2004 Bonds. Concentration of Ownership As of July 2004, all of the taxable property within the District was owned by WL Homes. See "THE DISTRICT - WL Homes." Based on ownership and development status of the property in the District as of July 14, 2004 (i.e., if no more land sales were to occur in fiscal year 2004-05), WL Homes would responsible for 100% of the total special tax liability of the District for fiscal year 2004-05. The timely payment on the Series 2004 Bonds depends upon the willingness and ability of the landowners to pay the Special Tax installments when due. Conditions may affect the willingness of the landowners, or any successors, 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. Insufficiency of Special Taxes Under the Rate and Method, the annual amount of Special Tax to be levied on each taxable parcel in the District will be based on whether such parcel is publicly owned or otherwise exempt from Special Taxes and whether such parcel is Developed Property or Undeveloped Property. See "THE DISTRICT - Rate and Method of Apportionment." Accordingly, to the extent that Undeveloped Property does not become Developed Property, the collection of a portion of the Special Taxes will be dependent on the willingness and ability of the owners of Undeveloped Property to pay such Special Taxes when due. See "- Failure to Develop," below, for a discussion of the risks associated with Undeveloped Property. The Rate and Method specifies a four-step process for determining the amount of the Special Tax A to be levied in order to equal the amount needed to be collected to satisfy the Special Tax Requirement. Basically, with respect to the Special Tax A, each category of Taxable Property will be taxed up to the applicable Maximum Special Tax A rates, until the amount levied equals the Special Tax Requirement. Taxation of property owners at rates higher than presently anticipated could have an impact on the willingness and ability of the property owners to pay such Special Taxes when due. All property to be taxed is categorized as Developed Property, Taxable Public Property, Taxable Property Owner Association Property or Undeveloped Property and becomes subject to tax at the beginning of each fiscal year (July I). The Rate and Method exempts up to 28.5 acres of Property Owner Association Property and Public Property from the Special Tax. The Act provides that if any property within the District not otherwise exempt from the Special Tax is acquired by a public entity through a negotiated transaction, or by gift or devise, the Special Taxes will continue to be levied on and DOCSLA1:481479.4 32 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 Tax Rates, the Special Taxes will be reallocated to the remaining properties within the District. This would result in the owners of such properties paying a greater amount of the Special Tax and could have an adverse effect on the timely payment of the Special Tax. The Series 2004 Bonds are Limited Obligations of the District Funds for the payment of the principal of, and interest on, the Series 2004 Bonds are derived from Special Taxes levied in the District. The Special Taxes collected by the District could be insufficient to pay debt service on the Series 2004 Bonds due to non-payment of annual Special Taxes or insufficient proceeds received from the sales of land within the District due to delinquencies. The District's obligation 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 2004 BONDS - Covenant for Superior Court Foreclosure." The Special Taxes are not Personal Obligations of the Property Owners The obligation to pay Special Taxes levied within the District does not constitute a personal obligation of the current or subsequent owners of the property in the District. Enforcement of Special Tax payment obligations by the District is limited to judicial foreclosure in the Orange County Superior Court. See "SECURITY FOR THE SERIES 2004 BONDS - Covenant for Superior Court Foreclosure." There is no assurance that any current or subsequent owner of a parcel subject to Special Taxes will be able to pay the Special Taxes, or that such owner will choose to pay such installments even though financially able to do so. Special Tax Delinquencies The Special Taxes will be billed to properties within the District on the ad valorem property tax bills sent to owners of such properties. Such Special Tax installments will be due and payable and bear the same penalties and interest for non-payment, as do ad valorem property tax installments. For so long as the County continues on the Teeter Plan, the County is obligated to pay the District 100% of the amount of the Special Taxes actually levied in the District, regardless of any delinquencies. However, the County is required to terminate the Teeter Plan if two-thirds of the participants so petition the Board of Supervisors and may discontinue the Teeter Plan as to the District if the District's delinquency rate exceeds 3%. See "- Teeter Plan Termination" and "SECURITY FOR THE SERIES 2004 BONDS - The Teeter Plan." 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 2004 Bonds. DOCSLA1 :481479.4 33 See "SECURITY FOR THE SERIES 2004 BONDS - Covenant for Superior Court Foreclosure," for a discussion of the provisions that apply, and the procedures that the District is obligated to follow, under the Indenture in the event of delinquencies in the payment of Special Taxes. See "- Payments by FDIC or Other Federal Agencies" and "- Bankruptcy" below, for a discussion of the policy of the Federal Deposit Insurance Corporation regarding the payment of special taxes and limitations on the District's ability to foreclose on the lien of the Special Taxes in certain circumstances. Failure to Develop Property Land development operations are subject to comprehensive federal, State of California and local regulations. Approval is required from various agencies in connection with the layout and design of developments, the nature and extent of improvements, construction activity, land use, zoning, school and health requirements, as well as numerous other matters. According to the Market Absorption Consultant, build-out of the District is expected to occur in 2006. It is possible that the approvals necessary to complete development of the property within the District will not be obtained on a timely basis. Failure to obtain any such agency approval or satisfy any such government requirement could adversely affect land development operations. In addition, there is a risk that future governmental restrictions, including, but not limited to, governmental policies restricting or controlling development within the District, will be enacted, and a risk that future' land use initiatives approved by the voters in the City could add more restrictions and requirements on development within the District. Moreover, there can be no assurance that the means and incentive to conduct land development operations within the District will not be adversely affected by a deterioration of the real estate market and economic conditions or future local, State and federal governmental policies relating to real estate development, the income tax treatment of real property ownership, or the national economy. Undeveloped property is less valuable per acre than developed property, especially if there are no plans to develop such property or if there are severe restrictions on the development of such property. Undeveloped property also provides less security to the Owners of the Series 2004 Bonds should it be necessary for the District to foreclose on undeveloped property due to the nonpayment of the Special Taxes. Furthermore, an inability to develop the land within the District as currently proposed would result in a level of diversification within the District that is less than currently planned, which could expose the Owners of the Series 2004 Bonds to additional risk. The timely payment of Special Taxes levied on undeveloped property depends primarily upon the ability and willingness of WL Homes to pay such taxes when due. A slowdown in or cessation of the development of land within the District could reduce the ability and willingness of such owners to make Special Tax payments, and could greatly reduce the value of such property in the event it has to be foreclosed upon to collect delinquent special taxes. See "- Bankruptcy" below for a discussion of certain limitations on the ability of the District to pursue judicial foreclosure proceedings with respect to taxpayers with delinquent Special Taxes. DOCSLA1:481479.4 34 Appraised Values The Appraisal was prepared for the purpose of estimating the Market Value of the property in the District as of July I, 2004 on the basis of certain assumptions. See the Appraisal included in Appendix A hereto for a description of the analysis used and assumptions made by the Appraiser. No assurance can be given that the market values of property in the District set forth in the Appraisal will be maintained during the period of time the Series 2004 Bonds are Outstanding. The market values of the property in the District can be adversely affected by a variety of factors, including, but not limited to, the occurrence of one or more of the special risk events discussed herein. A decrease in the market values of property in the District may lessen the ability or willingness of the owners of such property to pay Special Taxes when due. Prospective purchasers of the Series 2004 Bonds should not assume that the land within the District could be sold for the appraised amount described herein at the present time or at a foreclosure sale for delinquent Special Taxes. Teeter Plan Termination In 1993, the County implemented its Teeter Plan, as an alternate procedure for the distribution of certain property tax and assessment levies on the secured roll. Pursuant to its Teeter Plan, the County has elected to provide local agencies and taxing areas, including the District, with full tax and assessment levies instead of actual tax and assessment collections. In return the County is entitled to retain all delinquent tax and assessment payments, penalties and interest. Thus, the County's Teeter Plan may help protect Owners from the risk of delinquencies in the payment of Special Taxes. However, the County is entitled, and under certain circumstances could be required, to terminate its Teeter Plan with respect to all or part of the local agencies and taxing areas covered thereby. A termination of the Teeter Plan with respect to the District would eliminate such protection from delinquent Special Taxes. See "SECURITY FOR THE SERIES 2004 BONDS - The Teeter Plan." Bankruptcy The payment of Special Taxes and the ability of the District to foreclose the lien of a delinquent Special Tax may be limited by bankruptcy, insolvency, or other laws generally affecting creditor's rights or by the laws of the State relating to judicial foreclosure. The various legal opinions to be delivered concurrently with the delivery of Series 2004 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 DOCSLA1:481479.4 35 proceedings. Such a delay would increase the likelihood of a delay or default in payment of the principal of, and interest on, the Series 2004 Bonds and the possibility of delinquent tax installments not being paid in full. The prosecution of foreclosure proceedings could also be delayed for other reasons, including crowded court calendars and procedural delaying tactics. Disclosures to Future Purchasers The District has recorded a Notice of Special Tax Lien in the Office of the County Recorder of the County. While title companies normally refer to such notices in title reports, there can be no guarantee that such reference will be made or, if made, that a prospective homebuyer or lender will consider such obligation for Special Taxes in the purchase of a home or the lending of money thereon. Failure to disclose the existence of the Special Taxes or the full amount of the pro rata share of debt on the land in the District may affect the willingness and ability of future owners of land within the District to pay the Special Taxes when due. Billing of Special Taxes A special tax formula can result in a substantially heavier property tax burden being imposed upon properties within a community facilities district than elsewhere in a city or county, and this in turn can lead to problems in the collection of the special tax. In some community facilities districts the taxpayers have refused to pay the special fax and have commenced litigation challenging the special tax, the community facilities district and the bonds issued by the district. Under provisions of the Act, the Special Taxes are to be billed to the properties within the District which were entered on the Assessment Roll of the County Assessor by January I of the previous fiscal year on the regular property tax bills sent to owners of such properties. Such Special Tax installments are due and payable, and bear the same penalties and interest for non- payment, as do regular property tax installments. These Special Tax installment payments cannot be made separately from property tax payments. Therefore, the unwillingness or inability of a property owner to pay regular property tax bills as evidenced by property tax delinquencies may also indicate an unwillingness or inability to make regular property tax payments and installment payments of Special Taxes in the future. See "SECURITY FOR THE SERIES 2004 BONDS - Covenant for Superior Court Foreclosure," for a discussion of the provisions which apply, and procedures which the District is obligated to follow, in the event of delinquency in the payment of installments of Special Taxes. Natural Disasters The District, like all California communities, may be subject to unpredictable seismic activity, fires due to the vegetation and topography, or flooding in the 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 the occurrence of such an event. The occurrence of earthquakes, fires or flooding in or around the District could result in substantial damage to both property and infrastructure in the District which, in turn, could substantially reduce the value of such properties and could affect the ability or willingness of the property owners to pay their Special Taxes when due. DOCSLA1:481479.4 36 Soil Conditions in the District The soils in the District are characterized as poorly drained soils in alluvial fans, flood plains or basins. The soils have slight to no erosion hazard but do have moderate to severe building site development limitations. Moderate limitations can be overcome or minimized through planning and design. Severe limitations require a major increase in construction effort, design or maintenance and require remedial measures prior to construction to prevent damage to foundations, structures and infrastructure. Such remedial measures include soil import and amendment and have been completed in connection with the grading of the property within the District. Endangered Species During the past several years, there has been an increase in activity at the State and federal level related to the listing and possible listing of certain plant and animal species found in the State as endangered species. An increase in the number of endangered species is expected to curtail development in a number of areas. At present, the District is not known to be inhabited by any plant or animal species which either the California Fish and Game Commission or the United States Fish and Wildlife Service has listed as endangered or proposed for addition to the endangered species list. Notwithstanding this fact, new species are proposed to be added to the State and federal protectediists on a regular basis. Any action by the State or federal governments to protect additional species could negatively impact the ability to complete the development as planned. This, in turn, could reduce the likelihood of timely payment of the Special Taxes and would likely reduce the value of the land and the potential revenues available at a foreclosure sale for delinquent Special Taxes. See "- Appraised Values." Hazardous Substances The market value of the property in the District is subject to diminution upon the future release or discovery thereon of a hazardous substance. In general, the owners and operators of a parcel may be required by law to remedy conditions relating to releases or threatened releases of hazardous substances. The federal Comprehensive Environmental Response, Compensation and Liability Act of 1980, sometimes referred to as "CERCLA" or "Superfund Act," is the most well known and widely applicable of these laws, but California laws with regard to hazardous substances are also stringent and similar. Under many of these laws, the owner (or operator) is obligated to remedy a hazardous substance condition of property whether or not the owner (or operator) had anything to do with creating or handling the hazardous substance. The effect therefore, should any of the parcels be affected by a hazardous substance, would be to reduce the marketability and value by the costs of remedying the condition, because the purchaser, upon becoming owner, will become obligated to remedy the condition just as is the seller. The value of the property within the District, as set forth in the Appraisal does not reflect the presence of any hazardous substance or the possible liability of the owner (or operator) for the remedy of a hazardous substance condition of the property. The District has not independently verified, and is not aware, that any owner (or operator) of any of the parcels within the District has such a current liability with respect to any such parcel. However, it is possible that such liabilities do currently exist and that the District is not aware of them. DOCSLA1:481479.4 37 Further, it is possible that liabilities may arise in the future with respect to any of the land within the District resulting from the existence, currently, of a substance presently classified as hazardous but which has not been released or the release of which is not presently threatened, or may arise in the future resulting from the existence, currently, on the parcel of a substance not presently classified as hazardous but which may in the future be so classified. Further, such liabilities may arise not simply from the existence of a hazardous substance but from the method of handling it. All of these possibilities could significantly adversely affect the value of a parcel and the willingness or ability of the owner of any parcel to pay the Special Tax installments. Payments by FDIC or Other Federal Agencies The ability of the District to collect the Special Taxes and interest and penalties specified by state law, and to foreclose the lien of delinquent Special Taxes, may be limited in certain respects with regard to properties in which the Federal Deposit Insurance Corporation (the "FDIC") or other similar federal governmental agencies has or obtains an interest. On June 4, 1991, the FDIC issued a Statement of Policy Regarding the Payment of State and Local Property Taxes (the" 1991 Policy Statement"). The 1991 Policy Statement was revised and superseded by 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 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. With respect to property in California owned by the FDIC on January 9,1997 and that was owned by the Resolution Trust Corporation ("RTC") on December 31, 1995, or that became the property of the FDIC through foreclosure of a security interest held by the RTC on that date, the FDIC will continue the RTC's prior practice of paying special taxes imposed pursuant to the Mello-Roos Act if the taxes were imposed prior to the RTC's acquisition of an interest in the property. All other special taxes may be challenged by the FDIC. DOCSLA1:481479.4 38 The District is unable to predict what effect the FDIC's application of the Policy Statement would have in the event of a delinquency on a parcel within the District in which the FDIC has an interest, altbough prohibiting the lien of tbe 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 2004 Bonds should assume that the District will be unable to foreclose on any parcel owned by the FDIC. Such an outcome could cause a draw on the Reserve Fund and perhaps, ultimately, a default in payment on the Series 2004 Bonds. Exempt Properties Certain properties are exempt from the Special Taxes in accordance with the Rate and Method (see "SECURITY FOR THE SERIES 2004 BONDS - Rate and Method of Apportionment of Special Tax"). In addition, the Act provides that properties or entities of the federal, State or local government are exempt from the Special Tax; provided, however, that property within the District acquired by a public entity through a negotiated transaction or by gift or devise, which is not otherwise exempt from the Special Tax, will continue to be subject to the Special Tax. Property acquired by a public entity following a tax sale or foreclosure based upon failure to pay taxes may become exempt from the Special Tax. In addition, although the Act provides that if property subject to the Special Tax is acquired by a public entity through eminent domain proceedings, the obligation to pay the Special Tax with respect to that property is to be treated as if it were a special assessment. The constitutionality and operatiorfof these provisidns of the Act have not been tested. If additional property is dedicated to the City or other public entities, this additional property might become exempt from the Special Tax. The Act further provides that no other properties or entities are exempt from the Special tax unless the properties or entities are expressly exempted in a resolution of consideration to levy a new special tax or to alter the rate and method of apportionment of an existing special tax. Cumulative Burden of Parity Taxes, Special Assessments The Special Taxes constitute a lien against the parcels of land on which they have been levied. Such lien is on a parity with all special taxes levied by other agencies and is co-equal to and independent of the lien for general property taxes, regardless of when they are imposed upon the same property. The District does not have control over the ability of other entities to issue indebtedness secured by ad valorem taxes, special taxes or assessments payable from all or a portion of the property within the District. In addition, the owners of property within the District may, without the consent or knowledge of the District, petition other public agencies to issue public indebtedness secured by ad valorem taxes, special taxes or assessments. Any such special taxes may have a lien on such property on a parity with the lien of the Special Taxes. See "SECURITY FOR THE SERIES 2004 BONDS - Direct and Overlapping Debt." Value.to.Lien Ratios The estimated value-to-lien ratios set forth herein under the caption "SECURITY FOR THE SERIES 2004 BONDS - Estimated Value-to-Lien Ratios" are based on the appraised values of property in the District as of July I, 2004 and the direct and overlapping debt allocable DOCSLA1:481479.4 39 to property in the District as of June 30, 2004. No assurance can be given that such value-to-lien ratios will be maintained over time. As discussed herein, many factors which are beyond the control of the District could adversely affect the property values within the District. The District also has no control over the amount of additional indebtedness that may be issued by other public agencies, the payment of which, through the levy of a tax or an assessment, is on a parity with the Special Taxes. See "- Cumulative Burden of Parity Taxes, Special Assessmehts" and "SECURITY FOR THE SERIES 2004 BONDS - Direct and Overlapping Debt." A decrease in the property values in the District or an increase in the parity liens on property in the District, or both, could result in a lowering of the value-to-lien ratios of the property in the District. Limitations on Remedies Remedies available to the Owners may be limited by a variety of factors and may be inadequate to assure the timely payment of principal of and interest on the Series 2004 Bonds or to preserve the tax-exempt status of the Series 2004 Bonds. Bond Counsel has limited its opinion as to the enforceability of the Series 2004 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 2004 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 XillC ("Article XillC") and xnill to the State Constitution, which contain a number of provisions affecting the ability of local agencies to levy and collect both existing and future taxes, assessments, fees and charges. Among other things, Section 3 of Article Xill 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. Although the matter is not free from doubt, it is likely that the exercise by the voters of the initiative power referred to in Article XillC to reduce or terminate a Special Tax is subject to the same restrictions as are applicable to the City Council, as the legislative body of the District, pursuant to the Act. Accordingly, although the matter is not free from doubt, it is likely that Article XillC 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 2004 Bonds. DOCSLA1:481479.4 40 It may be possible, however, for voters or the District to reduce the Special Taxes in a manner which does not interfere with the timely repayment of the Series 2004 Bonds, but which does reduce the maximum amount of Special Taxes that may be levied in any year below the existing levels. Therefore, no assurance can be given with respect to the levy of Special Taxes for Administrative Expenses. Furthermore, no assurance can be given with respect to the future levy of the Special Taxes in amounts greater than the amount necessary for the timely retirement of the Series 2004 Bonds. The interpretation and application of Article XillC 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 2004 Bonds could become includable in gross income for purposes of Federal income taxation retroactive to the date the Series 2004 Bonds were issued, as a result of acts or omissions of the District in violation of the Code. Should such an event of taxability occur, the Series 2004 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 Liqnidity of the Series 2004 Bonds The District has not applied for, and does not expect to receive, a rating on the Series 2004 Bonds from any nationally recognized rating organization. This fact, coupled with the fact that the Series 2004 Bonds are secured by Special Taxes payable by a relatively small number of landowners, may limit the secondary market for, and therefore the liquidity of, the Series 2004 Bonds. LITIGATION At the time of delivery of and payment for the Series 2004 Bonds, the District will certify that there is no action, suit, litigation, inquiry or investigation before or by any court, governmental agency, public board or body served, or to the best knowledge of the District threatened, against the District in any material respect affecting the existence of the District or the titles of its officers to their respective offices or seeking to prohibit, restrain or enjoin the sale, execution or delivery of the Series 2004 Bonds or challenging directly or indirectly the proceedings to levy the Special Taxes or issue the Series 2004 Bonds. CONTINUING DISCLOSURE The District has covenanted for the benefit of the Owners of the Series 2004 Bonds to provide certain financial information and operating data relating to the Series 2004 Bonds, the District, ownership of the property in the District which is subject to the Special Tax, the occurrence of delinquencies in payment of the Special Tax, and the status of foreclosure DOCSLA1:481479.4 41 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 District's undertaking is included in Appendix F - "Form of Continuing Disclosure Agreements." The annual reports are to be provided by the District not later than March I of each year, commencing March 1,2005. The District Disclosure Reports will be filed by the District with eàch 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 Comnússion Rule 15c2-12(b)(5). The District has not made any prior agreement under Rule 15c2-12 to provide annual reports or notices of material events. The District is a legally constituted governmental entity separate and apart from the City. However, pursuant to the Act, the City Council is the legislative body of the District. The City has never failed to comply in all material respects with any previous undertakings with regard to said Rule to provide annual reports or notices of material events. Pursuant to an agreement (the "Developer Continuing Disclosure Agreement") with U.S. Bank National Association, in its capacity as Trustee and in its capacity as Dissemination Agent, the Developer has covenanted for the benefit of the Owners of the Series 2004 Bonds to provide semi-annually certain financial information and operating data relating to the Developer, its development plan and its financing plan (the "Developer Disclosure Report"), and to provide notices of the occurrence of certain enumerated events, if material, until the property within the District is developed to the planned development stage or 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 F - "Form of Continuing Disclosure Agreements." Such information is to be provided by the Developer not later than April 30 and October 31 of each year, commencing April 30, 2005. The Developer Disclosure Reports will 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 Securities and Exchange Comnússion Rule 15c2- 12(b)(5). The Developer 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. CONCLUDING INFORMATION Legal Opinions The validity of the Series 2004 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 2004 Bonds. Neither Bond Counsel nor Underwriter's counsel have undertaken any responsibility for the accuracy, completeness or fairness of this Official Statement and Bond Counsel and Underwriter's counsel express no opinion as to the matters set forth herein. A complete copy of the proposed form of Bond Counsel opinion is contained in Appendix D hereto and will accompany the Series 2004 Bonds. Certain legal matters will be passed upon for the Underwriter by Hawkins Delafield & DOCSLA1:481479.4 42 Wood LLP, Los Angeles, California, and for the City and the District by Woodruff, Spradlin & Smart, A Professional Corporation, Orange, California. Financial Interest Payment of the fees and expenses of Bond Counsel and Underwriter's counsel are contingent upon the issuance and delivery of the Series 2004 Bonds. Tax Exemption In the opinion of Orrick, Herrington & Sutcliffe LLP ("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 2004 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 2004 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 eamings when calculating corporate alternative minimum taxable income. A complete copy of the proposed form of opinion of Bond Counsel is included herein as Appendix D. To the extent the issue price of any maturity of the Series 2004 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 2004 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 2004 Bonds is the first price at which a substantial amount of such maturity of the Series 2004 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 2004 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 2004 Bonds should consult their own tax advisors with respect to the tax consequences of ownership of Series 2004 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 2004 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 DOCSLA1:481479.4 43 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 2004 Bonds. The District has made representations and covenanted to comply with certain restrictions, conditions and requirements designed to ensure that interest on the Series 2004 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 2004 Bonds being included in gross income for federal income tax purposes, possibly from the date of issuance of the Series 2004 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 occuning (or not occuning), or any other matters coming to Bond Counsel's attention, after the date of issuance of the Series 2004 Bonds may adversely affect the value of, or the tax status of interest on, the Series 2004 Bonds. Certain requirements and procedures contained or referred to in the Indenture, the tax certificate and other relevant documents may be changed and certain actions (including, without limitation, defeasance of Series 2004 Bond§) may be taken or omitted under the circumstances and subject to the terms and conditions set forth in such documents. Bond Counsel expresses no opinion as to any Series 2004 Bond or the interest thereon if any such change occurs or action is taken or omitted upon the advice or approval of bond counsel other than Onick, Henington & Sutcliffe LLP. Although Bond Counsel is of the opinion that interest on the Series 2004 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 2004 Bonds, or the accrual or receipt of interest on the Series 2004 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 legislation, if enacted into law, or clarification of the Code may cause interest on the Series 2004 Bonds to be subject, directly or indirectly, to federal income taxation, or otherwise prevent Beneficial Owners from realizing the full current benefit of the tax status of such interest. The introduction or enactment of any such future legislation or clarification of the Code may also affect the market price for, or marketability of, the Series 2004 Bonds. Prospective purchasers of the Series 2004 Bonds should consult their own tax advisers regarding any enactment of any such future legislation, as to which Bond Counsel expresses no opinion. The opinion of Bond Counsel is based on current legal authority, covers certain matters not directly addressed by such authorities, and represents Bond Counsel's judgment as to the proper treatment of the Series 2004 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 DOCSLA1:481479.4 44 has not given any opinion or assurance about the future activities of the District, or about the effect of future changes in the Code, the applicable regulations, the interpretation thereof or the enforcement thereof by the IRS. The District has covenanted, however, to comply with the requirements of the Code. Bond Counsel's engagement with respect to the Bonds ends with the issuance of the Bonds, and, unless separately engaged, Bond Counsel is not obligated to defend the District or the beneficial owners regarding the tax -exempt status of the Series 2004 Bonds in the event of an audit examination by the IRS. Under current procedures, parties other than the District and its appointed counsel, including the beneficial owners, would have little, if any, right to participate in the audit examination process. Moreover, because achieving judicial review in connection with an audit examination of tax-exempt bonds is difficult, obtaining an independent review of IRS positions with which the District legitimately disagrees, may not be practicable. Any action of the IRS, including but not limited to selection of the Series 2004 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 2004 Bonds, and may cause the District or the beneficial owners to incur significant expense. Underwriting The Series 2004 Bonds are being purchased by Citigroup Global Markets Inc. (the "Underwriter"). Pursuant to a Bond Purchase Agreement between the Underwriter and the District (the "Purchase Agreement"), the Underwriter has agreed to purchase all of the Series 2004 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 original issue discount 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 2004 Bonds to certain dealers (including dealers depositing Series 2004 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 assigument of a rating to the Series 2004 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 2004 Bonds by the District. This Official Statement does not constitute a contract with the purchasers of the Series 2004 Bonds. DOCSLA1:481479.4 45 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 has been duly authorized by the District. . CITY OF TUSTIN COMMUNITY FACILITIES DISTRICT NO. 04.1 (TUSTIN LEGACY/JOHN LAING HOMES) By: Mayor of the City of Tustin DOCSLA1:481479.4 46 APPENDIX A APPRAISAL 'DOCSLA1:481479.4 DOCSLA1:481479.4 APPENDIX B SUMMARY OF MARKET ABSORPTION STUDY APPENDIX C RATE AND METHOD OF APPORTIONMENT OF SPECIAL TAX DOCSLA1:481479.4 APPENDIX D PROPOSED FORM OF OPINION OF BOND COUNSEL Upon delivery of the Series 2004 Bonds, Orrick, Herrington & Sutcliffe LLP, Bond Counsel, proposes to render its final approving opinion with respect to the Series 2004 Bonds in substantially the following form: DOCSLA1:481479.4 APPENDIX E SUMMARY OF INDENTURE The following is a brief summary of certain provisions of the Indenture. Additional provisions of the Indenture are summarized in the body of the Official Statement. This summary does not purport to be complete and is qualified in its entirety by reference to the Indenture. DOCSLA1 :481479.4 DOCSLA1:481479.4 APPENDIX F FORMS OF CONTINUING DISCLOSURE AGREEMENTS DOCSLA1:481479.4 APPENDIX G AUDITED FINANCIAL STATEMENTS FOR WL HOMES APPENDIX H BOOK-ENTRY ONLY SYSTEM The following description of the procedures and record-keeping with respect to beneficial ownership interests in the Series 2004 Bonds, payment of principal, interest and other payments on the Series 2004 Bonds to DTC Participants or Beneficial Owners, confinnation and tranifer of beneficial ownership interests in such Series 2004 Bonds, other related transactions by and between DTC, the DTC Participants and the Beneficial Owners is based solely on infonnation provided by DTc. Accordingly, no representations can be made concerning these mntters and neither the DTC Participants nor the Beneficial Owners should rely on the following infonnation with respect to such matters, but should instead confinn the same with DTC or the DTC Participants, as the case mny be. DTC will act as securities depository for the Series 2004 Bonds. The Series 2004 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 2004 Bonds will be issued for the Series 2004 Bonds in the aggregate principal amount of such maturity, and will be deposited with DTC. DTC, the world's largest depository, is a limited-purpose trust company organized under the New York Banking Law, a "banking organization" within the meaning of the New York Banking Law, a member of the Federal Reserve System, a "clearing corporation" within the meaning of the New York Uniform Commercial Code, and a "clearing agency" registered pursuant to the provisions of Section 17 A 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 85 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, Government Securities Clearing Corporation, MBS Clearing Corporation, and Emerging Markets Clearing Corporation, (NSCC, GSCC, MBSCC, 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. DOCSLA1:481479.4 H-I Purchases of the Series 2004 Bonds under the DTC system must be made by or through Direct Participants, which will receive a credit for the Series 2004 Bonds on DTC's records. The ownership interest of each actual purchaser of each Series 2004 Bond ("Beneficial Owner") is in turn to be recorded on the Direct and Indirect Participants' records. Beneficial Owners will not receive written confmnation 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 2004 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 2004 Bonds is discontinued. To facilitate subsequent transfers, all Series 2004 Bonds deposited by Direct Participants with DTC are registered in the name of DTC's partnership nominee, Cede & Co., or such other name as may be requested by an authorized representative of DTC. The deposit of Series 2004 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 2004 Bonds; DTC's records reflect only the identity of the Direct Participants to whose accounts such BQnds are credited, which mayor may not be the Beneficial Owners. The Direct and indirect Participants will remain responsible for keeping account of their holdings on behalf of their customers. Conveyance of notices and other communications by DTC to Direct Participants, by Direct Participants to Indirect Participants, and by Direct Participants and Indirect Participants to Beneficial Owners will be governed by arrangements among them, subject to any statutory or regulatory requirements as may be in effect from time to time. Redemption notices shall be sent to Cede & Co. If less than all of the Series 2004 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. will consent or vote with respect to the Series 2004 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 2004 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 2004 Bonds will be made to Cede & Co., or such other nominee as may be requested by an authorized representative of DTc. DTC's practice is to credit Direct Participants' accounts upon DTC's receipt of funds and corresponding detail, information from the District 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 DOCSLA1:481479.4 H-2 Trustee, or the District, subject to any statutory or regulatory requirements as may be in effect from time to time. Payment of principal and interest to Cede & Co. (or such other nominee as may be requested by an authorized representative of DTC) is the responsibility of the 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. 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. THE TRUSTEE, AS LONG AS A BOOK-ENTRY-ONLY SYSTEM IS USED FOR THE SERIES 2004 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 2004 BONDS CALLED FOR REDEMPTION OR OF ANY OTHER ACTION PREMISED ON SUCH NOTICE. DOCSLA1:481479.4 H-3