$92,455,000 COMMUNITY FACILITIES DISTRICT NO OF THE TUSTIN UNIFIED SCHOOL DISTRICT SPECIAL TAX REFUNDING BONDS Comprised of

Transcription

1 NEW ISSUE RATINGS: Standard & Poor s Insured Rating: AA Underlying Rating: BBB (See Ratings herein) In the opinion of Bowie, Arneson, Wiles & Giannone, Newport Beach, California, Bond Counsel, subject, however to certain qualifications described herein, under 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 2015 Series A Bonds is excluded from gross income for federal income tax purposes under Section 103 of the Internal Revenue Code of 1986, as amended (the Code ). In the further opinion of Bond Counsel, interest on the 2015 Series A Bonds is not an item of tax preference for purposes of the federal alternative minimum taxes imposed on individuals and corporations, although Bond Counsel observes that such interest is included as an adjustment in the calculation of federal corporate alternative minimum taxable liabilities. In the further opinion of Bond Counsel, interest on the Bonds is exempt from State of California personal income taxes. Bond Counsel expresses no other opinion regarding or concerning any other tax consequences related to the ownership or disposition of, or the accrual or receipt of interest on, the Bonds. See LEGAL MATTERS Tax Exemption herein. $92,455,000 COMMUNITY FACILITIES DISTRICT NO OF THE TUSTIN UNIFIED SCHOOL DISTRICT SPECIAL TAX REFUNDING BONDS Comprised of $82,820, Special Tax Refunding Bonds, Series A (Federally Tax-Exempt) $9,635, Special Tax Refunding Bonds, Series B (Federally Taxable) Dated: Date of Delivery Due: September 1, as shown on Inside Cover The Community Facilities District No of the Tustin Unified School District 2015 Special Tax Refunding Bonds, Series A (Federally Tax-Exempt) and Series B (Federally Taxable) (the 2015 Series A Bonds, the 2015 Series B Bonds and collectively, the Bonds, as applicable) are being issued pursuant to the Mello-Roos Community Facilities Act of 1982, as amended (the Act ), and the Fiscal Agent Agreement (the Fiscal Agent Agreement ), dated as of June 1, 2015, by and between Community Facilities District No of the Tustin Unified School District (the Community Facilities District ) and U.S. Bank National Association, as fiscal agent (the Fiscal Agent ). The Bonds are payable from proceeds of Special Taxes (as defined herein) levied on property within the Community Facilities District according to the special tax formula for apportionment of special tax of the Community Facilities District approved by the qualified electors and by the Board of Education (the Board ) of the Tustin Unified School District (the School District ), acting as the Legislative Body of the Community Facilities District (the Legislative Body ), and subsequent proceedings of the Legislative Body as more fully described herein. The Bonds are being issued (i) to defease and refund the outstanding special tax bonds of the Community Facilities District captioned Community Facilities District No of the Tustin Unified School District 2002 Special Tax Bonds, Series A (Senior Lien Bonds) and Series B (Junior Lien Bonds) (collectively, the Prior Bonds ), (ii) to fund the reserve fund in an amount equal to 50% of the Reserve Requirement (as defined in the Fiscal Agent Agreement) and to provide a debt service reserve insurance policy for the Bonds in an amount equal to 50% of the Reserve Requirement, and (iii) to pay certain costs of issuing the Bonds, including the premiums for a municipal bond insurance policy and debt service reserve insurance policy. See ESTIMATED SOURCES AND USES OF FUNDS, herein. Interest on the Bonds is payable on September 1, 2015, and semi-annually thereafter on each March 1 and September 1. The Bonds will be issued in denominations of $5,000 or integral multiples thereof. The Bonds, when delivered, will be initially registered in the name of Cede & Co., as nominee of The Depository Trust Company ( DTC ). DTC will act as securities depository for the Bonds. See THE BONDS Book-Entry and DTC and APPENDIX F Book- Entry System. The scheduled payment of principal of and interest on the 2015 Series A Bonds maturing on September 1 of the years 2032 through 2038, inclusive, with CUSIP Nos GY6 through GL4 (collectively, the Insured 2015 Series A Bonds ) and the scheduled payment of principal of and interest on the 2015 Series B Bonds (collectively with the Insured 2015 Series A Bonds, the Insured Bonds ), when due will be guaranteed under a municipal bond insurance policy to be issued concurrently with the delivery of the Insured Bonds by BUILD AMERICA MUTUAL ASSURANCE COMPANY. The 2015 Series A Bonds are subject to optional redemption, the 2015 Series A Bonds are subject to mandatory redemption from Special Tax prepayments and the 2015 Series A Bonds are subject to mandatory sinking fund redemption as described herein. The Series B Bonds are not subject to redemption prior to their stated maturities. See THE BONDS Redemption. MATURITY SCHEDULE (See Inside Cover) Please refer to the inside cover page for a summary of the principal amounts, interest rates and reoffering yields for the Bonds. THE BONDS, THE INTEREST THEREON, AND ANY PREMIUMS PAYABLE ON THE REDEMPTION OF ANY OF THE BONDS, ARE NOT AN INDEBTEDNESS OF THE SCHOOL DISTRICT, THE STATE OF CALIFORNIA (THE STATE ) OR ANY OF ITS POLITICAL SUBDIVISIONS, AND NEITHER THE SCHOOL DISTRICT, THE COMMUNITY FACILITIES DISTRICT (EXCEPT TO THE LIMITED EXTENT DESCRIBED HEREIN), THE STATE NOR ANY OF ITS POLITICAL SUBDIVISIONS IS LIABLE FOR THE BONDS. NEITHER THE FAITH AND CREDIT NOR THE TAXING POWER OF THE SCHOOL DISTRICT, THE COMMUNITY FACILITIES DISTRICT (EXCEPT TO THE LIMITED EXTENT DESCRIBED HEREIN) OR THE STATE OR ANY POLITICAL SUBDIVISION THEREOF IS PLEDGED TO THE PAYMENT OF THE BONDS. THE BONDS ARE NOT A GENERAL OBLIGATION OF THE COMMUNITY FACILITIES DISTRICT, BUT ARE LIMITED OBLIGATIONS OF THE COMMUNITY FACILITIES DISTRICT PAYABLE SOLELY FROM THE SPECIAL TAXES LEVIED IN THE COMMUNITY FACILITIES DISTRICT, AS MORE FULLY DESCRIBED HEREIN. This cover page contains certain information for quick reference only. It is not a summary of the issue. Potential investors must read the entire Official Statement to obtain information essential to the making of an informed investment decision. Investment in the Bonds involves risks which may not be appropriate for some investors. See BONDOWNERS RISKS herein for a discussion of special risk factors that should be considered in evaluating the investment quality of the Bonds. The Bonds are offered when, as and if issued and accepted by the Underwriter, subject to approval as to their legality by Bowie, Arneson, Wiles & Giannone, Newport Beach, California, Bond Counsel, and subject to certain other conditions. Certain legal matters will be passed on for the School District and the Community Facilities District by Bowie, Arneson, Wiles & Giannone and by McFarlin & Anderson LLP, Laguna Hills, California, Disclosure Counsel. Nossaman LLP, Irvine, California, is serving as counsel to the Underwriter. It is anticipated that the Bonds, in book-entry form, will be available for delivery through the facilities of DTC on or about June 3, The date of this Official Statement is: May 13, 2015.

2 Maturity (September 1) Principal Amount Interest Rate Yield Price MATURITY SCHEDULE $92,455,000 COMMUNITY FACILITIES DISTRICT NO OF THE TUSTIN UNIFIED SCHOOL DISTRICT 2015 SPECIAL TAX REFUNDING BONDS, SERIES A (Federally Tax-Exempt) $41,290,000 Serial Bonds Base CUSIP No CUSIP No. Maturity (September 1) Principal Amount Interest Rate Yield Price 2015 $2,820, % 0.60% FS $3,585, % 3.15% C GD , FY ,915, C GE ,390, FZ ,265, C GF ,710, GA ,640, C GG ,010, GB ,035, C GH ,270, GC ,450, C GJ9 $21,875,000 Insured Serial Bonds Base CUSIP No Maturity (September 1) Principal Amount Interest Rate Yield Price CUSIP No $5,890, % 3.63% C GY ,945, C GZ ,340, HA ,700, GK6 CUSIP No. $19,655, % 2015 Insured Term Bonds due September 1, 2038, Yield 3.840% Price C CUSIP No GL4 C Priced to optional call date of September 1, Maturity (September 1) Principal Amount Interest Rate 2015 SPECIAL TAX REFUNDING BONDS, SERIES B (Federally Taxable) $9,635,000 Insured Serial Bonds Base CUSIP No Yield CUSIP No. Maturity (September 1) Principal Amount Interest Rate Yield CUSIP No $1,255, % 1.500% GM $1,690, % 2.750% GQ ,365, GN ,885, GR ,515, GP ,925, GS9 CUSIP is a registered trademark of the American Bankers Association. CUSIP data is provided by CUSIP Global Services (CGS) which is managed on behalf of the American Bankers Association by S&P Capital IQ. CUSIP data is not intended to create a database and does not serve in any way as a substitute for the CUSIP Service Bureau. CUSIP numbers are provided for convenience of reference only. The Community Facilities District, the School District and the Underwriter take no responsibility for the accuracy of such numbers.

3 TUSTIN UNIFIED SCHOOL DISTRICT BOARD OF EDUCATION Francine Scinto, President Lynn Davis, Vice President Jonathan Abelove, Clerk Tammie Bullard, Member James Laird, Member SCHOOL DISTRICT CHIEF ADMINISTRATORS Gregory A. Franklin, Ed.D., Superintendent Anthony Soria, Chief Financial Officer Charles Lewis, Ed.D., Chief Personnel Officer Kathie Nielsen, Chief Academic Officer Crystal Turner, Ed.D., Assistant Superintendent, Administrative Services Lori Stillings, Ed.D., Assistant Superintendent, Special Education PROFESSIONAL SERVICES BOND COUNSEL/SCHOOL DISTRICT COUNSEL Bowie, Arneson, Wiles & Giannone Newport Beach, California DISCLOSURE COUNSEL McFarlin & Anderson LLP Laguna Hills, California FINANCIAL ADVISOR RBC Capital Markets, LLC Los Angeles, California FISCAL AGENT/ESCROW AGENT U.S. Bank National Association Los Angeles, California SPECIAL TAX CONSULTANT AND CFD ADMINISTRATOR Special District Financing & Administration, LLC Escondido, California VERIFICATION AGENT Grant Thornton LLP Minneapolis, Minnesota

4 GENERAL INFORMATION ABOUT THE OFFICIAL STATEMENT Use of Official Statement. This Official Statement is submitted in connection with the offer and sale of the Bonds referred to herein and may not be reproduced or used, in whole or in part, for any other purpose. This Official Statement is not to be construed as a contract with the purchasers of the Bonds. While the School District maintains an internet website for various purposes, none of the information on such website is intended to assist investors in making any investment decision or to provide any continuing information with respect to the Bonds or any bonds or obligations of the School District. Estimates and Forecasts. When used in this Official Statement and in any continuing disclosure by the Community Facilities District, in any press release and in any oral statement made with the approval of an authorized officer of the School District or the Community Facilities District or any other entity described or referenced herein, the words or phrases will likely result, are expected to, will continue, is anticipated, estimate, project, forecast, expect, intend, and similar expressions identify forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, Section 21E of the United States Securities Exchange Act of 1934, as amended, and Section 27A of the United States Securities Act of 1933, as amended. Such statements are subject to risks and uncertainties that could cause actual results to differ materially from those contemplated in such forward-looking statements. Any forecast is subject to such uncertainties. Inevitably, some assumptions used to develop the forecasts will not be realized and unanticipated events and circumstances may occur. Therefore, there are likely to be differences between forecasts and actual results and those differences may be material. The information and expressions of opinion herein are subject to change without notice, and neither the delivery of this Official Statement nor any sale made hereunder shall, under any circumstances, give rise to any implication that there has been no change in the affairs of the School District or the Community Facilities District or any other entity described or referenced herein since the date hereof. The School District and the Community Facilities District do not plan to issue any updates or revisions to the forward-looking statements set forth in this Official Statement. Limited Offering. No dealer, broker, salesperson or other person has been authorized by the School District or the Community Facilities District to give any information or to make any representations in connection with the offer or sale of the Bonds other than those contained herein and if given or made, such other information or representation must not be relied upon as having been authorized by the School District, the Community Facilities District or the Underwriter. This Official Statement does not constitute an offer to sell or the solicitation of an offer to buy nor shall there be any sale of the Bonds by a person in any jurisdiction in which it is unlawful for such person to make such an offer, solicitation or sale. Involvement of Underwriter. The Underwriter has submitted the following statement 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. Information Subject to Change. The information and expressions of opinions herein are subject to change without notice and neither delivery of this Official Statement nor any sale made hereunder shall, under any circumstances, create any implication that there has been no change in the affairs of the School District, the Community Facilities District or any other entity described or referenced herein since the date hereof. All summaries of the documents referred to in this Official Statement are made subject to the provisions of such documents, respectively, and do not purport to be complete statements of any or all of such provisions. Stabilization of Prices. In connection with this offering, the Underwriter may overallot or effect transactions which stabilize or maintain the market price of the Bonds at a level above that which might otherwise prevail in the open market. Such stabilizing, if commenced, may be discontinued at any time. The Underwriter may offer and sell the Bonds to certain dealers and others at prices lower than the public offering prices set forth on the inside cover page hereof and said public offering prices may be changed from time to time by the Underwriter. Bond Insurer. Build America Mutual Assurance Company ( BAM ) makes no representation regarding the Insured Bonds or the advisability of investing in the Insured Bonds. In addition, BAM has not independently verified, makes no representation regarding, and does not accept responsibility for the accuracy or completeness of this Official Statement or any information or disclosure contained herein, or omitted herefrom, other than with respect to the accuracy of the information regarding BAM, supplied by BAM and presented under the heading BOND INSURANCE and APPENDIX G SPECIMEN MUNICIPAL BOND INSURANCE POLICY. THE BONDS HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, IN RELIANCE UPON AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS CONTAINED IN SUCH ACT. THE BONDS HAVE NOT BEEN REGISTERED OR QUALIFIED UNDER THE SECURITIES LAWS OF ANY STATE.

5 TABLE OF CONTENTS INTRODUCTION...1 General...1 The School District...1 The Community Facilities District...1 Special Tax Requirement...2 Municipal Bond Insurance...3 Purpose of the Bonds...3 Sources of Payment for the Bonds...3 Tax Exemption...5 Risk Factors Associated with Purchasing the Bonds...5 Forward Looking Statements...5 Professionals Involved in the Offering...6 Other Information...6 CONTINUING DISCLOSURE...7 THE FINANCING PLAN...8 ESTIMATED SOURCES AND USES OF FUNDS...9 THE BONDS...10 Authority for Issuance...10 General Provisions...10 Debt Service Schedule...11 Redemption...11 Registration, Transfer and Exchange...13 Book-Entry and DTC...14 SECURITY FOR THE BONDS...14 General...14 Special Taxes...15 Rate and Method...16 Proceeds of Foreclosure Sales...17 Special Tax Fund...19 Bond Fund...21 Reserve Fund...21 Prepaid Special Taxes...24 Administrative Expense Fund...24 Residual Fund...24 Investment of Moneys in Funds...25 The Teeter Plan...25 Payment of Rebate Obligation...26 Additional Bonds for Refunding Purposes Only...27 BOND INSURANCE...27 Bond Insurance Policy...27 Build America Mutual Assurance Company...27 COMMUNITY FACILITIES DISTRICT NO General Information...29 Summary of Proceedings i- Special Taxes Developed Property...31 Special Tax Levy in Relation to Scheduled Debt Service...31 Concentration of Special Tax Obligations..34 Direct and Overlapping Debt...38 Overlapping Assessment and Community Facilities Districts...39 Other Potential Debt...40 Historical and Current Assessed Values; Value to Lien Ratios...41 Estimated Overall Tax Rates...43 Delinquency History; School District Community Facilities District Special Tax Delinquencies...44 BONDOWNERS RISKS Risks of Real Estate Secured Investments Generally...45 Property Tax Delinquencies...45 Economic Uncertainty...46 Concentration of Ownership...46 Special Taxes Are Not Personal Obligations...46 Assessed Values; Value-to-Lien Ratios...46 The Bonds Are Limited Obligations of the Community Facilities District...47 Burden of Parity Liens, Taxes and Other Special Assessments on the Taxable Property...47 Disclosure to Future Purchasers...48 Insufficiency of the Special Tax...48 Exempt Properties...49 Depletion of Reserve Fund...50 Potential Delay and Limitations in Foreclosure Proceedings...51 Bankruptcy and Foreclosure Delay...52 Payments by FDIC and Other Federal Agencies...54 Factors Affecting Parcel Values and Aggregate Value...55 No Acceleration Provisions...57 Teeter Plan Termination...57 Community Facilities District Formation...57 Billing of Special Taxes...57 Inability to Collect Special Taxes...58 Right to Vote on Taxes Act...58 Ballot Initiatives and Legislative Measures 60 Limited Secondary Market...60 Loss of Tax Exemption...61 IRS Audit of Tax-Exempt Bond Issues...61

6 Impact of Legislative Proposals, Clarifications of the Code and Court Decisions on Tax Exemption...61 Backup Withholding...62 Limitations on Remedies...62 LEGAL MATTERS...62 Legal Opinion...62 Tax Exemption...62 Absence of Litigation...64 No General Obligation of School District or Community Facilities District...65 RATINGS UNDERWRITING PROFESSIONAL FEES MISCELLANEOUS APPENDIX A GENERAL INFORMATION ABOUT THE TUSTIN UNIFIED SCHOOL DISTRICT...A-1 APPENDIX B SPECIAL TAX FORMULA... B-1 APPENDIX C SUMMARY OF CERTAIN PROVISIONS OF THE FISCAL AGENT AGREEMENT...C-1 APPENDIX D FORM OF COMMUNITY FACILITIES DISTRICT CONTINUING DISCLOSURE AGREEMENT...D-1 APPENDIX E FORMS OF OPINIONS OF BOND COUNSEL... E-1 APPENDIX F BOOK-ENTRY SYSTEM... F-1 APPENDIX G SPECIMEN MUNICIPAL BOND INSURANCE POLICY...G-1 -ii-

7 OFFICIAL STATEMENT $92,455,000 COMMUNITY FACILITIES DISTRICT NO OF THE TUSTIN UNIFIED SCHOOL DISTRICT Comprised of $82,820, Special Tax Refunding Bonds, Series A (Federally Tax-Exempt) $9,635, Special Tax Refunding Bonds, Series B (Federally Taxable) INTRODUCTION 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 offering of the Bonds to potential investors is made only by means of the entire Official Statement. General This Official Statement, including the cover page and appendices hereto, is provided to furnish information regarding the Community Facilities District No of the Tustin Unified School District 2015 Special Tax Refunding Bonds, Series A (Federally Tax-Exempt) (the 2015 Series A Bonds ) and 2015 Special Tax Refunding Bonds, Series B (Federally Taxable) (the 2015 Series B Bonds and together with the 2015 Series A Bonds, the Bonds, each a Series of Bonds ). The Bonds are issued pursuant to the Act (as defined below) and the Fiscal Agent Agreement, dated as of June 1, 2015 (the Fiscal Agent Agreement ), by and between Community Facilities District No of the Tustin Unified School District (the Community Facilities District ) and U.S. Bank National Association, as fiscal agent (the Fiscal Agent ). See THE BONDS Authority for Issuance herein. The Community Facilities District may issue additional bonds payable on a parity with the Bonds for refunding purposes only. The School District The Tustin Unified School District (the School District ) was established July 1, The School District currently encompasses approximately 24 square miles in the central portion of the County of Orange (the County ) and includes the City of Tustin, easterly portions of the City of Santa Ana, the Foothills portion of the unincorporated area of the County (North Tustin) and portions of the City of Irvine (West Irvine, Northpark and Orchard Hills). The School District currently operates eighteen (18) elementary schools, one (1) grades 5-8 middle school, five (5) grades 6-8 middle schools, three (3) comprehensive high schools, a continuation high school and alternative and adult education programs. The School District s projected average daily attendance for Fiscal Year is approximately 23,346. The Community Facilities District The Community Facilities District was formed and established by the School District on April 14, 1997, pursuant to the Mello-Roos Community Facilities Act of 1982, as amended (Section et seq. of the California Government Code (the Act ), following a public hearing and subsequent landowner election at which the qualified electors of the Community Facilities District, by more than a two-thirds vote, authorized the Community Facilities District to levy special taxes and to incur a bonded 1

8 indebtedness of the Community Facilities District to finance the acquisition of certain school improvements (the Facilities ) of the School District. The qualified electors authorized bonded indebtedness in the aggregate not-to-exceed amount of $110,000,000 and approved the levy of special taxes (the Special Taxes ). On April 27, 1998, the Community Facilities District annexed the Annexation No. 1 Territory (herein defined) to the Community Facilities District and called a special election. At the special election, the electors within the boundaries of Annexation No. 1 Territory authorized the Community Facilities District to incur bonded indebtedness to finance the acquisition, design, construction, lease equipping and/or improvement of educational sites and facilities and approve the levy of a special tax pursuant to the Special Tax Formula. Once duly established, a community facilities district is a legally constituted governmental entity established for the purpose of financing specific facilities and services within defined boundaries. Subject to approval by a two-thirds vote of the qualified voters within a community facilities and compliance with the provisions of the Act, a community facilities district may issue bonds and may levy and collect special taxes to repay such bonded indebtedness, including interest thereon. On August 29, 2002, the Community Facilities District issued its Community Facilities District No of the Tustin Unified School District 2002 Special Tax Bonds, Series A (Senior Lien Bonds) (the 2002 Series A Bonds ) in the aggregate principal amount of $87,697, and its Series B (Junior Lien Bonds) (the 2002 Series B Bonds and together with the 2002 Series A Bonds, the Prior Bonds ), in the aggregate principal amount of $14,090,000. Proceeds of the Prior Bonds were used (i) to pay outstanding obligations of the Community Facilities District, (ii) to finance school facilities and (iii) to pay costs of issuance of the Prior Bonds. As of April 1, 2015, $76,530,000 aggregate principal amount of current interest 2002 Series A Bonds were outstanding, $11,445,000 aggregate maturity amount of capital appreciation 2002 Series A Bonds were outstanding and $12,760,000 aggregate principal amount of the 2002 Series B Bonds were outstanding. The remaining outstanding 2002 Series A Bonds capital appreciation bonds will also be refunded but not paid until their scheduled maturities on September 1, 2015, through September 1, 2021, inclusive (with a final maturity value of $10,130,000). The Community Facilities District is approximately 921 net acres located in the central part of the County. The Community Facilities District lies within the geographic boundaries of the City of Irvine and consists of approximately 4,620 individual parcels of Developed Property (as defined in the Special Tax Formula), with approximately 7,764 residential dwelling units comprised of 3,080 single family detached homes, 1,528 attached homes and 3,156 apartment units. The Community Facilities District has been completely built out for many years. See COMMUNITY FACILITIES DISTRICT NO for additional information regarding development within the Community Facilities District and APPENDIX B SPECIAL TAX FORMULA for a description of the Special Tax Formula Rate and Method of Apportionment of Special Tax for Community Facilities District No of Tustin Unified School District (the Special Tax Formula or Rate and Method ). Special Tax Requirement Pursuant to the Special Tax Formula, the Board shall levy the Special Tax Proportionately (as defined in the Special Tax Formula) on each Assessor s Parcel of Residential Developed Property (as defined in the Special Tax Formula), in an amount not in excess of the applicable Maximum Special Tax (as defined in the Special Tax Formula) for that Fiscal Year, such that the aggregate amount so levied equals, but does not exceed, the then applicable Debt Service Requirement (as defined herein). In the Fiscal Agent Agreement, the Community Facilities District covenants to fix and levy the amount of Special Taxes within the Community Facilities District required for the payment of principal of and interest on Outstanding Bonds becoming due and payable during the ensuing year, including any necessary replenishment or expenditure of the Reserve Fund (as defined in the Fiscal Agent Agreement) 2

9 for the Bonds, an amount equal to the Administrative Expense Requirement (as defined in the Fiscal Agent Agreement and as described below) (including amounts to pay insurance policy costs with respect to the Reserve Policy (as defined below), if any) and any additional amounts necessary for expenses incurred in connection with administration or enforcement of delinquent Special Taxes. Municipal Bond Insurance The scheduled payment of principal of and interest on the 2015 Series A Bonds maturing on September 1 of the years 2032 through 2038, inclusive, with CUSIP Nos GY6 through GL4 (collectively, the Insured 2015 Series A Bonds ) and the scheduled payment of principal of and interest on the 2015 Series B Bonds (collectively, with the Insured 2015 Series A Bonds, the Insured Bonds ), when due will be guaranteed under a municipal bond insurance policy to be issued concurrently with the delivery of the Insured Bonds by Build America Mutual Assurance Company ( BAM or the Bond Insurer ). See BOND INSURANCE below. Purpose of the Bonds The Bonds are being issued (i) to defease and refund the Prior Bonds, (ii) to fund the 2015 Series A Reserve Account in an amount equal to 50% of the Reserve Requirement (as defined in the Fiscal Agent Agreement) applicable to Series A Bonds and the Series B Reserve Account of the Reserve Fund in an amount equal to 50% of the Reserve Requirement applicable to the 2015 Series B Bonds and to provide the Reserve Policy for the Series A Bonds and the Series B Bonds in an amount equal to 50% of the applicable Reserve Requirement applicable to the 2015 Series A Bonds and the 2015 Series B Bonds, respectively, and (iii) to pay certain costs of issuing the Bonds, including the premiums for the Policy and the Reserve Policy. See ESTIMATED SOURCES AND USES OF FUNDS herein. Sources of Payment for the Bonds The Bonds are secured by and payable from a first pledge of Net Taxes, which is defined within the Fiscal Agent Agreement as Gross Taxes less Administrative Expenses up to the Administrative Expense Requirement of $80,000 in Fiscal Year , escalating at 2.00% each Fiscal Year thereafter. Gross Taxes are defined in the Fiscal Agent Agreement as the amount of all Special Taxes collected within the Community Facilities District as set out in the Rate and Method and proceeds from the sale of property collected pursuant to the foreclosure provisions of the Fiscal Agent Agreement for the delinquency of such Special Taxes. Administrative Expenses are defined as administrative costs with respect to the calculation and collection of the Special Taxes and any other costs related to the Bonds and the Fiscal Agent Agreement, including the fees and expenses of the Fiscal Agent and any persons, parties, consultants or attorneys employed pursuant to the Fiscal Agent Agreement, costs and legal expenses of foreclosure actions undertaken pursuant to the terms of the Fiscal Agent Agreement to the extent not recovered pursuant to statutory authorization, costs otherwise incurred by the Community Facilities District in order to carry out the authorized purposes of the Bonds, including statutory disclosure, for the Community Facilities District Continuing Disclosure obligations and reporting requirements and rebate compliance and for administrative and legal costs as set out in the Special Tax Formula. Pursuant to the Act, the Special Tax Formula, the Resolution of Formation (as defined below), Resolution and Ordinance No , adopted by the Legislative Body of the Community Facilities District on May 27, 1997, providing for the levy of the Special Taxes and the voter approvals obtained at the April 25, 1997, special election held within the Community Facilities District and the Fiscal Agent Agreement, and proceedings in 1998 relating to the annexation of territory to the Community Facilities District, so long as the Bonds are outstanding, the Community Facilities District will, subject to the maximum annual Special Tax provided for in the Special Tax Formula, annually fix and levy the amount of Special Taxes within the Community Facilities District required for the payment of principal of and 3

10 interest on outstanding Bonds becoming due and payable during the ensuing year, including any necessary replenishment or expenditure of the Reserve Fund for the Bonds, an amount equal to the Administrative Expense Requirement and any additional amounts necessary for expenses incurred in connection with administration or enforcement of delinquent Special Taxes. See SECURITY FOR THE BONDS Special Taxes herein. Pursuant to the Act, all lands owned by a public entity within the Community Facilities District are exempt from the levy of the Special Tax, unless the public entity acquires the property after the recordation of the Notice of Special Tax Lien, in which case the public entity will be obligated to pay the Special Tax, subject to certain limitations. The Special Tax Formula provides that the Special Tax shall not be levied on parks, public properties classified as Undeveloped Property, utility properties belonging to public or private utilities, and properties exempt from general ad valorem property taxes. See SECURITY FOR THE BONDS Rate and Method and BONDOWNERS RISKS Exempt Properties. Each Series of the Bonds are further secured by a first pledge of all moneys deposited in corresponding Reserve Account in the Reserve Fund and by the Reserve Policy. See SECURITY FOR THE BONDS. A Reserve Account in the Reserve Fund will be established out of the proceeds of the sale of the Bonds in an amount equal to 50% of the Reserve Requirement applicable to the 2015 Series A Bonds and the 2015 Series B Bonds, respectively, and the Community Facilities District has acquired the Reserve Policy in an amount equal to 50% of the Reserve Requirement applicable to the 2015 Series A Bonds and the 2015 Series B Bonds, respectively, such that there is an aggregate amount available equal to the 2015 Series A Bonds Reserve Requirement and the 2015 Series B Bonds Reserve Requirement. The Fiscal Agent Agreement defines the Reserve Requirement, with respect to each Series of Bonds as an amount, as of any date of calculation, equal to the least of (i) 10% of the original principal amount of the corresponding Series of Bonds, less original issue discount, if any, plus original issue premium, if any, (ii) Maximum Annual Debt Service (as defined in the Fiscal Agent Agreement) on the applicable Series of Bonds, or (iii) 125% of the average annual debt service on the corresponding Series of Bonds. The ability of the Board, in its capacity as Legislative Body of the Community Facilities District, to increase the Annual Special Taxes levied to replenish the Reserve Fund is subject to the maximum annual amount of Annual Special Taxes authorized by the qualified voters of the Community Facilities District. The Community Facilities District is also subject to Section of the Act which imposes a limitation on the increase in the amount of the Special Tax levied against any parcel used for private residential purposes as a consequence of delinquency or default by the owner of any other parcel or parcels with the Community Facilities District. The moneys in each Reserve Account of the Reserve Fund will only be used for payment of principal of, interest and any redemption premium on the corresponding Series of Bonds and, at the direction of the Community Facilities District, for payment of rebate obligations related to the Bonds. See SECURITY FOR THE BONDS Reserve Fund. The Community Facilities District has also covenanted in the Fiscal Agent Agreement to cause foreclosure proceedings to be commenced and prosecuted against certain parcels with delinquent installments of the Special Taxes. For a more detailed description of the foreclosure covenant, see SECURITY FOR THE BONDS Proceeds of Foreclosure Sales. THE BONDS, THE INTEREST THEREON, AND ANY PREMIUMS PAYABLE ON THE REDEMPTION OF ANY OF THE BONDS, ARE NOT AN INDEBTEDNESS OF THE SCHOOL DISTRICT, THE STATE OF CALIFORNIA (THE STATE ) OR ANY OF ITS POLITICAL SUBDIVISIONS, AND NEITHER THE SCHOOL DISTRICT, THE COMMUNITY FACILITIES DISTRICT (EXCEPT TO THE LIMITED EXTENT DESCRIBED HEREIN), THE STATE NOR ANY OF ITS POLITICAL SUBDIVISIONS IS LIABLE FOR THE BONDS. NEITHER THE FAITH AND CREDIT NOR THE TAXING POWER OF THE SCHOOL DISTRICT, THE COMMUNITY FACILITIES DISTRICT (EXCEPT TO THE LIMITED EXTENT DESCRIBED HEREIN) OR THE STATE OR ANY POLITICAL SUBDIVISION THEREOF IS PLEDGED TO 4

11 THE PAYMENT OF THE BONDS. THE BONDS ARE NOT A GENERAL OBLIGATION OF THE COMMUNITY FACILITIES DISTRICT, BUT ARE LIMITED OBLIGATIONS OF THE COMMUNITY FACILITIES DISTRICT PAYABLE SOLELY FROM THE SPECIAL TAXES LEVIED IN THE COMMUNITY FACILITIES DISTRICT, AS MORE FULLY DESCRIBED HEREIN. Tax Exemption In the opinion of Bowie, Arneson, Wiles & Giannone, Newport Beach, California, Bond Counsel ( Bond Counsel ), subject, however to certain qualifications described herein, under 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 2015 Series A Bonds is excluded from gross income for federal income tax purposes under Section 103 of the Internal Revenue Code of 1986, as amended (the Code ). In the further opinion of Bond Counsel, interest on the 2015 Series A Bonds is not an item of tax preference for purposes of the federal alternative minimum taxes imposed on individuals and corporations, although Bond Counsel observes that such interest is included as an adjustment in the calculation of federal corporate alternative minimum taxable liabilities. In the further opinion of Bond Counsel, interest on the Bonds is exempt from State of California personal income taxes. Bond Counsel expresses no other opinion regarding or concerning any other tax consequences related to the ownership or disposition of, or the accrual or receipt of interest on, the Bonds. See LEGAL MATTERS Tax Exemption herein. Risk Factors Associated with Purchasing the Bonds Investment in the Bonds involves risks that may not be appropriate for some investors. See the section of this Official Statement entitled BONDOWNERS RISKS for a discussion of certain risk factors which should be considered, in addition to the other matters set forth herein, in considering the investment quality of the Bonds. Forward Looking Statements Certain statements included or incorporated by reference in this Official Statement constitute forward-looking statements within the meaning of the United States Private Securities Litigation Reform Act of 1995, Section 21E of the United States Securities Exchange Act of 1934, as amended, and Section 27A of the United States Securities Act of 1933, as amended. Such statements are generally identifiable by the terminology used such as plan, expect, estimate, project, budget or similar words. Such forward-looking statements include, but are not limited to certain statements contained in the information under the caption COMMUNITY FACILITIES DISTRICT NO herein. THE ACHIEVEMENT OF CERTAIN RESULTS OR OTHER EXPECTATIONS CONTAINED IN SUCH FORWARD-LOOKING STATEMENTS INVOLVE KNOWN AND UNKNOWN RISKS, UNCERTAINTIES AND OTHER FACTORS WHICH MAY CAUSE ACTUAL RESULTS, PERFORMANCE OR ACHIEVEMENTS DESCRIBED TO BE MATERIALLY DIFFERENT FROM ANY FUTURE RESULTS, PERFORMANCE OR ACHIEVEMENTS EXPRESSED OR IMPLIED BY SUCH FORWARD-LOOKING STATEMENTS. THE COMMUNITY FACILITIES DISTRICT DOES NOT PLAN TO ISSUE ANY UPDATES OR REVISIONS TO THE FORWARD-LOOKING STATEMENTS SET FORTH IN THIS OFFICIAL STATEMENT. 5

12 Professionals Involved in the Offering U.S. Bank National Association, Los Angeles, California, will serve as the fiscal agent, escrow agent, registrar, authentication and transfer agent for the Bonds and will perform the functions required of it under the Fiscal Agent Agreement for the payment of the principal of and interest and any premium on the Bonds and all activities related to the redemption of the Bonds. Bowie, Arneson, Wiles & Giannone, Newport Beach, California, is serving as Bond Counsel to the Community Facilities District and as general counsel to the School District. McFarlin & Anderson LLP, Laguna Hills, California, is acting as Disclosure Counsel ( Disclosure Counsel ). From time to time, Disclosure Counsel represents the Underwriter on matters unrelated to the Bonds. RBC Capital Markets, LLC, Los Angeles, California, is acting as Financial Advisor. Piper Jaffray & Co., Laguna Beach, California, is acting as Underwriter in connection with the issuance and delivery of the Bonds. Nossaman LLP, Irvine, California, is acting as Underwriter s Counsel. Special District Financing & Administration, LLC, Escondido, California, is acting as special tax consultant, CFD administrator and dissemination agent to the Community Facilities District. Grant Thornton LLP, Minneapolis, Minnesota, is acting as Verification Agent. Payment of the fees and expenses of Bond Counsel, District Counsel, Disclosure Counsel, the Financial Advisor, the Underwriter, Underwriter s Counsel, the Fiscal Agent and the Escrow Agent is contingent upon the sale and delivery of the Bonds. Other Information This Official Statement speaks only as of its date, and the information contained herein is subject to change. Brief descriptions of the Bonds, certain sections of the Fiscal Agent Agreement, security for the Bonds, special risk factors, the Community Facilities District, the School District, various property owners and 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 Bonds, the Fiscal Agent Agreement, and other resolutions and documents are qualified in their entirety by reference to the forms thereof and the information with respect thereto included in the Bonds, the Fiscal Agent Agreement, such resolutions and other documents. All such descriptions are further qualified in their entirety by reference to laws and to principles of equity relating to or affecting generally the enforcement of creditors rights. Copies of such documents may be obtained from the Office of the Clerk of the Board of Education of the Tustin Unified School District, 300 South C Street, Tustin, California

13 CONTINUING DISCLOSURE The Community Facilities District. The Community Facilities District has covenanted in the Community Facilities District Continuing Disclosure Agreement, the form of which is set forth in APPENDIX D FORM OF COMMUNITY FACILITIES DISTRICT CONTINUING DISCLOSURE AGREEMENT (the Community Facilities District Continuing Disclosure Agreement ), for the benefit of owners and beneficial owners of the Bonds, to provide certain financial information and operating data relating to the Community Facilities District and the Bonds by not later than March 1 in each year, commencing on March 1, 2016 (the Community Facilities District Annual Report ), and to provide notices upon the occurrence of certain listed events. The Annual Report will be filed by the Community Facilities District with the Municipal Securities Rulemaking Board ( MSRB ) through the Electronic Municipal Market Access System ( EMMA ) in an electronic format and accompanied by identifying information as prescribed by the MSRB. Any notice of a significant event will be filed by the Community Facilities District with the MSRB through the EMMA System. The specific nature of the information to be made available and to be contained in the notices of significant events is set forth in the Continuing Disclosure Agreement. See APPENDIX D FORM OF COMMUNITY FACILITIES DISTRICT CONTINUING DISCLOSURE AGREEMENT. These covenants have been made in order to assist the Underwriter in complying with S.E.C. Rule 15c2-12(b)(5) (the Rule ). Prior Disclosure Compliance by the Community Facilities District. The Community Facilities District is the obligated person under the Community Facilities District Continuing Disclosure Agreement. Since May 1, 2010, the Community Facilities District has been, and currently is, in material compliance with the annual report and material event notices required in its continuing disclosure undertakings provided in connection with the Prior Bonds. Prior Disclosure Compliance by the School District and Other Community Facilities Districts formed by the School District. A review of compliance with disclosure undertakings for filings required since May 1, 2010, indicates that the School District or community facilities districts formed by the School District, other than the Community Facilities District, may not have fully complied with their prior continuing disclosure undertakings under the Rule. Identification of the below described events does not constitute a representation by the School District or any community facilities district formed by the School District that any such late filings were material or that the School District or that community facilities districts formed by the School District, other than the Community Facilities District, is an obligated person under the Rule with respect to the Bonds. For example, a notice of a rating change in 2013 with respect to School Facilities Improvement District No of the Tustin Unified School District General Obligation Bonds Series B, Series 2006 Refunding, Series C and Series D, and School Facilities Improvement District No of the Tustin Unified School District, Series A occurred approximately 73 days after the rating changes and notice of rating changes with the respect to Community Facilities District No of the Tustin Unified School District, Series 2010 Special Tax Bonds (Adjustable Rate Bonds) occurred approximately six months after such rating change occurred. 7

14 THE FINANCING PLAN The Bonds are being issued for the primary purpose of providing funds to the Community Facilities District to defease and refund (i) on a current basis (a) the portion of the 2002 Series A Bonds issued as current interest bonds (currently outstanding in the aggregate principal amount of $76,530,000), (b) the September 1, 2015, 2002 Series A Bonds capital appreciation bond in the maturity amount of $1,315,000 and (c) all of the 2002 Series B Bonds (currently outstanding in the aggregate principal amount of $12,760,000)(the 2002 Series A Bonds and the 2002 Series B Bonds referred to in clauses (i)(a), (b) and (c), are referred to as the Currently Refunded Prior Bonds ) and (ii) on an advance basis the remaining outstanding 2002 Series A Bonds capital appreciation bonds which will be paid on their scheduled maturities on September 1, 2016, through September 1, 2021, inclusive (with an aggregate final maturity value of $10,130,000 with respect to the portion of the 2002 Series A Bonds which are capital appreciation bonds, such bonds referred to in clause (ii) being referred to as the Advance Refunded Bonds ). Refunding Plan. The net proceeds of the Bonds will be transferred to U.S. Bank National Association (the Escrow Agent ) for deposit in an escrow fund to be established under an Escrow Agreement, dated as of the Closing Date (the Escrow Agreement ), by and between the School District and the Escrow Agent, with separate accounts with respect to the Currently Refunded Prior Bonds being redeemed on September 1, 2015, and the Advance Refunded Prior Bonds being paid on their scheduled maturities on September 1, 2016, and later. The Escrow Agent will invest the net proceeds of the Bonds in the Escrow Investments specified under the Escrow Agreement that mature no later than September 1, The Escrow Agent will invest the net proceeds of the Bonds in certain federal securities as specified in the Escrow Agreement. These funds will be sufficient to pay (i) the principal of and interest on the Refunded Bonds being paid on September 1, 2015, (ii) the maturity value of the 2002 Series A Bonds which are capital appreciation bonds maturing on September 1, 2015, (iii) the redemption price of the Prior Bonds being redeemed on September 1, 2015, together with interest due thereon and (iv) the maturity value of the 2002 Series A Bonds which are capital appreciation bonds and which are paid at maturity from September 1, 2016, through September 1, 2021, inclusive. Sufficiency of the deposits in the Escrow Fund for those purposes will be verified by Grant Thornton LLP, Minneapolis, Minnesota. Assuming the accuracy of the Verification Agent s computations, as a result of the deposit and application of funds as provided in the Escrow Agreement, the Prior Bonds will be defeased under the provisions of the fiscal agent agreement under which they were issued, as of the date of issuance of the Bonds. Other Uses of Bonds Proceeds. The remaining proceeds of the Bonds will be used to fund a Reserve Fund (to the extent applicable Reserve Requirement is not satisfied with a Reserve Policy) and pay certain costs of issuance of the Bonds, including, but not limited to, the fees and expenses of Bond Counsel, District Counsel, Disclosure Counsel, rating fees, Policy premium and Reserve Policy premium, the cost of printing the preliminary and final Official Statements, fees and expenses of the Fiscal Agent, the fees of the Special Tax Consultant and Financial Advisor, the Verification Agent and other related costs of issuance. 8

15 ESTIMATED SOURCES AND USES OF FUNDS The proceeds from the sale of the Bonds and funds relating to the Prior Bonds will be deposited into the following respective accounts and funds established by the Community Facilities District under the Fiscal Agent Agreement and the Escrow Agreement, as follows: Sources: 2015 Series A Bonds 2015 Series B Bonds Total Principal Amount of Bonds $82,820, $9,635, $92,455, Plus: Net Original Issue Premium 8,519, , ,749, Less: Underwriter s Discount 414, , , Funds relating to Prior Bonds 6,357, , ,629, Total Sources $97,282, $10,088, $107,371, Uses: Deposit into Accounts in the Escrow Fund $92,870, $9,566, $102,436, Deposit into the Reserve Fund (1) 3,518, , ,928, Deposit into the Costs of Issuance Fund (2) 893, , ,006, Total Uses $97,282, $10,088, $107,371, (1) (2) Equal to 50% of the Reserve Requirement with respect to each Series of Bonds as of the date of delivery of the Bonds. 50% of the Reserve Requirement with respect to each Series of Bonds being satisfied through the acquisition of the Reserve Policy. Includes, among other things, the fees and expenses of Bond Counsel, District Counsel, Disclosure Counsel, rating fees, Policy premium and Reserve Policy premium, the cost of printing the preliminary and final Official Statements, fees and expenses of the Fiscal Agent, the fees of the Special Tax Consultant and Financial Advisor, the Verification Agent and other related costs of issuance. 9

16 THE BONDS Authority for Issuance The Bonds are authorized to be issued in accordance with the Act and the Fiscal Agent Agreement. General Provisions The Bonds will be dated their date of delivery and will bear interest at the rates per annum set forth on the inside cover page hereof, payable semi-annually on each March 1 and September 1, commencing on September 1, 2015 (each, an Interest Payment Date ), and will mature in the amounts and on the dates set forth on the inside cover page hereof. The Bonds will be issued in fully registered form in denominations of $5,000 each or any integral multiple thereof. When issued, the Bonds will be registered in the name of Cede & Co., as nominee of DTC. See APPENDIX F BOOK-ENTRY SYSTEM. So long as the Bonds are in book-entry only form, Bond Owners or Owners means DTC and not the Beneficial Owners of the Bonds. The Bonds will bear interest at the rates set forth on the inside cover hereof payable on the Interest Payment Dates in each year. Interest will be computed on the basis of a 360-day year comprised of twelve 30-day months. Each Bond will bear interest from the Interest Payment Date next preceding the date of authentication unless (i) such date of authentication is an Interest Payment Date, in which event interest shall be payable from such date of authentication, (ii) the date of authentication is after a Record Date (as defined below) but prior to the immediately succeeding Interest Payment Date, in which event interest will be payable from such Interest Payment Date, or (iii) the date of authentication is prior to the close of business on the first Record Date, in which event interest will be payable from the dated date of such Bond; provided, however, that if at the time of authentication of a Bond, interest is in default, interest on that Bond shall be payable from the last date on which the interest has been paid or made available for payment, or if no interest has been paid or made available for payment, interest shall be payable from the dated date of such Bond. Record Date means the 15 th day of the calendar month preceding an Interest Payment Date whether or not such day is a business day. Interest on the Bonds shall be paid by check of the Fiscal Agent mailed to the registered owners of the Bonds (the Bondowners or Owners ), by first-class mail at his or her address as it appears on the Bond Register as of the Record Date; provided that, in the case of an Owner of $1,000,000 or more in aggregate principal amount of the Bonds, upon the Fiscal Agent s receipt of written request of such Owner prior to the Record Date accompanied by wire transfer instructions, such interest shall be paid on the Interest Payment Date in immediately available funds by wire transfer to an account in the United States of America. The principal of the Bonds and any premium due upon redemption of the Bonds are payable by check in lawful money of the United States of America upon presentation of the Bonds at the principal corporate trust office of the Fiscal Agent (currently in Los Angeles, California). 10

17 Debt Service Schedule The following table presents the annual debt service on the each Series of Bonds, assuming that there are no optional redemptions. BONDS Year Ending September 1 Principal Interest 2015 Series A Bonds 2015 Series B Bonds Total 2015 Series A Bonds Debt Service Principal Interest Total 2015 Series B Bonds Debt Service Aggregate Bonds Debt Service 2015 $2,820,000 $963,600 $3,783,600 $74, $74, $3,858, ,885,600 3,885,600 $1,255, , ,561, ,447, ,885,600 3,885,600 1,365, , ,646, ,532, ,885,600 3,885,600 1,515, , ,762, ,647, ,885,600 3,885,600 1,690, , ,899, ,785, ,885,600 3,885,600 1,885, , ,043, ,929, ,000 3,885,600 4,085,600 1,925,000 64, ,989, ,075, ,390,000 3,879,600 6,269,600 6,269, ,710,000 3,760,100 6,470,100 6,470, ,010,000 3,624,600 6,634,600 6,634, ,270,000 3,474,100 6,744,100 6,744, ,585,000 3,310,600 6,895,600 6,895, ,915,000 3,131,350 7,046,350 7,046, ,265,000 2,935,600 7,200,600 7,200, ,640,000 2,722,350 7,362,350 7,362, ,035,000 2,490,350 7,525,350 7,525, ,450,000 2,238,600 7,688,600 7,688, ,890,000 1,966,100 7,856,100 7,856, ,945,000 1,671,600 6,616,600 6,616, ,340,000 1,424,350 6,764,350 6,764, ,700,000 1,210,750 6,910,750 6,910, ,085, ,750 7,067,750 7,067, ,540, ,500 7,218,500 7,218, ,030, ,500 7,381,500 7,381, Total $82,820,000 $64,130,000 $146,950,000 $9,635,000 $1,342, $10,977, $157,927, Redemption Optional Redemption of 2015 Series A Bonds. The 2015 Series A Bonds maturing on or after September 1, 2026, may be redeemed prior to maturity at the option of the Community Facilities District on any date from any source of available funds, on any date on or after September 1, 2025, in whole, or in part in the order of maturity as selected by the Community Facilities District and by lot within a maturity, at a redemption price equal to the principal amount thereof, without premium, together with accrued interest to the date set for redemption. The 2015 Series B Bonds are not subject to optional redemption prior to maturity. Mandatory Redemption from Special Tax Prepayments. The 2015 Series A Bonds are subject to mandatory redemption, in whole, or in part, in the order of maturity selected by the Community Facilities District and by lot within a maturity, on any Interest Payment Date from and to the extent of any prepayment of special taxes at the following redemption prices (expressed as percentages of principal amount of the 2015 Series A Bonds to be redeemed), together with accrued interest to the date of redemption: 11

18 Redemption Dates Redemption Prices Any Interest Payment Date through September 1, % March 1, 2023 and September 1, March 1, 2024 and September 1, March 1, 2025 and any Interest Payment Date thereafter 100 The 2015 Series B Bonds are not subject to mandatory redemption from Special Tax prepayments. Mandatory Sinking Fund Redemption. The Outstanding Series A Term Bonds maturing on September 1, 2038, are subject to mandatory redemption before maturity on September 1, 2036, and on each September 1 thereafter to and including September 1, Such Series A Term Bonds shall be redeemed from Mandatory Sinking Payments that have been deposited on each September 1, commencing September 1, 2036, into the Series A Sinking Fund Redemption Account of the Redemption Fund pursuant to the Fiscal Agent Agreement, plus accrued interest to the redemption date, without premium, as follows: BONDS MATURING SEPTEMBER 1, 2038 Sinking Fund Redemption Date (September 1) Sinking Fund Payments 2036 $6,085, ,540, (maturity) 7,030,000 Purchase In Lieu of Redemption. In lieu of, or partially in lieu of, any optional redemption or mandatory sinking fund redemption, moneys deposited in an account of the Redemption Fund (as defined in the Fiscal Agent Agreement) may be used to purchase the Outstanding Bonds that were to be redeemed with such funds. Purchases of Outstanding Bonds may be made by the Community Facilities District prior to the selection of Bonds for redemption by the Fiscal Agent, at public or private sale as and when and at such prices as the Community Facilities District may in its discretion determine but only at prices (including brokerage or other expenses) not more than par plus accrued interest, and in the case of funds in the Optional Redemption Account, the applicable premium, if any, to be paid in connection with the proposed redemption. Notice of Redemption. The Fiscal Agent shall give notice of any redemption by first-class mail, postage prepaid, at least 30 days but no more than 90 days prior to the redemption date, to the respective registered Owners of any Bonds designated for redemption, at their addresses appearing on the Bond registration books of the Fiscal Agent. The actual receipt by the owner of any Bond of notice of such redemption shall not be a condition precedent to such redemption, and neither failure to receive any such notice nor any defect therein shall affect the validity of the proceedings for the redemption of such Bond, or the cessation of interest on the redemption date. Such notice shall (i) specify the CUSIP numbers and serial numbers of the Bonds selected for redemption, except that where all the Bonds or all Bonds of a single maturity are subject to redemption, the serial numbers thereof need not be specified; (ii) state the original issue date, the interest rate and the maturity date of the Bond selected for redemption; (iii) state the date fixed for redemption; (iv) state the redemption price; (v) state the place or places where the Bonds are to be redeemed; and (vi) in the case of Bonds to be redeemed only in part, state the portion of such Bond which is to be redeemed. 12

19 Partial Redemption. If less than all of the outstanding Bonds are to be redeemed, the Community Facilities District shall direct the Fiscal Agent as to which maturities of Bonds shall be redeemed and if not so directed, the Fiscal Agent shall select the Bonds to be redeemed pro rata among maturities and by lot within a single maturity, and in the case of mandatory redemption from sinking fund payments, by lot within the maturity being called for redemption. Contingent Redemption; Rescission of Redemption. Any optional redemption notice may specify that redemption of the Bonds designated for redemption on the specified date will be subject to the receipt by the Community Facilities District and/or the Fiscal Agent, as applicable, of moneys sufficient to cause such redemption (and will specify the proposed source of such moneys), and neither the Community Facilities District nor the Fiscal Agent will have any liability to the Owners of any Bonds, or any other party, as a result of the Community Facilities District s failure to redeem the Bonds designated for redemption as a result of insufficient moneys therefor. Additionally, the Community Facilities District may rescind any optional redemption of the Bonds, and notice thereof, for any reason on any date prior to the date fixed for such redemption by causing written notice of the rescission to be given to the Owners of the Bonds so called for redemption. Notice of rescission of redemption shall be given in the same manner in which notice of redemption was originally given. The actual receipt by the Owner of any Bond of notice of such rescission shall not be a condition precedent to rescission, and failure to receive such notice or any defect in such notice shall not affect the validity of the rescission. Neither the Community Facilities District nor the Fiscal Agent will have any liability to the Owners of any Bonds, or any other party, as a result of the Community Facilities District s decision to rescind a redemption of any Bonds pursuant to the provisions of the Fiscal Agent Agreement. Effect of Redemption. From and after the date fixed for redemption, if the amount necessary for the redemption has been made available for that purpose, the Bonds or portions thereof designated for redemption shall be deemed to be no longer Outstanding and such Bonds or portions thereof shall cease to bear further interest. No Owner of any of the Bonds or portions thereof so designated for redemption shall be entitled to any of the benefits of the Fiscal Agent Agreement, 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. Registration, Transfer and Exchange Registration. Subject to the provisions relating to book-entry bonds, the Fiscal Agent will keep or cause to be kept, at its principal corporate trust office, 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 Fiscal Agent shall, under reasonable regulations as it may prescribe, register or transfer or cause to be registered or transferred, on such records, the ownership of the Bonds. The Community Facilities District and the Fiscal Agent may treat and consider the person in whose name each Bond is registered in the Bond Register as the holder and absolute Owner of such Bond for the purpose of payment of principal and interest with respect to such Bond, for the purpose of giving notices of redemption, if applicable, and other matters with respect to such Bond, for the purpose of registering transfers with respect to such Bond, and for all other purposes whatsoever. Registration of Exchange or Transfer. Subject to the provisions relating to book-entry bonds, the registration of any Bond may, in accordance with its terms, be transferred upon the Bond Register by the person in whose name it is registered, in person or by his duly authorized attorney, upon surrender of such Bond for cancellation at the principal corporate trust office of the Fiscal Agent, accompanied by delivery of a written instrument of transfer in a form approved by the Fiscal Agent and duly executed by the 13

20 Bondowner or his or her duly authorized attorney. Bonds may be exchanged at the principal corporate trust office of the Fiscal Agent for a like aggregate principal amount and maturity of the corresponding Series of Bonds of other authorized denominations. The Fiscal Agent may charge the Bondowner any tax or other governmental charge required with respect to such transfer or exchange and may charge a reasonable fee for the costs of any such transfer or exchange. Whenever any Bonds shall be surrendered for registration of transfer or exchange, the Community Facilities District shall execute, and the Fiscal Agent shall authenticate and deliver, a new Bond, for like aggregate principal amount and maturity; provided, that the Fiscal Agent shall not be required to register transfers or make exchanges of (i) Bonds for a period of 15 days next preceding the date established by the Fiscal Agent for selection of the Bonds to be redeemed or (ii) any Bonds chosen for redemption. Notwithstanding any provision herein, the 2015 Series A Bonds may only be exchanged for new 2015 Series A Bonds, and the 2015 Series B Bonds may only be exchanged for new 2015 Series B Bonds. Book-Entry and DTC The Depository Trust Company ( DTC ) will act as securities depository for the Bonds. The 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 will be issued for each maturity of the Bonds, each in the aggregate principal amount of such maturity, and will be deposited with DTC. See APPENDIX F BOOK- ENTRY SYSTEM. General SECURITY FOR THE BONDS The Bonds are secured by a first pledge of all of the Net Taxes collected within the Community Facilities District and all moneys deposited in the accounts in the Special Tax Fund, the Bond Fund, the Redemption Fund and the Reserve Accounts of the Reserve Fund (as such terms are defined in the Fiscal Agent Agreement) until disbursed as provided in the Fiscal Agent Agreement. Pursuant to the Act and the Fiscal Agent Agreement, the Community Facilities District will annually levy the Special Taxes on taxable property within the Community Facilities District in an amount required for the payment of principal of and interest on any outstanding Bonds becoming due and payable during the ensuing year, including any necessary replenishment or expenditure of the Reserve Accounts of the Reserve Fund for the Bonds and an amount estimated to be sufficient to pay corresponding Administrative Expenses during such year. The Net Taxes and all moneys deposited into the applicable accounts in said funds (until disbursed as provided in the Fiscal Agent Agreement) are pledged to the payment of the principal of, and interest and any premium on, the Bonds as provided in the Fiscal Agent Agreement and in the Act until all of the Bonds have been paid and retired or until moneys or Federal Securities (as defined in the Fiscal Agent Agreement) have been set aside irrevocably for that purpose. Moneys deposited in the Residual Fund (as defined in the Fiscal Agent Agreement) and used in accordance with the Fiscal Agent Agreement shall be free and clear of any lien thereon or pledge under the Fiscal Agent Agreement. The Rate and Method provides that the Board shall levy the Special Tax Proportionately on each Assessor's Parcel of Residential Developed Property, in an amount not in excess of the applicable Maximum Special Tax for that Fiscal Year, such that the aggregate amount so levied equals, but does not exceed, the then applicable Debt Service Requirement. Debt Service Requirement means for each Fiscal Year the sum of (a) one hundred percent (100%) of the principal of and interest on the bonds of Community Facilities District coming due in the bond year which ends in the next subsequent Fiscal Year, except to the extent such principal or interest is expected to be paid from proceeds from the sale of bonds or other amounts then available in the applicable debt service fund for such purpose, (b) the 14

21 product of the amount described in clause (a) times the larger of (i) the rate of delinquency in the payment of the special tax during the Fiscal Year immediately preceding the Fiscal Year for which the Debt Service Requirement is being determined or (ii) ten percent (10%), (c) the sum of all deposits then required to be made into any reserve fund established with respect to any bonds of the Community Facilities District, and (d) the reasonably estimated administrative expenses for the bond year referred to in clause (a). See Special Taxes and Rate and Method below. Notwithstanding any provision contained in the Fiscal Agent Agreement to the contrary, Net Taxes deposited in the Administrative Expense Fund, the Residual Fund and the Rebate Fund shall no longer be considered to be pledged to the Bonds and the Residual Fund, the Administrative Expense Fund and the Rebate Fund shall not be construed as trust funds held for the benefit of the Bondowners. Special Taxes The Community Facilities District has covenanted in the Fiscal Agent Agreement to comply with all requirements of the Act so as to assure the timely collection of Special Taxes, including, without limitation, the enforcement of delinquent Special Taxes. The Fiscal Agent Agreement provides that the Special Taxes are payable and will be collected in the same manner and at the same time and in the same installment as the general taxes on real property, and will have the same priority, become delinquent at the same times and in the same proportionate amounts and bear the same proportionate penalties and interest after delinquency as do the general taxes on real property; provided the Community Facilities District may provide for direct collection of the Special Taxes in certain circumstances. The Special Tax levy is limited to the Special Tax rates determined as set forth in the Rate and Method and by the Resolution of Intention (as defined below). See SECURITY FOR THE BONDS Rate and Method and Table 3 in COMMUNITY FACILITIES DISTRICT NO Special Tax Levy in Relation to Scheduled Debt Service. No assurance can be given that, in the event of Special Tax delinquencies in the Community Facilities District, the receipt of Special Taxes will, in fact, be collected in sufficient amounts in any given year to pay debt service on the Bonds. Although the Special Taxes, when levied, will constitute a lien on parcels subject to taxation within the Community Facilities District, it does not constitute a personal indebtedness of the owners of property within the Community Facilities District. There is no assurance that the owners of real property in the Community Facilities District will be financially able to pay the annual Special Tax or that they will pay such tax even if financially able to do so. See BONDOWNERS RISKS herein. THE BONDS, THE INTEREST THEREON, AND ANY PREMIUMS PAYABLE ON THE REDEMPTION OF ANY OF THE BONDS, ARE NOT AN INDEBTEDNESS OF THE SCHOOL DISTRICT, THE STATE OF CALIFORNIA (THE STATE ) OR ANY OF ITS POLITICAL SUBDIVISIONS, AND NEITHER THE SCHOOL DISTRICT, THE COMMUNITY FACILITIES DISTRICT (EXCEPT TO THE LIMITED EXTENT DESCRIBED HEREIN), THE STATE NOR ANY OF ITS POLITICAL SUBDIVISIONS IS LIABLE FOR THE BONDS. NEITHER THE FAITH AND CREDIT NOR THE TAXING POWER OF THE SCHOOL DISTRICT, THE COMMUNITY FACILITIES DISTRICT (EXCEPT TO THE LIMITED EXTENT DESCRIBED HEREIN) OR THE STATE OR ANY POLITICAL SUBDIVISION THEREOF IS PLEDGED TO THE PAYMENT OF THE BONDS. THE BONDS ARE NOT A GENERAL OBLIGATION OF THE COMMUNITY FACILITIES DISTRICT, BUT ARE LIMITED OBLIGATIONS OF THE COMMUNITY FACILITIES DISTRICT PAYABLE SOLELY FROM THE SPECIAL TAXES LEVIED IN THE COMMUNITY FACILITIES DISTRICT, AS MORE FULLY DESCRIBED HEREIN. 15

22 Rate and Method General. On April 14, 1997, pursuant to a resolution and the provisions of the Act, the School District established the Community Facilities District. The qualified electors of the Community Facilities District approved the issuance of special tax bonds and the Rate and Method to be levied within the Community Facilities District on April 25, In 1998, proceedings were conducted to annex additional territory into the Community Facilities District. Capitalized terms used in the following paragraphs, but not defined herein, have the meaning(s) given to them in the Rate and Method. The Community Facilities District was authorized to issue up to $110,000,000 aggregate principal amount of bonded indebtedness and to levy Special Taxes within the Community Facilities District to pay debt service on the bonds issued by the Community Facilities District and to fund school facilities. Pursuant to such proceedings, the Special Tax may be levied and collected against all Taxable Property (as defined below) within the Community Facilities District for school facilities costs according to the Special Tax Formula Rate and Method of Apportionment of Special Tax for Community Facilities District No of Tustin Unified School District (defined above as the Special Tax Formula or Rate and Method ), a copy of which is set forth in APPENDIX B SPECIAL TAX FORMULA. The Special Tax Formula provides that the Board shall levy the Special Tax Proportionately on each Assessor's Parcel of Residential Developed Property, in an amount not in excess of the applicable Maximum Special Tax for that Fiscal Year, such that the aggregate amount so levied equals, but does not exceed, the then applicable Debt Service Requirement. Debt Service Requirement means for each Fiscal Year the sum of (a) one hundred percent (100%) of the principal of and interest on the bonds of Community Facilities District coming due in the bond year which ends in the next subsequent Fiscal Year, except to the extent such principal or interest is expected to be paid from proceeds from the sale of bonds or other amounts then available in the applicable debt service fund for such purpose, (b) the product of the amount described in clause (a) times the larger of (i) the rate of delinquency in the payment of the special tax during the Fiscal Year immediately preceding the Fiscal Year for which the Debt Service Requirement is being determined or (ii) ten percent (10%), (c) the sum of all deposits then required to be made into any reserve fund established with respect to any bonds of the Community Facilities District, and (d) the reasonably estimated administrative expenses for the bond year referred to in clause (a). Pursuant to the Special Tax Formula, the Special Tax shall not be imposed on parks, public properties classified as Undeveloped Property, utility properties belonging to public or private utilities, Seniors Housing Developed Property (defined as Assessor s Parcels of Developed Property for which a building permit has been issued for purposes of constructing one or more residential dwellings, the occupancy of which is restrict to seniors as described in Government Code Section ) and properties exempt from general ad valorem property taxes. The Special Tax Formula refers to an exemption for Seniors Housing Developed Property, but there are no residential dwellings, the occupancy of which is restricted to seniors as described in Government Code Section currently within the boundaries of the Community Facilities District. See APPENDIX B SPECIAL TAX FORMULA and BONDOWNERS RISKS. The Rate and Method provides that the Annual Special Tax shall be levied for a period necessary to pay debt service on the Bonds. The Bonds mature through September 1, A copy of the Special Tax Formula is included in APPENDIX B hereto. The Community Facilities District is subject to Section of the Act which at the time of formation of the Community Facilities District limited the levy of Special Taxes against any Assessor s Parcel for which an occupancy permit for private residential use has been issued from being increased by more than 10% as a consequence of delinquency or default by the owner of any other Assessor s Parcel. 16

23 The Resolution of Intention provided that the Special Tax shall not be increased by more than 10% as a result of delinquencies of other property owners. Prepayment of Annual Special Taxes. Although the Special Tax Formula references a process in which a property owner may make a written request to the Board of Education of the School District to prepay and permanently satisfy his obligation to pay the Special Tax, thereby releasing such owner s property from any further obligation to pay the Special Tax in accordance with the Special Tax Formula, to date, no property owners have made such a request and the Board has conducted no proceedings regarding the conditions to apply to the prepayment of such obligation. The Fiscal Agent Agreement does contain provisions for the prepayment of the Bonds from the prepayment of Special Taxes should a property owner make a written request to the Board of Education. Proceeds of Foreclosure Sales Pursuant to Section of the Act, in the event of any delinquency in the payment of the Special Tax, the Community Facilities District may order the institution of a superior court action to foreclose the lien therefor within specified time limits. In such an action, the real property subject to the unpaid amount may be sold at judicial foreclosure sale. Under the provisions of the Act, such judicial foreclosure action is not mandatory. Under the Fiscal Agent Agreement, on or about March 1 and July 1 of each Fiscal Year, the Community Facilities District will compare the amount of Special Taxes theretofore levied in the Community Facilities District to the amount of Special Taxes theretofore received by the Community Facilities District and: Individual Delinquencies. If the Community Facilities District determines that any single parcel within the Community Facilities District is delinquent in the payment of five (5) or more installments of the Special Taxes, then the Community Facilities District shall send, or cause to be sent, a notice of delinquency (and a demand for immediate payment thereof) to the property owner within 45 days of such determination, and (if the delinquency remains uncured) the Community Facilities District shall take action to authorize the commencement of foreclosure proceedings within 90 days of the July 1 determination, to the extent permissible under applicable law and shall thereafter diligently prosecute such proceedings in superior court to the extent permitted by law. Aggregate Delinquencies. If the Community Facilities District determines that the total amount of delinquent Special Taxes for the prior Fiscal Year for the Community Facilities District (including the total of delinquencies described above) exceeds 5% of the total Special Taxes due and payable for the prior Fiscal Year, the Community Facilities District shall notify, or cause to be notified, all property owners who are then delinquent in the payment of Special Taxes (and demand immediate payment of the delinquency) within 45 days of such determination, and (to the extent such delinquencies remain uncured), the Community Facilities District shall take action to authorize the commencement of foreclosure proceedings within 90 days of such determination against each parcel of land within the Community Facilities District with a Special Tax delinquency to the extent permissible under applicable law. Notwithstanding the foregoing, however, the Community Facilities District shall not be required to order, or take action upon, the commencement of foreclosure proceedings under Aggregate Delinquencies above, if such delinquencies, if not remedied, will not result in a draw on the Reserve Fund such that the Reserve Fund will fall below the Reserve Requirement and no draw has been made on the Reserve Fund, which has not been restored, such that the Reserve Fund shall be funded to at least the Reserve Requirement. See SECURITY FOR THE BONDS The Teeter Plan. 17

24 In the Fiscal Agent Agreement, the Community Facilities District reserves the right to elect to accept payment from a property owner of at least the enrolled amount of the Special Taxes for a parcel(s) but less than the full amount of the penalties, interest, costs and attorneys fees related to the Special Tax delinquency for such parcel(s). The Bondowners are deemed to have consented to the foregoing reserved right of the Community Facilities District, notwithstanding any provision of the Act or other law of the State, or any other term set forth in the Fiscal Agent Agreement to the contrary. The Bondowners, by their acceptance of the Bonds, consent to such payment for such lesser amounts. Further, notwithstanding any provision of the Act or other law of the State, or any other term set forth in the Fiscal Agent Agreement to the contrary, in connection with any judicial foreclosure proceeding related to delinquent Special Taxes: (i) (ii) The Community Facilities District is expressly authorized to credit bid at any foreclosure sale, without any requirement that funds be set aside in the amount so credit bid, in the amount specified in Section of the Act, or such lesser amount as determined under clause (ii) below or otherwise under Section of the Act. The Community Facilities District may permit, in its sole and absolute discretion, property with delinquent Special Tax payments to be sold for less than the amount specified in Section of the Act, if it determines that such sale is in the interest of the Bondowners. The Bondowners, by their acceptance of the Bonds, consent to such sale for such lesser amounts (as such consent is described in Section of the Act), and release the Community Facilities District and the School District, and their respective officers and agents, from any liability in connection therewith. If such sale for lesser amounts would result in less than full payment of principal of and interest on the Bonds, the Community Facilities District will use its best efforts to seek approval of the Bondowners. It should be noted that any foreclosure proceedings commenced as described above could be stayed by the commencement of bankruptcy proceedings by or against the owner of the delinquent property. See BONDOWNERS RISKS Bankruptcy and Foreclosure Delay. 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. See BONDOWNERS RISKS Potential Delay and Limitations in Foreclosure Proceedings. If a judgment of foreclosure and order of sale is obtained, the judgment creditor (the Community Facilities District) must cause a Notice of Levy to be issued. Under current law, a judgment debtor (property owner) has 120 days (or in some cases a shorter period) from the date of service of the Notice of Levy and 20 days from the subsequent notice of sale in which to redeem the property to be sold. If a judgment debtor fails to so 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 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. 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. Any parcel subject to foreclosure sale must be sold at the minimum bid price unless a lesser minimum bid price is authorized by the Owners of 75% of the principal amount of the Bonds outstanding. No assurances can be given that the real property subject to sale or foreclosure will be sold or, if sold, that the proceeds of sale will be sufficient to pay any delinquent Special Tax installment. The Act does not require the School District or the Community Facilities District to purchase or otherwise acquire any lot or parcel of property offered for sale or subject to foreclosure if there is 18

25 no other purchaser at such sale. The Act does specify that the Special Tax will have the same lien priority in the case of delinquency as for ad valorem property taxes. If the Reserve Fund is depleted and delinquencies in the payment of Special Taxes exist, there could be a default or delay in payments to the Bondowners pending prosecution of foreclosure proceedings and receipt by the Community Facilities District of foreclosure sale proceeds, if any. However, within the limits of the Rate and Method, the Act and the Resolution of Intention, the Community Facilities District may adjust the Special Taxes levied on all property within the Community Facilities District in future fiscal years to provide an amount, taking into account such delinquencies, required to pay debt service on the Bonds and to replenish the Reserve Fund. There is, however, no assurance that the Special Tax rates levied pursuant to the Rate and Method, the Act and the Resolution of Intention will be at all times sufficient to pay the amounts required to be paid on the Bonds by the Fiscal Agent Agreement. Special Tax Fund (a) The Community Facilities District shall establish and maintain the Special Tax Fund (including the Prepayment Account (which shall be held by the Fiscal Agent). (b) Moneys in the Special Tax Fund are subject to the pledge for payment of principal and interest on the Bonds as set forth in the Fiscal Agent Agreement, subject to the terms thereof. Upon receipt thereof, from the County, the Community Facilities District shall deposit all Gross Taxes into the Special Tax Fund. All moneys in the Special Tax Fund, including the accounts thereof (exclusive of Prepaid Special Taxes), shall be held by the County Treasurer of the County on behalf of the Community Facilities District. (c) Moneys in the Special Tax Fund (exclusive of Prepaid Special Taxes) shall be transferred by the Community Facilities District to the Fiscal Agent to the Administrative Expense Fund (as provided for in the Fiscal Agent Agreement) in an amount equal to the Administrative Expense Requirement. (d) Net Taxes in the Special Tax Fund (exclusive of Prepaid Special Taxes) shall be applied by the Community Facilities District as follows and in the following order of priority: (i) To the Series A Interest Account and the Series B Interest Account of the Bond Fund, an amount such that the balance in each Interest Account, as applicable, one business day prior to each Interest Payment Date, shall be equal to the installment of interest due on the corresponding Series of Bonds on each Interest Payment Date. Moneys in the Interest Account shall be used for the payment of interest on the corresponding Series of Bonds as the same become due. (ii) To the Series A Principal Account and Series B Principal Account of the Bond Fund, an amount up to the amount needed to make the principal payment due on the corresponding Series of Bond, as applicable, during the current Bond Year. (iii) To the Sinking Fund Redemption Accounts (or subaccounts) of the Redemption Fund, an amount up to the amount needed to make the Mandatory Sinking Payments due on the Bonds (of either Series) during the current Bond Year. (iv) To the Series A Reserve Account and/or the Series B Reserve Account, the amounts, if any, necessary to replenish each Reserve Fund Account to the applicable Reserve Requirement, including the reimbursement to the Bond Insurer for all amounts due and payable to 19

26 the Bond Insurer in connection with the Reserve Policy and to pay Reserve Policy reimbursements due to the Bond Insurer pursuant to the terms of the Reserve Policy. (v) To the extent that Administrative Expenses are not fully satisfied in (i) above, to the Administrative Expense Fund in the amount(s) required to bring the balance therein to the amount identified by the Community Facilities District to the Fiscal Agent to meet such additional Administrative Expenses (over and above the Administrative Expense Requirement) in the coming Fiscal Year or Administrative Expenses from a prior Fiscal Year which remain unpaid. (vi) To the Redemption Fund, the amount(s), if any, that the Community Facilities District directs the Fiscal Agent to transfer pursuant to an optional redemption of Bonds, as set forth in the Fiscal Agent Agreement. (vii) Any remaining Special Taxes and other amounts constituting Net Taxes shall remain in the Special Tax Fund subject to the provisions of (viii) below. (viii) Any remaining Special Taxes and other amounts constituting Net Taxes, if any, shall remain in the Special Tax Fund until the end of the Bond Year. At the end of the Bond Year any remaining funds in the Special Tax Fund, which are not required to cure a delinquency in the payment of principal and interest on any Series of Bonds (including payment of Mandatory Sinking Fund Payments due during the current Bond Year), to restore the Reserve Accounts of the Reserve Fund as provided for in (e)(iv), above (or provide for required payment to the Bond Insurer for draws on the Reserve Policy), or to pay current or pending Administrative Expenses as provided for in (d) or (e)(v) above, shall, without any further action by any party, be transferred by the Fiscal Agent on September 15 of each year into the Residual Fund and shall thereafter be used for the purposes applicable to the Residual Fund and shall be free and clear of any lien thereon or pledge under the Fiscal Agent Agreement; provided, any funds which are required to cure any such delinquency described above shall be retained in the Special Tax Fund and expended or transferred, at the earliest possible date, for such purpose. At the date of the redemption, defeasance or maturity of the last Bond and after all principal and interest then due on any Bond has been paid or provided for, all other covenants are complied with and all fees and expenses of the Fiscal Agent have been paid, moneys in the Special Tax Fund may be used by the Community Facilities District for any lawful purpose. Funds in the Special Tax Fund shall be invested in accordance with the investment provisions of the Fiscal Agent Agreement. Investment earnings on amounts in the Special Tax Fund, if any, shall be retained therein. Investment. Moneys in each Account in the Special Tax Fund will be invested and deposited by the Community Facilities District as described in Investment of Moneys in Funds below. 20

27 Bond Fund (a) One business day prior to each Interest Payment Date, the Fiscal Agent shall withdraw from the Special Tax Fund, or the corresponding Reserve Account of the Reserve Fund in the event that sufficient moneys are unavailable in the Special Tax Fund, and deposit in the Principal Accounts and the Interest Accounts of the Bond Fund established for each Series of Bonds in an amount equal to all of the principal and all of the interest due and payable on the corresponding Series of Bonds on the ensuing Interest Payment Date, less amounts on hand in the corresponding Accounts of the Bond Fund available to pay principal and/or interest on the applicable Series of Bonds. The Fiscal Agent shall apply moneys in the Series A Interest Account and the Series A Principal Account to the payment of interest and principal, respectively, on the 2015 Series A Bonds on each Interest Payment Date. The Fiscal Agent shall apply moneys in the Series B Interest Account and the Series B Principal Account to the payment of interest and principal, respectively, on the 2015 Series B Bonds on each Interest Payment Date (b) Moneys in the Bond Fund, and Accounts thereof, shall be invested in accordance with the Fiscal Agent Agreement. All investment earnings and profits resulting from such investment shall be retained in the accounts established for the corresponding Series of Bonds in the Bond Fund and used to pay principal of and interest on the corresponding Series of Bonds. Upon final maturity of each Series of Bonds and the payment of all principal of and interest on the corresponding Series of Bonds, any moneys thereafter remaining in the Bond Fund shall be transferred to the Special Tax Fund. Reserve Fund In order to further secure the payment of principal of and interest on the Bonds, certain proceeds of the Bonds will be deposited into the Series A Reserve Account and the Series B Reserve Account of the Reserve Fund in an amount equal to 50% of the Reserve Requirement for the corresponding Series of Bonds, and the Reserve Policy will be acquired for such Series of Bonds, in an amount equal to 50% of the Reserve Requirement for the corresponding Series of Bonds (see ESTIMATED SOURCES AND USES OF FUNDS herein). The Reserve Requirement is defined in the Fiscal Agent Agreement to mean, with respect to each Series of Bonds, an amount, as of any date of calculation, equal to the least of (i) 10% of the original principal amount of the corresponding Series of Bonds, less original issue discount, if any, plus original issue premium, if any, (ii) Maximum Annual Debt Service on the applicable Series of Bonds, or (iii) 125% of average annual debt service on the corresponding Series of Bonds. A draw on the Reserve Accounts of the Reserve Fund could occur as a result of Special Tax delinquencies. However, the Special Tax levy on Developed Property can be increased in order to replenish the Reserve Accounts of the Reserve Fund, subject to the limitation of the Special Tax Formula and the Act. See SECURITY FOR THE BONDS Rate and Method Series A Bonds. Moneys in the Series A Reserve Account of the Reserve Fund shall be used solely for the purpose of (i) making transfers to the Series A Interest Account and/or the Series A Principal Account of Bond Fund or the applicable Account of the Redemption Fund to pay the principal of, and interest and premium, if any, on 2015 Series A Bonds when due to the extent that moneys in the Series A Interest Account and the Series A Principal Account of the Bond Fund are insufficient therefor (or provide for required payment to the Bond Insurer for draws on the Reserve Policy); (ii) making any required transfer to the Rebate Fund pursuant to the Fiscal Agent Agreement upon written direction from the Community Facilities District; (iii) paying the principal and interest due on 2015 Series A Bonds in the final Bond Year applicable to the 2015 Series A Bonds; and (iv) application to the defeasance of such 2015 Series A Bonds in accordance with the Fiscal Agent Agreement. If the amounts in the Series A Interest Account or the Series A Principal Account of the Bond Fund and the Sinking Fund Redemption Account of the Redemption Fund are insufficient to pay the 21

28 principal of, including Mandatory Sinking Payments, or interest on the 2015 Series A Bonds when due, the Fiscal Agent shall, one Business Day prior to an Interest Payment Date, withdraw from the Series A Reserve Account of the Reserve Fund for deposit in the Series A Interest Account and the Series A Principal Account of the Bond Fund, or the Sinking Fund Redemption Account of the Redemption Fund, moneys necessary for such purpose. Following any transfer to the Series A Interest Account or the Series A Principal Account of the Bond Fund, or the Sinking Fund Payment Account of the Redemption Fund, the Fiscal Agent shall notify the Community Facilities District of the amount needed to replenish the Series A Account of the Reserve Fund to the Reserve Requirement applicable to the 2015 Series A Bonds, and the Community Facilities District shall include such amount, as is required at that time, to correct such deficiency to the next Special Tax levy in the extent of the permitted Special Tax rates. The Reserve Requirement for the 2015 Series A Bonds, or any portion thereof, may, with the prior written consent of the Bond Insurer, if any, be satisfied by crediting to the Series A Reserve Account of the Reserve Fund moneys, a letter of credit, a bond insurance policy, or any other comparable credit facility or any combination thereof, which in the aggregate make funds available in the Series A Account of the Reserve Fund in an amount equal to the Reserve Requirement applicable to the 2015 Series A Bonds; however, the long-term unsecured debt or claim-paying ability, as the case may be, of the provider of such letter of credit, bond insurance policy or any other comparable credit facility, must have a rating of at least A1 from Moody s Investors Service, Inc., if Moody s shall then be rating the Bonds and A+ from Standard & Poor s Ratings Services, if Standard & Poor s shall then be rating the Bonds (provided, that the Fiscal Agent shall be under no obligation and have no responsibility whatsoever to independently determine or verify such rating other than at the time of delivery). In the event of the use of such a surety, the Fiscal Agent shall be provided with copies of all documents in regard thereto and shall, to the extent not in conflict with the provisions of the Fiscal Agent Agreement, conform to the forms thereof for purposes of submitting draws, and making reimbursements thereon. The Reserve Requirement is initially partially satisfied with the Reserve Policy Series B Bonds. Moneys in the Series B Reserve Account of the Reserve Fund shall be used solely for the purpose of (i) making transfers to the Series B Interest Account and/or the Series B Principal Account of Bond Fund or the applicable Account of the Redemption Fund to pay the principal of, and interest and premium, if any, on 2015 Series B Bonds when due to the extent that moneys in the Series B Interest Account and the Series B Principal Account of the Bond Fund are insufficient therefor (or provide for required payment to the Bond Insurer for draws on the Reserve Policy); (ii) making any required transfer to the Rebate Fund pursuant to the Fiscal Agent Agreement upon written direction from the Community Facilities District; (iii) paying the principal and interest due on 2015 Series B Bonds in the final Bond Year applicable to the 2015 Series B Bonds; and (iv) application to the defeasance of such 2015 Series B Bonds in accordance with the Fiscal Agent Agreement. If the amounts in the Series B Interest Account or the Series B Principal Account of the Bond Fund are insufficient to pay the principal of, or interest on the 2015 Series B Bonds when due, the Fiscal Agent shall, one Business Day prior to an Interest Payment Date, withdraw from the Series B Reserve Account of the Reserve Fund for deposit in the Series B Interest Account and the Series B Principal Account of the Bond Fund, moneys necessary for such purpose. Following any transfer to the Series B Interest Account or the Series B Principal Account of the Bond Fund, the Fiscal Agent shall notify the Community Facilities District of the amount needed to replenish the Series B Account of the Reserve Fund to the Reserve Requirement applicable to the 2015 Series B Bonds, and the Community Facilities District shall include such amount, as is required at that time, to correct such deficiency to the next Special Tax levy in the extent of the permitted Special Tax rates. The Reserve Requirement for the 2015 Series B Bonds, or any portion thereof, may with the prior written consent of the Bond Insurer, if any, be satisfied by crediting to the Series B Reserve Account of the Reserve Fund moneys, a letter of credit, a bond insurance policy, or any other comparable credit 22

29 facility or any combination thereof, which in the aggregate make funds available in the Series B Account of the Reserve Fund in an amount equal to the Reserve Requirement applicable to the 2015 Series B Bonds; however, the long-term unsecured debt or claim-paying ability, as the case may be, of the provider of such letter of credit, bond insurance policy or any other comparable credit facility, must have a rating of at least A1 from Moody s Investors Service, Inc., if Moody s shall then be rating the Bonds and A+ from Standard & Poor s Ratings Services, if Standard & Poor s shall then be rating the Bonds (provided, that the Fiscal Agent shall be under no obligation and have no responsibility whatsoever to independently determine or verify such rating other than at the time of delivery). In the event of the use of such a surety, the Fiscal Agent shall be provided with copies of all documents in regard thereto and shall, to the extent not in conflict with the provisions of the Fiscal Agent Agreement, conform to the forms thereof for purposes of submitting draws, and making reimbursements thereon. The Reserve Requirement is initially partially satisfied with the Reserve Policy. Investment of Moneys in the Reserve Accounts of the Reserve Fund. Moneys, if any held in the Reserve Fund Accounts shall be invested in accordance with the Fiscal Agent Agreement. Any moneys in the Reserve Fund Accounts in excess of the corresponding Reserve Requirement shall be withdrawn by the Fiscal Agent two (2) Business Days prior to each Interest Payment Date and deposited into the Interest Account of the Bond Fund for the corresponding Series of Bonds and thereafter applied for the purposes specified for such Account. The Fiscal Agent shall transfer the Rebate Fund Excess Investment Earnings from the Series A Reserve Account of the Reserve Fund earnings upon written direction of the Community Facilities District, pursuant to the Fiscal Agent Agreement. Replenishment of each Reserve Fund Account. Notwithstanding anything in the Fiscal Agent Agreement to the contrary, the Fiscal Agent shall transfer to the Reserve Fund Account(s), from available moneys in the Special Tax Fund, the amount(s) needed to restore each Reserve Fund Account to the corresponding Reserve Requirement, as specified in the Fiscal Agent Agreement. Moneys in the Special Tax Fund shall be deemed available for transfer to the Reserve Fund Account(s) only if such amounts will not be needed to make the deposit(s) required to be made to the corresponding Interest Account(s) and the corresponding Principal Account(s) of the Bond Fund or the Sinking Fund Redemption Account of the Redemption Fund (with respect to the 2015 Series A Bonds) for the next applicable Interest Payment Date. See APPENDIX C SUMMARY OF CERTAIN PROVISIONS OF THE FISCAL AGENT AGREEMENT for a description of the timing, purpose and manner of disbursements from the Reserve Fund. 23

30 Prepaid Special Taxes Prepaid Special Taxes collected by the Community Facilities District (net of any costs of collection) shall be transferred, no later than 10 days after receipt thereof, to the Fiscal Agent; and the Community Facilities District shall direct the Fiscal Agent to deposit the Prepaid Special Taxes in the Prepayment Account of the Special Tax Fund. The Prepaid Special Taxes shall be held into the Prepayment Account for the benefit of the 2015 Series A Bonds and shall be transferred by the Fiscal Agent to the 2015 Series A Bonds Mandatory Redemption Account of the Redemption Fund to call 2015 Series A Bonds on the next Interest Payment Date for which notice can be given in accordance with the special mandatory redemption provisions. The Prepaid Special Taxes shall be transferred to the 2015 Series A Bonds Mandatory Redemption Account and applied to call 2015 Series A Bonds on a pro rata basis. The 2015 Series B Bonds are not subject to redemption from Prepaid Special Taxes. Administrative Expense Fund The Fiscal Agent will receive the transfer of Special Taxes from the Community Facilities District from the Special Tax Fund and deposit in the Administrative Expense Fund amounts to pay Administrative Expenses as described above in Special Tax Fund. Pursuant to the Fiscal Agent Agreement, moneys in the Administrative Expense Fund will not be construed as a trust fund held for the benefit of the Owners of the Bonds and will not be available for the payment of debt service on the Bonds. Residual Fund The Residual Fund shall be funded from remaining Special Taxes transferred to the Residual Fund from the Special Tax Fund as described above. Unless otherwise directed in writing to the Fiscal Agent by the Community Facilities District, the Fiscal Agent shall, without further direction, transfer all funds held in the Residual Fund to the Community Facilities District on each September 15 or upon the next Business Day if such September 15 is not a Business Day. The Fiscal Agent shall promptly confirm to the Community Facilities District, in writing, such transfer and the amount thereof. Moneys held in the Residual Fund, if any, may, at the option of the Community Facilities District, be used by the Community Facilities District for (i) acquisition and/or construction of the facilities as authorized by the Resolution of Formation; (ii) to make deposits for related purposes as required under the Tax Certificate provided by the Community Facilities District in connection with the issuance, sale and delivery of the Bonds for the purposes of paying rebatable arbitrage as and when such is due in accordance with such Tax Certificate and the Regulations; (iii) to pay Administrative Expenses; (iv) at the option of the Community Facilities District, for optional redemption of the then-outstanding Bonds under the optional redemption provisions of the Fiscal Agent Agreement; or (v) any lawful purpose(s) of such funds as set out in the Act. Amounts on deposit in the Residual Fund, including any and all accounts therein, if any, and interest earned thereon, are not pledged to the Bonds and such fund is not a trust fund held for the benefit of the Bondowners. Moneys in the Residual Fund shall be invested in accordance with the Fiscal Agent Agreement. Interest earnings and profits from such investment and deposit shall remain therein and be applied in the manner provided above. 24

31 Investment of Moneys in Funds Moneys in any fund or account created or established by the Fiscal Agent Agreement and held by the Fiscal Agent will be invested by the Fiscal Agent in Authorized Investments (as defined in the Fiscal Agent Agreement), as directed by an Authorized Representative (as defined in the Fiscal Agent Agreement), that mature prior to the date on which such moneys are required to be paid out under the Fiscal Agent Agreement. Moneys in the Reserve Accounts of the Reserve Fund, may be invested in Authorized Investments which provide liquidity needed to satisfy any calls on funds in the Reserve Accounts of the Reserve Fund. Such liquidity shall provide that at least one half of the moneys in the Reserve Accounts of the Reserve Fund shall be available for draw in advance of any Interest Payment Date, except in the case of guaranteed investment contracts which may have a longer term. Such Authorized Investments shall not have a final maturity of greater than three years (except for guaranteed investments contracts through which moneys in the Reserve Fund may be invested for a longer period). No such investment shall mature later than 15 days prior to the final maturity of the corresponding Series of Bonds. In the absence of any direction from the Community Facilities District, and subject to any limitations on investment yield or other limitations set forth in the Fiscal Agent Agreement, the Fiscal Agent will invest moneys in any of the funds or accounts created by the Fiscal Agent Agreement solely in Authorized Investments described in clause (j) of the definition of Authorized Investments (including funds for which the Fiscal Agent or its affiliates or subsidiaries provide investment advisory or other management services). See APPENDIX C SUMMARY OF CERTAIN PROVISIONS OF THE FISCAL AGENT AGREEMENT for a definition of Authorized Investments. The Teeter PlanError! Bookmark not defined. 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 Sections 4701 to 4717 of the California Revenue and Taxation Code. Upon adoption and implementation of this method 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 County Board of Supervisors adopted the Teeter Plan on June 29, The County s Teeter Plan applies to the Community Facilities District and to the Bonds and the Special Taxes to be levied to pay the principal of and interest on the Bonds are subject to the Teeter Plan. The Community Facilities District will receive 100% of the Special Taxes levied to pay the Bonds irrespective of actual delinquencies in the collection of the Special Taxes by 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 taxes and assessments (if a county has elected to include assessments), 100% of the tax and assessment delinquencies (excluding penalties) are to be apportioned to the participating local agency which levied the tax or assessment. 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 25

32 assessment is treated by the county as an interest-free offset against future advances of tax levies under the Teeter Plan. 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. The County has never discontinued the Teeter Plan with respect to any levying agency. 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 Bonds from the risk of delinquencies in Special Taxes. On May 20, 2008, the Orange County Board of Supervisors authorized a commercial paper ( CP ) program for the purpose of providing a continuing source of funding for the County's annual obligation to make distributions of ad valorem tax and special tax collections to the participating agencies. CP will be issued from time to time to mature on business days not to exceed 270 days from issuance. The CP and its credit enhancement are secured by receipts of certain delinquent tax payments (excluding penalties and interest) and the County General Fund. Payment of Rebate Obligation The Community Facilities District is required to calculate excess investment earnings in accordance with the requirements set forth in the Fiscal Agent Agreement. If necessary, the Community Facilities District may use amounts in the Reserve Fund, amounts on deposit in the Administrative Expense Fund and other funds available to the Community Facilities District to satisfy rebate obligations, as applicable to the Bonds. 26

33 Additional Bonds for Refunding Purposes Only The Community Facilities District shall not issue any additional bonds, notes or other similar evidences of indebtedness payable, in whole or in part, out of Net Taxes except bonds issued to fully or partially refund the Outstanding Bonds. Bond Insurance Policy BOND INSURANCE Concurrently with the issuance of the Insured Bonds, Build America Mutual Assurance Company ( BAM ) will issue its Municipal Bond Insurance Policy (the Policy ) for the 2015 Series A Bonds maturing on September 1 of the years 2032 through 2038, inclusive, with CUSIP Nos GY6 through GL4 (collectively, the Insured 2015 Series A Bonds ) and the 2015 Series B Bonds (collectively with the Insured 2015 Series A Bonds, the Insured Bonds ). The Policy guarantees the scheduled payment of principal of and interest on the Bonds when due as set forth in the form of the Policy included as an exhibit to this Official Statement. The Policy is not covered by any insurance security or guaranty fund established under New York, California, Connecticut or Florida insurance law. Build America Mutual Assurance Company BAM is a New York domiciled mutual insurance corporation. BAM provides credit enhancement products solely to issuers in the U.S. public finance markets. BAM will only insure obligations of states, political subdivisions, integral parts of states or political subdivisions or entities otherwise eligible for the exclusion of income under section 115 of the U.S. Internal Revenue Code of 1986, as amended. No member of BAM is liable for the obligations of BAM. The address of the principal executive offices of BAM is: 200 Liberty Street, 27th Floor, New York, New York 10281, its telephone number is: , and its website is located at: BAM is licensed and subject to regulation as a financial guaranty insurance corporation under the laws of the State of New York and in particular Articles 41 and 69 of the New York Insurance Law. BAM s financial strength is rated AA/Stable by Standard and Poor s Ratings Services, a Standard & Poor s Financial Services LLC business ( S&P ). An explanation of the significance of the rating and current reports may be obtained from S&P at The rating of BAM should be evaluated independently. The rating reflects the S&P s current assessment of the creditworthiness of BAM and its ability to pay claims on its policies of insurance. The above rating is not a recommendation to buy, sell or hold the Bonds, and such rating is subject to revision or withdrawal at any time by S&P, including withdrawal initiated at the request of BAM in its sole discretion. Any downward revision or withdrawal of the above rating may have an adverse effect on the market price of the Bonds. BAM only guarantees scheduled principal and scheduled interest payments payable by the issuer of the Bonds on the date(s) when such amounts were initially scheduled to become due and payable (subject to and in accordance with the terms of the Policy), and BAM does not guarantee the market price or liquidity of the Bonds, nor does it guarantee that the rating on the Bonds will not be revised or withdrawn. 27

34 Capitalization of BAM BAM s total admitted assets, total liabilities, and total capital and surplus, as of March 31, 2015, and as prepared in accordance with statutory accounting practices prescribed or permitted by the New York State Department of Financial Services were $466.5 million, $22.2 million and $444.3 million, respectively. BAM is party to a first loss reinsurance treaty that provides first loss protection up to a maximum of 15% of the par amount outstanding for each policy issued by BAM, subject to certain limitations and restrictions. BAM s most recent Statutory Annual Statement, which has been filed with the New York State Insurance Department and posted on BAM s website at is incorporated herein by reference and may be obtained, without charge, upon request to BAM at its address provided above (Attention: Finance Department). Future financial statements will similarly be made available when published. BAM makes no representation regarding the Bonds or the advisability of investing in the Bonds. In addition, BAM has not independently verified, makes no representation regarding, and does not accept any responsibility for the accuracy or completeness of this Official Statement or any information or disclosure contained herein, or omitted herefrom, other than with respect to the accuracy of the information regarding BAM, supplied by BAM and presented under the heading BOND INSURANCE. Additional Information Available from BAM Credit Insights Videos. For certain BAM-insured issues, BAM produces and posts a brief Credit Insights video that provides a discussion of the obligor and some of the key factors BAM s analysts and credit committee considered when approving the credit for insurance. The Credit Insights videos are easily accessible on BAM s website at buildamerica.com/creditinsights/. (This reference is for convenience of reference only and the information on such website is not incorporated herein by such reference or otherwise.) Obligor Disclosure Briefs. Subsequent to closing, BAM posts an Obligor Disclosure Brief on every issue insured by BAM, including the Bonds. BAM Obligor Disclosure Briefs provide information about the gross par insured by CUSIP, maturity and coupon; sector designation (e.g. general obligation, sales tax); a summary of financial information and key ratios; and demographic and economic data relevant to the obligor, if available. The Obligor Disclosure Briefs are also easily accessible on BAM's website at buildamerica.com/obligor/. (This reference is for convenience of reference only and the information on such website is not incorporated herein by such reference or otherwise.) Disclaimers. The Obligor Disclosure Briefs and the Credit Insights videos and the information contained therein are not recommendations to purchase, hold or sell securities or to make any investment decisions. Credit-related and other analyses and statements in the Obligor Disclosure Briefs and the Credit Insights videos are statements of opinion as of the date expressed, and BAM assumes no responsibility to update the content of such material. The Obligor Disclosure Briefs and Credit Insight videos are prepared by BAM; and have not been reviewed or approved by the issuer of or the underwriter for the Bonds, and the Community Facilities District and the Underwriter assume no responsibility for their content. BAM receives compensation (an insurance premium) for the insurance that it is providing with respect to the Bonds. Neither BAM nor any affiliate of BAM has purchased, or committed to purchase, any of the Bonds, whether at the initial offering or otherwise. 28

35 COMMUNITY FACILITIES DISTRICT NO General Information The Community Facilities District is approximately 921 acres located in the central part of the County. The Community Facilities District lies within the geographic boundaries of the City of Irvine and consists of approximately 4,620 individual parcels of Developed Property, with approximately 7,764 residential dwelling units comprised of 3,080 single family detached homes, 1,528 single family attached homes and 3,156 apartment units. The Community Facilities District has been completely built out for many years. Summary of Proceedings The Bonds are issued pursuant to the Act and the Fiscal Agent Agreement. In addition, as required by the Act, the Board of the School District has taken the following actions with respect to establishing the Community Facilities District thereof, and authorizing issuance of the Bonds: Resolution of Intention: On February 24, 1997, the Board adopted Resolution No stating its intention to establish the Community Facilities District, and to authorize the levy of a special tax therein pursuant to the Rate and Method. On the same day the Board adopted Resolution No stating its intention to incur bonded indebtedness in an amount not to exceed $110,000,000, with respect to the Community Facilities District Resolution of Formation: Immediately following completion of a noticed public hearing conducted on April 14, 1997, the Board adopted Resolution No (the Resolution of Formation ), which established the Community Facilities District, established the Rate and Method for the Community Facilities District, and called a combined special tax election in order to authorize the levy of a special tax within the Community Facilities District pursuant to the initial Rate and Method of Apportionment. Resolution of Necessity: On April 14, 1997, the Board adopted Resolution No declaring the necessity to incur bonded indebtedness in an amount not to exceed $110,000,000 within the Community Facilities District and submitting the proposition to the qualified electors of the Community Facilities District. Landowner Election and Declaration of Results: On April 25, 1997, an election was held within the Community Facilities District, in which the landowners at that time, being the qualified electors, approved the combined ballot propositions (i) authorizing the issuance of up to $110,000,000 of bonds for the Community Facilities District to finance the acquisition of school sites and the acquisition, design, construction, lease, equipping and/or improvement thereon of school facilities, (ii) authorizing the levy of a special tax in accordance with the Rate and Method, and (iii) establishing an appropriations limit for the Community Facilities District. On May 27, 1997, the Board adopted Resolution No , pursuant to which the Board approved the canvass of the votes in the landowner voter election and declared the authority to levy the Special Taxes in accordance with the Rate and Method, to incur the bonded indebtedness and to have established an appropriations limit. Annexation of Territory. The Board, acting in its capacity as the Legislative Body of the Community Facilities District, adopted resolutions on March 9, 1998, stating its intention to annex territory (the Annexation No. 1 Territory ) to the Community Facilities District and to authorize the levy of a special tax on land within the Annexation No. 1 Territory (Resolution No ) and to have the Community Facilities District incur bonded indebtedness (Resolution No ). On April 27, 1998, 29

36 following public hearings conducted pursuant to the provisions of the Act, annexed the Annexation No. 1 Territory to the Community Facilities District (Resolution No ) and called a special election. At the special election, the electors within the boundaries of Annexation No. 1 Territory authorized the Community Facilities District to incur bonded indebtedness to finance the acquisition, design, construction, lease equipping and/or improvement of educational sites and facilities and approve the levy of a special tax pursuant to the Special Tax Formula. Notices of Special Tax Lien and Levy. Notices of Special Tax with respect to the initial area included within the Community Facilities District and with respect to the Annexation No. 1 Territory have been recorded with the County Recorder on May 28, 1997, and June 4, Ordinances Levying Special Taxes: On May 27, 1997, the Board, acting as the Legislative Body of the Community Facilities District, adopted Resolution and Ordinance No providing for the levy of the Special Taxes within the Community Facilities District. On May 28, 1998, the Board, acting as the Legislative Body of the Community Facilities District, adopted Resolution and Ordinance No providing for the levy of the Special Taxes within the Community Facilities District, including Annexation No. 1 Territory. Resolution Authorizing Issuance of the Bonds: On April 20, 2015, the Board, acting as the Legislative Body of the Community Facilities District, adopted Resolution No approving issuance of the Bonds in the aggregate principal amount not to exceed $120,000,

37 Special Taxes Developed Property The following table shows the Special Taxes that were levied on parcels of property within the Community Facilities District for Fiscal Year and the percentages of the total Special Tax levy. The Special Taxes in the Community Facilities District may be levied until the Bonds are paid. The final maturity of the Bonds is September 1, Table 1 Community Facilities District No of the Tustin Unified School District 2015 Special Tax Refunding Bonds Fiscal Year Special Tax Levy (1) Land Use Class Dwelling Type Residential Units Per Acre Taxable Dwelling Units/Acres Fiscal Year Special Tax Rate Aggregate Fiscal Year Special Tax Percent of Fiscal Year Special Tax 1 SFD ,763 $1, $2,001, % 2 SFD , ,000, SFA , , Apartments , ,872, Undeveloped 0 N/A Totals 7,764 $5,493, % (1) Totals may not sum due to rounding. In addition to the Special Taxes, the property is also subject to the levy of assessment and special taxes by other jurisdictions. See Direct and Overlapping Debt, Overlapping Assessment and Community Facilities Districts and Value-to-Lien Ratios, below. Source: Special District Financing & Administration, LLC. For the complete text of the Special Tax Formula, see APPENDIX B SPECIAL TAX FORMULA. Special Tax Levy in Relation to Scheduled Debt Service Pursuant to the Fiscal Agent Agreement and the Special Tax Formula, Special Taxes are levied annually in an amount sufficient to pay Administrative Expenses in an amount equal to the Administrative Expense Requirement and to ensure payment of debt service on the Bonds. Special Taxes are levied at approximately 67.79% of the Maximum Special Tax set forth in the Special Tax Formula, with approximately 65.92% of such levy being on individual homeowners and approximately 34.08% of such levy being on seven apartment complexes on twelve separate parcels totaling 3,156 units. 31

38 Table 2 Community Facilities District No of the Tustin Unified School District 2015 Special Tax Refunding Bonds Fiscal Year Special Tax on Property by Development Type (1) Fiscal Year Special Taxes Levied Percent of Aggregate Special Taxes Levied Type of Development No. of Parcels No. of Units Single-Family Detached 3,080 3,080 $3,001, % Single Family Attached 1,528 1, , Apartments 12 3,156 1,872, Totals 4,620 7,764 $5,493, % (1) As of July 1, Source: Special District Financing & Administration, LLC. Table 3 below illustrates the aggregate estimated coverage of the debt service on the Bonds in relation to estimated Net Taxes of the Community Facilities District assuming Special Taxes were levied on the individual homeowners at 110% of the amount necessary to pay the individual homeowners proportionate share of debt service on the Bonds and the Special Taxes were levied on the multi-family property at 110% of the amount necessary to pay the multi-family property s proportionate share of debt service on the Bonds. In each case, such amounts are the maximum amount permitted under the Special Tax Formula). As set forth in Table 3, the expected debt service coverage from Special Taxes levied at 110% of the assigned 67.79% estimated levy amount on individual homeowners property provides approximately 72.51% of debt service. The Special Taxes are subject to the limitations of Section of the Act that under no circumstances will the Special Tax levied against any parcel used for private residential purposes be increased as a consequence of delinquency or default by the owner of any other parcel or parcels within a community facilities district by more than 10%. The Resolution of Intention provides that the Special Tax shall not be increased by more than 10% as a result of delinquencies of other property owners. 32

39 Bond Year Ending September 1st Estimated Annual Debt Service Estimated CFD Administrative Expenses (1) Table 3 Community Facilities District No of the Tustin Unified School District 2015 Special Tax Refunding Bonds Estimated Debt Service Coverage For Developed Residential Ownership Actual or Estimated Levy Requirement (2) 110% of Estimated Individual Homeowner s Special Tax (3) % of Estimated Multi-Family Special Tax (4) Sum of 110% of Estimated Individual and Multi-Family Tax (5) Individual Homeowners Estimated Debt Service Coverage All Taxable Properties Estimated Debt Service Coverage 2015 (5) $3,858,531 $100,000 $5,493,022 N/A N/A N/A N/A N/A ,447, ,000 5,547,138 4,022,070 2,079,781 6,101, % % ,532, ,000 5,634,038 4,085,079 2,112,363 6,197, ,647, ,040 5,751,953 4,170,575 2,156,572 6,327, ,785, ,121 5,891,158 4,271,510 2,208,765 6,480, ,929, ,243 6,037,581 4,377,676 2,263,663 6,641, ,075, ,408 6,185,496 4,484,925 2,319,120 6,804, ,269, ,616 6,382,216 4,627,562 2,392,876 7,020, ,470, ,869 6,584,969 4,774,571 2,468,894 7,243, ,634, ,166 6,751,766 4,895,511 2,531,431 7,426, ,744, ,509 6,863,609 4,976,606 2,573,364 7,549, ,895, ,899 7,017,499 5,088,187 2,631,062 7,719, ,046, ,337 7,170,687 5,199,259 2,688,497 7,887, ,200, ,824 7,327,424 5,312,905 2,747,262 8,060, ,362, ,361 7,491,711 5,432,024 2,808,858 8,240, ,525, ,948 7,657,298 5,552,087 2,870,941 8,423, ,688, ,587 7,823,187 5,672,368 2,933,138 8,605, ,856, ,279 7,993,379 5,795,769 2,996,947 8,792, ,616, ,024 6,756,624 4,899,034 2,533,253 7,432, ,764, ,825 6,907,175 5,008,194 2,589,698 7,597, ,910, ,681 7,056,431 5,116,415 2,645,659 7,762, ,067, ,595 7,216,345 5,232,364 2,705,615 7,937, ,218, ,567 7,370,067 5,343,823 2,763,250 8,107, ,381, ,598 7,536,098 5,464,208 2,825,500 8,289, (1) The Fiscal Agent Agreement provides that for Fiscal Year , the Administrative Expense Requirement will be set at $80,000 escalating 2% annually; for estimating Fiscal Year levy the total Community Facilities District administrative expenses (and subsequent years) are estimated to be at 125% of the Administrative Expense Requirement. (2) For the bond year ending September 1, 2015, the levy amount shown reflects the actual tax amount levied for Fiscal Year and is derived from existing debt service and incorporates a tax credit of $733, which was funded from prior Special Taxes collected in excess of debt service requirements for the Prior Bonds; for subsequent bond years the estimated levy is equal to the sum of the Administrative Expense Requirement and 110% of estimated annual debt service. The actual levy in each fiscal year will be equal to the sum of (i) the Administrative Expense Requirement and (ii) 110% of estimated annual debt service less (iii) amounts on hand at the time the Special Tax levy is established from the prior fiscal year s Special Taxes collected which are in excess of debt service requirements for the Bonds and total administrative expenses and total administrative expenses. (3) Amount shown is equal to 110% of the Individual Homeowner s 65.92% share of the expected levy requirement. (4) Amount shown is equal to 110% of the multi-family apartment project s 34.08% share of the expected levy requirement. The Multi-Family residential properties consist of 7 apartment projects. The actual levy is limited by the Resolution of Intention which provides that he Special Tax shall not be increased by more than 10% as a result of delinquencies of other property owners. (5) Represents the sum of (i) 110% of the individual homeowners' share of the expected Special Tax levy requirement and (ii) 110% of the Multi-Family Properties share of the expected Special Tax levy requirement.. The actual levy is limited by the Resolution of Intention which provides that the Special Tax shall not be increased by more than 10% as a result of delinquencies of other property owners. Source: Special District Financing & Administration, LLC and Piper Jaffray & Co.

40 Concentration of Special Tax Obligations The Community Facilities District currently consists of 4,620 individual parcels of developed land, on which there are 3,080 single family detached homes, 1,528 single family attached homes and 3,156 apartment units. In aggregate, a single entity, The Irvine Company LLC, currently own six apartment communities and has in interest in the seventh apartment community. The seven apartment communities represent in the aggregate approximately 3,156 apartment units which are responsible for approximately 34.08% of the total special tax liability of the Community Facilities District for Fiscal Year The seventh apartment community ownership is listed as The Irvine Company LLC with JHC-Culver, LP, as a joint venture for the purpose of providing affordable housing in the City of Irvine. The timely payment on the 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. 34

41 Table 4A Community Facilities District No of the Tustin Unified School District 2015 Special Tax Refunding Bonds Apartment Properties and Individual Homeowners within Community Facilities District No (As of April 2015) Taxable Dwelling Units Estimated Unit Size Range (sq.ft.) 2015 Estimated Monthly Rental Rate Range Owner Name Apartment Taxable Parcels The Irvine Company LLC/JHC-Culver, LP Montecito Vista Avg. 1,310 (1) N/A (2) The Irvine Company LLC Estancia to 1,167 $1,710 to $2,250 The Irvine Company LLC Solana to 1,385 1,925 to 2,810 The Irvine Company LLC Serrano to 963 1,615 to 2,010 The Irvine Company LLC Las Palmas to 880 1,585 to 2,025 The Irvine Company LLC Anacapa to 1,086 1,770 to 2,285 The Irvine Company LLC Somerset to 1,176 1,660 to 2,600 Total Apartment Units N/A 12 3,156 N/A N/A Individual Homeowners N/A 4,608 4,608 N/A N/A TOTALS N/A 4,620 7,764 N/A N/A (1) The figure shown above represents a weighted average of the two and three bedroom units constructed within the project. (2) This project is reserved for income-qualified applicants. As such, no published rent information is available. Source: Special District Financing & Administration, LLC; Review of information available on the internet relating to those projects. 35

42 Table 4B Community Facilities District No of the Tustin Unified School District 2015 Special Tax Refunding Bonds Apartment Properties and Individual Homeowners within Community Facilities District No Fiscal Year Value-to-Lien by Ownership Apartment Taxable Parcels Taxable Dwelling Units Gross Assessed Value (1) Fiscal Year Levy Amount Principal Amount of the Bonds (2) Other Outstanding Debt (3) Total Outstanding Debt (4) Average Value-to-Lien Ratio In Category Montecito Vista (5) $32,283,902 $96, $1,617,580 $1,225,141 $2,842, :1 Estancia (6) $41,014,154 $230, $3,874,203 $3,326,351 $7,200, :1 Solana (6) ,783, , ,554,681 3,823,348 7,378, :1 Serrano (6) ,103, , ,548,705 5,812,695 13,361, :1 Las Palmas (6) ,956, , ,349,003 3,152,804 10,501, :1 Anacapa (6) ,445, , ,794,322 1,946,985 5,741, :1 Somerset (6) ,507, , ,774, ,914 4,761, :1 Total Apartment Units 12 3,156 $394,094,616 $1,872, $31,512,846 $20,274,238 $51,787, :1 Individual Homeowners 4,608 4,608 2,880,051,704 3,620, ,942,154 58,861, ,803, :1 TOTAL 4,620 7,764 $3,274,146,320 $5,493, $92,455,000 $79,135,309 $171,590, :1 (1) Represents the Gross Assessed Value as shown on the Overlapping Debt Statement. (2) Principal Amount of the Bonds has been allocated to the taxable parcels in proportion to their respective Fiscal Year Special Tax Obligation. (3) Includes Direct and Overlapping Debt from Metropolitan Water District, Irvine Ranch Water District, Improvement District Nos. 125 and 225, City of Irvine Assessment District Nos and 97-17, City of Irvine Reassessment District Nos and 12-1 and Tustin Unified School District School Facilities Improvement District No All debt is allocated on gross assessed valuation with the exception of the Improvement Districts of Irvine Ranch Water District, which are allocated on assessed land valuation only and the City of Irvine Assessment Districts, which are allocated on outstanding debt. (4) Total Outstanding Debt represents the sum of the Principal Amount of the Bonds and Other Outstanding Debt. (5) Owned by The Irvine Company/JHC-Culver, LP as a joint venture for the purpose of providing affordable housing in the City of Irvine. (6) Owned by The Irvine Company LLC. Sources: Special District Financing & Administration, LLC and California Municipal Statistics, Inc. 36

43 Table 4C Community Facilities District No of the Tustin Unified School District 2015 Special Tax Refunding Bonds Fiscal Year Top Taxpayers Percent of Special Tax Obligation Assessed Land Value Assessed Improvement Value Allocated Share of Principal Amount of Bonds (1) Allocated Share of Other Outstanding Debt (2) Allocated Share of Total Debt (3) Property Owner Taxable Parcels Aggregate Special Tax 1 The Irvine Company, LLC 11 $1,776, % $17,807,675 $344,003,039 $29,895,267 $19,049,097 $48,944, :1 2 The Irvine Company JHC-Culver LP 1 96, ,458,938 19,824,964 1,617,580 1,225,141 2,842, :1 3 Boehle Richard Allen Tr 3 2, ,388, ,550 45,036 40,899 85, :1 4 Aggarwal Vishal & Monica 3 2, , ,872 44,669 22,944 67, :1 5 Cheng Li Li Tr Li Li 2 2, ,083, ,820 38,215 40,753 78, :1 6 Espinosa Arthur S Tr 2 2, , ,359 38,215 24,934 63, :1 7 Haikal Joseph & Sonya 2 2, ,392,692 1,211,015 38,215 50,679 88, :1 8 Mandeville Holdings Llc 2 2, ,265,388 1,504,832 38,215 52,879 91, :1 9 Owyang Jason & Joanne 2 2, ,160, ,972 38,215 44,042 82, :1 10 Venkitakrishnan Narayanan 2 2, ,028, ,921 38,215 43,268 81, :1 11 Remaining Owners 4,590 3,601, ,656,861,066 1,207,249,583 60,623,160 58,540, ,163, :1 Totals / AVG (4) 4,620 $5,493, % $1,695,843,393 $1,578,302,927 $92,455,000 $79,135,309 $171,590, :1 (1) Allocated Share of Principal Amount of Bonds has been allocated to the taxable parcels in proportion to their respective Fiscal Year Special Tax obligation. (2) Includes Direct and Overlapping Debt from Metropolitan Water District, Irvine Ranch Water District, Improvement District Nos. 125 and 225, City of Irvine Assessment District Nos & 97-17, City of Irvine Reassessment District Nos & 12-1, and Tustin Unified School District School Facilities Improvement District No All debt is allocated on gross assessed valuation with the exception of the Improvement Districts of Irvine Ranch Water District which are allocated on assessed land value only, and the City of Irvine Assessment Districts which are allocated on outstanding assessment amounts. (3) Total Outstanding Debt represents the sum of the Allocated Share of Principal Amount of Bonds and Allocated Share of Other Outstanding Debt. (4) Value-to-Lien Ratio (VTL) shown on total line does not represent the total of figures in that column; it represents the VTL for the entire District and is computed by dividing the total assessed value by the lien amount as indicated above. Current aggregate outstanding bond amount is $94,337,087. Source: Special District Financing & Administration, LLC and California Municipal Statistics, Inc. Value-to- Lien Ratio 37

44 Direct and Overlapping Debt Table 5 below sets forth the existing authorized indebtedness payable from taxes and assessments that may be levied on territory within the Community Facilities District prepared by Special District Financing & Administration, LLC, based on Fiscal Year assessment roll information available to it as of March 30, 2015 (the Debt Report ). The Debt Report is included for general information purposes only. In certain cases, the percentages of debt calculations are based on assessed values, which will change significantly as sales occur and assessed values increase to reflect housing values. The Community Facilities District believes the information is current as of its date, but makes no representation as to its completeness or accuracy. Other public agencies, such as the City of Irvine, may issue additional indebtedness at any time, without the consent or approval of the School District or the Community Facilities District. See Overlapping Assessment and Community Facilities Districts below. The Debt Report generally includes long-term obligations sold in the public credit markets by public agencies whose boundaries overlap the boundaries of the Community Facilities District in whole or in part. Such long-term obligations generally are not payable from property taxes, assessment or special taxes on land in the Community Facilities District. In many cases long-term obligations issued by a public agency are payable only from the general fund or other revenues of such public agency. Additional indebtedness could be authorized by the School District, the City of Irvine or other public agencies at any time. The Community Facilities District has not undertaken to commission annual appraisals of the market value of property in the Community Facilities District for purposes of its Annual Reports pursuant to the Continuing Disclosure Agreement, and information regarding property values for purposes of a direct and overlapping debt analysis which may be contained in such reports, will be based on assessed values as determined by the County Assessor. See APPENDIX D hereto for the form of the Community Facilities District Continuing Disclosure Agreement. 38

45 Table 5 Community Facilities District No of the Tustin Unified School District Detailed Direct and Overlapping Debt Local Secured Assessed Valuation: $3,274,146,320 DIRECT AND OVERLAPPING TAX AND ASSESSMENT DEBT: % Applicable Debt 3/1/15 Metropolitan Water District 0.140% $ 154,666 Tustin Unified School District School Facilities Improvement District No ,111,099 Irvine Ranch Water District, I.D. No. 125 (1) ,362,319 Irvine Ranch Water District, I.D. No. 225 (1) ,935,512 Tustin Unified School District Community Facilities District No ,337,087 (2) City of Irvine Assessment District No ,642,324 City of Irvine Assessment District No ,576,459 City of Irvine Reassessment District No ,467 City of Irvine Reassessment District No ,373,871 TOTAL DIRECT AND OVERLAPPING TAX AND ASSESSMENT DEBT $175,738,804 OVERLAPPING GENERAL FUND DEBT: Orange County General Fund Obligations 0.688% $ 858,401 Orange County Pension Obligation Bonds ,526,371 Orange County Board of Education Certificates of Participation ,701 Municipal Water District of Orange County Water Facilities Corporation ,621 TOTAL GROSS OVERLAPPING GENERAL FUND DEBT $4,535,621 Less: MWDOC Water Facilities Corporation (100% supported) 44,148 TOTAL NET OVERLAPPING GENERAL FUND DEBT $4,491,473 GROSS COMBINED TOTAL DEBT $180,274,425 (3) NET COMBINED TOTAL DEBT $180,230,277 (1) Improvement Districts 125 and 225 were formed in Fiscal Year by consolidating several prior improvement districts. The debt of these prior districts was absorbed by Improvement Districts 125 and 225 and spread throughout the properties of the new improvement districts. (2) Includes principal amount of Prior Bonds which are being refunded and defeased with proceeds of the Bonds. (3) Excludes tax and revenue anticipation notes, enterprise revenue, mortgage revenue and non-bonded capital lease obligations. Ratios to Assessed Valuation: Direct Debt ($94,337,087) % Total Direct and Overlapping Tax and Assessment Debt % Gross Combined Total Debt % Net Combined Total Debt % Source: California Municipal Statistics, Inc., prepared as of March 30, Overlapping Assessment and Community Facilities Districts As noted above, there are other tax and assessment bonds outstanding or proposed to be issued which encompass the property within the Community Facilities District. The principal two of these are those issued by the Irvine Ranch Water District, which are described briefly below. The Community Facilities District is not aware of any other overlapping special tax or assessment districts for which bonded indebtedness has been issued or authorized. 39

46 Water District Debt The property in the Community Facilities District receives water and sewer service from the Irvine Ranch Water District ( IRWD ) and is located within IRWD s Improvement District Nos. 125 and 225 (collectively, the IRWD Improvement Districts ). Improvement Districts 125 and 225 were formed in Fiscal Year by consolidating several prior improvement districts. The debt of these prior districts was absorbed by Improvement Districts 125 and 225 and spread throughout the properties of the new improvement districts. IRWD Improvement District bonds are general obligation bonds payable from ad valorem taxes; the amount of the tax levy on each parcel is based on the assessed valuation of the land only. The Community Facilities District cannot predict the amount of authorized but unissued bonds for IRWD Improvement Districts that will ultimately be issued by IRWD, nor can it predict when such debt will be issued or the debt service payments thereon. Other Potential Debt Additional Debt Payable from Taxes or Assessments. The Community Facilities District has no control over the amount of additional debt payable from taxes or assessments levied on all or a portion of the property within a special district which may be incurred in the future by other governmental agencies, including, but not limited to, the City of Irvine, or any other governmental agency having jurisdiction over all or a portion of the property within the Community Facilities District. Furthermore, nothing prevents the owners of property within the Community Facilities District from consenting to the issuance of additional debt by other governmental agencies which would be secured by taxes or assessments on a parity with the Special Taxes. To the extent such indebtedness is payable from assessments, other special taxes levied pursuant to the Act or taxes, such assessments, special taxes and taxes will be secured by liens on the property within a district on a parity with a lien of the Special Taxes. For a description of the conditions to issuance of parity bonds by the Community Facilities District, see SECURITY FOR THE BONDS Additional Bonds for Refunding Purposes Only. Accordingly, the debt on the property within the Community Facilities District could increase, without any corresponding increase in the value of the property therein, and thereby severely reduce the ratio that exists at the time the Bonds are issued between the value of the property and the debt secured by the Special Taxes and other taxes and assessments which may be levied on such property. The incurring of such additional indebtedness could also affect the ability and willingness of the property owners within the Community Facilities District to pay the Special Taxes when due. 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 the property with delinquent Special Taxes would be sufficient to pay the delinquent Special Taxes. 40

47 Historical and Current Assessed Values; Value-to-Lien Ratios Historical and Current Assessed Values. The following table summarizes the historical and current assessed values within the Community Facilities District. Table 6 Community Facilities District No of the Tustin Unified School District 2015 Special Tax Refunding Bonds Historical and Current Assessed Values Taxable Assessed Value of All Parcels (1) Taxed Property Gross Assessed Value Annual Percentage Change in Assessed Value Year Value Date (January 1) Taxable Dwelling Units ,450 7,689 $2,505,799, ,566 7,764 2,809,418, % ,616 7,764 3,031,093, ,616 7,764 3,126,299, ,616 7,764 2,925,594,809 (6.42) ,616 7,764 2,986,857, ,616 7,764 3,013,373, ,616 7,764 3,034,158, ,616 7,764 3,114,451, ,616 7,764 3,274,146, (1) Source: Orange County Assessor Closed Roll Data as of July of each fiscal year; Assessed Values as of January 1. Source: California Municipal Statistics, Inc. and Special District Financing & Administration, LLC. Value-to-Lien Ratios. The total assessed values of all of the taxable property in the Community Facilities District, as determined by the County Assessor for Fiscal Year , is $3,274,146,320. The direct and overlapping land secured special tax, assessment and general obligation bonded indebtedness of the Community Facilities District, as of March 30, 2015, plus the proposed aggregate principal amount of the Bonds is approximately $171,590,309. The assessed value-to-lien ratio of the property within the Community Facilities District, based on the Fiscal Year assessed values, the aggregate principal amount of the Bonds and the estimated direct and overlapping land secured special tax and assessment and general obligation bonded indebtedness within the Community Facilities District is approximately to-1. The following table summarizes the assessed value-to-lien ratios within the Community Facilities District by value-to-lien category. 41

48 Table 7 Community Facilities District No of the Tustin Unified School District 2015 Special Tax Refunding Bonds Value-to-Lien Analysis Value-to Lien Range Taxable Parcels Taxable Dwelling Units Gross Assessed Value (1) Fiscal Year Levy Amount Principal Amount of the Bonds (2) Outstanding Other Debt (3) Total Outstanding Debt Average Value-to-Lien Ratio 4.04 to 5 8 (4) 8 (4) $893,556 $7,976 $134,247 $86,958 $221, : to , ,654,706 1,563,024 26,307,882 18,189,098 44,496, : to ,429, ,576 5,631,380 2,404,921 8,036, : to ,456, ,864 16,088,536 12,651,028 28,739, : to 25 1,505 1, ,933,841 1,328,082 22,353,481 20,263,326 42,616, : to 30 1,238 1, ,437, ,039 14,054,882 15,666,897 29,721, :1 Greater than ,341, ,445 7,884,592 9,873,081 17,757, :1 Total / Average 4,620 7,764 $3,274,146,320 $5,493,007 $92,455,000 $79,135,309 $171,590, :1 (1) Represents the Gross Assessed Value as shown on the Overlapping Debt Statement. (2) Principal Amount of the Bonds has been allocated to the taxable parcels in proportion to their respective Fiscal Year Special Tax obligation. (3) Includes Direct and Overlapping Debt from Metropolitan Water District, Irvine Ranch Water District Improvement District No. 125, Irvine Ranch Water District Improvement District No. 225, City of Irvine Assessment District No , City of Irvine Assessment District No , City of Irvine Reassessment District No. 11-2, City of Irvine Reassessment District No and Tustin Unified School District School Facilities Improvement District No All debt is allocated on gross assessed valuation, with the exception of the Improvement Districts of the Irvine Ranch Water District, which are allocated on assessed land valuation only, and the City of Irvine Assessment Districts, which are allocated on outstanding assessment amounts. (4) The assessed value of these parcels is a result of transfer of base year values pursuant to Proposition 60, Proposition 90 or Proposition 110. Source: Special District Financing & Administration, LLC and California Municipal Statistics, Inc. 42

49 Estimated Overall Tax Rates Table 8 below sets forth estimated Fiscal Year overall tax rates projected to be applicable to selected dwelling units with the indicated building square feet in the Community Facilities District. Table 8 also sets forth those entities with fees, charges, ad valorem taxes and special taxes regardless of whether those entities have issued debt. Table 8 Community Facilities District No of the Tustin Unified School District 2015 Special Tax Refunding Bonds Fiscal Year Tax Obligation For Selected Dwelling Units Assessor s Parcel No Situs 46 Declaration Pl 5 Benicia 1406 Terra Bella 10 Marketplace Building Permit Issuance Date 7/15/ /2/1999 4/13/2000 2/25/2006 Tract No Lot No Multiple Square Footage of Dwelling Unit(s) 3,801 2,723 1, ,012 Land Use Category Density SFD Large Lot SFD Small Lot SFA Apt Dwelling Units Land Value Only $338,558 $648,137 $143,738 $2,940,908 Fiscal Year 2014/15 Net Assessed Value 571, , ,797 53,507,660 Ad Valorem Property Taxes: General Purpose $5, $9, $2, $535, TUSD SFID Series A , Metropolitan Water District-West , Irvine Ranch Water District (Land Value Only) Total General Property Taxes $5, $10, $2, $545, Assessments, Special Taxes & Parcel Charge: TUSD CFD No $1, $ $ $224, Tustin Landscape & Lighting # , MWD Standby Charge , Mosquito Fire and Ant Vector Control Total Assessments & Parcel Charges $1, $2, $1, $226, Fiscal Year Total Property Tax $7, $12, $3, $772, Effective Tax Rate: 1.29% 1.27% 1.43% 1.44% Source: Special District Financing & Administration, LLC; County of Orange Treasurer-Tax-Collector s Website. 43

50 Delinquency History; School District Community Facilities District Special Tax Delinquencies Community Facilities District Delinquency History. For Fiscal Year , $5,493, was levied on 4,616 parcels and as of April 29, 2015, the second installment of Special Taxes has been paid with respect to the Community Facilities District except for an aggregate of approximately $58, levied on 131 parcels. The following table summarizes the Special Tax delinquencies for Fiscal Years through the second installment of Fiscal Year Table 9 Community Facilities District No of the Tustin Unified School District 2015 Special Tax Refunding Bonds Special Tax Delinquency History Delinquencies at Fiscal Year End Delinquencies as of April 29, 2015 Fiscal Year Amount Levied Parcels Levied Parcels Delinquent Amount Delinquent Percent Delinquent Parcels Delinquent Amount Delinquent Percent Delinquent 2005/06 $6,728, , $52, % 0 $ % 2006/07 6,916, , , /08 7,054, , , /09 7,195, , , /10 7,339, , , /11 5,756, , , /12 5,345, , , /13 5,452, , , /14 5,430, , , , /15 (1) 5,493, , , , (1) Delinquency percentage shown for Fiscal Year reflects delinquent amount based on information available as of April 29, Source: Special District Financing & Administration, LLC. School District Community Facilities District Special Tax Delinquencies. The School District has formed five other community facilities districts in the past, three of such community facilities districts have special tax bonds currently outstanding and one of which has been dissolved. None of such community facilities districts have experienced delinquencies in excess of 2%. The Community Facilities District cannot predict what future delinquency rates within the Community Facilities District or other community facilities districts formed by the School District may be. 44

51 BONDOWNERS RISKS In addition to the other information contained in this Official Statement, the following risk factors should be carefully considered in evaluating the investment quality of the Bonds. The Community Facilities District cautions prospective investors that this discussion does not purport to be comprehensive or definitive and does not purport to be a complete statement of all factors which may be considered as risks in evaluating the credit quality of the Bonds. The occurrence of one or more of the events discussed herein could adversely affect the ability or willingness of property owners in the Community Facilities District to pay their Special Taxes when due. Any such failure to pay Special Taxes could result in the inability of the Community Facilities District to make full and punctual payments of debt service on the Bonds. In addition, the occurrence of one or more of the events discussed herein could adversely affect the value of the property in the Community Facilities District. Risks of Real Estate Secured Investments Generally The Bondowners will be subject to the risks generally incident to an investment secured by real estate, including, without limitation, (i) adverse changes in local market conditions, such as changes in the market value of real property in the vicinity of the Community Facilities District, the supply of or demand for competitive properties in such area, and the market value of residential property or apartment property in the event of sale or foreclosure; (ii) changes in real estate tax rate and other operating expenses, governmental rules (including, without limitation, zoning laws and laws relating to endangered species and hazardous materials) and fiscal policies; (iii) natural disasters (including, without limitation, earthquakes, landslides, wildfires, floods and drought), which may result in uninsured losses and (iv) the imposition of overlapping debt by the Community Facilities District or other public agencies. Property Tax Delinquencies Under the Fiscal Agent Agreement, the Community Facilities District has the authority and the obligation to increase the levy of Special Taxes against non-delinquent property owners in the Community Facilities District if other owners are delinquent in the payment of Special Taxes. However, the Community Facilities District s ability to increase Special Tax levies for this purpose is limited by two factors: (a) the Maximum Special Tax rates set forth in the Rate and Method; and (b) the limitations on such increases set forth in the Act and the Resolution of Intention. The Act provides that under no circumstances may the Special Tax levied against any parcel used for private residential purposes be increased as a consequence of delinquency or default by an owner of any other parcel or parcels within the Community Facilities District by more than 10%. The Resolution of Intention provides that the Special Tax shall not be increased by more than 10% as a result of delinquencies of other property owners. Thus, the Community Facilities District may not be able to increase Special Tax levies in future fiscal years by enough to make up for delinquencies for prior fiscal years. If the Community Facilities District were not included within the County s Teeter Plan, this would result in defaults in the payment of principal of and interest on the Bonds. Although the Community Facilities District has covenanted under the Fiscal Agent Agreement to commence and diligently pursue foreclosure under certain circumstances (see SECURITY FOR THE BONDS Proceeds of Foreclosure Sales ), foreclosure delays may occur due to bankruptcy of delinquent property owners and other circumstances (see BONDOWNERS RISKS Bankruptcy and Foreclosure Delays ). Delinquencies in the payment of property taxes and the Special Taxes may result from any of a number of factors (including the state of the local economy and the local real estate market) affecting individual property owners, which may or may not apply to the property owners in the Community 45

52 Facilities District. See BONDOWNERS RISKS generally for discussions of certain potential causes of property tax delinquencies. Economic Uncertainty Economic uncertainty can affect the ability of homeowners or owners of apartment complexes to pay the Special Taxes or the marketability of the Bonds. As compared to the economic uncertainty and increased unemployment experienced in recent years, pursuant to the California Employment Development Department, unemployment rates decreased to approximately 3.5% for the City of Irvine through March, 2015 (not seasonally adjusted), as compared to 3.5% for calendar year 2014, decreased to approximately 4.1% for the City of Tustin through March, 2015 (not seasonally adjusted), as compared to 4.4% for calendar year 2014, decreased to approximately 4.4% for the Santa Ana/Anaheim/Irvine area through March, 2015 (not seasonally adjusted), as compared to 4.7% for calendar year 2014 and decreased to approximately 4.4% through March, 2015 (not seasonally adjusted), for the County as compared to 4.7% for calendar year State Budget. In recent years, as a result of the slow State and national economies, the State experienced serious budgetary shortfalls. More recently, State revenues have increased. The effect of State revenue shortfalls, should they occur in the future, on the local or State economy or on the demand for, or value of, the property within the Community Facilities District cannot be predicted. Concentration of Ownership No property owner is obligated in any manner to continue to own the land it presently owns within the Community Facilities District. The Special Taxes are not a personal obligation of any owner of the parcels, and the Community Facilities District can offer no assurance that any current owner or any future owner will be financially able to pay such installments or that it will choose to pay even if financially able to do so. As indicated in COMMUNITY FACILITIES DISTRICT NO Concentration of Special Tax Obligation, there are 7 apartment complexes owned primarily by a single entity, The Irvine Company, with one of the apartment complexes being owned by The Irvine Company and JHC-Culver, LP, as a joint venture for the purpose of providing affordable housing in the City of Irvine. In the aggregate, the 7 apartment complexes were subject to the levy of Special Taxes in Fiscal Year equal to approximately 34.08% of the aggregate Fiscal Year Special Taxes levied. Special Taxes Are Not Personal Obligations The current and future owners of land within the Community Facilities District are not personally liable for the payment of the Special Taxes. Rather, the Special Tax is an obligation only of the land within the Community Facilities District. If the value of the land within the Community Facilities District is not sufficient to fully secure the Special Tax, then the Community Facilities District has no recourse against the landowner under the laws by which the Special Tax has been authorized and levied and the Bonds have been issued. Assessed Values; Value-to-Lien Ratios Assessed Values. Prospective purchasers of the Bonds should not assume that the land within the Community Facilities District could be sold for the assessed amount described in this Official Statement at a foreclosure sale for delinquent Special Taxes. The assessed values summarized hereto estimates the fee simple interest assessed value of the property within the Community Facilities District. This value is merely the amount of the assessed value in the records maintained by the County Assessor. The assessed value relates to sale by a willing seller to 46

53 a willing buyer at a point in time, as adjusted by State law. Consequently, the assessed value is of limited use in predicting the selling price at a foreclosure sale, because the sale is forced and the buyer may not have the benefit of full information. No assurance can be given that if any of the Taxable Property in the Community Facilities District should become delinquent in the payment of Special Taxes, and be foreclosed upon, that such property could be sold for the assessed value. See COMMUNITY FACILITIES DISTRICT NO Historical and Current Assessed Values; Value-to-Lien Ratios. Value-to-Lien Ratios. Value-to-lien ratios have traditionally been used in land-secured bond issues as a measure of the collateral supporting the willingness of property owners to pay their special taxes and assessments (and, in effect, their general property taxes as well). The value-to-lien ratio is mathematically a fraction, the numerator of which is the value of the property (usually either the assessed value or a market value as determined by an appraiser) and the denominator of which is the lien of the assessments or special taxes. A value-to-lien ratio should not, however, be viewed as a guarantee of credit-worthiness. Land values are especially sensitive to economic cycles. A downturn of the economy may depress land values and hence the value-to-lien ratios. Further, the value-to-lien ratio cited for a bond issue is an average. Individual parcels in a community facilities district may fall above or below the average, sometimes even below a 1:1 ratio. (With a 1:1 ratio, the land is worth less than the debt on it.) Although judicial foreclosure proceedings can be initiated rapidly, the process can take several years to complete, and the bankruptcy courts may impede the foreclosure action. Finally, local agencies may form overlapping community facilities districts or assessment districts. They typically do not coordinate their bond issuances. Debt issuance by another entity can dilute value-to-lien ratios. See COMMUNITY FACILITIES DISTRICT NO Direct and Overlapping Debt. The Bonds Are Limited Obligations of the Community Facilities District The Community Facilities District has no obligation to pay principal of and interest on the Bonds in the event Special Tax collections are delinquent, other than from amounts, if any, on deposit in the Reserve Fund or funds derived from the tax sale or foreclosure and sale of parcels on which levies of the Special Tax are delinquent, nor is the Community Facilities District obligated to advance funds to pay such debt service on the Bonds. Neither the faith and credit nor the taxing power of the School District, the State or any political subdivision thereof other than the Community Facilities District is pledged to the payment of the Local Obligations. 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 School District, the State or any political subdivision thereof nor general obligations of the Community Facilities District, but are special obligations of the Community Facilities District, payable solely from Net Taxes and the other assets pledged therefor under the Fiscal Agent Agreement. Burden of Parity Liens, Taxes and Other Special Assessments on the Taxable Property While the Special Taxes are secured by the Taxable Property, the security only extends to the value of such Taxable Property that is not subject to priority and parity liens and similar claims. Table 7 in the section entitled COMMUNITY FACILITIES DISTRICT NO Historical and Current Assessed Values; Value-to-Lien Ratios indicates the presently outstanding amount of governmental obligations (with stated exclusions), the tax or assessment for which is or may become an obligation of one or more of the parcels of Taxable. The table does not specifically identify which of the governmental obligations are secured by liens on one or more of the parcels of Taxable Property. 47

54 In addition, other governmental obligations may be authorized and undertaken or issued in the future, the tax, assessment or charge for which may become an obligation of one or more of the parcels of Taxable Property and may be secured by a lien on a parity with the lien of the Special Tax securing the Bonds. In general, as long as the Special Taxes are collected on the County tax roll, the Special Taxes and all other taxes, assessments and charges also collected on the tax roll are on a parity, that is, are of equal priority. Questions of priority become significant when collection of one or more of the taxes, assessments or charges is sought by some other procedure, such as foreclosure and sale. In the event of proceedings to foreclose for delinquency of Special Taxes securing the Bonds, the Special Taxes will be subordinate only to existing prior governmental liens, if any. Otherwise, in the event of such foreclosure proceedings, the Special Taxes will generally be on a parity with the other taxes, assessments and charges, and will share the proceeds of such foreclosure proceedings on a pro rata basis. Although the Special Taxes will generally have priority over non-governmental liens on a parcel of Taxable Property, regardless of whether the non-governmental liens were in existence at the time of the levy of the Special Taxes or not, this result may not apply in the case of bankruptcy. While governmental taxes, assessments and charges are a common claim against the value of a parcel of Taxable Property, other less common claims may be relevant. One of the most serious in terms of the potential reduction in the value that may be realized to pay the Special Taxes is a claim with regard to a hazardous substance. See Factors Affecting Parcel Values and Aggregate Value Hazardous Substances below. Disclosure to Future Purchasers The Community Facilities District has recorded a Notice of Special Tax Lien in the office of the Orange County Recorder. While title companies normally refer to such notices in title reports, there can be no guarantee that such reference will be made or, if made, that a prospective purchaser or lender will consider such Special Tax obligation in the purchase of a parcel of land or a home in the Community Facilities District or the lending of money thereon. The Act requires the subdivider (or its agent or representative) of a subdivision to notify a prospective purchaser or long-term lessor of any lot, parcel, or unit subject to a Mello-Roos special tax of the existence and maximum amount of such special tax using a statutorily prescribed form. California Civil Code Section b requires that in the case of transfers, other than those covered by the above requirement, the seller must at least make a good faith effort to notify the prospective purchaser of the special tax lien in a format prescribed by statute. Failure by an owner of the property to comply with the above requirements, or failure by a purchaser or lessor to consider or understand the nature and existence of the Special Tax, could adversely affect the willingness and ability of the purchaser or lessor to pay the Special Tax when due. Insufficiency of the Special Tax The principal source of payment of principal of and interest on the Bonds is the proceeds of the annual levy and collection of the Special Tax against property within the Community Facilities District. The annual levy of the Special Tax is subject to the maximum tax rates authorized. The levy cannot be made at a higher rate even if the failure to do so means that the estimated proceeds of the levy and collection of the Special Tax, together with other available funds, will not be sufficient to pay debt service on the Bonds. Other funds which might be available include funds derived from the payment of penalties on delinquent Special Taxes and funds derived from the tax sale or foreclosure and sale of parcels on which levies of the Special Tax are delinquent. 48

55 The levy of the Special Tax will rarely, if ever, result in a uniform relationship between the value of particular Taxable Property and the amount of the levy of the Special Tax against such parcels. Thus, there will rarely, if ever, be a uniform relationship between the value of such parcels and the proportionate share of debt service on the Bonds, and certainly not a direct relationship. The Special Tax levied in any particular tax year on a Taxable Property is based upon the revenue needs and the application of the Rate and Method. Application of the Rate and Method will, in turn, be dependent upon certain development factors with respect to each Taxable Property by comparison with similar development factors with respect to the other Taxable Property within the Community Facilities District. Thus, in addition to annual variations of the revenue needs from the Special Tax, the following are some of the factors which might cause the levy of the Special Tax on any particular Taxable Property to vary from the Special Tax that might otherwise be expected: (1) Reduction in the amount of Taxable Property, for such reasons as acquisition of Taxable Property by a government and failure of the government to pay the Special Tax based upon a claim of exemption or, in the case of the federal government or an agency thereof, immunity from taxation, thereby resulting in an increased tax burden on the remaining parcels of Taxable Property; or (2) Failure of the owners of Taxable Property to pay the Special Tax and delays in the collection of or inability to collect the Special Tax by tax sale or foreclosure and sale of the delinquent parcels, thereby resulting in an increased tax burden on the remaining parcels of Taxable Property. Except as set forth above under SECURITY FOR THE BONDS Special Taxes and Rate and Method herein, the Fiscal Agent Agreement provides that the Special Tax is to be collected in the same manner as ordinary ad valorem property taxes are collected and, except as provided in the special covenant for foreclosure described in SECURITY FOR THE BONDS Proceeds of Foreclosure Sales and in the Act, is subject to the same penalties and the same procedure, sale and lien priority in case of delinquency as is provided for ad valorem property taxes. Pursuant to these procedures, if taxes are unpaid for a period of five years or more, the property is subject to sale by the County. In the event that sales or foreclosures of property are necessary, there could be a delay in payments to owners of the Bonds pending such sales or the prosecution of foreclosure proceedings and receipt by the Community Facilities District of the proceeds of sale if the Reserve Fund is depleted. See SECURITY FOR THE BONDS Proceeds of Foreclosure Sales. Exempt Properties Certain properties are exempt from the Special Tax in accordance with the Rate and Method (see SECURITY FOR THE BONDS Rate and Method herein). In addition, the Act provides that properties or entities of the state, federal or local government are exempt from the Special Tax; provided, however, that property within the Community Facilities District acquired by a public entity through negotiated transactions, or by gift or devise, which is not otherwise exempt from the Special Taxes will continue to be subject to the Special Taxes. In addition, the Act provides that if property subject to the Special Taxes is acquired by a public entity through eminent domain proceedings, the obligation to pay the Special Taxes with respect to that property is to be treated as if it were a special assessment and be paid from the eminent domain award. The constitutionality and operation of these provisions of the Act have not been tested. If for any reason property subject to the Special Taxes becomes exempt from taxation by reason of ownership by a non-taxable entity such as the federal government, or another public agency, subject to the limitation of the maximum authorized rate of levy, the Special Taxes may be reallocated to the remaining taxable properties within the Community Facilities District. This would 49

56 result in the owners of such property paying a greater amount of the Special Taxes and could have an adverse impact upon the timely payment of the Special Taxes; however, the amount of Special Tax to be levied and collected from the property owner is subject to the Special Taxes as permitted by the Special Tax Formula, the Act and the Resolution of Intention. If a substantial portion of land within the Community Facilities District became exempt from the Special Taxes because of public ownership, or otherwise, the maximum Special Taxes which could be levied upon the remaining acreage might not be sufficient to pay principal of and interest on the Bonds when due and a default will occur with respect to the payment of such principal and interest. The Act further provides that no other properties or entities are exempt from the Special Taxes unless the properties or entities are expressly exempted in a resolution of consideration to levy a new special tax or to alter the rate or method of apportionment of an existing special tax. The Act would prohibit the Board from adopting a resolution to reduce the rate of the Special Tax or terminate the levy of the Special Tax unless the Board determined that the reduction or termination of the Special Tax would not interfere with the timely retirement of the Bonds. See Right to Vote on Taxes Act below. Depletion of Reserve Fund Each Reserve Account of the Reserve Fund is to be maintained at an amount equal to its respective Reserve Requirement (see SECURITY FOR THE BONDS Reserve Fund herein). Funds in a Reserve Account may be used to pay principal of and interest on the corresponding Series of Bonds in the event the proceeds of the levy and collection of the Special Tax against property within the Community Facilities District is insufficient. If funds in a Reserve Account for the corresponding Series of Bonds are depleted, the funds can be replenished from the proceeds of the levy and collection of the Special Tax that are in excess of the amount required to pay all amounts to be paid to the Bondowners pursuant to the Fiscal Agent Agreement. However, no replenishment from the proceeds of a Special Tax levy can occur if the proceeds that are collected from the levy of the Special Tax against property within the Community Facilities District at the maximum tax rates, together with other available funds, remain insufficient to pay all such amounts. Thus it is possible that a Reserve Account will be depleted and not be replenished by the levy of the Special Tax. Bond Insurance Risk Factors. The Community Facilities District has acquired a Policy to guarantee the scheduled payment of principal and interest on the Insured Bonds. The following are risk factors relating to bond insurance. In the event of default of the payment of principal or interest with respect to the Insured Bonds when all or a portion becomes due, any Owner of the Insured Bonds shall have a claim under the Policy for such payments. The Policy does not insure against redemption premium. The payment of principal and interest in connection with mandatory or optional redemption of the Insured Bonds by the Community Facilities District which is recovered by the Community Facilities District from the Owner as a voidable preference under applicable bankruptcy law is covered by the Policy; however, such payments will be made by the Insurer at such time and in such amounts as would have been due absent such redemption by the Community Facilities District unless the Insurer chooses to pay such amounts at an earlier date. Under most circumstances, default of payment of principal and interest does not obligate acceleration of the obligations of the Bond Insurer without appropriate consent. The Bond Insurer may direct and must consent to any remedies and the Bond Insurer s consent may be required in connection with amendments to any applicable legal documents. 50

57 In the event the Bond Insurer is unable to make payment of principal and interest on the Insured Bonds as such payments become due under the Policy, the Insured Bonds are payable solely from the moneys received pursuant to the applicable legal documents. In the event the Bond Insurer becomes obligated to make payments with respect to the Insured Bonds, no assurance is given that such event will not adversely affect the market price of the Insured Bonds or the marketability (liquidity) for the Insured Bonds. The long-term ratings on the Insured Bonds are dependent in part on the financial strength of the Bond Insurer and its claims-paying ability. The Bond Insurer s financial strength and claims-paying ability are predicated upon a number of factors which could change over time. No assurance is given that the long-term ratings of the Bond Insurer and of the ratings on the Insured Bonds insured by the Bond Insurer will not be subject to downgrade and such event could adversely affect the market price of the Insured Bonds or the marketability (liquidity) for the Insured Bonds. See description of RATINGS herein. The obligations of the Bond Insurer are contractual obligations and in an event of default by the Bond Insurer, the remedies available may be limited by applicable bankruptcy law or state law related to insolvency of insurance companies. None of the Community Facilities District, the School District or the Underwriter has made independent investigation into the claims-paying ability of the Bond Insurer and no assurance or representation regarding the financial strength or projected financial strength of the Bond Insurer is given. Thus, when making an investment decision, potential investors should carefully consider the ability of the Community Facilities District to pay principal and interest on the Insured Bonds and the claims-paying ability of the Bond Insurer, particularly over the life of the investment. See BOND INSURANCE for further information provided by the Bond Insurer regarding the Bond Insurer and the Policy and for instructions for obtaining current financial information concerning the Bond Insurer. Potential Delay and Limitations in Foreclosure Proceedings The payment of property owners taxes and the ability of the Community Facilities District to foreclose the lien of a delinquent unpaid Special Tax pursuant to its covenant to pursue judicial foreclosure proceedings, may be limited by bankruptcy, insolvency or other laws generally affecting creditors rights or by the laws of the State relating to judicial foreclosure. See SECURITY FOR THE BONDS Proceeds of Foreclosure Sales and BONDOWNERS RISKS Bankruptcy and Foreclosure Delay herein. In addition, the prosecution of a foreclosure could be delayed due to many reasons, including crowded local court calendars or lengthy procedural delays. For a description of historical special tax collections in community facilities districts formed by the School District, see COMMUNITY FACILITIES DISTRICT NO Delinquency History; School District Community Facilities District Special Tax Delinquencies. The ability of the Community Facilities District to collect interest and penalties specified by State law and to foreclose against properties having delinquent Special Tax installments may be limited in certain respects with regard to properties in which the Federal Deposit Insurance Corporation (the FDIC ) has or obtains an interest. The FDIC would obtain such an interest by taking over a financial institution which has made a loan which is secured by property within the Community Facilities District. See BONDOWNERS RISKS Payments by FDIC and Other Federal Agencies herein. The Community Facilities District and the School District are unable to predict what effect the application of a policy statement by the FDIC regarding payment of State and local real property taxes would have in the event of a delinquency on a parcel within the Community Facilities District in which the FDIC has or obtains an interest, although prohibiting the lien of the FDIC to be foreclosed at a judicial 51

58 foreclosure sale would likely reduce or eliminate the persons willing to purchase a parcel at a foreclosure sale. In addition, potential investors should be aware that judicial foreclosure proceedings are not summary remedies and can be subject to significant procedural and other delays caused by crowded court calendars and other factors beyond the control of the Community Facilities District or the School District. Potential investors should assume that, under current conditions, it is estimated that a judicial foreclosure of the lien of Special Taxes will take up to two or three years from initiation to the lien foreclosure sale. At a Special Tax lien foreclosure sale, each parcel will be sold for not less than the minimum bid amount which is equal to the sum of all delinquent Special Tax installments, penalties and interest thereon, costs of collection (including reasonable attorneys fees), post-judgment interest and costs of sale. Each parcel is sold at foreclosure for the amounts secured by the Special Tax lien on such parcel and multiple parcels may not be aggregated in a single bulk foreclosure sale. If any parcel fails to obtain a minimum bid, the Community Facilities District, may, but is not obligated to, seek superior court approval to sell such parcel at an amount less than the minimum bid. Such superior court approval requires the consent of the owners of 75% of the aggregate principal amount of the outstanding Bonds. Delays and uncertainties in the Special Tax lien foreclosure process create significant risks for Bondowners. High rates of special tax payment delinquencies, which continue during the pendency of protracted Special Tax lien foreclosure proceedings, could result in the rapid, total depletion of the Reserve Fund prior to replenishment from the resale of property upon foreclosure. In that event, there could be a default in payment of the principal of, and interest on, the Bonds. See Concentration of Ownership above. Bankruptcy and Foreclosure Delay The payment of Special Taxes and the ability of the Community Facilities District to foreclose the lien of delinquent Special Taxes as discussed in the section herein entitled SECURITY FOR THE BONDS may be limited by bankruptcy, insolvency, or other laws generally affecting creditors rights or by the laws of the State relating to judicial foreclosure. In addition, the prosecution of a judicial foreclosure may be delayed due to congested local court calendars or procedural delays. The various legal opinions to be delivered concurrently with the delivery of the Bonds (including Bond Counsel s approving legal opinion) will be qualified, as to the enforceability of the various legal instruments, by moratorium, bankruptcy, reorganization, insolvency or other similar laws affecting the rights of creditors generally. Although bankruptcy proceedings would not cause the obligation to pay the Special Tax to become extinguished, bankruptcy of a property owner or of a partner or other equity owner of a property owner, could result in a stay of enforcement of the lien for the Special Taxes, a delay in prosecuting superior court foreclosure proceedings or adversely affect the ability or willingness of a property owner to pay the Special Taxes and could result in the possibility of delinquent Special Taxes not being paid in full. In addition, 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 could then be treated as an unsecured claim by the court. Any such stay of the enforcement of the lien for the Special Tax, or any such delay or non-payment, would increase the likelihood of a delay or default in payment of the principal of and interest on the Bonds and the possibility of delinquent Special Taxes not being paid in full. Moreover, amounts received upon foreclosure sales may not be sufficient to fully discharge delinquent installments 52

59 On July 30, 1992, the United States Court of Appeals for the Ninth Circuit issued its opinion in a bankruptcy case entitled In re Glasply Marine Industries. In that case, the court held that ad valorem property taxes levied by Snohomish County in the State of Washington after the date that the property owner filed a petition for bankruptcy were not entitled to priority over a secured creditor with a prior lien on the property. The court upheld the priority of unpaid taxes imposed after the filing of the bankruptcy petition as administrative expenses of the bankruptcy estate, payable after all secured creditors. As a result, the secured creditor was able to foreclose on the property and retain all of the proceeds of the sale except the amount of the pre-petition taxes. According to the court s ruling, as administrative expenses, post-petition taxes would have to be paid, assuming that the debtor has sufficient assets to do so. In certain circumstances, payment of such administrative expenses may be allowed to be deferred. Once the property is transferred out of the bankruptcy estate (through foreclosure or otherwise) it would at that time become subject to current ad valorem taxes. The Act provides that the Special Taxes are secured by a continuing lien, which is subject to the same lien priority in the case of delinquency as ad valorem taxes. No case law exists with respect to how a bankruptcy court would treat the lien for the Special Taxes levied after the filing of a petition in bankruptcy. Glasply is controlling precedent for bankruptcy courts in the State. If the Glasply precedent was applied to the levy of the Special Tax, the amount of Special Tax received from parcels whose owners declare bankruptcy could be reduced. It should also be noted that on October 22, 1994, Congress enacted 11 U.S. C. Section 362(b)(18), which added a new exception to the automatic stay for ad valorem property taxes imposed by a political subdivision after the filing of a bankruptcy petition. Pursuant to this new provision of law, in the event of a bankruptcy petition filed on or after October 22, 1994, the lien for ad valorem taxes in subsequent fiscal years will attach even if the property is part of the bankruptcy estate. Bondowners should be aware that the potential effect of 11 U.S. C. Section 362(b)(18) on the Special Taxes depends upon whether a court were to determine that the Special Taxes should be treated like ad valorem taxes for this purpose. In addition, potential investors should be aware that judicial foreclosure proceedings are not summary remedies and can be subject to significant procedural and other delays caused by crowded court calendars and other factors beyond control of the Community Facilities District or the School District. Potential investors should assume that, under current conditions, it is estimated that a judicial foreclosure of the lien of Special Taxes will take up to two or three years from initiation to the lien foreclosure sale. At a Special Tax lien foreclosure sale, each parcel will be sold for not less than the minimum bid amount which is equal to the sum of all delinquent Special Tax installments, penalties and interest thereon, costs of collection (including reasonable attorneys fees), post-judgment interest and costs of sale. Each parcel is sold at foreclosure for the amounts secured by the Special Tax lien on such parcel and multiple parcels may not be aggregated in a single bulk foreclosure sale. If any parcel fails to obtain a minimum bid, the Community Facilities District may, but is not obligated to, seek superior court approval to sell such parcel at an amount less than the minimum bid. Such superior court approval requires the consent of the owners of 75% of the aggregate principal amount of the Outstanding Bonds. Other laws generally affecting creditors rights or relating to judicial foreclosure may affect the ability to enforce payment of Special Taxes or the timing of enforcement of Special Taxes. For example, the Soldiers and Sailors Civil Relief Act of 1940 affords protections such as a stay in enforcement of the foreclosure covenant, a six-month period after termination of such military service to redeem property sold to enforce the collection of a tax or assessment, and a limitation on the interest rate on the delinquent tax or assessment to persons in military service if the court concludes the ability to pay such taxes or assessments is materially affected by reason of such service. 53

60 Payments by FDIC and Other Federal Agencies The ability of the Community Facilities District to collect 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 ), the Federal National Mortgage Association ( Fannie Mae ), Freddie Mac (formerly the Federal Home Loan Mortgage Corporation), the Drug Enforcement Agency, the Internal Revenue Service or other similar federal governmental agencies has or obtains an interest. Specifically, with respect to the FDIC, 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 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. The Community Facilities District is unable to predict what effect the application of the Policy Statement would have in the event of a delinquency on a parcel within the Community Facilities District in which the FDIC has or obtains an interest, although prohibiting the lien of the FDIC to be foreclosed at a judicial foreclosure sale would reduce or eliminate the persons willing to purchase a parcel at a foreclosure sale. Owners of the Bonds should assume that the Community Facilities District will be unable to collect Special Taxes or 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 Bonds. Based upon the secured tax roll as of January 1, 2014, the FDIC did not own any of the property in the Community Facilities District. The Community Facilities District expresses no view concerning the likelihood that the risks described above will materialize while the Bonds are outstanding. 54

61 Similarly, in the event a parcel of taxable property is owned by a federal government entity or federal government sponsored entity, such as Fannie Mae or Freddie Mac, or a private deed of trust secured by a parcel of taxable property is owned by a federal government entity or federal government sponsored entity, such as Fannie Mae or Freddie Mac, the ability to foreclose on the parcel or to collect delinquent Special Taxes may be limited. Federal courts have held that, based on the supremacy clause of the United States Constitution ( This Constitution, and the Laws of the United States which shall be made in Pursuance thereof; and all Treaties made, or which shall be made, under the Authority of the United States, shall be the supreme Law of the Land; and the Judges in every State shall be bound thereby, any Thing in the Constitution or Laws of any State to the contrary notwithstanding. ), in the absence of Congressional intent to the contrary, a state or local agency cannot foreclose to collect delinquent taxes or assessments if foreclosure would impair the federal government interest. This means that, unless Congress has otherwise provided, if a federal government entity owns a parcel of taxable property but does not pay taxes and assessments levied on the parcel (including Special Taxes), the applicable state and local governments cannot foreclose on the parcel to collect the delinquent taxes and assessments. Moreover, unless Congress has otherwise provided, if the federal government has a mortgage interest in the parcel and a District wishes to foreclose on the parcel as a result of delinquent Special Taxes, the property cannot be sold at a foreclosure sale unless it can be sold for an amount sufficient to pay delinquent taxes and assessments on a parity with the Special Taxes and preserve the federal government s mortgage interest. For a discussion of risks associated with taxable parcels within the Community Facilities District becoming owned by the federal government, federal government entities or federal government sponsored entities, see Insufficiency of Special Taxes and Exempt Properties. Factors Affecting Parcel Values and Aggregate Value Geologic, Topographic and Climatic Conditions. The value of the Taxable Property in the Community Facilities District in the future can be adversely affected by a variety of additional factors, particularly those which may affect infrastructure and other public improvements and private improvements on the parcels of Taxable Property and the continued habitability and enjoyment of such private improvements. Such additional factors include, without limitation, geologic conditions such as earthquakes and volcanic eruptions, topographic conditions such as earth movements, landslides, liquefaction, floods or fires, and climatic conditions such as tornadoes, droughts, and the possible reduction in water allocation or availability. The Community Facilities District is not within a flood zone and flood insurance is not required within the Community Facilities District. Grading and slopes were to be constructed in a manner expected to remain stable. It is possible that one or more of the conditions referenced above may occur and may result in damage to improvements of varying seriousness, that the damage may entail significant repair or replacement costs and that repair or replacement may never occur either because of the cost or because repair or replacement will not facilitate habitability or other use, or because other considerations preclude such repair or replacement. Under any of these circumstances, the value of the Taxable Property may well depreciate or disappear. Seismic Conditions. The Community Facilities District, like all California communities, may be subject to unpredictable seismic activity. The occurrence of seismic activity in the Community Facilities District could result in substantial damage to properties in the Community Facilities 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. Any major damage to structures as a result of seismic activity could result in greater reliance on undeveloped property in the payment of Special Taxes. January 17, 2014 Governor State of Emergency Proclamation regarding Drought. On January 17, 2014, with California facing water shortfalls in the then driest year in recorded state history, Governor Edmund G. Brown Jr. proclaimed a State of Emergency and directed state officials to take all necessary actions to prepare for these drought conditions. In the State of Emergency declaration, 55

62 Governor Brown directed state officials to assist farmers and communities that are economically impacted by dry conditions and to ensure the State can respond if Californians face drinking water shortages. The Governor also directed state agencies to use less water and hire more firefighters and initiated a greatly expanded water conservation public awareness. In addition, the proclamation gave state water officials more flexibility to manage supply throughout California under drought conditions. The Governor s drought State of Emergency follows a series of actions the administration has taken to ensure that California is prepared for record dry conditions. In May 2013, Governor Brown issued an Executive Order to direct state water officials to expedite the review and processing of voluntary transfers of water and water rights. In December 2014, the Governor formed a Drought Task Force to review expected water allocations, California s preparedness for water scarcity and whether conditions merit a drought declaration. On April 1, 2015, for the first time in state history, the Governor directed the State Water Resources Control Board to implement mandatory water reductions in cities and towns across California to reduce water usage by 25 percent. This savings amounts to approximately 1.5 million acre-feet of water over the next nine months. California set a new "low water" mark on April 1, 2015, with its early-april snowpack measurement. The statewide electronic reading of the snowpack's water content stood at 5 percent of the April 1st average. April 1, 2015 s content was only 1.4 inches, or 5 percent of the 28-inch average. The lowest previous reading since 1950 was 25 percent of average, so Water Year 2015 is the driest winter in California's written record. The implementation of mandatory water reductions is ongoing. The Community Facilities District cannot predict how long the drought conditions will last, what effect drought conditions may have on property values or whether or to what extent water reduction requirements may affect the homeowners or owners of the apartment complexes in the Community Facilities District. Hazardous Substances. While government taxes, assessments, and charges are a common claim against the value of a taxed parcel, other less common claims can occur. One of the most serious in terms of the potential reduction in the value that may be realized to pay the Special Taxes is a claim with regard to hazardous substances. 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. Further, it is possible that liabilities may arise in the future with respect to any of the land within the Community Facilities Districts resulting from the existence, currently, of a substance presently classified as hazardous but which has not been released or 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. 56

63 Legal Requirements. Other events which may affect the value of a parcel of Taxable Property in the Community Facilities District include changes in the law or application of the law. Such changes may include, without limitation, local growth control initiatives, local utility connection moratoriums and local application of statewide tax and governmental spending limitation measures. No Acceleration Provisions The Bonds do not contain a provision allowing for the acceleration of the Bonds in the event of a payment default or other default under the terms of the Bonds or the Fiscal Agent Agreement. Pursuant to the Fiscal Agent Agreement, a Bondowner is given the right for the equal benefit and protection of all Bondowners similarly situated to pursue certain remedies (see APPENDIX C SUMMARY OF CERTAIN PROVISIONS OF THE FISCAL AGENT AGREEMENT herein). So long as the Bonds are in book-entry form, DTC will be the sole Bondowner and will be entitled to exercise all rights and remedies of Bondowner. 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 Community Facilities 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 Community Facilities District would eliminate such protection from delinquent Special Taxes. See SECURITY FOR THE BONDS The Teeter Plan. Community Facilities District Formation California voters, on June 6, 1978, approved an amendment ( Article XIIIA ) to the California Constitution. Section 4 of Article XIIIA, requires a vote of two-thirds of the qualified electorate to impose special taxes, or any additional ad valorem, sales or transaction taxes on real property. At an election held in the Community Facilities District, pursuant to the Act, more than two-thirds of the qualified electors within the Community Facilities District authorized the Community Facilities District to incur bonded indebtedness to finance the Facilities and approved the Rate and Method. The Supreme Court of the State of California has not yet decided whether landowner elections (as opposed to resident elections) satisfy requirements of Section 4 of Article XIIIA, nor has the Supreme Court decided whether the special taxes of a community facilities district constitute a special tax for purposes of Article XIIIA. Section of the Act requires that any action or proceeding to attack, review, set aside, void or annul the levy of a special tax or an increase in a special tax pursuant to the Act shall be commenced within 30 days after the special tax is approved by the voters. No such action has been filed with respect to the Special Tax. Billing of Special Taxes A special tax formula can result in a substantially heavier property tax burden being imposed upon properties within a community facilities district than elsewhere in a city or county, and this in turn can lead to problems in the collection of the special tax. In some community facilities districts the taxpayers have refused to pay the special tax and have commenced litigation challenging the special tax, the community facilities district and the bonds issued by the community facilities district. 57

64 Under provisions of the Act, the Special Taxes are billed to the properties within the Community Facilities District which were entered on the Assessment Roll of the County Assessor by January 1 of the previous fiscal year on the regular property tax bills sent to owners of such properties. Such Special Tax installments are due and payable, and bear the same penalties and interest for non-payment, as do regular property tax installments. These Special Tax installment payments cannot be made separately from property tax payments. Therefore, the unwillingness or inability of a property owner to pay regular property tax bills as evidenced by property tax delinquencies may also indicate an unwillingness or inability to make regular property tax payments and installment payments of Special Taxes in the future. See SECURITY FOR THE BONDS Proceeds of Foreclosure Sales, for a discussion of the provisions which apply, and procedures which the Community Facilities District is obligated to follow, in the event of delinquency in the payment of installments of Special Taxes. Inability to Collect Special Taxes In order to pay debt service on the Bonds, it is necessary that the Special Tax levied against land within the Community Facilities District be paid in a timely manner. The Community Facilities District has covenanted in the Fiscal Agent Agreement under certain conditions to institute foreclosure proceedings against property with delinquent Special Tax in order to obtain funds to pay debt service on the Bonds. If foreclosure proceedings were instituted, any mortgage or deed of trust holder could, but would not be required to, advance the amount of the delinquent Special Tax to protect its security interest. In the event such superior court foreclosure is necessary, there could be a delay in principal and interest payments to the owners of the Bonds pending prosecution of the foreclosure proceedings and receipt of the proceeds of the foreclosure sale, if any. No assurances can be given that the real property subject to foreclosure and sale at a judicial foreclosure sale will be sold or, if sold, that the proceeds of such sale will be sufficient to pay any delinquent Special Tax installment. Although the Act authorizes the Board, as the Legislative Body of the Community Facilities District, to cause such an action to be commenced and diligently pursued to completion, the Act does not specify the obligations of the Board with regard to purchasing or otherwise acquiring any lot or parcel of property sold at the foreclosure sale if there is no other purchaser at such sale. Right to Vote on Taxes Act An initiative measure, Proposition 218, commonly referred to as the Right to Vote on Taxes Act (the Initiative ) was approved by the voters of the State of California at the November 5, 1996, general election. The Initiative added Article XIIIC ( Article XIIIC ) and Article XIIID to the California Constitution. According to the Title and Summary of the Initiative, prepared by the California Attorney General, the Initiative limits the authority of local governments to impose taxes and property-related assessments, fees and charges. The provisions of the Initiative as they may relate to community facilities districts are subject to interpretation by the courts. Among other things, Section 3 of Article XIIIC 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. On July 1, 1997, a bill signed into law by the Governor of the State enacting Government Code Section 5854, which states that: Section 3 of Article XIIIC of the California Constitution, as adopted at the November 5, 1996, general election, shall not be construed to mean that any owner or 58

65 beneficial owner of a municipal security, purchased before or after that date, assumes the risk of, or in any way consents to, any action by initiative measure that constitutes an impairment of contractual rights protected by Section 10 of Article I of the United States Constitution. Accordingly, although the matter is not free from doubt, it is likely that the Initiative has not conferred on the voters the power to repeal or reduce the Special Taxes if such reduction would interfere with the timely retirement of the Bonds. It may be possible, however, for voters of the Community Facilities District to reduce the Special Taxes in a manner which does not interfere with the timely repayment of the 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 Bonds. The Act also establishes time limits for initiating any challenge to the validity of special taxes levied pursuant to the Act and any challenge to the validity of bonds issued pursuant to the Act. Section of the Act provides that: Any action or proceeding to attack, review, set aside, void, or annul the levy of a special tax or an increase in a special tax pursuant to this chapter shall be commenced within 30 days after the special tax is approved by the voters. Any appeal from a final judgment in that action or proceeding shall be perfected within 30 days after the entry of judgment. Section of the Act provides that: An action to determine the validity of bonds issued pursuant to this chapter or the validity of any special taxes levied pursuant to this chapter may be brought pursuant to Chapter 9 (commencing with Section 860) of Title 10 of Part 2 of the Code of Civil Procedure but shall, notwithstanding the time limits specified in Section 860 of the Code of Civil Procedure, be commenced within 30 days after the voters approve the issuance of the bonds or the special tax if the action is brought by an interested person pursuant to Section 863 of the Code of Civil Procedure. Any appeal from a judgment in that action or proceeding shall be commenced within 30 days after entry of judgment. Like its antecedents, the Initiative is likely to undergo both judicial and legislative scrutiny before its impact on the Community Facilities District and its obligations can be determined. Certain provisions of the Initiative may be examined by the courts for their constitutionality under both State and federal constitutional law. For example, on August 1, 2014, in City of San Diego. v. Shapiro, an Appellate Court ruled that an election held by the City of San Diego to authorize the levying of special taxes on hotels city-wide pursuant to a City of San Diego ordinance which created a convention center facilities district and which specifically defined the electorate to consist solely of (1) the owners of real property in the City of San Diego on which a hotel is located, and (2) the lessees of real property owned by a governmental entity on which a hotel is located, was invalid under the California Constitution because such landowners and lessees are neither qualified electors of the City of San Diego for purposes of Articles XIII A, Section 4 of the California Constitution nor do they comprise a proper electorate under Article XIIIC, Section 2(d). (At the time the Community Facilities District election was conducted, there were no registered voters.) The Court specifically noted that the decision did not require the Court to consider the distinct question of whether landowner voting to impose special taxes 59

66 pursuant to Section 53326(b) of the Act is constitutional under Article XIII A, Section 4 and Article XIIIC, Section 2(d) in districts that lack sufficient registered voters to conduct an election among registered voters, and thus does not affect the validity of the levy of the Special Taxes by a District. In addition, the provisions of the Act described above that establish time limits for initiating any challenge to the validity of the Special Taxes levied pursuant to the Act or the issuance of Bonds pursuant to the Act described above would provide obstacles to any party which sought to present a legal challenge to the validity of the Special Taxes or the Bonds based on the City of San Diego v. Shapiro case. The Community Facilities District is not able to predict the outcome of any such examination of the Initiative in relation to community facilities districts formed under the Act. The Community Facilities District covenants in the Fiscal Agent Agreement that no modification of the maximum authorized Special Taxes within the Community Facilities District shall be approved by the Community Facilities District which would prohibit the Community Facilities District from levying the Special Tax within the Community Facilities District in any Fiscal Year at such a rate as could generate Special Taxes within the Community Facilities District in each Fiscal Year at least equal to 110% of Annual Debt Service plus estimated annual Administrative Expenses. The Community Facilities District further covenants that in the event an ordinance is adopted by initiative pursuant to Section 3 of Article XIIIC of the California Constitution, which purports to reduce or otherwise alter the maximum authorized Special Taxes, it will, to the extent of available District funds therefore, commence and pursue legal action seeking to preserve its ability to comply with its covenant contained in the preceding sentence. The foregoing discussion of the Initiative should not be considered an exhaustive or authoritative treatment of the issues. The Community Facilities District does not expect to be in a position to control the consideration or disposition of these issues and cannot predict the timing or outcome of any judicial or legislative activity in this regard. Interim rulings, final decisions, legislative proposals and legislative enactments may all affect the impact of the Initiative on the Bonds as well as the market for the Bonds. Legislative and court calendar delays and other factors may prolong any uncertainty regarding the effects of the Initiative. Ballot Initiatives and Legislative Measures The Initiative was adopted pursuant to a measure qualified for the ballot pursuant to California s constitutional initiative process, and the State Legislature has in the past enacted legislation which has altered the spending limitations or established minimum funding provisions for particular activities. From time to time, other initiative measures could be adopted by California voters or legislation enacted by the State Legislature. The adoption of any such initiative or enactment of legislation might place limitations on the ability of the State, the County, the School District or local districts to increase revenues or to increase appropriations or on the ability of a property owner to complete the development of the property. Limited Secondary Market There can be no guarantee that there will be a secondary market for the Bonds or, if a secondary market exists, that such Bonds can be sold for any particular price. Although the Community Facilities District has committed to provide certain statutorily-required financial and operating information, there can be no assurance that such information will be available to Bondowners on a timely basis. The failure to provide the required annual financial information does not give rise to monetary damages but merely an action for specific performance. Occasionally, because of general market conditions, lack of current information, the absence of credit rating for the Bonds or because of adverse history or economic prospects connected with a particular issue, secondary marketing practices in connection with a particular issue are suspended or terminated. Additionally, prices of issues for which a market is being made will 60

67 depend upon then prevailing circumstances. Such prices could be substantially different from the original purchase price. Loss of Tax Exemption As discussed under the caption LEGAL MATTERS Tax Exemption, the interest on the 2015 Series A Bonds could become includable in gross income for federal income tax purposes retroactive to the date of issuance of the 2015 Series A Bonds as a result of a failure of the Community Facilities District to comply with certain provisions of the Code. In order to maintain the exclusion from gross income for federal income tax purposes of the interest on the 2015 Series A Bonds, the Community Facilities District has covenanted in the Fiscal Agent Agreement not to 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 2015 Series A Bonds under Section 103 of the Internal Revenue Code of 1986, as amended. Interest on the 2015 Series A Bonds could become includable in gross income for purposes of federal income taxation retroactive to the date the 2015 Series Bonds were issued, as a result of acts or omissions of the Community Facilities District in violation of the Code. Should such an event of taxability occur, the 2015 Series A Bonds are not subject to early redemption and will remain outstanding to maturity or until redeemed under one of the redemption provisions contained in the Fiscal Agent Agreement, as applicable. See THE BONDS Redemption. IRS Audit of Tax-Exempt Bond Issues The Internal Revenue Service has initiated an expanded program for the auditing of tax-exempt bond issues, including both random and targeted audits and examinations. It is possible that the 2015 Series A Bonds will be selected for audit or examination by the Internal Revenue Service. It is also possible that the market value of the 2015 Series A Bonds might be affected as a result of such an audit or examination of the 2015 Series A Bonds (or by an audit of similar bonds). Impact of Legislative Proposals, Clarifications of the Code and Court Decisions on Tax Exemption Future legislative proposals, if enacted into law, clarification of the Code or court decisions may cause interest on the 2015 Series A Bonds to be subject, directly or indirectly, to federal income taxation or to be subject to or exempted from state income taxation, or otherwise prevent Beneficial Owners from realizing the full current benefit of the tax status of such interest. The introduction or enactment of any such future legislative proposals, clarification of the Code or court decisions may also affect the market price for, liquidity of or marketability of, the 2015 Series A Bonds. In 2013 and 2014, legislative changes were proposed in Congress, which, if enacted would result in additional federal income tax being imposed on certain owners of tax-exempt state or local obligations, such as the 2015 Series A Bonds. Prospective purchasers of the 2015 Series A Bonds should consult their own tax advisors regarding any pending or proposed federal or state tax legislation, regulations or litigation as to which Bond Counsel expresses no opinion. As discussed in this Official Statement under the caption LEGAL MATTERS - Tax Exemption, interest on the 2015 Series A Bonds could become includable in gross income for purposes of federal income taxation retroactive to the date the 2015 Series A Bonds were issued as a result of future acts or omissions of the Community Facilities District in violation of its covenants in the Fiscal Agent Agreement. Should such an event of taxability occur, the 2015 Series A Bonds are not subject to special redemption or acceleration and will remain outstanding until maturity or until redeemed under one of the redemption provisions contained in the Fiscal Agent Agreement. 61

68 Backup Withholding Interest paid with respect to tax-exempt obligations such as the 2015 Series A Bonds is subject to information reporting to the IRS in a manner similar to interest paid on taxable obligations. In addition, interest with respect to the Bonds may be subject to backup withholding if such interest is paid to a registered owner that (a) fails to provide certain identifying information (such as the registered owner s taxpayer identification number) in the manner required by the IRS, or (b) has been identified by the IRS as being subject to backup withholding. Limitations on Remedies Remedies available to the Bondowners may be limited by a variety of factors and may be inadequate to assure the timely payment of principal of and interest on the Bonds or to preserve the taxexempt status of the Bonds. See Payments by FDIC and Other Federal Agencies, No Acceleration Provisions and Billing of Special Taxes herein. Legal Opinion LEGAL MATTERS The legal opinions of Bowie, Arneson, Wiles & Giannone, Newport Beach, California, Bond Counsel, approving the validity of each Series of Bonds will be made available to purchasers at the time of original delivery and the forms of which are attached hereto as APPENDIX E. A copy of the corresponding legal opinion will be printed on the Bonds of each Series. McFarlin & Anderson LLP, Laguna Hills, California is serving as Disclosure Counsel. Bowie, Arneson, Wiles & Giannone will also pass upon certain legal matters for the School District and the Community Facilities District as special counsel to these entities. Nossaman LLP, Irvine, California, is serving as Underwriter s Counsel. Tax Exemption 2015 Series A Bonds. In the opinion of Bowie, Arneson, Wiles & Giannone, Newport Beach, California, Bond Counsel, subject, however, to certain qualifications described herein, based upon an analysis of existing statutes, regulations, rulings, and court decisions and assuming, among other things, compliance with certain covenants, interest on the 2015 Series A Bonds is excluded from gross income for federal income tax purposes. In the opinion of Bond Counsel, such interest is not an item of tax preference for purposes of the federal alternative minimum tax imposed on individuals and corporations. In addition, interest on the 2015 Series A Bonds is included as an adjustment in calculating federal corporate alternative minimum taxable income for purposes of determining a corporation's alternative minimum tax liability. The opinions of Bond Counsel set forth in the preceding paragraph are subject to the condition that the Community Facilities District complies with all requirements of the Code that must be satisfied subsequent to the issuance of the 2015 Series A Bonds in order that such interest be, or continue to be, excluded from gross income for federal income tax purposes. The Community Facilities District has covenanted in the Fiscal Agent Agreement to comply with each such requirement. Failure to comply with certain of such requirements may cause the inclusion of such interest in gross income federal income tax purposes to be retroactive to the date of issuance of the 2015 Series A Bonds. The Fiscal Agent Agreement and other related documents refer to certain requirements, covenants and procedures which may be changed and certain actions that may be taken, upon the advice or with an opinion of nationally recognized bond counsel. No opinion is expressed by Bond Counsel as to the effect on any Bond or the interest thereon if any such change is made or action is taken upon the advice or approval of counsel other 62

69 than Bond Counsel. Bond Counsel expresses no opinion regarding other tax consequences arising with respect to the Bonds. In the further opinion of Bond Counsel, interest on the 2015 Series A Bonds is exempt from State personal income taxation. Owners of the Bonds should also be aware that the ownership or disposition of, or the accrual or receipt of interest on, the Bonds may have federal or State tax consequences other than as described above. Bond Counsel expresses no opinion regarding any federal or State tax consequences arising with respect to the Bonds other than as expressly described above Series B Bonds. In the opinion of Bond Counsel, interest on the 2015 Series A Bonds is exempt from State of California personal income taxation. Other Federal or State Tax Consequences. Owners of the Bonds should also be aware that the ownership or disposition of, or the accrual or receipt of interest on, the Bonds may have federal or State tax consequences other than as described above. Bond Counsel expresses no opinion regarding any federal or State tax consequences arising with respect to the Bonds other than as expressly described above. See APPENDIX E for the proposed forms of the opinions of Bond Counsel. Bond Counsel's engagement with respect to the Bonds ends with the issuance of the Bonds, and, unless separately engaged, Bond Counsel is not obligated to defend the Community Facilities District or the School District, as applicable, or the Beneficial Owners regarding the tax-exempt status of the 2015 Series A Bonds in the event of an audit examination by the IRS. Under current procedures, parties other than the Community Facilities District and their respective 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 Community Facilities District legitimately disagrees may not be practicable. Any action of the IRS, including but not limited to selection of the 2015 Series A Bonds for audit, or the course or result of such audit, or an audit of 2015 Series A Bonds presenting similar tax issues may affect the market price for, or the marketability of, the 2015 Series A Bonds, and may cause the Community Facilities District, the School District or the Beneficial Owners to incur significant expense. Original Issue Discount; Premium Bonds. To the extent the issue price of any maturity of the 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 Owner thereof, is treated as interest, and, in the case of the 2015 Series A Bonds, such interest is excluded from gross income for federal income tax purposes and in with respect to both Series of Bonds is treated as interest on each Series of Bonds which is excluded from State personal income taxes. For this purpose, the issue price of a particular maturity of the Bonds is the first price at which a substantial amount of such maturity of the 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 Bonds accrues daily over the term to maturity of such Bonds on the basis of a constant interest rate compounded semi-annually (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. Owners of the Bonds should consult their own tax advisors with respect to the tax consequences of ownership of the Bonds with original issue discount, including the treatment of purchasers who do not 63

70 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. The Bonds purchased, whether at original issuance or otherwise, for an amount greater 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 in the case of the 2015 Series A Bonds is excluded from gross income for federal income tax purposes. However, a purchaser's basis in a Premium Bond, and under Treasury Regulations the amount of tax-exempt interest received with respect to the 2015 Series A Bonds, will be reduced by the amount of amortizable bond premium properly allocable to such purchaser. Owners of Premium Bonds should consult their own tax advisors with respect to the proper treatment of amortizable bond premium in their particular circumstances. Impact of Legislative Proposals, Clarifications of the Code and Court Decisions on Tax Exemption. Future legislative proposals, if enacted into law, clarification of the Code or court decisions may cause interest on the 2015 Series A Bonds to be subject, directly or indirectly, to federal income taxation or may cause interest on the Bonds to be subject to or exempted from state income taxation, or otherwise prevent Owners of the Bonds from realizing the full current benefit of the tax status of such interest. The introduction or enactment of any such future legislative proposals, clarification of the Code or court decisions may also affect the market price for, liquidity of or marketability of, the Bonds. In 2013 and 2014, legislative changes were proposed in Congress, which, if enacted, would result in additional federal income tax being imposed on certain owners of tax-exempt state or local obligations, such as the 2015 Series A Bonds. Prospective purchasers of the Bonds should consult their own tax advisors regarding any pending or proposed federal or state tax legislation, regulations or litigation as to which Bond Counsel expresses no opinion. Interest on the 2015 Series A Bonds could become includable in gross income for purposes of federal income taxation retroactive to the date the 2015 Series A Bonds were issued as a result of future acts or omissions of the Community Facilities District in violation of its covenants in the Fiscal Agent Agreement. Should such an event of taxability occur, the 2015 Series A Bonds are not subject to special redemption or acceleration and will remain outstanding until maturity or until redeemed under one of the redemption provisions contained in the Fiscal Agent Agreement. Backup Withholding. Interest paid with respect to tax-exempt obligations such as the 2015 Series A Bonds is subject to information reporting to the IRS in a manner similar to interest paid on taxable obligations. In addition, interest with respect to the Bonds may be subject to backup withholding if such interest is paid to a registered owner that (a) fails to provide certain identifying information (such as the registered owner s taxpayer identification number) in the manner required by the IRS, or (b) has been identified by the IRS as being subject to backup withholding. IRS Audit of Tax-Exempt Bond Issues. The IRS has initiated an expanded program for the auditing of tax-exempt bond issues, including both random and targeted audits. It is possible that the 2015 Series A Bonds will be selected for audit by the IRS. It is also possible that the market value of the 2015 Series A Bonds might be affected as a result of such an audit of the 2015 Series A Bonds (or by an audit of similar bonds or securities). Absence of Litigation No litigation is pending or threatened concerning the validity of the Bonds. There is no action, suit or proceeding known by the Community Facilities District or the School District to be pending at the present time restraining or enjoining the delivery of the Bonds or in any way contesting or affecting the validity of the Bonds or any proceedings of the Community Facilities District or the School District taken with respect to the execution thereof. A no litigation certification executed by the School District, on 64

71 behalf of the Community Facilities District, will be delivered to the Underwriter simultaneously with the delivery of the Bonds. No General Obligation of School District or Community Facilities District The Bonds are not general obligations of the School District or the Community Facilities District, but are limited obligations of the Community Facilities District payable solely from proceeds of the Special Tax of the Community Facilities District and proceeds of the Bonds, including amounts in the Reserve Accounts of the Reserve Fund, the Special Tax Fund and the Bond Fund and investment income on funds held pursuant to the Fiscal Agent Agreement (other than as necessary to be rebated to the United States of America pursuant to Section 148(f) of the Code and any applicable regulations promulgated pursuant thereto). Any tax levied for the payment of the Bonds shall be limited to the Special Taxes to be collected within the Community Facilities District. RATINGS Standard & Poor s Ratings Services, a Standard & Poor s Financial Services LLC business ( S&P ), will assign the rating of AA to the Insured Bonds with the understanding that, upon delivery of the Insured Bonds, the Insurance Policy will be issued by the Bond Insurer. Additionally, S&P has assigned the Bonds an underlying rating of BBB without consideration of the issuance of the Insurance Policy. The rating agency may have obtained and considered information and material which has not been included in this Official Statement. Generally, a rating agency bases its ratings on information and material so furnished and on investigations, studies and assumptions made by the rating agency. A rating is not a recommendation to buy, sell or hold the Bonds. A rating reflects only the view of the rating agency with respect to its rating and an explanation of the significance of such rating may be obtained from it. No assurance can be given that the rating of a rating agency will be maintained for any given period of time or that the rating may not be revised downward or withdrawn entirely by the rating agency, if in its own judgment, circumstances warrant. Any such downward change in or withdrawal may have an adverse effect on the market price of the Bonds. The Underwriter and the Community Facilities District have not undertaken any responsibility after the offering of the Bonds to assure the maintenance of the rating or to oppose any such revision or withdrawal. Rating Downgrades of Municipal Bond Insurers. In the past, Moody s Investors Service, S&P and Fitch Ratings (the Rating Agencies ) have each downgraded the claims-paying ability and financial strength of various bond insurance companies. Additional downgrades or negative changes in the rating outlook are possible. In addition, recent events in the credit markets have had a substantial negative effect on the bond insurance business. These developments could be viewed as having a material adverse effect on the claims-paying ability of the Bond Insurer. The Community Facilities District and the Underwriter have not made an independent investigation into the claims-paying ability of the Bond Insurer and no assurance or representation regarding the financial strength or projected financial strength thereof can be given. Thus, when making an investment decision, potential investors should carefully consider the ability of the Community Facilities District to pay the principal of and interest on the Bonds and the claims-paying ability of the Bond Insurer, particularly over the life of the investment. 65

72 UNDERWRITING The 2015 Series A Bonds are being purchased by Piper Jaffray & Co. (the Underwriter ) at a purchase price of $90,925, (which represents the aggregate principal amount of the 2015 Series A Bonds of $82,820,000.00, plus a net original issue premium of $8,519, and less an underwriter s discount of $414,100.00). The 2015 Series B Bonds are being purchased by the Underwriter at a purchase price of $9,817, (which represents the aggregate principal amount of the 2015 Series B Bonds of $9,635,000.00, plus a net original issue premium of $230, and less an underwriter s discount of $48,175.00). The purchase agreement relating to the Bonds provides that the Underwriter will purchase all of the Bonds, if any are purchased, the obligation to make such purchase being subject to certain terms and conditions set forth in such purchase agreement. The Underwriter may offer and sell the Bonds to certain dealers and others at prices lower than the offering price stated on the inside cover page hereof. The offering prices may be changed from time to time by the Underwriter. The Underwriter and Pershing LLC, a subsidiary of The Bank of New York Mellon Corporation, entered into an agreement (the Pershing Agreement ) which enables Pershing LLC to distribute certain new issue municipal securities underwritten by or allocated to the Underwriter, including the Bonds. Under the Pershing Agreement, the Underwriter will share with Pershing LLC a portion of the fee or commission paid to the Underwriter. The Underwriter has entered into a distribution agreement (the Distribution Agreement ) with Charles Schwab & Co., Inc. ( CS&Co. ) for the retail distribution of certain securities offerings at the original issue prices. Pursuant to the Distribution Agreement, CS&Co. will purchase Bonds from the Underwriter at the original issue price less a negotiated portion of the selling concession applicable to any Bonds that CS&Co. sells. PROFESSIONAL FEES Fees payable to certain professionals, including the Underwriter, Nossaman LLP, as Underwriter s counsel, McFarlin & Anderson LLP, as Disclosure Counsel, Bowie, Arneson, Wiles & Giannone, as Bond Counsel and District Counsel, RBC Capital Markets, LLC, as Financial Advisor, and U.S. Bank National Association, as the Fiscal Agent, are contingent upon the issuance of the Bonds. The fees of Special District Financing & Administration, LLC, as Special Tax Consultant, are in part contingent upon the issuance of the Bonds. RBC Capital Markets, LLC is employed as Financial Advisor to the Community Facilities District in connection with the issuance of the Bonds. The Financial Advisor s fees for services rendered with respect to the sale of the Bonds is contingent upon the issuance and delivery of the Bonds. The Financial Advisor is not obligated to undertake, and has not undertaken to make, an independent verification or to assume responsibility for the accuracy, completeness or fairness of the information in this Official Statement. 66

73 MISCELLANEOUS References are made herein to certain documents and reports which are brief summaries thereof which do not purport to be complete or definitive and reference is made to such documents and reports for full and complete statement of the contents thereof. Any statements in this Official Statement involving matters of opinion, whether or not expressly so stated, are intended as such and not as representatives of fact. This Official Statement is not to be construed as a contract or agreement between the Community Facilities District and the purchasers or owners of any of the Bonds. The execution and delivery of the Official Statement by the Community Facilities District has been duly authorized by the Tustin Unified School District on behalf of the Community Facilities District. COMMUNITY FACILITIES DISTRICT NO OF THE TUSTIN UNIFIED SCHOOL DISTRICT By: /s/ Gregory Franklin, Ed.D. Gregory Franklin, Ed.D., Superintendent, Tustin Unified School District on behalf of Community Facilities District No of the Tustin Unified School District 67

74 [THIS PAGE INTENTIONALLY LEFT BLANK]

75 APPENDIX A GENERAL INFORMATION ABOUT THE TUSTIN UNIFIED SCHOOL DISTRICT General Information The Tustin Unified School District (the School District ) was established July 1, The School District currently encompasses approximately 24 square miles in the central portion of the County of Orange (the County ) and includes the City of Tustin, easterly portions of the City of Santa Ana, the Foothills portion of the unincorporated area of the County (North Tustin) and portions of the City of Irvine (West Irvine, Northpark and Orchard Hills). The School District currently operates eighteen (18) elementary schools, one (1) grades 5-8 middle school, five (5) grades 6-8 middle schools, three (3) comprehensive high schools, a continuation high school and alternative and adult education programs. The School District s projected average daily attendance for Fiscal Year is approximately 23,346. Board of Education The School District is governed by a Board of five members, each of which is elected to a fouryear term. Elections for positions to the Board are held every two years, alternating between two and three available positions. If a vacancy arises during any term, the vacancy is filled by an appointment by a majority vote of the remaining Board members and, if there is no majority, by a special election. Current members of the Board, together with their offices and the dates their current terms expire, are listed below: Board Member Office Current Term Expires Francine Scinto President December, 2016 Lynn Davis Vice President December, 2018 Jonathan Abelove Clerk December, 2018 Tammie Bullard Member December, 2016 James Laird Member December, 2016 Source: Tustin Unified School District. The administrative staff of the School District includes Gregory A. Franklin, Ed.D., Superintendent, Anthony Soria, Chief Financial Officer, Charles Lewis, Ed.D., Chief Personnel Officer, Kathie Nielsen, Chief Academic Officer, Crystal Turner, Assistant Superintendent, Administrative Services, and Lori Stillings, Ed.D., Assistant Superintendent, Special Education. The Superintendent of the School District is responsible for administering the affairs of the School District in accordance with the policies of the Board. Population Separate population statistics are not maintained for the School District. The School District believes that the statistics for the City of Tustin area are indicative of population trends within the School District. The City s population as of January 1, 2014, was approximately 78,360 persons, representing approximately 2.5% of the population of the County. The population of the City and the County from 2005 to 2014 is shown in the following table. Since 2005, Tustin s population has increased by approximately 11.8%, representing an annual compound growth rate of approximately 1.12%. A-1

76 Year POPULATION OF TUSTIN AND ORANGE COUNTY Population City of Tustin Annual % Change Population A-2 Orange County Annual % Change ,116 2,956, , ,956, , ,960, , ,974, , ,990, , ,008, , ,028, , ,057, , ,085, , ,113, Note: California Department of Finance for January 1. Allocation of State Funding to School Districts; Restructuring of the K-12 Funding System California school districts receive a significant portion of their funding from State appropriations. As a result, changes in State revenues may affect appropriations made by the Legislature to school districts. Commencing with the Fiscal Year , the State budget restructures the manner in which the State allocates funding for K-12 education. In Fiscal Year , State legislation replaces the majority of revenue limit and categorical funding formulas with a new set of funding formulas. The Governor refers to the proposals as the Local Control Funding Formula ( Local Control Funding Formula or LCFF ). The State budget provided funding in Fiscal Year to begin implementing the new formulas. Under the prior funding system, school districts received different per-pupil funding rates based on historical factors and varying participation in categorical programs. The new system provides a more uniform base per-pupil rate for each of several grade levels. The base rates are augmented by several funding supplements such as for (1) students needing additional services, defined as English learners, students from lower income families, and foster youth; and (2) school districts with high concentrations of English learners and lower income families. The new funding system requires school districts to develop local plans describing how the school district intends to educate its students. Under the prior system, California Education Code Section and following, each school district is determined to have a target funding level: a base revenue limit per student multiplied by the school district s student enrollment measured in units of average daily attendance ( ADA ). The base revenue limit is calculated from the school district s prior-year funding level, as adjusted for a number of factors, such as inflation, special or increased instructional needs and costs, employee retirement costs, especially low enrollment, increased pupil transportation costs, etc. Generally, the amount of State funding allocated to each school district is the amount needed to reach that district s base revenue limit after taking into account certain other revenues, in particular, locally generated property taxes. This is referred to as State equalization aid. To the extent local tax revenues increase due to growth in local property assessed valuation, the additional revenue is offset by a decline in the State s contribution ultimately, a school district whose local property tax revenues exceed its base revenue limit is entitled to receive no State equalization aid, and receives only its special categorical aid, which is deemed to include the basic aid of $120 per student per year guaranteed by Article IX, Section 6 of the Constitution. Such school districts are known as basic aid districts. School districts that received some equalization aid were commonly referred to as revenue limit districts.

77 The School District has been a revenue limit district. The State Budget (described below) implements the new Local Control Funding Formula school funding allocation system. The Local Control Funding Formula replaces revenue limit and most categorical program funding. The Local Control Funding Formula is also based on enrollment. Enrollment can fluctuate due to factors such as population growth or decline, competition from private, parochial, and public charter schools, inter-district transfers in or out, and other causes. Losses in enrollment will cause a school district to lose operating revenues, without necessarily permitting the school district to make adjustments in fixed operating costs. Average Daily Attendance In the past, annual State apportionments of basic and equalization aid to school districts were computed based on a revenue limit per unit of ADA. Prior to Fiscal Year , daily attendance numbers included students who were absent from school for an excused absence, such as illness. Effective in Fiscal Year , only actual attendance is counted in the calculation of ADA. This change was essentially fiscally neutral for school districts which maintain the same excused absence rate. The rate per student was recalculated to provide the same total funding to school districts in the base year as would have been received under the old system. After Fiscal Year , school districts which improved their actual attendance rate received additional funding. As indicated above, commencing with the Fiscal Year , the State budget restructures the manner in which the State allocates funding for K-12 education using the Local Control Funding Formula. Under the prior funding system, school districts received different per-pupil funding rates based on historical factors and varying participation in categorical programs. The first of the following two tables shows the School District s enrollment, ADA and revenue limit per ADA for through under the historical funding program and for and estimated under the Local Control Funding Formula. The second of the two following tables shows the average daily attendance by grade year for purposes of the Local Control Funding Formula for Fiscal Years to A-3

78 Fiscal Year (1) Average Daily Attendance (1) TUSTIN UNIFIED SCHOOL DISTRICT Average Daily Attendance, Revenue Limit and Enrollment Fiscal Years through Change % of Change ADA Base Revenue Limit (2) Deficit Revenue Limit Per ADA/LCFF Revenues (2) Enrollment (3) ,136 $5,786 $5,786 20, , % 6,115 5,636 21, , ,337 5,207 22, , ,352 5,211 23, , ,495 5,157 23, , ,705 6,213 23, , ,266 23, , ,953 24,068 Reflects ADA as of the second principal reporting period (P-2 ADA), ending on or before the last attendance month prior to April 15 of each school year. (2) Deficit revenue limit funding, when provided for in State budgetary legislation, reduced the revenue limit allocations received by school districts by applying a deficit factor to the base revenue limit for the given fiscal year, and resulted from an insufficiency of appropriation funds in the State budget to provide for State aid owed to school districts. The State s practice of deficit revenue limit funding was most recently reinstated beginning in Fiscal Year , and discontinued following the implementation of the LCFF (as defined herein). (3) Enrollment as of October report submitted to the California Basic Educational Data System ( CBEDS ) in each school year. (4) LCFF Revenue estimates shown commencing Fiscal Year (5) Budgeted. Source: Tustin Unified School District. The following table shows a breakdown of the School District s ADA by grade span, total enrollment and the percentage of EL/LI student enrollment for Fiscal Years to TUSTIN UNIFIED SCHOOL DISTRICT Local Control Funding Formula ADA, Enrollment and EL/LI Enrollment Percentage Fiscal Year to Average Daily Attendance (1) Fiscal Year K Total ADA Total Enrollment Enrollment % of EL/LI Enrollment (2) (3) 6,756 5,501 3,681 7,321 23,259 24, % (4) 6,710 5,470 3,708 7,458 23,346 24, (1) (2) (3) (4) ADA is as of the second principal reporting period (P-2 ADA), ending on or before the last attendance month prior to April 15 of each school year. As of October report submitted To the California Basic Educational Data System (CBEDS). For purposes of calculating Supplemental and Concentration Grants, a school district s Fiscal Year percentage of unduplicated EL/LI students will be expressed solely as a percentage of its Fiscal Year total enrollment. For Fiscal Year , the percentage of unduplicated EL/LI enrollment will be based on the two-year average of EL/LI enrollment in Fiscal Years and Beginning in Fiscal Year , a school district s percentage of unduplicated EL/LI students will be based on a rolling average of such district s EL/LI enrollment for the then-current fiscal year and the two immediately preceding fiscal years. Projected. Budgeted. Source: Tustin Unified School District. A-4

79 ADA figures for the School District for the most recent five years, as well as a projection for the Fiscal Year, are shown below: TUSTIN UNIFIED SCHOOL DISTRICT Average Daily Attendance Fiscal Year Average Daily Attendance (1) , , , , , (estimated) 23,346 (1) ADA does not include Regional Occupational Programs and Adult ADA. Source: Tustin Unified School District..Labor Relations As of June 30, 2014, the School District employed approximately 1,321 certificated professionals and approximately 1,289 classified employees. The certificated professionals, except management and some part-time employees, are represented by the bargaining units as noted below: Labor Organization Tustin Educators Association California School Employees Association Tustin School Management Association Classified Supervisory Management Association (1) TUSTIN UNIFIED SCHOOL DISTRICT District Employees Approximate Number of Employees Classification In Organization Certificated Teaching and Non-Teaching Contract Expiration Date 1,008 June 30, 2017 Classified Employees 961 November 30, 2015 Certificated Administrators/ Classified Mgmt/Confidential 107 N/A (1) Classified Supervisors 22 June 30, 2016 The Tustin School Management Association is an association of certificated administrators, classified management and confidential employees. There is no contract between the School District and the employees who are members of such Association. Source: The School District. Retirement Programs The School District participates in the State of California Teachers Retirement System ( STRS ). Generally, this plan covers all full-time certificated employees, as well as certain classified employees. STRS provides retirement, disability and survivor benefits to plan members and beneficiaries. Benefit provisions are established by State statutes, as legislatively amended, within the State Teachers Retirement Law. The School District is currently required by such statutes to contribute 8.25% of eligible salary expenditures, while participants contribute 8% of their respective salaries. The A-5

80 State also contributes to STRS, currently in an amount equal to 3.041% of teacher payroll. The State s contribution reflects a base contribution of 2.017% and a supplemental contribution of 1.024% that will vary from year-to-year based on statutory criteria. The School District s contribution to STRS for the Fiscal Year ending June 30, 2013, was $6,755,914. The School District s contribution to STRS for the Fiscal Year ending June 30, 2014, was $7,289,578. The School District budgeted approximately $8,403,839 for this purpose for Fiscal Year The School District also participates in the State of California Public Employees Retirement System ( PERS ) which covers all classified personnel who are employed four or more hours per day. PERS provides retirement and disability benefits, annual cost-of-living adjustments and death benefits to plan members and beneficiaries. Benefit provisions are established by the State statutes, as legislatively amended, with the Public Employees Retirement Laws. School districts are currently required to contribute to PERS at an actuarially determined rate, which is % of eligible salary expenditures for Fiscal Year , while participants enrolled in PERS prior to the Implementation Date (defined herein) contribute 7% of their respective salaries. Participants enrolled after the Implementation Date contribute at an actuarially determined rate, which is 6% of their respective salary for Fiscal Year See Pension Reform herein. The School District s participation in PERS is funded each fiscal year through School District appropriations. Annual earnings on the PERS portfolio attributable to school districts and offices of education can result in a reduction in the School District s contribution to PERS. A corresponding adjustment is made in the revenue limit calculation such that the School District experiences an offset reduction in the revenue limit allocated to it by the State. As of Fiscal Year , the PERS reduction offset was eliminated with the implementation of the Local Control Funding Formula. The School District s contribution to PERS for the Fiscal Year ending June 30, 2013, was $2,822,696. In addition, the School District made a PERS reduction contribution to the revenue limit by approximately $221,946. The School District s contribution to PERS for the Fiscal Year ending June 30, 2014, was $3,033,480. No PERS reduction contribution has been required after June 30, In Fiscal Year , the School District estimates the employer contribution to PERS to be approximately $3,731,464. Both retirement systems are operated on a statewide basis. Contribution rates to these two retirement systems vary annually depending on changes in actuarial assumptions and other factors, such as changes in retirement benefits. The contribution rates are based on state-wide rates set by the STRS and PERS retirement boards. STRS has a substantial statewide unfunded liability. Since this liability has not been broken down by each school district, it is impossible to determine the School District s share. Interested persons may review the STRS website for details regarding its programs (this reference is for convenience of reference only and not considered to be incorporated as part of this Official Statement). The following information has been obtained from the information published by STRS and is believed to be reliable but is not guaranteed as to accuracy or completeness. The governing board of STRS adopts a valuation of its defined benefit plan and its defined benefit supplemental plan each year. Due to the financial market declines which occurred during the Fiscal Year period, STRS investments lost substantial value at that time. STRS used an averaging process that recognizes gains and losses over a three-year period, as a result of which the fund is still being affected by losses incurred during the market downturn. Recent years have seen positive investment returns. The valuation for the period ending June 30, 2013, identified the level of funding for the STRS defined benefit program at 66.9% of full funding, with an estimated actuarial obligation of $208.4 billion, an actuarial valuation of assets of $148.6 billion and unfunded actuarial obligations of A-6

81 $73.67 billion. In recent years, historical unfunded actuarial obligations for the defined benefit plan have ranged from being over funded in the late 1990 s to the 66.9% of full funding estimated in the June 30, 2013 valuation. Contributions to STRS are generally fixed by State law. The State Budget proposes a plan of shared responsibility among the State, school districts and teachers. The first year s increased contributions from all three entities are estimated in the State Budget at $275 million. The contributions are proposed to increase in subsequent years, reaching more than $5 billion annually. The State Budget indicates that total contributions currently equal 19.3% of teacher payroll and under the proposal are estimated to rise to 35.7%. This proposed increase, if it were implemented, is estimated in the State Budget to eliminate the unfunded liability by approximately Interested persons may review the PERS website for details regarding its programs (this reference is for convenience of reference only and not considered to be incorporated as part of this Official Statement). The following information has been obtained from the information published by PERS and is believed to be reliable but is not guaranteed as to accuracy or completeness. The governing board of the PERS adopts a valuation of its defined benefit plan each year. Due to the financial market declines which occurred during the Fiscal Year period, PERS investments lost substantial value at that time. In December 2009, the PERS Board adopted changes to its asset smoothing method in order to phase in over a three-year period the impact of the 24% investment loss experience by PERS in Fiscal Year Recent years have seen positive investment returns. The valuation for the period ending June 30, 2013, identified the level of funding for the PERS defined benefit program for schools at 80.5% of full funding. PERS website does not provide an estimate of the actuarial obligations, of the estimated actuarial valuation of assets or of the estimated unfunded actuarial obligations. PERS has adopted policies regarding contribution rates for the various plans and such plans are subject to modification as the PERS governing board determines how to address the unfunded actuarial obligations. At its April 17, 2013 meeting, the Board approved a change to the CalPERS amortization and smoothing policies. Beginning with the June 30, 2014, valuation, the newly adopted direct smoothing method will be used to set the rates for the State and Schools defined benefit plans. Under this new direct-rate smoothing method, all gains and losses will be paid over a fixed 30-year period with the increases or decreases in the rate spread over a five-year period. On February 20, 2014, the PERS governing board adopted new assumptions regarding the longer life expectancy of state retirees. The impact of these assumptions will be $1 billion phased in over three years. The costs in Fiscal Year will be $430 million ($254 million is a State General Fund).. For Fiscal Year , at the revised final Budget, the School District has budgeted for a STRS contribution of $3,731,464 and a PERS contribution of 8,403,839. Pension Reform On August 28, 2012, Governor Brown and the State Legislature reached agreement on a new law that reforms pensions for State and local government employees. AB 340, which was signed into law on September 12, 2012, established the California Public Employees Pension Reform Act of 2012 ( PEPRA ) which governs pensions for public employers and public pension plans on and after January 1, 2013 (the Implementation Date ). For new employees, PEPRA, among other things, caps pensionable salaries at the Social Security contribution and wage base, which is $110,100 for 2012, or 120% of that amount for employees not covered by Social Security, increases the retirement age by two years or more for all new public employees while adjusting the retirement formulas, requires state employees to pay at least half of their pension costs, and also requires the calculation of benefits on regular, recurring pay to stop income spiking. For all employees, changes required by PEPRA include the prohibition of retroactive pension increases, pension holidays and purchases of service credit. PEPRA applies to all State and local public retirement systems, including county and school district retirement systems. A-7

82 PEPRA only exempts the University of California system and charter cities and counties whose pension plans are not governed by State law. Although the School District anticipates that PEPRA would not increase the School District s future pension obligations, the School District is unable to determine the extent of any impact PEPRA would have on the School District s pension obligations at this time. Additionally, the School District cannot predict if PEPRA will be challenged in court and, if so, whether any challenge would be successful. GASB 67 and 68 On June 25, 2012, the Governmental Accounting Standards Board ( GASB ) voted to approve two new standards that aimed to improve the accounting and financial reporting of public employee pensions by state and local governments. Statement No. 67, Financial Reporting for Pension Plans, revised existing guidance for the financial reports of most pension plans. Statement No. 68, Accounting and Financial Reporting for Pensions, revised and established new financial reporting requirements for most governments that provide their employees with pension benefits. Statement 67 replaces the requirements of Statement No. 25, Financial Reporting for Defined Benefit Pension Plans and Note Disclosures for Defined Contribution Plans and Statement 50, Pension Disclosures as they relate to pension plans that are administered through trusts or similar arrangements meeting certain criteria. Statement 67 builds upon the existing framework for financial reports of defined benefit pension plans, which includes a statement of fiduciary net position (the amount held in a trust for paying retirement benefits) and a statement of changes in fiduciary net position. Statement 67 enhances note disclosures and RSI for both defined benefit and defined contribution pension plans. Statement 67 also requires the presentation of new information about annual money-weighted rates of return in the notes to the financial statements and in 10-year required supplementary information schedules. Statement 68 replaces the requirements of Statement No. 27, Accounting for Pensions by State and Local Governmental Employers and Statement No. 50, Pension Disclosures, as they relate to governments that provide pensions through pension plans administered as trusts or similar arrangements that meet certain criteria. Statement 68 requires governments providing defined benefit pensions to recognize their long-term obligation for pension benefits as a liability for the first time, and to more comprehensively and comparably measure the annual costs of pension benefits. The Statement also enhances accountability and transparency through revised and new note disclosures and required supplementary information. Post-Retirement Health Care Benefits The School District provides post-retirement medical benefits to the age of 65 to certain retired certificated employees over the age of 50 years old and who have at least 8 years of service. The School District also provides post-retirement medical benefits to the age of 65 to certain retired classified employees over 50 years old and who have at least 5 years of service. The School District has accounted for these benefits on a pay as you go basis and as such, records the expenses when paid. The pay as you go estimate for providing retiree health benefits in the year beginning July 1, 2012, was $1,034,242. The pay as you go estimate for providing retiree health benefits in the year beginning July 1, 2013, was $961,491. The pay as you go estimate for providing retiree health benefits in the year beginning July 1, 2014, is $1,254,411. GASB Statement No. 45 requires governmental agencies that are on a pay-as-you-go basis, such as the School District to account for and report the outstanding obligations and commitments related to such post-employment benefits in essentially the same manner as for pensions. The School District commissioned a study by Total Compensation Systems, Inc., dated March 21, 2013, with respect to its liability in connection with such benefits (the Actuarial Report ). The Actuarial Report concluded that, had the School District begun accruing retiree health benefits when each current employee and retiree was A-8

83 hired, a substantial liability would have accumulated and of that amount, the remaining unamortized balance of the initial unfunded actuarial accrued liability ( UAAL ) as of March 1, 2013, was $15,294,022. The Actuarial Report states that the School District s Annual Required Contribution ( ARC ) necessary to fund the annual contribution required to fund retiree benefits over the working lifetime of eligible employees (the normal cost ) and to fund the residual UAAL amortization costs was $2,788,980 for the year ending June 30, Outstanding Debt; Financial Obligations As of June 30, 2014, the School District had leases for equipment and portables valued at approximately $119,070 under agreements which provide for title to pass upon expiration of the lease period. The School District is current on these capital lease obligations. The School District also has community facilities district special tax securities outstanding, as well as general obligation bonds of its School Facilities Improvement District No ( SFID No ) outstanding in the aggregate principal amount of $52,914,327 and of its Improvement District outstanding in the aggregate principal amount of $70,495,000, as of June 30, In addition, the School District issued $35,000,000 aggregate principal amount of its School Facilities Improvement District No of the Tustin Unified School District, 2012 Election, Series A on March 14, The School District refunded a portion of the School District s outstanding SFID No Series B Bonds, on an advance basis, in the amount of $8,695,000 (the Refunded Series B Bonds ) and the outstanding SFID No Series C Bonds, on an advance basis, in the amount of $17,125,000 during January 2015 and the School District issued $20,000,000 aggregate principal amount of its School Facilities Improvement District No of the Tustin Unified School District, 2008 Election, Series D on February 18, Insurance The School District maintains insurance or self-insurance in such amounts and with such retentions and other terms providing coverage for property damage, fire and theft, general public liability and worker s compensation, as are adequate, customary and comparable with such insurance maintained by similarly situated school districts. In addition, based upon prior claims experience, the School District believes that the recorded liabilities for self-insured claims are adequate. A-9

84 [THIS PAGE INTENTIONALLY LEFT BLANK]

85 APPENDIX B SPECIAL TAX FORMULA COMMUNITY FACILITIES SPECIAL TAX FOR COMMUNITY FACILITIES DISTRICT NO OF TUSTIN UNIFIED SCHOOL DISTRICT

86 [THIS PAGE INTENTIONALLY LEFT BLANK]

87 RATE AND METHOD OF APPORTIONMENT OF A SPECIAL TAX FOR COMMUNITY FACILITIES DISTRICT NO OF THE TUSTIN UNIFIED SCHOOL DISTRICT The Board of Education of the Tustin Unified School District (the Board) sitting as the legislative body of the Community Facilities District No of Tustin Unified School District ( CFD No ), shall levy and collect a special tax (the Special Tax ) which, pursuant to the procedures and terms described below, is applicable to each taxable Assessor s Parcel located within the boundaries of CFD No The Special Tax shall be levied to pay for or finance certain school and related facilities, to pay incidental expenses, to create and replenish reserves and to provide funds for debt service on obligations of CFD No as described herein, the proceeds of which will be used to finance the acquisition and construction of school sites and related facilities. The Special Tax will be levied at the applicable rate for Developed Property, as hereinafter defined, or Undeveloped Property as hereinafter defined. Each Assessor s Parcel which is Developed Property shall be assigned to a land use class ( Class ) of property as described below and taxes at the applicable rate for that Class. Those parcels which constitute Undeveloped Property shall be taxed at the applicable rate as set for below. All property located within the boundaries of CFD No shall be taxed for the purposes, to the extent and in the manner herein set forth unless exempted by law or by the provisions of Section 5 herein. Section 1. Definitions. Alternative Special Tax means, for Fiscal Year , an amount equal to $4,602 per acre of Assessor s Parcel of Single Family Detached Residential Property described in Section 3(A) and, for each subsequent Fiscal Year, an amount equal to such rate increased by two percent (2%) of the amount in effect in the previous year. Assessor s Parcel means a parcel of land a designated on an official map of the Orange County Assessor which has been assigned a discrete identifying parcel number. Assigned Special Tax means the Special Tax for each Class, as determined by reference to Section 3(A) below. CFD No shall mean the territory within the boundaries of Community Facilities District No as depicted on the map as recorded with the County Recorder of Orange County on file with the District. CFD 97-1 Special Reserve Fund means the fund established and maintained by or on behalf of CFD 97-1 separate and apart from its other funds and accounts into which money is to be deposited and from which money is to be expended as provided herein. Amounts deposited in the CFD 97-1 Special Reserve Fund shall come from (a) Special Taxes collected in excess of the amounts required for the purposes described in clauses (a), (c) and (d) of he definition of Debt Service Requirement, and (b) earnings derived from the investment of amounts on deposit in the CFD 97-1 Special Reserve Fund. On or before the No Additional Bonds Date, amounts on deposit in the CFD 97-1 Special Reserve Fund shall be applied as a credit to taxes that would otherwise be levied on Undeveloped Property. B-1 B-2

88 After the No Additional Bonds Date, amounts on deposit in this fund shall be used to redeem bonds. Debt Service Requirement means for each Fiscal Year the sum of (a) one hundred percent (100%) of the principal of and interest on bonds of CFD No coming due in the bond year which ends in the next subsequent Fiscal Year, except to the extent such principal or interest is expected to be paid from proceeds from the sale of bonds or other amounts then available in the applicable debt service fund for such purpose, (b) the product of the amount described in clause (a) times the larger of (i) the rate of delinquency in the payment of the special tax during the Fiscal Year immediately preceding the Fiscal Year for which the Debt Service Requirement is being determined or (ii) ten percent (10%), (c) the sum of all deposits then required to be made into any reserve fund established with respect to any bonds of CFD No. 97-1, and (d) the reasonably estimated administrative expenses for the bond year referred to in clause (a). Developed Property shall mean all Taxable Property for which a building permit was issued as of July 1 of the Fiscal Year. Fiscal Year shall mean the period of time commencing on July 1 of any year and ending the following June 30. Maximum Special Tax shall mean the highest Special Tax determined in accordance with Section 3 for each Class of Developed Property or for Undeveloped Property, as the case may be, which can be levied by the Board in any Fiscal Year. Multifamily Residential Property means all Assessor s Parcels of Developed Property for which a building permit has been issued for purposes of constructing a multifamily residential dwelling but excluding Seniors Housing Developed Property. No Additional Bonds Date means the earliest of (a) the date on which the Board adopts a resolution declaring that no additional bonds of CFD No will be issued, (b) the date on which the aggregate principal amount of all bonds theretofore issued on behalf of CFD No equals the principal amount of such bonds authorized to be issued and (c) the seventh anniversary of the date on which The Irvine Company files with the Board a certificate specifying the maximum number of dwelling units expected to be constructed in the Lower Peters Canyon Community and stating that building permits have been issued for at least 95% of said number. Other Developed Property means all Assessor s Parcels of Developed Property other than Residential Developed Property and Seniors Housing Developed Property. Previously Taxed Undeveloped Property means property that was Undeveloped Property as of the effective date of a consent of The Irvine Company delivered in satisfaction of the condition set forth in Section 8(A), whether or not the Special Tax was thereafter imposed on such property. Proportionately or Proportioned shall mean for Developed Property that the ratio of the actual Special Tax levy to the Assigned Special Tax is equal for all Developed Properties. Proportionately or Proportioned shall mean for Undeveloped Property that the ratio of the actual Special Tax levy to the Maximum Special Tax for Undeveloped Property is equal for all Undeveloped Properties. B-2 B-3

89 Residential Developed Property means all Assessor s Parcels of Developed Property consisting of Single Family Attached Residential Property, Single Family Detached Residential Property, and Multifamily Residential Property. Seniors Housing Developed Property means all Assessor s Parcels of Developed Property for which a building permit has been issued for purposes of constructing one or more residential dwellings, the occupancy of which is restricted to seniors as described in Government Code Section Single Family Attached Residential Property means all Assessor s Parcels of Developed Property for which a building permit has been issued for purposes of constructing an attached Single Family Residential dwelling but excluding Seniors Housing Developed Property. Single Family Detached Residential Property means all Assessor s Parcels of Developed Property for which a building permit has been issued for purposes of constructing a detached Single Family Residential dwelling but excluding Seniors Housing Developed Property. Taxable Property shall mean the area within the boundaries of CFD No which is not exempt from application of the Special Tax by operation of law or Section 5 herein. Undeveloped Property shall mean all Taxable Property which is not classified as Developed Property. Section 2. Assignment to Development Status. The District shall, on or before July 1 of each year classify all Taxable Property within the boundaries of CFD as either Developed or Undeveloped Property. In order to determine the applicable Special Tax, each Assessor s Parcel which constitutes Developed Property shall be assigned to a Class, classified as either Residential Developed Property or Other Developed Property and taxed as set forth below. Undeveloped Property shall be taxed as set forth below. Section 3. Maximum Special Tax Rates. Residential Developed Property shall be assigned to a product class. The product class shall be determined by the product type (Single Family Detached, Single Family Attached or Multifamily) and for Single Family Detached Residential Property by the average lot size as determined by dividing the total square footage of residential lots within the boundaries of a final Development Subdivision Map by the total number of dwelling units permitted within the Map as certified by a registered civil engineer. In determining the amount of the Assigned Special Tax for Undeveloped Property, Other Developed Property or Seniors Housing Residential Developed Property to be levied on an Assessor s Parcel, the square footage shall include all square footage in the land area of an Assessor s Parcel as shown on an Assessor s Parcel map of the County Assessor or, if the land area is not shown on said map, the land area on the applicable final map, parcel map, or other recorded County map. B-3 B-4

90 A. Residential Developed Property The Maximum Special Tax in each fiscal year for an Assessor s Parcel classified as Developed Property shall be the Assigned Special Tax indicated below for the applicable Class, provided that the Maximum Special Tax shall be the greater of the applicable Assigned Special Tax, or the Alternative Special Tax in the case of property that (i) is Single Family Detached Residential Property, (ii) was created by a subdivision map in which the average lot size (computed in the manner described in the first paragraph of this Section 3) is not less than 10,000 square feet, and (iii) consists of property that was Previously Taxed Undeveloped Property, but not property that in any Fiscal Year since it became classified as Developed Property has had imposed on it the applicable Assigned Special Tax but not the Alternative Special Tax. The Assigned Special Tax for Fiscal Year shall be as indicated below. Each July 1, commencing July 1, 1998, the Assigned Special Tax for each Class shall be increased by two percent (2%) of the amount in effect the previous year. The Special Tax may only be applied to Seniors Housing Developed Property which were initially taxed as Undeveloped Property. PRODUCT TYPE DESCRIPTION 1-Single Family Detached Property sq.ft. average lot size ASSIGNED SPECIAL TAX ( ) $1196 per unit 2-Single Family Detached Property sq.ft. average lot size $800 per unit 3-Single Family Attached Property $427 per unit 4-Multifamily Property $625 per unit B. Undeveloped Property The Maximum Special Tax on Undeveloped Property shall be $4,602 per acre of the land area of an Assessor s Parcel as shown on an Assessor s Parcel map of the County Assessor or, if the land area is not shown on said map, the land area on the applicable final map, parcel, or other recorded County Map. Each July 1 commencing on July 1, 1998, the Maximum Special Tax for Undeveloped Property shall be increased by two percent (2%) of the amount in effect the previous year. C. Other Developed Property The Maximum Special Tax on Other Developed Property shall be $4,602 per acre of the land area of an Assessor s Parcel as shown on an Assessor s Parcel map of the County Assessor or, if the land area is not shown on said map, the land area on the applicable final map, parcel or other recorded County Map. Each July 1 commencing on July 1, 1998, the Maximum Special Tax for Other Developed Property shall be increased by two percent (2%) of the maximum amount which could have been levied the previous year. B-4 B-5

91 D. Seniors Housing Developed Property The Maximum Special Tax on Senior Housing Developed Property shall be $4,602 per acre of the land area of an Assessor s Parcel as shown on an Assessor s Parcel map of the County Assessor or, if the land area is not shown on said map, the land area on the applicable final map, parcel, or other recorded County Map. Each July 1 commencing on July 1, 1998, the Maximum Special Tax for Seniors Housing Developed Property shall be increased by two percent (2%) of the maximum amount which could have been levied the previous year. The Special Tax may only be applied to Seniors Housing Developed Property consisting of Previously Taxed Undeveloped Property. Section 4. Apportionment of Special Tax. A. Prior to the No Additional Bonds Date Commencing in Fiscal Year , and for each Fiscal Year thereafter prior to the No Additional Bonds Date, the Board shall levy the Special Tax on each Assessor s Parcel of Developed Property, in an amount equal to the applicable Assigned Special Tax for that Fiscal Year, as set forth in Section 3(A) above. If the aggregate amount of the Special Tax so levied on Residential Developed Property is less that the applicable Debt Service Requirement, the Board shall levy the Special Tax Proportionately on each parcel of Undeveloped Property up to the applicable Maximum Special Tax for that Fiscal Year, as set forth in Section 3(B) above such that the aggregate amount so levied equals the difference between the applicable Debt Service Requirement and the aggregate amount of such special tax levies on Residential Developed Property. If the aggregate amount of the Special Tax so levied on Residential Developed Property and Undeveloped Property is less than the then applicable Debt Service Requirement, the Board shall levy the Special Tax Proportionately on each Assessor s Parcel of Other Developed Property, in an amount not in excess of the applicable Maximum Special Tax for that Fiscal Year, as set forth in Section 3(C) above such that the aggregate amount so levied equals the difference between the applicable Debt Service Requirement and the aggregate amount of such special tax levies on Residential Developed Property and Undeveloped Property. If the aggregate amount of the Special Tax so levied on Residential Developed Property, Undeveloped Property and Other Developed Property is less than the applicable Debt Service Requirement, the Board shall levy the Special Tax Proportionately on each Assessor s Parcel that is subject to the Alternative Special Tax as the Alternative Special Tax in an amount (giving credit for the Assigned Special Tax levied pursuant to the first paragraph of this Section) not in excess of the applicable Maximum Special Tax for that fiscal year, as set forth in section 3(A) above such that the aggregate amount so levied equals the difference between the applicable Debt Service and the aggregate amount of the special tax levies on Residential Developed Property, Undeveloped Property and Other Developed Property. If the aggregate amount of the Special Tax so levied on Residential Developed Property, Undeveloped Property and Other Developed Property is less than the applicable Debt Service Requirement, the Board shall levy the Special Tax Proportionately on each Assessor s Parcel of Seniors Housing Developed Property consisting of Previously Taxed Undeveloped Property, in an amount not in excess of the applicable Maximum Special B-5 B-6

92 Tax for that Fiscal Year, as described in Section 3(D) above such that the sum of the aggregate amount of the Special Tax levied on all Taxable Property equals, but does not exceed, the then applicable Debt Service Requirement. B. On or After the No Additional Bonds Date Commencing with the first Fiscal Year subsequent to the No Additional Bonds Date, and for each Fiscal Year thereafter, the Board shall levy the Special Tax Proportionately on each Assessor s Parcel of Residential Developed Property, in an amount not in excess of the applicable Maximum Special Tax for that Fiscal Year, such that the aggregate amount so levied equals, but does not exceed, the then applicable Debt Service Requirement. If the aggregate amount of the Special Tax so levied on Residential Developed Property is less than the applicable Debt Service Requirement, the Board shall levy the special Tax Proportionately on each parcel of Undeveloped Property up to the applicable Maximum Special Tax for that Fiscal Year, as set forth in Section 3(B) above such that the aggregate amount so levied equals the difference between the applicable Debt Service Requirement and the Aggregate amount of such special tax levies on Developed Property. If the aggregate amount of the Special Tax so levied on Residential Developed Property and Undeveloped Property is less than the then applicable Debt Service Requirement, the Board shall levy the Special Tax Proportionately on each Assessor s Parcel of Other Developed Property, in an amount not in excess of the applicable Maximum Special Tax for that Fiscal Year, such that the sum of the aggregate amount of the Special Tax levied on all Residential Developed Property, Undeveloped Property and Other Developed Property equals, but does not exceed, the then applicable Debt Service Requirement. If the aggregate amount of the Special Tax so levied on Residential Developed Property, Undeveloped Property and Other Developed Property is less than the applicable Debt Service Requirement, the Board shall levy the Special Tax Proportionately on each Assessor s Parcel that is subject to the Alternative Special Tax at the Alternative Special Tax in an amount not in excess of the applicable Maximum Special Tax for that Fiscal Year, as set forth in Section 3(A) above such that the aggregate amount so levied equals the difference between the applicable Debt Service Requirement and the aggregate amount of the special tax levies on Residential Developed Property, Undeveloped Property and Other Developed Property. If the aggregate amount of the Special Tax so levied on Residential Developed Property, Undeveloped Property and Other Developed Property is less than the applicable Debt Service Requirement, the Board shall levy the Special Tax Proportionately on each Assessor s Parcel of Seniors Housing Developed Property consisting of Previously Taxed Undeveloped Property which was subject to the Undeveloped Property Tax, in an amount not in excess of the applicable Maximum Special Tax for that Fiscal Year, as described in section 3(D) above such that the sum of the aggregate amount of the Special Tax levied on all Taxable Property equals, but does not exceed, the then applicable Debt Service Requirement. B-6 B-7

93 Section 5. Exemptions. The Special Tax shall not be levied on parks, public properties classified as Undeveloped Property, utility properties belonging to public or private utilities, Seniors Housing Developed Property (except as provided in Section 3(D) and properties exempt from general ad valorem property taxes. Section 6. Manner of Collection. The Special Taxes for CFD No will be collected in the same manner and at the same time as ordinary ad valorem property taxes, provided, however, that CFD No may collect special taxes at a different time or in a different manner as determined by the Board, and the special taxes will be subject to the same penalties and procedures, sale, and lien priority in the event of delinquencies as provided for ad valorem taxes. A three-member Appeals Board, to be appointed by the legislative body of the CFD No. 97-1, shall set forth al rules and further specifics relating to the implementation, interpretation and administration of the special tax formula. Any dispute regarding the allocation or amount of special taxes levied against any particular parcel shall be submitted to the Appeals Board for consideration. Section 7. Prepayment. The Board may specify conditions under which the obligation to pay the special tax may be prepaid and permanently satisfied and the lien of the special tax canceled so long as the prepayment is not less than the maximum present value of the special tax obligation. Section 8. Limitations on Debt. A. No CFD indebtedness shall be incurred without The Irvine Company s consent if the annual Special Tax applicable to Developed Property in each Fiscal Year is or will be less than the sum of (i) one hundred percent (100%) of the principal of and interest on bonds coming due in the bond year which ends in the next subsequent Fiscal Year (except to the extent such principal or interest is expected to be paid from proceeds from the sale of bonds or other amounts then available in the applicable debt service fund for such purposes) plus (ii) the reasonably estimated administrative expenses for the bond year referred to in clause (i). B. No CFD indebtedness shall be incurred after the No Additional Bonds Date. If the No Additional Bonds Date occurs because The Irvine Company files with the Tustin Unified School District a certificate specifying the maximum number of dwelling units expected to be constructed in the Lower Peters Canyon Community and stating that building permits have been issued for a least 95% of said number, then, subsequent to the delivery of such a certificate neither The Irvine Company nor Irvine Company Development company nor any successor thereof shall be entitled to construct or cause to be constructed any residential dwelling unit in excess of the maximum specified by The Irvine Company without the consent of the Tustin Unified School District. B-7 B-8

94 [THIS PAGE INTENTIONALLY LEFT BLANK]

95 APPENDIX C SUMMARY OF CERTAIN PROVISIONS OF THE FISCAL AGENT AGREEMENT COMMUNITY FACILITIES DISTRICT NO OF THE TUSTIN UNIFIED SCHOOL DISTRICT 2015 SPECIAL TAX REFUNDING BONDS Comprised of 2015 Special Tax Refunding Bonds, Series A (Federally Tax-Exempt) 2015 Special Tax Refunding Bonds, Series B (Federally Taxable) The following is a brief summary of certain provisions of the Fiscal Agent Agreement, relative to the above-referenced 2015 Special Tax Refunding Bonds. This summary is not intended to be definitive and is qualified in its entirety by reference to such Fiscal Agent Agreement for the complete terms thereof. Copies of the Fiscal Agent Agreement are available upon request from the Tustin Unified School District. DEFINITIONS The following are summaries of definitions of certain terms used in this Summary. All capitalized terms not defined therein or elsewhere in the Preliminary Official Statement have the meaning(s) set forth in the Fiscal Agent Agreement Bonds or Prior Bonds means, collectively, the Community Facilities District No of the Tustin Unified School District 2002 Special Tax Bonds, Series A (Senior Lien Bonds) and Series B (Junior Lien Bonds). Act means the Mello-Roos Community Facilities Act of 1982, as amended, being Sections 53311, et seq., of the Government Code of the State of California. Administrative Expense Fund means the fund of that name established under and held by the Fiscal Agent pursuant to the provisions of the Fiscal Agent Agreement. Administrative Expense Requirement means an amount up to a maximum of $80,000 per Fiscal Year, which amount shall escalate at 2.00% per Fiscal Year after Fiscal Year 2015/2016. Administrative Expenses means the administrative costs with respect to the calculation and collection of the Special Taxes and any other costs related to the Bonds and the Fiscal Agent Agreement, including the fees and expenses of the Fiscal Agent and any Persons, parties, consultants or attorneys employed pursuant to certain sections set forth in the Fiscal Agent Agreement, costs and legal expenses of foreclosure actions undertaken pursuant to the terms thereof to the extent not recovered pursuant to statutory authorization, costs otherwise incurred by the District in order to carry out the authorized purposes of the 2015 Special Tax Refunding Bonds, including statutory disclosure, for the District s C-1

96 Continuing Disclosure obligations, and reporting requirements and for Administrative Expenses as defined in the Rate and Method of Apportionment of Special Taxes for the District. Annual Debt Service means, with respect to any Outstanding Bonds, for each Bond Year, the sum of (a) the interest payable on such Bonds in such Bond Year, and (b) the principal amount of the Outstanding Bonds scheduled to be paid in such Bond Year. Authorized Investments means, subject to the terms of the Fiscal Agent Agreement, any of the following investments, if and to the extent the same are at the time legal for investment of the School District s funds: (a) United States Treasury notes, bonds, bills, or certificates of indebtedness, or those for which the faith and credit of the United States of America are pledged for the payment of principal and interest, and which have a maximum term to maturity not to exceed three years. (b) Obligations of any of the following federal agencies which obligations represent the full faith and credit of the United States of America, and which have a maximum term to maturity not to exceed three years, including: -- Export-Import Bank -- Farm Credit System Financial Assistance Corporation -- Rural Economic Community Development Administration (formerly the Farmers Home Administration) -- General Services Administration -- U.S. Maritime Administration -- Small Business Administration -- Government National Mortgage Association (GNMA) -- U.S. Department of Housing & Urban Development (PHA s) -- Federal Housing Administration -- Federal Financing Bank (c) Direct obligations of any of the following federal agencies which obligations are not fully guaranteed by the full faith and credit of the United States of America, and which have a maximum term to maturity not to exceed three years: -- Senior debt obligations rated AAA by Moody s and AAA by Standard & Poor s issued by the Federal National Mortgage Association (FNMA) or Federal Home Loan Mortgage Corporation (FHLMC) -- Obligations of the Resolution Funding Corporation (REFCORP) -- Senior debt obligations of the Federal Home Loan Bank System (d) Registered state warrants or treasury notes or bonds of the State of California ( State ), including bonds payable solely out of the revenues from a revenue-producing property owned, controlled, or operated by the State or by a department, board, agency, or authority of the State, which are rated in one of the two highest short-term or long-term rating categories by Moody s or Standard & Poor s. (e) Registered bonds, notes, warrants or other evidences of indebtedness of any local agency of the State, including bonds payable solely out of revenues from a revenue-producing property owned, controlled, or operated by the local agency, where the interest on such local agency obligation is exempt from federal and State income taxes and which are rated in one of the two highest short-term or long-term rating categories by Moody s or Standard & Poor s. C-2

97 (f) Deposit accounts, time certificates of deposit or negotiable certificates of deposit issued by a state or nationally chartered bank or trust company, which may include the Fiscal Agent or its affiliates, or a state or federal savings and loan association; provided, that the certificates of deposit shall be one or more of the following: (1) Continuously and fully insured by the Federal Deposit Insurance Corporation. (2) Continuously and fully secured by securities described in clause (a) or (b) above which shall have a market value, as determined on a marked-to-market basis calculated at least weekly, and exclusive of accrued interest, or not less than one hundred two percent (102%) of the principal amount of the certificates on deposit. (g) Commercial paper of prime quality of the highest ranking or of the highest letter and numerical rating as provided by Moody s and Standard & Poor s, which commercial paper is limited to issuing corporations that are organized and operating within the United States of America and that have total assets in excess of five hundred million dollars ($500,000,000) and that have an A or higher rating for the issuer s debentures, other than commercial paper, by Moody s and Standard & Poor s, provided that purchases of eligible commercial paper may not exceed 180 days maturity nor represent more than ten percent (10%) of the outstanding commercial paper of an issuing corporation. Purchases of commercial paper may not exceed twenty percent (20%) of the proceeds of the Bonds. (h) A repurchase agreement with a state or nationally chartered bank or trust company or a national banking association or government bond dealer reporting to, trading with, and recognized as a primary dealer by the Federal Reserve Bank of New York the long term debt of which is rated at least A by Moody s and Standard & Poor s, provided that all of the following conditions are satisfied: (1) (A) The agreement is secured by any one or more of the securities described in clause (a) above of this definition of Authorized Investments ( Underlying Securities ); (B) (C) The Underlying Securities are required by the repurchase agreement to be held by a bank, trust company, or primary dealer having a combined capital and surplus of at least one hundred million dollars ($100,000,000) and which is independent of the issuer of the repurchase agreement ( Holder of Collateral ) and the Underlying Securities have been transferred to the Holder of Collateral in accordance with applicable state and federal laws (other than by means of entries on the transferor s books); and The Underlying Securities are maintained at a market value, as determined on a marked-to-market basis calculated at least weekly, of not less than one hundred three percent (103%) of the amount so invested and at such levels and additional conditions not otherwise in conflict with the terms above as would be acceptable to Standard & Poor s and Moody s to maintain an A rating in an A rated structured financing (with a market value approach). (2) The repurchase agreement shall provide that if during its term the provider s rating by Moody s and Standard & Poor s is withdrawn or suspended or falls below A- by Standard & Poor s or A3 by Moody s, as appropriate, the provider must within ten (10) days of receipt of direction from the Fiscal Agent, C-3

98 repurchase all collateral and terminate the agreement, with no penalty or premium to the District or Fiscal Agent. (i) An investment agreement or guaranteed investment contract with, or guaranteed by, a financial institution, the long-term unsecured obligations of which are rated AA or Aa1 or better by Moody s and Standard & Poor s at the time of initial investment ( Provider ). The investment agreement shall be subject to a downgrade provision with at least the following requirements: (1) If within five Business Days after the Provider s long-term unsecured credit rating has been reduced below AA- by Standard & Poor s or below Aa3 by Moody s (these events are called Rating Downgrades ), the Provider shall give notice to the Fiscal Agent and the District and, within the five-day period, and for as long as the Rating Downgrade is in effect, shall deliver or transfer in the name of the District to the Fiscal Agent or a third party acting solely as agent therefore (the Holder of Collateral ) (other than by means of entries on the Provider s books) federal securities allowed as investments under clause (a) above with aggregate current market value equal to at least one hundred five percent (105%) of the principal amount of the investment agreement invested with the Provider at that time, and shall deliver additional such federal securities as needed to maintain an aggregate current market value equal to at least one hundred five percent (105%) of the principal amount of the investment agreement within three days after each evaluation date, which shall be at least weekly. (2) If the Provider s long-term unsecured credit rating is withdrawn, suspended, other than because of general withdrawal or suspension by Moody s or Standard & Poor s from the practice of rating that debt, or reduced below Aa3 by Moody s or below AA- by Standard & Poor s, the Provider shall give notice of the rating downgrade to the District and the Fiscal Agent, shall, upon five Business Days written notice to the Provider, withdraw the investment agreement, with accrued but unpaid interest thereon to the date, and terminate such agreement. (j) A taxable or tax-exempt government money market portfolio mutual fund restricted to obligations with either maturities of one year or less or a dollar weighted average maturity of 120 days or less, and either issued, guaranteed or collateralized as to payment of principal and interest by the full faith and credit of the United States of America or rated in one of the three highest categories by Moody s or Standard & Poor s. Such money market funds may include funds for which the Fiscal Agent, its affiliates or subsidiaries provide investment advisory or other management services. (k) The Local Agency Investment Fund referred to in Section of the Government Code of the State of California to the extent the Fiscal Agent may deposit and withdraw funds directly. (l) The Orange County Investment Pool, provided the District may statutorily invest funds in such Investment Pool. (m) The California Asset Management Program (CAMP). Authorized Representative(s) or District Representative(s) means an officer of the School District authorized to provide written directives on behalf of the District, which shall include the School District s Superintendent, Chief Financial Officer and such other Persons as shall be designated in writing by the School District. C-4

99 Board or Board of Education means the Board of Education of the Tustin Unified School District. Bonds or 2015 Special Tax Refunding Bonds means the outstanding Community Facilities District No of the Tustin Unified School District 2015 Special Tax Refunding Bonds, Series A (Federally Tax-Exempt) and Series B (Federally Taxable). Bond Counsel means (a) the firm of Bowie, Arneson, Wiles & Giannone, or (b) any other attorney or firm of attorneys nationally recognized for expertise in rendering opinions as to the legality and tax exempt status of securities issued by public entities. Bond Fund means the fund of that name established under and held by the Fiscal Agent pursuant to the provisions of the Fiscal Agent Agreement. Bond Register means the books which the Fiscal Agent shall keep or cause to be kept on which the registration and transfer of the Bonds shall be recorded. Bond Year means each twelve-month period extending from September 2 in one calendar year to September 1 of the succeeding calendar year, except in the case of the initial Bond Year which shall be the period from the Dated Date to September 1, 2015, both dates inclusive. Bondowner(s) or Owner(s) means the Person or Persons in whose name or names any 2015 Special Tax Refunding Bond is registered. Business Day means a day which is not a Saturday or a Sunday or a day on which banks in Los Angeles, California and New York, New York are not required or permitted to be closed. Code means the Internal Revenue Code of 1986, as amended, and any successor provisions thereto. Community Facilities District Policy means that policy initially adopted by the School District pursuant to Government Code Section as emended from time to time. Costs of Issuance means items of expense payable or reimbursable directly or indirectly by the District or School District and related to the authorization, issuance and sale of the 2015 Special Tax Refunding Bonds, which items of expense shall include, but not be limited to, printing costs, cost of reproducing and binding documents, closing costs, appraisal costs, mortgage study costs, filing and recording fees, fees and expenses of counsel to the District or School District, initial fees and expenses of the Fiscal Agent and/or the Escrow Agent, including its first annual administration fee and fees of its counsel, expenses incurred by the District and the School District in connection with the authorization and issuance of the 2015 Special Tax Refunding Bonds, rating agency fees or costs, costs of obtaining rating(s) for the 2015 Special Tax Refunding Bonds, Underwriter s discount, legal fees and charges, including those of Bond Counsel and Disclosure Counsel, Financial Advisor s fees, bond insurance premium(s), surety policy premium(s) or costs, charges for execution, transportation and safekeeping of the 2015 Special Tax Refunding Bonds and other costs, charges and fees in connection with the foregoing. Costs of Issuance Fund means the fund of that name established under, and held by the Fiscal Agent pursuant to, the provisions of the Fiscal Agent Agreement. County means the County of Orange, a political subdivision of the State of California. C-5

100 Dated Date or Delivery Date means the date the 2015 Special Tax Refunding Bonds are delivered. Depository means any depository which holds 2015 Special Tax Refunding Bonds pursuant to the provisions of the Fiscal Agent Agreement. Developed Property shall have the same meaning set forth in the Rate and Method. Dissemination Agent means Special District Financing & Administration, or any successor dissemination agent appointed by the District pursuant to the District Continuing Disclosure Agreement. District or CFD No means Community Facilities District No of the Tustin Unified School District. District Continuing Disclosure Agreement shall mean that certain Continuing Disclosure Agreement provided by the District, dated the Delivery Date, as originally executed and as it may be amended from time to time in accordance with the terms thereof and with respect to any Series of the 2015 Special Tax Refunding Bonds, the Continuing Disclosure Agreement (or equivalent document) entered into, or executed and delivered, by and between the School District, on behalf of the District, and a Dissemination Agent, as originally executed and as amended from time to time. Escrow Agent means U.S. Bank National Association, or any successor thereto, as the Escrow Agent designated under the terms of the Escrow Agreement. Escrow Agreement means the Escrow Agreement entered into by and between U.S. Bank National Association, as the Escrow Agent and Prior Bonds fiscal agent, and the District dated as of the Delivery Date and providing for the payment, redemption and defeasance of the outstanding Prior Bonds. Escrow Fund means the Tustin Unified School District (CFD No. 97-1) Escrow Fund (including the Accounts thereof) established and administered under the Escrow Agreement and as further described in the Escrow Agreement. Excess Investment Earnings shall mean an amount equal to the sum of: (i) the excess of plus (A) (B) the aggregate amount earned from the Delivery Date on all Nonpurpose Investments in which Gross Proceeds are invested (other than amounts attributable to an excess described in this subparagraph (i)), over the amount that would have been earned if the yield on such Nonpurpose Investments (other than amounts attributable to an excess described in this subparagraph (i)) had been equal to the Yield on the 2015 Special Tax Refunding Bonds, (ii) any income attributable to the excess described in paragraph (i). In determining the amount of Excess Investment Earnings, there shall be excluded any amount earned on any fund or account which is used primarily to achieve a proper matching of revenues and annual debt service on the 2015 Special Tax Refunding Bonds during each Bond Year and which is depleted at least once a year except for a reasonable carryover amount not in excess of the greater of one C-6

101 year s earnings on such fund or account or one-twelfth (1/12) of annual debt service on the 2015 Special Tax Refunding Bonds, as well as amounts earned on said earnings. The District intends that the Bond Fund, including the Principal Account and the Interest Account established therein, the Special Tax Fund and the Redemption Fund will be the type of funds described in the preceding sentence. Federal Securities means any of the following which are non-callable and which at the time of investment are legal investments under the laws of the State of California for funds held by the Fiscal Agent: direct general obligations of the United States of America (including obligations issued or held in book-entry form on the books of the United States Department of the Treasury) and obligations, the payment of principal of and interest on which are directly or indirectly guaranteed by the United States of America, including, without limitation, such of the foregoing which are commonly referred to as stripped obligations and coupons. Fiscal Agent means U.S. Bank National Association, and its successors and assigns or any other fiscal agent which may be appointed pursuant to the provisions of the Fiscal Agent Agreement. Fiscal Agent Agreement means the Fiscal Agent Agreement, as amended or supplemented pursuant to the terms thereof. Fiscal Year means the period from July 1 to June 30 in any year. Fitch means Fitch Ratings Service 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 Fitch shall be deemed to refer to any other nationally recognized securities rating agency selected by the District. Gross Taxes means the amount of all Special Taxes collected within the District as set out in the Rate and Method and proceeds from the sale of property collected pursuant to the foreclosure provisions of the Fiscal Agent Agreement for the delinquency of such Special Taxes. Independent Financial Consultant means a consultant or firm of such consultants generally recognized to be qualified in the field of implementation and administration of community facilities districts, or the financial consulting field, appointed and paid by the District and who, or each of whom: (1) is independent of the District and the School District or any of the property owners within the District; (2) does not have any substantial interest, direct or indirect, with the District or any of the property owners within the District; and (3) is not connected with the District as a member, officer or employee of the District or any of the property owners within the District, but who may be regularly retained to make annual or other reports to the District. Informational Services means the Municipal Securities Rulemaking Board, through its Electronic Municipal Market Access (EMMA) system, and, in accordance with then current guidelines of the Securities and Exchange Commission and/or such other services providing information with respect to called bonds as the District may designate in a written request of the District delivered to the Fiscal Agent. Insurance Policy or Policy means the policy of municipal bond insurance issued by the Insurer guaranteeing the scheduled payment of principal and interest on the Insured Bonds when due. C-7

102 Insured Bonds means the 2015 Special Tax Refunding Bonds which are covered by the terms of the Insurance Policy, specifically the Series B Bonds and the Series A Bonds maturing September, 2032, through 2038, inclusive (CUSIP Nos GK6, GL4, GY6, GZ3, and HA7). Insurer or Bond Insurer means Build America Municipal Assurance Company, or any successor or assignee thereof. Interest Payment Date means March 1 and September 1 of each year during which 2015 Special Tax Refunding Bonds are Outstanding, commencing September 1, Legislative Body means the Board of Education, acting as the Legislative Body of the District. Mandatory Redemption Account means the account of that name established under, and held by the Fiscal Agent pursuant to, the terms of the Fiscal Agent Agreement. Maximum Annual Debt Service means the maximum sum for any Series of 2015 Special Tax Refunding Bonds obtained for any remaining Bond Year prior to the final maturity on the Bonds by totaling the following for each Bond Year: (1) the principal amount of all Outstanding Series of 2015 Special Tax Refunding Bonds payable in such Bond Year whether at maturity or by redemption, together with any applicable premium thereon, if any premium is payable; and (2) the interest payable on the aggregate principal amount of all Outstanding Series of 2015 Special Tax Refunding Bonds in such Bond Year assuming the 2015 Special Tax Refunding Bonds are retired as scheduled. Moody s means Moody s Investors Service, Inc., a corporation duly organized and existing under the laws of the State of Delaware, and its successors and assigns, except that if such entity shall be dissolved or liquidated or shall no longer perform the functions of a securities rating agency, then the term Moody s shall be deemed to refer to any other nationally recognized securities rating agency selected by the District. Net Taxes means the amount of all Gross Taxes minus Administrative Expenses up to the Administrative Expense Requirement. Nominee shall mean the nominee of the Depository, which may be the Depository, as determined from time to time pursuant to the provisions of the Fiscal Agent Agreement. Nonpurpose Investments means any security, investment, obligation, annuity, investment-type property, specified private activity bond or any other type of investment property defined in Section 148 of the Code in which Gross Proceeds are invested (other than tax-exempt securities which are described in Section 103(a) of the Code) and which is not acquired to carry out the governmental purpose of the 2015 Special Tax Refunding Bonds. Optional Redemption Account means the account of that name established under, and held by the Fiscal Agent pursuant to, the terms of the Fiscal Agent Agreement. Ordinance(s) means, collectively, Resolution and Ordinance No adopted by the Board of Education on May 27, 1997, and Resolution and Ordinance No adopted by the Board of Education on May 26, C-8

103 Outstanding means all 2015 Special Tax Refunding Bonds, of either Series, theretofore issued by the District, except: (1) Bonds theretofore canceled by the Fiscal Agent or surrendered to the Fiscal Agent for cancellation; (2) 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 Fiscal Agent pursuant to the terms of the Fiscal Agent Agreement; and (3) Bonds paid and discharged pursuant to the terms of the Fiscal Agent Agreement. Participating Underwriter means the initial Underwriter of the 2015 Special Tax Refunding Bonds (Piper Jaffray & Co.). Person means an individual, corporation, limited liability company, firm, association, partnership, trust or other legal entity or group of entities, including a governmental entity or any agency or political subdivision thereof. Prepaid Special Taxes means all Special Taxes prepaid to the District pursuant to the Rate and Method and the findings and directives of the Legislative Body with respect to permitting prepayment(s) of Special Taxes during the term of the Fiscal Agent Agreement, less related Administrative Expenses of collecting such Prepaid Special Taxes. Prepayment Account means the account of that name established under, and held by the Fiscal Agent, pursuant to the terms of the Fiscal Agent Agreement. Principal Account means the account of that name established under, and held by the Fiscal Agent pursuant to, the provisions of the Fiscal Agent Agreement. Principal Corporate Trust Office means the corporate trust office of the Fiscal Agent, which, at the date of execution of this Fiscal Agent Agreement, is located at 633 West Fifth Street 24th Floor, Los Angeles, California 90071, or such other office(s) as the Fiscal Agent may designate from time to time. Purchase Price for the purpose of computation of the Yield of the Series A Bonds, has the same meaning as the term issue price in Sections 1273 (b) and 1274 of the Code, and, in general, means the initial offering price to the public (not including bond houses and brokers, or similar Persons or organizations acting in the capacity of underwriters or wholesalers) at which price a substantial amount of the Series A Bonds are sold. The term Purchase Price, for the purpose of computation of the Yield of Nonpurpose Investments, means the fair market value of the Nonpurpose Investments on the date of use of Gross Proceeds for acquisition thereof, or, if later, on the date that Investment Property (as defined in Section 148(b)(2) and (3) of the Code) constituting a Nonpurpose Investment becomes a Nonpurpose Investment of the Series A Bonds, as the case may be. Rate and Method means the amended Rate and Method of Apportionment of Special Taxes of the District, as approved pursuant to the Act, and as such may be amended or interpreted from time to time. Rating Agencies means Fitch, Moody s and/or S&P, as applicable. Rebate Fund means the fund of that name established under, and held by the Fiscal Agent pursuant to, the provisions of the Fiscal Agent Agreement. C-9

104 Record Date means the 15th day of the calendar month preceding an Interest Payment Date whether or not such day is a Business Day. Redemption Fund means the fund of that name established under, and held by the Fiscal Agent pursuant to the terms of the Fiscal Agent Agreement. Refunding means the current refunding of the Outstanding Prior Bonds. Regulations means any temporary, proposed or final regulations of the United States Department of Treasury with respect to obligations issued pursuant to Section 103 and Sections 141 to 150 of the Code. Representation Letter shall mean the Blanket Letter of Representations from the District to the Depository as described in the Fiscal Agent Agreement. Reserve Fund means the fund of that name established under, and held by the Fiscal Agent pursuant to, the provisions of the Fiscal Agent Agreement. Reserve Fund Account(s) means, individually or collectively, the Reserve Fund Accounts of the Reserve Fund, as established under, and held by the Fiscal Agent pursuant to the terms of the Fiscal Agent Agreement Reserve Fund Surety means the debt service reserve surety provided by the Bond Insurer to be deposited into the Reserve Fund, and the Reserve Fund Accounts, as applicable, to satisfy a portion of the corresponding Reserve Requirement(s). Reserve Fund Surety Bond means a surety bond, or equivalent security, provided by a qualified provider pursuant to the terms of the Fiscal Agent Agreement. Reserve Requirement means, with respect to each Series of the 2015 Special Tax Refunding Bonds, an amount, as of any date of calculation, equal to the least of (i) 10% of the original principal amount of the corresponding Series of the 2015 Special Tax Refunding Bonds, less original issue discount, if any, plus original issue premium, if any, (ii) Maximum Annual Debt Service on the applicable Series of the 2015 Special Tax Refunding Bonds, or (iii) 125% of average annual debt service on the corresponding Series of the 2015 Special Tax Refunding Bonds. Residual Fund means the fund of that name established and held by the School District pursuant to, the provisions of the Fiscal Agent Agreement. Responsible Officer of the Fiscal Agent means and includes the president, every senior vice president, every vice president, every assistant vice president, every trust officer or any other authorized officer of the Fiscal Agent at its Principal Corporate Trust Office. School District means the Tustin Unified School District. School Facilities means public school facilities and supporting infrastructure owned by the School District which the District is authorized to acquire or finance pursuant to the formation proceedings and the provisions of the Act. Securities Depositories means The Depository Trust Company, at its then-current address; and, in accordance with then-current guidelines of the Securities and Exchange Commission, such other C-10

105 addresses and/or such other securities depositories as the District may designate in a certificate delivered to the Fiscal Agent. Series means the Series A Bonds and/or Series B Bonds, individually or collectively, as shall be applicable. Series A Bonds means the $82,820,000 aggregate principal amount Community Facilities District No of the Tustin Unified School District 2015 Special Tax Bonds, Series A (Federally Tax- Exempt). Series A Costs of Issuance Account means the account of that name established under, and held by the Fiscal Agent pursuant to, the terms of the Fiscal Agent Agreement. Series A Interest Account means the account of that name established under, and held by the Fiscal Agent pursuant to, the terms of the Fiscal Agent Agreement. Series A Principal Account means the account of that name established under, and held by the Fiscal Agent pursuant to, the terms of the Fiscal Agent Agreement Series A Reserve Account means that Reserve Account of the Reserve Fund established under, and held by the Fiscal Agent pursuant to, the terms of the Fiscal Agent Agreement Series A Term Bonds or Term Bond(s)` means the Series A Bonds maturing September 1, Series B Bonds means the $9,635,000 aggregate principal amount Community Facilities District No of the Tustin Unified School District 2015 Special Tax Bonds, Series B (Federally Taxable). Series B Costs of Issuance Account means the account of that name established under, and held by the Fiscal Agent pursuant to, the terms of the Fiscal Agent Agreement. Series B Interest Account means the account of that name established under, and held by the Fiscal Agent pursuant to, the terms of the Fiscal Agent Agreement. Series B Principal Account means the account of that name established under, and held by the Fiscal Agent pursuant to, the terms of the Fiscal Agent Agreement Series B Reserve Account means that Reserve Account of the Reserve Fund established under, and held by the Fiscal Agent pursuant to, the terms of the Fiscal Agent Agreement. Sinking Fund Payment means the annual sinking fund payment to be deposited in the Sinking Fund Redemption Account of the Redemption Fund to redeem a portion of the Series A Term Bonds. Sinking Fund Redemption Account means the account of that name established under, and held by the Fiscal Agent pursuant to, the terms of the Fiscal Agent Agreement. Special Tax Fund means the fund of that name established under, and held by the Fiscal Agent pursuant to, the provisions of the Fiscal Agent Agreement. Special Taxes means the special taxes levied by the Board, acting as the Legislative Body, within the District pursuant to the Act, the Resolution of Formation, the Ordinances and the voter C-11

106 approvals obtained at the Elections held within the District and the Annexation Proceedings (as defined in The Fiscal Agent Agreement), including, but not limited to, the Annexation Election (as defined in The Fiscal Agent Agreement). Standard & Poor s or S&P means Standard & Poor s Rating Services, a Division of The McGraw-Hill Companies, Inc, except that if such corporation 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 District. Supplement means any supplemental agreement amending or supplementing the Fiscal Agent Agreement. Tax Certificate means the certificate of that name, delivered with respect to the Series A Bonds, to be executed by an authorized representative of the District on the closing date to establish certain facts and expectations and which contains certain covenants relevant to compliance with the Code. Underwriter means the initial Underwriter of the 2015 Special Tax Refunding Bonds, Piper Jaffray & Co. Undeveloped Property shall have the same meaning set forth in the Rate and Method and set forth in the Ordinances. Yield means that yield which, when used in computing the present worth of all payments of principal and interest (or other payments in the case of Nonpurpose Investments which require payments in a form not characterized as principal and interest) on a Nonpurpose Investment or on the Series A Bonds produces an amount equal to the Purchase Price of such Nonpurpose Investment or the Series A Bonds, as the case may be, all computed as prescribed in the applicable Regulations. [Remainder of this page intentionally left blank] C-12

107 ISSUANCE OF THE 2015 SPECIAL TAX REFUNDING BONDS The 2015 Special Tax Refunding Bonds are issued pursuant to the Resolution of 2015 Bonds Issuance (as defined in the Fiscal Agent Agreement), the Act and the Fiscal Agent Agreement in the amounts and maturities set forth in the Fiscal Agent Agreement (see INTRODUCTION and THE BONDS - Authority for Issuance, General Provisions and Debt Service Schedule in the Preliminary Official Statement for further information). Purpose of the Bonds The 2015 Special Tax Refunding Bonds are being issued, pursuant to the Act, to refund the outstanding Prior Bonds. As part of the refinancing of the Prior Bonds, a portion of the net proceeds of each series of the 2015 Special Tax Refunding Bonds will be deposited in the respective Escrow Accounts of the Escrow Fund, held by the Escrow Agent pursuant to the terms of the Escrow Agreement and expended to pay, redeem and refund the outstanding Prior Bonds. (See INTRODUCTION Purpose of the Bonds and THE FINANCING PLAN in the Preliminary Official Statement for further information). Limited Obligation The 2015 Special Tax Refunding Bonds shall be and are limited obligations of the District and shall be payable as to the principal thereof and interest thereon and premiums upon the redemption thereof solely from the Net Taxes and amounts in certain funds, accounts and subaccounts created pursuant to the Fiscal Agent Agreement as specified therein. The Net Taxes are pledged and set aside for the payment of the 2015 Special Tax Refunding Bonds pursuant to the terms of the Fiscal Agent Agreement. The 2015 Special Tax Refunding Bonds and interest thereon are not payable from the general fund of the District or the School District. Except with respect to the Special Taxes, neither the credit nor the taxing power of the District or the School District is pledged for the payment of the 2015 Special Tax Refunding Bonds or interest thereon, and no Owner of the 2015 Special Tax Refunding Bonds may compel the exercise of the taxing power by the District or the School District or the forfeiture of any of their property. The principal of and interest on the 2015 Special Tax Refunding Bonds are not a debt of the District or the School District, the State of California nor any of its political subdivisions within the meaning of any constitutional or statutory limitation or restriction. The 2015 Special Tax Refunding Bonds are not a legal or equitable pledge, charge, lien or encumbrance, upon any property or income, receipts or revenues of the District or the School District, except the Net Taxes which are, under the terms of the Fiscal Agent Agreement, pledged and set aside for the payment of the 2015 Special Tax Refunding Bonds and interest thereon. Neither the members of the Legislative Body or the Board of Education nor any persons executing the 2015 Special Tax Refunding Bonds are personally liable on the 2015 Special Tax Refunding Bonds by reason of their issuance (see INTRODUCTION, SECURITY FOR THE BONDS - General and - Special Taxes and BONDOWNERS RISKS The Bonds are Limited Obligations of the Community Facilities District and - Insufficiency of the Special Tax in the Preliminary Official Statement for further information). Equality of 2015 Special Tax Refunding Bonds, Pledge of Net Taxes Pursuant to the Act and the provisions of the Fiscal Agent Agreement, the 2015 Special Tax Refunding Bonds shall be equally payable from the Net Taxes without priority for Series, number, date of the 2015 Special Tax Refunding Bonds, date of sale, date of execution or date of delivery, and the payment of the interest on and principal of the 2015 Special Tax Refunding Bonds and any premiums upon the redemption thereof shall be exclusively paid from the Net Taxes and amounts held in certain C-13

108 funds and accounts created under the terms of the Fiscal Agent Agreement, as specified therein. All of the Net Taxes are pledged and set aside for the payment of the 2015 Special Tax Refunding Bonds, and such Net Taxes and any interest earned on the Net Taxes shall constitute a trust fund for the payment of the interest on and principal of the 2015 Special Tax Refunding Bonds and so long as any of the 2015 Special Tax Refunding Bonds or interest thereon are unpaid the Net Taxes and interest thereon shall not be used for any other purpose, except as permitted by the Fiscal Agent Agreement or any Supplement, and shall be held in trust for the benefit of the Bondowners and shall be applied pursuant to the Fiscal Agent Agreement, or to the Fiscal Agent Agreement as modified pursuant to provisions therein. Notwithstanding any provision contained in the Fiscal Agent Agreement to the contrary, Net Taxes deposited in the Administrative Expense Fund and the Rebate Fund shall no longer be considered to be pledged to the 2015 Special Tax Refunding Bonds and the Administrative Expense Fund and the Rebate Fund shall not be construed as trust funds held for the benefit of the Bondowners. In the event that the Fiscal Agent lacks sufficient amounts to make timely payment of principal and interest on the 2015 Special Tax Refunding Bonds when due, such principal of and interest on the 2015 Special Tax Refunding Bonds shall be paid from available amounts held by the Fiscal Agent in the Special Tax Fund (and its accounts), Bond Fund, Reserve Fund or Redemption Fund under the Fiscal Agent Agreement (not including those amounts deposited in the Administrative Expense Fund, the Escrow Fund, the Residual Fund and the Rebate Fund) in accordance with such terms without preference or priority of interest over principal or principal over interest, or of any installment of principal or interest over any other installment of principal or interest, ratably to the aggregate amount of such principal and interest (See INTRODUCTION Special Tax Requirement, Sources of Payment for the Bonds, SECURITY FOR THE BONDS - General and - Special Taxes in the Preliminary Official Statement for further information). Funds and Accounts The Fiscal Agent Agreement creates specified funds, accounts and subaccounts to be maintained by the Fiscal Agent for specified purposes: Special Tax Fund (a) The District shall establish and maintain the Special Tax Fund to be held by the County Treasurer. Special Taxes (exclusive of Prepaid Special Taxes) received shall be deposited into the Special Tax fund. Prepaid Special Taxes shall, upon receipt, be deposited into the Prepayment Accounts of the Special Tax fund and applied as set out in the Fiscal Agent Agreement. (b) Moneys in the Special Tax Fund are subject to the pledge for payment of principal and interest on the Bonds as set forth in the Fiscal Agent Agreement. Upon receipt thereof from the County, the District shall deposit all Gross Taxes into the Special Tax Fund. All moneys in the Special Tax Fund (exclusive of Prepaid Special Taxes) shall be held by the County Treasurer on behalf of the District. (c) Special Taxes in the Special Tax Fund (exclusive of Prepaid Special Taxes) shall be applied by the District as follows and in the following order of priority: 1. To the Administrative Expense Fund, an amount equal to the Administrative Expense Requirement. 2. To the Series A Interest Account and the Series B Interest Account of the Bond Fund, an amount such that the balance in each Interest Account, as applicable, one Business Day prior to each Interest Payment Date shall be equal to the installment of interest due on the corresponding Series of Bonds on each Interest C-14

109 Payment Date. Moneys in the Interest Account shall be used for the payment of interest on the corresponding Series of Bonds as the same become due. 3. To the Series A Principal Account and Series B Principal Account of the Bond Fund, an amount up to the amount needed to make the principal payment due on the corresponding Series of Bonds, as applicable, during the current Bond Year. 4. To the Sinking Fund Redemption Account(s) (or subaccounts) of the Redemption Fund an amount up to the amount needed to make the Mandatory Sinking Payments due on the 2015 Special Tax Refunding Bonds (of either Series) during the current Bond Year. 5. To the Series A Reserve Account and/or the Series B Reserve Account, the amounts, if any, necessary to replenish each Reserve Fund Account to the applicable Reserve Requirement, including the reimbursement to the Bond Insurer for all amounts due and payable to the Bond Insurer in connection with the Reserve Fund Surety and to pay Reserve Fund Surety reimbursements due to the Bond Insurer pursuant to the terms of the Reserve Fund Surety. 6. To the extent that Administrative Expenses are not fully satisfied in (1) above, to the Administrative Expense Fund in the amount(s) required to bring the balance therein to the amount identified by the District to the Fiscal Agent to meet such additional Administrative Expenses (over and above the Administrative Expense Requirement) in the coming Fiscal Year, or Administrative Expenses from a prior Fiscal Year which remain unpaid. 7. To the Redemption Fund, the amount(s), if any, that the District directs the Fiscal Agent to deposit pursuant to the provisions of the Fiscal Agent Agreement for optional redemption of Outstanding Series A Bonds. 8. Any remaining Special Taxes and other amounts constituting Net Taxes shall remain in the Special Tax Fund subject to the provisions of (d), below. (d) Any remaining Special Taxes and other amounts constituting Net Taxes, if any, shall remain in the Special Tax Fund until the end of the Bond Year. At the end of each Bond Year, any remaining funds in the Special Tax Fund, which are not required to cure a delinquency in the payment of principal and interest on any Series of the Bonds, to restore the Reserve Accounts of the Reserve Fund as provided for in (c)(5) (or provide for required payments to the Bond Insurer for draws on the Reserve Fund Surety), above, or to pay current or pending Administrative Expenses as provided for in (c)(1) and (6) above, shall, without further action by any party, be transferred by the Fiscal Agent on September 15 of each year into the Residual Fund and shall thereafter be used for the purposes applicable to the Residual Fund (which are purposes authorized under the provisions of the Act and the proceedings under which the District was formed). The Fiscal Agent shall promptly confirm the amount of such transfer(s) in writing to the District. Moneys deposited into, or held within, the Residual Fund are not pledged to the payment of principal, interest or premiums on the 2015 Special Tax Refunding Bonds of either Series. Any funds which are required to cure any such delinquency shall be retained in the Special Tax Fund and expended or transferred, at the earliest possible date, for such purpose. (See SECURITY FOR THE BONDS Special Tax Fund in the Preliminary Official Statement). Prepayment Account of the Special Tax Fund. Prepaid Special Taxes collected by the District (net of any costs of collection) shall be transferred, no later than 10 days after receipt thereof, to the Fiscal Agent; and the District shall direct the Fiscal Agent to deposit the Prepaid Special Taxes in the C-15

110 Prepayment Account of the Special Tax Fund. The Prepaid Special Taxes shall be held in the Prepayment Account for the benefit of the Series A Bonds and shall be transferred by the Fiscal Agent to the Mandatory Redemption Account of the Redemption Fund to call Series A Bonds on the next Interest Payment Date for which notice can be given in accordance with the special mandatory redemption provisions as set forth in the Fiscal Agent Agreement. The Prepaid Special Taxes shall be transferred to the Mandatory Redemption Account and applied to call Series A Bonds on a pro rata basis. (See THE BONDS Redemption in the Preliminary Official Statement). Bond Fund - The Bond Fund (in which there are established Interest Accounts and Principal Accounts for each Series of the 2015 Special Tax Refunding Bonds), is used to disperse payments of principal and interest to the Bondowners of each Series of the Bonds on each Interest Payment Date. Moneys in each of the Interest Accounts are allocated to the payment of interest due on the respective series of the 2015 Special Tax Refunding Bonds on each Interest Payment Date and moneys in each of the Principal Accounts are allocated to the repayment of principal on the respective series of the 2015 Special Tax Refunding Bonds on the corresponding Interest Payment Date (see SECURITY FOR THE BONDS - Bond Fund in the Preliminary Official Statement). Reserve Fund. (a) There shall be maintained in the Series A Reserve Account of the Reserve Fund an amount equal to the Reserve Requirement for the Series A Bonds. Notwithstanding the foregoing, in the event of a redemption or partial defeasance of the Series A Bonds, the Reserve Requirement for the Series A Bonds shall thereafter be determined by the District and communicated to the Fiscal Agent in writing and any funds in excess of such predetermined Reserve Requirement for the Series A Bonds shall be utilized as set forth in the Fiscal Agent Agreement. (b) Moneys in the Series A Reserve Account of the Reserve Fund shall be used solely for the purpose of (i) making transfers to the Series A Interest Account and/or Series A Principal Account of the Bond Fund or the Sinking Fund Redemption Account of the Redemption Fund to pay the principal of, and interest and premium on Series A Bonds when due to the extent that moneys in the Series A Interest Account and the Series A Principal Account of the Bond Fund are insufficient therefor; (ii) making any required transfer to the Rebate Fund pursuant to the provisions of the Fiscal Agent Agreement upon written direction from the District; (iii) paying the principal and interest due on Series A Bonds in the final Bond Year applicable to the Series A Bonds; and (iv) application to the defeasance of such Series A Bonds in accordance with the provisions of the Fiscal Agent Agreement. If the amounts in the Series A Interest Account or the Series A Principal Account of the Bond Fund, as provided for herein, are insufficient to pay the principal of, or interest on the Series A Bonds when due, the Fiscal Agent shall, one Business Day prior to the corresponding Interest Payment Date, withdraw from the Series A Reserve Account of the Reserve Fund for deposit in the Series A Interest Account and the Series A Principal Account of the Bond Fund, moneys necessary for such purpose. Following any transfer to the Series A Interest Account or the Series A Principal Account of the Bond Fund, the Fiscal Agent shall notify the District of the amount needed to replenish the Series A Reserve Account of the Reserve Fund to the Reserve Requirement applicable to the Series A Bonds and the District shall include such amount as is required at that time to correct such deficiency in the next Special Tax levy to the extent of the permitted maximum Special Tax rates. (c) The Reserve Requirement for the Series A Bonds, or any portion thereof, may be satisfied by crediting to the Series A Reserve Account of the Reserve Fund moneys, a letter of credit, a bond insurance policy, or any other comparable credit facility or any combination thereof, which in the aggregate make funds available in the Series A Reserve Account of the Reserve Fund in an amount equal to the Reserve Requirement applicable to the Series A Bonds; however, the long-term unsecured debt or claim-paying ability, as the case may be, of the provider of any such letter of credit, bond insurance C-16

111 policy or any other comparable credit facility, must, at the time of issuance, have a rating of at least A1 from Moody's if Moody's shall then be rating the Bonds, as shall be applicable, and A+ from S&P, if S&P shall then be rating the Bonds, as shall be applicable, (provided that the Fiscal Agent shall be under no obligation and have no responsibility whatsoever to independently determine or verify such rating other than at the time of delivery). In the event of the use of such a surety, the Fiscal Agent shall be provided with copies of all documents in regard thereto and shall, to the extent not in conflict with the provisions of the Fiscal Agent Agreement, conform to the forms thereof for purposes of submitting draws, and making reimbursements, thereon. In the event of the use of such a surety, S&P shall, if S&P shall then be rating the Series A Bonds, be provided written notice by the Fiscal Agent, of (i) any draw on such surety at the time such occurs; and (ii) any substitution or replacement of the then-current surety or surety provider as of the date of such substitution or replacement. The Reserve Requirement will be initially partially satisfied with the Reserve Fund Surety delivered by the Bond Insurer. (d) There shall be maintained in the Series B Reserve Account of the Reserve Fund an amount equal to the Reserve Requirement for the Series B Bonds. Notwithstanding the foregoing, in the event of a redemption or partial defeasance of the Series B Bonds, the Reserve Requirement for the Series B Bonds shall thereafter be determined by the District and communicated to the Fiscal Agent in writing and any funds in excess of such predetermined Reserve Requirement for the Series B Bonds shall be utilized as set forth in the Fiscal Agent Agreement. (e) Moneys in the Series B Reserve Account of the Reserve Fund shall be used solely for the purpose of (i) making transfers to the Series B Interest Account and/or Series B Principal Account of the Bond Fund to pay the principal of and interest on the Series B Bonds when due to the extent that moneys in the Series B Interest Account and the Series B Principal Account of the Bond Fund are insufficient therefor; (ii) making any required transfer to the Rebate Fund pursuant to the provisions of the Fiscal Agent Agreement upon written direction from the District; (iii) paying the principal and interest due on Series B Bonds in the final Bond Year applicable to the Series B Bonds; and (iv) application to the defeasance of such Series B Bonds in accordance with the provisions of the Fiscal Agent Agreement. If the amounts in the Series B Interest Account or the Series B Principal Account of the Bond Fund, as provided for herein, are insufficient to pay the principal of, or interest on the Series B Bonds when due, the Fiscal Agent shall, one Business Day prior to the corresponding Interest Payment Date, withdraw from the Series B Reserve Account of the Reserve Fund for deposit in the Series B Interest Account and the Series B Principal Account of the Bond Fund, moneys necessary for such purpose. Following any transfer to the Series B Interest Account or the Series B Principal Account of the Bond Fund, the Fiscal Agent shall notify the District of the amount needed to replenish the Series B Reserve Account of the Reserve Fund to the Reserve Requirement applicable to the Series B Bonds and the District shall include such amount as is required at that time to correct such deficiency in the next Special Tax levy to the extent of the permitted maximum Special Tax rates. (f) The Reserve Requirement for the Series B Bonds, or any portion thereof, may be satisfied by crediting to the Series B Reserve Account of the Reserve Fund moneys, a letter of credit, a bond insurance policy, or any other comparable credit facility or any combination thereof, which in the aggregate make funds available in the Series B Reserve Account of the Reserve Fund in an amount equal to the Reserve Requirement applicable to the Series B Bonds; however, the long-term unsecured debt or claim-paying ability, as the case may be, of the provider of any such letter of credit, bond insurance policy or any other comparable credit facility, must, at the time of issuance, have a rating of at least A1 from Moody's if Moody's shall then be rating the Bonds, as shall be applicable, and A+ from S&P, if S&P shall then be rating the Bonds, as shall be applicable, (provided that the Fiscal Agent shall be under no obligation and have no responsibility whatsoever to independently determine or verify such rating other than at the time of delivery). In the event of the use of such a surety, the Fiscal Agent shall be provided with copies of all documents in regard thereto and shall, to the extent not in conflict with the provisions of the Fiscal Agent Agreement, conform to the forms thereof for purposes of submitting draws, C-17

112 and making reimbursements, thereon. In the event of the use of such a surety, S&P shall, if S&P shall then be rating the Series B Bonds, be provided written notice by the Fiscal Agent, of (i) any draw on such surety at the time such occurs; and (ii) any substitution or replacement of the then-current surety or surety provider as of the date of such substitution or replacement. The Reserve Requirement will be initially partially satisfied with the Reserve Fund Surety delivered by the Bond Insurer. (g) Moneys, if any, held in the Reserve Fund Accounts shall be invested in accordance with the provisions of the Fiscal Agent Agreement. Any moneys in the Reserve Fund Accounts in excess of the corresponding Reserve Requirement shall be withdrawn by the Fiscal Agent two (2) Business Days prior to each Interest Payment Date and deposited into the Interest Account of the Bond Fund for the corresponding Series of Bonds and thereafter applied for the purposes specified for such Account. (h) Notwithstanding anything herein to the contrary, the Fiscal Agent shall transfer to the Reserve Fund Account(s), from available moneys in the Special Tax Fund, the amount(s) needed to restore each Reserve Fund Account to the corresponding Reserve Requirement as specified in the provisions of the Fiscal Agent Agreement. Moneys in the Special Tax Fund shall be deemed available for transfer to the Reserve Fund Account(s) only if such amounts will not be needed to make the deposit(s) required to be made to the corresponding Interest Account(s) and the corresponding Principal Account(s) of the Bond Fund for the next applicable Interest Payment Date. (See SECURITY FOR THE BONDS - Reserve Fund and BONDOWNERS RISKS Depletion of Reserve Fund in the Preliminary Official Statement and Funds and Accounts - Special Tax Fund above for more information). Redemption Fund The Redemption Fund is established by the Fiscal Agent Agreement and includes an Optional Redemption Account, a Sinking Fund Redemption Account and a Mandatory Redemption Account. Each of the redemption accounts are used for the temporary retention of moneys allocated to the redemption of the Series A Bonds corresponding to that account. Moneys in each such account shall be applied solely for such redemption purpose (see THE BONDS Redemption in the Preliminary Official Statement). Administrative Expense Fund - The Administrative Expense Fund is used for the receipt of funds initially deposited from the proceeds of the 2015 Special Tax Refunding Bonds, if any, and thereafter funds transferred from the Special Tax Fund to pay Administrative Expenses during each Fiscal Year. Moneys retained in the Administrative Expense Fund are not pledged for the repayment of interest or principal on the 2015 Special Tax Refunding Bonds. Moneys in the Administrative Expense Fund shall be utilized to pay Administrative Expenses as specified in the Fiscal Agent Agreement. (See SECURITY FOR THE BONDS Administrative Expense Fund in the Preliminary Official Statement). Costs of Issuance Fund and Costs of Issuance Accounts The Fiscal Agent Agreement establishes the Costs of Issuance Fund and the Costs of Issuance Accounts. A portion of the proceeds of each Series of the 2015 Special Tax Refunding Bonds will be deposited into the respective Costs of Issuance Accounts of the Costs of Issuance Fund. Moneys deposited into the respective Costs of Issuance Accounts of the Costs of Issuance Fund will be expended at the direction of the District for payment of Costs of Issuance of the Bonds as further set forth in the Fiscal Agent Agreement. Residual Fund. Moneys in the Residual Fund may be used by the District for acquisition and/or construction of School Facilities; to make deposits to the Rebate Fund under the terms of the Fiscal Agent Agreement for the purposes of paying rebatable arbitrage as and when such is due in accordance with the Tax Certificate and the Regulations, to pay other obligations of the District, at the option of the District, to pay for Administrative Expenses under the terms of the Fiscal Agent Agreement, or other purposes as set out in the Fiscal Agent Agreement. Moneys on deposit in the Residual Fund are not pledged for C-18

113 payment of the principal of, interest on, or premiums of the 2015 Special Tax Refunding Bonds, and are not subject to any Bondowner s lien. (See SECURITY FOR THE BONDS Residual Fund in the Preliminary Official Statement). Rebate Fund - The Rebate Fund is established by the Fiscal Agent Agreement for the receipt and payment of arbitrage earnings applicable to the Series A Bonds to the United State government as required under the terms of the Fiscal Agent Agreement and the Tax Certificate. (See SECURITY FOR THE BONDS Payment of Rebate Obligation in the Preliminary Official Statement). Investment Earnings - Investment Earnings on each of the Reserve Fund Accounts of the Reserve Fund in excess of the corresponding Reserve Requirement shall be transferred to the Interest Account of the Bond Fund on a semi-annual basis as further described in the Fiscal Agent Agreement. Interest income on other funds and accounts as set out in the Fiscal Agent Agreement will be retained in the account or fund in which it is earned and shall be applied for the purpose for which such account or fund was established (except as otherwise specified in the Fiscal Agent Agreement). The Fiscal Agent is required to invest and reinvest all moneys held the accounts and funds established under the Fiscal Agent Agreement (in accordance with written directives from a representative of the District) in Authorized Investments and as specified in the Fiscal Agent Agreement (see SECURITY FOR THE BONDS Investment of Moneys in Funds in the Preliminary Official Statement). Redemption The Series A Bonds maturing on September 1, 2026, and thereafter, may be redeemed prior to maturity, in whole or in part, at the option of the District from any source of available funds on any date on and after September 1, 2025, as set out in the Fiscal Agent Agreement. The Series B Bonds are not subject to optional redemption prior to maturity. (See THE BONDS - Redemption in the Preliminary Official Statement). The Series A Term Bonds are subject to mandatory redemption from mandatory sinking payments deposited into the Sinking Fund Redemption Account to redeem those Outstanding Series A Term Bonds maturing on September 1, 2038, as specified in the Fiscal Agent Agreement (see THE BONDS Redemption in the Preliminary Official Statement). The Series B Bonds are not subject to mandatory sinking fund redemption prior to maturity. The Series A Bonds are also subject to mandatory redemption prior to their stated maturities, in whole, or in part, on any Interest Payment Date for which timely notice can be given under the terms of the Fiscal Agent Agreement from moneys on deposit in the Prepayment Account of the Special Tax Fund on the dates and at the redemption prices set forth in the Fiscal Agent Agreement. The Series B Bonds are not subject to mandatory redemption from Special Tax prepayments. (See THE BONDS - Redemption, SECURITY FOR THE BONDS - Special Tax Fund and Prepaid Special Taxes in the Preliminary Official Statement and Funds and Accounts Prepayment Account of the Special Tax Fund herein). The Fiscal Agent shall select the Series 2015 Special Tax Refunding Bonds subject to optional redemption, mandatory sinking fund redemption and mandatory redemption, as applicable, from Prepaid Special Taxes, as applicable, in accordance with the provisions of the Fiscal Agent Agreement (See THE BONDS - Redemption in the Preliminary Official Statement). Covenants So long as any of the Bonds issued pursuant to the Fiscal Agent Agreement are Outstanding and unpaid, the District makes the following covenants with the Owners under the provisions of the Act and C-19

114 the Fiscal Agent Agreement and all Supplements (to be performed by the District or its proper officers, agents or employees), which covenants are necessary, convenient and desirable to secure the 2015 Special Tax Refunding Bonds; provided, however, that such covenants do not require the District to expend any funds or moneys other than the Net Taxes or any moneys deposited in the funds and accounts created under the Fiscal Agent Agreement and legally available therefor. Covenant 1. Punctual Payment. The District will duly and punctually pay, or cause to be paid, the principal of and interest on every Bond issued pursuant to the Fiscal Agent Agreement, together with the premium thereon, if any be payable, on the date, at the place and in the manner mentioned in the Bonds and in accordance with the Fiscal Agent Agreement and any Supplement to the extent Net Taxes are available therefor, and that the payments into the Bond Fund and the Reserve Fund will be made, all in strict conformity with the terms of the Bonds and the Fiscal Agent Agreement, and that it will faithfully observe and perform all of the conditions, covenants and requirements of the Fiscal Agent Agreement and any Supplement and of the Bonds issued under the Fiscal Agent Agreement, and that time of such payment and performance is of the essence of the District s contract with the Bondowners. Covenant 2. Levy and Collection of Special Taxes. Subject to the maximum Special Tax rates, the District will comply with all requirements of the Act so as to assure the timely collection of the Special Taxes, including, without limitation, the enforcement of delinquent Special Taxes. On or before each June 1, commencing June 1, 2016, the Fiscal Agent shall provide a written notice to the District stating the amounts then on deposit in the various funds and accounts established by the Fiscal Agent Agreement. The receipt of such notice by the District shall in no way affect the obligations of the District under the following paragraphs. Upon receipt of a copy of such notice, the District shall communicate with the Orange County Treasurer-Tax Collector or other appropriate official of the County of Orange to ascertain 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 District shall retain an Independent Financial Consultant to assist in the levy of the Special Taxes each Fiscal Year, in accordance with the Ordinance, such that the computation of the levy is complete before the final date on which the Orange County Treasurer-Tax Collector will accept the transmission of the Special Tax amounts for the parcels within the District for inclusion on the next secured tax roll. Upon the completion of the computation of the amounts of the levy, and approval by the Legislative Body, the District shall prepare or cause to be prepared, and shall transmit to the Orange County Treasurer-Tax Collector, such data as the Orange County Treasurer-Tax Collector requires to include the levy of the Special Taxes on the next secured tax roll. The District shall fix and levy the amount of Special Taxes within the District required for the payment of principal of and interest on Outstanding Bonds becoming due and payable during the ensuing year including any necessary replenishment or expenditure of the Reserve Fund for the Bonds, an amount equal to the Administrative Expense Requirement and any additional amounts necessary for expenses incurred in connection with administration or enforcement of delinquent Special Taxes. The Special Taxes shall be payable and 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 times and in the same proportionate amounts and bear the same proportionate penalties and interest after delinquency as do the general taxes on real property; provided, the Legislative Body may provide for direct collection of the Special Taxes in certain circumstances. The fees and expenses of the Independent Financial Consultant retained by the District to assist in computing the levy of the Special Taxes under the terms of the Fiscal Agent Agreement and any reconciliation of amounts levied to amounts received, as well as the costs and expenses of the District C-20

115 (including a charge for District staff time) in conducting its duties under the terms of the Fiscal Agent Agreement, shall be an Administrative Expense under the terms of the Fiscal Agent Agreement. (See SECURITY FOR THE BONDS - Special Taxes, BONDOWNERS RISKS Property Tax Delinquencies, - Billing of Special Taxes and Insufficiency of Special Tax in the Preliminary Official Statement.) Covenant 3. Commence Foreclosure Proceedings. On or about March 1 and July 1 of each Fiscal Year, the District will compare the amount of Special Taxes theretofore levied in the District to the amount of Special Taxes theretofore received by the District, and: (A) Individual Delinquencies. If the District determines that (i) any single parcel within the District is delinquent in the payment of five (5) or more installments of the Special Taxes, then the District shall send, or cause to be sent, a notice of delinquency (and a demand for immediate payment thereof) to the property owner within forty-five (45) days of such determination, and (if the delinquency remains uncured) the District shall take action to authorize the commencement of foreclosure proceedings within ninety (90) days of the July 1 determination, to the extent permissible under applicable law, and shall thereafter diligently prosecute such proceedings in superior court to the extent permitted by law. (B) Aggregate Delinquencies. If the District determines that the total amount of delinquent Special Taxes for the prior Fiscal Year for the District (including the total of delinquencies under paragraph (A) above) exceeds five percent (5%) of the total Special Taxes due and payable for the prior Fiscal Year, the District shall notify, or cause to be notified, all property owners who are then delinquent in the payment of Special Taxes (and demand immediate payment of the delinquency) within forty-five (45) days of such determination, and (to the extent such delinquencies remain uncured) the District shall take action to authorize the commencement of foreclosure proceedings within ninety (90) days of such determination against each parcel of land within the District with a Special Tax delinquency to the extent permissible under applicable law. (C) Limiting Provision. Notwithstanding the foregoing, however, the District shall not be required to order, or take action upon, the commencement of foreclosure proceedings under subsection (B), above, if such delinquencies, if not remedied, will not result in a draw on the Reserve Fund such that the Reserve Fund will fall below the Reserve Requirement and no draw has been made on the Reserve Fund, which has not been restored, such that the Reserve Fund shall be funded to at least the Reserve Requirement. The net proceeds received following a judicial foreclosure sale of land within the District resulting from a property owner s failure to pay the Special Taxes when due are included within the Net Taxes pledged to the payment of principal of and interest on the Special Tax Refunding Bonds under the Fiscal Agent Agreement. The District reserves the right to elect to accept payment from a property owner of at least the enrolled amount of the Special Taxes for a parcel(s) but less than the full amount of the penalties, interest, costs and attorneys fees related to the Special Tax delinquency for such parcel(s). The Bondowners are deemed to have consented to the foregoing reserved right of the District, notwithstanding any provision of the Act or other law of the State, or any other term set forth in the Fiscal Agent Agreement to the contrary. The Bondowners, by their acceptance of the Bonds, have consented to such payment for such lesser amounts. C-21

116 Further, notwithstanding any provision of the Act or other law of the State, or any other term set forth in the Fiscal Agent Agreement to the contrary, in connection with any judicial foreclosure proceeding related to delinquent Special Taxes: (i) The District has in the Fiscal Agent Agreement expressly been authorized to credit bid at any foreclosure sale, without any requirement that funds be set aside in the amount so credit bid, in the amount specified in Section of the Act, or such lesser amount as determined under clause (ii) below or otherwise under Section of the Act. (ii) The District may permit, in its sole and absolute discretion, property with delinquent Special Tax payments to be sold for less than the amount specified in Section of the Act, if it determines that such sale is in the interest of the Bondowners. The Bondowners, by their acceptance of the Bonds, have consented to such sale for such lesser amounts (as such consent is described in Section of the Act), and hereby release the District and the School District, and their respective officers and agents, from any liability in connection therewith. If such sale for lesser amounts would result in less than full payment of principal of and interest on the Bonds, the District will use its best efforts to seek approval of the Bondowners. The Board has specifically delegated to the School District s Chief Financial Officer, or such officer s designee(s), all necessary authority in order to: (a) pursue collection of all such Special Taxes pursuant to the provisions of such Covenant 3 and the terms and conditions of the Fiscal Agent Agreement; (b) (c) (d) (e) contract for such services as necessary for collection of such Special Taxes, including, but not limited to, legal services for any applicable foreclosure proceedings, the cost thereof to be borne by the District (subject to Board ratification of any expenditures which are not drawn from the Administrative Expense Fund) and the property owners that have failed to timely pay such Special Taxes, including all costs, interest, and penalties consistent with applicable law; file, or authorize to be filed, actions up to and including legal action(s) necessary to collect any delinquent Special Taxes including foreclosure of any lien securing such Special Taxes; that as provided by the Act, authorize the payment of the costs and attorneys fees for prosecution of such litigation as is authorized on behalf of the District on redemption prior to entry of judgment as well as on post-judgment redemption, and the District hereby authorizes such counsel retained by the District to require payment on the District s behalf of all costs and all attorneys fees incurred in applicable litigation as a condition of such redemption; and/or in conjunction with counsel retained by the District, and other District consultants, authorize, pursuant to Government Code Section : (i) the recording of notices of intent to remove the delinquent Special Taxes from the tax rolls, and (ii) requests that the applicable County officials remove current and future delinquent Special Taxes from the tax rolls. All actions undertaken by the Chief Financial Officer pursuant to the provisions of this Covenant shall be reported to the Board on a regular basis and are subject to the authority of the Board to subsequently direct different or alternative action(s) in such regard. C-22

117 The District is hereby expressly authorized to include costs and attorneys fees related to foreclosure of delinquent Special Taxes as Administrative Expenses under the Fiscal Agent Agreement. (See SECURITY FOR THE BONDS Proceeds of Foreclosure Sales and BONDOWNERS RISKS Foreclosure Proceedings in the Preliminary Official Statement.). Covenant 4. Against Encumbrances. The District will not encumber, pledge or place any charge or lien upon any of the Net Taxes or other amounts pledged to the 2015 Special Tax Refunding Bonds superior to, or on a parity with, the pledge and lien created in the Fiscal Agent Agreement for the benefit of the 2015 Special Tax Refunding Bonds, except as permitted by the Fiscal Agent Agreement and as to bonds issued to fully or partially refund the 2015 Special Tax Refunding Bonds. Covenant 5. Modification of Maximum Authorized Special Tax. The District covenants that no modification of the maximum authorized Special Taxes within the District1 shall be approved by the District which would prohibit the District from levying the Special Tax on Developed Property within the District in any Fiscal Year at such a rate as could generate Special Taxes within the District in each Fiscal Year at least equal to 110% of Annual Debt Service plus estimated annual Administrative Expenses. The District further covenants that in the event an ordinance is adopted by initiative pursuant to Section 3 of Article XIIIC of the California Constitution, which purports to reduce or otherwise alter the maximum authorized Special Taxes, it will, to the extent of available District funds therefore, commence and pursue legal action seeking to preserve its ability to comply with its covenant contained in the preceding paragraph. Covenant 6. Protection of Security and Rights of Owners. The District will preserve and protect the security of the District and the rights of the Owners, and will warrant and defend their rights against all claims and demands of all Persons. From and after the delivery of any of the 2015 Special Tax Refunding Bonds by the District, the 2015 Special Tax Refunding Bonds shall be incontestable by the District. Covenant 7. Compliance with Law, Completion of Refunding of Prior Bonds. The District will comply with all applicable provisions of the Act and law in completing the refinancing of the Prior Bonds. Covenant 8. Books and Accounts. The District will keep, or cause to be kept, proper books of records and accounts, separate from all other records and accounts of the 2015 Special Tax Refunding Bonds, in which complete and correct entries shall be made of all transactions relating to the Project, the levy of the Special Tax within the District and the deposits to the Special Tax Fund including the Prepayment Account. Such books of record and accounts shall at all times during business hours be subject to the inspection of the Owners of not less than ten percent (10%) of the principal amount of the 2015 Special Tax Refunding Bonds then Outstanding or their representatives authorized in writing. Covenant 9. Tax Covenant. The District covenants and represents that until the last Series A Bonds shall have been fully paid or redeemed, the District will comply with all requirements of the Tax Certificate, the Code and all applicable Regulations, such that the interest on the Series A Bonds will remain excluded from gross income for federal income tax purposes. Covenant 10. Additional Tax Covenants. Covenant 10, as fully set forth in the Fiscal Agent Agreement, provides for additional covenants of the District in order to preserve and protect the tax exempt status of the Series A Bonds. C-23

118 Covenant 11. Further Assurances. The District will adopt, make, execute and deliver any and all such further resolutions, instruments and assurances as may be reasonably necessary or proper to carry out the intention or to facilitate the obligations and covenants under the Fiscal Agent Agreement and any Supplement, and for the better assuring and confirming unto the Owners of the rights and benefits provided in the Fiscal Agent Agreement and in any Supplement. Covenant 12. Additional Opinion(s). The District will not make any change in requirements or procedures or take any action, as to which change or action the Fiscal Agent Agreement or related documents require an opinion of nationally recognized Bond Counsel, unless it obtains an opinion of Bond Counsel to the effect that (a) interest on the 2015 Special Tax Refunding Bonds was excluded from gross income for federal income tax purposes from their date of issuance until the date of such change, assuming compliance with the covenants in the Fiscal Agent Agreement as they were in effect prior to the change (except that such opinion need not be given as to any interest for which a similar opinion has previously been given and remains in effect subsequent to such change), and (b) assuming continued compliance by the District with the covenants as changed, interest on the Series A Bonds is excluded from gross income for purposes of federal income taxation. Covenant 13. Tender of Bonds. The District will not, in collecting the Special Taxes within the District or in processing any such judicial foreclosure proceedings, exercise any authority which it has pursuant to Sections 53340, , , and of the California Government Code in any manner which would be inconsistent with the interests of the Owners and, in particular, will not permit the tender of Bonds in full or partial payment of Special Taxes except upon receipt of a certificate of an Independent Financial Consultant that to accept such tender will not result in the District having insufficient Net Taxes to pay the principal of and interest on the Bonds remaining Outstanding following such tender. Covenant 14. Additional Special Tax Refunding Bonds or Obligations. The District shall not issue any additional bonds, notes or other similar evidences of indebtedness payable, in whole or in part, out of Net Taxes except: (i) bonds issued to fully or partially refund the Outstanding 2015 Special Tax Refunding Bonds; and (ii) subordinate bonds, notes or other similar evidences of indebtedness (see SECURITY FOR THE BONDS Additional Bonds for Refunding Purposes Only in the Preliminary Official Statement). Covenant 15. Annual Reports. (a) Annual Reports to the California Debt and Investment Advisory Commission. Not later than October 30 of each year, commencing October 30, 2015, and until the October 30 following the final maturity of the 2015 Special Tax Refunding Bonds, the District shall supply to the California Debt and Investment Advisory Commission the information required to be provided thereto pursuant to Section (b) of the Act, as it may be amended from time to time. Such information shall be made available to any Owner upon written request to the District accompanied by a fee determined by the District to pay the costs of the District in connection therewith. The 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. (b) If at any time the Fiscal Agent fails to pay principal or interest due on any scheduled payment date for the 2015 Special Tax Refunding Bonds, or if funds are withdrawn from the Reserve Fund to pay principal or interest on the 2015 Special Tax Refunding Bonds, such that the amount(s) in the Reserve Fund are reduced below the Reserve Requirement, the Fiscal Agent shall notify the District in writing of such failure or withdrawal, and the 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. C-24

119 (c) The reporting requirements of such Covenant 15 shall be amended from time to time, without action by the District or the Fiscal Agent to reflect any future amendments to specific sections of the Act. The District shall provide the Fiscal Agent with a copy of any such amendment. Notwithstanding the foregoing, any such amendment shall not, in itself, affect the District s obligations under any continuing disclosure documentation provided in connection with the Bonds. (d) None of the District, its officers, agents, employees or Authorized Representatives, or the Fiscal Agent, shall be liable to any person or party for any inadvertent error in reporting the information contained in such Covenant 15. Covenant 16. Minimum Special Tax Levy. In addition to the foregoing covenants, the District covenants to take actions to levy Special Taxes in an amount not less than an amount sufficient, in addition to payment of principal and interest on the 2015 Special Tax Refunding Bonds and other requirements of the Special Tax revenues, subject only to the maximum tax limitations applicable to the Special Taxes as set out in the Rate and Method and the proceedings under which the Special Taxes were authorized. Continuing Disclosure Covenant. The District has covenanted and agreed in the Fiscal Agent Agreement that it will comply with and carry out all of its obligations under the District Continuing Disclosure Agreement. Notwithstanding any other provision of the Fiscal Agent Agreement, failure of the District to comply with its obligations under the District Continuing Disclosure Agreement shall not be considered an event of default under the terms of the Fiscal Agent Agreement, and the sole remedy, in the event of any failure of the District to comply with the District Continuing Disclosure Agreement, shall be an action to compel performance thereof. For purposes of such covenant of the Fiscal Agent Agreement, Beneficial Owners means any Person which (a) has the power, directly or indirectly, to vote or consent with respect to, or to dispose of ownership of, any Bonds (including Persons holding Bonds through nominees, depositories or other intermediaries), or (b) is treated as the Owner of any Bonds for federal income tax purposes. (See CONTINUING DISCLOSURE in the Preliminary Official Statement). Amendments to Fiscal Agent Agreement The District may from time to time, and at any time, without notice to, or consent of, any of the Owners, adopt Supplements to the Fiscal Agent Agreement for any of the following purposes: (a) to cure any ambiguity, to correct or supplement any provision in the Fiscal Agent Agreement which may be inconsistent with any other provision to the Fiscal Agent Agreement, or to make any other provision with respect to matters or questions arising under the Fiscal Agent Agreement, or in any Supplement, provided that such action shall not have a material adverse effect on the interests of the Bondowners; (b) to add to the covenants and agreements of and the limitations and the restrictions upon the District contained in the Fiscal Agent Agreement which are not contrary to or inconsistent with the Fiscal Agent Agreement as theretofore in effect; or (c) to modify, alter, amend or supplement the Fiscal Agent Agreement in any other respect which is not materially adverse to the Bondowners including, but not limited to, providing for the rating or insuring of the Bonds. Exclusive of amendments supplemental to the Fiscal Agent Agreement covered by subsection (a) above, the Owners of not less than 60% in aggregate principal amount of the Bonds then Outstanding shall have the right to consent to and approve the adoption by the District of such amendments or orders C-25

120 supplemental to the Fiscal Agent Agreement as shall be deemed necessary or desirable by the District for the purpose of waiving, modifying, altering, amending, adding to or rescinding, in any particular, any of the terms or provisions contained in the Fiscal Agent Agreement; provided, however, that nothing in the Fiscal Agent Agreement shall permit, or be construed as permitting, (a) an extension of the maturity date of the principal of, or the payment date of interest on, any Bonds, (b) a reduction in the principal amount of any Bonds or the rate of interest thereon, (c) a preference or priority of any Bonds over any other Bonds, or (d) a reduction in the aggregate principal amount of the Bonds the Owners of which are required to consent to such Supplement, without, in the case of (a) or (b), the consent of the affected Owner, or, in the case of (c), the consent of the Owners of all Bonds then Outstanding. Supplements Requiring Owner Consent. If at any time the District shall desire to adopt a Supplement to the Fiscal Agent Agreement which, pursuant to the terms of the Fiscal Agent Agreement, shall require the consent of the Owners, the District shall so notify the Fiscal Agent and shall deliver to the Fiscal Agent a copy of the proposed Supplement to be mailed, postage prepaid, to all Owners at their addresses as they appear in the Bond Register as provided for in the Fiscal Agent Agreement. Such notice shall briefly set forth the nature of the proposed Supplement and shall state that a copy thereof is on file at the Principal Corporate Trust Office of the Fiscal Agent for inspection by all Owners. The failure of any Owner to receive such notice shall not affect the validity of such Supplement when consented to and approved as provided in the Fiscal Agent Agreement. Whenever at any time within one year after the date of the first mailing of such notice the Fiscal Agent shall receive an instrument or instruments purporting to be executed by the Owners of not less than 60% in aggregate principal amount of the Bonds then Outstanding, which instrument or instruments shall refer to the proposed Supplement described in such notice, and shall specifically consent to and approve the adoption thereof by the District substantially in the form of the copy thereof referred to in such notice as on file with the Fiscal Agent, such proposed Supplement, when duly adopted by District, shall thereafter become a part of the proceedings for the issuance of the Bonds. In determining whether the Owners of 60% of the aggregate principal amount of the Bonds have consented to the adoption of any Supplement, Bonds which are owned by the District or by any person directly or indirectly controlling or controlled by or under the direct or indirect common control with the District, shall be disregarded and shall be treated as though they were not Outstanding for the purpose of any such determination. Upon the adoption of any Supplement and the receipt of consent to any such amendment from the Owners of the appropriate aggregate principal amount of Bonds in instances where such consent is required pursuant to the provisions of the Fiscal Agent Agreement, the Fiscal Agent Agreement shall be, and shall be deemed to be, modified and amended in accordance therewith, and the respective rights, duties and obligations under the Fiscal Agent Agreement of the District and all Owners of Bonds then Outstanding shall thereafter be determined, exercised and enforced thereunder, subject in all respects to such modifications and amendments. Notwithstanding anything in the Fiscal Agent Agreement to the contrary, no Supplement shall be entered into which would modify the duties of the Fiscal Agent under the Fiscal Agent Agreement, without the prior written consent of the Fiscal Agent. Certain supplements and amendments to the Fiscal Agent Agreement are subject to the prior consent of the Bond Insurer (see Provisions Relating to Bond Insurance Policy and Reserve Fund Surety below). C-26

121 Fiscal Agent The Fiscal Agent is appointed and takes authorized actions under the terms of the Fiscal Agent Agreement. The initial Fiscal Agent may be removed or replaced by the District upon 30 days prior written notice (except during the continuance of an event of default, as further discussed below) or may resign in favor of a successor Fiscal Agent. The Fiscal Agent Agreement provides for certain minimum qualifications of the Fiscal Agent and provides for notice and procedures in the event a successor Fiscal Agent is required or appointed. The duties of the Fiscal Agent are specified within the Fiscal Agent Agreement and include mailing interest payments to the Owners, selecting Bonds for redemption pursuant to the terms of the Fiscal Agent Agreement, giving notice of redemption and meetings of the Owners, maintaining the Bond Register and maintaining and administering the funds and accounts established pursuant to the Fiscal Agent Agreement. The Fiscal Agent also performs all other acts authorized or directed of the Fiscal Agent pursuant to the terms of the Fiscal Agent Agreement. The Fiscal Agent Agreement provides that the recitals of fact and all promises, covenants and agreements contained therein and in the Bonds are to be taken as statements, promises, covenants and agreements of the District, and the Fiscal Agent assumes no responsibility for the correctness of the same and makes no representations as to the validity or sufficiency of the Fiscal Agent Agreement or the Bonds. The Fiscal Agent Agreement provides for certain protections from liability of the Fiscal Agent except for its own negligence or willful misconduct, as further specified in the Fiscal Agent Agreement. Included as part of such protections, the Fiscal Agent shall be under no obligation to exercise any of the rights or powers vested in it by the Fiscal Agent Agreement at the request, order or direction of any of the Owners pursuant to the provisions of the Fiscal Agent Agreement unless such Owners shall have offered to the Fiscal Agent security or indemnity acceptable to the Fiscal Agent against the costs, expenses, and liabilities which may be incurred therein or thereby. Events of Default: Remedies Events of Default. Any one or more of the following events shall constitute an event of default : (a) Default in the due and punctual payment of the principal of any Bond when and as the same shall become due and payable, whether at maturity as therein expressed or from mandatory redemption; (b) Default in the due and punctual payment of the interest on any Bond when and as the same shall become due and payable; or (c) Default by the District in the observance of any of the other agreements, conditions or covenants on its part contained in the Fiscal Agent Agreement or in the Bonds, and the continuation of such default for a period of 30 days after the District shall have been given notice in writing of such default by the Fiscal Agent, provided that if within 30 days the District has commenced curing of the default and diligently pursues elimination thereof, such period shall be extended to permit such default to be eliminated; and provided further, that any noncompliance with the terms of the Continuing Disclosure Covenant, identified in the Fiscal Agent Agreement, shall not be an event of default under the terms of the Fiscal Agent Agreement and is limited to the remedies specifically identified therein (see CONTINUING DISCLOSURE in the Preliminary Official Statement). Remedies of Owners. Following the occurrence of an event of default, any Owner shall have the right for the equal benefit and protection of all Owners similarly situated: C-27

122 (a) By mandamus or other suit or proceeding at law or in equity to enforce his or her rights against the District and any of the members, officers and employees of the District, and to compel the District or any such members, officers or employees to perform and carry out their duties under the Act and their agreements with the Owners as provided in the Fiscal Agent Agreement; (b) By suit in equity to enjoin any actions or things which are unlawful or violate the rights of the Owners; or (c) Upon the happening of an event of default (as defined in the Fiscal Agent Agreement), by a suit in equity to require the District and its members, officers and employees to account as the trustee of an express trust. Nothing in the Fiscal Agent Agreement, or in the Bonds, shall affect or impair the obligation of the District, which is absolute and unconditional, to pay the interest on and principal of the Bonds to the respective Owners of the Bonds at the respective dates of maturity, as provided in the Fiscal Agent Agreement, out of the Net Taxes pledged for such payment, or affect or impair the right of action, which is also absolute and unconditional, of such Owners to institute suit to enforce such payment by virtue of the contract embodied in the Bonds and in the Fiscal Agent Agreement. A waiver of any default or breach of duty or contract by any Owner shall not affect any subsequent default or breach of duty or contract, or impair any rights or remedies on any such subsequent default or breach. No delay or omission by any Owner to exercise any right or power accruing upon 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 conferred upon the Owners by the Act or by the Fiscal Agent Agreement may be enforced and exercised from time to time and as often as shall be deemed expedient by the Owners. If any suit, action or proceeding to enforce any right or exercise any remedy is abandoned or determined adversely to the Owners, the District and the Owners shall be restored to their former positions, rights and remedies as if such suit, action or proceeding had not been brought or taken. No remedy conferred through the Fiscal Agent Agreement upon or reserved to the Owners is intended to be exclusive of any other remedy. Every such remedy shall be cumulative and shall be in addition to every other remedy given under the Fiscal Agent Agreement or now or thereafter existing, at law or in equity or by statute or otherwise, and may be exercised without exhausting and without regard to any other remedy conferred by the Act or any other law. Application of Net Special Tax Revenues After Default. If an Event of Default shall occur and be continuing, all Net Taxes and any other funds thereafter received by the Fiscal Agent under any of the provisions of the Fiscal Agent Agreement shall be applied by the Fiscal Agent as follows and in the following order: (a) To the payment of any expenses necessary in the opinion of the Fiscal Agent to protect the interests of the Owners and payment of reasonable fees, charges and expenses of the Fiscal Agent (including reasonable fees and disbursements of its counsel) incurred in and about the performance of its powers and duties under the Fiscal Agent Agreement; (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 the Fiscal Agent Agreement, as follows: C-28

123 First: To the payment to the Owners 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 Owners entitled thereto, without any discrimination or preference; and Second: To the payment to the Owners entitled thereto of the unpaid principal of any Bonds which shall have become due, whether at maturity or by call for redemption, with interest on the overdue principal at the rate borne by the respective Bonds on the date of maturity or redemption, and, if the amount available shall not be sufficient to pay in full all the Bonds, together with such interest, then to the payment thereof ratably, according to the amounts of principal due on such date to the Owners entitled thereto, without any discrimination or preference. Any remaining funds shall be transferred by the Fiscal Agent to the Special Tax Fund. Limitation on Bondowners Right to Sue. Except as expressly provided for in the Fiscal Agent Agreement, no Owner shall have the right to institute any suit, action or proceeding at law or in equity, for the protection or enforcement of any right or remedy under the Fiscal Agent Agreement, the Act or any other applicable law with respect to such Bonds, unless (a) such Owner shall have given to the Fiscal Agent 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 Fiscal Agent to exercise the powers thereinbefore granted or to institute such suit, action or proceeding in its own name, (c) such Owner, or Owners, shall have tendered to the Fiscal Agent security indemnity acceptable to the Fiscal Agent against the costs, expenses and liabilities to be incurred in compliance with such request, and (d) the Fiscal Agent 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 such tender of indemnity shall have been made to, the Fiscal Agent. Such notification, request, tender of indemnity and refusal or omission are declared within the Fiscal Agent Agreement, in every case, to be conditions precedent to the exercise by any Owner of any remedy thereunder or under law; it being understood and intended that no one or more Owners shall have any right in any manner whatever by his or their action to affect, disturb or prejudice the security of the Fiscal Agent Agreement or the rights of any other Owners, or to enforce any right under the Bonds, the Fiscal Agent Agreement, the Act or other applicable law with respect to the Bonds, except in the manner therein provided, and that all proceedings at law or in equity to enforce any such right shall be instituted, had and maintained in the manner therein provided and for the benefit and protection of all Owners, subject to the provisions of the Fiscal Agent Agreement. (See BONDOWNERS RISKS in the Preliminary Official Statement). The Bonds are not subject to acceleration in payment of interest or principal. BONDOWNERS RISKS No Acceleration Provisions in the Preliminary Official Statement). (See Defeasance If all or a specified portion of the Bonds shall be paid and discharged under the terms of the Fiscal Agent Agreement in any one or more of the following ways: (a) by paying or causing to be paid the principal of and interest due on the Bonds, as and when the same become due and payable; C-29

124 (b) by depositing with the Fiscal Agent or a designated bank or trust company as escrow holder, in trust, at or before maturity, money which, together with the amounts then on deposit in the Special Tax Fund, the Bond Fund, the Redemption Fund and the Reserve Fund and available for such purpose, is fully sufficient to pay the principal of and interest on such Bond as and when the same shall become due and payable; or (c) by depositing with the Fiscal Agent, or a designated bank or trust company as escrow holder, in trust, Federal Securities in which the District may lawfully invest its money, in such amount as certified by a nationally recognized certified public accountant which will, together with the interest to accrue thereon and moneys then on deposit in the Special Tax Fund, the Bond Fund, the Redemption Fund and the Reserve Fund available for such purpose, together with the interest to accrue thereon, be fully sufficient to pay and discharge the principal of and interest on such Bond as and when the same shall become due and payable; then, notwithstanding that any such Bond shall not have been surrendered for payment, all obligations of the District under the Fiscal Agent Agreement, and any Supplement, with respect to such Bond shall cease and terminate, except for the obligation of the Fiscal Agent to pay or cause to be paid to the Owners of any such Bonds not so surrendered and paid, all sums due thereon and except for specified covenants of the District contained and identified in the Fiscal Agent Agreement. In connection with a defeasance under (b) or (c) above, there shall be provided to the District and the Fiscal Agent a certificate of a certified public accountant stating its opinion as to the sufficiency of the moneys or securities deposited with the Fiscal Agent, or the designated escrow holder, to pay and discharge the principal of and interest on the Outstanding Bonds to be defeased in accordance with the provisions of the Fiscal Agent Agreement, as and when the same shall become due and payable, and an opinion of Bond Counsel (which may rely upon the opinion of the certified public accountant) to the effect that the Bonds being defeased have been legally defeased in accordance with the provisions of the Fiscal Agent Agreement. Upon such a defeasance, the Fiscal Agent shall release the rights of the Owners of such Bonds which have been defeased under the provisions of the Fiscal Agent Agreement and execute and deliver to the District all such instruments as may be desirable to evidence such release, discharge and satisfaction. In the case of a defeasance under the provisions of the Fiscal Agent Agreement of all Outstanding Bonds, the Fiscal Agent shall pay over or deliver to the District any funds held by the Fiscal Agent at the time of a defeasance, which are not required for the purpose of paying and discharging the principal of or interest on the Bonds when due. The Fiscal Agent shall, at the written direction and expense of the District, mail, first-class, postage prepaid, a notice to the Owners whose Bonds have been defeased, in the form directed by the District, stating that the defeasance has occurred. Miscellaneous Provisions Execution of Documents and Proof of Ownership. Any request, direction, consent, revocation of consent, or other instrument in writing required or permitted by the Fiscal Agent Agreement to be signed or executed by Owners may be in any number of concurrent instruments of similar tenor, and may be signed or executed by such Owners in person or by their attorneys appointed by an instrument in writing for that purpose, or by any commercial bank, trust company or other depository for such Bond. Proof of the execution of any such instrument, or of any instrument appointing any such attorney, and of the ownership of such Bond shall be sufficient for the purposes of the Fiscal Agent Agreement (except as otherwise therein provided), if made in the following manner: (a) The fact and date of the execution by any Owner or their attorney of any such instrument and of any instrument appointing any such attorney may be proved by a signature guarantee of any bank or trust company located within the United States of America. Where any such instrument is executed by an officer of a corporation or association or a member of a partnership on behalf of such corporation, C-30

125 association or partnership, such signature guarantee shall also constitute sufficient proof of this authority; provided, however, that nothing contained in the Fiscal Agent Agreement shall be construed as limiting the Fiscal Agent to such proof, it being intended that the Fiscal Agent may accept any other evidence of the matters therein stated which the Fiscal Agent may deem sufficient. Any request or consent of the Owner of any Bond shall bind every future Owner of the same Bond in respect to anything done or suffered to be done by the Fiscal Agent in pursuance of such request or consent; and (b) As to any Bond, the Person in whose name the same shall be registered in the Bond Register shall be deemed and regarded as the absolute Owner thereof for all purposes, and payment of or on account of the principal of any such Bond, and the interest thereon, shall be made only to or upon the order of the registered Owner thereof or his legal representative. All such payments shall be valid and effectual to satisfy and discharge the liability upon such Bond and the interest thereon to the extent of the sum or sums so paid. The Fiscal Agent shall not be affected by any notice to the contrary. Provisions Constitute Contract. The provisions of the Fiscal Agent Agreement, including any Supplements thereto, and the Bonds shall constitute a contract between the District and the Owners ( Contract ) and the provisions thereof shall be enforceable by any Owner for the equal benefit and protection of all Owners similarly situated by mandamus, accounting, mandatory injunction or any other suit, action or proceeding at law or in equity that is now or may in the Fiscal Agent Agreement be authorized under the laws of the State of California in any court of competent jurisdiction. The Contract is made under and is to be construed in accordance with the laws of the State of California. No remedy conferred in the Fiscal Agent Agreement upon any Owner is intended to be exclusive of any other remedy, but each such remedy is cumulative and in addition to every other remedy and may be exercised without exhausting and without regard to any other remedy conferred by the Act or any other law of the State of California. No waiver of any default or breach of duty or contract by any Owner shall affect any subsequent default or breach of duty or contract or shall impair any rights or remedies on said subsequent default or breach. No delay or omission of any Owner to exercise any right or power accruing upon any default shall impair any such right or power or shall be construed as a waiver of any such default or acquiescence therein. Every substantive right and every remedy conferred upon the Owners may be enforced and exercised as often as may be deemed expedient. In case any suit, action or proceeding to enforce any right or exercise any remedy shall be brought or taken and the Owner shall prevail, said Owner shall be entitled to receive from the Net Taxes reimbursement for reasonable costs, expenses, outlays and attorneys fees and should said suit, action or proceeding be abandoned, or be determined adversely to the Owners then, and in every such case, the District s positions, rights and remedies shall be construed in a manner as if such suit, action or proceeding had not been brought or taken. After the issuance and delivery of the Bonds, the Fiscal Agent Agreement shall not be subject to repeal, but shall be subject to modification to the extent and in the manner provided in the Fiscal Agent Agreement, but to no greater extent and in no other manner. Limitation of Rights. Nothing in the Fiscal Agent Agreement or in the Bonds expressed or implied is intended or shall be construed to give to any Person other than the Fiscal Agent, the District and the Bondowners any legal or equitable right, remedy or claim under or in respect to the Fiscal Agent Agreement or any covenant, condition or provision therein or therein contained, and all such covenants, conditions and provisions are and shall be held to be for the sole and exclusive benefit of the Fiscal Agent, the District and the Bondowners. Payment on Non-Business Days. In the event any payment is required to be made pursuant to the terms of the Fiscal Agent Agreement 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. C-31

126 Provisions Relating to Bond Insurance Policy and Reserve Fund Surety The Fiscal Agent Agreement provides for various rights of the Bond Insurer with respect to various events and actions, and certain other events (as set out in the Fiscal Agent Agreement) relating to the Insurance Policy and the Reserve Fund Surety as applicable to the 2015 Special Tax Refunding Bonds. The Insurance Policy, and its terms, applies only to the Insured Bonds. These rights include, but are not limited to, the right of the Bond Insurer to receive various notices, the right to control certain actions and remedies in event of a default under the terms of the Fiscal Agent Agreement, the right to approve or consent to certain actions under the terms of the Fiscal Agent Agreement and the right to require reimbursement(s) of amounts paid, or costs incurred, under the terms of the Insurance Policy and/or the Reserve Fund Surety, as applicable. [Remainder of this page intentionally left blank] C-32

127 APPENDIX D FORM OF CONTINUING DISCLOSURE AGREEMENT This CONTINUING DISCLOSURE AGREEMENT (the Disclosure Agreement ) is executed and entered into as of June 1, 2015, by and among Community Facilities District No of the Tustin Unified School District, a community facilities district organized and existing under and by virtue of the laws of the State of California (the Community Facilities District ), 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, as Fiscal Agent (the Bank ), in its capacity as fiscal agent (the Fiscal Agent ) and Special District Financing & Administration, LLC (the Dissemination Agent ); W I T N E S S E T H : WHEREAS, pursuant to the Fiscal Agent Agreement, dated as of June 1, 2015, by between the Community Facilities District and the Fiscal Agent (the Fiscal Agent Agreement ), the Community Facilities District has issued its Community Facilities District No of the Tustin Unified School District Series 2015 Special Tax Refunding Bonds (the Bonds ); and WHEREAS, this Disclosure Agreement is being executed and delivered by the Community Facilities District, the Fiscal Agent and the Dissemination Agent for the benefit of the owners and beneficial owners of the Bonds and in order to assist the Participating Underwriter of the 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. Purpose of the Disclosure Agreement. This Disclosure Agreement is being executed and delivered by Community Facilities District for the benefit of the owners and beneficial owners of the Bonds and in order to assist the Participating Underwriter in complying with Securities and Exchange Commission ( S.E.C. ) Rule 15c2-12(b)(5). Section 2. Definitions. In addition to the definitions set forth in the Fiscal Agent Agreement, which apply to any capitalized term used in this Disclosure Agreement unless otherwise defined in this Section, the following capitalized terms shall have the following meanings: Annual Report shall mean any Annual Report provided by the Community Facilities District pursuant to, and described in, Sections 3 and 4 of this Disclosure Agreement. Annual Report Date shall mean eight months next following the end of the Community Facilities District s fiscal year, which fiscal year end, as of the date of this Disclosure Agreement, is March 1. Disclosure Representative shall mean the Director, Fiscal Services of the School District, or his or her designee(s), or such other officer(s) or employee(s) as the School District, acting on behalf of the Community Facilities District, shall designate in writing to the Dissemination Agent and Fiscal Agent from time to time. D-1

128 Dissemination Agent shall mean Special District Financing & Administration, LLC, or any successor Dissemination Agent designated in writing by the Community Facilities District and which has filed with the Community Facilities District a written acceptance of such designation. EMMA System shall mean the Electronic Municipal Market Access system of the MSRB or such other electronic system designated by the MSRB (as defined below) or the S.E.C. for compliance with S.E.C. Rule 15c2-12(b). Listed Events shall mean any of the events listed in Section 5(a) of this Disclosure Agreement. MSRB shall mean the Municipal Securities Rulemaking Board and any successor entity designated under the Rule as the repository for filings made pursuant to the Rule. Official Statement means the Official Statement, dated May, 2015, relating to the Bonds. Participating Underwriter shall mean Piper Jaffray & Co. Rule shall mean Rule 15c2-12(b)(5) adopted by the S.E.C. under the Securities Exchange Act of 1934, as the same may be amended from time to time. School District shall mean the Tustin Unified School District, Tustin, California. Section 3. Provision of Annual Reports. (a) The Community Facilities District shall, or, shall cause the Dissemination Agent to, not later than the Annual Report Date, commencing March 1, 2016, provide to the MSRB through the EMMA System in an electronic format and accompanied by identifying information as prescribed by the MSRB, to the Fiscal Agent and to the Participating Underwriter an Annual Report which is consistent with the requirements of Section 4 of this Disclosure Agreement. Not later than fifteen (15) Business Days prior to said date, the Community Facilities District shall provide the Annual Report to the Dissemination Agent. The Annual Report may be submitted as a single document or as separate documents comprising a package, and may include by reference other information as provided in Section 4 of this Disclosure Agreement; provided that the audited financial statements of the Community Facilities District may be submitted separately from the balance of the Annual Report and later than the date required above for the filing of the Annual Report if not available by that date. If the Community Facilities District s fiscal year changes, it shall give notice of such change in the same manner as for a Listed Event under Section 5(c). If the Dissemination Agent has not received a copy of the Annual Report on or before 15 business days prior to March 1 in any year, the Dissemination Agent shall notify the Community Facilities District of such failure to receive the Annual Report. The Community Facilities District shall provide a written certification with each Annual Report furnished to the Dissemination Agent to the effect that such Annual Report constitutes the Annual Report required to be furnished by it hereunder. The Dissemination Agent may conclusively rely upon such certification of the Community Facilities District and shall have no duty or obligation to review such Annual Report. (b) If the Community Facilities District is unable to provide to the MSRB through the EMMA System an Annual Report and to the Participating Underwriter an Annual Report by the date required in subsection (a), the Dissemination Agent shall send a notice to the MSRB through the EMMA System in substantially the form attached as Exhibit A. D-2

129 (c) The Dissemination Agent shall: (i) Determine each year prior to the date for providing the Annual Report the electronic filing requirements of the MSRB for the Annual Reports; (ii) Provide any Annual Report received by it to the MSRB through the EMMA System, and also to the Fiscal Agent and the Participating Underwriter as provided herein; and (iii) If the Dissemination Agent is other than the Community Facilities District and to the extent it can confirm such filing of the Annual Report, file a report with the Community Facilities District, the Fiscal Agent and the Participating Underwriter certifying that the Annual Report has been provided pursuant to this Disclosure Agreement, stating the date it was provided and confirming that it has been filed with the MSRB through the EMMA System. Section 4. Content of Annual Reports. The Community Facilities District s Annual Report shall contain or incorporate by reference the following: (a) Audited financial statements, if any are prepared, of the Community Facilities District. 1 If audited financial statements of the Community Facilities District are to be prepared, but are not available at the time required for filing, unaudited financial statements shall be submitted with the Annual Report and audited financial statements shall be submitted once available. If audited financial statements are prepared, the audited financial statements will be 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 audited financial statements of the Community Facilities District are not prepared, no unaudited financial statements need be submitted. For purposes of this section, the financial statements of the School District shall not be deemed to be the financial statements of the Community Facilities District, unless such audited financial statements contained specific information as to the Community Facilities District, its revenues, expenses and account balances. (b) The following information: (i) The principal amount of the Bonds and of additional bonds, if any, including refunding bonds issued to refund the Bonds, if any, outstanding as of a date within 60 days preceding the Annual Report Date. (ii) The balance in each of the Special Tax Fund and the Bond Fund as of a date within 60 days preceding the Annual Report Date. (iii) The amount on deposit in the Reserve Fund, and any accounts therein, if any, and a statement of the Reserve Requirement, as of a date within 60 days preceding the Annual Report Date. 1 The School District has school facilities improvement district bonds outstanding and in connection therewith, the School District s audited financial statements are filed with the MSRB through the EMMA System. D-3

130 (iv) The amount, if any, on deposit in any fund or account held under the terms of the Fiscal Agent Agreement not referenced in clauses (ii), (iii) or (iv) hereof, as of a date within 60 days preceding the Annual Report Date. (v) Information regarding the estimated annual debt service on the Bonds and any Additional Bonds, and the Special Tax levied at the Debt Service Requirement as defined in the Rate and Method, based upon building permits issued as of the July 1 next preceding the Annual Report Date, substantially similar to that provided in Table 2 of the Official Statement and a statement as to the coverage produced by such levy. (vi) A summary of the Special Taxes levied on Undeveloped Property, if any, and Developed Property (by category) (as defined in the Rate and Method of Apportionment of Special Tax relating to the Community Facilities District) within the Community Facilities District, substantially similar to that provided in Table 1 of the Official Statement. (vii) The assessed value of the property within the Community Facilities District, 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 3% of the Special Tax levy, if any, as shown on the assessment roll of the Orange County Assessor last equalized prior to the September 30 next preceding the Annual Report Date, a summary of the Special Taxes levied on the property within the Community Facilities District owned by such property owners, and the assessed value of such property, as shown on such assessment roll. (ix) The percentage of the amount of Special Tax levied for the preceding Fiscal Year that remains unpaid as of the September 30 next preceding the Annual Report Date, the number of parcels within the Community Facilities District delinquent in payment of Special Taxes as of the September 30 next preceding the Annual Report Date, the amount of delinquencies, the percent of delinquency in relation to the total Special Tax levy, 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 delinquencies of $5,000 or less may be grouped together and such information may be provided by category. (x) The status of foreclosure proceedings, if any, and a summary of the results of any foreclosure sales, if any, as of the September 30 next preceding the Annual Report Date. (xi) The identity of any property owner representing more than 3% of the Special Tax levy delinquent in payment of Special Taxes as of the September 30 next preceding the Annual Report Date and the assessed value of the applicable parcels. (xii) Whether or not the Alternative Method of Distribution of Tax Levies and Collections and of Tax Sale Proceeds, the Teeter Plan, is in effect with respect to the Community Facilities District for the then current Fiscal Year. D-4

131 (xiii) A copy of any report for or concerning the Community Facilities District as of the immediately preceding October 31 which was required to be filed under State of California law. (c) In addition to any of the information expressly required to be provided under paragraphs (a), (b) and (c) of this Section, the Community Facilities District shall provide such further information, if any, as may be required pursuant to federal securities laws applicable to such information as is necessary to make the statements required under Sections 4(b) and (c) not materially misleading, in the light of the circumstances under which they are made. Any or all of the items listed above may be included by specific reference to other documents, including official statements of debt issues of the Community Facilities District or related public entities, which have been submitted to the MSRB through the EMMA System or the S.E.C. If the document included by reference is a final official statement, it must be available from the MSRB. The Community Facilities District shall clearly identify each such other document so included by reference. Section 5. Reporting of Listed Events. (a) Pursuant to the provisions of this Section 5, the Community Facilities District shall give, or cause to be given in a timely manner, not in excess of ten business days after the occurrence of the event, notice of any of the following events with respect to the Bonds, as applicable: (i) (ii) (iii) (iv) (v) Principal and interest payment delinquencies; Non-payment related defaults, if material; Unscheduled draws on debt service reserves reflecting financial difficulties; Unscheduled draws on credit enhancements reflecting financial difficulties; Substitution of credit or liquidity providers, or their failure to perform; (vi) Adverse tax opinions, the issuance by the Internal Revenue Service of proposed or final determinations of taxability, Notices of Proposed Issue (IRS Form TEB) or other material notices or determinations with respect to the tax status of the security, or other material events affecting the tax status of the security; (vii) (viii) (ix) (x) if material; (xi) Modifications to rights of security holders, if material; Bond calls, if material, and tender offers; Defeasances; Release, substitution or sale of property securing repayment of the securities, Rating changes; D-5

132 (xii) person; (1) Bankruptcy, insolvency, receivership or similar event of the obligated (xiii) The consummation of a merger, consolidation or acquisition involving an obligated person or sale of all or substantially all of the assets of the obligated person, other than in the ordinary course of business, the entry into a definitive agreement to undertake such an action or the termination of a definitive agreement relating to any such actions, other than pursuant to its terms, if material; and (xiv) Appointment of a successor or additional trustee or the change of name of a trustee, if material. (b) The Dissemination Agent shall, within three 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 (e). For purposes of this Disclosure Agreement, actual knowledge of the occurrence of the Listed Events described under clauses (ii), (iii), (vi), (x), (xi), (xii), (xiii) and (xiv) above shall mean actual knowledge by an officer of the Dissemination Agent. The Dissemination Agent shall have no responsibility for determining the materiality of any of the Listed Events. (c) As soon as practicable so as to provide notice not in excess of ten business days after the occurrence of the Listed Event, 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 (e). 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 MSRB through the EMMA System. (d) If the Community Facilities District determines that a Listed Event subject to a materiality requirement referenced in clauses (a) (ii), (vi), (vii), (viii), (x), (xiii) or (xiv) would not be material under applicable federal securities law, the Community Facilities District shall so notify the Dissemination Agent in writing and instruct the Dissemination Agent not to report the occurrence pursuant to subsection (e). (e) If the Dissemination Agent has been instructed by the Community Facilities District to report the occurrence of a Listed Event and has received a notice of the occurrence in a format suitable for filing with the MSRB, the Dissemination Agent shall file a notice of such occurrence with the MSRB through the EMMA System and shall provide a copy of such notice to the Participating Underwriter. (1) For the purposes of the event identified in subparagraph (xii), the event is considered to occur when any of the following occur: the appointment of a receiver, fiscal agent or similar officer for the Community Facilities District in a proceeding under the U.S. Bankruptcy Code or in any other proceeding under state or federal law in which a court or governmental authority has assumed jurisdiction over substantially all of the assets or business of the Community Facilities District, or if such jurisdiction has been assumed by leaving the existing governing body and officials or officers in possession but subject to the supervision and orders of a court or governmental authority, or the entry of an order confirming a plan of reorganization, arrangement or liquidation by a court or governmental authority having supervision or jurisdiction over substantially all of the assets or business of the Community Facilities District. D-6

133 Section 6. Termination of Reporting Obligation. The Community Facilities District s, the Fiscal Agent s and the Dissemination Agent s obligations hereunder shall terminate upon the earliest to occur of (i) the legal defeasance of the Bonds, (ii) prior redemption of the Bonds and/or (iii) payment in full of all the Bonds. If such termination occurs prior to the final maturity of the Bonds, the Community Facilities District shall give notice of such termination in the same manner as for a Listed Event under Section 5(b). Section 7. Dissemination Agent. The Community Facilities District may, from time to time, appoint or engage a Dissemination Agent to assist 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 initial Dissemination Agent shall be Special District Financing & Administration, LLC. The Dissemination Agent may resign by providing at least thirty days written notice to the Community Facilities District and the Fiscal Agent (if the Fiscal Agent is not the Dissemination Agent). The Dissemination Agent shall have no duty to prepare the Annual Report or notice of a Listed Event nor shall the Dissemination Agent be responsible for filing any Annual Report or notice of a Listed Event not provided to it by the Community Facilities District in a timely manner and in a form suitable for filing. Section 8. Amendment; Waiver. Notwithstanding any other provision of this Disclosure Agreement, the Community Facilities District, the Fiscal Agent and the Dissemination Agent may amend this Disclosure Agreement (and the Fiscal Agent and/or 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 Fiscal Agent and/or the Dissemination Agent, as applicable), 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 the provisions of Sections 3(a), 4 or 5(a), it may only be made in connection with a change in circumstances that arises from a change in legal requirements, change in law, or change in the identity, nature, or status of an obligated person with respect to the Bonds, or type of business conducted; (b) the undertakings herein, as proposed to be amended or waived, would, in the opinion of nationally recognized bond counsel, have complied with the requirements of the Rule at the time of the primary offering of the Bonds, after taking into account any amendments or interpretations of the Rule, as well as any change in circumstances; and (c) the proposed amendment or waiver either (i) is approved by owners of the Bonds in the manner provided in the Fiscal Agent Agreement for amendments to the Fiscal Agent Agreement with the consent of owners, or (ii) does not, in the opinion of nationally recognized bond counsel, materially impair the interests of the owners or beneficial owners of the Bonds. 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 filed pursuant hereto containing the amended operating data or financial information shall explain, in narrative form, the reasons for the amendment and the impact of the change in the type of operating data or financial information being provided. If an amendment is made to the undertaking specifying the accounting principles to be followed in preparing financial statements, the first 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 D-7

134 meet its obligations. To the extent reasonably feasible, the comparison shall be quantitative. A notice of the change in the accounting principles shall be sent to the MSRB through the EMMA System in the same manner as for a Listed Event under Section 5(b). Section 9. Additional Information. Nothing in this Disclosure Agreement shall be deemed to prevent the Community Facilities District from disseminating any other information, using the means of dissemination set forth in this Disclosure Agreement or any other means of communication, or including any other information in any Annual Report or any 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 such in any future Annual Report or notice of occurrence of a Listed Event. Section 10. Default. In the event of a failure of the Community Facilities District or the Dissemination Agent to comply with any provision of this Disclosure Agreement, the Fiscal Agent may, at the written direction of the Participating Underwriter or the owners of at least 25% aggregate principal amount of Outstanding Bonds, shall, upon receipt of indemnification reasonably satisfactory to the Fiscal Agent, and any owner or beneficial owner of the Bonds may, take such actions as may be necessary and appropriate, including seeking mandate or specific performance by court order, to cause the Community Facilities District, the Fiscal Agent or the Dissemination Agent 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 Fiscal Agent Agreement, and the sole remedy under this Disclosure Agreement in the event of any failure of the Community Facilities District, the Fiscal Agent or the Dissemination Agent to comply with this Disclosure Agreement shall be an action to compel performance. Section 11. Duties and Liabilities of the Fiscal Agent and the Dissemination Agent. Sections 5.02 and 5.08 of the Fiscal Agent/Bond Registrar Agreement made and entered into with respect to the Bonds (the Fiscal Agent Agreement ), by and between the Community Facilities District and the Fiscal Agent, are hereby made applicable to this Disclosure Agreement as if this Disclosure Agreement were (solely for this purpose) contained in the Fiscal Agent Agreement, and the Fiscal Agent shall be entitled to the protections, limitations from liability and indemnities afforded to the Fiscal Agent thereunder. The Fiscal Agent and the Dissemination Agent 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 Fiscal Agent shall have no obligation to make any disclosure concerning the Bonds, the Community Facilities District or any other matter except as expressly set out herein, provided that no provision of this Disclosure Agreement shall limit the duties or obligations of the Fiscal Agent under the Fiscal Agent Agreement. The Fiscal Agent and 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. The fact that the Fiscal Agent has or may have any banking, fiduciary or other relationship with the Community Facilities District or any other party, apart from the relationship created by the Fiscal Agent Agreement and this Disclosure Agreement, shall not be construed to mean that the Fiscal Agent has knowledge or notice of any event or condition relating to the Bonds or the Community Facilities District, except in its respective capacities under such agreements. 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. Information disclosed hereunder by the Fiscal Agent or the Dissemination Agent may contain such disclaimer language concerning the Fiscal Agent s or the Dissemination Agent s responsibilities hereunder, with respect D-8

135 thereto, as the Fiscal Agent or the Dissemination Agent may deem appropriate. 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 5 hereof. Neither the Fiscal Agent nor the Dissemination Agent makes any representation as to the sufficiency of this Disclosure Agreement for purposes of the Rule. The Fiscal Agent and the Dissemination Agent shall be paid compensation by the Community Facilities District for their services provided hereunder in accordance with their schedule of fees, as amended from time to time, and all reasonable expenses, legal fees and advances made or incurred by the Fiscal Agent and the Dissemination Agent, as applicable, in the performance of their respective duties hereunder. The Community Facilities District s obligations under this Section shall survive the termination of this Disclosure Agreement. Section 12. Beneficiaries. The Participating Underwriter and the owners and beneficial owners from time to time of the Bonds shall be third party beneficiaries under this Disclosure Agreement. This Disclosure Agreement shall inure solely to the benefit of the Community Facilities District, the Fiscal Agent, the Dissemination Agent, the Participating Underwriter and owners and beneficial owners from time to time of the Bonds, and shall create no rights in any other person or entity. Section 13. Notices. Any notice or communications to or among any of the parties to this Disclosure Agreement shall be given to all of the following and may be given as follows: If to the Tustin Unified School District Community 300 South C Street Facilities District: Tustin, California Telephone: (714) Telecopier: (714) Attention: Superintendent If to the Fiscal Agent: If to the Dissemination Agent: U.S. Bank National Association 633 West Fifth Street, 24th Floor Los Angeles, California Attention: Corporate Trust Services Telephone: (213) Telecopier: (213) Special District Financing & Administration, LLC 437 West Grand Avenue Escondido, California Telephone: (760) Telecopier: (760) Attention: Jeff Hamill If to the Piper Jaffray & Co. Participating 2321 Rosecrans Avenue, Suite 3200 Underwriter: El Segundo, CA Telephone: (310) Telecopier: (310) D-9

136 Section 14. Severability. In case any one or more of the provisions contained herein shall for any reason be held to be invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect any other provision hereof. Section 15. State of California Law Governs. The validity, interpretation and performance of this Disclosure Agreement shall be governed by the laws of the State of California. Section 16. 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. Section 17. Merger. Any person succeeding to all or substantially all of the Fiscal Agent s corporate trust business shall be the successor Fiscal Agent without the filing of any paper or any further act. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK; EXECUTION PAGE FOLLOWS] D-10

137 IN WITNESS WHEREOF, the parties hereto have executed this Disclosure Agreement as of the date first above written. COMMUNITY FACILITIES DISTRICT NO OF THE TUSTIN UNIFIED SCHOOL DISTRICT By: Authorized Officer U.S. BANK NATIONAL ASSOCIATION, as Fiscal Agent By: Authorized Officer SPECIAL DISTRICT FINANCING & ADMINISTRATION, LLC, as Dissemination Agent By: Authorized Officer [EXECUTION PAGE OF CONTINUING DISCLOSURE AGREEMENT] D-11

138 EXHIBIT A NOTICE TO MUNICIPAL SECURITIES RULEMAKING BOARD OF FAILURE TO FILE ANNUAL REPORT Name of Issuer: Name of Bond Issue: Community Facilities District No of the Tustin Unified School District Community Facilities District No of the Tustin Unified School District Series 2015 Special Tax Refunding Bonds Date of Issuance: June 3, 2015 NOTICE IS HEREBY GIVEN that the Tustin Unified School District (the School District ) has not provided an Annual Report with respect to the above-named Bonds as required by the Continuing Disclosure Agreement, dated as of June 1, 2015, by and among the Community Facilities District, U.S. Bank National Association, as Fiscal Agent, and Special District Financing & Administration, LLC, as Dissemination Agent. [The Community Facilities District anticipates that the Annual Report will be filed by.] Dated:, 20 SPECIAL DISTRICT FINANCING & ADMINISTRATION, LLC, as Dissemination Agent, on behalf of Community Facilities District No of the Tustin Unified School District cc: Community Facilities District No of the Tustin Unified School District Piper Jaffray & Co. U.S. Bank National Association D-12

139 APPENDIX E FORMS OF OPINIONS OF BOND COUNSEL Upon delivery of the 2015 Series A Bonds, Bowie, Arneson, Wiles & Giannone, Newport Beach, California, Bond Counsel to Community Facilities District No of the Tustin Unified School District, proposes to render their final approving opinion with respect to the 2015 Series A Bonds in substantially the following form (see LEGAL MATTER Tax Exemption ). Board of Education Tustin Unified School District 300 South C Street Tustin, CA Re: $82,820,000 Community Facilities District No of the Tustin Unified School District 2015 Special Tax Refunding Bonds, Series A (Federally Tax-Exempt) Final Opinion of Bond Counsel Ladies and Gentlemen: We have acted as Bond Counsel in connection with the issuance and sale by Community Facilities District No of the Tustin Unified School District ( District ) of $82,820,000 aggregate principal amount of bonds designated Community Facilities District No of the Tustin Unified School District 2015 Special Tax Refunding Bonds, Series A (Federally Tax-Exempt) ( Bonds ). The Bonds are issued pursuant to the Mello-Roos Community Facilities Act of 1982, as amended (comprising Chapter 2.5 of Part 1 of Division 2 of Title 5 of the Government Code of the State of California), Resolution No , adopted by the Board of Education of the Tustin Unified School District ( School District ) acting in its capacity as the Legislative Body of the District on April 20, 2015, and the Fiscal Agent Agreement executed in connection therewith dated as of June 1, 2015, by and between the District and U.S. Bank National Association ( Fiscal Agent Agreement ). Capitalized terms used herein and not otherwise defined shall have the meanings given such terms in the Fiscal Agent Agreement. As Bond Counsel, we have examined copies certified to us as being true and complete copies of the proceedings in connection with the formation of the District and the issuance of the Bonds ( District Proceedings ). We have also examined certificates and representations made by public officials and officers of the District, the School District and the purchaser of the Bonds, including certificates as to factual matters, including, but not limited to, the Tax Certificate, as we have deemed necessary to render this opinion. Attention is called to the fact that we have not been requested to examine, and have not examined, any documents or information relating to the District or the School District other than the record of the District Proceedings hereinabove referred to, and no opinion is expressed as to any financial or other information, or the adequacy thereof which has been or may be supplied to any purchaser of the Bonds. In rendering the opinions set forth herein, we have relied upon the representations of fact and certifications referred to herein, and we have not undertaken by independent investigation to verify the authenticity of signatures or the accuracy of the factual matters represented, warranted or certified therein. Furthermore, we have assumed compliance with all covenants contained in the Fiscal Agent Agreement, including, without limitation, covenants compliance with which is necessary to assure that future actions or events will not cause the interest on the Bonds to be included in gross income for federal income tax purposes. Failure to comply with certain of such covenants may cause interest on the Bonds to be E-1

140 included in gross income for federal income tax purposes retroactive to the date of original issuance of the Bonds. The opinions expressed herein are based on an analysis of existing laws, regulations, rulings and court decisions and cover certain matters not directly addressed by such authorities. Such opinions may be affected by actions taken or omitted or events occurring after the date hereof. We have not undertaken to determine, or to inform any person, whether any such actions are taken or omitted or events do occur or any matters that come to our attention after the date hereof. Accordingly, this opinion speaks only as of its date and is not intended to, and may not, be relied upon in connection with any such actions, events or matters. Our engagement with respect to the Bonds has concluded with the issuance thereof and we disclaim any obligation to update this letter. In addition, we call attention to the fact that the rights and obligations under the Bonds, the Fiscal Agent Agreement and other documents related to the District Proceedings are subject to bankruptcy, insolvency, reorganization, moratorium and other similar laws affecting creditors' rights and remedies, to the application of equitable principles heretofore or hereafter enacted to the extent constitutionally applicable and that their enforcement may also be subject to exercise of judicial discretion in appropriate cases and to limitations on legal remedies against school districts in the State of California. We express no opinion with respect to any indemnification, contribution, penalty, choice of law, choice of forum, choice of venue, waiver or severability provisions contained in the foregoing documents. We have not been engaged or undertaken to review the accuracy, completeness or sufficiency of the Official Statement or other offering material relating to the Bonds (except to the extent, if any, stated in the Official Statement) and we express no opinion relating thereto (excepting only matters set forth as our opinion in the Official Statement). The Fiscal Agent Agreement and other documents related to the District Proceedings refer to certain requirements and procedures which may be changed and certain actions which may be taken or omitted under the circumstances and subject to terms and conditions set forth in such documents, in certain cases upon the advice or with an approving opinion of nationally recognized bond counsel. No opinion is expressed herein as to the effect on any Bond or the interest thereon if any such change is made, or action is taken or omitted, upon the advice or approval of counsel other than ourselves. Based on and subject to the foregoing, and in reliance thereon, and our consideration of such questions of law as we have deemed relevant to the circumstances, we are of the following opinions: 1. The District has, and the District Proceedings show, full power and authority to issue the Bonds. The Bonds constitute legal, valid and binding obligations of the District, payable in accordance with their terms. The Bonds are limited obligations of the District payable solely from and secured by a pledge of the Net Taxes, and from other funds and accounts pursuant to the Fiscal Agent Agreement, and are not obligations of the School District, the State or any public agency thereof (other than the District). The District has the full right, power and authority to levy and pledge the Net Taxes to the Owners of the Bonds. 2. The Fiscal Agent Agreement has been duly and validly authorized, executed and delivered by, and constitutes a valid and binding obligation of, the District. 3. Interest on the Bonds (including any original issue discount properly allocable to the owner thereof) is excluded from gross income for federal income tax purposes under Section 103 of the Internal Revenue Code of 1986, as amended, and is exempt from State of California personal income taxes. Interest on the Bonds is not a specific preference item for purposes of the federal alternative minimum taxes imposed on individuals and E-2

141 corporations, although it should be noted that, with respect to corporations, such interest will be included as an adjustment in the calculation of alternative minimum taxable income which may affect the alternative minimum tax liability of such corporations. We express no opinion regarding other tax consequences related to the Bonds or to the accrual or receipt of the interest on the Bonds. We express no opinion as to any matter other than as expressly set forth above. Very truly yours, E-3

142 Upon delivery of the 2015 Series B Bonds, Bowie, Arneson, Wiles & Giannone, Newport Beach, California, Bond Counsel to Community Facilities District No of the Tustin Unified School District, proposes to render their final approving opinion with respect to the 2015 Series B Bonds in substantially the following form: Board of Education Tustin Unified School District 300 South C Street Tustin, CA Re: $9,635,000 Community Facilities District No of the Tustin Unified School District 2015 Special Tax Refunding Bonds, Series B (Federally Taxable) Final Opinion of Bond Counsel Ladies and Gentlemen: We have acted as Bond Counsel in connection with the issuance and sale by Community Facilities District No of the Tustin Unified School District ( District ) of $9,635,000 aggregate principal amount of bonds designated Community Facilities District No of the Tustin Unified School District 2015 Special Tax Refunding Bonds, Series B (Federally Taxable) ( Bonds ). The Bonds are issued pursuant to the Mello-Roos Community Facilities Act of 1982, as amended (comprising Chapter 2.5 of Part 1 of Division 2 of Title 5 of the Government Code of the State of California), Resolution No , adopted by the Board of Education of the Tustin Unified School District ( School District ) acting in its capacity as the Legislative Body of the District on April 20, 2015, and the Fiscal Agent Agreement executed in connection therewith dated as of June 1, 2015, by and between the District and U.S. Bank National Association ( Fiscal Agent Agreement ). Capitalized terms used herein and not otherwise defined shall have the meanings given such terms in the Fiscal Agent Agreement. As Bond Counsel, we have examined copies certified to us as being true and complete copies of the proceedings in connection with the formation of the District and the issuance of the Bonds ( District Proceedings ). We have also examined certificates and representations made by public officials and officers of the District, the School District and the purchaser of the Bonds, including certificates as to factual matters, as we have deemed necessary to render this opinion. Attention is called to the fact that we have not been requested to examine, and have not examined, any documents or information relating to the District or the School District other than the record of the District Proceedings hereinabove referred to, and no opinion is expressed as to any financial or other information, or the adequacy thereof which has been or may be supplied to any purchaser of the Bonds. In rendering the opinions set forth herein, we have relied upon the representations of fact and certifications referred to herein, and we have not undertaken by independent investigation to verify the authenticity of signatures or the accuracy of the factual matters represented, warranted or certified therein. Furthermore, we have assumed compliance with all covenants contained in the Fiscal Agent Agreement. The opinions expressed herein are based on an analysis of existing laws, regulations, rulings and court decisions and cover certain matters not directly addressed by such authorities. Such opinions may be affected by actions taken or omitted or events occurring after the date hereof. We have not undertaken to determine, or to inform any person, whether any such actions are taken or omitted or events do occur or any matters that come to our attention after the date hereof. Accordingly, this opinion speaks only as of its date and is not intended to, and may not, be relied upon in connection with any such actions, events or matters. Our engagement with respect to the Bonds has concluded with the issuance thereof and we disclaim any obligation to update this letter. E-4

143 In addition, we call attention to the fact that the rights and obligations under the Bonds, the Fiscal Agent Agreement and other documents related to the District Proceedings are subject to bankruptcy, insolvency, reorganization, moratorium and other similar laws affecting creditors' rights and remedies, to the application of equitable principles heretofore or hereafter enacted to the extent constitutionally applicable and that their enforcement may also be subject to exercise of judicial discretion in appropriate cases and to limitations on legal remedies against school districts in the State of California. We express no opinion with respect to any indemnification, contribution, penalty, choice of law, choice of forum, choice of venue, waiver or severability provisions contained in the foregoing documents. We have not been engaged or undertaken to review the accuracy, completeness or sufficiency of the Official Statement or other offering material relating to the Bonds (except to the extent, if any, stated in the Official Statement) and we express no opinion relating thereto (excepting only matters set forth as our opinion in the Official Statement). The Fiscal Agent Agreement and other documents related to the District Proceedings refer to certain requirements and procedures which may be changed and certain actions which may be taken or omitted under the circumstances and subject to terms and conditions set forth in such documents, in certain cases upon the advice or with an approving opinion of nationally recognized bond counsel. No opinion is expressed herein as to the effect on any Bond or the interest thereon if any such change is made, or action is taken or omitted, upon the advice or approval of counsel other than ourselves. Based on and subject to the foregoing, and in reliance thereon, and our consideration of such questions of law as we have deemed relevant to the circumstances, we are of the following opinions: 1. The District has, and the District Proceedings show, full power and authority to issue the Bonds. The Bonds constitute legal, valid and binding obligations of the District, payable in accordance with their terms. The Bonds are limited obligations of the District payable solely from and secured by a pledge of the Net Taxes, and from other funds and accounts pursuant to the Fiscal Agent Agreement, and are not obligations of the School District, the State or any public agency thereof (other than the District). The District has the full right, power and authority to levy and pledge the Net Taxes to the Owners of the Bonds. 2. The Fiscal Agent Agreement has been duly and validly authorized, executed and delivered by, and constitutes a valid and binding obligation of, the District. 3. Interest on the Bonds is not excluded from gross income for federal income tax purposes but is exempt from State of California personal income taxes. We provide no opinion as to any federal income tax consequences relating to the ownership or disposition of, or the accrual or receipt of interest on, the Bonds. The opinion provided herein by us in our role as Bond Counsel with respect to the Bonds is not intended or written by us to be used, and it cannot be used, by any purchaser or owners of such Bonds for the purpose of avoiding penalties that may be imposed on such purchaser or owner. The opinion provided in this paragraph is provided to support the promotion or marketing of the Bonds. Purchasers or owners of the Bonds should seek advice based on the particular circumstances from an independent tax advisor concerning the tax consequence of the ownership of such Bonds. We express no opinion as to any matter other than as expressly set forth above. Very truly yours, E-5

144 [THIS PAGE INTENTIONALLY LEFT BLANK]

145 APPENDIX F BOOK-ENTRY SYSTEM The following description of the procedures and record keeping with respect to beneficial ownership interests in the Bonds, payment of principal of and interest on the Bonds to Direct Participants, Indirect Participants or Beneficial Owners (as such terms are defined below) of the Bonds, confirmation and transfer of beneficial ownership interests in the Bonds and other Bond-related transactions by and between DTC, Direct Participants, Indirect Participants and Beneficial Owners of the Bonds is based solely on information furnished by DTC to the Community Facilities District which the Community Facilities District believes to be reliable, but the Community Facilities District and the Underwriter do not and cannot make any independent representations concerning these matters and do not take responsibility for the accuracy or completeness thereof. Neither the DTC, Direct Participants, Indirect Participants nor the Beneficial Owners should rely on the foregoing information with respect to such matters, but should instead confirm the same with DTC or the DTC Participants, as the case may be. The Depository Trust Company ( DTC ), New York, New York, will act as securities depository for the Bonds. The 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 will be issued for each maturity of the Bonds, each in the aggregate principal amount of such maturity, and will be deposited with DTC. DTC, the world s largest securities depository, is a limited-purpose trust company organized under the New York Banking Law, a banking organization within the meaning of the New York Banking Law, a member of the Federal Reserve System, a clearing corporation within the meaning of the New York Uniform Commercial Code, and a clearing agency registered pursuant to the provisions of Section 17A of the Securities Exchange Act of DTC holds and provides asset servicing for over 3.6 million issues of U.S. and non-u.s. equity issues, corporate and municipal debt issues and money market instruments (from over 100 countries) that DTC s participants ( Direct Participants ) deposit with DTC. DTC also facilitates the post-trade settlement among Direct Participants of sales and other securities transactions in deposited securities, through electronic computerized book-entry transfers and pledges between Direct Participants accounts. This eliminates the need for physical movement of securities certificates. Direct Participants include both U.S. and non-u.s. securities brokers and dealers, banks, trust companies, clearing corporations, and certain other organizations. DTC is a wholly-owned subsidiary of The Depository Trust & Clearing Corporation ( DTCC ). DTCC is the holding company for DTC, National Securities Clearing Corporation and Fixed Income Clearing Corporation, all of which are registered clearing agencies. DTCC is owned by the users of its regulated subsidiaries. Access to the DTC system is also available to others such as both U.S. and non-u.s. securities brokers and dealers, banks, trust companies, and clearing corporations that clear through or maintain a custodial relationship with a Direct Participant, either directly or indirectly ( Indirect Participants ). DTC has a Standard & Poor s rating of AA+. The DTC Rules applicable to its Participants are on file with the Securities and Exchange Commission. More information about DTC can be found at The information on such website is not incorporated herein by such reference or otherwise. Purchases of Bonds under the DTC system must be made by or through Direct Participants, which will receive a credit for the Bonds on DTC s records. The ownership interest of each actual purchaser of each Bond ( Beneficial Owner ) is in turn to be recorded on the Direct and Indirect Participants records. Beneficial Owners will not receive written confirmation from DTC of their purchase. Beneficial Owners are, however, expected to receive written confirmations providing details of the transaction, as well as periodic statements of their holdings, from the Direct or Indirect Participant through which the Beneficial Owner entered into the transaction. Transfers of ownership interests in the F-1

146 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 the Bonds, except in the event that use of the book-entry system for the Bonds is discontinued. To facilitate subsequent transfers, all Bonds deposited by 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 the Bonds with DTC and their registration in the name of Cede & Co. or such other DTC nominee do not effect any change in beneficial ownership. DTC has no knowledge of the actual Beneficial Owners of the Bonds; DTC s records reflect only the identity of the Direct Participants to whose accounts such Bonds are credited, which may or may not be the Beneficial Owners. The Direct and Indirect Participants will remain responsible for keeping account of their holdings on behalf of their customers. Conveyance of notices and other communications by DTC to Direct Participants, by Direct Participants to Indirect Participants, and by Direct Participants and Indirect Participants to Beneficial Owners will be governed by arrangements among them, subject to any statutory or regulatory requirements as may be in effect from time to time. Beneficial Owners of Bonds may wish to take certain steps to augment the transmission to them of notices of significant events with respect to the Bonds, such as redemptions, tenders, defaults, and proposed amendments to the Bonds documents. For example, Beneficial Owners of the Bonds may wish to ascertain that the nominee holding the Bonds for their benefit has agreed to obtain and transmit notices to Beneficial Owners. In the alternative, Beneficial Owners may wish to provide their names and addresses to the Fiscal Agent and request that copies of notices be provided directly to them. Redemption notices shall be sent to DTC. If less than all of the Bonds are being redeemed, DTC s practice is to determine by lot the amount of the interest of each Direct Participant in such maturity to be redeemed. Neither DTC nor Cede & Co. (nor such other DTC nominee) will consent or vote with respect to the Bonds unless authorized by a Direct Participant in accordance with DTC s MMI Procedures. Under its usual procedures, DTC mails an Omnibus Proxy to the Community Facilities District as soon as possible after the record date. The Omnibus Proxy assigns Cede & Co. s consenting or voting rights to those Direct Participants to whose accounts the Bonds are credited on the record date (identified in a listing attached to the Omnibus Proxy). Payments on the Bonds will be made to Cede & Co., or such other nominee as may be requested by an authorized representative of DTC. DTC s practice is to credit Direct Participants accounts upon DTC s receipt of funds and corresponding detail information from the Community Facilities District or the Fiscal Agent, on payable date in accordance with their respective holdings shown on DTC s records. Payments by Participants to Beneficial Owners will be governed by standing instructions and customary practices, as is the case with securities held for the accounts of customers in bearer form or registered in street name, and will be the responsibility of such Participant and not of DTC, the Fiscal Agent or the Community Facilities District, subject to any statutory or regulatory requirements as may be in effect from time to time. Payment of principal, redemption price and interest payments to Cede & Co. (or such other nominee as may be requested by an authorized representative of DTC) is the responsibility of the Community Facilities District or the Fiscal Agent, disbursement of such payments to Direct Participants will be the responsibility of DTC, and disbursement of such payments to the Beneficial Owners will be the responsibility of Direct and Indirect Participants. DTC may discontinue providing its services as depository with respect to the Bonds at any time by giving reasonable notice to the Community Facilities District or the Fiscal Agent. Under such F-2

147 circumstances, in the event that a successor depository is not obtained, Bond certificates are required to be printed and delivered. The Community Facilities District may decide to discontinue use of the system of book-entryonly transfers through DTC (or a successor securities depository). In that event, the Bond certificates will be printed and delivered to DTC. The information in this section concerning DTC and DTC s book-entry system has been obtained from sources that the Community Facilities District believes to be reliable, but the Community Facilities District takes no responsibility for the accuracy thereof. Discontinuance of DTC Services In the event that (a) DTC determines not to continue to act as securities depository for the Bonds, or (b) the Community Facilities District determines that DTC shall no longer act and delivers a written certificate to the Fiscal Agent to that effect, then the Community Facilities District will discontinue the Book-Entry System with DTC for the Bonds. If the Community Facilities District determines to replace DTC with another qualified securities depository, the Community Facilities District will prepare or direct the preparation of a new single separate, fully-registered Bond for each maturity of the Bonds registered in the name of such successor or substitute securities depository as are not inconsistent with the terms of the Fiscal Agent Agreement. If the Community Facilities District fails to identify another qualified securities depository to replace the incumbent securities depository for the Bonds, then the Bonds shall no longer be restricted to being registered in the Bond 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 or its nominee transferring or exchanging the Bonds shall designate. In the event that the Book-Entry System is discontinued, the following provisions would also apply: (i) the Bonds will be made available in physical form, (ii) principal of, and redemption premiums, if any, on the Bonds will be payable upon surrender thereof at the trust office of the Fiscal Agent identified in the Fiscal Agent Agreement, and (iii) the Bonds will be transferable and exchangeable as provided in the Fiscal Agent Agreement. The Community Facilities District and the Fiscal Agent do not have any responsibility or obligation to DTC Participants, to the persons for whom they act as nominees, to Beneficial Owners, or to any other person who is not shown on the registration books as being an owner of the Bonds, with respect to (i) the accuracy of any records maintained by DTC or any DTC Participants; (ii) the payment by DTC or any DTC Participant of any amount in respect of the principal of, redemption price of or interest on the Bonds; (iii) the delivery of any notice which is permitted or required to be given to registered owners under the Fiscal Agent Agreement; (iv) the selection by DTC or any DTC Participant of any person to receive payment in the event of a partial redemption of the Bonds; (v) any consent given or other action taken by DTC as registered owner; or (vi) any other matter arising with respect to the Bonds or the Fiscal Agent Agreement. The Community Facilities District and the Fiscal Agent cannot and do not give any assurances that DTC, DTC Participants or others will distribute payments of principal of or interest on the Bonds paid to DTC or its nominee, as the registered owner, or any notices to the Beneficial Owners or that they will do so on a timely basis or will serve and act in a manner described in this Official Statement. The Community Facilities District and the Fiscal Agent are not responsible or liable for the failure of DTC or any DTC Participant to make any payment or give any notice to a Beneficial Owner in respect to the Bonds or any error or delay relating thereto. F-3

148 [THIS PAGE INTENTIONALLY LEFT BLANK]

149 APPENDIX G SPECIMEN MUNICIPAL BOND INSURANCE POLICY G-1

150 [THIS PAGE INTENTIONALLY LEFT BLANK]

151 ÓËÒ Ý ÐßÔ ÞÑÒÜ ÒÍËÎßÒÝÛ ÐÑÔ ÝÇ ÍÍËÛÎæ ÅÒßÓÛ ÑÚ ÍÍËÛÎà б ½ Ò±æ ÁÁÁÁÁ ÓÛÓÞÛÎæ ÅÒßÓÛ ÑÚ ÓÛÓÞÛÎà ÞÑÒÜÍæ üáááááááááá ² ¹¹»¹» ²½ ³±«² ±º ÅÒßÓÛ ÑÚ ÌÎßÒÍßÝÌ ÑÒà Š²¼ ³ «²¹ ±²Ã Ûºº»½ ª» Ü»æ ÁÁÁÁÁÁÁÁÁ Î µ л³ «³æ üáááááááááá Ó»³¾» Í««Ý±² ¾«±²æ ü ÁÁÁÁÁÁÁÁÁ ̱ ² «²½» Ð ³»² æ üááááááááá ÞË ÔÜ ßÓÛÎ Ýß ÓËÌËßÔ ßÍÍËÎßÒÝÛ ÝÑÓÐßÒÇ ønþßóm ô º± ½±² ¼» ±²»½» ª»¼ô»»¾ ËÒÝÑÒÜ Ì ÑÒßÔÔÇ ßÒÜ ÎÎÛÊÑÝßÞÔÇ ¹»» ± ±» » ø» NÌ »M ± ²¹ ¹»² ø» NÐ ²¹ ß¹»² M º±» Þ±²¼ ² ³»¼ ¾±ª» ø» º± ²» ¼±½«³»² ±² ±ª ¼ ²¹ º±» «²½» ²¼»½«²¹ ±º» Þ±²¼ ô º±» ¾»²»º ±º» Ñ ²» ± ô»»»½ ±² ±º ÞßÓô ¼»½ ±» ½ Ñ ²» ô «¾»½ ±² ±»» ³ ±º б ½ ø ½ ²½ «¼»» ½»²¼±»³»²»» ± ô ± ±² ±º» ²½ ±º ²¼ ²»» ±²» Þ±²¼ ¾»½±³» Ü º± Ð ³»² ¾«¾» «² ¼ ¾» ±² ±º Ò±² ³»² ¾» ò Ѳ»» ±º» ¼ ±² ½ «½ ²½ ²¼ ²»» ¾»½±³» Ü º± Ð ³»² ±» º Þ«²» Ü º± ± ²¹» Þ«²» Ü ±² ½ ÞßÓ ª»»½» ª»¼ Ò± ½» ±º Ò±² ³»² ô ÞßÓ ¼ ¾ ø¾«±«¼«½ ±² ²» ½» ±º ¼«½» ½ ³ º±» ³» Ò±² ³»² ± ± º±» ¾»²»º ±º» ½ Ñ ²» ±º» Þ±²¼ ô» º ½» ³±«² ±º ²½ ±º ²¼ ²»» ±²» Þ±²¼»² Ü º± Ð ³»² ¾² «² ¼ ¾» ±² ±º Ò±² ³»² ¾» ô ¾«±² «±²»½» ¾ ÞßÓô ² º± ³» ±² ¾ º ½ ± ± ô ±º ø»ª ¼»²½» ±º» Ñ ²» K ¹ ±»½» ª» ³»² ±º «½ ²½ ± ²»»»² Ü º± Ð ³»² ²¼ ø¾»ª ¼»²½»ô ²½ «¼ ²¹ ² ±» ² «³»² ±º ¹²³»² ô ±º» Ñ ²» K ¹»»½ ± ³»² ±º «½ ²½ ± ²»» Ü º± Ð ³»²»»«±² ª» ² ÞßÓò ß Ò± ½» ±º Ò±² ³»² ¾» ¼»»³»¼»½» ª»¼ ±² ¹ ª»² Þ«²» Ü º»½» ª»¼ ± ± ïæðð ò³ò øò» DZ µ ³» ±² «½ Þ«²» Ü å ±»»ô ¾» ¼»»³»¼»½» ª»¼ ±²» ²» Þ«²» Ü ò º ² Ò± ½» ±º Ò±² ³»²»½» ª»¼ ¾ ÞßÓ ²½±³»»ô ¾» ¼»»³»¼ ²± ± ª» ¾»»²»½» ª»¼ ¾ ÞßÓ º± «±» ±º»»½»¼ ²¹»²»²½»ô ²¼ ÞßÓ ±³ ± ¼ª»» Ì »ô Ð ²¹ ß¹»² ± Ñ ²» ô ±»ô ² ±º ±³ ³ «¾³ ² ³»²¼»¼ Ò± ½» ±º Ò±² ³»² ò Ë ±² ¼ ¾³»² «²¼» б ½ ²»»½ ±º Þ±²¼ ²¼ ±»»»² ±º «½ ³»² ô ÞßÓ ¾»½±³»» ± ²» ±º «½ Þ±²¼ô ² ² ² ½±«±² ± «½ Þ±²¼ ²¼ ¹ ±»½» ±º ³»² ±º ²½ ±º ± ²»» ±² «½ Þ±²¼ ²¼ ¾» º««¾ ±¹»¼ ±» ¹ ±º» Ñ ²» ô ²½ «¼ ²¹» Ñ ²» K ¹ ±»½» ª» ³»² «²¼» «½ Þ±²¼ò Ð ³»² ¾ ÞßÓ»» ±» Ì » ± Ð ²¹ ß¹»² º±» ¾»²»º ±º» Ñ ²» ô ± ¼»½ ±» Ñ ²» ô ±² ½½±«² ±º ² Ò±² ³»² ¼ ½ ¹»» ±¾ ¹ ±² ±º ÞßÓ «²¼» б ½»»½ ± ¼ Ò±² ³»² ò Û ½» ±»»»²»» ³±¼ º»¼ ¾ ²»²¼±»³»²»» ±ô» º± ± ²¹» ³ ª»» ³» ² ²¹»½ º»¼ º± «±» ±º б ½ ò NÞ«²» Ü M ³» ² ² ¼ ±» ² ø Í «¼ ± Í«²¼ ± ø¾ ¼ ±² ½ ¾ ²µ ²¹ ² «±² ²» Í» ±º Ò» DZ µ ±» ² K Ú ½ ß¹»² ø ¼»º ²»¼»» ²» «±»¼ ±» ¼ ¾ ±»»½«ª» ± ¼» ±»³ ² ½ ±»¼ò NÜ º± Ð ³»² M ³» ² ø»²»º» ²¹ ±» ²½ ±º Þ±²¼ô ¾» ±²»»¼ ³ «¼»»»±º ±» ¼» ±² ½» ³» ª» ¾»»² ¼«½»¼ º± ³ ²¼ ± ²µ ²¹ º«²¼»¼»³ ±² ²¼ ¼±» ²±»º» ± ²»» ¼» ±² ½ ³»² ¼ ¾» ±² ±º ½ º±»¼»³ ±² ø±» ² ¾ ³ ²¼ ± ²µ ²¹ º«²¼»¼»³ ±² ô ½½»» ±² ± ±» ¼ª ²½»³»² ±º ³ «ø«²» ÞßÓ»»½ ô ² ±» ¼ ½» ±²ô ± «½ ²½ ¼ «±² «½ ½½»» ±² ±¹»» ² ½½ ¼ ²»» ±» ¼» ±º ½½»» ±² ²¼ ø¾»²»º» ²¹ ± ²»» ±² Þ±²¼ô ¾» ±²»»¼ ¼» º± ³»² ±º ²»» ò NÒ±² ³»² M ³» ² ô ²»»½ ±º Þ±²¼ô» º ±º» ± ª» ±ª ¼»¼ «ºº ½»² º«²¼ ±» Ì » ± ô º»» ²± Ì »ô ±» Ð ²¹ ß¹»² º± ³»² ² º«±º ²½ ²¼ ²»» Ü º± Ð ³»² ±² «½ Þ±²¼ò NÒ±² ³»² M ± ²½ «¼»ô ²»»½ ±º Þ±²¼ô ² ³»² ³ ¼» ± ² Ñ ²» ¾ ± ±² ¾» º ±º» ±º ²½ ± ²»» Ü º± Ð ³»² ô ½ ³»² ¾»»²»½±ª»»¼ º ±³ «½ Ñ ²» ««² ±» ˲»¼ Í» Þ ²µ «½ ݱ¼» ² ½½± ¼ ²½» º ² ô ²±²» ¾» ± ¼» ±º ½±«ª ²¹ ½±³»»² «¼ ½ ±²ò NÒ± ½»M ³» ² ¼» ª» ± ÞßÓ ±º ²± ½» ±º ½ ³ ²¼ ½» º ½»ô ¾ ½» º»¼ ³ ô»³ ±»»½±» º± ±²» ½»¼ ͽ»¼ ± ±» ½½» ¾»»»½ ±² ½ ¼» ª» ô ² º± ³ º ½ ± ± ÞßÓô º ±³ ²¼ ¹²»¼ ¾ ² Ñ ²» ô» Ì » ±» Ð ²¹ ß¹»² ô ½ ²± ½»»½ º ø»» ±² ±»² ³ µ ²¹» ½ ³ô ø¾» б ½ Ò«³¾» ô ø½» ½ ³»¼ ³±«² ô ø¼ ³»² ² «½ ±² ²¼ ø»» ¼» «½ ½ ³»¼ ³±«² ¾»½±³» ± ¾»½ ³» Ü º± Ð ³»² ò NÑ ²» M ³» ² ô ²»»½ ±º Þ±²¼ô»» ±² ±»² ±ô» ³» ±º Ò±² ³»² ô»²»¼ «²¼»»» ³ ±º «½ Þ±²¼ ± ³»²»»±ºô» ½» NÑ ²» M ²± ²½ «¼»» ô» Ó»³¾» ± ² ±»» ±² ±»² ±» ¼»½ ± ²¼»½ ±¾ ¹ ±² ½±² » «²¼» ²¹»½«º±» Þ±²¼ ò G-1