$10,105,000 COMMUNITY FACILITIES DISTRICT NO. 15 OF THE RIVERSIDE UNIFIED SCHOOL DISTRICT (IMPROVEMENT AREA NO. 3) SERIES 2017 SPECIAL TAX BONDS

Transcription

1 NEW ISSUE BOOK-ENTRY-ONLY INSURED 2017 BONDS RATING: S&P: AA NO UNDERLYING RATING In the opinion of Best Best & Krieger LLP, Riverside, California, Bond Counsel, subject to certain qualifications described in the Official Statement, under existing statutes, regulations, rules and court decisions, and assuming certain representations and compliance with certain covenants and requirements described in the Official Statement, the interest on the 2017 Bonds is excluded from gross income for federal income tax purposes and is not an item of tax preference for purposes of the federal alternative minimum tax imposed on individuals and corporations, although for the purpose of computing the alternative minimum tax imposed on certain corporations, such interest is taken into account in determining certain income and earnings. In the further opinion of Bond Counsel, such interest is exempt from California personal income taxes. See TAX MATTERS herein. $10,105,000 COMMUNITY FACILITIES DISTRICT NO. 15 OF THE RIVERSIDE UNIFIED SCHOOL DISTRICT (IMPROVEMENT AREA NO. 3) SERIES 2017 SPECIAL TAX BONDS Dated: Delivery Date Due: September 1, as shown below This cover page and the inside cover page contain certain information for general reference only. Such information is not a summary of this issue. Investors must read the entire Official Statement, including the section entitled SPECIAL RISK FACTORS, to obtain information essential to making an informed investment decision with respect to the 2017 Bonds. This Official Statement describes bonds that are being issued by the Riverside Unified School District (the School District ) on behalf of Community Facilities District No. 15 of the Riverside Unified School District (the District ). The Community Facilities District No. 15 of the Riverside Unified School District (Improvement Area No. 3) Series 2017 Special Tax Bonds (the 2017 Bonds ) are being issued: (i) to finance certain school and other public facilities, (ii) to redeem the outstanding Community Facilities District No. 15 of the Riverside Unified School District (Improvement Area No. 3) Special Tax Bonds, 2013 Series C, (iii) to purchase a municipal bond insurance policy insuring the payment of principal and interest with respect to certain of the 2017 Bonds, (iv) to purchase a reserve policy for deposit into the reserve account securing the 2017 Bonds, and (v) to pay costs of issuance of the 2017 Bonds. The 2017 Bonds are authorized to be issued pursuant to the Mello-Roos Community Facilities Act of 1982, as amended (Section et seq. of the Government Code of the State of California) (the Act ), and pursuant to Resolution No. 2017/18-16 adopted by the Board of Education of the School District on behalf of the District on November 6, 2017, and a Fiscal Agent Agreement by and between the School District and U.S. Bank National Association, as Fiscal Agent for the 2017 Bonds (the Fiscal Agent ), dated as of August 1, 2012, as supplemented by a First Supplement to Fiscal Agent Agreement dated as of April 1, 2013 and a Second Supplement to Fiscal Agent Agreement dated as of December 1, 2017 (as supplemented, the Fiscal Agent Agreement ). The 2017 Bonds are payable from Special Tax Revenues derived from an annual Special Tax to be levied on taxable property within Improvement Area No. 3 (but not special taxes on taxable property within any other Improvement Area in the District) and from certain other funds pledged under the Fiscal Agent Agreement, all as further described herein. The Special Taxes are to be levied according to the rates and method of apportionment for Improvement Area No. 3 approved by the Board of Education of the School District and the qualified electors within Improvement Area No. 3 of the District. See SOURCES OF PAYMENT FOR THE 2017 BONDS and APPENDIX A RATES AND METHOD OF APPORTIONMENT OF SPECIAL TAX herein. The 2017 Bonds are secured under the Fiscal Agent Agreement on a parity with the outstanding Community Facilities District No. 15 of the Riverside Unified School District Special Tax Refunding Bonds, 2012 Series B (Improvement Area No. 3), currently outstanding in the aggregate principal amount of $3,950,000 (the 2012 Bonds ), and any additional Parity Bonds issued in the future under the Fiscal Agent Agreement. See SOURCES OF PAYMENT FOR THE 2017 BONDS Issuance of Parity Bonds. The 2017 Bonds will be dated the date of their original issuance and delivery, will be available in denominations of $5,000 or integral multiples thereof (the Authorized Denominations ), and will mature in the years and amounts as set forth in the table on the inside cover. Interest on the 2017 Bonds is payable semi-annually on March 1 and September 1 of each year, commencing March 1, The principal of and any redemption premiums with respect to each 2017 Bond will be paid upon surrender of such bond at the principal corporate office of the Fiscal Agent upon maturity or the earlier redemption thereof. The 2017 Bonds are subject to redemption prior to maturity as set forth herein. See THE 2017 BONDS Redemption herein. The scheduled payment of principal of and interest on the 2017 Bonds maturing on September 1, 2032 through September 1, 2037, inclusive, and September 1, 2041 (collectively, the Insured 2017 Bonds ) when due will be guaranteed under an insurance policy to be issued concurrently with the delivery of the Insured 2017 Bonds by Build America Mutual Assurance Company. See the caption BOND INSURANCE herein. NEITHER THE FAITH AND CREDIT NOR THE TAXING POWER OF THE SCHOOL DISTRICT, THE COUNTY OF RIVERSIDE, THE STATE OF CALIFORNIA OR ANY POLITICAL SUBDIVISION THEREOF IS PLEDGED TO THE PAYMENT OF THE 2017 BONDS. EXCEPT FOR THE SPECIAL TAX REVENUES OF IMPROVEMENT AREA NO. 3 (BUT NOT ANY OTHER IMPROVEMENT AREA OF THE DISTRICT), NO OTHER REVENUES OR TAXES ARE PLEDGED TO THE PAYMENT OF THE 2017 BONDS. THE 2017 BONDS ARE NOT GENERAL OR SPECIAL OBLIGATIONS OF THE SCHOOL DISTRICT OR GENERAL OBLIGATIONS OF THE DISTRICT BUT ARE LIMITED OBLIGATIONS OF THE DISTRICT PAYABLE SOLELY FROM SPECIAL TAX REVENUES TO BE LEVIED IN IMPROVEMENT AREA NO. 3 (BUT NOT THE SPECIAL TAX REVENUES OF ANY OTHER IMPROVEMENT AREA) AND OTHER AMOUNTS HELD UNDER THE FISCAL AGENT AGREEMENT AS MORE FULLY DESCRIBED HEREIN. This cover page contains certain information for general reference only. It is not intended to be a summary of the security or terms of this issue. Investors are advised to read the entire Official Statement to obtain information essential to the making of an informed investment decision. MATURITY SCHEDULE (See Inside Cover Page) The 2017 Bonds are offered when, as and if issued and accepted by the Underwriter, subject to approval as to their legality by Best Best & Krieger LLP, Riverside, California, Bond Counsel, and subject to certain other conditions. Stradling Yocca Carlson & Rauth, a Professional Corporation, San Francisco, California, is serving as Disclosure Counsel to the District with respect to the 2017 Bonds. Certain legal matters will be passed on for the District and the School District by Best Best & Krieger LLP, Riverside, California, for the Underwriter by its counsel, James F. Anderson Law Firm, A Professional Corporation, Laguna Hills, California, and for William Lyon Homes, Inc. by its counsel, Holland & Knight LLP, San Francisco, California. It is anticipated that the 2017 Bonds in book-entry form will be available for delivery to DTC or its agent on or about December 5, Dated: November 14, 2017

2 MATURITY SCHEDULE COMMUNITY FACILITIES DISTRICT NO. 15 OF RIVERSIDE UNIFIED SCHOOL DISTRICT (IMPROVEMENT AREA NO. 3) SERIES 2017 SPECIAL TAX BONDS Maturity Date (September 1) $7,575,000 Serial Bonds Principal Amount Interest Rate Yield Price CUSIP No $270, % 1.270% B , B , B , B , C , C , C , C , C , C C , C , C , D , D * 435, D * 445, D * 470, D * 430, D * 445, D * 455, D93 $2,530,000 Term Bonds $2,530, % Term Bonds due September 1, 2041 *, Yield: 3.550% Price: CUSIP No E27 * C CUSIP Copyright 2017, American Bankers Association. CUSIP data in this Official Statement is provided by CUSIP Global Services, managed by S&P Capital IQ on behalf of the American Bankers Association. This data is not intended to create a database and does not serve in any way as a substitute for the CUSIP Service. None of the School District, the District or the Underwriter or its counsel takes any responsibility for the accuracy of CUSIP data in this Official Statement. The CUSIP number for a specific maturity is subject to being changed after the issuance of the 2017 Bonds as a result of various subsequent actions including, but not limited to, a refunding in whole or in part or as a result of the procurement of secondary market portfolio insurance or other similar enhancement by investors that is applicable to all or a portion of certain maturities of the 2017 Bonds. Insured 2017 Bonds. Priced to first optional redemption date of September 1, 2024 at 103% of par.

3 RIVERSIDE UNIFIED SCHOOL DISTRICT COUNTY OF RIVERSIDE STATE OF CALIFORNIA RIVERSIDE UNIFIED SCHOOL DISTRICT BOARD OF EDUCATION Brent Lee, President Patricia Lock-Dawson, Vice President Dr. Angelov Farooq, Clerk Tom Hunt, Member Kathy Allavie, Member DISTRICT STAFF David Hansen, Ph.D., Superintendent Mays Kakish, Chief Business Officer and Governmental Relations Sergio San Martin, Assistant Superintendent, Operations Sandra L. Meekins, Director of Business Services PROFESSIONAL SERVICES BOND COUNSEL Best Best & Krieger LLP Riverside, California DISCLOSURE COUNSEL Stradling Yocca Carlson & Rauth, a Professional Corporation San Francisco, California MUNICIPAL ADVISOR Fieldman, Rolapp & Associates, Inc. Irvine, California SPECIAL TAX CONSULTANT AND DISSEMINATION AGENT David Taussig & Associates, Inc. Newport Beach, California FISCAL AGENT AND ESCROW AGENT U.S. Bank National Association Los Angeles, California VERIFICATION AGENT Causey Demgen & Moore, P.C. Denver, Colorado

4 Except where otherwise indicated, all information contained in this Official Statement has been provided by the School District and the District. No dealer, broker, salesperson or other person has been authorized by the School District, the District, the Fiscal Agent or the Underwriter to give any information or to make any representations in connection with the offer or sale of the 2017 Bonds other than those contained in this Official Statement and, if given or made, such other information or representations must not be relied upon as having been authorized by the School District, the District, the Fiscal Agent 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 2017 Bonds by a person in any jurisdiction in which it is unlawful for such person to make such an offer, solicitation or sale. This Official Statement is not to be construed as a contract with the purchasers or owners of the 2017 Bonds. Statements contained in this Official Statement which involve estimates, forecasts or matters of opinion, whether or not expressly so described in this Official Statement, are intended solely as such and are not to be construed as representations of fact. This Official Statement, including any supplement or amendment to this Official Statement, is intended to be deposited with the Electronic Municipal Market Access System of the Municipal Securities Rulemaking Board, which can be found at The information set forth in this Official Statement which has been obtained from third party sources is believed to be reliable but is not guaranteed as to accuracy or completeness by the School District or the District. The information and expressions of opinion in this Official Statement are subject to change without notice, and neither the delivery of this Official Statement nor any sale made hereunder shall, under any circumstances, create any implication that there has been no change in the affairs of the School District or the District or any other parties described in this Official Statement since the date of this Official Statement. All summaries of the Fiscal Agent Agreement or other documents are made subject to the provisions of such documents respectively and do not purport to be complete statements of any or all of such provisions. Reference is made by this Official Statement to such documents on file with the School District for further information. While the School District maintains an internet website for various purposes, none of the information on that website is incorporated by reference herein or intended to assist investors in making any investment decision or to provide any continuing information with respect to the 2017 Bonds or any other bonds or obligations of the School District. Any such information that is inconsistent with the information set forth in this Official Statement should be disregarded. The Underwriter has provided the following sentence for inclusion in this Official Statement: The Underwriter has reviewed the information in this Official Statement in accordance with, and as a part of, its responsibilities to investors under the federal securities laws as applied to the facts and circumstances of this transaction, but the Underwriter does not guarantee the accuracy or completeness of such information. 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 other similar words. Such forward-looking statements include, but are not limited to, certain statements contained in the information under the caption THE DISTRICT AND IMPROVEMENT AREA NO. 3. 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 SCHOOL DISTRICT DOES NOT PLAN TO ISSUE ANY UPDATES OR REVISIONS TO THE FORWARD-LOOKING STATEMENTS SET FORTH IN THIS OFFICIAL STATEMENT. IN CONNECTION WITH THE OFFERING OF THE 2017 BONDS, THE UNDERWRITER MAY OVERALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF SUCH 2017 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 2017 BONDS HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, IN RELIANCE UPON AN EXEMPTION CONTAINED IN SUCH ACT. THE 2017 BONDS HAVE NOT BEEN REGISTERED OR QUALIFIED UNDER THE SECURITIES LAWS OF ANY STATE. Build America Mutual Assurance Company ( BAM ) makes no representation regarding the Insured 2017 Bonds or the advisability of investing in the Insured 2017 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 caption BOND INSURANCE and in Appendix G SPECIMEN MUNICIPAL BOND INSURANCE POLICY.

5 TABLE OF CONTENTS Page INTRODUCTION... 1 The School District... 2 The District and Improvement Area No Forward Looking Statements... 3 Sources of Payment for the 2017 Bonds... 4 Description of the 2017 Bonds... 5 Redemption... 6 Tax Exemption... 6 Professionals Involved in the Offering... 6 Bond Insurance... 7 Continuing Disclosure... 7 Bond Owners Risks... 7 Other Information... 7 REFUNDING PLAN... 8 General... 8 Verification of Mathematical Computations... 8 ESTIMATED SOURCES AND USES OF FUNDS... 9 THE 2017 BONDS... 9 General Provisions... 9 Debt Service Schedule Redemption Registration, Transfer and Exchange SOURCES OF PAYMENT FOR THE 2017 BONDS Limited Obligations Special Taxes No Teeter Plan Bonds Account of the Reserve Fund Issuance of Parity Bonds BOND INSURANCE Bond Insurance Policy Build America Mutual Assurance Company THE DISTRICT AND IMPROVEMENT AREA NO General Description of the District and Improvement Area No Direct and Overlapping Indebtedness Adjusted Values Special Tax Rates Largest Taxpayers Delinquency History PROPERTY OWNERSHIP AND THE DEVELOPMENT The Developer The Development Plan Financing Plan THE RIVERSIDE UNIFIED SCHOOL DISTRICT SPECIAL RISK FACTORS Risks of Real Estate Secured Investments Generally i

6 TABLE OF CONTENTS (continued) Page Funds Invested in the County Investment Pool Concentration of Ownership Limited Obligations Insufficiency of Special Taxes Failure to Develop Properties Natural Disasters Endangered Species Hazardous Substances Payment of the Special Tax is not a Personal Obligation of the Property Owners Property Values Parity Taxes, Special Assessments and Land Development Costs Disclosures to Future Purchasers Special Tax Delinquencies FDIC/Federal Government Interests in Properties Bankruptcy and Foreclosure No Acceleration Provision Loss of Tax Exemption Limited Secondary Market Proposition Ballot Initiatives and Legislative Measures IRS Audit of Tax-Exempt Bond Issues Risks Associated with Bond Insurance Limitations on Remedies CONTINUING DISCLOSURE TAX MATTERS LEGAL MATTERS ABSENCE OF LITIGATION RATING UNDERWRITING FINANCIAL INTERESTS PENDING LEGISLATION ADDITIONAL INFORMATION APPENDIX A RATES AND METHOD OF APPORTIONMENT OF SPECIAL TAX... A-1 APPENDIX B FORM OF OPINION OF BOND COUNSEL... B-1 APPENDIX C GENERAL INFORMATION CONCERNING THE REGION... C-1 APPENDIX D SUMMARY OF CERTAIN PROVISIONS OF THE FISCAL AGENT AGREEMENT... D-1 APPENDIX E FORM OF CONTINUING DISCLOSURE AGREEMENT... E-1 APPENDIX F BOOK-ENTRY ONLY SYSTEM... F-1 APPENDIX G SPECIMEN MUNICIPAL BOND INSURANCE POLICY... G-1 ii

7 Riverside Unified School District Community Facilities District No. 15 (Improvement Area No. 3)

8 [THIS PAGE INTENTIONALLY LEFT BLANK]

9 $10,105,000 COMMUNITY FACILITIES DISTRICT NO. 15 OF THE RIVERSIDE UNIFIED SCHOOL DISTRICT (IMPROVEMENT AREA NO. 3) SERIES 2017 SPECIAL TAX BONDS INTRODUCTION This Official Statement, which includes the cover page, the table of contents and the appendices (collectively, the Official Statement ), provides certain information concerning the issuance by the Riverside Unified School District (the School District ), on behalf of Community Facilities District No. 15 of the Riverside Unified School District (the District ), of the Community Facilities District No. 15 of the Riverside Unified School District (Improvement Area No. 3) Series 2017 Special Tax Bonds (the 2017 Bonds ). The proceeds of the 2017 Bonds will be used (i) to finance certain school facilities (the School Facilities ) for the School District, certain public facilities (the City Facilities ) of the City of Riverside (the City ), and certain public facilities (the Water District Facilities ) of Western Municipal Water District of Riverside County (the Water District ), (ii) to redeem the outstanding Community Facilities District No. 15 of the Riverside Unified School District (Improvement Area No. 3) Special Tax Bonds, 2013 Series C (the 2013 Bonds ), on March 1, 2018, (iii) to purchase a municipal bond insurance policy (the Policy ) insuring the payment of principal and interest with respect to the 2017 Bonds maturing on September 1, 2032 through September 1, 2037, inclusive, and September 1, 2041 (collectively, the Insured 2017 Bonds ) from Build America Mutual Assurance Company ( BAM ), (iv) to purchase a reserve policy (the Reserve Policy ) from BAM for deposit into the reserve account securing the 2017 Bonds, and (v) to pay costs of issuance on the 2017 Bonds. See REFUNDING PLAN and ESTIMATED SOURCES AND USES OF FUNDS. The 2017 Bonds are authorized to be issued pursuant to the Mello-Roos Community Facilities Act of 1982, as amended (Section et seq. of the Government Code of the State of California) (the Act ), and pursuant to Resolution No. 2017/18-16 adopted by the Board of Education of the School District on behalf of the District on November 6, 2017, and a Fiscal Agent Agreement by and between the School District and U.S. Bank National Association, as Fiscal Agent for the 2017 Bonds (the Fiscal Agent ), dated as of August 1, 2012, as supplemented by a First Supplement to Fiscal Agent Agreement, dated as of April 1, 2013, and a Second Supplement to Fiscal Agent Agreement, dated as of December 1, 2017 (as supplemented, the Fiscal Agent Agreement ). The 2017 Bonds are secured under the Fiscal Agent Agreement by a pledge of and lien upon Special Tax Revenues (as defined herein) levied on parcels within Improvement Area No. 3 of the District ( Improvement Area No. 3 ), but not from special taxes levied on parcels within any other Improvement Area of the District, and all moneys in the Special Tax Fund (other than the Surplus Account), all moneys in the Principal Account and Interest Account of the Bond Fund and all moneys deposited in the 2017 Bonds Account of the Reserve Fund, as described the Fiscal Agent Agreement. The 2017 Bonds are not secured by any other moneys on deposit in the Reserve Fund. See SOURCES OF PAYMENT FOR THE 2017 BONDS. The 2017 Bonds are secured under the Fiscal Agent Agreement on a parity with the outstanding Community Facilities District No. 15 of the Riverside Unified School District Special Tax Refunding Bonds, 2012 Series B (Improvement Area No. 3), currently outstanding in the aggregate principal amount of $3,950,000 (the 2012 Bonds ). The 2012 Bonds, the 2017 Bonds and any additional Parity Bonds (as defined in the Fiscal Agent Agreement) that may be issued in the future are sometimes referred to in this Official Statement as the Bonds. The 2017 Bonds are being issued and delivered pursuant to the provisions of the Act and the Fiscal Agent Agreement. The 2017 Bonds are being sold pursuant to a Bond Purchase Agreement between Piper 1

10 Jaffray & Co. (the Underwriter ) and the School District. For more complete information, see THE 2017 BONDS General Provisions herein. 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 and the documents summarized or described herein. A full review should be made of the entire Official Statement. The sale and delivery of 2017 Bonds to potential investors is made only by means of the entire Official Statement. All capitalized terms used in this Official Statement and not defined shall have the meaning set forth in APPENDIX D SUMMARY OF CERTAIN PROVISIONS OF THE FISCAL AGENT AGREEMENT. The School District The School District is a unified school district, governed by a five member, elected, Board of Education. The School District encompasses an area of about 92 square miles located in the northwestern portion of Riverside County approximately 47 miles east of the Los Angeles civic center. The School District encompasses major portions of the City of Riverside. The School District was established in 1963 through the unification of the Riverside City School District and the Riverside City High School District. The School District serves approximately 42,000 students. The School District operates twenty-nine elementary schools, seven middle schools, five high schools, two alternative high schools, one virtual school, one adult school, one independent study school, one special education preschool and one STEM Academy. See THE RIVERSIDE UNIFIED SCHOOL DISTRICT. The District and Improvement Area No. 3 The District and Improvement Area No. 3 therein were formed on April 19, 2004 by the Board pursuant to the Act. The Act was enacted by the California legislature to provide an alternative method of financing certain public capital facilities and services, especially in developing areas of the State. Any local agency (as defined in the Act) may establish a community facilities district to provide for and finance the cost of eligible public facilities and services. Generally, the legislative body of the local agency which forms a community facilities district acts on behalf of such district as its legislative body. Subject to approval by twothirds of the votes cast at an election and compliance with the other provisions of the Act, a legislative body of a local agency may issue bonds for a community facilities district or improvement area therein and may levy and collect a special tax within such district or improvement area to repay such indebtedness. Pursuant to the Act, in forming the District, the Board adopted resolutions on March 1, 2004 stating its intention to establish the District and to designate three improvement areas therein, to authorize the levy of special taxes on property within the District and such improvement areas ( Special Taxes, as used in this Official Statement, refers to the Special Taxes to be levied by the District in Improvement Area No. 3 only) pursuant to a rates and method of apportionment (the Original Rates and Method ), and to authorize the District to incur bonded indebtedness. Following public hearings conducted pursuant to the Act, on April 19, 2004, the Board adopted resolutions establishing the District and calling consolidated special elections to submit the levy of special taxes and the incurring of bonded indebtedness to the qualified voters of the District. At a special election held on May 11, 2004, the owners of the property within the District, and each Improvement Area therein, authorized the District to incur a bonded indebtedness for the purpose of financing public facilities for each Improvement Area of the District as follows: Improvement Area No. 1 $20,000,000; Improvement Area No. 2 $16,000,000; and Improvement Area No. 3 $14,000,000. On June 11, 2004 a Notice of Special Tax Lien was recorded in the official records of the County of Riverside (the County ). On May 16, 2005, the Board adopted resolutions initiating proceedings (i) to amend the Original Rates and Method to increase the rates of special taxes to be levied on property in Improvement Area No. 2 and Improvement Area No. 3 of the District, (ii) to modify the types of public facilities authorized to be financed by the District to include additional facilities for the City, and (iii) to increase the amount of authorized bonded 2

11 indebtedness of the District for Improvement Area No. 2 and Improvement Area No. 3 of the District. On June 20, 2005, following public hearings, the Board of Education adopted resolutions which called special elections for June 28, 2005 on propositions with respect to (i) increasing the authorized bonded indebtedness to be incurred by the District for Improvement Area No. 2 and Improvement Area No. 3 of the District, (ii) revising the Original Rates and Method, and (iii) modifying the types of public facilities to be financed by the District. On June 28, 2005, the owners of the property located within Improvement Area No. 2 and Improvement Area No. 3 voted ballots in favor of all such propositions. As a result (i) the District is authorized to incur bonded indebtedness in an aggregate principal amount not to exceed $60,000,000, to incur bonded indebtedness in an aggregate principal amount not to exceed $21,000,000 to finance public facilities for Improvement Area No. 2 and to incur bonded indebtedness in an aggregate principal amount not to exceed $18,000,000 to finance public facilities for Improvement Area No. 3, (ii) the Amended and Restated Rates and Method of Apportionment of Special Tax set forth in Appendix A hereto (the Rates and Method ) was approved, and (iii) the authorized types of public facilities were modified to include additional public facilities of the City. On July 19, 2005, an Amendment to the Notice of Special Tax Lien with respect to such changes was recorded in the official records of the County. Improvement Area No. 3 contains approximately acres located in the northwestern portion of the County and in the southeastern portion of the City. The property within Improvement Area No. 3 constitutes a portion of the community known as Mission Ranch. Development within Improvement Area No. 3 is occurring in three phases. The first phase was developed by Centex Homes in 2007 and 2008 into 136 single family detached homes. The second phase was developed by Standard Pacific Corp. in 2012 and 2013 into 116 single family detached homes. All of the units within phases one and two have been built and transferred to individual homeowners. The property consisting of phase three contains approximately acres which was owned by William Lyon Homes, Inc., a California corporation ( Lyon or the Developer ). Lyon is developing this property into 90 single family detached homes in a development known as SkyRidge. As of October 1, 2017, in Lyon s development in Improvement Area No. 3, there were 42 completed production homes which had been conveyed to individual homeowners, 3 completed model homes owned by Lyon, 9 production homes over 95% completed, 33 additional production homes under construction and 3 lots in finished condition. The last building permits were issued in October 2017; accordingly, all parcels within Improvement Area No. 3 will be classified as Developed Property (as defined herein) for Fiscal Year and all subsequent Fiscal Years. See PROPERTY OWNERSHIP AND THE DEVELOPMENT. 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 a plan, expect, estimate, project, budget or similar words. Such forwardlooking statements include, but are not limited to certain statements contained in the information under the captions THE DISTRICT AND IMPROVEMENT AREA NO. 3 and PROPERTY OWNERSHIP AND THE DEVELOPMENT. 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 DISTRICT DOES NOT PLAN TO ISSUE ANY UPDATES OR REVISIONS TO THE FORWARD-LOOKING STATEMENTS SET FORTH IN THIS OFFICIAL STATEMENT. 3

12 Sources of Payment for the 2017 Bonds As used in this Official Statement, the term Special Tax is that tax which has been authorized to be levied against taxable property within Improvement Area No. 3 pursuant to the Act and in accordance with the Rates and Method to satisfy the Special Tax Requirement for Improvement Area No. 3 (as defined in the Rates and Method). Special Tax Revenues are defined to mean the proceeds of the Special Taxes received by the School District, including any scheduled payments and any prepayments thereof, interest and penalties and proceeds of the redemption or sale of property sold as a result of foreclosure of the lien of the Special Taxes in the amount of said lien and interest and penalties thereon. See SOURCES OF PAYMENT FOR THE 2017 BONDS Special Taxes and APPENDIX A RATES AND METHOD OF APPORTIONMENT OF SPECIAL TAX. Under the Fiscal Agent Agreement, the School District has pledged to repay the 2017 Bonds from the Special Tax Revenues and amounts on deposit in the Special Tax Fund and the Principal Account and Interest Account of the Bond Fund on a parity with the Outstanding 2012 Bonds and any future Parity Bonds, and the 2017 Bonds Account of the Reserve Fund established under the Fiscal Agent Agreement. The 2017 Bonds will not be secured by special taxes levied on property in Improvement Area No. 1 or Improvement Area No. 2 of the District. Correspondingly, the District s outstanding bonds issued for the benefit of Improvement Area No. 1 and Improvement Area No. 2 are not secured by Special Taxes levied on property in Improvement Area No Bonds Account of the Reserve Fund. Pursuant to the Fiscal Agent Agreement, the initial Reserve Requirement for the 2017 Bonds is an amount equal to $772, which is equal to the least of (i) 10% of the stated principal amount of the 2017 Bonds, (ii) Maximum Annual Debt Service on the 2017 Bonds or (iii) 125% of average Annual Debt Service on the 2017 Bonds, as determined by the School District (the Reserve Requirement ). The Reserve Requirement will initially be satisfied by the deposit of the Reserve Policy into the 2017 Bonds Account of the Reserve Fund. In the event that BAM becomes insolvent, the School District is not obligated to replace the Reserve Policy or to cash fund the 2017 Bonds Account of the Reserve Fund. See SOURCES OF PAYMENT FOR THE 2017 BONDS 2017 Bonds Account of the Reserve Fund. Subject to the maximum annual amounts of Special Taxes contained in the Rates and Method, if the amount in the 2017 Bonds Account of the Reserve Fund is less than the Reserve Requirement, the School District has covenanted to restore the amount in the 2017 Bonds Account of the Reserve Fund to the Reserve Requirement by the inclusion of a sufficient amount in the next annual Special Tax levy within Improvement Area No. 3. The ability of the Board to increase the annual Special Taxes levied in Improvement Area No. 3 to replenish the 2017 Bonds Account of the Reserve Fund is subject to the maximum annual amounts of Special Taxes authorized to be levied within Improvement Area No. 3 and to any limitations set forth by law. The moneys in the 2017 Bonds Account of the Reserve Fund will be used only for payment of the principal of, and interest and any redemption premium on, the 2017 Bonds and at the direction of the School District, for deposit in the Rebate Fund. The 2017 Bonds are not secured by any moneys on deposit in the Reserve Fund other than the 2017 Bonds Account of the Reserve Fund. See SOURCES OF PAYMENT FOR THE 2017 BONDS 2017 Bonds Account of the Reserve Fund. The Special Tax Revenues are the primary security for the repayment of the Bonds. In the event that the Special Taxes are not paid when due, the only sources of funds available to pay the debt service on the Bonds are amounts held by the Fiscal Agent in the Principal Account and Interest Account of the Bond Fund and the Reserve Fund, including the 2017 Bonds Account of the Reserve Fund with respect to the 2017 Bonds, to the limited extent described in the Fiscal Agent Agreement. See SOURCES OF PAYMENT FOR THE 2017 BONDS 2017 Bonds Account of the Reserve Fund. Pursuant to Section 53321(d) of the Government Code as in effect at the time of the proceedings to amend the Original Rates and Method for Improvement Area No. 3, under no circumstances will the Special Tax levied against any Parcel of Detached Residential Property or Attached Residential Property for which an occupancy permit for private residential use has been issued be increased by more than ten percent (10%) as a 4

13 consequence of delinquency or default by the owner of any other Parcel within Improvement Area No. 3. As a result, it is possible that the School District may not be able to increase the tax levy to the maximum amount in all years. Foreclosure Proceeds. The School District has covenanted with and for the benefit of the Owners of the Bonds as follows: (i) it will order, and cause to be commenced, judicial foreclosure proceedings against properties with delinquent Special Taxes in excess of $5,000 by the October 1 following the close of the Fiscal Year in which such Special Taxes were due, and (ii) it will commence judicial foreclosure proceedings against all properties with delinquent Special Taxes by the October 1 following the close of each Fiscal Year in which it receives Special Taxes in an amount which is less than 95% of the total Special Taxes levied, and diligently pursue to completion such foreclosure proceedings. See SOURCES OF PAYMENT FOR THE 2017 BONDS Special Taxes Proceeds of Foreclosure Sales. There is no assurance that the property within Improvement Area No. 3 can be sold for the values described in this Official Statement, or for a price sufficient to pay the principal of and interest on the Bonds in the event of a default in payment of Special Taxes by the current or future landowners within Improvement Area No. 3. See RISK FACTORS Property Values. The District does not participate in the County s Alternative Method of Distribution of Tax Levies and Collections and of Tax Sale Proceeds (the Teeter Plan ); accordingly, the collection of Special Taxes is subject to delinquency. See SOURCES OF PAYMENT FOR THE 2017 BONDS No Teeter Plan. NEITHER THE FAITH AND CREDIT NOR THE TAXING POWER OF THE SCHOOL DISTRICT, THE COUNTY OF RIVERSIDE, THE STATE OF CALIFORNIA OR ANY POLITICAL SUBDIVISION THEREOF IS PLEDGED TO THE PAYMENT OF THE 2017 BONDS. EXCEPT FOR THE SPECIAL TAXES OF IMPROVEMENT AREA NO. 3 (BUT NOT THE SPECIAL TAXES COLLECTED WITHIN ANY OTHER IMPROVEMENT AREA OF THE DISTRICT), NO OTHER TAXES ARE PLEDGED TO THE PAYMENT OF THE 2017 BONDS. THE 2017 BONDS ARE NOT GENERAL OR SPECIAL OBLIGATIONS OF THE SCHOOL DISTRICT OR GENERAL OBLIGATIONS OF THE DISTRICT, BUT ARE SPECIAL OBLIGATIONS OF THE DISTRICT PAYABLE SOLELY FROM SPECIAL TAXES OF IMPROVEMENT AREA NO. 3 (BUT NOT THE SPECIAL TAXES COLLECTED WITHIN ANY OTHER IMPROVEMENT AREA) AND AMOUNTS HELD UNDER THE FISCAL AGENT AGREEMENT AS MORE FULLY DESCRIBED HEREIN. Parity Bonds and Liens. Under the terms of the Fiscal Agent Agreement, the School District, on behalf of the District, may issue additional bonds secured by Special Tax Revenues on a parity with the 2012 Bonds and the 2017 Bonds ( Parity Bonds ) if certain conditions are met. See SOURCES OF PAYMENT FOR THE 2017 BONDS Issuance of Parity Bonds. Upon issuance of the 2017 Bonds, the School District, on behalf of the District, will have issued $16,235,000 in aggregate principal amount of bonds for the benefit of Improvement Area No. 3 of the $18,000,000 authorized to be issued. Upon delivery of the 2017 Bonds, the School District will covenant to only issue Parity Bonds for the purpose of refunding Bonds. See APPENDIX D SUMMARY OF CERTAIN PROVISIONS OF THE FISCAL AGENT AGREEMENT. Other taxes and/or special assessments with liens equal in priority to the continuing lien of the Special Taxes have been levied and may also be levied in the future on the property within Improvement Area No. 3 which could adversely affect the willingness of the landowners to pay the Special Taxes when due. See SPECIAL RISK FACTORS Parity Taxes, Special Assessments and Land Development Costs herein. Description of the 2017 Bonds The 2017 Bonds will be issued and delivered as fully registered 2017 Bonds, registered in the name of Cede & Co. as nominee of The Depository Trust Company, New York, New York ( DTC ), and will be available to actual purchasers of the 2017 Bonds (the Beneficial Owners ) in the denominations of $5,000 or any integral multiple thereof, under the book-entry system maintained by DTC, only through brokers and dealers who are or act through DTC Participants as described herein. Beneficial Owners will not be entitled to 5

14 receive physical delivery of the 2017 Bonds. In the event that the book-entry-only system described herein is no longer used with respect to the 2017 Bonds, the 2017 Bonds will be registered and transferred in accordance with the Fiscal Agent Agreement. See APPENDIX F BOOK-ENTRY ONLY SYSTEM. Principal of, premium, if any, and interest on the 2017 Bonds is payable by the Fiscal Agent to DTC. Disbursement of such payments to DTC Participants is the responsibility of DTC and disbursement of such payments to the Beneficial Owners is the responsibility of DTC Participants. See APPENDIX F BOOK-ENTRY ONLY SYSTEM. Redemption The 2017 Bonds are subject to redemption as described herein. See THE 2017 BONDS Redemption. For a more complete description of the 2017 Bonds and the basic documentation pursuant to which they are being sold and delivered, see THE 2017 BONDS and APPENDIX D SUMMARY OF CERTAIN PROVISIONS OF THE FISCAL AGENT AGREEMENT. Tax Exemption In the opinion of Bond Counsel, under existing statutes, regulations, rulings and court decisions, the interest on the 2017 Bonds is exempt from personal income taxes of the State of California and, assuming compliance with certain covenants described in the Official Statement, is excluded from gross income for federal income tax purposes, and is not a specific preference item for purposes of the federal alternative minimum tax; however, it should be noted that, with respect to corporations, such interest may be included as an adjustment in the calculation of alternative minimum taxable income, which may affect the alternative minimum tax liability of corporations. Set forth in APPENDIX B is the form of opinion of Bond Counsel expected to be delivered in connection with the issuance of the 2017 Bonds. For a more complete discussion of such opinion and certain other tax consequences incident to the ownership of the 2017 Bonds, including certain exceptions to the tax treatment of interest, see TAX MATTERS. Professionals Involved in the Offering U.S. Bank National Association will act as Fiscal Agent under the Fiscal Agent Agreement and escrow agent under the Escrow Agreement. Piper Jaffray & Co., is the Underwriter of the 2017 Bonds. Certain proceedings in connection with the issuance and delivery of the 2017 Bonds are subject to the approval of Best Best & Krieger LLP, Riverside, California, Bond Counsel. Stradling Yocca Carlson & Rauth, a Professional Corporation, San Francisco, California, is serving as Disclosure Counsel to the District. Fieldman Rolapp & Associates is acting as Municipal Advisor to the School District in connection with the 2017 Bonds. Certain legal matters will be passed on for the School District and the District by Best Best & Krieger LLP, Riverside, California, for the Underwriter by James F. Anderson Law Firm, A Professional Corporation, Laguna Hills, California, as Underwriter s Counsel, and for William Lyon Homes, Inc. by its counsel, Holland & Knight LLP, San Francisco, California. David Taussig & Associates, Inc., Newport Beach, California, is serving as Special Tax Consultant and initial dissemination agent under the Continuing Disclosure Agreement (as defined herein) and Causey Demgen & Moore, P.C., Denver, Colorado, is acting as Verification Agent. For information concerning the respects in which certain of the above-mentioned professionals, advisors, counsel and agents may have a financial or other interest in the offering of the 2017 Bonds, see FINANCIAL INTERESTS. 6

15 Bond Insurance Concurrently with the issuance of the Insured 2017 Bonds, BAM will issue the Policy. The Policy guarantees the scheduled payment of principal of and interest on the Insured 2017 Bonds when due as set forth in the form of the Policy included as Appendix G to this Official Statement. See the caption BOND INSURANCE. Continuing Disclosure The District has agreed to provide, or cause to be provided, to the Electronic Municipal Market Access System of the Municipal Securities Rulemaking Board (the MSRB ), which can be found at ( EMMA ), certain financial information and operating data on an annual basis. The District has further agreed to provide notice to EMMA of certain enumerated events. These covenants have been made in order to assist the Underwriter in complying with Rule 15c2-12(b)(5) (the Rule ) adopted by the Securities and Exchange Commission (the SEC ). See CONTINUING DISCLOSURE and APPENDIX E FORM OF CONTINUING DISCLOSURE AGREEMENT herein for the form of the District s Continuing Disclosure Agreement. Other than as described in this Official Statement under the heading CONTINUING DISCLOSURE, the School District has not failed to comply in all material respects with any previous undertakings with regard to Rule 15c2-12 to provide annual reports or notices of enumerated events in the last five years. Bond Owners Risks Certain events could affect the ability of the District to pay the principal of and interest on the 2017 Bonds when due. See the section of this Official Statement entitled SPECIAL RISK FACTORS for a discussion of certain factors which should be considered, in addition to other matters set forth herein, in evaluating an investment in the 2017 Bonds. The Insured 2017 Bonds are rated by S&P (as defined below) based on the issuance of the Policy by BAM at the time of issuance of the Insured 2017 Bonds. The purchase of the 2017 Bonds involves significant risks, and the 2017 Bonds may not be appropriate investments for certain investors. See SPECIAL RISK FACTORS and RATING herein. Other Information This Official Statement speaks only as of its date, and the information contained herein is subject to change. Brief descriptions of the 2017 Bonds and the Fiscal Agent Agreement are included in this Official Statement. Such descriptions and information do not purport to be comprehensive or definitive. All references herein to the Fiscal Agent Agreement, the 2017 Bonds and the constitution and laws of the State as well as the proceedings of the Board, acting as the legislative body of the District, are qualified in their entirety by references to such documents, laws and proceedings, and with respect to the 2017 Bonds, by reference to the Fiscal Agent Agreement. Capitalized terms not otherwise defined herein shall have the meanings set forth in the Fiscal Agent Agreement. Copies of the Fiscal Agent Agreement and other documents and information are available for inspection and (upon request and payment to the School District of a charge for copying, mailing and handling) for delivery from the office of the Superintendent of Riverside Unified School District, th Street, Riverside, California

16 REFUNDING PLAN General The School District expects to apply a portion of the proceeds of the 2017 Bonds, together with other funds on hand, to refund on a current basis all of the 2013 Bonds, currently outstanding in the principal amount of $5,490,000. The School District will redeem the outstanding 2013 Bonds on or about March 1, 2018 (the Redemption Date ). The redemption price (the Redemption Price ) with respect to the 2013 Bonds will be equal to 103% of the outstanding principal amount of the 2013 Bonds being redeemed, plus accrued interest to the Redemption Date. Pursuant to an Escrow Agreement, dated as of December 1, 2017 (the Escrow Agreement ), by and between the School District and U.S. Bank National Association, as escrow agent (the Escrow Agent ), the School District will cause a portion of the proceeds of the 2017 Bonds to be delivered to the Escrow Agent for deposit in the escrow fund established under the Escrow Agreement (the Escrow Fund ). Under the Escrow Agreement, the amounts to be delivered by or on behalf of the School District to the Escrow Agent on the Delivery Date, together with amounts transferred from funds and accounts established in connection with the 2013 Bonds, will either be held in cash or invested in non-callable federal securities in amounts sufficient to pay the regularly scheduled principal and interest with respect to the 2013 Bonds when due on and prior to the Redemption Date and to pay the Redemption Price of the 2013 Bonds on the Redemption Date. The cash and federal securities held by the Escrow Agent in the Escrow Fund are pledged solely to the payment of the outstanding 2013 Bonds. Neither the moneys deposited in the Escrow Fund nor the interest on the invested moneys will be available for the payments of principal of and interest on the 2017 Bonds. Verification of Mathematical Computations Sufficiency of the deposits in the escrow fund for the redemption and defeasance of the 2013 Bonds will be verified by Causey Demgen & Moore, P.C., Denver, Colorado (the Verification Agent ). Assuming the accuracy of such computations, as a result of the deposit and application of funds as provided in the Escrow Agreement, the 2013 Bonds will be defeased pursuant to the provisions of the Fiscal Agent Agreement. Upon issuance of the 2017 Bonds, the Verification Agent will deliver a report on the mathematical accuracy of certain computations based upon certain information and assertions provided to it by the Underwriter relating to the adequacy of the cash to be deposited in the escrow fund to pay the Redemption Price of the 2013 Bonds. 8

17 (1) ESTIMATED SOURCES AND USES OF FUNDS The following table sets forth the expected sources and uses of 2017 Bond proceeds. Sources of Funds: Principal Amount of 2017 Bonds $ 10,105, Less Underwriter s Discount (151,575.00) Less Net Original Issue Discount (49,170.45) Plus Other Funds on Hand 506, Total Sources $ 10,411, Uses of Funds: Improvement Fund (1) $ 4,343, Escrow Fund (2) 5,759, Bonds Costs of Issuance Fund (3) 307, Total Uses $ 10,411, Includes $2,065, for School District Facilities, $794, for City Facilities and $1,483, for Water District Facilities. (2) Amounts in the Escrow Fund will be used to redeem the 2013 Bonds. See REFUNDING PLAN. (3) Includes Bond Counsel fees, Disclosure Counsel fees, Special Tax Consultant fees, Financial Advisor fees, Fiscal Agent, Escrow Agent, Verification Agent and Dissemination Agent fees, premiums for the Policy and the Reserve Policy, printing costs and other issuance costs. Source: The Underwriter. General Provisions THE 2017 BONDS The 2017 Bonds will be dated as of their date of delivery and will bear interest at the rates per annum set forth on the inside cover page hereof, payable semiannually on each September 1 and March 1, commencing on March 1, 2018 (each, an Interest Payment Date ), and will mature in the amounts and on the dates set forth on the inside cover page of this Official Statement. The 2017 Bonds will be issued in fully registered form in denominations of $5,000 or any integral multiple thereof. Interest will be calculated on the basis of a 360 day year comprised of twelve 30 day months. Interest on any 2017 Bond will be payable from the Interest Payment Date next preceding the date of authentication of that 2017 Bond, unless (i) it is authenticated on an Interest Payment Date, in which event it shall bear interest from such Interest Payment Date, or (ii) it is authenticated prior to an Interest Payment Date and after the close of business on the Record Date preceding such Interest Payment Date, in which event it shall bear interest from such Interest Payment Date, or (iii) it is authenticated prior to the Record Date preceding the first Interest Payment Date, in which event it shall bear interest from the Closing Date; provided, however, that if at the time of authentication of a 2017 Bond, interest is in default, interest on that 2017 Bond will be payable from the last Interest Payment Date to which the interest has been paid or made available for payment. Interest on any 2017 Bond will be paid to the person whose name appears as its owner in the registration books held by the Fiscal Agent on the close of business on the Record Date. Interest will be paid by check of the Fiscal Agent mailed by first class mail, postage prepaid, to the 2017 Bondowner at its address on the registration books. Pursuant to a written request prior to the Record Date of a 2017 Bondowner of at least $1,000,000 in aggregate principal amount of 2017 Bonds, payment will be made by wire transfer in immediately available funds to an account in the United States of America designated by the 2017 Bondowner in the United States. Principal of the 2017 Bonds and any premium due upon redemption is payable upon presentation and surrender of the 2017 Bonds at the principal corporate trust office of the Fiscal Agent in Minneapolis, Minnesota. 9

18 The 2017 Bonds will be issued as fully registered bonds and will be registered in the name of Cede & Co., as nominee DTC. DTC will act as securities depository of the 2017 Bonds. Ownership interests in the 2017 Bonds may be purchased in book-entry form only in denominations of $5,000 and any integral multiple thereof. So long as DTC is the securities depository all payments of principal and interest on the 2017 Bonds will be made to DTC and will be paid to the Beneficial Owners in accordance with DTC s procedures and the procedures of DTC s Participants. See APPENDIX F BOOK-ENTRY-ONLY SYSTEM. Debt Service Schedule The following table presents the annual debt service on the Bonds (including mandatory sinking fund redemption), assuming there are no optional or extraordinary redemptions. See SOURCES OF PAYMENT OF THE 2017 BONDS and THE 2017 BONDS Redemption. Date (September 1) 2012 Bonds Debt Service 2017 Bonds Principal 2017 Bonds Interest 2017 Bonds Total Debt Service Total Debt Service (1) 2018 $ 291, $ 270, $ 229, $ 499, $ 790, , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , Total $ 6,566, $ 10,105, $ 4,564, $ 14,669, $ 21,235, (1) Calculated by adding the 2012 Bonds Debt Service column and the 2017 Bonds Total Debt Service column. Source: The Underwriter. In Fiscal Year , the Special Tax levy will produce an amount equal to at least 110% of the debt service due on the 2012 Bonds and the 2017 Bonds, plus Administrative Expenses of $30,000. Beginning in Fiscal Year , the Special Taxes are only expected to be levied in an amount needed to satisfy the Special Tax Requirement (as defined below). Parity Bonds may be issued in the future under certain circumstances, but the School District has covenanted to issue Parity Bonds only for refunding purposes. See SOURCES OF PAYMENT FOR THE 2017 BONDS Special Taxes Rates and Method of Apportionment of Special Tax and Issuance of Parity Bonds. Notwithstanding that the maximum Special Taxes that may be levied in Improvement Area No. 3 exceeds debt service due on the Bonds, the Special Taxes collected could be inadequate to make timely payment of debt service either because of nonpayment or because property becomes exempt from taxation as permitted in the Rates and Method. See SPECIAL RISK FACTORS Insufficiency of Special Taxes. Pursuant to the Rates and Method and the Act, under no circumstances may the Special Tax levied against any parcel used for private residential purposes within Improvement Area No. 3 be increased as a consequence of delinquency or default by owner of any other parcel or parcels within Improvement Area No. 3 10

19 by more than 10% in any fiscal year. Thus, the School District may not be able to increase Special Tax levies in future fiscal years by enough to make up for delinquencies in prior fiscal years. This would result in draws on the Reserve Fund, including the 2017 Bonds Account therein, and if delinquencies continue and in the aggregate exceed the Reserve Fund balance, defaults would occur in the payment of principal and interest on the Bonds. See SPECIAL RISK FACTORS Insufficiency of Special Taxes. Redemption Optional Redemption. The 2017 Bonds are subject to redemption prior to their stated maturity dates on September 1, 2024 and on any Interest Payment Date thereafter, as selected among maturities by the School District (and by lot within a maturity), in integral multiples of $5,000, at the option of the School District from moneys derived by the School District from any source, at redemption prices (expressed as percentages of the principal amounts of the 2017 Bonds to be redeemed), together with accrued interest to the date of redemption, as follows: Redemption Dates Redemption Price September 1, 2024 and March 1, % September 1, 2025 and March 1, September 1, 2026 and March 1, September 1, 2027 and any Interest Payment Date thereafter 100 Extraordinary Redemption from Special Tax Prepayments. The 2017 Bonds are subject to mandatory redemption prior to their stated maturity dates on any Interest Payment Date, as selected among maturities by the School District (and by lot within any one maturity), in integral multiples of $5,000, from moneys derived by the School District from Special Tax Prepayments, at redemption prices (expressed as percentages of the principal amounts of the Bonds to be redeemed), together with accrued interest to the date of redemption, as follows: Redemption Dates Redemption Price Any Interest Payment Date through March 1, % September 1, 2025 and March 1, September 1, 2026 and March 1, September 1, 2027 and any Interest Payment Date thereafter 100 Mandatory Sinking Fund Redemption. The outstanding 2017 Bonds maturing on September 1, 2041 are subject to mandatory sinking fund redemption, in part, on September 1, 2038, and on each September 1 thereafter to maturity, by lot, at a redemption price equal to the principal amount thereof to be redeemed, together with accrued interest to the date of redemption, without premium, and from sinking payments as follows: 2017 Bonds Maturing September 1, 2041 Sinking Fund Redemption Date (September 1) Sinking Fund Payments 2038 $460, , , (Maturity) 825,000 The amounts in the foregoing schedule shall be reduced by the School District pro rata among redemption dates, in order to maintain substantially level Debt Service, as a result of any prior or partial optional or extraordinary redemption of the 2017 Bonds. 11

20 Purchase of 2017 Bonds. In lieu of payment at maturity or redemption under the Fiscal Agent Agreement, moneys in the Bond Fund may be used and withdrawn by the Fiscal Agent for purchase of Outstanding 2017 Bonds, upon the filing with the Fiscal Agent of an Officer s Certificate requesting such purchase, at public or private sale as and when, and at such prices (including brokerage and other charges) as such Officer s Certificate may provide, but in no event may 2017 Bonds be purchased at a price in excess of the principal amount thereof, plus interest accrued to the date of purchase. Notice to Fiscal Agent. An Authorized Officer shall give the Fiscal Agent written notice of the School District s intention to redeem 2017 Bonds not less than 45 days prior to the applicable redemption date. Such written notice shall specify whether 2017 Bonds are to be redeemed by optional redemption or mandatory redemption from Special Tax Prepayments. The foregoing provision shall not apply to mandatory sinking fund redemption of the 2017 Bonds. Redemption Procedure by Fiscal Agent. The Fiscal Agent shall cause notice of any redemption to be mailed by first class mail, postage prepaid, at least 30 days but not more than 60 days prior to the date fixed for redemption, to the Securities Depositories and to one or more Information Services selected by an Authorized Officer, and to the respective registered Owners of any 2017 Bonds designated for redemption, at their addresses appearing on the 2017 Bond registration books maintained by the Fiscal Agent at its Principal Office; but such mailing shall not be a condition precedent to such redemption and failure to mail or to receive any such notice, or any defect therein, shall not affect the validity of the proceedings for the redemption of such 2017 Bonds. The Fiscal Agent shall also cause notice of any redemption to be mailed, in such manner and within such time, to the Underwriter. Such notice shall state the date of such notice, the date of issue of the 2017 Bonds, the place or places of redemption, the redemption date, the redemption price and, if less than all of the then Outstanding 2017 Bonds are to be called for redemption, shall designate the CUSIP numbers and 2017 Bond numbers of the 2017 Bonds to be redeemed, by giving the individual CUSIP number and 2017 Bond number of each 2017 Bond to be redeemed, or shall state that all 2017 Bonds between two stated 2017 Bond numbers, both inclusive, are to be redeemed or that all of the 2017 Bonds of one or more maturities have been called for redemption, shall state as to any 2017 Bond called for redemption in part the portion of the principal of the 2017 Bond to be redeemed, shall require that such 2017 Bonds be then surrendered at the Principal Office of the Fiscal Agent for redemption at the said redemption price, and shall state that further interest on such 2017 Bonds will not accrue from and after the redemption date. The cost of the mailing of any such redemption notice shall be paid by the District. Such notice of redemption for any optional redemption may state that the redemption of the 2017 Bonds is contingent upon the Fiscal Agent s receipt of funds sufficient to cause such redemption. Any such notice given may be conditional and/or rescinded by written notice given to the Fiscal Agent by an Authorized Officer and the Fiscal Agent shall provide notice of such rescission as soon thereafter as practicable in the same manner, and to the same recipients, as notice of such redemption was given pursuant to the Fiscal Agent Agreement. Upon the payment of the redemption price of 2017 Bonds being redeemed, each check or other transfer of funds issued for such purpose shall, to the extent practicable, bear the CUSIP number identifying, by issue and maturity, the 2017 Bonds being redeemed with the proceeds of such check or other transfer. In the event of an optional redemption or mandatory redemption from Special Tax Prepayments pursuant to the Fiscal Agent Agreement, the School District shall transfer or cause to be transferred to the Fiscal Agent for deposit in the Bond Fund moneys in an amount equal to the redemption price of the 2017 Bonds being redeemed on or before the date upon which such 2017 Bonds are to be redeemed. If less than all the 2017 Bonds Outstanding are to be redeemed, the portion of any 2017 Bond of a denomination of more than $5,000 to be redeemed shall be in integral multiples of $5,000, and, in selecting portions of such 2017 Bonds for redemption, the Fiscal Agent shall treat each such 2017 Bond as representing 12

21 the number of 2017 Bonds of $5,000 denominations which is obtained by dividing the principal amount of such 2017 Bond to be redeemed in part by $5,000. Whenever provision is made in the Fiscal Agent Agreement for the redemption of less than all of the 2017 Bonds of a maturity or any given portion thereof, the Fiscal Agent shall select the 2017 Bonds of such maturity to be redeemed, from all 2017 Bonds of such maturity or such given portion thereof not previously called for redemption, by lot within a maturity in any manner which the Fiscal Agent in its sole discretion shall deem appropriate. Upon surrender of 2017 Bonds redeemed in part only, the School District shall execute and the Fiscal Agent shall authenticate and deliver to the Owner, at the expense of the District, a new 2017 Bond or 2017 Bonds, of the same maturity, of authorized denominations in an aggregate principal amount equal to the unredeemed portion of the 2017 Bond or 2017 Bonds. Effect of Redemption. From and after the date fixed for redemption, if funds available for the payment of the redemption prices of the 2017 Bonds called for redemption shall have been deposited in the Bond Fund, such 2017 Bonds shall cease to be entitled to any benefit under the Fiscal Agent Agreement other than the right to receive payment of the redemption price, and interest shall cease to accrue on the 2017 Bonds to be redeemed on the redemption date specified in the notice of redemption. All 2017 Bonds redeemed and purchased by the Fiscal Agent pursuant to the Fiscal Agent Agreement shall be cancelled by the Fiscal Agent. Registration, Transfer and Exchange Registration. The Fiscal Agent will keep sufficient books for the registration and transfer of the 2017 Bonds. The ownership of the 2017 Bonds will be established by the 2017 Bond registration books held by the Fiscal Agent. Transfer or Exchange. Whenever any 2017 Bond is surrendered for registration of transfer or exchange, the Fiscal Agent will authenticate and deliver a new 2017 Bond or 2017 Bonds of the same maturity, for a like aggregate principal amount of authorized denominations; provided that the Fiscal Agent will not be required to register transfers or make exchanges of (i) 2017 Bonds for a period of 15 days next preceding the date established by the Fiscal Agent for selection of 2017 Bonds for redemption, or (ii) with respect to 2017 Bonds selected for redemption. Limited Obligations SOURCES OF PAYMENT FOR THE 2017 BONDS The 2017 Bonds are special, limited obligations of the District payable on a parity with the 2012 Bonds and any future Parity Bonds only from amounts pledged under the Fiscal Agent Agreement, and from no other sources. The Special Taxes are the primary security for the repayment of the 2017 Bonds. Under the Fiscal Agent Agreement, the School District has pledged to repay the 2017 Bonds from the Special Tax Revenues (which are the proceeds of the Special Taxes received by the School District, including any scheduled payments, interest and penalties thereon and proceeds of the redemption or sale of property sold as a result of foreclosure of the lien of the Special Taxes) and all moneys deposited in the Interest Account and the Principal Account of the Bond Fund and the 2017 Bonds Account of the Reserve Fund. The 2017 Bonds are secured on a parity with the 2012 Bonds and any future Parity Bonds of the District. See Issuance of Parity Bonds. 13

22 In the event that the Special Tax Revenues are not received when due, the only sources of funds available to pay the debt service on the Bonds are amounts held by the Fiscal Agent in the Interest Account and Principal Account of the Bond Fund for the exclusive benefit of the Owners of the Bonds and amounts held by the Fiscal Agent in the 2017 Bonds Account of the Reserve Fund. Other moneys on deposit in the Reserve Fund are not held for the benefit of the Owners of the 2017 Bonds. NEITHER THE FAITH AND CREDIT NOR THE TAXING POWER OF THE SCHOOL DISTRICT, THE CITY OF RIVERSIDE, THE COUNTY OF RIVERSIDE, THE STATE OF CALIFORNIA OR ANY POLITICAL SUBDIVISION THEREOF IS PLEDGED TO THE PAYMENT OF THE 2017 BONDS. EXCEPT FOR THE SPECIAL TAX REVENUES COLLECTED WITHIN IMPROVEMENT AREA NO. 3 (BUT NOT SPECIAL TAXES COLLECTED WITHIN ANY OTHER IMPROVEMENT AREA OF THE DISTRICT), NO OTHER REVENUES OR TAXES ARE PLEDGED TO THE PAYMENT OF THE 2017 BONDS. THE 2017 BONDS ARE NOT GENERAL OR SPECIAL OBLIGATIONS OF THE SCHOOL DISTRICT OR GENERAL OBLIGATIONS OF THE DISTRICT BUT ARE LIMITED OBLIGATIONS OF THE DISTRICT PAYABLE SOLELY FROM SPECIAL TAXES TO BE LEVIED IN IMPROVEMENT AREA NO. 3 (BUT NOT SPECIAL TAX REVENUES COLLECTED FROM WITHIN ANY OTHER IMPROVEMENT AREA OF THE DISTRICT) AND OTHER AMOUNTS HELD UNDER THE FISCAL AGENT AGREEMENT AS MORE FULLY DESCRIBED HEREIN. Special Taxes Authorization and Pledge. In accordance with the provisions of the Act, the School District established the District and Improvement Areas 1, 2 and 3 therein on April 19, 2004, for the purpose of financing the various public improvements required in connection with the proposed development within the District. On May 11, 2004, elections were held within each Improvement Area of the District at which the landowners eligible to vote approved the issuance of bonds for Improvement Area No. 3 of the District in an amount not to exceed $14,000,000, secured by special taxes levied on property within Improvement Area No. 3 of the District to finance the Facilities. The landowners within Improvement Area No. 3 also voted to approve the Original Rates and Method which authorize a special tax to be levied to repay indebtedness issued for the benefit of Improvement Area No. 3, including the 2017 Bonds. On May 16, 2005, the Board of Education adopted Resolution No. 2004/05-80 determining the necessity to increase the authorized bonded indebtedness of the District for Improvement Area No. 2 and Improvement Area No. 3, revise the Original Rates and Method, and modify the types of authorized public facilities to include additional facilities of the City. The Board of Education also adopted Resolution No. 2004/05-81 which declared the necessity to increase the authorized bonded indebtedness of the District, for the purpose of issuing bonds for Improvement Area No. 2 and Improvement Area No. 3, to $60,000,000, and to increase the amounts of the authorized bonded indebtedness to be incurred by the District for Improvement Area No. 2 to $21,000,000 and Improvement Area No. 3 to $18,000,000. On June 20, 2005, the Board of Education conducted consolidated public hearings with respect to the proposed changes. On that date, the Board of Education adopted Resolution No. 2004/05-87 and Resolution No. 2004/05-88 which called special elections for June 28, 2005 on propositions with respect to (i) increasing the authorized bonded indebtedness to be incurred by the District for Improvement Area No. 2 and Improvement Area No. 3, (ii) revising the Original Rates and Method levying a special tax within Improvement Area No. 2 and Improvement Area No. 3, and (iii) modifying the types of public facilities to be financed by the District. On June 28, 2005, the owners of the property located within Improvement Area No. 2 and Improvement Area No. 3 voted ballots in favor of all such propositions. The effect of that vote is that (i) the District is authorized to incur bonded indebtedness in an aggregate principal amount not to exceed $60,000,000, to incur bonded indebtedness in an aggregate principal amount not to exceed $21,000,000 to finance public facilities for Improvement Area No. 2 and to incur bonded indebtedness in an aggregate principal amount not to exceed $18,000,000 to finance public facilities for Improvement Area No. 3, (ii) the Rates and Method was approved, and (iii) the authorized types of public facilities were modified to include additional public facilities of the 14

23 City. On July 19, 2005, an Amendment to the Notice of Special Tax Lien with respect to such changes was recorded in the official records of the County. The School District has covenanted in the Fiscal Agent Agreement that each year it will levy Special Taxes up to the maximum rates permitted under the Rates and Method in an amount sufficient, together with other amounts on deposit in the Special Tax Fund, to pay (i) the principal of and interest on any Outstanding 2012 Bonds, 2017 Bonds and Parity Bonds, (ii) any amounts necessary to replenish the Reserve Fund, including the 2017 Bonds Account therein, to the Reserve Requirement, and (iii) the Administrative Expenses (the Special Tax Requirement ). Beginning in Fiscal Year , the District has levied Special Taxes against Developed Property in Improvement Area No. 3 at 85% of the Assigned Special Tax rate. Prior to that fiscal year, Special Taxes were levied by the District on Developed Property in Improvement Area No. 3 at 100% of the Assigned Special Tax rate. Beginning in Fiscal Year , the District expects to levy Special Taxes on all taxable property in Improvement Area No. 3 only in an amount equal to the debt service due on the 2012 Bonds and the 2017 Bonds in such Fiscal Year, plus Administrative Expenses Because the last building permits were issued in October 2017, there is no Undeveloped Property remaining within the District; accordingly, beginning in Fiscal Year , Special Taxes will only be levied against Developed Property. The Special Taxes levied in any fiscal year may not exceed the maximum rates authorized pursuant to the Rates and Method. See APPENDIX A RATES AND METHOD OF APPORTIONMENT OF SPECIAL TAX hereto. In addition, pursuant to Section 53321(d) of the Government Code as in effect at the time of the proceedings to amend the Original Rates and Method, under no circumstances will the Special Tax levied against any Parcel of Detached Residential Property or Attached Residential Property for which an occupancy permit for private residential use has been issued be increased by more than ten percent (10%) as a consequence of delinquency or default by the owner of any other Parcel within Improvement Area No. 3. As a result, it is possible that the School District may not be able to increase the tax levy to the Assigned Special Tax in all years. There is no assurance that the Special Tax proceeds will, in all circumstances, be adequate to pay the principal of and interest on the 2017 Bonds when due. See SPECIAL RISK FACTORS Insufficiency of Special Taxes herein. Rates and Method of Apportionment of Special Tax. The District is legally authorized and has covenanted to cause the levy of the Special Taxes in an amount determined according to a methodology, i.e., the Rates and Method which the Board and the electors within Improvement Area No. 3 have approved. The Rates and Method apportion the total amount of Special Taxes to be collected among the taxable parcels in Improvement Area No. 3 as more particularly described below. The following is a synopsis of the provisions of the Rates and Method for Improvement Area No. 3, which should be read in conjunction with the complete text of the Rates and Method which is attached as APPENDIX A RATES AND METHOD OF APPORTIONMENT OF SPECIAL TAX. Unless otherwise defined herein, the meaning of the defined terms used in this section are as set forth in APPENDIX A. This section provides only a summary of the Rates and Method, and is qualified by more complete and detailed information contained in the entire Rates and Method attached as APPENDIX A. Pursuant to the Rates and Method, Special Taxes will first be levied on all Parcels of Detached Residential Property in Improvement Area No. 3 at up to 100% of the applicable Assigned Special Tax Rate to satisfy the Special Tax Requirement for Improvement Area No. 3 (i.e., annual debt service on the outstanding 2012 Bonds and 2017 Bonds and Administrative Expenses). Beginning with the Fiscal Year Special Tax levy, there will be no Undeveloped Property in Improvement Area No. 3 against which Special Taxes can be levied. In Fiscal Year , the Special Tax levy will produce an amount equal to at least 110% of the debt service due on the 2012 Bonds and the 2017 Bonds, plus Administrative Expenses of $30,000. Beginning in Fiscal Year , the Special Taxes are only expected to be levied in an amount needed to satisfy the Special Tax Requirement. Because the last building permits were issued in October 2017, Special Taxes can 15

24 only be levied against Detached Residential Property beginning in Fiscal Year No assurances can be made that Special Taxes will be collected in an amount required to make the debt service payments on the 2017 Bonds. See SPECIAL RISK FACTORS Special Tax Delinquencies and Insufficiency of Special Taxes. Parity Bonds may be issued in the future for refunding purposes only. See Issuance of Parity Bonds herein. The following is a summary of the salient provisions of the Rates and Method, as applicable to Improvement Area No. 3. Classification of Parcels. For each Fiscal Year all Parcels within Improvement Area No. 3 shall be classified as Developed Property, Taxable Public Property, Taxable Property Owner Association Property, Undeveloped Property or Exempt Property and shall be subject to the levy of Special Taxes in accordance with the Rates and Method of Apportionment of Special Taxes. Parcels of Developed Property in Improvement Area No. 3 shall be assigned to the appropriate Land Use categories, as listed in the table below. Maximum Special Tax Rates. Developed Property. The Maximum Special Tax for each Parcel of Developed Property classified as Detached Residential Property in Improvement Area No. 3 shall be the amount determined by multiplying the Dwelling Unit(s) on or to be constructed on the Parcel by the applicable Assigned Special Tax Rate per Dwelling Unit specified in the following table. The Maximum Special Tax for each Parcel of Developed Property classified as Attached Residential Property or Non-Residential Property shall be determined by multiplying the Net Taxable Acreage of the Parcel by the applicable Assigned Special Tax Rate as specified in the following table. Assigned Special Tax Rates for Developed Property Improvement Area No. 3 Land Use Category Description Residential Floor Space Assigned Special Tax Rate 1 Detached Residential Property > 3,700 sq. ft. $4,326 per Dwelling Unit 2 Detached Residential Property > 3,400 and 3,700 sq. ft. $4,231 per Dwelling Unit 3 Detached Residential Property > 3,100 and 3,400 sq. ft. $3,697 per Dwelling Unit 4 Detached Residential Property > 2,800 and 3,100 sq. ft. $3,514 per Dwelling Unit 5 Detached Residential Property > 2,500 and 2,800 sq. ft. $3,435 per Dwelling Unit 6 Detached Residential Property 2,500 sq. ft. $3,276 per Dwelling Unit 7 Attached Residential Property N/A $17,011 per Net Taxable Acre 8 Non-Residential Property N/A $17,011 per Net Taxable Acre Taxable Property Owner Association Property, Taxable Public Property and Undeveloped Property. The Maximum Special Tax for each Parcel of Taxable Property Owner Association Property, Taxable Public Property or Undeveloped Property in Improvement Area No. 3 shall be determined by multiplying the Net Taxable Acreage of the Parcel by $17,011. Method of Apportionment and Levy of the Special Tax. For each Fiscal Year, the District shall determine the Special Tax Requirement for Improvement Area No. 3 and shall levy the Special Tax as follows: First: The Special Tax shall be levied Proportionately on each Parcel of Developed Property in Improvement Area No. 3 at up to 100 percent of the applicable Assigned Special Tax Rate to satisfy the Special Tax Requirement for Improvement Area No

25 Second: If additional monies are needed to satisfy the Special Tax Requirement for Improvement Area No. 3 after the first step has been completed, the Special Tax shall be levied Proportionately on each Parcel of Undeveloped Property in Improvement Area No. 3 at up to 100 percent of the Maximum Special Tax for Undeveloped Property. Third: If additional monies are needed to satisfy the Special Tax Requirement for Improvement Area No. 3 after the first two steps have been completed, the Special Tax to be levied on all Parcels of Developed Property in Improvement Area No. 3, whose Maximum Special Tax is determined by application of the Alternative Special Tax, shall be Proportionately increased from the applicable Assigned Special Tax Rate up to 100 percent of the Maximum Special Tax. Fourth: If additional monies are needed to satisfy the Special Tax Requirement for Improvement Area No. 3 after the first three steps have been completed, the Special Tax shall be levied Proportionately on all Parcels of Taxable Property Owner Association Property and Taxable Public Property in Improvement Area No. 3, up to 100 percent of the Maximum Special Tax for Taxable Property Owner Association Property and Taxable Public Property. Notwithstanding the foregoing, because all parcels within Improvement Area No. 3 have been permanently relieved from the obligation to pay the Alternative Special Tax, no Special Taxes shall be levied pursuant to the third step above. See Inapplicability of Alternative Special Tax. In addition, the last building permits were issued in October, 2017; accordingly, beginning in Fiscal Year there will be no Undeveloped Property in Improvement Area No. 3 against which Special Taxes can be levied. Exemptions. The District shall not levy Special Taxes on: (i) an acreage of Parcels of Public Property and Property Owner Association Property that will not reduce the Net Taxable Acreage of Parcels of Taxable Property within Improvement Area No. 3 to less than Net Taxable Acres, and (ii) any Parcels for which the obligation to pay the Special Taxes has been prepaid in full Pursuant to Section G of the Rates and Method of Apportionment of Special Tax. Tax-exempt status for Parcels or portions of Parcels of Public Property and Property Owner Association Property will be irrevocably assigned by the School District in the chronological order in which such Parcels or portions of Parcels become Exempt Property. Term of Special Tax. For each year that any 2012 Bonds or 2017 Bonds are outstanding the Special Tax shall be levied on all Parcels subject to the Special Tax. No Special Tax shall be levied on any Parcel after the Fiscal Year. Inapplicability of Alternative Special Tax. Pursuant to the Rates and Method, the School District has determined that the total amount of Special Taxes which could be levied in any Fiscal Year on all Parcels of Developed Property in Improvement Area No. 3, based on the Assigned Special Tax Rates for such Parcels, is equal to at least 110 percent of maximum annual debt service on the outstanding Bonds, plus estimated Administrative Expenses. As a result, all parcels within Improvement Area No. 3 have been permanently relieved from the obligation to pay the Alternative Special Tax. Maximum Special Tax Capacity. Beginning in Fiscal Year , the Special Taxes are only expected to be levied in an amount needed to satisfy the Special Tax Requirement. Though the District has the ability to increase the Special Tax levy to account for delinquencies, pursuant to the Act, as in effect at the time of the proceedings to amend the Original Rates and Method for Improvement Area No. 3, under no circumstances will the Special Tax levied against any Parcel of Detached Residential Property or Attached Residential Property for which an occupancy permit for private residential use has been issued be increased by more than ten percent (10%) as a consequence of delinquency or default by the owner of any other Parcel within Improvement Area No

26 Limitation on Special Tax Levy and Potential Impact on Coverage. Pursuant to Section 53321(d) of the Government Code as in effect at the time of proceedings to amend the Original Rates and Method and the Rates and Method, under no circumstances will the Special Tax levied against any Parcel of Detached Residential Property or Attached Residential Property for which an occupancy permit for private residential use has been issued be increased by more than ten percent (10%) as a consequence of delinquency or default by the owner of any other Parcel within Improvement Area No. 3. As a result, it is possible that the School District may not be able to increase the tax levy to the Assigned Special Tax in all years. Because the last building permits were issued in October 2017, there is no Undeveloped Property remaining within the District against which Special Taxes can be levied; accordingly, 2017 Bond owners can only look to Developed Property as a source of Special Tax Revenues. Prepayment of Annual Special Taxes. The Special Tax obligation for a Parcel of Developed Property may be prepaid, either in full or in part, in accordance with formulas set forth in the Rates and Method. See APPENDIX A RATES AND METHOD OF APPORTIONMENT OF SPECIAL TAX Section G. Collection of Special Taxes. The Special Taxes are collected by the Treasurer-Tax Collector of the County in the same manner and at the same time as ad valorem property taxes. The District may, however, collect the Special Taxes at a different time or in a different manner if necessary to meet its financial obligations. The County assesses and collects secured and unsecured property taxes for the cities, school districts, and special districts within the County, including the Special Taxes. The delinquency dates for property tax payments are December 10 for the first installment and April 10 for the second installment. Once the property taxes are collected, the County conducts its internal reconciliation for accounting purposes and distributes the District s share of such taxes (including the Special Taxes) to the School District, periodically and typically pursuant to a published schedule. Prior to distribution, the moneys are deposited in an account established on behalf of the School District for Improvement Area No. 3 in the Riverside County Investment Pool (the Pool ) which is invested by the County Treasurer. If the County of Riverside or the Pool were at any time to become subject to bankruptcy proceedings, it is possible that School District property taxes held in the Pool (including the Special Taxes), if any, could be temporarily unavailable to the County. The District does not participate in the County s Teeter Plan, which is an alternate method for allocating property taxes by counties. Accordingly, the collection of Special Taxes is subject to delinquencies. The District has made certain covenants in the Fiscal Agent Agreement for the purpose of ensuring that the current maximum Special Tax rate and method of collection of the Special Taxes are not altered in a manner that would impair the District s ability to collect sufficient Special Taxes to pay debt service on the 2017 Bonds and Administrative Expenses when due. First, the School District has covenanted that, to the extent it is legally permitted to do so, it will not reduce the maximum Special Tax rates in Improvement Area No. 3 and will oppose the reduction of maximum Special Tax rates by initiative. See SPECIAL RISK FACTORS Proposition 218. Second, the School District has covenanted not to permit the tender of Bonds in payment of any 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 Special Tax revenues from Improvement Area No. 3 to pay the principal of and interest on the Bonds remaining Outstanding following such tender. Although the Special Taxes constitute liens on taxed parcels within Improvement Area No. 3, they do not constitute a personal indebtedness of the owners of property within Improvement Area No. 3. Moreover, other liens for taxes and assessments already exist on the property located within Improvement Area No. 3 and others could come into existence in the future in certain situations without the consent or knowledge of the School District or the landowners in Improvement Area No. 3. See SPECIAL RISK FACTORS Parity Taxes, Special Assessments and Land Development Costs herein. There is no assurance that property owners will be financially able to pay the annual Special Taxes or that they will pay such taxes even if financially able 18

27 to do so, all as more fully described in the section of this Official Statement entitled SPECIAL RISK FACTORS. Proceeds of Foreclosure Sales. The net proceeds received following a judicial foreclosure sale of land within Improvement Area No. 3 resulting from a landowner s failure to pay the Special Taxes when due are included within the Special Tax Revenues pledged to the payment of principal of and interest on the Bonds under the Fiscal Agent Agreement. Pursuant to Section of the Act, in the event of any delinquency in the payment of any Special Tax or receipt by the District of Special Taxes in an amount which is less than the Special Tax levied, the Board, as the legislative body of the District, may order that Special Taxes be collected by a superior court action to foreclose the lien within specified time limits. In such an action, the real property subject to the unpaid amount may be sold at a judicial foreclosure sale. Under the Act, the commencement of judicial foreclosure following the nonpayment of a Special Tax is not mandatory. However, the School District has covenanted with and for the benefit of the Owners of the 2017 Bonds as follows: (i) it will order, and cause to be commenced, judicial foreclosure proceedings against properties with delinquent Special Taxes in excess of $5,000 by the October 1 following the close of the Fiscal Year in which such Special Taxes were due, and (ii) it will commence judicial foreclosure proceedings against all properties with delinquent Special Taxes by the October 1 following the close of each Fiscal Year in which it receives Special Taxes in an amount which is less than 95% of the total Special Taxes levied, and diligently pursue to completion such foreclosure proceedings. See SOURCES OF PAYMENT FOR THE 2017 BONDS Special Taxes Proceeds of Foreclosure Sales herein. If foreclosure is necessary and other funds (including amounts in the Reserve Fund, including the 2017 Bonds Account therein) have been exhausted, debt service payments on the 2017 Bonds could be delayed until the foreclosure proceedings have ended with the receipt of any foreclosure sale proceeds. Judicial foreclosure actions are subject to the normal delays associated with court cases and may be further slowed by bankruptcy actions, involvement by agencies of the federal government and other factors beyond the control of the School District and the District. See SPECIAL RISK FACTORS Bankruptcy and Foreclosure herein. Moreover, 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. See SPECIAL RISK FACTORS Property Values herein. Although the Act authorizes the School District to cause such an action to be commenced and diligently pursued to completion, the Act does not impose on the District or the School District any obligation to purchase or acquire any lot or parcel of property sold at a foreclosure sale if there is no other purchaser at such sale. The Act provides that, in the case of a delinquency, the Special Tax will have the same lien priority as is provided for ad valorem taxes. No Teeter Plan The District does not participate in the County s Teeter Plan. Accordingly, the collection of Special Taxes is subject to delinquencies Bonds Account of the Reserve Fund In order to secure further the payment of principal of and interest on the 2017 Bonds, the School District is required, upon delivery of the 2017 Bonds, to deposit in the 2017 Bonds Account of the Reserve Fund for the 2017 Bonds and thereafter to maintain in such 2017 Bonds Account, an amount equal to the Reserve Requirement for the 2017 Bonds, initially $772, The Fiscal Agent Agreement provides that the amount in the 2017 Bonds Account shall, as of any date of calculation, equal the least of (i) 10% of the initial principal amount of the 2017 Bonds; (ii) the Maximum Annual Debt Service on the 2017 Bonds; or (iii) 125% of average Annual Debt Service on the 2017 Bonds. The Reserve Requirement will be initially satisfied by the deposit of the Reserve Policy into the 2017 Bonds Account of the Reserve Fund. In the event 19

28 that BAM becomes insolvent, the School District is not obligated to replace the Reserve Policy or to cash fund the 2017 Bonds Account of the Reserve Fund. Subject to the limits on the maximum annual Special Tax which may be levied within Improvement Area No. 3, as described in APPENDIX A, the School District has covenanted to levy Special Taxes in an amount that is anticipated to be sufficient, in light of the other intended uses of the Special Tax proceeds, to maintain the balance in the 2017 Bonds Account at the Reserve Requirement for the 2017 Bonds. Amounts in the 2017 Bonds Account are to be applied to (i) pay debt service on the 2017 Bonds, to the extent other monies are not available therefor; (ii) redeem the 2017 Bonds in whole or in part; and (iii) pay the principal and interest due in the final year of maturity of the 2017 Bonds. See APPENDIX D SUMMARY OF CERTAIN PROVISIONS OF THE FISCAL AGENT AGREEMENT. The moneys in the 2017 Bonds Account of the Reserve Fund will be used only for payment of the principal of, and interest and any redemption premium on, the 2017 Bonds and at the direction of the School District, for deposit in the Rebate Fund. The 2017 Bonds are not secured by any moneys on deposit in the Reserve Fund other than those moneys in the 2017 Bonds Account. Issuance of Parity Bonds The School District may sell one or more additional series of bonds for Improvement Area No. 3 (the Parity Bonds ) secured on a parity with the 2012 Bonds and the 2017 Bonds if certain conditions precedent are met. Debt service on the Parity Bonds will be secured by a pledge of and lien upon Special Tax Revenues that will be on a parity with the pledge of and lien upon the Special Tax Revenues that secure the payment of debt service on the 2012 Bonds and the 2017 Bonds. The Bonds and any such Parity Bonds are only secured by Special Taxes levied within Improvement Area No. 3 and are not payable from Special Taxes of any other Improvement Area within the District. Capitalized terms not defined in this section, or elsewhere in this Official Statement, have the meanings set forth in the Fiscal Agent Agreement. See Appendix D SUMMARY OF CERTAIN PROVISIONS OF THE FISCAL AGENT AGREEMENT. Upon issuance of the 2017 Bonds, $1,765,000 of the aggregate principal amount of bonds authorized to be issued for Improvement Area No. 3 will be unissued. Notwithstanding the foregoing, upon issuance of the 2017 Bonds, the School District will covenant that it will only issue Parity Bonds for the purpose of defeasing and refunding all or a portion of outstanding Bonds, but only if such defeasance and refunding will not result in an increase in Annual Debt Service in any Bond Year. In addition to the refunding limitation set forth in the previous sentence, Parity Bonds may only be issued pursuant to a Supplemental Agreement and subject to the following specific conditions precedent: (1) The School District shall be in compliance with all covenants set forth in the Fiscal Agent Agreement. (2) The Supplemental Agreement providing for the issuance of such Parity Bonds shall provide that interest thereon shall be payable on March 1 and September 1, and principal thereof shall be payable on September 1 in any year in which principal is payable (provided that there shall be no requirement that any Parity Bonds pay interest on a current basis). (3) The Supplemental Agreement providing for the issuance of such Parity Bonds may provide for the establishment of separate funds and accounts, and shall provide for a deposit to a reserve fund, which may be the Reserve Fund, in an amount necessary so that the amount on deposit therein, following the issuance of such Parity Bonds, is equal to the reserve requirement for such Parity Bonds. (4) The School District shall deliver to the Fiscal Agent an Officer s Certificate certifying that the conditions precedent to the issuance of such Parity Bonds set forth in subsections (1), (2) and (3) above have been satisfied. 20

29 BOND INSURANCE The information under this caption has been prepared by the Insurer for inclusion in this Official Statement. Neither the School District nor the Underwriter has reviewed this information, and neither the School District nor the Underwriter makes any representation with respect to the accuracy or completeness thereof. The following information is not a complete summary of the terms of the Policy and reference is made to Appendix G for a specimen of the Policy. Bond Insurance Policy Concurrently with the issuance of the Insured 2017 Bonds, Build America Mutual Assurance Company ( BAM ) will issue its Municipal Bond Insurance Policy for the Insured 2017 Bonds (the Policy ). The Policy guarantees the scheduled payment of principal of and interest on the Insured 2017 Bonds when due as set forth in the form of the Policy included as Appendix G 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 and is licensed to conduct financial guaranty insurance business in all fifty states of the United States and the District of Columbia. 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 S&P Global Ratings, a business unit of Standard & Poor's Financial Services LLC ( 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 Insured 2017 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 Insured 2017 Bonds. BAM only guarantees scheduled principal and scheduled interest payments payable by the issuer of the Insured 2017 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 Insured 2017 Bonds, nor does it guarantee that the rating on the Insured 2017 Bonds will not be revised or withdrawn. Capitalization of BAM BAM s total admitted assets, total liabilities, and total capital and surplus, as of September 30, 2017 and as prepared in accordance with statutory accounting practices prescribed or permitted by the New York State Department of Financial Services were $508.7 million, $79.5 million and $429.2 million, respectively. 21

30 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 Insured 2017 Bonds or the advisability of investing in the Insured 2017 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 caption BOND INSURANCE and in Appendix G. 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/. (The preceding website address is provided for convenience of reference only. Information available at such address is not incorporated herein by reference.) Credit Profiles. Prior to the pricing of bonds that BAM has been selected to insure, BAM may prepare a pre-sale Credit Profile for those bonds. These pre-sale Credit Profiles provide information about the sector designation (e.g. general obligation, sales tax); a preliminary summary of financial information and key ratios; and demographic and economic data relevant to the obligor, if available. Subsequent to closing, for any offering that includes bonds insured by BAM, any pre-sale Credit Profile will be updated and superseded by a final Credit Profile to include information about the gross par insured by CUSIP, maturity and coupon. BAM pre-sale and final Credit Profiles are easily accessible on BAM s website at buildamerica.com/obligor/. BAM will produce a Credit Profile for all bonds insured by BAM, whether or not a pre-sale Credit Profile has been prepared for such bonds. (The preceding website address is provided for convenience of reference only. Information available at such address is not incorporated herein by reference.) Disclaimers. The Credit Profiles 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. Creditrelated and other analyses and statements in the Credit Profiles 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 Credit Profiles and Credit Insight videos are prepared by BAM; they have not been reviewed or approved by the issuer of or the Underwriter for the Insured 2017 Bonds, and the issuer and Underwriter assume no responsibility for their content. BAM receives compensation (an insurance premium) for the insurance that it is providing with respect to the Insured 2017 Bonds. Neither BAM nor any affiliate of BAM has purchased, or committed to purchase, any of the Insured 2017 Bonds, whether at the initial offering or otherwise. 22

31 THE DISTRICT AND IMPROVEMENT AREA NO. 3 General Description of the District and Improvement Area No. 3 The District, and Improvement Area Nos. 1, 2 and 3 therein, were formed on April 19, 2004 by the Board. Pursuant to the Act, in forming the District, the Board adopted resolutions on March 1, 2004 stating its intention to establish the District and to designate three improvement areas therein, to authorize the levy of special taxes on property within the District and the Improvement Areas, and to authorize the District to incur bonded indebtedness. Following public hearings conducted pursuant to the Act, on April 19, 2004, the Board adopted resolutions establishing the District and calling consolidated special elections to submit the levy of the Special Taxes and the incurring of bonded indebtedness to the qualified voters of the District. At a special election held on May 11, 2004, the owners of the property within the District, and each Improvement Area therein, authorized the District to incur a bonded indebtedness for the purpose of financing public facilities for each Improvement Area of the District as follows: Improvement Area No. 1 $20,000,000; Improvement Area No. 2 $16,000,000; and Improvement Area No. 3 $14,000,000. On June 11, 2004 a Notice of Special Tax Lien was recorded in the official records of the County. On May 16, 2005, the Board adopted resolutions initiating proceedings (i) to amend the Original Rates and Method to increase the rates of special taxes to be levied on property in Improvement Area No. 2 and Improvement Area No. 3 of the District, (ii) to modify the types of public facilities authorized to be financed by the District to include additional facilities for the City, and (iii) to increase the amount of authorized bonded indebtedness of the District for Improvement Area No. 2 and Improvement Area No. 3 of the District. On June 20, 2005, following public hearings, the Board of Education adopted resolutions which called special elections for June 28, 2005 on propositions with respect to (i) increasing the authorized bonded indebtedness to be incurred by the District for Improvement Area No. 2 and Improvement Area No. 3 of the District, (ii) revising the Original Rates and Method, and (iii) modifying the types of public facilities to be financed by the District. On June 28, 2005, the owners of the property located within Improvement Area No. 2 and Improvement Area No. 3 voted ballots in favor of all such propositions. As a result (i) the District is authorized to incur bonded indebtedness in an aggregate principal amount not to exceed $60,000,000, to incur bonded indebtedness in an aggregate principal amount not to exceed $21,000,000 to finance public facilities for Improvement Area No. 2 and to incur bonded indebtedness in an aggregate principal amount not to exceed $18,000,000 to finance public facilities for Improvement Area No. 3, (ii) the Rates and Method were approved, and (iii) the authorized types of public facilities were modified to include additional public facilities of the City. On July 19, 2005, an Amendment to the Notice of Special Tax Lien with respect to such changes was recorded in the official records of the County. Improvement Area No. 3 contains approximately acres located in the northwestern portion of the County and in the southeastern portion of the City. The property within Improvement Area No. 3 constitutes a portion of the community known as Mission Ranch. Development within Improvement Area No. 3 is occurring in three phases. The first phase was developed by Centex Homes in 2007 and 2008 into 136 single family detached homes. The second phase was developed by Standard Pacific Corp. in 2012 and 2013 into 116 single family detached homes. All of the units within phases one and two have been built and transferred to individual homeowners. The property consisting of phase three contains approximately acres which was owned by Lyon. Lyon is developing this property into 90 single family detached homes in a development known as SkyRidge. As of October 1, 2017, in Lyon s development in Improvement Area No. 3, there were 42 completed production homes which had been conveyed to individual homeowners, 3 completed model homes owned by Lyon, 9 production homes over 95% completed, 33 additional production homes under construction and 3 lots in a finished lot condition. The last building permits were issued in October 2017; accordingly, all parcels within Improvement Area No. 3 will be classified as Developed Property for Fiscal Year and all subsequent Fiscal Years. See PROPERTY OWNERSHIP AND THE DEVELOPMENT. 23

32 Water and sewer service to the property within Improvement Area No. 3 is supplied by Western Municipal Water District. Electricity is supplied by Southern California Edison, gas is supplied by Southern California Gas Company, and police services and fire services are provided by the City. Although, like all of Southern California, the land within Improvement Area No. 3 is subject to seismic activity, it is not located in a designated Earthquake Study Zone as determined by the California State Geologist. However, as with all of Southern California, the property within Improvement Area No. 3 will be subject to ground shaking in the event of earthquakes. See SPECIAL RISK FACTORS Natural Disasters. The Federal Emergency Management Agency has determined that Improvement Area No. 3 is not located in a flood area and flood insurance will not be required. See SPECIAL RISK FACTORS Natural Disasters. Direct and Overlapping Indebtedness The ability of an owner of land within Improvement Area No. 3 to pay the Special Taxes could be affected by the existence of other taxes and assessments imposed upon the property. These other taxes and assessments consist of the direct and overlapping debt in Improvement Area No. 3 as set forth in Table 1 below (the Debt Report ). The Debt Report sets forth those entities which have issued debt and does not include entities which have not issued debt and only levy or assess fees, charges, ad valorem taxes or special taxes, though the Debt Report does include 2 parcels within Improvement Area No. 3 which participate in the Western Riverside Council of Government s Home Energy Renovation Opportunity program ( WRCOG HERO ), a property assessed clean energy program ( PACE ) for which an assessment is levied directly on the benefited parcels. See Tables 2A, 2B and 2C for information regarding other entities levying taxes, assessments or other charges on property in Improvement Area No. 3. The Debt Report includes the principal amount of the 2017 Bonds and excludes the 2013 Bonds. The Debt Report has been derived from data assembled and reported to the District by David Taussig & Associates, Inc. as of September 2, 2017, updated to include the principal amount of the 2017 Bonds. Neither the School District nor the Underwriter has independently verified the information in the Debt Report and such entities do not guarantee its completeness or accuracy. The allocation of total debt outstanding will change as additional development occurs. 24

33 Overlapping District TABLE 1 RIVERSIDE UNIFIED SCHOOL DISTRICT COMMUNITY FACILITIES DISTRICT NO. 15 IMPROVEMENT AREA NO. 3 DIRECT AND OVERLAPPING DEBT Actual Fiscal Year Total Levy Amount of Levy on Parcels in District (1) Percent of Levy on Parcels in District Total Debt Outstanding (2) District Share of Total Debt Outstanding Riverside Unified School District G.O. Bonds $ 22,112,155 $ 123, % $226,320,000 $ 1,265,090 City of Riverside G.O. Bonds 1,630,627 7, ,280,000 49,971 Metropolitan Water District G.O. Bonds 121,647,024 4, ,905,000 2,810 Riverside City Community College G.O. Bonds 15,181,528 21, ,365, ,763 PACE Programs (3) N/A N/A N/A N/A 92,074 Estimated Share of Overlapping Debt Allocable to the District $ 1,765,708 Plus the 2012 Bonds (2) 3,950,000 Plus the 2017 Bonds 10,105,000 Estimated Share of Direct and Overlapping Debt Allocable to the District $ 15,820,708 (1) The amount of levy shown herein is based on the Fiscal Year ad valorem rates. Calculated by applying the corresponding ad valorem rate to the Fiscal Year assessed value. (2) As of September 2, (3) A total of two property owners in Improvement Area No. 3 are participating in the WRCOG HERO program as of June 30, David Taussig & Associates, Inc. is not aware of any property owners in Improvement Area No. 3 that are participating in other active PACE programs. Source: David Taussig & Associates, Inc. Tables 2A, 2B and 2C below set forth the estimated total effective tax rates for a single family home within the most common land use category within each of the three development phases within Improvement Area No. 3, based upon Fiscal Year tax rates and estimated Adjusted Values (as defined herein). Tables 2A, 2B and 2C set forth those entities with fees, charges, ad valorem taxes and special taxes regardless of whether those entities have issued debt. 25

34 TABLE 2A RIVERSIDE UNIFIED SCHOOL DISTRICT COMMUNITY FACILITIES DISTRICT NO. 15 IMPROVEMENT AREA NO. 3 ESTIMATED FISCAL YEAR SAMPLE TAX BILL FIRST DEVELOPMENT PHASE Adjusted Valuation and Property Taxes TOTAL ADJUSTED VALUE (1) $411,969 NET ADJUSTED VALUE (1) 404,969 Average Unit Size for Developed Property (2) 3,238 Square Feet Average Lot Size for Residential Property (3) 10,111 Square Feet Percent of Net Adjusted Value Expected Amount Maximum Amount AD VALOREM PROPERTY TAXES (4) Basic Levy % $ 4, Metropolitan Water District G.O. Bonds City of Riverside G.O. Bonds Riverside Unified School District G.O. Bonds Riverside City Community College G.O. Bonds Total General Property Taxes and Overrides % $ 4, ASSESSMENTS, SPECIAL TAXES AND PARCEL CHARGES Flood Control Stormwater/Cleanwater (5) $ 3.78 County Service Area Riverside Stormwater (6) Metropolitan Water District West Standby Charge (7) 9.22 City of Riverside Lighting District (8) City of Riverside Library Services (9) Riverside Unified School District CFD No. 15, Improvement Area No. 3 (10) 3, $ 3, Total Assessments and Parcel Charges $ 3, $ 3, PROJECTED TOTAL PROPERTY TAXES $ 7, $ 8, Projected Total Effective Tax Rate (as % of Adjusted Value) % % (1) Based on average Adjusted Value for all 47 Tax Class 3 units in Tract No provided by the Riverside County Assessor as of January 1, Net Adjusted Value includes $7,000 homeowner's exemption. Total Adjusted Value used to determine Total Effective Tax Rate. (2) Based on the average unit size for all 47 Tax Class 3 units in Tract No (3) Based on the average lot size for all 47 Tax Class 3 units in Tract No (4) Based on actual Fiscal Year ad valorem rates. (5) Based on the Fiscal Year rate of $3.75 per benefit assessment unit (BAU). For small parcels (less than 1/6 acre), a BAU is equal to the total lot size in SF/7,200. For large parcels (1/6 acre to 2.5 acres), a BAU is equal to 1+(0.1*(total lot size in SF-7,200)/43,560). (6) Based on the Fiscal Year rate of $10.00 per benefit unit. (7) Based on the Fiscal Year rate of $9.22 per parcel or per acre, whichever is greater. (8) Based on the Fiscal Year rate of $31.44 per benefit unit. (9) Based on the Fiscal Year rate of $19.00 per parcel. (10) Based on the Fiscal Year Special Tax rate of $3, per unit for Tax Class 3 property within Improvement Area No. 3, which is 85.00% of the Assigned Special Tax rate. The Assigned Special Tax rate is $3, per unit for Tax Class 3 property. The Assigned Special Tax rate does not escalate. Source: David Taussig & Associates, Inc. 26

35 TABLE 2B RIVERSIDE UNIFIED SCHOOL DISTRICT COMMUNITY FACILITIES DISTRICT NO. 15 IMPROVEMENT AREA NO. 3 ESTIMATED FISCAL YEAR SAMPLE TAX BILL SECOND DEVELOPMENT PHASE Adjusted Valuation and Property Taxes TOTAL ADJUSTED VALUE (1) $474,996 NET ADJUSTED VALUE (1) 467,996 Average Unit Size for Developed Property (2) 3,365 Square Feet Average Lot Size for Residential Property (3) 9,787 Square Feet Percent of Net Adjusted Value Expected Amount Maximum Amount AD VALOREM PROPERTY TAXES (4) Basic Levy % $ 4, Metropolitan Water District G.O. Bonds City of Riverside G.O. Bonds Riverside Unified School District G.O. Bonds Riverside City Community College G.O. Bonds Total General Property Taxes and Overrides % $ 5, ASSESSMENTS, SPECIAL TAXES AND PARCEL CHARGES Flood Control Stormwater/Cleanwater (5) $ 3.77 County Service Area Riverside Stormwater (6) Metropolitan Water District West Standby Charge (7) 9.22 City of Riverside Lighting District (8) City of Riverside Library Services (9) Riverside Unified School District CFD No. 15, Improvement Area No. 3 (10) 3, $ 3, Total Assessments and Parcel Charges $ 3, $ 3, PROJECTED TOTAL PROPERTY TAXES $ 8, $ 9, Projected Total Effective Tax Rate (as % of Adjusted Value) % % (1) Based on average Adjusted Value for all 32 Tax Class 3 units in Tract No provided by the Riverside County Assessor as of January 1, Net Adjusted Value includes $7,000 homeowner's exemption. Total Adjusted Value used to determine Total Effective Tax Rate. (2) Based on the average unit size for all 32 Tax Class 3 units in Tract No (3) Based on the average lot size for all 32 Tax Class 3 units in Tract No (4) Based on actual Fiscal Year ad valorem rates. (5) Based on the Fiscal Year rate of $3.75 per benefit assessment unit (BAU). For small parcels (less than 1/6 acre), a BAU is equal to the total lot size in SF/7,200. For large parcels (1/6 acre to 2.5 acres), a BAU is equal to 1+(0.1*(total lot size in SF-7,200)/43,560). (6) Based on the Fiscal Year rate of $10.00 per benefit unit. (7) Based on the Fiscal Year rate of $9.22 per parcel or per acre, whichever is greater. (8) Based on the Fiscal Year rate of $31.44 per benefit unit. (9) Based on the Fiscal Year rate of $19.00 per parcel. (10) Based on the Fiscal Year Special Tax rate of $3, per unit for Tax Class 3 property within Improvement Area No. 3, which is 85.00% of the Assigned Special Tax rate. The Assigned Special Tax rate is $3, per unit for Tax Class 3 property. The Assigned Special Tax rate does not escalate. Source: David Taussig & Associates, Inc. 27

36 TABLE 2C RIVERSIDE UNIFIED SCHOOL DISTRICT COMMUNITY FACILITIES DISTRICT NO. 15 IMPROVEMENT AREA NO. 3 ESTIMATED FISCAL YEAR SAMPLE TAX BILL THIRD DEVELOPMENT PHASE Adjusted Valuation and Property Taxes TOTAL ADJUSTED VALUE (1) $577,540 NET ADJUSTED VALUE (1) 570,540 Average Unit Size for Developed Property (2) 3,426 Square Feet Average Lot Size for Residential Property (3) 13,251 Square Feet Percent of Net Adjusted Value Expected Amount Maximum Amount AD VALOREM PROPERTY TAXES (4) Basic Levy % $ 5, Metropolitan Water District G.O. Bonds City of Riverside G.O. Bonds Riverside Unified School District G.O. Bonds Riverside City Community College G.O. Bonds Total General Property Taxes and Overrides % $ 6, ASSESSMENTS, SPECIAL TAXES AND PARCEL CHARGES Flood Control Stormwater/Cleanwater (5) $ 3.80 County Service Area Riverside Stormwater (6) Metropolitan Water District West Standby Charge (7) 9.22 City of Riverside Lighting District (8) City of Riverside Library Services (9) Riverside Unified School District CFD No. 15, Improvement Area No. 3 (10) 3, $ 4, Total Assessments and Parcel Charges $ 3, $ 4, PROJECTED TOTAL PROPERTY TAXES $ 10, $ 10, Projected Total Effective Tax Rate (as % of Adjusted Value) % % (1) Based on average Adjusted Value for 19 Tax Class 2 units with individual owners in Tract No as of September 13, Adjusted Value includes $7,000 homeowner's exemption. Total Adjusted Value used to determine Total Effective Tax Rate. (2) Based on the average unit size for 19 Tax Class 2 units with individual owners in Tract No (3) Based on the average lot size for 19 Tax Class 2 units with individual owners in Tract No (4) Based on actual Fiscal Year ad valorem rates. (5) Based on the Fiscal Year rate of $3.75 per benefit assessment unit (BAU). For small parcels (less than 1/6 acre), a BAU is equal to the total lot size in SF/7,200. For large parcels (1/6 acre to 2.5 acres), a BAU is equal to 1+(0.1*(total lot size in SF-7,200)/43,560). (6) Based on the Fiscal Year rate of $10.00 per benefit unit. (7) Based on the Fiscal Year rate of $9.22 per parcel or per acre, whichever is greater. (8) Based on the Fiscal Year rate of $31.44 per benefit unit. (9) Based on the Fiscal Year rate of $19.00 per parcel. (10) Based on the Fiscal Year Special Tax rate of $3, per unit for Tax Class 2 property within Improvement Area No. 3, which is 85.00% of the Assigned Special Tax rate. The Assigned Special Tax rate is $4, per unit for Tax Class 2 property. The Assigned Special Tax rate does not escalate. Source: David Taussig & Associates, Inc. Adjusted Values The net estimated assessed value of the property within Improvement Area No. 3, as shown on the County s assessment roll for Fiscal Year , is approximately $130,479,220. However, as a result of the requirements of Article XIIIA of the California Constitution, a property s assessed value is not necessarily 28

37 indicative of its market value. In order to provide information with respect to the value of the property within Improvement Area No. 3, unless otherwise stated, the concept of Adjusted Value will be used throughout this Official Statement. The Adjusted Value of each property within Improvement Area No. 3 was determined as follows: (i) for each lot sold on and prior to January 1, 2017, and for each lot sold by an individual homeowner after January 1, 2017, the assessed value for such lot, and (ii) for each lot sold by Lyon after January 1, 2017, the sales price of such lot. Tables 3A and 3B below incorporate the Adjusted Value assigned to parcels, the estimated principal amount of direct and overlapping debt allocable to each category of parcels and the estimated value-to-lien ratios for various categories of parcels based upon land values and property ownership in Improvement Area No. 3 as of September 15, Table 3A sets forth information based on land classification as of March 1, 2017 (the date by which building permits must have been issued in order to be classified as Developed Property for Fiscal Year ) and includes the Fiscal Year Special Tax levy, while Table 3B sets forth information based on land classification as of November 1, 2017 and includes a projected Fiscal Year Special Tax levy. Tables 3A and 3B calculate the value-to-lien ratios based upon the principal amount of the 2012 Bonds and the 2017 Bonds and other overlapping general obligation debt described in Table 1. The estimated Improvement Area No. 3 value-to-lien ratio including all Developed Property and Undeveloped Property as of September 15, 2017, based on land use classification as of March 1, 2017, and including the 2012 Bonds and the 2017 Bonds and other overlapping general obligation debt in such calculation, is 8.86-to-1. However, the estimated value-to-lien ratio within Improvement Area No. 3 including only property classified as Developed Property as of September 15, 2017, based on land use classification as of March 1, 2017, and including the 2012 Bonds and the 2017 Bonds and other overlapping general obligation debt in such calculation, is 8.67-to-1. Beginning in Fiscal Year , all taxable parcels will be classified as Developed Property. In the Annual Reports provided pursuant to the Continuing Disclosure Agreement, Table 3A will not be updated based on Adjusted Value, but similar information will be provided based on current assessed value. 29

38 Fiscal Year Special Tax Levy (3) TABLE 3A RIVERSIDE UNIFIED SCHOOL DISTRICT COMMUNITY FACILITIES DISTRICT NO. 15 IMPROVEMENT AREA NO. 3 ESTIMATED VALUE-TO-LIEN RATIOS FOR FISCAL YEAR Percent of Total Special Tax Levy Outstanding 2012 Bonds and 2017 Bonds Amount (4) Riverside Unified School District G.O. Outstanding Bonds Amount (5) City of Riverside G.O. Outstanding Bonds Amount (5) Metropolitan Water District G.O. Outstanding Bonds Amount (5) RCCD G.O. Outstanding Bonds Amount (5) PACE Programs Outstanding Bond Amount (6) Total Direct and Overlapping Debt Property Type/Owner (1)(2) Number of Lots/ Units Adjusted Value (7) Value-to- Lien Ratios Developed Property Residential Lyon 12 $ 43, % $ 615,362 $ 11,610 $ 459 $ 26 $ 3,265 $ 0 $ 630,721 $ 1,196, to 1 Individual Owners (sold 20 69, ,368 30,677 1, , ,022,952 11,711, to 1 after January 1, 2017) Individual Owners (as of January 1, 2017) , ,457,270 1,191,236 47,054 2, ,994 92,074 14,125, ,949, to 1 Subtotal 306 $ 988, % $ 14,055,000 $1,233,522 $ 48,724 $ 2,740 $ 346,885 $ 92,074 $ 15,778,945 $ 136,857, to 1 Undeveloped Property Lyon 36 $ % $ 0 $ 31,568 $ 1,247 $ 70 $ 8,877 $ 0 $ 41,763 $ 3,253, to 1 Subtotal 36 $ % $ 0 $ 31,568 $ 1,247 $ 70 $ 8,877 $ 0 $ 41,763 $ 3,253, to 1 Total 342 $ 988, % $ 14,055,000 $ 1,265,090 $ 49,971 $ 2,810 $ 355,763 $ 92,074 $ 15,820,708 $ 140,110, to 1 (1) Per the Rates and Method, Developed Property is property for which a building permit was issued as of March 1, Undeveloped Property is property for which a building permit was not issued as of March 1, (2) Ownership as of January 1, 2017 provided by the Riverside County Assessor, and updated with grant deeds as of September 15, (3) Fiscal Year actual levy equal to 85.00% of the Assigned Special Tax rates for Developed Property. (4) Allocated based on Fiscal Year Special Tax levy. (5) As of September 2, Allocated based on actual Fiscal Year levy. (6) A total of two property owners in Improvement Area No. 3 are participating in the WRCOG HERO program as of June 30, David Taussig & Associates, Inc. is not aware of any property owners in Improvement Area No. 3 that are participating in other active PACE programs. (7) Based on the assessed value as of January 1, 2017 provided by the Riverside County Assessor for all property except for twenty units sold to individual owners after January 1, The value for such units is based on the sales price as shown on the settlement statements provided by Lyon. Source: David Taussig & Associates, Inc. 30

39 Projected Fiscal Year Special Tax Levy (3) TABLE 3B RIVERSIDE UNIFIED SCHOOL DISTRICT COMMUNITY FACILITIES DISTRICT NO. 15 IMPROVEMENT AREA NO. 3 PROJECTED ESTIMATED VALUE-TO-LIEN RATIOS FOR FISCAL YEAR Percent of Total Special Tax Levy Outstanding 2012 Bonds and 2017 Bonds Amount (4) Riverside Unified School District G.O. Outstanding Bonds Amount (5) City of Riverside G.O. Outstanding Bonds Amount (5) Metropolitan Water District G.O. Outstanding Bonds Amount (5) RCCD G.O. Outstanding Bonds Amount (5) PACE Programs Outstanding Bond Amount (6) Total Direct and Overlapping Debt Property Type/Owner (1)(2) Number of Lots/ Units Adjusted Value (7) Value-to- Lien Ratios Developed Property Residential Lyon 48 $ 137, % $ 2,120,285 $ 43,178 $ 1,706 $ 96 $ 12,142 $ 0 $ 2,177,406 $ 4,449, to 1 Individual Owners (sold 20 56, ,366 30,677 1, , ,950 11,711, to 1 after January 1, 2017) Individual Owners (as of January 1, 2017) , $ 11,062,349 $ 1,191,236 47,054 2, ,994 92,074 12,730, ,949, to 1 Total 342 $ 912, % $ 14,055,000 $ 1,265,090 $ 49,971 $ 2,810 $ 355,763 $ 92,074 $ 15,820,708 $ 140,110, to 1 (1) Reflects building permits issued as of November 1, Per the Rates and Method, Developed Property is property for which a building permit was issued as of March 1, Because all parcels within Improvement Area No. 3 have been issued building permits, there is no Undeveloped Property left within Improvement Area No. 3. (2) Ownership as of January 1, 2017 provided by the Riverside County Assessor, and updated with grant deeds as of September 15, (3) Total Projected Fiscal Year Special Tax levy equal to total debt service due on the 2012 Bonds and the 2017 Bonds in Fiscal Year plus Administrative Expenses of $30,000. (4) Allocated based on projected Fiscal Year Special Tax levy. (5) As of September 2, Allocated based on actual Fiscal Year levy divided by total Fiscal Year levy. (6) A total of two property owners in Improvement Area No. 3 are participating in the WRCOG HERO program as of June 30, David Taussig & Associates, Inc. is not aware of any property owners in Improvement Area No. 3 that are participating in other active PACE programs. (7) Based on the assessed value as of January 1, 2017 provided by the Riverside County Assessor for all property except for twenty units sold to individual owners after January 1, The value for such units is based on the sales price as shown on the settlement statements provided by Lyon. Source: David Taussig & Associates, Inc. 31

40 Tables 4A and 4B below sort the Developed Property within Improvement Area No. 3 by value-tolien based on land use classification as of March 1, 2017 (the date by which building permits must have been issued in order to be classified as Developed Property for Fiscal Year ) and November 1, 2017, respectively. Beginning in Fiscal Year , all taxable parcels will be classified as Developed Property. Value to Lien Ratio TABLE 4A RIVERSIDE UNIFIED SCHOOL DISTRICT COMMUNITY FACILITIES DISTRICT NO. 15 IMPROVEMENT AREA NO. 3 FISCAL YEAR ESTIMATED VALUE-TO-LIEN RATIOS (DEVELOPED PROPERTIES ONLY) (1) Fiscal Year Number of Units Adjusted Value (2) CFD No. 15 IA No. 3 Outstanding Bond Amount (3) Total Overlapping Debt Total Direct and Overlapping Debt Less than 3:1 (4) 11 $ 994,015 $ 563,072 $ 12,761 $ 575,833 Between 3:1 and 6.99:1 30 9,848,099 1,350, ,602 1,567,907 Between 7:1 and 10: ,428,387 9,781,281 1,240,973 11,022,254 Greater than 10: ,586,799 2,360, ,610 2,612,951 Total 306 $ 136,857,300 $ 14,055,000 $ 1,723,945 $ 15,778,945 (1) Pursuant to the Rates and Method, Developed Property is property for which a building permit was issued as of March 1, (2) Based on the assessed value as of January 1, 2017 provided by the Riverside County Assessor for all property except for twenty units sold to individual owners after January 1, The value for such units is based on the sales price as shown on the settlement statements provided by Lyon. (3) Includes the 2012 Bonds and the 2017 Bonds. Allocated based on Fiscal Year Special Tax levy. (4) Includes eleven units owned by Lyon for which building permits have been issued but do not have improvement value as of January 1, Source: David Taussig & Associates, Inc. 32

41 Value to Lien Ratio TABLE 4B RIVERSIDE UNIFIED SCHOOL DISTRICT COMMUNITY FACILITIES DISTRICT NO. 15 IMPROVEMENT AREA NO. 3 PROJECTED FISCAL YEAR ESTIMATED VALUE-TO-LIEN RATIOS (DEVELOPED PROPERTIES ONLY) (1) Fiscal Year Number of Units Adjusted Value (2) CFD No. 15 IA No. 3 Outstanding Bond Amount (3) Total Overlapping Debt Total Direct and Overlapping Debt Less Than 3:1 (4) 47 $ 4,247,155 $ 2,073,850 $ 54,523 $ 2,128,374 Between 3:1 and 6.99:1 12 3,869, , , ,633 Between 7:1 and 10: ,792,567 5,055, ,593 5,702,352 Greater than 10: ,201,715 6,448, ,118 7,371,349 Total 342 $ 140,110,440 $ 14,055,000 $ 1,765,708 $ 15,820,708 (1) Reflects building permits issued as of November 1, All parcels within Improvement Area No. 3 have been issued building permits; accordingly, all parcels will be classified as Developed Property for purposes of levying Special Taxes in Fiscal Year and each Fiscal Year thereafter. (2) Based on the assessed value as of January 1, 2017 provided by the Riverside County Assessor for all property except for twenty units sold to individual owners after January 1, The value for such units is based on the sales price as shown on the settlement statements provided by Lyon. (3) Includes the 2012 Bonds and the 2017 Bonds. Allocated based on projected Fiscal Year Special Tax levy. (4) Includes forty-seven units owned by Lyon for which building permits have been issued but do not have improvement value as of January 1, Source: David Taussig & Associates, Inc. 33

42 Special Tax Rates Special Taxes are levied annually in accordance with the Rates and Method. See APPENDIX A RATES AND METHOD OF APPORTIONMENT OF SPECIAL TAX. Table 5A below sets forth the Assigned Special Taxes levied within Improvement Area No. 3 for Fiscal Year based on land use classification as of March 1, The actual Fiscal Year Special Tax levy is equal to 85.00% of the Assigned Special Tax rates for Developed Property. Table 5B below sets forth the projected Assigned Special Taxes that will be levied within Improvement Area No. 3 for Fiscal Year based on land use classification as of November 1, The projected Fiscal Year Special Tax levy is equal to the debt service due on the 2012 Bonds and the 2017 Bonds in Fiscal Year plus Administrative Expenses of $30,000. Assigned Special Taxes do not escalate in future Fiscal Years. Property Type/Tax Class (1) TABLE 5A RIVERSIDE UNIFIED SCHOOL DISTRICT COMMUNITY FACILITIES DISTRICT NO. 15 IMPROVEMENT AREA NO. 3 SPECIAL TAXES FOR FISCAL YEAR BY LAND USE CATEGORY Fiscal Year Number of Units/Acres Fiscal Year Assigned Special Tax per Unit/Acre Total Fiscal Year Assigned Special Tax Fiscal Year Actual Special Tax per Unit/Acre Total Fiscal Year Actual Special Tax Percent of Assigned Special Tax Developed Property Tax Class 1 (SFD > 3,700 SF) 49 Units $4,326 $ 211,974 $3,677 $ 180, % Tax Class 2 (SFD 3,401-3,700 SF) 56 Units 4, ,936 3, , Tax Class 3 (SFD 3,101-3,400 SF) 79 Units 3, ,063 3, , Tax Class 4 (SFD 2,801-3,100 SF) 63 Units 3, ,382 2, , Tax Class 5 (SFD 2,501-2,800 SF) 45 Units 3, ,575 2, , Tax Class 6 (SFD < 2,500 SF) 14 Units 3,276 45,864 2,785 38, Total 306 Units $ 1,162,794 $ 988, % (1) Pursuant to the Rates and Method, Developed Property is property for which a building permit was issued as of March 1, Source: David Taussig & Associates, Inc. 34

43 Property Type/Tax Class (1) TABLE 5B RIVERSIDE UNIFIED SCHOOL DISTRICT COMMUNITY FACILITIES DISTRICT NO. 15 IMPROVEMENT AREA NO. 3 PROJECTED SPECIAL TAXES FOR FISCAL YEAR BY LAND USE CATEGORY Projected Fiscal Year Number of Units/Acres Projected Fiscal Year Assigned Special Tax per Unit/Acre Total Projected Fiscal Year Assigned Special Tax Projected Fiscal Year Special Tax per Unit/Acre Total Projected Fiscal Year Special Tax Percent of Assigned Special Tax Developed Property Tax Class 1 (SFD > 3,700 SF) 62 Units $4,326 $ 268,212 $3,014 $ 186, % Tax Class 2 (SFD 3,401-3,700 SF) 70 Units 4, ,170 2, , Tax Class 3 (SFD 3,101-3,400 SF) 79 Units 3, ,063 2, , Tax Class 4 (SFD 2,801-3,100 SF) 66 Units 3, ,924 2, , Tax Class 5 (SFD 2,501-2,800 SF) 51 Units 3, ,185 2, , Tax Class 6 (SFD < 2,500 SF) 14 Units 3,276 45,864 2,282 31, Total 342 Units N/A $ 1,309,418 N/A $ 912, % (1) Reflects building permits issued as of November 1, All parcels within Improvement Area No. 3 have been issued building permits; accordingly, all parcels will be classified as Developed Property for purposes of levying Special Taxes in Fiscal Year and each Fiscal Year thereafter. Source: David Taussig & Associates, Inc. Largest Taxpayers Because all parcels within Improvement Area No. 3 will be classified as Developed Property, Special Taxes in Fiscal Year and thereafter are expected to be levied against all 342 parcels. Based on development status as of November 1, 2017, and assuming no further lot transfers occur after such date, Lyon is expected to be responsible for approximately 15.09% of the Fiscal Year Special Tax levy, with individual homeowners projected to be responsible for the remaining 84.91%. Actual property ownership, development status, share of Fiscal Year Special Taxes in Fiscal Year and percent of total Special Taxes, will change to the extent that home construction and home sales occur. See PROPERTY OWNERSHIP AND THE DEVELOPMENT and SPECIAL RISK FACTORS Concentration of Ownership. Delinquency History Special Taxes within Improvement Area No. 3 were first levied in Fiscal Year , and have only been levied on Developed Property in each successive fiscal year. Table 6 below summarizes the annual Special Tax levied within Improvement Area No. 3 and the amount delinquent as of June 30 for the previous five Fiscal Years. Future delinquencies could increase as a result of various factors such as changes in the local or national economy, increases in the mortgage rates and/or increases in the unemployment rate in the area. See SPECIAL RISK FACTORS Special Tax Delinquencies. 35

44 Fiscal Year Total Amount Levied TABLE 6 RIVERSIDE UNIFIED SCHOOL DISTRICT COMMUNITY FACILITIES DISTRICT NO. 15 IMPROVEMENT AREA NO. 3 SPECIAL TAX LEVY AND DELINQUENCY HISTORY Total Number of Parcels Levied Total Delinquent Special Taxes at Fiscal Year End (1) Delinquency Rate at Fiscal Year End (1) Total Number of Parcels Delinquent as of 10/10/17 (2) Delinquent Amount as of 10/10/17 (2) Delinquent Rate as of 10/10/17 (2) $505, $45,228 (3) 8.96% 0 $ % , , , , ,263 (5) 136 1, , ,460 (4) , , , , , , , , , , (1) As of approximately June 30 of year levied based on information provided by the County of Riverside Tax Collector. (2) As of October 10, 2017 based on information provided by the County of Riverside Tax Collector. (3) Amount delinquent as of October 7, (4) Amount delinquent as of June 25, (5) Beginning in Fiscal Year , Special Taxes were levied at 85.00% of the Assigned Special Tax rates. Prior to that Fiscal Year, Special Taxes were levied at 100% of the Assigned Special Tax rates. Source: David Taussig & Associates, Inc. PROPERTY OWNERSHIP AND THE DEVELOPMENT The information provided in this section has been included because it may be considered relevant to an informed evaluation and analysis of the 2017 Bonds, the District and Improvement Area No. 3. No assurance can be given, however, that the proposed development of the property within Improvement Area No. 3 of the District will occur in a timely manner or in the configuration or to the density described herein, or that the Developer, any owners or affiliates thereof, or any other property owner described herein will or will not retain ownership of its respective property within the District. Neither the 2017 Bonds nor any of the Special Taxes are personal obligations of any property owner within Improvement Area No. 3. The 2017 Bonds are secured solely by the Special Taxes levied on property within Improvement Area No. 3 of the District and amounts on deposit in certain of the funds and accounts maintained by the Fiscal Agent under the Fiscal Agent Agreement. See SPECIAL RISK FACTORS for a discussion of certain of the risk factors that should be considered in evaluating the investment quality of the 2017 Bonds. The Developer As previously defined in this Official Statement, the Developer refers to William Lyon Homes, Inc., a California corporation, which is a wholly-owned subsidiary of William Lyon Homes, a Delaware corporation (the Parent ). The Parent is a publicly traded company listed on the New York Stock Exchange under the symbol WLH. The Parent, together with its subsidiaries, is primarily engaged in designing, constructing, and selling a wide range of single-family detached and attached homes in California, Arizona, Nevada, Colorado, Washington, and Oregon. General William Lyon is Founder and Executive Chairman of the Parent and a major stockholder. General Lyon has been building new homes for thousands of homeowners continuously since the 36

45 opening of his first home building venture in Since 1956, the Parent or its subsidiaries has sold over 76,000 homes. Detailed financial information, including information regarding the security ownership structure of the Parent, can be obtained through the Securities and Exchange Commission. Additionally, the Parent has an internet website located at which includes investor relations information. This internet address is included for reference only and the information on the internet site is not a part of this Official Statement and is not incorporated by reference into this Official Statement. No representation is made in this Official Statement as to the accuracy or adequacy of the information contained on this or any other internet site. The following table lists recent or current residential developments of the Developer or its affiliate in Southern California, which developments are comparable to the SkyRidge development (herein, the Development ). Table 7 Community Facilities District No. 15 of the Riverside Unified School District (Improvement Area No. 3) William Lyon Homes, Inc. Comparable Projects in Southern California As of September 20, 2017 Project Number of Units Southern California Location Status Alora at Talega 36 San Clemente Completed and Sold out Artisan Collection at Covenant Hills 9 LaderaRanch Actively selling / 6 Sold Aurora at Esencia Calistoga Ranch Mission Viejo Irvine Sold Out Actively Selling / 87 Sold Canvas 72 Lakewood Sold Out Cedar Glen at Chapman Heights Celadon Yucaipa Irvine Sold Out Actively Selling / 32 Sold Citrus Court at The Orchards 77 Upland Sold Out Citrus Pointe at The Orchards 132 Upland Actively Selling / 88 Sold La Colina Estates Laurel Lane Glendora Chino Actively Selling / 32 Sold Actively Selling / 31 Sold Meadow Park 93 Claremont Actively Selling / 12 Sold Nexus 220 Eastvale Actively Selling / 182 Sold TurnLeaf 300 Jurupa Valley Actively selling / 55 Sold The Grand Monarch The Vine Dana Point Irvine Actively Selling / 17 Sold Actively Selling / 88 Sold Vireo at Esencia 90 Ranch Mission Viejo Actively Selling / 85 Sold Source: Developer. The Development Plan General Description of the SkyRidge Development. Improvement Area No. 3 contains approximately acres located in the northwestern portion of the County and in the southeastern portion of the City. The property within Improvement Area No. 3 is subject to the following three final tract maps: TR29222, which covers approximately acres; TR29596, which covers approximately acres; and TR32997, which covers approximately acres. As of the date of this Official Statement, the Developer owns the property 37

46 covered by final tract map TR32997, other than the property that has been sold and closed to indiviudal homeowners, as described below. Approximately 35 acres of the Developer s property in Improvement Area No. 3 are developable and currently being developed by the Developer. In accordance with final tract map TR32997, the Developer plans to develop its property within Improvement Area No. 3 with 90 single-family detached residential units, including three model homes, to be constructed in eight phases, all for sale to homeowners. The Development is being marketed as the SkyRidge project. As of October 1, 2017, the Developer has completed 42 production homes that have been conveyed to individual homeowners and 3 model homes that are still owned by the Developer. In addition, 9 production homes are over 95% completed and 33 production homes are currently under construction. The remaining 3 lots are in finished condition; building permits for these 3 lots were pulled on October 20, The following table provides additional detail regarding the status of the Development as of October 1, 2017: Phase Planned Number of Units Table 8 Community Facilities District No. 15 of the Riverside Unified School District (Improvement Area No. 3) Finished Lots (1) Status of Development (As of October 1, 2017) Units Under Construction Units Completed, But Not Sold (2) Units Sold Units Sold and Closed to Individual Homeowners 1 (Models) (3) Totals (1) Home construction not yet commenced. (2) Includes 3 model homes. (3) Building permits for the three lots in Phase 8 were issued on October 20, Source: The Developer. 38

47 The following table describes the construction and sales schedule for the Development: Phase Planned Number of Units Table 9 Community Facilities District No. 15 of the Riverside Unified School District (Improvement Area No. 3) Estimated Construction and Sales Schedule (As of October 1, 2017) Estimated/Actual Commencement Date of Home Construction Estimated/Actual Date of First Home Closings Estimated/Actual Date of Last Home Closings 1 (Models) 3 May 2014 (1) June 2018 September July 2014 (1) December 2014 (1) September 2016 (1) 3 14 August 2016 (1) May 2017 (1) October February 2017 (1) August 2017 (1) October May 2017 (1) November 2017 December June 2017 (1) December 2017 January August 2017 (1) March 2018 April December 2017 August 2018 September 2018 Totals 90 (1) Actual date. Source: The Developer. Upon completion, the Development is expected to include three floor plans, ranging in size from approximately 2,575 square feet to approximately 3,803 square feet, and with initial base home sales prices ranging from approximately $496,000 to approximately $574,

48 The following table details the base home prices as of October 1, 2017, excluding any lot premiums, options, upgrades, incentives, and any selling concessions or price reductions currently being offered. Initial base sales prices may be lower than estimated. Floor Plan Table 10 Community Facilities District No. 15 of the Riverside Unified School District (Improvement Area No. 3) Planned Number of Units Estimated Base Sales Prices (As of October 1, 2017) Estimated Square Feet Estimated Base Sales Price (1) Plan ,575 $496,000 to $515,000 Plan ,426 $525,000 to $535,000 Plan ,803 $555,000 to $574, (1) Base prices are estimated as of October 1, 2017, and exlude any lot premiums, options, upgrades, incentives, and any selling concessions or price reductions. Initial base sales prices may be lower than estimated. Source: The Developer. Required Infrastructure. As of the date of this Official Statement, all of the infrastructure required for the Development, including the improvements being financed with the proceeds from the sale of the 2017 Bonds, has been completed. Financing Plan The Developer has estimated that its home construction costs for the Development will total approximately $52.1 million, including approximately $7.7 million for the purchase of land, approximately $27.1 million for construction costs for all units, and approximately $17.2 million for all other costs, including financing, marketing, and general project administration. As of September 20, 2017, the Developer had expended approximately $41.5 million on project costs for the Development. The Developer expects to expend an additional approximately $10.6 million to complete the Development. The Developer is financing its development activities in Improvement Area No. 3 through internal sources, and intends to use this source of funds, together with proceeds of future home sales, to finance home construction costs and carrying costs for the property (including property taxes and the Special Taxes) until full sell-out of its proposed single-family detached homes in the Development. Notwithstanding the Developer s belief that it will have sufficient funds to complete its planned development in Improvement Area No. 3, no assurance can be given that sources of financing available to the Developer will be sufficient to complete the property development and home construction as currently anticipated. While the Developer has made such internal financing available in the past, there can be no assurance whatsoever of its willingness or ability to do so in the future. Neither the Developer, nor the Parent, nor any affiliate thereof has any legal obligation of any kind to make any such funds available or to obtain loans. If and to the extent that internal financing and sales revenues are inadequate to pay the costs to complete the Developer s planned development within Improvement Area No. 3, and other financing by the Developer is not made available, there could be a shortfall in the funds required to complete the proposed Development by the Developer and portions of the Development may not be completed. 40

49 THE RIVERSIDE UNIFIED SCHOOL DISTRICT The following information relating to the School District is included only for the purpose of supplying general information regarding the School District. Neither the faith and credit nor taxing power of the School District have been pledged to the payment of the 2017 Bonds and the 2017 Bonds will not be payable from any of School District s revenues or assets. The School District is a unified school district, governed by a five member, elected, Board of Education. The School District encompasses an area of about 92 square miles located in the northwestern portion of Riverside County approximately 47 miles east of the Los Angeles civic center. The School District encompasses major portions of the City of Riverside. The School District was established in 1963 through the unification of the Riverside City School District and the Riverside City High School District. The School District serves approximately 42,000 students. The School District operates twenty-nine elementary schools, seven middle schools, five high schools, two alternative high schools, one virtual school, one adult school, one independent study school, one special education preschool and one STEM Academy. The management and policies of the School District are administered by a Superintendent of Schools and a staff which provides business, pupil, personnel, administrative personnel, and instruction support services. SPECIAL RISK FACTORS The purchase of the 2017 Bonds involves significant risks that are not appropriate investments for certain investors. The following is a discussion of certain risk factors which should be considered, in addition to other matters set forth herein, in evaluating the investment quality of the 2017 Bonds. The Insured 2017 Bonds have been rated by S&P based on the issuance of the Policy by BAM at the time of issuance of the Insured 2017 Bonds. 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 2017 Bonds. The occurrence of one or more of the events discussed herein could adversely affect the ability or willingness of property owners in Improvement Area No. 3 to pay their Special Taxes when due. Such failures to pay Special Taxes could result in the inability of the District to make full and punctual payments of debt service on the 2017 Bonds. In addition, the occurrence of one or more of the events discussed herein could adversely affect the value of the property in Improvement Area No. 3. See Property Values and Limited Secondary Market below. Risks of Real Estate Secured Investments Generally The 2017 Bond owners will be subject to the risks generally incident to an investment secured by real estate, including, without limitation, (i) adverse changes in local market conditions, such as changes in the market value of real property in the vicinity of the District, the supply of or demand for competitive properties in such area, and the market value of residential property or buildings and/or sites in the event of sale or foreclosure; (ii) changes in real estate tax rates and other operating expenses, governmental rules (including, without limitation, zoning laws and laws relating to endangered species and hazardous materials) and fiscal policies; and (iii) natural disasters (including, without limitation, earthquakes, fires, floods, drought and windstorms), which may result in uninsured losses. No assurance can be given that any the individual homeowners within Improvement Area No. 3 or Lyon will pay Special Taxes in the future or that they will be able to pay such Special Taxes on a timely basis. See Bankruptcy and Foreclosure below, for a discussion of certain limitations on the School District s ability to pursue judicial proceedings with respect to delinquent parcels. 41

50 Funds Invested in the County Investment Pool On January 24, 1996, the United States Bankruptcy Court for the Central District of California held that a State statute providing for a priority of distribution of property held in trust conflicted with, and was preempted by, federal bankruptcy law. In that case, the court addressed the priority of the disposition of moneys held in a county investment pool upon bankruptcy of the county. Following payment of the Special Taxes to the District, such funds may be invested in the name of the School District or the District for a period of time in the County investment pool. In the event of a petition of or the adjustment of County debts under Chapter 9 of the Federal Bankruptcy Code, a court might hold that the 2017 Bond owners do not have a valid and/or prior lien on the Special Taxes or debt service payments where such amounts are deposited in the County investment pool and may not provide the 2017 Bond owners with a priority interest in such amounts. In that circumstance, unless the 2017 Bond owners could trace the funds that have been deposited in the County investment pool, the 2017 Bond owners would be unsecured (rather than secured) creditors of the County. There can be no assurance that the 2017 Bond owners could successfully so trace the Special Taxes or debt service payments. Concentration of Ownership Based on the ownership status of the property within Improvement Area No. 3 as of September 15, 2017, assuming no additional transfers therein, and building permits issued as of November 1, 2017, approximately 15.09% of the Special Taxes projected to be levied in Fiscal Year would be payable by Lyon. Actual property ownership, development status, share of Fiscal Year Special Taxes in Fiscal Year and percent of total Special Taxes, will change to the extent that home sales occur. Failure by Lyon, entities affiliated with Lyon or any successor(s), to pay the annual Special Taxes when due could result in a draw on the 2017 Bonds Reserve Account of the Reserve Fund, and ultimately a default in payments of the principal of, and interest on, the 2017 Bonds, when due. No assurance can be given that Lyon or any successors, will complete the remaining intended construction and development in Improvement Area No. 3. See Failure to Develop Properties. No assurance can be given that Lyon, its successors, or its affiliated entities will pay Special Taxes on the parcels owned by Lyon a timely basis. See Bankruptcy and Foreclosure for a discussion of certain limitations on the District s ability to pursue judicial proceedings with respect to delinquent parcels. In Fiscal Year , the Special Tax levy will produce an amount equal to at least 110% of the debt service due on the 2012 Bonds and the 2017 Bonds, plus Administrative Expenses of $30,000. Beginning in Fiscal Year , the Special Taxes are only expected to be levied in an amount needed to satisfy the Special Tax Requirement. Parity Bonds may be issued in the future under certain circumstances, but the School District has covenanted to issue Parity Bonds only for refunding purposes. See SOURCES OF PAYMENT FOR THE 2017 BONDS Special Taxes Rates and Method of Apportionment of Special Tax and Issuance of Parity Bonds. Limited Obligations The 2017 Bonds and interest thereon are not payable from the general funds of the School District. Except with respect to the Special Taxes, neither the faith and credit nor the taxing power of the District or the School District is pledged for the payment of the 2017 Bonds or the interest thereon, and, except as provided in the Fiscal Agent Agreement, no Owner of the 2017 Bonds may compel the exercise of any taxing power by the District or the School District or force the forfeiture of any School District or District property. The principal of, premium, if any, and interest on the 2017 Bonds are not a debt of the School District or a legal or equitable pledge, charge, lien or encumbrance upon any of the School District s or the District s property or upon any of the School District s or the District s income, receipts or revenues, except the Special Tax Revenues and other amounts pledged under the Fiscal Agent Agreement. Moreover, special taxes of Improvement Areas within 42

51 the District other than Improvement Area No. 3 are not pledged to the repayment of the 2017 Bonds. See SOURCES OF PAYMENT FOR THE 2017 BONDS Special Taxes. Insufficiency of Special Taxes The Rates and Method governing the levy of the Special Taxes expressly exempt up to acres within Improvement Area No. 3 in the chronological order in which such property becomes property that lies within dedications for public streets, publicly owned surface drainage channels or other public property or Property Owner Association Property. Under the Rates and Method, the annual amount of Special Tax to be levied on each taxable parcel in Improvement Area No. 3 will generally be based on the land use class to which a parcel of Developed Property is assigned. See APPENDIX A RATES AND METHOD OF APPORTIONMENT OF SPECIAL TAX and SOURCES OF PAYMENT FOR THE 2017 BONDS Special Taxes Rates and Method of Apportionment of Special Tax. In order to pay debt service on the 2017 Bonds, it is necessary that the Special Taxes be paid in a timely manner. Should the Special Taxes not be paid on time, the District has established a 2017 Bonds Account of the Reserve Fund in an amount equal to the Reserve Requirement for the 2017 Bonds to pay debt service on the 2017 Bonds to the extent other funds are not available. See SOURCES OF PAYMENT FOR THE 2017 BONDS 2017 Bonds Account of the Reserve Fund. The District has covenanted to maintain in the 2017 Bonds Account of the Reserve Fund an amount equal to the Reserve Requirement for the 2017 Bonds subject, however, to the limitation that the District may not levy the Special Tax in Improvement Area No. 3 in any fiscal year at a rate in excess of the maximum amounts permitted under the Rates and Method. As a result, if a significant number of delinquencies occur, the District could be unable to replenish the 2017 Bonds Account of the Reserve Fund to the Reserve Requirement for the 2017 Bonds due to the limitations on the maximum Special Tax. If such defaults were to continue in successive years, the 2017 Bonds Account of the Reserve Fund could be depleted and a default on the 2017 Bonds could occur. The School District has covenanted that, under certain conditions, it will institute foreclosure proceedings to sell any property with delinquent Special Taxes in order to obtain funds to pay debt service on the 2017 Bonds. If foreclosure proceedings were ever 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. See SOURCES OF PAYMENT FOR THE 2017 BONDS Special Taxes Proceeds of Foreclosure Sales for provisions which apply in the event of such foreclosure and which the School District is required to follow in the event of delinquencies in the payment of the Special Tax. In the event that sales or foreclosures of property are necessary, there could be a delay in payments to owners of the 2017 Bonds (if the 2017 Bonds Account of the Reserve Fund has been depleted) pending such sales or the prosecution of such foreclosure proceedings and receipt by the School District on behalf of the District of the proceeds of sale. The District may adjust the future Special Tax levied on taxable parcels in Improvement Area No. 3, subject to the limitation on the maximum Special Tax, to provide an amount required to pay interest on, principal of, and redemption premiums, if any, on the 2017 Bonds, and the amount, if any, necessary to replenish the 2017 Bonds Account of the Reserve Fund to an amount equal to the Reserve Requirement for the 2017 Bonds and to pay all current expenses. There is, however, no assurance that the total amount of the Special Tax that could be levied and collected against taxable parcels in Improvement Area No. 3 will be at all times sufficient to pay the amounts required to be paid by the Fiscal Agent Agreement, even if the Special Tax is levied at the maximum Special Tax rates. See Bankruptcy and Foreclosure for a discussion of potential delays in foreclosure actions. The Rates and Method governing the levy of the Special Tax expressly exempts up to Acres of property owned by public agencies and other exempt entities in Improvement Area No. 3. See Section E of APPENDIX A RATES AND METHOD OF APPORTIONMENT OF SPECIAL TAX. If for any reason 43

52 property within Improvement Area No. 3 becomes exempt from taxation by reason of ownership by a nontaxable entity such as the federal government or another public agency, subject to the limitations of the maximum authorized rates, the Special Tax will be reallocated to the remaining taxable properties within Improvement Area No. 3. This would result in the owners of such property paying a greater amount of the Special Tax and could have an adverse impact upon the ability and willingness of the owners of such property to pay the Special Tax when due. The Rates and Method governing the levy of the Special Tax provides that, once a parcel is classified as taxable property, it will remain subject to a Special Tax levy even if subsequently it is acquired by a public agency. The Act provides that, if any property within Improvement Area No. 3 not otherwise exempt from the Special Tax is acquired by a public entity through a negotiated transaction, or by gift or devise, the Special Tax will continue to be levied on and enforceable against the public entity that acquired the property. In addition, the Act provides that, if property subject to the Special Tax is acquired by a public entity through eminent domain proceedings, the obligation to pay the Special Tax with respect to that property is to be treated as if it were a special assessment and be paid from the eminent domain award. The constitutionality and operation of these provisions of the Act have not been tested in the courts. Due to problems of collecting taxes from public agencies, if a substantial portion of land within Improvement Area No. 3 was to become owned by public agencies, collection of the Special Tax might become more difficult and could result in collections of the Special Tax which might not be sufficient to pay principal of and interest on the 2017 Bonds when due and a default could occur with respect to the payment of such principal and interest. Failure to Develop Properties Development of property within Improvement Area No. 3 may be subject to unexpected delays, disruptions and changes which may affect the willingness and ability of Lyon or any property owner to pay the Special Taxes when due. Land development is subject to comprehensive federal, State and local regulations. Approval is required from various agencies in connection with the layout and design of developments, the nature and extent of improvements, construction activity, land use, zoning, school and health requirements, as well as numerous other matters. There is always the possibility that such approvals will not be obtained or, if obtained, will not be obtained on a timely basis. Failure to obtain any such agency approval or satisfy such governmental requirements would adversely affect planned land development. Development of land in Improvement Area No. 3 is also subject to the availability of water. Finally, development of land is subject to economic considerations. Lyon reports that the area included in Improvement Area No. 3 has been graded and major infrastructure (sewer, water, storm drains, utilities, and arterial roads) to be installed by Lyon within Improvement Area No. 3 has been substantially completed. Several lots owned by Lyon contain model and production homes in various stages of construction. No assurance can be given that the remaining proposed development will be partially or fully completed; and for purposes of evaluating the investment quality of the 2017 Bonds, prospective purchasers should consider the possibility that such parcels will remain unimproved. Undeveloped or partially developed land is inherently less valuable than developed land and provides less security to the 2017 Bond owners should it be necessary for the School District to foreclose on the property due to the nonpayment of Special Taxes. The failure to complete development of the required infrastructure for development in Improvement Area No. 3 as planned, or substantial delays in the completion of the development or the required infrastructure for the development due to litigation or other causes may reduce the value of the property within Improvement Area No. 3 and increase the length of time during which Special Taxes would be payable from undeveloped property, and may affect the willingness and ability of the owners of property within Improvement Area No. 3 to pay the Special Taxes when due. 44

53 There can be no assurance that land development operations within Improvement Area No. 3 will not be adversely affected by future deterioration of the real estate market and economic conditions or future local, State and federal governmental policies relating to real estate development, an increase in mortgage interest rates, the income tax treatment of real property ownership, or the national economy. A slowdown of the development process and the absorption rate could adversely affect land values and reduce the ability or desire of the property owners to pay the annual Special Taxes. In that event, there could be a default in the payment of principal of, and interest on, the 2017 Bonds when due Bond owners should assume that any event that significantly impacts the ability to develop the remaining homes within Improvement Area No. 3 as planned would cause the property values within Improvement Area No. 3 to decrease substantially and could affect the willingness and ability of Lyon, or any successor thereto, to pay the Special Taxes when due. Natural Disasters Improvement Area No. 3 is located in a seismically active region in Southern California. There is significant potential for destructive ground-shaking during the occurrence of a major seismic event. In addition, land along the aforementioned fault lines may be subject to liquefaction during the occurrence of such an event. While the property within Improvement Area No. 3 subject to the lien of Special Taxes is not located in a known fault zone, such property may nevertheless be subject to unpredictable seismic activity. In the event of a severe earthquake, fire, flood, drought, windstorm or other natural disaster, there may be significant damage to both property and infrastructure in Improvement Area No. 3. As a result, Lyon or a substantial portion of the individual property owners may be unable or unwilling to pay the Special Taxes when due. In addition, the value of land in Improvement Area No. 3 could be diminished in the aftermath of such a natural disaster, reducing the resulting proceeds of foreclosure sales in the event of delinquencies in the payment of the Special Taxes. Endangered Species During the 1990s, there was an increase in activity at the State and federal level related to the possible listing of certain plant and animal species found in the Southern California area as endangered species. An increase in the number of endangered species would curtail development in a number of areas. At present, the property within Improvement Area No. 3 is not known to be inhabited by any plant or animal species which is on the endangered species list or which either the California Fish and Game Commission or the United States Fish and Wildlife Service has proposed for addition to the endangered species list. Notwithstanding this fact, new species are proposed to be added to the State and federal protected lists on a regular basis. Any action by the State or federal governments to protect species located on or adjacent to the property within Improvement Area No. 3 could negatively impact Lyon s ability to complete its the development as planned. This, in turn, could reduce the likelihood of timely payment of the Special Taxes and would likely reduce the value of the land and the potential revenues available at a foreclosure sale for delinquent Special Taxes. Lyon has represented to the District that it is not aware of any endangered species located on its property within Improvement Area No. 3. See Failure to Develop Properties and Property Values herein. Hazardous Substances The presence of hazardous substances on a parcel may result in a reduction in the value of a parcel. In general, the owners and operators of a parcel may be required by law to remedy conditions of the parcel relating to releases or threatened releases of hazardous substances. The Federal Comprehensive Environmental Response, Compensation and Liability Act of 1980, sometimes referred to as CERCLA or the Superfund Act, is the most well-known and widely applicable of these laws, but California laws with regard to hazardous substances are also stringent and similar. Under many of these laws, the owner or operator is obligated to remedy a hazardous substance condition of property whether or not the owner or operator has 45

54 anything to do with creating or handling the hazardous substance. The effect, therefore, should any of the taxed parcels be affected by a hazardous substance, is to reduce the marketability and value of the parcel by the costs of remedying the condition, because the purchaser, upon becoming the owner, will become obligated to remedy the condition just as is the seller. Further, it is possible that liabilities may arise in the future with respect to any of the parcels resulting from the existence, currently, on the parcel of a substance presently classified as hazardous but which has not been released or the release of which is not presently threatened, or may arise in the future resulting from the existence, currently, on the parcel of a substance not presently classified as hazardous but which may in the future be so classified. In addition, such liabilities may arise not simply from the existence of a hazardous substance but from the method of handling such substance. All of these possibilities could significantly affect the value of a parcel that is realizable upon a delinquency and the willingness or ability of the owner of any parcel to pay the Special Tax installments. The property within Improvement Area No. 3 was historically used for agricultural purposes. Testing conducted within Improvement Area No. 3 by a third party consultant in 2005 concluded that agricultural chemical residues were below regulatory threshold concentrations. Lyon does not anticipate that any remediation with respect to its property within Improvement Area No. 3 will need to be undertaken in order for build out to occur as described in this Official Statement. The value of the property within Improvement Area No. 3, as set forth herein, does not reflect the presence of any hazardous substance or the possible liability of the owner (or operator) for the remedy of a hazardous substance condition of the property. Other than as mentioned in the previous paragraph, Lyon has represented to the District that it is not aware of any state or federally classified hazardous substances located on its property within Improvement Area No. 3, and does not believe that such a current liability exists with respect to any parcel owned by Lyon in Improvement Area No. 3. However, it is possible that such liabilities do currently exist and that neither Lyon nor the District is aware of them. Payment of the Special Tax is not a Personal Obligation of the Property Owners An owner of a taxable parcel is not personally obligated to pay the Special Tax. Rather, the Special Tax is an obligation which is secured only by a lien against the taxable parcel. If the value of a taxable parcel is not sufficient, taking into account other liens imposed by public agencies, to secure fully the Special Tax, the District has no recourse against the property owner. Property Values The value of the property within Improvement Area No. 3 is a critical factor in determining the investment quality of the 2017 Bonds. If a property owner is delinquent in the payment of Special Taxes, the District s only remedy is to commence foreclosure proceedings against the delinquent parcel in an attempt to obtain funds to pay the Special Taxes. Reductions in property values due to a downturn in the economy, physical events such as earthquakes, fires, floods or drought, stricter land use regulations, delays in development or other events will adversely impact the security underlying the Special Taxes. See THE DISTRICT AND IMPROVEMENT AREA NO. 3 Adjusted Values. The assessed values set forth in this Official Statement do not represent market values arrived at through an appraisal process and generally reflect only the sales price of a parcel when acquired by its current owner, increased or decreased annually by an amount determined by the Riverside County Assessor based on current market conditions, generally not to exceed an increase of more than 2% per fiscal year from the date of purchase (except in the case of new construction subsequent to such acquisition). No assurance can be given that a parcel could actually be sold for its assessed value. See Risks of Real Estate Secured Investments Generally above. 46

55 The actual market value of the property is subject to future events such as a downturn in the economy, occurrences of certain acts of nature and the decisions of various governmental agencies as to land use, all of which could adversely impact the value of the land in Improvement Area No. 3 which is the security for the 2017 Bonds. As discussed herein, many factors could adversely affect property values within Improvement Area No. 3. No assurance can be given that any bid will be received for a parcel with delinquent Special Taxes offered for sale at foreclosure or, if a bid is received, that such bid will be sufficient to pay all delinquent Special Taxes. See SOURCES OF PAYMENT FOR THE 2017 BONDS Special Taxes Proceeds of Foreclosure Sales. Parity Taxes, Special Assessments and Land Development Costs Property within Improvement Area No. 3 is subject to taxes and assessments imposed by other public agencies also having jurisdiction over the land within Improvement Area No. 3. See THE DISTRICT AND IMPROVEMENT AREA NO. 3 Direct and Overlapping Indebtedness. The Special Taxes and any penalties thereon will constitute a lien against the lots and parcels of land on which they will be annually imposed until they are paid. Such lien is on a parity with all special taxes and special assessments levied by other agencies and is co-equal to and independent of the lien for general property taxes regardless of when they are imposed upon the same property. The Special Taxes have priority over all existing and future private liens imposed on the property except, possibly, for liens or security interests held by the Federal Deposit Insurance Corporation. See Bankruptcy and Foreclosure below. Neither the District nor the School District has control over the ability of other entities and districts to issue indebtedness secured by special taxes, ad valorem taxes or assessments payable from all or a portion of the property within Improvement Area No. 3. In addition, the landowners within Improvement Area No. 3 may, without the consent or knowledge of the District or the School District, petition other public agencies to issue public indebtedness secured by special taxes and ad valorem taxes or assessments. Any such special taxes, ad valorem taxes or assessments may have a lien on such property on a parity with the Special Taxes and could reduce the estimated value-to-lien ratios for the property within Improvement Area No. 3 described herein. See SOURCES OF PAYMENT FOR THE 2017 BONDS and THE DISTRICT AND IMPROVEMENT AREA NO. 3 Direct and Overlapping Indebtedness and Adjusted Values. Disclosures to Future Purchasers The willingness or ability of an owner of a parcel to pay the Special Tax even if the value is sufficient may be affected by whether or not the owner was given due notice of the Special Tax authorization at the time the owner purchased the parcel, was informed of the amount of the Special Tax on the parcel should the Special Tax be levied at the maximum tax rate and the risk of such a levy and, at the time of such a levy, has the ability to pay it as well as pay other expenses and obligations. The School District has caused a notice of the Special Tax to be recorded in the Office of the Recorder for the County against each parcel within Improvement Area No. 3. While title companies normally refer to such notices in title reports, there can be no guarantee that such reference will be made or, if made, that a prospective purchaser or lender will consider such Special Tax obligation in the purchase of a property within Improvement Area No. 3 or 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 47

56 format prescribed by statute. Failure by an owner of the property to comply with the above requirements, or failure by a purchaser or lessor to consider or understand the nature and existence of the Special Tax, could adversely affect the willingness and ability of the purchaser or lessor to pay the Special Tax when due. Special Tax Delinquencies Under provisions of the Act, the Special Taxes, from which funds necessary for the payment of principal of, and interest on, the 2017 Bonds are derived, will be billed to the properties within Improvement Area No. 3 on the regular ad valorem property tax bills sent to owners of such properties by the County Tax Collector. The Act currently provides that such Special Tax installments are due and payable, and bear the same penalties and interest for non-payment, as do ad valorem property tax installments. See SOURCES OF PAYMENT FOR THE 2017 BONDS Special Taxes Proceeds of Foreclosure Sales for a discussion of the provisions which apply, and procedures which the District is obligated to follow under the Fiscal Agent Agreement, in the event of delinquencies in the payment of Special Taxes. See Bankruptcy and Foreclosure below, for a discussion of the policy of the Federal Deposit Insurance Corporation regarding the payment of special taxes and assessment and limitations on the District s ability to foreclosure on the lien of the Special Taxes in certain circumstances. Pursuant to Section 53321(d) of the Government Code at the time of proceedings to amend the Original Rates and Method and the Rates and Method, the Special Tax levied against any Assessor s parcel for which an occupancy permit for private residential use has been issued shall not be increased as a consequence of delinquency or default by the owner of any other Assessor s parcel within Improvement Area No. 3 by more than ten percent. As a result, in the event of Special Tax delinquencies or defaults, it is possible that the District may not be able to levy the necessary amount of Special Taxes to cover debt service in a given year. FDIC/Federal Government Interests in Properties The ability of the District to collect interest and penalties specified by the Act and to foreclose the lien of delinquent Special Taxes may be limited in certain respects with regard to parcels in which the FDIC, or other federal government entities such as Fannie Mae, Freddie Mac, the Drug Enforcement Agency, the Internal Revenue Service or other federal agency, has or obtains an interest. In the case of FDIC, in the event that any financial institution making a loan which is secured by parcels is taken over by the FDIC and the applicable Special Tax is not paid, the remedies available to the District may be constrained. The FDIC s policy statement regarding the payment of state and local real property taxes (the Policy Statement ) provides that taxes other than ad valorem taxes which are secured by a valid lien in effect before the FDIC acquired an interest in a property will be paid unless the FDIC determines that abandonment of its interests is appropriate. The Policy Statement provides that the FDIC generally will not pay installments of non-ad valorem taxes which are levied after the time the FDIC acquires its fee interest, nor will the FDIC recognize the validity of any lien to secure payment except in certain cases where the Resolution Trust Corporation had an interest in property on or prior to December 31, Moreover, the Policy Statement provides that, with respect to parcels on which the FDIC holds a mortgage lien, the FDIC will not permit its lien to be foreclosed out by a taxing authority without its specific consent, nor will the FDIC pay or recognize liens for any penalties, fines or similar claims imposed for the non-payment of taxes. The FDIC has taken a position similar to that expressed in the Policy Statement in legal proceedings brought against Orange County in United States Bankruptcy Court and in Federal District Court. The Bankruptcy Court issued a ruling in favor of the FDIC on certain of such claims. Orange County appealed that ruling, and the FDIC cross-appealed. On August 28, 2001, the Ninth Circuit Court of Appeals issued a ruling favorable to the FDIC except with respect to the payment of pre-receivership liens based upon delinquent property tax. 48

57 The District is unable to predict what effect the application of the Policy Statement would have in the event of a delinquency with respect to parcels in which the FDIC has or obtains an interest, although prohibiting the lien of the FDIC to be foreclosed out at a judicial foreclosure sale would prevent or delay the foreclosure sale. In the case of Fannie Mae and Freddie Mac, in the event a parcel of taxable property is owned by a federal government entity or federal government sponsored entity, such as Fannie Mae or Freddie Mac, or a private deed of trust secured by a parcel of taxable property is owned by a federal government entity or federal government sponsored entity, such as Fannie Mae or Freddie Mac, the ability to foreclose on the parcel or to collect delinquent Special Taxes may be limited. Federal courts have held that, based on the supremacy clause of the United States Constitution this Constitution, and the Laws of the United States which shall be made in Pursuance thereof; and all Treaties made, or which shall be made, under the Authority of the United States, shall be the supreme Law of the Land; and the Judges in every State shall be bound thereby, anything in the Constitution or Laws of any State to the contrary notwithstanding. In the absence of Congressional intent to the contrary, a state or local agency cannot foreclose to collect delinquent taxes or 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 the District wishes to foreclose on the parcel as a result of delinquent Special Taxes, the property cannot be sold at a foreclosure sale unless it can be sold for an amount sufficient to pay delinquent taxes and assessments on a parity with the Special Taxes and preserve the federal government s mortgage interest. For a discussion of risks associated with taxable parcels within Improvement Area No. 3 becoming owned by the federal government, federal government entities or federal government sponsored entities, see Insufficiency of Special Taxes. The District s remedies may also be limited in the case of delinquent Special Taxes with respect to parcels in which other federal agencies (such as the Internal Revenue Service and the Drug Enforcement Administration) have or obtain an interest. Bankruptcy and Foreclosure The collection of the Special Taxes and the ability of the School District to foreclose the lien of a delinquent Special Tax payment may be limited by bankruptcy, reorganization, insolvency, or other similar laws generally affecting creditors rights (such as the Soldier s and Sailors Relief Act of 1940) or by the laws of the State relating to judicial foreclosure. See SOURCES OF PAYMENT FOR THE 2017 BONDS Special Taxes Proceeds of Foreclosure Sales. In addition, the prosecution of a foreclosure could be delayed due to crowded local court calendars or legal delaying tactics. The various legal opinions to be delivered concurrently with the delivery of the 2017 Bonds (including Bond Counsel s approving legal opinion) will be qualified as to the enforceability of the various legal instruments by references to moratorium, bankruptcy, reorganization, insolvency, or other similar laws affecting the rights of creditors generally. Although bankruptcy proceedings would not cause the lien of Special Taxes in Improvement Area No. 3 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 in Improvement Area No. 3 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 applicable property was 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 49

58 the enforcement of the lien for the Special Taxes, 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 2017 Bonds. Moreover, amounts received upon foreclosure sales in Improvement Area No. 3 may not be sufficient to fully discharge the related delinquent Special Taxes. To the extent that a significant percentage of the taxable property in Improvement Area No. 3 is the subject of bankruptcy proceedings, the payment of the Special Taxes and the ability of the School District to foreclose the lien of delinquent Special Taxes could be extremely curtailed by bankruptcy, insolvency, or other laws generally affecting creditors rights, or by the laws of the State relating to judicial foreclosure. On July 30, 1992, the United States Court of Appeals for the Ninth Circuit issued an opinion in a bankruptcy case entitled In re Glasply Marine Industries, holding that ad valorem property taxes levied by a county in the State of Washington after the date that the property owner filed a petition for bankruptcy were not entitled to priority over the claims of a secured creditor with a prior lien on the property. Although the court upheld the priority of unpaid taxes imposed before the bankruptcy petition, unpaid taxes imposed subsequent to the filing of the bankruptcy petition were declared to be administrative expenses of the bankruptcy estate, payable after the claims of all secured creditors. As a result, the secured creditor was able to foreclose on the subject property and retain all the proceeds from the sale thereof except the amount of the pre-petition taxes. Pursuant to this holding, post-petition taxes would be paid only as administrative expenses and only if a bankruptcy estate 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 be subject only to current ad valorem property taxes (i.e., not those accruing during the bankruptcy proceeding). The Glasply decision is controlling precedent in bankruptcy court in the State. If Glasply were held to be applicable to the Special Taxes, a bankruptcy petition filing would prevent the lien for Special Taxes levied in subsequent fiscal years from attaching so long as the property was part of the estate in bankruptcy, which could reduce the amount of Special Taxes available to pay debt service on the 2017 Bonds. However, Glasply speaks as to ad valorem property taxes, and not special taxes, and no case law exists with respect to how a bankruptcy court would treat a lien for special taxes levied after the filing of a petition for bankruptcy. It should also be noted that on October 22, 1994, Congress enacted 11 U.S.C. 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. Under this law, if a bankruptcy petition is filed on or after October 22, 1994, the lien for ad valorem property 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. 362(b)(18) on the Special Taxes also depends upon whether a court were to determine that the Special Taxes should be treated like ad valorem property taxes for this purpose. No Acceleration Provision The 2017 Bonds do not contain a provision allowing for the acceleration of the 2017 Bonds in the event of a payment default or other default under the terms of the 2017 Bonds or the Fiscal Agent Agreement or in the event interest on the 2017 Bonds becomes included in gross income for federal income tax purposes. Pursuant to the Fiscal Agent Agreement, an owner is given the right for the equal benefit and protection of all owners of the 2017 Bonds similarly situated to pursue certain remedies described in APPENDIX D SUMMARY OF CERTAIN PROVISIONS OF THE FISCAL AGENT AGREEMENT and Limitations on Remedies. Loss of Tax Exemption As discussed under the caption TAX MATTERS herein, interest on the 2017 Bonds could become includable in gross income for purposes of federal income taxation retroactive to the date the 2017 Bonds were issued as a result of future acts or omissions of the District in violation of its covenants in the Fiscal Agent 50

59 Agreement with respect to compliance with certain provisions of the Internal Revenue Code of In addition, it is possible that future changes in applicable federal tax laws could cause interest on the 2017 Bonds to be included in gross income for federal income taxation or could otherwise reduce the equivalent taxable yield of such interest and thereby reduce the value of the 2017 Bonds. Should such an event of taxability occur, the 2017 Bonds are not subject to early redemption and will remain outstanding until maturity or until redeemed under the redemption provisions contained in the Fiscal Agent Agreement. Current or future legislative proposals, if enacted into law, clarification of the Code or court decisions may cause interest on the 2017 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. Legislative changes have been proposed in Congress, which, if enacted, would result in additional federal income tax being imposed on certain owners of taxexempt state or local obligations, such as the 2017 Bonds. The introduction or enactment of any of the pending or future legislative proposals, clarification of the Code or court decisions may also affect the market price for, or marketability of, the 2017 Bonds. Prospective purchasers of the 2017 Bonds should consult their own tax advisors regarding any pending or proposed federal or state tax legislation, regulations or litigation, as to which Bond Counsel expresses no opinion. It is possible that subsequent to the issuance of the 2017 Bonds there might be federal, State, or local statutory changes (or judicial or regulatory interpretations of federal, State, or local law) that affect the federal, State, or local tax treatment of the 2017 Bonds or the market value of the 2017 Bonds. Legislative changes have been introduced in Congress, which, if enacted, could result in additional federal income or state tax being imposed on owners of tax-exempt state or local obligations, such as the 2017 Bonds. The introduction or enactment of any of such changes could adversely affect the market value or liquidity of the 2017 Bonds. No assurance can be given that subsequent to the issuance of the 2017 Bonds such changes or interpretations will not occur. Before purchasing any of the 2017 Bonds, all potential purchasers should consult their tax advisors regarding possible statutory changes or judicial or regulatory changes or interpretations, and their collateral tax consequences relating to the 2017 Bonds. See TAX MATTERS below. Limited Secondary Market There can be no guarantee that there will be a secondary market for the 2017 Bonds or, if a secondary market exists, that such 2017 Bonds can be sold for any particular price. Although the 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. See CONTINUING DISCLOSURE and APPENDIX E FORM OF CONTINUING DISCLOSURE AGREEMENT. Any failure to provide annual financial information, if required, 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 downgrade or absence of a credit rating for the 2017 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 depend upon then prevailing circumstances. Such prices could be substantially different from the original purchase price. Proposition 218 An initiative measure commonly referred to as the Right to Vote on Taxes Act (the Initiative ) was approved by the voters of the State at the November 5, 1996 general election. The Initiative added 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 district are subject to interpretation by the courts. The Initiative could potentially impact the Special Taxes available to the District to pay the principal of and interest on the 2017 Bonds as described below. 51

60 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 was signed into law by the Governor of the State enacting Government Code Section 5854, which states that: Section 3 of Article XIIIC of the California Constitution, as adopted at the November 5, 1996, general election, shall not be construed to mean that any owner or beneficial owner of a municipal security, purchased before or after that date, assumes the risk of, or in 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 2017 Bonds. It may be possible, however, for voters within Improvement Area No. 3 or the Board, acting as the legislative body of the District, to reduce the Special Taxes in a manner which does not interfere with the timely repayment of the 2017 Bonds, but which does reduce the maximum amount of Special Taxes that may be levied in any year below the existing levels. 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 2017 Bonds. Therefore, no assurance can be given with respect to the levy of Special Taxes for Administrative Expenses. Nevertheless, to the maximum extent that the law permits it to do so, the District has covenanted that it will not initiate proceedings under the Act to reduce the maximum Special Tax rates on parcels of Developed Property within Improvement Area No. 3. In connection with the foregoing covenant, the Board has made a legislative finding and determination that any elimination or reduction of Special Taxes below the foregoing level would interfere with the timely retirement of the 2017 Bonds. The District also has covenanted that, in the event an initiative is adopted which purports to alter the Rates and Method, it will commence and pursue legal action in order to preserve its ability to comply with the foregoing covenant. However, no assurance can be given as to the enforceability of the foregoing covenants. With respect to the approval of the Special Taxes, on August 1, 2014, the California Court of Appeal, Fourth Appellate District, Division One, issued its opinion in City of San Diego v. Melvin Shapiro, et al. (D063997) (the San Diego Decision ). The case involved a Convention Center Facilities District (the CCFD ) established by the City of San Diego (the City ). The CCFD is a financing district much like a community facilities district established under the provisions of the Act. The CCFD is comprised of all of the real property in the entire City. However, the special tax to be levied within the CCFD was to be levied only on hotel properties located within the CCFD. The election authorizing the special tax was limited to owners of hotel properties and lessees of real property owned by a governmental entity on which a hotel is located. Thus, the election was not a registered voter election. Such approach to determining who would constitute the qualified electors of the CCFD was modeled after Section 53326(c) of the Act, which generally provides that, if a special tax will not be apportioned in any tax year on residential property, the legislative body may provide that the vote shall be by the landowners of the proposed district whose property would be subject to the special tax. The Court held that the CCFD special tax election was invalid under the California Constitution because Article XIIIA, Section 4 thereof and Article XIIIC, Section 2 thereof require that the electors in such an election be the registered voters within the district. 52

61 The facts of the San Diego Decision show that there were hundreds of thousands of registered voters within the CCFD (viz., all of the registered voters in the City). The elections held in Improvement Area No. 3 had no registered voters within Improvement Area No. 3 at the time of the election to authorize the Special Tax. In the San Diego Decision, the Court expressly stated that it was not addressing the validity of landowner voting to impose special taxes pursuant to the Act in situations where there are fewer than 12 registered voters. Thus, by its terms, the Court s holding does not apply to the Special Tax elections in Improvement Area No. 3. Moreover, Section of the Act provides that any action or proceeding to attack, review, set aside, void or annul the levy of a special tax shall be commenced within 30 days after the special tax is approved by the voters. Similarly, Section of the Act provides that any action to determine the validity of bonds issued pursuant to the Act be brought within 30 days of the voters approving the issuance of such bonds. Voters within Improvement Area No. 3 most recently approved the Special Tax and the issuance of bonds for the benefit of Improvement Area No. 3 in Based on Sections and of the Act and analysis of existing laws, regulations, rulings and court decisions, Bond Counsel is of the opinion that no successful challenge to the Special Tax being levied in accordance with the Rates and Method may now be brought. The interpretation and application of Article XIIIC and Article XIIID will ultimately be determined by the courts with respect to a number of the matters discussed above, and it is not possible at this time to predict with certainty the outcome of such determination or the timeliness of any remedy afforded by the courts. See SPECIAL RISK FACTORS Limitations on Remedies. Ballot Initiatives and Legislative Measures Articles XIII A, XIII B, XIII C and XIII D were adopted pursuant to measures qualified for the ballot pursuant to California s constitutional initiative process and the State Legislature has in the past enacted legislation which has altered the spending limitations or established minimum funding provisions for particular activities. On March 6, 1995, in the case of Rossi v. Brown, the State Supreme Court held that an initiative can repeal a tax ordinance and prohibit the imposition of further such taxes and that the exemption from the referendum requirements does not apply to initiatives. From time to time, other initiative measures could be adopted by California voters or legislation enacted by the legislature. The adoption of any such initiative or legislation might place limitations on the ability of the State, the School District, or local districts to increase revenues or to increase appropriations or on the ability of Lyon or its successors to complete the remaining proposed development within Improvement Area No. 3. 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. It is possible that the 2017 Bonds will be selected for audit by the Internal Revenue Service. It is also possible that the market value of the 2017 Bonds might be affected as a result of such an audit of the 2017 Bonds (or by an audit of similar bonds). See TAX MATTERS below. Risks Associated with Bond Insurance In the event that the District defaults in the payment of principal of or interest on the 2017 Bonds when due, the Owners of the 2017 Bonds will have a claim under the Policy, but only with respect to the Insured 2017 Bonds, and the Reserve Policy for such payments. See the caption BOND INSURANCE and SOURCES OF PAYMENT FOR THE 2017 BONDS 2017 Bonds Account of the Reserve Fund. In the event that BAM becomes obligated to make payments on the 2017 Bonds, no assurance can be given that such event will not adversely affect the market for the 2017 Bonds. In the event that BAM is unable to make payments of principal of or interest on 2017 Bonds when due under the Policy or the Reserve Policy, such 2017 Bonds will be payable solely from Special Taxes and amounts that are held in certain funds and accounts established under the Fiscal Agent Agreement, as described under the caption SOURCES OF PAYMENT 53

62 FOR THE 2017 BONDS. The School District is not obligated to replace the Reserve Policy in the event BAM is not able to make payments under the Reserve Policy. The long-term credit rating on the 2017 Bonds is dependent in part on the financial strength of BAM and its claims-paying ability. BAM s financial strength and claims-paying ability are predicated upon a number of factors which could change over time. If the long-term ratings of BAM are lowered, such event could adversely affect the market for the 2017 Bonds. See the caption RATING. Neither the School District nor the Underwriter has made an independent investigation of the claims-paying ability of BAM, and no assurance or representation regarding the financial strength or projected financial strength of BAM is being made by the School District or the Underwriter in this Official Statement. Therefore, when making an investment decision with respect to the 2017 Bonds, potential investors should carefully consider the ability of the District to pay principal and interest on the 2017 Bonds, assuming that the Policy is not available to pay principal and interest on the Insured 2017 Bonds, the Reserve Policy is not available to make Payments, and the claims-paying ability of BAM through final maturity of the 2017 Bonds. So long as the Policy remains in effect and BAM is not in default of its obligations thereunder, BAM has certain notice, consent and other rights under the Fiscal Agent Agreement and will have the right to control all remedies in the event of a default under the Fiscal Agent Agreement as to the 2017 Bonds. BAM is not required to obtain the consent of the Owners of the 2017 Bonds with respect to the exercise of remedies. See Appendix D. Limitations on Remedies Remedies available to the owners of the 2017 Bonds may be limited by a variety of factors and may be inadequate to assure the timely payment of principal of and interest on the 2017 Bonds or to preserve the tax-exempt status of interest on the 2017 Bonds. Bond Counsel has limited its opinion as to the enforceability of the 2017 Bonds and of the Fiscal Agent Agreement to the extent that enforceability may be limited by bankruptcy, insolvency, reorganization, fraudulent conveyance or transfer, moratorium, or others similar laws affecting generally the enforcement of creditor s rights, by equitable principles and by the exercise of judicial discretion and by limitations on remedies against public agencies in the State of California. The 2017 Bonds are not subject to acceleration. The lack of availability of certain remedies or the limitation of remedies may entail risks of delay, limitation or modification of the rights of the owners. CONTINUING DISCLOSURE Pursuant to a Continuing Disclosure Agreement with David Taussig & Associates, Inc., as dissemination agent, the School District has agreed to provide, or cause to be provided, to the Electronic Municipal Market Access System of the Municipal Securities Rulemaking Board, which can be found at on an annual basis by February 1 of each fiscal year beginning February 1, 2018 certain financial information and operating data concerning the District. The School District has further agreed to provide notice to EMMA of certain enumerated events. These covenants have been made in order to assist the Underwriter in complying with Rule 15c2-12 adopted by the SEC. The full text of the Continuing Disclosure Agreement is set forth in APPENDIX E. The inclusion of this information does not mean that the 2017 Bonds are secured by any resources or property of the School District or the District other than Special Tax Revenues and other amounts held under the Fiscal Agent Agreement. See SOURCES OF PAYMENT FOR THE 2017 BONDS and SPECIAL RISK FACTORS Limited Obligations. In connection with prior issuances, the School District, the various community facilities districts of the School District and the Riverside Unified School District Public Financing Authority (collectively, the District Entities ) have undertaken to provide certain financial information and operating data relating to the 54

63 respective District Entities. Within the past five years, the School District failed to file in a timely manner the annual reports or portions of the annual reports for fiscal years and required in connection with certain of the School District s then-outstanding general obligation bonds and certificates of participation. In addition, the District Entities failed to file in a timely manner certain notices of listed events. TAX MATTERS In the opinion of Best Best & Krieger LLP, Riverside, California, Bond Counsel, under existing statutes, regulations, rulings and judicial decisions, interest on the 2017 Bonds is excluded from gross income for federal income tax purposes. In the further opinion of Bond Counsel, interest on the 2017 Bonds is exempt from State of California personal income tax. Bond Counsel notes that interest on the 2017 Bonds is not an item of tax preference for purposes of calculating the federal alternative minimum tax imposed on individuals. Bond Counsel further notes, however, that, with respect to corporations, such interest may be included as an adjustment in the calculation of alternative minimum taxable income, which may affect the alternative minimum tax liability of corporations. Bond Counsel s opinion as to the exclusion from gross income for federal income tax purposes of interest on the 2017 Bonds is based upon certain representations of fact and certifications made by the School District, the Underwriter and others and is subject to the condition that the School District complies with all requirements of the Internal Revenue Code of 1986, as amended (the Code ) that must be satisfied subsequent to the issuance of the 2017 Bonds to assure that interest on the 2017 Bonds will not become includable in gross income for federal income tax purposes. Failure to comply with such requirements of the Code might cause interest on the 2017 Bonds to be included in gross income for federal income tax purposes retroactive to the date of issuance of the 2017 Bonds. The School District has covenanted to comply with all such requirements. Should the interest on the 2017 Bonds become includable in gross income for federal income tax purposes, the 2017 Bonds are not subject to early redemption as a result of such occurrence and will remain outstanding until maturity or until otherwise redeemed in accordance with the Fiscal Agent Agreement. Current and future legislative proposals, if enacted into law, clarification of the Code or court decisions may cause interest on the 2017 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 Bond Owners from realizing the full current benefit of the tax status of such interest. Legislative proposals are announced from time to time which generally would limit the exclusion from gross income of interest on obligations like the 2017 Bonds to some extent for taxpayers who are individuals and whose income is subject to higher marginal income tax rates. Other proposals have been made that could significantly reduce the benefit of, or otherwise affect, the exclusion from gross income of interest on obligations like the 2017 Bonds. The introduction or enactment of any such legislative proposals, clarification of the Code or court decisions may also affect, perhaps significantly, the market price for, or marketability of, the 2017 Bonds. Prospective purchasers of the 2017 Bonds should consult their own tax advisors regarding any pending or proposed federal or state tax legislation, regulations or litigation, and regarding the impact of future legislation, regulations or litigation, as to which Bond Counsel expresses no opinion. Bond Counsel s opinion may be affected by action taken (or not taken) or events occurring (or not occurring) after the date of issuance of the 2017 Bonds. Bond Counsel has not undertaken to determine, or to inform any person, whether any such action or events are taken or do occur, or whether such actions or events may adversely affect the value or tax treatment of a 2017 Bond, and Bond Counsel expresses no opinion with respect thereto. The Internal Revenue Service (the IRS ) has initiated an expanded program for auditing tax-exempt bond issues, including both random and targeted audits. It is possible that the 2017 Bonds will be selected for audit by the IRS. It is also possible that the market value of the 2017 Bonds might be affected as a result of such an audit (or by an audit of similar bonds). 55

64 Although Bond Counsel has rendered an opinion that interest on the 2017 Bonds is excluded from gross income for federal income tax purposes provided the School District continues to comply with certain requirements of the Code, the accrual or receipt of interest on the 2017 Bonds may otherwise affect the tax liability of the recipient. The extent of these other tax consequences will depend upon the recipient s particular tax status and other items of income or deductions. Bond Counsel expresses no opinion regarding any such consequences. Accordingly, all potential purchasers should consult their tax advisors before purchasing any of the 2017 Bonds. A copy of the proposed form of opinion of Bond Counsel is attached hereto as APPENDIX B. LEGAL MATTERS The legal opinion of Best Best & Krieger LLP, Riverside, California, Bond Counsel, approving the validity of the 2017 Bonds in substantially the form set forth as APPENDIX B hereto, will be made available to purchasers at the time of original delivery. Certain legal matters will be passed upon for the District and the School District by Best Best & Krieger LLP, Riverside, California as counsel for the District and the School District and for the Underwriter by James F. Anderson Law Firm, A Professional Corporation, Laguna Hills, California, as counsel to the Underwriter. Stradling Yocca Carlson & Rauth, a Professional Corporation, San Francisco, California, is serving as Disclosure Counsel to the District with respect to the 2017 Bonds. ABSENCE OF LITIGATION No litigation is pending or threatened concerning the validity of the 2017 Bonds and a certificate of the School District and District to that effect will be furnished to the Underwriter at the time of the original delivery of the 2017 Bonds. Neither the School District nor the District is aware of any litigation pending or threatened which questions the existence of the District or the School District or contests the authority of the District to levy and collect the Special Taxes or to issue and retire the 2017 Bonds. RATING S&P Global Ratings, a business unit of Standard & Poor s Financial Services LLC ( S&P ), is expected to assign its municipal bond rating of AA to the Insured 2017 Bonds based on the issuance of the Policy by BAM at the time of issuance of the 2017 Bonds. See BOND INSURANCE herein. The School District has not applied to S&P for an underlying rating on the 2017 Bonds. The rating reflects only the views of S&P and an explanation of the significance of such rating may be obtained from S&P. Generally, a rating agency bases its rating on the information and materials furnished to it and on investigations, studies and assumptions of its own. There is no assurance that any of the rating for the 2017 Bonds will continue for any given period of time or that such rating will not be revised downward or withdrawn entirely by a rating agency, if in the judgment of such rating agency, circumstances so warrant. Any such downward revision or withdrawal of a rating may have an adverse effect on the market price of the 2017 Bonds. Neither the School District nor the Underwriter makes any representation as to BAM s creditworthiness or any representation that BAM s credit rating will be maintained in the future. Rating agencies have previously taken action to downgrade the ratings of certain municipal bond insurers and have published various releases outlining the processes that they intend to follow in evaluating the ratings of financial guarantors. For some financial guarantors, the result of such evaluations could be a rating affirmation, a change in rating outlook, a review for downgrade or a downgrade. Potential investors are directed to the rating agencies for additional information on the applicable rating agencies evaluations of the financial guaranty industry and individual financial guarantors, including BAM. See the caption BOND INSURANCE for further information relating to BAM. 56

65 UNDERWRITING The 2017 Bonds are being purchased by Piper Jaffray & Co. (the Underwriter ). The Underwriter has agreed to purchase the 2017 Bonds at a price of $9,904, (being $10,105, aggregate principal amount thereof, less net original issue discount of $49, and less Underwriter s discount of $151,575.00). The purchase contract relating to the 2017 Bonds provides that the Underwriter will purchase all of the 2017 Bonds if any are purchased. The obligation to make such purchase is subject to certain terms and conditions set forth in the purchase contract, the approval of certain legal matters by counsel and certain other conditions. The Underwriter has entered into a 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 agreement, CS&Co. will purchase the 2017 Bonds from the Underwriter at the original issue price less a negotiated portion of the selling concession applicable to any 2017 Bonds that CS&Co. sells. The initial public offering prices stated on the inside front cover page of this Official Statement may be changed from time to time by the Underwriter. The Underwriter may offer and sell the 2017 Bonds to certain dealers (including dealers depositing bonds into investment trusts), dealer banks, banks acting as agents and others at prices lower than said public offering prices. FINANCIAL INTERESTS The fees being paid to the Underwriter, Bond Counsel, Disclosure Counsel, the Financial Advisor to the School District, the Fiscal Agent and Underwriter s Counsel are contingent upon the issuance and delivery of the 2017 Bonds. The fees being paid to the Special Tax Consultant are not contingent upon the issuance and delivery of the 2017 Bonds. From time to time, Bond Counsel and Disclosure Counsel represent the Underwriter on matters unrelated to the 2017 Bonds. PENDING LEGISLATION The District is not aware of any significant pending legislation which would have material adverse consequences on the 2017 Bonds or the ability of the District to pay the principal of and interest on the 2017 Bonds when due. 57

66 ADDITIONAL INFORMATION The purpose of this Official Statement is to supply information to prospective buyers of the 2017 Bonds. Quotations and summaries and explanations of the 2017 Bonds and documents contained in this Official Statement do not purport to be complete, and reference is made to such documents for full and complete statements and their provisions. Any statements in this Official Statement involving matters of opinion, whether or not expressly so stated, are intended as such and not as representations of fact. The execution and delivery of this Official Statement by the Superintendent of the School District has been duly authorized by the Board of Education of the Riverside Unified School District acting in its capacity as the legislative body of the District. COMMUNITY FACILITIES DISTRICT NO. 15 OF THE RIVERSIDE UNIFIED SCHOOL DISTRICT By: David Hansen, Ph.D. Superintendent of the Riverside Unified School District 58

67 APPENDIX A RATES AND METHOD OF APPORTIONMENT OF SPECIAL TAX The following sets forth the Rates and Method of Apportionment for the levy and collection of Special Taxes of Improvement Area No. 3 of Community Facilities District No. 15 of the Riverside Unified School District (the District ). An Annual Special Tax shall be levied on and collected in Improvement Area No. 3 each Fiscal Year, in an amount determined through the application of the Rates and Method of Apportionment described below. All of the real property in Improvement Area No. 3, unless exempted by law or by the provisions hereof, shall be taxed for the purposes, to the extent, and in the manner herein provided. AMENDED AND RESTATED RATES AND METHOD OF APPORTIONMENT OF SPECIAL TAX FOR IMPROVEMENT AREAS NOS. 1, 2 AND 3 OF COMMUNITY FACILITIES DISTRICT NO. 15 (MISSION RANCH) RIVERSIDE UNIFIED SCHOOL DISTRICT Special Taxes (defined below) shall be levied on all Parcels (defined below) located within the boundaries of Improvement Area No. 1, Improvement Area No. 2 and Improvement Area No. 3 (defined below) of Community Facilities District No. 15 (Mission Ranch) of Riverside Unified School District ( CFD No. 15 ). The amount of Special Tax to be levied on a Parcel in any Fiscal Year (defined below) shall be determined by the Board of Education of Riverside Unified School District (the Board and the District ), in accordance with the rates and method of apportionment of the Special Taxes described below. All of the property in CFD No. 15, unless exempted by law or Section E shall be taxed for the purposes, to the extent, and in the manner provided herein. A. DEFINITIONS Act means the Mello-Roos Community Facilities Act of 1982, being Chapter 2.5 of Part 1 of Division 2 of Title 5 of the Government Code of the State of California. Administrative Expenses for IA No. 1 means the following actual or reasonably estimated costs directly related to the administration of IA No. 1: the costs of computing the Special Taxes and preparing the annual Special Tax collection schedules (whether by the District, CFD No. 15, or an agent thereof); the costs of collecting the Special Taxes (whether by the District or otherwise); the costs of remitting the Special Taxes to the Fiscal Agent; the costs of the Fiscal Agent (including its legal counsel) in the discharge of the duties required of it under the Fiscal Agent Agreement; the costs to the District, CFD No. 15 or any agent thereof in complying with arbitrage rebate requirements; the costs to the District, CFD No. 15 or any agent thereof in complying with District or CFD No. 15 disclosure requirements associated with applicable federal and state securities laws and the Act; the costs associated with preparing Special Tax disclosure statements and responding to public inquiries regarding the Special Taxes; the costs associated with the release of funds from an escrow account associated with the Bonds issued for IA No. 1; and the District s and CFD No. 15 s annual administration fees and third party expenses associated with IA No. 1. Administrative Expenses shall also include amounts estimated or advanced by the District or CFD No. 15 for any other administrative purposes of the District or CFD No. 15 related to IA No. 1, including attorney s fees and other costs related to commencing and pursuing to completion any foreclosure of delinquent Special Taxes in IA No. 1. Administrative Expenses for IA No. 2 means the following actual or reasonably estimated costs directly related to the administration of IA No. 2: the costs of computing the Special Taxes and A-1

68 preparing the annual Special Tax collection schedules (whether by the District, CFD No. 15, or an agent thereof); the costs of collecting the Special Taxes (whether by the District or otherwise); the costs of remitting the Special Taxes to the Fiscal Agent; the costs of the Fiscal Agent (including its legal counsel) in the discharge of the duties required of it under the Fiscal Agent Agreement; the costs to the District or CFD 15 or any agent thereof in complying with arbitrage rebate requirements; the costs to the District, CFD No. 15 or any agent thereof in complying with District or CFD No. 15 disclosure requirements associated with applicable federal and state securities laws and the Act; the costs associated with preparing Special Tax disclosure statements and responding to public inquiries regarding the Special Taxes; the costs associated with the release of funds from an escrow account associated with the Bonds issued for IA No. 2; and the District s and CFD No. 15 s annual administration fees and third party expenses associated with IA No. 2. Administrative Expenses shall also include amounts estimated or advanced by the District or CFD No. 15 for any other administrative purposes of the District or CFD No. 15 related to IA No. 2 including attorney s fees and other costs related to commencing and pursuing to completion any foreclosure of delinquent Special Taxes in IA No. 2. Administrative Expenses for IA No. 3 means the following actual or reasonably estimated costs directly related to the administration of IA No. 3: the costs of computing the Special Taxes and preparing the annual Special Tax collection schedules (whether by the District, CFD No. 15, or an agent thereof); the costs of collecting the Special Taxes (whether by the District or otherwise); the costs of remitting the Special Taxes to the Fiscal Agent; the costs of the Fiscal Agent (including its legal counsel) in the discharge of the duties required of it under the Fiscal Agent Agreement; the costs to the District or CFD 15 or any agent thereof in complying with arbitrage rebate requirements; the costs to the District, CFD No. 15 or any agent thereof in complying with District or CFD No. 15 disclosure requirements associated with applicable federal and state securities laws and the Act; the costs associated with preparing Special Tax disclosure statements and responding to public inquiries regarding the Special Taxes; the costs associated with the release of funds from an escrow account associated with the Bonds issued for IA No. 3; and the District s and CFD No. 15 s annual administration fees and third party expenses associated with IA No. 3. Administrative Expenses shall also include amounts estimated or advanced by the District or CFD No. 15 for any other administrative purposes of the District or CFD No. 15 related to IA No. 3 including attorney s fees and other costs related to commencing and pursuing to completion any foreclosure of delinquent Special Taxes in IA No. 3. Alternate Special Tax means the applicable alternate special tax of a Parcel as calculated pursuant to Section C.1.c., Section C.2.c., or Section C.3.c., as applicable. Assessor s Parcel Map means an official map of the Assessor of the County of Riverside designating Parcels by assessor s parcel number. Assigned Special Tax Rate means the applicable assigned special tax rate of a Parcel specified in Table 1, Table 2 or Table 3 in Section C, as applicable. Attached Dwelling Unit means a Dwelling Unit that consists or will consist of a building or buildings in which each of the individual Dwelling Units has at least one common wall with another Dwelling Unit. Attached Residential Property means all Parcels of Developed Property for which a building permit has been issued for purposes of constructing an Attached Dwelling Unit. Bonds means the bonds of CFD No. 15, which are issued for IA No. 1, IA No. 2 or IA No. 3, or any combination thereof. A-2

69 Detached Dwelling Unit means a Dwelling Unit that is not an Attached Dwelling Unit. Detached Residential Property means all Parcels of Developed Property for which a building permit has been issued for purposes of constructing a Detached Dwelling Unit. Developed Property means for any Fiscal Year all Taxable Property, exclusive of Taxable Property Owner Association Property and Taxable Public Property, for which a building permit was issued as of March 1 of the prior Fiscal Year. Dwelling Unit means any residential structure including, but not limited to apartments, condominiums, townhouses, or single-family detached houses, offered for rent or for sale for which a building permit was issued as of March 1 of the prior Fiscal Year. Exempt Property means any Parcel or other property within IA No. 1, IA No. 2, or IA No. 3 that is exempt from the levy of Special Taxes pursuant to Section E or the Act. Final Map means a subdivision of property by recordation of a final map, parcel map, or lot line adjustment, pursuant to the Subdivision Map Act (California Government Code Section et seq.) or recordation of a condominium plan pursuant to California Civil Code Section 1352 that creates individual lots for which building permits may be issued without further subdivision. Fiscal Year means the twelve month period starting on July 1 of any calendar year and ending the following June 30. Improvement Area No. 1 or IA No. 1 means all Parcels included in the area identified as Improvement Area No. 1 on the recorded boundary map for CFD No. 15. Improvement Area No. 2 or IA No. 2 means all Parcels included in the area identified as Improvement Area No. 2 on the recorded boundary map for CFD No. 15. Improvement Area No. 3 or IA No. 3 means all Parcels included in the area identified as Improvement Area No. 3 on the recorded boundary map for CFD No. 15. Fiscal Agent Agreement means the Fiscal Agent Agreement, fiscal agent agreement, trust agreement, resolution or other instrument pursuant to which Bonds are issued, as modified, amended and/or supplemented from time to time, and any instrument replacing, amending or supplementing the same. Maximum Special Tax means the maximum Special Tax, determined in accordance with Section C that can be levied by the Board in any Fiscal Year on any Parcel. Net Taxable Acre or Acreage means that acreage shown on the Assessor s Parcel Map for each Parcel, exclusive of property exempt from the Special Tax pursuant to the Act or Section E. In the event that the Assessor s Parcel Map shows no acreage for a Parcel, the Net Taxable Acreage for the Parcel shall be as shown on or determined from the Final Map or a functionally equivalent map or document for the Parcel. Non-Residential Property means all Parcels of Developed Property for which a building permit has been issued for the construction of a building that is not a Dwelling Unit. Parcel means a lot or parcel shown on an Assessor s Parcel Map with an assigned assessor s parcel number as of the date of the levy of the Special Taxes for each Fiscal Year. A-3

70 Property Owner Association Property means any property within the boundaries of CFD No. 15 owned by or dedicated to a property owner association, including any master or sub-association. Proportionately means for Parcels of Detached Residential Property that the ratio of the actual Special Tax levy to the Assigned Special Tax Rate is the same for all Parcels of Detached Residential Property. For Parcels of Attached Residential Property, Non-Residential Property, Undeveloped Property, Taxable Property Owner Association Property, and Taxable Public Property, Proportionately means that the ratio of the actual Special Tax levy per Net Taxable Acre to the Maximum Special Tax per Net Taxable Acre is the same for all Parcels of Attached Residential Property, Non-Residential Property, Undeveloped Property, Taxable Property Owner Association Property or Taxable Public Property. Public Property means any property within the boundaries of CFD No. 15 that is used for public rights-of-way or any other public purpose and is owned by or dedicated or irrevocably offered for dedication to the federal government, the State of California, the County, or any other public agency; provided, however, that any property leased by a public agency; to a private entity and subject to taxation under Section of the Act shall be taxed and classified in accordance with its use. Residential Floor Space means the square footage of a Detached Dwelling Unit, exclusive of garages, as shown on or calculated from the appropriate building records of the County of Riverside Building Department. Special Tax or Special Taxes means the special tax to be levied in each Fiscal Year on each Parcel of Taxable Property to fund the Special Tax Requirement for Improvement Area No. 1, the Special Tax Requirement for Improvement Area No. 2 or the Special Tax Requirement for Improvement Area No. 3. Special Tax Requirement for Improvement Area No. 1 means the amount required in any Fiscal Year to: (i) pay debt service on all outstanding Bonds which is secured by Special Taxes levied on Parcels in IA No. 1; (ii) pay periodic costs with respect to such Bonds including but not limited to, credit enhancement and rebate payments; (iii) pay costs incurred by the District and CFD No. 15 in the annual levy and collection of the Special Taxes in IA No. 1; (iv) pay Administrative Expenses related to IA No. 1; (v) pay any amounts required, to establish or replenish any reserve fund established for such Bonds; and (vi) pay for anticipated delinquent Special Taxes in IA No. 1 based on the delinquency rate for the Special Taxes levied in IA No. 1 in the previous Fiscal Year taking into account any available funds as determined by the District. Special Tax Requirement for Improvement Area No. 2 means the amount required in any Fiscal Year to: (i) pay debt service on all outstanding Bonds which is secured by Special Taxes levied on Parcels in IA No. 2; (ii) pay periodic costs with respect to such Bonds including but not limited to, credit enhancement and rebate payments; (iii) pay costs incurred by the District and CFD No. 15 in the annual levy and collection of the Special Taxes in IA No. 2; (iv) pay Administrative Expenses related to IA No. 2; (v) pay any amounts required, to establish or replenish any reserve fund established for such Bonds; and (vi) pay for anticipated delinquent Special Taxes in IA No. 2 based on the delinquency rate for the Special Taxes levied in IA No. 2 in the previous Fiscal Year taking into account any available funds as determined by the District. Special Tax Requirement for Improvement Area No. 3 means the amount required in any Fiscal Year to: (i) pay debt service on all outstanding Bonds which is secured by Special Taxes levied on Parcels in IA No. 3; (ii) pay periodic costs with respect to such Bonds including but not limited to, credit enhancement and rebate payments; (iii) pay costs incurred by the District and CFD No. 15 in the annual levy and collection of the Special Taxes in IA No. 3; (iv) pay Administrative Expenses related to IA No. 3; (v) pay any amounts required, to establish or replenish any reserve fund A-4

71 established for such Bonds; and (vi) pay for anticipated delinquent Special Taxes in IA No. 3 based on the delinquency rate for the Special Taxes levied in IA No. 3 in the previous Fiscal Year taking into account any available funds as determined by the District. Taxable Property mean all Parcels within IA No. 1, IA No. 2 or IA No. 3 that are not Exempt Property. Taxable Property Owner Association Property means all Parcels of Property Owner Association Property that are not exempt pursuant to Section E. Taxable Public Property means all Parcels of Public Property that are not exempt pursuant to Section E. Fiscal Agent means the Fiscal Agent or fiscal agent under the Fiscal Agent Agreement. Undeveloped Property means all Taxable Property not classified as Developed Property, Taxable Property Owner Association Property or Taxable Public Property. B. CLASSIFICATION OF PARCELS For each Fiscal Year (commencing with the Fiscal Year) all Parcels within IA No. 1, IA No. 2 and IA No. 3 shall be classified as Developed Property, Taxable Public Property, Taxable Property Owner Association Property, Undeveloped Property or Exempt Property and shall be subject to the levy of Special Taxes in accordance with the rates and method of apportionment of the Special Taxes as set forth in Sections C and D. For purposes of determining the applicable Maximum Special Tax pursuant to Section C, Parcels of Developed Property within IA No. 1, IA No. 2 and IA No. 3 shall be assigned to a Land Use Category as specified in Table 1, Table 2 or Table 3. Within IA No. 1 Parcels of Detached Residential Property shall be assigned to Land Use Category 1, 2, 3, 4, 5, 6, or 7 as specified in Table 1, based upon the Residential Floor Space of the Dwelling Unit(s) on or to be constructed on a Parcel as provided in the most recent building permit issued for such Parcel. Within IA No. 2 and IA No. 3, Parcels of Detached Residential Property shall be assigned to Land Use Category 1, 2, 3, 4, 5, or 6 as specified in Table 2 or Table 3, as appropriate, based upon the Residential Floor Space of the Dwelling Unit(s) on or to be constructed on a Parcel as provided in the most recent building permit issued for such Parcel. Within IA No. 1 Parcels of Attached Residential Property and Parcels of Non-Residential Property shall be assigned to Land Use Category 8 or 9 as specified in such table. Within IA No. 2 and IA No. 3 Parcels of Attached Residential Property and Parcels of Non-Residential Property shall be assigned to Land Use Category 7 or 8 as specified in such tables. C. MAXIMUM SPECIAL TAX RATES 1. Improvement Area No. 1 a. Developed Property The Maximum Special Tax for each Parcel of Developed Property classified as Detached Residential Property in Improvement Area No. 1 shall be the greater of (i) the amount determined by multiplying the Dwelling Unit(s) on or to be constructed on the Parcel by the applicable Assigned Special Tax Rate per Dwelling Unit specified in Table 1, or (ii) the Alternate Special Tax. A-5

72 The Maximum Special Tax for each Parcel of Developed Property classified as Attached Residential Property or Non-Residential Property shall be determined by multiplying the Net Taxable Acreage of the Parcel by the applicable Assigned Special Tax Rate as specified in Table 1. Table 1 Assigned Special Tax Rates for Developed Property Improvement Area No. 1 Land Use Category Description Residential Floor Space Assigned Special Tax Rate 1 Detached Residential Property > 4,000 sq. ft. $3,536 per Dwelling Unit 2 Detached Residential Property > 3,700 and 4,000 sq. ft. $3,386 per Dwelling Unit 3 Detached Residential Property > 3,400 and 3,700 sq. ft. $3,221 per Dwelling Unit 4 Detached Residential Property > 3,100 and 3,400 sq. ft. $3,068 per Dwelling Unit 5 Detached Residential Property > 2,800 and 3,100 sq. ft. $2,898 per Dwelling Unit 6 Detached Residential Property > 2,500 and 2,800 sq. ft. $2,709 per Dwelling Unit 7 Detached Residential Property 2,500 sq. ft. $2,483 per Dwelling Unit 8 Attached Residential Property N/A $14,786 per Net Taxable Acre 9 Non-Residential Property N/A $14,786 per Net Taxable Acre b. Taxable Property Owner Association Property, Taxable Public Property and Undeveloped Property The Maximum Special Tax for each Parcel of Taxable Property Owner Association Property, Taxable Public Property or Undeveloped Property in Improvement Area No. 1 shall be determined by multiplying Net Taxable Acreage of the Parcel by $14,786. c. Alternate Special Tax At the time a Final Map is recorded, the Alternate Special Tax for all Parcels of Developed Property classified or to be classified as Detached Residential Property within such Final Map shall be determined by multiplying the total Net Taxable Acreage of Taxable Property, excluding the Net Taxable Acreage of Attached Residential Property and Non-Residential Property, if any, in such Final Map, by $14,786 and dividing the product by the total number of Dwelling Units within such Final Map. Notwithstanding the foregoing, if all or any portion of a Final Map is subsequently changed or modified, then the Alternate Special Tax for each Parcel of Developed Property classified or to be classified as Detached Residential Property in such Final A-6

73 Map that is changed or modified shall be a rate per square foot of Net Taxable Acre calculated as follows: 1. Determine the total Alternate Special Tax anticipated to apply to the changed or modified portion of the Final Map prior to the change or modification. 2. Divide the amount determined pursuant to paragraph 1 above by the Net Taxable Acreage of Parcels of Detached Residential Property which are expected to be located in such changed or modified portion of the Final Map, as determined by the District. 3. Divide the quotient derived pursuant to paragraph 2 above by 43,560. The resulting quotient is the Alternate Special Tax per square foot which shall be applicable to Parcels of Detached Residential Property in such changed or modified portion of the Final Map for all remaining Fiscal Years in which the Special Tax may be levied. 2. Improvement Area No. 2 a. Developed Property The Maximum Special Tax for each Parcel of Developed Property classified as Detached Residential Property in Improvement Area No. 2 shall be the greater of (i) the amount determined by multiplying the Dwelling Unit(s) on or to be constructed on the Parcel by the applicable Assigned Special Tax Rate per Dwelling Unit specified in Table 2, or (ii) the Alternate Special Tax. The Maximum Special Tax for each Parcel of Developed Property classified as Attached Residential Property or Non-Residential Property shall be determined by multiplying the Net Taxable Acreage of the Parcel by the applicable Assigned Special Tax Rate for Non-Residential Property as specified in Table 2. A-7

74 Table 2 Assigned Special Tax Rates for Developed Property Improvement Area No. 2 Land Use Category Description Residential Floor Space Assigned Special Tax Rate 1 Detached Residential Property > 3,700 sq. ft. $4,289 per Dwelling Unit 2 Detached Residential Property > 3,400 and 3,700 sq. ft. $4,194 per Dwelling Unit 3 Detached Residential Property > 3,100 and 3,400 sq. ft. $3,665 per Dwelling Unit 4 Detached Residential Property > 2,800 and 3,100 sq. ft. $3,484 per Dwelling Unit 5 Detached Residential Property > 2,500 and 2,800 sq. ft. $3,405 per Dwelling Unit 6 Detached Residential Property 2,500 sq. ft. $3,247 per Dwelling Unit 7 Attached Residential Property N/A $17,871 per Net Taxable Acre 8 Non-Residential Property N/A $17,871 per Net Taxable Acre b. Taxable Property Owner Association Property, Taxable Public Property and Undeveloped Property The Maximum Special Tax for each Parcel of Taxable Property Owner Association Property, Taxable Public Property or Undeveloped Property in Improvement Area No. 2 shall be determined by multiplying the Net Taxable Acreage of the Parcel by $17,871. c. Alternate Special Tax At the time a Final Map is recorded, the Alternate Special Tax for all Parcels of Developed Property classified or to be classified as Detached Residential Property within such Final Map shall be determined by multiplying the total Net Taxable Acreage of Taxable Property, excluding the Net Taxable Acreage of Attached Residential Property and Non-Residential Property, if any, in such Final Map by $17,871 and dividing the product by the total number of Dwelling Units within such Final Map. Notwithstanding the foregoing, if all or any portion of a Final Map is subsequently changed or modified, then the Alternate Special Tax for each Parcel of Developed Property classified or to be classified as Detached Residential Property in such Final Map area that is changed or modified shall be a rate per square foot of Net Taxable Acre calculated as follows: 1. Determine the total Alternate Special Tax anticipated to apply to the changed or modified portion of the Final Map prior to the change or modification. A-8

75 Land Use Category 2. Divide the amount determined pursuant to paragraph 1 by the Net Taxable Acreage of Parcels of Detached Residential Property which are expected to be located in such changed or modified portion of the Final Map, as determined by the District. 3. Divide the resulting quotient derived pursuant to paragraph 2 above by 43,560. The resulting quotient is the Alternate Special Tax per square foot of Acreage which shall be applicable to Parcels of Detached Residential Property in such changed or modified portion of the Final Map for all remaining Fiscal Years in which the Special Tax may be levied. 3. Improvement Area No. 3 a. Developed Property The Maximum Special Tax for each Parcel of Development Property classified as Detached Residential Property in Improvement Area No. 3 shall be the greater of (i) the amount determined by multiplying the Dwelling Unit(s) on or to be constructed on the Parcel by the applicable Assigned Special Tax Rate per Dwelling Unit specified in Table 3, or (ii) the Alternate Special Tax. The Maximum Special Tax for each Parcel of Developed Property classified as Attached Residential Property or Non-Residential Property shall be determined by multiplying the Net Taxable Acreage of the Parcel by the applicable Assigned Special Tax Rate as specified in Table 3. Table 3 Assigned Special Tax Rates for Developed Property Improvement Area No. 3 Description Residential Floor Space Assigned Special Tax Rate 1 Detached Residential Property > 3,700 sq. ft. $4,326 per Dwelling Unit 2 Detached Residential Property > 3,400 and 3,700 sq. ft. $4,231 per Dwelling Unit 3 Detached Residential Property > 3,100 and 3,400 sq. ft. $3,697 per Dwelling Unit 4 Detached Residential Property > 2,800 and 3,100 sq. ft. $3,514 per Dwelling Unit 5 Detached Residential Property > 2,500 and 2,800 sq. ft. $3,435 per Dwelling Unit 6 Detached Residential Property 2,500 sq. ft. $3,276 per Dwelling Unit 7 Attached Residential Property N/A $17,011 per Net Taxable Acre 8 Non-Residential Property N/A $17,011 per Net Taxable Acre A-9

76 b. Taxable Property Association Property, Taxable Public Property and Undeveloped Property The Maximum Special Tax for each Parcel of Taxable Property Owner Association Property, Taxable Public Property or Undeveloped Property in Improvement Area No. 3 shall be determined by multiplying Net Taxable Acreage of the Parcel by $17,011. c. Alternate Special Tax At the time a Final Map is recorded, the Alternate Special Tax for all Parcels of Developed Property classified or to be classified as Detached Residential Property within such Final Map shall be determined by multiplying the total Net Taxable Acreage of Taxable Property, excluding the Net Taxable Acreage of Attached Residential Property and Non-Residential Property, if any, by $17,011 and dividing the product by the total number of Dwelling Units within such Final Map. Notwithstanding the foregoing, if all or any portion of a Final Map is subsequently changed or modified, then the Alternate Special Tax for each Parcel of Developed Property classified or to be classified as Detached Residential Property in such Final Map area that is changed or modified shall be a rate per square foot of Net Taxable Acre calculated as follows: 1. Determine the total Alternate Special Tax anticipated to apply to the changed or modified portion of the Final Map prior to the change or modification. 2. Divide the amount determined pursuant to paragraph 1 above by the Net Taxable Acreage of Parcels of Detached Residential Property which are expected to be located in such changed or modified portion of the Final Map, as determined by the District. 3. Divide the quotient derived pursuant to paragraph 2 above by 43,560. The resulting quotient is the Alternate Special Tax per square foot which shall be applicable to Parcels of Detached Residential Property in such changed or modified portion of the Final Map for all remaining Fiscal Years in which the Special Tax may be levied. D. METHOD OF APPORTIONMENT AND LEVY OF THE SPECIAL TAX Commencing with Fiscal Year and for each subsequent Fiscal Year, the Board shall determine the Special Tax Requirement for Improvement Area No. 1, the Special Tax Requirement for Improvement Area No. 2, and the Special tax Requirement for Improvement Area No. 3 and shall levy the Special Tax as follows. 1. Apportionment and Levy of Special Tax for Improvement Area No. 1 First: The Special Tax shall be levied Proportionately on each Parcel of Developed Property in Improvement Area No. 1 at up to 100 percent of the applicable Assigned Special Tax Rate to satisfy the Special Tax Requirement for Improvement Area No. 1. Second: If additional monies are needed to satisfy the Special Tax Requirement for Improvement Area No. 1 after the first step has been completed, the Special Tax shall be A-10

77 levied Proportionately on each Parcel of Undeveloped Property in Improvement Area No. 1 at up to 100 percent of the Maximum Special Tax for Undeveloped Property. Third: If additional monies are needed to satisfy the Special Tax Requirement for Improvement Area No. 1 after the first two steps have been completed, the Special Tax to be levied on all Parcels of Developed Property in Improvement Area No. 1, whose Maximum Special Tax is determined by application of the Alternate Special Tax, shall be Proportionately increased from the applicable Assigned Special Tax Rate up to 100 percent of the Maximum Special Tax. Fourth: If additional monies are needed to satisfy the Special Tax Requirement for Improvement Area No. 1 after the first three steps have been completed, the Special Tax shall be levied Proportionately on all Parcels of Taxable Property Owner Association Property and Taxable Public Property in Improvement Area No. 1, up to 100 percent of the Maximum Special Tax for Taxable Property Owner Association Property and Taxable Public Property. Notwithstanding the above, under no circumstances will the Special Tax levied against any Parcel of Detached Residential Property or Attached Residential Property for which an occupancy permit for private residential use has been issued be increased by more than ten percent (10%) as a consequence of delinquency or default by the owner of any other Parcel within IA No Apportionment and Levy of Special Tax for Improvement Area No. 2 First: The Special Tax shall be levied Proportionately on each Parcel of Developed Property in Improvement Area No. 2 at up to 100 percent of the applicable Assigned Special Tax Rate to satisfy the Special Tax Requirement for Improvement Area No. 2. Second: If additional monies are needed to satisfy the Special Tax Requirement for Improvement Area No. 2 after the first step has been completed, the Special Tax shall be levied Proportionately on each Parcel of Undeveloped Property in Improvement Area No. 2 at up to 100 percent of the Maximum Special Tax for Undeveloped Property. Third: If additional monies are needed to satisfy the Special Tax Requirement for Improvement Area No. 2 after the first two steps have been completed, the Special Tax to be levied on all Parcels of Developed Property in Improvement Area No. 2, whose Maximum Special Tax is determined by application of the Alternate Special Tax, shall be Proportionately increased from the applicable Assigned Special Tax Rate up to 100 percent of the Maximum Special Tax. Fourth: If additional monies are needed to satisfy the Special Tax Requirement for Improvement Area No. 2 after the first three steps have been completed, the Special Tax shall be levied Proportionately on all Parcels of Taxable Property Owner Association Property and Taxable Public Property in Improvement Area No. 2, up to 100 percent of the Maximum Special Tax for Taxable Property Owner Association Property and Taxable Public Property. Notwithstanding the above, under no circumstances will the Special Tax levied against any Parcel of Detached Residential Property or Attached Residential Property for which an occupancy permit for private residential use has been issued be increased by more than ten percent (10%) as a consequence of delinquent or default by the owner of any other Parcel within IA No. 2. A-11

78 3. Apportionment and Levy of Special Tax for Improvement Area No. 3 E. EXEMPTIONS First: The Special Tax shall be levied Proportionately on each Parcel of Developed Property in Improvement Area No. 3 at up to 100 percent of the applicable Assigned Special Tax Rate to satisfy the Special Tax Requirement for Improvement Area No. 3. Second: If additional monies are needed to satisfy the Special Tax Requirement for Improvement Area No. 3 after the first step has been completed, the Special Tax shall be levied Proportionately on each Parcel of Undeveloped Property in Improvement Area No. 3 at up to 100 percent of the Maximum Special Tax for Undeveloped Property. Third: If additional monies are needed to satisfy the Special Tax Requirement for Improvement Area No. 3 after the first two steps have been completed, the Special Tax to be levied on all Parcels of Developed Property in Improvement Area No. 3, whose Maximum Special Tax is determined by application of the Alternate Special Tax, shall be Proportionately increased from the applicable Assigned Special Tax Rate up to 100 percent of the Maximum Special Tax. Fourth: If additional monies are needed to satisfy the Special Tax Requirement for Improvement Area No. 3 after the first three steps have been completed, the Special Tax shall be levied Proportionately on all Parcels of Taxable Property Owner Association Property and Taxable Public Property in Improvement Area No. 3, up to 100 percent of the Maximum Special Tax for Taxable Property Owner Association Property and Taxable Public Property. Notwithstanding the above, under no circumstances will the Special Tax levied against any Parcel of Detached Residential Property or Attached Residential Property for which an occupancy permit for private residential use has been issued be increased by more than ten percent (10%) as a consequence of delinquent or default by the owner of any other Parcel within IA No Improvement Area No. 1 The Board shall not levy Special Taxes on: (i) an acreage of Parcels of Public Property and Property Owner Association Property that will not reduce the Net Taxable Acreage of Parcels of Taxable Property within IA No. 1 to less than Net Taxable Acres, and (ii) any Parcels for which the obligation to pay the Special Taxes has been prepaid in full pursuant to Section G. Tax-exempt status for Parcels or portions of Parcels of Public Property and Property Owner Association Property will be irrevocably assigned by the District in the chronological order in which such Parcels or portions of Parcels become Exempt Property. 2. Improvement Area No. 2 The Board shall not levy Special Taxes on: (i) an acreage of Parcels of Public Property and Property Owner Association Property that will not reduce the Net Taxable Acreage of Parcels of Taxable Property within IA No. 2 to less than Net Taxable Acres, and (ii) any Parcels for which the obligation to pay the Special Taxes has been prepaid in full Pursuant to Section G. A-12

79 Tax-exempt status for Parcels or portions of Parcels of Public Property and Property Owner Association Property will be irrevocably assigned by the District in the chronological order in which such Parcels or portions of Parcels become Exempt Property. 3. Improvement Area No. 3 The Board shall not levy Special Tax on: (i) an acreage of Parcels of Public Property and Property Owner Association Property that will not reduce the Net Taxable Acreage of Parcels of Taxable Property within IA No. 3 to less than Net Taxable Acres, and (ii) any Parcels for which the obligation to pay the Special taxes has been prepaid in full Pursuant to Section G. Tax-exempt status for Parcels or portions of Parcels of Public Property and Property Owner Association Property will be irrevocably assigned by the District in the chronological order in which such Parcels of portions of Parcels become Exempt Property. Notwithstanding the preceding provisions of this Section E, Parcels or portions of Parcels conveyed or irrevocably offered for dedication to federal, state or local governments after formation of CFD No. 15, and not otherwise exempt pursuant to this Section E, shall be subject to the Special Tax pursuant to Section or of the Act and classified as Taxable Public Property. F. MANNER OF COLLECTION The Special Taxes levied on Parcels of Taxable Property in IA No. 1, IA No. 2 and IA No. 3 will be collected in the same manner and at the same time as regular ad valorem property taxes; provided, however, that prepayments are permitted as set forth in Section G; and provided further that the District may directly bill all or part of the Special Taxes, and may collect the Special Taxes at a different time or in a different manner if necessary to meet the financial obligations of CFD No. 15. Furthermore, the Board may authorize the collection of delinquent Special Taxes by judicial foreclosure proceedings pursuant to Section of the Act. G. PREPAYMENT AND SATISFACTION OF SPECIAL TAX OBLIGATION 1. Prepayment in Full The Special Tax obligation for any Parcel of Developed Property or Undeveloped Property for which a building permit has been issued within IA No. 1, IA No. 2 or IA No. 3 may be prepaid and permanently satisfied as described herein, provided that a prepayment may be made only if at the time of the prepayment there are no delinquent Special Taxes with respect to such Parcel and all other Parcels which are under the same ownership and located within CFD No. 15. An owner of a Parcel intending to prepay the Special Tax obligation shall provide the District with written notice of intent to prepay. Within 30 days of receipt of such written notice, the District shall notify such owner of the prepayment amount for such Parcel and the date through which the amount of such prepayment shall be valid. Prepayment must be made not less than sixty (60) days prior to the next occurring date that notice of redemption of Bonds from the proceeds of such prepayment may be given to the Fiscal Agent pursuant to the Fiscal Agent Agreement. The following additional definitions apply to this section G. 1: IA Future Facilities Cost means the applicable CFD Public Facilities Amount minus (i) public facilities costs previously paid from the applicable IA No. 1, IA A-13

80 No. 2, or IA No. 3 Construction Fund and (ii) moneys currently on deposit in the applicable IA No. 1, IA No. 2, or IA No. 3 Construction Fund; provided that in no event shall the IA Future Facilities Cost for any improvement area be less than zero. CFD Public Facilities Amount means $15,800,000 for IA No. 1, $14,900,000 for IA No. 2, and $12,500,000 for IA No. 3 expressed in 2005 dollars, which shall increase by the annual percentage change, but not less than zero percent, in the Construction Inflation Index on July 1, 2006, and on each July 1 thereafter, or such lower amount as is determined by the District as being sufficient to provide the public facilities. Construction Fund means a fund or account specifically identified in the Fiscal Agent Agreement to hold funds which are available to acquire or construct public facilities for CFD No. 15. Construction Inflation Index means the Marshall and Swift Class D Wood Frame Construction Index, measured as of the calendar year which ends in the previous Fiscal Year. In the event that index ceases to be published, the Construction Inflation Index shall be another index which is determined by the District to be reasonably comparable to that index. Outstanding Bonds means all Bonds secured by the levy of Special Taxes in IA No. 1, IA No. 2 or IA No. 3, as applicable which will remain outstanding after the first interest and/or principal payment date following the then current Fiscal Year, excluding Bonds to be redeemed at a later date with the proceeds of prior prepayments of the Special Tax obligation. Prepayment means an amount equal to the sum of (1) Principal, (2) Premium, (3) Prepaid Future Facilities Cost, (4) Defeasance, and (5) Fees minus (A) Reserve Fund Credit and (B) Capitalized Interest Credit, where the terms Principal, Premium, Prepaid Future Facilities Cost, Defeasance, Fees, Reserve Fund Credit, and Capitalized Interest Credit have the following meanings: Principal means the principal amount of Bonds to be redeemed with the proposed prepayment and equals the quotient derived by dividing (a) the total amount of Special Tax that could be collected if the Special Tax were levied on the Parcel intending to prepay at the Maximum Special Tax for the Parcel by (b) the total amount of Special Tax that could be collected if the Special Tax were levied on all Parcels of Taxable Property in IA No. 1, IA No. 2 or IA No. 3, as applicable at the Maximum Special Tax for all such Parcels assuming full build out as determined by the District, and by multiplying that quotient by the portion of the principal amount of the Outstanding Bonds the debt service on which is payable from Special Taxes levied on Parcels of Taxable Property in IA No. 1, IA No. 2 or IA No. 3, as applicable. Premium means an amount equal to the Principal multiplied by the redemption premium, if any, for the Bonds which will be redeemed with the prepayment. Prepaid Future Facilities Cost means the amount of future facilities to be funded through the proposed Prepayment and equals the product of the applicable IA Future Facilities Cost and the quotient derived by dividing (a) the total amount of Special Tax that could be collected if the Special Tax were levied on the Parcel intending to prepay at the Maximum Special Tax for the Parcel by (b) the total amount of Special A-14

81 Tax that could be collected if the Special Tax were levied on all Parcels of Taxable Property in IA No. 1, IA No. 2, or IA No. 3, as applicable at the Maximum Special Tax for all such Parcels assuming full build out as determined by the District. Defeasance means the amount needed to pay interest on the Principal until the earliest redemption date for the Outstanding Bonds less the earnings from the investment of the amount of the Principal less the Fees until the redemption date for the Outstanding Bonds to be redeemed with the Prepayment. Credit shall also be given for any Special Tax which has been paid for the Parcel intending to prepay but which has not yet been expended for purposes of the Special Tax Requirement for Improvement Area No. 1, Improvement Area No. 2 or Improvement Area No. 3, as applicable. Fees means administrative fees and expenses associated with the prepayment as calculated by or on behalf of the District including, but not limited to, the costs of computing the Prepayment, the costs of removing any Special Taxes from the tax roll, the costs of redeeming the Bonds, and the costs of recording and publishing any notices to evidence the Prepayment and the redemption of Bonds. Reserve Fund Credit means the lesser of (i) the expected reduction in the applicable Reserve Requirement (as defined in the Fiscal Agent Agreement) following the redemption of Bonds with the Prepayment or (ii) the amount derived by subtracting the new Reserve Requirement which will be in effect after the redemption of Bonds with the Prepayment from the amount on deposit in the Reserve Fund (as defined in the Fiscal Agent Agreement) on the prepayment date, but in no event shall such amount be less than zero. Capitalized Interest Credit means the pro rata amount of capitalized interest, if any, on the Bonds which is allocable to the Parcel intending to prepay the Special Tax obligation determined by dividing (a) the total amount of Special Tax revenues that could be collected if the Special Tax were levied on the Parcel in an amount equal to the Maximum Special Tax for the Parcel by (b) the total amount of Special Tax that could be collected if the Special Tax were levied on all Parcels of Taxable Property in IA No. 1, IA No. 2 or IA No. 3, as applicable (except Parcels which have prepaid the Special Tax obligation) in an amount equal to the Maximum Special Tax for all such Parcels, and by multiplying that quotient by the remaining amount of capitalized interest which is allocable to IA No. 1, IA No. 2 or IA No. 3, as applicable. The Prepayment, exclusive of the Future Facilities Cost, shall be paid to the District and shall be used to pay and redeem Bonds in accordance with the Fiscal Agent Agreement and to pay the Fees. The Future Facilities Cost shall be retained in the Construction Fund. Upon the payment of the Prepayment to the District, the obligation to pay the Special Tax for the prepaying Parcel shall be deemed to be permanently satisfied, the Special Tax shall not be levied thereafter on the Parcel, and the District shall cause a notice of cancellation of the Special Tax lien for such Parcel to be recorded. Notwithstanding the foregoing, no Prepayment shall be allowed unless the total amount of the Special Tax that could be levied on all Parcels of Taxable Property in IA No. 1, IA No. 2, or IA No. 3, as applicable, pursuant to Section D after the proposed prepayment would be at least equal to the sum of (i) the Administrative Expenses allocable to IA No. 1, IA No. 2 or IA No. 3 and (ii) an amount equal to one hundred ten percent (110%) of annual debt service on the Bonds issued for IA No. 1, IA No. 2 or IA No. 3, as applicable, which will remain A-15

82 outstanding for, as applicable, which will remain outstanding following the redemption of Bonds with the Prepayment. 2. Prepayment in Part An owner of not less than 15 Parcels of Detached Residential Property and/or Attached Residential Property or the owner of a Parcel of Detached Residential Property or a Parcel of Attached Residential Property upon which not less than 15 Dwelling Units will be constructed may partially prepay the obligation of all such Parcels or such Parcel to pay the Special Tax by the same percentage for each such Parcel or Dwelling Unit (a Partial Prepayment ). An owner of a single Parcel of Detached Residential Property that has been or will be improved with a single Dwelling Unit will not be allowed to make a Partial Prepayment for the Parcel. The owner of a Parcel of Non-Residential Property or the owner of a Parcel of Undeveloped Property for which a building permit has been issued which will not cause the Parcel to be Detached Residential Property may partially prepay the obligation of the Parcel to pay the Special Tax obligation (also a Partial Prepayment ). However, no Partial Prepayment shall be allowed if there are delinquent Special Taxes for the Parcel or any other Parcel which is also owned by the owner of the Parcel or Parcels proposing the Partial Prepayment. An owner of such a Parcel intending to prepay a portion of the Special Tax obligation for the Parcel shall provide the District with written notice of intent to prepay and the percentage of the Special Tax obligation to be prepaid. Within 30 days of receipt of such written notice, the District shall notify such owner of the Partial Prepayment amount for such Parcel and the date through which the amount any such Partial Prepayment shall be valid. The amount of the Partial Prepayment shall be calculated pursuant to Section G. 1. and the following formula: PP= (Pe x F) + A The abbreviated terms in this formula have the following meanings: PP= the Partial Prepayment Pe= the Prepayment amount calculated according to Section G. 1. F= the percent by which the owner of the Parcel is partial prepaying the Special Tax obligation. A= the Fees determined in Section G. 1. The Partial Prepayment, exclusive of the portion thereof attributable to the Future Facilities Cost, shall be paid to the District and shall be used to pay and redeem Bonds in accordance with the Fiscal Agent Agreement and to pay the Fees. The portion of the Partial Prepayment attributable to Future Facilities Cost shall be retained in the Construction Fund. Upon the payment of the Partial Prepayment to the District, the portion of the Special Tax equal to the outstanding percentage (1.00 F) of the remaining Special Tax obligation shall continue to be authorized to be levied on such Parcel pursuant to Section D. Notwithstanding the foregoing, no Partial Prepayment shall be allowed unless the total amount of the Special Tax that could be levied on all Parcels of Taxable Property in IA No. 1, IA No. 2 or IA No. 3, as applicable, pursuant to Section D after the proposed Partial Prepayment would be at least equal to the sum of (i) the Administrative Expenses allocable to IA No. 1, IA No. 2 or IA No. 3 and (ii) an amount equal to one hundred ten percent (110%) of annual debt service on the Bonds, which will remain outstanding for IA No. 1, IA No. 2 or IA No. 3 following the redemption of Bonds with the Partial Prepayment. A-16

83 I. TERM OF SPECIAL TAX For each year that any Bonds are outstanding the Special Tax shall be levied on all Parcels subject to the Special Tax. No Special Tax shall be levied on any Parcel after the Fiscal Year. J. RELIEF FROM ALTERNATIVE SPECIAL TAX All Parcels within IA No. 1, IA No. 2 or IA No. 3 will be relieved simultaneously and permanently from the obligation to pay and disclose the Alternate Special Tax if the Board determines that the total amount of the Special Taxes which could be levied in any Fiscal Year on all Parcels of Developed Property in IA No. 1, IA No. 2 or IA No. 3, as applicable, based on the Assigned Special Tax Rates for such Parcels would be equal to at least 110 percent of maximum annual debt service on the outstanding Bonds which have been issued for IA No. 1, IA No. 2, and IA No. 3, plus estimated Administrative Expenses for IA No. 1, IA No. 2 or IA No. 3, as applicable. A-17

84 [THIS PAGE INTENTIONALLY LEFT BLANK]

85 APPENDIX B FORM OF OPINION OF BOND COUNSEL Bond Counsel will deliver an opinion for the 2017 Bonds substantially in the form set forth below. Board of Education Riverside Unified School District th Street Riverside, California December 5, 2017 Re: $10,105,000 Community Facilities District No. 15 of Riverside Unified School District (Improvement Area No. 3) Series 2017 Special Tax Bonds Ladies and Gentlemen: We have acted as bond counsel in connection with the issuance by Riverside Unified School District (the School District ) for Community Facilities District No. 15 of Riverside Unified School District, County of Riverside, State of California (the District ), of $10,105,000 aggregate principal amount of the Community Facilities District No. 15 of Riverside Unified School District (Improvement Area No. 3) Series 2017 Special Tax Bonds (the 2017 Bonds ). The 2017 Bonds are issued pursuant to the provisions of the Mello-Roos Community Facilities Act of 1982, as amended, being Chapter 2.5 (commencing with Section 53311) of Part 1 of Division 2 of Title 5 of the Government Code of the State of California (the Act ), a resolution adopted by the Board of Education of Riverside Unified School District (the School District ) on November 6, 2017 (the Resolution ), a Fiscal Agent Agreement, dated as of August 1, 2012, between the School District and U.S. Bank National Association, as fiscal agent (the 2012 Fiscal Agent Agreement ), as supplemented by a Second Supplemental Fiscal Agent Agreement, dated as of November 1, 2017, between the School District and the Fiscal Agent (the Second Supplemental Fiscal Agent Agreement ). We have examined the Act, the Resolution, the 2012 Fiscal Agent Agreement, the Second Supplemental Fiscal Agent Agreement and certified copies of the proceedings taken for the issuance and sale of the 2017 Bonds. As to questions of fact which are material to our opinions, we have relied upon the representations of the School District contained in the 2012 Fiscal Agent Agreement and the Second Supplemental Fiscal Agent Agreement, and in certificates of its authorized officers which have been delivered to us for the purpose of supplying such facts, without having undertaken to verify the accuracy of any such representations by independent investigation. Based upon such examination, we are of the opinion, as of the date hereof, that the proceedings referred to above have been taken in accordance with the laws and the Constitution of the State of California, and that the 2017 Bonds, having been issued in duly authorized form and executed by the proper officials and delivered to and paid for by the purchaser thereof, and the 2012 Fiscal Agent Agreement and the Second Supplemental Fiscal Agent Agreement, having been duly authorized and executed by the proper officials, constitute the legally valid and binding obligations of the District enforceable in accordance with their terms subject to the qualifications specified below. Except where funds are otherwise available, as may be permitted by law, the 2017 Bonds are payable, as to both principal and interest, solely from certain special taxes to be levied and collected within Improvement Area No. 3 of the District and other funds available therefor held under the 2012 Fiscal Agent Agreement, as amended and supplemented by the Second Supplemental Fiscal Agent Agreement. The payment of the principal of and interest on the 2017 Bonds is secured by a pledge of and lien B-1

86 upon the revenues from the collection of such special taxes and such other available funds which is on a parity with the pledge of and lien upon such revenues and funds that secures payment of the principal of and interest on the Community Facilities District No. 15 of Riverside Unified School District Special Tax Refunding Bonds, 2012 Series B (Improvement Area No. 3), which were issued on August 15, The Internal Revenue Code of 1986, as amended (the Code ), sets forth certain investment, rebate and related requirements which must be met subsequent to the issuance and delivery of the 2017 Bonds for the interest on the 2017 Bonds to be and remain exempt from federal income taxation. Noncompliance with such requirements could cause the interest on the 2017 Bonds to be subject to federal income taxation retroactive to the date of issuance of the 2017 Bonds. Pursuant to the 2012 Fiscal Agent Agreement, the School District has covenanted to comply with the requirements of the Code and applicable regulations promulgated thereunder. We are of the opinion that, under existing statutes, regulations, rulings and court decisions, and assuming compliance by the School District with the aforementioned covenants, the interest on the 2017 Bonds is excluded from gross income for purposes of federal income taxation and is exempt from personal income taxation imposed by the State of California. We are further of the opinion that interest on the 2017 Bonds is not a specific preference item for purposes of the alternative minimum tax provisions of the Code. However, interest on the 2017 Bonds received by corporations will be included in corporate adjusted current earnings, a portion of which may increase the alternative minimum taxable income of such corporations. Although interest on the 2017 Bonds is excluded from gross income for purposes of federal income taxation, the accrual or receipt of interest on the 2017 Bonds may otherwise affect the federal income tax liability of the recipient. The extent of these tax consequences will depend on the recipient's particular tax status or other items of income or deduction. We express no opinion regarding any such consequences. The opinions expressed herein may be affected by actions which may be taken (or not taken) or events which may occur (or not occur) after the date hereof. We have not undertaken to determine, or to inform any person, whether any such actions or events are taken or occur or are not taken or do not occur. The rights of the owners of the 2017 Bonds and the enforceability of the 2017 Bonds and the 2012 Fiscal Agent Agreement, as amended and supplemented by the Second Supplemental Fiscal Agent Agreement, may be subject to bankruptcy, insolvency, moratorium and other similar laws affecting creditors rights heretofore or hereafter enacted, and their enforcement may be subject to the exercise of judicial discretion in accordance with general principles of equity. Respectfully submitted, B-2

87 APPENDIX C GENERAL INFORMATION CONCERNING THE REGION The following information concerning the City of Riverside (the City ). the County of Riverside (the County ) and the State of California (the State ) are presented as general background information. The Bonds are not an obligation of the City, the County or the State and the taxing the power of Perris, Menifee, the County and the State are not pledged to the payment of the Bonds. Population The following table offers population figures for the City, the County and the State for 2013 through Area City of Riverside 315, , , , ,792 County of Riverside 2,266,290 2,291,699 2,318,762 2,348,213 2,384,783 State of California 38,238,492 38,572,211 38,915,880 39,189,035 39,523,613 Source: California State Department of Finance, Demographic Research Unit. March 2010 Benchmark. Employment The following table shows the largest employers located in the County as of fiscal year LARGEST EMPLOYERS County of Riverside 2016 Rank Name Employees Type of business or entity 1 County of Riverside 21,479 Public Administration 2 March Air Reserve Base 8,500 National Security 3 University of California Riverside 8,306 Services: Educational 4 Amazon 7,500 Retail Trade: General Merchandise Stores 5 Stater Brothers Market 6,900 Retail Trade: Food Stores 6 Kaiser Permanente Riverside Medical Center 5,300 Services: Health 7 Corona-Norco Unified School District 5,098 Services: Educational 8 Desert Sands Unified School District 4,202 Services: Educational 9 Riverside Unified School District 3,973 Services: Educational 10 Pechanga Resort Casino 3,931 Amusement and Recreation Services Source: City of Riverside Comprehensive Annual Financial Report, Fiscal Year Ended June 30, C-1

88 Employment and Industry Employment data by industry is not separately reported on an annual basis for Perris and Menifee but is compiled for the Riverside-San Bernardino-Ontario Metropolitan Statistical Area (the MSA ), which includes all of Riverside and San Bernardino Counties. In addition to varied manufacturing employment, the MSA has large and growing commercial and service sector employment, as reflected in the table below. The following table represents the Annual Average Labor Force and Industry Employment for the County for the period from 2012 through RIVERSIDE-SAN BERNARDINO-ONTARIO MSA INDUSTRY EMPLOYMENT & LABOR FORCE - BY ANNUAL AVERAGE Civilian Labor Force 1,879,300 1,893,000 1,920,100 1,956,000 1,987,400 Civilian Employment 1,662,700 1,706,900 1,764,600 1,828,400 1,870,200 Civilian Unemployment 216, , , , ,200 Civilian Unemployment Rate 11.5% 9.8% 8.1% 6.6% 5.9% Total Farm 15,000 14,500 14,400 14,800 14,700 Total Nonfarm 1,185,200 1,233,300 1,289,300 1,353,100 1,400,800 Total Private 960,600 1,008,100 1,060,500 1,119,800 1,160,300 Goods Producing 150, , , , ,300 Natural Resources and Mining 1,200 1,200 1,300 1, Construction 62,600 70,000 77,600 85,700 92,500 Manufacturing 86,700 87,300 91,300 96,100 98,900 Service Providing 1,034,700 1,074,700 1,119,100 1,170,100 1,208,500 Trade, Transportation and Utilities 287, , , , ,300 Wholesale Trade 52,200 56,400 58,900 61,600 62,900 Retail Trade 162, , , , ,000 Transportation, Warehousing and 73,000 78,400 86,600 97, ,400 Utilities Information 11,700 11,500 11,300 11,400 11,600 Financial Activities 40,700 41,800 42,900 43,900 45,300 Professional and Business Services 127, , , , ,800 Educational and Health Services 173, , , , ,300 Leisure and Hospitality 129, , , , ,700 Other Services 40,100 41,100 43,000 44,000 45,100 Government 224, , , , ,500 Total, All Industries 1,200,200 1,247,800 1,303,700 1,367,900 1,415,400 Note: Does not include proprietors, self-employed, unpaid volunteers or family workers, domestic workers in households and persons involved in labor-management trade disputes. Employment reported by place of work. Items may not add to total due to independent rounding. The Total, All Industries data is not directly comparable to the employment data found in this APPENDIX C. Source: State of California, Employment Development Department, Riverside-San Bernardino MSA Industry Employment & Labor Force - by Annual Average, March 2016 Benchmark. C-2

89 The following table summarizes the labor force, employment and unemployment figures for the period from 2012 through 2016 for the City, the County, the State and the nation as a whole. CITY OF RIVERSIDE COUNTY OF RIVERSIDE, STATE OF CALIFORNIA AND UNITED STATES Average Annual Civilian Labor Force, Employment and Unemployment Year and Area Labor Force Employment (1) Unemployment (2) Rate (%) (3) Unemployment 2012 City of Riverside 140, ,900 15, % Riverside County 950, , , California 18,523,800 16,602,700 1,921, United States (4) 154,975, ,469,000 12,506, City of Riverside 142, ,500 13, % Riverside County 953, ,300 97, California 18,624,300 16,958,700 1,665, United States (4) 155,389, ,929,000 11,460, City of Riverside 144, ,100 11, % Riverside County 1,011, ,200 83, California 18,755,000 17,348,600 1,406, United States (4) 155,922, ,305,000 9,617, City of Riverside 147, ,400 9, % Riverside County 1,035, ,500 69, California 18,893,200 17,723,300 1,169, United States (4) 157,130, ,834,000 8,296, City of Riverside 150, ,400 8, % Riverside County 1,051, ,000 63, California 19,102,700 18,065,000 1,037, United States (4) 159,187, ,436,000 7,751, (1) Includes persons involved in labor-management trade disputes. (2) Includes all persons without jobs who are actively seeking work. (3) The unemployment rate is computed from unrounded data; therefore, it may differ from rates computed from rounded figures in this table. (4) Not strictly comparable with data for prior years. Source: California Employment Development Department, March 2016 Benchmark and U.S. Department of Labor, Bureau of Labor Statistics. C-3

90 Personal Income Personal Income is the income that is received by all persons from all sources. It is calculated as the sum of wage and salary disbursements, supplements to wages and salaries, proprietors income with inventory valuation and capital consumption adjustments, rental income of persons with capital consumption adjustment, personal dividend income, personal interest income, and personal current transfer receipts, less contributions for government social insurance. The personal income of an area is the income that is received by, or on behalf of, all the individuals who live in the area; therefore, the estimates of personal income are presented by the place of residence of the income recipients. Total personal income in Riverside County increased by 45.7% between 2005 and The following tables summarize personal income for Riverside County for 2005 through RIVERSIDE COUNTY PERSONAL INCOME (Dollars in Thousands) Year Riverside County Annual Percent Change 2005 $57,669, % ,538, ,347, ,367, ,359,484 (3.0) ,904, ,213, ,158, ,223, ,852, ,025, Source: U.S. Department of Commerce, Bureau of Economic Analysis. C-4

91 The following table summarizes per capita personal income for Riverside County, California and the United States for This measure of income is calculated as the personal income of the residents of the area divided by the resident population of the area. RIVERSIDE COUNTY, STATE OF CALIFORNIA AND THE UNITED STATES PER CAPITA PERSONAL INCOME Year Riverside County California United States 2005 $29,853 $39,521 $35, ,574 42,334 38, ,972 43,692 39, ,932 44,162 41, ,446 42,224 39, ,380 43,315 40, ,828 45,820 42, ,263 48,312 44, ,765 48,471 44, ,867 50,988 46, ,589 53,741 48,112 Source: U.S. Department of Commerce, Bureau of Economic Analysis. Building Activity The following table provides summaries of the building permit valuations and the number of new dwelling units authorized in the County from 2012 through BUILDING PERMIT VALUATIONS County of Riverside (Valuation in Thousands of Dollars) Valuation ($000): Residential $1,079,405 $1,375,593 $1,621,751 $1,536,742 $1,759,534 Non-residential 657, , , ,465 1,346,020 Total* $1,737,001 $2,165,593 $2,436,741 $2,448,207 $3,105,554 Residential Units: Single family 3,720 4,716 5,007 5,007 5,662 Multiple family 909 1,427 1,931 1,189 1,039 Total 4,629 6,143 6,938 6,196 6,701 * Totals may not add to sums because of rounding. Source: Construction Industry Research Board. C-5

92 Taxable Sales (1) The table below presents taxable sales for the years 2011 through 2015 for the City of Riverside. TAXABLE SALES CITY OF RIVERSIDE (Dollars in Thousands) Year Permits Taxable Transactions ,066 $4,109, ,484 4,238, ,673 4,612, ,051 5,072, (1) 9,466 5,371,363 The table below presents taxable sales for the years 2011 through 2015 for the County. TAXABLE SALES COUNTY OF RIVERSIDE (1) (Dollars in Thousands) Year Permits Taxable Transactions ,886 $25,641, ,316 28,096, ,805 30,065, ,453 32,035, (1) 55,857 (1) 32,910,910 (1) Beginning in 2015, the outlet counts in these reports show the number of outlets that were active during the reporting period. Retailers that operate part-time are now tabulated with store retailers. Industry-level data for 2015 are not comparable to that of prior years. Source: California State Board of Equalization, Research and Statistics Division. C-6

93 APPENDIX D SUMMARY OF CERTAIN PROVISIONS OF THE FISCAL AGENT AGREEMENT The following is a summary of certain definitions and provisions of the Fiscal Agent Agreement which is not described elsewhere in the Official Statement. This Summary does not purport to be comprehensive and reference should be made to the Fiscal Agent Agreement for a full and complete statement of its provisions. DEFINITIONS 2012 Bonds means the Community Facilities District No. 15 of Riverside Unified School District Special Tax Refunding Bonds, 2012 Series B (Improvement Area No. 3) Bonds means the Community Facilities District No. 15 of the Riverside Unified School District (Improvement Area No. 3) Special Tax Bonds, 2013 Series C Bonds means the Community Facilities District No. 15 of the Riverside Unified School District (Improvement Area No. 3) Series 2017 Special Tax Bonds. Act means the Mello-Roos Community Facilities Act of 1982, as amended, Chapter 2.5 (commencing with Section 53311) of Part 1 of Division 2 of Title 5 of the California Government Code. Administrative Expenses means any or all of the following: the fees and expenses of the Fiscal Agent and the Authority Trustee (including any fees or expenses of their counsel), the expenses of the School District in carrying out its duties hereunder (including, but not limited to, the levying and collection of the Special Taxes) including the fees and expenses of its counsel, an allocable share of the salaries of the School District staff directly related thereto and a proportionate amount of the School District general administrative overhead related thereto, any amounts paid by the School District from its general funds, the expenses of the Authority in carrying out its duties under the Authority Indenture, including the fees and expenses of its counsel, and all other costs and expenses of the School District, the Authority, the Fiscal Agent or the Authority Trustee, incurred in connection with the discharge of their respective duties hereunder or under the Authority Indenture and, in the case of the School District, in any way related to the administration of the District. Administrative Expense Fund means the fund by that name established under Agreement. Agreement means the Agreement, as it may be amended or supplemented from time to time by any Supplemental Agreement adopted pursuant to the provisions hereof. Annual Debt Service means, for each Bond Year, the sum of (i) the interest due on the Outstanding Bonds in such Bond Year, assuming that the Outstanding Bonds are retired as scheduled, and (ii) the principal amount of the Outstanding Bonds scheduled to be paid. Auditor means the Auditor-Controller of the County of Riverside. Authority means the Riverside Unified School District Financing Authority. Authority Bonds means the Riverside Unified School District Financing Authority Revenue Bonds, 2012 Series A (Superior Lien Bonds) and the Riverside Unified School District Financing Authority Revenue Bonds, 2012 Series B (Subordinate Lien Bonds). Authority Bonds Reserve Fund means the Series A Authority Bonds Reserve Fund and the Series B Authority Bonds Reserve Fund established pursuant to the Authority Indenture. D-1

94 Authority Bonds Reserve Funds Proportionate Share means, if the Improvement Area is a Delinquent Improvement Area, an amount determined by dividing the deficiency in the amounts that were paid by the Fiscal Agent to the Authority Trustee in payment of Debt Service on the Bonds in any Bond Year (as a result of a deficiency in the collection of Special Tax Revenues) by the amount withdrawn from the Series B Authority Bonds Reserve Fund or the Series A Authority Bonds Reserve Fund or the amounts withdrawn from both of such funds to pay Debt Service on the Series B Authority Bonds and/or the Series A Authority Bonds in that same Bond Year. Authority Indenture means the Indenture of Trust to be dated as of the Closing Date by and between the Authority and U.S. Bank National Association, as Trustee, with respect to the Authority Bonds. Authorized Officer means any officer or employee of the School District authorized by the Board of Education or by an Authorized Officer to undertake the action referenced in the Agreement as required to be undertaken by an Authorized Officer. Authority Trustee means U.S. Bank National Association, the Trustee appointed by the Authority and acting as Trustee pursuant to the Authority Indenture. BAM means Build America Mutual Assurance Company, or any successor thereto or assignee thereof, as the issuer of the Insurance Policy and the Reserve Policy. Board of Education means the Board of Education of the School District. Bond Counsel means any attorney or firm of attorneys acceptable to the School District and 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 by that name established by the Agreement. Bond Year with respect to the 2017 Bonds means the period beginning on the Closing Date and ending on September 1, 2018 and thereafter the period beginning on each September 2 and ending on the following September 1. Bonds means, unless otherwise expressly provided, the Community Facilities District No. 15 of Riverside Unified School District Special Tax Refunding Bonds, 2012 Series B (Improvement Area No. 3), the 2017 Bonds and any Parity Bonds authorized by and at any time Outstanding pursuant to the Act and the Agreement. Business Day means any day other than (i) a Saturday or a Sunday or (ii) a day on which banking institutions in the State of California or in any state in which the Fiscal Agent has its Principal Office are authorized or obligated by law or executive order to be closed. Closing Date means the date upon which there is an exchange of the Bonds for the proceeds representing payment of the purchase price of the Bonds by the Original Purchaser. Code means the Internal Revenue Code of 1986, as amended. Costs of Issuance means items of expense payable or reimbursable directly or indirectly by the School District and/or the Authority and related to the authorization, sale and issuance of the Bonds and/or the Authority Bonds, which items of expense shall include, but not be limited to, printing costs, costs of reproducing and binding documents, including but not limited to the preliminary official statement and official statement regarding the Authority Bonds and the Bonds, closing costs, filing and recording fees, initial fees and charges of the Fiscal Agent or the Authority Trustee including its first annual administration fee and the fees of its counsel, expenses incurred by the School District in connection with the issuance of the Bonds and/or the Authority Bonds and the establishment of the District, underwriter s discount relating to the Bonds and/or the Authority Bonds, legal fees and charges, including the fees of Bond Counsel and Disclosure Counsel, financial advisor s fees, charges for authentication, D-2

95 transportation and safekeeping of the Bonds and/or the Authority Bonds and other costs, charges and fees in connection with the foregoing. Costs of Issuance Fund means the fund by that name established by the Agreement. Debt Service means the amount of interest and principal payable on the Bonds scheduled to be paid during the period of computation, excluding amounts payable during such period which relate to principal of the Bonds which are scheduled to be retired and paid before the beginning of such period. Defeasance Obligations means any of the following: (i) cash; (ii) direct obligations (other than an obligation subject to variation in principal repayment) of the United States of America ( United States Treasury Obligations ); (iii) obligations fully and unconditionally guaranteed as to timely payment of principal and interest by the United States of America; (iv) obligations fully and unconditionally guaranteed as to timely payment of principal and interest by any agency or instrumentality of the United States of America when such obligations are backed by the full faith and credit of the United States of America; or (v) evidences of ownership of proportionate interests in future interest and principal payments on obligations described above held by a bank or trust company as custodian, under which the owner of the investment is the real party in interest and has the right to proceed directly and individually against the obligor and the underlying government obligations are not available to any person claiming through the custodian or to whom the custodian may be obligated. District means Community Facilities District No. 15 of Riverside Unified School District, County of Riverside, State of California. Escrow Agent means U.S. Bank National Association as Escrow Agent under the Escrow Agreement. Escrow Agreement means the Escrow Deposit and Trust Agreement relating to the 2013 Bonds. Escrow Fund means the fund by that name established under the Escrow Agreement. Federal Securities means any of the following which at the time of investment are legal investments under the laws of the State of California for the moneys proposed to be invested therein: (i) Cash; and (ii) Direct general obligations of (including obligations issued or held in book entry form on the books of the Department of the Treasury of the United States of America and CATS and TIGRS), or obligations, the payment of principal of and interest on which is unconditionally guaranteed by, the United States of America. Facilities means the public school and other facilities that the District is authorized to finance with proceeds of the sale of its bonds. Fiscal Agent means U.S. Bank National Association, the Fiscal Agent appointed by the School District, acting as an independent fiscal agent with the duties and powers herein provided, its successors and assigns, and any other corporation or association which may at any time be substituted in its place, as provided in the Agreement. D-3

96 Fiscal Year means the twelve-month period extending from July 1 in a calendar year to June 30 of the succeeding year, both dates inclusive. Improvement Area No. 3 means Improvement Area No. 3 of the District. Improvement Area Value means the fair market value, as of the date of the appraisal provided for below, of all parcels of property in the Improvement Area that are subject to the levy of the Special Taxes and not delinquent in the payment of any Special Taxes then due and owing, including with respect to such non-delinquent parcels the value of the then existing improvements thereon, as determined by reference to (i) an appraisal performed within ninety (90) days preceding the date of such determination by an appraiser selected and employed by the School District who has experience in preparing appraisals in connection with the sale of bonds of community facilities districts, which appraisal shall be based on the methodology commonly employed by appraisers with such experience in performing such appraisals; or (ii) in the alternative, the full cash value of any or all of such non-delinquent parcels and the improvements thereon as set forth on the then current assessment roll of the County Assessor of the County of Riverside. Improvement Fund means the fund by that name established by the Agreement and the Second Supplemental Fiscal Agent Agreement. Independent Financial Consultant means a firm of certified public accountants, a financial consulting firm, a consulting engineering firm or engineer which is not an employee of, or otherwise controlled by the School District, or the Special Tax Consultant. Information Services means the Electronic Municipal Market Access System of the Municipal Securities Rulemaking Board; and, in accordance with then current guidelines of the Securities and Exchange Commission, such other services providing information with respect to called bonds as the School District may designate in an Officer s Certificate delivered to the Fiscal Agent. Insurer Insurance Policy means the municipal bond insurance policy securing the Bonds and delivered by the Insured Bonds means 2017 Bonds maturing September 1, 2032 through and including September 1, Insurer means (i) BAM as provider of the Reserve Policy and as provider of the Insurance Policy, and (ii) the provider of a municipal bond or financial guaranty insurance policy with respect to an issue of Parity Bonds (other than the Bonds) or with respect to an issue of bonds the proceeds of which are used to purchase an issue of Parity Bonds (other than the Bonds). Interest Account means the account by that name established by the Fiscal Agent in the Bond Fund pursuant to the Agreement. Interest Payment Dates means March 1 and September 1 of each year, commencing March 1, Investment Earnings means all interest earned and any gains and losses on the investment of moneys in any fund or account created by the Agreement excluding interest earned and gains and losses on the investment of moneys in the Rebate Fund. Maximum Annual Debt Service means the largest Annual Debt Service for any Bond Year after the calculation is made through the final maturity date of any Outstanding Bonds. Moody s shall mean Moody s Investors Service, Inc., a national rating service with offices in New York, New York. D-4

97 Officer s Certificate means a written certificate of the School District signed by an Authorized Officer of the School District. Ordinance means any ordinance of the School District or resolution of the Board of Education levying the Special Taxes. Original Purchaser means the first purchaser of the Bonds from the School District. Outstanding, when used as of any particular time with reference to the Bonds, means (subject to the provisions of the Agreement) all Bonds except: (i) cancellation; Bonds theretofore canceled by the Fiscal Agent or surrendered to the Fiscal Agent for (ii) Bonds called for redemption which, for the reasons specified in the Agreement, are no longer entitled to any benefit under the Agreement other than the right to receive payment of the redemption price therefor; (iii) Bonds paid or deemed to have been paid within the meaning of the Agreement; and (iv) Bonds in lieu of or in substitution for which other Bonds shall have been authorized, executed, issued and delivered by the School District and authenticated by the Fiscal Agent pursuant to the Agreement or any Supplemental Agreement. Owner means any person who shall be the registered owner of any Outstanding Bond. Parity Bonds means bonds issued by the District pursuant to the Agreement for the purpose of (i) financing the construction and acquisition of additional Facilities, or (ii) for the purpose of defeasing and refunding a portion of the Outstanding Bonds, and that are secured by a pledge of and lien upon the Special Tax Revenues and funds pledged herein for the payment of the Bonds hereunder on a parity with the Outstanding Bonds. Permitted Investments means any of the following which at the time of investment are legal investments under the laws of the State of California for the money proposed to be invested therein: (1) Any Defeasance Obligation. (2) Federal Housing Administration debentures. (3) Direct obligations of the following federal agencies which are not fully guaranteed by the faith and credit of the United States of America: (a) Federal Home Loan Mortgage Corporation ( FHLMCs ) participation certificates (excluding stripped mortgage securities which are purchased at prices exceeding their principal amounts) and senior debt obligations. (b) Farm Credit Banks (formerly: Federal Land Banks, Federal Intermediate Credit Banks and Banks for Cooperatives) consolidated system-wide bonds and notes. (c) Federal Home Loan Banks consolidated debt obligations. (d) Federal National Mortgage Association ( FNMAs ) senior debt obligations and mortgage backed securities (excluding stripped mortgage securities which are purchased at prices exceeding their principal amounts). (e) Financing Corporation (FICO) debt obligations. D-5

98 (f) Resolution Funding Corporation debt obligations. (4) Unsecured certificates of deposit, time deposits, and bankers acceptances (having maturities of not more than 30 days) of any bank the short-term obligations of which are rated A-1 or better by S&P. (5) Deposits the aggregate amount of which are fully insured by the Federal Deposit Insurance Corporation (FDIC), in banks which have capital and surplus of at least $5 million. (6) Commercial paper (having original maturities of not more than 30 days) rated A-1+ by S&P and Prime-1 by Moody s. (7) Money market funds rated in the highest rating category by S&P and Moody s, including funds for which the Fiscal Agent, its parent holding company, if any, or any affiliates or subsidiaries of the Fiscal Agent provide investment advisory or other management services. (8) State Obligations, which means: (a) Direct general obligations of any state of the United States of America or any subdivision or agency thereof to which is pledged the full faith and credit of a state the unsecured general obligation debt of which is rated A3 by Moody s and A by S&P, or better, or any obligation fully and unconditionally guaranteed by any state, subdivision or agency whose unsecured general obligation debt is so rated. (b) Direct general short-term obligations of any state agency or subdivision or agency thereof described in (a) above and rated A-1+ by S&P and MIG-1 by Moody s. (c) Special Revenue Bonds (as defined in the United States Bankruptcy Code) of any state, state agency or subdivision described in (a) above and rated AA or better by S&P and Aa or better by Moody s. (9) Pre-refunded municipal obligations rated AAA by S&P and Aaa by Moody s meeting the following requirements: (a) the municipal obligations are (1) not subject to redemption prior to maturity or (2) the trustee for the municipal obligations has been given irrevocable instructions concerning their call and redemption and the issuer of the municipal obligations has covenanted not to redeem such municipal obligations other than as set forth in such instructions; (b) the municipal obligations are secured by cash or United States Treasury Obligations (as defined in paragraph (1) of the definition of Defeasance Obligations) which may be applied only to payment of the principal of, interest and premium on such municipal obligations; (c) the principal of and interest on the United States Treasury Obligations (plus any cash in the escrow) has been verified by the report of independent certified public accountants to be sufficient to pay in full all principal of, interest, and premium, if any, due and to become due on the municipal obligations ( Verification ); (d) the cash or United States Treasury Obligations serving as security for the municipal obligations are held by an escrow agent or trustee in trust for owners of the municipal obligations; (e) no substitution of a United States Treasury Obligation shall be permitted except with another United States Treasury Obligation and upon delivery of a new Verification; and D-6

99 (f) the cash or United States Treasury Obligations are not available to satisfy any other claims, including those by or against the trustee or escrow agent. (10) Repurchase agreements with (1) any domestic bank, or domestic branch of a foreign bank, the long term debt of which is rated at least AA by S&P and Moody s; or (2) any broker-dealer with retail customers or a related affiliate thereof which broker-dealer has, or the parent company (which guarantees the provider) of which has, long-term debt rated at least AA by S&P and Moody s, which broker-dealer falls under the jurisdiction of the Securities Investors Protection Corporation; or (3) any other entity rated AA or better by S&P and Moody s, provided that: (a) The market value of the collateral is maintained at levels and upon such conditions as would be acceptable to S & P and Moody s to maintain an A rating in an A rated structured financing (with a market value approach); (b) The Fiscal Agent or a third party acting solely as agent therefor or for the District (the Holder of the Collateral ) has possession of the collateral or the collateral has been transferred to the Holder of the Collateral in accordance with applicable state and federal laws (other than by means of entries on the transferor s books); (c) The repurchase agreement shall state and an opinion of counsel shall be rendered at the time such collateral is delivered that the Holder of the Collateral has a perfected first priority security interest in the collateral, any substituted collateral and all proceeds thereof (in the case of bearer securities, this means the Holder of the Collateral is in possession); (d) All other requirements of S&P and Moody s in respect of repurchase agreements shall be met. (e) The repurchase agreement shall provide that if during its term the provider s rating by either Moody s or S&P is withdrawn or suspended or falls below A- by S&P or A3 by Moody s, as appropriate, the provider must, at the direction of the District or the Fiscal Agent, within 10 days of receipt of such direction, repurchase all collateral and terminate the agreement, with no penalty or premium to the District or Fiscal Agent. Notwithstanding the above, if a repurchase agreement has a term of 270 days or less (with no evergreen provision), collateral levels need not be as specified in (a) above, so long as such collateral levels are 103% or better and the provider is rated at least A by S&P and Moody s, respectively. (11) Investment agreements with a domestic or foreign bank or corporation (other than a life or property casualty insurance company) the long-term debt of which, or, in the case of a guaranteed corporation the long-term debt is rated at least AA (stable) by S&P and Aa (stable) by Moody s, or, in the case of a monoline financial guaranty insurance company, claims paying ability of the guarantor is rated at least AAA (stable) by S&P and Aaa (stable) by Moody s; provided that, by the terms of the investment agreement: (a) interest payments are to be made to the Fiscal Agent at times and in amounts as necessary to pay debt service (or, if the investment agreement is for the construction fund, construction draws) on the Bonds; (b) the invested funds are available for withdrawal without penalty or premium, at any time upon not more than seven days prior notice; the District and the Fiscal Agent hereby agree to give or cause to be given notice in accordance with the terms of the investment agreement so as to receive funds thereunder with no penalty or premium paid; (c) the investment agreement shall state that is the unconditional and general obligation of, and is not subordinated to any other obligation of, the provider thereof or, if the D-7

100 provider is a bank, the agreement or the opinion of counsel shall state that the obligation of the provider to make payments thereunder ranks pari passu with the obligations of the provider to its other depositors and its other unsecured and unsubordinated creditors; (d) the District or the Fiscal Agent receives the opinion of domestic counsel (which opinion shall be addressed to the District) that such investment agreement is legal, valid, binding and enforceable upon the provider in accordance with its terms and of foreign counsel (if applicable); (e) the investment agreement shall provide that if during its term (i) the provider s rating by either S&P or Moody s falls below AA- or Aa3, respectively, the provider shall, at its option, within 10 days of receipt of publication of such downgrade, either (i) collateralize the investment agreement by delivering or transferring in accordance with applicable state and federal laws (other than by means of entries on the provider s books) to the District, the Fiscal Agent or a third party acting solely as agent therefor (the Holder of the Collateral ) collateral free and clear of any third-party liens or claims the market value of which collateral is maintained at levels and upon such conditions as would be acceptable to S & P and Moody s to maintain an A rating in an A rated structured financing (with a market value approach); or (ii) repay the principal of and accrued but unpaid interest on the investment, and (ii) the provider s rating by either S&P or Moody s is withdrawn or suspended or falls below A- or A3, respectively, the provider must, at the direction of the District or the Fiscal Agent, within 10 days of receipt of such direction, repay the principal of and accrued but unpaid interest on the investment, in either case with no penalty or premium to the District or the Fiscal Agent, and (f) the investment agreement shall state and an opinion of counsel shall be rendered, in the event collateral is required to be pledged by the provider under the terms of the investment agreement, at the time such collateral is delivered, that the Holder of the Collateral has a perfected first priority security interest in the collateral, any substituted collateral and all proceeds thereof (in the case of bearer securities, this means the Holder of the Collateral is in possession); and (g) the investment agreement must provide that if during its term (i) the provider shall default in its payment obligations, the provider s obligations under the investment agreement shall, at the direction of the District or the Fiscal Agent, be accelerated and amounts invested and accrued but unpaid interest thereon shall be repaid to the District or the Fiscal Agent, as appropriate, and (ii) the provider shall become insolvent, not pay its debts as they become due, be declared or petition to be declared bankrupt, etc. ( event of insolvency ), the provider s obligations shall automatically be accelerated and amounts invested and accrued but unpaid interest thereon shall be repaid to the District or the Fiscal Agent, as appropriate. (12) The following investment pools: (a) ); (b) Local Agency Investment Fund (as set forth in Government Code Section Riverside County Investment Pool; and D-8

101 (c) California Assessment Management Pool (CAMP). Principal Account means the account by that name established by the Fiscal Agent pursuant to the Agreement. Principal Office means with respect to the payment, registration, surrender, exchange or transfer of any Bond or Bonds, the principal corporate trust office or agency of the Fiscal Agent in St. Paul, Minnesota, or such other offices as the Fiscal Agent may designate. Priority Administrative Expense Amount means the amount of $30,000 that will be deposited in the Administrative Expense Fund for each Fiscal Year pursuant to the Agreement. Proceeds, when used with reference to the Bonds, means the aggregate principal amount of the Bonds, plus accrued interest and premium, if any, less original issue discount, if any. Qualified Reserve Account Credit Instrument means (i) the Reserve Policy or (ii) an irrevocable standby or direct-pay letter of credit or surety bond issued by a commercial bank or insurance company and deposited with the Fiscal Agent pursuant to the Second Supplemental Fiscal Agent Agreement provided that all of the following requirements are met by the District at the time of delivery thereof to the Fiscal Agent: (a) the long-term credit rating of such bank or insurance company is A (without regard to modifier) or higher; (b) such letter of credit or surety bond has a term of at least twelve (12) months; (c) such letter of credit or surety bond has a stated amount at least equal to the portion of the Reserve Requirement with respect to which funds are proposed to be released pursuant to the Fiscal Agent Agreement; (d) the Fiscal Agent is authorized pursuant to the terms of such letter of credit or surety bond to draw thereunder an amount equal to any deficiencies which may exist from time to time in the Interest Account, the Principal Account or the Sinking Account for the purpose of making payments; and (e) prior written notice is given to the Insurer before the effective date of any such Qualified Reserve Account Credit Instrument. Rates and Method of Apportionment of Special Tax means the Rates and Method of Apportionment of Special Tax for the District and Improvement Area No. 3. Rebate Certificate means the certificate delivered by the School District upon the delivery of the Bonds relating to Section 148 of the Code, or any functionally similar replacement certificate. Rebate Fund means the fund by that name established by the Agreement. Record Date means the fifteenth (15th) day of the month next preceding the applicable Interest Payment Date whether or not such day is a Business Day. Regulations means the temporary and permanent regulations of the United States Department of the Treasury promulgated under the Code. Reserve Fund means the fund by that name established by the Agreement. Reserve Policy means the municipal bond Debt Service Reserve Insurance Policy issued by the Insurer deposited into the 2017 Bonds Account. Reserve Requirement means the least of (i) ten percent (10%) of the proceeds of the sale of the 2017 Bonds, (ii) Maximum Annual Debt Service on the 2017 Bonds or (iii) 125 percent of average Annual Debt Service on the 2017 Bonds, as determined by the School District. Resolution means Resolution No. 2017/18-16 adopted by the Board of Education on, November 6, School District means Riverside Unified School District. D-9

102 Special Taxes or Special Tax means the special taxes levied by the Board of Education on parcels of taxable property within Improvement Area No. 3 pursuant to the Act and the Agreement. Special Tax Consultant means an engineer or financial consultant or other such person or firm with expertise in the apportionment and levy of special taxes in community facilities districts which is employed by the School District to assist the School District in levying the Special Taxes. Special Tax Fund means the fund by that name established by the Agreement. Special Tax Prepayments means amounts received by the School District as prepayments of all or a portion of the Special Tax obligation of a parcel of property in the District. Special Tax Prepayments Account means the account by that name established by the Fiscal Agent in the Bond Fund pursuant to the Agreement. Special Tax Revenues means the proceeds of the Special Taxes received by the School District, including any scheduled payments thereof, interest and penalties thereon and proceeds of the redemption or sale of property sold as a result of foreclosure of the lien of the Special Taxes in the amount of said lien and interest and penalties thereon. Standard & Poor s means Standard & Poor s Ratings Services, a division of The McGraw-Hill Companies, Inc., a national rating service with offices in New York, New York. hereby. Supplemental Agreement means an agreement amending and supplementing the Agreement as permitted Surplus Account means the accounts by that name established in the Special Tax Fund by the Agreement. PARITY BONDS AND FUNDS AND ACCOUNTS Special Obligation. All obligations of the School District and the District under the Agreement and the Bonds shall be special obligations of the School District and the District, payable solely from the Special Tax Revenues and the funds pledged therefor pursuant hereto. Neither the faith and credit nor the taxing power of the School District, the District (except to the limited extent set forth herein) or the State of California or any political subdivision thereof is pledged to the payment of the Bonds. Issuance of Parity Bonds. The School District may issue bonds of the District, in addition to the Bonds, which shall be secured by a lien on the Special Tax Revenues and funds pledged for the payment of the Bonds hereunder on a parity with the Outstanding Bonds as provided herein (the Parity Bonds ) in such aggregate principal amount as the School District may determine is appropriate for the purpose of defeasing and refunding all or a portion of the Outstanding Bonds, but only if such defeasance and refunding will not result in an increase in Annual Debt Service in any Bond Year. The Parity Bonds shall be issued by means of a Supplemental Agreement and without the consent of any Bondowners, upon compliance with the provisions of the Agreement. The School District may issue such Parity Bonds subject to the following specific conditions precedent: (A) The School District shall be in compliance with all covenants set forth in the Agreement and all Supplemental Agreements. (B) The Supplemental Agreement providing for the issuance of such Parity Bonds shall provide that interest thereon shall be payable on March 1 and September 1, and principal thereof shall be payable on September 1 in any year in which principal is payable (provided that there shall be no requirement that any Parity Bonds pay interest on a current basis). (C) The Supplemental Agreement providing for the issuance of such Parity Bonds may provide for the establishment of separate funds and accounts, and shall provide for a deposit to a reserve fund, which may be the D-10

103 Reserve Fund, in an amount necessary so that the amount on deposit therein, following the issuance of such Parity Bonds, is equal to the reserve requirement for such Parity Bonds. (D) The School District shall deliver to the Fiscal Agent an Officer s Certificate certifying that the conditions precedent to the issuance of such Parity Bonds set forth in subsections (A), (B) and (C) have been satisfied. SPECIAL TAX FUND Creation of Special Tax Fund. The Agreement establishes the Improvement Area No. 3 of Community Facilities District No. 15 of Riverside Unified School District Special Tax Refunding Bonds Special Tax Fund to be held by the Fiscal Agent to the credit of which the School District shall deposit, within ten (10) Business Days after receipt, the Special Tax Revenues received by the School District (the School District specifying in writing to the Fiscal Agent the amounts of such deposits). There is also established in the Special Tax Fund, as a separate account to be held by the Fiscal Agent, the Surplus Account to the credit of which amounts shall be deposited as provided in the Agreement. Moneys in the Special Tax Fund shall be held in trust by the Fiscal Agent for the benefit of the School District and the Owners of the Bonds, shall be disbursed as provided below and, pending disbursement, shall be subject to a lien in favor of the Owners of the Bonds. Notwithstanding the foregoing, any amounts received by the School District which constitute Special Tax Prepayments shall be transferred by the School District immediately upon receipt to the Fiscal Agent for deposit by the Fiscal Agent in the Special Tax Prepayments Account established pursuant to the Agreement. Deposit of Amounts Received from the Authority Trustee. Upon receipt of moneys from the Authority Trustee, the Authority pursuant to the Authority Indenture and instructions from the School District in an Officer s Certificate, upon which the Fiscal Agent may conclusively rely, the Fiscal Agent shall deposit in the Surplus Account the amounts of such moneys specified in such Officer s Certificate for deposit in the Surplus Account. The School District shall apply the amounts deposited in the Surplus Account as a credit to the annual installments of the Special Taxes for the then current Fiscal Year. Disbursements. As soon as practicable after the receipt from the School District of any Special Tax Revenues, but no later than ten (10) Business Days after such receipt, the Fiscal Agent shall withdraw from the Special Tax Fund and deposit in the Administrative Expense Fund, an amount which is estimated by the School District, in an Officer s Certificate delivered to the Fiscal Agent (upon which the Fiscal Agent may conclusively rely) to be sufficient, together with the amount then on deposit in the Administrative Expense Fund, to pay the Administrative Expenses during the current Fiscal Year; provided, however, that the amount deposited in the Administrative Expense Fund prior to the deposits to the Interest Account and the Principal Account of the Bond Fund, as provided below, shall not exceed $30,000 for any Fiscal Year. From the amounts then remaining on deposit in the Special Tax Fund, the Fiscal Agent shall, as soon as such amounts are sufficient, deposit in the Reserve Fund the amounts, if any, which the School District shall direct in an Officer s Certificate delivered to the Fiscal Agent (upon which the Fiscal Agent may conclusively rely), to be withdrawn from the Special Tax Fund to make the amount on deposit therein equal to the Reserve Requirement. Thereafter, on or before each Interest Payment Date, the Fiscal Agent shall deposit in the Interest Account and the Principal Account of the Bond Fund the amounts required to pay the interest on and the principal of the Bonds on such Interest Payment Date, as provided in the Agreement. Notwithstanding the preceding provisions of this paragraph, if the amount of the Special Tax Revenues collected by the School District for any Fiscal Year is less than the total amount of the Special Taxes which were levied on parcels of taxable property in the Improvement Area for such Fiscal Year, the School District shall not direct the Fiscal Agent to transfer any amount from the Special Tax Fund for deposit in the Reserve Fund, but shall instead direct the Fiscal Agent to deposit the entire amount remaining in the Special Tax Fund, after the appropriate transfer to the Administrative Expense Fund, to the Interest Account and the Principal Account as hereinafter provided. On or before the March 1 Interest Payment Date in each Bond Year, if the amount of other moneys which is on deposit in the Special Tax Fund is less than the amount of the interest on the Bonds which is due on such Interest Payment Date, the Fiscal Agent shall transfer moneys from the Surplus Account, to the extent of moneys on deposit therein and available for transfer, to and deposit such moneys in the Interest Account of the Bond Fund in an D-11

104 amount not to exceed the deficiency in the amount of other moneys which are on deposit in the Special Tax Fund, and available for transfer, to pay the full amount of the interest on the Bonds which is due and payable on such Interest Payment Date. On or before the September 1 Interest Payment Date in each Bond Year, if the amount of other moneys which is on deposit in the Special Tax Fund is less than the amount of the interest on and principal of the Bonds which is due on such Interest Payment Date, the Fiscal Agent shall transfer moneys from the Surplus Account, to the extent of moneys on deposit therein and available for transfer, to and deposit such moneys in the Interest Account and the Principal Account in amounts not to exceed the amount of the deficiency in the amount of other moneys which are on deposit in the Special Tax Fund, and available for transfer, to pay the full amount of the interest on and principal of the Bonds which is due and payable on such Interest Payment Date. On or before May 30 of each year, commencing on May 30, 2013, the Fiscal Agent shall notify the School District of the amount which is then on deposit in the Surplus Account, and of the aggregate amount of the principal of and interest on the Bonds which will become due and payable on March 1 and September 1 of the following calendar year. Investment. Moneys in the Special Tax Fund shall be invested and deposited in accordance with the Agreement. Investment Earnings shall be retained in the Special Tax Fund to be used for the purposes of such fund. ADMINISTRATIVE EXPENSE FUND Creation of Administrative Expense Fund. The Agreement establishes, as a separate fund to be held by the Fiscal Agent, the Improvement Area No. 3 of Community Facilities District No. 15 of Riverside Unified School District Special Tax Refunding Bonds Administrative Expense Fund to the credit of which deposits shall be made as required by the Agreement. Moneys in the Administrative Expense Fund shall be held in trust by the Fiscal Agent for the benefit of the School District, and shall be disbursed as provided below. Disbursement. Amounts in the Administrative Expense Fund shall be withdrawn by the Fiscal Agent and paid to the School District or its order upon receipt by the Fiscal Agent of an Officer s Certificate stating the amount to be withdrawn, that such amount is to be used to pay an Administrative Expense (or a Cost of Issuance) and the nature of such Administrative Expense (or Cost of Issuance). Annually, not later than the last day of each Fiscal Year, the Fiscal Agent shall withdraw any amount then remaining in the Administrative Expense Fund that has not been allocated by an Officer s Certificate received by the Fiscal Agent from the School District to pay Administrative Expenses which are expected to be incurred in the succeeding Fiscal Year prior to the receipt by the School District of Special Tax Revenues for such succeeding Fiscal Year and transfer such amount in Proportionate Amounts, as directed in an Officer s Certificate (upon which the Fiscal Agent may conclusively rely) to the Surplus Account. Investment. Subject to the provisions above, moneys in the Administrative Expense Fund shall be invested and deposited in accordance with the Agreement. Investment Earnings shall be retained by the Fiscal Agent in the Administrative Expense Fund to be used for the purposes of such fund. COSTS OF ISSUANCE FUND Creation of Costs of Issuance Fund. The Agreement establishes, as a separate fund to be held by the Fiscal Agent, the Improvement Area No. 3 of Community Facilities District No. 15 of Riverside Unified School District Special Tax Bonds Costs of Issuance Fund to the credit of which a deposit shall be made as required by the Agreement. Moneys in the Cost of Issuance Fund shall be held in trust by the Fiscal Agent and shall be disbursed as provided in the Agreement for the payment or reimbursement of Costs of Issuance. Disbursement. Amounts in the Costs of Issuance Fund shall be disbursed to pay Costs of Issuance, as set forth in a requisition containing respective amounts to be paid to the designated payees, signed by an Authorized Officer and delivered to the Fiscal Agent on the Closing Date. The Fiscal Agent shall pay all Costs of Issuance upon receipt of an invoice from any such payee which requests payment in an amount which is less than or equal to the amount set forth with respect to such payee in such requisition, or upon receipt of an Officer s Certificate requesting payment of a Cost of Issuance not listed on the initial requisition delivered to the Fiscal Agent on the Closing Date. The Fiscal Agent shall maintain the Costs of Issuance Fund for a period of ninety (90) days from the Closing Date D-12

105 and shall then transfer and deposit any moneys remaining therein, including any Investment Earnings thereon, to the Special Tax Fund. Investment. Moneys in the Costs of Issuance Fund shall be invested and deposited in accordance with the Agreement. Investment Earnings shall be retained by the Fiscal Agent in the Cost of Issuance Fund to be used for the purposes of such fund. IMPROVEMENT FUND AND ESCROW FUND Establishment of Improvement Fund. The Agreement has established the Improvement Fund. The Supplemental Agreement establishes as separate accounts in the Improvement Fund, to be held by the Fiscal Agent, the School Facilities Account, the Water District Facilities Account and the City Facilities Account to the credit of which deposits shall be made as required by the Agreement. Moneys in the Improvement Fund, and all accounts therein, shall be held by the Fiscal Agent for the benefit of the School District, the Water District and the City, as provided below, and shall be disbursed, except as otherwise provided in the Agreement, for the payment or reimbursement of the costs of the design, acquisition and construction of the Project. Procedure for Disbursement. (1) School Facilities Account. Disbursements from the School Facilities Account shall be made by the Fiscal Agent upon receipt of an Officer s Certificate which shall: (a) set forth the amount required to be disbursed, the purpose for which the disbursement is to be made and the person to which the disbursement is to be paid; and (b) certify that no portion of the amount then being requested to be disbursed was set forth in any Officer s Certificate previously filed with the Fiscal Agent requesting disbursement, and that the amount being requested is an appropriate disbursement from the School Facilities Account. (2) Water District Facilities Account. Disbursements from the Water District Facilities Account shall be made by the Fiscal Agent upon receipt of a Water District Certificate which shall: (a) set forth the amount required to be disbursed, the purpose for which the disbursement is to be made and the person to which the disbursement is to be paid; (b) certify that the amount required to be disbursed is for payment of costs related to the construction and acquisition of the Water District Facilities as described in the Joint Community Facilities Agreement; and (c) certify that no portion of the amount then being requested to be disbursed was set forth in any Water District Certificate previously filed with the Fiscal Agent requesting disbursement, and that the amount being requested is an appropriate disbursement from the Water District Facilities Account. If any amount on deposit in the Water District Facilities Account will not be disbursed for payment of the costs of the construction and acquisition of the Water District Facilities, the Fiscal Agent shall, upon receipt of written directions from the School District and the Water District (upon which the Fiscal Agent may conclusively rely) transfer such amount to the School Facilities Account or the City Facilities Account. The School District shall consult with the Developer before instructing the Fiscal Agent to transfer any amount from the Water District Facilities Account to the School Facilities Account or the City Facilities Account. (3) City Facilities Account. Disbursements from the City Facilities Account shall be made by the Fiscal Agent upon receipt of a City Certificate which shall: (a) set forth the amount required to be disbursed, the purpose for which the disbursement is to be made and the person to which the disbursement is to be paid; D-13

106 (b) certify that the amount required to be disbursed is for payment of costs related to the construction and acquisition of the City Facilities as described in the Joint Community Facilities Agreement; and (c) certify that no portion of the amount then being requested to be disbursed was set forth in any City Certificate previously filed with the Fiscal Agent requesting disbursement, and that the amount being requested is an appropriate disbursement from the City Facilities Account. If any amount on deposit in the City Facilities Account will not be disbursed for payment of the costs of the construction and acquisition of the City Facilities, the Fiscal Agent shall, upon receipt of written directions from the School District and the City (upon which the Fiscal Agent may conclusively rely) transfer such amount to the School Facilities Account or the Water District Facilities Account. The School District shall consult with the Developer before instructing the Fiscal Agent to transfer any amount from the City Facilities Account to the School Facilities Account or the Water District Facilities Account. Investment. Moneys in the Improvement Fund and each account therein shall be invested and deposited in accordance with the Agreement. Investment Earnings shall be retained by the Fiscal Agent in the appropriate account in the Improvement Fund to be used for the purposes of such account. Closing of Fund. Upon the filing of an Officer s Certificate stating that the portions of the Project which are to be financed with the moneys on deposit in the Improvement Fund and all accounts therein have been completed and that all costs of such portions of the Project have been paid or are not required to be paid from the Improvement Fund, and further stating that moneys on deposit in the Improvement Fund are not needed to complete such portions of the Project or reimburse the cost thereof, the Fiscal Agent shall transfer the amount, if any, remaining in the Improvement Fund and all accounts therein to the Principal Account of the Bond Fund to be used to pay the principal of the 2017 Bonds. Officer s Certificate, Water District Certificate or City Certificate. Upon receipt of an Officer s Certificate, a Water District Certificate or a City Certificate delivered pursuant to the Agreement, the Fiscal Agent is authorized to act thereon without further inquiry and shall not be responsible for the accuracy of the statements made in such Officer s Certificate, Water District Certificate or City Certificate or the application of the funds disbursed pursuant thereto, and shall be absolutely protected and incur no liability in relying on such Officer s Certificate, Water District Certificate or City Certificate. Escrow Fund. A portion of the proceeds of the 2017 Bonds will be transferred to the Escrow Agent and deposited into the Escrow Fund established under the Escrow Agreement to defease and redeem the 2013 Bonds. SPECIAL TAX REVENUES; BOND FUND; RESERVE FUND Pledge of Special Tax Revenues. The Bonds, the 2017 Bonds (including any Parity Bonds that may be issued) shall be secured by a first and prior pledge of and lien upon (which shall be perfected in the manner and to the extent herein provided) all of the Special Tax Revenues (except the amount of $30,000 which is to be deposited in the Administrative Fund pursuant to the Agreement), all moneys on deposit in the Principal Account and the Interest Account of the Bond Fund, all moneys on deposit in the Surplus Account and all moneys on deposit in the 2017 Bonds Account in the Reserve Fund. The Bonds, the 2017 Bonds (including any Parity Bonds that may be issued) shall be equally secured by a pledge of and lien upon the Special Tax Revenues and such moneys without priority for number, date of Bond, date of execution or date of delivery; and the payment of the interest on and principal of the Bonds, the 2017 Bonds (including any Parity Bonds that may be issued) and any premium upon the redemption of any thereof shall be and is secured by a first and prior pledge of and lien upon the Special Tax Revenues and such moneys. The Special Tax Revenues and all moneys on deposit in such funds and accounts are hereby dedicated in their entirety to the payment of the principal of the Bonds, the 2017 Bonds (including any Parity Bonds that may be issued), and interest and any premium on, the Bonds, the 2017 Bonds (including any Parity Bonds that may be issued), as provided herein and in the Act, until all of the Bonds, the 2017 Bonds (including any Parity Bonds that may be issued) have been paid and retired or until moneys or Defeasance obligations have been set aside irrevocably for that purpose in accordance with the Agreement. If Parity Bonds are issued for the purpose of D-14

107 discharging the indebtedness of a portion of the Outstanding Bonds pursuant to the Agreement, the provisions of the Agreement shall apply to such Parity Bonds to the same extent and with the same effect as they apply to the Bonds. BOND FUND Deposits. The Agreement establishes, as a separate fund to be held by the Fiscal Agent, the Improvement Area No. 3 of Community Facilities District No. 15 of Riverside Unified School District Special Tax Refunding Bonds Bond Fund to the credit of which deposits shall be made as required by the Agreement and any other provision of the Agreement or the Act. There are hereby established in the Bond Fund, as separate accounts to be held by the Fiscal Agent, the Interest Account and the Principal Account. There is hereby also established in the Bond Fund, as a separate account to be held by the Fiscal Agent, the Special Tax Prepayments Account to the credit of which deposits shall be made as required by the Agreement. Moneys in the Bond Fund shall be held in trust by the Fiscal Agent for the benefit of the Owners of the Bonds, shall be disbursed for the payment of the principal of, and interest and any premium on, the Bonds as provided below, and, pending such disbursement, shall be subject to a lien in favor of the Owners of the Bonds. Disbursements (1) Bond Fund Disbursements. On or before each Interest Payment Date, the Fiscal Agent shall transfer from the Special Tax Fund (including the Surplus Account therein) and deposit into the following respective accounts in the Bond Fund the following amounts in the following order of priority, the requirements of each such account (including the making up of any deficiencies in any such account resulting from lack of Special Tax Revenues sufficient to make any earlier required deposit) at the time of deposit to be satisfied before any transfer is made to any account subsequent in priority: (a) Interest Account. On or before each Interest Payment Date, the Fiscal Agent shall deposit in the Interest Account the amount required to cause the aggregate amount on deposit in the Interest Account to equal the amount of interest becoming due and payable on the Bonds on such date. No deposit need be made into the Interest Account on any Interest Payment Date if the amount on deposit therein is at least equal to the interest becoming due and payable on the Bonds on such date. All moneys in the Interest Account shall be used and withdrawn by the Fiscal Agent solely for the purpose of paying the interest on the Bonds as it shall become due and payable (including accrued interest on any Bonds redeemed prior to maturity). All amounts on deposit in the Interest Account on the first day of any Bond Year, to the extent not required to pay any interest then having become due and payable on the Outstanding Bonds, shall be withdrawn therefrom by the Fiscal Agent and transferred in Proportionate Amounts, as directed by an Officer s Certificate (upon which the Fiscal Agent may conclusively rely), to the Surplus Account. (b) Principal Account. On or before each Interest Payment Date which occurs on September 1, the Fiscal Agent shall deposit in the Principal Account the amount required to cause the aggregate amount on deposit in the Principal Account to equal the principal amount of the Bonds becoming due and payable on such Interest Payment Date pursuant to the Agreement, or the redemption price of the Bonds (consisting of the principal amount thereof and any applicable redemption premium) required to be redeemed on such date pursuant to any of the provisions of the Agreement. All moneys in the Principal Account shall be used and withdrawn by the Fiscal Agent solely for the purpose of (i) paying the principal of the Bonds at the maturity thereof, or (ii) paying the principal of and premium (if any) on any Bonds upon the redemption thereof pursuant to the Agreement. All amounts on deposit in the Principal Account on the first day of any Bond Year (i.e., September 2), to the extent not required to pay the principal of any Outstanding Bonds then having become due and payable on the Outstanding Bonds shall be withdrawn therefrom by the Fiscal Agent and transferred in Proportionate Amounts, as directed by an Officer s Certificate (upon which the Fiscal Agent may conclusively rely), to the Surplus Account. Notwithstanding the provisions of paragraphs (a) and (b) above, so long as the Authority is the Owner of the Outstanding Bonds, the Fiscal Agent shall immediately upon depositing an amount in the Interest Account or the Principal Account or in both such accounts, as provided in such paragraphs, pay to the Authority Trustee the amount of the Debt Service on the Bonds which is due on the succeeding Interest Payment Date. D-15

108 On the first Business Day following each Interest Payment Date, the Fiscal Agent shall transfer any moneys remaining on deposit in the Bond Fund (including the Interest Account and the Principal Account) other than moneys on deposit in the Special Tax Prepayments Account, as directed by an Officer s Certificate (upon which the Fiscal Agent may conclusively rely) to the Surplus Account. In the event that moneys on deposit in the Special Tax fund, including moneys on deposit in the Surplus Account, will be insufficient on any Interest Payment Date for the Fiscal Agent to deposit the required amounts in the Interest Account and the Principal Account, as provided above, the Fiscal Agent shall deposit the available funds first to the Interest Account in the amount required to cause the aggregate amount on deposit therein to equal the amount of interest becoming due and payable on the Bonds on the Interest Payment Date, and shall then deposit the remaining available funds in the Special Tax Fund, including funds on deposit in the Surplus Account, to the Principal Account in the amount required to cause the aggregate amount on deposit therein to equal the amount, if any, of principal becoming due and payable on the Bonds on the Interest Payment Date. If, after making such deposits to the Interest Account and the Principal Account, and after transferring moneys from the Reserve Fund to such accounts, as provided in the Agreement, the amount on deposit in the Principal Account is insufficient to pay the full amount of the principal of each of the Bonds which is to be redeemed on the Interest Payment Date, the Fiscal Agent shall make a prorated payment of the principal of each of such Bonds as specified in an Officer s Certificate provided to the Fiscal Agent. In the event that moneys on deposit in the Special Tax Fund, including moneys on deposit in the Surplus Account, will be insufficient on any Interest Payment Date for the Fiscal Agent to deposit the required amounts in the Interest Account and Principal Account as provided above, the Fiscal Agent shall promptly notify the Authority Trustee thereof so that the Authority Trustee may timely withdraw moneys from the Authority Bonds Reserve Funds to pay Debt Service on the Authority Bonds. (2) Special Tax Prepayments Account Deposits and Disbursements. Within ten (10) Business Days after receiving a Special Tax Prepayment, the School District shall deliver the amount thereof to the Fiscal Agent, together with an Officer s Certificate notifying the Fiscal Agent that the amount being delivered is a Special Tax Prepayment which is to be deposited in the Special Tax Prepayments Account. Upon receiving a Special Tax Prepayment from the School District and such an Officer s Certificate, the Fiscal Agent shall (i) deposit the amount of the Special Tax Prepayment in the Special Tax Prepayments Account, and (ii) promptly deliver a copy of such Officer s Certificate to the Authority Trustee for appropriate action by the Authority Trustee pursuant to the Authority Indenture with respect to any 2017 Bonds to be prepaid. Such an Officer s Certificate may be combined with the Officer s Certificate which the School District is required to deliver to the Fiscal Agent pursuant to the Agreement. A portion of the moneys on deposit in the Special Tax Prepayments Account shall be transferred by the Fiscal Agent, upon receipt of an Officer s Certificate directing such transfer and specifying the amount to be transferred (upon which the Fiscal Agent may conclusively rely), to the Principal Account on the next date for which notice of the redemption of the Bonds can timely be given under the Agreement and shall be used to redeem the Bonds on the redemption date selected in accordance with the Agreement. The portion of the moneys on deposit in the Special Tax Prepayments Account representing funded interest on a portion of the Outstanding Bonds shall be transferred by the Fiscal Agent, upon receipt of an Officer s Certificate directing such transfer and specifying the amount to be transferred (upon which the Fiscal Agent may conclusively rely), to the Interest Account on or before each Interest Payment Date prior to and including the Interest Payment Date on which the redemption of such Bonds will occur. Pending such transfers, the moneys on deposit in the Special Tax Prepayments Account shall be invested in Permitted Investments of such type and at such yield as Bond Counsel may determine is necessary to preserve the exclusion of interest on the Bonds from gross income for purposes of federal income taxation. Investment Earnings from such Permitted Investments shall be retained by the Fiscal Agent in the Special Tax Prepayments Account. Investment. Moneys in the Bond Fund, including all accounts therein, shall be invested and deposited in accordance with the Agreement. Investment Earnings shall be retained in the Bond Fund, except to the extent they are required to be deposited by the Fiscal Agent in the Rebate Fund in accordance with the Agreement. Investment earnings with respect to moneys in the Special Tax Prepayments Account shall be retained therein as specified in the Agreement. D-16

109 RESERVE FUND Creation of Fund. There is hereby established, as a separate fund to be held by the Fiscal Agent, the Improvement Area No. 3 of Community Facilities District No. 15 of Riverside Unified School District Special Tax Refunding Bonds Reserve Fund to the credit of which a deposit shall be made as required by the Agreement, which deposit is equal to the Reserve Requirement, and to which deposits shall be made as provided in the Agreement. Moneys in the Reserve Fund shall be held in trust by the Fiscal Agent for the benefit of the Owners of the Bonds as a reserve for the payment of the principal of and interest and any premium on the Bonds and shall be subject to a lien in favor of the Owners of the Bonds Bonds Account in the Reserve Fund. The Second Supplemental Fiscal Agent Agreement establishes in the Reserve Fund, as a separate account to be held by the Fiscal Agent, the 2017 Bonds Account to the credit of which a deposit shall be made as required by the Second Supplemental Fiscal Agent Agreement. The 2017 Bonds Account, as an account in the Reserve Fund, shall, except as provided in the succeeding sentence, be held as a separate Reserve Account for the 2017 Bonds and shall be maintained in the manner described in the Agreement, but shall not be established to secure payments on the 2012 Bonds. Investment Earnings with respect to the 2017 Bonds Account shall be retained in such account, except to the extent they are required to be deposited by the Fiscal Agent in the Rebate Fund in accordance with the Agreement. Use of Fund. Except as otherwise provided in this Section, all amounts on deposit in the Reserve Fund shall be used and withdrawn by the Fiscal Agent solely for the purpose of making transfers to the Interest Account and the Principal Account of the Bond Fund in the event of any deficiency at any time in either of such accounts of the amount then required for payment of the principal of and interest and any premium on the Bonds or, in accordance with the provisions of the Agreement, for the purpose of redeeming Bonds. Transfer Due to Deficiency in Interest and Principal Accounts. Whenever transfer is made from the Reserve Fund to the Interest Account or the Principal Account due to a deficiency in either such account, the Fiscal Agent shall provide written notice thereof to the School District. Transfer When Balance Exceeds Outstanding Bonds. Whenever the balance in the Reserve Fund is equal to or exceeds the amount required to redeem or pay the Outstanding Bonds, including interest accrued to the date of payment or redemption and premium, if any, due upon redemption, the Fiscal Agent shall, upon receiving written direction from an Authorized Officer (upon which the Fiscal Agent may conclusively rely), transfer the amount in the Reserve Fund to the Interest Account and the Principal Account to be applied, on the next succeeding Interest Payment Date, to the payment and redemption, in accordance with the Agreement, as applicable, of all of the Outstanding Bonds. In the event that the amount available to be so transferred from the Reserve Fund to the Interest Account and the Principal Account exceeds the amount required to pay and redeem the Outstanding Bonds, the excess shall be transferred to the School District to be used for any lawful purpose of the School District. Restoration of Amounts Withdrawn From Reserve Funds. Upon receiving a written notification from the Authority Trustee pursuant to the Authority Indenture regarding an amount withdrawn from the Series A Authority Bonds Reserve Fund or the Series B Authority Bonds Reserve Fund, and if Improvement Area No. 3 is a Delinquent Improvement Area (as defined in the Authority Indenture) the School District shall be obligated to restore the Authority Bonds Reserve Funds Proportionate Share and the 2017 Bonds Reserve Account of such amount from the collection of delinquent installments of the Special Taxes levied on parcels in Improvement Area No. 3, and penalties and interest thereon, whether by judicial foreclosure proceedings or otherwise within five (5) Business Days following the receipt by the School District of such delinquent installments, penalties and interest. Upon receipt of any such delinquent installments of the Special Taxes, penalties and interest, the School District shall, notwithstanding the provisions of the Agreement, pay to the Authority Trustee therefrom, to the extent thereof, the amount required to restore the Authority Bonds Reserve Funds Proportionate Share of the amount withdrawn from the Series A Authority Bonds Reserve Fund or the Series B Authority Bonds Reserve Fund, as appropriate and with the respect to the 2017 Bonds Reserve Account. Upon receiving such a notification from the Authority Trustee, and if Improvement Area No. 3 is a Delinquent Improvement Area, the School District shall also be obligated, under the conditions and subject to the limitations specified in the Agreement, to include in the levy of the Special Taxes for the next Fiscal Year the D-17

110 amount required to restore the Authority Bonds Reserve Funds Proportionate Share of the Series A Authority Bonds Reserve Fund or the Series B Authority Bonds Reserve Fund and the 2017 Bonds Reserve Account to the Reserve Requirement. Upon receiving Special Tax Revenues which include such amounts, the School District shall pay such amounts to the Authority Trustee for deposit in the Series A Authority Bonds Reserve Fund or the Series B Authority Bonds Reserve Fund, the Fiscal Agent for deposit to the 2017 Bonds Reserve Account as appropriate. Transfers on Payment of Special Tax Obligations. Whenever the School District receives a Special Tax Prepayment for a lot or parcel of property within Improvement Area No. 3, the School District shall by an Officer s Certificate notify the Fiscal Agent thereof and of the amount by which the Reserve Fund (as transferred to the Authority Trustee) is to be reduced and which is transferable from the Reserve Fund to the Principal Account of the Bond Fund, which amount shall be specified in the Officer s Certificate. Each such Officer s Certificate shall be accompanied by a report of an Independent Financial Consultant verifying the accuracy of the calculation of the amount to be transferred from the Reserve Fund to the Principal Account ( Verification ). Upon receipt of each such Officer s Certificate and Verification, upon which the Fiscal Agent may conclusively rely, the Fiscal Agent shall promptly deliver a copy thereof to the Authority Trustee for appropriate action by the Authority Trustee pursuant to the Agreement of the Authority Indenture. Investments. Subject to the Agreement above, Investment Earnings shall be retained in the Reserve Fund, without allocation to Improvement Area No. 3, and shall be used for the purposes of such fund, except to the extent they are required to be deposited by the Fiscal Agent in the Rebate Fund as provided in the Agreement Bonds Account in the Reserve Fund. (a) For the purposes of securing the 2017 Bonds, tracking Investment Earnings, and determining the amounts that may be required to be deposited in the Rebate Fund, as provided in the Agreement, there is established in the Reserve Fund, as a separate account to be held by the Fiscal Agent, the 2017 Bonds Account to the credit of which a deposit shall be made as required by the Second Supplemental Fiscal Agent Agreement. The 2017 Bonds Account, as an account in the Reserve Fund, shall, except as provided in the succeeding sentence, be held as a separate Reserve Account for the 2017 Bonds and shall be maintained in the manner described in the Agreement, but shall not be established to secure payments on the 2012 Bonds or any Parity Bonds. Investment Earnings with respect to the 2017 Bonds Account shall be retained in such account, except to the extent they are required to be deposited by the Fiscal Agent in the Rebate Fund in accordance with the Agreement. (b) All amounts in the 2017 Bonds Account on the Business Day preceding the final Interest Payment Date shall be withdrawn from the 2017 Bonds Account and shall be transferred either (i) to the Interest Account and the Principal Account, in such order, to the extent required to make the deposits then required to be made pursuant to the Second Supplement Fiscal Agent Agreement, (ii) if the School District shall have caused to be transferred to the Fiscal Agent an amount sufficient to make the deposits required by the Second Supplemental Fiscal Agent Agreement, then, at the Written Request of the District, such amount shall be transferred as directed by the District. (c) The Reserve Requirement with respect to the 2017 Bonds shall be satisfied by the delivery of the Reserve Policy to the Fiscal Agent. The Fiscal Agent shall credit the Reserve Policy to the 2017 Bonds Account. Under the terms and conditions of the Reserve Policy, the Fiscal Agent shall deliver to BAM a demand for payment under the Reserve Policy in the required form at least five Business Days before the date on which funds are required for the purposes set forth in the Second Supplemental Fiscal Agent Agreement. The Fiscal Agent shall comply with all of the terms and provisions of the Reserve Policy for the purpose of assuring that funds are available thereunder when required for the purposes of the 2017 Bonds Account, within the limits of the coverage amount provided by the Reserve Policy. All amounts drawn by the Fiscal Agent under the Reserve Policy will be deposited into the 2017 Bonds Account and applied for the purposes thereof. The District shall reimburse BAM for all draws under Reserve Policy in accordance with the terms of the Second Supplemental Fiscal Agent Agreement. (d) In the event that the amount on deposit in the 2017 Bonds Account at any time becomes less than the Reserve Requirement, the Fiscal Agent shall promptly notify the District of such fact. Promptly upon receipt of any such notice, the District shall transfer to the Fiscal Agent an amount sufficient to maintain the Reserve Requirement on deposit in the 2017 Bonds Account. If there shall then not be sufficient Special Taxes on deposit in the Bond Fund to transfer an amount sufficient to maintain the Reserve Requirement on deposit in the 2017 Bonds Account, the District shall be obligated to continue making transfers as Special Taxes become available until there is an D-18

111 amount sufficient to maintain the Reserve Requirement on deposit in the 2017 Bonds Account. No such transfer and deposit need be made to the 2017 Bonds Account so long as there shall be on deposit therein a sum at least equal to the Reserve Policy. No such transfer and deposit need be made to the 2017 Bonds Account so long as there shall be on deposit therein a sum at least equal to the Reserve Policy. In the event the insurer of the Reserve Policy becomes insolvent, the School District shall not be obligated to replace such Reserve Policy or to cash fund the Reserve Fund. The District shall, with the prior written consent of the Insurer, have the right at any time to direct the Fiscal Agent to release funds from the 2017 Bonds Account, in whole or in part, by tendering to the Fiscal Agent: (i) a Qualified Reserve Account Credit Instrument, and (ii) an opinion of Bond Counsel stating that neither the release of such funds nor the acceptance of such Qualified Reserve Account Credit Instrument will cause interest on the Bonds to become includable in gross income for purposes of federal income taxation. Upon tender of such items to the Fiscal Agent, and upon delivery by the District to the Fiscal Agent of written calculation of the amount permitted to be released from the 2017 Bonds Account (upon which calculation the Fiscal Agent may conclusively rely), the Fiscal Agent shall transfer such funds from the 2017 Bonds Account to the District to be applied in accordance with the Law. The Fiscal Agent shall comply with all documentation relating to the Reserve Policy or other Qualified Reserve Account Credit Instrument as shall reasonably be required to maintain such Qualified Reserve Account Credit Instrument in full force and effect and as shall reasonably be required to receive payments thereunder in the event and to the extent required to make any payment when and as required under the Second Supplemental Fiscal Agent Agreement. Upon the expiration of any Qualified Reserve Account Credit Instrument, the District shall be obligated either (i) to replace such Qualified Reserve Account Credit Instrument with a new Qualified Reserve Account Credit Instrument, or (ii) to deposit or cause to be deposited with the Fiscal Agent an amount of funds equal to the Reserve Requirement, to be derived from Special Taxes. Municipal Bond Insurance. (a) So long as the Insurance Policy remains in effect, the Fiscal Agent shall comply with all of the terms and provisions thereof as may be required to submit and enforce a claim thereunder. Without limiting the generality of the foregoing, the Fiscal Agent shall comply with the following provisions as more particularly described in the Fiscal Agent Agreement: (1) In the event that principal and/or interest due on the Insured Bonds is paid by BAM pursuant to the Insurance Policy, the Insured Bonds shall remain outstanding for all purposes, not be defeased or otherwise satisfied and not be considered paid by the District, the assignment and pledge of the trust estate and all covenants, agreements and other obligations of the District to the registered owners will continue to exist and will run to the benefit of BAM, and BAM will be subrogated to the rights and remedies of such registered owners including, without limitation, any rights and remedies that such owners may have in respect of securities law violations arising from the offer and sale of the Insured Bonds. (2) In the event that on the second (2nd) business day prior to any payment date on the Insured Bonds, the Fiscal Agent has not received sufficient moneys to pay all principal of and interest on the Insured Bonds due on such payment date, the Fiscal Agent will immediately notify BAM or its designee on the same business day by telephone or electronic mail, of the amount of the deficiency. If any deficiency is made up in whole or in part prior to or on the payment date, the Fiscal Agent will so notify BAM or its designee immediately upon receipt of payment. (3) In addition, if the Fiscal Agent has notice that any Owner of the Insured Bonds has been required to disgorge payments of principal of or interest on the Insured Bonds pursuant to a final, nonappealable order by a court of competent jurisdiction that such payment constitutes an avoidable preference to such Owner within the meaning of any applicable bankruptcy law, then the Fiscal Agent will notify BAM or its designee of such fact by telephone or electronic mail, or by overnight or other delivery service as to which a delivery receipt is signed by a person authorized to accept delivery on behalf of BAM. (4) The Fiscal Agent shall irrevocably be designated, appointed, directed and authorized to act as attorney-in-fact for Owners of the Insured Bonds as follows: D-19

112 (i) If there is a deficiency in amounts required to pay interest and/or principal on the Insured Bonds, the Fiscal Agent will (i) execute and deliver to BAM, in form satisfactory to BAM, an instrument appointing BAM as agent and attorney-in-fact for such Owners of the Insured Bonds in any legal proceeding related to the payment and assignment to BAM of the claims for interest on the Insured Bonds, (ii) segregate all payments received by the Fiscal Agent under the Insurance Policy in a separate account (the BAM Policy Payment Account ) to only be used to make scheduled payments of principal of and interest on the Insured Bonds, and (iii) disburse the same to such respective Owners; and (ii) If there is a deficiency in amounts required to pay principal of the Insured Bonds, the Fiscal Agent will (i) execute and deliver to BAM, in form satisfactory to BAM, an instrument appointing BAM as agent and attorney-in-fact for such Owner of the Insured Bonds in any legal proceeding related to the payment of such principal and an assignment to BAM of the Insured Bonds surrendered to BAM, (ii) segregate all payments received by the Fiscal Agent under the Insurance Policy in the BAM Policy Payment Account to only be used to make scheduled payments of principal of and interest, and (iii) disburse the same to such Owners. (5) The Fiscal Agent will designate any portion of payment of principal on Insured Bonds paid by BAM, whether by virtue of mandatory sinking fund redemption, maturity or other advancement of maturity, on its books as a reduction in the principal amount of Insured Bonds registered to the then current Owner, whether DTC or its nominee or otherwise, and will issue a replacement Insured Bond to BAM, registered in the name directed by BAM, in a principal amount equal to the amount of principal so paid (without regard to authorized denominations); provided that the Fiscal Agent's failure to so designate any payment or issue any replacement Insured Bond will have no effect on the amount of principal or interest payable by the District on any Insured Bond or the subrogation or assignment rights of BAM. (6) Payments with respect to claims for interest on and principal of Insured Bonds disbursed by the Fiscal Agent from proceeds of the Insurance Policy will not be considered to discharge the obligation of the District with respect to such Insured Bonds, and BAM will become the owner of such unpaid Bonds and claims for the interest in accordance with the tenor of the assignment made to it under the provisions of the preceding paragraphs or otherwise. (7) Irrespective of whether any such assignment is executed and delivered, the District and the Fiscal Agent agree for the benefit of BAM that: (i) They recognize that to the extent BAM makes payments directly or indirectly (e.g., by paying through the Fiscal Agent), on account of principal of or interest on the Insured Bonds, BAM will be subrogated to the rights of such Owners to receive the amount of such principal and interest from the District, with interest thereon, as provided and solely from the sources stated in the Second Supplemental Fiscal Agent Agreement and the Insured Bonds; and (ii) They will accordingly pay to BAM the amount of such principal and interest, with interest thereon as provided in the Second Supplemental Fiscal Agent Agreement and the Insured Bonds, but only from the sources and in the manner provided therein for the payment of principal of and interest on the Insured Bonds to Owners, and will otherwise treat BAM as the owner of such rights to the amount of such principal and interest. (8) The District agrees unconditionally that it will pay or reimburse BAM on demand any and all reasonable charges, fees, costs, losses, liabilities and expenses that BAM may pay or incur, including, but not limited to, fees and expenses of BAM s agents, attorneys, accountants, consultants, appraisers and auditors and reasonable costs of investigations, in connection with the administration (including waivers and consents, if any), enforcement, defense, exercise or preservation of any rights and remedies in respect of the Fiscal Agent Agreement, the Second Supplemental Fiscal Agent Agreement or the Insurance Policy ( Administrative Costs ). For purposes of the foregoing, costs and expenses shall include a reasonable allocation of compensation and overhead attributable to the time of employees of BAM spent in connection with the actions described in the preceding sentence. The District agrees that D-20

113 failure to pay any Additional Payments on a timely basis will result in the accrual of interest on the unpaid amount at the Late Payment Rate, defined herein, compounded semi-annually, from the date that payment is first due to BAM until the date BAM is paid in full. (9) Notwithstanding anything herein to the contrary, the District agrees to pay to BAM (i) a sum equal to the total of all amounts paid by BAM under the Insurance Policy (the Insurance Policy Payment ); and (ii) interest on the Insurance Policy Payments from the date paid by BAM until payment thereof in full by the District, payable to BAM at the Late Payment Rate per annum (collectively, BAM Reimbursement Amounts ) compounded semi-annually. The District hereby covenants and agrees that the BAM Reimbursement Amounts are secured by a lien on and pledge of the Special Taxes and payable on a parity with debt service due on the Bonds. The Second Supplemental Fiscal Agent Agreement shall not be discharged until all Additional Costs and BAM Reimbursement Amounts owing to BAM shall have been paid in full, and such obligation shall expressly survive the discharge and defeasance in full of the Bonds. Reserve Policy Provisions. With respect to the Municipal Bond Debt Service Reserve Insurance Policy, notwithstanding anything to the contrary set forth in the Authorizing Documents the District and the Fiscal Agent agree to comply with the following provisions: (a) The District shall repay any draws under the Reserve Policy and pay all related reasonable expenses incurred by the Insurer. Interest shall accrue and be payable on such draws and expenses from the date of payment by the Insurer at the Late Payment Rate. Late Payment Rate means the lesser of (A) the greater of (i) the per annum rate of interest, publicly announced from time to time by JPMorgan Chase Bank at its principal office in the City of New York, as its prime or base lending rate ( Prime Rate ) (any change in such Prime Rate to be effective on the date such changes are announced by JPMorgan Chase Bank) plus 3%, and (ii) the then applicable highest rate of interest on the Bonds, and (B) the maximum rate permissible under applicable usury or similar laws limiting interest rates. The Late Payment Rate shall be computed on the basis of the actual number of days elapsed over a year of 360 days. In the event JPMorgan Chase Bank ceases to announce its Prime Rate publicly, Prime Rate shall be the publicly announced prime or base lending rate of such bank, banking association or trust company bank as the Insurer in its sole and absolute discretion shall specify. Repayment of draws and payment of expenses and accrued interest thereon at the Late Payment Rate (collectively, the Policy Costs ) shall commence in the first month following each draw, and each such monthly payment shall be in an amount at least equal to 1/12 of the aggregate of Policy Costs related to such draw. Amounts in respect of Policy Costs paid to the Insurer shall be credited first to interest due, then to the expenses due and then to principal due. As and to the extent that payments are made to the Bond Insurer on account of principal due, the coverage under the Reserve Policy will be increased by a like amount, subject to the terms of the Reserve Policy. All cash and investments in the 2017 Bonds Account shall be transferred to the Bond Fund for payment of the debt service on the Bonds before any drawing may be made on the Reserve Policy or any other Qualified Reserve Fund Credit Instrument in lieu of cash. Payment of any Policy Cost shall be made prior to replenishment of any cash amounts. Draws on all Qualified Reserve Fund Credit Instruments (including the Reserve Policy) on which there is available coverage shall be made on a pro-rata basis (calculated by reference to the coverage then available thereunder) after applying all available cash and investments in the 2017 Bonds Account. Payment of Policy Costs and reimbursement of amounts with respect to other Qualified Reserve Fund Credit Instruments shall be made on a pro-rata basis prior to replenishment of any cash drawn from the 2017 Bonds Account. For the avoidance of doubt, available coverage means the coverage then available for disbursement pursuant to the terms of the applicable alternative credit instrument without regard to the legal or financial ability or willingness of the provider of such instrument to honor a claim or draw thereon or the failure of such provider to honor any such claim or draw. D-21

114 (b) Insurer. Draws under the Reserve Policy may only be used to make payments on Bonds insured by the (c) If the District shall fail to pay any Policy Costs in accordance with the requirements of paragraph (a) above, the Insurer shall be entitled to exercise any and all legal and equitable remedies available to it, including those provided under the Second Supplemental Fiscal Agent Agreement other than (i) acceleration of the maturity of the Bonds, or (ii) remedies which would adversely affect owners of the Bonds. (d) The Second Supplemental Fiscal Agent Agreement shall not be discharged until all Policy Costs owing to the Insurer shall have been paid in full. The District s obligations to pay such amount shall expressly survive payment in full of the Bonds. (e) The Fiscal Agent shall ascertain the necessity for a claim upon the Reserve Policy in accordance with the provisions of paragraph (a) hereof and provide notice to the Insurer at least three business days prior to each date upon which interest or principal is due on the Bonds. (f) The Reserve Policy shall expire on the earlier of the date of the Bonds are no longer outstanding and the final maturity date of the Bonds. Additional Rights of BAM; Notices and Other Information to be Provided to BAM. In addition to the rights set forth above in the Second Supplemental Fiscal Agent Agreement, BAM shall have the additional rights set forth below. The terms and provisions of the Second Supplemental Fiscal Agent Agreement shall govern and control, notwithstanding anything to the contrary set forth herein. (a) BAM is recognized as and shall be deemed to be a third party beneficiary hereunder and may enforce the provisions of the Fiscal Agent Agreement and the Second Supplemental Fiscal Agent Agreement as if it were a party hereunder. (b) The District agrees, consents and will cooperate in good faith to provide information reasonably requested by BAM and will further provide appropriately designated individuals and officers to discuss the affairs, finance and accounts of the District or any other matter as BAM may reasonably request. (c) The District will provide BAM with such information as BAM may reasonably request and shall provide all notices and other information it is obligated to provide (i) under its Continuing Disclosure Certificate and (ii) to the Owners of Bonds or the Fiscal Agent under the Second Supplemental Fiscal Agent Agreement. BAM will receive copies of all notices and amendments relating to the Bonds. The notice address of BAM is: Build America Mutual Assurance Company, 1 World Financial Center, 27th Floor, 200 Liberty Street, New York, NY 10281, Attention: Surveillance, Telephone: (212) , Telecopier: (212) , notices@buildamerica.com. In each case in which notice or other communication refers to an event of default or a claim on the Insurance Policy, then a copy of such notice or other communication will also be sent to the attention of the General Counsel at the same address and at claims@buildamerica.com or at Telecopier: (212) and will be marked to indicate URGENT MATERIAL ENCLOSED. (d) BAM will receive written notice of any name change of the corporate entity of Fiscal Agent for the Bonds or the resignation or removal of the Fiscal Agent pursuant to the Fiscal Agent Agreement. Any Fiscal Agent must be (A) a national banking association that is supervised by the Office of the Comptroller of the Currency and has at least $75,000,000 million of assets, (B) a state-chartered commercial bank that is a member of the Federal Reserve System and has at least $1 billion of assets, or (C) otherwise approved by BAM in writing. D-22

115 (e) No removal, resignation or termination of the Fiscal Agent will take effect until a successor, acceptable to BAM, will be qualified and appointed. BAM will have the right to direct the replacement of the Fiscal Agent upon the occurrence of an event of a default on the Bonds and any event of default under any senior or subordinate obligations to the extent BAM determines in its sole discretion that there exists or could exist a conflict of interest. (f) The District will send copies of any amendments or supplements to BAM and the rating agencies that have assigned a rating to the Bonds. The prior written consent of BAM is required for any amendments or supplements to the Fiscal Agent Agreement or the Second Supplemental Fiscal Agent Agreement with the exception of amendments or supplements: (i) To cure any ambiguity or formal defect or omissions or to correct any inconsistent provisions in the Fiscal Agent Agreement or the Second Supplemental Fiscal Agent Agreement, or (ii) To grant or confer upon the Owners of the Bonds any additional rights, remedies, powers, authority or security that may lawfully be granted to or conferred upon the Owners of the Bonds, or (iii) To add to the conditions, limitations and restrictions on the issuance of Bonds under the provisions hereof other conditions, limitations and restrictions thereafter to be observed, or (iv) To add to the covenants and agreements of the District in the Fiscal Agent Agreement and the Second Supplemental Fiscal Agent Agreement other covenants and agreements thereafter to be observed by the District or to surrender any right or power therein reserved to or conferred upon the District. (g) Any amendment, supplement, modification to, or waiver of, the Fiscal Agent Agreement or the Second Supplemental Fiscal Agent Agreement that requires the consent of Owners of the Bonds or adversely affects the rights or interests of BAM will be subject to the prior written consent of BAM. (h) Any reorganization or liquidation plan with respect to the District must be acceptable to BAM. In the event of any reorganization or liquidation of the District, BAM will have the right to file a claim, object to and vote on behalf of all Owners of the Bonds absent a continuing failure by BAM to make a payment under the Insurance Policy. The District will provide BAM with immediate written notice of any insolvency event that causes the District to be unable to pay its obligations as and when they become due. In the event of a receivership or out-of-court restructuring, BAM will have the right to negotiate and speak on behalf of and bind the Owners of the Bonds and any agreements reached must be acceptable to BAM. (i) Anything herein to the contrary notwithstanding, upon the occurrence and continuance of a default or an event of default, BAM will be entitled to control and direct the enforcement of all rights and remedies granted to the Owners of the Insured Bonds or the Fiscal Agent for the benefit of the Owners of the Insured Bonds under the Fiscal Agent Agreement or the Second Supplemental Fiscal Agent. The Fiscal Agent may not waive any default or event of default without BAM s written consent. (j) Upon the occurrence and continuance of a default or an Event of Default, BAM shall be deemed to be the sole owner of the Insured Bonds for all purposes under the Second Supplemental Fiscal Agent Agreement, including, without limitations, for purposes of exercising remedies and approving amendments. (k) No grace period will be permitted for payment defaults on the Bonds. No grace period for a covenant default relating to the Bonds will exceed 30 days without the prior written consent of BAM. D-23

116 (l) If an Insurer Default (as defined below) shall occur and be continuing, then, notwithstanding anything in paragraphs (e)-(i) above to the contrary, (1) if at any time prior to or following an Insurer Default, BAM has made payment under the Insurance Policy, to the extent of such payment BAM will be treated like any other Owner of the Insured Bonds for all purposes, including giving of consents, and (2) if BAM has not made any payment under the Insurance Policy, BAM shall have no further consent rights until the particular Insurer Default is no longer continuing or BAM makes a payment under the Insurance Policy, in which event, the foregoing clause (1) will control. For purposes of this paragraph, Insurer Default means: (A) BAM has failed to make any payment under the Insurance Policy when due and owing in accordance with its terms; or (B) BAM shall (i) voluntarily commence any proceeding or file any petition seeking relief under the United States Bankruptcy Code or any other Federal, state or foreign bankruptcy, insolvency or similar law, (ii) consent to the institution of or fail to controvert in a timely and appropriate manner, any such proceeding or the filing of any such petition, (iii) apply for or consent to the appointment of a receiver, Fiscal Agent, custodian, sequestrator or similar official for such party or for a substantial part of its property, (iv) file an answer admitting the material allegations of a petition filed against it in any such proceeding, (v) make a general assignment for the benefit of creditors, or (vi) take action for the purpose of effecting any of the foregoing; or (C) any state or federal agency or instrumentality shall order the suspension of payments on the Insurance Policy or shall obtain an order or grant approval for the rehabilitation, liquidation, conservation or dissolution of BAM (including without limitation under the New York Insurance Law). (m) The rights granted to BAM under the Second Supplemental Fiscal Agent Agreement to request, consent to or direct any action are rights granted to BAM in consideration of its issuance of the Insurance Policy. Any exercise by BAM of such rights is merely an exercise of the BAM s contractual rights and will not be construed or deemed to be taken for the benefit, or on behalf, of the Owners of the Bonds and such action does not evidence any position of BAM, affirmative or negative, as to whether the consent of the Owners of the Bonds or any other person is required in addition to the consent of BAM. (n) BAM will be entitled to pay principal or interest on the Insured Bonds that become Due for Payment but are unpaid by reason of nonpayment by the District (as such terms are defined in the Insurance Policy), whether or not BAM has received a claim upon the Insurance Policy. Any notice to the Insurer shall be as set forth in the Second Supplemental Fiscal Agent Agreement. OTHER COVENANTS OF THE SCHOOL DISTRICT Punctual Payment. The School District will punctually pay or cause to be paid the principal of and interest and any premium on the Bonds when and as due in strict conformity with the terms of the Agreement and any Supplemental Agreement to the extent that the Special Tax Revenues are available therefor, and it will faithfully observe and perform all of the conditions, covenants and requirements of the Agreement and all Supplemental Agreements and of the Bonds. Special Obligation. The Bonds are special obligations of the School District and the District and are payable solely from and secured solely by the Special Tax Revenues and the amounts in the Bond Fund, the Reserve Fund and the Special Tax Fund, including the Surplus Account. Extension of Time for Payment. In order to prevent any accumulation of claims for interest after maturity, the School District shall not, directly or indirectly, extend or consent to the extension of the time for the payment of any claim for interest on any of the Bonds and shall not, directly or indirectly, be a party to the approval of any such arrangement by purchasing or funding said claims for interest or in any other manner. In case any such claim for interest shall be extended or funded, whether or not with the consent of the School District, such claim for interest so extended or funded shall not be entitled, in case of default hereunder, to the benefits of the Agreement, except subject to the prior payment in full of the principal of all of the Bonds then Outstanding and of all claims for interest which shall not have been so extended or funded. D-24

117 Against Encumbrances. The School District shall not encumber, pledge or place any charge or lien upon any of the Special Tax Revenues or other amounts pledged to the Bonds superior to or on a parity with the pledge and lien herein created for the benefit of the Bonds, except as permitted by the Agreement. Books and Accounts. The School District shall keep, or cause to be kept, proper books of record and accounts, separate from all other records and accounts of the School District in which complete and correct entries shall be made of all transactions relating to the expenditure of amounts disbursed from the Administrative Expense Fund. Such books of record and accounts shall at all times during business hours, upon reasonable notice, be subject to the inspection of the Fiscal Agent (which shall have no duty to inspect) and the Owners of not less than ten percent (10%) of the aggregate principal amount of the Bonds then Outstanding, or their representatives duly authorized in writing. Protection of Security and Rights of Owners. The School District will preserve and protect the security of the Bonds 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 Bonds by the School District, the Bonds shall be incontestable by the School District. Collection of Special Tax Revenues. The School District shall comply with all requirements of the Act, including the enactment of necessary Ordinances, so as to assure the timely collection of Special Tax Revenues, including without limitation, the enforcement of the payment or collection of delinquent Special Taxes. On or within five (5) Business Days of May 1 of each year, the Fiscal Agent shall provide the School District with a notice stating the amount then on deposit in the Special Tax Fund (including the Surplus Account therein), the Bond Fund and the Reserve Fund. The receipt of such notice by the School District or the failure of the Fiscal Agent to give such notice shall in no way affect the obligations of the School District under the following two paragraphs. The Fiscal Agent shall have no liability if it does not provide such notice to the School District. Upon receipt of such notice, the School District shall communicate with the Auditor 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 Fiscal Year. The School District shall effect the levy of the Special Taxes each Fiscal Year in accordance with the Act by August 1 of each year (or such later date as may be authorized by the Act or any amendment thereof) that the Bonds are Outstanding, such that the computation of the levy is complete before the final date on which the Auditor will accept the transmission of the Special Tax amounts for the parcels within Improvement Area No. 3 for inclusion on the tax roll for the Fiscal Year then beginning. Upon the completion of the computation of the amounts of the levy of the Special Taxes, the School District shall prepare or cause to be prepared, and shall transmit to the Auditor, such data as the Auditor requires to include the levy of the Special Taxes on the tax roll. Notwithstanding the preceding provisions of this paragraph, the Board of Education may elect, as permitted by the Act, to collect the Special Taxes to be levied for any Fiscal Year directly from the owners of the parcels of taxable property upon which the Special Taxes are levied rather than by transmitting the Special Taxes to the Auditor for collection on the tax roll; provided that, in such event, the School District shall otherwise comply with the provisions of the Agreement. The School District shall fix and levy the amount of Special Taxes within Improvement Area No. 3 required for the payment of the principal of and interest on any Outstanding Bonds becoming due and payable during the ensuing calendar year which is allocable to the Improvement Area, including any necessary replenishment or expenditure of the Reserve Fund, and the amount estimated to be sufficient to pay the Administrative Expenses during such calendar year. In levying the Special Taxes to replenish the Reserve Fund, if the School District receives a written notification from the Authority Trustee pursuant to the Authority Indenture that amounts have been withdrawn from the Series A Authority Bonds Reserve Fund or the Series B Authority Bonds Reserve Fund to pay debt service on the Series A Authority Bonds or the Series B Authority Bonds and if the School District determines that such amounts were withdrawn as a result of delinquencies in the payment of Special Taxes levied on parcels in Improvement Area No. 3, the School District shall, to the extent legally permissible, include in the levy of the Special Taxes in Improvement Area No. 3 for the following Fiscal Year, the amount necessary to restore the Authority Bonds Reserve Funds Proportionate Share to the Series A Authority Bonds Reserve Fund or the Series B Authority Bonds Reserve Fund, as appropriate. The Special Taxes so levied shall not, D-25

118 in any event, exceed the amounts for Improvement Area No. 3 as provided in the Rates and Method of Apportionment of Special Tax. The Special Taxes shall be payable and be collected (except in the event of judicial foreclosure proceedings pursuant) in the same manner and at the same time and in the same installments as the general taxes on real property are payable, and have the same priority, become delinquent at the same 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. The School District will not, in collecting the Special Taxes 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 materially and adversely affect the interests of the Bondowners and, in particular, will not permit the tender of Bonds in full or partial payment of any Special Taxes except upon receipt of a certificate of an Independent Financial Consultant that to accept such tender will not result in the School District having insufficient Special Tax Revenues to pay the principal of and interest on the Bonds remaining Outstanding following such tender. Reduction of Maximum Special Tax Rates. The School District covenants that, to the extent that it is legally permitted to avoid doing so, it will not initiate and conduct proceedings to reduce the maximum rates of Special Taxes which are authorized to be levied on taxable parcels of property within Improvement Area No. 3 (the Maximum Rates ). The School District further covenants that in the event an ordinance is adopted by initiative pursuant to Section 3 of Article XIII C of the California Constitution, which purports to reduce or otherwise alter the Maximum Rates, it will commence and pursue legal action seeking to preserve its ability to comply with its covenant contained in the preceding paragraph. Further Assurances. The School District will adopt, make, execute and deliver any and all such further ordinances, resolutions, instruments and assurances as may be reasonably necessary or proper to carry out the intention or to facilitate the performance of the Agreement, and for better assuring and confirming unto the Owners of the Bonds of the rights and benefits provided in the Agreement. Tax Covenants. The School District covenants that: (A) It will not take any action or omit to take any action, which action or omission, if reasonably expected on the date of the initial issuance and delivery of the Bonds, would have caused any of the Bonds to be arbitrage bonds within the meaning of Section 103(b) and Section 148 of the Code; (B) It will not take any action or omit to take any action, which action or omission, if reasonably expected on the date of initial issuance and delivery of the Bonds, would result in loss of exclusion from gross income for purposes of federal income taxation under Section 103(a) of the Code of interest paid with respect to the Bonds; (C) It will not take any action or omit to take any action, which action or omission, if reasonably expected on the date of initial issuance and delivery of the Bonds, would have caused any of the Bonds to be private activity bonds within the meaning of Section 141 of the Code; (D) It will comply with the Rebate Certificate as a source of guidance for achieving compliance with the Code; and (E) In order to maintain the exclusion from gross income for purposes of federal income taxation of interest paid with respect to the Bonds, it will comply with each applicable requirement of Section 103 and Sections 141 through 150 of the Code. The covenants of the School District contained in the Agreement shall survive the payment, redemption or defeasance of Bonds pursuant to the Agreement. D-26

119 Covenant to Foreclose. The School District hereby covenants with and for the benefit of the Owners of the Bonds as follows: (i) it will order, and cause to be commenced, judicial foreclosure proceedings against properties in Improvement Area No. 3 with delinquent Special Taxes in excess of $5,000 by the October 1 following the close of the Fiscal Year in which such Special Taxes were due, and (ii) it will commence judicial foreclosure proceedings against all properties in Improvement Area No. 3 with delinquent Special Taxes by the October 1 following the close of each Fiscal Year in which it receives Special Taxes in an amount which is less than ninety-five percent (95%) of the total Special Taxes levied, and diligently pursue to completion such foreclosure proceedings. Prepayment of Special Taxes. The School District shall cause all applications of owners of property in Improvement Area No. 3 to prepay and satisfy the Special Tax obligation for their property to be reviewed by the Special Tax Consultant and shall not accept any such prepayment unless such consultant certifies in writing that the maximum amount of the Special Taxes that may be levied on Taxable Property both prior to and after the proposed prepayment is and will be at least 1.1 times the amount of Maximum Annual Debt Service on all Outstanding Bonds. For purposes of this Section, Taxable Property means all parcels of property in Improvement Area No. 3 that are not exempt from the levy of the Special Tax pursuant to the Act or the Rates and Method of Apportionment of Special Tax. Calculation of Prepayments. The School District will cause all Special Tax Prepayments to be calculated to include the amount of the premium on the Outstanding Bonds that will be redeemed with the Special Tax Prepayment and negative arbitrage on the investment of the Special Tax Prepayment from the date of receipt until the Interest Payment Date upon which the Special Tax Prepayment and the amount to be transferred from the Reserve Fund to the Principal Account pursuant to the Agreement will be used to redeem Outstanding Bonds pursuant to the Agreement. The School District will not include in any calculation of the amount of any Special Tax Prepayment for any parcel of taxable property in Improvement Area No. 3 a portion of the amount then on deposit in the Reserve Fund, if at the time of such calculation the amount on deposit in the Reserve Fund is less than the Reserve Requirement. INVESTMENTS; DISPOSITION OF INVESTMENT PROCEEDS; LIABILITY OF THE SCHOOL DISTRICT Deposit and Investment of Moneys in Funds. Subject in all respects to the provisions of the Agreement, moneys in any fund or account created or established by the Agreement and held by the Fiscal Agent shall be invested by the Fiscal Agent in Permitted Investments, as directed pursuant to an Officer s Certificate filed with the Fiscal Agent at least two (2) Business Days in advance of the making of such investments. In the absence of any such Officer s Certificate, the Fiscal Agent shall invest any such moneys in Permitted Investments described in paragraph (7) of the definition of Permitted Investments in the Agreement. The Fiscal Agent shall not have any responsibility for determining the legality of any Permitted Investments. The Fiscal Agent shall have no obligation to pay additional interest or maximize investment income on any funds held by it. Neither the School District nor the Owners of the Bonds shall have any claim of any kind against the Fiscal Agent in connection with investments properly made pursuant to the Agreement. Obligations purchased as an investment of moneys in any fund or account shall be deemed to be part of such fund or account, subject, however, to the requirements of the Agreement for transfer of Investment Earnings in funds and accounts. The Fiscal Agent and its affiliates may act as sponsor, advisor, depository, principal or agent in the holding, acquisition or disposition of any investment. The Fiscal Agent shall not incur any liability for losses arising from any investments made pursuant to the Agreement. For purposes of determining the amount on deposit in any fund or account held hereunder, all Permitted Investments credited to such fund or account shall be valued at the cost thereof (excluding accrued interest and brokerage commissions, if any). Subject in all respects to the provisions of the Agreement, investments in any and all funds and accounts may be commingled in a single fund for purposes of making, holding and disposing of investments, notwithstanding provisions herein for transfer to or holding in or to the credit of particular funds or accounts of amounts received or held by the Fiscal Agent hereunder, provided that the Fiscal Agent shall at all times account for such investments strictly in accordance with the funds and accounts to which they are credited and otherwise as provided in the Agreement. D-27

120 The Fiscal Agent shall sell at the highest price reasonably obtainable (provided that the highest of any three bids received by the Fiscal Agent shall be deemed the highest price reasonably obtainable), or present for redemption, any investment security whenever it shall be necessary to provide moneys to meet any required payment, transfer, withdrawal or disbursement from the fund or account to which such investment security is credited, and the Fiscal Agent shall not be liable or responsible for any loss resulting from the acquisition or disposition of any such investment security in accordance herewith. The School District acknowledges that to the extent regulations of the Comptroller of the Currency or other applicable regulatory entity grant the School District the right to receive brokerage confirmations of security transactions as they occur, the School District specifically waives receipt of such confirmations to the extent permitted by law. The Fiscal Agent shall furnish the School District period cash transaction statements which include detail for all investment transactions made by the Fiscal Agent hereunder. The Fiscal Agent may make any investments hereunder through its own bond or investment department or trust investment department, or those of its parent or any affiliate. Rebate Fund; Rebate to the United States. There is hereby created, to be held by the Fiscal Agent, as a separate account distinct from all other funds and accounts held by the Fiscal Agent under the Agreement, the Rebate Fund. The Fiscal Agent shall, in accordance with written directions received from an Authorized Officer, deposit into the Rebate Fund moneys transferred by the School District to the Fiscal Agent pursuant to the Rebate Certificate or moneys transferred by the Fiscal Agent from the Bond Fund or the Reserve Fund. The Rebate Fund shall be held either uninvested or invested only in Federal Securities at the written direction of the School District. Moneys on deposit in the Rebate Fund shall be applied only to payments made to the United States, to the extent such payments are required by the Rebate Certificate. The Fiscal Agent shall, upon written request and direction of the School District, make such payments to the United States. The Fiscal Agent s sole responsibilities under the Agreement are to follow the written instructions of the School District pertaining hereto. The School District shall be responsible for any fees and expenses incurred by the Fiscal Agent pursuant to the Agreement. The Fiscal Agent shall, upon written request and direction from the School District, transfer to or upon the order of the School District any moneys on deposit in the Rebate Fund in excess of the amount, if any, required to be maintained or held therein in accordance with the Rebate Certificate. Liability of School District. The School District shall not incur any responsibility in respect of the Bonds or the Agreement other than in connection with the duties or obligations explicitly herein or in the Bonds assigned to or imposed upon it. The School District shall not be liable in connection with the performance of its duties hereunder, except for its own negligence or willful default. The School District shall not be bound to ascertain or inquire as to the performance or observance of any of the terms, conditions, covenants or agreements of the Fiscal Agent herein or of any of the documents executed by the Fiscal Agent in connection with the Bonds. In the absence of bad faith, the School District may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon certificates or opinions furnished to the School District and conforming to the requirements of the Agreement. The School District shall not be liable for any error of judgment made in good faith unless it shall be proved that it was negligent in ascertaining the pertinent facts. No provision of the Agreement shall require the School District to expend or risk its own general funds or otherwise incur any financial liability (other than with respect to the Special Tax Revenues) in the performance of any of its obligations hereunder, or in the exercise of and of its rights or powers, if it shall have reasonable grounds for believing that repayment of such funds or adequate indemnity against such risk or liability is not reasonably assured to it. The School District may rely and shall be protected in acting or refraining from acting upon any notice, resolution, request, consent, order, certificate, report, warrant, Bond or other paper or document believed by it to be genuine and to have been signed or presented by the proper party or proper parties. The School District may consult D-28

121 with counsel, who may be counsel to the School District, with regard to legal questions, and the opinion of such counsel shall be full and complete authorization and protection in respect of any action taken or suffered by it hereunder in good faith and in accordance therewith. Whenever in the administration of its duties under the Agreement the School District shall deem it necessary or desirable that a matter be proved or established prior to taking or suffering any action hereunder, such matter (unless other evidence in respect thereof be herein specifically prescribed) may, in the absence of willful misconduct on the part of the School District, be deemed to be conclusively proved and established by a certificate of the Fiscal Agent, and such certificate shall be full warranty to the School District for any action taken or suffered under the provisions of the Agreement or any Supplemental Agreement upon the faith thereof, but in its discretion the School District may, in lieu thereof, accept other evidence of such matter or may require such additional evidence as to it may seem reasonable. Employment of Agents by School District. In order to perform its duties and obligations hereunder, the School District may employ such persons or entities as it deems necessary or advisable. The School District shall not be liable for any of the acts or omissions of such persons or entities employed by it in good faith hereunder, and shall be entitled to rely, and shall be fully protected in doing so, upon the opinions, calculations, determinations and directions of such persons or entities. THE FISCAL AGENT Appointment of Fiscal Agent. U.S. Bank National Association, is hereby appointed Fiscal Agent, registrar and paying agent for the Bonds. The Fiscal Agent undertakes to perform such duties, and only such duties, as are specifically set forth in the Agreement, and no implied covenants or obligations shall be read into the Agreement against the Fiscal Agent. Any company into which the Fiscal Agent may be merged or converted or with which it may be consolidated or any company resulting from any merger, conversion or consolidation to which it shall be a party or any company to which the Fiscal Agent may sell or transfer all or substantially all of its corporate trust business, provided such company shall be eligible under the following paragraph of the Agreement, shall be the successor to the Fiscal Agent without the execution or filing of any paper or any further act, anything herein to the contrary notwithstanding. The School District may remove the Fiscal Agent initially appointed, and any successor thereto, and may appoint a successor or successors thereto, but any such successor shall be a bank or trust company having a combined capital (exclusive of borrowed capital) and surplus of at least $50,000,000, and subject to supervision or examination by federal or state authority. If such bank or trust company publishes a report of condition at least annually, pursuant to law or to the requirements of any supervising or examining authority above referred to, then for the purposes of the Agreement, the combined capital and surplus of such bank or trust company shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published. The Fiscal Agent may at any time resign by giving written notice to the School District and by giving to the Owners notice by mail of such resignation. Upon receiving notice of such resignation, the School District shall promptly appoint a successor Fiscal Agent by an instrument in writing. Any resignation or removal of the Fiscal Agent shall become effective upon acceptance of appointment by the successor Fiscal Agent. If no appointment of a successor Fiscal Agent shall be made pursuant to the foregoing provisions of the Agreement within forty-five (45) days after the Fiscal Agent shall have given to the School District written notice or after a vacancy in the office of the Fiscal Agent shall have occurred by reason of its inability to act, the Fiscal Agent, at the expense of the School District, or any Owner may apply to any court of competent jurisdiction to appoint a successor Fiscal Agent. Said court may thereupon, after such notice, if any, as such court may deem proper, appoint a successor Fiscal Agent. Liability of Fiscal Agent. The recitals of facts, covenants and agreements herein and in the Bonds contained shall be taken as statements, covenants and agreements of the School District and the District, and the Fiscal Agent D-29

122 assumes no responsibility for the correctness of the same, nor makes any representations as to the validity or sufficiency of the Agreement or of the Bonds, nor shall the Fiscal Agent incur any responsibility in respect thereof, other than in connection with the duties or obligations herein or in the Bonds assigned to or imposed upon it. The Fiscal Agent shall not be liable in connection with the performance of its duties hereunder, except for its own negligence or willful misconduct. The Fiscal Agent assumes no responsibility or liability for any information, statement or recital in any offering memorandum or other disclosure material prepared or distributed with respect to the issuance of the Bonds. In the absence of bad faith, the Fiscal Agent may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon certificates or opinions furnished to the Fiscal Agent and conforming to the requirements of the Agreement. Except as provided above in this paragraph, the Fiscal Agent shall be protected and shall incur no liability in acting or proceeding, or in not acting or not proceeding, in good faith, reasonably and in accordance with the terms of the Agreement, upon any resolution, order, notice, request, consent or waiver, certificate, statement, affidavit, or other paper or document which it shall in good faith reasonably believe to be genuine and to have been adopted or signed by the proper person or to have been prepared and furnished pursuant to any provision of the Agreement, and the Fiscal Agent shall not be under any duty to make any investigation or inquiry as to any statements contained or matters referred to in any such instrument. The Fiscal Agent shall not be liable for any error of judgment made in good faith by the Fiscal Agent unless it shall be proved that the Fiscal Agent was negligent in ascertaining the pertinent facts. No provision of the Agreement shall require the Fiscal Agent to expend or risk its own funds or otherwise incur any financial liability in the performance of any of its duties hereunder, or in the exercise of any of its rights or powers. The Fiscal Agent shall not be responsible for accounting for, or paying to, any party to the Agreement, including, but not limited to the School District and the Owners, any returns on or benefit from funds held for payment of unredeemed Bonds or outstanding checks and no calculation of the same shall affect, or result in any offset against, fees due to the Fiscal Agent under the Agreement. The Fiscal Agent shall be under no obligation to exercise any of the rights or powers vested in it by the Agreement at the request or direction of any of the Owners pursuant to the Agreement unless such Owners shall have offered to the Fiscal Agent reasonable security or indemnity against the costs, expenses and liabilities which might be incurred by it in compliance with such request or direction. The Fiscal Agent may become the owner of the Bonds with the same rights it would have if it were not the Fiscal Agent. All indemnification and releases from liability granted herein to the Fiscal Agent shall extend to the directors, officers and employees of the Fiscal Agent. Information. The Fiscal Agent shall provide to the School District such information relating to the Bonds and the funds and accounts maintained by the Fiscal Agent hereunder as the School District shall reasonably request, including, but not limited to, quarterly statements reporting funds held and transactions by the Fiscal Agent. Notice to Fiscal Agent. The Fiscal Agent may rely and shall be protected in acting or refraining from acting upon any notice, resolution, request, consent, order, certificate, report, warrant, Bond or other paper or document believed by it to be genuine and to have been signed or presented by the proper party or proper parties. The Fiscal Agent may consult with counsel, who may be counsel to the School District, with regard to legal questions, and the advice or opinion of such counsel shall be full and complete authorization and protection in respect of any action taken or suffered by the Fiscal Agent hereunder in good faith and in accordance therewith. Whenever in the administration of its duties under the Agreement the Fiscal Agent shall deem it necessary or desirable that a matter be proved or established prior to taking or suffering any action hereunder, such matter (unless other evidence in respect thereof be herein specifically prescribed) may, in the absence of willful misconduct D-30

123 on the part of the Fiscal Agent, be deemed to be conclusively proved and established by a certificate of the School District, and such certificate shall be full warranty to the Fiscal Agent for any action taken or suffered under the provisions of the Agreement or any Supplemental Agreement upon the faith thereof, but in its discretion the Fiscal Agent may, in lieu thereof, accept other evidence of such matter or may require such additional evidence as to it may seem reasonable. Compensation, Indemnification. The School District shall pay to the Fiscal Agent from time to time reasonable compensation for all services rendered as Fiscal Agent under the Agreement, and also all reasonable expenses, charges, fees and other disbursements, including those of its attorneys, agents and employees, incurred in and about the performance of its powers and duties under the Agreement, and the Fiscal Agent shall have a first priority lien therefor on any funds at any time held by it under the Agreement, and the Fiscal Agent shall pay and reimburse all expenses, charges, fees and other disbursements, including those of its attorneys, agents and employees, incurred in connection therewith from the funds held by it under the Agreement. The School District further agrees, to the extent permitted by applicable law, to indemnify and save the Fiscal Agent, its officers, employees, directors and agents, harmless against any liabilities which it may incur in the exercise and performance of its powers and duties hereunder which are not due to its negligence or willful misconduct. The obligation of the School District under the Agreement shall survive resignation or removal of the Fiscal Agent under the Agreement and payment of the Bonds and discharge of the Agreement. Books and Accounts. The Fiscal Agent shall keep, or cause to be kept, proper books of record and accounts, separate from all other records and accounts of the Fiscal Agent, in which complete and correct entries shall be made of all transactions made by it and with respect to the expenditure of amounts disbursed from the Bond Fund, the Special Tax Fund, the Administrative Expense Fund, the Reserve Fund and the Cost of Issuance Fund. Such books of record and accounts shall, upon reasonable notice, at all times during business hours be subject to the inspection of the School District and the Owners of not less than ten percent (10%) of the aggregate principal amount of the Bonds then Outstanding, or their representatives duly authorized in writing. MODIFICATION OR AMENDMENT OF THE AGREEMENT Amendments Permitted. The Agreement and the rights and obligations of the District and the School District and of the Owners of the Bonds may be modified or amended at any time by a Supplemental Agreement with either (a) the affirmative vote of the Owners at a meeting of the Owners, or (b) the written consent, without a meeting, of the Owners of at least sixty percent (60%) in aggregate principal amount of the Bonds then Outstanding, exclusive of Bonds disqualified as provided in the Agreement. No such modification or amendment shall (i) extend the maturity of any Bond or the time for paying interest thereon, or otherwise alter or impair the obligation of the School District on behalf of the District to pay the principal of, and the interest and any premium on, any Bond, without the express consent of the Owner of such Bond, or (ii) permit the creation of any pledge of or lien upon the Special Tax Revenues, or the moneys on deposit in the Special Tax Fund, the Bond Fund or the Reserve Fund, superior to or on a parity with the pledge and lien created for the benefit of the Bonds (except as otherwise permitted by the Act, the laws of the State of California or the Agreement), (iii) reduce the percentage of Bonds required for the amendment hereof, or (iv) reduce the principal amount of or redemption premium on any Bond or reduce the interest rate thereon. Any such amendment may not modify any of the rights or obligations of the Fiscal Agent without its written consent. The School District shall deliver to the Fiscal Agent an opinion of counsel that any such Supplemental Agreement entered into by the School District and the Fiscal Agent complies with the provisions of the Agreement and the Fiscal Agent may conclusively rely on such opinion. The Agreement and the rights and obligations of the District and the School District and the Owners may also be modified or amended at any time by a Supplemental Agreement, without the consent of any Owners, only to the extent permitted by law and only for any one or more of the following purposes: (1) to add to the covenants and agreements of the School District in the Agreement contained, other covenants and agreements thereafter to be observed, or to limit or surrender any right or power herein reserved to or conferred upon the School District; D-31

124 respect; (2) to make modifications not adversely affecting any Outstanding Bonds in any material (3) to make such provisions for the purpose of curing any ambiguity, or of curing, correcting or supplementing any defective provisions of the Agreement, or in regard to questions arising under the Agreement, as the School District and the Fiscal Agent may deem necessary or desirable and not inconsistent with the Agreement, and which shall not adversely affect the rights of the Owners; (4) to make such additions, deletions or modifications as may be necessary or desirable to assure compliance with Section 148 of the Code relating to required rebate of moneys to the United States or otherwise as may be necessary to assure exclusion from gross income for federal income tax purposes of interest on the Bonds or to conform with the Regulations; or (5) to provide for the issuance of Parity Bonds pursuant to the Agreement or to provide for the issuance of Parity Bonds to pay and discharge the indebtedness of a portion of the Outstanding Bonds (a Partial Discharge ) pursuant to the Agreement; provided that, following the issuance of such Parity Bonds for a Partial Discharge, Maximum Annual Debt Service on the Bonds that will remain Outstanding following such Partial Discharge and such Parity Bonds will not be more in any subsequent Bond Year than Maximum Annual Debt Service on the Outstanding Bonds before the issuance of such Parity Bonds. Owners Meetings. The School District may at any time call a meeting of the Owners. In such event, the School District is authorized to fix the time and place of any such meeting and to provide for the giving of notice thereof and to fix and adopt rules and regulations for the conduct of the meeting. Procedure for Amendment with Written Consent of Owners. The School District and the Fiscal Agent may at any time enter into a Supplemental Agreement amending the provisions of the Bonds or of the Agreement or any Supplemental Agreement, to the extent that such amendment is permitted by the Agreement, to take effect when and as provided in the Agreement. A copy of the Supplemental Agreement, together with a request to Owners for their consent thereto, shall be mailed by first class mail, postage prepaid, by the Fiscal Agent to each Owner of Bonds Outstanding, but failure to mail copies of the Supplemental Agreement and request shall not affect the validity of the Supplemental Agreement when assented to as in this Section provided. Such a Supplemental Agreement shall not become effective unless there shall be filed with the Fiscal Agent the written consents of the Owners of at least sixty percent (60%) in aggregate principal amount of the Bonds then Outstanding (exclusive of Bonds disqualified as provided in the Agreement) and a notice shall have been mailed as hereinafter in this Section provided. Each such consent shall be effective only if accompanied by proof of ownership of the Bonds for which such consent is given, which proof shall be such as is permitted by the Agreement. Any such consent shall be binding upon the Owner of the Bonds giving such consent and on any subsequent Owner (whether or not such subsequent Owner has notice thereof) unless such consent is revoked in writing by the Owner giving such consent or a subsequent Owner by filing such revocation with the Fiscal Agent prior to the date when the notice hereinafter in this Section provided for has been mailed. After the Owners of the required percentage of Bonds shall have filed their consents to the Supplemental Agreement, the School District shall mail a notice to the Owners in the manner hereinbefore provided in this Section for the mailing of the Supplemental Agreement, stating in substance that the Supplemental Agreement has been consented to by the Owners of the required percentage of Bonds and will be effective as provided in this Section (but failure to mail copies of said notice shall not affect the validity of the Supplemental Agreement or consents thereto). Proof of the mailing of such notice shall be filed with the Fiscal Agent. A record, consisting of the papers required by the Agreement to be filed with the Fiscal Agent, shall be proof of the matters therein stated until the contrary is proved. The Supplemental Agreement shall become effective upon the filing with the Fiscal Agent of the proof of mailing of such notice, and the Supplemental Agreement shall be deemed conclusively binding (except as otherwise hereinabove specifically provided in this Article VIII) upon the School District, the District and the Owners of all Bonds then Outstanding at the expiration of sixty (60) days after such filing, except in the event of a final decree of a court of competent jurisdiction setting aside such consent in a legal action or equitable proceeding for such purpose commenced within such sixty (60)-day period. D-32

125 Disqualified Bonds. Bonds owned or held for the account of the School District, excepting any pension or retirement fund, shall not be deemed Outstanding for the purpose of any vote, consent or other action or any calculation of Outstanding Bonds provided for in this Article VIII, and shall not be entitled to vote upon, consent to, or participate in any action provided for in the Agreement. Effect of Supplemental Agreement. From and after the time any Supplemental Agreement becomes effective pursuant to the Agreement, the Agreement shall be deemed to be modified and amended in accordance therewith, and the respective rights, duties and obligations under the Agreement of the School District and all Owners of Bonds Outstanding shall thereafter be determined, exercised and enforced hereunder subject in all respects to such modifications and amendments, and all the terms and conditions of any such Supplemental Agreement shall be deemed to be part of the terms and conditions of the Agreement for any and all purposes. Endorsement or Replacement of Bonds Issued After Amendments. The School District may determine that Bonds issued and delivered after the effective date of any action taken as provided in the Agreement shall bear a notation, by endorsement or otherwise, in form approved by the School District, as to such action. In that case, upon demand of the Owner of any Bond Outstanding at such effective date and upon presentation of his Bond for that purpose at the Principal Office of the Fiscal Agent or at such other office as the School District may select and designate for that purpose, a suitable notation shall be made on such Bond. The School District may determine that new Bonds, so modified as in the opinion of the School District is necessary to conform to such action, shall be prepared, executed and delivered. In that case, upon demand of the Owner of any Bonds then Outstanding, such new Bonds shall be exchanged at the Principal Office of the Fiscal Agent without cost to any Owner, for like Bonds then Outstanding, upon surrender of such Bonds. Amendatory Endorsement of Bonds. The provisions of the Agreement shall not prevent any Owner from accepting any amendment as to the particular Bonds held by him, provided that due notation thereof is made on such Bonds. Discharge of Agreement. If the School District shall pay and discharge the entire indebtedness of all or a portion (a Partial Discharge ) of the Outstanding Bonds in any one or more of the following ways: (A) by well and truly paying or causing to be paid the principal of and interest and any premium on such Bonds, as and when the same become due and payable; (B) by depositing with the Fiscal Agent, in trust, at or before maturity, an amount of money which, together with the amounts then on deposit in the Bond Fund, the Special Tax Fund and the Reserve Fund, or in the event of a Partial Discharge, the appropriate portion of such amounts, as determined by the School District and confirmed by an Independent Financial Consultant, is fully sufficient to pay all such Bonds, including all principal, interest and redemption premiums, if any; or (C) by irrevocably depositing with the Fiscal Agent, in trust, cash or non-callable Defeasance obligations in such amount as the School District shall determine, as confirmed by an Independent Financial Consultant, will, together with the interest to accrue thereon and amounts then on deposit in the Bond Fund, the Special Tax Fund and the Reserve Fund, or in the event of a Partial Discharge, the appropriate portion of such amounts, as determined by the School District and confirmed by an Independent Financial Consultant, be fully sufficient to pay and discharge the indebtedness of all such Bonds (including all principal, interest and redemption premiums) at or before their respective maturity dates; and if such Bonds are to be redeemed prior to the maturity thereof, notice of such redemption shall have been given as in the Agreement provided or provision satisfactory to the Fiscal Agent shall have been made for the giving of such notice; then, at the election of the School District, and notwithstanding that any such Bonds shall not have been surrendered for payment, the pledge of the Special Tax Revenues and other funds provided for in the Agreement and all other obligations of the School District and the District under the Agreement with respect to such Bonds shall D-33

126 cease and terminate, except the obligation of the School District to pay or cause to be paid to the Owners of such Bonds not so surrendered and paid all sums due thereon, the obligation of the School District to pay all amounts owing to the Fiscal Agent pursuant to the Agreement, and the obligations of the School District pursuant to the covenants contained in the Agreement; and thereafter Special Tax Revenues shall not be payable to the Fiscal Agent with respect to such Bonds. Notice of such election shall be filed with the Fiscal Agent. The satisfaction and discharge of the Agreement as to all of the Outstanding Bonds shall be without prejudice to the rights of the Fiscal Agent to charge and be reimbursed by the School District for the expenses which it shall thereafter incur in connection herewith. Any funds held by the Fiscal Agent to pay and discharge the indebtedness on such Bonds, upon payment of all fees and expenses of the Fiscal Agent, which are not required for such purpose, shall be paid over to the School District. D-34

127 APPENDIX E FORM OF CONTINUING DISCLOSURE AGREEMENT This Continuing Disclosure Agreement (the Disclosure Agreement ), dated as of December 1, 2017, is by and between Riverside Unified School District (the School District ), on behalf of Community Facilities District No. 15 of the Riverside Unified School District (the District ), and David Taussig & Associates, Inc., as dissemination agent, in connection with the issuance and delivery by the School District of the Community Facilities District No. 15 of the Riverside Unified School District (Improvement Area No. 3) Series 2017 Special Tax Bonds (the Bonds ). The Bonds are being issued pursuant to that certain Fiscal Agent Agreement by and between the School District and U.S. Bank National Association, as fiscal agent (the Fiscal Agent ), dated as of August 1, 2012, as supplemented by a First Supplement to Fiscal Agent Agreement, dated as of April 1, 2013 and a Second Supplement to Fiscal Agent Agreement, dated as of December 1, 2017 (collectively, the Fiscal Agent Agreement ). The School District covenants as follows: SECTION 1. Purpose of the Disclosure Agreement. This Disclosure Agreement is being executed and delivered by the School District, for the benefit of the Owners and Beneficial Owners of the Bonds and in order to assist the Participating Underwriter in complying with the Rule (as defined below). 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 School District pursuant to, and as described in, Sections 3 and 4 of this Disclosure Agreement. Beneficial Owner shall mean any person which (a) has the power, directly or indirectly, to vote or consent with respect to, or to dispose of ownership of, any Bonds (including persons holding Bonds through nominees, depositories or other intermediaries), or (b) is treated as the owner of any Bonds for federal income purposes. Disclosure Representative shall mean the Superintendent of the School District, the Deputy Superintendent or his or her designee, or such other officer or employee as the School District shall designate in writing to the Dissemination Agent from time to time. Dissemination Agent shall mean, initially, David Taussig & Associates, Inc., or any successor Dissemination Agent designated in writing by the School District which has filed with the then current Dissemination Agent a written acceptance of such designation. EMMA shall mean the Electronic Municipal Market Access system of the MSRB. Listed Events shall mean any of the events listed in Section 5(a) and (b) 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. Participating Underwriter shall mean Piper Jaffray & Co. Repository shall mean the MSRB or any other entity designated or authorized by the Securities and Exchange Commission to receive reports pursuant to the Rule. Unless otherwise designated by the MSRB or the Securities and Exchange Commission, filings with the MSRB are to be made through the Electronic Municipal Market Access (EMMA) website of the MSRB, currently located at E-1

128 Rule shall mean Rule 15c2-12(b)(5) adopted by the Securities and Exchange Commission under the Securities Exchange Act of 1934, as the same may be amended from time to time. School District shall mean the Riverside Unified School District. Special Taxes shall mean the special taxes levied within Improvement Area No. 3 of the District pursuant to the applicable Rates and Method of Apportionment of Special Tax. SECTION 3. Provision of Annual Reports. (a) Not later than February 1 immediately following the end of the School District s fiscal year, commencing February 1, 2018, the School District shall provide, or shall cause the Dissemination Agent to provide, to the Repository an Annual Report in electronic format and accompanied by identifying information as prescribed to the MSRB which is consistent with the requirements of Section 4 of this Disclosure Agreement. The Annual Report may be submitted as a single document or as separate documents comprising a package, and may include by reference other information as provided in Section 4 of this Disclosure Agreement; provided that the audited financial statements of the School District may be submitted separately from and later than the balance of the Annual Report if they are not available by the date required above for the filing of the Annual Report. An Annual Report shall be provided at least annually notwithstanding any fiscal year longer than 12 calendar months. The School District s fiscal year is currently effective from July 1 to the immediately succeeding June 30 of the following year. The School District will promptly notify the Repository of a change in the fiscal year dates. (b) In the event that the Dissemination Agent is an entity other than the School District, then the provisions of this Section 3(b) shall apply. Not later than fifteen (15) business days prior to the date specified in subsection (a) for providing the Annual Report to the Repository, the School District shall provide the Annual Report to the Dissemination Agent. If by fifteen (15) business days prior to such date the Dissemination Agent has not received a copy of the Annual Report, the Dissemination Agent shall contact the School District to determine if the School District will be filing the Annual Report in compliance with subsection (a). The School 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 School District and shall have no duty or obligation to review such Annual Report. (c) If the School District is the Dissemination Agent and the School District is unable to provide to the Repository an Annual Report by the date required in subsection (a), the School District shall, in a timely manner, send a notice to the Repository in substantially the form attached to this Disclosure Agreement as Exhibit A. If the Dissemination Agent is other than the School District and if the Dissemination Agent is unable to verify that an Annual Report has been provided to the Repository by the date required in subsection (a), the Dissemination Agent shall, in a timely manner, send a notice to the Repository, in substantially the form attached as Exhibit A. (d) The Dissemination Agent shall: (i) determine each year prior to the date for providing the Annual Report the name and address of the Repository if other than the MSRB; and (ii) promptly after receipt of the Annual Report, file a report with the School District certifying that the Annual Report has been provided pursuant to this Disclosure Agreement, stating the date it was provided. E-2

129 (e) Notwithstanding any other provision of this Disclosure Agreement, all filings shall be made in accordance with the MSRB's EMMA system or in another manner approved under the Rule. SECTION 4. include by reference: Content of Annual Reports. The School District s Annual Report shall contain or (a) Financial Statements. The audited financial statements of the School District for the most recent fiscal year of the School District then ended. If the audited financial statements are not available by the time the Annual Report is required to be filed, the Annual Report shall contain any unaudited financial statements of the School District in a format similar to the audited financial statements, and the audited financial statements shall be filed in the same manner as the Annual Report when they become available. Audited financial statements of the School District shall be audited by such auditor as shall then be required or permitted by State law or the Fiscal Agent Agreement. Audited financial statements shall be prepared in accordance with generally accepted accounting principles as prescribed for governmental units by the Governmental Accounting Standards Board; provided, however, that the School District may from time to time, if required by federal or state legal requirements, modify the basis upon which its financial statements are prepared. In the event that the School District shall modify the basis upon which its financial statements are prepared, the School District shall provide a notice of such modification to the Repository, including a reference to the specific federal or state law or regulation specifically describing the legal requirements for the change in accounting basis. (b) Financial and Operating Data. The Annual Report shall contain or incorporate by reference the following information: (i) the principal amount of Bonds outstanding as of September 2 of each year; (ii) the balance in each fund under the Fiscal Agent Agreement as of the September 2 preceding the filing of the Annual Report, including the 2017 Bonds Account of the Reserve Fund and a statement of the Reserve Requirement for the Bonds; (iii) a summary of the Special Taxes levied on Undeveloped Property and Developed Property (as defined in the Rates and Method of Apportionment of Special Tax for Improvement Area No. 3) within Improvement Area No. 3 of the District, and an update of Table 3A based on the assessed value of such land, as shown on the assessment roll of the Riverside County Assessor last equalized prior to the September 30 next preceding the Annual Report date; (iv) the number of building permits issued for property located in Improvement Area No. 3, until building permits have been issued for all lots in Improvement Area No. 3; (v) any changes to the Rates and Method of Apportionment of the Special Tax for Improvement Area No. 3 approved or submitted to the electors for approval prior to the filing of the Annual Report; (vi) the status of any foreclosure actions being pursued by the School District with respect to delinquent Special Taxes; (vii) the delinquency rate for the Special Taxes for the preceding fiscal year and the identity of any property owner whose delinquent Special Taxes represent more than 5% of the amount levied and the assessed value-to-lien ratios of such delinquent properties; and (viii) any information not already included under (i) through (vii) above that the School District is required to file in its annual report to the California Debt and Investment Advisory Commission pursuant to the provisions of the Mello-Roos Community Facilities Act of 1982, as amended. E-3

130 In addition to any of the information expressly required to be provided under paragraphs (a) or (b) of this Section, the School District shall provide such further information, if any, as may be necessary to make the specifically required statements set forth in clauses (i) to (viii), in the light of the circumstances under which they were made, not misleading. (c) Any or all of the items listed in (a) or (b) above may be included by specific reference to other documents, including official statements of debt issues of the School District or related public entities, which have been submitted to EMMA or the Securities and Exchange Commission. If the document included by reference is a final official statement, it must be available from the MSRB through EMMA. The School 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 School District shall give, or cause the Dissemination Agent to give, notice to the Repository of the occurrence of any of the following events with respect to the Bonds in a timely manner not more than ten (10) business days after the event: 1. principal and interest payment delinquencies; 2. unscheduled draws on debt service reserves reflecting financial difficulties; 3. unscheduled draws on credit enhancements reflecting financial difficulties; 4. substitution of credit or liquidity providers, or their failure to perform; 5. adverse tax opinions or the issuance by the Internal Revenue Service of proposed or final determinations of taxability or of a Notice of Proposed Issue (IRS Form 5701-TEB); 6. defeasances; 7. tender offers; 8. bankruptcy, insolvency, receivership or similar proceedings; and 9. ratings changes. Note: for the purposes of the event identified in subparagraph (8), the event is considered to occur when any of the following occur: the appointment of a receiver, Trustee or similar officer for an obligated person in a proceeding under the United States Bankruptcy Code or in any other proceeding under state or federal law in which a court or governmental authority has assumed jurisdiction over substantially all of the assets or business of the obligated person, or if such jurisdiction has been assumed by leaving the existing governmental 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 obligated person (b) Pursuant to the provisions of this Section 5, the School District shall give, or cause to be given, notice of the occurrence of any of the following events with respect to the Bonds, if material, in accordance with Section 5(d) below: 1. Unless described in paragraph 5(a)(5) above, notices or determinations by the Internal Revenue Service with respect to the tax status of the Bonds or other material events affecting the tax status of the Bonds; E-4

131 2. The consummation of a merger, consolidation or acquisition involving an obligated person or the 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 term; 3. appointment of a successor or additional fiscal agent or the change of the name of a fiscal agent; 4. non-payment related defaults; 5. modifications to the rights of Bondowners; 6. bond calls; and 7. release, substitution or sale of property securing repayment of the Bonds. (c) Upon the occurrence of a Listed Event under Section 5(b) above, the School District shall as soon as possible determine if such event would be material under applicable federal securities laws. (d) If the School District determines that knowledge of the occurrence of a Listed Event under Section 5(b) would be material under applicable federal securities laws, the School District shall file a notice, or cause the Dissemination Agent to file a notice, of such occurrence with the Repository in a timely manner not more than 10 business days after the event. (e) The School District hereby agrees that the undertaking set forth in this Disclosure Agreement is the responsibility of the School District and that the Dissemination Agent shall not be responsible for determining whether the School District s instructions to the Dissemination Agent under this Section 5 comply with the requirements of the Rule. SECTION 6. Termination of Reporting Obligation. The obligations of the School District and the Dissemination Agent under this Disclosure Agreement shall terminate upon the legal defeasance, prior redemption or payment in full of all of the Bonds. If such termination occurs prior to the final maturity of the Bonds, the School District shall give notice of such termination in the same manner as for a Listed Event under Section 5(a). SECTION 7. Dissemination Agent. The School District may, from time to time, appoint or engage a Dissemination Agent to assist it in carrying out its obligations under the Disclosure Agreement, and may discharge any such Dissemination Agent, with or without appointing a successor Dissemination Agent. The initial Dissemination Agent shall be David Taussig & Associates, Inc. The Dissemination Agent may resign by providing (i) thirty days written notice to the School District, and (ii) upon appointment of a new Dissemination Agent hereunder. SECTION 8. Amendment. (a) This Disclosure Agreement may be amended, by written agreement of the parties, without the consent of the Owners, if all of the following conditions are satisfied: (1) such amendment is made in connection with a change in circumstances that arises from a change in legal (including regulatory) requirements, a change in law, or a change in the identity, nature or status of the School District or the type of business conducted thereby, (2) this Disclosure Agreement as so amended would have complied with the requirements of the Rule as of the date of this Disclosure Agreement, after taking into account any amendments or interpretations of the Rule, as well as any change in circumstances, (3) the School District shall have delivered to the Dissemination Agent an opinion of a nationally recognized bond counsel or counsel expert in federal securities laws, addressed to the School District and the Participating Underwriter, to the E-5

132 same effect as set forth in clause (2) above, (4) the School District shall have delivered to the Dissemination Agent an opinion of nationally recognized bond counsel or counsel expert in federal securities laws, addressed to the School District, to the effect that the amendment does not materially impair the interests of the Owners or Beneficial Owners, or such amendment shall have been approved by the Owners in the same manner as an amendment to the Fiscal Agent Agreement, and (5) the School District shall have delivered copies of such opinion and amendment to the Repository. (b) This Disclosure Agreement also may be amended by written agreement of the parties upon obtaining consent of Owners in the same manner as provided in the Fiscal Agent Agreement for amendments to the Fiscal Agent Agreement with the consent of the Owners of the Bonds; provided that the conditions set forth in Section 8(a)(1), (2) and (3) have been satisfied. (c) To the extent any amendment to this Disclosure Agreement results in a change in the type of financial information or operating data provided pursuant to this Disclosure Agreement, the first Annual Report provided thereafter shall include a narrative explanation of the reasons for the amendment and the impact of the change in the type of operating data or financial information being provided. (d) If an amendment is made to the basis on which financial statements are prepared, the Annual Report 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. Such comparison shall include a quantitative and, to the extent reasonably feasible, 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 information. SECTION 9. Additional Information. Nothing in this Disclosure Agreement shall be deemed to prevent the School District from disseminating any other information, using the means of dissemination set forth in this Disclosure Agreement or any other means of communication, or including any other information in any Annual Report or notice of occurrence of a Listed Event, in addition to that which is required by this Disclosure Agreement. If the School 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 School District shall have no obligation under this Disclosure Agreement to update such information or include it in any future Annual Report or notice of occurrence of a Listed Event. The School District acknowledges and understands that other state and federal laws, including but not limited to the Securities Act of 1933 and Rule 10b-5 promulgated under the Securities Exchange Act of 1934, as amended, may apply to the School District, and that under some circumstances compliance with this Disclosure Agreement, without additional disclosures or other action, may not fully discharge all duties and obligations of the School District under such laws. SECTION 10. Default. In the event of a failure of the School District or the Dissemination Agent to comply with any provision of this Disclosure Agreement, any Owner or Beneficial Owner of the Bonds may take such actions as may be necessary and appropriate, including seeking mandate or specific performance by court order, to cause the School District and/or the Dissemination Agent to comply with their respective 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 School District or the Dissemination Agent to comply with this Disclosure Agreement shall be an action to compel performance. SECTION 11. Duties, Immunities and Liabilities of Dissemination Agent. The Dissemination Agent shall have only such duties as are specifically set forth in this Disclosure Agreement, and the School District agrees to indemnify and save the Dissemination Agent and its officers, directors, employees and agents, harmless against any loss, expense and liabilities which they may incur arising out of or in the exercise or performance of their powers and duties hereunder, including the costs and expenses (including attorneys E-6

133 fees) of defending against any claim of liability, but excluding liabilities due to the Dissemination Agent s negligence or willful misconduct. Any Dissemination Agent other than the School District shall be paid (i) compensation by the School District for its services provided hereunder in accordance with a schedule of fees to be mutually agreed to; and (ii) all expenses, legal fees and advances made or incurred by the Dissemination Agent in the performance of its duties hereunder. The Dissemination Agent shall have no duty or obligation to review any information provided to it by the School District pursuant to this Disclosure Agreement. The obligations of the School District under this Section shall survive resignation or removal of the Dissemination Agent and payment of the Bonds. No person shall have any right to commence any action against the Dissemination Agent seeking any remedy other than to compel specific performance of this Disclosure Agreement. The Dissemination Agent shall not be liable under any circumstances for monetary damages to any person for any breach under this Disclosure Agreement. The Dissemination Agent may file reports, notices and other information as required by this Disclosure Agreement electronically to the Repository. If the School District is equipped to receive such information electronically, the Dissemination Agent will include the School District in any simultaneous electronic dissemination of materials. SECTION 12. Beneficiaries. This Disclosure Agreement shall inure solely to the benefit of the School District, the Dissemination Agent, the Participating Underwriter and Owners and Beneficial Owners from time to time of the Bonds, and shall create no rights in any other person or entity. SECTION 13. Counterparts. This Disclosure Agreement may be executed in several counterparts, each of which shall be an original and all of which shall constitute but one and the same instrument. SECTION 14. Governing Law. This Disclosure Agreement shall be construed and governed in accordance with the laws of the State of California. E-7

134 SECTION 15. Notices. Notices shall be provided, as required hereunder, to the applicable addressees below: School District: Dissemination Agent: Riverside Unified School District th Street Riverside, CA Telephone: (951) Facsimile: (951) Attention: Deputy Superintendent David Taussig & Associates, Inc Birch Street Newport Beach, CA Telephone: Facsimile: SECTION 16. 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 17. Merger. Any person succeeding to all or substantially all of the Dissemination Agent s corporate trust business shall be the successor Dissemination Agent without the filing of any paper or any further act. COMMUNITY FACILITIES DISTRICT NO. 15 OF THE RIVERSIDE UNIFIED SCHOOL DISTRICT By: Superintendent of the Riverside Unified School District on behalf of Community Facilities District No. 15 of the Riverside Unified School District DAVID TAUSSIG & ASSOCIATES, INC., as Dissemination Agent By: Its: Authorized Officer E-8

135 EXHIBIT A NOTICE TO REPOSITORIES OF FAILURE TO FILE ANNUAL REPORT Name of Issuer: Riverside Unified School District, on behalf of Community Facilities District No. 15 of the Riverside Unified School District Name of Bond Issue: Community Facilities District No. 15 of the Riverside Unified School District (Improvement Area No. 3) Series 2017 Special Tax Bonds Date of Issuance: December 5, 2017 NOTICE IS HEREBY GIVEN that the Riverside Unified School District, on behalf of Community Facilities District No. 15 of the Riverside Unified School District, (the School District ) has not provided an Annual Report with respect to the above-named Bonds as required by Section 3 of the Continuing Disclosure Agreement relating thereto, dated as of December 1, [The School District anticipates that the Annual Report will be filed by.] Dated: cc: Riverside Unified School District, as Dissemination Agent E-9

136 [THIS PAGE INTENTIONALLY LEFT BLANK]

137 APPENDIX F BOOK-ENTRY ONLY SYSTEM The information in this section concerning DTC and DTC s book-entry only system has been obtained from sources that the District believes to be reliable, but the District takes no responsibility for the completeness or accuracy thereof. The following description of the procedures and record keeping with respect to beneficial ownership interests in the Bonds, payment of principal, premium, if any, accreted value and interest on the Bonds to DTC Participants or Beneficial Owners, confirmation and transfers of beneficial ownership interests in the Bonds and other related transactions by and between DTC, the DTC Participants and the Beneficial Owners is based solely on information provided by DTC to the District which the District believes to be reliable, but the 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 fullyregistered Bond will be issued for each annual maturity of the Bonds, each in the aggregate principal amount of such maturity, and will be deposited through the facilities of 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 3.5 million issues of U.S. and non-u.s. equity issues, corporate and municipal debt issues, and money market instruments (from over 100 countries) that DTC s participants ( Direct Participants ) deposit with DTC. DTC also facilitates the post trade settlement among Direct Participants of sales and other securities transactions in deposited securities, through electronic computerized book-entry transfers and pledges between Direct Participants accounts. This eliminates the need for physical movement of securities certificates. Direct Participants include both U.S. and non-u.s. securities brokers and dealers, banks, trust companies, clearing corporations, and certain other organizations. DTC is a wholly-owned subsidiary of The Depository Trust & Clearing Corporation ( DTCC ). DTCC is the holding company for DTC, National Securities Clearing Corporation and Fixed Income Clearing Corporation, all of which are registered clearing agencies. DTCC is owned by the users of its regulated subsidiaries. Access to the DTC system is also available to others such as both U.S. and non-u.s. securities brokers and dealers, banks, trust companies, and clearing corporations that clear through or maintain a custodial relationship with a Direct Participant, either directly or indirectly ( Indirect Participants ). DTC has a Standard & Poor s rating of AA+. The DTC Rules applicable to its Participants are on file with the Securities and Exchange Commission. More information about DTC can be found at 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 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 Bonds representing their ownership interests in 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 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 F-1

138 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 prepayments, tenders, defaults, and proposed amendments to the Bond documents. For example, Beneficial Owners of 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 registrar and request that copies of notices be provided directly to them. Redemption notices shall be sent to DTC. If less than all of the Bonds within a maturity are being prepaid, 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 any other DTC nominee) will consent or vote with respect to Bonds unless authorized by a Direct Participant in accordance with DTC s MMI Procedures. Under its usual procedures, DTC mails an Omnibus Proxy to the District as soon as possible after the record date. The Omnibus Proxy assigns Cede & Co. s consenting or voting rights to those Direct Participants to whose accounts Bonds are credited on the record date (identified in a listing attached to the Omnibus Proxy). Redemption proceeds, distributions, and dividend 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 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 District, subject to any statutory or regulatory requirements as may be in effect from time to time. Payment of redemption proceeds, distributions, and dividend payments to Cede & Co. (or such other nominee as may be requested by an authorized representative of DTC) is the responsibility of the 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. A Bond Owner shall give notice to elect to have its Bonds purchased or tendered, through its Participant, to the Fiscal Agent, and shall effect delivery of such Bonds by causing the Direct Participant to transfer the Participant s interest in the Bonds, on DTC s records, to the Fiscal Agent. The requirement for physical delivery of Bonds in connection with an optional tender or a mandatory purchase will be deemed satisfied when the ownership rights in the Bonds are transferred by Direct Participants on DTC s records and followed by a book-entry credit of tendered Bonds to the Fiscal Agent s DTC account. DTC may discontinue providing its services as depository with respect to the Bonds at any time by giving reasonable notice to the District or the Fiscal Agent. Under such circumstances, in the event that a successor depository is not obtained, physical certificates are required to be printed and delivered. The District may decide to discontinue use of the system of book-entry only transfers through DTC (or a successor securities depository). In that event, Bonds will be printed and delivered to DTC. THE FISCAL AGENT, AS LONG AS A BOOK-ENTRY ONLY SYSTEM IS USED FOR THE BONDS, WILL SEND ANY NOTICE OF REDEMPTION OR OTHER NOTICES TO OWNERS ONLY TO DTC. ANY FAILURE OF DTC TO ADVISE ANY DTC PARTICIPANT, OR OF ANY DTC PARTICIPANT TO NOTIFY ANY BENEFICIAL OWNER, OF ANY NOTICE AND ITS CONTENT OR EFFECT WILL NOT AFFECT THE VALIDITY OF SUFFICIENCY OF THE PROCEEDINGS RELATING TO THE REDEMPTION OF THE BONDS CALLED FOR REDEMPTION OR OF ANY OTHER ACTION PREMISED ON SUCH NOTICE. F-2

139 APPENDIX G SPECIMEN MUNICIPAL BOND INSURANCE POLICY G-1

140 [THIS PAGE INTENTIONALLY LEFT BLANK]

141 MUNICIPAL BOND INSURANCE POLICY ISSUER: [NAME OF ISSUER] Policy No: MEMBER: [NAME OF MEMBER] BONDS: $ in aggregate principal amount of [NAME OF TRANSACTION] [and maturing on] Effective Date: Risk Premium: $ Member Surplus Contribution: $ Total Insurance Payment: $ BUILD AMERICA MUTUAL ASSURANCE COMPANY ( BAM ), for consideration received, hereby UNCONDITIONALLY AND IRREVOCABLY agrees to pay to the trustee (the Trustee ) or paying agent (the Paying Agent ) for the Bonds named above (as set forth in the documentation providing for the issuance and securing of the Bonds), for the benefit of the Owners or, at the election of BAM, directly to each Owner, subject only to the terms of this Policy (which includes each endorsement hereto), that portion of the principal of and interest on the Bonds that shall become Due for Payment but shall be unpaid by reason of Nonpayment by the Issuer. On the later of the day on which such principal and interest becomes Due for Payment or the first Business Day following the Business Day on which BAM shall have received Notice of Nonpayment, BAM will disburse (but without duplication in the case of duplicate claims for the same Nonpayment) to or for the benefit of each Owner of the Bonds, the face amount of principal of and interest on the Bonds that is then Due for Payment but is then unpaid by reason of Nonpayment by the Issuer, but only upon receipt by BAM, in a form reasonably satisfactory to it, of (a) evidence of the Owner s right to receive payment of such principal or interest then Due for Payment and (b) evidence, including any appropriate instruments of assignment, that all of the Owner s rights with respect to payment of such principal or interest that is Due for Payment shall thereupon vest in BAM. A Notice of Nonpayment will be deemed received on a given Business Day if it is received prior to 1:00 p.m. (New York time) on such Business Day; otherwise, it will be deemed received on the next Business Day. If any Notice of Nonpayment received by BAM is incomplete, it shall be deemed not to have been received by BAM for purposes of the preceding sentence, and BAM shall promptly so advise the Trustee, Paying Agent or Owner, as appropriate, any of whom may submit an amended Notice of Nonpayment. Upon disbursement under this Policy in respect of a Bond and to the extent of such payment, BAM shall become the owner of such Bond, any appurtenant coupon to such Bond and right to receipt of payment of principal of or interest on such Bond and shall be fully subrogated to the rights of the Owner, including the Owner s right to receive payments under such Bond. Payment by BAM either to the Trustee or Paying Agent for the benefit of the Owners, or directly to the Owners, on account of any Nonpayment shall discharge the obligation of BAM under this Policy with respect to said Nonpayment. Except to the extent expressly modified by an endorsement hereto, the following terms shall have the meanings specified for all purposes of this Policy. Business Day means any day other than (a) a Saturday or Sunday or (b) a day on which banking institutions in the State of New York or the Insurer s Fiscal Agent (as defined herein) are authorized or required by law or executive order to remain closed. Due for Payment means (a) when referring to the principal of a Bond, payable on the stated maturity date thereof or the date on which the same shall have been duly called for mandatory sinking fund redemption and does not refer to any earlier date on which payment is due by reason of call for redemption (other than by mandatory sinking fund redemption), acceleration or other advancement of maturity (unless BAM shall elect, in its sole discretion, to pay such principal due upon such acceleration together with any accrued interest to the date of acceleration) and (b) when referring to interest on a Bond, payable on the stated date for payment of interest. Nonpayment means, in respect of a Bond, the failure of the Issuer to have provided sufficient funds to the Trustee or, if there is no Trustee, to the Paying Agent for payment in full of all principal and interest that is Due for Payment on such Bond. Nonpayment shall also include, in respect of a Bond, any payment made to an Owner by or on behalf of the Issuer of principal or interest that is Due for Payment, which payment has been recovered from such Owner pursuant to the United States Bankruptcy Code in accordance with a final, nonappealable order of a court having competent jurisdiction. Notice means delivery to BAM of a notice of claim and certificate, by certified mail, or telecopy as set forth on the attached Schedule or other acceptable electronic delivery, in a form satisfactory to BAM, from and signed by an Owner, the Trustee or the Paying Agent, which notice shall specify (a) the person or entity making the claim, (b) the Policy Number, (c) the claimed amount, (d) payment instructions and (e) the date such claimed amount becomes or became Due for Payment. Owner means, in respect of a Bond, the person or entity who, at the time of Nonpayment, is entitled under the terms of such Bond to payment thereof, except that Owner shall not include the Issuer, the Member or any other person or entity whose direct or indirect obligation constitutes the underlying security for the Bonds.