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CFD NO.03-02 (RORIPAUGH RANCH) EXPECTED PRODUCT MIX BY PHASES AND PLANNING AREAS 180 -, 160 140 -120 -100 80 -60 $900,000 T $800,000 CFD NO.03-02 (RORIPAUGH RANCH) EXPECTED PRODUCT MIX
EXPECTED PRICES FOR THE FORTHCOMING HOMES Empire Economics Release Date: February 2, 2006
ROLE OF THE MARKET STUDY IN THE BOND FINANCING The Market Absorption Study for CFD No. 03-02 has a multiplicity of roles with regards to the Bond Financing; accordingly, these are now
discussed. Marketing Prospects for the Various Product Types Official Statement Prospective Bond Purchasers Aggregate Levels of Special Tax Revenues Maximum Special Taxes for the Residential
Products Conforming to the Issuer's Policies Share of Payments: Developer/Builders vs. Final-Users Determined by the Absorption Schedule Appraisal of Property Discounted Cash Flow -Present
Value Absorption Schedules The Issuing Agency for the Bond Issue, the City of Temecula, along with the Financial Advisor can utilize the Market Absorption Study, Appraisal, and Special
Tax Revenue to structure the Bond Issue for CFD No. 03-02. Empire Economics Release Date: February 2, 2006
METHODOLOGY UNDERLYING THE MARKET STUDY To perform a comprehensive analysis of the macroeconomic and microeconomic factors that are expected to influence the absorption of the residential
single-family detached and commercial-retail products in CFD No. 03-02, Empire's Market Absorption Study conducts a systematic analysis of the following factors: MACROECONOMIC FACTORS
FOR CFD NO. 03-02 * Market Supply Planning Projections * Market Demand Economic Conditions * Reconciliation * Growth Potential for the Market Area MICROECONOMIC FACTORS FOR CFD NO. 03-02
Regional Development Patterns Socioeconomic: School and Crime Housing Price Trends and Patterns Competitive Market Analysis -Product Type Residential Single-Family Detached *Location
*Product Type *Prices * Special Taxes *Features/Amenities ABSORPTION SCHEDULES Product Type *Residential Single-Family Detached Commercial-Retail Center *Market Entry to Build-Out Therefore,
the Market Absorption Study systematically proceeds from the macroeconomic analysis of the Market Region's future housing, industrial and commercial growth to the microeconomic analysis
of the estimated absorption schedules for the residential single-family detached and commercial-retail products in CFD No. 03-02. Empire Economics 10 Release Date: February 2, 2006
RECENT/EXPECTED ECONOMIC TRENDS/PATTERNS The purpose of this section is to discuss the recent/expected economic trends/patterns for the United States (US), California (CA), and Riverside
County (RC), including Gross Domestic Product, employment, housing starts, mortgage rates and gas prices. Recent /Expected Real Gross Domestic Product Trends/Patterns With regards to
the recent/expected growth rates for Gross Domestic Product (GDP) for the United States economy, they are as follows: • During 1999 and 2000, real GDP increased at strong rates of by
4.50% and 3.70%, respectively. • Then, in 2001 and 2002, as the economy slowed, real GDP increased by only 0.80% and 1.60%, respectively. • In 2003 and 2004, as the economy rebounded,
real GDP increased by some 2.70% and 4.20%, respectively. • For 2005, real GDP growth moderated somewhat to a rate of 3.38%. • For 2006, real GDP is expected to moderate further to a
rate of some 2.85%. Next, with respect to the actual/expected rates of change for the various components of real GDP for 2005 as compared to 2006 are as follows: • Consumption, which
increased at some 3.58% in 2005 is expected to moderate to a rate of some 2.78% in 2006. • Business investment, which increased at some 7.15% in 2005 is expected to moderate to 4.83%
in 2006. • Finally, with respect to government purchases, which grew at a rate of 1.88% in 2005 are expected to increase by 2.13% in 2006. Therefore, comparing the rates of growth for
the various components of real GDP for 2006 as compared to 2005 reveals that the overall rate of growth is expected to moderate somewhat while among the various sectors, consumption
and investment are expected to moderate while the rate of growth for government spending rises. UNITED STATES REAL GDP AND ITS COMPONENTS: ANNUALLY Empire Economics 11 Release Date:
February 2, 2006
Recent/Expected Employment Trends/Patterns With regards to the recent/expected growth rates for employment, these are now discussed for the United States, California, and Riverside-San
Bernardino counties economies. For the United States economy, the recent trends/patterns for employment have been as follows: • In 1999 and 2000, employment growth was strong, some 2.44%
and 2.20%, respectively. • Then, in 2001, due to the economic slowdown, employment was virtually stable. • For 2002, employment declined by -1.13%, followed by a decrease of -0.26% in
2003. • In 2004, as the economy moved into its recovery phase, employment rose by some 1.13%. • For 2005, as the economy expanded further, employment rose by 1.64%. • For 2006, as the
economy slows, employment growth is expected to moderate to 1.25% California's employment followed a generally similar pattern: • Strong rates of employment growth in 1999 and 2000 of
2.90% and 3.50%, respectively. • Then in 2001, employment rose only moderately, some 0.80%. • However, in 2002 to 2003, employment declined to -0.99% and -0.45%, respectively. • For
2004, the economy moved into a recovery, with an employment gain of 1.02%. • In 2005, the economy had stronger growth, with employment rising at a rate of 1.54%. • For 2006, as the economy
slows, employment growth is expected to moderate to 1.10% Riverside-San Bernardino (R-SB) counties, on a comparative basis, have performed favorably: • R-SB counties experienced strong,
though diminishing, rates of employment growth during 1999-2002, from 6.44% in 1999 to 3.38% in 2002. • Employment growth moderated in 2003, with a growth rate of 3.26%. • Then, in 2004,
employment rose at higher level of some 4.60%. • For 2005, employment growth moderated to a rate of some 2.00%. • For 2006, the rate of employment growth is expected to moderate further,
to some 1.45% Therefore, during 2006, the United States, California and R-SB counties economies are all expected to experience lower rates of employment growth. UNITED STATES, CALIFORNIA
& RIVERSIDE -SAN BERNARDINO COUNTIES RECENT/EXPECTED EMPLOYMENT TRENDS: ANNUALLY Empire Economics 12 Release Date: February 2,2006
Recent/Expected Trends/Patterns for Housing Starts With regards to the recent trends and patterns for housing starts, they are as follows: • The United States housing market experienced
a strong growth during the 2000 to 2005 time period, with the number of new homes rising from 1,573,400 in 2000 to 2,044,125 in 2005. For 2006, the United States housing market is expected
to moderate to some 1,803,550 new homes, due to the combined impacts of a slowing economy as well as higher mortgage rates. • For the California housing market, housing starts have had
strong growth during 1999 to 2005, as the number of new homes rose from 139,073 in 1999 to 212,954 in 2005. The California housing market is expected to decrease somewhat in 2006 to
some 183,180 new homes, also as a result of a slowing economy and higher mortgage rates. • Finally, with respect to Riverside County, housing starts rose dramatically during the 1999-2004
time period, from 14,577 homes in 1999 to 35,696 homes in 2005. For 2006, the level of activity is expected to moderate somewhat, to some 29,740 homes, due to the expectation of higher
mortgage rates as well as higher gas prices. So, for 2006, the United States, California, and Riverside County housing markets are expected to decline somewhat from their 2005 levels,
due primarily to a slowing economy as well as higher levels of mortgage rates as well as higher gas prices. 2,500,000 -V) ULJ (O Q HI 13 — Left: United States ^^^" Right: California
Right: Riverside County UNITED STATES, CALIFORNIA AND RIVERSIDE COUNTY HOUSING STARTS: ANNUALLY -^. 4 1999 1,663,100 139,073 14,577 * ^^* — •• 2000 1,573,400 148,540 17,692 __,. . '—4r^
2001 1,601,200 148,757 19,890^2002 1,712,340 164,318 20,990 ^f^ « 2003 1 ,858,760 194,882 28,366 ^~1* ' 2004 1,963,700 210,150 33,870 -r*s> 2005 2,044,125 212,954 35,696 N» 2006 1,803,550
183,180 29,740 z3OO << DCO u. _l Empire Economics 13 Release Date: February 2, 2006
Recent/Expected Trends in Mortgage Rates The recent/expected trends/patterns for mortgage rates, including the 15 year fixed rate mortgage, as well as the 10-year Treasury Bond which
influences the 15 year fixed rate mortgage, and the 1 year adjustable, are now discussed: • During the 2000 to 2003 time period, the rates on the 10-year Treasury Bond, 15 year fixed
mortgage and the 1 year adjustable mortgage all declined: the 10-year Treasury Bond from 6.00% to 3.95% (-2.05%), the 15 year fixed mortgage from 7.73% to 5.17% (-2.56%), and the 1 year
adjustable mortgage from 7.05% to 3.76% (-3.29%). • From 2003 to 2005, the rates started to rise: on the 10-year Treasury Bond from 3.95% to 4.29% (+0.34%), the 15 year fixed mortgage
from 5.17% to 5.42% (+0.25%), and the 1 year adjustable mortgage from 3.76% to 4.49% (+0.73%). • For 2006 as compare to 2005, the rates are expected to rise further, the 10-year Treasury
Bond from 4.29% to 4.75% (+0.46%), the 15 year mortgage from 5.42% to 6.07% (+0.65%), and the 1 year adjustable mortgage from 4.49% to 5.44% (+0.95%). So, during 2006, financial rates
are expected to rise at a faster pace, with an increase in the 10-year Treasury Bond driving up the 15 year fixed rates by some 0.65% while the increases in the federal fund rate by
the Federal Reserve Board drives up the 1 year adjustable rate mortgages by some 0.95%. UNITED STATES MORTGAGE RATES: ANNUALLY 9.00% Empire Economics 14 Release Date: February 2, 2006
Recent/Expected Trends/Patterns for Gas Prices in California With regards to the recent/expected annual gas prices per gallon in California, they are as follows: • From 1999 to 2000,
California gas prices rose significantly from $1.47 to $1.77, respectively, an increase of some $0.30. • Then, gas prices declined to $1.62 in 2002, a decrease of-$0.12 from $1.74 in
2001. • However, with the invasion of Iraq and uncertainty in the Middle East, California gasoline prices rose dramatically to $2.23 in 2004, an increase of $0.61 from 2002. • For 2005,
gas prices rose further to $2.61, an additional increase of some $0.38 from 2004. • For 2006, gas prices are expected to decline slightly, to some $2.51, a decrease of some $0.10 from
2005. So, during 1999 to 2005, California gas prices have risen significantly, by some $1.14 per gallon but they are expected to decline slightly in 2006, by some $0.10. CALIFORNIA GAS
PRICES: ANNUALLY $3.00 -, Empire Economics 15 Release Date: February 2, 2006
COMPETITIVENESS OF CFD NO. 03-02 FROM A REGIONAL PERSPECTIVE From a regional perspective, the competitiveness of CFD No. 03-02's forthcoming residential and commercial-retail projects/products
are influenced by the development patterns for employment and housing within the Southern California Market Region (MR), and their interrelationships with the CFD No. 03-02 Market Area.
Specifically, Business Parks generate industrial-office development while Planned Communities generate residential and commercial-retail development; additionally, the flow of traffic
between them is facilitated by the freeways and highways. > Expansion of Employment Centers and Business Parks The currently established major employment centers are Orange, San Diego
and Los Angeles (OC/SD/LA) counties as well as the western portions of Riverside and San Bernardino counties. Furthermore, there has been some expansion from these into various Business
Parks located in the CFD No. 03-02 Market Area, the southwestern portion of Riverside County. Specifically, these Business Parks are situated primarily along Interstates 15 and 215,
major north-south freeways that link the western portions of Riverside and San Bernardino counties. The potential for the future expansion of Business Parks depends, to a significant
degree, upon their freeway accessibility. ^ The Eastern Transportation Corridor, which links Orange County and western Riverside County, facilitates the expansion of the employment centers
into Riverside County. With respect to the expansion of these employment centers in western Riverside County this has occurred primarily along Route 91 as well as Interstates 15 and
215. > Commuting Patterns: Employment Centers to Residential Areas Some of the households employed in the OC/SD/LA and western San Bernardino County employment centers reside in the
CFD No. 03-02 Market Area, since it offers moderately priced housing; these commuting patterns are based upon the freeways/highways that link the employment centers to the Market Area.
The expansion of the residential centers depends upon accessibility, whether by freeway or secondary roads. * There is strong spillover of housing demand from San Diego County into southwestern
Riverside County along Interstates 15 and 215, major north-south freeways that link Riverside and San Diego counties. * Additionally, the completion of the Eastern Transportation Corridor
which links Orange County with Riverside County facilitates the commute to the western portion of Riverside County. With respect to commuting in western Riverside County this is based
upon the use of Route 91 as well as Interstates 15 and 215. For additional information on the regional development patterns, please refer to the following exhibit. Empire Economics 16
Release Date: February 2,2006
f§'ri I ECONOMIC BASES SUPPORTING DEVELOPMENT FOR CFD NO.03-02 (RORIPAUGH RANCH) RESIDENTIAL DEVELOPMENT PATTERNS: 1997-2000 AND NJOo o\ : MORONOO1.R. Lacuna Beach S«n Ufc Rey Hei
SOCIOECONOMIC CHARACTERISTICS: CRIME LEVELS AND THE QUALITY OF SCHOOLS When households consider the purchase of a home, the primary factors are the location (relative to their place
of employment) and price (within their income/affordability levels). Furthermore, secondary socioeconomic factors that are significant are the safety of the neighborhood as well as the
quality of the schools; accordingly, these are now discussed. Crime Levels and Neighborhood Safety To gauge the safety of Riverside County and the CFD No. 03-02 Neighborhood Area, information
on crime levels was obtained utilizing the most recently available data from the Federal Bureau of Investigation (FBI) Index. The FBI Crime Index represents a compilation of crime data
using the Uniform Crime Reporting system to ensure reliability and consistency among various geographical areas. The FBI Crime Index has two components for crime: violent crime and property
crime. Violent crime consists of murder and non-negligent man-slaughter, forcible rape, robbery, and aggravated assault. Property crime consists of burglary, larceny-theft, motor vehicle
theft and arson. For the state of California, approximately 88% of all crimes are property crimes whereas 12% are violent crimes. However, it should be noted that these statistics do
not measure the "human or emotional" reactions of individuals to different types of crime. To adjust for the population differences of various geographical areas, Empire Economics divides
the crime levels by the population to represent the number of crimes per 1, 000 people. For California, as a whole, the average crime rate is approximately 40.2 per 1,000 people per
year. For Southern California the rate is 39.1, which is slightly lower than the state average. While for Riverside County, the rate is 45.0, somewhat higher than for Southern California
and also California. With respect to the CFD No. 03-02 Market Area, in particular, the crime rate is some 31.5 per 1,000 people, substantially below the crime rate for Riverside County.
RIVERSIDE COUNTY CRIME RATES BY CITY ' DESIGNATES CITY IN THE CFD MARKET AREA Empire Economics 18 Release Date: February 2,2006
Quality of Schools and Education To gauge the quality of schools in Riverside County and the CFD No. 03-02 Neighborhood Area, information was compiled on educational achievement, specifically
the SAT I scores. For the Southern California counties, as a whole, the SAT I scores (with 1,600 being the highest possible) were at a level of 1,014 and this is similar to the scores
for California as a whole, some 1,015. While for Riverside County, in particular, the SAT I scores amount to 958, somewhat below the overall averages for California and also Southern
California. For Riverside County, the average SAT I score was 958. For the school districts in the vicinity of CFD No. 03-02, Temecula and Murrieta, the SAT I scores amounted to 1036
and 1018, respectively, and both of these are higher than the county average. SAT I TEST SCORES: MATH AND VERBAL AVERAGE ( * DESIGNATES SCHOOL DISTRICT IN THE CFD) Therefore, from a
socioeconomic perspective, Riverside County has a higher crime rate and a lower educational achievement level than California and also Southern California, as a whole. Within Riverside
County, the City of Temecula has a significantly lower crime rate (more desirable) and a generally higher educational achievement levels (also more desirable). So, comparing the CFD
No. 03-02 Market Area with Riverside County as a whole reveals that the City of Temecula is regarded as being very desirable from a socioeconomic perspective. Empire Economics 19 Release
Date: February 2, 2006
POTENTIAL "FINANCIAL" RISK FACTORS UNDERLYING THE CREDIT QUALITY AND BOND SIZING FOR LAND SECURED FINANCINGS IN SOUTHERN CALIFORNIA There has recently been a substantial amount of discussion
on the potential for a housing market bubble, including remarks of "froth in some local markets" by the former Federal Reserve Board Chairman, Alan Greenspan, based primarily upon the
use of exotic mortgage structures; these remarks have dealt with the housing market on a national as well as a regional level. However, developing Planned Communities have characteristics
that differentiate them from broader markets: they represent the marketing of new homes to purchasers at current prices that exclusively utilize current mortgage rates and financing
structures, and they are also concentrated in particular geographical locations. The purpose of this section is to focus specifically on the potential implications of the recent use
of adjustable rate and creative financing techniques that are presently available for home purchasers on the credit quality underlying land-secured financings in Southern California.
There has been a fundamental shift in the driving force underlying the recent rates of housing price appreciation, from the historical role of employment growth as the driving force
to the recent role of adjustable rate and creative financing techniques as the driving force. These financial factors have been the primary driving force underling the extraordinary
rate of housing price appreciation in Southern California of more than 75% since January 2002. Consequently the current levels of housing prices and land values are subject to potentially
substantial downward adjustments, due to mortgage rate resets (as mortgages are adjusted from teaser rates to market rates) as well as higher short-term rates (due to rate hikes by the
Federal Reserve Board). These adjustments, in turn, may cause a softening in housing prices and land values that could adversely impact the credit quality underlying land-secured financings.
Creative financing refers to the use of loan structures other than fixed-rate or 1 year adjustable, including the following: interest only, payment option loans as well as initial teaser
rates (below market rates that are offered only for a limited time period) with very low initial payments that result in negative amortizations (higher principal balance), less stringent
lending standards such as low/no documentation, and much higher mortgage payment to income ratios, among others. Structural Shift of Factors Underlying Housing Price Appreciation Since
January 2002 there has been a fundamental shift in the primary factor underlying housing price appreciation in Southern California; the primary driving force was initially declining
mortgage rates as well as the extensive use of adjustable and creative financing as compared to the traditional driving force of strong employment growth. Specifically, the term "driving
force" is utilized herein to refer to a SIGNIFICANT CHANGE in a major economic/financial factor that has STRONG DISCERNIBLE IMPACT on housing prices. Empire Economics 20 Release Date:
February 2, 2006
January 2002 through June 2003: The rates on fixed 30-year mortgage loans declined to recent historic lows in June 2003, and were a driving force underlying the rate of housing price
appreciation of some 13.4% on an annualized basis; however, since June 2003, fixed rate mortgages have been ABOVE their recent historic lows. July 2003 to March 2004: As fixed mortgage
rates rose, purchasers shifted to adjustable rate mortgages which offered significantly lower rates, and these were a driving force underlying the rate of housing price appreciation
of some 18.8% on an annualized basis; however, since March 2004, adjustable rates have been ABOVE their recent historic lows. April 2004 -Presently: As adjustable mortgage rates rose
due to the Federal Reserve Board increasing the federal funds rate, home buyers shifted to various types of creative financial structures, and these were a driving force underlying the
rate of housing price appreciation of some 24.1% on an annualized basis; however, since Fall-2005, some lenders have started to tighten their qualification standards. Potential Adjustments
for Mortgage Payments The extensive use of adjustable rate mortgages and also creative mortgage structures since June 2003 means that such homeowners have monthly mortgage payments which
are subject to significant upward adjustments due to automatic mortgage rate resets as well as potentially higher interest rates: > Mortgage Resets (Stable Mortgage Rates) reflect the
changes in mortgage payments that households with adjustable and creative mortgage structures will incur as the initial "teaser" rates are realigned with the current "market" rates.
The dollar volume of mortgages subject to resets for the United States mortgage market is expected to increase from $83 billion in 2005 to more that $1 trillion in 2007. > Higher Mortgage
Rates would result in even higher monthly payments for homeowners with adjustable rate mortgages as well as creative mortgage structures; the increase in their mortgage payments depends
upon the degree to which short-term rates rise. The recent use of adjustable rate and creative financing techniques by home purchasers is especially significant for residential land
secured financings, since these financings are predominately for developing Planned Communities that represent the marketing of new homes to purchasers at current prices that exclusively
utilize current mortgage rates and financing structures and they are also concentrated in particular geographical locations. Specific Impacts of Rate Resets and Higher Mortgage Rates
on the Land Secured Credit Quality To the extent that mortgage payments rise due to various possible combinations of automatic mortgage rate resets as well as potentially higher short-term
rates that directly impact adjustable rate and creative mortgages, then the credit quality underlying recent land-secured financings may be diminished in the following ways: Empire Economics
21 Release Date: February 2, 2006
> Lower housing prices resulting in a higher Special Tax to Housing Price Burden for homeowners, possibly in excess of the Issuer's policy of a maximum total tax burden, typically some
1.8% to 2.0% of the initial sales prices, even though these maximums may have been satisfied at the time that the Special Taxes were established. > Significantly lower land values resulting
in a reduced Value/Lien ratio, possibly below the Issuer's policy of typically some 3 to 1 or 4 to 1 when the bonds are sold, thereby diminishing the security for bond holders. (The
Appraisal for the Bond Issue is valid only for the stated Date of Value; it is not meant to be a prediction of future values.) > Higher levels of Special Tax delinquencies as monthly
payments of owners increase resulting in diminishing the maximum Special Tax to the bond debt service coverage ratios for bond holders that may adversely impact the Issuer's ability
to meet the debt service payments in a timely manner, possibly resulting in the use of the bond reserve fund. Adjustable rate mortgages (some 79% of current mortgages) have significantly
higher delinquency rates than fixed rate mortgages; additionally, homeowners that use adjustable rate mortgages also have higher loan to value ratios as well, some 90% as compared to
homeowners with fixed rate loans, some 81%. Accordingly, in arriving at these conclusions, this section systematically discusses the following: 1. Recent Shift in the Primary Factors
Underling Housing Price Appreciation 2. Financial Factors "Driving" Recent Housing Price Appreciation 3. Mortgage Rate Resets: Realignment of Adjustable/Creative Loans to Market Rates
4. Mortgage Rate Increases: Potential for Further Federal Reserve Board Rate Hikes 5. Specific Impacts of Higher Mortgage Rates on the Land-Secured Credit Quality This section should
not be construed as a forecast that mortgage rates will rise significantly in the foreseeable future; rather, it sets forth the POTENTIAL risk factors that mortgage rate resets as well
as higher mortgage mortgage rates along with the near-term policy of the Federal Reserve Board would have on the credit quality underlying land-secured financings. Empire Economics acknowledges
that financial markets, due to their high degree of economic efficiency and complexity, are difficult to forecast, and, as such, the use of the term "Potential" Risk Factor is regarded
as being appropriate. Empire Economics 22 Release Date: February 2, 2006
1. Recent Shift in the Primary Factors Underlying Housing Price Appreciation The primary factors underlying housing price appreciation in Southern California since January 2002, declining
mortgage rates as well as the extensive use of adjustable and creative financing, represent a fundamental shift from the traditional factor, employment growth. Specifically, the term
"driving force" is utilized herein to refer to a SIGNIFICANT CHANGE in a major economic/financial factor that has STRONG DISCERNIBLE IMPACT on housing prices. > During 1984-2001 housing
price appreciation was driven by employment growth, along with accommodating financial factors, such as stable or somewhat declining mortgage rates. During this time period financial
factors played only a secondary role: for instance, during 1991-1993 when employment decreased, housing prices declined, even though mortgage rates fell by more than two percentage points
from their 1989-1990 levels. > However, since January 2002, as housing prices escalated at strong rates, the primary fundamental factor, employment growth, has experienced only minimal
growth, less than 1% per year, on the average. Instead, housing price appreciation has been driven primarily by financial factors, particularly the use of adjustable rate mortgages and
creative financing techniques. SOUTHERN CALIFORNIA EMPLOYMENT, HOUSING PRICES AND MORTGAGE RATES, HOUSING PRICE CHANGES DRIVEN BY EMPLOYMENT CHANGES td fj SB > & 1 W,, -kNGES IN EMPLO
USING PRICE APP ft O ? £ ; MORTGAGE RATES 10.31% 9.86% 770 ^^ /./5% 6.93% 7.35% 7.26% 605% ^ ^ — — A ""--A A A^ A ^~^-^ ^^^4. SINCE 2002, EMPLOYMENT GROWTH HAS BEEN MINIMAL YET PRICE
J, APPRECIATION HAS BEEN STRONG >f™,/<^i o. l\i /n \. y ogio/RESULTED IN STRONG 8'56/0 ^° ^, HOUSING PRICE vv j^««»— —— "^^^^ APPRECIATION \ 3.94% \ = 2.24% x ! \ 1.20% i \-2.29% p j
^s"xt >r ' ' /*^ \^ ^>r^;-i 0.69% 1 ^7°/0 8sx:ss%^«!.^ ^->4.7^0r% ^ Empire Economics 1984-1988 1989-1990 1991-1993 1994-1995 1996-1998 1999-2001 2002-2005 CZ3 Employment Changes A Mortgage
Rates -Fixed ~4*~ Housing Price Changes Sources: Empire Economics, Employment Development Department, Freddie Mac & Office of Federal Housing During 2002 to 2005 the financial factors
have been the strong driving force underlying the rates of housing price appreciation. Specifically, the rates of housing price appreciation have been generally similar among all of
the Southern California counties, despite their differences in geographic location, employment growth and housing supply. Empire Economics 23 Release Date:
February 2, 2006
> The rates of employment growth for the counties varied substantially during 2002 to 2005, from a low of -1.15% per year for Los Angeles County to a high of 4.60% per year for Riverside-San
Bernardino counties. > The supply of new housing has also exhibited a wide variation during 2002 to 2005 as compared to 1999-2001, from declines of-26% in Ventura County and -14% in
Orange County to increases of 80% in Riverside-San Bernardino counties. Therefore, the financial factors have been so strong that they have effectively overshadowed other possible explanatory
factors such as geographical locations, employment growth and housing supply. 2. Financial Factors "Driving" Recent Housing Price Appreciation in Southern California The particular factors
that have been the driving forces underlying recent strong rates of housing price appreciation in Southern California during January 2002 through 2005 are now discussed. Specifically,
the factors which have driven housing prices since January 2002 started with fixed mortgage rates declining to recent historic lows, then a shift to adjustable rate mortgages, and, most
recently, a shift to "creative" mortgage structures. January 2002 to June 2003: Prices Driven by Declining Fixed Rates; Fixed Rates Now Higher > Fixed-rate 30-year mortgage loans declined
from 7.00% in January 2002 to a low of 5.23% in June 2003, and were a driving force underlying the rate of housing price appreciation of some 13.4% on an annualized basis. > Since June
2003, rates on fixed rate mortgages have been ABOVE their recent historic lows and, as such, they are no longer considered to be a driving force underlying housing price appreciation.
RECENT MORTGAGE RATE TRENDS: FIXED-RATE MORTGAGE LOANS TRENDLINE: FIXED RATE MORTGAGES DECLINE TO HISTORIC LOWS FIXED RATE MORTGAGES AT HISTORIC LOWS: JUNE 2003 TRENDLINE FIXED RATE
MORTGAGES RISE Sources: Empire Economics & Freddie Mac Empire Economics 24 Release Date: February 2,2006
July 2003 to March 2004: Prices Driven by Adjustable Rate Loans; Adjustable Rates Higher > Starting in July 2003, as rates on fixed rate mortgages rose, households shifted to adjustable
rate mortgages which offered favorable terms, due to the Federal Reserve Board maintaining a low federal funds rate, and these attained a recent historic low of 3.41%. During the July
2003 to March 2004 time period, adjustable rates were significantly below fixed rates of by some 215 basis points. The use of adjustable rates were a driving force underlying the rate
of housing price appreciation of some 18.8% on an annualized basis. > Since March 2004, the rates on adjustable rate mortgages have been ABOVE their recent historic lows, and, as such,
they are no longer considered to be a driving force underlying housing price appreciation. RECENT MORTGAGE RATE TRENDS: 1-YEAR ADJUSTABLE RATE LOANS FEDERAL RESERVE BOARIJ RAISES THI-FEDERAI
ADJUSTABLE RATE MORTGAGES AT HISTORIC LOWS: MARCH 2004 TRENDLINE ADJUSTABLE RATE MORTGAGES > > For Southern California, the percentage of adjustable rate loans has risen dramatically,
from 19% in 2001 to 79% during 2005; conversely, fixed rate loans have decreased from 81% in 2001 to only 21% in 2005. Additionally, each of the Southern California counties exhibited
a similar pattern in the shift from fixed-rate to adjustable rate mortgages as well. TYPES OF MORTGAGE LOANS -SOUTHERN CALIFORNIA SHAKE OF LOANS 30% -20% -10% • 0% -— 1 2001 — 2002 O
Share-Fixed I 2003 2004 l 2005 ,pH — 1 ,,-1 Dshare-Variable Sources: b'rnp re Eco lomies. Mortgage Bankers Association & Rca Property Empire Economics 25 Release Date: February 2, 2006
> Furthermore, for Southern California, the ratio of the mortgage loans (first and seconds) to the housing purchase prices during 2001 to 2005 has risen for homeowners with adjustable
rate mortgages as compared to homeowners with fixed-rate loans. For homeowners with adjustable rate loans, the ratio of their loans to the purchase price of the homes has risen from
85% in 2001 to 90% in 2005, a gain of five percentage points. While for homeowners with fixed-rate mortgages the ratio of their loans to the purchase price of their homes has declined
from 87% in 2001 to 81% in 2005, a decrease of six percentage points. So, homeowners with adjustable rate mortgages have substantially higher amounts of mortgage debt (90%) as compared
to homeowners with fixed rate mortgages (81%). LOAN TO VALUE RATIOS -SOUTHERN CALIFORNIA FIXED-RATE VS. VARIABLE-RATE LOANS 2001 2002 D Fixed: Loan/Value 2003 2004 2005 OVariable: Loan/Value
Sources: Empire riconomics, Mortgage Bankers Association & Real Property April 2004 to Present: Prices Driven by Shifting to Creative Loan Structures: Since April 2004, as adjustable
rates rose due to the Federal Reserve Board increasing the federal funds rate, home buyers shifted to various types of creative financial structures. These have been the driving force
underlying the rate of housing price appreciation of some 24.1% on an annualized basis. Creative financing refers to the use of loan structures other than fixed-rate or 1 year adjustable,
including the following: interest only, payment option loans as well as initial teaser rates such as 1% for the first year that results in negative amortizations (higher principal balance),
less stringent lending standards such as low/no documentation, and much higher mortgage payment to income ratios, among others. During the 2001 to 2004 time period, for the United States
as a whole, there has been a dramatic shift from fixed rate to adjustable rate loans: fixed rate mortgage loans declined from 75% in 2001 to only 19% in 2004. Adjustable rates that were
amortized (interest and principal) rose from 20% to 29% while adjustable rates that are interest only (no reduction of principal) rose dramatically, from 5% in 2001 to 53% in 2004. Empire
Economics 26 Release Date: February 2, 2006
RECENT TRENDS FOR VARIOUS MORTGAGE LOAN STRUCTURES FIXED RATE, ADJUSTABLE RATE AND INTEREST ONLY Fixed Rate B2001 ARM-Amortized 02002 O 2003 ARM-Interest Only B2004 Sources: Empire Economics,
Loan Performance & Mortgage Bankers Association Conclusions In conclusion, since January 2002, the primary driving force underlying housing price appreciation has been households initially
taking advantage of recent historically low fixed rates through June 2003, then a shift to adjustable rate mortgages through March 2004, and finally, since then, the use of creative
financing structures. Specifically, for the same monthly mortgage payment, the use of lower mortgage rates and creative mortgage structures has bolstered housing prices substantially
since January 2002. RELATIONSHIP OF HOUSING PRICE APPRECIATION AND TYPES OF MORTGAGE FINANCINGS 50 /o CfiQo2 35/0 PN HioH -1 W U 15/01 -J PS 0. Shift to Creative | Structures; April
2004 I to December 2005, Appreciation: 42. % Fixed Rates Decline: Tan-7007 tn Tune 700^ Appreciation: 20.1% Shift to Variable Rates: July-2003to March Ap 2004 weciation: 14 1% IS rn&^»ar>n
Sources: Emp re Economics & Office of Federal Housing Empire Economics 27 Release Date: February 2, 2006
3. Mortgage Rate Resets: Realignment of Adjustable/Creative Loans to Market Rates There may be some softness in housing prices and land values even if mortgage rates remain stable during
the foreseeable future, as households with various types of "adjustable rate" and "creative" debt structures have their initial teaser rates realigned to the current market rates. The
resets are expected to generally result in higher monthly payments for homeowners since both the fixed as well as adjustable rate loans attained their recent historical lows in June
2003 and March 2004, respectively, and, since then, these rates have moved upwards: > Fixed Rate Loans were recently at some 6.32%, some 109 basis points above their recent historic
low. > Adjustable Rate Loans were recently at some 5.22%, some 181 basis points above their recent historic lows. With regard to the amount of mortgages that are subject to such resets,
based upon data for the United States mortgage market as a whole, these are expected to rise dramatically, from some $0.83 billion in 2005 to more that $1.0 trillion in 2007. ESTIMATED
MORTGAGE LOAN -RESETS $ 1 .20 -1 $1.00 -g $0.80 • ^"a. & $0.60 -z^ u3 $0.40 -O£-3£O S $0.00 -VARIABLE RATE LOANS WITH ADJUSTABLE MORTGAGE RATES $1.001 .. -----$0.083 i 1 2005 $0.330
2006 in ijtn$i@®w —alLiMa tnTQErapw 2007 D Mortgage Loans -TRILLIONS Sources: Empire Economics & DB Global Markets Research The specific types of resets that may occur for adjustable
rate and creative loan structures as rates are realigned with the marketplace are as follows: > Adjustable Rate Mortgages are expected to have upward reset adjustments to their monthly
payments as a result of the Federal Reserve Board's policy since June 2004 which has caused the short end of the yield curve to rise significantly. The one-year adjustable loans, which
were at their recent historic lows in March 2004, have started to have higher monthly payments, and such loans are now some 181 basis points above their cyclical lows. Empire Economics
28 Release Date: February 2,2006
For instance, a household that entered into an adjustable rate loan in March 2004 with a rate of 3.41% would encounter an approximate adjustment in March 2005 to a rate of 4.23%. This
represents an increase of some 82 basis points which results in the household's mortgage payment rising by some 24%. So, for a household with a monthly mortgage payment of some $2,000
per month, their payment would increase to some $2,480 per month. > Creative Mortgage Structures will undergo reset adjustments over time as the starter teaser rates are adjusted to
their market rates. Since creative mortgages are typically based upon short-term rates and also have further adjustments due to teaser rates, then the mortgage payments of such households
may rise by much more than for adjustable rate mortgages. So, households with adjustable and creative mortgage structures will encounter higher mortgage payments as their initial teaser
rates are realigned to the market rates which have significantly higher mortgage payments due to the recent hikes of the federal funds rate by the Federal Reserve Board. For example,
the types of adjustments that may occur for various loan structures can be gauged by comparing their initial payments with their payments at the start of year six, after the five year
time span during which rates are fixed at a low level; accordingly, these adjustments for various interest rate scenarios are as follows: Mortgage Loan of $500,000 Initial Payments -First
Five Years Rates Decline 100 BP Payment: Start of Sixth-Yr. Change from Initial Pymt. Rates Stable Payment: Start of Sixth-Yr. Change from Initial Pymt. Rates Rise 100 BP Payment: Start
of Sixth-Yr. Change from Initial Pymt. Fixed Rate 30-Year $2,998 (Interest & Principal) $2,998 0% $2,998 0% $2,998 0% Hybrid ARM Interest Only $2,553 (Interest Only) $2,960 16% $3,260
28% $3,513 38% Option ARM Initial Min. Pymts. $1,608 (Minimum Payments) (Negative Amortization) $3,289 105% $3,575 122% $3,928 144% > Homeowners with fixed rate mortgages can expect
stable mortgage payments of some $2,998 per year for the entire term of the loan of 30 years, regardless of what happens to mortgage rates after they originate their loans. > Homeowners
with Hybrid ARM Interest Only Loans have lower payments for the initial five years but can then can expect higher mortgage payments starting in year six: from $2,553 to $3,260 (+28%)
if rates are stable or, if rates rise by 100 basis points (one percent), from $2,553 to $3,513 (+38%). > Homeowners with Option ARMs that initially make minimum payments (negative amortization)
of some $1,608 can expect very significant increases in their monthly payments at the start of year six: from the initial payment of $1,608 to $3,575 (+122%) if rates are stable, or
if rates rise by 100 basis points, from $1,608 to $3,928 (+144%). Empire Economics 29 Release Date: February 2, 2006
Additionally, the mortgage delinquency levels for homeowners with adjustable and creative mortgages have traditionally been significantly higher than for homeowners with fixed rate loans.
This is typically attributed to homeowners with adjustable rate loans having difficulty with higher mortgage payments as rates rise as well as such households having "low" equity levels
(due to higher loan to price ratios as well as negative amortization), and hence less of an incentive to "hold-on" to the home, especially if the rate of appreciation diminishes. During
the 2000-2005 time period, the 5.4% delinquency rate for adjustable rate loans has been above the 3.6% delinquency rate for fixed rate loans by some 50% (5.4% vs. 3.6%.). DELINQUENCY
RATES: FIXED-RATE VS. VARIABLE-RATE LOANS 2003 2004 D Variable-Rate 2005 Sources: Empire Economics & National Delinquency 4. Mortgage Rate Increases: Potential for Further Federal Reserve
Board Rate Hikes Since the financial markets, being very efficient, are difficult to forecast, especially mid-term and longterm rates, it is not the position of Empire Economics to forecast
that mortgage rates will rise. Nevertheless, it is worthwhile to explore the potential implications of the Federal Reserve Board continuing its current policy of increasing the federal
funds rate, since this directly impacts the shortend of the yield curve, and, in turn, adjustable rate mortgage rates as well as the creative mortgage structures. The Federal Reserve
Board, according to some analysts, is expected to raise the federal funds rate to some 4.75%, significantly above its prior level of 1.0% in June 2004; the federal funds rate is presently
at 4.50%. Consequently, the primary driving forces underlying the strong rates of housing price appreciation, adjustable rates and creative financing structure, will diminish substantially
over time. (Note: Since the recent fixed rate of some 6.32% is some 110 basis points above the recent one-year adjustable rate of 5.22%, even a moderate decline in fixed rates would
not become a driving force for further price appreciation because they are significantly higher than adjustable rates.) Empire Economics 30 Release Date: February 2, 2006
Therefore, further increases in the federal funds rate will result in the short-term rates rising, and this, in turn, will cause the following: > Existing Borrowers would have higher
monthly payments as adjustable rate mortgages rise and creative teaser rates are realigned to HIGHER market rates, as compared to the current market rates. > New Borrowers would face
HIGHER rates, reducing their ability to qualify for loans that support existing prices, thereby placing downward pressure on home prices. RECENT MORTGAGE RATES FIXED AND ADJUSTABLE AND
THE FEDERAL RESERVE BOARD 8.00% 7.00% FIXED RATE MORTGAGES RISE 5.00% S 4.00% S&QZ •< £1 3.00% o<<o oS 2.00% O.OO"/PRICE APPRECIATION: 13.4%/yr .|| 18.8%/yr 1| 24.1%/yr FIXED RATE MORTGAGES
AT HISTORIC LOWS: JULY 2003 ADJUSTABLE RATE MORTGAGES AT HISTORIC LOWS: MARCH 2004 FEDERAL RESERVE BOARD LOWERS THE FEDERAL FUNDS RATES DUE TO NASDAQ MELTDOWN AND 9-1 I ATACKS. I II
II II II II II II II II II II II II II II li II il II II FEDERAL RESERVE BOARD RAISES THE FEDERAL FUNDS RATES DUE TO POTENTIAL INFLATIONARY PRESSURES. I il I! H I! II II II [j I) |j
II II j| ill! •• Federal Funds •Fixed: 30-Yr •Variable 1-Yr Sources: Empire Economics, Federal Reserve Board & Freddie Mac 5. Specific Impacts of Higher Mortgage Rates on the Land-Secured
Credit Quality The widespread use of adjustable rate and creative financing for newly developing residential projects have significant implications for the Credit Quality underlying
Land Secured Financing: > Special Tax Rates set-forth in the Rate and Method of Apportionment of Special Taxes are based upon current housing prices which have recently realized strong
rates of appreciation as a result of the utilization of adjustable and creative financing techniques by home purchasers. Empire Economics 31 Release Date: February 2, 2006
Appraisals are based upon current land values, which, in turn, are derived from current housing prices, that have appreciated at a strong rate in recent years, and so they also reflect
the use of adjustable and creative financing techniques. Furthermore, since the value of the land is a residual value, that is, the price of the home less the construction costs of building
the home, most of the decline in the price of a home is passed through to the land, since construction costs are relatively stable in the short-run. For example, if a home with an initial
price of $400,000 declines to $350,000, a reduction of some -$50,000 or -12.5%, the value of the finished lot for the same sized home declines from $149,000 to $113,600, a reduction
of-$35,400 or -23.8%. Similarly, a decline in the price of a home by 25% results in a reduction of the value of a finished lot for the same sized home by some 48%! (Note: The above discussion
focuses on the value of a finished lot which includes entitlements and infrastructure infrastructure improvements; by comparison, the value of "raw" land, land without any entitlements
or infrastructure improvements, may approach zero.) CHANGES IN HOUSING PRICES AND FINISHED LOT LAND VALUES * LAND VALUES DELCINE AT A FASTER RATE Price $ 400,000 Price $ 400,000 to Price
$ 400,000 to Price $ 400,000 to Price $ 400,000 to $375,000 $350,000 $325,000 $300,000 Change in Housing Prices I Change in Finished Lot Value Therefore, the Credit Quality underlying
Land Secured Financings reflects the use of current prices and land values, and, as such, includes, among other factors, the underlying use of adjustable and creative loan structures
by homeowners. Empire Economics 32 Release Date: February 2, 2006
Consequently, should mortgage rates rise significantly, the Credit Quality of the land secured bonds is subject to substantial weakening due to the following: Lower housing prices resulting
in a higher Special Tax to Home Price Burden for homeowners, possibly in excess of the Issuer's policy of a maximum total tax burden, typically some 1.8% to 2.0% of the initial sales
prices, even though these maximums may have been satisfied at the time that the Special Taxes were established. Significantly lower land values resulting in a reduced Value/Lien ratio,
possibly below the Issuer's policy of typically some 3 to 1 or 4 to 1 when the bonds are sold, thereby diminishing the security for bond holders. (The Appraisal for the Bond Issue is
valid only for the stated Date of Value; it is not meant to be a prediction of future values.) Higher levels of Special Tax delinquencies as monthly payments of owners increase resulting
in diminishing the maximum Special Tax to the bond debt service coverage ratios for bond holders that may adversely impact the Issuer's ability to meet the debt service payments in a
timely manner, possibly resulting in the use of the bond reserve fund. Adjustable rate mortgages (some 79% of current mortgages) have significantly higher delinquency rates than fixed
rate mortgages; additionally, homeowners that use adjustable rate mortgages also have higher loan to value ratios as well, some 90% as compared to homeowners with fixed rate loans, some
81%. Therefore, as mortgage rate resets occur to the current market rates, and furthermore, to the extent that mortgage rates rise further, then the Credit Quality for Land Secured financing
may be diminished, resulting in Higher Tax Burdens due to lower housing prices, Lower Value/Lien Ratios due to lower land values, and Higher Special Tax Delinquencies due to higher monthly
mortgage payments. Empire Economics 33 Release Date: February 2, 2006
COMPETITIVE MARKET ANALYSIS OF THE PROJECTS IN THE CFD NO. 03-02 COMPETITIVE HOUSING MARKET AREA The purpose of this section is to provide an overview of the currently active Planned
Communities and other residential projects in the CFD No. 03-02 Competitive Housing Market Area, and then to compare these to the expected characteristics of the forthcoming residential
projects/products in CFD No. 03-02. Original Market Surveys Conducted in July 2005 (A sample of these projects was re-surveyed in January 2006, and these had prices that were slightly
or somewhat higher than those reported in July 2005, and so this section has not been updated except for the CFD No. 03-02 product characteristics.) The CFD No. 03-02 Housing Competitive
Market Area currently has several Major Planned Communities (PC) or project groupings with single-family detached homes that are located in the City of Temecula and its vicinity. The
twenty-one currently active projects, along with the forthcoming projects in CFD No. 03-02, have a total of 3,735 housing units: 1,745 forthcoming homes in CFD No. 03-02 and 1,990 homes
in the currently active projects. Of these, 1,121 homes in the currently active projects have closed escrow and so they are considered to be occupied. > CFD No. 03-02: forthcoming projects
with 1,745 homes. > Harveston: 6 active projects with 600 homes of which 311 have closed escrow. > Rancho Bella Vista: 5 active projects with 686 homes of which 497 have closed escrow.
> Not in PC: 6 active projects with 652 homes of which 313 have closed escrow. > Large Lot Products: 4 active projects with 52 homes of which none have closed escrow. CFD NO.03-02 (RORIPAUGH
RANCH) COMPETITIVE HOUSING MARKET AREA: CHARACTERISTICS OF ACTIVE PROJECTS DEVELOPMENT STATUS 400 -200 -H Escrows Closed 12 Future Units <S<?§/XW5xS<XAx •VrW\A /VvSv/S \xx \i<A/Oxxxv>
KXX KXX KXX <XX <XX O<<Cxx>Kx •CxV^ f<Sx>y< w< \ir/\WA ! CFD No.03-02 (Roripaugh Ranch) 0 1,745 •H-VKXX /xOAXv A/V Harveston 311 289 mI'i'i -rVi XXj vv*< Rancho Bella Vista 497 189 I
i i ••wXAP •XVxy> Not in PC 313 339 Large Lot Products 0 52 Empire Economics 34 Release Date: February 2, 2006
The prices of homes in these projects, including the currently active comparable projects and also the forthcoming projects in the CFD, are some $614,595 for some 3,068 sq.ft., on the
average, and the prices for the projects in the various categories are as follows: > CFD No. 03-02: $509,680 for some 2,840 sq.ft. of living area. > Harveston: $465,081 for some 2,386
sq.ft. of living area. > Rancho Bella Vista: $451,590 for some 2,569 sq.ft. of living area. > Not in PC: $456,872 for some 2,857 sq.ft. of living area. > Large Lot Products: $1,333,750
for some 5,007 sq.ft. of living area. CFD NO.03-02 z^&& -J &HO y£ 0 LEFT: Price BRIGHT: Living Area (RORIPAUGH RANCH) COMPETITIVE HOUSING MARKET AREA HOUSING PRICES AND LIVING AREAS
•I11 CFD No.03-02 (Roripaugh Ranch) $509,680 2,840 • Xx> xXx8>> xxxx>> xXxX>? x>o< Harveston $465,081 2,386 •1 Rancho Bella Vista $451,590 2,569 INot in PC $456,872 2,857 A., \<pxt/x\
<Vx$x8 1§8 Hm +n nH " Large Lot Totals/Average Products s $1,333,750 $614,595 5,007 3,068 Wta W0!! -4,000 ^fO»f 3 D — [0 S o c o o o <: c SIZE OF LIVING AI To compare the prices of the
homes in these projects, their value ratios are utilized, the price per sq. ft. of living area, since this effectively makes adjustments for differences in their sizes of living areas.
Accordingly, the value ratios for all of the projects amount to $194 per sq. ft. of living area and their Special Taxes/Assessments amount to some $2,786/yr. (0.50% as a ratio to the
housing prices); accordingly, the value ratios and Special Tax/Assessment characteristics for the forthcoming product types in CFD No. 03-02 and the currently active comparable projects
are as follows: > CFD No. 03-02 has an expected value ratio of $179, somewhat below the overall average and the expected Special Taxes amount to $3,375/yr. (0.61%), above the overall
average/ratio. > Harveston has a value ratio of $199, similar to the overall average and their Special Taxes/Assessments amount to $3,127/yr. (0.67%), above the overall average/ratio.
> Rancho Bella Vista Vista has a value ratio of $178, somewhat below the overall average and their Special Taxes/Assessments amount to $2,096/yr. (0.47%), below the overall average/ratio.
> Not in PC projects have a value ratio of $163, significantly below the overall average and their Special Taxes/Assessments amount to $2,413/yr. (0.53%), slightly above the overall
ratio. > Large Lot Products have a value ratio of $265, substantially above the overall average (due to their large lots sizes as well as their customized features) and their Special
Taxes/Assessments amount to $3,108/yr. (0.12%), significantly below the overall ratio. Empire Economics 35 Release Date: February 2, 2006
$300 -•< •< iw(J2 oH •g W3_J <> $50 D LEFT: Value Ratio « RIGHT: Special Assmt/Tax CFD NO.O MAR +113-02 (RORIPAUGH RANCH) COMPETITIVE HOUSIf KET AREA VALUE RATIOS AND SPECIAL TAXES •
CFD No.03-02 (Roripaugh Ranch) $179 $3,375 ji\\Wx//r/SV\vx/AVV-^/' .KAX/VX xWr\rV^ \"xrVTVVSAAV nrvv l\f\^ rVV VV^ ivfVvV^ v^VV VvX y^vV i\Vf/S\vfAV^ iW/SrvV Harveston $199 $3,127 ^1
Rancho Bella Vista $178 $2,096 +i11Not in PC $163 $2,413 S(G * Large Lot Products $265 $3,108 iTota s/Averages $194 $2,786 -$4,000 IVHNNV -siuaivss: *> & $ <, •» vt vi ts> & 1 1 i 1
SPECIAL TAXES /ASS The currently active residential projects have experienced escrow closings (move-ins) at a rate of some 911 homes per year, for an average of some 43 units per project
per year; the distribution of these sales is as follows: > The six projects in Harveston have an overall sales rate of 295 homes annually, some 49 per project, on the average. > The
five projects in Rancho Bella Vista have an overall sales rate of 328 homes annually, some 66 per project, on the average. > The six projects Not in Planned Communities (PC) but in the
vicinity of CFD No. 03-02 have an overall sales rate of 255 homes annually, some 43 per project, on the average. > The four Large Lot Products projects have an overall sales rate of
33 homes annually, some 8 per project, on the average. CFD NO.03-02 (RORIPAUGH RANCH) COMPETITIVE HOUSING MARKET AREA SALES RATES 600 T -£ 300 66 • 295 Harveston Rancho Bella Vista Not
in PC Large Lot Products Empire Economics 36 Release Date: February 2, 2006
CHARACTERISTICS OF THE "COMPARABLE* ACTIVE PROJECTS IN THE COMPETITIVE HOUSING MARKET AREA BY GEOGRAPHICAL LOCATIONS Project Locations ;FD No 03-02 (RoriDauqh Ranch) -DFD Ho 03 02 moripaunh
Ranch", ;FD No.03-02 (Roripaugn Ranch) :FD No.03-02 (Ronpaggh Ranch) Harveston 1 Harveston 1 HarvBBlori 1 Harveston 1 Harveston fl Harvester 1 Rancho Bella Visla Rar>ctx> Bella Vima
Rancho Bella Vista Rancno Bella Vista Rantho Bella Visla Not in PC Hoi in PC Not in PC Not in PC Hoi ir, PC Not iri PC arae LolProducis .aro.e Lot Products aine Lot Products itatistkal
Summary IDHC,..;-.:,,.,..™, »™ to,,. B,r,V»,, *it in PC .arge Lot Products re,,,,*,,,, Project Phase 1 Phase II -Segment 1 Phased Se merit II Phase II -Seomer., Ill Ashville Auburn Lane
LaKe Front Cottages Sausalito Chatham Walden San Lucas II San Alicia San Marino II St AuQustine ValdemosiJ Jacaonc™™ Cxcawil-Green, Laurel valley Avcndale The preserve G.l.r,-Tradition,
La»AII»a,-DeLme The R.»r,e Builder Five -Builders KB Ho™ KBH™ KB Home Lennar Homes Lermav Homes Lennar Homes Lennar Homes Lennar Homes Christopher Homes Centex Homes Centex Homes Centex
Homes Centex Homes Centex Homes KB Home Fieldstone Communities Lennar Homes Lennar Homes Richmond American 0,n,«Home, Gallerv Homes Craftman Homes CraftmanHorr^s Craftman Homes S,ln,V,.r
»A ,, 66 «8« Product Tjpe Sinale-family Detached Sm lefamil Detactied Sin lefamil Detached Single-family Detached Single-family Detached Single -family Detached Slnale-familv Detactied
Single-family Detached Smqle-family Detached Sinole-fam-lv Detached Sin le-famif Detached Smqie-familv Detached Single-family Detacned Single-family Detached Srncje-familv Detached Single
-family Detached Sin le famil Detacned Sinale-family Detached Sinde-familv Detached Sinale-family Detacned Sinole-lamily Detached Semi -Custom Detached Semi -Custom Detached Semi-Custom
Detached Semi -Custom Detached 4!> 64" Projtt-t Site and Safes Toliil 515 607 511 112 62 119 139 109 78 93 153 139 182 134 78 79 140 70 36 130 197 e97 28 1.74, m6S6 6S2 i! 3.73, Escrows
Closed 0QQ00 45 135 39 51 41 115 112 126 75 69 0 56 g3 56 190 0Q„0 ,n », •,„ 0 1.121 Fntt.iv 515 607 511 112 62 74 4 70 27 52 38 27 56 59 g 79 84 62 33 74 .,Bg 28 1.745 m189 3., «14
Ratri-i r. N/A N/A N/A N'A 55 45 65 40 50 40 73 70 80 55 50 30 45 30 30 55 65 eg7 10 N..A 2,5 3« 911 Housing Prites. Lowtr $471,594 £391.594 $460.990 $783,990 $370,990 $397.000 £425.000
$434,990 $485 420 $505,000 $394,990 £383,990 $426,990 $411,990 3466,990 $530,000 £388 990
$456,500 5500 000 $490.000 £472,990 $920,000 £1.000.000 $1,000,000 $1 300 000 S4K.898 S43&400 SU6.MC S473.080 Sl.05i.UOO S554.SOO Average $507,302 5408,792 $478,623 $845.490 £405,990
$411.500 £442,500 $463,990 $525,505 $541 ,000 $399,990 £432 490 £440,990 $478 490 $505.990 £295,250 £392,990 $488,000 $512 000 S 525 .000 5527,990 $1010000 $1.225.000 31 300 000 $1.800.000
5509.630 5465.081 S45..590 S 1.333,750 »!«« Upper $525.594 $424.990 £498990 £909,990 S440 990 5426,000 $460,000 S492.990 $565,590 $577,000 £404990 $480,990 $454,990 £544 990 $544,990
£60 500 $$396,990 3519.500 3524.000 $560.000 $582,990 £1 100000 $1,450.000 $1,600,000 52.300.000 $533.403 S493.762 »*.,» S1.6 11500 S673.S83 SiwufLhin Area Lower 2247 1,954 2499 3,839
1684 1767 1 991 1873 2521 2770 1,752 1,650 2,204 2058 2600 2.675 1920 2154 2617 2,811 2,420 3381 4700 4,700 5,000 !4!! !,», =.05, 4.44, 1KI •"'"» 27B3 4530 1,913 1.934 2,125 2.205 3058
3082 1 966 2,382 2477 2.915 3 107 3131 2010 2.694 3.151 3140 3017 3829 5 100 6000 !.«, !..« 2.369 5.00, 3,68 Vpprr 3040 3325 5.253 2.141 2,101 2,259 2,537 3594 3393 2180 3 113 2.750
3,771 3613 3586 2099 3,233 3684 3468 3613 4276 5500 7,000 3.,« 1671 3.0S5 <0» 3.4,3 \aluc Ratio S182 S163 $187 $212 $213 5208 $210 $172 $17E $203 £182 S178 $164 S1B3 $94 S196 $181 S163
$167 5175 $264 $240 S255 $300 SH9 s,» S,78 S265 Si^ SPi*Lat Amount/$3,000 32,500 $3000 $5000 $2680 $2922 52965 $3,155 $3,468 S3.571 $1.960 S2076 $2161 $2.058 $2.226 $1.476 $1 .965 32,440
$3072 $2,888 52,640 $5,400 S980 $650 $5,400 SJJW S3.,!, S!.C« S2.413 S3.10S S2.m Ratio/059% 063°/059% 0.66% 0.71% 0.67% 0.68% 066% 066% 049% 048% 049% 0.43% 044% 050% 050% 050% 060%
055% 050% 0.05% 0.08% 005% 0.30% .6,-, o.™ ,„,-. 0.53% 0 12% 0.50% o§o CDOpft K)OOOS
ESTIMATED ABSORPTION SCHEDULES FOR THE PROJECTS/PRODUCTS IN CFD NO. 03-02 The purpose of this section is to estimate the absorption schedules for the forthcoming residential and commercial
retail projects/products in CFD No. 03-02; accordingly, this is based upon a consideration of the following: First, the potential demand schedules for the residential and commercial-retail
projects/products for CFD No. 03-02 were derived, based upon a consideration of the following: > The growth prospects for the Southern California Market Region, in general, and Riverside
County, in particular. > How much of this growth the CFD No. 03-02 Market Area, is expected to capture, in particular. > The proportion of the Market Area demand that is expected to
be captured by the projects/products in CFD No. 03-02, based upon an evaluation of their competitiveness in the marketplace. Thus, the result of this analysis is the POTENTIAL demand
for the residential and commercial-retail projects/products in CFD No. 03-02. Next, the ability of the residential and commercial-retail projects/products in CFD No. 03-02 to respond
to this demand is estimated. Specifically, this represents, from a time perspective, when the products will have the infrastructure in place that is required to support their development.
So, the result of this analysis is the INFRASTRUCTURE DEVELOPMENT of the projects/products in CFD No. 03-02, and this reflects their ability to respond to the demand in the marketplace.
The following absorption schedules are based upon the critical assumption that the developer, Ashby, USA, LLC, will be able to deliver the parcels to the various builders according to
the time schedule that was provided to Empire Economics by Ashby USA, LLC. Specifically, this requires the fulfillment of numerous and complex conditions of development in a timely manner.
However, to the extent that the development conditions are not fulfilled in a timely manner, and the delivery of the parcel to the various builders does not occur according to the schedule
set-forth by Ashby USA, LLC, then the estimated absorption for the forthcoming projects in CFD No. 03-02 could be substantially delayed. Ashby USA, LLC expects that building permits
for the forthcoming projects in Phase II will be released in January 2007. Empire also considered comments provided by the City of Temecula on the Ashby USA, LLC's expected time schedule,
and, based upon these, Empire assumed that building permits for the forthcoming projects in Phase II will be released in September 2007. Then, based upon a consideration of the POTENTIAL
demand and the INFRASTRUCTURE DEVELOPMENT, the absorption rate for the residential projects/products in the various market segments are calculated, from the year in which the projects/products
are expected to enter the marketplace, and continuing thereafter on an annualized basis, until all of the units are occupied. Accordingly, based upon an analysis of the economic and
real estate conditions along with the characteristics of the forthcoming residential product types/projects in CFD No. 03-02, the estimated absorption schedules are as follows: Empire
Economics 38 Release Date: February 2, 2006
Phase I is expected to have a total of 515 single-family detached housing units, 29.5% of the total, that are priced at some $507,302 for some 2,783 sq.ft. of living area, on the average,
and these are spread among five Planning Areas with three builders, and they are expected to be absorbed at the following rate: 65 homes during July-December 2006 266 homes in 2007 and
then the remaining 184 homes in 2008 The development of the projects in Phase I is constrained by the number of building permits that Ashby USA, LLC has available based upon the infrastructure
improvements that have been completed thus far. Specifically, the number of permits that are currently available is significantly below the number of building permits that these projects
require for their full development. Accordingly, the Empire absorption schedules assume that Ashby USA, LLC allocated the permits among the various builders in a manner that is acceptable
to them. Empire has received signed "Acknowledgements" as well as the "Permit Sharing Agreement" from the various builders. * Phase II is expected to have a total of 1,230 single-family
homes, 70.5% of the total, that are priced at some $370,000 to $909,990 with living areas of 1,809 to 5,318 sq.ft, and these are spread among fifteen Planning Areas with the only builder
being KB Home; accordingly, their estimated absorption schedule, based upon the assumption that building permits are available as of September 2007, is as follows: no homes in 2006 or
2007 328 homes in 2008 another 328 homes in 2009 230 homes in 2010 210 homes in 2011 and then the remaining 134 homes in 2012 Therefore, the 1,745 forthcoming residential units in the
CFD No. 03-02 are expected to be absorbed during the July 2006 to December 2012 time period, at a rate of some 328 homes per year, on the average, when most of the projects are on the
marketplace. Specifically, the rate of absorption is expected to start at some 65 homes in 2006, as the first projects enter the marketplace, rise to peak levels of 512 homes in 2008,
when most of the projects are on the marketplace, decreases to 328, 230 and 210 homes in 2009, 2010, and 2011, respectively, as some of the projects are closed-out, and then, finally,
the remaining 134 homes in 2012. With regards to the various commercial-retail project, 15.4 acres, its absorption is based upon the occupancy of the homes in CFD No. 03-02 along with
threshold levels required to support commercial centers, and its absorption is expected to occur in 2008. For additional information on the estimated absorption schedules for the residential
products in the CFD No. 03-02, please refer to the following table and graph. Empire Economics 39 Release Date: February 2, 2006
Potential Financial Risk Factors The potential financial risk factor reflects the implications of the recent use of adjustable rate and creative financing techniques by home purchasers
on the credit quality underlying land-secured financings in Southern California. There has been a fundamental shift in the driving force underlying the recent rates of housing price
appreciation, from the historical role of employment growth as the driving force to the recent role of adjustable rate and creative financing techniques as the driving force. These financial
factors have been the primary driving force underling the extraordinary rate of housing price appreciation in Southern California of more than 75% since January 2002. Consequently the
current levels of housing prices and land values are subject to potentially substantial downward adjustments, due to mortgage rate resets (as mortgages are adjusted from teaser rates
to market rates) as well as higher short-term rates (due to rate hikes by the Federal Reserve Board). These adjustments, in turn, may cause a softening in housing prices and land values
that could adversely impact the credit quality underlying land-secured financings. Creative financing refers to the use of loan structures other than fixed-rate or 1 year adjustable,
including the following: interest only, payment option loans as well as initial teaser rates (below market rates that are offered only for a limited time period) with very low initial
payments that result in negative amortizations (higher principal balance), less stringent lending standards such as low/no documentation, and much higher mortgage payment to income ratios,
among others. Consequently, to the extent that mortgage payments rise due to various possible combinations of automatic mortgage rate resets as well as potentially higher short-term
rates that directly impact adjustable rate and creative mortgages, then the credit quality underlying recent land-secured financings may be diminished in the following ways: > Lower
housing prices prices resulting in a higher Special Tax to Housing Price Burden for homeowners, possibly in excess of the Issuer's policy of a maximum total tax burden, typically some
1.8% to 2.0% of the initial sales prices, even though these maximums may have been satisfied at the time that the Special Taxes were established. > Significantly lower land values resulting
in a reduced Value/Lien ratio, possibly below the Issuer's policy of typically some 3 to 1 or 4 to 1 when the bonds are sold, thereby diminishing the security for bond holders. (The
Appraisal for the Bond Issue is valid only for the stated Date of Value; it is not meant to be a prediction of future values.) > Higher levels of Special Tax delinquencies as monthly
payments of owners increase resulting in diminishing the maximum Special Tax to the bond debt service coverage ratios for bond holders that may adversely impact the Issuer's ability
to meet the debt service payments in a timely manner, possibly resulting in the use of the bond reserve fund. Adjustable rate mortgages (some 79% of current mortgages) have significantly
higher delinquency rates than fixed rate mortgages; additionally, homeowners that use adjustable rate mortgages also have higher loan to value ratios as well, some 90% as compared to
homeowners with fixed rate loans, some 81%. Empire Economics 40 Release Date: February 2,2006
a: UJ zUJ HZ O ijj CO S O LL UJ O S CO CO O <JD Q O 7 58 (mV I^D "-o! i I CO ° o o I; O W O 3 UJ >-uj m a xOa. CO o5o Empire Economics 41 Release Date: February 2, 2006
Ioo3o I•I to CITY OF TEMECULA CFD NO. 03-02 (RORIPAUGH RANCH) ESTIMATED RESIDENTIAL ABSORPTION SCHEDULES >-<Woz (0oo IQL OV) UJ LLO a: UJm 600 500 --400 300 200 100 2006 2007 2008 2009
I Phase I 2010 @Phases II+ 2011 2012 oo
ASSUMPTIONS AND LIMITING CONDITIONS The Market Absorption Study for CFD No. 03-02 is based upon various assumptions and limiting conditions; accordingly, these are as follows: Title
to Property Property Boundaries Accuracy of Information from Others Date of Study Hidden or Unapparent Conditions Opinions of a Legal/Specialized Nature Right of Publication of Report
Soil and Geological Studies Earthquakes and Seismic Hazards Testimony or Court Attendance Maps and Exhibits Environmental and Other Regulations Required Permits and Other Governmental
Authority Liability of Market Analyst Presence and Impact of Hazardous Material Structural Deficiencies of Improvements Presence of Asbestos Acreage of Property Designated Economic Scenario
Provision of the Infrastructure; Role of Coordinator Developer/Builders Responsiveness to Market Conditions Financial Strength of the Project Developer/Builders Market Absorption Study
Timeliness of Results For additional information on the various assumptions and limiting conditions, please refer to the comprehensive Market Absorption Study. Empire Economics 43 Release
Date: February 2,2006
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APPENDIX E SUMMARY OF CERTAIN PROVISIONS OF THE FISCAL AGENT AGREEMENT The following is a brief summary of certain provisions of the Fiscal Agent Agreement not otherwise described in
the text of this Official Statement. Such summary is not intended to be definitive, and reference is made to the text of the Fiscal Agent Agreement for the complete terms thereof. Definitions
Except as otherwise defined in this summary, the terms previously defined in this Official Statement have the respective meanings previously given. In addition, the following terms have
the following meanings when used in this summary: "Account Party7' means the property owner that provides a Letter of Credit to secure the payment of Special Taxes on property the Account
Party or its affiliates own in the District. "Acquisition Account" means the account by that name established by the Fiscal Agent Agreement within the Improvement Fund. "Acquisition
Agreement" means the Acquisition Agreement, dated as of March 1, 2006, between the Authority and Ashby, USA, LLC, as originally executed and as it may be amended from time to time. "Administrative
Expenses" means costs directly related to the administration of the District consisting of the costs of computing the Special Taxes and preparing the annual Special Tax collection schedules
(whether by the Treasurer or designee thereof or both) and the costs of collecting the Special Taxes (whether by the County or otherwise); the costs of remitting the Special Taxes to
the Fiscal Agent; fees and 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 of the Authority,
the City or any designee of either the Authority or the City of complying with the disclosure provisions of the Act, the Continuing Disclosure Agreement and the Fiscal Agent Agreement,
including those related to public inquiries regarding the Special Tax and disclosures to Bondowners and the Original Purchaser; the costs of the Authority, the City or any designee of
either the Authority or the City related to an appeal of the Special Tax; any amounts required to be rebated to the federal government in order for the Authority to comply with the Fiscal
Agent Agreement; an allocable share of the salaries of the City staff directly related to the foregoing and a proportionate amount of City general administrative overhead related thereto.
Administrative Expenses shall also include amounts advanced by the Authority or the City for any administrative purpose of the District, including costs related to prepayments of Special
Taxes, recordings related to such prepayments and satisfaction of Special Taxes, amounts advanced to ensure compliance with the Fiscal Agent Agreement, administrative costs related to
the administration of any joint community facilities agreement regarding the District, and the costs of commencing and pursuing foreclosure of delinquent Special Taxes. E-l
"Administrative Expense Fund" means the fund by that name established by the Fiscal Agent Agreement. "Agreement" means the Fiscal Agent Agreement, as it may be amended or supplemented
from time to time by any Supplemental Agreement adopted pursuant to the provisions thereof. "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 (including by reason of the provisions of the Fiscal Agent Agreement providing for mandatory sinking
payments), and (ii) the principal amount of the Outstanding Bonds due in such Bond Year (including any mandatory sinking payment due in such Bond Year pursuant to the Fiscal Agent Agreement).
"Auditor" means the auditor/controller of the County. "Authority Attorney" means any attorney or firm of attorneys employed by the Authority or the City in the capacity of general counsel
to the Authority. "Authorized Officer" means the Chairperson, Executive Director, Treasurer, Secretary or any other officer or employee authorized by the Board of Directors of the Authority
or by an Authorized Officer to undertake the action referenced in the Fiscal Agent Agreement as required to be undertaken by an Authorized Officer. "Bond Counsel" means (i) Quint & Thimmig
LLP, or (ii) any other attorney or firm of attorneys acceptable to the Authority 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 under the Fiscal Agent Agreement. "Bond Register" means the books for the registration and
transfer of Bonds maintained by the Fiscal Agent under the Fiscal Agent Agreement. "Bond Year" means the one-year period beginning September 2nd in each year and ending on September
1st in the following year, except that the first Bond Year shall begin on the Closing Date and end on September 1, 2006. "Bonds" means the 2006 Bonds, and, if the context requires, any
Parity Bonds, at any time Outstanding under the Fiscal Agent Agreement or any Supplemental Agreement. "Build-Out" means, when making calculations pursuant to the Fiscal Agent Agreement
as to one or more parcels of property, or otherwise in connection with clause (viii) of the definition "Letter of Credit" in the Fiscal Agent Agreement, the assumption that the property
contains the number, size and type of homes projected in the development plans used by the Tax Consultant in connection with its email regarding "Letter of Credit Calculations" dated
February 14, 2006, which provided the initial stated amounts of the Letters of Credit to be delivered to the Fiscal Agent on the Closing Date by two of the landowners in the District,
which assumptions may be adjusted from time to time based upon actual completed E-2
construction of homes in the District (as reported in connection with requests to reduce the amount of any Letter of Credit by or on behalf of an Account Party or as otherwise known
by the Tax Consultant). "Business Day" means any day other than (i) a Saturday or a Sunday or (ii) a day on which banking institutions in the state in which the Fiscal Agent has its
principal corporate trust office are authorized or obligated by law or executive order to be closed. "Capitalized Interest Account" means the account by that name established within
the Bond Fund by the Fiscal Agent Agreement. "City" means the City of Temecula, California. "City Account" means the account by that name established by the Fiscal Agent Agreement within
the Improvement Fund. "Code" means the Internal Revenue Code of 1986 as in effect on the date of issuance of the Bonds or (except as otherwise referenced herein) as it may be amended
to apply to obligations issued on the date of issuance of the Bonds, together with applicable proposed, temporary and final regulations promulgated, and applicable official public guidance
published, under the Code. "Continuing Disclosure Agreement" shall mean that certain Continuing Disclosure Agreement executed by the Authority and the Fiscal Agent on the Closing Date,
as originally executed and as it may be amended from time to time in accordance with the terms thereof. "Costs of Issuance" means items of expense payable or reimbursable directly or
indirectly by the Authority or the City and related to the authorization, sale and issuance of the Bonds, which items of expense shall include, but not be limited to, printing costs,
costs of reproducing and binding documents, closing costs, filing and recording fees, initial fees and charges of the Fiscal Agent including its first annual administration fee, expenses
incurred by the City or the Authority in connection with the issuance of the Bonds and the establishment of the District, special tax consultant fees and expenses, preliminary engineering
fees and expenses, Bond (underwriter's) discount, legal fees and charges, including bond counsel, disclosure counsel and landowner's counsel, financial consultants' fees, charges for
execution, transportation and safekeeping of the Bonds, landowner expenses related to the District formation and the issuance of the Bonds, City costs related to the District formation,
and other costs, charges and fees in connection with the foregoing. "Costs of Issuance Fund" means the fund by that name established by the Fiscal Agent Agreement. "County" means the
County of Riverside, California. "PTC" means the Depository Trust Company, New York, New York, and its successors and assigns. "Debt Service" means the scheduled amount of interest and
amortization of principal on the 2006 Bonds and the scheduled amount of interest and amortization of principal payable on E-3
any Parity Bonds during the period of computation, excluding amounts scheduled during such period which relate to principal which has been retired before the beginning of such period.
"Depository" means (a) initially, DTC, and (b) any other Securities Depository acting as Depository pursuant to the Fiscal Agent Agreement. "District Value" means the market value, as
of the date of the appraisal described below and/or the date of the most recent County real property tax roll, as applicable, of all parcels of real property in the District 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 nondelinquent parcels the value of the then
existing improvements and any facilities to be constructed or acquired with any amounts then on deposit in the Improvement Fund and with the proceeds of any proposed series of Parity
Bonds, as determined with respect to any parcel or group of parcels by reference to (i) an appraisal performed within six (6) months of the date of issuance of any proposed Parity Bonds
by an MAI appraiser (the "Appraiser") selected by the Authority, or (ii), in the alternative, the assessed value of all such nondelinquent parcels and improvements thereon as shown on
the then current County real property tax roll available to the Treasurer. It is expressly acknowledged that, in determining the District Value, the Authority may rely on an appraisal
to determine the value of some or all of the parcels in the District and/or the most recent County real property tax roll as to the value of some or all of the parcels in the District.
Neither the Authority nor the Treasurer shall be liable to the Owners, the Original Purchaser or any other person or entity in respect of any appraisal provided for purposes of this
definition or by reason of any exercise of discretion made by any Appraiser pursuant to this definition. "District-wide Maximum Special Taxes" means the maximum Special Taxes that can
be levied on all property in the District assuming Build-Out of all property, as computed from time to time by the Tax Consultant. "EMWD" means the Eastern Municipal Water District.
"EMWD Account" means the account by that name established by the Fiscal Agent Agreement within the Improvement Fund. "Fair Market Value" means the price at which a willing buyer would
purchase the investment from a willing seller in a bona fide, arm's length transaction (determined as of the date the contract to purchase or sell the investment becomes binding) if
the investment is traded on an established securities market (within the meaning of section 1273 of the Code) and, otherwise, the term "Fair Market Value" means the acquisition price
in a bona fide arm's length transaction (as referenced above) if (i) the investment is a certificate of deposit that is acquired in accordance with applicable regulations under the Code,
(ii) the investment is an agreement with specifically negotiated withdrawal or reinvestment provisions and a specifically negotiated interest rate (for example, a guaranteed investment
contract, a forward supply contract or other investment agreement) that is acquired in accordance with applicable regulations under the Code, (iii) the investment is a United States
Treasury Security—State and Local Government Series that is acquired in accordance with applicable regulations of the United States Bureau of Public Debt, or (iv) the investment is the
Local Agency Investment Fund of the State of California but only if at all times during which the investment is held its E-4
yield is reasonably expected to be equal to or greater than the yield on a reasonably comparable direct obligation of the United States. "Federal Securities" means any of the following
which are non-callable and which at the time of investment are legal investments under the laws of the State of California for funds held by the Fiscal Agent: (i) direct general obligations
of the United States of America (including obligations issued or held in book entry form on the books of the United States Department of the Treasury) and obligations, the payment of
principal of and interest on which are directly or indirectly guaranteed by the United States of America, including, without limitation, such of the foregoing which are commonly referred
to as "stripped" obligations and coupons; or (ii) any of the following obligations of the following agencies of the United States of America: (a) direct obligations of the Export-Import
Bank, (b) certificates of beneficial ownership issued by the Farmers Home Administration, (c) participation certificates issued by the General Services Administration, (d) mortgage-backed
bonds or pass-through obligations issued and guaranteed by the Government National Mortgage Association, (e) project notes issued by the United States Department of Housing and Urban
Development, and (f) public housing notes and bonds guaranteed by the United States of America. "Fiscal Agent" means the Fiscal Agent appointed by the Authority and acting as an independent
fiscal agent with the duties and powers provided in the Fiscal Agent Agreement, its successors and assigns, and any other corporation or association which may at any time be substituted
in its place, as provided in the Fiscal Agent Agreement. "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 Fund" means the fund by that name created by and held by the Fiscal Agent Agreement. "Independent Financial Consultant" means any consultant or firm of
such consultants appointed by the Authority, the City or the Treasurer, and who, or each of whom: (i) has experience in matters relating to the issuance and/or administration of bonds
under the Act; (ii) is in fact independent and not under the domination of the Authority; (iii) does not have any substantial interest, direct or indirect, with or in the Authority,
or any owner of real property in the District, or any real property in the District; and (iv) is not connected with the City or the Authority as an officer or employee of the City or
the Authority, but who may be regularly retained to make reports to the City or the Authority. "Information Services" means Financial Information, Inc.'s "Daily Called Bond Service",
30 Montgomery Street, 10th Floor, Jersey City, New Jersey 07302, Attention: Editor; Kenny Information Services' "Called Bond Service", 65 Broadway, 16th Floor, New York, New York 10006;
Moody's Investors Service "Municipal and Government", 99 Church Street, New York, New York 10007, Attention: Attention: Municipal News Reports; Standard & Poor's Corporation "Called
Bond Record", 25 Broadway, 3rd Floor, New York, New York 10004; and, in accordance with then current guidelines of the Securities and Exchange Commission, such other addresses and/or
such services providing information with respect to called bonds as the Authority may designate in an Officer's Certificate delivered to the Fiscal Agent. E-5
"Interest Payment Dates" means March 1 and September 1 of each year, commencing September 1,2006. "Joint Community Facilities Agreement -EMWD" means the Joint Community Facilities Agreement,
dated as of January 1,
2005, among the Authority, EMWD and Ashby USA, LLC. "Letter of Credit" means a standby letter of credit, which is: (i) irrevocable during its term; (ii) in a form reasonably satisfactory
to the Treasurer and the Original Purchaser; (iii) for the benefit of the Fiscal Agent; (iv) issued by federal or state chartered bank or other financial institution reasonably acceptable
to the Treasurer and the Original Purchaser, which bank's or institution's unsecured debt obligations are rated at least "A-" or better by Moody's or S&P; (v) at the time of delivery
thereof to the Fiscal Agent for purposes of the Fiscal Agent Agreement, accompanied by one or more opinions addressed to the Fiscal Agent and the Authority to the effect, singly or together,
that the Letter of Credit is a legal, valid and binding obligation of the provider thereof, enforceable against the provider thereof in accordance with its terms, except as limited by
applicable reorganization, insolvency, liquidation, readjustment of debt, moratorium or other similar laws affecting the enforcement of rights of creditors generally as such laws may
be applied in the event of a reorganization, insolvency, liquidation, readjustment of debt or other similar proceeding of or moratorium applicable to the provider thereof and by general
principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law); (vi) for a term of at least one year, effective from no later than
the date it is delivered to the Fiscal Agent, and any Letter of Credit provided in substitution for any then outstanding Letter of Credit shall be for a term of at least one year commencing
not later than the expiration date of the Letter of Credit for which it is being substituted; (vii) for the account of any entity other than the City, the Authority, the District or
any other governmental entity; (viii) in a stated amount equal to two years estimated expected annual Special Taxes to be levied on the County Assessor's parcels to which it pertains
assuming Build-Out of such parcels; and (ix) not secured, as to the reimbursement of any draws thereon, by any property located in the District, or if so secured, any such security shall
be expressly subordinate to the lien of the Special Taxes. E-6
A standby letter of credit may be accompanied by a confirming letter of credit for the purposes of satisfying the requirements in clause (iv) above; and if a confirming letter of credit
is provided, the legal opinion referred to in clause (v) above shall be with respect to the confirming letter of credit and not the related Letter of Credit. Any Letter of Credit delivered
to the Fiscal Agent shall be accompanied by a written certificate from the provider thereof or the account party thereto which identifies the County Assessor's parcels in the District
to which such Letter of Credit initially pertains. "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" means Moody's Investors Service, and any successor thereto. "Officer's Certificate" means a written certificate of the Authority signed
by an Authorized Officer of the Authority. "Ordinance" means any ordinance of the Authority levying the Special Taxes. "Original Purchaser" means Stone & Youngberg LLC, the first purchaser
of the 2006 Bonds from the Authority. "Outstanding/' when used as of any particular time with reference to Bonds, means (subject to the provisions of the Fiscal Agent Agreement) all
Bonds except: (i) Bonds theretofore canceled by the Fiscal Agent or surrendered to the Fiscal Agent for cancellation; (ii) Bonds paid or deemed to have been paid within the meaning of
the Fiscal Agent Agreement; and (iii) Bonds in lieu of or in substitution for which other Bonds shall have been authorized, executed, issued and delivered by the Authority pursuant to
the Fiscal Agent Agreement or any Supplemental Agreement. "Owner" or "Bondowner" means any person who shall be the registered owner of any Outstanding Bond. "Parcel Liens" means, with
respect to any parcel or parcels of real property in the District, sum of: (i) the aggregate principal amount of all Bonds then Outstanding allocable to such parcel or parcels based
upon the portion of the debt service payable on the Bonds from the Special Taxes levied (or that, but for capitalized interest on the Bonds, could be levied) on such parcel or parcels
in the then annual Fiscal Year, plus (ii) the aggregate principal amount of any fixed assessment liens on the parcel or parcels, plus (iii) a portion of the aggregate principal amount
of any and all other community facilities district bonds then outstanding and payable at least partially from special taxes to be levied on such parcel or parcels (the "Other District
Bonds") equal to the aggregate principal amount of the Other District Bonds multiplied by a fraction, the numerator of which is the amount of special taxes levied for the Other District
Bonds on such parcel or parcels, and the denominator of which is the total amount of special taxes levied for the Other District Bonds on all parcels of land against which the special
taxes are levied to pay the Other District Bonds (such fraction to be determined based upon the maximum special special taxes which could be levied in the year in which maximum annual
debt service on the Other District Bonds occurs), based upon information from the most recent available Fiscal Year. E-7
"Parcel Value" means the market value, as of the date of the appraisal described below and/or the date of the most recent County real property tax roll, as applicable, of parcels of
real property in the District identified by an Account Party (the "Identified Parcels"), which Identified Parcels are (i) parcels in the District with respect to which the Account Party
has provided a Letter of Credit, (ii) are subject to the levy of the Special Taxes, and (iii) are not delinquent in the payment of any Special Taxes then due and owing, including with
respect to the Identified Parcels the value of the then existing improvements and any facilities to be constructed or acquired with any amounts then on deposit in the Improvement Fund,
all as determined with respect to the Identified Parcels by reference to (A) an appraisal (or an update to a prior appraisal) performed within the six (6) months prior to the date the
Treasurer prepares the written direction described in the Fiscal Agent Agreement by an MAI appraiser ((the "Appraiser") selected by the Authority, or (B), in the alternative, the assessed
value of all the Identified Parcels and improvements thereon as shown on the then current County real property tax roll available to the Treasurer. It is expressly acknowledged that,
in determining a Parcel Value, the Authority may rely on an appraisal to determine the value of some or all of the Identified Parcels and/or the most recent County real property tax
roll as to the value of some or all of the Identified Parcels. Neither the Authority nor the Treasurer shall be liable to the Owners, the Original Purchaser or any other person or entity
in respect of any appraisal provided for purposes of this definition or by reason of any exercise of discretion made by any Appraiser pursuant to this definition. "Parity Bonds" means
bonds issued by the Authority for the District on a parity with any then Outstanding Bonds pursuant to the Fiscal Agent Agreement. "Participating Underwriter" shall have the meaning
ascribed thereto in the Continuing Disclosure Agreement. "Permitted Investments" means any of the following, but only to the extent that the same are acquired at Fair Market Value: (a)
Federal Securities. (b) Time certificates of deposit or negotiable certificates of deposit issued by a state or nationally chartered bank (including the Fiscal Agent and its affiliates)
or trust company, or a state or federal savings and loan association; provided, that the certificates of deposit shall be one or more of the following: continuously and fully insured
by the Federal Deposit Insurance Corporation, and/or continuously and fully secured by securities described in subdivision (a) of this definition of Permitted Investments which shall
have a market value, as determined on a marked-to-market basis calculated at least weekly, and exclusive of accrued interest, of not less than 102 percent of the principal amount of
the certificates of deposit. (c) Commercial paper of "prime" quality of the highest ranking or of the highest letter and numerical rating as provided by either Moody's or S&P, which
commercial paper is limited to issuing corporations that are organized and operating within the United States of America and that have total assets in excess of five hundred million
dollars ($500,000,000) and that have an "A" or higher rating for the issuer's debentures, other than commercial paper, by either Moody's or S&P, provided that purchases of E-8
eligible commercial paper may not exceed 180 days' maturity nor represent more than 10 percent of the outstanding commercial paper of an issuing corporation. (d) A repurchase agreement
with a state or nationally charted bank or trust company or a national banking association or government bond dealer reporting to, trading with, and recognized as a primary dealer by
the Federal Reserve Bank of New York, provided that all of the following conditions are satisfied: (1) the agreement is secured by any one or more of the securities described in subdivision
(a) of this definition of Permitted Investments, (2) the underlying securities are required by the repurchase agreement to be held by a bank, trust company, or primary dealer having
a combined capital and surplus of at least one hundred million dollars ($100,000,000) and which is independent of the issuer of the repurchase agreement, and (3) the underlying securities
are maintained at a market value, as determined on a marked-to-market basis calculated at least weekly, of not less than 103 percent of the amount so invested. (e) An investment agreement
or guaranteed investment contract with, or guaranteed by, a financial institution or an insurance company the long-term unsecured obligations or claims paying ability, as applicable,
of which, at the time of the investment, are rated "AA-" (or its equivalent) or better by Moody's and S&P. (f) The Local Agency Investment Account of the State Treasurer of the State
of California as permitted by the State Treasurer pursuant to Section 16429.1 of the California Government Code. (g) Investments in a money market account (including any accounts of
the Fiscal Agent or its affiliates) rated in the highest rating category by Moody's or S&P. "Principal Office" means the principal corporate trust office of the Fiscal Agent set forth
in the Fiscal Agent Agreement, except for the purpose of maintenance of the registration books and presentation of Bonds for payment, transfer or exchange, such term shall mean the office
at which the Fiscal Agent conducts its corporate agency business, or such other or additional offices as may be designated by the Fiscal Agent. "Project" means the facilities eligible
to be funded by the District more particularly described in the Resolution of Formation. "Public Works Administration Account" means the account by that name created and held by the
Fiscal Agent pursuant to the Fiscal Agent Agreement. "Rate and Method of Apportionment of Special Taxes" means the rate and method of apportionment of special taxes for the District,
as approved pursuant to the Resolution of Formation, and as it may be modified in accordance with the Act. "Record Date" means the fifteenth day of the month next preceding the month
of the applicable Interest Payment Date, whether or not such day is a Business Day. "Refunding Bonds" means bonds issued by the Authority for the District the net proceeds of which are
used to refund all or a portion of the then Outstanding Bonds; provided that the debt service on the Refunding Bonds in any Bond Year is not in excess of the debt E-9
service on the Bonds being refunded and the final maturity of the Refunding Bonds is not later than the final maturity of the Bonds being refunded. "Refunding Fund" means the fund by
that name established pursuant to the Fiscal Agent Agreement. "Reserve Fund" means the fund by that name established pursuant to the Fiscal Agent Agreement. "Reserve Requirement" means,
as of any date of calculation an amount equal to the least of (i) the then Maximum Annual Debt Service, (ii) one hundred twenty-five percent (125%) of the then average Annual Debt Service,
or (iii) ten percent (10%) of the then Outstanding principal amount of the Bonds. "Resolution of Formation" means Resolution No. TPFA 05-01, adopted by the Board of Directors of the
Authority on January 11, 2005. "Resolution of Intention" means Resolution No. TPFA 04-08, adopted by the Board of Directors of the Authority on August 24, 2004, as amended by Resolution
No. 04-10, adopted by the Board of Directors of the Authority on September 28, 2004. "S&P" means means Standard & Poor's Ratings Service, a division of McGraw-Hill, and any successor
thereto. "Securities Depositories" means The Depository Trust Company, 55 Water Street, 50th Floor, New York, New York 10041-0099, Attention: Call Notification Department, Fax (212)
855-7232; and, in accordance with then current guidelines of the Securities and Exchange Commission, such other addresses and/or such other securities depositories as the Authority may
designate in an Officer's Certificate delivered to the Fiscal Agent. "Special Tax Fund" means the fund by that name established by the Fiscal Agent Agreement. "Special Tax Prepayments"
means the proceeds of any Special Tax prepayments received by the Authority, as calculated pursuant to the Rate and Method of Apportionment of the Special Taxes, less any administrative
fees or penalties collected as part of any such prepayment. "Special Tax Prepayments Account" means the account by that name established within the Bond Fund under the Fiscal Agent Agreement.
"Special Tax Revenues" means the proceeds of the Special Taxes received by the Authority, including any scheduled payments and any prepayments thereof, interest thereon and proceeds
of the redemption or sale of property sold as a result of foreclosure of the lien of the Special Taxes to the amount of said lien and interest thereon; provided that amounts collected
in respect of delinquent Special Taxes shall not be Special Tax Revenues to the extent, and only to the extent, of any proceeds of a draw on a Letter of Credit under the Fiscal Agent
Agreement (which amounts shall be repaid to the Letter of Credit provider, as specified in the E-10
Fiscal Agent Agreement). "Special Tax Revenues" does not include any penalties collected in connection with delinquent Special Taxes. "Special Taxes" means the special taxes levied within
the District pursuant to the Act, the Ordinance and the Fiscal Agent Agreement. "Supplemental Agreement" means an agreement the execution of which is authorized by a resolution which
has been duly adopted by the Authority under the Act and which agreement is amendatory of or supplemental to the Fiscal Agent Agreement, but only if and to the extent that such agreement
is specifically authorized under the Fiscal Agent Agreement. "Tax Consultant" means David Taussig & Associates, Inc. or another independent financial or tax consultant retained by the
Authority or the City for the purpose of computing the Special Taxes. "Treasurer" means the Treasurer of the Authority or such other officer or employee of the Authority performing the
functions of the chief financial officer of the Authority. "2006 Bonds" means the Bonds so designated and authorized to be issued under the Fiscal Agent Agreement. Funds and Accounts
The Fiscal Agent Agreement provides for the following funds, in addition to the Special Tax Fund, the Bond Fund and the Reserve Fund described in the text of this Official Statement:
Improvement Fund. There is established under the Fiscal Agent Agreement as a separate fund to be held by the Fiscal Agent the Improvement Fund, and within the Improvement Fund a City
Account, an EMWD Account, an Acquisition Account and a Public Works Administration Account. Deposits shall be made to the accounts within the Improvement Fund as required by the Fiscal
Agent Agreement. Moneys in the accounts within the Improvement Fund shall be held in trust by the Fiscal Agent for the benefit of the Authority, and shall be disbursed for the payment
or reimbursement of costs of the Project. Amounts in the Improvement Fund, including the accounts therein, are not pledged as security for the Bonds. Disbursements from the City Account
of the Improvement Fund 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 (which shall be for payment of a cost of any of the portions of the Project to be constructed by the City, or to reimburse expenditures of the Authority,
the City or any other party for any of such Project costs previously paid), that the disbursement is a proper expenditure from the City Account of the Improvement Fund, 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
requesting a disbursement. Disbursements from the Acquisition Account within the Improvement Fund 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 (which E-E-ll
shall be for a Project cost identified in the Acquisition Agreement, or for a cost of the City or the Authority in administering the Acquisition Agreement not able to be funded from
amounts in the Public Works Administration Account), that the disbursement is a proper expenditure from the Acquisition Account of the Improvement Fund, 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 requesting a disbursement.
Disbursements from the EMWD Account of the Improvement Fund 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 (which shall be for an Acquisition Facility, as such term is defined in the Joint Community Facilities Agreement
-EMWD (and as such Acquisition Facilities are identified in Exhibit B to that agreement), that the disbursement is consistent with the requirements of Section 7(e) of the Joint Community
Facilities Agreement -EMWD, that the disbursement is a proper expenditure from the EMWD Account of the Improvement Fund, 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 requesting a disbursement. Disbursements from the
Public Works Administration Account shall be made by the Fiscal Agent upon receipt of an Officer's Certificate, or a written demand of the Public Works Director of the City, which shall:
(i) set forth the amount required to be disbursed and state that the disbursement is for payment of costs of the City to administer the Acquisition Agreement; and (ii) certify that no
portion of the amount then being requested was set forth in any Officer's Certificate or written demand previously filed requesting a disbursement. Each such Officer's Certificate or
other certificate submitted to the Fiscal Agent as described in the Fiscal Agent Agreement shall be sufficient evidence to the Fiscal Agent of the facts stated therein, and the Fiscal
Agent shall have no duty to confirm the accuracy of such facts. Moneys in the accounts within the Improvement Fund will be invested and deposited in accordance with the Fiscal Agent
Agreement. Interest earnings and profits from the investment and deposit of amounts in the accounts within the Improvement Fund shall be retained in the respective accounts of the Improvement
Fund to be used for the purposes of the respective account. If: (i) the Treasurer determines in the Treasurer's sole discretion that work necessary to construct and complete the Project
has been abandoned, or that for any reason (including, but not limited to, termination of, or the occurrence of any event that would permit termination of, the Acquisition Agreement),
all or any portion of the amounts then on deposit in the Acquisition Account, the EMWD Account and/or the City Account will not be expended for Project costs, or (ii) Treasurer receives
a written certificate of an Independent Financial Consultant to the effect that the Project has been abandoned or all or any portion of the amounts then on deposit in the Acquisition
Account, the EMWD Account and the City Account will not be expended for Project costs, the Treasurer shall file an Officer's Certificate with the Fiscal Agent to that effect and which
identifies the amounts then on deposit in the accounts within the Improvement Fund that are not expected to be used for Project costs due to such abandonment or other reason. The Fiscal
Agent, upon receipt of such certificate, shall transfer the amounts identified therein from the Acquisition Account, the EMWD Account and the City E-12
Account, as applicable, to the Bond Fund to be used (i) to redeem the 2006 Bonds on the next Interest Payment Date for which notice of redemption can timely be given pursuant to the
Fiscal Agent Agreement if the amount so transferred is at least $100,000, or (ii) if such amount is less than $100,000, to pay debt service on the Bonds on the next Interest Payment
Date. On the earlier of (i) the date of receipt by the Fiscal Agent of an Officer's Certificate to the effect that Ashby, USA, LLC has notified the Authority in writing that no further
disbursements will be made from the EMWD Account, or (ii) March 1, 2016, the Fiscal Agent shall transfer all amounts then on deposit in the EMWD Account to the Acquisition Account to
be used for the purposes of such account, or, if the Acquisition Account has theretofore been closed, to the Bond Fund to be used to pay Debt Service on the Bonds on the next Interest
Payment Date, and following such transfer the EMWD Account shall be closed. Upon receipt by the Fiscal Agent of an Officer's Certificate to the effect that all improvements to be funded
from the City Account have been completed or that no further withdrawals will be made from the City Account, any amounts remaining on deposit in the City Account shall be transferred
by the Fiscal Agent to the Acquisition Account, or, if the Acquisition Account has theretofore been closed, to the Bond Fund to be used to pay Debt Service on the Bonds on the next Interest
Payment Date, and when no amounts remain on deposit in the City Account the City Account shall be closed. Upon receipt by the Fiscal Agent of an Officer's Certificate stating that the
Project has been completed and that all costs of the Project have been paid, or that any such costs are not required to be paid from any of the City Account, the EMWD Account, or the
Acquisition Account of the Improvement Fund, the Fiscal Agent shall transfer the amount, if any, remaining in the Public Works Administration Account to the Administrative Expense Fund
to be used for purposes of the Administration Expense Fund. Following such transfer, the Public Works Administration Account shall be closed. Upon receipt by the Fiscal Agent of an Officer's
Certificate stating that the Project has been completed and that all costs of the Project have been paid, or that any such costs are no longer required to be paid from the Acquisition
Account, the Fiscal Agent shall transfer the amount, if any, remaining in the Acquisition Account to the Bond Fund to be used to pay Debt Service on the Bonds on the next Interest Payment
Date, and when no amounts remain on deposit in the Acquisition Account the Acquisition Account shall be closed. Costs of Issuance Fund. There is established under the Fiscal Agent Agreement
as a separate fund to be held by the Fiscal Agent the Costs of Issuance Fund, to the credit of which a deposit shall be made as required by the Fiscal Agent Agreement. Moneys in the
Costs of Issuance Fund shall be held in trust by the Fiscal Agent, shall be disbursed as provided below for the payment or reimbursement of Costs of Issuance, and are not pledged as
security for the Bonds. Amounts in the Costs of Issuance Fund shall be disbursed from time to time to pay Costs of Issuance, as set forth in a requisition containing respective amounts
to be paid to the designated payees, signed by the Treasurer and delivered to the Fiscal Agent concurrently with the delivery of the Bonds, or otherwise in an Officer's Certificate delivered
to the Fiscal Agent after the Closing Date. The Fiscal Agent shall pay all Costs of Issuance after receipt of an invoice from any such payee which requests payment in an amount which
is less than or equal E-13
to the amount set forth with respect to such payee pursuant to an Officer's Certificate requesting payment of Costs of Issuance. The Fiscal Agent shall maintain the Costs of Issuance'
Fund for a period of 90 days from the date of delivery of the Bonds and then shall transfer any moneys remaining therein, including any investment earnings thereon, to the Treasurer
for deposit by the Treasurer in the Administrative Expense Fund. Moneys in the Costs of Issuance Fund will be invested and deposited in accordance with the Fiscal Agent Agreement. Interest
earnings and profits resulting from said investment shall be retained by the Fiscal Agent in the Costs of Issuance Fund to be used for the purposes of such fund. Reserve Fund. There
is established under the Fiscal Agent Agreement as a separate fund to be held by the Fiscal Agent the Reserve Fund, to the credit of which a deposit shall be made as required by the
Fiscal Agent Agreement equal to the Reserve Requirement as of the Closing Date for the Bonds, and deposits shall be made as provided in the Fiscal Agent 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 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. Except as otherwise provided in the Fiscal Agent Agreement, all amounts deposited in the Reserve Fund shall be used and
withdrawn by the Fiscal Agent solely for the purpose of making transfers to the Bond Fund in the event of any deficiency at any time in the Bond Fund of the amount then required for
payment of the principal of, and interest and any premium on, the Bonds or, in accordance with the provisions of the Fiscal Agent Agreement, for the purpose of redeeming Bonds from the
Bond Fund. Whenever transfer is made from the Reserve Fund to the Bond Fund due to a deficiency in the Bond Fund, the Fiscal Agent shall provide written notice thereof to the Treasurer,
specifying the amount withdrawn. The Treasurer shall then shall provide the notice described in the Fiscal Agent Agreement. Whenever, on the Business Day prior to any Interest Payment
Date, or on any other date at the request of the Treasurer, the amount in the Reserve Fund exceeds the Reserve Requirement, the Fiscal Agent shall provide written notice to the Treasurer
of the amount of the excess and shall transfer an amount equal to the excess from the Reserve Fund (i) to the Acquisition Account, so long as such account has not theretofore been closed,
and (ii) following the closure of the Acquisition Account, to the Bond Fund to be used for the payment of interest on the Bonds on the next Interest Payment Date in accordance with the
Fiscal Agent Agreement. Whenever the balance in the Reserve Fund equals 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 the written direction direction of the Treasurer transfer the amount in the Reserve Fund
to the Bond Fund to be applied, on the next succeeding Interest Payment Date to the payment and redemption,
in accordance with the Fiscal Agent Agreement, as applicable, of all of the Outstanding Bonds. In the event that the amount so transferred from the Reserve Fund to the Bond Fund exceeds
the amount required to pay and redeem the Outstanding Bonds, the balance in the Reserve Fund shall be transferred to the Authority to be used for any lawful purpose of the Authority.
E-14
Notwithstanding the foregoing, no amounts shall be transferred from the Reserve Fund pursuant to the Fiscal Agent Agreement until after (i) the calculation of any amounts due to the
federal government pursuant to the Fiscal Agent Agreement following payment of the Bonds and withdrawal of any such amount from the Reserve Fund for purposes of making such payment to
the federal government, and (ii) payment of any fees and expenses due to the Fiscal Agent. Whenever Special Taxes are prepaid and Bonds are to be redeemed with the proceeds of such prepayment
pursuant to the Fiscal Agent Agreement, a proportionate amount in the Reserve Fund (determined on the basis of the principal of Bonds to be redeemed, and the original principal of the
Bonds) shall be transferred on the Business Day prior to the redemption date by the Fiscal Agent to the Bond Fund to be applied to the redemption of the Bonds pursuant to the Fiscal
Agent Agreement. The Treasurer shall deliver to the Fiscal Agent an Officer's Certificate specifying any amount to be so transferred, and the Fiscal Agent may rely on any such Officer's
Certificate. Amounts in the Reserve Fund may at any time be used, at the written direction of an Authorized Officer, for purposes of paying any rebate liability under the Fiscal Agent
Agreement. Moneys in the Reserve Fund shall be invested in accordance with the investment provisions of the Fiscal Agent Agreement. Bond Fund. There is established under the Fiscal Agent
Agreement as a separate fund to be held by the Fiscal Agent the Bond Fund, to the credit of which deposits shall be made as required by the Fiscal Agent Agreement, and any other amounts
required to be deposited therein by the Act. There is also created in the Bond Fund a separate account held by the Fiscal Agent, the Capitalized Interest Account, to the credit of which
deposits shall be made under the Fiscal Agent Agreement. There is also created in the Bond Fund a separate account to be held by the Fiscal Agent consisting of the Special Tax Prepayments
Account, to the credit of which deposits shall be made as provided in the Fiscal Agent Agreement. Moneys in the Bond Fund and the accounts therein 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. On each Interest Payment Date, the Fiscal Agent shall withdraw from the Bond Fund and pay to the Owners
of the Bonds the principal, and interest and any premium, then due and payable on the Bonds, including any amounts due on the Bonds by reason of the sinking payments set forth in the
Fiscal Agent Agreement, or a redemption of the Bonds required by the Fiscal Agent Agreement, such payments to be made in the priority listed in the second succeeding paragraph. Notwithstanding
the foregoing, amounts in the Bond Fund as a result of a transfer pursuant to the Fiscal Agent Agreement shall be used to pay the principal of and interest on the Bonds prior to the
use of any other amounts in the Bond Fund for such purpose. In the event that amounts in the Bond Fund are insufficient for the purposes set forth in the preceding paragraph, the Fiscal
Agent shall withdraw from the Reserve Fund to the extent E-15
of any funds therein amounts to cover the amount of such Bond Fund insufficiency. Amounts so withdrawn from the Reserve Fund shall be deposited in the Bond Fund. If, after the foregoing
transfers, there are insufficient funds in the Bond Fund to make the payments provided for in the Fiscal Agent Agreement, the Fiscal Agent shall apply the available funds first to the
payment of interest on the Bonds, then to the payment of principal due on the Bonds other than by reason of sinking payments, and then to payment of principal due on the Bonds by reason
of sinking payments. Any sinking payment not made as scheduled shall be added to the sinking payment to be made on the next sinking payment date. Moneys in the Special Tax Prepayments
Account shall be transferred by the Fiscal Agent to the Bond Fund on the next date for which notice of redemption of Bonds can timely be given under the Fiscal Agent Agreement, and notice
to the Fiscal Agent can timely be given under the Fiscal Agent Agreement, and shall be used (together with any amounts transferred pursuant to the Fiscal Agent Agreement to redeem Bonds
on the redemption date selected in accordance with the Fiscal Agent Agreement. Moneys in the Capitalized Interest Account shall be transferred to the Bond Fund on the Business Day prior
to each Interest Payment Date, in the amount equal to and to be used for the payment of interest on the Bonds due on the next succeeding Interest Payment Date; provided that no such
transfer shall exceed the amount then on deposit in the Capitalized Interest Account. When no amounts remain on deposit in such account, the Capitalized Interest Account shall be closed.
Moneys in the Bond Fund, the Capitalized Interest Account and the Special Tax Prepayments Account shall be invested and deposited in accordance with the Fiscal Agent Agreement. Interest
earnings and profits resulting from the investment and deposit of amounts in the Bond Fund, the Capitalized Interest Account and the Special Tax Prepayments Account shall be retained
in the Bond Fund, the Capitalized Interest Account and the Special Tax Prepayments Account, respectively, to be used for purposes of such fund and accounts. Special Tax Fund. There is
established under the Fiscal Agent Agreement as a separate fund to be held by the Fiscal Agent the Special Tax Fund, to the credit of which the Fiscal Agent shall deposit amounts received
from or on behalf of the Authority consisting of Special Tax Revenues, and any amounts required by the Fiscal Agent Agreement to be deposited therein. The Authority shall promptly remit
any such amounts received by it to the Fiscal Agent for deposit by the Fiscal Agent to the Special Tax Fund. Notwithstanding the foregoing, (i) any Special Tax Revenues constituting
payment of the portion of the Special Tax levy for Administrative Expenses shall be deposited by the Treasurer in the Administrative Expense Fund, and (ii) any proceeds of Special Tax
Prepayments shall be transferred by the Treasurer to the Fiscal Agent for deposit by the Fiscal Agent (as specified in writing by the Treasurer to the Fiscal Agent) directly in the Special
Tax Prepayments Account established pursuant to the Fiscal Agent Agreement. Moneys in the Special Tax Fund shall be held in trust by the Fiscal Agent for the benefit of the Authority
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 and the Authority. E-16
On each Interest Payment Date, the Fiscal Agent shall withdraw from the Special Tax Fund and transfer the following amounts in the following order of priority (i) to the Bond Fund an
amount, taking into account any amounts then on deposit in the Bond Fund and any expected transfers from the Improvement Fund, the Reserve Fund, the Capitalized Interest Account and
the Special Tax Prepayments Account to the Bond Fund pursuant to the Fiscal Agent Agreement, such that the amount in the Bond Fund equals the principal (including any sinking payment),
premium, if any, and interest due on the Bonds on such Interest Payment Date, and (ii) to the Reserve Fund an amount, taking into account amounts then on deposit in the Reserve Fund,
such that the amount in the Reserve Fund is equal to the Reserve Requirement. Moneys in the Special Tax Fund shall be invested and deposited in accordance with the Fiscal Agent Agreement.
Interest earnings and profits resulting from such investment and deposit shall be retained in the Special Tax Fund to be used for the purposes thereof. Administrative Expense Fund. There
is established under the Fiscal Agent Agreement, as a separate fund to be held by the Treasurer the Administrative Expense Fund to the credit of which deposits shall be made as required
by the Fiscal Agent Agreement. Moneys in the Administrative Expense Fund shall be held in trust by the Treasurer for the benefit of the Authority, shall be disbursed as provided below,
and are not pledged as security for the Bonds. Amounts in the Administrative Expense Fund will be withdrawn by the Treasurer and paid to the Authority or its order upon receipt by the
Treasurer 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 Costs of Issuance, and the nature of such
Administrative Expense or Costs of Issuance. Amounts transferred from the Costs of Issuance Fund to the Administrative Expense Fund pursuant to the Fiscal Agent Agreement shall be separately
identified at all times, and shall be expended for purposes of the Administrative Expense Fund prior to the use of amounts transferred to the Administrative Expense Fund from the Special
Tax Fund pursuant to the Fiscal Agent Agreement. Annually, on the last day of each Fiscal Year commencing with the last day of Fiscal Year 2005-2006, the Treasurer shall withdraw any
amounts then remaining in the Administrative Expense Fund in excess of $60,000 that have not otherwise been allocated to pay Administrative Expenses incurred but not yet paid, and which
are not otherwise encumbered, and transfer such amounts to the Fiscal Agent for deposit by the Fiscal Agent in the Special Tax Fund. Moneys in the Administrative Expense Fund will be
invested and deposited in accordance with the Fiscal Agent Agreement. Interest earnings and profits resulting from said investment shall be retained by the Treasurer in the Administrative
Expense Fund to be used for the purposes of such fund. Refunding Fund. There is hereby established under the Fiscal Agent Agreement as a separate fund to be held by the Fiscal Agent
the Refunding Fund, to the credit of which a deposit shall be made as required by the Fiscal Agent Agreement. Moneys in the Refunding Fund shall be held in trust by the Fiscal Agent
for the benefit of the Authority, shall be disbursed as provided in the Fiscal Agent Agreement, and are not pledged as security for the Bonds. E-17
On the Closing Date, all amounts on deposit in the Refunding Fund shall be transferred by the Fiscal Agent to U.S. Bank National Association, as agent for the County, to be used to pay
in full and discharge the assessment liens on property in the District for the County's Assessment District No. 161. After disbursement of all amounts on deposit in the Refunding Fund,
the Refunding Fund shall be closed. Letter of Credit Provisions The Fiscal Agent shall hold any Letter of Credit delivered to it for the benefit of the Reserve Fund. The Fiscal Agent
shall advise the Treasurer in writing promptly following the actual knowledge of the Fiscal Agent that the credit rating of the provider of any Letter of Credit (or, if a confirming
letter of credit has been delivered with a Letter of Credit, the credit rating of the provider of the confirming letter of credit) then in effect has been reduced to BBB (or its equivalent)
or lower by S&P or Moody's. The Fiscal Agent shall draw upon a Letter of Credit promptly following receipt by the Fiscal Agent of a written direction of the Treasurer instructing the
Fiscal Agent to draw on a Letter of Credit, identifying the Letter of Credit and the amount to be so drawn, and to the effect that Special Taxes levied in the District on "parcels to
which the Letter of Credit pertains" (as such phrase is discussed in the Fiscal Agent Agreement) are then delinquent in the amount so to be drawn on the Letter of Credit. The amount
received pursuant to any draw on a Letter of Credit under the Fiscal Agent Agreement shall not act as a credit in respect of the amount of any Special Taxes that have been levied in
the District on the parcels to which it pertains. Upon collection of any delinquent Special Taxes with respect to the property for which a draw on a Letter of Credit has been made, the
Authority shall send to the provider of the Letter of Credit (or its written designee) the amount so collected, less any costs or Administrative Expenses incurred in connection with
the delinquency or the related draw on the Letter of Credit, with the amount to be sent to the provider not in any event to exceed the amount of the proceeds of the draw on the Letter
of Credit received by the Fiscal Agent. The proceeds of any draw on a Letter of Credit described in this paragraph shall be deposited by the Fiscal Agent to the Special Tax Fund. In
addition to the foregoing, the Fiscal Agent shall draw upon the full amount available under a Letter of Credit (x) as soon as practicable following receipt by the Fiscal Agent of actual
knowledge that the then rating of the Letter of Credit provider's unsecured debt obligations has been reduced to BBB (or its equivalent) or lower by Moody's or S&P (if a confirming letter
of credit has been delivered together with a Letter of Credit, the foregoing rating criteria shall be applied to the ratings of the institution providing the confirming letter of credit),
or (y) five days prior to the stated termination date of the Letter of Credit (or any confirming letter of credit provided therewith) if the Letter of Credit (and any related confirming
Letter of Credit) is not replaced prior to such expiration date by a letter of credit (which may include a confirming letter of credit) which satisfies the requirements set forth in
the definition of "Letter of Credit" in the Fiscal Agent Agreement. The amount received pursuant to any draw on a Letter of Credit under the Fiscal Agent Agreement shall in no way reduce
or act as a credit in respect of the amount of any Special Taxes that have been levied in the District. If a confirming letter of credit has been provided with a Letter of Credit, the
Fiscal Agent shall draw on the confirming letter of credit as necessary to satisfy the foregoing requirements. E-18
The proceeds of any draw on a Letter of Credit described in the preceding paragraph shall be held by the Fiscal Agent in a separate subaccount within the Reserve Fund created by the
Fiscal Agent for such purpose, to be (a) drawn upon by the Fiscal Agent and the proceeds of such draw deposited by the Fiscal Agent to the Special Tax Fund, such draw to occur at the
written direction of the Treasurer prior to any Interest Payment Date to the effect that the amount specified in such written direction to be drawn is in the amount of any delinquent
Special Taxes levied on the "parcels to which the Letter of Credit pertains" (as such phrase is discussed in the Fiscal Agent Agreement), or (b) released or reduced at the written direction
of the Treasurer when the Letter of Credit to which such proceeds pertain would otherwise be released or reduced under the Fiscal Agent Agreement (with any amount so reduced or released
to be sent by the Fiscal Agent to the account party with respect to the Letter of Credit upon which the amounts so held were drawn). The Fiscal Agent shall release, or reduce the amount
available to be drawn on, a Letter of Credit upon receipt of written direction from the Treasurer to the effect that (I)(x) the then aggregate Parcel Value of the parcels in a planning
area of the District identified in such written direction (the "Identified Parcels"), for which Identified Parcels the applicable Letter of Credit was provided, is at least three times
the Parcel Liens, and (I)(y) the conditions precedent to the issuance of building permits for all of the Identified Parcels (as such conditions precedent are set forth in the Preannexation
and Development Agreement, dated as of December 17, 2002, by and between the City and Ashby USA, LLC, as amended and then in effect (the "Development Agreement")) have been satisfied;
or (II) the amount of the Letter of Credit may be reduced to $0.00 under the provisions of the Fiscal Agent Agreement; or (III) the Identified Parcels are subject to less than 10% of
the expected annual Special Tax levy in the District (assuming Build-Out). The Treasurer shall review appraisals (or updates to prior appraisals) submitted to the Treasurer by or on
behalf of an Account Party that are conducted by an appraiser and in a form acceptable to the Treasurer, to determine if any Letter of Credit is to be released or reduced pursuant to
the Fiscal Agent Agreement and, if so, shall so advise the Fiscal Agent in writing. Promptly following receipt of written direction from the Treasurer as to a Letter of Credit, the Fiscal
Agent shall complete and deliver to the applicable Letter of Credit provider the appropriate certificates and annexes to the subject Letter of Credit to effectuate the release or reduction
of such Letter of Credit. In connection with any such reduction, the amount available to be drawn on the applicable Letter of Credit shall be reduced to an amount equal to two times
the expected annual Special Taxes that may be levied on the "parcels to which the Letter of Credit pertains" pertains" (as such phrase is discussed in the Fiscal Agent Agreement) assuming
Build-Out of such parcels, other than the Identified Parcels specified in the written direction of the Treasurer described above (however, in any event, the Letter of Credit shall be
released if the conditions referenced in clause (III) of the first sentence of the Fiscal Agent Agreement have been satisfied). The Fiscal Agent shall reduce or acknowledge reduction
of the amount of any Letter of Credit held by it upon receipt by the Fiscal Agent of: (a) a Letter of Credit which satisfies the requirements set forth in the definition of "Letter of
Credit" in the Fiscal Agent Agreement in substitution or replacement for all or a portion of the amount available to be drawn under any Letter of Credit then held by the Fiscal Agent,
accompanied by a written statement of the provider of or account party under such new Letter of Credit as to the parcels and the outstanding Letter of Credit to which the new Letter
of Credit pertains, and then the amount under the then E-19
applicable outstanding Letter of Credit may be reduced by the amount available to be drawn under the new Letter of Credit; or (b) from time to time, but not more than once every six
months (commencing no sooner than six months after the Closing Date), an Account Party may present evidence to the Treasurer as to the expected annual Special Taxes that may be levied
on parcels in the District to which the Letter of Credit pertains, assuming Build-Out (the "Maximum Amount"). If the Maximum Amount, multiplied by two (herein, the "Revised Stated Amount"),
is less than the current stated amount of the applicable Letter of Credit, then the Treasurer shall provide written direction to the Fiscal Agent to reduce the applicable Letter of Credit
by the difference between the current stated amount of the Letter of Credit and the Revised Stated Amount of the Letter of Credit. Promptly following receipt of such written direction
from the Treasurer, the Fiscal Agent shall complete and deliver to the applicable Letter of Credit provider the appropriate certificates and annexes to the subject Letter of Credit to
effectuate the reduction of the stated amount of such Letter of Credit. Notwithstanding the foregoing, a Letter of Credit shall not be reduced if the reason for the reduction is the
sale of property to an owner (I) that will own, together with its affiliates, property responsible for 10% or more of the expected annual Special Taxes that may be levied on such parcels
in the District (assuming Build-Out), and (II) that will own land in a planning area and either (x) the then Parcel Value of such land is less than three times the Parcel Liens for such
land, or (y) there are conditions precedent to the issuance of building permits for all lots to be developed in such planning area, as such conditions are set forth in the Development
Agreement (as such term is defined in clause (I)(y) in the preceding paragraph); unless the Account Party provides evidence that the new owner has posted its own Letter of Credit securing
the payment of Special Taxes to be levied on such property. The Fiscal Agent shall, on or each January 1, April 1, July 1 and October 1, ascertain, with respect to each Letter of Credit
then held by the Fiscal Agent, the then rating of each Letter of Credit provider's (or, if a confirming letter of credit has been provided with a Letter of Credit, that the confirming
letter of credit provider's) unsecured debt obligations, in connection with the administration of the Fiscal Agent Agreement. In calculating the Maximum Amount described in the Fiscal
Agent Agreement, and for purposes of such clause as used in the Fiscal Agent Agreement, the term "parcels in the District to which the Letter of Credit pertains" shall mean the parcels
in the District which were initially identified by the applicable Account Party as being the subject of the respective Letter of Credit less any parcels that are, at the time of calculation,
(a) owned by a party unaffiliated with the applicable Account Party, so long as the maximum Special Special Taxes levied on such parcels (assuming Build-Out) is less than 10% of the
District-wide Maximum Special Taxes, (b) in a planning area whose Parcel Value is more than three times the Parcel Liens, and are not subject to conditions precedent to the issuance
of building permits which conditions apply to all lots to be developed in the planning area in which the parcels are located, as such conditions are set forth in the Development Agreement
(as such term is defined in clause (I)(y) in the third preceding paragraph), (c) subject to a separate Letter of Credit, or (d) owned by individual homeowners. E-20
Parity Bonds The Authority may issue one or more series of Bonds, in addition to the 2006 Bonds, by means of a Supplemental Agreement and without the consent of any Bondowners, upon
compliance with the provisions described below. Any such Bonds that comply with the requirements described below shall be Parity Bonds, and such Parity Bonds shall constitute Bonds under
the Fiscal Agent Agreement and shall be secured by a lien on the Special Tax Revenues and funds pledged for the payment of the Bonds under the Fiscal Agent Agreement on a parity with
all other Bonds Outstanding under the Fiscal Agent Agreement. The Authority may issue the Parity Bonds subject to the following specific conditions precedent: (A) The Authority shall
be in compliance on the date of issuance of the Parity Bonds with all covenants set forth in the Fiscal Agent 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 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 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. (D) The District Value shall be at least three times the sum of:
(i) the aggregate principal amount of all Bonds then Outstanding, plus (ii) the aggregate principal amount of the series of Parity Bonds proposed to be issued, plus (iii) the aggregate
principal amount of any fixed assessment liens on the parcels in the District subject to the levy of Special Taxes, plus (iv) a portion of the aggregate principal amount of any and all
other community facilities district bonds then outstanding and payable at least partially from special taxes to be levied on parcels of land within the District (the "Other District
Bonds") equal to the aggregate principal amount of the Other District Bonds multiplied by a fraction, the numerator of which is the amount of special taxes levied for the Other District
Bonds on parcels of land within the District, and the denominator of which is the total amount of special taxes levied for the Other District Bonds on all parcels of land against which
the special taxes are levied to pay the Other District Bonds (such fraction to be determined based upon the maximum special taxes which could be levied in the year in which maximum annual
debt service on the Other District Bonds occurs), based upon information from the most recent available Fiscal Year. (E) The Authority shall obtain a certificate of a Tax Consultant
to the effect that (i) the amount of the maximum Special Taxes that may be levied in each Fiscal Year, less an amount sufficient to pay annual Administrative Expenses (as determined
by the Treasurer), shall be at least one hundred ten percent (110%) of the total Annual Debt Service for each such Fiscal Year on the Bonds and the proposed Parity Bonds, and (ii) the
Assigned Special Tax that may be levied on Developed Property (as such term is E-21
defined in the Rate and Method of Apportionment of Special Taxes for the District) in the next Fiscal Year, based upon the status of the land in the District as of the date of issuance
of the Parity Bonds, shall not be less than the aggregate maximum Annual Debt Service on the Bonds (to remain Outstanding following the issuance of the Parity Bonds) and the proposed
Parity Bonds. (F) Unless all of the conditions to the release of any Letter of Credit set forth in the Fiscal Agent Agreement have theretofore been satisfied, or the Letters of Credit
have all been reduced to $0.00 pursuant to the provisions of the Fiscal Agent Agreement, there shall be delivered to the Fiscal Agent an amendment to each Letter of Credit then held
by the Fiscal Agent to increase the amount available to be drawn under each such Letter of Credit to reflect the expected increase in the Special Taxes that will need to be levied on
the parcels to which each Letter of Credit pertains to pay the debt service on the Parity Bonds, as determined by the Treasurer upon consultation with the Tax Consultant. In the event
that any Letter of Credit has theretofore been drawn upon pursuant to the Fiscal Agent Agreement, there shall be deposited with the Fiscal Agent monies in an amount equal to the otherwise
amount that the corresponding Letter of Credit would need to be increased pursuant to the preceding sentence, and the funds so deposited shall be disposed of in the same manner as the
proceeds of the draw on the Letter of Credit under the Fiscal Agent Agreement. (G) The Authority 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), (C), (D), (E) and, if applicable, (F) above have been satisfied. In delivering such Officer's Certificate,
the Authorized Officer that executes the same may conclusively rely upon such certificates of the Fiscal Agent, the Tax Consultant and others selected with due care, without the need
for independent inquiry or certification. Notwithstanding the foregoing, the Authority may issue Refunding Bonds as Parity Bonds without the need to satisfy the requirements of clauses
(D), (E) and (F) above, and without limitation on the number of series of such Refunding Bonds; and, in connection therewith, the Officer's Certificate in clause (G) above need not make
reference to said clauses (D), (E) and (F). Nothing in the Fiscal Agent Agreement prohibits the Authority from issuing bonds or otherwise incurring debt secured by a pledge of Special
Tax Revenues subordinate to the pledge thereof under the Fiscal Agent Agreement. Covenants of the Authority The Authority 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 Fiscal Agent Agreement and any Supplemental Agreement, and it will faithfully observe
and perform
all of the conditions, covenants and requirements of the Fiscal Agent Agreement and all Supplemental Agreements and of the Bonds. The Bonds are limited obligations of the Authority on
behalf of the District and are payable solely from and secured solely by the Special Tax Revenues and the amounts in the Bond Fund (including the Special Tax Prepayments Account and
the Capitalized Interest E-22
Account therein), the Reserve Fund and, until disbursed as provided in the Fiscal Agent Agreement, the Special Tax Fund. In order to prevent any accumulation of claims for interest after
maturity, the Authority may 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 may 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 Authority, such claim for interest so extended or funded shall not be entitled, in case of default under the Fiscal Agent
Agreement, to the benefits of the Fiscal Agent 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. The Authority will 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 Fiscal Agent Agreement. The Authority will keep,
or cause to be kept, proper books of record and accounts, separate from all other records and accounts of the Authority, in which complete and correct entries are made of all transactions
relating to the expenditure of amounts disbursed from the Administrative Expense Fund and to the Special Tax Revenues. Such books of record and accounts will at all times during business
hours be subject to the inspection of the Fiscal Agent and the Owners of not less than ten percent (10%) of the principal amount of the Bonds then Outstanding, or their representatives
duly authorized in writing. The Fiscal Agent will 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 must be made of all transactions relating to the expenditure of amounts disbursed from the Bond Fund (including Special Tax Prepayments Account and
the Capitalized Interest Account therein), the Special Tax Fund, the Reserve Fund, the Refunding Fund, the Improvement Fund (including the accounts therein) and the Costs of Issuance
Fund. Such books of record and accounts must at all times during business hours be subject to the inspection of the Authority and the Owners of not less than ten percent (10%) of the
principal amount of the Bonds then Outstanding, or their representatives duly authorized in writing upon reasonable prior notice. The Authority 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 Authority, the Bonds shall be incontestable by the Authority. The Authority will comply with all applicable provisions of the Act and law in administering the District and completing
the acquisition of the Project. The Authority shall comply with all requirements of the Act so as to assure the timely collection of Special Tax Revenues, including without limitation,
the enforcement of delinquent Special Taxes. On or within five (5) Business Days of each June 1, the Fiscal Agent is required provide the Treasurer with a notice stating the amount then
on deposit in the Bond Fund, the E-23
Capitalized Interest Account and the Reserve Fund, and informing the Authority that the Special Taxes may need to be levied pursuant to the Ordinance as necessary to provide for the
debt service to become due on the Bonds in the calendar year that commences in the Fiscal Year for which the levy is to be made, and Administrative Expenses and replenishment (if necessary)
of the Reserve Fund so that the balances therein equal the Reserve Requirement. The receipt of or failure to receive such notice by the Treasurer shall in no way affect the obligations
of the Treasurer under the following two paragraphs. Upon receipt of such notice, the Treasurer 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 year. The Treasurer shall effect the levy of the Special Taxes each Fiscal Year in
accordance with the Ordinance by each July 15 that the Bonds are outstanding, or otherwise such that the computation of the levy is complete before the final date on which Auditor will
accept the transmission of the Special Tax amounts for the parcels within the District for inclusion on the next real property tax roll. Upon the completion of the computation of the
amounts of the levy, the Treasurer shall prepare or cause to be prepared, and shall transmit to the Auditor, such data as the Auditor requires to include the levy of the Special Taxes
on the next real property tax roll. The Treasurer shall fix and levy the amount of Special Taxes within the District required for the payment of principal of and interest on any outstanding
Bonds of the District becoming due and payable during the ensuing year, including any necessary replenishment or expenditure of the Reserve Fund for the Bonds and an amount estimated
to be sufficient to pay the Administrative Expenses (including amounts necessary to discharge any obligation under the Fiscal Agent Agreement) during such year, taking into account the
balances in such funds and in the Special Tax Fund. The Special Taxes so levied shall not exceed the authorized amounts as provided in the proceedings pursuant to the Resolution of Formation.
The Special Taxes shall be payable and be collected in the same manner and at the same time and in the same installment as the general taxes on real property are payable, and have the
same priority, become delinquent at the same time and in the same proportionate amounts and bear the same proportionate penalties and interest after delinquency as do the ad valorem
taxes on real property; provided that, pursuant to and in accordance with the Ordinance, the Special Taxes may be collected by means of direct billing of the property owners within the
District, in which event the Special Taxes shall become delinquent if not paid when due pursuant to said billing. Pursuant to Section 53356.1 of the Act, the Authority covenants with
and for the benefit of the Owners of the Bonds that it will order, and cause to be commenced as described below, and thereafter diligently prosecute to judgment (unless such delinquency
is theretofore brought current), an action in the superior court to foreclose the lien of any Special Tax or installment thereof not paid when due as provided in the following paragraph.
The Treasurer shall notify the Authority Attorney of any such delinquency of which it is aware, and the Authority Attorney shall commence, or cause to be commenced, such proceedings.
On or about February 15 and June 15 of each Fiscal Year, the Treasurer shall compare the amount of Special Taxes theretofore levied in the District to the amount of Special Tax Revenues
theretofore received by the Authority. If the Treasurer determines that any single parcel subject to the Special Tax in the District is delinquent in the payment of Special Taxes in
E-24
the aggregate amount of $5,000 or more, then the Treasurer shall send or cause to be sent a notice of delinquency (and a demand for immediate payment thereof) to the property owner within
45 days of such determination, and (if the delinquency remains uncured) foreclosure proceedings shall be commenced by the Authority within 90 days of such determination. Notwithstanding
the foregoing, the Treasurer may defer such action if the amount in the Reserve Fund is at least equal to the Reserve Requirement. If the Treasurer determines that (i) the total amount
of delinquent Special Tax for the prior Fiscal Year for the entire District, (including the total of delinquencies under subsection (A) above), exceeds 5% of the total Special Tax due
and payable for the prior Fiscal Year, or (ii) there are ten (10) or fewer owners of real property within the District, determined by reference to the latest available secured property
tax roll of the County, the Treasurer shall notify or cause to be notified property owners who who are then delinquent in the payment of Special Taxes (and demand immediate payment of
the delinquency) within 45 days of such determination, and the Authority shall commence foreclosure proceedings within 90 days of such determination against each parcel of land in the
District with a Special Tax delinquency. The Authority will adopt, make, execute and deliver any and all such further resolutions, instruments and assurances as may be reasonably necessary
or proper to carry out the intention or to facilitate the performance of the Fiscal Agent Agreement, and for the better assuring and confirming unto the Owners of the rights and benefits
provided in the Fiscal Agent Agreement. The Authority shall assure that the proceeds of the 2006 Bonds are not so used as to cause the 2006 Bonds to satisfy the private business tests
of section 141 (b) of the Code or the private loan financing test of section 141 (c) of the Code. The Authority shall not take any action or permit or suffer any action to be taken if
the result of the same would be to cause the 2006 Bonds to be "federally guaranteed" within the meaning of Section 149(b) of the Code. The Authority shall take any and all actions necessary
to assure compliance with section 148(f) of the Code, relating to the rebate of excess investment earnings, if any, to the federal government, to the extent that such section is applicable
to the 2006 Bonds. If necessary, the Authority may use amounts in the Reserve Fund, amounts on deposit in the Administrative Expense Fund, and any other funds available to the District,
including amounts advanced by the Authority or the City, in its respective sole discretion, to be repaid by the District as soon as practicable from amounts described in the preceding
clauses, to satisfy its obligations under the Fiscal Agent Agreement. The Treasurer shall take note of any investment of monies under the Fiscal Agent Agreement in excess of the yield
on the 2006 Bonds, and shall take such actions as are necessary to ensure compliance with the Fiscal Agent Agreement, such as increasing the portion of the Special Tax levy for Administration
Expenses as appropriate to have funds available in the Administrative Expense Fund to satisfy any rebate liability under the Fiscal Agent Agreement. The Authority shall not take, or
permit or suffer to be taken by the Fiscal Agent or otherwise, any action with respect to the proceeds of the 2006 Bonds which, if such action had been reasonably expected to have been
taken, or had been deliberately and intentionally taken, E-25
on the date of issuance of the 2006 Bonds would have caused the 2006 Bonds to be "arbitrage bonds" within the meaning of section 148 of the Code. In determining the yield of the 2006
Bonds to comply with the Fiscal Agent Agreement, the Authority will take into account redemption (including premium, if any) in advance of maturity based on the reasonable expectations
of the Authority, as of the Closing Date, regarding prepayments of Special Taxes and use of prepayments for redemption of the Bonds, without regard to whether or not prepayments are
received or 2006 Bonds redeemed. The Authority shall take all actions necessary to assure the exclusion of interest on the 2006 Bonds from the gross income of the Owners of the 2006
Bonds to the same extent as such interest is permitted to be excluded from gross income under the Code as in effect on the date of issuance of the 2006 Bonds. The Authority covenants
and agrees that it will comply with and carry out all of the provisions of the Continuing Disclosure Agreement. Notwithstanding any other provision of the Fiscal Agent Agreement, failure
of the Authority to comply with the Continuing Disclosure Agreement shall not be considered a default under the Fiscal Agent Agreement; however, any Participating Underwriter or any
holder or Beneficial Owner (as defined in the Fiscal Agent Agreement) of the Bonds may take such actions as may be necessary and appropriate to compel performance by the Authority of
its obligations thereunder, including seeking mandate or specific performance by court order. One or more owners of real property in the District as of the Closing Date have also executed
continuing disclosure agreements for the benefit of the holders and beneficial owners of the Bonds. Any Participating Underwriter or holder or beneficial owner may take such actions
as may be necessary and appropriate directly against any such landowner to compel performance by it of its obligations thereunder, including seeking mandate or specific performance by
court order; however the the Authority shall have no obligation whatsoever to enforce any obligations under any such agreement. The Authority covenants and agrees to not consent or conduct
proceedings with respect to a reduction in the maximum Special Taxes that may be levied in the District below an amount, for any Fiscal Year, equal to 110% of the aggregate of the Debt
Service due on the Bonds in such Fiscal Year, plus a reasonable estimate of Administrative Expenses for such Fiscal Year. It is hereby acknowledged that Bondowners are purchasing the
Bonds in reliance on the foregoing covenant, and that said covenant is necessary to assure the full and timely payment of the Bonds. The Authority covenants not to exercise its rights
under the Act to waive delinquency and redemption penalties related to the Special Taxes or to declare Special Tax penalties amnesty program if to do so would materially and adversely
affect the interests of the owners of the Bonds and further covenants 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 Authority having insufficient Special Tax revenues to pay the principal of and interest on the Bonds remaining
Outstanding following such tender. E-26
Investments Moneys in any fund or account created or established by the Fiscal Agent Agreement and held by the Fiscal Agent is required to 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 to the extent reasonably practicable, any such moneys in the Permitted Investments described in clause (g) of the definition
thereof in the Fiscal Agent Agreement, which by their terms mature prior to the date on which such moneys are required to be paid out thereunder. The Treasurer shall make note of any
investment of funds thereunder in excess of the yield on the Bonds, so that appropriate actions can be taken to assure compliance with the Fiscal Agent Agreement. Moneys in any fund
or account created or established by Fiscal Agent Agreement and held by the Treasurer will be invested by the Treasurer in any Permitted Investment, which in any event by their terms
mature prior to the date on which such moneys are required to be paid out under the Fiscal Agent Agreement. Obligations purchased as an investment of moneys in any fund shall be deemed
to be part of such fund or account, subject, however, to the requirements of the Fiscal Agent Agreement for transfer of interest earnings and profits resulting from investment of amounts
in funds and accounts. Whenever in the Fiscal Agent Agreement any moneys are required to be transferred by the Authority to the Fiscal Agent, such transfer may be accomplished by transferring
a like amount of Permitted Investments. The Fiscal Agent and its affiliates or the Treasurer may act as sponsor, advisor, depository, principal or agent in the acquisition or disposition
of any investment. Neither the Fiscal Agent nor the Treasurer shall incur any liability for losses arising from any investments made pursuant to the Fiscal Agent Agreement. The Fiscal
Agent will not be required to determine the legality of any investments. Except as otherwise provided in the next sentence, all investments of amounts deposited in any fund or account
created by or pursuant to the Fiscal Agent Agreement, or otherwise containing gross proceeds of the Bonds (within the meaning of Section 148 of the Code) shall be acquired, disposed
of, and valued (as of the date that valuation is required by the Fiscal Agent Agreement or the Code) at Fair Market Value. The Fiscal Agent shall have no duty in connection with the
determination of Fair Market Value other than to follow the investment direction of an Authorized Officer in any written direction of any Authorized Officer. Investments in funds or
accounts (or portions thereof) that are subject to a yield restriction under the applicable provisions of the Code and (unless valuation is undertaken at least annually) investments
in the subaccounts within the Reserve Fund shall be valued at their present value (within the meaning of section 148 of the Code). The Fiscal Agent shall not be liable for verification
of the application of such sections of the Code. Investments in any and all funds and accounts may be commingled in a separate fund or funds 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 or the
Treasurer, provided that the Fiscal Agent or the Treasurer, as applicable, 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 Fiscal Agent Agreement. The Fiscal Agent or the Treasurer, as applicable, shall sell at E-27
Fair Market Value, 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 neither the Fiscal Agent nor the Treasurer shall be liable or responsible for any loss resulting from the acquisition
or disposition of such investment security in accordance with the Fiscal Agent Agreement. Liability of Authority The Authority shall not incur any responsibility in respect of the Bonds
or the Fiscal Agent Agreement other than in connection with the duties or obligations explicitly therein or in the Bonds assigned to or imposed upon it. The Authority shall not be liable
in connection with the performance of its duties under the Fiscal Agent Agreement, except for its own negligence or willful default. The Authority 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 in the Fiscal Agent Agreement or of any of the documents executed
by the Fiscal Agent in connection with the Bonds, or as to the existence of a default or event of default thereunder. In the absence of bad faith, the Authority, including the Treasurer,
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 Authority and conforming
to the requirements of the Fiscal Agent Agreement. The Authority, including the Treasurer, 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 Fiscal Agent Agreement shall require the Authority 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 under the Fiscal Agent Agreement, or in the exercise
of any any 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 Authority and the Treasurer 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 Authority may consult with
counsel, who may be the Authority Attorney, 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 under the Fiscal Agent Agreement in good faith and in accordance therewith. The Authority shall not be bound to recognize any person as the Owner of a
Bond unless and until such Bond is submitted for inspection, if required, and his title thereto satisfactory established, if disputed. Whenever in the administration of its duties under
the Fiscal Agent Agreement the Authority or the Treasurer shall deem it necessary or desirable that a matter be proved or established prior to taking or suffering any action under the
Fiscal Agent Agreement, such matter (unless other evidence in respect thereof be herein specifically prescribed) may, in the E-28
absence of willful misconduct on the part of the Authority, be deemed to be conclusively proved and established by a certificate of the Fiscal Agent, an Appraiser, an Independent Financial
Consultant or a Tax Consultant, and such certificate shall be full warrant to the Authority and the Treasurer for any action taken or suffered under the provisions of the Fiscal Agent
Agreement or any Supplemental Agreement upon the faith thereof, but in its discretion the Authority or the Treasurer may, in lieu thereof, accept other evidence of such matter or may
require such additional evidence as to it may seem reasonable. In order to perform its duties and obligations under the Fiscal Agent Agreement, the Authority and/or the Treasurer may
employ such persons or entities as it deems necessary or advisable. The Authority shall not be liable for any of the acts or omissions of such persons or entities employed by it in good
faith under the Fiscal Agent Agreement, 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 The Fiscal Agent undertakes to perform such duties, and only such duties, as are specifically set forth in the Fiscal Agent Agreement, and no implied
covenants or obligations shall be read into the Fiscal Agent 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, shall be the successor to such Fiscal Agent without the execution
or filing of any paper or any further act, anything therein to the contrary notwithstanding. The Authority may at any time 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, corporation or trust company having a combined capital (exclusive of borrowed capital)
and surplus of at least Fifty Million Dollars ($50,000,000), and be subject to supervision or examination by federal or state authority. If such bank, corporation 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 Fiscal Agent
Agreement, 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 Authority and by giving to the Owners notice by mail of such resignation. Upon receiving notice of such resignation,
the Authority 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 within forty-five (45) days after the Fiscal Agent shall have given to the Authority 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 or any Owner may apply to any court of competent jurisdiction
to appoint a successor Fiscal E-29
Agent. Said court may thereupon, after such notice, if any, as such court may deem proper, appoint a successor Fiscal Agent. If, by reason of the judgment of any court, or reasonable
agency, the Fiscal Agent is rendered unable to perform its duties under the Fiscal Agent Agreement, all such duties and all of the rights and powers of the Fiscal Agent thereunder shall
be assumed by and vest in the Treasurer of the Authority in trust for the benefit of the Owners. The Authority covenants for the direct benefit of the Owners that its Treasurer in such
case shall be vested with all of the rights and powers of the Fiscal Agent under the Fiscal Agent Agreement, and shall assume all of the responsibilities and perform all of the duties
of the Fiscal Agent thereunder, in trust for the benefit of the Owners of the Bonds. In such event, the Treasurer may designate a successor Fiscal Agent qualified to act as Fiscal Agent
thereunder. The recitals of facts, covenants and agreements in the Fiscal Agent Agreement and in the Bonds contained shall be taken as statements, covenants and agreements of the Authority,
and the Fiscal Agent assumes no responsibility for the correctness of the same, or makes any representations as to the validity or sufficiency of the Fiscal Agent Agreement or of the
Bonds, or shall incur any responsibility in respect thereof, other than in connection with the duties or obligations in the Fiscal Agent Agreement 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 under the Fiscal Agent Agreement, except for its own negligence or willful default. 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 upon certificates or opinions furnished to the Fiscal Agent and conforming to the requirements of the Fiscal Agent Agreement; but in the case of any such certificates or opinions
by which any provision of the Fiscal Agent Agreement are specifically required to be furnished to the Fiscal Agent, the Fiscal Agent shall be under a duty to examine the same to determine
whether or not they conform to the requirements of the Fiscal Agent Agreement. Except as provided above in this paragraph, 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 Fiscal Agent 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 Fiscal Agent 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 unless it shall be proved that the Fiscal Agent was negligent in ascertaining the pertinent facts. No provision of the Fiscal
Agent 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 be under no obligation to exercise any of the rights or powers vested in it by the Fiscal Agent Agreement at the request
or direction of any of the Owners E-30
pursuant to the Fiscal Agent 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.
The Fiscal Agent shall have no duty or obligation whatsoever to enforce the collection of Special Taxes or other funds to be deposited with it under the Fiscal Agent Agreement, or as
to the correctness of any amounts received, and its liability shall be limited to the proper accounting for such funds as it shall actually receive. In order to perform its duties and
obligations under the Fiscal Agent Agreement, the Fiscal Agent may employ such persons or entities as it deems necessary or advisable. The Fiscal Agent 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 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 in good faith 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 Authority, 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 under the Fiscal Agent Agreement in good faith and in accordance therewith. The Fiscal Agent shall not be
bound to recognize any person as the Owner of a Bond unless and until such Bond is submitted for inspection, if required, and his title thereto satisfactorily established, if disputed.
Whenever in in the administration of its duties under the Fiscal Agent Agreement the Fiscal Agent shall deem it necessary or desirable that a matter be proved or established prior to
taking or suffering any action under the Fiscal Agent Agreement, such matter (unless other evidence in respect thereof be in the Fiscal Agent Agreement specifically prescribed) may,
in the absence of willful misconduct on the part of the Fiscal Agent, be deemed to be conclusively proved and established by an Officer's Certificate, and such certificate shall be full
warrant to the Fiscal Agent for any action taken or suffered under the provisions of the Fiscal Agent 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. Amendment of the Fiscal Agent Agreement
The Fiscal Agent Agreement and the rights and obligations of the Authority and of the Owners of the Bonds may may be modified or amended at any time by a Supplemental Agreement pursuant
to the affirmative vote at a meeting of Owners, or with 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 Fiscal Agent E-31
Agreement. No such modification or amendment shall (i) extend the maturity of any Bond or reduce the interest rate thereon, or otherwise alter or impair the obligation of the Authority
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 by the Authority of any pledge
or lien upon the Special Taxes superior to or on a parity with the pledge and lien created for the benefit of the Owners of the Bonds (except as otherwise permitted by the Act, the laws
of the State of California or the Fiscal Agent Agreement), or (iii) reduce the percentage of Bonds required for the amendment of the Fiscal Agent Agreement. Any such amendment may not
modify any of the rights or obligations of the Fiscal Agent without its written consent. The Fiscal Agent Agreement and the rights and obligations of the Authority and of the Owners
may also be modified or amended at any time by a Supplemental Agreement, without the consent of any any Owners, only to the extent permitted by law and only for any one or more of the
following purposes: (A) to add to the covenants and agreements of the Authority in the Fiscal Agent Agreement contained, other covenants and agreements thereafter to be observed, or
to limit or surrender any right or power in the Fiscal Agent Agreement reserved to or conferred upon the Authority; (B) to make modifications not adversely affecting any outstanding
series of Bonds of the Authority in any material respect; (C) to make such provisions for the purpose of curing any ambiguity, or of curing, correcting or supplementing any defective
provision contained in the Fiscal Agent Agreement, or in regard to questions arising under the Fiscal Agent Agreement, as the Authority or the Fiscal Agent may deem necessary or desirable
and not inconsistent with the Fiscal Agent Agreement, and which shall not adversely affect the rights of the Owners of the Bonds; (D) to make such additions, deletions or modifications
as may be necessary or desirable to assure exemption from gross federal income taxation of interest on the Bonds; and (E) in connection with the issuance of Parity Bonds under and pursuant
to the Fiscal Agent Agreement. Discharge of the Fiscal Agent Agreement The Authority shall have the option to pay and discharge the entire indebtedness on all or any portion of the Bonds
Outstanding 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 Outstanding, as
and when the same become due and payable; (B) by depositing with the Fiscal Agent, in trust, at or before maturity, money which, together with the amounts then on deposit in the funds
and accounts therein as E-32
provided in the Fiscal Agent Agreement is fully sufficient to pay such Bonds Outstanding, including all principal, interest and redemption premiums; or (C) by irrevocably depositing
with the Fiscal Agent, in trust, cash and Federal Securities in such amount as the Authority shall determine as confirmed by Bond Counsel or an independent certified public accountant
will, together with the interest to accrue thereon and moneys then on deposit in the funds and accounts therein as provided in the Fiscal Agent Agreement, be fully sufficient to pay
and discharge the indebtedness on such Bonds (including all principal, interest and redemption premiums) at or before their respective maturity dates. If the Authority shall have taken
any of the actions specified in (A), (B) or (C) above, and if such Bonds are to be redeemed prior to the maturity thereof notice of such redemption shall have been given as in the Fiscal
Agent 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 Authority, and notwithstanding
that any Bonds shall not have been surrendered for payment, the pledge of the Special Taxes and other funds provided for in the Fiscal Agent Agreement and all other obligations of the
Authority under the Fiscal Agent Agreement with respect to such Bonds Outstanding shall cease and terminate. Notice of such election shall be filed with the Fiscal Agent. Notwithstanding
the foregoing, the obligation of the Authority to pay or cause to be paid to the Owners of the Bonds not so surrendered and paid all sums due thereon, all amounts owing to the Fiscal
Agent pursuant to the Fiscal Agent Agreement, and otherwise to assure that no action is taken or failed to be taken if such action or failure adversely affects the exclusion of interest
on the Bonds from gross income for federal income tax purposes, shall continue in any event. Upon compliance by the Authority with the foregoing with respect to all Bonds Outstanding,
any funds held by the Fiscal Agent after payment of all fees and expenses of the Fiscal Agent, which are not required for the purposes of the preceding paragraph, shall be paid over
to the Authority and any Special Taxes thereafter received by the Authority shall not be remitted to the Fiscal Agent but shall be retained by the Authority to be used for any purpose
permitted under the Act. E-33
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APPENDIX F FORM OF AUTHORITY CONTINUING DISCLOSURE AGREEMENT This CONTINUING DISCLOSURE AGREEMENT (the "Disclosure Agreement") is executed and entered into as of March 1, 2006, by and
between U.S. Bank National Association, a national banking association organized and existing under and by virtue of the laws of the United States of America (the "Bank"), in its capacity
as Dissemination Agent (the "Dissemination Agent") and in its capacity as Fiscal Agent (the "Fiscal Agent"), and the Temecula Public Financing Authority, a joint exercise of powers authority
organized and existing under and by virtue of the Constitution and of the laws of the State of California (the "Authority"), for and on behalf of the Temecula Public Financing Authority
Community Facilities District No. 03-02 (the "District"); WITNESSETH: WHEREAS, pursuant to the Fiscal Agent Agreement, dated as of March 1,2006 (the "Fiscal Agent Agreement"), by and
between the Authority, for and on behalf of the District, and the Fiscal Agent, the Authority has issued its 2006 Special Tax Bonds in the aggregate principal amount of $51,250,000 (the
"2006 Bonds"); and WHEREAS, this Disclosure Agreement is being executed and delivered by the Authority and the Fiscal Agent for the benefit of the owners and beneficial owners of the
2006 Bonds and in order to assist the underwriter of the 2006 Bonds in complying with Securities and Exchange Commission Rule 15c2-12(b)(5); NOW, THEREFORE, for and in consideration
of the mutual premises and covenants herein contained, the parties hereto agree as follows: Section 1. Definitions. Capitalized undefined terms used herein shall have the meanings ascribed
thereto in the Fiscal Agent Agreement. In addition, the following capitalized terms shall have the following meanings: "Annual Report" shall mean any Annual Report provided by the Authority
pursuant to, and described in, Sections 2 and 3 of this Disclosure Agreement. "Annual Report Date" shall mean the date in each year that is eight months after the end of the Authority's
fiscal year, which date, as of the date of this Disclosure Agreement, is March 1. "Disclosure Representative" shall mean the Finance Director of the City of Temecula, as Treasurer of
the Authority, or his or her designee, or such other office or employee as the Authority shall designate in writing to the Fiscal Agent from time to time. "Dissemination Agent" shall
mean U.S. Bank National Association, acting in its capacity as Dissemination Agent hereunder, or any successor Dissemination Agent designated in writing by the Authority and which has
filed with the Fiscal Agent a written acceptance of such designation. "Listed Events" shall mean any of the events listed in Section 4(a) of this Disclosure Agreement. F-l
"National Repository" shall mean any Nationally Recognized Municipal Securities Information Repository for purposes of the Rule. Information on the National Repositories as of a particular
date is available on the Internet atwww.sec.gov/info/municipal/nrmsir.htm. "Official Statement" shall mean the Official Statement, dated April 13, 2006, relating to the 2006 Bonds. "Participating
Underwriter" shall mean Stone & Youngberg LLC. "Repository" shall mean each National Repository and each State Repository. "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. "State Repository" shall mean any public or private repository or entity
designated by the State of California as a state repository for the purpose of the Rule and recognized as such by the Securities and Exchange Commission. As of the date of this Disclosure
Agreement, there is no State Repository. Section 2. Provision of Annual Reports. (a) The Authority shall, or, upon furnishing the Annual Report to the Dissemination Agent, shall cause
the Dissemination Agent to, provide to each Repository, to the Fiscal Agent and to the Participating Underwriter an Annual Report which is consistent with the requirements of Section
3 of the Disclosure Agreement, not later than the Annual Report Date, commencing with the report for the 2005-06 fiscal year. The Annual Report may be submitted as a single document
or as separate documents comprising a package, and may include by reference other information as provided in Section 3 of this Disclosure Agreement;provided, however, that the audited
financial statements of the Authority, if any, may be submitted separately from the balance of the Annual Report, and later than the date required above for the filing of the Annual
Report if not available by that date. If the Authority's fiscal year changes, it shall give notice of such change in the same manner as for a Listed Event under Section 4(f). The Annual
Annual Report may be provided in electronic format to each Repository and the Participating Underwriter, and may be provided through the services of a "central post office" approvedby
the Securities and Exchange Commission. For example, any filings under this Continuing Disclosure Agreement may be made solely by transmitting such filing to the Texas Municipal Advisory
Council (the "MAC") as provided at http:www.disclosureusa.org unless the United States Securities and Exchange Commission has withdrawn the interpretive advice in its letter to the MAC
dated September 7, 2004. (b) Not later than fifteen (15) Business Days prior to the date specified in subsection (a) for providing the Annual Report to Repositories, the Authority shall
provide the Annual Report (in a form suitable for reporting to the Repositories) to the Dissemination Agent, the Fiscal Agent (if the Fiscal Agent is not the Dissemination Agent) and
the Participating Underwriter. If by such date, the Fiscal Agent has not received a copy of the Annual Report, the Fiscal Agent shall contact the Disclosure Representative and the Dissemination
Agent to inquire if the Authority is in compliance with the first sentence of this subsection (b). The Authority 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 F-2
required to be furnished by it hereunder. The Dissemination Agent may conclusively rely upon such certification of the Authority and shall have no duty or obligation to review such Annual
Report. (c) If the Fiscal Agent is unable to verify that an Annual Report has been provided to Repositories by the date required in subsection (a), the Fiscal Agent shall send a notice
to the Repositories and the appropriate State Repository, if any, in substantially the form attached as Exhibit A. (d) The Dissemination Agent shall: (i) determine each year prior to
the date for providing the Annual Report the name and address of each National Repository and each State Repository, if any; and (ii) file a report with the Authority, the Participating
Underwriter and (if the Dissemination Agent is not the Fiscal Agent) the Fiscal Agent certifying that the Annual Report has been provided pursuant to this Disclosure Agreement, stating
the date it was provided and listing all the Repositories to which it was provided. Section 3. Content of Annual Reports. The Authority's Annual Report shall contain or incorporate by
reference the following: (a) The Authority's audited financial statements, if any, prepared in accordance with generally accepted accounting principles as promulgated to apply to government
entities from time to time by the Governmental Accounting Standards Board. If the Authority's audited financial statements, if any, are not available by the time the Annual Report is
required to be filed pursuant to Section 2(a), the Annual Report shall contain unaudited financial statements in a format similar to that used for the Authority's audited financial statements,
and the audited financial statements, if any, shall be filed in the same manner as the Annual Report when they become available. If the Authority's audited financial statements, if any,
orunaudited financial statements are already filed, the Annual Report may reference that such financial statements are on file with the Repositories. (b) The following information: (i)
The principal amount of 2006 Bonds and parity bonds, if any, outstanding as of September 30 next preceding the date of the Annual Report Date; (ii) The balance in the Reserve Fund, if
any, and a statement of the Reserve Requirement as of the September 30 next preceding the Annual Report Date and the balance in the other funds and accounts held under the Fiscal Agent
Agreement; (iii) Information regarding the amount of the annual special taxes levied in the District by the Rate and Method of Apportionment of Special Tax land use categories, the names
of the owners of property responsible for more than 5% of the Special Tax levy and the amount of Special Tax owed, as shown on such assessment roll of the Riverside County Assessor last
equalized prior to the September 30 next preceding the Annual Report Date; F-3
(iv) The total assessed value of all parcels within the District on which the Special Taxes are levied, as shown on the assessment roll of the Riverside County Assessor last equalized
prior to the September 30 next preceding the Annual Report Date, and a statement of assessed value for the property in the District by Rate and Method of Apportionment of Special Tax
land use categories; (v) The Special Tax delinquency rate for all parcels within the District on which the Special Taxes are levied, as shown on the assessment roll of the Riverside
County Assessor last equalized prior to the September 30 next preceding the Annual Report Date, the number of parcels within the District on which the Special Taxes are levied and which
are delinquent inpayment of Special Taxes based on parcels, as shown on the assessment roll on the Riverside County Assessor last equalized prior to the September 30 next preceding the
Annual Report Date, meamount of each delinquency, the length of time delinquent and the date on which foreclosure was commenced, or similar information pertaining to delinquencies deemed
appropriate by the Distncl;provided, however, that parcels with aggregate delinquencies of $5,000 or less (excluding penalties and interest) maybe grouped together and such information
may be provided by category. (vi) The status of foreclosure proceedings for any parcels within the District on which the Special Taxes are levied and a summary of the results of any
foreclosure sales as of the September 30 next preceding the Annual Report Date; (vii) The identity of any property owner representing more than five percent (5%) of the annual Special
Tax levy who is delinquent in payment of such Special Taxes, as shown on such assessment roll of the Riverside County Assessor last equalized prior to the September 30 next preceding
the Annual Report Date; (viii) A summary of (a) zoning changes, if any, approved by the City of Temecula (the "City") for property subject to the Special Tax in the District and (b)
building permits issued by the City for property subject to the Special Tax in the District; and (ix) If the Authority or the City establishes a community facilities district overlapping
all or a portion of the District, the principal amount of bonds authorized for such community facilities district, the percentage of such bonds supported by special taxes on property
within the District, and the amount of bonds issued by such community facilities district. (c) hi addition to any of the information expressly required to be provided under paragraphs
(a) and(b) of this Section, the Authority shall provide such further information, if any, as may be necessary to make the required statements, in the light of the circumstances under
which they are made, not misleading. F-4
Any or all of the items listed above may be included by specific reference to other documents, including official statements of debt issues of the Authority or related public entities,
which have been submitted to each of the Repositories or the Securities and Exchange Commission. If the document included by reference is a final official statement, it must be available
from the Municipal Securities Rulemaking Board. The District shall clearly identify each such other document so included by reference. A form of information cover sheet for municipal
secondary market disclosure recommended by the Municipal Securities Rulemaking Board is attached as Exhibit B. Section 4. Reporting of Significant Events. (a) Pursuant to the provisions
of this Section 4, the Authority shall give, or cause to be given, notice of the occurrence of any of the following events with respect to the 2006 Bonds, if material: (i) Principal
and interest payment delinquencies; (ii) Non-payment related defaults; (iii) Unscheduled draws on debt service reserves reflecting financial difficulties; (iv) Unscheduled draws on credit
enhancements reflecting financial difficulties; (v) Substitution of credit or liquidity providers, or their failure to perform; (vi) Adverse tax opinions or events affecting the tax-exempt
status of the security; (vii) Modifications to rights of security holders; (viii) Contingent or unscheduled bond calls; (ix) Defeasances; (x) Release, substitution, or sale of property
securing repayment of the securities; (xi) Rating changes; and (xii) Receipt by the Authority of notice that a credit on liquidity facility will not be renewed, replaced or extended.
(b) The Fiscal Agent shall, within five (5) business days of obtaining actual knowledge of the occurrence of any of the Listed Events, contact the Disclosure Representative, inform such
person of the event, and request that the Authority promptly notify the Dissemination Agent in writing whether or not to report the event pursuant to subsection (f), provided, however,
that the Dissemination Agent shall have F-5
no liability to Bond Owners for any failure to provide such notice. For purposes of this Disclosure Agreement, "actual knowledge" of the occurrence of the Listed Events described under
clauses (ii), (iii), (vi), (x) and (xi) above shall mean actual knowledge by an officer at the corporate trust office of the Fiscal Agent. The Fiscal Agent shall have no responsibility
for determining the materiality of any of the Listed Events. (c) Whenever the Authority obtains knowledge of the occurrence of a Listed Event, whether because of a notice from the Fiscal
Agent pursuant to subsection (b) or otherwise, the Authority shall as soon as possible determine if such event would be material under applicable federal securities law. (d) If the Authority
determines that knowledge of the occurrence of a Listed Event would be material under applicable federal securities law, the Authority shall promptly notify the Dissemination Agent in
writing. Such notice shall instruct the Dissemination Agent to report the occurrence pursuant to subsection (f). The Authority shall provide the Dissemination Agent with a form of notice
of such event in a format suitable for reporting to the Municipal Securities Rulemaking Board and each State Repository, if any. (e) If in response to a request under subsection (b),
the Authority determines that the Listed Event would not be material under applicable federal securities law, the Authority shall so notify the Dissemination Agent in writing and instruct
the Dissemination Agent not to report the occurrence pursuant to subsection (f).(f) If the Dissemination Agent has been instructed by the Authority to report the occurrence of a Listed
Event, the Dissemination Agent shall file a notice of such occurrence with each Repository or the Municipal Securities Rulemaking Board and each State Repository and shall provide a
copy of such notice to the Participating Underwriter. Notwithstanding the foregoing, notice of Listed Events described in subsections (a)(viii) and (ix) need not be given under this
subsection any earlier than the notice (if any) of the underlying event is given to owners of affected 2006 Bonds pursuant to the Fiscal Agent Agreement. Sections. Termination of Reporting
Obligation. All of the Authority's obligations under this Disclosure Agreement shall terminate upon the earliest to occur of (i) the legal defeasance of the 2006 Bonds, (ii) prior redemption
of the 2006 Bonds or (iii) payment in full of all the 2006 Bonds. If such determination occurs prior to the final maturity of the 2006 Bonds, the Authority shall give notice of such
termination in the same manner as for a Listed Event under Section 4(f). Section 6. Dissemination Agent. The Authority may, from time to time, appoint or engage a Dissemination Agent
to assist in carrying out its obligations under this Disclosure Agreement, and may discharge any such Dissemination Agent, with or without appointing a successor Dissemination Agent.
The initial Dissemination Agent shall be U.S. Bank National Association. The Dissemination Agent may resign by providing forty-five (45) days' written notice to the Authority and the
Fiscal Agent (if the Fiscal Agent is not the Dissemination Agent). The Dissemination Agent shall have no duty to prepare the Annual Report nor shall the Dissemination Agent be responsible
for filing any Annual Report not provided to it by the Authority in a timely manner and in a form suitable for filing. If at any time there is not any other designated Dissemination
Agent, the Fiscal Agent shall be the Dissemination Agent. Section 7. Amendment: Waiver. Notwithstanding any other provision of this Disclosure Agreement, the Authority, the Fiscal Agent
and the Dissemination Agent may amend this Disclosure Agreement (and the Fiscal Agent and the Dissemination Agent shall agree to any amendment so requested by the Authority, so long
as such amendment does not adversely affect the rights or obligations of the Fiscal F-6
Agent or the Dissemination Agent), and any provision of this Disclosure Agreement may be waived, provided that the following conditions are satisfied: (a) if the amendment or waiver
relates to the provisions of Sections 2(a), 3 or 4(a), it may only be made in connection with a change in circumstances that arises from a change in legal requirements, change in law,
or change in the identity, nature, or status of an obligated person with respect to the 2006 Bonds, or type of business conducted; (b) the undertakings herein, as proposed to be amended
or waived, would, in the opinion of nationally recognized bond counsel, have complied with the requirements of the Rule at the time of the primary offering of the 2006 Bonds, after taking
into account any amendments or interpretations of the Rule, as well as any change in circumstances; and (c) the proposed amendment or waiver either (i) is approved by owners of a maj
ority of the owners of the 2006 Bonds affected thereby in the manner provided in the Fiscal Agent Agreement for amendments to the Fiscal Agent Agreement with the consent of owners, or
(ii) does not, in the opinion of nationally recognized bond counsel, materially impair the interests of the owners or beneficial owners of the 2006 Bonds. If the annual financial information
or operating data to be provided in the
Annual Report is amended pursuant to the provisions hereof, the first annual financial information containing the amended operating data or financial information shall explain, in narrative
form, the reasons for the amendment and the impact of the change in the type of operating data or financial information being provided. If an amendment is made to the undertaking specifying
the accounting principles to be followed in preparing financial statements, the annual financial information for the year in which the change is made shall present a comparison between
the financial statements or information prepared on the basis of the new accounting principles and those prepared on the basis of the former accounting principles. The comparison shall
include a qualitative discussion of the differences in the accounting principles and the impact of the change in the accounting principles on the presentation of the financial information
in order to provide information to investors to enable them to evaluate the ability of the Authority to meet its obligations, including its obligation to pay debt service on the 2006
Bonds. To the extent reasonably feasible, the comparison shall be quantitative. A notice of the change in the accounting principles shall be sent to the Repositories in the same manner
as for a Listed Event under Section 4(f). Section 8. Additional Information. Nothing in this Disclosure Agreement shall be deemed to prevent the Authority 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 that which is required by this Disclosure Agreement. If the Authority 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 Authority shall have no obligation under this Disclosure Agreement
to update such information or include it in any future Annual Report or notice of occurrence of a Listed Event. Section 9. Default. In the event of a failure of the Authority, the Dissemination
Agent or the Fiscal Agent to comply with any provision of this Disclosure Agreement, the Fiscal Agent may (and, at the written direction of any Participating Underwriter or the owners
of at least 25% aggregate principal amount of Outstanding Bonds, shall, upon receipt of indemnification reasonably satisfactory to the Fiscal Agent), or F-7
any owner or beneficial owner of the 2006 Bonds may, take such actions as may be necessary and appropriate, including seeking mandate or specific performance by court order, to cause
the Authority, the Dissemination Agent or the Fiscal Agent, as the case may be, to comply with its obligations under this Disclosure Agreement. A default under this Disclosure Agreement
shall not be deemed an Event of Default under the Fiscal Agent Agreement, and the sole remedy under this Disclosure Agreement in the event of any failure of the Authority, the Dissemination
Agent or the Fiscal Agent to comply with this Disclosure Agreement shall be an action to compel performance. Section 10. Duties. Immunities and Liabilities of Fiscal Agent and Dissemination
Agent. Section 7.01 and Section 7.02 of the Fiscal Agent Agreement are hereby made applicable to this Disclosure Agreement as if this Disclosure Agreement were (solely for this purpose)
contained in the Fiscal Agent Agreement, and the Fiscal Agent and the Dissemination Agent shall be entitled to the protections, limitations from liability and indemnities afforded to
the Fiscal Agent thereunder. The Dissemination Agent and the Fiscal Agent shall have only such duties hereunder as are specifically set forth in this Disclosure Agreement. This Disclosure
Agreement does not apply to any other securities issued or to be issued by the Authority. The Dissemination Agent shall have no obligation to make any disclosure concerning the 2006
Bonds, the Authority or any other matter except as expressly set out herein, provided that no provision of this Disclosure Agreement shall limit the duties or obligations of the Fiscal
Agent under the Fiscal Agent Agreement. The Dissemination Agent shall have no responsibility for the preparation, review, form or content of any Annual Report or any notice of a Listed
Event. The fact that the Fiscal Agent has or may have any banking, fiduciary or other relationship with the District or any other party, apart from the relationship created by the Fiscal
Agent Agreement and this Disclosure Agreement, shall not be construed to mean that the Fiscal Agent has knowledge or notice of any event or condition relating to the 2006 Bonds or the
District except in its respective capacities under such agreements. No provision of this Disclosure Agreement shall require or be construed to require the Dissemination Agent to interpret
or provide an opinion concerning any information disclosed hereunder. Information disclosed hereunder by the Dissemination Agent may contain such disclaimer language concerning the Dissemination
Agent's responsibilities hereunder with respect thereto as the Dissemination Agent may deem appropriate. The Dissemination Agent may conclusively rely on the determination of the District
as to the materiality of any event for purposes of Section 4 hereof. Neither the Fiscal Agent nor the Dissemination Agent make any representation as to the sufficiency of this Disclosure
Agreement for purposes of the Rule. The Dissemination Agent shall be paid compensation by the District for its services provided hereunder in accordance with its schedule of fees, as
amended from time to time, and all expenses, legal fees and advances made or incurred by the Dissemination in the performance of its duties hereunder. The District's obligations under
this Section 10 shall survive the termination of this Disclosure Agreement. Section 11. Beneficiaries. The Participating Underwriter and the owners and beneficial owners from time to
time of the 2006 Bonds shall be third party beneficiaries under this Disclosure Agreement. This Disclosure Agreement shall inure solely to the benefit of the District, the Fiscal Agent,
the Dissemination Agent, the Participating Underwriter and owners and beneficial owners from time to time of the 2006 Bonds, and shall create no rights in any other person or entity.
Section 12. Notices. Any notice or communications herein required or permitted to be given to the Authority, the Fiscal Agent or the Dissemination Agent shall be in writing and shall
be be deemed to have been sufficiently given or served for all purposes by being delivered or sent by telecopy or by being deposited, F-8
postage prepaid, in a post office letter box, to the addresses set forth below, or to such other address as may be provided to the other parties hereinafter listed in writing from time
to time, namely: If to the Authority: If to the Community Facilities District: If to the Dissemination Agent: If to the Fiscal Agent: If to the Participating Underwriter: Temecula Public
Financing Authority 43200 Business Park Drive Temecula, California 92590 Attention: Director of Finance Telephone: 951/694-6430 Telecopier: 951/694-6479 Community Facilities District
No. 03-02 (Roripaugh Ranch) 43200 Business Park Drive Temecula, California 92590 Attention: Director of Finance Telephone: 951/694-6430 Telecopier: 951/694-6479 U.S. Bank National Association
633 West Fifth Street, 24th Floor LM-CA-T24T Los Angeles, California 90071 Telephone: 213/615-6030 Telecopier: 213/615-6199 U.S. Bank National Association 633 West Fifth Street, 24th
Floor LM-CA-T24T Los Angeles, California 90071 Telephone: 213/615-6030 Telecopier: 213/615-6199 Stone & Youngberg LLC One Ferry Building San Francisco, California 94111 Telephone: 415/445-2300
Attention: Municipal Research Department Section 13. Future Determination of Obligated Persons. In the event the Securities Exchange Commission amends, clarifies or supplements the Rule
in such a manner that requires any landowner within the Authority to be an obligated person as defined in the Rule, nothing contained herein shall be construed to require the Authority
to meet the continuing disclosure requirements of the Rule with respect to such obligated person and nothing in this Disclosure Agreement shall be deemed to obligate the Authority to
disclose information concerning any owner of land within the Authority except as required as part of the information required to be disclosed by the Authority pursuant to Section 4 and
Section 5 hereof. F-9
Section 14. Severability. In case any one or more of the provisions contained herein shall for any reason be held to be invalid, illegal or unenforceable in any respect, such invalidity,
illegality or unenforceability shall not affect any other provision hereof. Section 15. State of California Law Governs. The validity, interpretation and performance of this Purchase
Agreement shall be governed by the laws of the State of California. Section 16. Counterparts. This Disclosure Agreement may be executed in several counterparts, each of which shall be
an original and all of which shall constitute but one and the same instrument. Section 17. Merger. Any person succeeding to all or substantially all of the Dissemination Agent's corporate
trust business shall be the successor Dissemination Agent without the filing of any paper or any further act. F-10
IN WITNESS WHEREOF, the parties hereto have executed this Disclosure Agreement as of the date first above written. TEMECULA PUBLIC FINANCING AUTHORITY, FOR AND ON BEHALF OF TEMECULA
PUBLIC FINANCING AUTHORITY COMMUNITY FACILITIES DISTRICT NO. 03-02 (RORIPAUGH RANCH) By: Authorized Officer U.S. BANK NATIONAL ASSOCIATION, as Fiscal Agent By: Authorized Officer U.S.
BANK NATIONAL ASSOCIATION, as Dissemination Agent By: Authorized Officer F-ll
EXHIBIT A NOTICE TO MUNICIPAL SECURITIES RULEMAKING BOARD OF FAILURE TO FILE ANNUAL REPORT Name of Issuer: Temecula Public Financing Authority, for and on behalf of Temecula Public FinancingAuthority
Community Facilities District No. 03-02 (Roripaugh Ranch) Name of Bond Issue: Temecula Public Financing Authority Community Facilities District No. 03-02 (Roripaugh Ranch) 2006 Special
Tax Bonds Date of Issuance: April 27, 2006 NOTICE IS HEREBY GIVEN that the Temecula Public Financing Authority (the "Authority") has not provided an Annual Report with respect to the
above-named 2006 Bonds as required by the Continuing Disclosure Agreement, dated as of March 1, 2006, by and between U.S. Bank National Association, in its capacity as Fiscal Agent,
and in its capacity as Dissemination Agent, and the Authority. [The Authority anticipates that the Annual Report will be filed by .] Dated: , U.S. BANK NATIONAL ASSOCIATION, as Fiscal
Agent, on behalf of the Temecula Public Financing Authority Authorized Officer cc: Temecula Public Financing Authority Stone & Youngberg LLC F-12
EXHIBIT B Municipal Secondary Market Disclosure Information Cover Sheet This cover sheet should be sent with all submissions made to the Municipal Securities Rulemaking Board, Nationally
Recognized Municipal Securities Information Repositories, and any applicable State Information Depository, whether the filing is voluntary or made pursuant to Securities and Exchange
Commission Rule 15c2-12 or any analogous state statute. See www.sec.gov/info/municipal/nrmsir.htm for list of current NRMSIRs and SIDs IF THIS FILING RELATES TO A SINGLE BOND ISSUE:
Provide name of bond issue exactly as it appears on the cover of the Official Statement (please include name of state where Issuer is located): $51,250,000 TEMECULA PUBLIC FINANCING
AUTHORITY COMMUNITY FACILITIES DISTRICT NO. 03-02 (RORIPAUGH RANCH) 2006 SPECIAL TAX BONDS Provide nine-digit CUSIP® numbers* if available, to which the information relates: (Maturity)
2007 2008 2009 2010 2011 2012 87972YBV7 87972YBW5 87972YBX3 87972YBY1 87972YBZ8 87972YCA2 (Maturity) 2013 2014 2015 2016 2026 2036 87972YCBO | 87972YCC8 87972YCD6 87972YCE4 87972YCM6
87972YCN4 IF THIS FILING RELATES TO ALL SECURITIES ISSUED BY THE ISSUER OR ALL SECURITIES OF A SPECIFIC CREDIT OR ISSUED UNDER A SINGLE INDENTURE: Issuer's Name (please include name
of state where Issuer is located): Other Obligated Person's Name (if any): (Exactly as it appears on the Official Statement Cover) Provide six-digit CUSIP* number(s)*, if available,
of Issuer: *(Contact CUSIP* 's Municipal Disclosure Assistance Line at 212.438.6518 for assistance with obtaining the proper CUSIP* numbers.) TYPE OF FILING: D Electronic (number of
pages attached) D Paper (number of pages attached) If information is also available on the Internet, give URL: F-13
WHAT TYPE OF INFORMATION ARE YOU PROVIDING? (Check all that apply) A. D Annual Financial Information and Operating Data pursuant to Rule 15c2-12 (Financial information and operating
data should not be filed with the MSRB.) Fiscal Period Covered: B. D Audited Financial Statements or CAFR pursuant to Rule 15c2-12 Fiscal Period Covered: C. D Notice of a Material Event
pursuant to Rule 15c2-12 (Check as appropriate) 1. D Principal and interest payment delinquencies 6. D Adverse tax opinions or events affecting the taxexempt status of the security 2.
D Non-payment related defaults 7. D Modifications to the rights of security holders 3. D Unscheduled draws on debt service reserves reflecting 8. D Bond calls financial difficulties
4. D Unscheduled draws on credit enhancements reflecting 9. D Defeasances financial difficulties 5. D Substitution of credit or liquidity providers, or their 10. D Release, substitution,
or sale of property securing failure to perform repayment of the securities 11. D Rating changes D. D D Notice of Failure to Provide Annual Financial Information as Required E. D Other
Secondary Market Information (Specify): I hereby represent that I am authorized by the Issuer or obligor or its agent to distribute this information publicly: Issuer Contact: Name Title
Employer Address City State Zip Code Telephone Fax Email Address Issuer Web Site Address Dissemination Agent Contact, if any: Name Title Employer Address City State Zip Code_ Telephone
Fax Email Address Relationship to Issuer_ Obligor Contact, if any: Name Title Employer Address Telephone Email Address City State Fax Obligor Web site Address Zip Code Investor Relations
Contact, if any: Name Title Telephone Email Address F-14
APPENDIX G FORM OF DEVELOPER CONTINUING DISCLOSURE AGREEMENT A separate Developer Continuing Disclosure Agreement will be provided by (i)Ashby USA, LLCand (ii) Tanamera/Roripaugh, LLC;
Tanamera/Roripaugh II, LLC and Traditions at Roripaugh, LLC. Continental Residential, Inc., Davidson Roripaugh Ranch 122, LLC and KB Home Coastal, Inc. are not considered a Major Developer
(as defined below) and will not be subject to a Continuing Disclosure Agreement. This DEVELOPER CONTINUING DISCLOSURE AGREEMENT (this "Disclosure Agreement") is executed and entered
into as of March 1,2006, by and betweenU.S. Bank National Association, a national banking association organized and existing under and by virtue of the laws of the United States of America,
as Dissemination Agent (the "Dissemination Agent") and as Fiscal Agent (the "Fiscal Agent"), and [Ashby USA, LLC, a California limited liability company ("Ashby USA, LLC")]/[Tanamera/Roripaugh,
LLC, Tanamera/Roripaugh II, LLC and Traditions at Roripaugh, LLC, each a California limited liability company ("Tanamera/Roripaugh, LLC," "Tanamera/Roripaugh II, LLC" and "Traditions
at Roripaugh, LLC," respectively, and together, the "Tanamera/Roripaugh Entities"). The parties hereto may be referred to in some instances as a party ("Party"); WITNESSETH: WHEREAS,
pursuant to the Fiscal Agent Agreement, dated as of March 1,2006 (the "Fiscal Agent Agreement"), by and between the Temecula Public Financing Authority (the "Authority"), for and on
behalf of the Temecula Public Financing Authority Community Facilities District No. 03-02 (Roripaugh Ranch) (the "District"), and the Fiscal Agent, the Authority has issued its 2006
Special Tax Bonds, in the aggregate principal amount of $51,250,000 (the "2006 Bonds"); WHEREAS, [Ashby USA, LLC]/[Tanamera/Roripaugh Entities] is the owner of property within the District
planned for development with residential, commercial, park, open space and infrastructure uses; and WHEREAS, this Disclosure Agreement is being executed and delivered by [Ashby USA,
LLC]/[the Tanamera/Roripaugh Entities] and the Fiscal Agent for the benefit of the owners and beneficial owners of the 2006 Bonds and in order to assist the underwriter of the 2006 Bonds
in complying with Securities and Exchange Commission Rule 15c2-12(b)(5); NOW, THEREFORE, for and in consideration of the mutual premises and covenants herein contained, the parties hereto
agree as follows: Section 1. Definitions. Capitalized undefined terms used herein shall have the meanings ascribed thereto in the Fiscal Agent Agreement. In addition, the following capitalized
terms shall have the following meanings: "Affiliate" of another Person means (a) a Person directly or indirectly owning, controlling, or holding with power to vote, 15% or more of the
outstanding voting securities of such other Person, (b) any Person 15% or more of whose outstanding voting securities are directly or indirectly owned, controlled, or held with power
to vote, by such other Person, and (c) any Person directly or indirectly controlling, controlled by, or under common control with, such other Person; for purposes hereof, "control" means
the power to exercise a controlling influence over the management or policies of a Person, unless such power is solely the result of an official position with such Person. Notwithstanding
the foregoing, none of the following entities shall be considered to be an "Affiliate" of Ashby USA, LLC: Continental Residential, Inc., Davidson Roripaugh Ranch 122, LLC, Tanamera/Roripaugh,
LLC, Tanamera/Roripaugh II, LLC, Traditions at Roripaugh, LLC and KB Home Coastal Inc. "Assumption Agreement" means an agreement between a Major Developer, or an Affiliate thereof, the
Fiscal Agent and the Dissemination Agent containing terms substantially similar to this Disclosure G-l
Agreement, whereby such Maj or Developer or Affiliate agrees to provide Semi-Annual Reports and notices of significant events with respect to the portion of the Property owned by such
Major Developer and its Affiliates. "Bond Counsel" means an attorney or a firm of attorneys whose experience in matters relatingto the issuance of obligations by the states and their
political subdivisions and the tax-exempt status of the interest thereon is recognized nationally. "Development Plan" means, with respect to a Major Developer, the specific improvements
such Major Developer intends to make, or cause to be made, to such Maj or Developer's Property in order for such Property to enable production units or commercial property within the
Property to be completed and sold to third parties, the time frame in which such improvements are intended to be made and the estimated costs of such improvements; [Ashby USA, LLC's]/[Tanamera/Roripa
ugh Entities'] Development Plan, as of the date hereof, is described in the Official Statement under the caption "PROPERTY OWNERSHIP AND DEVELOPMENT -[Ashby USA, LLC]/[The Tanamera/Roripaugh
Entities]." "Dissemination Agent" means the Fiscal Agent, acting in its capacity as Dissemination Agent hereunder, or any successor Dissemination Agent designated in writing by [Ashby
USA, LLC]/[the Tanamera/Roripaugh Entities] and which has filed with the Fiscal Agent a written acceptance of such designation. "Event of Bankruptcy" means, with respect to aPerson,
that such Person files a petition or institutes a proceeding under any act or acts, state or federal, dealing with or relating to the subject or subjects of bankruptcy or insolvency,
or under any amendment of such act or acts, either as a bankrupt or as an insolvent, or as a debtor, or in any similar capacity, wherein or whereby such Person asks or seeks or prays
to be adjudicated a bankrupt, or is to be discharged from any or all of such Person's debts or obligations, or offers to such Person's creditors to effect a composition or extension
of time to pay such Person's debts or asks, seeks or prays for reorganization or to effect a plan of reorganization, or for a readjustment of such Person's debts, or for any other similar
relief, or if any such petition or any such proceedings of the same or similar kind or character is filed or instituted or taken against such Person and the same shall remain undismissed
foraperiod of 60 days, or if a receiver of the business or of the property or assets of such Person is appointed by any court, or if such Person makes a general assignment for the benefit
of such Person's creditors. "Financial Statements" means, with respect to a Major Developer, the full financial statements, special purpose financial statements, project operating statements
or other reports reflecting the financial position of such Major Developer; provided that, if full financial statements, special purpose financial statements, project operating statements
or other reports reflecting the financial position are audited and prepared in accordance with generally accepted accounting principles as in effect from time to time, then Financial
Statements shall include such audited financial statements or reports. "Financing Plan" means, with respect to a Major Developer, the method by which such Major Developer intends to
finance its Development Plan, including specific sources of funding for such Development Plan; [Ashby USA, LLC' s]/[the Tanamera/Roripaugh Entities'] Financing Plan, as of the date hereof,
is described in the Official Statement under the caption "PROPERTY OWNERSHIP AND DEVELOPMENT -[Ashby USA, LLC]/[The Tanamera/Roripaugh Entities]." "First Report Date" means March 31,
of each year, commencing March 31, 2007. "First Report Period" means with respect to a Report due on the First Report Date, the last six months of the fiscal year just ended. "Listed
Events" means any of the events listed in Section 4(a) hereof. "Major Developer" means any Property Owner, including [Ashby USA, LLC]/[the Tanamera/Roripaugh Entities], that owns any
portion of the Property within the District, for which production units are not completed and sold to third parties, for which the Property owned by such Property Owner together with
Property owned by Affiliates of such Property Owner, is subj ect to 15% or more of the Special Tax levy of the District for the then current Fiscal Year of the District; provided, however,
that the G-2
term shall not include any Property Owner that would otherwise quality as a Major Developer if such Property Owner has assumed the obligations hereunder pursuant to Section 5. "National
Repository" means any Nationally Recognized Municipal Securities Information Repository for purposes of the Rule. The Nationally Recognized Municipal Securities Information Repositories
for purposes of the Rule are identified in the Securities and Exchange Commission website located at sec.gov/info/municipal/nrmsir.htm. "Official Statement" means the Official Statement,
dated April 13,2006, relating to the 2006 Bonds. "Participating Underwriter" means Stone & Youngberg LLC. "Person" means an individual, a corporation, a partnership, a limited liability
company, an association, a joint stock company, a trust, any unincorporated organization or a government or political subdivision thereof. "Property" means the real property within the
boundaries of the District owned on the date of the Official Statement by [Ashby USA, LLC] /[[the Tanamera/Roripaugh Entities] and that is not exempt from the Special Taxes. "Property
Owner" means any Person that owns a fee interest in any Property. "Report Dates" means, collectively, the First Report Dates and the Second Report Dates. "Report Period" means, with
respect to a Report due on the First Report Date, the last six months of the calendar year just ended, and with respect to a Report due on the Second Report Date, the first six months
of the then current calendar year. "Repository" means each National Repository and each State Repository. "Rule" means Rule 15c2-12(b)(5) adopted by the Securities and Exchange Commission
under the Securities Exchange Act of 1934, as the same may be amended from time to time. "Second Report Date" means September 30 of each year, commencing September 30, 2006. "Second
Report Period" means with respect to a Report due on the Second Report Date, the first six months of the current calendar year. "Semi-Annual Report" means any Semi-Annual Report provided
by [Ashby USA, LLC]/[the Tanamera/Roripaugh Entities] pursuant to, and as described in, Sections 2 and 3 hereof. "State Repository" means any public or private repository or entity designated
by the State of California as a state repository for the purpose of the Rule and recognized as such by the Securities and Exchange Commission. As of the date of this Disclosure Agreement,
there is no State Repository. Section 2. Provision of Semi-Annual Reports, (a) So long as [Ashby USA, LLC's]/[the Tanamera/Roripaugh Entities'] obligations hereunder have not been terminated
pursuant to Section 6, (i) [AshbyUSA, LLC]/[Tanamera/RoripaughEntities] shallprepare a Semi-Annual Reportnot later than March 31 and September 30 of each year, and (ii) not later than
April 15 and October 15(15 days after the Report Date) [Ashby USA, LLC]/[Tanamera/Roripaugh Entities] shall, or, upon receipt of the Semi-Annual Report by the Dissemination Agent, the
Dissemination Agent shall, provide to each Repository, the Authority, the Fiscal Agent (if the Fiscal Agent is not the Dissemination Agent), the District and the Participating Underwriter
a Semi-Annual Report which is consistent with the requirements of Section 3 of this Disclosure Agreement, commencing with the first Semi-Annual Report Date to occur September 30,2006.
The Semi-Annual Report may be submitted as a single document or as separate documents comprising a package, and may include by reference other information as provided in Section 3 hereof;
provided, however, that the audited financial statements of [Ashby USA, LLC]/[the Tanamera/Roripaugh Entities] may be submitted separately from the balance of the Semi-Annual Report
that is to be provided no later than the First Report G-3
Date, and later than the date requiredabove for the filing of such Semi-Annual Report if not available by that date. The Semi-Annual Report may be provided in electronic format to each
Repository and the Participating Underwriter and may be provided through the services of a "central post office" approved by the Securities and Exchange Commission. For example, any
filing under this Continuing Disclosure Agreement may be made solely by transmitting such filing to the Texas Municipal Advisory Council (the "MAC") as provided at http://www.disclosureusa.org
unless the United States Securities and Exchange Commission has withdrawn the interpretive advice in its letter to the MAC dated September 7, 2004. (b) If by April 15 or October 15(15
days after a Report Date), the Fiscal Agent has not received a copy of the Semi-Annual Report, the Fiscal Agent shall notify [Ashby USA, LLC]/[the Tanamera/Roripaugh Entities] and the
Dissemination Agent of such failure to receive the Semi-Annual Report. [Ashby USA, LLC]/[The Tanamera/Roripaugh Entities] shall provide a written certification with, or as part of, each
Semi-Annual Report furnished to the Fiscal Agent to the effect that such Semi-Annual Report constitutes the Semi-Annual Report required to be furnished by ithereunder. The Fiscal Agent
and Dissemination Agent may conclusively rely upon such certification of [Ashby USA, LLC]/[the Tanamera/Roripaugh Entities] and shall have no duty or obligation to review such Semi-Annual
Report. (c) If the Fiscal Agent is unable to verify that a Semi-Annual Report has been provided to the Repositories by the date required in subsection (a), the Fiscal Agent shall send
a notice to the Municipal Securities Rulemaking Board, the appropriate State Repository, if any, the Fiscal Agent and the Participating Underwriter in substantially the form attached
as Exhibit A. (d) The Dissemination Agent shall: (i) determine prior to each Report Date the name and address of each National Repository and each State Repository, if any; (ii) provide
any Semi-Annual Report received by it to each Repository, as
provided herein; and (iii) with respect to each Semi-Annual Report received by it and provided by it to each Repository, file a report with the Authority, [Ashby USA, LLC]/[the Tanamera/Roripaugh
Entities], the Fiscal Agent (if the Dissemination Agent is not the Fiscal Agent) and each Participating Underwriter certifying that the Semi-Annual Report has been provided pursuant
to this Disclosure Agreement, stating the date it was provided and listing all the Repositories to which it was provided. Sections. C ontent of Semi-Annual Reports. [Ashby US A, LLC's]/[Tanamera/Rori
paugh Entities'] Semi-Annual Report shall contain or incorporate by reference the following: (a) With respect only to the Semi-Annual Report that is required to be provided no later
than each First Report Date, such Semi-Annual Report shall contain Financial Statements for each Major Developer (other than any Major Developer with respect to which [Ashby USA, LLC's]/[the
Tanamera/Roripaugh Entities'] obligations hereunder have been assumed in accordance with Section 5 or terminated in accordance with Section 6 hereof). If audited Financial Statements
are required to be provided, and such audited Financial Statements are not available by the time such Semi-Annual Report is required to be filed pursuant to Section 2(a) hereof, such
Semi-Annual Report shall contain unaudited Financial Statements, and the audited Financial Statements shall be filed as a supplement or amendment to the Semi-Annual Report when they
become available. Such Financial Statements shall be for the most recently ended fiscal year for the entity covered thereby. The Semi-Annual Report shall contain the following caveat
about all Financial Statements delivered as a part of the Semi-Annual Report: "The Financial Statements of [Ashby USA, LLC]/[the Tanamera/Roripaugh Entities] included with, or referred
to in, the Semi-Annual Report are for informational purposes only. In the event of a failure to pay any installment of Special Taxes, and after depletion of the Reserve Funds, the real
property in Community Facilities District No. 03-02 is the sole security for the 2006 Bonds. The obligation of [Ashby USA, LLC]/[the Tanamera/Roripaugh Entities] to pay unpaid Special
Tax installments does not constitute a personal indebtedness of [Ashby USA, LLC]/[the Tanamera/Roripaugh Entities] or any G-4
member, parent, subsidiary, or person or entity controlling or controlled by the Developer (each an "Affiliate") for which the funds or assets (other than the property in Community Facilities
District No. 03-02 that is delinquent) of [Ashby USA, LLC]/[the Tanamera/Roripaugh Entities] or any Affiliate may be required, by operation of law or otherwise, to be used to pay debt
service on the 2006 Bonds. It should not be inferred from the inclusion of the Financial Statements in the Semi-Annual Report of [Ashby USA, LLC]/[the Tanamera/Roripaugh Entities] that
the funds or assets of [Ashby USA, LLC]/[the Tanamera/Roripaugh Entities] or any Affiliate (other than the property in Community Facilities District No 03-02) are available to cure any
delinquencies in the payment of Special Taxes." (b) With respect to all Semi-Annual Reports, such Semi-Annual Reports shall contain the following information with respect to each Maj
or Developer (other than any Maj or Developer with respect to which [Ashby USA, LLC' s]/[the Tanamera/Roripaugh Entities' ] obligations hereunder have been assumed in accordance with
Section 5 or terminated in accordance with Section 6 hereof) for the First Report Period or Second Report Period, as applicable; provided, that, if such information is required from
[Ashby USA, LLC]/[the Tanamera/Roripaugh Entities] as to another Maj or Developer which is not an Affiliate of [Ashby USA, LLC]/[the Tanamera/Roripaugh Entities], [Ashby USA, LLC]/[the
Tanamera/Roripaugh Entities] shall only be required to provide such information that it has actual knowledge of: (i) If information regarding such Maj or Developer has not previously
been included in a Semi-Annual Report or in the Official Statement, the Development Plan of such Major Developer or, if information regarding such Major Developer has previously been
included in a Semi-Annual Report or in the Official Statement, a description of the progress made in the Development Plan of such Major Developer since the date of such information and
a description of any material changes in such Development Plan and the causes or rationale for such changes; (ii) If information regarding such Maj or Developer has not previously been
included in a Semi-Annual Report or in the Official Statement, the Financing Plan of such Major Developer or, if information regarding such Major Developer has previously been included
in a Semi-Annual Report or in the Official Statement, a description of any material changes in the Financing Plan of such Major Developer and the causes or rationale for such changes;
(iii) A description or update of the status of tentative and final maps recorded within the District relating to Property owned by such Major Developer; (iv) The number of building permits
issued with respect to any of such Major Developer's Property during the six-month period ending on the last day of the applicable Report Period as well as the number of building permits
issued with respect to such Major Developer's Property included in each previous Semi-Annual Report, set forth opposite such previous reporting period; (v) A description of how many
residential lots and acres and how many commercial acres of Property were owned by such Maj or Developer as of the end of the Report Period covered by such Semi-Annual Report, and how
many residential lots and acres and how many commercial acres of such Major Developer's Property (i) with respect to residential or commercial uses, have production units or commercial
buildings completed and sold to third parties, (ii) with respect to the Major Developer's Property planned for park/open space uses, have been developed with a park or designated as
open space on a final residential tract map and (iii) with respect to the Major Developer's Property planned for infrastructure use, have the infrastructure planned for such property
been constructed during the applicable Report Period, and how many acres of such Major Developer's Property had notreached such level of development described in clauses (i), (ii) and
(iii) above; (vi) A description description of any sales (including pending sales for which a non-refundable deposit equal to or in excess of $50,000 has been made) of portions of such
Major Developer's Property during the applicable Report Period, including the identification of each buyer (other than individual home buyers) and the number of residential lots and
commercial or other acres sold; G-5
provided, however, that sales of five or fewer commercial or other acres may be aggregated for the purpose of such description; (vii) A statement as to whether or not such Maj or Developer
and all of its Affiliates paid, prior to their becoming delinquent, all Special Taxes, property taxes, assessments and special taxes levied on the Property owned by such Major Developer
and such Affiliates that would have been delinquent had they not been paid by the preceding December 10 or April 10, respectively, and if such Major Developer or any of such Affiliates
is delinquent in the payment of such Special Taxes, property taxes, assessments or special taxes levied on the Property owned by such Major Developer and its Affiliates, a statement
identifying each parcel that is so delinquent, specifying the amount of each such delinquency and describing any plans to resolve such delinquency; (viii) An update of the status of
any previously reported Listed Event described in Section 4 hereof and information regarding Listed Events, if any, required to be reported pursuant to Section 4 hereof; (ix) Unless
disclosed in the Official Statement or a prior Semi-Annual Report, any material change in the legal structure or organization of a Major Developer; (x) The filing and service of process
on such Major Developer of a lawsuit against such Major Developer seeking damages, or a judgment in a lawsuit against the Major Developer, either of which could have a significant impact
on the Major Developer's ability to pay Special Taxes or to sell or develop all or any portion of the Major Developer's Property; (xi) If applicable, a statement that a Property Owner
no longer meets the definition of Major Developer, which statement shall be provided in the manner required for Semi-Annual Reports by the next succeeding date on which a Semi-Annual
Report would have been filed unless such fact has previously been reported under this Section 3 or Section 4; and (xii) Information regarding the letter of credit provided with respect
to . Describe Letter of Credit(s) provided, if applicable]. (c) In addition to any of the information expressly required to be provided under paragraphs (a) and (b) of this Section,
[Ashby USA, LLC]/[the Tanamera/Roripaugh Entities] shall provide such further information, if any, as may be necessary to make the specifically required statements, in the light of the
circumstances under which they are made, not misleading. Major Developers that are Affiliates of each other may, but are not required to, file a single Semi-Annual Report covering all
such entities. Any or all of the items listed above may be included by specific reference to other documents which have been submitted to each of the Repositories or the Securities and
Exchange Commission. If the document included by reference is a final official statement, it must be available from the Municipal Securities Rulemaking Board. [Ashby USA, LLC]/[The Tanamera/Roripaugh
Entities] shall clearly identify each such other document so included by reference. If a Property Owner which was a Maj or Developer no longer meets the definition of Major Developer,
no Semi-Annual Report shall be required to be filed by or with respect to such Property Owner under this Section 3; provided, however, that notice that the Property Owner does not meet
the definition of Major Developer shall be provided in the manner required for Semi-Annual Reports by the next succeeding date on which a Semi-Annual Report would have been filed unless
such fact has previously been reported under Section 3 or Section 4. Section 4. Reporting of Listed Events, (a) Pursuant to the provisions of this Section 4, [Ashby USA, LLC]/[the Tanamera/Roripaugh
Entities] shall promptly give, or cause to be given notice of the occurrence of any of the following events with respect to each Major Developer (other than any Major Developer with
respect to which [Ashby USA, LLC's]/[the Tanamera/Roripaugh Entities'] obligations hereunder have been assumed in accordance with Section 5 or terminated in accordance with Section 6
hereof); provided, however, that, if such information is required from [Ashby USA, LLC]/[the Tanamera/Roripaugh Entities] as to another Major Developer which is not an Affiliate of [Ashby
USA, G-6
LLC]/[theTanamera/RoripaughEntities], [AshbyUSA,LLC]/[the Tanamera/RoripaughEntities] shall only be required to provide such information that it has actual knowledge of: (i) Unless disclosed
in the Official Statement or a prior Semi-Annual Report, any conveyance by such Major Developer of any of its Property to an entity that is not an Affiliate of such Major Developer,
the result of which conveyance is to cause the transferee to become a Major Developer. In addition, if the transferee has assumed any obligations of the Developer under this Disclosure
Agreement pursuant to Section 5 hereof, a copy of the executed Assumption Agreement shall be attached to the Notice; (ii) Any failure of such Major Developer, or any Affiliate of such
Major Developer, to, in the reasonable judgment of such Major Developer, pay prior to delinquency general property taxes, special taxes or assessments with respect to its Property; (iii)
Any denial or termination of credit, any denial or termination of, or default under, any line line of credit or loan or any other loss of a source of funds expected to be used for the
Project that would have a material adverse affect on such Major Developer's most recently disclosed Financing Plan or Development Plan or on the ability of such Major Developer, or any
Affiliate of such Major Developer, to pay Special Taxes within the District prior to delinquency; (iv) The occurrence of an Event of Bankruptcy with respect to such Major Developer,
or any Affiliate of such Major Developer, that, in the reasonable judgment of such Major Developer, would have a material adverse affect on such Major Developer's most recently disclosed
Financing Plan or Development Plan or on the ability of such Major Developer, or any Affiliate of such Major Developer that owns any portion of the Property, to pay Special Taxes within
the District prior to delinquency; (v) Any significant amendments to land use entitlement approvals for such Major Developer's Property, if such amendments, in the reasonable judgment
of such Major Developer, would prevent or significantly delay the implementation of such Major Developer's Development Plan as described in the Official Statement or in any previous
Semi-Annual Report; (vi) Any previously undisclosed governmentally-imposed preconditions to commencement or continuation of development on such Major Developer's Property, if such preconditions,
in the reasonable judgment of such Major Developer, would prevent or significantly delay such Major Developer's Development Plan as described in the Official Statement or in any previous
Semi-Annual Report; (vii) Any previously undisclosed legislative, administrative or judicial challenges to development on such Major Developer's Property, if such challenges, in the
reasonable judgment of such Maj or Developer, would prevent or significantly delay such Maj or Developer' s Development Plan as described in the Official Statement or in any previous
Semi-Annual Report; (viii) Any changes, in the reasonable judgment of such Major Developer, in the alignment, design or likelihood of completion of significant public improvements affecting
such Major Developer'sProperty, including major thoroughfares, sewers, water conveyance systems and similar facilities that, in the reasonable judgment of such Major Developer, would
prevent or significantly delay such Major Developer's Development Plan as described in the Official Statement or any previous Semi-Annual Report; (ix) The filing of any lawsuit against
a Major Developer which, in the reasonable judgment of such Major Developer, will adversely affect the completion of the development of Property owned by such Major Developer, or litigation
which if decided against the Major Developer, in the reasonable judgment of the Major Developer, would materially adversely affect the financial condition of the Major Developer; or
(x) Any previously undisclosed information relating to endangered species, hazardous substances or archaeological resources, which could have a significant impact on the Major G-7
Developer's ability to pay Special Taxes or to sell or develop all or any portion of the Major Developer's Property. (b) Whenever [Ashby USA, LLC obtains]/[the Tanamera/Roripaugh Entities
obtain knowledge of the occurrence of a Listed Event, [Ashby USA, LLC]/[the Tanamera/Roripaugh Entities] shall promptly notify the Dissemination Agent, the Fiscal Agent, the Participating
Underwriter and the District in writing. The Fiscal Agent shall report the occurrence pursuant to subsection (c) below. [Ashby USA, LLC]/[The Tanamera/Roripaugh Entities] shall provide
the Dissemination Agent with a form of notice of such event in a format suitable for reporting to the Municipal Securities Rulemaking Board and each State Repository, if any. (c) If
the Fiscal Agent has received notice of a Listed Event, the Fiscal Agent shall file a notice of such occurrence with each Repository or the Municipal Securities Rulemaking Board and
each State Repository and shallprovide a copy of such notice to each Participating Underwriter, to the Fiscal Agent and to the District. A form of information cover sheet for municipal
secondary market disclosure recommended by the Municipal Securities Rulemaking Board is attached as Exhibit B. Section 5. Assumption of Obligations. If any portion of the Property owned
by [Ashby USA, LLC]/[the Tanamera/Roripaugh Entities], or any Affiliate of [Ashby USA, LLC]/[the Tanamera/Roripaugh Entities], is conveyed to a Person such that, upon such conveyance,
such Person will be a Major Developer, all of the obligations of [Ashby USA, LLC]/[the Tanamera/Roripaugh Entities] hereunder with respect to the Property owned by such Major Developer
and its Affiliates shall be assumed by such Major Developer or by an Affiliate. In order to effect such assumption, such Major Developer or Affiliate thereof shall enter into an Assumption
Agreement. A copy of the Assumption Agreement shall be provided to the Participating Underwriter and to the Dissemination Agent, the Fiscal Agent and the District as set forth in Section
4(a)(a)(i) in the mannerprovided in Section 4(b) and 4(c). Property sold in numerous takedowns to a Major Developer maybe the subject of a single Assumption Agreement that will automatically
include any additional property purchased by such Major Developer. Notwithstanding the foregoing, there shall be no requirement that a transferee enter into an Assumption Agreement provided
that such transferee is an Affiliate of [Ashby USA, LLC]/[the Tanamera/Roripaugh Entities] pursuant to the Option Agreements (as defined in the Official Statement), as such agreements
may be amended. Section 6. Termination of Reporting Obligation. [Ashby USA, LLC's]/[The Tanamera/Roripaugh Entities'] obligations under this Disclosure Agreement with respect to a Major
Developer shall terminate upon the earliest to occur of (a) the date on which such Major Developer is no longer a Major Developer, as defined herein, (b) the date on which [Ashby USA,
LLC's]/[the Tanamera/Roripaugh Entities'] obligations with respect to such Maj or Developer are assumed under an Assumption Agreement entered into pursuant to Section 5 hereof, or (c)
the date on which all Special Taxes levied on any Property owned by such Major Developer and its Affiliates are paid or prepaid in full; provided, however, that upon the occurrence of
any of the events described in clause (a) through (c) with respect to a Major Developer, [Ashby USA, LLC's]/[the Tanamera/Roripaugh Entities'] obligations hereunder with respect to each
other Major Developer, if any, not previously terminated shall remain in full force and effect. All of [Ashby USA, LLC's]/[the Tanamera/Roripaugh Entities'] obligations under this Disclosure
Agreement shall terminate, except as provided in Section 11 hereof, upon the earliest to occur of (x) the date on which no Property Owner is a Major Developer, (y) the date on which
(i) [Ashby USA, LLC]/[the Tanamera/Roripaugh Entities] is no longer a Major Developer, and(ii) [Ashby USA, LLC is]/[the Tanamera/Roripaugh Entities are] no longer [has/have] any obligations
under this Disclosure Agreement with respect to any remaining Property as a result of the sale of Property to owners who are not Major Developers or such obligations having been assumed
under one or more Assumption Agreements entered into pursuant to Section 5 hereof, or (z) the date on which all of the 2006 Bonds have been legally defeased, redeemed, or paid in full.
Upon the occurrence of any such termination prior to the final maturity of the 2006 Bonds, [Ashby USA, LLC]/[the Tanamera/Roripaugh Entities] shall give notice of such termination in
the same manner as for a Listed Event under Section 4 hereof. Section 7. Dissemination Agent The initial Dissemination Agent shall be U.S. Bank National Association. [Ashby USA, LLC]/[The
Tanamera/Roripaugh Entities] may, from time to time, appoint or engage a Dissemination Agent to assist [it/them] in carrying out [its/their] obligations under this Disclosure Agreement,
and may discharge any such Dissemination Agent, with or without appointing a successor G o -O
Dissemination Agent. [Ashby USA, LLC]/[The Tanamera/Roripaugh Entities] may serve as Dissemination Agent. The Dissemination Agent may resign by providing thirty (30) days' written notice
to [Ashby USA, LLC]/[the Tanamera/Roripaugh Entities], the Authority and the Fiscal Agent (if the Fiscal Agent is not the Dissemination Agent), such resignation to become effective upon
acceptance of the appointment by a successor Dissemination Agent. Upon receiving notice of such resignation, [Ashby USA, LLC]/[the Tanamera/Roripaugh Entities] shall promptly appoint
a successor Dissemination Agent by an instrument in writing, delivered to the Fiscal Agent. If no appointment of a successor Dissemination Agent shall be made pursuantto the foregoing
provisions of this Section within forty-five (45) days after the Dissemination Agent shall have given to [Ashby USA, LLC]/[the Tanamera/Roripaugh Entities], the Authority and the Fiscal
Agent written notice of its resignation, the Dissemination Agent may apply to any court of competent jurisdiction to appoint a successor Dissemination Agent. Said court may thereupon
after such notice, if any, as such court may deem proper, appoint a successor Dissemination Agent. The Authority shall provide [Ashby USA, LLC]/[the Tanamera/Roripaugh Entities] and
the Fiscal Agent with written notice of the identity of any successor Dissemination Agent appointed or engaged by [Ashby USA, LLC]/[the Tanamera/Roripaugh Entities]. The Dissemination
Agent shall have no duty to prepare the Semi-Annual Report nor shall the Dissemination Agent be responsible for filing any Semi-Annual Report not provided to it by [Ashby USA, LLC]/[the
Tanamera/Roripaugh Entities] in a timely manner and in a form suitable for filing. If the Dissemination Agent is other than the Fiscal Agent, the Dissemination Agent shall be paid compensation
by [Ashby USA, LLC]/[the Tanamera/Roripaugh Entities] for its services provided hereunder in accordance with the Dissemination Agent's schedule of fees as amended from time to time,
which schedule, as amended, shall be reasonably acceptable, and all reasonable expenses, reasonable legal fees and advances incurred by the Dissemination Agent in for the performance
of its duties hereunder. If the Dissemination Agent is the Fiscal Agent, the Authority shall be responsible for paying the fees and expenses of the Dissemination Agent for its services
provided hereunder in accordance with its agreement with the Authority. Section 8. Amendment; Waiver. Notwithstanding any other provision of this Disclosure Agreement, [Ashby USA, LLC]/[the
Tanamera/Roripaugh Entities], the Dissemination Agent and the Fiscal Agent may amend this Disclosure Agreement (and the Fiscal Agent shall agree to any amendment so requested by [Ashby
USA, LLC]/[the Tanamera/Roripaugh Entities], provided that the Fiscal Agent shall not be obligated to enter into such amendment that modifies or increases its duties and obligations
hereunder), and any provision of this Disclosure Agreement may be amended or waived, provided that the following conditions are satisfied: (a) if the amendment or waiver relates to Sections
2(a), 3 or 4(a) hereof, it may only be made in connection with a change in circumstances that arises from a change in legal requirements, change in law, or change in the identity, nature,
or status of an obligated person (as defined in the Rule) with respect to the 2006 Bonds, or type of business conducted; (b) the undertakings herein, as proposed to be amended or waived,
would, in the opinion of Bond Counsel approved by the Authority, have complied with the requirements of the Rule at the time of the primary offering of the 2006 Bonds, after taking into
account any amendments or interpretations of the Rule, as well as any change in circumstances; and (c) the proposed amendment or waiver either (i) is approved by owners of the 2006 Bonds
in the manner provided in the Fiscal Agent Agreement for amendments to the Fiscal Agent Agreement with the consent of owners of the 2006 Bonds, or (ii) does not, in the opinion of Bond
Counsel, materially impair the interests of owners or beneficial owners of the 2006 Bonds. If the financial information or operating data contained within the Financial Statements to
be provided in the Semi-Annual Report or amendment or supplement thereto is amended pursuant to the provisions hereof, the first Semi-Annual Report containing the operating data or financial
information in accordance with such amendment shall explain, in narrative form, the reasons for the amendment and the impact of the change in the type of operating data or financial
information being provided. As required by the Rule, if an amendment is made to the provisions hereof specifying the accounting principles to be followed in preparing Financial Statements,
the financial information for the year in which the change is made shall present a comparison between the Financial Statements or information prepared on G-9
the basis of the new accounting principles and those prepared on the basis of the former accounting principles. The comparison shall include a qualitative discussion of the differences
in the accounting principles and the impact of the change in the accounting principles on the presentation of the Financial Statements, in order to enable investors to evaluate the ability
of the Maj or Developer to generally meet its obligations. To the extent reasonably feasible, the comparison shall be quantitative. A notice of the change in the accounting principles
shall be sent to the Repositories in the same manner as for a Listed Event under Section 4 hereof. Section 9. Additional Information. Nothing in this Disclosure Agreement shall be deemed
to prevent [ Ashby USA, LLC]/[the Tanamera/Roripaugh Entities] 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 Semi-Annual Report or or notice of occurrence of a Listed Event, in addition to that which is required by this
Disclosure Agreement. If [Ashby USA, LLC]/[the Tanamera/Roripaugh Entities] [chooses/choose] to include any information in any Semi-Annual Report or notice of occurrence of a Listed
Event in addition to that which is specifically required by this Disclosure Agreement, [Ashby USA, LLC]/[the Tanamera/Roripaugh Entities] shall have no obligation under this Disclosure
Agreement to update such information or include it in any future Semi-Annual Report or notice of occurrence of a Listed Event. Section 10. Default. In the event of a failure of [Ashby
USA, LLC]/[the Tanamera/Roripaugh Entities] or the Fiscal Agent to comply with any provision of this Disclosure Agreement, the Fiscal Agent may (and, at the written direction of the
Participating Underwriter or the owners of at least 25% aggregate principal amount of Outstanding Bonds, and after adequate indemnification, shall), or any owner or beneficial owner
of the 2006 Bonds may, take such actions as may be necessary and appropriate, including seeking mandate or specific performance by court order, to cause [Ashby USA, LLC]/[the Tanamera/Roripaugh
Entities], the Dissemination Agent or the Fiscal Agent, as the case may be, to comply with its obligations under this Disclosure Agreement. A default under this Disclosure Agreement
shall not be deemed an Event of Default under the Fiscal Agent Agreement, and the sole remedy under this Disclosure Agreement in the event of any failure of [Ashby USA, LLC]/[the Tanamera/Roripaugh
Entities], the Dissemination Agent or the Fiscal Agent to comply with this Disclosure Agreement shall be an action to compel performance. Section 11. Duties. Immunities and Liabilities
of Fiscal Agent and Dissemination Agent. Neither the Fiscal Agent nor the Dissemination Agent (if other than the Fiscal Agent or the Fiscal Agent in its capacity as Dissemination Agent)
shall have any responsibility for the content of any Semi-Annual Report. The Dissemination Agent Agent (if other than the Fiscal Agent or the Fiscal Agent in its capacity as Dissemination
Agent) shall have only such duties as are specifically set forth in this Disclosure Agreement, and [Ashby USA, LLC agrees]/[the Tanamera/Roripaugh Entities agree] to indemnify and save
the Dissemination Agent (if other than the Fiscal Agent), its officers, directors, employees and agents, harmless
against any loss, expense and liabilities which it or they may incur arising out of or in the exercise or performance of their powers and duties hereunder, including the reasonable costs
and expenses (including attorneys fees) of defending against any claim of liability with counsel approved by [Ashby USA, LLC]/[the Tanamera/Roripaugh Entities], which approval shall
not be unreasonably withheld, but excluding losses, expenses and liabilities due to such Dissemination Agent's negligence, willful misconduct or failure to comply with any provision
of this Disclosure Agreement. The obligations of [Ashby USA, LLC]/[the Tanamera/Roripaugh Entities] under this Section shall survive resignation or removal of such Dissemination Agent
and payment of the 2006 Bonds and the resignation or removal of the Fiscal Agent. Any action for which indemnification is sought from [Ashby USA, LLC]/[the Tanamera/Roripaugh Entities]
shall be deemed an action on a contract (this Agreement) for which the provisions of Section 18 are applicable. All of the protections from liability applicable to the Fiscal Agent shall
apply to the Dissemination Agent. The Dissemination Agent and Fiscal Agent shall have no responsibility for the preparation, review, form or content of any Semi-Annual Report or any
notice of a Listed Event. No provision of this Disclosure Agreement shall require or be construed to require the Dissemination Agent or Fiscal Agent to interpret or provide an opinion
concerning any information disclosed hereunder. Information disclosed hereunder by the Dissemination Agent may contain such disclaimer language concerning the Dissemination Agent's responsibilities
hereunder with respect thereto as the Dissemination Agent may deem appropriate. The Dissemination Agent and Fiscal Agent may conclusively rely on the determination of [Ashby USA, LLC]/[the
Tanamera/Roripaugh Entities] as to the materiality of any event for purposes of Section 4 hereof. G-10
If to the Tanamera Entities: If to the Community Facilities District: Neither the Fiscal Agent nor the Dissemination Agent make any representation as to the sufficiency of this Disclosure
Agreement for purposes of the Rule. [Ashby USA, LLC's]/[The Tanamera/Roripaugh Entities'] obligations under this Section shall survive the termination of this Disclosure Agreement. Section
12. Notices. Any notice or communications to or among any of the parties to this Disclosure Agreement shall be given to all of the following and may be given as follows: [If to Ashby
USA, LLC: Ashby USA, LLC 470 East Harrison Street Corona, California 92879 Telephone: (951) 898-1692 Telecopier: (951) 898-1693 Attention: Chief Financial Officer]/Twinleaf Homes, LLC
28475 Old Town Front Street, Suite D Temecula, California 92590 Telephone: (951) 857-0070 Telecopier: (951) 639-9025 Attention: Ken Rose Temecula Public Financing Authority Community
Facilities District No. 03-02 (Roripaugh Ranch) 43200 Business Park Drive Temecula, California 92590 Telephone: (951) 694-6430 Telecopier: (951) 694-6499 Attention: Finance Director
U.S. Bank National Association 633 West Fifth Street, 24th Floor LM-CA-T24T Los Angeles, California 90071 Telephone: (213) 615-6005 Telecopier: (213) 615-6199 U.S. Bank National Association
633 West Fifth Street, 24th Floor LM-CA-T24T Los Angeles, California 90071 Telephone: (213) 615-6005 Telecopier: (213) 615-6199 Stone & Youngberg LLC One Ferry Building San Francisco,
California 94111 Telephone: (415) 445-2300 Telecopier: (415) 445-2395 Attention: Municipal Research Department Section 13. Beneficiaries. The Participating Underwriter and the owners
and beneficial owners from time to time of the 2006 Bonds shall be third party beneficiaries under this Disclosure Agreement. This Disclosure Agreement shall inure solely to the benefit
of [Ashby USA, LLC]/[the Tanamera/Roripaugh Entities], the Fiscal Agent, the Dissemination Agent, the Participating Underwriter and owners and beneficial owners from time to time of
the 2006 Bonds, and shall create no rights in any other person or entity. Any action by a beneficiary of this Agreement shall be subject to Section 18 below. If to the Dissemination
Agent: If to the Fiscal Agent: If to the Participating Underwriter: G-ll
Section 14. 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 15. 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. 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. State of California Law Governs. The validity,
interpretation and performance of this Disclosure Agreement shall be governed by the laws of the State of California. Section 18. Attorneys' Fees. In the event of the bringing of any
action or suit by any Party against another Party arising out of this Agreement, the Party in whose favor final judgment shall be entered shall be entitled to recover from the other
Party all costs and expenses of suit, including reasonable attorneys' fees. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK; EXECUTION PAGE FOLLOWS] G-12
IN WITNESS WHEREOF, the parties hereto have executed this Disclosure Agreement as of the date first above written. [ASHBY USA, LLC, a California limited liability company By: Ashby Development
Company, Inc., a California corporation, its Managing Member By: Justin K. Ashby, President By: USA Investment Partners, LLC, a Nevada limited liability company, its Member By: USA Commercial
Mortgage Company, a Nevada corporation, its non-Member Manager By: Joseph D. Milanowski, [Title]/[TANAMERA/RORIPAUGH, LLC, a California limited liability company Name: Title: TANAMERA/RORIPAUGH
II, LLC, a California limited liability company Name: Title: TRADITIONS AT RORIPAUGH, LLC, a California limited liability company Name: Title:] G-13
U.S. BANK NATIONAL ASSOCIATION, as Fiscal Agent By: Authorized Officer U.S. BANK NATIONAL ASSOCIATION, as Dissemination Agent By: Authorized Officer G-14
EXHIBIT A NOTICE TO MUNICIPAL SECURITIES RULEMAKING BOARD OF FAILURE TO FILE SEMI-ANNUAL REPORT Name of Obligated Person:: [Ashby USA, LLC, a California limited liability company]/[Tanamera/Roripaugh
, LLC, Tanamera/Roripaugh II, LLC and Traditions at Roripaugh, LLC, each a California limited liability company Name of Bond Issue: Temecula Public Financing Authority Community Facilities
District No. 03-02 (Roripaugh Ranch) 2006 Special Tax Bonds Date of Issuance: April 27, 2006 NOTICE IS HEREBY GIVEN that [Ashby USA, LLC has]/[Tanamera/Roripaugh, LLC, Tanamera/Roripaugh
II, LLC and Traditions at Roripaugh, LLC have] not provided a Semi-Annual Report with respect to the above-named Bonds as required by Section 2 of the Continuing Disclosure Agreement,
dated as of March 1, 2006, by and between [Ashby USA, LLC]/[Tanamera/Roripaugh, LLC, Tanamera/Roripaugh II, LLC and Traditions at Roripaugh, LLC] and U.S. Bank National Association,
as Fiscal Agent. [Ashby USA, LLC]/[Tanamera/Roripaugh, LLC, Tanamera/Roripaugh II, LLC and Traditions at Roripaugh, LLC] [anticipates/anticipate] that the Semi-Annual Report will be
filed by . Dated: U.S. Bank National Association, as Dissemination Agent, on behalf of [Ashby USA, LLC]/[Tanamera/Roripaugh, LLC, Tanamera/Roripaugh II, LLC and Traditions at Roripaugh,
LLC] Authorized Officer cc: Temecula Public Financing Authority c/o City of Temecula G-15
EXHIBIT B Municipal Secondary Market Disclosure Information Cover Sheet This cover sheet should be sent with all submissions made to the Municipal Securities Rulemaking Board, Nationally
Recognized Municipal Securities Information Repositories, and any applicable State Information Depository, whether the filing is voluntary or made pursuant to Securities and Exchange
Commission Rule 15c2-12 or any analogous state statute. See www.sec.gov/info/municipal/nrmsir.htm for list of current NRMSIRs and SIDs IF THIS FILING RELATES TO A SINGLE BOND ISSUE:
Provide name of bond issue exactly as it appears on the cover of the Official Statement (please include name of state where Issuer is located): $51,250,000 TEMECULA PUBLIC FINANCING
AUTHORITY COMMUNITY FACILITIES DISTRICT NO. 03-02 (RORIPAUGH RANCH) 2006 SPECIAL TAX BONDS Provide nine-digit CUSIP® numbers* if available, to which the information relates: (Maturity)
2007 2008 2009 2010 2011 2012 87972YBV7 87972YBW5 87972YBX3 87972YBY1 87972YBZ8 87972YCA2 (Maturity) 2013 2014 2015 2016 2026 2036 87972YCBO 87972YCC8 87972YCD6 87972YCE4 87972YCM6 87972YCN4
IF THIS FILING RELATES TO ALL SECURITIES ISSUED BY THE ISSUER OR ALL SECURITIES OF A SPECIFIC CREDIT OR ISSUED UNDER A SINGLE INDENTURE: Issuer's Name (please include name of state where
Issuer is located): Other Obligated Person's Name (if any): (Exactly as it appears on the Official Statement Cover) Provide six-digit CUSIP* number(s)*, if available, of Issuer: '(Contact
CUSIP®'s Municipal Disclosure Assistance Line at 212.438.6518 for assistance with obtaining the proper CUSIP* numbers.) TYPE OF FILING: D Electronic (number of pages attached) D Paper
(number of pages attached) If information is also available on the Internet, give URL: G-16
WHAT TYPE OF INFORMATION ARE YOU PROVIDING? (CHECK ALL THAT APPLY) A. D Annual Financial Information and Operating Data pursuant to Rule 15c2-12 (Financial information and operating
data should not be filed with the MSRB.) Fiscal Period Covered: B. D Audited Financial Statements or CAFR pursuant to Rule 15c2-12 Fiscal Period Covered: C. D Notice of a Material Event
pursuant to Rule 15c2-12 (Check as appropriate) 1. D Principal and interest payment delinquencies 6. D Adverse tax opinions or events affecting the taxexempt status of the security 2.
D Non-payment related defaults 7. D Modifications to the rights of security holders 3. D Unscheduled draws on debt service reserves 8. D Bond calls reflecting financial difficulties
4. D Unscheduled draws on credit enhancements 9. D Defeasances reflecting financial difficulties 5. D Substitution of credit or liquidity providers, or 10. D Release, substitution, or
sale of property securing their failure to perform ,. , repayment of the securities 11. D Rating changes changes D. D Notice of Failure to Provide Annual Financial Information as Required
E. D Other Secondary Market Information (Specify): I hereby represent that I am authorized by the Issuer or obligor or its agent to distribute this information publicly: Issuer Contact:
Name Title Employer Address City State Zip Code Telephone Fax Email Address Issuer Web Site Address Dissemination Agent Contact, if any: Name Title Employer Address Telephone Email Address
City State Fax Relationship to Issuer Zip Code Obligor Contact, if any: Name Title Employer Address Telephone Email Address City State Fax Obligor Web site Address Zip Code Investor
Relations Contact, if any: Name Title Telephone Email Address G-17
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APPENDIX H FORM OF OPINION OF BOND COUNSEL April 27,2006 Board of Directors Temecula Public Financing Authority 43200 Business Park Drive Temecula, California 92590 OPINION: $51,250,000
Temecula Public Financing Authority Community Facilities District 03-02 (Roripaugh Ranch) 2006 Special Tax Bonds Members of the Board of Directors: We have acted as bond counsel in connection
with the issuance by the Temecula Public Financing Authority (the "Authority") of its $51,250,000 Temecula Public Financing Authority Community Facilities District 03-02 (Roripaugh Ranch)
2006 Special Tax Bonds (the "Bonds") pursuant to the Mello-Roos Community Facilities Act of 1982, as amended (Section 53311 et seq., of the California Government Code) (the "Act"), a
Fiscal Agent Agreement, dated as of March 1, 2006 (the "Fiscal Agent Agreement"), by and between the Authority for and on behalf of the Temecula Public Financing Authority Community
Facilities District 03-02 (Roripaugh Ranch) (the "District"), and U.S. Bank National Association, as fiscal agent, and Resolution No. TPFA 06-01 adopted by the Authority on February
28, 2006 (the "Resolution"). We have examined the law and such certified proceedings and other documents as we deem necessary to render this opinion. As to questions of fact material
to our opinion, we have relied upon representations of the Authority contained in the Resolution and in the certified proceedings and certifications of public officials and others furnished
to us, without undertaking to verify the same by independent investigation. Based upon the foregoing, we are of the opinion, under existing law, as follows: 1. The Authority is duly
created and validly existing as a joint exercise of powers authority, with the power to adopt the Resolution, enter into the Fiscal Agent Agreement and perform the agreements on its
part contained therein and issue the Bonds. 2. The Fiscal Agent Agreement has been duly entered into by the Authority, for and on behalf of the District, and constitutes a valid and
binding obligation of the Authority enforceable upon the Authority. H-l
Temecula Public Financing Authority April 27, 2006 Page 2 3. Pursuant to the Act, the Fiscal Agent Agreement creates a valid lien on the funds pledged by the Fiscal Agent Agreement for
the security of the Bonds, on a parity with the pledge thereof for the security of any Parity Bonds that may be issued under, and as such term is defined in, the Fiscal Agent Agreement.
4. The Bonds have been duly authorized, executed and delivered by the Authority and are valid and binding limited obligations of the Authority on behalf of the District, payable solely
from the sources provided therefor in the Fiscal Agent Agreement, on a parity with any Parity Bonds that may be issued under and as such term is defined in the Fiscal Agent Agreement.
5. Subject to the Authority's compliance with certain covenants, interest on the Bonds is excludable from gross income of the owners thereof for federal income tax purposes under section
103 of the Internal Revenue Code of 1986, as amended (the "Code") and, under section 55 of the Code, is not included as an item of tax preference in computing the federal alternative
minimum tax for individuals and corporations under the Code but is taken into account in computing an adjustment used in determining the federal alternative minimum tax for certain corporations.
Failure by the Authority to comply with one or more of such covenants could cause interest on the Bonds to not be excludable from gross income under section 103 of the Code for the federal
income tax purposes retroactively to the date of issuance of the Bonds. 6. The interest on the Bonds is exempt from personal income taxation imposed by the State of California. Ownership
of the Bonds may result in other tax consequences to certain taxpayers, and we express no opinion regarding any such collateral consequences arising with respect to the Bonds. The rights
of the owners of the Bonds and the enforceability of the Bonds, the Resolution and the Fiscal Agent Agreement may be subject to bankruptcy, insolvency, reorganization, moratorium and
other similar laws affecting creditors' rights heretofore or hereafter enacted and also may be subject to the exercise of judicial discretion in accordance with general principles of
equity. In rendering this opinion, we have relied upon certifications of the Authority and others with respect to certain material facts. Our opinion represents our legal judgment based
upon such review of the law and facts that we deem relevant to render our opinion and is not a guarantee of a result. This opinion is given as of the date hereof and we assume no obligation
to revise or supplement this opinion to reflect any facts or circumstances that may hereafter come to our attention or any changes in law that may hereafter occur. Respectfully submitted,
H-2
APPENDIX I BOOK-ENTRY SYSTEM The following description of the procedures and record keeping with respect to beneficial ownership interests in the 2006 Bonds, payment ofprincipal of and
interest on the 2006 Bonds to Direct Participants, Indirect Participants or Beneficial Owners (as such terms are defined below) of the 2006 Bonds, confirmation and transfer of beneficial
ownership interests in the 2006 Bonds and other Bond-related transactions by and between DTC, Direct Participants, Indirect Participants and Beneficial Owners of the 2006 Bonds is based
solely on information furnished by DTC to the District which the District believes to be reliable, but the Authority, 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 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 2006 Bonds. The 2006 Bonds will be issued as fully registered securities registered
in the name of Cede & Co. (DTC's partnership nominee) or such other name as may be requested by an authorized representative of DTC. One fully registered 2006 Bond will be issued for
each maturity of the 2006 Bonds, each in the aggregate principal amount of such maturity and will be deposited with DTC. DTC, the world's largest depository, is a limited-purpose trust
company organized under the New York Banking Law, a "banking organization" within the meaning of the New York Banking Law, a member of the Federal Reserve System, a "clearing corporation"
within the meaning of the New York Uniform Commercial Code, and a "clearing agency' registered pursuant to the provisions of Section 17 A of the Securities Exchange Act of 1934. DTC
holds and provides asset servicing for over 2 million issues of U.S. and non-U.S. equity issues, corporate and municipal debt issues and money market instruments from over 85 countries
that DTC's participants (the "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. andnon-U.S. securities brokers and dealers, banks, trust companies, clearing corporations, and certain other organizations. DTC is
a wholly-owned subsidiary of The Depository Trust & Clearing Corporation ("DTCC"). DTCC, in turn, is owned by a number of Direct Participants of DTC and Members ofthe National Securities
Clearing Corporation, Government Securities Clearing Corporation, MBS Clearing Corporation, and Emerging Markets Clearing Corporation, (NSCC, GSCC, MBSCC, and EMCC, also subsidiaries
of DTCC), as well as by the New York Stock Exchange, Inc., the American Stock Exchange LLC, and the National Association of Securities Dealers, Inc. Access to the DTC system is also
available to others such as 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 (the "Indirect Participants"). DTC has Standard & Poor's highest rating: AAA. The DTC Rules applicable to its Participants are
on file with the Securities and Exchange Commission. More information about DTC can be found at www.dtcc.com. Purchases of Bonds under the DTC system must be made by or through Direct
Participants, which will receive a credit for the 2006 Bonds on DTC' s records. The ownership interest of each actual purchaser of each 2006 Bond (the "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 2006 Bonds are to be accomplished by entries made on the books of Direct and Indirect Participants acting
on behalf of Beneficial Owners. Beneficial Owners will not receive certificates representing their ownership interests in the 2006 Bonds, except in the event that use ofthe book-entry
system for the 2006 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 requested by an authorized representative of DTC. The deposit of 2006 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 1-1
of the actual Beneficial Owners of the 2006 Bonds; DTC's records reflect only the identity of the Direct Participants to whose accounts such Bonds are credited, which may or may not
be the Beneficial Owners. The Direct or 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 2006 Bonds may wish to take certain steps
to augment the transmissions to them of notices of significant events with respect to the 2006 Bonds, such as redemptions, tenders, defaults, and proposed amendments to the 2006 Bonds
documents. For example, Beneficial Owners of 2006 Bonds may wish to ascertain that the nominee holding holding the 2006 Bonds for their benefit has agreed to obtain and transmit notices
to Beneficial Owners. Redemption notices shall be sent to DTC. If less than all of the 2006 Bonds are being redeemed, DTC's practice is to determine by lot the amount of the interest
of each Direct Participant in such maturity to be redeemed. Neither DTC nor Cede & Co. (nor such other DTC nominee) will consent or vote with respect to the 2006 Bonds unless authorized
by aDirect Participant in accordance with DTC's Procedures. Under its usual S-ocedures, DTC mails an Omnibus Proxy to the District as soon as possible after the Record Date. The mnibus
Proxy assigns Cede & Co.'s consenting or voting rights to those Direct Participants to whose accounts the 2006 Bonds are credited on the Record Date (identified in a listing attached
to the Omnibus Proxy). Principal, redemption price and interest payment on the 2006 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, the Authority or the Fiscal Agent,
on a payment 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 (nor the nominee), the Fiscal Agent, the Authority or the District, subject to any statutory and regulatory requirements as may be in effect from time to time. Payment of principal,
redemption price and interest payments to Cede & Co. (or such other nominee as may be requested by an authorized representative of DTC) is the responsibility of the Fiscal Agent, disbursement
of such payments to Direct Participants will be the responsibility of DTC, and disbursement of such payments to the Beneficial Owners will be the responsibility of Direct and Indirect
Participants. DTC may discontinue providing its service as depository with respect to the 2006 Bonds at any time by giving reasonable notice to the Fiscal Agent. Under such circumstances,
in the event that a successor depository is not obtained, Bond certificates are required to be printed and delivered as described in the Fiscal Agent Agreement. The Authority may decide
to discontinue use of the system of book-entry transfers through DTC (or asuccessor securities depository). In that event, Bond certificates will be printed and delivered as described
in the Fiscal Agent Agreement. The information in this section concerning DTC and DTC's book-entry system has been obtained from sources that the Authority and the District believe to
be reliable, but the Authority and the District take no responsibility for the accuracy thereof. 1-2
Discontinuance of DTC Services In the event that (a) DTC determines not to continue to act as securities depository for the 2006 Bonds, or (b) the Authority determines that DTC shall
no longer act and delivers a written certificate to the Fiscal Agent to that effect, then the Authority will discontinue the Book-Entry System with DTC for the 2006 Bonds. If the Authority
determines to replace DTC with another qualified securities depository, the Authority will prepare or direct the preparation of a new single separate, fully registered Bond for each
maturity of the 2006 Bonds registered in the name of such successor or substitute securities depository as are not inconsistent with the terms of the Fiscal Agent Agreement. If the Authority
fails to identify another qualified securities depository to replace the incumbent securities depository for the 2006 Bonds, then the 2006 Bonds shall no longer be restricted to being
registered in the 2006 Bond registration books in the name of the incumbent securities depository or its nominee, but shall be registered in whatever name or names the incumbent securities
depository or its nominee transferring or exchanging the 2006 Bonds shall designate. In the event that the Book-Entry System is discontinued, the following provisions would also apply:
(i) the 2006 Bonds will be made available in physical form, (ii) principal of, andredemption premiums if any, on the 2006 Bonds will be payable up9n surrender thereof at the trust office
of the Fiscal Agent identified in the Fiscal Agent Agreement, and (lii) the 2006 Bonds will be transferable and exchangeable as provided in the Fiscal Agent Agreement. The Authority,
the District and the Fiscal Agent do not have any responsibility or obligation to DTC Participants, to the persons for whom they act as nominees, to Beneficial Owners, or to any other
person who is not shown on the registration books as being an owner of the 2006 Bonds, with respect to (i) the accuracy of any records maintained by DTC or any DTC Participants; (ii)
the payment by DTC or any DTC Participant of any amount in respect of the principal of, redemption price of or interest on the 2006 Bonds; (Hi) the delivery of any notice which is permitted
or required to be given to registered owners under the Fiscal Agent Agreement; (iv) the selection by DTC or any DTC Participant of any person to receive payment in the event of a partial
redemption of the 2006 Bonds; (v) any consent given or other action taken by DTC as registered owner; or (vi) any other matter arising with respect to the 2006 Bonds or the Fiscal Agent
Agreement. The Authority, the District and the Fiscal Agent cannot and do not give any assurances that DTC, DTC Participants or others will distribute payments of principal of or interest
on the 2006 Bonds paid to DTC or its nominee, as the registered owner, or any notices to the Beneficial Owners or that they will do so on a timely basis or will serve and act in a manner
described in this Official Statement. The Authority, the District and the Fiscal Agent are are not responsible or liable for the failure of DTC or any DTC Participant to make any payment
or give any notice to a Beneficial Owner in respect to the 2006 Bonds or any error or delay
relating thereto. 1-3
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APPENDIX J BOUNDARY MAP OF THE COMMUNITY FACILITIES DISTRICT
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SHEET 1 OF 1 PROPOSED BOUNDARIES OF TEMECULA PUBLIC FINANCING AUTHORITY COMMUNITY FACILITIES DISTRICT NO. 03-02 (RORIPAUGH RANCH) RIVERSIDE COUNTY STATE OF CALIFORNIA (1) Filed in the
office of the Secretary of the Board of Directors of Temecula Public Financing Authority this f^^'' f\i^^^. ,\jj day of , 2004. Steeretary oflhe-Board of Directors Temecula Public Financing
Authority (2) I hereby certify that the within map showing the proposed boundaries of Community Facilities District No. 03-02 (Roripaugh Ranch) of Temecula Public Financing Authority,
County of Riverside, State of California, was approved by the Board of Directors of Temecula Public Financing Authority at a regular meeting thereof, held on the am^ day of ftujust ,
2004, by its Resolution No. TPFA 01-M • Secretary of theJ3oard of Directors Temecula Public Financing Authority Reference is hereby made to the Assessor's maps of the County of Riverside
for an exact description of the lines and dimensions of each lot and parcel. FY 2004-05 Assessor Parcel Numbers 957-340-046 957-340-048 Through 957-340-055 958-260-011 958-260-013 Through
958-260-021 958-810-001 958-810-002 and 958-810-006 Through 958-810-015 (3) Recorded this $*" day of 2004, at the hour of g, o'clock fi .m., in Book 5g? Pagesjoj of Maps of Assessment
and Community Facilities Districts in the Office of the County Recorder in the County of Riverside, State of California. Fee * 1. No. LEGEND CFD Boundary County Recorder of Riverside
County PREPARED BY DAVID TAUSS1G & ASSOCIATES, INC. N
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APPENDIX K BUILDING PERMIT THRESHOLDS Temecula Public Financing Authority Community Facilities District No. 03-02 (Roripaugh Ranch) Building Permit Thresholds As of January 15,2006 Building
Permit Threshold/Requirement Prior to the 1st Building Permit: a. b. Initially, prior to issuance of the 1st building permit, complete flow-by detention basins relating to Planning Areas
3, 4A and 4B. Submit plans for structural protection from vegetation fires to the Fire Prevention Bureau. Phase I (Planning Areas 1-4B, 6 (neighborhood park) and 32 (fire station) Prior
to the 34* Building Permit a. Provide secondary access for each Planning Area to existing Murrieta Hot Springs Road. Prior to the 100th Building Permit a. Complete 0.3 acre mini-park
site to the satisfaction of the Community Services Director, including permanent utilities. Prior to the 108th Building Permit: a. Obtain permission from adjacent affected property owners
to allow for grading and any related driveway improvements necessary to continue to allow legal vehicular access on to Nicolas Road. Status Complete. Complete for Phase I; Murietta Hot
Springs Road serves as fuel buffer. Complete. Improvements substantially complete; Certain utility fees must be paid in connection with installation of permanent utilities. 2 properties
need to access Nicolas Road; driveway construction by Ashby USA, LLC is required. Ashby USA, LLC's Estimated Date of Completion1 Complete. Phase I complete. Complete. Estimated completion
2nd quarter 2006. Estimated receipt of permission in the 1st quarter of 2006. 1 As provided by Ashby USA, LLC. The City has reviewed Ashby USA, LLC's schedule and noted that the schedule
assumes minimal completion delays and weather delays. The City has indicated a completion range from March 2007 to September 2007. The Market Absorption Study and Appraisal assume completion
of improvements to allow issuance of remaining building permits in Phase I by September 2006 and in Phase II by September 2007. K-l
b. Pay $2,000,000 for design and construction of a fire station and complete construction of the fire station and acquire fire truck. City Manager must find that the permanent fire station
is substantially under construction and permanent access to the fire station via Butterfield Stage Road, Murrieta Hot Springs Road and via Calle Chapos between the fire stations' eastern
most driveway and Walcott lane will be completed concurrent with the opening of the fire station and all other requirements of the Development Agreement and Conditions of Approval of
the Land Use Entitlements for the issuance of the building permits have been fulfilled c. Butterfield Stage Road -Construct half-width improvements from Murrieta Hot Springs Road to
the south project boundary at Planning Area 32, including construction of two full-width bridges within and over Santa Gertrudis Creek and Long Valley Wash. d. Butterfield Stage Road
-Dedicate full-width right-of-way from the northern project boundary to Murrieta Hot Springs Road. Road. e. Butterfield Stage Road -full-width grading from northern project boundary
to Murrieta Hot Springs Road. f. Murrieta Hot Springs Road -Construct full-width improvements from east of Pourroy Road at the northern project boundary to the MWD pipeline property.
Murrieta Hot Springs Road -Construct half-width improvements from the MWD pipeline property to Butterfield Stage Road. Nicolas Road -Offer a dedication for a 110 foot right-of-way from
Butterfield Stage Road to the west project boundary. Nicolas Road -Construct northerly half-width plus 10 feet from Butterfield Stage Road to the western project boundary. South Loop
Road -Construct southerly half-width in front of fire station (Planning Area 32). $2 million paid, plus an additional $1.1 million paid subject to reimbursement after Bond proceeds are
received; contract awarded and notice to proceed issued. Rough grading approximately 65% complete; bid package is ready; Resource Agencies' approval obtained. Dedication complete. Grading
complete. Rough Rough grading complete; underground utilities complete; remaining improvements in construction. Rough grading complete; underground utilities installation complete; street
improvements under contract. Dedication complete in Final Tract Map 29353-2; acceptance of dedication upon completion of improvements. Rough grading completed; improvement plans approved
pending payment of fees; contract for storm drain awarded August 2005. Rough grading completed; improvement plans approved pending payment of fees; potential impact to fire station operation.
Estimated fire station completion February 2006. Operation subject to Ashby USA, LLC completion of other improvements, including all required road access. Estimated completion in the
3rd quarter of 2006. Dedication complete. Grading Complete. Estimated completion in the 2nd quarter 2006. Estimated completion in the 3rd quarter 2006. Offer of dedication is complete;
construction completion estimated in the Zd quarter of 2006. Estimated completion in the 3rd quarter of of 2006. Estimated completion in the 2nd quarter of 2006. 1 Resource Agencies
include the California Department of Fish and Game, the Army Corp of Engineers and the California Regional Water Quality Control Board. K-2
k. Construct full width arch culverts for Santa Gertrudis Creek at Butterfield Stage Road and North Loop Road. 1. Construct full width arch culverts for Long Valley Wash at Butterfield
Stage Road. m. Nicolas Road -Construct 40 foot improvements 450 feet east of the existing Nicolas Road/Calle Girasol intersection to MWD ROW, including full-width bridge over Santa Gertrudis
Creek.1 n. Complete secondary access for the Phase I area at one of (i) Nicolas/Calle Girasol intersection, (ii) Calle Chapos, or (iii) Butterfield Stage Road to Rancho California Road.
Prior to the 250th Building Permit: a. Complete park portion of the private recreation center in Planning Area 5 to the satisfaction of the Community Services Director. Prior to the
350s* Building Permit: a. Complete the building and pool portion of the private recreation center in Planning Area 5 to the satisfaction of the Community Services Director. Prior to
the 400th Building Permit: a. Complete 5.1 acre neighborhood park (Planning Area 6) including all permanent utilities and the 90 day maintenance period and grant deed accepted by the
City. b. "A" Street (Roripaugh Valley Road)-Construct full-width improvements from Murietta Hot Springs Road to Butterfield Stage Road. Plans approved; bid opened February 28. Plans
approved; bid opened February 28; need access road easement from Property Owner. No grading yet; EMWD underground utilities complete. Completion of various facilities listed elsewhere
are expected to satisfy this requirement. Coordinating with Resource Agencies and Flood Control District. Bid package under review. Plans for Butterfield Stage Road to Rancho California
Road are approved pending recordation of easements required. 90% of construction has been completed. 98% complete, plastering and filling of pool on hold until sufficient residents are
in the community. Rough grading 100% complete; Park plans approved; bids opened January 2006; construction commencing March 2006. 90% complete; dry utility sidewalk and striping improvements
not complete. Estimated completion in the 3rd quarter of 2006. Estimated completion in the 3rd quarter of 2006. Estimated completion in the 3rd quarter of 2006. Estimated completion
in the 3rd quarter of 2006. Estimated Completion prior to June 1, 2007. Estimated completion 3rd quarter of 2006. Estimated Completion in the first quarter of 2007. Estimated completion
in the 1st quarter of 2006. Estimated completion in the 3rd quarter of 2006. Estimated completion in the 3rd quarter of 2006. Estimated completion in the 2nd quarter of 2006. 1 Nicolas
Road improvement east of the existing Nicolas Road/Calle Girasol intersection to MWD Right of Way is only required if Nicolas Road will serve as the secondary access. Ashby USA, LLC
anticipates secondary access will be satisfied by via Calle Chapos. K-3
c. "B" Street (Fiesta Ranch Road)-Construct full-width improvements from Nicolas Road to "A" Street (Roripaugh Valley Road). d. North Loop Road -Construct a full-width bridge over and
within Santa Gertrudis Creek and connect the bridge to Butterfield Stage Road with full width improvements. e. Construct the following traffic signals and related intersection improvements:
1. Traffic signal at the intersection of Pourroy Road and Murrieta Hot Springs Road. 2. Traffic signals may be required, as warranted, at the two other project entrances from Murrieta
Hot Springs Road located to the east and west of the Pourroy Road main project entrance. f. Complete nature walk and adjacent landscape areas (Lot 36), including all permanent utilities
and the 90 day maintenance period and grant deed accepted by the City. Complete the trail in Planning Area 7A and the trail between Planning Areas 4B and 6. 90% complete; dry utility
sidewalk and striping improvements not complete. Minor grading completed; bid opened February 28, 2006. Bid being awarded. The City will install if the City determines it is appropriate.
Nature walk 90% complete; Planning Area 7A trail 90% complete; trail between Planning Areas 4B and 6 not yet started; revised landscaping plans for the Phase I perimeter slopes are required
by the City Planning Department. Estimated completion in the 2nd quarter of 2006. Estimated completion in the 3rd quarter of 2006. Estimated completion in the 2nd quarter of 2006. The
City will install if the City determines it is appropriate. Estimated completion in the 3rd quarter of 2006. PHASE II (Planning Areas 10,11,12,14 -24, 27 -31,33A and 33B2) Prior to the
issuance of any building permit in Phase II, the following improvements must be completed: a. Complete acquisition of right of way for the off-site or County portions of Butterfield
Stage Road. b. Construct Santa Gertrudis Creek Channel from the arch culvert/bridge crossing Butterfield Stage Road westerly to the confluence with the existing Santa Gertrudis Creek.
Easements acquired except for two property owners (Developer has asked the City to assist with the acquisition of these easements); grading bid package in process. Bid package is ready
pending Flood Control District approval of plan which is waiting for execution of easements on other facilities. Estimated completion in the 4th quarter of 2006. Estimated completion
in the 3rd quarter of 2006. 2 A Specific Plan amendment was approved by the City Council in January 2005 increasing the permit threshold from prior to the 510th building permit to prior
to the 516th building permit. K-4
Butterfield Stage Road -Construct remaining half-width improvements from Murrieta Hot Springs Road to the south project boundary at Planning Area 32, including construction of two full-width
bridges within and over Santa Gertrudis Creek and Long Valley Wash. Murrieta Hot Springs Road -Construct remaining half-width improvements from the MWD pipeline property to Butterfield
Stage Road. North Loop Road -Construct full-width improvement from the bridge structure at North Loop Road/Santa Gertrudis Creek crossing to the Long Valley Wash Bridge structure at
South Loop Road. South Loop Road -Construct the full width bridge structure crossing Long Valley Wash and construct full width street improvements from the bridge to gatehouse (private
road improvements). Nicolas Road -Construct remaining improvements from Butterfield Stage Road to western project boundary. Construct specified traffic signals and related intersection
improvements at Butterfield Stage Road at (i) Murrieta Hot Springs Road, (ii) Nicolas Road and and (iii) Calle Chapos. Butterfield Stage Road -Construct full width improvement from the
southern project boundary at Planning Area 32 to Rancho California Road, excluding any existing improvements. Nicolas Road -Construct 40 foot improvement from 450 feet east of the existing
Nicolas Road/Calle Girasol intersection to Liefer Road, including the full width bridge structure over Santa Gertrudis Creek. Calle Girasol and the Nicolas Road/Calle Girasol intersection
-relating to the ultimate intersection with Nicolas Road, including right-of-way acquisition. Calle Chapos -Construct 38 foot width on center improvements from Butterfield Stage Road
to the existing paved terminus at Walcott Lane. See item c of 108th Building Permit threshold. Completion of bridge and street improvements. Full width under construction. See item f
of 108th Building Permit threshold. Full width of Murrieta Hot Springs Road is under construction. Mass grading 100% complete; public and private portions are each in final plan check;
bid packages are being prepared for public section. Mass grading 60% complete; bridge contract awarded; public and private portions of improvement plans are each in final plan check.
See Item (i) of 108th Building Permit threshold. Traffic signal plans approved. Improvement plans approved pending right of way acquisition — See item a of Phase II; Shea Homes Limited
Partnership has built 2 lanes of paving in front of its development at La Serena; bid package under review; easement acquisition of 2 parcels may impact schedule. Portions of road plans
approved; channel and bridge design in process; EIR amendment in process. Offers of dedication in process; requires payment of acquisition costs; portions of road plans approved and
other plan revisions in process; EIR amendment in process. Rough grading 80% complete. Estimated completion in the 3rd quarter of 2006. Estimated completion in the 2nd quarter of 2006.
Estimated completion in the 3rd quarter of 2006. Estimated completion in the 3rd quarter of 2006. Estimated completion in the 3rd quarter of 2006. Estimated completion in the 4* quarter
of 2006. Estimated completion in the 4th quarter of 2006. Estimated completion prior to June 1,2007. Estimated completion prior to June 1,2007. Estimated completion in the 2nd quarter
of 2006. K-5
Winchester Road at Nicolas Road traffic signal with the ultimate lane configurations. n. Butterfield Stage Road at Rancho California Road traffic signal with the ultimate lane configurations.
o. Submit plans for structural protection from vegetation fires to the Fire Prevention Bureau. Complete sewer in Nicolas Road in accordance with Eastern Municipal Water District requirements.
Plan approved with minor revisions; in process of obtaining property owner acceptance of easement. Engineering plans in plan check. Proposed fuel modification plan is street layout included
in a draft Tentative Map for Phase II Planning Areas; the proposed plan is subject to review by the Fire Prevention Bureau once submitted. Sewer complete from Liefer Road to the west
project boundary. Estimated completion in the 4th quarter of 2006. Estimated completion in the 1st quarter of 2007. Phase n estimated completion in the 2nd quarter of 2006. Estimated
completion in the 2nd quarter of 2006. Prior to the 700th Building Permit: a. Complete the 19.7 acre sports park site (Planning Area 27), satisfy the 90 day maintenance period and grant
deed accepted by the City. b. Complete the riverwalk multi-use trails on both sides of Long Valley Wash. Prior to the 800th Building Permit: a. Complete park portion of the private recreation
center in Planning Area 30 and satisfy the 90 day maintenance period and grant deed acceptable to the City. Graded to 100% of mass graded condition; park plans submitted; conceptual
design approved by TCSD; bid package being prepared. Final revisions submitted to Riverside Flood Control. Plans in review by City Planning Dept. Estimated completion in the first quarter
of 2007. Estimated completion in the first quarter of 2007. Estimated completion in the first quarter of 2007. Prior to the 1,150* Building Permit: a. Complete the building and pool
portion of the private recreation centers in Planning Areas 27 and 30. Plans in review by City Planning Dept. Estimated completion in the first quarter of 2007. K-6
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